A team from Tompkins International was just at the CeMAT Asia event in Shanghai to talk with people who lead material handling operations and technology for companies in China. The show was a big success, and the team did a great job!

Denny McKnight, a partner with Tompkins International, shared some thoughts in this interview from the show, and you can also see some photos taken at CeMAT, if you’re interested.

Denny presented some valuable information to attendees on the topic of order fulfillment technologies in China for expanding markets. And because the China market is exploding these days, I thought others might also find this information to be beneficial.

First off, do you know what DC technology is available in China and how is it used? There are four categories you should be familiar with:

  •   Information Technology Systems:

For the most part, legacy or Enterprise Resource Planning (ERP) systems are prevalent in the warehouse and distribution centers of China. However, work goals and tasks are not always managed as efficiently as they could be, and manual entry of data is typical.

  •   Storage Systems:

A wide range of technology is at work here, and typically the right technology is being used for the right operation; however, logistics can be an issue as there is a mis-match between storage capacity and the use of industrial trucks and their capacities.

  •   Order Fulfillment:

This represents a major area for great improvement, and ultimately the cost savings that come with these improvements. There are too many product touches during fulfillment operations in China, and paper-based picking is widely used.

  •   3PL Usage:

Contracts with 3PLs in China are for short durations, and the use of higher technology solutions for 3PLs is too expensive for most to take advantage of as yet.

So, there’s certainly a lot of opportunity for companies moving operations into China as DC technology throughout supply chains becomes further established there. More useful information about China can be found in this PDF of the presentation from the event

Does your company have a China strategy? What information can you add to what we know about DC operations in China?

GoGoGo!

Jim

Wow, how does that old saying go again – the one about being “careful what you wish for”?

This is what I have been thinking lately on the topic of supply chain network optimization. I did my first network optimization project 32 years ago when American Motors (AMC) asked us to model their aftermarket supply chain design and network. I really saw the value in determining the numbers and the locations of distribution facilities by evaluating the trade-offs between transportation costs, inventory costs and distribution center costs.

As such, I worked very hard to get companies to take a more rigorous view of their network design, but I was often rejected. I really wished that companies would take a more methodical approach to their network optimization goals.

Well, this is where I should have been more careful, because this has come true, and now I have mixed feelings.  Why? Because I see many companies jumping on the network optimization bandwagon without really having their acts together.

Here are the five most significant problems I see with supply chain network optimization today:

1.    Project vs. Process: Continuing the above AMC story, over the next 25 years, this aftermarket “project”  was repeated many times as AMC merged automotive supply chains with Jeep, then Renault, then Chrysler, then Daimler and then away from Daimler. I then learned that supply chain network optimization is not a project, but a process. I strongly believe that supply chain network optimization needs to be an ongoing process as a company evolves. As sourcing is changed, M&A takes place, markets are changed, transportation cost are changed, etc., the network model should be rerun to fully comprehend the evolution of the network over time.

2.    Strategy Before Network: We see companies pursuing network optimization without being able to articulate the strategy of the firm going forward. Please! The strategy is the starting place, and it is from this strategy that the network will evolve. If there is no strategy, then a valid network optimization process cannot be pursued.

3.    Drowning in Data: The starting point for all network optimization processes is an understanding of the requirements of what flows occur in your supply chain. These flows need to be a composite of what has happened in the past, adjusted for the strategy going forward. Point #2 addressed the necessity of understanding the strategy, so no need to repeat that here. The point is: do we really understand what has happened in the past, and what should have happened in the past?

This is more then data manipulation; it is the true understanding of the historical requirements of your supply chain network. In addition, companies need to forecast what will happen in the future with supply chain demand. So, it is important to look behind and ahead of you.

4.    Costs Are Critical: I have seen network modeling take place with: incorrect assumptions on transportation costs (they are not linear with distance); with distribution center costs (have you looked at the best manual operation, mechanized operation and automated operations?); inventory levels across the network (have we looked at inventory stratification, hub and spoke, etc?); and lastly, with inventory carrying costs (which can vary very significantly across the network). And let’s not forget an often neglected part of supply chain costs -  inbound often starts at the ports-of-entry with inventory and service time costs incurred there.

5.    Common Sense Not Common: I have seen some silly RFPs come across my desk in the last few months. All of these were requests for a supply chain network optimization “project,” when in fact there was no real need to model the network. What was needed was to answer some basic questions with respect to adding a China Hub, adding a West Coast deconsolidation center, adding one or two LSPs to augment the current network, adding additional pool points to a transportation network, and so on.

In other words, what is needed is common sense. Are the ideal savings that could come from an “optimal” network sufficient to pay for leaving behind millions of dollars of investment in the current network, sufficient to pay for the costs of employee displacement, sufficient to pay for the fixed costs of owned facilities? Too often, I see companies drastically simplify network alternatives to the point of having only a handful left to consider.

Furthermore, there seems to be a total lack of understanding as to what modeling can do in the context of network optimization. Business leaders often think that they can gather some data and throw it into a model and the magic “optimal solution” falls out. Not so – it requires a lot of work outside the model, along with an iterative process that builds on what is learned from each model run.

