APICS International Blog

Online Supply Chain Supply Simulation

Kehinde Mobayo — Mon, 11 Jul 2011 16:49:40 +0000

The supply chain according to Laudon and Laudon (2000) is a collection of physical entities linked together into processes that supply goods or services from source through consumption. The physical entities in the supply chain consist of suppliers, manufacturers, distributors, retail outlets, and consumers. To have effective supply chain management a business must integrate all these entities into one cohesive process. E-Business can bring that benefit to a business supply chain by permitting the business and its managers to communicate and collaborate among all areas inside the supply chain ultimately giving the business a competitive advantage.

According to Johnson (2010) stumbling blocks in the supply chain have been related to high transaction cost between partners, poor information availability, and challenges of managing complex interfaces. Complex networks that can be challenging and expensive to implement or support. Managers may believe they are overwhelmed taking on multiple online environments causing potential bottlenecks in business operations. Other limitations such as slow response times and incorrect processing of data could cost an organization to lose business or suffer significant penalties. The ever excepting customers who demands fast, rapid, correct, and on-time functionality from these systems that if not implemented correctly the first time could hurt the business supply chain or worst cause a lost in profits

Simulation can have various meanings depending on its application, according to my post on simulation; it generally refers to using computer software to perform experiments on a model of a real system. These simulation experiments maybe undertaken before a real system is operational, to aid in its design, to see how the system might react to changes in its operating rules, or to evaluate the system’s response to changes in its structure.

In relation to problems experienced by online supply chain it is important to consider simulation which can be used to carry out analysis where mathematical techniques cannot because it provides realistic replications of a system than mathematical analysis. Experiments, tests can be used as a form of analysis in other to balance demand with resources which eventually results to good capacity planning, reduce inventory levels, maintain procedures, analyze waiting lines and schedule operations.

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Run Tickets and Who’s who

Maurice Pinto — Mon, 30 May 2011 14:43:22 +0000

A field run ticket is a paper record completed by the purchasers or transporters representative documenting how much crude oil was removed from an oil well location. There is a company called Oildex which provides a service called RunTicket Connect. This service allows companies to import run tickets, summary statements, and tank tables directly into existing accounting software systems, or they can download them into a spreadsheet, eliminating the need for hand keying. This results in time and cost savings.

Crude Oil Data Exchange (CODE) is an electronic business standard sanctioned by the American Petroleum Institute (API). CODE was initially implemented as the standard in 1978. It provides field formats and record layouts to facilitate the transmission of crude oil run tickets between producers and transporters. Run tickets from Oildex use American Petroleum Institute’s (API) industry CODE standards.

API is the primary trade association representing all phases of the oil and gas industry. PIDX (Petroleum Industry Data Exchange) is the Electronic Commerce Committee of the API

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Earthquake in Japan and its likely affect on global supply chain

Abhay Tiwary — Sun, 13 Mar 2011 15:15:13 +0000

March 11, 2011 was a very bad day for Japan and for humanity as a whole. A massive earthquake of magnitude 8.9, one of the worst in Japan’s history, followed by a deadly tsunami was catastrophic for the country and its people. It swept away everything on its way damaging buildings, highways, airports, ships, industrial hubs, almost anything on the ground including huge loss of life. The reported death toll estimated to be more than ten thousands, thousands are still missing and millions are displaced and will be evacuated. The economic loss is still to be estimated and fear is that it could well pass more than hundreds of billion (in USD). The trauma and turmoil has not ended yet as the atomic power plants are badly damaged and explosions have happened resulting in leakages & radiation. If further explosion happens then the radiation might reach other parts of the Japan as well which are not affected by earthquake. This reminds the vulnerability of human civilization irrespective of how prepared a country like Japan is. No matter how much science progresses, science alone cannot save humanity.

Developed countries like Japan, Germany, South Korea, which have export oriented economy, account for substantial exports of important goods globally. The flow of goods in the global supply chain will be impacted if such natural disasters occur in these countries. The recent turmoil and anti-government protest in oil producing nations has already stretched the price of crude oil resulting in pressure in higher costs affecting many areas including supply chain. The uncertainty towards crude supply has not dwindled down yet when this disaster occurred giving more sleepless time to economic experts.

