Supply Chain Dynamics: What if… We Could Think Differently

Supply chain innovation means taking full advantage of best of breed technology and data algorithms that empower intelligent decision-making. The exchange of information, from inside and outside the organization, must be real time, autonomous and continuous.

Previously, I shared an article with insights into the integration of advanced data analytics in supply chain planning. Last week I had the opportunity to participate in a discussion on this topic at the 13th Annual Supply Chain and Logistics Summit. I also attended presentations from Kellogg, Johnson & Johnson and Colgate Palmolive; companies recognized as leaders in supply chain innovation and part of this year’s Gartner Supply Chain Top 25 report. Each speaker mentioned the importance of real time data integration and end-to-end visibility, and gave examples of how this is currently achieved in their respective organizations.

For more than 98% of global companies, implementing a data strategy and using advanced analytics, especially within the supply chain, is a challenge. Not all companies have the talent or financial resources to undertake this type of project. Investments in data structures, analytics and employee training are costly. Knowledge gains from this information are still fragmented between functional silos and across supply chain networks, creating a lack of value and low ROI.

What if we think differently about supply chain data, network collaboration and knowledge sharing?

1. What if we brought everyone to the planning table?

The Sales and Operations planning process (S&OP) has taken a leading role in supply chain design. S&OP is a great way to connect previously detached processes and prepare a better forecast. This process often falls short because we do invite all departments involved to the planning discussion.

In the consumer-packaged goods industry the cost of logistics accounts on average for 7% of revenues. Logistics partners and internal stakeholders are not part of the S&OP process. This creates a discrepancy in understanding the total cost to serve, and can lead to major challenges in meeting demand and preventing stock-outs at retail stores. Unforeseen trouble in the transportation and logistics network can also hurt brand image. When we involve all actors in the planning process and use data from all nodes within the network we are able to prepare more accurate forecasting models.

Speed and agility are the most important drivers in meeting customer demand. As supply chain executives we must take full advantage of all the knowledge available in the data and capitalize on our partner’s core competencies. This is the model of future intelligent supply chains.

2. What if we removed longstanding communication barriers?

Functional, siloed organizational structures are standard. A chain of command exists in every organization, each department has specific KPIs, and actors in a supply network have individual vested interests. The ultimate goal is to drive down costs, extend payables periods to release working capital and increase gross margin, all without regard for how this affects the overall system.

This is a direct result of the lack of communication and visibility within organizational departments, and throughout the entire supply chain.

What if we used data knowledge to create an unprecedented alignment of all stakeholders, with common KPIs across the entire network?

If we did this, we could create truly agile supply chains with increased flexibility and visibility. This network could offer better response to omni-channel customer demands. We could lower overall costs and risk by incentivizing shared inventory, shared operations and gain complete chain visibility.

Ultimately, we would create real time automated information sharing networks and continuous supply chain optimization. Participating in such a system creates value for all actors; it promotes proactive policies for risk prevention and creates cognitive systems that learn over time.

3. What if we built supply chains with end customers in mind?

A recent study from Terra Technology finds that for most companies 10% of items generate 75% of sales, and that the bottom 50% creates a long tail contributing to only 1% of sales. The costs associated with planning, producing, moving, storing, marketing and shelving all of all products affect the overall bottom line.

Only 18% of suppliers receive point of sale data from retail partners. Without SKU level data from downstream partners in the retail sector it is impossible for upstream actors to plan accordingly. Furthermore, the retail sector continues to charge upstream suppliers for these insights. New research from GT Nexus finds that around the world 81% of adults have tried to purchase a product that was out of stock at a brick and mortar store. The study also shows that this leads consumers to become dissatisfied with the brand, 1/3 of shoppers blame the retailer and 65% of them shop for the product online from a competitor.

Unlike excess inventory, we cannot measure the lost sales due to inventory stock outs. We must rethink the design of our supply chains, the sharing of knowledge within organizations and networks to gain visibility and become truly agile. Lack of collaboration is an archaic practice in supply chain management and will serve to further distinguish leaders from laggards.

If we really planned the supply chain with the end customer in mind we could significantly lessen the number of stock outs. E-commerce and click-and-collect models apply new pressures on global supply chains. We can no longer use the same fragmented processes, information and technology to meet demand and enhance customer experience.

