Lakshya 2012

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Factory – SCM Case Study Competition

Lakshya 2012

the power sector has attracted US $ 4. Chief Information Officer and Ms.RaviKhanna. Power sector is ranked among sixth among the leading players of the Indian economy. Distribution if electric energy to households.000 MW of electricity capacity in the 12 Plan (2012 -17) and 93. According to the Ministry of Commerce and Industry’s Department of Industrial Policy & Promotion (DIPP). One of the reasons for the gaps is delay in execution of Balance of Plant (BoP) jobs which is primarily due to absence of competent BOP players who can execute the job within stipulated time and cost. Challenge Mr. Japan and India and supply balance of plants to power projects.Supply network management of Chennai Engineering Ltd About the Company Chennai Engineering Ltd (CEL) is a large engineering company of over 45 years of existence. The company collaborates with capital equipment players from Germany. Generation and transmission of electric energy produced in-hydroelectric. FDI up to 100 per cent is permitted under automatic route for: 1. The company has been involved in power sectors producing auxiliary equipment and now has become a leading balance of plants power sector player in India.000 MW in the 13 Five year pan (2017 -22). commercial and other users and 4. There are a number of challenges that lies ahead of the economy as the demand and supply gap is increasing. Vice President Supply Chain for a discussion th Lakshya 2012 . Project delays are not only expensive from vendor side with penalties but also a phenomenal loss to the society in terms of the socio . The power ministry is believed to have set a th target for adding 76.6 billion in Foreign Direct Investment (FDI) between 2000 and 2012. Chief Executive Officer of CEL invited for a meeting with Mr.economic costs. coal/lignite – based thermal and gas-based thermal power plants 2. Deepa Pillai. Power trading There are innumerable challenges that result from the gaps that exist between what’s planned versus what the power sector has been able to deliver.Suresh Ram. industrial.4000 crores in size and does a number of turnkey projects in mid-size power sector and for corporate who want to have in-house captive power generation for manufacturing. Power sector in India Power sector has received a major thrust in power generation in the recent years. Non-Conventional Energy Generation and Distribution 3. Annexure 1 provides details of CEL’s balance of plants scope. The company is more than Rs.

She is passionate about supply chain functions and believes that the supply chain ecosystem must be well integrated and be focused on group decisions instead of silo approach to strategy. He wanted a road map and asked them to bring out clearly the benefits for CEL and suppliers and how it could improve overall supply chain goals of cost efficiency and responsiveness. He is a professional CEO and does not belong to promoter family. An end-to-end cloud service offering can be designed using a combination of any of the four layers comprising of Software as a Service [SaaS]. This is launched by Chennai based supply chain Products Company named Take Solutions Ltd along with HP. If smart phone can catch up or ERP for SMEs can be deployed. Suresh has track record of working effective management change systems especially on a large supply networks of focal firms. Deepa and Ravi mentioned to Suresh that they would present to him in a week’s time after exploring the details. He suggested that Ravi and Deepa must explore and submit a plan on how to approach getting CEL’s IT and its supplier network on cloud based IT especially for SCM. Also he opined that since they are located in a cluster of engineering firms where their 90 per cent of suppliers are located a cloud based cluster community could bring efficiency in supply chain. He has over 20 years of experience in the sector. Ravi explained to her on cloud and key points are as follows: 1. business processes and enterprise application could be important. Suresh is an IIT. He has been recently recruited for helping CEL to achieve over 30% CAGR in the next five years and has been empowered for any structural change within the organization as well as with the partnering firms. Infrastructure as a Service [IaaS] and Desktop as a Service [DaaS] which is the cloud clients. She has over 15 years’ experience and took a break to do an executive management programme in a premier management institute in India. Platform as a Service [PaaS]. Ravi is an IT expert with over 18 years of experience in automotive sector including with experience of having implemented a large ERP for manufacturing and other functions. Madras engineer and has a management degree from one of the premier institutions in India. Deepa is an electrical engineer from a premier institution in Tamilnadu and was placed in the campus in CEL. Suresh mentioned that he tend to believe that cloud based IT for infrastructure. Lakshya 2012 . Suresh told that he had a decent interaction with other CEOs in the function who were of the opinion that cloud would be the way forward. policy and operations. Suresh invites Deepa and Ravi and briefs them about the dinner meeting he attended in the previous day evening wherein he was invited as a guest for launch of cloud based solutions especially in supply chain domain.on technology deployed for supplier network and how it could bring in more efficiency. Cloud computing Deepa suggested to Ravi that they must spend some time on understanding cloud based solutions and its benefits.

