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Archive for July, 2017


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Five factors of supply chain influence the supply chain of any organisation.  They are sourcing, transportation, storage, inventory costs, and product differentiation as explained in the below graphic.

commodity

I will briefly introduce five elements of commodity-related factors that could influence your supply chain.  Integrated planning includes demand planning, material requirement planning and distribution requirement planning. The business success largely depends upon the integrated planning. Demand management is a structured process of tracking enterprise product demand enabling the procurement process to plan and source material for future.  According to a survey, the average forecasting error rates are Chemical, Consumer Goods and FMCG – 39%; Electronics – 29%; Manufacturing – Industrial 39%; Retail – 13%; Biotechnology – 34%; Aerospace – 28%; Transportation – 18% and            Construction – 28%.

In the age when competition between manufacturing companies has become global, making business operations as efficient as possible is the key to economic advantage. Unlike manufacturing companies few decade ago, nowadays manufacturers compete not only with other local businesses but also with other operations across the globe, both big and small. The core objective of MRP is to manage the seamless flow of material (components) into a manufacturing facility to meet the scheduled production orders and at the same time to ensure optimal inventory carrying.

How MRP works?

MRP

Source: MRPEasy

The next in the integrated planning is Distribution resources planning.  What is DRP? – “Distribution requirements planning (DRP) is a systematic process to make the delivery of goods more efficient by determining which goods, in what quantities, and at what location are required to meet anticipated demand. The goal is to minimise shortages and reduce the costs of ordering, transporting, and holding goods.”  The benefits of DRP include:

  1. Coordinated shipments to save costs.
  2. Optimise inventory level.
  3. Optimise Storage requirement.
  4. Last but not least is the satisfied customer.

Sourcing – Sourcing is a very big aspect of the commodity.  You can source it locally, one can source it from the low-cost country and some even source it from low-cost product manufacturing country.  There is a subtle difference between these two, the low-cost country many not be cost effective for some components or finished products, whereas some European countries are proving to be low-cost product manufacturing countries.  For example, steel is cheaper to purchase from Europe. The likes of ArcelorMittal, ThyssenKrupp and Tata Steel are expected to see those profits grow as with sources suggesting annual contracts for 2017 were set at levels 70% higher than for 2016. According to one estimate 15-30% production cost reduction Textile products, houseware and kitchenware 15-20%, injection moulded plastics 12-20% and in electronics 15-20% if the production is outsourced to a low-cost country.

The third element that could influence the supply chain as a commodity is Transportation.  It is needless to add that a fully functional and effective supply chain requires visibility between stakeholders but 82% believe that connectedness and visibility need to be improved and 12% believe there is no visibility according to BPI report. The same report also identified three major challenges the first one is poor coordination between partners (57%) and too little transparency and visibility (50%) and inefficiencies within the supply chain (37%). Transportation could be explained as a “blind spot”, we get no visibility of the product movement whether inbound or outbound, it is common for both components and finished goods.

Inventory – The majority of the working capital is deployed on inventory apart from capital assets.  Optimal inventory carrying is the need of the hour to balance service vs. cost.  Working capital signifies company’s operating liquidity. On an average depending upon interest charges, the inventory carrying cost is minimum at 24% per annum.  This is not visible in the P&L and hidden under finance costs, warehouse rental, insurance, obsolescence, workforce and many more overheads.

Product Differentiation – The objective is to create loyal brand equity such as Apple products and avoiding price comparison with the competitor’s products and value addition to the customer with a better feature of the product.  Further, customisation also could be considered as product differentiation.  It all looks good as far the customer is concerned.  Just step into a supply chain manager’s shoes and think how difficult to manage the supply chain with so much of variation and modular production systems.  The life cycle of the products is becoming shorter due to product proliferation and unrelenting competition.  In response, companies are restructuring the traditional manufacturing process and migrating towards concurrent engineering methods.

“Concurrent engineering, also known as simultaneous engineering, is a method of designing and developing products, in which the different stages run simultaneously, rather than consecutively. It decreases product development time and also the time to market, leading to improved productivity and reduced costs.”

All these business requirements put stress on supply chain right from planning to sourcing and manufacturing.  This implies the complexities of today’s supply chain.

SUPPLY CHAIN COMPLEXITY

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The Corporation:

The Organisational Vision and goal determines the effectiveness of Organisational performance.  The core objective of any organisation is to customer retention and sales growth and ROI.  However, all these objectives can go wrong with wrong policies and strategies.  James MacGregor Burns coined the word “Transformational Leadership” in 1978.  The critical elements of this leadership style include positive approach with an optimistic outlook and trustful in nature and also emotionally intelligent and foster collaborative teamwork and set high expectations and nurture innovation.  These leaders transform their organisational culture by inspiring with a sense of mission and purpose.  The need of the hour is Transformational Leadership!

The strategy is one of the most over-used words in the business dictionary. But it is critical to any business success, the strategy is about making choices, trade-offs; it’s about deliberately choosing to be different.

The situation differs from Organisation to the organisation.  However, one thing is certain, Organisational Goals, Organisational Strategy and Organisational culture should be embedded into Operational Strategy.

The operational strategy could be at different levels in different organisations from lacking to Predictive.  As an organisation, it is very hard to judge the current state of Operational efficiency. Ideally, your operational strategy should include, Cost, quality, Velocity, Dependability, Flexibility (change volume, product mix, cycle time, NPI).

