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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August 27, 2011

Product Allocation Planning - Managing supply constraints

In my last couple of posts (here and here), I wrote about features of a good FG product allocation planning tool, and the strategies surrounding setting up the right process for it.

The focus was on setting parameters like product groups, customer groups, planning horizon and frequency.

The next important question is how to effectively distribute supply amongst multiple demand channels during periods of constrained supply.

Supply Distribution Strategy

Allocation priority in essence is the first level of supply distribution. Depending on the level of allocation plan being derived, these priorities can be applied at various levels, for e.g.: among various sales channels or geographies, or even at a customer level. The tool should start distributing supply to allocation groups in the order of priorities defined, so that the higher priority demand sets get satisfied first.

In the process of distributing supply based on priorities, cases when supply is constrained for the demand of an entire allocation group is addressed through "supply distribution rules". These rules define how to resolve supply constraints within an allocation group when the supply is limited.

Supply distribution rules can be designed to meet allocation needs in different situations. Note that these rules are not only meant for granular levels like customer/store or SKUs, these can also be applied to higher level allocation groups like a set of customers/stores, geographies or products. I have listed a few examples below.

-        Simple fair share allocation based on demand: Candidates get the share of supply in proportion to their demand in given period. This method can be applied for those customer or store groups with lower cumulative demand, or sporadic demand patterns

-        Share based on target periods of supply: Candidates are allocated supply to fulfill the same percentage of their individual target periods of supply. This is a commonly used method, and gives fair results based on the candidates' demand patterns. Important factor to be considered is the proper maintenance of the target levels for each candidate, depending on their demand history and variability

-        Share of supply based on backlog: Supply is distributed in proportion of backlog for each candidate. This method is usually applied in situations of extreme supply constraints

-        Fixed supply allocation: In certain cases it may be required to fix the supply allocation of a candidate based on prior commits or agreement. If such a candidate is part of an allocation group, the tool should treat it as a first priority before applying the supply distribution rule on the remaining candidates

It is a good feature to have time phased supply distribution rules. For example, if the supply volume is projected to be low in the start of a quarter but expected to improve over a month, it is prudent to use "distribution based on backlog" rule for the first four weeks and later switch to "distribution based on periods of supply" rule.

With the allocation parameters and supply distribution strategies setup within the tool, fluctuations across demands, supply and customer priorities make it necessary to perform continuous evaluation and review of the generated planned allocations. This leads to further fine-tuning of the allocation parameters. In order to perform these functions, the end user should be able to visit simulation scenarios by tweaking allocation parameters like periods of supply, supply distribution rules, allocation group definitions etc.

August 25, 2011

Role of EAM Packages in Smart Grid - Part 2

This is in continuation of my previous blog on Role of EAM packages in Smart Grid.

This note of mine is focused on debate of ownership issues of Asset Register - where asset date to be kept - EAM system or GIS or both based on data classification.

To arrive on conclusion, let's understand what kind of data is stored in EAM and GIS systems. GIS generally stores coordinates, spatial attributes of an asset while EAM is more about physical characteristics of the asset. But at the same time, both the systems, more or less, are capable of storing, managing and handling all the information - spatial or physical attributes.

Let's also consider what are the end-user's needs from these systems - GIS systems are mainly to view the asset by its location, position, and travel route graphically. Users would like to use EAM systems to know about the physical characteristics of the assets - in both offline and online mode. Many times, users working at asset's location would also like to see multiple types of information - Asset's relationship/dependency on other assets in nearby area, its subassembly, previous work done on the asset etc. To see all this information, users would like to see the entire information in one system and would not like to switch between applications.

Considering the about two facts, it is reasonable to assume that while there is some data which is best managed in GIS and some in EAM, but at the same time, user experience should also be considered before deciding about the data ownership.

So, my view is that data to be shared by these two systems - GIS managing the network connectivity and EAM managing the physical attributes but the important consideration should that data should be made available in the system where user wants it. While there are lots of integration options available to seamlessly exchange the data between any two systems, data duplication to be kept minimum to avoid data quality issues.

