Reliable Delivery

The rapid economic growth of the BRICK (Brazil, Russia, India, China & Korea) nations is riding on the high growth of domestic consumption and relocation of international demand to these emerging nations.  The manufacturing segment in India has witnessed fundamental transitions in response to this demand.  Overhauling manufacturing processes and systems, importing technology, improving product quality, deploying management principles (LEAN, TPM, TQM, Six Sigma or similar principles) and developing talent are few ground-level actions observed across industries.  Significant progress and investments towards higher-value product development and manufacturing excellence will continue to drive business growth in India.  

An integral component of business excellence is reliable customer delivery.  India is ranked 89^th out of 130 countries in the 2015 Global Resilience Index (supply chain category), where India fell 11 spots from the previous year.  The poor performance in customer delivery does not come as a surprise. 

Global Resilience Index

Organizations and end-users in India have ample experiences of delayed delivery performance.  Customer orders are not delivered on-time or products are not available at the point of sale.  My ten years of exposure to Indian corporations indicate that most industries are afflicted from lack of customer sensitivity and customer orientation.  The delivery reliability of engineering companies or auto parts providers, building material players or office solution integrators is crying for improvement.  There are constant complaints from customers of significantly delayed deliveries, in many cases leading to late delivery penalties.  

"Do you worry about a lack of urgency at our company? If you do, you're in good company. When asked to 11,000 highly successful business leaders in the last dozen years, "What keeps you awake at night?" A lack of urgency has consistently been at the top of the list. "It's hesitation and half-hearted execution that'll kill us," they say, "not our competition."

International customers, while excited about the quality products at Indian prices, are significantly pained due to the irregularity and unreliability of deliveries.  While Indian companies continue to get regular orders from Europe and US, when expedited delivery is required, customers prefer to pay premium to Eastern European and South American countries.  This is a clear loss of revenue for Indian companies and the Indian economy.

Finding the Core Cause

Business has the primary responsibility to delight the customer.  Customer delight has three elements, in the order of priority as shown in the figure below.   

Manufacturing companies are focusing on improving product quality – and rightly so, but are neglecting the critical attention towards making the product available on-time.  Customers expect that the order will be available to them on the committed time and location.  Majority of Indian companies are ill-prepared to achieve reliability of delivery.  This is a nuisance for the institutional customer and distribution partners.

Research of mid and large organizations indicate that there is no measurement for due date performance (DDP).  Neither is there a measurement of on-time and in-full (OTIF) order completion.  While monthly order booking is monitored and driven with rigour, there is very little focus on timely delivery.  The nonchalant approach is prevalent due to the following assumptions:

Assumptions for Non Performance

A tier one auto parts supplier was satisfied to achieve its monthly delivery commitments – despite failing on the first three weeks of delivery commitments.  While total quantity provided was as per order, the item-wise delivery did not necessarily match the order. An office solutions service integrator was delaying delivery in 70% of the cases, and worrying why sales is not growing significantly.  A pump manufacturer was making the customers plead for delivery as commitments were failing regularly.  A garment export house was shipping its deliveries late regularly, despite paying late delivery penalties.  There are many examples, but the core reason for the carefree approach is singular – ‘The customer has limited CHOICE!’ when it comes to searching for delivery reliability.  This leads to India being “satisfied with its underperformance”, as commented by Sumantra Ghoshal.  

India Inc focused on improving product quality in the last two decades – and justifiably so.  The attention should shift to improving supply chain effectiveness.  Achieving high delivery reliability of above 90% is no magic.  Most companies in the developed nations are able to delight customers with confident delivery timelines.  We need to reproduce the magic which can only happen by reinventing the supply chain.   

Direction of Solution

Supply chain is the function responsible for ensuring production and delivery of the customer order.  Supply chain is responsible for delivering the complete order on-time.  The function procures the raw material for production, prepares the production schedule and plans to deliver the orders in full-kit.  In addition, the supply chain function is responsible for managing inventory.  The responsibilities are quite widespread.  Organizations measure the effectiveness of the supply chain on the following parameters - Pending Orders & System Inventory.  The ERP systems are not even configured to capture on-time delivery performance, inferring that companies are indifferent to delivery reliability.  

In order of importance, delivery reliability is the second most important factor in customer’s decision making.  Poor reliability results in loss of revenue – a fact that most companies are unaware of.  For example, delayed deliveries to the distribution partners will result in stock-outs from the retail points.  Customers will buy the competing products.  Delayed deliveries to industry partners will result in competitors getting a higher share of business.  The impact of delayed deliveries to the organizations profit is loud and clear.   

Research in this area of supply chain effectiveness has demonstrated a potential impact of 20% in the top-line, leading to no less than 40% impact on the bottom line.  It is time for the COO to take necessary actions to curtail the sales loss, and rather make reliable delivery a competitive advantage. 

Elements of the Solution

The fundamental business philosophy of most Indian companies needs to undergo a transformation from that of cost-centric to that of customer centric and value-creation.  Lean Solutions and Theory of Constraints paradigm provides insights of the changes required in the prevalent business.

1. Pull Based Replenishment:  Establish the organizations actions to align with the customer’s real-time demand.  This will make the organization more responsive and agile. 
2. Small Batch Size Production:  Flexible and responsive manufacturing will enable fulfilling customer’s order which consists of multiple products.  Reducing the batch size will enable production to provide more variety in a short period.
3. Buffer Management System: An advanced form of kan-ban provides protection against uncertain demand variability and supply variability.  An early warning system to indicate potential delays to delivery commitments will provoke necessary and speedy corrective action. 
4. Full Kit Based Action: First time right is often stated recommendation.  This can be ONLY achieved if full kitting is operationalized.  Any exception to full-kitting will lead to rework and quality defects, causing delays.  Full Kit at each process stage is imperative for operational excellence leading to customer delight.
5. Measurement System: Measurements drive behaviour.  The right measurements will ensure the desired behaviour.  The supply chain function, production function and other back-end support functions should have a customer oriented measurement.  With delivery reliability as an objective, the system should be measured against its ‘due date’ performance also known as ‘on-time-in-full’ delivery performance.  This will indicate and chart the course towards become customer oriented. 

Elements of Success

Companies should seek to develop a strong differentiated competitive edge to excite customers.  Product quality is the ideal differentiated proposition, but more difficult to achieve, due to the ease of reverse engineering and reproducing.  As acceptable quality is amply available in India, business competitiveness is shifting towards delivery reliability.  Effectiveness of the supply chain is emerging in the centre stage.  The shift in supply chain expectations requires a fundamental reengineering of the holistic business system and processes.   Delivery Reliability can be the alternate, and equally impactful, proposition that an organization can develop and offer (a basic level of acceptable product quality is assumed).  

Though requiring some levels of re-engineering, it can be developed within a short period of 3-6 months.  This is more challenging to replicate, as it is a holistic change of the business design.  Organizations that have adopted delivery competence as their differentiated proposition are already winning in the market.  This is on the wish-list of the CEO, but the road to achievement has not been clear.  Following the above recommendations will steer the organization in the desired direction of operational excellence.  This has the ability to become a sustainable competitive advantage, thereby having a significant impact on the business performance and bottom-line. 

Harish Chawla is a Certified in Supply Chain Management through TOCICO, with ten years of experience in the space of organizational growth through implementing Theory of Constraints.  His expertise are focused towards manufacturing industries, establishing differentiated propositions for delivery effectiveness.  Harish has been fruitful on the journey of Ashok Piramal Group and Godrej & Boyce towards TOC and Business Excellence.