The Manufacturer - Logistics and Supply Chain Report 2009

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Sponsored by:

In association with the Lean Enterprise Research Centre, Cardiff Business School

© 2009 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

It’s a new world Are you feeling brave?

When the world is suddenly a very different place, how are you managing? Are you prepared for a world where cash is scarce, but risk is not? Ready for a world that demands performance, but is merciless on costs?

KPMG firms are here to help you adapt, develop and grow in this new environment.

KPMG’s Diversified Industrials practitioners are accustomed to dealing with the capitalintensive nature of global manufacturing operations.

We are well positioned to advise today’s manufacturers on how to unlock cash, improve efficiency, reduce risk, increase control — and prepare you for growth when the world turns again. So plant your feet firmly on this new ground.

Visit kpmg.com/succeeding

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An evolving landscape

W

elcome to the Logistics and Supply Chain Report 2009, sponsored by KPMG and produced in association with the Lean Enterprise Research Centre (LERC) at Cardiff Business School. This guide aims to examine, in-depth, the shape of logistics and supply chains within UK manufacturing today.

Editor Becky Done b.done@sayonemedia.com T 01603 671313 Art Editor Martin Mitchell m.mitchell@sayonemedia.com Production Manager Alexis Catchpole a.catchpole@sayonemedia.com T 01603 671303 Business Development Director Henry Anson h.anson@sayonemedia.com Chief Executive Officer Nick Hussey n.hussey@sayonemedia.com

Terms and Conditions Please note that points of view expressed in articles by contributing writers and in advertisements included in this journal do not necessarily represent those of the publishers. Whilst every effort is made to ensure the accuracy of the information contained in the journal, no legal responsibility will be accepted by the publishers for loss arising from use of information published. All rights reserved. No part of this publication may be reproduced or stored in a retrieval system or transmitted in any form or by any means without prior written consent of the publishers.

SayOne Media can accept responsibility for omissions or errors.

Our industry-wide survey this time around sought to discover exactly how your logistics and supply chain policies and procedures are changing and evolving as constraints on finances and trading terms become ever tighter. Unsurprisingly, cost saving has proved a major theme this year, with cost of service cited as the number one driver of supply chain improvement mentality among our survey’s respondents. In addition, cost saving is named as the most important factor when considering whether to outsource aspects of your operations offshore.

Elsewhere in the report, you can read our thought-provoking article from Keivan Zokaei, director of the MSc course in Lean Operations at LERC. His piece provides valuable insight and real-life examples on boosting the effectiveness of the supply chain.

We also have plenty of stories from companies who have tackled their own set of supply chain and logistics challenges. We hear from innocent Drinks about how it managed its expansion overseas during a period of rapid growth. There is also testimony from Tata Steel on using technology to improve its supply chain processes and keep up with the rapid pace of change in the steel industry. In addition, pallet network Palletways sheds light on firming up your transport strategy in an economic downturn.

There is also useful advice on visibility, integration and co-ordination within the supply chain from Sterling Commerce.

As prices rise and pressures increase, the reality for manufacturers today is that margin for error within the supply chain is slim. We hope that this report will prove to be a useful and indispensable tool by which to measure your own operations against those of your peers, gain valuable insights into how you can improve and thereby better prepare yourself for the challenges of the coming year.

Copyright Š SayOne Media 2009.

Head Office Elizabeth House, Block 2, Part 7th Floor, 39 York Road, London SE1 7NJ T + 44 [0]207 401 6033 F + 44 [0]0207 202 7488 www.sayonemedia.com

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05 Sponsor statement

Partners from our sponsors KPMG comment on this year’s report

06 Logistics and Supply Chain Survey 2009 24 Results analysis 26 Cost optimisation for the credit crunch 30 It’s all about effectiveness The questions we asked – and the answers you gave

What the survey results mean and what they teach us

Experts at KPMG share their views

Keivan Zokaei explores effectiveness and efficiency in the supply chain

34 Increasing supply chain efficiency 38 innocent and the connectivity journey

How Transwide helped the Carmeuse Group improve operations

Expansion overseas throws up many complex supply chain challenges, as innocent found out

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The quality keynote

Mike Debenham of the Chartered Quality Institute looks at quality in the supply chain

46 Steeling the show

Tata Steel has updated its supply chain processes, with impressive results

pallet networks in an economic downturn 49 Economical

Looking at transportation options in tough times

importance of being smart with your supply chain 52 The Sterling Commerce on the importance of visibility and alignment in the supply chain

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A word from our sponsors

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n efficient logistics and supply chain is essential in a challenging economic environment and even more so during today’s turbulent times. Within our Diversified Industrials sector we work globally with clients helping them innovate and optimise their performance in this area.

Few organisations have all the necessary skills and resources in-house to optimise all the individual elements that contribute to a best-in-class logistics and supply chain and complexity has increased dramatically. To be successful, organisations must continually innovate, deliver outstanding services for their customers and generate the required return for their shareholders.

Execution is key: you can make a number of losses, but you only run out of cash once! This report provides an excellent insight into what organisations are currently focused on in improving their supply chains, where they think the priorities are and what many consider to be key components of this. It is interesting, but not unsurprising, to see that cost

optimisation is the number one driver of supply chain improvement initiatives; however, only 27% of respondents consider the tax effectiveness of their supply chain which I think is an important element these days.

My conclusion from this report is that despite what organisations have done to date – with some making impressive steps forward – on the whole there is still much work to be done, presenting opportunity for those wishing to embrace it.

KPMG is therefore delighted to be sponsoring this report, which I hope you find an interesting and value adding read.

Graham Smith, Partner Global Head of Engineering & Industrial Products KPMG LLP

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At your company, is the supply chain managed as a whole or within individual functions?

Managed as a whole 51% Functions managed individually 49%

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Is there board or senior executive level supply chain responsibility?

No 24% Yes 76%

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Do you have a formal supply chain strategy?

Which of the following statements comes closest?

A formal written plan with detailed objectives and timescales for achievement 25% A written plan but less formal or structured 27% No formal written plans 15% Some aspects are written down but it’s rather piecemeal 33%

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Although you may or may not be there yet, how much impact do you feel a fully integrated, collaborative supply chain management strategy could have on each of the following factors affecting your company’s performance?

A: Improved speed and quality of decision making Major impact 22% Minor impact 21% Significant impact 57% None 0%

B: Improved revenue and profitability Major impact 25% Minor impact 17% Significant impact 58% None 0%

C: Cost control/reduction Major impact 32% Minor impact 16% Significant impact 51% None 1%

D: Efficiency and productivity improvements Major impact 22% Minor impact 19% Significant impact 58% None 1%

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E: Ability to deliver competitive advantage Major impact 24% Minor impact 24% Significant impact 51% None 1%

F: Flexibility to respond to market opportunities Major impact 20% Minor impact 33% Significant impact 45% None 2%

G: Streamlined and speedier systems and processes Major impact 17% Minor impact 25% Significant impact 57% None 1%

H: Optimised channel activity Major impact 10% Minor impact 41% Significant impact 47% None 2%

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Which if any of the following potential benefits have been achieved through such supply chain improvement initiatives as you have undertaken?

Cost savings 94 Optimised resource utilisation 39 Inventory reduction 73 Increased revenue and profit 55 Speedier response to changes/opportunities 45 Improved on-time in-full delivery 75 Ability to manage partner performance 24 Ability to track supplier’s capacity and inventory levels 16 Improved product development 18 Improved time to market 39

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What drives your supply chain improvement mentality?

Cost of service 62 Efficiency 49 Effectiveness 54

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To what extent have you been able to monitor and measure such benefits?

Full financial ROI quantification 16% Most benefits quantified financially but not all 46% Most qualitative assessment only 36% Primarily an act of faith 2%

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What is the target payback period for a return on your investment in supply chain management and integration?

Less than one year 19% 1 to 3 years 45% 3 to 5 years 4% More than 5 years 1% No such target set 20% Don’t know 11%

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Did you consider the tax effectiveness of your supply chain and the benefits it can bring?

No 73% Yes 27%

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How detailed is the information you currently receive from your channel partners? When making this assessment please consider all areas of potential data flow including customer records and purchase orders, design drawings and data, production schedules and pricing and cost information Very detailed 10% Quite detailed 51% Minimal/none 6% Not very detailed 33%

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And how detailed is the information you currently provide to your channel partners?

Again, please include all areas mentioned above.

Very detailed 19% Quite detailed 3% Minimal/none 23% Not very detailed 55%

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In the past 12 months, did the number of suppliers in your supply chain expand or contract?

It contracted 61% It expanded 39%

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If it expanded, by how much?

0-10% 72% 11-20% 24% 21-30% 0% 31-40% 2% 41-50% 2%

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If it contracted, by how much?

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0-10% 55% 11-20% 32% 21-30% 9% 31-40% 2% 41-50% 2%

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Are you currently implementing or involved in any of the following supply chain activities? Do you have any plans to begin to implement improvements in any of the following supply chain activities within the next 12 months?

