1. This supplement is an independent publication from Raconteur Media
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June 10, 2010
SUPPLY CHAIN
MANAGEMENT
Driving value through the supply chain
“may be doing their first production
run a long way from home, but their
top-up runs much closer to home,
mainly in Eastern Europe”.
“There are a lot of issues around de-
oVERVIEW Achieving competitive advantage is now demand is now seen by many to be not longer lead-times. There is ris- mand planning, production planning,
more valuable than price alone. ing anecdotal evidence of companies timing of acceptance of stock, getting
a delicate balance between seeking best value One significant development that reconsidering their sourcing strate- it into the store and selling it through,”
and managing complex risks within the supply has occurred over recent months is gies, with some moving manufactur- he says. “There are signs that some
the move by shipping lines to moth- ing back closer to Western markets. companies have found that the costs
chain. Nick Allen reports ball fast but fuel-hungry container “Buyers are looking for shorter pro- of getting it wrong are too high and
vessels – built for rushing Chinese duction runs and they are looking they are starting to outweigh the ben-
T
goods to the United States – utilis- for flexibility,” says Stephen Rinsler efits of lower manufacturing costs. If
he quest to deliver greater cally increased supply-chain risk. ing instead slower moving, larger and of Bisham Consulting. “The problem you want smaller quantities, because
value to the customer has Longer lead-times require greater more economic container ships. The with long supply chains is that they you want to change your stores much
sent Western companies to investment in inventory and cor- net result is an extra few days on the are not flexible. A retailer of electri- more frequently, you need to be much
distant locations in search porate brands are now exposed to lead-time for goods arriving from the cal units may have one technology in closer to home. Only then are you able
of low-cost goods. Stretching sup- increased risks from their suppliers. Far East. This may not sound a great store, another on the water and yet to cope with the change in design, pat-
ply chains across the globe to low- The recession has highlighted deal, but holding inventory for even another technology in production. tern, colour, and specifications needed
wage economies, such as China a number of these risks and has a few days more can add to costs and What happens if the first technology for fast-changing markets, such as
and India, has brought an influx caused many to re-evaluate the way impact responsiveness. doesn’t sell too well?” with technology goods.”
of cheap goods. But the complex- they run their supply chains. Flex- In uncertain times procurement According to Mr Rinsler, there is
ity of distant sourcing has dramati- ibility to respond quickly to market professionals want greater flexibility, some evidence that a growing number continued on page three

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S u p p l y c h a i n S o l u t i o n S t h a t h E l p y o u G R o W

3. SUPPLY CHAIN MANAGEMENT 3
INSIDE continued from page one the electronics sector seems set to
have an influence on the way many
(UKWA), says: “The need to drive
cost out of the supply chain is often
demands to comply with a growing
number of standards. But things are
DILEMMA industrial sectors will monitor sup- cited as a major reason for using changing for the better.
4 Delivering the goods Elizabeth Tyrrell, business develop- pliers concerning CSR risk. At the third-party logistics service pro- The UK Environment Agency has
Spending on roads slips down ment director at upmarket gift com- beginning of March, Achilles and viders. However, perhaps a better just approved CEMARS, the chosen
the agenda pany, Basket2U.com, highlights the the Global e-Sustainability Initiative reason for engaging outside experts certification standard of Achilles
And volcanic ash means no sushi dilemma facing many companies. (GeSI) signed a memorandum of is the in-depth knowledge, flexibil- carbonReduction programme, as
“Presentation is absolutely critical for understanding to set a new three- ity and added value that a specialist an early-action metric or measure-
6 Managing risk us. With our latest range of newborn year strategic plan to drive forward contractor can provide. In short, as ment in the CRC Energy Efficiency
baby gifts, we wanted to respond to the Electronics Tool for Accountable well as helping companies to achieve Scheme. It is the only programme in
How companies cope with the market demands for a top-quality gift Supply Chains (E-TASC). Subscrib- significant cost savings, a good serv- the UK with a standard that provides
unexpected and the unpredictable box to sit alongside our established ers enter details of how their supply ice provider will enable a business certification to ISO14064 Part 1, is
luxury baby baskets. Sourcing a box facilities manage and reduce their to enjoy shorter order cycles, better government-approved and is recog-
7 Insuring the supply chain from the Far East would offer the labour, social and ethical, environ- customer service and improved all- nised in major global economies.
