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  June 2, 2005 - SupplyChainDigest Newsletter
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First Thoughts by Dan Gilmore, Editor
Visibility, Velocity and Variability

Sometime in the late 1990’s (I believe in 1998), Art Mesher, then an analyst at Gartner (and current CEO of Descartes Systems), wrote one of the most influential pieces ever in the supply chain industry. I can’t actually find the exact article in my files, so I am relying on memory and some related materials I was able to track down. The title was something like: “The 3 V’s of Supply Chain: Visibility, Velocity, and Variability.”

This framework for thinking about where supply chain processes and technology needed to go had a huge impact on both supply chain technology vendors and companies. The themes were further explicated by Gartner in a series of research notes, and indeed remain standard in overall supply chain thinking to this day.

I thought it might be interesting to contemplate the three V’s for a minute, and assess where we are at seven years after the original thinking. Each one of the individual V’s is worthy of its own piece, and we’ve certainly touched on each of them at different times (see for example, Does Your Supply Chain Need Glasses?).

Over the past two years especially, my sense is that many companies have started to get pretty serious about supply chain visibility, though from an analytic perspective one of the challenges is that visibility means many different things to different companies. Back in 1998, legacy systems and other barriers often meant companies couldn’t even easily see what inventories they had within their own facilities, let alone across the extended supply chain. Most are in much better shape now, though that extended supply chain thing is still an issue for many if not most. Visibility to transportation execution has also improved substantially for many, and many companies have implemented technologies to help them improve visibility for long, offshore-based sourcing strategies.

Gartner also suggested that to improve decisions processes, companies would need to start looking past their own inventories and ability to respond to customer needs to achieve visibility to the real-time capabilities of their trading partners. We may have a few early examples of that, such as Dell being able to look through their first level suppliers to see what is happening with deliveries of components those suppliers need, but we’re well away from this level of visibility generally.

Variability is also tricky, because it really has two major components: reducing the level of supply chain variability, and being agile to respond to the inevitable variation in execution that will always occur. There is a lot of effort, especially among very large companies, to reduce variability through process improvement and supply chain simplification. Many are using six sigma principles outside of their roots in manufacturing to drive out variation, while more generally “reducing complexity” is a strategy of many companies.

I don’t believe, however, that we made a lot of progress in becoming “agile” to supply chain change and disruptions. More on that topic at a later date.

Velocity is perhaps the most interesting of the 3 V’s. While we have Dell demonstrating and promoting the benefits of financial and material velocity, the reality is that over the past few years more and more companies are extending their supply chains, in some cases dramatically, by moving to offshore manufacturing models. At the same time, even within supply chains that can be very long in total, we have pockets of high velocity, just-in-time processes. I would also add that in general, most companies are just now really looking to substantially shorten other supply chain processes, such as the product design. The Limited Brands, for example, has a goal of reducing the time it takes from product concept to store shelf by something like 75 percent.

So, my take on the 3 V’s: visibility: lots of progress, but still a long way to go; variability: something most are just getting their arms around across the broad supply chain; velocity: some progress, but outside of design cycles, the least important to most companies right now.

That’s my perspective – would love to hear yours.

What are your thoughts on visibility, variability and velocity? How would you rate the supply chain progress on these issues? Is the original framework still just as valid today?

Let us know your thoughts.

Dan Gilmore

EXPERT INSIGHT
Clients vs. Software Solutions Providers Why the Client Usually Loses

By Ned Blinick, Blinco Systems

Ned BlinickI recently had an interesting experience. I received a telephone call from a consultant who advised me that because of our firm’s size his client had not selected us for consideration. He agreed that the application had a great functional fit. The client’s concern with our size was that in dealing with us (or other small software suppliers) they were at more risk than dealing with a larger solutions provider.

Clearly, on the surface this “gut” reaction to small size appears logical and reasonable. Clearly the vast majority of IT professionals subscribe to it in their selection process.

Click here for the full column.

NEWS AND VIEWS

June 2, 2005
RFID "Trailblazers" Say Keep Forging Ahead
Early RFID adopters say the AROI is there sometimes, it just takes experience to find where the sweet spot is.

June 2, 2005
Crafting Supply Chain Metrics That Resonate with the CXO
Especially as supply chains use more outsourcing, its critical to get the right performance metrics in place. How does your framework stack up?

