@ Supply Chain Management


Uncle Sam’s looking for a few good bids (Something I worked on)

The Defense Department is looking to outsource the management of its domestic freight-a contract that could run into the billions of dollars. The program is intended to cut costs and boost service; it could also shake up the industry.

DC Velocity has an article about the DTCI – Defense Transportation Coordinator Initiative that is finally getting some well needed publicity.
I’m pleased to see something that I was part off for more than a year finally seeing the light of day. And I choose the word “part off” very carefully because you can only be a “part off” something like this – the DTCI project was just huge. The dataset was huge. The dollar amounts were more than huge. The meetings lasted days. The computational times were spread over weeks. And so on…
So what is the DTCI all about?

Perhaps it’s no surprise that the people who brought us stealth technology have launched an all-out war on freight spending and nobody seems to have noticed. And the Department of Defense (DOD) surely is thinking big. In August of this year, DOD began reviewing proposals submitted under its Defense Transportation Coordination Initiative (DTCI)—a program through which it will outsource the management of all DOD freight moving commercially in the continental United States.
The goal of DTCI is to improve the speed, predictability and reliability of transportation while simultaneously reducing costs by as much as 20 percent. The rest of us call it third-party logistics (3PL), but hey, this is the government, which rarely misses an opportunity to make up its own acronym.

Nothing could be truer that governments make up acronyms on the fly. This is especially painful if you as an outsider have to sit through meetings where you get bombarded with acronymns every third or fourth sentence. I mean that they have a whole different language unto themselves.

Now, DTCI is no secret … the DOD has been working the circuit since early 2004, talking the vision and addressing concerns. It has even created a public Web site devoted to the initiative. But outside of the defense world, it hasn’t generated much buzz, and it should.
We’re talking billions of dollars in freight over the life of the contract. That’s not a typo. Billions of freight dollars. And when you start shifting that kind of money around in a market, changes happen. Not just for the players involved, but for everybody playing in the sandbox.

The last thing you want is for the government to make a move because when a governmental department the size and scope of the DOD shifts its way of doing things, its like an elephant in a china shop, more or less. With the DTCI, the government wanted to make a significant first step of bringing in private parties to manage the DOD’s domestic freight. The DOD in any case doesn’t use its own fleet for domestic freight shipments except in some special cases and contracts carriers to ship stuff already. However, in DTCI, its trying to bring in a 3PL for very much the same reasons that a firm would bring in a 3PL.

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Healthy paranoia drives investment in supply management – Part 1

Global Logistics & Supply Chain Strategies Magazine (online version) has an article in their recent edition on Investment in Supply Management. The article was authored by Jean V. Murphy.
The lead-in into the article reads,

With the growth in offshore sourcing and manufacturing, supply lines have become longer, more complex and more vulnerable to disruptions. Concerned companies are meeting this challenge with a disciplined approach to supply management.

While in the past (or even today), supply chains experienced bullwhip effects on a local or regional level. Several factors contributing to the bullwhip effect are summarized below:
* Forecast Errors
* Lead Time Variability
* Batch Ordering
* Price Fluctuations
* Product Promotions
* Inflated Orders
Now imagine that the scenario confronting supply chain managers in a global context. Will there be a global bullwhip effect? Maybe yes and maybe no. If you looked at the contrinbuting factors above, all of the above factors exist in the global supply chain but because of a larger lead time (not Lead time variability which is also a factor), the effects are either going to be highly exacerbated or well damped.
Perhaps, highly exacerbated effect is easy to imagine because multiple orders to cover non-existent demand would quickly spiral out of control given longer lead times. However, there is also the possibility that one might find a well-damped effect. The volumes of inventory that have to be maintained are going to be quite large at all points in the supply chain and this serves as a buffer in the system.
If you’ve had the opportunity to play the beer game and had a situation wherein a particular node in the game had a lot of inventory at some point early in the game, that node would buffer the upstream nodes from the imaginary demand occuring in the supply chain.

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Stop Wasting Time with Supply Chain Collaboration that Just Won’t Work

In the continuing series of taking at look at “Living Supply Chains” (Part 1 of Living Supply Chains can be found here), I review the latest post about the topic – Living Supply Chains, by Dan Gilmore of SC Digest.
Dan summarizes the central point of Part 1 of Living Supply Chains as follows:

Gattorna says the creating of “Living Supply Chains” can create enormous competitive advantage, and that there are two keys: getting the people/culture side of the equation right, which in nearly all companies is a huge barrier to strategy execution, and “dynamic alignment,” in which a company’s supply chain organization, capabilities, and services are specifically – but flexibly – linked to customer buying behaviors (with a similar concept for supplier relationships).

