Digital disruption challenging supply chain dynamics

Digital age has changed a lot of things like DVDs, Cameras, cassette players, phones etc. and this space will keep on disrupting itself in near future also. A recent study published about Fortune 500 organizations, said that since 2000, 52% of the companies in the Fortune 500 have either gone bankrupt, have been acquired, ceased to exist, or dropped out of the Fortune 500. End to end supply chain visibility, which is also impacted by Digital Disruption, has changed a lot. Some of the organizations (very few) have adapted and are using digital technology to their advantage whereas the others are facing new challenges. According to Gartner, by 2016, less than 20% of the organizations will be able to provide end to end supply chain visibility. Also, as per them, 70% of large companies cannot achieve the Supply Chain Maturity required to be winners in 2020. Logistics, which is intrinsic part of any efficient supply chain, is becoming most important than ever and while its costs vary from a low 2.4% for a pharmaceutical industry to a high of 10.8% for CPG industry, the challenges are very similar across industries.

Modern Supply Chain needs to be more mobile with ubiquitous visibility and access, have more insights with real time information for best decisions, more collaborative for faster responsiveness from all stakeholders/participants and more engaging. Let us take an example of optimization of logistics. Digital tools available these days not only help in route and capacity optimization but also landed cost simulators will provide costing in different scenarios so that a decision can be taken after considering all parameters in terms of mode of transport, inco terms, exchange rates etc. These tools combine the knowledge of Wiki, social bookmarks, forums, blogging, in house multi team collaboration and even photo sharing & video campaigns to provide strong input to the supply chain planners.  New ideas that keep floating at different digital platforms will form the core of supply chain planning and innovation around it. Going forward, digital platforms will capture, develop and prioritize ideas, generate proposals, optimize investment and will help in commercializing ideas.  

The major benefits expected are faster speed to market, higher product revenue, improved product margins, better fill rates, improved product launch performance and improved sales effectiveness. 

 

The above article has been written by our guest Sam Page – Supply Chain Leader in a Fortune 500 organization.

What is your reason to go for eProcurement Initiative?

Successful technology management provides an opportunity for procurement departments to meet or even exceed established business targets by increasing spend and capturing savings generated through the innovation it provides. To attain procurement goals through technology in future, companies may look to expand, update, or even replace their current platforms. Yet to garner executive support for these investments, eProcurement initiatives will need to demonstrate continued measurable benefits. In a survey by InfoVerto, we intend to find out which are the top reasons or justifications that CIOs or CPOs have to go for eProcurement initiatives.



The top reasons as per InfoVerto are given below:

• Increase visibility into spend & its increase
• Simplify the buying experience for the end-user
• Measure compliance against negotiated contracts
• Incomplete coverage of spend types / catalog categories
• Confusion on policy and requirements for buying products or services Confusion on policy and requirements
• Employee reluctance to use the eProcurement system(s) currently in place
• Difficulty in understanding/leveraging information generated in the eProcurement system
• Increased operational cost of IT management for existing procurement solutions
• Difficulty in finding desired products or services in the eProcurement system's catalog(s)
• Set targets to improve the efficiency of the procurement
• Institute a change management program or internal marketing campaign for eProcurement
• Lower the capital cost of IT management (hardware, facilities, software licenses)

Let us know if there are other reasons or your reason is one of these in the above survey.

Leverage item level RFID tagging to achieve organizational objectives

Re-evolution of RFID (Radio Frequency Identification Device) lately as an enabling technology has prompted retailers to investigate the value of the technology across four major objectives: process efficiency, product and demand visibility, shrink management, and increasing profits. Due to this reason, most retailers across all segments of the industry are implementing RFID solutions, measuring the results of their initiatives, and searching for ways to leverage the technology in every part of their business. Retailers are now approaching RFID with confidence, seeking ways to minimize their risks while maximizing their returns and making core business processes, in-store operations, and customer-facing activities cheaper, faster, and more accurate.

Directly and indirectly, usages of RFID tagging of items help the retailers in:

• Reduction or Elimination of full manual inventory calculation
• Improve staff productivity
• Reduction in cost of labor
• Improve on shelf availability
• Smarter replenishment process
• Reduction in pilferage by customers and employees
• Obsolescence reduction
• Increased inventory accuracy which leads to lower safety stocks, better usage of working capital, more inventory turns per annum etc.
• Reduction in out of stock instances

As is the case with most technologies that enable business process transformation, the return on the investment is not limited to the obvious metrics, nor should it be. Often, the most beneficial returns from an RFID initiative are to be found in non-obvious or unanticipated areas. These areas can be Success of in-store product promotions, improved employee productivity and improved (reduced) customer wait time etc.

Recently, we have seen best in class organizations have started taking actions like below to achieve the organizational objectives very efficiently with the help of RFID technology:

• Monitor customer in-store purchase activity and correlate it with real-time inventory management. Having achieved customer behavior monitoring and real-time inventory visibility in the store, organizations are positioned to extend their competitive advantage through information integration and analytics
• Leverage automated alerting. To turn real-time merchandise visibility and real-time customer behavior monitoring into operational excellence, it is essential for personnel to have instantaneous detail information about what is happening in the store. This goes well beyond understanding when an item is leaving the premises without authorization; it includes proactive management of in-store promotions, redirection of staff to high-traffic services, and seamless interaction between online sales systems, in-store stock status, and service desk activity
• Deploy advanced customer-facing services. Much research has been done into the value and utility of interactive fitting rooms for the fashion and apparel segments; yet, very few instances of this technology are to be found in current use. Intelligent customer service applications are as applicable in hardware and furniture as they are in footwear and fast-fashion. Whether it is measured in customer wait-time reductions at the register or waiting for a sales associate to check the back room for a SKU, RFID-enabled advanced customer service improves the customer experience, increases sales, and improves job satisfaction. All retailers, from Best-in-Class to Laggard, must study the impact of RFID on the customer experience

Finally an Inventory Solution for Wholesalers, Dealers and Large Retailers

For ages, the resellers like wholesalers, dealers and retailers had to forecast, plan and store their own inventory where all of the risk is theirs only and the rise and fall of demand kept on impacting their on time delivery, their return on investment, stock-outs and so on. Never ever they had a collaborative solution which can provide them access to a preferred group of resellers inventory and they can collaborate to re-distribute, re-allocate and replenish inventory based on the groups requirement.

