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Returning Profits to the Returns Process at CSCMP

  
  
  

Lorcan SheehanOn Monday I participated in a panel discussion on returning profits to the returns process. The panel was hosted by Michael Blumberg and I was joined by Tim Konrad from Genco and Dan Gardner from ATCLE.   In framing the topic, Michael described a $28 billion cost of returns in consumer electronics and computing alone. Returns cost 2.75 times more than forward shipments to process and can lead to a 30% erosion in potential profits. With no fault found (NFF) rates of up to 75% for some product, there is a belief that a portion of these costs are self-inflicted through disjointed returns practices - from consumer, to retailer, to OEM and service providers.

While the panel did not produce a single silver bullet to address this problem, it did identify plenty of scope to drive both cost and recovery improvements to the process. Some highlights of the opportunities discussed were as follows:

  • Clarity of service levels and objectives. Consider the needs of the customer and the operating models to meet these needs. Be wary of one-size fits all and consider segregating by customer or product category. Recognize the cost to serve – especially in markets with declining average selling price (ASP).
  • Supply chain design can play a critical role to reduce costs and increase the speed of recovery in an environment where products lose value on a daily basis.
    • Remove NFF product from the process quickly and as close to the customer as possible.
    • Seek to reduce hand-offs that add processing costs and increase queue time in the returns cycle.
    • Apply market intelligence to avoid over processing products with little potential for value recovery.
    • Network optimization can deliver similar percentage savings on reverse flows as it does on forward flows.
  • Extending the design of the returns process to include the retailer and channel processes presents further opportunities to collapse cost and lead time. It also provides more rapid feedback on channel returns processes that drive additional costs.
  • Accelerating the returns cycle can improve value recovery and should present an opportunity to reduce spares inventories that are essentially being replenished faster.
  • Value recovery is enhanced if it is addressed as an ongoing proactive process rather than a reaction to problems on a project basis. It should also extend to the harvesting of components and consider the ‘urban mining’ (thanks Dan) of the returns waste stream for valuable materials.

Given the construct of the panel, it was not surprising that outsourcing was also referenced as an opportunity to leverage visibility tools, footprint, scale and expertise. Alignment of outsourced provider objectives was seen as critical for success as was the need for integrated providers that can successfully deliver on the opportunities outlined above.

If you have comments or questions we would love to hear them.

 

The Secret to Successful Supply Chain Outsourcing

  
  
  

I read a post yesterday on the Harvard Business Review blog called Great Customers Inspire Great Innovations.   The author provides some great examples of the critical role that customers played in the development of several technological developments, from air conditioning to microprocessors.  The article then makes a point that really struck a chord with me: “The most important link in the innovation value chain is an innovative customer. That is, a customer ready, willing, and able to adopt, adapt — and maybe even pay for — an innovative offering.” 

When I think about our business generally and our company specifically, dozens of examples come to mind that support this.  Many of the most exciting developments I’ve seen at ModusLink over the years have been the result of close collaboration with our clients.  In almost all cases, the resulting process innovations provided a measureable benefit to our company as well as the client.  And that, I believe, is the secret to successful supply chain outsourcing (or business process outsourcing of any kind): clients who are willing to act as partners, working collaboratively with service providers to tackle business challenges and innovating together. 

Have you seen examples of this in your organizations? Please share your experiences in the comments.

 

Sustainable Strategies that Drive Real Results

  
  
  

Value Chain ExchangeToday we hosted the third webinar in our Value Chain Exchange webinar series.  I would like to thank panelists Dr. Stephen Stokes from Gartner and Rob Auslander from AMD for joining in a very engaging session.

Dr. Stokes did an excellent job of framing sustainable supply chain challenges from both a  political and a market context and provided guidance on the current and likely regulatory frameworks.  Interestingly, close to 60 percent of the global sustainability challenge is expected to be solved, not by new forms of energy, but by creating efficiencies in how we use energy.  With value chain operations at the heart of these efficiency requirements, it is imperative that organizations approach these challenges in a structured manner.  

