Supply Chain Management

Apply the balm where it hurts  the most ...In the first of part of the blog series here, we are trying to understand the global economic problem through the the view that matters most for organizations , the lens of "Free Cash Flow", a measure of liquidty and business performance that most organizations operate on. In the interest of keeping this discussion focused, we have limited the point of view around the "procurement and supply management" processes and response strategies , but is well applicable across all operations . As we may still be getting over the worst of this " Tsunami " , wish if all of us could share the experiences and the survival stories for the benefit of the larger supply management community .

We keep getting lashed by these heavy waves of destabilization at frequent randomness, from Katrina, to Avian flu, to global recession and while we were still struggling on these, as if not enough, now the Swine flu. The USP of all these are that we don’t know what, when and how this hit us, when we were least expecting. It takes a good toll of all of us. The good thing about this is that it wakes us all from the slumber and complacency to make us take note and innovate.

The current economic crunch is one such great "Tsunami "which has jolted all the greats and spared none.

Anyone who swims in the sea knows that to win over the "waves", one must accept, understand it and glide over than resist or stand against. Organizations are just a few of the tiny twigs floating in this vast ocean called global economy, which is now the victim here. One cannot aim to stand against it but to understand and work our way around.

To get our arms around this, let us start from where all these began on the Wall Street and how this has impacted. The Credit crisis is significantly testing organizations survival instincts across industries in all the global economies

Let us also appreciate that not all is grey about the recession for the supply management profession. Credit woes are giving buyers a chance to demonstrate the value of supply chain excellence

• Commodity price indexes show this is a Buyer’s Market
• With the oversupply of the raw materials, material prices are at their all time low. Oil and commodity prices have also dropped giving a chance for material cost optimizations
• Distressed sale of material leading to spot buyers market conditions
  

We agree that liquidity is the primary trigger for all the malaise. Free Cash Flow is a well recognized measure for organizational health, liquidity and shareholder value. This is a widely accepted tool forward looking tool for CEO’s and Executives for business decisions and has clear linkage to valuing a company.

Here is an attempt to analyze how the current liquidity crunch is impacting the value levers leading to the Free Cash Flow measurements

Response Strategy to "Unlocking this Liquidity Lock": Organization response strategies should be to relieve these stress points of economic recession (marked red arrows with the right acupressure techniques) while making the best of the advantage points (marked blue arrows). Suppose that should be an intelligent approach to tide over the situation and prepare for a better tomorrow that be what someone said – " a bull in the china shop " going all hog at cutting costs where ever possible . An appropriate response could be to identify, plan , implement and measure results of business strategies over this value trail all over this difficult phase till we see ourselves over the hurdle

The supply management teams can be the biggest influencers in this turnaround story with their given mandate on the majority of the organizational spend. Theoretically, a 5% reduction on cost of purchase (typically 55-65% of revenue in most manufacturing companies) can improve the bottom line by up to 30-35%).Who else is better positioned to lead the change.Probability and impact of operational disruptions due to supplier bankruptcies are at an all time high. Studies say at least 65% of the automotive supplier base are under heavy financial stress at this point. Supply Management is hence a major focus area for most organizations to survive and compete.

• Are we still in time to discuss this and look for solutions to successfully impact businesses?
• What are the various strategies and models deployed by the successful organizations?
• How have organizations fared in the past recessions? Who were the winners?
• What were the success platforms then and the learning’s to take?
• What are the success stories now and the critical success factors? Anything stopping all other organizations to lead / follow?
• When and how do we get over this? Who will survive?
  

There are quite some questions on all our minds.

All of us have a task cut out to come with the best answers for this challenge thrown at us in the best possible way and help ensure a better tomorrow. We see job losses as major recession metrics doing the rounds and wonder if pink slips are the best strategic responses with a long term view. Often frantic measures go beyond rationale and emotions when it comes to a need of survival. It will be great if together we can come to some right answers.

It would be great if all of us hear your views, experiences and references of the pains and the results of the response strategies deployed . Each one of them matter to the community now.

