Supply Chain Management and Logistics Blog. Posts are about end-to-end supply chain management and logistics in a time of challenging disruption. Tom provides leading supply chain management and logistics consulting and advisory assistance based on real-world experience. He brings authority and domain expertise to clients. Email Tom at: tomc@ltdmgmt.com Check Tom's profile at: https://www.linkedin.com/in/tomcraig1/
Saturday, May 31, 2014
SUPPLY CHAIN MANAGEMENT
For supply chains to deliver incredible financial benefits that they are capable of, they need to stop being function focused and be process focused. That means much of what is said about SCM is not correct. That means being creative and thinking outside the box.
Friday, May 30, 2014
SUPPLY CHAIN MANAGEMENT
I believe a well-run supply chain group, without "silo-based" organizational constraints, would create competitive differentiation, improve revenues and customer service, reduce working capital tied up inventory, and those are just the beginning of the impact/benefit.
3PLs & PUSHING FOR LOW PRICE
This is something for all buyers and sellers of logistics services to think about--and what they are actually not buying.
The tyranny of lowest price
The tyranny of lowest price
Lowering the price is a one-directional, single-axis choice. Either it's cheaper or it's not.
At first, the process of lowering your price involves smart efficiencies. It forces hard choices that lead to better outcomes.
Over time, though, in a competitive market, the quest for the bottom leads to brutality. The brutality of harming your suppliers, the brutality of compromising your morals and your mission. Someone else is always willing to go a penny lower than you are, and to compete, your choices get ever more limited.
The problem with the race to the bottom is that you might win. Even worse, you might come in second.
To cut the price a dollar on that ebook or ten dollars on that plane ticket (discounts that few, in the absence of comparison, would notice very much) you have to slash the way things are edited, or people are trained or safety is ensured. You have to scrimp on the culture, on how people are treated. You have to be willing to be less caring or more draconian than the other guy.
Every great brand (even those with low prices) is known for something other than how cheap they are.
Henry Ford earned his early success by using the ideas of mass production and interchangeable parts in a magnificent race to the most efficient car manufacturing system ever. But then, he and his team learned that people didn't actually want the cheapest car. They wanted a car they could be proud of, they wanted a car that was a bit safer, a bit more stylish, a car built by people who earned a wage that made them contributors to the community.
In the long run, to be the cheapest is a refuge for people who don't have the flair to design something worth paying for, who don't have the guts to point to their product or their service and say, "this isn't the cheapest, but it's worth it."
Posted by Seth Godin
At first, the process of lowering your price involves smart efficiencies. It forces hard choices that lead to better outcomes.
Over time, though, in a competitive market, the quest for the bottom leads to brutality. The brutality of harming your suppliers, the brutality of compromising your morals and your mission. Someone else is always willing to go a penny lower than you are, and to compete, your choices get ever more limited.
The problem with the race to the bottom is that you might win. Even worse, you might come in second.
To cut the price a dollar on that ebook or ten dollars on that plane ticket (discounts that few, in the absence of comparison, would notice very much) you have to slash the way things are edited, or people are trained or safety is ensured. You have to scrimp on the culture, on how people are treated. You have to be willing to be less caring or more draconian than the other guy.
Every great brand (even those with low prices) is known for something other than how cheap they are.
Henry Ford earned his early success by using the ideas of mass production and interchangeable parts in a magnificent race to the most efficient car manufacturing system ever. But then, he and his team learned that people didn't actually want the cheapest car. They wanted a car they could be proud of, they wanted a car that was a bit safer, a bit more stylish, a car built by people who earned a wage that made them contributors to the community.
In the long run, to be the cheapest is a refuge for people who don't have the flair to design something worth paying for, who don't have the guts to point to their product or their service and say, "this isn't the cheapest, but it's worth it."
Posted by Seth Godin
Thursday, May 29, 2014
3PLs
3PLs should ready this HBR on strategy which is a weakness for many of them--
Strategize First, Analyze Later
The people who gravitate to strategic planning functions and strategy consulting firms tend to be highly analytical. That, I believe, is a problem. To be sure, analysis is important but in the end, strategy is and will always be a creative process.
Strategy is not the inevitable outcome of a process of analysis: it is a choice of where a firm wants to play and how it will win there going forward. Yes, a working knowledge of the industry and its likely evolution, the customers and their likely preferences, the firm itself and its potential capabilities and cost structure, and its competitors and their likely responses and actions should inform that choice. But it is simply not possible to predict that many things about the future through analysis unless you simplify the features of the solution space to an extent that makes it analyzable — and at the same time irrelevant. It guarantees strategic failure.
To develop a compelling strategy, you have to begin by staking out the territory you want. That is an act of choice and imagination. After you’ve made the choice, then it is the time for analysis: figuring out exactly what you have to do to get to where you want to be and to be able to play the way you need to in order to win.
Great strategists, therefore, have two sets of personal capabilities — and this insight comes from my brilliant friend Hilary Austen. One set, of course, is what we understand by analysis: the capacity to intelligently manipulate quantities. That is to take quantitative data and perform useful manipulation of it using rigorous methodologies — regression, correlation, analysis of variance, and so forth. To be sure, this is an important capability — but it is a necessary, not a sufficient capability for strategy.
The other set is what you need to lead with: the appreciation of qualities. This is the ability to perceive and appreciate the meaning of small differences in the features of a given variable. For example, this means being able to understand why customers behave as they do, by observing their actions and engaging with them in new ways. And having the ability to imagine what current behavior could mean for their behavior in the future. The appreciation of qualities is harder to measure and track, and seems less rigorous than does analysis. But unless the strategist has this capability, his analytic muscle is no help at all.
The emphasis that strategy professionals place on analysis puts the metaphorical cart before the horse. I have been doing strategy for over three decades and I can’t point to any truly compelling strategy that arose from analysis alone.
Strategy is not the inevitable outcome of a process of analysis: it is a choice of where a firm wants to play and how it will win there going forward. Yes, a working knowledge of the industry and its likely evolution, the customers and their likely preferences, the firm itself and its potential capabilities and cost structure, and its competitors and their likely responses and actions should inform that choice. But it is simply not possible to predict that many things about the future through analysis unless you simplify the features of the solution space to an extent that makes it analyzable — and at the same time irrelevant. It guarantees strategic failure.
To develop a compelling strategy, you have to begin by staking out the territory you want. That is an act of choice and imagination. After you’ve made the choice, then it is the time for analysis: figuring out exactly what you have to do to get to where you want to be and to be able to play the way you need to in order to win.
Great strategists, therefore, have two sets of personal capabilities — and this insight comes from my brilliant friend Hilary Austen. One set, of course, is what we understand by analysis: the capacity to intelligently manipulate quantities. That is to take quantitative data and perform useful manipulation of it using rigorous methodologies — regression, correlation, analysis of variance, and so forth. To be sure, this is an important capability — but it is a necessary, not a sufficient capability for strategy.
The other set is what you need to lead with: the appreciation of qualities. This is the ability to perceive and appreciate the meaning of small differences in the features of a given variable. For example, this means being able to understand why customers behave as they do, by observing their actions and engaging with them in new ways. And having the ability to imagine what current behavior could mean for their behavior in the future. The appreciation of qualities is harder to measure and track, and seems less rigorous than does analysis. But unless the strategist has this capability, his analytic muscle is no help at all.
The emphasis that strategy professionals place on analysis puts the metaphorical cart before the horse. I have been doing strategy for over three decades and I can’t point to any truly compelling strategy that arose from analysis alone.
CONTAINER LINES & SUPPLY CHAINS
Here is more to show that the future for ocean container lines will continue to be difficult. This can translate into fewer carriers in business---and fewer options to use for supply chain management.
Lender offers downbeat outlook for container shipping
Danmarks Skibskredit (Danish Ship Finance) says in its most recent Shipping Market Review that there continues to be a “massive” surplus in the supply of containerships, particularly large vessels.
In 2013, it said, the nominal supply surplus widened by 4 percentage points, and average container rates fell 8 percent. It added, “Shipowners made several attempts to artificially increase box rates in 2013, but without much success. The already depressed timecharter market remained under pressure."
Looking forward, it said, “The size of the current orderbook leaves no immediate hope for an improvement of the supply and demand balance in 2014 and beyond. Even though demand is expected to pick up, we believe that the container market is in for a more prolonged recovery process."
The lender explained, though, that scrapping of capacity in Panamax lanes has lead to a rosier outlook in some cases. "However," it said, "the outlook for the Post-Panamax segment remains highly challenging, as the fleet is too young to provide an adequate number of scrapping candidates. Supply remains several years ahead of demand — and there are more vessels to come.”
It called the outlook for the post-Panamax market "bleak" because it is a young fleet with an orderbook at 36 percent of the fleet. As far as outlook, there is low growth potential in both emerging and established economies, the lender said.
