Skip navigation
2014

I interviewed Greg Boring who discussed Outsourced Logistics and Collaborative, Outcome-Based Pricing Structures.

 

 

 

 

 

 

Please provide a brief background of yourself?

 

My background is in engineering and operations.  I received a bachelor’s degree in Industrial Engineering from the University of Pittsburgh and followed that up by earning an MBA with a finance concentration from GA State University. I began my career in transportation, working for Yellow Freight System in their management trainee program before progressing into their Industrial Engineering department.  I then moved into the Logistics world working for GA Pacific Corporation and UPS-SCS prior  to joining Kenco.  Most of my career I’ve worked in positions related to engineering, operations, pricing, or solutions design.  I first moved into a sales role when joining Kenco.  I have been here about 8.5 years. Half of that time was spent in operations managing the network Kenco operates for one of our largest customers, and the other half of that time has been in sales.

 

Kenco is the largest, privately held 3PL in N. America.   We are a vertically integrated logistics provider – meaning that we are a one-stop shop for N. American Logistics.  The services we offer include value added distribution and fulfillment, comprehensive transportation management, material handling equipment solutions, real estate management, and systems solutions.

 

What are collaborative, outcome-based pricing structures?

 

In the logistics world, as well as in many other industries, many sourcing relationships are very transaction based.  The customer is primarily concerned with reducing labor cost.  The vendor/client relationships are very tactical and treat logistics as a commodity.  Often times in these types of relationships the customers end up micro managing the 3PL.  So, the customer chooses to outsource because they recognize that their expertise is in manufacturing and marketing their product and not in the distribution of it, but then they tell the 3PL, who is an expert in distribution, how they want it done, which creates a strange, often tense relationship.  These types of relationships typically involve a cost-plus management fee structure where the 3PL passes through all costs to the customer and adds a small management fee markup.

 

Then, ironically, the customer sometimes criticizes the 3PL for not being innovative and doing a better job of reducing cost.  Well, if you think about it, the cost-plus management fee structure is a disincentive to reduce cost, because when costs are reduced, so is the supplier’s margin.  Secondly, when customers issue this challenge, they often don’t recognize that there is a cost for innovation – it is rarely free.  The service provider’s onsite management staff is usually very good at managing processes, training employees and holding them accountable.  But often times the type of innovation customers ask for involve larger changes, such as improving facility layout, enhancing product storage and conveyance equipment, implementing improved systems, or implementing network-wide process changes.  This type of innovation involves outside support such as engineering resources.  Many 3PLs have these resources but they come with a cost.  In a traditional cost-plus relationship, when a customer challenges a provider to be innovative, often what they have in mind is for the 3PL to reduce the customers cost without considering the expense the 3PL will have to go through to do that.  It puts the 3PL in between a rock and a hard-place.  In a collaborative, outcome-based pricing structure the focus is on the “what” and not the “how”. 


What this means is the customer and service provider come together and agree on a small number of key metrics that will be used to measure success.  Logistics expense as a percent of revenue is a good example of one of these key metrics. Then it is up to the service provider to use their expertise to figure out how to hit those targets.  And if they do there is the opportunity to increase, possibly significantly, the management fee they will earn.  This gives the service provider the incentive to invest in the relationship and look for ways to be innovative and reduce costs, because there is a clear path for how they can get a positive return on their investment.  Likewise, the service provider takes on some risk by putting a portion of their management feet at risk by not hitting the mutually agreed upon targets.

 

So, as an example, under the same cost-plus management fee structure I just described, let’s say the customer and service provider agree to a 10% management fee as a target.  If the service provider does not deliver on the mutually agreed upon goals, they could put up to 50% of their management fee at risk and only earn a 5% management fee for the given period.  This is their “skin in the game” or the amount of risk they take.  Likewise, if the service provider significantly exceeds the mutually agreed upon goals, they could earn up to 30% management fee.  These are the guidelines offered by Kate Vitasek who developed the Vested Outsourcing model that is becoming increasingly popular.  Now 30% may seem like an excessive management fee, but if you think about it, if structured properly the customer benefits just as much, if not more, than the service provider when this type of performance is delivered.  Think of the cost benefit the customer received in return for the service provider’s performance that earned them that type of incentive.

 

What are the benefits?

 

If handled correctly, it creates a strategic partnership instead of a tactical, arms-length, us vs. them vendor/client relationship.  In a collaborative relationship the customer recognizes that the service provider has to earn a profit to stay in business and gives the service provider an opportunity to significantly increase their profit by meeting or exceeding the goals that are most important to the customer.  Both the customer and service provider are invested in the other’s success.  By helping the customer be more successful, the service provider also enjoys success, and vice versa.

 

Why do you believe so strongly in this approach?

 

For one, even though it is a relatively new concept, I have seen it work.  When business partners are invested in each other’s success, that creates a lot of positive energy in the relationship.  Success breeds success.  Success also leads to long-term relationships, which are by far the most profitable for both the customer and the service provider.  It costs a service provider significantly more to gain a new customer than it does to retain a current customer.  Likewise, the customer is exposed to both cost and risk when switching vendors.  So by partnering with a company you trust and then forming a pricing structure that leads to a win-win relationship where both companies share in success, you have a solid foundation for a long-term productive relationship.

 

Do you have any success stories or examples?

 

The best example I have is a relationship with a customer who has been with us for about 8.5 years.  Initially, our scope of work with this customer included managing their one U.S. based warehouse along with a dedicated transportation fleet that provides white glove delivery service to their customers across the country.  We also managed the shuttling of product between the manufacturing plant and the warehouse.   In 2008 we performed a network analysis which validated the benefits of implementing a hub and spoke network to serve their customers.  What this means is that instead of all customers being served directly out of one central  warehouse, there were significant benefits related to transportation savings and improved customer service by opening smaller, regional distribution centers closer to their customers.  So over the next three years we opened and now operate 9 regional distribution centers and also manage the movement of product from the central DC to the regional DC’s and then on to the end customers.

 

At about the same time as the rollout of the regional DC’s was completed, our agreement with this customer was coming close to expiring.  The decision at that point was to move toward a collaborative, outcome-based pricing structure.  The key attributes of the pricing structure are, it is very simple.  It is a cost-plus, open-book relationship.  The key metric Kenco is held accountable for is logistics expense as a % of revenue.  This is the key cost metric our customer’s senior leadership looks out when monitoring the performance of their supply chain.  Also developed was a structure for how Kenco would share in the benefits of achieving or exceeding the agreed upon goals.  The customer then stepped back, let us do what we do best, and monitored our performance without micro-managing us.

 

This made it easy for us to make the decision to invest resources in the relationship to ensure the logistics expense as a % of revenue goal was met or exceeded.  We have two full-time business improvement managers assigned to the account at Kenco’s expense because we know that they will more than pay for themselves based on the savings and efficiency improvements they will deliver.  Our management staff also received Lean Six Sigma training and we now have several Kenco greenbelts and blackbelts assigned to the account.  In fact, the black belt project completed by one of our employees generated $1.6 million in savings for our customer.

 

There is a long list of other projects Kenco has completed, including others that have generated 7-figure annual savings or provided value in other ways.  In addition, at the customer’s request, we have provided 6-sigma training to several of their employees, some of whom work in completely separate business units that Kenco currently doesn’t work with.

 

The results are easy to see.  In the last two years, our customer’s revenue has increased 18% but their logistics expense has remained flat, which has obviously pleased their senior leadership.  Now our primary contacts are selling Kenco internally to other divisions within the organization, which we hope will lead to additional growth. Perhaps the best example I can offer regarding what this has done to our relationship with this customer came out of a quarterly review we held with them just two weeks ago.  At the end of the meeting, the customer told us that we have them right where they want to have their customers.  They can’t imagine doing business without us.  Needless to say, that was a great way to end the meeting.

 

 

 

About Greg Boring

 

 

Greg Boring.jpg

Greg Boring


Vice President of Sales at Kenco Group, Inc.


LinkedIn Profile

I interviewed Hernan David Perez  who discussed Supply Chain Roadmap: Aligning Supply Chain with Business Strategy.

 

 

Please provide a brief background of yourself.

 

Hernan David Perez is the creator of Supply Chain Roadmap ® method, I've developed the method as result of my experience in supply chain management in several fields such as professor of postgraduate students, speaker in supply chain strategy, and, my real experience in management positions in the supply chain in multinational companies in several sectors such as automotive, FMCG -fast moving consumer goods-, B2B, and retail.

 

Born in Medellin-Colombia, I have a Bachelor degree in Mechanical Engineering of Universidad Pontificia Boliviariana, a Diploma in Production and Services Management of Escuela de Ingenieria de Antioquia, a Master in Operations Management of Universidad de la Sabana, an Executive Program of Inalde Business School, and, a Certification in Supply Chain Management of Massachusetts Institute of Technology –MIT-.

 

Can you talk about your new book? What is it about and why did you write it?

 

The book is the result of many years of experience as supply chain professor, and, mainly, as supply chain manager in several sectors as retail, consumer goods, B2B, among others.  In both, as professor and as supply chain practitioner, I’ve been challenged by a pair of recurring question:  What is the best supply chain strategy for my business? How can reformulate and deploy a new supply chain strategy?

 

Answering these question was so difficult, because it is not easy to understand the multiples relationships among the supply chain and the business strategy, and when I studied the traditional theory about supply chain strategy, it was not possible to find a practical approach about how to understand and reformulate a business supply chain strategy.