Few days back, I witnessed an inventory management solution which could help the resellers do all this and not only this but the solution offered lot of other benefits. I prefer to call this solution as Shared Inventory Pool Solution (SIPS). This solution ensures that you can afford to keep lesser inventory and at the same time the participants of the group can plan together which slow moving items should be kept jointly or can allocate these items storage to different participants so that at least others can release their capital to that part and use it elsewhere. The benefits of SIPS are:

• It allows aftermarket manufacturers, dealers, wholesalers, retailers etc. to indicate which parts of the inventory can be shared with the participant group members and which part of the inventory can be visible to them. This helps you control your inventory privacy as well as let others know if you have something that they need and you have extra numbers, then those can be borrowed and sold
• Provides real time access to shared inventory pool whenever a customer orders which helps in giving accurate available to promise (ATP) date to them
• Provides ability to split an order across multiple participants in case the participant is not ready to part with its critical inventory and in this case, the customer will still get a unified quote and no participant will lose sales for want of stock
• KPIs like obsolescence, scrap, shelf life, on-time delivery, perfect orders fulfillment get improved
• Best in class inventory codification, catalog management and categorization
• Provides ability to integrate with multiple ERP systems and extract allowed visible items data to be shown in a single screen to all the participants

Since SIPS can also be a cloud based solution, it is an innovative and practical application in supply chain space. I am not sure if this solution is available for businesses other than resellers for now in the market but it is just the matter of time if it is accepted in the reseller market and is able to show its value.

What is your criteria for spend analysis solution selection?

Spend Analysis solutions are a critical component of the overall success of a spend analysis program and are being used by roles as wide as chief procurement office (or Head of purchasing) to category managers to buyers to chief financial officers. The whole solution often revolves about first increasing the spend visibility and then looking and analyzing the data. The modern spend analysis program consists of various process all of which contribute to an overall increase in spend visibility. These processes mainly include extraction of spend data from multiple internal systems be it the ERP or financial system, cleansing, transformation and classification of spend data followed by analysis or reporting of above data. The last phase of the program which is analysis or reporting of the spend data brings the most value in companies eyes. This capability helps the procurement executives slice and dice the corporate spend data in different ways like item category, supplier, date, geography, business unit etc. to effectively gain intelligence over purchased items. This information, then can be translated into true intelligence which can arm the strategic sourcing team while negotiating newer contracts with key suppliers.

All above can not be achieved without the help of a technology solution that facilitates your spend analysis program and since we want this investment to provide us maximum ROI. Clarity about the criteria of its selection is something which is high on radar of a procurement executive. The main prevalent criteria recommended by procurement technology solution experts around the globe are:

• Ease of integration between spend analysis solution with the sourcing program/solution
• Reporting and analytical capability of the technology solution
• Ease of integration between spend analysis solution with procurement execution function
• Level of automation and completeness of the solution in terms of features availability
• Ability to track or measure compliance of processes/data

Other than the integration criteria, the other main criteria as evident from above, is the process automation within the solution and including end to end process flow including areas like expense management, account payable or for that matter invoice processing reducing the usage of paper in office bringing in greenery as well as reducing costs.

In addition of the above criteria, another important one which is gaining ground these days is the ability to capture the collaborative action trail between a customer and supplier so that deflation can be driven using that data.

So, looking at the above points, what do you think is your criteria for selection of spend analysis technology solution. Is it different from the above or is part of them? Share your views for everyone benefit.

Strategies for a successful supplier partnership

What exactly defines a successful supply chain partnership? Is it just your picking of suppliers that can supply material to you at a low cost, minimum lead time and long payment terms or it is just the beginning? These are couple of questions that play in our minds when we are trying to fix our supply chain for better efficiency, effectiveness and cost. We wanted to have a dig at the strategies that should be part of our program to improve our supplier partnership to make them more profitable for both the sides. The strategies that have changed over time and more so as an impact of the recently concluded recession, it has become clearer that squeezing the suppliers might not be the right strategy going forward as you run the risk of breaking your supply chain in case their financial viability is in danger. The strategies in our view should be:

• First and foremost strategy is collaboration. As I keep on mentioning during conferences and my articles, today the supply chains compete instead or organizations and the efficiency of a supply chain can only be increased if all the stakeholders are collaborating, sharing knowledge and information and taking joint actions. This also improves the visibility within the supply chain and hence the issues can be fixed pro-actively
• Try to resolve the problems not only at your end but at your partner’s (supplier or customer) end also. Please always remember that it is the partnership that will succeed and not just one of the partners
• You can't rest on your laurels. Customers demand to see a plan for product development (especially in technology) so they know their future needs will be met. Similarly smaller suppliers look upto their customer organizations to help them plan their MRP with less volatility. These measures can reduce the costs at both ends and after-all both the partners will benefit and the probability of it becoming a far more successful customer supplier partnership will increase manifold
• Customers have lot of expectations from their suppliers. Customers outsource to those who have the expertise, so they depend on vendors to implement, train, maintain and support the technologies and service provided. Support is almost as important as the technology or service itself. So it is important for the supplier to invest equally in support of services
• Commitment is the key to a longstanding and fruitful relationship. Customers carefully monitor the leadership of their supply chain partners, their seriousness to groom the partnership and if the objectives of their organization finds any mention in the joint vision statement of their strategic vendors
• The main driver for purchasing any new product, raw material, technology or service is cost savings, but the most the important financial measure is value in terms of increasing sales, production or other revenue-related metric. This should remain at the forefront of all the strategies and tactics

The crux of the matter is that the prime strategy for improving the success of a customer supplier partnership is to work together and win together instead of winning at the other’s expense.

Evolving Role of a chief Supply Chain Officer

The main objective for a chief supply chain officer has long been to bring cost savings in supply chain, logistics, warehouse and manufacturing with the key objectives being reduction of lead times, leaner processes, higher staff efficiency and lately collaboration with suppliers. The combination of the recent downturn as well as marketplace competitive strategies has started changing rather adding upto the key objectives of a chief supply chain officer, like acting as a facilitator for added ability to differentiate in customer service, marketing strategy etc. A CSCO is also seen to be managing risks around supply chain like risks related to trade compliance, raw materials, demand fluctuations, product quality, financial instability, risk profile of suppliers and customers, currency volatility, catastrophic events, logistics capacity and congestion, supply chain security, and environmental disasters etc. With this, the CSCO has become a key stakeholder in the organization and is responsible for growth and expansion too in addition of improving efficiencies and coming out with innovative cost reduction measures beyond low cost sourcing and other similar strategies.

These changes though, are not there in all organizations and in these organizations where the role of CSCO is still evolving and is largely seen as a cost center rather than a profit center or an engine for growth in revenues, the key objectives of a chief supply chain officer remain as:

• Inventory reduction / optimization
• Improvement in efficiencies by restructuring and automating supply chain
• Improved service levels
• Deflation in procurement costs
• Releasing working capital
• Reduce cash to cash cycle
• Improved financial arrangements with customers and suppliers (largely payment terms)
• Reduced lead times of procurement and manufacturing
• Improved visibility of supply chain metrics, data, disruptions etc.

With enhancement in the role of the CSCO, the best in class organizations are leveraging their enhanced visibility into supply chain processes to make their supply chains more agile: if the market demands, they are able to change the direction of their shipment not just during the scheduling process, but at later points in the supply chain – after the cargo has been shipped (visibility). Best-in-Class organizations are also are much more likely to perform various kinds of data analysis in support of supply chain decisions which ensures that the visibility data they collect are used to help them achieve the market advantage (responsiveness).

Many organizations do not even have the role of CSCO today but these organizations have started clearly seeing the benefits of centralizing supply chain operations, and to make SCM truly strategic, a strong leader as a CSCO will be a critical differentiator. No longer can organizations run different supply chains for different products within the same business units. Consolidation and rationalization of business processes within supply chain organizations is a reality that has to be embraced. So, they have realized that having a CSCO role orchestrate the supply chain across these different business units is a key requirement.

In nutshell, the role of CSCO is evolving wherever it exists today and it is being introduced where it is not there currently. Infact, it has become one of the key differentiators for a company to increase not just the bottom-line but also to establish them as the market leaders in managing complex supply chains too.

SCM Strategy: Do not lose sales due to inventory issues

I have written earlier about inventory optimization and its key drivers and thanks to my readers, the article made it to the best inventory optimization articles and was appreciated by Chief Supply Chain Officers across the globe. It also triggered a debate on how should we first identify the exact causes of lost sales due to inventory related issues and deploy pertinent solutions. Normally, lost sales due to inventory drives the business teams to push for increase in inventory levels and if the supply chain team resists, the sales team will start adding buffers to the safety stocks of at least the best selling items and hence the inventory levels will rise automatically over time. These measures  however, are less scientific and panic driven which increase the working capital and inventory carrying costs. It also reduces the inventory turns and leads the best in class organization towards the laggards position, though the service levels might increase.

This whole situation compelled me to take the article to the next level and come out with the possible reasons, causes, solutions and enablers on the subject of losing sales due to inventory issues. I could create a small framework that talks mainly just about the key reasons etc. and do not cover everything related to it. Infact, this framework (which is given below) is industry agnostic and can be the starting point of inventory optimization for most organizations. It also incorporates the best practices that major supply chain leader companies (like Apple's iPAD SCM policy) deploy and is worth a look and evaluation.

In case the above picture is not visible or you need further details on how to use the framework to identify the reasons, causes, solutions and enablers for your own organizations, please contact me through the contact form. I share the knowledge completely free of cost.

SCM Lean Strategy: Adopt the new framework model and re-invent Lean

I have written earlier about the importance of practicing Lean methodology in your organization, multiple times and have tried to highlight that whether it is manufacturing operations or deployment of your ERP system, Lean can be quite useful in all of them. Infact, the article on blending of Lean principles with ERP whether it is 5Ss or 8 wastes, was liked by corporate leaders, business analysts as well as ERP vendors alike. Lean is obviously not new, so you might ask an interesting question: why are we seeing an increasing focus on Lean, which is one of the top two strategies being deployed across manufacturing today? The answer, however, may not be too hard to discern, given what has happened in manufacturing industry across the world over the past decade. Multiple early users & pioneers of Lean, and even some that weren’t using it, experienced an unprecedented expansion in production and corporate profitability over much of the 2000’s. Accompanied with this growth, there was a new focus on maximizing throughput and a slow migration away from the principles of Lean, including demand driven manufacturing, a focus on eliminating waste, and strict controls on inventory explosion.

