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8 posts from February 2011


High Supply Chain Priorities for High-Tech & Electronics in 2011

Analyst Insight: As high-tech companies move forward into 2011, it is critical to develop a list of supply chain priorities for the year. Topping this year’s list is a renewed focus on logistics and manufacturing outsourcing and an increased sense of urgency in developing the Chinese consumer market for new revenue. In addition, there is a growing need to create additional value from an often under-appreciated source – the service supply chain.

–Greg Hazlett, principal at Tompkins Associates

The past year’s challenges have left high-tech companies with a new set of significant priorities for 2011. Below are the top 11.

Logistics and Manufacturing Outsourcing: Flexible organizational processes, technology and resources are becoming extremely important. Outsourcing provides the opportunity for high-tech companies to maximize results by focusing on core competencies, while delegating non-core processes and activities.

Globalization - China as a Consumer Market: Global business is looking to China not only for sourcing and production but for growth. Companies around the world are gearing up to begin selling or further ramp up sales capabilities into China’s growing consumer market.

Reverse Logistics/ Service Supply Chain: The service supply chain helps companies differentiate themselves from their competitors while reducing costs and improving residual value recovery from their returned products. Transforming high-tech service supply chain organizations into profit centers will be a game-changer for companies in this industry.

Uncertainty: Today, uncertainty is certain. High-tech organizations must accept uncertainty and implement agile processes that allow them to move forward. The best strategy is to respond to uncertainty and make it an ally in achieving profitable growth.

Maximizing Supply Chain Flexibility: The primary factors driving this industry – frequent new product introductions, short product lifecycles, speed to market, new distribution channels, and changing consumer preferences – require more flexibility in supply chains than normal. Agility is an absolute requirement, while maintaining operational excellence.

Global Trade and Risk Management: Automating global trade processes will help high-tech companies enhance supply chain performance.  Furthermore, effective global trade and risk management must address margin protection, brand integrity, and customer satisfaction.

Sustainability: In the U.S., nearly 70 percent of heavy metals in landfills comes from discarded electronics. Companies are fighting to be environmentally friendly and keep the costs of recycling, de-manufacturing and scrap at a minimum.

Tax-Effective Supply Chain Management: TESCM is the process of integrating tax planning into the overall management of the company’s supply chain and is an important priority to be considered.

On-line Digital Content to Drive Product Innovation, Acceptance and Obsolescence: Audiences today can stream almost any digital content they want, at any time. Enhancements in digital delivery and usage, including cloud computing and mobile phone applications, are indications of market acceptance. How high-tech companies respond and innovate will determine what audiences embrace or reject.

Inventory Working Capital/Sales Optimization Planning: With demand returning, the “people, processes and technology” of Sales, Inventory & Operations Planning must be brought to a new level to enhance inventory turns while improving customer service.

Strategic Market Planning and Growth: M&A activity for technology companies is rising, due to recession pressures that created bargain prices for various technology companies. But risks persist, and success comes from gaining a leading and sustainable position in the served markets.

The Outlook


With these top priorities in 2011, high-tech companies have their work cut out for them. However, it is not as simple as completing one task and moving forward. High-tech companies will need to ensure that each of these areas are included in their continuous improvement strategies.



When the Benefits Are There, Why Don't More Companies Use RFID Tagging?

Analyst Insight: Research shows that more than 60 percent of organizations do not yet have an RFID tagging program in place. Many of the organizations that have implemented RFID have done so to satisfy customer compliance demands and have not used their RFID systems to enhance their own warehouse and logistics operations.

–Marisa Brown, director of APQC Knowledge Center, and Rob Spiegel, knowledge specialist

RFID is still in its early adoption stage, so should an organization consider devising a strategy to implement RFID? The logical question is “what are the benefits?” APQC’s research on RFID tagging strategies found the most frequently cited benefit was improved distribution processes.

