Supply Chain Management

Tuesday, February 5, 2013

Cloud Computing: The future of Supply chain management

In today’s fast-moving business environment, most companies are striving to operate a more dynamic supply chain to respond to rising volatility in customer demands and market conditions. Because supply chains are increasingly powered by information technology, flexible IT-based solutions are an increasingly important part of a supply chain design. Against this background, it is no surprise that the topic of “cloud computing” is generating intense interest.

Cloud computing promises to enable a wide and powerful range of capabilities; yet its potential uses are exceptionally broad and difficult to foretell. What is certain is that—in the years to come—it will radically reshape how computing power is sourced and managed, how information is controlled, and the economics of supply chain information technology.

Profound implications

When evaluating the potential of cloud computing, supply chain executives face a different set of challenges from their counterparts in other key business functions. Specifically, they need to pay close consideration to several fundamental changes that adoption of cloud computing will drive in supply chain:

· New competitors: Cloud computing has the potential to enable start-up companies to establish themselves in a short period of time without significant investment in infrastructure, disrupting the established competitive landscape.

· Speed to market for new products and services: The pace at which new revenue-generating products and services are introduced has put growing pressure on supply chains in recent years. Cloud computing will accelerate that pace even more.

· Large-scale transformation: New competitive threats and shortening product and service life cycles will drive companies with traditional, infrastructure-intensive supply chains to re-invent themselves, adopting cloud-based supply chain solutions to enhance competitiveness. As a result, supply chains will become more dynamic, more scalable, and more capable of supporting the financial objectives of boards and shareholders.

Cloud computing is particularly applicable to supply chain activities where extensive customization is not required, or when the activity is performed sporadically (such as a sourcing “event”), or is not a “core” part of what makes the company unique. These activities are likely to be the first to make the transition to the cloud. They include planning and forecasting, logistics, sourcing and procurement, and service and spare parts management

Yet the promise of cloud computing also raises concerns and risks that executives must take into account when formulating their strategies. Collaborating with the existing eco-system, very few companies control, own, or operate their entire supply chain internally from end-to-end. So decisions about using cloud technology may involve multiple partners, creating complexities and sensitivities between the participating organizations. Security is another major prime concern. Whether operating on traditional or cloud infrastructures, companies have an absolute need to protect their products and customers. Lost data can lead to lost intellectual property, lost products, lost customers and lost business.

Approaching the tipping-point

Considering the risks, it is not surprising that companies are moving relatively cautiously towards leveraging cloud technologies in their supply chains. However, studies in various sectors show that interest in the potential of cloud in supply chains is already strong. It will not be long before this high level of interest in SaaS in supply chain progresses into rising adoption of cloud-based services. Historically, supply chain operations have proven to be adept at adopting and capitalizing on innovative technology solutions, and the experts believe cloud will be no exception.

With capital already tied up in IT infrastructure, the next decade will see supply chains augment existing solutions with new technologies that will further enhance their speed and flexibility going forward. To date, these innovations have included bar-code/RFID tagging, mobile applications, and advanced analytics.

Cloud computing likely represents the next step in this progression. When this happens, we believe cloud computing will lead to a revolution in the way more supply chain services are provided, shifting away from traditional, contracted outsourcing models to more flexible, transaction-based models.

Initial steps to entering the cloud

As companies plan and prepare their cloud strategies, there are six initial steps that Accenture believes they should take. These are:

1. Develop your strategy: Which processes should you retain internally, and which processes might best be outsourced to a cloud-based services provider?

2. Define the business case: Develop a detailed ROI and risk analysis. Insist that prospective suppliers provide data-driven analyses to quantify the anticipated benefits, based on total cost of ownership.

3. Set the standards for success: Define what success will look like. Clearly, it will not be based solely on costs, so be sure to define the sequence and scale of benefits: flexibility, scalability, speed to market, etc.

4. Survey the market: Cloud computing is basically a new paradigm, with regularly emerging capabilities. Make a concerted effort to stay on top of developments.

