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4 , 2004 |
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Dan Gilmore
Editor-in-Chief |
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Is there any
more talked about, but less well-understood topic, than
supply chain visibility?
It certainly has been on the front pages of the trade
press, the analysts, and almost every vendor’s
sales pitch for some time. The annual report on logistics
and transportation trends unveiled each year at the
CLM show has been focusing on visibility for the past
several years (see review of this year’s version
nearby).
But at another level, it’s hardly only a recent
phenomenon: what else was the work in the mid-1990s
of Dr. Hau Lee and others on The Bullwhip, Effect (see
SCDigest
archive), but a call for greater supply chain transparency
and increased visibility to end user demand up and down
the chain?
I’ve been looking at and working in the visibility
area for several years, and one thing I’ve learned
for sure is that visibility is in the eye of the beholder.
Here are some other initial thoughts:
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Visibility
needs vary significantly by industry or supply
chain model. CPG companies with complex
domestic networks, for example, tend to focus
on visibility and control of finished goods networks
(their own and third party), while high tech,
retailers and soft goods companies with significant
offshore supply bases put effort around visibility
to POs and shipments across these long supply
chains. |
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A company’s
perception of its needs is a reflection of its
starting point. A company with disparate,
unconnected order and inventory systems finds
moving to a single view of aggregate inventory
and orders is a huge step up. Another company
that has had this type of capability in place
for some time, however, may be looking for much
more granular, real-time information. I’ve
seen companies with vastly different levels of
visibility each score themselves the same on 1
to 10 type scales in terms of assessing their
current levels of visibility. |
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There’s
still some uncertainty at many companies about
whether visibility drives ROI or focuses on customer
service. We wrote in one of the very
first editions of SCDigest (see SCDigest
archive) about the amount of time customer
service reps and even sales people still spend
tracking down order status information for customers,
and there’s no question visibility can serve
to improve customer satisfaction through improved
flow of information about their stuff. But is
there hard ROI? I believe generally so, but it’s
not always crystal clear how to calculate it. |
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Despite lots
of visibility related systems, we must still be
at the very early stages of visibility evolution.
No one has yet reached the Nirvana of the total
real-time supply chain. We seem to have made relatively
little progress against The Bullwhip Effect in
most supply chains. And the only conclusion
from RFID fever is that at least in most retail-CPG
supply chains no one has enough information to
manage their inventories, replenishment plans,
and shelf stocking process effectively. |
At the end of the day, while there can be important
customer service benefits, visibility has to be about
enabling people in the supply chain to make improved
decisions through better information. Eventually, it
will be computers themselves that will take on some
of that role. We also need a better framework and lexicon
to discuss visibility – just what is it? How do
I know when I have it? What metrics characterize both
the capabilities and results? Are there visibility “best
practices?”
We have thoughts on all the above – but as we’re
out of space, we’ll pick up this thread again
soon. We would love to hear your perspective on this
whole topic.
How would you define ”supply chain visibility?”
Do you know it when you see it? Is it customer service
focused, or can it drive out operating costs as well?
Let
us know your thoughts.
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 By
Paul A. Faber
Principal, Tompkins Associates
Businesses continue to demand increased
efficiencies from their material handling systems.
An important consideration is how to make better
use of the control system to support supply-chain
visibility and manage the flow of product through
the facility. A control system upgrade can result
in significantly improved product flow and extend
the life of an existing material handling investment
by years.
The first step is to recognize that a control
system upgrade may be in order. The types of problems
that a control system upgrade may solve include:
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Product
shrinkage due to mis-sent shipments. |
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Lost productivity
due to poor system fault diagnostic tools.
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Operational downtime due to improperly designed
material flow. |
Click
here to view the full article.
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On average, rank the following industries by the
level of annual inventory turns (best to worst):
apparel retailers, broad line retailers (mass
merchants, department stores), consumer electronics/appliance
manufacturers, consumer package goods manufacturers,
food/beverage manufacturers, paper and forest
products manufacturers, pharmaceutical companies.
