Supply Chain Management

OK, what came first - the chicken or an egg? Well, for most it does not matter and as for others – they probably don’t care, though the question continues to draw quite an attention from many a curious mind. However, what’s interesting is that one cannot live without the other, and in fact one emanates from the other as a never ending inter-looping hierarchical chain. This chain is a logical chain and is also a genetic chain. The DNA of the chain keeps evolving getting refined and in many ways better as the right feedback gets factored into the chain. No wonder then the “chickens” of today are probably smarter than their predecessors.

 

The inter-looping hierarchical chain – sounds familiar to many supply chain practitioners. What’s genetic chain to the circle of life is what an inter-looping planning process is to a self-sustaining efficient supply chain. For many supply chain practitioners and thought-leaders alike, a supply chain process starts with forecasting and in all likelihood ends with a customer delivery. Well, it’s one way to look at a supply chain planning process, however if we ponder on this thought a little deeper, it will be amply clear that the objective of a planning process irrespective of where it starts and ends is to keep it self-sustainable. Have strong feedback processes in place that keeps giving the right signal to all supply chain processes. The more the planning processes speak with each other, the more likely it is to come up with a continuously improving and efficient supply chain.
Let us dwell on some of these feedback processes in a best-of-class supply chain:
1.      Have appropriate bias forecast signals (Read blog on Caveats in a Forecasting System Implementation Project. ) to make sure that Forecasters are constantly given feedback on the possibility of under or over-forecasting
2.      Constrained Supply Chain planning process uses available inventory, capacity, multi-modal business rules, lot sizes, lead-times, and procurement/manufacturing rules in one consistent model to propose what is feasible
3.      A constrained supply plan should always be fedback into a Forecasting system even if the constraints are short-term in nature
4.      Order Promising should be based on what is available, feasible and forecast in the supply chain
5.      Production plans need to work off of aggregate level medium-term supply plans
6.      Final deployment and load building plans should be based out of Production Plans that are firmed up
As we can see, an efficient supply chain planning is not just about Forecasting or Supply Chain planning. It is the ability to make these applications constantly speak with each other – after all everyone likes evolution more than a convolution.

Posted by K. Srinivas at 09:10 AM | Permalink | Comments (1) | TrackBacks (0)

Following up on my original post here, today I offer a look at the role Sourcing and Procurement can play in greening up the supply chain. These range from simple tweaks and easy to adopt changes to full-blown initiatives. Borrowing a leaf from McKinsey’s survey on Green supply chain (synopsis captured in SC Digest here ), it is evident that procurement’s success in reducing the carbon footprint depends largely on their ability to influence their suppliers. A disclaimer before I delve further: contrary to what the title suggests, this is not a tell-all list; there are bound to be additional innovative ways to save the environment; all ears for your views

 

Sourcing offers several opportunities starting with greening the need itself. And one way of doing that is by increasing the percentage of recyclable components in the manufactured product. If the sourcing team, in conjunction with the design and operations team, is able to identify the alternate sources of supply for the recyclable components, they can certainly claim a feather in their green cap. IBM’s case is worth studying for those wanting to do so (refer this article at purchasing.com); those wanting to get more insight and willing to shell out some money can look at attending the Green purchasing summit at San Francisco this October). IBM managed to increase the amount of recyclable materials used in product manufacturing from 3.7% in 2004 to 11.8% in 2006. But this becomes an extremely tedious and challenging process for a company that relies on its suppliers for some key product parts. As Herman Miller, global provider of office furniture found out when they had to convince all their tier I and II suppliers to share the ingredients information after giving umpteenth promises that the information will not be used against them. Talk about supplier collaboration!!
 

While increasing recyclable components is one way to join the green band-wagon, a full-blown research on materials to find better, environment friendly replacements is another commonly used approach; painstakingly long but highly rewarding. Who better than the Airlines industry to take the lead in this regard? After all, it is a question of survival for them. Thus, no surprises when we hear that airline manufacturers are shifting from traditional materials, like aluminum and steel, to plastic composites made from carbon fibre and such metals as titanium. As per an article in International Herald Times here, Boeing replaced the traditional brakes on its 737 jets with carbon fibre ones to shave off 800 pounds per plane. Sourcing/Procurement naturally plays a critical role in such transformations – from helping identify the substitutes and the suitable suppliers to communicating and influencing suppliers to switch to environmental friendly materials.


After greening the need, the sourcing team should attempt to source locally provided all other parameters are met. If that is not possible, they should try to influence the suppliers’ mode of transportation. After firming up the delivery lead times, procurement can look inwards to ensure that buyers raise their need well in-time to avoid using costly and carbon emitting logistics. A small yet effective way to go green, I say. This measure has been effectively adopted at a UK based pharmaceutical and health-care major, where I have seen this message incorporated in all their training materials and on the company’s requisition systems.
 
