Value Unchained

Supply Chain Revolutions – Asia Rising…

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Supply Chain Asia celebrated its fifth anniversary last week at its annual conference in Singapore attended by more than 500 delegates.  The organization now boasts 17,000 members across Asia and still maintains a refreshingly engaging panel discussion format.   

The theme this year builds on the growing maturity and importance of Asian markets, brands and supply chain providers.  With a global economic view teetering on whether or not there will be a double dip recession, there is certainly more optimism here about the opportunities that exist within the region.   This is combined with an acknowledgement of the steep challenges that must be overcome to deliver on these opportunities.  

These questions were tackled by a mix of executives from multinational OEMs, global and regional service providers, government representatives and academics.  Some questions that emerged for me from the dialogue were as follows:

• As we progress our understanding from just Asia as a region, to larger markets such as China and India and increasingly to the opportunities that exist in the tier 2 and 3 cities in these markets, the scale of the opportunity increases along with infrastructure challenges to capitalize on it.  Could the models needed to resolve these challenges in Asian markets also revolutionize how we approach supply chains in more mature markets?
• Living in the midst of the Li & Fung success story, the supply network model with a central supply chain orchestrator and a network of ‘virtual’ execution partners is being considered as having high potential for success – not just in Asia.  Critical to this success will be the leadership of the orchestrator role combined with an alignment and sustainable economic model for the hundreds/thousands of partners required in the virtual network.
• There is no shortage of ambition among the in-region 3PL providers.  Their commitment to their clients to promote the industry and to support educational initiatives for the next generation of supply chain managers is evident.  While they will to continue to develop, there is a danger that the growth available to them in their traditional services will ultimately be an impediment to them developing a true leadership position in the supply chain of the future.
• Sustainability was a key topic, but there seemed to be less confidence than I had experienced at the CSCMP event in Taiwan earlier this month that there is alignment between OEMs and the service providers on a path forward.  The question seemed to revolve more around who will fund the costs of sustainability projects rather than recognizing that there is an abundance of sustainable opportunities that will drive both cost and service benefits.  I remain convinced that this is an area where sharing and communicating these best practices is the key to building momentum.

Congratulations to Paul Lim and the extended Supply Chain Asia team for building this community over the last five years.   I would love to hear your comments on these or other issues relating to the development of Asian markets, brands and supply chains.

Staging Experiences & Engaging Customers

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In my previous blog post on July 21st entitled Customer Experience Management, I postulated on the business imperatives for companies to conscientiously manage customer experience as a competitive advantage.  When we mention the phrase “customer experience management” the most common notion that comes to mind is customer entertainment. That understanding would have been too narrow a paradigm to allow many companies to explore other avenues of engaging customers in a way that would be memorable for them. A more useful and encompassing framework to understand the different dimensions of staging an engaging customer experience is required.

Both B. Joseph Pine II and James H. Gilmore in their book “The Experience Economy” observed that there are many dimensions to stage customer experience. There are two dimensions that are very influential in shaping how a customer is being engaged:

1. Level of customer participation (active participation vs. passive participation) - To what extent is the customer playing an active role in influencing the performance. Is the customer the audience (“passive participation”) or a participant (“active participation”)?
2. Environmental immersion (absorption vs. immersion) - To what extent is the customer immersed with the environment and performance. In his account of how Starbucks was built one cup of coffee at a time, Howard Shultz, founder of Starbucks, shared in his book “Pour Your Heart Into it: How Starbucks Built a company One Cup at a Time”, that his customers have come to regard Starbucks as the “third place” in their life where they could immerse themselves in the aroma (and romance) of roasted coffee beans (environmental immersion). Compare that with the occasion when one is completely enthralled watching a symphony orchestra from the grandstand (absorption).

Through the different combinations from the above two dimensions, both B. Joseph Pine II and James H. Gilmore came up with a very useful taxonomy on classifying four different and distinct realms of customer experience. Apart from the “entertainment experience” which we are most familiar with, both authors included insights into three other experience realms:

1. The educational experience (absorption and active participation) - An experience where the customer becomes a “student” absorbing the event as it unfolds while at the same time actively participating and influencing the outcome. A classic example in a contact centre setting would be one where a customer service representative is taking a customer through a step-by-step process on how to activate a certain feature of their consumer electronic device, be it a mobile phone or an external storage drive. The pace and development of this educational experience is very much influenced by how the customer responds to the prompting from the customer service representative.
2. The escapist experience (immersion and active participation) - Imagine sitting in one of the roller-coaster rides in a Disney theme park where you are both immersed in the environment and participating in the electrifying intensity and excitement of the ride.
3. The esthetic experience (immersion and passive participation) -  For most customers at Starbucks, they enter a “third place” sipping exotic coffee such as macchiato in the café as they are immersed in the aroma of roasted coffee while remaining passive in not influencing the environment.

