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There are several aspects of supply chain interaction that have been identified in supply chain trends over the last few decades. The mega-trends reflect 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.
2. global Supply chain M
Shift from Customer Service to Relationship Management 10
While traditional customer service focuses on achieving internal operating standards, a truly rela-
tionship-driven supply chain focuses on establishing customer success...
Forecast to Endcast 12
Management often lets forecasting bumble along unsupported in the hope everything will come
out all right in the end....
Experience to Transition Strategy 14
Firms increasingly confront the need to reinvent processes that are performing adequately when as-
sessed historically, but in fact....
Experience to Transition Strategy 16
While departments may remain the preferred method of managing work, the reality is that
process-oriented, self-directed....
Collaborative Approach 18
The notion of focused collaborative arrangements, coupled with true cradle to grave accountability,
is revolutionizing the way that....
Vertical to Virtual Integration 20
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 expertise 41
Melvis 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 Unwired 44
Tolga 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....
CONT
3. Mega Trends 2010-2011
22 Absolute to Relative Value
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....
24 Information Hoarding to Sharing
Given the right information-enabling technology and leadership, decision-makers can become per-
formance managers....
26 Training to Knowledge-Based Learning
Implementing knowledge-based learning to effectively train employees is becoming critical.....
28 Reinventing Managerial Accounting to Value-Based Management
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....
30 Supply Chain design and analytics
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” 50
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 Time
Yan Lehunchec
54
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 Analytics 58
Unnikrishnan
A long forgotten virus is challenging the LLC Industrial base, i.e. Long lead times
TENTS
4.
5. Questuarterly Feb-Apr 2010
Editorial Head
Apresh C Mishra
Editorial
Let’s hope
for the best
apresh@log4scm.com
editor@log4scm.com
+91 99105 16905
Intellect Head
F 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
Rajeev R Mishra
rajeev@log4scm.com the different partners in the chain. That’s the most difficult aspect of Supply
intellect@log4scm.com Chain management: partners need to trust each others, to share data or
+91 99711 74574 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
Marketing and Operations heavy IT system interconnected with their customer’s systems to provide
Head up to date services but contracts are challenged every 2 years. This is far
Shatrunkay Singh shorter than the breakeven point, impeding the development of long and
shatrunjay@log4scm.com fruitful relationship between 3rd PL and orders givers.
marketing@log4scm.com 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-
Communications Partner flect fundamental paradigm shifts exhibited by leading firms as they
Renaissance PR transform their supply chain capabilities to accommodate the long-term
transition from an industrial to an Scientific Technology driven society.
Knowledge Partner These mega-trends imply substantial change in logistics practices between
Enetek S.A.R.L. supply chain partners as they struggle to establish efficient, effective, and
relevant product/service solutions for end-customers. The mega-trends
Disclaimer discussed in this paper identify some critical dimensions of change relevant
All the information in this
magazine has been provided to supply chain value creation.
with due care. However nei- Well, we have tried to create an enabling environment for the supply chain
ther Uvaach Media nor its
any partner guarantee for the sector so as to equip supply chain strategists with the changing market
appropriateness of the infor- trends which could affect them in future. Moreover supply chain is con-
mation. Kindly check prop- sidered secondary focus. We hope Log4scm Quest will create value addition
erly before acting according in bringing supply chain in centre stage in companies’ strategic business
to the information we have planning.
provided here. All the matters
contained here are under the We would be glad to hear from you
intellectual property right of
Uvaach Media that prohibits Happy reading!!
the user from copying or re- apresh@log4sm.com, editor@log4scm.com
producing the matter in any
form without the prior writ- +91 99105 168905
ten permission of Uvaach
Media. Feb-April 2010 Log4scm Quest 05
6. Cover Story
Megatrend-1
Shift from Customer Service to Relationship Management
Relationship
does matter
While traditional customer service focuses on achieving internal
operating standards, a truly relationship-driven supply chain
focuses on establishing 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.