(Figures are numbers of respondents).

A: Sharing manufacturing schedules with key suppliers Current 57 Planned 15

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B: Collaboration on new product design Current 55 Planned 9

C: Electronically integrated supplier/customer transactions (including CPFR) Current 24 Planned 35

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D: Web/internet based supplier and customer collaboration Current 15 Planned 45 15

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E: Use of web exchanges Current 30 Planned 15

F: Extending lean into the supply chain Current 41 Planned 24

G: Vendor managed inventories Current 51 Planned 14

H: Co-managed inventories Current 31 Planned 19

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How important do you rate each of the following potential obstacles in terms of their impact on implementing a supply chain management and integration strategy?

A: Concern over data security Not at all important 8% Quite important 12% Important 25% Very important 27% Essential 28% B. Concerns about giving away ‘company secrets’ Not at all important 8% Quite important 15% Important 21% Very important 25% Essential 31% C. Internal staff skills shortages Not at all important 17% Quite important 18% Important 38% Very important 25% Essential 12% D. Internal management skills shortages Not at all important 8% Quite important 18% Important 36% Very important 16% Essential 22%

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E. Supplier/customer cultural barriers Not at all important 8% Quite important 25% Important 31% Very important 29% Essential 7% F. Supplier/customer staff skills shortages Not at all important 9% Quite important 21% Important 39% Very important 25% Essential 6% G. Problems with technology/systems Not at all important 8% Quite important 24% Important 33% Very important 25% Essential 10% H. Coupling SCM with overall strategy Not at all important 10% Quite important 25% Important 35% Very important 22% Essential 8% I. Supp/customer management skills shortages Not at all important 7% Quite important 26% Important 34% Very important 24% Essential 9%

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J. Internal company cultural barriers Not at all important 12% Quite important 16% Important 36% Very important 27% Essential 9%

K. Proving ROI Not at all important 8% Quite important 20% Important 34% Very important 24% Essential 14%

L. Increased costs Not at all important 8% Quite important 17% Important 25% Very important 29% Essential 21%

M. Increased risks Not at all important 10% Quite important 13% Important 26% Very important 35% Essential 16%

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How important is an efficient IT system to the management of your supply chain?

Not at all important 0% Quite important 4% Important 17% Very important 24% Essential 55%

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How would you describe the level of IT investment in the supply chain or specific supply chain activities over the last 12 months?

Low 22% Not very high 30% Quite high 37% Very high 11%

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How would you describe the success of any past supply chain IT investment projects or initiatives?

Not at all successful 5% No such projects undertaken 14% Not very successful 24% Quite successful 40% Very successful 17%

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How likely is this company to invest in IT to facilitate supply chain improvement within the next 12 months?

Not at all likely 23% Not very likely 42% Quite likely 20% Very likely 15%

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Do you run a fully integrated software solution across all your supply chain functions or employ piecemeal ‘point’ solutions as appropriate?

Point solutions 67% A fully integrated solution 33%

22.

Does your company use or plan to introduce RFID/wireless technology to run any part of its supply chain management/logistics activities?

Already uses 16% No plans at present 61% Sometime in the future 11% Within the next 12 months 8% Within the next two years 4%

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If you do use or plan to introduce RFID/wireless technology to your supply chain/logistics activities, what do you/will you use it for?

Inventory control 21% Warehouse operations 22% Tracking and tracing 21% Inventory control 17% Logistics 15% Work in progress 4%

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Do you handle distribution in-house, is it fully outsourced or is it split, part in-house and part outsourced?

In-house 38% Fully outsourced 27% Partially outsourced 35%

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How satisfied are you with the performance of your outsourced logistics supplier(s)?

Not at all satisfied 0% Not very satisfied 8% Quite satisfied 48% Satisfied 31% Very satisfied 13%

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How satisfied are you with the service you currently receive from your palletised logistics provider?

Not at all satisfied 3% Not very satisfied 12% Quite satisfied 40% Satisfied 30% Very satisfied 15%

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If you do not use palletised distribution services, are you considering using them in the next 12 months?

Yes 12% No 88%

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What services do you receive from a third party logistics provider?

None 13 Delivery of parts/supplies to the site 49 Delivery of finished goods to the customer 82 Warehousing of supplies and sequenced JIT to the plant 13 Warehousing of finished goods 29 Order picking and packaging 18 Customisation/finishing of product 4 Management of the supply chain 2 Reverse logistics 6 WEEE compliance 3 Other 4

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If you use a third party logistics provider, which company do you use?

Ceva/TNT 20 DHL/Exel 26 Eddie Stobbart 2 FSL 1 Gefco 2 Norbert Dentressangle 7 NYK Logistics 2 Parceline 8 UPS 15 Wincanton 2 Other 44

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How satisfied are you with the service you currently receive from your third party logistics provider?

Not at all satisfied 0% Not very satisfied 3% Quite satisfied 38% Satisfied 44% Very satisfied 15%

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What proportion of your materials or components are sourced offshore or are likely to be so within the next 2 years?

A. Now 75-100 per cent 11% 10-24 per cent 33% 25-49 per cent 16% 50-74 per cent 16% Less than 10 per cent 24% None 6%

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B. Within 2 years 75-100 per cent 8% 10-24 per cent 21% 25-49 per cent 22% 50-74 per cent 16% Less than 10 per cent 14% None 4%

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From which of the following regions do you currently, or within the next 2 years, plan to source any materials or components?

A.Now EU 80 Non-EU western Europe 29 Non-EU eastern Europe 21 North America 37 Far East & China 53 India/sub continent 27 North Africa 5

B. Within 2 years EU 59 Non-EU western Europe 22 Non-EU eastern Europe 24 North America 28 Far East & China 43 India/sub continent 27 North Africa 2

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When choosing to outsource offshore, what are the most important criteria affecting that decision?

Product quality 83 Cost savings 85 Identifying/locating an appropriate supplier 35 Speed of response 32 Ease of partner/relationship management 31 Design capability 15 Language issues 13 Cultural issues 2 Distance of supplier from your plant 15

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How satisfied are you with your offshore

sourcing arrangements?

Not at all satisfied 1% Not very satisfied 11% Quite satisfied 41% Satisfied 42% Very satisfied 5%

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Results analysis

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Dr. Keivan Zokaei, director of the MSc Course in Lean Operations (Service) at the Lean Enterprise Research Centre at Cardiff Business School, examines the results of this year’s survey

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n nearly a quarter of the supply chains covered by this survey there is no senior level representation for the supply chain function, e.g. at board level.

At the same time, nearly half of the respondents seem to have no formal or written plan for managing the supply chain. Evidently, there is an endemic lack of attention to the value chain. Logistics and supply chain operations are undoubtedly fundamental to any company’s competitiveness; in fact, more than 80% of our sample thinks a fully integrated, collaborative supply chain management strategy could considerably enhance their revenue and profitability, and almost 80% think it will lead to improved speed and quality of decision making.

Maybe an even more interesting point hidden in the results of this survey is about what supply chain improvement initiatives typically lead to (question number five). While 94 respondents said they have delivered cost savings and 73 reported inventory reduction, only 39 stated that their value chain initiatives have improved time-to-market. This gap could demonstrate that most supply chain initiatives are aimed at delivering cost reduction and are arguably less concerned about improving consumer value. It is the same with the level of attention to supply chain collaboration.

In the same question, only 16 respondents mentioned improved ability to track supplier capacity and inventory, and 24 said they have achieved improvements in terms of managing partners’ performance. Low levels of partnership improvement responses, compared to inventory and cost reduction, signals that collaboration is currently viewed as a secondary issue.

Question 15 asks what supply chain activities companies are involved in, or plan to be in the near future. The percentage of the total sample with collaboration of product design is close to 50%. In most categories in this question, the overall ratio is low; worst of all, only around a third of the companies who participated in this survey have extended lean across their supply chains. Indeed, less than 50% have VMI or CMI in place within the chain.

Interestingly, this survey demonstrates that there seems to be no consensus among respondents over the obstacles for implementing a supply chain management and integration strategy. In other words, no single category has an importance weighting of less than 65% (i.e. categorized by respondents as important to essential).

Moreover, while 96% of respondents think efficient IT systems are “essential” or “important” to the management of supply chains, only 17% describe their experience of past supply chain IT investment projects or initiatives as “very successful” and 30% express that they have had very bad experiences in this area. My personal experience is that many large IT investments in supply chains go wrong and too much money is wasted in this area. Major IT solution providers are yet to fully grasp the potentials of ‘simple’ and ‘effective’ solutions. Lean and IT may need to begin to learn how to become mutually reinforcing.

In our sample, more than 60% of companies have partial or full outsourcing of distribution. This clearly shows the vital role 3PLs and 4PLs can play. However, experience shows that collaboration with logistics providers stands at arm’s length. At the same time, the survey shows that the levels of satisfaction with outsourced logistics suppliers and palletised logistics providers seems to be satisfactory, suggesting they are performing well.