The last week earthquake that struck northeast Japan is a small economic zone (compared to Tokyo, Osaka etc.) account for about 2 to 5% of Japan’s GDP. It has forced to shutdown a broad spectrum of industries. The assessment is not completed yet and the bigger disruptions are not ruled out in the weeks ahead. The quake has crippled important infrastructure like power supply, water, surface & air transports in the affected areas which will have adverse impact on goods manufacturing and movement. The areas affected are critical supplier of parts for consumer electronics, automobiles, auto parts, steel manufacturing and other goods. Japan’s Toshiba and SanDisk are important suppliers of semiconductor chips and flash memory used in electronic gadgets, smart phones, tablet PCs. Not all but some manufacturing units are likely to be affected by disruptions in transportation and power supply resulting in raising fears of shortages or price increases. Past year has witnessed strong demand for gadgets and the quake can cause further stress to already overstretched supply chain. Some of the plants of automobile industries have also halted their operation which will impact auto industry. The overall impact could be substantial for the next quarter on the whole supply chain and price swings are expected because of near term shortages.

The other noticeable impact could be many as the reconstruction and rehabilitation will kick off by the government & private agencies. The repatriation of Yen and the expected need to raise cash to pay for the damages might result in the appreciation of Yen against major currencies. This will also result in export form Japan becoming costly in the short term stretching supply chain and higher costs. The damages done will have to be paid by insurance companies and that will also drive up the future insurance premiums resulting in higher costs for industries, again an important parameter (cost) of supply chain getting affected. The tremors of quake are being felt in the financial sectors also as some bonds covering the insurance cost will loose its value and shining. New fresh capital expenditure will be required to rebuild and start operation in the affected areas which might affect the cost of capital locally.

The long term impact and assessment of the earthquake and tsunami devastation is still to be estimated but it appears that such catastrophic disruptions will have a big impact on global supply chain of goods movement. It might create shortages and price increase of important goods and the ripple affect on other areas will be yet to known. The future design & flow of supply chain might take some clue from such natural devastation and be better prepared with a contingency, that’s our hope. In this time of distress and grief, the whole world and all the nations on the planet are with Japan and its people.

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Cloud based Supply Chain Systems

Abhay Tiwary — Mon, 07 Feb 2011 00:29:50 +0000

In my previous blog on freshness across supply chain, I had promised to further dig down and extend the various definition and methods by which it can be achieved but I will write about that little later. I chose a new topic which is knocking the door to transform the business and technology, i.e. cloud computing and its usage and impact on future supply chain applications & systems.Cloud computing is a virtual, service-oriented, location independent computing architecture which provides on demand servers, computing resources, software and storage just like an electricity grid. Customers using cloud services do not own the physical infrastructure and hence avoid capital expenditure and other overheads. They pay as they consume resources and fee is charged only for the used resources.

Cloud computing has penetrated many areas from real-time entertainment services in the automobile sector to a complex computing for health care research. It has many more possibilities to change the way organizations make use of technology to supply goods and service customers. It has the potential to limit the limitation of current complex constraints like time, speed, space power, scalability and cost. It has immense usage and can completely change the traditional technological landscape including hardware infrastructure, network, servers, storage, interfaces and applications. In fact, small to medium sized organizations have already started adopting cloud services to boost their businesses to reach customers globally and reduce the cost of running the services.

Supply chain management applications largely comprise of backend hardware infrastructure, network, storage etc., and most importantly in-house developed customized supply chain applications. Excluding the custom developed supply chain applications, all other components are very much already included in cloud based services. The cost of managing those services in-house is far more than that of getting services by cloud providers. The companies face tremendous pressure and challenges to scale up the hardware infrastructure at the time of need and it comes at pretty hefty cost and time and ongoing operation adds more cost. In case of cloud services, company can just pay for the increased usage of computational resources and that can be provided on-demand. That’s the one reason, small and mid size companies are embracing the cloud based services and the rate of growth is expected to reach double digit this year, according to one of the technology research companies.

But the most important component, custom developed supply chain application, is the biggest obstruction in adopting a cloud based services because to use a cloud the prerequisite is to use an internet based application which is very general and standard and does not require frequent changes. This is more a problem for the big sized businesses which have their own in-house setup to develop and maintain application and use own data center. But slowly and gradually cloud providers would develop a service and solution which will be attractive enough in terms of cost and service so that even big organizations can embrace. The other important aspect is security of proprietary data which will be vulnerable for the internet based services. Most of the supply chain applications are also integrated with other transactional systems like financial, inventory management and order management and it will be difficult to manage one application in cloud and other on the company infrastructure. That might break the basic integration between different business processes, a benefit, provided by any ERP system.

