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2012

I interviewed Radhika Subramanian who discussed how she helps companies address the impact of product complexity on the supply chain using pattern-based analytics.

 

Addressing the Impact of Product Complexity on the Supply Chain from Dustin Mattison on Vimeo.

 

 

Well thank you Radhika for spending your time today to share your insights into supply chain. Can you start by providing a brief background of yourself?

 

Sure Dustin. First and foremost let me thank you for your time today. It’s an absolute pleasure to be on this program. My background is industrial engineering and what’s called computational mathematics. So, in simpler, terms that really means, “trying to solve business problems for businesses using methods from mathematics and technology” and that’s really my passion.

 

So at the last company I had, we solved problems for travel and transportation and they were some of the world’s biggest problems around travel and transportation. For example, assigning aircrafts to various routes, thousands of planes and millions of possible connections—very, very big data problem.

 

What we’re doing today at Emcien is also a big data problem. And the problem we’re addressing is around helping companies to look at the business value and impact across silo-ed data in their companies. And with a focus towards:

 

•    What are customers buying?
•    What are the products?
•    What are different demand buying patterns?
•    How does that impact the entire operational efficiency of the organization?
•    What is the impact on margin profit?
•    What are all the rest of the implications?

 

I am the CEO of Emcien. Our toolset really addresses applications that deliver value to businesses and I have an amazing team that helps me in the delivery of these solutions into industry.

 

Can you discuss the impact of product proliferation on the supply chain?

 

Sure Dustin, to talk about the impact of product proliferation, we first need to take a step back and really address this basic premise: companies exist for the sole purpose of delivering their products or services to their customers. So the entire company and all business units in the company are all aligned to enable or facilitate that. When products get proliferated, it’s the single biggest determinant of increased cost and loss of efficiency through the entire supply chain or delivery chain. I call it delivery chain because I have to include services in this. This would be services like insurance, services that telecom delivers, services that banking delivers.

 

So let’s take a step back. Look at a company that makes products. If you look at a company that makes products, let’s say laptops, what are all of the different business functions that are impacted, as the products get more complex and more proliferated?

 

•    You’ve got the manufacturing business unit struggling to figure out what are the parts that we need to carry in stock to deliver this in time to the customer.
•    The project managers are adding more product features without visibility into what market is buying what, where, and how.
•    Sales guys are standing on their heads to deliver the product in time to their customers.

 

Now, when you bring these different business functions together, each of them is looking through a different eye: Manufacturing through parts; project managers through configurations; sales through customers; and services through warrantees and parts requirements.

 

Proliferated products really add an enormous amount of cost and an enormous burden on the organization for them to be able to support and deliver services to customers. The impact on the profit margin is about 18-25 percent. It’s probably the single biggest value bucket that’s sitting out there that companies need to go and get today.

 

How can improvements in efficiency and profit be made?

 

Dustin that’s a really good question, how can improvements be made? So let’s kind of go back to the approach to the last answer I gave you. If the products are proliferated and the business units are struggling as these products get proliferated, then the solution really is in being able to pull the business units together so you have cross-functional alignment around the products and services you’re delivering to your customer.

 

There’s a need for a single platform that brings this “Tower of Babble” together so that when manufacturing is talking about parts, and project managers are talking about configurations, and sales are talking about customers, there’s a translator that can say, “a shortage of this part is going to impact this customer” or “this new feature - or lack of this feature - is going to effect our revenue this way.” There’s a need for a commonality and platform.

 

So let me take another step back, everybody is talking about big data and the complexity of big data. In companies today, every business unit has its own data silo and each business function optimizes their process within that silo. Most of the time they end up hurting the downstream silo. How can we improve efficiency and make profit? If you bring cross alignment with commonality of goal, common of language around the products and services you’re offering the market, and customers are buying, the opportunity for companies is tremendous and that really is the next frontier of business transformation.

 

Yes, and where have you seen success? Do you have any examples?

 

Absolutely. Success breeds more success. I’m going to give you two small examples. The first one is a company called AGCO, and they offer agricultural machinery into the market so it’s very complex products. They had bought a product line from CATERPILLAR and that product line is called the track tractor. These machines are about a quarter of a million to half a million dollars per unit and the number of choices is huge.  So when AGCO bought this product line, the manufacturers and project managers actually built up the inventory of finished goods because customers really do demand these products with very short lead time. And sales guys of course are doing their job and selling the products to the customers… so low and behold the orders come in and the orders and the units in stock and inventory absolutely don’t match. So there is this “Tower of Babble” that manufacturing struggles with every day.

 

What Emcien was able to help AGCO to do is unify that language so that manufacturing was able to stock and build the right configurations and sales could actually deliver those units with very short lead time, almost 5 days, to the customer. The value was hundreds of millions in savings and profit improvement to AGCO.

 

I’m going to give you a second example. This is a company called NCR and they are looking at this problem of how do you get cross-functional alignment across every business function. They look at it in two ways: one way is demand sensing and the other is demand shaping. Demand sensing is all those business functions that need to listen to the market and see how the market is buying and absorbing their products and need to have readiness to deliver the products on time. So that’s the demand sensing part. The Demand shaping part is of course sales guiding customers based on availability.

 

So this is a success story that’s resulting in, again, hundreds and millions of dollars of cost savings where NCR is:

 

•    Listening to the market
•    Understanding what the customers are buying
•    Aligning project management to offer products based on what customers are buying
•    Making sure sales and operations planning is aligned with having the right parts to deliver them on time
•    And last, but not least, sales people are actually making sure that customers buy what NCR has today and if they don’t they at least differentiate those configurations to say, “you know, that one you might have to wait for.”

 

That is absolutely a recipe for profit for growth and enormous success and great customer service.

 

About Radhika Subramanian


Radhika-Subramanian(1).jpg

 

Radhika Subramanian is CEO of the Emcien Corporation, a pattern-based analytics solutions provider. Ms. Subramanian has nearly 20 years of experience helping large, sophisticated organizations optimize their business processes and achieve greater success. She is a leading expert regarding the impact of product complexity on the supply chain and has consulted with numerous Fortune 500 companies to reduce complexity in their organizations. In 1998, she co-founded Idmon Corporation, which specialized in analytical applications for the transportation industry. Idmon was funded by Cordova Ventures and Imlay Investments, and its launch customers were Delta Air Lines, Continental Airlines and South African Airways. The company was sold to Swissair Group in 2001.

 

Emicien Corporation

I interviewed Phillip Slater who discussed that we cannot apply the generic inventory management theory to spare parts inventory.

