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Did you start any holiday shopping (either on-line or in person) last week? I saw an article that ran yesterday on The New York Times’ website reporting that on-line shoppers started buying on Thanksgiving, and continued through the weekend and well into so-called Cyber Monday. In fact, by 6:00 p.m. on Monday, Eastern time, sales were up 20 percent over those through the same time period on the Monday after Thanksgiving a year ago, according to research firm Coremetrics.


Furthermore, Consumer spending—combined on-line and in stores—over the four-day weekend was up more than 6 percent over last year’s spending, according to a National Retail Federation survey conducted by BIGresearch. According to the survey, shoppers also spent more, with the average shopper this weekend spending $365.34, up from last year’s $343.31. Total spending reached an estimated $45.0 billion.


The downside, however, as pointed out in an article that ran yesterday on Supply & Demand Chain Executive, is that while Black Friday weekend sales do offer some positive news, retailers now face the very real prospect of a product shortage. Not the kind of limited shortage usually associated with each year’s most popular gifts—like trying to find a Nintendo Wii system a few years ago--but rather instead, a widespread shortage of the most wanted electrical consumer goods, such as games consoles and flat screen TVs.


The problem, says Paul Martyn, a vice president at supply management specialist BravoSolution, is that given the on-going economic uncertainty, companies continue to hold onto their cash reserves wherever possible. So, for example, suppliers have reduced inventory levels to combat the potential for being left with obsolete inventory. The consequence is that lead times for electrical components have increased significantly, hitting high levels that now stand at 52 days, which is five times higher than the previous 10-12 day standard, according to BravoSolution research.


This isn’t a new development. I’ve written before about the on-going shortage of components and the financial impact of that shortage on manufacturers. Nevertheless, the problem in this case is that, considering the lengthy lead times associated with electronics, it’s possible retailers will sell out of products before the holidays—and won’t receive new shipments this year. There’s also the risk that retailers’ shelves could remain empty into the new year.


Due to the surge in demand, the holiday season is always challenging for retailers, says Martyn. With sales at risk at such a crucial time of the year, there is a real danger that quarterly results will be effected, which will ultimately have a substantial impact on the profitability and share price performance of both manufacturers and retailers alike.


As we all know, it’s difficult—to say the least—to predict consumer demand. It’s not likely but is possible that, considering the economy and unemployment rates, we’ve already seen the spike for this year’s holiday sales. Of course, demand for consumer electronics could also hold steady or even increase. In any case, if I were planning to purchase a flat screen TV or similar item this year, I’d certainly plan on doing so sooner rather than later.

Among other pressing challenges, consumer goods manufacturers must determine how they can best seize opportunities in emerging markets. For instance, there is a growing affluent middle class in countries such as Brazil, India, China and Mexico that are experiencing growth, development and increasing employment. The problem for consumer goods manufacturers is that they must act on this opportunity quickly. While demand for consumer products is sure to continue growing in these emerging markets, these new consumers are already buying products and forming brand loyalty—especially to those products suited to local taste or preferences.


A recent whitepaper I saw on SupplyChain Management Review’s website examines the consumer goods supply chain, and offers some advice for those manufacturers. Titled “Consumer Goods Manufacturers Seek Greater Supply Chain Flexibility,” the paper discusses a number of strategies for those manufacturers, but I was most interested in a section recommending outsourcing.


Outsourcing primary packaging certainly isn’t a new practice, but there is a renewed level of interest from both companies entering emerging markets as well as those that are working to streamline their existing operations in mature markets. In many emerging markets, fast-moving consumer goods companies have already outsourced manufacturing as a means to enter the market since, as the whitepaper explains, there simply isn’t enough demand to warrant a dedicated manufacturing facility.


The flip side of the coin is that for companies in mature markets, there is an on-going transition away from traditional manufacturing operations built around use of standard package sizes shipped in truckload quantities. Instead, these companies now see a shift toward smaller, more frequent and customized orders that requires shorter production runs or the use of specialty equipment that isn’t readily available on all manufacturing lines.


In either case, manufacturing and packaging processes for some consumer goods can be outsourced to an appropriately equipped and qualified distribution center to put product closer to the end customer. For example, by outsourcing manufacturing, bulk product or ingredients can be shipped to the production facility or distribution center where it may be mixed--if needed--and packaged into smaller containers, the whitepaper explains. The benefit to retailers is that they then receive the different package sizes they require, which may even include the smaller packaging sizes most often needed in convenience and dollar stores.


