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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March 31, 2010

Pareto Theory in Supply Chain Implementation

The Pareto theory resonates among all of us, specifically the Supply Chain consultants. Based on general experience, it is usually a few deviants that take all of one's attention. Not only do these deviants get all the attention, they make the process and the solution to deal with general elements very complex.

Consider for example, the most upstream activity in Supply Chain planning - i.e Forecasting. It is usually easier to forecast 80% of the products, however challenging to forecast the 20% that seemingly show no pattern. Likewise with Supply Planning, the regular safety stock planning or constrainted planning is challenging for a finite segment of the products. Even on the execution side, i.e Order Promising, it is usually challenging to be able to accurately confirm and fulfil certain demand segments.

One suggested approach in such situations is to disect the problem into these two dimensions - the regulars and the deviants. Analyze them on another two dimensions - are they critical to business or nice-to-haves. Try to address the low-hanging fruits in the first wave of implementation and slowly graduate to the next levels. Some of the biggest mistakes one could do with supply chain implementations is to aim for the sun and fall on the face - never bodes well long term.

Some ways of finding what is critical to business is to be able to make them articulate the relative value of solution feature provides with respect to the overall solution - does business stop or get crippled due to a certain feature not being implemented ?

On a philosophical side - what gets taken for granted is usually the most important - hence focus on the basics first in a Supply Chain implementation.

 

Human Factor in Supply Chain Risk management

Supply chain risk management professionals have been designing and developing tools and techniques for capturing data, conducting an assessment and then taking mitigation actions. There have been complex mathematical formulae and statistical estimation techniques, as well as detailed business rules for any decision support system for supply chain risk management. There would be enlightened debates among the academics and the researchers about the distribution algorithms to be adopted and the forecasting models to be deployed for define an accurate picture of the future. They would enable classifying the risk sources and the risk drivers to come out with the right assessment of risk. But in this milieu of mathematics, statistics, rules and regulations one critical aspect is given the back seat…. the human factor. It is rightly said the risk appetite of an enterprise is inverse of the risk averseness of its decision makers.

Take the classic case of the recent imbroglio of the recalls from Toyota. It is expected that Toyota will recall more vehicles this year than what they will manufacture. And if the recall further hits their ECM software for acceleration, then it would be even worse. But do you really think Toyota employees actually did not know about the recalls, till they were forced to do so starting Jan-2010. Or, do you think that the NHTSA was also not very vigilant in checking trends in market complaints, till the fatal accidents actually did take place. Let me tell you, that in all such cases when these specific types of complaints start trickling in or a specific market return part begin to block the maximum space in warranty parts racks in an organization’s backyards, the organization would have sensed “Danger” right then. It is now a question: “How much is too much???”

And to answer this question, it takes the organization DNA to feel the “itch” for recalls. Every individual in the organization, at least in the Engg & Design, Production, QA, Service & Warranty, Finance & Control and Marketing & Sales would have developed their “personal” opinion about the right time. And this is a big gamble. If it is too early, then one would have raised the curtain when the stage was being prepared. This would lead to embarrassment and hilarious situation. And if it is too late, the consternation and frustration of the audience who have waited far too long will lead to a string and “violent” retaliation. And in both the circumstances the reputation of the organization is at stake.

Also one important factor is the clash of interests among the functional groups. A service engineer would be looking at recalls as a tool for replying to disgruntled customer queries, a quality engineer would be looking at recalls as a means of scoring a brownie and a marketing executive may be looking at recalls to demonstrate their evidence for a quality slogan. Engg and Production have completely opposite interest, to guard their “fortress” against any recalls. And the finance accountant would be left praying that these clashes should not upset his balance sheet beyond repair. In a nutshell, with each one having their overt and covert agenda from recalls, the gestation period to “open the Pandora’s Box” is far too long. And it is this human factor which finally defies all tools, mathematics, statistics and “Early Warning Systems”. Don’t you think so??