The lender's report found little chance of increased demand coming to the rescue of the container-shipping market.
“Structural issues related to high unemployment, low investment, persistent output gaps, tight credits, and large levels of debt constrain the future growth outlook for container demand. Moreover, unlike other ship segments, we see little possibilities for new major trade lanes to emerge because the incremental growth of container trade is so meticulously linked to global GDP in general and national GDP in particular," it said.
Danish Ship Finance, which lends to both Danish and non-Danish shipowners and has first mortgages in approximately 560 vessels, allowed that box rates are still high despite the outlook, but that this will likely change.
"However," it added, "the last few years have shown that box rates can be maintained at high, albeit volatile, levels despite a significant supply surplus.
“Time-charter rates are expected to remain low, and the number of vessels idle or laid up is expected to increase. Consequently, tonnage providers and owners with older and less-efficient vessels will continue to suffer," the lender continued. "Post-Panamax secondhand values are expected to decouple from newbuilding prices. Secondhand prices have already started to reflect the fact that some sizes, ship designs and engine types are more suitable for the future market than others. But the issue to consider for future secondhand prices is how and when the market will factor in that many vessels are eventually expected to be scrapped prematurely. We expect to see extraordinary value depreciations
Lender offers downbeat outlook for container shipping
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Thursday, May 29, 2014
By Chris Dupin
Danmarks Skibskredit (Danish Ship Finance) says in its most recent Shipping Market Review that there continues to be a “massive” surplus in the supply of containerships, particularly large vessels.In 2013, it said, the nominal supply surplus widened by 4 percentage points, and average container rates fell 8 percent. It added, “Shipowners made several attempts to artificially increase box rates in 2013, but without much success. The already depressed timecharter market remained under pressure."
Looking forward, it said, “The size of the current orderbook leaves no immediate hope for an improvement of the supply and demand balance in 2014 and beyond. Even though demand is expected to pick up, we believe that the container market is in for a more prolonged recovery process."
The lender explained, though, that scrapping of capacity in Panamax lanes has lead to a rosier outlook in some cases. "However," it said, "the outlook for the Post-Panamax segment remains highly challenging, as the fleet is too young to provide an adequate number of scrapping candidates. Supply remains several years ahead of demand — and there are more vessels to come.”
It called the outlook for the post-Panamax market "bleak" because it is a young fleet with an orderbook at 36 percent of the fleet. As far as outlook, there is low growth potential in both emerging and established economies, the lender said.
The lender's report found little chance of increased demand coming to the rescue of the container-shipping market.
“Structural issues related to high unemployment, low investment, persistent output gaps, tight credits, and large levels of debt constrain the future growth outlook for container demand. Moreover, unlike other ship segments, we see little possibilities for new major trade lanes to emerge because the incremental growth of container trade is so meticulously linked to global GDP in general and national GDP in particular," it said.
Danish Ship Finance, which lends to both Danish and non-Danish shipowners and has first mortgages in approximately 560 vessels, allowed that box rates are still high despite the outlook, but that this will likely change.
"However," it added, "the last few years have shown that box rates can be maintained at high, albeit volatile, levels despite a significant supply surplus.
“Time-charter rates are expected to remain low, and the number of vessels idle or laid up is expected to increase. Consequently, tonnage providers and owners with older and less-efficient vessels will continue to suffer," the lender continued. "Post-Panamax secondhand values are expected to decouple from newbuilding prices. Secondhand prices have already started to reflect the fact that some sizes, ship designs and engine types are more suitable for the future market than others. But the issue to consider for future secondhand prices is how and when the market will factor in that many vessels are eventually expected to be scrapped prematurely. We expect to see extraordinary value depreciations
SUPPLY CHAIN MANAGEMENT & GRANULARITY
If you are not going to do supply chain segmentation or otherwise transform your supply chain, then look at granularity for opportunities.
http://www.ltdmgmt.com/sc_granularity.asp
http://www.ltdmgmt.com/sc_granularity.asp
SUPPLY CHAINS & DATA
Interesting story on supply chains and too much data--
More evidence has emerged of the torsion being felt in the supply chain due to changing consumer demand and the furious growth of information about their behaviour.
IT firm Intermec by Honeywell reports that 62 per cent of store delivery suppliers surveyed in the Australian and New Zealand fast moving consumer goods (FMCG) industry admit the amount of consumer data they can now collect exceeds their capability to process and act on it, therefore reducing their ability to compete in the marketplace.
The finding comes from a worldwide study into the new hurdles the sector is facing.
It was just one of a number of significant challenges cited by 350 C-level executives and directors from across the globe, including Australia and New Zealand, 63 per cent of whom believe their business is becoming more complicated and is impacting their ability to meet consumer and retailer demands.
Pressure to deliver lower prices, increasing competition, retailer relations and government regulations were named by respondents as the most significant challenges that are troubling to their business, the survey finds.
In addition to overcoming these challenges is the need for store suppliers to share more supply chain data with consumers.
Globally, 57 per cent of companies say their consumers are placing them under pressure to show better traceability.
However, this demand is not echoed by retailers, with just 35 per cent of suppliers claiming they are put under much pressure from their retailers to improve traceability.
"These survey results are proof that Australian and New Zealand store supplier businesses are experiencing more pressures than ever before from consumers, competitors, as well as industry and government," Honeywell Scanning and Mobility Country Manager, ANZ Tony Repaci says.
"Many businesses have reached a point where they are seeking new ways of dealing with these pressures and better competing in their industry.
"They are looking at how they can change their processes and upgrade their technology systems to increase efficiency and productivity, which will have the benefit of cutting costs and raising profits."
The top areas of pressure faced by Australian and New Zealand FMCG store delivery suppliers were:
This leads to only 40 per cent of the Australian and New Zealand companies involved in the study responding that their route sales representatives have the tools they need to do their jobs effectively. And a similar amount of Australian and New Zealand companies (46 per cent) believe that their DSD systems are fit for the future.
"A first step highlighted by all respondents for addressing these issues is a re-engineering process to review the performance of current operations, technologies and systems, a step that just 30 per cent of Australian and New Zealand store delivery suppliers have undertaken in the past year," the firm adds.
"But of those companies that have recently gone through process re-engineering on average they have received, or expect to receive, annual tangible cost savings of A$624,000."
The full report can be found here.
FMCG supply chain 'facing information overload'
send to a friend
Consumer data growth found to be too much to process and act on properly, survey shows
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The growth of data is a business challenge
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More evidence has emerged of the torsion being felt in the supply chain due to changing consumer demand and the furious growth of information about their behaviour.
IT firm Intermec by Honeywell reports that 62 per cent of store delivery suppliers surveyed in the Australian and New Zealand fast moving consumer goods (FMCG) industry admit the amount of consumer data they can now collect exceeds their capability to process and act on it, therefore reducing their ability to compete in the marketplace.
The finding comes from a worldwide study into the new hurdles the sector is facing.
It was just one of a number of significant challenges cited by 350 C-level executives and directors from across the globe, including Australia and New Zealand, 63 per cent of whom believe their business is becoming more complicated and is impacting their ability to meet consumer and retailer demands.
Pressure to deliver lower prices, increasing competition, retailer relations and government regulations were named by respondents as the most significant challenges that are troubling to their business, the survey finds.
In addition to overcoming these challenges is the need for store suppliers to share more supply chain data with consumers.
Globally, 57 per cent of companies say their consumers are placing them under pressure to show better traceability.
However, this demand is not echoed by retailers, with just 35 per cent of suppliers claiming they are put under much pressure from their retailers to improve traceability.
"These survey results are proof that Australian and New Zealand store supplier businesses are experiencing more pressures than ever before from consumers, competitors, as well as industry and government," Honeywell Scanning and Mobility Country Manager, ANZ Tony Repaci says.
"Many businesses have reached a point where they are seeking new ways of dealing with these pressures and better competing in their industry.
"They are looking at how they can change their processes and upgrade their technology systems to increase efficiency and productivity, which will have the benefit of cutting costs and raising profits."
The top areas of pressure faced by Australian and New Zealand FMCG store delivery suppliers were:
- Lower prices
- Introducing more new products
- Competition from private label/own brand products
- Analysing and leveraging customer data
- More frequent visits
- Increased levels of trade spending.
This leads to only 40 per cent of the Australian and New Zealand companies involved in the study responding that their route sales representatives have the tools they need to do their jobs effectively. And a similar amount of Australian and New Zealand companies (46 per cent) believe that their DSD systems are fit for the future.
"A first step highlighted by all respondents for addressing these issues is a re-engineering process to review the performance of current operations, technologies and systems, a step that just 30 per cent of Australian and New Zealand store delivery suppliers have undertaken in the past year," the firm adds.
"But of those companies that have recently gone through process re-engineering on average they have received, or expect to receive, annual tangible cost savings of A$624,000."
The full report can be found here.
