GPS in taxis and supply chain gizmos!

untitled.JPG Supply Chain gizmos!

I recently read an article in a business newspaper about GPS being fitted to taxis in India. It waxed eloquently about the advantages and benefits of having taxis fitted with GPS. That article made me think about how we get carried away by ‘high tech’ and think of it as a panacea for our problems.

In our rush to implement barcodes, RFID, ERP softwares we forget to use our commonsense. We try to solve a behavioural problem with a structural solution.

Let me take the “GPS in taxis” example and elucidate.

Define the problem or issue
Before we use any of the gizmos or fads to solve a problem, we must define the problem in measurable terms. A genuine business problem should be defined in 20 words [ my sales is decreasing, I do not have time to complete this order on time, my inventory is higher than my competitors].What problem will the “GPS in taxis” solve? GPS in taxis will enable the company to know where each of their taxis is at any point of time. It can help the controller direct the closest taxi to the customer. It can help a taxi driver, in case he is lost.

What is the problem the taxi company is facing?
Is its customer satisfaction low because customers have to wait long for a taxi? Is it not making sufficient profit and margins because utilization of taxis is low? Are taxi drivers getting lost leading to delays and low utilization?

Will fitting GPS in taxis lead to taxis reaching a customer within 15 minutes [ I have assumed that customer expectation is that he/she should get a taxi within 15 minutes of calling for one] of his calling for a taxi? Will it lead to better utilization of taxis, thereby leading to increased business and income? Will it lead to taxi drivers not getting lost?

Is the issue a business driver?
Will solving the problem increase sales? Will it lead to increased customer satisfaction? Will it be noticeable by the customer? If you had to take the approval of your customer to spend on the gizmo, would the customer have approved the spending?

Is taxi reaching within 15 minutes among the top tertile [ top 3 or top 5] of customer needs? When a customer is in the taxi and the driver gets lost, is it a big dissatisfier for the customer? Is utilization of taxis a big driver of costs?

Are you solving a behavioural problem with a structural solution?
A why-why analysis on the issue would have to be done, before the root cause is established. Ensure that all the behavioural issues are sorted out before implementing a structural/ technical solution.Why is the taxi not reaching within 15 minutes? Is the driver not aware that the company’s goal is to reach all customers within 15 minutes of calling? That is a management issue which cannot be addressed by fitting a GPS. Is there a performance measure for drivers which includes reaching a customer within 15 minutes? Are the taxi not geographically distributed across the city, to enable a taxi to reach any part of the city within 15 minutes? Why are the not geographically distributed? Because data is unavailable on demand for taxis by geographical areas? Would GPS help in getting the data?

Are the controllers not directing the taxi closest to the customer? Is this because controllers do know which is the taxi closest to the customer? Or are they directing the business to a few favourite taxi drivers?

If it indeed does require a structural solution, does the team have the skills, training and time to use the gizmo and solve the issue/ problem?
Does the organization have the skills to use and analyze the data thrown up the GPS? Can the team determine the number of taxis to be deployed in a geographical area? Can the organization use the data to increase the utilization of taxis? Can the drivers and controllers use the GPS to reach the customer in 15 minutes? Will the GPS in taxis point out the taxis which can reach within 15 minutes?

Cost benefit analysis

And finally, will the increased business pay-off the cost of the gizmo? There may not be a clear-cut and objective answer to this question. Then one has to go by gut-feel and top management direction.

It would be difficult to attribute the increase in business, because of better customer service, to taxis reaching in 15 minutes.

I have just used the “gps in taxis” example to illustrate the process and thinking that should happen before taking a decision on a gizmo.

This can be applied to other similar situations- when you are planning to install an ERP for the organization, implement barcodes for the warehouse, implement RFID and many more

To make it clear, I am not against gizmos like barcodes, RFIDs etc. I think of them as solutions that can solve certain problems. Applying these gizmos does not excuse us from resolving the tough issues of process, training, rewards/ recognitions, roles/responsibility, communication, scorecard/ measures/KPIs, compensations/incentives/demerits.

For the full story click on the link GPS in taxis and other supply chain gizmos

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Warehousing trends in India

untitled4.jpg CST [ Central Sales Tax] being withdrawn would lead to consolidation of warehouses at a few strategic locations in India.

With CST in place, it is cheaper to have a warehouse [ C&Fs/ Depots] in each state than pay 4% CST to ship across federal state boundaries. With CST going away, it is no longer pertinent to have a warehouse [ C&Fs/ Depots] in each state. Warehouses would get consolidated at a few places in India. Hence the trend towards large warehouses which would come up at few strategic locations in India.

Bhiwandi, NCR, Chennai, Howrah, Nagpur, Indore are the places which would see the biggest growth in warehousing.

As warehouses get larger they would also get more sophisticated. With warehouses becoming larger the processes, infrastructure and technology has to be more sophisticated.

