Supply Chain Management

For regular news, commentary and links to Dr Croom's activities here is his blog:

http://simoncroom.wordpress.com/

As SCMI moves forward on its research developments we are pleased to have Dr Natalia Vidal working with us on our sustainability in supply chain research agenda, and Dr Mihalis Giannakis of Warwick Business School, UK here for a month as a visiting professor.
The intention over the coming 12 months is to continue our research in two key thematic areas:

Sustainable and Responsible Supply Chains
World Class Journey to operations and supply chain excellence

Both of these themes have been an integral part of my research for the last few years, but the opportunity afforded by our expansion is to expand the scale and depth of the studies. In addition, we shall be workign hadn in hadn with USD's Center for Peace and Commerce on both research and our forthcoming Annual Forum.

With a very personal stake in the saga of the Icelandic eruption (I am currently in Malta, unable to return with my daughter to the UK) a central question in my mind is: "How can we make effective plans to cover such unpredictable risks?"
Clearly, SCM risk management is not about covering EVERY feasible event, but it is concerned with contingency strategies to keep business flowing. One example gaining attention is the massive dependence of the Kenyan flower and produce sector on European markets. Aalsmeer in Netherlands (http://www.aalsmeer.nl/00004.asp) is the worlds largest flower auction house and depends on air freighted deliveries for it's upstream supply - with no deliveries, there is essentially only local (<1000km) sourcing available to maintain the operation and keep their customers supplied. This excludes Kenya (Israel, and other key sources, for the Dutch flower auction house) from supplying. Many of Aalsmeer's customers similarly air freight supplies from Netherlands around the world and are thus precluded from the supply chain whilst disruption continues. What is left is a relatively localized (primarily Northern European) supply chain and logistics operation. A key concern is whether such a shrinkage of their supply chain is economically sustainable. Commentators appear to believe that any extension of this major air traffic disruption beyond a week will have a pronounced effect on economic growth across Europe for sure, but of course will impact every other globally engaged economy on the planet. Military logisticians have clearly considered the impact of major disruption - for example a major European Theatre conflict could impact the main transit and transportation route for the US military, and planners have long had alternative strategies available to draw on at short notice - not just re routing air flights, but transferring mode from air to sea/land and rail. But think of the capacity and asset investments necessary to have this flexibility! Can Apple seriously be able to reconfigure their supply chains to continue operations in Europe? Well, the answer is clearly "yes, to a large extent". Simply by the expediencies of outsourced logistics and manufacturing, Apple can spread their risks, access alternate channels and modes and maintain some form of business continuity. OK, so Apply are shipping predominantly high value, low volume products (and iPod weights just 5 ounces and costs $249 - thats $50 an ounce. By comparison a Toyota Camry weighs 56,000 ounces and costs $19,600 - $0.35 an ounce!) which means logistics costs are a much smaller percentage of the total cost of an iPod cf to a Camry - the benefits being it is relatively easy to tranship, the down size - small, high value items are really prone to security risks if trans shipped!) The challenge for Apple in changing their logistics network is one of security of product. For Toyota the main challenge is cost of transportation of the finished product. Thus, under current conditions Toyota may be better placed than Apple to respond (assuming they have secure long term arrangements to avoid short term price hikes and capacity shortages in sea, road and rail. Pricing will certainly be a key mechanism in managing the supply-demand balance in many sectors. Kumquats have risen over 160% in price in 5 days, the Toyota Camry costs the same but delivery lead times are starting to push out marginally. iTunes however is pretty happy one would think! Or are they? Iceland is aiming to become an even more important location for server farms -'due to the low cost of keeping servers cool'. Not on the Eyjafjallajoekull glacier at present though!

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With very personal stake in the saga of the Icelandic eruption (I am currently in Malta, unable to return my daughter to the UK) a central question in my mind is: "how can we make effective plans to cover such unpredictable risks?"
Clearly, SCM risk management is not about covering EVERY feasible event, but it is concerned with contingecy strategies to keep business flowing. One example gaing attention is the massive dependence of the Kenyan flower and produce sector on European markets. Aalsmeer in Netherlands is the worlds largest flower auction house and depends on air freighted deliveries for it's upstream supply - with no deliveries, there is essentially only local (<1000km) sourcing available.

Posted via LiveJournal.app.

Having just installed this app to enable live and regular updates.

Posted via LiveJournal.app.

SCMI recently conducted a student facility tour to Mexico - Chrsitopher Murrell, MBA, writes about the experience:

The United States’ relationship with Mexico is epitomized by the saying, “When the United States gets a cold, Mexico gets pneumonia.” Witnessing the powerful economic, social, and political interconnections of the U.S. and Mexico during the Supply Chain Management Association’s recent Mexico trip, made me reconsider everything I had previously come to believe about the maquiladora industry. Guided factory tours at Ingersoll Rand, Taylor Guitars, and Sanyo Manufacturing brought each of us closer to an understanding of the depth and diversity of the maquiladora industry.
Our stop at Ingersoll Rand, a worldwide leader in commercial locks, deadbolts, and door closers, was most memorable because it displayed Ingersoll Rand’s commitment to the city of Tecate. Maquiladoras historically criticized for taking advantage of Mexico’s relaxed environmental and labor policies appears to be a practice of the past. Ingersoll Rand’s investments in both the environment and the employees’ working conditions were two examples many companies north of the border could follow. The extensive in-house water treatment facilities ensured that purified agricultural water was returned to the city of Tecate, leaving no remnants of the abrasive chemicals used in the chrome plating and die casting process.
At our second stop, Taylor Guitars S.A., we witnessed the complete manufacturing process of Taylor’s world renowned Baby Taylor. Taylor’s use of laser wood cutting technology in combination with highly skilled employees was remarkable. It was amazing to watch the construction of each guitar’s braces, finger board, and bridge completed almost entirely by hand. The craftsmanship was not complete until each guitar was played by specially trained staff to guarantee the quality sound that U2, Jewell and Prince have come to expect. While the maquiladora industry often has the reputation of assembly-line work, the work we witnessed by Taylor guitar employees can only be described as nothing less than art.
The final maquiladora visit was to Sanyo Manufacturing Tijuana, where flat screen televisions are produced. The cleanliness of the facilities and the advanced technologies used to manufacture the printed circuit boards was cutting edge. The capabilities and atmosphere of the Sanyo plant was indistinguishable from what I have witnessed in the United States.
My Mexico experience came full circle at our last stop at the Universidad Iberoamericana. Our brief conference with current students brought cross-border issues to the surface. Listening to students from both sides of the border share their dreams and frustrations reaffirmed our inevitable partnership now and in the years to come. My day in Mexico gave me the unique experience to observe business and economic development from a new perspective . The vigor of our conversations and the quality of the work we witnessed at the maquiladoras assured me of the potential for a prosperous, peaceful and dynamic relationship between Mexico and the U.S.

In an economic downturn the screws are tightening on suppliers - but is this short sighted? What happens as suppliers fold, inventories deplete and monopolies emerge in previously competitive supply markets?

Reflect on Sony's strategy:

From http://news.bbc.co.uk/2/hi/business/8060761.stm


Japanese electronics firm Sony plans to halve the number of its suppliers and reduce purchasing costs by 20% over two years, as part of restructuring plans.

Cutting procurement costs is aimed at saving 500bn yen ($5.3bn; £3.3bn).

The move comes on top of huge job losses and previously announced measures to trim 300bn yen of costs.

The firm posted its first annual loss in 14 years during the 12 months to March - a sign that consumers were tightening their belts.

As well as the economic downturn denting consumer spending, the fall in electronics prices has also hit firms such as Sony.

Falling prices

Until now suppliers have had separate contracts with Sony outlets.

But the firm aims to move to a centralised procurement system, to enable it to negotiate cheaper prices from suppliers.

The number of suppliers will fall from around 2,500 to 1,200 as part of the move.

"The prices of digital home appliances have been declining by 15% to 20% every year lately," said the firm's spokesperson Mami Imada.

"Unless we cut costs we cannot hope to survive the price competition."

The auto industry has lost $50bn since 2005 because of the poor supplier relationships - reflecting on poor, short sighted and misguided supplier management. Proctor & Gamble on the other hand are looking to generate 50% of their new product innovation from their suppliers.
How, with so many similar and compelling examples of the value of value network management, has US (and indeed global) industry imploded? Simple really - by screwing down prices paid to suppliers, extending payment terms and resourcing away from competent suppliers, there is such a lack of awareness that you need to understand your customers and drive value from the source of your supply chain onwards.

As GM CEO Rick Wagoner is asked to stand down by President Obama, where does this leave the auto giant?
Sadly, there has been compelling evidence for over a decade that the global auto industry is over capacity. Compounded by the fact that GM, Ford and Chrysler failed to reflect the trends in the industry for economic, beautiful and high tech vehicles, there seems to be very little that can be done without some very tough decisions:

1. Three auto makers is one too many. It looks like the President is slowly coming to the view that consolidation has to be achieved if the US is to retain an auto industry.

2. Expansion of early supplier involvement in design and innovation is critical to the success of the remaining OEMS

3. The impact of world class manufacturing and supply chain practices needs to be increased a pace - Korean and Japanese companies are demonstrating a passion for continuous improvement which really has not been grasped fully by American (and European) manufacturers.

The recent investigations by the British House of Commons into the Banking Sector crash has exposed the sheer greed and arrogance of the key players in the scandals - not least amongst them Fred Goodwin, of RBS. As the Observer newspaper reported, Goodwin's style of leadership was straight out of the classic 'Great Man' theory school of thought. His passion for instilling fear in some of the most experienced executives in the banking world and his joy at using ridicule to admonish any opposing views was legendary throughout the organization. Here's a recent quote that has been repeated widely in the business press about good ol' Sir Fred:

"a megalomaniac who cares more about size than shareholder value."

The unraveling of the economy is in large part due to the hubris of the Old Boys Club of 'inbreds' who have long dominated the financial world, yet this is what clearly brought ruin upon the International Banking Fraternity. So now maybe it's to take a leaf out of the Icelandic book:

"Iceland has turned to two women to rebuild its financial system after the banking empire built by its young, male business-schooled elite collapsed.
Elín Sigfúsdóttir and Birna Einarsdóttir are set to become chief executives of New Landsbanki and New Glitnir respectively, the nationalised banks created by the Icelandic government in the wake of the crisis.
One government minister said their appointments were an attempt to signal a new culture within the banking system."

This should be a lesson for all organizations - Bill George has written about the pervasive desire to maintain the macho culture in the Boardroom, one which in the US still sees the typical CEO as white, male and over 6'2" - it is time to look to alternative role models for leadership.