Not only does packaging cost you money to produce, it can prevent you from being seen as a responsible corporate citizen concerned about sustainability if it is excessive and not reusable or recyclable. But more importantly, poor packaging can greatly increase your shipping costs. If it increases your product size by 50%, that’s at least a 33% reduction in the number of items you can ship in each truck or on each pallet. Moreover, if your packaging is poorly designed, or your box size poorly selected, your pallet efficiency might be considerably less than optimal! If a poor choice of box dimension cost you 15% or more in area efficiency, that’s going to increase your shipping costs by another 15%. Consider this example from a recent Supply Chain Digest piece on “the impact of packaging optimization on transportation management”. A simple package redesign increased the number of units that could fit on a pallet from 120 to 300 while increasing pallet utilization from 77% to 91%, which represents an 18% improvement in area efficiency. This represents a savings of 60% in transportation costs! Even if your savings potential was only half that, that’s considerable. So don’t forget to optimize your packaging.
Monthly Archives: October 2009
Flexible Capacity: Is it realistic in a down economy?
A recent article over on Supply Chain Brain on preparing for uncertainty noted that:
the imperative of capacity flexibility for design and development departments is especially high in the current uncertain climate. Even though the pressure on controlling operational cost is intensifying, leading to shedding excess capacity, not being able to fulfill demand when needed could lead to a lost customer. And losing customers due to capacity shortfall when demand does spike can lead to more losses than having excess capacity, which limits your loss to overhead.
But how do you create flexible capacity? The article gives us three options:
Create Capacity Options
One option is to buy capacity when needed, instead of retaining dedicated technologies. However, this will increase cost.
Another option is to cross-train dedicated capacity. For example, structural engineers could be cross-trained on mechanical systems and vice versa. Then your engineers could be applied where the need is. However, the engineers will be less productive in these secondary areas that they rarely work in, which will increase cost as the work will take longer and require a greater degree of care in review.
A third option is to use multiple vendors. However, if demand is forecasted to be low, and commitments are minimal, the chances of you getting the best price on a per-unit basis are slim to none.
Rolling Forecast Mechanism
Use periodic rolling forecasts that are updated regularly, and at least quarterly, and ramp available capacity up or down on a regular basis, such as every quarter, based on the rolling forecast updates. However, it costs you money every time you have to recruit someone or lay them off. Furthermore, what happens if you can’t find the talent fast enough when you need to ramp up quickly?
Layered Sourcing
Maintain captive capacity at the expected minimum demand level for a given time period (such as a year) and then have on-demand contracts with additional providers who serve as capacity reservoirs. The spot-buys from the capacity reservoirs will be more costly, but will always correlate against actual demand.
But how realistic is each of the above in the current down economy?
Capacity options
Buying capacity when needed sounds good, but without guaranteed income, many more suppliers are going to go out of business. So it might not be there when you need it.
Your staff is probably already over-worked, and under-paid, and chances are you’ve already made the mistake of cutting the training budget, which is usually the second thing to get cut after the travel budget. So this probably isn’t an option either.
More vendors than necessary is not going to save you money, so that’s not a good option either.
Rolling Forecasts
Not only can you probably not afford the costs associated with hiring and firing every quarter, but you’re probably already running at minimum staff levels. Thus, even though you should be using rolling forecasts anyway, you can’t really use them as a fountain of flexible capacity.
Layered Sourcing
This could work, as long as your captive vendors also give you the option for reserve/ramp-up capacity because even if your reserve vendors don’t go out of business, it could take them time to ramp-up.
In conclusion, in a down economy, your options for flexible capacity are limited and layered sourcing might be your only alternative. Any differing opinions?
It’s Still All About the Pentiums, Baby!
It was exactly 3724 days ago today, or 10 years, 2 months, and 10 days ago today that Weird Al Yankovic proclaimed that It’s All About the Pentiums. I wonder if he knew that when he proclaimed:
My new computer’s got the clocks, it rocks
But it was obsolete before I opened the box
You say you’ve had your desktop for over a week?
Throw that junk away, man, it’s an antique
Your laptop is a month old? Well that’s great
If you could use a nice, heavy paperweight
that the trend was only just starting and that ten (10) years later it would still be about the latest generation of the Intel Processor (the Core 2 Duo), that your database would still be a disaster, that windows would still take a “day-and-a-half” to boot up, or that, regrettably, supply chain managers would still be king of the spreadsheets?
I’m wondering because 3724 happens to be the RFC on The Rise of the Middle and the Future of End-to-End: Reflections on the Evolution of the Internet Architecture. The end-to-end principle just happens to be the core architectural guideline of the internet. Addressing concerns of openness, reliability, robustness, user choice, and ease of new service development, the end-to-end principle, which was originally a question of where not to put functions in a communication system to insure that applications could survive partial network failures, is still as relevant as it ever was. While not a standards proposal, like most RFCs, it put forward some good questions as to how the internet should evolve, questions which are becoming increasingly important with the rapid proliferation of the internet across a wide range of wired and wireless devices on which you will want to seamlessly access your supply chain applications.
