SUPPLY CHAIN RESOURCE COOPERATIVE

I recently had a chance to interview a supply chain director from  a mid-sized hospital in New York state, that was very insightful in helping me to think about the challenge around inventory management.  The supply chain officer described the approach that was needed to think about standardization, but also about a concept called “UTILIZATION”, a term I had never encountered before in my 30 years in supply chain management.  What I learned helped me to understand why healthcare supply chains are in such a pickle today.  This gentleman told me the story of how they evolved to begin measuring utilization as a core component of flow in their system.

“The concept of utilization involves measuring whether the items scheduled to be used in a patient procedure were actually used, and whether those items were invoiced correctly to the patient in the revenue cycle.  This is where a lot of errors occur – and the waste in such cases can easily be 30-40% of stuff we buy that we never get paid for and which goes to waste!”

“When we started monitoring our utilization, we adopted a very simple chart for tracking items:  1)  Items bought, 2) Items used, and 3) Items sold to patients.  We were amazed to learn that our “bought to used” ratio was 60/40.  That is, we were only billing patients for 60% of what we were actually using in the procedure!  And it was costing us millions of dollars.”

“To get a handle on this, we settled on the two key pieces of information, as there only two things a hospital knows for sure.  How much they bought, because they got an invoice for something and they paid it.  And the second thing they should know for sure is how much they billed insurance providers for, and whether they got paid the full or partial amount for what they billed.  If there is a difference between these two figures, then you know something is wrong with the “used” part of the equation, and you better figure out where the missing items went!”

“Let’s take an example.  I purchased 100 Band-Aids, that go into the Operating Room.  And my clinical system which documents how many we used with patients shows that we used 90 of those Band-Aids.  But then my clinical Data Master shows that I only invoiced for 80 Band-Aids for reimbursements by patients or insurance.  So if I work backwards, I can see that I used 90, and there is a discrepancy.  Perhaps 20 were wasted along the way.  Or perhaps a physician didn’t follow the procedure standard, and used more then they were supposed to.  So our utilization is 80%.   Either way, I have a mystery that needs to be solved, and it drives the right actions to get to the bottom of it.”

“In many cases, poor utilization is a function of physician practices.  One of the things we do is to capture utilization by comparing the similar practices across physicians, say for a hip or spine replacement.  When we compare the cost of each procedure, it is only meaningful to do so if you are able to do a good job to ensure utilization of materials is similar across all physicians.”

Consider another example.  You buy 10 IV kits, but only 8 show up in your clinical system.  A physician requests a tray that includes four meshes and three rolls of tape.  Some physicians use four meshes, and some only use two.  It is important in this case to set a base-level utilization – which is how much I charge the patient.  If some physicians use four meshes, then the base utilization for that procedure should be at least four.  It is the clinical department’s responsibility to use all of the material they buy.  In a sense, you can “eat all that you want, but be sure to eat all that you take!”  Thus, the buying activity is my responsibility (supply chain), but the second critical responsibility is the clinical department needs to document accurately what they are using, and that they are using what they take out of inventory!  If you bought it, and documented that you used it, then you better not be cheating the system.  Some nurses feel bad for the patient, and will charge the patient for the cheaper item, but actually use the more expensive one!  This can be avoided if the data is trustworthy, and the clinical system is easy to use.  The prior example of not being able to find the item from the clinical master is a big problem that has to be eliminated, to make it as easy as possible for nurses to “do the right thing.”  The problem, of course, is that most hospitals have no visibility into their clinical systems, and so never know if they used an item or not.  And without proper controls, the 40% unused items that you purchased but never used goes into a black hole, and is ultimately eating into hospital margins that could be used to invest in new technology and greater nursing staff and hospital services.”

The critical element here is to ensure that a hospital puts in a rigorous, documents process for billing patients and tracking materials in the system.  When there is a high level of data accuracy in billing, then the inventory management part of the equation is automatically solved for free!  Accuracy in tracking products going through the system from inventory through to use and billing is critical to solving the mystery of low utilization!

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Today’s guest blog is from John Stuart of the International Logistics Center.  He shares some interesting information about freight forwarding, that anyone in logistics should be aware of.

Freight forwarding is one of the most widely used methods of international transport for both business and personal use. Freight forwarding companies, like the International Logistics Centre, coordinate the shipment of goods from one destination to another using a range of carriers, including air freight, ocean freight, road fright and, in some cases, railway freight. The process of freight forwarding might seem daunting, especially if you’re not familiar with the process of freight shipping, but these thirteen facts you need to know about freight forwarding will help you through the process.