August 23, 2011

Catch Me If You Can.... the continuing evolution of catch weight items

We are familiar with the subtle and distinct shifts in item handling and pack sizes as products move from suppliers to customers in a retail supply chain. For example, apparel sourced from India or footwear from China is packed in boxes and loaded on to shipping containers. Subsequently, these boxes move on trailers to warehouses from where they make their way to retail outlets or directly into customer homes. While I acknowledge the complexities in this supply chain, I would also argue that there exists significant predictability. Shipments are ordered in container sizes, suppliers are paid for units purchased, items are stored inside boxes for easy transportation, and at the 'last mile', items are sold as discrete units.  Contrast this with an industry that is traditionally more fragmented, has elaborate storage conditions, is prone to spoilage, and yet is attempting a game-changing attempt in its push online. This blog is about the changing dynamics within retail grocery in general, and catch weight items in particular.

Catch weight items refer to fresh produce, meat, cheese etc that are sold by weight. In general, produce gets weighed at the time of arrival in the warehouse in order to record inventory receipts and facilitate supplier payments. Subsequently, weight is not recorded in the strictest sense as the item moves through the warehouse and to stores. The unit of measure for these items instead now becomes the holder in which they are stored (totes, crates or sacks). Store ordering and warehouse picking are also made in the same (holder) unit. Since there exists a reasonable estimate of the weight per holder (using principles of average unit weight), inventory adjustments in warehouses & cross-charging of stores are enabled. Item weights come back into picture when the shopper arrives at the check-out for payments.

If you think this is not sufficiently complex, consider the fresh set of challenges (pun intended) that online ordering has created due to the fact that fulfillment of such orders occurs from stores.

  1. As shoppers, we really do not really buy a pound of bananas or 3 lbs of lobster. Instead, we pick a dozen of the former or 2 of the latter that we then pay for based on weight. In an attempt to mimic shopping styles into the online experience, it has become imperative for retailers to offer the ability to order such items in both eaches and pounds (note: some retail grocers are completely doing away with ordering in pounds; instead the shopper can only order in EA and pay in lbs/kgs). 
  2. Well, if a shopper is ordering bananas by the dozen, it means that the store picker would need to capture the quantity picked on the handheld as well as have the ability to capture the extended weight and total amount of these bananas once weighed. This just illustrates the fact that online ordering and fulfillment processes require information to be captured in a completely new unit of measure (even though nobody really is going to record the inventory of bananas as 10,542 EA).
  3. A complete reevaluation of the interfacing systems within a store is now required. (Take the electronic weighing scale as one example. Changes are warranted in label printing logic to include the final weight and amounts.)
  4. Most importantly, this process has forced a radical rethink on some fundamental questions around pricing and promotion. What is the price that will be honored at check-out? Is it the price at the time of order capture (what you see is what you get)? Or is it the price at the time of check-out? Or is it the 'best' price (customer always wins)? Or it is a mixed flavor (viz. catch weight item pricing based on the date of weighing while the pricing for others is based on order date)?

It is our experience at Infosys that it is in thinking through answers to such questions - and a lot more - that retailers would be able to evolve robust fulfillment strategies in the retail grocery space. After all, nobody likes a Catch-22 midway through the implementation cycle, do they?

PCI Compliance - An Expenditure or Investment ?

Retail industry is highly competitive industry. With the advent of multi-channel commerce competition is stronger than ever. Multi-channel order fulfillment has provided retailers a platform to stay competitive. However, keeping fraudulent transactions in control has become one of the biggest challenges in recent past. Retailers are facing increasing pressure to protect customer data and build customer loyalty. Customers want to be confident that their credit information is safe and that business computer systems are reliable. Recent data security breaches have compromised tens of millions of customers' financial records. Hence, credit card and payment companies have standardized on Payment Card Industry (PCI) requirements to protect data, control access, and defend against cyber-attacks. All retailers who want to process credit card information must adhere to these standards. Thus, PCI DSS is a collection of rules that promote IT security processes and aims to reduce financial fraud through heightened network security capabilities of all organizations processing payment card information.

What this means to retailer is another IT implementation. While retailers are trying to increase sales, lower prices and optimize supply chain, meeting PCI standards is likely to push costs northwards. In addition to this, retailers are not sure about the best way to secure their customer credit card information from hackers. All of these pose following challenges to retailers for being PCI-compliant.
Understanding PCI Requirements - Companies must first understand the requirements of PCI DSS to ensure proper implementation. This effort that can be daunting for those less experienced in putting security-related best practices to work. Also, sometimes retailers assume that PCI compliance is a one-time project rather than a continuous process of secu¬rity best practices.

