You don’t realize how dependent you are on something until you lose it. This is the case as we look at the cascading impacts of the recent shut down of European air travel. Not since September 2001 have we seen such a shock to global air travel, and you need to go back to World War II to see a more widespread restriction on global flights (thanks to Bob Ferrari’s Supply Chain Matters Blog
How should we consider such infrequent but disruptive events to our supply chain?
In a scenario-based planning approach, it is unlikely that someone would have incorporated something as specific as the current disruptions, but it is likely that consideration would have been given to other events that could disrupt air travel – such as terrorist delays, strikes, or critical transportation capacity constraints.
Whether or not formal plans exist for this specific disruption, companies with formal risk management processes in place will be better off for the following reasons:
- They will have established a discipline associated with rapidly collecting an accurate status of the problem and presenting it for consideration.
- They will have assigned project resources that can be assembled quickly and virtually to assess the situation and available responses. It is likely that the resources will include the supply side of the business, in addition to the customer side, to facilitate clear communication and expectation setting.
- It is likely that they will have plans for similar scenarios – if not the exact one – that they can use as the initial basis for finding a solution.
It is likely that in the future, we may have to consider the impact of large-scale transportation disruptions in risk planning. Whether or not this consideration will warrant changes to supply chain structures, or the maintenance of formal contingency plans will be a decision factored on the risk, the likelihood of occurrence and the likely impact. The disciplines around risk management processes, however, will inevitably improve organizational response in these situations.
Thank you to all who joined A Fresh Approach to Supply Chain Fundamentals, the first episode in the Value Chain Exchange Webinar series. We were delighted to have Mark Payne from Linksys and Alan Macintyre from HP help launch the series. If you missed the live webinar, click here
to register and watch the replay.
In a period of continued economic uncertainty, a number of key success themes emerged from today’s discussion:
- Alignment and collaboration
- Supply chain strategy with organizational strategy
- Wiring the organization for success. Collaboration between sales, marketing, finance and supply chain can be achieved with a strong S&OP process with common visibility and understanding.
- Single version of the truth is important for the organization and its interaction with suppliers and customers. Confidence in the numbers allows all parts of an organization to drive behavior that improves profits.
- Everything starts with a plan, but the supply chain needs to be able to adapt and respond to variances in the plan. It is clear in both the HP and Linksys cases that there is a clear plan with common understanding in place.
- Importance in designing the supply chain with the product characteristics, product lifecycle, lead time, form factor and costs in mind. This extends to the planning model, the supply model and the interaction between inventory and production levels in the supply chain.
- Flexibility in the execution processes linked with key customer-facing metrics help to maintain the customer promise in an increasingly competitive market.
Inventory management is a critical focus for supply chain leaders. CFO magazine published a survey statistic this week stating that 47 percent of companies expect to see lower dollars in inventory per dollar revenue this year over the one just gone by. Click here to read the full Business Outlook Survey.
We hope today’s session delivered insight on how some industry leaders are approaching supply chain fundamentals. Please share your insight and experiences on this topic.
How many of us utilize detailed analysis based on forecasts that we know will be wrong?
I’d advocate the real focus should be on the sensitivity analysis associated with each supply chain element. The key question I typically ask myself is, “at what point does a change or a combination of changes affect the decision that I’d make today?” For me, the timing of future elements such as transportation capacity, fuel fluctuations, foreign exchange arbitrage, cost of labor, and the maturity of infrastructure are the policies that manipulate the supply chain network infrastructure. While each of these elements typically are evaluated based on what we know now, many of us struggle with the complex sequencing of decision making.
One point that adds to the complexity is that most changes to a supply chain usually take a good deal of time to implement. Because of this, I spend a lot of time trying to predict when policies need to change in order to determine the optimal network for our clients. The key thing I’ve learned is that there is no ‘easy button’ when it comes to staying ahead of a volatile global marketplace. The best advice I can give is that whatever you do, be sure to make flexibility a top priority for your supply chain network, because none of us have a crystal ball.
If anyone has an alternative way of approaching this topic, please post a comment.
Many of the executives that I talk to continue to believe that they can purchase an industry-leading network optimization tool then push a button to produce the perfect answer. Successful supply chain optimization relies heavily on the people utilizing the tools. I’ve found that those same people also need to have the skill to extract the data required to ensure an accurate result. I also find that beyond the right sourcing decision of leading supply chain tools, many firms make three common mistakes when completing an optimization project:
- They don’t staff the project with both business people and analysts. This process must go beyond a steering committee because the devil is in the details. I firmly believe that both skill sets are required and keep each other in check.
