Category Archives: Supply Chain

Strategies to Design For Supply

Even though it’s a topic the doctor mentions regularly (see “AMR’s 7 Supply Chain Best Practices”, and Procurement Lead Time Optimization, and The Benefits and Risks of Global Product Development, for example), it’s something that he rarely dedicates a post to. However, since, Supply and Demand Chain Executive recently published an article by Heather E. Domin, James Wisner, and Matthew Marks on nine strategies you an apply when you “Design for Supply Chain”, now seems like a good time to dedicate a post.

Design for Supply Chain, or, Design for Supply, is the process of optimizing the fit between supply chain capabilities, product designs, costs, and expected revenues. It is the application of supply chain management processes, techniques, and innovations that aim to simultaneously increase customer satisfaction, minimize total costs, mitigate risks, and maximize the flexibility to adapt to unexpected events.

The authors are right when they note that, “efficient product design is not just a way of squeezing out cost savings, but a competitive weapon to be leveraged for strategic advantage” (especially since good design for supply uses TRIZ). Furthermore, as the article notes, “applying a product life-cycle management mentality as early on as the conceptual design stage, a product can be developed from the ground up to be a truly supply-chain-efficient creation.

But what the doctor really liked about this article was that all of the the nine strategies outlined in the article were sound. They were:

  1. Optimize Levels of Product Integration
    Determine the optimal level of pre-assembly at upstream suppliers. Balance flexibility (the ability to configure parts in different ways, replace parts, or use parts in alternate products) with assembly time (as assembling all of the parts yourself can take time and add labor cost).
  2. Leverage Industry Standards
    Whenever possible, use industry standard parts unless the proprietary part creates a competitive advantage.
  3. Minimize Premium Freight
    Thanks to continuously rising fuel costs, increased regulatory requirements, and continuously shrinking free capacities, freight costs are no longer an insignificant part of the total cost of any buy. Sometimes, they are a majority cost – especially when you have to ship express. Be sure to design the chain with acceptable lead times and sufficient safety stock of common components or alternate components.
  4. Design for Life Cycle
    The product design should be amicable to potential component or configuration changes throughout its intended life-cycle.
  5. Configure the Selected Supply Chain
    Make sure the supply chains are designed in accordance with the company’s strategic network plans, at the category group level and not the individual product level.
  6. Design for Demand & Supply Planning
    Good designs include commonality, modular design, universal function, and final configuration postponement to allow for pooling of demand and labor.
  7. Minimize Inventory Costs
    Design your supply chain to maximize velocity and minimize lead times as much as possible to reduce the amount of stock and safety stock you have to keep on hand.
  8. Optimize Order Management
    Products should be designed to provide the maximum amount of flexibility to the customer with little or no additional internal cost.
  9. Minimize Warranty / Service Costs
    Create a reliable, high-quality product with easy to diagnose faults and customer replaceable parts that have a high warranty redemption value.

And this is a good start.

Sustainability and The Economist: Part I

The latest issue of The Economist, not wanting to be outdone, just ran a number of articles on sustainability that are, at the very least, worth a mention. Today we tackle the first five.

In “how good should your business be?”, the article points out that corporate social responsibility has limits and asks if the current CSR craze is a good thing for business and for society as a whole. We do know that today, a bad name is more expensive than it has ever been – and CSR is one way companies are trying to maintain a good name. However, an inconvenient truth for today’s CSR advocates is that the connection between good corporate behavior and good financial performance is fuzzy at best. (However, as the doctor has pointed out, there appears to be a strong correlation between companies with strong brands and those that remain on the Fortune 500 unscathed year after year, so, if you can use CSR to build your brand, then there is a correlation between CSR and financial performance, even though it is not yet as strong as one would like.) Furthermore, current academic research has uncovered a direct positive link, although weak, between CSR and performance, and we can only hope that this improves with time.

