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2 , 2004 |
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This
week's audio interview with a leading supply chain expert...
Featured
Guest:
Robert Shagawat
– President & CEO, Shippers Commonwealth,
LLC
Click
here to play the full audio brief.
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Dan Gilmore
Editor-in-Chief |
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A recent Harvard
Business Review ran a repeat of the 1992 HBR classic
title “Staple Yourself to an Order,” by
Harvard professors Benson Shapiro, Kasturi Rangan, and
John Sviokla.
This is among the most well-known of any HBR supply
chain related articles, and it was great to read it
again. Of course, it triggered some thoughts and questions
twelve years after its original publication.
The basic thesis of the article can be summed up as
follows: the entire order management cycle, from sales
to delivery, is where the corporation really touches
the customer. This process often breaks down from the
customer perspective, and most company executives have
little clue how the process really works. Understanding
that process (“stapling yourself to an order”),
and making improvements will reduce cycle time and errors,
and improve customer satisfaction dramatically.
As the article states: “In the course of the order
management cycle, every time the order is handled, the
customer is handled. Every time the order sits unattended,
the customer sits unattended … Ultimately, it
is the order that connects the customer to the company
in a systematic and company-wide fashion … the
order is simply a surrogate for the customer.”
Having spent detailed time with 18 companies across
multiple industries, the authors found multiple problems
with most order management lifecycles. These include:
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Movement
of the order throughout the lifecycle, from pre-sales
quoting to order acceptance and fulfillment, is
of course a multi-function process that in most
companies is rife with opportunities to “fall
through cracks,” leading to delays and frustration
from a customer perspective. |
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These process gaps were
difficult to fix because of the internal and functional
orientation of the different groups responsible
for all the steps, and because few executives
– those with the power to drive change across
multiple functions - had any real clue as to what
actually happened with orders. Execs, even those
nominally responsible for functions like customer
service, usually had the process details and cycles
quite wrong. |
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Few companies applied
any systematic intelligence to order processing
and prioritization in terms of customer attractiveness
or profitability. Customer service reps made lots
of critical order decisions – often in a
vacuum. |
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Few companies use pricing
strategically, or make the effort to link order/customer
profitability to pricing strategies. |
The question
is, are we any better off 12 years later?
In some ways, very clearly we are. Probably the majority
of companies in the last 12 years have pursued process
re-engineering efforts that have specifically tackled
order cycle improvements, “order-to-cash”
processes, etc. Order cycle times have come down substantially
in most industries in the past decade. Order process
related Improvements have been made across nearly all
vertical industries. For example, many consumer packaged
goods companies, perhaps most famously Kraft in the
mid-1990s, have adopted a “one face to the customer”
strategy. This usually involves transitioning from multiple
order entry and shipping points by product lines to
single ship-bill processes across all products, using
“mixing center” DCs - all in the name of
improving the customer order experience. Dell’s
on-line ordering and rapid delivery model was really
just getting going in 1992.
We’ve invested millions in ERP, new management
systems, web order entry and status checks, sales force
automation, and supply chain systems to improve various
aspects of the order management cycle. In fact, though
more of a “vendor thing,” one supply chain
software CEO once famously said, “Whoever owns
the order owns the customer,” emphasizing the
importance – and stakes for software providers
– in being the application that is the center
of gravity for the order process.
But my sense is that while a lot of improvements have
been made, many if not most companies and executives
could still benefit from stapling themselves to a few
orders and seeing the process in detail from a customer’s
perspective. As just one example, though not using this
term, the HBR article clearly points to the need for
improved sales and operations planning as part of this
process – and few companies have really achieved
excellence in this area.
There’s a lot more worth saying on this topic
– we’ll pick it up again in a couple of
weeks. If you would like a copy of this classic article,
let us know through the feedback button – and
add your thoughts.
Do more companies need to “staple themselves to
an order” to understand and improve the order
cycle process? Do too many companies still have an “internal”
rather than customer view of the many steps from sales
planning to post-sales support?
