There is a common belief that Supply Chain professionals need not have costing knowledge.  That is a misleading thought process.  Cost savings takes lion share of Supply Chain optimisation.  Ideally supply chain professionals should have intermediate knowledge of cost behaviour analysis and interpretation capabilities.

The most often reported reason for Business Failures amongst small to medium sized companies is a lack of financial management. Budgets, Financial Planning and proper FINANCIAL CONTROL MECHANISMS are often seen as an unnecessary non revenue earning administrative burden. As long as times are good, businesses tend to survive quite easily. But when business conditions change, a lack of financial planning and control makes it difficult to assess the potential damage or exposure the business is subject to.

Thus, BUDGETS, FINANCIAL PLANNING AND CONTROL are issues which have to be solved when Business is good, in order to survive the lean times.  Having created the budgets for the Warehouse operations and with an assumption that the Volume budget will be same as last year’s actual, we get on with the job of creating Financial Control Mechanisms.

Comparing actual performance with budget is the traditional device used by senior management to measure managerial and business performance.  A good business management system asks questions such as, “Do I have the correct plans in place?” and “How is each part of the business contributing?”  A budget management properly and taken seriously becomes a more forward-looking document that can assist senior management to identify trends, predict year-end results, and avoid any unpleasant financial surprises.

To operate effectively management must keep a balance between two extremes; too much control and not enough control.  Too much control will affect the co-operative spirit and the efficiency of the individual involved and not enough control will prevent management from detecting the need for action before a chaotic situation has been created.  Effective control should be based on adequate frequency and acceptance of variance.

One hundred percent accuracy in budgeting should not be expected.  Otherwise the people involved will provide for a cushion in preparing their budget and spend more money than needed at the end of the period in order to conceal the fact that they provided for the cushion.  The best approach is to indicate which variance is considered as acceptable.

In order to properly monitor the budget, one has to work through the four actions of this feedback loop.  This will ensure you have reliable control activity built into your budgeting process.

Cost Control Process:

Const Control

As suggested above the best method to understand the progress is by comparing the actual performance with that of budgeted performance.  It is also suggested that the Budget may be prepared on monthly basis to generate this variance analysis periodically. The financial accounting will provide the actual amount spent on each head of account and through the Variance analysis, one has to work on the number and understand the reason for any variance.  Mostly, the variance will occur due to three reasons and they are:

  1.  Volume,
  2. Norm,
  3. Mix.

Volume Variance:

 The variance is due to Volume change is always well defended.  If the demand volume and resources are properly matched at the time of budget preparation, a change of volume will result in two ways:

  1.  Increased costs due to increased volume,
  2. Increased unit input cost due to decreased volume.

Norm Variance:

While creating the budget, we created norm for every variable activity.  This would be the bench mark to monitor the actual performance of the Variable cost.   Any variance in the norms will once again be highlighted in either the actual cost incurred or the level of the unit cost.

Mix Variance:

Changes in the product/customer mix will also have an impact on the cost.  For instance, in case of MR Ltd. if the New Castle customer buying power goes up to 40% and Cardiff customer reduces his purchases to 60%, this would result in reduced transportation costs.

Inputs for Variance Analysis:

  1.  Revenue Budget,
  2. Volume Budget,
  3. Actual expenses,
  4. Norms Budget.

Format of Variance Analysis:


Unexpected Variance:

One of the main problems with variance analysis is that often a scapegoat is sought when results fall short of plans.  A meaningful way of looking at unexpected variances is by considering the variance as planning variance or as an operational one.  A typical budget contains information that was thought to be correct at the time of preparation.  Any changes in the marketplace can result in variance.  Hence, there is a necessity to review the budget at least once in 6 months and come out with the revised budget.  Let us assume that at the end of 6 month period we have noticed that there were changes in prices/volumes/mix, and then it is advisable to change the budget and start comparing actual with the revised budget.

One has to very clearly understand that Variance analysis is a management tool to find out the reason for bad or good performance.  It is not a blame game tool.  Hence, while providing the information or data for analysis, at most care has to be taken to feed the accurate information and data to work out meaningful information for the management.

Supply Chain costs

Cartoon Source: http://www.scdigest.com






Supply Chain in today’s competitive world has become profitability growth engine.  When I was crossing a border one of the immigration agent asked me what is “Logistician”.  I have mentioned my profession as “Logistician”.  If a common man fails to understand what is logistics, it is hard to understand supply chain.  Even today, people ask me what do you do?  When I answer them that I am a supply chain professional, they ask me what is supply chain?  I am writing this article who are new to supply chain world and would like to understand in simple terms. Any Supply Chain will have the below mentioned process in the three steps (i.e., Source; Make and Deliver) involved in achieving the objective of “Ore to Store”.

