@ Supply Chain Management

SC Digest has compiled two reports on Supply Chain Guru Prediction on their site. Here are the two reports.

Supply Chain Guru Predictions for 2012 – Part 1 and Supply Chain Guru Predictions for 2012 – Part 2. The SC Digest editor Dan has assembled quite a field of gurus to give their views and I’ll be delving into them in a few posts going forward.

Enjoy!!

If you haven’t tired of my shameless promotion of my other blog – Pachy Data here, here’s another opportunity to say “Stop already”. At the very least, this shameless promotion should have some takeaways for SCM folks. Big Data is going to revolutionize the SCM landscape (and the Enterprise itself) in ways that you cannot begin to imagine. In fact, the resultant is going to be that either we have someone’s imagination thrust on you or you thrust your imagination on them.

Read more – How Hadoop is revolutionizing Business Intelligence and Data Analytics.

Apple’s succession story has been in the news lately – or rather a story made necessary by Steve Job’s health situation. In this article on CNET : Apply supply chain sees smooth sailing ahead, the new head of Apple – Tim Cook, is reputedly a supply chain pro. In one sense, that’s a great thing but then I take a step back and ask myself : Is that what Apple really is?

I don’t think of Apple as a supply chain company with great products but a company with great products that has honed its supply chain quite well.

There is one quote from a Jeffries Analyst that speaks to the supply chain management voodoo at Apple:

"Even with the unfortunate events in Japan around the time of the iPad 2 release, Tim Cook was able to double or sometimes triple source component suppliers. To date, no competitor has been able to gain meaningful share in the tablet market; and, in our view, Cook’s leadership during the introduction was critical to this."

Perhaps, we will see Tim Cook elevate the next avatar of Steve Jobs from within Apple’s ranks that puts the key competitive advantage of Apple front and center. That would be “Giving people what they didn’t even know that they needed”.

Not easy but necessary.

Do you know that this is the most frequently searched Google phrase that drives people to my site (and I’m sure very many other sites in this space as well)? Ah, this is easy enough to answer and so I posed the question to myself : What exactly is the Supply Chain?

I must confess that I really couldn’t come up with an answer that didn’t suffer from some rebuttal or the other. So I pose it to you as well – What is the Supply Chain?

Now some may hearken to the introduction that most have of the supply chain that usually have the neat diagrams that connect material flow from neat boxes of producers, intermediaries etc and information flow in the reverse direction. But is that what it is? In the sense, does the activity of material and information flow define Supply Chain Management? In other words, is Supply Chain Management just an activity descriptor?

Well, if it is not just an activity descriptor – then you can safely put away transportation, warehouse and all sorts of other management. Inventory Management?

So let’s move up that chain to see whether it is about the customer? Forecasting? S&OP? In other words, is it about getting an analytical feel for the way demand is going to be or a structured process about marshalling a firm’s resources and fulfilling that demand whatever that might be? Again, how is this different from some definite activity?

Alright, maybe it is not one activity but a rhythm of many activities that must be more or less in harmony. So how is that different from just Operations Management with a new focus on getting all the links functioning together?

You see where I’m going…

Perhaps we take the easy route and point to an activity (or activities) or point to a piece of software (ERP, MRP, SCM, TMS, WMS etc)?

If someone came to you and asked you – “What is Supply Chain Management?” , what would you say?

Now, that’s a proper way to start the year off!!

I want to highlight a “cool” scholarship made available by D.W. Morgan for college students – “Last Mile” Scholarship. I urge you to pass it on to individuals who may (and better yet, may not at this time) be considering a career in Supply Chain Management and/or Transportation Management. Talent is always going to be the differentiator when it comes to the Supply Chain Edge and such scholarships and experiences go a long way in creating those edges.

