Supply Chain Management: September 2009 Archives

Travel and Expense Spend and Recessionary times…

Travel and Expense (T&E) spend is usually the first casualty in the battle to control spend in recessionary times. And the reason is not difficult to understand either. T&E is perceived to be relatively easy to control, and a lack of focus on this segment of spend during high growth periods, make it plum pickings for a recession-triggered spend management program. But while it is true that T&E spend is a low hanging fruit, it is also important for companies to understand that T&E spend cannot be brought under control overnight.

Segmentation is one of the key tenets of the Spend management philosophy, and a rigid enterprise-wide T&E spend program implemented as a quick fix during recessionary times is not in line with this tenet. This is especially true in case of companies with large workforces where a knee-jerk, one-size fits all T&E spend management program could actually force an increase in maverick T&E spending, albeit under a different Spend head. As per a recent Aberdeen survey, enforcing policy compliance and visibility into T&E spend data, are the two biggest challenges to managing T&E expenses. Both these challenges are best addressed as a part of a conscious and planned Spend Management effort. Companies with limited visibility into the T&E spend, and lax compliance will find it difficult to immediately start saving on T&E expenses without causing disruptions in business.

So, instead of just being a reaction to recessionary times, T&E spend management should be a planned exercise for a company, with emphasis on visibility and categorization of the T&E Spend. The policies and rules should be set keeping in mind the importance of the spend category to Business functions and compliance should then be enforced around these policies. This way, the next time a recession hits, the company will be able to better manage and prioritize T&E spend.

Posted by Sameer Prashar at 11:51 PM | Permalink | Comments (0) | TrackBacks (0)

Visualization: What is in store for service providers?

It was again time to return to India after an assignment at the client site and as most of us know, that means it is shopping time. So I logged on to some of the apparel websites. I found the experience to be very agile. AJAX and all. Intuitive too as if there was a sales-fairy-god-mother looking over me.

I could get a quick view of things as I rolled the mouse pointer over items. Some sites even presented a “how to wear” section which had models displaying the latest styles. You could choose a look to see the details of various items. Some other sites provided a mix and match feature where you could drag a trouser and a sweatshirt to see how they paired up. This to me was new from the age old “new arrivals”, “outer wear”, “polos”, “sweaters”, “Jeans” et cetera sections. On choosing those you could only see a page full of thumbnails, you had to then click on the ones to see the cost, zoomed in view and such. I liked the newness which had more emphasis on the user experience, visual experience, to be more precise. I found myself spending more time on the sites that provided such interesting features and I guess I can safely say that it translates to more sales.

This brings me to the point that that’s what WWW is all about. The VISUAL EXPREIENCE! Wouldn’t it be cool to have a profile of your kitchen visually illustrated on potterybarn.com so you can see if a centre piece fits into your kitchen? How cool would it be if you could save your emoticon on puma.com to see how cool you look with a pair of their latest Ferrari sneakers? How about specifying your skin tone so you can try different shades on Revlon.com (Ladies I have got you covered)? You could have a pre release sneak peak if you are a privileged customer and perhaps receive a tweet about the pre release sneak peak. You could perhaps import your Oscardelarenta.com profile into Tiffany.com to see if the jewelry you are planning on buying goes with the gown you are planning on buying while it plays the tracks you would like. Well, you get the point.

There is tremendous potential in this old but new concept. This offers a new arena for service providers to create business cases based on “VISUALIZATION” particularly for the customers in your retail portfolio. There surely is some ground work that must fall in place to quantify the benefits of visual experience. Then, one must choose the right customers to pitch the idea.

Even Einstein – the greatest physicist ever, agreed to this! He said “If you cannot represent your idea in simple diagrams then it is not worth it”. So he visualized. The two diagrams he unleashed upon mankind changed the face of evolution.

So can you visualize the visualization? The sooner the better!! No?

