Skip navigation
2011

Keagan Rubel has a general business background where he has worked with business development at startup companies to bring them from the ground up. He also worked in the remodeling industry for 6 years in the capacity of business development and strategy. Keagan then moved to China and spent the last 5 years working with Business Process Re-engineering and Research & Development for a corporate training company. Keagan believes that being a generalist helps him to inform people on sustainability, energy efficiency and carbon management decision making.

 

Keagan recently graduated with an MBA in Strategic Carbon Management from the University of East Anglia which is a carbon management and environmental management research institution. They have been taking the carbon management and sustainability side to help businesses find various win-win situations that are available to them.

 

 

Why is carbon management important?

 

Keagan thinks that the 21st century will demonstrate the human fundamental dependence on nature. This is currently being demonstrated in rising food prices and rising energy prices. We hear various credible predictions of 42 years for the time we have remaining for easily accessing oil. Other energy forms such as coal will be available for roughly 200 years.

 

It is a matter of management of resources. Supply chains will certainly be affected as the supply of these resources decreases and as the supply of materials for your operation inputs are restricted. The 21st century will be about resource management. In regards to carbon management resource management is exacerbated by the impact carbon is having on our environment. Even the energy resources we have in our ground, as depleted as they are, mankind will not be able to extract and utilize them under the business as usual scenario. This is due to the fact that they are creating an insulative layer in our environment which are impacting the ecosystems on which we really depend.

 

Therefore, carbon management is important for not only in the macro sense of long term sustainability, but also as various legislation falls in line with science there will also be a micro bottom line effect as well.

 

What do supply chain managers need to know about the carbon markets?

 

There are a wide range of carbon markets, from voluntary to compliance.

 

Compliance markets – In the compliance markets we have a wide range of different markets which have different levels of tightness for their caps which have an impact on prices for the carbon units traded. For example, we can talk about the secondary markets that are traded in the spot and future exchanges for CERs (Certified Emission Reduction) units that are part of the Kyoto Protocol. These are the most commonly traded carbon units at this point, aside from the ERUs, which are part of the European Union Emission Trading Scheme.

 

When talking about the CERs as they pertain to supply chain management, prices have been extremely depressed. Prices have really collapsed within the last few months. There is a short-term uncertainty about prices. That uncertainty is translated into extremely depressed prices which ultimately will minimize any pricing or cost interference that carbon may potentially have as it relates to material inputs.

 

Generally carbon markets don’t affect the distribution side of supply chain management. Most of the carbon markets in their current form and their level of maturity don’t cover transportation. As it relates to the distribution of your products it is generally not covered in most carbon markets at the present. It will be covered in the future. The Western Climate Initiative will be covered in the future. Aviation is beginning to be covered in the European Emissions Trading Scheme.

 

Supply chain managers need to understand that while prices are currently depressed, they are about 4.64 Euros, while historically the price was 12 to 15 Euros, down by about 33%. As demand recovers the price certainly can go back up.

 

Being aware of the carbon intensity of your supply chain and the relationships which your various supply chain components have to the carbon markets will be important in order to mitigate the potential price impacts.

 

Who is doing carbon management well?

 

A lot of people talk about who the winners and losers are of these various systems. There is certainly a range of best case studies. It depends on how you define carbon management. Carbon management can be seen from different angles. From the most literal direct understanding of the term it is about managing your own carbon.

 

Given carbon dioxide emissions close relation to energy consumption, a lot of times carbon management is associated with energy efficiencies, increased insulation and increased energy utilization. This often means updates or switches for machinery and/or re-engineering the supply chain to cut out more energy intensive steps and really accounting for carbon in your value chain re-engineering.

 

However, if you look at carbon management from a broader strategic point of view from the company, you are really looking at how you are capitalizing on the threats and opportunities that the carbon markets present.

 

General Electric has their innovative Ecomagination product line which expands their product portfolio to take advantage of rising energy prices. In a sense they are managing the carbon of their end users by providing highly energy efficient products which is impacting their bottom line. It has been quite a successful program for them.

 

Other companies have taken a more literal sense of the definition where they are focusing on their internal operations and making them more efficient. Good examples of this include the heavily energy intensive companies such as utilities, metal manufacturers, cement, glass, paper, etc. This is where the low hanging fruit lies in terms of energy efficiencies given the large amount of energy they consume in their operations.

 

Recommendations for supply chain managers

 

Keagan’s recommendations for supply chain managers are to engage their supply chain members. Ultimately, as communications and information technology enables greater transparency for various corporate activities, what you will get is special interest groups really taking a more active role in company activity and using the technology to amplify their effects if they see a perceived wrong doing.

 

If you are a very wasteful company or if some of your supply chain members are very wasteful, it is certainly a risk for your reputation. When addressed it may become a bottom line gain. A lot of carbon issues related to energy. From the surveys Keagan has been a part of they see a lot of missed financial opportunities, not just within the operation but also up and down along the supply chain for energy efficiency gains with a 3 year or less payback period.

 

It is important to engage your supply chain members and recognize they can be a point of vulnerability. One doesn’t have to look far. For example, Nike’s disaster which happened as a result of employing child labor very far down the supply chain and which is normally out of the scope of direct management of a supply chain manager. Nike learned to really engage their supply chain members more actively and push their values through the supply chain.

 

Keagan recommends pushing your values all the way through the supply chain to ensure you are not exposing yourself to various risks related to carbon management.

 

About Keagan Rubel

 

Keagan_Rubel.jpg

 

Carbon Policy/Market Analyst and Engagement Strategy Consultant

Carbon Disclosure Project

LinkedIN Profile

In an interview I had with Debbie McGowan she advised that before we consider the implications for outsourcing during tough economic times we need to consider why we do it at all. The catalyst which creates the desire to outsource varies but generally it is always because of a business issue which needs solving.

 

 

Which Side of the 3PL Love-Hate Fence Are You On?

 

Views on third party logistics providers are often polarised you either love them or hate them. Talk to a cross section of a third party logistics provider’s clients and the perceptions will vary considerably. By nature we only recall the last worst experience, we tend to accept as a given good service and only exceptional service may warrant comment. The views often change depending on what level of management the question is posed to. More junior managers focus on the day to day tactical and operational issues more senior managers on the strategic and general business opportunities.

 

Every coin has two sides for every reason to outsource there is a potential

reason not to outsource. Recession or not, the approach should be to clearly

identify the motivation to outsource and the expectations before you do

anything." --- Debbie McGowan

 

Reasons for Outsourcing

 

Before we consider the implications for outsourcing in a recession we need to consider why we do it at all. The catalyst which creates the desire to outsource varies but generally it is always because of a business issue which needs solving. Common sense you would say, if a company does supply chain well why would they want to outsource all or any part of it? Often we hear the phrase supply chain is not our “core competency” we are retailers, we are manufacturers, we are energy suppliers etc.

 

The reasons for outsourcing are often given as

 

• To ensure we have a leading edge solution and innovation by using the best technology, equipment and techniques from the supply chain specialists

• We believe outsourcing will be more cost effective

• We need greater flexibility and access to synergies with other organizations

 

What you do not often hear people say for example is

 

• We had industrial relations issues we needed to solve

• We wanted to make a major step change we simply did not have the resource or courage to manage it

• We needed assets off the balance sheet

• We needed capital investment and could not get it in house

• We are enjoying a period of phenomenal growth and our infrastructure is failing

 

 

All of the above are valid reasons why organizations outsource their third party logistics in the good times. In a recession what would you rethink about outsourcing and why would you consider taking it back in-house? Well the “hard work” may have been done and you feel comfortable in taking it in house for a few years and saving the management fee cost. You may be having a poor experience with the outsource solution provider just not delivering to your expectations and feel you could do it better. Maybe you believe that the third party provider is more focused on the challenges within their own business than they are with yours.

 

Identifying Outsourcing Motivations and Expectations

 

In a recession why would you consider outsourcing, well I would argue because all the reasons we outsource in the good times are amplified. In difficult times we are working harder on our core competencies we have greater business issues to deal with, our volumes may be down our workforce unstable or subject to headcount reduction, our cash flow impacted and our financial model at risk. Equally because of our market sector we may be experiencing significant growth in the recession and our business model cannot cope with the challenge in-house any longer.

 

Every coin has two sides for every reason to outsource there is a potential reason not to outsource. As a poacher turned gamekeeper I would outsource 9 times out of 10. Generally I would challenge those who claim outsourcing is not effective, in my experience it is about how effectively the third party provider is negotiated with and subsequently managed. How to negotiate with and manage third party relationships is another subject and a huge opportunity. Recession or not, the approach should be to clearly identify the motivation to outsource and the expectations before you do anything. It is easy to focus on trucks and sheds but outsourcing to a third party logistics provider can be so much more.

 

 

 

Are you considering broader issues in the supply chain?

 

• Making it easier to source from Global market places and de-risking it

• More effective inventory and vendor management with ways to keep inventory off the books until it is required

• Access to new technology reducing back office resource up and down the supply chain and direct labour

• Transfer of assets and leasing opportunities

• Capital availability for major change projects or replacement programmes

• Cash flow opportunities with extended payment terms

• Joint venture shared risk and reward opportunities

• Increased flexibility and access to an extended network capacity

• Opportunity to sell on capacity in your own supply chain operations and defray costs

 

Some of you will be saying, I can do some of that for myself and in truth you can, but will you devote the time to it, do you have the resource to do it and will in house deliver the benefits the financial model third party logistics companies may offer?

 

 

About Debbie McGowan

 

debbie.jpg

 

Logistics and Supply Chain Director Level Professional

LinkedIN Profile

I recently interviewed Dustin Kloempken who is a Sustainable Operations Officer who discussed his views on Green Supply Chains, particulaly dealing with the small business market. Much of Dustin Kloempken’s work regarding the supply chain centers around helping clients to begin their path towards a greener supply chain by suggesting that they develop policies and codes of conducts for their co-workers to follow. His goals are to ask insightful questions that will spur the client to think about their business in a different way.

 

Dustin Kloempken got into the energy efficiency realm after spending some time at a school based in the Bahamas which is totally off the grid, with solar, wind, rain water catch systems, aquaponics and other renewable energy concepts. He learned that you can live with a very minimal impact without having to suffer.

 

Dustin went to school at University of Colorado at Boulder where he graduated with a degree in Environmental Studies and with Business & Math minors. During that time he started working with a startup business doing sustainability consulting for small businesses. They help small businesses improve their sustainability in a number of different areas such as purchasing, supply chain, water, electricity, HVAC and more. Dustin also facilitated the project of installing a 1 Kilowatt array of solar panels on his previous high school based in Minnesota, which was completed roughly 2 months ago.

Dustin is now is the process of transitioning into working with bigger businesses doing energy efficiency or carbon offsets, ideally working with the supply chain because that is where he is seeing the biggest improvement opportunities.

 

 

Dustin Kloempken’s Core Competencies

 

Dustin tries to focus on integrating the technical ideas and concepts with the actual political and policy side, in an analytical way. One of his strengths is translating technical concepts in way so that anyone can understand the idea or the mathematics behind it. He has been working with a startup company to develop a sustainability assessment system so that anyone can go into a small business and complete the sustainability assessment and accurately understand from a financial, environmental and business standpoint where the company stands. Dustin has been developing these systems so that companies can better understand where they are and how they can move forward.

 

Dustin is experienced with Microsoft Excel, project management dealing with multiple stakeholders such as students, teachers, grounds managers, building permit people, etc.

 

Some of his specific experiences include: writing a sustainability plan, facilitating the installation of solar panels for a high school, and working with a carbon offset organization and the implementation of these credits with larger organizations.

 

Green Building Design and Supply Chains

 

A lot of the passive solar or green building designs Dustin has worked on have been residential, dealing with passive solar rainwater catching systems, different forms of insulation for heating and cooling. He thinks that a lot of where that market falls within this tends to be with social improvements or creature comforts or Health & Safety.

 

Dustin is finding that a lot of businesses are wanting to improve their actual work environment. They are finding that a lot of these concepts can help improve the livability within the business. If employees are in their business most of their lives, you might as well try to improve the livability of the area by having some areas for passive solar where employees can get some vitamin D through sunshine during the day. You can improve the actual setup of where they are working to make it more ergonomically correct for a workstation.

 

A lot of businesses are trying to integrate these concepts to help their employees become more productive and healthy.

 

Core Principles

 

Dustin’s role has been dealing with energy efficiency. The general approach you want to take is:

 

1. Conservation - Dustin and his team try to work with clients to suggest ways to conserve energy or to re-arrange how they do their business.

2. Efficiency – Improving efficiency of things like recycling, trash system, use of light bulbs or even looking at the supply chain to develop protocols or conduct for working with suppliers to ship more efficiently. Dustin starts by trying to bring awareness to the small things companies can do which have large impacts not only for them but for their upstream suppliers and their downstream customers.

3. Renewables

4. Offsets – Such as installing solar panels to offset emissions.

 

 

Small business receptiveness

 

Small businesses are interested in the ideas but because cash flow is quite tight they want to make sure that the ROI is quick. A lot of the lighting efficiency upgrades which Dustin has been doing have been seeing a return on invest in about 9 months.  A lot of companies are open to it but they need the financing mechanism to float them during that time. Some of these changes require quite a bit of upfront cash.

