INTEGRATED SUPPLY CHAIN
MANAGEMENT IN THE GOVERNMENT ENVIRONMENT
R.K. Gupta*
and Pravin Chandra**
ABSTRACT
With the fall of East European Socialist-Bloc and
opening up of the Asian markets, the trade barriers began falling during the
1980’s and continued throughout the 1990’s. This development lead to
organizations having a supply chain, that criss-crossed the whole globe. The
proliferation of trade agreements has thus changed the global business
scenarios. The Integrated Supply Chain Management (ISCM) is now not only a
problem of integrated logistics (as a process) but also demands that the supply
chain management (SCM) must look into the ramifications of these arrangements
on the cost of transportation (including tariffs or duties) of products within
a trade zone and outside it, besides, developing logistics strategies. The
field has thus developed in the last few years for bridging the gap between
demand and supply vis-à-vis efficiency and cost trade-offs. The SCM now not
only involves the “management of logistic
function”, as was done in the past (to achieve internal efficiency of
operations) but, includes the management and co-ordination of activities,
upstream and downstream linkage(s) in the supply chain. The integrated supply
chain management, in particular include :
Planning and Managing supply and demand; Warehouse
Management; Optimal Inventory control; Transportation and Distribution,
Delivery and customer’s delight following the basic principles of supply chain
management viz. working together; Enhancing
revenue; Cost control; Assets utilization besides, customer’s satisfaction.
The last two decade has seen the rise of a plethora of
acronyms always used in conjunction with production, operational management and
control. To name a few JIT (Just-In-Time); TQM (Total-Quality-Management); ZI
(Zero-Inventory); ECR (Efficient Consumer Response); VMI (Vendor Managed
Inventory). All these have now been integrated within the domain of Supply
Chain Management Process.
With the growth in the Information Technology and easy
accessibility of computing power, The development and implementation of
objective based modelling system(s) have been changed to a new environment, for
integrating quantitative and simulation models, as a backend system for both
horizontally diversified and vertically integrated Supply Chain Management
System(s).
Though, the SCM have found the versatility of
applications, more so in the private sector enterprises (business environment)
for cost cutting and for having a competitive advantage. In the government
set-up though the basic objective, is not maximization of profit, but the
social-economic development of people. Even, if the objectives of these two
mutually exclusive categories of enterprises, are different, they share some
features:
·
Satisfying the end-consumer(s) by providing the right
product, in right condition at the right time to fulfil the social obligation
towards society.
·
The optimum allocation of limited resources.
Thus, the SCM has many applications in the government
environment too. The paper highlights some of the typical applications in the
government sector of the SCM paradigm. What is essential in the SCM is to
establish operationally feasible link(s) between various key component for
achieving overall efficiency and cost trade-off. The use of quantitative
methods in SCM is evaluated, embedding of these models in Decision Support
System (DSS) have been discussed. The major component of SCM is multi-objective
transportation and distribution function for time and cost trade-off. The
Multiple Criterion Decision Making (MCDM) model for the component of SCM viz.
Transportation and Distribution, system as a DSS have been described in detail
- a major backend system of Integrated Supply Chain Management process (ISCMP).
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Senior Technical Director and Head,
Analytics and Modelling Division, National Informatics Centre, ‘A’ Block, CGO,
Lodhi Road, N. Delhi - 11003, Tel. : 4362530 (O) 4672885 (R) Email :
rkg@hub.nic.in Or gupta@amdiv.delhi.nic.in
** M.Tech. Trainee at NIC during June-December’
1997, and at present Assistant Professor (Information Technology), Lal Bahadur
Shastri Institute of Management, Shastri Sadan, Sector - III, R.K.Puram,
N.Delhi - 110022, Tel. 6172407 (O) 91-532971 (R) Email :
lbsim@delnet.ren.nic.in
Introduction
Supply Chain
Management (SCM) can be best described as the natural extension of the downsizing
(right-sizing) and re-engineering performed by the organization(s) in the past.
Downsizing and re-engineering transformed the enterprises into “lean and mean
competitive units”, by cost cutting and process simplifications. These
operations (of downsizing and re-engineering) involved the “optimization” (in
terms of the number of persons involved, the time taken, the complexity of the
work etc.) of business “units” (functional and/or administrative domains) over
which the organizations had full control. These strategies did lead to
increased productivity and profitability of the organizations but as the
benefits of these levelled off, it was realized that the approach to the way
organizations work needed to be changed. The above changes were a by-product of
the “isolationist” (closed system) world picture of the enterprises involved in
the full value chain; with organizations (the system) trying to survive in an
hostile environment; assuming that all other participants in the value chain
were adversaries with whom the organization must compete, even though the
operations performed by the separate organizations may be supplementary in
nature rather than complementary. The realization that this world picture was
an impediment to the growth of organizations prompted the enterprises to start
seeking “strategic alliances” with other organizations. The formation of these
alliances required a basis (a common ground) which would be acceptable to each
and every partner in the alliance. This common basis is/was supplied by the
participation of the organizations in the value chain (the demand-supply
chain). The participants in the chain, suppliers, sub-contract suppliers,
inhouse product processes, transportation, distribution, warehouses, and the
end customer, generally, perform mutually exclusive tasks and thus do not
compete directly with each other.