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Getting to World-Class Supply Chain Measurement

Debra Hofman, of AMR Research, writes about Getting to World-Class Supply Chain Measurement online at Supply Chain Management Review in their October edition.

The questions we receive run the gamut, from “What should we be measuring?” to “How do we get these numbers?” to “What do we do with the data once we get it?” What companies are in essence asking is, “How do we get to world class supply chain measurement?”

Debra first lists out some of the recounted obstacles with supply chain measurement:

  • Too many metrics
  • We see companies that are looking at hundreds, sometimes thousands of metrics.

    Perhaps, that is a symptom of too many managers and the need for measuring their performance in order to justify the exercise of having so many managers in the first place. Or perhaps, it could very well mean that no one has a clue of why each metric needs to be measured in the first place.

  • Endless debate over metric definition
  • There is a definitional problem when there are no accepted underlying truths that everyone can agree upon. When it is more important to define one’s success by a metric, then definitely a definitional game is going to be played.

    Clearly, some debate is healthy and, more importantly, necessary.


    There is a point, however, where debate becomes a form of resistance, providing a way to put off change.

  • Constantly changing metrics
  • One company we talked to described this as the “metric-of-the-year syndrome.”

    One wonders if there is correlation to office holder/manager of the year as well that is also behind the metric of the year or quarter. I’m sure that everyone understands that metrics measure i.e. report back how things are going and they don’t innovate new ways of doing things. Metrics reside on the feedback loop and not on the forward loop of acting.

  • Old data
  • Or the only available data. I have found frequently that this is the case. Like the old adage, “What you don’t measure is not important to you!”, those companies that don’t have a handle on their data are a goldmine for consultants.

  • Gaming the system
  • For example, in our benchmarking studies at AMR Research, we measure the perfect order, which is defined as an order that’s complete, accurate, on-time, and in perfect condition. An order that is split because product is not in stock for some of the lines on the order is considered incomplete, and therefore the whole order is imperfect. What some companies have found when they instituted this metric is that in these situations, people were canceling the original order and replacing it with two new orders that could be filled, thereby keeping the perfect-order rating up.

    I don’t think that I need to say more!!

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    SCM Newz roundup

    1. PeopleSoft co-founder launches his ERP Workday. This is a news story that I’m following (from Business Week where I think I saw it first).

    Dave Duffield, the co-founder of PeopleSoft Inc., is hoping he can duplicate the success of his previous applications venture, although this time around, he’s focusing on hosted software.
    Duffield and some of his former PeopleSoft colleagues Monday announced the general availability of the first of four planned suites from their new on-demand enterprise resource planning (ERP) software company Workday Inc.

    This company should be something to watch and I’d be very interested in finding out how they take on the other ERP players and if there is something different in the way they do things.

    2. Infosys counts on processes.

    “It is like managing an assembly line spread across many locations, and to do that effectively, processes are critical,” said B.G. Srinivas, senior vice president and head of the company’s European business.
    To make sure processes are followed, Infosys has developed applications for project management, budgeting and quality measurement. “When you have these tools online, and a person from any location can access the information, then a certain transparency gets built into the process,” Srinivas said.

    Here’s something that is interesting that I (have heard about before) noted about their staffing strategy:

    The company is also able to add more staff to a project quickly if the customer requires it. At any moment, between 76% and 80% of Infosys staff are assigned to a project, with the others forming a “strategic bench” of staff waiting to be assigned.

    Now, that’s almost right when it comes to capacity utilization metrics (taken from a manufacturing or DC operations) and it looks like something that can be extended to other spaces as well.

    3. Open-source ERP vendor hustles in SAP’s back yard. Now, that’s interesting, to say the least.

    Synerpy allows businesses to download its business application software suite, avERP, free of charge and modify the product as they please. The product contains around 40% of the functions available in the offerings of large ERP vendors, including SAP, according to Brodner
    The vendor makes money from selling various services, such as consulting, programming and training. At the high end, Synerpy generates around $1,893 in revenue per user, according to Brodner. “Customers are free to decide how much support they want,” he said. “There is no obligation; it’s up to them.”

    It looks like they’re following the standard open source model and in an industrial application that is bound to be successful if they have a good product. On the one hand, you have SAP or SAP like firms that sell their multi-million dollar, multi-year and can’t tell you if you will really succeed software implementation and on the other hand you’ve got these small open source free software people who only sell consulting services. And its the latter that seems to really think that Enterprise related implementation are more service than anything else.