 

Final recommendations

 

Dustin believes that developing the consciousness or awareness of sustainability is the key. A lot of people are still unaware of these basic concepts.

There are so many ways you can dissect and look at these different concepts. They all feed into one another and affect each other. It is hard to analyze one small area such as Green Supply Chain, without looking at things such as lighting efficiency, worker productivity, etc.

 

Dustin has been speaking with quite a lot of people who are working with larger businesses since he wants to get more involved with Greenhouse Gas Accounting, Tracking and Monitoring. He has been asking these people what they foresee as the position develops. Many of them feel it will be integrated with supply chain efficiency.

 

Dustin sees the future or the next big thing to be greening the supply chain and tracking your carbon for that. His goal is to develop systems for making supply chains more efficient, tracking greenhouse gases, doing offset programs and getting the word out to the public through public relations work. A lot of people don’t have a good understanding how these different concepts and ideas affect each other. It all has a cascading effect on the upstream and downstream cycle of things. There are a lot of good things happening, but there are also a lot of hurdles to getting these ideas implemented.

 

The typical mentality of a lot of people who manage buildings or supply chain is that they are only allocated so much from the budget every year to use. The less money they use, the better they look. This is really not the best option when you are dealing with energy efficiency of a building because if you actually make up front investments it will produce year after you. You need consider the cost of doing nothing, which is a big deal that a lot of people don’t think about.

 

Dustin took a class dealing with systems efficiency where he examined an actual bookstore dealing with their suppliers. Since this class and his experience working with small businesses he found that a lot of times there is not a lot of communication between the actual supplier and the person who uses the product or service from the supplier.

 

If there is not communication there will be no incentive for the supplier to go above and beyond, or for the person actually receiving the products or services to go above and beyond to improve their relationship. Dustin thinks there is a lack of communication between these different parties. The big movement with Green Supply Chain is to open the communication up to explore areas of mutual benefit.

 

About Dustin Kloempken

 

Sustainable Operations Officer

Ecosyste.ms Consulting

LinkedIN Profile

I interviewed David Serafine who has spent the last 12 years designing supply chain security solutions in over 30 countries. As CEO of Clareo, Inc., a premium security solutions provider, David Serafine doesn't believe in cookie cutter approaches to supply chain security. Instead, he employs a suit of suite of services and experience that consider the unique risk variables, geographies and circumstances of each company.

 

 

Supply chain security, David says, needs to be a value in an organization and not a priority… priorities change daily. Values are inherent and stay constant.

 

 

 

 

Who is Clareo?

 

My name is David Serafine and I am the President and CEO of Clareo Inc. I have spent the last 12 years designing supply chain security solutions in over 30 countries to date. I began my career working for a private security company, eventually being promoted to a district management position and finally directed the global supply chain security program for a fortune 50 company, which led to the creation of Clareo Inc.

 

 

Clareo Inc is a premium security solutions provider that focuses on designing secure global supply chain programs. The company was created in response, to what I believe to be very limiting, ineffective regional offerings that do not meet the unique aspects of global companies.  Based on my experience, it was critical to offer a global suite of services and experience that accounted for unique risk variables, geographies and circumstances for companies… no more cookie cutter approaches.

 

 

Q. What are some primary factors that impact global supply chain programs?

 

 

I believe there are a number of factors that have impacted global supply chain efficiency and cost.

 

 

Theft:

 

Depending on which resource you cite, there is anywhere from $50-$100 billion lost each year due to theft, every penny of which is then tied right back to the increasing cost of the commodity. Theft impacts supply chains by increasing future premiums, impacting supplier availability, concessions, to angry customers, overtime re-build, loss of future sales in markets, etc.  An enormous impact that is rarely tracked properly in companies

 

 

Global MRAs (such as C-TPAT):

 

Companies fail to understand the requirements of the upkeep to these programs, the programs themselves lack teeth and quite honestly, they were meant to be a very minimal baseline for companies to build their supply chain security programs on, not to define the “end state of their programs.” They are also myopic; they are based on one country’s perception of an acceptable minimum standard. Companies have allowed these programs to

define their end goal to global supply chain programs and are unsure why their losses and costs continue to rise.

 

 

The silo effect:

 

The pressure to cut costs immediately has created a brutal cycle of chewing up vendors and the resulting “savings” is merely a snapshot of the day. I have numerous examples of companies “saving” money through a change yet every bit was lost in a few months due to theft, fraudulent damage claims, etc. These figures are rarely communicated across departments and the cycle starts all over again to find a cheaper provider.

 

 

Total loss of visibility to build and ship of product:

 

The order of the day is to find someone to build the product on your behalf cheaper, ship it and deal with returns, etc. ODM production, while maybe cheaper on the front end, is taking away all visibility to the build and ship of a branded product. This is impacting brand integrity, increasing the risk of loss and further burying the root cause accountability for the product loss. 

 

 

Q. How do most companies try and manage their supply chain security programs?

 

 

Some utilize insurance alone:

 

This would be what I would refer to as the worst case scenario within a global supply chain program. This literally encourages specific targeting of that commodity by organized gangs.  This is merely a way to pass back any occurrence back to the consumer. 

 

 

Some utilize point-to-point escorts:

 

This is the least efficient use of money, and in many countries, is also ineffective. Some resources are not properly licensed, others have no counter-surveillance training, are trying to keep up with a truck over varying geographies and weather conditions for hundreds of miles, etc.

 

 

Some use the newest “widget” that is claimed to be the panacea for all supply chains:

 

Technology has some applications… when it actually works. There are numerous issues with technology, particularly in certain countries and in the manner in which they are being used.  Volume, cost, the ability to retrieve the device, ability of device to be located/defeated, type of container, etc all have an impact on success of this approach. The number one issue that I have found is that technology is almost always used as a reactive approach. Once the unit is stolen, the call is made and now the teams try and locate the losses sometimes through thousands of dots on a screen. The device “sleeps,” etc.

 

 

Q. What are some justifications by companies for not investing in proactive risk mitigation?

 

Insurance:

 

The number one response by companies is that they are insured.  However, if you ask the vast majority of people in any company what it means to be “insured” relative to a cargo loss, the typical answer is “we get 100% of the money back from the loss” due to theft. If you ask someone in risk management what it actually means, they will be able to tell you what shortcomings are contained within the agreement when the theft takes place. 100% coverage is never the case in any circumstance for the issues I mentioned previously, however, even more so, if we are referring to most international shipments where there are limits on liability for losses.

 

 

“It’s not my product”

 

This is an easy answer, and again, pushes the loss accountability back to other people and ultimately to insurance. Clareo helps facilitate agreements between carriers and companies to ensure both have a vested interest in front end secure design solutions. 

 

 

“We are C-TPAT certified”

 

Again, this is not going to stop a theft from taking place. This is a minimum facility standard and those, in and of themselves, will not necessarily prevent a theft from taking place. This is a minimum start for a global company to build a much more comprehensive layered program.

 

 

“We do not lose anything”

 

To that I argue one should bottle that and sell it.  All commodities, in their inbound raw materials suppliers or outbound finished goods, will have loss.  The better answer is “we do not know how much we are losing”…

 

 

Key points to consider in design

 

 

1.) One size does not fit all… do not let the latest widget dictate your global program.

 

2.) Multi-layer approach is critical, as is the point of origin risk and the point of destination risk.

 

3.) The program must have the ability to assess compliance, measure the results and evolve.

 

 

4.) Supply chain security needs to be a value in an organization and not a priority… priorities change daily. Values are inherent and stay constant. The commitment to these programs must be part of the commitments of companies to their customers to keep costs low long term and to keep the integrity of the product to the level they sell it. Value and not a priority.

 

 

Read more from David Serafine

 

 

What is Slowly Rusting Your Global Supply Chain: Government Incentives and Cargo Crime

 

David Serafine

Clareo, Inc.

 

http://www.clareo.biz/what_is_rusting.pdf

 

 

Value-Based Security Procurement

David R. Serafine, CPP™

ASIS International

 

http://www.abdi-secure-ecommerce.com/asis/p-79-1632.aspx

 

 

About David Serafine

davidserafine1.jpg

 

CEO

Clareo, Inc.

LinkedIn Profile

I interviewed Murillo Xavier, Strategic Development at Hewlett-Packard who discussed working on your relationships with suppliers.

 

 

Dustin:            Can you start by introducing yourself?

 

Murillo:            Yes. My name is Murillo Xavier. I have fifteen years of experience in supply chain, working in telecom, consulting, construction, food and beverage industries. I currently work for Hewlett-Packard, in supply chain strategy.

 

Dustin:             And you mentioned that you’re the author of a book. Is it two books? One, Project Management Head Start, and the other one called Strategic Sourcing.

 

Murillo:            Yes, Strategic Sourcing—Suppliers are from Mars, Customers are from Venus. This is my latest book. It was published in U.S. and in South America translated into Portuguese. It was also published in Brazil.

 

Dustin:             Can you tell us more about your book and what makes it different from the other strategic-sourcing books?

 

Murillo:            Absolutely. I guess the idea of the book is just to show strategic sourcing—that’s a very advanced, very difficult subject sometimes—in a very easy way. I tried to make it accessible for people who are not used to strategic sourcing, so I just came with this analogy with Mars and Venus, just like Men are from Mars and Women are from Venus, because I believe this goes very well with strategic sourcing.

 

Every time in a relationship, we have some stats like trying to understand what we want from the relationship, trying to find the right person, the right partner, and get to know if we have something together, something in common, and then getting married or living together and talking, really working together in the relationship.

 

And I believe that in most of business, it’s the same thing. Business relationships and personal relationships, they are very similar in the steps they go, so based on this analogy, I came up with the explanation for strategic sourcing, make it a little easier for people to follow, and to get to know a little more about this very interesting subject.

 

Dustin:             And in your opinion, your view, what is strategic sourcing?

 

Murillo:            Well, strategic sourcing are coordinated actions to improve the way you acquire products and services. In essence here, we are not just talking about the cost of the products, for example, but how this particular item that you’re acquiring relates to the entire strategy of the company.

So, the solution may not be to purchase the item, but to produce it in house, to develop a new vendor, go into a new strategic partnership, and all these have to tie to what each individual in the company, what they are doing. We are moving from the tradition of purchasing professional to a more strategic procurement professional.

 

So, instead of just placing orders, like in the past, what procurement used to do, now they have a more strategical role in this process. they have to understand the market, what the latest trends are, the conditions of the potential suppliers, so many other different pieces of information in order to buy or to acquire the best products for the best price in the best possible way.

 

So, there is a lot of business intelligence behind now. So, that’s the new kind of professional the market is looking for right now. They’re really trying to get all the information from inside the company and information from the market and bring together to give the best solution for the company.

 

Dustin:             Can you give a few examples on how strategic sourcing has been helping companies improve their results?

 

Murillo:            Absolutely. One interesting example, for example, comes from Nestle. Nestle, for example, has different companies under their name, so they have frozen foods and the fast foods business. And before they were buying chicken, for example. Frozen foods was buying chicken breasts for their prepared foods, and they were not talking to the other Nestle companies, and the fast food business, for example, was buying the other parts of the chicken. And they are doing this individual purchase, and they were not taking advantage of buying full chickens, for example, at a discounted price. So, once they realized they had something in common, some common interests with the other business of the group, they started consolidating this practice. So, they had great savings.

 

Johnson and Johnson, for example, they have different companies also, and whenever one company shows some operational excellence in acquiring some service, some parts, they just share this with the other companies. So, we are talking about companies that are really trying to understand what they buy and how they buy it. Disney, for example, they have annual savings of three hundred million dollars by strategic sourcing.

 

DuPont, seven hundred million reduction in fixed costs. Another example is Nestle Waters. They analyzed one of the most popular products, and they are trying to think of a better way to acquire PT Resin for a glass bottle, and instead of buying more, they just—rationalized what they were buying. So, they redesigned the product to reduce the consumption of PT resin. They reduced, I think, thirty-five percent, so it’s huge savings in fuel and in energy, transportation, and everything. Dell, IBM, all the big companies are adopting strategic sourcing initiatives, so the market is really hot right now for this kind of practice, and we can see examples everywhere.

 

Dustin:             So, how can companies use strategic sourcing in reaction to a market crash?

 

Murillo:            That’s a very interesting question. In recent study in 2000, in the market crash of 2001, studies from Bain Company, Bain Consulting, they saw that twenty-four percent of the companies who were in the back of the back in their specific industry, after the market crashed they jumped ahead of the pack. So, the explanation was that companies overreacted and they lost momentum. They just interrupted all the activities; they just tried to cut vendors with the supplies, and they did it very abruptly.

 

And later, when they needed their vendors, they were not there. So, a market crash is a great opportunity for companies to move ahead of the pack, and strategic sourcing goes very well with that, because with strategic sourcing,companies can understand what they are doing, what the market is doing, what the crash is about, if it impacts every area or just a specific, a particular area of the market. So, they can understand the crash and react faster to a crash and in the right proportion. For example, they would have to understand their own market, and what I mean by that is the crash will affect different companies in different ways.