Taking out insurance can make a lowest unit price but lead-times were mental, and health and safety risks, round business efficiency.”
business a better bet for the bank three months,” she says. “We wanted and share the information, through Another concern for corporate en- CERTIFICATION
to capture early market positioning the online tool, with their customers. tities is the resurgence of interest in By attaining CEMARS certification,
8 Shop till you drop with the packaging concept and test In this way they drive continuous carbon management within the sup- companies will have verified infor-
acceptance of the product without improvement in the supply chain. ply chain. Buyers are now increasingly mation that can be submitted with
So many ways of shopping pose committing to large production runs. looking to source confidence for their CRC reporting
challenges for retailers We needed to launch the range in two from suppliers and, with no additional work or cost,
10 A question of finance
weeks, not three months time, and we
wanted to check that the foil block-
Flexibility is more that are actively in-
volved in measur-
have the opportunity to achieve the
early-action metric. Furthermore, for
Industry experts engage in a ing of our logo was reflective of our valuable to us than ing and controlling companies that operate globally, they
roundtable Q&A brand image. So it made sense to go their carbon emis- can apply CEMARS to all operations,
for a short run from a UK manufac- simple unit cost. It allows sions. According to which will fulfil UK legislative re-
12 How to keep the cash turer, even though the cost per unit a report just pub- quirements on carbon consumption
flowing was higher, and then source bulk or-
ders from the Far East once the prod-
us to keep one step ahead lished by manage-
ment consultancy,
while being in line with emerging in-
ternational standards.
Buyers want more time to pay while
suppliers need prompt payment
uct was proven in the market. That
flexibility is more valuable to us than
of the competition AT Kearney, 6 per
cent of leading
Perhaps the greatest contributor to
carbon emissions within most supply
simple unit cost. It allows us to keep companies already chains is transport. Vehicle manufac-
14 Technology tips one step ahead of the competition.” Although E-TASC has been used deselect suppliers who fail to manage turers are making significant efforts
Supply chains stretching around the A major consideration for buying extensively by the electronics in- carbon and 56 per cent are commit- to reduce fuel usage by introducing
organisations sourcing from suppliers dustry since 2007, with more than ted to do so in the future. Some also sympathetic designs. Trailer manufac-
world need tracking
in distant locations is the potential for 1,000 supply facilities on the system indicated that they intend to develop turer Schmitz Cargobull has recently
And public sector procurement is exposure to risks related to Corporate and over 50 global brands now sub- contracts which require improved car- introduced a range of trailers with a
centre stage as cutbacks begin Social Responsibility (CSR). Business scribing, the new agreement puts it bon management. These companies lightweight steel roof which allows
ethics are now an issue. in a strong position to be adopted are choosing to take such steps ahead the overall weight of the trailer to be
Damage to corporate reputation by other industries for managing of regulation because they make good reduced, thereby significantly reduc-
and brand are central concerns for CSR compliance globally. business sense. However, regulation on ing fuel consumption on a typical
businesses operating in a global carbon usage is already upon us. journey. Initiatives such as this will
market. How a company behaves in OUTSOURCE From April 1, some 5,000 UK become increasingly important as
one part of the world can have huge Boardroom awareness of the com- companies were required by new companies search for ways of reducing
Editor ramifications on how its reputation petitive advantage a considered, legislation to register for the Carbon their carbon footprint in order to hit
Peter Archer and brand are perceived in another. well-planned and efficiently execut- Reduction Commitment (CRC) their carbon reduction targets. Ensur-
And nowhere is this more impor- ed supply chain delivers is leading Energy Efficiency Scheme, commit- ing full utilisation of the vehicle, avoid-
Contributors tant than in how an enterprise many to outsource this increasingly ting them to submit an information ing empty running and smarter route
Steve Agg sources its products and services. complex function. Roger Williams, statement on their carbon usage. planning will all play a part in reduc-
Nick Allen In recent weeks a significant col- chief executive of the United King- Many organisations operating on an ing footprints and, importantly, will
Peter Archer laborative initiative from within dom Warehousing Association international basis are perplexed by help drive value in the supply chain.
Ron Condon
Iain Martin
James Silver
Publisher
Jamie Simon
Production manager
Fabiana Abreu
Design Shipping lines
Hervé Boinay are mothballing
faster but fuel-
Published in association with: hungry vessels
and using slower
container ships
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can be accepted for any errors. No part of this
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prior consent of the Publisher.