Wednesday, May 28, 2014
iPHONE 6 AND SUPPLY CHAIN MANAGEMENT
What will be the supply chain issues and stories with the iPhone 6 and Foxconn?
 | |
Foxconn has strong signal for iPhone 6 Thursday, May 29, 2014 Foxconn is set to become the major contract manufacturer of the 4.7-inch iPhone 6, cornering 70 percent of the production orders. Also, Taiwan's DigiTimes reported yesterday, Foxconn will be the only manufacturer of the 5.5 inch iPhone 6 - the second version in the batch of smartphones expected to hit the streets by year's end. Analysts expect the 5.5 inch version to retail for US$100 (HK$778) more than the 4.7 inch. Foxconn's plants in Zengzhou will supply the 4.7 inch phone as early as July, reaching stores in autumn. The 5.5 inch units go into production in August. Taiwan-based Pegatron and Wistron will assemble the remaining 30 percent of the 4.7 inch iPhone 6.
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SUPPLY CHAIN MANAGEMENT
Interesting that they say procurement and logistics. This is supply chain management.
Business Depends on Integrated Purchasing and Logistics
Study finds that purchasing and logistics collaboration results in greater efficiency, reduced complexity and lower operating expenses.
Organizations that integrate their purchasing and logistics functions deliver better business results, according to a new study from the Global Supply Chain Institute at the University of Tennessee, Knoxville.
But the study, involving more than 180 supply chain professionals, also shows that many firms fail to capitalize on this opportunity and have supply chains where purchasing and logistics operate in "silos" with little cohesion.
"Together, purchasing and logistics can account for 70 percent of an organization's costs and influence 80 percent of its working capital through inventory and accounts payable," said Ted Stank, UT Bruce Chair of Excellence and one of the study's authors. "Clearly, purchasing and logistics have a huge impact but often won’t collaborate with each other to make decisions that will positively impact the firm’s overall performance."
According to the study, metrics that are specific to each function and are used to measure (and reward) performance drive decisions. These are often geared toward short-term financial gain.
The report, "Bending the Chain: The Surprising Challenge of Integrating Purchasing and Logistics," was sponsored by IBM and is the second in the "Game-Changing Trends in Supply Chain" series from UT's supply chain faculty.
"When the purchasing and logistics functions are merged together, companies may realize increased levels of functional and financial performance such as greater efficiency, reduced complexity and lower operating expenses, cost of goods sold and inventory," said Mike Ray, vice president, business integration and transformation, IBM Integrated Supply Chain. "We hope the best practices in this white paper will help companies to transform and evolve all aspects of their supply chain like IBM did over the past decade."
In a key part of the study, respondents (most of whom were purchasing and logistics professionals) acknowledged pitfalls resulting from their lack of collaboration, ranking performances below expectations in areas that required the two groups working together.
Companies surveyed ranged in size from $20 billion to $100 billion and covered a cross-section of industries. Key conclusions are below:
But the study, involving more than 180 supply chain professionals, also shows that many firms fail to capitalize on this opportunity and have supply chains where purchasing and logistics operate in "silos" with little cohesion.
"Together, purchasing and logistics can account for 70 percent of an organization's costs and influence 80 percent of its working capital through inventory and accounts payable," said Ted Stank, UT Bruce Chair of Excellence and one of the study's authors. "Clearly, purchasing and logistics have a huge impact but often won’t collaborate with each other to make decisions that will positively impact the firm’s overall performance."
According to the study, metrics that are specific to each function and are used to measure (and reward) performance drive decisions. These are often geared toward short-term financial gain.
The report, "Bending the Chain: The Surprising Challenge of Integrating Purchasing and Logistics," was sponsored by IBM and is the second in the "Game-Changing Trends in Supply Chain" series from UT's supply chain faculty.
"When the purchasing and logistics functions are merged together, companies may realize increased levels of functional and financial performance such as greater efficiency, reduced complexity and lower operating expenses, cost of goods sold and inventory," said Mike Ray, vice president, business integration and transformation, IBM Integrated Supply Chain. "We hope the best practices in this white paper will help companies to transform and evolve all aspects of their supply chain like IBM did over the past decade."
In a key part of the study, respondents (most of whom were purchasing and logistics professionals) acknowledged pitfalls resulting from their lack of collaboration, ranking performances below expectations in areas that required the two groups working together.
Companies surveyed ranged in size from $20 billion to $100 billion and covered a cross-section of industries. Key conclusions are below:
- While purchasing and logistics are both typically found in a supply chain or operations organization, they are disconnected and operate separately.
- Both purchasing and logistics are well aligned to the business unit's strategy and activities but not nearly as well aligned to each other.
- Despite formal organizational links between purchasing and logistics, their interaction is typically informal and unstructured.
- Maintaining open lines of communication is the most widely used technique to foster integration.
- High-performing companies are able to bend the chain—whose links include planning, sourcing, making and delivering—"to better align the purchasing and logistics functions," said Stank. "As a result, they are able to serve their customers better."
- Fully integrate all of the functions in the supply chain organization and use common metrics throughout
- Create a talented supply chain organization that rewards people for in-depth mastery of a specific functional area as well as a broad range of skills that demonstrate a keen understanding of how the entire supply chain operates
- Create a purchasing and logistics network that uses a decision framework where the overall good of the firm is paramount.
- Utilize effective information systems and work processes that provide multifunctional supply chain teams the proper tools and information to foster superior business results.
GLOBAL FOOD SUPPLY CHAIN & RISK
Interesting on Global Food Security. But it misses much on the actual global food supply chain and the global food supply chain risk.
http://foodsecurityindex.eiu.com/
http://foodsecurityindex.eiu.com/
GCC LOGISTICS HUB & INFRASTRUCTURE
Using logistics as an economic cluster for job creation, FDI, and other goals requires more than investing in infrastructure. It requires a strategy on what is needed to attract the two customer sets.
Much has been built and expanded, is being built and will be built throughout the region. Ports. Roads and causeways. Railroads. Airports. Each of these impacts the flow of products.
From a logistics and supply chain management view, three things that stand out about all the projects -
As a result of the centricity and lack of integration, there are investment gaps, such as with roads and railways, and investment redundancies, such as with regard to ports, with the logistics infrastructure from a GCC perspective. They can be viewed collectively as over-engineered and under-customered.
Logistics as Economic Driver. Logistics can be and has been an economic cluster to drive growth. Despite their geographical size, Singapore, The Netherlands and Hong Kong are significant examples of logistics economic successes. They have proven what logistics (and maritime) can mean to a country.
There are benefits with being the logistics and maritime center. Four key ones are:
In addition, other key value drivers of the logistics focus and what it generates are:
Clusters are viewed as key for improving the economic performance of regions. They orient economic development toward groups of companies for common issues, such as training. Clusters build on the unique strengths of an area rather than trying to copy other areas. They enable a region to have different sets of economic development opportunities.
Logistics is a critical element of any cluster activity, with its combined physical goods, information, finance, and documents flows and activities. It is both a supporting and necessary element in all development. Given a multiple set of economic clusters, logistics is an economic activity and skill-set stimulant in its own right. As has been proven, logistics can be the driver to create economic clusters, growth and jobs.
Competitiveness. There is not a united effort to establish a logistics center in and for the GCC that is supported with infrastructure linking all the countries. Countries compete in varying ways within the GCC and the region with regards to logistics and trade. They each compete for essentially the same business. How they are viewed can be seen from three indexes that evaluate countries of the world.
Scoring is based on six criteria---customs, infrastructure, international shipments, logistics competence, tracing and tracking, and timeliness.
Scores for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates reflect the assessments for the six categories, and are--
For comparison, #1 Singapore had scores of 4.10, 4.15, 3.99, 4.07, 4.07, and 4.39.
The survey recognizes rise of international supply chains and the effect on trade. 132 countries are ranked. Singapore is ranked #1, followed by Hong Kong. Singapore's score is 6.14.
Needed-Focus. The indices are about more than infrastructure and assets. They reflect what is required to be a logistics / supply chain leader in the global economy. That is what the GCC should do-improve scores and focus on becoming a leader. Implicit to that is who will be the logistics center and leader in the GCC.
This requires a focus on what should be done-
LOGISTICS INFRASTRUCTURE IN THE GULF COOPERATION COUNCIL - ASSET RICH AND CARGO POOR?
Much has been built and expanded, is being built and will be built throughout the region. Ports. Roads and causeways. Railroads. Airports. Each of these impacts the flow of products.
From a logistics and supply chain management view, three things that stand out about all the projects -
- They are impressive. State of the art.
- They are country centric. Each can be considered a standalone project. Each is meant to serve the businesses within its respective country.
- Projects are not integrated among countries. There is not a GCC interconnection. They are not meant to facilitate the smooth flow of cargo among and within the countries of the region.
