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The Man Who Sold the Web Blog | Tag Archive | Supply Chain Management


Tag Archives: Supply Chain Management

Value Grid Analysis vs. Value Chain Analysis

1 Jun

A traditional Value Chain involves a linear sequence of activities—from conversion of raw materials into components which are assembled into products.  The products are then distributed, marketed, sold, and serviced.  Management plans and execute strategies and operations based on this sequence.

This set of activities worked well for organizations in the past.  However, this linear progression does not encourage Innovation and provides little protection from the risk of being outperformed by rivals in today’s disruptive markets.  Such a competitive environment calls for implementing more robust ways of managing Customer Demand and Value Creation.

An effective approach to deal with this challenge is the Value Grid Analysis Model.  The Value Grid approach provides a perspective beyond traditional linear progression of activities, where organizations need to balance equilibrium between suppliers and manufacturers aside from concentrating only on reducing lead times.  It outlines new opportunities and risks for organizations.

The Value Grid Analysis provides a number of routes to improve Performance and reduce risks.  It encompasses the following 3 pathways—or dimensions:

  • Vertical pathway – using traditional Value Chain, companies find opportunities upstream or downstream from adjacent tiers in the existing Value Chain.
  • Horizontal pathway – companies look for opportunities from similar tiers in multiple (parallel) Value Chains.
  • Diagonal pathway – explore opportunities to create value across multiple value chains and tiers.

The Value Grid Framework necessitates diverting leadership attention towards 3 key opportunity areas to create Competitive Advantage:

  1. Customer Demand
  2. Information Access
  3. Multi-tier Penetration

Let’s dive deeper into the 3 opportunity areas.

Customer Demand

The first opportunity area to drive competitive advantage pertains to controlling internal and external customers’ demand.  It warrants a company to manage customer demand upstream (suppliers and companies that supply to suppliers) as well as downstream (customers).  By managing customer demand downstream, organizations control the decision makers responsible for the purchase decision.  When companies are unable to control the decision makers, they look for levers across the Value Chain to influence decisions.  These levers include direct advertisements to the end users, focusing on distributors, or incentivizing retailers to recommend a product.  Organizations also try to influence upstream, e.g., their R&D units, to create products which can be used in conjunction with the existing product range to boost their efficacy and benefits for the end-users, ultimately influencing consumers’ decisions downstream.

Information Access

The 2nd opportunity area involves linking information sharing to influence decision making.  A few manufacturers prefer to partner with those suppliers who openly disclose the information (capabilities, flexibility, and pricing structures) of their 2nd-tier suppliers with them.  This assist them in planning and helping the suppliers manage materials and prices better.

For instance, with increased tariff on imported steel and price of steel continuously going up, car manufacturers like Honda purchase steel in bulk and sell it to their suppliers at a reduced rate.  This helps them keep the prices of their cars down and compete better.

Multi-tier Penetration

Nonlinear thinking (Value Grid Model) enables the organizations to determine innovative solutions beyond the scope of traditional Value Chains.  To manage excess demand organizations take on multiple Value Chain tiers to control demand and buyers’ power.

Leading manufacturers evaluate multiple value chain points for their participation in order to scale.  They sell not only to Original Equipment Manufacturers but also in the aftermarket.  Supplying to more than one Value Chain tier allows organizations to withstand pressure from OEMs to reduce costs, demand shifts, and offers attractive margins.

Interested in learning more about the 3 opportunity areas of the Value Grid Analysis Framework?  You can download an editable PowerPoint on Value Grid Analysis here on the Flevy documents marketplace.

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You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro LibraryFlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

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– David Coloma, Consulting Area Manager at Cynertia Consulting

“As a small business owner, the resource material available from FlevyPro has proven to be invaluable. The ability to search for material on demand based our project events and client requirements was great for me and proved very beneficial to my clients. Importantly, being able to easily edit and tailor the material for specific purposes helped us to make presentations, knowledge sharing, and toolkit development, which formed part of the overall program collateral. While FlevyPro contains resource material that any consultancy, project or delivery firm must have, it is an essential part of a small firm or independent consultant’s toolbox.”

– Michael Duff, Managing Director at Change Strategy (UK)

Warehouse Cost Reduction in Supply Chain Management: 6 Building Blocks

24 Feb

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Cut-throat competition in industries has driven companies to find ways to reduce costs while increasing efficiency.  To accomplish this, most companies have skillfully endeavored to streamline Sales, Operations Planning, Forecasting, Inventory Management, and Logistics.

One area that has still not grabbed industry’s attention is out-bound Supply Chain Management–from packaging to final delivery.  Companies generally neglect Supply Chain simply because they do not consider it their core competency.

