Supply Chain Management

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’.

Posted by Suresh Patel at 04:14 PM | Permalink | Comments (1) | TrackBacks (0)

While on the topic of Walmart and Marketplace, I just read two pieces of news which got me excited.

Times UK had published an article a few days ago about Amazon being in secret plans to open High Street Stores in the UK.

While Amazon was quick to refute this (see Telegraph article), a second piece of news across the pond made for an interesting read.
 
Walmart has announced plans to offer "Click and Collect" services for their website. Wall Street Journal quotes Walmart.com's Chief Executive Raul Vazquez as saying-
"There was a time when the online and offline businesses were viewed as being different. Now we are realizing that we actually have a physical advantage thanks to our thousands of stores, and we can use it to become No. 1 online."
 
This is a probably a big differentiator, if not the biggest for any “Bricks and Mortar” retailer to compete with pure online retailers like Amazon. While Walmart is current planning on supporting the "Ship to Store" concept, getting to the point where they can leverage existing store stocks would probably drive for instant gratification (aka the erstwhile Circuit City's service promise of "Pick Up in 24 minutes").
 
What makes for interesting reading about the Amazon article is the fact that this is based in the UK. I think this service will be a much larger differentiator in the UK. A big challenge that retailers face in the US is of geographical proximity. Even Walmart with its large network will be hard pressed to cover a large percentage of the population with the "Store Pickup" functionality. On the other hand, Tesco, Sainsbury, and probably even ASDA would probably be able to cover a large chunk of the population with this functionality. Moreover, if they integrate the online order channel with their Direct Grocery operations, which support doorstep van delivery, this will go a long way in differentiating themselves from online sites.

Moreover with the recent history of Royal Mail strikes, this might make this functionality the key differentiator for fulfilling cross channel orders efficiently, cheaply and quickly in the UK.

Posted by Prasad Acharya at 07:41 AM | Permalink | Comments (2) | TrackBacks (0)

At IKEA, warehousing at stores primarily resolves around the size of the packaging of the product (as cubes), that can be easily picked by the customer and placed on a shopping cart. This forms the basis of having the stores to metamorphose into pseudo warehouses where products are placed on the floor pallet location racking high enough for a person to reach for picking.
Bulk items are not placed here; instead, it’s more of self service items that can be picked and placed into a cart, are generally the ones that are considered. Replenishment however is done by moving stock placed in upper racks which are used as reserved locations which is usually done during night time.

Alternate ways of handling this would be is to provide enough floor space to accommodate gravity flow racks. Items can be replenished from the other end as and when stock is being picked up, which has to be close to the reserve locations in the store. This way, forklifts do not enter the display shelves at the front, rather that replenish from the rear end of these gravity flow racks. Once the shelf has reached a minimum level, the WMS system can trigger a zero-stock cycle count followed by replenishment process to fill the bin to the required level.
 
To conclude, this will help replenishment to take place as and when stock gets reduced without hampering the sales process, especially during peak season when sales volume are high, eliminating the need for forklifts and pallet jacks entering the store. All this is possible, as I have said above, if there is extra floor space available at the store.
 
Another point to be considered is the stock checks (Cycle counts) that need to be carried  out to get the correct stock picture due to misplaced stock. A customer might have picked an item and later decide not to buy it, placing it back in a location different from its designated location in the store. Such stock checks would help in arriving at the correct quantity of the item, especially when its location needs to be replenished with the right quantity.

Posted by Lokmanya Rawat at 10:37 AM | Permalink | Comments (0) | TrackBacks (0)

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.

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

Posted by Pradeep T Y at 09:13 AM | Permalink | Comments (0) | TrackBacks (0)

Recently I placed an ‘Online’ order from one of the Kiosks inside a retail outlet. Used a couple of coupons to get $10 off while making the payment at the POS. The customer service was great and the order was delivered in time. As it happens sometimes with orders placed Online, the actual product was not exactly as I expected it to be, so I called up the call center to return it. To my surprise the service representative returned me $10 more than the actual amount I paid!!! So this is what happened: The order I placed at the Kiosk went through to the ‘Online’ system, but the coupon that I used while making the payment at the POS never did. The Customer Service Representative, who was looking at the order in the ‘Online’ system, never saw the coupon and simply returned me the amount that the Kiosk showed.