The present
paper explores the following issues:
- The
need for supply chain management.
- Type
of supply chain management model(s)
- Framework
of the supply chain management model(s).
- Issues
in the design of supply chain management framework.
- Quantitative
methods and supply chain management (SCM).
- Information
technology as a supply chain management enabler.
- Design
of a Multiple Criteria DSS for transportation and distribution.
- Relevance of the supply
chain management paradigm to the government sector / public-sector enterprises.
Issues in SCM
A supply chain
encompasses all the activities, functions and facilities involved in producing
and delivering a product and/or service, from suppliers (and their suppliers)
to the customers. The supply chain management (SCM) paradigm is geared towards
optimizing each component of what used to be called (Production and) Operations
management (production, warehousing, inventory, transportation and distribution
etc.) and the inter-links between these components synergistically[21].
In the 70’s and the 80’s, various models for production and operations control
and management were developed : Just-In-Time (JIT) Inventory management model,
Vendor Managed Inventory (VMI) model, Zero Inventory (ZI) model, Total Quality
Management (TQM) etc[1]. These models focussed on the various
components of the supply chain in isolation, this implies that these models
were oriented towards the optimization of a sub-part of the system whereas the
SCM paradigm aims at the optimization of the full chain. This leads to
trade-offs among the different components of the supply chain. For example, JIT
would require a factory to keep inventories low and produce and distribute
products in a timely manner, however JIT ignores many other aspects which
cannot be seen independently, e.g. if the availability of the input materials
is uncertain and irregular, the factory may need to insure smooth and
continuous production. Similarly, regional stocking may permit reductions in
transportation costs through increased shipment consolidation, as well as
expanded sales through better delivery performance. These improvements may be
accomplished with only moderate increases in inventory and warehousing cost(s).
However, in an environment where different functional units manage the various
logistics activities independently, an organization is less likely to properly
analyze such important trade-offs.
Fig. -1 : Interdependence of supply
chain with other functional domains in an enterprise.
Moreover, these
models also ignore the interdependency of
production and operations functions with other domains within an
organization, such as marketing and finance. Marketing decisions have serious
impact on logistics function and vice-versa. For example, a marketing promotion
campaign should be coordinated with production planning, since a higher demand
may be expected. On the other hand, when raw materials are cheap, or when the factory
temporarily has an over-capacity, the marketing department may decide to cut
prices and/or start other promotion campaigns during these periods to increase
demands. Also, financial decisions are driven by production and logistics
decisions. Production of new products require the investment in raw materials
and consume other change-over costs. Financial managers have to be aware of the
increased demand for capital to finance the production plan. Likewise, the
delivery of finished products generate financial income, so the forecast demand
can be used to calculate/forecast the accounts payable and receivable in the
future. The above description means that production, finance and marketing
decisions cannot be made independently (fig.1). All these decisions are driven
by the activities in the supply chain of a manufacturing company[1].
Fig.-1 shows a simple representation of the interdependence of the supply chain
and the other functional domains in the organization. The links between the
(other) functional domains - marketing, sales, human resources etc. - are not
shown. The linkage between the supply chain components and the other functional
domains relies heavily on information sharing to have an effective impact.
One other major
factor in the current scenario is the globalization of the supply chain. With
the fall of the East-European socialist bloc and the opening of the Asian
market, the trade barriers began falling in the 1980’s and the 90’s. This lead
to organizations having a supply chain that criss-crossed the globe. The
proliferation of trade agreements - EC, ASEAN, NAFTA, APEC, etc. - has changed
the global market. SCM now has become not only a problem of logistics but also
demands that supply chain management must look into the ramifications of these
agreements on the cost of transportation (including tariffs or duties) of
products within a trade zone and outside it[1].
Furthermore,
organizations now acknowledge that efficient consumer response (ECR) can lead
to competitive edge. SCM is tantamount to coordinating all the operations of an
organization with the operations of the suppliers and customers. Effective SCM
strategies are essential for successful implementation of ECR programmes[22].