 

In order to address this shortcoming, I conducted an analysis of the most widely recognised theories, best practices and case studies about supply chain strategy.

 

As result of the analysis, I identified a set of common configurations that revealed key drivers of supply chain strategy,  and how these can be aligned in a coherent strategy.

 

These findings are summarized in a strategy formulation method called the Supply Chain Roadmap ®, which provides:

• Understandings of the interrelation among industry’s competitive framework, competitive positioning of the business, and, supply chain processes.

• A compilation of 42 key factors of a supply chain strategy, which are represented on a graphical diagram on a single page, called “The Map”.

• The characterization of the supply chain strategies most widely used in the industry, “the 6 Supply Chain Archetypes”: Efficient, Fast, Continuous-Flow, Agile, Custom-Configured, and Flexible.

 

As result of this research and the contributions of several users of my website, I wrote a book where are explained the concepts of the supply chain roadmap method, and, the most important, the “how to”.

 

The book provides everything the reader need to know about supply chain strategy and how to ensure the alignment of the supply chain with business strategy.

 

This is not a conventional supply chain’s book, this is a practical handbook that guides step by step in the analysis and formulation of the supply chain strategy.

 

Book is very easy to read and graphically superior to most business books -book is a full color and includes more than 75 figures-.

 

The book is organized in three sections:

• Section 1: Introduction, in which are explained concepts about strategy and supply chain, and the three perspectives of the supply chain strategy (Business Framework, Unique Value Proposal, and Supply Chain Processes) under Suply Chain Roadmap method.

• Section 2: Supply Chain Roadmap Tools, in which the four tools used for applying the method are explained: The Map, 10-Common-Patterns, 6 Supply Chain Archetypes, and the Feasibility Matrix.

• Section 3: Applying the method, in which is explained the “how to” of the method.


Who can benefit from the book?

 

This book enables understanding of the supply chain management from the perspective of the business strategy, is useful for business leaders, managers, consultants, students (undergraduate or graduate of Industrial Engineering, Business, Supply Chain, and similar), and all those interested in improving the competitiveness of organizations.

 

How can the concepts be applied in the real world?

 

The book explains how to describe the supply chain strategy of any organisation in a single page, which is highly relevant for understand in a simple approach hidden connections among the business strategy and the supply chain, and, in a following step, how to compare the own supply chain with the six archetypes of supply chain strategies:

 

• Efficient: Supply chains oriented to maximise the use of the assets in order to obtain the best production cost.

• Continuos Flow: Supply chains oriented to optimize inventory turns in both sides (customer and suppliers).

• Fast: Supply Chains challenged by a continuos renewal of product portfolio, specially in industrial sectors oriented to fashion or technology.

• Agile: where is important to maximise response to unexpected demands, and, the portfolios are broad, inclusive with customised products.

• Custom configured: supply chains oriented to delight the customers, suppling unique products to each customer.

• Flexible: supply chains with the highest response capacity, oriented to solve unexpected situations.

After the comparison is selected the most proper supply chain archetype for your business, and, by a detailed comparison find the gaps between both and define an action plan for closing the relevant gaps.

Finally, I like to invite to buy the book, which is available on Kindle version in all the Amazon websites for US$20, and in paperback in Amazon US and Amazon Europe for US$36.

 

In essence, Supply Chain Roadmap is a simple approach to reformulate supply chain of any company, assuring alignment with business strategy.

 

About Hernan David Perez

 

 

3249da4.jpg

Hernan David Perez


Supply Chain Manager at Sodimac. Thought leader,

innovator and speaker in Supply Chain.


LinkedIn Profile

http://supplychainroadmap.com/the_book

I interviewed Bob Costello who discussed The Distraction of Technologies and Getting Work Done.

 

 

 

 

 

 

It’s good to speak with you today, Bob, and the topic you have today is going to be an interesting one called “The Distraction of Technologies and Getting Work Done.” Can you start by providing a brief background of yourself?

 

I am in the IT software-development industry, and I’m what’s called an agile coach. I coach a different way of approaching software development, and it’s a team-based approach that involves building high-performing teams, and in order to do that, you have to have a very high-caliber, high-focus group of people who don’t take their eyes off the ball. Part of that is everybody on that team being in the present and really listening and paying attention to what their teammates are discussing. Collaboration is a very important part of this.

 

Can you talk about what it is, the agile principles, why is it important, and how is it done?

 

Well, it’s based on a thing called the agile manifesto. The agile manifesto was developed about 12 years ago, and it was a bunch of the gurus in the industry said that they needed to, there needed to be a different way to approach software development.

 

To make a long story short, many projects were failing and there was a lot of pain around it, people working a lot of hours, a lot of animosity in the organizations, so they basically came up with these four values. The four values are: individuals and interactions of a process and tools; working software or documentation, customer collaboration over contract negotiation; and responding to change over following a plan.

 

Around these values are about nine principles. Out of these values, a number of different development frameworks have evolved, and the one that’s most popular is a framework called scrum. Scrum basically takes the software-development approach and compresses it to say that a small team—six or seven people—will work in what’s a popular timeframe of ten-day increments.

 

In that ten-day increment, at the end of that increment, they will deliver some type of working software. The key to that is a) being able to form a team, and the foundation of forming a high-performing team is trust and collaboration and communication. Because you’re working in such a tight timeframe, it’s very important that the team stays very focused on meeting the goals that were set within that timeframe.

 

My role is to coach a team on how to do that, how to trust each other, how to communicate, how to stay focused. The framework is really two or three different ceremonies, one of them is what they call a daily ceremony where the team meets for 15 minutes. It’s basically a conversation where team members talk about what they had worked on, what they are going to work on for that day so they can communicate, collaborate, understand dependencies of how to get work done.

 

Then there’s the planning, which, at the end of this ten-day cycle, the team sits down and plans out what the next ten days will be, what they’ll work on. There’s also a ceremony called a retrospective, which is a continuous improvement. They reflect on how the last cycle went and how they can be better at it. The key to a retrospective is that people are in a safe space where they can speak their mind and express their satisfaction or dissatisfaction or frustrations.  One of the underlying things with that is that in order

to feel safe, people need to know that they’re being listened to and that people care about what they’re saying, which leads me to what I’ve seen as I’ve been doing this is that people are very distracted all the time; they have their phones out, they have their laptops out, some of them are texting. It’s not a conscious thing; it’s a behavior. The thing that’s interesting is that they miss things, and they don’t even know they’re missing them.

 

Even in a 15-minute conversation, they have trouble staying focused for 15 minutes. They can’t not look at their phones; they can’t not look at their laptops. For me, it’s been very interesting because I will even say to a team, “When we’re in our fifteen-minute conversation and when we’re in these other ceremonies, everyone needs to turn their phone off or put their phone down and close their laptop.” And it’s almost like they can’t; it’s almost like they’re addicted. They have to see this stuff.

 

What’s funny about it is if I take them one-on-one and I’ve used this too—I’ll take one team member. I’ll go, “Suppose you and I were sitting in a restaurant or in a bar and you were telling me about something your child did and I pulled my phone out and started texting. Would you feel insulted? Would you feel like I wasn’t interested in your life? Would you feel like what you’re saying had no value?” They all say yes, they would feel that way.

 

Then the question I ask them is: “Well then, why do you think that it’s okay for you to do that when there’s a group of us and someone else is speaking? Don’t you think that conveys the same message? Don’t you think that erodes trust if the person who’s speaking doesn’t think that you don’t care enough about what they’re saying, that you’re going to look at your phone?”

 

It’s interesting because intellectually they know it but behaviorally they don’t know it. It’s like an addiction; they can’t connect the two. They know in their heads that what they’re doing isn’t right but they’re behavior… It’s like a habit; they can’t stop. It’s actually a real challenge to get them to stop doing that, to get them to not look at their laptops, not look at their e-mails, not stare at their phone.

 

I’ve contemplated this a lot, and I wonder what the long-term impacts are going to be in our society too. Even though I will—what’s funny is, later something will come up, and somebody will go, “Well, I didn’t know that.” I’ll go, “Well, yeah, but it was brought up in our daily the other day. So-and-so brought it up. You weren’t listening?” And they look at you and they go, “No, I guess I wasn’t.” But then they don’t change their habit; they’ve still got that phone.

 

I think that there’s a line that technology crosses where it no longer is an enabler; it’s a disabler, especially with collaboration and people working face-to-face. I’ve been in situations where I’ve had team members who are literally within 20 feet of each other e-mail each other as opposed to turning and talking to one another. I also think that it’s a way that they shield the interaction. I think people are becoming more uncomfortable with actually interacting with each other on a regular basis, especially at work, and that

texting and e-mail are ways to shield themselves.

 

This is a great topic. Thank you, Bob, for sharing. Did we cover all the points you wanted to make?

 

Yeah, I think so. I think it’s a question to the listeners of whether or not they see the same things and what are some of the strategies that they can think about to kind of change this behavior.

 

It’s a very painful process. I’ve gotten to the point where I’ve actually had to say to people, “Put your phones down,” or, “For fifteen minutes you can put your phones down. Do you really need to see your phone for fifteen minutes?” Sometimes I have success with that, sometimes I don’t. The thing that’s interesting to me is how much is being missed in all these different meetings, in all these different companies when people are speaking and someone is checking their e-mail.

 

The last point I want to make is that what I try to suggest to people is that in this framework of scrum, the teams are specialists, so you may have a software developer and you may have a UX designer and you may have a graphic designer and you may have maybe a content person or a database person, so they have specialties. But we talk about generalized specialists in that as a team, everyone can do everybody’s job, and the idea is to pitch in and help each other to reach the end goal.

