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The Intimate Supply Chain – Part 2

In The Intimate Supply Chain – Part 1, I laid out the background of what is occurring with respect to inventory levels in firms that have gone the route of globalization (either global sourcing or serving global markets or both carried out simultaneously). This commentary is based on an article – The Intimate Supply Chain, published at Logistics Management by David Ross.
I ended the last part by outlining a hypothetical field of competition between US firms (that source globally and manufacture locally) and foreign firms (that source and manufacture domestically in their own countries in the case of firms from developing countries and that source globally and manufacture locally in their own domestic markets in the case of foreign firms from developed countries). I opined that the competitive advantage because of cost clearly belongs to foreign firms situated in the developing world serving foreign markets because of low costs of production.
David Ross’s answer to such a hypothetical scenario could be ascertained from below his article:

We contend that supply chains must move to the next stage if they are to remain competitive: They must evolve into what we call intimate supply chains. The essence of this “intimacy” is to create value for each customer at every touch point in the supply chain. As we describe in detail below, this intimacy is gained through the following integrated actions: 1) developing a portfolio of customer segments, 2) understanding the needs and opportunities of each segment, 3) fashioning customized value propositions that deliver a complete buying solution, and 4) using technology, tools, and metrics to build and maintain a supply network focused on the customer. In combination, these activities lead to a customer-centered supply chain.

David defines intimacy as the “creation of value for each customer at every touch point in the supply chain“. Again, it is difficult to distinguish such a notion from insights drawn from Lean thinking which lays a particular emphasis on getting the customer define those activities for which he/she is willing to pay (also called value added activities). There is an interesting insight that David provides in his analysis of recent business trends specifically relating to the Power of the Customer:

Power of the customer

. Today’s customers are exerting an ever-growing influence over channel management. They are demanding to be treated as unique individuals, and they expect their supply partners to provide configurable, solutions-oriented bundles of products, services, and information. With their expectations set by world-class companies, they are demanding the highest quality for the lowest price. Customers want computerized ordering tools that empower them to design product and service content. They’re looking for speedy fulfillment, robust information content, ease of search and ordering, and self-service follow-up.

A similar but more comprehensive insight is provided in a book that I finished reading recently titled – Why CRM doesn’t work:How to Win by Letting Customers Manage the Relationship

Speaking from personal experience dealing with numerous firms on a near daily basis, I must confess that I find myself overwhelmed on a daily basis. When I’m not incensed at the poor service that I have to contend with that is quite well protected by the fine print which I should have gotten a law degree to parse, I find myself bombarded by numerous choices about uncertain events that are classifed under the genus – caveat emptor. No, there is not one firm that I can think of in my mind that rises up to the notion of simplification in my daily life – in fact on a daily basis, I find my desire to live a simplified life overly complexed (or complexified) by numerous firms that I pay to serve me. So I don’t think that CRM works as it should and perhaps I have even less hope that CMR would work. All of the rant above can be simplified into the notion – Why do I find myself with less and less time when I am acquiring services and products that are intended to simplify my life?. I can say this much at least for myself that those set of firms that find a way to solve that said paradox will have me as a grateful and loyal customer.
David’s view of the power of the customer focuses on customer empowerment i.e. unleashing the power of new communications mediums in eliciting real consumer desires or needs or the like. I’m not so sure that even when customers are demanding to be treated as unique individuals (that is one way to drive up a firm’s costs but are customers willing to pay for that unique experience?) that they simultaneously realize the underlying structure of configurable, solutions oriented bundles of products, services and information.
The other aspect of David’s emphasis is also related to the personal narrative expounded above:

Shift from a service to a self-service economy. As product/service choice and supply channels proliferate, single-source replenishment, rising brand loyalty, and dependable everyday-value pricing become the norm. At the same time, customers are increasingly called upon to search for, install, maintain, upgrade, and recycle personal capital goods like computer hardware and software. In this increasingly self-service environment, supply chains will need to shift their focus from producing and distributing products to making fulfillment a more customer-satisfying, solutions-driven experience. New approaches to marketing, merchandizing, and communication will be necessary to move supply chains away from managing transactions and toward managing customer relationships.

While I am called to do a number of things in the quest to simplify my life, I find the process tedious, time consuming, effort draining and plainly frustrating. Do any firms shaving off the costs of deploying their numerous services or products think that they’re creating a loyal customer in me? Think again!

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The Intimate Supply Chain – Part 1

Supply Chain Management Review magazine has a new article titled The Intimate Supply Chain. Writes David F. Ross in the teaser:

After all the excess inventory and nonproductive processes have been removed, what\’s the next stage of supply chain advancement? This article contends that it lies in the creation of “intimate” supply chains. Intimate supply chains create value for customers at every touch point. And by doing so, they enable companies and their channel network partners to do business in a profoundly different way from the competition.

