log4scm quest : global supply chain mega trends 2010 2011

Questuarterly

Supply Chain

Megatrends

2010-11

Feb-Apr 2010

Knowledge Partner

Gateway to Logistics Excellence

global Supply chain M

10

12

14

18

16

Shift from Customer Service to Relationship Management

Forecast to Endcast

Experience to Transition Strategy

Experience to Transition Strategy

Collaborative Approach

20Vertical to Virtual Integration

While traditional customer service focuses on achieving internal operating standards, a truly rela-

tionship-driven supply chain focuses on establishing customer success...

Management often lets forecasting bumble along unsupported in the hope everything will come

out all right in the end....

Firms increasingly confront the need to reinvent processes that are performing adequately when as-

sessed historically, but in fact....

While departments may remain the preferred method of managing work, the reality is that

process-oriented, self-directed....

The notion of focused collaborative arrangements, coupled with true cradle to grave accountability,

is revolutionizing the way that....

Virtually integrating operations with material and service suppliers to form a seamless flow of in-

ternal and external work overcomes the financial barriers....

Trust the expertiseMelvis Furtado

3PL is a two-way traffic where the firms have to be a good listener and always

evaluate what best their partner can do and what constraints he has. 3PL provides

Service not just ....

Supply Chain Opti-Simulation UnwiredTolga Yanasik

Simulation is often regarded as the proper means for supporting deci-

sion making on supply chain design. Owing to its inherent modeling flex-

ibility, simulation is often regarded as the proper means for....

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44

CONT

Mega Trends 2010-2011

30

26

24

22

28

Absolute to Relative Value

Information Hoarding to Sharing

Training to Knowledge-Based Learning

Reinventing Managerial Accounting to Value-Based Management

Supply Chain design and analytics

The notion of relative value is to grow a larger share of the profitable revenue available in a

business arrangement by a willingness to perform a broader range....

Given the right information-enabling technology and leadership, decision-makers can become per-

formance managers....

Implementing knowledge-based learning to effectively train employees is becoming critical.....

Value management is appropriately viewed as the implementation of financial sophistication. The

key is to identify and support activities that create value as contrasted to....

Changing scenario of Supply Chain is forcing companies to redesign their supply chain model to keep

pace with the market....

“Approach RTC while cutting cost”Thibault Quiviger

Redesign To Cost (RTC), a very efficient Cost Cutting Approach consisting of

reveiwing the very detailed design and specifications of the product, can save 15-

35 % of your total cost.....

Back to Old Nightmares : Mastering TimeYan Lehunchec

This new paradigm is shifting the center of the industrial organization from the

plant to the management of supplies and dispatch....

Corollary of Supply Chain AnalyticsUnnikrishnan

A long forgotten virus is challenging the LLC Industrial base, i.e. Long lead times

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58

TENTS

Feb-April 2010 Log4scm Quest 05

Editorial

Let’s hope

for the bestF

or the last couple of years Supply Chain has matured so have its

complexities. Considered often as a soft skill, Supply Chain manage-

ment, on the contrary, is an engineering activity, as much as manu-

facturing or IT development. This activity requires not only extensive

training and skilled people to be carried out efficiently but also trust among

the different partners in the chain. That’s the most difficult aspect of Supply

Chain management: partners need to trust each others, to share data or

even invest in common systems. This trust issue is often the foot trap which

blocks, for instance, the development of 3rd PL. 3rd PL need to invest in

heavy IT system interconnected with their customer’s systems to provide

up to date services but contracts are challenged every 2 years. This is far

shorter than the breakeven point, impeding the development of long and

fruitful relationship between 3rd PL and orders givers.

There are several aspects of supply chain interaction that have been iden-

tified in supply chain trends over the last few decades. The mega-trends re-

flect fundamental paradigm shifts exhibited by leading firms as they

transform their supply chain capabilities to accommodate the long-term

transition from an industrial to an Scientific Technology driven society.

These mega-trends imply substantial change in logistics practices between

supply chain partners as they struggle to establish efficient, effective, and

relevant product/service solutions for end-customers. The mega-trends

discussed in this paper identify some critical dimensions of change relevant

to supply chain value creation.