5. Collaborate with supply chain partners: One of the benefits of cloud-based applications is easier integration, so it is particularly important to involve supply chain partners in decision making.

6. Evaluate frequently: Start with low-hanging fruit, and measure as you go along to ensure that the hoped-for benefits are being realised.

References:

How to Position 3D-Printing in Supply Chain

3D-Printing refers to the technology where we use raw materials such as plastic and metal, put them together layer by layer to “print” 3D objects. 3D-Printing is still in its infancy as it is mostly used by engineers to create prototypes. However, as this technology is becoming more and more affordable. People already started to predict its implications on global supply chain, if one day 3D-Printing is cost-effective enough to be applied into mass production.

Most of articles tend to claim 3D-Printing may put global supply chains out of business[1]. This opinion comes for reason. The cases of IKEA and Tata indicated how cost could be reduced by redesign the supply chain. IKEA and Tata both focus on its product design while outsourcing its assembling work to local manufacturers and even customers, which is so-called institutional innovation[2]. 3D-Printing takes “innovation” to extreme. It doesn’t require assembling work since the final product is printed out. It even skips the manufacturer and transporter in the supply chain, leaving designer and customer alone. A typical business process supported by 3D-Printing would be like:

However, I personally think 3D-Printing would be a complement but not an alternative to supply chain, considering its current situation and predictable future improvement.

The biggest obstacle impeding 3D-Printing to replace traditional manufacturing arises from the nature of materials. The functionality and quality of any product require usage of various materials. 3D-Printing has to deal with the physical properties of different raw materials. Possible problems may appear in how to convert raw materials into adaptable powder form and how to ensure the adhesiveness of adjacent layers. 3D-Printing might be a good choice for producing widgets using one specific material, but surely not for complex final products.

Besides the limitation of technology, business is another concern. Mass production is the key to reduce cost according to the economic of scale. It is true that 3D-Printing will eliminate most of transportation expenses. However, on the current stage, it cannot compensate the cost of a 3D-Printer, despite the fact the speed of printing is now far behind the benchmark of mature manufacturer.

In my opinion, 3D-Printing will have two ways out just as "2D-Printing". Firstly, it will largely reduce the cost of producing customized objects. It will meet the needs of a small portion of people like engineers and designers. Secondly, it will become popular in communities such as neighborhood, offices and universities. It is due to the high cost and random usage just as normal printers. As the current situation of normal printers, it is still an optional device for personal use but largely equipped in communities.

However, technology is always beyond our expectation. 3D-Printing itself is an unanticipated one. As the technology becomes mature, we will see how it will affect the global supply chain. The global supply chain is established not in one day. It is now the vein of business operation. It takes new blood a long time to become an inseparable part of it.

Sources:

[1]3D Printing: The end of globalized supply chain?

http://www.supplychaindigital.com/global_logistics/3d-printing-the-end-of-the-globalised-supply-chain

[2]How Ikea Designs Its Sexy Price Tags

http://karlulrich.pbworks.com/f/IKEA-cost-article.pdf

Learning from Tata's Nano

http://www.businessweek.com/stories/2008-02-27/learning-from-tatas-nanobusinessweek-business-news-stock-market-and-financial-advice

How to predict risk and operate agile

After reading the first week’s material, I found that how to manage the risk is a permanent and important topic in the supply chain management. One of the trends that affect supply chain management mentioned in the article “Your Next Supply Chain” is the increase in the level of risk that many companies are exposed to, such as catastrophic disasters, changeable cost of raw material and labor.

From the article “Stress Test for Global Supply Chain”, we learned that the global supply chain is as complex as the human body. Some tiny tears can cause someone to suffer terrible failures. For example, the earthquake in Japan in 2011 was a test for the global supply chain, as Japan is the world's third largest economy and largest importer of semiconductor and other electronic devices. Companies have to deal with all kinds of threats and emergencies in their supply chains and equip with high resilience.

