Current Articles | RSS Feed RSS Feed

The Real Reasons that Santa Does not Make the Supply Chain Top 25!

  
  
  

Santa ClausI can hear the cries of ‘bah humbug!’ as I type.   It is not popular to disrespect the guy in red and it can be particularly risky this time of year as he is rumoured to maintain a ‘list’ but somebody needs to speak out.  

Forbes published a seasonal review of the Santa supply chain yesterday which asked the question - Santa’s Supply Chain: Best in the world?   In the review, Richard Howells does a great job discussing the merits of the Santa operation, but ultimately lets the reader judge on whether we should hear a jolly ”Ho! Ho! Ho!” at the acceptance awards for next year’s Gartner Supply Chain Top 25.

While we at Value Unchained have always tried to be balanced in our reviews of the North Pole based supply chain things do not look good for future award lists as we outline below.

Financial model (50% of the award criteria) – Despite having more customers than Facebook, analysts struggle to understand how Santa’s enterprise can convert this customer base into a viable commercial model.    With no visible revenue, Santa Inc. fails many of the key financial metrics required for Gartner’s Top 25 supply chain companies.  (Could it be that the Gartner metric is over weighted towards financial criteria?)

  • Below the revenue threshold for qualification for the Top 25
  • Negative three-year weighted return on assets
  • Flat three-year weighted revenue growth
  • Insufficient public data to comment on inventory turns – although a model of building inventory throughout the year for one big shipment at the end is unlikely to meet world class standards.

Peer and analyst opinion (remaining 50% of the criteria)  - This would seem to hold higher potential for the sleigh-bound supply chain enterprise.    After all, who could argue with the impressive global coverage, on time delivery metrics, the management of SKU proliferation and unquestionable customer satisfaction (as is evidenced by the queues of customers waiting patiently in line to place orders and the millions of hand written customer testimonials that are sent every year to the North Pole HQ)?

Even here, however, there are questions being asked by certain sections of the media that may have an impact on the opinion scores:

  • Supply chain secrecy – Little is known about the actual supply chain structure, but it is reputed to include hundreds of thousands of elf workers in the North Pole campus, millions of tonnes of packaging consumed and the use of animals in the transportation process.    Although there have been no reports of incidents of concern, there are calls for increased disclosure into supply chain practices at the firm.
  • Restrictive returns practices – Consumer advocates are demanding a more liberal returns policy that would include right of return within a reasonable timeframe.    Unfortunately this appears to be a one-way supply chain process.
  • Questionable substitution policies – The politically correct term may be ‘demand shaping’ but there is increasing evidence that in times of short supply Santa has been known to invoke his right to substitute (generally the hot items of the season) that appears to be implied rather than expressly stated at the time of order.   
  • Restrictive shipping policy - He is clearly a champion and pioneer of the direct model but how sustainable is a ‘one channel, one delivery day’ model in an increasingly multichannel, customer-centric business environment.

Ultimately there are trade-offs in every supply chain and every business model.  The Claus management has developed a dominant position in a highly seasonal market and has sustained that position for many generations.   

Surely that deserves some peer respect?  Maybe, but it is not likely to happen.  

Perhaps the most damaging factor to the ‘Clause Cause’ is the make-up of the panel for the peer opinion vote.   Reliable sources have confided in us that none of Gartner’s analysts or the two hundred industry professionals selected for the peer vote are under the age of 15.   

We have examined the merits of the Top 25 methodology in the past but I will let the conspiracy theorists take it from here. 

Happy holidays.

 

How to Make Every Day a Cyber Monday: 5 Online Retail Tips

  
  
  

Online Holiday ShoppingTwenty years ago getting great holiday shopping deals usually included a trip to the mall on the Friday after Thanksgiving. With the Internet offering a plethora of options for online shopping, you now need to go no further than your laptop to snag big discounts and “doorbuster” deals while checking items off your list.

Cyber Monday, as the Monday following Thanksgiving has now been coined, provides online retailers a huge opportunity to maximize the holiday shopping frenzy. According to CNN Money, online retailers expected a robust Cyber Monday with some analysts predicting a record $1.2 billion in sales.

