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Right Stuff, Right Place, Right Time: Supply Chain Coordination

Effective supply chain relationships lead to successful supply chain operations. Product design, manufacturing, transport, warehousing, inventory management, distribution and retailing – in a modern supply chain these operations cut across departmental, organizational and national boundaries.

The effectiveness of your day-to-day operations will be directly impacted by the quality of the relationships at these boundary interfaces as will your ability to conceive, plan and implement innovative operational solutions to real world challenges that deliver competitive advantage over competing supply chain configurations.

Managing risk in the supply chain is a strategic capability when the components and ingredients for the products you make are sourced globally from places that may be susceptible to natural disasters, political instability or organizational disruption. You need to be able to proactively identify and quantify these risks, put in place mitigation plans and actions and set recovery time objectives that protect your customers, your stakeholders and ultimately your business.

Today, even small and medium sized companies are facing these challenges of inter-organizational, cross-border coordination and risk management. These were previously the concern of the multinational corporation but not any longer. For many, this presents a new and daunting set of challenge that requires new skills and ways of thinking about business, competition and cooperation.

Nonetheless, it is a challenge that is worth taking on enthusiastically and with confidence. Maybe it is finding new competitive suppliers, maybe leveraging the capability of a logistics service provider, or establishing distribution channel partners in a new international market. Whatever it is, those companies that can identify the opportunities presented by the ongoing developments in technologies, deregulation and transport capabilities will reap the rewards of delighted customers and businesses that are growing and profitable.

December 14, 2015 0 Comments Blog

Do you Speak my Language? Supply Chain Communication

English has become the number one international language of business. This would appear to hand a significant advantage to those who already have English as their mother tongue. Many multinational corporations (MNCs), including some that do not have their origins in an English-speaking country, such as Nokia of Finland and SAP of Germany have even adopted English as their standard corporate language. Indeed, approximately 36% of global business in now done through English and despite the rise of China as an international trading nation, English is set to extend its dominance. According to a recent study English is moving from being a “marker of the elite” to becoming “a basic skill needed for the entire workforce”.

No international business person can be successful today without knowledge of English.

Various surveys and reports from the IMF, Bloomberg and the Worldwide Online Wallet (WOW) include various combinations of Spanish, Chinese, Japanese, German, French, Arabic and Russian among the top five international business languages in addition to English. In a strictly hard-nosed business sense, whether or not you need to invest in these language skills within your organization depends on the markets in which your business is active, whether you are predominantly buying or selling, the sector you operate in and the position within the supply chain that you operate at.

For example, if you are a manufacturing company in U.S. procuring electronic components from East Asia, chances are that English will be the language of exchange. However, if you are a producer of processed seafood products in Scotland looking to introduce to your brands to supermarket chains in France, Italy and Spain it is highly likely that you will need people in your team with a high level of proficiency in these languages.

Through the effects of globalization and global competition, more small and medium sized companies, are now getting involved in supply chain relationships with businesses in other countries where English may not be commonly spoken at the levels they must interact with. Consequently, proficiency in languages other than English will lay strong foundations for sustainable and mutually beneficial business relationships. The top trading partners of the US include Canada, Mexico, China, Japan and Germany. This indicates which languages will be important in the future for American companies as they enter the international fray in increasing numbers.

When it comes down to it business is about people. Buying, selling, and negotiating, are activities done by individuals who must communicate with each other verbally. Knowledge of the other person’s language shows that you value the other person and their identity. This strengthens the connections and relationships that lie at the heart of successful global supply chains. Those who will be most successful in these day-to-day interactions will be those who, in addition to their hard-nosed business acumen, possess a cosmopolitan curiosity that demonstrates a genuine interest in the culture, values and language of the people they are working with around the world.

November 30, 2015 0 Comments Blog

The Whole is Greater than the Sum of the Parts

Q: Why bother with developing supply chain connections?

A: Because the whole is greater than the sum of the parts.

Why are the links between your company and the companies that you work with such as suppliers, carriers, distributors and so on so important to the success of your business? Well, think of the supply chain as a complex system, and by complex system I simply mean something that is made up of parts that connect and work together in dynamic and flexible ways. A human brain is a complex system and so too is a modern city.

A brain has consciousness and cities accelerate creativity. You would never have known that was going to be so by just looking in isolation at the parts of the brain – tissue, chemicals, and water, or those of the city – roads, buildings, rules and regulations.

As if by magic, consciousness and creativity EMERGE from the quality of the interconnections between the various components of the brain and the city. In effect, the whole truly is greater than the sum of the parts.

Likewise, supply chain management challenges you to look at your business and its connections to all of your supply and service partners as a complex system, as one whole thing.

When you look at your business this way, opportunities emerge to create value through quality, speed and efficiency that are invisible and unattainable if you just think of your own business in isolation. Paying attention to the connections delivers a huge payback.

This is what the most innovative and successful companies, big and small, are doing. If others can do it, so can you.

November 16, 2015 0 Comments Blog

The Interface Crucible 5. Let’s Make a Movie: Situational Inter-organizational Relationships

While sustaining long term strategic relationships is critical for success, an ever more common response to the rapidly changing business environment is the formation of short term alliances designed to address specific tactical goals, projects or initiatives. In many instances these arrangements bring together people from different disciplines who may come from different cultures and ethnic backgrounds. Add in long distances and different time zones and the complexities and challenges of sustaining successful working relationships increase even more.

In some cases these arrangements are once off, in others they may come together several times over an extended period of time as required with some or all of the same participants, in all cases it is crucial to manage these relationships effectively to leverage the strength of diversity to the benefit of all. This forming and reforming of situational inter-organizational relationships is very much akin to the way the film industry brings together multiple skills and disciplines for a definite period of time to produce a movie and require very high levels of coordination, flexibility and creativity.

 

November 2, 2015 0 Comments Blog

The Interface Crucible 4. We’re Getting Hitched: Long Term Inter-organizational Relationships

Not all relationships are created equal and in business, asymmetrical power balances between supplier and customer and between different partners in strategic alliances are more the norm than the exception. We see these asymmetrical relationships all the time between manufacturers and their logistics services companies, between suppliers and their customers, and between producers and their distribution channel partners.
On both sides of the power balance, there are challenges to be overcome in order to ensure a successfully relationship that delivers business benefits for all parties. The key questions of common objectives, shared benefits and agreed upon metrics are crucial for the long term sustainability of supply chain business relationships.
These long term relationships can deepen and broaden over time and become strategically significant for one or both of the partners. It is imperative to take care of these relationships, to monitor how they are continuing to provide business benefits for the partners and to ensure that they do not become stale and stultified.

October 19, 2015 0 Comments Blog

Patrick’s Monday Vista The Interface Crucible 3. Culture: An Evolutionary Strategy for Success

In his book Wired for Culture, The Natural History of Human Cooperation, Nigel Pagel describes the culture as the innovation that we call “culture” that has enabled Homo sapiens as a species to spread across the globe and adapt successfully in many different environments, climates and terrains.

It has been a highly successful strategy. However, as a species while we have an astonishing capacity to take on a bewildering diversity of cultures, as individuals we are highly invested with the particular culture that we happen to belong to.

In a world of globalized working in which we depend for our success on the quality of our relationships with people in multiple organizations in many different countries, our innate attachment to our own culture may become an inadvertent barrier to our own success.

We don’t need to abandon our own cultural identity to sustain successful supply chain relationships but we do need to learn to be flexible and to how to build trust and rapport with people who belong to cultures other than our own.

 If we want our businesses to thrive in supply chains made up of multiple organizations in different countries with whom we must work with every day to satisfy the requirements of our customers then we urgently need to have people in our team who can do this effectively and consistently.

The Globalization of Business and the supply Chain Management Concept

Changes in information and communications technology, international trade liberalization and advances in transportation have enabled the rapid spread of the supply and distribution networks of businesses out of local and national constraints and onto a global stage. This has dramatic implications for all businesses and not just for the large multinational corporations with their global operations dispersed across the world.

These days, even for small and medium sized businesses (SMEs) to compete successfully, means dealing with multiple partners such as material suppliers, transport carriers, logistics service providers, distributors, wholesalers and retailers in new and innovative ways. This new complexity, particularly when it takes place across international borders, is giving rise to new risks and complexities.

Supply Chain Management (SCM) theory provides a framework for dealing with this new paradigm, but how can small and medium sized businesses apply these principles in ways that are pragmatic, practical and lead to measurable business benefits.

As a prerequisite for success, three key qualities are required, Competence, Discipline, and Confidence. All three of these qualities are essential. Absent any one of these and you will not be able to fully leverage the existence of the other two.

Competence refers to the business and technical knowhow that you need to be able to conduct business in your chosen sector.

Discipline refers to the processes, standardization and measurement that ensure consistency in quality and service.

Confidence arises from the set of cultural attributes and interpersonal skills, knowledge and attributes that enables your organization to enter into and successfully manage relationships with other organizations both nationally and internationally for competitive advantage.

If you didn’t have the required competence and discipline to conduct business in your sector, you probably wouldn’t be in business today. Consequently, among small and medium sized businesses, what is most often missing when it comes to leveraging the full potential of Supply Chain Management is confidence.

