Log4scm Quest : Global Supply Chain Mega trends 2010 2011

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There are several aspects of supply chain interaction that have been identified in supply chain trends over the last few decades. The mega-trends reflect fundamental paradigm shifts exhibited by leading firms as they transform their supply chain capabilities to accommodate the long-term transition from an industrial to an Scientific Technology driven society. These mega-trends imply substantial change in logistics practices between supply chain partners as they struggle to establish efficient, effective, and relevant product/service solutions for end-customers. The mega-trends discussed in this paper identify some critical dimensions of change relevant to supply chain value creation.

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Log4scm Quest : Global Supply Chain Mega trends 2010 2011

  1. 1. Quest Gateway to Logistics Excellence uarterly Feb-Apr 2010 Supply Chain Megatrends 2010-11 Knowledge Partner
  2. 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. 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
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. Invited “Approach Mr.Thibault, an Ex-Army Officer from the French Army and Prior to setting his company in 2004, worked RTC while cutting cost” primarily in Arcelor (now Arcelor-Mittal) and he worked in various capacities from Quality Division and then went on to Supply Chain and Network Design, and later on for different indus- tries, from heavy industry Redesign To Cost (RTC), a very efficient Cost companies –Steel & Mining, Cutting Approach consisting of reveiwing the Oil & Gas to Retail busi- nesses, specializing in re engi- very detailed design and specifications of the neering their Distribution Networks, Investment Plan- product, can save 15-35 % of your total cost. ning and Production Alloca- Mr. Thibault Quiviger shares his ideas how tion and also developing Quality Model Builder based to go for it with Log4scm. on Machine Learning Algo- rithms and then Supply Chain Modeller for the European How to cut cost? ranging respectively in 3-5%, 2-10% industry. and 15-35% of the total cost. There are basically 3 ways to cut He founded his own firm and expanded his company ex- costs: transfer the problem to Let’s see what more Mr. Thibault pertise to Operations Simula- your supplier and get better says in an exclussive interview with tion and Operation prices, be more efficient in your Log4scm. Excellence with 2 new Re- gional offices in India and Supply Chain –stock reduction, What is RTC? Turkey. In early 2009, he has new distribution networks, bet- been appointed Associate Redesign To Cost is a very ef- Professor at the Technical ter use of assets, minimize losses University of Compiègne, (time, material) and a 3rd one not ficient Cost Cutting Approach France for Industrial Network explored often, review your product consisting of reviewing the very Design for the Mechanical Engineering Department. offer through a Redesign To Cost ap- detailed design and specifica- proach (RTC). These 3 different ap- tions of the products to relax You can reach to him at proaches bring in general savings the too constraining ones and in thibault.quiviger@enetek.eu 50 Log4scm Quest Feb-April 2010
  10. 10. optimizing the product range functionalities not valued by the (so easy to draw complex but offer. customers. And because design costly to produce shapes with Engineers like complexity, they CAD software today), tolerances How can RTC be compared to will tend to propose complex de- (too narrow tolerances = very other Cost Reduction Ap- proaches? signs or complex manufacturing high production costs) or func- processes, regardless of their tionalities not valued by the cus- Indeed, our experience in Eu- cost. Most engineers prefer de- tomers or by the targeted rope has shown that 85% of the signing their own system than re customer segment (is a camera product cost is frozen during the using an existing system proved necessary on any cell phone?). design phase. The so efficient and reliable or produced in such Reviewing specifications and sec- popular lean approahces,6 sigmas quantities that its unit cost will be ondary functions on products and network design projects act- always much smaller than any lead to an average savings of 30% ing only on less than 15% of the new system designed from on the unit prices while guaran- product cost. Indeed, during the scratch. teeing the same level of customer design phase, the focus is much satisfaction. more centered on fulfilling spe- Which are the potential costs cific marketing requirement than to be cut? But beyond the product specifi- optimizing the total cost (sourc- cations, Sources of cost easy to cut are ing + manufacturing + distribu- plethoric: choice of materials What could be the effects of tion). Marketing requirements are (plastic vs steel, steel grade, thick- Product Range on RTC ? often too stringent, asking for ness), the shape of the product It is necessary to consider the product range to optimize the Outsourcing is a viable option / solution to trade-off between product diver- most companies. Why do companies out- sity aimed at satisfying the identi- source has various reasons. Some increase fied distinct customer clusters shareholder value, reduce costs, business and the induced transformation, improve operations, over- production/sourcing complexity in the Supply Chain. come lack of internal capabilities, keep up with competitors, gain competitive advan- For instance, a car maker real- tage, improve capabilities, increase sales, im- ized that its AC system power was 30% higher compared to its prove service, reduce inventory, increase peers. Aligning specs led to a 25% inventory velocity and turns, mitigate capital cost reduction on the AC system. investment, improve cash flow, turn fixed A payment terminal producer re- costs into variable costs and other benefits, duced the resolution of its printer both tangible and intangible. head from 8 dots/mm to 4 Feb-April 2010 Log4scm Quest 51
  11. 11. Invited dots/mm, reducing cost of the is every day more common in the equipment by 21%. A small car industries which understood the The first problem maker replaced its in house devel- risks of over customization. The of over cus- oped breaking system and re used right balance is in between: defining tomization is the system of a competitor: cost re- the right number of “generic” plat- often found in duction of 48%. For sure, all these form enabling economies of scale many industries action require intensive analysis of and differentiating enough the in their infancy the specifications, of the suppliers product features to fit the market stage, the “plat- offer and potential sourcing diver- needs at the cheapest cost for every form” strategy sification while meeting customer customer segment identified. needs (and not design engineer pushed too far is Could you elaborate it with an pride) every day more example? common in the Do Marketing Heads need to For example, proposing an inte- Optimize Product Diversity? industries which grated camera for the low range cell understood the Marketing teams tend to define phones in India has been rejected risks of over cus- distinct specifications for the differ- by Nokia because most people tomization. The ent customer clusters and customer would not pay for it, too expensive needs they have identified. Tempta- while it has been generalized in Eu- right balance is rope to achieve economies of scale tion is high then to customize each in between: pushing costs down cost enough to and every product for every cus- defining the right tomer. But mass customization is propose it for every European cus- number of tomer. extremely complex and often ex- “generic” plat- tremely costly. Basically, customers A harness makers split its single form enabling prefer a full option car than a car harness offer between high and economies of with the limited options they could middle range customer to build them with cheaper components for scale and differ- afford! This reality can lead engi- the middle range: savings achieved entiating enough neers to the opposite direction, over = 21%... simplifying the product offer the product fea- These examples show that the aligned on the most demanding tures to fit the product range optimization requires customer needs, generalizing every market needs at a systematic and quantified pros option for every customer. Leading and cons approach to achieve the the cheapest cost to expensive production costs. If best trade-off between cheapest for every cus- the first problem of over cus- cost and Supply Chain complexity tomer segment tomization is often found in many management costs. identified. industries in their infancy stage, the Send your comments to: “platform” strategy pushed too far review@log4scm.com 52 Log4scm Quest Feb-April 2010

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