Location of pallets and products/stocks
Because the warehouse is larger, the location of each pallet or stock is important. If a pallet’s location is not known it would be difficult to locate it in the warehouse. It is akin to finding a pin a haystack. [ I can vouch for this based on my own personal painful exeperience] For this racks and pallets spots should be marked. The WMS [ warehouse Management System] should specify the location. The warehouse crew should confirm the location by scanning the barcode.

Sufficient loading/unloading docks
There should be sufficient loading and unloading docks for the vehicles. Because the warehouse would be catering to a larger hinterland. [ as the depots in each state would have been eliminated] the number of trucks loading and unloading materials/ products/stocks would be high. And the truck movements would peak towards month end, quarter-end. During design of the warehouse adequate docks should be provided.

Adequate Staging Area
Similarly, adequate staging area for incoming stocks and outgoing picked stocks should be provided. With a view to maximize earnings, warehouse owners/operators, maximize the amount of racks while giving minimum space for staging. Warehouse operators/owners do not give adequate importance and consideration to the staging area.
In my experience, I have seen staging area becoming the bottleneck in warehouse operations. In fact bottleneck is a mild word; the correct word would be lock jam. Incoming stocks cannot be moved into storage because stocks to be invoiced have not been moved out because the staging area is full. The only way out of this lock jam is to stop operations for a day or two to sort the mess out.

System access from anywhere in the warehouse
Systems will have to be installed in the warehouse so that PCs distributed throughout the warehouse can access the main computer on which the WMS runs. In a small warehouse, the warehouse supervisor would have walked to the computer centre or office and got the information. In a large warehouse this would lead to a waste of time.

Warehouse layout
The layout of the warehouse should minimize the material movement, optimize the warehouse resources [ docks, staging area] and meet the business needs. In a large warehouse meticulous planning of the storage of materials becomes important. Fast movings and heavy goods should be close to the docks, slow moving stocks on the top racks and extra inventory on the top racks and away from the dock doors. Since the warehouses would be storing material from different companies, there should be no cross movement of goods.

Customization Facility
The warehouse should have a customization/ repacking area so that stickering, bundle packing can be done. Warehouses should have this facility, as it is logistically simple and cheaper than transporting the material to be customized to another facility and handling the material additional times.

Reliable transportation
Since goods have to be delivered to customers over longer distances, efficient and reliable transportation is a pre-requisite for the move to larger warehouses, in light of the CST being eliminated, being successful.

For customers and clients, making the move to the post-VAT mega warehouses, my advice would be;

  1. Do a network modelling and optimization before finalizing the mega warehouses
  2. Ensure the warehouse has scope to accommodate the growth in your business for the next 5 years
  3. The warehouse should have adequate picking area and docks
  4. Not more than 85% of the warehouse should be occupied
  5. There should be no union for loading/unloading staff
  6. Warehouse should operate 24 hours and 7 days a week

For the complete story click on the link.CST phaseout and warehouse boom

Coal India and lessons in Inventory Management

untitled3.jpg For want of a nail an kingdom was lost!

Coal India’s production is being hampered by shortage of tyres for their heavy [ 85 tons+] dumpers. This indicates a failure of Coal India’s inventory management and sourcing strategy.

Heavy duty tyres are in shortage across the world. Bridgestone has sold out it’s entire 2007 production. Australian mines are facing similar problems of shortage of tyres. Michelin is the only tyre company which has some spare capacity and stocks. The main reason for the shortage is the increase in the consumption of coal across the world behind the higher energy requirements of India and China.

Inventory is classified into AB&C depending on the amount of management attention required
Inventory is classified as ABC, depending on

  • Total consumption value: This is what we are taught in B-School classes; an item is calssified as an A item if it has a high value of consumption. It could be because of a high value item having a low consumtion or a low value item having a very high consumption. What was not told is that this is just one half of the criterion!
  • Softer elements: An item should be classified as an A item if it is a proprietary item, has limited suppliers if there a capacity constraint or if it is required for a special project.

The ABC classification is reviewed periodically, usually once a year. The items classified as A items get 80% of mangement attention.

Heavy duty tyres should have been classified as an A item by Coal India. Even if value of consumption value did not merit a A classification, it should should have been classified as an A item because there were few producers.

If Coal India indeed spent had classified Tyres as an A item and kept a close watch on heavy duty tyres it would have realized the growing demand supply gap. It would then have entered into a long term contract with the producers and evaluated alternate suppliers. With the current suppliers it should have shared it’s tyre requirements, for the next 3-5 years, and signed a long term agreement that would have guaranteed supplies.

Modern purchasing organizations have a matrix structure.
Purchasing Managers have purchasing responsibility for a department, plant or group. Also, they have to develop expertise in a particular material group. This way the company develops a COE [Centre of Excellence]. The COE’s responsibility is to constantly study the external market, spot trends, identify new suppliers and identify alternate materials.

For example, you would have purchasing manager for soaps and specializing in packing materials. purchasing manager would have KPIs for cost savings and service related to soaps and packing material across the company.