…..Hope we will have enough interests for a followup series to take this discussion forward to capture the learning’s  from the discussion and debate on the best solutions.

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One of the major thrusts we have been seeing with IBM of late is the "smarter planet" campaign. Stripped off the hype (justifiable for any marketing campaign), its a terrific way to differentiate oneself from mundane IT related offerings to something truly (in the real sense of the term) transformational. Back in April, CNN Money had am exhaustive article on the same topic titled "IBM's grand plan to save the planet", with the byline "Here is CEO Sam Palmisano's formula for changing the world: Find problems, throw in billions of dollars in R&D, add consultants and an earnest ad campaign - and watch the profits roll in."

I was struck by the same overall zeal when I was at the "Pulse Comes to You" event (The Tivoli/Maximo partner/user meet), back in April in Goa. The over riding message then was "instrumented, interconnected, intelligent". There were a number of examples to drive home the point on how best to manage assets going forward based on each organization's own business model. One such I heard was that of Rolls-Royce which doesn't "sell" engines anymore, but only "rents and maintains" them, hence EAM becomes the core business and customer facing. Another one was that of the French national railway company creating a maintenance hub which can be used by all carriers in France (something we see quite a bit in the airline industry). Alternatively, for a drilling company, the top need was that of parts availability, hence EAM was being used for discovering parts & cutting down on parts costs.

One area considered fairly recession-proof is security (downturn or not, things are getting more regimented is this function). IBM is taking Maximo there - with the thrust on combining Physical Security (starting with access control) with IT Security, which of course flows in from IT Asset Management & IT Service Management, which in turn ties into the umbrella EAM theme covering any asset that you would want to monitor and control.

Since EAM is one of the areas I take care of here at Infosys, I view these messages and inputs with keen curiosity, to figure out how the team can make a difference as an SI in front our customers when we talk (EAM-)shop with them. SIs are forced to innovate all the time to come up with differentiators (the sizzle over the steak) to stand apart in the crowd. I feel that the smarter planet campaign of IBM offers opportunities for partners like Infosys apart from triggering thoughts on thinking beyond conventional IT-centric scope.

While looking at investment dollars for the next few quarters, I feel that mobile-only work management/inventory management has great potential in freeing up expensive labor bandwidth and productivity. Added to that would be the focus on intelligent devices and embedded components coming soon into the EAM space. Net-net, I am pretty excited about the instrumentation side of the house. Interconnectedness is a natural parallel step. I am not so sure when we'll have pure play intelligence to the level of predictive models forecasting potential failures based on trends. Until then, intelligence provided by apps would be largely alerts, monitors and near real-time reports/dashboard through our various implementations. That alone would be able to solve a lot of problems via offering slightly more reaction time than what's available today.

Wearing the customer hat, if we can offer a keyboard-free EAM experience via instrumentation alerting the user consistently for anything untoward proactively, we're halfway down the road to sewing up customer loyalty.

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Bob Irwin, Sterling’s CEO, in his inaugural note gave an interesting view to differentiate Sterling (read best of breed packaged applications) from the big daddies of the world (read Oracle & SAP). His take was that ERPs make perfect sense for stuff within the four walls of an enterprise but if your business model comprises of external enterprise then something like Sterling Commerce has an edge. Am sure one could come up with numerous rationales to counter this but in the world where everything is getting slotted among an Oracle, SAP & “others” economies, having some such punch line makes those falling in the “others” category, feel better. Given the M&A spree of Oracle & SAP, how fruitful will this approach be going forward is anyone’s guess but with a majority of my annual targets hinged with Sterling Commerce, I’ll be first to get impacted either ways.

