I posted last year that one of my favorite books—and movies, too—is “A Christmas Carol,” Charles Dickens’ tale of Ebenezer Scrooge and redemption. That’s why an article last year on the Supply & Demand Chain Executive website caught my eye.

As you likely recall, Scrooge was visited by four spirits on Christmas Eve. The first being that of his former business partner, Jacob Marley, who had died seven years ago on that very night. But it's the other three spirits-the Ghost of Christmas Past, the Ghost of Christmas Present, and the Ghost of Christmas Yet to Come-that the article's author, Paul Martyn, relates to in the article.

When Scrooge was visited by the three Christmas spirits, he gained insight into his past actions and their impact on his life, and consequently realized the error of his ways. Martyn, a vice president at BravoSolution, contends that spend analysis can play the role of the Ghosts of Christmas Past and Present by allowing purchasing executives to examine and scrutinize their own and their supplier’s past and present performance, contracts, commitments and risks so they in turn can make better decisions in the future.

The place to start, just as it was for Scrooge, is by reviewing the past. Using spend and supplier analytics, purchasing executives are able to examine past purchasing performance. And by using both supplier and spend analytics enables them to determine what went poorly, what was acceptable and what went well.

Purchasing executives also need accurate, up-to-date information to support advanced analysis. This way, they can see the reality of today's transactions and commitments through numbers. That will allow them to determine, for instance, whether it's best to continue to put out fires and stay the current course or whether they should accept the-perhaps-bitter lessons and take corrective action. These can be tough decisions to make, Martyn says, but if executives have the facts and complete a thorough analysis, they will be more comfortable with the decisions they make.

Which leads us to future spending-or that which is Yet to Come. Spend analysis and sourcing provide a new "what-if" course of purchasing. Having analyzed past performance-both their own and that of their suppliers-purchasing executives have some decisions to make. That is, they have an opportunity to learn from the past and take a new, improved course for future decisions.

During the supplier-selection process, for instance, innovative companies look beyond a vendor's current capabilities, thinking about future capabilities and the anticipated cost to bring that capacity online, says Martyn. Using advanced optimization techniques, buying teams can quickly analyze the costs and benefits of making such an investment in a key supplier.

Martyn then asserts that by making a strong commitment to developing lasting collaborative relationships with the most strategic vendors, organizations can create the visibility and control necessary to be certain the necessary steps have been taken to reduce risk.

What do you think? Let me know if you make decisions by reviewing past actions and events. Of course, if you want to talk about Tiny Tim or a turkey as big as a young boy, that's fine too.

Happy Holidays, everyone.

Manufacturers now generally recognize the capabilities that are necessary to compete globally. Developing those capabilities, however, is a different story. In fact, a large number of U.S. manufacturers have so-called “execution gaps” between what they know needs to be done and what they are actually doing. That’s one of the findings of a recent study, and I wonder: Does it apply to your company?

The Manufacturing Performance Institute (MPI) on U.S. manufacturing competitiveness, in partnership with the American Small Manufacturers Coalition (ASMC), has released the results of the 2011 Next Generation Manufacturing (NGM) Study. It offers what MPI calls a “scorecard” U.S. manufacturers can use to measure progress in defining strategies within their organizations, implementing best practices to support those strategies, and then achieving performance improvements.

What I found most interesting are these execution gaps between understanding the significance of a particular strategy and actually executing it well. So, for example, 72 percent of the respondents believe supply-chain management is important or highly important, but only 29 percent of them say their companies are near or at world-class status in supply-chain management. This gap, says MPI, represents a substantial barrier to long-term success for U.S. manufacturing.

According to the survey results, sustainability is much more important to U.S. manufacturers now than it was even two years ago. Manufacturers are far more likely in 2011 to cite sustainability as important to their organization’s success than they were in 2009: 59 percent of the respondents rated it important or highly important in 2011 versus 35 percent in 2009. Not surprisingly, the percentage of manufacturers progressing toward world-class sustainability grew as well: 28 percent of the respondents reported they were near or at world-class sustainability in 2011 versus 20 percent in 2009. The flip side of the coin is that 25 percent of the respondents noted that their companies have no strategy at all toward sustainability.

Finally, as would be expected, continuous improvement and process improvement are clear goals. I was interested to see that “sufficient leadership and talent” is in place to drive world-class process improvement at only 61 percent of U.S. manufacturers—and yet many firms report “insufficient talent” and/or lack development programs to grow leadership and talent. 

