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  June 15 , 2006 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

A Supply Chain Diet


I’m catching up on my summer reading, but unlike most of us I often don’t take the latest mystery to the beach. I’m reading about supply chain management. Am I crazed? Probably so.

I just got done reading “The Wall Street Diet for a Lean Enterprise,” by Charles “Chuck” Poirer of Computer Sciences Corp. (along with co-authors Michael Bauer and William Houser). I was inspired by seeing Chuck again at a recent conference, where we had a conversation about the book (he’s an excellent speaker, BTW). Many of the thoughts and themes in the book are worth sharing.

As the title indicates, the recommendations are couched in terms of a diet. Though part of that is just a handy metaphor, it makes sense. Why? Because like individuals trying to shed excess pounds, companies and their supply chains are plagued by two related challenges: building a total “health” program, not just focusing on one specific element, and “keeping the weight off” after the initial improvement. Personally and corporately, many fall off the wagon not far down the road.

“Building peak and lasting performance in terms of cost, productivity and quality is the greatest challenge facing organizations today” the book I think summarizes correctly. It notes, for example, the almost amazing, enduring ability of the Toyota Production System to continue to drive competitive advantage. Why? Because it wasn’t an initiative, but rather a way of life that fosters continuous improvement year after year.

The book offers something of the usual formula in these kinds of books for making recommendations: for example, a “maturity model” and accompanying diagnostic that allows you to analyze your supply chain fitness, but there is some interesting insight here. The inter-related elements of the “diet” are as follows:

  • Create  a “Lean” Enterprise – using Lean principles beyond manufacturing to drive out waste and improve efficiency
  • Achieve “Advanced” Supply Chain Management (more in a moment).
  • Adopt Six Sigma type quality principles across many business processes to achieve a “quality-focused” enterprise
  • Improve metrics to track progress
  • Expand use of “smart” outsourcing as a function of really looking hard at what functions and processes could be better performed by someone else.
  • Take a new, more enlightened focus on customer satisfaction

There are some sub-elements of the diet I found particularly interesting. For example, the goal of “full network connectivity,” in which your supply chain network looks more like a “virtual enterprise,” with near total information availability and transparency among all the members of the network. While noting it is more theoretical than actual at this time, making this the goal will move some companies down the path more rapidly than others – with corresponding competitive advantage. This is in large part what characterizes “advanced” supply chain management – SCM becomes a total business system.

A related concept is that of the “federated keiretsu,” an improvement on the Japanese keiretsu model (where supply chain and financial partners literally own stakes in each of the companies). In the federated model these ties are “loosely coupled,” but still enable all the oars to be pulling in the same direction.

I am going to come back to this concept in a future column soon, focusing on the challenges when members are part of “competing” value chains, but Poirier offers some excellent prescriptions for making the collaboration work, focusing on the upfront arrangements and “governance” principles. Perhaps more challenging is the recommendation that the best of everything within the network be shared and adopted by all the members. For example, if a given vendor has the “best way” to do collaborative product design, that approach should be replicated across all the chain.

I think there are several challenges to that notion. First, “one size” rarely does fit all. Second, for all the theoretical benefits of the keiretsu concept, the practice/technology may not be something the originating company wants to aggressively share – and frankly from an objective perspective maybe it shouldn’t.

The theme of collaboration runs strong throughout the book, not only with trading partners but also internal to the enterprise. “We found a large number of companies who did a lousy job of sharing ideas and technology even within their own enterprise,” Poirer told me, and my experience has often found this to be true as well, though in fairness it’s as often the reluctance of the other side to accept a new idea as it is a failure to share.

I also liked the idea of “productivity profiling” to measure opportunity and progress. Greatly simplifying, it’s very similar to value-stream mapping, but also incorporates the notion of comparing a perfect state (no waste, total quality, etc.) to the current condition. Understanding that gap, even if it can never be completely closed, can drive substantial improvement.

There’s a lot more, including the opinion, backed by experience, that adopting the diet can lead to substantial impacts on the bottom line and shareholder value. In the end, I’d summarize it like this: supply chain transformation really does require a lifestyle change, and companies are just as challenged as individuals to make that leap.