What is this structure?  Well part of the problem is that there isn’t a defined structure or set of standards to follow.  There is, however, a progression that organizations seem to take from compliance focused to tactical to strategic to becoming intrinsically sustainable.   We can all look at our own organizations to determine where we sit in that spectrum.  

A portfolio approach is required that includes internal operations, the extended value chain and product design.  Underpinning this approach with operational and financial metrics and goals is critical to building momentum in sustainability efforts.

This tied in perfectly with the insight provided by Rob Auslander into the practical implementation of these principles by AMD.  Rob stepped us down from the corporate social responsibility framework and values that guide an organization to a practical case example around sustainability in product packaging design.   He addressed organizational and value chain challenges and outlined the path to getting a win-win on making the changes happen.

The results for AMD’s Fusion II retail product speak for themselves:

  • 45% in product cube reduction
  • 72% increase in pallet density
  • 43% decrease in CO2 from packaging

These changes positively impact material costs, assembly costs, logistics costs and improve shelf utilization at the retail store.  In Rob’s words, however, this is only part of the journey.  They are looking to improve further on the materials used, extend the focus to inbound supplier packaging and optimize pack sizes based on customer order patterns.

This is a great example of how aligning sustainable and profit objectives can really drive sustainability momentum in the value chain.  ModusLink was privileged to support Rob and his team on this particular project and will continue to work with them as they proceed on the journey.

We hope today’s session delivered valuable insight on how industry leaders are approaching sustainability in their value chains.  It is only in sharing these examples of success that we can collectively define the path for sustainable improvements in the future.  Please share your comments and experiences.

 

Supply Chain Toys for Big Boys … and Girls!

  
  
  

CSCMP 2010 BoothYesterday, we had our first view of the future … the Supply Chain of the Future at CSCMP’s Annual Global Conference. At an event that has historically been dominated by classroom-style educational tracks, there was certainly a novelty factor as delegates toured the 100,000 square-foot interactive exhibit. 

If you want to simulate, automate, accelerate or remotely control any element of your supply chain, there is a good chance that you will find the tools to achieve this over the next two days in Section G of the San Diego Convention Center. Why let gravity or geography be an obstacle when there are cloud-based and location-based solutions available? There is even an opportunity to interact with a couple of highly social robots wandering through the exhibit engaging with the supply chain community in between posing for photos.

Luckily there is still room in the exhibit for human intelligence and supply chain experience to compliment the artificial intelligence capabilities at show.  

This combination of current and future capabilities is very healthy for the industry and CSCMP is an excellent showcase for supply chain innovation. In many respects, the principle could be considered a parallel to that of concept cars at automotive events. In the first year of the Supply Chain of the Future event (the next two years are already scheduled) it is certainly not that futuristic, but CSCMP and the Distribution Business Management Association are to be commended for pushing the technology, service and equipment providers to focus on cutting-edge rather than standard capabilities.

There is certainly a ‘cool factor’ to robots picking product and delivering them within your warehouse, but the question behind any of these investments is whether there will be an economic return. In an educational setting such as CSCMP there is a great opportunity to tease out new applications and provide inputs on what would be required to drive the answers to these economic questions.

For many attendees, the greatest opportunities will lie in the improved design and application of their current tools. With 4,000 professionals on hand to debate and learn from each other, these opportunities are well catered for at this event.  

If you are at the event, we would love to hear your views on what you have seen.  More to come …

 

Carbon Reduction Makes Sense for Business

  
  
  

Green PlanetThe Carbon Disclosure Project (CDP) is a not-for-profit organization funded by governments and large corporate entities such as Microsoft and SAP. The purpose of the organization is to promote carbon reporting and assisting companies with putting a framework together to help with reporting.

The CPD just published its S&P 500 report. In this year’s report more S&P 500 companies reported their emissions up from 52% in 2009 to 59% in 2010.