So clearly, there is considerable work to be done. To help companies address these deficiencies, MPI has identified what it calls six key “next generation” manufacturing strategies. They are:

·        Customer-focused innovation: Develop, make, and market new products and services that meet customers’ needs at a pace faster than the competition can achieve.

·        Engaged people/human capital acquisition, development, and retention: Secure a competitive performance advantage by having superior systems in place to recruit, hire, develop, and retain talent.

·        Superior processes/improvement focus: Record annual productivity and quality gains that exceed the competition through a companywide commitment to continuous improvement.

·        Supply-chain management and collaboration: Develop and manage supply chains and partnerships that provide flexibility, response time, and delivery performance that exceed those of the competition.

·        Sustainability: Design and implement waste and energy-use reductions at a level that provides superior cost performance and recognizable customer value.

·        Global engagement: Secure business advantages by having people, partnerships, and systems in place to engage global markets and talents better than the competition.

At first glance, the execution gaps are striking. But on closer inspection, I don’t think they stand out as much. There are, after all, always considerable distances between “world class” companies and those having made little or no progress. The bulk of the companies instead, usually land somewhere in the middle—having recognized what needs to be done but also having made some progress. I believe it’s companies in this middle area that stand to benefit the most from MPI’s manufacturing strategies.

What do you think?

I’ve been thinking a lot lately about supply chain resilience, so I was quite interested to read about an initiative at Dow Chemical. A recent article that ran on SupplyChainBrain explains that the supply chain resilience initiative includes three components: assessment, resilience testing, and implementation. What’s more, it’s helping the company make the best use of fixed assets and working capital--especially for supplier management.

Dow began with a model known as Supply Chain Resilience Assessment and Management (SCRAM), developed by Ohio State University. This trademarked tool helps companies understand their supply chain vulnerabilities, such as resource bottlenecks, and the capabilities they can deploy to improve resilience, such as increased procurement flexibility. In fact, Dow is sponsoring a two-year collaborative research project with Ohio State’s Center for Resilience, combining resources from the university’s College of Engineering and Fisher College of Business as well as the Air Force Institute of Technology to promote the importance of enterprise-wide resilience and the need for the manufacturing sector to seek constant improvement.

The chemical industry is dependent on its ability to operate and deliver chemical products reliably, safely, securely, and in a sustainable manner—so risk management and resilience are business and supply chain imperatives, says Darrell Zavitz, Dow’s vice president of Business Process Services Center, Supply Chain and Customer Services. Ohio State has developed some unique capabilities that Dow believes will help to better measure and manage our global resilience in a variety of challenging business environments, and enable the company to recover from disruptions, adapt to change, and design more sustainable supply chains, he says.

As Dow explains it in the SupplyChainBrain article, use of the SCRAM framework identifies strengths and weaknesses. It defines two major categories, capabilities and vulnerabilities, and then evaluates each by having appropriate team members answer a series of questions. Capabilities might include flexibility in sourcing, manufacturing, and fulfillment; capacity; efficiency; visibility; and adaptability. Examples of vulnerabilities include demand turbulence, deliberate threats, external pressures, and resource limits.

The next step is to combine respondents’ answers to create a composite score. In each case, the potential vulnerability is balanced by Dow’s corresponding capabilities. The exercise uncovers any imbalances in the company’s ability to cope with disruptions. It also defines a “zone of balanced resilience,” the perfect middle-ground between an erosion of profits caused by excessive capabilities, and the exposure to risk caused by vulnerabilities from which the company isn’t protected.

Dow first adopted SCRAM for its Glycol Ethers P-Series family of products--chemicals used largely for protective coatings for industrial, automotive, and architectural applications; but also deployed in solvents and cleaning formulations. A workable resilience model for the Glycol Ethers family had to account for internal production processes; external co-producers; a variety of distribution locations; export shipments; both local and offshore alternative suppliers; raw materials; and rigorous quality standards for finished goods. The Glycol Ethers resilience model was then further broken down into raw materials supply, manufacturing, tolling, financials, customer demand, and terminals/warehousing.

Now for the benefits: The company saw a 500-percent return on its modeling effort, say Shannon Hemmelgarn, Dow’s supply-chain analyst, and Jennifer McIntyre, oxygenated solvents global supply-chain director. The company also identified a potential $1.1m in savings through the redeployment of assets and working capital in-line with the model’s conclusions.