C
ustomer Focus and Supe- and perfect order-to-delivery may
rior Service should be a be the prime drivers of supplier
major objective for every acceptability. In contrast, other
manufacturing company in order customers may not be willing to
to either achieve or maintain mar- shoulder the cost of day-to-day
ketplace leadership. Customer rel- six-sigma logistics support. Their
evancy will increasingly become preference may be for a high level
the key strategic commitment of of average logistical support forti-
leading corporations. While tradi- fied by immaculate logistical recov-
tional customer service focuses on ery when and where needed.
achieving internal operating stan-
Supply chains designed to
dards, a truly relationship-driven
achieve unique customer value
supply chain focuses on establish-
propositions have the potential to
ing customer success. For many
turn commodities into value-added
customers, such operating features
solutions. Given an understanding
as cycle time compression, exact
of what drives end-customer pur-
point in time delivery performance
10 Log4scm Quest Feb-April 2010
7. chase behavior, a supply chain firm's resources relative to the matching service capabilities with
based on relationships has the needs and desires of select indi- changing customer expectations,
greatest potential to result in vidual customers. Then the firm providers can stay ahead of com-
unique logistical solutions that are can deploy its resources and ca- petition.
simultaneously effective, efficient pabilities to perform customer-
Second, firms seeking to en-
and relevant. This implies that valued activities and services that
hance customer relationships
firms will likely participate in competitors cannot match at all
must develop operating systems
multiple supply chains to support or at a reasonable cost.
capable of quickly reacting to
different customers.
There are two shifts that must change rather than depending
Although most firms have not take place for firms to evolve upon anticipatory deployment of
achieved the desired level of along this continuum. First, firms inventory to handle planned re-
closeness with customers, it is the seeking to develop strong cus- quirements. This is facilitated by
most advanced of the mega tomer relationships should recog- gathering and exchanging infor-
trends. We assess the current av- nize that all customers do not mation throughout the supply
erage achievement to be 5-6 on have the same service expecta- chain as contrasted to guessing
the ten-point scale. Leading firms tions and do not necessarily want what may happen. The focus
increasingly recognize that suc- or deserve the same overall level must be on efficient and effective
cess hinges on establishing inti- of service. They must, therefore, accommodation of unique cus-
mate relationships with key identify core customers best tomer requests as well as on the
customers. Intimate relationships suited to be their business clients ability to react to unexpected op-
enable firms to generate unique and then meet or exceed expecta- erational circumstances.
and profitable product/service tions by providing unique value-
These capabilities enable firms
offerings for their preferred cus- added services. These services
to capitalize on uncertainty to en-
tomers. This, of course, is in di- may include assignment of spe-
hance customer satisfaction.
rect contrast to principles of cific focus teams to identify, de-
Some approaches that facilitate
mass marketing, and it is certainly sign, implement, and refine
flexibility include providing front-
cost prohibitive to all but the specialized and synchronized of-
line employees with the authority
most narrowly defined market ferings. Additionally, firms must
to approve special customer re-
niche firms. Managers seeking to develop the ability to satisfy not
quests, automatically accommo-
achieve this level of intimacy with only existing needs but also those
dating stock outs through
customers must assess their that may emerge. By continuously
multiple service locations, and
implementing preplanned solu-
Although most firms have not achieved the tions. Another critical enabler of
desired level of closeness with customers, it flexibility is routinization and
simplification of fundamental
is the most advanced of the mega trends. We work to minimize effort ex-
assess the current average achievement to be pended on handling day-to-day
details and free resources to deal
5-6 on the ten-point scale. Leading firms in- with unexpected events. Judicious
creasingly recognize that success hinges on employment of form and time
postponement also contributes to
establishing intimate relationships with key a firm's ability to respond to un-
customers. known or unplanned circum-
stances.
Feb-April 2010 Log4scm Quest 11
8. Cover Story
Megatrend-2
Forecast to Endcast
Predicting the
unpredictable
Management often lets forecasting bumble along unsupported in the
hope everything will come out all right in the end. This approach can
only contribute to repeating cycles of poor performance.
I ts 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
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
is the result of a forecast. Some- can’t forecast this business”. The
one, somewhere in the organiza- result is that management often
tion has made predictions that lets forecasting bumble along un-
have activated capacity, consumed supported in the hope everything
cash and driven the customer serv- will come out all right in the end.
ice level. Also, it’s a good bet that This approach can only contribute
the someone who’s forecasting is to repeating cycles of poor per-
doing it without the right tools, formance.
without proper training, and with
Experience demonstrates that
little or no information to support
the consequence of bad forecast-
the process. Yet, the forecast drives
ing is a significant and unfavorable
material planning, production
impact on overall business per-
12 Log4scm Quest Feb-April 2010
9. formance. To make matters swers various managers will give results being realized.