The survey found that 70% of respondents plan to capitalize on opportunities related to climate change indicating that they see the value in carbon reduction strategies from both reducing costs and assisting in selling products or services. The survey found that 93% of the S&P 500 companies will be incorporating climate change risks or opportunities into there overall business strategy.

The survey also noted that outside the S&P 500 only 35% of companies are planning on integrating climate change risks or opportunities into their overall business strategy.  

So what does the survey tell us about companies that are reporting and acting on carbon deduction programs?  These companies are realizing opportunities by doing the following:

  • measuring carbon footprint 
  • executing measures to reduce carbon footprint including:
    • Making operations more efficient by utilizing energy efficient lighting and heating in buildings
    • Reducing the dimension of packaging  to reduce the amount of freight and components
    • Designing eco-friendly products that are lighter and more power efficient.
    • Disclosing their carbon reduction efforts

The survey overall is promising and shows that the leading companies in the world are taking measures to report and reduce carbon in their businesses.

How does your company measure its carbon footprint? What actions are you taking, or planning to take, to reduce your carbon footprint?

 

Sustainability – Who Will Bear the Cost?

  
  
  

Balance of Sustainability CostsIn a recent conversation on the topic of sustainable supply chains a 3PL colleague raised the question of who will bear the cost of sustainability projects. His experience had been that one of his major clients had insisted on a retrofit of his warehouse operations to meet the client’s sustainability objectives.  What made this difficult to take was the fact that the client continued to air-freight their product into that same warehouse.

This conversation crystallized the challenge of trade-offs between costs and the environment which has hindered the adoption of many environmental sustainability initiatives in supply chain. It also highlights the selective approach to sustainability projects that exists within many organizations.
What has started to change this dynamic is an increased awareness that sustainable processes can also have a positive impact on total supply chain costs. Examples of these projects include:

  • Lean strategies to eliminate waste from supply chain processes
  • Network optimization
  • Postponement
  • Product design
  • Utilities management
  • Packaging redesign to reduce product footprint and migrate to more sustainable materials
  • Returned product recovery programs

With consumers already demanding more environmentally responsible products, the alignment of sustainability and cost actions creates the conditions required to build momentum for change.  Critical to the success of these projects is the following:

  • Availability of reliable sustainability data to support key supply chain decisions
  • Governance structure within organizations to establish baseline performance and to set meaningful sustainability goals
  • Continued education of consumers and product labelling to support customer buying decisions
  • Active sharing of best practices in the supply chain community

Environmental sustainability is just one element of the sustainable enterprise.  There will certainly be challenges where sustainable decisions can only come at an extra cost and this may ultimately be a barrier to a completely sustainable enterprise.   There is a growing list of opportunities, however, that allow us to greatly improve our current performance while also improving profitability. 

Until we have exhausted these opportunities, we must ask ourselves and our supply chain partners – can we afford not to pursue these sustainability initiatives?  

We would love to hear your comments and have you add to the list of experiences where your sustainability initiatives have also improved profitability.

 

Value Chain ExchangeTo learn more about this topic, register for the upcoming Value Chain Exchange webinar on Sustainable Value Chain Practices featuring speakers from ModusLink, Gartner Research 
and AMD.

 

Lean and Green Supply Chain Initiatives Can Be Complimentary

  
  
  

Bob FerrariA guest post by Bob Ferrari

I’m very pleased to have the opportunity to be a guest blogger and contribute commentary to the Value Unchained community of followers. 

I would like to reflect on some observations related to sustainability strategy deployment across the supply chain, namely important considerations in alignment of so-termed green supply chain strategies with contributing benefit to overall business strategies. 

Previous commentaries on Value Unchained noted a recent University of Tennessee research study, “Green, Lean and Global Supply Chain Strategies.”  In the posting, Beyond the Research Part Three: Green and Lean Global Supply Chain Strategies, the researchers at the University of Tennessee made a rather important observation. They noted that supply chain professionals understand what is meant in having a ‘lean supply chain’, but were uncertain as to what was implied in having a ‘green supply chain’.  The researchers further observed that they were encouraged to hear that there was fundamental agreement with the concept that ‘lean equals green’ but green supply chain strategies are relatively new concepts that preclude the true synergy of both initiatives.

