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Creating the Optimal Supply Chain – Review (Supply Chain Enterprise Systems: The Silver Bullet?)

In this concluding review of the report titled – Creating the Optimal Supply Chain published by experts from Wharton and BCG, I take a look at the section titled – Supply Chain Enterprise Systems: The Silver Bullet?. In earlier posts, I had reviewed the first three sections namely, You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value, Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management and Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption. The report – Creating the Optimal Supply Chain is available online as well.
There can be little doubt in the minds of supply chain professionals and practitioners that managing the supply chain is no easy task no matter how simplified the meta level process diagram looks like that neatly shows product flows in one direction and information flows in the other. It is precisely because supply chain management is such a complicated issue that Supply Chain Enterprise systems have appeared on the scene from a variety of vendors – SAP, Oracle, i2, Manhattan etc. However, since supply chain management is a rather complex task in itself, systems deployed to facilitate supply chain management are also complex such that a practitioner now has to deal with supply chain complexity through a complex system. And thus go I to say – “Have you really solved a problem when your solution creates two new problems?” This task is not made any easier when you have to wade through not only a complicated solution set but oodles of marketing gimmicks, ploys (and well meaning marketing professionals as well), endless half promises with inflated verbiage and out and out term misuse.

According to supply chain experts from the Boston Consulting Group (BCG) and Wharton, applying enterprise systems technology to supply chains is often a difficult undertaking with an uncertain outcome; in reports and cases cited by both BCG and Wharton, companies that have implemented supply chain technologies often fail to leverage the new systems for a competitive advantage.

That is by itself not surprising at all. The success of a supply chain system implementation (or for that matter any type of implementation) is limited by the capability of the people deploying and using the system. Furthermore, in order to use such technology to create competitive advantage is a task of an order well above the capability that some firms possess or are even in the process of acquisition.

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Creating the Optimal Supply Chain – Review (Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption)

In the continuing review of the report titled – Creating the Optimal Supply Chain published by experts from Wharton and BCG, I took a look at the section titled – Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption in this post. In earlier posts, I had reviewed the first two sections namely, You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value and Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management. The report – Creating the Optimal Supply Chain is available online as well.
Supply Chain disruption is making headlines in recent times because of events that occurred in recent months past such as terrorist strikes, hurricane Katrina and the longshoremen strike at the US West coast ports. I must reiterate again, that the macro picture against which such supply chain disruptions might occur is the globalized, outsourcing/offshoring manufacturing/procurement business world. That implies that while the world’s resources and manpower is at a firm’s disposal, more or less, so also are the world’s problems – in a global supply chain, the disruptions even though occurring locally might have multiplied effects far beyond the locally known or observed effects. Also, those effects might not even be noticed by those decision makers who sit far removed from the means of procurement or production and the first intimation of the crisis might be at the supply level by which time it might be far too late.
The authors state,

Today’s leaner, just-in-time globalized supply chains are more vulnerable than ever before to natural and man-made disasters — a reality that creates greater demands on companies to keep supply chains flexible and integrate disruption risk management into every facet of supply chain operations.

That’s just way off-base. Today’s globalized supply chains, whether or not they are just in time, cannot be in any sense leaner than before. Given the fact that lead times have increased in a globalized world through outsourcing/offshoring, inventories have gone up in every stage of the supply chain – so how have globalized supply chains become leaner? But it is also true that exposing one’s lines of supply (just as in the case of war strategy) globally, the risks of disruptions have also increased. Now, the question has to be asked, was it worthwhile to have gone the route of globalization in procurement/manufacturing on the basis of per unit cost without taking into account the total costs of procurement that are involved for the supply chain?

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Creating the Optimal Supply Chain – Review (Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management)

In Part 1 of Creating the Optimal Supply Chain, a report made available publicly by Supply Chain experts from BCG and Wharton, I reviewed the section titled You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain ValueYou Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value. In this post, I want to review the next section of the report titled – Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management.
When I’m having my groceries checked out at Walmart, the clerk almost always asks me the following question in some form or the other:
“Did you find everything you wanted?”
And invariably I answer – “Yes!” whether or not it is true. I can only think of one time when I was searching helter skelter for 1 particular product (a baby boppy pillow) that I told the clerk. And I set a chain of events in motion. The clerk didn’t know where I’d find it. So she called up her manager and she led me straight to the product even though I had been searching that exact aisle for a good 10 minutes.
Ofcourse, there’s no such thing at Walmart.com and that I consider a slip up. Amazon.com addresses this question in a different way by serving up recommendations that my buying/searching profile conjures up in their algorithmic search technique on their page but coming to think of it whether it is 1-click checkout or a haphazard checkout online, none of these retailers bother to ask me this question.
In this section of the report, the authors contend that,

