Plz. find the excerpts of my Interview in on of the Magazines.

1. Quest
Gateway to Logistics Excellence
uarterly Feb-Apr 2010
Supply Chain
Megatrends
2010-11
Knowledge Partner

2. global Supply chain M
Shift from Customer Service to Relationship Management 10
While traditional customer service focuses on achieving internal operating standards, a truly rela-
tionship-driven supply chain focuses on establishing customer success...
Forecast to Endcast 12
Management often lets forecasting bumble along unsupported in the hope everything will come
out all right in the end....
Experience to Transition Strategy 14
Firms increasingly confront the need to reinvent processes that are performing adequately when as-
sessed historically, but in fact....
Experience to Transition Strategy 16
While departments may remain the preferred method of managing work, the reality is that
process-oriented, self-directed....
Collaborative Approach 18
The notion of focused collaborative arrangements, coupled with true cradle to grave accountability,
is revolutionizing the way that....
Vertical to Virtual Integration 20
Virtually integrating operations with material and service suppliers to form a seamless flow of in-
ternal and external work overcomes the financial barriers....
Trust the expertise 41
Melvis Furtado
3PL is a two-way traffic where the firms have to be a good listener and always
evaluate what best their partner can do and what constraints he has. 3PL provides
Service not just ....
Supply Chain Opti-Simulation Unwired 44
Tolga Yanasik
Simulation is often regarded as the proper means for supporting deci-
sion making on supply chain design. Owing to its inherent modeling flex-
ibility, simulation is often regarded as the proper means for....
CONT

3. Mega Trends 2010-2011
22 Absolute to Relative Value
The notion of relative value is to grow a larger share of the profitable revenue available in a
business arrangement by a willingness to perform a broader range....
24 Information Hoarding to Sharing
Given the right information-enabling technology and leadership, decision-makers can become per-
formance managers....
26 Training to Knowledge-Based Learning
Implementing knowledge-based learning to effectively train employees is becoming critical.....
28 Reinventing Managerial Accounting to Value-Based Management
Value management is appropriately viewed as the implementation of financial sophistication. The
key is to identify and support activities that create value as contrasted to....
30 Supply Chain design and analytics
Changing scenario of Supply Chain is forcing companies to redesign their supply chain model to keep
pace with the market....
“Approach RTC while cutting cost” 50
Thibault Quiviger
Redesign To Cost (RTC), a very efficient Cost Cutting Approach consisting of
reveiwing the very detailed design and specifications of the product, can save 15-
35 % of your total cost.....
Back to Old Nightmares : Mastering Time
Yan Lehunchec
54
This new paradigm is shifting the center of the industrial organization from the
plant to the management of supplies and dispatch....
Corollary of Supply Chain Analytics 58
Unnikrishnan
A long forgotten virus is challenging the LLC Industrial base, i.e. Long lead times
TENTS

5. Questuarterly Feb-Apr 2010
Editorial Head
Apresh C Mishra
Editorial
Let’s hope
for the best
apresh@log4scm.com
editor@log4scm.com
+91 99105 16905
Intellect Head
F or the last couple of years Supply Chain has matured so have its
complexities. Considered often as a soft skill, Supply Chain manage-
ment, on the contrary, is an engineering activity, as much as manu-
facturing or IT development. This activity requires not only extensive
training and skilled people to be carried out efficiently but also trust among
Rajeev R Mishra
rajeev@log4scm.com the different partners in the chain. That’s the most difficult aspect of Supply
intellect@log4scm.com Chain management: partners need to trust each others, to share data or
+91 99711 74574 even invest in common systems. This trust issue is often the foot trap which
blocks, for instance, the development of 3rd PL. 3rd PL need to invest in
Marketing and Operations heavy IT system interconnected with their customer’s systems to provide
Head up to date services but contracts are challenged every 2 years. This is far
Shatrunkay Singh shorter than the breakeven point, impeding the development of long and
shatrunjay@log4scm.com fruitful relationship between 3rd PL and orders givers.
marketing@log4scm.com There are several aspects of supply chain interaction that have been iden-
tified in supply chain trends over the last few decades. The mega-trends re-
Communications Partner flect fundamental paradigm shifts exhibited by leading firms as they
Renaissance PR transform their supply chain capabilities to accommodate the long-term
transition from an industrial to an Scientific Technology driven society.
Knowledge Partner These mega-trends imply substantial change in logistics practices between
Enetek S.A.R.L. supply chain partners as they struggle to establish efficient, effective, and
relevant product/service solutions for end-customers. The mega-trends
Disclaimer discussed in this paper identify some critical dimensions of change relevant
All the information in this
magazine has been provided to supply chain value creation.
with due care. However nei- Well, we have tried to create an enabling environment for the supply chain
ther Uvaach Media nor its
any partner guarantee for the sector so as to equip supply chain strategists with the changing market
appropriateness of the infor- trends which could affect them in future. Moreover supply chain is con-
mation. Kindly check prop- sidered secondary focus. We hope Log4scm Quest will create value addition
erly before acting according in bringing supply chain in centre stage in companies’ strategic business
to the information we have planning.
provided here. All the matters
contained here are under the We would be glad to hear from you
intellectual property right of
Uvaach Media that prohibits Happy reading!!
the user from copying or re- apresh@log4sm.com, editor@log4scm.com
producing the matter in any
form without the prior writ- +91 99105 168905
ten permission of Uvaach
Media. Feb-April 2010 Log4scm Quest 05

