STUDY OF SUPPLY CHAIN MANAGEMENT PRACTICES IN SMALL AND MEDIUM SCALE ENTERPRISES (SMEs): A
CASE OF INDIAN MANUFACTURING
by
JITESH J. THAKKAR
Department of Mechanical Engineering
Submitted
in fulfillment of the requirements of the degree of Doctor of Philosophy
to the
Indian Institute of Technology, Delhi New Delhi — 110 016, India
February 2008
CERTIFICATE
This is to certify that the thesis entitled "Study of Supply Chain Management Practices in Small and Medium Scale Enterprises (SMEs): A Case of Indian Manufacturing" being submitted by Mr. Jitesh J. Thakkar to the Indian Institute of Technology Delhi for the award of the degree of Doctor of Philosophy is a bonafide record of original research work carried out by him. He has worked under our guidance and supervision and has fulfilled the requirement for the submission of this thesis, which has reached the requisite standard.
The results contained in this thesis have not been submitted, in part or full, to any other University or Institute for the award of any degree or diploma.
(Dr. Arun Kanda)
Professor, Mechanical Engineering Department,
Indian Institute of Technology Delhi, New Delhi 110016 (INDIA)
(Dr. S.G. Deshmu )
Professor, Mechanical Engineering Department,
Indian Institute of Technology Delhi, New Delhi 110016 (INDIA)
ACKNOWLEDGEMENT
I express my heartiest gratitude to my supervisors Prof. Arun Kanda and Prof. S.G.
Deshmukh for their invaluable guidance, unwavering support and encouragement. This thesis could not have attained its present form, both in content and presentation without their active interest, direction and help. It is not mere acknowledgement of moral support, guidance and assistance that received from my supervisors, but I feel proud by mentioning that whatever I am today, it is because of their inspiration, affection and personal care.
I express my gratitude to Prof. S. Wadh wa, Chairman of my Student Research Committee (SRC) at IIT Delhi for providing valuable suggestions and words of encouragement. I am also thankful to Prof. D.K. Banwet and Prof. A.D. Gupta who as members of SRC have provided insightful suggestions.
I am grateful to Prof. Harry Matlay, Prof. Binshan Lin, Prof. Basem Elenein, and Prof David Bennett for their valuable and constructive comments, which has helped in refining some of the chapters of this thesis.
I extend my thanks to Mr. Bharat Panchal, Mr. Jayantibhai Patel, Mr. Udyan Patel, Mr.
B.G. Shah, Mr. Umesh Balani, Mr. Jagrut Bhatt, Mr. Sunil Dave, Mr. T.C. Kachhia who have permitted to conduct study at their industry premise and spared their valuable time for discussion.
I can hardly hide my acknowledgement to my fellow research friends Dr. Vipul Jain and Mrs. Arshinder Kaur who have always provided an interactive and inspirational environment in Industrial Engineering research lab at IIT Delhi.
I express my deep sense of gratitude to Principal Dr. R.K. Jain, A.D. Patel Institute of Technology (ADIT), New Vallabh Vidyanagar, Prof. B.K. Raghunath, formerly Head of the Mechanical Engineering Department at ADIT and Dr. C.L. Patel, Chairman C.V.M who have always supported and encouraged me for research work.
I sincerely thank Mr. M.K. Bhatnagar and all supporting staff of Mechanical Engineering Department at IIT Delhi for their cooperation and help.
I specially thank my wife Amee and daughter Prachi for their hearty support, patience and loving participation in accomplishing this task, which would not have been possible otherwise.
I am also thankful to all those authors whose contributions have provided the directions and new way of thinking during this research work.
Last but not the least, I thank my father Shri Jayprakashbhai Thakkar, my mother Smt.
Ushaben Thakkar, my in-lows Shri Kunjbihari Thakkar and Smt. Urmilaben Thakkar for their all time support, sacrifice and help in completing my research work.
(411lU
itesh J. Thakkar
iii
ABSTRACT
Supply chain management (SCM) has gained significance as one of the vital manufacturing paradigms for improving organizational competitiveness. SCM has been considered as a competitive strategy for integrating suppliers and customers with the objective of improving responsiveness and flexibility of manufacturing organizations.
The supply chain is a sequence of events intended to satisfy a customer. It can include procurement, manufacture, distribution and waste disposal, together with associated transport, storage and information technology.
