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September 22, 2008

Warehouse consolidation: managing effectiveness

Consolidation has been traditionally looked as a mechanism to bring in economies of scale. Of late, organizations that operate across geographies are investing to standardize processes, execution models and technology in the warehouses. The context of warehouse processes and information resident in there, has changed in the supply chain architecture. Warehouse level information now is being "consumed for efficiency and better customer response" correlating to order/demand and inventory position information in more real time. Consolidation programs that embed process, technology and operational standardization therefore can greatly simplify journey towards this "enhanced warehouse awareness" in their supply chain and help differentiate the fulfillment execution.

As an architect, I have been involved with a number of such programs and have seen that warehouses being execution centric, a standardization approach needs to consider factors specific to every warehouse like working policies, use of automation and robotics technologies, handling of specific goods and delivery of value added services apart from warehouse layouts. Given such local dependencies, WMS consolidation initiatives must allow reuse or adoption of local mature practices while conforming to the template of global practice and design.

Standardization approaches that cross-pollinate the local and global best practices through a productized platform assumes importance since rollout of such initiatives across the organization could incur cost and time overruns in the absence of a well defined structure or "template" across the layers of process and operation.

A number of package vendors indeed address this need by providing a multi-WMS modeling capability through their products. The rationale being to introduce a product model that digitize local and global concerns and then uses one set each for every warehouse as its WMS application. All such WMS are logically within a single product container or instance, creating a cluster of WMSs. I have seen interesting words been used to describe such a collocation like "nWMS". While such products do provide foundation to streamline processes while minimizing technology sprawls, interesting new practical problems crop up in this equation.

As an example, it is very common to have WMS information flows interleave with material handling equipment through automated interfaces to execute a local move operation. In a centrally hosted model where the WMS application resides in a remotely accessed datacenter, network latency can cause material handling equipment to halt. For any fairly distributed fulfillment network, a network infrastructure to support coordinated floor level automated execution from a centrally hosted WMS container is quite a capital expense implication. Additionally given today's fulfillment approach of integrating fulfillment centers beyond organization control boundaries (that of a 3PL or of a drop ship supplier), it is not easy to realize such a level of investment across the board.

As a counter alternative, hosting the WMS application within the warehouse network would cause TCO of consolidation to exponentially increase given the server capital expenditure implication. Additionally rooling up to the multi-WMS product model would need additional information technology costs and lead times in terms of investment of additional extraction and load mechanisms to the central store. In terms of supply chain architecture, the "enhanced warehouse awareness" starts getting into an increasing cost spiral.

On top of this, there is also a need to factor in change effects that creep in over time such as acquisition of a fulfillment company to expand network reach (this would just set back consolidation progress by a few quarters considering the WMS which comes along it!!) or changes in physical technologies that were used in the warehouse floors following end of life. We have been grappling with this challenge of addressing the right "physical location" for the multi-WMS product based programs few years back and realized that "instance strategy" needs to be in control for consolidation programs to keep moving ahead.

Considering the many moving parts to the puzzle, Girish, Gopi and I attempted to create a equation that helps to assess and more importantly "control" instance location decision at a given point in time taking relevant organizational, business process and information technology dimensions as inputs. 

With emergence of SOA, benefits of mega consolidation initiatives have been challenged as an alternative route has emerged. SOA directly solves warehouse information integration within supply chain architecture in a shorter lead time and help track metrics of operations across warehouse facilities. The separation of service consumer from service provider through a well established relationship infrastructure (called contracts and policies) helps to stop worrying about the option (and the underlying cost and change implication) of standardization to achieve "enhanced warehouse awareness"

SOA, although appears disruptive to consolidation, in my view, can be applied to de-couple the consolidation programs from the "need to deliver results immediately" pressure. As an example, consider acquisition of a fulfillment player by another, a SOA based architecture can ensure that acquired WMS landscape is not altered and therefore avoid operational disruption while allowing information integration to "feed" the network. This loose-coupling allows consolidation programs the latitude to choose the right time to bring the acquired ecosystem within consolidation's focus probably coinciding this with technology refresh or end of life trigger. In effect we would be giving the much needed time to change the enterprise building blocks (at business, technology, operation) one at a time and avoid physical and information technology realities from disrupting the consolidation by reducing moving parts and their complex effects. 

Interestingly, we are seeing two key trends in enterprise technology space. One is the adoption of streaming as a concept in enterprise operations. Today desktops are streamed from a central location to aid what kind of work an individual requires to undertake. Second key trend is increasing emergence of a culture of business driven IT configuration; web2.0 and enterprise mashups are the case in point. Streaming as a concept lends well to the WMS consolidation where the WMS for a specific warehouse having intelligence and configuration for of its local "realities" is streamed to the facility promoting a local execution but central governance model. Mashup culture can invade the local process configuration subject and make the warehouse become a center for operational innovation driven by on-ground experience getting centralized in the unified configuration repository. While it is quite obvious that such concepts require lot of agility in infrastructure and information technologies, the fundamental need of managing effectiveness balancing impacts and end objective becomes even more crucial. 

