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January 22, 2009 - Supply Chain Digest Newsletter



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Lots of Ideas for Supply Chain in Tough Times

Well, we may be lacking in orders, but during these tough economic times, we certainly aren’t lacking in ideas for what to do with your supply chain during the downturn.

My role means I am on more email lists than most, and it seems like every day I get a message from someone (technology vendor, consultant) with ideas on what you might be doing now to manage better during this period, or to sow the seeds of success for the recovery that, Yes, will surely come. You will find the same types of post/reports on many vendor/publication web sites.

One challenge, of course, is separating the actual good ideas from those that are thinly disguised marketing pitches, although it is a fact that if the money is available, these periods can be an excellent time to invest for the future.

Gilmore Says:  

“The key point is that the disconnects between marketing and SCM that we can live with in flush times simply are killers in a recession – and the cost to fix them is just the price of more dialog and better listening skills."

What do you say?

Send us your Feedback here


I have been placing as many of these idea pieces as I can find in a folder, and today wanted to share some of the best of them. Next week in our On-Target e-magazine, we will share some more of the details, so you can see them all in one place.

I very much liked the short report we received from Jim Kilpatrick of Deloitte Canada on their ideas for improving working capital/cash flow, extra important in this slow down because not only are profits thinning, but just getting the credit that companies generally expect to be there is still tough (unfreezing that of course is key to recovery).

The report notes, for example, that while companies naturally will seek to reduce inventories, it may be harder than they realize, and/or that “meat cleaver” approaches may have big negative impacts on customer service.

“Sustainable savings will most likely require fundamental improvements in demand planning, inventory and safety stock policies, production planning and scheduling, lead time compression, network-wide available-to-promise, and SKU rationalization,” the report says, among the 10 ideas it offers to improve cash flow.

Terry Harris and Chicago Consulting also developed a list of 10 SCM ideas for tough times. A very practical and perhaps overlooked opportunity is to re-look at routing guides for internal and supplier shipments, and to tighten down enforcement of those guides. There may be lots of savings available for relatively little effort.

Harris also focused on inventory, noting that taking a hard look at safety stock policies at a SKU level may uncover inventory reduction potential without sacrificing service. This is an exercise that far too few companies perform often enough, or lack the tools to do so effectively – now is a great time to make the effort.

Our friend Jim Tompkins of Tompkins Associates notes that there is a difference between “reducing” and “cutting.”

“Today, cut, cut, cut and cost reduction are considered the same thing. This is a disaster, as cut, cut, cut done across the board without more definition will not result in greater organizational success,” Tompkins recently wrote in a blog. “On the contrary, it will lead to stagnation and declining profits. Yes, haphazard, across the board, uniform, indiscriminate cost reduction will beget the unintended result of less profits, not more.”

Most of us have seen this dynamic in action some time in our careers. I certainly have.

Alan Earles of Microsoft’s business applications group notes in a recent blog post that tough times increase the risk of fraud and theft in supply chain operations, and that companies need to up their level of vigilance and security to avoid an increase in losses. He notes, for example, that a Tennessee factory worker was charged recently with stealing almost three tons of pure tin worth an estimated $57,000 from his employer. It’s probably not something anyone is wild about doing, but the reality is you really do need to look at a wide variety of potential risks for fraud and theft and do your best to mitigate those vulnerabilities.

Justin Fogarty of Ariba says that now is the time to really focus on collaborating with suppliers to reduce costs in a win-win framework. He cites, for example, that India’s Tata Motors “focused on defining functional needs, rather than stringent part specs and in doing so, the creativity of their suppliers paid off. Perhaps your own suppliers have ideas on how you can improve your products AND lower costs,” he wrote in a recent blog.

Many, such as analysts Kimberly Knickle and Simon Ellis of Manufacturing Insights/IDC, say now is the time to really prune product portfolios. This is hard at any time, but especially hard in a recession, it seems to me, because it is easy to see the lost sales at a time when the top line is challenged, but the cost savings (though very real in the end) are generally less obvious.

“Even though manufacturing is becoming more flexible every day, the proliferation of SKUs wreaks havoc on the production schedule, not to mention the inventory management challenges,” Knickle and Ellis wrote in a recent research note. “High SKU count also makes forecast accuracy/supply chain planning more complicated, and with the growth of private labels, if manufacturers don’t get their SKU-house in order, retailers will do it for them. And don’t just use cost information to identify which products to cut - use historical demand information to support the decision.”

Gérard Cachon of the Wharton School of Business notes that now is the time more than ever for marketing and the supply chain to get on the same page. While writing primarily from a retail context, his advice is spot on for companies in any industry.

"There's a lot of volatility right now, and with a lot of volatility, a retailer who typically runs with very small profit margins can go from making money to losing money pretty quickly," Cachon says. “Ensuring that the company stays profitable is going to require some experimentation and probably a lot of coordination between the marketing and supply chain," he says.

The key point is that the disconnects between marketing and SCM that we can live with in flush times simply are killers in a recession – and the cost to fix them is just the price of more dialog and better listening skills.

GR Gopikrishnan of Infosys, on the consulting/technology firm’s excellent supply chain blog, says companies should consider very creative ideas on the sell side, such as “take now, pay later” plans, even in B2B, and perhaps even something akin to “rental” models for some equipment and systems.

He also sees opportunity in focusing on distribution and fulfillment processes, such as better support for multi-channel fulfillment to increase sales channels/revenue, increase transportation optimization, and inventory synchronization.

There were lots more, but I am out of space. Would love your ideas/lists as well. More in On-Target next week in the Trends and Issues section.

Which of these ideas do you like? What else would you add to the mix of smart supply chain ideas for tough times? What are the important differences between “reducing’ and “cutting?” Let us know your thoughts at the Feedback button below.