Graphic 1.png

Planning Process:

The primary objective of this process is to work on demand planning and material scheduling in the Supply Chain.  As we are aware that there are 14 Suppliers supporting the 2 manufacturing bases for this organization.  The distribution network is supported through 3 distribution centres catering to the needs of 30 customer (distributor) locations.  To add further complexity to the whole process, the distributor places the order on a daily basis.  To manage this kind of a Supply Chain, you need a very tight planning.  The planning becomes all the more important when the components/raw material suppliers are very few.  The planning process is done on a weekly basis.

The below given graphic would explain the planning process involved supply chain operations.  It starts from Macro Level Company’s Supply Chain Planning and gets down to activity wise planning.  The objective of the whole planning is the same i.e. to deliver the product to the ultimate user without any hick-ups in the whole process.  Only right planning can achieve this objective.

Graphic 2

Execution Process:

The next three activities i.e. Source; Order Fulfilment and Delivery can be grouped into one broad process called Execution.  The activities involved in sourcing, Order Fulfilment and delivering the product is nothing but executing the Plan. Hence, let us combine all these activities and call it as Execution process.  All the activities involved in this process are explained in the graphic given below.

graphic 3

Evaluation Process:

Unless and until, we evaluate all activities periodically against the bench mark or budgets or service standards, we will not be in a position to understand where the organization is heading.  Evaluation process plays a vital role to maintain checks and balances to manage supply chain governance effectively.  I have explained in the graphic the ideal and measurable activities.

Graphic 4

Successful supply chain management requires implementing cross-functional processes within the company and integrating them with key stakeholders of the supply chain. The objective of lean and agile supply chain is to avoid wastage. Valuable resources are wasted when supply chains are not integrated, appropriately streamlined, and managed. The supply chain evaluation process plays a key role in avoiding waste and enhancing productivity. The value of having standard business processes in place is that managers from different organizations in the supply chain can use a common language and can link-up their firms’ processes with other members of the supply chain and collaborate, as appropriate.

supply chain joke

Cartoon Source: Supply Chain Digest











































Graphic Source: http://68.media.tumblr.com

Traditionally, the decoupling point methodology has been associated with the material flow pipeline.  However, to maximize improvement in supply chain dynamics, information flow is equally important.  Many of the problems that may pop-up are the result of the distortion of marketplace sales information as it is transferred upstream through the supply chain.  However, we confine our analysis to material-flow pipeline only.

Before we get down to analyze the decoupling point, let us define it and understand the same in simple words.  The decoupling point is a standard term given to the position in the material pipeline where the product flow changes from “Push” to “Pull”. It should therefore also correspond to the Demand Penetration Point.  Having understood in common man’s language what is decoupling point, let us also understand in formal words.

“The point in the product axis to which the customer’s order penetrates.  It is where order driven and the forecast driven activities meet.  As a rule, the Decoupling point coincides with an important stock point – in control terms a main stock point – from which the customer has to be supplied.”

 The material decoupling point thereby acts as a buffer between upstream and downstream players in the supply chain.  This enables upstream players to be protected from fluctuating consumer buying behavior therefore establishing smoother upstream dynamics while downstream consumer demand is still met via a product pull from the buffer stock.


The above graphic summarizes the two sides of the material flow situation.  The above diagram will also give the explanation to the above mentioned definition.  The strategic position of the material decoupling point depends very much on the product type, consumer demands and supply chain approach adopted.  We have two solutions on hand to minimize the inventory holding.  One is to BTO (Build to Order) and the trade off are, high cost of quick production cycle, delivery lead time, and the quality of the product.  Where as the advantages are, Inventory carrying is eliminated thus resulting in cost savings, aggressive pricing is possible and it is possible to react quickly to market dynamics.  This is a very flexible situation.  The second option is Postponement. The governing principle one should not forget is that the decoupling point should be moved as close as possible to the consumer.  This approach also enables full capitalization of the benefits of divorcing the customer variability from the demands placed on the majority of players in the supply chain.