For the consumer goods manufacturer, the benefits include a reduction in new capital investments. There also are additional benefits because outsourcing reduces costs and provides flexibility for both operations and marketing. For one thing, it reduces the time and complexity of changing manufacturing lines needed to support product launches or shorter promotional runs. The increased flexibility comes from being able to shift primary packaging into the distribution center network because it enables final packaging decisions to be postponed. This in turn allows marketers to delay decisions on product customization based on distinct demographic or cultural differences.


What happens at your distribution centers? How much of your packaging is outsourced? I’d like to hear from you.

One significant obstacle for mid-size manufacturers is that while they face the same business challenges as their larger counterparts, they don’t have the same resources to bring to bear. For example, mid-size and large companies alike are challenged to reduce costs, bring innovative products to market faster and meet rising customer expectations.


Use of a supply chain planning solution helps address these requirements because it allows users to create a supply chain plan, actively monitor performance to that plan and immediately coordinate a response when the plan is at risk. The problem is that many mid-size companies— perhaps driven by other companies’ experience with lengthy implementations that strained IT budgets as well as the limited IT staff--reject implementing such a solution and, instead, still rely on legacy solutions and spreadsheets.


That obviously doesn’t need to be the case. For instance, I read an article today that ran on SupplyChainBrain offering pragmatic advice for executives pondering whether or not their companies should implement supply chain planning technology. The author, Danny Halim, vice president, industry strategy, JDA Software, offered what I believe are four key points.


The first, is to begin by focusing on critical issues first. Often, companies realize the biggest benefit by simply making a small set of targeted improvements to the most significant supply chain pain points, Halim says. Specific challenges may include inaccurate forecasts, overstocks or missed deliveries. Mid-sized companies should partner with their solutions provider to conduct an upfront value assessment that identifies a few crucial areas for short-term improvement, as well as defining potential returns.


Next, act quickly using existing data. Mid-sized companies shouldn’t let concerns about data availability hold them back. Today’s supply chain planning solutions typically require only about 20 data points, which most businesses have at their disposal via existing spreadsheets and legacy systems, says Halim. Such solutions can help these companies develop fully automated plans that will serve as the basis for making better, more informed decisions.


Companies should also work to improve supply chain planning without burdening IT. It’s possible to avoid interruption to day-to-day business and unnecessary use of IT resources by relying on the solution provider’s experts to run the software. This hosted supply chain planning solution, combined with a team of knowledgeable experts and a proven implementation methodology, allows companies to focus on adopting best-in-class supply chain processes that will drive value to their businesses. Additionally, these solutions can be implemented quickly to further drive return on investment.


Finally, ensure that the solution’s functionality can scale. As a company grows, demand for its product changes and market conditions shift. To get the most benefit from a technology investment, companies should assess the solution’s ability to scale as their business grows both in volume and complexity, Halim says. As improvements are made in specific areas of operation, the company can move on to tackle new challenges.


Has your company taken—or is it about to take—a similar approach? If so, let us know about your experience.

Do you have a hybrid vehicle? Are you interested in an electric vehicle? Or, are you—like me—simply interested in both the technology and the electric vehicle supply chain? I ask because it certainly has been a busy month or so for automotive manufacturers as well as suppliers of various technology associated with hybrid and electric vehicles.


Last month, for example, Ford Motor Co. announced its plan for a gradual rollout of its all-electric Ford Focus. As reported in The Detroit News, initial production of the vehicle, which will have a range of 100 miles on a single charge, will begin in 2011—but there will be more concentrated volume in 2012. Sales of the electric Focus are expected to be between 10,000 and 15,000 vehicles in the first year, say Ford sources.


Ford also has begun limited production of its electric Transit Connect van, which features an 80-mile range. Furthermore, the automaker plans to introduce a plug-in hybrid vehicle, along with two new hybrids, in 2012.


In other automotive news, Toyota Motor Corp. announced plans to launch 11 new hybrid models by the end of 2012. An article in IndustryWeek reported that the planned vehicles, including both all-new and redesigned models, will expand the range of Toyota’s hybrid-engine—which runs on gasoline and electricity—while rivals are developing all-electric vehicles. Toyota anticipates annual sales of more than 50,000 units for a Prius-based plug-in hybrid to be launched by early 2012 in Japan, the United States and Europe.