- Getting the best data and having the expertise on how to cleanse the data is critical to any project. My experience has taught me that when you are missing data, making a good assumption is an art, and must be a collaborative decision between the analyst and the business support person.
- I have also found that most projects don’t budget enough time to ensure the project result provides executives with critical decision support. I see many projects that leave out sensitivity analysis, multiple time period evaluations, and robust risk analyses.
To me, it comes down to people. The nail doesn’t find its way into the wall without a hammer or the person who swings the hammer. I’d also submit that the way a novice would use the hammer versus an experienced carpenter is radically different. I believe that if you hire high-quality, experienced people and have enough time and budget to finish the project right, you can expect a successful result.
... Open Your Mind to an Environmentally Friendly Value Chain!
As value chain professionals, we should take responsibility this Earth Day to consider the impact of global commerce on the planet. We are tasked with making critical business decisions – including how product gets to market and how we handle product disposition – that effect our surroundings well beyond our own personal carbon footprint.
It is important to be cognizant of the consequences our decisions have and the need to take action to reduce the impact of our value chains on the environment. This can indeed be achieved in tandem with the cost and performance objectives of our value chains. There is mounting evidence that well-planned sustainability initiatives drive value chain savings. ModusLink clients have yielded the following benefits from packaging redesign projects over that last year:
- The elimination of 4,000 metric tons of CO2, which is the equivalent of taking 672 cars off the road for one year.
- Transportation, materials and labor savings in excess of $12M.
- Value recovery on open box and returned product exceeding $50M.
Before you turn off your computer this Earth Day, I suggest you take an hour and use it to research the opportunities that exist to embrace sustainability within your own value chain. Click here to learn how ModusLink executes sustainability initiatives.
You can find additional information and points of view by visiting:
Leave a comment and share your best practices and ideas on environmentally responsible value chains.
ModusLink kicks off the Value Chain Exchange webinar series on April 28th with the session: A Fresh Approach to Supply Chain Fundamentals.
This session will examine supply chain fundamentals and provide a path to achieving essential objectives in today's recession-weary operating environment, such as:
- Managing forecasts and inventory availability
- Achieving global supply chain visibility
- Collaboration between supply chain partners
Register today: http://bit.ly/b3tltr
Keynote Introduction: Joe Lawler, Chairman, President and CEO of ModusLink Global Solutions
Presenter: Mark Payne, VP of Operations for Linksys, a division of Cisco
Presenter: Alan Macintyre, EMEA Manufacturing Operations Director for Hewlett-Packard
Date: April 28, 2010
Time: 10:00am – 11:00am (EST - New York) 3:00pm – 4:00pm (GMT – London)
Location: Online, Live Webinar – register using this http://bit.ly/b3tltr
The full impact of the Eyjafjallajokull volcano is still difficult to calculate, however, it is clear to see that companies relying exclusively on air freight to feed the European market, or export from Europe by air, will be affected. The last time supply chains were challenged in such a way was on September 11, 2001 when all aircraft were grounded. During this time, production at many automotive plants was severely impacted due to key electronic parts not being available.
I am currently caught up in the melee of the volcanic eruptions: I am stuck in Japan with no way home to Ireland! Although this sort of a scenario is difficult to plan for, you can create a disaster recovery plan to mitigate the impact of natural disasters on your supply chain. Creating a plan can help you in advance, but for those without a plan, what can you do to deal with the disaster right now?
Here is my list of steps to take today:
1. Don’t panic!
2. Understand what parts of your supply chain will be affected by volcanic eruptions. Pay specific attention to anything that is flown by air in or out of Europe.
3. Once you identify the volatile pieces of your supply chain, get a clear understanding of how big your problem is by talking to the key stakeholders and assessing the impacted areas:
- Customers: Your retailers should have a number of days or weeks of inventory. Understand the inventory levels for the retailers impacted and determine the likely reorder point for each retailer. Negotiate with the retailer to see if order levels can be reduced to help manage supplies.
- Distribution centers: Understand inventory levels in the supply chain. If there are multiple distribution centers within driving distance, pool resources to fulfill inventory at multiple locations. Cross dock if necessary.
- Logistics providers: Look at options with your logistics providers. If products are waiting to go on an aircraft in Asia, look into multimodal options such flying the products to Dubai and completing the journey by sea to Europe. Understand the closest airport available to redirect products and truck to final destinations.
4. Monitor recent demand for your products and help prioritize orders with suppliers. When normal services return, there will be capacity issues and bottlenecks, so it is important to understand the products that need to be prioritized.