Logistics - a key driver for improving supply chain margins

Logistics is a considerable part of supply chain costs. So far as profitability goes, this can be a true driver to improve supply chain costs. Logistics is an area of best practice that can contribute to your managing rising supply chain cost.

Let me identify approaches used that drastically increase savings potential in a distribution network.

Visibility for “Units” and “Dollars”

Creating supply chain transparency to help determine financial SCM drivers in order to achieve logistics goals is the first step. Each process that execute logistics must be measurable in terms of units and dollars relating to inventory that is in transit, on-order or stored. Opportunities for consolidation, Hidden cost of imports and closely monitoring planned-to-actual logistics execution for deviations are benefits of designing visibility for financial controls.

Process and Data “duet”

Data to control process for effectiveness and the process to create the required data sources to control process – are two sides of the savings coin. The drive to capture logistics benefits have to be far-reaching so managing processes and systems for sustained results is possible. Intuitive and early warning dashboards to measure and report on KPIs and Scorecards are the next step to transforming data into strategic supply chain intelligence.

Augment Savings through Technology

To move product as effectively as possible within the distribution network means supply chains have to invest in technology that can support such gains. Investing in both process-centered transactional systems and mobile applications can result in data-rich environment. Starting on a firm information foundation, logistics professionals can institute advanced practices such as predictive analysis and network modeling techniques that bring dramatic results and optimization opportunities.

Remaining competitive with the best in class logistics practices bring home the benefits of realizing profits both in the near and long term.

March 30, 2010

Lean supply chain – Is that always good

Often have we heard in various supply chain forums and places “ A good supply chain is a lean machine”meaning that we have minimal inventory, delivery should be Just in time and a Configure to order strategy etc. In most cases a manufacturer would want to have a lean system for the raw materials and the Work in progress. But would he want this for finished products as well at the point of sale, I think not.

Take the case of cell phones, with the lead time to introduce a newer phone getting reduced the manufacturers are wanting to keep minimal inventory levels in the supply chain and hence reduce losses due to dead sales for the product. This leads to a make to order scenario.But, does this hold good in today’s highly dynamic market condition. Today’s market requires the manufacturer to keep sufficient inventory at every Point of Sale and avoid missed business due to product non availability. Even the lead time to introduce a competitive product with better features is decreasing by the day. As another example considering the Personal computer market, the consumers usually have similar requirements with standard configuration. So, as a customer unless my requirements are very specific, I would go for a product that essentially delivers with lowest lead time. It is for this reason that we see ‘Fast track laptops’ from Dell and similar from other vendors. Even in the consumer product groups like ‘Soap’, a customer would rarely wait for a typical soap to arrive on the shelf and move to a readily available brand.
The concept of Lean does not hold true in these cases. Though a company wants to have a lean supply chain at the ‘goods in process’ leg but at the same time it wants to have a ‘fat’ supply chain at the customers end. This means the business requires a hybrid system that caters to both push and pull. Pull in terms of having an agile system that responds quickly to any change in customer demands and Push in terms of maintaining sufficient inventory at the end of the system to be able to push sales by minimizing the losses due to non availability of product.
This puts up one question - what happens in the case when the demand of the product ceases due to the introduction of a rival product? This would lead to a lot of dead inventory in the stock. I feel that the answer lies in the concepts of agility, reverse logistics and modular engineering. A high degree of agility would not only give more visibility and effective supply & demand management but also allow the management to keep track on the Inventory and the obsolescence of its products. The quick response across various points also leads to a higher customer relationship focus. But the question still remains. One still needs to take care of the inventory, which has a high degree of susceptibility to being obsolete. It is here that Reverse logistics comes into the picture. It would help in planning for the effective reuse, sale of the surplus and even disposal of these products. It will typically start from the Point of Sale and end at the point of manufacture / origin / disposal. This process would primarily help in clearing the shelf space for the new products, tend to minimize the losses due to no sale and also enable to create an effective system for reutilization of these products. To complement the process of Reverse logistics the manufacturers should also look into the aspect of Modular engineering. This means the product design be as modular as possible leading to higher reusability of the components in the event of a product getting isolated. As an example a Desktop computer should be created as modular as possible so that in the event of the configuration getting obsolete it could be deassembled and the reusable parts be put to a better use.
A typical depiction of the model described above would be as follows:

 

Is this system viable? How would such a system be designed? What are the business complexities involved? Do let me know your thought process and comments on these.

