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

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October 23, 2009

Leveraging Centralized Purchasing for Customer Benefits

The inherent challenges on the supplier side coupled with the need for a cost effective procurement model poses major challenges for the procurement team in meeting their targets.

In today’s world customers are spread out and operate from diverse geographies and markets. Each purchasing organization of the customer adopts its own purchasing strategies, processes and systems leading to unnecessary procurement and inventory management at a local level.

One of the core beliefs of purchasing is that “Centralization provides Leverage”. To get a grip on this thought, a centralized driver is required, which can percolate thoughts to the bottom-line.

To begin with, a common commodity as per the required standards needs to be structured and managed under one umbrella. Based on the industry and the material requirement analysis, different material councils are formed - to develop strategies, manage suppliers and leverage spends among different geographies.

The centralized driver needs to list down the concern areas that need to be addressed. Typically these areas would include :-

Organization structure: Basic organization structure for procurement needs to be changed, to address the general procurement or procurement engineering functions. Major organizations do not have vertical integration.

Cost innovation: Decentralized purchasing leads to very high material costs due to low level of competitive bidding and excessive single sourcing. Without procurement engineering in place, there is no one to recommend changes in materials, suppliers, processes or design, which in turn can reduce cost.

Purchasing activity: Activity-based costing analysis can reveal that most resources were applied to administrative and not strategic tasks. It also reveals that Administrative work is not automated enough and is cost intensive.

Procurement systems: Decentralized purchasing leads to many procurement systems which fail to have any strategic goals and have heavy maintenance cost and unaligned business process.

Business Controls: Decentralized purchasing have unaligned business controls required for the system which leads to violations of business processes.

In the next blog we will discuss on a case study of a customer on how he addressed these concern areas and gained momentum in procurement activities through Centralized purchasing.

October 14, 2009

...SAP SRM 7.0 is here to stay, available to Leverage your SRM footprint: “Roadmap -> SRM Journey Kick-off” – Part 3

In my previous blog, we discussed the Road mapping exercise in detail, in this blog we will discuss on what the Roadmap meant for them and how the SRM Journey was kicked off.

What it meant to the team and the gigantic tasks that lie ahead of their face for the days to come. It’s not necessary that every kick-off meeting calls for a champagne burst or a Donut offering or even a free lunch”, for most it starts with a Heavy meeting instead of a heavy meal. There is so much already on the platter to digest, that we have barely the time to breathe in these agile project situations.

….The parallel BI BW analytics exercise along with the road mapping exercise revealed 3 major events to the SRM roadmap (keeping the numbers out)
1)      Significant amount of the Spend was leaning towards the Direct Materials and remaining towards Indirect procurement that directly gave us a direction for Phase 1 to choose Plan Driven Procurement with Plant Maintenance, the Strategic Sourcing process powered by RFx and Auctions to SRM Central Contract Management to ECC distributed contract would be the highlight of the implementation scenario of SAP SRM, the SRM - BW analytics integration would kick off for reporting important KPI and metrics to the CPO desk.
2)      Phase 2 of the Roadmap will focus on addressing Indirect Self Service procurement with SRM MDM Catalog with Supplier Self Registration and Qualification process
3)      Phase 3 would look at Buy and Sell side Enterprise wide Contract Life cycle management powered by SAP E-Sourcing / CLM
It’s obvious that a Big Bang theory reaps success stories only when the processes are stable, it doesn’t mean that a company’s processes are stable to such an extent that you can take the “meat out of the can and fry it, serve with sauce” and feel a great deal of contempt, a can could be a mint fresh or a can of worms, we’d never know.
We always look at the Organization with a great eye for detail and figure out which business entities could on-board these sophisticated processes coming in with the Package. If some one is already resting on their laurels of going gaga over a Big Bang, they might have been lucky or didn’t do a Risk assessment ever.
Narrowing down to such a scope for the Global Template implementation is the most challenging part of any journey and it goes without saying that, “we chose that path too.”
..In short we had a project plan that was made with a lot of detailing, charting out the risks at each stage.
We had SIPOC diagrams that not only broke down the element of process fitness but also explained the mitigations that had to be buffered in at each level.
Finally with weeks of effort, a realistic achievable Project plan with the activity charter was published bringing along with it a dedicated, capable and holistic team to achieve the line items of the SRM Roadmap.
Until now, we were at a Strategic level of the Point Of View, in the blogs to come, we will take each topic in detail and go a step granular into how SAP SRM helped them leverage their business processes, and we would also discuss each of those standing out SRM functionalities that helped solve real-time business processes further driving value across the enterprise
I would like to hear from you, if you had a similar experience 4-5 weeks before you really got on the ground with the Business Blue Printing exercise, it would be worth a discussion.
..keep those comments coming.