In Coal India, the purchasing manager with COE responsibility for dumper truck tyres should have forecasted the capacity crunch of tyre manufacturers and the consequent supply constraint. Coal India could have then taken appropriate action.

I am sure Coal India has already begun Tyre Management i.e. increasing the life of the tyre by re-treading and better maintenance of the tyres in use.

Lessons for all companies
The Coal India situation is not unique or rare. I have seen many ‘cripples’- products complete in all respects but unable to ship out because of a missing part. Railway coaches worth US$ 50000 being held up because of missing bolts [ € 0.09, US$0.125], split pins [€0.02, US$0.025] or products being held up because of cartons not being available.

There are innumerable ways– Kanban, VMI – to manage bolts, nuts, split pins and other consumables that are C class items. For A Class items there is no shortcut except looking outwards and keeping a close watch.

Companies should use the Coal India situation to look at their own inventory management and purchasing functions.

For further details see the article Coal India and Inventory Management lessons

Kingfisher Airlines to modify Air Deccan’s service offering

untitled2.jpg Kingfisher Airlines tookover Air Deccan , India’s first budget airlines.

Air Deccan had been losing money and was not exactly in the pink of health, financially.

One of the reasons, for Air Deccan losing money, was that it had not got it’s service concept and service delivery right.

What does service delivery and service concept have to do with supply chains? Is there a supply chain for delivery of services?

Yes, there is a supply chain for delivery of services!
The tools, principles, processes and analytics that are applied to the supply chain of products are also applied to delivery of services.

Quality of service is slowly replacing price as the biggest differentiator between brands and service providers. Consumers prefer paying a small premium for better service, than tolerate dodgy service.This is true across services- telecom service providers, banks, DTH, retailing, cineplexes, transportation [ railways, airlines], tours and travel, after sales service, courier et al.

The service concept and the service delivery process has to designed well. The right quality and quantity of the facilities- counters, ATMs, people, space,location,routing- to deliver the service concept has to be in place to deliver the service. This will require analytics and application of supply chain principles.

Coming to Air Deccan, how could supply chain analytics and tools have helped Air Deccan deliver better service?

Aircraft turnaround time
As an example lets take the turnaround of the aircrafts at airports. Air Deccan’s scheduling was based on a 20 minute turnaround time- wheel stop to wheel start. Any delay in turnaround affected the on-time performance of Air Deccan- a key customer satisfaction parameter.

Cps,time maps: Supply chain tools could be used to design the 20 minute turnaround process. All the activities that had to be done in the 20 minutes- cleaning the cabin, loading the food, cleaning the toilets, replacing the magazines, filling fuel, loading the luggage, boarding the passengers- would have to be listed. The precedences, time taken, parallel activities, resources and tools required has to be mapped. The cps chart, GANTT chart and a lead time map would have to be drawn. The critical path activities would have been given extra resources to ensure the 20 minute turnaround time was achieved.

SMED: SMED [ Single Minute Exchange of Dies], a Toyota production principle could be used to complete all the preparatory activities, that do not require the aircraft to be present, to be completed before the aircraft stops. The activities that could be completed before the arrival of the aircraft are- assembling the crew, distributing the work, getting the equipment tested and ready.

Control charts, scorecards: The time taken for the activities will have to be continuously measured. Control charts and statistics tools should be used to monitor the process and ensure it is in-control.

EAP [ Emergency Alternate Procedure]: The process should have alternate processes built-in, in case of an emergency or problem. What to do if the crew for a particular activity is less than required, what to do if an equipment fails. Activities would have to be prioritized so that a low priority activity can be missed out in case of any issue.

If it is known from control charts and measurements, that a 20 minute turnaround was not being achieved, then the activity that was causing the delay should be provided more resources, or broken down into different sub-activities. Or the schedule changed to a accommodate a more realistic turnaround time.

Check-in process
Another important process is the check-in process. How many counters are required? Will the queue be specific to a flight or a common queue for all flights? Can any of the process be done even before the check-in?

One thought comes to mind, based on my experience of flying Air Deccan. In air Deccan only 15kgs is allowed and any excess baggage is charged. I have seen many times argument between the passengers and counter staff [ this happens in all budget carriers across the world] on the excess baggage, holding up the entire check-in process. A good way to manage it would be to have weighing machines before the check-in so that passengers can weigh their baggage before they check-in.

These are just two examples. The supply chain principles can be applied to all service delivery processes.

Air Deccan was the pioneer of budget air-travel in India and could have done an ‘Air Asia’ in India. It let that opportunity go to waste with a faulty service concept and poor management of the service delivery process. Air Deccan ended up giving a cheap experience at cheap rates.

It will be interesting to watch how Kingfisher converts Air Deccan to a Kingfisher-Lite to take on Jet-Lite and Air-India Express.

For the complete article click on the link. Kingfisher Airlines to modify Air Deccan’s service offering