 

McDonald’s, for example, with the crash, the last crash, they had a better performance, because people start trading down, they stop going to expensive restaurants and switch to fast food. So, the focus of strategic sourcing that caters between short supply. Bath products, baby products, they were less affected because purchase somehow more emotional than other industries. Coca-Cola, profits were down three percent in 2009 and they were concerned about their bottling partners. The focus was to maintain their partners.

 

P&G, profits down three percent, just like Coca-Cola, but they focused on product innovation. Some other different markets like luxury markets, they are more resilient, like Gucci, Louis Vuitton. So, for example, leather and fashion for luxury, these items grew eleven percent in 2009, but the same items for midmarket retail that are like Coach decreased by twenty-four percent.

 

So, as you can see, depending on the kind of industry, we can have a different concern about strategic sourcing. So, that’s the first step—but there are some common actions here companies can follow. Like in the market crash, involving suppliers, justified supplier audits, supplier rating programs, re-evaluate current credit with with suppliers. They will improve their focus on risk assessment, just understand their financial health, and capacity suppliers. They will do, companies will do a revision of purchasing budgets. They try to reevaluate their material needs, base it on volume and existing inventories. They will do more benchmarking in terms of studying.

 

The slowdown of the economy will allow time to understand the business and just try to understand the opportunities in the market, the target with existing partners. So, they will, they may delay purchase and try less expensive options, for example. They can reevaluate by agreement, and, of course, there is a huge concern about cash management when the market crashes, so they will try to conserve cash flow and initiate new costs reduction efforts. So, anyway, strategic sourcing is great when the market crashes. It puts the company, it’s a real differential for companies during a crash.

 

About Murillo Xavier

 

Murillo.jpg

 

Strategic Development

Hewlett-Packard

Suppliers are from Mars, Customers are from Venus

LinkedIn Profile

I interviewed Massimo Marchi who discusses his views of supply chain risk from the perspective of global sourcing and retail sales in the US.

 

 

 

 

Currently, 70% of our goods are imported, and 30% are made in the US.  With such a large amount of imports you can imagine [the complexity] of material management for action control, logistics, distribution, and IT. We are very concerned with transportation costs. We are importing 70% of our goods—and I would say most of these imported goods are coming from Europe—we are not only concerned about oil price, but also the Euro dollar exchange rate is a major issue for us. So when the price of the oil was really over a hundred dollars, we were extremely concerned. Right now it’s a little better as you know, but it’s still increasing.

 

 

I would say the most important action we took in response to supply chain risk was to change our shipment methods. At one time we shipped everything by air freight. Now we ship close to 90% by ocean freight. Air freight is very good because of the lead time and also security issues. Cargo airplanes and specific air freight transportation is, in general, more secure. But if you consider with the 2007 and 2008 oil prices, I would say that the ratio between ocean freight to air freight, air freight is 6 to 7 times more expensive for us than ocean freight. Therefore, we moved everything to ocean freight.

 

 

Regarding component procurement and sourcing, due to the high oil price and also the very high Euro dollar change, we launched a strategic project to source raw materials and strategic components domestically. Also because we want to improve the lead time, increase flexibility and activity of the supply chain, we have attempted t move the procurement of strategic components from Europe to NAFTA. Therefore we now have US suppliers and are also trying to work a little bit better with Mexico.

 

Thirdly, Packaging is really important for us. In the past we used big cases. Now we are moving to smaller cases which give us major flexibility of volume and will help us to improve transportation efficiency.

 

 

Although with this recession, I would say that total investment has been slowed down a little bit, but I’d like to tell you what we did in the past.

 

I think that one of the major problems in the supply chains is either they are not integrated and synchronized. So you have measure effect, bullwhip effect along the supply chain and a lot of fluctuations. And other supply chains don’t integrate in several layers. Other supply chains, they don’t communicate to each other.

 

 

Our company is vertically integrated, meaning that we own the factories, the suppliers, sometimes even the sub-suppliers, and also the distributor. So we created a platform, which we actually called ILF, (Integrated Logistic Flow), which is basically software where we realize a global S&OP process and every single company of the supply chain can view the supply chain from a holistic perspective, looking at the global situation, the inventory. Every single tier of the supply chain can see the inventory of finished goods of other tiers and also the commercial orders and shipments, so that, for example, whenever we have a decline in sales it is immediately transparent to our suppliers and also sub-suppliers. We are trying to integrate and manage information as much as possible and to be transparent internally, now a group of companies.

 

 

We are exploring different technologies. We plan to invest in a new forecasting procedure and software. We are implementing a formal S&OP process, and everything starts from a good estimation of the sales, of the demand, and forecasting. So a good forecasting accuracy is really extremely important for us.

 

 

A few years ago, we invested money into RFID, which is the new radio frequency identification device technology. We did this because we are a DOD supplier, and this RFID thing is one of the mandates. Currently, I don’t think that we are using the potential of the technology, but we’ll continue on this road. This will give us a better visibility of the goods along the supply chain, so, therefore, a better control.


About Massimo Marchi

 

 

MassimoMarchi.jpg

 

Massimo Marchi is the director of supply chain management and IT at Beretta. Beretta is an international company, headquartered in Italy. The company has 3 factories in the US. Massmo Markie is responsible for supply chain; end-to-end, including sourcing of raw material components -- from sourcing to demand planning, forecasting, up to the delivery of finished goods and reverse logistics to different channels. Beretta is a multichannel company in the sense that they are selling to DOD, law enforcement agencies, but also big boxes like Wal-Mart and major distributors in U.S. They also sell to small stores. The company has a director of consumer business unit, and they are selling through their direct stores.

 

 

LinkedIn Profile

Today, according to David Ross, an independent consultant in the area of professional development and education, CRM has involved into a new concept called Customer Experience Management, or CEM.The idea is to pursue the concept of CEM at all levels of an organization, something Ross says begins by structuring your supply chain to deliver an exceptional experience whenever the customer calls.

 

 

The Internet changed everything, and American-based businesses quickly learned that traditional branding and customer loyalty programs were no longer relevant in world where access to a competitor’s product, often at a lower price, was just a click away.

 

At first blush, Customer Relationship Management (CRM) software was thought to be the salvation. Armed with more information than ever before, companies felt certain they knew everything there was to know about their customers, which at the time, was expected to be the key to retention. But, as the Internet matured, and connectivity tools proliferated, it became clear that CRM was only half the equation.

 

 

Focus on what the customer really wants, building customer loyalty that

goes way beyond the actual products that's delivered. Simply because, they

can get the product anywhere, they're looking for something new and

different that they can't get someplace else. What they're looking for is a

customer experience... --- David Ross

 

 

 

Structuring Supply Chains to Deliver Unbelievable Customer Experience

 

In his book, “The Intimate Supply Chain,” Ross examines how to structure a supply chain to deliver an unbelievable customer experience at all levels. Ross’ favorite example of CEM is Starbucks. What he find so interesting about the company is that it successfully sold customers on the idea of standing in a long line to pay $4 for a cup of coffee, which Ross says amounts to nothing more than “some boiled water, some coffee beans and some sugar.”

 

Clearly Starbucks offers a high quality cup of coffee, but the product itself was not the draw. Rather, it was the overall experience. Walking into a Starbucks, smelling the aroma of the freshly ground coffee, soaking up the ambience of the store, standing in line to work with a barista trained to craft the perfect cup of coffee prepared to your exact specifications, all added up to a unique experience that consumers fell in love with.

 

Equally intriguing is the fact that Starbucks charges a premium price, not for the commodity it sells, but for the experience. That, says Ross, is something manufacturers and distributors need to focus on… creating a “wow” experience at each touch point in the supply chain.

 

And one final lesson learned from Starbucks is this… the customer does not care about your problems. They don’t care if you’re having internal issues and they don’t care if you’re having problems with your supplier. When they come to purchase a product all they care about is availability of the product at the moment they want it, receiving a quality product, and an overall experience that makes them feel like they’re dealing with a winner. Still, the question remains, in the United States, where the cost of manufacturing and distributing products is typically higher than in other countries, how can companies compete?

 

David Ross believes the answer lies in building customer loyalty by providing that one-of-a-kind customer experience -- an experience that a company in a remote location, or one that doesn’t understand the value of the customer management, can’t touch.

 

The idea is to pursue the concept of CEM at all levels of an organization, something Ross says begins by structuring your supply chain to deliver an exceptional experience whenever the customer calls. Ross also advises that we stop obsessing about the loss of brand loyalty and worrying about competing on price. Instead, he says, “Focus on what the customer really wants, building customer loyalty that goes way beyond the actual products that’s delivered. Simply because, they can get the product anywhere, they’re looking for something new and different that they can’t get someplace else. What they’re looking for is a customer experience.”

 

For supply chain, Ross believes it’s time to move beyond simply linking buyers, suppliers and distributors via technology into building a single, integrated distribution and manufacturing channel that functions as a common, virtual organization. Today’s supply chains are lean and operationally efficient, but that, Ross says, isn’t enough. The future of supply chain is visibility and agility. In David Ross’ words, “Using technology to see all the events that occur in supply chain and being able to respond to those events on a real time basis at any place within the supply chain.”

 

How do you build an agile, customer-centered supply chain that can be optimized at any point to satisfy a particular customer requirement? Ross

says it’s all about leveraging raw materials suppliers, product integrators, third-party logistics providers, and then integrating them using today’s Internet tools, including social networking, a phenomenon that is taking companies beyond traditional methods of transaction-based data analysis, into the realm of real-time, real-life opinions of consumers.

 

“Having the ability to respond, almost instantly, to what folks are feeling about the products themselves, the promises that have been made in marketing materials, pricing issues, product availability, the whole gamut of things associated with the acquisition and use of a product,” is what David Ross envisions as the future of supply chain management as it relates to the new, and constantly evolving, Customer Experience Management paradigm.

 

About David Ross

 

David Ross is a recognized Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) industry expert. For the past fifteen years he has focused on ERP/SCM education program management, internal professional development, e-learning tools development, and education program administration.

 

Besides many articles and white papers, Dr. Ross has published five books in logistics and supply chain management. His first book, Distribution Planning and Control (Kluwer,1996), is used by many universities in their logistics and supply chain management curriculums and is a foundation book for APICS’s Certified in Production and Inventory Management (CPIM) program. A second edition was published in January 2004 and is on APICS’s “best seller” list. His second book, Competing Through Supply Chain Management (Kluwer, 1998) was one of the first critical texts on the science of supply chain management. His third book, Introduction to e-Supply Chain Management (CRC Press, 2003) merged the concepts of e-business and supply chain management. This book has been adopted as a cornerstone text for APICS’s Certified Supply Chain Professional (CSCP) program.

 

His most recent book, The Intimate Supply Chain: Leveraging the Supply Chain to Manage the Customer Experience (CRC Press, June, 2008), explores how supply chains can be constructed to provide total value to the customer.

I interviewed David Schneider back in the fall of 2008, after the credit markets seized and capital was tight as a drum. A good part of that interview focused on what supply  chain managers should be doing at that specific time, At that time he discussed that instead of focusing on developing new systems, it was the time to make the most out of the systems you have, and to make simple changes like rerouting runs and seeking out opportunities for collaboration. Rethink everything. Innovate with the tools you have, or take those same activities and hand them off to a 3PL, and let them do the innovating.

 

In 2008 and 2009 the right thing for companies to  do was to maximize their current investments, building their knowledge  and utilization of capacity that was already on their asset sheet. 2008  was not the time to invest in new systems were technology.

Today, actually in 2011, more companies are taking their cash and  investing into systems that will take them the next step.  Those  companies maximizing their investments in 2008 and 2009, were looking at  options in 2010 and then were pulling the trigger in 2011. If you have the  cash, now is the time to be making investments in either improving your  capabilities through systems or your capabilities through the skills  and tools available to your workforce.

 

 

 

Below is the background from David in 2008:

 

Supply chain managers are between a rock and a hard place. Tasked with reducing costs without falling behind the innovation curve is challenging to say the least. David Schneider, President of David K. Schneider & Company, says supply chain managers are no longer relying on the development of new systems to achieve innovation. Instead, they are focused on developing new processes, increasing collaboration and rethinking outsourcing, which he says can be an automatic trade up in capabilities and knowledge.

 

 

Getting the Most Out of the Tools You Have

 

David Schneider says he isn't seeing innovation in the traditional sense. In other words, supply chain managers are not focusing on existing or new systems. Instead, as far as innovation goes, supply chain managers are focused on cost reduction. Where the innovation comes into play, according to Schneider, is in using the assets they already have to the fullest extent possible, and in making simple changes like rerouting runs and seeking out opportunities for collaboration. Some companies, he says, have invested in tools to help drive this better utilization of the fleet assets, but he isn't seeing as much economic spend in that area. "It’s mainly using the tools that you currently have and really pushing what you get out of ’em to the max," Schneider said.

 

 

Another recession-related behavior pattern Schneider has identified is "companies taking management tasks and management workload and pushing it off to either an existing relationship with a third party or a new relationship with a third party." Rising fuel costs were the driving force behind such strategic decisions, although the secondary benefit  of moving tasks to a third party provider (3PL) is often a reduction in "head count."