Let
us know your thoughts.
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By Mary LaSelva, Group
Director, Frontline Events
This
Year’s Event Features New Interactive Auto-ID
Experience!
The Exhibit Floor at the upcoming Frontline Solutions
Conference and Expo will feature the leading suppliers
and latest innovations in RFID, EPC, BAR CODE
and Mobility Technologies. With more than 150
exhibitors demonstrating hundreds of products
and solutions, Frontline is geared to be the largest
event covering the entire technology spectrum
of solutions for organizations seeking to integrate
emerging technologies within their existing supply
chains to make them smarter, better, faster, and
more secure.
“Attendees are looking to build smarter
supply chains by making intelligent purchasing
decisions,” said Kerry Gumas, vice president
of Advanstar Technology Group, the event’s
producer. “Frontline 2004 is their best
opportunity to compare and contrast the best in
RFID, Auto-ID, and mobile supply chain solutions.
This event is all about real supply chain implementations,
real-world examples, and best-of-breed technologies.”
Enterprises and technology managers racing to
comply with recent mandates set forth globally
by retailers, manufacturers, and governments,
face an urgent need for information about standards,
compliance issues, implementation and most importantly,
ROI.
Frontline 2004 brings together key decision makers
from major industries including: manufacturing;
retail and consumer packaged goods; government
and defense; as well as pharmaceutical and healthcare.
Supply chain professionals from BASF, Boeing,
Sears, Crate & Barrel, PEPSICO, Harley-Davidson,
and hundreds of others will converge to learn
about new technology solutions from suppliers
such as: IBM, Intermec, Philips Semiconductor,
Matrics, Alien Technologies, Texas Instruments,
and more than 150 others ... For
complete column, click here.
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According to US Department of Commerce statistics,
what is the ranking, from least to most, among
manufacturers, retailers and wholesalers in terms
of inventory carried as a percent of sales?
Answer below
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Feedback
is coming in at a rate greater than we can publish
it – thanks for your response. We had a
large number of letters on our First Thoughts
piece two weeks ago, asking if more "lights-out"
warehousing was in our future. Our Feedback of
the Week on this topic is from David Stainback
of Dan River, who wonders whether labor dynamics
will move to deter greater logistics automation.
You'll also find several other very thoguhtful
letters on this subject below - please take a
look. We had several more letters both on this
and other topics that we will print next week
as well.
For more complete comments
from readers, click here.
Keep the dialog going! Give us your
thoughts on this week's Supply Chain topics.
feedback@scdigest.com
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View
Full Article >>
This is a little surprising
- Computer World and others are reporting that after
several years and many millions of dollars, it is pulling
the plug on an ambitious e-procurement project based
on Oracle Applications technology.
It’s a little unclear what this project, named
“Everest”, really involved, especially as
Ford had at least for awhile also been very active in
using the Covisant network for on-line procurement.
But nonetheless, the company has stated it was shelving
Everest to return to a mainframe-based application it
has been using previously. A Ford spokesman said, “We
completed an evaluation of all the production and non-production
procurement systems and made the decision to transition
back to the proven, current system.”
Everest had gone live in 2000, and was in reasonably
widespread use within Ford, by some accounts. The Computer
World article sites performance problems as the primary
cause of the shutdown, and notes some web-elements of
the system will be re-written to work with the mainframe
app, which had continued to be in use for some suppliers/
transactions.
Well…we haven’t had a nice public software
debacle for some time. My sense is that most unsatisfactory
e-procurement projects had less to do with the technology
and more to do with difficulty in changing processes
and people, but of course very few companies operate
on the scale of a major automotive OEM, with tens of
billions of dollars in annual purchasing spend.
It also seems that after the original Ariba/Commerce
One, etc. hype faded, that as with most e-commerce potential,
slowly but steadily more and more sourcing is in fact
being done on-line, with strong benefits to the supply
chain.
I’m also sure IBM is glad to hear another piece
of evidence that, contrary to occasional rumors of its
demise, the mainframe is far from dead ...