If you have ever shopped online before or signed up for emails from your favorite retailer, you undoubtedly received lots of offers in your inbox this morning with enticing subject lines such as “50% off Everything” and “Free Shipping.” In addition to traditional email channels, retailers are also using search and social media to attract online shoppers. The savviest retailers are also making it easy for shoppers using their mobile devices to complete transactions (just think of all those corporate-blocked websites workers can access from their smart phone!). 

With the official kick off of the holiday shopping season behind us and shoppers going online en masse, here are some tips for how you can ensure your customers have a seamless brand experience and get the products they want on-time for the holidays:

  1. Make it easy for customers to find what they want. Keep the number of clicks needed to locate items and place them in the shopping cart as low as possible. Use web analytics tools to determine where customers are dropping off your site. You can have the best products and the lowest prices and still not make the sale if customers cannot find the product page easily on your site.
  2. Offer flexible payment methods and fraud protection. Is your site secure? If not, this could be a reason why shoppers abandon their carts. Security is a major concern among consumers who shop online, and many opt to purchase from sites that offer flexible payment options and that are secured by authentication services, like VeriSign. Partner with a payment gateway service provider that can help protect your site against data breaches and that supports multiple currencies and payment options across the globe, from PayPal in the U.S. to Postepay in Italy. Your site should include advanced fraud screening, real-time authorization and black lists of fraudulent transactions, and all transaction data should be stored in an environment that adheres to PCI DDS data security standards.
  3. Use loyalty programs and promotions to entice shoppers. The Internet makes it easy for shoppers to compare prices and products across multiple retailers. Make sure you have a way to stand out from the crowd. Whether its frequent buyer rewards, prepaid gift cards, rebates or even free shipping (consider free expedited shipping to really stand out), make sure you are differentiated from the competition.
  4. Provide a consistent multichannel shopping experience. Can customers buy online and pick up in-store? Will they see the same products, pricing and branding on your mobile site, your regular website and in your brick and mortar store? In order to provide a consistent multichannel shopping experience, you need a robust e-commerce platform that can integrate multiple devices and consumer touch points. Your platform should have the ability to recognize what type of device a consumer is using in order to present the content in a usable manner. It should also tie in with your physical retail stores to ensure customers have a positive shopping experience.
  5. Provide visibility to inventory levels and estimated shipping times. Remember that year the sweater you bought for aunt Mabel arrived on December 27th? Enough said.

I would love to hear your tips on how to prep your e-store for the holiday season. Please leave your tips in the comments section below. Also, what did you buy today? Don’t worry. I won’t tell your boss.

 

Tags: 

Supply Chain in the News

  
  
  

A couple of weeks ago, BusinessWeek ran an article on Apple’s supply chain.  The article describes the high level of involvement that Steve Jobs had in supply chain decisions and makes the case that Apple’s investment in supply chain operations is a significant competitive differentiator.  Apple is frequently in the news, especially in the weeks since Steve Jobs passed away last month.  What makes this article so interesting to me, however, is that it represents an increased interest in supply chain considerations in mainstream media.  When I first started in this industry, not many people outside of the industry had an interest in supply chain.  Lately, more and more people are showing an understanding of how the supply chain impacts businesses and consumers.

Home Depot reported strong earnings earlier this week.  In the Wall Street Journal’s coverage of the earnings announcement, supply chain investments and improvements were the headline.  Changes in the way the company handles product flows have created so much value for Home Depot that this was the primary focus of the CFO’s comments during his discussion of the results. 

Another article was published this week focused on supply chain challenges that Dell is likely to face over the next couple of quarters.  The current supply problems with hard drives resulting from the floods in Thailand will likely have a negative impact not just on Dell, but on other PC manufacturers as well.

As a supply chain professional, it’s nice to see so much interest in this part of the economy.  In the next few days, as millions of Americans head to retail stores to take advantage of Black Friday sales, hopefully a significant percentage of them will consider how those products got there.