Significant Cost Reduction in the Supply Chain can be achieved by focusing on 2 main cost categories:

  1. Warehousing Costs
  2. Transportation Costs

Warehousing and Transportation represent a significant portion of the total Logistics costs.  Implementing improvement programs, without any significant capital investments, can enable 20-50% cost saving in Warehousing, 40% in Transportation costs, flexibility, and better service.

Supply Chain Cost Reduction in Transportation and Warehousing has vast potential, not only in terms of costs, but also Process Improvement using Lean Six Sigma (LSS) techniques.

The approach to Supply Chain Cost Reduction in Warehousing encompasses 3 phases:

  1. Set the Baseline
  2. Determine the Gap
  3. Implement Lean Six Sigma (LSS)

Meticulous and persistent application of Lean Management and Six Sigma techniques is at the core of reshaping Warehousing Operations and eradicating sources of waste, variability, and inflexibility.  This article is an overview of the 6 building blocks used in Implementing Lean Six Sigma (LSS)—the 3rd phase of the approach to Supply Chain Cost Reduction in Warehousing:

  1. Business Processes
  2. People
  3. Performance Management
  4. Third Party Interactions
  5. Layout
  6. Ownership

Let us dive a little deeper into some of the building blocks.

Business Processes

Business Processes present a huge opportunity for improvement by eliminating redundancies and sources of waste in Warehouse operations (e.g., unnecessary motion or double-handling in Manufacturing).  Each source of waste represents extra costs and inflexibility that can be reduced or eliminated.

Business Process Improvement can help reduce:

  • Handling steps
  • Motion
  • Transportation
  • Space requirements
  • Effort
  • Time spent

People

This building block of Implementing Lean Six Sigma aims at avoiding overstaffing of full-time employees and at the same time maintaining a well-trained, efficient workforce.

Streamlining this building block leverages the following benefits to organizations:

  • Refined Recruitment process reduces Employee Turnover.
  • Facilities can more closely match on-site staffing to demand by reducing notice periods.
  • Efficiency can be raised by about 15% through regular training.
  • Overstaffing of full-time employees can be avoided.
  • Productivity can be improved by 5-10% by focusing on appropriate facets of Performance during training.

Performance Management

This building block aims at using existing Performance Management levers to improve Employee Performance through morale boosting and awareness exercises.  A laser-focus on the performance element helps the leadership achieve the following benefits:

  • Constant reminders and display of current performance give employees a sense of competition and drive.
  • Quick daily discussions highlight the significance of good performance and helps employees focus on essential aspects of their work.
  • Productivity is improved up to 20% by linking pay to performance.
  • Real-time feedback supports pay-related performance.
  • Measuring and rewarding the “softer” elements has long-term benefits.
  • Recognizing employee of the month can increase staff satisfaction.

Given the existing industry cost and performance demands, wasteful or unpredictable Warehouse operations lose more than money.  This can do rapid and permanent harm to a company’s reputation with customers since distribution is the logistical interface with the customer.

Improving Warehouse Operations is a significant area not only for Cost Reduction, but also a source of refining Customer Value Proposition.

Interested in learning more about Supply Chain Cost Reduction in Warehousing and Lean Six Sigma?  You can download an editable PowerPoint on Supply Chain Cost Reduction: Warehousing here on the Flevy documents marketplace.

Want to Achieve Excellence in Supply Chain Management (SCM)?

Gain the knowledge and develop the expertise to become an expert in Supply Chain Management (SCM).  Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts.  Click here for full details.

Supply Chain Management (SCM) is the design, planning, execution, control, and monitoring of Supply Chain activities.  It also captures the management of the flow of goods and services. 

In February of 2020, COVID-19 disrupted—and in many cases halted—global Supply Chains, revealing just how fragile they have become.  By April, many countries experienced declines of over 40% in domestic and international trade. 

COVID-19 has likewise changed how Supply Chain Executives approach and think about SCM.  In the pre-COVID-19 era of globalization, the objective was to be Lean and Cost-effective. In the post-COVID-19 world, companies must now focus on making their Supply Chains Resilient, Agile, and Smart.  Additional trends include Digitization, Sustainability, and Manufacturing Reshoring.

Learn about our Supply Chain Management (SCM) Best Practice Frameworks here.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library.  FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives.  Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market.  They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions.  I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power.  For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over!  The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”

– Roderick Cameron, Founding Partner at SGFE Ltd

3 Trends Driving Automation in the Logistics Sector

11 Feb

Technological advancement has come a long way.  Artificial Intelligence is taking charge of a number of repetitive logistics tasks.  Organizations are benefiting from Automation in streamlining their cumbersome processes and cutting down delivery times.