Shuttling through sessions while trying to schedule / unscheduled multiple meetings and ad-hoc discussions, the few thoughts that struck me included the whole concept of going On-Demand. With eyes on ATT’s (parent company) muscle power to host/manage/sell such a solution, Sterling is going ahead with a strong on-demand focus as part of their product plan for the next couple of years. However, I personally am still struggling to get convinced if on-demand order management could ever be an enchanting alternative for large organizations especially retailers for who OMS is bread & butter. On abruptly throwing this question to Ian Finley (VP, AMR Research) during our luncheon, the response was that it could be a parallel revenue stream for SMBs but will take a while to catch on with large corporations. If you add the perspective that unlike TMS, which does not have any direct consumer involvement till the time they get the product delivered fast and cheap, OMS / ecommerce has a huge consumer experience aspect of it which could be a do or die for several retailers and hence could be a strong deterrent. The other key theme from the product road map was to enhance the user interface trying to better integrate the selling suite with capabilities of business administration functions being enabled through the UI. This would be a right move from a purview of customer experience with Web 2.0 features but the concept of business users managing the content as well as configuration seem to be somewhat contradicting the on-demand theme where you’d be using it with minimal control.

To conclude, I’d say that Sterling Commerce is definitely living up to their promise of integrating applications with their base technology platform (BIS) which they made while acquiring Yantra Corp. How far will they be able to take the concept while continuously trying to keep a Oracle or SAP to run it over, will be an interesting journey to observe…

Author - Gurpreet Kalra, Industry Lead - Supply Chain Management

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For Sterling MCS, it was the projected move to port the application to the Sterling MCF like platform and architecture. This is expected to happen in multiple releases over the next 2 years or so. I believe the first release expects to incorporate the catalog and pricing functions of MCS within the platform offering. Having worked on both products, as a practitioner I applaud the move. The MCS platform could become a lot more extensible, configurable and upgrade friendly. New customers would benefit greatly from the richer catalog, pricing, configurator etc functionality which will now not only be bundled but will be integrated with the fulfillment suite.  However the major gap, I see with this approach is the impact to existing customers who have invested heavily on the current MCS platform. So far, I have not seen a clearly articulated point of view on what this move will bring to existing customers. There does not seem to be a very strong 'benefits' or new features story for these customers to redo their implementations to keep their upgrade and long term support paths clear. Also a clear upgrade path has not been worked out as yet to minimize the investments required by these existing customers. I do think that based on my conversation with Sterling engineering and product management, they are aware of these concerns. I do hope they come out with a comprehensive strategy to address some of these concerns of existing customers.

On the MCF side of the house, one key theme was around 'Multi Tenancy'. As a practitioner, I and my team when working in multi channel implementations have constantly faced the challenge of balancing out 'how much should be common' and 'how much should be kept separate' given the disparate nature of the selling channels. The benefits of keeping configuration and code common are obvious. The more common the processes and interfaces, the easier it is to ensure smooth cross channel operations. There is also significant lowering of TCO by having a common operations and support team. The disadvantages are loss in flexibility, potentially sub optimal processes for a particular channel and potentially longer and more expensive regression test cycles. In the case of Sterling being used in a 3 PL like scenario, there are also customer privacy imperatives where data and processes must be completely siloed while allowing ease of administrative maintenance.

Thus the move to support multiple entities on the same or multiple instances while maintaining the flexibility to have common configuration and integrations has great potential. The Sterling product has tried to enable this for some time for e.g. the choice to inherit configuration, the ability to setup enterprise specific event handlers etc. in the newer versions of the platform. During this conference they also spoke about how they are investing in enhancing this capability so that enterprises could even maintain different data schemas thus allowing more secure separation. However I perceive a gap at this point in time. As I have explained above, with the increased emphasis on multi or cross channel retailing, there is great benefit in keeping processes and integrations common across enterprises (say Retail and Direct). Thus a multi tenancy solution will not be complete if it does not address how the benefits of keeping processes common can be realized without the downside of longer testing and implementation timeframes (since a change in one flow requires regression testing in all other flows).
 

Author - Guneet Paintal, Principal Consultant - Supply Chain Management

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This current economy is certainly challenging all of us to do more with less.  As supply chain professionals, how often in the last year have you heard, “Cut costs, downsize your workforce, reduce procurement costs, and scale back inventory, and do it all without impacting revenues or customer service?  Sound familiar? 