Thus, a production planning and control model that focuses on all the aspects
of the operations and distribution activities and links with other functional
domains such as finance and marketing is needed. The supply chain management
model should also perform the task of managing and coordinating activities
upstream and downstream in the supply chain. Of course, such a model in its
entirety becomes very complex and can not be used without a sufficient
computational infrastructure.
Supply-Demand
Nexus
To have an
effective supply chain management framework; organizations must have a clear
understanding of the supply - demand nexus and its implications for strategy
and implementation. There is an interdependent relationship between supply and
demand; organizations need to understand customer demand so that they can manage
it, create future demand and, of course, meet the level of desired customer
satisfaction. Demand defines the supply chain target, while supply side
capabilities support, shape and sustain demand[1].
When one
considers how tangentially marketing and operations area of an organization
typically interact (in practice), it becomes obvious that putting together the
supply-demand can only occur in the context of overall perspective. The wide
gap between the supply and demand sides of an organization can only be bridged
by a comprehensive umbrella strategy. This can be done by developing a holistic
strategic framework that leverages the generation and understanding of demand
effectiveness with supply efficiency. Such a framework provides a strategic
anchor to prevent the supply and demand components of a business from drifting
apart.
The basis of such a holistic strategy framework is the
integrated supply and demand model (Fig.-2). The model is designed around two
key principles. First, in the present scenario where vertically integrated
supply chains (VISC) are a rarity, if not non-existent; organizations must
bring a multi-enterprise view to their supply chains. They must be capable of
working co-operatively with other organizations in the chain rather than seeking
to outdo them. Secondly, they must recognize the distinct supply and demand
processes that must be integrated in order to gain the greatest value.
Fig. -2 : The Integrated Demand-Supply Model
Source: This model is based on the work done by Bill
Copacino.[5]
Thus involving
three key elements :
·
the core
process of the supply and demand chains viewed from a broad cross-enterprise
vantage point rather than as discrete function. To gain the maximum benefits,
organizations need to identify the core processes across the demand and supply
chain, as well as exploring the impact of each of these processes on the
different functions.
Fig. -3 : Integrating processes in the supply
and demand chains
Source : This model is based on the work done by Jeff
Beech[1]
·
the integrating
processes that create the links between the supply and demand chains (fig - 3).
This implies that the planning processes (which involves development of channel
strategies, planning of manufacturing, inventory, distribution and
transportation, demand planning and forecasting; and marketing and promotional
planning) and service processes (which includes functions such as credit, order
management, load planning, billing and collection, etc.) must be integrated.
This integration must be done across the boundaries of the enterprises. If each
participating organization in the chain formulates its own plans on the basis
of its own private information, then there is no way to integrate the supply
and demand chain processes that they share.
·
the supporting
information technology (IT) infrastructure that makes such integration
possible. While information technology is needed to handle routine transactions
in an efficient manner, it can also play the a critical role in facilitating
the timely sharing of planning, production and purchasing information;
capturing and analyzing production, distribution and sales data at new levels
of detail and complexity. Information technology provides an integrating tools
that makes it possible to convert data into meaningful pictures of business
processes, markets and consumers that are needed to feed company strategies in
order to develop competitive advantage.
On the
administrative side, such elements as flow path economics, which help
organizations understand the real drivers of costs, and new performance and
measurement standards that align functions in accordance with total process
goals that are critical to achieving integration.
SCM Framework
A framework to
understand the various issues involved in SCM is provided by the pyramid
structure for the SCM paradigm (fig. 4) The pyramid allows issues to be
analysed on four levels:
·
Strategic : On the
strategic, level it is important to know how SCM can contribute to the
enterprises’ basic “value proposition” to the customers? Important
questions that are addressed at this
level include : What are the basic and distinctive service needs of the
customers? What can SCM do to meet these needs? Can the SCM capabilities be
used to provide unique services to the customers? etc.
·
Structural : After the
strategic issues are dealt with, the next level question(s) that should be
asked are : Should the organization market directly or should it use
distributors or other intermediaries to reach the customers? What should the
SCM network look like? What products should be sourced from which manufacturing
locations? How many warehouses should the company have and where should the be
located? What is the mission of each facility (full stocking, fast moving items
only, cross-docking etc.)? etc.
·
Functional : This is the
level where operational details are decided upon. Functional excellence
requires that the optimal operating practices for transportation management,
warehouse operations, and materials management (which includes forecasting,
inventory management, production scheduling, and purchasing) are designed.
These strategies should keep in view the trade-offs that may need to be made
for the overall efficiency of the system. Achieving functional excellence also
entails development of a process-oriented perspective on replenishment and
order fulfillment so that all activities involved in these functions can be
well integrated.
