Category Archives: Technology

Tompkins Associates and the Next Generation Supply Chain, Part IV

In Monday’s post, we brought your attention to Tompkins Associates’ recent white paper on “Leveraging the Supply Chain for Increased Shareholder Value” which nicely complements CAPS Research and A.T. Kearney’s study on “Value Focussed Supply: Linking Supply to Competitive Business Strategies” and echos our cry for Next Generation Sourcing methodologies. A cry which has been taken up not only by The MPower Group (and spearheaded by Dalip Raheja who has declared that Strategic Sourcing is Dead and invited you to the The Wake for Strategic Sourcing) but by BravoSolution (who are rallying the battle cry for High Definition Sourcing and who have given us A Futuristic Look at High Definition Sourcing). We told you how they declared the need for a new Supply Chain Value Creation Framework and a renewed focus on business value in the supply chain, outlined three supply chain objectives — Profitable Growth, Margin Improvement, and Capital Efficiency, and described six primary types of value enabling actions to achieve the objectives before telling you that we would spend the next four posts discussing some of these actions and why Tompkins Associates’ white paper on “Leveraging the Supply Chain for Increased Shareholder Value” should definitely be on your reading list as you outline your Next Generation Sourcing strategy.

So, today, we are going to discuss the objective of Capital Efficiency.

Capital efficiency is a measure used to determine whether a particular product, service, or operation is profitable, could be profitable with some adjustments, or should be abandoned entirely. The basic measure is computed by dividing the average value of output by the rate of expeniture for a period of time. A good capital efficiency is greater than one.

There are two primary ways for a company to increase capital efficiency. It can reduce working capital or improve the return on its fixed assets.

The most effective way to reduce working capital for many companies is to improve inventory management as significant amounts of working capital are typically tied up in inventory for an average company. The most effective reduction will be realizied when both cycle stock and saety stock is optimized. The white paper on “Leveraging the Supply Chain for Increased Shareholder Value” outlines four techniques that can be used to minimize cycle stock and four techniques that can be used to minimize safety stock.

With respect to improving return on fixed assets, a supply chain has four options. It can focus on the network assets, the building assets, the equipment assets, or the technology assets.

Technology assets need to be upgraded regularly or the cost to maintain the systems will increase as the risk of obsolescence skyrockets. Thus, a return on technology assets can be obtained by upgrading to a new system with addtional value before the technology becomes obsolete and the upgrade prohibitively expensive. (To determine how much the upgrade is going to cost, use the Cost Model Calculations in the SI Enterprise Software Buying Guide.)

Equipment needs to be maintained as no value can be obtained when it is not functional, and if it breaks down to the point of no repair, all value is lost. Thus, value is maintained when equipment is maintained. However, value can only be increased by upgrading to new, more efficient equipment that is easier to maintain, repair, upgrade, and control through modern control systems.

Building assets offer a fairy large opportunity for return on assets. If a building is appropriately designed for a function and has the right height, layout, and column spacing, no space will be lost, operations will be efficient, and, if LEED standards were followed, it will be energy efficient, cheap to maintain, and sustainable. Any building that is not used 100% does not deliver an optimal return. If a building is only partially used, a greater return can be obtained by leasing the unused space, or, if usage is sparse, disposing of the building and acquiring, or leasing, a more appropriate space.

Finally, the network offers the greatest opportunity for a large return on assets as an appropriate network realignment often removes 5% to 15% from total supply chain cost. A well designed network has low transportation costs, high agility, and (geographically dispersed) robustness and can withstand a disruption in part of the network. A good network is optimized, using the techniques outlined in SI’s three-part series on Supply Chain Network Optimization (Part I, Part II, and Part III), and stress-tested against multiple scenarios using a simulation tool.

All-in-all, a company has multiple options for increasing capital efficiency, just as it has multiple options to improve margins and achieve profitable growth. That’s why its important for a company to adopt a value-focussed mindset, implement next generation sourcing and supply chain practices, and chase the value that is just waiting to be extracted from the supply chain. And that’s also why it’s important to add papers like Tompkins Associates’ “Leveraging the Supply Chain for Increased Shareholder Value” to your working library as there aren’t that many resources out there that describe what a supply chain needs to do to get to the next level.

