Supply Chain Management

I recently got a chance to go through an interestingly titled research report from Bill Polk of AMR going by the headline "Asset Management Algebra: EAM = ROI". In these times of increasingly deficient attention-spans, reading a 2-pager is always better than reading a 20-pager with authors belaboring the same point in multiple ways.

Apart from the usual benefits of EAM (ROCE, efficiency improvements, structured information etc) and its new found importance (movement from tactical to strategic), an interesting point which I haven't come across in many other places was about "Capturing and preserving data from an aging workforce". While implementing EAM systems, we typically think of labor management (thru the EAM app or via a little help from more high brow "Workforce Management Systems or WFMs") as a way to capture skills of the maintenance personnel thus making sure the right party is assigned to the right work order.

Here Bill comes up with a different perspective on the importance of EAM & the skills registry part of the implementation. In his words "Many manufacturing assets - heavy assets, in particular - are designed to run for decades. In fact many companies' assets are designed and built by one generation and then operated and maintained by the next. With key information oftentimes found in the heads or desks of an aging workforce, in addition to the increase in maintenance outsourcing, it’s essential to have easily-accessible central repositories of data"

This is clearly an angle we haven’t heard from our clients yet. You may wonder whether we are getting into the realm of Knowledge Management here as against plain old EAM. That may be the case and the challenge would be in capturing unstructured information gleaned over years of maintenance experience which is asset-specific, location-specific and most importantly person-specific into a structured database as part of an EAM implementation, rather than consign it in some kind of free-form text. For industries with longer asset life cycles (say an electric utility or a nuclear power plant), it may be worth the additional effort.

Elsewhere, Bill also outlines very crisply the key benefit metrics (like reduction of emergency repairs or no. of maintenance incidents prevented). Like any other cost-reduction application (say, indirect spend or HR), its actually possible to create a case for self-funding EAM, which just requires a 6-month wait period before the first set of improvements begin to save money for maintenance managers to start planning for more high-end usages like instrumentation integration real-time or asset health dashboards, which work on a near real-time basis.

Where I am a little skeptical is the fast-case implementation scenario Bill refers to, of 30-60 days lead times for vanilla implementations. Perhaps I’m tempered by the fact that Infosys plays almost exclusively in the Fortune-1000 or Global2K client base where all fast cases could end up being lost cases more often than otherwise. My feeling is that such implementations would be largely in the realm of a capability demonstration PoCs. As Bill himself says elsewhere, the real power of the software can only be harnessed when the EAM workflows go beyond the boundaries of one package and start looking at all the cost elements that impacts asset optimization. That covers ERP, plant systems and any niche applications (MRO procurement, inventory management, workforce management) which can contribute to overall goals of an EAM implementation. We can then say that EAM Algebra is truly the sum of parts being larger than the whole.

Posted by Gopikrishnan GR at 10:44 AM | Permalink | Comments (3) | TrackBacks (0)

Air France flight AF447 disappears between Brazil and France with 228 people of board. Investigators suspect that the speed sensors (also known as Pitot tubes) may have been a major factor. Flight 447 had been flying in stormy weather that may have included icing. This can block the Pitot tubes, which then give false information to the pilots causing them to fly too fast or too slow leading to a crash.

 

This is just one incidence from all the stories we hear from trains colliding in Washington DC because of the faulty signals sent by track sensors, to radioactive emissions from nuclear power plant in Chernobyl, Ukraine, to poisonous gas leaking from the Union Carbide plant in Bhopal, India, the list goes on.

Maintenance has traditionally been viewed as an operational overhead and in many cases an act that is forced upon the organization by the regulatory authorities. With the recession getting deeper, organizations are forced to cut corners and this adds to the challenges of an asset manager. Physical assets are real assets that live and breathe in the real world and are not just figures on the balance sheet. They need to be monitored and maintained so that they deliver value for the organization and delight customers.

In this blog, I present these 10 commandments (Decalogue) for physical asset management:

1. Thou shall identify critical equipments that provide goods or services that delight customers

There is no better advertisement for an aircraft operator than its safety record and it’s on time operations. Smart maintenance organizations identify their key assets and channelize their maintenance efforts towards the safe and reliable operation of it.

2. Thou shall respect the environment and build sustainable maintenance strategies

There has never been a greater focus on environment before. Climate change tops the discussion at all global meets. Consumption of Water, Air, Gases, Electricity and Steam (WAGES) demands due consideration in an effective maintenance strategy.

3. Thou shall schedule maintenance and have a long term view on maintenance

Maintenance planning and scheduling is an integral part of any maintenance strategy. Incorporating long term forecasting and seasonal trend ensures that maintenance is done with a view of extending asset life

4. Thou shall not covet maintenance that serves no useful purpose

As everything else in an organization, maintenance strategy also needs a periodic review. Analyze preventive maintenance programs and job plans on historic data and fine tuned it so that over maintenance is eliminated.

5. Thou shall not place false equipment history in the asset bible (CMMS)

The elementary principle of garbage in garbage out holds true in CMMS systems as well. CMMS systems should aim at capturing data at the source and use failure codes. Thou shall not wait until tomorrow to document your work, for it shall never get done.