Working with the Council of Supply Chain Management Professionals (CSCMP), APQC is able to bring additional information to light on the question of the benefits of RFID. Research co-sponsored by CSCMP, the Voluntary Interindustry Commerce Solutions Association, and the University of Arkansas found that RFID used at the pallet and case level shows benefits in reduced stockouts and improved inventory accuracy, which is one of the keys to an efficient and effective supply chain.

In one instance in the CSCMP research, inventory accuracy in a retail store using item-level RFID, relative to a control store without item-level RFID tags, improved by 17 percent. In addition to the overall effectiveness of RFID for inventory counting (close to 100-percent accurate), the research showed that the time savings for counting inventory – especially when compared to other methods such as bar-coding – is significant. In one instance, an activity that took only seven seconds for items using RFID tags required nine minutes when bar-coding was used.

The co-sponsored research highlighted another benefit of RFID: it is able to eliminate “frozen” inventory. In some out-of-stock situations the system “thinks” ample product is available when it is not. The inaccuracy could cause the system to not place a re-order for the product. Consider an example where the system thinks it has six units of inventory, the re-order point is five units, and the store actually has none. Since the store can’t sell what it doesn’t have, the number in the system will not get checked, e.g., it’s frozen, and no re-orders will be placed.

This is the ultimate out-of-stock situation – the store has no product and will not order any product because the system thinks it has more than the re-order point. In the retailer in this study, after implementing RFID, the number of frozen items dropped to zero and stayed there. With RFID, in this case, all occurrences of frozen out-of-stocks have been eliminated.

The Outlook


The use of RFID in the retail space has potential benefits for customer service. Accurate and timely information about product order, delivery, location, and stock level help retailers to have the products their customers want when they want it.


IT Investment Is Key to Successful Reverse Logistics Management

With economic times remaining uncertain, more retailers and manufacturers are investing in reverse logistics systems to help maintain their margins and reduce returns costs. Most enterprise resource planning systems will provide some returns management capabilities. However, a more specialized reverse logistics solution will provide the functionality necessary for running a best practices returns process, ultimately reducing returns costs, improving process control and increasing efficiency.

–Derek Singleton, ERP market analyst at Software Advice

U.S. companies spent more than $100bn processing returns in the last year alone.  An organization's capacity to profit despite these losses is largely based on the efficiency of their reverse logistics management. Reverse logistics software can improve the returns management process and reduce losses. In some cases, organizations may even be able to turn their returns process into a revenue generating activity.

While each industry will face unique reverse logistics challenges in 2011, we think there are three common obstacles most will encounter:

Tracking goods as they travel through the returns process - Poor product visibility in the reverse supply chain creates inefficiencies and allows for costly mistakes like the misplacement of a returned item. The issue becomes more difficult when products are not in their original packaging or when products have a short shelf life and need to be transported quickly (e.g., transporting a DVD title from a poorly performing store to another store that is selling out of the same item).

Companies need some kind of track-and-trace capability to gain better visibility into where a good is in the reverse supply chain process. For starters, companies can use bar-coding and radio frequency identification to tag items before moving back through the supply chain. Enhancing the visibility of inbound returns allows businesses to adjust staffing levels according to inventory fluctuations. This enhanced visibility also helps maximize the value of returned merchandise by creating inventory alerts when products are ready for resale.

Complying with government regulations - Businesses should expect environmental regulation around parts and product disposal to continue to tighten. This trend will be strongest for the recycling and disposal of e-waste, the nation’s fastest-growing source of waste. In 2010, seven states added e-waste recycling laws to their books, and more such legislation is coming. With more states passing regulation laws, it will be more important to document compliance with regulations.

Reverse logistics software addresses this issue by automating compliance reports to prove that government regulations were followed. A reverse logistics system captures product data at each stage of the technical process and then produces compliance documentation in a customer report. Automating compliance reports eliminates documentation errors and reduces staffing requirements to produce compliance reports.

Adjusting to increased customer pressure - Customers are beginning to expect businesses to take back products regardless of the reason. Research indicates that customers will stop shopping with retailers and manufacturers if the returns process is a hassle. To avoid losing customers because of an unwillingness to accept returns, reverse logistics operations will have to become more customer oriented.

