Chapter 1

Conceptual Framework
Chapter-1
Introduction
The aim of any organization is to improve economically by reducing cost and improving
customer base. To achieve these goals initiatives towards supply chain management has to be
given proper thoughtfulness. The supply chain management of any industry has complex
objectives and numerous intractable constraints. Secondly, supply chain has a continuous
evolving nature and demands. Market, technology and innovation change rapidly and are
temporary. What is right today may not be as right as today in years later. This research tries
to identify evolving determinants of supply chain in current scenario and furthermore to study
their importance and effect on SCs of different type of organisations. From the review of
literature it is also clear that no study has been conducted on the comparison of supply chain
of selected automobile industry and pharmaceutical industry. So, the present study is an
attempt to fill this gap in the literature. Also the study will help the practitioners to take better
decisions regarding understanding of supply chain performance measurement determinants.
1.1. Introduction to Supply Chain Management

Business organizations in India have introduced new approaches in response to liberalization
and globalization. To meet the competitive advantages and to enhance business performance
new approach such as total quality management (TQM), just in time (JIT) (Chunning, and
Kumar 2000), business process reengineering (BPR) and supply chain management (SCM)
has been introduced. Simchi-Levi et al., 2008, has defined SCM as integration strategies,
having a goal of coordinating the functions across suppliers, manufacturers, distributors and
retailers. This ensures reduced operational costs with profit maximization across entire supply
chain by production and distribution of product and services in right volume, at right location
and at right time. Compton, and Brinker (2005) has mentioned types of cost structures to be
incurred on material costs, labour costs, transportation costs (Christopher, M. 1998) and R&D
costs etc. Managing cost savings result in R&D activities and innovations leading to a secure
future of an organisation (Batson, 2008; Binder, et al., 2008).Supply chain management of an
organisation thus involve managing integration of internal functions through understanding of
internal processes with their direct impacts on performance of entire supply chain
(Christopher, & Juttner, 2000; Pagell, 2004; Meijboom et al., 2010).Also to achieve this
mutual objectives a supply chain need to ensure a process of interaction and collaboration in
which purchasing, operations and logistics work together as a foremost important task.Supply
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chain management includes the activities associated with synchronization of movement of

goods and associated information from raw-materials stage through finished good form to the
end user with allied goal of delivering enhanced customer and economic value. Supply-chain
(SC) potential lies in the integration of entities within the organisation and between its
external partners. The latter include suppliers, distributors, carriers, customers, and even the
ultimate consumers. The key supply chain value lies with quantifying and communicating
customer satisfaction in terms of profit or revenue growth. Supply chain functional areas
include activities such as inbound and outbound transportation, warehousing, inventory
control, sourcing and procurement, with forecasting, production planning and scheduling,
order processing, and improved customer service delivery as value added part of the entire
process. Today globalization has opened boundary less businesses opportunities (Puigjaner,
and Lainez 2008). The consequences of globalization has imposed pressure on organisation
to restructure their supply chain and to adopt towards challenges of globalisation, increased
demand for integration of stakeholders, use of outsourcing to suppliers, reduce inventory cost
by vendor managed inventory (Y. L. Yao, el.at, 2008; T. Zhang et.al, 2007; S. Cetinkaya
et.al, 2000; Y. Aviv,et.al, 1998) and advanced planning systems (APS) have all lead to a
broadened supply chain definition (Meixell, M.J. and Gargeya, V.B., 2005). Increased
importance of information systems is depicted as ‘building blocks’ of ‘house of supply chain’
by Stadtler, (2005). Supply chain management (SCM) aim at satisfying requirements of all
stakeholders and the consumer in chain through integrated planning, co-ordination and
control of all business processes and activities with delivery of superior value at minimum
cost (Zhang et al. 2011;Van der Vorst and Beulens, 2002). Various value-adding investments
like; cost reductions and better market access for target achievement, improve performance
by vertical and horizontal integration strategy(L. Li,2002) are achieved through elimination
of redundancies or duplications, low inventory level, shorter lead times, greater control over
supply and distribution, access to partner networks and lower fixed costs (Manuj, I. and
Mentzer, J.T. 2008).According to Melnyk et al., 2007, SCM has to keep evolving constantly
and changing in response to more strategic, dynamic and customer-driven supply chains to
solve issues related to strategic changes in the firm, changes in technology, competitive
actions, changing suppliers and customer demands and roles (Ramana Reddy, M.et.al, 2013).
To maintain competitive advantages in a market firm need to enhance firms’ ability to
develop and maintain strategic supply chain management. Supply chain can target at
determining maximum effectiveness and efficiency across entire chain by developing the
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performance measures and metrics that fully integrate a supply chain for the concerned
organizational success (Gunasekaran et al., 2004, Thomas, D.J., 996).
Figure 1.1: Supply Chain under Pressure
Various forces of SC shown in Fig.1.1 arise from differences in strategic, operational and
tactical levels in a chain due to difference in product, market and production complexity
involved within a chain. Supply chain has to be flexible towards market changes along with
realization of business aim of high product quality at minimum possible cost and maximum
customer service and satisfaction level. Among other approaches, SCM has influenced
strategic, tactical and operational planning and control level to considerably increase an
organization’s productivity and profitability (Sahay, et al., 2006; Fawcett et al., 2008; New,
1997; Cox, 1999; Demirkan, and Cheng, 2008).
1.1.1. Tactical Level
1.1.2. Operational Level

At operational level, functions of seeking, buying, storing and distributing goods have been
brought together.
1.1.3. Strategic Level

SCM at strategic level has transformed the way manufacturing and non-manufacturing
operations meet customer need (Bernardes, and Zsidisin 2008). Supply chain outcome is a
result of contribution of members involved at all stages to directly or indirectly fulfil a
customer request in that supply chain (SC). The aim of supply chain is to generate profit for
organization with customer satisfaction and for this coordination has become strategically
important. An important fact to realize about supply chains is that SC of different industries is
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dissimilar as they address different needs. It can be argued that good business performance is
predicated on the formation of an efficient supply chain; that integrates supply chain
management with strategic planning in complete and irreversible way. Today a more
inclusive relationship is achieved between organizations and their upstream suppliers and
downstream customers to minimize ambiguity and enhance control of supply and
distribution. Increased sharing of information have turned both inter and intra firm barriers
into alliances which has increased the financial and operational performance of each channel
member through reductions in total cost and inventories. Alliance with suppliers resulted in
improved service, technological innovation and product design. Supply chain management
objectives could be achieved through proper selection and implementation of SC
performance measure that may help organizations to manage and control the flow of
operating systems, which is associated with inventory control and scheduling of activity
system, across the whole range of resource and within forced time constraints. Both varying
customer needs and supply chain performance require control to meet the broad competitive
and strategic objectives of quality, speed, dependability, flexibility and cost (Slack, et al.,
1991; Gunasekaran et al., 2001; De Toni and Tonchia, 2001). Today performance of an
organization is determined by decisions and actions among global alliances and is no longer
pervasive to the firm. Supply chain (SC) today deals with new forms of organizations, such
as global manufacturing, virtual enterprises and logistics evolution.
1.2. The Supply Chain 2020 (SC2020)

SC2020 project addresses the very issue of the future of supply chains. The MIT Centre for
Transportation and Logistics has commissioned a multiyear study by the SC2020 project to
identify and analyze the factors that are critical to the success of future supply chains. It is
designed to meet a series of objectives in two phases:
 Phase I: The focus of phase-I is on understanding the underlying strategies, practices,
and macro forces that drive today’s successful supply chains in a broad range of
industries. Specifically the aim is to understand the evolving business strategies,
operating models, practices and principles that are responsible for driving improved
performance.
 Phase II: Phase-II is about using knowledge and learning attained from Phase I and to
leverage that leanings to sketch the future using scenario generation and planning
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methodologies which could highlight the actions that organizations should follow to
ensure supply chain excellence.
1.3. SCM Objective

Supply Chain Management (SCM) tool can help corporate accomplishes both strategic and
operational objectives of the organization. SCM achieves its goal by reducing working
capital, taking assets off the balance sheet, accelerating cash-to-cash cycles, and increasing
inventory turns, and so on. Integrated Supply Chain Management Program, reported benefits
of reduced costs in areas such as inventory management, transportation and warehousing, and
packaging along with improved service level through techniques like time-based delivery and
make-to-order; and enhanced revenues and impressive supply-chain accomplishments.SCM
achieve cost reduction by inventory reduction and customer satisfaction by improving on-
time deliveries using IT infrastructural support(F. Sahin and E. P. Robinson,2005) and thus
increasing the revenue.
1.4. SCM Need