 

Peter Slater from Dustin Mattison on Vimeo.

 

 

You promote the view that spare parts inventory is different to other types of inventory, perhaps you could start by telling us how you define spare parts inventory.

 

Spare parts inventory is the inventory used for the support of operations and maintenance. It is largely the spare parts that are used for the maintenance work. This applies to the inventory held in a wide range of industries: processing, manufacturing, mining, etc. All of these sorts of industries hold these kinds of spare parts.

 

But it also includes the parts that are used in the customer service area where people have service people who go out and serve someone else’s equipment. The key thing here is that this is the inventory that is used to maintain or repair other inventory. This is opposed to just being finished goods for sale.


OK, so what is the problem as you see it?

 

The problem is that people all over the world who are managing this inventory. There is the issue that they can’t get control over this sort of inventory, despite the fact that they are able to control all of their other types of inventories.


I see people who are from finance, procurement, maintenance, storeroom and supply chain who are trying to get a handle on how to control and manage spare parts. However, what they are applying doesn’t seem to work for them. The problem is they are not looking at the root cause. I believe the root cause is that spare parts inventory is different from other types of inventory. Therefore, the standard approaches we apply in supply chain management just don’t work for this type of inventory.

 

What types of standard tools and techniques do you mean?

 

If you think about the approaches people have used for supply chain generally, for example the concept of velocity in the supply chain, minimizing the time from one end of the supply chain to the user, things like Just in Time (JIT), MRP, ABC Analysis, etc. All of these techniques don’t really work because the issue with spare parts has to do with the way they are consumed.


Therefore, you don’t get the same type of opportunity to apply all of those techniques. In fact, I think a lot of those techniques can be quite damaging to the people’s inventory and the way they are managed.

 

Damaging? How?


It is damaging in the sense that the results that you get when you apply these standard techniques really are counter to the real needs of the business. You end up holding more of what you don’t really need and obviously less of what you really do want to use. You end up with a skewing of your inventory where you are either over investing, which isn’t good, or you are under investing; which is sometimes even worse because with these inventories production stops in some environment. This is one of the issues you get with these high stock out costs.


Also, they distract people from actually getting on with rest of the job. They spend time, money and energy trying to implement solutions that really just don’t work.

 

So what is about this inventory type that is different?

 

I mentioned already that it is about the way they are consumed. You end up with this difficult balance between the supply chain and managing the production (maintenance and reliability needs). You end up with unpredictable demand patterns that are very difficult to apply when you are using the other techniques.


One of the peculiar things is that with this sort of inventory you actually stock items that you don’t want to use. Nobody who is selling inventory would say “we are going to stock this but we don’t ever want to be able to sell it.”

 

With this sort of inventory, because you need to be able to hold things which we call “insurance fees” we are going to hold items that you are never going to use. You would prefer not to use them but you need them for insurance. You have to hold items and manage items that may have very small value but which are critically important to the way you operate. In some circumstances smaller value items (small profit per item, etc.) might have less attention.

 

However, in this case because of the criticality of the item you need to manage these small value items. The reason they are critical is because of the stock out costs. The costs of not holding the part can be hugely disproportion to the actual value of the parts you are talking about. This skews a lot of the behavior, thinking and analytics that people apply in this sector. This is one of the things which drives them to overstock.


There are also things like the size of the market. If you think about supply chain about providing products to a certain market, if you are holding spare parts to maintain a gas plant, for example, the market you have for those parts is the gas plant and the plant equipment. Therefore, you don’t get homogeneous market dynamics that you get with other types of inventory.


Parts also get taken out and used in one-off projects which then skew the data you have about the real needs. There are a whole range of different issues that we really need to think about.


So what can we do about it?


The really short answer is to say “don’t apply generic solutions to what is a specialist problem”. For people that are looking to deal with these types of inventories should go out and find a specialist that deals with this sort of inventory and understands the maintenance side, the reliability side, as well as the supply chain side and is able to marry those two things and bridge that gap.


Of course, I would say they should also look for a site that provides insight into those areas and they should join someone like SparePartsKnowHow.com .

 

About Phillip Slater

 

PhillipSlaterSPKH (1).JPGPhillip Slater specializes in materials and spare parts management and helps companies worldwide save millions (even tens of millions) of dollars on their spare parts inventory spend. Phillip is the author of 8 books, including Smart Inventory Solutions and The Optimization Trap and is the founder of the online training and resource center at www.SparePartsKnowHow.com. Please visit www.PhillipSlater.com for a complimentary copy of the ebook 5 Myths of Inventory Reduction.


LinkedIn Profile

www.SparePartsKnowHow.com

www.PhillipSlater.com

I interviewed Adrian Chen who discussed that within the next 5 to 10 years Global Trade Compliance will be a role within the supply chain process that will have the maturity, skills and proficiency like the old days of shipping and logistics.

Impact of Global Trade Compliance in the Supply Chain Process from Dustin Mattison on Vimeo.

 


What is the impact of global trade compliance in the supply chain process?

 


Global Trade Compliance actually plays the most important role at the back end of the supply chain process. From an OEM and ODM perspective a manufacturer that wants to export its products needs to ensure they have their trade compliance in place, specifically licensing/export controls. Appropriate export licensing will allow a manufacturer to actually export their products successfully without having any problems at the importing country, as well as their exporting end which is the country of origin.

 

There are many kinds of export controls and laws which govern certain exports. In can be a country of origin export where the manufacturer is based and also what we call the De Minimis Rule whereby the content of the product, or the content which is required to make or produce a certain product whereby the origin country where the technology originates from may also require licensing. For example, in the United States.

 

This is what we call “re-export licensing” from a US EAR (Export Administration Regulations) perspective. In the whole supply chain process we tend to break it down into the front end and back end process. I would think that from a front end process there are a lot of trade compliance laws that actually governs the inbound of materials into the production lines and from there getting it ready for export at the end.

 

However, for the sake of this interview I think we can actually look at the back end process which is actually much more relevant to a lot of manufacturers who are basically Asia based. I tend to say that the impact of global trade compliance in the supply chain process, specifically in the back end process of the supply chain will equate to at least 40-50% of any supply chain hurdles any manufacturer will face.

 


Why is global trade compliance important?

 


Let me give you an example: You have a manufacturer manufacturing a product using US technology. That product may be used to be assembled into a final product re-sold in an open market. For example, with a cell phone an IC (integrated circuit) manufacturer may basically manufacture a circuit board that is ready to go into a cell phone. Once fully assembled the circuit board will be sold in the open market.