Reverse logistics software can move businesses toward that end by automating the return process. When a customer returns a product, reverse logistics software can automatically create a customer tracking code. With this code, customers can stay up to date with the returned product’s status and location. This significantly reduces call center inquiries about returned merchandise and improves satisfaction. Systems further improve the customer experience by automating the credit process and reducing the time between the return and refund payment.

The Outlook


We expect more companies to implement reverse logistics software in 2011 as they recognize the competitive and strategic value of effective returns management.


As Economy Recovers, Remember That Old Ways of Management Won't Work Today

Analyst Insight: With encouraging signs emerging of a moderate global economic recovery, many companies are preparing their global supply chains to resume a flow of goods that will enable business growth. Taking this change of pace into account, 2011 will be much different than 2008 and previous years.

–Gene Tyndall, executive vice president, Tompkins Associates

The complexities of managing global supply chains are becoming more prominent. During the unprecedented growth years prior to 2008, top issues surrounded volumes, lead times, and securing container space to meet delivery dates. During the economic downturn, companies were focusing more on costs, volume reductions and inventories. Now, as some growth is coming back, supply chain managers are discovering that recovery is not as simple as returning to the way things were in the past.

First, capacities are reduced. Ocean liner companies have decreased or relocated capacity, and even air cargo space is limited. As North American exports are increasing, positioning of containers and ports of call are not easily aligned with shippers’ new needs. Until supply can catch up with demand, achieving efficient international freight flows will be challenging.

Second, multinationals are searching and finding new and emerging markets. China, India, Southeast Asia, Central and South America, Eastern Europe, and the Middle East/Africa are becoming more attractive locations to sell goods. This is challenging supply chains to extend into geographies that were not previously served.

Third, sourcing has been diversified. Many companies have spread out their strategic sourcing locations over the past few years, as their total delivered costs from China became better understood and increases in labor compensation and taxes became reality. Few have abandoned China for sourcing, but some have diversified to other Southeast Asian countries and/or to Latin America, among others. Just as with distribution, global supply chains are being stressed from new sourcing points.

Fourth, there has been a renewed focus on cost, speed and quality. Providing better information on the total costs, more emphasis on meeting just-in-time or delivery windows, and a higher focus on service quality all contribute to pressure on global supply chain managers to not only move the goods but to get them moved cheaper, faster and better.

Last, and certainly not least, is the increasing risk involved in global supply chains and the corresponding need for flexibility. Goods in motion for 8 to 12 weeks can create numerous opportunities for risk – security, weather, labor actions, and others. These can cause serious supply chain disruptions that impact suppliers and customers.

The Outlook


These five factors translate into new challenges for global supply chain managers in 2011 and beyond. Uncertainties are here to stay, and the challenges are different today. Back to the future will not mean business as usual. Global supply chain managers need to plan for the changes and contingencies, based on the new realities of their business objectives. The old ways will not meet the new requirements of today’s global supply chains.


Creating a Highly Efficient Flow of Returns

nalyst Insight:  APQC has worked with a number of leading-edge organizations to learn how they design and implement responsive, cost-effective and efficient channels for the backward flow of returns. One aspect of successful reverse logistics is the strategic design of the returns function. The critical elements are gaining stakeholder support, identifying and solving the reasons for returns, and developing a sound disposition plan.

–Marisa Brown, director of APQC Knowledge Center, and Rob Spiegel, knowledge specialist

Failure to implement effective reverse logistics can result in numerous problems, including: higher and unnecessary costs; higher customer-service administration costs; greater finance, accounting, and credit issues; habitual product quality problems; messy, inefficient warehousing; and increased numbers of dissatisfied and lost customers.

Raising awareness is key to designing a successful reverse logistics program. The best-practice organizations APQC studied recognize the importance of reverse logistics initiatives in meeting the organization’s goals. They implemented and continue to execute their returns programs in order to accomplish common goals such as increased profitability, increased customer responsiveness, and maximized asset recovery.