In get the price right, the article focussed on Europe’s attempt to cut carbon emissions. It’s main tool is the Emissions-Trading Scheme (ETS), which is expected to be tightened significantly in the near future. The ETS issues firms permits to emit a limited amount of carbon dioxide – and if they want to emit more, they have to buy more permits. If the rest of the developed world follows suit, then companies will be pressured to cut emissions, since that’s the only way they will have to avoid steep carbon permit prices and fines. If not, the problem will just shift to other developed countries as the worst polluters leave Europe to try and sidestep the issue.

In “a change in climate”, the greening of corporate responsibility is addressed. The article points out that reducing greenhouse gases and responsibly using resources can save money as well as cut waste. It points out that UTC has reduced its emissions by 19% over the past 10 years while doubling output, and that they plan to cut emissions by a further 5% while growing 10% over the next year or two. It also points out that a large number of companies, including names like DuPont, REI, and GE are working hard to cut emissions and be good corporate citizens.

In “the good consumer”, we are told that buying ethical is not always as straightforward as it seems. Even the keenest ethical consumer faces complicated trade-offs, and sometimes the apparently obvious choice between options is the wrong one. It’s always greener to buy local, right? Wrong. For example, a study at Cranfield University showed the carbon footprint of Dutch roses, to Britons, was six times the carbon footprint of air-freight roses from Kenya – because the Dutch roses had to be grown in heated warehouses. Remember, it’s not just transportation emissions that produce greenhouse gases. Furthermore, a recent study of 1,018 products in North American stores by TerraChoice found that almost all of them were guilty of some form of “greenwashing”.

In “going global”, the article points out that, in one form or another, CSR is spreading around the world. The UK think tanks have been great at thought leadership, but not implementation; the American corporations, like Wal-Mart, have been great about taking action when they put their minds to it; the Japanese see it as part of their shobaido (way of doing business) and shonindo (way of the merchant) traditions, and emerging economies, where pollution has literally become a problem overnight, see it as a necessity – with China becoming the new frontier. However, although the global uptake is positive, the fact that it’s not yet consistent means that many global multi-nationals might not be able to take a one-size-fits-all approach to CSR and sustainability.

Supply Management in the Decade Ahead XIII: Challenges & Recommendations

This series has been examining the joint study by the ISM, A.T. Kearney, and The Center for Advanced Purchasing Studies released late last year that addressed how a company might go about “Succeeding in a Dynamic World”. To date, it has reviewed the eight major forces identified by the report (part I and part II), the impacts to business models and strategies, some of the missions, goals, and performance expectations, and the seven critical strategies (category, supplier development, supply networks, technology, collaboration, talent, organizational enablement). In this final post, we’re going to review some of the challenges and recommendations brought to light in the final chapters of the study.

First, I’d like to encourage you to seriously consider downloading and reading this excellent report, which gets the doctor‘s stamp of approval. (And if you’re a regular reader of this blog, you’ve probably figured out by now that there’s not a lot of literature out there that would get the doctor‘s stamp, or at least not without some serious improvements and edits.) Clocking in at over 100 pages of solid content (as opposed to the fluff that fills many of the longer reports that you’ll stumble across), it’s definitely worth it – especially since it’s Free (with registration, if you haven’t already registered). Although I have done my best to summarize the key points, my posts collectively are less than 20 pages in length – which says that, at most, I’ve covered one fifth of the material – and all of it is worth reading – some of it more than once. And once you’ve read it, you’ll be able to use these posts, which will always be indexed in the Sourcing Future category archive, to remind yourself of the key points.

The pace of change in supply management is more likely to increase rather than the decrease in the future, as evidenced by changing market factors, globalization and the ongoing march of technology. (After all, Shift Happens.)