Such a scenario left many manufacturers vulnerable to the collapse or increased variability in demand for their goods. Even so, the immediate pain that many organizations felt for the most part subsided. Inventory levels have been reduced, waste has been cut out, head count was reduced, and even in the industries like automotive, many companies slowly returned to profitability. Now, however, demand has begun to return, production and inventory levels have begun to increase, and there is a need to not repeat the mistakes of the past.

 

InfoVerto recommends utilizing a new framework model of utilizing Lean in your organization which is built on 4 principles as below:

• EXTRACT: It does not whether you are already practicing Lean principles or want to start, there will always be room for improvement and this principle will make sure that you know those improvement areas to start implementing Lean in those. The Extract principle is all about extracting the ideas from your own workforce and bringing their innovation and knowledge about their own niche operations to fore. Not only your employees, but this needs to be extended to whole of the supply chain including your partners, suppliers and customers. Devise ways and means to get their ideas registered in system and implement a system to evaluate their ideas, reward the good & implementable ideas and encourage everyone to contribute
• MEASURE: Almost all organizations have well defined Key Performance Indicators which tell them how well, the organization is moving towards achieving their goals. Though measuring KPIs is already present in the system of organizations but the emphasis in this principle is to measure them consistently with the same standardized manner every-time so that an apple to apple comparison can be done. This measurement should be done across the enterprise and not locally by independent shops
• INFORM: Lean is not an activity that can be done by an independent. It is best done in teams and sometimes, the dependence on other teams activities makes it little more complex and here comes the importance of information quickness, consistency and clarity into fore. Whether it is an action that is pending on the other team or partner which can be communicated with the help of a workflow based tool or it is sharing of progress of the project which can be dome through the dash boards, information always play a key role in implementing Lean ideas. Also visibility into operations, orders and KPIs like supplier performance will make sure that requisite benchmarks are updated in time and by the time Lean is over, you are not already behind the benchmarks again
• IMPROVE & REPLICATE: As I said earlier, room for improvement is always there and it is upto us to find out that room and start working on it. This principles guide you to focus on Lean and Re-Lean activities and makes sure that after implementing Lean once, the workforce does not think that their job is over and they are best in class now. By the time, you are done, somebody else have started jumping one step ahead so keep on looking for improvement areas. Also, success of one Lean idea implementation needs to be replicated to other shops, business entities and at your partners as it is relatively much easier to replicate rather re-inventing wheel once again. Replication will be possible only if you have good knowledge management solutions in place so make sure that the knowledge of implementing the idea is getting captured and is available for re-use

As per me, these are four new principles of implementing Lean in your organization and please note that these compliment the already established principles of Lean and do not provide an alternative approach. Also, you would have noticed that technology has started playing a major role in implementing and keep practicing Lean and this should be seen as one of the key enablers in your Lean endeavors.

iPad supply chain success shows why Apple is no. 1 in AMR Top 25 supply chains

The hype around iPad reached its pinnacle when Apple announced that from 12th March this year, they will start accepting pre-orders and from there their journey to fulfill the demand across US started. Nothing unusual, they planned to make things work in terms of high percentage of on-time delivery but the way responded to the market dynamics and improved their supply chain in record time is commendable.

To start with, they planned to have enough stocks at hand when the actual shipping’s were to start not knowing that the best of their forecasts are to be defeated this time as the actual demand for iPad exceeded everybody’s imagination. Though they played a nice card with a condition that one customer can pre book at the most 2 iPads to make sure that the reach is more and people do not stock them to resell at more price in case of shortages from the company, but still a small hiccup at their manufacturing facility ensured that they got delayed in their first shipping. The actual shipping stated from 3rd April this year which was a small but impatient 4 days delay for the prospective buyers but once there, Apple ensured seamless availability in announced markets.

Looking at the unprecedented demand (they sold 200000 units on the first day itself), they further fine tuned the supply chain with improved forecasts and negotiations with their key suppliers to bring their lead times down substantially. The suppliers they talked to, included Broadcom, Samsung, Foxlink technology, Toshiba, Cirrus Logic, LG Display and Seiko Epson and this showed an excellent example of practical collaborative planning where Apple started sharing actual demand and choice pattern with their suppliers and end to end collaboration with dedicated teams at each supplier and Apple made sure that they have the most efficient and effective supply chain for iPad.

The consumers had something else in mind and the excitement generated by iPad’s revolutionary design and features was too high to resist by a lot of people. This further increased the demand and again posed issues with Apple’s supply chain teams. But unlike Amazon which failed to cater to the peak in demand particularly when Oprah endorsed their recently launched product “Kindle” in one of her shows and had to delay the shipping by multiple weeks, Apple’s team seemed to be well prepared for the new situation and handled this quite well. The result was evident by their sale numbers which said 2 Million units sold in 60 days. An accomplishment noticed by Chief Supply Chain Officers across the globe.

When AMR Research announced the results of “The AMR Supply Chain Top 25 for 2010”, Apple again topped the list for consecutively the third time thus scoring a hat trick. As per AMR, “Apple dominates because it consistently brings both operational and innovation excellence to bear in some of the most competitive markets in the world. From a supply chain perspective, the company's ability to ramp volumes both in hardware and software while redefining what a mobile telephone is supposed to be has been impressive. Unwilling to rest, Apple has continued to push innovation with its launch of the iPad, which is another new platform product for digital content and a further extension of the brand”.

