@ Supply Chain Management

A recent article in the trade rag – Tooling & Production highlights why I think that Toyota is a company worthy of emulation. The article titled – Makeover will transform Japanese plant into model of innovation, highlights the recent steps that Toyota has taken in order to venture into the unknown.

In an earlier post, I had highlighted the call issued from the chief executive of Toyota – to embark on radical changes. This article highlights how far along they’ve come in taking bold steps in order to sharpen (not regain) its competitive edge.

When Takaoka’s makeover is completed in 2009, it will build more models, faster, on shorter assembly lines than any other Toyota factory. It will use innovative approaches in virtually every step of the manufacturing process, from stamping and welding to painting and final assembly. It will become a fount of ideas for the Toyota manufacturing empire.

In the general sense, Toyota is setting up its Takaoka plant to be a flexible manufacturing site – thus, what you cannot gain with manufacturing efficiencies, Toyota must make up for with speed. One can imagine that this is really a two step approach. As the models that roll out from the Takaoka plant garner praise/rejection, Toyota’s other plants around the world (which are now dedicated to producing a stable portfolio of cars) will offer the production capacity to quickly capitalize on cars that consumers want. Buried in this story is a delicious irony – that of outsourcing. Toyota is actually outsourcing to the US and Europe.

Toyota’s plants in North America, Europe and elsewhere will continue to be dedicated to high volumes of a few nameplates, or what Watanabe calls "stable production." The elite plants in Japan, in contrast, will produce many models flexibly.

But what are the goals that Toyota has placed in front of its engineering and production teams? Above, you have a preview of the allocation of resources, the way the field has been set up so that the marathon can ensue but what are the milestones on the way?

Watanabe also wants to save money. Toyota’s current cost- cutting program is generating annual savings of $2.5 billion. Not enough. Give me more, Watanabe said. What’s the new target? Toyota won’t say.

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One of my blog friends, Randy Littleson, alerted me to the release of RapidResponse9 – a Response Management tool. In the light of my recent series on Surviving the China Rip Tide: Surviving the China Rip Tide – How to profit from the Supply Chain Bottleneck and Surviving the China Rip Tide – Recommendations???, I think it is quite appropriate to highlight the need (or upcoming need) for Response Management.

So what does Response Management do for you?

Taken from their website,

"In high-volatility, supply-constrained businesses, the new basis of competition is the ability to peer faster than your competitors into the black box of multiple planning and execution processes, running offline scenarios that give collective, rapid visibility to financial and service impact of a short list of viable decision alternatives,’" said supply chain research director Stephen Hochman, in a recent AMR Research article.

Now, regardless of whether this volatility is/has been created by your own supply chain decisions or those of others, in this age of having done globalization or off shoring already, you might very well need such a product or something like it to mitigate some of the risks the firm has exposed itself to with long lead times and global logistics. Moreover, response management is equally applicable for firms that have not packed up shop and shifted to China – when the one of the key differentiators is speed when competing with firms that obtain parts/products from overseas, getting the right product in the right quantity to the customer (especially if they’re high margin products) is going to be a source of relative advantage vis a vis its competitors.

If you’d like to know more about Response Management, there is a white paper on the subject by AMR Research that you can download for free at the Kinaxis website if you sign up.

What can I say – Lead time, lead time, lead time! What an age to live in?

Tags: RapidResponse 9, Kinaxis, Response Management

1. State of Washington Considering Restrictions on RFID Technology
SC Digest reports on an effort by a lawmaker from the state of Washington to restrict the use of RFID technology. He has introduced an “Electronic Bill of Rights”,

that would put significant restrictions on the use of RFID in an effort to protect consumer privacy

So what is the scope of this legislation?

The proposed bill would outlaw the collection, storage, and disclosure of information gathered through radio frequency identification technology without notifying consumers. The bill states that all companies using active and passive RFID devices would have to either disable the devices or gain consumer consent.
The measure would prohibit companies from mandating that consumers have RFID tags for service or refunds. It would also prohibit people and companies from scanning or reading the devices to identify consumers without first obtaining consent.