Don’t have any real comments on this, but we thought
it was worth passing along. If you have any feedback,
please let us know.
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View
Full Article >>
Article in
this month’s Inside Supply Management on an approach
to driving best practice into supply and sourcing organizations,
using an actual case study to support the points.
I liked the use of “the chip game” to help
sort out priorities. Using this exercise, supply chain
managers are given a fixed number of chips, and forced
to allocate those chips (place bets) on different supply
chain attributes, such as “lowest cost producer,”
delivery performance, flexibility, etc., under the quite
logical theory that the company can’t be superior
to the competition in all categories, and that trade-offs
are real. This was included as part of a SWOT (strengths,
weaknesses, opportunities and threats) analysis, which
I’ve used many, many times for an overall business
or strategic analysis, but not for something as specific
as sourcing effectiveness.
The article also suggests some “best practices”
across several sourcing and supply chain areas, including:
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Sourcing
business rules: Use enterprise-level policies
with local execution |
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Proactively manage inbound
freight charges: clear accounting for inbound
costs, including expediting charges; have all
inbound costs clearly charged to the product |
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Manage information across
100 percent of shipments: don’t view shipment
tracking as “overhead,” but as an
important value-added service that can reduce
costs |
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Capture and maintain
mode-specific data for inbound goods: look for
opportunities for less costly shipments and to
root out expedited freight costs |
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Clearly link organizational metrics to individual
performance metrics |
The authors
then recommend comparing an organization's methods and
practices to the best practices contained in the SCOR
model.
In the case study used as a thread throughout the article,
the company, during an eight-week process, identified
over $2 million in potential savings from adopting these
and other best practices, which if realized would add
10% to the company’s net earnings.
The main thrust of the piece is that sourcing is a strategic
part of the supply chain, and needs to be treated as
such. In doing so, companies often find big dollars
waiting to be tapped. Hard to disagree with that.
Is sourcing not viewed strategically enough in many
companies? Why not? What’s the key to linking
sourcing practices to the rest of the supply chain?
Let us know your thoughts.
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View
Full Article >>
Interesting
piece from analyst firm META Group on the potential
for use of RFID in the pharmaceuticals industry. META
predicts use of RFID in pharma will soon surpass the
technology’s penetration of the CPG-retail industry.
META identifies five likely benefits from RFID in pharmaceuticals:
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Inventory
Management: Along with enabling improved
inventory visibility, RFID technology can merge
identity with environmental information to create
an individualized expiration date based on the
environment's effects on the active ingredients.
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Recalls:
In the event that a product recall is initiated,
pharmaceutical organizations would be able to
respond more efficiently and quickly in identifying
the recalled product. |
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Patient Safety:
By combining RFID-tagged drugs with other positive
identification measures (e.g., patient identification,
unit-of-dose bar coding), the FDA estimates that
most of the 1.25 million adverse reactions and
7,000 patient deaths annually in the United States
due to drug errors could be prevented. |
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Product Diversion:
Diverting drug shipments from low-cost regions
to higher-cost regions costs pharmaceutical organizations
millions of dollars annually. Positively identifying
shipments and tracking them to their intended
destinations could significantly reduce the size
of the "gray market." |
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Counterfeiting: Drug counterfeiting
is a serious health issue, particularly in poorer
regions of the world. Current recommendations are
to deploy two forms of anti-counterfeiting measures
— one visible (e.g., holograms) and one invisible
(e.g., RFID tags) — to implement formidable
obstacles to counterfeiting. |
Despite recent
pronouncements from the FDA, META says “EPC”
should not be the preferred RFID approach for pharma,
as EPC chips can be easily “cloned,” making
many of authentication capabilities suspect.
