Outsourcing Reverse Logistics
May 6th, 2008
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Outsourcing Reverse Logistics is a recent article posted Modern Materials Handling.com that has an interview with Tim Konrad of GENCO (my former employer) - it’s a niche for GENCO that it has been rather good at exploiting . He notes the following key points concerning reverse logistics as practiced by a 3PL:
Do it in volume
Establish vendor agreements
Implement a software package
Receive, inspect and dispose
Reconciliation
If you wanted to know what happens to a product that you returned for whatever reason:
“Ideally, you want to take that product and return it to the same configuration it was in when it left the DC,” says Konrad.
When that happens, the product may be put back on the shelf and sold again.But that’s not always possible. For that reason, a 3PL may return the product to the original vendor, especially if it is a recalled item, sell it in a secondary channel where it will end up in discount stores,donate it to a charity for tax incentives, send it to recycling, or destroy it.
"…sell it in a secondary channel" - If you don’t already know, that means Ebay. You can even buy stuff a pallet/truckload at a go which only goes on to say that what works for diamonds also works for returns - at a different scale.
Tags: Reverse Logistics, Reverse Supply Chain, Outsourcing to a 3PL, How returns flow?
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Building a resilient Supply Chain
May 5th, 2008
Building a resilient supply chain is a report (freely available) published by Marsh (MMC) which focuses on supply chain risks as assessed in a free wheeling interview with a panel of six experts.
Karen Avery : National practice leader for Marsh’s Business Continuity Risk Management Practice.
Chris de Wolfe: Risk manager at Mars Incorporated, one of the worlds leading food manufacturers.
Diane Foley: Director of mission assurance at BAE Systems, a leading defense contractor.
Scott Warren: Managing director with Kroll Business Intelligence and Investigations.
Thierry Brevet: Mercer Investment Consulting on growing concerns of shareholders related to environmental risk.
Rosaline Chow Koo: Asia business leader for Mercer HR Consulting
Three primary Supply Chain risks are highlighted:
- First, clients are struggling to efficiently and effectively manage the risk of complex and interdependent supply chains.
- Second, insurance doesn’t fully manage the risks, meaning that much risk is retained more so than in the past especially for tier-two, tier-three, and tier-four suppliers.
- Finally, taking on some of this risk used to be an accepted practice, but now it represents a material exposure. And the activities to mitigate this risk now represent the potential of a material investment.
However, I didn’t remember when this turn of events came about:
Traditionally, a supply chain was defined as a network of internal and external resources that performed three main functions procuring materials, transforming the materials into intermediate and finished products, and distributing the finished products to customers and consumers. Over time, organizations have narrowed the definition to where "supply chain" refers more specifically to managing the primary suppliers responsible for the key inputs into a product or service. The definition has become much less focused on the end-to-end process and the upstream and downstream risks in the extended supply chain that involve creating value for customers.
Something did happen along the way but perhaps not in a change in the manner of realization of what a supply chain truly is. Or what it became? The "transforming the materials into intermediate and finished products" step doesn’t reside in the stateside supply chain anymore- it, largely, went overseas. Therefore, it became an imperative in the supply chain to manage that overseas transformation function as well as the larger inventories all over the place.
Thus,
Speaking in terms of the risk-intelligent supply chain is our way of avoiding that more narrow definition. We are reestablishing the original intent of the definition of supply chain for the end-to-end process from raw material source to the ultimate consumer"farm to fork."
recasting the fact of outsourcing/offshoring in terms of a risk-intelligent supply chain does really nothing about returning to an earlier concept of the supply chain - an important part of the supply chain has been outsourced - perhaps, even commoditized for many industries. In my humble opinion, what risk management should really be about is realizing the impact that globally stretched and tightly constrained supply chains present in the face of disruptive events (terrorism, pandemics etc) and exposure to economic agendas of several nations housing pieces of the supply chain and myriad market inputs (oil, port capacity, transportation lanes etc)? It is a distraction to think that a risk informed supply chain is a return to a truer concept of the supply chain.
I’ve always contended on this blog that offshoring/outsourcing multiplied risks dramatically (which was never truly appreciated at that time), trading off burgeoning inventories (which will remain at a much higher level regardless of any and every effort at efficient allocation) against lower unit costs while they last. But that’s what we have right now. That said and recognizing it as being one of the primary causes, secondary effects have accompanied it such as trade deficits, consolidation and growth in aspects of the supply chain such as transportation as providers have to integrate from the end point (stateside) to the source (overseas production points), an increase in the demand for oil etc. These are the macro-level changes that affect every supply chain and within each supply chain lie a set of micro-level priorities that need to be addressed.
