I attended the CSCMP Taiwan roundtable's annual conference last week which was dedicated to the topic of supply chain sustainability. The event was superbly organized and speakers covered a range of topics from the government framework, to academic research to practical approaches to sustainability efforts. Participants included Benq, HP, DHL and ourselves. It also extended to cover the good, the bad and the ugly of sustainability marketing.
It was again clear that there is a large amount of positive activity and the supply chain leaders in Asia are as passionate about the topic as their western counterparts. I also remain convinced that there remains a large untapped opportunity for companies to take advantage of sustainability initiatives that also drive economic benefit. Peer sharing of successful cases helps build the awareness of these opportunities and early successes can provide the momentum to commit to a more formal sustainability journey.
However, lest we become complacent on the topic, the conference also touched on some of the real challenges that will need to be addressed.
- To make progress we need to be able to measure progress and for this we need globally acceptable standards. Voluntary efforts can gain a level of consensus but will consensus measures alone provide a framework for some of the difficult decisions we need to make in the future?
- Even with alignment on standards and product labeling there is a parallel need for consumer education. Certain retailers and NGOs have been to the fore in this area - will this be sufficient to change consumer buying patterns in favor of more sustainable products?
- Unless consumers can afford sustainable products, sustainability becomes a feel-good issue for the rich, while economic reality will dictate price for the bulk of the world's consumers. How do we create an economic advantage for sustainable products? We are already seeing early instances of carbon and other environmental taxes. Is it inevitable that we will see this trend increase?
Some of this gets to the core issues of political leadership and the role of government. While we must avoid a repeat of blanket environmental taxes, such as WEEE, there will be a need for a more active role in shaping the sustainability landscape in the future.
What does this mean for our product supply chains?
I thought that the DHL executive at the CSCMP conference put it well. In looking at building the sustainability case for their business they evaluated the potential cost of a future carbon tax regime on their business. While the costs are at this stage still theoretical, the scale of the potential impact was such that it could not be ignored from a risk management perspective.
Whatever your motivation, if your company has not already started a credible sustainability journey, then it is missing out on real economic, environmental and brand benefits. Can you afford not to start?
Yesterday I saw a HBR.org blog post titled: It’s Time to Fire Some of Your Customers. The article makes the point that we’ve all heard at some point that companies can’t afford to treat all customers equally. More specifically, they can’t afford to spend as much time on their bottom customers as they need to be spending with those at the top of the list. This is more true now than ever. With companies operating leaner than ever, leaders’ time is at an all-time premium. It is therefore critical for this time to be prioritized in a way that will maximize short-term and long-term results.
The article led me to think about the supply chain implications of this kind of prioritized focus on clients. At ModusLink, we work with a number of companies that have established a default supply chain model for the majority of their customers with other models designed to satisfy the specific needs of their top customers. By choosing when and where activities are performed, where and how much inventory is held, and how systems are configured, companies have a number of ways to customize their supply chains.
Whether a company is considering supply chain decisions or looking more broadly at customer acquisition and retention, I see three keys success:
- Developing a clear, data-driven understanding of which clients are most important now and are likely to be most important in the future.
- Allocating a significant share of executive time and focus to understanding the needs (and anticipating the future needs) of those top clients.
- Investing company resources to enable outstanding service and world-class execution for the top clients now and in the future, even as their needs evolve.
The HBR.org blog post ends with a simple conclusion: “Your top-cohort customers are super fans who have voted with their wallets. They are the ones who will recommend you more often than other customers and would miss you most if you no longer existed. Find more people like them, and spend less time trying to turn others into people like them.”
Expanding Your US Retail Channel into Europe
Are you a retailer based in the United States that dreams of expanding into Europe, but doesn’t know how? Maybe European expansion hasn’t crossed your mind? Either way, by staying in a single market, you could be\ missing out on the opportunity to reach new customers, increase sales and revenue, and generate international brand awareness.
According to The Center for Retail Research, online retail sales in Europe are poised to rise 18 percent to more than 200 billion Euros ($217 billion) in 2011.
An outsource partner can help you manage the complexities involved with global expansion and ensure a seamless entry into Europe.