 

Before that circuit board can actually leave a manufacturer’s premises, per se China; that circuit board which uses a certain percentage of US technology and is basically manufactured by a Chinese manufacturer in China will have to go through several classifications which requires a ruling, what we call an ECCN Ruling (Export Control Classification Number).

 

If that particular circuit board has encryptions and algorithms it will require a certain ECCN classification which is very commonly known as a Category 5A Encryption. A Category 5A Encryption, if it is actually a controlled encryption would require a US EAR re-export license wherever the circuit board will be exported to, whether it is re-exported to Taiwan ultimately to put into a cell phone casing or India for further encryption or software upgrading.

 

Ultimately, before the manufacturer can export a circuit board they will have to look at all of these pre-licensing conditions before they can actually export the circuit board. It is not something that is done overnight. It requires time and submission of the algorithms to determine if the algorithms encrypted within the circuit board is actually utilized in the mass market or actually pre-tailor made for a certain product usage only.

 

Once the classification ruling comes back then it will dependent on the terms and conditions of the license whether if the manufacturer can ultimately export that particular circuit board to all of its destination countries, or only a certain customer.

 

The licensing conditions sometimes are pretty stringent, but at times when it comes to mass market situations it is actually pretty easy and lax. Nowadays you will find that most of the encryption on circuit boards that are actually used for cell phones are mainly for mass market. Therefore, you will find that licensing conditions are actually pretty lax. However, there are also circuit boards that are used for tailor made purposes for a certain company. Those circuit boards may not necessarily be used for the mass market but can be used in a certain industry such as GPS, radars, long-range telecommunication, short-length mobile telecommunications, or even satellite navigation or communication issues that will require more stringent licensing.

 

We see that global trade compliance nowadays actually plays an extremely important role in the whole supply chain process. We can have a manufacturer that actually acquired raw material, sourced for the appropriate manufacturer or they manufactured it themselves. They have the appropriate lead frames or lines to actually manufacture a certain product. At the end of the day they have the product ready in stock and in the warehouse allocated and ready for exporting.

 

Yet, the whole show stopper could be the global trade compliance.

 


Can you talk about how to address the impact?

 


We see nowadays that a lot of the multi-nationals, even to the extent of local Asian conglomerates that are going global, are actually looking at global trade compliance from a different perspective. They take compliance more seriously and are investing in acquiring talent in this area.

 


In the past when export control regulations or trade compliance regulations were not that stringent in terms of monitoring and controls I would say the local Asian manufacturers tended to take a back seat into pumping in funds to invest in acquiring such talent. However, with the situation of the US EAR and the expansion of various Asian export control laws which have been exploding in Asia over the last 5 or 6 years, we see more of the Asian companies are actually taking it seriously. They know that it will effect their supply chain and fulfillment. They are taking all precautions and measures to make sure they are fully compliant in order that their supply chain processes are not ended.

 

Where have you seen some success?

 


I have seen success mainly from a lot of the global manufacturers that are actually setting up local operations in Asia. There are a lot of major international companies that are looking into China nowadays. As we know that three quarters of the world’s contract manufacturing is very much located in China. I would safely say and can actually put a finger to it that you will find specifically in this particular North Asia region we see an explosion of talents that are actually shifting around and probably changing companies and employers frequently. Major manufacturers are actually acquiring headcounts. I have seen success whereby major manufacturers such as in the electronics, semiconductors and FMCG industries specifically acquiring talent to look after compliance.

 

In the past we saw more controls put around the electrical controls industry. Now, we see that these particular talents are actually expanding to all various parallel industries looking at compliance very seriously as well.

 

I see it as a trending career and platform for an OEM and ODM to ensure their supply chain processes are adhered. I see it as a situation where governments or authorities are actually and should address specific IP (Intellectual Property), technology or even products that may contain certain highly confidential ingredients or inputs in terms of manufacturing. They need to ensure the products don’t fall into the hands of terrorists or sanctioned and embargoed nations.

 

I think the success of global trade compliance in the supply chain process is well on its way to achieving its full blown achievement. I foresee that within the next 5 to 10 years trade compliance will be a role within the supply chain process that will have the maturity, skills and proficiency like the old days of shipping and logistics.

 


About Adrian Chen

 


Adrian spent over 20 years in the areas of international trade and global logistics. He started back in the early days when there was no trend in supply chain. Everything was either export or shipping. During those early days they were performing supply chain work without actually knowing they were doing supply chain.

 

He started doing trade financing with an Australian bank for a few years. Adrian then worked with DHL doing work in the Asia region involving line haul planning. He took up his first P&L management role at Zurich Financial Services looking after risk management for importers and exporters, dealing with marine cargo insurance.

 

Adrian’s real first management role came when he was managing one of the largest pigmentation dye OEMs from Taiwan. He was with this company for 10 years where he served as the General Manager for Logistics and Supply Chain.

 

After 10 years with the OEM he took on some consulting roles with JP Morgan and KPMG. He then moved back into the operations field at Texas Instruments. This was followed by a short stint at Logitech in Hong Kong.

 

In all of his roles he was looking after the full gambit of end-to-end supply chain, from the most basic of procurement and sourcing – all the way down to inventory controls, materials management, allocation and fulfillment.

 

In between all of the fiasco of the supply chain line there emerged a new baby called “Trade Compliance” over the last 5-6 years, especially in Asia. Adrian developed an interest and some specialization in this area and has been looking at global trade compliance with global supply chain as one ever since.

 

Adrian is currently in between assignments and is considering several roles.


Global Supply Chain & Trade Compliance / Doctorate Candidate
University of Management & Technology

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I interviewed Peter Balbus, Managing Director of Pragmaxis LLC – a niche consulting group that specializes in assisting clients with their strategic innovation and operations performance improvement initiatives. In this segment, Peter and I discussed key trends and learnings about sales and operations planning, a rapidly advancing business domain integrating enterprise level demand planning and supply chain management.

 

Sales & Operations Planning 2012: what have we learned? from Dustin Mattison on Vimeo.

 

I interviewed Peter Balbus, Managing Director of Pragmaxis LLC – a niche consulting group that specializes in assisting clients with their strategic innovation and operations performance improvement initiatives. In this segment, Peter and I discussed key trends and learnings about sales and operations planning, a rapidly advancing business domain integrating enterprise level demand planning and supply chain management.

 


1.     Welcome Peter – and please provide a brief background on yourself.

 

Thank you Dustin – great to be chatting with you once again. I would describe myself as a consultant who specializes in strategic innovation management, focusing on two primary areas for strategic innovation: identifying emerging new markets -- and closely related to that from an operational perspective, strategic sourcing and supply chain transformation.