We hear from our customers again and again that they need to quickly improve their supply chain performance.  However, customers with large ERP and legacy system investments have difficulty responding to critical business initiatives in a timely and cost-effective fashion.  These projects can take 9 to 12 months and cost over a million dollars.  No supply chain executive or CIO who values his or her job would dare take this traditional mega-IT project to the CEO for approval in this market. 

Without this “Big IT’ project option, line of business executives and IT executives scramble to find niche solutions to get them what they think they need quickly and at a perceived low cost.  However, these niche solutions further complicate the customer’s already complex and expensive Information Technology infrastructure.  Now, “legions” of highly compensated consultants often are required to manipulate these systems for a “business transformation” project that will now cost millions of dollars and take years to implement.  So what are they to do?

Microsoft has built products and solutions that are easy to use, quick to deploy, simple to maintain, leveraging existing investments. For example, one of our fastest growing enterprise products is SharePoint.   SharePoint provides a proven, low cost, intuitive, easy to use collaboration and Web 2.0 desktop work place for employees.  Most companies already own many or all of these capabilities and are beginning to leverage this desktop for deploying "role-based" dashboards for performance management and streamlined, simplified, lean business processes. 

Having such a platform in place can be particularly useful when a customer needs to quickly deploy a new business process to improve performance, to achieve cost savings, or meet revenue growth goals.  The great part about this platform is that most companies already own many or all of its elements and are beginning to leverage this Microsoft platform for deploying "role-based" dashboards for performance management and streamlined, simplified, lean, “real-time” business processes. 

So, what does this platform have to do with helping our supply chain executive and CIO out of their “do more with less” dilemma?  Let me tell you about a customer I personally worked with to help get a solution like this in place:
One customer with over $1 Billion spend annually on direct materials had buyers who spent a large portion of their day searching 24 separate screens in their standard ERP solution for the information they needed to process a routine purchase order for direct materials.  This included looking at supplier, material, quality, and other records in the ERP system.  One of the top 3 business initiatives of this customer was to reduce raw material costs.  The customer was also under pressure to significantly reduce their overall Information Technology budget.  The customer had both ERP and Microsoft capabilities to take advantage of to improve their business processes.  The customer needed a "low-cost" quick time to value solution which allowed their buyers to more quickly process purchase orders and have the “real-time” visibility needed to reduce purchase price variance.  The Vice President Supply Chain had hard dollar cost savings targets that were going to be very difficult to meet without a simplified business process and KPI's to track performance improvement.  A Six Sigma team identified what the "role-based" dashboard needed to look like to implement a lean business process.  The customer selected Microsoft SharePoint versus typical options other customer might use like: (1) a custom ERP development effort; (2) purchase and roll out of the SRM ERP module; or (3) purchase of a SRM module from another vendor.  The customer now has a project underway to deploy a "Buyer Workbench" using the Microsoft platform with a 12 week implementation plan for a production roll out seamlessly integrated with their ERP system of record. The customer already owned the Microsoft licenses so the only costs for this project were the time of the internal project team and the supporting Microsoft Global System Integrator partner services.  This customer has also selected Microsoft's for their enterprise Business Intelligence solution on top of ERP and other legacy systems.  They are now able to role these capabilities out to their employees across various functional areas providing a simple, intuitive “role-based” dashboard for their role in the organization.

One of Microsoft’s key Global Alliance partners, Infosys, has created a “role-based” performance management workbench offerings (Supply Chain Visibility) that can easily connect to a customer’s legacy systems like Enterprise Resource Planning (ERP) systems to enable “real-time” exception based Key Performance Indicators (KPI’s).  Infosys has created these “Role-Based” desktops for various functional roles in an organization such as Procurement, Manufacturing, Materials Management, and Service Management.  Infosys was selected to provide the "Buyer Workbench" mentioned in the paragraph above.   Infosys has developed an offering which allows customers to get a "fast start" on a project to support their key business initiatives in streamlining work processes and improving "real-time" exception based performance management.  This includes a data model, best practice KPI’s, templates, reports, and dashboards.
 