As a result of the centricity and lack of integration, there are investment gaps, such as with roads and railways, and investment redundancies, such as with regard to ports, with the logistics infrastructure from a GCC perspective. They can be viewed collectively as over-engineered and under-customered.
Logistics as Economic Driver. Logistics can be and has been an economic cluster to drive growth. Despite their geographical size, Singapore, The Netherlands and Hong Kong are significant examples of logistics economic successes. They have proven what logistics (and maritime) can mean to a country.
There are benefits with being the logistics and maritime center. Four key ones are:
- Economic growth. It would be in the important private sector.
- Employment creation. The potential is there for 100,000+ jobs for GCC citizens. These would be at all levels.
- Economic diversification. This expands opportunities in the non-oil economy.
- Attracting outside / direct foreign investment.
In addition, other key value drivers of the logistics focus and what it generates are:
- Creating sustainable development
- Supporting linkages and connectivity for international trade
- Supporting linkages and connectivity for domestic flexibility of labor and development
- Attracting international inward investment for development of national primary clusters that require underlying logistics to support sustainable development
- Attracting international inward investment for international purposes - hub-based trade or as offshore centers.
- Supporting, and vital part of, the ease of doing business in international trade
Clusters are viewed as key for improving the economic performance of regions. They orient economic development toward groups of companies for common issues, such as training. Clusters build on the unique strengths of an area rather than trying to copy other areas. They enable a region to have different sets of economic development opportunities.
Logistics is a critical element of any cluster activity, with its combined physical goods, information, finance, and documents flows and activities. It is both a supporting and necessary element in all development. Given a multiple set of economic clusters, logistics is an economic activity and skill-set stimulant in its own right. As has been proven, logistics can be the driver to create economic clusters, growth and jobs.
Competitiveness. There is not a united effort to establish a logistics center in and for the GCC that is supported with infrastructure linking all the countries. Countries compete in varying ways within the GCC and the region with regards to logistics and trade. They each compete for essentially the same business. How they are viewed can be seen from three indexes that evaluate countries of the world.
1) Logistics Performance Index (LPI). The World Bank has developed a benchmarking tool for international logistics. The Index for 2012 ranks and compares 155 countries. Singapore had the #1 ranking with a 4.13 score, followed by Hong Kong at 4.12.
The World Bank surveys global freight forwarders and express carriers as to the logistics "friendliness" of countries in which the firms operate and with which they trade. Scores reflect quantitative and qualitative measures.
Scoring is based on six criteria---customs, infrastructure, international shipments, logistics competence, tracing and tracking, and timeliness.
Scores for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates reflect the assessments for the six categories, and are--
For comparison, #1 Singapore had scores of 4.10, 4.15, 3.99, 4.07, 4.07, and 4.39.
2) Enabling Trade Index (ETI). The World Economic Forum (WEF) issued its ETI report for 2012, titled, "Reducing Supply Chain Barriers". Per the WEF, ETI measures the extent to which individual economies have developed institutions, policies, and services facilitating the free flow of goods over borders and to destination. The structure of the Index reflects the main enablers of trade, breaking them into four overall issue areas that are captured in sub indexes-market access, border administration, transport and communications infrastructure, and business environment.
The survey recognizes rise of international supply chains and the effect on trade. 132 countries are ranked. Singapore is ranked #1, followed by Hong Kong. Singapore's score is 6.14.
3) Global Competitiveness Index. The WEF assessed the competitive landscape of 144 economies, providing insight into the drivers of their productivity and prosperity. Switzerland is ranked #1, followed by Singapore. Switzerland had a score of 5.72.
Needed-Focus. The indices are about more than infrastructure and assets. They reflect what is required to be a logistics / supply chain leader in the global economy. That is what the GCC should do-improve scores and focus on becoming a leader. Implicit to that is who will be the logistics center and leader in the GCC.
This requires a focus on what should be done-
- Develop structure to being a leader. The figure below shows what is
needed, namely, customers, various types of logistics assets, logistics service
providers and technology. All of these elements that must be built and
integrated into a cohesive program and operation.
- Segment the logistics market. The logistics market is not monolithic.
There are multiple logistics markets-and opportunities. All industries and
products do not have the same requirements. Segmentation is needed to determine
which market is best for a particular country or port. Analyze and slice it as
to industries and to unique opportunities, such as supply chain complexity. Then
the needed structure and other steps can be implemented. Segmenting is in
contrast to much of what is happening in the GCC with regards to duplication of
assets in pursuit of the same market. The present approach means dividing up the
same market among countries and missing out on economic growth and employment
potential.
Here is an example of segmentation-
-
Attract two sets of customers. There are two underlying sets of
customers that the approach should target:
- Logistics service providers-these are major ocean carriers, air cargo firms, 3PLs, warehouses, forwarders, and others--that are important to provide needed supply chain services.
- End-user customers-Multi-nationals located in Europe, Asia, North America and elsewhere that will actually position their products in the GCC. They will choose which country and its logistics as the hub for their supply chain and trade needs.
Both customer sets are critical to generating and to sustaining logistics
activities and to developing the economy. -
Implement a strong value proposition. Why should a logistics provider
or end-user customer use a certain port or country's logistics park? How do
multi-national corporations view it? How do major logistics service providers
view it? Why should they do business with a certain port, do more than shipping
and transshipping containers of cargo directly from their warehouses or
factories? Transshipping containers does not create all the employment and grow
the economy that being the logistics leader does.
The value proposition is not about what the port or logistics park does; it is not about assets. The value proposition is about what customers want and how that location meets-and exceeds-those wants. A strong value proposition separates an operation/facility from the competition. It will draw customers and make them stay.
- Develop training programs. There would be many different job opportunities for citizens of the GCC. Education and training would be needed for all the different logistics needs and for all employment levels. Strengthening the logistics talent training will accelerate the development of the logistics industry in the GCC. This includes training for maritime, air cargo, warehousing, forwarding and customs (with the changed approach for the logistics center). In addition, there should be education for supply chain management. Conclusion. The economic benefits of significant development and job creation driven by logistics are not being achieved. Each country in the GCC has advantages and disadvantages. The time is now to stop the "shotgun" approach to investing in various logistics infrastructure. Instead, assess, identify, target and develop to meet specific logistics opportunities. It is also important to recognize that being the leader will be an ongoing effort.
3PLs & INVENTORY YIELD MAXIMIZATION & VALUE PROPOSITION
3PLs need a unique selling proposition to separate themselves in a commodity service defined by price. Supply chains need Inventory Yield Maximization to support top company objectives.
Supply chain management (SCM) executives struggle with what their responsibility and role is. SCM crosses the organization. It is both strategic and tactical. It serves both cost and service mandates. It can be global in scope and reach. Success requires process, technology and people. Given that, how do you distinguish your supply chain to satisfy both internal and external requirements? How do you create branding to position and build competitive advantage?
3PLs and 4PLs struggle with what their responsibility and role is. They are chosen to service a tactical need that can evolve and expand in scope and need. They must present a viable, low cost option while dealing with increasing service demands. They try to move beyond and not regress into being a commodity service where price is the key definer of who you are. Given that, how do you distinguish your 3PL service to satisfy internal and external requirements? How do you create branding and to position and build competitive advantage?
Branding is a way to position your organization. It is your organization's identity; it is who you are. Branding should be dynamic and innovative. Branding can maximize organization value to its customers, whether internal customers or external. It should be more than just an image; it should have substance to create the value. It should reflect reality, not perception, and have depth to be viable and to have longevity. Branding should be executable for supply chain management.
For supply chain management, the branding should reflect and embody a value proposition. Value here is not a financial figure, such as sales, profits, or assets. Value, for the value proposition, should be something that matters to customers. It should be tangible and should define the benefit and solution that customers will gain with you. It presents why customers should do business with you, rather than with competitors.
Sometimes the value proposition is based on fundamentals, such as low price. This proposition ignores both the service, cycle time and inventory impact of supply chain management and reduces SCM and 3PLs to a commodity service where price is the determining factor. Branding and a value proposition based on low cost may be tactically viable, but is weak strategically. Costs can only be lowered to some limit. Competitors can do lower prices too. It can make customers wait for even lower prices rather than acting now. A low cost proposition can create a somewhat negative image about the supply chain service and its value. And pursuing lowest cost can divert the supply chain organization from its primary purpose with both short-term and long-term impact.
For purposes of this article, the value proposition goes deeper into the needs of customers. With consumer goods being a dominant part of the economy and of supply chain management for both logistics executives and for 3PLs, the value proposition should be directed at a critical supply chain need and one that is may be difficult to recognize and to address.
Having a value proposition of increased yield management is unique. Yield management is often associated with the airline and hotel industries where reservation-based companies attempt to maximize revenue from fixed supply or capacity, seats on a flight or rooms in a hotel. The analysis can involve operations research tools, such as linear programming and simulations, to determine a pricing model at the micro level. It recognizes that price or revenue creating ability of the item in supply decreases with time.
