How RFID has changed the landscape of SCM?

The supply chain management has been focusing on squeezing cost and improving operations for decades. In the 1980s, there was a lot of focus on just-in-time production, lean manufacturing and discrete systems. In the recent decade, the obsession about high quality goods, cost minimization and flawless distribution has been made possible by the advancement in technology. 





Radio Frequency Identification (RFID) technology, as a part of a broader spectrum of sensor-based technologies, has dramatically revolutionized the supply chain management. Basically RFID is simply an enabling technology that has the potential of helping retailers provide the right product at the right place at the right time, thus maximizing sales and profits. RFID provides the technology to identify uniquely each container, pallet, case and item being manufactured, shipped and sold, thus providing the building blocks for increased visibility throughout the supply chain. 





RFID is a system of small electronic tags (comprising a tiny chip plus an antenna) that transmit data via a radio signal to RFID readers and related hardware and software infrastructure. The information on tags is read when they pass by an RFID reader, and that movement is captured and managed by the infrastructure. The direct and swift interaction between the tags attached to goods and the information reception center has greatly reduced the fatigue of manually tracking goods along the supply chain. This technology has been widely applied to various industries including retailers, distributors, logistics service and pharmaceutical companies etc. Professor Phillip J. Windley at Brigham Young University estimated that US retail giant Walmart alone could save $8.35 billion annually with RFID - that's more than the total revenue of half the companies in the Fortune 500! 






Thousands of inbound and outbound shipments can be identified by RFID labels which enables 100% inventory visibility and unattended sortation of goods at different points of the supply chain. The following image visualizes the way RFID works in the products manufacturing period.










Source: Zebra Technologies






On top of the theories and cases on the textbooks, I've personally experienced the power of RFID when I shopped at one of Zara's retail stores in Spain. The blue dress in my size was sold out in the store, so I asked the salesperson to check their inventories in the warehouse. I thought it would take at least 15 minutes for them to figure it out, but the item was accurately located by the system in less than 5 minutes. More surprisingly, the salesperson helped me place an order right away and delivered the dress to my door very next day. When I felt puzzled about the high efficiency, I searched online and found the secret behind Zara's amazing customer service - RFID. One of RFID’s most attractive offerings is its fundamental attribute of not requiring line-of-sight when reading RFID tags. This means items do not require particular orientation for scanning, unlike barcodes. 





Obviously RFID has many other advantages such as labor reduction, cost cutting and durability, but it's also faced with many pressing issues such as lack of standards and potential privacy loopholes. In the long run, technologies including RFID will continuously drive and maximize supply chain management, but key issues need to be addressed to bring the supply chain management to a higher level of success. 







Sources: http://www.ameinfo.com/66090-more3.html

https://www.zebra.com/id/zebra/na/en/documentlibrary/product_brochures/rfid_supply_chain.File.tmp/RFIDsupplyChainR2_2%2015_FINAL.pdf

http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1104&context=infopapers

http://msdn.microsoft.com/en-us/library/ms954628.aspx

Flexible Supply Chain

source: tomfishburne.com(Marketoonist)

By Vivian Cheung

Feb 13, 2012

In order to survive in the competitive market, the flexibility of a company’s supply chain has become an important differentiator. In McKinsey’s business journal article “Building a Flexible Supply Chain for Uncertain Times” [1], discussed about the importance of agility in a supply chain. They used the classic bullwhip metaphor to capture the trend that can be seen commonly in today’s manufacturing industries, which describes how rapid demand fluctuations can exhibit a magnifying influence in other parts of the supply chain. In mature markets, the ability dodging the bullwhip effect increases a company’s chance of the survival.