It is important to note that pursuance of the different realms of experience need not be mutually exclusive but could be considered concurrently.  In fact, according to the authors of this framework, the richest experience is one that encompasses all four realms.

How could your company leverage the above framework to explore avenues to stage a memorable and engaging customer experience? Looking forward to your views and insights.

Striking a Balance in Corporate Social Responsibility

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Further to my previous article on corporate social responsibility (CSR), I read a recent Wall Street Journal article called “The Case against Corporate Social Responsibility” by Aneel Karnani that makes some interesting points relating to the dichotomy that shareholder interest and the public interest are at odds with each other.  Karnani’s thesis is that a company acts in the best interest of its shareholders rather than public interest and that there are few examples where profit and the public good are aligned. 

During the early stages of CSR in the sports footwear and apparel industries– when the first news reports came out of “sweatshops” and child labor–companies initially denied responsibility blaming subcontractors for the bad working conditions. One would assume that they believed taking responsibility would have cost the company more in manufacturing costs, however when more and more press came out and many advocacy groups began to protest outside stores, the companies began to take heed. The bottom line was that once the brand or sales were affected the company changed its approach and put in place stringent rules in cooperation with international bodies.

The article points out that there are four ways to strike a balance in CSR:

1. Government regulation – governments can enforce rules & regulations to ensure companies comply with minimum standards.
2. Advocate groups – can put pressure on brands to change practices.
3. Self regulation – companies can internally regulate practices.
4. Financial calculation – Where savings can be made, this will generate good CSR practice for example reduction in energy bills.

Although the article challenges some of the thinking around CSR, it also puts forward how it can and will work. The important thing for companies to keep in mind is that the CSR policy should be clear and any actions taken by the company are transparent, and it is not used to cover up or green wash other operations in the company.

What are your thoughts?

Cross-Functional Communication Fosters Innovation

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Innovation is not a one-time effort. A structured process that crosses department lines should be embedded within an organization to support continuous innovation. Recently, I have had several conversations with colleagues and discussions at seminars on this very topic. I observed that companies still have difficulty developing innovative business solutions. Phrases I heard from discouraged persons included: “Other departments don’t understand what I want” and “These results are not in line with my expectations” and “we cannot sell what they created.” And when someone actually claimed successful innovation at their organization, upon closer inspection it became clear that there wasn’t really innovation, but rather just a better optimization.

eCommerce/e-Business Process Outsourcing (eBPO) triggers for innovation are: frequent implementation of new services, connecting to new/evolving markets, adapting to new lifestyles. For eBPO success, a state of constant business-model innovation is required and needs to be second nature.  In this industry, marketing, operations and IT are highly intertwined and cannot function independently of each other. Therefore, innovation can’t be the sole responsibility of an isolated R&D department. And with IT an integrated part of eBPO solutions, the IT department should be involved in the (business) innovation process as well. 

To make innovation possible in your organization, you need to bring all departments together with IT and engineering and enable them to work together. As more companies work with external (sourcing) partners or with globally spread departments, good planning and communication capabilities are paramount for all involved participants.

To organize this level of collaboration:

• Select a moderator
• Set clear expectations of the collective responsibilities
• Marketing and sales should present on trends and changing client/customer needs
• IT (internal and/or sourcing partners) should identify new technologies and capabilities
• Allow all other functional group to focus on their area of expertise
• Schedule recurring meetings for periodic reporting on progress and deliverables

When innovation is an integrated component of your eCommerce solution, it sets additional requirements in regard to your internal and external partners and your sourcing strategy. Is your preferred partner capable of coping with this constant change? Make sure you keep this mind when selecting a partner for your eCommerce solution. And once the partner has been chosen, it is preferable to define the collaboration on innovation in the contract and include the procedure in the statement of work

What processes do you have in place to support innovation in your organization?

What is the Most Important Consideration When Designing a Package?