 

 

"So really," Schneider concluded, "you can innovate with the tools you have or take those same activities and hand them off to a 3PL, and let them do the innovating."

 

 

A Trade Up in Capability and Knowledge

 

Making the decision to move to a 3PL does eliminate staff that would otherwise be redundant, and that translates into cost savings. It's not, however, just a net gain in cost, but also in capability, because 3PLs have experienced staff  with more expansive knowledge. David Schneider calls it "a trade up in capability and knowledge."

 

 

To be successful, 3PLs have to be innovative as well. "There are 3PLs," Schneider said, "who are watching their business drain off because they haven't been innovative, and truly customer focused, and they’re finding it very difficult to stay in business. That’s also going to help winnow some of the poor-performing 3PLs out of the pool, so to speak, of available 3PLs."

 

 

The lesson to be learned, said Schneider, is that a company has to be prepared for the changes that come with choosing a 3PL, or doing any type outsourcing for matter. If the internal staff is not prepared, or are fearful of the change, there will be serious hiccups along the implementation process.

 

 

Staying Alert and Aware

 

The risk of becoming too reliant on outsourcing is allowing ourselves to be less alert and aware of changes. When contracting with a 3PL, we expect them to provide expertise in areas of importing and exporting for example -- specifically in regulatory matters, such as the Transportation Safety Administration's new cargo screening regulations and 10+2 regulations on shipment documentation.

 

 

That, in Schneider's opinion, is an area where 3PLs really shine, but it's also vitally important for companies who hire 3PLs to understand how and where they tie into the process and what their roles will be. "With the heavy dependence on 3PLs, I’m not sure if shippers are learning what they need to do as quickly as they would have if they had the time to learn it on their own. We’ll see if after the recession fades away, we’ll see how many shippers decide to try to take that on their own or they leave it at their 3PL,” Schneider added.

 

 

"I think one of the other  things that is coming out of the recession, is that there’s much more attention on the C-suite—with the chief operating officer, your chief executive officer—there’s more recognition on their part of the impact of logistics and supply chain, whether it’s managing the inventory, managing the sourcing, managing the transportation. It’s now more and more that the C-suite executives are starting to really get the impact of supply chain," said David Schneider.

 

 

Avoiding Consequences

 

Projecting inventory in an uncertain economy represents risk on a number of fronts, which means the longstanding offshoring trend may soon reverse. According to David Schneider, "Companies are seriously looking at where they’re sourcing product, and making decisions to pull back out of China either into Mexico or into the US or some other country that is able to give them shorter lead times and make them more responsive.

 

 

Those are some of the direct effects we’ve seen from the economic downfall along with some of the other global and society-based, governmental-based pressures on that supply business."

 

 

About David Schneider

 

david_schneider.jpgDavid’s consulting practice focuses on growing firms that need guidance to develop a supply chain that can sustain and enable exponential growth.

 

David’s “agent of change” role over 12 years at Pep Boys Auto improved the effectiveness of the supply chain. From his unique management overview he built inter-related synergy in the company. He led nimble cross-functional teams focused on strategic network design and function, teams that made tactical decisions to interrelate internal and external systems, and teams that executed implementation projects such as of the construction of 4 distribution centers and the development of a complex integrated transportation network.

 

 

In the 5 years prior to his time at Pep Boys David served as a Project manager and a Project Engineer at James R Keogh & Associates (now Keogh Consulting) where he worked on over 30 distribution and logistics clients from a wide array of clients and industries.

 

 

Before joining Keogh, David was a member of the Payless Cashways corporate distribution team. David started his career in supply chain as an assistant DC manager of a Payless Cashways distribution center. Promoted to higher levels of responsibility at Payless David worked on multiple corporate strategic planning projects for the senior officers.

 

 

David graduated from Missouri State University (former Southwest Missouri State University). He has presented on Supply Chain, Logistics and Distribution Center Management topics at WERC, CLM, MA-Momentum, DC EXPO, Retail Summit, RILA and other conferences.


LinkedIn Profile

Off-shoring has increased dramatically since the year 2000. Companies sourcing overseas face significant supply chain risks due to mis-communication. Companies must spend the time to meet face-to-face and communicate effectively with suppliers.Jeffery Moore has served as director of operations, general manager and plant manager of operations, and his responsibilities have included all P&L responsibility, quality shipping, scheduling, engineering, customer service and sales.

 

 

 

I have been dealing with local suppliers and offshore suppliers, first starting in Mexico, then going to India and to China. What I have seen so far is that the increases in risk on the quality side have taken a trend for the negative side. When we first introduced the new products back in the ’80s and ’90s and even early 2000, there was always an issue with going to the supplier, sitting down with them, going over the quality information, making sure they understood what SPC was, and how Six Sigma was used, if you want to use that word.

 

 

I think what happened beyond the year 2000 is that there has been so many new suppliers.  In China, for example, we didn’t take the time to go over and sit down with them. We just took product prints, sent them over by e-mail or PDF file, and the supplier quoted and sent them back. There was no sit-down face-to-face discussing what quality issues they would have. What I see happening right now is that we are getting the products coming over on the ship, which has 30 days of supply. The product comes into the plant and we find out they can’t be used. Then there is an argument between the supplier and the plant, because once they ship it out of the Chinese port, you own that material.

 

 

The missing link here is the issue with not sitting down face-to-face and looking at the dollar value, and the benefits and cost of offshore versus local.

 

The offset of that money is being taken up with inventory that you can’t use or have to rework. The Chinese supplier may not have a good interpreter, or it may have an interpreter, but they’re from a Chinese descent and they really don’t understand the language. The interpreter may only know some of the engineering terms, roundness and squareness, certain measurements and how to measure, etc.

 

 

Once that product gets into the American plant measures it—let’s say they use an XYZ machine—and they develop a PPK or CPK on that particular measurement, they send that issue, those measurements back to the Chinese suppliers. Then the Chinese supplier can’t decipher it because they do a lot of hand measurement. So they can’t correlate the measurement.

 

 

Once the products get into the plant and they get measured to prove to the Chinese supplier that they’re out of the measurement specification, they have a hard time correlating with the measurements that the plant sends them and how they check them when it leaves the plant. This is due to the fact that they usually measure with hard gauges or hand measurements. This can mount up to 4 to 5 hundred thousand dollars in inventory, and that’s a big risk.

 

 

To mitigate this risk you need to sit down with the Chinese supplier and go over all the measurements, how it’s measured and agree upon the measuring points. If you are going to get into any type of automatic measuring with an XYZ machine versus hard gauges, they all have to measure the same way, so when they agree or disagree that a part is not measurement specifications, they know how they got it.

 

 

3 Major Off-Shoring Risks

 

 

1.    Not sitting down with the supplier.

2.    Not having the same measurement techniques quantified. They all have to be verified to the same calibration on the measurement type of machines.

3.    You don’t have a good interpreter. The interpreter needs to have an understanding. You need to make sure that they can do quality checks and check on the SPC information. What I have seen is that they don’t do that right now. The suppliers from China send SPC information with each shipment. When you get it, you have to find out if it’s bad or good. They should be doing a lot run, send it over before it’s shipped. The lot run and specifications need to be checked before the order is shipped.

 

 

Conclusion

 

 

I think leadership here is not an opinion; it’s pretty much a fact that you have to think these items through. I would put it on an AQP deck, one of the advanced planning processes so you don’t miss anything when you set this process of going from a local supplier with known risks to an offshore supplier with unknown risks. It is important to talk to someone that has been in offshore activities with another supplier and putting that on the advanced planning process.

 

 

Procedures are the same with any plant and with any supplier, and sometimes we lose the sight of that because of the dollar value of going overseas. Sometimes it’s less money to source overseas but if we sit back and really look at the risks from process to process you will find you will have a lot of unusable inventory in your plant if you don’t set up the work up front. I think the risk factors are real—I’ve been through them. Other plants and other companies have been through them as well. You will face these risks unless you have assembly plants right next to the component supplier in China.

 

 

About Jeffery Moore

 

jefferymoore.jpg

 

Lean SWOP Manager

LinkedIN Profile

I interviewed Rob Girard who shared his experience at a previous employer where one of the things that he tried to really hone in on in his supply chain was to take cost out of the system. The major retailers were basically delaying their purchase orders. This puts a company like Eastman (Rob's former employer) in a crunch. Eastman is a seasonal sporting goods manufacturer and importer. If you miss your season, you don’t make that business up.

Therefore, forecasting is extremely important when you are a smaller company and you don’t have a purchase order to start production. It can really put you in a bind if some of your major customers, which comprise 30% to 40% of your business, place late orders. It becomes a self-fulfilling prophecy; you don’t supply those orders, and you lose the business.

 

 

At Eastman we anticipated that many of our similar components were about 80% correct according to our forecast. We decided to be conservative and started making 50% of the components forecast. We were able to stave off the need for having the purchase order in hand to start making those products. At the same time, when we did finally get the orders from the major retailers, we were in good shape because we were already having components made. This mitigated some of the risk of excess inventory resulting from producing according to the fall forecast, but not getting the orders. For a small company like us, this was extremely important for meeting these large orders but at the same time not extending ourselves out too far in the event that we didn’t get the orders.


I believe there is a need for an integrated supply chain -- where you have sales working hand in hand with operations, working hand in hand with marketing, working hand in hand with production or manufacturing. I come from a background at some major Fortune 500 companies—sales had a forecast, but on the other side, it seemed like manufacturing and operations had their own forecast, and sometimes the two didn’t always line up.

 

When you work for a smaller company like Eastman, you don’t have that luxury. Your forecast has to be your forecast, and it has to be accurate. This really forces sales to work well with operations and manufacturing. At the end of the day, we are all in the same boat; especially with it being a seasonal business. One of our major customers that started to experience financial difficulties represented over 25% of our overall business. We couldn’t get insurance on our receivables for this account.

 

For a small company like Eastman this means you are hung out to dry for those receivables if that major retailer goes under. You are left holding the bag for a lot of inventory, which can sink a smaller company. You are faced with a dilemma by saying, ‘Hey, look, we’re a little concerned here.’ You don’t want to cut them off. You don’t want to upset them, but at the same time, you need to come up with a way that will allow you to service them but at the same time protect yourself from too much exposure in terms of account receivables.

 

Since we couldn’t get receivable insurance on this customer and we didn’t want to lose them as a customer, we came to them with an opportunity to provide them with a percentage off their invoice for payment within 30 days. In a way we created our own receivable insurance. This is a win-win, the retailer got an extra couple points out of it and they were happy about it. The manufacturer got the security of knowing they were only extended 30 days. At any given time, their risk, if the retailer went under, was only 30 days’ worth of supply. This was a short-term deal, but in the end I think it really saved a relationship, and it ended up working out well for both sides, both the manufacturer and the retailer.

 

In good economic times suppliers will normally adjust their contracts to meet the needs. In tight economic times they are trying to hold everyone to the letter of the contract. That is really a difficult position for organizations to be in.

 

About Rob Girard

 

Rob Girard wore many hats during his previous role as VP of sales in a smaller mid-market company. He had a lot of involvement in their supply chain. One of the things that he looked at was the fact that with the economy the way it is today, there’s a huge risk if you don’t provide the level of service that customers demand. But by the same token, it is becoming more difficult to do that because of the economic parameters that are put on all the supply chain providers. You are being asked to do more with less, with a compressed lead time or cycle time.

 

LinkedIn Profile

I interviewd Patricia Moser who discussed the "Double-Edged" sword of recession and the need for an exceedingly strong link between sales and supply chain, because the client will not be serviced if the supply chain is affected negatively by what the sales organization promises as deliverables to the client.

 

 

 

The "Double-edged" Sword of Recession

 

Patricia Moser discussed the impact of the recession on supply chain management and innovation.Patricia sees the recession as a double-edged sword. "From the positive point of view, it has shone a spotlight on supply chain and its intimate effects on the business as a whole," she says. "And as such, it is a significant opportunity for supply chain leaders to actually get a voice at the table where the corporate strategies are defined." On the negative side, Patricia says, the push for cost reduction and containment has forced companies to focus on short-term strategies rather than long-term strategies. In the end, she fears, short-term strategies could harm long-term planning.

 

Demand Shaping vs. Giving Clients Everything

 

Patricia believes many companies are driven by "an overriding desire to serve their clients above and beyond," and by doing so, can actually harm themselves in the process.

 

The best approach is to focus on demand shaping versus simply giving the client whatever they ask for regardless of the impact to their bottom line. "I think one of the things that's important for the sales portion of the organization, which obviously significantly impacts the supply chain, is to try to manage their clients’ expectations more effectively and try to determine what products and what services the corporation has to offer that can often be as good, if not better, than what the client is asking for,” Patricia advised.

 

"At the end of the day," Patricia continued, "There needs to be an exceedingly strong link between sales and supply chain, because the client will not be serviced if the supply chain is affected negatively by what the sales organization promises as deliverables to the client. I think there needs to be a holistic strategy implemented by corporations—a 360 strategy—you cannot just have the backroom operations, including supply chain, not seen as integral to the delivery to the end client.”