Hybrid cloud is a composition of two or more clouds (private. Hybrid cloud provides the flexibility of in house applications with the fault tolerance and scalability of cloud based services. security and certainty of in-house applications. d.Source: http://upload. Generally. Microsoft and Google own and operate the infrastructure and offer access only via Internet. Undertaking a private cloud project requires a significant level and degree of engagement to virtualize the business environment.). b. compliance. They have Lakshya 2012 .png 2. offering the benefits of multiple deployment models. Community cloud which shares infrastructure between several organizations from a specific community with common concerns ( whether managed internally or by a third-party and hosted internally or externally. The costs are spread over fewer users than a public cloud. These services are free or offered on a pay-per-use model. community or public) that remain unique entities but are bound together. jurisdiction. This can be managed internally or by a third-party and hosted internally or externally. public cloud service providers like Amazon AWS. Private cloud is cloud infrastructure operated solely for a single organization. Cloud could be deployed through: a. etc. Hybrid clouds lack the flexibility. Public cloud which is storage and other resources are made available to the general public by a service provider. c.wikimedia.

The IDC study also showed that benefits also increased over time. Cloud computing creates cost benefits by reducing delays in decision costs by adopting pre-built services and a faster rate of transition to new capabilities. over a five-year period. and organizations were able to replace $1. They are redirected. 3. b. There are other benefits that determine ROI on cloud offerings. Rapid provisioning: Resources are scaled up and down to follow business activity as it expands and grows. at 60 months. Increased margin and cost control: Revenue growth and cost control opportunities allow companies to pursue new customers and markets for business growth and service improvement. 4. application-management costs were reduced by 52 per cent and infrastructure support costs cut by 56 per cent. and manage them" and thus do not benefit from less hands-on management. e. Moreover. configure and run infrastructure and applications that are best suited for business needs. according to the report. which were reduced by 80 per cent. each company saw cumulative savings of $2. they are realizing $8. IDC findings show the average five-year ROI of using AWS is 626 per cent.6 million in infrastructure costs with $302.40 for every $1 invested. and network bandwidth or workload memory capacity as indicators of performance. IDC said. IT capacity is measured by storage. They are: a. An IDC study commissioned by Amazon Web Services (AWS)found that the five-year total cost of ownership (TCO) of developing. build.50 in benefits for every $1 invested in AWS. This is a common goal for business improvement programs that are lacking resources and skills and that are time sensitive.attracted criticism because users "still have to buy. At 36 months. Dynamic usage: Elastic provisioning and service management targets real end users and real business needs for functionality as the scope of users and Lakshya 2012 . Total cost of ownership optimization: Users can select. As stated earlier. deploying and managing critical applications on AWS represented a 70 per cent savings compared with deploying the same resources on-premises or in hosted environments. one must note that the IT capacity and IT utilization would play a significant impact on infrastructure. the organizations are realizing $3.000 in AWS costs. IT utilization is measured by uptime availability and volume of usage as indicators of activity and usability. d. The speed and rate of change: Cost reduction and cost of adoption /de-adoption is faster in the cloud. And TCO savings included savings in development and deployment costs. While calculating Return on investment (ROI) in cloud offering. In addition. c.5 million per application. design. The study found a definite correlation between the length of time customers have been using AWS services and their returns. CPU cycles.