I am seeing a large pick up in these kind of “quick hit” projects with our customers.  The biggest challenge Microsoft faces right now is helping customers become more aware of how they can leverage these capabilities that they typically already "own."  I talked to a Chief Information Officer at the recent AMR Supply Chain Executive Conference; he was considering looking at an ERP solution for pricing analytics and procurement.  These were two key business initiatives at his Company.  He was not aware Microsoft partners like Infosys had solutions in the same space.  He was very pleased to find out there were Microsoft based solutions since they run a tight ship and can’t afford multi-million ERP based software and services projects.

Join tomorrow when Infosys, Microsoft and AMR Research will present a Webinar  to understand how organizations can harness the value of their supply chain data towards improved performance using visibility and collaboration.

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Procurement salaries on the rise - 7% increase in 2008 vs. 2007. I very much expected this and I am sure the percentage will go up in 2009 as well. Reason, I attribute to, is the “R” factor - Recession. Cutting cost and improving on savings target are on the high focus and is uniform across industries, enterprise size and global regions. Though procurement department is not solely responsible to achieve these targets in the rough time (all the departments in the organization are involved), but these professionals drive this cause across the organization.

For Nokia, this recession has given a positive outlook to their sourcing team. For this fiscal, Nokia doubled its savings target with fewer staff – it reduced its sourcing staff by 10%. In the process, the company has also moved away from traditional category focus to knowledge focus. I am sure enhancing the skills of these sourcing professionals is also an added priority to the procurement office.

Siemens looks at procurement to improve its fortunes. Siemens continues to focus on procurement to improve its competitiveness and their purchasing managers will be measured against savings targets.

For CPO and the sourcing and procurement team, over and above the targets, there are tough objectives to be met out there - increasing the amount of spend under management; improved operating efficiency within; enhancing the skills of the sourcing professionals; suppliers cannot be hammered too much; keep the internal stakeholder satisfaction and external supplier long term relationship running and evolving – definitely calls for a premium.

Posted by Raj Rajendran at 08:45 AM | Permalink | Comments (0) | TrackBacks (0)

I just read Justin’s blog on “hammering suppliers on price”; Prof. Rob has a very valid advice for companies on early warning signs of danger from suppliers.

Hammering suppliers on price and payment terms “now” vs. “long” term relationship, is a very important aspect in risk management. When there is a financial crunch in the buying organization, their sales are hit and their bottom-line is impacted.... suppliers, as partners or extended community to their organization, are expected and should also be a part of this tough journey. (Hopefully, this is only for few more months) So "renegotiating price" and change in the DPO with the business partners are inevitable. But to what extend?

Hammering suppliers on price, exploiting smaller firms and abusing buying power on smaller businesses is too harsh. Open, transparent and honest discussions can help both buyer and supplier community in difficult times. This will pave ways to new innovation - Collaborate to innovate. Both the organizations should collaborate and align to a new win-win situation. For me, renegotiation will for sure, push the suppliers and buyer to think out of the box. Renegotiating may not be a success always, but if there is something, why not dig that out. An extensive ground work needs to be done before we step on the gas. This should not be tried with all suppliers (buy-in from all the key stakeholders is a must), because this might kill the relationship.

One small example of redefined win-win: why cannot both the organizations implement a tiered payment term? PO to suppliers would say, net 105 days or 2% discount - 70 days or 5% - 45 days. Now if my supplier is in real need of cash to run his business, they should be allowed to choose an option from the above example in his invoice and the buying organization should respect that. This is one way of managing this crisis.

Posted by Raj Rajendran at 03:30 PM | Permalink | Comments (1) | TrackBacks (0)

There may be couple of options to fulfill such orders.
Option 1 - Customer receives separate shipments - one from the Hub DC and another one from alternate DC.  It should be noted that the retailer will likely to incur higher cost of multiple shipments

Option 2- Customer receives single shipment – The alternate DC ships order lines to the Hub DC and order lines get merged and single shipment is sent to the customer

In case of Option 1, the customer will likely to get his order lines in shortest possible time. However in case of option 2, the order is likely to get delayed because one shipment needs to be first received at Hub DC from alternate before sending it to customer.  However, for the retailers’, option 2 may be cost effective because there may be regular transportation (trucks) between DCs that makes the cost of transfer negligible.