Yield management is applicable in supply chain management when inventory is viewed as the supply whose yield is to be maximized. Inventory is key to success for manufacturers, wholesalers, distributors and retailers. Having the right inventory is also difficult and challenging. Insufficient inventory means lost sales opportunities. Too much inventory means markdowns-and reduced profits--to sell it. Firms working on thin margins especially feel such pain.
Ocean carriers practice a form of yield management balancing the timing and value from the service contract signing period through peak season when space may be at a premium regardless of pricing and into slack season where price reductions are given to freight forwarders to fill ships.
Many items, as retailers know, enjoy a short shelf life relative to demand to the price customers are willing to pay. Sales promotions, discounts and markdowns are almost common practices to draw customers. Firms that are in dynamic, volatile businesses, such as fashion and related, know the impact of short product life cycles and pricing decisions on the bottom line.
The operations research approach determines the "optimal" markdown(s). But this is somewhat of an after-the-fact approach. It does not address the underlying problem of demand planning and uncertainty and how to mitigate it. The length of the inbound supply chains has increased significantly with global sourcing. Longer chains have also meant longer times to produce and deliver products from suppliers.
This yield management value proposition realizes inventory velocity with its focus on supplying product and not on placing it at customers or in stores. It puts the focus where it belongs, at the beginning of the supply chain where product originates. Firms can better turn inventory from purchase orders into cash. Inventory that is in a long transit, inventory that sits in warehouses and inventory that sits on store shelves and floors does not increase in value with age. Inventory goes stale and loses value. It loses the sales window of opportunity. The only solution then left is price reduction.
Traditional procurement approaches focus on product price as does traditional logistics approaches that focus on freight price. The result of these pricing efficiency approaches is to place prices before inventory requirements by treating the product supply as two discrete events. They create discord in the development of an effective supply chain that can minimize time, inventory and cost while maximizing service and profits. The dual-price approach hinders the development of inventory management at suppliers to create yield management as a benefit of supply chain management by focusing on having the right inventory at the right quantity at the right place and at the right time. And the place to implement that is at the supply origins with suppliers.
Product and freight pricing emphases do not recognize yield management. They do not take yield management from being an analytical tool to being part of the supply chain practice and process. The impact is to trade-off product and freight prices for markdowns and lower profits.
Developing a value proposition by incorporating yield maximization of inventory beginning at the supplier level converts an operations research tool into a supply chain operations paradigm to manage the product and its flow. It expands the supply chain focus supplier management. It creates substantial benefit and competitive advantage. Yield management success requires supplier management in order to bridge between supply chain planning and supply chain execution.
Supplier management is controlling supplier performance. It looks at the timing of product, the quantities, how and where delivered, product mix and more. The intent is to maximize yield.
Effective supplier management is based on technology, process and people. Technology is how purchase orders are placed on supplier, via the Internet, EDI or other. It is supply chain execution. More importantly it is how purchase orders and suppliers and managed with event management and exception management. The technology enables revising orders, their priorities, their style and other mixes, their timing, quantities and more. Technology gives visibility to directing and controlling supplier performance and what is in the supply chain, including what is happening with transport and other logistics service providers.
Process takes purchase orders from being transactions to being part of a process that flows through the organization. That process enables the linking of all parts of the supply chain, the integration within the company and between trading partners. It gives the dynamics to controlling product flow and inventory positioning. That control is key to placing the right inventory, right as to quantity and timing and location, so as to achieve higher price yield.
People are logistics personnel positioned in China, India or wherever your suppliers are located. They speak the same language and are in the same time zone as suppliers. They are the day-to-day operational spears that make process and technology work. Global supply chains cannot be managed with emails. Managing suppliers takes people.
Value proposition is needed for C-level supply chain executives and for 3PLs and 4PLs. It must bring significant bottom line benefit within the company and to its customers. A value proposition built on yield management and supplier management is unique, creates competitive advantage and drives increased profits. The challenge is to move beyond traditional functions and tasks.
CREATE SUPPLY CHAIN VALUE PROPOSITION WITH YIELD MANAGEMENT AND SUPPLIER MANAGEMENT
Supply chain management (SCM) executives struggle with what their responsibility and role is. SCM crosses the organization. It is both strategic and tactical. It serves both cost and service mandates. It can be global in scope and reach. Success requires process, technology and people. Given that, how do you distinguish your supply chain to satisfy both internal and external requirements? How do you create branding to position and build competitive advantage?
3PLs and 4PLs struggle with what their responsibility and role is. They are chosen to service a tactical need that can evolve and expand in scope and need. They must present a viable, low cost option while dealing with increasing service demands. They try to move beyond and not regress into being a commodity service where price is the key definer of who you are. Given that, how do you distinguish your 3PL service to satisfy internal and external requirements? How do you create branding and to position and build competitive advantage?
Branding is a way to position your organization. It is your organization's identity; it is who you are. Branding should be dynamic and innovative. Branding can maximize organization value to its customers, whether internal customers or external. It should be more than just an image; it should have substance to create the value. It should reflect reality, not perception, and have depth to be viable and to have longevity. Branding should be executable for supply chain management.
For supply chain management, the branding should reflect and embody a value proposition. Value here is not a financial figure, such as sales, profits, or assets. Value, for the value proposition, should be something that matters to customers. It should be tangible and should define the benefit and solution that customers will gain with you. It presents why customers should do business with you, rather than with competitors.
Sometimes the value proposition is based on fundamentals, such as low price. This proposition ignores both the service, cycle time and inventory impact of supply chain management and reduces SCM and 3PLs to a commodity service where price is the determining factor. Branding and a value proposition based on low cost may be tactically viable, but is weak strategically. Costs can only be lowered to some limit. Competitors can do lower prices too. It can make customers wait for even lower prices rather than acting now. A low cost proposition can create a somewhat negative image about the supply chain service and its value. And pursuing lowest cost can divert the supply chain organization from its primary purpose with both short-term and long-term impact.
For purposes of this article, the value proposition goes deeper into the needs of customers. With consumer goods being a dominant part of the economy and of supply chain management for both logistics executives and for 3PLs, the value proposition should be directed at a critical supply chain need and one that is may be difficult to recognize and to address.
Having a value proposition of increased yield management is unique. Yield management is often associated with the airline and hotel industries where reservation-based companies attempt to maximize revenue from fixed supply or capacity, seats on a flight or rooms in a hotel. The analysis can involve operations research tools, such as linear programming and simulations, to determine a pricing model at the micro level. It recognizes that price or revenue creating ability of the item in supply decreases with time.
Yield management is applicable in supply chain management when inventory is viewed as the supply whose yield is to be maximized. Inventory is key to success for manufacturers, wholesalers, distributors and retailers. Having the right inventory is also difficult and challenging. Insufficient inventory means lost sales opportunities. Too much inventory means markdowns-and reduced profits--to sell it. Firms working on thin margins especially feel such pain.
Ocean carriers practice a form of yield management balancing the timing and value from the service contract signing period through peak season when space may be at a premium regardless of pricing and into slack season where price reductions are given to freight forwarders to fill ships.
Many items, as retailers know, enjoy a short shelf life relative to demand to the price customers are willing to pay. Sales promotions, discounts and markdowns are almost common practices to draw customers. Firms that are in dynamic, volatile businesses, such as fashion and related, know the impact of short product life cycles and pricing decisions on the bottom line.
The operations research approach determines the "optimal" markdown(s). But this is somewhat of an after-the-fact approach. It does not address the underlying problem of demand planning and uncertainty and how to mitigate it. The length of the inbound supply chains has increased significantly with global sourcing. Longer chains have also meant longer times to produce and deliver products from suppliers.
This yield management value proposition realizes inventory velocity with its focus on supplying product and not on placing it at customers or in stores. It puts the focus where it belongs, at the beginning of the supply chain where product originates. Firms can better turn inventory from purchase orders into cash. Inventory that is in a long transit, inventory that sits in warehouses and inventory that sits on store shelves and floors does not increase in value with age. Inventory goes stale and loses value. It loses the sales window of opportunity. The only solution then left is price reduction.
Traditional procurement approaches focus on product price as does traditional logistics approaches that focus on freight price. The result of these pricing efficiency approaches is to place prices before inventory requirements by treating the product supply as two discrete events. They create discord in the development of an effective supply chain that can minimize time, inventory and cost while maximizing service and profits. The dual-price approach hinders the development of inventory management at suppliers to create yield management as a benefit of supply chain management by focusing on having the right inventory at the right quantity at the right place and at the right time. And the place to implement that is at the supply origins with suppliers.
Product and freight pricing emphases do not recognize yield management. They do not take yield management from being an analytical tool to being part of the supply chain practice and process. The impact is to trade-off product and freight prices for markdowns and lower profits.