Instance strategy looks to be one of the right control levers as the pursuit of standard common ecosystem for "WMS"s across the enterprise and supply chains continues to become realities from utopia.....

September 1, 2008

Energy Sector and the Supply Chain

Demand and Supply go hand-in-hand. One would be forgiven to associate such a statement with best-in-class supply chain supported by best-in-class IT support systems. This could be a distant dream for few other aspirants. However what I am referring to is the not-so-obvious-but-omnipresent power sector.

Having worked in a pumped-storage hydro unit first of its kind in India for two years and subsequently having worked for number of years in some of the supply chain projects all over the world, the seemingly disconnected verticals have something very profoundly similar. Let me try to draw parallels between the two - a pumped storage unit and a resilient best-in-class supply chain.

1. For one, a pumped storage unit can do two things at different times during the day. During the peak power requirement period, the pumped storage unit converts gravitational energy of water into electric power. And during lean periods, it picks water from a lower elevation to a higher elevation converting electricity to gravitational energy. In the process a pumped storage unit flattens power usage profile reducing variations in the distribution network.

In the same vein, a best in class supply chain adopts a hub-and-spoke model. In this model, a "hub" location can consolidate demand from different "spoke" locations reducing the supply variation in the supply chain. The "spoke" locations could have different demand patterns. The net effect is a distribution network that is efficient.

2. A power unit such as a hydro unit, is symbolized by a situation where supply is always equal to demand. The factory or the  generation center has governor systems that can detect the grid frequency (a lower frequency represents a situation of demand greater than supply and vice versa) and very quickly change the volume flow rates of water to react adaptively to changing demand.

An adaptive supply chain can, in a similar fashion, detect the offtakes from retail shelves and connect the true demand signals to the factory. The factory can react with adaptive takt rates of production.

3. In a distribution network of electricity, there are high voltage institutional customers such as railway networks, factories or airports and then there are general retail customers.

An efficient supply chain organization also does different kind of planning for their key accounts. A big retail geographically spread out chain would be treated and planned for at an account level compared with small time retailers or direct-sell customers. The latter would need to be consolidated and planned for at a customer grouping level.

These similarities ( and let me touch upon the dissimilarities in a follow-up blog) are definitely worth contemplating, and an excellence-aspiring supply chain still has a lot to learn from a seemingly different sector.

The advent of "on-demand" SCM

 Of late, I’ve been noticing an increasing appearance of the term “On-demand SCM” in the web-world. Inscrutable as it sounds the first time, what got me thinking was the obvious overlap in most articles between SCM as a function as SCM as a collection of IT systems. Standing behind the many wonders of IT-enabled supply chains (and being completely blinded of everything else), we may be forgiven (or burnt-at-stake, depending on who you're asking) for assuming SCM equals SCM apps/integration (Akin to arguing that “child is INDEED the father of man”!)

SCM (the function, that is) has been the pioneer in terms of working with partners, communities, sub-cons, suppliers, marketplaces, global outsourcing and their moms and pops and pet dogs and NONE of these relationships started with systems. Extending the argument a step further, any work not being done by the core team can be termed as sourced – insourced, outsourced, near-sourced, co-sourced…take your pick, but all these would qualify  as on-demand. Going to the office travel department for an air-ticket when you need it or walking to the nearest Staples to buy a bunch of binders for an afternoon presentation or calling Fedex to ship-by-air a sample fabric design that’s late to your client buyer is all variants of on-demand transactions for me. In that sense, separating on-demand SCM function from on-demand SCM applications is crucial. I got one BIG CAVEAT here in that I wouldn't like to include planned material movements in the on-demand category. The extrapolation might be theoretically fine, but that's one heck-of-a stretch. (takes me back to first year Marketing Management course in B-school where Philip Kotler talks about vision statements with a pencil manufacturing co calling themselves as a "communication services provider".)

Getting back, on-demand SCM systems on the other hand mean different things to different people or may I say different solution vendors – like that Pet Shop Boys lyric which goes "I sometimes think I’m too many people…whoever I decide to be depends on who is with me". In pure frequency of usage, I'm seeing more of Supply Chain Event Management (SCEM) Big Bad Wolf philosophy dressed up as on-demand SCM Grandma - of course, I've also heard this being called as "near real-time" analytics to supply chain visibility to separate it from traditional data warehouse dungeons. The chief bottleneck of the SCEM pretender here could be the span which the on-demand SCM system needs to have - if you're talking of say a large retailer like Walmart or Adidas with global sourcing and hundreds and thousands of partners and diverse applications and decision centers AND if you’re dreaming of building a single centralized command center of an on-demand supply chain visibility system, God be with you. I’ll try crossing the Atlantic in a raft instead.

