CONTRIBUTION BY TOM CRAIG – SUPPLY CHAIN AND LOGISTICS CONSULTANT AND PROFESSIONAL AT LTD MANAGEMENT

Inventory rich is a condition enjoyed by many retailers, manufacturers, and wholesalers.  Much of this is due to systemic inventory.  And the condition is becoming more significant as firms deal with the differing demands of omnichannel and with the accelerating requirements of lean for supply chain stakeholders.  The challenge is compounded for companies that source and/or manufacture globally with their large supply chains. Many firms are focused on supply chain finance, just—in-time, vendor managed inventory, buy-sell, optimization, and other programs. These supply chains are based on the end positioning for inventory; they are not based on how fast inventory moves. Turns and days on hand–and liquidity–are not good.

Numerous current operations do not have inventory velocity which creates financial and customer benefits.  Systemic versus velocity is a choice derived from using the old supply chain versus designing and implementing the new supply chain.

There is inventory throughout the supply chain—multi-echelon distribution, in-transit, raw, work in progress—everywhere.  The situation is a factor of the way, for multiple reasons, that present supply chains are designed and managed in a somewhat piecemeal fashion, instead of in supply chain totality. Omnichannel did not cause the condition; it has compounded it.  Additional channels have increased uncertainties with demands and how to meet and allocate products to satisfy the customer buying options. Some have taken this to mean carrying more inventories to handle channel demand ambiguities.  This is especially interesting in that companies can have too much inventory; yet these firms may also be out of stock of items. Unsold and unnecessary inventory can negatively impact profits from intense promotions and steep markdowns to sell it.  Reactions to these situations can, in turn, cause purchase cutbacks in future quarters that limit inventories, resulting in lost sales. Supply Chain Reality.  These points lay the foundation for many excess inventory problems that run through supply chains, regardless of industry or market.

• Complex international inbound supply chain.Whether the parts and products are coming from suppliers or company factories, if they are located outside the home country, the global supply chain is the most multifaceted and demanding. The distance and flows among different countries set the stage for what happens throughout supply chains.

Add in that there can be 15 (or more) parties involved with an international order and shipment.  Each party, to varying degrees, operates within its own practices; there is limited real integration from a supply chain perspective. Even more, one of the key parties–container lines– brings vagaries to the supply chain execution with schedule times and reliability. The complexity is increasing. Additions and changes to suppliers, origins, products, production and factory trade-offs—and more—make understanding and managing the supply chain challenging.

• Supply chains within supply chains. Every firm has a supply chain—and more.  The idea of a single company supply chain is an illusion. In actuality, there are supply chains within supply chains.

Think of the Mississippi River in the US. It is very long and runs from Minnesota down through Louisiana and ends in the Gulf of Mexico–the Mighty Mississippi.  But the river is not a single entity.  It is fed by 7000 streams, water basins, and rivers to form one river that actually is part of 31 states and 2 Canadian provinces.  That is how supply chains are—many branches of inventories—and how they have evolved.

Supply chains, as a result, are more complex than is often presented.  Not recognizing that actuality means that supply chains can be under-designed and under-managed.

• Emphasis on the downstream. Much supply chain discussion involves some part of the domestic supply chain—distribution centers, transportation and such.  The exception may be international transport. This is similar to lean supply chain management which focuses much within the four walls of warehouses and factories.  With the emphasis, companies can be operating in a fulfillment mode and looking at the last mile and other topics that do not address inventory excesses.  By the time inventories reach warehouses, they are often at excessive levels.

 These shortcomings may create a myopic interpretation of supply chain management design, operations, and performance. With all the focus on the downstream, the excess inventories issues exist.  These could have been mitigated with a comprehensive view of the supply chain.

• Inventory is a buffer against uncertainty.  There are issues with demand ambiguity, network design, and inventory positioning. But there is another driver of inventory uncertainty—time—the amount of time it takes to replenish items.  International sourcing has long lead times that also have variability.  The additional time and inconsistency increase inventory requirements and compound uncertainty–and the amount of inventory that is carried.