A little later in the article, David recounts the words of supply chain pioneer Arch W. Shaw writing in 1915:

Writing in 1915, supply chain pioneer Arch W. Shaw described distribution as composed of two separate yet interconnected functions: demand creation and physical supply. Demand creation, Shaw wrote, consists in communicating the value to be found in products and services that meet the desires and needs of the customer. However, the customer\’s willingness to expend the effort to make an acquisition would possess no economic value if these goods and services were not available at the time, place, and cost wanted. It is distribution\’s role to solve this basic problem of creating exchange value by ensuring that the flow of the output of production matches the customer\’s requirement as efficiently and as quickly as possible. Shaw felt that finding a solution “was the most pressing problem of the business man today.”

The first thought that crossed my mind when I read the above words – that\’s the very question that Lean and perhaps a whole slew of improvement methodologies seek to address.

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Achieving Continuous Improvement in Complex Supply Chains Today – Part 2

In Part 1 of Achieving Continuous Improvement in Complex Supply Chains Today, I reviewed Robert Bowman’s article in GLCS “Achieving Continuous Improvement in Complex Supply Chains Today” and took a closer look at the P&G example cited there. In this post, I intend to focus on the application of Business Intelligence and its role in continuous improvement.
Robert brings up the notion of Managing by Dashboard in the latter half of the article. He introduces the following:

A crucial element of any such technology is the executive dashboard, software which allows managers to monitor at a glance a series of key performance indicators (KPIs). HighJump has built some 500 screens into its products, although each customer utilizes no more than a handful of measurements, based on its unique needs. The tool gives users the data needed to pursue continuous improvement.

If one refers to the age old diagram of a supply chain’s structure, one would find product flow as well as information flow (typically in the reverse direction). Even with such an explicit definition of the importance of information flows and awareness of the importance of data within a firm, my experience in Supply Chain consulting shows that data about even the simplest transactions within a firm are mangled in ways that might drive horror into Frankenstein’s cold living heart. The one piece of data that is never mangled though is payroll. Ah! if only?
Robert alludes to that by writing:

Dashboards are only as good as the data they contain. The first step, then, is to set up a database that can act as the single point of storage for all relevant information generated by a company and its trading partners. In addition, the database must be scalable to accommodate rapid growth in sales, says Brad Fellows, senior partner of transportation, logistics and distribution with Teradata in Dayton, Ohio.

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Achieving Continuous Improvement in Complex Supply Chains Today – Part 1

Global Logistics & Supply Chain Strategies magazine has an article about Achieving Continuous Improvement in Complex Supply Chains Today at their site. The author Robert Bowman contends that:

Has the march toward continuous improvement come to a halt? Far from it. The idea lives on, under new labels.

What? No one told me that.
Robert continues:

Remember continuous improvement? A decade or so ago, it was all the rage. Companies were rushing to embrace the concept under a trendy Japanese term, kaizen. Continuous-improvement techniques were applied with some success to manufacturing, as part of the quality craze.
More recently, the term has faded from management playbooks. The very notion seems to have left companies exhausted. Some have turned instead to finite projects with clear objectives.

He’s quite right that a decade ago, they were all the rage and perhaps also right that today it is not uhmmm fashionable (?) to sport such terms in polite management talk. First of all, quality should not have been a craze and neither should kaizen have been one. I’d surmise that it is precisely because kaizen was a craze that it is not one today – crazes have a shelf life because those who adopt something crazy are quite likely to be taken up by another craze just as easily. It is the latter half of his contention that has me in splits – “Some have turned instead to finite projects with clear objectives”. Is it really true that kaizen has no clear objectives?
I suspect the main reason that the idea (or craze) of continuous improvement has died down is elaborated on by Robert Bowman below:

The move away from continuous improvement, at least under that name, is understandable. The idea isn’t tied to a single set of technological tools. It can’t be reduced to an easy series of steps for implementation. Continuous improvement isn’t a program; it’s an attitude. Some might view that as a shaky foundation for a comprehensive quality initiative.

Continuous Improvement begins from the top, is driven from the top etc etc which means that those who do not engage in the continuous improvement process as a long term problem solving project where in you’ve got to continually come up with innovative ways to solve problems and then rexamine those very same innovative ways again and again. However, whatever else that it might be, it cannot be a “shaky” (of any kind) foundation for a comprehensive quality initiative. So what has taken its place?

On closer examination, though, continuous improvement hasn’t really gone away. It thrives today in concepts such as Six Sigma and Lean. It covers a wide range of software applications, including executive dashboards, supply chain event management systems and other business intelligence tools. And it has transcended the original goal of eliminating waste in the assembly line to involve nearly every aspect of the supply chain.

