Download White Paper:Designing Your Global Supply Chain
15 Strategic Choices for Designing your Global Supply Chain
In the 1990’s, and with the rise of the concept of Supply Chain Management, supply chains have gone global. This has largely been enabled through information technology (the subject of a separate article). Globalization has included suppliers in many different countries, setting up warehouses to serve global customers, creating transportation systems to move goods around the world and moving production facilities to best-cost countries. Examples of best cost countries are Germany and Japan for machinery, the USA for sophisticated hardware and software design, China for high labor content products and large heavy industry, Korea for ship building and large heavy industry, India for lower-value software design, France and Italy for fashion luxury goods, and others.
Supply Chain researchers have documented 15 choices you make when designing a global supply chain; whether you do it explicitly or by default. I will briefly explain these 15 choices to help you optimize your global supply chain (minimize cost and maximize customer service). The 15 choices are:
- Consolidation
- Postponement
- Responsiveness
- Lean-ness
- Agility
- Adaptability
- Flexibility
- Speed
- Value Contribution
- Core Competency
- Differentiation
- Collaboration
- Hedging
- Redundancy
- Diversification
Consolidation is the combining of assets to take advantage of economies of scale. You can consolidate production facilities into larger facilities, warehouses into larger warehouses, shipments by using larger vehicles or ships, suppliers and even software systems by replacing multiple systems with one ERP package. Consolidation has negative aspects as well. Typically consolidation creates greater inventory, increases distance to customers and can reduce the ability to be responsive to customers’ needs.
Postponement is a form of consolidation. HP made postponement famous by producing printers in a single facility worldwide, shipping to regional distribution centers and letting the DCs customize each printer by putting in the appropriate power supply and packaging. By postponing the final form of the product, a company can produce fewer stock keeping units (SKUs), and therefore take advantage of economies of scale in production. Shipping costs can be lower because products can be bulk packaged, getting more in a container. Postponement also reduces SKUs, reducing inventory investment. The reduction in inventory investment occurs, not because there are fewer SKUs to stock, because demand is still the final demand, but because the postponed SKU is essentially aggregating variation of the final customized product, which reduces the safety stock built into most inventory reorder point systems. Postponement is a great strategy if your product can be designed for this type of modular production. In other words, there is no downside to using the postponement strategy in your product development planning.
Responsiveness, Lean-ness, Agility, Adaptability, Flexibility and Speed are all related, with subtle differences.
Responsiveness is the ability to react to customer demands. This can be reacting to customer orders, changes in customer taste, or customizing products and services to meet specific customers’ needs. A responsive organization places a great value on customer service.
Lean-ness is the strategy of reducing waste in all processes. Developed by Toyota, a Lean system designs processes that minimize inventory, wasted movement and waiting by customers.
Agility is the ability to reconfigure your supply chain, changing suppliers, designs and production facilities as needed to meet customers changing requirements and demands.
Adaptability is a cultural aspect of an organization and supply chain. Adaption allows a company to overcome challenges, such as disruption in the supply chain. A great example is the technology industry. Because of margin pressure, many basic components have consolidated down to one or two suppliers in the world; and these companies have consolidated production into one facility world-wide. Certain chipsets, hard drives, screens, capacitors, etcetera, have been consolidated to single facilities. When a cell phone chip fab in Mexico caught fire, some companies built in redundant back-up systems and were able to adapt. When there was flooding in Thailand and multiple hard drive plants were under water, some companies adapted by using different technologies (solid-state hard drives) in their products.
Flexibility is closely related to Agility, but is often associated with volume changes. A flexible supply chain can increase or decrease output as needed because flexibility is designed into the process.
Speed is self-explanatory. However, in global supply chain management it has overtaken economies of scale as a key differentiator. Michael Porter, in his seminal book, Competitive Strategy, considered economies of scale as a barrier that is hard for new entrants to overcome. But in today’s technology driven economy, fast companies can overcome economies of scale. As an example, Facebook changes its product (code) every day. New features are added, and those that are not working removed every day of the year (including weekends). Speed in supply chains values the ability to react fast and serve customers quickly over cost minimization.
Value Contribution, Core Competency, Differentiation and Collaboration are related strategies.
Value Contribution is the unique value that a firm adds to the supply chain. It is the reason that the firm is part of its supply chain. Value contribution often comes from the other strategic decisions. “Value” can be low cost production, flexible service or a core competency in design and engineering. As mentioned above, in a global supply chain there are many more choices of supply chain partners. These choices allow a firm to choose suppliers that add the most value.