 

Tags: 

Global e-Commerce – Buying Preferences Around the World

  
  
  

The following post was written by Glenn Grube, Global Director, Sales & Marketing e-Business for ModusLink.

e-Commerce continues to grow and erode sales at brick and mortar stores worldwide.  In 2010, the U.S. spent $176 billion online, Europe $114 billion, Asia-Pacific $123 billion and Latin America $9 billion.  According to a 2011 Forrester report, e-commerce is growing by double-digits globally.  Forrester predicts that in 2015, online spending will jump to $279 billion in the U.S., $187 billion in Europe, $286 billion in Asia-Pacific and $22 billion in Latin America. 

Aiding the e-commerce explosion is the growth of mobile smartphones.  Consumers are using smartphones to enhance shopping experiences by finding deals, researching and buying products all from their handheld devices.  eBay reported during the 2010 holiday shopping season (November 25 through December 25), its U.S. mobile sales grew 134 percent over the same period in 2009, generating nearly $100 million in gross merchandise value. 

So, you get it.  Everyone, not just retailers, should be selling online and on mobile devices.    But not all shoppers are alike.  Shoppers in Asia have different expectations and preferences than those in Brazil, France, or the U.S.  As a Web merchant, it’s critical to tailor the online buying experience to suit the preferences of the local markets you serve. 

When devising or refining global e-commerce strategies, keep the following in mind:

  • Handling Multiple Currencies – Consumers in North America and the U.K. aren’t hesitant to pay via credit card, but that’s not the case globally.  In Asia, online shoppers prefer to pay cash on delivery according to Forrester and mobile payments are becoming more prevalent.  Forrester reports in Japan consumers use Osaifu-Keitai (“mobile phone wallet”) which allows them to wave phones near a reader and automatically pay, while in China shoppers rely on Alipay to pay via text message up to 200 yuan (about $30).  Offering a variety of payment methods, and understanding what’s popular in your target market, is crucial for success.  And of course you must ensure your site is capable of processing multiple currencies.
  • Brand Equity – Not all online shoppers are as brand loyal online as they might be when in a physical store.  Based on a Forrester poll, 67 percent of online consumers in Australia stick with a particular brand they like upon finding it online.  Only 57 percent of U.S. consumers say they’re brand loyal when shopping online, while in Japan it’s only 37 percent.  This has significant implications for pricing strategies since you might need to discount your product in order to win over price-driven consumers.  Another strategy to consider is to invest more heavily in digital advertising and SEO in regions where people are less likely to come looking for you.
  • Logistics – The way Web shoppers receive and return goods is different regionally.  A 2011 Forrester report explains that Chinese consumers have the right to open packages while the delivery person waits, allowing for on the spot returns if the consumer isn’t satisfied.  While this seems to be a local trend, alternative delivery options are also increasingly common across Europe.  According to Forrester, companies in the U.K.  offer free delivery to stores; in France stores offer two-hour turnarounds on orders; and, in Germany, DHL’s Packstations allow consumer to pick up orders in secure unmanned stations when convenient.        
  • Vary your Inventory – This might seem fundamental, but it’s so important when you consider your diverse customer base.  In Europe the top retail categories differ by country according to Forrester.  For example, consumers in the U.K. rely on e-commerce to purchase food and drink, while consumer electronics are top sellers in Germany and France says Forrester.  Amazon took notice and tailored its top-level navigation by country, all while maintaining a consistent customer experience.   

The above are just a few things that I’ve come across.  What have you found in your own experiences?

 

Tags: 

Value Chain Ecosystems of the Future

  
  
  

This week, SCM World published the results of a recent study on Value Chain Ecosystems of the Future.   With responses from more than 800 senior value chain leaders around the world, the study takes a close look at their supply chain priorities, the challenges that they face and their views on the future of outsourcing across the entire product lifecycle.  ModusLink collaborated with SCM World to drive the study, and yesterday I had the pleasure of joining Kevin O’Marah, head of faculty at SCM World and Gerry Fay, chief global logistics and operations officer at Avnet in a webinar to discuss the results.

Some of the highlights of the findings are captured below, but I highly recommend taking some time to watch the replay of the webinar or download the entire report.

