Finance IT and SCM

So far in this class, we've focused heavily on the physical procurement, movement, and creation of goods and services in terms of the supply chain. However, one area that deserves to be addressed is the role of IT in Supply Chain Management.

We've all heard about how advanced analytics are needed in order to accurately forecast or optimize the flow of components for final assembly based on historical sales. However, not much has been said about the steps necessary to validate the necessary purchases. Budget planning is as much a part of forecast planning as demand planning because if the funds aren't available for making the transaction, the entire supply chain suffers accordingly.

Finance IT systems assist multiple levels of decision making

Finance IT in particular serves as the backbone to the transactional process (see picture on left). For supply chains, this includes all manner of business to business transactions within a value chain. It serves to define part of the limits that decision makers use when modeling within constraints.

How does this fit into the core competencies of supply chain management? Financial competency is directly correlated to our good ol' responsiveness/efficiency matrix. Recall that supply chains must often choose between making their services more responsive (i.e. Dell) or efficient (i.e. Toyota). If we think about the relationship between the two as an inverse relationship (more responsiveness = less efficiency), and model the relationship with downward-sloping curves representing the trade-off between the two, we set the stage for understanding how financial IT systems affect supply chains.

Responsiveness vs. Efficiency trade-off curves

Since we know that the purpose of enterprise IT is to improve information delivery, and that financial IT capitalizes on the ability to delivery information  and calculations faster regarding budget matters, efficiency improves because there is less downtime between disparate branches of a company (i.e. accounting and marketing). Planners do not have to wait for individual departments to report in their financial activity, as they would have access to an enterprise-level overview of the entire company's financial operations and the effects of purchasing decisions on the budget.

In terms of the Responsiveness vs. Efficiency, this rotates the trade-off curves up and moves them to the right. As processes become more efficient, it may not necessarily be true that they lose efficiency as a result. As expressed by Frode Gjendem of Accenture, one area of opportunity presented to supply chains is ..."enabling rapid reaction... and minimizing cost across the business."

The street runs both ways. Whereas financial IT serves supply chain managers by providing them available information about budgetary constraints, and financial planners receive strategic information about how they should allocate resources to supply chain initiatives.

Despite the fact that there is immense opportunity to align supply chain and financial management, there are still challenges in adoption. A 2008 CFO Business Services and Business Objects (SAP subsidiary) company report indicates that 40% of CFOs find that forecasting practices are time-consuming. In the same report, partial or no integration across departments was reported.

As financial ERP systems become more sophisticated and become more aligned with supply chain services (due to an increasing amount of responsibility placed on CFOs to create efficient supply practices and to optimize their budgeting), it seems to me that the two practice areas cannot thrive without each other. Whether the rise of financial IT eventually comes to incorporate supply-chain needs, or there is a rise of supply chain IT and ERP systems or firmware that bridges the two together, it is certainly an area of uncertainty that challenges the 21st century CFO and CIO.

Trends in Supply Chain in 2011 and 2012 from the Supply Chain Shaman

For my final blog post, I thought I'd write about a blog that I found that I found interesting.  It's by a woman who refers to herself as the Supply Chain Shaman (very modest), and she has some really interesting insights.  Most interesting to me were what she viewed as the biggest trends in the supply chain industry in 2011 and what she believes will be the biggest trends in 2012.

The three things she listed as trends of 2011 were:

1.  Supply chain disruptions - The first blog I did was on the floods in Thailand.  Couple that political upheaval and the tsunami in Japan, and it seems like this year really showed how resilient and robust supply chains need to be.  Even the smallest of parts can halt an enormous supply chain.  Especially in areas where natural disasters are common, back up plans must be a built in and tested part of the system.

2.  Supply chain and the increase in labor costs - Lora (that's her name) talks about how supply chains mostly came about to cash in on the incredibly low cost of labor in countries like China.  But now that labor wages are rising (still no where near as much as US wages, but still significant), supply chains must stop being about simply saving money and start being about efficiency and what is best for the product.  It's interesting that something that began as a simple money saving process has revolutionized the manufacturing industry to the point where it can't be just about cost anymore.

3.  Increase in chief supply chain officers - I personally found it incredibly interesting that a CSCO is becoming a more and more common role.  I remember (as an Information Systems major) when I was so excited that a chief information officer suddenly became a necessary position for most companies.  It seems that supply chain is following suit!

A couple of things she listed as possible trends of 2012 that I found interesting were:

1.  Outside-in Supply Chains - I know we talked about this briefly in class, but she speaks of how important it is to create a supply chain from the outside in.  You shouldn't figure out a process that you can improve and then see how suppliers can help.  Instead, you should see where expertise can be found in the market and choose to improve your in-house processes by utilizing everything you can.  This is such a new way to think about it, and I wonder how long it will take people to wrap their heads around it.