Those businesses that invest to acquire the skills and attributes that underpin the confidence to build and sustain these crucial supply chain relationships to grow, innovate and diversify will avoid the risk of being outmaneuvered by aggressive outside players landing in their home market.

alba

September 21, 2015 0 Comments Blog

Patrick’s Monday Vista-The Interface Crucible

Forging International Supply Chain Relationships among Small and Medium Sized Businesses for Competitive Advantage in a Globalized Economy

The confluence of continuous developments in information and communications technologies, trade deregulation, and innovation in transport technology has transformed the way businesses configure themselves to compete. Today, businesses of all sizes are faced with a bewildering array of strategies and tools including outsourcing, offshoring and global procurement to gain competitive advantage. These multiple options bring great opportunity as well as great risk and complexity. In this environment, it is the ability to forge and shape mutually beneficial long-term and short-term relationships at the interfaces between businesses that is the key competitive differentiator. However, much of Supply Chain Management (SCM) theory can be bewilderingly complex, abstract and inaccessible to the owners and managers of small and medium sized enterprises (SMEs) and business units in larger organizations. Over the next ten weeks we will look at a different component of these crucial relationships at the interfaces between supply chain to learn why global supply chain management is important to all businesses, what tangible benefits its adoption will bring to your company or business unit and the pragmatic and practical steps you need to take to develop, implement and sustain highly effective supply-chain relationships to grow and thrive.

The topics that we will examine over the coming weeks will be:

  1. The Globalization of Business and the Supply Chain Management (SCM) Concept
  2. The World is not Flat, Geography Still Matters
  3. Culture: An Evolutionary Strategy for Success
  4. We’re Getting Hitched: Long-term Inter-organizational Relationships
  5. Let’s Make a Movie: Situational Inter-organizational Relationships
  6. Why Bother? The Whole is More than the Sum of the Parts
  7. Do you Speak my Language? Supply Chain Communication
  8. Right Stuff, Right Place, Right Time: Supply Chain Coordination
  9. How are we Doing? Control and Measurement in the Supply Chain
  10. Where are we Going from Here: Future Trends in the Supply Chain

 

Retail and Inventory Control

scrscrscr‘Retail’ as a word has its origins in late Middle English word retaille, re=”expression of force” tailler = ‘to cut’. So, simply put, retailers cut big pieces to small pieces for consumption rather than resale. Just like the butcher needs careful consideration to the art of providing small pieces of a large piece of meat to satisfy each of the numerous customers, retail is not an art unless inventory control is put into practice.

Every retailer needs inventory to smoothen the process as goods being demanded are being supplied. Like all businesses, a retail business begins with the need for generating more money from investment. Much of the investment gets tied up in inventory; so, it is not surprising to note that a retail business with good control of inventory gets the biggest bang for its bucks. This leads to a fundamental question- “How to get that bang?”

Business management is science applied to art. Inventory control is no different. The first and foremost challenge for inventory control is quantifying the results of the efforts put in.

“How do we know we are on track? How much are we lagging from the target? What is the target we need to set? “

The answer lies in KPIs- Key Performance Indices. The following KPIs are of particular interest:

KPI Poor Practice Best Practice
Average Warehouse Capacity Used: <78% >=95%
Peak Warehouse Capacity Used <90% 98.4%-99.3%
Inventory Count Accuracy <95.6% >=.14%
Lost Sales >=5% >=100%
Inventory Shrinkage (% of total inventory) >=1.25 >.0043

It is obvious that all of the KPIs above require the physical inventory account to be performed before their values are determined. So, inventory control begins with physical inventory (PI). PIs can help determine the KPIs and comparing the values of KPIs over time, sources of inventory shrinkage and stock-out can be assessed. After the sources are identified, appropriate measures will be taken to address those prioritizing based on the seriousness of the issues.

Most retailers perform PI on an annual basis. While that is a better practice than performing no PI, best practice requires performing PIs on a regular basis often called cycle counting. Some use Pareto rule to determine the top 20% items that provide 80% of the sales and then perform the count on those 20% items more frequently than on the rest utilizing what is called a hybrid cycle count.

Many retailers after implementing a cycle count have often found that they have overstocked low flow items and for many also, they have found that shrinkage (loss of inventory by pilfering or other reasons) is overwhelmingly concerning. Whatever the situation might be, the best thing about a cycle count program is that the retailers get their focuses on the pressing issues. With their focuses on the real issues, they can dramatically improve inventory health and with massive positive impacts on the business bottom line.

Leading Light

The recent announcement of Tesla’s new power storage systems got me thinking about the relationship between light, productivity, sustainability and the economy.

The story of artificial light is a story of economic development. Before oil lamps and candles, people used to go to bed at sundown and slept in ‘two phases’ – first and second sleep. However, with the advent of artificial light, productivity patterns changed along with sleep patterns, as people’s activities became independent of the availability of natural light.

Until Edison gave us the light bulb (and in doing so probably stepped on a few toes), domestic and commercial lighting came by way of kerosene lamps and candles. From this explosion of artificial light sprung innovations and new business models.

The neon-lighting tube was one of such innovation, developed and patented by Frenchman George Claude when looking for a way to use ‘waste’ neon gas derived from other chemical processes. Claude had a very successful neon business in Paris, and sold franchises (a new business model) elsewhere. The neon sign has been intrinsically linked to trade and commerce since, and was instrumental in the economic development of cities like Las Vegas.

Next came low energy lights, CFL bulbs and LED lights – which were more environmentally friendly. And society has also progressed where electricity generation methods are concerned, seeking a balance between profit and sustainability.

Solarcity – the US first full-service solar energy provider and one of the world’s largest – are building a ‘solar gigafactory’ in New York State  to produce their own high-efficiency, low-cost solar panels; bringing us closer to a future where most of the energy we use will come fromclean, renewable sources.

Tesla’s new stackable battery system, which is capable of storing electricity for domestic and business use has the potential to increase the spread and reach of solar power. On the home front, the Powerwall is not yet cheap enough for grid-connected customers to derive an economic benefit from changing to solar, but it is great news for people already availing of solar power and whose aim is to live fully off-grid.

The idea is simple – during daylight hours domestic (and industrial) solar panels will often produce excess energy, which can be stored in the Powerwall for use in the evening time.

However, where the battery storage market will be most disruptive is in the industry/business world. According to a BNEF report (Bloomberg), analysts believe that by 2020 worldwide investment for stationary-grid energy storage will be USD 5.1 billion a year, and the industry will start relying on solar power on  a large scale in less than five years.

The Powerpack – Tesla’s ‘business’ solution – targets commercial and utility-scale storage. It includes 100-kilowatt-hr blocks that can be bundled for bigger projects. According to Bloomberg (2015), Tesla has been approached by a utility looking for  2,500Powerpack towers (250-megawatt-hr installation).

Perhaps a cleaner and cheaper energy future is closer than we thought…

Patrick’s Monday Vista 11- Obstacle to Progress

I used to think that the main obstacles standing in the way of business advancement were the lack of capital, time and material resources. However over the last ten years working on a wide range of supply chain projects with client companies ranging from multinationals to state-owned enterprises and SMEs, I have come to the conclusion that the real obstacle to business advancement is a dearth of the right people with the right types of skills and experience.

Often, the skills that matter most when it comes to the challenge of conceiving, planning and implementing business initiatives and projects that add real business value are not the analytical and technical skills that are most often the product of formal training and education. These “hard” skills are necessary but they are not sufficient.

What is required in addition is a high degree of self-awareness and self-worth that can only come from the development of the soft skills required to acquire the necessary confidence, conviction and judgement to carry these ambitious business initiatives through to successful completion. Those who operate at the highest level need to be able to be in the moment, take responsibility, and step up to the plate to show leadership when it matters most. They need to be comfortable to ask for what they need, question colleagues and peers, and challenge the status quo.

Traditionally there has been a gap in addressing these types of skills explicitly and soft skills acquisition has come about more through chance and opportunity than through design. Fortunately, we are now beginning to see the emergence of explicit soft skills development through academic institutions, professional bodies and corporates. Given its experiential and reflective nature, soft skills development is a career-long process. It is the turbo that supercharges traditional knowledge acquisition.

In time, this holistic, career-long approach to skills development should produce more individuals who will know how to delegate effectively, communicate compellingly and help other colleagues and peers to grow, thus perpetuating a virtuous circle.

This augurs well for the future, not just for the contribution to a more competitive economy but also for the creation of a better society.

China, Ireland and the Infant Formula Market

Milk production has been growing steadily in the developed world. In the developing world there has been some whooping increase both in the consumption and production of dairy products. Of particular interest is the infant formula, which has been a commonplace in the west, yet a prized possession in some parts of Asia : people actually lock up trusted foreign brands in safes. India alone has been the largest milk producer accounting for 16% of global production and China is the fourth largest consumer (5 billion Euros worth imported in 2013). Even though the South Asian Region is progressing in milk production, it appears to lag behind in processing, especially Infant Formula.

The consumption of milk formula in Asia pacific is booming- Hong Kong is the fastest growing market (35.4% compound growth rate) and China is keeping pace (21.6%). After the melamine contamination in 2008, there have been many contamination related scandals for Infant Formula manufactured in China. This shook consumer confidence in local products and imported products were in huge demand. It is no wonder that many parents in those markets believe that Infant Formula is superior to the mother’s milk (Breast Feeding Rate is 28 children in every 100 new-born in China) especially because of the aggressive marketing in partnership with medical institutes by local manufacturers. The parents really want the best products especially because of the 1 child per couple policy, which further implies that about 4 grandparents and 2 parents will give the child their full attentions.

New Zealand is a net exporter of dairy products and conveniently took a major market share in the Chinese market. Europe is the only region where production is significantly larger than consumption. The market is projected to grow even more in the short term in China owing to the recent shortage and quotas per passenger for Hong Kong-Mainland trip. Retailers in Australia, the UK, and Holland have limits on the amount of powder that can be purchased after incidents of entire shelves being cleared hit the streets. It might just be a great opportunity especially for Europeans because Chinese parents seem to have faith in the European Compliance system- one of the stringiest in the world. Nevertheless, the most recent Hero baby formula scandal, which involved local middlemen mixing expired milk powder into cans prepared for sale has further exacerbated the situation with the market. After the Hero case, Chinese, who can manage to, have been depending on friends or family abroad for the product. Still the market potential is huge.