6. Cover Story
Global Supply Chain
Mega Trends
2010-2011
06 Log4scm Quest Feb-April 2010

7. T
raditionally, supply chains customers will increasingly define that triggers a re-
created value through value in the context of a technol- plenishment
low price and broad ogy driven competitive environ- event to
product assortment. Today, how- ment is critical to supply chain t a k e
ever, supply chain managers are success. There are several aspect
learning how to accommodate of supply chain interaction that
customers who demand greater has been identified in sup-
control of the buying process, ply chain
have the financial ability to make trends
choices, and are willing to utilize over place.
a variety of ways to pur- D e l ay s
chase goods and services occur for a
to satisfy their number of
reasons, and the
longer the delay, the
greater the uncertainty up-
stream supply chain partners
t h e experience. That uncertainty
last few translates into those partners tak-
decade. ing measures to guard against
The mega- stock outages, in the form of
trends reflect larger safety stocks. As that de-
fundamental par- mand signal, and its delay, moves
adigm shifts exhibited further away from its source, the
by leading firms as they trans- larger the amplitude, or uncer-
form their supply chain capabili- tainty becomes. That uncertainty
ties to accommodate the impacts planning cycles, and their
long-term transition from an in- lead times, within and between
dustrial to an Scientific Technol- the supply chain partners. In this
ogy driven society. These way, distance and time become
lifestyle re- mega-trends imply substantial more and more critical to build-
quirements. Unfor- change in logistics practices be- ing an effective and efficient sup-
tunately, as firms struggle to tween supply chain partners as ply chain.
implement best practices to solve they struggle to establish effi-
today's problems, the environ- In addition, there are com-
cient, effective, and relevant
ment in and around the firm is pounding factors that occur due
product/service solutions for
changing. If a firm does not have to the nature of that initial de-
end-customers. The mega-trends
the capability and inclination to mand signal the supply chain re-
discussed in this paper identify
change, it may find itself in the ceives. The circumstances that
some critical dimensions of
position of doing things ex- cause a consumer to walk into a
change relevant to supply chain
tremely well that no one values. specific store and purchase a par-
value creation.
The goal of integrated supply ticular SKU are of interest in un-
chain is to enhance end-customer Once a product is scanned at a derstanding supply chains. It
value, Understanding that end- retail store, a natural delay occurs could just be the normal weekly
in the transmittal of the signal shopping run, which results in a
Feb-April 2010 Log4scm Quest 07

8. Cover Story
demand signal that is relatively easy were managed, and how effective
to predict and manage. Problems the resulting processes were in
arise when product promotions take achieving the objectives, was par-
place. The consumer might have tially dependent on where and how
made a purchase because of a inventory was physically deployed in
coupon event, a store ad placed in a the network. This led us to support
The location local paper, or via an in-store event. the development of a dynamic sim-
These events can cause disruptions ulation model to adequately repre-
and amount of in the supply chain, and far too fre- sent the processing of a supply
inventories and quently are mis-communicated to chain’s work processes and operat-
production the supply chain partners. ing policies against the supply
capability plays a chain’s primary driver: demand. This
New product initiatives are an-
direct impact on leads to an important point: If a
other form of disruption in the sup-
supply chain’s designing incorpo-
the ability to ply chain. A new initiative,perhaps a
rates not only questions as to Where
respond to these new product, or variation on an ex-
and how many stacks of inventory?,
isting product, requires decisions on
types of supply pre-launch production timing, and
but also of work process like inven-
chain demand tory deployment, replenishment
pre-building and staging inventory
creating events, policies, operating policies, the two
to meet anticipated demand for the
issues are inherently linked and must
further leading to products. The location and amount
be solved together.
improving our of inventories and production capa-
bility plays a direct impact on the As we investigated different oper-
understanding of ability to respond to these types of ating policies within the warehouse
how physical supply chain demand-creating structure proposed by the optimiza-
location and work events, further leading to improving tion models, we found that in cer-
processes are our understanding of how physical tain instances that we would not be
inherently linked location and work processes are in- able to achieve the service levels we
herently linked in efficient supply had intended. This learning from
in efficient supply chain design. And while these prob- the simulation modeling fed back
chain design. lems exist in scale in the different into the optimization model, in
parts of the World, they are further terms of new constraints required
exacerbated when dealing with in- to determine a feasible warehousing
ternational trade. structure. That, in turn, created a
new scenario to test within the sim-
The ENETEK Analytics group
ulation environment. In the course
was asked to develop a traditional
of the work, we realized that an eas-
distribution network design model,
ier process to move back and forth
utilizing mathematical optimization
between the two technologies would
methods, to suggest a potential lay-
be useful.
out of warehousing required to
meet this need. To accomplish this, Let’s consider the different situa-
work processes and policies would tions here below :
need to be substantially changed.
A steel maker is designing its 5
How successfully those changes
years investment plan. It must de-
08 Log4scm Quest Feb-April 2010

9. cide where to invest, which pro- 2. Where to locate the dif- EOM will decide if it must be
duction line to revamp, which ferent Distribution Centers built on stock or on demand, im-
production capacity to squeeze (DCs) plying very different industrial or-
down across 27 plants in Europe.
3. How much stock will be ganization scheme : demand
Its product portfolio is made of
16,000 different products and necessary to guarantee 95% serv- forecast, supplier contracting,
many of them are processed on ice level to every customer with a production allocation, capacity
different production lines in dif- delivery lead time of X days (X to management… Then, once de-
optimize) cided which car to build on stock
ferent countries. The team in
versus on demand, the OEM
charge of this process is also con- 4. Out of the total stock, must decide through which DC
cerned by the effect of different
how much will be safety stock sending this car in order to guar-
price policies contemplated for
that is to say dead stock. antee that it will reach the cus-
the different product and how
this could modify their invest- These questions must be con- tomer in less than X days after
ment plan. sidered as a single problem which this customer passed his order. It
A car maker is willing to re en- must be handled by the OEM. Or is easy to understand that both
gineer its distribution chain in its 3rd PL suppliers. Indeed, since the distribution and the produc-
Europe to build a competitive ad- more and more 3PLs tend to tion are intrinsically linked when
vantage against its competitors in manage the distribution network, deciding which marketing offer
a context of over production they should propose added value about delivery lead time to de-
over capacities, long delivery lead solutions to the OEM by study- sign. Let alone considering the
times and over stock scattered in ing in depth these questions with product mix which is per se a
the different European countries. their customers. Nonetheless, as challenge.
The difficulty for this EOM can it is easy to understand, these
A port authority is willing to
be summarized by the following questions, which at first sight
different questions: build a new container terminal. It
seem to be pure distribution is-
must decide about the new lay-
1. Which product must be sues, go very deep in the OEM
out of the terminal, the number
built on demand, which must be organization and its production
of cranes, the size of the parking
built on stock strategy. For each car model, the
lot for the waiting trucks, the
number and location of weigh
since more and more 3PLs tend to man- bridges and, most important, the
age the distribution network, they number and lay-out of the cus-
should propose added value solutions to toms gate it must start negotiate
the OEM by studying in depth these with the government.
questions with their customers.
In this article, we will consider
Nonetheless, as it is easy to understand,
the scientific approach which can
these questions, which at first sight seem be implemented to answer these
to be pure distribution issues, go very technical questions and beyond,
deep in the OEM organization and its explain the tools and methodolo-
production gies and Mega Trends
Feb-April 2010 Log4scm Quest 09