These forces of change will include:

  • Market Demand
  • Rapid Advances in Information and Materials Technologies
  • Global Growth (in Developing Economies)
  • New Supply Market Dynamics (More Aggressive and Powerful Supplier)
  • Consolidation of Traditional Suppliers
  • Downstream Movement of Suppliers

Each of these forces will present challenges for tomorrow’s supply management organization. But we are moving into a new era of great expectations, which will present additional challenges, as it is also the :

  • Era of Dynamic Value Acquisition Strategies
    Agile, dynamic, category strategies that are easily reconfigurable as conditions changes will be “must haves” for all key purposes.
  • Era of Customer-Centric Supply Base Strategies
    Suppliers will be expected to be innovators and collaborative value-based sourcing that leverages suppliers’ innovative capabilities will be required to meet the increasingly demanding customers.
  • Era of Complex & Dynamic Supply Networks
    Physical assets will need to be reconfigured for mobility, flexibility, and resiliency and positioned or repositioned in response to business dynamics. Different chains will be needed for “innovation push” versus “demand pull” products and services.
  • Era of Collaboration without Boundaries
    Technology that allows suppliers, stakeholders, and customers to “sit together” at a virtual table on an ad-hoc basis will be the price of entry.
  • Era of Networked Analytics
    Knowledge management and decision support tools will be a basic need of supply management.
  • Era of Killer Talent
    The demand for experienced supply talent in developed countries is certain to outstrip supply. Global talent acquisition, management, and succession strategies will be required to survive in the supply chain centric world of tomorrow.
  • Era of Empowerment and Adaptation
    A tipping point where the average enterprise rethinks supply management processes and structures is fast approaching. Will you be ready?

And now you know why the strategies discussed in parts VI through XII are the seven critical strategies for succeeding in a dynamic world.

So what are the key takeaways, as summarized in the report?

  • The CEO Will Ask More of Supply Management : Broader Scope, Higher Performance and Increased Value
  • Supply Chain Complexity Will Increase : Driven by Globalization, Market Dynamics, Customer Demands, & Regulation
  • Collaboration Will be a Major Source of Value Creation : Internal and External Collaboration Alike
  • Technology : Will Transform Supply Management Strategies and Processes
  • The Supply Management Organization Structure Will Continually Change : To Fit Business Models and Strategic Needs
  • Global Talent Management : Will Continue to be a Major Challenge

So what are some of the main recommendations?

  • For Supply Executives :
    You’ll need to interrelate successfully with other members of the senior management team, experience living and working in international locations, master collaborative and competitive spend categories, and succeed in building a global program for talent management – so be ready.
  • For Supply Practitioners :
    You’ll need to improve working relationships with strategic suppliers and functional stake-holders, develop international and leadership capabilities, and master the fine art of collaboration.
  • For Business Unit Leadership :
    You’ll need to be equally familiar with key customers and suppliers, supply channels and sales channels, and understand the opportunities as well as risks.
  • For Suppliers :
    You’ll need to know exactly where you fit in each customer’s supply strategy, become a “supplier of choice”, and improve relationships with the senior executives in your customers.
  • For Service and Outsourcing Providers :
    Outsourcers will have to learn how to serve their customers and add value in addition to just landing the contract.

Supply Management in the Decade Ahead XII: Managing & Enabling the Supply Management Organization

This post continues our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and concludes our review of the seven critical supply strategies for succeeding in a dynamic world in particular, tackling the sixth critical supply strategy identified by the report – enabling the supply management organization.

Over the past decade, companies have responded to strong competitive pressures by increasing the centralization of supply management. However, these strong competitive pressures have resulted in the need for an organization to implement best practices across the organization. To achieve this goal, companies are moving away from classic centralized organizations toward more center-led, hybrid, shared services organizations to allow them to take the best of the centralized and decentralized structures. Companies that have implemented these center-led organizations have, generally speaking, reduced costs, increased control over spend, and increased the value gained from the supply base.

Even though the research found that the top two strategies companies intend to use to enable the supply management over the next decade will be to (continue to) use a center-led model for supply strategy development (with decentralized execution) while centralizing strategic responsibilities, the authors note that the research data suggests that in some organizations, the supply organization, or part of it, will need to be tailored to respond to the external forces impacting the business the most and to align with the business model. This may mean that some categories need to be fully centralized while others need to be fully decentralized. The role of the center-led organization in these cases will be to fully manage the categories and transfer the knowledge required by the necessary (remote) personnel to order off of the enterprise contract in the first case and to provide the remote units the guidance they need to fully manage their categories in the second, while also insuring that all spend transactions are recorded in the central data store.