Considering those findings, it’s no surprise that Dow now plans to extend the use of the model throughout the company’s global operations. Hemmelgarn and McIntyre note that the conclusions yield strategies that can be applied to multiple product lines. This is critical, they say, as Dow seeks to buffer itself against transportation delays, material shortages, natural disasters, and other major supply-chain disruptions.

I find Dow’s work to be quite interesting, and look forward to more details. But what about your company? Does it have a similar initiative, or plans to implement one, to identify and evaluate capabilities and vulnerabilities?

While the U.S. saw a record number of weather disasters that each caused at least $1 billion in damages in 2011, as the year comes to an end, thoughts of supply chain disruptions stemming from natural disasters largely turn to those in Japan and Thailand. One must wonder what lasting impact those disasters will have on business. By that, I don’t mean companies’ individual bottom lines, but rather instead, business interruption insurance.

I was interested in a recent Bloomberg News article reporting that as a result of record claims from natural disasters in Japan and Thailand, insurers and reinsurers may limit the coverage they offer for supply chain disruptions and negotiate higher prices. Munich Re, the world’s largest reinsurer, said most of its 1.5 billion euros ($2 billion) of net claims related to the earthquake and tsunami that hit Japan in March stem from commercial covers that include business interruption insurance, the article reports. Likewise, Swiss Re Ltd. reports that insured losses from the Thai floods that stopped supply chains and consequently disrupted factories in Japan could be as much as $11 billion.

According to law firm RPC (Reynolds Porter Chamberlain LLP), with business interruption claims, the insured business must mitigate its losses if it is to recover under its insurance. The problem is that after the earthquake and tsunami in Japan last spring, many Japanese companies--particularly those in the automotive and electronics sectors--moved production to Thailand, and/or found alternative component suppliers in Thailand, so they could mitigate their business interruption losses. However, the flooding in Thailand this fall is the second part of a 1-2 punch that may lead to a substantial increase in insurers’ liability for those claims.

It’s very unusual for two large manufacturing centers to be hit separately by such large natural disasters in such a short span of time, says Daniel Saville, Legal Director in Reinsurance and Corporate Insurance at RPC.

The problem for insurers who provide business interruption coverage to Japanese manufacturers is that they have to cover the losses stemming from the Thai flooding because so many businesses moved some or all of their supply chain there, Saville says. Moving production from Japan to Thailand was a “Plan B.” The question now, is whether those businesses have a “Plan C.” The insurance market will be working with insureds to implement cost-effective contingency plans as soon as possible, Saville says.

So what changes might be coming in the way insurers and reinsurers do business? The Bloomberg article notes that Torsten Jeworrek, who leads Munich Re’s reinsurance business, says that to limit future losses from this type of coverage, Munich Re is requesting more information on its customers’ supply chains--especially in the semiconductor and automotive industries. If after 18 months there is no full transparency, or plans for replacing key suppliers of the insured to make it possible for Munich Re to budget for these contingent business insurance exposures, the firm will limit or even exclude the coverage under the reinsurance treaties. The scope of coverage will certainly shrink, he says.

Finally, Christian Muschick, an analyst with Silvia Quandt Research, says the company expects a market and worldwide review of underwriting routines and pricing levels regarding business interruption risks both in the industry and reinsurance industry, in the Bloomberg article. This should support pricing levels going forward, he says.

In some regards, the disasters in Japan and Thailand are having more far-ranging impact than was expected. The automotive, semiconductor, and high-tech industries have already been significantly effected. Now, considering the possible insurance and reinsurance industry changes, it appears all industries may see some changes. That’ll be good because it will force companies to rethink the nature of their supply chain, re-evaluate partners and suppliers to mitigate risk, and improve contingency plans. In other words, their supply chains will become stronger and more resilient.

After the earthquake and tsunami in Japan last spring, and the flooding in Thailand this fall, one must wonder if the impact on the global supply chain could have been worse. The answer, at least according to the results of a recently released survey, is, yes, it could have been considerably worse.

According to the study, which surveyed 100 North American financial executives, a natural disaster in China would disrupt the most business around the world. In fact, respondents believe that any impact to China’s huge manufacturing sector would cause significant sourcing problems for supply chain managers.