The future of competition is no longer business vs. business, but supply chain vs. supply chain. We must empower our supply chains to sense system changes and adapt accordingly, while increasing collaboration within our global networks.  Our ability to think differently about managing supply chain processes will lead to the development of truly intelligent organizations.

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Holiday Season is Fast Approaching, Compete with Amazon Without Free Shipping

If an organizational goal is to compete with Amazon at e-commerce you’re likely setting your company up for failure, it also underlines a business strategy that lacks an understanding in the power of their brand and market niche. However, this should not discourage any company or brand from striving to improve on their e-commerce metrics, operational or otherwise. In the past month we’ve seen Amazon force brand giant Nike to become part of their platform, after years of resistance. This is because Amazon is only as successful as the power, and quality, of the brands in which it transacts.

Nike, along with many other strong brands, have concerns about this partnership: counterfeit products, Amazon cannibalizing customers from the Nike web storefront platform, and eventually Amazon private label production of Nike style footwear. These are all valid concerns, and when a longstanding leader like Nike is reluctant, enterprise and SMB’s should all take notice. Amazon focuses on three main pillars of service: price- right price, not always the lowest; selection- all the selection; and convenience- best way for the customer to get to the products; however, they cannot control a brand’s connection to the customer and will never have the ability to build strong relationships across such a large and diverse network.

  1. Take Advantage of a Diverse Logistics Network

 

Amazon does logistics right; there’s no denying that the company has become a leader in supply chain optimization and operational efficiency. One reason Amazon is so successful is that they have mastered a flexible and wide logistics network; that the company primarily runs with its own employees. They also have numerous vendors who service them through Drop Ship programs therefore expanding their outreach. Various platforms exist that connect organizations that need warehousing space that have organizations with extra space in over 45 markets across North America. Using these types of shared space networks will empower businesses to proactively plan for peak times, better understand their marketplace and place the right assortment of product closer to the end consumer. By placing the product closer to the customer companies can offer free shipping without detrimental hits to their bottom line; but more importantly they can offer fast delivery and further delight the customer.

 

  1. Develop Deep, Collaborative Relationships with Suppliers

 

In total Amazon sells over 480 million products just in the USA, this is an 8% growth from December 2016; the company is also shipping a large portion of their assortment to 180 countries around the world. Their Achilles heel is forecasting! Brands know their product, assortment and suppliers better than Amazon. This creates increased risk in the Amazon supply chain which is why there is an increased effort to start sourcing most of their fast moving ASIN (Amazon Standard Identification Number) directly from vendor factories. Their ultimate desire, as we can see in the apparel industry, is to move their supply chain directly to the OEM (Original Equipment Manufacturer).

Build trust with suppliers, create collaborative forecasting program and share in raw materials risk. Provide manufacturers and factories with visibility into your sales and operations planning data and give them a stake in the game.

 

  1. Brand and Assortment

New product launches are the best opportunity for brands to connect or reconnect to customers, educate and listen to their feedback. With a vast and global supply chain Amazon cannot understand all nuances of their vendor’s supply planning and network risk. As such, the company is searching to increase the number of drop ship partners across the country. Unlike most retailers, Amazon does not accept a fee for this program, however they pitch the service as the brand’s opportunity to place the product in the customer’s hands faster as it does not have to circulate through the Amazon network.

For some legacy products this makes sense, but for newly released products brands should be very weary of placing these into the Amazon supply chain. The optimal approach for new products is to limit and control the supply chain as much as possible, and back this up with enough marketing dollars that the needed visibility exists and sales take off without Amazon.

  1. Shipping

Shipping does not have to be free, however it does have to be hassle free on the outbound as well as reverse logistics. Analyzing Amazon’s SEC filings for 2016, the company calculated a net landed cost for products at their customer’s doors of $7.2B.

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According to Amazon’s CFO, Brian Olsavsky, the total spent on shipping increased by 30% YoY driven by the fact that more than 50 milling items on their catalog are now eligible for free two day shipping, which has also increased over 70% from the previous year. As a percentage of the total company revenue the shipping costs were reported at 53.3% a the end of 2016; this would cripple most other businesses.

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Provide customers with realistic expectations, partner with the best last mile delivery providers and keep a pulse on the average rate in the market. Exceed expectations and impress the customer by anticipating post-delivery needs, do not put the business at risk to compete with Amazon’s free shipping policy.