Upgrading Wireless Infrastructure - The widespread use of wireless networks has created new business opportunities for retailers. It has been extensively used to improve the customer experience and enhance productivity. However, many retailers have old wireless infrastructure. Its security mechanisms are insufficient to protect card holder data as per Payment Card Industry Security Standard. Some retailers' wireless networks are protected by WEP (Wired Equivalent Privacy) standard which is not sufficient for PCI standards.

Technology Related Challenges - The retailers may face challenges like Tracking and monitoring access to the network and systems containing cardholder data; encrypting cardholder data; controlling logical access to systems with cardholder data and authenticating users who access systems containing cardholder data. Another challenge for retailers is to effectively deploy the best practices and technologies for security in hundreds of stores. As is typical for retail, remote stores often lack resources and employees with technical skills to install and manage security solutions.

All of above challenges are making retailers nervous about PCI implementation. However, they also realize that PCI is here to stay. It serves very important purpose of protecting customers' sensitive credit card information. Besides it offers following key benefits -

Protecting Brand Image - Any data security breach not only imposes heavy fines on retailers; but it also damages the brand image to a great extent. Credit card companies may stop transacting with retailers in some case. This would further damage the brand reputation. Hence, investing in IT security is far prefer¬able to incurring unexpected costs for repeat audits, fines, law suits and brand damage. PCI compliance would also make customers feel that their credit card information is secured, thereby increasing their loyalty.

Overall Cost Reduction - It may be argued that the costs of PCI audit and compliance requirements could end up being astronomical. However, financial risks to the business and fines for failing to meet PCI Compliance may actually be much higher. Also, tighter security norms would result in less fraudulent transaction. This would have double impact on cost reduction. The direct impact is that - it would reduce the money lost by retailers due to fraudulent transaction. Also, lesser fraud would reduce the risk of credit card companies; which in turn would result in lesser transaction cost per credit card use.

The most important benefit of PCI is that it offers peace of mind that your IT infrastructure is secured from hackers. Also it should be noted that PCI compliance is not a one-time project. It is a continuous process of secu¬rity best practices. Retailers have to look at PCI compliance as an investment in IT security practice. What do you say?

August 22, 2011

Random ramblings and learnings from gATP implementation in a CPG setup

Our two and a half year Supply Chain transformation journey with a leading CPG player in the industry is coming to a much anticipated eventful, yet a successful end. While the 7 rollouts of scale and scope of Global ATP project were crucial watershed moments in the program, the intervening period was completely marked by emotions such as surprise (at customers asking some feature bordering on the ridiculously "impossible"), suspense (when we were unsure of meeting seemingly challenging targets of volumes of work and tight deadlines), despair (when sometimes we discovered we were closing all doors to possible solutions to a business problem), hope (when tired minds in the project started looking at problem laterally giving glimmers of a solution) and exhilaration ( when we as a team miraculously came over a challenge that we surprised everyone with including ourselves). The mix of emotions that we as consultants went through was akin to a high-adrenalin Hollywood or a Bollywood blockbuster.

As we close in on the curtains for the program, let me share some thoughts and learnings that could make such programs have a better success rates in future

Now every implementation of a complex supply chain product such as gATP needs to be staffed with resources who are multi-skilled or at least willing to be. It requires consultants with the right aptitude and attitude, who can weather through the rigors of customer pressure, put a straight-face when cornered by aggressive counterparts from customer organization and also who can "work up" some magic over weekends or nights with dogged determination (depending on the context of the project) while feverishly exploring unchartered waters with a single-minded objective of solving a customer problem. Sometimes there is no solution to a problem. It thus requires a crafty wily consultant to put the message across in a manner acceptable to the customer counterparts, and insist on changes to business process in line with solution constraints.
A transformation program requires excellent Program Management Office (PMO), a single face to all customer interactions. Members of the PMO should typically be seasoned players who have "been there done that" - with excellent understanding of the technical, functional and most important political sides of the house.  Needless to mention, eloquence is of essence in such a situation. Each word to present a problem in different dimensions to senior counterparts in customer organization required control and calibration of steps. A PMO also moderates the consultants toeing the "middle path" - keeping a tight leash on project timelines making sure Consultants are tasked with time-sensitive blocks of effort and also keeping a check on consultants going overboard on an irrational customer delight mission with scant regard to scope. PMO brings a much needed balance to a transformation program required for successful completion within time and budget of such programs.
The last but not the least is "Know your customer" or KYC approach. There are always different elements within customer organization tasked with monitoring the program on different (and sometimes conflicting) dimensions. There are folks who are empathetic, those who want "the work done", those want attention, those who are academically inclined, and those who "don't care". It is important to have a custom-strategy dealing with each and every customer stakeholder.
The most important mantra; keep every person dealing with successful closure of the project in high spirits. Happy individuals make the arduous journeys exciting and worthwhile.

