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.

Higher Labor & Raw Material Costs? Now What?

OK, looks like it’s getting more and more official: Chinese labor and raw material costs are on the rise.

This has been happening for some time now, but today’s article focused Li & Fung really crystallizes it for me. Most companies won’t be able to avoid this development. There are several ramifications that come to mind, here are some of them:

1) Downward Pressure: Margins at Risk

It doesn’t take a PhD to know that margins will get squeezed. Importers, especially retailers in Europe and North America, will need to either a) take a hit on profits or b) raise prices. Depending on their particular position in the market, and whether they have pricing control or not, will determine the viability of the latter option. But, for most enterprises, they will likely need to tighten (yet again) the costs of their inbound supply chains (among other areas). This means supply chain leaders will yet again look to projects and ideas that have tangible & quantifiable savings. Here are a few ideas: freight rate optimization, lower fees & fines, flow-through cross-dock, DC bypass.

2)  Eye on The Ball: Visibility to Actual Costs

First things first: know what your costs actually are! Lots (most?) of the importers I’ve talked to have a serious amount of estimates in their operations. That’s never a good practice, and especially not now when the spotlight is going to shine even more brightly on costs. Whatta’ need to solve it: actuals. Here I am talking about actual landed cost, for every shipment, container, order, order line and SKU/part. All the non-material charges needs to be captured: origin trucking, consolidation, doc fees, line haul freight, customs, duties, VATs, cross-dock fees, inland trucking, etc. It will go a LONG way to tell your boss that you have, at the very least, a handle on this. Here’s a test: can you run a report for the actual total landed cost per unit of your top ten SKUs that arrived into the DCs last week in less than 10 seconds? (NOTE: this concept reminds me a little of this animated short)

3) Country Shifting: It Requires Agility

If you read that article referenced earlier, you’ll see that the shift away from China is already happening: “The higher labour costs in China have prompted Li & Fung to move labour-intensive work on products such as garments to countries with lower wages, such as Bangladesh, Vietnam and Indonesia.” Well, since the cat-is-out-of-the-bag on that maneuver, then it’s off to the races. This means that the most responsive, the most agile enterprises will win out. They will re-align their networks fast, faster than anyone else. This means, among other things, securing new freight rates, turning on new 3PLs and getting visibility data turned on. The laggards measure this shift in months, while the leaders measure their change in days.

OK, don’t get caught standing still!

If the shipping industry were a country…..

Richard van der Meulen, Solutions Consulting, GT Nexus Europe

“If the shipping industry were a country, it would be the sixth-biggest industrial carbon emitter in the world.” This quote from this article (“Smokestack Lightening”, The Economist, 11th December 2010), highlights the ever more important subject of global warming and the role that the shipping plays in the emission of carbon.

Though shipping only produces 2.7% of the world’s emissions while moving 90% of the world’s trade*, and energy efficiency of ships is some 20% higher than in the 1970s**, few will argue that increasing energy efficiency further is not a worthy cause.

An interesting development is the vessel energy rating website set up by the Carbon War Room organisation which will rate some 60.000 vessels by energy emissions from A to G. Measuring is always a prerequisite to improvement, but how do we best utilise this information? Do we wait for Port authorities to differentiate the price of their service based on the grade of the vessel being (un)loaded, as suggest in the above mentioned article, or are there other ways?

Many organisations have adopted advanced freight procurement solutions which incorporate optimisation capabilities that translate service elements (like free time) into a financial number, thereby enabling service based freight allocation optimisation. The same mechanism could be applied to translate the carbon emission rating of vessels into a financial number, thereby increasing freight allocations to carriers with lower emission fleets. And if we wanted to, we could take the above idea one step further and include vessel emission ratings into the selection rules of choosing a specific vessel when creating a shipment plan.

Including carbon emission rules into freight procurement and shipment planning decisions will reward the carriers with cleaner vessels and should accelerate the adoption of low carbon vessels. And the changes to procurement and planning tools required to make this happen are relatively small, certainly if compared with the environmental (and economical, through lower fuel charges) benefits they provide. So, who is going to be first?

Note*: George Gratsos, President Hellenic Chamber of Shipping in response to (“Smokestack lightening”)
Note**: Jo Espinoza-Ferrey Head, policy and planning unit International Maritime Organisation London in response to (“Smokestack lightening”)

How can visibility help supply chain agility?

Richard van der Meulen, Solution Consulting, GT Nexus Europe

For many organizations who providing goods with short product life cycles, agility is one of the most important characteristics their supply chain needs to have. Agility is the ability to make quick changes to the supply chain in response to changes in demand and supply patterns. And though it is often clear how agility can be created in theory, it can be challenging to achieve this in practice.

An answer might be found in the new capabilities in supply chain visibility. Often through cloud technology, Supply chain visibility can provide the ingredients to agile supply chains. For example, agility can be created by;

• Synchronizing activities through information sharing. This will result in reducing the infamous bullwhip effect, related inventory build-ups and decrease in supply chain responsiveness. By sharing information on a cloud platform and ensures there is one version of the truth that suppliers and other supply chain partners work off, allows supply chain synchronization to take place.

