As we reflect on the value chain events in 2010, it would be easy to write the year off as a continuation of the economic weakness that started in 2008; a year where forecasts remained conservative and actual demand struggled to meet those already conservative numbers. However, there were some important events and unmistakable trends we cannot ignore as we prepare to raise a glass to the start of 2011.
- A volcanic cloud brings a continent to a halt
Mother Nature has a habit of reminding us from time to time that she cannot be relied upon to respect commercial lead times and shipping schedules. It is a sad reality that it is only when these natural events impact the more developed economies or commercial centers that risk management and contingency measures come to the fore. The eruption of Eyjafjallajökull in March and April brought these issues sharply into focus and highlighted the vulnerability of our value chains along with the need to manage risk in a more structured manner.
- The IT cloud opens a world of potential new business practices
While the ‘killer cloud application’ has yet to emerge it is clear that the ability to share information more efficiently across business partners can be used to increase the effectiveness of value chain processes. Whether it is the migration to cloud based applications, the management of value chain data in the cloud or the enablement of cloud based content on physical devices the potential exists to change the products we produce, how we manage our processes and the collaboration necessary to bring products to market.
- Factory deaths bring home the need for active corporate social responsibility actions
We are all familiar with occasional reports on unacceptable working conditions in factories supporting major brands. While these reports have raised awareness on the need for standards and active management of the supply chain, the investigation into deaths at one of the tech industry’s largest ODMs brought that awareness to a new level.
- Terrorism targets commercial shipments
While we now accept increased security measures for personal travel we have yet to see the impact of a coordinated international response to the increased threats to commercial shipments.
- The value chain has learned to operate with lower inventory levels
Inventory levels in support of sales dropped initially in 2009 and continued to remain low in 2010. Some of this has been driven by conservatism in forecasts but more has been achieved through a closer collaboration and improved supply chain design between retailers, OEMs and supply chain partners. Financial investors and C-level leadership will not easily accept a return to pre-recession inventory levels and innovation in this area will need to continue.
- Online retail continues to surge even in a low-growth environment
Online retail channels continue to provide an important source of growth at a time when overall market growth continues to lag. Forrester recently updated its e-commerce growth forecast to signal continued double digit growth until at least 2014. To enable this, companies are moving beyond domestic markets and need to be prepared to manage the complexity of international e-commerce operations.
As we get used to what may indeed be the ‘new normal’ levels of growth there are several other signs that global value chain processes are adapting. We would love to get your views and inputs on these and other value chain trends.
To all of our readers and subscribers:
Thank you for your time, comments and dialogue this year.
We look forward to continuing the discussion in 2011
with some new additions to our blog team
and an expanded range of value chain topics.
Best wishes for a peaceful and happy holiday season.
View the holiday e-card from ModusLink.
First the positives:
- Direct model innovator: As the original proponent of the ‘direct model’, the Guy In Red takes orders directly from end users, puts them on a list and checks it twice.
- Customer segmentation: His innovative use of ‘Naughty’ and ‘Nice’ segmentation has created a sustained global value associated with being on Santa’s customer list.
- Freight consolidation: Use of scheduled customer delivery dates to combine shipments and minimize total freight costs. Although effective, the business model requires a level of customer buy-in to a single annual delivery.
- Integrated supply chain operations: Not afraid to get stuck in the details, Claus takes personal charge of sales and order management, planning, manufacturing and distribution operations to provide near perfect delivery performance.
- Global delivery network: Although questions need to be asked about the customs practices that require border crossings in the back of an unmarked sleigh in the dark of night, there is no more effective global home delivery network.
- Master of cloud technology: Santa’s logistics chief Rudolph is a leading light in cloud applications and drives a large percentage of St. Nick’s global transactions through the public cloud.
Room to improve?
- Supply chain network optimization: Hello! North Pole as a global manufacturing and distribution location? Need we say more!
- Excessive use of demand shaping: Although many customers are said to value the ‘surprise’ element of his deliveries, there have been unconfirmed reports of unauthorized swap outs of particularly difficult to source toys.