And guess what, this is not unique to the store I went to. There are many organizations that embraced the pre-paid Kiosk ordering (order Online at the Kiosk and pay at the POS) model so that they do not lose a sale; but they did not do a very good job integrating the ‘Online’ and Retail channels.

And coupons are not the only adjustments that can be done on an order. There are a lot more including Price Match, Price Guarantee and Cancels among others. Add to that the complexity that can be induced by just varying the timing the adjustment is made. The retail payment systems and ‘Online’ systems need to be joined at the hip to work through these scenarios.

Here is what needs to be done:

-          Supply Chain leadership needs to give more attention to these Store-Online channel integrations. This being a problem that overlaps two channels, sometimes it becomes no one’s problem.

-          Have a comprehensive list of valid business rules and scenarios for cross channel ordering to work on. This will need to be a joint effort involving business and IT teams and tradeoffs will need to be made between the desired level of customer service and the investments required to achieve it.

-          Integrate the Retail channel information with the ‘Online’ IT systems. There is no one-size-fits-all IT solution that can be used. The complexity and cost will depend on how convoluted the individual processes for the two channels are, and how silo’ed the IT systems are.

 There can be some manual ways to avoid the “overpayment” kind of scenarios that I started this blog with. Like the Customer Service Representative (CSR) looking through multiple systems and manually calculating the refund amounts. But these processes can be really painful for the CSR group.

Posted by Sameer Prashar at 05:06 AM | Permalink | Comments (0) | TrackBacks (0)

Order Management & hence Multi-channel integration (MCI) at its core is about integrating the various Capture channels with the various Fulfillment channels. The focus in MCI is towards providing a uniform experience to the customer across the various Order Capture channels, in terms of inventory visibility, fulfillment capability and in terms of returns capability. These capabilities are generally built into the Order Management System (OMS). And of these, the most basic capability is the Inventory visibility, which ties the demand across the various Capture channels to the supply across the various Fulfillment channels.
 
At a basic level, a Marketplace is primarily about extending the front end Order Channel to support Partners or Registered Sellers. I see two main variants of the Marketplace (keeping in mind the Order Management requirements)-
1.       The current Walmart or Amazon model of having their own sales channel plus providing a Sales channel for Partners
2.       The eBay model of providing a Sales channel for any registered seller, private or otherwise.
 
The eBay model is primarily just order capture for various sellers and does not need an actual Order Management. I agree that the eBay model can be built without a hardcore Order Management system, since the Order Capture system can be extended to maintain visibility of the items across various Sellers.
But given that retailers would have their own offerings also, they would primarily go in for the first model. And in this model, an Order Management system is of prime importance to handle all the internal moving parts. The Marketplace would not replace the need to tie in all the internal supply across the multiple Fulfillment channels to the Order Capture channels. At best, the Directship Suppliers (or Dropship suppliers as they are called in many places) could be moved to the Marketplace as Sellers and provide their own assortments without requiring to sign up with the retailer for a second hand fulfillment.
 
On the other hand, on-boarding a Marketplace into the Ordering Channel would probably add work in the Order Management arena. This would essentially need the Order Management systems to change to handle inventory at a level below products (since each Seller would have their own listing & inventory at that level), support more complex rules across Sellers especially for Order Amendments and probably even support non-core functions like exposing Fulfillment Services.
 
All in all, while Order Management Systems need to evolve to handle the changing landscape, there is no doubt in my mind that an Order Management System will be a pre-requisite for any retailer going in for a Marketplace implementation.

Posted by Prasad Acharya at 09:52 AM | Permalink | Comments (2) | TrackBacks (0)

I have always wondered about how a Supply Chain head is able to manage multiple strategic issues simultaneously and what could be the approach that he/she could be taking to drive critical projects or initiatives to tackle most of such issues. There are various questions that I have in mind and would like to seek your opinion for each of them. Questions like:

• How does one identify the issues that are more critical? What are different parameters that influence issue identification process?
• What’s the approach for deciding the list of best-fit actions?
• How does one prioritize these actions – what’s the typical decision framework?
• How does one decide the modus operandi – what could be the best operating model to execute those actions at the ground level?

I am not sure if I have answers for all of them and I do believe that the answer for each question will vary across companies since every single company differs in the way it is structured and the way it operates. But these questions are equally valid for all companies. Generally speaking, what has been your experience? Put yourself in the shoes of a supply chain leader and then think about your approach within a set of constraints, uncertainties and performance pressures that a CSCO has to deal with.