The intense, widespread interest in supply chain management lie with many success stories of
companies with payoff potential achieved by SCM. Companies like Wal-Mart’s, Dell
Computer and many other have achieved a dominant position reconfiguring the supply chain
to respond almost immediately to customise orders, thus virtually eliminated standing
inventory from the pipeline. With the correct information of customer's true need in hand,
companies can design their supply-chain processes. To remain competitive in market
challenges such as reengineering, globalisation and outsourcing with impact and method of
Supply Chain Management to deal with them need to be addressed (Sharma, V.K., 2008).
Firm’s competitiveness can be enhanced by considering in account the intangible assets that
include capability of partnering relationships with customers, suppliers and associated firm to
provide advantage of efficient performance of the related supply chain. Supply chain
maintains resources on heterogeneity of knowledge based on cooperative system enterprise-
wide. Removal of knowledge barriers through knowledge sharing in a supply chain and
acquisition of external knowledge help in value creation, innovation, overall competitiveness,
synchronization and strengthening of a particular supply chain. Besides, as recognized by
Simchi-Levi et al. (2003), the supply chain processes need to be as flexible as possible to
respond to the variety of customer requirements at minimum cost and by means of supply
capacity. To create flexibility, the members of the supply chain can redesign the distribution
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system, product, production process and flows of information and knowledge to help create
flexibility across supply chain to meet customer demand in cost-effective manner by
providing insights into the topic of intellectual capital (IC) management for redesigning
production process, product and distribution system. Supplier selection and evaluation is
necessary due to supplier’s critical role in a supply chain (Verma, R., 1998). Maintaining
long-term partnerships with fewer but more reliable suppliers is need for firm’s success to
deal with risks regarding their supply due to suppliers’ lead times or defective batches of
parts (Elahi et al., 2011a, Ho et al., 2010). Agility and having systematic, adequate
knowledge to properly implemented programs such as vendor-managed inventory and
knowledge management portals are essential strategies and decisions which are integrated
with their supplier selection and SCM, especially in the automotive industry Liew, C.A.
(2008). He introduced strategic integration concept of customer and knowledge management
as a strong implication for the long-term competitiveness of organizations with relationship
management (CRM) also applicable to SCM as a strategic issue.
1.5. Motivation for Research

Strategic and operational complexity management are hardly flexible to the process industry
then what they are usually conceived for the discrete manufacturing industry. Process
industry is lagging behind in the approaches for managing complexity .A comparison method
for the two types of manufacturing can be performed by considering driver classification as
internal and external complexity drivers to show the difference between the applied methods
in the process industry and the discrete manufacturing industry. Process industry mainly
faces the challenges which are outcomes of drivers, like legal and political factors whereas in
the discrete manufacturing industry challenges relating to product structure, the dynamic of
technology, are relatively more influencing. Thus achieving for better visibility or
transparency on materials and resources in the process industry are more important for
companies than others (Bhakoo, and Chan, 2011). Researchers as Kirytopoulos, K., et al.
(2008), suggested a model to rank suppliers in pharmaceutical industry, have often proposed
models to rank special tiers of SCs rather than the whole SCs from supplier’s supplier to
customer’s customer. Organization can improve their competitiveness by finding out the
strengths and weaknesses of their SCs via comparing their SCs with the best and most
effective SCs from different facets. SCs comparison can be accomplished through suitable
criteria. It includes determining business stages in the extent of supplier’s supplier to
customer’s customer. Business stages include the main operations and activities, from
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acquisition of raw materials till conversion to the final products being consumed by the end
customers. Business stage decomposition into processes can be followed by process
benchmarking; business stages benchmarking and supply chain ranking to compare SCs at
process and business stage level.
1.6. Background for Research

The growth of supply chains has brought forth the issue of Supply Chain Management
(SCM). The SCM is defined by Simchi-Levi, as a set of approaches utilised to efficiently
integrate suppliers, manufacturers, warehouses and stores so that merchandise is produced
and distributed in the correct and right quantities to the right locations and at the right time so
as to minimise system wide costs while satisfying service level requirements. In the present
scenario, supply chains in different stages of evolution coexist and need to be managed
differently. Accordingly the stage of evolution of a supply chain has significant role and
chaotic implications for the way we measure its performances. Major issues of supply chain
management are given as below -
 The customers choices of different supply chain pose the interesting question of
whether managing supply chain will improve efficiency of automobile operation.
Hence, the objective of this research is to assess the effects of different supply chain
management strategies on productive efficiency in the Indian automobile industries.
We compare the evolution of productivity under the direct and coexisting
direct/indirect (hereafter, referred to as ‘non-direct’) distribution channel strategies.
 Issues with performance measurer system in SCM.
 There is no universal performance measurement system that suits all organizations.
 Instead of weeping in forest of conceptual theories, actual participation of
instrumentalities measuring performance at practical level is more daunting as there
is no consensus on what should be included in supply chain process.
SCM trade-offs and policies can be characterised by the hierarchies such as strategic,
operational and tactical levels to exert suitable control. Further performance measure of
targets set at strategic level and the result achieved is dealt with the tactical level (Adams et
al., 1995 ;). Organisational goals of competitiveness and its level of adherence to them,
corporate financial plans, and investigation of policies are the decisions to be made by the top
level management and can be measured by the strategic level. Mid-level management
decision is based and effected by performance measured at tactical level of SCM. An
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effective performance measurement system must represent organisational goals to reflect a

balance between financial and non-financial measures and should related those financial and
non-financial measures to strategic, tactical and operational levels for decision making and
control. Low level manager’s decisions are based on operational level measurements and
metrics which are based on access to accurate data. Organisation may not succeed to fully
integrate their supply chain due to failure towards development of the performance measures
and metrics required to maximize organisational effectiveness and efficiency. Firms need
continuous improvement to look for tools that improve their core competitiveness using
SCM. A balance approach suggests organisations strategic decisions and external reporting to
be based on financial performance measurements whereas non-financial measures can better
handle the day-to-day control of manufacturing and distribution operations. An appropriate
performance measurement system should facilitate decision of assigning metrics to their
appropriate position. Furthermore, flow control through computer generated production
schedules; improve controlling of inventory, better action and meeting government
regulations across the whole range of resource and with time constraints. The broad
competitive and strategic objectives of flexibility, quality, speed, dependability and cost
enhancement can be achieved by flow control and is essential for time variant customer needs
and supply chain performance. The supply chain must be able to measure and compare the
output of the processes with a set of standards in order to be controlled to allow comparison
of planned and actual parameter values. Once the parameter values are compared to planned
and actual parameter values the difference can be re-aligned between monitored value and the
defined value. For example, comparing the high transportation, movement and distribution
time, costs analysis of the layout of facilities and then their improvement through close
monitoring and subsequent improvements from new design approaches like re-engineering
can tackle performance improvement process. An integration of total flow of a distribution
channel from supplier to ultimate Customer is philosophy behind Supply chain management
(Ellram, and Cooper, 1990; David, et al., 2002; Yigitbasioglu, O. M. 2010). It is the
management of upstream and downstream relationships – both within and beyond their
operations – with suppliers and customers to deliver superior customer value at less cost to
the supply chain as a whole ( Weber, 2002). Effective supply chain strategies for creating
competitiveness revolve around on-time delivery of competitive quality goods and services,
at a reasonable cost, involving right business partners (Hobbs, et al., 1998; Easton,
2002).India has in ample availability for cheap, skilled labour, entrepreneurial talents,
scientific and technological resources and is the fastest growing market by being fifth largest
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country in terms of gross national product (GNP) and purchasing power parity (PPP). Indian
organisations have to improve and innovate on competitiveness in product design, quality and
on-time delivery to produce maximum efficiency both within and beyond their operations
(Sahay, 2003; Joshi,D.,et.al,2013, Sahay, B.S, 2003).
1.7. SCM: Indian Manufacturing Industries Context