June 2, 2005
7-Eleven Gets "Demand-Driven" - With Bar Codes and POS Data
7-Eleven CEO James Keyes says the convenience store retailer was able to get near real-time visibility and be highly responsive to customer demand the old fashion way - without RFID.


INDUSTRY NEWS

Industry News - Click here for this week's performance details
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SUPPLY CHAIN TRIVIA

Q. How many acres of port terminal space are required to support the new mega-vessels (8000-TEUs) coming on line?

A. Click here for the answer

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YOUR FEEDBACK

Feedback is coming in at a rate greater than we can publish it – thanks for your response.

We received a few letters on our first thoughts piece two weeks ago on ‘Rethinking Dell,” which suggested the key to Dell’s success is not it’s supply chain prowess per se, but rather the complete linkage of its supply chain and business model. This includes our feedback of the week from Scott Brown of Plexus, and a letter from someone at one of Dell’s competitors, who of course we kept anonymous upon request. A couple of other letters on our news and views piece that reported on a survey that found consumers are less and less interested in buying products with the “made in America” label.

Keep the dialog going! Give us your thoughts on this week’s Supply Chain topics.

FEEDBACK OF THE WEEK On "Thinking About Dell":

Absolutely the secret to Dell's success, and any companies that reach similar levels is in the end to end understanding and effective design of the entire business model, not just the logistics. We have learned here at Plexus that the secret to supply chain success, increased velocity overall, and higher returns lies in the synchronization to end demand. Lies in not just supply chain management, but in coordinated demand and supply management. This is a fact that many companies still struggle mightily with while chasing end of quarter results. They take actions that cause them to break the synchronization linkages and actually increase variability and therefore reduce efficiency, velocity, and returns. Businesses and supply chains are complex physical systems and operate under a set of interdependent Laws of Supply Chain Physics as they have been called. Dell clearly understands each of these laws and the actions described in your story clearly show this. They know that inventory and OTD, and velocity and return can in fact be understood in the form of an equation. Shaping or managing demand is a very powerful tool for any company and Dell's model allows them to do so in real time. Huge advantage and a way to improve forecast accuracy by steering demand. Thus reducing variability. The key inputs to reduce inventory, increase velocity, increase returns are... Demand variability, Supply variability, and lead-times. Dell clearly gets all of these squarely in its cross-hairs.

Scott Brown, C.P.I.M C.I.R.M.
Supply Chain Solutions Manager
Plexus

More On "Thinking About Dell":

I work for a competitor to Dell. I think you very much hit the nail on the head. While we have made substantial supply chain improvements over the past three years, and are miles from where we used to be, we are not aligned anywhere as deeply and integrally as Dell is between supply chain processes and the business itself.

The question we all have is whether it is a lead that is too big to ever catch.

You summed the situation up very well – good job as always.

Name withheld by request

On "Is Made in the U.S. Worth Anything Anymore?":

Your survey most likely was age the group of 30 and under and they have no clue as to how this is going to and has already hurt the US job market as we continue to support foreign countries and take jobs away from Americans. Its not about quality its about putting food on the table for your family, not everyone is gifted to be a Doctor or Lawyer. Some people like to work w/ their hands, soon to be not available in the USA.

I and many of my male friends will pay more and look longer to find the same product w/ MADE in the USA marked on it, and we are all over 45. Many many products are no longer made in the USA so your stuck to help some other country that pays their workers $ .08 per hr. and all the rice he can take home for his family that day. Sears has screwed us royal w/ Craftsman tools, only some of the hand tools, screw drivers, wrenches are USA made about 89% of their Craftsman products are off shore. That does not mean lower prices for US consumers it means higher profits in the profits of the top execs only.

My grandchildren and great grandchildren will have a very hard time making a decent living in the US!

Jack Kitten

Absolutely made in the USA is worth something to consumers. My personal experience, especially this year, has been that more and more people are telling me that they would pay premium if necessary to be able to purchase a product made in the US. This is a major change from what I had been hearing as recently as last year.

Steve Reichert
Supply Manager
Akzo Nobel Surface Chemistry
RECRUITMENT CORNER

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VP of Distribution and Logistics
In the Indianapolis, IN area

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SUPPLY CHAIN TRIVIA

Q. How many acres of port terminal space are required to support the new mega-vessels (8000-TEUs) coming on line?

A. Between 100-140 acres, according to industry experts. Many ports have no terminals of that size.

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