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Dynamic Discounting: the Key to Investing in Your Supply Chain

  
  
  

The current economic climate has driven some interesting behaviour by some of the more successful publicly listed corporations. During the last year, more companies than ever have been stock piling cash to ensure they can weather any economic storm, although this is a fiscally responsible strategy, it does have some drawbacks. In publicly traded companies investors want cash to be used to create more return on their investment.  Investors would ideally like this money invested in growing the company, expanding in new markets or making the company more profitable. Due to the economic climate, corporations are challenged in growth strategies and are more often than not investing the cash in short-term corporate deposits with very low levels of return.

So if a company is finding it difficult to invest in the traditional areas such as acquisitions or R&D where can they invest the cash? Well, one of the fastest ways they can get a return on their cash is to invest in their supply chain and I don’t mean by building new warehouses or getting a new ERP system but by collaborating with suppliers.  It is common practice for suppliers to give discounts for prompt payment of invoices, but this can be taken to the next level and further discounts can be earned with immediate payment of invoices. If the discounts are in excess of the amounts earned on short-term deposits, then the cash invested will yield a better return. This process is known as dynamic discounting. 

So what are the benefits of such a program?

  • Reduction in costs of materials
  • Better return on cash
  • Fast implementation of the program
  • Suppliers will be more financially stable
  • Suppliers may become more profitable if they have large funding charges from banks.

Drew Holfers explains the process in more detail in a recent Forbes article “Cash Isn't King; Stop Hoarding, And Invest In Your Supply Chain”. He also mentions methods to manage the Dynamic Discounting process with the Ariba Network, which is an online supply network.

 

Global e-Commerce in the Cloud

  
  
  

While flying at 10,000 feet recently, I tried to structure the overwhelming stream of information on cloud computing. After gathering information at several webinars and seminars regarding cloud computing and its impact on (IT) organizations, I noticed that there is still confusion on cloud solutions and their role in e-commerce.

Based on my observations, there are three different points of view on cloud computing:

  1. Cloud ComputingThose that are on cloud nine, who believe that cloud computing is the medicine for all IT issues
    (mostly business/sales that identified opportunities to deliver new services from the cloud instead of their internal IT organization).
  2. Those that have lost visibility due to the lack of standardization and increased complexity
    (IT management /CIO, who in reality have their heads in the clouds and have lost sight).
  3. Those that view cloud computing as just another IT environment
    (mostly IT staff that are worrying about the complexity of managing an extra environment).

The question is: Who is right? 

Cloud defined?

As there is no clear uniform definition of what cloud solutions are, it is difficult to understand what cloud computing really means.

Cloud solutions can vary from traditional/virtualized data centers to public cloud solutions.  There are also private clouds, local clouds and other cloud varieties. I even noticed that existing SAAS (software as a service) solutions have been transformed/renamed to cloud solutions.

Suited for all?

It seems like IT is urgently seeking another revolution and cloud computing is at the center of it all. According to leading information technology research and advisory firms, cloud computing is the number one focus area and it seems to be at the top of the priority list of every CIO. The most excitement can be found in the public cloud. This is probably the environment where most of the new cloud business will be done. Organizations that are not hosted by old legacy environments are best suited to quickly adopt and move to cloud computing solutions to take advantage of all the possibilities  that cloud computing has to offer.

So, what to do if you already have systems in place?

Treat cloud computing as any technology change from an architecture perspective for all roles.  What does this mean?

  • Business/Sales
    Make cloud computing part of business innovation.  This can be an opening to quickly introduce new services. When a new service is needed, the availability of cloud solutions offers an additional perspective to the -make or buy- decision. Nevertheless, those kinds of decisions have to be made in line with the business architecture. Before creating a cloud strategy, you will first need to understand your business strategy, and then determine the role technology must play in your organization. The cloud strategy will be much less about platforms or technical decisions and linked more to the innovation of business processes and, for example, your business process outsourcing (BPO) strategy.
     
  • IT management/CIO
    With the enormous growth of (so called) cloud solutions and missing uniformity it can be difficult to find the best-suited solution. Will all cloud players that are in the market still exist after two years and have you bet on the wrong horse? If you have tuned your solution on a cloud solution will it be easy to move to another vendor/solution? The reality is that there is not one type of cloud. The lack of a single standard makes integration more difficult than creating a hyperlink on a webpage. Most likely, connections between different services/systems need to be forged manually. For example, synchronizing user login details across multiple platforms is not that easy. As e-commerce solutions consist of multiple services running on several (cloud) platforms, it will be a significant task.

