A new kind of Supply Chain Risk

I just read a very disturbing piece of news about Apple. Apple is a company that is widely praised for its successful software and hardware and even more for the way it manages its supply chain. AMR Research recently ranked Apple as having the most robust supply chain. In 2009, the company was at the top of “AMR’s Supply Chain Top 25”, having been part of the top two for the past 3 years in a row. The company has brought out many game-changing products like the iPod, the iPhone and more recently, the iPad.

 

It is well known that Apple makes secrecy a vital cog in their strategy for launching new products. CNN went to the lengths of telling you why not to trust Steve Jobs. Apple is headquartered in the US. It makes most of its money in the US. But its manufacturing is completely outsourced to China – to Foxconn. And Foxconn has been in the news for all the wrong reasons.

 

FOXCONN: If you’re not aware of the Foxconn employee’s iPhone leak suicide case, you probably need to get reading right away. The company (Foxconn) doesn’t seem to treat their employees well either. Apple of course is not directly responsible for any of these events but their secretive policies are. More recently, a reporter was roughed up in China for taking pictures of a Foxconn plant – that too from across the road. It was a Reuters reporter too – and guess what he did… wrote an article of course.

Tipped by a worker outside the Longhua complex that a nearby Foxconn plant was manufacturing parts for Apple too, our correspondent hopped in a taxi for a visit to the facility in Guanlan, which makes products for a range of companies. As he stood on the public road taking photos of the front gate and security checkpoint, a guard shouted. The reporter continued snapping photos before jumping into a waiting taxi. The guard blocked the vehicle and ordered the driver to stop, threatening to strip him of his taxi license. The correspondent got out and insisted he was within his rights as he was on the main road. The guard grabbed his arm. A second guard ran over, and with a crowd of Foxconn workers watching, they tried dragging him into the factory.

The reporter asked to be let go. When that didn't happen, he jerked himself free and started walking off. The older guard kicked him in the leg, while the second threatened to hit him again if he moved. A few minutes later, a Foxconn security car came along but the reporter refused to board it. He called the police instead. After the authorities arrived and mediated, the guards apologized and the matter was settled. The reporter left without filing a complaint, though the police gave him the option of doing so. "You're free to do what you want," the policeman explained, "But this is Foxconn and they have a special status here. Please understand."

Although no finger can directly point to Apple, the notorious reputation of the company just got a shot in the arm.

 

SUPPLY CHAIN OF THE PEOPLE: At the end of the day, it is the people that make any supply chain great. The amount of respect and training a supply chain gives to its people is directly proportional to the output it can get out of them. All this, irrespective of the amount of automation and processes you’ve put in place. Secrecy is a great marketing tool. But when lives are at stake, marketing takes a back seat. Truly consumer focused companies seldom lose focus of their employees and the effect of policies on their suppliers. I just hope and pray it doesn’t get to the point where these incidents repeat themselves. If it does, we’ll have to deal with a new kind of Supply Chain Risk.

The Art that is Spend...

Many CPOs might be in a better position to talk about their spending powers now than they were six months back. And boy did it suck!! You would know that if you were reading SCM Blog. Last year alone, Gartner reported a 5.2% decline in IT spending alone. Forrester found an average of 55% of companies (with over 1000 employees each) in Europe and the US planned to spend less on telecom. More so, with the President of the US wanting to freeze government spending, things tend to look gloomy. And yet, they’re much much better than they’ve been in the last year.

 

Like always, spending is a leading indicator for a company’s health in the current market, mainly because it replicates a company’s general position relative to its outlook of the economy as a whole. Now, with spending set to grow as the economy trudges to a recovery in 2010, we will need a savior. The general mood in companies is to keep expenses low. Yet, companies have to spend if they’re going to sell anything this year what with inventories going to an all time low towards the end of 2009. The ‘savior’ we’re talking about here, is going to help us be able to spend while still managing to maintain efficiencies.

 

Today, I see that savior as being SaaS companies. After bearing the brunt of the recession when the first companies to get cut off were purchasing departments and the like, they know the need to optimize their solutions in order to deliver value to companies post-recession is of prime importance. And companies are looking to them to deliver the goods too.  

The picture above shows the type of changes overall IT and software spending have undergone since 2000. If history is any indication, we’re going to have a renewed focus on careful spending that exploits synergies and delivers efficiencies.

Software as a service continues to build momentum in the supply management market because the line-of-business buyer can realize the following benefits:

• Faster time to value
• Avoidance of IT expenses
• No separate maintenance fees
  • Pay-for-use model

Source: AMR Research

It is my firm belief that the SaaS model that delivers the most value from a TCO point of view for purchasing organizations, while maximizing the effect of their efficiencies will be the most successful. Pricing, for SaaS companies continues to move towards the ‘Subscription’ model. This will continue to be the case for the years to come simply because of the freedom of choice given to customers.

New Feature: Similar Posts

After the new interface rollout just over a week back, I’m happy to announce that I’m adding a new feature to SCM Blog today – Similar Posts. In the next couple of days, you’ll begin to see related posts after the body of each post just before the comments section. This will have clickable thumbnails with post titles that direct you to articles similar to the one you’ve just read.

 

It is my endeavor to bring you the latest features as quickly as possible. As always, the primary focus of SCM Blog is to provide interesting content related to Supply Chain Management with a human touch. I hope you like the new feature. Comments, suggestions and feedback are most welcome. Feel free to write to me or send me a DM on Twitter.

 

I want to thank the guys over at LinkWithin for providing this great service to SCM Blog.

