You might have heard the oft repeated caveat – Truth in Advertising… What I knew vaguely was cleared up quite easily by running a google query – that there are actually truth-in-advertising rules that apply to advertisers, courtesy of the FTC. Here’s the link to the FAQs concerning truth in advertising.
So, what about truth in supply chains? That’s what Thomas Craig sort of has in mind in his article Creating Supply Chain Value w/Cycle Time & Inventory Yield published earlier this month at webpronews.com. He begins with the following lead…
A supply chain is not a series of links forged together for a common purpose. That is a nice image. However it minimizes the reality of the chain and how each link in that chain must design its own logistics process to function within the chain.
Or to put it simply – where the theory meets the practise…
The success of the chain depends on many things. How well and how clearly the key player in the chain, the large retailer/mass merchandiser or whoever, has defined what he is doing and why he is doing it that way. For suppliers located within the chain, this is important. There is no one standard universal chain. What you are dealing with are multiple, different supply chains and logistics processes and supply chains for each customer. That means developing agile, tailored logistics solutions to meet the requirements of each customer.
Thomas hits on a very important point in the above paragraph – he doesn’t flesh it out sufficiently in theory even though he elaborates what he experiences in practise. In theory, a supply chain is defined as interacting upstream and downstream links. What Thomas Craig is alluding to in the above is that within a market solution for a customer(s), there are interacting supply chains which may or may not be aligned, structured similarily or even designed with an overarching purpose in mind.
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In today’s business world, managing the risk that businesses are exposed to on a daily basis is getting the much needed buzz – it’s called supply chain security sometimes and supply chain risk. An article in InformationWeek.com – Supply Chain meets Risk Analysis, highlights one such adoption of risk management techniques for a real world supply chain.
Elena Malykhina is the author of the piece,
Wall Street’s hedging and risk-management techniques now can be applied to help manufacturers optimize capacity and sourcing decisions. Vivecon Corp. last week added two applications to its Supply Chain Risk Management suite: Strategic Component Supply Manager, which quantifies risks and helps manufacturers develop hedges against unpredictable swings in demand, and Tooling and Capacity Manager, which assesses likely demand for a product and monitors market acceptance.
As you can observe in that lead, supply chain security, demand uncertainty (which btw has long been a mainstay of the industrial world) and capacity planning all fall under the purview of supply chain risk – risk management, to be more precise. So is this merely a rehash of a long set of outstanding demands that supply chain practitioners have been looking for a long time.
“We are the poster child for demand uncertainty,” says Chuck VanDam, supply-chain engineering manager at Agilent. “It’s a natural thing for us to be interested in supply-chain risk and flexibility management.”
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With the aim of developing usable tools for Supply Chain planning, I began working on a tool that I have christened MPMLT (Multi Product Multi Location Transshipment). Progress has been slow over the last two weeks because I’ve been caught up with a lot of job stuff but I’m going to keep plodding through. The tool is aimed at SMEs (Small and Medium sized enterprises) that are in a growth phase and reqiure “more than a gut-feel” approach to making strategic decisions about whether to open new DCs or where to locate a plant producing what product portfolio etc. I’ve taken a screenshot of the tool that I have been working on below. I’ll be updating the development progress under the Tools tab in the navigation bar.
Tags: Transshipment, Supply Chain Planning, Supply Chain Strategy, Optimization, Lp-solve
In this concluding part of The Intimate Supply Chain – Part 3, I want to expand on the view that David Ross takes of the customer of the intimate supply chain. The two other parts of this series were: The Intimate Supply Chain – Part 1 and The Intimate Supply Chain – Part 2. Many a business adage would read – “The customer is King” (Do you ever wonder why “The customer is Queen” doesn\’t seem to sound that familiar even though one is willing to bet that women account for a whole amount of the purchasing going on). David also expands on that same observation:\r\n
Without a doubt, the term “customer-centered” is one of the most overworked platitudes in modern management. After all, who\’s not in favor of operating the business with the customer\’s best interests in mind? In reality, though, supply chains are all too often organized around internal financial objectives like resource allocation, product lines, and business-unit profitability.
Since not all customers are profitable, the first action in creating an intimate supply chain is to segment customers. Segmentation allows the supply chain to allocate scarce resources according to which customers should receive more product/service value and which less. The question naturally arises, “How do you segment a supply chain\’s customers?” Traditional aggregation strategies, such as segmentation by territory, sales, costs, profits, and similar attributes, result in too broad a definition. Further, this approach does not tell us who exactly our customers are and what value they expect. A far more effective approach is to segment customers according to the types of solutions they want.
\r\nI think that David Ross has developed a clear enough picture about what he thinks the notion of customer segmentation is in his opinion and how that goes a significant way into dovetailing into the concept of the Intimate Supply Chain. But its time to take a step back and see if there are contrary views about this observation. Well, it turns out that there is one that readily comes to mind – The Innovator\’s Dilemma. Professor Clayton Christensen describes a curious paradox about how outstanding firms can fail “by doing everything right” or how the very successes and capabilities that a company has invested an inordinate amount of time and effort developing becomes obstacles in the face of changing markets and technologies. (A more detailed look at the Innovator\’s Dilemma) In appreciating the Innovator\’s Dilemma, it becomes clear that a firm\’s customers are often the ones who create an artificial cocoon of stability and customer satisfaction even while disruptive technologies and changing market situations warrant making changes. It seems to me that customer segmentation, (especially by profitability), would miss this critical situation that occurs quite frequently in one\’s competitive space – while profits should be one of the driving factors of continued business operations, it becomes a stumbling block when discontinuities in profitable opportunities present themselves. Continuing with the article, David goes on to describe the stuff that Lean thinking is made of when applied to Supply Chain Management (SCM).\r\n
- Define value proposition. Key activities here include identifying the value profile for each customer segment in terms of the critical benchmarks of service (speed and reliable delivery), product/service wrap (desirability of products, service, and solutions), and customization (ability to provide configurable, unique solutions).
- Create value-proposition portfolio. This entails assembling the solutions most wanted by customers in terms of design (form, fit, function), cost (competition, time from conception to sales), services (availability, ease of use, information), and quality (conformance, reliability, durability).
- Determine scope of collaboration. At this step, determine how the competencies and resources of the supply network should be integrated to help in creating, sourcing, and delivering the value proposition portfolio.
- Ensure customer buy-in before rollout. Before widespread rollout of the value proposition, apprise customers of the initiative and ensure that they buy into it.
- Develop value-proposition metrics. Performance metrics need to be in place once the rollout has taken place. These measures will allow planners to gauge the effectiveness of the value-proposition portfolio and will provide the basis for the next round of improvements.
\r\nThe latter half of the article deals with how to create the Intimate Supply Chain and its benefits. The two benefits that David Ross identifies for the Intimate Supply Chain are Financial performance (driven largely by customer segment focused profitability measures and initiatives) and Competitive Positioning (by targeting customer segments with customized solutions rather than a big box fit everyone the same way strategy). In conclusion, I believe that the Intimate Supply Chain offers some really good perspective about the application and adaptation of Lean thinking into Supply Chain Management. The article identifies and delves into specific actions that in the author\’s opinion and experience would go a long way into creating and sustaining the Intimate Supply Chain. On a personal note, I have found it notoriously difficult to be as concise and clear about communicating information the way that the author David Ross has been able to do it – kudos to him for that!\r\n\r\nTags:Lean, Intimate Supply Chain, Supply Chain Management, Globalization, Mass manufacturing, Supply Chain, Customer Segmentation, Innovator\’s Dilemma, Clayton Christensen