However, it also allows them to choose customers where the firm can add the greatest value. This may seem absurd… that a company can choose customers, but how many companies made a big bet on being part of Dell’s supply chain, not Apple’s? How many companies gave up on U.S. based car manufacturers in favor of Toyota/Honda/Nissan, only to see Ford and GM increase market share after the 2009 recession?
Core competency is often considered the trade secrets of a company. This is what a company would not share with supply chain partners. From a global perspective, core competencies are often kept in the home country to prevent intellectual property theft.
Differentiation is how you “differ” your firm from competitors and secure your place in the supply chain. Price, quality, service, design and technology are all potential differentiators.
Collaboration is the degree to which you work with supply chain partners. Companies can collaborate by sharing production capacity to eliminate the need to build additional facilities. Supply chain partners often collaborate on new product development. Third party logistics providers (3PLs) use economies of scale in purchasing and handling logistics to reduce costs for their customers, who collaborate on logistical requirements and capabilities. Collaborative planning and forecasting is a process of different echelons of a supply chain setting a single forecast and all producing or purchasing to this forecast. Collaboration also requires trust. Companies that collaborate turn over sensitive data, such as demand forecasts, new product plans and internal process details.
Hedging, Redundancy and Diversification are all ways to manage risk. Risk is the probability that an action will have a negative outcome.
Hedging is often done with insurance and financial products. Companies can purchase insurance to hedge against a disaster or work-stoppage. They can also purchase financial products to offset a movement in commodity prices or currency values. By definition a hedge will always have a minimal cost, as most companies are offsetting the higher cost of the risk, with the price of the hedging instrument.
Redundancy is building back-up capability in the supply chain. Redundancy can be in back-up power generation, which is necessary in many developing nations due to unreliable supply. A firm can have two suppliers, a primary and secondary, with the secondary being a back-up in case of a supply disruption with the primary supplier. Redundancy can be thought of as the opposite of consolidation.
Diversification is a form of redundancy. However, it goes beyond redundant supply. Companies can diversify product offerings, to make sure that if a technology kills off one business, it supports another. A company can diversify the supply chains it belongs to, in case one focal-firm competitor becomes dominant. For many years suppliers to Toyota and Honda benefited versus suppliers to Ford and GM. However, now, suppliers to Hyundai are benefiting at the expense of Toyota and Honda. Companies that diversified customers and supply chains hedged against their focal firm losing business.
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“Supply Velocity created visibility within our Assurance Services Group… visibility of performance, Client-service, employee satisfaction and processing time. Using the Supply Velocity System, Audit Report Cycle time is down over 50%. We are using his strategies to create greater Client loyalty.”
“Supply Velocity has provided the technical expertise and political capital to move our project forward. They have just the right amount of push and the right amount of support. Supply Velocity has helped us make real changes to improve efficiencies in logistics without jeopardizing our performance. We’re happy and our customers are happy.”
“I am thrilled to provide this testimonial for Supply Velocity and their outstanding work in implementing Lean Warehouses and processes at Crescent Parts & Equipment through the COVID pandemic. With their data-first focus and Mitch’s exceptional coaching and experience, they transformed our business into a more supply chain-oriented organization, enabling us to grow while prioritizing employee safety and creating a better work environment. Supply Velocity’s expertise in Lean methodologies and their comprehensive evaluation of our customers have been instrumental in optimizing our operations and increasing customer satisfaction. We highly recommend Supply Velocity to any company seeking to implement Lean processes and enhance their supply chain efficiency.”
“Many thanks to all three Supply Velocity presenters. I think you guys took a very difficult time for learning and capitalized on everyone’s time and training needs. I truly hope this helps your business as this was a considerable undertaking on the part of Supply Velocity. Outstanding!!”
“Anheuser-Busch Precision Printing had been implementing Lean Operations on our own for the past two years. We needed to move faster and partnered with Supply Velocity, Inc. Through Supply Velocity, Inc.’s mathematical workflow balancing and visual management tools, dramatic improvements were achieved. The entire converting operation was rearranged based on Lean principles. The result is a 20.6% productivity improvement, enabling us to operate with 23 fewer people in production.”