Supply chain management involve a set of processes having a measured set of activities with
a defined structure to make available its services to a particular set of market or a group of
customer.SCM covers addressing the need for management tools for all such processes
involved in a supply chain. The processes identified involve demand management,
manufacturing, inventory management, order processing and fulfilment, warehousing,
transportation, distribution management, import/export management, product development,
promotions planning, and customer service (Hewitt, 1994). The supply chain processes for
Indian organisations have been evaluated to identify role of usage of management tools in
managing challenges of SC in such a vast country. Indian organisations are diverse markets
with one of the world’s fastest-growing economies. Government regulations, business
practices, technology capability, transportation infrastructure, etc and their management make
supply chain management a complex task. By aligning business strategy with supply chain
strategy along processes, management focus and objective can help in achieving
competitiveness and efficiency by operational excellence and profit maximisation through
customer services. Alignment of business strategy and supply chain strategy depends on
market situation and on organisations capabilities and their processes and management focus.
This involves support and involvement of top management for quick adoption of advanced
optimisation to act fast to capitalise on the opportunities to be competitive with the world
market by focus on the business processes. Optimisation of supply chain has immense
potential in the changing Indian economic environment. Optimisation of supply chain has
both a strategic and operational impact on managing supply chains for profitability.
Information Technology applications are not implemented completely as low importance
given to digitisation by the top management. In comparison to gross sales the IT budget in
the organisation are even less than 0.1 per cent of gross sales. Less importance is given to
integrate various supply chain partners with lowers effectiveness indicating biasness towards
stand-alone modules versus integrated solutions. The actual benefit of the most widely used
software packages for ERP/MRPII, demand management, for materials accounting, CRM,
warehouse management, sales and distribution, and shop scheduling software in the Indian
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environment lie when these packages could be integrated with supply chain management. A
supply chain involves various stages and sharing access to private data enables monitoring
the progress of products and orders through those various stages or processes (Simatupang
and Sridharan, 2004). Integration across SC network via information sharing between
business partners help in consistent data acquisition, processing, storage, presentation,
retrieval, and broadcasting of demand and forecast data, inventory status and location, order
status, cost-related data, and performance status(G. P. Cachon and M. Fisher,2000; F. Chen,
2003). Supply chain has changed the definition of organizations from ‘traditional’ to
‘networked’ organisation .The use of IT for integration and collaboration, are all depicted as
‘building blocks’ of ‘house of supply chain’ Stadtler (2005). Information systems’ plays an
important role to support supply chain integration and management for the new organization.
Swafford, et al. (2008) reveals role of IT integration in providing SC flexibility, SC agility
and thus result in a competitive business performance. Information sharing enables effective
decision making from processed data and provides improved visibility across entire supply
chain. The effective aspect of information shared is visible only if it is, relevant, accurate,
timely and reliable (Simatupang and Sridharan, 2004; Thatte, 2007). Greater visibility
enables better decisions and actions capability across entire SC (Davenport, et al, 2001;
Thatte, 2007). The first step in supply chain competitiveness is having clear understanding of
supply chain concepts and willingness of supply chain partners to openly share information
(Lummus, and Vokurka 1999; cited in Thatte, 2007).Data are available from many sources
like a typical large and/or multi-centre clinical or electronic data transfers from sites and
central laboratories. Properly available, accessible, current, flexible and understandable data
from many disparate forms and formats, in its usable form help in testing hypotheses, trends
and opportunities identification and derive fruitful conclusions. IT tool are seldom used to
make use of data as most valuable resource for providing information using data mining
techniques in a pharmaceutical environment. Regulating drug testing, prediction of benefit
for a class of patient from a drug and to find desirable activity of a drug are the task that
could be optimized by use of data mining tool. The processed form of ever-increasing
amounts of data into information can be of great competitive advantage for pharmaceutical
environment. Another issue is of managing and use of enormous data existing in
pharmaceutical industry in various forms like warnings, pharmacological properties, multiple
trials going on across many projects for the same compound/drug, contraindications, dosages,
etc. Furthermore processed form of data by increase adoption of technology about the
products in market can be used for increasing revenues by addressing marketing strategies to
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better target and market to certain customer segments by the pharmaceutical organisations.
Data mining application play an increasingly important role in Pharmaceutical industries and
are deployed as decision support tools for strategic decision making to meet Healthcare
decision to support challenges of complex and diverse data and knowledge forms and tasks
(Sheng, and Liu, 2000). Highly informative and intelligent multifaceted views and reports on
key performance indicators of SC at different levels along with providing information on
regulatory compliance reports help in monitoring and tracking R&D. Support is provided for
handling and scaling of large complex data which is spread geographically distributed and
can be analyzed. Data mining can provide intelligence in terms of information regarding
physician prescribing characteristics, preferred drugs, disease-related information, and
regional preferences of prevailing diseases. IT tool such as Data mining in pharmaceutical
industry perform Clinical data analysis during product development and launch to see trends,
irregularity, and risk during development ( Hampshire, and Rosborough ,1993). Inspecting
consumer behaviour on prescription renewal and product purchases for Sales and marketing
analysis of product on basis of profitability. It helps recognize target customer by analyzing
their ability to pay, demographics and historical health trends. It help in operations and
financial analysis by dissecting buying trends to target sale according to geographic region
size or penetration benefiting benefit both the business and the customer. High prescription
rates of a certain drug or treatment by a physician provide information about new drug that
treat complementary symptoms or conditions and help create more drug and product
variations tailored directly towards different age groups and risk factors. Supply chain
analysis from analysis of buying tendencies and treatment outcomes improve production
schedules, efficient inventory management and help to prevent stock-outs at retail and
pharmacy locations. Data mining solutions for the huge data volumes as a result of clinical
trials in the epidemiological domain provide tools to acquire to extract relevant information
from it, provide knowledge which can be used by all persons involved with pharmaceutical
sector (Rada, 2002; Armoni, 2002). Identification and quantification of pharmaceutical
information using Data mining can support(Dutta, A. and Heda, S. (2000)) in the clinical
treatment pathways ,clinicians task and administrative and management tasks, health
organizations patients, insurance companies ,physicians, regulatory agencies, pharmacists,
pharmaceutical manufacturers , drug testing companies , investors etc. Integrating diverse and
geographically spread data can save expensive and time-consuming efforts of pharmaceutical
companies to perform a thorough job of data collection, especially when most of the
information is required by law. The data mining techniques of neural networks to study the
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effectiveness of the drug by feeding the information on a drug can measure how soon the
drug deals with the medical condition for faster restoration of the body’s normal functioning.
It help in statistical analysis of clinical trials to find adverse reactions associated with a
specific drug and aggravates the adverse reaction for example age, sex, and obesity.
Prediction of drugs issues affecting the success of a marketed drug and its impact determine
the future development of the drug. Discovery of new drugs involve finding drug compounds
with desirable characteristics by clustering, classification and neural networks techniques of
data mining and grouping of compound according to the chemical properties of the molecules
via cluster analysis for therapeutic grouping of the new molecule. Measuring the chemical
activity of the molecule for specific disease say tuberculosis help in finding out which part of
the molecule is causing the action and how (De Cooman, 2005; Jayanthi Ranjan, (2009)).
1.8. Introduction to Automotive Industry

The Indian Automobile Industry has reported improved performance in all sectors. The
Industry has seen a massive growth in the two - wheeler and car segment. As of 2010, India
is home to more than 40 million passenger vehicles and more than 2.6 million’ cars were sold
in India in 2010 (an increase of 26%), making the country the second fastest growing
automobile market in the world. According to the Society of Indian Automobile
Manufacturers, annual car sales are projected to increase up to 5 million vehicles by 2015 and
more than 9 million by 2020. (By 2050, the country is expected to top the world in car
volumes with approximately 611 million vehicles on the nation’s roads). Maruti Suzuki and
Hyundai have made a tremendous growth with their penetration in the European market. In
the domestic market both passenger car and utility vehicles has reported higher sales. It
should be noticed that in the domestic market Hyundai reported decline of domestic car sales
and Maruti Suzuki reported 21.9% rise in sales. Furthermore, even Mahindra & Mahindra
also reported hike in sales with a rise of 9.4% in its domestic sales. Medium and heavy
commercial vehicles are also on a gradual recovery phase.
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Figure-1.2: Number of Automobile produced in India(in millions)

Note: FY18*upto February 2018
Source: Society of Indian Automobile Manufacturers (SIAM)
In recent years, India has emerged as a leading centre for the manufacture of small cars.
Hyundai, the biggest exporter from the country, now ships more than 250,000 cars annually
from India. Apart from shipments to its parent Suzuki, Maruti Suzuki also manufactures
small cars for Nissan which are sold by Nissan in Europe. Nissan will also export small cars
from its new Indian assembly line. The firm is also planning to launch an electric version of
its low-cost car Nano in Europe and the U.S. Mahindra & Mahindra is preparing to introduce
its pickup trucks and small SUV models in the U.S. market.
Figure-1.3: Exports -Auto Component Industry: 2017-18
Bajaj Auto is designing a low-cost car for the Renault Nissan Automotive India, which will
market the product worldwide. Renault Nissan may also join domestic commercial vehicle
manufacturer Ashok Leyland in another small car project. While the possibilities are
impressive there are challenges that could thwart future growth of the Indian automobile
industry. Since the demand for automobiles in recent years is directly linked to overall
economic expansion and rising personal incomes, industry growth would also pickup speed if
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the economy gains gradual strength. The success of an automobile company depends on some
functions carried out effectively and one among them is SCM.
1.8.1. Evolution of Auto Industry