10. Cover Story
Megatrend-1
Shift from Customer Service to Relationship Management
Relationship
does matter
While traditional customer service focuses on achieving internal
operating standards, a truly relationship-driven supply chain
focuses on establishing customer success. For many customers,
such operating features as cycle time compression, exact point in
time delivery performance and perfect order-to-delivery may be
the prime drivers of supplier acceptability.
C
ustomer Focus and Supe- and perfect order-to-delivery may
rior Service should be a be the prime drivers of supplier
major objective for every acceptability. In contrast, other
manufacturing company in order customers may not be willing to
to either achieve or maintain mar- shoulder the cost of day-to-day
ketplace leadership. Customer rel- six-sigma logistics support. Their
evancy will increasingly become preference may be for a high level
the key strategic commitment of of average logistical support forti-
leading corporations. While tradi- fied by immaculate logistical recov-
tional customer service focuses on ery when and where needed.
achieving internal operating stan-
Supply chains designed to
dards, a truly relationship-driven
achieve unique customer value
supply chain focuses on establish-
propositions have the potential to
ing customer success. For many
turn commodities into value-added
customers, such operating features
solutions. Given an understanding
as cycle time compression, exact
of what drives end-customer pur-
point in time delivery performance
10 Log4scm Quest Feb-April 2010

11. chase behavior, a supply chain firm's resources relative to the matching service capabilities with
based on relationships has the needs and desires of select indi- changing customer expectations,
greatest potential to result in vidual customers. Then the firm providers can stay ahead of com-
unique logistical solutions that are can deploy its resources and ca- petition.
simultaneously effective, efficient pabilities to perform customer-
Second, firms seeking to en-
and relevant. This implies that valued activities and services that
hance customer relationships
firms will likely participate in competitors cannot match at all
must develop operating systems
multiple supply chains to support or at a reasonable cost.
capable of quickly reacting to
different customers.
There are two shifts that must change rather than depending
Although most firms have not take place for firms to evolve upon anticipatory deployment of
achieved the desired level of along this continuum. First, firms inventory to handle planned re-
closeness with customers, it is the seeking to develop strong cus- quirements. This is facilitated by
most advanced of the mega tomer relationships should recog- gathering and exchanging infor-
trends. We assess the current av- nize that all customers do not mation throughout the supply
erage achievement to be 5-6 on have the same service expecta- chain as contrasted to guessing
the ten-point scale. Leading firms tions and do not necessarily want what may happen. The focus
increasingly recognize that suc- or deserve the same overall level must be on efficient and effective
cess hinges on establishing inti- of service. They must, therefore, accommodation of unique cus-
mate relationships with key identify core customers best tomer requests as well as on the
customers. Intimate relationships suited to be their business clients ability to react to unexpected op-
enable firms to generate unique and then meet or exceed expecta- erational circumstances.
and profitable product/service tions by providing unique value-
These capabilities enable firms
offerings for their preferred cus- added services. These services
to capitalize on uncertainty to en-
tomers. This, of course, is in di- may include assignment of spe-
hance customer satisfaction.
rect contrast to principles of cific focus teams to identify, de-
Some approaches that facilitate
mass marketing, and it is certainly sign, implement, and refine
flexibility include providing front-
cost prohibitive to all but the specialized and synchronized of-
line employees with the authority
most narrowly defined market ferings. Additionally, firms must
to approve special customer re-
niche firms. Managers seeking to develop the ability to satisfy not
quests, automatically accommo-
achieve this level of intimacy with only existing needs but also those
dating stock outs through
customers must assess their that may emerge. By continuously
multiple service locations, and
implementing preplanned solu-
Although most firms have not achieved the tions. Another critical enabler of
desired level of closeness with customers, it flexibility is routinization and
simplification of fundamental
is the most advanced of the mega trends. We work to minimize effort ex-
assess the current average achievement to be pended on handling day-to-day
details and free resources to deal
5-6 on the ten-point scale. Leading firms in- with unexpected events. Judicious
creasingly recognize that success hinges on employment of form and time
postponement also contributes to
establishing intimate relationships with key a firm's ability to respond to un-
customers. known or unplanned circum-
stances.
Feb-April 2010 Log4scm Quest 11

12. Cover Story
Megatrend-2
Forecast to Endcast
Predicting the
unpredictable
Management often lets forecasting bumble along unsupported in the
hope everything will come out all right in the end. This approach can
only contribute to repeating cycles of poor performance.
I ts difficult to forecast our
business, it’s too unpre-
dictable. The fact is, when in-
ventory exists at any level in
anticipation of customer orders, it
scheduling, inventory levels, and
customer service (among other
things). Managers know this, in
their hearts, but for some un-
known reason they insist that “we
is the result of a forecast. Some- can’t forecast this business”. The
one, somewhere in the organiza- result is that management often
tion has made predictions that lets forecasting bumble along un-
have activated capacity, consumed supported in the hope everything
cash and driven the customer serv- will come out all right in the end.
ice level. Also, it’s a good bet that This approach can only contribute
the someone who’s forecasting is to repeating cycles of poor per-
doing it without the right tools, formance.
without proper training, and with
Experience demonstrates that
little or no information to support
the consequence of bad forecast-
the process. Yet, the forecast drives
ing is a significant and unfavorable
material planning, production
impact on overall business per-
12 Log4scm Quest Feb-April 2010