6. Thou shall respect thy skilled tradesmen, train well the young and develop the old in modern techniques.

Inventory of skilled resources is as important as inventory of critical spares in a maintenance organization. Vast amount of tacit knowledge is stored inside the grey heads of technicians and mechanics. Formalizing this knowledge and training resource for the every changing technological advancement is a key success factor in developing an effective maintenance organization.

7. Thou shall take time to review and benchmark.

What gets measured gets done and the best way to beat your competition is to do play the game better than they do. Benchmarking helps you in setting the bar and comparing your performance with global standards. Performance parameters like Overall Equipment Effectiveness (OEE), Asset Sustainability Index, Mean Time between Failure and Mean Time to Repair are a few parameters to benchmark against.

8. Thou shall not falsely worship reactive maintenance

Asset intensive organizations should aspire be move towards predictive and reliability based maintenance methodologies. A fix-it-when-it-breaks strategy may be a cheaper option but has huge implications on customer satisfaction.

9. Thou shall not take the life of equipment by means of poor maintenance practices

Over maintenance is as lethal as under maintenance. Effective inspection and audit processes should be an integral part of the maintenance policy.

10. Thou shall make maintenance a profit centre

There may be other principles that I might have inadvertently missed out but these I feel are the most important ones.

In my subsequent blogs I will talk more about each one of these guiding principles and how to incorporate them in a successful maintenance strategy.

 

Posted by Suresh Patel at 10:36 AM | Permalink | Comments (0) | TrackBacks (0)

Ever played the game of Chinese Whispers and wondered how a simple message can get completely distorted as it passes through several ears? Well, demand variability in the business is caused due to a phenomenon that is somewhat similar, only that instead of a phrase, the buying pattern of the end consumer passes through several layers of the supply chain with increasing degree of variability at each layer, causing swings in demand as it propagates upstream through the supply chain.

Here is how it works. When a consumer buys a product with a buying pattern that does not match his consumption pattern, he creates a small flutter of variability. The flutter amplifies a little as the retailer tries to translate it into his sales requirement. The already amplified flutter amplifies further as he translates his sales requirement into a manufacturer order. The manufacturer, though, sees the amplified flutter as a normal demand, and uses that to forecast his future sales, in the process doing his own bit of amplification. The end result- you guessed it- a small flutter has now snowballed into huge swings in the demand on the manufacturer. Similar to the game of Chinese Whispers, the degree of distortion of a demand signal is dependant upon the degree of variability in the input demand and the effectiveness of the transmission mechanism.

However, this is where the similarity ends. While a game of Chinese Whispers provides a wholesome source of entertainment to the players, it is seen as a costly nuisance in the world of business. Demand variability or demand swings are extremely harmful to the supply chains of the manufacturers and the retailers alike. They affect every aspect of planning, namely, capacity planning (production, storage, transportation and manpower), deployment planning and product mix planning, resulting in tied up working capital in excess inventory and unused capacity, reduced ability to react to changes in market activities and loss of revenue due to poor order fulfillment metrics or lost sales.

No doubt, demand variability needs to be tamed. In this post, we will look at how the retailer and the manufacturer contribute to this phenomenon.

Demand variability induced through retailer actions

1. Marketing triggered consumer demand variability- variation in consumption pattern or buying pattern is the genesis of demand variability. While changes in the consumption pattern can happen due to unforeseen events and can be corrected through better market intelligence and planning, changes in the buying patterns are caused due to corporate actions that aim towards increasing short term sales. When a product is under promotion, consumers react by changing their buying behavior, sometimes without corresponding shift in their consumption behavior. When the buying pattern deviates from the consumption pattern in an unsystematic manner, it becomes difficult to predict, causing demand to become variable.

Similarly, Hi-Lo pricing strategies by retailers create fluctuations in demand as consumers postpone their purchase waiting for the right deal. Lenient return policies also result in unpredictable negative demand with a timing offset.

2. Out of stock at the shelf-   When the consumer does not find a product at the shelf, due to either store out of stock or shelf out of stock reasons, it may results in consumer brand switch. Depending on the sales rate of the product, and the duration of out of stock, there is a corresponding lost sale. Lost sales cause gap in the demand pattern. When out of stocks occur frequently, the gaps in the sale make the demand lumpy and cause it to become variable.

3. Order batching and forward buys – Large orders result in higher variance. Orders larger than immediate requirements can be placed in order to reduce ordering costs, to take advantage of transportation economics or to benefit from sales incentives given by the manufacturer.
 
Also, trade promotions by manufacturers may result in opportunistic buying by the retailers. Since the resulting excess inventory provides a higher degree of forward coverage to the retailer, future orders on the manufacturer will show a deviation from the historic pattern. When the manufacturer tries to forecast their future sales using the variable pattern, it would result in higher forecast errors for the manufacturer.

4. Shortage gaming- During short supply situations, retailers know that manufacturers will resort to rationing. Rationing often happens based on fair share allocation that is in proportion to the retailer order, which means the retailer who places a bigger order gets bigger share of the available supply. In order to cover their demand, retailers try to order more than they require hoping to get at least what they really require. This provides a false picture of the true demand to the manufacturer when the short supply situation is over.