Developing a value proposition by incorporating yield maximization of inventory beginning at the supplier level converts an operations research tool into a supply chain operations paradigm to manage the product and its flow. It expands the supply chain focus supplier management. It creates substantial benefit and competitive advantage. Yield management success requires supplier management in order to bridge between supply chain planning and supply chain execution.
Supplier management is controlling supplier performance. It looks at the timing of product, the quantities, how and where delivered, product mix and more. The intent is to maximize yield.
Effective supplier management is based on technology, process and people. Technology is how purchase orders are placed on supplier, via the Internet, EDI or other. It is supply chain execution. More importantly it is how purchase orders and suppliers and managed with event management and exception management. The technology enables revising orders, their priorities, their style and other mixes, their timing, quantities and more. Technology gives visibility to directing and controlling supplier performance and what is in the supply chain, including what is happening with transport and other logistics service providers.
Process takes purchase orders from being transactions to being part of a process that flows through the organization. That process enables the linking of all parts of the supply chain, the integration within the company and between trading partners. It gives the dynamics to controlling product flow and inventory positioning. That control is key to placing the right inventory, right as to quantity and timing and location, so as to achieve higher price yield.
People are logistics personnel positioned in China, India or wherever your suppliers are located. They speak the same language and are in the same time zone as suppliers. They are the day-to-day operational spears that make process and technology work. Global supply chains cannot be managed with emails. Managing suppliers takes people.
Value proposition is needed for C-level supply chain executives and for 3PLs and 4PLs. It must bring significant bottom line benefit within the company and to its customers. A value proposition built on yield management and supplier management is unique, creates competitive advantage and drives increased profits. The challenge is to move beyond traditional functions and tasks.
Tuesday, May 27, 2014
SUPPLY CHAINS & CONTAINER LINES
Read LTD Management's article on Container Lines and the negative impact on Supply Chains in UAE's Global Supply Chain http://issuu.com/globalsupplychain/docs/global_supply_chain_may_2014
SUPPLY CHAIN FOR SMEs SMALL-MEDIUM ENTERPRISES
Big consulting firms talk "big" issues with big price tags for large corporations. The SMEs are left to figure out what to do with their supply chains. LTD Management works with SMEs worldwide to assess and improve their supply chains.
SUPPLY CHAINS & CYCLE TIME COMPRESSION
Time is the biggest enemy of supply chains, inventory, and companies. Cycle time compression is important for successful supply chain management.
CYCLE TIME REDUCTION-DRIVER TO SUPPLY CHAIN MANAGEMENT RESULTS
Whether you are a 3PL, manufacturer, wholesaler, distributor, retailer, importer, exporter, supplier, customer, logistics service provider or other type of firm that participates in supply chain management, a major key to success is time compression. Increasing velocity, rapid response to changing market conditions, minimizing time-and sustaining that velocity--are the reasons for collaboration, integration, supply chain visibility and other endeavors to accelerate the movement of product and information.
There are numerous financial and non-financial cycle time metrics, for example-on-time customer order delivery, manufacture to order complete, cash conversion cycle and days sales outstanding. A good one should be a measure of the length of time for a process, especially one that crosses the organization. The cycle time metric should be important to the company. It should recognize pain points or should add value and competitive advantage for the company.
A key process that crosses the organization is days in inventory that measures the number of days that inventory is held. For manufacturers this would include raw materials and work-in-process. Days-in- inventory is an important part of the cash conversion cycle. Reducing inventory levels and days of inventory improves profits and frees up needed capital; and this pleases CEO, CFOs and shareholders.
This measure is often calculated as Inventory/(Cost of Goods Sold/365 Days). This method of calculation can be misleading and understate the total inventory in the supply chain. It excludes inventory that is on order and is being manufactured at suppliers and inventory that is in-transit. This is an omission that results in an understatement of the real days of inventory and the cash conversion cycle.
For purposes of this article, we will include the time from placement of purchase orders on suppliers until delivery. With Section 404 of Sarbanes Oxley, adding this inbound portion to the calculation is valid for internal controls and risk assessment. Regardless of the technical issue of when title transfers, there is the company commitment and need for the material being ordered and shipped. Including the purchased order at supplier time and the in-transit time gives a better picture and understanding of what drives inventory levels, days and turns is useful for product lifecycle management (PLM).
This new cycle time is total inventory days in the supply chain; and it is consistent with the length and definition of a supply chain. The supply chain cycle time runs from the purchase order placed on suppliers through to final placement on the store shelf or floor or to the customer's warehouse. Now we can measure the real, total time for inventory and by including the inbound side where the clock actually starts to tick on inventory.
Studies have shown that manufacturers and wholesalers have over 60 days of inventory and that retailers have over 90 days of inventory capital tied up. These times do not include the entire inbound inventory in the supply chain. Real supply chain inventory is likely 25% higher. This is a very significant amount of capital tied up in inventory.
Reducing supply chain cycle time takes analysis and effort. Points to consider are:
A supply chain is complex, made of many suppliers located worldwide, each of who has his own supply chain. There are chains within chains. The purpose of all this activity is to place product timely and correctly in stores or at customer facilities. It must be designed, directed and managed as a process, not as a series of order and shipping transactions. Pushing bad logistics processes and practices up or down the supply chain impedes time.
CONCLUSION. Reducing supply chain cycle time means decreasing the days of inventory held and reducing the cash conversion cycle. This can mean hundreds of thousands of dollars, even millions, reduction in inventory and in carrying charges.In turn this is capital available for other uses. All parties in the supply chain must understand their importance in gaining these benefits.
| CYCLE TIME REDUCTION-DRIVER TO SUPPLY CHAIN MANAGEMENT RESULTS | ftb Asia October 2004 www.ltdmgmt.com |
CYCLE TIME REDUCTION-DRIVER TO SUPPLY CHAIN MANAGEMENT RESULTS
Whether you are a 3PL, manufacturer, wholesaler, distributor, retailer, importer, exporter, supplier, customer, logistics service provider or other type of firm that participates in supply chain management, a major key to success is time compression. Increasing velocity, rapid response to changing market conditions, minimizing time-and sustaining that velocity--are the reasons for collaboration, integration, supply chain visibility and other endeavors to accelerate the movement of product and information.
There are numerous financial and non-financial cycle time metrics, for example-on-time customer order delivery, manufacture to order complete, cash conversion cycle and days sales outstanding. A good one should be a measure of the length of time for a process, especially one that crosses the organization. The cycle time metric should be important to the company. It should recognize pain points or should add value and competitive advantage for the company.
A key process that crosses the organization is days in inventory that measures the number of days that inventory is held. For manufacturers this would include raw materials and work-in-process. Days-in- inventory is an important part of the cash conversion cycle. Reducing inventory levels and days of inventory improves profits and frees up needed capital; and this pleases CEO, CFOs and shareholders.
This measure is often calculated as Inventory/(Cost of Goods Sold/365 Days). This method of calculation can be misleading and understate the total inventory in the supply chain. It excludes inventory that is on order and is being manufactured at suppliers and inventory that is in-transit. This is an omission that results in an understatement of the real days of inventory and the cash conversion cycle.
For purposes of this article, we will include the time from placement of purchase orders on suppliers until delivery. With Section 404 of Sarbanes Oxley, adding this inbound portion to the calculation is valid for internal controls and risk assessment. Regardless of the technical issue of when title transfers, there is the company commitment and need for the material being ordered and shipped. Including the purchased order at supplier time and the in-transit time gives a better picture and understanding of what drives inventory levels, days and turns is useful for product lifecycle management (PLM).
This new cycle time is total inventory days in the supply chain; and it is consistent with the length and definition of a supply chain. The supply chain cycle time runs from the purchase order placed on suppliers through to final placement on the store shelf or floor or to the customer's warehouse. Now we can measure the real, total time for inventory and by including the inbound side where the clock actually starts to tick on inventory.
Studies have shown that manufacturers and wholesalers have over 60 days of inventory and that retailers have over 90 days of inventory capital tied up. These times do not include the entire inbound inventory in the supply chain. Real supply chain inventory is likely 25% higher. This is a very significant amount of capital tied up in inventory.
Reducing supply chain cycle time takes analysis and effort. Points to consider are:
Ø
Start.
The first step to reducing supply chain cycle time is to measure the
present process. You must know where
you are before you can begin to improve.
Identifying factors that add time to the cycle and implementing changes
also requires seeing that there is an interconnection and interdependence of
events and actions throughout the supply chain.Few events and actions have a
singular cause and effect; there are often domino effects.
Ø
Recognize.
There are basics to address:
A supply chain is complex, made of many suppliers located worldwide, each of who has his own supply chain. There are chains within chains. The purpose of all this activity is to place product timely and correctly in stores or at customer facilities. It must be designed, directed and managed as a process, not as a series of order and shipping transactions. Pushing bad logistics processes and practices up or down the supply chain impedes time.
ü
Product and information should flow. Operational
effectiveness depends on process, technology and people that cross internally
within the company and externally with suppliers and customers.