Simply put, you’re going to want to be able to run your apps whether you’re working on your server, working on your desktop, working on your laptop, or working on your mobile, and you’re going to want to be able to do it using an open architecture built on open standards. This is because you don’t want to be spending thousands upon thousands of dollars for proprietary products that use proprietary APIs on each platform that do nothing more than convert your data from proprietary format A to proprietary format B so your mobile can talk to the server. You just don’t.
So remember, it’s all about the pentiums, baby.
Is Next-Day Delivery About To Become A Reality in India?
A recent article over on Knowledge @ Wharton, which asked whether or not “India’s Logistics Industry Could Deliver a Better Model for Transporting Goods”, noted that G.R. Gopinath, who revolutionized air travel in India with Air Deccan, is starting Deccan 360 with the goal of connecting 75 cities in India to each other on a 24-hour delivery schedule within the next year. That’s an ambitious goal in a country where only 1% of the population travelled by air up until 2003, and where air travel is still restricted to about 5% of the population.
It’s also an ambitious goal considering that while you can often get a part from any major city in the world to Mumbai in 24 hours, it will usually take at least 72 additional hours to get it to its final destination. The article notes how it once took seven days to move a spare engine from New Delhi to Kolkata (which is approximately 800 miles or 1300 kilometres away) and that it was cheaper to transport it via Singapore (which increased the transport distance to at least 4367 miles or 7028 km) than to transport it within India at logistics costs that are among, if not, the world’s highest. (Logistics costs in India account for about 13% of India’s GDP.) Talk about taking a ride on the crazy train.
Right now, only Blue Dart, owned by DHL, is the only logistics player in India with dedicated cargo aircraft — all 7 of them, dedicated to a whole three routes! So what Deccan 360 is proposing is revolutionary in scope. Starting with three Airbus aircraft and a network of 30 franchisees, Deccan will start offering next-day connectivity to 30 cities next month. Over the next year, it will add two more Airbuses and four ATR aircraft and expand to 75 cities. It will do this by way of a hub-and-spoke model run out of a 100-acre state-of-the-art cargo handling facility in Nagpur in central India. And if it works, express will no longer be a fantasy in India.
Transfer Knowledge to Reduce Risk
Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archives.
As reported on August 15, 2009 in my local South Florida newspaper, two New Jersey police officers in their 20’s failed to recognize singer-songwriter Bob Dylan. Mr. Dylan was wondering around a low-income neighborhood when he was spotted by someone who apparently called the police to report a suspicious character. It’s important to note that Mr. Dylan did not have identification on him. The police officers escorted Mr. Dylan to the resort where tour management confirmed his identification.
[Editor’s note: People worry about a return to 1984, but this smacks of a return to 1963. For those of you old enough to remember, it’s alright, ma.]
Around this time I attended a business event and saw some folks I knew from my networking who invited me to join their group. During our conversation I made a reference to the classic rock band Deep Purple (one of my favorites) as we were discussing colors and shades for use in corporate marketing. A young lady in the group, I have no doubt in her 20’s, looked puzzled and said she was unfamiliar with this band. I asked her if she knew the song Smoke On The Water and did my best to hum the famous guitar riff. She confessed she still did not recognize the tune which is understandable if you’ve ever heard me attempt anything musical, though I suspect this was more related to a generational gap. (I did receive a follow-up e-mail from her a few days later stating that she was familiar with the riff but not the band behind it. She may have followed my suggestion and did a YouTube(R) lookup.)
More so in lean economic times companies have a habit of getting rid of employees with deep knowledge and replacing them with younger less-experienced and less-knowledgeable people. This is not a very wise decision when reliance on such knowledge is what separates the company from its competitors as would be the case in most companies.
(One only need look at the demise of Circuit City as an example: experienced floor sales people were let go to bring in a younger less-expensive sales force which failed to provide the same level of customer service and left customers taking their money elsewhere.)
Typical when experienced employees are (suddenly) replaced, there is a failure to transfer critical knowledge. Older employees must understand that they have a responsibility to their employer that goes beyond their own interest of self-preservation: Unless you work for yourself your knowledge belongs to your employer and they have every right to require that you document what you know and provide training to those less-experienced. Good sustainability and risk management practices require this and Sarbanes-Oxley compliance demands it.
Studies have shown that Millenials (aka, Generation Y, born between 1978 and 1989 depending on whose definition you look at) tend to be more result-oriented than process-oriented. This can be problematic in regulated enterprises and public companies. This can run counter to Lean thinking and Six Sigma methodologies that look to process improvements for efficiency. Entities such as ISO (International Standards Organization) rely on documented processes for their certifications.
Is it any wonder why Gen Y is so results oriented when knowledge can be so difficult to acquire and job performance tends to be based on results and not how those results were achieved? It’s important for enterprises to explain and show why the process matters and encourage process improvements that do not cross the line of regulatory or certification requirements.
Classic rock may one day face its own extinction in one form or another and the world will be a sadder place the day the music truly dies.
Enterprises have a more immediate need to and face a greater crisis in the short-term due to knowledge gaps. Risk is reduced when knowledge is transferred. Enterprises should work towards closing generational gaps by creating teams that use the best characteristics of its generational members. Each generation needs to respect the other and acknowledge the benefits each brings to the table. Torches will forever be passed and this does not require that anyone get burned in the process.
Norman Katz, Katzscan