One of the industry based contributors to this report is Chris de Wolfe who is a Corporate Risk Manager at Mars Inc. One of the items on his plate is global business continuity initiative. But here is something interesting about how the talk of risk management meets the road:
GL: I imagine you have hundreds of suppliers. How do you ensure that these suppliers are prepared for any of the numerous catastrophes that can occur?
CDW: Its actually one of our key challenges. Because of all the work we’ve done with Marsh, Im pretty confident that everything under our own roof. But outside of our own operations, we rely on contractual relationships. One of the functions that we rely on specifically is our vendor-assurance process. Managers in this function essentially do a comprehensive business impact analysis for each of the vendors we work with, whether they are raw materials suppliers, or packaging suppliers, or distributors. With the output from these business impact analyses, were able to assess which of the vendors or business partners need to perform a thorough risk assessment.
Its a good process. It works very well. But it is very reliant on the managers who are involved. And therefore, were going to develop a checklist for these vendor assurance managers so we can get a much better idea of what kind of shape our suppliers are in and what sort of preparation they have in place.
The fact of the matter is that a firm’s supply chain is only as good as the talent it brings to bear upon the problem (if the firm has outsourced a particular function - then by extension, as good as the talent the firm has outsourced that function to). Risk Management for the supply chain, as illustrated here in this report, is not a formulaic concept that can be readily applied anywhere, even the processes that bear application require a Plan->Do->Check->Act (PDCA) approach. Much of what can be found under this heading of RISK has been addressed in the annals of Quality Management, methinks, but protecting Intellectual Property and Business Continuity, which the report delves into in some measure are contributions to a firm’s critical task of Quality Management, something that has to be revisited in the age of Outsourcing/Offshoring. Just when you thought that you had a handle on all things Quality stateside, you’re called upon to revisit this same topic overseas.
HT: Ehsan @ Supplychainer.com - New Supply Chain risk management study by Marsh
Tags: Risk Intelligent Supply Chain, Marsh Risk Report, Supply Chain Resiliency, Building a Resilient Supply Chain
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Reducing U.S. Greenhouse Gas Emissions: How much at what cost?
April 25th, 2008
Reducing U.S. Greenhouse Gas Emissions: How much at what cost? is a report put together by the consulting firm McKinsey & Co. (from December 2007) that takes up this issue. The full report can be accessed here. The central conclusion of this report states:
The United States could reduce greenhouse gas emissions in 2030 by 3.0 to 4.5 gigatons of CO2 using tested approaches and high-potential emerging technologies. These reductions would involve pursuing a wide array of abatement options available at marginal costs less than $50 per ton, with the average net cost to the economy being far lower if the nation can capture sizable gains from energy efficiency. Achieving these reductions at the lowest cost to the economy, however, will require strong, coordinated, economy-wide action that begins in the near future.
Strong, coordinated, economy-wide action that begins in the near future?
Ouch!
Double Ouch!!
. Tags: Reducing US greenhouse gas emissions, McKinsey report, Strong, coordinated, economy-wide action
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Supply Chain : Pros to know
March 19th, 2008
SDCExec.com has published its annual list of Pros to know in its article: 2008 Supply & Demand Chain Executive Pros to Know. An exhaustive list to be sure and it should point you towards personalities as well as up and rising firms that they lead and/or represent.
Tags: SCM, Supply Chain Pros, SDCExec Annual List of Pros to Know
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Supply Management Talent Crunch
March 14th, 2008
This story is not new but like all truths, it bears repetition - again and again and again…
I came across this story via Supply Excellence, which tagged a story in WSJ (registration required) and Aberdeen (free report available until April 28, 2008 with registration),
The professors from the business and management schools of Florida State and North Carolina State University note that managing the supply chain in the face of globalization, offshoring, and an ailing economy “requires a broad skill set that many managers simply don’t have right now.”
It’s something that I have touched upon in this post - Three issues in Supply Chain Management 2.0 - Part 2, as well. But there is a crucial divergence. The report from WSJ highlights the following gaps in the current crop of supply chain managerial talent:
Specifically, the scholars’ joint study of supply chain managers found that the following skills or approaches are required to effectively manage supply in today’s global economy:
I don’t know if these suggestions are a little dated because as the economies of the developed world contract (slightly/more than slightly/moderately/severely), some of the above points will be precisely the inverse. For example, as the US dollar finds new lows and continues to dig deeper, the notion of finding appropriately situated suppliers will begin to become competitive between global and local. That "Big Picture View" above is about to find more than a few competitive solutions back home rather than abroad. If there is a real contraction in the US economy, one can be sure that supply chains with customer end-points will find themselves operating in an environment of slumping demand while simultaneously experiencing lower purchasing power with dollars. Moreover, if the dollar continues to plummet, what supply sources unique to the US will the rest of the world have a demand for? While in the past (recent past), supply chains (and talent therein) had the relatively easier notion of deciding and developing sound global sourcing strategies, the new challenge for us might very well be the development of goods that the rest of the world that is awash in US dollars will want to buy. The notion of Supply has just taken on a new meaning.