worse, a form of denial sets in the same questions. This, of
• Short-term forecast devi-
and the real costs of poor fore- course, opens up an entire area
ations are monitored and ad-
casting are consistently underes- for discussion (spirited discussion
timated and often overlooked. in many cases) which should be justed and long-term forecast
When “bad numbers” drive ma- the beginning of swift problem accuracy is continuously improv-
terial planning and production resolution. ing.
schedules, the inevitable results • Inventory record accuracy
Answer “Yes” or “No” to each
are longer cycle times, higher is maintained at 98+%.
of the following:
overhead activity costs, erratic
production schedule perform- • Order fill rates meet man- • Excess safety stock
ance, excessive inventory, lower agement’s specific and measured buffers are not pyramidally main-
throughput, and lots of dissatis- customer service strategy. tained at various inventory levels
fied customers – eventually hav- to compensate for “bad num-
• Delivery lead-times are at bers”.
ing a negative impact on sales.
least competitive and predictable.
The cost of bad forecasting is • Excess and obsolete in-
enormous. Forecasting deserves • All functions agree on ventories are measured and are
increased recognition of that im- which products are stocked and less than 1% of total inventory.
portance and must become one which are made to order.
What to do further?
of the most critical management
• The mix and investment For those who do not score well
functions. As such, improving the
forecasting process deserves the in inventory are a shared respon- on the Self-Diagnostics test
small investment required to sibility between Sales and Manu- above, appropriate action is defi-
facturing. nitely required.
achieve incredible returns on that
investment. First, management must for-
• Appropriate mathemati- mally recognize sales forecasting
The Self-Diagnostics Checklist cal and statistical calculations are as a vital business control point.
used instead of “rules of thumb”
The following ten point check- Second, this recognition should
to establish desired mix and lev- be followed by a thorough evalu-
list is a simple self-diagnostic els. ation of the current forecasting
which can help companies envi- process. Third, where needed, an
sion what performance could be. • Management’s inventory action plan for improvement
Another enlightening aspect from investment plan and customer should be launched without delay.
the test could be the differing an- service objectives are the actual The good news is getting a fore-
casting process in place is not as
Forecasting deserves increased recogni- difficult as many people think;
statistical forecasting tools are
tion of that importance and must be- readily available and the proce-
come one of the most critical dural requirements are modest. If
you have to forecast, then the
management functions. As such, improv- only proper course is do it with
the right tools, techniques, infor-
ing the forecasting process deserves the mation and properly trained staff.
Then, and only then, will you be
small investment required to achieve in- able to say “we can forecast our
business.”
credible returns on that investment.
Feb-April 2010 Log4scm Quest 13
10. Invited
“Approach
Mr.Thibault, an Ex-Army
Officer from the French
Army and Prior to setting his
company in 2004, worked
RTC while
cutting cost”
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 Redesign To Cost (RTC), a very efficient Cost
companies –Steel & Mining, Cutting Approach consisting of reveiwing the
Oil & Gas to Retail busi-
nesses, specializing in re engi- very detailed design and specifications of the
neering their Distribution
Networks, Investment Plan-
product, can save 15-35 % of your total cost.
ning and Production Alloca- Mr. Thibault Quiviger shares his ideas how
tion and also developing
Quality Model Builder based
to go for it with Log4scm.
on Machine Learning Algo-
rithms and then Supply Chain
Modeller for the European
How to cut cost? ranging respectively in 3-5%, 2-10%
industry.
and 15-35% of the total cost.
There are basically 3 ways to cut
He founded his own firm and
expanded his company ex- costs: transfer the problem to Let’s see what more Mr. Thibault
pertise to Operations Simula- your supplier and get better says in an exclussive interview with
tion and Operation
prices, be more efficient in your Log4scm.
Excellence with 2 new Re-
gional offices in India and Supply Chain –stock reduction,
What is RTC?
Turkey. In early 2009, he has new distribution networks, bet-
been appointed Associate Redesign To Cost is a very ef-
Professor at the Technical ter use of assets, minimize losses
University of Compiègne, (time, material) and a 3rd one not ficient Cost Cutting Approach
France for Industrial Network explored often, review your product consisting of reviewing the very
Design for the Mechanical
Engineering Department. offer through a Redesign To Cost ap- detailed design and specifica-
proach (RTC). These 3 different ap- tions of the products to relax
You can reach to him at
proaches bring in general savings the too constraining ones and in
thibault.quiviger@enetek.eu
50 Log4scm Quest Feb-April 2010
11. optimizing the product range functionalities not valued by the (so easy to draw complex but
offer. customers. And because design costly to produce shapes with
Engineers like complexity, they CAD software today), tolerances
How can RTC be compared to
will tend to propose complex de- (too narrow tolerances = very
other Cost Reduction Ap-
proaches? signs or complex manufacturing high production costs) or func-
processes, regardless of their tionalities not valued by the cus-
Indeed, our experience in Eu- cost. Most engineers prefer de- tomers or by the targeted
rope has shown that 85% of the signing their own system than re customer segment (is a camera
product cost is frozen during the using an existing system proved necessary on any cell phone?).