ü
The process should be assessed for gaps and redundancies.
Measure the time required in each action and the reason for the action. Watch
for organizational dysfunction that can creep in and add unnecessary time.
ü
Work with a cross-functional team. That will improve the
quality of the assessment and prevent invalid assumptions that can flaw the
effort.
ü
Inventory is created as a buffer for uncertainty.
Uncertainty increases, almost exponentially, as the time required to position it
correctly increases. So inventory increases as time increases.
ü
Time is not on any financial statement; but its effect is.
Inventory is not on the monthly P&L; it is on the balance sheet. The point
being that gaining needed commitment to reduce cycle time may be difficult
because it is not readily identified and measured. It also contributes to a
customer service paradox. Accounting systems have their origins going back to
the Ford Model A; that can add to the challenge in a globally competitive
business world.
ü
Tradeoffs do exist between time (and inventory) and cost.
Evaluate them.
ü
Global sourcing adds to time and to the inventory that must
be carried because of it.
ü
External factors exist that impact time and may be beyond
control to be reduced. Homeland security for importers is one such factor. It
adds to how promptly suppliers located outside the U.S.
ü
Supply chains work on a pull approach. This applies whether
the product is made to stock or made to order.
Ø
Focus.With the extended supply chain, there
are numerous places to extend, not reduce, supply chain cycle time and
inventory. Likewise there are key points to concentrate on for reducing
time.
ü
Managing vendor performance is a critical requirement for
reducing supply chain cycle time. Suppliers, at the supply chain source, have
incredible impact on the supply chain as to time, inventory and costs, impact
that goes far beyond pricing and placing purchase orders. Visibility of purchase
orders, at suppliers, in-transit and at each step in the chain, from vendor's
plant to delivery at the warehouse, store or customer is vital.
ü
Integration up and down the supply chain, both external and
internal, is mandatory. Non-integration adds to supply chain time and the lack
of responsiveness and dead spots in the cycle time. Integrate demand forecasting
or other inventory planning with suppliers for their build plans. Integrate
purchase orders into transport load planning. Everyone should be working from
the same data, information and system or platform. Manufacturers integrate
through the production process.
Transferring data up and down the chain is not
enough.Data is not information. To collect, analyze, and forward data takes
time.Suppliers and service providers then reenter the data into their systems.
In turn they do this to their suppliers. All this quietly adds to cycle time.
Conversely, integration reduces time and increases accuracy.
Integration may not be readily and easily doable
with all parties in the supply chain. Do it with key suppliers and service
providers, key as to volume or critical products, parts or needs. Have key
suppliers integrate with their key suppliers so the benefit ripples through the
supply pipeline.
ü
Collaborate with key suppliers and service providers. Work
together as partners and be open to the mutual exchange. Sending procedures and
demanding compliance with requirements is not collaboration. Work to align the
process between both parties so that if flows smoothly and with minimal
time.
ü
Analyze how inventory moves and where inventory sits or is
transferred for opportunities to move it more quickly and with fewer handlings.
Improvements are possible with:
·
Warehouse / distribution network. Where warehouses are located as to time from
stores or customers or suppliers impacts supply chain cycle time by becoming
fixed repositories based on needs that may be outdated.
·
Multi-tier inbound logistics approach. What modes,
carriers, service and ports are used can reduce transit time and increase
inventory and cash conversion velocities. Inventory in transit is not inventory
available for sell. Having a different approach for A inventory items (and some
B items)--as compared to many B items and C items--puts time emphasis where
needed.
·
Bypass the distribution network where possible. Shipping
inbound containers direct to store or customer; using a transfer facility at a
port(s) to quickly unload containers and transfer directly to needed
destinations, allocating inventory in transit and cross docking containers at a
distribution center provide time reduction opportunities.
Ø
Use technology.Technology is a necessity; it
is a process enabler. However technology by itself will not result in needed
improvements; it is not a silver bullet that solves a flawed process. Technology
should be used across the supply chain enterprise, both internal and external.
It is a key to gaining much needed supply chain visibility. Such visibility is
needed for multi-tier inbound and bypass the distribution network
programs.
ü
Global suppliers and transport providers cannot be readily
managed with emails.Technology is needed.
ü
Supply chain complexity and scope may require more than one
software be used for effective control.
ü
Portals provide tracking useful tracking information and
provide shipment visibility. But they are an after-the-fact tool and do not
manage inventory or time.
ü
Tracking purchase orders and contents of an inbound
container has great value as compared to just tracking a container
number.Visibility into the container sets the stage for significant abilities to
reduce time and inventory.
ü
Converting sales-point of sales (POS)-data into
replenishment orders on warehouses and, in turn, into purchase orders on
suppliers is critical.
ü
Supply chain execution technology may be the most valuable
of the technology applications. It is a vital to integration and
collaboration.
ü
Ease of connectivity-web enabled, interfaces and mobile
access-is important.
ü
Maximum supply chain process coverage-order management,
transportation, distribution, warehousing, vendor, finance and more-is important
to directing and managing the process and reducing time and inventory.
ü
Event management and exception management capabilities
should be part of the technology used; they empower control of the
process.
CONCLUSION. Reducing supply chain cycle time means decreasing the days of inventory held and reducing the cash conversion cycle. This can mean hundreds of thousands of dollars, even millions, reduction in inventory and in carrying charges.In turn this is capital available for other uses. All parties in the supply chain must understand their importance in gaining these benefits.
3PLs & SECTOR SEGMENTATION & STRATEGY & VALUE PROPOSITION
Contact LTD Management if you would like assistance with segmentation analysis, strategy development and execution, and value proposition creation. info@ltdmgmt.com
LOGISTICS SERVICES SECTOR SEGMENTATION
3PLs and other logistics service providers (LSPs) have a continuous sales cycle to pursue new business. The cycle is driven because of underlying, systemic issues, namely -
Eighty percent of customer business will be like this. The effort is to find that twenty percent that can make a difference. There is little or no differentiation versus competition. The need is to create a brand identity that separates your company from the other firms offering similar services. This analysis will identify and capture the key segments that have high customer retention and solid profitability.
Too many logistics providers stay with the business model they have developed as to service offerings and customer / market targets. There may be adjustments made; but it is still the same intrinsic model and sales approach, including an anything and everything for everyone/one stop shop and including chasing volume for the sake of volume.
Traditional sales approaches and marketing analyses
handcuff a logistics service provider's ability to identify significant market
sector opportunities. All this perpetuates the commodity service dilemma.
Value Proposition. There should be recognition of something
underlying, subtle and somewhat evasive with many customer endeavors that lays
the basis for problems. There is the lack of a value proposition (VP) by the 3PL
or LSP.
The VP is not about the freight. It is not about the pallets of product. It
is not a marketing spin. It is outward facing-toward the customer, not inward
facing about the 3PL. Value Proposition is not about the service provider, the
service provided or the assumed benefits of the service. It is not about market
share or imitating competitors or indiscriminately pursuing customers or
flogging asset utilization.
The value proposition must be focused on the customer, not on the 3PL. A
solid VP turns the discussion away from price and toward the customer and his
need. It creates a value in using the 3PL that no other LSP has and which the
customer will pay for.
An LSP can use the value proposition to differentiate itself from the
competition and to break away from the zero-sum game of customer and market
share pursuit. It should increase the quantity and especially the quality of
sales leads. The VP is not a slogan or tagline. It requires 3PLs and LSPs to
understand their services and what these are worth to customers and what
customers really want and need. The value proposition separates the 3PL from
commodity-service competitors and breaks the 3PL from a self-defeating price
competition game that pressures profit margins.
Value proposition is strategic positioning and should have its roots in the
company strategy. The VP is customer centric and requires understanding the
customers' businesses. It targets real customer needs and does not apply to
every customer or provide a universal sales methodology. It should be unique or
distinctive. It may seem to have a niche approach. The VP should be measurable
for the customer to see its impact and benefit. A clear, deliverable value
proposition provides defacto branding.
Developing the value proposition is challenging. Determining what customers
want and need takes effort. Again, it is not about 3PL-perceived benefits and is
not for all customers. It should be measurable and answer the question on why a
customer should use a particular service provider. A strong value proposition
can overcome real or perceived similarities as compared to competitors.
Segmentation. One way to create a value
proposition is to look at the market and customers in a different way.
Segmentation is important to finding the opportunities that lead to viable value
propositions. It creates a focused view of specific customer sectors and
logistics capabilities. This means that the overall design and operation will
support growth, retention and profitability targets.
The broad customer market is divided into subsets of companies with a common
characteristic that will identify their need or demand for certain services.
With this segmentation, services can be tailored and matched to the applicable
logistics sector. The LSP can then align its services or develop new
capabilities to gain these customers' business.