5. Lack of communication with the manufacturer- Promotions, new product introductions, product discontinuations or Plan-o-gram changes provide the highest contribution to demand variability for the retailer. When such actions are taken without the cognizance of the manufacturer, demand variability gets transmitted and get amplified in the process.

Demand variability induced through manufacturer actions

6. Sales incentives contributing to demand variability- Sales targets when applied to an extended period such as a quarter often cause demand to skew up during the end of the period causing demand to be distorted.
 
7. Independent forecasting of demand- No forecast is without an error. It is the degree of error that counts. Forecast error results from forecasting process as well as inherent variability in the historical demand. When the manufacturer tries to forecast his demand based on the retailer shipments or retailer orders, the error is further amplified with respect to the actual consumption pattern. Additionally, manufacturer’s lack of processes and capabilities to communicate with the retailers for joint planning of demand or order execution may lead to further demand variability.

8. Handling of supply issues- As discussed earlier, manufacturers contribute to demand variability through their product allocation practices during short supply situations.

The problem of demand variability is being addressed by the retailers and manufacturers, often working together, through several policy and process measures. We will discuss some of these measures in my next post.

Posted by Venkatesan Ramesh at 10:16 AM | Permalink | Comments (1) | TrackBacks (0)

SAP SRM 7.0 is here to stay. Shoulders high, collars up, head upright……. Here we go!!!!!!!!!! This 101 introduction blog is to set the context of SAP SRM road mapping exercise for an Organization that could be either stable / under crisis or even pushed with heavy cost reduction projects with IT landscape rationalization. In such bad weather it becomes very important for us to understand the emotions of a DECISION MAKING TEAM that could use an Application Framework to provide a 911 support to a falling business.

In the blog sequel 4 and above we will get into the Nerve of the Solution and evaluate the business benefit of every functionality, Scenario that’s delivered. Again re-instating, “Every Dollar Saved in Procurement -> Contributes to every dollar earned in Revenue”

In a downtime situation with recession flicks almost getting to all industry verticals, the challenge is to still come up with a strong business case that will cow-down the obstacles and uncomfortable questions from the CIO / CPO desk.  

May 2009, was a month of events, and one such was SRM 7.0 becoming generally available for business predators, who until now were working on strengthening the business case for an SRM Upgrade or a Green field implementation. I was inspired by these sequel driven blog rolls from Jason on spendmatters.com on SRM 101 and beyond, traction was always there, and will grow further. http://www.spendmatters.com/index.cfm/2009/5/27/Its-Alive--SAP-SRM-70-Part-1

http://www.spendmatters.com/index.cfm/2009/5/28/Its-Alive--SAP-SRM-70-in-Depth-Part-2  

The Mashed up IT and Business perception

…Lets drop 3 feet below to get into the shoes of the head of a Supply Chain IT / CIO supported by a strong SAP Center of Excellence (90% of whose application landscape is SAP, in other words a HEAVY SAP SHOP), whose been given this daunting task to work alongside Supply Chain / Supplier Relations Core Business folks to drive an enterprise wide transformational initiative to save that DOLLAR.

Emotions

 - What are the top 10 Agenda items on his / her mind to achieve this?

 - What emotions are he / she going through during this tough phase?

 - Will he/she be able to show the underlying savings that are theoretical currently?

 - With being a heavy SAP shop and commodity expert’s pressure pushing him heavily to evaluate non-SAP BEST OF BREED product lines in the SRM space, how will he/she sell SAP SRM?

 - Will he / she be able to identify KPI’s to strengthen the business case and the corresponding ROI’s for an SRM 7.0 upgrade / Fresh Green field implementation?

 - Will Rapid Prototyping help in getting a sneak preview of the final solution to support the transformation?

 - Outsourcing or not?  

- Is IT trying to get ahead of business in delivering something that will probably remain unpacked?

……I can probably identify 100 questions more; coz the mind doesn’t have an endpoint and doesn’t know where to stop.

However encroaching Web Real estate will only be 1-way traffic, I want this to be interactive, so let me wait to hear from you on at least 20 more questions before we could actually freeze the denominator to those 10 areas that go a long way in decision making and inputs to a strong business case with a promising ROI. We will analyze the excerpts of these emotions that lead us to our next blog on “Sign-off the SAP SRM 7.0 Road mapping exercise for an Enterprise” Regards Tridip Chakraborthy

Posted by Tridip Chakraborthy at 06:39 AM | Permalink | Comments (0) | TrackBacks (0)

IDENTIFYING CAUSES FOR UNSUSTAINABLE BEHAVIOR

Efforts for sustaining supply chain benefits have been under fire. Business requires supply chain programs for implementing their strategies. Variability, especially uncertainties in operations dim the chances for even the best solutions to return results in a consistent manner. Sustainability, is taking center-stage for CXOs and I see them scramble for ideas that have demonstrated results.