Then how a company deals with volatility and uncertainty is critical in the highly competitive market. I found an article on the risk in the supply chain from McKinsey Quarterly, “Agile operations for volatile times”. https://www.mckinseyquarterly.com/Agile_operations_for_volatile_times_2968

This article introduces three companies that are seeking methods of agile operation and solutions for increased uncertainty. The first example is a pharmaceutical company faced the operational challenges that shortfall from upstream causing downstream production delays which threatened to its profits and reputation. Then the senior leader tried to find the problem first, and then to mitigate risks in the sources of supply chain. To pinpoint the problem, they listed a set of high-priority products, and then catalogued the risks related to those products. Then they assessed the impact of those risks into numerical score and summarize the following chart:

Image source: https://www.mckinseyquarterly.com/Agile_operations_for_volatile_times_2968

After this research, the leaders of company learn their most vulnerable part lies in relying on particular manufacturing plant. The company leader also established a team for supply chain to track risks. Through these measures, the pharma company lowers the risk and avoids catastrophe it may face.

Another example is that an automaker’s model of demand predicting is not good enough in a more volatile macroeconomic condition. To adjust to a volatile condition and what’s more important, to get the proper demand, their team simulated a model including 15,000 scenarios with Monte Carlo simulation to generate the probability distribution of demand. When creating the model, the company considered four factors which are believed matters most: growth in key markets, unpredictable regulation, regionalized scenarios in mature markets, and the volatility in new markets. By doing this, the company can respond more quickly to the changeable demand and increase the operational flexibility.

The third example is that a global medical-device manufacture tried to keep its traditional products prestigious position and attempt more flexible production approaches. The leaders of the company estimate that the new approaches have lower the capital cost for their products compared with their traditional methods. On the aspect of human resource, they require the product developers and operation staffs acquiring both technical skills and the ability to identify uncertainties. This company is a good example to focus on the ability to preempt, detect and deal with risks.

The three methods above is the way to assess sense and respond to potential risks. The faster you can deal with the risks, the more advantages you will have than competitors.

After reading this article, I found that in these three examples, company leaders should first sense and identify the potential risks. My concern is that it's maybe a little easier for those who are very familiar and experienced in their industries and areas. But it's still quite difficult to foresee and predict the risks, such as the threats from new technologies and novel ideas.

Gordon Murray's iStream

A newspaper article can catch the attention of any car enthusiast when “McLaren F1” and “SLR” appear in the first line. That’s what grabbed my attention when I began reading the article entitled “From the Master of Speed Comes a Lean, Green City Car”. The article goes on to describe a new car design by the creator of these iconic automobiles, Gordon Murray. Unfortunately, only one paragraph of the article is related to supply chain and few details are offered. A manufacturing process called “iStream” is mentioned and seems to relate to supply chain principles, so I’ve decided to explore this process in depth as the topic of this blog.

From the Gordon Murray Design website, the iStream process is highlighted as a car manufacturing process where the chassis and body are manufactured separately.[1] I don’t know anything about car manufacturing, but this doesn't appear to be very revolutionary to me. It seems like in all cars bodywork is manufactured separately and then the doors, hood and trunk are attached to the chassis. Although, his does have supply chain implications because components could be manufactured at different locations and then be brought together for final assembly, but this is no different than the supply chain issues faced by any other car manufacturer.

I did further research to find better reasons why iStream might be related to the study of supply chain management. I found that iStream could influence the outcomes of sustainability and cost reduction. The main reason that iStream could affect these outcomes is because of the use of a composite glass fiber and steel tubing monocoque chassis. This allows the production of cars to shift from heavy reliance on stamped steel, resulting in huge reductions in steel consumption and the related costs, including manufacturing energy savings of 60%.[2] This would also lead to huge reductions in the raw materials used for steel. Given the weight of steel in relation to glass fiber, transportation costs could also be reduced throughout the supply chain. As you can see, this element of the iStream process could benefit sustainability and cost reduction within the supply chain.