Do more companies need to go on a “supply chain diet?” Is true supply chain improvement similar to a “lifestyle” change? Is deep collaboration the real key to advanced SCM? What are your thoughts on the elements of this diet?

Let us know your thoughts.

Dan Gilmore



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June 15, 2006

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RFID will provide value, see widespread adoption, but at the pace of most technology innovation


June 15, 2006

Dell Retools to Get its MoJo Back

Customer service, shaving a few more dollars off each PC, part of the mix as profit growth slows


June 8, 2006

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"Built for velocity, built for speed"


June 8, 2006

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Is Saudi Arabia Running Out of Oil?

Latest comments from oil minister on declining production lead “peak oil” theorists to say “I told you!”


Q. How many members are their currently in the United Auto Workers union?

A. Click to find the answer below


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

The letters are pouring in. We are close to some new capabilities to publish more feedback - the volume continues to increase - thank you!

We're catching up on a number of topics this week, continuing from last week with more feedback about "Supply Chain Risk in China," including our Feedback of the Week on this topic, a thoughtful response form Kanishka Majumdar of The Knowledge Management Center. You'll also find comments on Wal-Mart's move to reduce inventory and its impact on suppliers, and the challenges GM has competing with Toyota's supply chain.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the week - On "Supply Chain Risk in China ":

I totally agree with your thoughts about the pertaining risks in China and companies need to ponder before outsourcing their major operations to that region.

China indeed is a huge hot spot, threatened by the possibility of war and regulatory shifts. An article I recently read said that the counterfeiting business is accounting for US$24 billion in lost sales a year.China, is the home to two-thirds of the world’s bogus and pirated goods. Last year alone, China confiscated 85 million counterfeit publications, from books and movies to computer discs.Pirating goods, manufacturing knock-offs and violating intellectual property rights (IPR) is a winning strategy for China as it allows Chinese companies to skip the investment necessary to create and develop products and go directly to profits. No brand building. No advertising and  No R&D headaches. Doing business in China requires a multifaceted approach to IPR protection that emphasizes prevention while using all possible avenues to enforcement.

From the political angle there prevails a major uncertainty. China could use its military force to take over Taiwan or perhaps dominate other parts of Asia. All the investment that companies have made in China would be gone. How would companies rebuild their global networks with new sourcing or low-cost manufacturing? China and Japan also don't have good relations. Eyeing those cases most large global companies will have to adjust their strategies and plans if the China-Japan situation remains volatile which would mean that for many companies it would be no longer "business as usual". Recently I read a Gartner report which said that IT multinationals in North Asia should certainly consider plans to reduce their dependencies on supply of products and services from this region through diversification of supply and the broadening of any new investments to balance the increased risk.

The Global economic shift to China would also result it to become a large consumer market as its economy grows and as a result of this the West would also no longer be the cultural or economic force dominating the global society. In those cases also we need to think how would the supply chains shift to provide the goods that these markets demand?

The success of many companies, especially in high-tech, has been built by knowledge workers that have been recruited from China and India to the U.S. and Western Europe. But with advances in technology, information sharing and outsourcing, there is no reason for these knowledge workers to leave their home country. If these people innovate in their homeland, rather than in the West, what impact will that have on supply chains?

Hence in the end I would like to summarize by commenting that if China becomes the global leader in advanced electronics (as the electronics industry seems to be doing), they will eventually have the best weapons in the world. Maybe outsourcing everything in China is not such a good idea???

Thanks for considering my thoughts regarding this very interesting topic and please continue the great work of publishing such informative articles.

Kanishka Majumdar
Research Analyst - Supply Chain (SC&T) Practice
Knowledge Management Center (KMC)

More on "Supply Chain Risk in China ":

Great point. I've watched as our customers made the move and the topic of supply chain disruption never even comes up.

The three points you highlighted are correct. One of them will transpire within the next decade.