2.  Safe and Secure Supply Chains - Lora writes that as legislation on supply chain safety in food and pharmaceutical markets becomes more common, supply chains will have to take a closer look at every detail of the chain to see if things are safe and sound.  I also imagine that as more people begin to demand organic and moral options, supply chains are going to have to know exactly where and how every piece of the chain comes from.  

3. Supply Chain Sensing - The last thing I found super interesting from Lora was her statement that supply chains had to stop responding and start sensing.  I remember in Drivers Ed when my teacher told us that to be a safe driver, it's not enough to just have quick reaction time.  You have to foresee problems and be ready with solutions.  It must be the same with supply chains.  I did a blog a couple of weeks ago on how the US foresaw that problems in Afghanistan could disrupt supply chains to soldiers, and began reworking those supply chains months before matters escalated.  

Anyway, I found those things interesting as we finish the class.  It's so fascinating to me that, since the area of supply chain is so new, we really will get to see huge jumps forward in the next years.  Can't wait!

Source: http://www.supplychainshaman.com/

Verizon announces supply chain tablet apps

Verizon and Pedigree Technologies launch OneViewPOV, a suite of tablet apps for Fleet and Field Service Management.

OneViewPOV helps companies meet regulatory compliance requirements for the Federal Motor Carrier Safety Administration's new Compliance, Safety, Accountability (CSA) program.Mobile workers can now have a single device in their vehicles for tracking, routing and logging driver hours of service, as well as utilization in the field.

The OneViewPOV is ideal for transportation and logistics organizations in oil and gas, construction, production agriculture and other field service industries.

http://www.supplychaindigital.com/global_logistics/verizon-announces-supply-chain-tablet-apps

The Future of Supply Chain Management

"Supply chain management remains at the top of the agenda for many enterprises today as a way to reduce operating costs and be more responsive to customers," reports Jeff Woods, senior analyst at Gartner Inc., Stamford, Conn.”^1. This statement, according to me sums up the criticality of Supply Chain in the industry today and that Supply Chain management is here to stay. While I strongly believe that Supply Chain Management and the innovations in the field would continue to transform the way business operate, It is also interesting that there are quite a few challenges that one has to overcome

The Supply Chain Management process consists not only includes tactical steps to execute the process but also a robust planning model that is strategic to the overall picture of the company. “The success of supply chain management at this strategic level requires considerably more integration with other enterprise systems. Since many business targets and performance indicators are established in the budgeting process, efficiency demands that the planning, budgeting, sales and marketing, and SCM systems talk with one another. Gisela Wilson, director of product lifecycle management solutions program at International Data Corp. (IDC), Framingham, Mass., reports that the ability to integrate with other back-end systems has become one of the most important features of SCM tools”¹ . The critical take away from this is the fact that such a situation demands companies to consider Supply Chain Management in all its decision making process at the planning stages.

“Today's supply chains need to be bi-directional, with every link supporting the flow of not only goods but information as well. Silos must be broken down within and between trading partners if supply chain processes and costs are to be optimized. Companies should determine their core competencies, be prepared to effectively outsource where appropriate, and engage in benchmarking and best practices forums”². Hence it is necessary to strive for supply chain excellence through visibility, collaboration, synthesis and velocity

The Critical Success factors for companies who wish to excel with a robust supply chain management process would involve multiple ways of looking at the supply chain management. Some of them would be

· “Optimization tools to help identify the realistic solutions that best fit the company's criteria

· Modeling capability to allow creation of realistic models of your business

· Collaboration tools to support business partner involvement

· Analytics to evaluate and report performance relative to key performance indicators

· Integration to other enterprise applications”¹

The very fact that companies have started gaining SCM companies and are willing to gain traction in this field is a living testimony of the fact that supply chain management is here to stay. Strong integration of other technology with the Supply Chain is imperative. However, it is a given that technology is bound to fail at some stage and it will be interesting to know how companies would handle such failures when their entire Supply Chain management relies heavily on technology.

While technology challenges are some serious things to consider, one must also take into facts that gone are those days when companies invest heavily to transform their entire supply chain. “Today's executives, driven by the need to conserve cash and show results in the current fiscal year, have narrowed their focus to improving specific aspects of their supply chains.”¹ In such cases It is pretty important the changes in supply chain does not interfere in the current processes of the company and the employees remain rooted to their original goals and vision. The system had its own share of criticism and was claimed by some, as the reason for the infamous Toyota recall in 2010 due to the sticking accelerator pedals issue. Many deemed the role of supply chain and Toyota’s obsession to optimize at all stages as the result of failure. However, the fact is that careful planning and execution would not result in such situations and supply chain would not be the reason for it. It will be interesting to understand how companies integrate the existing process with the Supply Chain angle into it.