The best thing about not being Amazon is that your customer service team can excel in understanding your brand and product and speak to the customer from experience.  Brands can listen, receive feedback, and act on their customer’s opinions. Amazon invests in improved customer service, but without the brand and product knowledge their service is lacking expertise and revolves around product delivery and directing the customer back to the original manufacturer.

Excellent customer service, coupled with strategic management of your supply chain will set you up for a successful holiday season and a strong brand in the future. Amazon will continue to grow. Being small, nimble, innovative and true to the customer will help true brands survive and strive.

Supply chain disruption – 3 lessons learned from past trends

Supply chain disruptions are business disruptions. There is no portion of the business that is isolated from interruptions upstream or downstream in the supply chain. As SCM become more strategic in business planning, we gain a deeper understanding of how challenges and opportunities in the supply chain can impact the overall performance of the business.

1. You are only as strong as your partners are!

Supply chain disruptions are rarely under the control of business operations or supply chain executives. Oftentimes we build partnerships to help us plan for the future and put our trust in companies to support our supply chain goals.

“Freight is the heart of supply chain management. Without the ability to quickly and effectively move merchandise around the globe, the business’ ability to succeed is limited”

Global companies agree to large ocean freight contracts to stabilize yearly transportation costs, and have a baseline budget for their expected TEU transportation.

Most SMBs will likely use an NVOCC for this service; this means that a 3rd party forwarder handles all the company’s documentation and freight arrangements door-to-door. Such a practice puts SMBs at a disadvantage which became very clear during the demise of Hanjin Shipping Line. Without their knowledge, many U.S. businesses found their merchandise on Hanjin vessels due to decisions made by their NVOCC. According to SeaIntel, at the time that Hanjin filed for bankruptcy protection, the company had 43 vessels in transit with 540,000 TEU of cargo on board.

Given the time of year, the merchandise on board of the ships was planned inventory to service the U.S. and other global consumers during the 2016 holiday season. One way in which larger businesses can protect themselves from such disruption is to take this decision in-house and assign a responsible party to manage their logistics network. In this case, companies can go directly to the shipping line and negotiate long term contracts at fixed rates. Companies should fully research the shipping lines they contract with and their terms of service. Generally, there is a high TEU requirement for competitive rates and this can often backfire if the logistics team chooses a poor partner.

2. Useful, accurate predictive analytics are key 

Data from the closing of 2016 shows that retailers had increased faith in consumer spending during the holiday season, and accordingly, increased inventory holdings in the last quarter. The National Retail Federation states that the year-end increase in import volume came as a surprise to many in the retail industry. The NFR raised its forecast to a 7% gain at major U.S. ports, from 3.2% in an earlier report, while November imports rose 11.2%, beating the prediction for a 3.6% year-over-year gain.

For manufacturers and wholesalers, customer trends often include paying close attention to the retail channel as well. Very aggressive sales and inventory management trends from Amazon, and other e-commerce retailers, created market disruptions driving many brick and mortar shops out of business. Their aggressive practices continue to take markets by surprise.

“Staying ahead of customer trend curve-balls requires alignment and communication”

At the end of 2015, days before Black Friday, Amazon reconstructed their inventory management strategy, significantly shortening their days of inventory on hand. This was a strategic move enabling the company to release cash at the end of the year, and force their vendors to enter a vendor-managed inventory system within a few weeks.

Amazon, Alibaba, and Ebay changed the way end consumers search for products and make purchases. Companies have to be prepared for last minute decision-making and must have flexibility in their supply chain to deal with spikes in demand or disruptions upstream.

Understanding shifting consumer behaviors is not a one-time effort, and must be ongoing. Successful organizations are proactive in learning about their customers’ needs and prepare to meet them ahead of time. It is imperative that this effort be shared across the organization to connect knowledge from the sales team to the supply chain.

3. Your supply chain must be flexible enough to adapt

For operations professionals, the constant goal is to continuously improve on previous processes and recognize tangible cost savings. In business, however, we cannot operate in silos. Our planning and preparation can only solve for a certain percentage of all the processes covered globally. To prepare for events such as the disruptions listed above, a company’s supply chain must be flexible and the managing team must have the tools to make last-minute well-informed decisions.  A flexible supply chain should be able to detect and respond to issues and opportunities in the short and long-term with the best choices for the business.