The difficulties of matching supply and demand due to the inherent dynamics within a supply chain structure are a long standing and widespread problem.  Market sales information notoriously suffers from delay and distortion as it moves upstream through the supply chain.  This result in production profiles at the factory, which bear little resemblance to the end consumer’s buying behavior.  In spite of so many innovations and re-engineering the supply chain, the fact is that today’s supply chains are still suffering the often-painful and some time fatal effects of upstream orders magnification.  To overcome this impact, the concepts of VMI, BTO, Postponement, Cross Docking etc. are being used in the modern Supply Chain.  These concepts are mostly successful in the IT and Electronics Industry.  Automotive industry is inching towards VMI in order to eliminate the Inventory.  Unless a serious attempt is made to take the decoupling point closer to the consumer, we may not be in a position to achieve the objection of lean supply chain.



Graphic Source: ngdata.com

In today’s seemingly chaotic retail environment, much is being said and written about the importance of good customer service. And there are many suggestions on how to do it.

The Retail Owners Institute asks the question, “Good customer service? Of course. But, for which customer?” 

Consider, for example, how different lifestages can create much different expectations for “good service”.

  • A retired senior citizen might prefer stores with known brands, that offer ample free parking, can be shopped during the weekdays, have friendly, patient staff, and are willing to deal with returns readily and graciously.
  • Those folks who are working and/or have children at home need stores that have extended hours (late evening, early morning, etc), ready access to the items they most need (enough of that milk-and-eggs-in-the-back-of-the-store concept), hassle-free process to pay, sales staff that have answers when asked but otherwise don’t bother them. Wifi access is crucial as well (yes, they will comparison shop…)
  • Younger shoppers – high school and college age – may shop in groups, and expect stores to offer a social experience. They prefer that the sales staff be people who look and act like them. They fully expect to easily use their smart phones.

Now, are these overly-broad generalizations? Of course. But you get the idea. What constitutes “good customer service” is decidedly different for each group. Moreover, think about male shoppers: what do they value the most?

How can one flavor of “good customer service” satisfy all of these customer types? The point is, it can’t!

What’s a savvy retailer to do? It starts by understanding just who your “best customer” is – that is, your Most Profitable Customer. You may find some surprises as you dig into this a bit.

  • For instance, it could be that those senior citizens who come into your stores frequently are also buying from you on many of those visits. Perhaps not big ticket items, but enough smaller (maybe high margin?) items that add up to a meaningful contribution over time.
  • Or, you might find that the working moms with their heavy duty strollers don’t come in very frequently, but when they do, they make it count!

So, study their habits. And follow the money! And use that understanding of your “Most PROFITABLE Customer” to help prioritize your “good customer service” standards.

Source: Co-founder of ROI News.

How great leaders address the issue:

1. Steve Jobs, the late CEO of Apple

Years ago, Aaron Booker writes, he bought a 15-inch MacBook Pro and a 22-inch monitor, and was surprised to realize he wasn’t eligible for a discount on AppleCare that would have applied if he’d bought another, similarly priced computer. So Booker wrote “a very brief email” directly to Steve Jobs (then: sjobs@apple.com) and got a three-word response from the legendary CEO: “We’ll fix this.”

“The next day I got a call from one of Steve’s assistants,” Booker writes. “Problem solved.”

2. Brian Moynihan, CEO of Bank of America

Christian Brown says his credit score dropped 100 points after he forgot to pay his BofA credit card bill two months in a row. (Longer explanation here.) He found the address for CEO Brian Moynihan and wrote a plaintive email.

Two days later, he writes, an assistant to the CEO called; three days after that, his credit score was restored.

3. Akio Toyoda, CEO of Toyota

The warranty on Webin Manzana’s 2008 Toyota Camry had long since lapsed, but he noticed the dashboard had begun melting under the hot Philippine sun, so he faxed a letter directly to the CEO of Toyota, Akio Toyoda.

“The next day,” he writes, “I received a call from Toyota Motors Philippines, and had my Camry picked up, [and] replaced the dashboard.”

4. Mark Fields, CEO of Ford

Nahush Kulkarni said he bought a “lemon” from Ford: a brand-new 2015 Mustang convertible, on which the brakes failed during his very first day. He returned the car to the dealership, and after a month–and lots of replacement parts–he refused to take the car back (even repaired). He emailed Ford’s CEO and president, Mark Fields.

“Soon enough, I got a call from his office,” Kulkarni writes. “The dealership took the car back and I placed an order for a new one.”

5. Jan Koum, CEO of WhatsApp

Nina Michanie wrote one of the funnier direct-to-the-CEO complaints–a heartfelt email asking WhatsApp CEO Jan Koum why the company didn’t have a sheep emoji on its app.

