China’s industrial output grew by 16.1% in October compared with a year earlier, according to the National Bureau of Statistics -its annualized GDP growth for Q3 was 8.7%, compared to the large European nations who are barely out of the recession. France grew by 0.3% and Germany by 0.6% and let’s not mention the UK, which still is in a recession. I don’t want to be all doom and gloom; I am sure the UK will be out of its recession in Q4 and France, Germany and the other main EU brethren will strengthen their growth. But it does make you wonder what the future world economic balance will be like.
If there was a competition for” winner of a global recession”, China would surely be a pretty strong contender. Not only are its factories producing and its people buying, the Chinese government didn’t have to go into endless amount of debt to finance its economic stimulus package, which means that future growth will not be jeopardized by increases in taxation, as it is likely to be in the western world.
It will not have gone unnoticed that over the last 20 years China has become the workshop to the world and growth during this time has been mostly export driven. But this is changing; China’s new confidence and the drop in export demand has ensured that China is looking towards domestic demand as the main driver for future growth.
This means that the existing Supply Chain models of make-in-China and sell-in-Europe and US will have to be extended to include a stronger sell-in-china component. Some companies are already very active in china’s domestic market, but with the balance of future demand growth moving eastwards all organizations would do well to reanalyze existing and future supply chain investments. Companies will have to address the balance of their Supply Chain network to ensure the lowest Cost-to-Serve in the coming 5 to 10 years.
Amongst the solutions for this trend, one is already at our fingertips. For years organizations have been using advanced Network and Inventory optimization tools to model the impact of changes to their supply chains. From identification of synergies after mergers to implementation of postponement strategies, these tools and processes continue to play an essential role in optimizing supply chains. Now we should call upon these tools and processes once again to analyze the impact of a new opportunity; the growth of China’s domestic market.
All the best
Richard van der Meulen
Wednesday 18 November 2009
Wednesday 4 November 2009
Weathering the Storm; Panel Discussion (Dutch)
Manhattan Associates organiseerde aan de vooravond van de Logistica een evenement met enkele van haar partners om klanten en prospects bij te praten over de ontwikkelingen in de markt waar de softwareleverancier actief is. Ook zag Manhattan het evenement als een mooie gelegenheid om te discussiëren met de aanwezigen. De dag werd afgesloten met een paneldiscussie over supply chain excellence, waarbij Richard van der Meulen van Trueconomy gespreksleider was.
http://www.logistiek.nl/supply-chain/supply-chain-management/nid9125-via-evolve-extend-en-compete-naar-de-toekomst.html
Apologies for all the none Dutch speakers out there...
All the best
Richard van der Meulen
http://www.logistiek.nl/supply-chain/supply-chain-management/nid9125-via-evolve-extend-en-compete-naar-de-toekomst.html
Apologies for all the none Dutch speakers out there...
All the best
Richard van der Meulen
Tuesday 3 November 2009
Can we have it a little bit quicker? (Real-Time Supply Chain Planning)
Recently a friend told me about his visit to his local hospital. While he was waiting to be seen by the Doctor, a nurse walked up to him to inform him that they had not yet received the test results, which the Doctor was going to discuss with him during this meeting. Now this might not have come as such a big surprise to my friend if it wasn’t for the fact that it had been more than 6 months since he had taken the test. The interesting thing is that the clinic that did the test 6 months earlier is a mere 200m from the Doctors office where my friend was now waiting to be seen, making the test result travel at a earth shattering 0.00008 km/hr…. Now, I am sure, and sincerely hope, that this is a one off incident rather than a systematic problem.
While listening to this story I thought about the importance of the speed of information in Supply Chain Management. And, I am sure it won’t shock you if I say it is very important…. Let’s take Demand information; we all know that sharing information between the multiple partners in a supply chain helps tackle the infamous Bull whip effect. But how useful is it to find out about new customer demand changes after you have committed to production volumes?
Imagine a supply chain with 3 supply chain partners and every one of them updating their forecast once a month; it would take 3 months for the third, most upstream player, to see a change in customer demand. This might not leave enough time for this Supply Chain partner to adjust his production and procurements plans, resulting in having to find expensive additional capacity in case of an increase in demand or find additional last minute orders elsewhere to keep up capacity utilization in case of a sudden drop in demand.
A solution would be to turn the supply chain from make-to-stock into make-to-order, which would mean that you care less about forecast information. But few supply chains can simply be changed like this and in every supply chain there is always going to be an element of make-to-stock, if you go upstream far enough.