August 19, 2011

Supply Chain Management- The Ideal Breeding Ground for Cloud?

The market for cloud-based services is expected to reach nearly $150bn by 2014. Gartner expects that one-fifth of all businesses will own absolutely no IT assets by 2012.

Manufacturing companies around the world, with their inherent penchant for low IT budget, are paying much closer attention to cloud computing and its potential value to supply chain processes - from sourcing to after-sale service.

Supply Chain Management space is, according to me, the ideal breeding ground for cloud computing. Let's explore how and look at its impact on various facets of supply chain management in a manufacturing company. Let us also look at some of the pitfalls that should be avoided.

Let's start with procurement. Enterprise applications in supply chain space, and especially in procurement domain, are mostly about B2B or inter-company coordination and collaboration among hundreds of supplier companies on a global scale. This geographical spread and need for collaboration makes it an ideal candidate for Cloud computing. One of the main value-proposition from Cloud computing is said to be reduction in 'total cost of ownership' and it is also the most commonly cited success metric in sourcing and procurement.

Now let's move to Supply Chain Planning. Production planning and forecasting are not normally the core components of companies' ERP systems. Clients therefore can run one vendor's ERP application and can leverage another's best-of-breed planning/ forecasting application via the Internet. (Of course, need for a proper coupling or integration between the two systems can never be undermined! The TESCO cloud computing fiasco in last December is fresh in our minds).

Now coming to Supply Chain Execution and visibility, Control Tower Systems, the most recent addition to supply chain visibility tools is now available in cloud. Control Tower technology for supply chain, in simple terms, is a Single-Version of Supply Chain Truth. A platform that makes that truth available across the value chain in an agile manner and that connect trading partners and service providers to create a vibrant, "always on" electronic community. When you want something to be always on, where else other than internet to host the application?

The IT landscape is fast evolving, leveraging the cloud-advantage. It's agile because the time to value is shorter and because massive capital outlays aren't required and because there's just a lot less risk in the model.

We heard a lot of good stuff about cloud. But is it all hunky-dory? Well, there are pit falls. I touched upon the interoperability or interface issues earlier. As with anything new, all the Doubting Thomas in the industry would want to adapt cloud in a phased manner. Move out all the non-core functions to cloud initially and if they are OK with it, move the rest of the stuff also into cloud. During this interim period, cloud has to talk to non-cloud applications -seamlessly. Since it's going to be a cloud-to-non-cloud integration, it is as good as (or as challenging as) a company-to-company integration project, and must deal with a few firewall and security issues- which at times can get very complex or can go wrong.

Well, now we know there is very low entry barrier to get into cloud- no hardware, capital investment. What about exit barrier? If you don't like an enterprise application you can switch to another one in the cloud. But what if you don't like the cloud service provider? Well! That switching is not that easy. At least, not yet. The cloud vendors are not showing the same enthusiasm in creating a global standard for cloud as much as they showed in moving applications in cloud. The reason is obvious- 100% portability is not in the interest of the vendors- that each one of them wants to protect the investments they have made.

Once such a standard (like Open Cloud Manifesto) comes into being, we can see a further shift in the bargaining power towards the buyer. An interesting analogy would be to compare this with the mobile number portability. The buyer would be less tolerant to SLA violations. The applications switching /cloud switching decisions would be taken at more operational level - as the stakes are much lower. The selection of service provider would be more service centric than product centric.

This inevitable and imminent adoption of cloud is going to bring about a paradigm shift in the way enterprise applications are dealt within manufacturing industry. The supply chain application vendors who are quick to internalize this change are going to hugely benefit from this.

August 18, 2011

Fraud vs Customer Centricity - II

In my earlier post, I discussed the need to manage fraud separate from managing defaults while charging the Customer's card.

Generally, the strategy to charge the Customers' card can be based on two parameters. One is to utilise the various features provided by payment gateways intelligently and the second would be the modelling of the Order Management process itself to minimise exposure.