  1. What is a freight forwarder? A freight forwarder is responsible for the transportation of goods between one destination and another. Freight forwarding companies specialise in arranging the whole process for their shippers, from the storage to the shipping of their merchandise. They act as an intermediary between the shipper and transportation services, liaising with various carriers to negotiate on price and decide on the most economical, reliable and fastest route.
  2. A hassle-free way to import and export goods. Using a freight forwarder to import and export goods can make the whole process much less stressful. Extremely knowledgeable in the elements of supply chain, freight forwarders can assist on all levels, from the packing and warehouse stages to the customs procedure, taking some of the pressure off you.
  3. Freight forwarders provide a range of services. Freight forwarders can assist with the supply chain process on multiple levels including:
  • Customs Clearance
  • International export and import documentation
  • Insurance
  • Packing
  • Storage
  • Inventory management
  1. Can be advantageous to your business. Using a freight forwarding company for the transportation of goods to your consumer can be advantageous to your business in many ways. Using their knowledge and expertise, freight forwarders will ensure that your goods will arrive at the correct destination on time and save you money in the process, compared to doing it alone.
  2. They are not responsible for shipping delays. Freight forwarding companies are not responsible for delays in shipping. These delays often occur due to bad weather, breakdown, port delays or unforeseen route changes. Although shipping delays can be frustrating, it is important to remember that it is out of your freight forwarding companies’ hands and that they’re trying to resolve it as quickly as possible.
  3. It’s important to maintain a good relationship with your freight forwarder. Your freight forwarder is in charge of your precious cargo, so it’s important that you establish a good working relationship with them. You want to ensure that you choose a company that you can trust and rely on, as well as one with impeccable customer service to ensure that your cargo shipments arrive safely and on time.
  4. You need to make sure your paperwork is up to date. Before leaving your goods in the hands of your freight forwarder, you need to ensure that all of the paperwork for transporting your goods is completed. Your freight company will be able to help you with this, but it’s an incredibly important step to reduce the risk of your items not being released from customs or the bank refusing to release your funds – neither of which would be beneficial to your business.
  5. Shipping restrictions apply to certain products. Freight forwarding companies adhere to strict regulations and will not carry certain goods and substances, particularly by air or sea freight. Although the list of prohibited items varies from country to country, freight forwarders are generally restricted on:
  • Dangerous Goods (including flammable liquid and toxic items)
  • Drugs (prescription and recreational)
  • Alcohol
  • Batteries
  • Perishable items (except for those on special express delivery)
  • Sharp objects
  1. Ask your freight forwarding company about extra services. Many freight forwarding companies offer extra services for your shipment, so it’s always worth asking them when receiving a quote. These extra services include warehouse storage, cargo insurance, cargo tracking and dangerous goods handling. Even if you don’t require them, it’s always worth bearing these additional services in mind for future reference.
  2. There are six key stages of freight forwarding. The freight forwarding process can be broken up into six key stages, including:
  • Export haulage – the transfer of goods from its original source to the freight forwarders’ warehouse.
  • Export customs clearance – the goods receive clearance to leave its country of origin.
  • Origin handling – the unloading, inspection and validation of the cargo against its booking documents.
  • Import customs clearance – the customs paperwork for your cargo will be checked by the authorities.
  • Destination handling – the handling of cargo once it reaches the destination office, including transfer to the import warehouse.
  • Import haulage – the transfer of cargo from the import warehouse to its final destination.
  1. Your freight forwarder should provide you with a range of documents. With freight forwarding comes a lot of paperwork, especially when shipping overseas. Your freight forwarder should provide you with all of the relevant documents, including:
  • Commercial invoice
  • Bill of Lading contract
  • Certificate of origin statement
  • Inspection certificate
  • Export license
  • Export packing list
  • Shippers export declaration document

It’s essential that all of these documents are provided in order to ensure that your goods reach your customer without any issues arising.

 

  1. The strength of a freight forwarders’ network is vital. Well-established freight forwarders will have an incredibly strong network of contacts and experience in the business. Not only will this help you to get the best price for shipping your cargo, but it will also ensure that your goods arrive in a timely manner. Experienced freight forwarders will have encountered a multitude of problems along the way, so they’ll be able to quickly and efficiently deal with any issues which may arise as your goods are transported.
  2. Does your freight forwarder specialise in a particular cargo type? Some freight forwarders focus on a specific type of cargo, whereas some other companies accept a variety of goods. Finding a freight forwarder who specialises in what you’re looking to ship is beneficial. Not only will they have a team of specialists in place, but they will also have vast experience in dealing with cargo similar to yours.

Doing your research before choosing a logistics company will ensure that your goods get to their final destination in a timely, cost-effective manner.

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In our second SCRC presentation, a team from DHL Supply Chain spoke about how digital issues are changing their business.

DHL is a global business that manages 3.6M tons of airfreight, but also operates as Deutsche Post in Germany.  It is more than 450,000 employees in 220 countries, with revenues ofEuro  57.3M in Germany, and millions of shipments.    The organization includes their Express business, Global Forwarding Freight of Air freight, ocean, and road, and Supply Chain, that is focused on Contract Logistics and Industry Solutions.  Each division is about the same size, and a bit more labor intensive in supply chain (150,000 employees).

Omer Rashid is a senior director of analytics, having worked about 20 years or more with DHL.  Omer spoke about some of the key industry insights and trends, and noted that the amount of change in the last five years is exponential compared to what has come before. The first trend is around what he called the Amazon Effect.  Cyber Monday next week was projected to be the largest online shopping day in history – 6.6M orders on Monday.  About half of these orders were with Amazon, which is also moving into other businesses and industries as well.  (Note the CVS/Aetna merger in response to hints that Amazon was getting into the pharma chain!) The second trend is around personalization of direct to consumer shipments including special operations like gift wrapping. Accelerating SKU counts which must be picked with this customization, which combined with the massive demographic shifts and massive growth in e-commerce, is having a MASSIVE impact on the supply chain.

In the past, companies typically used a single national distribution center, with a 3 day BIC delivery time, and 5 day average shipment time.  In 2014, many supply chains move to a two DC model, one in the West, and one in East, which facilitated a two day delivery window.  The future supply chain network is moving towards a metro orientation, with consumer proximity, to accommodate Amazon delivery in 1-4 hours, small pickup lot sizes, short haul, same-day or next day delivery, combined with new and emerging delivery models.  This is driving a lot of change in industry infrastructure.  There is also a move to final mile delivery models to go by traditional parcel carriers.