New Retailing Omnichannel with e-commerce is retail duality. There are two very different ways to reach customers. One is the traditional store approach which requires customers to go to the store to purchase products from stocked shelves.  The other has retailers delivering many individual orders to many individual customers. It is customers going to retail stores; and it is also retailers going to customers via e-commerce.  The change is expanding from mass merchandising to tailored direct selling.  Retailing is transforming from being about stores to being about a delivered service. Retailers struggle with omnichannel.  For example, they are dealing with slowing store sales and are closing stores.  Yet, some use a click-and-collect delivery practice to get customers into stores while, at the same time, shutting them.  This presents a contradictory message and can raise questions as to the customer experience that underlines the new retailing. Omnichannel and e-commerce have changed demands, expectations, and requirements.  Order Immediacy—delivering e-commerce orders within 48 hours or less—is the customer experience.  Traditional retail supply chains were built to stock stores, not perform order immediacy. Original supply chains for e-commerce were built to ship parcel orders, not deliver quickly.  E-tailers and omnichannel retailers may transition to Tier 1, 2, and 3 based on how they respond to the new retail reality. Customer expectations are delivery of their orders within 2 days—or less—of when they placed it.  Retailers and e-tailers that are not able to deliver orders quickly may be looking at their futures in rear view mirrors. Amazon Amazon started the order immediacy customer expectation.  And they are not stopping. It is not fulfillment exercise of shipping quickly from distribution centers.  It is about the supply chain and how to move products through it—not just ship from warehouses.  Order immediacy is driven by supply chain management—the new supply chain management. They started the idea of drones for order deliveries. Around the world, they pushed same-day deliveries, developed dash buttons, have leased airplanes, started a freight forwarder in China, may be buying container ships, and are looking at using 3D printing delivery trucks; —all for easy ordering and to speed movement within their supply chain and to customers. Faster and faster everywhere. It is not just about last mile delivery. New Supply Chain Retail duality requires and is driven by supply chain duality–to deal with stores and moving cases and pallets of products and to deal with many, individual customers and meeting their satisfaction expectations. The new retailing is about supply chain management.  And that new selling requires a new supply chain to drive and create the customer experience.  Trying to force standard retail supply chains do more than they were designed for is not agility; it is a failing attempt to change and grow.  A one-size-fits-all supply chain does not meet the differing requirements of omnichannel.

Retail duality requires and is driven by supply chain duality.

Standard supply chains cannot respond to the new retailing.  It requires the new supply chain.  Otherwise retailers will be buried in inventory along the supply chain, while not meeting providing the customer experience. The New Supply Chain drives new performance requirements and moves products quickly through the entire supply chain.  There are key, interrelated elements that address systemic excess inventory and satisfying customer requirements. The New Supply Chain directs and manages structured complexity to deliver the Customer Experience.

The New Supply Chain directs and manages structured complexity to deliver the Customer Experience.

In turn, to respond to order immediacy by retailers and e-tailers, manufacturers must accelerate production and supply chain capabilities.  They also need the new supply chain with its embedded lean capabilities. Elements of New Supply Chain.  It extends upstream, compresses, advances integration, and speeds the movement of inventory/products.  The result is reduced inventory and improved performance.

• Inventory Velocity.Much inventory sits—in storage of warehouses and other places. No value is added.  Products are supposed to flow.  From a lean view, this is waste.  Moving inventory more quickly through the supply chain is critical to the omnichannel supply chain, to lean, and to good liquidity practice.  Velocity is important to mastering demand ambiguity. With the new supply chain, inventory velocity is escalated to inventory velocity squared.

With the New Supply Chain, inventory velocity is escalated to inventory velocity².

Velocity means that companies can move inventory faster and runs counter to what some firms do by adding to their already high stock levels—and low turns that add to liquidity and inventory problems.  Companies face being left behind by order immediacy that will be required across borders, industries, and markets. Not every product requires velocity.  Selection of products/SKUs is needed.  The targeting can be based on analytics, segmentation, or other methods.  Inventory velocity mitigates the tendency toward carrying more inventory, while increasing service.

• Time Compression.Removing excess time is important to the new supply chain for inventory velocity. Unnecessary time exists throughout the supply chain. With so many parties involved in the supply chain, it is caused by internal and external actions.

