Supply Chain Management - News and Articles What
is Supply Chain Management Best Practice? February 1, 2007 from
Supply Chain Digest – “We all hear a lot of talk about supply chain
and logistics “Best Practices”, including from me. But what are they,
really? Are they truly useful? This column was spawned, in part, from a
panel discussion I moderated more than a year ago on Best Practices. It went in
a direction I don’t think the panelists or the audience expected. By the
end, we were discussing not Best Practices per se, but whether the concept was
really meaningful. Somewhat to my surprise, neither the panelists nor audience,
at least in this case, thought it really was. One consultant on the panel at one
point near the end went so far as to say “Best Practice is baloney.” Now,
in fairness, this was a discussion centered around distribution center operations,
and I think processing in a DC tends to be pretty situation specific, making (perhaps)
the use of Best Practices less clear. To further think through this, we decided
to get the opinions of a number of supply chain and logistics experts. Ralph
Drayer, ex-Chief Logistics Officer at Procter & Gamble and who now runs Supply
Chain Insights, thought I was batty for even questioning the concept of Best Practice:
“Shame on you! Of course there is such a thing as Best Practices,” Ralph
told me. “The fact is that every situation is NOT really that unique, and
believing so only adds to unnecessary complexity, cost and consumer value erosion.” “That's
why the consumer goods to retail industry pulled together under ECR [Efficient
Consumer Response] and the Global Commerce Initiative to develop and publish Industry
Best Practices for common processes," he added. "P&G did the same
thing internally as we globalized our operations. A Best Practice is developed
by a group of expert users who share their knowledge and experience to define
the best method of operating a common process.” There is strong merit
in that perspective, to be sure. If a process is common across a company, then
surely there is a “best way” to do it most of the time within that enterprise.
And if a process is common across businesses generally, it would seem there is
an opportunity for Best Practice – or is that commoditization? Gene
Tyndall, well-known consultant and SC Digest Contributing Editor (and a friend
of Drayer’s) had a somewhat different view: “The term “Best Practices,”
and the relentless pursuit of them, has caused more trouble than benefit. Everyone
believes they need to find them, but then they cannot even define one, much less
adopt it,” he said. “Even if you find one, it will change very soon,
as someone else tops it.” He added: “The trick, when you find
one, is to "adopt and adapt" the practice to your unique situation.
This is what people struggle with. I have argued for years that Dell and Wal-Mart
(and others) do indeed have some, but others cannot adopt and adapt them. High-techs
have struggled to do so, and K-Mart failed miserably. Others just say that their
business models are different, which is a cop-out. He also stressed the
role of metrics: “Best Practices without performance measures, or metrics,
are useless. Just like benchmarks, which without practices or processes are also
useless.” Jim Tompkins of Tompkins Associates, whose company runs a
benchmarking consortium, agreed with Tyndall’s last point, focusing on the
“result” aspect: “A Best Practice is a process that produces the
best benchmark for a specific task," Tompkins said. "So, if the task
being considered is inventory accuracy and one determines that 90% of the companies
like my company, which have a benchmark of 99.8% or higher for inventory accuracy,
utilize cycle counting, then cycle counting would be a best practice for my company.