Top 3 Challenges Solved
Challenge #1: Establishing your brand in Europe
Solution: When you set up a Web store in Europe, you establish immediate presence and a direct channel to consumers throughout the country, from Italy to Germany and beyond. An outsource partner can get you started on the right technology platform to manage language localization, region-specific promotions and product cataloguing, and can provide contact center support in any locale. You will have the ability to notify consumers in Ireland of local product rebates or consumers in Spain of an upcoming holiday sale. Don’t forget about returns! Feature a solid — and localized — returns policy on your website that is easy for consumers to find. This flexibility will help you generate more widespread brand awareness, boost sales, and increase customer loyalty and satisfaction.
Challenge #2: Managing financial complexities
Solution: Because of the number of countries in Europe, your Web store must be able to facilitate various currencies, payment methods, tax regulations and reporting requirements. For example, the preferred payment method in Germany is wire transfer, and consumers do not pre-pay when they shop online. Instead, they make payment when goods arrive at their doorstep. Mobile payments and virtual currency are other popular payment methods currently being used throughout Europe. And with Internet security as a major concern, tokenization — a process which associates credit card numbers with a generic range of numbers then decrypts them at the point of purchase — is commonly used to reduce shopping cart abandonment. If this sounds daunting, it doesn’t have to be. An outsource partner can manage these financial complexities and more, like the VAT tax, to ensure a safe, secure and satisfying shopping experience for consumers in any region of Europe.
Challenge #3: Shipping and fulfillment
Solution: Meeting consumer demand for fast delivery and returns comes down to logistics, cost and transportation structures. Europe can be a challenge due to the number of countries and the varied transportation systems. Further, many countries in Europe have unique import/ export laws, like Italy, which prohibits the shipment of leather goods into the country. An outsource partner can help. First, it can set up warehouses and distribution centers in optimal locations for fulfillment, close to key customer demographics throughout the region. Next, it can use logistics management systems to recommend the best route, vendor and cost for delivery of products to and from consumers. This can all be performed in accordance to regional laws and regulations.
To learn more about global expansion, download the white paper: Gateway to Global e-Commerce.
You can also learn more about Expanding Your Retail Channel into New Global Markets in the ModusLink resource center.
Sorting out the real advantages from the frills may reap more rewards than austerity
Earlier this month I was treated to a free upgrade on a rather full transatlantic flight. Long gone are the days when this was a regular occurrence. I was comfortably sitting in seat 4G when I started thinking about those little perks that came with a business class seat: priority and ‘eventless’ boarding, refreshment and choice of newspapers prior to take-off, legroom for a normal human being, not to mention that white table cloth on your dinner tray. In times like these, those are very nice indeed (did I mention French wine?), but they would hardly be enough to justify the price differential; especially since all regular travellers know that a quick program enrolment, a little preparation and perhaps a strategic smile at check-in can almost guarantee half of these extras!
I landed hours later, having been able to tackle a good amount of work (thanks to the power socket at my seat), disembarked with a pain-free back, arrived first at the immigration queue, my bag and a taxi almost waiting for me and got to my hotel in time to call home ... all this probably before the last of my not-so-fortunate co-passengers cleared customs! At that point ‘nice-to-have’ started to look more like real advantages. And they certainly become ‘essentials’ when they make the difference between landing refreshed after a night flight ready to start that meeting or play with your kids and – well – doing your best!
The recent recession has forced many companies to make difficult cuts, including reducing their supply chain processes to the strict minimum. There is no doubt that extraordinary times required extraordinary measures and the move has perhaps helped eliminate some of the frills that had crept-up over the years. However - in the long run – some of the choices that helped weather the storm may prevent companies from surfing the next wave:
- Quality & Safety: Industry papers and recruitment specialists both agree that it has not been a good period of late for quality assurance and health and safety professionals as numerous companies lowered standards to the legal minimum in order to save costs. While the benefits are immediate, these practices can become very costly over time - and yet more difficult to evaluate - through extra support, warranty costs or damaging customer experience.
- Business Continuity: In the wake of the 9/11 attacks and the destruction of many companies’ nerve centres housed in the twin towers, businesses took a hard look at their disaster recovery strategies, built some level of redundancy and required same from their business partners. Redundancies, looking like a ‘dead weight’ on any struggling balance sheet, were quietly replaced by hyper-centralized solutions, prompting claims that little had been learnt when all this came to light again after the Japanese disaster.