Posted by Guruprasad B. Nagaraja at 2:43 AM | Permalink | Comments (4) | TrackBacks (0)

...SAP SRM 7.0 is here to stay, available to Leverage your SRM footprint: “Sign-off the SAP SRM 7.0 Road mapping exercise for an Enterprise” – Part 2

The prelude blog of SRM 7.0 was a fair enough curtain raiser to demonstrate our intentions.
In this blog we will focus on what exactly goes in during the “Road Map exercise”, the length and the breadth of the exercise.
i.              Roadmap Scope Definition
ii.             Questioning the holy cows
iii.            Intent for a BPR (Business Process Re-engineering) initiative, YES / NO
iv.            Identification of an SRM council
v.             Pre-Blue Printing (powered by Workshops)
vi.            Revisiting the Roadmap Scope definition
vii.           Roadmap review and Sign-off
Most of these look repetitive, but believe me, these in itself are a masquerade if not dealt with properly.Lets try and understand what we do in each of these phases and the Exit Criteria for the exercise.
i.             Roadmap Scope Definition
In this step, the consulting partner throws all the gyaan in his basket to the customer on the offerings of the Solution and also analysis of the Spend Analytics report / any such strategy document that led to the birth of the SRM initiative. The customer, at a very high level picks up Enterprise specific areas of interest to narrow down on a rough scope
Exit Criteria: Initial Road map draft
ii.            Questioning the holy cows
It isn’t necessary during the course of scope definition to accept all that’s currently identified as the core business processes to get carried onto the Future state SRM solution that’s in mind. This step gives us an opportunity to look at Questioning the way business processes are carried out currently and also identify those cumbersome wasteful processes that can be eliminated.
Exit Criteria: List of Processes that can go into BPR
iii.           Intent of a BPR
This step gets called, if step 2 reveals a big list of wasteful processes that require an elimination via adoption of Best Practices. This step becomes highly critical for companies that have opted to evaluate a Best of Breed SRM solution tailored on Best Practices to give them the competitive edge.
Exit Criteria: BPR document with an identified list of processes that needs tailoring
i.             Identification of an SRM council
It becomes all the more difficult now to look for the Super User community that actually influences the BPR initiative and drills down to the user community that are going to be impacted with the futuristic changes coming in. It’s a key responsibility of the Customer to identify the SRM council that can join hands with the consulting partner to craft the process and the Transformational roadmap
Exit Criteria: A highly sound SRM Cross-functional SRM Council
ii.            Pre-Blue Printing (powered by Workshops)
Now, we have the team, lets start work and arrive at an acceptable SRM transformational roadmap that will leverage the investments of SRM which would help CPO desk align themselves to the Overall Strategy and Business plan driven by the CEO desk to report meaningful KPI’s vide successfully implemented initiatives. Rest assured, an influential strong team will be able to delivery the ideal pre-blur print that has the Roadmap Scope definition enriched with the identified Transformational initiatives.
Exit Criteria: Pre-blue printing document
iii.           Revisiting the Roadmap Scope definition
Performing a rapid gap analysis will help content consolidation of Brainstormed initiatives, some of which will be knocked off and some will get in and become the final roadmap line items.
Exit Criteria: Finalized Roadmap draft
iv.           Roadmap review and Sign-off
Customer will review the Finalized roadmap draft and suggest modifications / sign-off the initiatives. This will give birth to potential projects and implementation scope to reach the future state adoption of SRM.
Exit Criteria: Signed-off Road-map document
This blog was long, but am sure would have given you a dope of a basic minimum walkthrough of events during a SRM Roadmap exercise.
I would wait to hear from you on similar experiences or a thought on “architecting a more complex result oriented road-map exercise”
In the next blog we will discuss on a selected case study of a customer on what they perceived out of the Roadmap exercise and the next steps towards the SRM journey.
Regards, Tridip

Posted by Tridip Chakraborthy at 6:27 AM | Permalink | Comments (0) | TrackBacks (0)

Video:Accurate fulfillment or A Smooth Checkout Experience? Now you don’t really have to choose...