I do think the inherent value proposition for RFID in
pharma is clearer than in CPG-retail, though in the
above list of benefits even here the line is a little
blurry. For example, on the inventory management point,
RFID combined with sensors does provide some inherent
benefits for tracking environmental conditions that
other technologies cannot provide. However, I have not
seen anything that shows how RFID is inherently better
for recalls or product safety than the proven and less
costly bar code technology. As I and many others have
commented, it would be great if these and other pieces
more specifically identified the incremental benefits
of RFID over existing technologies in these applications.
Nonetheless, given the current market momentum in pharma,
regulatory pressure, the high value of the tracked goods
relative to tags costs, and the apparently big dollars
involved in counterfeiting and gray market activities,
I think META is right that pharma and RFID will move
aggressively forward.
Do you think the potential value and other market factors
will cause RFID to be more quickly adopted in the pharmaceutical
industry than in retail-CPG? Or could the industry gain
many of the benefits with just better use of existing
technologies? Is the ability to clone an EPC a killer
issue for its use in this market? Let us know your thoughts.
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There is a dilemma facing the "lights out"
concept of warehousing in the U.S. As manufacturing
requirements in the U.S. decline due to imports, there
will be an increase in the available pool of employees
to utilize in the warehousing and distribution function.
This growing resource could put pressure on wages to
stay low due to the demand for more jobs. This, in turn,
will make it more difficult for companies to justify
the expense for technological advancements. The second
factor is the drive by retailers to force warehousing
back to the supplying company. Thus, creating orders
with smaller quantities more frequent. This also limits
automation due to the complexities of both pick/pack
requirements and the proliferation of SKUs. As such
I am skeptical that the U.S. will adopt a strategy of
"lights out" warehousing.
David Stainback
Dan River, Inc.
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First,
let me tell you that I am impressed with the rapidity
at which you created a newsletter of such quality. I
often find your columns to contain topics that are both
interesting and informative to me. I am compelled to
answer your call for feedback on Automation in distribution
centers and share with you some of my experiences in
the domain.
During my career in the Logistics industry (which started
in 1990), I had the opportunity to work on several automation
projects: pick-to-belt/high speed sortation systems,
automated pickers and AS/RS. I have to say that I have
been less than impressed with most of them.
I often find that Automation projects in North America
have been justified using a flawed process (consider
only the good points of automation and the bad points
of the current situation). People tend to be very impressed
with technology almost to the point they become inebriated
and lose touch with reality. Factors such as becoming
a leader, having something nobody else has, becoming
a show piece for the organization, discovering the magic
solution to current problems lead to overly optimistic
ROI on Distribution Center automation projects. A sure
consequence of inebriation is a bad hangover: once the
new technology is “turned on” those originally
uplifting feelings quickly dissipate only to be replaced
by fear, anger, and disbelief. The search for the perfect
scapegoat immediately ensues.
In all the projects I have been involved, economical
benefits of implementing the automated equipment have
been overestimated (making assumptions that the technology
will run at 100% potential all the time, which is impossible);
and other cost such as maintenance and lost flexibility
are being underestimated. This happens both because
of the inebriation effect and the fact that equipment
suppliers want the client to sign on the dotted line.
How many High Speed sortation systems have been taken
down the day after the depreciation was completed? In
my short experience, I have seen that happen several
times. In most cases when I was asked my opinion on
such investments I recommended to either abandon the
idea or to keep the investment to a minimum that would
yield the best of both worlds.
I am not totally against Automation, but people need
to understand what conditions are favorable for it.
Too often people forget the flexibility that a more
manual, human based operation provides. Also, some organizations
basically are poor managers and can’t get a fair
days work out of their employees, they use Automation
as a way to avoid the people issues, but let me tell
you, it can be a very costly alternative. As you mention
yourself in your column, often implementing better Labor
Management practices and productivity expectations will
bring just as much savings (if not more) at a fraction
of the investment, while not losing the flexibility.
Keep up the good work!
Yves Bélanger
LxLi
I
have been designing DCs for my entire career since graduating
from Northwestern with a BSIE in 1988. I believe I have
seen or at least heard of most types of warehouse automation
in my stints at a foodservice company, office products,
consulting, and the biggest retailer (OK, the biggest
company) in the world.
