sc digest
September 18, 2015 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet Understanding the Supply Chain "Efficient Frontier" bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Continues bullet Trivia      bullet Feedback
bullet New Expert Insight bullet New Videocasts


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Four Best Practices to Improve Quality in the Supply Chain

first thought


Supply Chain Graphic of the Week
The Omnichannel Crawl, Walk, Run

Cross Border eCommerce Volumes Expected to Surge
UAW Seems Poised for Modest Contractual Win
US Truckload Rates Still Rising, but at Slowing Pace
Toys R Us Lowers Free Shipping Threshold


September 8, 2015 Contest

See The Full-Sized Cartoon and Send In Your Entry Today!

Holste's Blog: DC Environment Exposes Seasonal Workers & Companies to Numerous Risk Factors


Download Case Study:
Four Best Practices to Improve Quality in the Supply Chain


Weekly On-Target Newsletter:
September 17, 2015 Edition

New Cartoon, CSCMP Giving Back, Deadly Trucks? DC Equipment vs Systems and more

Moving Beyond Costs to a Strategic Import Approach

by J. Anthony Hardenburgh
Vice President, Global Trade Content
Amber Road

Conquering the Omnichannel Challenge


What percent of revenue does the average large company spend on its procurement organization (people, technology, etc.)?

Answer Found at the
Bottom of the Page

Understanding the Supply Chain "Efficient Frontier"

Doing the job I do has many challenges, but often too some interesting rewards. 

Just a couple of months ago, I started thinking about the concept of supply chain tradeoff curves. In my opinion this is a topic that is vastly under-examined and not well understood beyond a sort of surface level.

You are not very far into your supply chain education - probably starting in many cases with textbook no. 1 - before as a student you are exposed to this core concept. The basic notion: there are tradeoffs that must be managed between two variables or outputs - say inventory levels and customer service. At any point in time, if a company decides to reduce inventory levels, that gain will result in a deterioration of service levels, or vice versa - improving customer service will take higher inventory levels. As the name says, it's a tradeoff, moving along the curve in one direction or the other, by chance or strategy.


"So the key point is that it is generally hard not just to get to the curve itself from where your current dot is really at in the attainable region, as discussed above, but it in some cases it can be challenging even to move along the curve."


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Ditto with transportation costs versus inventory levels, or more fundamentally supply chain cost versus service. There are others (e.g., manufacturing agility versus cost).

But after seeing these classic tradeoff curves in college, as a core concept in supply chain theory, do we ever see or use them again? Not much if at all, in my experience.

So pondering this just this past July, I emailed Dr. Michael Watson of Northwestern University and his new firm OpEx Analytics. Watkins is also a regular SCDigest contributing columnist and a true world class analytics expert. My question: are tradeoff curves real?

His answer: "I believe they are very real. I also believe that you can shift the curves with innovative technology or processes - but even then there are still trade-offs you must manage."

So we agreed this was a topic worth exploring in more detail, though we haven't returned back to it in the intervening weeks.

So this week I am at the excellent Logility software Connections user conference in San Diego, and run into Dr. Sean Willems, who is simply one of the sharpest minds we have today in supply chain. Willems co-founded inventory optimization company Optiant, which Logility acquired a few years ago. He remains Logility's chief scientist, and just recently left his alma mater MIT to take the position as the Haslem chair of supply chain analytics at the University of Tennessee. Let's just say his credentials are pretty solid.

Willems was giving a conference keynote presentation the next day after I ran into him. What's the topic going to be, I asked at the evening reception.

"Tradeoff curves," he tells me. My supply chain spider sense is tingling a bit. It turns out.Willems has been thinking hard about tradeoff curves for the last few years.

His presentation, which I will do my best to summarize here, was outstanding. I will start by noting that Willems likes to use the concept of supply chain "efficiency frontiers" in place of tradeoff curves, which I will explain in just a bit.

He used the graphic below to illustrate how this concept is usually presented, using the supply chain cost versus customer service tradeoff.

Source: Sean Willems

See Full Image

This curve should look familiar - but with a bit of a twist. The tradeoff curve itself represents what is achievable today, based on current resources, technology, etc. But importantly, that does not mean that a company is currently operating on its true curve. Placing a "dot" somehwere on the chart representing current cost and service performance could be anywhere  in "attainable" region - and the farther away from the curve that dot is, the worse the supply chain organization is currently performing versus its current potential.

That is why Willems uses the term "efficient frontier" - the curve represents the border line between the attainable (lowest cost for a given service level) and the unattainable (again given current resources). And he adds that even getting to that efficiency curve from where a company is really operating today is generally not easy.

"If it was, we'd just do it," Willems noted.

He gave another example. Is there a tradeoff between the "cadence" of supply chain planning and supply chain costs? Now that is an interesting question. In other words, if a company moved from monthly S&OP to say weekly S&OP, would that deliver lower supply chain costs?

It might, Willems said, as there would be less latency of information between planning cycles. But maybe it's the opposite. The planning might actually become less efficient by trying to do it so frequently, and maybe costs would actually increase with a faster cadence.

Willems then made the key point - a given company has no idea what lies to the left or right (faster or slower cadence) of using a monthly planning cycle. And circling around, this fact is in large measure why I ask Watkins if supply chain curves are real back in July. My mind was in the same place as Willems described this scenario in San Diego. You are on a tradeoff curve, but don't know what it is.

And this, Willems said, is where analytics can play a key role. Analytics can create that curve of tradeoffs between the planning cadence and supply chain costs (or numerous others), calculating for example where and if more frequent planning would have improved decision making that lowered costs - or the opposite.