Tags: SCM, Supply Chain talent, Supply - then and now
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Warming up to Sustainability
March 1st, 2008
After a month of being deluged at work, I could do with a bit of warming - Will this Winter ever pass? I could do with a little bit of Global Warming right now. I’d settle for Local Warming too. Ahhhh Spring - How sweet thy sound? The title of this post is a little misleading though - I’m not warming up to Sustainability of any sort. I have no idea what it is that I’m supposed to be sustaining to begin with other than some mythical notion of some state of the world prior to the industrial age or the medieval age. Or the dark ages. Or …
For example, I, for one, would contend that it would be impossible to run out of oil as long as it is sold on the open market. Cheap oil? Sure, we could run out of cheap oil - cheap as we knew it once (there is no $10 a barrel oil available anywhere, no $40 a barrel and no $65 a barrel oil to be had). Perhaps one day in the near future, we might have $200 a barrel oil - we would still be pumping gas into our cars, I certainly don’t think that it would be half of what we do right now (assuming nothing else has changed). We’d still be driving. There is one switch that Americans hold when it comes to the price of oil - as one of the major consumers of oil. Threaten to go on a diet, get moody and pessimistic about the world at large, oil speculators fearing a top and the price of oil might just crash.
Here’s something to read from just ten years ago about how oil was viewed: Living with $10 oil
On the other hand it’s equally hard to see a sustained bounce back to $20 a barrel levels. OPEC only accounts for 40%of world production. Total stocks are high. And demand is barely growing.
Also, the temptation among cash-strapped producers to break ranks and start pumping more oil remains strong. It’s worth recalling that OPEC’s 1998 package of cuts achieved only 65% compliance.
So, being prudent, our financial planning continues to be based on the challenging assumption that Brent-based crude oil prices will average around $11 a barrel.
Today’s price of oil is about 10 times what it was less than 10 years ago. Dr. Smith contended then that demand for oil was barely moving then - demand for oil is booming today. Other than the threat of terrorism and political instability in oil producing countries, what accounts for a ten fold increase in oil prices in the face of burgeoning demand? Are we getting to Peak Oil? I think we’re about to find out soon enough. Why? As Dr. Smith points out in the article above, oil companies really didn’t want to make any investments in oil production when the price of oil was low and the profit margins to be had were slim. That is not the case right now - we’re at the threshold of determining the truth about Peak Oil.
On the other hand, did you notice that we’re not driving that much lesser either in the face of a ten fold increase in the price of oil?
Keeping with the notion of Sustainability from the previous threads - Sustainability - Solutions in search of problems and A brief background on sustainability issues, my intention was to delve a little deeper into the issue of Global Warming. I have no idea whether Global Warming is occurring or not - for the time being, let me take the word of scientists that it is happening and furthermore that human beings are causing it as well. So I pose this question to you - If you buy into the notion of global warming, what is the one thing that you should see happening (or will see happening in the years to come)?
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Sustainability - Solutions in search of problems
January 29th, 2008
In the last post of this series - A brief background on Sustainability Issues, I tried to outline the various streams of thought flowing about the issue of Sustainability, specifically through the notion of Sustainable Development . I also touched upon a few metrics/indices surrounding sustainable development and linked to a number of reports from a select group of multinational firms as well.
However, it occurs to me that sustainable development is a response to some problem - what, in very broad strokes, problem (or problems)? Much of the discussion around sustainable development starts off without a statement of the problem and with the ready assumption that there is a problem to be solved, and therefore a series of policy visions, suitable solutions and metrics/indices are proposed. Take the following pithy summary (I’m using the summary only to broadly outline the purpose of sustainability) from the Brundtland report:
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
which is a great idea until one realizes that we don’t know what the needs of the future generations are - not in any specific sense anyway. Perhaps, we can hazard a guess about some vital ingredients of life no matter what form, where and when. Suppose we were to cut down drastically on the use of crude oil so that future generations have access to it - What use will crude oil be to a future generation that have technologies that do not even use crude oil in any form to generate power or harness mobility needs? The crucial (unstated) assumption in the above summary is technological stasis which is an idea that shouldn’t be sustained. In fact, it points to a deeper issue with the very language of sustainable development - that most proponents of sustainability miss out on the fundamental nature of technology (and its abstraction which is human creativity).
