@ Supply Chain Management

1. IBM Goes Up Against Oracle, SAP In Product Lifecycle Management
IBM is partnering with UGS to deliver a version of UGS’s core product – TeamCenter Express targeted at small and midsize businesses, reports CRN Online. The gist of the partnership centers around:

The Teamcenter system competes with an Oracle PLM product launched in mid-2003 and an SAP offering. IBM is eager to market Teamcenter Express because it often generates a demand for IBM’s own WebSphere middleware and data translation products.
PLM for the most part has been a concern of large companies with complex products enjoying long shelf lives. UGS Teamcenter, for example, is the tracking system for the Lockheed Martin F-35 Strike Fighter aircraft, with hundreds of suppliers and partners.
If the IBM-UGS partnership is a sign of the times, small and midsize businesses with complex products want the benefits of collaborative product data management as well.

In so doing, IBM would be stepping on the toes of Oracle and SAP, not to mention other CAD/CAE providers such as Dassault (makers of CATIA).

2. Kimberly-Clark Outsources Some Sourcing, Supply Management Services
Since Kimberly Clark (KC), has a major operation right here in Neenah, WI (about 40 miles south of where I live), I get to hear about the goings on there. It helps that I have friends and relatives who work there. SDExec.com reports,

Kimberly-Clark Corp. has signed a five-year contract with procurement services provider ICG Commerce, outsourcing to the firm certain sourcing and supply management activities.

And the particular corporate logic behind this move,

“By selecting ICG Commerce, Kimberly-Clark’s sourcing and supply management staff will focus their expertise on such critical business purchases as raw materials and packaging supplies, while leveraging ICG Commerce’s market knowledge, sourcing strategies and procurement experience to reduce costs and improve efficiency.”

3. Click Commerce Offers New Warehouse Management Solution
A new offering from SCM software provider ClickCommerce is highlighted in this report from SDExec.com.

On-demand supply chain management solutions Click Commerce Inc. introduced WMX, a new warehouse management solution

Further more,

Click Commerce said WMX addresses the challenges of today’s complex supply chain environments: visibility and control within and beyond the four walls of a warehouse. Based on service-oriented architecture (SOA), a modular design principle, the WMX enables companies to integrate with third-party systems, reducing implementation time and costs.
In addition, the new product incorporates configurable, rules-based business processes, which gives companies the flexibility to adapt their warehouses to changing conditions. For example, the solution enables companies to start operations at new warehouses quickly and cost-effectively automate processes to meet their customers’ needs. In addition, Click Commerce WMX supports technologies such as voice-enabled warehouse activities and radio frequency identification (RFID).
Click Commerce WMX also supports return and repair business processes. These post-sale operations are becoming an additional revenue source for companies and another way to differentiate themselves from their competitors. Click Commerce WMX is designed to manage the dynamic processing requirements of reverse logistics and help deliver improved customer service.

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3PLWire alerted me to the news of more job cuts on the way at UPS Supply Chain Solutions. The report from the AP via Yahoo reads,

UPS Inc., the world’s largest shipping carrier, is seeking more job cuts on top of 1,200 positions in its logistics unit it previously said it would cut.
The Atlanta-based company has offered voluntary severance packages to roughly 650 employees at its headquarters and in its Supply Chain Solutions division in the United States.
Those receiving the offers are at least 50 years old and have at least 10 years of experience, spokesman Norman Black said Monday.

In other words, UPS is on a cost cutting spree and according to the report, it might not be done yet.

The cuts are in addition to the 1,200 jobs UPS announced in October that it would shed in its Supply Chain Solutions business, which handles air freight and logistics services.
At an investor conference last month, Chief Financial Officer Scott Davis told analysts there might be more cuts as the company evaluated the best way to deliver non-operating functions such as human resources, finance and accounting, engineering and network planning.

So I wanted to see what might be happening over at UPS and so I headed over to the public financial statements.
Year on Year & quarterly comparison of UPS results
From the Qtr over Qtr EPS Growth Rate, it looks like FY06 results might not be all that good and its certainly trending that way. Let’s see what UPS reports for the year.

On the Interim Income Statements, the only thing that I can see is that SG&A (Selling, General & Administrative Expenses) has been holding steady for 2 quarters at $222 million and reduced from Q1 of 2006 from $252 million. Perhaps, UPS is trying to hold down its operating costs as much as possible through these cost cutting measures which might mean that the top line might not be that great for Q4 and the whole year as well.

Finally comparing UPS with a select few competitors:
The positive side of things for UPS – Net profit margin at 8.8% and sales growth at an astounding 14% for a company of the size of UPS at $46.87 billion of revenue.
However, on the flip side – Income growth over the last year is sluggish at 9.0%. And lastly, if you look at the Relative strength of UPS, the market doesn’t exactly love the stock coming in at an RSI of 57 over the last 3 months.

I guess we have to wait for the 2006 EOY results from UPS to see what might be happening there.

