Material management takes a closer look at ICT practices

By Rajkumar Mitra, Sourcing Insights ~ a publication of mjunction services limited

Material management functions and in a broader perspective, supply chain management, currently requires the support of information communication technology (ICT) for catering to the growing needs of modern management. This is good news for the ICT service providing organisations.

However, this sector is plagued by several issues like lack of trained personnel, current government outlook and emerging software priorities. These have to be addressed so that growth initiatives of the core sector, which depend on ICT services, are not hampered. Thus, it was necessary to have a joint convention with respective functional heads to mitigate the emerging needs.

Indian Institute of Materials Management, Kolkata branch, realised this need and organised a one-day seminar inviting industry leaders and government representatives in March 2008, to evaluate the emerging trends in material management with a special focus on ICT. In the meet, there was a NASSCOM representation to evaluate the promises and expectations of the ICT sector. The government of West Bengal made a presentation, showcasing how e-governance was being introduced to transform the processes by which it interacts with citizen and business needs. IBM and Tata Consultancy Service spoke about the need to process re-engineering to get the full benefits of emerging software applications. There was also core sector representation from Aditya Birla group, Tata Chemicals, Coal India and SAIL to convey to the audience how ICT was helping them in their supply chain functions.

Growing need for trained personnel

Growing dependence of GDP on the service sector industry has aptly brought out the importance of ICT or IT sector. But IT sector is currently facing shortage of skilled personnel. This would impact not only the IT sector industries but also affect the industries like banking and finance, insurance, telecom and retail which are dependant on this sector.

Currently IT sector contributes around 5.5 percent to the GDP according to Suparno Moitra, the eastern region head of NASSCOM, who was the first speaker of the technical session, “IT industry has a target to contribute 10 percent to the GDP by 2010,” Moitra said. Fuelled by the rising demand of BPO services in the globe, the domestic IT industry promises to create 2 million jobs by 2008 and 3 million jobs by 2010, according to Moitra. But the land with surplus human capital is currently churning out graduates in huge numbers who are hardly employable. “Recently a McKinsey study revealed that only one tenth of the graduates from the general stream are employable and only one fourth of the technical graduates are employable,” Moitra said. Thus it is an urgent need to devise a policy which will give required skill set to the upcoming graduates. “The prescription is to raise not only the ceiling but the floor also and devise policies so that boys and girls do not join software companies for Rs 10,000 worth jobs but turn out to be academicians and be knowledge workers,” said Moitra. NASSCOM is also concerned with the rising problem of data security. “This is a man-made problem and NASSCOM has formed the Data Security Council of India to encourage industries to voluntarily adopt standards and communicate to the external world that we are making all possible efforts to protect your valuable information,” he added.

Government plans

Bureaucratic approach in the government sector has for long been creating a communication gap between government officials and its citizens. In the era of information technology, sporadic investments in IT tools is leading to a digital divide and still hampering government interactions with the citizen. Business needs are therefore still not getting attended to.

Government departments have made sporadic investments on ICT tools, which are not facilitating better service to its citizens. “This is creating a digital divide among the government officials,” said G.D. Gautama, principal secretary, micro and small scale enterprises and textiles, government of West Bengal, who was previously the principal secretary, of the Department of Information Technology in the state. Several government departments in West Bengal have personal computers which were never opened, according to Saibal Mukherjee, head of supply chain of Tata Chemicals Haldia unit. “Block level officers have high end ICT applications such as video conferencing facility to hold virtual conferences,” he observed. To remove this digital divide, government is investing more in IT related activities to modernize processes and functions based on e-governance principles, thus creating better delivery mechanisms to its citizens . “E-governance encourages more usage of ICT leading to wider participation of citizens,” Gautama said. The effort of the Bengal government in this direction was acknowledged by Saibal Mukherjee. He said e-governance initiatives have already been operational and a website now shares the volume of fertilisers available at block level on a real time basis. According to Gautama, government needs to transform themselves to provide efficient, convenient and transparent services to the citizens and businesses as required through use of information and communication technology. “Technology is like a steamroller. If you are not on the steamroller, then you are destined to become part of the road,” Gautama cautioned.

Emerging software applications

With the evolution of the IT industry, a new economy driven by globalisation and powered by Internet applications has been created. Statistics have revealed this new economy is creating around 11 new companies each day. But application developers are becoming increasingly conscious that industries are employing age old processes with new technology which is bringing down productivity. This is giving rise to costly old processes, and is bringing down the profitability of the emerging economy.

