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SCM in Retailing
Supply chain is a network of organizations thatare having linkages, both upstream anddownstream in different processes and activities
that produce and deliver value in the form ofproducts and services in the hands of ultimateconsumer.
SCM raises the challenge of integrating and
coordinating the flow of materials from multitudeof suppliers , including offshore, and similarlymanaging the distribution of finished product byway of multitude of intermediaries.
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The objective is to plan and coordinate all the
activities necessary to achieve desired level of
delivered service and quality at lowest possible
cost.
Supply chain management is primarily
concerned with integration of all partners inthe value chain and seeks to achieve linkages
and coordination between processes of other
entities in the pipeline i.e. suppliers andcustomers, and organization itself.
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The scope of supply chain management
includes the entire gamut of activities stratingfrom procurement and management of raw
materials through to delivery of final product
to the customer.
The ultimate purpose is to satisfy the customer
by establishing linkages of people at all levels in
the organization directly or indirectly to the
market place.
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Various drivers of supply chain as a
management initiative are:
1. Expectations of customers-looking for
increased value addition.
2. Response time sensitivity
3. Need for reliability
4. Cost consciousness
5. Information sensitivity
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Flows in the Supply Chain
There are two flows that are required to beconsidered in supply chain
1. Goods flow, wherein merchandise moves from
manufacturer to the retail store and from thereto the consumers.
- There are normally a few aggregation and
distribution points in between.
- Goods can also flow backward if rejected.
2. The other is information flow.
These two flows are interlinked 5
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The goods flow occurs because of
(a) Purchases made from the retailer by the
customer, and
(b) Orders placed on the manufacturer by the
retailer
Movement of goods creates information in the
form of changes in stocks and payment.
What should be the priority in this flow and
counter flow of merchandise and information?
A retailer aims to satisfy the consumer and
maximize financial gains at the same time.
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Key Elements of Supply Chain in
Retail1. Sourcing and flow of goods, and2. Merchandise management, which is actually
managing the goods.
Managing goods implies decisions like what to
sell, how much, when, of what type and so on.
In traditional business terms, merchandising
management includes role of planning,
purchase, sales & marketing and logistics that
includes transportation and warehousing.7
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As retail organizations try to generate end-to-
end efficiencies, boundaries between these
two areas have blurred.
In fact, in most of retail organizations, the
supply chain and merchandising management
teams have blended to bring out the bestresults.
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Role of SCM IN Retail
The traditional approach of supply chainmanagement is based upon optimizing
production, handling and transportation
through the calculation of economic batchquantities.
In a new market set-up, manufacturers are not
only producing products on the basis of their
demand but collaborating with customers in
product development.
In such a situation supply chain becomes the
demand chain. 9
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Demand chain is market driven, which responds to
the needs of market more rapidly. Retail supply chain presents the following challenges:
(a) Linking the consumer in the supply chain planning
process,
(b) Managing product life cycles,
(c) Promotional planning,
(d) Planning for seasonal products,
(e) Determining cost effective supply channels,
(f) Forecasting and scheduling in a volatile economic
environments.
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As companies experience intense pressure to reduce
costs, expand into new markets and develop new
products, their supply chains expand and become
more complex.
The critical differentiating factor that synchronize
across the entire supply chain in retailing arecollaborating with customers in addition to the
suppliers.
Therefore, undertaking customer profiling, customer
loyalty and customer segmentation initiatives andincreasing performance through managing existing
products as well as new products are becoming
increasingly important in the changed scenario.
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Types of SCM in Retail
1. Push Based SCM
- Traditional approach to SCM wherein materials
and products flow from suppliers to
consumers via production and distributorunits.
2. Pull Based SCM
- Modern approach to SCM which is also calleddemand supply network wherein the actual
consumption pull distribution, pull production,
which in turn pulls material supply.13
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SCM- A solution in Retail Environment
Most retailers have many products, stores andpromotional events.
This results into higher inventories, lower margin due
to additional markdown, and lower customer
satisfaction.
The Supply chain solutions offer retailers substantial
improvements of cross functional and cross enterprise
business processes. However, in SCM India continues to be perceived as a
low value added activity of managing transportation
and warehousing.
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Retailers face a common set of problems and
pressures related to operational efficiency,customer intimacy, and product differentiating.