“Bye Bye CPFR; Welcome CFT-R”…..say the Supply Chain managed organizations

Manufacturing and retail enterprises have been working since the middle of the last century on collaborations in supply chain. CPFR (Collaborative Planning, Forecasting and Replenishment) had emerged as the basic mantra for success for organizations thriving on supply chain to drive efficiencies and synchronized operations. But this supreme position of CPFR is being challenged by another buzz-word, vastly accentuated by the economic downturn. This is “risk management”. Suddenly you see everyone talking about risk. Interestingly, in risk management again the complete planning-to-execution-to-monitoring cycle requires collaboration across various business functions. This led to the need for the next generation mantra – CFT-R (Cross Functional Team for Risk).

Even though the formal business practices of CPFR were delineated in 1998 by VICS Association, but the related practices in Just-in-time (JIT), Kanban and Heijunka, Just-in-sequence (JIS), Vendor managed inventory (VMI) and Efficient customer response (ECR) have been in-vogue since the 1950’s. Organizations have been collaborating not only among the different business functions within, but alos with their external enterprise partners in both upstream and downstream operations. All this was done with the objective to improve visibility across the supply chain to enable accuracy and timeliness of supply chain decisions to meet the customer demand in the most cost-effective manner.

Cost management has always been a double-edged sword to cut margins and corners. On one edge is the focus to reduce expenditure by squeezing “essentials” and eliminating the “avoidables” and on the other is the focus to reduce interest spending on debts by optimizing the available working capital. To elaborate further

Reduce expenditure: Reduce costs of goods, services and operations through multiple initiatives like Low-cost-country sourcing (LCCS), Spend Analytics (SA), Value Analysis and Value Engineering (VAVE), Lean Manufacturing (LM), Single-minute-exchange-of-dies (SMED), Distribution & Logistics Optimization etc.

Optimize Working Capital: Reduce inventory and optimize reserves (e.g. warranty reserves etc.) through inventory classification and planning, cycle counting, lead-time optimization (LTO), improve accuracy in demand forecasting etc.

As enterprises went ahead reducing buffers, cutting corners and increasing inter-dependence among collaborating partners, there emerged a new challenge in the horizon…. that of risks. For instance, a violation of material specifications in a plant at one corner of the world would have its ramifications across the globe with diverted supplies, stock-outs, plant closures, warranties and recalls, dissatisfied customers, litigations and liabilities. The cohesive intertwined network has summarily enhanced the risks in the supply chain.

Some organizations have adopted a stop-gap mechanism  to appoint “Chief Risk Officers” (CRO) to police the risk-prone operations. Since this “arrangement” has been done from a financial reporting perspective, it has its inbuilt limitations. Whereas financial wizards appointed as CROs in Banks and Financial institutions have been successful, their success in manufacturing and retail enterprises driven by supply chains is yet to be realized. My view of the limitations is basically borne out by the fact that such risk management mechanisms would be more “reactive” instead of preventive.

As I have seen in many organizations what is required is to set up a Cross-functional team for risk (CFT-R) which includes persons from multiple domains and business functions (like finance, HR, production, quality, procurement, marketing etc.) coming together as a team. The objective of this team would be to evaluate multiple dimensions of risks and its impact on business, identify the root causes of these risks and take actions to eliminate them from the root. This type of approach is necessary for two main reasons:

Ownership of risk: with a financial wizard as the CRO, core business functions in manufacturing and retail tend to either conceal facts or push responsibility of decision making to the CRO for any perceived risk. In such an environment decision making would be delayed, disjointed and divergent to business objectives.