The good news is that companies are thinking about their supply chain network. The bad news they are making the above five mistakes, and so the results of these efforts are often of little value.

My wish for a greater focus on supply chain network optimization has been granted. But let’s not throw the benefits of this work down the drain by failing to ask the right questions and consider the best alternatives.

What has your company been doing lately with networking optimization? Is it working or is it just wishful thinking?

GoGoGo!

Jim


More Resources

Case Study: Distribution Network Analysis for Prestolite Electric

White Paper: Designing a Distribution Network to Address Today’s Challenges

Distribution Network Design Services

Leaves are falling and the air is crisp (and so are the apples!). Doesn’t this time of year always invite change? There are changes in our routines, changes in the way we dress, and changes in our thinking as we prepare for the winter months ahead.

In my general discussions with business professionals, I have noticed that there also seem to be changes in the air for business strategy. A new approach is needed to keep the blood flowing. In some instances, executives have cut costs, cut payroll, and cut excitement out of their business day.  They crave positive action.

The new buzz word is growth.  Companies in some industries have gone out of business or decreased their services greatly.  And this creates opportunities for those who want to grow their business in an economic downturn, just as it is coming back up. Now is the time!

There are several options to determine the best potential for growth through strategic market planning.  The best way to start is to take all of those thoughts in your head and write them on paper.  “I want to sell my product into Asia,” or “I want to offer my service into different vertical markets,” or “I want to buy this competitor.”

The potential growth strategies are endless, and therefore the sky should be the limit in making a laundry list of growth ideas.

Once the opportunities have been identified, they need to be quantified.  Key questions must be answered: How much revenue will this strategy produce? Better yet: How much will this add to the bottom line?  How will this affect our current supply chain strategy?

Steve Ganster, Managing Director in our Asia office, and I have had several conversations on growth given current market conditions. We invite you to discuss how you have turned your company into a win-win value proposition and moved forward during the downturn.

What are your plans for 2011?  What are your plans for growth?  I would love to chat about ideas to make next year bigger and brighter. The future should be so bright … you have to wear shades this winter.

GOGOGO!

Jim

More Resources

Resources for Specific Industries
Mergers and Acquisitions Resources

Photo Credit: Memotions

The world's cell phone users are watching as a big transition takes place: Cell networks are moving from 3G to the new 4G, and users are starting to make the transition. It won't be long until the next big development in network connectivity is announced.

But what do cell service providers do with all the old 3G equipment and technology used to provide the old 3G access? Much of it must be de-manufactured, as no one else wants the old technology.

This is just one example of the e-waste issue that is becoming a hot topic. As technological progress excels, more and more discarded e-waste is going to landfills or being shipped to developing countries. This National Geographic article is an excellent read for understanding the hazards that e-waste creates for people and for the environment.

Having worked in supply chain for many years (read “decades”), I have a keen understanding of the reverse logistics challenges that organizations face on a regular basis – especially in dealing with final disposition of products.

The 3G to 4G network change is just one example of the growing e-waste issue, as the most powerful PCs being produced right this moment will be obsolete incredibly fast. And today, cell phones themselves are changed so often that it’s almost as if they were fashion accessories.

There are already some regulations being made in response to the issue, such as states requiring retailers to accept customers' old cell phones for recycling. But the really exciting news is that technology manufacturers are also responding to the problem themselves by creating their own internal regulations to handle e-waste before any official regulations are even created.

In the United States, a number of companies take e-waste and recycle it into materials that can be re-sold, keeping the lead, mercury, arsenic and other hazardous substances out of the soil and water. However, oftentimes, companies like this are only able to operate regionally. The cost of transporting e-waste from its origin point to a sorting/processing facility is usually higher than the profits that can be gained from de-manufacturing.

These many small companies create opportunity for a business to merge with or acquire a number of these smaller operations to create something large-scale. This is just one possible business opportunity that this emerging e-waste issue could create. By moving these smaller operations to a more large-scale effort, more recycling and reusing can take place as a larger operation can solve the problem of high transportation costs.

For the most part, as we consume new technology and dump the old, we have been able to apply a “out of sight, out of mind” philosophy to the problem.

But with more rapid technological advancement (which shows no sign of slowing) the problem will continue to grow, potentially harming the environment and human health. Using innovation in business to create a response to the problem that helps make high technology sustainable will be a key factor in solving this global issue.

GoGoGo!
Jim

Resources

Greening the Supply Chain and Sustainable Business Resources

Getting the Green Light: Environmental Success Stories from the Supply Chain Consortium

Top Ten List of Issues/Opportunities Facing High-Tech Companies

Service Supply Chain

Photo Credit:  parityytirap

I’d like to welcome Susan Evans as a first-timer on my blog. Susan is Managing Director, Tompkins International, EMEA. With more than 20 years of experience in transportation, logistics technology and global supply chain issues, Susan leads companies to achieve supply chain excellence. Her first-hand expertise in Europe and Africa stems from living and working in these regions for the past 14 years.

-Jim

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Today, I’d like to provide you with the basics of the pros and cons of nearshoring, with a focus on Eastern Europe. And I hope to help you make informed decisions about outsourcing – whether you’re looking for your business processes to remain nearby or to send them to distant countries.