I have witnessed such variations in supply chains that present themselves as both daunting and a worthwhile pursuit. Here are 3 approaches that can help with sustaining your supply chain initiatives, whether it is for planning or for execution. I call them the “3 Proverbs to Sustainability”. (I know most of you think of GREEN when you hear of sustainability)

#1: In calamity, 50% is danger and 50% is opportunity
Considering supply chain uncertainties as keys to unlocking value is the first step. Each supply chain process has a constant and a variable that drives its efficiency. Understanding the trade-offs between sure and unsure aspects of a process will ensure that you can determine your supply chain’s KPI (Key Performance Indicators) accurately. As an example, On-time delivery as a KPI can be overly different for measuring the same process if the calculations are based receiving an Order- Date of Order, Date of Processing/Releasing Order or Date of Shipment. It is critical that Retailers and their Suppliers get these definitions correct prior to setting their KPI baselines.

#2: Everyone knows how a ship can be saved; after it has sunk
Most supply chain intelligence (a.k.a Performance Reports) delivers for metrics “after-the-fact”. Solutions need to adapt to early warnings (preemptive analytics) as much as they report performance measures. Supply chain visibility can offer businesses to identify problems when they are ready to appear. My observation of supply chains shows that there are tremendous opportunities to unlock value if we design supply chain visibility solutions horizontally. If a Retailer’s buyer creates a Purchase Order for a Supplier abroad; and lack of visibility into a vessel booking process “x” days prior to or before the receipt of goods by Supplier informed via their ASN (Advanced Ship Notices) can become a prospect for failure. Supply chains must anticipate risks early on. See Infosys approach by visiting www.nextgenerationsupplychain.com

#3: To change and to improve are two different things
Solutions promise change. Improvement is a whole different point. In my viewpoint, the extent to which a Solution or Method must allow for betterment to current business metrics need to be part of designing and implementing Technology for business process improvements. Continuous improvements, though very challenging, must be at the helm of supply chain innovation.

You’ll all agree that supply chain leaders must reevaluate their Solution capabilities. Including practical metrics to consider the impact of uncertainties, improving visibility alongside proactive alerts and adapting to continuous improvement practices through innovation in design can convert risks into benefits that are sustainable.

If we take a second look, it will cost us nothing to practice these proverbs.

Posted by Shan Latheef at 04:02 PM | Permalink | Comments (2) | TrackBacks (0)

I was reading on supplier relationship management (SRM) technology investments and came across industry numbers on implementation success mentioning of an average 25% of the indirect spend value and 7% of the supplier’s enabled through SRM investments. I smiled within. .. Least surprised. Wondered how the CFO’s / CPO’s would be justifying the benefits against the original business case they sanctioned for the investment.

Best in class implementations have benchmarked up to 98% enablement of procurement processes on SRM platforms.

It is experience that most technology investment business case documents gather dust after the budgetary sanctions are received for the implementation. The initial business case are often directional and at high level with certain best practice and reality assumptions. These do not get translated to the actual application blueprinting and implementation process. The typical implementation approaches of requirement gathering may have a role to play in this.

Here is a small live example. We were on our design boards the other day developing an SRM solution for end to end application implementation program of a global manufacturing organization and landed up with a dilemma if we should design solution for 5% or 90% of value potential of the product. The requirement in the RFP was for implementation of a couple of supplier catalogs only on their SRM platform of choice - which could translate to just probably 5% of the potential value (illustration below).

 

[Figure- illustrative spend adoption ]

Catalog decisions are a function of content uniqueness, no of suppliers, contract periods, # of revisions, Supplier relations, internal integration, business rules etc.  The process routes are a function of the commodity and supplier characteristics. The catalog strategy maps these 2 aspects and assesses all the procurement transaction types leading to mapping each type to the various technology platform options is not often considered. Similar for direct material there are multiple  replenishments we could plan for  – MRP driven , PO , VMI, Kanban, EOQ, Min Max , Scheduling agreement, Jt continuous  replenishment. 
 

Organizations undergoing SRM transformations need to look beyond just the technology platforms, delve their plans deeper into building the enabling transformation components and designing a congenial business environment for successful value realization to predefined business case.

1. SRM implementations programs need to tie the initial business case to the business solution design to ensure that the right process , right capabilities , right design criteria’s and right measures are targeted to achieve the predefined business case
   
2. SRM implementation programs will benefit from incorporating the best of “design lifecycle” process for process design (currently missing in most blueprinting approaches) to encourage process innovations.
   
3. SRM implementation programs need to plan for designing business solutions not just for processes but all the business enablers of organization, people, process, technology, data and infrastructure.
   
4. Best practices of overall SRM strategy, commodity segmentation, catalog strategy, data classification and synchronization , global process harmonization , requirement prioritization, decision framework, metrics management rapid sourcing, managed services support, change readiness assessments and value traceability should all be a part of the program for accelerated ROI.
   
5. SRM implementation programs should be designing the business blueprints for addressing these value drivers of spend management.
   
1. Spend Adoption
   
2. Supplier enablement
   
3. Data and Process standards
   
6. The program management team need to take ownership of “value targets” in the Program management KPI’s.
   

Very keen to hear your point of view on designing solutions for business value or designing processes for predefined performance.

