Location, Materials and Uncertainty

Over the past few years, both buyers and sellers have been migrating further into China in seek of lower wages and lower product costs. But, there is of course a trade-off in that shift, namely around increased logistics costs and more uncertainty. I came across this recent article that talks about these themes: “Supply chain uncertainties deter inland move“. It also nicely weaves in concepts around geographic proximity to resources, backed-up with specific examples.

One thing is for sure: for importers that are sourcing from this region, the dynamic nature of it requires agility. By this I mean, the ability to change sourcing locations based on changes in the landscape, whether raw material prices, labor pools or developing supply chain infrastructure. You can’t do this by hard-wiring your technology systems, instead you’ll need a flexible, easy-to-change IT platform that can keep pace with the change.

How fast could your organization switch from a supplier in Zhoukou to one in Hubei?

One idea: run a stress test, a scenario-based model. For example: catalog all of the switches that would need to be flipped, and assign estimated time and effort to accomplish these. This will, without actually doing it, give you insight to the potential impact of a required change. Some might find it’s extremely difficult, and other not so much. In fact, I’ve talked to a couple of importers recently that take these simulations to the next level: they actually do it! They actually invest in “sample” orders and shipments. They sourced and moved the product, and monitored how well their organization, and their partners, performed.

Interesting: supply chain agility test!

Apple is Agile

Lots of interesting articles recently on supply chain risk mitigation. The recent talk about Apple’s supply chain strategies is especially interesting – how they’ve multi-sourced product components to protect themselves. This blog post from Supply Chain  Matters does a great job at describing it.

For me, I think of this as a great example of AGILITY. Enterprises need to be agile, need to be able to react quickly to unforeseen scenarios. This could be in the form of constrained supply, interrupted transport options or contracted labor pools. One thing is for sure, you’ll need a flexible I.T. system to support these situations.

Cloud Visibility and ROI

Quick interview with Tom France, Director of Global Transportation for Caterpillar, on EyeForTransport.

I like this question and answer:

HG: What supply chain technology has had the greatest ROI on your operations this year?
TF: Visibility cloud based technology has had the greatest ROI on our operations this year.

Read more here.

React by Seeing

 There are plenty of supply chain time bombs out there, we’ve all seen and heard from them recently. The most recent example — the floods in Thailand — should have sent a message to global organizations that source globally.

You better have a contingency plan for this kind of stuff, and you need to be agile and react. The only way you can do that is by SEEING, and seeing quickly. Talk about “where’s my stuff?”.

If you don’t have that, the next disaster could deliver the knock-out punch.

Visibility to Knowledge

I came across an interesting blog post today by Adrian Gonzalez at Logistics Viewpoints. His piece titled “Operational Excellence is Not Enough–Why 3PLs Must Leverage Their Most Valuable Asset” talks about how 3PLs could do a better job at leveraging the knowledge that is resident in their customer base — both to get knowledge from them, and to share to them.

It got me thinking again about supply chain visibility. It’s one thing to gain success in this area via technology and process, but that can’t happen without good people and good ideas. There is an important intersection there: between people, process and technology. All three of things need to be in place, and they are glued together by knowledge. Knowledge can be formed through a “go-at-it-alone” strategy, or by leveraging the “power-of-a-community”.

What’s your approach?

Placing Bets, Dark Rooms and Your Supply Chain

When planning for a project, regardless of business domain, best practice suggests that there needs to be a supporting business case. Makes sense — every project is, after all, essentially a bet. Meaning, a company’s leadership team is placing a wager that an investment in a project will pay off, and that the project yields positive value in return.

When thought of in conjunction with a specific project, it’s easy to imagine this. You can envision the math: “if we invest $1m in this project, we’re 85% likely to receive $6m in return. It’s a go!” But, the more difficult part is knowing where to place your bets. Which project? When?

Earlier this year I worked with a large multi-national enterprise in the hi-tech space. They have a really complicated supply chain, in fact several supply chains. This company sensed that it had an issue with freight audit and payment, and that they were over-paying on invoices because they did not have the right processes in place to capture incorrect invoices from their partners. The project team pulled together a business case, and a plan to install and launch a technology-based solution to solve it. At that level it makes total sense: automate the process and receive value.

But, how did they decide to invest in that particular project, as compared to other supply chain-related projects? To be sure, I didn’t get a front-row seat to that conversation, but I suspect that it was based in part on intuition, a gut feel. We have a sub-optimal freight audit process, and we can see the dollars so let’s do it. There could be other projects out there that have value as well, but we’re not sure what they are worth, and in fact there are some opportunities that we don’t even know about yet. That’s where visibility comes in. That is why visibility should come first.

In this scenario, what if there was another opportunity sitting right next to the freight audit project? Like another process area that also required $1m in investment to fix, but yielded a 2x return at a higher confidence level? Wow, all of a sudden the original project looks like a mis-informed bet, an incorrectly placed investment. So, how do leading companies avoid this issue when it comes to the supply chain? They turn on the lights first, and see what’s going on and then they place their bets.

Here is an analogy I’ve been using for this situation. Imagine a room, one that has furniture and art inside of it. You’re mission is to re-arrange the room and the placement of these objects to optimize and improve the flow of traffic, and their ability to better appreciate the art. But, the lights are out — it’s dark.

Option 1: walk into the dark room, where you can’t see anything and start blindly re-arranging the furniture.

Option 2: walk into the dark room, turn on the lights so you can see everything, make an assessment of the most logical moves and then begin to re-arrange the furniture.

Most people would, logically, select option 2. That’s like a no-brainer. But why don’t enterprises do that with their supply chains?

They should. Visibility first, automation second.

Japan Impact on Supply Chain

I am sure by now that most people are aware of the impact of the Japan disaster on global supply chains. This article is a very good one, however, and is worth a read. While it seems to be a cross-industry issue, those companies with the best level of agility will be more successful than others.