Tags: UPS, UPS Supply Chain Solutions, Job cuts, UPS financial performance

Manufacturing.net has an article about the efforts of an MIT professor to study energy use in manufacturing which led me to further searches and discovery. The article titled – MIT Prof To Study Energy Use In Manufacturing by Amy Radishofski talks about Professor Timothy G. Gutowski and his efforts to

study energy use in manufacturing processes from machining and grinding to injection molding and microelectronics fabrication methods

The article is cross-referenced at MIT news office in this article.
Amy notes,

Gutowski wants to compare the environmental performance of traditional methods versus that of alternative processes and product designs and proposed new processes.

In an earlier life of being a mechanical engineering student studying product design as an activity, the customer figured as one of the most important players (if not the most important) as well as durability, configurability etc etc. Today, another player has entered the matrix of competing demands or needs – environmental factors that were in the past dismissed as an externality.
Here’s an important thing to note from the article:

According to Gutowski, efficiency and increased production go hand in hand, thus the increased production would offset gains in efficiency. “Hence, energy efficiency alone has not resulted in an absolute reduction in energy use,” he added.

That is quite true because the market (local or global) is not even close to be satisfied yet. However, when looking at a firm which has innovated efficiency gains in their production, increased production would be the resultant if customers seek to take advantage of efficiency gains. But other firms in the competitive space who have not been able to innovate similarily would lose market share and thus production through inefficient technology or of inefficient technology would tend to decrease as long as customers actually desire to take advantage of the efficiency gains. I accept that this is a simplistic scenario because customers (such as I) are looking not only for efficiency gains, say in MPG with respect to cars, but a total value proposition or to be more specific (thanks to marketing genuises) a percieved total value proposition. If you watch cable TV in the US, you have been bombarded with the advertisement of a VW Jetta in an accident over, over and over again. Notwithstanding my general reaction that when I buy a car, I’m not thinking of accidents that might happen, passenger safety is one of the criterion that one must take into account. That’s what I mean by total value proposition or percieved total value proposition.

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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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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.

Tags: Supply Chain Management, Supply Chain News, Carrefour, Workday, RFID rollout, Marks & Spencer, Infosys, Synerpy, SAP, Electronics Supply Chain

Cardinal Health Releases RFID Pilot Results in a recent news release. They report,

Test data shows promise and gaps of the technology that will affect widespread adoption across pharmaceutical industry

The aims of the RFID pilot program were as follows:

The pilot program tested whether ultra-high frequency (UHF) radio frequency identification (RFID) tags could be applied, encoded and read at normal production speeds during packaging and distribution of pharmaceuticals. Verifying the authenticity of medications along each step of the distribution process adds an additional layer of security to lessen the chance of counterfeit pharmaceuticals entering the supply chain. It is also hoped that RFID data could improve efficiencies in the supply chain.

The results of the pilot program:

Overall data collected by Cardinal Health supports the theory that RFID technology using UHF as a single frequency at the unit, case and pallet levels is feasible for track and trace. However, several challenges remain before it can be adopted industry-wide. Some of those challenges include:

• Technology and process improvements to achieve:
• Case-level reads in excess of 99 percent at all case reading stations;
• Unit-level read rates in excess of 99 percent when reading from tote containers at the distribution center and pharmacy locations;
• Allowing unit-level “inference” to become acceptable practice in the normal distribution process at stages where unit-level read rates are unreliable, but case level reads approach 100 percent (*Three stages marked in chart above);
• Barcode technology to be used as complementary and redundant technology to RFID;
• Management of the cost impact to implement and sustain the technology;
• Improved collaboration across the industry to identify opportunities to significantly improve efficiency.

Tags: Cardinal Health, Pharmaceutical Supply Chain, RFID, RFID Pilot, UHF, Supply Chain Security, Supply Chain track & trace

Understanding supply chain risk: A McKinsey Global Survey (Free registration required) is a new article put out by McKinsey & Co in the McKinsey Quarterly online magazine. They surveyed executives at publicly and privately held businesses across a range of industries in September 2006.
The key findings:

Nearly two out of three executives say they face increasing risks to their ability to supply their customers with goods and services cost effectively

The executives identify a wide variety of risks; topping the list is the availability of well-trained labor.

The executives most likely to say that their company’s level of risk has risen are those in retailing, manufacturing, and energy; those in the energy industry are by far the most likely to say their risk has increased significantly.

The executives rank labor, regulation, and suppliers as the top three supply chain risks on which they focused during their most recent round of planning.

Executives at the smallest companies (those with annual revenues under $500 million and with fewer global resources) are also particularly likely to say that labor is a problem.

The degree of disconnection between risk and its mitigation may be one reason that executives rate “fairly poor” their company’s ability to mitigate their key supply chain risks, 39 percent say they are at best slightly capable of doing so. Furthermore, 41 percent of executives say that their company does not devote enough time or resources to mitigating risk-nearly five times the number who say that too much time and too many resources are allocated.

More than half of all respondents say their company either undertakes no formal risk assessment or conducts only a qualitative assessment.

Only 18 percent of respondents believe that the Sarbanes-Oxley reporting requirements3 help them reduce their supply chain risks.

I’ll just plug my fellow blogger riskape on this topic – Riskape. I’m sure that managing supply chain risk in a systematic manner is high up there in the area of real needs for supply chain professionals and I’m sure that I’ll be devoting more time to that as well.

Tags: Supply Chain Risk, McKinsey Quarterly, Supply Chain Management, Supply Disruption