Answer below
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We had
a relatively small amount of feedback from the
last Logistics Edition on “The Transportation
Crunch – Is There Anything Shippers Can
Do About It?” – a few of the letters
are included below, including one from Steve Minsel,
who thinks we need to radically improve campaigns
for driver recruitment.
Our feedback of the week is actually a letter
we missed a few weeks ago from frequent contributor
Lawrence Dean Shemesh of OPS Design Consulting,
on what’s needed for RFID to really go mainstream.
You’ll also find another letter from a reader
who disagreed with another reader’s comment’s
last week about offshoring benefits.
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 >>
A recent column
in Information Week summarizes all the cost components
of a real RFID-based supply chain solution. While not
exactly breaking any new ground, it has the benefit
of succinctly listing the likely cost components in
bullet-type fashion. The main thesis: while a lot of
the focus has been around tag prices, many other large
costs will be incurred in getting a system running.
These include, in addition to tag costs:
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Readers:
Will vary from as low as $1,000 to several thousand
dollars for high-functioning models. |
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Tag printers: Can cost
up to several thousand dollars per printer. |
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RFID middleware: Will span a very wide range,
from as little as $25,000 for a small operation
to much more for an enterprise-wide system. |
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Technology infrastructure capable of supporting
and managing RFID-related data: Can be a significant
cost. |
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RFID strategy and technology consulting: Could
be as little as $50,000 but can easily ramp up into
hundreds of thousands and possibly millions of dollars. |
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RFID research and development: Will vary based
on the appetite for R&D and includes costs such
as labor, testing equipment and consulting. |
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Modifying/extending internal business systems:
Will again vary based on many factors and includes
software upgrades, internal resource costs, and
optional costs for third-party custom development
and/or system configuration changes required for
each mandate, and integration with RFID infrastructure.
The cost for implementation, training and change
management is another potentially significant cost
but will be different for every company. |
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Third-party service provider fees: Includes an
annual sales-based subscription fee for EPCglobal
($75,000 for annual sales of $1 billion to $10 billion)
and UCCnet ($40,000 for annual sales of $1 billion
to $3 billion), as well as subscription fees for
other optional third-party service providers, such
as Transora, and WWRE. |
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Labor and training costs: The cost for additional
labor will invariably be needed with today's RFID
deployments since suppliers cannot achieve full
inline integration with their manufacturing equipment.
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There’s more, but you get the idea. Most analyst
estimates place the cost for a full-blown RFID solution
in the several millions to $25 million or more.
No wonder “slap and ship” starts to look
pretty good.
Do you agree with these cost categories above? How expensive
do you think a fully capable internal RFID system will
really cost most companies? Is the payback really there
for this kind of investment? Let us know your thoughts.
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View
Full Article >>
Unveiled at
the CLM 2004 event was the 13th annual trends in logistics
and transportation report. This year, the report was
a combined effort of Karl Manrodt of Georgia Southern
University, CapGemini, and Oracle. You’ll find
the full report at the link above – it’s
worth a read.
The report was based on surveys from 500 or so logistics
and supply chain professionals across many different
company types and sizes.
Of some note, if not necessarily surprise, was that
for the first time in the survey history, carrier performance
along such metrics as billing errors, damage and on-time
performance declined year on year. For example, truck-load
carrier on-time performance deteriorated from 96.8%
to 95% from 2003 to 2004.
As with previous years, the report includes a significant
focus on supply chain “visibility,” which
it defines as:
In general, survey respondents rated themselves as having
a high level of visibility, though it dropped off considerably
for the international elements of the supply chain and
as it move beyond direct suppliers and customers (e.g.
your supplier’s supplier). As we note in First
Thoughts, one has to be careful of “relativity”
for all these kinds of responses. But even given that,
it is still surprising to have the average level of
visibility for “supplier’s supplier”
score even 3.5 on a scale of 1-5 (5 the lowest) –
how many companies really have any visibility at this
level? Not many that we know of.