 

Recession Lessons

 

Patricia Moser views the recession as "a great catalyst for innovation and for pushing things and re-looking at things that, in some cases, might’ve been sacred cows.”

 

Over the past few years, Patricia said she's seen a number of clients who've put themselves behind the eight ball with regard to what they have in inventory, including many with obsolete inventory that they've allowed clients to return without penalty. She has also seen logistic agreements written to include multiple deliveries in a week versus consolidated deliveries, which not only effects the bottom line, but also increases a company's carbon footprint.

 

Because we're operating in a very different business environment, one that many analysts say is "the new normal," Patricia believes now is time for companies to "retrench" and re-examine issues surrounding processes and procedures that weren't on our radars five years ago. In retrospect, perhaps these are challenges that should have been addressed prior to the economic downturn, and before sustainability catapulted from a "nice to have" to a "must have."

 

Streamlining the supply chain with an eye toward profitability is something positive we can all take away from the current business climate. "Supply chain," Moser says, "is a cog in the organizational wheel. Most people will not notice it if it works well, but when it doesn’t, everybody notices it, so the opportunity for all aspects of supply chain to make their imprint, which will insure their appropriate status in the organization on a go-forward basis, certainly exists right now.”


About Patricia Moser

 

Patricia_Moser.jpgPatricia J. Moser is recognized as one of the leaders in the Procurement and Supply Chain profession in North America. With more than 20 years of impressive industry credentials in executive Procurement and Supply Chain roles, she specializes in bringing leading edge Procurement and Supply Chain concepts to corporations and taking them to the next level.

 

Supply and Demand Chain Executive magazine has recognized Patricia’s accomplishments and her contributions to her clients and the profession by naming her to their 100 Pros to Know in the field -- as Practitioner of the Year in 2005 and as a Featured Thought Leader in 2008. Patricia has been quoted in numerous publications, including Fortune, HR Executive,

 

Purchasing, Purchasing B2B, and Supply and Demand Chain Executive magazine. She has presented and written about her leading edge thinking across North America and internationally. She is a widely sought after speaker, dynamic and thought provoking and she infuses others with her enthusiasm of the future and leaves listeners highly motivatedto go to the next level.

 

Patricia Moser is President of i3 advantage, a consultancy that delivers global expertise in procurement and supply chain. With significant experience in procurement transformation, ethics, mergers and acquisitions, business process outsourcing and talent development, Moser leads a team of seasoned professionals who develop solutions designed to capture value and stimulate bottom line impact.

 

Speaking to the value proposition of working with i3 advantage, Moser says, " We live where you breathe, actually being on the front lines, and having to make all the decisions in senior executive roles from the procurement and supply chain side.”

 

LinkedIn Profile

Bill Leber, a business development manager with Swisslog, says that companies haven't done a lot of aggressive expansion, which has left many with cash on their balance sheets. Wall Street Journal supposes that companies hope to gain more control over materials, manufacturing and distribution through vertical integration. In Bill's opinion, companies who choose to outsource distribution and logistics are giving up more than they think, including control. Relying on third party performance, he warns, can put companies at a strategic disadvantage to their competitors.

 

Companies haven't done a lot of aggressive expansion, he added, which has left many with cash on their balance sheets, so they are looking at what they are going to do with that cash moving forward. Bill is seeing a trend toward companies investing in "their sphere" to improve competitiveness, which is exactly what Swisslog does -- help companies invest in their distribution facilities to improve their supply chain. In Bills words, "Our company specializes in material handling, automation, and software systems that optimize warehouses, distribution centers, order fulfillment centers and those sorts of facilities."

 

 

 

Is This Anti-3PL?

 

Expanding on Swisslog's capabilities, Bill Leber said, "We’re almost the anti-3PL," and while it was said tongue-in-cheek, it makes a lot of sense. In Bill's opinion, companies who choose to outsource distribution and logistics are giving up more than they think, including control. Relying on third party performance, he warns, can put companies at a strategic disadvantage to their competitors.

 

 

Vertical integration, as the Wall Street Journal article points out, gives companies more control, and says the reasons for choosing to do more internally vary from one company to the next, "Arcelor, the world's largest steelmaker, wants more control over its raw materials. Pepsi wants more authority over distribution. GM and Boeing are moving by necessity, to assure quantity and quality of vital parts from troubled suppliers. Some are repurchasing businesses they only recently shed."

 

 

"People have maxed out on outsourcing," Bill said, "we've heard a lot, in the last three years, about how to pick the best vendor, how to manage vendors and how to get closer to vendors, but there is a limit to that." Bill Leber would like more companies to think about the tradeoff involved with choosing to outsource -- "Your vendor is selling you on the fact that they can deliver better economy of scale and more expertise, but they also need a revenue stream out of the work they're doing for you," he warned.

 

 

Getting Control of the Distribution Network

 

In Bill Leber's experience, the absolute best argument for vertical integration is PepsiCo. "Look at all the money Pepsi just spent on acquiring their bottlers," Bill said, "They didn’t do that because they were having issues with getting the stuff in the bottle -- It’s about getting control of the distribution network."

 

 

After years of outsourcing, helping companies regain control is a big part Swisslog's business. From facility design and financial justification to systems integration and operations support, Swisslog's primary objective is to find the optimal solution for its clients. "Our real niche is finding the best balance between a fully automated system and a semi-automated, or a manual system, and our core competence is the design, implementation and maintenance of the actual equipment and software that runs the distribution center," Bill explained.

 

 

Bill Leder hopes the economic trends are signaling a return to vertical integration because he believes the United States is under-served and already lagging behind. "If you look at the degree of vertical integration and material handling automation, Europe is far ahead of the US, and China," Bill said, "where labor costs tend to be low, is now more performance-driven -- our company has a much bigger business in both China and Europe than we do in North America.”

 

 

When asked if he sees vertical integration as the exclusive domain of large multinational companies, Bill said Swisslog works primarily with $100 billion companies, but also serves several clients in the $1 to $2 billion range, and while he hasn't seen any specific examples of mid-sized companies moving toward vertical integration, he feels certain that it's only a matter of time until they follow the trend as well.

 

 

About Bill Leber

 

BillLeber.jpg

 

In his role as Business Development Manager for Swisslog, Bill Leber is responsible for driving the company's value added solutions to warehouse and distribution system design and automation in the North American market. Bill is an accomplished commercial manager with a proven track record in marketing, sales and new business development delivering a sustainable, positive bottom line. He also has extensive hands-on experience in the development and execution of market plans and comprehensive customer proposals.

 

 

 

 

Director

Business Development & Marketing

Swisslog

 

LinkedIn Profile

 

I recently interviewed Peter Kuhnel who discussed the creation of supply chain database/network-based e-Procurement applications.

 

 

Peter has 25 years of experience in supply chains taking on various roles. He has been a consultant, managing director, operations researcher and director. Peter has worked on strategic projects proposing new solutions for customers in the automotive industry. He set up the complete Just In Time system using optimization and all kinds of operational research techniques, as well as technical and very detailed operational support. Peter has worked on master plans, designs of warehouses, design of cross docking processes, and outsourcing projects. In one project once he made a strategic proposition he then proposed to move together logistics and sales which were then outsourced to a partner.

 

Peter also initiated discussions on how to implement new technology in the supply chain with high RFID. He looked at how RFID could change the process, how onboard computers could change the complete process and give competitive advantages to companies. Peter has worked mostly in the automotive domain. He worked with his team on the production supply for BMW with a very high frequency in the area of Munich on very complex supply chains. Peter also worked in other areas such as the production of furniture and furniture supply for big buildings such as hospitals. Peter was also one of the first to set up a web based B to B platform for the supply chain and transport in Germany.

 

Over the last 8 years he has been a consultant, working together with high level consultants at McKinsey for the strategic part. He also works with Accenture and others.

 

Explanation of the creation of supply chain database/network-based e-Procurement applications

 

When you have a contract and in the contract you have indications regarding calculations for transport or the purchase of a product or service, you prepare it in a specific way. Then you can automatically set up a complete network.

 

The easiest example would be in transportation. When you get a contract for transportation from your supplier, one of the elements would be a price break. It is a matrix including the price breaks for specific transport products such as Hazardous, Reefer, etc. You get a matrix dependent on locations with can be 15,000 lines and 40 columns.

 

This information automatically creates the nodes. What is a node? When you want to transport merchandise from point A to point B then this transport that the supplier is proposing can be found in one of his price grids. Then you initiate and enter the contract into the e-procurement system. Then you initiate with the information the creation of the nodes. You have A, the stop point or departure and you initiate point B. When you do this for all points then you can image an image with a world map. You will already have the points where he is offering his services.

 

Between the points or nodes you set up what the supplier is proposing as a product, such as hazardous transport. Some propose train or other modes and combinations. They propose several characteristics, which are referred to as transport products in this example. You then relate from point A to point B.

 

From point A to point B the supplier may be proposing transport up to 30 tons and non-hazardous. When you take all the price grids and create links between all of these points you see several relations for this supplier. You now integrate the other suppliers in the same way because you have it in the contract management system. This gives you a complete network of all suppliers. Between point A and B you may have 5 or 7 suppliers proposing the same product or slightly different product. This is your Supplier Network Database.

 

12-14-2011 11-02-21 AM.png

 

Who Benefits from a Supplier Network Database?

 

The benefit is that now when you have a huge amount of transport to organize. Think of big users such as Schneider Electric with a cost of transport of $500 million per year. If you take the transport of a half truck or container size just from Southeastern Europe for example, you will know how many moves they have to handle. For every move, currently the operator has to manually check for the best for his transport – taking into account the items, containers etc.

 

With the Supplier Network Database you can have an automatic rating immediately finding the best supplier and proposing the supplier on complicated exports and imports, including storage characteristics etc. For all of your transport orders you find immediately the best supplier. If you have quality requirements for your suppliers, it will propose a number of suppliers with prices that are close and that are distinguished by quality criteria.

 

The tool ultimately saves you time, moving from 10 minutes to seconds.

 

Where has this been successful?

 

The first successful customer has been in the container business. They worked with a large carrier and with the Ariba e-Procurement system. They set up the interface with the supplier database. Then they set up the suppliers into the network.

 

How can companies get started?

 

Companies need to request information from various procurement offers. They then have to design and analyze the products and services in details. This is a big task because normally when you start such a project you see that they have no real model on their services and products. This is a big step. You have to analyze all the characteristics and expressions that you find in the contract. You also have to find a mapping into the e-procurement so that the way you enter and manage contracts is changed.

 

It starts with analysis of the ROI. It depends on the transactions and suppliers. If you only have one supplier and you have no alternative choices, it wouldn’t make sense. Therefore, you first have to do the ROI analysis.

 

12-14-2011 11-02-50 AM.png


About Peter Khunel

 

 

peter.jpg

 

Integration Director

 

Deolan

LinkedIn Profile

I recently interviewed John Morris from Cushman & Wakefield who shared his views on where the trucking industry is headed.

 

 

I have heard some concerns in the trucking industry about the future, what is the issue here?

 

Obviously, the biggest concern here is the economy. If you believe that the economy is recovering or will recover in the near future, this means more goods and services will ship via truck. 75-80% of the goods shipped in this country do ship via truck as compared to planes and trains.

At some the demand for those services will rise, perhaps even significantly. In the trucking industry today it is really an industry in disarray. It has always been a low margin industry. The inflation rate on trucking pricing, or what a carrier can charge for a load since 2000 has been zero. Surviving in an industry where prices haven’t gone up in 11 years is not easy. Because of this as well as 3 years of a recession it is an industry where rates remain depressed, margins remain zero or negative in many cases.

 

What is happening now is that the equipment and people shortages that the industry is facing are leaving some risk for all of us who shop and buy. It may at some point in the future take a lot more money to get those items to our stores.

 

What are the major variables involved?

 

There are 4 major variables. Overall, the trucking industry since the heyday back during an economic boom in 2006 has lost about 20-25% of its capacity. This has been due to the fact that freight tonnage, or things shipped since 2006 has dropped 30%. The decrease in capacity or supply, while significant at 20-25% has not even kept up with the plunge in demand. Many people think that supply and demand are just about at balance at this point.

 

But the major variables involved which many see as a risk over the next few years are a risk to pricing and a risk to service. The first major variable would be equipment. When all of that equipment went dormant much of it was sold and much was scrapped. Many of the carriers in business went out of business. The assets are now owned by banks and sitting idle and not likely to be readily available to be turned around for capacity quickly.

 

The second major variable is drivers. Driving a truck for some people is not an appealing career. Much of the generation coming into the workforce would not consider it to be a job option. Because of this, in the middle of the last decade the industry was already short about 200,000 drivers to meet demand. That figure is a little lower at about 125,000 today, according to the American Trucking Association (ATA).

 

However, it is expected to balloon, if and when economic recovery is sustained, to as many as 400,000 drivers. If we are in a market that has 30% less capacity and 400,000 fewer drivers than needed you would expect a lack of stability in pricing and service.

 

John thinks the other major variable is regulation. There have been significant carbon and engine regulations over the last few years. This means that much of this equipment that is dormant or retired and dormant is no longer eligible to travel. As the economy was softening many carriers had delayed the investment required in new engines and tractors to meet new Federal regulations.