Prevention of risk: a business manager is the best judge for identifying the root cause of risk. Active involvement in a CFT (cross functional team) would inspire them to device means and methods to eliminate current risks and prevent potential future risks as well.

Having worked in different business functions and with multiple brands as external advisor, I have observed that the manufacturing and retail industry is in favour of sharing the burden of risk between finance, operations, Engg, quality, procurement, sales & service and if necessary with external strategic partners as well. Such cross-functional team approach in identifying and mitigating risks would evolve as the next generation of collaboration in the risky supply chains of the twenty first century.

October 13, 2009

China’s Supply Chain: The currency factor

After writing about the manufacturing priorities that drive China’s supply chain (here) and about Supply clusters that play a vital role behind China’s rise in manufacturing (here), let me continue on the macro view of China’s supply chain – this time highlighting the role of its currency (RMB) in fueling its supply chain.

We know that China has earned the sobriquet of the “world’s manufacturing workshop”. It earned this title because several developed economies – US in particular - found it cheaper to build/buy from China. What was (is) the reason for China’s cost competitiveness? Labor cost, technology, supply clusters, quality control, infrastructure….and to a significant extent, its pegged currency. It is this last factor that warrants a deeper look.
 

How is China able to keep its currency under control? Because, it adopted a managed floating rate system in 1994 (thanks to it, the currency trades at an attractive ~6.8 RMB to a USD). But what about the huge trade surplus with US and the flood of FDI’s pouring into the country - surely, that would put pressure on the exchange rate, wouldn’t it? Not, if the “excess” is mopped up by the regime and put into a ‘bin’ labeled foreign currency reserves. Totaling around USD 2 trillion plus, this huge forex reserve is a treasury chest that cannot be kept idle. So, what does China do – it invests in the safest instruments available i.e. US Treasury bills (close to 800 billion USD as of June ‘09). What does the US government do with the money? It needs the money to fund its expenditure on programs/projects (in effect, cover its fiscal deficit). Assuming that the money goes into building the nation and there-by its businesses, who does the US business look to for low-cost, quality inputs – China, naturally.  
 

So, this cycle – vicious for some; pleasant for others – continues and keeps China’s Supply Chain chugging. So, does that mean that once China decides to free up its currency, this cycle would cease? Well, there is enough debate on this among the qualified elite that I would prefer not voicing my opinion. But suffice it to say, China’s exports will certainly not be immune to any currency movement. Would it mean that China’s Supply Chain would stop chugging? Certainly not!! Exports, unlike common notion, contribute to less than 15% of China’s GDP (not in the 30’s or 40’s as was thought previously). The domestic economy has grown and is set to grow much more in the coming years to keep the demand pipeline filled and the supply-chain moving.
 

To wrap up, China had adopted a popular slogan during the Great Leap forward (1956) – ‘Duo Kuai Hao Sheng’ (Greater, Faster, Better, More economical). Isn’t that what its supply-chain has been doing all this time?

 

October 12, 2009

Supply Chain Security Risk

In a recent report from AMR on Supply Chain Risk Trends, supply chain security topped the list of the risks which have seen the biggest growth of the year. This is indicative of the problems faced by global supply chains involving long lead times and transits. Economic recovery seems to have reduced the risk perception around volatile energy / transportation costs and Supplier failure.

Supply Chain Security Risk has been a constant source of risk to ever expanding supply chains. A global supply chain is vulnerable to hijacking, terrorist attack, pilferage, security of field personnel, safety of equipment and vehicles etc. The approach toward supply chain security risk is to focus on physical risks at operational level. Security of product and people across the entire supply chain requires more proactive, overarching and strategic approach.

To address this, International Organization of Standardization published ISO 28000 series which was jointly developed by ISO/TC 8, ships and marine technology and other stakeholders. The series consists of -

·         ISO 28000: Specification for security management systems for the supply chain.
·         ISO 28001: Best practices for implementing supply chain security – Assessments and plans – Requirements and guidance.
·         ISO 28003: Requirements for bodies providing audit and certification of supply chain security management systems.
·         ISO 28004: Guidelines for the implementation of ISO 28000.