Cross-functional support for reverse logistics is also critical. Best-practice organizations create cross-functional alliances among the reverse-logistics team and finance, sales, procurement, manufacturing, and customer service. The alliances were involved in setting reverse-logistics and returns management policies.

Another important process is analyzing returns information to minimize returns. Reason codes – shorthand explanations for customer dissatisfaction – were developed to communicate returns information. The goal is to identify and correct counterproductive internal processes that lead to returns.

Finally, best-practice organizations make disposition part of the reverse logistics strategic design. The organizations work with customers and suppliers to predetermine disposition business rules to minimize handling and improve asset recovery. Innovative disposition avenues were sought not only to remain compliant with environmental regulations and minimize risk, but also to recover the most value from returned product.

Executive Reporting: Understanding Inventory Performance Over Time

Analyst Insight: A remarkable number of executives attempt to manage large inventory investments with lots of data but very little information –just pages full of numbers, none of which is very meaningful without (often significant) effort. And, frequently, it’s just data from the current period, minimizing the possibility of understanding whether performance is improving or declining except by working from memory at the very highest levels. The firm’s owners, and the executives in charge, deserve much better.

–Ralph Cox, principal at Tompkins Associates

Surprisingly, in some very successful firms, the simplest questions are the most difficult to answer – basic questions regarding inventory cost and customer service performance. For example, reasonable questions, like the following:

“Are our order fill rates up for every safety stock class in each DC over the same time last year?” or

“Were our promotion lift forecasts more accurate for all product families this fall than they were last spring?”

If the answer is “no,” the next question is sure to be “why?” Then the emails commence. Heaven forbid that the executive would want to understand to what extent each of the underlying driving forces or root causes contributed to any change.

The lack of easily accessible, meaningful information and the associated impediments to insight into inventory performance over time is a weak link, waiting to fail and hurt the bottom line. Selecting what to report and, perhaps more importantly, at what level of product, organizational and logistical aggregation to report and with what drill-down capability is an art.

Creative and thoughtful exploration of options – especially with the actual figures – can yield important possibilities. Having useful reports that provide quickly comprehensible performance change from season to season is a necessity for good inventory decision-making. The best reports are graphical and dynamic via the use of menus.

The Outlook


Business intelligence and data warehouse query tools have great potential for assimilating data and displaying just what is needed. The best of them are flexible and easy to evolve as events unfold – a crucial differentiator. However, the first step is recognizing the importance of viewing and understanding performance over 12 to 24 months to provide context. Then, expect clearer information from your systems and organization. The data is all there, but you need understanding – something infinitely more valuable.

The Priority of the Chief Supply Chain Officer Is Strategic Supply Chain Planning

alyst Insight: The chief supply chain officer's (CSCO) role provides a way for the supply chain to earn a place in the board room and drive strategic decision making. The CSCO has emerged as a key stakeholder in the company to make supply chain transformation happen. Supply chain planning is an important approach for CSCOs to create value for their enterprise. In fact, 86 percent of respondents indicate that their management team has asked them to review the supply chain process in order to find opportunities to improve their company's supply chain planning processes, and 71 percent of respondents have indicated the same for supply chain technology improvement.

–Nari Viswanathan, vice president & principal analyst at Aberdeen Group

The following functional areas within supply chain planning can be described as process capability Level 1: demand forecasting, demand collaboration, supply planning and inventory management.  (See Strategic Supply Chain Planning: Priorities of the Chief Supply Chain Officer, September 2010). These are areas which provide the ability for companies to improve their inventory turns, forecast accuracy and customer service level metrics. However, these functional areas do not address the strategic time frame planning of their companies.