 

They haven’t kept up and this is another reason why capacity will be slower in responding. There are also other kinds of compliance and Safety & Accountability Initiatives, such as Hours and Service, state reporting of crashing, greater carrier scrutiny, and certainly as you would expect and hope higher standards for drug and alcohol testing.

 

All of this means what some people call a ‘perfect storm’. Wakefield & Cushman’s practice has been predicting an upward rise in truckload pricing for a year and a half now. They have all been surprised with the recover-less recover. However, John thinks at some point it will be quite a shock to the system.

 

What do you see happening as a result of this?

 

In the economic boom of 2006 truckload pricing was averaging long haul roughly $1.65 per mile, before fuel. Fuel prices have gone up, down and up over the last few years. One could expect with fuel, which makes up 25-30% of over the road cost, to be constrained along with drivers and equipment. One could expect that over the road costs could at some point over the next 24 months reach over $2.25 per mile, with significant price increases.

There was a period last year when the recession was in principle over. People were returning to shipping. Inventories had been replenished. There was one of the sharpest rises in truckload pricing over a 3 month period which the industry had never seen.

 

John and his team talk to clients now who tell them that in some parts of the country they can’t get equipment. The carriers they are working with have little or no capacity to offer. It is making them seriously consider where they are and who they are using.

 

This points to regional networks and national networks. John thinks there are impacts to the overall cost of transportation and what we all pay for goods. As the economy returns to some level of normal GDP growth everyone believes there is a risk of inflation. This along with fuel and gasoline is one of the major risk factors involved in contributing to what could be significant rates of inflation over the next 18-36 months.

 

About John Morris

 

John Morris is head of Cushman & Wakefield’s global consulting group, a privately held real estate services firm. The management consulting company within this firm does most of their work with clients of the larger company. They help tenants and landlords who have questions about their real estate and their facility network. They conduct all of the strategic and tactical analysis around what to do before they take a specific decision regarding their real estate.

 

John’s primary area of focus is supply chain and logistics. He works on things such as network modeling and site selection, labor studies and incentives. He has been with Cushman & Wakefield since 2005. Prior to this he was doing similar work at another consultancy in Chicago.

 

 

John C. Morris

Senior Managing Director

Global Business Consulting

Cushman & Wakefield

6133 River Road N., Suite 1000

Rosemont, IL  60018

O: 847.518.3218

C: 630.234.2333

I interviewed John Wilkerson who shared his experience with green supply chain. John’s organization is a consulting advisory group. He is proud to say that for two consecutive years, they have been a carbon-neutral company. John’s background in green supply chain started three years ago, when working on a consulting project for a pharmaceutical client. His team was looking at cost-reduction opportunities in the overall supply chain. In 2007 They started to look at carbon as an additional cost variable. The team linked up with a software-design company out of Australia and helped them design their product.

 

 

 

Successes and challenges

 

 

Overall, the green supply chain industry sector has a number of challenges. However, it is first important to note that when we look at supply chain, we start with product innovation and the marketing impact. We also end at the supply chain with consumer products and product recall. Sales planning is a second function. The third function would be manufacturing planning and manufacturing operations. We involve procurement (the purchasing organization) and we look at the overall manufacturing and transportation in that process.

 

 

5 Major Challenges

 

 

The five challenges include 1. Standards 2. Awareness 3. Business case development 4. Sustainability program implementation and 5. Communications planning

 

 

Standards

 

 

Standards is the most confusing aspect. The major standards out there include the U.S. Greenhouse Gas Protocol, SO standards, ISO 14065, an EPA standard called the Greenhouse Gas Reporting Rule, and the Wal-Mart Sustainability Index. The challenge is that each organization may have to comply with all of these different standards. They may comply with only part, and the issue faced by manufacturers, retailers and supply chain professionals is that the awareness or knowing what to go after is a challenge.

 

 

The first step for someone new to the sector is to understand what standard they need to comply with and understand what direction to go. This needs to be done first.

 

 

Awareness

 

 

Three years ago one of the first things we picked up was a report called the Carbon Disclosure report. Now I think it’s probably in its third iteration. Each year a different consulting group goes out to actually write this report. They survey different organizations in different categories. One of the things that is always constantly improving is the awareness piece which assesses the level of awareness of the C-staffs. This awareness is improving but has been a challenge since we got involved in 2007.

 

 

The good thing is that the U.S. government is actually forcing compliance. For example, in 2011 federal contractors, roughly about five hundred thousand of them, will have to show evidence that they’ve measured their greenhouse gas emissions along with having a developing program.

 

Awareness is changing.

 

 

Business Case Development

 

 

Social responsibility, competitive pressures, as well as lot of others issues out there are hard to measure. Business case development is one of those things that organizations are fighting through.

 

 

Sustainability Program Implementation

 

 

Implementation is a big challenge. We found that the implementation is a challenge because the organizations don’t know which standards to pursue. I wrote a book to actually help organizations with implementation of the U.S. Greenhouse Gas protocol and the January 2011 requirement for federal contractors to comply with federal standards. In the book we divide implementation into three phases:

 

 

1.    Direct emissions

2.    Purchase energy (water included)

3.    All indirect emissions (all indirect carbon emissions, such as purchasing, outsourced activities, travel, and looking at employee commute.)

 

 

Communications Planning

 

 

The environmental sustainability green space is very broad. It encompasses everything from renewables to various definitions and terms. Organizations have to get the communication strategy under control pretty quick as they start to go out and implement new programs.

 

 

Recommendations

 

 

1.    The first thing I would do is understand the organizations’ compelling reasons why a carbon footprint or greenhouse gas emission sustainability initiative is required. There is no need at going down a stream if the sales and marketing organization doesn’t see this as being important. The bottom line is that most organizations are driven by revenue. If the organization’s sales and marketing team is not going in the sustainability direction, then the supply chain organization needs to be positioned. Don’t pursue it if sales isn’t driving it. Obviously all organizations are different, but this is one item that John would recommend.

 

2.    John also recommends taking a look at actually integrating sustainability and supply chain planning. The rationale for this is that sustainability professionals have a certain way they want to have this to work. Because of moving parts¸ supply chain doesn’t necessarily operate the same way as facilities, for example. Understand that there are a lot of moving parts in supply chains versus very few moving parts in other facilities. John recommends that both groups come together and plan a deployment and understand the challenges of each organization.

 

3.    It is also important to understand what the right implementation methodology is for the program you want to pursue. John used a ticker, four-step methodology. Their methodology included planning, being the first step. The second step was measurement and analysis. The third was to implement solutions and then the fourth was actually control. Control is a very broad step, but as they looked at a couple different standards, they found that it is something that worked for them. It is something that works fairly well with their clients. It is a lot more complex when you work in multinational but it does work.

 

4.    The fourth recommendation is to develop a sustainability project protocol, which ties into the point about sustainability and supply chain planning.  It involves working with supply chain organizations and with sustainability groups using a formal project implementation plan with a full length protocol. (similar to what you do in IT). It’s not difficult to do, but it is something John recommends because we want to make sure that we are all going the same direction. We want to see deliverables. The project management institute has a very strong protocol in implementation.

 

5.    The other things that are important include looking at developing a score card that is appropriate for both sustainability and the supply chain group. This is very important. Aso start to think about talent development. The reality is that not everyone is trained and understands this particular space, and developing the talent is something you have to put on the list.

 

6.    Defining the right communication tool and model. Each organization has their own tool and model how they communicate and the best methods. John recommends that you go back and take a look at that as you start to develop a sustainability green supply chain plan.

 

7.    Finally, help influence the appropriate industry professional services group. These groups include ISM, Apex and CSCMP. These groups all  go in one direction. You have to bring everything into one direction and you need to help influence where they are going as the industry leaders. John recommends that we think big picture and help the industry go the same direction. If we don’t, the industry leaders will be going there and they will be going alone. There are some challenges with being the leader when no one else following.

 

 

About John Wilkerson

 

 

John is a twenty-five year supply chain veteran. He has worked in food, beverage, pharmaceutical, automotive, global logistics, along with consumer products and government. During this time he has formed some expertise in sales and operations planning, retail manufacturing, global transportation network management and design, along with being involved with a number of lean Six Sigma deployments, as well as strategic sourcing.

 

 

John’s background was actually shaped or influenced by his formal and informal education. He has taken executive courses at Dartmouth College and at the Tuck business school. His master’s degree is from Webster University, where he earned a master of arts and business management. He has also been influenced greatly by his military background, various executive training in the Command and General Staff College courses, along with technical training with Defense Acquisition University, PMI, ASQ, ISM, etc.

 

LinkedIn Profile

 

 

Tony Lapolito says that when most people think of supply chain, they tend to think of Henry Ford's linear supply chain, but in today's global business environment linear supply chains and some physical supply chains are becoming obsolete.

 

 

Supply chains are no longer a one-way street. Today's digital supply chains have to be bidirectional, they need to consider the metadata attached to the content, almost like an email paradigm, but with a payload attached to it.

 

 

 

Digital Supply Chain

 

 

For those who are perhaps a little less familiar with digital supply chain, a digital asset is any information that is acquired, created and stored in a digital form, including text-based document, graphics, audio, video, animations, etc.

 

 

What Tony Lapolito sees most often are companies that, despite working in the digital environment, have non-digital processes. In other words, they are not taking advantage of the potential for automation and their processes are literally interrupted by the transmission of physical media. Tony uses the analogy of faxing, where you have a digital file, you print it, you put it in the fax machine, and then send it over analog phone lines.

 

 

Keeping the fax analogy in mind, Tony sees similar scenarios frequently played out in the real world. For example, a video editor might receive raw footage using digital data collection and will edit the footage on a digital system, but then transfer it to a hard drive to be shipped via FedEx or UPS. That, Tony says, is not a digital supply chain -- at best, Tony would call it a "hybrid." Companies looking for a true digital supply chain want a seamless, end-to-end solution that uses a network as its infrastructure. The goal is no human intervention and no need to physically handle the data. There may be exceptions, but ideally, whether it is an entertainment-quality video or a large medical imaging data set, the data flows through the network and every step in the process is managed digitally.

 

 

Looking for Digital Efficiencies and Monetizing Assets

 

 

Tony Lapolito believes the network transmission layer offers the most opportunities for efficiencies, often by automating repetitive manual tasks. For example, an individual might receive a file digitally, but then manually transcode the file or manually check the file into a content management system.

 

 

 

Building a Collaborative Digital Supply Chain

 

 

In recent years, Tony Lapolito has seen a trend toward building collaborative digital supply chains. When most people think of supply chain, Tony said, they tend to think of Henry Ford's linear supply chain, but in today's global business environment, linear supply chains are becoming obsolete.

 

 

Take the animation industry, for example. Companies create animated entertainment content, which requires serious collaboration between the United States and Asia. Clearly, Tony said, the creative process is a supply chain, but it is a non-linear, collaborative supply chain that requires efficiency. "If they're not able to move content from the United States to Asia and back again, in a timely manner, with the right level of communication attached to that content, Then you're really looking at inefficiencies," Tony added.

 

 

Supply chains are no longer a one-way street. Today's digital supply chains have to be bidirectional, they need to consider the metadata attached to the content, almost like an email paradigm, but with a payload attached to it. "Again," Tony said, "whether it’s medical data, entertainment content, exploration data, or satellite imagery, it all has to be collaborative now, and that’s where we see the market going."

 

 

The Beijing Olympics

 

 

Tony Lapolito called the 2008 Beijing Olympics "one of the most ambitious media projects in the world," and "a very complicated digital media supply chain example..." Signiant was one of the critical links.

 

 

As you might imagine, content created on the fly in Beijing had to be relayed from China to NBC Studios in New York City, repackaged into multiple formats, and then sent to content delivery networks and other distribution points for consumption by the world at lightening speed.  "The collaboration required to deliver a Michael Phelps video as a "flash bang" on the Internet," Tony said, " from the time his finger touches the wall to the point where it is on NBCOlympics.com is minutes, not hours, and you're dealing with millions of page views and millions of dollars in incremental revenue because you've enabled that supply chain."

 

 

The Library of Congress

 

 

The Library of Congress is the nation's oldest federal cultural institution and serves as the research arm of Congress. It is also the largest library in the world, with millions of books, recordings, photographs, maps and manuscripts in its collections. At present, the Library of Congress is in the process of saving digital information that might otherwise be lost.

 

 

The Internet is a fluid environment where change is a constant. The concern for the Library of Congress is the amount of data being lost on a daily basis. The goal of its digital preservation project is to capture, archive and preserve this massively huge slice of digital Americana. "It's not like you can go back to microfilm and look at the 1929 Wall Street Journal the day of the crash," Tony Lapolito said, "Websites change and data can be lost forever."

 

 

It is an ambitious project, but according to Tony, that is not something out of the ordinary for Signiant, who serves as one of many partners involved in the project. For Tony Lapolito, it is just another example of a digital supply chain -- content is created, transmitted, published, captured, , backed up, archived and republished -- and it is all happening digitally.

 

 

 

 

Crossover Concessions

 

 

Of course, Tony Lapolito does concede that not all products can be digitized. "In the medical industry," Tony said, "we're never going to digitize drugs, but we can digitize the data attached to those drugs."