Understanding and preparing for operational challenges is crucial to growing a successful global brand. 

Strategic planning can make the difference between hitting the mark on profitability and customer service and failing to compete in the global marketplace. Understanding the sources of disruption in a company’s supply chain makes the operations team indispensable in drafting future growth and driving strategy to support this.

This article first appeared on TradeReady the Blog for International Trade Experts.

SOLAS

Maritime safety for workers and marine life is important. Businesses have a large footprint on the environment and ocean transportation still lies at the heart of global organizations.

New regulations on weight declaration is meant to create more transparency in the transportation and logistics industry.

How will this change the current structure of the logistics market? We have seen major consolidation and M&A in the market in the past three years, more regulation will help weed out the remaining week links and leave maybe five major shipping lines ruling the oceans.

How will SOLAS affect wholesale businesses, small and large distributors, and will this regulation also create a urgent need for upgrades at manufacturing facilities around the world?

General – SOLAS Container Weight Verification 1604

Coming to a port near you July 1st, 2016. Stay informed!

Building Sustainable Supply Chains: Procurement

Screen Shot 2015-07-30 at 11.52.42Imagine the complex the life-cycle of a simple white t-shirt and the impact it has on the communities along its supply chain. From the farmers growing the cotton, the factory workers weaving the fabric, cutting and sowing of the end product, along with the transportation of materials at various stages , these processes have tremendous impact on the environment and the finite natural resources we depend on. Organizations have numerous opportunities to improve sustainable practices along the supply chain from product design, to procurement, logistics, sales and reverse logistics.

The apparel industry offers multiple examples of opportunities to improve overall practices, lower impact and grow as a market leader. Companies such as Reformation and Levi Strauss, among few, have proven that being sustainable is a good business and profit model. The apparel industry has not changed its procurement and manufacturing practices for decades, as exemplified by the deadly disaster at Triangle Shirtwaist Factory in New York in 1911, and more recently we’ve seen similar stories happening in developing nations . Buyers constantly push for lower costs, which continues to shift manufacturing to developing nations. Too often we hear the horror stories of factories burning down in Bangladesh or Pakistan, and the number of avoidable deaths.

Procurement strategies lie at the heart of international supply chains and offer an array of opportunities to improve on sustainability practices while creating value. Sustainable procurement practices are directly linked to stable supplier relations, efficiency, transparency and accountability. Companies that implement innovative sustainable procurement strategies see the immediate top and bottom line benefits; improved quality of goods and services procured, and increased trust. Below are 3 top procurement strategies that international organizations can depend on to build a more sustainable supply chain:

  1. Engage your suppliers & collaborate

Meet your suppliers, visit their suppliers and conduct performance assessments to identify high-risk and non-compliant suppliers. Ask to meet the producers at the bottom of the pyramid and work closely to ensure that value is being built throughout the supply chain. Organizations should want to know the total cost and impact of sold goods, by working closely with downstream supplies they can better measure these indicators.

Rapidly changing weather patterns, like the current El Nino , significantly affect international supply chains, particularly for food and apparel. Working closely with suppliers allows companies to formulate strategies to protect their production during these times. Furthermore, having the information of all that is required to deliver the end product also allows organizations to measure and mitigate their impact on local societies and the environment.

  1. Partner with NGOs & be creative

The United Nations Capital Development Fund (UNCDF) supports programs that aim at reducing poverty through inclusive and equitable local development. A huge pillar of this outreach is the program’s ability to bridge the gap between the private and public sectors. The program works closely with international organizations to develop stable procurement programs in indigenous localities from where they can source goods directly from small producers. Organizations such as Oxfam or The Fairtrade Foundation work closely with members of developing communities around the world, understand how to position and operate in those environments, and can prove to be valuable partners when diversifying international supply chains. Companies should also take advantage of the data these NGOs have gathered from various locations to help guide them when forming supplier partnerships. Partnerships can stretch across the globe and aim to reach multiple communities in need, or stay local and manage the impact of programs in their own communities.