I was also interested to see a report about plans at General Electric (GE) to buy 25,000 electric vehicles for its fleet through 2015. The plan calls for an initial purchase of 12,000 of the new Chevy Volt from General Motors Co., beginning in 2011, but the company does plan to also buy other electric vehicles as manufacturers bring them to market.


The company has a current fleet of 30,000 vehicles used by GE employees. GE says that 15,000 of the 25,000 electric vehicles that it plans to purchase will be used to replace some of its fleet. The other 10,000 electric vehicles will be used in its Fleet Services division, which provides business-to-business fleet financing and management for customers.


Finally, IndustryWeek also recently reported that industrial manufacturer Eaton Corp. and consumer electronics retailer Best Buy have teamed up to offer logistical facilities for Mitsubishi Motors’ “i” electric vehicle, which is expected to roll out late 2011.


Best Buy will provide site analysis and help in the upgrade of electrical infrastructure at home for retail consumers, while Eaton will provide both the electrical infrastructural support and Level 2 chargers for Mitsubishi’s dealerships. Eaton will oversee both the design and manufacturing of the Level 2 charging stations, which will be sold by Best Buy. Eaton also will be the exclusive supplier and installer of the charging stations.


So considering all that news, this certainly is a rapidly developing market—or at least supply. I’m curious, however, to see how it plays out from a supply chain perspective. For example, will there be sufficient consumer interest for electric vehicles? What’s more, if demand suddenly rises, will automotive manufacturers be able to meet that demand?


Then again, there also are the suppliers of next-generation lithium-ion batteries for the vehicles and suppliers of components used in the charging stations to think about. Will they—and their suppliers--be able to meet evolving and, possibly, quickly growing demand?


Admittedly, I have more questions than answers at this point. What do you think of the market?

I recently wrote about the results of a survey, in which executives at U.S. high tech companies were cautiously optimistic about the economy. Since then, I’ve seen an article that ran on the EON: Enhanced Online News website about the results of another survey, in which nearly 70 percent of the respondents indicated that they expect their organizations will experience revenue growth in 2011.


This survey, “ASQ Manufacturing Outlook Survey”, was conducted by ASQ—a network of quality resources and experts. More than 1,200 manufacturing professionals from the U.S. and Canada responded to the on-line survey, which was conducted between October 24th and November 5th.


I found several areas of interest in the results. The first concerns payroll. Only 18 percent of the survey participants expect a pay freeze in 2011—compared to 44.8 percent of the participants in last year’s survey, which certainly is encouraging. What’s more, only 18 percent of the participants in this year’s survey predict mandatory budget cuts in 2011. Again, that can be compared to last year’s survey, in which 35.2 percent of the respondents expected mandatory budget cuts. Finally, 48 percent of the survey’s respondents expect a salary/merit increase, which is encouraging as well.


Secondly, while 47 percent of the survey respondents do expect their organizations to continue creating processes to reduce costs, that percentage is down from last year—when just over 60 percent of the respondents expected cost cutting processes. And, while 42 percent of the respondents now predict their companies will maintain current staff levels, another 42 percent expect their organizations will be hiring additional staff.


That’s all encouraging, but I was particularly interested in something else. The participants were also asked what one tip they would give to manufacturers to ensure revenue growth in 2011. The top four most-cited tips, which are similar to those from the 2010 survey, are:


·       Continue to take part in continuous improvement practices, and increase use of quality processes

·       Increase customer satisfaction

·       Implement more lean processes

·       Reduce costs/eliminate waste


I’m struck by the similarities of the results of this and other recent surveys where the mantra has become continuous improvement and customer satisfaction. One of the key findings in the results from the survey of executives from the high-tech industry, was that when asked about reverse logistics, 46 percent of the executives indicated that meeting customer expectations was the greatest concern.


A few weeks ago, I posted about the findings of a Sterling Commerce survey. That survey, conducted by Edge Research, polled 300 information technology, sales and supply chain decision makers in the manufacturing and logistics industries about their business challenges. When asked about their primary concerns, 46 percent of the respondents cited risk of losing customers/customer volume.