This is especially favorable for dairy giants in the Europe who have been forced to remain dormant during the quota system lifted off only few weeks earlier. Ireland, with a forecast 2 billion liter increase in milk production by 2020, represents significant opportunity for this sector. It might be good to note that the Chinese market’s giant Beingmate prints Irish clovers on its premium products to remind the parents where their sources lie. China was Ireland’s second-biggest market for dairy in 2014. Until now, Ireland supplied 10% of the global infant milk formula with 1% of global dairy production. This suggests huge potential in the sector, especially because of the lift on the quota and the premium that “Made in Ireland” feels for the Chinese. Last November, Kerry Group launched the first Irish Infant formula brand “Green LOVE+”, which sells at four times the Irish price all because of the huge trust in Irish products, which have not encountered a single scandal in China.

There is a huge speculation going on about how the market is going to turn for the Europeans because there is a huge potential and the first to the battle may not be the last one standing. Chinese markets are volatile and the supply chain has to be maintained very securely to prevent middlemen from tampering. With careful planning, an expansion in the Chinese market should be a very fruitful long-term experience for the potential party.

© Pratik Baral- Alba Consulting 2015

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Patrick’s Monday Vista #10- The Most Precious Commodity in the World

What is the most valuable and precious commodity in the world? Oil? Gold? Saffron? Or perhaps some rare Earth metal? The correct answer is; none of the above. The most valuable and precious commodity in the world is trust. An abundance of trust lubricates and accelerates positive endeavour in business, politics and personal relationships. In extreme cases the absence of trust leads to war, pestilence and famine. Even in the best case the absence of trust acts as a brake imposing costs and delay on progress in any enterprise.

Trust is difficult to build and easy to squander. To have trust deposited in you, you must be trustworthy. This is a quality with a component of competence and a component of character, both are necessary. When a client, an employee, a boss, a partner looks at you and asks themselves – “do I trust this person?” they are trying to discern whether you have the wherewithal to deliver what you say you will deliver as well as whether you have their best interests at heart. Absent one or absent the other, you are not worthy of trust in this particular circumstance.

How is trust built? Trust is built by providing value and providing it consistently over time. By value, I don’t mean just transactional monetary value, but rather value in its widest sense that may consist of good advice, a helping hand, keeping a promise, providing a recommendation or a piece of valuable information.Also you provide this value without expecting a reciprocal and immediate quid pro quo in every case.

In times past, people lived and worked in small communities and could determine quickly through direct contact and recommendation who was trustworthy and who was not. In our modern world of social media, email and long-distance, multi time-zone working the obstacles to building trust through direct person-to-person contact are increasing just as the need to have trustworthy friends, colleagues and associates in extended networks becomes ever more essential for success in life and business.

The value of trust is high and rising fast. If you have it, nurture it and grow it like the precious thing that it is. If you don’t yet have it investing in building your trustworthiness through providing consistent value to those around you may be the single biggest factor in your future success.

India- Investing in Intellectuals

India- the mystical East- happens to be the second largest source of skilled human resources for the knowledge based global economy. India makes up for more than 30% of skilled workers brought to the US under the US H1B visa. India is not only a supplier of skilled manpower, rather also a key player in knowledge creation. Many of highly skilled Indians are working in top knowledge centers across the globe- NASA, ESA, World Bank and so on.

Ever since the wave of labor outsourcing hit the globe, India has been one of the prime targets for global investors owing to highly skilled human resource that come at a competitive price. The current Prime Minister to India has recognized the potential for foreign investment in India and has made changes to the foreign investment policy in India. Not surprisingly, foreign investors have poured in their Dollars and Euros- the Indian Foreign Exchange reserves have gone up by more than 10% since January 2015.

India- the place where the mathematical notion of zero arose- has been one of the global intellectual hubs since centuries. Even though investment in India is directed mostly at labor outsourcing, I think India can become home to one of the biggest entrepreneurial hubs in the world. Nepal has open border policy with India and many Indians can be noticed in the marketplaces across Nepali cities. The most striking features of the Indians is their financial independence. Almost any Indian I have met in Nepal has a business of their own. Some businesses take as much floor space as the owner of the business themselves (peddlers with their items on head) while some cover a large real estate by Nepali Standards, yet almost none of them work for a Nepali firm.

I believe that with the right business model, funding entrepreneurs in India can be an attractive investment. Imagine a company born in a value-for-money environment, nurtured in it and then setting off to conquer the world. Competition would be knocked out in terms of the leverage obtained in manipulating selling costs across markets. Of Course, careful decision making is advised but should things go out well, the investors come out with flying colors.

To add a concluding note, imagine another country-much smaller- with similarly skilled and intellectual people and you get NEPAL!

April 7, 2015 0 Comments Blog

Patrick’s Monday Vista #9- Kicking On

It is wonderful to be successful, to win the game, to land the contract, to get the promotion. It gives you a warm glow inside, a feeling of satisfaction to savour and enjoy and that is how it should be. If you are successful you are entitled to that feeing – it is healthy and it is important to celebrate success.

Winning again and again can reinforce our belief that we have been doing the right things, making the right decisions and getting the just rewards for our efforts in return. Logically we look to repeat the magic formula that has been working for as long as we can. “Happy days! Long may it last!” we might say.

However, once this mindset becomes the norm, we are in mortal danger. All products, all services, all teams and all businesses have a natural life cycle that involves a rise to a peak, followed by stagnation and ultimate decline to oblivion.

There are no exceptions, the life cycle might be longer or shorter, but in the end it is just a matter of time. The only way to avoid the inevitable slump is to kick on to something new and different – a new strategy, a new product, a new market.

The tricky thing is, the right time to kick on to something new is when you are still rising and enjoying full success BEFORE the peak and not after the peak when stagnation and decline have set in.

This is not as easy as it sounds, because while you are enjoying repeated success you are not naturally inclined to change what has been working well to something new, something uncertain, something risky. Nonetheless you must.

This is precisely the right time to launch that new product, to move into that new sector, to change the way you do business. So my advice is to take stock of your business as it is today, and if you find that you are still winning on the basis of the same products, services and sectors as you were three to five years ago, then it might be time to consider kicking on soon.

It is the right time precisely because the success you are experiencing means that you still have the resources and the momentum to weather the inevitable teething period that comes with the launch of any new initiative. Wait too long and you might find your business in decline while someone else has moved into the space out of left field before you even have time to realise that it has happened.

March 23, 2015 0 Comments Blog

Mexico – Opportunities in many Sectors

It is common knowledge that Mexico’s manufacturing cost competitiveness (taking into account labour cost and productivity), together with its young workforce and work ethics, has sparked a steady growth in clusters in skilled and high-skilled industries such as automotive, aeronautics, and electronics. These clusters mainly occupy strategic locations in central states such as Guanajuato, Aguascalientes, Puebla (automotive), Queretaro (aeronautics) and Guadalajara (electronics) with good transport links and access to a large pool of qualified workers.

The tentative introduction of lower energy prices as a result of Mexico’s ongoing energy reform, which allows private companies to bid on contracts for a wide range of energy-related products and services, is expected to drive additional manufacturing opportunities and perhaps increase SME participation in supply chains by facilitating joint ventures and access to capital. And, of course, the time is right for green and renewable energy initiatives to thrive, as Mexico hopes to achieve 35% of power generation through clean energies – such as wind and solar – in less than 10 years.

I see similarities in the evolution of Mexican manufacturing with that of Irish manufacturing and FDI attraction – from its humble origins in the textile and clothing industries, mostly employing low-skilled workers; to skilled and higher value-adding activities/products in the automotive (the car assembly industry thrived in Ireland up until the 1980’s), aerospace and pharmaceutical industries – before moving towards a higher participation in the service economy.

This evolution is evident in the state of Guadalajara, and particularly in its namesake capital city, a hothouse of tech FDI and indigenous startups dubbed as the ‘Mexican Silicon Valley’.

Creative companies in sectors such as game development, film, animation, audio-visual and digital industries – perhaps drawing on the country’s rich folklore, arts and crafts and literary tradition (including its wonderful magic realism movement) for inspiration – are already relocating to Guadalajara’s Digital Creative City (Ciudad Creativa Digital, CCD). The CCD is an ambitious project to be completed in different phases of development which will include a Supercomputer Centre to store data and manage telecommunications and an Innovation Centre for Economic Development Acceleration (Centro de Innovacion y Aceleracion para el DesarrolloEconomico, CIADE). Because of its CCD master plan, Guadalajara was chosen as the pilot for the IEEE Smart Cities Initiative and if the smart-city transition proves successful, the CCD will be replicated across the country and further afield in Latin America.

Possibly due to the initiative’s similarity to Dublin’s Digital Hub, Guadalajara and Dublin signed a ‘digital twin cities’ agreement in 2013, promoting trade and investment links between the two regions – evidence of yet more intertwining of the stories of these two rapidly changing nations.

Blanca Suarez © 2015.

Patrick’s Monday Vista #8-¡Viva México!

If you were asked where in the world there is most at stake geopolitically you might be inclined to point to the Middle East, Russia or the Korean Peninsula. However, none of these places has the potential to affect the world’s premier power the United States in the same way as does Mexico. Something that is overlooked by many is that the future success of Mexico as it endeavours to take its place among the most developed countries of the world will be one of unsuspected global impact.

A stable, democratic and prosperous Mexico has the potential to integrate the North American continent and enable the US to continue to be the engine of the world economy and a balancing force on the world stage. On the other hand, were Mexico to degenerate into a chaotic and ungovernable narco-state sharing a 2000 mile border with the US, this would seriously curtail America’s future capacity to project its political, economic and military power.