I will cover the first part in this post.

For credit cards, payment gateways normally support three main types of verifications. Address Verification Service (AVS), Authentication and Authorisation. In AVS, the merchant gets the functionality of verifying all the details of the card including the short address corresponding to the Card. While this does not necessarily cover the retailer against fraud, it reduces the risk as a result of additional cross verification.  Authentication is a much more rigorous check since the customer has to log his/her credentials online which would not only verify, but also reduce the risk of fraud to a larger extent. Authorisation is the final feature where the amount gets blocked on the card and thereby reduces the chances of the credit card maxing out when the merchant tries to bill the customer the order amount.

Based on my experience and some extended discussions with my colleague Bharat Rajagopalan, I would suggest that retailers would benefit by starting with a simplified matrix. I do believe that using Order Channel and Product Type as the two main variables to come up with a 2x2 matrix should cover 80-90% of the normal transactions in a multi-channel scenario (restricted to credit cards).

The order channel is generally considered important since it tends to directly impact the fraud perception and payment validation options. For example, taking a Credit Card at a call centre would expose the merchant to a higher risk (and hence a higher potential fraud perception) since it would be treated as a 'Card not present' transaction whereas taking a Credit Card at the store would be much lower risk especially if it is a 'Chip & Pin' transaction. With regards to payment validation option, one cannot do payment card authentication in a call centre which can done on a web site.

The product type tends to influence the order lifecycle process to a large extent and hence becomes a key parameter to consider.

The matrix below would make the explanations easier to understand.

Fig 1: Credit Card Charging Matrix

Order Channel

Product Type


Call Centre


Standard Products

(In Stock, <3 days to ship)

Authenticate & Authorise upfront

Settle on Shipment

Authorise upfront

Settle on Shipment

Authorise upfront

Settle on Shipment

Backorder/Pre Order Products

(Standard Products not in stock, > 1 week to ship)

Authenticate upfront

Authorise on release to warehouse

Settle on Shipment

AVS upfront

Authorise on release to warehouse

Settle on Shipment

Chip/pin upfront

Authorise on release to warehouse

Settle on Shipment

Special Order Products

(Made to Order, variable time to ship)

Deposit upfront

Authenticate (if different tender)

Authorise and

Settle pre-Shipment

Deposit upfront

AVS (if different tender)

Authorise and

Settle pre- Shipment

Deposit upfront

Chip/Pin (if different tender)

Authorise and

Settle pre- Shipment


In case of standard products, the retailer could follow the standard procedure of Authorising the card up front during Order Capture and settling the card on Shipment.

In case of backorder products, the retailer could use the Address Verification Service provided by most gateways to validate the card during Order Capture and then authorise the card in their Order Management System just before releasing the Order to the warehouse for fulfilment. The assumption I make here is that the Order is released to the warehouse only when the product is received in the warehouse. In case the Order needs to be sent to the warehouse upfront, I would recommend that it be treated similar to a special order product.

The AVS and the authorisation pre-shipment should cover the retailer's risk while reducing the amount of time the amount is blocked on the customer's card.

In case of special order products, quite a few merchants tend to take a deposit up front. This helps in getting an extra buy-in from the customer as also covers the merchant's higher risk through a partial up- front payment. A strategy of Authenticating or AVS similar to the Backorder products could be followed for these items. The difference would be in terms of Authorising and Settling (ie charging the customer's card) these products (not necessarily the entire order) pre-shipment. This could be based on an assumed lead time (in case of a standard long-lead time product) or a feedback mechanism (in case of high value products) where the warehouse could inform the OMS before shipping the product.

This matrix could be used as a thumb rule to lay out the process to balance the exposure to risk of Credit Card defaults (as against fraud) and the need for customer delight in terms of charging as late in the life-cycle as possible.

The final cog in the wheel is tweaking the internal Order Lifecycle processes itself to be robust. This is something I will discuss in my final post on this subject.

August 10, 2011

Role of Consolidation in Supply Chain Management - An Enterprise Architecture View Part 2

Now that that the impact of consolidation on people, process and technology in supply chain management has been analyzed,(refer my previous blog on this topic), the next area to focus on is role of consolidation of business architecture building blocks in supply chain execution.

A)  Consolidation of Business Rules for effective Supply Chain Control
As supply chain organizations are becoming more and more global with greater customer focus, business functions and processes need to respond the changes appropriately. As a result of this business dynamicity, every day presents new challenges to the Enterprise Architect to maintain or improve supply chain effectiveness.