 

I think one of the things that becomes apparent is this behavior of looking at your e-mail when someone else is speaking who has a different specialization. In other words, in a daily, maybe a software developer starts to talk, and the UX person will start looking at their phone or staring at their e-mail. I think there’s a correlation between that and this idea that we’re programmed to be in certain roles. The idea is: I don’t have to listen to what this person says because they’re a software developer, and they do something different than my role as a user interface designer, so what they say has no interest to me. Therefore, I can take off mentally for that 30 seconds or one minute or two minutes while that person speaks.

 

I think it’s indicative of a bigger, it’s symptomatic of a bigger problem, and that bigger problem is that in organizations, we’ve become so role-driven and so specialized that we no longer are capable of really operating as a team of generalized specialists that moves forward to accomplish a single goal. It may appear like that, but I think on the inside, I think it’s all role-driven. Because of that, I believe that there’re a lot of inefficiencies within organizations, and I think that’s where a lot of the communication barriers come from and how balls get dropped, because people listen based on whether or not the role has value to them in their role. That would be my last point.

 

Thanks, Bob, for sharing.

 

You’re welcome.

 



About Bob Costello



DSC_0881.jpg

Bob Costello


Scrum Master at IBM Design Lab


LinkedIn Profile

I interviewed Paulo Moretti who discussed Supplier Relationship Management.

 

 

 

 

Please give us a brief background about yourself.

 

I worked for 35 years at Dow Chemical in different areas like Manufacturing, R&D, Sales, Marketing, Finance, Strategic Planning, e-Business, and (the last 12 years in) Purchasing. In 2012, I started a consultant firm called PM2Consult, with a focus in Purchasing.  I am also a Senior Consultant at Vantage Partners.

 

Where are we now with Supplier Relationship Management?

 

I think it is a hot topic today, and several leading consultant companies have endorsed the need of SRM. A.T. Kearney: “Leaders use SRM process more consistently than followers.” Deloitte Consulting: “SRM is underinvested due to immediate savings priority.” Hackett Group: “SRM is the hottest area today.” IBM: “Supplier collaboration helps top performers bring the outside in.” I think I’m able to answer this question with data because we at Vantage Partners just finished a huge benchmark study. We had over 800 responses from all kinds of sectors like Mining, Arts & Entertainment, Manufacturing, Health Care, Finance, Transportation, etc.

 

This survey reached companies with a total revenue of almost $5 trillion or 6.8% of world GDP, so I believe we have enough data to talk about it.

 

  • 78% of responses said they have some kind of SRM practice in place.  However, only 10% of them said they have reached maturity or highly effective organization in terms of SRM.
  • They said that they have reached only 44% of potential value available, so there is a potential to achieve value at 1.5 times what they’ve got.
  • Regarding investment and return, they said they have invested $3.5B to date. Last year’s return reported by all companies reached $14.3B. So, you see that I’m comparing the investment to date with last year’s return, and the reason is that the investment in SRM takes time to realize.
  • So, there is no doubt that investment in SRM has yielded excellent returns.

 

Why are we where we are?

 

The data indicates that there is a good correlation of investment made in SRM and results achieved. Each company is in a different level of maturity in terms of SRM, so the investment needed may be in different areas. Investments are made in formal SRM governance mechanisms and business processes like joint strategic planning, and performance reviews yield large payoffs. Investment is critical in individual skill-building for staff with interactions with suppliers. The benchmark data show that this investment will be one the highest priorities in the next 3-5 years. Time devoted for managing critical relationships should be one-third of their time. The data also show an excellent correlation between Maturity Level in SRM, Investment, and Returns.

 

Companies classifying themselves as mature or highly effective in SRM had higher investments in SRM and also presented higher returns. So, a simple answer is investment priority.

 

Where are we going?

 

Part of our benchmark survey was related to the next 3-5 years. 70% of responses said SRM is Very Important for the next 3-5 years, and 26% said Somewhat Important, so the great majority believes SRM is an important area in their organization. Most of the companies said they will invest in People, Training, Work Process, and Tools, with People and Training the highest ranked areas. In terms of objectives for the next 3-5 years, the majority of responses said they will focus on two areas:

 

  • Cost savings through joint collaborative efforts with suppliers
  • Reduction in supply chain risk In order to achieve the full potential of their relationship with suppliers, 52% of responses said they need a Major Change or Total Transformation, and 32% of responses said a Moderate Change is required.

 

So, they see the importance of SRM, they will invest, and most important, they need to change to achieve full value. Do you have any recommendations? Build stronger relationships and enhanced collaboration with key suppliers in order to realize increased value from joint collaboration, technology innovation, and improvements in service and support. Leverage supplier assets and capabilities to generate a competitive advantage (versus only focusing on purchasing goods and services at a lower cost). Ensure more structured and focused engagement with key suppliers in order to become a Customer of Choice.

 

The benchmark shows that three practices stand out as most likely to yield results:

 

  • Tracking and measuring the total financial and strategic value delivered by SRM
  • Aligning and integrating strategic sourcing, category management, contracting and contract management, and SRM
  • Developing multi-year strategic plans with the most important suppliers

 

 



About Paulo Moritte

 

053aeea.jpg

Paulo Moretti


Sr. Consultant at Vantage Partners


LinkedIn Profile

Website


I interviewed Joe Andraski who discussed Future of Passive Item-Level RFID.

 

 

 

 

 

Can you start by providing a brief background of yourself?

 

I spent 20-something years, 26 years, I guess, with Nabisco. I had several roles; I ran supply training and then I did customer marketing and forecasting and strategic planning. From there I went on to work for a technology company and then I took a position at the VICS organization, the president and CEO. During that period of time and throughout my career, I’ve been deeply involved in all aspects of supply chain management, and I’ve been fortunate enough to receive any number of awards; I guess it’s from people who really didn’t know me very well. I have put a substantial amount of invested time in item-level RFID. As a matter of fact, we started the research with the University of Arkansas, I guess it was roughly six years ago, and then we did three pilots with Macy’s-Bloomingdale’s division and with JC Penney. It turns out, those pilots turned out to be very positive, so that sort of really pushed passive item-level RFID over to the point where people were questioning whether or not it had value.

 

What is passive item-level RFID?

 

Well, there are a number of different types of RFID. There’s an active tag that sends a message to readers that is used for just an application. That might be in transportation or oil refineries and areas such as that. Passive-level RFID is a tag that receives a message and is able to communicate, then, whatever product that it has been tagged with that RFID tag. The cost of those tags when we first got started was in the 20 cents, roughly; I think generally speaking—and, again, there are some differences from time to time, but I think we’re down to 5 to 6 cents a tag right now. Part of the pushback early on was that the expensive tags was prohibitive, but the fact is we got a good understanding of the value of types of RFID tags on garments. But we really never did any garment on the supplier side, so we’re still looking for a business case to be made for the suppliers on what they can see if the use of RFID in their business.

 

And where is the future heading with this?

 

Well, I think right now I think the last thing I saw was there’s something in the range of 6 or 7 billion tags being used today. It’s just not in retail; it’s being used in so many different industries around the world, but retail is a big part of that. I think the last forecast I saw, by 2020 they’re looking at something in the range of 25 billion tags a year. The future is, it’s right in front of us, because the value that companies get out of accurate information, and while tremendous gains were made years ago with the advent of the barcode, there’s drawbacks with the barcode. In other words, it needs direct line of sight; you can’t have inventory that is not very accurate. For example, a retailer might, at the end of a period—let’s say six months to a year—the inventory numbers could be off by as much as 2 to 3 percent, and that’s because each month, inventory deteriorates as it goes through the retailer’s system.

 

We’re talking about millions and billions of cases, so that turns out to be a pretty big hit. Everything we do in industry today—retail in particular—is really driven off the accuracy of inventory, so if you don’t have accurate inventory, then you’ve got to do other things like triple exponential smoothing and algorithms and what have you to get that information as close as possible. We’re still dealing with incorrect information. The future for item-level RFID passive is very, very bright. I don’t sell technology; I’m not a retailer, I’m not a wholesaler, I’m not a manufacturer. I just happen to be a person who has belief in this technology, that it’s going to make a big difference for companies in the United States; maybe it’s going to make a big difference for those companies that are doing business globally. We need to understand what that is. There’s a lot of misunderstanding on the part of many; as a matter of fact, some major companies I've talked to recently still have the same arguments about the drawbacks of item- level RFID  that were being made five years ago. There’s an educational hurdle. And your educational role, this is a big opportunity for the education community to step up and to help the industry understand what it is it can get out of this item-level RFID technology.

 

Why is this important, and who will be impacted?

 

I think I just explained, let’s go over some of the impacts. It will impact every part of a company, and the reason it’s going to do that is because what we start out with now is an incorrect forecast. We then take that forecast and we make adjustments to it to get it as close to accuracy as we can get. From that, we’re planning. That’s how we do our sales forecasting; that’s how we take our information. As a manufacturer, we run it through DRP and MRP, we work with customers to understand what their demands are and put together orders. Then it gets to the retailer, and the retailer goes through the same drill. If you think about it, every touch point along the way that’s in place and ahs to be managed by some aspect of the organization, it takes time and it costs money. If we made it to the point where we were having accurate information all the time without question, it’s going to have a big, big difference on the way business is done today.

 

Thanks, Joe, for sharing today.

 

My pleasure.

