The Infosys global supply chain management blog enables leaner supply chains through process and IT related interventions. Discuss the latest trends and solutions across the supply chain management landscape.

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January 19, 2009

Multi-Level Vendor planning in APO: Your means to control the extended supplier network

One of the grave challenges companies, specifically in the area of consumer electronics and Hi-tech, face today is the reality of diverse and multi-echelon supplier network. The different tiers in the network are core competent in different aspects of manufacturing the product, and usually are driven by their own set of KPIs which may or may not be in alignment with network level. OEMs of today's world thus have to grapple with co-coordinating the right supply of materials and capacity to cater to a fluctuating set of demands in the customer side of the network. They have to balance with two counteracting objectives of controlling inventory/obsolescence cost on one hand and fill rate of demands to the customer on the other.

APO SCM, the supply chain planning tool, of SAP can potentially be configured to help OEMs or other middle-tier supply chain entities to control supplies in the network through a process called Component Authorization. Using technical configuration planners can setup planning books and data views to authorize the purchase of supplies/components to its immediate suppliers from their suppliers. The quantity of the procurement proposal can be arrived by running a supply network planning tool in the network that arrives at net requirement at all levels of bill of material based on lead-times in the network, lot sizes (procurement and production), capacity, quota arrangements, procurement relationships, multi-modal transportation lanes and other master data parameters. Component or semi-finished requirement along with existing stock levels can thus be used to determine what one can authorize to the immediate supplier to buy from its own supplier.

The configuration as described above can also be used to plan for long-term capacity. Under situation of a perennial shortage of capacity in the network as an example, the OEM can negotiate for further capacity with its suppliers. The negotiation can be parameterized not only on the quantity of capacity but also any time-phased requirements, if applicable. In very unique cases, OEMs can even do analysis based on dollarized data if it makes financial sense to be a component manufacturer itself.

A multi-level vendor planning configuration in SAP SCM is thus a very powerful tool for companies to manage and control demand and supply through their extended network.

 

January 15, 2009

AGILE SCM CLOUD – What could it mean?

First of all I must let you all – the readers, know that this is the first of the three parts blog on Agile SCM Cloud.  So please stay tuned for the “AGILE SCM CLOUD – Why do we need one?” and “AGILE SCM CLOUD – How to implement one?

We are living in great times as far as Information Technology is concerned. There is a wave of information explosion and a corresponding need to process it efficiently and effectively. For example, search for new energy source or satellite downloads for weather forecasting. On the other hand almost contrasting to the computing needs Moore’s law is reaching its limits considering atomic sizes of the transistors leading to dual, quad and 8 core processors. Companies like Intel are even rolling out instruction sets to support multiple operating systems. All of this has an impact on the way we have been computing so far – a piece of software tied to a piece of hardware and both of these tied to a business need. We are now thinking of dynamic environments that grow and shrink to meet the demands. Not to mention the biz terms like Grid Computing, Virtualization, Software-as-a-Service, Utility Computing, Green Computing and Cloud Computing in that order to go with it.

Google and Amazon are promoting Cloud Computing (which was not so long ago known as utility computing) that involves hosting an application stack on a leased infrastructure that dynamically adapts to reflect the load based on the quality of service promised to the users. Nati Shalom of GigaSpaces will propose a new space-based architecture for your cloud-applications. Appistry will provide you an enterprise application fabric for the same reason. Further, Larry Elison calls Cloud Computing “complete gibberish and insane” and that it is a “fashion driven” term.  I don’t blame him for his frankness.


In essence, there are pro-cloud evolutionists and anti-cloud vigilantes. I will leave it to the CIO’s and CEO’s to decide on what Cloud Computing should really mean. To me, it is a term that is still confusing and yet evolving but at the same time has some very interesting ideas. 
How about extrapolating Cloud Computing ideas to SCM domain? How about an SCM Cloud? Wouldn’t it be cool to have an all-SCM-functionalities-encompassing cloud? Wouldn’t it be nice to mask the users with all the underlying heterogeneity of h/w, s/w components? Wouldn’t it be nice to relieve the user to choose various solutions for different functionalities and then deal with integration challenges? (Refer to Srinivas’s blog "CIO's view of Intergrating SCM apps")So what could/would/should SCM Cloud mean? Here is my definition: “a set of services that provide SCM functions to any cloud user in an efficient, scalable, reliable and secure way”.