Work to continuously improve overall performance, reduce costs and improve customer satisfaction isn’t really anything new. After all, those have always been cornerstones for successful companies. But the recent economic downturn forced all companies to focus, or renew their focus, on those areas—and especially customer satisfaction. While signs seem to indicate that better days are ahead, I expect increasing customer satisfaction to remain a business priority.

As the economy continues to improve, it’s interesting to see not only what lessons executives say they have learned, but also how they plan to apply that new knowledge. Take the high-tech market, for example. As they emerge from the recession, leadership at U.S. high-tech manufacturers is looking for ways to serve an unpredictable global customer base while simultaneously continuing efforts to further reduce costs, according to the results of a new survey.


For instance, despite their concerns about cost reduction, 46 percent of the executives surveyed noted that their companies are preparing to invest in new product development to keep up with customer demand over the next 18 months. Perhaps more importantly, when asked to list their top business priorities for the next 18 months, 66 percent of the respondents cited “operate more efficiently,” and 60 percent of the respondents cited “improve margins” as key objectives.


The survey--“Change in the (Supply) Chain,” conducted by IDC Manufacturing Insights and sponsored by UPS—was designed to uncover the biggest business and supply chain issues for high-tech companies during the recession and reveal how their supply chains changed as a result. It targeted senior-level decision makers in operations, supply chain and logistics and distribution at 125 high-tech companies in the U.S.


I found it interesting to see that the executives’ plans to improve operations and profit margins center on tackling capabilities that they perceived as challenges during the recession. Those areas were: cost containment, responsiveness and resiliency.


That’s not really a surprise considering the factors cited as the leading reasons for making changes. They were: cost (cited by 68 percent of the respondents), responsiveness (cited by 40 percent of the survey’s participants) and matching rapid changes in customer demand (cited by 34 percent of the executives).


I was intrigued by something else, however. That is, high-tech companies are challenged by the reverse logistics process of handling product returns and repairs. The goal, as in all industries, is to meet customer expectations—and it was cited as the greatest business concern when it came to reverse logistics by 46 percent of the survey’s participants. Furthermore, the greatest supply chain challenge cited by these manufacturers is to get customers to comply with returns processes (22 percent).


What the survey findings clearly point out is that high-tech manufacturers want to better serve their customers while reducing costs, but they haven’t been able to master the critical function of reverse logistics yet, says Charlie Covert, vice president of customer solutions for the high-tech and industrial manufacturing sectors at UPS. When it’s done correctly, reverse logistics can not only drive down supply chain costs, it can become a key competitive advantage as well because it enables improving the customer experience.


What do you think? Whether you are in the high-tech industry or not, is your company working—or are there plans--to improve reverse logistics? Any initiatives that can simultaneously improve customer satisfaction and reduce supply chain costs certainly sound worthwhile.

I admit that when I hear about companies using sales and operations planning (S&OP), I think of companies producing items that range from consumer products to aircraft parts. But an article I read recently has me rethinking just who uses S&OP—and the benefits they reap.


That article, which ran last week on the Supply and Demand Chain Executive website, explains that logistics companies increasingly strive to integrate business process planning and benchmarking with their S&OP processes to better meet business objectives and achieve the greatest possible benefits and efficiencies leveraging existing resources.


Given today’s business environment, using business models and technologies that change rapidly, it is more important than ever for companies to carefully target and plan their sales, demand and supply efforts to reflect their long-term success and profitability strategies, says Marc Borczon, business development manager for CargoWise, a technology supplier for logistics service providers (LSPs). He even goes so far as to say that today, it is crucial to business success for logistics companies’ sales and marketing efforts to be strategically focused, carefully planned to achieve objectives, and the results must be accurately measured to meet management’s strategic goals.


There are several good points in the article about business development, the growing trend of automating manual processes and the importance of accurate reporting. What really caught my attention, however, is that while the majority of companies employ traditional S&OP strategies to align potential revenue, supply, demand, profit margins and opportunities, successful freight forwarders and LSPs increasingly focus on two key areas, Borczon says. They are: new product planning/targeting niche markets, and sales opportunity planning/customized campaigns.