Online shopping has been less impacted from recessionary pressures and has continued showing upward growth. While online shoppers take quick and often impulse decisions, there has been a marked increase in shopping cart abandonment due to uneven user experience. This trend has been largely attributed to a slow and cumbersome checkout processes. In crafting the right shopping experience, retailers are caught between speed and efficiency of check-out process on one end and the need to have accurate inventory picture at the other, with this picture sourced from back-end supply chain applications on a near real-time basis. In this video blog, I share an easy-to-implement approach to front-end inventory visibility by striking a balance between website performance and accurate fulfillment using item/inventory classification principles coupled with inventory synchronization rules. I also talk about a differentiated inventory visibility strategy through which one can do away with the need to maintain inventory positions for 100% of the catalog. The complete paper on this paper was published by Manufacturing & Logistics IT and can be read here

Posted by Gopi Krishnan at 10:37 AM | Permalink | Comments (0) | TrackBacks (0)

What drives China’s Supply Chain – Quality, Cost, Time or Flexibility

Fresh from a study tour to China and tired after submitting a lengthy thesis on China’s Industry context, let me quickly pen a few lines on the competitive priorities that drive China’s Operations and Supply Chain.

Pick a random Chinese manufacturing/services firm and you have a 50% probability that it would rate Quality as its prime competitive priority. That is what a survey result, conducted by Tsinghua University in 2007-08 among select firms, states. Of the four competitive priorities – Cost, Quality, Time/Delivery and Flexibility/Innovation – Manufacturing firms rated Quality (51%) as the highest followed by Cost (26%), Flexibility/Innovation (17%) and Time/Delivery (7%) in that order. Services firms also rated Quality (46%) the highest. A careful reading of the outcome helps in unraveling the under-currents in the country’s supply-chain.

For starters, anything that is “made-in-China” has a strong quality perception issue; so it is but-natural for the Chinese manufacturers to be paranoid about Quality in their Supply Chain. After-all, this plague, thanks to sheer greed or plain ignorance, continues to haunt the country’s manufacturers and consumers alike.

Interestingly Cost, which comes a distant second (26%) in ’07-08 was in third spot (after Quality and Flexibility/Innovation) when the same survey was done in 2001. What caused the firms to become more cost conscious during this period? A combination of three factors - appreciation of the RMB against the $ resulted in Chinese exports becoming expensive, rising input cost and slower growth in demand – have led firms to extract every possible yuan from their supply chains.

What can be the reason for the Services firms rating Quality so high? It is because of Responsiveness, one of the sub-dimensions of Quality. The response-time in China’s service industries has much scope for improvement; in fact, Service operations hold a lot of promise given the visibly long queues at public places (banks, super-markets, call-centers, ticket counters..). A study by Wang et al (2003) on Chinese retail banking found that it took, on an average, a ridiculous 86 minutes for a customer to be serviced!!

What can one say about the future? A safe bet can be on Cost moving down the ratings and Flexibility/Innovation coming up in the competitive priorities. The financial crisis has made the industry shift focus from exports to domestic market. The growing affluence combined with the buying power of the young generation (referred to as ‘little emperors’ courtesy the single-child policy) will certainly make the firms switch from a cost-focused mentality to one that promotes differentiation & innovation. What can be the consequent impact on their supply chains? I leave the floor open for your comments.

Posted by Amit Tambi at 6:33 PM | Permalink | Comments (2) | TrackBacks (0)

Keep it simple and Stick to basics

This time I am going to share something that I have observed over a period of years working in industry and now as a consultant in supply chain domain. And, it is not based on just one or two experiences, but something that I have really seen at many occasions. I am sure, most of us would have experienced it too, that business users don’t need and talk those ‘big and heavy’ words or jargons. On the contrary, they look out for some simple solutions to take care of their business problems. The problems could be and in fact, are multi-dimensional and fairly complex but what they need is a ‘simple and basic’ solution that works fine for their set of constraints.