This will require a variety of SCM packages in dissimilar environments to work in synch.  I admit that it is a herculean task to accomplish this considering the nature of applications in SCM space:
·         n-tier nature
·         compatibility constraints
·         integration challenges

Gopikrishnan in his blog on “End 2 End SCM” summarizes these challenges beautifully in a single line when he says “an i2 Demand Planning system with a Manugistics network optimization talking to a Red Prarie WMS and a Manhattan on-demand TMS with orders coming with SAP SD is not an atypical case”. However here is an illustration of a workable view of SCM cloud.

                        SCM Cloud

 

Please pay attention to the heterogeneity of SCM functions, packages, application tier, integration tier, database tier and infrastructure tier components. SCM clouds will mask all these from the user and just provide him with SCM functions. Further, in my view the cloud automatically adapt to the increase/decrease in the load to make the cloud resilient. Services at every tier and across functional boundaries must communicate and coordinate to facilitate the cloud user.

So SCM Cloud is really possible!!! No? Care to join me to take it to the next level?

 

January 12, 2009

Contribute - 3rd of the 3C's of Sustenance

A strong maintenance strategy for micro assets may not be the most comprehensive way of ensuring unhindered business operations. Whilst the maintenance manager sweats out on tidying the trees, the CEO is ultimately responsible for the entire woods. What are the things beyond his control? Drought, Floods, Landslides, tsunamis or any other natural disasters. How about arson, terror attacks? Sole policy of paying  fat premiums to insurance companies (that can themselves falter and go bankrupt) would not be enough.

During his interview, post 26/11 Mumbai attacks, Ratan Tata (one of the 25 most powerful people in business)  said "…we will now look at anti-terrorism or protection of our assets and our people ourselves and we will try to create a deterrent …." . What does he really mean?

The most common reaction to this outrage is anger (my writer's block since last blog … I confess!). And while not all of us may not suddenly think about the Bush doctrine being the right path, a definite knee-jerk thought could that be of a Boycott. Blockade of access to goods, services or investment (see http://www.terrorfreecalculator.com/ to find out if you have invested in fur coats factories). We then simply turn our back on Blood Diamonds and have our navies herd our liners through the Gulf of Aden and get back with our lives.

But these do not break the continuum of  "gross economic inequalities, social humiliations and political disenfranchisement, which can contribute to generating confrontation and hostility" wrote Amartya Sen. Access to affordable (or free) relevant education, support and not supplant indigenous culture and encouraging self-employment could be simple formula that could prevent exploitation of poor and can cultivate tolerance and harmony.

Here I bring in the '3Cs for (Asset) Sustenance'

Care - of people and environment as to not harm, pollute or disturb the balance

Conserve - our resources (water, energy) stay within replenishing rates

Contribute - towards social causes.

Contributions to societies or funds that address global concerns like poverty, hunger etc or even towards local issues in the neighborhood could greatly reduce  or even eliminate hostilities. This could even extend to lobbying and supporting political candidates or confederations that support these causes. They could create policies and take actions that can de-risk your business substantially.

So what could a Bahamian beach restaurateur contribute to? Research in Polar Ice Caps!!  A good Corporate Social Responsibility practice could be the mainstay Preventive Maintenance for your whole business.

January 6, 2009

Capturing Warehouse Costs and Margins - Part II

This is the second part of my blog on warehouse costing.

http://infosysblogs.com/supply-chain/2008/11/capturing_warehouse_costs_and.html 

In my previous blog, we touched upon activity based costing. Now let's look at storage based costing. 

As I had mentioned earlier, just to recap, there are three types of costing which comes under storage, they are Storage Unit of Measure (UOM) based costing, Package UOM based and Fixed rental based costing. These are the three types of costing that can be defined, tracked, captured and billed to the customer.

Let's first look into Fixed Rental Based Costing. In this model, the client pays a fixed fee to the 3PL provider, irrespective of the volume of goods stored during the billing period. There can be additional parameters like the fixed space used during the period that would have a ceratin rate. In case the client exceed the space used and moves to the next bracket, then the Fixed rental fee for the next space bracket would apply. For example, the client can use upto 500 square feet a month for which he would be charged say $300. Now if he exceed 300 sq ft for that period (week/month), then he would fall under the 501 to 1000 sq ft bracket which will have a higher rate, say $500. There can be 5 to 10% tolerance that can be applied to each bracket (based on the Contract with the client), beyond which the storage cost can move to the next bracket.

