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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July 28, 2011

True Truckload optimization - Opportunity for leading supply chain products

Just imagine that you want to relocate with your family to another country for 2 years for company's work. It is but obvious that you would want to carry the maximum luggage with you without paying hefty fine for the excessive baggage at the airport. As a part of logical thought process, you would first consider the various constraints imposed by the airlines (weight, volume, number of luggage/ hand baggage, etc.) and then you would start to pack the stuff. Won't you agree with me that the most important step is  placing different items inside the bags - like which items should be at the bottom (ideally sturdy ones),which items should be alongside of the bag, which items should be in the hand baggage (fragile ones), et al. Applying similar other parameters after 1st round of packing you would weigh the bags, re-shuffle the items 4-5 times in various bags and would spend almost 3 hours in this process till the objective of maximum luggage within the specified weight constraints is met. How nice it would be, if any software program can provide an end-to-end solution to you - i.e. right from considering the constraint to the layout of the products to be placed in the bags?

In today's era of fierce market competition and high fuel cost, companies are also looking for such a solution to facilitate the load building process to great extent. Every supply chain planning product possesses the basic capability of producing distribution requirement planning (DRP) or deployment planning output by considering the constraints (Number of cases, Weight, Volume, etc.). However at the execution level, there are real challenges for the vehicle loaders in the dock in the process of placing the product inside the truck. When certain products are fragile, the complexity increases further. This is one of the major needs of every organization which has not been fully met by today's best-of-breed supply chain products or even by SAP APO/Oracle APS.  

Some of the niche players like TWO (Transportation and Warehouse Optimization) grabbed this opportunity with both the hands and helped many Fortune 100 companies (including CPG industry leaders like Nestle, P&G, Kraft) to reduce the transportation cost by 4-8%. The load building product (AutoVLB) developed by TWO, rightly termed as "SuperTruck", has been made so smart that it also considers the weight restrictions on the axles of the truck (to conform to the Federal Bridge Gross Weight Rule in US to prevent heavy vehicles from damaging roads and bridges) and distributes the load accordingly inside the truck. This unique feature of the product makes sure that trucks are not held up at the weigh scales. With the help of AutoPalletP3 (optimized mixed product case picking) and AutoLoaderT3 (optimized load building), AutoVLB can create a loading diagram and a case pick sequence for every shipment as well, which is one of the striking benefit of the solution.

To cut down on transportation cost, companies are relentlessly striving to attain the "true truckload optimization". So there is definitely a huge and growing need of an end-to-end load building solution in the market. Now, the question still remains - will it be possible for the market leading or best-of-breed supply chain packages to cater to this requirement or this area would always be dominated by niche players?

July 19, 2011

Green supply chain - Reverse logistics and Package-less for Quick-wins

This is continuation to my previous blog. In this blog we can see Reverse logistics and Packaging in detail, which can give quick results to the green vision.

What have you done after finishing Pepsi, Coke or Dominos? Yes, tossed the can/bottle/box into litter-box. You do not need it once the contents are over. At the same time you cannot have drink alone without can or bottle, or Pizza delivered without a box.

There are certain functions you expect the packaging to meet - like protecting products for distribution, storage, sale, and use. It is never intended to end in landfill or to be a burden to nature.The bottle you dump in Recycle bin or giving back to the shopkeeper goes back to the manufacturer via reverse logistics. This saves a lot for manufacturer and plays its role in greening the supply-chain.

Pepsi has already started installing Reverse vending machines called - "Dream machines" where individuals can recycle their cans and bottles and earn reward points. With only 34 percent of non-alcoholic bottles and 25 percent of PET plastic bottles recycled annually, Pepsi aims to boost that number to 50 percent through increased recycling at reverse vending.
The Coca-Cola Company made a hit when it announced a new "plastic" soda bottle that is made 30%, in part, from sugar cane and molasses-based materials , and which is 100% recyclable. Dubbed the "PlantBottle," Coke will use the new material in a variety of package sizes for its drinks, mainly for its Dasani water brand.

Why manufacturers re-cycle or re-use the packaging? Greening is not the only motivation, this reduces the packaging cost considerably for them.The % of recycled component in bottles and cans is already a KPI for the beverage manufacturers.

