Jimmy Alyea, MBA: planning

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Saturday, March 10, 2012

Supply Chain Flexibility

“E-Commerce & Multi-Channel Fulfillment:

Supply Chain Flexibility Key to Meeting Changing Demands”

Case Study Summary by Jimmy Alyea

Customer expectations in the online retail world are presenting supply chain professionals with a paradox, e.g., “how to do more for less.” Today’s e-commerce customers are able to access an unlimited number and variety of products that they expect to be shipped quickly and free. In order to stay relevant and profitable, many online retailers face the complex challenge of having to build or reorganize supply chain infrastructures that are flexible enough to meet the ever-growing expectations of consumers. This commitment to customer satisfaction is hindered by rapid growth of online retail sales and unpredictable consumer demand due to ongoing financial uncertainty. The dilemma of retailers is to balance these drivers against a central priority of reducing or controlling supply chain costs.

Keeping the customer happy.

Raised consumer expectations of faster, free delivery and increased cross-channel services puts pressure on e-commerce retailers to provide more for less to differentiate a brand and stay competitive. One low-cost solution is to implement process mapping of the order cycle to look for time inefficiencies in each element of the delivery process. A more capital-intensive option is to put additional distribution nodes in the network. Raised customer expectations also present retailers with the challenge of providing seamless cross-channel services. The key to successfully transferring brand experience between channels is to have the visibility and business intelligence tools necessary to coordinate the interaction in a cost-efficient way. Failure to implement initiatives to meet customers’ perceived standards can negatively impact sales, but fulfilling them is not without risk.

Negotiating peaks and valleys.

To successfully meet customer demand, online retailers must be able to negotiate the differences between peak and off-peak demand. Although many feel competent to handle predictable peaks and dips, they are challenged to handle demand volatility caused by the impact of economic uncertainty. Rapid shifts in consumer confidence, combined with the lengthy time delay from when forecasts are made, highlight the importance of supply chain agility. Retailers can either over-stock or under-stock, but they must be adequately prepared to minimize the risks of doing so. This would include utilizing relevant supply chain metrics, close collaboration between sales and operations planning, and seeking collaborative opportunities with other retailers. Such collaboration can be facilitated by third-party logistics companies that provide access to shared-use facilities.

Finding a flexible structure.

The online retailers interviewed were focused on a long-term growth strategy as part of their supply chain plans. Redesigning the retail supply chain provides the opportunity to build flexibility into the structures and processes needed to grow, as well as the means to get closer to the customer. One way to do this is to utilize shared-use facilities which can provide cost efficiency and agility to support peak management and demand fluctuations. To be viable, providers of shared-used facilities need to offer customizable services to facilitate retailers’ control of order cycle times and the delivery experience. Online retailers must also have the right systems in place to allocate stock efficiently between channels and to reduce cross-channel conflicts and the impact of sudden demand peaks in one channel.

Conclusion.

Expanding a retail business in the growing e-commerce world requires aligning and integrating traditional and e-commerce channels and systems to meet customer expectations. As customers increasingly expect fast, free delivery and seamless cross-channel services, retailers are striving to meet these demands in order to stay competitive. Growing retailers without an established network must decide whether to make internal adjustments to their supply chain structure or outsource to a third-party logistics provider. They must also deal with uncertain economic times and rapidly changing technology. With a goal of flexibility, outsourcing provides immediate gains in speed, agility, and scalability of facilities and people. Making the right decisions at the supply chain level helps increase turnaround times, balance seasonal fluctuation, and provide a supply chain infrastructure that facilitates rapid growth.

About Jimmy Alyea:

Jimmy Alyea lives in Houston, Texas, and holds two Bachelor of Business Administration degrees (Supply Chain Management and Marketing) and a Master of Business Administration degree. Follow Jimmy Alyea (James L. Alyea) on LinkedIn, Twitter, or Blog.

Case Summary Reference:

www.exel.com

Friday, February 10, 2012

What Does a Perfect Order Mean in Logistics?

What does a “perfect order” mean in logistics?

by Jimmy Alyea

A perfect order is what is “perfect” for end customers since they ultimately provide profit to the company. A more technical definition is perfect orders mean delivering the desired assortment and quantity of products to the right location on time, damage-free, and correctly invoiced. Thus, the goal of the supply chain is to find a perfect balance between efficiency and responsiveness in order to make the most profit.

Information is now traveling at a very fast speed thanks to advancements in technology such as computers, the Internet, and smart phones. Because of these advancements, global competition among firms is increasing so firms must rely on their supply chains to provide competitive advantages.

While the goal in logistics is to have everything in the supply chain go according to plan, it rarely happens. Humans are imperfect by nature and, according to Murphy’s Law, “If anything can go wrong, it will” (www.murphys-laws.com). For example, an order might have the wrong quantity or the wrong items, arrive late or too early, go to the wrong destination, or contain damaged items. Unfortunately, the speed of information makes these mistakes visible quickly, and customers can easily develop a negative perception of a firm’s service.