DHL Solutions Design works as a global community of 325 highly skilled and motivated experts supporting DHL customers.  The team focuses on Facilty design for warehouses, transportation routing and scheduling, assembly kitting/packaging, and network optimization.

Omer spoke about how DHL is focused on using data to drive results, and conducting operational analysis to drive down costs.  Deconstructing data analysis to understand business processes happens before modeling, in order to create a proper baseline, which is used to drive the right basis for decision-making.  There may be short-term opportunities, but also customer-specific business rules and modeling paramaters that need to be considered, to help avert or postpone investments by discovering capacity enhancements.  The team can also build out “what-if” analyses and models to help impact the changes.

Omer discussed two very interesting case studies that illustrated how these business models can improve decision-making.

Case 1:  Traditional CPG Network.  The first case involved a traditional CPG network to ship full pallet load, full truckload, and customer orders, and a changing landscape including different channels, SKU proliferation, and smaller orders, moving to a pull model to postpone deployment of inventory.  The goal was to develop a future state network to optimize service, cost, flexibility, and agility, and to provide a second set of eyes on input operational realities and provide a roadmap for implementation.   Step 1 was to collect detailed demand data, and build a model to vary growth scenarios, service levels, and trade off costs vs. service levels.   Step 2 involved building the models. Step 3 was an implementation roadmap, and Step 4 involved building out a future state cost model projection.

Case 2:  Carton Optimization – FedEx and UPS two years ago went to dimensional weight pricing, whereby customers are charged for cube utilized, not just weight.  In e-commerce, this was seen as a big challenge for controlling costs, and suddenly getting the carton filled with less “air” became more important.  Optimizing the sizes of shipping cartons and the new dimensional weight charges to reduce cost became a priority.  We tasked our team to create a decision-support tool around the number and size of cartons – and the operations we run involved WMS information, shipping, item master informaton, and other data.  We cube each order, and create a feasible carton size, the optimal number and size of cartons, and based on that establish the right cartons to take advantage of the tools.   We could change the size of a shipping order using optimal amount of 15 cartons, providing an annual savings of 2.1M of operating cost.

Data and analytics will continue to be critical, but so will the ability of students to learn how to model real-world and projected business situations using different analytical tools for decision-making.

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We had a very successful SCRC meeting this past week, and the speakers provided some fantastic insights to the group on the emerging trends in the digital landscape facing supply chain executives.

Todd Greener, Senior Vice President of Supply Chain at Advanced Auto Parts, led off the discussion (after I provided an overview of what was happening in the digital space).  Advanced Auto Parts (AAP) is a $10B company that provides after-market parts to auto owners, and is seeing strong growth based on vehicle sales.  They are also keenly aware of the move towards autonomous vehicles.  The organization is moving towards an increasing analytical function, and a core cultural belief is around a passion for customers, speaking up, taking action, and moving forward.   With the merger between AAP, Carquest, and WorldPac, there is now a long-term strategy to win, and supply chain growth is a big part of connecting assets and presenting products to the customer is a big part of the strategy.

The company has made a significant investment in talent to begin its journey into the world of Artificial Intelligence. (Our own NC State doctoral graduate, Yung-Yun Huang, is working on this effort!)  Much of this investment is being driven because of the complexity and agility that is inherent in the auto parts business.  AAP has over 300,000 customers a week they distribute to, and a lot of small garages as well as the DIY customer.  Having the part within 30 minutes is really important if a car is up in a bay, and an installed base of 2 million vehicles is a huge part of the value proposition.  Last mile fulfillment is a key component of value in the network, and timeliness is key.  Having all the brands from OEM and near-OEM brands available at the right price point for customers, to facilitate easy decision-making, is an important value proposition.  The current AAP distribution is not integrated across the three banners, so there are clear opportunities for improving efficiency.  The numbers themselves are staggering:

  • Carquest – 20,000 SKUS same day delivery, 90K SKU next day
  • Advanced Auto Parts – 40,000 SKUs same day delivery, 120,000 SKU’s next day
  • World Pac  –  45,000 same day delivery and 110,000 next day.

Each of these companies has a different catalog and availability screen online.  Cross-banner functionality is a key part of the integration effort.

“Right part- right place” is a key metric for availability that is at the core of AAP’s digital transformation.  Machine-based learning will be a core part of identifying how to put the part out in the right place to be able to sell it.   To provide this level of variety with same or next-day customer service, AAP is by definition a slow-moving inventory business, with about 1.2 turns per year.  There are a lot of assets and 100M SKU-Store combinations involved, and landing those parts to serve the long-end of the tail is a continuous challenge. Assorting and stocking in the network is a big cultural change for everyone in the organization.

AAP has over 17,000 vehicles that do last mile delivery, pizza-delivery style, with over a million deliveries a week to customers.  Todd notes that “Historically very decentralized, we have taken an initiative to centralize management of these assets, and provide visibility to how we are performing on last mile.  Telematics, third party software in the storefront, is being used to measure our end customer delivery responsiveness.  This investment came about as we recognized that in a meeting, a board member asked a simple question: how long does it take  to get products to customers, and do you know if you are performing well or not?  This question helped us recognize that we had no visibility over last mile logistics.  So we have started to create an exciting roadmap for improving our order delivery time on last mile, but also having assets deployed and utilized.  Big efforts around Machine-Based Learning is occurring around dynamic dispatch and assets on the road and in our stores.  How do we do more order promising with our customers, as most deliveries occur between 10-3 when the garage is open, and at the end of the day, how do we set up for the next day?  This is a technology rich area, and excited about the power of the fleet.