Let us know your thoughts.

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This Week's Supply Chain News Bites Only from SCDigest

Supply Chain Graphic of the Week: Which Way for the Economy?

This Week's Supply Chain by the Numbers - CSX Q4 Price Increases, Compliance Fees, Commodity Prices, Out-of-Stocks


It’s early in the game, but if the first few weeks of 2009 are any indication of the rest of the year, investors on Wall Street are in for some rough sailing.  As the overall market plummeted, our Supply Chain and Logistics stock index went along for the dive.

In the software group, i2 fell 5.9%; however, both Ariba and Logility managed gains for the week despite the overall market’s downward spiral (up 4% and 8.6%, respectively).  In the hardware group, both Intermec and Zebra were down (3.2% and 4.7%, respectively).  In the transportation group, Yellow Roadway lost a good portion of last week’s gains (down 29%).  As volumes continued to fall in the railway industry, railway stocks met with substantial losses.  Specifically, Norfolk Southern plunged 18.8%, Union Pacific fell 16%, Burlington Northern slid 14.6%, Canadian National slipped 11.3%, and CSX was down 13.6%.

See full stock report.

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January 20, 2009 Edition

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>> Gilmore: Materials Handling Vendors Need to Improve Marketing Skills

The supply chain software company now known as RedPrairie changed to that from what old name in 2002?

A. Click to find the answer below


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We publish several letters on a variety of topics. Our Feedback of the Week is from KOH Niak Wu of Singapore’s Institute of Manufacturing Technology, coming out of our report of the Annual Masters of Logistics and Transportation study that found large firms have been increasing their SCM performance lead of late over smaller and mid-sized one.

David Schneider opines on the pros and cons of large and smaller consulting groups, Craig McLaughlin VP, North American Logistics for Cadbury North America, likes our “By the Numbers” section (we get lots of these on both By the Numbers and SCM Graphic of the Week), and Jesse Porter of Emerson likes the idea of “Profitable Proximity Sourcing, and offers a related article that may be of interest.

Feedback of the Week – On Do Large Firms have an SCM Advantage?

It is generally true that the larger the firm, the larger the number of products that firm has. A paper published on inventory optimization in 2007 quoted a German auto manufacturer having more than 100,000 SKUs. Each product possesses its own supply chain. Globalization adds to the complexity of these chains and many a time, these supply chains overlap. Independent of the firm’s value discipline (operational excellence, customer intimacy and product leadership), cost reductions are of primary concern.

Large firms thus spend a greater amount of time strategizing not only due to the complexity of the chains but also because large firms now compete at the supply chain level. Supply chains are, what we perceive as, alive and dynamic. Constant reviews of the adopted strategies are thus important.

Smaller companies, on the other hand, may have an edge when it comes to competing on a particular product (and hence supply chain). The complexities are still present (on a smaller scale) but entire strategies can be directed solely on that chain.

At the end of the day, it can be quite difficult to compete with larger, more established firms for each entity in the supply chain. Trading partner integrations (or rather strength in numbers) may just well be that edge smaller companies need.

KOH Niak Wu

On Logistics Consultants:

As a “single shingle” shop, I appreciate the division that makes about the size of the project and the size of the consulting firm. But I have seen examples in my career where a single consultant was able to manage a very large project because of the network of professionals that he could bring to the project. In some cases the “team” members were other “solo” artists that had the skill and talent to collaborate into the team. So even if the client has a huge project, don’t discount the solo artist that may have the right “rolodex” to turn to.

The part about candor is vital. I have seen some other postings about successful consultation engagements that had at the top of the list “Check your EGO at the door”. I remember a few engagements when I was a client where I did not check my ego and the project suffered for it. I also remember engagements where ego was not in play, and things went far. The candor has to be bidirectional. The client has to give the consultant feedback too. This is so important that I make it a point to specifically speak to the potential client about the need for candor AND I expect the client to give me feedback on how he sees the engagement going. I even take it one step further and have a one paragraph section in my proposal / agreement that spells out how candid bidirectional feedback is expected and encouraged. If that talk makes the prospective client uncomfortable I will walk away from the deal because it will be filled with problems.

I have the experience of having been “on both sides of the desk” in my career as a client and as a consultant, so I work hard to not do what was done to me by “bad” consultants. When I was on the client side I always checked out the consultant. I now encourage each potential client to speak to any of my current or past clients, to talk to equipment suppliers, contractors, carriers, or peers. Spend time talking to the past clients. What do they say about the consultant? Are they using that consultant again? Would they use that consultant again? Even if they would use that consultant again, what did the consultant do that the client did not like. You will learn so much about the technical, and the personal skills of the consultant.

David K. Schneider
David K Schneider & Company, LLC

On SCDigest by the Numbers:

I love the “By the Numbers” section. It is educational and entertaining.

Craig McLaughlin
VP, North American Logistics
Cadbury North America

On Profitable Proximity Sourcing:

It is good to see a move toward a more holistic approach to supply chain. A similar article in Logistics Quarterly, vol 14, issue 3 2008 "The Power of Lead Time" by Robert Martichenko, approaches but does not directly point out the idea that, regardless of landed cost analysis, if transportation lead time prohibits an enterprise from reaching a delivery commitment that is key to its competitive advantage, any cost reduction realized is negated by a reduction of its market space.

Jesse Porter
Manager, Inbound Logistics
Emerson Climate Technologies


Q. The supply chain software company now known as RedPrairie changed to that from what old name in 2002?

A. McHugh Software, which had once been part of the Pinnacle Automation Group (which was ultimately sold to FKI Logistex - Buschman, Alvey, etc.) but spun out as a separate company in the late 1990s.

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