Archive for December, 2010

Supply Chain Ready to Pop

Wednesday, December 22nd, 2010

Supply Chain Ready to Pop

Alan Scroope – December 21, 2010

FreeFlow President John Kenny is a member of the Executive Advisory Board at the University of Wisconsin’s Grainger Center for Supply Chain Management. Also on the board is Gartner Global VP of Supply Chain Research, Kevin O’Marah.  Following this year’s board meeting Kevin blogged about supply chain tensions, one of which is addressed by at-risk inventory solutions such as those offered by FreeFlow.  Have a read:

Commentary:  Supply Chain Ready to Pop
by Kevin O’Marah

I recently had the pleasure of attending my fourth Executive Advisory Board meeting at the University of Wisconsin’s Grainger Center for Supply Chain Management. Each year the session draws an impressive group of senior supply chain executives (all are Board members) from top companies, including Cisco, Harley-Davidson, Johnson Controls, GE Healthcare, IBM, Logitech, Emerson, Sears Holdings, P&G, Genzyme, FreeFlow, Pyle Group and, of course, the Center’s namesake, W.W. Grainger. The Center offers one of the most comprehensive, forward-thinking programs in supply chain management, including a full curriculum that spans value chain topics, such as new product launch, marketing and technology enablement.

A highlight of the annual meeting is the panel discussion when Executive Advisory Board members speak to students about the pressing issues of the day.  This year, a theme emerged on risk, and it had a good and bad side to it. Several Executive Advisory Board members commented on the tight capacity and inventory conditions — results of the recent recession.  Eric Smith, for instance, the VP of supply chain at Emerson (and a Grainger Center alumnus himself), said, “The inventory safety net is gone,” which increases the urgency to use sales and operations planning processes to improve agility. Carolyn Woznicki, VP of global procurement for Johnson Controls, talked about one of the top concerns today: certainty of supply, with capacity cut close to the bone for many upstream producers.  And, Brian Smith, the recently retired senior director of logistics for Harley-Davidson, highlighted the dramatically leaner operations the iconic motorcycle manufacturer’s supply chain achieved in recent years.  In these cases (others surfaced during the panel discussion, too), it was clear an increase in demand will, on one hand, create some great profit opportunities, but on the other, expose weaknesses in this increasingly tightly strung global supply chain.

The students did their part in feeding the discussion on the supply chain risk theme.  No fewer than three of the 10 student summer-internship projects had been focused on supply chain risk quantification. As impressive as these projects were in terms of pulling lots of hard data from SAP and other enterprise systems, the real impact seems more a matter of how the supply chain teams driving these projects are beginning to think about buffering against increasingly volatile demand.

One approach to tackling this issue is exemplified in a few reference cases I’ve seen of Triple Point Technology, a vendor specializing in commodity management applications on top of bigger enterprise systems.  Unilever, for instance, uses this tool to manage risk in its $5 billion annual purchasing stream for commodities, such as oils and fats, packaging materials, cocoa, sugar and grains.  Tight supply availability in commodities can have a huge impact on prices, which increasingly swing wildly from day to day.  For example, grain prices were up 41% in July alone, according to Mark Taylor, VP of commodities at Unilever.  To avoid being caught short in such situations, supply chain strategists must operate with a comprehensive picture of exposures, cover positions and price movements.  They must also have the ability to consistently report on commodity market movements and their impacts on costs, availability and lead times.

Again, this is a good news/bad news story.  Suppliers enjoying a surge in demand for their wares will see spiking profits, while customers downstream will pay the price. The notoriously volatile commodity markets have always operated this way.  And this is also increasingly true for all the other ingredients in a fully functioning supply chain, including shipping lanes, plant capacity and even managerial talent. It’s possible we’re finally hitting the limits of lean.

The global supply chain has seen intensive redesign over the past 20 years, as information systems have enabled levels of outsourcing and interenterprise collaboration that would never have been imagined in the early days of the lean factory.  Today, we have so little buffer in the system that sharp turns can hurt on both the downside and upside. Some stock-market watchers are calling for big gains, as macroeconomic growth stokes profits by goosing demand, while companies continue to hold back on hiring.