    4. Is the Electronics Supply Chain in danger?
    So leads the article from the EDN Network by Ed Sperling that recounts the current state of affairs in the global electronics supply chain. He notes the following good things that are happening or have happened:

    The electronics supply chain has never been more effective at reducing the boom-bust inventory cycles.
    Manufacturing is running leaner. Orders are being checked and re-checked to avoid the kind of double bookings that wreaked havoc in 2001.

    So what’s the concern then?

    Consolidation into regional monopolies, such as glass manufacturing in Korea, silicon on insulator substrates in Taiwan and consumer electronics manufacturing in China mean that natural disaster, political unrest and even breakdowns in local logistics could stall supplies that will have rippling effects across the electronics industry;
    Communication throughout the supply chain, while a vast improvement over what existed prior to 2001, still is far from perfect. Distribution executives and foundries are in regular communication with suppliers and manufacturers-sitting squarely between the two, in many cases-but they don’t have insight into each other’s business;
    Reliance on one or two vendors can greatly impact demand for finished goods and the exposure of companies to lawsuits if something goes wrong, as it did with Sony’s battery recall.

    I think the first point is probably the most important one and customers of these foundries and OEMs have to be wary about adjusting their inventories to buffer such disruption and be at a moment’s notice to act proactively at the first sign of issues cropping up. The second point is a more structural issue that will get sorted out as the need becomes apparent – it will be competitively advantageous to do so. The third point is also a part of risk mitigation and is related to the design and procurement programs that one has in place but its something that hits you out of the blue. However, it will hit everyone out of the blue – the question is whether you’re ahead of your competitors or not.

    5. M&S read to start national roll-out of item-lelvel RFID.

    Marks & Spencer is planning to deploy item-level radio frequency identification (RFID) tags at almost all its clothing stores after successfully trialling the technology in selected stores last year.

    Marks & Spencer is a rather large and established retailing chain based AFAIK out of the UK. Their RFID trial is bound to have an impact and its effect on M&S’s bottom line will be keenly watched.

    Marks & Spencer started its item-level RFID trial at the beginning of the year when its spring/summer clothing ranges came into stores.
    Two months ago the retailer announced that it had extended the item-level trial to include its autumn/winter clothing range. By extending the project for a second fashion season, Marks & Spencer almost doubled the number of tagged items, from 25 million to 49 million.

    6. Forbes and McKinsey Quarterly report on Carrefour China: Lessons From A Global Retailer. During my Singapore living days, I used to frequent Carrefour by Suntec city and I thought that the word hypermarket was an apt description of how big the place was. Carrefour entered China in 1995 and since then,

    it has become the largest. Today it operates 73 hypermarkets in 29 cities, from Urumqi (in the western reaches of the Middle Kingdom) to Harbin (near the Russian border) to Kunming (in the south). Carrefour also operates the Champion supermarkets and Dia convenience stores. Its 2005 turnover was about $2 billion (including value-added tax), making China Carrefour’s fifth-largest market. The company expects its sales in China to go on growing by 25% to 30% annually over the next five years.

    Read more about the experiences of Carrefour in China at the linked site.

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    Warehousing the future

    Everything’s changed in 20 years; yet nothing’s changed in 20 years. Veteran DC consultant Ken Ackerman may rhapsodize about the potential of technology, but in the end, he says, the business is still all about the effective management of space and time.

    And so begins a Q&A with Ken Ackerman by DC Velocity magazine (2003) that delves into Ken’s view of where warehousing has been and where it is headed. I have excerpted some of the views that I found illuminating below:

    Q. If a stranger were to walk up to you and say, “Hey, what are the three or four most important elements in a good warehousing or distribution center operation?” how would you answer?
    A. I would tell them they needed to be sure they were managing the space as well as it can be managed and managing time, which is the labor, as well as it can be managed. Is there some waste in the operation? Are there steps that shouldn’t be there?

    I would agree but I think a larger point has been overlooked. Ken’s points are exclusively about what happens within a warehouse’s four walls. The first important element in a good warehousing operation is location, location, location. Today, these warehouses may even be located in a third country replicating inventories and buffers in different parts of the world. If you supply chain has some hard infrastructural decisions to be made, one of them is likely to be where the warehouse(s) are located.
    The next set of Q&A has to do with the influence of technology and how it is spreading into the warehousing world:

    Q. Let’s say you’re a logistics professional and your job is overseeing your company’s DC operations. What has made your job profoundly different today than it was,say, 15 years ago?
    A. It is the information revolution.