All three major ingredients of today’s best in class supply chain that are embedded innovation, networked supply and demand shaping, are the pillars of Apple’s supply chain and this is one main reason why it could push out companies like Proctor & Gamble, Cisco, Wal-Mart, Pepsi, Dell, Samsung etc. each one of whom are infact supply chain icons across the globe and are followed with respect.

Hats off to Apple SCM Team!

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Acquire knowledge on SCM and ERP

Books are the best way to acquire knowledge about a suject that interests you. Even if you are new entrant to a field and you start with reading a good book, the learning curve will be much steeper for you. I was asked by a friend of mine whose organization has started taking baby steps towards implementing an enterprise wide supply chain solution and they want to acquire little knowledge prior to start engaging consultants in this regard. I suggested them to grab two of my favorite books on supply chain management and enterprise resource planning which are:

•  Essentials of Supply Chain Management, 2nd Edition:- This is written by Michael H. Hugos and contains valuable tips, techniques, illustrative real-world examples, exhibits, and best practices in the are of SCM. This handy and concise paperback helps to stay up to date on the newest thinking, strategies, developments, and technologies in supply chain management. A quite useful possession indeed. This can be bought at most economical price here
• Modern ERP: Select, Implement & Use Today's Advanced Business Systems:- This book is written by Marianne Bradford and what is unique about this book is that it contains contributions from organizations like NetSuite, Microsoft, SAS, GlaxoSmithKline and Deloitte Consulting. This makes this book a much practical document to read and implement in rela life. Incidentally, this is one of the best selling books on ERP these days on Amazon

Just to make things easier for the readers, let me share an online store where both the books are available online so go ahead and have a look if they suit your objectives and interests. 

SCM Best Practice: Improve supply chain visibility to reduce working capital

Reducing working capital is one of the strongest challenges all organizations face these days and moreso aftr recent ecomnomic downturn when it was again proved that CASH is KING. One of the very effective ways to reduce your deployed working capital, is by increasing your supply chain visibility and leveraging the same visibility to lean your processes by removing bottlenecks or to release excess/buffer inventory that holds up the working capital. The big questions now, is how to increase the supply chain visibility and what are best in class organizations doing to achieve this? Another one is, how to make sure that the way we want to increase our supply chain visibility (SCV), gels with the overall organizational strategy? 

Well, the answer to the first question is that it is upto us to evaluate our options and decide but before that, it is recommended to have a list of options in the area of maximum pain so that a proper presearch can be done. The major methods that the best in class organizations take to improve their supply chain visibility are highlighted in the attached picture here:

Not all of them are required and it is highly likely that you already have one or the other method or system in place but that doesn't mean that you have complete supply chain visibility and you have all the information available to go for the transformational change in the organizational processes. It is recommended to check of above systems/methods and evalaute whether your comapny will need this or not and if it is deployed, what will be the ROI on this (also in terms of how fast the working capital can be reduced and how much).

The above picture does not provide all the options but this list is based on the major challenges that organizations face. In case, your organization face a different challenge, let me know and I will glad to help to identify the right method for you to improve supply chain visibility.

Improve Reverse Logistics for making SCM Green & to Increase Revenue

Reverse logistics is the largest part of the broader supply chain management process called as returns management. Returns Management, in addition to catering to handling returns that come back from customers due to various reasons, also puts in place, processes to reduce the number of returns by doing some reverse engineering with the help of departments like warranty, product quality, marketing and testing – but still the major portion of a returns management process is management of returning goods from the customer, that starts with customer’s request to return the item and ends with putting away that item in the pertinent warehouse. This part of returns management is called as reverse logistics and lately, the scope of reverse logistics has been increased at least in the best in class organizations, and now it includes facilitating smooth refund to the customer as well as ensuring a good percentage of items getting either recycled or re packaged to be sold to new customers in different product categories. This is the need of the hour for all of us to put more focus in, and this will help us not only to increase our revenue (discussed later) and to make our supply chain greener (recycling). Let me first break down few broader sub processes of Reverse Logistics so that we can focus on the pertinent parts:

• Customer request register and finalize modalities/approvals (if required)
• Organize the returns, their journey back and putting them away in warehouse
• Credit customer for the returns
• Re-cycle/Repackage returned goods and keep them ready for selling

Now, to make sure that you increase revenue from your returned goods, it is imperative that you need to increase the percentage of the returned goods that can be sold back by recycling or re-packaging while keeping in mind the compliance related stuff where those can not be sold as new again. All this can be achieved to the closest by following strategies:

• Ensure that the process of customer approaching you and returning goods is smooth not just because you need to compliant against some practices but to make sure that the customer satisfaction increases rather than decreasing by returning the goods sold by you. A smooth and customer friendly process will increase their confidence in your product quality, minimize their purchasing risks (so they will come again to you) and increase your brand value
• Revisit & Leanergize your process of picking the returned goods from your point of sale or retailer, organizing their safe and cost effective journey to your warehouse and to your supplier’s warehouse (in case of buy items) and putting away the goods in your warehouse in earmarked sections. This will make sure that your:
• Cost of returning goods is lowest – For example: using the same trucks/vehicles that bring goods from your suppliers, to send the returned goods to them can save cost of shipment
• Quality of goods is not diminished during transit
• Picking the same goods for reselling is easiest and transparent
• Early identify the goods that need repair before being sold again and have a process in place to make sure that repair required parts reach directly to your or suppliers depots where they can be rectified – This will save multiple journeys for same parts
• Recycle the packaging material of returned goods for good corporate citizenship and a cleaner and greener supply chain
• Separate out the physical receiving sub-process from the account credit sub-process and allow for gaps between physical and accounting such as, out of a returned pallet only part may be moved back to inventory and another part of it may be credited to your customer
• Integrate your IT systems such as handheld scanners, warehouse management system and accounting system share the information and are in synchronized at all times – for faster and cost effective process of returns

Since this area is huge, the strategies can go on and on but there is a need to identify which ones suit our own organization and execute them to the plan to achieve increased revenues as well as greener supply chain contributed by efficient reverse logistics management.