Automation is profoundly affecting the way Logistics are handled.  It is disrupting the entire Logistics Supply Chain, not just the warehousing, picking, and sorting functions.  The impact of Automation on roads, rails, and ports is immense.  Ports are increasingly embracing Automation, but they haven’t yet started getting the return on their investments.

In Logistics, ocean and air shipment has potential for Automation—which is certainly under way—but its effect on enhancing throughput is yet to be seen.  Logistics operations are being transformed at quite a pace with new models, concepts, and offerings evolving rapidly.  With the current pace of technology evolution, experts believe Logistics operations would be done autonomously in the not too-distant future.

The COVID-19 pandemic has disrupted businesses and industries alike significantly.  Businesses are trying to grapple with the ambiguities the situation has presented to them.  Automation is being viewed by many Logistics companies to be the only option to prepare for and survive in the future.

Logistics companies are exploring ways to automate their businesses mainly due to 3 trends that are shaping their industry.  These 3 trends include:

  1. Shortage of Labor
  2. Proliferation of E-commerce
  3. Advancements in Automation

Let’s talk about these trends in a bit detail.

Shortage of Labor

Labor markets are stiffening globally with lowest unemployment rates and high wages.  Online retailers everywhere have a huge demand for skilled workers.  This demand rise steeply in the holiday season.  A sizable workforce is engaged in Supply Chain related jobs—about 4 million only in the US as packers, handlers, and supervisors in warehouses.  This translates to $100 billion in payroll costs.  Automation will definitely reduce this cost head.  However, it will have implications for the workforce.

Proliferation of E-commerce

Another trend that is affecting the Logistics industry immensely is the explosive growth of E-commerce retailers.  The sales of e-tailers are growing at a consistent pace every year.  With this trend, the range of products has grown considerably, benefiting the logistics businesses.  Logistic companies are making significant profit from this large volume of online shipment orders—saving about $12 to $20 on a sale of $100.

Interested in learning more about the trends that are shaping the Logistics operations?  You can download an editable PowerPoint presentation on 3 Trends Driving Logistics Automation here on the Flevy documents marketplace.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro LibraryFlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“As a small business owner, the resource material available from FlevyPro has proven to be invaluable. The ability to search for material on demand based our project events and client requirements was great for me and proved very beneficial to my clients. Importantly, being able to easily edit and tailor the material for specific purposes helped us to make presentations, knowledge sharing, and toolkit development, which formed part of the overall program collateral. While FlevyPro contains resource material that any consultancy, project or delivery firm must have, it is an essential part of a small firm or independent consultant’s toolbox.”

– Michael Duff, Managing Director at Change Strategy (UK)

Transportation Cost Reduction in Supply Chain Management

9 Feb

Companies looking to improve efficiency and reduce costs can gain significant ground in the Supply Chain Management function by incorporating Lean Management and Six Sigma techniques.

Reason this area has gone under the radar is that companies do not consider Supply Chain to be their core competency.

Not only Warehousing but Transportation also has almost the same potential in terms of opportunities for Cost Reduction and Process Improvement.  The approach to Transportation Costs Reduction, though, is different to that of Supply Chain Cost Reduction in Warehousing.  This is in part due to the complexity in Transportation Costs, as the costs come from numerous widely distributed individual operations every year.

The approach to Supply Chain Cost Reduction in Transportation encompasses 2 phases:

  1. Understand the Baseline
  2. Identify and Implement Opportunities

Let us delve a little deeper into the 2 phases.

1. Understand the Baseline

Improvement in Transportation operations is hindered, in most cases, by enormous variability in operations, diverse service levels being demanded by various customers, and a multitude of transport providers delivering services in a variety of ways.

Transportation Costs of between 20-30% can be saved by compiling a complete perspective of the overall Transportation operations of an organization.  The evaluation will also reveal essential service categories that have a skewed effect on Cost.

2. Identify and Implement Opportunities

Identification of the Cost Drivers is imperative for the companies to develop a systematic approach to Transportation Cost Reduction.  This systematic approach involves observing 4 main levers of Cost Optimization opportunities:

  1. Compliance with Contracted Price
  2. Negotiated Price
  3. Contract Terms
  4. Customer Breakpoints and Behavioral Changes

The 4 levers of Cost Reductions help in countering the issues impacting Transportation Costs and enabling significant savings.

Significant Cost Reductions can be gained by identifying mutual benefits and risks for both companies and suppliers in addition to understanding customer breakpoints that enable Customer Centric Design.