Firstly, I didn’t think that companies really wanted to know how many cans of Coke are in your fridge at this present moment? Assuming ofcourse, they’re able to differentiate that from the number of crushed/used coke Cans that are in your garbage. Such a level of granularity might be quite important for marketing purposes but I would think that its efficacy would decline on an operational level as far as the consumer is concerned. Nevertheless, who knows what an innovator would come up with in order to invade a consumer’s privacy? But isn’t it within the purview of the consumer to punish such a firm by not consuming such a product?

2. Supply Chain Strategy: Home Depot says it’s Ready for Supply Chain Transformation
SC Digest reports on a new initiative by Home Depot with regards to its supply chain.

In the face of slowing sales growth and a slumping stock price, home improvement retailer Home Depot plans to increase investment in logistics infrastructure by $900 million, with a big focus on inventory management and improved central distribution.
The comments came from Home Depot execs at the company’s annual meeting for financial analysts.
The moves clearly reflect in part the impact of Home Depot’s VP of Supply Chain Mark Holifield, who came to the post after a similar and well-respected stint at Office Depot.

Hey, I’m all for supply chain improvements but this is a joke. Just look at the news item itself. In the face of slowing sales growth and a slumping stock price, what does Home Depot plan to do? Improve its supply chain? What is wrong with this firm?
Anecdotally, Home Depot’s sales growth is slowing because Home Depot sucks at selling. Is sales growth slowing because of the lack of the proposed solution below:

improved inventory management, implement a system that will provide better visibility and control over products delivered to the home, improve visibility of product flow from suppliers all the way to the store shelf, and cut order-to-delivery lead times, and improve inbound distribution.

What is Home Depot smoking? And on the same note, what is Lowes doing right?
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SDExec.com reports on the results of a survey carried out by Maxager. The principal finding of the survey was,

Many manufacturers believe that it is important to measure the speed at which products are made, but very few have systems in place to do so

The survey results amply show that while everyone is aware that there is a problem, few have a solution:

The survey results showed that although respondents overwhelmingly (92 percent) believe that analyzing the speed with which they produced profitable products was important, 71 percent don’t have software or systems in place to do so. The result is that very few manufacturers (5.7 percent) have the ability to use a metric that is aligned with return on assets (ROA).

Here is a snapshot of Maxager’s solution to the problem:

Combining production velocity with margin produces a profit-per-minute metric. Being time-based, this metric is directly linked to ROA. It can be used at an operational level to measure the profitability of individual products, customers, deals, markets, sales regions, salespeople and production facilities. Then, everyday decisions about which products to make, who to sell them to and where to make them can be made collaboratively to maximize annual corporate profits and ROA.

What do you think? Does it work?

Tags: Metrics, Maxager survey, SDExec.com, Production velocity, ROA, Return on Assets

SCDigest reports on strong rumors about merger talks between IBM and SAP.

These are just rumors, to be sure, and have been circulating at some level for almost a year.
SAP has strongly denied the rumors during that time, though chairman Hasso Plattner unintentionally put some fuel in the fire last May by saying to the German Financial Times last year that: “There are only three potential buyers [of SAP]: IBM, Microsoft and Google. Of all companies, I don’t see anyone else. If shareholders think that a combination, and not independence, is better, then it will happen.”

From the services model that IBM follows, it makes sense to acquire a behemoth like SAP purely for its installed base and then sell all sorts of services to them. But the larger question is – what’s the room for growth here? From a software sales point of view, the market is pretty much saturated. My own view of the ERP behemoth is that given the utter complexity of something of the order of SAP/Oracle and the implicit insistence that the firm adapt to SAP’s version of reality – there is quite an opportunity for an intelligent class of enterprise software to make deep inroads.
Whatever the big honchos at IBM are thinking, I’m skeptical of such a merger simply because of revenues from any sort of installed base growth. The market space where there is some growth potential seems to be:

IBM and SAP have an existing partnership to bring ERP to the small and mid-sized company market. Penetrating these smaller companies has been a key marketing goal of SAP for the past few years.