 

I help clients accelerate their achievement of industry leading operational performance and customer fulfillment capabilities. My educational foundation includes an undergraduate degree from MIT in chemical engineering, and completion of the University of Chicago executive program in finance and strategy. I also hold professional certification as a master business innovator through the Illinois Institute of Technology.

 

My clients are varied in terms of their size and the industries in which they compete. Most are mid-to-large scale firms with global operations, and are spread across multiple industrial segments including manufacturing, chemicals, polymers, energy and electronics. I’ve also done some significant recent engagements for clients in the food & beverage and financial services segments, as well as working with a couple of leading private equity firms.

 

Prior to founding Pragmaxis in 2001, I held senior practice leadership positions with KPMG, CSC Index and Booz Allen & Hamilton.

 

2.     How would you summarize the business concept of Sales and Operations Planning?

 

Well, Sales and Operations Planning (S&OP) is one of those many splendored things … It first started out as simply a supply chain ‘cost reduction thing.’  Then it evolved into an enterprise-level ‘business process’ and is quickly becoming a ‘global integration strategy’ for leading companies in virtually all industries.

 

S&OP is the one business function that truly integrates all operations of an enterprise, enabling its people to make decisions from the lowest level planners to the highest level executives in a truly integrated and strategically aligned manner. S&OP has become the integrative process by which local, regional and global tradeoffs are made around key issues like customer demand forecasting, production locations and inventory stocking levels.

 

S&OP drives the approach by which a business can pull together all its diverse functional pieces of market, customer and internal information and business intelligence through an integrated and rigorous series of analyses to make informed cross-business decisions that optimize business performance at an enterprise level.

 

3.     How would you describe the major issues around S&OP? 

 

For most companies, designing and implementing an S&OP solution architecture goes way beyond the selection of IT modules to support the processes. It requires profound changes, including the imposition of new centralized planning functions, typically at a corporate level, as well as redefining corporate governance policies, accounting practices and aggregation levels for decisions about production levels, distributed manufacturing and sourcing, and inventory management.

 

The entire product portfolio has to be segmented – with customer fulfillment requirements driving determinations about whether production should be geared towards made-to-stock or made-to-order triggers. And all of this is typically done within the contours of very sophisticated predictive analytics and statistical forecasting methods.

 

Unfortunately, the capabilities of most of the leading ERP platforms such as SAP and Oracle are woefully inadequate to support S&OP processes at this time, especially in the critical areas of demand planning and statistical forecasting.  Most SAP customers have found SAP’s Advanced Planning Optimizer, for example, to be surprisingly ineffective – to the point of being virtually unusable for any real planning purposes, and have resorted to bolting on 3rd party products from SAS or building their own home-grown work-arounds.

 

Implementing global S&OP concepts usually also involves massive transformation efforts with some difficult change management implications. In decentralized companies, for example, regional sales and production teams are often highly resistant to giving up their local autonomy, flexibility and decision making to serve customers -- so that production can be optimized at a corporate level.

 

In a similar vein, regional managers measured on their financial performance are likely to resent having corporate dictate what levels of inventory and spares they must maintain, especially when they are being held accountable for levels and turnover of working capital.

 

4.     What do you see as the motivations – or perhaps proximate causes – of companies undertaking large-scale S&OP initiatives?

 

Great question – and the answers are somewhat surprising to me.  According to a recent survey taken by Aberdeen Group of 127 corporations, the top business pressure they indicated they were experiencing was “reducing supply chain operating costs.”  Fully 54% of respondents named supply chain cost reduction as their number one goal.

 

This was even greater than “improving top line revenue”, which came in at number two.  Managing increasing demand volatility was number three.  Meeting customer mandates for faster and more accurate fulfillment was 4th. The need for tighter integration between planning and execution was last.

 

One of my reference examples as a great case for S&OP is the widely reported story of Newell-Rubbermaid, the $6 billion provider of among other things, food storage containers, refuse bins and garbage cans, gourmet cookware, Levelor blinds and Dymo labeling solutions.

 

In 2008, Newell-Rubbermaid faced a set of formidable challenges included inventory growth that was rapidly outpacing sales, inventory turns that were declining, forecast accuracy that was anything but accurate, and working capital as a percentage of sales way that was outside of industry norms.

 

Executive management saw S&OP as a great way to address all of these different areas of opportunity at the same time and at a root cause level. It took some time – years in fact -- and the details of their implementation roadmap are beyond the scope of this interview but the short version is that they saw some excellent results from their efforts.

 

Post S&OP implementation, Newell-Rubbermaid saw immediate benefits in areas like demand planning and forecasting.  In other cases, like inventory optimization, S&OP has provided a solid foundation, but the company reports that they still have plenty of work to do.  Since starting their S&OP initiative, inventory levels are down significantly while service levels are up — it’s pretty amazing to be able to do both of those things at once.   Forecast accuracy is steadily rising, which in turn helps them get their supply picture right and keep customers happy.

 

While inventory has to grow along with sales to some extent, they are seeing it growing at less than half the rate of sales growth.  That’s a very different situation than what existed three to four years ago.

 

5.     Overall, what do you see as the major lessons learned from companies that have traveled down the S&OP pathway?

 

Based on my discussions with clients and other executives that have taken on – and survived large-scale S&OP initiatives, several common themes emerge.

 

First, spend at least as much time managing the change as you do sweating the technical details.  Allow ample time to get buy-in from key stakeholders and build the community up front. It will pay oversized dividends later on.

 

Second, rely on a phased approach. S&OP is much more an integrated set of business processes and technologies than a single, all-encompassing process or technology. If you just focus on the implementation of a new technology and think that S&OP will miraculously take shape, you’re wrong.

 

Third, ensure that the S&OP effort is truly multi-functional and holistic.  Far too many companies still approach S&OP solely from the supply chain perspective. Sales, marketing, finance, IT, HR, and just about every other functional area should also representation at the table as well. This all-inclusive approach signals a high degree of customer focus and helps them recognize the significance of the process.

 

Fourth, Focus more on information, less on data.  Clean, current, and accurate information.  Plans are often slowed down by the effort of gathering data that has minimal importance to the overall project. It is important to ensure that you know exactly what business problem you are trying to resolve and understand the minimum data necessary for the project.

 

Fifth, develop an “outside-in” sequence of S&OP initiatives. Most often, the events that have the most profound and negative impact on sales and operations planning are those outside of your control.  For the most part, these arise from the decisions and actions of your customers, competitors and partners – and sometimes natural disasters. Strive for resilience and recoverability as a core component of your S&OP foundational principles.