But the process of getting the right product to the right place at the right time at the right price

11th Annual Third-Party Logistics Study 2006

As reported previously here, the summarized results of the 11th Annual 3PL study 2006 are now available at the site – www.3plstudy.com. The authors and objectives of the study were:

The 2006 study is produced by C. John Langley Jr., Ph.D., of the Georgia Institute of Technology, with industry experts from Capgemini, DHL, and SAP, and is an extensive study about using 3PL services in North America, Western Europe, Asia-Pacific and Latin America to examine critical trends and issues among key markets and key customers in the 3PL industry.

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Creating the Optimal Supply Chain – Review (You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value)

Earlier last week, I linked to a special report published by experts from BCG and Wharton regarding the topic – Creating the Optimal Supply Chain. I want to get this week off to an early start because I know that this week is crunch time at work.
The report is structured under four main topics namely,

‘You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value
Avoiding the Cost of Inefficiency: Coordination and Collaboration in
Supply Chain Management
Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption
Supply Chain Enterprise Systems: The Silver Bullet?

So I dug into the report accordingly. Let’s take it a section at a time.
‘You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value
So who hasn’t heard of Dell? Or Walmart?

In the face of increasing complexity in global supply chains, more companies are realizing that supply chain management (SCM) is a mission-critical element, and no longer simply the domain of the warehouse manager or logistics director.

Alright, that’s a little unfair because everybody needs a lead in into a piece and its no good to spring on that salient fact. But the fact of the matter is that the lead-in is a poor one at that. The critical nature of the supply chain in the business model that Dell uses or even that of Walmart is the stuff of legend now – we’ve come a long way from the notion that Supply Chain Management is the purview of a warehouse manager or logistics director alone even if some firms insist on operating that way today.
However, in the light of current business trends, the report states

“The major trends in business right now – low-cost country sourcing, outsourcing, customization, globalization and more – all create tremendous complexities in a supply chain,” says Steve Matthesen, vice president and global leader for supply chain at BCG. “In most cases, however, companies have not changed how they manage this critical part of the business.”


But for a moment consider where we came from. The above business trend is a business created trend or what I mean is that outsourcing and offshoring as methods of procurement or manufacturing were created by the business world for the business world. In all truth, the increase in supply chain complexity was a trade-off, whether recognized or not, for the lower costs of production or procurement. Offshoring and outsourcing will generally tend to increase lead times and inventory levels across the supply chain and this is precisely what companies that chose to outsource or offshore need to be aware off.

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Brown trouble – UPS preps for job cuts at Supply Chain Solutions unit

Logistics Management reports on planned job cuts at UPS in the Industry News section here.

UPS announced yesterday that it will be cutting jobs in its Supply Chain Solutions unit in an effort to cut costs and reduce redundancies, according to wire reports. SCS offers shippers various services, including transportation and freight, logistics, international trade, and consulting.

Further more,

UPS SCS director of public relations Susan Rosenberg told Logistics Management that specific numbers for job cuts are not yet available, because the company is still in the process of what the actual numbers will be.


And the motivation behind these job cuts:

While Rosenberg noted that things are smooth for UPS SCS from an operational standpoint, reducing costs are the main driver behind the company’s decision, said Dick Armstrong, president of Armstrong & Associates, a 3PL consultancy.
“UPS’ stockholders are not very happy with the fact that they have not shown improvement towards achieving their target of having operating ratio,” said Armstrong. “The pressure [with these cuts] is to rationalize operations there. It is a large business that contributes-over $4 billion-and it contributes $1 billion to the parent company each year, but…analysts and investors think SCS should have significantly better results going forward, and they have not seen the progress.”

Other wire services report on the same story,
UPS to cut jobs in logistics, freight forwarding unit: AP
UPS Will Make Job Cuts

Creating the Optimal Supply Chain

Experts from Boston Consulting Group and Wharton have released a report titled – Creating the Optimal Supply Chain that

discuss strategies for maximizing the value of supply chains, avoiding inefficiencies, managing the omnipresent risk of disruption, and evaluating the pros and cons of supply chain enterprise systems.

There’s so much meat in that paragraph and the attached report that it will probably take a few days to chew it over which I will be doing over the next few days.

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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.

@ SCM Clustrmap

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