Strategic priorities:  Enabling revenue growth edged out removing costs from operations as the most important priority.  While we do not have comparable data for prior years, it is likely that this represents a maturing of the supply chain role in organizations and a transition toward a true value chain focus.

Business pressures:  No surprise that volatility and uncertainty are high on everyone’s list, but the biggest challenge facing those surveyed is the pressure from retail and business-customer demands.  This rated significantly higher than end-consumer demands and possibly reflects the continued importance of channel partners in most supply chains.

Attitudes toward outsourcing:  When asked what supply chain activities are appropriate to consider for outsourcing, transportation services are clearly seen as the most mature market, with postponement, configuration and factory supply also scoring high.

Value Chain Ecosystems
  
Qualifying questions around the readiness of markets to meet industry needs through outsourcing shed additional light on the perceived maturity of the outsource provider market.  The chart above represents responses to the question:  which supply chain activities do you consider appropriate for outsourced support? Survey respondents were asked to rank each activity on a scale of one to five with five meaning “always appropriate” and one meaning “never appropriate.”

Once again, the transportation market is perceived as most mature, while the readiness of other services followed a similar pattern with more than 50 percent of respondents signalling a readiness of four or five for both postponement and factory supply.  Surprisingly,  product design and manufacturing fares poorly in the appropriateness to outsource and the readiness of the market.  We expect that had the question split these capabilities, we would have seen a very different result.

The question on appropriateness to outsource versus market readiness raises interesting challenges to both the manufacturers considering outsourcing and those providers that offer outsourced services.  Is it not appropriate to outsource because the market is not yet mature enough to serve? In which case the providers face a challenge to bridge capability and experience gaps. Or, do OEMs need to look closer at the potential opportunities to accelerate the achievement of objectives by collaborating on non-traditional outsource services?

Thanks to Kevin and Gerry for giving me the opportunity to participate in a lively discussion with them on the topic.   I am sure that as we dig further into the data there will be many more questions raised.  We would love to get your opinions on what you envision for the value chain ecosystems of the future.

 

California to Lead the Way in Greenhouse Gas Reduction with ‘Cap-and-Trade’ Regulation

  
  
  

Likely impact on California-related Supply Chains

CO2A few days ago, on October 20th 2011, the California Air Resources Board (ARB) adopted resolution 11-32 better known as the ‘Cap-and-Trade’ regulation. With this new piece of legislation, the state of California is setting itself as a pioneer in active greenhouse gas (GHGs) reduction by implementing – as early as 2012 – a market-based instrument that will set maximum emissions limits of carbon dioxide (CO2) equivalent with limits or ‘allowances’ set to decrease over time.

If you are doing business in the United States today, your supply chain is likely to be connected with California, the most populous of the union’s fifty states. Will this have any impact on your business? It is probably time to find out and the following will hopefully provide you with some context around this matter..


Who is ‘covered’ by this regulation?

Any entity that produces in excess of 25,000 metric tons of carbon dioxide equivalents per year is potentially covered. To put it in perspective, according to the Environmental Protection Agency (EPA) the average American household’s annual emission is about 7.4 metric tons of CO2 equivalents. The threshold, therefore, addresses facilities with emissions that are equivalent to or greater than a town with 3,300 houses. More specifically, California-based entities operating in energy generation and fuel trading will be directly impacted, with large producers of raw material (cement, glass, paper, iron, steel and other chemicals) also likely to be included. Having said that, a number of large manufacturers from the food and beverage and apparel industries have also been identified as ‘potentially covered.’ It is unclear at this point whether the port of Long Beach and LAX airport – two of the main gateways for imported products in California and the U.S. - will have to comply.


What will it mean for ‘covered entities’ and their trading partners?

Covered entities will be required by law (in a staged implementation starting in 2012 and ending in 2015) to register with the ARB, start reporting on GHG emissions and acquire the allowances and offsets equivalent to these emissions. That process is still being defined, but is set to take the form of a carbon credit trading marketplace. In practical terms, the likely impact for those covered entities is additional compliance and administrative costs, as well as a financial risk should they not be able to meet the targets or perhaps an opportunity should they exceed these and auction off allowances. It is expected that some of those costs will be passed on to customers in the form of higher energy or material prices within California. A number of those directly involved have already raised competitiveness concerns given the initiative is so far limited to one state.