13. formance. To make matters swers various managers will give results being realized.
worse, a form of denial sets in the same questions. This, of
• Short-term forecast devi-
and the real costs of poor fore- course, opens up an entire area
ations are monitored and ad-
casting are consistently underes- for discussion (spirited discussion
timated and often overlooked. in many cases) which should be justed and long-term forecast
When “bad numbers” drive ma- the beginning of swift problem accuracy is continuously improv-
terial planning and production resolution. ing.
schedules, the inevitable results • Inventory record accuracy
Answer “Yes” or “No” to each
are longer cycle times, higher is maintained at 98+%.
of the following:
overhead activity costs, erratic
production schedule perform- • Order fill rates meet man- • Excess safety stock
ance, excessive inventory, lower agement’s specific and measured buffers are not pyramidally main-
throughput, and lots of dissatis- customer service strategy. tained at various inventory levels
fied customers – eventually hav- to compensate for “bad num-
• Delivery lead-times are at bers”.
ing a negative impact on sales.
least competitive and predictable.
The cost of bad forecasting is • Excess and obsolete in-
enormous. Forecasting deserves • All functions agree on ventories are measured and are
increased recognition of that im- which products are stocked and less than 1% of total inventory.
portance and must become one which are made to order.
What to do further?
of the most critical management
• The mix and investment For those who do not score well
functions. As such, improving the
forecasting process deserves the in inventory are a shared respon- on the Self-Diagnostics test
small investment required to sibility between Sales and Manu- above, appropriate action is defi-
facturing. nitely required.
achieve incredible returns on that
investment. First, management must for-
• Appropriate mathemati- mally recognize sales forecasting
The Self-Diagnostics Checklist cal and statistical calculations are as a vital business control point.
used instead of “rules of thumb”
The following ten point check- Second, this recognition should
to establish desired mix and lev- be followed by a thorough evalu-
list is a simple self-diagnostic els. ation of the current forecasting
which can help companies envi- process. Third, where needed, an
sion what performance could be. • Management’s inventory action plan for improvement
Another enlightening aspect from investment plan and customer should be launched without delay.
the test could be the differing an- service objectives are the actual The good news is getting a fore-
casting process in place is not as
Forecasting deserves increased recogni- difficult as many people think;
statistical forecasting tools are
tion of that importance and must be- readily available and the proce-
come one of the most critical dural requirements are modest. If
you have to forecast, then the
management functions. As such, improv- only proper course is do it with
the right tools, techniques, infor-
ing the forecasting process deserves the mation and properly trained staff.
Then, and only then, will you be
small investment required to achieve in- able to say “we can forecast our
business.”
credible returns on that investment.
Feb-April 2010 Log4scm Quest 13

14. Cover Story
Megatrend-3
Experience to Transition Strategy
Leading the edge
Firms increasingly confront the need to reinvent processes that are
performing adequately when assessed historically, but in fact are
being dramatically out-performed by solutions tailored to new
competitive conditions.
E
xecutive Leadership is re- creasingly, however, firms confront
quired to bring heavy em- unique situations about which they
phasis on the vision, have zero or limited experience.
objectives, and the importance of For example, it is becoming com-
the process redesign. Even after mon for firms to employ solely
the redesign and implementation contracted resources (possibly in-
are completed, executive manage- cluding consigned inventories) for
ment must be steadfastly diligent many supply chain activities. Most
to make sure the old ways do not firms have limited experience in
slowly resurface. For years, the so- establishing and managing these
called experience curve has domi- relationships.
nated strategic responses to market
A second example is the increas-
and competitive situations. Firms
ing focus on achieving reduced or
based their strategies on concepts
negative cash-to-cash cycles.
that had achieved past success. In-
Today, new competitors have
14 Log4scm Quest Feb-April 2010

15. achieved success in traditional fied, documented, and refined.
supply chains using a combina- Through experience, most man-
tion of e-commerce and direct agers have created business mod-
logistics to, in fact, operate on less els regarding the processes they
than zero capital investment. This manage. While these models are
shift in measurement and practice sometimes comprehensive, in managers must
has forced many firms to design many cases they are limited in develop expertise in
and manage in uncharted waters. scope and perspective. As a re-
The point is that all the experi- sult, the decisions weigh heavily the application and
ence in the world concerning on past limited experience. In the interpretation of
how the traditional logistics future, new business models must
decision support
model works is of very little value include the organizations, activi-
in developing a strategy to con- ties, resources, and relative pa- tools that are
front this new competitive pat- rameters of the expanded becoming more
tern. During periods of intensive enterprise.
change, previous experience and
crucial in the
Second, managers need to de-
existing infrastructure are typi-
velop skills in solving case situa-
conceptualization
cally among the most difficult and evaluation of
tions outside their traditional
barriers to overcome. Firms in-
experience base. This should in- supply chain
creasingly confront the need to
clude analysis of situations in-
reinvent processes that are per-
volving "fictional" products and
alternatives.
forming adequately when as-
markets where managers must Effective decision
sessed historically, but in fact are
rely on the application of concept support system
being dramatically out-performed
rather than historical practice.
by solutions tailored to new com- applications provide
petitive conditions. Finally, managers must develop
expertise in the application and a broader range of
When assessing the status of
the shift from an experience to a
interpretation of decision sup- nontraditional
port tools that are becoming
transition process, our experience experiences for
more crucial in the conceptualiza-
suggests a typical score of 3 to 4 the manager of the
tion and evaluation of supply
on the ten-point scale. Manage-
chain alternatives. Effective deci- future.
ment is beginning to realize the
sion support system applications
potential benefits of more
provide a broader range of non-
broadly conceived and executed
traditional experiences for the
strategies. Three changes must
manager of the future. The capa-
occur to facilitate the shift from
bility to identify new strategic pat-
an experience to transition based
terns, accurately assess their likely
strategy.
performance, and manage con-
First, fundamental total cost-to- tinuous transition is becoming
serve frameworks must he identi- the leading edge model
Feb-April 2010 Log4scm Quest 15

16. Cover Story
Megatrend-4
Functional to Process Integration
For significant
breakthroughs in
efficiency
While departments may remain the preferred method of man-
aging work, the reality is that process-oriented, self-directed
work teams are increasingly the solution for significant break-
throughs in efficiency.
O
ne of the oldest and of power and control devel-
potentially most oped within organizations, the
productive trends is traditional notion of a depart-
the continued migration from ment became synonymous with
functional to process integra- being departed from the rest of
tion. While the work of logis- the organization.
tics itself has remained
While departments may re-
relatively the same over the past
main the preferred method of
decade and will continue to re-
managing work, the reality is
main the same during the next
that process-oriented, self-di-
ten years, what has and will
rected work teams are increas-
continue to change rapidly is
ingly the solution for significant
how we view work. As pockets
16 Log4scm Quest Feb-April 2010