AAP is working on transforming end to end processes with big data.  There are over 2M catalog lookups per week, over 6500 stocking locations, 100M store-sku combinations, 10M units shipped per week, and 1M professional deliveries per week.  The focus of using big data is on adding big data expertise across key functions, upgrading and standardizing data/analytics infrastructure, incorporating machine learning/AI capabilities to improve traffic, assortment/stocking, delivery, and pricing.  The team is also focusing on the need to drive electronic transactions to replace phone orders for customers. The quality of the information is much better and actionable when captured by a machine.  Theuy are also incorporating MBL and AI in traffic management, Todd notes that “Being able to make rapid decisions from a transaction standpoint is critical for us.  Telematics data, and the 30 second pings, the fulfillment information, the driver information, and what the vehicles are doing is all data that can be leveraged.  And we know we have to invest in these capabilities to be competitive.”

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Our prior post discussed the benefits and challenges of visibility in logistics.  But WAIT!  There’s more to it than just benefits. Carriers and shippers should also proceed carefully as they move into the era of visibility, and start asking the following questions:

  • What are the legal implications of tracking and visibility, and how will it wind up taking dollars out of your pocket?
  • What are the biggest concerns in times of claims, injury, and documentation of claims?

The biggest issue today that shippers have to worry about is freight loss claims, personal injury, and of course, liability!

Tamara Goorevitz noted that in the past year that have been a number of “NUCLEAR” verdicts in trucking litigation cases.  “Examples of some of the awards that juries are making across the country in trucking verdicts include amounts like $51M, $35M, and event $178M.  Maryland has a cap on non-economic damages, but is one of very few states with a cap.  Most of these cases are liability/personal injury claims.

A question:  How much liability are most truckers required to have?  The minimum is that one must have 750K$ .  Most have $1M of coverage for the carrier, because even though they did not cause the damage in many cases, they were present.  Tamara notes that “I am a defense attorney!  So I know what the other side is asking:  Where will they get that money and how many motor carriers are there?  We will go up the chain, and will go big.  To keep yourself in business, there are plaintiffs attorneys that are finding out what transportation is doing, and trying to find the big deep pockets to pay damages like the $281M damage awarded in Texas – because the smaller carrier won’t be able to pay.”

An example of a typical case shows the categories of awards made.  This is based on a truck accident on a highway.

  • Past medical expenses – $20M.
  • Future care – $35M.
  • Past lost wages $23,000
  • Pain and suffering (past) $15M.
  • Future pain and suffering $15M

Other categories include “scarring and disfigurement, $12m, past loss enjoyment of life $8M, Future loss of enjoyment of life, $20M, and on and on.  Juries are going “nuclear”, as when they hear a case and hear the injury, they are willing to go with whatever categories the plaintiff’s attorney comes up with, and whatever numbers they are attaching to them!

Goorevitz notes that “We are in a world of direct liability through channels.  These cases are involving direct corporate liability, with the presumption that carriers are involved in negligent hiring of drivers, negligent training, supervision, retention, etc.  The perception is that carriers are all cutting corners on safety for the almighty bottom line, and espousing the idea that this is a matter of dollars over lives.  The idea of profitable transportation providers is something that is inherently “bad”.  And these plaintiff lawyers will follow up with “we all know that these transportation corporations are all bad!  How many of you have been on the road when a trucker drove into your lane and almost hit you!?”  However, none of these plaintiff’s attorneys every bring up the fact that everything you wear, that you eat, that you use and buy at a store, came on a truck, and arrived there somehow.  Or that the Amazon package that arrived at your doorstep had to travel a circuitous route to get there on a truck.  They conveniently forget about this minor detail.

Part of the problem of course involves “Society’s Perception of Money”.  The extreme media coverage of large salaries of high profile sports atheletes, movie stars, and CEO’s has blown the concept of money out of the water.  Five years ago, if someone wanted $1M as a settlement – that seemed enormous.  Now if someone wants $1M, the attitude is almost “where do we sign the check?”  There is a different perception around lawsuits, almost as if settlements should be awarded like lottery winners.

Which brings us to the issue of Information Overload.  Tamara notes that “We are battling what we need to know versus the availability of information.  Good customer service brought about by transparency, tracking, and monitoring essentially equals bad legal facts.  Despite your good intentions of wanting to  know what is going on, and the more you try to control it, the worse it becomes in defending yourself if a lawsuit arises.  You want to give good customer service, but the availability of data used in tracking can often serve to bolster the case against you.  Sad but true.

This of course raises issues about privacy concerns.  On the legal end, the more involved and the more you know about a particular load and what it is going to do – the worse it can be for the lawyer who is defending you.  The more you know about it, the more information you have, the more sharing you have with partners, the better (so goes the argument).  But what is also left out of this argument is that  More information = Higher Duty of Care!

Tamara notes that “We now know where the driver is minute to minute, and that concerns me legally!”  We don’t have enough time to deal with more sharing or data – because shippers are stating that  they want this information, and they expect it.   But because you share it with your shipper, and that you have this information, does it mean you should give it out to everyone?  What is my Duty of Care?  What is the standard legally that I am held to in terms of being held negligent?  What would a reasonable company do in this situation?”

“These are all important questions to consider. For example, I know where the trucker is, and when he will arrive, and his breaks, and his routes, and how fast he is going.  No situation where I have to delve into that as a shipper.  I don’t control him, and never reasonably expect to call him and tell him he is over his legal hours.  Am I creating a higher duty of care?  It is changing!  We are incorporating this all the time.”