Consider cement transportation- Dry cement powder is packed in paper bags of 50 kilo-grams each. However even for a small construction you need lots of such packs. Then why are they packing it in 50 kgs packs? Why can't it be packed in bigger packs or rather deliver on the spot without packing?
Popular answer is that there are problems for storing it. Again, Why do you want to store it, when all you want is Just in time? Looking from this angle smaller packs are driven by convenience to store factor, and inability to meet Just In Time requests. There is a scope for greening via just in time, package-less delivery of goods.
 
Let's see what's happening in paint industry. Whenever paint is poured into a container,  around 5% of it will stick to the walls of container . This is generally referred as skin losses. This loss pinches the industry not by the amount of paint lost, but by the cost involved in safely disposing the "paint skins". It has gone to a level that many times the safe disposal cost of paint skin with heavy metals is much more than the gains from it. This resulted in the classical Economical Order Quantity (EOQ) formula itself tweaked to accommodate cost of disposal in the cost side.

Automobile paint shops also faced this problem, initially the containers and skins were send back from plant to the paint supplier via effective reverse logistics, who can reuse or effectively dispose the skins utilizing the economies of scale. Later the car manufacturers found it more sensible to outsource entire paint shop to the paint company. The Skin losses and environmental costs  which were part of automobile paint shops a decade back got totally eliminated by outsourcing the entire paint shop to the paint manufacturer. The automobile manufacturers can concentrate more on their core competencies, leaving paint management to experts . This not only saved the disposing head-aches, but also the inventory worries - greening the supply chain along with other merits.
 
There is a big scope for greening the supply-chains from a packaging perspective - the hierarchy is Prevent > Minimize > Reuse > Recycle > Dispose.

Two main enablers for achieving this are
1) Just in time delivery (Minimize packaging ) and
2) Reverse logistics for packaging materials (Reuse and Recycle)

More and more KPIs are emerging day by day  to track the reverse logistics and to measure the recycle effectiveness of reverse logistics . Also now manufacturers started capturing the packaging cost separately and higher managements are looking these as increased opportunities to reduce costs.

Overall the perception about packaging  is changing from cost sinks to opportunities.

I would like to hear your thoughts and views on these.

July 11, 2011

Going Lean and Staying Agile

The emerging trend a few years ago was the adoption of lean warehousing principles in organizations. In most cases, these initiatives were rolled out as pilots. So far, their success and adoption have been mixed. In this blog, I will focus on a key - yet often missed - element critical to the success of lean warehousing, viz. the alignment between operations and systems.

Lean warehousing refers to the application of 'lean' principles to warehousing and logistics operations. These principles are derived from lean manufacturing that calls for the identification and elimination of waste (waste is defined as any activity that does not add value). Lean warehousing is a process of continuous improvement involving a constant review of warehouse operations (from ASN creation through product shipment), removal of activities that do not add value, and the enhancement/addition of processes that create value. Since the best feedback comes from those who use them, every warehouse operator is encouraged and empowered to constantly think of better ways of working. Improvement techniques like the 5s framework (sort, set in order, shine, standardize and sustain) are applied.

If lean has much benefit, why is its adoption limited? The reasons are many; but one of them is the dissonance between continuous operational improvements and software development cycles.

Let me give you an example. Imagine that you are employed as a Receiver in the warehouse. Your job is to stack the incoming cases on a pallet for putaway. Your WMS has been configured to recommend 20 cases to be stacked per pallet. However, you begin to notice that your organization is asking its vendors to sometimes send the same item in smaller case dimensions, thereby allowing you to stack 30 cases per pallet and override the system suggestion. In other words, the number of cases that can be stacked on a pallet is a function of the case type and not a function of the item number. Unfortunately, your system has not been designed to recommend the quantity by case type.

Since the system was likely developed based on certain assumptions that have now evolved, you request your IT team to modify the WMS. IT places your requirement on a wish list. Since your organization follows the traditional waterfall model of software development, this list is evaluated every 3-6 months. Assuming that your request is rated important (a very big if), it will be designed, coded, tested and deployed alongside other requirements. If you are extremely lucky, your changes will hit the system within 6 months. In most cases, it takes a year.

And therein lies the disconnect. You want to empower your associates to constantly think of improvements, but the desired software changes come through only after a year. You want your warehouse operations to be lean, but your software operations are not.