- Aftermarket support: Despite significant investments in pre-sales, customers are left to rely on OEM and alternative retail channel providers to support aftermarket requirements.
- Lack of coherent online strategy: Letters through the traditional and chimney post have been at the cornerstone of the Claus channel strategy for many years. Is it unreasonable for the average six- year old to expect the immediate gratification of an online store with e-mail confirmation and order status?
While we can all improve, there is no doubt that Mr. and Mrs. Claus continue to run a superb operation. The fact that they rely on the occasional piece of magic to make the impossible happen makes it just that bit more special.
While studying for my Masters in Supply Chain I often dreamed of becoming a millionaire by practising the black arts of supply chain management. During those long classes on supply chain planning & control I often visualized myself on a yacht in the Caribbean enjoying the fruits of my supply chain Wealth.
How you ask can you become fabulously wealthy from supply chain management? Well its quite simple - all you have to do is match supply to demand! The holy grail of supply chain management is almost impossible to attain. Companies use inventories to fulfil demand but almost always have excess and if no excess exists it is likely there has been unfulfilled demand.
The supply chain costs of not matching supply & demand are enormous. They include (but are not limited to!):
- Manufacturing costs (extra materials, overtime, etc.)
- Transportation costs (transporting to much product, moving between destinations, express shipments for last minute deliveries)
- Configuration costs (reworking products, repackaging)
- Warehousing & inventory costs
- Discounting & destroying excess inventory
- The lost sales & market share
So if you were able to match supply & demand you would be a much loved person in your company. Sales teams would constantly meet their targets. Production managers would be manufacturing at the lowest possible costs. Profit margins would increase. Retailers would love you because they would always have products on the shelves. Warehouse managers would not be sitting on slow moving inventory blocking up the warehouse. The finance team would know they would meet their quarterly objectives. At the Christmas party you would never be without a drink in your hand.
Although the dream is Utopian, when not dreaming about becoming a millionaire I did learn a thing or two. We know that forecasts are more correct the closer they are to the order point & information sharing through the supply chain helps to reduce the bullwhip effect. Lorcan Sheehan has elaborated on some methods to increase your probability by matching supply & demand in this Supply & Demand Chain Executive article.
As for me I am still playing the lottery as I have to put a deposit on a yacht.
In this guest video post Dr. John Gattorna, author and global supply chain thought leader, shares his insight on the four dominant customer buying behaviors that he identified in his research on dynamic alignment in the supply chain.
John is Executive Chairman of a Sydney-based specialist advisory business, Gattorna Alignment Pty Ltd, and collaborates with a large community of supply chain enthusiasts, worldwide. His recent book “Dynamic Supply Chains: delivering value through people” emphasizes the critical need for a radically different business model following the global financial crisis, and offers ‘dynamic alignment’ as that model.
Do you agree with John's assessment? Please leave your thoughts in the comments section.
Video running time: 05:04
On an earlier flight over to the U.S. I sat beside a scholar who was travelling the world to interview retired executives and enquire about the lessons they had learned over the span of their career. Little need to say this made for a rather enlightening encounter. With more than three decades to go before my retirement - and probably even more by the time I get there (!) - I was obviously not a candidate for this piece of research. Nevertheless, the long discussion led me to reflect on the last 12 years of my career in supply chain and logistics and what I could take away from it.
For what they are worth, here are two of my personal “pearls of wisdom;” two lessons from my experience in the world of value chain management; two lessons I wish I had learnt at college but perhaps wasn’t prepared to accept at the time.
“A good plan today is better than a perfect plan tomorrow” (attributed to General Patton)
I came to the workplace with the attitude of a perfectionist only to realise over time that in order to best respond to a fast changing market environment while controlling costs for our clients and investors, one needs to make quick decisions and also act upon them rapidly – even if this means the finishing touches will need to wait a little or perhaps even be made obsolete by the next change. While I still dream of “a perfect plan today” I have come to accept the virtues of a good one. This is not an invitation to rush into large projects without a well thought out plan, and I would certainly recommend a fast and effective evaluation of the potential impact of leaving those ‘I’s without a dot’ or those ‘T’s un-crossed.’ This is rather the realisation that the most successful supply chains I have come across were never designed from start to finish in an engineering department. They have indeed met challenges at times, seen much iteration and are still far from perfection but they are adapting and most of all delivering day-in and day-out. At the end of the day, no matter how ‘great’ or advanced, the perfect product or solution that aims at satisfying yesterday’s customer needs has very little point.