Furthermore one could look into the specifics of the best practices of cycle counting
to gain more insights into how to best perform cycle counting.” Ed
Marien, well-known to many from his supply chain leadership at the University
of Wisconsin and on-going consulting work, also focused on using benchmarking
and metrics right. “The problem with many Best Practice comparisons is that
they forget the metrics side,” he said. “The problem with many benchmarking
studies is that the focus is upon the metrics, which may not be defined the same
across companies or industry comparisons are made based upon metrics only, without
considering the How To’s.” I think I will make a "Part 2"
of this column in a few weeks, incorporating some of your feedback. Netting it
out here, though, I like the simple way Stephen Craig of transportation consultants
CP Consulting answered when I asked him about whether there was such a thing as
Best Practice. He answered: “I don’t know if there is Best Practice,
but there is clearly Good Practice.” SCDigest Technology Editor Mark
Fralick took a similar tack, and maybe even summed it up best. In working with
clients, he said, “I don’t worry so much about Best Practice as I do
in eliminating Bad Practice.” Now that’s something I think we can all
agree on. 180 View – We often hear the vendors offering “best
practice” to their prospects. This article backs up our long-held belief
what’s good for one company could be a disaster for another. It’s a
great idea to know how others are doing it and compare metrics to benchmarks,
but every company has uniqueness. If nothing else, the people are different with
different motivations, which could have a huge impact on efficiency and effectiveness. Biggest
I.T. Outsourcing Deal in History February 3, 2006 from CIO Today - "A
huge package of outsourcing contracts announced Feb. 2 by General Motors seems
to signal shifting fortunes in the $600 billion-a-year information-technology
services industry. EDS , GM's longtime primary supplier, lost ground, while Hewlett-Packard's
sometimes-overlooked services unit got a big lift. The profile of India's tech
industry rose when GM named one of the country's leading companies, Wipro, as
a tier-one supplier. All told, about $7.5 billion in five-year contracts
were awarded. Another $7.5 billion in contracts are expected to be parceled out
as new projects come up over the next couple of years. EDS, which formerly had
about two-thirds of GM's outsourcing business, still has the biggest share. It
got contracts worth $3.8 billion -- or about half of the business. HP 's contracts
totaled $700 million, and GM called it out as one of the major gainers. IBM got
$500 million in contracts." For the rest of the article, click here. 180
View - If a huge company with no shortage of technical resources decides to outsource,
how long before the majority of companies that don't have adequate techncial resources
do the same? Demand-driven
manufacturing is radically altering how some businesses serve customers January
1, 2005 from CFO.com - "When managers rely on sales forecasts — and lack
real-time point-of-sales and supplier data — they routinely find themselves in
a bind. As one company executive grants: "We sell from stock, and the amount of
that stock is based on historical trends. Not surprisingly, we're often sitting
on too much or too little inventory." The answer? For some, trying to improve
forecasting. Certainly, accurate forecasts are crucial when mapping out large
manufacturing runs and new product designs. But by definition, sales forecasts
are guesses — guesses often shaped by the desire of executives to set audacious
goals and hit out-of-the-box numbers. Even managers at businesses with sophisticated
forecasting systems have run up against the crystal-ball wall... Instead,
managers at FW Murphy, along with executives at a growing number of other companies,
have adopted a different philosophy: shift the focus from forecasting to reacting.
This is no small task. Unlike just-in-time manufacturing — a waste-reduction effort
that typically foists inventory risk onto suppliers — demand-driven manufacturing
requires a tricky integration of complex computer systems all along the cash-conversion
cycle. Point-of-sale data must be funneled into purchase-order systems, which
then trigger procurement programs, which eventually push data into supplier portals.
In a sense, products become bytes of data. Notes Andy Carlson, vice president
of product marketing at business-software maker PeopleSoft Inc.: "Companies are
replacing inventory with information from customers and vendors." The key
point to demand driven systems is "We want to make what's actually selling,
not what we forecast will be selling." Now for the bad news - later in
the article we read "Experts also note that the switch to demand-driven manufacturing
can be expensive. For small to midsize companies, upping the speed and accuracy
of product deliveries requires sizable outlays on ERP software, which often features
customer analytics, purchase-order programs, and fulfillment systems. This is
not only costly (one survey puts the average total cost of ownership of an ERP
installation at $15 million) but also time-consuming." The price tag
seems way out of whack for mid sized companies. ERP installations for mid-sized
companies are typically a fraction of that number. In our experience, a mid size
manufacturing company would more likely spend $300,000 - $400,000 for license
and services. In any event, the article is a good read about where ERP and Supply
Chain Management are heading. Click here
for the article Trends in Supply Chain Management From
Deloitte Touche Tohmatsu - More than 600 companies from North America and Europe
participated in a benchmark study by Deloitte. Findings include that supply chain
activities grow more complex partly because of the need to reduce costs. "To
reduce costs, many companies are being forced to relocate or outsource pieces
of their supply chain...The majority of companies in our survey have moved production
to lower-cost locations (57%), closed production facilities burdened with excess
capacity (59%), and outsourced some manufacturing and distribution activities
(67% and 58%, respectively)...In fact, many manufacturers no longer make things
in their home markets. Our study found that 15% of North American firms and 29%
of European companies today do not manufacture products in their home markets".
