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November 29, 2010

Parameters to design your supply chain organization

This blog of mine is somewhat related to my earlier blog that talked about if companies run unique supply chains for each market segment. Staying on a similar subject, I want to ask few questions about designing a supply chain organization. Suppose you are the head supply chain for a global organization with operations scattered almost everywhere and fairly complex supply chain network. How would you decide which organizational structure is best suited to your company? And as the company grows in scale and size, how would you ensure that you keep pace with the growth and your organizational structure is aligned to enable this growth. I have listed few parameters that I think must be critically examined before arriving at a structure that is scalable, flexible and robust enough to fuel company's growth in the desired direction. I don't think that this is an exhaustive list and I look forward to hear from you all - about the parameters that you feel are really important and worth capturing. I understand that it will vary drastically from one company to other, but I have tried to capture the one that I felt are the 'must haves' and fairly common across multiple industry segments. Please do share your comments and provide your inputs - Read on...

There is no one single structure that fits into all types of possible supply chain organizations. Every company needs to evaluate critical design elements and answer few questions to arrive at the right organizational structure for its supply chain. Following table is a list of questions that needs to be considered while designing an organizational structure - Please have a look and do share your critical comments and inputs.

organizational-structure.gif 

We recently concluded our All Hands Meet where I got an opportunity to meet my fellow colleagues from a practice called Next Gen Commerce. As the name suggests, it is associated with clients that are aggressively forward looking and ready to take bold steps in leveraging new technologies and venture into new domains to gain consumer mind share. One of the great things that I heard was about how companies especially in developed economies are trying to capitalize or monetize information that's available on net - basically using what we all call "social media" to gain competitive advantage.

While I was thinking all this and trying to imbibe all great things that I heard, I was wondering if there could be an impact of social media on supply chains. This blog of mine is therefore of an exploratory nature (since I have little awareness on this subject) where I would like to share my thoughts and seek your inputs and comments.
I am sure Social media is something that all of us know in bits and pieces, and it touches our lives today in some form or the other. The typical examples of social media are facebook, twitter and blog sites such as ours. Some of these are subject-specific and lot of these are fairly generic and provide a platform for people to share their experiences, ideas and opinions in this borderless world. Although, it is just a platform for people to exchange information, but I am sure, it has a powerful influence to businesses and of course, to supply chains.
The extent of impact of social media to supply chain may vary across industry segments, for e.g.-  companies in a typical service industry or consumer goods are definitely more prone to get affected than others. While I am not going to detail on where the impact is felt more, but in general, there are few questions that come to my mind when I think about all this:

1. Which are the areas within supply chain that are likely to get affected, and why?
2. Have companies realized this trend or still think it as relatively premature to act on?
3. If companies wish to leverage social media for improving supply chain performance, how to actually operationalize such a vast amount of data that's available to us
4. And so on and on.....
Let me share my thoughts specific to just point no. 1 listed above.
 In my understanding, unlike other traditional media such as print and television, social media is one of the channels where people can freely express their opinions about the various products and services used. The consumers become brand ambassadors and companies are left with no option but to manage perception created due to all this. Social media acts as a strong medium to influence consumer behavior and thereby company's sales. Let's take a simple example: you wish to buy an electronic product, what are the immediate steps that you are likely to take. Look for the various ads, see the commercial, and talk to friends and relatives to gain more information about competitive brands. What are the chances of you likely to go to a social media site and search for this product/brand that you wish to buy and read various comments that are posted? I think the chances are high; most of us do that, and very often get influenced by what others have experienced...
Take another example: suppose you plan to buy food products or anything like that for your baby, don't you think, you would definitely reach out to your friends in your network to seek more information. This being a different type of product category may drive people to closed-group communication rather than going out in public to seek information. Such closed-group behavior (just like 'group think') is easily enabled through social media sites that are present today, and therefore, will really impact a consumer's buying behavior.
The two examples that I shared show how company's sales may get influenced by interactions/communication that happens on social media. If I need to link this behavior to understand its impact to a supply chain process, the closest that come to my mind is 'demand planning'. We all know that the key aspects of a typical demand planning process include 'sensing' and 'shaping' of demand. As per AMR Research's definition, Demand sensing is the amount of time it takes to see true channel purchase or consumption data and Demand Shaping is a series of focused activities to drive and improve revenue. Demand sensing is a critical input to make Demand shaping process more effective.
Marketing professionals spend dollars on research and promotions to understand and influence consumer behavior to create pull and increase company's topline. As more consumers move to social media and start using networking sites to influence their decision making, I think, marketers have an opportunity (and of course the associated challenges) to sense changes in demand more quickly and capture this new trend in their demand shaping process. Demand planners need to design this additional feed of information from marketing team in the overall demand planning process in order to capture the latest consumer behavior and feed it back to supply side. To me, this is a great thing to happen since now, we have the information directly from consumers (no intermediaries or research agencies are involved) at a much faster rate.
Having said that, I think there are many challenges to face, before this information is really put to use. The foremost being "How to do all this or How to operationalize". Issues like Data quality, loads of data, more noise in data, etc etc need to be managed... and I really don't have answers to all these questions.
So, I urge all of you to share your experiences and especially the examples if you have seen companies leveraging social media in improving supply chain performance. Please do share your comments, thoughts and feedback on this subject. I am sure there are many other facets of supply chain where businesses will see the impact happening; definitely areas where a company works with other trading partners such as suppliers, logistics providers etc. It is just a beginning of a new supply chain world and this will definitely result in addition of a new chapter to most of supply chain text books we have today... Look forward to hear from you all.