The new chassis design also allows for a more responsive supply chain. This is because the chassis design is relatively universal, so you can use the same platform to create multiple models. Moreover, it would require much less time to reset the factory.[3] With this flexibility, manufacturers could respond to demand fluctuation among different models more simply and efficiently by quickly being able to switch production from between models. This would allow the supply chain to be more responsive.

Gordon Murray proclaims that the iStream manufacturing process is a revolutionary advancement for automobile manufacturing. Do you think this process can revolutionize the automobile supply chain, or is it simply a PR effort?

[1] (Gordon Murray Design. iStream - Process. Retrieved February 5, 2013, from Gordon Murray Design: http://www.gordonmurraydesign.com/istream.php)

[2] (Squatriglia, C. (2011, September 13). Gordon Murray Frames a New Future for Automaking. Retrieved February 5, 2013, from Wired: http://www.wired.com/autopia/2011/09/gordon-murray-qa/)

[3] (Gordon Murray Design. iStream - Advantages. Retrieved February 5, 2013, from Gordon Murray Design: http://www.gordonmurraydesign.com/iStream-advantages.php)

Design and forecasting; the case of Zara Espana, S.A.

[1]The Spanish clothing and accessories retailer founded in the mid 1970s by Rosalia Mera and Amancio Ortega. The global fashion giant has its headquarters at Arteixo Spain and it is part of the inditex group who owns other brands like Massimo Dutti, Pull and Bear, Uterque, Stradivarius and Bershka. Zara who started its international expansion through Portugal in the early 1990s later entered the USA and French market in the mid 1990s. Its international expansion was deepened in the late 1990s where they entered the Mexican, Greece, Belgian and the Swedish markets. Currently, Zara is present in about 73 countries, which a huge percentage of their stores are company owned except few places where legislation is a hindrance for foreign-owned companies; where they franchise the stores.

The normal practice in the fashion industry in terms of new product design and getting the product into the market or stores is roughly six months that is the industry average. It is claimed by most fashion industry analyst that Zara needs only two weeks to design and develop new product and get it to its store. Consequently, Zara has resisted the normal fashion industry trend towards moving fast fashion production to relatively low cost economies and countries.

Zara's success is based on the principles of vertical integration, quick response, in-house production, a single centralized distribution center and a relatively very low advertisement. The global fashion giant controls most aspects of its supply chain; designing, manufacturing, distribution and retailing of its products to the companies retail shops. Looking in-depth into the design strategy of Zara its focused on the understanding the fashion items which its numerous customers wanted and deliver to them which is contrary to the normal fashion industry strategy of promoting predicted season’s trends through fashion shows, pageants which the traditional fashion industry uses. They use information systems to collect vital information for example, daily sales figures which allows its designers to estimate what type of clothes are selling very well. Their designer also has real-time information, which enables them to decide the type of fabric, color and cut to use when modifying or designing new clothes.

Zara Operations Diagram

Zara team uses information systems to track sales and preference of customers by PDAs, Internet, and other sources to get customers feedback on what product they would like to see more. This intelligence gathering is lead by Zara store managers, which finally determines what ends up on the companies store racks. In effect Zara uses this valuable data to allow the company to forecast on the products to be produced rather than guesswork. The goal of the company is to improve the frequency and quality of information systems to enable them provides the best designs trends to its customers. Zara uses software’s like C-Design and Corel Draw, which allows them to create and merchandise the company’s collections efficiently and quickly.

In a nutshell, Zara’s design and forecasting has been described by the Business-world magazine of India as the “the fashion imitator“ whiles the Director of Louis Vuitton fashion Daniel Piette also describes Zara as “possible the most innovative and devastating retailer in the world“ lasting the CNN describes Zara as the “Spanish success“.

Reference:

[1] http://en.wikipedia.org/wiki/Zara_(retailer)#Origins_and_history

http://en.wikipedia.org/wiki/Zara_(retailer)

http://www.slate.com/articles/arts/operations/2012/06/zara_s_fast_fashion_how_the_company_gets_new_styles_to_stores_so_quickly_.html

http://www.slideshare.net/amritanshumehra/zara-a-case-study