So what else can we do? Well, increasing planning frequency would be a good start. If every supply chain party would update their forecast weekly, and importantly relay this new forecast to the upstream partners weekly as well, they would reduce the time it takes information to travel through the supply chain from 3 months to 3 weeks. And why stop there…. why not increase the frequency even further and work toward the holy grail of real-time Supply Chain optimization?
A good place to start looking for inspiration on this subject is the retail industry. Here partners have been sharing information by applying CPFR. (Collaborative Planning, Forecasting, and Replenishment) for many years. They have been using point-of-sale data to give the most accurate, real-time, customer demand information to upstream partners. This process (Real-Time Supply Chain Planning) is not easy and requires commitment from all partners to work, but surely the rewards are worth the effort?
Oh, and for those interested, my friend will live to see many more days.
All the best
Richard van der Meulen
While listening to this story I thought about the importance of the speed of information in Supply Chain Management. And, I am sure it won’t shock you if I say it is very important…. Let’s take Demand information; we all know that sharing information between the multiple partners in a supply chain helps tackle the infamous Bull whip effect. But how useful is it to find out about new customer demand changes after you have committed to production volumes?
Imagine a supply chain with 3 supply chain partners and every one of them updating their forecast once a month; it would take 3 months for the third, most upstream player, to see a change in customer demand. This might not leave enough time for this Supply Chain partner to adjust his production and procurements plans, resulting in having to find expensive additional capacity in case of an increase in demand or find additional last minute orders elsewhere to keep up capacity utilization in case of a sudden drop in demand.
A solution would be to turn the supply chain from make-to-stock into make-to-order, which would mean that you care less about forecast information. But few supply chains can simply be changed like this and in every supply chain there is always going to be an element of make-to-stock, if you go upstream far enough.
So what else can we do? Well, increasing planning frequency would be a good start. If every supply chain party would update their forecast weekly, and importantly relay this new forecast to the upstream partners weekly as well, they would reduce the time it takes information to travel through the supply chain from 3 months to 3 weeks. And why stop there…. why not increase the frequency even further and work toward the holy grail of real-time Supply Chain optimization?
A good place to start looking for inspiration on this subject is the retail industry. Here partners have been sharing information by applying CPFR. (Collaborative Planning, Forecasting, and Replenishment) for many years. They have been using point-of-sale data to give the most accurate, real-time, customer demand information to upstream partners. This process (Real-Time Supply Chain Planning) is not easy and requires commitment from all partners to work, but surely the rewards are worth the effort?
Oh, and for those interested, my friend will live to see many more days.
All the best
Richard van der Meulen
Friday 23 October 2009
Where is my Economist?
It only hit me when I could not find my Economist magazine in its usual place behind the front door this Friday. The Royal mail is on strike! Now, on the upside I also didn’t receive any bills whilst I still can go to the shop to get my magazine, assuming that the news agents have received their deliveries today. Have they?
Unfortunately a disruption can impact people differently; ask the many businesses that rely on the Royal mail for their outbound delivery to the customer. Some businesses would have made arrangements with alternative delivery services providers, most haven’t. It shows that a disruption can have different impact on different people and organisations based on the alternatives which are at its disposal and how well prepared they are.
It reminds me of the infamous story of the Philips factory in Albuque, Albequer.. Ablaquerque….. well, somewhere in New Mexico, USA, when it got hit by lighting and caused severe damage to the chip production hall in the factory. This factory being one of the few providers of a type of chip used in both Nokia and Ericson mobile phones; it was interesting to see the different impacts that this single event had on these competitors.
Nokia had a contingency plan in place which ensured that; the impact and extent of the disruption was recognized, and alternative sources were quickly identified and secured. Ericson was less responsive; it hadn’t recognized the extent of the problem when Nokia already had monopolized the consumption of the chip in question for several months to come. Ericson had no Supply Chain Risk contingency plan and no access to alternative sources.
And that is, dear readers, why I am now using a Nokia and not an Ericson, to ring my local news agent to see if he has any copies of the Economist left.
All the best
Richard van der Meulen
Unfortunately a disruption can impact people differently; ask the many businesses that rely on the Royal mail for their outbound delivery to the customer. Some businesses would have made arrangements with alternative delivery services providers, most haven’t. It shows that a disruption can have different impact on different people and organisations based on the alternatives which are at its disposal and how well prepared they are.
It reminds me of the infamous story of the Philips factory in Albuque, Albequer.. Ablaquerque….. well, somewhere in New Mexico, USA, when it got hit by lighting and caused severe damage to the chip production hall in the factory. This factory being one of the few providers of a type of chip used in both Nokia and Ericson mobile phones; it was interesting to see the different impacts that this single event had on these competitors.