 

 

 

About Joe Andraski

 

 

 

38c8f5d.jpg

Joe Andraski


Founder at Collaborative Energizer LLC

LinkedIn Profile



I interviewed Marinus de Pooter who discussed Internal Control Over Your Supply Chain .

 

 

 

 

 

 

Brief background of Marinus de Pooter


Marinus has extensive experience in management and advisory positions in finance, internal control, risk management and internal auditing. As an independent consultant he provides ‘value management’ services to organizations, i.e. the integration of performance and risk management. In his view business is all about the value that you create and preserve for your stakeholders, e.g. margin, speed, ease, continuity, customer enthusiasm, etc. Value management basically encompasses all areas and aspects of business.

 

The solutions that Marinus offers are particularly relevant for those companies that have operations at multiple locations. Their leadership needs to make conscious decisions about the level of autonomy and freedom that they want to give to local management. He believes that the headquarter – subsidiary relationship evolves around finding a suitable balance between trust and control. It is about reconciling dilemmas like entrepreneurial freedom versus standardization.

 

What is internal control over your supply chain?


Internal control deals with the management actions and control measures you have in place as a management team responsible for running a business. There is a vast variety of opportunities and risks impacting your supply chain. Examples include very tangible external safety risks like earthquakes, storms, floods, wars and piracy. Certain areas in the world are known for their political instability. Your operations can also be severly impacted by employee fraud, theft, strikes, sabotage, labour shortage, incompetence of management and staff, etc. On the other hand, innovations regarding mobile communication, data storage and big data analytics, can help you to better achieve your company objectives.

 

Third parties play important roles in your supply chain. How dependent to you want to be on specific suppliers and customers? Dealing with large parties may be more efficient, but it can easily lead to undesirable effects, such as inequalities in the power balance and serious disruptions. Another important area of management attention and a potential business differentiator is information technology. Your supply chain is heavily dependent on the quality of your IT infrastructure and data management.

 

How should companies respond?


How do you organize your business as a management team? How do you get and stay ‘in control’ over your supply chain? Which policies and procedures do you need for that? Who within your organization can decide about which rules? Do you only take a short term perspective or a much longer term? How vulnerable do you want to be by having small inventory buffers? As a team you need to make this call, balancing the benefits of lower working capital with the increased possibility of no sales, when you’ve run out of stock? Are you prepared to pay bribes in order to obtain profitable contracts? The key question is about governance: who is going to make these decisions? Internal control is all about making business choices and balancing interests of stakeholders. At the end of the day, it’s all about the distribution of power within your organization.

 

Do you care whether your merchandise originates from sources involving child labour or substandard working conditions for the employees? Are you prepared to use ingredients that could be harmful to your customers, consumers, or the environment? As a management team you need to provide clarity to your people. You may earn higher margins by squeezing your suppliers, but how sustainable is that? It can hurt your reputation as a company. And those suppliers will likely be cheating on you, e.g. delivering lower quality than agreed, as you are not prepared to pay them a fair price. In my view, it’s more beneficial to go for stronger business partnerships, focusing on the common interests and allowing you to join your innovation forces.

 

How is it done in practice?


Internal control comes down to ensuring that you have the right management actions and control measures in place and to make sure that they work in practice. Typically they are reflected in charters, policies, procedures, protocols, instructions, manuals, the “house rules”. These are the safeguards in your processes that you need to ensure achievement of your strategic and operational objectives. It’s about your alliances, security systems, background checks, supplier evaluations, firewalls for your networks, limitation of access, training programs, etc. etc.

 

All these measures cost money and potentially delay your operations. They also limit the autonomy and freedom of your colleagues involved. Controls can have unwanted side-effects, too. Hence, they need to be balanced. Take for example cloud computing. Undoubtedly, there are advantages of storing data off site and having accessibility from any location you wish. However, the potential downside includes dependence on the provider, information security and privacy issues, loss of critical data, etc.

 

How can this be achieved in practice?


I recommend taking a structured approach to optimizing your internal control. It starts with defining your scope: which entities/ locations are you going to look at? Which business processes are involved? For supply chain management the core processes include: Procurement, Production, Delivery and Logistics. They are dependent on a series of support processes, like Facility, Security, HR, IT, Quality, Customs and Finance. Another key question is: which aspects of internal control are you going to analyze when optimizing your supply chain: profitability, efficiency, information security, turnaround time, integrity, stability, sustainability? Answering these questions requires a thorough understanding of the interests and expectations of your key stakeholders.

 

The practical steps that I suggest to your management team are as follows:


  1. Ensure clear coordination of your “rules of the game”.
    Governance is key to effective internal control. Who is in charge of balancing the costs of your control measures like quality checks and the delays they may cause with the anticipated benefits of these controls? And based on what are you going to make adjustments?
    Coordination also includes ensuring you have the right company culture. Your employees need to have the opportunity to report misconduct, to challenge unrealistic assumptions in business plans, to analyze near misses, etc.
  2. Obtain a clear view of the expectations of your stakeholders.
    This includes the boundaries set by legislators and regulators. Stakeholders typically have conflicting interests and expectations. As a team you need to prioritize which interests you are going to serve.
  3. Set clear business goals and objectives.
    It also means explaining to everyone involved what are the outcomes that you consider acceptable? It requires communicating of the bandwidths reflecting your risk appetite and control ambition.
  4. Get a clear overview of your daily business activities.
    What are the key activities that are executed, both in your managerial, value chain and support processes? It is my observation that many team members have rather limited knowledge of the daily activities of their colleagues. Producing a high level ‘map’ of your entire organization creates a shared perspective for your team and fosters mutual understanding.
  5. Establish clear insights in your opportunities and risks.
    Is there a shared understanding of your chances of success and your risk exposure? What can help or hamper the achievement of your business objectives? Risk managers tend to approach your business mainly from a negative angle: they focus on things that could go wrong. This easily causes misunderstanding and alienation from business people. Always remember that opportunities and risks go hand in hand.
  6. Design clear control measures for achieving your objectives.
    You need to ensure that the minimum safeguards are in place in order to seize your opportunities and to mitigate your risks. There is a vast arsenal of control types available. Which are the right ones for your organization? And again, who is going to make this decision?
  7. Pay attention to the clear implementation and execution of your ‘rules of the house’.
    Explain do’s and don’ts to your employees involved. When handling dangerous materials, the safety protocols need to be followed. Your house rules must be translated to the activities on your shop floor. Training and coaching are important here. If not done properly, the services to your customer will be impacted.
  8. Make sure you arrange clear monitoring and evaluation of your controls.
    Are your rules being followed in practice? Do they only exist on paper (or in digital format)? And how are you going to establish their operation as intended? As a management team you have many options varying from management-by-walking-around to external inspections.

 

Where have you seen success?


The integrated and holistic approach that I promote is relatively new. I see many companies trying to optimize specific business aspects in isolation, such as increasing efficiency and trying to squeeze out even more cost out of their supply chain. In my view it is more sustainable to consider other important factors as well, such as partnering and closer cooperation to improve quality and to foster innovation. That requires trust and acceptance of failures as part of the collective learning process. Effective learning from mistakes also requires that incident management (“**** has happened”) and risk management (“**** could happen”) are integrated. Life is complex and so is supply chain management. When cutting through this complexity, it comes down to creating a well functioning permanent improvement cycle within your organization.

 

Summary


Taking a holistic approach to internal control over your supply chain requires close cooperation of the line managers and staff experts involved. That in turn demands effective governance and coordination. As a management team you need to find the right balance between trust and control. Companies that are good at this are able to create and preserve value for their stakeholders, allowing them to become way ahead of their competition.


About Marinus de Pooter


 

marinus.jpg

Marinus de Pooter


Owner of MdP | Management, Consulting & Training

LinkedIn Profile

I interviewed Len Pannett who discussed 3D Printing and the Supply Chain.

 

 

 

 

 

Can you start by providing a brief background of yourself?

 

 

Absolutely. First, thank you very much for inviting me. My name is Len Pannett. I began my career over 20 years ago, as an engineering manager in the Royal Navy, leading departments working with, at the time, state-of-the-art technology, I then moved after about 11 years in that into the area of consultancy, specifically, operational strategy consultancy, focused on helping organizations with supply chain innovation. And then over the last 10 years, I’ve really been working with clients across a diversity of technical and engineering sectors, helping them to adapt to changing commercial and technological environments. This includes not only today’s technologies, but those that took on a promise of being disruptive in the future. Amongst those, of course, is 3D printing.

 


What is 3D printing and how does it impact the practice of supply chain management?

 

 

Well, 3D printing, there’s a lot of hype about it at the moment. There’s been a lot of media attention in the last couple of years with a lot of almost astronomical claims to its capabilities, with everything from the absolute way in which things are going to be manufactured from now on, right away through to the creation of Star Trek-like replicators. It is a lot of hype; we’re not quite there. The technology itself isn’t new. It was invented nearly 30 years ago now, in the early ’80s, and has traditionally been known as additive manufacturing. Essentially, it involves one of a very small set of approaches to making things either by building products up layer upon layer of materials, which is known as stereolithography, or employing lasers to burn or cook materials, known as centering, eventually resulting in a finished item. Unlike traditional manufacturing, which normally involves cutting or drilling molded items to make the final product, 3D printing grows the product in its medium.