Well, we have tried to create an enabling environment for the supply chain

sector so as to equip supply chain strategists with the changing market

trends which could affect them in future. Moreover supply chain is con-

sidered secondary focus. We hope Log4scm Quest will create value addition

in bringing supply chain in centre stage in companies’ strategic business

planning.

We would be glad to hear from you

Happy reading!!

[email protected], [email protected]

+91 99105 168905

Questuarterly Feb-Apr 2010

Editorial Head

Apresh C Mishra

[email protected]

[email protected]

+91 99105 16905

Intellect Head

Rajeev R Mishra

[email protected]

[email protected]

+91 99711 74574

Marketing and Operations

Head

Shatrunkay Singh

[email protected]

[email protected]

Communications Partner

Renaissance PR

Knowledge Partner

Enetek S.A.R.L.

DisclaimerAll the information in this

magazine has been providedwith due care. However nei-ther Uvaach Media nor its

any partner guarantee for theappropriateness of the infor-mation. Kindly check prop-erly before acting accordingto the information we have

provided here. All the matterscontained here are under theintellectual property right ofUvaach Media that prohibitsthe user from copying or re-producing the matter in anyform without the prior writ-ten permission of Uvaach

Media.

Cover Story

10 Log4scm Quest Feb-April 2010

Shift from Customer Service to Relationship Management

Megatrend-1

Customer Focus and Supe-

rior Service should be a

major objective for every

manufacturing company in order

to either achieve or maintain mar-

ketplace leadership. Customer rel-

evancy will increasingly become

the key strategic commitment of

leading corporations. While tradi-

tional customer service focuses on

achieving internal operating stan-

dards, a truly relationship-driven

supply chain focuses on establish-

ing customer success. For many

customers, such operating features

as cycle time compression, exact

point in time delivery performance

and perfect order-to-delivery may

be the prime drivers of supplier

acceptability. In contrast, other

customers may not be willing to

shoulder the cost of day-to-day

six-sigma logistics support. Their

preference may be for a high level

of average logistical support forti-

fied by immaculate logistical recov-

ery when and where needed.

Supply chains designed to

achieve unique customer value

propositions have the potential to

turn commodities into value-added

solutions. Given an understanding

of what drives end-customer pur-

Relationship does matterWhile traditional customer service focuses on achieving internaloperating standards, a truly relationship-driven supply chain focuses on establishing customer success. For many customers,such operating features as cycle time compression, exact point intime delivery performance and perfect order-to-delivery may bethe prime drivers of supplier acceptability.


chase behavior, a supply chain

based on relationships has the

greatest potential to result in

unique logistical solutions that are

simultaneously effective, efficient

and relevant. This implies that

firms will likely participate in

multiple supply chains to support

different customers.

Although most firms have not

achieved the desired level of

closeness with customers, it is the

most advanced of the mega

trends. We assess the current av-

erage achievement to be 5-6 on

the ten-point scale. Leading firms

increasingly recognize that suc-

cess hinges on establishing inti-

mate relationships with key

customers. Intimate relationships

enable firms to generate unique

and profitable product/service

offerings for their preferred cus-

tomers. This, of course, is in di-

rect contrast to principles of

mass marketing, and it is certainly

cost prohibitive to all but the

most narrowly defined market

niche firms. Managers seeking to

achieve this level of intimacy with

customers must assess their

firm's resources relative to the

needs and desires of select indi-

vidual customers. Then the firm

can deploy its resources and ca-

pabilities to perform customer-

valued activities and services that

competitors cannot match at all

or at a reasonable cost.

There are two shifts that must

take place for firms to evolve

along this continuum. First, firms

seeking to develop strong cus-

tomer relationships should recog-

nize that all customers do not

have the same service expecta-

tions and do not necessarily want

or deserve the same overall level

of service. They must, therefore,

identify core customers best

suited to be their business clients

and then meet or exceed expecta-

tions by providing unique value-

added services. These services

may include assignment of spe-

cific focus teams to identify, de-

sign, implement, and refine

specialized and synchronized of-

ferings. Additionally, firms must

develop the ability to satisfy not

only existing needs but also those

that may emerge. By continuously

matching service capabilities with

changing customer expectations,

providers can stay ahead of com-

petition.