Tamara also notes that “One thing I do know is plaintiff’s attorneys will be all over it, and will be excited about the information you have and what you know about it.  Don’t just adopt it because it is available – but look at how you are getting that information.  Trucker on Trucker tools can turn off the information – and it may be there but not shared with the broker.  How you get that information and share it, requires that we begin to start thinking about questions like “do I need everything that is available, and what am I doing with it?  Who am I sharing it with?  I am assuming that people have training – can a broker negligently hire a carrier who will then go to a jury?”  Are you exercising too much control over the load and the driver? If you have all this information – is it for the purpose of controlling?  But if it is only information – just because it is available, do we really need it?  There needs to be a policy about what we are going to do with it.  Customer service that is good can also create bad facts that increase your liability.  A load confirmation sheet will provide documentation that we are outside of the contract!

You shouldn’t need to know where it is, or if they don’t accept it.  Great to be able to go back and have that information and understand what went wrong – but this also allows the shipper to blame the carrier.  Having data in real-time is no problem with I’m expecting it to arrive.  GPS shipment trackers can track freight over the globe,  helping to avoid cargo theft, understanding where it takes place and seeking advice of areas to avoid.  Pharma has specific products that can need monitoring, and having the controls on high value freight is required just to get insurance coverage!  To back all of those high value loads – there is most definitely a need to understand where a shipment is and avoiding those areas that are not so safe.  And across different modes, it also becomes important, as there are some docks in Los Angeles that are known for bribery among customs agents, and having truckers avoid those specific docks provides another level of control.

What makes the case for visibility even more compelling is that deliveries for big box retailers often have contracts with heavy financial fines for not delivering on time.   Having a tracker can be helpful for a number of reasons:   knowing ahead of time if you will be delayed, tracking how long you have to wait wait, and being able to document from a legal viewpoint if the delivery is counted late and having an argument that you arrived on time but were made to wait.   Lawyers are largely concerned about risk assessments and have discussions about what are acceptable risks.   It is therefore important to begin to consider the legal considerations around visibility of transportation and make an educated decision on the acceptable level of risks.  At what point does this customer request for information turn into control over our drivers and our operations, and how can we become the intermediary for information without relinquishing control. He who has the gold makes the rules! And shippers need to own the gold.

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At a recent CSCMP meeting, I attended a session of transportation providers called “Supply Chain Visibility and the Possible Legal Implications” – and the participants shared some insights into their serious concerns about the implications of visibility in the transport world.

In transportation, people want to be able to see the loads on trucks, but the speakers at this session pointed out that sometimes people  forget about what might happen when everyone can see the information.  A three person panel, including Prasad Collapali from Trucker Tools.  Jason Beardall, from England Logistics, Tamara Goorevitz, a lawyer who deals with lawsuits and litigation around transportation, shared insights into this issue.

Prasad Collapalli began by discussing how the tracking and monitoring of freight and assets to optimize asset utilization and operations is typically viewed as a great tool to have.   In addition the goal of using visibility tools is to identify exceptions and delays.  Asset utilization includes trucks, and resources, and operational optimization of these assets is key.  Note that the goal of visibility is NOT to monitor where the trucker stops, etc…but should just be about tracking freight.  Real-time accurate tracking and monitoring is key to establishing the right level of  visibility, to see what is happening and when, and this can only come when there is real-time (every second) freight time monitoring.  A 5 mile radius tracking doesn’t help you monitor freight.  If you go through Atlanta, it could take you five hours to go five miles.  Accuracy of information will become key to improve operations and information.

Amazon has taught us that everyone who has Amazon Prime account now expects two day shipping!  Amazon NOW is a new offering that promises 3 hour delivery from point of purchase, and this is being tested in large markets.  The NOW approach redefines the way that logistics is set up, with more DC’s which are closer together, and knowing spending habits, how quickly they are buying, and having product stocked in the market.  Prasad notes that “we had four offices in China and we met up with the Ministry of Transportation, and went into their war room.  We were amazed to see that the MoT monitors EVERY truck in the country in real-time, and each is being tracked.  They could push a button and put a carrier out of business for a hazmat load that is out of compliance!”

“This is not the case in Western markets, as we are a market based on capitalism, so the visibility technology has to be adopted, and one could argue that it is evolving.  A big problem is that the average profitability for OTR truckers used to be in the range of 6-9 points, but we are now down 3 points to around 6-9 points.  Shippers are looking for extended payment terms!  The 3PL world is trying to relieve the tension that is mounting between shippers and carriers, and seeking to create extended pricing commitments that can lock down terms. Shippers want two year pricing commitments, but their attitude is “if the market shifts in our favor, we will revisit the agreement – but if it goes in the other direction we will hold you to the terms!  A big problem has to do with the nature of unpredictability in this market, whereas in the past shippers could predict rates, produce levels were predictable, and business was good.   In today’s market we don’t know what will happen next week!  So committing to 12 – 24 months rates has created tension in carrier/3PL relationships.  Shippers are coming to realization that they see the value in long-term contracts, but there is a requirement to bid to the market, extend payables, and increase fineds for loads not tracked. Everyone is feeling the pressure.

Jason Beardley pointed out that tracking of shipments is being used against carriers.  The technology is moving in the direction where a shipper will require the carrier or broker to contractually agree that product rejection is not subject to the confirmation by a a desired individual. So technology will be important here, as there was be a lower need to check calls, improve optimization of routes, and reduce waste in miles and freight.  Market visibility will be key, as real-time visibility can result in fewer empty miles and greater productivity.  The benefits will accrue as follows:

  • 3PL’s – fewer check calls, greater productivity, streamlined bill of lading and back office operations, reduced rates, market visibility.
  • Shipper – reduced cost of transportation, better load planning and dock management, greater market visibility and predictability.

