I interviewed Prateek Yadav who discussed Changing Trends in Supply Chain.
What are the three factors that are critical for any supply chain analytics project to be successful?
Thanks, Dustin. Good afternoon. Thanks for having me. I would say a lot of articles that you read in today's world, they talk about supply chain analytics being the next big thing with Big Data coming in, with the ability to analyze the values of machine learning and develop insights. What I’ve found over the last eight years since I've worked on such projects and looked at the analytics from supply chain information to look at strategy network design or inventory optimization or getting other insights from supply chain data, what I always, in the end, realize is that the software is, in my point of view, a less important factor in the success of such projects than some other soft part. I will define them one by one for you.
The first one is a manageable scope. I have often seen companies, when they're trying to do a supply chain analytics project, they start building up projects which are very wide, very broad in scope, with a lot of details, sometimes taking their analysis to an SKU level, and I always felt that this was really not helpful because, A, it really makes the scope unmanageable. You're focusing on too many parameters. And instead of simplification, you make your model very complex, and you really do not understand, at times, the implication of changes within the model.
Therefore, I would say manageable scope means, start small, start with a select group of products, and then gradually build on it. You add more and more complexity to it, instead of starting with big and complex and then going to the details. That's one thing.
The second thing is the right amount of data. Again, like I said, this is one of the most critical errors when you use supply chain analytics project that I've seen. People often underestimate the importance of the data. Most of the time, data collection, data cleaning, and data evaluation and validation is the part which almost makes 50 to 60% of the time within the project. That is the second most important thing.
The third thing is that about the people who are running such projects is a basic knowledge of mathematics or statistics.
It's easy to run a software, but it's difficult to understand what is behind that number — why the system is throwing this certain number. So these minor changes, how that is working in the back of a certain column or a certain output, even if you do not understand the whole mathematics behind it, conceptually you should be able to understand what is the statistics, what is the mathematics behind it. And I think these are the few things that I always fear people miss and often the projects are not as successful as they initially hope to be.
My next question is about the trend of inbound management. What are the benefits of it?
Inbound management. That's a very interesting topic. Just for the viewers and listeners, inbound management is the area where the company starts thinking about managing their inbound shipments — so their shipments that are coming from the suppliers to the factory or to the warehouse which is company owns. Usually, we assume that it's the supplier who is organizing the transportation and pays for it and then adds the cost of the transportation in his invoice to the buyer.
Now there's a growing trend, and there's also a growing interest in the industry — across industries actually — to see what are the benefits if you try to manage the inbound by yourself. So you essentially manage the shipments that are coming from the supplier to you. And I can tell you, a lot of big companies are working on it right now. For example, Amazon, they started a massive project in Europe three years ago to bring inbound under their control. And there are definitely benefits.
One is, of course, the scope. As the volume become larger, you have better ability to negotiate better rates than the suppliers. The second thing is visibility. Now, instead of the supplier telling you, you have the cost visibility. You know how much it's actually costing you to bring the product from the supplier to your factory. Previously, you were just getting an invoice where maybe there was a line item in the invoice saying, "transportation cost," or maybe it was not even there, and the supplier was charging you one fixed amount, one whole amount. So at least it brings visibility for the company to know what is the cost of buying from the supplier.
And the third thing is also the visibility in terms of the shipment. So what I've seen often in companies is that companies usually do not have an insight as to what would lack in their warehouse or in their factory production next day. Usually what happens is that you have... The morning of the shipment deliveries, the production company calls you up and says, "Hey, I have a shipment for you, and I will deliver it at 12:00." And that's, of course, [inaudible 0:06:51]. Now if you want control of your inbound, then through the messages like inbound shipping notification to the ability to manage the inbound, companies can actually already know in advance when the shipment is going to be picked up from the supplier, when it's going to arrive at the factory location or the warehouse.And if there is any issue dealing with transit, it could be easily visible for the company.
And what it does is, it can impact the visibility of the capital. Because if you have higher visibility and more transparency, you know that you do not have to keep as much buffer of inventory as earlier expected. Now you have more visibility. Now you know you have more information, so you can take better and more calculated risks. Instead of keeping a lot of buffer just to be prepared for every possible scenario.
So I think those three things — one, in terms of cost that you manage high volumes, so of course your cost per unit has to go down. Second, the visibility in terms of the cost itself. And the third is the visibility in terms of tracking and tracing the shipment which allows the companies to lower their debt working capital.
These would be my three keys things in terms of benefits of inbound.
What about centers of excellence? Can you talk about the 4PL concept — what is it and how it will impact the supply chain?