    Besides a technical implementation there are several items that have to be dealt with:

    - Data classification/ Patriot act / PCI
    - Licenses (SaaS/ Infrastructure as a Service (IaaS)/ Platform as a Service (PaaS)
    - Virtual solutions
    - Legacy platforms
    - Vendor lock- in
    - Ensuring knowledge/information
    - Legislation

    To manage cloud solutions in a controlled manner, it is best to add those solutions to the normal technology roadmap as one of the options. Don’t forget that in order to move applications to the cloud, they must be virtualized. From that perspective, virtualization of the IT environment must be set to priority one on the CIO innovation agenda.
     
  • IT teams
    In order to get accustomed to the possibilities and boundaries of cloud computing, it should be added to the sandbox/portfolio.  IT specialists have identified that adding a cloud computing solution may also mean adding another environment that needs to be connected and managed. They are mostly worried about the extended complexity of managing an extra virtual environment. Although cloud computing has its advantages, the risk is there that when the set-up is not done under steering of the IT architecture team, the complexity will increase and the possible benefits will not be achieved.

 

When cloud probably isn’t the right solution

  • Services that store/process sensitive data: customer information, credit card data
  • Many independent/loosely coupled applications, as the need for data integration and processing speed of data can be problematic
  • Services/solutions that require a high standard of control/audit and accountability
  • (3rd party) services/solutions, which do not support virtualization or are not cloud proof (including license strategy )
  • Services which require a lot of customization.

When cloud is likely an “easy” solution

  • Software development and test environments
  • Short-term, high-performance need, e.g. e-commerce solutions which have to deal with regular “unpredictable” bursting (new product release) or with “predictable” bursting (end-of month sale)
  • Temporary solutions: For example, a recall solution, a campaign-related web service, to facilitate a company which requires a temporary environment with little or no need to be integrated and contains no sensitive data
  • Any content delivery network (CDN) services that, inherent in its functionality, is best in the cloud and outside of the organization, like download functionality and/or public video hosting

How to start

As mentioned in one of my earlier blogs, it is almost crucial to make sure that business strategy and IT architecture are aligned and that based on the desired outcome, an innovation portfolio/roadmap will be defined. Cloud solutions must absolutely be a part of it, as well as common sense.

So, as far as the question of  who is right? 

They all are.

 

 

Supply Chain Management Trends - Interview with David Blanchard

  
  
  

David BlanchardIn this recent interview, David Blanchard, award-winning journalist and the Editorial Director/Associate Publisher of Penton Media’s Material Handling & Logistics, shares his insight on supply chain management trends.

1. What one trend in supply chain management are you most closely following?

It’s hard to narrow it down to one, but certainly the idea of the sustainable supply chain is a very hot topic right now, and has been for a couple years. There are so many regulatory efforts that companies have to stay current on, and almost every industry sector now has its own “green” initiative. Companies are expected to be able to track the carbon footprint not only of their own manufacturing activities, but also their transportation, distribution and procurement activities, and all the related activities of their extended supply chains as well.

2. What do you think the most prevalent supply chain management trends will be in 2012?

With the economy still sputtering along, chances are supply chain managers will continue to work on containing costs, particularly transportation and distribution costs. The companies that have had the most success at controlling their logistics costs are the ones that have a comprehensive picture of their entire supply chains so they know where the opportunities are, and they can work proactively with their suppliers and service providers to get the best rates possible.

3. What are the top 3 things you believe companies need to have in order to execute successful supply chain strategies?

First, they need to have good people. As I wrote in my book, “Supply Chain Management Best Practices,” having top-performing supply chain people working for them is the competitive advantage of top-performing companies. Second, they need to have a supply chain organization in place, with a well-defined plan of action that encourages and facilitates the sharing of information across the various departments within a company, as well as with suppliers and customers. Third, they need to be able to measure their supply chain performance so they can determine the success rate of their supply chain practices.

4. How do you think globalization and online retail has or will further impact the supply chain industry?

It depends on the industry. In some cases, online retailers such as Amazon, Apple’s iTunes and Dell have had enormous impact on how books, music and computers are ordered, built and distributed. When you add in the globalization element, companies now have contact with customers and suppliers around the world instead of just in their own region or country. That’s made it even more essential that companies have close ties to all of their supply chain partners because they’re accountable for their products wherever they’re made or sold.