The question is – why pick an elephant (or a sheared down version of an elephant) to run what needs to be, strategically and execution-wise, a nimble organization? Any new entrant in the enterprise software space needs to enter via the small and mid-sized company market because that’s where the behemoths are concentrating their efforts.
Old Chinese (Confucius) saying: “Do not use a cannon to kill a mosquito.”
This makes for an exciting few years ahead.

Tags: ERP, Rumors of merger between IBM and SAP, IBM, SAP, SCDigest

From across the pond, The Guardian reports,

The chief executive of the world’s biggest retailer yesterday stepped up the pace in the race to be green with a series of initiatives to cut its own giant carbon footprint – and those of its suppliers, customers and staff.

The report further elucidates what Lee Scott, Walmart’s CEO has in mind about going green,

Mr Scott outlined his “Sustainability 360” campaign in London last night at a lecture to UK business leaders hosted by the Prince of Wales. He said the vast retailer, which is the world’s second biggest company after Exxon Mobil, was determined to make its merchandise “affordable and sustainable” so that customers could “do the right thing … for this planet”.

Editorializing within a news report is quite common at The Guardian – see if you can spot it:

Speaking to The Guardian before last night’s lecture Mr Scott insisted the new initiative was not part of a “greenwash” PR campaign to improve the image of Wal-Mart, which is regularly accused of crushing smaller rivals, squeezing suppliers and paying poverty wages to thousands of workers.

Nevertheless, if The Guardian editorializes, Lee Scott grasps and employs myth effectively:

Yesterday Mr Scott said the moment Wal-Mart decided to get serious about sustainability was when Hurricane Katrina devastated New Orleans. The “desperate images” of the chaos, he said, “pushed us from a learning process into taking more aggressive action.”

Is it true that Hurrican Katrina devastated New Orleans? But we cannot let facts get in the way of a good grounding myth. I do believe that foundational myths (and here I’m using the word myth as deliberate falsehood rather than another usage which would be more along the lines of embellished legends or history) are quite necessary to creating a change in direction such as the one that Walmart is attempting to make here in going green. What it is is a good story?

t also provided a welcome boost to the store’s reputation when Wal-Mart staff opened stores to hand out food and drugs and the retailer’s relief trucks arrived in the flooded city before the US army. “Hurricane Katrina changed Wal-Mart forever,” Mr Scott told last night’s lecture.
In the wake of the hurricane he set three groundbreaking goals: to switch the entire group to using renewable energy; to achieve zero waste and to sell sustainable products. His new plan takes that further.

Now, I don’t think Walmart will ever get credit for the things that they did (in part because of an efficient supply chain that prepared for the aftermath of the storm just like retailers such as Home Depot and Lowes usually do) post Katrina because it is a symbol of something more than just “regularly accused of crushing smaller rivals, squeezing suppliers and paying poverty wages to thousands of workers.” A symbol of everything that is wrong with American capitalism, corporations etc?
Now, what is the meat of the story? If you want a flavor:

Mr Scott himself walks the talk, to an extent. His family car is a hybrid Lexus SUV but he crossed the Atlantic in a private Wal-Mart jet, one of a fleet of more than 20, with just four passengers on board.

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SeekingAlpha reports about the results that SAP AG reported today – SAP Warns, Sending Shockwaves Through Enterprise Software.
Eric Savitz of Barron’s reports,

Bad news for the enterprise software sector this afternoon, as SAP (SAP) just warned that fourth quarter software revenue growth came in short of previous guidance. This is a bit confusing, so bear with me. SAP reports product revenues, software revenues, and total revenues, and it reports on both an actual and constant-currency basis. But the bottom line is that software sales came up short for both the quarter and the full year.

The SAP stock (SAP) is off more than 10% as I write and Oracle (ORCL) is also taking a late afternoon dive.

Tags: SAP warns, Enterprise software sales