Nokia had a contingency plan in place which ensured that; the impact and extent of the disruption was recognized, and alternative sources were quickly identified and secured. Ericson was less responsive; it hadn’t recognized the extent of the problem when Nokia already had monopolized the consumption of the chip in question for several months to come. Ericson had no Supply Chain Risk contingency plan and no access to alternative sources.
And that is, dear readers, why I am now using a Nokia and not an Ericson, to ring my local news agent to see if he has any copies of the Economist left.
All the best
Richard van der Meulen
Thursday 22 October 2009
So what’s next? (The golden age of Supply Chain Management?)
Well, the recession is over, or at least, we can now talk about “green shoots”, “light at the end of the tunnel” or use any metaphor describing the start of the economic recovery without putting ourselves in a political danger-zone. But does this mean that we are going to be operating in a business-as-usual environment or will we be operating in a new equilibrium? And where does Supply Chain Management fit into this?
It certainly seems unlikely that it will be business-as-usual. Lets take a look at the macro economic situation. One of the main contributors to the 2008/9 recession was the lack of savings in the western world. Sure, it all got triggered with the failing banks but the underlying problem was and is the lack of savings. The Economic expansion of US and Europe has been debt fueled, leaving us in the paradoxical situation that we now need to spend even more to get us out of the recession through bank bailouts and quantitative easing. In the US alone, the cost of the credit crunch amounts to $3 trillion. An amount only match by the monetary cost of World War II with $3.6 trillion in inflation adjusted terms[1]. Somebody has to pay for this eventually, which of course is going to be you and I, the tax payers. The likely effect of all this is that we will see a lower trend of growth in the west for the foreseeable future.
Another major trend is the demographic change. Let’s take the UK as an example. The old age support ratio, the number of people of working age for each person of pensionable age, in 1971 was 3.6, in 2006 it was 3.3 and in 2051 is predicted to be 2.0[2]. And the situation in, for example, Italy or Germany is even worse due to lower birth rate and stricter immigration rules. This has some obvious implications; or we need to save more or we need to work longer. The fact that we as tax payers have some government debt to pay off probably means that we will be working longer. Or is there another way?
Well, one of the strengths of the Western Economies has been its historically high productivity levels and the ability to continuously increase it. For example the nonfarm business level in the US in 2008 is 3.85 times higher than it was in 1947. I suggest that the trick will be to push the productively levels to even greater heights in the coming years. And I believe that Supply Chain Management will play a key role in this.
Supply Chain Management is the only discipline that takes a total view of, not only a company but of the full environment a company operates in. The efficiencies and growth opportunities that this discipline can provide are virtually untapped. Supply chain collaboration, supply chain optimization, 3D Concurrent engineering, Sales & Operation planning are but a view of the components under the Supply Chain banner which will help transform whole industries in becoming even more efficient and help them extent into new territories, both geographically and in products and services . Due to its importance, I believe that Supply Chain Management will propel even faster up the organizational tree and find more permanent and prominent place on the Boards agenda.
Is the golden age of Supply Chain Management upon us? Well, we certainly have plenty to get on with……
All the best
Richard van der Meulen
[1] Source: CLSA, Bits & Pieces, 2009
[2] Source: http://www.statistics.gov.uk/downloads/theme_compendia/pensiontrends/Pension_Trends_ch02.pdf.
It certainly seems unlikely that it will be business-as-usual. Lets take a look at the macro economic situation. One of the main contributors to the 2008/9 recession was the lack of savings in the western world. Sure, it all got triggered with the failing banks but the underlying problem was and is the lack of savings. The Economic expansion of US and Europe has been debt fueled, leaving us in the paradoxical situation that we now need to spend even more to get us out of the recession through bank bailouts and quantitative easing. In the US alone, the cost of the credit crunch amounts to $3 trillion. An amount only match by the monetary cost of World War II with $3.6 trillion in inflation adjusted terms[1]. Somebody has to pay for this eventually, which of course is going to be you and I, the tax payers. The likely effect of all this is that we will see a lower trend of growth in the west for the foreseeable future.
Another major trend is the demographic change. Let’s take the UK as an example. The old age support ratio, the number of people of working age for each person of pensionable age, in 1971 was 3.6, in 2006 it was 3.3 and in 2051 is predicted to be 2.0[2]. And the situation in, for example, Italy or Germany is even worse due to lower birth rate and stricter immigration rules. This has some obvious implications; or we need to save more or we need to work longer. The fact that we as tax payers have some government debt to pay off probably means that we will be working longer. Or is there another way?
Well, one of the strengths of the Western Economies has been its historically high productivity levels and the ability to continuously increase it. For example the nonfarm business level in the US in 2008 is 3.85 times higher than it was in 1947. I suggest that the trick will be to push the productively levels to even greater heights in the coming years. And I believe that Supply Chain Management will play a key role in this.