The research is aimed at examining the current orientation of Indian SMEs towards supply chain planning through case study research. The selection of the exploratory case study research approach is mainly because of the infancy stage of the issue under investigation in present body of literature. The main objective of this research was to gain insights into the present complexity and problems of SME units in managing their supply chain function. Based on the facts collected for ten Indian manufacturing SMEs of Vithal Udyognagar cluster (Anand) and secondary data, quantitative modeling of select issues such as IT (Information Technology) enablement, buyer-supplier relationships and supply chain learning is also carried out which has helped to uncover interrelationships among the variables.
It seems that the supply chain issues are much explored in the context of large enterprises but less attention is paid to SMEs. In response to this, the reported research has attempted to fill some of the gaps in contemporary research. The contribution to knowledge recorded in this thesis is four fold. Firstly, a comprehensive bibliography on supply chain issues in SMEs is prepared and the literature is classified. A review has
confirmed the lack of efforts on such issue and growing importance of researchers in the recent time. The second contribution to the knowledge is made through development of diagnostic frameworks like "EBM-REP" (External demand - Business decisions - Motives - Role players -Evidence — Performance) and Role interaction model which are specifically designed based on an in-depth understanding of issues and complexities associated with small and medium scale enterprises (SMEs). Thirdly, a case based research has helped to address six critical research questions (CRQs) in Indian context.
The questions derived based on an extensive review of literature have helped to investigate into the existing orientation of Indian SMEs towards supply chain management. The fourth contribution is made through development of performance measurement framework and quantitative framework for supply chain planning in SMEs.
The present research indicates that the critical success factors (CSFs) for implementing SCM in Indian SMEs which are of highest importance include effective partnerships and information links with trading partners, improved communication, integration of logistics with other functional areas, considering SCM as business strategy, collaborative buyer-supplier relationships, effective production planning and control, improved trust among supply chain partners and availability of performance measurement tools/matrix. On the other hand, the lower value of coefficient of dissimilarity (COD) determined for the case of Indian automotive component manufacturing SMEs confers that Indian SMEs are finding it difficult to carryout effective supply chain planning under the varying expectations of up-stream and down- stream supply chain players. Interpretive Structural Modeling (ISM) of IT enablers identifies internal culture of organization and expectations raised by OEM as driver
variables for the successful implementation of IT based planning in SMEs. Further, mapping of the supply chain learning potential of Indian SMEs has revealed that Indian SMEs in manufacturing sector are in the transition phase of improving their business orientation towards supply chain planning. The motivation for adopting best practices for the improvements such as inventory reduction, reducing delivery lead-time, reduce manufacturing take time etc. is reported positive but the implementation is found quite ad-hoc. The quantitative analysis carried out to identify bottleneck area in supply chain learning in SMEs has helped to reveal that the link 'memory orientation' has been given the least importance in Indian manufacturing organizations. This exhibits the reluctance of Indian SME organizations for sharing supply chain learning and knowledge with other partners. In nutshell, the research directed towards understanding the supply chain issues for SMEs and specifically, an investigation of present orientation of Indian units has mainly contributed in following manner:
> The research has clearly identified research gaps and correlated them with preliminary research questions, investigative questions and issues to be researched.
> Research has justified the use of exploratory research — based on an integrated use of case study and interpretive management research by delivering a research protocol.
> A role interaction model based on a coordinated geometry of cube is developed.
The model has offered thirteen combinations to evaluate the various critical links affecting supply chain decisions/ orientation of SMEs.
> A novel framework EBM-REP is developed for summarizing various facts related to Environment, Business Decisions, and Motives etc. affecting supply chain orientation of SMEs. The model is used to consolidate outcomes of ten Indian SME units.
➢ Based on the analysis of ten Indian manufacturing case organizations, set of critical success factors (CSFs) for implementing supply chain management in SMEs are identified.
➢ An integrated analytical approach combining ISM (Interpretive Structural Modeling) and Graph theory is developed for evaluating buyer-supplier relationship for the supply chain of SMEs. An application is demonstrated for the case of Indian Automotive SMEs.
> An ISM model for implementing Information Technology (IT) in SMEs is developed to understand the interrelationships among various IT implementation variables.
> The study has delivered "mapping framework" and "multi-criteria decision based quantitative approach" for evaluating and enhancing supply chain learning in SMEs.
➢ Finally, an integrated (SCOR-BSC based) performance measurement framework and a quantitative approach are proposed for supply chain planning in SMEs.
