As a reformed chemical engineer now leading sales in the high tech space, three days at the end of February at the SCMWorld conference in Miami with supply chain leaders across a broad range of industries took me back to the early days of my career, when I had more opportunity to interact with leaders in aerospace, pharmaceutical, and consumer goods. I was fortunate enough to speak at this event, and chose a topic: “Don’t Outsource Your Supply Chain, Transform it with your Customer in Mind.” Given the cross-section of industries represented, I was a little concerned that my topic might not be considered relevant to many, but judging by the range of companies that chose to attend (without leaving half-way through my talk) some of the common themes were definitely relevant.
The message that I attempted to convey was that the traditional approach to outsourcing one’s supply chain is fundamentally flawed. It reinforces a silo approach to supply chain, moving existing problems, hindering visibility, adding complexity, and creating barriers between you and your customers.
True supply chain transformation starts with an understanding of your customer requirements and your company’s business objectives, and designs an end-to-end supply chain that best aligns to meet these requirements and objectives.
Functional area experts in material sourcing and procurement, manufacturing, and logistics can drive cost reductions in their functional area. However, after years of driving functional improvements and excellence, the opportunities most frequently lie in the interaction between functional supply chain disciplines. Collaboration is required between those that analyze and those that execute to push the parameters of what is possible in the real world through strategies including network optimization, postponement and packaging redesign. It is only in this context of enabling or accelerating supply chain transformation that outsourcing provides real value.
In starting a supply chain transformation, we align our supply chain with our customer requirements and our business objectives, by first understanding “Who is our customer?” Certainly it is the purchaser of a product, but the more complicated answer must consider all of the different channels involved in getting the product to that customer, as they also will have a significant impact on the requirements for the supply chain. Second, we must consider our corporate objectives and market position. The supply chain for a cost-leadership, mature product will have different requirements than one for a technology-leadership, emerging product.
With these objectives in mind, I discussed some of the tools and processes that can be used to enable this transformative process, and provided some examples to illustrate the trade-offs between functional areas that must be managed to optimize on a broader supply chain perspective. Specifically, I highlighted the benefits of incorporating this broader view on supply chain design and on packaging design. Most importantly, I stressed that this design process needs to be collaborative in including all of the internal and external partners that will ultimately be a part of the design and execution across your supply chain.
Based on the questions and dialogue during and after the session, I was pleased to see that the overall message was relevant across industries. Given the quality of speakers and topics at this forum, I considered myself fortunate to simply be included with this group and look forward to participating again at their next event. While Miami in the winter will be hard to beat as a venue, Scotland should be fun as well.
Looking out my window at 32,000 feet during my flight from Amsterdam to Mumbai gives me visibility to some interesting parts of the world. From this height, everything looks peaceful and organized, even areas that I often read and hear experience conflict on a daily basis. From my vantage point, I can see the big picture: deserts rising to become mountains, mountains leveling-off to become valleys, valleys flowing out into streams and large bodies of water. Things appear to be in harmony, a goal often chased by supply chain professionals, but a race that is without a finish line.
Things would be much different if I were on the ground and didn’t have the luxury of an aerial view. Challenges that disappear at this height would become significant obstacles to overcome without guidance and strategy. Herein lies a challenge that each of us in the supply chain world face daily. Without a clear picture of the geography that lies ahead—the end-to-end supply chain picture if you will—how are we best to navigate around unknown pitfalls?
Proper supply chain strategic planning is the compass that if calibrated accurately, points us in the right direction. But as Abraham Lincoln once said, a compass will point you true north from where you're standing, but has no advice about the swamps, deserts, and chasms that you'll encounter along the way. If in pursuit of your destination, you plunge ahead heedless of obstacles to achieve nothing more than sink in a swamp, what's the use in knowing true north?
It is often said that failure is a more powerful teacher than success. I believe this quote lines-up perfectly with President Lincoln’s point that without advice on where the swamps, deserts, and chasms are located, a compass, or to use our metaphor: supply chain strategic planning, will provide the 32,000 foot harmonious and organized view, but to effectively navigate we require the wisdom of those who have gone before us.
So why am I on a plane to Mumbai? To give back to one of the best industry trade organizations in the world, The Council of Supply Chain Management Professionals, whose mission is to lead the evolving supply chain management profession by developing, advancing, and disseminating supply chain knowledge and research. This year, I’m presenting on “Pitfalls and Best Practices in Supply Chain Strategic Planning.” Rather than focusing solely on best practices and success stories, I will spend more of my presentation discussing what we can learn from those who struggled while “traversing those swamps, deserts, and chasms” of supply chain strategic planning.