 

In terms of best-in-class companies, the Abeerdeen Survey cites two critical statistics:

 

  • 64% of best-in-class companies have the capability to evaluate unconstrained planning scenarios during supply demand balancing.
  • 58% have the capability to view their supply chain holistically in terms of linked processes.

 

I tend to observe that best-in-class companies generally offer the best examples for emulating the best practices for companies seeking to improve their own processes.

 

6. Where can our audience get more information about S&OP? 

 

There are tons of books and articles that have been writing on the topic, but I generally recommend that clients start with Wallace and Stahl’s “Sales and Operations Planning Handbook”, now in its 3rd edition. APICS magazine has a whole series of excellent articles on S&OP principles and practices as well as Supply Chain Management Review.

 

About Peter Balbus

 

PeterBalbus.jpg

 

Managing Director

Pragmaxis LLC

LinkedIn Profile

I interviewed Ram Krishnan who talked about his innovative 3D modeling solution for warehouses.

 

Can you talk about your new service involving 3D modeling for warehouses?

 

Over the last few years we have been providing various kinds of techniques to large corporations. For example, we did about 12 projects at different sites for Kimberly Clark. Each one was a 600,000 square foot building, starting from Appleton Wisconsin.  In those projects we would make various kinds of sketches, 2D drawings and various kinds of analysis. We were always looking for a 3D angle to it over the years but couldn’t figure out a way to do it.  However, recently about 1 year ago we had a breakthrough in terms of a logic to bring 3D.whse.jpg

 

With 3D the whole interaction, understanding and everything becomes a lot easier. What he have done is not just 3D. In some industries they call it a “walk through program” where you can actually walk in the isle. On top of this we have built in various kinds of warehouse related intelligence in terms of velocity, slotting issues, and various kinds of parameters.

 

We have superimposed all of that onto the 3D model. At the end of the day we want the warehouse workers and staff to take on a larger role and understand better what is happening in their own centers.

 

A lot of times what happens is a company will implement a large software and they have no idea what goes on in this software. We are trying to make it very simple.

 

Can you talk about some of the benefits?


I would say what the 3D brings are basically visualization. We are now connecting a warehouse through an FTP server. We have not completed this, but are testing it. We want to bring the current on hand information available to the warehouse people in a graphical way.  Specifically in that area we have also built in a number of best fit analysis heuristics:

 

1.     We try to show using a heuristic basis. We say “what is the best way to store the inventory given  the current slotting?” This is all done very visually.

2.     We show the movement of the different item is using and ABC Analysis based on the hits. This is shown visually on top of the warehouse drawing.

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Therefore, problems become very obvious.

 

How can companies implement it?

 

Typically, over the years we have standardized what we need. We usually ask for the 2D CAD drawings and elevations. On top of that we ask for 3 databases:

 

1.     Item/SKU details database

2.     Order pick level information

3.     Current on hand and out of stocks

 

An example can be seen from one of the large corporations in the US out of Richmond Virginia called Owens Minor. They are in the business of delivering hospital and nursing care products to various hospitals in the US. They have 48 warehouses and have been using our techniques.

 

The client has not started the 3D modeling, but they have been using our slotting techniques for the last 5 or 6 years.  We are now in the process of introducing the 3D to them.

 

The 3D technique has been applied on a limited basis over the last 8 months for a food service DC  in Long Island New York.  We continue to work with more companies and when we are finished we will inform you.

 

What are the successes you have seen?

 

th the client in New York what we did was do our analysis and used our 3D models. . We did 2 things:

 

1.     Based upon the analysis we tried to set a longer term vision. For example, “for the next 1-2 years where do you think we want to go with this warehouse to improve it?” But that doesn’t mean tomorrow we can reach the longer term vision.

 

2.     We create things called “slotting groups”, which would take us towards that long term vision. Over a period of time on a weekly basis (1 or 2 times per week) we provide the re-slotting service so that every time our friends there are able to make incremental moves.

 

For example, on a given day when we make a recommendation they will make changes to 20 products, for example. Making changes to 20 SKUs for 1 or 2 days is not a big deal, whereas if I tell them to rip the whole place apart and rebuild it, nobody is going to do that. That’s impossible.Compare-hits-JK.jpg

 

We set the long term vision and then we incrementally approach it on a weekly basis. Every time all of our moves are prioritized so that we give them the best possible moves for the money. We do analyze what we call a 'penalty cost'. All of our moves are highly prioritized based upon the value it brings. We want to reach as quickly as possible with as few moves as possible.

 

About Ram Krishnan

 

Ram.jpg

Ram is an industrial engineer who first learned warehousing working  for a division of SuperValue, which is a food company in the Midwest,  followed by Target. He and his team started their business back in the  mid 1980s. They bring their techniques in the area of warehouse layout,  slotting and related material handling issues.  They do all of the  analysis in terms of very rigorous profiling and bring predictability  improvements to the warehouse.

 

Ram's Email: Ram.krishnan@yahoo.com

LinkedIn Profile

Blog

Application at Owens-Minor - a Pharma / Hospital supply corporation with 48 DC's in the US. 

Past Clients - large companies and small ones https://sites.google.com/site/warehouseapplications/

 

3D model your DC - Functions and benefits


I interviewed Tom Craig who discussed that there is a myth out there of the supply chain. There is no such thing as a single supply chain. It is more complex. There are supply chains within supply chains. You are trying to look at where your need is greatest. What you are trying to do is segment where the most needs are.

 

(Viewers in China who can't access Youtube can hear interview on Youku 在中国的读者请听面谈在忧酷上 ....)

 

 

What is supply chain segmentation? 

 

Supply chain segmentation is for the manufacturers, retailers and wholesalers. It is a different way of taking a look at supply chains. Traditionally, supply chains are organized on a functional basis. What you generally do is have a lot of “noise” every day between what’s hot, what’s not, what the priorities are. It may be something about a service, something about a problem, something about a cost. That is pretty well understood.

 

What segmentation does is take a different look at the supply chain in terms of what’s important, how CEOs, COOs, CFOs, and the rest look at the business and look at the supply chain. For example, you would segment and take a look at your supply chain based on profit margins of your product. This is a different view from an organizational view. You would look at where your highest profit margin is in relation to volume. That would be a segment.

 

There may be 2 other possible areas, high volume and not as high margin or very high margin and not as high volume.  Or it could be Days of Inventory or something very similar where you look at your fastest turning least number of days versus the longest.  What you are trying to do is put your emphasis, resources and organization behind what’s best for the company, rather than every order, every product , etc.