The Automotive industry supply chains have undergone different generation over the years.
The 19 th century has been the beginning of era of craftsmanship production with highly
skilled workers and a lot of time. The supply chain lack proper coordination and the vehicles
were quiet expensive. The system generally had many suppliers with few cars produced by
any one automaker. Henry Ford developed the concept of mass-production later in the early 2
0 th century. The idea was towards an attempt for shorter vehicle manufacturing time with
inventions of assembly line, ease of assembling task and all parts to be present as
interchangeable in cars. It required high inventory levels, many workers, and a lot of rework.
In the mid 2 0th century production practice developed at Toyota lead to Lean production
concept .It is about coordination along the supply chain to eliminate waste by teamwork
within the manufacturing plant in the pursuit of perfection. Coordination reduces inventory
levels and enables use of Just-In-Time (JIT) system. Lesser inventory levels mean less
invested capital and greater flexibility (Womack et al., 1990).The 20th century moved to more
modular production trends in the automotive industry. It includes suppliers building larger
subassemblies like an entire instrument panel or vehicle interior of the vehicles before the
assembly stage. Modularity can be achieved in design, in manufacturing, or in organization
and is likely to reduce costs and also improvement in flexibility ( Camuffo, A., 2000). This
included outsourcing some of the design, testing and sub-assembly of modules tasks to
suppliers (Camuffo, A., 2000).Modularity in organization lead to flexibility ,improved
efficiency by reduced complexity through supplier consolidation along their supply chain
(Cole, et.al, 2003). Globalization lead to better collaboration with suppliers and their
expertise in building entire modules, not just parts. The smaller suppliers not having the
capacity to adapt to this new standard will either have to plunge down to a 2 "d tier supplier,
or go out of business (Doran, 2003).
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1.8.2. Auto Industry Structure
Fig-1.4: Automobile Industry Structure
The automotive industry has upstream suppliers, the Original Equipment Manufacturers
(OEMs), and the downstream dealers and distributors. First tier suppliers provide larger
modules to the OEMs being closet to them in the supply chain. The industry is classified into
a three tier structure:
• Tier – I: Integrated systems to OEMs
• Tier – II: Finished components to tier–I suppliers
• Tier – III: Raw material and basic components to tier–II firms.
First tier suppliers provide larger modules and parts for the final assembly tiers. Other tiers
form the raw material, component and small modules suppliers. The numbers of 2 nd and 3 rd
tier suppliers are often in the thousands, while a manufacturer might only have tens to
hundreds of 1first tier suppliers (Standard & Poor's, 2004). As design is pushed up the supply
chains by the OEMs, the I'st tier suppliers are becoming increasingly important. This requires
that suppliers have to start adapting by gaining new expertise to build whole sections of
vehicles in the form of modules. At the same time they have to handle price reductions
pressure by OEMs on one hand and to deal with rising raw material costs on other end. It
makes situation difficult to improve efficiency and to maintain the margin. The OEMs market
the vehicles, complete the final assembly of modules and components, and usually ship the
cars and trucks to the distributors via rail. In automotive retail the dealers receive the vehicles
by truck either directly from the manufacturing plant, or from a vehicle distribution centre.
15
The dealers generate revenue from the sale of new cars, used cars, and service parts. An
important distinction here is that service parts and accessories have different and separate
supply chains, yet are still sold at dealerships front. Parts in the aftermarket may come from
components suppliers as well as the OEMs at the repair, maintenance, or customization
shops. The aftermarket is involved with all purchases that are related to the vehicle coming
for repair, maintenance, or customization after the original sale.
1.8.3. Consumer and Sales

The segmentation of consumers is arbitrary and dependent on the marketing department of a
company, but the same general categories exist across all of the manufacturers. The first step
in the process is generally to identify a consumer demographic that the company wants to
address. From there the marketing department can determine the most suitable vehicle types
and price classes for the most effective sales strategy. There are only a few sales channels
that serve these customer segments. The vast majority of sales are through dealerships. Then
there are some direct sales through e-commerce sites, which are mostly hosted by dealers as
well. Finally there are fleet sales, which are for rental car companies and the like. The dealers
are given some incentives to carry the inventory. Generally the automotive manufacturers
have their own financial services divisions, which provide leases to the dealers those,
compete with financing options that banks provide. The purpose of these leases is twofold.
First, the automotive manufacturers are interested in capturing as much market share as
possible. Making vehicles more affordable gives dealers a reason to buy more vehicles. The
second purpose is that most manufacturers are interested in maintaining economies of scale
and a stable production output. By providing price incentives with leases, they are able to
push vehicles out to the dealers with less resistance (Cocheo, S. , 1986).The growth of auto
industry has been credited to the efforts of government initiatives and the domestic leaders in
automobile industry in India who helped achieve India a global position across the world.
16
Fig-1.5: Turnover- Auto component Industry: 2017-18

(Turnover includes supplies to OEMs, aftermarket sales and exports)
1.8.4. Government Initiatives

As an initiative, India has focused on initiatives like Make in India, Automotive Mission
Plan 2026 and National Mission for electric Mobility 2020 to further support the growth
and global challenges of Indian automobile industry. India under Faster Adoption and
Manufacture of (Hybrid and) Electric Vehicles (FAME) scheme is going to obtain electric
vehicles and set up charging infrastructure to bring down pollution level especially for shared
mass transport in major cities .As a viable clean energy mode, Energy Efficiency Services
Limited (EESL), under Government of India, initiated with 150 and 250 e-cars planning to be
procured from Mahindra and Mahindra and Tata Motors Ltd respectively. The automobile
industry in India overtook Germany as fourth largest global automotive market with a total
sale above 29 million in FY Apr-Mar 2018. The industry is making large investments in
R&D to implement BS VI emission norms, electric vehicles (EV) and improved safety
standards to provide a boost to vehicle sales.
Figure-1.6: Product Range of Auto Component Industry
17
1.9. Introduction to Pharmaceutical Industry
1.9.1. Overview
The pharmaceutical industry is different from other industries as it preserves universal
entitlement of good health to people (Rossetti and Liu, 2009; Aronsson et al., 2011;Fein,
1998; Danese, et al., 2006).Continuous innovative drugs provide inexpensive and effective
means towards good health. The pharmaceutical industry faces considerable challenges due
to drug counterfeiting, little awareness towards its challenges and due to problems of lack of
R&D etc. Pharmaceutical industries have strategic and operational differences from most
other industries owing to difference in nature of its products and services.
1.9.2. Key Feature

The sustainable revenue in pharmaceutical stream stems from research and development
productivity .Pharmaceutical industries has the foremost and most distinguishing feature of
generating sustainable revenue by the introduction of innovative new drugs to the market.
Therefore the biggest challenge of pharmaceutical industry lies with research and
development productivity. The pharmaceutical industry is characterized by high risk of large
invested capital in product development and thus need to manage portfolio using flexible
asset. Regulation and registration ties market access through sourcing based decision with
slow, limited and costly sourcing changes. Also inventory cost and sales value are determined
by customer service rather than inventory control as a priority. Also Doctor’s preference play
role of an important determinant for drug or treatment along with other things. Thus revenue
is improved at cost of high inventory levels by marketing, sales and operations teams to
maintain very high product availability.
1.9.3. The Business of Drug Development

Drug development companies develop new drugs by investing huge amount of money with
a very high risk against success and if successful the market is too richly rewarded for such
behaviour. Launch of a new drug successfully can be considered sheer luck of a company.
Furthermore, drug research and development involve long, risky and expensive phase at each
level of drug research development but, in last if a drug is successful, it is a financial reward
to the company which more than justifies the risk. The value chain has to make important
decisions as the process progresses from one stage to the next. The job to mitigating risk
continues even after the product is launched in market. Following the product lifecycle
18
appropriate measure and actions are needed through the entire product life cycle to stem out
revenue generation and optimization by applying management approach. The solutions
available to the industry is at a stage where significant strategic shifts to remedy the situation
in the corporate policies fall in two categories viz improvement of organisation’s operational
supply chain structure and investing and improving in their R&D productivity.
1.9.4. Pharmaceutical Industry in India