Finally, a surprisingly large percentage of companies who participated in our survey use offshore sourcing (only 6% don’t do any off-shoring!). Demonstrably, this is likely to stay more or less the same for the next two years both in terms of percentage outsourced and regions outsourced to. Even more interesting is that 85% of the respondents seemed to be satisfied with their offshore sourcing arrangement decisions. This could reflect a strong focus on cost reduction, given the economic situation many firms currently face. When looking at the most important criteria affecting the outsourcing decisions, it seems cost reduction and product quality are much more important than ease of partnership, speed of response and design capabilities.

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A word from our sponsors: In bad times, prepare for good times‌

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n the midst of the current turmoil, some companies actively steer their way through, while others merely duck and weather the crisis out. But all have only one goal in mind: control costs to survive.

Companies can no longer rely on rising sales for profit growth and are looking for cost savings. They often start by looking at their supply chain and it is indeed a good place to start, as the supply chain is one of the most important value drivers in a typical organisation.

Traditional cost-cutting focuses on process harmonisation and streamlining. Organisations focus on minimising the cost pressure by improving their internal processes. At the same time, if businesses are to maximise profits in the long-term, they need to anticipate and prepare for growth. Rebounds, just like crises, have a habit of happening unexpectedly.

Companies have to prepare in advance and invest for the good times ahead.

The extended enterprise builds efficiency on streamlined processes that collaborate efficiently with external partners. Value is created through better collaboration. Continuous improvement of information flowing between logistics partners is essential for success.

How can organisations make sure they survive the current crisis and yet prepare for the good times ahead? These are two seemingly conflicting goals; yet to reconcile them can lead to soaring results.

The path to success is built from difficult strategic choices, where short ROI supply chain projects are like golden nuggets. But in the end, the difference between a great strategy and great results is the quality of your execution.

Investing to make sure your plan is carried out to the letter, while cutting your costs and improving your efficiency, is the ultimate achievement in 2009.

This report will give you a very accurate description of how companies view their logistics and supply chains and how they intend to reconcile the two conflicting goals. You’ll be able to benchmark your strategic decisions as well as your execution performance.

We are proud to have sponsored this highly professional report and I hope it will be informative and helpful to you in this climate of turbulence.

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Cost optimisation for the credit crunch New rules and tools for these troubled times: three experts from KPMG share their views

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f necessity is the mother of invention, then recession is surely the mother of cost reduction. In fact, the most significant developments in cost reduction methodologies for organisations have often been driven by major global or sectoral downturns.

For example, the manufacturing sector has responded to a series of recessions with the adoption of new strategies for improved quality while ‘doing more with less.’ These strategies included quality circles in the 1980s, followed by total quality management (TQM) and total productive manufacturing (TPM) in the early 1990s. More inclusive approaches such as lean manufacturing and Six Sigma were introduced in the late 1990s and early 2000s.

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Each new strategy in cost reduction is based on lessons learned in the past. At the same time, each strategy must be forward-looking, developing new perspectives that reflect current market conditions and, more specifically, recent changes in cost structures. Therefore, we need to ask how the current economic downturn will shape today’s cost reduction strategies and how companies can move beyond the tried and tested methods of previous eras.

The first step is to understand how this recession is different from previous downturns. We also need to consider what elements of a company’s cost structures have changed the most since the last recession.

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A different set of challenges Today’s crisis has already passed a number of dismal milestones, including the worst economic decline since the Great Depression of the 1930s and the sharpest decrease in stock market performance the FTSE has ever experienced. At this point, no end is in sight.

Along with the sheer magnitude of these market declines, the crisis is unique because companies are now focussed not only on cost reduction – the norm during any recession – but also on cash release.

Indeed, a recent KPMG International survey of business leaders found that 85 per cent of respondents saw cash management as a key priority, and 24 per cent identified it as their top priority for 20091.

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The first and most obvious change is that many of the cost reduction opportunities amenable to TQM, lean, and Six Sigma strategies have already been captured. Nowhere is this more true than in the manufacturing sector, where previously defined levels of manufacturing excellence have now become the norm. As a result, the hunt is on for new fields of opportunity, which increasingly appear at the boundaries between processes and departments.

As an example, many manufacturing companies lack sufficient integration between their supply chain and finance. Most manufacturers recognise that determining

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A recent KPMG International survey of business leaders found that 85 per cent of respondents saw cash management as a key priority, and 24 per cent identified it as their top priority for 2009

In terms of cost structures, we can identify two significant changes that have emerged since the last recession.

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This recession is also unique because cost reduction is being driven to a much greater degree by external factors.

Previous cost reduction responses have been focussed internally, improving performance from a historical base and showing sustained benefit. Insofar as companies could show these improvements, they were given the benefit of the doubt. Today, however, a widespread concern around financial viability has prompted financial institutions to retreat into the most conservative assessment methods of their clients. Accordingly, companies must now prove their cost control credentials in relation to their peers. ‘Better than last year’ is no longer the appropriate reference point. Companies must show that they are better than their entire sector, with little heed given to companies that claim to operate under special circumstances.

true customer profitability by taking into account cost drivers such as credit and logistics is simply good practice. However, 14 per cent of companies in our KPMG International survey still report poor visibility of cash flows – often caused by inadequate linkages between operations planning and the treasury function.

The second change in cost structures involves the extent to which cost drivers now lie outside the formal boundaries of the company. Volatile commodity prices and exchange rates, increased financial pressures on suppliers and market downturns have all introduced uncertainties that require a different set of tools for cost reduction. Understanding the true costs of lowcost sourcing, and weighing supply chain risk into your equations is a difficult but necessary discipline that must be mastered.

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In short, the current recession demands much more than a traditional, inward-facing perspective. In fact, we can say that cost performance is relevant only in relation to an external viewpoint, and you must become masters of your external cost drivers as much as you have mastered your internal ones.

Cost reduction in action KPMG in the UK recently helped an automotive company gain better control over its cost base. The company was struggling with a rapidly changing market focus and problems in delivering large contracts. In addition, its fixed costs were significantly higher than those of its competitors. After careful study, KPMG in the UK implemented a Cost Optimisation programme that included challenges to the asset base, a detailed inventory appraisal and indirect cost-base re-assessments. As a result of this work, KPMG in the UK has delivered annual cost savings of ÂŁ9 million to the business.

The right approach for the right time KPMG member firms have been helping a number of companies review their cost bases across numerous engagements within a number of sectors. Based on this experience, we offer the following lessons:

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1) Gear your cost reduction against external comparators. Whether looking at stock turns, IT costs, HR, back office, finance or engineering, the ultimate test is not your internal ability to change, but your ability to beat your peers. By using both internal and external databases of cost comparators, you can better determine your real positions.

2) Plan for both immediate cost reduction and ongoing cost optimisation. Many of our clients started their cost campaigns well before the onset of the credit crunch. Their aim was not only to survive the downturn but also to be well positioned when the economy recovers. Sustainability should be the watchword of your activities.

3)

Adopt an aggressive but focussed stance towards your cost. In many instances, we use an approach based on private equity valuations of the business. In effect, this approach asks whether there is unrealised value in the business and focuses on critical areas where specific costs can be reduced.

By following the money in a disciplined and realistic way, companies can reduce the chances that valuable resources are being devoted to poor opportunities. Just think of highly paid production engineers who might shave a few seconds off machining time while significant costs from unreliable supply delivery go largely unchallenged.

4)

Look at your costs from a variety of angles and leave no stone unturned. The standard accounts are designed to show costs in ways that make reporting easy rather than cost drivers more transparent. Considering costs from a process viewpoint (cost to

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serve), a full lifecycle viewpoint (total cost of acquisition), and P&L/balance sheet viewpoints (cost of stock) can often reveal areas for new improvement. Also make sure that all opportunities are examined properly.

For example, tax is often seen as a given, and yet this is possibly an area for cost optimisation through strategies such as tax efficient supply chain management (TESCM).

5) Consider your capabilities in terms of both time and skills. Few companies in manufacturing have ignored cost in the past, and yet the conversion rate of projected savings into actual savings typically stands at less than 40 per cent. Think about your organisation’s ability to deliver a concentrated bout of cost reduction using combined approaches of accounting and subject matter expertise. If you cannot do it internally, get some help and bear in mind that every month of delay is a month of savings foregone.

6) Cost reduction starts by ensuring that you do not incur unnecessary costs. With the increased levels of business failure, your supply chains have never been more fragile. Balancing your pursuit of cost reduction with an appropriate appetite for risk is critical. Some of your suppliers will be under serious financial stress in 2009.

This is fine if they handle your window cleaning contract but not so good if they are the sole source of a critical component.

KPMG member firms can provide a unique combination of capabilities to help you identify and mitigate risks to your supply chain.

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And finally:

“Have a good plan, execute it violently, do it today” – General Douglas A. MacArthur Above all, get on with it; time is not on your side.