If you can’t make it to this event, I hope to see you at our annual conference in Denver and hear about your latest successes, but will be equally excited to hear lessons learned when things didn’t go right.
With the increasing complexity of the world’s consumer markets, businesses face various challenges when it comes to expanding their footprint into the different corners of the world. Diverse government structures, unique social and business cultures, and an ever-changing array of legal requirements and compliance policies make it difficult to overcome country-specific challenges.
This is especially true in the e-commerce space. Web-shops have to be fully localized in terms of language, pricing, check-out processes, and culturally preferred payment methods. Add the complexity of various import taxes, foreign exchange and repatriation rules that need to be carefully attended, and it’s clear these companies need a country-by-country strategy. A “one size fits all” approach simply will not, in most cases, be successful.
Of the various challenges, the complexity of government-based monetary policies can become an organization’s biggest headache. Even very attractive emerging markets, like Brazil, pose this problem. In fact, Brazil’s multifaceted tax, import and repatriation rules can be some of the most difficult to untangle and manage over the long-term.
Likely the most pervasive barrier encountered by the incautious would be the “Custo Brasil” or the “Cost of Brazil.” This term refers to a variety of extra—often unanticipated—costs of doing business in Brazil including legal and bureaucratic impediments, excessive taxation, poor infrastructure, inflation and the like. This explains why the World Bank ranks Brazil #130 out of 185 economies in the world for the ease of doing business. The overall cost percentage is difficult to assess and while it has generally decreased in recent years, it remains a real burden and the cause of great frustration for international organizations doing business in Brazil.
Examples of “The Custo Brasil”
- A 60% tax on imported products with value higher than $50 USD
- A $3000 USD value cap on individual imported products
- The need for a local presence or partner to help protect revenue, as repatriating funds often requires up to 30% withholding tax
- Numerous popular Brazilian credit cards are not enabled for cross-border transactions, which means merchants must use a domestic acquirer to achieve desired conversion rate
- In order to contract with a domestic acquirer, a local bank account or local partner is a prerequisite
- In order to open a local bank account, a local entity is needed
- 53% of credit card transactions are based on installment plans or “parcelas”
The Brazilian economy is still heavily reliant on cash, reflected in the 35% market share of Boleto Bancário, a prefilled bank slip for both traditional and online purchases
Despite all these hurdles and challenges, Brazil remains one of the hottest investment opportunities in the world. With a population of 195 million, Brazil represents one of the top world economies in terms of GDP. As the purchasing power of the Brazilian population has grown in recent years, the demand for imported products, especially from the US and Europe, has been growing as well. Finally, adoption of online buying is skyrocketing, resulting in an expansion opportunity that, despite some difficulty, e-retailers should not miss. In order to avoid the bureaucratic and monetary tripwires, it is imperative to do ample homework in advance.
To balance opportunity and risk, entering the Brazilian market with an experienced partner is highly recommended. Many companies are able to address some of the critical e-commerce issues, such as language, on their own. However, achieving good conversion rates relies on a complete offering of local payment options. Many times, as is the case with Brazil, a partner is fundamental to fully understanding more basic questions of import regulations, what taxes have to be paid when and even repatriating funds. Several companies, including ModusLink, specialize in guiding companies in the development and execution of their e-commerce strategy. Additionally, this kind of service is available from specialized third party logistics providers, who may also help with distribution and order fulfillment.
Choosing the right partner can be the make or break decision that determines success in Brazil—not only to help you tackle country- and industry-specific challenges, but also to help you grow as your e-commerce strategy evolves and the Brazilian market matures. Some things to consider in the selection process include:
- Determining if your partner has direct access to local payment methods.
- Is the partner able to remit funds to your primary location?
- Does the partner offer a tailored package for your product and your industry?
- Can the partner support all steps in your e-commerce development strategy?
In most cases, going a step further to also outsource the main elements of the supply chain and e-commerce processes provides the optimal solution, empowering you to focus on your core business.
-Andre Malinowski is a Global Vendor Service Manager at ModusLink
As mentioned in my previous blog, the implementation of a cloud solution is not a pure IT project. Most of the time, an implementation of a cloud solution—especially in case of software-as-a-service or “SaaS”—will have an impact on the entire business.
If you are thinking about implementing a cloud solution, what is the right approach? What is needed to stay in control during implementation and once the solution has gone live?