As for me, I am carrying on as usual in our local office in Japan until I have a suitable multimodal option to get home to Ireland. By following my personal disaster recovery plan, you can prepare your supply chain for when disaster strikes.
There has been a recent surge in television programs showcasing people who earn money from going through their belongings in the attic and selling them at auction, or on auction websites such as eBay, to help pay for a new car or a trip to Disneyland. In a similar fashion, many retailers and manufacturers have been building up excess products in their own “attics,” which are more commonly described as warehouses. Much of this product relates to consumer returns that have built up over time and in some cases, simply wind up getting dumped. Instead of getting a reality TV host to show them how to turn their products into cash, many companies turn to brokers or specialized service providers.
Returns by nature are difficult to administer and come in a variety of shapes and sizes. Many supply chains are simply not equipped to handle returns, both from a systems and financial point of view. Time is also very important, because the sooner a return can be processed and readied for sale again, the faster the value recovery happens.
The fastest way to deal with returns is to have the systems in place to triage, rekit or refurbish the product. The system must also be able to route products so that rebates can be managed from manufacturers, or faults can be tracked. Most product returns are “No Fault Found:” this can range from 50 to 70 percent of returns.
To get at all that cash in the attic, here are some handy tips:
- Put in place a regular collection program from a freight perspective to stores or distribution centers.
- Create a centralized location to handle returns.
- Put into place triage processes so data can be logged and returns assessed.
- Refurbish – rekit – repair, or return for rebate where necessary.
- Create channels to sell excess products. These channels can include:
- Outlet stores
- Secondary retail websites
- Specialist brokers
- Auction websites
By following these tips, a significant amount of cash can be found. In most cases, even if up-front investment is required, the returns are very handsome. Although the money won’t go toward a trip to Disneyland, at the very least, it will help your company’s bottom line!
Consumer spending is “perking up” according to the WSJ, but manufacturers still cannot count on predictable volumes. This mandates a continued chokehold on supply response to more optimistic demand forecasts in the short term. But what if your company is able to suddenly buck the trend with an innovative new product? Are you ready to support it?
Flexibility, you elusive creature. The goal would be to have cheap, high-quality flexibility to deal with the demand patterns of the recent recession and recovery, periods of low demand, or the launch of a new hot product line. How do you get “cheap” flexibility? Vertical integration, captive factories, centers of excellence, automation - these flexibility-enhancing vehicles aren’t cheap today, but over time and with some degree of risk they certainly can be. To answer the question of whether or not to invest, one must decide how long supply chain needs will remain constant enough to get a return on those investments.
If funding your own flexibility carries too much risk, must you lose the name of action? Nay, brave supply chain thought leader! Outsource to gain your flexibility. Throughout the financial crisis, as companies that focus on individual product lines have struggled to break free of the downward cycle of cost cutting and halted growth, good-quality outsource logistics providers have weathered the storm with cash remaining – even growing. These are different animals when it comes to justification for capital investments. As long as there is alignment with strategy and multiple clients, business process outsource (BPO) providers can make a much faster, lower risk return on the same investments you would require to enhance cost-effective demand responsiveness.
Fortune 100-style flexibility can be more than a dream for the rest of us by leveraging the capability, cost structure, and cash of a good quality BPO partner.
Get the fundamentals in place at set up and keep it simple through execution!
Have you ever wondered about the parallels between the noble game of golf and the management of today’s globalized supply chain? I am not about to argue that we hand over control of our global supply chains to Butch Harmon for fine tuning. Nor am I likely to significantly advance academic thought in either discipline in this blog post. But if you can’t pose different ways to think about these things in a blog post, where can you do it?
So here goes - possibly for the first time ever - my top five golfing supply chain observations:
1. Anybody can play the game; few play it well and a small percentage of players are world class.
Look around you – products make it to store shelves every day. Barriers are pretty low and if you have the unique product or a margin structure that forgives inefficiency, you can survive for quite some time with a shoddy supply chain. In the real world, however, supply chains are a critical part of getting product to market faster, penetrating distribution channels and delivering a superior cost to value proposition. Look at the annual AMR Research Supply Chain Top 25 and note the correlation between the top supply chain performers and sustained shareholder value creation.
2. Your odds of hitting the fairway dramatically improve when you aim in the right direction.
Too little time is spent up-front on aligning supply chain strategy with corporate strategy. There are endless permutations of supply chain configurations that can deliver lowest cost, fastest time to market, superior customer service, technology and IP leadership, sustainability leadership or a premium brand user experience.
