Supply Chain Trends 2007-2010 (Part II)

4. Mass Customization: Innovative Technologies

o Shrinking product life-cycles and the long tail of consumer preferences will force companies to look for solutions that will not only allow extreme customization, but also enable quick determination of the feasibility of accepting the work order. However, the challenge in extreme customization will always be the development of a fixed and stable 'configuration system', which will simultaneously allow costs to be balanced even if the manufacturing lot size is just one!

o A German company (www.medieninnovation.com) - started by a professor at a leading B-school in Germany - has come out with what it claims is the largest mass-customization offering ever: A mass-customized daily newspaper! Its product Improo, will synthesize articles from newspapers, editorial content and web-based content such as RSS feeds, newsgroup messages and blogs, and deliver this as an offline morning newspaper as per the calendar and customization requested by the subscriber. It certainly looks like the concept of co-creation that cropped up quite a few years back, has emphatically moved from the realm of pedantic academe to reality!

o In this era of mass customization, the point of differentiation (or final level customization) will move closer and closer to the final consumer. Technology will be a major enabler again, as in the case of Lectra (www.lectra.com) which has integrated technology elements into a solution that will allow a customer in a boutique to step into a body-scanner booth, which will capture the complete body measurements of the customer within 10 seconds. The customer can then select fabric, pattern, brand and other preferences, post which the boutique owner will electronically transfer the body scan data to the appropriate vendor, and receive delivery of the custom-fitted garment within a pre-defined time frame.

5. Financial SCM: Tying Finance with Procurement

o Supply Chain Finance (SCF) will finally come of age. The global trend of the past few years to release the working capital trapped in processes and supply chains will intensify, leading to closer collaboration between the CFO and the Procurement functions.

o We'll see a proliferation of specialized working capital solutions from banks and consulting organizations. This will include Supply Chain Financing, Inventory Financing, Securitization of Trade Receivables, and even Dispute Management, Risk Management and Liquidity Management! This will largely benefit sectors such as retail, manufacturing and logistics.

o This millenium, realization has been dawning on buyers that the financial consequences of inefficiencies built into their vendors' supply chains have already been factored as a component into the prices that they are paying their vendors! While financial SCM is available as applications in mySAP ERP Financials, even customers subscribing to SCM solutions from small vendors will increasingly demand that working capital management tools be integrated into their supply chain management tools. This could include tracking of trade debtors, cash flow management, inventory management, contract management and other finance-related SCM functionality.

6. Delivery Centers: Metamorphosis

o Supply chain managers, will increasingly re-focus on the basics - such as optimization of time-definite order fulfillment and cost reduction at their distribution centers (DCs) - through increased automation, and through the addition of multiple additional functions at the DCs. This will happen in different ways.

o Companies will invest in high-tech DCs with part mechanization and part automation, which will be expected to not just facilitate dock-optimization and yard-optimization, but also to optimize the receiving process at stores (in terms of crunching the latency between unloading a product, and its appearance on shelves). Companies will sub-contract or partner with third parties for key operations at DCs. For instance, NISSAN is partnering with the Lauth group - a development and construction group - to set up a regional DC in Memphis.

o Companies will also creatively re-engineer their supply chains. LEGO recently sold and then leased back its Enfield buildings in North America, and sub-contracted its warehousing and distribution function to Exel Inc (now part of the Deutsche Post World Net group). Similarly, LEGO besides shifting most of its production in Europe to the Flextronics plant in eastern Europe has also set up a new DC in the Czech Republic last year, which will eventually become the one point that will feed all of Europe, Asia, Africa and South America. The entire logistics operations at this DC have been outsourced as well!

The next post will be up on March 11th 2007!
The response to my first post two weeks back has been most heartening! Please keep writing in with your feedback at scm.primer@gmail.com

Supply Chain Trends: 2007 to 2010 (Part 1)

1. Sustainable Supply Chain practices: Domino Effect

o Corporate HQ's in advanced countries will no longer be immune to non-compliance with green regulations by their outsourced vendors in low cost economies. In other words, companies will increasingly have no choice but to conduct the necessary due diligence on the supply chain practices of all their vendors and suppliers! This is being taken very seriously by companies such as IBM, which insists on each of its suppliers providing an extremely detailed Product Content Declaration to establish compliance with environmental requirements. Paradoxically, the e-waste scorecard published by Greenpeace in August 2006 ranked Lenovo the lowest on meeting environmental concerns (though of course, Lenovo did not fare as badly in the second version of the score card released recently, while Apple had moved to the bottom of the heap!).

o To avoid consumer displeasure, companies will be anxious to demonstrate environmental responsibility (if they don't want to see sharp drops in their share prices, that is). For instance, a global cola brand had to shut down its bottling facility in the Indian state of Kerala as a result of public protests over over-exploitation of the ground water, as well as for polluting the same with toxic heavy metals such as cadmium and lead. Besides environmental responsibility, supply chain Corporate Social Responsibility (CSR) will extend to healthy environment and worker and occupational safety as well.

o Green concerns will increasingly extend from manufacturing practices and packaging to end of life-cycle disposal of products (specifically products that will release hazardous substances into the environment on their disposal). This will include end of life-cycle disposal of electronic products ('e-waste'), which are causing a major concern in Asian countries such as China, where not only are over 150 million home consumer appliances discarded every year, but which is also alleged to be the destination of a major percentage of the global e-waste. Greenpeace estimates that a huge proportion of global e-waste is illegally exported to third-world countries. In fact, the compliance costs related to recycling at the end of the product life-cycle might well become mandatory to factor in while taking decisions on the initial set-up of the manufacturing plant.

2. Regulatory Compliance: Seemingly Unmanageable Complexity

o The cost of goods crossing international borders – in terms of Regulatory compliance - will rise dramatically. At the same time, the consequences of non-compliance will turn increasingly draconic!

o Restrictions on hazardous materials will become tighter across the supply chain. So also will the export controls on civilian goods with potential military use ('dual use' goods). Export enforcement will become tighter in a bid to reduce the risks of the diversion of controlled commodities and technologies to persons and organizations listed on different denied trade party lists.

o Owing to increased Regulations based on local concerns, it will become more and more complex to manufacture products that are simultaneously compliant with the regulatory requirements of different countries. In fact manufacturers may need to vary their production process based on the country they are exporting their products to (though of course, they would try to arrive at a least common configuration to base their process on).

3. Technology Solutions: Out with the Old...

o RFID data will enable new levels of functionality in applications; the empirical evidence of ROI from early adopters in Retail and Pharma will influence increasing expansion of RFID across other verticals. At the same time, the increased use of RFID in areas such as passports and the possibilities of 'secret tagging' of consumer goods, will trigger increasing concerns regarding consumer privacy, data security, 'informed consent' as well as some concerns on the possible threats due to constant UHF radiation in supermarkets!

o Integrated architectures will be forced to make way for common platforms and Internet-based modularity. Customers will demand totally configurable chaos-resilient SCM solutions to accommodate their rapidly changing needs. On-demand software solutions will continue to reduce the cost of ownership of software, and raise the level of technology implementation by the SME's.

o At the same time, there could be a certain level of disillusionment with existing Technology, as people try to manage their supply chains through their legacy ERP systems, which will prove to be too unresponsive or slow compared to the constant changes occurring up and down the supply chain. This will be a window of opportunity for a new breed of solution providers!