- Scalability: The only theory economists seem to agree upon is that the economy works in cycles. Things are certainly slow picking up, but the drive to full utilization of assets – that may have helped margins in the short term – might represent the biggest obstacle to future growth if an intermediate plan is not put in place right now.
- Customer Satisfaction: Customers were hard-hit too and are now more than ever looking for a ‘bargain.’ They might have somewhat lowered their service expectations for a lower price, but still very much expect a service! Sometimes making a higher level of service available - be it at an extra cost (e.g. a next day delivery) – can generate more satisfaction than the ‘rock-bottom only’ option.
- Information: As supply chain services go, best price will mean basic standard messaging and reporting. Meaningful information comes at a price but in the age of business intelligence servers and ‘cloud’ services a small investment in customized and more frequent reporting and feedback – be it from your shop floor or supply chain partners - may yield a great return.
- Innovation: ‘Yesterday’s solutions won’t necessarily solve today’s problems’. Innovation is most likely one of the keys to a brighter future. Few supply chains can justify dedicated research and development or engineering departments, however carefully lightening you supply chain staff workload might just give them the space they need to drive tomorrow’s changes as opposed to just run today’s business.
While flying economy will get you wherever you are going at the cheapest cost, carefully selecting your upgrades might just take you there a little faster and in a much better condition to compete. The points highlighted above can be momentarily put on hold – and you may have experienced some level of this in your business – but they are certainly closer to the flat bed than the white table cloth on my cost/benefits scale. I shall take an overnight flight back in a few days... could this just be a full flight again?
The following case study can be found in the sustainable supply chain tool kit along with several additional resources including white papers, articles and webcasts.
HP wanted to improve the sustainability and efficiency of its supply chain operations by reducing the size of its product packaging, using more recyclable materials, decreasing carbon emissions, and cutting transportation costs.
- Reduce Greenhouse Gas (GHG) emissions
- Redesign product packaging using sustainable materials
- Reduce shipping, freight and logistics costs
- Increase pallet yield for reduced number of shipments
- Conducted in-depth supply chain analysis to determine the most effective sustainable approach
- Measured and analyzed the amount of GHG emissions resulting from various packaging types
- Redesigned product packaging used for hard drives, circuit boards, keyboards and other components
HP experienced substantial, measurable savings:
Direct Packaging Benefits Per Year
- More than 350 thousand U.S. dollar savings in packaging materials alone
- 74 thousand cubic feet removed from packaging
- 88 thousand pounds of packaging eliminated
- 62 metric ton reduction in GHG, equaling:
- 11.9 passenger cars driven in one year
- 144 barrels of oil saved
- 6,974 gallons of gasoline
- 20.9 tons of waste recycled , not sent to landfills
Estimated Indirect Savings Per Year
- More than 50 thousand U.S. dollars in outbound transportation costs
- 10 metric tons less packaging
HP is committed to its role in creating a low-carbon economy. The leading technology company was one of the first to measure and report its global logistics and manufacturing carbon footprint, so transitioning to more sustainable supply chain operations was a critical next step.
HP leveraged its existing relationship with ModusLink to develop a sustainable supply chain strategy. For more than 20 years, ModusLink has managed the company’s complete supply chain for commercial accessories in North America and EMEA, including procurement, kitting and distribution into direct and indirect channels.
ModusLink’s cradle-to-cradle approach includes services ranging from sustainable packaging redesign and network optimization to GHG footprinting, recycling and asset disposition. HP was seeking to accomplish two major goals:
- Significantly decrease its GHG emissions
- Reduce logistics and transportation costs
In order to achieve these goals, ModusLink used a combination of sophisticated tools, existing relationships with key sustainable materials suppliers, and an in-house team of experts to conduct a thorough analysis of HP’s supply chain network and operations. This analysis confirmed that an eco-friendly product packaging redesign would significantly reduce HP’s environmental impact and its logistics costs.
The existing packaging design consisted of large boxes and non-biodegradable foam. ModusLink has developed a 4D methodology – a process that analyzes ergonomics, cost, logistics and sustainability – to redesign product packaging using less materials, eliminating plastic and finding more environmentally sound alternatives. As a result, the foam was replaced with protective end-caps made from 100 percent recycled plastic, and cubic feet and pounds of the finished packaging were significantly reduced.