Consumers’ patience to wait for the order to “arrive” is an extraordinarily important parameter to take into account in cost savings. Just illustrate this with an example; let’s say customer gets both the shipments in 5 days in case of option 1 however option 2 may take as high as 10 days.  Hence there is a need to evaluate this option before making the decision on cost optimization. i.e. If the delay is more than certain threshold then I go with option 1, otherwise option 2. This threshold must be defined based on consumer patience to wait. A simple way to define this could be in terms of customer cost of delay per day.

To further optimize the cost of shipping Zone skipping and labor scheduling can be considered. In case of zone skipping, the retailers can delay a group of regional orders until they have enough orders to fill the trailer and then ships them directly to carriers’ regional distribution center. This will reduce the carrier charges. This is typically achieved by retailers having pre-existing relationship with consumer-direct shippers.  
Ensuring warehouse operations operate at peak during the normal hours of operations, thereby increase in labor utilization rates during this period instead of overtime. Extended warehouse operations by running sub optimal labor utilization will lead to higher overtime costs. However it should be noted that all the options described above looks at optimizing cost to the retailer but there is a cost of customer shipment delay. Consumer patience to wait for the shipments must be used to retailers’ cost advantage!

Posted by Vinayak Hegde at 12:41 PM | Permalink | Comments (0) | TrackBacks (0)

1.Mastery of content based supply chain
The content economy is here to stay. The top supply chains have mastered how they effectively leverage content towards distinguishing their brand, establishing deep customer connect and creating personalized user experiences.
For example, Apple has converted their devices into an integrated content delivery platform – be it media content thru iTunes, application content thru the Appstore or sync and personalization services thru MobileMe. Nokia is differentiating itself as a content aggregator thru their Ovi and N-gage platforms. Nike has proven itself to be a leader in using social media to promote their brand and designs. PC manufacturers like Dell are bundling pre-installed content to provide out of the box personalized entertainment.
Mastering the content supply chain involves driving innovation, protecting IP, creating seamless end user experience by providing capabilities for personalization and discoverability, fostering adoption by investing in development platforms and defining new monetization models. Organizations that understand this and are able to integrate this within their supply chain are able to differentiate and stay ahead of the rest.

2.Understanding the role of data in supply chain
Supply Chains are getting more and more complex. With addition of each node in the supply chain network there is an exponential increase in available data. Top supply chain organizations understand the role of this data and have effectively harnessed this to their advantage.
Procter & Gamble, Pepsico and Johnson & Johnson all have built in processes and systems to sense changing demand signals and respond quickly. Their ability to analyze massive amounts of downstream data and create long term demand-sensing and demand-shaping strategies helps them to prevent stock-outs and excess inventory.
Wal-Mart closely monitors supplier performance on a wide range of metrics in  weekly intervals. Their ability to sense supplier risk and react quickly enables them to mitigate disruptions in their supply chain.
The RAM shortages of 2006 and battery plant fires from last year brought the entire notebook supply chain to a stand-still. Organizations that have invested in supply chain visibility and collaboration platforms are able to detect changes, disruptions & risks and react to these ahead of their competition.

On June 9th, 830am- 930am PST Infosys, Microsoft and AMR Research will present a Webinar to understand how organizations can harness the value of their supply chain data towards improved performance using visibility and collaboration. Join us..

Author - Krishnan Parasuraman, Principal Architect and Practice Leader at Infosys Technologies

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Some time back I had written about the key requirements for Multi Tenancy in WMS (here). I spoke about a similar topic at Sterling Commerce Connect (read Gopi's despatches from the event here and here)

The topic was Global WMS deployment and our experiences while doing such implementations. 