© RACONTEUR MEDIA

4. 4 SUPPLY CHAIN MANAGEMENT
Delivering the goods
Mr Hammond has also ruled at how it raises the revenue that it review of transport taxation across
out the prospects of road pricing needs from both the motorist and the board is long overdue.
being introduced in this Parlia- the road transport industry. As I have said, the logistics and
ment, despite the growing con- The time has surely come for transport sector is smart, innova-
come what may
viction of many industry groups government to listen with attentive tive and efficient, and it will contin-
that it is a sensible way forward. ears to arguments for an equitable ue to deliver the goods come what
It seems clear that we must find a taxation system which is capable of may. And while we recognise the
new way of raising funds for any distinguishing between the needs Government’s problems, the fact
additional road capacity and road of users-of-choice and those of is that we could do so much better
TRANSpoRT The new coalition Government faces tough pricing is thought by many to be necessity as well as, of course, ad- with a little more help.
a potential option. On the subject dressing the structural disadvan-
choices over cutting public spending and, according of taxation and the raising of rev- tages that the UK transport op- Steve Agg is chief executive of the
to Steve Agg, investment in transport networks is enues, perhaps our new Govern- erators face when competing with Chartered Institute of Logistics and
ment, with its stated commitment their neighbours from other Euro- Transport which represents some
unlikely to be at the top of the agenda to “fairness”, will take a fresh look pean countries. Yes, a fundamental 19,000 professionals
T
he likely low priority of can be delivered efficiently and eco- On route to
government spending on nomically. The British Chambers of becoming
transport and logistics is Commerce has estimated that road part of the
bad news for an industry congestion is costing the economy transport
which turns over £75 billion a year, some £23 billion a year. Investment network
employs 2.3 million people, and is of in the network is both essential for
absolute importance to the operation our economy and for our environ-
of the economy and the needs of the ment; the roads need to be open
population. If you have it then it has and well-maintained for the UK to
certainly travelled on a lorry or a train do business, and congestion does
or a boat or a plane and most likely a nothing for air pollution and car-
combination of some or all of these. bon-dioxide emission levels.
Of course, given their innovative Quite rightly the new Secretary
and can-do nature, the logistics and of State for Transport, Phil Ham-
transport professionals will contin- mond, has declared that he will
ue to deliver the goods. But, as the “sweat the assets” of roads by im-
nation recovers from recession, and proving traffic information, quick-
we once again see increasing traffic er clear-up of accidents and max-
© Bruce Wiliams/Rex Features
levels, as we move more people and imising the capacity utilisation of
freight, we are sure to see increased the current network. Amen to that.
congestion, and the increasing But it seems certain that there will
waste of man-hours and money be little funding available for the
which inevitably accompanies it. construction of new road capacity;
As a whole, UK industry cries spending on roads is a soft target
out for improvement in the road for the dreaded “cuts” in that it does
network so that goods and services not hit individual taxpayers.
Volcanic ash means no sushi No wonder then that, when an
Icelandic volcano, dormant since
1823 near the Eyjafjallajoekull gla-
cier, erupted on April 14, sending a
If the butterfly effect refers to the
theory that the flutter of a butter-
fly’s wings might create tiny atmos-
pheric changes that may ultimately
coNTINgENcy plANNINg plume of ash into the atmosphere, alter the course of a tornado thou-
leading to the closure of swathes of sands of miles away, 2010’s Icelan-
Supply chain event Threat to European airspace for seven days, the dic volcano might be viewed as a
management is all airspace: global sushi supply chain was badly sort of butterfly effect in reverse. A
volcanic ash disrupted. At the height of the crisis, major faraway natural event rippled
very well but there are grounded April 18, there were just 5,204 flights out to cause thousands of small dis-
some things you just freight as well in Europe compared with 24,965 on ruptions across the world. Prime
cannot plan for, no as passenger the same day a week earlier. Exports ministers and heads of states could
flights of Norwegian salmon to Taiwan not attend the funeral of the Polish
matter how much risk dropped by up to 20 per cent, for ex- President Lech Kaczynski, who had
assessment you do, as ample, forcing Taipei’s largest chain, been killed just a few days earlier in
Sushi Express Co, which imports an air crash; families found them-
James Silver reports three to five tonnes of salmon daily, selves stranded on holiday; sushi-
to switch to Canadian and Australian addicts in London had to make do
alternatives. In Malaysia, the price with tuna sandwiches.