The contemporary key performance areas of material management are to reduce purchasing cost, cycle time to procure, process cost and risks of procurement without compromising on quality and profit of the organisation. Modern management currently demands best-in-class inventory practices, collaborative commerce with vendors, track and trace capabilities, transport cost management, spare management capabilities, tax structure management and even design collaboration capabilities. Emerging software applications have been created keeping in mind the needs of modern management, said Rajesh Ray, practice head, supply chain management and retail of IBM. “Emerging applications cater to the requirements of best practices such as zero inventory, just-in-time, zero defects, tiring system, value engineering, milk run etc. So it is important for organisations to follow these best practices to get the benefits of emerging applications,” Ray commented.

Using IT can make a huge difference to the business and profession by either keeping the business flying high or closing it down on the face of severe competition, said P.P. Sengupta, the chief general manager materials of Coal India Limited. “Amazon.com, the world’s largest online book store, in just two years’ time, could increase its turnover by three times from $16 million in 1996 to $48 million in 1998. It had 17 million customers in 150 different countries. Comparatively, Barnes and Nobles, who also had a turnover of $16 million in 1996, was nearly closed in 1998,” Sengupta recounted. The advancement of ICT might also be attributed to the speed of falling cost of technology. Cost of chips and communication cables are coming down rapidly, Sengupta observed. “Telecommunication, even across Atlantic, will be almost free,” he said. One could have understood the falling cost of ICT and its simultaneous performance increase if it was compared with a more tangible object. In order to explain more lucidly, Sengupta compared ICT cost trends with automobile cost. “If automobile sector had advanced as fast as IT sector, a Rolls Royce car would have probably been available to us at $1.75 and it would have run nearly 5 million kilometres per litre of petrol,” Sengupta observed.

Industry usage of ICT

Customer demand is driving usage of more ICT applications by the industry recently. To satisfy their consumers, industries are using such applications to reduce cost and meet delivery commitments. Some industries are also seen to capitalise on the existing supply chain inefficiencies and are building business models to improve these inefficiencies and earn fair revenue.

Previously suppliers supplied as per their own convenience when customers asked for goods urgently but current scenario shows a complete reversal of trend. According to the joint executive president of logistics in Aditya Birla group, cement business division, Rajeev Mehta, customers now are very particular about their time of requirement and this makes it important to know their collective demand. Mehta had a clear vision of nationwide customer’s cement requirement aided by IT tools. Customer demand is now forcing cement companies to take up manufacturing of ready-mix concrete. Ready-mix concrete is a tailor made product and monitoring the requirement requires intensive usage of IT applications. “Currently IT tools are even helping us to meet customers demand by making ready mix concrete available at the required place and time,” Mehta said. Apart from knowing collective demand of cement from historical consumption records, one has to also forecast the requirements to enable the factories produce as per requirement. “We use linear programming application tools to make our demand forecasting,” Mehta said. In the fertiliser sector, where the demand is seasonal for only six months but production happens throughout the year, the supply chain challenge is even more critical.

According to Saibal Mukherjee, of Tata Chemicals Haldia fertilizer unit, the company not only has to hold the inventory on behalf of the farmers but also has to ensure sufficient fertilizer stock at block levels as per government stipulated norms. “Supply chain visibility is created by IT tools such as SAP and i2,” Mukherjee said. To make fertilisers available to farmers at optimum rates, government gives huge subsidies to the fertiliser units and expects transparency of operation before issuing subsidy payment. “Web based processes have now eliminated piles of paper both at our end and in government departments. This creates visibility on real time basis and expedites the payment release process,” Mukherjee added. More and more companies are now opting for online negotiation tool to expedite their raw material buying process and reduce procurement costs. Saumen Bose, who previously worked for SAIL ASP and Saibal Mukherjee of Tata Chemicals spoke about usage of reverse auction tool, which facilitates their negotiation process. But reverse auction is not only helping the buyers but also helping the suppliers to increase their business.

Suppliers are now seen to add on new customers and increase their turnover by participating in Reverse Auction, a popular form of electronic negotiation tool. Kishore Pardasani, managing director of Deepsun Industrial, who is a light fitting manufacturer, confirmed in the seminar that his turnover has increased 10-fold due to reverse auctions alone. “In 2002-03, our turnover was only Rs 45 lakh. After participating in several reverse auctions, our current turnover has touched Rs 5 crore. Our client list has also increased. We are now targeting a turnover of Rs 15 to Rs 20 crore by 2010,” Kishore said.

ICT application is also enabling companies capture untapped markets by doing target costing through a collaborative environment with the suppliers facilitated by IT applications. The Nano car of Tata Motors, in fact, costs less than half of its closest price competitor, explained P.P. Sengupta in his speech. “IT tools such as supplier relationship management applications have helped Tata Motors to reduce raw material, process and manpower costs to achieve its desired costing,” he said. The cigarette manufacturing giant, ITC, was also able to attract the consumers to its packeted ‘atta’ offering by excellent transport cost management, observed Rajesh Ray in his speech. “ITC operates on a thin margin with this product and wins away the loose atta consumers by its attractive pricing aided by IT applications,” Ray said.