Cloud “readiness” check
It is best practice to validate that there are no functional limitations or restrictions to migrate or add IT solutions into the cloud. Therefore a check needs to be performed in close cooperation with the audit, compliance, legal and business teams. It is also advisable to review current service level agreements and validate that there are no restrictions based on client contract limitations. Since many contracts or SLAs can be several years old, it’s also wise to check with your clients in case of doubt. A list of items to review could consist of:
Another topic for organizations to consider is the changing influence on the IT solution based on the chosen cloud model. This illustration shows the change of influence for each cloud model:
When a decision has been made to implement a cloud solution, step-by-step preparation is essential. As mentioned, there is a need to approach the project from a business perspective and ensure that the project team has a clear understanding on the following topics during the preparation phase:
Business and client demand: do we have a clear picture of the business services portfolio, the future roadmap and the current financial models?
Architecture, both business and IT: Do we know the business solution and its requirements, the related compliancy and legislations and do we know our IT landscape and lifecycle?
Usage: have we metrics on the usage of our systems, current volumes and a forecast of the expected volumes?
Implementing cloud services into your IT solution has the characteristics of outsourcing and the same methodology with four basic outsourcing phases can be applied. The understanding gathered during the preparation phase can be used for the next steps:
Scope of IT, application and service, based on a transformation roadmap and aligned with business and IT
Requirements, both functional and nonfunctional
Long and short lists
Check on exit options
Business and IT project managers
Define contingency exit strategy steps during implementation
Define governance, roles and responsibilities
Manage and control
Set measurement parameters and Key Performance Indicators (KPIs) for usage, performance and finance
Innovate and align with business according to volume, forecast and changing requirements
A change in the organization
The implementation of cloud solutions will change the way organizations work. The role of the IT organization will shift more to a facilitator role, to coordinate the business IT requests with the cloud solution providers. The business teams—especially with the use of SaaS solutions and if they really want to benefit from cloud solutions— need to stick to the standard functionality and avoid deviations. What we often see is that even for software used only for internal process support, the business unit may force the IT team to make adjustments and add-ons to the standard functionality while it is usually more beneficial to in the broad scope to simply make adjustments to the standard functionality, otherwise the benefits of using hassle-free software are jeopardized, especially since future updates or upgrades of the SaaS solution must also then be re-designed
When you are planning to adopt/implement a cloud solution make sure that you are aware that the Cloud Computing market is still changing. Make sure that you stay in control to ensure business continuity. Validate that all legal aspects are known and taken into account. And do not forget that the business needs are leading.
History has proven that companies adopting innovative ways to go to market, and then supporting those plans with successful supply chains, can gain competitive advantage quickly. While some might argue that Dell and Walmart figured out supply chain innovation and modified their go-to-market strategies as a result, I believe the opposite to be true.
Dell’s great innovation was postponement through customized-to-order manufacturing, coupled with the world-class vendor-managed inventory (VMI) that followed once they had sufficient market power to drive the practice. Walmart, particularly as they hit their greatest growth period in the '80s, was all about daily replenishment and maximizing revenue per square foot. To this day, Dell and Walmart continue to push the envelope of innovation.
The important historical lesson here is that with supply chains, innovation is an important accelerator. Today, innovation is all around us. More companies are outsourcing parts of their supply chains, which is innovative in itself and creates greater innovation by 1) spreading best practices more quickly through centers of excellence and 2) enabling manufacturers to focus on what they do best-creating and marketing products that companies and people want to buy.
Currently, I see postponement and aftermarket services becoming more prevalent. When most people think of postponement, they tend to focus on more basic forms of postponement, such as packaging at the last mile to reduce transportation spend. But more advanced forms of postponement are growing quickly with the increasing pace of technology. For example, we have several clients who rely on us to install firmware and flash hard drives. This activity is becoming increasingly important as product lifecycles shrink and developers need every possible moment to ensure the latest and greatest enhancements and installs are relevant to the consumer in their market when it reaches them.
Aftermarket services are also on the rise, including everything from returns to repair to recovery of product components. Malls have become Amazon’s showrooms and we see the staggering growth of e-commerce and online shopping, so it’s not surprising that there is opportunity and innovation going on to better handle these transactions. It’s possible today that a consumer can order three sizes of an item and, with free returns, send back the two that don’t fit.
The innovations of the future are always a little harder to predict. However, the big supply chain trends on the horizon will likely involve:
- The aging demographics of the United States and other countries
- The continued movement of more people into urban areas
- The rising role of the cloud and digitization of products that once required physical supply chains
- The continued growth and influence of mobile on all facets of our lives
- Social media’s influence
- Cellular manufacturing and 3D printing as a disruptive force in supply chain
I see a lot of potential in that list–both innovative new products and services and the supply chain optimizations that will be needed to get them to market ahead of the competition.