Operational efficiency means cutting costs
while maintaining the stock availability.
SCM solutions are concerned with philosophy
of nurturing the suppliers and other service
providers in a win-win situation by providing
goods and services to the customers in atimely and cost effective manner.
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Integrated Supply Chain Flow
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Deliver the
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customer
Customerneed
satisfaction
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SA
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Strategic Sourcing and Procurement
The most critical function, which helps in
merchandise planning and management
process in SCM, is strategic sourcing and
procurement. With shrinking retail margins, SCM efficiencies
have helped retailers to maintain margins at
consistent levels. Also, in some cases SCM efficiencies lead to
continuous reduction in inventory costs,
overheads and material cost.17
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There are two major aspects of strategic
sourcing and procurement.
1. Vendor Management
2. Logistics Management
A. Vendor Management
- Includes processes like
(a) Selection and training of the vendors
(b)Developing IT back up(c) Increased collaboration, and
(d) Evaluation of the vendors.
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The processes are set up to ensure
The delivery is made in time,
The quality is right,
Vendors are made partners in the entire planning process.
Vendor selection is an important outcome of the sourcing
process and result in most organizations having robust vendor
management programmes. Most international organizations have a complex vendor
selection procedures as they often go for global sourcing of
products and also need to take into account legal issues of
imports.
Global organizations end up working with much larger networks
as compared to Indian retailers.
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B. Logistics Management
- Several innovations have been done by the retailers.- Most retailers typically start with the automation of
warehousing function, which is more under their
control.
- This involves the establishment of auto replenishmentsystem.
- Implying that system should automatically place an
order for delivery to the warehouse based on the
movement of stock at the store level.
- This is the starting point of Quick Response (QR)
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Next is the auto purchase order system, in
which the system can automatically order the
goods from the vendor for regular and core
products.
This system is being used extensively in
supermarket industry where most of the goods
are standardized and so systems can be put in
place for auto purchase order generation.
This is known as Effective Customer ResponseSystem (ECR).
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Finally, the entire process culminates in the
Collaborative Forecasting and Planning System,
where category forecasts are made incollaboration with the vendors.
The system of the retailers are integrated with
those of vendors so that the vendors can easilyassess the performance of their own as well as
competitive products in retail stores on day to
day basis.
The vendor becomes completely responsible for
the performance of his products at the store
level and manages the show for retailer.22
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The role of retailer is restricted to being
enabler.
This is known as Collaborative Planning
Forecasting and Replenishment (CPFR).
CPFR has been introduced successfully by some
of the large discount chains in the US.
Indian retailers are also undertaking similar
supply chain initiatives for effective
performance.
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Logistics facilities also include development of
cross-docking facilities at the Distribution
Centres (DCs).
Cross docking involves a continuous movement
of goods across the DCs to the stores without
the actual storage at the DC.
The prerequisite is strong planning and vendor
relationship management.
Internationally big players like Wal-Mart,J.C.Penny and Sears have been using it quite
extensively.
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Use of IT in Retail supply Chain Traditional way of making the right merchandise
available at a right price and at the right store does not
ensure better business performance.
Increased competition from global players leading to
laser thin margins and diminishing profits has
compelled retailers to seek new ways of improving
corporate performance.
SCM specialists are leveraging IT to create adaptivesupply network, which connects seamlessly the supply,
planning, manufacturing and distribution operations.
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It aids in providing real-time visibility across the supply
network, thereby enabling quick decision making.
The areas of focus in developing newer
methodologies, processes, and technologies are:
(1) Cost Effective Supply Channels
(2) Forecasting(3) Distribution & logistics
(4) Inventory Management
(5) Sourcing & Procurement
(6) Reverse Logistics
(7) Stores allocation
(8) Warehousing and Transportation Management.27
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The major benefits of implementing these programmes
include
(1) Reduced inventories and stock outs,
(2) Fresher products
(3) Quicker, more agile supply chain
(4) Decreases indirect costs such as damages, nonmoving or obsolete inventory as well as the
administration related to each of these activities.
Retail industry is realizing the importance of IT in
carrying out these process improvements leading to
greater operating efficiencies and increasing profits.
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In India, the awareness of IT systems and their
usage is minimal resulting in poor decision
making.