Consequently, the entire world has a stake and a vested interest in the stability and prosperity of Mexico and its ongoing transition into a modern, functional democracy under the rule of law. Despite the high profile drugs war waged by successive Mexican presidents on the cartels in which tens of thousands have died, if we look at the overall picture and take a longer term perspective the signs are good that Mexico can go on to live up toits true potential.

Today, Mexico is the largest Spanish-speaking country in the world with an estimated population in 2015 of 120 million that has increased 5 times over since 1940. Since the recession of 2008-2009, Mexico has averaged a growth rate of over 3% between 2010 and 2014 and is set to benefit from the current resurgence of the US economy, its main trading partner. Mexico is currently the world’s 15th largest economy with a GDP of over $1.2 trillion and possesses dynamic electronic, automotive and telecoms sectors and has firmly established itself as an upper middle income country with a burgeoning urban middle class. Goldman Sachs predicts that Mexico will become the 5th largest economy in the world by 2050.

The economy of northern Mexico in particular is highly integrated with that of the United States and it is here that 85% of Mexico-US trade originates. The northern industrial city of Monterrey with a population of over 5 million and just 100 miles from the Texan border forms an integral part of a dynamic Tex-Mex economy that is set for a further injection of dynamism as the enlarged Panama Canal permits the entrance of the largest container ships from the Asia-Pacific region into the Caribbean Sea and Gulf of Mexico where already there has been significant development in ports, logistics and manufacturing.

Robert D. Kaplan in his book “The Revenge of Geography” reminds us that “the valley of Mexico and the country that has grown out of it forms one of the earth’s great civilizational cores”. Mexico is home to the largest proportion of civilizational heritage sites in the Americas. After five centuries of often turbulent history since the arrival of the Spanish and despite its many challenges Mexico is now well on its way tobecoming a first world nation

That’s good news for the whole world – ¡Viva México!

Supply Chain of The World’s Highest Garbage

 We all go on holidays and each one of us has a unique preference on where to spend the time. Some of us might like the warm Mediterranean, some might like the mountains in Switzerland. Being from a tourism dependent third world economy, I have a different perspective to holidays spent high up in the snowy Himalayas. The Himalayas are by nature rugged and difficult to traverse. Hills and plains can be easily be traversed by air, land and in some cases even water. The mighty Himalayas essentially bring out the raw traverse method- on foot. This might seem obvious but the consequences run deeper than that.

Wealthy tourists with pampered lifestyles are the ones interested in climbing a peak just for the sake of climbing. Their needs are extensive even in that hostile environment- high tech climbing gear, lots of canned and packed food, oxygen cylinders, toiletries and so on. Looking to the supply chain side of this, except for few items on the back packs, none of the goods are locally made. Here’s what over six decades of tourism translate into when viewed in numbers for the mighty Everest:

  • About 4000 climbers have scaled Summit to date
  • More than 50 tonness of solid waste has been left to date
  • Lodges in the Khumbu area generate about 500 kgs of waste per season per lodge
  • More than 21.6 Ton of fecal matter has been deposited to date (excluding porters and guides and based on an average stay of 45 days). Much of this does not decompose due to extreme cold

The logistics of removing this waste are economically and technically burdensome, especially when human backs, beasts of burden and ultimately air travel is required to relieve the Everest region of this waste. During last year’s cleaning campaign, approximately 0.5 Euros per kg waste was paid to the local airlines to transport the waste from Lukla. The cost of bringing the waste from high up to Lukla is even higher. More than 226k Euros, 80,000 porters and a lot of local people were required to bring about 8 tons of waste from Everest to Kathmandu.

It is true that as tourists it is impossible to eliminate all aspects of travel-waste. Nevertheless, being representative of the world that we live in when we travel, we should try to minimize unregulated disposal. We might do so by aligning to local tastes while going to such places. Afterall, why should we want an Illy’s espresso instead of the local tea / coffee in the morning in the Himalayas while the whole idea of holiday is to get away from the current lifestyle?

I suggest that should try implementing a low cost, sustainable and eco-friendly ways of dealing with our human waste in place like Everest. Enviroloo provides a simple, low cost solution for these purposes and has been popular in Africa and North America. If we can pay a $10k insurance fee to travel to the Everest Base Camp and still think it is reasonable, I think we can add another $10k to install such facilities at strategic places like the Base Camp, where tourists still depend on pit hole latrines in the snow.

In theory, such a gesture ought to be extended by the government of the respective countries, yet when we know they have these issues on low priority, we might ourselves keep it on our own priority list. After all, this is waste generated by tourists as opposed to waste generated by local people!

Ireland and Mexico – Historical, Social and Economic Links

A few years ago, I was asked to host an interculturalism programme for NEAR FM community radio station, the aim of which was to discover the similarities between Ireland and other countries through their writings/books/culture. It was a very interesting and enriching experience and it got me thinking about the many ‘links’, cultural and otherwise, that unite Ireland and Mexico.

On a personal level, I believe one of the strongest links between our two countries is our similar sense of humour, which in my opinion influences a person’s outlook on life in general, social (and business) interactions and values. This was the first ‘spark’ of a connection I felt with Ireland and part of what made me feel ‘at home’. However, the links between my birth country and my ‘adopted’ country go much deeper and further than that…

William Lamport(born in Co. Wexford, 1615), author of an early declaration of Mexican independence and whose life is thought to have inspired the ‘Zorro’ legend, is one of the earliest historical connections I’m aware of. Famously, the Batallon de San Patricio (St. Patrick’s Battalion) fought on the side of the Mexicans in the US-Mexican war of 1846-1848, perhaps drawn in by the Mexicans’ love of storytelling and music, good sense of humour and family values. The story of the San Patricios was the inspiration for The Chieftains’ ‘San Patricio’ album in collaboration with Ry Cooder, released in 2010; as well as the name of the only Mexican Mariachi band in Dublin.

Names such as Byrne, Walsh, Foley, Hayes and O’Brien are very common in Mexico, particularly in the North of the country. Some of these names have been converted to their ‘Spanish version’ – such as Obregon (from O’Brien), who was Mexican president 1920-1924 – but others retained the original name, like the influential Mexican artists Juan O’Gorman(1905-1982) and Pablo O’Higgins (1904-1983).

In economic terms, Mexico was Ireland’s 17th largest export partner in 2013, and the country’s largest trading partner in Latin America. Mexico has thirteen bilateral and multilateral agreements with 45 countries (more than any other country in the world) – the most important being the NAFTA treaty between Mexico, the US and Canada (signed in 1994) and the most recent the Pacific Alliance, a trade agreement with Chile, Colombia and Peru, signed in February 2014 – which makes Mexico a very valuable ‘gateway’ into the region. Irish business in the agri-business sector, ICT, education, engineering, manufacturing and aviation industries already have a strong presence in Mexico.

There are many examples of successful trade and partnership between our two wonderful countries – too many indeed to fit in one blog. My plan is to share more of these success stories over the coming weeks. Watch this space…

Patrick’s Monday Vista #7- A Dynamic Latin AmericanBloc

Over the years Latin American has witnessed the launch of many regional organisations with mixed outcomes in terms of tangible benefits for the member countries. However, one of the newest international organisation in the region, The Pacific Alliance, has already made significant process towards achieving its stated goals of economic integration, free trade and free movement of people.

The Alliance was launched informally in Lima, Peru on the 28th April 2011 and formally constituted in Antofagasta, Chile on 6th June 2012 by the presidents of its four member states, Mexico, Colombia, Peru and Chile. Together these countries represent 37% of the GDP of the entire Latin American economy and 55% of its exports. They have a combined population of the Pacific Alliance is 215 million and if the Alliance were one single country it would be the 6th largest economy in the world.

What sets the Pacific Alliance apart from other organizations in the region is that it has adopted a dynamically positive and proactive orientation towards trade, business and the attraction of foreign investment to take advantage of the megatrends of globalization to develop and grow their economies, reduce poverty and inequality and secure their place in the global economy. Already they have constituted the largest common stock exchange in the region, the Mercado IntegradoLatinoamericano (MILA), introduced visa free travel and launched joint embassies overseas as well as making significant progress in terms of educational cooperation and export enhancement.

Other Latin American countries with business-oriented economies are in the process of joining the alliance. Costa Rica has already been approved for membership while Panama has observer-candidate status and in due course these countries will become the fifth and sixth members of the Alliance. The countries of the Pacific Alliance enjoy notably higher average growth rates when compared to other Latin American countries – Colombia +4.8%, Peru +3.6%, Mexico +2.4% and Chile +2.0% compared to Brazil +0.3% and Argentina -1.7%.

Looking to the future, there is clear that these countries represent a significant,and heretofore under-exploited,opportunity for trade and investment and they should form an integral part of the internationalization strategy of any business looking to diversify its global activities.

 

Patrick’s Monday Vista #6- The World Bank’s Logistics Performance Index

The globalization of total production systems from extraction of raw materials though to the recycling of waste has been made possible in recent decades by innovations in three main areas – transportation technology, information and communications technology, and financial deregulation.

It is now commonplace for international businesses to carry on R&D, manufacturing and distribution in many different geographical locations around the world depending on which locations are most advantageous from a competitive point of view.

This has introduced exponentially higher complexity and risk into the supply chains of these international businesses in comparison to what is encountered when operating solely within the borders of one single country.

In response to the challenge, Global Supply Chain Management theory and practice has been developed to enable businesses to cope with the added complexity and risk. Supply chain reliability it has been found is closely associated with the logistics performance of the countries in which operations are located and therefore logistics performance should be a key consideration in the location decisions of international businesses.