I believe that the successful adoption of lean warehousing will only materialize when lean thinking also permeates systems design and development. The waterfall model has its utility in certain situations, but if you are talking continuous improvement and incremental change, the agile method is better suited. An organization needs to invest significant time and effort to the adoption of agile practices, and if it works with IT partners and third party integrators, their practices must be aligned as well.

I do want to highlight that the frequency of incremental change does not matter. I have come across one client who prefers changes every 2 months while another wants them every 2 weeks. A recent engagement revealed an agile software development process where there are no 50 page functional specifications or multiple approval cycles. Instead, rapid incrementalism is the mantra. Business & IT work closely with each other. Design through deployment (including documentation and user testing) conclude within 4 weeks. And these take place even with an offshoring element in the mix.

When you create an environment where employees think, suggest improvements and make changes, and their work is supported by flexible software tools that support these changes, you get a lot more than just lean warehouses. You get motivated employees and happier customers. Now wouldn't we all want more of that?

July 5, 2011

Is Inventory the "necessary evil"?

In my earlier blog, I had highlighted the following challenges most of the Supply chain professionals face across multiple dimensions from a Customer Service perspective:
1. The drive towards Globalization has resulted in the focus to not only look at the developing markets for cheap supply, but also to tap these developing markets to drive future growth. These newer markets do add to the overall growth of the organization, but also pose newer challenges in meeting the customer demand satisfactorily
2. Increasingly demanding customers with information at finger tips and lower brand loyalty
3. Increased channels to service the customers with varying degrees of Customer Service expectations
4. Intense competitive activity driving lower prices and reduced scope for differentiation
5. Increased pace of product innovation - rapid new product introductions combined with rapidly reducing product life cycles.

All these factors contribute to the overall Demand Volatility in the Supply Chains while confronting with the reality on the Upstream:
1. Increasing lead times with most of the manufacturing bases of suppliers outsourced or offshore
2. The Escalating costs of fuel drive these supply chains to employ slower and economical modes of transport like by water rather than by air. This not only adds to the overall lead times but also the overall lead time variability of the Upstream partners

We see the following competing forces in action that need to be addressed well:

 

SCM Conflicts.pngWe have traditionally employed Inventory as a buffer against these competing forces. The Inventory, while helping in decoupling the subsequent stage from the activities in the preceding stage, also does result in various types of costs and thus are generally the sour point for most of the Finance executives.

There are many articles and blogs that weigh the benefits against the costs associated with carrying Inventory. The focus of my blog is however with one peculiar aspect of the challenge mentioned above - the increased number of stages or echelons in an end-to-end Supply Chain exacerbating the potential downside impacts of carrying Inventory. We further narrow down our focus on the Safety Stocks that are required to cover the variability / uncertainty related to the Customer Demand and the Supplier Lead Times. The more the number of echelons and the more the number of stocking points, the larger would the total Safety Stock in the Supply Chain. This is a key point to keep in mind that we can no longer plan for inventory to be available in every node in the Supply chain.

We do see the use of Weeks of Supply as a way to setup Safety Stock at every node in the Supply Chain, though this approach is a sure-fire way for disaster as the inventory lying in the network faces two significant costs - the Opportunity Cost and the Obsolescence Cost. If we were to employ the concept of Risk Pooling and have the Safety Stock maintained in one single location, the total Supply Chain Safety Stock would be reduced by a factor of the Square Root of the number of nodes. From a Safety Stock perspective, again the idea is that this Stock must be determined to cover the Lead-time variability from all the upstream stages and the Demand variability from all the downstream stages. This approach when used to meet a specified target service level is an improvement over the static weeks of supply-based target for the Safety Stock. This capability is available as part of most Advanced Planning Solutions available in the market, one of them being SAP SCM.

The above-mentioned approach has ample room for improvement by deploying the Inventory Optimization models to determine the Inventory levels across multiple echelons of the Supply Chains. The Inventory Optimization functionality is generally available as an add-on tool that complements very well and feeds into the Replenishment planning modules within the Advanced Planning Systems [for e.g. SmartOps which provides multi-echelon Inventory Optimization has very tight integration with SAP APO].

I would like to not conclude whether Inventory is indeed a necessary evil yet, but would like to end this blog with the following interesting analogy made by Mr. Larry Lapide about Inventory in his article in SCMR:
"I wrote an article where I used the analogy that inventory is like cholesterol. Both have two components to them: good and bad. So like cholesterol, you want to keep your total inventories as low as possible, but you don't want the good component to get too low."

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