Let us consider a few instances where Cost Reduction can have a quick impact.

  • Companies, often, have to pay substantial fuel surcharges for waiting time or late payments—caused by variance in actual delivery patterns and the delivery pattern specified in the contract.
  • Suppliers usually charge a higher rate to compensate for inefficiencies in their operational structure. Understanding those inefficiencies helps identify significant savings potential.
  • Logistics Service Providers either increase their rates or add fuel surcharges in order to protect themselves from the effect of fluctuating fuel prices. A fixed rate benefits the customer when fuel prices go up, but creates needless high fuel bills when prices are down.
  • Ordering habits of certain customers add to the Transportation Costs. For example, unknowingly ordering early next-day deliveries, without an absolute necessity for it, causes significant (20% in some cases) extra cost than a delivery at noon.  A 24-hour delivery time costs even less than the noon delivery.

Interested in learning more about the phases and cost drivers of Supply Chain Cost Reduction in Transportation?  You can download an editable PowerPoint on Supply Chain Cost Reduction: Transportation here on the Flevy documents marketplace.

Want to Achieve Excellence in Supply Chain Management (SCM)?

Gain the knowledge and develop the expertise to become an expert in Supply Chain Management (SCM). Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.

Supply Chain Management (SCM) is the design, planning, execution, control, and monitoring of Supply Chain activities. It also captures the management of the flow of goods and services.

In February of 2020, COVID-19 disrupted—and in many cases halted—global Supply Chains, revealing just how fragile they have become. By April, many countries experienced declines of over 40% in domestic and international trade.

COVID-19 has likewise changed how Supply Chain Executives approach and think about SCM. In the pre-COVID-19 era of globalization, the objective was to be Lean and Cost-effective. In the post-COVID-19 world, companies must now focus on making their Supply Chains Resilient, Agile, and Smart. Additional trends include Digitization, Sustainability, and Manufacturing Reshoring.

Learn about our Supply Chain Management (SCM) Best Practice Frameworks here.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library.  FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”

– Roderick Cameron, Founding Partner at SGFE Ltd

10 Technologies Disrupting the Way Warehousing Operations are Managed

22 Jan

Shortage of labor, intensified demand from e-tailers (online retailers), and technological disruption is forcing organizations in the Logistics and Warehousing industry to embrace technology, particularly Automation.

An investment in automating the picking, packing, sorting, storing, and shipping items can yield high returns for organizations.  Warehouses that will sort out the dynamics of e-commerce, select the ideal technology to implement, and eliminate uncertainties in their supplier contracts will outpace others.

Automation is facilitating the Warehousing operations predominantly by:

  • Assisting the movement of goods.
  • Improving the handling of goods.

In these two categories, there are 10 technologies that are fast disrupting the Supply Chain function and creating a breakthrough for warehouses.  These include:

  1. Multi-shuttle System
  2. Optical Recognition
  3. Conveyor Connection
  4. Warehouse Management Systems
  5. Smart Storage
  6. 3D Printing
  7. Swarm AGV Robots
  8. Analytics & Algorithms
  9. Smart Glasses
  10. Picking Robots

Let’s discuss a few of these disruptive technologies in detail.

Multi-shuttle System

Multi-shuttle systems (MSS) are employed to store and retrieve goods automatically—using automated storage and retrieval system (AS/RS).  This system is able to transport goods 3 dimensionally (on pallets), and is instrumental in enhancing the throughput, flexibility and efficiency levels.

MSS consists of 3 modules, coordinated by a software module: a Shuttle car powered by power caps for 24-hour operations and moved by powerful motors, high-performance vertical lifts, and a special carrier to move the shuttle car to the exact location.  Communication in the multilevel systems’ carrier and shuttles is managed by radio links, whereas the movement is controlled by an integrated control system.

Multilevel Shuttle Storage System is ideal for cold storage, buffer storage, dispatching warehouses, commissioning warehouses, supply and distribution centers, and factories.

MSS offers a number of benefits, e.g.:

  • High item storage and retrieval velocity.
  • Optimum use of building space.
  • High storage density.
  • Ability to be retrofitted in existing warehouses.

Optical Recognition

Optical Recognition and Sensor technology expedites processes and increases productivity.  This technology is at the foundation of IoT, smart cities, automobiles and laser-guided vehicles, smartphones, wearable technologies, drones, barcode readers, and more.

Optical Recognition devices use a light source to read characters and barcodes.  They then convert these characters into digital data.  Optical Recognition devices scan items.  At times, this scanning is done on 6 axes.  The character recognition software then relates this image to the shapes of individual characters.