It is possible to change customers’ negative perceptions, though. While a picture is worth a thousand words, actions speak volumes. A firm must overcome a negative perception by working to improve it, and the first step is admitting its shortcomings. In the 1960’s, Hertz was the number one rental car service in America, and Avis was a distant second. However, that did not intimidate ad agency executive Bill Bernbach who said, “We knew our ad campaign, which stated ‘Avis is only number 2. We try harder.’ would work because if there is one thing America loves, it's the story of an underdog finding a way to win.” Sure enough, customers responded by using Avis’ services, and the company gained a larger market share because of this approach!

The next step in improving a company’s image is to set goals and then work towards reaching them. As Hall of Fame Football Coach Vince Lombardi once stated, “Perfection is not attainable but, if we chase perfection, we can catch excellence” (www.vincelombardi.com). We are what we repeatedly do. A firm has to take action and make corrections to their mistakes. Then, they must strive to do better each and every day. The last steps include making sure customers are aware of the firm’s responsiveness and ability to solve problems through the use of advertising and public relations. Once this tactic has been implemented, it is up to the company’s Sales and Marketing Department to ask for the customers’ business!

About Jimmy Alyea:

Wednesday, February 1, 2012

E-Business Distribution Networks

How Amazon has used its distribution system in e-business, and general features of e-business distribution networks

by Jimmy Alyea

Distribution systems have been used in e-business to improve customer service in terms of access, customization, and convenience and to lower costs in supply chains. For example, Amazon.com has lower inventory and facility costs due to their use of e-business for sales rather than bricks-and-mortar retail stores, but their transportation costs are high because they must ship books to customers. Shipping costs are a big portion of their book costs. However, inventory costs are low compared to retail stores because Amazon.com is able to aggregate inventory in a few geographical locations. They keep mainly medium- to high-demand books in their own warehouses and purchase low-demand books from a distributor when a customer orders. This reduces inventory costs considerably, but their facility costs are growing since business is increasing and they have had to add warehouses.

In the customer-service area, customer experience is very positive in terms of access, customization, and convenience. Customers, however, must be willing to wait for delivery of books they have ordered unless products can be downloaded. Benefits to customers also include better order visibility and quicker access to new products.

Basic features of an e-business distribution network include low facility and inventory costs but high transportation costs. An e-business can carry a wide variety of products, but response times are longer than those at retail stores, excluding products that can be downloaded. In terms of product availability, e-businesses communicate customer demand information throughout the supply chain faster, so their forecasts are much more accurate. Also, they can launch new products faster by shipping directly to the customer instead of having to first stock retail shelves. Overall, the customer experience is very personal due to access, customization, and convenience of online shopping.

About Jimmy Alyea:

Example of how a manufacturer would sell and distribute widgets to Wal-Mart

An example of how a manufacturer would sell and distribute widgets to Wal-Mart stores nationwide

by Jimmy Alyea

As a manufacturer of widgets, a fast-moving, low-value consumer goods product, sold mainly to Wal-Mart stores nationwide, I would utilize a distribution network incorporating manufacturer storage with customer pickup. To facilitate compatibility with Wal-Mart’s focus on customer needs and strategy of reducing costs through efficient supply chain management practices, widgets from our three geographically- disbursed factories would be stored at our warehouse/distribution centers located within acceptable driving distance of selected Wal-Mart distribution centers (DCs). With Wal-Mart’s approximately 150 distribution centers centrally located within its network of stores, our storage facilities could be located to serve more than one Wal-Mart distribution center. Additionally, sufficient storage could be provided at our three manufacturing plants to accommodate direct pickup by trucks from Wal-Mart distribution centers located nearby.

The significant increase in processing and new facilities costs incurred because of the number of distribution centers we would require in order to be located close to selected Wal-Mart DCs would have to be weighed against the increase in revenues received because of better responsiveness. The capacity of each of our facilities would be determined by the number of Wal-Mart DCs served: the more facilities, the lower the inventory required at each facility. Accordingly, the more facilities, the more coordination and investment required in information systems. With global giant Wal-Mart as our number-one customer, the most effective distribution network for our widget company would be one of manufacturer storage with customer pickup, even though facilities most likely would have to be added beyond the total logistics cost-minimizing point.

About Jimmy Alyea:

Monday, January 2, 2012

Supply Chain Analysis of Why Nissan’s Disaster Recovery Bested Rivals

Supply Chain Analysis of, “Why Nissan’s Disaster Recovery Bested Rivals”

by J immy Alyea

The “Big Three” automakers in Japan--Toyota, Honda, and Nissan--all suffered immensely from the devastating earthquake and tsunami that struck northern Japan on March 11, 2011. Although most Japanese automakers did not see their factories heavily damaged, most were forced to halt a large portion of their production, both inside and outside Japan, when deliveries of hundreds of parts from the country’s devastated northeast were cut off. Followed by the widespread November flooding in Thailand that impacted numerous assembly and component manufacturing companies, the disruption to the industry’s complex automotive supply chain has spread well beyond Japan’s borders. These natural disasters wreaked havoc on the bottom lines of auto giants Toyota, the world’s largest automaker and Japan’s biggest company, and Honda, Japan’s fourth largest company. However, Nissan, the perennial “also-ran” of the Big Three, has overcome the crisis much quicker and gained market share at the expense of its two most acclaimed rivals.