KPMG member firms are ready to support you in securing benefit realisation from initial opportunity diagnoses to implementation. end

The Importance of Preserving Cash in a Downturn: Insights from 2008 research into cash and working capital management, KPMG 2008

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Andrew Underwood is a partner, Guy Dunkerley a principal advisor and Michael Mowat an advisor, all at KPMG in the UK. The information provided here is of a general nature and is not intended to address the specific circumstances of any particular individual or entity.

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It’s all about effectiveness Dr. Keivan Zokaei of the Lean Enterprise Research Centre at Cardiff Business School examines how supply chains can boost their efficiency and effectiveness by eliminating all too common mistakes

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he economy is rapidly slumping into a deep recession but did it really need to be this way? The Big Three auto manufacturers are in big trouble and even Toyota, the all-time legend of efficiency, has dived into the red for the first time since its records began in 1941. Toyota has hit the red as exports screech to a standstill, partly to be blamed on a soaring yen. We are simply used to Toyota always making profit, oblivious to the fact that the volume car makers’ business models are very vulnerable to sudden falls in demand, especially if in the process of expanding capacity like Toyota. An insurance company, or even a chain of supermarkets, doesn’t have the same level of asset specifity that volume car makers have.

many other motor manufacturers all along. The Times now reports that Toyota’s finished cars inventory levels in the US are about “twice the level considered appropriate”2, i.e. around 90 days’ worth of cars in stock. I believe Toyota’s inventory levels increased as they expanded into various markets and attempted to deal with what Taiichi Ohno called “market diversification”3 – or in other words, the ever-increasing range demanded by the customers. Ohno, the father of the Toyota Production System (TPS), explained that TPS is capable of coping with market fluctuations in terms of variety and volume even when the overall demand is steady. TPS is designed to absorb these fluctuations through the principles of just-in-time and autonomation.4

Toyota has cash reserves more than enough to cope with the current climate. However, experts such as Richard Schonberger have been warning about falling inventory turns at Toyota1 alongside

Yet even Ohno did not claim that Toyota could cope with sudden slumps in demand, so it is inevitable that Toyota suffers like most other businesses.

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But what happened for Toyota to remain profitable through the recessions of the past but not this time round? Let’s revisit the history of manufacturing before the oil shock of 1973. Back then, you could sell practically whatever you were able to produce. In the era of mass production, what seemed to matter was the economy of scale, and what management focused on was the unit cost, i.e. producing in large batches through dedicated processes and monumental machines. Management’s aim was simply to sweat assets. Still much of what is taught in business schools around the world is influenced by the mass production way of thinking. Then came along Toyota, which showed us that we can (and indeed should) lower costs by producing only what the customers want at the pull of the customer. TPS demonstrated that cost is in flow, rather than scale.

Management thinker Professor John Seddon of the Lean Enterprise Research Centre (LERC) refers to this as the “economy of flow”. Between the oil shock of 1973 and the recent recession in 2008, the management focus has been on learning the principles of flow thinking, many of which were developed in Toyota during the time before 1973.

Sadly, companies and their supply chains are yet to learn some very basic principles and the full-scale implications of TPS, as I will explain below.

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requirements are in order to provide the most effective solution to their problem.

Tesco has been one of the leading firms to realise economy of purpose. Its core business purpose is to gain customers’ lifetime loyalty. There is no mention of share of your pocket, cost or efficiency in Tesco’s purpose. It’s all about what consumers value; it’s all about effectiveness. In this new age, value enhancement is arguably more important than waste reduction. Tesco rigorously and systematically communicates its core purpose across various levels

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The severity of the current economic shock is suggesting that even flow thinking alone is not a good enough solution and it can be argued that we are progressing into an era of ‘economy of purpose’

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However, the severity of the current economic shock is suggesting that even flow thinking alone is not a good enough solution and it can be argued that we are progressing into an era of ‘economy of purpose’.

Leading companies in different industries are not only producing what the customers demand at the pull of the customer, but are working together with their customers and customers’ customers to gain a deeper understanding of what the end consumers’

of the organisation. Its CEO, Sir Terry Leahy, is often quoted as saying: “If you are in doubt, ask the customers”. Tesco deploys Clubcard data to create the most effective supply chain the industry has witnessed, where individual store range and offering depends on the local shopping profile, and promotions are customised to individual shopping needs. As such, Tesco runs a supply chain that dwarfs that of WalMart (ASDA) in both effectiveness and efficiency (see the industry data on sales per square foot). Opportunities are endless; and we have yet to grasp the full-scale implications of the post-2008 economic era.

Against this background, I would like to draw attention to some of the most immediate issues in our

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supply chains. The reality is that many supply chains are desolately fixated in paradigms and practices of the mass production era. We have fallen desperately short of the TPS standards, let alone getting ahead of Toyota to cope with the current climate (as arguably Tesco has done). On LERC’s executive MSc in Lean Operations programme, we set an assignment every year requiring students to analyse their companies’ supply chains and provide practical recommendations for improvement. This is an opportunity for me to visit (or at least read about) the latest state of affairs in both the manufacturing and service sectors of our economy. Students (mostly very senior managers) challenge the way their supply chains operate in the light of lean thinking and the principles of flow economy. Analysis is quick (a few weeks), yet the gains are often enormous.

When it comes to managing the end-to-end supply chain, the situation in both the manufacturing and service industries is bleak. We have introduced many internal lean initiatives and many firms have matured in TPS ways of thinking internally. But

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elimination of quality and delivery problems with the supplier (quality problems were running at 40% and delivery problems at about 30%). Consider how much cash you could release and how much value you could add to your manufacturing in only five weeks! The root cause of the problem in this medical device supply chain was erratic ordering from the customer placed on the supplier, which put sudden strain on the manufacturing at the supplier plant.

Orders were accelerated through production to meet erratic orders followed by long periods of lull leading to many quality and delivery issues. The medical device manufacturer collaborated with its supplier on a simple redesign of the manufacturing sequence to postpone the last production sequence until parts were actually called in. This allowed the supplier to produce blank parts and finish them only when ordered by the manufacturer, reducing inventory by about 80%.

Another example, from one of the largest wine and spirits distributors in the world, concerns inventories along the chain for a popular wine category supplied to multiple supermarkets. Wine is often supplied in bulk into the UK and bottled and labeled prior to shipment to customers.

This company has recently invested in multiplying its warehousing capacity of bottled wine based on increasing demand during the past few years. Unfortunately, this is a position you don’t want to be in when a recession hits. It’s always cheaper to keep wine in bulk and postpone the bottling until actual orders are received from customers. This will also ensure much higher product availability against customer orders and reduces the need for large amounts of inventory in the chain by keeping the right type of finished goods stock. Supply chain mapping revealed a 170-day lead time for a bottle of wine from winery to sales. There is a considerable amount of inventory

The reality is that many supply chains are desolately fixated in paradigms and practices of the mass production era.

We have fallen desperately short of the TPS standards, let alone getting ahead of Toyota to cope with the current climate

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this has hardly been the case in the extended value stream. One of our MSc students, a lean leader at an international medical device manufacturer, achieved 80% inventory reduction during only five weeks of supply chain analysis. This was in addition to

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within the wine supply network while there are relatively low levels of inventory held by the retailers.

Huge savings are possible by simply postponing the bottling until customer orders are received and constantly revisiting the safety stock levels only to keep enough bottled wine to meet small fluctuations in the retail orders. It is sensible to position the inventory just before the point where the product becomes highly varied.

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I have seen many examples in service supply chains where the situation is very similar. For example, in the insurance industry, insurers maintain an arm’s length and price-driven relationship with suppliers.

Individual insurance firms are encouraged to provide lower-cost solutions leading to supply chain members looking inward to pursue a strategy of optimising own-service delivery. However, optimising costs at

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One of our MSc students, a lean leader at an international medical device manufacturer, achieved 80% inventory reduction during only five weeks of supply chain analysis

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In managing supply chains, we know about the demand amplification effect since the 1950s. Demand amplification exists in nearly all supply chains. Yet I haven’t come across a single one that uses demand amplification as a KPI or one that consistently monitors it with all suppliers. It occurs when small fluctuations in the end user demand become amplified as they are passed upstream, leading to considerable ebbs and flows along the supply chain. Ohno would have called this mura5; indeed recession occurs when we encounter mega mura. When an international pharmaceutical firm mapped its largest value streams by volume, it found demand amplification resulting from batching and inventory control policies. Whereas customer demand for the selected product was fairly stable (averaging around 800kg per month), demand amplification occurred because of a fixed manufacturing lot size of 2250kg in production, consisting of three containers of 750Kg. The supply chain analysis suggested reducing the lot size to one container and shipping it immediately to the next process without entering the current stages of warehousing. A safety stock could be kept to make up for the difference with customer orders. This removes the wastes of transportation and over-production; but more importantly, producing more closely to the customer demand means exposing quality problems and the opportunity to tackle the root causes much more quickly.

a local level can compromise the end-to-end value stream as a whole. Negotiations are considered in isolation with little concern by procurement teams on the impact of decisions by one chain member upon others and to the value chain overall. end

See Schonberger, R. (2008) Best Practice – Lean Six Sigma Process Improvement. Schonberger reports that Toyota’s inventory turns have been worsening four per cent year-on-year for the past 13 years in an apparent attempt to become the world’s largest auto-maker.