Since 2007, the World Bank has been producing the Logistics Performance Index which provides valuable insights into the logistics performance of countries around the world. The 2014 edition compares the logistics performance of 160 countries on the basis of infrastructure, services and border procedures. The full report can be downloaded free of charge on the World Bank website http://lpi.worldbank.org/

The Logistics Performance Index (LPI) measures the efficiency of trade supply chainsand highlights the strong correlation between logistics performance and a vibrant growing economy. Germany tops the 2014 classification with a score of 4.21 on a scale of 5 while Somalia is bottom with a score of 1.77.

Not surprisingly the top performers include many countries in western and central Europe, North America, Australasia and Japan. Additionally among the top performers with scores higher than 3.34 are countries such as Turkey, China, South Korea and South Africa. The worst performers with scores lower than 2.47 include large parts of sub-Saharan Africa and a number of Central Asian republics.

The top 10 countries and their 2014 LPI scores were as follows: Germany (4.12), Netherlands (4.05), Belgium (4.04), UK (4.01), Singapore (4.00), Sweden (3.96), Norway (3.96), Luxembourg (3.95), USA (3.92) and Japan (3.91).

Ireland came in 1th position with an LPI score of 3.87.

IAG Aer Lingus Takeover Proposal

Living on an island and having a keen interest in travel, I can’t help but be intrigued by the discussions regarding IAG’s proposed takeover of Aer Lingus these past weeks, which have certainly gained intensity with Willie Walsh addressing a Dail committee on Thursday 12th February. Whatever the outcome with the national carrier, the airline industry on our little island, even aside from the juggernaut that is Ryanair, appears to be extremely healthy.

 The numbers speak volumes… Apparently, there are 20,000 aircraft currently in service globally but, fuelled by the emergence of a growing middle class in developing nations, PwC predicts that by 2030 that number will have risen to 30,000 – with Ireland shaping up to become a major player in financing these purchases (Irish Times).

 Last year, 25 million people travelled through Irish airports, with 8 out of 10 people travelling in/out of Dublin airport. The majority of these passengers flew the Dublin-LHR route. London Heathrow is an important hub for both international connections and flights from Cork and Shannon; so I can understand concerns regarding the significance of Aer Lingus’ slots in LHR.

 However, trends in the aviation industry are changing rapidly regarding international connections, and other international hubs – such as Dubai International Airport, which overtook LHR as the world’s top hub by international passengers last year – are increasingly offering a viable alternative to established hubs. Both Emirates and Etihad fly twice a day direct to Dubai and Abu Dhabi from Dublin – offering the perfect gateway to connecting flights to Asia and Australia/New Zealand and KLM and Air France offer good flights – via their connection hubs in Paris Charles de Gaulle and Schiphol in Amsterdam – to Africa and Latin America. Even if we were looking for an alternative to Aer Lingus when flying to the USA, perhaps due to connection schedules/availability, Delta’s Atlanta hub offers countless possibilities.

 Even though loyalty has a part to play, travel (and logistics in general) is about convenience – that is, value for money, the shortest route and the fastest time. Keeping a healthy network of connections open, both by air and sea, is an essential survival strategy for any island nation – not only for leisure or business travel, but also for trade links.

 In my opinion, a deal with IAG will only strengthen our already robust links internationally, for both business and leisure.

Patrick’s Monday Vista #5- Our Greatest Invention

No doubt the greatest human invention of all time is human language itself. Spoken human language emerged somewhere between 150,000 and 80,000 years ago and was fundamental in enabling human beings to work together and coordinate their actions for mutual benefit.

Initially this involved communication among individuals in small bands for hunting and gathering, then later on a much more sophisticated level insedentary agriculture and the building of the institutions that ultimately led to the birth of civilization itself. In effect, the ability to use language is the essence of being human.

Not only is language our greatest invention it is also one of the most powerful tools we have at our disposal and as such needs to be nurtured, cultivated and used with great care and purpose. In the ancient Celtic world, among the most feared and powerful individuals in the clans were the poets who could make or break the reputation of a chieftain or warrior with the composition of a heroic epic or a career-shattering satire. Language was the stuff of spells, prophesies and magic!
Likewise today, in the business world language is the single most powerful tool at our disposal. Used judiciously, we can wield it to shape the future and communicate vision, to encourage, to empathise, and to create clarity. Applied injudiciously in a business environment, inappropriate language can demoralise, offend, and confuse creating havoc, discordance and ultimately business failure.
Of course, we cannot all be master communicators and wordsmiths of the calibre of a Churchill, a Reagan or a Mahatma Ghandi but we can all be mindful of the language we choose to use and the effect it has on our colleagues, our customers and our suppliers.

The language we use is a function of our thoughts and our thoughts emerge through our self-talk. Therefore, the key to our improving our language is to be cognisant of our self-talk.When communicating with others, we should never dumb-it down because it is disrespectful, nor should we overcomplicate with jargon and buzzwords because it is vacuous. We need to keep it real to be credible.
In the quest for competitive advantage in the business world, the effective use of the magic power of human language is the least expensive and yet the most underutilized tool at our disposal to create common purpose, build well-being and enhance performance to ensure that our businesses can thrive in the future.

Patrick’s Monday Vista #4- Get in the Game!

The Six Nations rugby championship kicked off this weekend just passed, pitting the best European international squads from France, Italy, England, Ireland, Scotland and Wales against each other in a gruelling six-weeks of test matches. Ireland, the defending champions began their campaign in Rome against Italy on Saturday with a young debutant, Ian Keatley, playing in the crucial out-half position.

The young man gave a very good account of himself in Ireland’s victory by 26 points to 3 over the Italians in a solid performance, but admitted in a post-match interview that he had been very nervous before the game. One of his predecessors in the position, the now retired Ronan O’Gara commented that as the young man gains more exposure to the game at this level his skill, competence and confidence will grow as the boundaries of his experience expand.

I’m reminded of many of the challenges faced by my clients in the business world when contemplating the risks and challenges of expanding the boundaries of their own activities, whether that be entering a new market segment, launching overseas exports or investing in new technologies. It struck me that the truth is, you can only build the skill, competence and confidence required to succeed in these endeavours if you actually get in the game.

No amount of data analysis, scenario planning or options evaluation are going to give you that. These activities of course are necessary, but beyond a certain point of reasonable and diligent analysis, they become dysfunctional and paralyse rather than energise.

Over the last twenty years or so, I have had the privilege of working with dozens of business managers and owners of many nationalities all over the world. For me, what differentiates the best of these is the willingness to actually get in the game, take action and start making things happen.

Of course, things don’t always go to plan or turn out as expected. There are many tests and trials, obstacles and setbacks along the way. The funny thing is that in actual fact things often work out a good deal better than expected as the skills, competence and confidence gained build like compound interest through exposure to the cut and thrust of business at a new level.

Isn’t it now time for you to get in the game?

Patrick’s Monday Vista #3- Where in the World?

Taking your business international is an extended journey along a route with many milestones, obstacles, defeats and victories. At first, many start their international adventure importing and exporting, whether by necessity, design or accidental opportunity. Later some progress on to limited foreign production, distribution or sales, using in-market partners. Later still, others may pursue the international voyage to full-scale foreign direct investment becoming truly multi-national businesses.

Determining which markets to enter and where to locate sales, distribution and production facilities is a complex undertaking. Many have made the move to overseas production in Asia and Eastern Europe primarily in response to perceived labour cost advantages. However, labour cost is just one factor among many to be considered when determining the feasibility and desirability of alternative overseas locales. Other factors such as the availability of supplies, taxes and incentives, as well as transportation and communications infrastructure are just a few of the many other variables to be considered.

Further challenges are presented by the fact that none of these factors is static but rather in continuous flux in a volatile and uncertain world where technological, financial and political change can be rapid and unexpected. By way of example, just recentlywe have seen rising wage rates in China, spectacular falls in energy and commodity prices, and extreme political instability in places like Syria and Ukraine – all developments that can have major impacts on the decision-making process.

Regardless of the volatility and uncertainties that exist, many businesses today are compelled to internationalize if they aim to grow and thrive in a competitive globalized economy. It is not really an option to operate solely within home markets if they hope to continue to deliver value for their employees, shareholders and customers.

The real challenge is how and where to find the quality information, data, knowledge and expertise to guide the selection process between alternative options or to evaluate an opportunity that may present itself in an unforeseen manner at a specific time.

While the available data on developing countries in particular can often be obsolete and inaccurate a structured approach, using a multifunctional internal team supplemented if necessary with external experts can help to minimise the risks associated with the “liability of foreignness” when entering new markets.

High-level scanning and comparison of markets can be done using publicly available sources such asthe reports and statistics prepared by international organizations (WTO, OECD, UN etc.), government agencies, trade associations as well as banking, legal and accountancy firms. This can help to narrow down the options to those locations that best match the requirements of the business.

Thereafter, detailed analyses using grids and matrices with weighted criteria aligned with the strategy and objectives of your business can help in the final decision-making process. Ultimately, the quality of the intelligence gathered through in-market visits and trusted private networks and contacts will determine the quality of the decisions taken and the resilience of the strategies and configurations ultimately chosen and implemented.

Transcript of Presentation by Patrick Daly to the National Manufacturing Conference, Aviva Stadium, Dublin on 27th January 2015.

INTRODUCTION

Good afternoon ladies and gentlemen.

Over the last 15 years or so I have had the, dubious privilege and opportunity to look deeply into the inner workings of up to a 100 warehouses all over the world – here at home in Ireland, in Britain, Europe, the Middle East, Asia and North and South America.

60 to 70 per cent of these warehouses have been in manufacturing industry –in sectors such as pharmaceuticals, medical devices, food, beverage and industrial equipment. While all warehouse facilities that support manufacturing operations have fundamentally the same processes, one of the things that has struck me most on my travels is the divergence of standards, practices and performance across these different facilities. There is a big gap between the best-in-class and the also-rans.