In the course of the session we talked about the challenges faced in WMS and we noticed that quite a few were more 'traditional' - pertaining to the standard challenges faced by any software that manages operations. Things like speeding up people's tasks, seamless interleaving of physical movement of inventory and systemic processing; however another interesting facet was the focus on being able to deploy quicker and faster with MORE site specific customizations.  More?

One conversation with a representative of a large logistics major was contrary to traditional logic about unified processes and efficiency. The view was unified processes were forced upon different sites due to constraints within WMS software and inability of implementation teams to implement faster, cheaper, better, and that the best scenario was when the solution allowed multiple site specific processes to co-exist on the same solution.

In the course of one more conversation, another customer wanted more control centrally while being able to allow site teams to manage site specific logic.

Overall the key needs were:

1. Ability to run multiple solutions and to seamlessly reconcile functionality across them.
2. Ability to add and remove sites without implementation projects.
3. Ability to customize labels and prints without the need for IT inputs.
4. Ability to map processes without the need for IT inputs. 
5. Ability to make UI behavior dynamic by site
6. Ability to run all this from a central location without the need for multiple deployments

Posted by Chandradeep Bandyopadhyay at 03:30 AM | Permalink | Comments (0) | TrackBacks (0)

What are your present day challenges from supply chain tools you have? In which technological area of supply chain would  your next investment spend go? If you had a wishlist of expectations from supply chain tools, which ones would make it to top three ?
Well most of the supply chain tool vendors are coming up with their roadmaps of the future based on specific trends in the market. It is important that supply chains keep their tools as current as possible since it provides a great competitive edge to an organization. Participate in our on-going Supply Chain polls, that assesses the most popular features that organizations are vying for in their supply chain tools.

Posted by K. Srinivas at 03:17 AM | Permalink | Comments (1) | TrackBacks (0)

I’ve been globe trotting lately - India, UK, US and such. Living in Seattle puts a tacit yet obliging pressure on you to visit Starbucks. Ordering a cup of coffee after 9 months was an all new experience from the previous time I was there. Double-tall, non-fat, de-cafe, extra-hot cappuccino for instance, Sugar free, soy, cinnamon dolce, and no-whip latte for another. So I couldn’t stop but notice the granularity of the orders and what Starbucks had accomplished in the past 9 months.

A year or so ago Starbucks introduced “our promise” concept which promised the customers that they will brew the drinks exactly how they want it. It involved soy milk, brown sugar and a few other options. A slight dissatisfaction would get you a whole new cup of the same drink but with corrections. They did not hesitate until you were satisfied. Once I requested my tall cappuccino be heated and they gave me a new extra-hot cup of coffee – just the way I liked it. I paid $2.85 for the drink and left the store with a sense of satisfaction.

But now, it is a whole new world out there. Customers seemed happier getting their drinks. The more complicated the orders were the broader the smiles were. Bingo!!! That is what we need in Cloud Computing too! I will come to this in the next paragraph. I ordered tall cappuccino but I was recommended that I get a double tall, extra-hot, wet cappuccino. I paid $3.41 but I left the store this time with a sense of delight.

Alright! We have established I like cappuccino. But we can’t miss but notice what Starbucks has achieved with coffee. They have brought in a host of syrups, added a twist of health and wrapped it with a personal touch of “promise” = customized drinks = perfect mornings = happier customers.

Can Amazon and Google achieve this with cloud computing? Can we have “double RAC node, four WebLogic instance, JMS messaging enabled Sterling DOM supported on RAID 5 disks” or a “DB2 based, single instance WebSphere application server hosting Manhattan forecasting engine”?

In my opinion we as service providers should take the onus of encouraging the SCM package vendors to come-up with a “Cloud License” model which takes machine instances to consideration. Dynamically adding a machine instance on-demand may seem hunky-dory but preparing a new machine instance to have the same execution environment as the one that crashed isn’t easy for multi-tiered applications. Besides, instantiating another virtual machine may only work for simpler standalone applications.

Multi-tiered SCM applications require a host of prerequisite installations and configurations to fall in-place before you can even attempt to start a basic version of the engines. Therefore, we need to come-up with cloud licenses which can be maintained as a repository on the cloud. Creating the execution environment is then a matter of following step-by-step instructions that can perhaps be automated.