In our next post, we discuss how the benefits have to be tempered against the risks of having complete visibility.

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Our upcoming meeting on November 29th, the 36th semi-annual Supply Chain Resource Cooperative meeting, will explore some of the more interesting aspects of how organizations are coping with the availability of greater visibility in the supply chain.  While the benefits of creating a supply chain which is “LIVE, INTERACTIVE, VELOCITY, INTELLIGENT, NETWORKED, and GOOD” has been touted in my own book “The LIVING Supply Chain“.

In this meeting, we will be exploring some of the many challenges that exist as we think about what this means for the natural ecosystem of our economy and enterprises.

In my keynote, I will explore some of the topics here that impact this issue, including the impact of visibility on the transportation system, the new technologies being deployed around block chain, smart contracts, distributed ledgers, and visibility through the Internet of Things.  I will also discuss some of the downsides that lie ahead, including the possibility of exploiting visibility in transportation and logistics, the impact on exposure to diversion and counterfeiting, and the challenges around deployment across a global scale.

This will be followed up with practical insights by a group of executives.  Todd Greener, SVP of Supply Chain at Advanced Auto Parts, will share how his organization is using data to help drive improved decision-making, as well as the challenges of working with large amount of data across a large global network.  This will be followed by a presentation by Omer Rashid, Director of Solutions Design and Vince Peters, Vice President of Business Development, entitled “Data Driven Solutions for the Supply Chain”.  In this session, DHL will share their experience in working with large volumes of data for multiple clients in multiple geographies, and how solutions need to consider all of the security and IP issues as part of their design.

Finally, the day will conclude with insights from Vel Dhinagaravel from Beroe, Todd Carrico from Cougaar Software, and Rob Allan from IBM Watson Supply Chain, discussing some of the challenges each of them has seen in managing an ever expanding pool of data from clients.  The panel will be opened up to the audience, leading to what will be hopefully a great interactive discussion.  You need to be there!

 

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I had the privilege of being on a webinar today with Jeannette Barlow from IBM and Simon Ellis from IDC.  The focus was on the impact of AI on supply chain decision-making, and I spoke about a recent case study on IBM’s application of Watson to their own supply chain.

IBM, like many large enterprises, is always under pressure to drive shareholder returns.  And like many other companies, their leaders recognized that they needed to respond to the business drivers that created revenue growth, new market penetration, and on-going cost savings.  The supply chain is certainly a source of improvement for driving these elements, and like other companies, IBM’s supply chain contained too many suppliers, black holes where material disappears under the radar, inbound/outbound disconnects, and other discontinuities in their end to end business processes.  The leadership team also recognized that the only way they could be more agile was to focus on changing the end to end supply chain in a way that was entirely novel.  There was a real desire to have information more quickly, in realtime, to be able to access information about what was happening more quickly, to respond to problems, but also to drive quicker business insights and exploit opportunities to add value for clients.  Data governance was a challenge, as there often existed multiple versions of data and no single source of truth.!  And all the while there were also escalating requirements for compliance, both from a legal standpoint, but also in terms of sustainable operations, and to exploit the power of Watson to make this happen!  In particular, the leadership team recognized that there were four areas that required improvement right away.

 

  • Risk Identification– One of their executives noted that “we didn’t identify risks and issues early enough. We were like a raft in the river, with no ability to see around the corner, and not knowing what rapids lay ahead, and floating along wherever the current took us!”  Supply chain problems were always recognized after the fact, and were not being predicted ahead of time.  In retrospect, the signs of a disruption were evident, but nobody knew how or where to look for them ahead of time.  On the other hand, maybe somebody, somewhere in the supply chain, may have some inkling about the problem, but not the person responsible for calling the shots or making the decision.  And so nobody was able to adjust the pace, and the entire organization went along like a raft in the river, responding to every current and eddy that moved it along at whatever pace the river determined!  Nobody was in control of the raft, and it was a constant reaction to events.
  • Lacking the Right Information – Some risk management systems provide alerts. But alerts are just that – like a light that shows up on your automobile dash panel, telling you that something is wrong.  But like a dash panel alert, it doesn’t tell you what the nature of the problem is, the technical details on how the problem can be solved, or the exact location of the issue.  To create a truly transparent solution to risk management, it is critical to identify the element metadata associated with the problem, and the touchpoints in the network that need to come together to address the issue.  The user experience should be characterized by immediate notification to and event and the right information to make a decision.
  • Teams Make Decisions, Not Individuals – The third critical need identified was the recognition by IBM that decisions are made by cross-functional, cross-enterprise, and multiple tiers of people, not by individuals in a void. In order to respond to an issue or decide on resource allocation in the face of uncertainty, multiple points of view almost always yield a better decision.  But the speed of decision-making is also important.  So the challenge became, how can IBM build a solution room to enable a virtual come-together meeting, as opposed to the usual chain of emails and texts that often cause more confusion than anything else!  IBM recognized that ‘we are good at working on big problems in a war-room taskforce environment, but often struggle with the small day-to-day issues that arise’.  The ability to create a smaller “resolution room” that could be rapidly deployed in an ad hoc manner, to address supply chain issues in an agile manner, was another major business driver that led to the need for real-time transparent supply chains.
  • Learning from the Past – The final business driver that led IBM to pursue this strategy was the fact that the same issues often occurred – yet were treated as new every time. The team recognized that while they were creating “gold nuggets” each time in response to issue resolution situations, there was no way to capture the key “lessons learned” to create organizational learning from these instances.  The team recognized that ‘if we could digitize the way we solve problems – in terms of who was invited, how long did it take, the metadata and dynamics of the team, an the content that ended up solving the problem, we could respond more quickly to similar situations that came up!’  This became part of the cognitive approach, that required creating a system that was enabled with ways to learn from situations, and that learned from these instances, capturing these essential elements and creating a closed loop on how to better manage the end to end supply chain.