To begin, let’s talk about cost savings – which, as you know, is a major factor in any outsourcing decision.

In an effort to reduce operating costs, many European companies are moving some business processes east. But not all processes are moving as far as Asia or going offshore; some are relocating to the neighborhoods of Central and Eastern Europe. A few key reasons for this include lower labor costs combined with the advantage of being in close time zones, easily accessible locations for project meetings, and closer cultural compatibility.

Sourcing, production, IT and support are examples of business processes that are being considered for outsourcing, and some of these are staying “near” to the home country. When this occurs, the outsourcing in close proximity to home is termed “nearshoring.”

Nearshoring, often referred as “nearshore outsourcing,” is a derivative of the business term “offshore outsourcing.”

We are hearing a lot of interest in this topic from our European clients, due to the advantages of nearshoring. As I touched on earlier, one possible advantage is lower travel costs to support projects. Nearshoring also helps reduce the number of visa requirements or issues, which is a key consideration, taking into account the necessity of a significant number of business trips when outsourcing.

Another benefit to European companies is that European Union (EU) legislation provides complete protection of intellectual property rights. This is a critical component when sensitive proprietary information needs to cross as a result of the nearshore engagement, and with a nearby location, legislation will remain the same.

However, not all processes are best for nearshore, and some continue to be most cost effective with offshore outsourcing. As stated in Jim’s previous blogs and highlighted in his book Bold Leadership, before considering outsourcing, one must identify core and non-core processes and, of these, which would be a good candidate for outsourcing.

At the same time, whether outsourcing offshore or nearshore, consider service to your customer and all financial components – not only labor, but also transportation and facility costs. You can see more details in Gene Tyndall’s report – Managing the Total Costs of Global Supply Chains. A financial view of a global supply chain focusing on Total Delivered Costs provides the data needed to make sound outsourcing decisions.

Learn more about nearshoring in this success story about T-Systems of Deutsch Telekom (PDF).

Also, check out this link to the page “Outsourcing Logistics and Other Competencies,” which can help guide you to the best decisions about outsourcing.

And if your organization is making decisions now about nearsourcing or outsourcing, what questions might you have? What has have your experiences been?

-- Susan

Photo Credit: USACE Europe District

Halloween isn't quite here yet, but malls and department stores are already putting their Christmas decorations on display. These little reminders of the approaching holiday season also remind me that it's almost time to start the gift-giving.

I can remember a few times I've been out shopping around the holidays and tried to find something that wasn't on the shelves. When that happens, if it's something you really want to buy, you might go talk to one of the store's employees to see if the item you want is in the “back room.”

The “back” of the store or the “back room” is sort of an illusion we create. I kind of picture it like this: You go through a normal-looking stock room door, and there before you are rows and rows of gleaming products that are just waiting for intrepid customers to find them. For some reason, it's hidden away, but we seemed to have convinced ourselves that it is back there somewhere and surely there is still hope that we can buy it!

Most of us in supply chain management, especially in retail, know that there is no magical “back room” with extra stock just sitting there waiting for someone to ask about it. The inventory presented in the storefront is pretty much it.

There is a good reason for that: having inventory on hand costs money. In a recent Global Supply Chain Podcast series, inventory expert Ralph Cox and I talked about how increased product availability does not create additional sales for every business. This is especially true now, with web site sales as an option.

Web site purchases allow stores to make a sale even if something is out of stock. And by partnering with an excellent 3PL that can get the item to the customer with incredible speed and efficiency, not having a product in stock is no longer a major disadvantage.

Ralph and I talk more about how inventory can create profitable growth for a company, not just in retail but also for other industries, in this podcast. Listen here or see the text transcript.

I would love to hear some of your inventory stories. Is your company handling inventory any differently this season?

GoGoGo!

Jim

More Resources:

Article: 25 Ways to Lower Inventory Costs

Hot Topic Report: Finished Goods Inventory Management

Executive Briefing: Sales, Inventory and Operations Planning: Crossing Organizational Boundaries

White Paper: Evolution to World-Class Inventory Management

Photo Credit: Pacific Northwest USCG

In a recent blog post for Supply Chain Network, Tompkins Associates’ own Logistics Service Provider (LSP) expert Valerie Bonebrake asks the question: Have you fired any customers lately?

She’s not looking to create controversy with her post; she’s suggesting that LSPs make sure that they have quality relationships in place and avoid focusing too much attention on one particular client.

Many client demands throughout the end-to-end supply chain are reasonable, and they sometimes help create a competitive advantage. However, if a client is too demanding and requires over-the-top attention, it may be time to let them go.

Depending on your client base, this concept may make a good addition to your recovery strategy. Learn more about what Valerie has the say at the following link: http://www.supplychainnetwork.com/have-you-fired-any-customers-lately/

Jim

More Resources

We Know Putting All Your Eggs In One Basket Is A Bad Idea, But How Many Baskets Should You Have?

Logistics Outsourcing Conference Shows Value of Relationship Building & Technology

Photo Credit: jdnx