 


 

November 17, 2010

Apple-Foxconn: Strategic partnership or a hard-to-get-out-of relationship?

It all starts with a desire to forge a long term partnership. The supplier impresses you (the customer) with his ability to do what it takes to exceed your expectations - ramping up volumes at a push of a button; reducing time-to-market; pushing cost down or not flinching to make capital investments just so that you get the desired quality....and then comes a day when you realize that the long term partnership has morphed into a dependency that you cannot get out of; at-least not without a painful divorce proceeding. Was Apple in this frame of mind when Foxconn attracted a spate of negative publicity recently?    

 

Though I had fleetingly raised this point in my other post on Foxconn (Is Foxconn to the electronics industry what China is to the world), I re-visit this thought here. Foxconn has regained some of its lost reputation lately; but certainly the strategists at Apple would have, at the peak of harsh criticism of Foxconn, wondered whether they are turning into the Nike of the electronics world (Nike faced a string of angry public demonstrations due to the labor practices employed by its contractors).

 

"Does this episode remind one not to rely too much on a supplier"? Well, if a buyer/customer can, why not. That is surely the least-risky way. But seldom does a business get to enjoy such a status. Instead, today's collaborative world demands that you increasingly partner with your suppliers to satisfy the market. So, how do you ensure that the partnership avoids turning into a liability?   

 

If there is one take-away from the Apple-Foxconn episode, it is that long term outsourcing partnerships require the customer to make strategic & tactical investments (to avoid any such embarrassment). And the investments need to go much deeper than initial scrutiny of suppliers or mere monitoring of the supplier's output. Continuous monitoring of supplier's internal operations & policies (in this specific case, Foxconn's employee policies including wages and working conditions) is equally essential.  

 

Easier said than done - why would any supplier entertain such intervention into its internal operations? No one in the initial stage of your relationship would. But when your relationship has reached a level where your fate is tied to your supplier(s), you better convince your supplier to do so. And if you are in the B2C space where market reputation & public opinion decides your fortunes, you do not have a choice.      

 

To argue in favor of Apple, it could very well have relied on Foxconn's reputation in the industry; hoping that the reputation risk alone would have acted as the necessary deterrent. After-all, a company that is China's biggest exporter, boasts of a  client list comprising the industry bellwethers & expects to hit $85 billion revenue this year, would better have the necessary safe-guards in place. Unfortunately, as was to be in this case, the safeguards were not enough. But thankfully for Apple, the damage was contained. For the rest, the episode serves as a grim reminder of effectively managing your supply risk.   

November 8, 2010

Order Management: Deeply rooted in Supply Chain

In this blog I would try to put forth my understanding on the point as to why Distributed Order management is deeply rooted within the supply chain function and why to me it turns out to be a founding member of the SCM club.My thought process strated here.  This is an attempt to draw parallels or bring out the core SCM areas Order Management addresses and also talk about few classic supply chain concepts from which the OMS way of problem solving has emanated from. I believe manufacturing is the genesis of all Supply Chains so excuse me if my points/cues are skewed and towards planning in Manufacturing.