As the organized retailing expands IT will be an
integral part of it.
Current trends portray increasing use of e-
business supported supply chain management.
The use of e-business in supply chain is not just
confined to the use of Internet.
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ERP
EDI
MRP-I/MRP-II
JIT
VMI
CRM
Bar Code/
RFID
Forecasting
Customer
Interface
ManagementSuppliers Customer
Manufacturer
LAN CRM ISCM DSS
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Objectives of Integrated Information
Systems
Providing information and visibility
Enabling single point contact
Allowing making of decisions based on totalsupply chain information
Enabling collaboration with supply chain
partners.
Information serves as a glue to create a
coordinated and cost effective supply chain
by integrating the flows in the following areas.31
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1. Inventory : demand patterns, carrying costs, stock
out costs and ordering costs.
2. Transportation: cost, customer location, shipments
3. Facilities: location, capacity and scheduling
4. Production: quantity and lot size
Role of IT in SCM
Enables better coordination amongst supply chain
partners through cost-effective information flow. Supports collaboration and coordination of supply
chain through information sharing.
Used for support in decision making.32
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Prominent Examples Demonstrating
Potential Benefits Cisco reported savings of US$ 500 million by
restructuring its internal operations and integrating
processes with suppliers and customers with the help of
web tools.- Currently, 90 percent of Ciscos sales are facilitated on
line.
Intel replaced hundreds of clerks by an automated on
line ordering applications. Celestica, one of the world's largest electronic
manufacturing & services company has applied a web
solution to better coordinate its global supply base.33
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IT has helped Celestica to improve its
responsiveness to customers.
For example, through IT it enables Dell to
maintain its delivery promises to the end-
customers.
IT is becoming essential ingredient in managinglogistics operation in the networks.
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RFID in SCM
RFID leads to Smart Retailing or Secured Retailing. The traditional way of capturing and entering data into
computer system is to gather the data on paper and key
it in after the events occur.
A more evolved data capture system is based on theuse of bar code labels, where by manually scanning the
code one can identify the item, and its characteristics.
To overcome the disadvantages of manually captured
data, an advance automatic and item level data capture
system Radio Frequency Identification Device (RFID)
has been developed.
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RFID is a method of remotely storing and
retrieving data using devices called RFID tags.
A RFID is a small object, such as an adhesive
sticker, that can be attached to or incorporated
into a product.
RFID tags contain antennas to enable them to
receive and respond to radio frequency queries
from RFID transreceiver.
Companies like Wal Mart, Proctor & Gamblemake it mandatory for their suppliers to put
RFID tags on their products.
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Boeing uses RFID tags to track parts as the
product move through the facility. RFID-based systems provide efficiency and
accuracy similar to those of printed bar code
systems.
In addition, it offers additional benefits such as
- Insensitivity to grease and contamination
- Label face readability
- Faster speed.
- Security
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- These forecasts were frequently inaccurate and
resulted in massive safety stocks to protect the
service levels.
- More significantly, the consumer, arguably the
most important supply chain participant, was
completely left out of the planning equation.
- Till now, at retail store level forecasting
information was not used in replenishment
planning and ignored inventory management. Integrated planning starts at the store level
putting the consumer in the drivers seat.
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- A forecast of consumers demand based on sales
history and anticipated demand in collaboration with
customers and suppliers is developed.- Each store calculates a replenishment plan based on
its own unique consumer demand forecast, ordering
rules and parameters.
- This information is used to create a customized, time-phased schedule of future product needs.
- Each supply chain partner calculates its own
replenishment plan and shares this data with its
suppliers.
- Thus, a fully integrated schedule of product
needs is created.41
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Benefits
- Sharing information and working with single set of
numbers enables downstream partners in a better
position to meet the demand resulting into better
customer service.
- A simple and consistent process for providing allpartners viz, stores, distribution centres and
suppliers with actionable information leads to
reduced cost.
- As guesswork is completely eliminated andindividual store projections are aggregated, it
reduces unnecessary inventory at both distribution
centre and manufacturing levels.
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2. Managing product Life Cycle
- New product get listed every day anddeciding which store will sell the new
products and when is the second challenge.
- Product phase-out presents another
challenge.
- Traditionally when a product is flagged as
discontinued the store stops ordering.