In my opinion, lot of times, people tend to talk in air without actually understanding issues that the client is facing, and use such heavy jargons as if that’s one quick pill that will solve all the problems. I personally feel, that we should be extremely careful and cautious of ‘just’ talking jargons; I am sure if we just stick to our basics, it will be more than enough for most of the problems that people face in business. Let me share few instances that made me felt so…

Till very recently, I was working on an assignment with one of our client which is a leading global organization in its industry, much ahead of its peers consecutively for so many years. The client is running an organization-wide global supply planning program to standardize its various processes that are fairly local in nature, and build a strong alignment with other critical stakeholder functions such as Demand planning on one end and Sourcing on the other. As it sounds, scale of the program is really big covering almost all the business units, product portfolio and geographies it operates in. And therefore, when I interacted with the business community of this organization, I was expecting to hear and use all those ‘heavy’ jargons such as supply chain agility, responsiveness, collaboration with partners, supply chain visibility, performance management, global data synchronization and what not… But when I heard them and had detailed discussions to understand their problems and issues, I realized that I was actually wrong. Even though the organizations grow bigger and bigger, the business issues stay well grounded and contextual in nature, with each client having its own way of working around a set of problems and constraints. Therefore, in my opinion, it is very important that the language we talk is well understood by our clients, and that to me will happen only when we stick to basics and provide solutions that are simple.

I will not get into further details but I would just like to provide few examples here to convey my point of view. For instance, you may have heard and talked too much about ‘supplier collaboration’ but I don’t think a business user is going to share set of issues that he or she is facing in that language. The issues could be related to may be, what all information we need to publish to suppliers? can we build the capability to publish only a selected set of information to only a selected set of suppliers? what is the most user-friendly format that can be designed to capture all the information? how do we set the process and timeline around locking a supplier response etc etc. Now handling such specific business issues is far different than you can imagine when you talk about ‘supplier collaboration’.

Another interesting example could be about ‘supply chain agility’ – I don’t think you are going to hear business users talking about having an agile supply chain. What most likely you will hear is (from a supply planning perspective): how quickly can I do a rough cut capacity analysis on products for which I have received a big customer order? how quickly can I do MRP run, cut processing time for breakdown and generate component level forecast? how do I build the capability to identify products for which I have component shortfall etc etc…

So, no doubt, it is good to appreciate all those ‘great’ words. But in reality, for the business issues that a client has been facing day in and day out, I feel one should definitely stay grounded, stick to basics and keep things simple. Please feel free to comment and contribute; your ideas and experiences are welcome to enrich our opinions on this subject.

Posted by Aatish Goel at 3:09 PM | Permalink | Comments (4) | TrackBacks (0)

The unentertaining game of Chinese Whispers in the world of consumer products supply chain- Part 2: Measures to effectively channel demand variability

In the previous post we discussed how small variations in demand at the consumer end get amplified as the retailers and manufacturers play the game of ‘Chinese Whispers’. In this post we will discuss some of the steps that the retailers and manufacturers are taking to counter the behavior. While some of these measures require simple changes in policies, others require significant investments in processes.

Countering demand variability induced through retailer actionsMarketing triggered consumer demand variability

1. Hi-Lo pricing can be replaced by Every Day Low Pricing (EDLP) where applicable

A consistent price offered by EDLP strategy helps in keeping a demand steady and consistent, thus taking away any incentive for the consumer to forward buy or postpone their purchase. EDLP works best for products that demonstrate one or more of the following characteristics

·          steady demand irrespective of season
·          Are fast moving and are repeat purchased
·          Consumers place little value in waiting for deals
·          Retailer is able to sustain a low price competitive position through a cost advantage
·          Suppliers are willing to provide Just In Time delivery
Wal-Mart is a great example of a company that has adopted EDLP strategy with a remarkable degree of success.

2. Plan promotions in a manner that ensure demand predictability and overall profitability

It is important to time and price the promotion to ensure that the sales increase comes from increased consumption or stealing market share from competitor and not from forward buying. If more proportion of sales increase is obtained from forward buying, then it would lead to lumpy and variable demand.

Also, promotions have to be planned collaboratively by the manufacturer and the retailer over a longer time horizon. That would help in designing promotions that increase overall retailer and manufacturer profits and make the demand changes induced through promotions more predictable.