Something like on-demand SCM visibility (see, I’ve already narrowed the scope) would unconsciously touch upon all the elements of Six Sigma's DMAIC methodology or even ITIL v2's Service Support side of the house (incident management, problem management, release management et al). Essentially, one would need some kind of (a) Sensing/Discovery piece for outages or weaknesses (b) followed by an Alert & Event Management functionality to unleash the fire fighters on the simmering or burning fires (c) an ability sit down and do some analysis - what-ifs, future scenarios, impact assessments and then finally (d) something neat and pretty to show the Attention-Deficit-Disorder-infected bosses the good things you’ve done. Dashboards, Score-cards, kitschy 3D gizmos from Star Trek days, anything to hold them on to the message.

On a discrete function basis, we've had so many different IT sub-systems of SCM being "on-demanded" over the last few years - TMS has been a good success story especially load planning and Route Planning/Optimization, so has Indirect Procurement, primarily of the transactional variety. To give a vendor example, most of the customers of Frictionless Commerce (now SAP E-sourcing, with potentially some friction added I guess) have been on the on-demand strategic sourcing mode and SAP would prefer to keep it that way in the future as well. I've read cases of Demand Planning being done this way though none of our customers that I know of has gone thru this experiment. On a broader theme, sector leaders like the 3PL giants take responsibility of a function (discrete supply chain execution pieces or integrated logistics involving WMS/TMS and some part of Order Management/Web-commerce) combining operations with their IT-expertise as a boxed offering to their clients.

As a final thought, I anticipate On-demand SCM finding more and more print-space going forward. Watch out for good ol' supply chains being prefixed by the SCEM vendors with words like dynamic, adaptive, agile, responsive, shock-proof, gymnastic, triple-summersaulting, arm-twisting, convulsing, epileptic...ok, not the last few may be, but you get the idea.

 

Overcome procurement challenges resulting through business expansion (M&A) - Part 1

Business expansion and growth, nowadays, through mergers and acquisitions are inevitable – Fact: 42 FORTUNE 1000 corporations were acquired in 2007, biggest buyout frenzy since 2000. Apart from managing the risk of workforce events and re-structuring (Human Resource Harmonization) caused by M&A, organization begins the journey with – “quickly integrate mergers and acquisitions into my enterprise processes and systems”. Talking about process consolidation and IT integration, Sourcing and Procurement processes and systems cannot be left behind. Please remember - Saving $1 in procurement equals $15 to $20 in revenue.

Procurement Challenges resulting through this Business Expansion of M&A is huge. First thing first - Multiple divisions in different countries with disparate processes and systems leading to inefficiency, little spend visibility across the organization, greater supplier variability, data management and different naming conventions multiply the complexity. Over the last 10 months, I was involved in consulting assignments with couple of Fortune 100 corporation post M&A – process unification in Contracts Management & Spend Analysis and system integration for S2P (Source to Pay). My initial thoughts – understand the process and systems followed / used by the parent company and roll it out to the acquired company. Lots of people endorsed my thoughts. Believe me, within few days, I realized that, it is big NO.
Sourcing and Procurement Process is very simple, everyone do it day in day out, as long as you know there is a BIG difference on the way you buy tender coconut and apple and from where you are buying that. But if you start comparing the way your wife buys the same item with the way you buy, I am sure you will realize how different it is. If you try to copy the way she does the business, you might not succeed. (Similar is the process comparison between 2 organization post M&A)Here are some tips (3 tips to start with) while doing the procurement process unification and system integration post M&A –

“It is far better to grasp the Universe as it really is than to persist in delusion, however satisfying and reassuring”. Though the parent company is big, in business for long time and has stable processes - that does not mean that the process and system can be copied exactly. As a consultant or system integrator, take quality time to grasp the process as it really is, map and match the processes with the parent company’s template, identify the “must haves”, build a business case to incorporate the must haves into the template and finally provide the best way to build this add-on. Copy intelligently is better than copy exactly. Look out of the Legal Entities Model – Your current supplier might become your affiliate later, your spend might be reported differently, your delegation of authorities might change and so on….Understanding the complete Legal structure and the legal implication will help you to construct the stable process and a rigid technical solution (just a note: I read somewhere – do not try to build a flexible solution, this means your process is not stable. Probably right)
TCM (Transition Change Management) – Post process design, trying to educate the end users on the newly defined process, I sometimes hear - we will follow the parent organization process. If the process is transactional in nature, probably okay. But the strategic players should know the reason for the change. As a process owner, I think it is our moral responsibility to explain why there is a change in the process and how to manage the change. Understand the problem that exists between chair and table and make sure that there are no big elephants in the room unnoticed.