Its a serious mistake to assume no supply chain disruption risk. Unfortunately, as with most events, until it is observed and defined and documented, there will be some casualties the first time the disruption appears.

Michael Murphy
A J I L L U S, Inc

A fourth point that should not be overlooked is the execution and management of Logistics. The spiraling cost of fuel and constrained capacity especially in the air cargo industry should have everyone asking “does this make sense” The Asian carriers have a stranglehold on capacity, if volume is not there we have seen firsthand that they can artificially create “peak” by taking the supply of planes down. Their focus is on short sided revenue gain, at the expense of their 52 week year round shippers. They certainly have a good understanding of “Revenue Management”, and as long as the US companies are in desperate need for space, we create a Barrett Jackson atmosphere where the highest bid gets product out on the next flight out.  

Fuel surcharges are out of control, and in my opinion, this has become a revenue stream that is adding to the carriers bottom line. Fuel surcharges are running 30% to 40% of the cargo rate, sure the price of crude oil is up, due to the constant bombardment of gloom and doom from the oil industry, China and India consumption, low refinery capacity, conversion to green diesel, but at the end of the day, what is the true cost impact to the carrier, do we know, are we subsidizing revenue?  With build to order supply chains, lean inventories, and every major US Company manufacturing in China, we have put ourselves in a position of severe vulnerability.

I agree with you 100% US Companies should be diversifying their manufacturing strategy, Mexico, Central and South America should not be overlooked, and if you truly run an in depth landed cost model, with negative weighing assigned to the factors such as those we have discussed, then the reasons for jumping on the China bandwagon are not so obvious.


Greg Andrews

Director Global Logistics


On Toyota and General Motors:

GM’s myriad problems run so deep, it’s hard to say where they should begin.

Besides the technological disadvantages you mentioned in your article (a very good article, I might mention), there are far more important things that need to be done at top levels – namely, getting rid of the destructive egomaniac CEO Rick Wagoner and putting in someone who knows how to run a large company.  GM needs to get realistic about the unions and deal with the fact that they no longer work, if they ever did. Socialistic ideas seldom do work for long. Ron Gettelfinger (along with other union leeches) needs to find himself another job. Toyota and Honda have shown that it can be done, and that it’s not written in stone that workers have to be victims of the company, as they are in the typical U.S. manufacturing operation.

GM needs to realize at the top-most levels that it cannot keep running in the way it has for the last 100 years. Times have changed, and a company that doesn’t change along with the times must fall back. It needs to offer models Americans want to buy. It needs to offer fewer, but more desirable, models… the sheer numbers of models OEMs offer these days is confusing and intimidating.  GM needs to stop killing off divisions that make its best cars (Oldsmobile). And GM needs to support its loyal sales base, not try to kill them off one by one.

Lots of things are wrong with GM, but most of them could be dealt with by lopping off Rick Wagoner, before he totally drags the company into bankruptcy with his knee-jerk reactions to Toyota’s and Honda’s successes.  The man was never successful at any of his positions in GM, but somehow he kept getting kicked upstairs.  I ask myself where the stockholders are, and why they don’t insist that he resign.  But then, the thing Americans like best is being fooled. Heaven forbid that anyone should dare to discover the truth to them.  Time for some show-and-tell, folks.

Diane Austin

Industrial Info

Feedback on Wal-Mart Reducing Inventory Levels:

I would imagine that for most CPG manufacturers, the prospect of slimmer assortments and a reduced SKU count is the most intimidating factor of Wal-Mart's strategy. Remember that Wal-Mart's decisions on assortments will not be static - they will most certainly be dynamic and reactive to the market. As always, those suppliers that can provide the agility and flexibility to react with them will be the winners.

Ironically, for those most prepared, the moves towards streamlining the flow of goods and enhancing revenue through RFID could actually help.

To pull it off, Wal-Mart must have and provide more detailed demand management data - which should help suppliers be more efficient in their manufacturing planning and synchronizing their supply chains.

Chuck Edwards


Q.  How many members are their currently in the United Auto Workers union?


A. About 600,000, down from 1.5 million in the 1970's

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