W
ith its dependence on for fresh salmon more than doubled Effective supply chain event
fresh fish, few businesses to US$16 per kilo. management gauges the risk of all
have as complex and Leading UK sushi chain itsu de- conceivable events and factors that
finely-calibrated supply chains as clined to comment on how the Ey- can disrupt a supply chain. Every-
the sushi trade. The journey from jafjallajoekull eruption impacted day risks can be screened out and
fisherman’s net to chef’s blade can on their supply chain; itsu’s rival contingency plans woven in. Some
be tortuous, often clocking up sev- YO! Sushi claimed that that they events fall into the category of un-
eral thousand air miles. As a rule had not been affected. However, a likely, but foreseeable: if you have
sushi restaurants dislike discussing customer who visited a City branch goods on a vessel passing through
their Godzilla-size carbon footprint, of itsu during the flight ban was the Gulf of Aden or the Somali Ba-
which made it all the more eyebrow- informed that tuna sashimi was off sin, it is entirely possible that that
raising when the boss of one top the menu because of the volcanic ship may be hijacked by pirates.
New York chain recently revealed ash cloud. A subsequent conversa- After all, in 2009 there were some
© KPA/Zuma/Rex Features
that the bluefin tuna served at his tion with a branch manager con- 214 attacks in the region, of which
tables was caught in Greek waters, firmed that the company’s supply 47 resulted in hijacking.
flown to Japan to be gutted, cut and of yellowfin tuna, which is sourced But other events are entirely un-
boxed, before being air-freighted from the Indian and Pacific oceans, foreseeable. Few in the sushi busi-
to New York, a roundtrip of 12,676 had been interrupted “for one or ness are likely to forget Eyjafjal-
miles. Not so much a supply chain two days”. French beans imported lajoekull in a hurry; even if they
as an around-the-world tour. from Kenya were also hit, she said. never learn to spell it.

5. SUPPLY CHAIN MANAGEMENT 5
SponSored FeATUre
Managing your risk in the supply chain
Supply chains can be vulnerable to more than just the financial Middle-East markets: opportunity or risk?
pressures of the global downturn. As well as the possibility
of a supplier defaulting, there are risks of compliance, ethical Entering the Middle-East markets can seem a
daunting prospect but there are solutions which
responsibility, cultural and political issues and supply chain make it more than worthwhile. One solution is to
disruption, such as physical or natural disasters. Companies such use the Jebel Ali Free Zone (JAFZA) in Dubai where
as Charles Kendall are increasingly asked to produce significant companies, such as CH Field, have established
import services. CH Field holds a General Trad-
cost savings through tailored risk management and compliance ing Licence issued by the Dubai Government and
programmes. Charles Kendall is a highly experienced global this allows them to offer a rare service by acting as
your company in JAFZA and providing a low-cost,
company, who provide supply chain solutions tailored to low-risk entry point for a wide range of products,
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valuable markets of the Middle East and beyond.
to delivery to the end customer More information about CH Field can be found at
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Mexican Lock-down
Customs Advisory & Compliance
W
hen a multi-national pro- road transport in Mexico is 20 per
ducer of consumer goods cent higher than in the United States.
T
decided to launch a new he informed-compliance cul- of supply chain and freight man- duty. Charles Kendall recently ad-
distribution-centre (DC) facility near RISk MITIGATION ture, established in the US in agement, including on-site audit of vised a client to use an alternative
Saltillo, Coahuila, in Mexico, the chal- Charles Kendall made specific recom- the 1990s through the Cus- current import and export practic- Customs Procedure Code (CPC)
lenges of operating in a volatile region, mendations including undertaking toms Modernisation Act and suc- es by former senior Customs staff, which has produced savings of €2
marked by an escalating narco-civil war, background checks on all drivers, no cessive amendments by the Federal and product classification advice million per annum through im-
soon became apparent. They turned to weekend or Friday deliveries, routing Maritime Commission of the Ship- and follow-up with Customs for proved cash flow, and reductions in
Charles Kendall to provide the essential through Houston to a secure, private- ping Act of 1984, has been adopted rulings to establish correct rates of clearance and freight costs.
