Category Archives: Supply Chain

How Do You Define “Closed Loop” in the Indirect Supply Chain?

Yesterday, in reference to an article on 8 steps to a servitized supply chain that appeared last summer in the Supply Chain Quarterly, we asked what is a servitized supply chain? It was a good question that merited a good answer. However, if you read the article, which finished by noting that the most powerful benefits of this business model arise from integrated teams that can provide closed-loop feedback from the customer all the way back to the suppliers, you are led to another question. Namely, what does closed-loop really mean when you are talking about services, and, when you are sourcing such services, how do you define closed loop in the context of the indirect supply chain that provides the umbrella that services normally fall under?

In the direct space, a closed-loop supply chain is one where Original Equipment Manufacturers (OEMs) reintegrate their returned products into their own production network. The entire life-cycle, from cradle to grave, is effectively and efficiently managed to insure waste is minimized, value is maximized, and sustainability is achieved. A closed loop supply chain considers raw materials, production, distribution, warranty, returns, disassembly, and reclamation of raw materials. It designs for easy repair, reuse when possible, and disassembly / recycling when not. When properly designed, such a closed-loop supply chain maximizes value.

So what is the equivalent in the indirect space? For starters, it must be a supply chain that maximizes value over the life of the indirect supply chain. In addition, it must cover everything involved in the creation, production, delivery, and recovery of those services. Creation is rather straight-forward — it is the design of the services. Production is rather straight-forward — it is the creation of the materials and processes for the delivery of the services. Delivery is rather straight-forward — it is the distribution of the services to the end client. But what is recovery? In indirect, in addition to the reclamation and recycling of any materials produced for the purposes of delivering the services, it is the collection of feedback designed to improve the services in the next iteration.

For example, lets’s say the service is training on a new supply management solution you just purchased. In this services supply chain, the creation is the design of the curriculum; the production is the creation of the specific syllabi, texts, presentations, walkthroughs, videos, and guidebooks, etc.; the delivery is the in-person hands-on training course; and the recovery is the collection of any materials distributed for re-use and feedback on what was good about the course, what was not very effective, and what could be added or done differently in the future.

In other words, in the indirect space, the closed-loop is the creation, distribution, collection, and recollection of knowledge gained in order to increase the value delivered while improving the sustainability of the supply chain.

Do you agree?

What is a “Servitized” Supply Chain?

Last summer, the Supply Chain Quarterly published an article that defined “8 steps to a servitized supply chain”. Each of the 8 steps consisted of a supply chain best practice that you should be doing whether or not you desire a servitized supply-chain, or even care about services from a revenue perspective, as each of the 8 steps is something you should be doing even if you have a product-focussed supply chain. So why would you need, or want, a “servitized” supply chain and, more importantly, what is it?

According to the article, “servitization” is defined as bundled product-service packages that provide differentiated sources of value to customers, and, as a result, a “servitized” supply chain is one that supports such offerings and, ostentatiously, is different than a product-focussed supply chain. According to the authors, such a chain is more responsive and agile, can vary degrees of service outcomes to a differentiated customer base, and increases the probability of more profitable relationships between the Supply Management organization and the manufacturers with whom it does business.

At this point, I’m a little confused because, at least in the fast-moving Apparel and Consumer Electronics industry, a successful product-oriented supply chain is extremely responsive and agile (as orders for products in demand have to met quickly and orders for products not in demand have to be cut), offers various levels of product and warranty customization (where applicable) to user-defined tastes, and increases the probability of profitable relationships between the Supply Management organization and the manufacturers with whom it does business. This is because, in these industries, the product is the service, as McLuhan’s classic statement that the medium is the message, while not always true in today’s information age where you are hit with the same message across multiple mediums, is true in the consumer product industry. For many consumers, the products they buy define who they are and create the statements and messages they want to convey. As a result, when you create a product you are also creating a messaging service that your consumers can use to, indirectly, advertise who they are. So, in effect, your offering is a service as much as it is a product and the concept of a service supply chain being different is, well, a bit foreign.

Of course, if you are in the hardware industry and selling the same old nuts, bolts, and traditional C-section joists that you have been making for twenty years, then it’s probably the case that your supply chain is not very service oriented. In this case, if you “servitized” your supply chain and listened to your customers who want frames that are lighter (as steel prices are skyrocketing), stronger (as they want to build bigger), and faster to assemble (as labour is costly), you might come up with a solution akin to the iSpan Total Joist solution. To do this, you would have to become more responsive, offer various levels of product and services (including pre-fabricated kits for warehouses of pre-defined architectures and sizes), and, as an effect, increase your profitability as your customers pay more for the solutions they want (that save them time or raw material cost). But note that, even in this situation, your supply chain would still be oriented around a product — the only difference is that you would optimize the services offerings around that product.

So, in effect, a “servitized” supply chain is just one that is optimized for products and associated services, and, that, in effect, is just an “optimized” supply chain. And an “optimized” supply chain is one that creates collaborative teams across the supply, sales, and marketing functions to drive value. And we should call a spade a spade, instead of creating more unnecessary terminology.

Seven Tips for Succeeding in Any Market, Part II

Yesterday, we noted that the article published in Chief Executive last year on Seven Tips for Succeeding in Asia actually provided seven tips for succeeding in any market and, briefly, explained why. Today, as promised, we are going to review the supply management corollary to each of these seven tips because they will help you increase the value of your Supply Management organization.

