@ Supply Chain Management

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.

Tags: 3PL, 3PL Study, 3PL, Capgemini, Georgia Tech, DHL, SAP, C. John Langley Jr.

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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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

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.

Tags: Optimal Supply Chain, BCG, Wharton, Supply Chain Strategy

In Part 1 of Creating Supply Chain Value w Cycle Time Inventory Yield, I looked into what I considered an excellent piece by Thomas Craig concerning what he identified as key drivers in a Supply Chain – Cycle times and Inventory yield management. In this concluding part, I want to explore the specifics of both Cycle time and Inventory yield management.
As introduced in the earlier post, cycle time is,

This cycle time is total inventory days in the supply chain; and it is consistent with the length and definition of a supply chain. The supply chain cycle time runs from the purchase order placed on suppliers through to final placement on the store shelf or floor or to the customer’s warehouse.

and Inventory yield management refers to,

Yield management is applicable in supply chain management when inventory is viewed as the supply whose yield is to be maximized.

If one is familiar with lean thinking, then the importance of time within the supply chain shouldn’t be a surprise to you. Thomas’s implication when it comes to cycle time within a supply chain context seems to be centered around inventory cycle time i.e understanding the end to end inventory transformation across the supply chain that is under a firm’s control. In part that is driven by the need to recognize that quite a significant portion of the firm’s capital is tied up in inventory whether it is known or unknown. He says,

Studies have shown that manufacturers and wholesalers have over 60 days of inventory and that retailers have over 90 days of inventory capital tied up. These times do not include the entire inbound inventory in the supply chain. Real supply chain inventory is likely 25% higher.

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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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