 

Design it this way, present it, analyze it and get the backing of C-level people that this is the best way to organize and effectively run the supply chain.  This complexity lets you focus resources where they have the most impact in terms of goals and strategies of a business itself. There is a purpose behind it all. The bottom line is that it is doing what is best for the company and it reduces some of the noise every day that you have to deal with in the supply chain.

 

Tom’s consultancy has done the same type of thing in their work with companies. They have taken a different view of their supply chain in their business to see what is really going on. For example, there was a consumer goods firm that both manufactures and sources their finished product. They had organized their manufacturing along the lines of the traditional ways of lowest manufacturing costs in terms of demand, variability, etc.  Tom’s team took a different segmentation and looked at demand variability and production variability. The result was it reduced on hand inventory while improving customer service.

 

The company was inventory rich. They had lots of inventory, but in many cases it wasn’t inventory they needed daily to complete customer orders because they had out of stocks, lead times, etc.  They took a different segmentation from what they were traditionally doing. As a result they improved their customer service and profitability. The company actually gained market share at the same time because of these improvements.

 

Tom and his team work with another e-retailer customer that worked heavily in international sales. They had it organized along product categories. Tom  took a different look at it in terms of country of destination. Segmenting on country, rather than product category, helped them improve their operations, improve their ability to order placement to delivery of orders, etc. In the last six months they have increased their sales by 40%.

 

The idea is to stop the traditional way of looking at how you organize and do your business. You look at where your real impact will be for what you are trying to do, and organizing your resources accordingly.

 

There is a myth out there of the supply chain. There is no such thing as a single supply chain. It is more complex. There are supply chains within supply chains. You are trying to look at where your need is greatest. 

 

There is a myth out there of the supply chain. There is no such thing as a single supply chain. It is more complex. There are supply chains within supply chains. You are trying to look at where your need is greatest.  You can do a lot of expediting and fire-fighting which at the end of the day you can accomplish a lot, but at the same time you realize you accomplished very little. What you are trying to do is segment where the most needs are.

 

What is logistics segmentation?

 

Logistics segmentation is the same concept but used with a 3PL and other logistics service providers. Traditionally, 3PLs looked to expand their business in new areas in terms of industry verticals, expanding into more countries, etc. This is the more traditional way you do things.

 

Tom and his team say that there are two things that they should be looking at:

 

1.     Where they can build a value proposition for their customers, recognizing that as a commodity service provider, roughly 80% of their business is a commodity service where price is a key factor.  What Tom looks at with a value proposition is that other 20% where they can become a truly important part of that customer and their supply chain success.

 

2. The point is that with a value proposition you are not saying “I have the cheapest freight rate”. You are not looking at the freight rate, pallets, containers, etc. You are looking at the supplier’s business and saying “I can help you in the following ways”, “I can help you improve your inventory turns”, “I can help you improve your customer service by X%”, I can help you increase your market share”, etc.  With that idea of the value proposition where do you segment and what do you look at?

 

Tom takes a different look on that as well. For example, with product value it is important to your customer or customers. You can take that and segment it to grow your business and expand your business based on where the product value is the greatest.  You can also look at where the most supply chain complexity is and where you can help with that complexity.

 

The whole idea with segmentation is to take the non-traditional way of looking at it. What you find is the greatest opportunity. As you get into it more there are granular areas that let you go deeper and deeper.  What you are doing is putting a focus ultimately on your business, whether you are a manufacturer or a 3PL, which delivers the most bottom line results, improves customer retention, and overall helps grow the business.

 

Conclusion 

 

The successes have been phenomenal. The learning curve is simply traditional organizations which are more hierarchical. Segmentation takes a more horizontal approach to business. Segmentation is geared toward an upper end of your business. It is not for all of your business. Whether you are a 3PL, retailer or manufacturer we are looking to improve your full operation and profitability for that 20%. It is about how to achieve that with the most success and focus. Tom has seen good results both with 3PLs and manufacturers who do this.


About Tom Craig

 

Tom_Craig.jpg

 

President

LTD Management

LinkedIn Profile

 

Tom Craig spent his career, before starting consulting, on the shipper  side. He worked primarily in manufacturing situations, both consumer  goods and industrial goods, as well as retail. All of the consultants at  Tom’s firm have real world experience, which better enables them to  understand their client’s needs. The topic of segmentation is based on  their own experience and what they learned about how to see improvements  in supply chains.

I recently interviewed Bradley A Feuling, CEO, Kong and Allan Consulting. He discussed his views on Corporate Social Responsibility and its relation to supply chains in China.

 

Readers in China who can't acess Youtube please click on the following link (在中国的读者请打开这个网址

 

 

1. Please provide a brief background of yourself

 

I am currently the CEO of Kong and Allan Consulting. Our China operations were opened in 2007 with a focus on supply chain consulting and outsourced supply chain management. Our firm has been cited in over 50 different publications and we have twice been named the Best Supply Chain Partner in Asia.


2. What is CSR and its relation to supply chains in China?

 

CSR (Corporate Social Responsibility) has a broad definition that encompasses everything from volunteering and work with local communities, to operational improvements that affect the communities a company influences with their products, manufacturing and shipping.  The later definition connects closely to supply chains, as supply chains are a complex network of material providers, logistics and shipping, manufacturing, distribution and sales channels that reach numerous communities around the world today.

 

As China is closely connected to many of the world’s supply chains, it is important to understand how these supply chains impact the many cities, towns and people in China; whether they are customers, factory workers or transportation personnel.

 

In our contribution to the American Chamber of Commerce in Shanghai publication Viewpoint titled The China CSR Imperative: Integrating Social Responsibility into the China Supply Chain we looked at three key areas of focus in China supply chains where CSR can be strengthened to create tangible business results.  These three areas are:

 

1.     Sourcing and Procurement

2.     Manufacturing and Operations

3.     Logistics and Transportation

 

In each of these areas, there are numerous connections between CSR and China supply chains such as:

 

•     The development of eco-friendly suppliers

•     Maximizing efficiency

•     Managing energy consumption and CO2 emissions

•     Logistics consolidation

•     Stronger labor and resource planning

 

3. Why should supply chain managers pay attention to CSR? 

 

Supply chain managers should give more focus to CSR strategies, namely because costs savings can be achieved and efficiencies can be gained. In addition, more attention has been given by the media and consumers globally to companies that are not fulfilling their promises to positively impact the communities their supply chains reach. The use of underage labor and fair compensation has for a long time been an example. It is important to understand how the supply chain operations are critical to fulfilling a brand promise and delivering on the marketing and sales image of a company.