Fig. -4 : SCM Framework Pyramid
Source : Based on work done by William C. Copacino[5]
·
Implementation : Without successful implementation, the development of SCM strategies
and plans is meaningless. Of particular importance are the organizational and
information systems issues. Organizational issues centers on the overall
structure, individual roles and responsibilities, and measurement systems
needed to build an integrated operation. Information systems are “enablers” for
supply chain management operations and therefore must be carefully designed to
support the SCM strategy. Supply chain managers must consider their information
needs relative to decision support tools, application software’s, data capture,
and the system’s overall structure.
It is important
to note that the decisions made within the SCM strategy pyramid are
interdependent. That is, it must be understood what capabilities and
limitations affect the functional and implementation decisions and consider
those factors while developing a supply chain management strategy and
structure.
The SCM models
used in practice lie in a continuum between two extreme models : on one end of
the spectrum lies the vertically integrated supply chain model in which the
organization has direct control over each and every component of the supply
chain, while on the other end of the spectrum lies the horizontally diversified
supply chain model (ideally) in which the number of participant is as large as
the number of distinct parts of the supply chain. In an vertically integrated
supply chain system, the organization can control every component of the chain
and can make various changes to the system to optimize the chain very easily.
But in a horizontally diversified supply chain the tendency will be to optimize
only the functions that the organization is involved in, thus conscious efforts
must be made by the various participants in the supply chain for the
integration of their respective components in the supply chain. If an
organization can be identified as the major/dominant partner in the supply
chain, then this organization has to take an initiative in seeking the
co-operation of the other participants in the supply chain.
The type and
structure of the supply chain that is established depends on many factors, some
of the major factors are :
·
Geographical : If the supply
chain is stretched across the globe then it may not be possible to incorporate
some of the principles of lean production like JIT delivery, flexible
manufacturing, and co-ordination among suppliers and customers. It can lead to
uncertain transportation schedules, unpredictable lead time and may need larger
inventory carriage.
·
Cultural : The
difference in the “culture” of the participants in the chain (the difference
can be due to geographical factors or corporate practices) can lead to friction
and distrust. This may hamper the development of close ties.
·
Government Legislation : The laws of the country may prohibit the sharing of
information about some facet of the supply chain and thus, may lead to a
restrictive participation by one or more participant in the supply chain.
Fig. -5 : Spectrum of alliances in
the supply chain.
·
Time : Just as among
individuals, organizations require time before trust can be built up. The first
phase in any relationship is manifest as confrontation, that essentially means
that participants in the chain try to win at the cost of other participants.
And, the last phase is exemplified by total trust and working together of
organizations. The information sharing behaviour in the first phase is almost
zero, while in the integrated relationship the information sharing is mutual
and free about the common concerns. In between the two phases lie a continuum
of phases (see fig. 5).
Quantitative
Methods and SCM
‘SCM’ requires
extensive decision support tools for the effective monitoring, control and
management of the supply chain, that is tools for channel design,
transportation and distribution planning, inventory control etc. Various
analytical and quantitative methods form the core of these decision support
system(s). The quantitative models used in SCM are in general large linear
programming models viz. model(s) for job scheduling, transportation and
distribution, warehouse/facility location etc. All these models have one
intrinsic limitation : they are, more often than not, single objective/criteria
optimization methods. But, it is very rarely, in real life, that one encounters
single criterion problems, by default all real life problems are multiple
criteria decision making (MCDM) problems.
The MCDM
solution methodologies address the multiple objective programming problem, viz.
max {
fi((x) = zi }
, 1 £ i £ k
such
that x Î S
where k (>
1) the number of criterion to be optimized, z’s are the criterion functions and
S is the constraint set. Without the knowledge of the decision makers utility
function, the methods search the “space of trade-offs” among the criterion to
arrive at a pareto optimal solution to the problem using only the implicit
information present[3,9,12, 24,25]. In practice, interactive
procedures have proven to be the most effective in searching the trade-off
space for the final solution. MCDM has two distinct halves. One half is
multiple-attribute decision analysis and the other half is multiple-objective
mathematical programming. Multiple-attribute decision analysis is most often
applicable to problems with a small number of alternatives in an environment of
uncertainty. Multiple-objective mathematical programming is most often applied
to deterministic problems in which the number of feasible alternatives is
large. MCDM techniques have not yet become widespread in managerial decision making
(except maybe, the use of goal programming techniques). Below we review some of
the areas (related to supply chain) where the use of MCDM methods have been
reported:
The use of multiple objective have been reported for
production planning in a multiple product, multiple period aggregate production
planning by Jasskelainen[11], Lee and Jasskelainen[18];
by Wallenius[26] to solve a single product aggregate production
planning. The classical Holt quadratic model of the problem of scheduling
aggregate production and work force has been approximated by a linear goal
programming model by Goodman[8].