From the scholarship write up:

The D.W. Morgan “Last Mile” Scholarship
Imagine you’re a senior in college.  An ambitious, successful college senior, ready to take on the real world.  You graduate, move back in with your parents, and begin your job search.  Wouldn’t $5,000 be helpful?  $5,000 and your dream internship to help you get started?  I wish I had had that chance when I was there.
DW Morgan is making exactly that possible for 4 talented seniors by sponsoring a scholarship for students interested in supply chain, logistics and transportation management.
The task is simple: come up with a way to revolutionize the industry while making a positive global impact.  Easy, right?  Ha.  It’s called the “Last Mile” Scholarship, and the four winners are picked to receive $5,000 each, and the grand-prize winner out of those four gets the opportunity to intern at a DW Morgan location in the summer of 2011.
Interested?  Check out the website: www.lastmilescholarship.com for official rules, qualifications, submission guidelines and other information

In my earlier post, I had said that I was working on the idea/concept of a Living Wage. Some eyebrows might have popped at this – if not, this would be a good time to go a popping. After all, what is the connection between a Living Wage and the supply chain?

Take a look at this report for instance: Why is Wal-Mart blocking 35 cents an hour for Bangladeshi workers?

From that article,

Senior sewers are paid 1.7 cents for each pair of Wal-Mart jeans they sew. (Each worker must sew 10 pairs of jeans per hour, or one pair every six minutes—which is 10 percent of an hour. Ten percent of their 17-cent-an-hour wage amounts to 1.7 cents.)

That’s an hourly wage of US$ 0.17 for experienced sewers and the current demand is to raise the wage to US$0.35 (and up to US$ 0.51 by some accounts that I have researched).

The obvious question is : Is an hourly wage of US$0.17 a living wage? Is an hourly wage of US$0.35 or US$0.51 a living wage? If you think that US$0.17 is an absurdly small number, what do you make of US$0.35 or US$0.51? If you’re mortified by the idea that the designer jeans that you’re donning tonight was sewn together in misery, will you be gratified by the notion that they will be paid double that wage if you just bully the capitalist/retailer to forgo that marginal hit to his profits?

Now coming back to stateside, take a look at this site from Penn State that enables you to work out what constitutes a living wage in America, by state, by county – Living Wage Calculator. I live in Newburgh, NY and so I took a look at what constituted a living Wage for Newburgh, NY – A  living wage for Newburgh, NY.

A family with two adults and two children require a wage of $60,274 in order to “live” in Newburgh, NY which works out to a $28.98 hourly wage while the Minimum wage is $7.25 and Poverty Wage is $9.83.  Of course, this calculation does not include any governmental assistance which spans the spectrum of wages from ~ $20,000 to ~ $60,000 depending on family configuration.

The critical issue with the living wage is that is has nothing to do with living or working – it has to do with calculations in Ivory towers. There is no such thing as a living wage (just as there is no such thing as a minimum wage) – the effort to create a living wage is about replacing the antiquated notion of a minimum wage by something more substantial. What the residents and denizens of Ivory Towers and various social justice movements don’t understand is that a Living wage like the Minimum wage before it is a calculation that looks good on paper and might even absolve the bean counters and theoreticians from enjoying their privileged lives. It will do nothing to lift those Bangladeshi garment workers out of poverty and neither will it change the lives of those living stateside.

All that it will accomplish is that the annual wage of CEOs in the millions will then become in the billions, the annual wage of the consultant in the hundred thousands will be in the millions and so on. The poor will still be poor and probably poorer still because for the decade or so (and it will be much faster than that) that it would take to adjust, they will have adopted habits and lifestyles that will leave them worse off.

If you don’t believe what I say, take the hypothetical Bangladeshi worker who, through all the unrest in Bangladesh, doubles (from 17 cents to 35 cents an hour) or triples (from 17 cents to 51 cents an hour) his/her hourly wage. When that dramatic increase in wage happens, what I’d like you to do is tell me what happens to his/her life?

1. Wage – we know this already because it is a given, doubled or tripled.

2. Rent Cost – ?

3. Transportation Cost – ?

4. Food cost – ?

5. Medical cost –?

6. Taxes – ?

7. Entertainment costs – ?

8. Other costs – ?

Do you think items, 2 through 7, increase, decrease or remains the same?

I think that such misguided thinking betrays a mistaken notion of the concept of profit. I think that the most fundamental error that the calculators always make is to think that all that needs to be done is to carve out a portion of profit and return it to labor. And what always happens is that the profit margin remains unchanged or is impacted ever so slightly and everything else is adjusted accordingly.

