I was travelling in the U.S. recently and made a trip to one of my favourite stores, Walmart! I love a bit of retail therapy, however, as a supply chain professional I am most interested in what’s on the shelves and how much there is.
It never ceases to amaze me how Walmart stores are laid out. Shelves are arranged so a broad range of products can be offered. The Shelves are optimized so that there is enough product to fufill demand without having product sitting on the shelves for long periods of time. Also, in certain aisles there are promotional products ready-stacked on a pallet known in Walmart speak as PDQs (Pretty, Darn Quick Displays). The PDQ’s ensure replenishments is as easy as possible for the faster moving products.
How does Walmart do it? Well, in terms of infrastructure, in the U.S. alone it has a network of 40 regional distribution centers (RDCs) which are about one million square feet each and serve a network of 75-100 stores allowing for frequent deliveries to each store. Walmart currently has about 7,900 truck drivers covering about 712 million miles per year. Since Walmart has such a significant fleet of vehicles on the road, it works with suppliers to back haul product to the RDCs when the Walmart trucks are running empty. This reduces overall supply chain costs and is better for the environment.
Walmart’s IT infrastructure is also very impressive in their system integrations with their key suppliers. Electronic data interchange (EDI) links have given suppliers accurate point of sale (POS) information so they can plan accurately for demand and reduce overall inventories in the supply chain. Radio frequency identification (RFID) technology means that inventory levels can be taken without physically counting or scanning the products in store or at the DC.
Walmart pioneered many supply chain initiatives in the past. This is due to the company’s recognition of the importance of collaboration and investing in technology in the supply chain to drive profitability. Walmart sheer scale enables the Company to implement initiatives smaller retailers could only dream of.
What do you think will be the next innovation in the Walmart supply chain?
More than 600 runs scored; 7.5 hours of play; 40,000+ spectators packing stadiums across three nations and despite the grueling heat cheering on every delivery bowled; games going down to the wire - this has been the story over the last 30 days of the 10th edition of the ICC Cricket World Cup.
Although only 14 countries are taking part in this tournament, which is held once every four years, the fact that ¼ of the world’s population resides in these cricket hotbeds makes this the third largest sporting event in the world in terms of attendance and viewership after the FIFA World Cup and the Summer Olympics.
As we approach the knockout stages of the Cup, it is an apt time to create the Cricket Player's Guide to Supply Chain:
1. Balance is key
Almost every team that has won the previous nine World Cups had one common underlying characteristic- a well-balanced team made up of experienced batsmen, lethal bowlers and one or two all-rounders who can bat and bowl their team to victory against all odds on a given day. A successful supply chain organization also needs to have this fine balance to meet the volatility and challenges of the current supply chain environment.
2. Play as a team to win
The current reigning champion, Australia, is the most successful country in Cricket World Cup history having won the tournament four times (1987, 1999, 2003 and 2007) and ended as the runner-up twice. The most critical component of the Australian team has been playing with a ferocious team spirit. Instead of fielding a team with a few larger-than-life superstars and focusing on individual brilliance, the Australian team has a history of having a team made up of talented hard-working players motivated by a strong leader and following a well-planned strategy. A key ingredient of best-in-class-supply chain organizations is the presence of a clear vision communicated by able leadership to a motivated and empowered team.
3. Saving a run = scoring a run
Historically, the one day format of the game (The original cricket format lasts five days) was all about the runs that were scored by the batting team. Fielding was the unglamorous part of the game that most cricketers dreaded. Over the last two decades, teams such as South Africa (a special mention needs to be made for Mr. Jonty Rhodes), Australia and New Zeland have proven than every run saved in the field by their agile fielding is just as, if not more, important than every run scored. In addition to adding to the pressure on the batsmen and creating opportunities for run-outs, every athletic lunge made to stop a ball from getting to the boundary rope inspires confidence within the rest of the team.
Similarly, instead of focusing purely on revenue generation, supply chain organizations need to also focus on cost control and process optimization for their clients as well as their for their own operations.