 

 

Product design and development represents another area where physical and digital supply chains cross paths. From the design phase to the point of manufacturing, there are enormous numbers of files being shared digitally, often attached to physical samples.

 

Tony Lapolito says digital supply chain is the future, and the future is now.

 

 

 

 

Tony Lapolito LinkedIn Profile

tony.jpg

I interviewed Debbie McGowan, who said the reasons we outsource during good economic times are amplified during bad economic times.In general, Debbie says, most companies outsource to solve a business issue.During a recession, or in the midst of any crisis, many companies choose to outsource as a means of freeing time and resources that would be better spent working on core competencies.

 

 

Debbie McGowan is the Logistics and Supply Chain Director for Richton Consulting, and in her experience, for every reason companies find to outsource, there is a reason not to outsource. Before you make the decision to work with a 3PL, Debbie says the first step is to clearly identify your motivations and expectations.

 

 

 

Which Side of the 3PL Love-Hate Fence Are You On?

 

Views on third party logistics providers are often polarised you either love them or hate them. Talk to a cross section of a third party logistics provider’s clients and the perceptions will vary considerably. By nature we only recall the last worst experience, we tend to accept as a given good service and only exceptional service may warrant comment. The views often change depending on what level of management the question is posed to. More junior managers focus on the day to day tactical and operational issues more senior managers on the strategic and general business opportunities.

 

 

Reasons for Outsourcing

 

Before we consider the implications for outsourcing in a recession we need to consider why we do it at all. The catalyst which creates the desire to outsource varies but generally it is always because of a business issue which needs solving. Common sense you would say, if a company does supply chain well why would they want to outsource all or any part of it? Often we hear the phrase supply chain is not our “core competency” we are retailers, we are manufacturers, we are energy suppliers etc.

 

 

The reasons for outsourcing are often given as

 

•           To ensure we have a leading edge solution and innovation by using the best technology, equipment and techniques from the supply chain specialists

•           We believe outsourcing will be more cost effective

•           We need greater flexibility and access to synergies with other organisations

 

 

What you do not often hear people say for example is

 

•           We had industrial relations issues we needed to solve

•           We wanted to make a major step change we simply did not have the resource or courage  to manage it

•           We needed assets off the balance sheet

•           We needed capital investment and could not get it in house

•           We are enjoying a period of phenomenal  growth and our infrastructure is failing

 

 

All of the above are valid reasons why organisations outsource their third party logistics in the good times. In a recession what would you rethink about outsourcing and why would you consider taking it back in-house? Well the “hard work” may have been done and you feel comfortable in taking it in house for a few years and saving the management fee cost.  

You may be having a poor experience with the outsource solution provider just not delivering to your expectations and feel you could do it better. Maybe you believe that the third party provider is more focused on the challenges within their own business than they are with yours.

 

 

Identifying Outsourcing Motivations and Expectations

 

In a recession why would you consider outsourcing, well I would argue because all the reasons we outsource in the good times are amplified. In difficult times we are working harder on our core competencies we have greater business issues to deal with, our volumes may be down our workforce unstable or subject to headcount reduction, our cash flow impacted and our financial model at risk. Equally because of our market sector we may be experiencing significant growth in the recession and our business model cannot cope with the challenge in-house any longer.

 

 

Every coin has two sides for every reason to outsource there is a potential reason not to outsource. As a poacher turned gamekeeper I would outsource 9 times out of 10. Generally I would challenge those who claim outsourcing is not effective, in my experience it is about how effectively the third party provider is negotiated with and subsequently managed. How to negotiate with and manage third party relationships is another subject and a huge opportunity. Recession or not, the approach should be to clearly identify the motivation to outsource and the expectations before you do anything. It is easy to focus on trucks and sheds but outsourcing to a third party logistics provider can be so much more.

 

 

Are you considering broader issues in the supply chain?

 

•           Making it easier to source from Global market places and de-risking it

•           More effective inventory and vendor management with ways to keep inventory off the books until it is required

•           Access to new technology reducing back office resource up and down the supply chain and direct  labour

•           Transfer of assets and leasing opportunities

•           Capital availability for major change projects or replacement programmes

•           Cash flow opportunities with extended payment terms

•           Joint venture shared risk and reward opportunities 

•           Increased flexibility and access to an extended network capacity

•           Opportunity to sell on capacity in your own supply chain operations and defray costs 

 

 

Some of you will be saying, I can do some of that for myself and in truth you can, but will you devote the time to it, do you have the resource to do it and will in house deliver the benefits the financial model third party logistics companies may offer?

 

 

Debbie McGowan

 

 

Debbie has been a Fellow of the CILT and the RSA for over 10 years and a Member of the ISMM for over 20 years. She has a true general management background, developed in both engineering and supply chain logistics. Debbie has an extensive knowledge of the third party logistics sector and experience in the express parcels sector.

debbie.jpg

 

Logistics and Supply Chain Director

Richton Consulting Limited

LinkedIN Profile

I interviewed David Ross who discussed building a business strategy map and managing roles, relationships and expectations. David said that global competition, risk and constantly evolving technologies have made long-term planning all but impossible, which lead David Ross to develop what he calls the “business strategy map,” designed to help companies focus on the different attributes that occur on both sides of the supply chain.Mapping and managing roles, relationships and expectations keeps supply chains strong and healthy.

 

 

The Delivery Side of Supply Change

 

In today’s parlance, supply chain is looked at as a place to manage and integrate the acquisition of raw material and components before fabricating or manufacturing the product. The other side of supply chain is the delivery side.

 

The interesting thing about the delivery side, according to David Ross, who has written several books on the subject of supply chain, is that certain organizations will have more of an impact on the delivery side than others. Ross explains as follows, “A company that manufactures a highly customized product will tend to have control over the distribution channel, whereas companies that are more commodity-based products, say, for example, Coca-Cola or Mars candy, or any type of commodity product that is really focused on a retail sell, normally will be using a very complex, intense distribution channel with a lot of intermediaries.”

 

The Business Strategy Map

 

By taking a broader view of supply chain, which includes both acquisition and delivery, Ross came up with the concept of a business strategy map, designed to focus on the different attributes that occur on the manufacturing side or the supply side of the supply chain.

 

“The idea,” says Ross, “would be locate to locate where you’re at in the distribution channel. If you are a made-to-order-type organization, or job shop, you’re making a highly configured product that is extremely unique to a specific customer, which means you will take ownership of the delivery of the product. In others words, company direct.”

 

“On the other hand,” Ross adds, “manufacturers who are producing commodity products will be using more of a supply chain or an intense distribution network with a number of intermediaries.”

 

Strategic Planning Yesterday vs. Planning Today

 

In the past, even four or five years ago, when a company sat down with its portfolio to map out its materials acquisition and delivery strategy, that plan would remain unchanged for years, Today’s business environment is volatile. Global competition, risk, and a long list of other influencing factors have made long-term planning impossible. In electronics, for example a new component, or even a cosmetic change, can render a well thought out supply chain obsolete.

 

Supply-side Partnerships

 

Once you’ve mapped out attributes, you can determine the level of intensity and depth of partnership you want to develop with your supplier. Companies working in the made-to-order or project-manufacturing realms tend to have fairly loose relationships with their suppliers, often because the relationship is based on a one-time purchase. At the other end of the spectrum, a company like Mars, for example will have an extremely close relationship with their suppliers, while automobile manufacturers might require multiple deliveries in a day, often in a broadcast system, where a specific vehicle coming down the manufacturing line might have to be matched with a particular style or color of seat that needs to be delivered on a just-in-time basis, without the manufacturer taking ownership until the product is assembled.

 

“So, as you see,” said Ross, relationships between suppliers and manufacturers run the gamut.”

 

The Role of Technology

 

In terms of technology, a project company would be favorably looked upon for its ability to go through buying exchanges and auctions sites, to perform spot purchasing in the marketplace for fast and efficient identification of low-cost, quality products versus going through a laborious search.

 

On the details side, having a continuous manufacturer with the ability to develop integrated information technologies with their suppliers creates an environment where demand can be communicated instantly.

 

On the distribution side, depending on the relationship of the product to the customer, the more customized the product, the more streamlined the distribution channel will be.

 

The Last Leg of Planning

 

“Essentially, says Ross, “the idea is to look at how many levels in the supply chain you will need to get your product to the customer, including the number of actual intermediaries that are going to be used, meaning third-party distributors, jobbers or retailers, and as most everyone knows, there are pros and cons to using intermediaries.”

 

“It’s all too easy,” Ross continues” “for companies to lose control over marketing, pricing, sales data, and customer opinion as a product moves through different parts of the distribution channels. Often distributors will change product labeling, provide their own price discounting, which becomes very difficult for the distributor or the manufacturer to actually control what the marketing and branding of their product will be.”

 

Finally, David Ross stresses, that as each year goes by, at the bare minimum, organizations should review their entire supply chain -- the manufacturing side and the distribution side. It’s also important to keep an eye on the competition, to monitor global manufacturing and distribution environments, and to factor in changes in your own company policies. For example, moving from a made-to-stock environment to a make-to-order environment will require a completely different manufacturing distribution supply chain. Even internal initiatives, like move toward a lean environment, can dramatically impact the manufacturing and delivery sides of your supply chain.

 

About David Ross

 

davidross.jpg

 

Senior Manager,

Professional Development

APICS

LinkedIN Profile

I interviewed Mark Gavoor who discussed his concept of the Laws of Supply Chain Physics. He discussed the five impossible supply chain goals and the importance of communicating them to your business partners. Mark also discussed his views on supply chain risk management.

 

 

 

 

Mark Gavoor's "Immutable Laws of Supply Chain Physics"

 

 

Mark Gavoor is passionate about what he calls "The Laws of Supply Chain Physics," and has a perfect story to illustrate his theory.

 

"I knew a supply chain leader in a very larger company who set five goals," said Mark Gavoor. "He wanted less factories around the world. He wanted to sweat the assets; in other words, get the utilization up in each of those factories. He wanted greater product assortment, because that’s what marketing people wanted. And, he wanted less inventory and higher service levels."

 

 

"Again," Gavoor reiterated, "Less factories; sweat the assets—so, more product, more throughput; greater assortment, which means greater changeovers in the factories; less inventory means less inventory in the system even though you’re moving the goods longer distances; and a higher level of service."

 

 

Gavoor thought about the guy's list of five goals and said, "You can't do all five, 'impossible."

 

"Why?" the supply chain leader asked.

 

 

"Well," Gavoor explained, "if you have less factories, things are going over a greater distance, which means you’re going to have more inventory in the system. If you have greater product assortment, and you utilize the factories that you have at a higher level, you’re going to have more inventory in the system; you have to run things longer because you can’t change things over as much as you’d like to."

 

 

"The bottom line," Mark concluded,  "you can do any three of those things, probably at the expense of the other two."

 

 

Applying the Laws to the Flaws

 

 

"What was the flawed thinking here?" Gavoor asked. "Think about it," he said, "this was the guy running the supply chain, and he didn't know the laws of supply chain physics."

 

 

According to Mark Gavoor, "It's as simple as this:  if I take this pen and I drop it, it’s going to fall to the ground - that’s the law of gravity. No matter how much I will it to go up, it’s not going to go up. So, that’s my laws of supply chain physics."

 

 

"As supply chain professionals," Mark Gavoor says, "we have to be able to communicate that to all our business partners, if not, they will want all five of the things this fellow articulated and was unable to deliver - you can only deliver on three of the five because of the tradeoffs and the immutable laws of supply chain physics."

 

 

Mark Gavoor on Supply Chain Risk Management

 

 

I was the supply chain leader at Colgate Palmolive in the Latin American division and then moved on to Sanford Brands, which is the maker of Sharpies, and worked there for a couple years. I wanted to talk to you in one aspect of risk and supply chain. I was kind of astonished a couple years ago when we saw such an increase in quality problems, specifically toys and some food coming out of China and Asia. It surprised me because we were so well-educated and had such good practices and supplier quality management. How could that possibly happen?

 

 

And when I thought about it, all I could think of was it was such a rush to outsource and produce product in low-cost facilities that we forgot about quality, cost, and delivery; those three things. That was one of the Japanese principles of quality; if you’re equal to your competitor in two of those things—quality, cost, and delivery—and superior in the third, the rational consumer will buy from you.

 

 

Well, it seemed like when we made those decisions, the only part of those three things that we really paid attention to was cost. And it was such a cost benefit to move to those low-cost producers that we just assumed they would produce quality products. The assumption was absolutely wrong because, as we saw, there was a lot of lead in the products, in the paint used, we were getting tainted ingredients in some of the foods.

 

 

It was a very bad situation. How do we solve that? And why isn’t it as big an issue now? Because companies are doing what they’ve always did before. They’re allow their supplier quality system to manage and rule over those suppliers. And as soon as you start putting people there and making sure that the quality systems and these suppliers were in place and worked to the level that you expected it to, the quality problems will start coming down.

 

So, we haven’t seen as many of those issues because we’ve been focused on it. One of the risks is, if you just only worry about cost, you’re at great risk of quality problems or delivery issues. That’s my little piece.”