The core aim of the strategy should be to transform the supply chain into a profit generating growth engine through incremental value addition using predictive supply chain. It is the corporation’s responsibility to return healthy ROI to the shareholders and investors and at the same time, a safe and healthy work environment that encourages the employees to contribute to the incremental value addition and transforming the supply chain into the predictive supply chain. According to Howard Business school study, a mere 7% of employees today fully understand their company’s business strategies and what’s expected of them in order to help achieve company goals. This should change!

Some Statistical Data:

colb

Source: IDC.

  1. Visibility is the key within the organisation:
  2. By 2018, 75% of manufacturers will be coordinating enterprise-wide planning activities under the umbrella of rapidly integrated business planning (rIBP).
  3. By 2017, 50% of manufacturers will explore the viability of micro logistics networks to enable the promise of accelerated delivery for select products and customers.
  4. In 2015, half of all manufacturers will be actively employing supply chain design and modelling technologies to dynamically assess both the demand and supply across supply chains.

Supply chain managers believe that “Business Decision Makers Lack an Understanding of or Analytics for their Supply Chain System”.  This was reported by the above mentioned CAPGEMINI study.  Further, it was reported that only 34% participants believe that the business decision makers appreciate the impact of supply chain on organisational performance, only 21% of the supply chain managers rate their systems as excellent, and 79% of the supply chain managers believe that they do not use advanced modelling techniques to inform business challenges or issues in supply chain management very often.

Corp

Cartoon Source: International Liberty – WordPress.com

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The Competition:

In today’s highly globalised and volatile environment companies no longer compete one-on-one, but their supply chains do, so the incremental value addition becomes critical to avoid supply chain extinction.

Today’s competition is moving from “among organisations” to “between supply chains”, more and more organisations are increasingly adopting lean and nimble SCM practice with a primary objective of reducing supply chain costs in order to gain competitive advantage. It has been established beyond any doubt that supply chain management practices will have a discernible impact on competitive advantage, product differentiation and finally organisational performance.

Ma Yun, known professionally as Jack Ma, is a Chinese business magnate who is the founder and executive chairman of Alibaba Group believes that the competition is a force to recon to strength your supply chain.

Comp

Word of Caution – “Companies that solely focus on competition will die. Those that focus on value creation will thrive”

Conclusion – Competition is a necessity, it enables us to deliver our best and eliminates complacency and avoids mediocrity.  Even in horse racing, you need competition to make the horse run fast to win the competition.

The easiest thing is becoming number one and the most difficult task is retaining it. You can only achieve maintain your leadership over your competition by converting enemies’ weakness into your strength. Thought leadership, Predictive Supply Chain Model, Supply Chain Agility are the last legal unfair competitive advantages one can make use to run over the competition.

Finally, advice from well-known businessmen Jack Welch – “Cash is the King, Communicate, buy or bury the competition.“

 

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This is a long story summarised into four parts, I will publish part 1, 2, 3, and four in separately in order to give the readers time read in leisure and digest the information delivered in this long article.

According to the Oxford Dictionary, the supply chain is defined as “the sequence of processes involved in the production and distribution of a commodity.” In simple terms, it is a chain of events that results in producing and delivering the goods and services from the point of production to the point of consumption.

The importance and impact of the supply chain on Organisational performance are phenomenal.  In my opinion, the four dimensions impact any supply chain.  I call them “the four Cs”.  The first C is Customer, the second one is Competition, the third one is Corporation and the final one is the Commodity.

The Customer:

In the past customers have previously had very little influence on the efficiency of the supply chain as they were not fully aware how they can influence corporations supply chain effectiveness.  In today’s globalised economy, the customer preferences and needs are changing very fast due to product proliferation and choices made available by the competition. The customer is fully informed about where the product is manufactured, how long it takes to reach the shelf and what to expect as a price of the product and what features to look for. The customer now has access to information on all these areas and have therefore gained unprecedented influence over supply chain management efficiency. The customer is the key figure in the supply chain and their needs and opinions will affect the supplier’s decisions. According to a report published by the consulting firm CAPGEMINI, 90% of the supply chain managers confirmed participating in a survey confirmed that “Consumer demand is fluctuating more rapidly”.  The same report confirmed that “73% Consumers would purchase the item from a different store than originally intended” if the product is not on the shelf.  Further, the survey outcome reported that the main pain points of the customers with regard to supply chain include, delivering wrong product (95%), Late Delivery (93%), stock on available when required (82%), doest not offer options such as order online and pick-up in store (63%).

Today’s consumer expectations are unpredictive and making predictive supply chains shiver with the thought of fear of failure. The above-mentioned report also reported that 89% of the customers are likely to choose different store if the product is delayed by one day.

The power of the customer – “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

The best customer service“The best customer service is if the customer doesn’t need to call you, doesn’t need to talk to you. It just works.”

How to manage the customer“The golden rule for every business man is this: ‘Put yourself in your customer’s place.”

How a customer can destroy your Organisation – According to one estimate, if the customers are not satisfied, 13% of them will tell to 15 or even more people that they are unhappy. On the other hand, 72% of customers will share a positive experience with 6 or more people. The biggest problem is that 67% of customers mention bad experiences as a reason for churn, but only 1 out of 26 unhappy customers complain.

customer

Cartoon Source: Randy Glasbergen

 

 

 

 

 

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