Supply Chain Management is the only discipline that takes a total view of, not only a company but of the full environment a company operates in. The efficiencies and growth opportunities that this discipline can provide are virtually untapped. Supply chain collaboration, supply chain optimization, 3D Concurrent engineering, Sales & Operation planning are but a view of the components under the Supply Chain banner which will help transform whole industries in becoming even more efficient and help them extent into new territories, both geographically and in products and services . Due to its importance, I believe that Supply Chain Management will propel even faster up the organizational tree and find more permanent and prominent place on the Boards agenda.
Is the golden age of Supply Chain Management upon us? Well, we certainly have plenty to get on with……
All the best
Richard van der Meulen
[1] Source: CLSA, Bits & Pieces, 2009
[2] Source: http://www.statistics.gov.uk/downloads/theme_compendia/pensiontrends/Pension_Trends_ch02.pdf.
Wednesday 21 October 2009
The double inventory whammy
Last week I had the privilege to present at a Pharma Industry event in Madrid. One of the things we talked about was the sudden increase in inventory per sales around the time that Lehman Brothers left the scene in Sep 2008, the drop of inventory per sales through 2009 and what effect this has on the Supply Chain.
We all seem to have been caught out up to certain degree by the sudden drop in demand in the second part of 2008 and especially the supply chain which are operating on relatively long lead-time with long chains (multiple partners), seem to have been hit hardest. Organisations operating within these supply chains have had to commit to procuring and manufacturing goods many months before the final consumption of these goods. These organizations were left with large stock piles when faced with the sudden drop in end consumer demand.
Some industries had the unfortunate addition that shortly before the drop in demand, demand outstripped supply which would have driven up the price and therefore the value of inventory, just before demand dropped, leaving manufacturing and distributors with a not only high but also very costly stockpile.
The result of all this is that all inventory keeping players are trying to reduce their inventory drastically even if this means selling at a loss. The worrying thing (as if there has not been enough to worry about yet) is that the same supply chains that were caught out with lots of inventory in 2008 are going to be so under stocked that they potentially will miss out when demand recovers again and thereby incurring a double inventory whammy.
This phenomenon is of course not new. The effects described are caused by the infamous Bullwhip Effect (Prof How lee Stanford University). In short the Bullwhip effect is the increased distortion of the end customers demand signal the further up the Supply Chain you go.
Organisations have been trying to minimize the effect of the Bullwhip effect through better forecasting, Supply chain collaboration and visibility, reduction in lead-time and by removing demand signal distorting effect as price promotions and period based sales quota. But the current scenario which is playing out in many supply chains makes you wonder how effective these efforts have been and bags the question if we should not do more.
This double inventory whammy seemed to really strike a chord with the Pharma companies in Madrid. I would really like to know how relevant this is to you and what actions if any you have taken to tackle this issue.
Looking forward to your comments
All the best
Richard van der Meulen
We all seem to have been caught out up to certain degree by the sudden drop in demand in the second part of 2008 and especially the supply chain which are operating on relatively long lead-time with long chains (multiple partners), seem to have been hit hardest. Organisations operating within these supply chains have had to commit to procuring and manufacturing goods many months before the final consumption of these goods. These organizations were left with large stock piles when faced with the sudden drop in end consumer demand.
Some industries had the unfortunate addition that shortly before the drop in demand, demand outstripped supply which would have driven up the price and therefore the value of inventory, just before demand dropped, leaving manufacturing and distributors with a not only high but also very costly stockpile.
The result of all this is that all inventory keeping players are trying to reduce their inventory drastically even if this means selling at a loss. The worrying thing (as if there has not been enough to worry about yet) is that the same supply chains that were caught out with lots of inventory in 2008 are going to be so under stocked that they potentially will miss out when demand recovers again and thereby incurring a double inventory whammy.
This phenomenon is of course not new. The effects described are caused by the infamous Bullwhip Effect (Prof How lee Stanford University). In short the Bullwhip effect is the increased distortion of the end customers demand signal the further up the Supply Chain you go.
Organisations have been trying to minimize the effect of the Bullwhip effect through better forecasting, Supply chain collaboration and visibility, reduction in lead-time and by removing demand signal distorting effect as price promotions and period based sales quota. But the current scenario which is playing out in many supply chains makes you wonder how effective these efforts have been and bags the question if we should not do more.
This double inventory whammy seemed to really strike a chord with the Pharma companies in Madrid. I would really like to know how relevant this is to you and what actions if any you have taken to tackle this issue.
Looking forward to your comments
All the best
Richard van der Meulen
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