The bullwhip effect has been widely studied and research in order to discover countermeasures to incorporate into good supply chain designs. Other than demand forecasting errors, Bullwhip effect also can be triggered in a lot of different ways. Overreaction to unmet demand, miscommunication upstream and downstream of supply chain, lead time variability, trade promotion and forward buying, shortage anticipations… etc, all can contribute to generating negative impacts on operating performances. As a result, schedule variability increases, lead time lengthens and customer satisfaction decreases. These are all signs of a unhealthy supply chain.[2]

Flexibility seems to be the key to dodging the bullet. For the short term, flexibility means responding to changes in demand or supply quickly and handle external disruptions effectively. For the longer term, it means meeting structural shifts in markets, modify supply network strategies, products and technologies.[3] To achieve flexibility, a company should reduce the size of their order and increase their replenishment frequencies. When entities orders more frequently, its required safety stock will decrease, and the uncertainty and variance due to demand fluctuations will also be reduced. Collaboration with key suppliers is very important as well. A true flexibly buyer-supplier relationship can allow a company to accommodate a large product variety and change in volumes in production. This partnership can be achieved by continuous information sharing, creating the sense of trust between the supplier and the buyer, and allow both parties to make informed decisions. This also enables the possibility to respond quickly on demand volatility since suppliers are willing to corporate. Other recommendations include maintaining a stable prices for products since price fluctuations encourage customers to over-purchase when prices are low and cut back on orders when prices are high, leading to large demand fluctuations. Moreover, a company should allocate demand among customers based on past orders, not present orders to reduce hoarding behavior when shortages occur.[4]

McKinsey’s article had emphasized on the importance for companies to make supply chain decisions more quickly in respond to the unprecedented volatile demand. The way I see it, companies do need to make decision more quickly, but on committing to improving their supply chain flexibility to survive in this competitive market.

References

[1] Glatzel, Christoph, Stefan Helmcke, and Joshua Wine. "Building a Flexible Supply Chain for Uncertain times - McKinsey Quarterly - Operations - Supply Chain & Logistics."Articles by McKinsey Quarterly: Online Business Journal of McKinsey & Company. Business Management Strategy - Corporate Strategy - Global Business Strategy. Mar. 2009. Web. 12 Feb. 2012. .

[2] "The Bullwhip Effect." QuickMBA: Accounting, Business Law, Economics, Entrepreneurship, Finance, Management, Marketing, Operations, Statistics, Strategy. Web. 12 Feb. 2012. .

[3] Donovan, Michael. "Supply Chain Management - Cracking the Bullwhip Effect." SCM Community - Toolbox for IT. Performance Improvement. Web. 12 Feb. 2012. .

[4] Bean, Michael. "Bullwhips and Beer: Why Supply Chain Management Is so Difficult « Forio Business Simulations." Forio Online Simulations. 2006. Web. 12 Feb. 2012. .

Managing Inventory: Learning from Carrefour's Success in Indonesia

One day my wife asked me to buy some milk for my little daughter. Simple task, surely nothing can go wrong. Just go out to a store and buy one.

So I went to a supermarket just a few blocks away from our house only to find that the particular brand of milk I was searching for was out of stock. No big deal, I thought, just find another supermarket. And so I did, I went to a larger one, thinking that they must have the one that I’m looking for. Again, I was disappointed to find out that they were out of stock too.

It was starting to get a bit irritating. For my third and final attempt, I went to an even larger supermarket, or hypermarket these days, located a little further from home. Finally, I got what I was looking for. Mission accomplished.

The name of the hypermarket that had the stock of milk I needed to buy was Carrefour. It is the largest hypermarket chain in Indonesia. We have no Wal Mart, there is no Tesco, K-Mart, or whatever. The French company has been dominating the retail business in Indonesia for the past few years. As shown in the figures below, Carrefour has been expanding its business constantly year after year. Particularly in my country, Indonesia, the number of store network has been growing quite significantly (only second to China).

Store network (consolidated) (source: Carrefour Annual Report 2010)

So how does Carrefour maintain such a business growth as shown in the figures above? Simple, they had the milk that I needed while others didn’t. When people are in need of certain kinds of items, usually Carrefour can provide.

One of the keys to Carrefour’s success in maintaining their inventory of goods is having a well-organized logistics chain. According to Bayu A. Soedjarwo, Carrefour Indonesia’s Senior Manager of Logistics, they had an electronic system that monitored the number of inventory in a store and can automatically send purchase orders to suppliers if certain items run out of stock. In addition to that, he also explained that a supplier only needed to send their goods to a distribution center, where items from all other suppliers will be consolidated to specifically meet the needs (purchase orders) of certain stores.