Second, firms seeking to en-

hance customer relationships

must develop operating systems

capable of quickly reacting to

change rather than depending

upon anticipatory deployment of

inventory to handle planned re-

quirements. This is facilitated by

gathering and exchanging infor-

mation throughout the supply

chain as contrasted to guessing

what may happen. The focus

must be on efficient and effective

accommodation of unique cus-

tomer requests as well as on the

ability to react to unexpected op-

erational circumstances.

These capabilities enable firms

to capitalize on uncertainty to en-

hance customer satisfaction.

Some approaches that facilitate

flexibility include providing front-

line employees with the authority

to approve special customer re-

quests, automatically accommo-

dating stock outs through

multiple service locations, and

implementing preplanned solu-

tions. Another critical enabler of

flexibility is routinization and

simplification of fundamental

work to minimize effort ex-

pended on handling day-to-day

details and free resources to deal

with unexpected events. Judicious

employment of form and time

postponement also contributes to

a firm's ability to respond to un-

known or unplanned circum-

stances.

Although most firms have not achieved the

desired level of closeness with customers, it

is the most advanced of the mega trends. We

assess the current average achievement to be

5-6 on the ten-point scale. Leading firms in-

creasingly recognize that success hinges on

establishing intimate relationships with key

customers.

Cover Story


Forecast to Endcast

Megatrend-2

Its difficult to forecast our

business, it’s too unpre-

dictable. The fact is, when in-

ventory exists at any level in

anticipation of customer orders, it

is the result of a forecast. Some-

one, somewhere in the organiza-

tion has made predictions that

have activated capacity, consumed

cash and driven the customer serv-

ice level. Also, it’s a good bet that

the someone who’s forecasting is

doing it without the right tools,

without proper training, and with

little or no information to support

the process. Yet, the forecast drives

material planning, production

scheduling, inventory levels, and

customer service (among other

things). Managers know this, in

their hearts, but for some un-

known reason they insist that “we

can’t forecast this business”. The

result is that management often

lets forecasting bumble along un-

supported in the hope everything

will come out all right in the end.

This approach can only contribute

to repeating cycles of poor per-

formance.

Experience demonstrates that

the consequence of bad forecast-

ing is a significant and unfavorable

impact on overall business per-

Predicting the

unpredictableManagement often lets forecasting bumble along unsupported in thehope everything will come out all right in the end. This approach canonly contribute to repeating cycles of poor performance.


formance. To make matters

worse, a form of denial sets in

and the real costs of poor fore-

casting are consistently underes-

timated and often overlooked.

When “bad numbers” drive ma-

terial planning and production

schedules, the inevitable results

are longer cycle times, higher

overhead activity costs, erratic

production schedule perform-

ance, excessive inventory, lower

throughput, and lots of dissatis-

fied customers – eventually hav-

ing a negative impact on sales.

The cost of bad forecasting is

enormous. Forecasting deserves

increased recognition of that im-

portance and must become one

of the most critical management

functions. As such, improving the

forecasting process deserves the

small investment required to

achieve incredible returns on that

investment.

The Self-Diagnostics Checklist

The following ten point check-

list is a simple self-diagnostic

which can help companies envi-

sion what performance could be.

Another enlightening aspect from

the test could be the differing an-

swers various managers will give

the same questions. This, of

course, opens up an entire area

for discussion (spirited discussion

in many cases) which should be

the beginning of swift problem

resolution.

Answer “Yes” or “No” to each

of the following:

• Order fill rates meet man-

agement’s specific and measured

customer service strategy.

• Delivery lead-times are at

least competitive and predictable.

• All functions agree on

which products are stocked and

which are made to order.

• The mix and investment

in inventory are a shared respon-

sibility between Sales and Manu-

facturing.

• Appropriate mathemati-

cal and statistical calculations are

used instead of “rules of thumb”

to establish desired mix and lev-

els.