The root of this divergence is that until relatively recent times, in most manufacturing businesses, the warehouse has been considered, whether explicitly – or more likely implicitly – somewhat of a Cinderella department in the overall scheme of things. This is a theme that I will return to presently.

Firstly, I would like to give you an overview of what I will be talking to you about today.

  • In the first part of my talk, we will take a look at the history and evolution of warehousing in manufacturing industry and where warehousing fits into the wider strategic picture of modern supply chains today.
  • Then we will dive in to a more tactical level in the second part of the presentation to touch on two or three specific topics relating to day-to-day operations and discuss how best-in-class manufacturing businesses are improving their effectiveness in these areas to better support their wider business goals.
  • Then finally in the last part, we will come back up to a higher level to take a quick look at some of the more strategic trendsthat are already evident and that are changing the face of warehousing in manufacturing industry today and in the future.

 

HISTORY AND LEGACY – THE CINDERELLA DEPARTMENT

I mentioned in my introduction the idea of warehousing having played the role of the Cinderella department in manufacturing businesses up until recent times. What I mean by this is that the warehousing function, in comparison to others, such as production, sales, marketing, R&D and so on has received proportionately less attention, focus and investment over the years when compared to these other functions.

In my opinion, the reasons for this are historical stroke cultural on the one hand, while on the other they are associated with the physical and environmental nature of warehousing itself.

In the historical and cultural sense, warehousing has rarely been considered as a core competence by most manufacturing businesses. If you look back into the history of your own company you will probably find that in the early days, the business coalesced around a product idea or maybe a production capability or an ability to market and sell.

Consequently, the driving force and the centre of gravity of most manufacturing businesses will tend to lie in these areas. As a result, logistics, and warehousing as a component of logistics has been viewed traditionally as a necessary evil and cost centre. Something that is unavoidable to a greater or lesser degree but not something that generated any kind of enthusiasm or energy for the movers and shakers within the early business. Though the business may now be decades old, in many instances the Cinderella legacy endures.

The other aspect of this phenomenon is the physical and environmental nature of warehouse operations themselves.

These operations are typified by long cycle times with work taking place over long distances and often at great height with heavy equipment such as stackers, fork lift trucks and order pickers and where integrated digital technology is a relatively recent arrival.

Because of these characteristics, there have always beenreal difficulties and challenges with regard to the effective monitoring, management and control of operations in warehousing.

And finally, relatively speaking, in comparison to the factory floor, the labs or the staff offices in your businesses, the warehouse is a harsh, or at least a harsher, environment filled with boxes, pallets, bags, steel racking, fork lift trucks, docks, inverters and trucks.

Executives from the site leadership teams in many companies rarely adventureinto the deep recesses of the plant where the warehouse operations take place.

I exaggerate only slightly here to make a point that in its essence I believe is true.

 

GLOBALIZATION AND SUPPLY CHAIN MANAGEMENT

However things are now changing quickly, over the last 10 to 15 years or so in response to the challenges posed by globalization – powered by innovations in transport technology such as containerization and airfreight, financial deregulation and information and communications technology, the idea of managing a global supply chain, or probably more accurately, a global supply network has come to the fore and this has had a major impact on the perceived role of the warehouse in manufacturing businesses.

With each year that passes, the warehousing is becoming an ever more crucial link in the theory and practice of supply chain management. With worldwide operations carrying on interrelated activities, the warehouse has become a key interface between sister plants within organizations and between customers and their external suppliers up and down the supply chain.

 

Nowadays, a poorly designed and operated warehouse can play havoc with planning, production, quality and customer service with potentially massive financial implications whereas a well-designed and operated warehouse can add significant value to your business and deliver realcompetitive advantage.

 

TACTICAL LEVEL BEST PRACTICES

At this point I would like to take a few minutes to dive into a number of tactical, day-to-day aspects of warehouse operations before returning to the higher level and taking a brief look at future trends.

This is to give you a flavour of what I am seeing among the best-in-class companies around the world as they address challengesin these area with the objective of building capabilities to support their business goals.

Given the limited time that we have today, we will touch on just three of the keytactical areas:

  1. Warehouse Layout and Storage Equipment.
  2. Stock Deployment inside the warehouse.
  3. Standards and Performance Measurement

 

WAREHOUSE LAYOUT AND STORAGE EQUIPMENT

Just like all other aspects of business, the warehouse is a place in which processes take place. For example – receipt, put away, retrieval, picking, shipping and so on.

These processes involve the movement of people, machines and equipment, the provision of information and interaction between human beings and digital information systems.

The effectiveness and efficiency of these processes is impacted very fundamentally by the layout of warehouse and the storage equipment selected.

Two particular areas of concern are:

  • The provision of sufficient open floor space for the staging and flow of goods through the various stages of the process.

 

  • The specification of the right storage equipment to best match the true physical and dynamic throughput characteristics of the stock.

In the best facilities, clearly thought-through layouts, developed with the active participation of multiple stakeholders including facilities engineering, warehouse operations, manufacturing operations as well as Quality and Safetyhelp deliver layouts that minimise travel distances, avoid double backing, dead-legging and the risks and hazards associated with fork truck traffic congestion and pedestrian activity.

Well-designed areas around the loading docks where goods are received and shipped in particular are areas where easy access, logical traffic flow and high levels of safety can make a huge positive contribution to speed, efficiency and quality.

By way of a rule of thumb, the open areas for receipt and despatch at the loading docks of a typical warehouse should, depending on the nature of the operation, occupy 20% to 30% of the footprint of the facility. Less than this and the area can very quickly become a bottleneck.

On the storage equipment front, even if we just focus on pallet storage systems, there are so many equipment types available that they can present a bewildering array to choose from.

Each option will provide a different density of storage within a given space. The choice of storage equipment however should not depend just on the quantity of inventory to be stored and the size of the facility but rather on the true dynamics of the stock.

For example, the portion of the stock profile in which batch sizes are small (say 1 to 10) pallets where ready access is needed to specific pallets at specific times is best suited to conventional pallet racks in which pallets are stored in one-deep format and every single pallet is accessible with the handling equipment from the aisles.

As batch sizes increase beyond about 10 pallets per batch we enter the realm of denser storage systems such as push-back racks, gravity flow racks and other more sophisticated systems in which pallets can be stored 3, 4, 5 or more pallets deep.

The general rule of thumb is that the batch sizes need to be on average a minimum of three to four times the depth of the storage system. If these minimums are not respected, effective space utilisation will drop and double-handling will increase thus negating the expected return on investment.For example 3-deep push back racks would suit minimum batch sizes of 9 to 12 pallets, whereas a 4-deep system would suit minimum batch sizes of 12 to 16 pallets and so on.

The fact is, most real-life stock profiles have the full gamut of batch sizes and this is why in the very best operations, it is common to see a mix of different storage systems to cater to the true requirements of the different segments of the stock profile.

Inappropriate choices of storage equipment can lead to unnecessary handling, excessive travel, product damage, poor space utilisation and many other undesired effects.

STOCK DEPLOYMENT FOR EASE OF ACCESS

The next area we are going to look at is stock deployment within the warehouse. I am not talking here about inventory management which is a much wider supply chain topic with important repercussions for business continuity and working capital, but with how can we best deploy the inventorywithin the storage equipment so that we can access it readily when we need it, while at the same time minimising travel distances, physical effort and the number of times we handle it.

In any real-life stock profile, at one end there will be items that will be consumed very frequently in large volumes, say one or more pallets per occasion, these will tend to be a relatively small number of items out of the overall profile, while at the other end there will be a large number of items that are consumed relatively infrequently and in relatively small volumes on each occasion such as a few cases down to single items. This is an illustration of the well-known Pareto Principle or 80:20 Rule.

The challenge is – how to provide ready access to all of these items in an effective and efficient manner. A lack of attention to detail here can lead to tremendously time consuming, physically demanding and inefficient ways of working when retrieving materials for factory or customer orders.

In many of the best facilities that we see, the true consumption profile of each material item code is determined in terms of both quantity and physical volume. Dedicated, ground-level, picking locations are then provided for a certain quantity of the item that is equal to a reasonable number of days’ consumption.For the high throughput items, this might be several pallets worth of material, for others a few cases, and for others still maybe just a few single items in a partitioned tote box.

These pick locations are replenished as required from overstocks of the same items or batches located on the higher levels. These pick locations will vary in design and capacity – some will be ground level pallet locations, others decked shelf levels set into pallet racking, others smaller shelving units, cabinets drawers or carrousels.

The balance that is being struck here is essentially one between the gain in productivity from being able to access everything from the ground using simple equipment such as trollies, pallet trucks or order pickers over significantly shorter distances versus the extra effort required to replenish the pick faces when needed. Evidently, the larger the capacity of the pick bins, the less frequent the replenishment requirement and the smaller the pick face the more frequent the replenishment.

Now – benchmarked statistics tell us that between 60% to 70% of all warehouse labour effort can be consumed in the selection or picking of items from stock, and 60% to 70% of this picking time can be spent travelling from one location to another, therefore in the vast majority of cases, it is found that optimising picking travel distances as described, even when taking into account the trade-off of the extra handling associated with replenishment, yields significant improvements in productivity.

Ihave been involved in projects where these types of changes have yielded picking productivity improvements between 20% and 30% just by redesigning pick faces.

 

 

 

LABOUR STANDARDS AND MEASUREMENT

Now we will take a quick look at Labour Standards and Performance Measurement. In my introduction I spoke about how the cycle times and distances involved in the work carried out in warehouse operations make it difficult to monitor, manage and control.

In warehouses where layout is poor and stock deployment is unscientific, processes will rarely be fully standardized and as a result they will be highly variable. In an environment like this it makes little sense to develop standards for the various tasks of work, and as a consequence it is very difficult to plan resources to match a given volume of work.