Imagine the following scenario about 150 years in the past - A Bédouin (nomadic Arab tribesman) is digging a well in the desert - for water. And continuing to dig deeper hits an oil deposit instead of water. Oil was of no use to a Bédouin from 150 years ago because water is a precious resource but oil is not - it is verily a pollutant in the Bédouin’s scheme of things - the reason for a few wasted days of effort and abandoning the project in that area. Black gold is not black gold until everyone appreciates it so. Further, consider the Bedouin’s definition of resource and pollutant - what is it based on? I think you’d agree with me that one’s notion of resource, pollutant and further renewable resource and non-renewable resource is based fundamentally on the state of available technology. As long as the technology of internal combustion engine (and/or other forms of engines) remained unimagined, oil was not the sort of critical resource that it has become today. What I’m suggesting, at a very definitional and fundamental way, is that the definition of the word resource (and pollutant) is dependent on extant technology - and in a sense flows from it. And furthermore, technology is only the working out of human creativity - imagination put to play. Also consider that the distribution of any material (virtually infinite solar energy or very rare elements such as Ytterbium) has some role to play in directing this human creativity - it’s a natural effect but it needn’t be so. If you built an engine that used Ytterbium as a resource but only very minute quantities of the resource were needed for powering this engine for a long time, then it qualifies as a resource and human creativity would be unleashed along this route, adaptations and improvements would occur.
So with the above brief piece in place, as I asked above - what is the nature of the problem that all this sustainability thinking - sustainable development is supposed to address? I must admit this has been a difficult thing to pin down. Some might say, "Can’t you see the pollution all around you?". Others might point to the mindless consumption and resources growing scarce etc. So far, I have come across two broad strokes problems that I think this idea of sustainable development is supposed to address. The first problem is along Malthusian lines and the second is along Climate change lines.
The Malthusian problem
A pithy summary of Thomas Malthus’s view is as follows:
He argued: "…this constantly subsisting cause of periodical misery has existed ever since we have had any histories of mankind, does exist at present, and will for ever continue to exist, unless some decided change takes place in the physical constitution of our nature."
Thus, Malthus regarded his Principle of Population as an explanation of the past and of the present situation of humanity, as well as a prediction of the future.
And further,
He argued that food shortages, in particular, were inevitable as population grew because population could grow geometrically (build upon itself: 2,4,8,16…)whereas food production could grow only arithmetically (2,3,4,5…).
But this was over 200 years ago. Paul R. Ehrlich writing in 1968 begins his blockbuster book - The Population Bomb
"The battle to feed all of humanity is over. In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate…"
and
According to Ehrlich, the United States would see its life expectancy drop to 42 years by 1980 because of pesticide usage, and the nation’s population would drop to 22.6 million by 1999.
I think you might be aware of how some of these predictions panned out (From seeing the numbers, I think it is true that population growth appears to follow a geometric progression but it is not equally true that food production follows an arithmetic progression though of course one might argue that resorting to intensive agriculture as well as high yielding crops have only pushed the reckoning out some but not eliminated it).
The basic issue along Malthusian lines is that we’re living beyond (or even far beyond) our means and in order to remind ourselves that this is indeed the case, we may visit or revisit any situation of scarcity and cast it in that light. The key variables that prognosticators under the Malthusian influence cannot factor is technological development and innovation as well as turns in human behavior but the very notion of limits is vague to say the least. While Malthusian thinking has been primarily about food production, you will find similar strains cropping up with regard to fishery stocks, forests, oil, iron ore etc.
Next up is the Climate Change problem. I must confess that I’ve taken a long time to delve deeper and deeper into this problem, the evidences, the proponents and the opponents, the mudslinging et al - it has been difficult and I can scarcely say that I’ve been able to wrap my head around it - the problem seems clear enough except the more that I read about it, the more questions I have and so more reading and then more questions - it’s a non conclusive downward spiral. I consider myself about average when it comes to parsing scientific writing but Climate change or Global Warming has my synapses in a bind very quickly. For example, you will find that Carbon dioxide is referred to as a pollutant. Why? Because the accumulation of it in the atmosphere is one the causes of global warming. Which is to say that the definition of a pollutant is so flexible as to render anything as one if it detracts from one’s expectation of the norm - which only centers the problem around what the norm actually is? Who is to say what the norm is? Or should be?
Tags: Sustainability, Sustainable Development, Sustainable solutions, what is the problem then, Climate Change, Global Warming, Paul Ehrlich, Robert Malthus, Resource, Pollutant
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