• Reducing inbound lead time variability. Variability in supply has the same effect as demand variability, they both drive up the need for Safety stock. And large quantities of stock increases the risk if obsolescence in an industry with high clock speed (short product life cycles). Having better visibility over your inbound supply chain, by receiving status updates from suppliers and transport providers allows you to start identifying the cause(s) of the supply variability and take remedial action.

• Dynamic reallocation of in-transit inventory. Dynamic allocation allows for reallocation of in-transit shipments thereby allowing quick response to demand changes. The new supply chain visibility platforms provide full inventory pipeline visibility of all goods regardless if they are at your supplier or at any in transit stage. This knowledge drivers the capability to dynamically reallocate in-transit inventory ensuring supply matches the latest demand.

Making a supply chain truly agile is a challenge for many organizations, the ability of new cloud based supply chain visibility platforms to assist with this effort should not be underestimated nor over looked.

Capitalizing on the benefits of the transportation sourcing event

Aaron Levin, Director, Product Management, Transportation Management Solutions

The annual transportation bid is a major focal point for many large, multi-national companies each year. Countless hours of prep work goes into this event. From capturing the forecasted volumes across the various business units within the company, to defining the structure of the bid, and ultimately to analyzing the responses across the transportation providers. Needless to say, this event is a major investment of resources and time, with the opportunity for significant transportation savings.

At the end of bid process, many organizations identify a plan representing the optimal way to move their cargo throughout the year, which reflects the lowest cost and desired service level to meet the operational needs of their business. Makes sense, right? Well, the challenging part actually comes now. How does a company drive adoption of the plan, and monitor compliance to the plan? Because if the plan is not followed, the organization risks losing the transportation savings identified during the bid, as well as risks not meeting the service levels required from an operational perspective.

Although this may appear to be an insurmountable task, it’s actually achievable, and in place at many companies today. What’s needed is a visibility platform that tracks the shipments across a company’s entire transportation network, and the ability to match these shipments against the carrier allocation plan which was the result of the bid. Armed with this data in a single, Global Business Intelligence platform, companies have the tools necessary to correct course when required, and ultimately capitalize on the benefits of their transportation sourcing event. Millions of dollars are at risk. The technology is here now to help organizations solve this problem. It’s time to take control of your supply chain.

Shipped to Delivered

Brian Wilcox, Director Solutions Consulting

What do you know about your shipments in between?

For many importers, awareness to origin activities is improving, whether receiving better data from partner 3PLs, direct updates from suppliers or origin offices (see “Production Tracking in the Cloud” below).   What still seems to remain a big challenge, however, is visibility to shipments after they have moved from an origin facility to when they are received at a destination facility.

A “shipped” event can sometimes be provided as a shipment departs a factory or warehouse and an ETA is considered a bonus.  The shipment remains in this state of “shipped” often until it arrives at a destination facility door.  If you consider all the opportunities for delay in the shipment lifecycle, it is risky to expect that shipments will move without some issues.   This puts obvious pressure on the destination team in efforts to plan appropriate labor to receive and process inbound goods.  But a less tangible effect to this visibility gap is a desire to carry extra inventory due to uncertainty.   Have shipments been delayed, missed transshipments, Customs hold?  Lack of confidence in understanding the status of inventory-in-motion causes companies to hold more products to ensure demand is fulfilled.  Reliable visibility to recent shipment events and ETA updates are critical to the confidence of determining appropriate inventory levels.  With the right tools and partner integrations, it is possible to achieve visibility to shipments through the supply chain. Your shipments are underway – do you know where they are?

Internal Backing for a Supply Chain Visibility Project

Richard van der Meulen, Solutions Consulting

One of the biggest challenges of a visibility improvement project is the fact that a multitude of organisational departments are impacted. In some cases, one department might have to take the brunt of making the changes while another department takes the lion’s share of the benefits. For example, improving in-transit visibility is often managed by the transport or supply chain department, while one of the benefiting departments will be customer service. Another example is inter-company shipments. When shipping under DES terms (or similar), the shipping department might not care about the free time at destination — but the receiving department certainly will, as they will be the ones paying for potential demurrage charges. Improvement of visibility before and during arrival at the port of discharge will greatly benefit the department taking ownership after arrival.

Supply chain visibility is the ultimate cross department, cross P&L project. To make these projects a success, representatives of all impacted departments, regions and P&L owners should be involved in creating an all-encompassing business case for change. This will allow for a clear understanding of who benefits from what, and helps allocate the associated costs of the project to the benefiting departments. Failing to do this might mean that parts of a business case will have to be disregarded because they benefit a department which is not paying for the cost of the change, potentially jeopardizing a project with an excellent overall ROI.

In a visibility project, organizations should typically be looking to include, at a minimum, the departments with the following responsibilities: transport, inventory, customer service, procurement and  finance — as well as top management to manage the cross functional/department alignment.