risk-management advice needed for security compound on the Laredo bor- globally post 9/11 and is being ag-
the shipment in 2010-11 of 5,000 TEU der, escorts with radio control to central gressively implemented in the EU
shipping containers of highly pilfer-
able consumer goods. Charles Kendall
law enforcement, and use of steel-bolt
seals. Charles Kendall re-designed
currently. The customs regime is
increasingly complex and the pen-
AEO Status
undertook a disciplined approach to the supply chain to mitigate specific, alties for non-compliance can be
risk management through a four-step pre-quantified threats, and have put a severe. UK Customs are increasing Authorised Economic Operator status (AEO), plays a vital
process of assessment, quantification, check-and-balance system in place to the number of audits and visits to role in the security amendment of the Customs Code (Regula-
mitigation and ongoing audit. ensure that these are maintained. traders, with fines of up to £2,500 for tion (EC) 648/2005) which came into force on 1 July 2009. The
each individual error. Even so, few amendment aims to ensure an equivalent level of protection
ASSESSMENT organisations have in-house compli- through customs controls for all goods going through EU cus-
Assessing the risk is an important
first step to address and Charles
Since implementation ance experts, which is where Charles
Kendall can provide assistance.
toms territory and stipulates that relevant security data must
be provided electronically by economic operators before the
Kendall quickly determined that
a significant, ever-present risk of
in March 2009, a zero AvOIDING PENALTIES
goods enter or leave the Community customs territory. With the
transition period due to close at the end of 2010, all importers
theft, vehicle hi-jacking and contra-
band smuggling exists and the cus-
loss record has been Serious infractions, such as rebat-
ing or illegal discounting, regularly
and exporters operating in the EU zone must comply with the
changes in EU law or face potentially hefty government fines. As
tomer’s product range falls within
the five highest risk categories for
maintained incur severe penalties. A multi-
national agent was fined $1million
one of the relatively few companies to hold this standard in the
UK, Charles Kendall have a lower risk score within HM Revenue
theft in Mexico. in 1980 for accepting illegal rebates and Customs systems and in turn they benefit from a fast track
ONGOING AUDIT from ocean carriers. service through Customs controls. They are also ready for the
QUANTIFICATION Quarterly site visits occur to inspect changes due later in 2010 with ICS (Import Control System).
Additional risks exist in the form infrastructure, ensure adherence SOLUTIONS
of federal penalties, fines, and dam- to standard operating procedures Analysis of customs procedures can
age to brand image and reputation. (SOPs) and to audit the process. benefit businesses in many ways
Cargo theft was the most prevalent Charles Kendall also source daily from duty and demurrage savings
property crime in Mexico in 2008 high-level security briefings on the to fiscal representation which can
and led to the cost of road transport Mexican market to ensure that the improve your cash flow, and pro-
increasing by 40 per cent in three customer is briefed immediately on vide consistent delivery lead times.
years. Insurance premiums increased any relevant developments. Since im- Drawing on more than 30 years’
by $1 million year-on-year between plementation in March 2009, a zero- experience, they provide technical
2007 and 2008. Overall, the cost of loss record has been maintained. assistance and advice on all aspects www.charleskendall.com/times Contact Peter Sunderland 0208 831 1300
e: times@charleskendall.com

6. 6 SUPPLY CHAIN MANAGEMENT
Right product, right place, Supply chain risks ployed hedging. Companies have
also suffered from strong swings in
commodity prices, such as oil and
in numbers copper, which have been going up
right time, right price
and down like a fiddler’s elbow.”
A string of significant weather
29%
disruptions, European labour dis-
putes and supplier quality failures –
exemplified at Toyota, BMW and BP
RISk MANAgEMENT How do companies cope of the most challenging supply Percentage of – are causing a rethink of the Lean,
chain risks. Andrew Leahy, DHL’s globalised, supply chain model with
with the unexpected and the unpredictable to vice president for product develop- companies experiencing its emphasis on cost management.
deliver on time? Iain Martin finds out ment, believes the increased possi- The failures of oil production sup-
bility of suppliers going into liqui- a supplier insolvency in pliers at BP’s Deepwater Horizon
T
dation has sparked a wider review drilling rig in the Gulf of Mexico
he global economic down-
turn in the last two years
financial effects of the global reces-
sion had been a “wake-up call” for
of supply chain risks. “Companies
are now monitoring the potential
2009 (RBS/Economist – clocking up $1 billion in clean up
costs and rising – and component
has highlighted significant
weaknesses in many com-
many companies. From a situation
a few years ago where supply chain
risks of tier-two or tier-three sup-
pliers as well as their main, tier-one,
Intelligence Unit) suppliers for Toyota, highlight the
substantial brand and financial risks
33%
panies’ supply chains. These range risk was not on the radar screen, he suppliers,” he says. “We’re also see- for companies from supply chains.