March 9, 2010

Negotiating one of the key skills for procurement professionals

Apart from being skilled and experienced in managing relationships with suppliers and managing the resulting relationships in the same region, but Negotiating with suppliers in various global regions can bring unexpected challenges that can sabotage negotiations and relationships can challenge those are strong in domestic markets So bridging this gap can be done by training procurement professionals and others in the organization, on a worldwide basis, to understand, respect, and appropriately respond to cultural differences in the countries where they are doing business. Second aspect to this the information the buyer and seller have about the product, the relative scarcity or abundance of the product, the availability of product substitutes, and many other factors. The relative leverage of buyers and sellers determines the price and terms of transactions and the nature of business relationships. These initiatives can help to prevent problems and surprises that can occur during new supplier relationships, improve the procurement process, and promote dialogue and continued learning
Key objectives required for demonstrating negotiating skills
1) Determine the ability to question any assumptions and set expectations
2) Have a clear cut expectations set so that the potential suppliers understands and respects and values them
3) Create a methodology to ask and understand the supplier assumptions that could be a differentiating factor for a proclaimed relationship
4) Have cultural diversity as the centre point to bridge the cultural differences using cultural diversity as assets
These all behavioural objectives will help you in price negotiations in a centralized procurement and sourcing domain with better definition of required volumes and supplier consolidation. Another aspect for significant savings from negotiation can generate value engineering collaboration with suppliers, and standardisation and adaptation of specifications in order to optimise utilisation and minimise waste, the larger, more complex set of levers to use during the negotiations makes the process more complicated. Understanding the whole range of available business rules, and carefully planning when and how to use them in the negotiations, will greatly affect the outcome. Effective procurement requires a flexible, well thought-out set of strategies when approaching the negotiation process.
If you want to gain high negotiating skills then there are certain snags that you have to overcome
1) Lack of confidence and failure having assertive approach
2) Gelling debatable behaviour with problem solving
3) Using Threats
4) Having an emotional warfare
5) Details not addressed immediately
6) Failing to commit when agreement seems to be met
7) Getting distracted with the other party’s behaviour
8) Understand the other side’s interests.
To overcome these pitfalls there are some key Qualities that should be observed during negotiations
1)  Be perceived as knowledgeable, reliable, and trustworthy, and as a person who can make the decision
2) Be a good listener
3) Be patient
4) Be skilled in communicating
5) Be a good problem-solver
6) Find common ground for agreement
7) Work through conflicts that arise during the process
8) Summarize points and check for agreement
I hope this will help all the procurement professionals to have a ground for Negotiation to improvise on savings

March 3, 2010

Automating Accounts Payable for Facility Management Firms

According to Gartner and Celent, it costs the average real estate company $21.00 per invoice to manually process paper invoices. Most people are shocked to learn this. Multiply this to the tens of thousands of invoices a facility management firm process every year and this amounts to a fairly significant administrative cost. Automating accounts payable reduces much of the labour and materials associated with paying bills, thereby saving time and money.

Realcomm Advisory, identified A/P automation as the hottest topic of the year. Here I present my experience in helping one of our facility management clients’ automate their A/P process.

Currently Infosys is implementing Maximo 7 SP for a leading global facility management company. One of the key challenges was to automate the A/P process. Going paperless was the obvious solution but not all suppliers/service providers in the real estate space were large enough to have their own EDI setup. Most of these suppliers were small plumbing/cleaning firms with a man-in-the-van setup. An effective automation strategy would have been ineffective without taking into account the technical limitations of the suppliers. Hence, the right approach was to have a cost effective A/P process that addresses both a paperless as well as a paper based invoice processing system.