I have to distinctly call out Procurement’s role in sustainable packaging; for one can write an entire book on it. Suffice it to say for this discussion that it is imperative for the procurement professionals to be well educated with the latest and greatest on sustainable packaging (following projects and events at Sustainable packaging coalition and at Walmart, heard to save upwards of $10 billion in packaging cost in the next five years per an article at environmentalleader.com, should be a great starter kit). From knowing what constitutes sustainable packaging and working with design and marketing team for finalizing the packaging requirements to evaluating supply-base on these requirements and tracking vendor’s compliance to sustainable packaging terms, procurement professionals have, to say the least, their work cut out.


Contracts can certainly play a vital role provided they are viewed in the right light (and not sentenced to a life in a filing cabinet deprived of any light). All arrangements with the suppliers - recyclable content, durability and reusability, disposal terms particularly in the case of electronic manufacturers, green manufacturing processes, packaging requirements - can be captured in writing. Metrics built of the terms will serve as the basis for an effective supplier performance management system.

On an on-going basis, procurement is involved in implementing and tracking vendor score-cards to audit and certify sustainability levels. This continuous improvement activity is by far the most important – after all, it is about sustaining environment sustainability!!  

Posted by Amit Tambi at 12:13 PM | Permalink | Comments (0) | TrackBacks (0)

Recently, I read in one of the analyst report that 40-50% of procurement directors (mostly in mid-market) have no clear spend visibility of marketing department. My experience - if you ask sourcing specialists to choose a complex category that they feel savings can still be achieved, the answer would be Procure-o-marketing (marketing spend - why???), esp. printed materials, branding or promotional spend and media space. Thanks to Infosys Procurement Knowledge Exchange meet, in the last few months, me and my colleague Anubhav were able to share our experience and brain storm on the reasons why there is a invisible marketing spend and the strategies that can be adopted to bring the marketing spend under management and eventually experience higher cost savings in this spend - procure-o-marketing...

The result in savings leakage or miss, overpayments and lower contract compliance rates in marketing spend is because, marketers are ready to sacrifice costs to achieve high quality products and services that can help position them and their products well in the market, especially in the organizations where marketing is just not a cost center and drives the organization business. Typically a sourcing specialist (licensed to spend the company $) priority is - follow the procurement principles, save $$ for the organization, provide quality service through their suppliers, collaborate with their suppliers and manage their relationship - in that order (very debatable). Though both the departments look at having a marketing campaign as a very important and a possible differentiator to their competitor, but their focus is slightly different. For example, look at a small print campaign – Marketing objectives are Brand Management, Revenue Generation, Response Rate and later cost of print production. But the procurement team looks at forecasting this better, standardization of the print materials, time to market and supplier machine utilization. Probably the above 3-4 points explain why there is an invisible marketing spend and less cross-pollinating of procurement and marketing. Marketing spend, in most cases, creates organization tensions - I have seen in most of the organization I have worked or played a role of external consultant, the marketing department will provide the requirement / scope of work, quote, delivery date and T&Cs to procurement department, just to create purchase order. Procurement department is involved in the fag end of the game and will not have enough scope to negotiate the price.

Collaboration between marketing and procurement functions and applying the procurement basics are possible, but not an easy task. It will take quite some time for the sourcing specialist to win the confidence of the marketers. (That’s why probably the marketing sourcing managers get more bucks). If the organization they work is regional or global, then spend aggregation and leveraging for volume discount is much easier in certain marketing areas like Printed Materials. Involving suppliers and procurement early will help marketing department to conduct a better promotional event or a product launch and researchers have found that 15%-20% savings is possible. Tip: Procurement specialist can consolidate the yearly promotional events, run a full fledge and appropriate sourcing cycle to select a supplier, provide enough time to the supplier to innovate, invest on tools and technology and eventually run a fruitful branding or promotional event. This way cost saving is possible and marketing department commitment to the organization is also met. Also other procurement initiatives like EIPP, spend analysis, supplier consolidation, supplier networks etc can also be extended to the marketing spend.

Final comment, Marketers should believe in Procurement function and collaborate with them, this way the marketers are not required to sacrifice costs to achieve high quality products and services.