17. breakthroughs in efficiency. most managers. Further integra-
Managers realize that functional tion across the firm's major
excellence is only important in functional boundaries is the first
terms of the contribution func- step toward additional process
tions make to the processes they integration.
serve. In terms of organiza-
tional structure, the concept of Second, there must be sub-
functional departments is as ob- stantial advancement of process
solete as punch cards are to in- integration with external supply
formation technology. chain partners, particularly with
The validity of wading costs
service providers. This requires Most employees
more consistency in the defini- will do what they
among functional areas to ben-
efit total cost is beyond ques- tion, execution, and measure- are measured on
tion. Information technology ment of supply chain processes
and what they are
extensions such as ERP are to establish common language
and expectations.
paid to do. The
starting to support more so-
phisticated costing approaches,
challenge is to con-
Third, most employees will do
lessening the difficulty of meas- vert metric and re-
what they are measured on and
uring across functions. ward structures
what they are paid to do. The
On the basis of these develop- challenge is to convert metric
from department
ments and applications, we be- and reward structures from de- related budgets to
lieve that firms have achieved 4 partment related budgets to co- coordinated
to 5 on the ten-point scale rep- ordinated process-related process-related in-
resenting the shift from func- incentives. centives
tional to process integration.
The reality and potential of
While there has been substantial
meaningful metrics based on
progress, major opportunities to
one plan, which in turn is based
shift to the process focus re-
on one forecast, will increas-
main.
ingly become reality. There has
First, while purchasing, pro- been substantial progress in this
duction, logistics and marketing
area but more opportunities re-
functions have each been inte-
main as additional cost informa-
grated within their individual
tion and accuracy will lead to
processes, there has been less
more refined processes with re-
progress integrating between
duced duplication.
these areas. This is still recog-
nized as the "Great Divide" by
Feb-April 2010 Log4scm Quest 17

18. Cover Story
Megatrend-5
Collaborative Approach
To streamline the
distributive process
The notion of focused collaborative arrangements, coupled with
true cradle to grave accountability, is revolutionizing the way that
firms work together to streamline the distributive process.
I
n most business relation- partners. The concept of inte-
ships today, suppliers sell to grated supply chain management,
customers. Often there is however, highlights the leveraged
considerable conflict in these benefits of firms collaborating to
buyer/seller arrangements as each achieve common goals.
party seeks the best financial deal.
The notion of focused collabo-
Neither side fully trusts the other.
rative arrangements, coupled with
Vendors must guess customers'
true cradle to grave accountability,
needs since specific demand or
is revolutionizing the way that
planning information is not
firms work together to streamline
shared. In such situations, the po-
the distributive process. The po-
tential for achieving overall oper-
tential for increased overall effi-
ating efficiency is limited as firms
ciency as a result of reduced work
maneuver for short-term benefits
duplication and redundancy are as-
at the expense of their trading
tounding.
18 Log4scm Quest Feb-April 2010

19. Developing collaborative be- shared responsibilities, delineate
havior has been the subject of guidelines for sharing proprietary
substantial discussion. These be- planning and operational infor-
haviors, however, are not well de- mation, and create financial link-
fined in most firms. Managers at ages that make firms dependent
many firms feel that behavioral on mutual performance.
change is extremely difficult to
They also should encourage risk
To be truly effec-
achieve. Often they find them- tive, collaborative
and benefit sharing by detailing
selves talking about collaboration
much more than they actually
how rewards and penalties are to arrangements also
be apportioned across partner must be highly
practice it. Our assessment for
firms. Such sharing reflects com-
the average firm is 2 to 3 on the
mitment to the belief that indi-
sensitive to the
ten-point scale. potential negative
vidual firm performance is linked
There are three shifts that must to overall supply chain perform- aspects of inter-
occur to enhance firm collabora- ance. In addition, formal guide- locking agree-
tion. First, true collaboration is lines that define joint operating
not dominated by or self-serving policies and procedures for han-
ments.
to one party in the arrangement. dling both routine and unex- Specifically, par-
Collaborative relationships must pected events should be derived. ticipating firms
encourage the mutual trust and must be willing to
Finally to be truly effective, col-
value needed to develop and sus-
tain coordinated operations and
laborative arrangements also address difficult
strategies. must be highly sensitive to the issues related to
potential negative aspects of in-
There must be a shared vision terlocking agreements. Specifi- relationship de-
and objectives among customers cally, participating firms must be integration far in
and suppliers about interdepend- advance of the ac-
willing to address difficult issues
ency and principles of collabora-
related to relationship de-integra- tual need to dis-
tion. Efforts to achieve objectives
must focus on providing the best
tion far in advance of the actual solve a supply
need to dissolve a supply chain chain arrange-
end-customer value regardless of
where along the supply chain the arrangement. Although most col- ment.
necessary competencies exist. laborative relationships are volun-
This perspective is key to long- tary and, in effect, can be
term supply chain viability. dissolved at any point, setting for-
mal exit procedures is advisable
Second, successful collabora-
to prevent disputes over assets. A
tion requires structures, frame-
clause relating to duration and
works, and metrics that
encourage cross-organizational termination of the relationship
behavior. Rules and agreements ensures that it does not outlive its
should clarify leadership roles and usefulness to the participants.
Feb-April 2010 Log4scm Quest 19

20. Cover Story
Megatrend-6
Vertical to Virtual Integration
On the way to
process reforms
Virtually integrating operations with material and service suppliers
to form a seamless flow of internal and external work overcomes
the financial barriers of vertical ownership while retaining many of
the benefits.
H
istorically, firms have The problem with vertical inte-
tried to reduce supply gration is that it requires tremen-
chain conflict by owning dous capital investment and an
consecutive levels in the business incredibly complex organizational
process. Henry Ford's original structure. Recreating Henry Ford's
business strategy is a legendary at- vertical supply chain is infeasible
tempt at using ownership to today. Firms, therefore, must har-
achieve vertical supply chain inte- ness the expertise and synergy of
gration. Ford's dream was full external supply chain partners to
ownership and management of achieve success. Virtually integrat-
the entire value creation process in ing operations with material and
order to reduce waste and increase service suppliers to form a seam-
relevancy. Ford's rubber planta- less flow of internal and external
tions, ships, and foundries con- work overcomes the financial bar-
verted raw iron ore to a finished riers of vertical ownership while
car in seven days. retaining many of the benefits.
20 Log4scm Quest Feb-April 2010