4. Catches win matches
One of the oldest sayings in cricket is “catches win matches.” One such famous instance of a catch changing the entire course of a match dates back to the World Cup final of 1983 when the captain of the heavy underdog Indian team ran backwards to latch on to the catch which sent the most profilic and intimidating batsmen of that era from the feared West Indian team back to the pavilion.
The difference between mediocre and best-in-class supply chain organizations is the ability to grasp an opportunity when it presents itself. Being proactive in understanding consumer needs and creating a network which can best meet these needs has become a game changer.
5. The playing conditions determine the strategy
Cricket is played with the same number of players,the same equipment and the same rules across the world. However the playing conditions such as the amount of grass on the pitch, the amount of dew in the air, the surface consistency etc., are all key inputs into the strategy adopted by teams for every single game. On any given day, a total of 300 could be easily chased down whereas in different playing conditions even reaching a total of 180 can be a monumental task. In the supply chain world, companies need to assess the playing conditions they have to play in as related to different geographies, different regulatory and trade environments and design the best strategy to succeed given these conditions.
I would love to get your suggestions and thoughts on other such comparisons between the “Gentleman’s Game” and the supply chain world. That said, I hope the best “team” lifts the trophy on the 2nd of April.
If you were to plot references to risk management in supply chain, you would see a peak in April and May of 2010 as the global supply chain community suddenly got ‘religion’ about the potential impacts of external events in our supply chain. Much was written but for many I suspect that little has actually changed. Twelve months later, the ash cloud has cleared but we face a renewed wave of supply disruptions emerging from the recent tragic events in Japan.
Between these much publicised and tragic natural events, thousands of suppliers will have quietly gone out of business, leaving behind them their own impacts on individual company supply chains. While a disruption from a natural event may be met with some market understanding, supplier failure impacts your supply chain while your competitors’ product flow is unaffected.
The core of supplier risk management is a systematic assessment of risk events, their likelihood of occurrence and the impact if they do occur. These risk events should include operational and financial risk characteristics, but may also include performance, intellectual property and brand reputational risks.
1. Systematic assessment of risks
Put yourself into the virtual position of receiving the phone call that “XXX … has occurred” and consider with your supply chain team how it will impact your business is? At this stage, it is good to get some details around:
- The ability to get an accurate status of open orders, customer shipments and inventory impacted;
- the ability to source alternate product and services and time to recover; and
- the ability to work around order communications gaps.
What can be sobering here is the level of dependency on customer order flows, and in some cases, a lack of control over product specifications .
2. Assessment of likelihood of risks
Having a high dependency on a reliable supplier should not in itself be a problem. Where there is a low probability of supplier disruption, a well-organized supplier may even help reduce total supply chain risk.
Again, it is important here to get beyond generalities to put in place quantifiable measures of what would cause a supplier disruption. These risk ‘triggers’ may be financial, performance based or event based and should be embedded into a supplier management framework. This allows the measures to be set periodically, but reviewed regularly with alerts if the ‘trigger’ conditions are reached.
3. Risk prioritization and mitigation
Concentrating on the highest combination of risk impact and probability of occurrence, consider actions that can be taken to mitigate the identified risks. While some of these actions will be to remedy situations where your company has left itself needlessly exposed, more of these will involve a trade off between supply chain costs and risks. An informed executive review will help strike this balance.
While dual sources of supply are frequently considered, this comes with an incremental supplier management cost and typically higher product or service costs. Be careful to avoid the mitigation actions themselves increasing the risks associated with a particular supplier.
4. Planned risk scenarios
The response to a risk event can be improved with clarity in communication and actions. Planning for a range of scenarios should include:
- trigger events to activate the plan;
- key information requirements and sources;
- personnel to be involved and clarity on decision rights;
- checklist for internal and external communications; and
- periodic test of the scenario plan to train personnel on the process.
It’s less about ensuring that every potential risk is considered and more about having a process to be aware of critical supplier dependencies. In monitoring the risk triggers there is the opportunity to make small changes early rather than allowing conditions to build to a larger risk.