This all sounds great on Squawk Box, but too many supply chain people find the added pressure showing up in their Outlook calendars, as conference calls between Asia and the United States or Europe run 24/7. Something has to give, and it can no longer be the sleep needs of supply chain folks.

I would love to hear your opinion at kevin.o’marah@gartner.com.

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CFO.com: Chasing Away the Excess-Inventory Blues

Friday, December 3rd, 2010

Online auctions can help streamline the process of getting cash for returned or unsold products, supply-chain executives say.
David M. Katz – CFO.com | US   [view article online]

December 2, 2010

The day after Christmas is still weeks away, but that’s close enough for finance and supply-chain executives to start worrying about merchandise returns and excess inventory. How will they get the best value for the unwanted goods?

One answer is to auction them off. By posting returned or overstocked items of interest to consumers (video games, baby clothing, televisions) or other businesses (computer parts, pallets of manufactured items) on an online auction, sellers can gain access to many more potential buyers than they would if they simply went straight to liquidators.

Further, auctions can help streamline the process of getting cash for returned, unsold, or excess products, supply-chain executives say. That process can be cumbersome and haphazard, as it used to be at SanDisk, a maker of memory storage cards used in consumer electronics products. That was before the company started to sell excess inventory via auction about two years ago, according to Doug Lampson, director of corporate financial planning and analysis at the company.

Previously, SanDisk executives would simply ask sales reps to “make some phone calls” to brokers if the pile of unsold items grew too high, says Lampson. That resulted in just one or two potential bidders per item or group of items (and tied up the sales reps’ time). Now, since setting up a regular arrangement with FreeFlow, a logistics and supply-chain company that provides auctions for consumer electronics companies, SanDisk typically has eight vetted bidders for a set of items.

Perhaps more important, the arrangement has turned a scattershot process into a swift and regular routine. Each month SanDisk identifies slow-selling or obsolete products, draws up a pricing proposal, and then puts the products up for bid. Given the volatile nature of the semiconductor storage business, where prices are known to drop as much as 20% in a month, “we try to move product very quickly,” says Lampson.

Of course, surplus goods can be a problem for any company, given the inherent difficulty of forecasting. “There is a level of inaccuracy in the forecasting process, which tends to mean that we have some level of excess inventory,” says David Warrick, general manager for Microsoft’s entertainment and devices operations in Europe, the Middle East, and the Asia/Pacific region, which also has an arrangement with FreeFlow. “And what we continually try to do is keep that to a minimum and make sure it flows as well through the supply chain.”

As a way of controlling their bidding audiences, companies with big sales staffs like Microsoft can auction off excess inventory in two stages. First, they can hold internally focused auctions, putting items up only for their sales staffs to see and offer to their clients. Then, if all the items aren’t sold that way, the auctioneer might provide a private, preselected set of bidders for the remaining goods.

Why would a company want to narrow the bidding audience? One reason might be that doing so could set a high bar among its potential creditors, by admitting only those buyers likely to pay their debts. Companies may also want to control the timing of the liquidation of their products, according to Alan Scroope, founder and chief executive officer of FreeFlow.

For example, a finance chief of a company selling its returned goods via a public auction might be irked to find that an individual or small firm has bought a batch of the products online and is undercutting the price at which the company’s favored retailers are selling it, says Scroope. That represents a risk to the brand that the CFO might not be willing to tolerate.

Such narrowly focused, niche-oriented auctions are not for every company with excess inventory, however. Wholesale bidders on such sites tend to require detailed grading of the products — and high-quality products at that.

And a company with products that have been handled roughly at Christmas before they’ve been returned might do better holding an auction elsewhere. “We handle broken and cracked consumer electronics,” says Bob Auray, chief executive of GENCO Marketplace, a logistics company that sells some goods through FreeFlow but auctions off a much broader array of excess inventory itself. “We find that parts-oriented scavengers may be best for that type of product.”

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