Now let's look at Storage Unit of Measure (UOM) based costing. Here, the storage charges are based on the storage UOM, which can be square feet, cubic feet, etc . The rate is based on the UOM, like $50per Sq Feet per week/month. Clients can choose which UOM they would go with, which would depend on the the shape and dimension of goods they want store in the warehouse. Also, a minimum monthly fee can be applied, in case the total storage cost falls less than the minimum monthly fee. (Say $300 per month, below which the warehouse may incurr loss).

Finally, we have Pack UOM based costing, where storage is charged based on the UOM of the Pack code of the items being stored. This can be Carton, Box, Drums, Pallets which can have their indivdual rates based on the standard size for each of these catagories. Say, for example carton of Size 20 x 10 x 10 inches would have rate of $10 per carton stored for a month. This size will have a certain pack code maintained by the system to whcih this rate will be attached. In the same way other storage Pack codes will have different rates based on the sizes. The storage cost will depend upon the total number of Pack Codes that were stored in the warehouse during the billing period. Here too, a minimum monthly fee can be made applicable. 

Next, we will look into how a 3PL contract needs to be formulated between a 3PL provider and the client utilizing its services. 

 

 

January 4, 2009

Will there be impact of economic downturn on eCommerce platform investments?

The answer is an obvious yes. In eCommerce or in multi channel retailing the focus is on cost of effective fulfillment options, reducing working capital and inventory.  In the last 6 months there has been no extreme step such as eCommerce program put on hold due to the ongoing crisis. While long term strategy will be intact but eCommerce investment is likely to be spread over longer horizon. There is definitely much more emphasis on prioritizing eCommerce platform technology investments

While long term strategy will be intact but eCommerce investment is likely to be spread over longer horizon. There is definitely much more emphasis on prioritizing eCommerce platform technology investments.  In one of the recent engagements where Supply Chain practice is involved in eCommerce platform re-architecture, the client wants to first consider “critical” requirements to be implemented in the first phase and also wants to ensure maximize product stack usage and minimize customization to avoid cost overruns. The investment is likely to be spread over a period of 2-3 years instead of aggressive approach of 1-2 years of solution deployment. However, it should be noted that there is no change in the long term strategy and roadmap for the eCommerce platform re-architecture. eCommerce will continue to be profitable business making it is sweep spot for many retailers. 

Accountability and importance on Short term ROI. There seems to be so much importance on faster implementation and quick wins before moving to the further improvements on the eCommerce solution. Even though eCommerce technology investments are relatively small in the context of overall technology spend, in the current situation, quick wins are important and clients are looking at “time bound” solution deployment at a fixed cost. The eCommerce solution implementation partners will be accountable for the success of the program than never before. 

On demand eCommerce solutions could be a better value proposition for smaller multi channel retailers . It is obvious that smaller eCommerce retailers may come under tremendous pressure under current economy situation. This may force them to focus on “core” business and ensure keep a check on cost of eCommerce investments. This essentially means that they will look at SaaS or platform based solution offerings which are directly related to their sales / order volumes or transactions. However one word of caution would be that the service provider should be a financially stable and long term provider of such on demand solutions. Cheaper options may be attractive in a short term but there is a great risk in these crisis times as some of these solution providers may not survive and put business at risk. We had one of the customers asking us to help them to replace their existing vendor fulfillment infrastructure which was an on demand solution but the services provider is shutting down with 2 months notice!

Long term roadmap and investment on eCommerce and/or multi channel retailing remains the same. The current impact of economy would be probably on “core” business and eCommerce investment impact is yet to be felt but there is a cautious approach and tremendous pressure on solution providers to bring down the cost and guarantee short term wins. Accelerated deployment will be the need of the hour. The recent Forrester‘s report (http://www.forrester.com/Research/Document/Excerpt/0,7211,47546,00.html) on impact of economic crisis on ecommerce suggest that while there has been some fallout, the overall industry still remains strong. Many companies still think the B2B and B2C has been one of the growth strategies and will continue to be! 

January 2, 2009

Ownership of forecasting function

Organizations treat forecasting function differently based on their maturity levels; with a lagging organization having an ad-hoc approach to the entire process. There is hardly any focus on forecasting process and a dominant function decides the final numbers that also keeps changing and always remains a moving target. On the other hand, a mature supply chain organization would try to incorporate systems in place to ensure that forecasting as a process works fine and achieves the overall business objectives. I have seen and experienced that “right ownership” of this process is a very important and critical element to ensure that the forecasts are not biased and serves its desired purpose.