For this article and 4 others by Deloitte, click
here. RFID (Radio Frequency Identification) - Report Finds That
Only A Fraction Of Suppliers Will Meet Wal-Mart's January 2005 Mandate
March 30, 2004 from Forrester Research - "There is no business case for most
suppliers in the short term, says Forrester Research...The technology is not ready,
and there is a lack of deep expertise in the industry to help suppliers implement
RFID... Tags currently make up more than 80 percent of a supplier's cost. Based
on today's tag production processes and projected volumes, Forrester believes
that suppliers should not build a near-term business case on any price lower than
$0.40 per tag." For the article, click
here. Wal-Mart mandates radio frequency identification (RFID)
November 1, 2003, CFO Magazine - Despite problems with the technology, lack of
standards and cost, Wal-Mart suppliers will be compelled to implement RFID. RFID
provides precise information about the whereabouts of merchandise as it moves
along a company's supply chain. You don't need to unpack packages or pallets to
know what's inside. It's all about efficiency and reducing inventory levels. For
the article, click
here. Getting Supply Chain Software Right According
to an article that appeared in The McKinsey Quarterly, 2003 Number 1 - "Software
on its own can’t fix basic shortcomings in supply chain management; in fact, it
can make things worse. The real benefit comes from repairing broken business processes,
and companies that tackle them before installing the software can reduce inventory
levels and predict demand more accurately. This effort alone can increase revenues.
Add the software, and the improvements are accelerated and sustained." The
article is based on a study of high-tech companies over a 6 year period and "found
that, on average, inventory turned faster for companies that invested in supply
chain software than for those that didn’t. The top third of companies that did
install it performed, on average, 100 percent better than the lagging third. More
surprising, though, was another finding: companies that hadn’t invested in the
software also outperformed the lagging third, and some even improved their turn
rate". The authors of the article give practical advice in successfully implementing
Supply Chain Management - "fix only important broken processes, promise only
what you can deliver, improve training, and make people accountable." These
guiding principles apply to an implementation of any new software. For the article,
click
here. Dell jumps into Point of Sale January 21, 2003
— From AMR Research we read that "Every once in a while, something comes
along that causes you to shake your head and say, “Wow, this changes everything.”
An entire vendor or software landscape is altered just like that. The price/performance
curve is irrevocably changed. Dell’s retail division is giving us just such a
head-shaking moment." But according to a Dell sales representative, it won't
be available in Canada for another 6-12 months. For a link to the AMR research
article, click
here and for a link to a Dell press release, click
here. Radio Frequency Identification (RFID) tags may revolutionize
supply-chain operations January 14, 2003 — From CFO Magazine, "A
report released in October 2002 by AMR Research Inc. says early adopters of RFID
tags have cut supply-chain costs by 3 to 5 percent and have achieved 2 to 7 percent
increases in revenue thanks to the better inventory visibility the tags provide."
And "RFID tags have made headlines recently because the cost of producing
them has plummeted to as little as 15 cents apiece for some varieties. At that
price, tagging individual items, whether parts or finished products, becomes viable
for many companies. The tags are superior to bar-code labels because they don't
require a line of sight between laser and label: contents within a crate can be
"read" as it passes a scanner, even if everything within the box is
fully packaged and each item is unique." For a link to the CFOMagazine
article, click
here | 