This observation did not surprise me.  The notion of having a green supply chain is a term that many marketing professionals enjoy utilizing.  The concept of lean initiatives has been around for quite some time, and is well understood among many functional teams.  However, these observations, as to lack of alignment among lean and green, indicate a need for the education and cross-functional alignment that we often encounter in many supply chain wide initiatives, particularly when external marketing and internal operational goals differ. Instilling a “language of green”, as noted by the University of Tennessee researchers is key, and examples can be garnered from other firms.

Once the context of green and sustainable supply chain are linked to increased efficiency and reduction of waste, it opens a broader framework of potential strategies.  That could include a range of activities from more sustainable and efficient packaging, increased leverage of supply chain postponement strategies, or broadly incorporating sustainability goals in overall supply chain network alignment and deployment.  It becomes a matter of scoping need to desired business result.

Let us reflect on two examples where alignment is evident.  Procter and Gamble has had a concerted sustainability strategy since 2002, when the company first established an external Annual Sustainability Report published to all audiences.  A review of the strategy and goals of this P&G initiative outlines five complimentary strategies that align the need for development of ‘sustainable innovation products’ with complementary needs for P&G to improve the environmental profile of its own operations.  The needs to track and improve overall energy usage, GHG emissions, water usage and waste disposal not only provide opportunities for where supply chain efforts need to align, but also a framework where management performance metrics can also be aligned.  Another clear example has been P&G efforts in improving or simplifying product packaging, and requiring transportation carriers to report on GHG emission footprints. The notion of aligning ‘lean’ with ‘green’ becomes clearer in the minds of cross-functional teams,  especially when these teams reflect on the best means to initiate broader lean initiatives that involve more than just individual production or distribution facilities.  Green and sustainable initiatives such as packaging can then be easily aligned for cross-functional efforts.

Walmart is an even more pertinent example, since this global retailer fully understands two principles concerning its business.  First, consumers prefer to shop at and return to a socially and environmentally responsible retailer.  Second, supply chain drives the most considerable aspect of material and margin costs.  The Walmart Sustainability Report outlines broad areas of scope, measurement and management accountability.  It should also be no surprise that Walmart has communicated its intent to reduce billions of dollars in overall supply chain costs in the next few years through consolidated direct purchasing with vendors.  Dealing with vendors directly also affords opportunities to drive complementary lean and green strategies, hence teams can easily align the needs of lean and green.

Some argue that the recent economic environment did not lend itself for active senior management support of green supply chain initiatives.  I submit that when proper context is added, namely lean can equal and often does equal more green and sustainable strategy, the dots become well connected.

Bob Ferrari

Note: Bob Ferrari is the Managing Director of the Ferrari Consulting and research Group LLC, and serves as the Executive Editor of the Supply Chain Matters blog, of which ModusLink is a sponsor.

 

An Inside Look: Supply Chain of the Future

  
  
  

An interview with Jack Thorn of the Distribution Business Management Association

If you are attending this year’s CSCMP Annual Global Conference, you will notice a new exhibit called the Supply Chain of the Future. It will be hard to miss the “100,000 square-foot, real-time, fully integrated functional supply chain” that CSCMP, the Distribution Business Management Association (DBMA) and Supply Chain Leaders in Action (SCLA) have organized for this year’s conference.

This is not your typical tradeshow: it is a unique, interactive and educational exhibit intended to bring together a myriad of companies, and give an inside look into the goings-on of the supply chain. Click here to learn more.

I had the pleasure of speaking with Jack Thorn, Chairman of the Distribution Business Management Association, to learn more about this new, game-changing exhibit. 

Question 1:  What guided the decision to add the Supply Chain of the Future exhibit to the CSCMP Conference this year?