Optical recognition devices today use sensors to detect and respond to a specified input—light, sound, motion, pressure, temperature.  Once an input is received, a sensor either produces a resulting output—in the form of a light or alarm—or forward the information received to a network for processing.

Optical recognition sensors facilitate in:

  • Accelerating and improving processes, inspecting parts for error checking, and quality monitoring.
  • Delivering real-time data to make better decisions.
  • Handling repetitive and hazardous tasks and making workplaces safer
  • Freeing up people to manage more complex endeavors.
  • Slashing energy wastage and creating connected, smart factories.

Conveyor Connection

Connected Conveyor Systems are useful in transporting heavy or bulky materials.  These systems allow quick and efficient transport of a variety of materials (e.g. totes, cartons) in different warehouse configurations.  Advanced conveyor systems and connections perform various material handling requirements including accumulation, transportation, diverting, merging, and sorting products.

Interested in learning more about the other technologies reshaping the warehousing operations?  You can download an editable PowerPoint presentation on Warehouse Automation: 10 Technologies here on the Flevy documents marketplace.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro LibraryFlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“As a small business owner, the resource material available from FlevyPro has proven to be invaluable. The ability to search for material on demand based our project events and client requirements was great for me and proved very beneficial to my clients. Importantly, being able to easily edit and tailor the material for specific purposes helped us to make presentations, knowledge sharing, and toolkit development, which formed part of the overall program collateral. While FlevyPro contains resource material that any consultancy, project or delivery firm must have, it is an essential part of a small firm or independent consultant’s toolbox.”

– Michael Duff, Managing Director at Change Strategy (UK)

Is “Profit Leaks” a Consistent Issue in Your Organization? Use Cost-to-Serve (CTS) Analysis to Prevent It

9 Dec

Supply chain management across industries is revolutionizing at a rapid pace by technology.  By implementing technology systems, supply chain organizations aspire to eliminate waste, meet customers’ needs at reasonable costs, and ensure profitability.  Enterprise Resource Planning systems facilitate in processing unstructured data at an aggregated level.  However, at workflow or micro level the data produced through ERPs needs to be further refined to understand costs.

Supply chain experts need to look at their unstructured data and understand the cost of offering a product; know which product mix they should promote; and gauge the impact of service levels on transportation costs, profits, and pricing strategy.

Supply Chain Executives can use the Cost-to-Serve (CTS) Analysis approach to control distribution costs, identify negative-margin products, and prevent profit leakages.  CTS Analysis affords the organizations the means to identify the total cost of serving customers—including all the costs in a product’s value chain (from raw material to delivery)—at the product as well as customer levels.  The approach helps leaders split and evaluate individual customers, geographies, products, product families, or combinations of products / customers.

The Cost-to-Serve Analysis can be undertaken to identify costs related to Supply Chains, Logistics, Distribution, Warehousing, or Transportation.  CTSA allocates indirect cost to products—overhead or fixed costs that are not easily and directly attributable to a single order, shipment, or activity.

The CTS model for costing entails detailed modeling of all the value and non-value added activities in the process.  The approach is more precise than other methods in determining “what-if” budgets, as it accounts for all the activities and link them with their relevant cost pools.  CTS employs an activity-based modelling algorithm—which segregates the entire supply chain into multiple tasks while calculating the costs at every task—to help the supply chain practitioners calculate costs at various levels.

The CTS Framework entails 5 fundamental steps:

  1. Obtain Buy-in from Key Stakeholders
  2. Conduct Cost Categorization
  3. Determine per Unit Cost Breakdown
  4. Develop Classification Matrices
  5. Make Joint Decisions

Let’s delve deeper into the first 2 steps of the CTS Framework.

1. Obtain Buy-in from Key Stakeholders

The first step to implement Cost-to-Serve Framework involves getting across-the-board agreement and stakeholder buy-in.  The decision to calculate the impact of cost to serve on revenue entails engagement and collaboration from multiple departments in a company.  Multiple cost centers work in partnership across a value chain and thus profit and loss responsibility cannot be attached to a specific unit.

For instance, a decision to trim down the costs to serve a customer (or various customers) has to be agreed upon by stakeholders from the:

  • Sales and marketing department to calculate the impact of service level agreements.
  • Logistics function to calculate the cost impact.
  • Go-to-market Strategy to ensure alignment with Corporate Strategy
  • Warehousing unit to ensure resource planning and allocation.