Another important angle is the role of Supply Chain Management in the society at large. While companies tend to focus on profitability, it often comes at a cost. The fact that companies are committed to a greener planet is visible from initiatives where companies voluntarily involve in investment of software products to read their goods’ carbon footprint. I strongly believe that Supply Chain Management would make people think hard on how to reduce the carbon footprint and would pave way for a healthy environment. With a lot of positives in store, it will be critical to see how companies address the challenge of reliance on technology, how they integrate SCM practices with the current process and how SCM plays a role in the company at large.

1. http://news.thomasnet.com/IMT/archives/2003/03/the_future_of_s.html

2. http://www.industryweek.com/articles/the_future_of_the_supply_chain_16070.aspx

The Future of SCM: Cloud Computing and Environmental Sustainability

The demand for cloud computing services has grown tremendously over the past 2 years.  There has been a rising trend to the shift of using the cloud to enhance SCM functionality.  This year One Network Enterprises will be hosting a cloud computing workshop at the Supply Chain and Logistics summit in Texas this month.  Since 2009 InfoSys blogs have espoused the agility, reliability, scalability and security offered by the SCM cloud.  However, as the demand for the cloud increases across various business functions, one group has begun to look at the environmental impacts from the cloud.  Cisco Systems recently released a report the projected "cloud computing traffic will grow 12-fold from 130 exabytes to reach a total of 1.6 zettabytes annually by 2015, a 66 percent compound annual growth rate."  EcoDesk, a sustainability technology organization has reported some of the implications of this massive growth and has examined rising levels of carbon emissions at cloud data centers, particularly at Samsung and Intel.  It is still unforeseen what the range of environmental consequences may be but as the field of SCM continues to seek ways to improve its functionality those in the field should be mindful of potential reverberations.

To read more on these issues please visit:
http://www.infosysblogs.com/supply-chain/2009/02/agile_scm_cloud_why_do_we_need_1.html
http://www.ebnonline.com/author.asp?section_id=1115&doc_id=236463&itc=ebnonline_gnews
http://www.prweb.com/releases/2011/11/prweb8999728.htm 

Another Take on the Bullwhip Effect

A recent article published by the IrishTimes examines how the financial crises in the Euro Zone the could cause a bullwhip effect that would trigger a global recession.  The bullwhip affect in the article was described as the "negative shock that is amplified through the supply chain into large swings in demand the further one moves away from the final consumer."   On a broader scale the article demonstrated that a decrease in demand in the "developed world," i.e. the Euro Zone, could lead to a collapse in world trade and production declines in export based economies in developing countries.  The increased global networks within supply chains could have severe bullwhip effects  on the world economy if the the economic outlook within the Euro Zone does not improve.  The author extols that developing countries would not be able to withstand a long term global recession.  As it stands the global financial crisis seems inevitable.  Can business strategies on reducing bullwhip effects (demand forecasting, and improving information flow)  stave off a potential global recession?

Read the article here: http://www.irishtimes.com/newspaper/finance/2011/1202/1224308464011.html

A Supply Chain Puzzle

While I was listening to Car Talk on NPR this past weekend, I couldn't help but notice that the previous week's "puzzler" was supply chain relevant (as you may know, this is not always the case). As it is the end of the semester, I thought it might be a good opportunity to put everything we've learned so far together, and also kind of fun to try to solve this supply chain case study.

The story goes like this: in the late 60s/early 70s, Ford released a new car model. It was fairly well-received, but like any new car model there were some initial 'bugs' that people discovered, and there was one problem in particular that the good people at Ford could not figure out. Dealerships were reporting that exactly one out of every six cars they received from the factory arrived with a dead battery.

Ford's engineers tested the wiring in the cars for faults, but couldn't find anything. They spoke with the battery supplier, and tested incoming batteries to see if one in 6 were faulty, but again: the batteries themselves were fine.

So Ford hired outside consultants and experts who ran tests on the different things... even the interaction of chemicals used in this particular model, but none of the outside people could pinpoint exactly what was wrong. For three months the mathematical equation held: the dealership could expect exactly one of every six cars to arrive with a dead battery.

Finally, a quality control engineer went to the factory that produced this particular car model and walked the entire line, talking to workers at every single stage of assembly. He followed a number of cars all the way to the Final Testing area, and every single car assembled would start up just fine and be driven to the holding lot.

Finally, "He... explained to the tester the situation and asked him if he could think of a reason why one out of six batteries were always dead on this particular model. The guy stared off into the distance. He pondered. He scratched his butt. And then he smiled, and he said he knew EXACTLY what the problem was."

Since we are all supply chain experts at this point, what was the problem? (Hint: This was the old days, when cars were big.)

For the answer, highlight the hidden text below.

[answer]

Here's the answer: As I mentioned, at this time, American cars were BIG. And the trucks that carried the cars could only carry SIX cars. As a result, one of the cars was always at such an angle that the mercury switch for the trunk light (which was the standard at the time) was turning the trunk light on the entire time the car was being was transported, which drained the battery.

[/answer]

So, given what we've learned this semester, what elements of supply chain management were successful in resolving this problem? Ford was able to learn from this mistake, but what lesson could be applied to future problems?