Here are some points to ponder:
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Flexibility
can be an issue with automation. I know of an
example where an expensive system was installed
for a specific carton size range, but the requirements
changed several years later. It was a disappointment
that smaller cartons were not spec'd out, even
though they were not a requirement right then.
When designing, always plan for an easy (or at
least tolerable) method to double the capacity/volume/throughput
and plan for a lot of "what ifs". |
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AGVs have a bad rap
... and seemed to have lost some popularity ...
lots of speculation as to why. Could be the flexibility
issue. |
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Target has some very
cool automatic de-palletizing robots. A firm in
Minnesota somewhere west of Minneapolis makes
them. Wal-Mart still uses humans to do this job. |
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One additional reason
why other countries invest more in automation
is that they can be more long term on the financials.
These systems cost a lot of money, and generally
speaking the US wants a very short payback, while
Europe can stomach a longer payback time period
on the financial analysis. |
Lights
out has paid off for a number of our customers. How
about $938.00 per slot for lights out versus $1350.00
per slot conventional two years prior? Now factor in
the reduced product damage and wage savings. I believe
lights-out is ready to break open. Our order desk and
quote activity sure says so.
Daryl Hull - Director
Modern Handling Equipment Co
I like your
article, but I think that you might have missed two
important factors in justifying automation. I think
it is a combination of reduced space, improved order
accuracy, increased throughput and reduced overhead.
Companies who are able to effectively manage the listed
factors in their operations can gain a significant competitive
advantage over their competition. I could be biased
considering I work for a European company, but I do
see many companies looking to change their distribution
models to include many of the techniques used by European
companies.
Quite to the
contrary of your article's supposition, I think we
are moving away from this "lights out" strategy.
In addition to the factors mentioned about not having
the same land and labor cost pressures in the U.S.,
I also see the following with my consulting clients:
Distribution operations are getting squeezed from both
ends of the supply chain to add more value added services,
and hence MORE labor into the distribution center. Customers
want more customization and to be able to order in smaller
and smaller unit loads. Therefore the DC has to do more
piece pick and small package shipping. Also, to keep
the customers happy, manufacturing is asking the DC
to do more postponement to be able to manage inventories
better. The further back in the final package strategy
you can keep the inventory the fewer SKU's and better
management of stocking levels you can have.
All these factors are driving the distribution center
to have more labor and add more value to the supply
chain, not less. I would never look at Europe as the
thought leaders in this area. Their penchant for high
cost solutions has often priced them out of markets
and made their cost of goods in Europe much higher than
in the U.S.
Dale Brubaker
Operations Associates
I have discussed
this topic many times with our European partners because
of the distinct contrast between US and European practices
and policies.
Another factor driving a European view of returns and
feasibility in this arena lies in the sea of regulations
that makes the creation of flexible workforces and declarations
of redundancy difficult and costly. There are also stringent
environmental limitations on what might be done with
land, buildings, and emissions. Land and labor cost
factors aside, a principal object becomes the reduction
of human labor to absolute minimums, to avoid the challenges
in upsizing, downsizing, rightsizing, etc.
Of course, the Europeans then encounter a heavy price
to pay in the loss of flexibility when highly automated
(i.e., rigid) solutions are in place, and changes and/or
workarounds are desirable - even "necessary"
in US eyes. In those cases, the US approach to solutions
has a real advantage.
My contention for a couple of years has been that we
in the US need to be thinking about what drives the
European solutions, and their view of what constitutes
a sound business case. As time goes on, we are likely
to face increasing constraints in the availability of
desirable land, regulatory oversight (both local and
Federal), labor costs, environmental concerns, and the
like. And, as the overall economy continues to grow,
we will return to upward pressures on labor costs.
Not to say that we will resemble the Netherlands anytime
soon, but we do need to accommodate a broader range
of thinking than heretofore. Our ultimate solutions
are likely to attempt to capture the best of both worlds.
Art Van Bodegraven
The Supply Chain Group
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