For the past six years, CSCMP has included a Learning Exchange at the Annual Global Conference. As many as 60 to 70 companies participate; however, there is typically little or no interaction between the exhibitors.

The concept of adding the Supply Chain of the Future to the 2010 conference was to showcase the interaction between the vendors and suppliers in a functioning supply chain. Ultimately, the goal is to give more variety of interesting subject matter to the event, and foster interaction among participants.

Question 2: What can attendees expect to see in this exhibit? Can you name the top three takeaways attendees can expect from the exhibit?

We added a “kick the tire” format to the conference, mixing presentations with a live, hands-on exhibit. Attendees can talk to key people who perform specific supply chain functions. 

In addition to the exhibit portion of the Supply Chain of the Future, we put together conference sessions in the lab to encourage companies to interact with one another. We have had a great deal of success in preparing these sessions and getting the exhibitors, who are often competitors, to work together to talk about the concepts of their field in these informative sessions.

The Supply Chain of the Future is very pragmatic and hands-on. Instead of being strictly theoretical, you can go there and see things that will affect your supply chain. 

The top three takeaways attendees can expect from the exhibit are:

1. The latest in robotics in supply chain
2. The best reverse logistic ideas
3. The best new ideas in energy in the supply chain

Question 3: Can you tell us a little bit about DBMA and your involvement with CSCMP?

We are a 20-year-old academic association. The SCLA, our principal program, is a collection of the nation’s top executives in supply chain from the nation’s largest companies (see   www.dcenter.com).

Though our members in the SCLA are senior executives from very large corporations, our membership has often participated as key speakers at CSCMP over the years. We consider CSCMP as serving a vital function in supply chain education and fully support its many activities. In addition, our university members at DBMA have also supported CSCMP over the years, and consider the organization to be a contributor to education in supply chain. The alliance between both professional associations points a path to the future among professional associations. We are glad to help CSCMP in this creative project and fully realize that the hard work we have done this year will lay the foundation for a truly remarkable program in Philadelphia next year.

 

Suiting Up for the Supply Chain of the Future

  
  
  

Supply Chain of the FutureDry ice at the ready; orchestral anthems booming in the background; shades on.

It’s not your standard preparation for a supply chain conference, but then CSCMP is aiming a little higher this year with its annual global conference in San Diego this month.  In an ambitiously titled ‘Supply Chain of the Future,’ exhibitors are asked to push the envelope and showcase elements of their supply chain capabilities on the conference floor creating a 100,000 square-foot real-time, fully integrated supply chain.

As the industry is preparing for another consumer holiday season with market uncertainty, the supply chain of the future will most certainly be combined with the very real issues being faced today.   Inventory planning, supply chain collaboration and risk management are sure to be hot topics in addition to driving increased value from forward and reverse supply chain operations.

ModusLink will demonstrate the processes we execute that drive real supply chain value for our clients, including: 

  • a consumer electronics repair cell;
  • sustainable packaging design that delivers real cost savings in addition to reducing GHGs;
  • supply chain modelling with network optimization and simulation tools, including examples of how to leverage deferred configuration and packaging postponement strategies; and
  • a value recovery station, including secondary B2C etail solutions and unique white label programs.

Those of you who have navigated the CSCMP conference in the past will be familiar with the precision planning required to maximize the benefits from the multiple educational tracks on offer while making time to reconnect with supply chain peers at the event.   If you can, please join us for one of the tracks with ModusLink executives on the panel: (learn more about these sessions)

  • SCF Track: Session 5 - Returning the Profit to Returns Processes
    Monday, September 27th - 1:30 p.m. – 3:00 p.m.
  • SCF Track: Session 6 - Using a Multichannel Approach to Unlock Value for At-Risk Inventory
    Tuesday, September 28th - 10:00 a.m. – 11:30 a.m.
  • CSCMP Track 18: Session 5 - Quantifying  Risk: The Role of Scenario Planning and Tradeoff Analysis
    Tuesday, September 28th - 1:30 pm - 3:00 pm

Keep a mobile eye on www.valueunchained.com as we will be blogging updates live from the conference and you can join in with your comments.