I first saw the FM Global press release earlier this week on PRWeb. The FM Global Supply Chain Risk Study (commissioned by FM Global, which is a business property insurer) shows that a natural catastrophe in China on the scale of the 2011 earthquake and tsunami in Japan would have an even more substantial impact on supply chains, given China’s critical role in global manufacturing. Considering that China has not yet fully embraced many of the risk management practices followed in Europe and the U.S., and that the country is exposed to significant natural threats such as earthquakes, windstorms, and floods, it certainly is cause for alarm.

I found some of the findings particularly interesting. For instance, twice as many companies surveyed (86 percent versus 43 percent) say they are more reliant on China that they are on Japan as part of their supply chain for their key product lines. Other findings of note include:

 

·              83 percent of the respondents consider supply chain disruption a moderate to great risk,

·              95 percent of the respondents whose companies rely on companies in China for their supply chain are concerned about natural disaster-related disruptions, and

·              65 percent of the respondents say their companies are considering “increasing collaboration with suppliers on mitigating risk at their locations.”

 

A natural disaster-related supply chain disruption in China would have far-reaching and long-lasting negative economic impact, says Vinod Singhal, Brady Family Professor of Operations Management at the Georgia Institute of Technology’s College of Management. It would slow down the global economy because China is not only a major exporter of goods, but also a major importer of goods, he says. It would cause shortages in many consumer and industrial products that could lead to inflation and devastate the share price of companies, Singhal says.

FM Global recommends businesses ask four questions when looking at their organization’s resiliency, especially when it has, or could have, a critical reliance on emerging markets such as China. Those questions are:

Does senior management view resiliency as a competitive advantage and has it made the necessary commitment to addressing supply chain risk?

Has the organization examined how it can mitigate risk within its product design and manufacturing processes?

How well does the company collaborate with its suppliers to assess and mitigate risk?

Does the corporation have appropriate business continuity and disaster recovery plans in place for supply chain disruptions in emerging markets?

I think those are all good questions, and, depending on the truthfulness of the answers, they can get a company moving in the right direction to mitigate risk and create a resilient supply chain. The next step would be to identify and assess potential risks to determine which risks have a probable chance of occurring. By proactively identifying, assessing, and studying likely events and potential resolutions, it’s possible to mitigate those risks using strategies such as developing plans to source from different suppliers, developing supply sources in other locations (and even other countries), or using alternate modes of transportation.

What do you think? Would your business be impacted by a natural disaster in China? If so, are you prepared?

I’ve been thinking about cold temperatures lately—not cold weather, but instead, cold chain transportation. That’s because I’ve seen several announcements lately detailing how companies are improving their abilities to meet customers’ evolving cold chain transportation requirements.

For example, last month, Millstone Medical Outsourcing, a provider of customized outsourcing solutions for the medical device industry, announced it will provide freezer storage and cold chain distribution services for customers’ biologic products from the Memphis, TN, facility. That operation is already a Federal Drug Administration (FDA) registered and state- licensed human tissue bank, authorized to store and distribute human tissue and bone products. Next year, the company will offer cold chain product management services so customers can document validated cold chain integrity and compliance for their biologic product shipments.

The second announcement came from AcuTemp Thermal Systems, a manufacturer of active and passive temperature-controlled solutions used to transport drugs and biologic products. The company is expanding its network of global representatives and distributors, and the newest sales and service locations in its global network include: Wael Pharmacy in Bahrain; QualiChain Consultoria Industrial in Brazil; Care Biosystems in Mumbai, India; JJ Biotek in Bangalore, India; Systems and Services in New Delhi, India; Tareq Co. in Kuwait; United Horizon Company in Iraq; Samir Group in Saudi Arabia; and Y.H. Biotek in Taiwan.

As an article from Pharmaceutical Commerce points out, from a manufacturing perspective, getting pallet-sized loads of product into these countries is not extraordinarily challenging. However, going the next step, to deliver product locally, can be quite challenging. AcuTemp has extensive experience supplying containers for blood collection and delivery, which occurs in-country as well as being an exported product. Its product line includes passive (gel pack-based) containers as well as battery-powered active ones, and these latter containers are the ones that are proving adaptable to local conditions, the article explains.

Some of the systems can be solar-powered, which is an especially attractive offering for some of the hottest regions in the world, says Paul Kovarovic, VP of business development at AccuTemp.