On the other hand, in those higher-end operations, where the major structural elements of layout, storage and handling equipment together with effective stock deployment truly support efficient material flow and well-structured processes then it becomes possible to establish standards for the various elements of work carried on within the warehouse operations.

To be most effective these standards are developed with the active participation of the associates working in the warehouse operations. The standards become a means to establish recognised levels of performance, to provide focus, incentive and comparability between different parts of a warehouse operation or between different warehouse operations within the same business.

Some opt to develop the standards on the basis of consensus estimation and negotiation, others on the basis of the analysis of historical data from the movements transactions within warehouse management systems or enterprise systems and others on the basis of benchmarked or fully engineered standards with direct measurement

Once these standards have been developed and implemented, they can be very powerful n contributing to all aspects of the operational improvement including resource utilisation and planning, the training and development of new hires and pinpointing where processes may be breaking down. They can be a powerful driver of continuous improvement and the prioritizing of retraining.

In conjunction with modern Labour Management Systems that are now available on the market, the use of these work standards can provide real time monitoring and visibility of the progress of work as it happens and a level of insight and control that has been very elusive heretofore in warehouse operations.

These are just three of the many day-to day aspects of warehouse operations where best-in-class companies are applying more focus, more structure and more science to the development of excellence within their warehouse operations.

At a higher level, overlaid on top of these very basic elements of day-to-day operations we have a number of overarching trends that are exerting their influence to transform warehousing operations into sophisticated, digitally integrated elements of the supply chain, populated by individuals with high level skills and knowledge thatenable them to contribute positively to delivering value for their businesses.

I will touch on just three of these:

DIGITAL INTEGRATION INTO THE SUPPLY CHAIN

The first trend is the Digital Integration of the Warehouse into the wider business and the supply chain.

High-functionality warehouse management systems, integrated with the wider enterprise systems are now becoming more common in many organizations. When implemented appropriately these systems underpin and enhance the benefits and returns from good design, effective stock deployment and standard work. Integrated with Labour Management Systems, Barcode Scanning and Voice Systems and automated materials handling equipment they are converting warehouses into digitally integrated high-tech work environments.

COLLABORATION WITH OUTSIDE EXPERTS

The second significant trend is the development of deep Collaboration with Outside Experts

Despite all the developments and improvements that we have spoken about, it is still true that for many manufacturing businesses, warehousing is not a core competence and never will be. Space is often at a premium, and investment capital is more likely to be approved for new manufacturing capability rather than the expansion of warehouse capacities. Consequently many manufacturing companies have opted to develop partnerships with outside service providers for a wide range of logistics services including warehousing.

The challenge is that in manufacturing, warehousing integrates right up to line-side replenishment, line clearing and the support of line changeovers and cannot be easily “outsourced” in its entirety.

As a result, we are seeing the emergence of multiple hybrid models where off-site third party warehouses holding the greater part of the inventory required to sustain the manufacturing operations support in-plant stock supermarkets and kanbans.

This requires rapid replenishment based on coordinated call offs and effective communication and information sharing between manufacturer and service provider. We are also seeing third party personnel being deployed inside manufacturing plants to do, some of, and sometimes all of, the tasks and functions previously carried out by the warehousing associates of the manufacturing company.

There is no single best model here but rather a complex variety of constantly evolving models of cooperation which continue to develop as the participants increase their knowledge and mutual trust over time.

DIGITAL MEDIA TRAINING

And finally, the third significant trend is the use of Digital Media and Mobile Technology for the delivery of training and the development of skills.

More structure, more technology, more interaction with other departments and third parties requires warehouse associates, supervisors and managers who are highly numerate, highly articulate with good interpersonal skills as well as being comfortable in the use of a wide range of equipment and technologies while at the same time understanding the requirements of regulatory compliance, health and safety and appropriate behaviour in the workplace.

Training and developments requirements have increased multi-fold as a result. The delivery of training can be time consuming and costly requiring people to come off the job in groups, maybe even travel to training centres where knowledge retention in classroom environments can often be patchy.

What we are beginning to see now among top companies is the delivery of training that leverages high-end multimedia, and digital learning management platforms to deliver training modules in a flexible, individualised manner through mobile devices such as laptops, tablets, and smartphones close to the workplace or indeed outside of the work environment.

FOOD FOR THOUGHT

These are just some of the trends impacting warehouse operations in manufacturing today and into the future for you to consider and ponder.

The historic legacy of warehousing in manufacturing, the introduction of improved tools and techniques at the tactical level and the overarching trends that will shape the warehouses of the future give us food for thought on the following pointS.

  1. The warehouse is now a critical component of the global supply chain.
  2. The design and operation of modern warehouses in manufacturingrequires a careful, structured and scientific approach.
  3. There are still huge, untapped opportunities for improvement in the warehousing operations of most manufacturing businesses.

To conclude then I would just like to say that while I recognise that the warehouse may never become the princess to the manufacturing prince charming, I am pretty sure that she certainly cannot continue to be the Cinderella of this particular story.

Thank you.

Is Innovation the New ‘Competitive Advantage?

At the World Economic Forum in Davos last week, the conversation revolved around innovation and volatility; amongst other pressing issues such as economic and gender inequality, sustainability, education and meaningful leadership.

 Innovation is present in every industry. We should take time to think about innovation in all aspects of business – from profit model re-assessment to devising new and better ways of customer engagement. Particularly in these unstable times – where, as our friends in Davos tell us, volatility is the new normal – Supply Chains ought to be up to date with the latest advances in order to be able to respond to or even anticipate change. Taking time to figure out what can differentiate us from our competitors, and focusing on innovation rather than problem solving could be a good start.

 Due to the rapid pace of change, there is an acute need for innovation in our world today. There is a need for new ideas, but also for new ways to implement them, new processes that will make our supply chains more agile and better prepared for the latest challenges. I believe one of the key ingredients to innovation is collaboration. A truly collaborative environment is fertile ground for discussing and perhaps even experimenting with new points of view and different approaches. Furthermore, effective collaboration can reduce transaction, process and uncertainty costs.

 So, perhaps we should ask ourselves if we are operating in a truly collaborative environment, which will then lead us to determine our readiness to embark on a journey towards the pursuit of continuous innovation (in my opinion, the new ‘competitive advantage’).

Author- Blanca Suarez’s Bio

January 27, 2015 0 Comments Blog

Patrick’s Monday Vista 2- Invest in Yourself

Issue 2

The French Economist, Thomas Piketty’s best-selling book ‘Capital in the Twenty-First Century’ has attracted as much praise as it has criticism. However, whether or not you agree with Piketty’s diagnosis and remedies for inequality in society it is hard to disagree when he states that the main force for the reduction of inequality in the world is the “diffusion of knowledge and investment in training and skills”.

Consequently, any individual, any business or any country that does not adequately invest in the acquisition and diffusion of new skills and training will not prosper. In short, those people, companies and countries that do not continually invest in themselves as the maximum priority, are set to lose out badly in the future.

What does this mean for you as a business leader and decision-maker? Well,only you can answer that question effectively but here are three areas of opportunity and challenge for you to think about.

  1. Within your business you may already possess a great wealth of knowledge that is not effectively diffused throughout the entire organisation. For example, you may ask yourself questions such as, “How is it that our London office handles customer complaints much better than our New York office?What is it that the one knows how to do that the other does not? How do the processes differ from one location to the other?”

Challenge: What best practices can you identify in one part of your organisation that can be transferred to all other parts of the organisation?

 

  1. Delivering knowledge and training can be time consuming and costly, particularly if people need to come off the job and travel to learning and training centres. Today however, advances in digital media and mobile technology mean that training and knowledge transfer can take place more effectively and more rapidly than ever before and can be delivered right to the place of work, the home or even to the commuter train.

Challenge: What opportunities exist to leverage digital media and mobile technology to deliver training and knowledge more effectively and more efficiently in your organisation?

 

  1. After a protracted period of recession and slow growth, many organisation have reduced payroll and slashed training budgets. Now that the tide has turned and the major economies have entered a phase of growth, new skills, new knowledge and new processes will be required to innovate and thrive in the future.

Challenge: What are the new skills and knowledge that will enable your organisation to develop and deliver the products and servicesof the future and how will you acquire this knowledge?

That knowledge is power is nothing new but it is something that is often overlooked and neglected. Indeed, high levels of literacy among the population of the early US are partly credited with the emergence of that country as a major economic power in the 19th century.

As it was then, so it is now – invest in yourself today and you will reap the benefits tomorrow.

Chitosan – an alternative to plastic that could be used in large-scale manufacturing

On my recent holiday to the Yucatan in Mexico, I was saddened to see tons of plastic residue from packaging being washed up, tangled up in a tide of sargassum (dense algae), on the otherwise pristine beaches of the Costa Maya. This got me thinking about sustainability, ‘reverse supply chains and closed-loop systems’ and wondering how long it will take before better biodegradable materials are used for packaging.

So I was delighted to come across an article in the World Economic Forum Blog on the benefits of using chitosan – a bio plastic made from shrimp shells which breaks down in only a few weeks once discarded – as an alternative to plastic packaging. According to a study conducted by the University of the Basque Country, chitosan packaging can almost double the shelf life of carrots. The problem for the moment seems to be that chitosan is still more expensive than plastic wrappings.

However, since plastic pollution is a pressing problem, it will only be a matter of time (hopefully) for industry to push for the introduction of world-wide legislation, such as the ISO standards, in order to address this issue.

Furthermore, Harvard’s Wyss Institute Team are researching the use of chitosan in large-scale manufacturing and 3D printing of common objects. If the material starts to be widely used in manufacturing it will also become more affordable.

I for one look forward to the day when sustainability in plastic dependent supply chains is no longer a dream but an easily achievable reality.