Compressing time means being able to react more quickly to sales vagaries—and, in turn, realizing inventory yield maximization.  Identifying areas of extra time is needed in to compact it. Value stream mapping of the supply chain is an excellent tool to find time compression opportunities and reliability improvement.  This is especially true for the upstream sector where much of the total time occurs. It may also impact outsourcing.  There should be a shift from outsourcing with logistics providers to instead using supply chain providers.  This means a new breed of outsourcing firms who can compress time—and positively impact inventory velocity.  This is a new outsourcing performance metric—contribution within the supply chain, not for a logistics activity.

• Extend Supply Chain Upstream.Upstream is where the supply chain begins. Extending the supply chain is a logical result of recognizing the supply chains within supply chains and managing its complexity.

Supply chain management pulls, not pushes, inventory. Extending the supply chain is a natural action to doing this.  It does not expand the definition of end-to-end supply chain management, it actually performs it.  In fact, end-to-end recognizes that suppliers are not an end.  Suppliers have supply chain complexity and supply chains within supply chains. The omnichannel supply chain can have a pushback to suppliers for more and faster deliveries.  This means more than implementing procedures for supplier compliance.  Upstream extension implements the New Supply Chain with key suppliers.  It is designing and managing the entire supply chain, not sectors of it, not logistics functions of it.  The extension is into the supply chains of suppliers.  Identifying key suppliers can be accomplished using segmentation or supply chain risk analysis. This upstream move redefines supplier relationships and identifies the previously unknown, hidden supply chains—the supply chains of suppliers.  It is the secret sauce of inventory velocity and is a de facto vertical integration of supply chains.  The result is that extending the supply chain shortens it by removing unspecified parts, compresses time, and drives inventory velocity to inventory velocity².

• Advanced Process and Technology Integration.The supply chain process flows horizontally across the internal organization and externally to suppliers and customers. The horizontal direction contrasts with organizational pyramids with its vertical emphasis and implicit silos. Also factor in all the stakeholders and participants involved with supply chains.

Supply chain complexity and breadth has gaps in the process; it has gaps in technology.  These gaps—black holes–mean a loss of visibility and of compressing time and building velocity.  Total process and technology integration is integral with extending the supply chain upstream.  Blockchain can have a significant benefit for global logistics, trade, and supply chain management. Much technology reflects sections of the supply chain.  WMS, TMS, and other technologies address pieces.  They are somewhat standalone pieces of select activities and do not provide visibility and control of the entire supply chain.  Integration is about visibility; but visibility is not enough. Expanding digitization for the total supply chain is needed to drive and manage it and to support the process. Conclusion The world is in the early stages of a global supply chain revolution.  The Amazon Effect.  The Internet of Things.  Platform Businesses.  The new supply chain will grow beyond omnichannel.  It will cross into other industries and markets and will incorporate supply chains of products, information, and finance.

The world is in the early stages of a global supply chain revolution.  The Amazon Effect.  The Internet of Things.  Platform Businesses. 

All the elements of the New Supply Chain tie together. They are not separate steps.  They are not to be selectively chosen or excluded. These are inter-related.  The New Supply Chain brings performance excellence. Similarly for manufacturers and others, moving to the New Supply Chain provides structure for the advanced lean requirements that come with the new operating reality. Think about what will happen when virtual reality becomes virtual retailing and what that will requires supply chain management with larger order sizes and greater product mixes.  Or, as retailers struggle, what will happen if and when brand-name manufacturers enter e-commerce markets?  Retailing is being continuously redefined. Moving to the New Supply Chain is required for the new global reality of doing business.  It is not a choice.

CONTRIBUTION BY Bryan Christiansen – founder and CEO at Limble CMMS

We all know how delays in any part of the supply chain can cause significant problems and incur additional delays among the rest of the supply chain. One thing that is often overlooked but plays a major role in keeping the supply chain from crumbling down is maintenance management. In one way or another, you can connect maintenance activities with every stop in your supply chain. Be it transportation, production, or storage, a failure of one maintenance team can be felt throughout the supply chain. In that light, let’s explore this idea into more detail.