This is much more than a granularity evaluation and is different than
multi-channel marketing. The segmentation takes a different, fresh look at
customers to find those whose needs are not being met-and to then create
innovative supply chain services--and the value proposition--for them. These are
unique customers that respond differently to the traditional sales mixes and
that may justify separate service offerings.
Segmentation analysis should not just a marketing exercise. Follow through is
required to be successful with strategic implications and importance. The
purpose is to gain strategic insight and to identify customer sectors that have
been under recognized and under served. This is different than the traditional
way of finding customers that match what an LSP does. It is not the usual type
of segmentation. It is not about traditional market classifications or industry
verticals. The logistics sectoring identifies key opportunities to pursue and
that can create both a value proposition and sustainable brand identity. It is
part of a strategic execution.
Not about usual market segments---and industry verticals.
It is about the customer and his needs. It is not about the LSP and what he
can do. Different segmentations can be done. These would indicate market sectors
that have strong potential as high retention, profitable customers. It also
identifies the capabilities and services needed. The 3PL that wants to find,
develop and participate in that key segment must objectively assess what it is
doing. Benefits of the segmentation and the ensuing value proposition are-
An analysis would include demographics, such as customer size, operating variables, such as customer capabilities and supply chain/purchasing approaches, such as structure.
Results would be shown in matrices, such as these two segmentations-
Product value, for example, brings implicit differences to the customers' target, to what is expected and the integrated services required that go beyond the functional transport, warehousing and forwarding. The above analysis, as shown in the matrix, would identify markets of interest and of nominal interest. Large market size sectors-and their customers--with high product value would be very strong candidates as customers for the logistics center. Large size with less value and large value with less size could yield customers also. Small size and small value would not likely be viable for the logistics center.
Complex supply chains are not the traditional arena for 3PLs. This logistics sector is defined by time, number of trading partners and locations, a plethora of SKUs, and multiple distribution channels. Market segments with high supply chain complexity would be very strong candidates for a value proposition. Large size with less complexity and large complexity with less size could yield customers also. Small size and small complexity would not likely be viable for a value proposition.
The results of these analyses would facilitate a "reverse" value proposition
approach and design by building backwards from markets/customers---as compared
to a forward which is based on the LSP's capabilities. It would identify needed
capabilities that otherwise may not be recognized, yet that are vital for the
VP. The consequence of such segmentation would be multiple value propositions to
position the company. This adds to the success of the program.
Conclusion. Logistics service providers have a choice. They can pursue
market segmentation as presented above with its benefits. Or they can do nothing
and maintain the status quo is a recipe for continuing problems. Or as
Shakespeare said-
Nothing will come of nothing
King Lear
Act 1, Scene 1
LOGISTICS SERVICES SECTOR SEGMENTATION
To Develop a Strong Value
Proposition for Strategic Purposes
3PLs and other logistics service providers (LSPs) have a continuous sales cycle to pursue new business. The cycle is driven because of underlying, systemic issues, namely -
- Commodity service business where price is the key delineator
- High customer turnover
- Eroding profit margins
Eighty percent of customer business will be like this. The effort is to find that twenty percent that can make a difference. There is little or no differentiation versus competition. The need is to create a brand identity that separates your company from the other firms offering similar services. This analysis will identify and capture the key segments that have high customer retention and solid profitability.
Too many logistics providers stay with the business model they have developed as to service offerings and customer / market targets. There may be adjustments made; but it is still the same intrinsic model and sales approach, including an anything and everything for everyone/one stop shop and including chasing volume for the sake of volume.
Traditional sales approaches and marketing analyses
handcuff a logistics service provider's ability to identify significant market
sector opportunities. All this perpetuates the commodity service dilemma.
Value Proposition. There should be recognition of something
underlying, subtle and somewhat evasive with many customer endeavors that lays
the basis for problems. There is the lack of a value proposition (VP) by the 3PL
or LSP.
The VP is not about the freight. It is not about the pallets of product. It
is not a marketing spin. It is outward facing-toward the customer, not inward
facing about the 3PL. Value Proposition is not about the service provider, the
service provided or the assumed benefits of the service. It is not about market
share or imitating competitors or indiscriminately pursuing customers or
flogging asset utilization.
The value proposition must be focused on the customer, not on the 3PL. A
solid VP turns the discussion away from price and toward the customer and his
need. It creates a value in using the 3PL that no other LSP has and which the
customer will pay for.
An LSP can use the value proposition to differentiate itself from the
competition and to break away from the zero-sum game of customer and market
share pursuit. It should increase the quantity and especially the quality of
sales leads. The VP is not a slogan or tagline. It requires 3PLs and LSPs to
understand their services and what these are worth to customers and what
customers really want and need. The value proposition separates the 3PL from
commodity-service competitors and breaks the 3PL from a self-defeating price
competition game that pressures profit margins.
Value proposition is strategic positioning and should have its roots in the
company strategy. The VP is customer centric and requires understanding the
customers' businesses. It targets real customer needs and does not apply to
every customer or provide a universal sales methodology. It should be unique or
distinctive. It may seem to have a niche approach. The VP should be measurable
for the customer to see its impact and benefit. A clear, deliverable value
proposition provides defacto branding.
Developing the value proposition is challenging. Determining what customers
want and need takes effort. Again, it is not about 3PL-perceived benefits and is
not for all customers. It should be measurable and answer the question on why a
customer should use a particular service provider. A strong value proposition
can overcome real or perceived similarities as compared to competitors.
Segmentation. One way to create a value
proposition is to look at the market and customers in a different way.
Segmentation is important to finding the opportunities that lead to viable value
propositions. It creates a focused view of specific customer sectors and
logistics capabilities. This means that the overall design and operation will
support growth, retention and profitability targets.
The broad customer market is divided into subsets of companies with a common
characteristic that will identify their need or demand for certain services.
With this segmentation, services can be tailored and matched to the applicable
logistics sector. The LSP can then align its services or develop new
capabilities to gain these customers' business.
This is much more than a granularity evaluation and is different than
multi-channel marketing. The segmentation takes a different, fresh look at
customers to find those whose needs are not being met-and to then create
innovative supply chain services--and the value proposition--for them. These are
unique customers that respond differently to the traditional sales mixes and
that may justify separate service offerings.
Segmentation analysis should not just a marketing exercise. Follow through is
required to be successful with strategic implications and importance. The
purpose is to gain strategic insight and to identify customer sectors that have
been under recognized and under served. This is different than the traditional
way of finding customers that match what an LSP does. It is not the usual type
of segmentation. It is not about traditional market classifications or industry
verticals. The logistics sectoring identifies key opportunities to pursue and
that can create both a value proposition and sustainable brand identity. It is
part of a strategic execution.
Not about usual market segments---and industry verticals.
It is about the customer and his needs. It is not about the LSP and what he
can do. Different segmentations can be done. These would indicate market sectors
that have strong potential as high retention, profitable customers. It also
identifies the capabilities and services needed. The 3PL that wants to find,
develop and participate in that key segment must objectively assess what it is
doing. Benefits of the segmentation and the ensuing value proposition are-
- improved customer relationships
- increased customer retention
- higher margins, sustainability
- brand identity
- distinct competitive advantage
An analysis would include demographics, such as customer size, operating variables, such as customer capabilities and supply chain/purchasing approaches, such as structure.
Results would be shown in matrices, such as these two segmentations-
Segmentation Analysis #1
Product value, for example, brings implicit differences to the customers' target, to what is expected and the integrated services required that go beyond the functional transport, warehousing and forwarding. The above analysis, as shown in the matrix, would identify markets of interest and of nominal interest. Large market size sectors-and their customers--with high product value would be very strong candidates as customers for the logistics center. Large size with less value and large value with less size could yield customers also. Small size and small value would not likely be viable for the logistics center.
Segmentation Analysis #2
Complex supply chains are not the traditional arena for 3PLs. This logistics sector is defined by time, number of trading partners and locations, a plethora of SKUs, and multiple distribution channels. Market segments with high supply chain complexity would be very strong candidates for a value proposition. Large size with less complexity and large complexity with less size could yield customers also. Small size and small complexity would not likely be viable for a value proposition.
The results of these analyses would facilitate a "reverse" value proposition
approach and design by building backwards from markets/customers---as compared
to a forward which is based on the LSP's capabilities. It would identify needed
capabilities that otherwise may not be recognized, yet that are vital for the
VP. The consequence of such segmentation would be multiple value propositions to
position the company. This adds to the success of the program.
Conclusion. Logistics service providers have a choice. They can pursue
market segmentation as presented above with its benefits. Or they can do nothing
and maintain the status quo is a recipe for continuing problems. Or as
Shakespeare said-
Nothing will come of nothingKing Lear
Act 1, Scene 1
Monday, May 26, 2014
LEAN LOGISTICS & SUPPLY CHAIN MANAGEMENT
How much waste is in your supply chain? Why is it there? What are you doing to eliminate it? If you are doing nothing, why?
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