You can listen to the problem here, and the answer here. Or, if you're really adventurous, listen to the whole show here. (note: the answer is not revealed in that show.)

Virtual Logistics?

I came down the stairs from my apartment and held door for a UPS lady who had seven packages in one hand, and three in the other, struggling her way up the stairs, delivering for the holiday season. I wondered, is there a better way to deliver the packages? Of course most of the logistics companies are now using technologies like bar codes and electronic signatures to shorten the time of each delivery so that the whole process is more efficient. But the delivery person still needs to drive, to look for the address, to carry the packages up the stairs, to knock on the doors and get signatures. Are there ways to reduce inefficiencies in the process?

A simpler solution: the reverse logistics of sending packages out. How about going old school and pick up our packages from the UPS office? Just as how we bring the packages to the UPS offices, why can't we go and pick up the packages from UPS office? There will be no more missed deliveries because we choose when to go and pick up our packages. We are so used to the good service of having everything delivered to us that the idea of picking up your own package is almost unthinkable. Plus there's this trouble of carrying your package all the way from the UPS office back to your house. Perhaps you need to drive to pick up that package; is this really more efficient than having the UPS guy delivering them?

How about instead of having the packages delivered to the UPS offices, have it delivered to the CVS right around the corner? You can go to CVS and pick up your package when you are notified electronically that the packages have arrived. In densely populated place like Taiwan, 7-11 serves this function. You can pick up books ordered on-line at the 7-11 downstairs, send you packages across different 7-11s, and even return goods through the 7-11 stores. Since 7-11s are anyways delivering products from their distribution center to local stores, why not use the space to deliver goods ordered on-line? The customers themselves serve as the deliver guy of the last mile. The model is of course more applicable in metro areas with dense population.

The bottom line: now that we've exploited a lot of technologies in the supply chain, are there ways that by small changes in the behavior that we can further increase efficiency?

There's another option: just as how Zynga changed people's appetites for virtual goods in FarmVille, maybe we can all be content with virtual goods delivered on-line, instead of physical ones!

The future of Logistics

According to a report by Mckinsey&Co, the coming decade will be dominated by growth in logistics. According to the report, around 80 percent of goods in the world will be manufactured in a country different from where they are consumed. The current figure is 20 per cent, which means a potential four-fold growth in shipping volumes in just ten years. Logistics is the sector on which the global economy will increasingly rely. It also means that logistics will no longer be a mere facilitator of economic growth, but will increasingly drive the direction of economic development.




On one side of the balance we have developing countries like India and China, which will continue their export-driven growth with a substantial improvement in infrastructure, where as on the other side growth in the developed countries will be driven by continuous process-integration, greater technological advancements and  environmental friendly ways of getting products to desired destinations.


The goals of the logistics industry is clear : deliver faster, deliver more, deliver further and ultimately deliver cleaner.There is also the other challenge facing logistics providers, to deliver better – when required, wherever it is required, with complete end-to-end management.


The eastward shift in the focus of logistics company's principal operations is not just because of exports but also due to increase in consumption because of rising GDP's and increased household expenditure. As the developing world looks seeks more cost effective solutions to facilitate international shipments, third party logistics will come to the fore. This will require increased collaboration between the logistics operation and the company.
The element to affect logistics considerably, in the next decade is the ongoing advance of technology. “As outsourcing creates greater integration between clients and logistics companies, systems will need to offer seamless transactions,” says Iyad Kamal, “especially as online, mobile, and other auxiliary technologies converge.” In practice, this will mean logistics providers will have to offer an IT infrastructure that offers their customers instant access to information. Also, GPS will take the forefront in tracking, reducing order cycle time.

 Moreover, the logistics industry needs to come up with greener solutions in order to become sustainable. Not only will customers be making more informed choices based on sustainability, but carbon reduction is likely to a legal requirement in the next decade. In logistics this will mean use of hybrid vehicles; as companies such as Aramex has done with the introduction of the Toyota Prius cars in Amman, Jordan. It will also mean better use of public transport.

Most importantly of all, though, the logistics industry won’t simply at the receiving end of business development in the next ten years, it will be in a prime position to drive it. Logistics can dramatically impact the global economy, remaining at the forefront of technological advancement and sustainable practices.

Reference -  http://www.aramex.com/

Cheeseburger, cheeseburger, cheeseburger...

A cheeseburger seems simple enough. Nowadays they're almost an omnipresent food. Well, Waldo Jaquith, a blogger from Virginia, set out to try to make one completely from scratch only to find out that it's entirely impractical.

Now, when I think of something as "scratch made," the thought of apple pies or mashed potatoes come to mind. However, I've never grown potatoes and my grandmother certainly never had an apple orchard in her 12th floor apartment in Cleveland nor a flour mill in her storage locker. It is this level of "from scratch," that Jaquith wanted to pursue for the cheeseburger.