In my opinion, there is less science and more experience involved when it comes to taking such strategic decisions. It has to be an optimum mix of data analysis with sheer gut feeling, business instinct that supply chain leaders develop over a period of time.

This is the one of the biggest dilemmas that a CSCO must be facing. It is an ever-changing environment and supply chain function continues to face numerous challenges, so how does a CSCO know which ones are important and critical from business perspective? You read any research report or a survey or talk to a supply chain head and you would see/hear a host of supply chain challenges. In one of the recent study done by a leading consulting company in supply chain domain, they listed more than 15 supply chain challenges faced by top management across multiple industry segments and geographies. Needless to say, it is imperative to define an approach to scrutinize these challenges, and filter out the ones that really matter to the business. In one of the leading global organizations, I met a dedicated team of supply chain specialists who work with the CSCO in doing this kind of analysis and provide a scientific approach to the entire issue identification process. The CSCO adds his experience and internal organization-specific nuances to it before coming out with the final prioritized issue list. This could be just one way to manage this.

After one has identified the prioritized issues, the next challenge is to come out with a set of focused solutions to handle those issues. Now, how does one arrive at it? And this is one of the areas where consultants come and make a difference. I have also seen supply chain leaders doing a benchmarking exercise to identify big improvement opportunity areas and then pick appropriate solutions. But is it really so simple and straight-forward? There could be so many different ways of tackling an issue and there would be complications when there are interdependencies and constraints involved? So, amidst all this, how is a CSCO able to identify the set of solutions that provide a good business case? Isn’t there a possibility of picking the wrong ones due to organizational dynamics and performance pressures?

And now the most difficult of all – the execution phase. Most of us have worked with multiple clients in this phase. How does a CSCO operationalize the action items and govern all of them effectively? There are so many factors such as geographical presence, talent pool availability etc. that make things more complex. Usually CSCOs run multiple programs at the same time and form core teams for each initiative that own the bottom-line. One of the leading research companies writes about a concept called Supply chain center of excellence that is responsible for most of these activities that I am talking about, although, it might be possible only with companies that are big in scale and size. Additionally, I feel it is extremely difficult for anyone to monitor and make progress unless until there is a strong governance model in place. I have seen cross functional committees (business performance improvement councils etc) chaired by a CxO level person meeting regularly for periodical reviews and status checks.

This is all I wanted to share but this is, by no means, complete and exhaustive. I have probably touched a small portion of what all a CSCO has to manage.

I look forward to know your point of view in this regard and it will be great if you can share your experience. I know this is a broad topic so feel free to comment on any aspect of it.

Posted by Aatish Goel at 11:16 AM | Permalink | Comments (4) | TrackBacks (0)

One very interesting aspect in an Allotment scenario is that of Price increases and decreases. In the last two blogs we saw the interesting phenomena of how Allotment situation works in a supply chain scenario. Price change is essentially done in two ways - one possible way is by informing the retailer in advance of an eminent price change at a pre-destined date. The other is by doing a mass inventory revaluation of the stock-on-hand that the retailer is carrying at that point in time- and then making a price adjustment of the existing stock across the board both in the books of retailer and that of the CPG organization. This might result in an accounts payable or receivable to/from the retailer to the CPG organization. The former is mostly done for price increases, while the latter for price reductions.

When the price increase is announced ahead of time, the retailer does a forward buy of stock. This has an interesting effect in the supply chain specifically in context of available-to-promise functionality. If the product is on allocation, the retailer essentially does this forward-buy with a receiving pattern pegged to a range of dates. Example if today is say 1st of Dec and the retailer has been told that there will be a price increase starting coming 1st Jan, then the retailer is very likely to place an order worth next six months with receiving dates ranging all the way until mid of next-year. This is like taking a forward position in the financial market. Note that the retailer does not want to sit on the stock worth next six months, however they want to lock on to the price for next six months - this phenomena can be related with the derivative instrument called Futures in financial market.

The net result is that if the product is on allotment, usually there are allotment limits made based on goods-issue date and NOT on ordering dates. So forward-buy gets processed since the goods-issue dates range all the way until mid of next year. Note that Pricing is usually carried out at the time of Order entry. The tool used for allocation technically can only be set up with either the goods-issue date or the ordering date for evaluating allotment limits. This results in a very challenging siutation thus which cannot be mapped very easily in the allocation tool.