Overall, unless your California operations happen to meet the criteria of the ‘covered entities,’ the impact on your activity will probably not be of any major significance. Now you could ‘just wait and see’ how future legislation will impact your business (watch that space because - if successful - this concept could easily expand to other industries and geographies and become a much sought-after instrument to dynamically combat climate change). Or you can alternatively decide - just like a number of companies have done in recent years – to take your own initiative to reduce the environmental impact of your activity. If you adescribe the imagere interested in hearing about how sustainability strategies helped IBM create new markets, reduce costs, increase efficiencies and revenue and more broadly differentiate from the competition, I invite you to join the latest in ModusLink’s Value Chain Exchange Webinar Series: ‘Social and Environmental Leadership Across the Supply Chain’ on Thursday, December 1, 2011 at 11:00 a.m. EST - register today.

For more details, see the ARB dedicated page at http://arb.ca.gov/cc/capandtrade/capandtrade.htm

 

Four Ways to Reduce Air Freight Costs

  
  
  

Air FreightRecently Hong Kong airport reported a 6.1% drop in cargo tonnage verses the same period last year. This was mirrored at European airports such as Frankfurt, which saw a 5.3% fall for the same period.  Although the figures reflect the current softness in the economies of the U.S. and Europe, I suspect that some of the decline is related to the reduction in weight of the actual products being shipped.

In the consumer electronics sector, air freight is the mode of choice for high-value products with short lifecycles, however the spike in fuel prices has driven manufacturers to rethink their freight strategies. Alternative modes have been considered to reduce overall freight costs, including:

  • Sea freight – Although the lowest-cost mode of transport, the delivery times are measured in weeks rather than days. This has been compounded by the decisions of major shipping companies to reduce the speed of container ships, further increasing lead times (see blog on slow steaming).
  • Air and sea – The route to Europe via Dubai (air to Dubai and Sea to Europe) is proving popular to reduce both costs and delivery time, however the lead time is still not fast enough for most consumer electronics.
  • Rail – Although constantly improving, the delivery time and number of available delivery slots to Europe still makes it unattractive.

When the value of the products being shipped is low, the slower, cheaper methods of transportation become more attractive. However, for most companies air freight is still the only option to deliver high-value products in a short lead time to keep inventory levels as low as possible. When air freight is the only option, consider the following tips to help minimize the cost.

  1. Reduce the size of the packaging. Often there are unnecessary layers or inserts used in product packaging that significantly add to the weight of the overall product. By modifying packaging, the weight can be reduced and better pallet densities can be achieved. In some cases changing the size of the packaging can have a significant effect on the weight of the product.
  2. Remove content.  Products have unnecessary multilingual content such as instruction manuals and CDs are often included in the box which could either be replaced with SD/micro SD cards or the information could be delivered via the cloud.
  3. Change accessories.   With most electronic products there are multiple accessories included such as cables and chargers, which can comprise 20-30% of the packaging weight. By reducing the size or weight of chargers this can have an effect on the overall shipping weight of the total product.
  4. Postpone final configuration. The most effective way of way of reducing the air freight costs is to use postponement strategies. In most consumer electronic products the high-value items account for between 10-30% of the finished goods weight. By packaging the product in-region and sourcing low-value items such as chargers either locally or shipping them by sea, the air freight bill can be reduced by up to 80-90% because you are only air freighting the high value part of the final product.


The aggressive reduction in air freight spend has many benefits, including reducing overall costs but also the green house gas (GHG) footprint is reduced dramatically. In addition, if postponement is executed in–region, there are numerous marketing opportunities to design attractive packaging with a good shelf footprint as the cost impact of transporting a larger package by road is significantly less than sending that same package by air.

So, if you haven’t looked at your packaging and accessories recently, now is the time, and why not go one step further and consider a postponement options too?

 

All Posts