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Times Online, 22nd December 2008

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See Ohno T. (1988), Toyota Production System: Beyond Large-Scale Production, Productivity Press.

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Autonomation (Jidoka in Japanese) is automation with a human touch. It’s about allowing the human interface with work to absorb variation in work and to ensure ‘first time right’ quality.

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Japanese for unevenness, which is a root cause of muda, or waste.

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Increasing supply chain efficiency The Carmeuse Group is an international organisation generating nearly $1bn in annual revenue. Founded in 1860 and operating in 22 countries with over 100 production plants worldwide, Carmeuse manufactures and ships more than 58 million tonnes of lime and limestone products per year Saas and supply chain efficiency

Initial situation Transportation is an essential part of Carmeuse’s dayto-day business.

This is an intricate situation with some

customers managing the transportation

versus others requiring Carmeuse to manage it

There is multimodal transportation via lake

vessel, barge, train and truck

Management of the truck transportation

is very complex and time consuming, due

to manual processes leading to increasing cost Identified business process concerns

Manual load tendering leads to cost

inefficiency and errors

No visibility on truck arrival at plant leads

to inefficiencies such as bottlenecks and/or

ineffective resource planning

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Difficulties to get accurate delivery information leads to delays in invoicing Limited shipment information visibility for the customer service team impacts customer satisfaction and service levels Lack of visibility on transportation efficiency impacts the ability to monitor key performance indicators (KPIs)

Additional business process requirements Shift plant site coordinators function from

a truck scheduling to a production planning

All shipments need to be scheduled 24

hours in advance Carriers and/or customers schedule their

own pick-up times via a web based system Improve customer service with shipment

information visibility allowing advanced

schedule planning, track arrival and

departure times and check delivery status

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tran s wide

Each region followed the same operational schedule; the rollout process lasted two to four weeks, depending on the site’s specific needs. (see fig 1 overleaf)

The selection of the ideal partner – Transwide Based on this analysis and following an in-depth market review, Carmeuse selected the following modular solutions from Transwide:

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Project implementation The full implementation was accomplished in less than eight months.

Initially, Carmeuse’s central ERP (SAP)

system was connected to Transwide,

allowing automatic supply chain

data exchange

The project was rolled out in six

concurrent steps with one to four Carmeuse production sites in each region:

Thanks to the immediate availability of POD information on the Transwide website, we were able to verify that the specific load had been accepted and shipped Results of a successful implementation Based on Transwide’s customers’ performance in the large manufacturing sector, the following significant results were realised:

Better planning and managing of resources

- increased quantities loaded with the same

workforce and equipment by approx 10%

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fig 1.

Increased on-time deliveries by 20%

Reduction in freight claims by 12% Carmeuse expects to meet or exceed the above results through the following performance areas: Increased supply chain efficiency Standardisation of North American

transportation processes

Carmeuse Lime & Stone is the largest producer of lime and limestone products in North America with 39 facilities, manufacturing and distributing approximately 34 million tonnes yearly.

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Increased visibility of transportation information

Less manual communication required

between site coordinators and carriers

Ease of use for carrier scheduling – similar

to an airplane flight and selecting your

seat location

Improved customer satisfaction through higher level of service

Electronic archiving of PODs leading to POD available less than 48 hours

after delivery

Proactive customer service approach

as a result of access to real-time shipment

status information The financial impact of these performance improvements is significant:

Shortened invoicing cycle through POD information being directly accessible

on the Transwide website

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Improvement in debt collection through reduction of loads written off

Immediate reduction of demurrage cost

(especially from delays due to

internal organisation issues)

“Our customers, carriers and internal stakeholders have been very impressed with the quality of the Transwide system, the ease of its implementation and the immediate impact it is having on customer service.”

– Jack Fahler, VP Supply Chain

“Transwide has provided the foundation on which the continuing evolution of our supply chain stands. Through Transwide we will have the real time visibility needed to make quick, smart decisions to enable us to exceed our customers’ expectations.”

– Eric J. Segal, Manager, Production Planning and Transportation

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“Transwide helped our Customer Service and Collections department with a concerned customer notifying us about a short shipment. Thanks to the immediate availability of POD information on the Transwide website, we were able to verify that the specific load had been accepted and shipped. As a result Carmeuse saved several thousand USD in sales and a customer relationship.”

– Stephanie Pilarski, Traffic Analyst

EMEA : Tel +44 (0)20 8247 1178 EMEA : Tel +32 (0)2 722 99 20 NAFTA : Tel +1 877 763 3240 info@transwide.com www.transwide.com

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innocent and the connectivity journey Embracing expansion into new countries represents a serious business challenge for any organisation, and turning to managed services where organisations outsource critical business processes to external experts is becoming increasingly popular

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lobalisation and the emergence of the internet has opened up a whole catalogue of new business opportunities, not only for the sourcing of raw materials and products more efficiently and cost effectively, but also for building trading relationships and developing new sales channels. As technology effectively transforms the world into one global village, there is added pressure on manufacturers to adopt smarter

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business processes, including increasing supply chain efficiency and the way in which they communicate with suppliers and customers on a global scale. innocent, the UK’s number one smoothie maker, grew from humble beginnings to a market-leading brand with global requirements and has found that sometimes, handing over the reins can make the most business sense.

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It’s hard to believe that just nine years since the company began, innocent has become one of the most recognisable retail brands in the UK. It began life as a company of just three people with £500 worth of fresh fruit and a bundle of ambition.

Selling fruit smoothies at a minor music festival in London, the company’s founders asked customers the simple question, “Do you think we should give up our jobs to make these smoothies?” They asked for the answer by the way of empty bottles in ‘Yes’ or ‘No’ bins. The resounding ‘Yes’ vote started the dream and innocent took its first steps on the way to becoming a leading player in the soft drinks market. After building up a solid network of local retail customers, innocent began taking orders via fax, phone and email – all perfectly acceptable methods for a start-up looking for a quick and easy conduit through which it could communicate with its customers. For the first couple of years of innocent’s life, the business was able to grow with traditional communication, developing an excellent customer base on a regional and national level.

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chain is a crucial part of most businesses – innocent being no exception – yet assigning dedicated IT staff to manually process orders and update back-end systems is resource-intensive, and few organisations, especially in the current economic climate, can afford to do so. Managing legacy connectivity systems can prove to be cumbersome, with system downtime and unreliable internet connections causing IT administrators numerous headaches, as well as

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As we outsource much of our operation and don’t have 24/7 head office support, we also needed a partner who could manage this environment for us 24/7, serving all the countries we were operating in. Our solution needed to operate round the clock, just like the rest of our supply chain

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As the innocent brand grew in popularity and attracted major retailers, the demands on its supply chain increased significantly. Contracts with these retailers required a system more complex than the previous way of sending and receiving orders, invoices and other data with customers. In 2002, a solution based on connectivity was implemented – connecting the head office to the UK warehouse and providing some automation of ordering and invoicing. As the business moved forward, both in terms of internal growth and the calibre of customer it was dealing with, the need for a system with additional functionality was apparent. The supply

impacting the business’ capability to process orders and invoices. Expertise is also another key area of concern within the supply chain. With many new IT graduates leaving university with skill sets that often do not include connectivity, the availability of workers skilled in this area is diminishing quickly – yet leading retailers across Europe still demand that suppliers communicate through connectivity and via pre-defined data standards and protocols. This creates a skills vacuum that organisations are increasingly turning to technology to fill.

With these factors in mind, and with the business planning to expand into Europe, innocent needed to address these challenges quickly and effectively. As the organisation began trading in the Benelux region,

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France, Ireland, Germany, Austria and Scandinavia, it became clear that improving the technology that was developing the supply chain was critical to expansion.

In order to supply its European customers with the same level of service as those in the UK, innocent needed to ensure that the new solution could address cultural complexities, such as language, but also that orders and invoices could be sent and received in international data standards or protocols without any negative impact on the time taken to process data.

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availability services, ensuring the supply chain will run round the clock, even in the event of a disaster.

Tuppen also needed to ensure that new customers could be added onto the supplier network with the minimum of fuss –something that running the operation internally would not deliver. Because customer reputation is vitally important, innocent had to ensure that any transition onto a new system was as seamless as possible, to prevent disruption to its operation. After weighing up the challenges and issues facing the business, Tuppen decided that a managed service was the best fit for the organisation’s expansion plans.

We were confident that managed services would provide us with the full support needed not just to deliver the technology but to guide our team as we worked with our customers and suppliers in this complex area

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innocent’s supply chain manager Ben Tuppen was tasked with the job of finding the right solution and it quickly became apparent that Software-as-a-Service (SaaS), via an external supplier, could offer real benefits to the business.

“As we outsource much of our operation and don’t have 24/7 head office support, we also needed a partner who could manage this environment for us 24/7, serving all the countries we were operating in.