At the cost of looking very foolish, I must say that I find the above difficult to parse. Exactly what it is it about Lean or the plethora of applications that it could be applied to that has transcended the integral notion of eliminating waste?

Most of all, it is focusing on the ever-important goal of pleasing the customer.

To take an example, in Lean thinking, elucidating value added and non-value added activities in a firm’s value stream implies that a firm must obtain the customer’s perspective of a firm’s activities and processes. Here a firm is not directly engaged in pleasing a customer but actually using him to identify waste within its own processes and activities. Perhaps, if waste within a firm’s processes are indeed eliminated, that might result in a better product or service but that is subject to a whole host of competitive concerns as well. Similarily in Six Sigma, attaining a six sigma level of defect reduction might please a customer in the fact that a product so produced doesn’t break down while the customer uses it or that the customer is able to notice a perceptible drop off in failure rates with products etc. However, often, the customer doesn’t even know this. How pleasurable might it be for a customer to know the thousand things that could possibly go wrong with a particlar product but doesn’t? Would such knowledge be a catalyst for customer’s product choice?
An interesting example is offered in the article – that of P&G’s supply chain execution problems:

One of P&G’s many projects addressed the issue of on-time delivery. The company’s performance in that area had slipped from 96 percent to 94.5 percent—an unacceptable level for one of the world’s largest producers of consumer goods. Lost sales were the result.
The problem, P&G knew, lay in its inability to seamlessly track a load from order placement all the way to proof of delivery. Multiple legacy systems and manual processes were needed to follow goods through the various stages of the supply chain.
Considering that P&G was shipping around 1,200 loads a day from 35 plants in the U.S. and Canada, that was no easy task. What was needed was a means of achieving shipment visibility through a single system.

So let’s begin by asking the pertinent questions:
1. Why did the on-time performance slip from 96% to 94.5%?
Even if it is not possible to discuss what particular event or sets of processes led directly to the slip of on-time delivery performance, it leads to the secondary question of how improving supply chain visibility addressed the causes that resulted in the loss of performance. That is the next question.
2. How did the introduction of supply chain visibility improve the on-time delivery performance?
Its quite clear from the description of the events that led to the adoption of supply chain visibility software within P&G that a set of events had to have occurred that led to a sudden drop in performance. Perhaps, it was the loss of a reliable transportation carrier on some key lanes or a software glitch in their transportation tendering process. Even though I am big on Lean thinking, the one thing that I cannot attribute to Lean is magic. Part of the problem of how Lean (or for that matter every craze or fad) is recounted is through the lens of a magical transformation. Instead, if the real story of Lean is told, wart et al, one would be able to bridge the gap that exists between the above two questions.
And here’s the kicker in the story:

Prior to implementation of SCM, about half the glitches that occurred were the fault of P&G’s carriers and other external partners, while half were internal in nature, says Stiles.

So we’re lead to believe that these glitches began to appear in a system with 96% on-time delivery performance and it was the application of lean thinking that turned things around. While it might have been lean application that did indeed improve the situation, P&G has still to account for why the system did work so well in the first place before it broke down. Why did it break down?
In the next post, I want to look at business intelligence and its application in today’s supply chain management space.

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Researcher Developing Anti-RFID Device

InformationWeek reports on a recent development in the RFID space

Accenture Wins $6.3 million US Defense Logistics Contract

Outsourcing World reports that Accenture has recently won a $6.3 million contract to provide IT services for US DLA (Defence Logistics Agency).

The contract deals with the replacement of DLA’s existing repository for technical data.

The contract covers the following services:

The contract covers the first phase of PDMI, which includes document management services, business process re-engineering, automation of key business processes, change management services, training and organizational design services

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IBM looks to RFID to fight counterfeit drugs

IBM has released a new RFID (Radio Frequency Identification) tag designed to combat counterfeit products flowing through a supply chain. Aimed primarily at pharmaceutical companies, the RFID tags are placed on the product at the unit, case and pallet level and is tracked through the entire supply chain. Apparently, a pharmaceutical product changes hands as many as 10 times from the manufacturer to the point of sale.
From the article’s description, the RFID tag seems to be largely a passive tag. As the article indicates, the RFID tracking system is described as follows:

The IBM RFID system for pharmaceutical tracking and tracing uses blended RFID software and services to automatically capture and track the movement of drugs through the supply chain, according to IBM.

I do not claim any knowledge of how the IBM system works but it does seem that its capability depends on adoption across the pharmaceutical supply chain by the many partners that are situated up and down the chain. Also, it isn’t clear whether the unit, case and pallet level tags are identical or different. Since the tag is most likely a passive one, there are software services and objects behind the scenes that collect, organize and report on the state of the products in the supply chain.
So is this Innovation or Application? The latter, I think.

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About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

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August 2006