The report also notes that the following forces, strategies, and operational requirements will be quite significant in the decade ahead:

  • Need for Local Leadership
  • Cost Savings from Aggregation and Standardization
  • A Decline in Upward Pressures on (Some) Commodity Prices
  • Embedding Best Practices and Processes in Technology
  • Increased Mobility and “Instant” Productivity through Common Processes
  • Cross Unit Collaboration through Technology
  • Increased Control for Business Units
  • Appropriate Location of Supply Management Expertise

The study also found that continued pressure on supply management will drive more companies toward greater automation or outsourcing of select parts of supply management. Companies will centralize and automate transactions and free up resources or higher value supply management work, such as strategic sourcing or spend analysis.

Companies will also take a more holistic view of measuring supply management performance, using a balanced scorecard that balances cost savings, total cost of ownership, contribution to the business units and corporate, value achieved beyond cost, and predictive metrics that cover the financial, customer, operational, and innovation aspects of the supply chain.

Supply Management in the Decade Ahead VIII: Designing and Operating Multiple Supply Networks

This post continues our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and our review of the seven critical supply strategies for succeeding in a dynamic world in particular, with the third critical supply strategy identified by the report – the design and operation of multiple supply networks.

In tomorrow’s world, the ability to respond to change will just be the price of admission. Competitive advantage will require agility, while supply chain excellence will be defined by the ability to:

  • Anticipate changes in customer requirements, product offerings, supply conditions, regulations, and competitor actions
  • Adapt to the changes by deftly reconfiguring existing supply chains or creatively assembling new ones
  • Accelerate implementation of change to capture the new opportunities ahead of the competition

 

The report is dead-on when it notes that make-to-order or assemble-to-order product/service bundles that fill distinct and possibly numerous market niches will quite obviously require the management of several supply chains simultaneously on a global scale as a single supply chain will not afford a company the required flexibility.

The big question will not be whether or not you have one or multiple supply chains, but what form each of your supply chains will take – modular or integral. A modular supply chain is designed to be flexible in operation and structure by way of interchangeable supply relationships governed by the specific needs of various customer and market niches. An integral supply chain, in contrast, features supply relationships that are unique, tightly structure, and distinctly coordinated.

The four most important strategies identified in the design and operation of multiple supply chains were:

  • Standardized processes across companies in the supply chain
  • Management of lead times throughout the supply chain
  • An ongoing process for the management of outsourced activities
  • The creation, leading, and management of global supply networks

The report also outlines a four-step approach to employ when designing multiple supply chains to satisfy the company’s full range of customer and product / service needs. This process is outlined as follows:

  1. Determine customer and market niche requirements and define an appropriate segmentation
  2. Logically construct the necessary distinct supply chains
  3. Match business models and strategies to each of the supply chains
  4. Define a reconfiguration plan that turns these concepts into practical, detailed plans for implementations

The report also noted that complex models will be used to evaluate supply chain risk, continuity, performance and design and that leading-edge companies will use modeling techniques to evaluate strategic supply options, costs, and risks. Among other things, these models will allow firms to more aggressively manage fixed assets while factoring risk into the value proposition.

Companies will also increase their ability to perform “what if” simulations across a range of variables and scenarios, making strategic sourcing decision optimization a key part of every sourcing event, as well as supply chain network optimization (see Part I, Part II, and Part III of the doctor‘s series).

The report also notes that anticipating change may require companies to take a three-phased view where they anticipate temporary blips, directional shifts, and disruptive forces, each of which, if not planned for, could interrupt their supply chain agility. Planning for blips will mitigate unnecessary disruptions when demand spikes, planning for shifts will insure that the company has the right structures, processes, technology and relationships in place when it needs to introduce new products to stay competitive, and anticipating when disruptive forces will be introduced will make sure that the company is always working on potentially disruptive offerings of its own in its innovation group.