“EVEN if it ain’t broke ... DO fix it”
I often hear people using the old adage warning us ‘not to fix it if it isn’t broken’ to prevent a change from taking place. Following this advice would mean for example that we should never bring our cars for a service but rather wait until it breaks down (probably on a rainy night far from anywhere!). I would personally be one of those who - whatever the inconvenience of bringing the car to the garage may be – never miss a service. Designing and managing global supply chains is a balancing act, and very few are tempted to disrupt this ecosystem unless they are forced to. Proactive change is the most difficult type to implement as it requires convincing and involves some level of risk (on the other hand, no one ever queries the need for change in a time of crisis) but it is by far the most cost effective - just think of the costs of that production line at a stand-still or those empty shelves. It is also one that gives you time to come up with “a good plan.” Therefore, “difficult” shall not mean it is not worth the effort or initiative. When I consider the clients that engage in supply chain optimization and simulation with us, (an analysis that usually results in recommendations to potentially “fix” otherwise well-oiled supply chains), they are many of the same companies that have managed to stay on the leading edge of their industry and continue to be seen as innovative in their markets. In other words, I have learned that the cost of inaction is likely to be that of resolving the next crisis, or worse, that of losing your competitive edge.
I now regret I did not exchange contact details with my fellow passenger to discover more about the findings of his research, but I would be all the more privileged to hear about your own lessons – be it from your experience in the value chain or any other exciting industry.
Here is the fifth installment of our value chain best practices series. In this post we look at online returns management and how it can help streamline the returns process and improve customer service levels. In earlier posts to this series we have examined process globalization, sustainability in the supply chain, risk management and value recovery.
Are you leveraging an online returns management system today? Tell us your experiences in the comment section below.
Online Returns Management
Returns management continues to be among the most complex areas of the supply chain, much to the dismay of consumers. According to a 2009 Gartner study, "easy returns processing" was cited among the "most important" factors for online consumers shopping across retail segments, just behind third ranked "convenient delivery" in most segments. 1
Online consumers are concerned with the flexibility of returns policies and the cost incurred for the transaction. Because these conditions will drive satisfaction, it is important that brand owners make the returns process as simple and convenient as possible. This is why companies are tapping the power of the Internet to bring the returns process online to create a self-service experience that boosts ease of use, expedites returns cycles, and keeps customers informed throughout the transaction.
Four reasons to execute an online returns management solution:
- Automated product validation and warranty checks to minimize fraudulent activity.
- Expedited financial reconciliation between relevant parties.
- Real-time status tracking with less cost and human intervention.
- Enhanced collection and utilization of key data among corporate business functions.
Once you've developed an online self-service returns process, it is critical to offer real-time, live service support. Rapid response to inquiries can help prevent unnecessary returns and improve the customer's brand experience. Consider the use of live chat which can dramatically reduce the volume and cost of call center support. A February 2008 study from Forrester Research found merchants with click-to-chat options earn a 15 percent ROI on the chat service itself, while merchants with proactive chat invitations and pop-up windows tied to user actions earn a whopping 105 percent ROI.2
Online returns management can deliver stronger brand loyalty, satisfied customers, and a more efficient shopping experience from beginning to end.
1. Gartner, “Retail Consumer Survey: What Customers Want from Online,” March 2009, Van L. Baker.
2. Practical Ecommerce, “Interactive Chat Improves Sales, Customer Service,” October 2008, Jennifer D. Forrester, http://www.practicalecommerce.com/articles/855-Interactive-Chat-Improves-Sales-Customer-Service
HP was recently highlighted in an article regarding the Waste Electrical and Electronic Equipment Directive (WEEE Directive). HP makes the point that there should be more focus on designing electronic products for recycling, so that all recyclable materials can be easily extracted from the used products.