Lawrence and Burbridge[15] use the multiple
objective linear programming (MOLP) method for co-ordinated production and
logistics planning. The decision making utilises several key objectives : a)
maximising total sales revenue for specific location and customer; b)
minimising total cost of cost of production and distribution; and c) maximising
production of a particular item at a particular location.
The “blending of materials problem” is solved by using
MOLP and modified goal programming by Lawrence and Burbridge[16].
Stainton[23] uses a heuristic approach to solve the multiple
objective production scheduling problem for a large food manufacturer. Lee and
Moore[19] use linear goal programming for optimisation of
transportation problem while Charnes, Cooper et.al.[4] present an
assignment problem which is a variant of the transportation model.
Other
techniques that can be used are : a)
Neural network[2,6,10] based techniques for the evaluation of
alternatives in conjunction with MCDM solution generators (using neural
networks to model the decision makers utility function); b) using neural networks for demand forecasting (it has been
experimentally demonstrated that neural network based forecasting techniques
are better and more robust than forecasting methods based on econometric
modelling and/or statistical time series forecasting techniques and c)
the use of fuzzy-neural network or genetic algorithms based[7,13] methods
to incorporate uncertainty in the decision making process.
These models
can be incorporated in the (standard two-layered) architecture[24]
for the development of interactive decision support system(s). Where the
database refers to a repository of relevant data for the solution of the
problem and the modelbase refers to the database of relevant analytical, fuzzy,
neural network or genetic algorithm based models parameters that the user can
choose from to solve the problem. Its the opinion of many that interactive
methodologies are the best for the solution of multiple criteria decision
problems.
Fig. -6 : Architecture for a DSS
Information
Technology and SCM
Information
technology (IT) includes a set of powerful tools that can lead to the failure
or success of a supply chain process. With the development of information
systems (IS) and information technologies the use of information sharing and
decision making is growing at a very fast pace. IT solutions are no longer likely
to provide strategic advantage, but imply the business basics. The competitive
advantage for organization(s) originates from development of creative
information technology strategies and implementing them. IS’s enable existing
strategies to be realized, Information flows
provide the linkage that allows the supply chain to operate efficiently.
Technologies
like internet, intranet, extranets and groupwares[20] facilitate the
sharing of information using (distributed) common databases (with access
control to the database for checking unauthorized access). These allows sharing
the information not just within the functional divisions of an enterprise but
upstream and downstream the supply chain. Electronic Data Interchange (EDI) can
be used to place orders, inventory database can be shared between the
manufacturer and the supplies for efficient implementation of JIT inventory;
for vendor managed inventory (VMI) this sharing is a must. The internet and EDI
can be used by the customer to monitor the status of the order placed, request
changes in the order and vice-versa, they may be used to inform the customers
about the status of their order, besides being used for billing etc. The
internet and EDI can be used not only for information sharing/exchange but may
also be used for marketing of services, products (especially software) and
advertisement etc. The internet is becoming a medium of choice for product
marketing, delivery, billing and customer support.
The above was
the description of the technology available, below is the description of the
supply chain management tools. These tools include supply chain configuration
tools (for strategic decision making by determining the number, capacity
requirements besides location of facilities etc.); demand planning tools to
assist management in understanding the key drivers of demand using
sophisticated analytical tools and with provision for interfacing with external
data. Supply - planning tools to assist management with decisions such as which
products to make, how to make them, what order to make them in and where to
source materials from? These tools use interactive production planning, Gantt
Charts and simulation and also incorporate advanced constraints such as
capacity utilization, customer priority and due dates. Transportation and
distribution planning and management tools to assist in the planning of how
much to move- which item(s) - where? Using which mode of transportation?,
support, carrier preference structure incorporation, consolidation and
back-haul opportunity identification; load creation and sequencing,
vehicle-scheduling and utilization optimization, operation within a
warehouse, like order allocation,
receiving, radio frequency/hand held scanning inventory control (cycle
counting, aging, lot control, expiry data tracking etc. And lastly, Enterprise
Resource Planning (ERP) software; which provide the transactional data handling
support. ERP grew out of MRP - I and MRP
- II by the addition of the more functional domain modules. Generally ERP’s
provide tools for the management of the
operational aspects of the supply chain management with a few additional
decision support tools. But more and more DSS developers are providing
interfacing/integration capabilities with ERP software for advanced tools of
decision making support.
Design of Multiple Criteria DSS for Transportation and
Distribution
Transportation
and distribution management is one of the major component of SCM. The success
or failure of a supply chain depends, to a large extent, on the success of the
distribution channels. The solution to the problem of transportation and
distribution in a supply chain is usually done through the use of some variant
of the classical transportation problem :
Suppose that there are m sources and n destinations.