These measures define a new set of business indicators that can be used to create a "score card" of an organization’s current and future operational business and IT service needs relating to cloud computing potential. Power island scope also provides scope for balance of plants. BOP will have its own manufacturing units and would work a number of fabrication and other ancillary support units for completing the project items and supply to site where its supply chain depend on sequencing and completion by other players f. CEL will work with power island suppliers for information exchange and supply its plant as directed and approved by EPC contractor e. ERP for SMEs through cloud in a cluster using cloud would help for dynamic usage. Typically. For example. b. Power project promoter identifies the project scope and decides on engaging an EPC contractor for the project either internally or from the market. a. Sequencing of equipment supply in the whole project by a numerous vendors decides on the project. BOP would have a number of material and services suppliers who could be also operating with competition as well as with power island equipment suppliers g. In our discussion CEL is the focal organization d. Information exchange and completion of project components on time is critical. Enhanced capacity utilization: IT avoids over-and under-provisioning of IT services to improve smarter business services. f. Capacity additions can be staggered as economies of lumpiness in capacity can be spread among users instead of set up function in case of individual deployment. There would be a few vendors who would be handling BOP along with CEL. This would be helpful in case of cluster and business community network where business process solutions are to be evolve seeking new solutions. Ravi altered stating that though cloud has a numerous benefits there are certain challenges when cloud is to be implemented for an ecosystem. g. Access to business skills and capability improvement: Cloud computing enables access to new skills and solutions through cloud sourcing on demand solutions. these projects have huge penalty for delays and failures Lakshya 2012 . Deepa suggested that the challenges can be reviewed after they discuss about current IT applications in to their supply chain domain and then look at feasibility of supply chain business process application in cloud and their challenge. EPC contractor places power island equipment order based on the engineering services recommendation c. Supply Chain structure of CEL Supply chain network wherein CEL is the focal organization is depicted below in exhibit 1.

The typical problems of supply chain included:   Long procurement cycle times   Material delivery delays from suppliers leading to penalty costs for the supplier and for the system as the subsequent material could be ready but held up in the system  Lakshya 2012 . Supply chain network of Power equipment plant In the year 2008. There is an innumerable discussion on appropriation of management cost in follow up. and sourcing and information technology management costs. discussions and rescheduling as well as on penalty. Deepa convinced that there are a number of issues in the supply chain management.Exhibit1. These include: yard management. CEL incurs a supply chain cost of about 12 per cent of their cost of goods sold. Deepa mentioned that the plant operations head Mr. inventory. Rahul Purnikar has been harping on adding 10 per cent of cost of goods to her while about 50 per cent of this which Rahul also agrees cannot be attributable to supplier network. transportation (in-bound and out-bound).

The benefits were: 1. The challenge was not just estimating benefits from business efficiencies but something beyond. 20 cores. Annexure 4 shows how it was operating earlier and what improvements in processes where brought in. 240 crores. he is of the view that though Rs. ERP used to take care of supplier relations management wherein mails would be sent to suppliers. Deepa submitted improvements of implementing an integrated supplier network system by a leading supply chain solutions company at Rs. Reduction in procurement cycle by an average of 12 days 2. then the savings is around Rs. The project was executed in 90 days wherein about 750 plus suppliers have automated their sourcing processes with CEL. If it comes down by one per cent. According to Deepa. 2700 crores. cost of goods sold would be around Rs. Also.8 crores which was again integrated to ERP. Ravi had a different perspective on her working. 2 crores is too insignificant for this size of operation was what Deepa felt. Elimination of redundant processes. data entry and thereby there was improved process efficiency 5. Lakshya 2012 .        Late payments to suppliers  Unfavourable Days Purchases Outstanding (DPO)  Manual processing of transactions on both sides  Lack of end to end control and visibility  High cost of processing transactions  IT in SCM In 2009. This means that supply chain cost reduced from 12 per cent to 11 per cent of cost of goods sold which is a substantial savings. 4. Year on year maintenance expenses of Rs. Every function and its activities were to be streamlined and claim the benefit of change. 8 crores was the cost of the IT project SCM. The discussions were not complete there as well.2000 crores and supply chain costs would have been around Rs. Before this. It also reduced a number of follow up meetings and activities and thereby hidden costs as suggested by Rahul were also addressed. if the turnover was then Rs. He was of the view that all savings cannot be directly attributed to technology investment as well. RFQs are converted into PO and issued on the same day for many of the job works 3. 20 crores. However. AP invoices matching were reduced by 50 per cent which made vendors happy. there was a number change management cost which could be estimated at Rs. Delays were brought down significantly and resolved with the project sponsor Overall. Only exceptions in procurement processes are handled through email alerts and phone follow up which is reduced by 90 per cent 6. The payback is less than six months. supply chain cots reduced by 8 per cent.