Transportation

Be it moving raw materials to a warehouse or moving finished product to the consumer, transportation is an essential part of every supply chain. For this part of the chain to work without any hiccups there are a lot of maintenance work that must be done behind the scene. First, if you want to deliver materials/goods to a designated place and on time, your mode of transportation has to be able to endure the route without a critical failure. This is the part where you hope that ship, train, aircraft, and fleet maintenance managers have done their part of the job to ensure a successfully delivery. Secondly, it is not rare that certain materials/products have to be transported in special conditions. Refrigeration is the most obvious example. According to an article from Food Processing on the Net: Freezing food extends shelf life and prevents deterioration of flavor, texture, color and vitamin content. Freezing rapidly after harvest retains vitamin C levels in vegetables and provides consumers with high quality safe products. Refrigeration is key to improvements in the supply chain to meet consumer demand for a wide selection of fresh, nutrient rich produce with a longer life. It is not hard to see how things like refrigerators also have to be regularly maintained as their failure can ruin the order and cause significant delays in your supply chain.

Production

If there is a stage in the supply chain where maintenance gets the recognition it deserves, it is on the production floors of most operating plants. There are two major philosophies that are used in maintenance management. A reactive approach where you wait for something to break until you fix it or replace it, and a multitude of proactive approaches that focus on predicting failures and doing preventive maintenance work.

As you can imagine, a proactive approach should be a go-to option for any plant that want to minimize the chance of becoming the cause of the delay because of unscheduled asset downtime.

Having that in mind, maintenance managers are slowly but steadily turning to proactive maintenance. More ambitious organizations might try to implement total productive maintenanceto minimize unexpected downtimes, while an average facility will most often satisfy with implementing preventive maintenance strategy.

Warehousing and Storage

At some point in the supply chain, be it materials or finished products, something will most likely have to spend a night or two safely stored in a warehouse. However, for everything to be stored safely, there are a few conditions that must be met: (1) machinery like forklifts have to be in a decent operating condition; (2) warehouse itself has to be maintained properly (while it might seem trivial, things like broken lightbulbs, slippery floor, unstable shelfs…can all lead to the damage of stored goods; (3) again, refrigerators and similar purpose items need to operate properly

While you might not think about it often, every asset and every item that was ever a part of your supply chain has, at some point, been under the care of some maintenance technician.

Reaching Customers

Even when your product reaches the store, the role of maintenance doesn’t disappear. The responsibility just transfers to the facility manager of that store. To actually put the products in the customer’s hands, the store needs to operate in normal conditions. If the store is closed because you have a leaking pipe or a broken roof, the chain won’t be able to be closed. While that might happen rarely, it is often something that could have been prevented and avoided. Additionally, if the store isn’t maintained properly, there are a plethora of other problem that can ensue. All of this becomes even more important if the product has to be kept under certain conditions (temperature/light/humidity…). Luckily, maintaining a store is far less demanding than maintaining a production line so, even if you don’t experience these problems first-hand, keep in mind that the problems don’t prevent themselves and that someone works behind the scene to keep everything running smoothly.

The Importance of Maintenance

As you can see, maintenance is connected to every single step of the supply chain. While different industries will have varying maintenance needs, it is interesting to see how crucial good maintenance is in keeping a healthy supply chain.

Contribution by Martin Verwijmeren – CEO and co-founder of MP Objects

Digitization has changed everything. It’s changed not only how we interact but how we make decisions with readily available information. This accessibility to information and organizations has flattened the playing field for every organization as they look to market and sell their wares. This accessibility has forced organizations to embrace better transparency with potential customers and in turn has brought competition. With more informed customers with more choices to spend their money, you see that organizations now have to compete across a wide variety of marketing differentiators including Price, Product, Promotion and Place. The Place differentiator in the marketing mix these days is becoming more important. This is the customer experience. The truth is that the customer is in more control today than at any time in history. What they dictate goes and any company willing to provide to these growing expectations can usurp their competitors, not just in B2C but B2B as well. The day of low cost and unique products as company differentiators is for all intensive purposes over, it’s experience that is winning. In this post, I want to explore how we need to think about our supply chain strategies to drive true innovation and performance for our organizations.

Is Customer Experience Truly #1?