Finally, UPS recently announced it has launched UPS Temperature True, a door-to-door cold chain transportation and monitoring service in Asia. According to UPS, trained agents will monitor shipment milestones 24/7 through UPS’s control towers around the world, and if risk is detected, pre-determined contingency plans will immediately be activated to mitigate risk of damage or loss.

The new service will ensure that vaccines, biologics, and other temperature-sensitive healthcare shipments arrive at their destination without compromise, says Craig Foster, senior vice president, Supply Chain and Healthcare Logistics, UPS Asia Pacific. Consequently, it will minimize one of the highest healthcare cost elements: waste due to product spoilage.

In other UPS cold chain transportation news, since Asian companies typically cite regulatory compliance, cost, and waste as their chief challenges, the company has worked with industry and governmental regulating bodies to develop a solution. That is: PharmaPort 360, a specially-designed airfreight container for healthcare cold chain transportation. It is designed to handle temperature-sensitive products and address the key industry issue of safeguarding these shipments, according to UPS.

Product losses from temperature excursions and mounting scrutiny from regulatory authorities compel healthcare companies to strengthen supply chain compliance and gain more control through shipment data, says Lim Bee Koong, director, Healthcare Strategy, UPS Asia Pacific. Having the information to prove that the integrity of a vaccine has been preserved in-transit, for example, is almost as critical as the contents of the package, Lim says.

This obviously isn’t all that’s happening in cold chain transportation. But I do find it interesting that all of the announcements were made within a week or so of each other. Do you think companies are responding to your requirements? What other challenges do you see?

 

Amid reports that BMW will supply Toyota with diesel engines and jointly develop car batteries as part of a comprehensive technology alliance, and that Honda is recalling more than 300,000 cars due to a defect in the driver’s airbag inflator module, the automotive news I’m particularly interested in this week is how General Motors is managing the Chevrolet Volt situation.

 

As you may already know, U.S. regulators are investigating the safety of batteries used to power electric vehicles after a GM Chevrolet Volt hybrid vehicle caught fire weeks after a routine crash test. As a recent Reuters article explains, the National Highway Traffic Safety Administration has asked other manufacturers who make electric cars—or plan to do so—for information on how they handle lithium-ion batteries. However, NHTSA said it does not believe the Volt and other electric vehicles are at greater risk for fire than gasoline-powered engines.

 

It’s important to note that GM said it was not aware of any other Volt fires. Furthermore, the Reuters story reports, a senior NHTSA official said the agency has received no consumer complaints about fires involving GM or other electric cars.

 

What’s most interesting is the steps GM is taking to reassure customers of the vehicle’s safety. An article that ran on Businessweek notes that North America President Mark Reuss sent a letter to Volt owners on Nov. 28 saying that if they have concerns about their safety, the company will provide them with another model as a loaner until the investigation concludes. So far, 33 Volt owners have asked for a loaner, the article notes. GM also is willing to buy back Volts from owners who are concerned about safety.

 

GM’s approach differs from that which is typically taken. A SupplyChainBrain link pointed me to a Los Angeles Times article in which the reporter, Jerry Hirsch, observes that GM has wanted to be more like Toyota for years. That is, GM wanted to sell more passenger cars like Toyota, and it wanted Toyota’s reputation for reliability. Now, however, GM is working to not be like Toyota. Specifically, GM has shifted into communications overdrive, summoning senior executives and engineers alike to talk about the issue, and to also launch a customer-care initiative, Hirsch explains.

 

What GM has done is to react quickly to allay customer fears, says Eric Noble, president of the CarLab, an industry consulting firm, in the article. This is a smart move on GM’s part because the total exposure to GM is infinitesimal, considering the small number of Volts that have actually been sold so far, he says.

 

I’ve posted before about the results of a survey by brand relationship marketing firm the Relational Capital Group, which asked respondents questions regarding their beliefs about the handling of recalls, as well as their purchase intent and loyalty for each recalled brand relative to its key competitors. What I find interesting is that 91 percent of those surveyed agreed that “despite modern technology and honorable intentions, even the best-run companies and brands can make mistakes that lead to product recalls.” Furthermore, 87 percent of the respondents agreed that they are more willing to purchase from, and remain loyal to, a company that handles its product recall in an honest and responsible way.

 

Given the results of that survey, I think GM’s strategy to be open and communicative is a sound one. In the end, I don’t think there will be any lasting impact on sales of the Volt, or on GM in general, for that matter. Do you?

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