21. While many manufacturing and activities that they do not directly
retail firms have traditionally control and cannot directly see,
worked with third party logistics but whose performance they can
providers (3PL's) to handle phys- and must monitor to ensure suc-
ical movements of products, cess. These suppliers represent a
there is a growing trend to out- firm's extended family and will
source knowledge processes as contribute as much to the future
well. Staff and process design ac- success or failure of the supply
tivities are being outsourced to chain as any internal department. Most firms have
consultants. Information design, A firm's management strategy
taken initial steps
collection, maintenance, and must reflect the recognition that
analysis are outsourced to infor- a supply chain is only as strong as toward virtually
mation integrators. Knowledge its weakest supplier link.
specialization will increasingly be- integrating their
Second, evolving the structures
come an activity considered for supply chains.
to facilitate virtual integration is
outsourcing by the virtual enter-
neither easy nor quick. Supply Relatively few firms,
prise. The benefits of outsourc-
chain partners must have a com-
ing such competency in order to
mon vision of the total value cre- however, have
focus on core business require-
ation process as well as shared
ments will continue to drive firms
responsibility for achieving it.
achieved
from vertical to virtual integra-
tion.
Firms must carefully identify and full-scale
select partners with complemen-
Our research provides evidence tary visions, strategies, and oper- implementation.
that most firms have taken initial ational capabilities. Partners must Expansion of this
steps toward virtually integrating interface their operations in ways
their supply chains. Relatively few that reduce duplication, redun- mega-trend is
firms, however, have achieved dancy, and dwell time while main-
full-scale implementation. Expan- taining synchronization.
currently slowed by
sion of this mega-trend is cur- Additionally, firms must spread some highly
rently slowed by some highly the risks and rewards of collabo-
publicized failures of contract lo- ration to solidify goal attainment. publicized failures of
gistics relationships. As a result, contract logistics
Finally, firms must extend man-
prospective service providers are
being carefully qualified prior to agement practices beyond suppli- relationships.
engaging in virtual relationships. ers to include suppliers' suppliers.
We assess the average perform- Suppliers' views on resource
ance score on this trend to be 4 needs and constraints, threats,
to 5 on a ten-point scale. opportunities, and weaknesses
must be considered when setting
To move to virtual integration,
goals, objectives, and action plans
three shifts must occur. First,
as they play increasingly vital and
managers who interface with ma-
terial and service suppliers must irreplaceable roles in creating
learn how to manage assets and end-customer value.
Feb-April 2010 Log4scm Quest 21

22. Cover Story
Megatrend-7
Absolute to Relative Value
Enhancing marginal
profitability
The notion of relative value is to grow a larger share of the
profitable revenue available in a business arrangement by a
willingness to perform a broader range of value-added services
while enhancing marginal profitability.
T
he key to long-term tween revenues and cost. Many
success is doing the firms act to increase sales in re-
things that attract and sponse to market pressures
maintain the most profitable only to find that escalating
customers and doing them costs associated with the in-
well. A traditional success creased sales fully erode the
measure has been absolute marginal profits. The notion of
market share typically meas- relative value is to grow a larger
ured in gross sales dollars. share of the profitable revenue
available in a business arrange-
A more sophisticated ap-
ment by a willingness to per-
proach to measuring success
form a broader range of
may be the relative share a sup-
value-added services while en-
plier enjoys in terms of key
hancing marginal profitability.
customer success and resulting
profitability the difference be- Some enlightened firms are
22 Log4scm Quest Feb-April 2010

23. beginning to accept and ex- to the correct segments, and
ploit this shift. They realize producing credible reports for
that efforts focused on serv- senior management must be
ing profitable accounts can employed. Sales and market-
yield enhanced returns com- ing involvement must be se-
pared to those obtained by of- cured, as they have to accept
fering mediocre service to a the principle that more sales
wide range of customers. and revenue do not necessar-
ily mean higher firm prof-
Such "average" service may
over-satisfy some customer
itability. Logistical practices current status of
such as multi-customer trans- firms regarding this
segments while under-satisfy-
portation consolidation,
ing other segments willing to trend is a meager I
cross-docking, mixing in-tran-
pay more for better service.
sit, and other operational in- to 2 on the
Often the result is losses in
novations that improve ten-point scale.
both revenue and profit in
efficiency and enhance rela-
these marginal accounts.
tive value must be adopted.
There is a long way
Thus, the true measure of to go to implement
successful growth may not be Second, the financial mar-
the absolute size of dollar kets must begin to place more
this trend within
sales as it is the relative share emphasis on profit than mar- the next decade.
of sales received for value ket share. While earnings per While there are
rendered. share (EPS) and profitability many changes that
Our estimate of the current are very important measures
of performance, the financial
must occur for
status of firms regarding this
trend is a meager I to 2 on the markets do place some em- this trend to
ten-point scale. There is a phasis on share. This forces materialize, there
long way to go to implement senior management to main- are two that are
this trend within the next tain share even when the mar-
decade. While there are many particularly critical.
ginal share is not profitable.
changes that must occur for
this trend to materialize, there While visionary firms are be-
are two that are particularly ginning to recognize this
critical. change, the focus on relative
value will evolve quite slowly
First, a wider implementa-
tion and acceptance of activ- as it requires major paradigm
ity based and segmental shifts. The concept is easy to
costing is required. Logistics understand, its implementa-
information systems capable tion, however, requires major
of accurately tracking cost changes in management phi-
components, assigning them losophy.
Feb-April 2010 Log4scm Quest 23

24. Cover Story
Megatrend-8
Information Hoarding to Sharing
Share...Learn...Grow...
Given the right information-enabling technology and leadership,
decision-makers can become performance managers.
E very decision-making cycle de-
pends on finding the answers to
three core questions: How are we
doing? Why? What should we be doing?
Scorecards and dashboards monitor the
liver sustainable competitive advantage
by growing revenue faster, reducing op-
erational expenses further, and leverag-
ing long-term assets better. Implicit in
several of the mega-trends is the need
business with metrics to find answers to for supply chain participants to share in-
How are we doing? Reporting and analy- formation.
sis provides the ability to look at historic
data and understand trends, to look at The shift from a need to know mental-
anomalies and understand Why? Plan- ity to relevant information sharing is a
ning and forecasting help you establish a difficult transition for old school man-
reliable view of the future and answer agers. Most, with years of experience in
What should we be doing? Integrating the trenches, have learned the hard way
these capabilities allows you to respond that information is power. It is becoming
to changes happening in your business. increasingly clear, however, that those
who hoard information can only exploit
The quality information offers insights it - they cannot leverage it. The immedi-
and lessons learned on leveraging your ate gains that are generated from such in-
information assets better in support of formation hoarding pale in comparison
your most valuable human capital assets: to the cost savings and enhanced service
the growing number of high-value deci- that progressive firms find attainable
sion-makers. Given the right informa- through sharing relevant information
tion-enabling technology and leadership, with supply chain partners. The open de-
these decision-makers can become per- ployment of information across the sup-
formance managers. Such managers de- ply chain is the catalyst that enables
24 Log4scm Quest Feb-April 2010