Keywords: Supply chain management, Case study research, Qualitative research,
Quantitative modeling, Small and Medium Scale Enterprises (SMEs), Conceptual modeling, Multi Criteria Decision Making (MCDM)
vii
TABLE OF CONTENTS
Certificate i
Acknowledgement ii
Abstract iv
Table of contents viii
List of figures xiii
List of tables xv
List of abbreviations used xviii
List of nomenclatures xxii
Chapter 1: INTRODUCTION 1-1
1.1 Background 1-1
1.2 Small and Medium scale enterprises (SMEs) 1-2
1.3 SME's supply chain issues 1-9
1.4 Research motivations 1-12
1.5 Preliminary gaps in the literature 1-14
1.6 Organization of the thesis 1-19
Chapter 2: LITERATURE REVIEW 2-1
2.1 Introduction 2-1
2.2 Supply Chain Management (SCM) 2-1
2.2.1 Logistics v/s supply chain management 2-3
2.2.2 Issues involved in SCM 2-6
2.2.3 Observations 2-9
2.3 Supply chain management in SMEs 2-10
2.3.1 Review methodology and results 2-11
2.3.2 Gaps in literature 2-23
2.3.3 Formulation of critical research questions (CRQs) 2-26
2.3.3.1 Supply chain integration 2-28
2.3.3.2 Strategy and planning 2-31
2.3.3.3 Implementation issues 2-34
2.3.4 Key insights 2-42
2.4 Summary 2-48
Chapter 3: RESEARCH METHODOLOGY 3-1
3.1 Introduction 3-1
3.2 Nature of research 3-1
3.3 Structure of research 3-4
3.4 Research protocol 3-11
3.4.1 Pilot case study 3-15
3.4.2 Assumptions 3-15
3.4.3 Selection of organization/unit 3-16
3.4.4 Identifying audience 3-17
3.4.5 Selecting informant/respondent 3-18
3.4.6 Precautions 3-18
3.4.7 Selection of data collection techniques .. 3-19
3.5 Examining criticality in case study research 3-20
3.5.1 Conducting case study research 3-20
3.5.2 Comparing case research with other approaches 3-22
3.5.3 Robustness of case study research 3-23
3.5.4 Problems with case study Research 3-26
3.6 Data analysis in qualitative research 3-27
3.7 An enquiry-analysis framework "EBM-REP" 3-28
3.7.1 Need for the framework 3-28
3.7.2 Framework conceptualization 3-31
3.7.3 Pilot application of "EBM-REP" 3-35
3.8 Role interaction model 3-38
3.8.1 Need for the framework 3-39
3.8.2 Various role players and their interactions 3-39
3.8.3 SCM-SME role interaction model 3-46
3.8.4 Quantification of role interaction model 3-47
3.8.5 A pilot application of role interaction model 3-51
3.9 Summary 3-56
Chapter 4: CASES ON SUPPLY CHAIN MANAGEMENT IN SMEs 4-1
4.1 Introduction 4-1
4.2 Background on Indian SME clusters 4-1
4.3 Characteristics of studied SME cluster 4-4
4.4 Case description 4-5
4.4.1 ORG 1: Heater & Co 4-8
4.4.2 ORG 2: Furnace & Co 4-10
ix
4.4.3 ORG 3: Process plant & Co 4-12
4.4.4 ORG 4: Motor & Co 4-13
4.4.5 ORG 5: Valve & Co 4-15
4.4.6 ORG 6: Datum & Co 4-16
4.4.7 ORG 7: Wire & Co. 4-17
4.4.8 ORG 8: Pump & Co 4-18
4.4.9 ORG 9: Precision & Co 4-20
4.4.10 ORG 10: Dairy Plant & Co 4-22
4.5 Sample application of research protocol 4-28
4.6 Summary 4-30
Chapter 5: ANALYSIS AND DISCUSSION 5
-
15.1 Introduction 5-1
5.2 Background 5-1
5.3 Methodology followed 5-3
5.3.1 Data collection 5-3
5.3.2 Variables 5-5
5.3.3 Sample 5-6
5.3.4 Case description 5-6
5.4 Data reduction and results ... 5-9
5.5 Analysis and interpretation 5-19
5.6 Managerial implications 5-28
5.7 Summary 5-32
Chapter 6: QUANTITATIVE MODELING OF SELECT ISSUES IN SUPPLY CHAIN 6
-
1 MANAGEMENT OF SMEs6.1 Introduction 6-1
6.2 Evaluation of buyer-supplier relationships in supply chain of SMEs ... 6-1
6.2.1 Buyer-supplier paradigm in supply chain 6-2
6.2.2 Modeling of buyer-supplier attributes 6-8
' 6.2.2.1 Digraph development using Interpretive Structural Modeling (ISM) 6-9
6.2.2.2 Matrix representation 6-12
6.2.2.3 Quantification of diagonal and off-diagonal elements 6-14 6.2.2.4 Buyer-supplier index for determining orientation of supply chain relationships 6-16
6.2.2.5 Comparison 6-17
6.2.3 Application for the Case of Indian Automotive Component Manufacturing ... 6-19 6.2.3.1 Identification of the elements affecting buyer-supplier relationship 6-23