Appreciate if you could spare 10 minutes to share a note on this mini survey- “Designing for value” (no mandatory questions in this survey )

http://www.surveymonkey.com/s.aspx?sm=XvXQ7NqInbFj2y0PJfm6JQ_3d_3d

You can also email me at pradeep_ty@infosys.com for any further details on the”value led” SRM implementation approach.

 

Posted by Pradeep T Y at 08:07 AM | Permalink | Comments (0) | TrackBacks (0)

The internet penetration generally indicates levels of economic development. As large retailers look at global ecommerce reach and expansion in developing countries, it is a huge challenge to build a multi channel commerce platform solution which can cater to multiple countries. There are multiple approaches to consider before arriving at the right strategy for global platform deployment.

Following are some of the options that I can think of –

1.       Build country specific ecommerce solution and deploy

2.       Build county specific ecommerce solution for already matured market (ex: USA, Europe) and build a separate common platform/template for the emerging markets  and then rollout

3.       Build common ecommerce platform considering large ecommerce market (ex: USA, Europe) and extend the same platform to emerging markets (Ex: Mexico, India, Australia)

4.       ..more?

The first option is off course the most “simple” one but unlikely to be a good long term strategy. The strategy for ecommerce expansion in each country could be different. However, the underlying ecommerce infrastructure can’t be too different for each of the countries. Hence the first option will be too expensive to maintain, high software license costs, much longer lead time to market the new features/solutions and potentially many more issues.

The second option will address the developed markets separately and no compromises are made to the country specific requirements. For the emerging markets, a common template is developed considering various country requirements then build country specific requirements and roll out. This approach will likely to be expensive since there is a separate investment for developed markets and emerging markets.

The third option is probably the most optimal solution. However, it is likely to be the most challenging one to build because the template needs to consider requirements of “matured” ecommerce markets and then extend this platform to other emerging markets as well. Also integration complexity (multi currency, language, tax, master data and other legacy/ERP systems) can be quite high. The initial investments on building such platform will also be high. However, as a long term strategy it will be a scalable solution and probably most economical.  Also this option will likely to go with only configurable packaged solution stack as it will be extremely cumbersome to build a custom/bespoke solution.

Key issues in building a common ecommerce platform (not exhaustive) –

·Apart from multi currency, multi lingual support, there will be conflicting business requirements and decision has to be taken to build either as a part of template or build it as country specific. However it should be noted that a large part of the effort going into building country specific requirements means that it will difficult to manage future releases and high cost of maintenance

·While the back end business processes can be common and fairly easier to build such an engine (covering order management, inventory, fulfillment/wms) the front end ecommerce, customer services will likely to be quite different. However the approach to build the front end must consider common building blocks (search, shopping cart management, inventory look up, reservation, customer registration, order status etc). Package stack will likely to be the default option even for front end

·As mentioned earlier integrations can be quite complex. However one thumb rule to be followed is – ecommerce platform has to define the way the data exchange will happen with external system and not the other way.

·If the approach (common template and roll out) has to be successful, the roll out has to be faster and even simultaneous rollout must be considered. Otherwise country priorities will overtake the acceptability of common platform  may become a huge challenge

·Security, compliance requirements may vary and standardization in such areas will be complex

Recent trend clearly indicates ecommerce solution building is clearly moving away from ground up development (bespoke) since this approach may work in short term but as a long term solution it has many limitations especially for the organizations that are aggressively looking newer business lines for growth and global expansion.  Selection of best suited package stack and then building a common ecommerce platform will likely to emerge as a best long term strategy.

Posted by Vinayak Hegde at 04:24 PM | Permalink | Comments (0) | TrackBacks (0)

This is part 2 of my blog on evaluating the role of software / IT systems in running a supply chain.

In the prior blog I had highlighted a few questions on what are the pre-requisites for enabling great supply chains and while software is indeed a key enabler, it is not sufficient alone to make a successful supply chain.

So, What role IT systems / software then play in managing supply chain operations?

My view is that Software and IT systems are enablers and hence not the end objectives of a supply chain operation. As described in my prior blog ,true pre-requisite for creating successful supply chain is to align the competitive priorities within each area of supply chain operation. IT systems / software can play great role in creating platform for this alignment. There are three major areas where this platform is needed: 1) capture, communication, collaboration and consensus on competitive priorities across all levels (definition & seamless flow down of priorities) 2) translation of these priorities into specific business rules, decision thresholds and 3) measurement & control of actual execution – workflows, exceptions, alerts and metrics to determine the effectiveness of the alignment.

Based on my own experience in managing as leading several supply chain systems implementation, most software / IT systems available today, focus on the later two while not paying enough attention to the first one. For example most packages today have functionalities and features to manage demand planning, supply planning and so on and have good mechanisms to provide alerts / exceptions and workflows. However, when it comes to the first part, these systems at best have some pre-determined generic metrics / dashboards – which may not fit all businesses and in most cases have nothing at all. This is left to the business teams and implementation consultants to figure out. This also leads to customizations (often heavy) to the IT systems which add complexities to the implementation and are difficult and costly to manage and maintain.

Further, despite these customizations, business stakeholders are often not satisfied and place requirements for more customizations and enhancement requests (increasing cost of IT services).Hence for IT systems to really add value to supply chain operations, it would be required to increase focus on creating mechanisms to help capture, communicate and build consensus on competitive priorities. While the success of this alignment still remains with the people, having these mechanisms in place will help in improving the effectiveness of underlying operational processes and also improving the effectiveness of IT systems.