Some organizations have already seen the proven benefits from similar partnerships. Reformation is anScreen Shot 2015-07-29 at 15.52.48 apparel company headquartered in Los Angeles, California. The company proudly boasts on its website “We make killer clothes that don’t kill the environment” and they have the facility and data to back that up. But efforts do not stop there, they have recently launched a program through which they actually help people recycle their old, used and unwanted clothes by offering a free shipping service to their warehouse for such items. The items received are sorted to determine if they can be reused or recycled. If they determine that the materials are useful than that becomes part of their production.

  1. Take a 360 view of supply chain operations & use data

New data and integrated business management systems can help companies have better transparency in their supply chains. Competitive advantage lies in a company’s ability to break out of silo management styles and bring members from across the organization to supply chain task teams. For years marketing managers have made great use of customer related data, from structured sources such as POS systems, and other types of transactional information. Today, marketing departments are at the forefront of big-data management by blending traditional structured data with unstructured sources such as social media, email or videos.

Data use in supply chain is still at an infant stage, managers are still only making use of transactional data, often looking at inventory, order fulfillment and forecasted demand. Seldom do companies formulate a broad data strategy where all departments are utilizing the same knowledge to ensure that their goals are aligned with those of the overall organization.

Why is this important?

  1. The price of raw materials is volatile due to environmental degradation and increased competition. This volatility creates uncertainty in supply chains, which can have significant cost implications on inventory and operations.
  2. Studies show that 60% of consumers a company’s environmental record, sourcing and employment policies affect their purchasing decision. Building sustainable practices into supply chain strategy can help strengthen stakeholder relations.
  3. Supply chains are exposed to multiple risks and stronger supplier relations help companies develop strategies to mitigate risk and make forecasting projections that will meet changing customer demand.

Supply Chain or Value Chain?

Michael Porter first addressed the notion of value chains in his famous business writing Competitive Strategy. He explains the concept as a set of business processes operating within a firm that together provide increased value to customers. This value building set of process operations incorporates information and activities connecting a company’s supply side with its demand side, and thus covering raw materials, inbound logistics, production process, marketing, sales and all other aspect of a diverse supply chain. Following this explanation, companies whose values lie in corporate social responsibility and sustainable operations should think of their supply chain as a value building mechanism. To do this organizations must shift focus from the customer centrist approach to a more holistic one that incorporates the well-being of people, environment and resources in countries where they have a licenses to operate.

From the perspective of the organization the concept of value is subjective, but there are various benchmarks that help companies measure and quantify efforts. As an example, the textile industry is one of the most chemically dependent industries on earth and the #2 polluter of clean water.  As we have seen in recent years, clean water is becoming a coveted treasure as drought and bad business practices continue to deplete the last remaining clean water sources. In countries like Pakistan, India and China, where the textile industry is booming, we can notice the most deplorable water situations. This is not sustainable for the local societies, and it builds instability up the supply chain creating a very risky environment for large multinationals.

New technologies are available to help multinationals gather information from the bottom of the supply chain such as water use in cotton growing, energy use in knitting and weaving, or chemicals used in dying and cleaning. At the moment these are measured at factory level, and are rarely shared with buyers. Such practices allow bad practices to continue unnoticed, and the supply chain in weakened by unsustainable practices. Multinational corporations cannot make proper forecasting decisions when they depend solely on production from unsustainable suppliers; their supply risk increases as they choose to ignore these practices.

Furthermore, the public is keeping a much closer eye on the business practices of large organizations. Take for example the multiple scandals that Nike has been a part of over the years. From unsafe working environments, to child labor their stock prices have suffered one blow after another. This has weakened their buying and negotiating power to suppliers and hurt their image to customers around the world. The public relations department tried to defend the company by placing the blame on suppliers’ business practices, but in the eyes of Nike customers the company should have assumed responsibility for all practices in their supply chain.

So is value building through improved business processes a concept that should still be questioned, or is it the norm for industry leaders? Organizations must find ways of monitoring materials and information flows in the supply chain. A resilient supply chain is one from which all actors benefit and want to be a part of for an extended period of time. This ideal supply chain is built on best practices learned over years of exchanging information with customers and suppliers in a transparent manner; this IS building value through operating processes. Companies can implement best practices offered by organizations such as the Global Impact Investing Rating System or the Global Reporting Initiative to ensure the maximum amount of value is drawn from all business processes for all actors’ part of the supply chain.

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