As the forwarding industry evolves, companies must carefully evaluate the market niches they plan to target. Management is appraising specific lane segments or customer types they have been successful with in the past, or identifying new market segments they can successfully target with new services or segment offerings, Borczon says. The use of business intelligence and data-mining tools can help verify targets. If, for example, a company is targeting a specific lane segment, management can make certain it’s a profitable segment. Or, if the company is focusing on a particular market, it is vital for management to fully understand the makeup of companies in that marketplace.


The other key area drawing focus from logistics companies is sales opportunity planning/customized campaigns. Successful LSPs create targeted sales and marketing campaigns using integrated customer relationship management applications as a tool to communicate service offerings and promotions that are customized to specific markets, Borczon says. Clear, quick and concise messages to the customer explain LSP services the company offers, and the messages give potential customers a reason to call the service provider. The success—or, for that matter, failure--of marketing efforts is then measured by tracking and analyzing how many leads a specific campaign produces, how many shipments were obtained and how much revenue was generated from the campaign.


That sounds like a good strategy to me. What do you think?

A couple of weeks ago, I wrote about recalls and how, if handled correctly, they offer an opportunity to expand customer loyalty.


In that post, I cited the results of an on-line survey conducted by marketing firm the Relational Capital Group, Dr. Nicolas A. Kervyn at Princeton University and independent market research provider Candice Bennett & Associates. Nearly all (more than 90 percent) of the respondents to the survey believe that product recalls reveal the “true colors” of companies and brands, and that recalls present a unique opportunity for the company to demonstrate that it cares more about the safety of its customers than its own profits. Answering a follow-up question, almost 90 percent of the respondents said that they are more willing to purchase from—and, more importantly, remain loyal to—a company that handles its product recall in an honest and responsible way.


I was reminded of those statements recently when I saw saw an announcement that General Electric Company (GE), along with the U.S. Consumer Product Safety Commission (CPSC), have announced a voluntary recall of approximately 174,000 GE Profile and GE Monogram Dishwashers that were sold in retail stores, appliance dealers and authorized builder distributors.


The problem, according to the statement, is that water condensation can drip onto the dishwasher’s electronic control board, which causes a short circuit resulting in an overheated connector. This in turn, poses a fire hazard. GE has received five reports of fires, four of which caused minor damage to the kitchen countertops where the dishwashers were installed. The fifth fire caused minor damage to nearby cabinets and smoke damage to the home. No injuries have been reported.


There is quite a bit of information available for customers with dishwashers that me be recalled. For example, at the CPSC website, visitors can check a chart that shows the brand, model numbers and serial numbers of the recalled dishwashers. There also are samples of the colors involved as well as a photo that shows where the model and serial number are located on the appliances.


Meanwhile, at the GEappliances website, consumers can access hyperlinks to recall FAQs, a recall hotline, and there also is a search function to look up a specific model number and serial number to determine if that appliance is part of the recall.


There’s also information about how GE is handling the repair process. The company will provide a free in-home repair to all consumers with units being recalled. Consumers who wish to replace their dishwasher with a new model can use a GE rebate of $200 to purchase a new GE Profile dishwasher or a GE rebate of $400 to purchase a new GE Monogram dishwasher, which certainly seems to this observer like a goodwill gesture.


As with all recalls, it’s difficult to forecast customer reaction. However, it certainly seems that GE is forthcoming with information. As for the actual repair process, it may be a sticking point, but again, it’s hard to say. An in-home repair alleviates any concerns about having to actually take the appliance to a repair center. Even so, customer satisfaction will be effected by how easy it is to schedule the repair, and probably more so by the repair technician’s timeliness and efficiency. That certainly will be a critical factor in maintaining customer satisfaction, and, ultimately, customer loyalty.

I wrote a few weeks ago about how China had stopped export of rare earths (a group of 17 elements used in products that range from wind turbine production equipment to a high-tech navigation system used in the U.S. Military’s M1A2 Abrams tank). While Chinese officials have denied claims that the country did halt exports, an article that ran in IndustryWeek last week reports that the world’s largest consumers of rare earths have been effected—and are feeling the consequences.


According to the article, a top official in Tokyo has warned that Japan’s stockpile of rare earths could run out by March. Japan and Vietnam are now set to sign a deal on joint development of rare earth reserves. Meanwhile, German officials said the country will work with Tokyo to stimulate rare earths production in other nations including Mongolia, Namibia and the United States.


Furthermore, U.S. officials plan to raise the issue at this month’s Group of 20 (G20) summit.