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I was in a client meeting recently when one of our Packaging Engineers was asked this question.  He accurately read the room and gave an answer that was appropriate for the context.  I think the most honest answer, however, is “it depends.” 

Like so many aspects of the value chain business, package design is an exercise in balancing a number of goals and priorities, including some that may conflict with one another.  The way to achieve this balance is through collaboration – between functions within an organization and among companies in the supply chain.  It’s no use solving primarily for out-of-box experience if the result is going to be detrimental to logistics costs.  Designing a package that lowers material costs and improves ease of manufacturability is great, but only if it meets retailer requirements for security.

We hear a great deal about a focus on sustainability in packaging, specifically, and in supply chain more generally.  Many companies are finding that sustainability and cost frequently work in tandem.  Improving the density of bulk packaging or using a postponement strategy to minimize the Asia-to-U.S. or Asia-to-Europe air freight component has a positive impact on both greenhouse gas (GHG) emissions and freight costs.  Working together openly and collaboratively is the most reliable and effective way to achieve these goals.

What do you think is the most important consideration when designing a package? Please share your thoughts in the comments.

Taiwan Supply Chain Perspectives - The Next Leap after the Global Downturn

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I had the pleasure of participating in the 2010 CSCMP Taiwan conference this week with the above theme.  I must commend Mr. Terry Lee – Chairman of the CSCMP Taiwan Roundtable – and his team for hosting a superb event that was attended by several hundred supply chain executives, government representatives and academics from Taiwan, China and further afield.  

While nobody was declaring an end to the global downturn, the spirit of the event was a healthy discussion on what supply chain organizations have learned from the recession and the behaviors that they need to retain when the global economic situation improves.

Some of the key themes that struck me were the following:

• While sustainability leadership is often perceived to be the domain of European and US companies, the sustainability message in Taiwan was evident. From the ‘D-Link green’ display at baggage claim in Taipei International airport, to the passionate presentation from Mr. Frank Lin – CQO with ASUSTek – about the progress that they have made in understanding and improving their carbon footprint, to the active engagement in the Q&A discussions, it is clear that sustainability has found a place on the strategic agenda in Taiwan.  
• Changes that have been driven by the necessity of the recession may make for a healthier and more effective supply chain in the long term.
• Companies have learned to live with lower inventories and can sustain this with improvements in collaboration within the organization and across the many tiers of the supply chain.
• The focus of supply chain improvements has moved away from the singular race to the lowest cost economy to re-introduce lost habits of product innovation, packaging engineering, supply chain network optimization and process optimization. This is a long overdue trend.
• The role of the logistics service provider has been challenged by the commoditization of transportation costs – made worse by capacity oversupply and the resulting price decline over the last 2 years. Strategic relationships have been sacrificed to the opportunities presented by RFQ’s to reduce short term transportation costs. The pictures of hundreds of ships moored off the coast of Singapore, having been taken out of use, is a visual reminder of the level of action that needed to be taken.  While the transportation costs are rapidly rebalancing with demand catching up on a reduced supply, the future value of strategic service provider relationships must lie with the ability to deliver supply chain innovation.
• An interesting trend to watch over the next few years will be the developments following the recent signing of the Economic Co-operation Framework Agreement (ECFA) between China and Taiwan. While there is a sense that the agreement merely sets the stage for future changes to be implemented – simplifying trading relationships between China and Taiwan – it is an important first step. It will potentially increase access for Taiwan to a large and growing market on its doorstep and strengthen the existing linkages between Taiwan and China as their companies participate in the global supply chain.

Thank you again to my hosts and fellow participants in Taiwan.  It is always a positive and enlightening experience to participate in these discussions.   

Many of the observations have application across the global supply chain and I would like to open up the conversation to a broader audience.  Your thoughts…?

Postponement Strategies – Why Should You Care?

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When does it make sense to postpone the configuration of your products rather than complete as part of the manufacturing process?   Surely postponement is merely adding a step to the manufacturing process and this will increase costs? 
 
Clear your desk for a few moment and we will explore some postponement scenarios.  

Take two samples of the finished product that you are sending to retail or to a channel partner.  Now take one of these samples and open it and carefully separate all of the components on the desk in front of you – no need to get the screwdriver and soldering iron out just yet.