The Flowers that say it all... [Analysis]

Happy Valentine’s day people!! Today’s the day to be happy and rejoice with your loved one. Today’s the day to express your undying love through gifts – flowers maybe?! Well, in the spirit of Valentine’s Day, I’ve decided to take a look at how flowers get to the retail store – the Floral Supply Chain…

 

The floral industry was mostly a mom-and-pop industry until a few decades back.

The floral industry is one of the major industries in many developing and underdeveloped countries. Floriculture as an industry began in the late 1800s in England, where flowers were grown on a large scale on the vast estates. The present day floral industry is a dynamic, global, fast-growing industry, which has achieved significant growth rates during the past few decades. In the 1950s, the global flower trade was less than US$3 billion. By 1992, it had grown to US$100 billion. In recent years, the floral industry has grown six percent annually, while the global trade volume in 2003 was US$101.84 billion.

Source: Wikipedia Article 

The numbers are indeed numbing when you think about the money being spent on flowers. Over a hundred BILLION dollars worldwide up from just $3 billion in 1950?! That’s a huge jump. And for any industry, that rate of growth means there has been a lot of consolidation in terms of the players in the business and there has also been a widespread adoption of best practices throughout the industry. Below is a slide that I created that explains the “floral business chain” in all its simplicity. There is another detailed presentation you might want to look at the explains the same.

Also, last June, organizations from all segments of the floral industry came together to bring about a revolution in technology in the 21st century floral supply chain.

Automating manual processes, such as processing purchase orders and invoices, “will bring a significant amount of dollars to everyone in the supply chain,” says Gary Fleming, vice president of industry technology and standards for the Produce Marketing Association (PMA), one of the members of the Floral Logistics Coalition, which is spearheading and financing the project. “I’m talking not only cost savings but also cost improvements. There is a plethora of
both to be had with the incorporation of these standards and technologies.”

Link to Source

A look at the topics discussed at this meet tells us that the floral industry is looking to learn rapidly from other sectors where supply chain technologies have been successfully implemented.

An initiative by the Floral Logistics Coalition aims to improve the supply-chain process by using standard product identification numbers. Here are key
points:
PILOT STUDY Twenty-eight companies, representing all facets of the industry, are testing guidelines for implementing Global Trade Item Numbers (GTIN) and
Universal Product Codes (UPC) for all floral products.
BACKERS The Floral Logistics Coalition, composed of the Produce Marketing Association (PMA), Association of Floral Importers of Florida (AFIF), Wholesale
Florist & Florist Supplier Association (WF&FSA), California Cut Flower Commission (CCFC), California Association of Flower Growers and Shippers (CAFG&S),
Society of American Florists (SAF) and 12 other companies, is sponsoring the study.
BENEFITS The sponsors say the standards would cut costs by automating labor-intensive manual processes; increase visibility in the supply chain; and, in the
long run, sell more flowers.

Link to Source

The organizations comprising the Floral Logistics Coalition include,

• Association of Floral Importers of Florida (AFIF)
• Wholesale Florist & Florist Supplier Association (WF&FSA)
• California Cut Flower Commission (CCFC)
• California Association of Flower Growers and Shippers (CAFG&S)
• Society of American Florists (SAF)

These and 12 other companies from the industries attended the meet and made some key decisions. The floral supply chain will greatly benefit form these best-of-breed technologies. Once they’re implemented, the efficiency of the system as a whole should increase by leaps and bounds. A problem they’re also looking to address is transportation and distribution. This is reflected in the Wikipedia Article on this topic.

The assignment guidelines are important because the project’s goal is to use the GTIN and UPC numbers when referencing floral boxes and items, respectively.
These numbers will be the standard numbers used in the various supply chain technologies that will bring the savings to the floral industry through bar coding, electronic commerce, data synchronization and radio-frequency identification (RFID).
STANDARD BAR CODES By using the GTIN standards, Mr. Fleming says, “everyone in the supply chain can understand that the number encoded inside the bar code as the GTIN is based on an industry standard protocol, not a proprietary number.” That means that at each step, from grower or importer to transportation company to wholesaler to retailer, the bar code information will tell receivers exactly what is in the boxes.
UPC TRACKING This is expected to benefit both retailers and wholesalers. By attaching UPCs at the original source to items for sale, such as bouquets or bunches, retailers and wholesalers can better track where their best-selling products and poor performers come from. “The UPC numbers identifying the items will link directly to the GTIN number identifying the box containing those items, which will be specific for the farms or importers,” Ms. Boldt says, making tracking easy.
ELECTRONIC COMMERCE This allows trading partners to send purchase orders, invoices and up to 32 other business transactions electronically so they automatically will be fed into computer systems instead of having to be entered manually. Mr. Fleming says studies have shown electronic commerce offers significant return on investment: The cost to manually process a purchase order or invoice is estimated at $18, compared with less than $9 for one processed electronically.
RFID RFID tags store GTINs and other information in tags that don’t have to be seen to be scanned. This “no-touch” receiving would significantly reduce product unloading time, Mr. Fleming shares. RFID also allows for real-time inventory counts. In addition, “you can use RFID for temperature monitoring so you know exactly how much shelf life is left on products,” Mr. Fleming says.

Link to Source

Another outcome of this conference is that the industry has started talking about “supply chain visibility”. The importance of the supply chain

is not obvious in every industry. But there are efficiencies to be achieved by looking and learning from other industries and how they are handling their supply chains. And for those who are in the flower business, here’s a video analysis about the same. Its an old video but nevertheless a gem of a video.

 

This article is an attempt to give you an insight to an industry many of us wouldn’t have given much though to (unless of course your livelihood depended on it). I hope to highlight the benefits an industry can accrue just by paying attention to best practices across the board. Do email me suggestions of other industries you would like to learn about.