The usual owners of forecasts are sales/marketing functions since they are the ones closest to the customers and are responsible for getting business. But the same reason could become the bottleneck in most of these organizations since the forecast is not that data-driven, tends to remain biased and has a political element in it, as well. Ultimately, the organizations suffer from high inventory with a poor customer service since all the links in supply chain are not aligned and other key stakeholders/functions (such as finance, planning and manufacturing) are not consulted in the forecasting process. In my view, to arrive at forecasts free of bias, there should be a dedicated function headed by a Chief Supply Chain Officer. This function is independent of all above-mentioned entities, yet one which has access to and inspires collaborative confidence from all of them. This would enable best use of inputs that business needs to obtain from the market and internal stakeholders for an effective operational plan to achieve business goals. I have seen it working effectively in many organizations; although it has its own set of challenges and there is always a learning curve where one can customize the approach based on its own organization’s DNA.
Along with one of my colleague, I had also shared this thought in one of the conferences, where it got published in their proceedings. I would like to hear more views and comments from supply chain practitioners on this subject – so please feel free to comment.

January 1, 2009

Attribution Analysis in Supply Chain

Supply Chain function in most organizations is multi-faceted and requires management through a complex hierarchical organizational structure. At one end are Forecasters who manage the most upstream function and at the other end are executioners (production and procurement managers) who manage the most downstream function of supply chain. These functions have evolved over a period of time, found to be most optimal and is based on simple principle of segregation of duties.

While these functions are distinct, the key supply chain metrics are cross-functional in nature. Fulfilment rate as an example refers to the extent to which a supply chain fulfils demand in the supply chain. While carrying excess stock improves the fulfilment rate, it is detrimental to the stock turnover rates and consequently the working capital to total asset ratio. Note that these supply chain metrics collects and commingles the functions of forecaster, supply chain planner and executioner. Most of these metrics widely used across industry does not give any attribution analysis of hits and misses in the supply chain to these core functions.

In this regard, the APICS organization came up with one recommended metrics framework of SCOPA or Supply Chain Operations Performance Analysis. The link makes for an interesting read where distinction of supply chain performance is made in alignment with different functions.

The key philosophy of SCOPA is to draw a distinction in key metrics between the planning and execution function. An overall supply chain performance is based on the combination of both these functions. A planning function can be measured by making a hypothetical assumption that execution is perfect. Thus the planning service level is dependent on the actual sales, forecast and safety stock protection for a time bucket. In the same vein, execution service level is simply the function of actual and planned sales.

In one of the existing projects, we are in the process of implementing the basic framework of SCOPA. The main intent of implementing SCOPA is to understand and correct the planning or the execution as the case may be, using the attribution analysis report. This is expected to positively impact inter-departmental behaviour, make the discussion more data oriented and apolitical.

While SCOPA focuses on drawing a distinction between planning and execution function, it might be important to extend this philosophy within the planning function itself. Example a planning function depends on the forecaster (sometimes known as the demand planner) and the supply chain planner(who looks at the supply side of the chain). It may be naive to measure the forecaster based on forecast accuracy using the formula - forecast minus actual sales. The reason is that actual sales is a function of capacity constraints, downtimes of resources or even leadtimes in supply chain. A demand planner does not have control over any of these aspects. One accuracy measure could actually be forecast minus unconstrained customer orders as received in the order management system. Orders based on requirement date rather than delivery date would be the key difference between unconstrained and constrained orders. This means that customer order data is captured in the system that is not adjusted based on supply chain constraints like stock availability or stock capable-to-be-made available.

A supply chain planner instead could actually be measured based on the difference between unconstrained customer order and constrained customer order. The key function of supply chain planner is to mobilize the supply side to react, reconfigure and remodel, in some cases, to meet the unconstrained customer orders. This means the key metric is actually dependent on the stock availability and stock capable-to-be-made available.

While all of the above does not downplay the "teamwork" required by different functions to make the supply chain service levels optimal, these metrics act as important feedback factors and re-inforce the right inter-functional behaviors. After all, coming together is a beginning, keeping together is progress and working together is success. Individual commitment to a group effort makes a team, company, society and civilization work. And what could be better than these KPIs to goad this individual behavior.

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