An Interview with Vijayan - an independent Business Consultant
Vijayan has a very wide professional experience in various manufacturing industries ranging from Earthmoving Equipment, Air Pollution Control Systems, Automobile, Engineering ( Industrial Valves) to setting up Joint Ventures. He is a goal setter and known to strive hard to achieve his goals.
In this interview, he talks about the Supply Chain Management, its effects on the profitability of the company, its problems and the challenges. He also talks about "Make in India".
What is a Supply Chain Management?
Supply Chain Management is defined differently by different people.
For some, it is raw material to finished product. For some it is Cash to Cash, which roughly means, you pay for your Raw material and collect the money for your finished product - the total business cycle.
However Supply Chain Management is concerned with different departments in an organization such as Material Planning, Purchase, Stores and Logistics.
What is the responsibility of a Supply Chain Manager?
The responsibility of a Supply Chain Manager is to ensure a smooth production. He should oversee that the stock is maintained optimally as well as the stock is purchased at the best prices in order to increase the profitability of the Organisation.
Generally, the efficiency of SCM department is measured by Inventory Turnover Ratio.
The best example I can give is a small hotel. They buy all their raw material in the morning and by the end of the day, the products are sold and converted into Cash. This is 100% Inventory Turnover Ratio.
This Inventory Turnover Ratio varies depending upon the product that is manufactured in any Manufacturing sectors. But the aim of any manufacturer should be to maximise this ratio by keeping Inventory at optimum levels.
Imported raw materials, materials that face shortage often, materials with erratic lead time are always a great challenge to a Supply Chain Manager.
You are known to be a person who argues that the theoretical strategies of Supply Chain Management don't yield neither practical nor profitable results to a Business. Do you still stick to your guns?
Theoretical formulas of Reorder Level, Minimum Stock, Maximum stock, Reorder trigger point etc do not always result in optimum Inventory. This might work for voluminous regular production which is in the set pattern. This is not the real case in the modern day manufacturing. Hence, it is always advisable to follow Inventory policies depending on the manufacturing sector concerned. There are no fixed formulas. I have always contested this and proved to the higher management that the traditional formulas result in higher inventory.
Are there any practical references that you can make to prove your point of argument?
Yes! I can give my own experience with one of the leading Industrial Valve Manufacturer based in Chennai. My predecessor always planned stocks based on the theoretical formulas and when I took over I found a lot of non-moving inventory. This directly affected the part of profit margin as it adds up to consumption of stock and thus increasing the manufacturing cost.
So, firstly, we segregated these items into Slow Moving and Non-moving Inventory. Secondly, we moved these to a Quarantine Stores created exclusively for that. Thirdly we calculated the total value of the items and these items were meant only to be taken out for usage and no items were added to this quarantined stores.
This Store was under my control. After a year we found the stock in this Stores has come down to a minimum level. After obtaining the approval from the Management, those stocks were either wrote off or scrapped. Later other divisions of the Company were advised to follow this same method.
What would be your advice to any Supply Chain Manager to see the best results?
My advice would be to work closely with the material planning department of the organisation for a short-term period (or long term period) and order items as per the requirement. This could be monthly or quarterly or half yearly depending on the item classification either on ABC or VED analysis of the items.
Are you sure that YOUR strategies WILL yield results in this technology-driven world?
You worked with a very prominent international company and you have gained good experience in SCM. Do you think the strategies that you mentioned can actually help ANY business to see a better SCM or speed up their manufacturing process?
Supply Chain Management is vital in any company because it adds up to direct profit percentage of the company. It is proven in the calculations that cost saved in Input material of the product directly adds up to the profitability. Hence, the Value Engineering came into the picture. Various methods of saving cost by alternate processes such as outsourcing result in lesser Cost of production.
I would like to give an example here. Valves for Oil refining and removal of impurities like Sulphur etc are essential for oil companies. These Oil companies wanted to work with Indian companies rather than importing it, thereby saving foreign exchange. We took up this challenge and worked with various production units to make this possible. Special Steels and exotic raw materials were produced with the help of Steel Mills and Foundries. Valves were made in India and successfully installed in pipelines.
Nuclear Power Plants is another area where special materials are used. We, the Indian Manufacturers took up the challenge of manufacturing these alloys successfully. I am proud that I was a part of this evolution in my Industry. We found ‘Make in India’ solutions to many areas like Sub Sea and Cryogenic applications. We were actually doing this “Make in India’ in our Industry even before this slogan started making rounds among the public.
What affects the Supply Chain Management?
SCM is directly affected by the changes in the cost of the raw materials and the labour wages.
Western Countries always look South Eastern Countries as their Manufacturing hubs. Because the manufacturing cost of a product in Countries like China, India, Indonesia, Philippines, Malaysia etc is low. So they can make more profits. This trend kept changing as the years passed by. And it gets shifted from one country to another, as the wages and the cost of Raw material keep changing. It is the same with the present state of affairs.
For example, China was considered at least 15% cheaper in foundry products ten years back.Today it is no longer cheaper. Now the Indian Manufacturers are slowly realising it.
Are you open for consultation?
Though I am a freelancer now, I am open to working for any organisation not as an outsider but as a functional person inside the Organization.
I can say this from my own experience - Hiring a consultant is a wasteful exercise for any company.
Once the report is submitted after the completion of the study by this consultant, it is being put in the cold storage instead of putting into use. Though the Top management puts pressure on the functional departments to follow the recommendations, it is not really given importance to. Hence, I prefer to be a part of the Organisational set up. The Consultant is not adding value to the Organisation unless he is accountable for his own decisions.
What do you think of the present state of a Supply Chain Manager in any industry?
Since the Top Managers are always from Finance, Marketing and Production areas from time immemorial, Supply Chain Managers are not given their due importance in any Organization. Supply Chain Manager continuously look for cost saving methods by looking at various avenues inside as well as outside the company. In a Manufacturing Organisation SCM is given least importance. Other functional managers make them scapegoats for their failures. This continues to happen even now. The efforts put forth by Supply Chain Managers are always considered less when compared to other Functional Managers. This has to change across all Industries. I wish Board of Directors recognise the contribution of Supply Chain Managers equally with all other functional Managers.
What would be your words of wisdom to any Manufacturing Business Owner with respect to SCM?
Direct interaction of Top Management with all the departments always would bring out the reality. “Grapevines" are cancerous to any Organisation.
I remember once you told me that you have given a lecture to University Students on SCM. Are you open to take up a lecture on SCM if invited?
Oh yes! I would really feel happy if I get an opportunity to share my real life experiences with the younger generation. I did take such class earlier for the MBA students.