@ Supply Chain Management

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.

Enjoy!

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.

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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

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• 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).

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• 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).

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• 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.

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• 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.

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• 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.

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\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

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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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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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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