I look forward to seeing you there. What topics are you most interested in learning about at the conference this year?

 

Sustainable Value Chain Practices

  
  
  

Register NowJoin us on Tuesday, September 28th, for the third installment of the Value Chain Exchange webinar series, presented in conjunction with SCM World. The topic of this session is: Sustainable Value Chain Practices Driving Real Organizational Value.

Joe Lawler, CEO of ModusLink, will moderate this webinar featuring Stephen Stokes, Vice President Supply Chain Leaders Group for Gartner Research and Rob Auslander, Corporate Vice President, Global Logistics, Trade Compliance & Order Fulfillment for AMD.

Sustainable value chain practices support environmental responsibility – so why aren't more companies adopting these methods? There is a common misconception that a sustainable value chain is a costly one. In reality, many sustainable practices, such as eco-friendly packaging design and network optimization and simulation, lead to significant cost savings.

Results include:

  • Reduced greenhouse gas (GHG) emissions
  • Packaging that is smaller and made out of recycled materials
  • Reduced shipping, freight and logistics costs
  • Increased pallet yield for reduced number of shipments

This webinar will explore the impact of sustainable value chain practices – both environmentally and financially – and will illustrate real-world results.

 

Are We Organized to Develop the Supply Chain Profession?

  
  
  

I have lost  count of the number calls that I receive from well-scripted sales individuals offering me a great ‘opportunity’ to position ModusLink at the heart of another  cutting-edge value chain conference. Conferences are big business and we have no shortage of commercial entities, associations, councils, trade groups and summits in which to share our ideas and our time and in many cases, that seek a share of our sponsorship dollars. 

They all have their place, but if we are to really promote and develop the profession to which we belong, is it time to look for a more unified collaboration platform?  

  • One that promotes learning and invests back into the development of the profession rather than the commercial conference organizers.
  • One that covers the range of disciplines that make up today’s complex supply chains.
  • One that covers the geographic and industry breadth within the supply chain profession.
  • One to which regional professionals can be aligned but which can also provide the opportunity to network globally.

There are many organizations that I respect and that have models that come close.  The Council of Supply Chain Management Professionals, the Supply Chain Council, APICS and Supply Chain Asia – to name but a few. I am sure that in naming a few, I am omitting a number of equally worthy organizations. Each has attempted in its own way to develop a professional peer community and linkage to further education and standards.   

Rather than ‘competing’ for the mindshare of the supply chain professionals, should we look at a more collaborative approach to the development of the profession? I do not believe that we need more associations, but maybe we need a better way to link the ones that we do have for the greater good of the profession. Your thoughts?

 

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The Bottom of the Pyramid – Is it Time to Tap This Market?

  
  
  

The distribution of wealth among the world’s population is often shown as an economic pyramid. The bottom rung of this economic pyramid is popularly called the bottom of the pyramid (BOP). This term is not new, in fact the first use of this term dates back to 1932 when it was coined by the U.S. president Franklin D. Roosevelt in his April 7, 1932 radio address.

This post reviews the book “The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits”, C.K. Prahalad 2009, which focuses attention on the majority of the world’s population who fall in the bottom rung of this pyramid

According to the book, more than 4 billion people live in this bottom tier on less than $2 per day. This is more than 58% of the world’s population.

Private sector corporations have historically ignored this market. Some critical reasons for this are embedded in the traditional thinking that:

  1. There is no money in this market – Although the buying power of this market cannot be compared to those in the higher tiers of the economic pyramid at an individual level, collectively the sheer number of people in this market represents a significant latent market that has largely been untapped and seen as unviable by private and public sector corporations globally. Also, the people in this tier have different spending habits as it relates to disposable income. Instead of spending this income on necessities such as sanitation and better housing, extra income is being spent on items such as televisions and telephones. For example, 85% of the households in Dharavi, one of Asia’s largest slums, own a TV set and 21% own telephones.
  2. Access to these markets is significantly difficult – By 2015, 23 cities globally will have more than 10 million residents. Collectively this will account for 1.5-2.0 Billion people and upto 40% of this population will consist of people in the bottom tier. The people in this tier also reside in the mostly densely populated areas of these cities which will facilitate distribution access. Access to the rural poor is a more complicated problem which will require country and region specific innovative solutions.
  3. These markets are not brand conscious – This market is not only brand conscious but also very value conscious. Brand loyalty is also very high in this market. The average consumer in this market is looking for the best quality at the most affordable price. Companies looking to tap this market need to be aware of the challenge of creating desirable products at an affordable price point by focusing on increasing the efficiency of their operations.
  4. These markets are unconnected – Ultra low cost and entry level wireless handsets coupled with decreasing usage costs (including cheap prepaid options) have revolutionized the connectivity within these markets. By 2013 India is expected to overtake China as the world’s largest cellphone market with 1.159 Billion active mobile subscriptions. This will represent a growth of 128% over 2009 (508 million subscribers). Also on an increase is the availability of PC kiosks providing pay per use connectivity options to the poor.
  5. These markets are slow to adopt technology – On the contrary, technology has been widely accepted and welcomed by the people in this market. The primary driver for this market is that every consumer in this market is looking for a way to improve their standard of living and move up the rungs of the economic ladder. Also, they have nothing to lose and everything to gain by adopting new technology which helps them increase margins and expand their marketplace. From farmers in rural India (ITC e-Choupal initiative) checking prices of soybean futures before making decisions on when and how much to sell, to fisherman in Kerala selling their daily catch to the highest bidders via cell phones, this market presents a vast and unique opportunity.

Is this the time for us to look carefully at this untapped market and design unique solutions which will not only generate revenue and profits for our corporations, but also play a critical role in uplifting the poor and closing the wide gap between this market and the other tiers of the economic pyramid?

How ready are our supply chains to meet the challenge of reaching these customers?

 

Reshoring - A Recent Trend Bringing Back Your Offshore Operations to the U.S.?

  
  
  

Wrong Way Go BackWith rising shipping costs, there is a trending shift of more and more U.S. companies considering bringing back their offshore operations to the U.S. This “reshoring” phenomena is partially caused by another trend of continued increase of Chinese wages.

Things have changed and in today’s supply chain world it is not a question of how much inventory you have, rather it is more about the questions of where you have it and is it close to your customer/consumer. A lot of companies are also coming to the conclusion that the “slowest supply chains” do not always represent the “lowest cost.”

According to a recent USA Today article, “For GE, the increase in foreign costs tipped scales already shifting to the U.S. for certain products. The industrial giant announced last year that it will move assembly of its energy-efficient water heater from Chinese contractors to its own factory in Louisville in 2011. The company took advantage of a 2005 labor contract under which employees at the new plant in Louisville will be paid an average of $13 an hour, down from $22 prior to the agreement.”

“In a June survey by MFG.com, 21% of North American manufacturers said they'd brought production into, or closer to, the continent in the past three months, up from 12% in the first quarter; 38% planned to research such a move in the next three months.”

What are some of the key drivers for rethinking your options?

  • Quality issues – some companies had to go through or have experienced various quality issue such as material quality control, weak production management and assembly mistakes.
  • Decreased inventory costs and fewer shipping hassles – since fewer products will have to be shipped from overseas this will remove some of the logistics challenges.
  • Better protection of intellectual property – since IP laws in other countries are different or less stringent than the ones here in the U.S., this has been a big concern for lots of high tech firms.
  • Improved response times to meeting customer demands – this might be one of the biggest reasons to beat your competition to have the right product at the right time for your customer.

What other reasons would consider as part of this rethinking process?

 

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Centralized Planning – Think Beyond Low Labor Costs!