In 2013, Walker, a consulting firm, released a study on the Customer Experience. And their big revelation was that by 2020, customer experience will overtake price and product as the key brand differentiator. However, that is not the only stats we see that are supporting this movement. Take the following stats collected by SalesForce and VisionCritical:

• 86% of buyers will pay more for a better customer experience
• A customer is 4x more likely to buy from a competitor if the problem is service related vs. price or product related
• According to Forrester’s Customer Index, Customer Experience leaders gained 43% in performance – compared to Customer Experience laggards, who saw a 33.9% decrease.

Now, there are two things you probably notice with these stats. First, they are a bit B2C focused and while I agree that is the case, we are seeing a ton of similar demands being asked by B2B customers (think Walmart and their delivery window mandate).  Every trend in B2C environments shape and influence B2B business and this is just another example. Second, many are customer service specific. Customer service is obviously important to maintain customer relationships, however, the cause of most customer service calls are interruptions in service and service levels. Efficient and timely supply chain processes have been proven to reduce the volume of customer service related calls.

How Supply Chain Can Take an Outside-In Approach

For years, supply chain has chased the holy grail of consistent cost savings through process efficiency but what we have seen in recent years is that these efforts while they sound good, organizations actually seeing limited value from the initiatives. Accenture recently saw that organizations that look to reduce costs by 3-4% year over year often don’t see a tangible benefit to the bottom line from these efforts. This is because we are taking an Inside-Out approach focusing on how we operate in our supply chains to create efficiency was built in another business environment. An environment that moved slower, evolved less readily. Efficiency is a tremendous strategy in this type of market as you can consistently improve your process through evaluation of known quantities. But the world has changed. There are little known quantities and the ones that are have a short shelf life. Change is the new constant and process efficiency is being replaced with agility as our business plans and strategies evolve with our markets. Agility is the new driver of business success because successful companies have learned that adaptation is key to their existence. For supply chain, this means being as agile as the other areas of the business and partnering with them to provide the best experience for the customer. This takes an Outside-In approach to supply chain strategy; one that’s customer focused and agile to changing customer expectations.

How Can Supply Chain Get More Outside-In

When we look at supply chains that are truly agile, they look, plan, execute and analyze differently than traditional supply chains. They do this in the following ways:

• External Parties are Internal Parties: Outsourcing is a critical component to running a successful supply chain but supply chain leaders don’t just set and forget with these external parties but they look to build true collaboration with these parties with true visibility into their actions. Technologies are supporting Multi-Enterprise Business Networks are entering the supply chain space to help provide this type of collaboration.
• Data is End-to-End, Not Siloed: Over the years, technology categories grew up to solve specific problems in the supply chain from traditional ERPs to WMS and TMS solutions. And you’re seeing this in every area of the supply chain. However, as we see organizations look to be more customer-centric, we see technologies such as supply chain control towers come along to help connect and extend existing systems for end-to-end supply chain visibility and control over every order. This is critical as customer requirements become more variable and diverse.
• Flexibility to Customer Requirements: Exceptions are the norm in today’s supply chain environment for both B2C and B2B and this requires flexibility in your technology stack that can quickly and accurately respond to changes in customer requirements. This might be new product lines, expanding service options, increasing geographies, faster delivery options and other requirements that need to be automated and executed on in your supply chain. This requires technology that provides Supply Chain Orchestration.

The companies that succeed understand change isn’t just the answer but is the only way to survive. They are looking for better ways to sell and serve to their target customer and that means agility in their supply chain processes.

Legacy Systems Are Not the Answer, Supply Chain Orchestration Is

When you have legacy systems that were built a long time ago, outside-in agility was not their immediate concern and you can see it. They do their job well and are a critical piece of technology stack, however, as we look to evolve our supply chain strategy and processes, it’s integral we look for solutions that can work with these systems to provide true supply chain orchestration across all the parties and systems in the supply chain. Fast growing companies in B2C and B2B quickly winning from global competition have invested in the customer experience and the strategies, processes and technologies such as supply chain control towers that help to ensure optimal experience across the end-to-end supply chain. Differentiating customer experience only comes with an evolution in focus and an evolution in approach and supply chain orchestration is the way to truly disruptive in your industries.