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December 31, 2009

Tesco to Less CO: Can Tesco save the world?

Tesco has been blamed for concreting over the countryside, and running up endless air miles importing food and trucking it the length and breadth of Britain, but is Tesco now leading the business fight back against man-made global warming? I happened to watch this programme on Panorama – one of Britain’s most watched TV shows. This is what Tesco is doing to counter global warming.

With the summit at Copenhagen failing to achieve much it’s time to see what the private enterprise is doing about climate change. The government is committed to cutting emissions by at least a third within 10 years. The progress has been slow. Tesco fears that when those deadlines approach the government could take panic measures. So the company is getting ahead of the game seeing the risk but all also the opportunity to make a difference and even profit from it. It wants to be a green doer and not a mere talker.

Tesco is Britain’s mightiest super market. It wants its customers to fill their trolleys and still be friends with the earth. Tesco is aware that climate change impacts its entire supply chain. It needs to minimize the carbon from cradle to grave of the products on its shelves.

This is what Tesco is doing to minimize its carbon footprint:

Most of the products are now transported by train and not by road. It is also looking at alternate ways of transportation. Tesco is cutting down 9 million miles a year by using the canal to transfers its good from Liverpool to Manchester.

The way the goods reach the store is changing too. Most of the vehicles are powered by natural gas. It eventually wants to power all its vehicles using methane – which is produced by rotting fruits and vegetables. The waste that used to go to the landfill will now power Tesco’s fleet.

Operational data like average speed, braking etc is processed for each truck and the driver receives a report with personal tips of efficient driving. Tesco predicts that the fuel bill will drop by 7% because of this resulting in less emissions and more fuel economy.

Tesco also wants to cut its energy consumption in half by the way it builds and operates a store. The roofs are designed to allow more natural light. Recycled vegetable oil is used to bake bread rolls and water for the toilets comes from rain water harvesting.

Tesco also encourages its customers to reuse their carry bags, rewarding them with loyalty points for every bag they reuse.

The real challenge lies in going green without letting go of its commercial clout. Tesco has initiated the change and as its famous tag line goes - ‘Every little helps’.

December 22, 2009

Part one – Strategic Cost Reduction: What is strategic about cost reduction?

Last year brought in difficult times for everyone. From individuals to small, mid size and large global companies’ echoed one sentiment – reduce costs to survive.  We saw large scale layoff’s as knee jerk reactions. Not sure why companies saw their people costs as the first level opportunity to tackle and their only scope for survival.  Buyers were beating down their suppliers to get the best price against target goals, 10% per annum over their scope of supply or haggling over the increasing the payment terms, not realizing that the suppliers were also going through the same issues on liquidity crunch. Net result, suppliers went bankrupt and along with them the entire industry started collapsing, e.g. automotive industry.


Things have started turning around now and we felt it was time to take the learning’s from these experiences and reactions to prepare a strategic response approach to the situation. Surely we need not wait for the next recession but get started on a systematic process of quick wins, tactical  and strategic initiatives that can keep the organizations going strong at all times.

Having led strategic sourcing programs across industries, I have seen that traditional structured approach of the last 20 years still continues to deliver value. But we are also seeing diminishing returns in areas where these have been successfully applied over time. The sourcing and procurement capabilities have changed with technology developments happening by the day. It was time to revisit / review the approach.


We pulled together our collective strategic sourcing experience and devoured through all possible case studies of cost reduction programs across great companies looking for what was strategic in each. We converged on some of the following “should not be’s” for a strategic cost reduction approach..