ModusLink then conducted a network simulation and GHG analysis incorporating the new packaging design to understand the impact on transportation cost and other factors in the supply chain. The analysis showed that HP could reduce GHG emissions by 10 metric tons per year and yield transportation cost savings of more than $50 thousand per year, which is a savings of 12 percent per unit.
With more compact, eco-friendly packaging in place, HP continues to uphold its commitment to the environment while benefiting from the cost savings and efficiency resulting from a more sustainable supply chain.
Contact ModusLink today to learn how we can help improve the sustainability and efficiency your supply chain operations.
In this installment of Value Unchained Live, John Gattorna, author and global supply chain thought leader, talks about aligning supply chain processes to better match customer needs.
Video running time: 02:31
As I write this, the temperature outside my office is in the mid-90s. It seems a little odd to be thinking about the holidays during the height of summer, but now is precisely the time when supply chain professionals should turn their attention to the seasonal spike in demand many companies experience in October, November, and December. For professionals involved in a supply chain that experiences a heavy increase in activity during the fourth quarter, the following is a list of things that should be addressed sooner rather than later.
- Finalize major supply chain changes – The spring and early summer months are the most common times for companies to make significant changes to their supply chains: changes in fulfillment partners or carriers, footprint changes, system enhancements and ERP upgrades, etc. By the end of the summer, these changes will ideally be mostly finalized so everyone can shift their attention to flawless execution during the busy months ahead.
- Complete product changes – Deciding what the product assortment will be, getting agreement from retail partners, and making all necessary preparations should all be done during the summer to allow sufficient lead time for purchasing, manufacturing, and shipping.
- Collaborate with channel and retail partners to develop a shipment and sales forecast – Many retail planners will already have a good idea of what they plan to promote during the holidays and will be interested in having a collaborative dialogue with manufacturers now. Plans will likely be adjusted between now and the time final shipments are made, but there is significant benefit to all parties in beginning those discussions in the near future.
- Work with supply chain partners to secure supply and capacity – Because so many companies experience an increase in demand at the same time each year, it is important to make sure you work with your suppliers, manufacturing, configuration, and fulfillment partners, and carriers well in advance of those increases. The earlier these discussions begin, the more time available for companies to make the appropriate arrangements to deal with demand increases and variability.
- Develop an SOP for how you will react to changes - What happens if products sell-through much more quickly than planned, and significant replenishment orders are required ASAP? How about if the inverse happens? If products arrive to configuration and fulfillment partners a week later than expected, is there a plan to ensure shipments will make it to retail on time? Having discussions with your supply chain partners now – when people are able to focus on planning rather than simply on executing – can pay dividends when the unexpected happens in October.
Has your company begun preparations for Q4? What else should be included in this list? Please share your thoughts in the comments.
The following is an excerpt from the white paper The Impact Spare Parts Management Has On Your Business and Brand. Download the entire white paper from the ModusLink resource center.
The goal of effective spare parts management is to have an optimized aftermarket supply chain that fulfills spare parts demand, minimizes excess inventory, dispositions waste in an eco-friendly manner, and reduces supply chain costs. However, in order to be successful, you must take into account the uncertainties that plague this facet of the aftermarket supply chain: You can’t predict when a product will fail or become damaged, when a customer will make a return, which components will fail or how often.
An experienced outsource provider can help you manage these uncertainties and take the pain out of spare parts management by using specialized planning methodologies that determine the value of a product, its demand over time, and what stage a product is at in its lifecycle.
In addition, a partner can help you implement best practices that can manage costs, reduce excess inventory, and more:
- Take control of your inventory
You should have different processes in place to manage critical parts – parts that a product relies on to function – and consumable parts – parts that are not critical to a product’s ability to function (like a screw). By having the right parts available in inventory, you can repair products fast and increase the turnaround time to customers. Another inventory management best practice: Try not to store excess inventory or high-value inventory with no regard for demand. By letting these parts sit idle on warehouse shelves, you risk obsolescence, which can negatively impact your bottom line.