from minor and easily resolved believes that the fear of suppliers ing supply chain risks being incor- “There is no doubt that today’s glo-
weaknesses to some with the poten-
tial to put companies out of business.
going under made it a boardroom
issue for many UK organisations.
porated in organisations’ enterprise
risk management models.” Percentage of bal economy and the resultant global
supply chains have raised the level of
Risks can be split into four catego-
ries, according to supply chain infor-
“Companies are increasingly
realising that risk management af-
The disruption caused to Euro-
pean air travel from volcanic ash companies cutting the supply chain risk,” warns PRTM’s Mr
Colborn. For example, he believes
mation specialists Achilles: financial fects the end-to-end supply chain since April has caused chaos for that jet engine manufacturers, like
risk; compliance risk; supply chain and not just suppliers. The sup- supply chains. It highlights that number of suppliers in Rolls-Royce, will be examining their
disruption risk; and ethical respon- ply chain has so many potential companies need to have flexible supply chain to assess the level of
sibility risk. The economic slow- sources of risk that assessment supply chains to cope with surpris- 2009 (RBS/Economist risk and identify potential mitigation
down has largely focused minds on and mitigation need to be wid- es. Peter Sunderland, managing di- strategies should volcanic ash clouds
financial risks. Achilles chief execu- eranging. Leading companies are rector of supply chain management Intelligence Unit) turn out to be more than an unneces-
tive Colin Maund says: “The possi- looking at a comprehensive col- specialist Charles Kendall, thinks sary hindrance to air travellers.
69%
bility of key suppliers going bust saw lection of mitigation strategies, European governments could have More flexibility in supply chains
some companies providing loans or like dual-sourcing, increasing handled the situation better and and transportation is an important
other financial support to suppliers.
In a few cases, companies bought
stock levels, increasing customer
collaboration, modifying their
kept more flights flying. However,
he points out that whatever the
Percentage of component of mitigating risks such
as bans on flights or road haul-
out suppliers in financial difficulties
to protect their supply chain.”
manufacturing processes and fi-
nancial support to suppliers, to
problems “the one thing custom-
ers want is continuity of supply to
companies focusing on age strikes. DHL’s Mr Leahy says:
“We’re seeing greater flexibility in
Gordon Colborn, lead director
in the UK of supply chain manage-
name just a few,” says Mr Colborn.
DHL, the world’s largest contract
agreed deadlines”.
The outbreak of labour dis-
effective stock shipping goods to customers. This
could involve using sea freight over
ment consultants PRTM, says the logistics specialist, deals with some putes in Greece, France, the UK
and other European countries in management to mitigate relatively short distances in Europe
rather than via road.” The flipside
Bankruptcy, strikes or sabotage?
recent months creates more po-
tential disruption to supply chains. risk (PRTM, June 2010) of this is that, by saving costs or di-
versifying transport risk by using
8m
The geopolitical risks associated sea freight, lead times are far longer.
with countries such as Greece are Charles Kendall’s Mr Sunderland
Events affecting companies’ supply chains in 2009 causing more companies to review says: “Companies need to review
40%
where their manufacturing plants Size of Toyota’s possible risks in supply chains right
Severe weather event are located. “The logistics and risks from the start of the chain. This in-
29%
of getting supplies to customers on car-recall programme due cludes where production facilities
Insolvency time from a plant close to Greece and warehousing are located. For
IT failure 22%
may outweigh the cost benefits of
manufacturing in the region,” says
to faulty component instance, we’re seeing more compa-
nies warehousing goods manufac-
Increased tariffs 19%
Mr Sunderland.
Risks are being exacerbated by
(December 2009) tured in China locally in free-zone
China before they are transported
$1.25bn
extreme swings in exchange rates to customers round the world.”
Lower quality standards 16% and commodity prices. Mr Maund,
of Achilles, warns: “Companies
Labour dispute 16% have seen nothing like the degree of
Transport shutdown 13%
volatility in US- dollar, euro or ster-
ling exchange rates experienced in BP’s clean-up costs from
recent months. Hedging currency Air freight is
Theft 12% risk is not necessarily a cost-effec- Deepwater Horizon oil an important
tive solution for companies and link in the
Product Tampering 5% not many manufacturers have em- spill (BP, June 7) supply chain
Sabotage 3%
None of the above 20%
Source: Economist Intelligence Unit

7. SUPPLY CHAIN MANAGEMENT 7
In case of disaster,
“The alternatives are living with And there is insurance to cover The cost of insurance depends on
the risk or changing to a supply the consequences of political events, the degree of cover from a “sleep-
chain with fewer risks,” he says. such as unrest in China, which could easy” policy to a more workaday
There are types of cover which interrupt manufacture and delivery schedule. But policies are invariably
dissent or default
insure against the impact of phys- of goods to the West. Trade embar- bespoke to suit the differing needs
ical disasters, like the Gulf of Mex- goes, port blockages, strikes, IT fail- of different companies.