HP has developed processes so that 100% of its ink cartridges are recyclable. The company has managed this by reducing the number of materials in the cartridges and ensuring that different materials used are compatible - often right down to the ink on the labels.
One of the advantages HP has in the ink cartridge processes is that it controls the total return supply chain. The company also recovers a significant amount of value from recycling cartridges. Many other consumer electronics manufacturers have influence over the return process but may outsource in some way, as in many WEEE take back programs in Europe.
Many producers will need to look again at how they design products and also how to operate the aftermarket supply chain to maximize the value of recovery efforts. Although legislation may drive some of these behaviors, companies should also consider the positive impact to the bottom line that can be gained from such activities. The cost of rare earth minerals may also drive manufacturers to engineer easier ways to extract them from products. In my recent blog post The End-to-End Supply Chain Really Matters, I highlighted some of the challenges in extracting rare earth minerals.
Are you designing products with the aftermarket supply chain in mind? Share your stories in the comments section below.
Cyber Monday got off to a great start this year according to comScore, a digital market research company. Sales are up 16% from last year (with half of the spend coming from work computers!). The growth in sales is due to the increased dollar spend per consumer (up 12%) rather than a pure increase in transactions (up 6%).
The growth in online sales is not confined to the U.S. According to e-market Services, online sales in Europe are expected to grow by 25% year on year growth. So how can companies take advantage of this growth in Europe?
Companies will often have a Web-based retail unit in one or two key markets in Europe - for example, in the U.K. or Germany. It is often by accident that expatriates familiar with the brand start ordering products outside the expected geographies. This is usually known as a passive strategy, however, if a company wishes to aggressively target more European markets it will need the following:
- Multilingual Websites – For each market, the website should be in the local language. In some cases international websites are simplified for ease of translation into the chosen language, which will allow changes to be made quickly.
- Multilingual Contact Center – If clients in new countries have any queries or questions, it is important that it can be dealt with in their native language either by phone or email (contact center times must relate to the client countries standard business hours also).
- Currency and Payment Methods – A single method of payment, such as credit cards, can often reduce your potential market share in countries in Europe. Payment types common in Europe include bank transfers, cash on delivery and debit card payments. Also, local currencies must be supported on the website.
- Tax and Reporting – In Europe, if sales exceed a certain threshold, VAT must be paid in that country. It is possible to either operate these services or have them outsourced to a partner who specializes in managing payments in multiple currencies. Statistical reporting to the various in-country departments may also be a necessity. The website must also be able to cope with the pricing changes.
- Shipping and Fulfillment – If you are fulfilling from one location internationally, lead times and costs may be higher. It is usual to offer a number of shipping methods so that the consumer can choose the service level.
- Marketing – In order for a website to succeed, the brand must have a presence in the country. Targeted search engine marketing and country-specific campaigns can increase traffic to a site.
- Returns – Offering a convenient and cost effective method of returns is important for the customer experience. There are a number of postal consolidation services that work well for returning products all over Europe.
In terms of marketing the Web store, it might begin with a formal launch in the specific country and various online campaigns. In some cases, different pricing strategies are utilized to grow market share by offering reduced priced shipping, for example. The ultimate goal would be to grow volumes so that more distribution centers could be set up around Europe to support demand.
Do you have any tips about growing your online business throughout Europe?
Want to learn more?
Download the Gateway to Global e-Commerce white paper that explores the process of global e-commerce expansion and addresses key challenges.
In this fourth installment of the value chain best practices series, we take a look at the reverse supply chain. In the three previous posts of this series we have primarily focused on the forward supply chain covering process globalization, sustainability and risk management. Below are some tips on how you can convert excess assets in to revenue with product remarketing. As always, we welcome your insights and input on this topic – in the comments section please tell us how you are handling excess inventory.
Convert Excess Assets into Revenue with Product Remarketing
Take Action to Recover Value in the Reverse Supply Chain
After the holiday rush, almost all manufacturers are faced with a high volume of returned or surplus product. When combined with the pile of product already in the repair queue, many companies wind up with a significant amount of potential profit sitting in a returns center every January. If the products cannot be returned to forward inventory, many companies simply write them off, resulting in a missed opportunity to add new aftermarket revenue streams. But there are a variety of ways manufacturers can still generate profit out of these products.