2. Conduct Cost Categorization

The 2nd step of the Cost-to-Serve Framework involves categorization of costs associated with the entire supply chain.  Supply chains typically have various cost centers (or functions): e.g., Procurement, Manufacturing, Warehousing, and Logistics.  These cost centers further have multiple processes with costs associated with all of them.  CTS requires top-down estimation of costs at the process and activity level and then aggregate those back to the cost center level.

This categorization of costs across the various functions of the supply chain and their associated processes facilitates in accurate calculation and obtaining estimates at the micro level.

Interested in learning more about the other steps of the Cost-to-Serve Framework?  You can download an editable PowerPoint presentation on Cost-to-Serve Analysis here on the Flevy documents marketplace.

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When Survival in the Midst of Chaos Calls for Supply Chain Sustainability

14 Aug

In the modern age, organizations are striving to form a sustainable Supply Chain system to cope with the challenges that are arising. Such issues include the emission of hazardous substances, excessive resource consumption, Supply Chain risks, and complex procedures.

Through Strategic Planning, organizations around the globe are adopting strategies to become a sustainable organization.  In fact, there is an increasing trend towards organizations adopting sustainable Supply Chain Management practices.

Gaining a Foothold on Supply Chain Management

Supply Chain Management is the design, planning, execution, control, and monitoring of Supply Chain activities. It addresses the fundamental business problem of supplying products to meet demand in a complex and uncertain world.

Looking at Supply Chain Management, we can see that it draws on the value chain concept of business strategist, Michael Porter.  It looks at supply issues at the multi-company level.  It creates net value, builds a competitive infrastructure, leverages worldwide logistics, synchronizes supply with demand, and measures performance globally.

The need for Supply Chain Management came about when shorter product life cycles and greater product variety has increased Supply Chain costs and complexity.  And as outsourcing, globalization, and business fragmentation became a common practice, there was now the need for Supply Chain integration. This was further emphasized with the advances in emergent technologies. which created more opportunities for Digital Transformation within Supply Chains.

The 4 Levels of Supply Chain Management Strategies

There are 4 Levels of Supply Chain Management Strategies. The first 3 strategies are foundational Supply Chain Strategies.

Before any Supply Chain can be considered sustainable, there are 3 foundational Supply Chain Strategies that need to be undertaken.

  1. Legal Supply Chain Strategy. There are a number of legal rules and regulations that need to be followed by organizations. The Supply Chain Strategy must cater to all legal rules.  An example is a ruling according to the Restrictions of Hazardous Substances Directive (RoHS) wherein an organization must not rely on the mercury, cadmium, and chromium as they result in huge emission of hazardous substances.
  2. Ethical Supply Chain Strategy. To become an ethically strong organization, it is required that the organization operates with integrity and focus on what is right. The organization could develop a policy that governs the organization’s operations. It is also essential that the Supply Chain quality assurance team that is built complies with ethical sustainability.
  3. Responsible Supply Chain Strategy. To become responsible, the organization could spend resources in compliance with sustainable rules. The organization could set up training and development programs to drive sustainability within the organization. It can also focus on environment-friendly activities to boost its social responsibility.

Before an organization can become sustainable, significant efforts must be exerted to put the 3 foundational Supply Chain Strategies in place within the organization.

Reaching the Level of Sustainability

Sustainable Supply Chain Strategy has become increasingly important as more and more organizations are focusing on putting it in place.  According to the MIT Slogan Review, over 75% of organizations listed in the S&P 500 reported sustainability reports where it shows that catering up to the responsibility is becoming highly challenging and important.  There has been a significant increase and inclination towards sustainability and this depicts the importance of becoming sustainable.

With the passage of time, it has become evident that organizations around the globe are becoming fond of sustainable considerations.

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The 6 Pillars of Supply Chain Management (SCM) Thinking: A New and Revolutionary Way of Looking at Supply Chain Management

7 Aug

Supply chain thinking used to be limited to the managers of a few global companies—companies that were struggling to coordinate internal information and materials. This, however, led to an exciting boom in cross-business coordination based on Supply Chain Management concepts.

Today, the field has broadened and shifted over time. Current supply chain trends—differentiation, outsourcing, compression, and collaboration—are being used to restructure supply networks and improve coordination. As more companies integrate their networks, capabilities are improving. The levels of product customization and business complexity are also increasing. As this continues, Supply Chain Management is being used in new ways to create uniquely defined customer relationships anchored on appropriate Customer-centric Design.

The field of Supply Chain Management will continue to influence companies. The best way to understand the impact of a long-term trend is to examine how the trend has changed the way executives view their businesses and what issues they choose to focus on.