25. effective integration. It serves as usually expands as trust is estab- substantially exceed the profits re-
the key that unlocks the power of lished. Initially, such tactical data as sulting from the sale of such infor-
supply chain integration. short-term forecasts and inventory mation.
availability may be provided to fa-
Currently, the shift from informa- cilitate resource planning and prod- Third, organizations that view in-
tion hoarding to information shar- uct flow. Once the benefits of formation as a key resource man-
ing is dependent upon technology. tactical sharing are realized, firms age its exchange in a confidential
Primarily, the ease of use and low tend to become more open to shar- manner to reduce conflict when
cost of the Internet is driving rapid ing sensitive information on costs, conducting business with compet-
change. This is presenting a diffi- product development plans, and ing suppliers or in serving compet-
cult transition for managers who promotional schedules. The auto- ing customers. For example, a
are measured and rewarded on tra- motive industry is a prime example number of manufacturers have es-
ditional metrics. As a result, the of firms designating tier one lead tablished separate cross-functional
score of the average firm is only 3 suppliers who in turn coordinate teams to serve competing mass
to 4 on a ten-point scale. To ad- and sequence the work of second- merchants. The teams include per-
vance further on this continuum, ary suppliers. This supply chain sonnel from both organizations in
four major shifts must occur. strategy has significantly reduced such areas as sales, marketing, fi-
nance and logistics. Increasingly,
First, effective information shar- cost and time of automobile as- shared confidential information is
ing is heavily dependent on trust sembly. Such benefits are totally de- required to plan joint operations.
beginning within the firm and ulti- pendent on information sharing. To ensure that confidentiality is
mately extending to supply chain Eventually, long-term plans and maintained, there must be credibil-
partners. Managers are slowly strategies are revealed in order to ity and trust between supply chain
learning to share information al- develop and integrate logistics partners.Information Quality, Rel-
though some still believe that shar- processes and resources across the evance, and Timeliness have a
ing forecasts, sales, inventories, supply chains. major impact on overall company
costs, and promotional or develop- Second, many organizations will business performance. This means
ment plans will compromise their not share forecast or planning data the integrity of computer files and
organization's competitive posi- under any circumstances while oth- outputs must be very high.
tion. This is particularly frustrating ers have adopted the practice of
when a manager's view of the or- selling it to a third party provider Finally, information sharing may
take many forms. The most com-
ganization encompasses only his or of competitive data such as Infor-
prehensive is the exchange of data
her own specific functional depart- mation Resources. Some retailers,
ment. For this reason, information for example, view point-of sale files and provision of direct access
is often not shared among depart- data as a valuable commodity they to databases. Shared employees, al-
ments of the same operating unit. own and from which they can ex- though not yet common, extends
the process by providing a manage-
If managers do not share internally tract a profit. This is a short-term
rial conduit through which infor-
its doubtful they will share infor- mentality. Managers must begin to
mation with supply chain partners. realize that the efficiencies ob-mation flow between organizations
can be coordinated and translated.
The scope of shared information tained through information sharing Information also can be shared
Currently, the shift from information ers who third party logistics suppli-
through
assign dedicated employ-
hoarding to information sharing depends ees to shipper locations to ensure
coordination. A substantial in-
upon technology. Primarily, the ease of crease in information sharing is
use and low cost of the Internet is driving critical to enhanced supply chain
integration and performance. De-
rapid change. This is presenting a difficult spite the historical inhibition, firms
transition for managers who are measured must begin to extend their willing-
ness to share.
and rewarded on traditional metrics
Feb-April 2010 Log4scm Quest 25

26. Cover Story
Megatrend-9
Training to Knowledge-Based Learning
Coping with
Human Factor
Implementing knowledge-based learning to effectively train
employees is becoming critical.
I
n the foreseeable future the lo- ing a product from a shipping loca-
gistics process will remain tion to a customer destination.
human centric. Effective man- Truck drivers, in fact, may spend
agement of the logistics process, more time face-to-face with key cus-
however, is complicated by the fact tomer representatives than any other
that over ninety percent of all logis- company employee.
tical work takes place outside of the
The truck driver may not even be
vision of any supervisor. No other
employees within the typical busi- an employee of the firm that is mak-
ness enterprise are expected to do so ing the shipment to the customer.
much critical work without direct su- Other examples include customer
pervision as those that make logis- representatives and inventory plan-
tics happen. For example, an ners. There is a critical need in these
unsupervised truck driver performs areas for employees that understand
almost all the value created by mov- supply chain dynamics and can use
26 Log4scm Quest Feb-April 2010

