D Murali

Symphony in the supply chain

D. Murali | Updated on September 11, 2011

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Delays in the supply chain end up benefiting companies.



Postponement may sound negative, but in the context of supply chain, it is about delayed differentiation, as explained by Chris Robeson in a chapter on ‘the innovative retail supply chain,' in The Shipping Point: The rise of China and the future of retail supply chain management, of Peter J. Levesque (www.wiley.com).

“Postponement serves to reduce marketing risk, since every differentiation that makes a product more suitable for a specified segment of the market makes it less suitable for other segments.” Also, postponement can reduce the risk of product obsolescence, and minimise inventory risks associated with variability in demand.

Let customers customise

The book mentions Apple Inc., which allows users to utilise the web or Apple stores to order iPods in desired colours and capacity. ”

Another example is how Hewlett-Packard (HP) distributed its printers in the European market. Back in the 1990s, printers manufactured in Canada were distributed to worldwide markets with lead times to European markets via ocean transportation approximating one month, the author narrates. “The lead time required that significant safety stock be held in the supply chain to ensure service levels by market.” So, what did HP do? It redesigned the supply chain to manufacture the base printer in its generic form and shipped aggregate volumes to centralised European distribution locations, as the chapter informs. “Late-stage differentiation was then done in-region by adding market-specific power supply and instruction manuals. The approach allowed HP to reduce printer inventories by an estimated 18 per cent while simultaneously maintaining customer service levels with rapid late-stage differentiation.”

Look out the window

Levesque's essay on the ‘role of people and technology in dynamic supply chains' may also interest techies. He opens with a cautionary tale about the false sense of security created by an airplane's advanced technologies. “On a sunny day over North Texas two airplanes were involved in a mid-air collision, killing both pilots. At the ensuing press conference the NTSB crash investigator was asked how two state-of-the-art airplanes, each containing the latest in radar and crash-avoidance technology could possibly collide, on a day without a cloud in the sky.” What was the investigator's reply? “Because every so often you still need to look out the window.”

The moral of the story, as the author highlights, is that the best information technology in the world cannot replace the human attributes of situational awareness and common sense. Levesque mentions the frustration caused by airline ticket reservation system when you want to change something. “The airline agent enters an endless series of keystrokes (with a few phone calls added in), only to advise at the end of the process that the ticket change is not possible. When asked why not, the answer from the customer service agent is usually, ‘because that's what the system is telling me.'”

Synthesise, rather than analyse

To ensure that something similar does not happen in logistics computer systems, the author underlines the importance of having the right people on board. He urges LSPs (logistics service providers) to begin focusing on the recruitment of people who have the analytical skills to interpret systems data, as well as the creative and artistic capability necessary to recognise patterns, anticipate trends, and create solutions on the spot.

The chapter has an apt quote of Daniel Pink, the author of A Whole New Mind: Why right brainers will rule the future, forecasting the need for people who can create ‘symphony' in their daily work, which is ‘the ability to put together the pieces. It is the capacity to synthesise rather than analyse; to see relationships between seemingly unrelated fields; to detect broad patterns rather than to deliver specific answer; and to invent something new by combining elements nobody else thought to pair.'



Break down functional silos



Levesque shines light on an oft-ignored area, corporate structure, and avers that how information is shared, analysed and acted upon depends in large part on the organisational structure of the firm. To be effective in the demand-driven marketplace, he counsels companies to break down functional silos and create an environment that enables rapid processing of vast amounts of information into actionable intelligence. “Retailers in the years ahead will need to quickly understand and anticipate individual consumer patterns and trends as they develop. To do this, companies will need to re-evaluate how they gather, analyse, and disseminate key market and supply chain data across the organisation.”

A telling analogy the author offers is of the situation faced by the US intelligence agencies prior to September 11, 2011. “The 9/11 Commission Report highlighted the fact that the FBI and the CIA had a significant amount of data that pointed toward an impending attack. What they lacked was the ability to aggregate and analyse all the data across agencies making it impossible for anyone to connect the dots before it was too late.”

The roadblock with logistics systems continues to be their inability to integrate with each other in order to present a single view of what is happening across the entire supply chain, the author rues. As a positive example, he speaks of Walmart for its pioneering work in aggregating business data and linking market demand with real-time SCM. “In 1991, Walmart developed a private extranet called Retail Link, which has since become the largest civilian database in the world. The key to the system is that they share it with their suppliers who can then plan for their own stock replenishment and production runs on behalf of Walmart.”

To many, it may come as surprise that these powerful systems give Walmart the ability to merge weather data with store demand. “In one example, Walmart's historical data showed that prior to a hurricane, beer was the top-selling item and strawberry pop-tarts sold at seven times their normal rate.” Reasons Levesque that consumer data like this help Walmart achieve $401 billion of revenue in 2009 – which is $46 million of revenue an hour, 24 hours a day, 365 days a year.

A compelling read for supply chain professionals who aim for continual efficiencies.

Tailpiece

“We created a computer game for our directors to help visualise how the company was taking one step forward and two, backward.”

“Quite instructive, it should have been?”

“Only, they were complaining that we had to climb down almost six floors as the game progressed!”



Published on September 11, 2011

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