Daily Archives: June 6, 2011

Is Your Supply Management Organization About to Move to Asia?

As per this recent article over on the McKinsey Quarterly on Translating Innovation into US Growth: An Advanced-Industries Perspective, the US is posed for a future in which the elements of economic leadership are moving abroad. The US might still be the global leader in R&D spending overall, but in order to maintain its competitive edge, it has to be able to devise innovations the world wants and needs and translate those into economic leadership.

Economic leadership requires more than a capital market system that encourages (and rewards) risk taking and entrepreneurship, more than simply attracting top students and teachers globally, and more than bulk spending. As per the article, it also requires cutting-edge technology, demand, talent, and entrepreneurial spirit. And, right now, the US is falling behind on each of these.

Cutting-Edge Technology
In leading industrial technologies — such as advanced batteries, high-speed rail, hybrid automobiles, solar modules, offshore wind turbines, and machine tools — the United States finds itself competing against, or even catching up, with foreign companies and engineers. Furthermore, as the article notes, the US is now relying on Japan, Russian, and Western Europe to launch its satellites — an industry it used to pretty much own globally. If the US can’t even compete in green energy, it’s in for trouble.

More than 50% of the global middle class now lives outside North America and the demand for many next-generation products is now coming from Asia, Latin Ameria, and the Middle East. These customers are creating new markets and dictating preferences. US products for the US market are no longer profitable on their own in many industries.

Scientific and engineering talent is now building up outside the US while one-third of US manufacturing companies are suffering from skills shortages. Cutting edge research is moving to India and China as well as accelerating in Japan and Germany.

Entrepreneurial Spirit
Once a mainstay of the private sector, risk aversion to new vetures is increasing across the board in the US. At the same time, the “new” India is becoming much more entrepreneurial and risk taking. It’s not a good combination.

Then, when you also consider:

Many emerging countries have labour and overall operating costs that are still only a third of labour and operational costs in North America or Europe.

A number of global multinationals, including IBM, have proved that you can move global Financial, Services, and Supply Management organizations to China and India and still be a world-class organization.

it becomes impossible not to ask if your supply management organization is about to move to Asia.

Cross-Docking Challenges, Part I

Cross-Docking can be a great way to cut transportation costs if done right, because handling of goods while in transit, adds labor and time, which in turn costs the organization hard dollars and profit. But cross-docking is not without its challenges. A recent piece over on Supply Chain Digest on how interest in cross-docking is high, but challenges are many did a great job in summarizing some of the largest challenges.

Unpredictable Customer Demand
The organization might know with 95% certainty that it is going to sell 500,000 units of its new mobile phone in the United States, but it may have a hard time predicting at a granular level which markets are going to take off first, and which markets will be the hottest. That can make it difficult to determine whether to route 500, 5,000, or 50,000 to a local DC.

IT System Support
Many TMS (Transportation Management Systems) and WMS (Warehouse Management Systems) were not designed to support cross-docking. Consider these quotes from participants at the recent WERC (Warehouse Education and Research Council) annual conference who said that “the WMS wants the goods to be in a pickable location before it can allocate the goods to the DC orders” and that, in the ERP system, “goods received one day simply could not be allocated for orders until the following day”. How can an organization support cross-docking if the systems don’t support it?

Changing Business Dyanmics
In some organizations, the business dynamics, which depend on local and global market conditions, can be as unpredictable as the customer demand.

Supplier Reliability
In order to cross-dock goods from four different suppliers onto the same outbound truck, all four suppliers have to ship the required quantities on time.

Carrier Reliability
In order to cross-dock goods from four different source locations onto the same outbound truck, all of the carriers have to deliver on time.

Facility Design
The facility needs to be designed to accommodate the crossdock process. If the facility can only support two trucks at a time, for example, it is hard to cross-dock off of four trucks onto one.

First In, First Out (FIFO) principles can also add complexity, because companies in expiration date sensitive industries, are reluctant to ship a more recently manufactured/received product if older product is sitting on the shelf, even if that requires extra handling than would be the case if inbound receipts were crossdocked for cross-docking customers.

At some companies, cross-docking is still “high touch,” resulting in higher processing costs than the organization initially thought was possible.

So what can a company do to overcome these challenges and get benefits from cross-docking? Stay tuned.