The pharmaceutical industry of India is advancing aggressively globally and stands 4th in
terms of volume and 13th in value terms across the world (Report of the Taskforce, 2008).
This growth is a contribution of several big companies like Cipla, Dr Reddys Labs, Lupin,
Sun Pharma. India has a historic background in field of medicines with indigenous form
called Ayurvedic or Unani. Later during British regime raw material was exported from India
and its finished form by foreign countries used to be imported back to India and could hardly
meet the requirement of the country. Later during 1919 and second world war many Indian
company came up some are like Zandu pharmaceuticals and Unichem etc which could
satisfy about 70 percent of country’s Medicinal requirements. The revenue generation, after
drug is introduced to market, depends on its availability and market size for demand.
Pharmaceutical Mergers and/or Acquisition may not be as significant for revenue making in
long runs. The Indian pharmaceutical industry realized its current status during its post
independence period .Government of India took certain measure to promote industrialization
to meet Indian need by enabling possibility for self stimulated achievements. Drug Price
Control Order (DPCO), FERA, Indian Patent Act (IPA), import tariff and commencement of
domestic industry like Indian Drugs and Pharmaceutical Limited (IDPL) and Hindustan
Antibiotics Limited (HAL) paved a way forward for growth of Indian pharmaceutical
industry. Today the Indian pharmaceutical industry consists of various units in organised
sector, the public sector, joint sector and the remaining in the private sector. Of the private
sector, some units are involved in manufacturing of only bulk drugs and the remaining units
manufacture both bulk drugs and formulations. Some units are "very large scale units" and
the remaining units belong to "very small to medium scale unit”. The growth of
pharmaceutical industry has been the contribution of domestic company's and contribution to
market in terms of inflow by Foreign Direct Investments (FDI). To further boost the growth,
the large Indian companies, have concentrated on its infrastructure and technological
enhancement both in the domestic and international market. The observable evidence about
Indian market growth in form of export growth, increased local entrant in formulation drug
19
and bulk drug, increased capital investment and increased the R & D expenditures with
decrease in the imports growth rate. This symbolizes optimistic sign about the increasing
presence of pharmaceutical industry across the global market. The Indian Pharmaceutical
Industry is also among top five producers of bulk drugs. Firms are either in formulations or
production of bulk drugs or may manufacture both. India is the largest provider of generic
drugs globally. Indian pharmaceutical sector has an important position around the globe
.India supplied about 80 per cent of the antiretroviral drugs to combat AIDS, fulfil generic
demand of 40 per cent in the US, over 50 per cent of various vaccines demand globally, and
25 per cent of all medicine in UK. The pharmaceuticals sector of the country has the potential
to steer the industry ahead to an even higher level. The pharmaceutical industry is a highly
regulated industry. It is a uniquely difficult system with product of life altering nature. It
seems certainly worth investigating supply chain issues of such a multi-billion industry. The
pharmaceutical industry plays an extremely critical role in interests of a nation and makes a
large contribution to the national GDP. The pharmaceutical industry has evolved over time
with mankind by applying latest knowledge to old and new diseases.
1.9.5. Indian Pharmaceutical Position

India has Serum Institute of India Ltd as the world's largest vaccine manufacturer for Polio
vaccine, Pertussis, Diphtheria, r-Hepatitis B ,Tetanus, , Hib, BCG, Mumps, Measles, and
Rubella vaccines. It is focused on delivering affordable innovation. Biocon, the largest
biotech company in India focus to reduce diabetes, cancer and autoimmune therapy costs by
deliver of reasonably priced healthcare way out to patients, partners and across the globe.
Biocon's key innovations and India's first indigenously produced monoclonal antibody
BioMAb-EGFR®, is available for head & neck cancer. An affordable insulin delivery device
has been introduced by Bicon INSUPen® in India. It is an emerging global biopharma
enterprise, serving its partners and customers in over 100 countries.
Figure-1.7: Notes: F - Forecast, CAGR - Compound Annual Growth Rate, CY –

Calendar Year, E Estimated
Source: Department of Pharmaceuticals, PwC, McKinsey, AIOCD AWACS
20
1.9.6. Global Position of Indian Pharmaceutical

India provide as a base for plants having approval from agencies like US FDA, ANDA
(Abbreviated New Drug Applications) approved Drug Master Files (DMFs) ,US MHRA
(Medicines and Health Care Regulations ) UK (United Kingdom), HPB (Health Protection
Branch) Canada, TGA( Therapeutic Goods Administration) Australia and also approved
plants with Indian origin. A relative interpretation to seek about large sized firms and small
and medium sized firms (SMEs) can be drawn by considering period of liberalisation and era
between globalisation and post globalisation (1990’s and 2000 onwards) including post Trade
Related Intellectual Property Rights (TRIPs) period. In the segment of Active Pharmaceutical
Ingredients (APIs) India ranks third in the world producing about 500 different APIs (Report
of the Taskforce, 2008). After USA which has 169 ANDA approval (needed for marketing
generic drugs in the US), India had the highest number of 132 approvals. Indian
pharmaceutical industries are doing extremely well in export opportunities in global market
for both regulated and semi-regulated markets by showing a growth in export of
pharmaceutical products worth US$ 16.8 billion in FY17, and target to reach US$ 40 billion
by 2020, the American continent, followed by a 19.7 per cent to Europe, 19.1 per cent to
Africa and 18.8 per cent to Asian countries. The export opportunities for Indian drugs arise
from US as the key market and from more than 200 countries around the world. Indian
generic drug medicines account for 20 per cent of global generic drug exports and with this
India lead the world’s as largest provider of generic medicines.
Figure-1.8 Notes: CAGR - Compound Annual Growth Rate, 1 – Import from April 2015-
December 2015.
Source: Department of Commerce India, Department of Pharmaceuticals, India Business
News, BMI
21
The characteristics that distinguish Indian pharmaceutical industry globally are given
below:-
• Adaptability for new technology
• Manufacturing competence of International standard
• Abundance of highly skilled , low cost technically sound professionals and other
labour workforce availability
• Scalable process
• Chemistry and synthesis skills
These differentiable characteristics of India make it suitable to produce pharmaceutical
products of high-quality yet of low cost. The Indian pharmaceutical industry is coming up in
various promising fields like contract research, bioinformatics, clinical data management and
clinical Trials and Active Pharmaceutical Ingredients formulations and biotechnology with its
radically developed and technology advanced infrastructure. India export Finished Dosage
Combinations (FDCs), biopharmaceuticals, clinical services, Active Pharmaceutical
Ingredients, vaccines, and other pharmaceutical products at a cost effective basis over the
globe.
1.9.7. Pharmaceutical Industry Structure

Pharmaceutical industry has numerous ways to segment it because of its big and
complex structure which comprises of numerous heterogeneous segments. Segmentation can
be based on account of its unique requirements on basis of the product type, such as branded
drugs, generics, OTC etc. The nature of the drug is another basis of segmentation, i.e., a
chemical or small molecule drug versus a biologic or large molecule drug. Customized
supply chains are needed due to the segmentation in pharmaceutical industry and the
challenges faced by various categories. The different types of key stakeholders, such as drug
manufacturers, wholesale distributors, retail pharmacies, hospitals, managed care
organizations, and insurance companies are also having fundamental differences. Study
reveals that benchmarks for the process industries supply chain vary from other sectors (e.g.
automotive).
1.9.8. Indian Pharmaceutical Industry Classification

The pharmaceutical manufacturing can be classified on the basis of manufacturing product
(Formulation, bulk or API) or market segment branded and generic, OTC and patented
product. The Indian pharmaceutical industry is a business of manufacturing product ranging
22
from formulations drugs, bulk drugs and active pharmaceutical ingredients (API).Bulk drug
is used as raw material in manufacturing for formulation and it is an active constituent having
medicinal properties. Specific dosage or an amalgamation of bulk drugs forms Formulation
drug. Formulations can be further classified under different therapeutic groups:
• Pain/Analgesics
• Anti- diabetic
• Anti-infective
• Gastro-intestinal
• Cardiovascular
• Respiratory
• Vitamins/ Neutraceuticals
• Chronic Therapy Segment
• Neurological
• Acute Therapy Segment
• Oncology
• Branded Generics are drugs with non patented molecule and name unlike
innovator name
• Generics drugs are inappropriately regulated with low market share .Generic drug
programme of Indian government is known as Jan Aushadi programme.
• Over-The-Counter Products are drug sold by pharmacist and lacking prescription
from Medical Practitioner and are excluded from prescription only list.
• Patented Products having very small market share due to existence of low-priced
generic produce
The firms having their vision with their ability to implement it for future development are
categorized under the large firms for example firms like Lupin Laboratories, Cipla, Sun
Pharmaceuticals, Dr. Reddy‟s Laboratories, Ranbaxy Ltd etc. The firms having a vision and
are challengers to the large firms are categorized as the Small and medium firms.
1.9.10. Government Initiatives for Pharmaceutical Industries