Our solution needed to operate round the clock, just like the rest of our supply chain,” said Tuppen.

Historically, businesses have been reluctant to outsource key business functions to SaaS suppliers; however, the benefits of doing so were immediately apparent. SaaS providers often offer high

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“We were confident that managed services would provide us with the full support needed not just to deliver the technology but to guide our team as we worked with our customers and suppliers in this complex area.”

The implementation of the managed service has allowed innocent to streamline business operations, better comply with SLA mandates and successfully expand in Europe, bringing on key new customers as a result of the roll out. Automation of order and invoice processing can also improve resource efficiency – innocent is already saving 20 hours a week previously spent on processing orders and invoices by hand.

Additionally, handing responsibility to a managed provider enabled innocent to connect a key customer within one month of starting the implementation, critical to winning the customer contract. Since then, the scalable solution and support means innocent is on track to triple their number of connected partners within their first year, without worrying about complex European connectivity standards.

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With an ‘always online’ service via an easy-to-use web portal, innocent avoids having to create a separate and disparate connectivity team by allowing all relevant personnel in logistics, finance and IT webaccess to the solution when they want it, wherever they are in Europe.

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control and availability – yet the case for bringing in the experts stands up for itself. After all, getting things right first time, every time has to be the key goal with such stiff market competition, and if that means enlisting the trust of those that live and breathe connectivity, then that is surely a sacrifice worth making. end

As with most businesses, budgeting is crucial, and selecting a managed service with a clear pricing structure was attractive for innocent, as it provided a flat-rate subscription fee rather than volume of traffic. This has allowed innocent to maximise the use of connectivity to integrate systems with those partners they are connected to, whilst keeping costs predictable and low.

There are still businesses that prefer to maintain complete control of their supply chain environment, and arguably always will. However, with cloud computing becoming ever-popular, services becoming increasingly reliable and cost-effective solutions helping drive down costs and achieve a healthy ROI, the business case for managed services is hard to resist.

For innocent, bringing in an external provider to give support and assistance worked extremely well.

And for smaller organisations for whom IT and supply chain technology in general may be stepping into the unknown, turning to a managed service can make real sense.

Growing a business during such tough economic times is a real challenge, however, as innocent has experienced, technology can be a great enabler, driving mass growth, improving efficiency both now and for the future, whilst remaining cost-effective and predictable in terms of pricing. Managed service offerings have their critics – those who believe only 100% ownership of business functions can guarantee

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The quality keynote The concept of quality as a working principle should be more than familiar to manufacturers – we pioneered the concept, after all – but the definition has changed over time and Mike Debenham, executive director of policy and professional affairs at the Chartered Quality Institute, is keen to present an updated view of the modern quality profession

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f all the developments in industry over the last 50 years, the most dramatic is surely the speed with which things change. Technical advances, immediate communication and global markets operating around the clock all contribute to an environment in which organisations must constantly evolve to keep pace. In this fast-moving market, there is no room for the development of weighty documented systems or the imposition of rigid working practices – instead, the emphasis must be on encouraging and implementing innovation.

Quality professionals are trained to look at the world with a particular vision – to understand a range of

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processes and techniques that can be applied to any specialisation to maximise customer satisfaction – however, the unifying principle is (or should be) that their application allows every individual to contribute to innovation at every level.

This may sound like a contradiction in terms to those familiar with a clipboard, tick-box approach to quality assessment, but I would argue that sometimes, organisations that appear to be the most rigidly controlled are actually the most innovative.

The classic example of this would have to be the Toyota manufacturing plant in Japan. At first sight, it is difficult to imagine a more tightly controlled

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environment. Over 3,000 people work at the high-tech facility, which is run with precision and consistency. However, all staff are actively encouraged to volunteer suggestions on how the production processes could be improved. The company estimates that each worker contributes, on average, 10 suggestions a year and the management implements over 90% of these suggestions. The result is a unit that is constantly developing itself, embracing the innovative input of all of its staff and remaining one of the most effective and efficient facilities in the world.

This collaborative environment did not happen by accident. Giving people a structure in which their ideas are recognised and acted upon is a basic strategy, and one that needs top-level management support to implement it. Once in place, however, the results can be startling.

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example involved measuring the time and effort required to make a single wire basket. At the start, this process took nine operatives, a production time of 28 minutes (11 of these in movement alone) and a lead time of 117 hours. As result of the reorganisation, the same end result is achieved with six operatives, in a production time of 12.5 minutes with movement time down to just 30 seconds. A basket can now be assembled every four minutes and lead times have been reduced by 97%.

The cumulative results of these incremental improvements have allowed the company to introduce a more diverse range of products, a lead time that cannot be matched by any of its competitors and an extra 200 production hours of capacity every month.

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From the purchaser’s point of view, the single most important consideration is the impact that failure of a supplier would have on their own customers. Only when this is evaluated can the appropriate response be designed

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Closer to home is the example of Yorkshire-based wire products manufacturer Vanguard which needed to improve its production processes and elected to exploit lean manufacturing principles. For MD Paul Howcroft, this was not about a simple focus on reducing costs: “Lean is not an accounting principle; it is about looking at all your processes in a completely new light – being open to radical suggestion and brave enough to try it.”

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The first stage is accurately to measure the processes already in place so that improvement can be evaluated in terms that are most appropriate to that process.

Responsibility for identifying areas for improvement is devolved down to cells of workers who are also tasked with suggesting innovations.

Results across the business have been startling. One

The single most significant contribution to the success of the programme, however, was acknowledged to be the level of engagement across the company. Quite simply, the collective knowledge, commitment and enthusiasm of the staff is the key to implementing radical innovation.

The improvement process does not stop with these results: a genuine quality process will put a system in place, but recognise that the situation is fluid and

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that every element needs constant scrutiny to exploit any area where there is room for improvement. It is for this reason, perhaps, that organisations are moving away from documenting their processes in minute detail and instead are using ‘specified competencies’ and job-specific training as the means for ensuring that work is accurate. This enables them to own an agile management system that is less dependent on documented procedures and significantly reduces the burden of updating documents every time some minor changes are made to the system.

No organisation exists in isolation, however, and just as important as the perfection of its own systems is an ability to evaluate and plan for the unexpected – which is why risk assessment is as much a part of the quality professional’s toolkit as process innovation.

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commitment to the supplier and, in return, the supplier will take on some or all of the risks associated with late or non-compliant delivery.

In addition, the purchaser may employ a range of risk management approaches dependent on the severity of the risks involved, for example, to develop risk tolerant work packages. The use of suppliers’ standard items that have already been extensively tested in previous use rather than custom-built untried items of equipment is an example of this type of package. Boeing, for example, has a policy that each new design of aircraft must contain at least 70% of components used in earlier models.

The prudent manufacturer will also carry out risk analysis of components, involving life testing, accelerated life testing, environmental testing, weibull and other forms of failure analysis

From the purchaser’s point of view, the single most important consideration is the impact that failure of a supplier would have on their own customers.

Only when this is evaluated can the appropriate response be designed. For many manufacturers, risk reduction involves using tried and trusted suppliers whose own quality processes are clear and robust.

In some cases a relationship may be extended beyond that of a commercial purchasing transaction and into a partnering arrangement where risk is simply contracted out. The customer will make a

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There are many aspects of risk, but for the purposes of this article we can focus on the risk associated with buying in components from outside suppliers, with the consequent quality and delivery risks that process brings to the purchaser.

The prudent manufacturer will also carry out risk analysis of components, involving life testing, accelerated life testing, environmental testing, weibull and other forms of failure analysis, ensuring a thorough evaluation of components and enabling the manufacturer to develop preventive strategies.

For example, it is known from the results of extensive product testing that sodium street lights run for a fairly predictable 8,000 hours. Rather than replace each one individually on failure, it is more economical to replace all of the lights in the area whether they have actually failed or not.

This is known as a block replacement policy and is extremely economical.

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The most dynamic results come from environments where the possibility of radical thinking is completely embraced by senior management and quality professionals can use their training and experience to exploit the creative thinking of the entire workforce

The simplified process of risk-based decision-making can be conducted in under two hours, involving probably two or three people. The result is that, for the investment of approximately four hours of time spent on analysis, a decision can be taken having considered and budgeted all risk involved and the related outcomes.

These are just a few examples of where a particular style of analytical approach can help to define a problem and suggest a logical and effective solution. There is no single template that could fit all of these situations and the quality professional must be adaptable and creative to propose processes that suit each individual situation and the culture of each organisation. The most dynamic results come from environments where the possibility of radical thinking is completely embraced by senior management and quality professionals can use their training and experience to exploit the creative thinking of the entire workforce.

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Under different circumstances or where the purchaser is not in a long-term supplier relationship, risk-based decision making is likely to be employed. For relatively minor purchasing decisions, a simplified system of identifying and analysing risk can be applied – and is a standard tool of the quality professional.