Align with Sales and Marketing Resources
Minimize the possibility of channel conflict between the aftermarket and forward channels by aligning with sales and marketing resources. This will enable you to utilize existing channel promotions and provide visibility into what products will be coming down the excess-inventory pipeline for advanced planning. It will also minimize the impact of new channel and secondary market sales on primary sales and channel relationships. Tight coordination between operations and the sales and marketing teams is critical for making informed decisions about which strategies and venues will be most appropriate for your specific challenges and objectives.
Tap the Secondary Market
Companies need to take a more proactive approach by tracking the sources of excess and employing strategies to extend the lifecycle of these capital assets. These efforts can include salvaging for parts, use as replacement units or remarketing for whole-unit disposition. Savvy companies are turning to the latter, tapping the vast secondary market demand that exists for rapid relief of refurbished, repaired or surplus product.
Leverage Online Auctions for Maximum Recovery
Online auctions are among the most lucrative remarketing strategies, offering a rate of return that is frequently two to three times higher than traditional disposition methods. Companies can dispose of large volumes of product in a single transaction. Manufacturers that lack the expertise, resources and capabilities to execute these programs in-house opt to outsource management to third-party specialists. These partners provide turnkey services and can help facilitate "white label" sales for companies that want to maintain anonymity to avoid channel conflict and possible erosion of primary sales.
Explore Supplemental Channels
A number of supplemental B2B and B2C channels are available. A company's choice of venue(s) is guided by a number of critical considerations, including target audience, channel strategy, branding preference and industry focus. These options include:
- Selling via a manufacturer's or OEM's branded, supplemental website (Example: Dell sells refurbished and surplus product online)
- Selling via online discount sites or outlet retailers with high consumer volume (Example: overstock.com or techforless.com, a ModusLink company)
- Selling via B2B exchanges (Example: networkliquidators.com, freeflow.com, moduslinkauctions.com or tcdigital.com)
The key to value recovery lies in an organization's ability to design a solution that addresses its specific challenges and objectives. Before moving ahead with a particular channel and mode of recovery, there are a number of key factors to consider - among the most pressing are channel conflict and cost. It is important to evaluate whether the cost justifies the recovery and frequently the answer lies in the ability to sell high volumes with fewer transactions and more efficient operating processes.
Thus far this holiday season, retail results in the U.S. have been promising with Black Friday sales up slightly on last year, by 0.3% to $10.69B. The numbers of shoppers visiting stores has also risen by 2.2% according to Shopper Tracks retail data. With increased sales come the inevitable supply chain challenges for both traditional and online retailers. Returns policies in particular have shifted and an increasing number of retailers are becoming stricter to help manage costs.
The National Retail Federation (NRF) conducted a survey with loss prevention executives and they estimate that fraudulent returns could cost $3.68 billion this season, a significant increase over last year. One trend that is emerging (on the up) in retail is the practice of “wardrobing” where shoppers buy specific items for an event such as a TV, or an outfit for a party and return them for a full refund when the event or occasion is over.
Online retailers face very similar problems in the reverse supply chain where products are “wardrobed” or returned fraudulently. Many fraudulent users exploit weaknesses in the return supply chain.
There are a number of ways to combat returns fraud without being detrimental to the customer experience.
- State the returns policy clearly on the website or in the store.
- Capture as much data as possible at the point of return, this will ensure that customer returns behavior can be monitored.
- Utilize trained store staff at specific returns areas in stores or at the point of receipt in online distribution centers. Clear guidelines staff can follow will highlight fraudulent returns.
For many retailers fraudulent returns are a cost of doing business so it is important to have an efficient method of retrieving value form the returned products. By processing the products quickly and sorting them by the quality of the return, the products can either be resold at a discount in store or online or auctioned off on a regular basis.
Although fraudulent returns are costly, it is important not to lose site of the consumer. Always provide information on the returns process to ensure that you do not damage the long-term relationship with the customer by making it more difficult than necessary to return products.