Last fall, I participated in a panel discussion on innovation in supply chain management at Syracuse University and was asked about my impression of innovation in the presence of outsourcing and the role of manufacturers, suppliers, and supply chain providers in the process. A follow-up question involved where I see the biggest need for innovation in the field, including what future innovation will look like and what excites me about it the most.
This may sound a bit contrarian, but the first question assumed that innovation and outsourcing are mutually exclusive and I believe the opposite to be true - manufacturers that outsource supply chain management are actively embracing innovation. Why? Because outsourcing allows them to do a couple of things:
- Focus on their core competency and accelerate the pace of innovation inside their four walls, and
- Seek best-of-breed solutions and scale that, in most cases, represents a quantum leap over what they could produce on their own.
However, this is not to say that the outsourcing process is always rosy, for either party. At issue is that few companies are readily open to paying reasonable rates for the value and benefits they gain from outsourcing supply chain activities. As an example, I have seen a prospective client propose contractual language specifying that any of the third party logistics provider’s intellectual property (supply chain innovations like process or product improvements) would become their own and the 3PL would be prohibited from using those innovations with any other clients.
Myopic behaviors such as these slow the rate of innovation across the industry and inhibit its diffusion. They also create a dis-incentive for providers to make a client’s supply chain more efficient.
In response to the second question regarding outstanding needs: the greatest demand and opportunity in the next 10 years lies in inventory reduction. Inventory is waste and we see clients that are easily able to remove one-third of their inventory through better network modeling, postponement and site location.
What excites me the most about the future of this industry is the fact that we are nowhere near the finish line and that supply chains are changing so quickly now. Companies are shifting their supply and demand patterns faster than ever before in real-time response to consumers’ buying habits. Plus, few companies have fully embraced the innovation available from outsourcing all of their supply chain activities. Yet as we look at companies like Apple that have the highest revenue per employee and are rewarded in the stock market as a result, there is a true north that is gelling. More and more companies are accelerating their supply chain outsourcing as a result.
ModusLink joined the Electronic Industry Citizenship Coalition (EICC) as an applicant member two years ago with 70+ global electronic company members, including many of our own clients. Together, the coalition is working for meaningful social, ethical and environmental change in the industry. The EICC Corporate Social Responsibility Code of Conduct includes Labor, Ethics, Health & Safety, Environmental, & Management Systems—all elements which ModusLink has adopted. This is a broad scope of significant issues and there are many different things that must be implemented and monitored to ensure compliance and achieve the desired results.
For example, we achieved full membership in EICC by meeting substantial membership compliance program requirements:
- Active participation in EICC bi-annual membership meetings
- Completing EICC Self-Assessment Questionnaire (SAQ) risk assessments for all ModusLink Solution Centers
- Actively participating in EICC Tools & VAP (Validated Audit Process) workgroups and leading sub-teams on SAQ review & EICC site recognition
- Completing VAP audits at 5 Solution Centers in conjunction with various EICC member/customer requests with an additional 3 VAP audits already planned
- Completing global supplier high-risk evaluations
- Completing EICC Carbon & Water Reporting System and Carbon Disclosure Project reporting
I believe one of the most important elements of compliance and moving the needle toward significant improvements is participation in the EICC’s work groups and we have a high level of involvement. There are many dedicated people working behind-the-scenes and continually shaping and growing the coalition. ModusLink has bought into EICC’s Code of Conduct from top to bottom and we’ve altered our business operations to ensure compliance. The EICC’s vision is a core part of our business plan, and has been implemented into the solutions we build for our clients.
-Blake Cambey is a Regional Quality Manager at ModusLink
As recently announced, Santa Enterprises is now working with ModusLink Global Solutions to infuse new levels of efficiency into the holiday gift distribution process. By doing so, Santa is securing competitive advantage for this holiday season and for many, many more to come. To understand what services ModusLink is providing to Santa and his team of elves, please click on the infograpic thumbnail below.
When I ask friends, family and colleagues how they view the topic of sustainability, I usually get the expected buzzwords—green, environmentally friendly or recycling are leading answers. In the academic environment, I had more than one instructor quote the Seven Generation Iroquois proverb and push the ideal of giving back and correcting more than you have taken away and have destroyed. At this point one may still be left asking “What is sustainability, how do we convey it and how can you possibly measure it?”