 

Specific to China, in some areas a focus on CSR in the supply chain can improve government relations, as many national and local government goals are connected indirectly to supply chain variables, such as:

 

•     Energy consumption and emissions

•     Sustainability and the protection of specific natural resources

•     An increased emphasis on green business practices in logistics and manufacturing


4. Where have you seen success?

 

We have been involved in successful cases where companies not only reduced significant costs in their supply chain, but also positively impacted their CSR practices. For example with one large US retailer we:

 

•     Considered cost reductions by integrating product and store materials engineering, we looked at the manufacturing and logistics networking to create annual cost savings of around 26% or $400,000 US dollars annually with selected products and retail displays.

•     We looked at spatial reductions through the lens of design engineering combined with optimization software to redesign products and lower the spatial volume of the product by 44.11%.

•     Through these changes in logistics networking and inventory management we improved and created annual CO2 emission reductions of nearly 17,000 kilograms or 37,500 lbs.

•     These changes in the product and packaging design also reduced material usage, which resulted in 583 trees saved per year.

 

About Bradley A Feuling

 

BradleyFeuling.jpgCEO Kong and Allan Consulting

LinkedIn Profile

 

Mr. Feuling’s experience includes early stage venture/operations development and supply chain management in Asia and the US. His expertise includes strategic network development combining the four critical sectors of society, public, private, education and non-profit. This includes the creation of a global network of universities including 30 universities in 7 different countries and direct association with nonprofit organizations impacting over 287 million people worldwide. Mr. Feuling has written or been citied in over 45 articles including “The Rise of Global Manufacturing Competition” and “China’s Competition for Capacity”, for publications and websites such as MSN.com.  In 2008, Mr. Feuling was featured on CCTV International’s Up Close. Mr. Feuling is currently the CEO of Kong and Allan Consulting, which has twice been named the Best Supply Chain Partner in Asia.

 

I interviewed Jorge Zavala who has been in Silicon Valley since 2005 in a program called TechBA, which is sponsored the government of Mexico and the Minister of Economy. It is operated by the US-Mexico Foundation for Science. The goal of having a program for Mexico that is outside Mexico is to help innovation projects for the creating of companies which model those of Silicon Valley. TechBA currently has 8 offices, 5 in the US, 2 in Canada and 1 in Spain. Jorge was the CEO in Silicon Valley until December of 2011, whereupon he moved into a new position called Chief Disruptive Officer, which is a global position within the organization. In this position Jorge explores how to create and develop innovation programs for any type of company from Mexico that wants to be global.

 

Examples of Reverse Innovation Projects and Opportunities in Mexico

 

TechBA worked with a company that provides solutions for diabetes relief. The company was in Mexico and was looking for a way to enter the US. They found it was easier to develop the products in Mexico first, followed by a roll out to developing countries. The problem [to be solved in the market] is much bigger in developing countries. It is more complex to fulfill all of the health regulations in the US. Also, when you have limited capabilities initially, it is better to start in a place where you can move faster, ie. Mexico. Once you get approvals you create references that will help you in your work to expand to developed countries. When selling in developed countries you need a much higher level of product development and quality.

bootcamp_photo6.jpg

Another interesting area of opportunity in Mexico is solar energy. Mexico has many days of sun and the capacity. This is an opportunity for Reverse Innovation. The technologies can be better tested in Mexico and then rolled out to developing countries.

 

Other opportunities include security in undeveloped countries. This type of service is being developed in Mexico and can be used in other places. Currently, task forces are being developed in Mexico. The learning can be applied to other areas outside of Mexico.

 

How can companies looking for opportunities to innovate in Mexico get started with the process?

 

This is the big challenge and is one of the things TechBA has been strong at. The company identifies the problems and opportunities. There are many opportunities in the developing world. The big issue is how to switch mindsets to create new ideas and ways to test programs. Today, the Lean Startup Methodology has been adapted for use by TechBA. TechBA has developed boot camps where they work with students [as well as businesses and professionals] just starting at the universities to give them a background for creating new ideas. They attend a boot camp outside of Mexico for 30 full days.

 

TechBA has done similar boot camps with professionals and with a very large organization in Mexico that participated in a 2 day version. They learned how to take good ideas, validate them and develop profitable projects. This is done within a 30 day boot camp. It is a program where the participants learn how to do ideation. They learn the process and the basic skills for becoming an innovator. They learn how to turn ideas into solutions that are attractive to the market, with real projects and with potential for becoming real companies.

 

 

bootcamp_photo3.jpgThe project is called ‘Build or Die’, meaning you build a great company or the project dies. It has been a great experience. TechBA has provided the full 30 day experience to 3 groups so far. The boot camps provide a way for people with specific skills and talent to obtain the additional skills needed to make things happen. They develop the awareness of how to use tools, methodologies and an efficient process for generating projects. They learn the basic skills to become innovators.

 

Why Mexico?

 

Mexico is a very unique location. Geographically speaking you are close to the largest market in the world as part of NAFTA. You also have access to the Latin American market. Mexico shares a similar culture and language with most of Latin America. Mexico is the second largest Latin American country. Brazil is twice as big but they speak Portugese and they have a different approach do doing business. Brazil has a strong focus on their country and are more protective. This makes Mexico a much more open country. The Mexican people are capable of bringing out innovative ideas and capabilities focused on the commercial side. Mexico has an advantage since they have been seeking this approach for some time and they are maturing.

 

Conclusion

 

The only way you can really make innovation successful is when you have the full participation from both sides. For example, color TV was developed in Mexico but it was commercialized in the US. This happened  because the people in Mexico didn’t have the skills to make the technology commercially available. The point is how to make this happen more with people who are good at technology and take it outside of Mexico.  Silicon Valley is a great example of a place where everyone is seeking ways to create the next big thing. When you go back to your home country you will know how to innovate very well. This is a leadership skill that needs to be embedded in a person leading projects. Over the past 7 years TechBA has been able to take people within a short time frame of one month and allow them to absorb new ways of doing things. When they return to Mexico the participants have a new mindset. There are many problems in the developing world which need to be solved by innovators in the local countries.

 

 

 

About TechBA

 

 

TechBA.org

 

A business development organization working with Mexican Start-ups and well-positioned companies in their international business strategies.They have 8 locations (5 in the USA, 2 in Canada and 1 in Spain) where their companies are seeking to expand their business and explore new opportunities. TechBA has a great multinational network of companies, consultants and organizational participants that facilitate the landing of companies and foster high tech businesses.