It should be noted that this type of experiment or example isn't particularly groundbreaking as it has been used with other products, perhaps most notably the pencil as Professor Zak mentioned in the early part of our class. What was relevant for myself (and Mark, given our project), was the idea of the number of suppliers needed to make a cheeseburger possible. Additionally Jaquith asserts that modern technology has played a large role as well, since refrigeration, modern storage methods, and shipping allows for the cheeseburger to be available year round and effectively worldwide.

There is a clear distinction with the idea Jaquith puts forth and the initial reaction most people (i.e. commenters) have to his post. That is, he is not saying the cheeseburger would have been impossible before relatively recently rather, as the title of his piece clearly says, it would have been impractical. Similarly, he came to find out that it is completely impractical for a single person to attempt to make a cheeseburger "from scratch."

Again, this idea isn't earth-shattering, but I think it is something we all take for granted in our day-to-day routines. We kind of loose sight of how many hands are involved in everything we use and consume. I have to say that after this class I will never look at food, electronics, cars, chairs, or even Waffle Houses the same.

Future Challenged: How will Supply Chain Management enviornment look in the near future?

What will be the supply chain of the future? There are actually quite a number of issues around this topic. What is the timeframe for pondering this supply chain future? 2015? 2020? 2025? I guess it has to be near enough that it has some meaning for most of us. My particular presentation is targeted at 2015, and somewhere between that and 2020 seems about right to me.

For example, if I understand the “Store of the Future” concept and showplace from Germany’s Metro Stores Group, I believe it uses a lot of cool technologies (RFID, powerful kiosks, interactive displays, etc.). However, these technologies are largely here now, almost by definition, since they are used in the model store. Since no one has really implemented most of these technologies, certainly all together, it does represent the “future,” but maybe the relatively near future.

What I am also struggling with is the temptation to paint a picture of a supply chain world in which simply everything is automated – though, indeed, that may very well be a huge component of the future vision. In fact, as I have pondered on this topic, I have at times become modestly depressed around this prospect. When do we reach a point in the level of supply chain automation, both physical and informational, that there just is not a whole lot more we can do in terms of supply chain improvements? Is that point likely to come fairly soon, or is it decades away?

Ditto with regards to “integration.” It would also be relatively easy to simply paint a vision where we have virtually 100% integration both within the enterprise and across trading partners and networks. Much more dicey, of course, would be predicting the timing of this, but even beyond that, does foretelling a world of near perfect automation and integration really tell us much? I, personally, don’t think so. ^[1]

With today's emphasize on cutting costs and streamlining expenses, many companies are looking to improve their bottom lines with more effective supply chains. Unfortunately, many people involved with companies don't have a clear understanding of what a supply chain is or how it fits into the company’s overall strategy.

Technology plays an important role in the success of supply chain management. Even though the supply chain concept pre-dates the Internet, only through the use of web-based software and communication can it truly reach its full potential. Using the Internet to handle most of the elements involved in supply change management, including procurement and communication, makes the exchange of data and the running of the supply chain faster.

One of the biggest benefits technology has given to the supply chain concept is the ability for companies to collaborate. These collaborations are designed for the mutual benefit of all parties. For example, a supplier of consumer goods may be linked up via the Internet to one of its distributors so that when the supply gets too low an order for more of those goods can be placed automatically. In this way, the distributor never has to worry about running out of a product and disappointing customers and the supplier doesn't have to worry about maintaining a large inventory in expectation of demand.

While the benefits of supply chain management are many, using technology to achieve those benefits does have two main drawbacks: one is resistance from vendors and the other is resistance from employees. Suppliers of goods are often hesitant to jump onboard because of the initial costs involved in setting up their own end of supply chain management system and because most vendors do not have a trusting relationship with their buyers. To overcome this obstacle, the strong relationship must be present and the seller needs to be able to see the profit potential on their end of the arrangement. Likewise, many employees have learned to develop a hate-hate relationship with new technology. After all, it costs them their jobs and often makes them feel that their work is more tedious or more complicated. Plus, software mistakes, which are inevitable at the beginning, may cause other employees to lose faith in the system altogether. Employees need to trust the system, the company, and their ability to use the program if they are going to adopt the supply chain management software. ^[2]

The questions that need to be asked are:

· Will the manufacturers and suppliers see the big picture and adopt technology as a part of their operations?

· Will the small businesses be able to survive in the wake of the technology revolution?

· Is there a limit to what can be achieved with total integration?

Only time will tell. Interesting times lie ahead and I will be looking at all the developments that happen in this field.

References:

[1]: http://www.scdigest.com/assets/FirstThoughts/09-05-21.php?cid=2479&ctype=content

[2]: http://www.epiqtech.com/supply_chain-Technology.htm

Zara’s Secret for Fast Fashion

In Zara stores, customers can always find new products—but they're in limited supply. There is a sense of tantalizing exclusivity, since only a few items are on display even though stores are spacious.Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Since most garments come in five to six colors and five to seven sizes, Zara's system has to deal with something in the realm of 300,000 new stock-keeping units (SKUs), on average, every year.