    Q. Are you talking about this parallel flow of goods and information and how they interrelate? How is that really changing the job? Are people more productive or are people able to make better decisions because they have more information? Or is there another side to this, with people becoming overwhelmed by information?
    A. Both. I think if I look back at the last 20 – some years, the biggest thing to come along has been automatic identification, specifically bar coding and scanning. The next big thing, which I believe will supplant and possibly replace scanning, is voice recognition in the DC.

    Q. What are some of the inherent advantages of voice? Are we talking about a technology that can really change the game?
    A. Yes, and I’ll tell you why. Your hands are free with voice. You don’t have to hold a scanner. You don’t have to hold any papers . You run down the aisle we a ring your earphones, your microphone and a computer attached to your belt, and you pick orders. The machine says, ‘Go to X-70’; you say, ‘ I am at X-70 and I see queue #1234′; it says, Pick six pieces’; you say, ‘Six , five, four, three, two, one, check’; and it tells you to proceed to the next location. It’s programmed to check the count, too – which means better accuracy. The wholesale grocer that I saw doing it bought this system to improve accuracy; it did not buy it to boost productivity. Getting both was a pleasant surprise.

    There are two aspects to Ken’s response – there is the informational aspect (typified by how IT is bringing information to those who need it) and then there is the intelligence aspect (typified by how new technology is developing “directional” capability when it sits on top of the information that has been generated by the IT systems). Now, the reason that IT systems were absolutely necessary (or even is absolutely necessary in different applications) is that while economics dictates the scale of an operation i.e. getting larger distributes marginally increasing costs on a larger volume of stuff, scale overwhelms the human being’s mind when it comes to deciding/choosing the best way of doing things leading to sub optimal decision making. IT systems collect information even from a very large scale operation and are able to aggregate them in a way conducive to establishing patterns that in turn lead to systematic processes. However, when systematic processes scale bigger than the human beings ability to execute, then intelligence of a rather low-level variety is required to sort out these choices. As you can see, there is a trend there – scale, metaprocess, scale, metaprocess where the metaprocess is what people develop to handle scale and the inherent complexity of scale.
    Also, I’d like to think that the gap that opens up between scale and metaprocess is the entrepreneurial gap wherein new solutions are warranted and whole new ways of doing things open up.

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    How does your warehouse stack up?

    Logistics Management has a new article titled – How does your warehouse stack up? by Maida Napolitano. The survey was conducted jointly by Logistics Management and Gross & Associates, a consulting firm specializing in materials handling and logistics – First Annual Warehousing Trends Survey.

    The survey was designed to help today’s warehouse managers get a clearer picture of the challenges they face today and give them an opportunity to see how their warehouse operations compare with the industry average.

    The composition of the survey involved:

    The results of the Warehouse & DC Trends Study are based on the responses of 485 participants involved in making warehouse-operations decisions at North American companies.

    The key findings of the survey are broken down along the following lines:

    • Typical Characteristics
    • Goals
    • Need for speed
    • Operations
    • Finding a solution
    • Technology

    Typical Characteristics of an American Warehouse

    A typical North American warehouse
    is privately owned (77 percent) with either an end consumer (32 percent) or a manufacturer (26 percent) as its primary customer.

    1. is less than 250,000 square feet
    2. receives and ships a wide variety of products, such as electronics, computers and software (25 percent); paper, packaging, and office supplies (24 percent); and chemicals and raw materials (21 percent).
    3. the most common units handled are pallets (87 percent) and cartons (79 percent), with rack storage (86 percent) as the primary storage module, followed by floor storage (62 percent).
    4. Over 90 percent of warehouses still pick orders manually using carts and pallet jacks, while 20 percent have evolved to some form of mechanized picking to a conveyor.
    5. 3 percent of warehouses have fully automated picking requiring no human intervention. The typical warehouse uses some form of warehouse management system (WMS).
    6. Thirty six percent of respondents developed their WMS in-house, 22 percent purchased a stand-alone package, and another 22 percent purchased their WMS as part of an ERP module.
    7. Surprisingly, 23 percent of all warehouses still have no WMS, relying mostly on spreadsheets and order-pick sheets.
    8. 35 percent of respondents have annual budgets of less than $25,000 for continuous improvement programs and 8 percent don’t even have such a budget.
    9. Of the warehouse managers who have a budget of less than $100,000 (59 percent of all respondents), 37 percent said they would spend some of it on materials handling equipment, while 23 percent planned to invest in information management systems.
    10. Warehouse managers with budgets of $1 million or more (7 percent of total respondents) focused more of their spending on IT. Of the respondents in this category, 41 percent reported that they would spend on information management systems, while only 21 percent planned to buy materials handling equipment.

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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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    November 2006
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