Do you have additional insight from your own supplier risk management program?
If you search the web for “supply chain collaboration” (and you might just have!), you are very likely to find a huge amount of information on how sophisticated systems and IT connectivity solutions can help streamline processes by increasing visibility throughout the value chain. While recent progress made in this area is significant, it should not overshadow the various collaboration options you may want to consider to improve your own supply network performance.
Vertical Collaboration: How your supply and customer base can add value to your business beyond price negotiations.
One of the main goals for procurement organizations is typically to ensure suitable supply at the best possible price available on the market. At the other end, sales organizations would typically be expected to get the best possible price from customers to maximize profit margins. Price will and should always remain a key factor to ensure sustainable competitiveness. However the design of the purchasing process often fails to take full advantage of the (perhaps more intangible) potential benefits that may result from deeper relationships than purely transactional relationships.
- Sharing information: Giving and getting visibility on forecasts, stock levels, new product launches, etc. up and downstream can dramatically improve product availability, overall inventory costs and asset utilization - often hindered by a lack of visibility - resulting from uncertainty throughout the chain. Messaging solutions can help automate, standardise and speed up those exchanges but more basic ways of sharing information can already go a long way.
- Leveraging expertise: Involving your key partners (and considering them as such, rather than just ‘suppliers’) in – for example – some aspects of your product development or process improvement projects can bear more fruits than you may think possible. Whether this means getting a deeper understanding on product failure or taking on board packaging design suggestions to optimize transport or kitting costs, your suppliers or channel partners can become your best consultants! (You might also find that they know some aspect of your business better than you do).
- Opening your doors: From vendor managed inventory (VMI) solutions increasing availability and reducing inventory holding costs to co-location solutions where your supplier effectively utilizes space in your facility (reducing transport/increasing speed), opening your door can potentially generate great savings without adding much cost upstream. Without going to that extent, just having an on-site partner’s employee – casually known as ‘implant’ – is also an effective way of embedding that resource and having the individual become your voice with your partner.
Horizontal Collaboration: How you and your customers could benefit from a partnership with your competitors.
Faced with price pressure from far-east competition, the western car industry and its capital intensive activity paved the way in the 1990’s, but twenty years later collaboration with competing brands still is very much “taboo” in most industries. To some extent, whether willingly or not, the increasing reliance on contract manufacturers ultimately means that brands can avail of cheaper manufacturing costs by leveraging the same assets. But production is only one link of the chain. So what are the rules of engagement?
- Identify your competitive advantage(s): The decision to entertain talks on horizontal collaboration should be closely linked to your market strategy. If your supply chain performance is an industry benchmark that sets you apart from the competition and gives you an edge on the market, it is probably best continuing on your path. On the contrary, you may want to ask yourself for example: “is my distribution network really a competitive advantage?” If the answer is “probably not” then it may be worth considering how much you could reduce the overall landing cost of your product, save from your bottom line or pass on to your customers as a price reduction by – let’s say – combining your freight with a competitor or leveraging the same distribution centre, returns management partner or warranty redemption program.
- Identify the appropriate partner(s): While you could still achieve a win/win situation with your most direct competitor, it is preferable to select one that would target a different market segment. Where applicable, also consider partnering with the supplier of a complementary product, a much easier decision to take. The key here is to look for potential synergies.
- Be mindful of confidentiality and leverage third parties: Once you have decided that you will keep competing on the retail shelves but join forces along the way, you will need to pay attention to protecting your intellectual property. To that end, using a trusted third party might make it easier than entering a direct venture.
Advances in technology are making deeper and faster integration possible but the true benefits of supply chain collaboration can only be realised with a conscious change of mindset: specifically, the way you interact with suppliers and customers or your competitors. Are you ready to challenge the old ways and your own convictions on the matter?
Our thoughts and prayers are with the Japanese people - especially our colleagues and clients, their families and their friends during this horrific disaster.
I will be among the first to admit that I look at products on the shelf and critically examine packaging, stand in a queue and mentally look for the bottlenecks and listen to news stories and consider the supply chain implications. As I watched the media reports this weekend however, I was uneasy with the myriad of coverage considering the supply chain implications of the disaster.