A host of such vendors will help widen the repository and help Cloud Infrastructure providers like Amazon and Google brew different production environments and attract variety of user communities providing environments exactly how they’d like it.

Hurry up guys IBM is already marking its space. The sooner the better! No?

Posted by Guruprasad B. Nagaraja at 04:50 PM | Permalink | Comments (0) | TrackBacks (0)

In my previous blog I had touched on the “Why” aspect of a supplier platform strategy to avert the impact of supplier bankruptcy. In the market similar trends are taking place where manufacturers are coming together to develop a common procurement platform for sourcing from a common supplier pool. Such a step should be fraught with a lot of caution, as it is not an omnibus solution. Instead of just hurrying up the myriad steps to reach the goal and announce the collaboration success as media hype, a step-by-step approach with attaining stability after each step is necessary. That is why you will see a lot of “yes-no-yes-no…..” iterations in the media about a lot of superficial collaborations being floated. Probably that is the reason you would hardly see much in the media about such platform strategies already in place among many Japanese manufacturers, as they feel that media announcements will only follow once a critical mass is attained.

Here I explain “How” manufacturers are trying to solve the complex puzzle of the platform strategy.

Step-1: The first step is for the manufacturers to decide which program is appropriate for them to introduce the platform strategy. Most manufacturers would be apprehensive of this platform strategy, fearing brand value erosion, to be associated to another brand. Another major hurdle would be the impact of such strategy on the supplier relationship. It is a no-brainer to assume that the best way to introduce this strategy is with the program with the lowest supplier impact. But a closer look would prove you otherwise.

The Diagram below depicts the various programs for an automotive industry. To explain a few terms for the non-automotive audience:

§  Minor modification is the launch of a model variant with changes such as head-lamp, interior, accessory features, wheels etc.

§  Product extension is the launch of a model variant with changes such as notchback extension, station-wagon extension, engine change etc.

It can be observed that whereas new platform launch has the lowest impact value for supplier relationship, but the platform stability period (here it is the gestation period for the platform time-to-market) is so huge that this benefit is neutralized. Arranging the various programs in descending order of priority for procurement collaboration platform strategy is:

Programs

1. Minor Modifications
2. Product Extensions
3. New supplier selection
4. New product launch
5. Regular mass production
6. New platform launch
   

Step-2: After selecting the proper program where-in to kick-start the platform, the next step is to select appropriate suppliers for this platform. The manufacturer or OEM has to identify the processes involved in the program. Based on the breadth of processes involved the suppliers are selected accordingly. The suppliers are broadly classified into 4 classes based on their maturity level. These are mentioned below.

•  Contract manufacturer
• Own-tool vendor
• Standard product vendor
• Original design vendor

The level of involvement of the supplier in the various processes of the program is explained in detail in Paper#86, 12^th International Symposium of Logistics, July-2007. The suppliers are arranged in their priority for procurement collaboration within each program in the following descending order:

1. Own-tool vendor
2. Standard part vendor
3. Contract manufacturer
4. Own design vendor
   

Common mistakes: The most common mistakes which should be avoided:

• Do not treat all programs alike
• Stability period is generally taken as average period between product launches
• All factors of Supplier relationship impact are not taken into consideration for arriving at the weighted score
• No incentives to suppliers enlisted for a platform
  

Once the manufacturer has selected the programs and the corresponding suppliers, the manufacturer has to go ahead next steps of Governance, Evaluation and communication set-up for making the platform a success. I will explain these details in my next blog.

With GM announcing bankruptcy following Chrysler bankruptcy announcement earlier, most automotive manufacturers would be intensifying their supplier risk measures. In such a scenario, a step-by-step approach to develop close ties in procurement would go a long way to ward off possible dangers of supply failure. I would invite your views on the program and supplier selection strategies for this unique procurement platform strategies emerging in the market.

Posted by Sudripto De at 01:52 PM | Permalink | Comments (0) | TrackBacks (0)