This is how I understood, by taking a baby step approach:-

1.  "Distributed" in DOM typically refers to the situation where a trading partner (nominal or dominant) eg a retailer or a supplier is offering products to be served to many several demand sources. The word also refers to distributed nature of enterprises and their relationships ( inter and intra) that collaborate to execute demand driven supply chain planning and fulfillment.
If I try to be the author of "The brief history of DOM" and try to corroborate the dominant SCM gene, the primary motive for effective Order Management in the manufacturing world would be to Integrate and coordinate "distributed" production and distribution facilities. In other worlds too the understanding is pretty much the same. Cut it short- the pan organizational view and the need to model the same is something which needs to be clearly drawn at the very outset.

2. All SCM stories and relationships start with SKUs and Bills of material. Pretty much the way BOM is the necessary input for Materials Requirement Planning, solving the Order Management puzzle needs getting the basics right in terms of item definitions, carrying out SKU rationalization between different demand channels, and maybe apply a Pareto Principle/ABC classification of SKUs based on defined criteria (eg velocity) to enable the desired performance on to the front end of the supply chain. Check this to know more. Depending on the degree of penetration (more commonly understood by classification as ATO, CTO, MTO, and MTS) parent and child relationships, components need to be bundled and knitted together. This has further implications the way it would be sourced, packed and shipped maybe delivered with a white glove service till the last mile.

3. Talking on Inventory Implications on Order Promising for manufacturing, this requires detailed/real time (or near real time) visibility into different inventory buckets for e.g. available inventory (be it safety stock/cycle stock in batched processes), pipeline inventory (in transit/aka scheduled receipts) to name a few. Forecasts are also considered here as a valid proxy for frozen orders which are actually consumed when real orders flow in, as essentially in Manufacturing we are talking about planning. In executing  real orders flowing in and Managing them forecasts ultimately is seen dictating the Purchase orders and  Transfer orders incoming (which is truly representative of the stock transfers) On hand inventory , In transit Inventory , inventory staged in for quality checks, etc  are the ones that define fundamental "Supplies" in Order Management. These "supplies" within the frame work of predefined rules are netted against the demands that originate from diverse and often "distributed" sources.DOM plays the key role of matching the most suitable types on demand and supplies on the list.

4.  To take ATP calculations to greater detail, the time phased calculations take into account the production lead times, procurement lead times,capacities along with the master production schedule. There is often a need to factor in any back log that could have crept in to the order book .These are measures/checks to finally serve the purpose of making dependable and credible promises to customers.  Taking a cue from this,are the calculations done in the retail world too. One has to factor in similar parameters defining the lead times for individual SKUs, define the horizon for looking up demand and supplies both forward and backward, and back orders if applicable. Once again pointing the fact that OMS's membership is not going anywhere and neither is it newfound.

5. Taking about credible promises, one important element of promise is time. As the promise sets expectations in terms of quantity, form and time each element in this triad is paramount. Scheduling the delivery, considering the better, faster cheaper options is another line that Order promising needs to tread. This is where the role of efficient rule based sourcing, scheduling and finally allocating goes a long way in the quest for that elusive perfect order. Whether it is allocating in way that is FCFS or be it following the greedy algorithm for consuming quantities, or whether giving preference to a particular fulfillment channel, proximity, cost to serve, all these are concepts which have caught the imagination and cost countless hours for academicians and practitioners alike. These problems gather multiple facets as the Distributed nature of the business flourishes/multiplies with time.

6. The contrast however is the very nature of the sphere or the context. The examples or the so called cues are from the manufacturing planning context. To delve in to more detail taking the example of Material Requirements planning, forecasts are assumed to be orders which eventually will be consumed by the real orders.  This is a major demand signal here. On the supply front master production schedule is considered as supply signal.  This clearly comes within the demarcated line of planning. Where as in an e commerce enabled supply chain for example, Order management would mean dealing with orders in real-time forming the concrete demand signal and often satisfying them and promising against the most reliable source of supplies then and there. So an overwhelming majority would classify this as supply chain execution.

In my honest opinion, Order Management has a greater role. The future is about providing the unified brand experience for customers irrespective of the fact where the customer is (physically) or which channel he is using to communicate his intent to buy. We are also envisaging a tomorrow where a pure single channel player for example could exploit partnering with a player who has a stronger presence in terms of physical supply chain/access to channels (off course taking into consideration other critical factors). In my understanding, this is invariably the lynchpin that unites the execution and planning functions across the distributed supply chain. It enables transition from merely estimating to planning and then planning to execution like the critical member of the 400m relay who often helps preempt a win or a loss..