How successful do you think that Apple’s next big release would be if they used low-grade components, bid the manufacturing out to the cheapest bidder, shipped everything by boat to save freight costs, and packaged it in dull brown corrugate?
Smart supply chains are not a hand-me-down of a legacy manufacturing and distribution structure. They recognize differences in products – one size does not necessarily fit all - they are agile and are built to support a corporate strategy. The best supply chains enable new strategies and new sources of competitive advantage.
3. If the conditions change, you need to be able to adapt.
Supply chains exist in a world where duties, fuel costs, labor costs and costs of capital fluctuate almost as much as forecasts of customer demand. In these environments, you need to have the flexibility to adapt – to take that extra club – and make changes to yield a better result in the conditions present. To do this, you need an awareness of the key drivers of cost and performance in your supply chain and the sensitivity to changes in the external environment.
Monitor the most sensitive factors, and be prepared to make changes where you see evidence of sustained change. Successful companies build this into a planning process and refresh this type of network analysis and scenario planning on a regular basis. The elite performers take this a stage further to drive changes in product, packaging design and other strategies to improve supply chain performance based on this understanding.
4. Once you are set up, keep the execution simple and keep score.
Once you have a set strategy and a configured product flow in place, the key is to deliver processes that are robust, repeatable and scalable. In the search for cheaper sources of labor, operations and engineering disciplines regrettably took a back seat for a period of time. With decreasing returns from the global chase to the lowest-cost economies, they are rightfully re-emerging as critical elements to the supply chain. Continuous improvement methodologies such as Lean and Six Sigma require an enterprise commitment, but are critical to designing out costs and errors from the process.
The appropriate use and management of performance indicators in supply chain provide the scorecard mechanism on the overall process effectiveness. The most successful measures focus on what is important to the ultimate consumer in terms of product availability, end-to-end delivery performance and responsiveness.
5. Success often depends on how you react when your ball lands in a hazard.
Even the best-planned supply chains will need to deal with unexpected issues, from unforecasted demand to natural disasters, to competitive challenges or performance issues at some point in the chain. Success can often depend on grinding out a result in these circumstances through:
- Recognizing the problem through metrics and alerts
- Clearly communicating alternatives
- Making clear and calm decisions
- Monitoring recovery and learning from the incident
It is in these circumstances that supply chain visibility and appropriate executive relationships across the supply chain facilitate timely alerts and aligned reactions to respond to the issue at hand.
No doubt, we could add to the parallels in terms of approaches to risk, to competitive threats and indeed, to outsourcing. If you have additional insights or perhaps obscure parallels, please feel free to share. On the question of outsourcing – well – if I could outsource my bunker shots to Tiger Woods or Gary Player, I am pretty sure that I would give it serious consideration. Shouldn’t you?
It is my pleasure to welcome you to Value Unchained. At ModusLink, we are privileged to work with some of the world’s leading brands in the design and execution of critical value chain processes. These industry pioneers partner with ModusLink for our technology, our global infrastructure and the solutions that we can deliver to enhance the performance of their global value chains. Ultimately, it is the experience, creativity and dedication of our global team that is the real differentiator for ModusLink; and has been for the last 25 years.
Our team is excited to embrace the opportunity to share its thoughts and passion for supply chain, aftermarket, e-Business and sustainability topics. The objective of the blog is to stimulate thought, dialogue and occasional good humor around the daily issues facing global executives.
Many of us are still feeling the aftershocks of the recent economic downturn. Ongoing challenges like low product demand, miscast forecasts, and the need to deliver on profit expectations despite uncertain market conditions have forced companies to dramatically rethink the entire supply chain process. By relating our experiences and insight on the end-to-end global value chain, our aim is to highlight best practices that can be applied across industries and geographies in today’s unstable environment.
While we hope that you find Value Unchained educational, ModusLink’s goal also is to foster dialogue, so we encourage you to share your thoughts on the topics discussed in our blog that are important to you.
Value Unchained will be authored by ModusLink’s subject matter experts from around the globe. Each blogger will write in his or her area of expertise, bringing you first-hand knowledge on every topic. To learn more about our diverse team of expert bloggers, click on the Authors tab.
In the upcoming weeks, we will deliver posts on today’s biggest challenges and the latest industry trends, including:
- Reassessing supply chain risk
- Maximizing the value from returned products
- Sustainability in the supply chain and your greenhouse gas (GHG) footprint
- Capital investments in the supply chain
We hope that you make Value Unchained a resource, participate in the discussions, and keep coming back for the latest value chain insights.