 

Nowadays, that medium can be anything from plastic, ceramics, to metals, including the likes of titanium. Once a design itself is created, normally using either CAD software or a laser scan of an item itself, it’s then passed on to the production unit, the printers, which then create it using the fairest materials. Today it is already being used in several industries, from aviation and automotive and construction sectors to the medical, jewelry, and more and more in retail manufacturing. The emergence of different and more refined technologies over the last 10, 15 years or so building on those two approaches of stereolithographic and centering really is opening up a lot of competition between manufacturers and, obviously, the various associated sectors. What that’s doing is driving down the cost of printing, the cost of the units, the cost of the materials that are used, which is now opening up the possibility of that faster adoption across various industry sectors.

 

Just to give you an idea, the industry watchers themselves are predicting that there’s going to be a growth in the value of 3D-printing companies as a total by about 25 to 30 percent year on year over the next few years. What we’re seeing, as well as the increase in capability and production, is also an increase in demand from the customer base for more innovation, for lower cost of manufacturing, and new supply chain models that can mean they can achieve their delivery times, that they can achieve their cost-reduction targets in a lot faster time space, and 3D printing is really one of those technologies that can help them do that if approached in the right way. The printers now, the cost of those units have come down, and now industrial printers cost a few hundreds of thousands as dollars, whereas some of the retail printers now that we’re seeing and the likes of Staples are coming to cost around about a thousand dollars each.

 

At the same time, the software tools that are used to design, they’re getting better; they’re not the most user-friendly of tools. Design, anyway, requires a little bit of ability, but they’re user-friendliness is improving, meaning that it is really opening up those possibilities. We’re seeing already some exciting developments. We saw recently General Electric announcing that they’re printing fuel injectors now for some of their engines. We’re seeing similar announcements coming out from the likes of Rolls Royce and BAE Systems as well. At the very high end of technology, we’ve seen NASA announcing that they’re going to be placing 3D printers in the International Space Station, and we’re also seeing them testing components now at some of the operating temperatures and pressures, which means that there are concerns that might be about the metalogy of products; how strong those products are seems to be being addressed.

 

At the dreaming end of the scale, Airbus recently did a presentation talking about the possibility of printing an entire aircraft using 3D-printed components. We’re seeing those uses now already day to day in the medical sphere, mainly prosthetics, mainly joints and knees and implants are now using 3D printing, additive manufacturing. We’re also starting to see soft tissues being approached in the same way. And already, cartilage and blood vessels are created that way. One or two companies are even thinking about 3D-printing entire organs, starting with livers and kidneys. The possibilities are certainly manifold and exciting. What that’s doing is, it’s really beginning to mean that companies are having to look at their supply chain models a lot more closely to see where they can adopt the technology and where they can really drive this cost down.

 

One of the obvious areas is looking at their inventory to see if there are reductions that can be made in the long tail of spare parts. We’ve seen companies like Bowers & Wilkins, a manufacturer of loudspeakers, have already adopted this. They’re taking some of the slower-turn inventory components and removing them from inventories from warehouses and turning those into 3D-printed parts, which they’re now manufactured on demand effectively.

 

The biggest change, really, that I think 3D printing offers supply chains—and it’s already starting—is in those models themselves, a relationship between manufacturers and suppliers and their customers. The streamlining of logistics models is one. In due course, as more and more products get produced on demand rather than pulled off the shelf, we’re going to see a reduction in inventory levels that companies hold, we’re going to see a reduction in their demand for warehousing, and that’s obviously going to impact a lot of third-party logistics companies and warehousing organizations. We’re also going to start seeing a shift, I think, from vendor-managed inventory as we’ve now got toward a more customer-managed inventory, where rather than pulling and ordering parts or even having parts that the supplier automatically tops up, as with VMI.

 

The idea of CMI is that you have a 3D printer in your site that can then produce the products that you need, the parts that you need almost on demand. Obviously, that brings with it challenges of licensing or uses, but it also has a number of advantages, such as reducing, for example, shipping time, it reduces the cost of that transport, the cost of the components as well, and in due course, as well, as we start talking about transborder production, it obviously reduces the cost of tariffs as parts are carried across international boundaries. The other model that we’re already beginning to start seeing emerging is that of 3D-printing hubs. Much as we saw in the ’80s when printer costs came down, we started seeing the likes of Kwik Kall [sic] and Prompter Print acting as central printing houses on the high street. We’re already starting to see some of those companies installing 3D printers in their site so that anybody that can send a design to them to be manufactured using printers that are held by a third party.

 

In fact, UPS announced last year that they were installing a number of printers across their sites in the USA to provide just this service. I guess the more retail end of the spectrum, as well—and there’s a lot of hope for this still—is that at-home 3D printing. Same as we saw laser printers go from being a very industrial product to a home printing solution, the possibility of 3D printing at the home itself is something that’s exciting.

 

The possibilities are still very much, it’s the craft of retail at the moment. Mattel does a lot of this with their toys, and we’re seeing some of the smaller designs, like jewelers, using similar technology. In terms of the volume, the retail side of things is certainly an exciting possibility.

 


How should supply chains be configured as 3D printing gains momentum in the future?

 

 

These new models, whether they’re fully or partially adopted, will have, ultimately, a real tangible impact on supply chains. In terms of how should those supply chains be configured in the future, a lot of it is going to be requiring companies to take a very hard look at their inventory to really segment which parts of those inventory, whether it’s at the system level or even at the lowest component, which ones of those can be taken off the shelf and transferred into an electronic-produced and manufactured-on-demand parts.

 

The other exciting possibility is really looking at how companies can get closer to their customers in a meaningful way. How can they bring that capability to their customers? Possibly, even as we start seeing more and more suppliers collaborating with their customers, we might even see the idea that a customer actually themselves purchases that production capability, their printer, and, really, their suppliers then present their designs to be printed on a case-by-case basis as required. I think those models are very exciting. I think we’re not quite there yet; I think the technology needs to catch up, but I think some of those, the preparations for those models in the future certainly can be merged. I think the biggest area that we’re going to start seeing is the simplification of the supply chain. The reduction in warehousing, the reduction in inventory levels, the reduction of the footprint that companies need to operate their supply chains I think is going to be one of the biggest challenges that they’re going to have in the near future.

 


Who needs to consider rethinking their supply chains in response to the future growth of 3D printing?

 

 

I think the answer very much on who’s going to have to rethink their models in the future, it’s a timeline. It’s going to be some shorter-term responses that need reacting to than the longer ones. The shorter ones are going to be those third-party providers, the 3PLs who deal with logistics, who deal with warehousing, especially in some of the more retail-y industries where their services, the demand, the space is going to start dropping off. When we start seeing the likes of Mattel, the likes of Bowers & Wilkins, the likes of some of the bigger auto manufacturers as well, who are already bringing in 3D printing into not just their prototyping production, but also their main retail, their main commercial production lines. Those companies are going to start seeing a drop in demand.

 

The other areas, I guess, are going to be all of the engineering supply markets are really going to start seeing a change. We’re no longer going to see very specialist manufacturers; what we’re going to start seeing is a shift from manufacturing to design as being the big USP that those companies can provide. For example, the companies that would have provided GE with the intake ducts, for example, rather than providing those ducts, they’re now going to have to provide the design for those ducts, something that they might improve in. We’re going to start seeing, as well, an emergence in the importance of licensing models for design, and this is something that companies are going to have to face more and more. I don’t think the IP protection for designs in a 3D environment is quite up there yet; it’s certainly something that’s going to need considering very soon.


About Len Pannett

 

1af377a.jpg

Len Pannett


 

Operational Strategy Consultant

 

LinkedIn Profile

I interviewed Jonah McIntire who discussed Supply Chain Visibility.

 

 

 

 


1. Please provide a brief background of yourself


My background is in supply chain management on a global scale. I draw together various disciplines and people to address supply chain coordination issues, typically by applying technology. I would consider myself a supply chain technologist, if such a designation makes sense. Very recently I began working for GT Nexus after they acquired a company I had founded that built a next-generation transport planning engine.

 

Why did you write a book about SCV, why is it important?


Supply chain visibility is a topic that has little or no neutral materials or discussion spaces for industry participants. For younger professionals, or those in emerging markets, they are at a huge disadvantage because the industry norm is that we learn about visibility through experience or word of mouth. The only published materials previously were marketing pieces from software or consulting vendors. Those have their usage, but are hardly neutral or in-depth. For several years I had been publishing a successful blog on supply chain visibility, and this caught enough attention that a book seemed appropriate. Based on reactions so far, it fills a niche in professional education and academic literature that people were hungry for.

 

What do you discuss in the book, what are some examples?


The book traces the arch of supply chain visibility starting as concept, through the theoretical perspectives, and then to hands-on aspects. Strange as it sounds, for many readers they just want to start with a good definition of supply chain visibility because the term is often used but little agreed on. One of the more valuable aspects of the book is a framework for scorecarding visibility solutions. That is something nearly every professional involved with visibility project’s needs, but is missing from public materials. We need a framework for scoring visibility solutions for a couple reasons. One is to compare solutions or possible updates to solutions. Another is to predict how external factors, trends, or changes will affect a solutions performance.

 

How are contents put in action, how is visibility acquired?


The book describes eight different types of supply chain visibility, such as versions focused on inbound supply chain flows vs. mobile decision making. These types are not exhaustive, but provide a broad understanding of what is being done with visibility solutions out in our field today.

 

Later in the book there is a review of the different paths to acquiring visibility, and this is another area with lots of actionable information. There are four ways to acquire visibility: the first is to build it in-house, the second is a software license purchase, the third is a subscription agreement, and the fourth is via a logistics service provider who offers the use of their own system for their clients. Build, buy, rent, or use as a perk: those are the options. In the book, I explain each approach, what broad experience has shown regarding their strengths and weaknesses, and then provide examples about the most important providers or methods.