• Management’s inventory

investment plan and customer

service objectives are the actual

results being realized.

• Short-term forecast devi-

ations are monitored and ad-

justed and long-term forecast

accuracy is continuously improv-

ing.

• Inventory record accuracy

is maintained at 98+%.

• Excess safety stock

buffers are not pyramidally main-

tained at various inventory levels

to compensate for “bad num-

bers”.

• Excess and obsolete in-

ventories are measured and are

less than 1% of total inventory.

What to do further?

For those who do not score wellon the Self-Diagnostics testabove, appropriate action is defi-nitely required.

First, management must for-mally recognize sales forecastingas a vital business control point.

Second, this recognition shouldbe followed by a thorough evalu-ation of the current forecastingprocess. Third, where needed, anaction plan for improvementshould be launched without delay.

The good news is getting a fore-casting process in place is not asdifficult as many people think;statistical forecasting tools arereadily available and the proce-dural requirements are modest. Ifyou have to forecast, then theonly proper course is do it withthe right tools, techniques, infor-mation and properly trained staff.Then, and only then, will you beable to say “we can forecast ourbusiness.”

Forecasting deserves increased recogni-

tion of that importance and must be-

come one of the most critical

management functions. As such, improv-

ing the forecasting process deserves the

small investment required to achieve in-

credible returns on that investment.

Invited

How to cut cost?

There are basically 3 ways to cut

costs: transfer the problem to

your supplier and get better

prices, be more efficient in your

Supply Chain –stock reduction,

new distribution networks, bet-

ter use of assets, minimize losses

(time, material) and a 3rd one not

explored often, review your product

offer through a Redesign To Cost ap-

proach (RTC). These 3 different ap-

proaches bring in general savings

ranging respectively in 3-5%, 2-10%

and 15-35% of the total cost.

Let’s see what more Mr. Thibault

says in an exclussive interview with

Log4scm.

What is RTC?

Redesign To Cost is a very ef-

ficient Cost Cutting Approach

consisting of reviewing the very

detailed design and specifica-

tions of the products to relax

the too constraining ones and in

“Approach

RTC while

cutting cost”

Redesign To Cost (RTC), a very efficient CostCutting Approach consisting of reveiwing thevery detailed design and specifications of theproduct, can save 15-35 % of your total cost.Mr. Thibault Quiviger shares his ideas howto go for it with Log4scm.


Mr.Thibault, an Ex-Army

Officer from the French

Army and Prior to setting his

company in 2004, worked

primarily in Arcelor (now

Arcelor-Mittal) and he

worked in various capacities

from Quality Division and

then went on to Supply Chain

and Network Design, and

later on for different indus-

tries, from heavy industry

companies –Steel & Mining,

Oil & Gas to Retail busi-

nesses, specializing in re engi-

neering their Distribution

Networks, Investment Plan-

ning and Production Alloca-

tion and also developing

Quality Model Builder based

on Machine Learning Algo-

rithms and then Supply Chain

Modeller for the European

industry.

He founded his own firm and

expanded his company ex-

pertise to Operations Simula-

tion and Operation

Excellence with 2 new Re-

gional offices in India and

Turkey. In early 2009, he has

been appointed Associate

Professor at the Technical

University of Compiègne,

France for Industrial Network

Design for the Mechanical

Engineering Department.

You can reach to him at

[email protected]


optimizing the product range

offer.

How can RTC be compared to

other Cost Reduction Ap-

proaches?

Indeed, our experience in Eu-

rope has shown that 85% of the

product cost is frozen during the

design phase. The so efficient and

popular lean approahces,6 sigmas

and network design projects act-

ing only on less than 15% of the

product cost. Indeed, during the

design phase, the focus is much

more centered on fulfilling spe-

cific marketing requirement than

optimizing the total cost (sourc-

ing + manufacturing + distribu-

tion). Marketing requirements are

often too stringent, asking for

functionalities not valued by the

customers. And because design

Engineers like complexity, they

will tend to propose complex de-

signs or complex manufacturing

processes, regardless of their

cost. Most engineers prefer de-

signing their own system than re

using an existing system proved

reliable or produced in such

quantities that its unit cost will be

always much smaller than any

new system designed from

scratch.