This "fast fashion" system depends on a constant exchange of information throughout every part of Zara's supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on.

Here, I just collect some information about how information technology used in the practices of Zara’s successful story.Information and communication technology is at the heart of Zara’s business. Four critical information related areas give Zara its speed includes:

• Collecting information on consumer needs: trend into information flows daily and is fed into a database at head office. Designers check the database for these dispatches as well as daily sales numbers, using the information to create new lines and modify existing one.
• Standardization of product information different or incomplete specifications and varying product information availability typically add several weeks to a typical retailer’s product design and approval process, but Zara ‘warehouses’ the product information with common definitions, allowing it to quickly and accurately prepare designs, with clear cut manufacturing instructions.
• Product information and inventory management being able to manage thousands of fabric and trim specifications, design specifications as well as their physical inventory gives Zara’s team the capability to design a garment with available stocks, rather than having to order and wait for the material to come in.
• Distribution management: its State_of-the-art distribution facility functions with minimal human intervention. Approximately 200 km of underground tracks move merchandise from Zara’s manufacturing plants to the 400+ chutes that ensure each order reaches its right destination. Optical reading devices sort out and distribute more than 60,000 items of clothing an hour. Zara’s merchandise does not waste time waiting for human sorting.

 For more interesting part of Zara’s practices, you can see the link below:

 http://thirdeyesight.in/articles/ImagesFashion_Zara_Part_I.pdf

 http://hbswk.hbs.edu/archive/4652.html

The Supply Chain Future

I guess this is a fitting subject for the final blog post of the class. I've been reading through Supply Chain Digest , an IBM(study), and other writings to find out what are the next steps for the Supply Chain. The questions: Have we hit a plateau on efficiency? What technologies are on the rise? Is there really such thing as a global supply chain?

I don't think we've plateaued since we've seen in the class have seen the upcoming technologies in action. There's still a lot of waste in the supply chain. I can only imagine how much food is wasted, how many damaged TV's there are during shipment, on and on. With people increasingly consuming "virtual" products e.g. books, games, movies, does lean manufacturing still apply?

The technologies on the rise are numerous. The power of QR we saw in yesterday's presentation is one. I just read this post about Lowe's home improvement is getting 42,000 Iphones for its workers to communicate with retailers/customers/etc. I can see some benefits but is this enough to justify a 20% capital spending increase for 2011? Is it just technology for the sake of having it?

Globalization will be a big issue of the future as well as Risk. How complex can a supply chain get before its unwieldy? Breaks down? Can a huge supply chain linking dozens of countries be a sufficient shock absorber? How global is the "system"? Many countries don't have the companies with the reach of a MNC.

What do you guys think might be some trends going forward?

The Future of Supply Chains: Managing Libertarian Sea-Cities

In week 7 we're going to spend some time talking about the future of supply chain management, so I thought it would be interesting to do a brief introduction to what of many are calling a pretty crazy idea - Seasteads, which are to be large floating cities where Libertarians can do, essentially, what they want, without paying taxes.

Here is an artistic rendering of what a Seastead could look like:

From: Seastead Insitute

If these cities do get the go-ahead, they're going to face some difficult supply chain challenges (which, more than likely, won't be as "taxing" as escaping the grip of the IRS.) After all, they'll be building large floating platforms on the open ocean, which raises questions about how to facilitate renewable energy, telecommunications needs, and, of course, food.

Now, large ocean going entities which deal with these obstacles already exist. Large cruise ships and off-shore oil rigs provide sport, luxury, and accommodation for their passengers and employees, but because they are not committed to being permanent self-governing bodies, they can afford to be more reliant on supply chains and business support from the mainland. Seasteads, on the the other hand, are going to have to come up with innovative solutions to cut themselves free of tax-demanding, landlocked bureaucrats.

Here are just a few supply chain problems that would arise from their total independence:

Telecommunications: If they try and lay any large fiber-optic cables from the coast, they're going to have to pay some kind of tax on that...so that's out of the question. Satellite communications may not prove to be as efficient and fast as the Libertarians would like, so they may have to come up with some sort of laser or microwave link.

Location: Some countries regulate economic zones in the ocean as far out as 200 miles from their shores. If the Seasteads want to be completely independent and not integrated into mainland shipping lanes, because of legal and tax issues, they're going to have to build relatively far away from the nearest country. This is problematic since many of the Seastead designs are being developed for calmer more littoral regions. It also compounds the problem of moving food and perishables.

Costs: Since the Seasteads will want to develop their own trade links and supply chains over time, the initial costs of these networks will be considerably higher since the will not be tapping into existing trade routes and supply networks.