The Indian pharmaceutical industry with its increasing efforts and capabilities in field of
science and technology has achieved a remarkable position among third world countries and
globally in field of with its vast range of products. Confederation of Indian Industries (CII)
has reported presence and new emergence of pharmaceutical units in form of small and
medium enterprises (SME) units. About 75 percent of Indian pharmaceutical units are
23
composed of from around 8,000 small to medium enterprises (SME) units and including units
from public sectors. Indian public sector and SMEs working in field of Custom Research
Manufacturing Services (CRAMS) have emerging opportunities in coming years to capture
the substantial global pharmaceutical environment going off patent. Several initiatives have
been taken by the Indian government in various parts of the country as an endeavour
supporting SMEs by speeding the process of licensing, patent reforms and product
reservation and incentivizing participation of local firms in R&D efforts and SMEs cluster
development. Government are trying to promote in-house strengthening to pharmaceutical
industry by providing public health purchases, licensing, and product reservation schemes.
To boost investments, Indian pharmaceutical industry witnessed merger & acquisition
(M&A) and exports and also by reducing approval time for new facilities .Also to make India
a global leader in drug manufacture the Government of India unveiled 'Pharma Vision 2020’,
and introduced the Drug Price Control Order and the National Pharmaceutical Pricing
Authority to deal with the issue of affordability and availability of medicines. To improve the
Indian pharmaceutical sector forward significant policy and reforms were introduced that
increases research development efforts and upcoming emerging strategies by private sector.
One such significance was in direction of patent policy reform. The goal also expected
investment from multinational companies. Furthermore it is expected that these reform will
motivate Indian pharmaceutical firms to become competent in development of new drugs for
diseases prevalent specific in India and other tropical countries and also across the globe.
1.9.2.9.1 Patent right reforms

Patent right reforms were the most significant policy in direction to protect revenue
generation. Patent reform prohibited knowledge of an organisation to be used by others in
making use of their knowledge for profit earning. Patent rights help creator of drug generate
incurred cost on its research and development by revenue generation from market in due
course of period.
1.9.2.9.2 Pharma Sahi Daam

A Mobile App launched on 29th August, 2016 provide consumer with an awareness or
information about prices of non-scheduled medicines and scheduled medicines price which
are listed under price regulation .This android based app provide ceiling price of medicines
and platform to help consumer and government to be informed of any cases of overpricing
24
issues by either the company or the chemist. If there is any case of overpricing a complaint
could be lodge against such cases with assured action within 48-hours.
1.9.2.9.3 Generic Drugs

In the year 2008, “Pradhan Mantri Jan Aushadhi Yojana” (PMJAY) was launched by
government of India and later it was renamed as “Pradhan Mantri Bhartiya Janaushadhi
Pariyojana” (PMBJP) and “Pradhan Mantri Jan Aushadhi Kendra” (PMJAK) as “Pradhan
Mantri Bhartiya Janaushadhi Kendra” (PMBJK). PMJAY have an aim of providing dedicated
sales outlets i.e. Jan Aushadhi Stores for selling affordable generic medicines in various
districts across the country. Furthermore the objectives of the scheme included quality
medicines with the extend of coverage to quality and demand for generic medicines thus
improving access towards better healthcare through low treatment cost and easy availability
in all therapeutic categories. It also extended effort to promote generic drug prescription by
doctors and tried to create its awareness through public programme education and publicity
done by Government involving, Co-operative Bodies, PSUs, NGO, Societies, Private Sector,
and other Institutions. Amritsar in Punjab in November 2008 had the first Jan Aushadhi Store
of India.To increase number of stores Jan Aushadhi Scheme has been restored. Cluster
development programme has been initiated by government of India to enable quality,
productivity and innovation in pharma industry to meet need of competitive global market.
Pharma sector has been motivated by introducing Pharma Awards from 2016.
The 2nd Indian Pharma and Medical Devices Award 2017 were presented at Bengaluru on
11th February, 2017. The list of awardees is given below:
Table 1.1:Pharmaceutical Industry Awards.
25
1.9.2.9.4 Pharma Jan Samadhan (PJS)

A web enabled initiative launched on 12th March 2015 in collaboration with NPPA and NIC.
The PJS protect interest of consumer through a prompt and efficient grievance redress system
by laying efficient accessibility of medicines, sale of ‘new drugs’ without former price
approval, effective implementation , overpricing of medicines and refusal of supply or sale of
medicines without good and sufficient reasons. Thus consumer interest are protected through
effective implementation of the DPCO through PJS by taking an action within 48 hours by
NPPA on complaint forged by individual/consumer organization/ distributor/ stockiest /
retailer / dealer/ State Drugs Controller within 48 hours .
1.9.2.9.5 Pharma Data Bank (PDB)

Launched on 25th June, 2015, PDB is an integrated Pharmaceutical Database Management
System (IPDMS). PDB was developed by the NPPA in collaboration with National
Informatics Centre (NIC).It is a platform supporting filing for price approval of ‘new drug’ in
Form-I and return filing platform for the pharmaceutical importer/manufacturer/ distributor/
marketing companies prescribed in Form II, Form III and Form V of DPCO, 2013. It
provides price fixing by NPPA on the basis of price disclosure by companies and thus
retailers and consumer can have access to real time price data with respect to each scheduled /
non-scheduled formulation and take informed decision on cost-effective treatment. PDB
provide formation regarding 61646 products registered by pharma companies and is expected
to benefit industry, consumer and the regulator and help NPPA to monitor price compliance,
‘Consumer Awareness, Publicity and Price Monitoring’. ‘JAN AUSHADHI’ programme
where quality generic medicines are made available to the public at large in the country at
affordable prices. Information technology tools are used to address effective and quick
complaint regarding price and availability of medicine using Price Monitoring and Resource
Units (PMRUs). NPPA in association with National Informatics Centre NIC developed an
integrated web enabled system, Pharma Jan Samadhan and Pharma Data Bank (PDB), an
Integrated Pharmaceutical Database Management System (IPDMS). The attribute that trigged
further the scope to Indian companies was lack of interest by MNCs in launching of new
products due to prices ceiling of bulk drugs and their formulations by DPCO .To check
profiteering effectively Indian government introduced a Drug Price Control Order (DPCO)
that discouraged low price selling of drugs by MNCs. FERA, further strengthened the
position of the domestic drug and formulation manufacturing companies. To improve
holdings in market share MNCs share in Indian joint venture is restricted to have either near
26
40 percent of their holding or to conform to maximum stake of 51 percent of export

obligations. Government of India took certain measure to promote industrialization to meet
Indian need by enabling possibility for self stimulate achievements. Drug Price Control Order
(DPCO), FERA, Indian Patent Act (IPA), import tariff and commencement of domestic
industry like Indian Drugs and Pharmaceutical Limited (IDPL) and Hindustan Antibiotics
Limited (HAL) paved a way forward for growth of Indian pharmaceutical industry. The
Govt. Of India has increased the import tax on import of bulk drugs by MNCs to support the
domestic market growth as well as to encourage home –based pharmaceutical manufacturing.
The success of Indian companies in producing molecules with patent protection at nominal
cost and took cost advantages over MNCs with their lower prices. Indian manufacturing of
drugs came up with reverse engineering approach with high efficiency which leads to two
different class of manufacturing in Indian pharmaceutical industries supporting revenue
generation from economies of scale. A group of manufacturer into bulk drug manufacturing
with backward integration and another group with forward integration producing formulation.
This categorization supported Indian manufacturers to dominate in both bulk drugs and
formulations market even with low price. This has been possible with Indian Patent Act
which support “process” recognising as compared to product patenting according to
international norms. Apart various reforms the Government of India shore up with Export
incentives to domestic players to boost for exports (especially of bulk drugs). This will shift
attention of companies to engage their experience and effort in research to emerge with
inevitable drive for the growth in the long run. Amendments to the DPCO in 1979 permitted
high margin on production cost of drugs with slashing down of drugs and drug under price
control of DPCO. Furthermore regulatory standards have been restructured, modernized and
benchmarked to international standard with global practice standard for clinical testing and
central drug standard and control organisation. Indigenous drug development is supported
with improved and prompt evaluation and clearance procedures. This has influenced mergers,
and acquisitions restructuring in Indian Pharmaceutical supply chain.
1.9.3. Pharmaceutical SCM and Indian Context