Let ai be the number of supply units available at source
i(i=1,2,...,m), and let bj be the number of demand units required at
destination j (j=1,2,...,n). Let Cij be the per unit transportation
cost on route (i,j) joining source i and destination j. The objective is to
determine the number of units transported from source i to destination j such
that the total transportation costs are minimised.
Let xij be the number of units shipped from
source i to destination j, then the equivalent linear programming model is
given as follows:
Subject to
This model is usually solved by special techniques
(called the transportation problem techniques) which are based on the simplex
method. The model can be made more general by relaxing the equality constraint
1c. But even with these extensions the present problem can not be considered,
as only the goal of cost minimization is
considered in the classical model. In any real life transportation and
distribution problem, the number of goals to be achieved (the number of
criterion/objective) is more than one. The presence of multiple goals imply
that the "classical" transportation model can not be utilized for the
solution of the present problem. Owing to the presence of multiple goals the
methodology to be used is Multiple‑Criteria Decision Making (MCDM) problem. In
the following part of this section we detail a MCDM model for the use in the
design of a DSS for the transportation and distribution plan generation of a
public sector enterprise.
The model is defined as follows :
Suppose that there are M sources, N destinations, P
products and R number of transportation modes. Then let xijkl be the
number of units of product k (k=1,2,...,P) transported from the source i
(i=1,2,...,M) to the destination j (j=1,2,...,N) by the transportation mode l
(l=1,2,...,R). Then we define the following quantities that are available as
constraints/goals:
Aik is the matrix denoting the amount of the
product k available at source i (rigid constraint, modelled as a less than
equal to type goal).
Djk is the matrix denoting the amount of the
product k required at the destination j (flexible goal, equality type, called
the demand goal).
Sijl is the matrix denoting the distance
between the source i and destination j by the transportation mode l.
Tl is the matrix denoting the transportation tariff per unit
weight per unit distance by the transportation mode l.
B is
the transportation budget (flexible goal, less than or equal to type, called
the budgetary goal).
Lil is the matrix denoting the total number
of units of all products that can be handled (loaded) at the source i for the
transportation mode l (rigid constraint, modelled as a less than or equal to
goal).
Ujl is the matrix denoting the total number
of units of all products that can be handled (unloaded) at the destination i
for the transportation mode l (rigid constraint, modelled as a less than or
equal to goal).
Cijl is a matrix whose elements are equal to
1 if the mode l is available for transportation between the source i and
destination j.
Gijk is the matrix denoting the amount of
product k that the decision maker wants to move from the source i to the
destination j (flexible goal, greater than or equal to type, called the
movement goal).
Ejk is the matrix denoting the minimum
amount of the product k the decision maker wants to supply to the destination j
(flexible goal, greater than or equal to type, called the minimum demand goal).
Wij is the matrix denoting the maximum
amount of all products that decision maker wants to move from the source i to
the destination j (flexible goal, less than or equal to type, called the
maximum movement goal).
The priorities for all the rigid goals is the highest
say P0 (and in the actual implementation, the user is not allowed to
set the priorities for the same), thus the rigid goals/constraints are
fulfilled first and only then is the other goals fulfilled. For the others let
the priorities be as follows:
PD is the priority for the demand goal.
PB is the priority for the budgetary goal.
PG is the priority for the movement goal.
PE is the priority for the minimum demand goal.
PW is
the priority for the maximum movement goal.
For the sake of exposition/simplicity we take the
priorities in the order defined, that is, P0 is the highest
priority, PD is the next highest priority, and PW the
least preferred.
We also define the following indices and symbols:-
i is
the index for source, i=1,2,...,M.
j is
the index for destination, j=1,2,...,N.
k is
the index for product, k=1,2,...,P.
l is
the index for transportation mode, l=1,2,...,R.
Sindx denotes that the summation is to be
performed over the subscripts indx to the symbol S over the appropriate range.
Using these notations we define the goal programming
model as:
lex min {
P0(dikA-+dilL-+djlU-),
PD(djkD-+djkD+),
PB(dB-),
PG(dijkG+),
PE(djkE+),
PW(dklW-)
}
s.t.
Sjl Cijl × xijkl + dikA-
£ Aik
Sil Cijl × xijkl + djkD-
- djkD+ = Djk
Sijkl Cijl × xijkl ×
Sijl × Tl + dB- £ B
Sjk Cijl × xijkl + dilL-
£ Lil
Sik Cijl × xijkl + djlU-
£ Ujl
Sl Cijl × xijkl - dijkG+ ³ Gijk
Sil Cijl × xijkl - djkE+ ³ Ejk
Skl Cijl × xijkl + dklW- £ Wkl
all d's ³ 0
All the right hand side terms are in general matrices,
thus in general all the d's (the deviational terms) are matrices.