Would be curious to see your perspectives /experience on this.

Posted by Atul Chandra Pandey at 11:03 PM | Permalink | Comments (0) | TrackBacks (0)

Transportation Management Systems (TMS) have evolved over the past few years and are used as a point of leverage to bring in ROI by effectively automating the transportation function for higher visibility and collaboration across the supply chain including the carrier partners.  
Global organizations are unlocking business value from their TMS by deploying them either via the on-demand or the on-premise space.
The common measures considered for narrowing down to one of the delivery models are  faster reporting, non disruptive implementation and shorter lead time for higher ROI.
Is your TMS implementation a  success in your organization via the  on-demand or the on-premise delivery model..
Participate in our on-going series of Supply Chain polls to gauge the trend across the industry in order to provide organizations insights on key areas of supply chain.

Posted by Raj Rajendran at 04:51 AM | Permalink | Comments (0) | TrackBacks (0)

“Software is not a prerequisite in running a supply chain”. I heard this statement while attending SCOR framework workshop sometime back in Chicago. This sounded interesting and my first reaction was “off-course, look at the mess around the businesses today despite having most sophisticated software in place”. 

Having said that, I was not ready to accept that supply chains can survive in today’s world without software systems. Organizations have made significant investments in implementing automation and software systems in supply chain and it is practically impossible to visualize a supply chain in today’s world without IT or software system. 

Yet, there was something about this statement which I couldn’t completely discount. So, I started probing this a little deeper and in the process the following questions emerged: if software is not prerequisite, then why organizations keep on spending millions of dollars on IT systems, what is really needed to run a supply chain, how software / automation / IT systems add value to supply chain and what is required to derive the value out of these systems. My post aims to put some perspectives around these questions.

Why is software not a prerequisite?

By definition, a prerequisite is something that is necessary to the carrying out of a function. This also means that once the prerequisite is in place, the function will be carried out successfully. Hence, if software is prerequisite for supply chain, it would mean that without software a supply chain cannot exist or operate successfully and having software in place should result into successful supply chain operation.

However, this is indeed not the case.

Business world is replete with examples where companies have bought the most sophisticated automation / software to run their operations (GM, Ford) and still not been able to arrest the downturn. On the other hand we also have examples of companies which are not considered to let information technology / software to take prime seat (Toyota) and yet have amazing supply chain and operations agility and continue to create business growth. In between these two ends we can find the rest of the world either seeking supply chain nirvana through IT systems – often costly, time consuming and still not been able to deliver the desired results to the C suite or trying to embark on supply chain re-engineering initiatives which bring some improvements in short term but are not sustainable in the long run.

So, what is really needed to build and operate a successful supply chain? 

My viewpoint is that in order to answer this, it is important to look at role of a supply chain in a business organization. Supply chain is a means and not an end in itself. It is prime vehicle to deliver organization’s products / services to its customers and has direct linkage with organization’s competitive priorities and mission objectives. It is said that no two supply chains are alike. This is true because businesses differ on competitive priorities and strategic objectives and direction and not because the basic supply chain functions are different.

For example, if the strategic direction is to maintain control over most of the supply chain functions in-house and competitive priority is to maintain high market reach and availability, the supply chain focus of the enterprise will be very inward with limited focus on external collaboration. Typically in these situations, the supply chain functions are organized in silos with each function (source, make, deliver) organized to gain efficiencies within silos without considering the impact on total supply chain. Correspondingly, the supply chain systems also will be focused on gaining efficiencies within each function. Policies within each function will typically overrule the suggestions made by software / IT systems. The success / failure of supply chain to meet business priorities will be determined by the decisions made by key stakeholders and the control / effectiveness of policies in place to leverage systems. 
Hence for a supply chain to be successful, it is critical to have the alignment of the operations and underlying policies with the key business priorities. This requires aligning all the supply chain functions (Plan, Source, Make, Deliver and Return) to operate in concert with the key competitive priorities (contain cost, increase reach, increase customer service level etc).

The alignment of these priorities seamlessly throughout the supply chain org is a herculean task and requires serious commitment and ruthless implementation from top execs. This also requires setting up the right measurements and incentives in place to reward actions leading to overall achievement of the competitive goals and not success of individual functions. A closer look at the some of the successful supply chains clearly reinforces this notion.
This alignment can be brought by building the right organization structures, with clearly defined metrics / measurements linked to competitive priorities. This alignment is the true prerequisite to operate a successful supply chain. This requires the attention & ownership of key stakeholders and this clearly cannot be done by software / IT systems alone.

What are your thoughts?

In the next blog I will share my thoughts on the role which IT software / systems play in managing supply chain operations.

 

Posted by Atul Chandra Pandey at 12:49 PM | Permalink | Comments (3) | TrackBacks (0)

“But then, why is VP-Supply Chain not involved in the picture?” I asked my Marketing professor. There was a brief pause as the prof took his time to address the digression. We were discussing the case of Cummins Inc dating back to 1983 when Cummins faced a distribution crisis in Venezuela due to the sudden devaluation of the Bolivar (Venezuelans refer to it as the black Friday).