The survey also found that companies with high levels
of visibility, as measured by combining a number of
individual responses, did have improved operating performance
versus low visibility firms. For example, those with
high visibility had average inventory turns of 14.6,
while low visibility firms averaged only 9.8. Is this
a cause-effect relationship, or simply the result of
high performance supply chains tending to both be good
at inventory management and visibility tools –
more work is needed.
As the report notes: “The name of the game in
visibility is “actionable information." How
do we collect vast amounts of detail through an increasing
variety of tools (e.g. RFID) and filter it for presentation
in near-real time in a form that can be responded to?”
There’s a lot more, including some thoughts on
supply chain metrics.
Do you believe any but a very few elite companies have
any real visibility to their supplier’s suppliers
(inventory, capacities, on-time, etc.)? Should a company
have that level of visibility? Let us know your thoughts.
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View
Full Article >>
Outstanding article in
Fortune earlier this month on Avon’s major supply
chain transformation project – the article itself
is excerpted from the book Strategic Supply Change Management,
which we will review shortly.
Avon is of course the $6.8 billion dollar manufacturer
and distributor of beauty and cosmetic items. A few
years ago, it had plans for a major expansion throughout
Europe – but found its supply chain was simply
not ready to support the strategy.
How many of these problems sound familiar?:
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Highly decentralized,
country-specific supply chains that led to overlap
and a lack of coordination across countries/regions. |
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Rapid new product introduction
cycles from a market perspective, with a supply
chain that took multiple times that frequency
to execute. The inevitable result: inflexibility
that produced not enough of the hot sellers, and
way too much inventory for the market dogs. |
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Related to the above,
poor forecasting processes, which added not only
to inventory mismatches but high costs for schedule
changes and expedited transportation. |
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Little or no supplier collaboration, and a focus
on per unit not total supply chain costs for purchased
items. |
The fix: a major, multi-year supply chain transformation
in Europe. Key elements of the change:
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Unified
supply chain structure: one supply chain executive
with four direct reports – one each for
the supply chain processes of plan, source, make
and deliver. |
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Optimization of the
physical supply chain: moving some production
to lower cost eastern European countries, use
of a new central distribution center that can
rapidly ship goods to smaller, country specific
warehouses. |
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Major infusion of new
technology and other IT contributions: normalization
of all key supply chain “metadata”
(customers, items, suppliers, etc.) across regions
and development of a unified data warehouse; new
demand planning, production scheduling, and other
supply chain planning tools (Manugistics) |
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Aggressive use of postponement strategies, making
generic bottles of an item in the plant, later adding
customer specific labels and other touches as part
of distribution processes. |
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Much greater collaboration with suppliers, especially
around new product design. |
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Change in some suppliers/sources to increase flexibility
and lower inventory, even if per unit costs were
slightly higher. |
It wasn’t easy. No specific costs were noted,
but in addition to the technology and other capital
costs, Avon had a dedicated team of 45 working on the
project for 18 months. The result: annual savings estimated
at $50 million, adding two full points of gross margin
to the bottom line.
Unfortunately, the above link only allows you to go
to the first page of the full story. If you would like
a complete copy, email us at Feedback and we’ll
see what we can do.
Does anything strike you about Avon’s supply chain
transformation tale? What does it require for a company
to undertake such a complete transformation project?
Should more companies pursue such ambitious goals? Let
us know your thoughts.
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Having been privileged and cursed to be among those
at the bleeding edge of a Wal-Mart driven RFID design/
implementation project for one of the “top 100
vendors”, I can assure your readers that there
is no immediate business case for manufacturers/distributors
adopting this technology. The exception of course is
the desire to comply with the demand of your largest
customer and presumably achieve some ill-defined long-term
benefit related to tighter supply chain integration.