“Myerson engaged Supply Velocity, specifically Ray Davis to visit our plant in Trinidad to conduct a two day assessment of our production procedures and provide us feedback on areas for improvement and where applicable, areas for future analysis.Put simply, we got everything we paid for and in addition to more in depth analysis, we got specific tasks that were immediately actionable. Our local management team found Ray to be engaging, highly credible and insightful based on his wide experience. In other words the cultural differences and lack of specific industry knowledge weren’t impediments to things we could implement immediately and on our own. In a nutshell it was money well spent and will pay itself back many times over.”
“For several years we have worked with Supply Velocity to support us with their expertise on Lean Operations and Supply Chain Management. Supply Velocity has helped us implement Lean, improve our inventory systems, and educate our people. They are professionals who are always available to help us as needed.”
“In thirty years of hiring consultants, Supply Velocity, Inc. was the first to tell me what they were going to do, set a price they stuck to and substantially exceed my expectations. I have recommended them to friends and acquaintances. They were true partners in assisting with the turnaround of an acquisition we had been struggling with for two years.Their math-based technology, solid down-to-earth facilitation skills, and positive, patient and enthusiastic attitude combined to make our implementation of Lean a very rewarding experience.
We increased our production by 50% in the first month of implementation and continue to see improvements. Improvements have not only been realized in productivity, but also in quality and morale. We have increased profitability by $2M on flat sales of $10M.
Based on Supply Velocity, Inc.’s integrity and our results, I will continue to refer them to others and utilize them in the future as we expand our company through acquisitions.”
“Mitch Millstein and his team helped guide our shop fabrication division in the re-layout of our custom pipe and steel fabrication facility when we moved into a new building. It is not only the results but how he helped. We were involved in every step. I personally did time studies and was able to see the non-value added steps required to manufacture in our old layout. When we created our new layout, everyone was involved, from the executive team to our direct labor force. With Mitch’s help we increased our throughput by a 3x multiple, while providing more competitive prices to our clients as a result of the efficiency improvements.This has enabled us to not only make more money but also to expand our commercial reach and serve more, and larger customers. I would recommend Supply Velocity to any company that wants to make improvement in supply chain and operations.”
“We engaged with Supply Velocity to help us embed process improvement at all levels of the business. Our team learned from Mitch to let the data drive decisions, to use Lean tools to help us see our processes critically and objectively, and to create a control plan to manage all of the tasks that were the outcome of the data study.The project turned out to be very significant to the company and most importantly, our customers. We reduced our customer wait times by 40%, and cut in half the labor cost to fulfill customer orders.
Some results are not able to be measured. However, as a result of this project, we have started to build a Lean mindset and culture, which is part of our strategic mission to save our customers money. Supply Velocity has been a valued partner in this mission.”
“Supply Velocity has helped Clean succeed in a number of ways. First, they provided the education that kicked off our Lean Process Improvement journey. They also facilitated a number of large supply chain and process improvement projects including: 1) building quality into our direct-labor productivity incentive program, 2) designing the layout of our garment warehouse, and 3) streamlining our route service process.We have integrated the methods that Supply Velocity taught us into our management and strategic planning. In the process our quality measurement has improved 22% from 2013 to 2015, we have reduced required annual labor by 2200 hours from the garment facility layout project and we’ve seen 50% decrease in error rate. Obviously the numbers speak for themselves, but just as important, Supply Velocity has been fun to work and have become true partners. They have “taught us how to fish” so our internal teams are able to implement change on their own, with the skills we learned from Supply Velocity. This relationship has been invaluable.”
“Closure Medical recently completed a major reorganization in order to enhance our ability to rapidly create innovative medical devices. We hired Supply Velocity to help us map out the process and service flows of the new organization that would maximize our product development process (PDP). In four weeks, Supply Velocity helped us envision a new PDP structure, develop measures and accountability for each step, and gain consensus within the organization. Supply Velocity’s focus on speed and accountability helped us complete a critical project in a timely fashion.”
“Supply Velocity’s Lean Six Sigma System has given us new tools to help improve our sales performance. We have learned new ways to analyze our business which makes problem solving more accurate and has made us better leaders.”
“We are using Supply Velocity’s Lean Six Sigma methods to analyze a variety of processes including rationalizing SKUs (stock-keeping-units). By using math to evaluate SKUs we took some of the emotion out of our decisions. We expect significant increases in sales and productivity from reducing poor performing SKUs.”