This model was used as the backend analytical model to
a Transportation and Distribution DSS. The system was designed in the Windows
95/NT environment.[27]
SCM in the
Government sector
To understand
the relevance of ‘SCM’ to the government sector, one must understand the
difference between the objective of a government/public sector enterprise and
that of a private sector enterprise. A government/public sector enterprise
objective is not maximization of profit
solely, but also economic development of the nation (as a long term goal) and
the welfare of the society; whereas a private sector enterprise is oriented
towards the sole objective of maximization of profit. But, even if the
objectives, of there two exclusive categories of enterprises, are entirely
different, they share some features:
·
the
satisfaction of their respective consumers by providing the consumer with the
right product, in the right condition and at the right time, at the least cost.
·
the allocation
of limited resources (of the nation and/or enterprise ) for this purpose.
In the
government sector (in India) the SCM paradigm can be used by the public sector
organizations involved in:
(a) Petroleum Products : the bulk of the major petroleum product(s) required in the country
are indigenously produced, but at the same time significant proportion of crude
and finished products are being imported to meet the national demand. This
requires the construction of a global supply chain that should withstand the
vagaries of the “petroleum politics”. Petroleum products are needed through out
the country on a priority basis. This requires a well designed and feasible
transportation and distribution network, integrated with the production
plan(s); distribution network; pricing policy; national and regional demand
policies etc..
(b) Fertilizer production industry : for the
procurement of raw materials,
manufacturing and transportation and distribution to the demand centers through
out the country, using the predicted demand (as the need for fertilizers by consumers is bound to have a regional and seasonal effect due to the very
nature of the product and its use). The SCM methodology can be used to decide
the location of new warehouse(s), the design of the raw material procurement
policy, the design of the optimal distribution plan/channel etc. This industry
generally follows a single sourcing
policy for raw material procurement,
(c) Coal and other minerals : These are primary sector industries, supplying to
other industries in “core manufacturing “ (the type of manufacturing that is
essential for the development of the nation like steel, electricity etc.) The
consumers of the product of these industries can be any where in the country,
therefore a well designed SCM strategy is an important activity.
(d) Steel industry : This industry depends on three major categories of supplies for the
procurement of raw materials: (1) Coal/coke,
(2) Minerals (iron ore, limestone etc) and (3)
electricity. This industry needs a well designed a methodology for SCM,
wherein it may be controlling the production of the raw materials to an extent,
and depending on demand, supplementing with externally supplied raw material.
The supply chain in this case needs to be totally integrated, as a shortfall in
this case can lead to closing of the furnaces that can lead to their closure,
leading to substantial economic and material loss.
(e) The Electricity generating industry : This
industry in India faces a situation of demand exceeding the supply. This demands a rationing system.
It must be decided, and planning must be done for distribution of the “load
shedding” time, so that the basic need of the consumers are satisfied in the region under consideration. SCM, and
more specifically optimal scheduling methodologies needs to be applied.
(f) Food Grain Procurement and Distributions : There are public sector enterprises involved in the
procurement of food grains and their storage in different parts of the country,
As agriculture is an “industry” where the type of product produced depends on
the geo-physical characteristic of the
region; the grain that is produced in
one region of the country may need to be transported to another region to meet the food
requirements in other parts of the country. Therefore, a policy for the
location of warehouses in different parts of the country, a plan for optimal
distribution of the procured foods grains among these warehouses and to the retail shops under the Public
Distribution Scheme (PDS) and for open market transaction is required. A
failure in any of the links of this procurement - transportation - storage -
transportation - retail can lead to
large scale famine in the affected part
of the country. The organization must also be involved in food grain
distribution under exceptional
conditions of famine, flood or earthquake. The SCM concept can be used to
manage the routine and extra-ordinary situations before this industry.
(g) Postal clearance and delivery system : The Post and Telegraph (P&T) department of the
government of India is the organization that handles the major portion of the
postal volume generated in the country (a small fraction of the net postal
volume is carried through the private courier services). Thus, the
transportation and distribution planning is a major requirement of the
organizations involved in the system. A well designed ‘SCM’ strategy will go a
long way in improving the services for postal clearance and thus increasing
efficiency.