If an organization has to decide which application in supply chain management can be the best candidate for cloud services, supply chain planning & demand forecasting business function has the potential to use cloud services. The other like distribution, production and sourcing are more close to execution process and hence tightly integrated with other applications like finance and order management. The decision about which environment in the system landscape could use cloud services may be rather easy to take. Normally there are many environments companies keep and maintain to support productive environment and new project landscape. Sandbox environment, application development and configuration environment, quality assurance and productive environment are typically part of any productive landscape. At the same time environments like learning and training, regression testing, volume and stress testing are also common for big size companies. Some of them can be a good candidate to use cloud services than in-house infrastructure as those environments are not constantly in use but needs all kind of operational support and consumes energy. Regression testing, learning & training, volume test and sandbox environment for supply chain applications can be potential candidates to use cloud based services.

In the past companies started embracing outsourcing of labor to level the uneven demand resulting in contract labor. Similarly, today if companies need huge computing resources just for few days, they can think of using cloud services as the cost of one computer for a thousand hours will be as much to use thousand computers for one hour. But it might take months to add, buy and install thousands computer in the company existing infrastructure. The wait time is almost negligible in case of cloud services. The scale up and down is easy to manage in less costly manner providing flexibility to the organizations and bringing more innovation friendly environment. The other important benefit of using cloud computing is platform independent for the user community as access will be based on internet. This allows users to access information by any device like smart phone, laptop, desktop etc. The benefit of cloud computing also brings the agility to the organization to tap any untapped geographical areas by quickly rolling out systems and application required to enable businesses. This makes even small size company to do business globally.

The most important concern is security as the cloud services are based on internet and we all know how vulnerable the internet is today. Many government websites have been hacked in the past resulting in the loss of proprietary data. Knowing this concern, many organizations, and specifically big organizations, may not take risk of loss of private data. The regulatory requirement may also prevent companies to use internet based computing services for proprietary data. The data which are in the public domain are already getting hosted and used on cloud resources. The big companies which provide cloud services like Microsoft, Amazon, Google, AT&T will certainly look into the concern and try to alleviate or reduce the risk level so that companies can think of using services. The future of cloud based supply chain systems looks bright and it will be fun to watch how companies decide about which part of supply chain applications goes first and becomes part of cloud.

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How to secure the freshness across the supply chain

Abhay Tiwary — Thu, 13 Jan 2011 00:12:02 +0000

The competitiveness of organizations across the industry sectors depends not only on the cost effectiveness and the improved service levels always but often on the degree of freshness of the products sold to customers. This is mostly applicable to the industry sectors like consumer foods, healthcare, infant formula etc. The freshness of goods largely indicated by the difference of the current date and the expiry date of the product. The more the difference, the product is more fresh and vice versa. Most of the informed consumers try to look for the dates before they buy and many a times they choose not to buy the items in the store because the same item is found fresher at some other store. Different consumer would have different requirement for the same product depending on their consumption rate and the frequency of the purchase. Typically this phenomenon is observed at the very end of the supply chain where consumers transact before the actual consumption happens.

The freshness of goods has become one of the important requirements for regulators as well. In today’s global supply chain, products and goods are moving across the countries and the receiving countries specify the degree of freshness of the products acceptable to them. Any stock of less than the acceptable specification may not get the clearance from the local regulators. The complexity is manifold because the same item might have different acceptable specifications by different receiving countries. At the same time different items exported by a company to the same country might have different specifications. This requires a unique rule for each SKU depending on the destination bringing more complexity in supply chain management

If we further look upstream in the supply chain where value addition takes place during the manufacturing of the products, the freshness of the finished item depends largely on the component items used during the manufacturing process. The freshness of the components, to be used in the finished item, is translated to the finished items’ freshness available for distribution or sale. This is crucial to have enough cushions so that companies get more time to distribute and sell and meet the freshness specification. This can be met by having sourcing team dealing with the suppliers who provide components. Sourcing team must ensure and specify to the suppliers the degree of freshness of the component when it lands in the company premises.

When the global recession hit the world two years back consumers slowed down the purchase in anticipation and that resulted in more inventory lying in the companies’ warehouses and distribution centers. When inventory does not move and turn over is decreased, the products loose their freshness resulting in more obsolescence. Inventories are written off because of aging leading to loss of revenue and profit. Its double blow to the organizations as the current asset (inventory) is lost because of the write off as well as the earning of the company gets impacted because of the missed sale opportunities.