Individuals dealing with an issue must be able to understand the processes of the end-to-end supply chain, and be able to come together with others in a fast action plan.  This requires individuals who are willing to be key informants, and who are willing to transcend typical functional barriers between sales, operations, and procurement, to drive the right solutions.

In this webinar, Simon also discussed his views on how intelligence, analytics, MBL, and cognitive computing are moving together along a continuum. Jeannette spoke about the “supply chain playbooks” that IBM is designing around their Watson capability.  I learned a lot from these individuals, and urge anyone who is interested to take the time to listen to it, and read the case study on the topic.

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The Supply Chain Resource Cooperative held its first ever “Executive Roundtable on Excess and Obsolete Inventory” on the NC State campus on October 25, 2017.  The event was attended by 25 executives from a variety of different industries and backgrounds.  Inventory Management Partners sponsored the event, and helped to bring together the format and content for the discussion.  The objective of this session was to openly discuss some of the challenges that exist in managing this over-looked asset, and begin to shine a light on approaches that can be more effective in dealing with the issue.

After much discussion, the executive roundtable identified a number of approaches that were deemed necessary to deal with E&O.  In the end, excess and obsolete inventory occurs because of mistakes, mis-aligned decision-making, and lack of consideration of the cost of inventory in countless decisions, including product design, sales forecasting, sales and operations planning, and lack of awareness.  The following issues are some of the suggestions executives identified.  The SCRC will be working further on these challenges in the coming months, and explore them in greater detail.

Assign Accountability.  Executives need to deal with inventory issues as they arise!  Organizations need to be proactive about how to avoid making the decision, and when it does occur, immediately seek to address the issue.  Can it be used somewhere else, or can we assume we won’t use it and absorb that cost into the business and recognize it?

Design products with the end of life cycle in mind.  Ensure that engineers are more aware of how design parts left over at the end of the product life cycle will consume working capital, and train them on these costs.  For example, Huawei had a component engineering team reporting into procurement, and they were responsible for dicating components that went into every line of business to ensure maximum flexibility for usage of parts.  They forced component engineers to pull designs from existing baskets of parts, which addresses many of the problems with complexity and avoiding unique parts.

Management awareness of E&O impacts.  Is there a senior management team committed to driving down Excess and Obsolete inventory levels.  E&O should be viewed as pure cash. For example, more and more companies are establishing incentives for sales people who now earn part of their bonus based on how accurately they forecast to the SKU level, not to the planning level (which aggregates many parts and which is relatively stable and easy to forecast).

Planning and Sales communication.  There needs to be important communication channels between planning and sales managers.  The discussion could include a dialogue that includes a discussion such as “how real is your forecast?  (I won’t expose you)”. Sales people tend to load their forecasts by as much as 10%, which drives the MRP orders. There needs to be a one to one relationship between sales and demand planning to ensure complete transparency and real-time communication.

Change sales incentives.  It also helps if sales team bonuses are tied to inventory and tied to budget on S&OP’s.  Metrics on sales forecasts not only on final shipping, but on configuration and BOM accuracy is an important element. Customer-named accounts and configurations can help to improve sales accuracy, and to drive accountability for how the inventory was generated to a specific customer order and sales person can drive accountability six months down the road.  Sales people will change their behaviors under these conditions.

Develop an E&O narrative.  There needs to be a story constructed around how inventory is generated, and accountability for the inventory, to drive out the buffer planning behavior that occurs. There needs to be reviews of min-max cycles, minimum liability planning on configured products, and intelligence narrowing of the product portfolio as a result.  Product design standards and ownership is key.

Focus on forecasting performance for mix, not final product.  Forecasting performance analysis should be used to understand the strategy around what products/components will be consistently inaccurate.  At one company, leaders challenged managers to understand people are ordering parts, and performing a deep analysis on what parts were driven into the supply chain through poor planning activities, which can help to prevent such problems from recurring. A pilot project was done to look at service parts through tier 2 components, what was being purchased, the MOQ’s, and having suppliers share what they were seeing vs. what was being ordered.  Opening up discussions with partners on leadtimes, inventory levels, and forecast accuracy can start to open up the discussion.

Measure life cycle inventory cost.  A planning process in the design stage can also help to build in the cost of inventory early on.  A best practice at one company is to establish during the design phase the life cycle cost for components, and define the total life cycle cost of having ANYTHING in inventory over the life of the product.  At least setting a planned number makes sense and can enable a category strategy around that target to be established.

Evaluate decision impacts related to E&O.  There also needs to be some work around the cost of decisions and their impact on inventory.  What is the cost of an engineering change and the resulting E&O cost?  What is the cost of a new product and end of life inventory write-offs?  Development cost of product should include tooling, supplier qualification, warehousing, and write-offs at end of life.  Focusing on these costs can start the conversation going on cost of complexity.