 

Cummins, which sold its engines in Venezuela through a sole nation-wide distributor, faced three choices. They could either continue with their incumbent distributor who had not been able to deliver per expectations (and in deciding to continue, agree to his unrealistic demands of foregoing ~0.73 million in accounts receivables), OR revamp their entire distribution set-up by dumping the incumbent in favor of three potential challengers who showed great promise OR exit from Venezuela all-together. We had been discussing the case for almost half an hour; the focus of which was the decision Cummins had to make. But to my disappointment, Supply Chain/Operations manager didn’t figure among the decision makers at all.  It was essentially the VP-International Marketing who called the shots besides the Country Manager. With patience running thin, I popped the question.

 “We are talking about Channel Management, Amit; not Channel Fulfillment”, came the measured reply. Well okay, but isn’t the person responsible for keeping the distribution channel flowing with the right products at the right time vital to such a decision, I thought (not aloud). Perhaps reading my puzzled expression, the prof first explained the distinction between supply chain and marketing in Distribution (channel strategy, channel evaluation, selection and relationship falling in marketing turf). He then suavely switched sides to explain the close collaboration warranted between Marketing and Supply Chain, particularly in Demand Planning, Production scheduling and of-course, Distribution (a smile was creeping on my face). Finally, paying homage to today’s collaborative world of boundary-less departments, he acceded that such decisions in today’s times would involve not just Marketing and Supply Chain but Finance reps as well (right-fully so since the distributors owed Cummins $1.4 million).

Now, would this explain why IIM-B’s Centre for Supply Chain Management has faculty reps from Marketing and Finance besides of-course, Production and Operations Management? I guess so.

Note: Author is on a sabbatical pursuing a 1 year full-time MBA at Indian Institute of Management Bangalore.

 

Posted by Amit Tambi at 03:29 PM | Permalink | Comments (6) | TrackBacks (0)

For me, the negotiations part of an RFx process has always been the most interesting and critical aspect of the Sourcing process.  A well-orchestrated negotiation approach can bring about great value to an organization, while a confused and haphazard approach can bring pain for both, the buyer, as well as the supplier. In this blog, I have tried to capture some key points to be kept in mind for a fruitful negotiation, based on my experiences with a few sourcing organizations

·         Identify and prioritize the key negotiation objectives for a category: The sourcing process may have multiples stakeholders, each with their own set of objectives. One stakeholder could be looking for the best net cost whereas another could be looking for better supply chain efficiencies. It is best if the negotiation team does an internal survey, comes up with a consensus and publishes an Objectives Document.

·         Have a well defined negotiation team: It is very important to define clear roles in the negotiation team to ensure that a single consistent message goes out to the suppliers.  People outside of the negotiation team need to know and be trained, to handle “informal” questions from suppliers looking to gain additional information on the side.

·         Know your leverage with the suppliers: An organization with which I worked in the past, used to negotiate with and “select” a supplier for one set of objectives, and then try to negotiate with the same selected supplier for another set of objectives. Suppliers quickly realized that the buyer was more or less locked on to them post the first negotiation, and drove a high bargain for the second negotiation. The idea should be to negotiate everything with the supplier at the point where the buyer has the highest leverage.

·         Have well defined walk away points: It is absolutely necessary for an organization to be aware of the walk away points in a negotiating process. This helps keep the process disciplined and the suppliers honest.

·         Know your negotiation tactics: Different suppliers and categories may warrant different set of negotiation tactics. For example, sometimes it is best to share information and communicate frequently with the supplier while at other times suppliers may respond better to the “silent” treatment, where it is best to maintain low communication with the suppliers. The negotiating team should be well aware and trained enough to identify the best negotiation tactic to be used in different scenarios.

A well choreographed negotiation not only results in a good deal for the buyer organization, it also instills confidence in the suppliers towards the buyer’s sourcing process. This is great from a long term supplier relationship perspective as well.

Posted by Sameer Prashar at 04:14 AM | Permalink | Comments (2) | TrackBacks (0)

Assessment of Supply Chain risk is gradually evolving as the critical core competency for organizations struggling to cement their footprint. Most organizations especially the public listed enterprises have developed ways and means to identify enterprise risks and develop strategies for mitigating the same. But when it has come to supply chain risk assessment, the vision is blurred by parochial operational silos which deploy separate techniques for risk assessment. Even the spectrum of supply chain risk is limited to supply and distribution functions. The “Big Picture” image gets lost and this leads to huge risk of erroneous prioritization, procrastination and delayed action. One of the major causes of this scenario is the challenge of a system in place which enables a “comprehensive risk assessment”.

Let me drill deeper into this with some “slice-of-life” scenarios. You would observe a Sourcing Head assessing the supply chain risk related to supplier selection & development, supplier delivery reliability, supplier quality assurance, supplier technology evaluation and supplier insolvency assessment. On similar lines a Production Head is interested in assessment of risks related to raw material or bought-outs availability, machine reliability, operator productivity, production quality, inventory position and order fulfillment. They are comfortable in their own “glass houses” oblivious of the impact one risk within his territory impacting the performance of the other. Many a times these “glass houses” are so opaque, that a risk event occurring within a territory is kept under carpet till the impact has overgrown its natural size.