Which are the potential costs

to be cut?

Sources of cost easy to cut are

plethoric: choice of materials

(plastic vs steel, steel grade, thick-

ness), the shape of the product

(so easy to draw complex but

costly to produce shapes with

CAD software today), tolerances

(too narrow tolerances = very

high production costs) or func-

tionalities not valued by the cus-

tomers or by the targeted

customer segment (is a camera

necessary on any cell phone?).

Reviewing specifications and sec-

ondary functions on products

lead to an average savings of 30%

on the unit prices while guaran-

teeing the same level of customer

satisfaction.

But beyond the product specifi-

cations,

What could be the effects of

Product Range on RTC ?

It is necessary to consider the

product range to optimize the

trade-off between product diver-

sity aimed at satisfying the identi-

fied distinct customer clusters

and the induced

production/sourcing complexity

in the Supply Chain.

For instance, a car maker real-

ized that its AC system power was

30% higher compared to its

peers. Aligning specs led to a 25%

cost reduction on the AC system.

A payment terminal producer re-

duced the resolution of its printer

head from 8 dots/mm to 4

Outsourcing is a viable option / solution tomost companies. Why do companies out-source has various reasons. Some increaseshareholder value, reduce costs, business

transformation, improve operations, over-come lack of internal capabilities, keep upwith competitors, gain competitive advan-

tage, improve capabilities, increase sales, im-prove service, reduce inventory, increase

inventory velocity and turns, mitigate capitalinvestment, improve cash flow, turn fixed

costs into variable costs and other benefits,both tangible and intangible.

Invited


dots/mm, reducing cost of the

equipment by 21%. A small car

maker replaced its in house devel-

oped breaking system and re used

the system of a competitor: cost re-

duction of 48%. For sure, all these

action require intensive analysis of

the specifications, of the suppliers

offer and potential sourcing diver-

sification while meeting customer

needs (and not design engineer

pride)

Do Marketing Heads need to

Optimize Product Diversity?

Marketing teams tend to define

distinct specifications for the differ-

ent customer clusters and customer

needs they have identified. Tempta-

tion is high then to customize each

and every product for every cus-

tomer. But mass customization is

extremely complex and often ex-

tremely costly. Basically, customers

prefer a full option car than a car

with the limited options they could

afford! This reality can lead engi-

neers to the opposite direction, over

simplifying the product offer

aligned on the most demanding

customer needs, generalizing every

option for every customer. Leading

to expensive production costs. If

the first problem of over cus-

tomization is often found in many

industries in their infancy stage, the

“platform” strategy pushed too far

is every day more common in the

industries which understood the

risks of over customization. The

right balance is in between: defining

the right number of “generic” plat-

form enabling economies of scale

and differentiating enough the

product features to fit the market

needs at the cheapest cost for every

customer segment identified.

Could you elaborate it with an

example?

For example, proposing an inte-

grated camera for the low range cell

phones in India has been rejected

by Nokia because most people

would not pay for it, too expensive

while it has been generalized in Eu-

rope to achieve economies of scale

pushing costs down cost enough to

propose it for every European cus-

tomer.

A harness makers split its single

harness offer between high and

middle range customer to build

them with cheaper components for

the middle range: savings achieved

= 21%...

These examples show that the

product range optimization requires

a systematic and quantified pros

and cons approach to achieve the

best trade-off between cheapest

cost and Supply Chain complexity

management costs.

Send your comments to:

[email protected]

The first problemof over cus-

tomization isoften found in

many industriesin their infancystage, the “plat-

form” strategypushed too far is

every day morecommon in the

industries whichunderstood the

risks of over cus-tomization. Theright balance is

in between:defining the right

number of“generic” plat-form enablingeconomies of

scale and differ-entiating enoughthe product fea-

tures to fit themarket needs at

the cheapest costfor every cus-

tomer segmentidentified.

log4scm quest : global supply chain mega trends 2010 2011

Business

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