An excellent supply chain is paramount to the pharmaceutical industry’s success. A supply
chain should be considered excellent if it is able to effectively support a business strategy
(Gebauer, H. (2008)).The business objectives of the an excellent pharmaceutical SC (PSC)
ensures protection of drugs from adulteration and counterfeiting, made available to patients at
all time along with safe and environment friendly manner of their removal or devastate (Ross
27
and Jayaraman, 2009; Kazemzadeh, et al., 2012; Smith, et al., 2012). The pharmaceutical
industry is a complex enterprise with highly regulated environment coupled with the life
altering nature of the products characterizes it as a uniquely difficult system. PSC
manufactures and distributes products to millions of people every day. The distribution
process, regulatory and customer requirements in genuine global supply chains differ widely.
It needs to ensure service levels at minimum cost by centralization of master scheduling,
capacity planning (L. B. Davis,et.al, 2011), purchasing and distribution planning for
production in different locations of international markets. PSC Inventory has just been shifted
up the chain by increasing inventory levels at the manufacturer level by inventory reductions
at the wholesale level.PSC continuity require more strategically treatment for inventory. PSC
manufacturing processes will have to engage in collaborative planning to ensure that drugs
reach patients when they need them, even during disasters (Nicholson, et al. (2004)). Further
consolidation and centralization, it may be argued that the PSC is losing flexibility (Gale, and
Sabourian, 2005; Tinham, 2005). For example, the advanced distribution centres currently in
use by large retailers are limited by the number and types of products that they can handle
(Meijboom, and Obel, 2007). With wholesalers, manufacturers, and retailers drift towards
larger centralized distribution centres, the network connecting manufacturers to patients led
to increases in fuel prices or natural/man-made disasters (Elkins, et al., 2005).Wholesaler,
manufacturer, and margins is regulated based on government pricing directive(Scott, A.
(2005); Pennings, and Smidts, 2003). Wholesalers’ activities are currently associated with
risks associated with inventory and customers (Gupta et al.,2002; Xianghua et al., 2005;
Mullin,2003; Reisman, 2002) . PSC channel risk for continuity of medications and their
service levels to consumers is a dependent on effective function of wholesalers. Direct sales,
or product focused channels are emerging alternative channels to wholesalers. Direct sales
alternative entail consolidation of smaller wholesalers, entrance of 3PLs as a new entrant in
the channel, or vertical integration by a manufacturer of a smaller distributor. Another fastest
growing sales channel now is mail order for prescription drugs (Shah, N. ,2004). According
to IMS Health In 2005, mail order drugs grew 18 percent to $33.9 billion. Mail order has an
ability to control pricing in PSC when compared to drug store. Public’s willingness has
limited the greatest potential for market share growth of mail order out of the three alternative
channels (3PL, mail order, and direct shipment).Another important factor is the logistics
infrastructure that is indispensible part of PSC that support service levels, delivery, support,
etc. Effective deliver of new types of drugs to customers in PSC management is another
Product related forces that demand change in PSC. In addition, lower prices of over the
28
counter (OTC) and generics drugs categories influence inventory management decisions.
Also a completely different supply chain is the demand for a new human plasma-based and
drugs host of biological drugs. These new family of drugs, known as cold chain, have very
specific shelf-lives and must be kept in controlled environments for temperature and humidity
of their surroundings. The brand name drugs, cold chain and therapeutics controlled by
manufacturer, generic and OTC controlled by retailers are three major product types that
fragment PSC.
The pharmaceutical industry is a complex enterprise with highly regulated environment
coupled with the life altering nature of the products characterizes it as a uniquely difficult
system. PSC manufactures and distributes products to millions of people every day.
• Pipeline stocks account to 25–90% of yearly demand; finished good stocks are of
usually 4–24 weeks’.
• Between 1000 and 8000 h supply chain cycle times between material entering as raw
material and leaving as finished product) value-adding operations of only 0.3–5%.
• The supply chain ending up with low material efficiencies, as only a small proportion
of material entering end up as product pharmaceuticals and fine chemicals.
New challenges determining the future of the process industries include:

• A shift as service-oriented business to provide customer with life-cycle solution rather
than being a product-oriented business
• Shorter product life-cycles with greater competition and more dynamic markets
• “Specialty” products or Mass customisation
For patients, caring is a promise that they will do whatever it takes to ensure they have
continued access to the highest quality medicines at affordable prices; whether a disease
affects millions or just a few hundreds. To the medical fraternity, caring means the assurance
of world-class medicines and support across multiple therapeutic areas. For business partners,
caring brings the confidence of always getting world-class quality and competitive prices. For
employees, caring manifests itself in a safe, equal-opportunities’ workplace that fosters
innovation for a healthier world. In India pharma SMEs face global level technical expertise
and financial constraints. An emphasis is on IT tool adoption and applications with capacity
building of Small and Medium Enterprises (SMEs) located in clusters. The limited
manufacturing facilities and dependency high cost of treatment in India. Lack of skilled
manpower and poor access to high end-technology has restricted the growth of domestic
29
production in pharma sector to only low technology products. SMEs within the sector in
particular lack Quality related requirements information, less focus on R&D and new product
development is dominated by imports. The disintegrated and scattered SMEs industries in the
country operate with inadequate infrastructure facilities. Inadequate access to information and
Product Knowledge Dissemination de-motivate an entrance of new entrepreneurs. There is
lack of programme on soft activities to create awareness, counselling, motivation and trust
building, exposure visits, market development including exports, participation in seminars,
workshops and training programmes on technology up-gradation, quality control &
Competitiveness, etc. The push-pull boundaries aspects of the supply chain issues
conceptualize the argument of inventory positioning in the supply chain, based on the ability
and quality of the forecast as a practical applications of various options in the context of cost
and service levels. The escalating cost issue in “health care have outpaced inflation in recent
years, with continued double-digit increases expected.” They problem is attributed to many
systemic issues that prevent market forces from operating in this industry. Revenue sharing
between channel partners and distribution between manufacturers and distributors plays a
very important role in functioning of the pharmaceutical supply chain these days due to the
recent developments in the service agreements. Another critically important problem to the
pharmaceutical industry is to deal with shortages. Going back to our issues of complexity, let
us look more closely at how the pharma sector is dealing with it. There are typically two parts
in the overall Supply chain planning and coordination. The first is called Master Planning of
Resources and the second is called Scheduling. Typically the demand forecast comes in 2-3
months prior to the start of the actual manufacturing cycle and this is where master planning
starts. So, considering the forecast and available capacities at each location, the master
planning stage works out material requirements and also projects the capacity shortfall.
Typically, in most companies this is worked out in an ERP package such as SAP or other
software. Inputs can be directly taken from past ERP data such as expected opening inventory
for each input material to arrive at net requirement or can be manually fed in, typically for
capacities available, line wise which can vary from month to month. The output from such a
system is a firm plan and also material requisitions which are forwarded to the procurement
team, along with the expected delivery dates, considering the testing times. The next step is
scheduling, which is active when that particular month is reached. So, based on net of
previous month’s production shortfalls, how much has to be made in next one week say, day
wise, and when, looking at the available material are released. There is a shift in
pharmaceutical supply chain driver, constraints and its set of objectives after the launch of
30
drug in market. Availability of drug takeover to agility after launch of drug in market and
subsequently cause a dramatic shift in the models and techniques employed to support this
phase of drug life cycle. The pharmaceutical supply chain phases after a drug launch is
depicted in Figure. In this phase, the very diverse nature of multiply large and independent
stakeholders poses the complexity to the pharmaceutical supply chain. The pharmaceutical
supply chain key stakeholders include multiple drug manufacturers, drug distributors,
government agencies, hospitals, clinics, pharmacy chains, retailers, research organizations,
and the FDA. The complexity increases furthermore due to the fact that the distribution of
prescription drugs, over-the-counter (OTC) medicines, generics branding and its habit
formation(Patel, A., et al., 2009; Lambert, et al., 2003; Steinman, et al., 2007), as well as
biologics compound matters are handled by the same supply chain but with a totally different
operational objectives and handling needs. The management of pharmaceutical supply chain
has very dissimilar behaviour due to numerous other organizations, such as insurance
companies, healthcare management organizations, and GPOs which further increase the
complexity. The pharmaceutical supply networks, due to the regulatory nature of the
industry, have grown in an uncontrolled fashion through numerous merger and acquisitions to
acquire more R&D expertise, rather than being planned for optimal performance.
1.9.3.1. Pharmaceutical Supply Chain Structure
Figure-1.9: Pharmaceutical Supply Chain Structure
1.9.3.1.1 The Trial Supply Chain

The challenge that arises in trail phase of supply chain is due to intricacy associated with
anticipation of the needs of a trial medicine at various small locations. In addition, it is not
easy to make out the requirement of trail medicine at any location without information about
rate of patient enrolled. Development of trail medicine in small batches may cause failure to
31
meet the demand and supply of patients need and therefore it is very important to make sure
for its availability. Thus the success of drug on trial approval depends on agility, readiness
and flexibility of stakeholders and their responsiveness to respond to any contingency.
Furthermore uncertainty of trial drug cannot be dealt with inventory buffering like solutions
due to cost associated with inventory and limitations of drug’s shelf life.
1.9.3.1.2. Reverse Logistics

Management of product returns have legal implications owing to the drug sensitive nature,
financial and potential health reasons. Managing drug return logistics is not a straightforward
challenge as in other industries supply chain. Drug expiration or drug recall is among the two
common rationales for product recall.
1.9.3.1.3. Drug Recall