One of the solution proposed was to do a price revaluation at the time of goods-issue and provide the better of the two prices - one that exists at the time of ordering and the other at the time of goods-issuing. This solution that we are finally proposing as part of Pricing, would thus help us alleviate the distortionary supply chain effects that the retailers otherwise would have had.

We will talk of one more interesting pheniomena in context of Allotment and Supply Chain in the next blog.

Posted by K. Srinivas at 12:29 PM | Permalink | Comments (0) | TrackBacks (0)

I thought we would be nearer to the end my blog series on SRM with this one hoping to get onto the solutions, but it was not to be. I was in a couple of solution discussions in SRM implementation situations over last week and realized we were far away from getting to the solution discussions if we do not do more to confirm our understanding on this topic.

What is Supplier Relationship Management for you?

Having been designing Supplier relationship management solutions for the last 5 years for multiple clients, I have witnessed articulations of requirements across industries.  This includes one of the solution approaches we designed, which were presented recently in a webinar by one of the leading SRM product vendors as a marquee example of value driven SRM implementations. One thing seen consistent over the years is that our thinking on SRM implementations have not changed much in this time, if we were to go by the requirement definitions we still see in the Rfx’s sections.

Posted by Pradeep T Y at 09:03 AM | Permalink | Comments (2) | TrackBacks (0)

While in the checkout line of one of the bigger departmental store chains of US, I overheard one of the customers querying the sales associate on the difference between the price of the same item in the store and on the Store’s website. This particular customer, using a smart phone, had found that the price on the website was 20% lower than that in the store and wanted to pick up the item in the store right away, at the price on the website.

That was not going to happen; the brick-and-mortar business and the online business for this particular store are independent mini organizations of their own. They do not share inventory and their sales channels are different silos in themselves. A reflection on the way the online organizations were set up in the heat of the internet revolution; independent of the brick-and-mortar business.

Some organizations have since then, undertaken some kind of Multi-Channel Integration program to have strong integration between their various sales/delivery channels. So what benefit does Multi-Channel integration bring, that these organizations were aiming for? Here are a few:

-          First and foremost, drives better customer service and presents a single consistent experience for the customer. No more calling up the Call centre and finding out that “the internet department is not open”.

-          Sharing of inventory across channels can actually reduce inventory cost. There is better visibility and control on inventory across the organization

-          Initiatives like “Buy Online and Pickup at Store”, which are enabled by Multi-Channel Integration actually drive up the store sales also.

-          There is a wealth of customer data sitting across channels that can be consolidated  and leveraged by an organization

It is not easy integrating channels that have been operating in isolation for so long; an initiative like this can be very difficult. But customers, like the one I mentioned about at the start of this blog, are looking for a change.

Posted by Sameer Prashar at 11:26 PM | Permalink | Comments (0) | TrackBacks (0)

Another unique challenge is Pricing of CPG products in an allotment scenario. As mentioned in the last blog, allotment of products to different demand streams is done under unique business situations i.e promotions, a genuine supply constraint or for doing very focused test-marketing. Pricing is a CPG context is very complex and is proportionate to the order volume and the tier of the customer. Customers who order in Full-Truckload are passed on logistical benefits by pricing a unit in conformance with the best possible price. Likewise, the Mom and Pop stores or small time retailers, who may order in less-than truckload may not get the best unit price.

In an allotment scenario, customers (read retailers to the CPG company) are pre-informed about their allotted quantities. They are clearly told about the possible ordering pattern in line with the different promotional events or marketing strategy collaboratively derived with the retailer. The Customer Sales Reps in the CPG company aligned to very specific sets of customer or may be just one customer, collaboratively arrive at an ordering plan with the retailers. The allotment quantities may or may not have any correlation with possible truckloads.

The retailers though, are at a free will to order what they want agnostic to alloted quantities. It is observed that retailers continue to order full-truckloads to derive logistical benefits, although they may have been allotted only half-truckloads. In such a scenario, pricing the order becomes a very unique challenge. One of the dilmena that a CPG company faces in such a scenario is to whether they should price the product based on pure and pristine customer demand or should they price it on pre-decided allotment quantities. While the different departments within our client organization had differing views, the consensus reached with the MDO(Marketing Development Organization) was that pricing needs to be based on internal constraints of the CPG organization instead of the pure client demand.

