Monthly Archives: June 2011

The Best Way to Handle Decentralized / Local Supply Management Groups

While a well designed Sourcing / Procurement / Supply Management organization will have as many functions center-led, if not centralized, as possible, in a large multi-national, some groups will have to be regional to be effective and some purchases will have to be local. For example, fashion purchases will have to be driven regionally by someone with a pulse on the market and it does not make sense to ask the central asset management organization in (southern) India to manage snow removal operations in (northern) Canada (unless someone wants to see some really strange looks).

But how does your hybrid center-led Supply Management organization effectively manage these decentralized / local groups for best results? A great post on how when managing complexity, “less is more” over on the HBR blogs had a great suggestion — restrict activies at the group level to a core set of five that enable and enhance business performance. Specifically, focus on:

  1. Portfolio Management
    which activities fall under Supply Management purview
  2. Performance Management
    what are the cost / quality / value goals for each unit and how will the center-led Supply Management organization help the units achieve the goals
  3. Capital Allocation
    what investments can be made in each unit (in terms of technology, process, and people) to deliver the greatest returns
  4. Talent Management
    are the best people working the right jobs
  5. Synergy Capture
    to identify new or large opportunities that should be pulled up into the center-led Supply Management organization

It’s all about the selection of the handful of critical leverage points that will have the biggest impact on success and [a] relentless focus on doing them better. The purchase was pushed out to a local group because it wasn’t of a high enough value to manage centrally or because the central organization did not have the (local) knowledge required to make the best decision, so it needs to focus on the leverage points that will help the local organization, not on the task itself.

Cross-Docking Challenges, Part II

Part I noted how cross-dociking 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 also noted that cross-docking is not without its challenges. It then went on to define eight of the biggest cross-docking challenges faced by an average organization.

This post is going to address what an organization can do to address each of the challenges and see the ROI from cross-docking that it expects to achieve.

Unpredictable Customer Demand
There are two things an organization can do to address unpredictable customer demand. It can restrict cross-docking to primary distribution centers, or it can invest in reusable multi-level packaging. In the first case, when a container hits a primary port or DC, it will use cross-docking to divert the inbound product to the regional DCs, but will not use cross-docking to divert the goods from the regional DCs to the stores. In the second case, it will package small goods in smaller bundles, and if the boxes are too small to allow for efficient handling, it will place those boxes in larger, recyclable boxes or reusable containers and then, depending on demand updates, break the boxes or containers down to ship the revised quantities to the end locations.

IT System Support
This is easy — the organization invests in a new TMS (Transportation Management System) or WMS (Warehouse Management System) that is designed to support the organization’s cross-docking needs. Such a system will also likely come with advanced analytics, modelling, simulation, and/or optimization capabilities that will help the organization identify additional opportunities for cost saving.

Changing Business Dynamics
Cross-docking has to be part of the network (re)design, and not just an ad-hoc afterthought, and the contracts have to be written with the same flexibility as the shipping, distribution, and (temporary) warehousing contracts. This way it is no more risky than the other supply network activities and no less ill-fitted than the rest of the network should dynamics change.

Supplier Reliability
The organization has to build appropriate performance metrics into its sourcing contracts and establish appropriate SRM/SPM/SD (Supplier Relationship Management / Supplier Performance Management / Supplier Development) programs to insure that suppliers have, or build, a track record of on-time delivery.

Carrier Reliability
The organization has to build appropriate performance metrics, penalties, and out clauses, into its logistics contracts and establish appropriate monitoring policies and procedures to make sure its carriers deliver on time.

Facility Design
The organization has to select facilities appropriate to its crossdocking needs or invest in the necessary leasehold improvements to insure its cross-docking operations run smoothly.

Shelf Life
The organization has to adopt a FGIFGO (First-Group In, First-Group Out) policy and allow for newer products, with about the same shelf-life, to be sent out if currently cross-docked. If the product on the shelf has 27 days life, and product in the truck has 30 days left, there’s not much difference and it should send the product currently on the truck out if it can cross-dock. However, if product on the shelf has 14 days and product on the truck has 28 days, then, unless it can guarantee the product on the shelf will go out in the next 24 hours, it has to send out the product on the shelf. For each product, it has to define “close-enough” time-bands, and accept substitutions within the same time-band that are “close-enough”. (Unless, of course, there is product on the shelf about to expire, in which case it can define an override.)

ROI
The organization implements the right group of policies and procedures that will minimize touch and maximize ROI.

In other words, while cross-docking presents challenges on the road to success and cost savings, each challenge can be overcome and an organization that perseveres will see significant cost reductions in its logistics and transportation spend.

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.

Demand
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.

Talent
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:

Cost
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.

Success
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.

Shelf-Life
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.

ROI
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.

Cost Cutting – Let Us Count the Ways

A recent article over on the CPO Agenda on “cutting it fine” noted that there is more to cost cutting than just hammering down price. In fact, it noted that, in most companies, the following seven options are available:

  1. Avoid
    The best way to cut cost is not to spend money in the first place. Improve forecasts, shape demand, and eliminate need (through process transformation), spend will fall, and savings will rise.
  2. Reduce
    Finding a more energy efficient or water efficient manufacturing process will reduce costs, as will one that reduces the amount of (wasted) raw materials required.
  3. Reuse
    Find multiple uses for a product beyond its initial application or self life. Reuse an old desktop machine as a print server.
  4. Recycle
    Any production waste that can be recycled for other purposes will save money (and increase the bottom line if the scrap can be sold) as will any products that can be reclaimed from the end customer for reuse or recycling at end of life.
  5. Recover
    Retrieve discarded products from the customer at the end of life to remove precious metals from the products or components from a computer or piece of electronics equipment.
  6. Treat
    Apply treatments to products or processes to make them last longer and reduce costs.
  7. Dispose
    Dispose of unused or unwanted assets (in a sale if possible) and lower costs.

And the article is 100% correct. The question is, when will the rest of the world see that it’s not just negotiating a price break.