Of course, it is easy to laugh at the idea, but significant funding and research is being dedicated to these Seasteads. Ultimately, they may not just be an eccentric dream for a private colony, but tangible international medical centers where controversial or experimental procedures are the norm, or even theme-parks that pride themselves on being able to do more than legally allowed under the auspices of certain nations.

To get more information about Seasteads from the Seastead advocates themselves, check out their website: Seasteads

And, here is an article from the Economist, with great commentary and illustrations, that focuses more on the legal and sovereign issues: Seasteading: Cities on the Ocean

I would definitely visit a Seastead, but I wouldn't want to live there.

The curious case of Tracking

The first word that comes to our minds when we think of the overlap between Supply chain management and Technology is TRACKING!!!! Think of the zillions of $ spent by businesses all around to ensure that anything and everything under the sun can be tracked.

To come to think of it, tracking is THE core problem that is being addressed by plugging in technology at various layers of businesses.

I root from a logistics background and customers care the most about tracking down the shipments that are sent by them. It brings out a sense of satisfaction to them that the shipment has reached a particular hop and is on its way to be delivered.

In fact the importance of tracking can be observed when we login to the website of any logistics company.

  

So here is a sneak-peak into the processes that take place at the hubs of these companies that allows customers to track their shipments. (Consider an example of Shipment that is picked from Mumbai, India and is to be delivered to Pittsburgh)

Activity	Status Message on the website
Shipment Pick up	Shipment picked up. Origin and Destination of the shipment. Time of pick up
Forwarded to Sorting facility	Forwarded to Local Sorting facility. Timestamp
Forwarded to Mumbai Airport	Forwarded to Transportation facility at Mumbai Intl Airport and Timestamp
Received at Mumbai Airport	Received at Transportation Facility at Mumbai Intl Airport and Timestamp
Forwarded to Frankfurt, Germany	In-Transit to Frankfurt hub

So on and so forth till the shipment is actually delivered to the recipient. When the final delivery is made the receiver’s name along with the timestamp are recorded in the system. Every time a fresh status message appears on the webpage, it can be concluded that somewhere in the world the barcode on the shipment was scanned by a laser gun (It is difficult to imagine how this business could run without bar codes). 

To give even more prompt service to customers, every time the status message undergoes a change a text message or an email is forwarded to the customer and an instant tracking is provided.

At times,  I ask myself is it even necessary to provide that much amount of tracking to customers and point out in-efficiencies (if any ) or delays , whereas at times when shipments get misplaced such a descriptive tracking system helps a lot in finding out the last whereabouts of the shipment and the loopholes/bottlenecks in the system. 

To come to think of it a huge degree of automation is needed in order to provide such a detailed tracking information, which requires a huge infrastructure. (technological and physical)

The point is without a great degree of automation, the intrusion of technology can prove detrimental to service levels. (After all, Fedex is a service company that happens to use technology). 

There are certain very intriguing solutions in the logistics world that ponder my mind. For example, the address change system deployed by USPS. I’m sure without technology it is impossible to track this problem. I’m still searching how does technology helps in solving this problem. How does USPS track such mail orders, which are meant to be delivered somewhere other than the address mentioned on the cover of the shipment.

Anyone here who knows how this works???

Why Electric Matters: The Modern Energy Challenge for Supply Chain Fleets

As a followup post to my previous inquiry into LTL shipping, I want to explore trucking and land shipping logistics even more today. This time, I will be exploring the challenges facing transportation fleets in terms of the rising cost of operations.

When I worked on my internship over the summer, we identified several aspects of ownership proposition for a vehicle, but for a fleet manager, here are the most salient points:

1) Capability (can this vehicle do the job I want it to do?)
2) Variable costs (cost of fuel, maintenance, etc.)
3) Fixed costs (cost of vehicle acquisition)

Imagine for a second that you are Wal-Mart's fleet manager.You are in charge of the 3rd largest supply fleet in the world,, meaning that you have almost 52,000 trailers in service and numerous other vehicles, the guests to the ball in Wal-Mart's highly choreographed logistics dance. Your semi trucks get 7.1 miles per gallon (mpg).

All of a sudden, the President of the United States has ordered that the Corporate Average Fuel Economy (CAFE) standard be raised so that the your fleet (and yes, it is your fleet, because you run an in-house transportation system in your supply chain) realizes a 20% reduction in fuel usage by 2025 .

Your current fleet of trailers will be obsolete within 15 years. Your fixed costs will go through the roof as you scramble to replace your trailers with more efficient ones. Ouch.

Regulatory incidences such as the CAFE standard affect the supply chain because they constrain the physical means of conveyance available to fleet managers. Whereas we might consider the type of freight being shipped in LTL, FTL, or Parcel shipping methodologies, attention must now be paid to the trucks actually doing the work (let's set aside any consideration of using planes for now, under the assumption that jet fuel costs will also rise).

