We received a number of letters on McKinsey's view of the future supply chain, which included some thoughts on building different supply chains for different SKU groups based on a segmentation analysis.
Several of those letters are below, including our Feedback of the Week from James Vinces of Coco-Cola, who says that cost pressures can often get in the way of doing the smart supply chain thing.
You will that letter and others below.
Feedback of the Week - on Inventory Segmentation:
The supply chain segmentation has been a recurrent theory nowdays within different experts' investigations, and indeed it has to be for some strong reason.
From my point of view, I have no doubt that this is the best way to face actual uncertainty environment. However, I think that the constant low-cost pressure under what the companies are everyday, focus them only on the short-term, driving them to forget the sustainable and profitable long term base needed. That´s why I think that companies are going to learn this theory, the "hard way", I mean, only when they begin to lose sales.
Hope this point of view is valuable for your magazine.
Technical & Supply Chain Manager
The Coca-Cola Company
More on Inventory Segmentation:
Good article. What should be added is the optimum Supply Chain strategy that should be adopted under each of the four scenarios
Prof NYU Polytechnic
Wow! What a great idea!
It is about time that the “Big Guys” picked up on it, some of my colleagues were promoting it 10+ years ago.
When I worked for a multi-national 3PL (ModusLink) in 2000, they had actually developed planning and inventory management systems using this methodology.
For a great in-depth explanation and background on “Volume and Variability”, see the article “Solving the Supply Demand Mis-match” by Kate Vitasek, Karl Manrodt and Mark Kelly, in the Sept/Oct 2003 issue of Supply Chain Management Review.
Look for “Managing the Supply Demand Mis-match under the “Articles” page on the SC Visions Website www.scvisions.com
Dan – I have attached a copy for you personally.
Principal Consultant and Chief Researcher
Supply Chain Visions
I think this is “spot on”…the question is how do we get ready? There are limited studies of actual examples of such flexible and “double jointed” supply chains. Who can design and implement one…or who can study one that is in existence and see how flexibility may increase market share…or avoid cost by having the ability to “get around” things like the Natural Disaster in Japan? This is really interesting stuff…we should all keep our eyes and ears open.
A company's competitive strategy differs depending on where it is situated. Multi-nationals (MNCs) with operations in Asia typically compete on cost and hence strive towards operational excellence. With the luxury of simply relocating to a cheaper location (as in the case of Motorola in Singapore and Malaysia), it only shows that cost is still a major contributory factor to strategic decisions. Having said that, we are beginning to see SMEs accept a higher cost model in preparation for their changing consumer landscape. SMEs realise that their competitive edge differs from that of larger companies and are capitalising on this fact through the movement on the mechanisation/systemisation matrix.
KOH Niak Wu, Ph.D.
Singapore Institute of Manufacturing Technology
Overall I think it was an excellent piece on supply chain segmentation. I have a few thoughts on the SKU analysis:
I think it was a very well laid out analysis, but I wonder how dedicating/locating facilities based on this analysis can ever be “clean”. For instance, if this SKU intensity analysis were done on a CPG manufacturer such as, for lack of a better example, Kraft – then I can’t imagine not finding a situation where this analysis could divide manufacturing of similar SKUs that should logically be produced together. Let’s assume Cheddar Cheese to be a high volume-low volatility SKU, along with Nabob coffee (high volume-low volatility) SKU, and then we can have Cheese crackers (high volume high volatility) and some other Nabob coffee SKU (high volume high volatility).
The article, albeit probably simple to illustrate the point, talks about having a facility dedicated to managing each type of volume/volatility combination, and in this case, would there be one facility producing Cheddar Cheese and Nabob Coffee, and the other producing the other brand of coffee and Cheese Crackers? Does it make sense to segment the manufacturing of cheese products if they are really similar based on volatility/volume (shredded cheese, sliced cheese)? I think the manufacturing can be sorted out, as in today’s world, large manufacturers have multiple facilities anyway, but what about logistics? What if the raw inputs of Cheese are being sourced from one big supplier (putting it simply) located in India, and the analysis suggests having the facility for some Cheese SKU in North America?
I’m not an expert, just curious about the topic.