Profit is notoriously difficult for the Ivory Tower to understand. And the reason is quite easy as well – they’ve never really worked in the real world. For some Profit is a subtraction of numbers and for others it is the recompense for overcoming fear – these two worlds will never meet.

A living wage is a confident calculation about the static nature of human enterprise and economy. And that calculation is wrong. Profit is a dynamic calculation of the nature of human enterprise and economy.

In this ongoing series about the five key supply chain challenges as reported by PRTM a few weeks ago, I am going to look at Challenges 2 and 3. If you missed the earlier posts in the series, here they are: PRTM Study: Five Key Supply Chain Challenges – Challenge 1 and PRTM study highlights five key supply chain challenges.

Challenge 2: Securing growth requires truly global customer and supplier networks

Most survey participants expect that future business growth will come primarily from new international customers and products that are customized to meet their needs. As a result, more than 85% of companies expect the complexity of their supply chains to grow significantly by 2012.

This I don’t understand – where are the respondents coming from? If business growth is going to come primarily from new international customers, what does that mean other than the fact that overseas growth is going to be met largely by overseas means of production. In that case, the complexity in the supply chain decreases not increases. The control of the supply chain from overseers stateside is going to be more difficult but why must it be controlled from far away?

Nearly 30% of respondents expect the number of manufacturing facilities to decline until 2012, which reflects the expectation that their companies will increase outsourcing to external partners. Similarly, a nearly 30% decline in the number of strategic suppliers indicates that many companies expect to further consolidate their supplier bases. In general, companies in North America and Europe will consolidate their manufacturing and distribution footprint, while companies in Asia will further expand their entire supply chain network.

I don’t really understand this challenge at all. In fact, it is an observation that the trend of offshoring and outsourcing is going to continue, perhaps, even increase. The first stage of outsourcing and offshoring was primarily driven by the need to improve profit margins vis a vis the consumer in the developed world (who was for quite a period on a debt fueled binge). Today, that consumer in the developed world is all but tapped out – well, the answer to that is the consumer overseas whose consumption habits have yet to be tapped to the fullest potential.

Challenge 3: Market dynamics demand regional, cost-optimized supply chain configurations

Survey respondents seem confident that they will be able to deliver substantial gross margin improvements over the next two years. As was the case during the downturn, gains will not come from price increases, but from further reductions of end-to-end supply chain costs.

Unfortunately, few firms will confess that this is not a strategy of their choosing but one of the times imposed on them i.e. there is very little by way of pricing power to be had and therefore it is time to resort to the strong arm tactics of squeezing out your suppliers.

What I found interesting here is the comment from a VP of supply chain of a leading industrial electronics company. He recounts:

“Unit costs are easy to measure. When we move to a ‘less expensive’ supplier, we can see the improvement right away. But a lot of costs are hidden—costs associated with things like quality, site visits, and the loss of flexibility. We often spend more expediting parts from a ‘less expensive’ supplier than we save on the material cost.”

Well, methinks that he has it quite backwards – Unit costs are impossible to measure (especially after the fact let alone before the fact) whereas hidden and unexpected costs can be easily determined (after the fact). This GM-Sloan mentality of calculating, nay, obsessing about unit costs is downright silly simply because it is a fiction cooked up by accountants at the behest of managers who want to be seen doing addition and subtraction.

And on top of that, he has bought into the idea of a free lunch.

The odd thing about these two challenges is that they are seemingly at odds with each other. The modern supply chain is not as regional as it is global. Perhaps, the implication is that it is directed at emerging markets rather than developed ones, the growth in the supply chain has regional constraints on its mind rather than global ones. That does leave the global supply chains originating state side in a nice pickle. No?

In conclusion, there is one observation here and one challenge.

The observation (emanating from Challenge 2) is that offshoring and outsourcing are set to continue for different reasons and possibly at an increased pace. In fact, I would think that this is the decade when a number of corporations are going to become transnational.

The challenge for the supply chain is that it is going to become decentralized in a big way – regional markets, regional supply chains.

I’ve frequently said on this blog that these global supply chains don’t have to exist and it looks like that this prediction is beginning to come to pass. Do you know where you supply chain passport is?