Out of stock at the shelf

3. Choose replenishment strategies that reduce shelf out of stock

Direct Store Delivery strategy helps the manufacturer obtain direct visibility to the consumption pattern and ability to proactively manage the shelf availability. It is especially suitable for fast moving, short life cycle products demonstrating a high degree of impulse purchase. The higher cost of shelf replenishment is easily offset by the additional sale generated due to impulse purchase. Examples of products that can be replenished through DSD are salty snacks, bottled beverages and magazines.

In a Vendor Management Inventory strategy the retailer shares information with the manufacturer on the sales and inventory information, based on which the supplier determines if an order is needed. Better forecasts result from having a more forecastable demand because the orders created more closely match the true demand in the marketplace.

Usage of cross docking for short life cycle products ensure longer shelf life in the store, thus avoiding out of stock due to expired product on the shelf.

4. Fill gaps in sales based on sales before and sales after the gap

When out of stocks cannot be avoided, especially due to defined service level objectives, retailers can develop algorithms to identify such gaps in the history and bridge them in a manner that mimics the true demand. This will deter the forecasting algorithms from mistaking the gaps for a true demand pattern.

Order batching and forward buys

5. Usage of CAO and EDI will reduce the ordering cost

Cost of ordering can be reduced through implementing Computer Assisted Ordering (CAO) for purchase orders and usage of EDI transactions to communicate the orders to the manufacturer.

6. Usage of 3PLs and mixed truckloads

Engaging third party logistics (3PL) service providers for transportation. The manufacturer does not have to worry about having to fill full truck loads and thus eliminate providing any incentives to order products more than required to meet truck load requirements.

When a manufacturer supplies multiple product lines to a retailer, planning a mixed truck load can eliminate the need to mandate order rounding rules to the retailers.

Shortage gaming

7. Avoid placing false orders

Retailers should avoid placing false orders. Instead, retailer and the manufacturer should collaboratively share demand and capacity information. Manufacturers should allocate products in a manner that discourages retailers from indulging on shortage gaming practices (discussed below)

Lack of communication with the manufacturer

8. Bridge the information gap using CPFR

The root cause of demand variability lies in information disconnect among the trading entities. Establishing a formal communication between the retailer and the manufacturer would be a good starting point to bridge the information gap. When the retailer and the manufacturer share information on the demand and supply and take measures to make their supply chain truly demand driven, then the demand variability can be either eliminated or made predictable. Voluntary Inter-industry Commerce Solutions (VICS) lays out detailed guidelines and framework for Collaborative Planning, Forecasting and Replenishment (CPFR) among the trading partners.

Countering demand variability induced through manufacturer actions

Sales incentives contributing to demand variability

9. Rationalize sales incentive plans

The manufacturers should ensure that the sales incentives are based on targets that are achieved over shorter intervals. Typically, shorter measurement periods result in smoothing of the demand.

Independent forecasting of demand

10. Upstream forecasting processes that integrates information from downstream entities

Availability of point of sales information to the manufacturer will help in obtaining visibility to the store sales. This information can then be used for calculating the customer distribution requirements, thus eliminating the need to forecast the near term requirements. Alternatively, the POS information can be supplemented with the manufacturer shipment history as input to sophisticated forecasting algorithms in order to develop forecasts that account for the demand latency gap.

11. Collaboration between trading partners on promotions, new product introductions, product discontinuation, having common metrics

A common reason for demand variability is un-forecasted sales promotions. When retailers undertake activities such as promotions or plan-o-gram changes without the awareness of the manufacturer, they create ripples throughout the supply chain, leading to high costs.

To avoid these situations, manufacturers can implement collaborative planning processes wherein they can plan promotions, plan-o-gram changes, new product introductions and product discontinuations collaboratively with their retail partners.

Handling of supply issues

12. In short supply, manufacturers should allocate units based on past sales

During short supply situations, manufacturers can discourage retailers from indulging in shortage gaming by allocating products based on the retailer’s past sales instead of basing it on their current orders. Even during non short supply situations, manufacturers should analyze and eliminate any orders that get subsequently cancelled. These false orders are extremely harmful and can play havoc on the system if not curbed.