- Ineffective planning of product exit results in
some stock left over in the supply chain.
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The introduction of new product is customized for each
store based on their forecast at the store level.
- A store can plan to be out-of-stock of a discontinuedproduct by reducing the forecast and merchandise
space.
- The decision to list or de-list a product is made
centrally.
- A retail level forecast for new products is created that
reflects the historical pattern of sales of similar
products.
- For discontinued products, the store forecast is
adjusted to reflect product and shelf space
demand.44
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Benefits
- Planning at each store on a daily basis gives
immediate feedback on how well the new product is
selling.
- The combined demand from all stores accurately
reflects how the product is selling at retail, companywide.
- Results in accurate evaluation of new product
launches.
- Proactively planned and managed product exitsminimizes the leftover stocks at store level and
reduces the need for inventory markdowns and costly
clearance deals.45
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The forecasting and replenishment process
monitors consumer demand at the store level
while promotion is in effect and immediatelytransmits meaningful information back through
the supply chain.
- By constantly re-planning replenishment fromthe store level and moving inventory only on
need basis, everyone has an opportunity to
make mid-course promotional corrections.- Promotions rarely go according to plan and it is
important to be able to react to changes before
it is too late.47
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- A promotional sales forecast is added to the
base forecast of consumer demand, at the store
level.
- Replenishment plans for all stores are added
together to create the distribution centres
demand plan.- The distribution centre and their suppliers re-
calculate their replenishment plans based on
the new information.- As sales occur, exceptions are identified and a
new plan is created.
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- Additional shipments can be scheduled immediately
to meet unforeseen demand and similarly shipments
can be delayed to under performing stores, leaving
stocks available for those stores that may need it.
- If the stores are permitted to procure their
merchandise individually , it is important to providethem with tools to set the realistic targets.
- This information is communicated to the distribution
centres that can then re-plan purchases based on
stores post-promotion buying behaviour.
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4. Planning for seasonal products
- Effective planning for seasonal products
presents one of the biggest challenges to supply
chain managers.
- The start of each selling season has to be
planned carefully and stores require products inadvance in order to set-up properly.
- Seasons like Diwali, Eid, Christmas, Halloween
and Easter cause an extreme spike in demandand usually do not occur on the same date
every year which means planning must be
completed well in advance.51
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- The goal is to end the season with minimal carryover.
Based on historical sales and market knowledge, each
store forecasts consumer demand for a seasonalproduct.
- Stores determine inventory levels needed before,
during and at the end of each season, usually well in
advance of the season.
- Being able to define a season end-date minimizes the
chances of carry over and product returns.
- By defining tolerances, the store can also indicate whatpercentage of lost sales or overstock is acceptable at
the end of the season.
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- Time-phased distribution requirement plans are
created to reflect this forecast and shelf-
requirements, on a store to store basis.
Benefits
- Product is on the shelf when it is needed in a
particular store, based on identified, store-specificmerchandising requirements.
- Better management of the flow of inventory to the
stores minimizes seasonal carryover.
- Stores can also plan out-of-season assortments sothat the product category is available, albeit at a
reduced level.
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5. Integrating with category management
- Category management is defined as a process that
involves managing product categories as business unitsand customizing them on store-by-store basis to satisfy
customer needs.
- Going by the above definition, category management
must therefore take place at store level.
- For managing the product categories effectively,
forecast is needed for every product at every store.
- Unfortunately, category management done at thecorporate level allows poorly performing stores to
hide.
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Managing a category cant be done without a plan that
contains forecasted sales, inventory levels and purchases
for each item in that category.
- Such plans for each category must exist at the store level
and this is the point at which marketing and supply chain
converge.
- Marketing defines the assortment that sits on the shelvesand the supply chain keeps the shelves full.
- Future projection of sales, inventory , purchases are
converted into revenue and costs at retail level.
- Projections are rolled up from SKU to category to
department to total store.
- Roll up are done at corporate level from SKU to category
to department to store. 55
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Benefits
- By evaluating categories at the store level, all key
performance measures e.g. GMROI, Sales per squarefoot, stock turn over, stock to sales, purchases etc can
be analyzed.
- Financial roll-ups showing sales, inventory, margin etc
provide information needed by the store managers tomanage their assortments more effectively.
- Shelf plans are translated directy into store level
replenishment plans.