According to the Reverse Logistics Association, the primary focus of inventory control should be on the active and most critical items, and the transactions concerning the storage, movement and receipt of the active SKUs should be maintained.
- Provide the right service levels
Consumer electronics constantly change. As prices rise and fall, technologies advance, and demand fluctuates, your service levels need to be realigned accordingly. Service levels should be in line with product pricing: If you established service levels based on a higher price point, you should develop alternative service models to support the lower price. For example, decide if the product’s value is high enough to warrant a 48-hour turnaround back to the customer.
- Set realistic expectations
Once you establish or realign service levels, the next step is to set realistic expectations with your customers. Ensure you have the right inventory in place to support service contracts and returns. Also, establish turnaround times that are appropriate to the device – this goes back to establishing the right service levels. You must also be prepared to manage last-time buys. Even if a manufacturer discontinues a product, you still need to have enough parts available in inventory to repair the product throughout its lifecycle.
- Understand demand cycles
Projecting how long a product will be in demand can help you stock the right spare parts, reduce excess inventory, perform repairs quickly, ensure customer satisfaction, and ultimately, save you money. For example, if you determine that 80 percent of the demand for a mobile phone occurs within the first two years of its lifecycle, or if 50 percent of the demand for a server occurs within the first seven years, you have a commitment to the customer to repair the product if it fails, according to service contracts and warranties. Once demand for a product drops, you must decide if repairing the device will be cost-effective for your business. When demand drops, you can make the decision to sell spare parts through alternative channels.
- Optimize locations
An outsource partner can perform network optimization to determine the best area(s) across the globe to set up warehouses and inventory locations. This process can determine where your core customers are located so you can stock inventory, perform repairs and process returns close to your customers. This optimization process can also help prevent you from establishing too many locations, which can be costly and ineffective to your operations.
- Streamline sourcing
Whether you work with 10 suppliers or 150, managing these relationships can be complex. From sourcing parts and testing, to inventory management and disposition, an outsource partner can manage these relationships, processes and complexities so you can focus on your core business.
As air and sea freight costs are rising and slow steaming is affecting lead times these issues are prompting companies to examine alternative routes from Asia to Europe and specifically looking at rail from China to Europe.
The train line from China to Europe, known as the Trans-Siberian Railway, was started in about 1890 and was completed around 1929. The railway has a number of key routes via Moscow, one of which is a northern route through Siberia. It leaves China at the Russian border at a place called Manzhouli/Zabaykalsk and then it makes its way across Siberia to Moscow. There is an alternative route to Moscow via Mongolia and Kazakstan. Other European sections of the route go via Poland the Ukraine and Belarus, depending on which part of Europe they are heading towards.
So which routes have been tested? To date I have seen the following:
- Shanghai China to Duisburg Germany (18 Days)
- Chongqing to Duisburg (16 Days)
- Xiangtang, China, to Hamburg (17 Days)
The freight lead times are very good in comparison to sea freight where the usual shipping time can be 36 days or more depending on the end location in Europe. The scale of the railway is immense as it crosses 11 time zones and more than 11,000 km.
Some of the challenges on the route are as follows:
- The gauge of the track is different in China, Russia and Europe which means containers need to be transhipped or the bogies on the trains need to be changed at the border.
- Public trains or block trains can be utilized for destinations. Block trains are private trains that go the most direct route, cutting times. However, they need a certain number of containers going to a similar destination to make them viable, so this can create issues with the regularity of the trains.
- Due to the number of countries the trains are passing through, there is a higher likelihood of hold ups due to paperwork issues and customs challenges.
- In order for the service to be optimal it is better to be very close to a railway station so that transhipment costs are minimized.
So how does the service compare to more traditional modes?
Rail freight is just under the cost of the air/sea options although still more costly than the sea options. With further volumes and developments in the train networks these costs should reduce over time.
One company that is heavily involved in the development of the routes is Trans Eurasia Logistics which is a company set up by Deutsche Bahn AG and the Russian Railways (RZD) in early 2008.
The key growth driver for trans-Eurasian freight will be the development of inland Chinese cities. As lower wage rates are sought the factories are moving further inland meaning that factories are further from the main sea ports and will rely on the railways for transportation.
If you want to try the route yourself as a passenger see the following website: http://www.seat61.com/Europe-train-travel.htm