 

Posted by Raj Rajendran at 06:20 PM | Permalink | Comments (3) | TrackBacks (0)

The other day, I had someone requesting me on package comparison in the DOM space on “key” functionalities.  The so called “DOM”  or “distributed order management “ can  be misunderstood, generally because it can be confusing to demarcate the DOM process boundary! Interestingly, even package vendors interpret and draw their own boundaries, often overstate when it comes to DOM package functionality. 
The first and the foremost, people confuse DOM offering as the process that covers the entire functionality from customer (or partner) “Inquiry for the product or services” to “Cash” business process. However, what I have seen in the past, the product leaders in this space always focus on providing functionality that compliments the existing infrastructure that supports customer order lifecycle process.  Anyone implementing DOM will encounter the question - do I really need DOM? why can’t I leverage my existing system or enhance it? However, the strategy should be to meet customer demand (and also make it future proof) from various order channels, efficiently making use of inventory and deliver the product in a most optimal way…DOM typically sits on top of existing ERP or legacy.  The best way to visualize DOM is to look at as the back end “engine” which orchestrates (terminology borrowed from the leading DOM products) order confirmation through order release to warehouse.
Now, even after the boundary is drawn (I restrict the DOM boundary to “order confirmation through release to warehouse”), there can be still lot of debate and confusion around what really is functionality that should be considered as “core” DOM functionality. To explain this better, I start thinking multi channel order capture and multi channel fulfillment process.  The true DOM solution covers at least 4-5 of the following functionalities –
      
1. Provide eCommerce / Order capture channels the right information - Inventory availability and “near-real time” update to order capture channels considering various fulfillment options for the customers and partners– examples:  DCs, stores, transfers, drop ship, Purchase orders, future inventory etc.  Single source of order and inventory irrespective of channel requesting the information. Ability to provide delivery date commitments.
 
2. Configurable business process and rules for order processing – Ex: configurable order scheduling rules, real time order tracking and status updates, order updates, multi step fulfillment and co-ordination. Ability to configure rules on dynamic matching of customer demands with the various supplies.
 
3. Proactive event management - Intelligent event management to monitor order lifecycle process and inventory positions
 
4. Strong integration capabilities - Provide mechanisms easily integrate with core ERP/Stock master/WMS to synchronize the latest inventory information. This enables true global picture and allows DOM engine to make intelligent decisions to fulfill the order based on the demand
 
5. Delivery options and service scheduling – Provide ability to Ship to home, pick up at store and scheduling the deliveries/services or combination. Flexibility in defining shipment consolidation rules and order release process.
 
6. Reverse logistics – Ability to handle even cross channel returns, exchanges etc
 
The advanced DOM covers more decorative functionalities in this space. Some of the examples are (not exhaustive list) – 1) Order management functionality available through handheld devices 2) Gift registry 3) physical/dynamic kits and product configurations  4) fraud handling 5) Channel specific order modification rules 6) ability to hard / soft allocate products 7) inventory segmentation   8) VAS, Gift handling etc 9) Back order handling and so on 10) Ability to handle multiple tender types – credit card, debit, gift card etc
As you can see, many of the above DOM functionalities may cover a certain part of the entire business process covering eCommerce, Order Management, Inventory, Warehouse management, Payment etc.  It can be confusing where it enters DOM and when it leaves! The DOM is quite distributed!! 
 
 
 

 

Posted by Vinayak Hegde at 01:31 PM | Permalink | Comments (0) | TrackBacks (0)

Reasons such as low cost of resources and labour and favorable exchange rates have driven globalization of supply chains with many manufacturing and retail companies moving their sourcing strategies eastward for several years now. Well, do we see the paradign change now? The venerable Supply Chain Management Review is carrying out a survey (http://www.scmr.com/article/CA6594832.html) on US becoming a low cost country sourcing hub! And why not? The last few years have seen the risky side of low cost country sourcing from China and the far east catch much business and media attention. From toys to milk products, multiple product recalls and severe brand reputation damage are taking their toll (Reputation and Financial Damage) and are forcing companies to rethink their sourcing strategies.

Of course, the reason why companies went east in the first place was to lower costs and tap into emerging markets. While the second is true, the first reason (the superordinate reason!) has often been questioned. What is the true cost of sourcing from a alternative supply sources that promise tremendous cost advantages, scale and flexibility advantages, etc? The determination needs to consider multiple challenges (that can be quite dynamic!) such as Quality (product and process) risk, Solvency risk, Intellectual Property protection, Reliability of supply and default risk, Compliance to environmental protection regulations and norms, and Logistics and transportation costs escalation etc. Getting a handle and more importantly a control on all of these is an ask particularly keeping the volatile currency and commodity markets. Does this translate into greater maturity in global sourcing processes far beyond the establishment of a sourcing outpost? More investments on process, organization and technology perhaps. Greater structure in processes with more powerful risk management frameworks (Everywhere I see, research investments on making supply chain risk management frameworks more robust are being made by corporates and academics). More technology play for integration and decision support in an environment that is susceptible to many many supply chain events that can cause disruption and financial havoc.

Final musings … While the process of globalization is irreversible, is it true that the pace is slackening and possibly herd mentality fading out? Thoughts and opinions?

Posted by Sandeep Kumar at 11:36 AM | Permalink | Comments (4) | TrackBacks (0)