One of the key challenges among them is to provide better control by globalizing processes and technologies, but at the same time remaining flexible enough to accommodate local processes, language, compliance etc variations. This is not an easy task for Enterprise Architect since critical analysis of consolidated business rules, processes and governance is required to distribute them across the global and local boundaries.

To implement these ideas, whole organization needs to be divided into global (master or parent) and local (participant or child) enterprises. Master Enterprise defines global template by standardizing business process and rules for all the organizations and their participants, including customers. The participant organizations (child) either inherit the rules defined by master enterprise or override (based on permission) the global rule to incorporate local business needs. 

Greater focus towards defining rules at the Master Enterprise level, ensures better governance efficiency in the supply chain. However, centralizing most of the rules to the Master Enterprise makes system monolithic and inflexible. Hence, effectiveness of supply chain depends on establishing right balance among consolidation factors (rules, process and governance) between global and local scope.

B) Business Processes Optimization by Consolidation
Core business building blocks of supply chain execution have been categorized into three areas: a) Order capture, b) Order management and c) Order fulfillment based on demarcation of broader business functions boundaries.

 1) Initiate Consolidation at Order Capture point to Remain Focused until the Very End of Chain
Order is the prime entity in supply chain execution which plays major role in supply chain interactions and efficiency. Consolidation of order at capture layer plays a bigger role in determining level of efficiency in the supply chain execution, be it buy-side (in the form of purchase order) or sell-side (in the form of sales order).

In the most of my Enterprise architecture engagements, I have found that order capture system limitations are direct influencers in determining efficiency of supply chain system. Broadly, limitations in order capture layer, are based on the capabilities of supply chain elements - people, process and technology:
I. Process limitations - e.g.  a) drop-ship delivery has to be captured in different order than normal delivery by carriers. b) Orders for food items should be captured in different demand compared to non-food items
II. People limitations- e.g. a) different orders are created due to delivery capacity and skill set limitations (not able to capture order due to unavailability of workforce etc)
III. Technology limitations- e.g. a) Different payment types need different orders. b) different orders due to scattered catalogue management system etc

Efficiency in the order capture decides efficiency of downstream business functions like order management and fulfillment. Minimizing these limitations, by consolidating customer demand in lesser number of orders, helps not only in enhancing the operational efficiency but also imparts lesser load in downstream processes. Finally, handling customer demand in lesser number of transactions directly ensures better usage of technology and workforce.   

2. Global Inventory and Order Management - A Proficiency Platform to meet Customer Demand by Consolidation
In supply chain execution, Global Inventory visibility plays an important role in promising and fulfilling customer demand for delivery or pickup orders. Accurate picture of the Global inventory will be available only if the scope of inventory consolidation is clearly outlined between the Enterprise, Fulfillment centers and partners.

Next driver is the Order management system efficiency which is directly dependent on visibility and accuracy of snapshot of the global inventory. Order Management system consolidates the demand and supply to ensure effectiveness, in terms of inventory visibility, resource allocation and capacity planning, carrier services and visibility of fulfillment points). The order management system also mediates between order capture and order fulfillment system. The effectiveness of order management lies in the seamless collaboration between order capture and order fulfillment systems to minimize gaps between order promise and order fulfillment. It evaluates global demand against available supply by consolidating latest inventory snapshot of different fulfillment systems (Distribution Centers, Warehouses etc). So the broader the scope of order management the more effective the supply chain will be for demand variations.

3. Consolidate the Fulfillment Process to Optimize their Operational Efficiency
Core responsibility of fulfillment system is to process the order delegated by order management system, to deliver as per customer request. Fulfillment of customer demand is measured and tracked in terms of the Shipment delivery time as per commitments made to customer at order capture. Shipment is a consolidation of orders that can be shipped together while ensuring compliance to business rules and demand promises. Subsequently, shipments need picking, packing, value added services, loading etc to ship-out from the warehouse. The trigger point of all these activities is wave process which is another consolidation engine which helps in grouping of various pick tasks. The  grouping of pick tasks and their distribution decides overall warehouse/DC efficiency.