Personally, I view sustainability as larger than just an environmentally friendly stance or a corporate mission statement. To be sustainable you must have an objective and path forward that promotes survival. For a business, this means making decisions in its own self-interest, while also being conscious of the environment. There is a balance that must be achieved between the planet and business, preservation and growth. Building a business and profits while also being able to limit one’s adverse effect on the environment should be the global sustainability goal of a company. Often a dichotomy exists between business and the environment that is unnecessary and unproductive. Packaging can be a tremendous asset for a company’s sustainability goals and is a great example of these two principles working together.
Whether it’s been fashionable to promote or not, package engineering is a discipline that has always worked towards sustainability. Of course it can be deviated from when not properly conducted, but the science of package engineering is not new and its goal of achieving optimal packaging supports business growth and resources. Distilled down, it is the minimal amount of packaging that is required to deliver a product undamaged to a customer. As engineers, we have specific tests and standards that we follow to scientifically determine if a package is within this optimal zone. Different materials, shapes, technology, marketing, deadlines and emotions will inherently play a role in the outcome, but science helps to dictate the optimal packaging solution which is the most sustainable.
Let’s see how packaging is a player in promoting sustainability and brings it full circle into helping a business’s bottom line. The proper selection of material equals less cost, which helps increase profits. Satisfied customers receiving functional items equal fewer returns and repeat business, which also translates into future profits. Minimal material and the use of recycled and/or renewable material helps reduce the impact on the environment. Together, these elements clearly play a huge role in achieving a business’s global sustainability goals.
Going back to science, it is through tools such as the WalMart Scorecard that we can assess and determine the amount a CO2 that is generated within the lifecycle from raw material(s) to one of our solution centers, where the product is packaged. Sustainability isn’t just CO2 or reduced or recycled materials, it is also reflected in other areas like pallet densities. For example, how much more can we fit on a shipping pallet through package size reduction? Any improvements will result in freight savings, which will result in reduced gas consumption – again, both a cost savings for the company and an environmental benefit.
A global view of sustainability well executed can almost always circle back to the company through profits, allowing the business to succeed and grow and implement even more new sustainable ideas. The integrated view best helps people realize the importance and understand the meaning and impact of corporate sustainability.
-Tyler O’Neill is a packaging engineer at ModusLink where he works with clients across the globe to develop new packaging designs that improve sustainability.
How often have you heard the phrase “my business is different?” Perhaps you have used it...I know that I have. It is easy to get wrapped up in the details of the challenges that we face on a daily basis—the customer challenges, the compliance requirements, the competitive landscape—and to see the world only from your own company's perspective.
You find yourself solving unique challenges for that business that require your operations to be configured in a particular manner, that justify the extra non-standard system or that invalidates the comparisons to other companies or other industries. You take comfort in the fact that you are breaking new ground and that your innovative approach is yielding better results. You define a competitive set that is narrow enough to give you comfort that you are making progress against your personal and business objectives.
When I first I joined ModusLink (a short 17 years ago), we served clients predominantly in the software and computing verticals. Not only were our client challenges different, but they even differed from region to region. This fostered an approach of reinvention of different solutions in different locations around the world to what I now can see were many of the same problems. It was certainly seen as more exciting to create a new solution to a “new” problem than to copy exact a proven solution. At the time, clients loved our responsiveness but not surprisingly were sometimes frustrated by our challenges in executing in a consistent manner globally. Not surprisingly, customization and consistency can present conflict. When we entered the consumer electronics vertical, that too was seen as different—by us and by those clients—and we needed to earn our reputation and gain experience in that space. Subsequently, hard disk drives were different, mobile phones were different, and now as we start to serve clients in the healthcare supply chain, that too is seen as different.
Over the years however, and as we became a more mature supply chain organization, it became clear that despite the industry specifics, many of the fundamental supply chain processes are the same. With that learning it also became clear that a robust process focus could be applied to meet challenges across many industries.
I do not intend to trivialize genuine business differences—because they certainly do exist and must be accommodated in the supply chain—but we often overlook the learnings that are available to us if we broaden our perspective. When I meet people at conferences I find that I can learn as much from executives from industrial, pharma, automotive or process industries as I can from those in high tech.
Even now I look with envy to the retail integration and sophistication of some FMCG companies, to the relentless search for efficiencies of leading high tech supply chains and the disciplines in protecting the value of the brand in luxury goods supply chains. Should we not all be looking across industries for similar benchmarks?
Do you find yourself defending your supply chain performance in the context of your closest industry peers and using the phrase “but my supply chain is different”? Maybe it is time to step back and look to a different peer group. What do you think?