5. What are your thoughts on outsourcing supply chain processes vs. keeping them in-house?

Outsourcing has gained some negative connotations, as it’s often confused with offshoring, a hot-button for politicians. Within supply chain circles, though, outsourcing has a more benign connotation as it refers to a company deciding to contract with an outside company to take on some tasks. If a manufacturer decides, for instance, that designing and building products is its core competency, it might end up working with a third-party logistics provider who will assume a large percentage of the warehousing or transportation responsibilities. It’s absolutely essential, though, that a manufacturer needs to closely monitor the 3PL’s operations to ensure full visibility throughout the supply chain. 

6. How has sustainability affected the design and execution of supply chains today?  Will we continue to see this movement impact the supply chain of the future?

Some companies have embraced designing for the entire supply chain at the very beginning of the product lifecycle. That means they have a clear picture of the sustainability impact of every step they take when planning, sourcing, manufacturing, transporting and distributing their products. Many shareholders are now insisting on full disclosure of a company’s sustainability efforts, so companies are quickly becoming educated on how to gather and report their sustainability data. This trend will only accelerate in the coming years.


David Blanchard is an award-winning journalist and the Editorial Director/Associate Publisher of Penton Media’s Material Handling & Logistics. He has served as editor-in-chief of several Penton magazines, including IndustryWeek, the leading publication for manufacturing professionals, Logistics Today and Supply Chain Technology News. He is also the author of “Supply Chain Management Best Practices” (John Wiley & Sons), which has been translated into several languages and is currently in its second edition.

 

 

The Need for Change in China Manufacturing

  
  
  

I read a BusinessWeek article last week about the impact of China’s one-child policy on the Chinese manufacturing sector.  The author described the significant impact that the policy, implemented in 1979, has had and will continue to have on the demographics of China.  In the next 12 years, the Chinese population between the ages of 15 and 24 is expected to drop by more than 25% - or 62 million people.  The impact of this sharp decrease is predictable: fewer people in the workforce, higher demand (and pay) for the people that are, and less interest in the lowest-paying jobs.  The article suggests the only way for China to avoid an economic slump as a result of these changes will be for companies to shift from low-cost products to higher-value manufacturing, much like the shift that Japanese companies made in the 60s and 70s. 

If this is indeed the direction that Chinese manufacturing will take, it will be interesting to see the impact on the hi-tech industry.  It will also be interesting to see the effects this change may have in other parts of the world.  One of the advantages China has had over other relatively low-cost manufacturing regions has historically been outbound transportation; getting products onto a plane or a boat is much easier when those products are in Shanghai or Hong Kong compared to many other parts of Asia.  If Chinese manufacturing shifts away from low-value products, this production will need to move to other parts of the world.  As that happens, we will likely see an improvement in the industries that support that manufacturing – chiefly transportation.  No matter how these trends play out, it will be interesting to watch this space over the next 10 – 15 years.

 

If Harry Potter Was a Supply Chain Executive!

  
  
  

Magic WandsWho couldn't use a bit of magic in their supply chain?  Not all of the time of course - just the occasional spell when you are asked to produce material from nowhere for an un-forecasted promotional deal or to push through a delayed product release in a fraction of the normal lead time.

From the seven books/eight movies (let’s face it - mostly the movies) I have compiled my personal Top 10 Hogwarts Supply Chain Applications (knowing that the industry has been waiting for this revelation!):  

10. Transfiguration:  Spell to convert the excess inventory of over-forecasted product, into those products now urgently required but never forecasted.

9. Apparate:  Ability to magically and immediately transport product from a low cost manufacturing location to a location 10,000 miles away where the customer actually wants it

8. Undetectable Extension Charm:  Magically creates additional storage space when your warehouse is bursting at the seams.

7. Parselmouth:  Ability to communicate in and understand the variety of three- and four-letter acronyms used by ODMs, EMS, 3PLs, 4PLs, OEMs and BPO providers.

6. Marauder’s Map:  Advanced supply chain visibility application showing global locations of inventory.

5. Reparo:  Clever aftermarket application to repair damage to broken products that requires no parts, no labor and no lead time.