Product Configuration: Is this your biggest challenge in Quote to Mfg cycle

Are you one of those engineering organizations that pride on meeting all of the customer’s requirements in their engineered products? If yes, then I am sure, in the process of meeting customer’s varied requirements and even more about their ever changing requirements during the course of manufacturing of the product, you spend a lot of resources and this is one area where your lean objectives still are not met.

The whole Quote to Mfg cycle is quite longer for the engineering organizations and often the longest period as well as the area for maximum improvement is product design and configuration. Lot of times, companies struggle with lack of resources, maintaining configuration rules and synchronized data and lack of internal alignment and here is where your enterprise systems – be it supply chain system or ERP system, play a major role. Multiple product configurator solutions are available in the market these days though the most important factor for considering a configurator solution remains its ability of re-use of earlier designs and reducing the design time by bringing down the scenario of starting from scratch every time, but the factors like ease of use as well as good product support have become equally important.

A good product configuration solution not only reduces the design lead time but also instills confidence in your customers that you have excellent capabilities to immediately & correctly articulate their requirements and also can show them in quick time about how the actual completed product will look like. The other benefits of a good order configuration process are:

• Improved accuracy
• Better quality
• Increased flexibility
• Reduced manual work and hence errors
• Good data integration which make your process lean and efficient
• Improved speed of quoting
• Single face to customer for quotation or proposal
• Better product costing
• Improved ability to cross sell/upsell
• Much faster and improved new product introduction
• Improved ability to charge premium for custom products as well as modified products during the course of manufacturing

More so, you can conquer the bigger challenge of integrating sales, manufacturing and engineering information to have a single source of truth for all these business functions. Look at the above benefits and introspect if you are able to relate to the challenges and longer and inaccurate product configuration process a pain area for you as well, then re-visit your strategy and consider deploying a product configuration solution.

SCM Lean Strategy: Keep your Vendor Master clean and well maintained

Vendor Master Management is one of the most critical parts of the procurement and accounts payable business functions and often it creates inefficiencies in the processes and stops their movement towards a leaner supply chain. This failure of system controls due to unclean, redundant or ambiguous data in vendor master can result in duplicate and erroneous payments, missed potential discounts, delay in check realization, un-applied or misapplied credits, reporting errors for tax and fraud etc. There is a strong business case to maintain a healthy vendor master so that the vision of lean supply chain becomes reality as soon as possible for an organization. The steps that we need to take care of, for a well maintained vendor master are:

• Identify the right owner: While every organization has an owner for the vendor master but it is equally important that the owner know about the vendor master requirements, its standards, data quality-accuracy-consistency maintenance ways etc.
• Deploy Master Data Management Solution: Modern MDM solutions are an excellent value-add for maintaining your master data and vendor master being one of most critical masters, will benefit a lot from this initiative. It will ensure that you have enough controls, automation, access-create-modify-delete rules in place and are being monitored by management regularly
• Clean the data and deploy cleaner rules: It is well known that duplicate, redundant and inconsistent data spoils the whole procurement cycle in terms of reduced effectiveness and efficiency and it has bullwhip impact on the end to end supply chain. Many a times, this data inaccuracy robs an organization to claim volume discounts, deflation etc. from suppliers. We not only need to clean the data but also make rules stringent enough so that the data stays clean
• Standardize naming conventions: No need to mention that if a supplier is named as Alkes Info Systems and AIS and Alkes and all of them are coming as different vendors in your report, how in-effective will be our vendor management policy. We need to standardize the naming convention of naming vendors, items etc. so that no duplicate data is created – Most of this will be taken care of if you have right owners and an MDM solution in place
• Separate out one time vendors with regular vendors: Often, one time vendors (or less than 5 transaction vendors) inflate the data in vendor master and the supplier reporting MIS gets skewed. Explore strategic sourcing and the use of p-cards to reduce need for one-time vendors. For lowering the risk of duplicate payments, consider not allowing manual or electronic data interchange transactions with vendors on p-card programs

Other than above, smaller measures like purging the unused records, retaining the right records, updating the policies regularly etc. will also help in keeping the health of vendor master as good for supply chain.

Top game-changers in today’s supply chain

Supply chain keeps on evolving and organizations keep on experimenting with different solutions and permutations & combinations to improve its efficiency. There are a few activities that are widely regarded as the game-changer activities in supply chain as these have the potential to improve the effectiveness and efficiency of your supply chain and hence place your organization on growth path. I have tried to list down few of them as per my discussions with industry leaders and peers at different forums:

• The mandate for measurement: You can not improve what you don’t measure – this is a well known principle and in post recession world when performance management has become one of the key focus areas, the need for measuring and measuring right metrics has come to the fore like never before. First of all, we need to identify what all metrics are most important for us, then we need to iron the conflicts like inventory reduction is more important for me or order fill rate. These metrics needs to be prioritized and a calculated weightage needs to be attached to them before measuring
• Benchmark with the best: Measuring the metrics is fine but how much can you improve? Can you reach 100% forecast accuracy or 100% fill rate for that matter – ofcourse, not in most industries. So, what do we do, we need to define our targets and the easiest way is to look up to the best performing student in the class. Identify your best in class competition and benchmark your metrics against them. Attach a timeline and phases to the improvement program and do a regular monitoring of progress
• Collaborate: Let us stop talking about collaborating and leveraging each other’s expertise within the organization and start actually collaborating. The concept of collaborative planning, forecasting and replenishment is not a theory only so let us implement it in the organization. Today, as I said earlier in one of my articles that organizations do not compete, supply chains compete and these supply chain which run across the organizations, can not complete without active and transparent collaboration. We need to collaborate with our vendors, our customers and our internal people in multiple departments to bring more efficiency and ownership in the system
• Make your S&OP relatively independent of supply chain risks: Well, this may sound magical and hard to achieve but this can be achieved and yes, without building buffers in the system and increasing working capital. Few of the methods of doing this are by strategizing the distribution system, take tactical local decisions, build partnerships and develop contingency plans
• Reduce waste and variability: In other words, look for the opportunities wherever lean and six sigma can be deployed. Lean reduces waste and cycle time whereas six sigma focuses on reducing variability. These concepts are not new in manufacturing or supply chains but still deliver the best to results and we should never consider these out of fashion at least in today’s world. Please note that it is not that simple to reduce the number of product variants or sales channels but identify the real opportunities and act as per a well thought out plan
• Reduce time to market: Your product lifecycle management strategy is extremely important to manage complexity in conceptualizing, designing, prototyping and mass producing the new products. This includes minimizing finished product SKUs, minimizing components, and better management of products as they reach end of life and are retired as new products are brought on board. Companies should continuously perform SKU rationalizations to keep their product lines fresh and competitive

Have a relook at your supply chain strategies and check out if the above game changers are in place for your organization or you need to take certain actions to make sure that you are ready to fuel the growth in future.

SCM Strategy: Transition from forecast driven to demand driven

Today, when market volatility and turbulence has become the norm and customer expectations are on the rise, a fresh look at your supply chain strategy is like a doctor’s prescription for a symptom that can inflate your organization’s medical condition anytime. Without being more mystifying, let me come to the point of moving your organization from being forecast driven (be it make to stock or make to order) to demand driven. The reasons are clear, that we all are feeling pressure like never before to reduce the supply chain costing, the lead times, visibility and on top of all, want to improve our on time delivery for complete customer satisfaction and achievement of these business metrics can be improved vastly by moving towards demand driven manufacturing. It also helps to reduce the risk in the supply chain with the help of shared information between the constituents of supply chain.

We all are aware, that in the current century, supply chains compete with each other instead of organizations and there are some pressures and challenges in industry these days that force you to be more responsive and competitive in the market:

• Life cycle of services, product and technology are shortening
• Increased competition challenges forces more frequent product changes
• High levels of variants and product proliferation increase business risk
• Self imposed actions/processes lead to supply chain ‘chaos’
• Forecast-based management no longer viable as it increases inventory and does heavy filtering of real demand

Now is the time to forecast only for capacity and execution needs to be based on the real demand. If we bring the consumer at the start of the supply chain from being at the end and start focusing on more and more collaboration with our customers, our suppliers and our 3PL agents, we will be able to work on the base of real demand and not on the basis of forecast. Another reason for moving away from forecasts is that every constituent in the supply chain tends to build its own buffers and it leads to increased inventory at all levels and since all constituents have separate inventory, the overall visibility of total inflated inventory is low and extra working capital is engaged.

Moving to demand driven order fulfillment which is based on real time collaboration with your supply chain constituents, will ensure that there are no buffers as everyone works together and come to consensus on a single demand pattern which drives our order fulfillment and hence procurement, manufacturing and resource utilization. This will also deliver benefits like:

• Much reduced bullwhip effect in supply chain
• Optimized inventory at all levels
• Better availability and less stock outs
• Improved asset utilization
• Enhanced demand management

So, rethink your supply chain strategies and design them for the 21st century for better topline and bottomline.

SCM Strategy: Don’t press wrong buttons to reduce Cash to Cash Cycle

Cash to Cash cycle is the one of the most important metrics to measure business performance and also it tells a CEO about how lean its business is. There is immense pressure on the supply chain professionals to reduce the cash to cash cycle and free up working capital to increase the ROI from business. This sometimes, forces them to take wrong panicky measures to reduce this cycle and in the long run, the business gets to the see the negative side effects of the strategy. I wanted to focus in this article about what actions we should take to reduce the cash to cash cycle and what actions should be avoided.

Most of us know that cash to cash cycle is the period in which the portion of working capital (cash) is out of reach of your business. It means that shorter the cycle, leaner your business is. In other words, cash to cash cycle depends on three major factors:

• Outstanding invoices from your customers
• Capital deployed in inventory
• Outstanding payable invoices of suppliers

Putting this in a formula, it will become as:

Cash to Cash Cycle = Period sales outstanding + Period cash is locked as inventory – Period cash is free as business did not pay its invoices

Period in above formula will remain constant for all three variables and normally it is taken as one day.

The most obvious targets from above formula, for reducing the cash to cash cycle are reducing the number of days of customer outstanding, reducing inventory and increasing the number of days, we take to pay up suppliers and rightly so but the way of doing it, is often wrong. Some organizations will start pressurizing suppliers to accept more than 60 days or even 90 days as payment terms to shorten their C2C cycle and this can be dangerous as your suppliers viability is at stake and either you will see a growing rift between yours and supplier organization, reduction in quality, increase of prices whenever they get chance or suppliers moving away from you altogether.