ISO 28000 provides critical base to established supply chain security initiatives, including C-TPAT and Authorized Economic Operator Programme, which are adopted by almost all the multinational companies in the world. Also, the terminology of ISO 28000 is very similar to other widely adopted standards like ISO 9001 and ISO 14000. Ease of cross referencing to these adopted standards makes life easier while adopting ISO 28000. The benefits of early adoptions are significant.  

·         Enhanced mitigation against theft, damages, smuggling etc.

·         Better image, predictability and credibility due to secure supply chain.

·         Enhanced performance across the entire supply chain.

·         More predictable cross-border transits and process

·         Better customs regulations and process compliance

·         Integrated view on Enterprise Resilience & Systemized Risk Management approach.

·         Aligned terminology and conceptual usage

ISO 28000 standards can be adopted in supplier contracts and international carriers may embrace them for competitive edge. But more importantly, it will be adopted as the global standard for Supply Chain Security as it is a real need of the hour. And in my guess, this will happen earlier than we expected!

October 6, 2009

Critical Assets: Manage them Right for Customer Delight

In my first blog I talked about the ten commandments of Physical Asset Management in which the first rule stated:

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

Enterprise asset management was traditionally seen as an internal function of an organization with minimal impact on customer satisfaction.  With the advent of the service economy an organization’s focus has shifted on to the customer. There is a paradigm shift in the way asset management is viewed. It now has two important aspects – Critical Assets and Customer Delight. Asset Performance Management is the new buzz word with focus on delivering customer delight.

The objective of enterprise asset management is to increase asset availability. It has an indirect relationship with asset utilization – which is the core objective of the operations function. There cannot be 100% availability and 100% utilization because that essentially means there is no asset maintenance and the asset is available at all times. Asset performance management is a trade-off between availability and utilization. It is an amalgamation of the objectives of the maintenance function and the operations function of the organization.

Maintaining a desired level of service from an asset at a minimum total cost of ownership is the prime objective of asset management. This statement clearly differentiates the main purpose of an asset intensive industry. It emphasizes on the importance on providing reliable service and not on maintaining assets. Identifying critical assets is the first step in ensuring reliable operations. It helps in concentrating the asset management efforts on critical assets and managing the trade-off with the operations function. Different maintenance and risk management strategies are adopted for critical assets over other assets.

Critical assets are identified as assets that are HIGH on ‘Consequence of Failure’ and HIGH on the ‘Probability of Failure’. Predictive maintenance and reliability centred maintenance techniques are deployed for such assets. For example, utilities companies run a Mains replacement programme that works on this definition. Based on the risk score of the mains pipe a structured replacement programme is defined so that the assets are replaced before they fail. The replacement plan is prepared such that the impact on customer service is minimal, if any.

The other way of defining critical assets is by ranking a particular asset against various parameters like:

  1. Operational and Customer impact
  2. Safety and environmental impact
  3. Probability of failure
  4. Spares lead time
  5. Asset replacement value
  6. Planned utilization rate
  7. Ability to isolate single-point-failures
  8. Preventive maintenance (PM) history
  9. Corrective maintenance (CM) history
  10. Mean time between failures (MTBF) or “reliability”

This number is called the Criticality Rating. This number should be analysed holistically before that asset is termed as Critical. An asset can have a high criticality rating because it has a longer spares lead time but that does not mean that the asset is critical as the spares can be stocked before the failure occurs.

Asset criticality becomes the foundation for all maintenance strategies and work planning. Please do share the techniques that you may have used for identifying critical assets. In my next blog we will discuss about asset sustainability and its importance under the looming threat of climate change.

October 4, 2009

Carton Allocation During Warehouse Outbound Process

Getting the right size carton to pack an order would be a daunting task during an outbound process in a warehouse. There maybe various sizes of cartons available, but which size and how many of such cartons would accommodate the entire order would be a challenge.

This could be simplified by applying a carton allocation logic that can be built within the WMS system managing the warehouse in case it does not have such a feature. This logic would need to revolve around the fact that items need to fit in the right size cartons with the minimum space wastage and using the minimum number of cartons. Let’s look at how this logic can be formulated. This logic must be used soon after all items have been picked and ready to be packed.

Step One - To fit all items in a Single Carton Check for the length of the longest item in the order and match it with length of the available cartons. All those cartons having length less than that of the item are straightaway rejected. The one which fits will be selected.