It seemed premature to be highlighting the impact to global supply chains while we are still wondering how many people were lost in the tragedy and while there is a nation struggling to cope with the scale of the challenges they face.
On Saturday afternoon, I received a note from the General Manager of our operations in Japan (in Atsugi – west of Tokyo). I was relieved to hear that all of our employees were safe and accounted for. His note talked about his pride in his team and in how they responded without panic, and despite numerous challenges how they worked together, looking out for each other to ensure that everyone was safe and could get to their homes. Some of the team returned to the solution center early on Saturday to restore the facility and resume operations.
In any supply chain we talk of people, processes and technology. I have no doubt that the most important element in this equation is the people, and our first priority should be – as was the case in the note from my Japanese colleague – to ensure their safety and well being. It’s the people that will help us take care of restoring the processes and technology.
We are very proud of our Japanese team and thank them for the strength and dignity that they have shown – which inspires all of us - especially in these difficult times.
In my previous blog post, Theme That Experience, I talked about how companies can define an authentic theme that will succinctly summarize the customer experience. Central to fulfilling this theme are the indelible impressions left on customers after the experience is over. In short, an effective customer experience management strategy requires commitment by companies to transform their offerings and attributes to leave indelible footprints on the memory of its customers.
In their book, Market Busters- 40 Strategic Moves that Drive Exceptional Business Growth, Rita Gunther McGrath and Ian C. MacMillan provide a tool which they call “attribute map” to help companies manage attributes, or what Pine and Gilmore in their book, The Experience Economy, would call cues. According to McGrath and MacMillan, an attribute of a company’s offering, based on the way certain customer segments react to it, can be classified into different categories. I will highlight a couple of the categories which I think are salient to take note of:
- Nonnegotiables- These are attributes that are regarded as positive by the targeted customer segment but are generic in nature as they are also offered and expected from other similar offerings from the competition. What is considered as nonnegotiable varies from industry to industry, and product to product. For example, in most of today’s consumer electronic product markets, the provision of a wide ranging, post-sales help desk support would be considered by customers as a nonnegotiable aspect of the their experience of owning the product.
- Differentiators- A differentiator attribute is one that is considered as a positive cue by the customer that makes them want to purchase the offering. For instance, offering extended hours and days of phone helpdesk support could prove to be a very powerful differentiating experience for certain customer segments. Another example would be the constant display of unwavering empathy from the customer service representative. This could offer a distraught customer a differentiating impression which could lead to future purchase of the offerings.
- Exciters- More powerful than differentiators are exciters where customers are overwhelmingly attracted to a particular attribute of an offering. To the customer, these delightful impressions of their experience constitute the basis for repeated purchase of the offering. Back to the example of consumer electronics. Instead of just offering the staple post-sales technical help desk support, it would be worth the efforts of mobile phone companies to explore the viability of offering on-site support to certain customer segments that might be willing to pay for the this level of service. An exciter experience could also come in the form of establishing a practice among the customer service representatives to delight their customers by going beyond providing “to-the-point” technical or “how-to-use” advice to customers and making an effort to direct customers to other relevant features of the product
- Tolerables- These are negative attributes that customers would put up with in order to get the positive aspect of the offering. This might include, for certain customer segments, longer waiting time in the call queue before they are being attended to by a help desk customer service representative.
- Dissatisfiers- If a negative attribute is peculiar to a specific company’s offering and customers could avoid it by choosing a competing offering, it is called a dissatisfier. For example, expecting customers to pay for the call charges incurred during wait times might lead to dissatisfied customers migrating to a competing alternative that offers toll-free numbers for help desk support.
- Enragers- These are attributes that involve a strong level of negative reaction from customers that drives them to stop purchasing the offering. Having to deal with protracted calls with customer service representatives that are either not equipped with the knowledge to resolve customer’s issues or empowered to provide a solution can enrage customer so much that they decide to stop purchasing that offering in the future.