ico oil spill. If oil pollution forced ures, as well as war, terrorism and “Customers have usually worked
the closure of the Mississippi, piracy, could all be covered. out their contingency costs, in the
movement of grain down river, Then there is insurance to cover event of a problem, and want to cover
INSuRANcE A breakdown in the supply chain for example, would be disrupted economic problems; for example, that amount,” says Kiln’s Mr Culham.
can be costly so it makes good business sense and result in alternative freight or if a company in the supply chain “They already know what extra costs
warehousing costs which could be becomes insolvent and defaults fi- would be incurred and want a policy
to insure against loss and contingency costs, covered by insurance. nancially, the right policy would to pay for them. We find that people
writes Peter Archer The impact on the supply chain pay out. Companies can also insure buy between 0.5 per cent and 5 per
of a natural disaster, like the recent against incurring contractual pen- cent of their limits. That may sound as
earthquake in Chile, can also be in- alties if a delivery is delayed by a though it’s expensive, but what it does
T
he temptation may be to “So few people own the means sured against. weak link in the chain. for a business is put a cap on losses.”
cut costs, but insuring of production these days,” he says.
against calamity can pay “Outsourcing to far-flung places
off when money is tight. brings with it a set of new risks com- Natural
Despite the downturn, business is pared to the days when the factory disasters can
buoyant for insurers who can help was just a few miles down the road.” be covered
improve a company’s chances of se- Trade disruption insurance by insurance
curing finance from a potential lender. (TDI), which tends to look at spe-
“If a company can show it is in- cific risks has been on offer for a
sured against losses, a bank is more number of years but market pen-
likely to lend it money,” says Paul etration is relatively low. Supply
Culham, head of the marine and spe- chain insurance, often with all-risks
cial risks division at Kiln, underwrit- cover including loss of profits, was
ers in the Lloyd’s insurance market. launched in 2009 by Zurich in re-
Nevertheless, few companies seem sponse to customer demand.
to be aware of the full scope of cover Alan Day, managing director at
© KPA/Zuma/Rex Features
when insuring the supply chain. supply chain consultants State of
According to Nick Wildgoose, Flux, says: “The disruption caused
supply chain proposition manager to air freight by Iceland’s volcanic
at insurance giant Zurich, increased ash cloud has raised the profile for
outsourcing of production has the need of this kind of insurance.
lengthened supply chains and shift- Events like this make supply chain
ed the needs of corporate insurance. insurance more important.
Your supply chain
with Kiln’s Trade Disruption Insurance
In today’s competitive markets, businesses with goods to move need to keep surplus stock at a
minimum. Adding just-in-time manufacturing and outsourcing to the mix can leave companies
vulnerable when things beyond their control go wrong. Whether it’s fire or flood, oil spills or ash
clouds, port closures or piracy, trade embargoes or political uprisings, Kiln’s TDI team can help
you find a way to protect your profit.
Clear thinking.
Kiln. Leading providers of insurance and reinsurance
in the Lloyd’s market since 1962.
Contact: Paul Culham: paul.culham@kilngroup.com
R J Kiln & Co Limited 106 Fenchurch Street London EC3M 5NR
www.kilngroup.com

8. 8 SUPPLY CHAIN MANAGEMENT
Shop till you drop online,
Efficient warehousing and
flexible “picking” is vital
in-store, by phone or TV
RETAIlINg Consumers now shop in a wide variety of ways. For the shopper
this means greater choice, better service and added flexibility. For the
retailer it means huge complexity, as Nick Allen discovers
T
he age of multi-channel ate channel, in the most cost-effective sions and so enabling an enhanced
shopping is here. The bat- way, will offer a significant advantage offer of service to the consumer.