6.2.3.3 Development of digraphs using ISM for system and sub system level enablers 6.2.3.4 Development of variable permanent matrix (VPM) at system level 6.2.3.5 Determination of variable permanent matrix (VPM) and permanent function
(T*) at sub system level
6.2.3.6 Evaluation of the permanent function of the VPM at system level 6.2.3.7 Comparison of upstream and downstream buyer-supplier relationship index 6.2.3.8 Identification of the reasons for dissimilarity to improve the supply chain
relationships
6-25 6-29 6-29 6-31 6-32 6-33 6.3 Analysis of interdependence among IT enablers for Indian SMEs 6-34
6.3.1 Role of IT in SCM 6-34
6.3.2 Identification of enablers for IT implementation in Indian Context 6-35 6.3.3 Modeling of critical success factors for IT implementation in Indian SMEs 6-40
6.3.4 Managerial insights of ISM 6-42
6.4 Mapping of supply chain learning potential of Indian SMEs 6-44
6.4.1 Importance of learning in SCM 6-45
6.4.2 Development of mapping framework 6-46
6.4.3 An application of mapping framework 6-52
6.5 Quantitative approach to evaluate SCM potential in SMEs 6-59
6.5.1 Development of AHP hierarchy 6-60
6.5.2 Development of a quantitative approach 6-63
6.5.2.1 Identification of relative lengths/ importance of supply chain learning linkages
using AHP (Analytic Hierarchy Process) 6-64
6.5.2.2 Analyzing supply chain learning penetration in SMEs 6-67
6.5.3 An illustrative application 6-73
6.5.3.1 Identification of relative lengths/ importance of supply chain learning linkages
using AHP (Analytic Hierarchy Process) 6-74
6.5.3.2 Analysis of supply chain learning penetration in SMEs 6-78
6.5.4 Results and discussion 6-80
6.6 Summary 6-84
Chapter 7: FRAMEWORKS FOR SUPPLY CHAIN PLANNING IN SMEs 7-1 7.1
7.2
Introduction
An integrated framework for supply chain performance measurement in SMEs
7-1
7.2.1 Background 7-1 7-1
7.2.2 Significance for the case of SMEs 7-4
7.2.3 Supply chain operation reference model and balanced score card 7-6
7.2.4 Development of SCOR-BSC model for SMEs 7-10
7.2.5 Guidelines for the use of framework 7-16
7.3 Quantitative decision-framework for supply chain planning in SMEs 7-17
7.3.1 Background 7-18
7.3.2 Model conceptualization 7-19
7.3.2.1 Establish relationships between business needs and supply chain requirements
using QFD 7-21
xi
7.3.2.2 Incorporate interdependencies in QFD and ANP model using Interpretive Structural Modeling
7.3.2.3 Derive the priorities using ANP model
7.3.2.4 Decide about set of important supply chain requirements based on the results of ZOGP model
7-23 7-23 7-24
7.3.3 An illustrative application 7-31
7.4 Implementation issues 7-40
7.5 Summary 7-42
Chapter 8: Conclusions and future directions 8-1
8.1 Introduction 8-1
8.2 Summary of the work done 8-2
8.3 Novelty of the work 8-5
8.4 Key insights and significant contributions of the research 8-8
8.4.1 Key insights 8-8
8.4.2 Significant contributions of the research 8-10
8.5 Implications of the study 8-16
8.6 Limitations and scope for future work 8-19
8.7 Select recommendations of the study 8-21
8.8 Concluding remarks 8-23
References ... R-1 -
R-25 Appendices
Appendix Al: Skeleton of research protocol A-1
Appendix A2: A sample spread-sheet for Role Packing Factor (RPF) calculation A-5
Appendix A3 (a): Interview schedule A-6
Appendix A3 (b): Sample response of interview schedule for case organization ORG4 A-12
Appendix A4: Hypothetical case A-17
Appendix A5: Questionnaire on SCM in SMEs A-20
Appendix A6: Template for Critical Success Factor (CSF) A-33
Appendix A7: Template for observation. A-34
Appendix A8: Critical Research Questions (CRQs) addressed by this study A-35 Appendix A9: Summarization of frameworks/ methodologies/ taxonomies offered by this research. A-36
Appendix A10: Summary of major clusters in India A-40
List of publications based on the present research P-1
Biographical profile of researcher B-1