As discussed above there are many segments in the supply chain where companies can focus to secure the products’ freshness. It is desirable and of extreme business value to address the issue of freshness. It is useful to improve the speed with which the products move in the supply chain. At the same time it’s important to enable the supply chain planning & execution system which can automatically plan and replenish as per the customers’ (both internal and external customers) requirements of freshness. Its not that companies are not striving to achieve this but either they are doing it manually or may be trying to achieve one layer at a time. Few organizations tackle this during execution process which comes later but miss the opportunity while planning flow of goods. There should be an integrated planning system which can consider the issue of freshness starting from the planning to the replenishment and from the sourcing to the manufacturing. It can be achieved by designing an inclusive supply chain system which considers all the parameters needed to define and maintain freshness requirements in the system. How organization can focus on planning the freshness of the products and the parameters needed to be defined in the system would be discussed in the next post.

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Ten Top Tips Towards Process Improvement

Kehinde Mobayo — Wed, 22 Dec 2010 16:04:17 +0000

Due to the economy melt down a lot of industries are analyzing their processes to eliminate unnecessary process steps, cut cost, reduce inventories, manage the resources at hand and for proper process improvement. There are 10 tips that can help to achieve maximum and positive results listed below:

Know the team members, customers, suppliers, stakeholders that will be involved in the process. Study the process, inputs into the process and areas where improvement is needed.
Develop a good relationship with suppliers, customers, stakeholders and team members
Update team members, sponsors or those responsible on the progress of your work to allow their contribution towards the process improvement. Always document the update of every meeting in other to remind team members about your last discussion and to give them a clue on the next discussion.
Try as much as possible to give enough notice ahead before the next meeting and create different method of meeting notifications such as e-mail, text messages, phone calls, letters or fax.
Learn how to use the word “WE” among your team members because this gives them confidence and encouragement. It shows that their contribution towards the process improvement is recognized and taken into consideration. It will also enable the analyst to get more information/ data needed for the process improvement.
Attach more importance to the voice of the customer/ expectations because this is the result that will be expected at the end of your analysis. Encourage every team members, customers, stakeholders to make their contributions because all information is helpful.
Study the lean six sigma quality tools in other to know the appropriate tools for each stage of the six sigma process such as define, measure, analyze, improve and control.
Create alternatives such as questionnaires, one to one discussion, interviews, brainstorming, group discussions, SQL, historical data, intuition, customer orders, sales etc, that can be used to collect your data/ information with equal flexibility
Let your data collection plan be simple enough for your team members, customers, stakeholders to understand, as well as the questionnaires that will be used for data collection
Always maintain positive attitude towards team members, customers, stakeholders, so that all efforts contributed towards the process improvement can be crowned and to achieve maximum/positive results.

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Introduction to Inventory Management System

Kehinde Mobayo — Wed, 10 Nov 2010 19:54:16 +0000

Definition: Inventory Management is an enterprise-wide discipline concerned with the identification and tracking of Inventory Information Services (IIS) inventory and production line assets. Its three main areas of concern are:

Acquisition procedures are established to assist personnel in procurement of inventory and production line products. Its main purpose is to ensure that proper justifications are performed and that financial guidelines are followed.

Redeployment procedures are responsible for ensuring that assets are tracked when moved from one location to another and that budgetary considerations are adjusted as needed. Should a product be moved in conjunction with its original owner, then the Inventory System is updated to reflect the new location. Should a product location and owner change, then the Inventory System must be updated to reflect the new owner and their location. In this case, the old product is deleted from the original owner’s budget and added to the new owner’s budget.

Termination is responsible for deleting the asset from the inventory when it is discontinued, or replaced. The owner’s budget will be updated to reflect the asset termination and the asset will no longer be listed when location reports are generated.

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Sales and Operations Planning: How do YOU do it?

Prarthana Shyam — Sun, 26 Sep 2010 04:23:15 +0000

The approach to sales and operation planning differs from company to company, even within similar industries. In this article, I would like to discuss basic, high level principles of S&OP and why every organization, big or small needs to make it an integral part of their management strategy.

APICS defines S&OP as a process that provides management the ability to strategically direct its business to achieve competitive advantage on a continuous basis. It is the executive decision making process that enables an organization to respond to demand and supply variation and risks with timely and data driven decisions (of course, this is assuming that the data in your ERP/planning systems are accurate and you have capable reporting tools).Basically, it is a platform that enables companies to establish a game plan for the allocation of resources within an intermediate time horizon (usually 18 – 24 months) to meet demand for product families.