First let’s identify what makes your products unique in different markets or different channels.   Most likely this will be elements of packaging, some power supplies, perhaps casings or etchings on the device or maybe it is the firmware or content that is on the device.  These are the elements that drive SKU proliferation, forecast complexity and yet they are critical to the end user experience.  Perhaps your product design team has been at work and come up with some clever multi-lingual documentation, packaging and multi region power supply.   So they solved the SKU complexity issue by adding additional cost to every product.  Could postponement be a viable alternative?

Next let’s group together components from most expensive to least expensive.  For the consumer electronics device players out there (and maybe many others) I am guessing that you will have a group containing your core product, perhaps the battery and an expensive accessory that represent 80%+ of the cost.   You will have another grouping of documentation, labels, packaging and shrink wrap that are your lowest cost items and somewhere in between you have a clunky pile of some power supplies, cables and other hardware.

If you notice that the items that drive SKU complexity are the same ones that are in the lowest cost piles or a combination of those items and perhaps a content load, or flashing, or etching process on the expensive items then you may be on to something?  By adding in these cheaper components early you are tying up expensive product potentially in the wrong configuration.  Could a postponement strategy provide an alternative?

Take another look at those cost piles and think about the lead time required to produce each item.  When manufacturing whole unit items you will frequently commit the final configuration at the point of order of the goods – often 3-4 months ahead of demand.  Yet the lead time for many of the variable components is less than a week.   Could a postponement strategy help defer these decisions until closer to demand?

Now, think about how you ship your product to retail and other channel partners.  Did I hear you say you ship product ship via air?  Ding…ding…ding…ding!  Step up -  you may have just hit the jackpot.  For many devices the 80% of components in the expensive pile represents less than 40% of the weight of the product that you are flying around the world.  Could a postponement strategy provide an alternative?

Oh – you ship on the ocean!  Sorry – not the ultimate jackpot for you - unless of course you find yourself with high levels of finished goods to support your sales or rework to change configuration to what is truly required or frequent challenges to fill large orders.  Sound familiar?  You know the chant by now: Could a postponement strategy …?

Postponement may not be right for your product and your situation, but it is only when you look to the content of your product and challenge the way things are done today that you can really identify the possibilities.  All the customer cares about is getting that fully packaged product from the retail shelf when they are ready to buy.   Could a postponement strategy help you do this more efficiently?  

These were some of the questions that inspired us some years ago to create ‘this’ short video.  Enjoy!

Supply Chain Strategies for Emerging Countries – India

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Supply chain expansions into emerging economies, such as India, can be quite challenging. Different topography and unique conditions require special and innovative solutions. 

When I choose to challenge my palate by trying out an ethnic cuisine in a new restaurant, let’s say a new Thai restaurant, noticing the presence of Thai people in the restaurant enjoying the food provides a level of comfort and assurance. Why? It’s pretty simple: native people accustomed to good-quality Thai food would only go there if they think if the food is authentic (as opposed to an Americanized version) and the food is good by their discerning standards.

Federal Express (FedEx) was probably thinking along the same lines when it launched its operations in India back in 1997 by establishing a small presence in four metro cities as Step 1 of their entry strategy into the Indian market. 

In 2002, after five years in the Indian market, while pursuing an aggressive expansion strategy (Step 2) they decided to partner with two local companies: Prakash Airfreight and Jeena & Co.  Prakash Airfreight was at that time one of the largest domestic courier and delivery services companies in India while Jenna & Co. was one of the largest customs brokers in the country. This alliance provided FedEx with access to a century of local experience and significant additional warehousing space and nationwide customs clearance capabilities. As a result of this successful partnership, FedEx was able to establish its presence in one of the world’s fastest growing and complex economies in a low-risk manner.

Step 3 followed in 2007 when Fedex acquired Prakash Air Freight, which added a network of 384 depots and offices and allowed them to serve more than 4,400 destinations and gain control of the supply chain.

FedEx wouldn’t have been able to grow and gain the same experience in the short timeframe within the Indian market without a localized strategy to first learn the unique challenges and opportunities of the Indian market.  Starting small and partnering with a significant local player gave FedEx the same level of comfort as the non-Thai person gets walking into that restaurant that is patronized by natives.

Companies thinking of entering emerging countries with unique challenges should consider the following:

1. Adopting local operational strategies and realizing that even the most successful and proven strategies in the developed world will not work in an emerging country if implemented in a “plug and play” fashion.
2. Leveraging local business acumen and knowledge by selecting the right partner.
3. Tailoring best -in-class processes to serve local and specific needs of the emerging market.
4. Following a phased approach to strengthen physical presence and add value added services and solution offerings.