tle between high-street to those with the capability. Evidence of change is quite ap-
retailers and internet com- Businesses will have to adopt parent in the sector. According to
panies like Amazon has been raging more agile processes that are able figures recently released by Marks
for the past ten years. And the retail to respond quickly, in real-time, to & Spencer, the company saved £35
landscape continues to change rap- changes in demand. But to achieve million last year through efficiency
idly, presenting consumers with an this, they will first need absolute improvements in its supply chain,
increasing array of ways to shop. visibility of inventory across their including warehouse consolidation
The challenge facing traditional re- entire supply network. and implementation of a number of
tailers is how to tackle the complex Mr Smith sees the process of evolu- efficiency projects. The retailer says it
supply-chain issues surrounding the tion from “bricks and mortar” to mul- has identified a site in the Midlands
implementation of a multi-channel ti-channel retailing as one of the big- which will be a combined national
strategy. And it is not something gest problems facing established large distribution centre and a dedicated
that can be avoided for long. brands. “Moving from a compara- e-commerce facility. It is expected to
The unfolding market position- tively uncomplicated process of sup- open in the summer of 2012.
ing of traditional retailers with online plying and replenishing high-street Marks & Spencer says: “We re-
channels versus pure- play internet- stores, with some added complex- placed our old in-store ordering
only brands has highlighted the tre- ity around special promotions, to an system, with a new click-and-col-
mendous opportunities that the once online presence with fulfilment from lect service called ‘Shop Your Way’.
traditional players have when they de- either a store or a warehouse, be that It allows customers to order either
velop multi-channel outlets. Shoppers dedicated or part of an existing facility, at home or in-store and have mer-
are now able to experience and inter- creates complexities associated with chandise delivered to any location.”
face with these multi-channel brands singles picking, small-order volume, Along with the increased oppor-
in many different ways, from purchas- the number of deliveries, time limits, tunities and complexity in dealing
ing online and having the product de- availability issues, and so on,” he says. with the customer-facing side of
livered to either their home or a nearby the supply chain, retailers are also
store for pick-up, to ordering in-store CATALOGUE looking at ways of speeding up
for a home delivery. Research prior to “But then when you overlay a transactions and improving visibil-
purchase may be undertaken online at catalogue service or perhaps a tel- ity across their supply base by mov-
© Action Press/Rex Features
home or now, increasingly, via a mo- ephone ordering service, or what ing to electronic trading.
bile device, perhaps in the store itself. most retailers are starting to do David Grosvenor, managing direc-
Catalogue, TV and telephone sales are now, which is collection in store, it tor at Wesupply believes that “intel-
further channels that feed into the mix. starts overlaying all sorts of delivery ligent” business-to-business (B2B)
But providing a cohesive and consist- complexities that aren’t that famil- solutions, delivered on a software-as-
ent offering to the market across all iar to the business. So, for instance, a-service (SaaS) basis over the web,
these varied channels presents a very more frequent, multiple deliveries offers trading partners the connectiv-
significant set of challenges to an to store may be needed for dot-com
organisation in terms of increased order and collect from store.” ity, flexibility and scalability that re- present a homogeneous and organised
complexity and drives a need for cross-
channel inventory visibility, order
All this requires assortment plan-
ning, forecasting applications and
Businesses will have tail businesses need in a environment
where supplier-buyer relationships
way of sending orders using, in effect,
a ‘single pipe’ for outbound orders.”
management, fulfilment and, impor-
tantly, the breaking down of organisa-
distributed-order- management
capability to determine how best to
to adopt more agile are constantly changing. Last year Sainsbury’s took the deci-
sion to consolidate electronic trading
tional silos or management systems to
create cross-channel capacity.
create availability and fulfil the order
at the lowest possible cost. Extended-
processes that are able EFFICIENCIES
“The big grocery retailers are tap-
with 4,000 of its suppliers through the
Wesupply platform in order to boost
According to Steve Smith, senior
vice president for Europe, the Middle
enterprise-management applications
are also used to show where products
to respond quickly, in ping into B2B and the significant ef-
ficiencies that can be gained through
visibility in its supply chain.
“One of the most interesting aspects
East and Africa (EMEA) at Manhat-
tan Associates, real-time inventory
are on the inbound cycle. These are
important ways of exchanging inven-
real-time, to changes re-platforming the exchange of data
to enable electronic trading with all
of software-as-a-service is that it ena-
bles smaller companies to take advan-
visibility and the ability to allocate
that inventory to the most appropri-
tory for information, using informa-
tion to make more intelligent deci-
in demand their suppliers, regardless of size,” says
Mr Grosvenor. “Web-based platforms
tage of the latest ‘intelligent’ B2B tech-
nology, creating a level playing field
All your freight needs. One smart solution.
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