  
  
  

After a visit last week to ModusLink’s centralized planning hub in Shenzhen, China it became clear that the benefits of centralizing these functions extend well beyond just the low-cost-labor play.  We originally centralized these processes to create a consistent, shared knowledge base and expertise center for our physical supply chain operations that migrate around the world as our clients’ needs change.  The fact that we had the infrastructure to do this in a lower-cost environment was certainly a contributing factor to the rapid realization of this initiative.

Like most companies, we always expected ‘soft’ benefits. There is a tendency to give more weight to the certainty afforded by hard dollar savings when making a strategic change.  More than three years into our program, and with a 150-person hub team now in place, the potential from these ‘soft’ benefits are becoming very apparent.  While we are certainly not ready to declare victory on all of these, the momentum from these benefits is fast outpacing the benefits of low labor costs.

Some of those benefits include:

  • Standardization of our own processes around new product introduction, bill of material management, planning and tactical purchasing processes.  The journey to get to this has not been without its challenges, but it has the potential to lift our overall performance in these areas.
  • With standardization and centralization comes the visibility to global demand and global supply.  Linking this to the tactical execution is a powerful recipe for reducing inventory, improving supplier interaction and improving overall service levels.
  • Visibility to aggregate supply flows with the opportunity to consolidate shipments  especially those originating in Asia for US and European destinations
  • Improved cycle time to respond to changes in demand – including 24-hour coverage and expanded team capacity for peak requirements.
  • Metrics-driven visibility of critical supply chain back-office process volumes and accelerated continuous improvement project benefits that extend beyond our four walls to our clients and our supplier community.

These benefits accrue as we move beyond the ‘lift and shift’ approach to really understanding the processes and how we can reengineer to deliver value.    

As the journey continues I am sure that we will add to this list and I would love to hear inputs from those with similar experiences.   

 

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Supply Chain Revolutions – Asia Rising…

  
  
  

Supply Chain Asia celebrated its fifth anniversary last week at its annual conference in Singapore attended by more than 500 delegates.  The organization now boasts 17,000 members across Asia and still maintains a refreshingly engaging panel discussion format.   

The theme this year builds on the growing maturity and importance of Asian markets, brands and supply chain providers.  With a global economic view teetering on whether or not there will be a double dip recession, there is certainly more optimism here about the opportunities that exist within the region.   This is combined with an acknowledgement of the steep challenges that must be overcome to deliver on these opportunities.  

These questions were tackled by a mix of executives from multinational OEMs, global and regional service providers, government representatives and academics.  Some questions that emerged for me from the dialogue were as follows:

  • As we progress our understanding from just Asia as a region, to larger markets such as China and India and increasingly to the opportunities that exist in the tier 2 and 3 cities in these markets, the scale of the opportunity increases along with infrastructure challenges to capitalize on it.  Could the models needed to resolve these challenges in Asian markets also revolutionize how we approach supply chains in more mature markets?
  • Living in the midst of the Li & Fung success story, the supply network model with a central supply chain orchestrator and a network of ‘virtual’ execution partners is being considered as having high potential for success – not just in Asia.  Critical to this success will be the leadership of the orchestrator role combined with an alignment and sustainable economic model for the hundreds/thousands of partners required in the virtual network.
  • There is no shortage of ambition among the in-region 3PL providers.  Their commitment to their clients to promote the industry and to support educational initiatives for the next generation of supply chain managers is evident.  While they will to continue to develop, there is a danger that the growth available to them in their traditional services will ultimately be an impediment to them developing a true leadership position in the supply chain of the future.
  • Sustainability was a key topic, but there seemed to be less confidence than I had experienced at the CSCMP event in Taiwan earlier this month that there is alignment between OEMs and the service providers on a path forward.  The question seemed to revolve more around who will fund the costs of sustainability projects rather than recognizing that there is an abundance of sustainable opportunities that will drive both cost and service benefits.  I remain convinced that this is an area where sharing and communicating these best practices is the key to building momentum.

Congratulations to Paul Lim and the extended Supply Chain Asia team for building this community over the last five years.   I would love to hear your comments on these or other issues relating to the development of Asian markets, brands and supply chains.

 

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