To summarize, we discussed various factors that cause demand variability to be created and propagated through the supply chain. We also discussed some of the policy and process measures that can be applied by the retailer and the manufacturer to curb the creation or transmission of the demand variability. However, it is to be noted that the demand variability cannot be completely eliminated. When dealing with the problem of demand variability, the objective should be to first make it predictable. A predictable demand pattern, when forecasted using the right models, can yield a more accurate forecast that can lead to both topline as well as bottomline benefits for a company in the longer term.

Posted by Venkatesan Ramesh at 2:54 PM | Permalink | Comments (0) | TrackBacks (0)

Contract Manufacturing - A New Kind of 3-Way Match

The traditional problem of matching PO to Invoice to Bill of Lading – a problem because they usually involve multiple organizations and multiple systems – got me to thinking about another sort of 3-way matching problem. There are a lot of large OEMs out there who rely upon contract manufacturers to produce finished product for them, and who also rely upon them to ship to the OEMs’ customers. I was reading another blog site recently and came upon someone who was describing how they handled this process. Essentially, they said that once the order has been placed with the supplier or contract manufacturer, they “assume that the supplier will get the product to our end customer on time.” That worried me a little.

Even if you assume that most OEMs in this situation will have some sort of after-the-fact performance reporting, wouldn’t it be preferable – at least for key customers – to have a little more advance warning? Being able to match up what the customer wants with what the OEM has promised to what the contract manufacturer is actually delivering upon, right now, strikes me as a good idea. (Actually, it’s even tougher than that, as it really involves a 4-way match that would include the logistics service provider and / or carrier that is actually moving the product.)

Given how lean everyone is running these days, the ability to precisely monitor and orchestrate this kind of supply chain activity for critical orders and shipments seems crucial. In fact, competitively differentiating. What are others seeing out there to address this problem?

Posted by Richard Douglass at 10:06 AM | Permalink | Comments (0) | TrackBacks (0)

Outsource your processes, not your customer!

I have been following the ecommerce strategy at Target for quite a few years now. So, the only surprising part of the news when I read that Target plans to part ways with Amazon was the amount of time it took Target to move in that direction.

Amazon has been an innovator in the e-commerce arena. They started supporting two innovative models for businesses with the Merchant.com and the zShops (Merchant @) model. The Merchant.com model is what Target and ToysRUs primarily used. This is a Business model based on technological know-how rather than a partnership wherein Amazon basically packaged its technological knowhow to put up and manage the ecommerce model which could be used to support the Partner’s online businesses. The biggest USP of this model was the faster GTM lead time. It made a lot of sense in those days for a lot of Brick and Mortar businesses who were just starting up their ecommerce initiatives to leverage Amazon's experience and technical know how.

But in the longer run, this model has some serious shortcomings for the partners.

The biggest one in my opinion is Customer ownership. With this model, Amazon owned all the customer interactions. This goes against my basic belief of core competency. For a retailer, especially of the size of Target (or even ToysRUs), owning the Customer should be a very important if not THE most important factor of their online Multi-channel strategy. Given the current trend of retailers moving towards the 'Buy anywhere, return anywhere', owning your customer interactions in all channels is an important factor.

Another shortcoming (which probably this model shares to a large extent with a SaaS model) is the dependency on the partner for technology and the underlying processes. Amazon, for all its flexibility, still could and would dictate some of the important decisions like order sourcing. This again will impact Target's fulfillment strategies directly.

For Target, Amazon is also becoming a key competitor in the online space. And it really does not bode well for a company to have dependency on its competitor, however professional the relationship is.

Target has a long way to go before they will be successful in their stated mission of bringing their Target.com platform in-house. They would need all their best resources to pull together the technological know how for the front end, optimizing their supply chain execution and taking over the servicing of their customer, but I still maintain that this is a more robust decision in the long term.

Posted by Prasad Acharya at 8:40 AM | Permalink | Comments (1) | TrackBacks (0)