the change over at CEL could be larger. This may not involve additional cost as they have systems and been operating. how would they handle technology of different customers? There could be a lot cluster driven benefits and how one could quantify and drive as a movement so that this cluster is ahead of other in technology adaption? Lakshya 2012 . What are the benefits and gaps in the solutions adopted for SCM domain with respect to ERP deployed at CEL? 3. if they are also working with other vendors and power island players. they agreed that the supply chain business process automation has facilitated: 1. Also. 4 crores.1000/. there may be a need to convenience the supplier to switch to cloud. Increased business for suppliers as the network exposed to better information on their offering and capability. What could be driver and challenges for adopting domain based SCM solution? 2.per month and hence the total cost could be less than what they spend. the estimated cost from the experience in case of supply chain suite could be lower at Rs. Ravi also concurred that there were other benefits when they implemented the sourcing procurement suite. 2. Reduced supply chain risk and scope to delineate risk and handle it better to ensure that there were no penalties 4. Why would CEL move SCM solutions to cloud? When they switch to CEL for cloud based solutions. However. If the suppliers have to pay per use subscription. how many could they afford? Transaction fee per user could be Rs. How this can be explained to them and make them transit to cloud? 4. These include: 1. 3. 4. Improved financial flows for better which helped suppliers to ease their fund flow and thereby committed to work schedules 3. No platform investment cost for additional participants Minimal business process change enforced Minimal internal resource requirement for change over Ease of training and adoption Case Question Deepa is confused on whether to probe further on cloud computing for supply chain network. Would that prelude CEL having to move on bringing supply network into cloud? Also. 2. Increased revenue for CEL and suppliers as the transparency helped to release redundancies and blocking of capacity. the challenges could be that of: 1.However.

About 3 component suppliers Rs. About 10 component suppliers Rs. About 10+ component suppliers Rs. 3 crores.100 crores. 7 crores. More importantly.40 crores. turbine and boiler with its auxiliaries. Also one must note that there could be parallel projects and supplier – customer relationships running. 3 crores. Lakshya 2012 . amendments and transaction guidance take place. 6 crores.70 crores. Since these are engineer to order or make to order kind of projects the transaction touch points become critical. for each order a number of discussions. Remarks for a typical 500 MW power plant Value Rs. 5 to 6 component suppliers Rs. About 3 component suppliers Rs.15 crores. 80 crores. About 3 component suppliers Rs. About 3 component suppliers Rs. Whenever there is a variance. it is followed with a number of touch points. BOP unit Coal/lignite handling plant Ash handling plant Cooling tower Water system Chimney Fuel oil handling & storage system Compressed air System Mill reject handling system Heating. About 4 component suppliers Rs.Annexure 1 CEL’s balance of plants business in power sector The BOP or Balance of Plant system comprises of all the system and utilities which are required to run thermal power plants starting from raw material input to waste output apart from the power island which includes the generator. About 3 component suppliers Rs.15 crores. CEL is offering also includes the system interface engineering between various packages and between main plant and BOP packages. About 20 – 24 component suppliers Note: The remarks column is indicative in terms of value and number of component suppliers.90 crores. About 4 component suppliers Rs. Ventilation and air conditioning Fire protection system Switchyard & Electrical system for BOP and so on.