Koum wrote back directly telling her he’d been “shocked to learn we don’t have a sheep” (but also correcting her and showing that the app did in fact have one).

6. Tim Cook, CEO of Apple

Mike Gnitecki, of East Texas Medical Center, told me about what happened when his dad bought a defective Apple laptop computer. After his father couldn’t get a good resolution from customer service, Gnitecki said he decided to email Tim Cook directly at 5:35 p.m.

By 10:56 a.m. the next day, “a very helpful woman from Tim Cook’s office” had called, and his dad got a new computer.

7. CEO of Target (we think)

Or maybe it was Circuit City, Gil Silberman writes–he can’t remember for sure because this was a few years ago. However, someone stole an old checkbook of his on an account that had been closed long before, and used it to make a purchase. This led to the check bouncing, and the retailer reported Silberman (who wasn’t involved, naturally) to collection agencies.

“So I tracked down all of the board members and sent them a certified letter at home,” he writes. “It worked. No more debt collectors.”

8. Michael Dell, CEO and founder of Dell

College student Tami Tritz bought a Dell computer online–but it never arrived, he says. He tried working with Dell’s customer service agents, but ran into issues over and over. Bottom line, he had shelled out money, and had no computer.

“We sent off a relatively curt but not unpleasant email to Michael Dell that evening,” Tritz writes. “Received an immediate response from the executive team, an expedited refund, and $156 to spend on Dell Official Site for our troubles…. I wonder how they settled on giving me $156.”

9. CEO of Travelers

While auditing her monthly expenses, Maureen Almaleki says she realized she’d been paying too much for her homeowners’ insurance for a dozen years, as Travelers was basing her payments on insuring a much larger house. The insurer’s customer service agents dropped her monthly payment–but said they weren’t able to offer any kind of retroactive refund.

“That’s when I did the research, found out who the CEO was, and sent a certified letter,” she told me. “After some conversations at the CEO level, the company agreed to send me $1,600, and I let it go. Granted, had I not gone to the CEO, I would have never received any money!”

(Note: We’re not sure exactly when this happened, so for now at least we can’t say who the CEO was at the time.)

10. Mickey Drexler, CEO of J. Crew

After he got a J. Crew coupon in the mail, Mike Beaulieu went to shop at the retailer, only to find that their employees wouldn’t accept it, and even suggested he’d created a forgery.

Beaulieu went home, looked up the email of the company’s CEO, Mickey Drexler, and fired off an email. He says he got the following response from Drexler within 15 minutes:

Terrible on our part! No excuses. My apologies! We will be in touch.



11. John Thompson, CEO of Symantec

This one might be my favorite, just for its immediacy. A decade ago, Ophir Ben-Yitschak wrote on Quora, he spent an hour on hold waiting for support from customer service at Symantec.

“I decided just for the sake of ‘here goes nothing’ to look up the CEO and his email address, which–amazingly–I found rather easily on Google,” Ben-Yitschak wrote. “I sent John Thompson a one- sentence email, saying I am a customer on hold for a long time and asking for his help.”

Within minutes after he sent the email, Ben-Yitschak seemed to jump to the front of the line. A “customer support manager called me and helped fix the issue.”

Have you tried emailing the CEO of a major company to prompt the equivalent of a Jeff Bezos question-mark email? Let us know how it worked in the comments.

Source: Bill Murphy Jr. Executive editor of operations, Some Spider, and founder

 Cartoon Source: https://c1.staticflickr.com


Graphic Source: http://www.planetfulfillment.com

The trends in supply chain management demand carefully crafted strategies to keep the performance of the organization ahead of the competition. Strategic logistics planning allows the organization to align operations with overall business objectives and prepare to meet technology changes, globalization, and the demands of a more interactive supplier community. Strategies in inventory management, production scheduling, transportation, and organizational communications can create optimized distribution networks, competitive advantage, and result in bottom line improvement.

The basic Logistics objectives of any organization would be:

  1. To maximize Customer satisfaction through efficient logistics operations;
  2. To minimize the cost of operations;
  3. To maximize the profitability;
  4. To minimize the lead time to the market place.

In my opinion all other objectives are related to one of the objective mentioned above.  In order to achieve company objectives, warehouse and distribution operations perform the following service for the company.