According to McGrath and MacMillan, once companies have started classifying their offering attributes into these categories, they should start looking at improving the positive aspect of their offerings that would turn them into differentiators and exciters while at the same time eliminating existing or potential negatives that would or already have become dissatisfiers and enragers.
What’s your company’s experience with managing your offering’s attributes to leave an indelible impression with your customers? Please write and let me know.
In the midst of the blistering Arabian Desert along the Arabian Peninsula lies a magical city, which in just the last 40 years has transformed from a tiny town to one of the most modern cities in the world. Dubai, with a population of 3 million inhabitants, is truly an urban oasis in the desert and has undergone a modernization which would have taken other cities more than two to three centuries.
The United Arab Emirates (UAE) is formed of seven emirates with Dubai and Abu Dhabi being the most prominent on the world stage. In recent years, Dubai has obtained worldwide recognition for its grandiose, ultra modern infrastructure projects as well as world-class sporting events to include PGA championships, ATP tennis tournaments and the richest horse race in the world. Unlike its neighboring oil rich emirate of Abu Dhabi, Dubai's economy is driven by financial services, infrastructure, real estate and tourism.
Why you should consider Dubai in your supply chain network:*
- Traditionally the Middle Eastern and African markets have been bundled with the European market (EMEA) because of the low demand from these regions. As these markets grow rapidly the importance of having a regional hub has increased significantly.
- Dubai is strategically located between the Asia-Europe and Asia-Africa trade routes. Its geographic location gives it a unique logistical advantage to carry out trade between the two hemispheres.
- Dubai is the major re-export centre for the entire Middle Eastern and African region.
- In addition to being the hub for trade in the prosperous Gulf countries, Dubai also reaches huge markets including East African countries, the Commonwealth of Independent States (CIS), Iran and the Indian sub-continent. Therefore, by establishing a base in Dubai, international businessmen, manufacturers and exporters can also successfully find readily available buyers for their goods.
- The UAE has one of the highest GDP/Capita in the world and the oil-rich government has been aggressively making sizable investments in infrastructure and logistics developments which will maintain the nation's position as a major logistics hub in the Middle East.
- Dubai does not have any foreign exchange controls, quotas or trade barriers.
- Once completed, the Dubai Logistics City is set to become the largest integrated logistics platform in the world delivering multi-modal transportation, logistics, and value-added services.
- Dubai has the highest migration rate in the world, with more than 80% of its population being formed of non-locals. The skilled and unskilled labor pool available in Dubai is rich and diverse.
- Dubai International Airport is the:
- 15th busiest airport in the world by passenger traffic
- 6th busiest airport in the world by international passenger traffic
- 7th busiest cargo airport in world
- 4th busiest International freight traffic airport in world
- Al Maktoum International Airport in Dubai, which is partially open, will be the main part of Dubai World Central. Once totally completed it will be the largest airport in the world.
- The World Central will be the world's first truly integrated logistics platform with the most transport modes, logistics and value added services, including manufacturing and assembly, in a single bonded and free zone environment.
- The free zones in Dubai offer special incentives to attract tenants, such as no taxation for many years, subsidized energy rates, and full repatriation of capital and profits.
- The port of Jebel Ali in Dubai is the largest manmade port in the world and is ranked 7th globally in terms of volume of container traffic. Dubai’s two sea ports are served by more than 100 shipping lines.
- Dubai is the port of choice for international shipping companies operating between Europe and the Far East only one stop in the Gulf region for unloading/breaking down and reloading cargo.
- Dubai is also becoming a hub for service industries such as information technology and finance, with industry-specific free zones throughout the city (e.g. Dubai Internet City, Dubai Media City).
- Dubai has a modern, world-class infrastructure. Land transportation is by road. There is no rail system in the UAE, with five of the seven emirates in the UAE having modern airports.
Some major risks you should consider:
- Being relatively new, Dubai’s economy is prone to be drastically affected during economic downturns such as that seen globally in 2008-2009 as well as other major world events such as the Gulf War in 1990. Dubai's property market experienced a major deterioration in 2008 and 2009 as a result of the worldwide economic downturn.