 

What recommendations or trends do you have?


The three most important trends as I see are (1) the rise of distributed manufacturing, currently seen in the 3D printing and maker-movement communities, (2) the looming explosion of artificial intelligence, and (3) the switch to Internet of Things. The distributed manufacturing movement will totally reshape what a supply chain is and the skills needed to manage it. It’s as impactful to our field as containerization or the appearance of free trade agreements. The explosion of artificial intelligence is very disruptive to supply chain visibility because it will change both the business decision mechanics (i.e. most decisions made by cohorts of AI softwares across company boundaries) as well as the mechanics of data exchange and integration. So much work is done today to standardize data and integrate it with other data objects. This is the ontology-matching problem, i.e. making sure we both define something like “shipment” the same so that my status update to you is being integrated to other objects like orders properly. As AI becomes more robust, that is going to be done by dialogue, just as two humans would do it today. Finally, the internet will switch from being an internet of humans to an internet of things. Human-to-human data exchanges on the internet will become a tiny minority. For every kilobyte of email or voicemail or photo sharing, there will be perhaps one hundred kilobytes of data created by a device and sent to another device, without a human ever seeing it.


Who is the most effected by reading this book?


The book is targeted at professionals who are likely to work on a visibility project, but don’t feel they have deep expertise yet. The two main groups there are (1) younger professionals and (2) professionals of all ages in developing markets where they are on 1st-time visibility deployments. The book is also useful to professionals who are embarking on visibility projects and want to be sure they bring a complete domain understanding to the endeavor.

 

Conclusion


Thanks again Dustin, I hope this serves as an interesting introduction for your followers and helps them decide if the book would be useful to them. Anyone who has additional questions can contact me by email, I’m happy to discuss this topic directly.




About Jonah McIntire

 

1cff335.jpg

Jonah McIntire


 

Director of Solution Consulting at GT Nexus

 

LinkedIn Profile

Jonah.Mcintire@gtnexus.com

I interviewed Richard Sherman who discussed Emerging Trends in Demand Planning.

 

 

 

 

 

 

Rich, I notice that your session at the Institute for Business Forecasting & Planning Conference in Scottsdale and the title of Chapter 5 in your book on supply chain transformation are “If You’re Being Driven By Demand, You’re Probably Being Driven Crazy.” What do you mean by that?

 

Well, it’s a catchy and pithy little title, but it refers to the experience I’ve had, particularly in consumer-goods companies, but certainly just about any company. There’s always been this kind of hype that kind of got started by P&G trying to, I think, drive the market crazy by creating this perception that we should all be demand-driven. If you’re driven by demand, that’s cool, but when we take a look at retail forecast, point-of-sale, the closer we get to consumer demand, the more noisy it gets and the less impactful it is. I could maybe have a 50, 60, 70 percent variance of demand across the stores in a typical grocery chain or chain store. If I were to let that noise—the tail, if you will, wag the dog, I would not only have a bullwhip effect, which we know occurs from time delay and amplification in the communication of the chains as it is, but I’d be being whipped to death by that demand. Usually, I tell people if you’re going out and trying to respond to demand at a consumer level, you’re probably gonna get driven crazy.

 

How are operations impacted by poor forecast accuracy? How can companies more rapidly integrate demand and supply planning? Why has it taken so long for sales and operations to gain traction?

 

That’s a really good question. at the end of the day—and it was great that I was at the IBF conference this week, because people are talking mean average percent of error at family level, regional level, category level. Mean average percent of error at an aggregate level is, like, in the 20 to 30 percent range, as high as 50 percent. Well, I can’t load a category or a family or a region on a truck; I have to load cases and pallets on to trucks. If my MAPE is that significant at an aggregate corporate level, it’s 50 percent or more at the stock-keeping-unit-by-location level, where I actually have to load the truck with stuff. If I’m shipping 10 thousand, 20 thousand, a hundred thousand cases a day and I’ve got 50 to 60 percent forecast error, that’s, again, the tail wagging the dog in a big way. That level of uncertainty and inaccuracy coupled with the fact that most forecasts are only done on a weekly basis, well, research years ago said that children between the ages of 7 and 11 at some point in time want to be a fireman. Well, if you’re in operations and you’re operating with that level of forecast inaccuracy, you’ve realized your career aspirations, because you’re a fireman. You’re going to be putting out fires throughout the week to compensate for that forecast error.

 

Rich, you introduced the position of chief demand management officer, or CDMO, in your session. Why do you think such a position is necessary?

 

It was interesting because when I was doing all the research for my presentation for the conference at IBF, I reviewed a lot of video interviews for people at past conferences, and I’ve also spoken at IBF the past several times. There’s always this debate on who owns the sales-and-operations-planning process, who owns the forecast, who owns the demand plan. One of the big issues in sales and operations planning are the different biases from the different functions and siloed behaviors, so it strikes me that when we look at effective demand management, I can show that effective demand management can impact return on invested capital by 30 percent or more. If I’m effectively managing my demand, I’m improving the financial health of the corporation and increasing our ROIC by 30 percent or more. That’s a pretty significant financial benefit. In my mind, if the demand management is that critical and if it requires such a cross-functional focus, then what we really should have is a corporate demand management program office with a chief demand management officer that reports directly to the CEO. Now that person can look across the organization and integrate all of the different forecasts that are being performed, and all the different functions begin to build an operational forecast database to the point we just discussed on operating management. Now what I can do is, I can drive daily forecasting at the operations level by stock keeping unit, by location, and I can provide operations planners with the tools to reconcile their actual schedules and production and logistics requirements to the variance in the plan. If I can do that, I can dampen the impact the forecast error has, and I can basically manage my operations through statistical process control techniques. If I have that capability, then I can build that up to be able to do longer-term forecasting at the sales-and-operations planning level and ensure that’s in line with the corporate strategy. Basically, the chief demand officer owns the demand plans for the organization, but they’re actually developed and executed within the functions. I have a corporate officer who’s responsible for that who can reconcile any of the political biases or performance biases that can facilitate the setting of upper and lower control limits and overall improve the financial health of the organization. It also demonstrates management commitment to planning accuracy, which his always a challenge in organizations. To me, it just makes sense to have a CEO with a demand-management program office led by a chief demand management officer. I think we’re going to see more companies adapt this because we have to find ways to improve our forecast accuracy, our planning accuracy, and be able to tie that in to our financial commitments. Does that make sense?

 

What can companies do to improve their planning processes?

 

Well, I think the critical thing is to identify the financial impact that planning has on your organization. There’s a lot of talk going around about forecast value add, which I think was actually developed by Michael Gilliland from SAS. Basically, it’s a way to compare and test forecasting methods as to the value they actually add to the process. If you’re spending X millions of dollars to implement an ERP enterprise planning system and it’s not going to produce a significantly more accurate forecast than your naïve, walk-around-this-is-what-we-did-last-year-we’re-probably-going-to-do-that-this-year forecast, why are you spending all your money on that? I think an exercise in forecast value add is critical. I think the other thing that’s critical is, companies have to begin to segment their markets, their customers, and their products by the economic impact that they have on the organization and the financial health of the organization, and they have to apply their resources to improve the planning for those segments that contribute most to the corporate performance and financial health. It’s like any operation, Dustin. You’ve got to map out those processes; you’ve got to benchmark those processes; you’ve got to identify which segments are most important to your success; and then you’ve got to develop an operating culture that improves those processes over time.

 

Thanks, Rich, and how can people get a copy of your book? Supply Chain Transformation: Practical Roadmap to Best Practice Results (Wiley 2012) on Amazon, Barnes & Noble and other online booksellers worldwide.

 

Wiley’s a global publisher, so regardless of what country you’re in, your local bookseller should be able to provide you with access to it. It’s been getting more and more success as people actually get a chance to read it and start commenting on it.

My Twitter is @guruofscm; Skype is guruofscm; our Web site is www.trissential.com; and my business e-mail is: rsherman@trissential.com.

 

 

 

 

About Richard Sherman

 


HEADSHOT Sherman 2013.jpg

Richard Sherman


Principal Essentialist, Supply Chain Management at Trissential

LinkedIn Profile

I interviewed Gabriel Cadar who discussed Procurement/Facilities Management.

 

 

 

 

 

 

I`m a 48 y.o professional, running as a Business Consultant (you may see my profile here: ro.linkedin.com/in/gabrielcadar

 

I have a large experience in different management positions within multicultural  large corporations, starting with McDonald's ( starting within 1994),  Orange Romania-  ( nine years, from 1997), RODIPET (2006), and Bayer Romania (from 2008), currently performing as business consultant on different areas of expertise, such as:, Operations  ( Facilities, Properties, Procurement, Car Fleet and related) Interims, Corporate Operations, Transition and Interim Management, Corporate Procurement, , Business start-up management, Project Management, Process Analysis, Business Process Management, Procedures, Modeling of Business Strategy, Risk Management and related. I also worked in industrial environment (heavy industry) back in 1983-1990;

 

Up to July 2009 (for 1 year and 4 months) I was running, on a contract project basis, the Operations Department at Bayer SRL- the Romanian extension of Bayer A.G., as Head of Department and- also member in the Country Council of BAYER SRL, being responsible for Facilities, Properties and Administration, Procurement, Health Safety and Environment, Car Fleet and Logistics and the IT departments;

 

This was a challenging Transition project involving the entire Romanian Bayer crew- such as Bayer HealthCare, Bayer Material Science and Bayer Crop Science- together with Bayer Local Services- to a restructured Organizational Chart.