While there is no “silver bullet” to resolving the E&O problem, awareness and focus across business functions, and the real impact on working capital and profitability needs to be clarified and measured against desired actions and strategies that are unknowingly the cause of many of the problems.

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An important differentiation between data governance, business intelligence, business analytics cognitive analytics and predictive analytics is needed as a basis for building a digital supply chain strategy.  Every organization needs to define for themselves the differences between these terms, and not just bend to how external consultants are professing to position their views on these concepts.

Data Governance” is the exercise of authority and control (planning, monitoring, and enforcement) over the management of data assets.[1] The basic components of data governance ensure the split of accountability and responsibility related to data thus empowering better decision making while using data from disparate data sources and methods. In effect, data governance provides a system of decision rights and accountabilities for the information-related processes, executed according to agreed-upon models which describe who can take what actions with what information, and when, under what circumstances, using what methods.[2]

A data governance program can provide many benefits, including,

  • Increasing the value of your existing data by identifying ways to utilize it.
  • Enhancing existing processes and build additional processes that work better
  • Decreasing the cost of managing data through synergies with other organizations
  • Standardizing policies, standards, procedures and systems related to data
  • Providing ways to resolve existing problems related to data (such as quality, availability, security etc.)
  • Improving transparency through socialization, dissemination and creation of awareness
  • Ensuring better compliance, security and privacy
  • Increasing revenue through improved customer-facing responsiveness
  • Enable better decision making in the end to end supply chain
  • Reducing organizational strains related to data issues

Business intelligence (BI) is a technology-driven process for analyzing data and presenting actionable information to help executives, managers and other corporate end users make informed business decisions. Sporadic use of the term business intelligence dates back to at least the 1860s, but consultant Howard Dresner is credited with first proposing it in 1989 as an umbrella phrase for applying data analysis techniques to support business decision-making processes. What came to be known as BI tools evolved from earlier, often mainframe-based analytical systems, such as decision support systems and executive information systems.[3]  Typically, business intelligence can be used for ad hoc analysis using visualization tools.

Analytics is the outcome of a series of advanced operations performed on data extracted from business intelligence systems. Business analytics may include dashboards, visual graphics, charts, etc. that are developed using tools such as data mining, predictive analytics, text mining, statistical analysis and big data analytics.  In many cases, advanced analytics projects are conducted and managed by separate teams of data scientists, statisticians, predictive modelers and other skilled analytics professionals, while BI teams oversee more straightforward querying and analysis of business data.

Gartner notes that the BI and analytics platform market is undergoing a fundamental shift. During the past ten years, BI platform investments have largely been in IT-led consolidation and standardization projects for large scale systems of record reporting. These have tended to be highly governed and centralized, where IT-authored production reports were pushed out to inform a broad array of information consumers and analysts. Now, a wider range of business users are demanding access to interactive styles of analysis and insights from advanced analytics, without requiring them to have IT or data science skills. As demand from business users for pervasive access to data discovery capabilities grows, IT wants to deliver on this requirement without sacrificing governance.[4]

Gartner also notes that as “…companies implement a more decentralized and bimodal governed data discovery approach to BI, business users and analysts are also demanding access to self service capabilities beyond data discovery and interactive visualization of IT curated data sources. This includes access to sophisticated, yet business user accessible, data preparation tools. Business users are also looking for easier and faster ways to discover relevant patterns and insights in data.”

According to a recent study by the International Institute of Analytics and the SAS Institute[5], BI adoption is more prevalent across the organization than advanced analytics. They note that “While the path from basic reporting to more advanced analytics work is often considered as a shift from BI to AA (Advanced Analytics), the reality is that advanced capabilities should augment, not replace, less advanced functionality.”  The reasons stated for this include criticality to business, recognition of benefits and utilization in strategy. Organizational weaknesses are perceived to be one of the strongest deterrents to the adoption of BI and advanced analytics practices across organizations. Data Governance programs are fundamental to both BI and BA outcomes, as it is critical to ensure acceptable data quality levels.

In many companies, pockets of analytics practice have developed in a random and disjointed way. Organizations need to develop a strategy for development of BI platforms to create advanced analytics, but in a structured and planned fashion that allows the greatest flexibility for multiple business units to conduct their own functional analytics, using a common and trusted source of data.

A variety of opinions, debates and points of view have emerged regarding the differentiation between BI and BA. For example, experts have claimed that BI is a noun and BA is a verb, that BI is backward-looking and that BA is forward-looking, and that BI is needed to run the business while BA is needed to change the business.[7]  Discussions can also wander into data structure and quality, internal or external analytics, or customer vs. supplier focused analytics.  Due to the confusion of issues, it is imperative that a common framework be established within any organization to provide a common language for creation of a strategic vision of the future.

[1] DAMA UK Working, Group. (2013, October). The Six Primary Dimensions for Data Quality Assessment. Retrieved from http://www.damauk.org/rw/CatViewLeafPublic.php?&cat=403

[2] Thomas, G. (n.d.). How to use the DGI Data Governance Framework to configure your program. Retrieved from http://www.datagovernance.com/wp-content/uploads/2014/11/wp_how_to_use_the_dgi_data_governance_framework.pdf

[3] http://searchbusinessanalytics.techtarget.com/definition/business-intelligence-BI

[4] Gartner, “Magic Quadrant for Business Intelligence and Analytics Platforms” 23 February 2015 ID:G00270380.

[5] International Institute for Analytics. (2016). IIA Business Intelligence and Analytics Capability report. Retrieved from http://iianalytics.com/analytics-resources/2016-business-intelligence-and-analytics-capabilities-report

 

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