Next calculate the total weight of all the items in the order and match it against the Max capacity that the carton can hold. If the item's weight is less then what the carton the can hold, then select the carton; otherwise choose the next larger carton available

Now check the total volume of all the items in the order against the Carton volume. In case it is less than that of the carton volume, then allocate the carton else select the next larger size carton. In case all items do not fit into a single carton, move to Step Two

Step Two - Calculating the Total Number of Cartons for an order and the right sizes

Calculate the total weight and the total Volume of the items in the order and match against the available cartons. If the total Volume exceeds the largest carton's volume, then select the largest carton first and then subtract its volume from the total item volume. In case the difference is more that the largest carton volume, then increment the largest carton count by one.

Now, again subtract the volume of the largest carton X 2 from the available volume to be packed. If the available volume is less that the volume of the largest carton, then select the smallest carton available. If the volume of the remaining items is more than the smallest carton, then move to the next larger carton in the sequence. Keep on doing this till the entire order volume is exhausted. At the end of this allocation procedure, the system will come out with the total number of cartons to be used and their respective sizes.

Please note that you should not split the item quantity of each item across cartons. The entire item quantity need to sit in the same carton (provided the total volume of all the items does not exceed the largest carton's volume).

Step Three: Allocating Cartons to Items by Carton Size - Item Volume Combination in descending order

Now the system picks up the largest carton and select the item that has the largest volume in terms its quantity in the order and allocates the carton to it. It then calculates the remaining volume and then checks in the order, the next item with the largest volume and see if it can fit in the same. It does, then it allocates the same carton otherwise it check the least volume carton available and does a volume check. If the least volume carton is lesser than the volume of the item, then the next higher volume carton is considered. This check goes on till it finds the right size carton to fit the item.

In the same way, all the items in the order are assigned cartons. Note that no item quantity must be split across cartons. This is the simplest logic that can be used within a WMS system, but there are some limitations to it, for example when the items do not have near-to-cubical shapes, there are possibilities of not getting the right volume of each item. A cubiscan can avoid this shortcoming if it is used to record the item's volume during inbound process against the item being received.

October 3, 2009

Solution definition..or Requirements Refining..or Both?

The key to successful requirements is to be true to the project goals, to define a requirements strategy and to stick to it as I mentioned in my last entry. In a package implementation the trinity of the business owner, the implementation team and the package vendor need to be aligned with the program vision and timelines.

However, quite often project teams treat requirements as etched in stone. The requirement by itself is just a means to an end. In a package implementation, it is not easy to state the requirements in terms of the package being implemented. We were implementing SterlingCommerce MCF(Multi Channel Fulfillment) and SterlingCommerce Call Center application to replace the client's legacy OMS and call center application. The business requirement owners were new to the package. For the first few sessions, we played an attritional game of "This is what the requirement wants, but this is what the package does". It wasn't going anywhere. There was heartburn and conflict.

At this juncture, as a project team, a decision was taken that the implementation team would also explain what the product does and the why behind that. This led to a longer timeline, but better utilization of the time. Slowly this became a game of "If this is what the package does, how does it meet my overarching requirements". And while the solution was being given shape, the requirement owners restated their requirements in terms of what the package does. 

There is a subtlety here. It was not as if the requirement owners rolled over and wrote a product quide. They restated their requirements to match the product lingo, and in terms of what the product does. Of course, there were instances were the requirement was not met by the product. In such cases, we had intense negotiations with the product vendor to include the feature in the product or we had to plan to custom build that feature.
So solution definition became a form of iterative requirements definition phase. The requirements were refined by the requirements team in alignment with the package. And, the solution definition started taking on the shape of a solution requirements document.
Based on this experience, I would recommend that during solution definition, teams collaborate on an integrated requirements document. This document would be the starting point for both the solution design document and the business test plans. The integrated requirements should state the business requirement in product terms. It has to be a cross over document that conveys requirements to the business users and to the implementation team. Is there value in having two different documents as the solution definition and requirements or merge them into one document as the single source of what is required off the solution?

Beyond solution definition, the most critical phase of a SterlingCommerce implementation - Solution Design...

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