(h) Public Health Services : The public health services through the government
run hospitals and dispensaries forms the backbone of the health services
offered by the government of India. The functioning of these organizations
needs to be strengthened. Unavailability of essential drugs and other medical
supplies leads to crisis. As the pharmaceutical industry has major players from
the public sector undertakings, the hospitals can have a full-fledged
integrated supply chain involving these PSU’s. The SCM paradigm can be applied
for the procurement and distribution of the life saving medical drugs and other
medical items.
(i) Import and Export : The government sector is involved in the Import of essential items
needed for the development of the nation, be that petroleum products, steel,
coal, food grains, essential drugs, defense stores etc, and export of products
that the public sector enterprises produce as a surplus, prime examples of
these being mineral products like iron ore, mica etc. This involves the
negotiation with the other parties/government organization for avoiding double
taxation and charting an optimal delivery system.
(j) Banking and financial services : With the globalization of the world economy and the
liberalization policies pursued by the government of India, the banking sector
was the first to recognize the need for offering better facilities to the
customers. Also, they were the first to realize the benefits of the use of IT
for this purpose. But, the use of IT for integration of the different branches
of the banks was not offered to the customers as to provide a location
independent real-time banking facility. It was primarily used only to automate
the routine working of the banks and for internal administrative purposes. EDI
can also be used for electronic clearance of inter-bank transactions leading to
faster and better transfer of funds. All links in the system needs to be
addressed adequately in the design of ‘SCM’, to meet the end objective of
providing efficient services.
The above
description is based on the assumption that the government enterprises work in
an isolation. But, generally in the supply chain of these enterprises, the main
players are the government agencies. Thus, the implementation of SCM paradigm
in the case of these enterprises can be effective if one takes care of : a) Trust :- as all the organization involved belong to
the same umbrella organization, the building of trust among theses
enterprises can be fast and more easy. b)
Sharing of information can be more often among these organization thus leading
to better understanding of the supply chain by the participant in the chain. c) The transport sector - the weakest
link in the supply chain - is largely
under government control (directly and/or indirectly). d) Infrastructure :- Reliable communication network and information
technology infrastructure needed to deploy the information sharing mechanism do
exist to a large extent in the government sector.
For example, in
the public health sector this can lead
to faster delivery of medicines which can help in prevention of epidemics. In
situation like flood, drought or any other calamity the relevant supply chain
can be used to provide medical help, food etc. Thus, the application of SCM
paradigm is needed not only by private enterprises engaged in the pursuit of
profit but also by organizations that are involved in providing services for
meeting social objectives and for the welfare of the society at large.
Conclusion
Supply chain management has become not
just a question of efficient logistic process, but is related to the growth and
survival of organization(s). With customers becoming more demanding in their
requirement of services from the suppliers, the construction of a efficient and
integrated supply-chain has assumed paramount importance. Information technology
plays a major role in the formation of the supply chain. Efficient
dissemination of information upstream and downstream is a major requirement for
the implementation of the supply chain, IT provides the this with internet, EDI
and GroupWare’s and other application software’s. The decision support provided
by IT products (ERPs, Network construction tools etc) can help the decision
makers in the development of the supply chain process and in implementation.
The dissemination of the demand (forecast) information throughout the chain can
lead to avoidance of the “Bullwhip” effect[17]. The quantitative
models embedded in the DSS’s for supply chain management are still at a very
elementary stage (in comparison to the theoretical developments), for decision
support in the construction of an integrated demand-supply chain, use must be
made of these advanced techniques. Organizations can gain supply chain related
benefits through the use of internet, namely:
·
more
collaborative, timely product development through enhanced communication
between functional departments, suppliers, customers and even regulatory
agencies;
·
reduction of
channel inventory and product obsolescence owing to closer linkage across the
supply chain and better insight into the demand signals to drive product
schedules and ultimately achieve build-to order capability;
·
reduction in
communication costs and customer support costs with more interactive, tailored
support capability inherent with internet technologies;
·
new channel
capabilities to reach different customer segments and further exploit current
markets; and
·
ability to
enhance traditional products and customer relationships through customisations
driven by internet connectivity and interactivity.
The SCM paradigm can provide the
mechanism for the survival of the public sector enterprises in the changing
global scenario, where the globalization of the world economy and the
liberalization of the Indian economy is no longer a buzzword, but a fact. The
failure of these enterprises can be traced to the ad-hocism and the
non-application of efficient managerial practices. This is not to say that
these enterprises have lost their relevance in the present scenario. These
enterprises have to adopt “change management” i.e. to change their style of
functioning, and to form strategic alliances with partner public sector
enterprises
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Dhanbad - 826004
---------------------------------------------------------------------------------------------------------------------------------
To be presented at the International
Conference - OPSCON-98 on “Supply Chain Management for Global Competitiveness”,
Novemeber 20-21, 1998 at Management Development Institute, Gurgaon.
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