 

I was involved in Technical Operations projects at Orange Romania – from the positions of Facilities Supervisor, Facilities Administrator, Health and Safety coordinator and Technical Senior Offices Administrator, for more than 9 years between 1997 and 2006. Also- in this position I had to deal with different Romanian Authorities- obtaining function authorizations (for Shops and new technical facilities Construction Authorizations (more than 80) for technical sites and premises, health and safety authorizations for the technical department (more than 400 employees)

 

I participated to 5 start-ups in Romania- Mc Donald’s, Romanian Franchising Systems- (a.k.a. -Jerry`s Pizza) - as business consultant, Orange Romania, INFO Distribution and Bayer, and runs budgets of dozens millions euro’s.

 

My education is fulfilled by a Master Degree in Financial Audit and Advisement (IAS-IFRS) at the Academy of Economical Science- in Bucharest (2008) graduated with 921 points (out of 1000)

 

What is Procurement/Facilities Management?


Procurement and Facility management is a crossover function / /Department of the Company that encompasses multiple disciplines to ensure functionality of the built environment by integrating people, place, process and technology to a company;

 

The core competencies are: Emergency Preparedness, Communication and Business Continuity (meaning that – even in a emergency situation, or in a moving/relocation situation, the core business must go on without interruption), Environmental Stewardship and Sustainability, Finance and Business acumen, Human Factors Leadership, Strategy Operations and Maintenance, Project Management. Quality, Real Estate and Property Management, Car Fleet management, and many others (according to the industry related)

 

Why is it important?


Procurement and Facilities Management offers an integrated approach to maintaining, improving and adapting buildings and other infrastructures of the company, keeping the “backbone” of the core business “healthy” a. in order to create a very good work environment;

 

Procurement and Facilities have the function of managing facility resources, support services and working environment to support the core business of the Company in both long and short terms

 

It’s like a house administration- but at a larger scale: if you don’t have all the utilities (such as, electrical power, gas, communications,) and facilities (air conditioning, TV /internet; garbage services, cleaning e.t.c.) you`re not feeling comfortable in your house.


How is it done?


Sometimes procurement and Facilities are outsourced services (because the core business may be on any industry)

 

The procurement can buy some other outsourced services ( such as facilities and maintenance, Real Estate /warehouses / logistics and transportation services, IT, accounting, legal and so on)- making the operations to be more focused on the core business;

 

The P&F must be efficient in terms of delivering the service at the right time and at the required level of accuracy; we may not forget the SLA-s (service level agreement) as well as the “back-ups” for any “link” of the chain; So we may have in mind all the time that- even if something goes well today there is no warrant for the day of tomorrow;

 

Prepare , follow-up and upgrade all the time : Procedures;

 

Keep under control the budgets and have all the time “an eye” on the market evolution;

 

Keep the right balance in procurement: price vs. quality (and service); This is not same as common purchasers doing, when achieving commodities: price first, and then delivery terms and that`s all because the structure / the backbone of the company is counting on a continuous service;

 

Build a trustful and respectful connection/ contract with suppliers of services I mentioned above; I`m a huge fan of “Kereitsu” (the connection of companies helping each other and building each other a common business.)

 

Control and improve (keeping low and lower) indirect costs, quality and services;

 

While the Company has to keep the right balance between the horizontal and vertical integration, the procurement can choose to mix them together – having a better control if you have a responsible manager hired but having an outsourced team to work-with;

 

The Procurement and Facilities manager:

 

Often he provides more than “accommodation” services to the core business departments:

 

Administration of facilities/premises where the business is running and, sometime administration of warehouses /facilities / premises rented from third parties, all tasks included ( rent, contracts management, premises administration and maintenance, budgets, e.t.c)

 

Premises and personnel security

 

Car fleet (where applicable)

 

He have an important role when a Headquarter /or Facility / Factory is moving: together with the other involved persons/ departments he have to plan how to move company`s assets /people / furniture / IT items without breaking off / interrupt the business process;

 

He may act as Project manager- for the relocation - working close with the other involved departments.

 

He keeps the inventory of company`s assets, as well as the inventory of common office supplies.

 

He is responsible of the office accommodation budget: You may not see this as important for production, but, you may find out that the office accommodation is the second on the list of employee’s best benefits, after the salary package and before “a good team”, “a challenging job”.

 

 

About Gabriel Cadar


 

2461a46.jpg

Gabriel Cadar


Expert Business Consultant @ Gabriel Cadar Consultancy Office

( former Operations ( P&F) Manager @ Bayer

LinkedIn Profile

I interviewed Robert D. Brown III who discussed Applying Decision Analysis and Analytics to Supply Chain Management.

 

 

 

 

 

What is your background?

 

My formal education was acquired at the Georgia Institute of Technology in Mechanical Engineering. For last 20 years, I have been involved in applying the principles of systems engineering and decision & risk analysis to business problems. This began, as I think is typical for most engineers, in an operational and manufacturing environment. It wasn’t long into that professional track that my interests expanded to include questions about how to make the best strategic decisions for businesses. In other words, I became interested in asking about how we might optimize a business (if that was even possible) more so than how we might optimize, say, a local manufacturing operation. Over time, my practice has covered the range from local optimizations to global strategic perspectives in very diverse industry verticals including commercial real estate, telecommunications, electronics manufacturing, pharmaceuticals and biotech, petroleum exploration and production, information technology and systems, and education.

 

What does it mean to apply Decision & Risk Analysis to supply chains?

 

Decision & risk analysis is a framework for structuring the search for solutions to decision problems under uncertainty, where we understand a decision problem under uncertainty to be one in which we want to know the best allocation of resources to achieve goals and objectives when we don’t know that it is certain that those allocations will lead to certain success, however we might define success. For supply chains, for example, this might mean taking the steps to ensure that we have the necessary channels and suppliers in place and networked properly to satisfy market demands in the most economically efficient and robust manner possible; or it might mean at the logistics level taking the steps to ensure that we have the right kind and allocation of capital assets in place to transport goods from origin to market. None of the answers to those questions likely have certain answers because of the external forces acting on the business and the market, such as shifting regulatory risks, shifts in market demand, obsolesce vs. advancement of technology, etc.

 

Why is this important?

 

The importance of using decision & risk analysis is realized in at least three areas of concern: the ethical, economic, and strategic.

 

By ethical, I mean that decision & risk analysis properly applied ensures that directors observe their fiduciary duty of care. In short, decision makers deliver warranties that they have controlled for garbage in, garbage out, and garbage in between in their planning processes. These warranties are the

 

1. Warranty of Clarity

 

• The terms are well defined

• The right problem has been identified

 

2. Warranty of Coherence

 

• Reasoning is logical

• Preferences do not violate transitivity of preferences

• Evaluations cohere with the best knowledge of the day

 

3. Warranty of Thoroughly Considered Consequences

 

• A creative set of alternatives are considered

• Implications of choosing are clear

• The best alternative is revealed

(Adapted from Howard, Ronald A. “Heathens, Heretics, and Cults”. Interfaces 22:6. November-December 1992. pp. 15-27.)

 

By economic, I mean not only that the results of supply chain planning are an attempt to be capitally efficient, but that the actual process of finding solutions to supply chain decision problems is actually informationally efficient and effective. The effect is to ensure that decision makers front load the decision making process with the right amount of exploration and collaboration to avoid the unforeseen risks and cost of rework of flying by the seat of their pants, but not so much front loading that value is lost by attrition through analysis paralysis.

 

By strategic, I mean that decision questions about the supply chain are focused on the right business scope first, and the insights obtained there are pushed down to the appropriate operational levels as a consequence.

 

How is this done?

 

The practical process of decision & risk analysis goes beyond merely incorporating decision trees or operational simulations, although analogs to those would and should eventually be employed, but at the right time. Constructing operational simulations may supply a necessary but not sufficient contribution to the decision analysis process.

 

The first step, as I’ve alluded to, is to properly frame the supply chain decision problem. This means identifying organizational goals and objectives, partitioning the decision space so that we focus only on the key strategic decisions that need to be made now, constructing an array of meaningfully distinct and creative decision strategies (hypotheses about how supply chain decisions create value), and finally identifying the key uncertainties that affect our ability to achieve the identified objectives.

 

Next, we evaluate the decision strategies with the appropriate models and simulations to thoroughly understand the opportunity costs of each. The goal here is not so much to forecast the one best decision strategy, but to eliminate the weakest strategies from consideration and to quantify & prioritize the effects of the uncertainties’ ability to make us regret the contenders for the best strategies. This latter piece of analysis is referred to as value of information analysis.

 

Next, we construct a robust hybrid decision strategy from the remaining contenders for the best decision strategies based on opportunity cost tradeoffs, value of control analysis, and risk mitigation.

 

Finally, we communicate to all the key players what the strategies mean in terms of actual tactical execution, develop proper financial plans to obtain the right funding, and communicate to the market in appropriate ways that further facilitate success.

 

 

 

About Robert D. Brown III


 

00e8380.jpg

Robert D. Brown III


President of Incite! Decision Technologies,LLC

LinkedIn Profile


I interviewed Julian Blumenthal who discussed Change Management in the Supply Chain.

 

 

 

 

 

 

It’s great to speak with you today, Julian, and I look forward to hearing your views on the topic of change management in the supply chain. Can you start by providing a brief background of yourself?