The project team is at the moment defining such a business process and possible supporting technical solution to make sure that the pricing gets done on alloted quantities instead of ordered quantitiy. There are a few possible options available within the tool, however there is none that comes as a seeded functionality.

In the next blog, we will discuss some deeper concepts of Pricing in CPG industry based on allotments that have posed very unique challenges in the project.

Posted by K. Srinivas at 05:36 AM | Permalink | Comments (0) | TrackBacks (0)

The Supply Chain tool of SAP is being implemented in one of the leading CPG organizations of the world by Infosys. While most of the capabilities of this tool meets business requirements, there are a few critical business requirements that have not been met and this is a first hand account of what the issue is and where we can potentially go from here.

The Planning organization at our client is nimble and reactive. Most of the CPG products in the portfolio are made up of short-leadtime rawmaterials. Most of the producing plants can react to variations in demand almost at will by sub-contracting capacity or running multiple shifts in the plant. The great thing about CPG products is that almost 95 % of the products have a reasonably long life-cycle - which means inventory carrying is not that detrimental in terms of product obsoloscence. Excess inventory can always be sold later.

The 5 % of the product portfolio different from the rest consists of displays, customizations pack-to-order and bundle-packs. These products are useful for doing promotions. And with promotions come a host of other supporting structures/frames very specific to such events - example templates of displays. The market organization managing the promotion event would want to manufacure such products in moderation due to a supply-constraint scenario or for doing test-marketing or due to non-reusability of such products for subsequent events. It is costly to manufacture promotional products and hence the financial guideline for this CPG leader is to make sure the products are pro-rated to different demand streams and customers.

In such a scenario where products are on allotment, the requirement from the tool is to make sure that the "alloted" demand drive the supply plan instead of the unconstrained customer orders. While the demand should be reflective of the customer orders, it should be capped by allotment quantity if the demand exceeds such a limit. Customers, who are essentially the retailers, tend to order more of promotional products than regular products due to value for money.(eg. they go for a shampoo+conditioner if this pack costs the same as a shampoo pack) The Planning organization wants to make sure that this pent-up demand not mess up with their production schedules.

This unique business requirement of showing a "virtual capped" demand instead of the pure customer demand, is not being met by the tool and the project team has been contemplating multiple options to meet this requirement.

 In the next blog, we will discuss one such more interesting challenge in the project .

Posted by K. Srinivas at 11:10 AM | Permalink | Comments (0) | TrackBacks (0)

Supply chain traceability, for ensuring flawless tracking of every small part or process in the supply chain, is required basically for three main objectives:

• Ensuring quality tracking and feedback in the supply chain
• Discover hidden inventory in the supply chain to optimize its size
• Discover process bottlenecks which can be eased or eliminated to improve operational efficiency

Here we deal with the issues faced in the supply chain and their impact on the objectives mentioned above. It is to be noted that Operational Line Managers do not subscribe to hi-tech methods for gaining clear visibility into each aspect of tracking in the supply chain. Most Managers believe in “gross tracking” of products and processes. What this means in a real world scenario is that the accounting of the volumes during product or process hand-over is on a broad gross level and batches are identified as single block. This procedure is mainly adopted either in Tier-2 or Tier-3 supplier level or at child component production level at the Tier-1 suppliers. Instead of identifying individual child components, the complete batch is identified. E.g. batch of heat treatment, batch of molding, batch of casting pouring, batch of machining. There are three critical aspects to be weighed sensitively for adopting a particular process for batch identification.

Identification Technique: For such batch identification the technique adopted for identifying the batch and its error-proofness (also referred to as pokayoke by Japanese manufacturers) is justified by the calculations of risk potential for the identification failure. E.g. Heat code present on Cam shaft casting provides identification of the Pallet# of cast, Ladle# of melt, date and shift of pouring etc.

Identification registry: For such batches with identifications, the recording or registry of these identification marks either permanently on products or in some discrete records is essential for any future retrieval. In case of any future mishaps, this record/ registry enable accurate “search and locate”, to ensure a thorough quarantine operation. The justification for the cost of recording, retrieval and archiving for a predefined period is purely based on the risk potential of the record failure. E.g. Permanent marker identification mark on the back of MFR (multi-focal reflector) of headlamp after Al-evaporation process is recorded and maintained during an 11-year period for any future photometry recalls of vehicles.

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