- Other than in free zones, which allow foreigners to own up to 100 percent of the equity in an enterprise, majority local ownership is required for foreign companies looking to establish a hub in Dubai.
Have you considered Dubai in your supply chain network? If so, we would love to hear your views and results of this consideration. If not, we hope this blog has piqued your interest in looking at Dubai with a different perspective.
* Data Sources:
Strategic Analysis of Logistics Market in United Arab Emirates (Frost & Sullivan)
Wikipedia – Dubai
In this guest video blog John Gattorna, Author and Global Supply Chain Thought Leader, provides insight on hybrid configurations for the value chain.
How are you successfully utilizing different value chain models to meet the needs of your suppliers and customers?
Video running time: 02:00
I am fortunate to have a job that provides many opportunities to talk to current and potential clients. The conversations I have with these companies typically revolve around two or three challenges the organizations are facing. Generally the people I work with are able to share a great deal of information – and describe a great deal of the pain they have experienced – related to those challenges. The good news (at least I think it’s good news) is that the problems are nearly always similar to the challenges other companies are facing. Very often they are the same challenges ModusLink has helped other companies address, so we’re able to share our experience. As I was leaving one of these meetings recently, I thought about the relatively small number of discrete problems that I hear our clients struggling with. There are always nuances, to be sure, but the same themes appear over and over. In no particular order:
- Supply Chain Cost – Nearly every client we deal with – especially since the start of the latest recession – is facing severe cost pressure in all areas of the supply chain. Balancing those (for example, balancing low-cost labor with time to market – or balancing inventory holding costs with logistics costs) is a constant challenge for supply chain professionals.
- End-to-End Cycle Time / Ability to Quickly React to Customer Demand – This really goes hand-in-hand with the cost issue. If the only challenges are improving availability and time-to-market, that would be easily solved by holding a tremendous amount of inventory in a location near every major customer. That would also be cost prohibitive. To satisfy customer demand cost effectively requires a supply chain designed to operate quickly and efficiently.
- Ability to Scale / Flexibility – I have yet to meet a client who has predictable customer demand and perfect forecast accuracy. More often than not, designing a supply chain that can rapidly scale to deal with peaks and valleys is critical to our clients.
- Information Management / Visibility – Where is that shipment? When will that incoming supply be available? What’s the status of that build? How are we tracking to forecast? Getting systems to talk to one another and getting access to actionable metrics and reports is a common struggle for the companies we talk to.
- Risk Management – The 2010 eruptions of Eyjafjallajökull and the resulting disruption to global shipping lanes nicely underscored something I’ve heard clients discussing for years – how to design supply chains and processes that adequately predict and address risks.
- Ability to Serve Emerging Markets – “Our supply chain is great in the U..S, but we’re just expanding into Europe. Can you help?” I spoke to a client just yesterday who asked this question. Whether it’s Latin America, China, or somewhere else, this is a challenge we’re frequently asked to help solve.
- Inventory – Too much, too little, wrong variety, or in the wrong place – inventory challenges are common for almost every supply chain.
- Custom Requirements / Configuration Challenges / SKU Proliferation – Figuring out how to capitalize on the cost benefits associated with fewer SKUs, larger builds, and more common parts – while still meeting various retailer-specific, channel-specific, or geography-specific requirements – is a common challenge for companies.
- Returns – I would be willing to wager that nearly everyone who reads this blog post has, at some point in his or her career, seen a forward supply chain that was diligently designed, optimized, fine-tuned, and monitored … only to see returns pile up somewhere with little thought. This is surprisingly common (and, fortunately, easy to fix).
- Sustainability – Over the last few years, sustainability concerns have increased significantly among our clients. Whether the challenge is adequately measuring and reporting various sustainability metrics, demonstrating improvements, or meeting regulatory requirements, these challenges are increasingly common.
I suspect many of your biggest supply chain challenges fall into these categories. I also wonder which ones I’ve omitted. Please share your experiences.