 

My name is Julian Blumenthal, and I’ve been very much involved in supply chain, logistics, and transportation my entire career. What attracted me to the career is, I like to organize things, I like to work with people. I worked for a long time for a salt company, Morton Salt. What’s unique about Morton Salt is that they have a wide variety of customers, because a wide variety of people and organizations buy salt. I dealt with the smallest retailers and the largest retailers; I dealt with large industries and small industries; I dealt with small governments and national governments. It was a very, very inclusive and very interesting aspect of my career. Much of my work there was on truck transportation, but I also was involved with air, rail, inland, water, international water shipments, and partial shipments. My success was really based on the fact that I love to problem-solve and I like to respond to resolve the logistics problems and I’m really good at emphasizing and understanding what the customer issues are.

 

What is change management?

 

Well, change management is the way you handle the major change in the organizations. I do want to emphasize the word major. Day-to-day changes really need to be part of the day-to-day processes, but along comes a way that virtually every organization over time will have major changes to the market, major changes to their environment. Change management is an organized way that you respond to those challenges and be able to successfully change the organization. If you are interested in having a little bit of fun, go to Google Images—or probably any other search engine’s images—and type in the words change management and you will see about a hundred to maybe two hundred different change-management diagrams.

 

Can you talk about how change management can be applied in the supply chain?

 

Yes. Change management is almost required to be in the supply chain because significant changes in supply chain are going to happen. New customers, expanding the organization, contracting the organization, the markets will be constantly changing; that’s why change management needs to be done. Change management usually has five major features: request for change; impact analysis; approvals and denials of changes; an implementing part; and a reviewing part.

 

Where have you seen some good results?

 

I’ve seen good results in a couple places. One of them is, the organization I used to work with, Morton Salt, put in a new order-entry system. This was about 15 years ago. The old order-entry system was out of date, it was inefficient, it was costly, and certainly did not provide the information that was needed. Management realized that if you make such a fundamental change to the organization, not only does it impact the information that top management receives, but customers are impacted, your plant’s production is impacted, and right down almost to the bottom level. They did not implement the change without spending the money to bring all levels of management to individual discussions to be able to resolve the process.

 

The net result was that when the change was put in, almost all levels of the organization had change-management champions. That resolved the problems and encouraged people to make the changes and do the changes enthusiastically. The organization was able to save significant money, was able to, in addition to that, have an improved process and improve information for management. All the goals of the organization were met. Another organization, which I was not a member of, which I would recommend, also, and is very good at change management is McCormick Spice. McCormick Spice has a whole procedure to put in whenever there are unexpected, significant changes in their management. You can find a lot anywhere in the literature if you look it up in any of the search engines. They have a set group of people that get together. They have a process very similar to the one I just mentioned, where they go through the process, figure out what needs to be done, and help the organization make changes when there are shocks to it, so to speak.

 

Thank you, Julian, for sharing these views on change management in the supply chain.

 

Okay, thank you. It’s been a pleasure talking to you.



About Julian Blumenthal




269b8e3.jpg

Julian Blumenthal


Director, USC Marshall Center for Global Supply Chain Management

www.southlooplogistics.com

LinkedIn Profile


I interviewed Dee Maloney who discussed  'The Importance of Supply Chain Resource Efficiency'

 

 

It’s good to speak with you today, Dee, and I look forward to hearing your views on the topic of the importance of supply chain resource efficiency. Can you start by providing a brief background of yourself?

 

Sure. Thanks, Dustin, for inviting me to speak with you. My name is Dee Moloney. I’m the Managing Director for LRS Consultancy. I’ve been working in the arena of resource management, waste management for about 13 or 14 years in the U.K., predominantly starting out looking at how materials are collected for recycling and how they’re reprocessed back into the supply chain. What we’ve seen over the years and more recently is how that sector is starting to become more interesting to the non-waste sector producers and manufacturers and users of products and businesses because they’re starting to view those resources as commodities. We’re starting to see a shift change in the way waste and recycling is viewed.  LRS specializes in the materials resource supply chain working all the way from those who are responsible for collecting and processing those materials all the way through to those clients who are manufacturing and putting products on the marketplace.

 

And can you talk about your recent report, “A Practical Path to Resource Efficiency”? What problem does it address, and who is it targeting?

 

Sure. I suppose one of the first questions is: What is resource efficiency? In essence, it’s about using fewer and more appropriate resources and keeping those resources in use for longer around the whole supply chain, trying to maximize the value of resources across their whole life cycle. Obviously, it’s not a new concept. It’s really been around for a long time, and up until now the main focus has been on, as I said, material-related resource efficiency, diverting waste from landfill. There have been quite a number of legislative pressures that have helped initiate more activity in this area. We’ve seen—certainly in the U.K., for instance— lots more infrastructure and services being developed to help divert that material from landfill and back into use around the supply chain. However, what we’ve started to see in the last couple of years has been that kind of end-of-pipe solution is not enough, and companies and businesses who are commercial and profitable are starting to see that they have the opportunity to see value in those materials and resources, both energy and materials, that they have maybe previously looked at as something that’s a problem.

 

We’ve seen the Ellen MacArthur Foundation, about three or four years ago, really try and kick-start what we’re now calling the circular economy, which, as I was saying, is not a new concept, but it’s really helped elevate this idea and this notion on to the board table. Therefore, we, as a business, have seen our skills and experience being demanded by a new client sector. We’re seeing that our understanding of how waste and recycling and those materials are collected and processed is important for those organizations and clients who then take that material back to the manufacturer and produce new products that they’re selling on the marketplace. That’s why we decided to launch the report, to help our new and growing range of different clients across the supply chain. It’s predominantly aimed at resource users, manufacturers, but also at the waste management industry, who now need to connect with different companies in the supply chain. And then different stakeholders within those different organisations, such as product designers, retailers and brand owners, with the idea of bringing this concept of end-to-end supply chain work.

 

We’ve found that very often, businesses look for resource opportunities within their own four walls, which is a good place to start, but, actually, some of the bigger opportunities are identified when they look outside their four walls and start talking to different people along their supply chain. There are a couple of great examples in the guide that people can obviously access online about how to do that. A great example that I really love is the fortune-cookie example, where the manufacturer of biscuits had process waste that they were disposing of as a normal end-of-pipe waste but actually identified that there was another company out there that could benefit from using that processed biscuit waste as sprinkles within one of their products. It’s turned a waste from a cost to a small revenue generation, as well as obviously extending the life of that resource.

 

Really, our report is trying to take some of the kind of theory that’s been spoken about a lot and demonstrate some practical examples. This stuff can be quite scary, certainly, to small organizations who maybe don’t have a team or a budget to tackle this or who see this very much as an environmental element of their business when, actually, this could help support business profitability and business growth. It’s really about trying to help companies see practical examples and spell out some key easy steps they can take to start looking at this, both within their own organizations but then working either side with others in the supply chain.

 

And who can benefit?

 

Well, that’s a good question. Pretty much anyone, if you look at it from a macro level, U.K. GDP can benefit from this. If we start to understand how much material we’re not looking at in this way, we’re not valuing as a resource and a commodity as a country, there are some great quotes: the Waste and Resources Action Programme has found that across the EU there could be GBP£330 billion in economic growth potential from resource efficiency just in the next seven years. And in the U.K., if we were to really focus down on resource efficiency, by 2020 we could be using 30 million tonnes fewer materials in the economy, which would decrease waste by about 20 percent and we could be recycling 14 million tonnes of materials back into the economy. On a macro level, this can start to help benefit the country, create jobs, keep those materials going round, whether it’s the U.K. or European circle. And, indeed, the EU has a roadmap for resource security and efficiency, looking at how, as the EU, we can make most use of these materials. And then down on kind of a more local level, obviously, anyone within a business. This is something that the financial directors should be looking at. Indeed, the Prince of Wales’ Trust just launched a new training session and work programme for chief financial officers around resource efficiency. It can help with staff morale, it can help with engaging consumers, with shareholders. It’s really something that can support an entire business strategy.

 

And can you talk about how it works?

 

How a business can implement resource efficiency and what actions they can take? The first step really is to recognize it’s something that you want to look at and understand what the opportunities are. Firstly, we’ve developed a process-flow diagram based on everyday business practice, really. Firstly, starting with understanding your own performance and how resource efficiency fits within your own business strategy. There’s a great quote where somebody has said that businesses can barely deal with one strategy, i.e. their business strategy, and, therefore, having an additional sustainability or resource strategy is going to add extra burden.

 

What we like to talk to our clients about is how they embed the resource-efficiency strategy within their existing business strategy to make life a lot easier. It’s about understanding its place within your business strategy, looking at your current performance, and starting to identify those gaps in areas for improvement, whether they’re within your own four walls or whether that means talking to some partners along your supply chain. Develop a plan; embed that plan within existing reporting structures and objectives. And then start to implement those resource-efficiency initiatives.  Monitor that, look at the impact of it, demonstrate the power of looking at things from this kind of lens, and then go back round the loop again. So, really, it’s nothing more than following existing business processes and management strategies, but it’s looking at things slightly differently. One of the keys is to start to move away from considering waste as something that needs to be disposed of as quickly and cheaply as possible and, instead, looking at it as an opportunity or valuable commodity.

 

And thank you, Dee, for sharing your views on supply chain resource efficiency.

 

Thanks for the opportunity, Dustin. And, of course, if there are any further questions, I’d be happy to talk to people directly, for those who listened to this.

 

Thank you.

 

 

 

About Dee Maloney


 

 

3588d07.jpg


Dee Maloney

Managing Director at LRS Consultancy

LinkedIn Profile