So, without further ado, here are the seven tips for creating a successful Supply Management Organization.

  1. To expand your organizational influence, pick a department with an unmet need your organization can readily fulfill.
    For example, let’s say you are not yet supporting any marketing and legal spend and know that you have to go after one of these sacred cows to increase your spend under management. Let’s also say that you just hired a new analyst who was a marketer in a past life and who has experience sourcing creative services from his past job but not a single professional in your organization knows anything about e-Discovery, which is Legal’s issue of the day. In this case, you should go after Marketing as you have someone who can help them source better talent more efficiently, and save them money by decoupling non-value added services.
  2. Find a mentor on the Board (of Directors) who understands the value you can bring to the organization and can help you forge stronger ties with the C-Suite.
    This will get you more support across the organization and will inevitably help improve your financial situation as other budget holders see the value in supporting your efforts. Eventually, they will be willing to pay their share of system upgrades, GPO fees, or contract labour who you identify as being able to reduce their costs and/or increase the value they offer.
  3. Scale your organization by learning the language of finance.
    Let’s face it, if you can’t explain to the CFO in a language she understands that the budget and cost savings calculations should not be decoupled, you will be forever doomed with constantly being tasked to do more with less until the organization implodes under the weight of an increasingly impossible task. You need to be able to demonstrate the ROI of investments in training, technology, and talent to get the budget you need to deliver the savings the organization wants, and the ROI you know your Supply Management organization is capable of with sufficient budget.
  4. Be sure to consult regularly with the IP specialist on your legal team.
    Considering that you will be sourcing contract manufacturing and services from value-added services providers who could very easily copy your products and steal your expertise, you need to make sure you are adequately protected to discourage this from happening, especially in foreign markets.
  5. Keep an eye on your ROI, especially when services and SaaS contracts are about to come up for renewal.

    While there isn’t an advanced sourcing technique or technology that won’t save you money in the right situation when properly applied, not all techniques and technologies are created equal, and neither are all situations. If a service provider isn’t delivering the value you expect, they may need to be replaced. And if a technology platform isn’t delivering a decent ROI, it definitely has to be replaced. Your cash is limited. You can’t be wasting your budget on non-ROI products and services when there are dozens of products and services that can save you double digits and provide an ROI of 3X to 10X, or more.
  6. Go after the low-hanging fruit first.
    The fruit at the top of the tree may be juicier, but it is a lot more difficult to pick, and the risk of falling off of the ladder and seriously injuring yourself is much greater. Start with the easier wins, gain experience, and work your way up to the harder wins.
  7. Reward success with bonus pay tied to performance.
    Give your top talent the opportunity to increase their compensation without ceiling, and watch your savings soar and value surge. Just be sure to tie the compensation to appropriate metrics, because you get what you incentivize! (But, whatever you do, don’t put a ceiling on potential compensation. If you know you’re not going to make any more money, why would you work harder? There’s a reason the most successful companies in the enterprise space don’t limit the earning potential of their sales-people. They know that every dollar earned in commission puts ten dollars in their bank account, and the shareholders know that, at the end of the day, every $10 in the bank ramps up valuation by $20 to $100 and makes them many times richer in the end than the sales-person. If you think about it, a truly successful organization is one where the top sales-person and the top buyer both take home more than the average CXO!)

And this is how you begin to create a successful Supply Management organization. There’s a lot more to success, but these corollaries are a good starting point.

Are Your Supply Chains Prepared for Riots?

Last August, SI pointed out that food costs are still spiking and asked if you were ready for the risks. At the time, food riot fears were on the rise around the globe, including in developed countries like Japan, Canada, and the UK, where riots DID take place.

Well, it looks like the risks are coming back again. A recent article in The Financial Express that notes that the supply chain of essential items faces disruption in Dhaka, Bangladesh, as the supply chain was shutdown for 48 hours countrywide earlier this week amid fresh fears of commodity price hikes. Truck owners in rural and suburban areas refused to drive due to fear of vandalism and arson before, during, and even after strike hours.

As a result of the strike, poor people, and day labourers in particular, have been hit particularly hard – as per a front page article on the daily sun. The two day shutdown enforced by the Bangladesh National Party (BNP) (which is Bangladesh’s opposition political party to the governing Bangladesh Awami League) ended up paralyzing normal life as many people stayed inside due to panic triggered by hartal (strike) violence. As a result of the strike, the fears of price hikes have come to pass as the prices of essential commodities have risen.

It doesn’t look like this is a situation that’s going to end well. Especially since a recent article over on the Guardian has proclaimed that food riots are likely to become the new normal as a result of intensifying inequality, debt, climate change, and fossil fuel dependency. Since 2008, global food prices have been consistently higher than in preceding decades, despite wild fluctuations. This year, even with prices stabilizing, the food price index remains at 210 – which some experts believe is the threshold beyond which civil unrest becomes probable. Food riots are still a regular occurrence in Egypt, Tunisia, and Libya — and have been ongoing for over a year in some of these places.

What’s going to happen when prices rise again as a result of tight grain stocks from last year’s poor harvest (which was down 3% from the 2011 record harvest due to adverse weather conditions)? Of if rice yield, which has decreased 10% to 20% in key food-basket regions due to droughts exacerbated by global warming, keeps worsening?

Riots are coming across the globe. Is your supply chain ready?