27. information-based tools to develop tives, dynamics, and measurements.
and implement effective strategies. For example, a truck driver cer-
tainly must be skilled in all facets of
While many enlightened execu-
driving. However, they also need to
tives acknowledge that this mega-
possess knowledge concerning
trend is one of the most critical
how they fit into the logistical
they face, practice indicates that not
process and how to access expert
much progress is being made.
data warehouses, tracking capabili-
it is becoming in-
Those that are trying to implement
ties, and adaptive decision support creasingly clear that
knowledge-based learning are hav-
systems to resolve and prevent op- firms must build
ing problems finding the time and
erating problems. Some forms of
the appropriate methods to effec- the knowledge
knowledge generation are as simple
tively train employees. Training capabilities of key
as learning how to cooperate. Oth-
time is difficult to find due to the
manpower reductions that have
ers may require astute skills to iden- managers and
tify emerging trends or observe
been forced on most firms. planners. These
competitive superiority.
It is difficult to find the appropri- individuals must be
Second, it is becoming increas-
ate training approaches as they
ingly clear that firms must build the
provided the
must integrate across a number of
knowledge capabilities of key man- education and
functional areas and incorporate
agers and planners. These individ- experience that
multiple technologies. The chal-
uals must be provided the
lenges of effective human resource
education and experience that en-
enables them to
management are being complicated
ables them to build an understand- build an
by increased globalization. As a re-
sult, our assessment is that the av-
ing of the risks and benefits understanding of
inherent in supply chain integration
erage industry rating for this shift the risks and
and the relationships between sup-
is I to 2 on the ten-point scale. The benefits inherent in
ply chain partners.
low rating on this assessment sug-
gests that there are significant In a world where all logistics and supply chain
changes needed to achieve an envi- supply chain employees are rela- integration and the
ronment of knowledge-based tively high paid specialists, the
Firms that develop and maintain
relationships
learning.
broad-based supply chain man- between supply
First, senior management must agers will exploit the winning for- chain partners.
improve capabilities to manage a mula. Among all the mega-trends,
diverse workforce. Training must the development of effective
shift from emphasizing individual knowledge based learning systems
employee skill training to develop- may be the least developed. This
ing knowledge-based learning. This represents a substantial challenge
means that skill development must and opportunity for the people re-
be placed in the context of the sponsible for developing and train-
overall process in terms of objec- ing personnel.
Feb-April 2010 Log4scm Quest 27

28. Cover Story
Megatrend-10
Reinventing Managerial Accounting to Value-Based Management
Paradigm Shift towards
financial sophistication
Value management is appropriately viewed as the implementation of
financial sophistication. The key is to identify and support activities
that create value as contrasted to those that only increase revenue or
decrease cost.
F or decades firms have been
managed by the numbers.
Over the last ten years, how-
ever, managers have become suffi-
ciently aware of the limitations of
work drives stakeholder value. Re-
cent developments, driven in part by
widespread adoption of Economic
Value Added (EVA) and Market
Value Added (MVA), are resulting in
Generally Accepted Accounting integrative frameworks to imple-
Procedures (GAAP) to be willing to ment value-based management.
spend significant resources on man- Value-based management is closely
agerial accounting methods such as related to the basic paradigm shift
activity-based costing. These meth- toward financial sophistication. In
ods improve managers' understand- fact, value management is appropri-
ing of the dynamics of integrating ately viewed as the implementation
internal and external functional ac- of financial sophistication. The key
tivities. They also provide the met- is to identify and support activities
rics managers need to support that create value as contrasted to
strategic and tactical decisions. those that only increase revenue or
decrease cost.
Today managers seek to extend
measurement to assess how their This mega-trend has long been
28 Log4scm Quest Feb-April 2010

29. recognized as particularly relevant ent programs and strategies. These
for operational managers. Unfortu- approaches enable managers to set
nately, it has taken a considerable goals for specific actions and pro-
amount of time and effort to gain grams and to measure achieved
senior management's attention. performance. They have the poten-
Current initiatives to link opera- tial to relate customer sales and
tions to value-based performance profitability based on exact costing
are facilitated by commitment to of ordering practices and delivery
ERP implementation. The trend is expectations. This precise cost in-
likely to take off now that supply formation can be used to modify
chain management concepts are re- supply chain practices. For exam-
Customer service
ceiving increased acceptance by the ple, managers can work with spe- measurement is
financial community. Still, the aver- cific customers to develop new
age firm today scores only a 1 to 2 routines that simplify and stream- associated with
on a ten-point scale. line order placement, resulting in
better service as well as lower cost.
revenue and is
Although the drive toward value-
based management remains in its Second, there must be a change in assessed by
infancy, managers are increasingly the way benefits are measured. A developing a set of
forced to demonstrate how supply few firms have adopted a compre-
chain practice and process changes hensive value model that incorpo- shared cross-func-
can affect the overall financial rates operational excellence and
health of their enterprise. Tradi- asset utilization perspectives to as- tional and cross-
tional performance measures do sess value-based management deci- organizational
not describe achievement in the fi- sions. Key operational excellence
nancial language spoken in the ex- metrics focus on increased cus- measures to guide
ecutive suite. Measurement systems tomer service and lowest total cost
must enable managers to link sup- of ownership. The combination al- and monitor work
ply chain performance directly to lows the supply chain to respond performed by
financial performance. more precisely to specific customer
There are three transformations
needs. multiple supply
required to apply value-based man- Customer service measurement is chain partners as
agement. First, firms must identify associated with revenue and is as-
and assign the benefits of specific sessed by developing a set of they add value for
initiatives to the appropriate supply shared cross-functional and cross-
chain partner. Activity-based cost- organizational measures to guide
the end-customer.
ing approaches provide one way and monitor work performed by
for firms to measure performance multiple supply chain partners as
across functional areas and focus they add value for the end-cus-
on benefits associated with a spe- tomer. Lowest total cost of owner-
cific activity or process. Total cost ship incorporates all basic product
and activity-based methods enable costs as well as all supply chain
firms to pinpoint the profitability costs related to inventory financ-
of specific products, customers, ing, acquisition, processing, move-
and supply chains, as well as project ment, storage, handling, and
cost-revenue outcomes for differ- delivery.
Feb-April 2010 Log4scm Quest 29

30. Cover Story
Megatrend-11
Supply Chain design and analytics
How do you
monitor your
supply chain activity?
Changing scenario of Supply Chain is forcing companies to redesign
their supply chain model to keep pace with the market.
W ith this level of visibility,
itor the satisfaction of key cus-
planners and key decision
tomers, take snapshots of the global
makers can test scenarios
to determine how the network can
best address changes in the market,
capacity and inventory status for a
specific product group, or compare
the performance of the top 10 sup-
the business, or customer demand. pliers. There are powerful Web-
They can define, select, and monitorbased customer and supplier tools
key performance indicators (KPIs) that allow you to expose internal
to get an integrated, comprehensive processes without deploying a costly
view of performance, using prede- infrastructure. That gives you and
fined KPIs based on the supply your suppliers and partners the visi-
chain operations reference model, bility needed to effectively monitor
which includes sourcing, planning, supply chain activities, identify criti-
production, distribution, and returns
cal events, and take the actions nec-
processes. essary to keep your entire supply
chain process flowing smoothly. You
A 360° view of the business lets
can give customers faster and better
you analyze forecast accuracy, mon-
30 Log4scm Quest Feb-April 2010