Rationale Behind Supply Chain Management

Supply Chain Management is the design, planning, execution, control, and monitoring of supply chain activities. It is the management of the flow of goods and services. Essentially, Supply Chain Management addresses the fundamental business problems of supplying products to meet demand in a complex and uncertain world.

Conceptually, Supply Chain Management draws on the value chain concept of business strategist, Michael E. Porter. It conveys the idea of looking at the supply chain issue at the multi-company level.

As the global business environment becomes more complex and competitive, there have been shorter product life cycles and greater product variety. Due to this, it has increased supply chain costs and complexity. The birth and growth of outsourcing, globalization, and business fragmentation has resulted in a crucial need for supply chain integration. Coupled with advances in information technology, this has led to the creation of greater opportunity for Supply Chain Management.

Why is Supply Chain Management essential at this time? There is now an increasing need to create net value, build a competitive infrastructure, leverage worldwide logistics, synchronizing supply with demand, and measure performance globally. Only Supply Chain Management has a systematic process to satisfy these increasing demands.

With the increasing application of Supply Chain Management, there have been shifts in the view of management and influencing Strategy Development.

The 6 Core Pillars of Supply Chain Management Thinking

The 6 Core Pillars of Supply Chain Management Thinking are the major shifts that have redefined management’s view which is far different from traditional Supply Chain thinking.

The first Core Pillar is Multi-company Collaboration. This is the shift from cross-functional integration to multi-company collaboration. Traditionally, Supply Chain thinking was focused on integrating within their companies. But with the new Supply Chain Management perspective, the focus now is on integrating across companies to coordinate and improve supply.

With the shift in thinking, what is asked now is how do we coordinate activities across companies, as well as across internal functions, to supply products to the markets. This is a great deviation from the traditional thinking which ask how do we get the various functional areas of the company to work together to supply product to our immediate customers.

With the first Core Pillar, we get to achieve significant breakthroughs. There are lower supply chain-related costs and improved responsiveness within a chain of companies.

The very essence of Multi-company Collaboration is rethinking how organizations align goals and make decisions.

The other Core Pillars are Market Mediation, Demand Focus, Product Design Influence, Business Model Innovation, and Customized Offerings. Each core pillar is considered an enabler that has a vast impact on Supply Chains.

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In the Midst of COVID-19, Is Your Supply Chain Resilient?

15 Jul

Supply Chain Resiliency is the capability of the Supply Chain to be prepared for unexpected risk events. It is the Supply Chain’s ability to respond and recover quickly to potential disruptions. It can return to its original situation or grow by moving to a new, more desirable state in order to increase customer service, market share, and financial performance.

Resilience is currently an increasing concern in the Supply Chain caused by globalization. The Supply Chain is globally being subject to diverse types of disturbances. The largest disruption so far in the global Supply Chain in modern history was the earthquake and tsunami in Japan in March 2011. With the rising level of logistical complexity, the resiliency of the Supply Chain has not kept pace. These disturbances need to be handled in the right way, compelling the use of tools and approaches that can support resilient Supply Chain decisions.

With the onset of the COVID-19 pandemic, resiliency in the Supply Chain is further emphasized.

Understanding Supply Chain Resilience

The risk of Supply Chain disruption is increasing.  A recent study by Aon Risk Solutions showed that the percentage of global companies reporting a loss of income due to a Supply Chain disruption increased from 28% in 2011 to 42% in 2013.  The MIT Scale Network Study further showed that many large companies are unable to create contingency rules and procedures for operations during a complex, high-risk event.

According to the MIT study, approximately 60% of surveyed managers either do not actively work on Supply Chain risk management or do not consider their company’s risk management practice effective. Managers have been found to be lacking in a framework that will guide them in the deployment of risk management practices. In fact, it has been noted that there is little understanding of risks resulting in a lack of knowledge of what kind of framework fits a particular Supply Chain dynamics.

For Supply Chain Management to keep up with the increasing level of logistical complexity, there is a need to reconfigure the Supply Chain.

The 5-phase Approach to Supply Chain Resilience

In 2005, Cisco had difficulty coping when Hurricane Katrina struck. The Supply Chain performance level was not maintained to cope with the sudden surge in orders for new equipment to replace damaged telecommunication infrastructure.  The Cisco teams cannot locate all products in the Supply Chain or understand the financial impact of emergency sales. However, in 2011, that was a turning point for Cisco. Cisco had deployed a very solid Supply Chain resiliency program that addressed the impact of external vulnerabilities and the aftereffects it caused to the Supply Chain.

Cisco has succeeded by executing a 5-phase approach to Supply Chain Resiliency.

In reconfiguring its Supply Chain to make it more resilient, Cisco first identified its strategic objectives.