 

 

About Jorge Zavala

 

Jorge_Zavala.jpg

 

Jorge is developing Public Relations and Strategic Alliances of TechBA, a global organization to promote business development for Mexican companies in US, Canada and Europe.

 

CDO - Chief Disruptive Officer

TechBA Technology Business Accelerator

 

 

Books

 

Think Like Silicon Valley, Being Anywhere

 

 

Jorge Zavala shares his experience working with over 700 companies to learn how to take advantage of being outside and then bringing innovations into their own locations.

I interviewed Lucy Lei who discussed trends in optimizing supply chains in Asia. Lucy is a Belgian Chinese who moved to Europe 20 years ago where she started her international career. She lived and worked in Belgium, Australia, Mexico, Singapore and Hong Kong. Last year she moved to China for LF Logistics as VP of Greater China Supply Chain Solutions.

 

For readers in China, please see video here (在中国的读者请看这里的视频

 

 

 

 

Can you talk about the trend of using origin hubbing to provide DC bypass using bonded facilities in Asia?

 

Especially since last year we have seen a lot of companies going in this direction. As you know, the costs of materials have gone up and China is no longer a cheap labor location. A lot of studies have found that inventory mark-downs are the biggest cost in the supply chain.

 

Companies are now looking at savings that can be achieved by optimizing the supply chain. There are basically two trends in hubbing:

 

1.     Origin hubbing for the US and European market  

 

The clients will collect the cargo from all of the Asian countries and then consolidate them in one hub in Asia. This hub must be in a free trade port such as Hong Kong or Singapore, or in a special Free Trade area in China or Thailand. (although many countries have bonded facilities, their custom system are not so well equipped for multi country consolidation).

 

Here you can do pick & pack for the store level. When the cargo reaches the destination in Europe or America all you need to do is go through a cross-dock facility and you can go directly to the store. In the past, this type of service normally happened in Kong Kong. However, over the last few years China has opened many facilities along the coastline. In these special bonded facilities we can perform multi-country/multi-vendor consolidation piece picking for the destinations. This is why especially since last year China has become a hot place for multi-country/multi-vendor consolidation centers.

 

2.     Destination hubbing 

 

As we all know, Europe and American consumption is stagnant or going down. Asia is being seen as an important destination market. In the past, goods were sourced in Asia for delivery to North America and Europe. Today, especially as China becomes a more important consumption market we have international players sending cargo to Asian markets. If they were to send from their DCs to individual countries there would be higher transportation costs.

 

Every country would have to keep their own inventory. The mark-down of inventory would be high in cases where product doesn’t sell in one country. It would also be hard to transfer product from one country to another.

 

Therefore, the trend is to build a destination hub, similar to a free trade zone with origin hubbing. For all of the Asian countries customers can keep a safety inventory in the destination hub to serve Asia destination countries. This way companies can save cost (warehouse, transportation, labour and inventory reblancing),  shorten lead time to market and fast reaction to markets need,  This has been a very strong trend over the last 2 years.

 

What location choices are there for regional hub and what are the costs/lead times?

 

It depends on the industry. In the past the most popular was Hong Kong, especially for the footwear apparel industry. I think Hong Kong still is a very important hub for the high end market, so are certain FTZ in parts of Japan. However, we see the trend going to China, especially for fast fashion and high tech industries.

 

China has bonded facilities along the coast line. China has opened up 10 Bonded Logistics Parks (BLP) and 10 Free Trade Ports. In these types of facilities you can imagine it is like moving Hong Kong into China. Everything you can do in Hong Kong, you can basically do in these special facilities.

 

From the cost point of view, bonded facility rental cost in China is around half of Hong Kong’s cost, while China labour cost is around 60-70% of Hong Kong’s labour cost. Another important factor to consider is factory to hub transportation cost, with China still as a strong manufactory country, having hub in China will generally reduce inbound to hub transportation cost. So In terms of cost, China is very competitive in comparison to Hong Kong and Singapore. The Thailand Free Trade Zone is also a place companies use a lot.

 

When talking about a hub, the two most important factors are (1) Cost Comparison and (2) Lead Time Comparison.

 

In terms of lead time, Hong Kong is about 2 to 3 days shorter because of the customs documentation part. From a sea freight point of view Hong Kong and China going to Europe and the US are exactly the same. Of course, it does depend on whether the freight is going out of south or central China.

 

Can you briefly introduce the different bonded facilities in China for various industries?

 

This is an interesting question, nearly all of our clients or potential clients will ask us this question because there are so many bonded facilities in China. It is not like in Thailand where it is relatively simple Free Trade Zone. In China there are Free Trade Zones enacted by government policy in 1993 which are the norm for foreign companies across China. However, China also realized that Free Trade Zones don’t meet the requirements of a lot of industries. For example, in the footwear and apparel industry very often you would see the vendors pull inventory from any country in Asia, such as Indonesia, Vietnam and Bangladesh.When you consolidate multi-vendor’s cargo in the Free Trade Zone you will encounter a lot of problems with the documentation.

 

In addition, there is a limitation on how long cargo can be stored in in a Free Trade Zone. This is why later on in 2003 China granted another 10 facilities in China called Bonded Logistics Parks (BLP). BLPs are more advanced. In a BLP you can do a multi-country/multi-vendor consolidation. You can do piece picking with mixed China vendors goods with foreign goods. In 2009, China gave out another 10 facilities called Free Trade Ports. The difference between a BLP and Free Trade Port is that in the Free Trade Port you can do manufacturing, while in a BLP you can’t.

 

Another well known facility type is called an Export Processing Zone (EPZ). An Export Processing Zone is for shipments where there are no foreign country origins mixed together, it is only China goods.  Different zone will serve different need for different vertical industries. So though understanding of customer need and policies of different zone in China is essential for a 4pl or 3pl.

 

Conclusion

 

When designing a hub for a customer,  one needs to study the clients’ data taking into consideration the vendor pool, markets pool, lead time, many components of costs and responsiveness to markets. When choosing a hub location, one should do a supply chain network study to compare Hong Kong versus Thailand, Singapore and China. When narrowing down for China, one should compare China South and China Central. Within China Central you still have many places to choose.

 

It is not so straight forward to say it has to be Shanghai, Hong Kong etc.  A supply chain person should also do comparisons to see whether one hub or multiple hubs are more cost competitive.  Another important factor to consider when choosing a hub location is free trade agreements  among trading countries. However,  this is another subject.  It is quite a dynamic process that one should go through to select the most optimal hub location for clients.

 

About Lucy Lei

 

LucyLei.jpg

 

VP Greater China,

Supply Chain Solution

LF Logistics

LinkedIn Profile