  1. The first service is to geographically consolidate the customer’s demand for goods or to achieve economies of scale.  With today’s communication network, this service allows the warehouse, distribution planning and transportation activities to handle a great number of customers and to reduce order pick, handling and transportation costs.
  2. The second service is to provide geographic distribution of the goods to the customers.  This service assures the company that the customer is receiving the best transportation cost for the goods.
  3. The third warehouse and distribution service is to provide the means for the company to warehouse goods that are produced throughout the year to accommodate the customer’s seasonal demand for the goods.  This service allows the company to reduce the costs by purchasing large quantities of goods.  This provides the customer with the lowest cost for the goods.
  4. The fourth service is to provide the means for the company to warehouse goods which are produced from seasonal (short-time-period) production such as foods.  This service allows the customer’s year-round demand for the goods satisfied by the warehouse and distribution operations.

In order to achieve these company objectives, one aims to maximize the efficient use and production allocation of the warehouse, distribution and transportation scarce resources.  The resources that are available to any one would include facility lay-out; material handling equipment; employees (labor/human resources); land and building (owned or leased); management team, technology; vendors; external consultants and industry groups or associations (cartel).

The below table aligns WH Strategy with Logistics Strategy:



by | May 15, 2017


In the wake of omni-channel demands, the goal of any eCommerce company is to optimize their end-to-end supply chain processes.

However, it could be argued that the order fulfillment stage is the most critical aspect of any supply chain, given current consumer demands. With Amazon pushing the boundaries of fulfillment with two-day (and even same-day) deliveries, eCommerce companies are forced to adapt to rising customer expectations.

The need to adapt to omni-channel pressures isn’t a secret — but that doesn’t mean eCommerce businesses are executing. As B2B and B2C supply chain execution requirements converge, there are 5 steps you can take to rethink your processes and close the loop between planning and execution.

The 5 Steps to Reengineer Your Fulfillment Processes

The need to segment supply chains based on customer profile data has been apparent for years. While customer fulfillment optimization Leaders show 77% adoption for this capability, Followers are almost half as likely to segment their supply chains.

For customer fulfillment optimization Followers to catch up to market Leaders, they’ll have to reengineer a number of their traditional processes. These are the 5 steps that you should take if you’re falling behind the customer fulfillment curve:

  1. Assess Upstream and Downstream Demand-Fulfillment Models: Timely alerts along the supply chain (from customers and suppliers) make it easier to react to service-level issues and disruptions in supply, giving you an opportunity to maintain strict fulfillment requirements. When implementing initiatives such as direct-to-consumer shipping, it’s important to leverage big data to understand even the smallest changes in volume. Look at both upstream and downstream fulfillment models to improve visibility and communication wherever possible.
  1. Consider the Demand-Side Requirements Upfront: Modeling all potential fulfillment options in an omni-channel eCommerce business can be difficult. Supporting all segments and order types means incorporating everything into one model, when possible, while including efficient connections with external points in the supply chain.
  1. Reengineer and Streamline B2B and B2C Fulfillment Processes: B2B companies are challenged to manage a variety of order types, such as drop shipping, replenishment, etc. Rather than having strict supply-chain processes in place, it’s important to support a dynamic network and manage orders in relation to customer demands.
  1. Link Demand and Fulfillment Processes with Integrated Systems: Fulfillment execution must be integrated so that B2B and B2C orders are orchestrated, eliminating conflict in the process. In-house operations to package orders must be designed with transportation in mind to ensure the variety of customer demands are met with effective omni-channel models.
  1. Embark on a Journey of Continuous Improvement: The days when batching and paper-based modeling were sufficient to standardize fulfillment are gone. You have to be able to constantly adapt to new customer demands and their rising expectations. If you plan for continuous improvement from the outset, it will be easier to remain dynamic moving forward.

Executing these steps is further complicated by the need to link financial costs and logistics activities together. If you want to enable proper allocations to products, customers, and channels, you have to be willing to change your fulfillment processes.

The leaders in supply chain optimization have found ways to succeed beyond traditional fulfillment models. If you want to learn how they’re closing the loop between planning and execution, download our free research report, Profitable Supply Chain Execution with Customer- and Event-Driven Optimization.

Future Australian Transportation (click the hyper link) – “By 2050, Australia’s population will have nearly doubled, aged considerably, and still be largely urban-based,” he says. “The traditional modes of transport – road, rail, air and sea – will not be able to cope with that change. They are neither environmentally friendly enough to support large urban populations, nor terribly practical due to their massive reliance on infrastructure investment.”

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