“In the spring of 2003, the St. Louis Area Chapter of the American Red Cross engaged Supply Velocity, Inc. to perform a study and make recommendations to streamline office processes, maximize cash flow in purchasing and warehousing and restructure and enhance our maintenance department. Supply Velocity, Inc.’s process was methodical, flexible, staff-oriented, inclusive and, above all, trackable.In the last six months, our Chapter has realized expense savings of over $380,000 annually, and significant improvement in intra-company service levels has been attained. Supply Velocity, Inc. will return to the Chapter periodically throughout the next 18 months to audit our newly implemented processes. We have been pleased with our results and Supply Velocity, Inc.’s professionalism.”
“We are pleased that Essex selected Supply Velocity, Inc. as our Lean Implementation Partner. At one facility, we have saved over $350,000 in work-in-process inventory, reduced throughput time from 2 weeks to minutes and increased inventory turns 3 to 8 times per year. All these results are in just 6 months. Our return of investment is very high.”
“In a time of volatile supply chain disruption, Supply Velocity is helping us develop Demand and Supply Planning processes to proactively tackle these new challenges. They are genuine partners, working with our team, facilitating and teaching.”
“Isolating a problem, finding short, and long term solutions with measurable results is what was promised and results is what was delivered by Supply Velocity. Upon launch of the Lean Six Sigma Selling System, we knew more about our customers, our products, and were able to create a solid plan to increase sales of our most profitable products. Within months of implementation, our booked sales jumped 60% and our most valued customers were getting direct, active, and calculable attention.”
“Our experience with Supply Velocity was one of the best values we have ever had from a consulting project. Cyril Narishkin brought a structured lean methodology, invaluable experience and engaging facilitation skills to help us streamline a very complex and disjointed sales order process. Just as importantly, our team now has the knowledge and process competencies to address other business improvement opportunities going forward.”
“The role of the Erie Insurance Marketing Department has been evolving over the past several years – from a support role to a more critical role of driving growth in our organization. Because of our increased workload and desire to prioritize the most critical projects, we hired Supply Velocity to teach us the skills of Lean Six Sigma.Participants included the Promotions, Market Research and Agency Licensing sections of the Marketing Department.
We learned valuable tools to help us to prioritize based on the voice of the customer.
I firmly believe these skills made a difference in how we work every day. We are moving new projects forward, eliminating or changing ineffective processes, and we are a much stronger department. We continue to use the tools to help us with our highly-complex and time-consuming projects. Supply Velocity helped us to accomplish our goals.”
“Your process encourages this group to work together, better communicate and have fun doing it.”
“Supply Velocity gave us the tools to analyze our business and processes based on the facts and numbers versus our perceptions. Our common quote was “Let the numbers lead us”. The key for our organization was how quickly we moved from classroom to actual project initiation. We were able to jump in, start using the tools and see a difference right away.
The get-into-action approach was good for our culture.”
“We used Supply Velocity to rethink our sales process. By analyzing the entire process we found wasted time in our Sales, Admin and Operations departments. Streamlining this process created extra time for each Sales Rep, allowing them to spend more time with Customers and increase the value we add. Gross profit margins are up 40%!We are now using Supply Velocity to help us rethink our entire Strategic Plan.”
“Supply Velocity is driving instrumental change in our inventory management processes. This is critical for us to be competitive in a supply chain environment with numerous disruptions. They are making change happen, which can be challenging in a 182 year old organization.”
“We used Supply Velocity on our Warehouse optimization project. One of the key characteristics of Supply Velocity is that they listened to our requirements and provided a clear path for our Warehouse processes using lean tools and our future sales growth as objectives.”
“C&R was struggling with labor productivity. The construction crews were often missing materials that they needed to do their work. This caused significant idle time. Supply Velocity, Inc. and C&R used value stream mapping and visual management tools to make dramatic improvements in operations. Most importantly, two years later C&R is sustaining and improving on the implementation. C&R’s return on investment was 11:1. C&R had a record year last year in both sales and profits and would not have been able to pull it off without the changes Supply Velocity, Inc. helped us make.”
“In 2015 we began working with Dr. Mitch Millstein to optimize our inventory locations supporting e-commerce and in-store inventory needs. From this work we developed a new omni-channel warehousing and inventory plan that entirely redefined our approach to warehousing, inventory management, store distribution and fulfillment. As a result of the analyses by Dr. Millstein we have begun the move to an improved omni-channel design by reassigning MSAs to new warehouses, greater leveraging of in-store inventories to satisfy e-commerce demands, and exploring acquisitions of new warehousing space in strategic locations. We have already seen an improvement of $300,000 from both more efficient shipping strategies due to better inventory management.”