Keeping up with Order Fill rate in a Reactive Supply Chain environment

In continuation with an earlier blog, 9 months further on in the same project and with key business process learning in that context, I would like to add a further perspective to the Fill rate topic. Supply Chains, especially in the retail segment, face some unique challenges that are not easy to encounter without supporting technology. The product-life-cycle in the retail segment takes lesser time to take a new product offering into a state of "commoditization". The differentiators among competitors from a product characteristic view blur out within no time. As a result, the key differentiating factor is to manage to stock the product as efficiently and effectively as possible while controlling the cost to replenish pipeline inventory. The longer the supply chain can sustain such a model, the better the chances are of its survival in the long run. Based on a recent supply chain transformation project that thankfully went successfully live, I feel the following are some key points any leadership should consider to take on this survival challenge:
- Put metrics in place to measure, track and manage key customer-oriented statistic in your supply chain i.e the percentage times an Order is fulfilled. Such a measure is ideally tracked from an absolute and percentage profit perspective and also tracked based on time delays in fulfillment, if applicable.
- Since merely having an Order Fill rate metric, is completely agnostic to workings of supply chain, there has to be another metric to keep a tight leash on the cost that this Order fill rate objective imposes. An average pipeline inventory in your organization is one such measure that is more inward-oriented to the organization. Such an average inventory could be measured in the factory, in-transit, Distribution Centers and even at Customer segments of supply chain such as their warehouses or in some cases their retail store itself - applicable in cases of VMI(vendor managed inventory) and DSD(Direct Store delivery) models.
- Make Order Fill rate metric as a Key Performing Indicator (KPI) to customer facing organizations.
- Make the Average Inventory metric as a Key metric to Logistics and other supply chain facilitator organizations.
All the above metrics can be tracked with appropriate technology in place. These unbiased measures coupled with a reporting layer help keep a retrospective view on orders that have already been fulfilled and a forward view in case of orders that are still open in the system to be fulfilled.
In spite of the above capabilities provided by the project, one area where the project always feels challenged is in the area of Organizational Change Management i.e the preparedness of all stakeholders to accept and embrace the transformation. More on that topic in one of my next blogs, while we savor the occasion of completing an Order Fulfillment project, achieved after a grueling one and a half years of relentless effort.

November 4, 2010

Why my EAM implementation is not giving me as I expected?

Enough has been written on this but mainly in context of ERP. There have been many reasons given- toppers are lack of training, lack of top management commitment, poor package fitment and, unrealistic expectation etc. While, most of these hold good for EAM packages as well but I see two other reasons which are also the major factors for EAMs; (i) Master Data Management (ii) ease of use.

EAMs are data eaters and that too quality data. I have seen some EAM implementations not living up to the expectations and the simple reason being the data which was fed during implementation was not usable, though the package was a good fit for the business processes. For example, a standard operating procedure (SOP) for a maintenance job. The SOPs provided by equipment manufactures come in many shapes & formats and varies in granularity. Modeling those in an EAM package is a tedious job and if not done with proper planning can make whole equipment's SOPs unusable. The most common reason I have seen is granularity of SOPs. Many implementations even have the data which goes into lowest level of operations/tasks, and which is not required to be reported into software; though those tasks may be required to execute. Implementation team should note that while it is good to have each & every operation details to be maintained in system library but they should also note that while maintenance users report the actual against these tasks, they should not be spending too much time entering data into software. I have seen instances where maintenance teams spending more time to enter the data than the time spent actually on machines. Hence there should be a fine balance between data granularity & actual requirements. 

Ease of use is another factor. EAM packages are mainly used by shop floor people who spent most of their time working with machines and then find some time to report data into packaged application later in the day. These folks are not very much computer savvy and are not expected to be super users for sophisticated softwares. They do not have lot of times as well to struggle with bulky navigation of complex packages. Hence an easy to use package, tailored screens, mobile devices, touch screens etc are to be used by EAM users to make the implementation successful and get more out of the package. The user interface, specially for shop floor folks, should be as simple as pressing few buttons on a hand-held device or a touch screen. Probably that is going to be the most emerging trends for future EAM packages.
Certainly, all other reasons which hold good for ERPs are relevant for EAM as well. Add if you have seen any other potential failure reasons for EAMs.

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