Drugs recall is a major event in pharmaceutical supply chain and can crop up due to some
temporary reason that lead to a shortage in the network. Furthermore recall due to reasons
related with drug safety issues leading to its permanent removal from the market require an
immediate attention resulting in an excess in supply network. Drug recall for either of above
reason may influence a company’s reputation with several other problems such as the
challenge to remove every unsold drug from every point in the supply chain.
Following are the possible outcome associated with each incidence of drug returns:
• Product call off follow with coordination difficulties in reverse Logistics
• Economic losses due to cost associated in removal of called drug, drug removed, and
sale loss cost associate implication.
The large is the disposal of chemical so are environmental peril resultant from it.
• Special handling of narcotics.
• Lawful implication.
• Financial/account compromise.
1.9.3.1.4. Drug Expiration

The drug manufacturing organisation carries the liability to remove carefully all expired drug
from every unsold point in the supply chain by monitoring the quantity and pattern of drug
expiration. Destroying expired drug is the task performed by licensed companies. Another
important aspect associated with drug expiry deal with revenue set back due to refund of a
certain percentage of the price back to the buyer. Drug expiration in pharmaceutical is an
32
obvious reason which mushrooms some small percentage of unsold drug which remain
unsold for a long time hence expires eventually. The industry wide practice to meet uncertain
or unexpected demand by carrying high levels of finished goods inventory intensify drug
expiry issues further. Analysis of the drug expiry and drug recall data can help provide better
insight while evaluating inventory or making inventory related forecasts and policies.
Therapeutic drug therapy brought noteworthy shift with massive investment in R&D and
globalization of pharmaceutical industry.
1.9.3.2. Latest Trends and Drivers

It is important to better identify and understand the pharmaceutical supply chain structure for
its fundamental drivers and to be aware about the prevalent trends and the underlying
dynamics forces that define the relationships between various supply chain components.
There are various key drivers and a set of trends that impact supply chain with varying degree
of intensity and relevance. Drug shortages and counterfeiting theft, and diversion of
prescription drugs are the two critical issues that are always require concern and increasing
worldwide. Shortages are a crucial problem prevailing irrespective of adequate supply
ensured by pharmaceutical manufacturers. Furthermore an equally important and critical role
of serving patient effectively is performed by different stakeholders such as wholesalers,
pharmacies, and hospitals.
The foremost causes for shortages in pharmaceutical industries (Tyler, and Mark, 2002,
Johnston, 2004) involved fall in:
• Manufacturing Category
• Raw material related issues
• Capacity shutdown/slowdown related issues.
• Regulatory compliance issues
• Economic Category
• Poor or out of business issues
• Discontinuation of product issue
• Balancing profitability with liabilities to produce economic incentives
• Forecasting demand
• Demand and supply related issues
• Region based shortages
• Unforeseen and additional uses related
33
• Inventory level are unable to meet Just-in-time inventory level due to

uncertain demand rise
• Forward buying issues
• Poor forecast accuracy
• Inaccurate techniques for demand forecasting
• Unexpected growth of new product or market due to new indications by an
existing drug/product.
• Unexplained shortages
• Large demand shifts in a short period of time due to contract awards.
• Unique Risk
• Potential for mortal or serious injury
• Potential for injury to unintended recipients In the pharmaceutical industry,
poor forecast accuracy may result from:
• Unusual disease outbreak
• False exaggerate for a potential shortage
There are various key drivers and a set of trends that impact supply chain with varying degree
of intensity and relevance which can be categorized into strategic, tactical and operational
level issues .These issues have varying level of relevance to supply chain performance with
their impact or severity of consequences ranging from negligible effect to a maximum.
Table-1.2: Key Drivers and Their Consequences
Strategic Level Tactical Level Operational level
Competition with generic Failures of product during
drug market development
A faster loss of market Regulatory and Lack of interest
due to increase in towards adopting new technology
revenue from generic
sales
Longer time taken in Lack of IT infrastructure leads to low
outsourcing due to time utilization, high inventories &
taking regulatory issues. regulatory compliance
problems, lower productivity and low
capacity/plant utilization, plant
34
,product wastage are driving up
Expensive and longer Counterfeits threat is increasing

period for capacity globally
building.
Low utilization of Cost and delays due to better security
capacity /plant of
Quality and safety Brand protection and revenue

regulatory issues generation during patent period
Price pressure from Unpredictable demand

various health
organisations.
Fewer product in pipeline Challenging price strategy
due longer and low R&D
productivity
The declining Recalls from product returns caused
productivity of R&D and by
sales and marketing overstocked or outdated products adds
functions of major cost
pharmaceutical
companies are suffering
Recalls of batch
Quality , safety and
competitive issues due
to globalization of drug
manufacturing
The pharmaceutical inventories characterize by all time high inventories and the industry is
realizing of the fact that piling up inventories may not avoid shortages or product
unavailability to met target. The complexity of inventory management in the pharmaceutical
industry is inherently difficult due to the highly fragmented nature of the market, volume
35
variability, seasonality, and local attributes or events. The various means of inventory
management related issues are listed as below.
Table 1.3:Inventory Issues
Issue Consequences/Impacts
Locating Inventory. Deals with conventional problem regarding where, when

and how much inventory to be kept.
Disintegrated data or Unavailability of data at point of time in supply chain
lack of integrity tool for makes inventory planning and forecasting decision
data extremely hard and inflexible.
Visibility of inventory The layered structure of pharmaceutical supply chain with

different layers acting mostly in isolation poses proper
visibility problem.
Inherent uncertainties in Regulatory compliance and safety concerned restrictions,

Supply and Demand. numerous product/market combinations, present a tough
challenge for pharmaceutical supply chain.
Globalizing supply Local regulations and localization requirements
chains with numerous complexity.
product supply chains
having
Different markets.
Economic pressure to cut The pharmaceutical supply chain has at all time high
cost tied up in inventory inventory.
36

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Conceptual Framework

1.1. Introduction to Supply Chain Management

chain management includes the activities associated with synchronization of movement of

Figure 1.1: Supply Chain under Pressure

1.1.1. Tactical Level

1.1.2. Operational Level

1.1.3. Strategic Level

1.2. The Supply Chain 2020 (SC2020)

1.3. SCM Objective

1.4. SCM Need

1.5. Motivation for Research

1.6. Background for Research

effective performance measurement system must represent organisational goals to reflect a

1.7. SCM: Indian Manufacturing Industries Context

1.8. Introduction to Automotive Industry

Figure-1.2: Number of Automobile produced in India(in millions)

Figure-1.3: Exports -Auto Component Industry: 2017-18

1.8.1. Evolution of Auto Industry

1.8.2. Auto Industry Structure

Fig-1.4: Automobile Industry Structure

1.8.3. Consumer and Sales

Fig-1.5: Turnover- Auto component Industry: 2017-18

1.8.4. Government Initiatives

Figure-1.6: Product Range of Auto Component Industry

1.9. Introduction to Pharmaceutical Industry

1.9.2. Key Feature

1.9.3. The Business of Drug Development

1.9.4. Pharmaceutical Industry in India

1.9.5. Indian Pharmaceutical Position

Figure-1.7: Notes: F - Forecast, CAGR - Compound Annual Growth Rate, CY –

1.9.6. Global Position of Indian Pharmaceutical

1.9.7. Pharmaceutical Industry Structure

1.9.8. Indian Pharmaceutical Industry Classification

1.9.10. Government Initiatives for Pharmaceutical Industries

1.9.2.9.1 Patent right reforms

1.9.2.9.2 Pharma Sahi Daam

1.9.2.9.3 Generic Drugs

1.9.2.9.4 Pharma Jan Samadhan (PJS)

1.9.2.9.5 Pharma Data Bank (PDB)

40 percent of their holding or to conform to maximum stake of 51 percent of export

1.9.3. Pharmaceutical SCM and Indian Context

New challenges determining the future of the process industries include:

1.9.3.1. Pharmaceutical Supply Chain Structure

Figure-1.9: Pharmaceutical Supply Chain Structure

1.9.3.1.1 The Trial Supply Chain

1.9.3.1.2. Reverse Logistics

1.9.3.1.3. Drug Recall

1.9.3.1.4. Drug Expiration

1.9.3.2. Latest Trends and Drivers

• Inventory level are unable to meet Just-in-time inventory level due to

,product wastage are driving up

Expensive and longer Counterfeits threat is increasing

Quality and safety Brand protection and revenue

Price pressure from Unpredictable demand

Locating Inventory. Deals with conventional problem regarding where, when

Visibility of inventory The layered structure of pharmaceutical supply chain with

Inherent uncertainties in Regulatory compliance and safety concerned restrictions,

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