Phase 1: Identify Strategic Objectives. The first phase is focused on identifying competitive priorities for particular product categories. It matches priorities with Supply Chain capabilities.

Through Strategic Planning, Cisco was able to build its competitive advantage which depended on its ability to match global opportunities to outsource production with global market opportunities. This is known as the Cisco Lean Model.

Phase 2: Mapping Supply Chain Vulnerabilities. This focused on understanding the company’s vulnerabilities. Supply Chains are vulnerable on many fronts—political upheavals, regulatory compliance mandates, increasing economic uncertainty, natural disasters, etc.  Being aware of the vulnerabilities will enable the organization to come up with the appropriate design to achieve Supply Chain Resiliency.

In undertaking the second phase, Cisco focused on supporting a responsible global Supply Chain characterized by product differentiation, high value, and high margins. Mitigation measures were also implemented to make a resilient Supply Chain.

With the 5-phase approach, Cisco was able to achieve a resilient Supply Chain capable of effectively managing disruptions. It has also prepared them in addressing risk management warning signs and deploying the appropriate reactive tools to every kind of significantly disruptive event.

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Supply Chain Information Disclosure Strategy: 8 Key Steps

4 Jul

Supply Chain Management is getting more and more complex.  The pressure on the Supply Chain information to be made public is also increasing day by day.  With the popularity and widespread use of social media, it has become more and more difficult for organizations to hide information pertaining to supply chain practices, employees’ treatment, suppliers’ processes, or waste materials generated that could affect the environment.  Social media often publicizes negative reports on companies’ supply chain practices—its best to have a robust information disclosure strategy before anything like that ever happens.

Executives must appreciate these external forces and information transparency demands, and react proactively to build and maintain competitive advantage for their organization.  They need to be able to, first, accurately predict the data requirements of various stakeholders and then unanimously decide on the type and frequency of the information to be shared.  A reactive information disclosure strategy is less time and planning intensive, but it does limit the chances of first-mover advantage over competition.

Supply Chain information can be classified into 4 categories:

  • Critical
  • Strategic
  • Non-critical
  • Optional

Critical Information

Organizations using this information category know that they have certain glitches in their Supply Chains that could potentially be a source of criticism from NGOs and the media and may bear adverse effects on their reputation.  This includes information concerning unhygienic or inferior quality products; unfair supply chain practices; or environmental problems.

Strategic Information

Even though stakeholders do not ask for this information, this information category is considered strategic as disclosing this data can boost brand value and product differentiation.  The strategic information category is high value to the organization but is low on risks for the supply chain.  For example, in the beauty, fashion or food products industry, sharing information about organic ingredients may be instrumental in achieving product differentiation and brand reputation.

Noncritical Information

Disclosure of this information category is typically un-called for and has negligible effects on brand value.  This information category has low value for the company and has low risks for the Supply Chain.  For instance, needlessly sharing child labor data in regions with actively enforced child welfare laws.

Optional Information

This information category is a matter of internal supply chain consideration and has no bearing on the customer.  The optional information category is low value to the organization and is actually highly risky for the Supply Chain.  For instance, potential quality issues and defects in the supply chain that are identified and resolved during quality control, and do not affect the finished product.

There isn’t a one-size-fits-all strategy that organizations can adopt to ensure a viable and high-quality Supply Chain Information Disclosure.  However, the approach needs to be evolving based on individual circumstances.  Senior executives should promptly respond to public inquiries, ensure fair treatment of employees, and guarantee compliance with basic human rights to protect their organizations’ reputation.  Experts suggest the following 8-phase approach to address and improve Supply Chain Information Disclosure.

Appreciate the criticality of Supply Chain information disclosure

The first step is to analyze the forces that demand increased supply chain transparency and ascertain the importance and priority of information for the stakeholders.  Once it is established, the leadership must take actions to address the information requirements of key stakeholders.

Appraise Supply Chain data collection abilities and resource requirements

The next step is to assess the competence of the organization—and that of the suppliers—to gather quality supply chain data.  The executives should also evaluate the costs and resource requirements to enable improved information disclosure.

Determine the existing and desired levels of Supply Chain information

The third step is to ascertain the existing knowledge of supply chain information among the executives and suppliers.  The leadership needs to identify the desired levels of supply chain data collection and sharing capabilities, and invest to fill any gaps between the existing and desired supply chain data collection and sharing competencies.

Interested in learning more about the remaining phases of the Supply Chain Information Disclosure Strategy?  You can download an editable PowerPoint on Supply Chain Disclosure Strategy here on the Flevy documents marketplace.

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