Do you have similar examples of unique supply chain and logistical innovations adopted by companies in new geographies?

Source:  CSCMP Global Perspectives – India Report 2009

eBay Shines (Green) Light on Tech For Less

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Tech For Less (TFL), a ModusLink company, was recently spotlighted by the eBay Green Team for taking action to ensure environmental responsibility through its business model, which is to give products a second life by refurbishing and reselling open box, overstock or liquidated consumer electronics. The Green Team was also attracted to TFL’s own corporate environmental efforts, like reducing the amount of fuel used for operations and delivery and working with local recyclers to maximize e-waste that can’t be resold.

With the economic recovery trudging along, consumer demand for refurbished products that cost less, but still deliver high-quality features and functionality is on the rise.  Many of the products found on eBay, techforless.com and through other alternative channels are just a few revisions behind the latest and greatest found on the leading retailers’ shelves.  And some are the very same products you can find at your local big box store, due to strict restocking policies for open-box returns.  As consumers seek ways to save money and become more aware of their individual impact on the environment, selling refurbished product is a win-win for both the manufacturer and for Mother Nature.

TFL is part of the Green Team’s 225,000 member community, which consists of buyers, sellers and eBay employees focused on making eBay a greener company.

Click here to read TFL’s Green Team spotlight.

How does your company participate in environmental responsibility?

Protecting Your Brand with Corporate Social Responsibility

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In recent days we have seen celebrities appear in trials related to conflict diamonds. This reminded me of the importance of corporate social responsibility (CSR). Over the last number of years, the conflict diamonds issue has transformed the diamond industry’s supply chain introducing new processes such as theKimberley Process. The Kimberley process is a certification program that ensures diamonds are conflict free. It involves all of the key stakeholders in the industry, including governments, mining companies, and civil society organizations. It assures 99% of all diamonds on the market are conflict free, tracing them back to the mine and country of origin.

In the consumer electronics industry, there has been widespread publicity related to conflict minerals, these include cobalt, tantalum & tin. These minerals form the key components in most consumer electronic products. The Democratic Republic of Congo (DRC) is the location where most of the concern has been raised. To address the issue, the U.S. government has introduced the Dodd-Frank Wall Street Reform and Consumer Protection Act (also known as the Financial Reform Act), which requests companies that are registered on the Securities & Exchange Commission (SEC) to publicly disclose their tax and revenue payments to governments around the world.

“This disclosure will deter the corruption which has brought deep poverty and conflict to many resource-rich countries. The Act will also require companies whose products contain cassiterite(tin ore), coltan, wolframite and gold to disclose to the SEC whether they are sourcing these minerals from the Democratic Republic of Congo (DRC) or adjoining countries. Companies will have to detail the measures they have taken to avoid sourcing these minerals from DRC armed groups, which are guilty of massacres and other atrocities.  The bill also requires that all information disclosed be independently audited.”  (Source: Global Witness)

One industry group that is taking action in respect to conflict minerals is the Electronics Industry Citizen Coalition (EICC). This group recently published a report called “A Study of the Challenges of the Supply Chain for Target Metals Used in Electronics.” This report outlines some of the complexities in the supply chain and use of multiple suppliers. It makes some recommendations to begin pilot programs in the DRC to begin certain types of certifications programs.

There is no doubt that this subject will become ever more important in the coming months, as no company wishes to have their brand tarnished, and more importantly, be linked in any way to atrocities. So what steps can a company take to ensure transparency in the supply chain? Here are some suggestions:

1. Understand the key suppliers in the supply chain (tier 1,2 & 3).
2. Create a CSR document outlining the company’s core values.
3. Create awareness among the key suppliers, and more importantly, provide support and training to help them with their own audit processes.
4. Audit your supply chain internally or utilize an independent organization to complete audits with experience in the field.
5. Be open with findings and be clear with any changes or improvements that need to be made.
6. Recycle more! By taking back or recycling old consumer products this will reduce the need for mining the minerals directly.

The importance of corporate social responsibility cannot be over emphasized. Over the years there have been many cases where brands have been damaged (BP!). Do you foresee any further challenges in the consumer electronics supply chain related to CSR?