4. Deluminator:  Even more clever recall application that can be used in conjunction with Reparo to take back defective products a central location at the flick of a switch and replace them all again with a second flick

3. The Dark Mark:  Cloud=based risk management monitoring system – never a good sign.

2. Horcrux:  (I never said that all magic was good) – Nasty device that allows legacy supply chain applications to reappear within your organization months or years after you thought that you had killed them.

1. Divination:  My personal favorite.  Planning application that allows you to accurately predict the future and avoids the need for Felix Felicis’ liquid luck potion.

If you are still reading this it is highly likely that you fall into an elite category of people at the intersection of supply chain and Harry Potter nerd-dom.  You know who you are and we would love to hear about your own Hogwarts applications.

 

Spare Parts Management Drives Cost Savings, Inventory Efficiency and Customer Satisfaction

  
  
  

With a growing volume of defective televisions being returned, a leading retailer leveraged its two-decades-long relationship with ModusLink for spare parts management and repair expertise.

Challenges:

  • Support more than 100 thousand spare parts across 15 thousand SKUs
  • Manage return to vendor (RTV) warranty on defective parts
  • Manage spare parts inventory levels to support the number of defective TVs in the field
  • Provide technical support to field technicians

Solution:Spare Parts Management

  • Implemented a planning process for inventory management
  • Reduced overall repair times through inventory planning
  • Integrated with client’s service organization to minimize the number of whole unit TV replacements
  • Established a product hold process in order to accurately diagnose the defective boards
  • Provided board-level failure analysis

Results:

  • Implemented a comprehensive spare parts management program that covers the client’s parts requirements across 15 thousand SKUs
  • Reduced cost up to 55 percent on the top 10 parts; an annual savings of $375 thousand
  • Processed more than 20 thousand board returns in one year
  • Increased RTV yield from 52 percent to 94 percent through improved spare parts management

 

When a leading broadline retailer started to experience high volumes of returned televisions in need of repair, it leveraged its longtime relationship with ModusLink, which spans more than two decades, for efficient and cost-effective spare parts management, repair processes and inventory management.

The relationship between ModusLink and the retailer began back in the 1980s, at which time, ModusLink performed component level repair on television tuners and main boards that could not be repaired in the field. The relationship has grown to include services such as spare parts management, asset recovery/e-waste disposal, inventory management and technical support.

ModusLink currently repairs more than 12 thousand parts per month across 15 thousand SKUs for the retailer. This includes various types of display technology such as direct view, rear projection, DLP, LCOS, LCD, and plasma.

In order to uniquely identify and track each order, ModusLink puts a barcode on all incoming parts. Warranty information, damage details and repair history are also tracked. ModusLink then repairs down to the component level on all television modules with a repair capacity of 12 thousand modules per month. In addition, repair and testing data is collected – by electronic serial number for each assembly – during repair execution.

The average turnaround time for repairs is three business days, which significantly reduces the number of televisions the retailer has to replace and send back to consumers. ModusLink achieves this by adhering to the replacement deadlines established by the retailer, which in most cases is 15 to 30 days. If the replacement deadline is not met, the retailer must send a new television to the customer, even is the defective television is repairable. ModusLink maintains turnaround times by forecasting for component parts, and following a system which expedites the amount of time needed to move a product through production. In 2009, the retailer experienced a cost savings of more than $375 thousand from the top ten parts alone.

Since 2002, ModusLink has managed spare parts administration and original equipment manufacturer (OEM) reimbursement for the retailer, which as a result, has increased efficiency and improved the rate of return for spare parts reimbursement.

ModusLink provides one centralized location for main board returns from the retailer’s 50 locations across the U.S. Upon arrival, boards are separated based on the value attached to each part. Parts with value are processed back to the OEM, while parts without designated value are stored in an exclusive warehouse and used for future repairs.

Spare parts administration

  • ModusLink currently processes and returns more than 15 thousand units per month back to the OEM for reimbursement.
  • The retailer receives an average of $2 million per month for reimbursement on product returned to the OEM.
  • Credit reimbursement rate is 93 percent from the OEM.


The relationship between ModusLink and the retailer has a lifespan of more than two decades and counting, and will continue to scale in support of future needs.

 

Find this and other case studies in the resource center on www.moduslink.com.

 

Creating Value with Your Value Chain

  
  
  

In this installment of Value Unchained Live, Lorcan Sheehan, SVP of marketing and strategy for ModusLink, talks about how to grow revenue with your value chain. How have you created revenue streams with your value chain? Share your stories in the comments section below.

 

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