4PL concept is not new in the industry. It's been around for many years. And a lot of companies like Ford have actually already been doing this for more than 15 years now. The companies do it in different ways. Let me explain what 4PL means. 4PL basically means that if the [inaudible 0:08:57] is called [inaudible 0:08:58] logistic provider, which means that there is another party, which is managing the transportation on your behalf. So they act like an air traffic control tower, and they're seeing which shipment needs to go from here to there, and then they would organize the transportation. Then they would make sure they have a proper visibility of that shipment going from A to B. And if there is any alerts, any delays of the shipment, they can inform their customer. That's the guiding and the monitoring part. And the last part is the invoicing. So they also do freight [inaudible 0:09:40] and invoice and auditing. So they check the invoices that are coming from their freight forwarder, and they automatically either pay [inaudible 0:09:50] or help the customer to set up a system to pay them more easily. So that's basically 4PL concept.
And I think more and more companies are going towards this direction now. Either they are building their own centers of excellence of 4PLs within their company, or they're outsourcing it to companies like DHL or companies like UPS or [inaudible 0:10:14], [inaudible 0:10:15], etc.
So you can work it from both ways.
The way I see it is, if I have to think about the impact on the supply chain, then it all comes down to how are you managing the supply chain. Is it that... Are the experts managing it, or do you have some person located on the ground in a plant who is doing 500 things, and he's also doing transportation? So the key thing is how much expertise the company is [inaudible 0:10:46] within the function of supply chain.
And what I'm talking about right now is purely from a distribution point of view, [inaudible 0:10:55] and distribution. But it can also have a center of excellence for purchasing, for procurement. You can also have a center for excellence for indirect procurement, for material, for [inaudible 0:11:05]. There are different ways of setting up these centers of excellence.
I first received very, very big impact [inaudible 0:11:12]. Of course, they have to be done. There's no one-size-fits-all. It depends on the company [inaudible 0:11:20] — what is the culture of the company? Is it very decentralized? Is it only centralized? For companies like GE, which are very centralized, it's, perhaps, easier to go to [inaudible 0:11:31]. There's companies which are very decentralized would find it difficult to build these centers of excellence.
The impact on the supply chain, however, is definitely there. Maybe for some companies it's higher or lower. It depends also where the company is in terms of its maturity in the supply chain. But the impact of the [inaudible 0:11:51], it brings in expertise to handle your supply chain. Second, it allows you to bring the visibility [inaudible 0:12:00] centers of excellence [inaudible 0:12:03] with the latest systems, which allow to run the companies, to have a global visibility, where their shipments are, and also, it allows the companies to collect data, enough data to run the analytics later on, improving the supply chain. It also allows companies to consolidate the volume they purchase from the shippers. So, of course, if you have centers of excellence, every local station or plant finds their own transportation, you can actually combine [inaudible 0:12:42] into centers of excellence.
I would say those would be two very quick affects or impacts from [inaudible 0:12:53] concept. And of course, there are many more. I can go on and talk about it for hours. But I think if, in a nutshell, I have to think about it’s the visibility and the ability to [inaudible 0:13:05] which would drive down the cost, those would be the key ones.
Thank you, Pratik. Can you provide us with a brief background of yourself?
I've been working in the field of supply chain for almost 12-plus years now. I started my career a long time back when I was in India. I worked in supply chain consulting. I've worked in operations. And then I've also worked in European countries. I've worked in Germany, Belgium, Netherlands, Denmark, Austria, UK, and also Switzerland. I've worked with companies which provide freight forwarding services like [inaudible 0:13:53]DHL, like Marsh Group, and I've also worked for their customers.
In terms of education, I have a Masters from Crampton University in logistics and supply chain. I also have a special micro Masters from the USA — MIT, USA.
My interest, just to give you an idea, my idea is on, basically, if I could talk about one very big problem that I find very interesting is around how do you have sustainable transportation. And by that, I do not really mean have trucks which go with the carbon-free, less carbon emissions or warehouses which run on solar energy. But what I also mean is that actually, how can we collaborate across the industry. So instead of having two companies which have their, let's say, warehouses close by, why not find a way to bring them together and actually have the shipment going out of those locations and combine them. Often, the difficulty is how are you going to share the benefits [inaudible 0:15:25]. But I think that's something that we should work on, and we should be able to consolidate more cargo, bring down the emissions, and also improve the supply chain and make it more cost-effective.
We have already seen the example of such cases with businesses like Uber. What they're basically doing is that they want to make sure that the car or the asset is used as much as possible. And that could also be the idea around [inaudible 0:16:00], which is basically collaboration across the industry — to combine the cargo for a lot of different customers together.
In a nutshell, that's my background. That's all, Dustin.
About Prateek Yadav
Quality & Supply Chain Management