It is not however, surprising that some airlines have
expressed great interest in the technology since there
is indeed an inherent advantage to RFID vs. bar-code
systems in this particular application. Bar codes need
to be read in line-of-sight to the reader and this is
the challenge when airline destination tags/labels are
placed on irregularly shaped baggage with flaps, straps,
and other line-of-sight obstructions. The most sophisticated
array of omni-directional scan heads will still experience
“no-reads” and require human intervention
to route the luggage properly (this corrective action
often happens 3 minutes after my plane has left the
runway).
The application of an RFID tag will potentially provide
a more positive read (regardless of baggage orientation
and tag location) provided that the technology can overcome
the two most challenging hurdles:
1. Achievement of near 100% read rates when applied
to a broad spectrum of materials and contents (including
metals and dense liquids)
2. Reduction of per tag cost by a factor of 10
Assuming these obstacles are removed, the RFID technology
will facilitate more low-cost read points providing
greater granularity of baggage tracking data and improved
customer response as a result. At the end of the day,
this technology will be employed or abandoned based
on the balance it provides on the cost/service continuum.
Lawrence Dean Shemesh
OPS Design Consulting
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Your list of ways to manage the transportation crunch
missed an important opportunity: to get more on the
trucks that are shipped. Simply put, lots of companies
are not filling up trucks. Recent analysis of some very
well run companies identified opportunities to increase
shipment sizes from 5% and 25%. These increases were
quickly realized on shipments from suppliers to plants
and plants to DC’s. Customer shipments will ultimately
be increased as terms of sale are changed.
Of course, it becomes harder to load heavier shipments
and still get the axle weights right. And fitting more
cubic feet of product can be a complex jigsaw puzzle
-- sometimes hampered by poorly stacked mixed pallets.
Smart companies are looking to software to guide the
pickers and loaders to make loads legal, safe and damage
free.
Thomas A. Moore
Warehouse Optimization
Nice summary
on transportation issues. Your comments about treating
carriers better caught my eye, particularly the reference
to long loading and unloading times. This ties in with
a white paper perspective I recently drafted on the
total impact of pallets on supply chain performance.
Keep up the good work!
Dave Sandoval
B.U.S. Systems, Inc.
All the commentary
about freight carriers is not a surprise because to
some extent, some of the problems have been brought
on by everyone in the cartage industry…
If freight companies really wanted to solve their Human
Resource problems then why don't they really put together
a "career package" for the hundreds of thousands
of potential drivers, expeditors, etc. that are out
there looking for a new career?
You could "start" a National (but concentrated
on a State by State basis), 'Let's Go Trucking Campaign"
targeted at young adults (or whatever age) outlining
the types of careers that are available in the Freight
Industry. As a typical citizen, I don't recall ever
seeing advertisements related to recruiting capable
persons into the trucking Industry…
In summary, I for one would like to thank our trucking
Industry for all they do but if the Industry would put
forth as much effort in solving their problems as they
do talking about them.........a whole lot of people
would be much better off!
Steve Minsel
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I am writing about the feedback you printed from Mr.
Emmitt, regarding his apparent satisfaction that his
entire manufacturing operation has been outsourced,
because it was low margin. I think that is outrageous,
and to be blunt is simply taking the easy way out.
The fact of the matter is that wealth (a company's or
a nation's) is created when you add value by creating
goods and services for a fair price. By offshoring manufacturing,
your only value-add remaining is services - in this
case, the service of coordinating the receiving of imports
and domestic U.S. distribution. And believe me, that
is basic freight forwarding. You will see more foreign
(low cost) manufacturers taking control of this part
of their supply chain as well. When that occurs, there
will be no value-add remaining for those firms that
were (at the time) smart by offshoring.
The companies that will truly survive are those cited
in your brief article - e.g., StorageTek which looked
to optimize internal processes first - and decide to
add value to their domestic manufacturing.
Jeff Zeiler
York Consulting Group
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