In a nutshell, consolidation is clearly a focal player in the effective functioning of the supply chain right from order capture to order management to, finally, order fulfillment. But the best practices described above on level of the consolidation would not be effective in isolation and they need to be evaluated in conjunction with technology and architecture consolidation approaches, which is the discussion point in my next blog on  this topic. Please remain tuned...

August 9, 2011

Order management solutions for the grocery business - Part 2

In the first part of this blog, I had described some of the differences in the order management /fulfillment process for grocery (food) retailers' vis-à-vis non-food products and also highlighted the opportunities and challenges faced by retailers. I will continue the discussion below.

1. The shelf life available to promise (ATP) is an important aspect of the grocery business. Since some food items are perishable, the available to promise and the delivery date promised to the customer may be constrained by the product expiry date. An example is milk for which the delivery date for an order from a particular store is a function of its sell by date.

2. An interesting aspect of the grocery business is product substitution that could occur as the store picker picks an online order within the store. (Of course, product substitution preference is typically captured in the customer profile.) To continue on the example of milk, Mrs. Thomas may order a pack of Brand A 1 liter Whole milk, and depending on her substitution preference, it may be substituted (due to non-availability of the 1 liter pack) by the store picker by two packs of Brand A 500 ml Whole milk or by a 1 liter pack of a different brand B.

3. Since substitution is a norm, payment processing involves a few more complex scenarios when compared to non-food items. The amount displayed to customer (and authorized) at the time of order confirmation may be an approximate amount. The Brand B whole milk pack may be $2 more than that of Brand A; hence the $2 would have to be collected from the customer before the order is shipped. Also, for items such as meat, fruits and vegetables, the price is dependent on the weight. For e.g.: The price paid by one customer for a dozen apples may vary when compared to another customer ordering the same dozen apples as the size of the apples picked may vary.

4. An interesting side effect of the substitution process is the complexity in the returns process; retailers need to be flexible in allowing the customer to return the substituted product at their doorstep during delivery. To continue the example explained above, Mrs. Thomas may not be a big fan of Brand B, and hence may choose to return the Brand B 1 liter pack to the delivery person and expect a refund for the same.

Grocery order management processes are a niche process within the order management space. I will be interested to hear if you have any comments on this blog.

August 5, 2011

Supply Chain Risk Perception is Taking Manufacturing Back Home?

Franklin Roosevelt once said "Poverty anywhere is a threat to prosperity everywhere". In these days of global supply chains, I would extend it further to say that "supply chain disruption anywhere is a threat to entire supply chain". Gone are the days when we could think of local issues and local solutions. Now anything major happening anywhere in the world has its ripple effects all over the world. The Tsunami in Japan resulted in delayed delivery of Toyota cars in India-just to site an example. So one's ability to anticipate significant events both natural as well as man-made and to mitigate the risk emanating from those events has become paramount. In other words, management of supply chain risk has become the most important driver for supply chain planning.

What is this Supply Chain Risk Management, according to Wikipedia, "... is a discipline of risk management which attempts to identify potential disruptions to continued manufacturing production and thereby commercial financial exposure"

The recent surveys are all indicating a tendency of US manufacturers to move back manufacturing units (and IT operations) back to US from China and India. In some cases the movement is not directly to US but to near-shore destinations like Mexico. I believe even this is also an outcome of this supply chain "risk perception"

Let me further substantiate this. Some of the most obvious reason for this movement are said to be rising wages in Indian and China - going up at rate of 17-20 % as against 2-3% in USA, rising freight cost and comparatively low employee attrition in nearshore destinations like Mexico compared to India in IT industry. There is more to it- companies are increasingly realizing that it's not just about labor arbitrage and raw material cost. The key consideration is total cost of ownership. This also factors in cost of Supply Chain Risk. Companies are trying to minimize the Bull-whip effect- A downturn or a variation in household consumption is likely to translate into a larger downturn in manufacturing. Added to this, the geo-political uncertainties in the region add to the cost of supply chain risk. The idea is to keep the length of the supply chain short so that this impact is minimal and therefore the cost of supply chain risk is also reduced.

Are these US manufacturing companies doing the right thing? Well, if they had setup operations in south Asian countries just for leverage the tactical cost advantage, then yes. The labor arbitrage opportunities will soon disappear going by trend in reducing the wage gap between developed and developing economies. But is that good enough reason to move away the production from some of largest markets in the globe?

Instead shouldn't they be focusing more on supply chain risk mitigation thereby making the existing supply chain more resilient? Keen to hear more views on this.  

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