 

 

 

 

About Mark Gavoor

 

markgavoor.jpgVP Consulting Services

Cadent Resources Group, LLC

 

 

 

Mark Gavoor is a seasoned supply chain veteran who is currently a Managing Partner with Cadent Resources Group, LLC, a supply chain consulting and technology solutions firm. The company's cornerstone is its DemandCaster® Demand Planning and Inventory Optimization tool, a low cost, high impact alternative to comparable packages.

 

 

Prior to joining Cadent Resources Group, Mark Gavoor served as Vice President of Supply Chain at Sanford Brands, makers of "Sharpie," and as Director of Customer Service and Logistics at Colgate-Palmolive Latin America.

 

 

LinkedIN Profile

 

 

 

 

 

I interviewed Jacques Heintz, Regional European VP Distribution and Transportation at Coty Inc., a global leader in the cosmetics industry, who talked about supply chain risk, risk reduction, and the positive side of an economic downturn.

 

 

Supply Chain Risk

 

"The first risk that comes to mind," Heintz says, "is what we call physical risks, losses and thefts. Unfortunately, physical risks or losses increase in times of recession, especially for our goods." Coty products are valuable, and while Heintz says he doesn't have enough historical data to establish true patterns between crises and theft, there is some correlation between price and the increase of risk, especially in the United Kingdom, where the company has seen theft increase over the last 12 months.

 

 

Another risk associated with the economy and the recession, Heintz says, is a change in customer behavior. Coty's customers and distributors are being much more cost focused, and are tightly managing their working capital, which to some extent, is driving inefficiencies in the supply chain, such as an increase in the number of small deliveries. "On the other hand," Heintz says, "our own internal supply chain costs have, in some ways, been positively influenced by price decreases we've been able to negotiate with suppliers." And, because demand has been soft, service risks are not increasing.

 

 

Risk Reducing Remedies

 

In terms of reducing physical risks, Heintz says, "We've reviewed our internal subcontracting policies and looked at safety statutes, and we have started to audit our transport agents and freight forwarding companies more tightly." With regard to reducing risks associated with cost, Heintz says, "The challenge is to offset the changes in customer behavior by pulling costs out of other areas." Heintz points to examining working capital, adjusting stock levels, renegotiating tariffs and outsourcing as just a few of the many steps he is taking to offset costs tied to changing customer behavior during the economic downturn.

 

 

The Upside of a Downturn

 

In Heintz' opinion, "During times of crisis, risks are becoming not just more visible, but more acute, and certainly when you look at costs, cost risk is definitely becoming a top priority." On the upside, Heintz says, in many ways a crisis can be healthy, because it forces companies to review their processes and do some streamlining.  "That," Heintz continues, "can be the catalyst for getting to a very healthy cost base, which in turn, will help you rebound as soon as the economic environment improves."

 

 

Thought Leadership and Driving Change

 

Jacques Heinz has been involved in a number of major change-management projects, and has experience in both mature markets, and in very different multicultural markets, including Russia and central Europe. Among his many core competencies, Heintz sees being fluent in mature and developing environments, and having experience in building supply chains from scratch, for multinational companies, as his strong suits.

 

 

As Heintz mentioned earlier, Coty has recently recently begun to accelerate the pace of outsourcing - something Heintz said is not common for Coty. The initial challenge for Heintz was proving to management that you can get very good, if not better, quality by outsourcing a number of activities, including core activities. Citing, proprietary information, and the fact that many of Coty's initiatives have not yet been disclosed, he was unable to provide specifics.

 

 

At Coty, and virtually every other corporate entity, the current economic environment is forcing change, which as Heintz pointed out earlier, can be positive. In the cosmetics industry, collaboration was all but unheard of, especially between competitors. Today, Coty is actively driving synergies, not just internally, but externally with a variety of companies, including competitors. The idea, according to Heintz, is to look for opportunities to decrease costs through collaboration. Transportation, Heintz says, is one area on which he's focused.

 

 

Learning From Others

 

"If you look at the cosmetics industry from an historical perspective," Heintz, says, "you'll see that it's the type of industry that is top-notch in supply chain processes." According to Heintz, other industries, such as automotive and pharmaceuticals, have very long production lead times, and have developed very specific state-of-the-art expertise." The cosmetics industry, he says, is "a bit spoiled, at least in Europe, because it didn't suffer as other SMCG (slow moving consumer goods) companies did by private labels and hard discounters that massively affected a number of big payers due to decreasing price." Because private labels are not as common in cosmetics as they are in other industries, Heintz says the industry is not only spoiled, but even lagging behind in being truly innovative in the way it looks at supply chain.

 

 

"I think it’s always great to listen to others and to hear about success stories," added Heintz, "I’m pretty fresh on the job; I joined Coty a year ago. I was with Kimberly-Clar for about nine years, and prior to that I was working for GlaxoSmithKline, so I come from the pharmaceutical industry, from Hoffman-La Roche - two big pharmaceutical companies. This is a very different environment, and I’m learning as well.”

 

 

Jacques Heintz

 

JacquesHeintz.jpg

 

Regional European VP Distribution and Transportation at Coty

Coty, Inc.

LinkedIN Profile

I interviewed Dr. Richard Pagett who discussed how supply chains are always at risk, but in developing countries where conflicts flair on a regular, yet unpredictable, basis, the risk of complete disruption looms large. Environmental, climate change and sustainability issues in developing countries and post-conflict areas create a set of supply chain challenges for which solutions can be difficult to find. The key, says Dr. Richard Pagett of Futures States, is learning as much as possible about the regions that play host to links in your supply chain. Richard says you should not wait for a conflict it arise before addressing it, or you risk losing the opportunity for diverting it and safeguarding your investment.

 

 

Sustainability and Corporate Supply Chains

 

Because supply chains can be easily disrupted in developing countries, particularly if the supply chain includes industrialized countries, Dr. Pagett explained that looking at risks associated with seaports, airports and roads is vitally important. Citing the example of Future States’ recent assessment of new roads in Burkina Faso, West Africa, Dr. Pagett says it’s not enough to build roads, and then hope they’re easy to use. These are roads that traverse areas of desperate poverty, where water, food and fuel are scarce, and there is great potential for conflict tied to environmental issues.

 

Water scarcity is one area where conflicts often arise, particularly where people don’t have land tenure. According to Dr. Pagett, “They tend to not be able to develop their land in a more sustainable way, and they tend to have to develop it rather quickly and make sure that their investment is returned almost immediately, and that doesn’t really bode well for long-term sustainability development. It would be much better if, for instance, poor people had access to land and some sort of title, some sort of ownership of it, even if it’s a small amount of land so at least they can then invest in it for the future.”

 

Land tenure is another area for potential conflict in developing countries, especially when combined with water scarcity. It doesn’t make good financial sense to invest in a water supply, or anything else with a long life, if you don’t own the land, because landowners can easily remove land entitlements, and often do. “It’s a pretty scary world out in various parts of the world where people do not have rights to their land, do not have rights to the water, and do not have rights to the soil that they’re growing their crops in. It’s all a very fragile kind of in existence,” added Dr. Pagett.

 

So, in terms of supply chain, Dr. Pagett says anything can trigger a situation where the flow of goods and services might be disrupted. Not to mention the fact that it can come without warning and have a variety of triggers -- from environmental factors to social, religious or political factors.

 

Gauging Risk

 

According to Dr. Pagett, companies have two choices. They can read the news and search the Internet or work with a consultant with his or her finger on the pulse of the countries that impact their businesses. Monitoring that kind of information is not the core business of a supply chain, so it’s easier for most companies to outsource. “You also have to be able to read the subtext—what isn’t actually printed—and that requires a knowledge of the country over a period of time, said Dr. Pagett. “So, for instance, Future States has worked in ninety-two countries now—just about half the world—over a period of thirty years, so we have a good basic knowledge of what’s going on, but we have to keep it up-to-date ourselves because things can be very volatile; they change very quickly,” he added.

 

Forecasting Climate Change

 

When asked what other factors should consider when planning they supply chain strategies, Dr. Pagett was quick to point out how climate change can impact a business. Climate change, he believes, begins to manifest itself over decades. It starts with extreme weather events – an increase in the number and intensity of hurricanes, extreme flooding, or extreme drought. It’s also nearly impossible to predict. Places that normally see modest rain are now seeing heavy rain, and sometimes it comes at the wrong time, or all at once.

 

Clearly, agriculture and food sector supply chains are highly dependent on climate, and Dr. Paget says he’s seeing weather changes in West Africa and South Africa, South America, the Middle East, Southeast Asia and Central Asia. Understanding the potential for extreme weather that can wipe out crops and wash away roads and bridges is an important consideration.


Managing Risk

 

In Dr. Pagett’s world, risk is everywhere, and when asked if he has any special insight or advice for companies looking for ways to manage risk, he advised companies to regard regions that are under even the slightest stress as potential conflict areas, and then review their supply chain strategy in that context. “If you wait until the conflict arises,” he cautions, “you’ve lost the opportunity for diverting or safeguarding your investment.”

 

“It’s all a very fragile kind of in existence.” Climate change, sustainability issues, environmental risk, financial risk, and political risk can all lead to social unrest, which in turn, can impact a supply chain's route or strategy.

 

 

About Future States

 

Future States, an advisory firm that caters to private companies, predominantly in the oil and gas sector, to national governments, and to all major international funding institutions, including Asia Development Bank, World Bank and the United Nations Development Programme. In broad terms, Future States specializes in environmental, climate change and sustainability issues in developing countries and post-conflict areas where there is tremendous need for rebuilding national institutions.


About Dr. Richard Pagett

 

richard.jpg

 

Principal

FutureStates

LinkedIN Profile

I recently interviewed Maja Puljic who shared her views on the role of people in the management of supply chain risk. Maja Puljic is a doctoral researcher and PhD candidate at Manchester Business School in England. She is currently working on research on behavioral issues in Supply Chain Risk Management. Her thesis is on the role of personality on supply chain risk.

 

 

Why are psychological aspects interesting and why should the psychology of individuals be considered in supply chain risk management?

 

Maja believes we need this approach so that we can learn how to appropriately consider the so called ‘people’ dimension in the management of supply chain risk. That way you get a more complete picture of what is going on behind decisions that determine supply chain risk strategies.

In addition to the structural and technical aspects of managing supply chain risk, there is another set of crucial variables – the human variables that need to be considered if we are to fully understand how supply chain risks are perceived, how they are assessed and how supply chain risk management decisions are made.

 

The decisions are not made by the supply chain, they are made by supply chain managers. That is why we need the behavioral approach to supply chain risk management just as much as we need other approaches to help us shed light on that particular factor in the equation.

 

Which specific issues are being investigated?

 

The starting point or underlying assumption is that the initial assessment of supply chain risk, especially when it comes to probability and estimated frequency of supply chain disruptions is still very much down to the individual perception of the supply chain managers. The impact of supply chain disruptions is usually easier to estimate because companies can work with financial records. The probability that a supply chain disruption will occur is much more difficult to estimate. This is usually where the individual perception of the supply chain manager takes the lead.

 

We know from previous research in other areas that managers perceive risk objectively and that it is a highly individual matter. Managers perceive risk in a way that deviates from what is so called unbounded rationality. It means that managers, due to time constraints, unlimited transparency of information, etc., as a rule will not be analyze the whole situation or environment. To a certain extent or perhaps a large extent they will have to rely on their own perception of risk.

 

This is where Maja works with the individual’s risk perception. Other factors which come in are individual differences. Other issues investigated are personality traits, individual cognitive biases, judgment and decision making biases, and differences such as past experiences, individual working style, problem solving style, coping with uncertainty, ambiguous situations etc.

 

What is the contribution or benefit of this new research approach for supply chain management practice?

 

With this research Maja and her team will learn about the degree of subjectivity in the perception and management of supply chain risk. This means that they will be able to isolate that human element from the whole situation. They will be able to attribute certain variances in decisions to the individual or behavioral elements, as opposed to structural and technical factors and financial objectives.

 

They will be able to see the main causes for variations in supply chain risk perception. They will also be able to determine if these variations are due to the leadership and personality traits, individual styles, cognitive patterns, the way the person copes with uncertainty, etc.

 

When they know these things they will be able to provide strategies, tools and methods that will help supply chain professionals improve their decisions associated with managing supply chain risk. De-biasing and improving the quality of your decisions to become more objective and accurate is actually something that can be learned and trained.

 

A particular contribution of this research will be that they will be able to develop and provide methods and tools for de-biasing and improvement in decision making in supply chain risk management.

 

Where to learn more…

 

Maja can be contacted directly by email at Maja.Puljic@postgrad.mbs.ac.uk or via LinkedIn .

 

Maja would also be most grateful if supply chain professionals interested in her survey could share their thoughts. The survey only takes 15 min to fill in, the answers are completely confidential, and all respondents who provide an email address will receive an Executive Summary of the findings when the analysis is complete. The survey link is: http://tinyurl.com/buwjonl

 

 

MajaPuljic.jpg

 

Maja Puljic, Mag.

Doctoral Researcher

PMO Division (People, Management and Organisations)|Psychometrics at Work Research Group