Final thoughts, how many times we have heard – Change is the only constant. But in optimistic view, it happens only because you are trying to put the right process and people in place for success. Right process always does not mean world class process – it just need to be good enough for the business and YOUR business…

Considering Warehouse as Profit Center

Warehouses have come of age. So have the technologies that run them.
Not so long back, warehouses were treated as cost centres, always taking the back seat when it came to formulating business strategies for revenue generation. But times are changing.

This leads to my next thought. How do we look at warehosues as profit centers? what does it it takes to leverage a warehouse to generate revenue?
One sure way whould be to bring down operational costs by adopting to best practices, optimizations techniques, bring in efficient material handling systems and so on. All this needs to be thought of in granularity, i.e., whether its feasible or not, how to implement them, cost reductions it will bring in,  impact to revenue, etc. 

Coming to the Warehouse mangement system available in the market today; are they geared up to analyse and bring forward revenue generation aspects on warehouse operations over a period of time? Is this visibility a part and parcel of such systems today? Are customers keen on looking at such figures? 

This leads to my next blog on the various aspects that lead to income generation from warehousing operations - 

http://infosysblogs.com/supply-chain/2008/09/channels_to_leverage_warehouse_1.html#more 

 

Supply Chain Risk Management

Attended two interesting conference last month. “Next Generation Manufacturing Supply Chain and Digital Economy Research Collaboration” – organized by by Engineering and Physical Sciences Research Council, UK and European Union. Another one was “Supply Chain World – Asia Pacific Conference” organized by Supply Chain Council. Following were the ‘hot’ topics among supply chain practitioners and academicians.

• Supply Chain Risk Management (SCRM)
• Green Supply Chain
• Skill shortage in Supply Chain

The EU Conference was inaugurated with a mind boggling fact thrown at the participants by a professor. According to his research, major supply chain metrics across the world have remained same over last 15 years!!! There may have been an improvement by an individual organization or an industry, but when you take an average of more than 800 organizations across industry & across continents for last 15 years – the numbers do no change. However, the risks today’s supply chains are posed with, have grown by 3-4 times!

Plethora of research is available on Risk Management, supply chain managers are still grappling with how to bring this practice in their day-to-day operations. To say that it’s not done at all, would not be correct. In my opinion, implicit Supply Chain Risk Management practices exist in supply chain operations. Quality checks on manufacturing floor, inventories at various levels in supply chains, use of derivatives in procuring commodity raw materials, forecasting, S&OP – this are all classic examples of such implicit practices. Then why such a huge cry about Supply Chain Risk Management! Below are few reasons for this.

• Many of the above mentioned supply chain processes (and others) are not executed with the end objective of doing Risk Management.

• Although, such supply chain processes may end up doing Risk Management implicitly, they do not mitigate all potential risks supply chains are posed with. 

• All SCRM practices come with the cost. There is a need to uniformly carry out risk management across all the supply chain functions with a consistent view of organization’s risk appetite and cost of hedging.

• Risk events affecting supply chain processes may not necessarily happen at an operational level only. Some of the geo-political, natural, man-made risks can challenge strategic direction of the organization. Some of these
events can happen without any precedence. Day-to-day supply chain processes will not be capable of withstanding such events.

• With globalization, CEOs/CFOs have felt the need of having single view of supply chain risk across all products, markets and operations.

I will continue to discuss the need of SCRM in next posts. Below are the 6 essential steps in carrying out SCRM Program at organizational level as defined by Supply Chain Operations Reference Model - SCOR 9.0.

1. Build: Who is the sponsor?
Attain organizational support and executive sponsorship for SCRM Program.

2. Discover: What will the program cover?
Define Pilot & Supply  Chains. Set the objectives SCRM program will achieve. Define Project charter, Team members, timelines, interim goals, budget etc.

3. Analyze: What are the risk management goals of your each supply chain?
Look at the existing supply chain from various perspectives through benchmarking, suppliers and customer requirements, competition, business strategy etc. <strong>

4. Assess: Where and how big are the risks?
Identify all potential risks – operational and strategic, repetitive and without precedence, low and high probability/ impact, in suppliers and customers environment. Categorize them into a quadrant of high-low probability vs high-low impact. Arrive at monetized value of each risk component.

5. Mitigate: How the risks will be mitigated?
Define mitigation strategies and costs associated with them for each of the risk events.

6. Sustain: How the risk mitigation strategies will be sustained in day-to-day supply chain operations?
Define processes, process owners, metrics & reports for ongoing SCRM across various functions.

Each of these phases can be an interesting discussion topic in itself. I will try and throw my thoughts on each of them in next posts. Let me have your views/comments.

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