- What is on a store shelf is what sells in a particular
region thereby resulting into increased sales and
reduced inventory costs.
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6. Determining cost-effective Supply Channels
- Most store deliveries originate from the distribution
centres.- High volume/ bulky products, promotional/seasonal
products or perishable are shipped directly from the
suppliers to the store.
- Distribution centres with a fixed product delivery
schedules e.g. weekly shipments to eah store do not
have the ability to respond to an individual stores
unique demands.- Moreover, there is no analysis done know whether
fixed delivery schedule is the most effective or even
the most profitable route to follow.
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A store-level, time-phased replenishment plan projects
as to how much inventory is needed in future to
maintain desired inventory levels.- Once future order quantities are known, the can be
analyzed on either store-by-store, regional or any other
basis.
- The most cost-effective source i.e. distribution centre ora supplier is determined and purchase orders are issued
to the right source e.g. purchase orders are sent to
specific suppliers during promotions.
- Individual stores establish their own delivery schedules,including days of the week shipments are required.
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Benefits
- Reduced costs as a result of having a more cost
effective delivery method or by eliminating theneed for additional outside storage space at the
distribution centre.
7. Planning capacities at the store level- Staffing levels are seldom tied to sales forecast
and this results in unrealistic budgets and costly
variances.Providing store managers with accurate
information and effective labour planning tools
will help lower labour costs in the store.59
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- The key is to use the same information to
generate labour requirements as used to
manage the flow of products through the store.Projections are made to schedule labour
requirements considering the time-phased
replenishment plans.- Store managers plan for the requirements a
week or two in future taking into account the
holiday as well.
- The same information is used to budget, plan
capacity and schedule labour at the store level
as well as the distribution centre environment.60
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Benefits
- By using sales, inventory, and purchaseprojections expressed in rupees, a more
realistic budget is created.
- Since labour plans are made on current DRP, it
provides best possible planning information.
- As plans are updated, the resulting resource
plans can be adjusted thereby
avoiding/reducing unnecessary costs.
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Green Supply Chain Management
GSCM is defined as the management of materials andresources from suppliers to manufacturers/service
providers to customer and back, with the natural
environments explicitly considered.
GSCM encourages all components of supply chain foreconomical use of virgin raw materials, reduction of
wastes during production i.e. environment conscious
manufacturing (ECM), promotion of recycling,
remanufacturing and reuse, and proper dumping of
used components/goods.
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GSCM involves planning, development, implementation of
manufacturing processes and technologies that minimize oreliminate hazardous waste and reduced scrap.
Includes basically life Cycle analysis (LCA) of the product and its
impact on environment at each stage of its life.
Remanufacturing can reduce significantly both the consumption
of raw materials and pollution resulting from discarded used
components and sub-assemblies.
Recycling is performed to retrieve the material content of used
and non-functioning product.
Aim is to meet the need of the present without compromising
the requirements of future generations.
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Implementation of GSCM1. Environment Management System (ISO 14000)
- Part of overall management system which
includes structure, planning activities,
responsibilities, practices, procurements,
processes and resources for developing,implementing, achieving, reviewing and
maintaining environment policies.
- Aims at providing guidance for developing acomprehensive approach to environmental
management and standardizing some key
environmental tools of analysis.64
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2. Education and Training
- GSCM can be effectively implemented through
education and training to personnel involved at
various stages of supply chain.
- Companies must educate the consumers and
suppliers regarding GSC programmes.
- Can be made possible in following ways by
holding
(a) Workshops and arranging seminars onactivities of GSC.
(b) Creating awareness on the benefits of GSC.65
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3. Commitment to GSC programme
- It is important that commitments to GSC be
made by top management officials and
members of the company.
4. Reports and rewards
- Incentives for performers and disincentives or
punishment for those who deviate from GSC
guidelines.
5. Feedback
- Inputs from consumers, suppliers and
employees.
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6. Regulatory Measures
- The water(Prevention and Control of Pollution)
Act, 1974 and its amendments.
- The Air (Prevention and Control) Act, 1981 and
its amendments.
- The environment (Prevention)Act, 1986 and its
amendments.
- Hazardous Waste (Management &
Handling)Rules, July 1989, and
- The Public Liability Insurance Act, 1991.