  1. Not a one size fits all approach –A cost reduction program which is tailor made for each product competitive strategy and aligned to organizational goals. Tata’s cannot be applying the same strategic cost reduction approach to all their product portfolio including their high end Jaguar to the world’s cheapest car Nano.
  2. Not a pure supplier price focused approach - Total cost and value focused encompassing all cost levers including supplier productivity, cost of performance and cost of relationships. Following the iceberg norms, they say 1/9 of the costs are normally seen and 8/9th is the invisible but large opportunity area
  3. Not look at just the sourcing decision – Ensures benefits and value maximization along the value chain from design to deliver process of the organization. Recent benchmark data from APQC mentions that an improvement in inventory accuracy from 98 to 99% can improve the supplier on time delivery by 7% and thus improving the costs to manufacture and deliver products.
  4. Not just internal cost goal focused - Relationship based approach, benefits tracked / traced to internal and extended stakeholders including suppliers , partners , customers. Unearth value across the entire extended value chain of the organization and beyond.
  5. Not one dimension supplier enforcement – but collaborative multidimensional strategy/process /capability improvement approach aligned to category characteristics. The cost reduction approach to a bottleneck category will be different from a non critical one.
  6. Not just about one time opportunity identification – but a continuous process about realization and sustaining benefits in the long run while maintaining the supplier relationships. I have come across research data which states that upto 60% of the discovered savings are typically lost in realization phase. A good value based comprehensive program management process applied to cost reduction programs can make a big difference. Tracking and tracing value throughout the program against initiatives
  7. Not just about buying better – but using better and meeting customer needs better
  8. Not a traditional long drawn cost transformation journey– But an accelerated approach to deliver savings and impact organizations free cash flow in the minimum possible time. As a friend of mine put this , a “ Now and Here” approach of value creation , this could mean structured quick win filters or alternately handing over the set of processes to a specialist who can bring in both the economies of skill and scale in very near term.


Friends, I would appreciate if you could share your experiences in strategic cost reduction programs and highlight any additional considerations we could have missed in this program design. I wish to acknowledge Guruprasad Srinivasan from my team for his dedicated help in researching cost reduction programs across companies.


Do watch out for this space on 100 strategies for procurement managers to reduce the cost of procurement.
 

 

December 7, 2009

SCM cross pollination: Ikea and the Indian bi-cycle manufacturers

Supply Chain is a horizontal function”, says the voice aloud. “Big deal”, I say, smirking. “This essentially means that it is agnostic to industry sectors”, continues the voice. “Natural”, I say still smirking. “It is thus fair to expect that concepts and best practices applicable in one industry sector can be leveraged for another sector”, the rich baritone voice states. “Fair enough”, I say, continuing to play ball not knowing where we were headed. “As a supply chain consultant, do you think you have lived up to that expectation?” No longer in the dark and no longer smirking, I turn diplomatic and deflect this query to the readers.

While each industry has its peculiarities which prevent adoption of some SCM best practices, the potential for cross-pollination is immense. It was with such a thought that I had penned a blog on the similarity between Dell and the Indian cement manufactures here. Continuing on the theme of postponement, I write today on how Ikea, the closely guarded Swedish furniture giant, and the Indian bi-cycle manufacturers have adopted this strategy to rich gains.  


Usually, postponement of an operation is carried out for shifting the point of differentiation to a later stage so as to reap the benefits of reduced inventory and improved customer service. But the two entities in question here have adopted this approach in their supply chains to drastically reduce transportation cost. Both the firms faced the same issue in transportation – high product variety and the bulky nature of their products meant transportation cost were a drain on their margins. Ikea responded by re-designing its supply chain to have its furniture transported in kits and shifted the final assembly to the end-user (who gladly did so for the benefit they derived from reduced pricing besides the ‘constructive experience’). The Indian bi-cycle manufacturers limited their activities to production of frames, handle bars and transmission parts and transported these in a cost-effective manner to the dealer/retailer who did the final assembly based on consumer order. Thus, by postponing the final assembly, both the entities were able to utilize the carrier’s space much more effectively so as to reduce their transportation expense. 

Postponement strategy has been adopted in diverse sectors – automobile, consumer appliances, food, apparel and airlines to name a few – but the thread common to firms in these diverse sectors has been high forecast uncertainty and high product customization which led them to modularize their design (Design for Transportation). Though I deflected the query on whether I have lived up to the expectations of best practices’ cross-pollination, I invite readers to share their obvious and not-so-obvious experiences of SCM best practices across unrelated industry sectors.

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