Once again, indirect regulation of the supply chain forces landed supply chains to innovate. Clearly, the cost of acquisition over time will be costly, but perhaps a small change of perspective will help ease the pain of transitioning to a more fuel efficient fleet.

I had the chance to meet the regional marketing manager of Smith Electric (smithelectric.com), a company that manufactures electric medium and heavy freight trucks last summer. During that time, I learned about how Frito-Lay, in conjunction with the need to transition to a more environmentally friendly fleet, has begun experimenting with electric trucks to take advantage of other opportunities in outbound logistics (i.e. shipping their product to stores).

Frito-Lay, as was told to me, recognized the value proposition of Total Cost of Ownership (TCO) of a vehicle throughout its lifetime. Essentially, while most fleet managers are concerned with the acquisition of vehicles to meet capacity needs, Frito-Lay saw that the variable costs of fueling their vehicles contributed significantly to the operation of their supply chain to urban environments.

This is intuitive to anyone who has ever driven a car in a city. You know that your MPG dips in a city due to the constant stop and go of driving in a highly regulated driving environment. Imagine you drive a beer truck through the streets of New York--how much fuel (and subsequently, money) do you waste sitting in idle?

One feature of the electric engine (or most hybrid engines manufactured introduced after 2005) is that vehicles sitting in park or at a total stop don't expend energy. Moreover, the comparative cost to move a medium freight vehicle from a dead stop is less for an electric vehicle than a gas vehicle due to the cost of energy. Given many, many trips in a vehicle's lifetime, the savings add up.

By taking into account the total cost of ownership, a business case was made for the variable cost of electric trucks mitigating the fixed cost, thus mitigating the effects of fixed cost throughout the vehicle's lifetime. Essentially, Frito-Lay is banking on the cost of the electric truck being either only a certain percentage more expensive, the same, or less. They just have to find out.

Electric might not be the solution forever, but a lot of fleet managers are seriously considering it as a means to meet regulatory standards. This is a challenge that needs to be solved from the mechanic all the way up to the CFO--that's the extent of how many hands the energy challenge needs to innovate.

Constant Logistical Improvements at Frito-Lay

A close friend of mine, Jen, was a supply chain management major at Shippensburg and now works as a factory manager for Frito-Lay.  We talked this summer about how they manage logistics and the enormous amount of diverse products they have to get to stores.  When we talked about logistics and lean management in class, it triggered the memory and I decided to research more about it.

Frito-Lay is a division of PepsiCo and holds 60% of the market share on chips in the United States.  Frito-Lay has 41 manufacturing plants, 1,900 storage warehouses and 200 distribution centers.  For the most part, a single bag of chips will stay for some period of time at each of these Frito-Lay centers.  In the beginning, Frito-Lay attempted to make almost every type of chip at every manufacturing plant and then send a mixture of all types of chips to the local storage warehouses.  However, in time they realized that this couldn't possibly be the most efficient process.  Currently, manufacturing plants are commonly devoted to one type of chip, Doritos for example.  These chips are then sent all over the country.

The impressive amount of miles that the Frito-Lay fleet of delivery trucks had to drive was impressive, but Frito-Lay once again realized that the system could be improved.  They hired Menlo Logistics to handle all of their route management.  Not only did Frito-Lay begin routing trucks more efficiently - they also realized that they could use empty trucks to pick up used packaging boxes and deliver them back to any warehouses, plants, or distribution centers they passed on their return drive.

Frito-Lay already had an impressive internal system of information technology that allowed them to know where raw potatoes, truck shipments, and inventory levels were at any point of time, but they needed better knowledge of what was going on in the more than 400,000 stores that sell Frito-Lay products.  To do this, they created and provided each store with software that could show the most efficient and cost effective way to allocate shelf space and show each store how they compared to Frito-Lay sales in similarly sized stores nationwide.  In return, Frito-Lay had an enormous amount of knowledge at its fingertips.  It could now know seasonal local demand of each of its products and exactly how much inventory each store had at any time.  By knowing local demand for each product at all times, it could better plan seasonal and local promotions.  By knowing specific inventory at each store, Frito-Lay could better plan and improve its routing and inventory systems.

As a factory manager, Jen is in charge of all the factory workers on the floor for an entire 12-hour shift.  She makes sure that the factory equipment runs smoothly, the product being produced is up to par, and that trucks being loaded and unloaded are being used efficiently.  As much as possible, they use information systems to make sure that everything is above the possibility of human error.  She says that the hardest part is encouraging factory workers that aren't used to using tablets and computer software to trust that the integration of technology will make their jobs easier, not harder.  As I've talked to Jen and learned more in this class, it really seems like Frito-Lay is doing an excellent job of constantly improving their supply chain management, especially the logistics.

Sources:
An Integrated Outbound Logistics Model for Frito-Lay: Coordinating Aggregate-Level Production and Distribution Decisions
Value Chain Analysis- Frito Lay