249 33.17.1981 31.51 2232.of years-1)*100 Source: Central Electricity Authority Lakshya 2012 .28 3909. Thermal includes Renewable Energy Resources **Capacity in respect of Self Generating Industries includes units of capacity 1 MW above CAGR: Compound Annual Growth Rate=((Current Value/Base Value)^(1/nos.071 3.906 11.294 1.06.37 4226.42 6.872 2.315 52.526 663.472 18.11 6.3.2007 31.74 1471.44 *From 1995-96 onwards.086 83.986 26.75 2436.398 1.3.1991 31.699 95.93 4.613 88.273 74.1976 31.23 3.16 4171.54 9.900 Growth rate of 2010-11 over 200910(%) 11.1971 31.3.474 1.468 22.56 4646.753 1.2008 31.1996 31.54 15.517 2.3.326 34.99 840.775 1.24 3928.335 24.03.986 26.72 6.Annexure 2 Trends in Installed Generating Capacity of Electricity Non-utilities in India from 1970-71 to 2010-11 (Mega Watt) = (10 *Kilo Watt) Utilities As on Thermal* Hydro Nuclear Total Non-utilities **SelfRailways Generating Total Total Energy Consumption in billion KWH 3047.966 1.73.117 30.791 15.601 93.58 1477.787 16.26 4845.464 11.79 7.2010 31.82 8.157 21.629 16.2001 24.613 11.2009 31.2011 (p) 7.132 3.567 420 640 860 1330 1565 2225 2860 3360 3900 4120 4120 4560 4780 14.65 CAGR 1970-71 to 201011(%) 7.45.28 1.783 1.654 35.87 4816.3.279 6.59 3727.419 8.31 5693.271 22.709 20.3.083 73.383 8. (kwh) 1204.946 1.968 1.78 4508.909 36.54 Per capita energy consp.214 17.31.09 1928.153 32.53 1012.041 5.980 28.468 22.38 3.39 1361.768 60.626 45 61 60 85 111 158 1.25 5462.21 - 7.50 1902.287 1.101 5.563 29.09 4.504 8.24.157 21.967 45.1986 31.664 1.502 11.81 3497.032 1.93 - 15.3.986 25.562 2.44 3 Industries 31.474 32.5 2593.878 36.39 5.047 1.91 4.2006 31.329 1.3.769 16.626 1.980 28.975 1.77 3154.3.863 37.081 1.

New Development in ERP systems.Radovilsky. Annexure 4 Business Process of CEL sourcing Exhibit 1 Before SCM suite implementation Lakshya 2012 .docstoc.Annexure 3 Source: Dr.Z.

pdf 3.626-ROI-More-IDC-748758/ NSO. Ferguson & Ethan Hadar http://www. ERP – A manufacturing perspective www. hain%20Using%20Cloud%20Computing.takesolutions. Energy Statistics 2012.pdf Central Statistical www. 7.html Lakshya 2012 6.roccloud. https://www. Donald F. Optimizing the IT business supply chain utilizing cloud computing. http://mobile.Exhibit 2 After SCM suite implementation References 1.

Supply Chain Management Consultant.S. Disclaimer The views expressed here are of individual capacity and to be used strictly for academic discussions only. LIBA. Managing Director. Neither the author nor the company is responsible for any commercial decision based on this case material. Chennai for their comments. Vice President – Corporate Affairs. Centre for Logistics and SCM.Chandrasekaran.Ramesh G. The facts. Take Solutions Ltd & Director.Sridharan.Sai Sridhar H. Take Solutions Ltd Mr. Chennai ------------------------------------------------------------------------------------------------------------------------ Author acknowledges the support of Mr. figures and financials are illustrative and not factual or observed on any company. ------------------------------------------------------------------------------------------------------------------------ Lakshya 2012 . Vice President. The contents of this document cannot be reproduced without prior permission of the author.Acknowledgements: Author Dr. N. Take Solutions Ltd and Mr.

2012 23:59:59 hrs. Phone Numbers) The details of the participants SHOULD NOT appear anywhere else in the case solution Please attach your excel sheets/calculations to the mail if any Send your entries to “ “All the Best” Lakshya 2012 . please write to us at lakshwiz@gmail. The results of Round I will also be available on official website of Lakshya on or before Tuesday. clearly indicate assumptions and support them with suitable reasons under separate headings Solution format:  Font Size – 12.Rules and Guidelines       It is mandatory for all the teams to perform registration process on Lakshya website (” with the document name & email subject as “Factory_InstituteName_Team Name” The entries must reach us positively by Monday.nitie.5 line spacing  The file should be a Microsoft Word Document/PDF The front page should carry only  Name of your Institute  Team Name  Details of the team members (Name. September 17th. Shortlisted candidates of Round I will be informed via e-mail.       Incase of any queries.  Font Type – Times New Roman. 2nd October 2012. Email IDs.  The team size should be of maximum 2 people from the same institute A participant cannot be a part of more than one team participating for the same case. However one can participate in more than one Case The participants are allowed to form different teams for different modules The solution should not exceed 2000 words inclusive of all exhibits and appendices As mentioned earlier. The decision of the organizers of the contest and the panel of judges will be final and binding on all contestants.