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profit organisations. The significance of their particular area of expertise has now been publicly acknowledged by the awarding of chartered status to individuals, allowing quality to rank alongside finance, law or engineering as a distinct area of specialist expertise, critical to providing the flexible, dynamic structure required for organisations to succeed in a fast-changing environment. end

The importance of quality has never been underestimated by manufacturers, but recent decades have seen a greater understanding of the scope of the quality professional. Their skills are not restricted to production processes but can be equally applied to management systems and to other sectors of the economy such as service industries, the public sector and not-for-

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Steeling the show A major overhaul of supply chain processes has seen Tata Steel go from strength to strength

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he steel manufacturing industry has never been known for being particularly responsive to market needs. In fact, until recently, the industry has been plagued by extremely long lead-times, poor customer service and high levels of manufacturing inefficiencies.

But there’s a quiet revolution going on, serving up more change in the last decade than in the 150 years preceding it. The use of leading-edge technology has driven business efficiencies, and continued globalisation has created further economies of scale, with both fuelling rapid industry consolidation.

Tata Steel, the flagship of India’s $22 billion Tata Group, is Asia’s first and India’s largest private-sector steel company. One of the lowest cost producers of steel in the world, it was ranked fifth in the Asian BusinessWeek 50 performers in 2005, and has twice topped the “World-Class Steelmakers” list issued by World Steel Dynamics, a leading steel information

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service. Tata recently purchased Thailand’s Millennium Steel and Singapore’s NatSteel Asia, and in January 2007 announced the acquisition of AngloDutch Corus Group in a $12 billion transaction.

“Before we started looking at supply chain optimisation, we suffered from all of the typical problems manufacturers face: non-optimised asset utilization, long cycle times, disparate IT systems and lack of visibility into demand, orders and shipments,” says Anand Sen, vice president of Tata’s Flat Product Division. “We knew that we simply couldn’t meet our strategic objectives by maintaining the status quo.”

Customer satisfaction Customer satisfaction was a real issue at Tata Steel.

When orders were placed, customers were promised a due date that was not based on hard data, plant capacity or raw-material availability. Orders were delivered when promised only about 50 per cent of

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the time. To make matters worse, customers would generally not receive advance notice if their order would not be ready as promised, and this lack of communication burdened customer resources down the line, in the finishing and distribution channels.

The plant would often scramble to address the needs of high-priority customers, further alienating customers whose orders may have been just as important but less urgent. Without any method to analyse forecast versus actual performance, it was impossible to design improvements in the overall delivery system.

Realizing that its industry-leading position was hanging in the balance, Tata started the improvement process by articulating its strategic drivers: improved customer satisfaction and higher asset utilisation.

To address customer needs, the company conducted an exhaustive survey to establish detailed customer requirements. The survey yielded three imperatives.

First, provide an accurate promise as to when the order would be delivered. Second, in the event that the order due date would be missed, notify the customer early in the process—not at the point of the missed delivery. And third, accurately project a revised delivery date so that the customer could modify its schedules accordingly.

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Steel

The business issues Tata wanted its process reengineering and IT implementation to address included:

Optimising inventory investment, including raw materials, work-in-process and finished inventories

Maximising the value of supplier relationships

Improving the accuracy of price and volume forecasts

Determining the best product mix

Making reliable customer delivery promises

Utilising key assets optimally

Prioritising orders for key customers

Improving quality and product yields through better scheduling decisions

Improving transportation efficiency

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Improving our ability to forecast allows us to use due-date-based planning, which helps us to meet demand with higher utilisation of assets

After mapping the entire supply chain process in great detail, Tata engaged in an extensive business process reengineering effort. The objectives were to evaluate the gaps in current supply chain processes with respect to industry demands, to redesign the processes to achieve a dominant service position and to identify the IT enablers that could make this happen.

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Business process reengineering

Tata Steel completed its technology implementation earlier this year and has seen significant improvements already in critical areas. Most importantly, 85 per cent of orders are promised within the desired delivery week and do not require any manual intervention or adjustment—up from 50 per cent. “Sometimes it’s even as high as 92 per cent,” asserts Roychowdhury. “Now, when we understand that an order is in jeopardy, we have the tools in place to troubleshoot the order and can often take corrective action to fix the problem before we even have to notify the customer.” In addition, late orders

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running in the production line have been reduced to less than 10 per cent, and order booking efficiency has risen to above 80 per cent.

Forecasting capability Tata’s forecasting ability has also improved dramatically. Prior to implementing supply chain software, the company had no systematic insight into how to evaluate the accuracy of its forecasts

New-generation software from i2 has given Tata planners several capabilities they lacked prior to implementation. Planners can now project business over a year’s time and monitor performance against those projections. They can also make product-mix decisions based on profit optimisation goals and take orders as late as possible with postponement strategies. Tata’s planners can also refresh the expected time of arrival with up-to-the-minute information.

Prognosis

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The rapid pace of change in the steel industry—and, for that matter, in heavy industrial manufacturing in general—is not expected to slow down. Stoked by these results, Tata executives are optimistic. “We’re shifting from being order-takers in a relatively controlled pricing environment 20 years ago to being sophisticated marketers adroitly negotiating the profitable space between supply and demand across multiple markets on an almost daily basis,” says Sen. “Someday, we’ll be able to predict not just the delivery date, but the actual hour that our truck will be pulling up to a customer’s warehouse. It opens up a whole world of possibilities.”

We’re shifting from being ordertakers in a relatively controlled pricing environment 20 years ago to being sophisticated marketers adroitly negotiating the profitable space between supply and demand

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for demand as well as for raw materials. Now, it has the tools to analyse its forecast predictions against actual results, enabling root-cause analysis capabilities to identify what has caused the differences. “Improving our ability to forecast allows us to use due-date-based planning, which helps us to meet demand with higher utilisation of assets,” says Roychowdhury. “Also, instead of manually balancing resources as before, we can now automatically identify bottlenecks deep in our processes, and take corrective action to increase our overall production efficiency, thus realizing the benefits of continuous improvement. In support of our strategic objectives, our supply chain data are fully integrated with the rest of Tata Steel’s business infrastructure, so we’re able to scale effectively as we grow.”

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Economical pallet networks in an economic downturn Pallet networks have been the logistics success story of the last ten years and have changed the way manufacturers and suppliers distribute small consignments of freight across the UK and mainland Europe. Craig Hibbert, managing director of Palletways UK Member Network, explains how pallet networks are facing up to their biggest challenge yet with the economic slowdown

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oday, pallet networks have become a critical component of a business’ overall transport strategy as they can deliver more quickly and at a lower cost than the traditional alternatives. Long gone are the days when the only cost-effective distribution option available for small consignments of palletised freight

was to place an order with a transport company and wait until they had enough freight to make fulfilment of the delivery orders profitable.

Pallet networks exploited this gap in the marketplace in the mid-90s and the rest, as they say, is history.

They provide users with a fast, easy, reliable and

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MME Engineering With customers all over the UK, a requirement to make deliveries each day and supplies coming in from its parent company in the Netherlands, MME Engineering recognised a need for a highly reliable and cost-effective distribution solution.

MME Engineering wanted to use a local distribution company that would be flexible to its needs and close enough for a fast, reliable and efficient service. It selected Kent-based Palletways member, Shakespeare Transport.

MME Engineering is one of the UK’s leading manufacturers and suppliers of aluminium, zinc and magnesium sacrificial anodes to the marine industry. Its products help reduce the problem of accelerated lowwater corrosion (ALWC) and are used in a wide range of applications from leisure boats right through to the marine and offshore industries.

Shakespeare Transport collects consignments from MME Engineering’s engineering plant in Faversham and then transports them to Palletways’ hub facilities. The goods are then sorted according to their final delivery points and the freight is distributed to MME Engineering’s end customers by those Palletways members who cover these areas.

Tony Newman, foundry manager at MME Engineering, says: “The majority of our consignments are now being distributed to our customers through the Palletways network. Having a reliable pallet network delivering our goods to customers is vital to the success of our business, and we chose Shakespeare Transport and Palletways because they had the edge on their competitors. Not only do they offer us the most cost-effective solution for our distribution needs, but they are flexible enough to deliver to our customers’ warehouses as well as to docksides and quaysides, which can often be difficult to negotiate.”

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cost-effective logistics solution for one-to-six pallet consignments, thereby enabling them to enhance their service to customers.

Customers’ goods are collected by local network members, who are independent transport companies with local expertise and knowledge, and distributed to a hub operation. At the hub, the freight is processed and sorted into designated delivery areas according to their final destination. The goods for delivery are then assigned to network members who cover the locations of the end customers. As goods are consolidated with other customers’ freight along the pallet network supply chain, not only do users benefit from highly competitive distribution rates, the process also has a positive impact on the environment by increasing vehicle utilisation and thereby reducing ‘empty’ miles.

Not only does the network model offer an environmentally-friendly solution by maximising transport productivity; but trunking vehicles travel to and from the hubs mainly during off-peak hours.