Another mistake we normally do is to start reducing inventory indiscreetly instead of looking at the ways how the inventory can be moved faster by offering discounts on slow moving items, by improving the lead times of inventory receipt at your warehouse or by working with suppliers for moving towards just in time inventory etc. The reduction in inventory though will give you shorter C2C cycle but can also trigger multiple stock outs bringing down business and customer satisfaction.

The third mistake is little difficult to achieve as it includes the customer but we see this also often. The organizations not only stop offering credit to customers but also start asking about advance payments in certain cases. No need to say, what impact, this will have on your customers and will they not move away from you given the first available opportunity. Instead, we should focus on improving speed invoice issue and processing, improve response to disputed bills, reduce invoicing errors and reduce the incidents of bad debts. These internal measures will make sure that you are not playing a one sided pressure game and not making your partners pay for your operations. Instead you truly will achieve lean operations and reduction in cash to cash cycle will automatically come as a byproduct.

Now, please don’t ask me, what do I do if my cash to cash cycle is zero (yes, it can achieved) and I have excess cash. Go acquire a target company or pay bonus to your employees or start a new product or service range etc. – the list is endless and fruitful.

Free up your working capital by increasing global inventory visibility

I do not have to sell the idea of reducting your working capital as there is not even a single organization that does not want to freeup its working capital so that it can be invested in expanding, modernizing or improving its operations in many ways. I want to share one of the effective ways of not only reducing the working capital but also to improve some other critical business metrics. 

In case, an organization has multiple warehouses (and in multiple continents) due to reasons like faster delivery to customer, savings in shipping costs or low cost local sourcing of components/products then it makes good sense to improve on its capabilities in having visibility of inventory while booking a sales order from a customer. It means, that if an organization has the ability to see in real time, which all of its warehouses has the item available required by the customer then it makes easier to make decision on which warehouse should be used to ship the material so that following metrics can be improved:

• Reduction in  slow moving inventory - If a warehouse holds large stock of slow moving items and a "closer to customer" warehouse also have that item but in bare minimum quanttities, even then, one might want to select the warehouse which is far but provides the opportunity to reduce that slow moving item in bigger numbers
• Reduction in item obsolescence - Some items have shelf life and having visibility on their stock in different warehouses provides us the opportunity to ship the soon expiring items first
• Higher ontime delivery - Again, if a nearer (and default) warehouse for a customer, does not have the item and will have to procure it to ship to the customer, then visibility of stock in other warehouses provides the opportunity to check out if the item is available elsewhere and can be shipped to the customer cost effectively without compromising on on time delivery
• Higher Customer Satisfaction - This business metric will get a boost from the above metric (high ontime delivery) and we are sure to see much improved confidence in our organization when their orders are reaching on time more frequently
• Higher Inventory Turns - The most obvious and effective benefit of global inventory visibility is its capability to improve the overall inventory turns by provding us the opportunity to optimize stock at all warehouses and hence improving annual inventory turns which results in freeing up of working capital

So, keep an eye on a solution in your Supply Chain that provides you the capability to improve your real time visibility to global warehouses so that you can reap the benefits that it brings.

Manage your suppliers by collaborating

One of the hot topics these days is how to manage suppliers and how to keep the good suppliers for a longer term. Let me write down my thoughts on this topic today. Successful supplier relationships require two-way information, recommendations, metrics and incentives. Manufacturers need to adopt the following strategies to manage suppliers throughout a contract's life:

• Understand the cost and value of the entire supply chain. Without a thorough understanding of all costs, from raw materials through the end product or service, and the value provided by each supplier in the process, a supplier cannot be evaluated
• Realize that supplier strategies go two ways. Most companies focus on what suppliers can do for them rather than on what they can do with the supplier to lower costs. A true partnership leverages the total production cost to both parties' advantage
• Accept accountability. Companies should plan sufficiently in order to request orders from suppliers with acceptable lead time and without multiple changes. If every order requires emergency handling, the relationship will never work
• Incorporate appropriate service levels and metrics into agreements. A relationship based on a handshake is far more likely to encounter problems than one in which expectations are clearly established and agreed upon
• Spend equal time aligning incentives and penalties. It is natural to worry about the worst case, such as if a shipment is not received and a plant grinds to a halt. Conversely, the extra value created when production and asset utilization is optimized should be the basis of improving the value proposition for both parties
• Share critical information as early as possible. Information is the grease that makes an integrated supply chain work. Waiting to share critical volume and timing information with suppliers can create lost business for the company or excess inventory and added costs for suppliers. Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship
• Plan for everyday exceptions. Sometimes emergencies will occur, especially in complex, multiparty supply chains. Agree ahead of time how emergencies will be handled and analyze why they occur so that the number of emergencies is minimized
• Plan for major contingencies. Unavoidable events that stress the supply chain should be planned and practiced. Some industries, such as utilities, implement plans for natural disasters. Every supply chain strategy requires similar foresight and joint planning so that disruptive events can be managed smoothly
• Expect and reward honesty. As in personal relationships, the best supplier relationships require honesty when exceptions to normal operations occur. Companies should require immediate notification without penalty when critical supplier situations occur
• Make relationship meetings meaningful. Companies often hold formal quarterly meetings without appropriate representation in which the vast majority of time is spent on information best provided through other communication forums. Instead, relationship meetings should focus on critical issues, areas for supplier improvement and discussions on how the buying organization can improve the relationship

Every relationship needs to be nurtured properly to make it effective and long lasting and supplier relationship is no diffierent in this context. Invest in it!