Whereas when it comes to more advanced capabilities such as simulation, network design, risk management, etc., Best-in-Class companies do not have a significant advantage over all other companies. These functional areas can be described as process capability Level 2. These are the crucial ingredients for companies to manage long-term supply risk and long-term sustainability goals through simulation, predictive analytics and other similar approaches. The reason why even Best-in-Class companies do not have a higher capability level in these areas is the fact that mastering these process areas is difficult – they involve the need for solution capabilities that go beyond the traditional supply chain planning solutions.

Recommended Actions

The following are the three key priorities that CSCOs should have in terms of supply chain planning:

Supply-demand-finance balancing is critical. Even though demand forecasting is a key area of implementation plan for companies in this survey (46 percent), the respondents have expressed intent to invest time and effort towards constrained supply chain planning (49 percent) to simulate different scenarios based on predictive modeling approaches (50 percent) and the ability to design risk management into the system (42 percent).

Outsourcing is creating new supply chain dynamics – time and speed are critical. Thirty-seven percent of respondents indicate that they are making major updates to forecast at a frequency of less than a month, and 80 percent indicate they are making major updates to forecast at a frequency less than or equal to a month. Forty-seven percent of respondents indicate that they are making major updates to supply plans at a frequency less than a month and 77 percent of respondents indicate they are making major updates to supply plans at a frequency less than or equal to a month.

The reason for the increased frequency of planning is due to the increase in uncertainty and lack of visibility due to outsourcing. Outsourcing results in an increase in variability and increased lead-times. In order to manage these variables, companies are trying to perform constant planning and re-planning.

Create a Chief Supply Chain officer or similar role. Sixty-four percent of respondents indicate that they don’t have a chief supply chain officer role in their organization.

The Outlook


Clearly, companies without someone in the chief supply chain officer seat is at a disadvantage. They should reconsider their current thinking and explore adding a CSCO (or similar role). That will provide the strategic impetus that the supply chain needs in the organization.

Inventory Planning: Working Capital Optimization Increases Cash Flow

Analyst Insight: Different products have different costs and lead times. For example, a customer who requires a custom part from a manufacturer (build to order) will have different service requirements than a customer who sells a commodity (build to stock) part. Thus segmentation of the customers based on their inventory management requirements is necessary. Best-in-Class companies are 1.5 times more likely than all others to be leveraging a statistical method for computing inventory targets.

Seasonal industries can see large swings in demand as well as lead-time variability across demand peaks and lows driven by seasonality. Construction equipment companies are examples of companies that have long-term seasonality and the apparel industry involves short-term seasonality.

–Nari Viswanathan, vice president & principal analyst at Aberdeen Group

Inventory optimization is a highly tangible approach to improve the cash flow of companies. These companies should implement a process that understands demand and lead-time variability across the supply chain and assigns policy at each SKU location. This will globally optimize inventory policies across supply chain tiers, accounting for both demand and supply variability using a stochastic (probabilistic) approach versus a rules-based or deterministic approach that does not fully account for variability.

The reduction in working capital that results in the release of cash can be utilized in several ways. It can be used to pay back debts that companies may have incurred. It can be used to pay interest for notes that companies may have taken. It can also be used for paying dividends to shareholders. However, the most important approach that organizations should take is to invest this unlocked cash flow into growth or profitability initiatives. This is the approach known as leverage in the financial community, namely creating a multiplier in terms of value creation. Supply chain, procurement and manufacturing professionals have a great tool in the form of working capital optimization to create true economic value for their company's shareholders.

The Outlook


The 2008 survey data on working capital optimization (WCO) showed that for 65 percent of respondents WCO was a high priority at the time. In 2010, 83 percent of companies saw WCO as a high priority. The top driver compelling companies to focus on WCO in 2008 and in 2010 was the pressure by financial stakeholders to improve working capital metrics (reported by 66 percent in 2008 and 60 percent in 2010).  In 2010, however, the shortage of working capital to support basic operations is the number two pressure compared to inventory- and business-expansion-related pressures that were predominant in 2008. This trend is expected to continue in 2011 with working capital optimization remaining a top priority for CFOs and chief supply chain officers alike.