They leave their local depots out of business hours (after 5pm) and travel back in the early hours of morning. This reduces time spent in heavy, slowmoving traffic, making for quicker journeys and thereby helping to lower carbon emissions.

How to choose the best pallet network: There are now nine pallet network operators in the UK – so what should a manufacturer be looking for to get the best possible service for their business and their customers?

Ensure that the network has the highest levels of quality control.

The pallet network model relies on all its member companies subscribing to the highest standards of service. Therefore, make

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sure that there are processes and initiatives in place whereby the performance levels of member companies is constantly monitored by the pallet network provider, and that there is a support structure in place to enable the members to achieve the required performance levels.

Size does matter.

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Look at significant investment and innovation in technology, particularly in the area of track-and-trace, which provides transparency. Continuous development is essential to a pallet network.

Choose a provider that is an established brand and is constantly looking to add value through the development of new services.

Customers are in good position to demand all of the qualities highlighted above as pallet networks are facing up to their biggest challenge to date as a result of manufacturing output being severely affected by the current economic slow down. Going forwards,

The pallet network model relies on all its member companies subscribing to the highest standards of service

A network which has significant capacity will mean that it can maintain customer service levels at peak periods and allow for sustained growth, thereby ensuring stability of the network, which is important in today’s economic climate. The more depots a network has, the more personal service it can offer and better knowledge of the local area(s) in which your business and customers are located.

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we see three trends happening – firstly, instead of running their own transport, manufacturers will look to outsource to logistics providers who can provide major cost efficiency gains without affecting quality of service. Secondly, manufacturers who do not run their own fleets will be reviewing their existing outsourced logistics arrangements to ensure they are maximising cost efficiencies in their supply chains.

Lastly, the fall in orders will force lower inventories but suppliers will still be required to provide fast and reliable deliveries.

Whilst there is no doubt that these are challenging times, we very much believe the current economic conditions will lead to more manufacturers choosing high-quality pallet networks against other logistics alternatives. end

Choose a pallet network that offers services beyond the UK, particularly as the weak pound is currently providing significant export opportunities.

Look for a simple, set pricing structure which applies across quarter, half and full pallets.

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The importance of being smart with your supply chain Ronald Teijken, industry executive for manufacturing operations EMEA at Sterling Commerce explains why it’s necessary to connect to your business partners

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n today’s economic climate, pressure to reduce costs outweighs all other business drivers and refocusing on the internal and external supply chain operations is a necessary requirement.

For many it can seem an overwhelming prospect; most complex manufacturers receive more than 50% of their business, both demand and supply, from international markets, and with a significant portion of outsourcing production going to China for example, there is an added risk of driving cost innovation to the Far East, enabling those markets to increasingly compete on multiple fronts.

A consistent measurement that has persisted for more than a decade is the one between industry leaders and laggards. There remains, on average, a gap of

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50% in terms of cost advantage. This would indicate significant opportunity for cost reduction and process streamlining across manufacturers globally; supply chain transformation and alignment strategies can help remove the reality of being in constant firefighting mode with exceptions driving the rules.

Traditionally, manufacturers make decisions based on costs but to remain competitive in this environment, manufacturers need to focus on innovation, design and production; not just with products, but especially across the supply chain.

Although many are now accepting that visibility is key there is still a lack of integration with partners across the supply chain. Recent studies in the UK, France and Germany have indicated that a number

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of manufacturers, including large and global companies, lack integration with their business partners and those that do have seen an increase in costs to correct errors, which can take up to three hours per day, per employee.

Without this integration there is no information.

Without information it is impossible to achieve visibility. IT departments might struggle to provide support but it actually costs more not to know what is happening across the supply chain; not only due to charges of non-compliance but in some cases inefficient supply chains can easily lose revenue.

So, who determines what makes a successful supply chain? More importantly, what are the critical success factors and are they achievable or merely theoretical perfections?

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the relationships with what can amount to thousands of suppliers with differing process models, relationships and technology levels can look insurmountable, and that is before you even think about process and technology integration across multiple systems and architectures. Despite this however, many industry leaders are investing significant time and resources into extending visibility globally. We already know that for most complex manufacturers more than 50% of their business is global and to remain competitive all elements need to have a global approach, including visibility improvements. In addition, improving communications through order visibility between the manufacturers’ demand and the fulfilment side can support:

Real time availability over a global network As orders are placed into suppliers, a manufacturer typically no longer has the ability to retain a linked view, especially over a global network. Linking the original order (the demand) to the purchase order (supply) can open up the supplier’s ability to share stock allocations and availability to enable the manufacturer to be more responsive and perhaps re-distribute fulfilment in the event of availability issues.

Co-ordinated single orders across multiple suppliers, systems and the internal supply chain (distributed order management) With many manufacturers continuing to work across different systems, it is hardly surprising that quite often there is a lack of co-ordinated single orders across multiple suppliers. Linking orders across a global supply chain can in turn unlock other cost savings and efficiencies for the manufacturer. Beginning with the original sales order for a complex item which can be communicated from the distributor down to the manufacturer, the manufacturer then breaks the order down into

Inventory levels A key element of any supply chain cost reduction strategy is looking at inventory levels and understanding where efficiencies can be gained. Using visibility to improve inventory management should be a critical success factor for any manufacturer operating over multiple geographies and channel partners. Traditional inventory optimisation strategies tend to approach it singularly, examining various inventory locations in isolation and perhaps not considering how they relate to the wider inventory network across multiple trading partners and multiple geographical locations. In a lot of cases manufacturers have outsourced warehousing operations to logistics service providers but in the context of the complete supply chain, it is important to integrate all information about inventory for the right decisions. Unfortunately, many manufacturers still lack the right systems to be able to achieve this visibility.

Supplier visibility and communication Extending visibility to the often complex fulfilment aspect of any supply chain is a challenge; understanding

commerce

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its related components which may in turn be fulfilled from multiple suppliers in multiple geographies. With a global visibility system in place, the manufacturer can consistently monitor progress of these component orders, regardless of the fulfilment route, in relation to the original order. This means scheduling and production can be carefully timed and exceptions can be responded to in a measured way with reduced impact or delay on the original order.

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Order tracking and management As demand is often driven through multiple channels it is necessary to consolidate all channels into one picture. Unfortunately in a lot of cases, demand is still received and tracked as separate information. With the right orders, information and visibility, you can make the right decisions for fulfilling the demand from your customers across the whole supply chain.

Investment in integration and cross-enterprise order management solutions for demand and fulfilment will deliver multiple opportunities for cost reduction in traditional supply chains, which cannot be achieved by traditional ERP and/or MES systems.

Responsiveness through diversion As all industries know, supply chains are run by exception. No matter how efficient or effective your planning, there are always unexpected scenarios and while planning is necessary, a flexible fulfilment strategy is critical to enabling a responsive supply chain in the event of disaster or change. In addition to the usual factors driving change within a distribution network, the current economic climate is seeing companies going out of business or being acquired. This requires your fulfilment network to have the ability to divert order fulfilment to new facilities, geographies and trading partners as needed, without the need for completely re-writing your order management systems and processes. As some

glitches may also be only temporary the requirement to get them back in the network requires a fair degree of flexibility and responsiveness.

Coping with single source products in a global distribution network The headache of single source products and distributing fulfilment efficiently can be solved by improving visibility and inventory management. Understanding how the inventory is distributed across the network, by country, business unit and trading partner, can make it simpler and more cost-effective to fulfil orders from existing supplies in a neighbouring region or facility as opposed to ordering more from the single source. As single source products tend to be expensive, this can represent significant cost savings and process efficiencies.

To effectively achieve the benefits of comprehensive visibility you need a technology system that enables visibility, multi-enterprise order management and inventory management tools to create a stable, scalable platform that can integrate with, and leverage, existing IT investments. In a scenario where there are multiple ERP installations across multiple countries and business units, a distributed order management system that can extend the information and processes within these ERP instances to link trading partners can bring extensive benefits.

What underlies all of the above strategies is the ability to link supply and demand outside the four walls of the enterprise as well as implementing processes, integrating systems and maintaining collaborative relationships to leverage that visibility. Ultimately, integration with your B2B community is the smart way to do business. It can support the achievement of full visibility of your supply chain and provide the opportunity to calculate where financial savings can be made and where efficiency can be increased. end

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• e-CMR enabling automatic reconciliation with the matching Transport Order for faster invoicing cycle and claim management.

• Event Management System allowing you to manage by exception, focusing only when things are not going according to plan and alerting you when critical incidents happen. You can then address the issue, avoid escalation or spillage on other processes.

• A KPI extracting system to monitor your logistic performance and develop a strong and factual collaboration with your logistics partners

More than 55,000 users within more than 6,000 companies worldwide are using Transwide daily. Transwide’s wide network covers all activity sectors in Europe and North America.Our aim is to provide a simple solution to help increase transport execution’s efficiency and performance that will lead to hard savings. Our SaaS (Software-as-a-Service) model allows us to offer implementation in just weeks and Return-On-Investment that can be as fast as 2 months.

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