 

To take care of these types of operational silos, forward-looking organizations have invested heavily on ERP packages. What these packages do is to bring out any risk event on real-time (here processing time would be more appropriate) across the organization. But these ERP packages are designed from an accounts perspective. So, every event is assessed only on its financial merits. This limitation is slowly becoming a major challenge for any supply chain risk. The following example will drive home the point.

 

A global retailer faced a major supply choke due to delay in imports into USA. The issue was the absence of certain documents to meet C-TPAT compliance. The consignment was about USD 1.2 Million causing a huge risk of charges on capital blockage, demurrage charges, Port-to-DC transportation commitment payouts etc. The total risk exposure was to the tune of USD 340K. Compare this with another risk event of 3 cases of fire hazard due to a toy malfunction observed in the market. The risk exposure was as low as USD 27K including “mild recalls” and redesign costs. As both these events have low occurrence probability (due to first time events), the financial risk impact provides a natural priority to the first event. It is here that the limitation of the ERP systems come to the fore, making the "comprehensive risk assessment” techniques more relevant.

 

These ERP systems only support financial impact prioritization. These systems are unable to provide a holistic view of the impact. To take the above example, the following impacts were completely neglected:

§         Operational impact on distribution planning and scheduling

§         Customer impact on reputation and future revenues

§         Legal impact of contractual obligations and regulatory punishments

 

In the absence of these risk impact assessments, the consignment at the port takes precedence over the “perceived miniscule” incidence of fire hazard, due to the financial enormity of the former.

 

The financial driven risk assessments have been so much ingrained into the enterprises that they have financial wizards as Chief Risk Officers. This dominance of finance and accounts has also led to hegemony of finance techniques for risk mitigation. Any supply chain risk can be mitigated using three techniques. These are:

§         Risk transfer (e.g. insurance )

§         Risk sharing (e.g. supplier chargebacks etc.)

§         Risk avoidance

Risk transfer takes the highest corporate precedence, as financial wizards identify the risks and devise methodologies to insure these risks. But with the changing scenario as these enterprises are becoming more and more cash-strapped, their preference to put money on insurance premiums is becoming less and less likely. The focus is gradually shifting towards risk sharing and primarily risk avoidance. It is here that the Operations Heads have to pitch in. I would not be surprised if organizations have Chief Operating Officers taking up parallel roles as Chief Risk Officers as well.

 

So organizations across industries are either investing of their own or enabling research agencies to develop complex algorithms for “comprehensive risk assessment”. The prioritization is slowly getting shifted from a financial decision making to a holistic decision making involving all aspects of impact. Even the ERP product vendors who have the advantage of setting up platform technologies across the organization functions are taking up this challenge to develop product enhancements which are bolt-on solutions to incorporate “comprehensive risk assessment” techniques. As enterprises become increasingly resource-strapped a correct approach for deploying these limited resources across multiple risk events which may occur simultaneously, would be the most critical decision making need in supply chain risk management.   

 

And for those who wanted to know what happened due to the erroneous prioritization, the retailer spent a fortune to free the consignment. But by the time this was done, the “neglected” cases of fire hazard in the market had been blown beyond proportions in the media and legal forum, dealing irrevocable damage to its brand reputation. And that is not the end but the beginning of it all……

Posted by Sudripto De at 04:19 AM | Permalink | Comments (3) | TrackBacks (0)

I currently consult at a client who are on the verge of going live with a multi channel solution. Through a series of posts I will walk through the various stages of the program.

The title of this post emanates from some recent attempts of "a friend" to figure out the best dieting strategies to reduce weight. Proteins are primarily the building blocks while Carbs provide energy. Some diets focus on Proteins and some on Carbs and some on multiple combinations of these two. This entry is about the solution design phase were we continuously grappled with the protein-carb question.

Protein is the metaphor for the strategic intent while Carbs relate to the tactical considerations to keep moving. How did we decide?

A bit of a background first - The solution is a order management solution that aims to bring in multi channel fulfillment to an enterprise that primarily uses just a warehouse for fulfillment. The implementation uses a best-of-breed order management solution as its core component.

The key consideration was very clear - get the maximum business value with the least risk in the fastest possible time.  (simple isn't it? - mixed well balanced diet)

During solution design the business and IT teams decided on a simple set of rules:

1. We don't customize unless it impacts our ability to service our customers.

2. We modify our requirements and processes to align with industry best practices unless it affects our ability to do business the way our company's vision entails.

The two rules above encapsulate a brilliant balance between proteins and carbs. These balance the considerations of IT maintainability and ability to deliver within time with the business' consideration to service customers. In one swoop it makes the business own IT's interests and makes IT own the business' vision.

This set out the vision for the program; solution design was tough but both business and IT were aligned with the tenets above. However, there were significant challenges as we delved into the IT solution...   

[The Next Phase...]

Posted by Chandradeep Bandyopadhyay at 03:50 AM | Permalink | Comments (0) | TrackBacks (0)