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Archive for the ‘Supply Chain’ Category


The agile supply chain essentially refers to the use of responsiveness to the customer demand, competence to meet the market requirements, flexibility to change to the market dynamics and speed to manage the day-to-day operation of an end to end supply chain. Unlike the lean supply chain, the agile supply chain uses real-time data and up-to-date information, as reported by Martin Christopher in Industrial Marketing Magazine, to optimize operations and data in real-time against demand forecasts. the productivity of the given entity.

The agility of the supply chain delivers balanced outcome by balancing service and cost in the form of optimising inventory. In simple, supply chain objective is to deliver what customer wants in a cost-effective manner. Today technology dominates how supply chains are executed and they play a vital role and makes things faster and more cost-effective, but it’s not perfect. It requires you to be as flexible as you can be. The below graphic explains how agility of the organisation offers higher service levels with lower inventory carrying.

McKinsey & Company identified areas where agile supply chains perform more effectively, thus resulting in supply chain excellence. The factors that influence any supply chain is the technology, process and people, and the below chart reveals the top qualities of agile companies excellence.

“In a report by McKinsey & Company, up to 94 percent of companies that had implemented supply chain practices with other solutions, are able to deliver DIFOT effectively, without keeping inventory in excess of 85 days. Similarly, companies that did not implement agile practices often had inventory levels remain in the warehouse for more than 108 eight days, and only 87 percent of deliveries were on-time. This does not even consider how many deliveries may not have been fulfilled, such as delays in shipping processes, customization, or errors in order picking processes.”

Agility in the supply chain is rapidly changing how supply chain entities work, but providers of supply chain management and management solutions need to understand how agile and lean concepts work together to produce more efficient demand-oriented supply chain. There is a myth that lean and agile supply chains are different, the truth is that understanding of agility in the supply chain must address how lean concepts are applied to the make supply chain agile. Failure to incorporate both agility and lean concepts can result in serious delays for a given supply chain entity. However, every factor in the agile supply chain can have a serious impact on the future trends of this series of positions.

Some companies indeed have change and improvement, they believe everything is fine for so many changes, why should we change?

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Jigsaw Pieces Being Joined Showing Teamwork And Assembling

Inventory management is not always the supply chain manager or inventory manager’s job.  As an organisation, all of us own the function of inventory management in one way or the other. It would be a foolish idea to isolate the discussion and decision making to the supply chain function whereas it is a collective responsibility.

Take the best advantage of one of the main assets of your business means bringing together all the stakeholders from manufacturing, planning and NPI and R&D team to the corner office, and to concentrate on something other than what is in your warehouse.

Re-assess your management practices of inventory can help you to overcome the increase in the cost of the supply chain, the increasing demand and the increasing complexity of global operations. It can also help to increase profits and reduce the risks. The management of the inventory with success returns to a delicate balance between customer service and cost of carrying inventory. You need to have enough of a product to meet the requirements of customers, but not as long as it is at-risk of becoming obsolete or destructs your competitiveness in the marketplace with high carrying cost. As David Thomas, Director of the planning of the global capacity of the Ford Motor Company, the inventory is said “… the money death.”

The primary objective as inventory manager is to find a compromise between the conflicting priorities – and almost as important, those of your colleagues. Inventory management and control is an incremental value-add activity which is driven by all the stakeholders collaboratively in planning, monitoring and reacting and responding to the changes that are required to the inventory management plans.

The inventory manager acts as an air traffic controller, and effectively lead the collaboration with their peers in a way that leads to the optimization of the results of the inventory. And just as an air traffic controller, you do not always have control over the key functions – such as weather conditions, the speed of the air or even how many flights airlines arrive and leave.

When it comes to the management of the Inventory, the essential functions, such as the configuration of levels of safety stock (dynamic or static), in determining the policies and find ways to reduce obsolete material and reduce the cycle time of the inventory lead time will not always be in your control. As well before you define your goals and the policies of the inventory, it is preferable to ensure that you have a collaborative and conclusive discussion with all the key stakeholders in the inventory game.

Here is a handy cheat sheet which one must make use in order to initiate the Inventory conversation.

Executive Team: Sales Manager, NPI Manager, Production Manager, R&D, Economist, Engineering Manager and Supply Chain Manager who will also act as Demand Manager.

Inventory Planner defines ordering policies and minimizes the costs associated with the cost of carrying inventory.

Material planner manages procurement of all required material.

Master Scheduler: based on demand plan, plans to manufacture finished goods and balances between availability of components and production scheduling.

Demand planner: represents customer expectations internally that impact network complexity

Capacity planner determines the production requirements needed to meet demand and also works on established capacity, current capacity and stretch capacity and assists the master scheduler.

Distribution planner ensures the availability of stock for the distribution network with unforeseen limitations of distribution and obstructions.

Customer service representative: acts as a bridge between the organisation and the customer by constantly communicating the product availability date to the customers who will be blind folded otherwise.

Inventory

Cartoon Source: American Bar Association

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Discipline

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Time For Leadership Message Meaning Management And Achievement

“Words outlive people, institutions, civilizations. Words spur images, associations, memories, inspirations and synapse pulsations. Words send off physical resonations of thought into the nethersphere. Words hurt, soothe, inspire, demean, demand, incite, pacify, teach, romance, pervert, unite, divide. Words are powerful.  Here are some powerful words and thoughts from great leaders who inspired us and continue to inspire us to make our work and life purposeful.”

Inspirational Quotes

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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:

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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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