At my company, we are in the process of a comprehensive review and complete over haul of the current S&OP process. We have identified a dis-connect between the Pre-S&OP agenda (attended by the functional managers) and the S&OP agenda (attended by the senior management). Some of the other challenges we face with as we get on with this project are:

Data accuracy and Integrity
Organization Silos
Achieving process compliance
Clear definition and acceptance of roles and responsibilities
Adapting the process to the organization

Our objective is to align the Pre-S&OP with the S&OP, and utilize KPI’s to monitor and measure the efficiency of the on-going process. Some of the highly sought after results in our case are:

Ability to perform “What –If” scenario modelling for maximizing profitability
Integration with the financial budget process
Improvement in forecast accuracy
Improved new product launch
Better resource utilization
Improved cross- functional coordination

Please share with us your company’s approach to the S&OP process or your view to, is it working? If not, why and what should it be?

Thank You.

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OUTSOURCING

Kehinde Mobayo — Sat, 28 Aug 2010 18:46:01 +0000

Based on transaction cost theory, when a firm has already integrated its operational functions, the decision to outsource such functions to the market should be made if it is necessary to create or protect firm value. By outsourcing tasks to specialist organizations, firms may better focus on their most value-creating activities, thereby maximizing the potential effectiveness of those activities. In addition, as outsourcing increases, costs may decline, reduction in lead-times and investment in facilities, equipment, and manpower can be reduced.

Outsourcing can be divided into three areas: decision-, process- and result-oriented. A key strategic decision for manufacturers in deciding those manufacturing activities that an organization should carry out internally and those that should remain external. This particular decision is associated with the firm’s internal span of process, the degree and direction of vertical integration alternatives and its links and relationships with suppliers, distributors and customers.

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Home Delivery: Has it Become a Necessity for a Fast Food Chain to Penetrate in a Market?

Varun Jindal — Fri, 13 Aug 2010 09:34:25 +0000

Now a days, convenience has become an important aspect for the consumers of the food market. Due to change in the lifestyle trends, more and more people now prefer to order for home delivery rather than going personally to the food joints. Technology, be it Internet or mobile communications, has only aided this trend or lifestyle change. In India alone, the food market is estimated to run into thousands of crores of rupees. Due to this huge potential, fast food chains can no longer avoid tapping the sizeable chunk of the customers who prefer the option of home delivery. I’ll now be narrating the story of McDonald’s India to understand as to how the company realised the importance of offering home delivery and subsequently how it invested in home delivery channel of service.

McDonald’s, one of the world’s leading fast food service companies, was launched in India way back in 1996. However, it launched its home delivery services called McDelivery in India only on March 15, 2004, almost after 8 long years of being in operation in India. Probably, it either realised the potential of home delivery services late or may be it didn’t want to incur investments in home delivery services in the initial years of its operation in India. Sensing the growing potential of home delivery, in the year 2007, McDonald’s planned to invest Rs. 3 crore to strengthen its home delivery services and launched a single home delivery number 6600666 in order to penetrate into the market deeper. At that point of time, McDelivery accounted for almost 5% of the overall sales and investment in McDelivery services was aimed at taking this share to 7.5% by 2008.

McDonald’s did not place any restriction on the minimum order value from the very beginning, rather it charged a flat fee of Rs. 10 per order irrespective of the order value initially. Today, this fee stands at Rs. 20 per order after more than 6 years of the introduction of this offering. It has deployed an Interactive Voice Response (IVR) system which has options for placing the order, tracking the order status, lodging the complaints and knowing the promotional offers. However, to take the order from the customer and subsequently forward it to the nearest outlet, McDonald’s has to run a call centre which comes with a cost. Moreover, during the peak hours, customers may have to wait a little longer to get their orders registered with the call center executives. The best thing however is that once a customer registers for McDelivery, whenever he makes a call again to place an order, he is greeted by the customer care executive with his name and he is not required to tell his address for the delivery of the required food items.

In order to reduce the call centre costs and to give customers an option where they will no longer be required to wait for placing their orders through phone even during peak hours, McDonald’s introduced the order registration through web also from this year onwards in India. If this model becomes succesful, it will be a win-win situation for both the customers as well as the company. The company expects web delivery mode to contribute 5% towards sales. In all, home delivery share (combining both phone as well as web modes) is expected to be at least double-digit percentage of sales.

Probably, McDonald’s started its home delivery only after looking at the success of the other players in the fast food market. But, today home delivery has become an important part of the McDonald’s supply chain. After all, managing home delivery also involves delivering right food items at the right time in right quantity and right quality at the right address. Almost all popular fast food chains in India do have home delivery model in their business system. Some food chains earn more from home delivery than in-person visits of the customers. That is why, probably, home delivery has become a necessity for a fast food chain to penetrate in a market!

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