design phase. The so efficient and reliable or produced in such Reviewing specifications and sec-
popular lean approahces,6 sigmas quantities that its unit cost will be ondary functions on products
and network design projects act- always much smaller than any lead to an average savings of 30%
ing only on less than 15% of the new system designed from on the unit prices while guaran-
product cost. Indeed, during the scratch. teeing the same level of customer
design phase, the focus is much satisfaction.
more centered on fulfilling spe- Which are the potential costs
cific marketing requirement than to be cut? But beyond the product specifi-
optimizing the total cost (sourc- cations,
Sources of cost easy to cut are
ing + manufacturing + distribu- plethoric: choice of materials What could be the effects of
tion). Marketing requirements are (plastic vs steel, steel grade, thick- Product Range on RTC ?
often too stringent, asking for ness), the shape of the product
It is necessary to consider the
product range to optimize the
Outsourcing is a viable option / solution to trade-off between product diver-
most companies. Why do companies out- sity aimed at satisfying the identi-
source has various reasons. Some increase fied distinct customer clusters
shareholder value, reduce costs, business and the induced
transformation, improve operations, over- production/sourcing complexity
in the Supply Chain.
come lack of internal capabilities, keep up
with competitors, gain competitive advan- For instance, a car maker real-
tage, improve capabilities, increase sales, im- ized that its AC system power was
30% higher compared to its
prove service, reduce inventory, increase
peers. Aligning specs led to a 25%
inventory velocity and turns, mitigate capital
cost reduction on the AC system.
investment, improve cash flow, turn fixed A payment terminal producer re-
costs into variable costs and other benefits, duced the resolution of its printer
both tangible and intangible. head from 8 dots/mm to 4
Feb-April 2010 Log4scm Quest 51
12. Invited
dots/mm, reducing cost of the is every day more common in the
equipment by 21%. A small car industries which understood the
The first problem
maker replaced its in house devel- risks of over customization. The
of over cus- oped breaking system and re used right balance is in between: defining
tomization is the system of a competitor: cost re- the right number of “generic” plat-
often found in duction of 48%. For sure, all these form enabling economies of scale
many industries action require intensive analysis of and differentiating enough the
in their infancy the specifications, of the suppliers product features to fit the market
stage, the “plat- offer and potential sourcing diver- needs at the cheapest cost for every
form” strategy sification while meeting customer customer segment identified.
needs (and not design engineer
pushed too far is Could you elaborate it with an
pride)
every day more example?
common in the Do Marketing Heads need to
For example, proposing an inte-
Optimize Product Diversity?
industries which grated camera for the low range cell
understood the Marketing teams tend to define phones in India has been rejected
risks of over cus- distinct specifications for the differ- by Nokia because most people
tomization. The ent customer clusters and customer would not pay for it, too expensive
needs they have identified. Tempta- while it has been generalized in Eu-
right balance is rope to achieve economies of scale
tion is high then to customize each
in between: pushing costs down cost enough to
and every product for every cus-
defining the right tomer. But mass customization is
propose it for every European cus-
number of tomer.
extremely complex and often ex-
“generic” plat- tremely costly. Basically, customers A harness makers split its single
form enabling prefer a full option car than a car harness offer between high and
economies of with the limited options they could middle range customer to build
them with cheaper components for
scale and differ- afford! This reality can lead engi-
the middle range: savings achieved
entiating enough neers to the opposite direction, over
= 21%...
simplifying the product offer
the product fea- These examples show that the
aligned on the most demanding
tures to fit the product range optimization requires
customer needs, generalizing every
market needs at a systematic and quantified pros
option for every customer. Leading and cons approach to achieve the
the cheapest cost to expensive production costs. If best trade-off between cheapest
for every cus- the first problem of over cus- cost and Supply Chain complexity
tomer segment tomization is often found in many management costs.
identified. industries in their infancy stage, the Send your comments to:
“platform” strategy pushed too far review@log4scm.com
52 Log4scm Quest Feb-April 2010