As industry analysts tracked recovery during the following months, they noted that Nissan fared better and more effectively than Toyota and Honda. No one action by Nissan’s management stands out as a determining factor in its successful recovery during the past year, but rather a series of deft moves set Nissan apart from its rivals almost from the outset of the twin catastrophes. Almost immediately after feeling the effects of the earthquake at its Yokohama headquarters, Nissan key executives gathered for a crisis management meeting. Teams were quickly dispatched to different Nissan outlets to help the company determine which Nissan models would be most affected by the disaster (Curtis, 2011). Additionally, within a week, Nissan’s CEO Carlos Ghosn was on television decisively assessing the damage at one of Nissan’s two severely damaged engine plants and telling reporters precisely when the plant would reopen. Although Ghosn’s comments most likely served to stir local authorities into action, such transparency is rarely seen in Japan’s corporate world.

Analyst Rebecca Lindland of HIS/Global Insight pointed out that unlike its competitors, Nissan “got its assembly plants and suppliers up and running sooner.” Nissan benefitted greatly from its standardizing parts worldwide and from its strategy of using common parts such as its low cost, V-platform for vehicles in emerging markets. Lindland also commented that Honda was hampered in restarting production because although it had two first-tier suppliers, both sources were hit by the same shortage of materials (Levin, 2011). Even Toyota noted that Nissan seems to have been less affected than its major rivals. As pointed out in a recent Wall Street Journal article, a senior Toyota executive made the statement that the auto giant could “learn a thing or two from Nissan’s handling of [supply chain] disruptions in Thailand. . . ” (Simms, 2011). Such a compliment is unprecedented in a culture that goes to great lengths not to praise or criticize peers, much less fierce rivals. A writer for Procurement Leaders responded by commenting, “. . . but the compliments are well deserved and should have been extended to how Nissan handled the Japan quake, after which it restarted production months before its rivals” (Rae, 2011).

Other factors cited by industry analysts that have worked in Nissan’s favor during the crisis include the fact Nissan’s corporate organization is structured differently from that of Toyota and Honda, whose boardrooms are exclusively Japanese. With Brazilian-Lebanese-French businessman Carlos Ghosn as CEO and several foreign-born executives on Nissan’s board, including British-born Colin Dodge, Nissan’s Chief Recovery Officer after the post-Lehman financial world, Nissan’s crisis management team appeared more streetwise and quick-thinking than that of its major rivals. A top spokesman at Nissan’s Yokohama headquarters stated that one of Nissan’s strengths that helped meet the disaster challenges so successfully was the company’s working together cross-functionally for quick and focused recovery actions.

Nissan, also supplemented with a strong portfolio of products and the advantage of broad, efficient global “monozukuri,” (a Japanese word that means manufacturing), has managed to outdo its rivals in dealing with the catastrophic adversities of 2011. However, Nissan cannot count on Toyota and Honda floundering forever. As Levin (2011) succinctly summarized, “being the underdog was easy. Maintaining the lead—that’s the hard part.”

References:

Curtis, M. (2011, December 23). It has been a test to how fast Japanese automaker Nissan to

escape disaster. Auto-Types. Retrieved from http://www.auto-types.com/autonews/it-has-been-a-test-to-how-fast-japanese-automaker-nissan-to-escape-disaster-8100.html

DeAngelis, S. (2011, August 5). Supply chain recovery from Japan’s earthquake/tsunami: an update. Entera Insights. Retrieved from http://enterpriseresilienceblog.typepad.com/enterprise_resilience_man/2011/08/supply-chain-recovery-from-japans-earthquaketsunami-an-update.html

Koploy, M. (2011, July 15). The pst-tsunami supply chain all-stars. Software Advice. Retrieved from http://blog.softwareadvice.com/articles/scm/post-tsunami-supply-chain-all-stars-1071511/

Levin, D. (2011, August 23). How Nissan zoomed to the front of the pack. Fortune Tech. Retrieved from http://tech.fortune.cnn.com/2011/08/23/how-nissan-zoomed-to-the-front-of-the-pack/

Nunn, P. (2011, December 5). Why Nissan’s disaster recovery bested rivals. AutoObserver.com. Retrieved from http://www.autoobserver.com/2011/12/why-nissans-disaster-recovery-bested-rivals.html

Rae, D. (2011, November 18). What’s the ROI of risk management? Just ask Nissan. Procurement Leaders blog. Retrieved from http://blog.procurementleaders.com/procurement-blog/2011/11/18/whats-the-roi-of-risk-management-just-ask-nissan.html

Simms, J (2011, November 18). Nissan’s fast responders. Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052970203611404577043430305932926.html

About Jimmy Alyea:

Jimmy Alyea lives in Houston, Texas, and holds two Bachelor of Business Administration degrees (Supply Chain Management and Marketing ) and a Master of Business Administration degree. Follow Jimmy Alyea (James L. Alyea) on LinkedIn, Twitter, or Blog.