Six Steps to Supply Chain Visibility

A recent clear goal sidebar on “12 steps to supply chain visibility” in Stores magazine outlined 12 steps a company can take for boosting transparency in the supply chain. What’s important to note is that half of these steps revoled around data, data availability, and new technology — something this blog continually advocates. Specifically:

  • increase data quality
    as this allows for better analysis
  • create an information hub
    so that all information can be accessed from one central location
  • be aware of when your suppliers’ labor contracts are expiring
    as this could be a disruption in the making
  • develop visibility solutions that are flexible enough to accommodate multiple fulfillment models
    since multiple shipment types and routes might be required to prevent disruptions
  • rack costs like freight, insurance, duties, taxes and other government charges
    because all data is relevant
  • implement route planning software
    to optimize transportation and freight costs

There is no substitute for good systems and good data.

Vendor Lies

ComputerWorld recently ran a great article on tech relationships gone wrong entitle “lies my vendor told me” which is a must read for anyone buying technology because, you guessed it, some vendors will lie (lie, lie) to get that sale.

We can scale to that level of service.

Just ask the retailer who grew four hundred percent in 4 years only to lose 48 hours of uptime during the critical Christmas season.

Yes we have expertise with this third party system that our product can be configured to run on.

Just ask the publishing company which fell for the vendor’s claims hook, line, and sinker when it said that it had expertise to install and configure remote Citrix systems which its product could be configured to work on (but which it had never done itself).

Yes you need a firewall.

Even though you have no critical data and no data worth stealing.

Of course your IT department can support this!

Why else would we say that you don’t need their involvment? (Could it be because they know for a fact your IT department can’t support the application and that, if you ask, the deal is squashed.)

Yes our cloud platform is mature!

Even though we just bought it from a third party, who threw it together with glue and copper wire, and neither party has any idea how to properly build, maintain, and provide a cloud platform.

Don’t Fear New Technologies

This byline in a recent Industry Article on “five things you need to know about material handling” is an article in itself. It’s bad enough that most companies think they can’t afford new technologies and put upgrades off until they’re so far behind the curve that the upgrade is a multi-million dollar effort because everything has to be upgraded, and usually all at once, resulting in a big bang project that, more often than not, blows up in their face. It’s even worse when they fear new technologies. Good technology saves time, money, and enables the identification of opportunities that would never be noticed otherwise.

This isn’t to say that you should buy every module that a sales person will throw at you, but that you should look for the solutions most appropriate to your needs, buy them, implement them, and profit from them. Becuse, without the right technology, as the article points out:

    • you’ll never know you have too many lift trucks
      which results from not optimizing fleet management for maximum uptime and efficiency
    • you’ll never know that some trade-offs are only illusions
      and disappear when you use optimization to identify a third transportation option that saves time and money
    • you’ll never know that capital equipment can be more than capital equipment

and that it can be an ongoing expense as the initial cost of most equipment these days is only a fraction of the total lifetime cost when maintenance and operation is factored into account, and this is as true for computing technology as it is for lift trucks; an average PC costs much more to operate over its lifetime with today’s energy costs than it costs to buy it

So don’t fear new technology. However, remember that a commodity is a commodity and you’re not looking for a partner. I have to disagree with the author, who works for a vendor, on this point. Sometimes you just need a PC, or, in this case, a lift-truck.

Build a Better Beer Widget? Yes We Can!

A recent article over on CNet, which describes the beer widget as the hollow plastic ball that rattles around the can and is largely responsible for the foamy head on the just-poured brew, highlights how a university mathematician from Limerick, Ireland has discovered a way to create a more efficient, less expensive widget.

The research, which looked into the best way to harness the gas pockets trapped within cellulose fibres as (starting) points for bubbles to grow and release when a can of beer is cracked and poured, built a mathematical model that determined how much cellulose fibre would be needed to create enough bubbles for a head that could compete with a draught poured at a local pub. Precisely, 8.3 x 10-4 square meters of fibre are required, or, a credit-card sized piece of paper added to a can of Guinness, or a layer of paper-like fibres coated on the inside of a can. No widget needed. But the draught will have to be poured slowly as the bubbles are not produced in a quick jolt, as they are with the widget.