According to Frederic Fontaine, Carrefour’s Technical Advisor for Supply Chain, this centralized supply chain model is mutually beneficial for Carrefour and their suppliers. For Carrefour, the main advantage is the improvement of stock availability in their stores. This also gives the suppliers an advantage because it eliminates the lost of sales caused by items that are out of stock. Another benefit for the suppliers is the reduction in shipment expenses because they only need to ship their goods to a distribution center instead of going to every store that ordered their goods.

Carrefour's Supply Chain (via carrefour.com)

Sources:

1. http://swa.co.id/updates/muluskan-distribusi-jutaan-barang
2. http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/RA/2011/Carrefour_Rapport_Financier_2010_72DPI_RVB_GB.pdf
3. http://www.carrefour.com/docroot/groupe/C4com/Commerce%20responsable/Notre%20engagement%20pour%20l'environnement/Réduire%20nos%20impact%20logistique/infography%20CO2.pdf

IKEA’s intelligent packaging implies LEGO’s bricks

I still remember the first day I walked into an IKEA store in Singapore 4 years ago. It looked like a massive warehouse with an area of exhibition and another area of giant shelves with tons of tidy arranged boxes. What amazed me the most was how IKEA transformed all the eye-catching, complicated-and-beautiful-looking furniture into sturdy rectangular boxes. At that time, I already figured some reasons of IKEA’s decision to break down its product into smaller, easy-carrying packages. The reasons should have been easy enough for a 19-years-old-boy to understand, for example, the purpose was to assist customer to bring the boxes home, even carry them in a bus or put it nicely in a car. It was easy to carry home so it must have been easy to stock and display. That’s how I was thinking when I first purchased my studying table, which had been broken down into 3 boxes (one for the surface and the other two for the legs). I was able to carry all of them on the train during peak hours without any complaint about occupying too many spaces.

After the discussion in the class of Supply Chain Management yesterday, I have found out there are a lot of more reasons IKEA does it that way. Tim Zak, the lecturer, pointed out a few advantages of breaking down a product into flat packages:

1. To maximize the use of space inside shipping containers. 
2. It would lead to the excellent way to reduce the shipping cost while IKEA could transport more items in a single trip. (Based on “How Ikea Design Its Sexy Price Tags” by Lisa Margonelli, the shipping cost could be reduced by 60%, which is a significant savings)
   
   
   
   
   Flat packaging maximize the use of space inside a container 
3. To gain efficiency in the distribution network. IKEA has 28 distribution centers and 11 customer distribution centers in 16 countries. Anyone who manages transportation, for instance, will identify with the point Collins (a journalist from The New Yorker) makes about IKEA’s famously dense, no-waste packaging: “The company’s goal is to design products that can be packed as tightly as possible, minimizing damage and maximizing profit as they are transported over the oceans. Its motto: ‘We hate air.’” 
4. To cut cost because IKEA does not need to assemble all the products. It lets the customers do it by themselves. 
5. Most interestingly, I also discovered by myself that broken-down packaging enables IKEA to outsource globally and resourcefully. For example, based on Christopher Sciacca’s story, when he bought his table and chair from IKEA, he found out that the shelves were from Russia, the computer desk from Poland (pictured below), the chairs from Thailand, the screws from China, and the carpet from India.
   
   
   “The point is, just like in outsourcing and services delivery, you go to where the talent and skills can be found or to complete my analogy you can get the best natural resources. And IKEA seems to have a very good understanding of that, because if they didn't they would be shipping everything out of China and Sweden, which would have a serious impact on quality and cost.”
   (by Christopher Sciacca, from <http://supplychainsrock.blogspot.com.au/2008/03/ikea-and-supply-chain-super-hero.html> )

In conclusion, The IKEA supply chain is mainly make-to-stock (MTS) and only a few products are made to customer orders. Gaining efficiency and cutting cost in supply chain play an important role in IKEA’s low price strategy. Imagine each package of an IKEA’s product like a brick of the LEGO’s toy, when it joins each other to build beautiful furniture.

 

By Phong Nguyen

Source:  

<http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/index.html>

<http://supplychainsrock.blogspot.com.au/2008/03/ikea-and-supply-chain-super-hero.html>

<http://www.joc.com/packaging-ikeas-supply-chain>