Last year, China produced 97 percent of the global supply of rare earths, even though it is home to only one-third of the world’s reserves. However, to cope with its own ever-growing demand, China has been steadily reducing export quotas of rare earths over the past several years.


So where are the rest of the world’s reserves? The United States and Australia have large reserves—15 percent and five percent, respectively-- but both stopped mining them due to cheaper Chinese competition and domestic environmental concerns.


In fact, an article that ran in September on points out that until the 1980s, most of the world’s rare earth metals were mined and refined in Mountain Pass, California. The process of restarting production actually could begin at any time.


There is a significant obstacle worth noting. The company that controls the pass, Molycorp, says it would take about $500 million to start mining again. What’s more, the Government Accountability Office (GAO) has determined that it might take 15 years for the entire production chain to be back online.


What’s happened in China, however, as reported in IndustryWeek, is officials in Beijing now believe that China’s past rare-earth policies were like “selling gold to foreigners at the price of Chinese radishes,” says Damien Ma, an analyst at research firm Eurasia Group.


Indeed, China’s commerce ministry now says the country reserves the right to slash rare earth exports again to “protect exhaustible resources and sustainable development” in an industry that is notoriously chaotic, with illegal mining rampant, and highly polluting.


The challenge then—as is the case with any supply chain disruption—is to identify and locate both possible surplus and alternate suppliers. Considering the delay in ramping up production in the U.S., that means companies will need to work with other countries than China.


Even if China does begin exporting rare earths again, that’s probably the best plan. Annual global production of rare earth elements totals about 124,000 tons, according to a July report by the U.S. Congressional Research Service. World demand is expected to rise to 180,000 tons a year by 2012. By 2014, global demand could exceed 200,000 tons per year, according to the report.


In the end, given the increasing demand for rare earths and the difficulty in finding available and sufficient quantities, it seems longer lead times and price increases are ahead.

Many companies were able to weather the recession because their supply chains enabled them to react accordingly to either capacity shortage or inventory change, says Simon Ellis, practice director, global supply chain strategies, at IDC Manufacturing Insights. That was largely due to the use of information technology. What’s more, coming out of the recession, it appears manufacturers will continue investing in IT to improve supply chain performance.


In an article that ran on the SupplyChainBrain Website, Ellis went on to say that the sales and operations (S&OP) planning process is now getting a lot of attention, and increased investment is likely. It’s been a part of the lexicon for decades, he says, but S&OP is emerging again because companies realize they need to gain control of the totality of their supply chains.


In fact, S&OP, inventory optimization, and forecasting and demand improvements are the top three applications on companies’ wish lists, according to surveys since late last year, Ellis says. Of the three types of applications, S&OP is the most interesting because companies have begun to realize that they haven’t been as effective as they would have been if they had been using S&OP, Ellis says.


While that’s certainly good news for S&OP solution suppliers, it’s even better news for organizations that can leverage processes and technology to their advantage.


Consider, for example, the case of high-tech electronics provider Wacom Co., Ltd. The company, which supplies pen tablets, interactive pen displays, and pen and touch sensor components, deployed an on-demand service for supply chain management and S&OP to improve planning cycle times and mid-cycle adjustments for its global IPS (Inventory/Production/Sales) process.


Wacom operates a global supply chain in a highly competitive and volatile market, so there definitely is a clear and constant need to quickly and effectively make adjustments to its global IPS plans. Additionally, because the company outsources manufacturing operations, managing accurate adjustments requires close cooperation and coordination with EMS partners--from both an operations and IT systems perspective.


Of particular priority for Wacom is the solution’s ability to support high-speed “what-if” simulations that can incorporate the insight of personnel impacted by a change. The capability to incorporate human judgment and ad hoc analysis as part of the decision- making process was a strong differentiator when compared to the rigid, black-box, batch-processes found with traditional planning systems.


The inventory management benefits in particular have been considerable. Wacom—which deployed the solution across all of its sites world-wide and integrated it with the legacy ERP environment, as well as with its EMS/CM and 3PL partners--is using the solution to continuously evaluate global inventory consolidations; intercompany inventory requirements; and demand and supply allocations across sites.


I look forward to hearing more about the improvements Wacom makes to its IPS process as it continues to gain experience with the S&OP offering.