I am not sure if this is a generality or for some specific company, but Willems then showed a chart that indicated the optimal planning cadence was actually about 22 days - let's say three weeks - rather than a month. But again, for most companies, making this change from monthly to thrice weekly S&OP cycles would take a major effort and process change, and would obviously not be without risk.

So the key point is that it is generally hard not only to get to the true curve itself from where your current dot is really at in the attainable region, as discussed above, but also even to move along the curve once you are there.

Now let's get back to the efficient frontier. There isn't one curve, Willems says, but several - and this gets to the point of not moving along the curve, but fundamentally shifting it. Not trading off between say costs and service, but improving both at the same time.

That is shown in the image below. A small shift from the current efficient frontier Willems calls the "attainable" - what a company can achieve in immediate term, with small changes to resources, operating policies and better use of technology.

Source: Sean Willems

See Full Image

But then there is also a long term curve, or what I might suggest Willems should call the "aspirational." This is a major shift of the curve, what a company might be able to achieve in the future, with a business case that justifies changes to resources, operating policies, and in my experience also usually a major change in supply chain technology.

I am out of space, but am very excited about where this can go, both from Willems' own research and some things we are going to do in SCDigest, now re-energized on this topic. Maybe some collaboration between several of us.

But I will sum it up like this: being a curve shifter is simply what supply chain excellence - and generally supply chain transformation efforts - is all about. More soon.

Any reaction to this discussion of supply chain tradeoff curves and the efficient frontier? What can you add to the discussion? Let us know your thoughts at the Feedback button below.

View Web/Printable Version of this Column

September Videocast:

The Six Uses Cases for Distributed Order Management Systems

From Omnichannel Fulfillment to Inbound Inventory Orchestration, Understanding DOM Functionality and Value in Detail

Features DOM insight never before brought to market.

Featuring Dinesh Dongre,
VP Product Strategy, Softeon and SCDigest's Dan Gilmore.

Tuesday, Sept. 22, 2015

September Videocast:

Townhall Meeting! The State of Retail-Vendor Relationships 2015

Results from SCDigest's New Benchmark Study of Retailers and Their Suppliers - and SCDigest's New Index to Measure the State of the Relationships

Featuring Interactive Event Format - Live Expert Panel and Audience Questions

Greg Holder,
CEO, Compliance Networks, Kim Zablocky, President,
RVCF (Retail Vendor Compliance Federation), Victor Engesser, Retail Executive Advisor, RVCF and SCDigest's Dan Gilmore

Thursday, Sept. 24, 2015

New October Videocast:

Making Supply Chain Business Intelligence Pay Off for Mid-Market Companies

New Technology Options and BI Use Cases Delivering Competitive Advantage and ROI

Featuring Donna Fritz of TAKE Supply Chain,Tom Dadmun, former head of supply chain for high tech manufacturer Adtran and SCDigest's Dan Gilmore

Thursday, Oct. 15, 2015


Catching up on some miscellaneous Feedback this week - we're behind.

Feedback on SCDigest Omnichannel Report:


I just read your white paper "Conquering the Omnichannel Challenge - Today and for the Long Term."

There's a ton of material out on the Web that talks about this subject. But your paper (a) broke it down and explained the topic very clearly and (b) the writing was concise and tight.

Well done. I look forward to reading more of your papers.

Eric Lambert
Client Partner
Retail, CPG, Logistics
Infosys Ltd

Editor's Note:

Thanks - the report is available here.

  Feedback on SCDigest Q2 Rail Review:  

Do you have BNSF numbers?

Alex M. Svetlev

Editor's Note:

Alas, though BNSF is now part of publicly traded Berkshire Hathaway (Warren Buffet's company), its results are not broken out in any real detail, so we cannot include BNSF in our quarterly analysis.

  Recent Feedback on We're Not Sure What but They are Pretty Good:  

In my opinion, supply chain managers are crucial for the world economy. They represent a single discipline, responsible for supporting the global network of delivery of products and services throughout the supply chain, from raw materials to delivery of products and services to end customers.

Specifically, administrators/managers supply chain are committed to the design, planning, execution, control, and monitoring of activities in the supply chain with the objective of generating added value, building a competitive infrastructure . In any business, the supply chain depends on the knowledge we have on raw materials, planning, manufacturing, distribution, etc. Likewise, the development of new products requires knowledge of the needs of consumers, new scientific discoveries, new technologies, marketing, etc.

The challenge of applying knowledge in a company to create competitive advantage becomes even more challenging because the market is increasingly competitive, which demand greater product innovation. Because of this, knowledge must be developed and assimilated increasingly faster.

Mela Moskera


Demand chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. Demand chain management is similar to supply chain management but with special regard to the customers.

Demand chain management software tools bridge the gap between the customer relationship management and the supply chain management. The organization's supply chain processes are managed to deliver best value according to the demand of the customers. DCM creates strategic assets for the firm in terms of the overall value creation as it enables the firm to implement and integrate marketing and supply chain management (SCM) strategies that improve its overall performance.

A study of the university in Wageningen (the Netherlands) sees DCM as an extension of supply chain management, due to its incorporation of the market orientation perspective on its concept.

Miguel Faican



Q: What percent of revenue does the average large company spend on its procurement organization (people, technology, etc.)?

A: Just 0.8%, according to a new study from Accenture, down from 1% in 2007, as the discipline continues to get more efficient.

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