EDI interface was developed for registering electronic invoices and a ‘shared services’ strategy was recommended for the paper based invoices. Having a centralized shared service centre for invoice processing frees up a large number of resources at the managed site. Integrating Maximo with scanning solutions and optical reader solutions helps to considerably reduce the time taken to register a paper invoice in the system.

A three way matching of the invoice was recommended as a process. This would help in the auto processing of the invoice once it is registered in the system. Intelligent rules were built on the customer site and vendor record to enable auto payment of invoices. Auto approval threshold was set on a customer site record. This identifies the invoice value that can be considered for auto payments along with the auto approve flag on the Vendor record. Sensitive suppliers were identified by making use of the Company Type information in Maximo and were subjected to manual invoice approval.

Once an Invoice is registered successfully in the system, a matching process matches the invoice with the receipt quantity and the PO quantity. If the quantity matches and if the invoice value is within the tolerance value, the invoice is flagged as MATCHED. Another automated process picks up the matched invoices and checks for the invoice auto approval threshold and the auto approve flag on the vendor. If all the rules are matched, the invoice is auto approved for payment. There is no manual intervention and the invoice sails through the system. This complete solution was built using the workflow architecture of Maximo and there was no customization.

March 2, 2010

Are Demand Planners stressed out these days?

Well, this blog of mine is focused very specifically to ‘demand planning’ role in a supply chain organization. Most of us would appreciate the difficult conflicting goals that a demand planner faces in industry, and I believe, it is becoming increasingly more stressful for them to manage these goals. Being a demand planner myself in the past, I can empathize with their pain and would like to share few operational challenges that add to their stress levels, if not attended effectively. I would urge each one of you to provide your experience, comments, and advise how demand planners can effectively work to mitigate these issues to improve business performance. Read on…

Let me take you step by step to present my view point. There are three sections of this blog:

A)    Ever increasing “operational” challenges:-

Just think about the total number of SKUs that a demand planner has to manage on an average in supply chain. I know of examples wherein the XL runs into few hundreds of rows of SKUs that a demand planner works upon in every forecasting cycle. Assuming atleast a one year forecast time horizon, you can guesstimate the humungous task that a demand planner has to go through, during every planning cycle (which is most likely a monthly rolling cycle). The situation gets worsened due to factors that are largely governed by business and competition, couple of them being:

·         faster pace of new products introduction thereby, increasing the number of SKUs in product portfolio.

·         the forecasting cycle is being revisited time and again, and pressure is always to reduce the cycle time to close the forecasting process (moving from a monthly bucket to fortnightly and then to a weekly bucket)

 

B)    Typical demand planning responsibilities at an operational level:-

The demand planner is usually overworked throughout the month with probably just very few days during the middle of a monthly planning cycle where he/she gets little bit of breathing time. There are several activities that keep him/her busy, though, most of them seem to be very operational in nature but are absolutely critical in achieving the desired supply chain targets. Some of these activities are:

·         managing demand data (ensuring data quality is maintained)

·         review past performance (how the KPI numbers look like)

·         do statistical forecasting (understand demand patterns closely)

·         ……

The important thing I would like to highlight is the effort that is involved in managing all these activities and ensuring KPI numbers improve over a period of time.

 

C)    How does all this impact a demand planner:-

With the changing business landscape as highlighted in section A above, I feel it is more difficult and strenuous for a demand planner to execute activities as mentioned in section B. It is a tightrope walk because it is impossible to compromise on the execution quality as it will have a direct negative impact to his/her performance. As planning time frames shrink, a demand planner needs to look for more innovative ways to accomplish all the activities else it becomes more stressful for him/her.

This is all what I wanted to share and would appreciate if you can provide your comments. Feel free to contradict in case you feel otherwise but please do share your view point.

Additionally, would you like to comment on “What are the various steps that a demand planner should take in order to accomplish his/her responsibilities?”. Using an IT tool’s capability more efficiently could be one solution. I want to hear from the group if they have thoughts on such a burning issue…

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