Author- Blanca Suarez’s Bio

January 20, 2015 0 Comments Blog

Patrick’s Monday Vista- Shale Oil and what it Means for your Business

The geopolitical effects of the advent of North American shale oil have been rapid and spectacular in late 2014 with the US reinforced as a global power and the likes of Russia, Venezuela, Iran and others cast onto the back foot on the global stage. In our own pockets we will have noticed the sharp drop in the cost of filling the tank at the pumps over the Christmas holidays. As the US economy powers ahead, European export companies are now faced with the opportunities presented by a lower Euro-Dollar exchange rate combined with historically low interest rates and falling energy costs. This structural shift in the global energy equation is going to have a very significant economic impact throughout 2015 and beyond and it is worth taking a few minutes to consider what this means for your business.

  • What will be the impact of lower energy costs in production and transport on your supply chain?
  • How will the increased demand for products and services from a US consumer wielding a strengthened dollar affect your volumes and the capacities and capabilities required to respond?
  • How will you leverage lower interest rates at home and the increased competitiveness that your business has achieved over the tough years of recession?

For the first time in a long time, the challenges of 2015 look more like those of how to respond to opportunity rather than those of how to batten down the hatches and weather the storm. The outlook and the mind-set required to be successful in good times are significantly different from those required to survive in bad. Are you ready for 2015?

January 5, 2015 0 Comments Blog

Cold Chain

Cold chain is the process used to maintain optimal conditions during the transport, storage and handling of vaccines, and, food and beverages. The chain begins at the manufacturer and ends with the end use, and most often involves the transportation through thermal and refrigerated packing methods and logistical planning to ensure appropriate condition of the products along each point in the supply chain. The necessities of the item being in the chain determine the temperature and humidity requirements of the chain.

Cold chain has global, regional and local impacts as the very nature of the cold supply chain requires co-ordination in these dimensions of space. An efficient cold chain translates to very less waste for perishable products that enter the supply chain. For vaccines this could mean more vaccines being delivered within the shelf life to prospective end users and for food and beverage, it would result in less food being perished: currently, waste factor in food cold chain is 25%. It is very obvious that an efficient cold chain requires strict control of the atmosphere in the logistics space. To reduce the waste factor, intermittent lapses in the cold chain controls have to be monitored. These generally occur during change in the mode of transportation- ships to trucks, trucks to planes, etc. Monitoring tools have to be used that can track the cold chain at any point in space and time. In conjunction, the control system should take into account the lapses mentioned above.

All of the above mentioned come down grossly to the type of container that is used and method of refrigeration. Reefers account for an increasingly used cargo refrigeration units because they can accommodate a wide range of temperature settings and hence a large number of products. In addition, the cargo handling capacity at around 20 Tons of cargo in standardized dimensions designed to fit the global transport system implies versatility, portability and accessibility. Choice of appropriate color (white to increase the share of ambient light being reflected), power source (separate or integrated), and monitoring tools are essential to an effective cold chain. It is interesting to note that reefers are not designed to lower the temperature, instead they are designed to maintain temperatures. Hence, preparation before cargo is being transported in reefers has to be done with utmost care.

The logistics of cold chain, apart from choice of effective refrigeration units involves establishment of comprehensive logistical process to ensure integrity of the cargo. For that, it is vital to assess the characteristics of the cargo and then maintain pre-transport conditions required for the cold chain. Likewise, geographical proximity, time constraints (perishability), ambient temperatures and the mode of transportation available has to be taken into consideration. Custom procedures and the associated wait times and the final delivery to the destination- which often requires planning of everything from warehousing space, market demand, labor available to traffic flows are other things to be considered. After the cargo reaches the final delivery point, temperature recordings should be make known. This helps set benchmarks, reduce anomalities and hence build trust and credibility.

Cold chain has emerged to being an important aspect of the globalization that manufacturers and customers alike have developed a keen taste on. The growing demand for cold chain requiring products combined with the increasing emphasis on quality  has demanded rigorous standards in cold chain logistics. An efficient cold chain can create happy economic bottom line while enhancing the abstract achievements in terms of customer satisfaction and loyalty.

January 1, 2015 2 Comments Blog

The Benefits of Measurement in Warehousing and Distribution

‘If you don’t know where you want to go, then it does not matter which way you go.’- An Alice in Wonderland inspired line hold true for warehouse management.

In order to ensure best management practices in the warehouse, managers are required to know the status of the management practices currently employed and target the status they want to achieve with reference to the business bottom line and act accordingly to improve any lagging aspects. One of the best ways to achieve this is to quantify various aspects of warehousing management activities into suitable metrics. Through use of such metrics, managers can know where they are and where can they reach.

Typically, the metrics for measuring warehouse performance are focused on customer, operations, financial, capacity, employee, and orders. Once these performances are accurately quantified, they are benchmarked against the best-in-class performance. Best practice performers have 4-6% (of grosssales) lower total logistics costs.  Therefore, any warehouse management should strive for best-in-class results in the performance metrics.

For illustrating the benefits of measurement in warehousing, let us consider a warehouse whose results of benchmarking compared with best-in-class performance are:

Metrics                                                              Results                                                 Best-in-class results

On-time shipments                                     90%                                                         98.5%

Orders Picked and shipped                      3per hour                                             6 per hour

For this warehouse, some customers are most likely to complain about slow responses. The manager, after study of the metrics compared to best-in-class, would address the issue by dealing with factors contributing to delayed shipments. (e.g. narrow shipping dock, documentation errors). For low numbers of Orders Picked and Shipped, possible explanation could result from low number of workers employed. After such malpractices are identified and corrected, the warehouse would benefit both from customer retention, and economic bottom line.

Clearly, measurement of key performance indicators, allows managers to assess the status of their warehouses and help identify performance inhibiting factors that have been affecting the business bottom line. In addition, it allows better visualization of the gap the warehouse has between the current performance and the performance it should target to achieve best-in-class practices. Best-in-class practices ensure that customer satisfaction is achieved while boosting the business bottom line.

 

The Business Value of Master Data Management

Businesses, both small and big, have a lot of data associated with many aspects of the operation. Inefficient data management practices lags business growth due to unreliable data being provided thus limiting its potential to make key decisions based on insights and anticipate any future changes.  Data management has evolved to being one of the key management aspects of any business. In a business, data changes over time: acquisitions and corrections are being made in multiple entry points for products, customers, employees, vendors, and so on. Master data management (MDM) stores all the data in a single system and synchronizes data acquisitioned from several source systems and provides most accurate, timely and relevant version of truth about essential business entities.

Implementation of MDM ensures that a singular version of truth is maintained for all data thus reducing redundancies. In addition, using MDM to focus on critical data subsets ensures that business decisions based on them will have accuracy and reliability. Some of the questions that support business decisions based on data are:

•           What business opportunity/problem are we trying to solve?

•           What questions do we need to answer to solve the problem?

•           What data do we need to answer the questions?

•           What data is important for to maximize profitability?

•           What data do we have?

•           How can data help differentiate us in the market?

Such decisions based on unreliable data will inhibit business growth and profitability by creating inefficiencies in supply chain, sales, marketing efforts, and customer loyalty among others. Making effective decisions based on data gathered and analyzed; monitoring the results and refining when necessary will enable competitive operation and achievement of organizational goals.

MDM employed in an organization in addition to reducing data errors, increases reporting accuracy, improves product and brand management and provides advantages of data driven decisions. Businesses that are evolving as silos have each department focusing on specific problem. A well governed MDM system will ensure that each department will have a more holistic perspective focusing on overall organizational goals. Incorporation of MDM practices will increase profitability of a business because each data entity relating to the business will be taken into account to measure business performance and make key decisions that determine the prospects of the business success.

Innovation versus Problem-Solving

Problem-solving and innovation are two essential business processes that we need to master in order to thrive and prosper in the face of the many and varied challenges that we face.
The trouble is that while both processes are necessary, if we spend too much time fixing problems around the place we leave too little time for thinking about how we are going to do things better in future.
Our default position is skewed much more towards problem solving than towards innovation because it is more urgent and less risky. We actually spend more than 90% of our time on problem solving and less than 10% on innovation. However to truly get ahead of the pack we need to rebalance this towards a 50:50 split.
Here’s a question for you to think about. What is the split in your business today and what could you do starting now to improve the balance?
The key distinction between the two processes is that problem-solving is about FIXING things that have gone off standard to bring them back to the previous level of performance whereas innovation is about IMPROVING performance to a new, higher level.
An example of problem solving might be where picking productivity in a distribution warehouse has dropped below standard for some unknown reason. The task at hand is to indentify the cause, fix the issue and return productivity to the previous level.
Innovation on the other hand would be where investment in new automated technology gives rise to a step change in productivity bringing it to a far higher level than could ever have been achieved with the old way of doing things. Innovation often takes place in response to an opportunity or more often a threat. In this case, for example, the rising cost of labour.
In today’s business world there is no shortage of threats and opportunities. To thrive and prosper in this environment it is essential that you do not allow day-to-day problem-solving activity crowd out innovation in your business. You must be purposeful about innovation and explicitly assign time and resource to it, otherwise it simply will not happen.

September 23, 2014 1 Comment Blog

Your Productivity and Economic Growth

Productivity growth is one of the three fundamental drivers of economic growth. The other two drivers are capital growth and labour growth. Because in advanced economies such as those of Western Europe and North America labour growth and capital growth no longer grow so fast, productivity growth is now THE major driver of economic growth.
In almost 25 years of working in operationally focused businesses in manufacturing, distribution and logistics services, I have yet to come across a business in which significant productivity gains cannot be achieved by straightforward changes to the way that work is planned and organised and by aggressively identifying and eliminating waste in all of its forms.
More specifically I have found that that in typical warehouse and logistics operations in manufacturing and distribution over 80% of facilities can achieve output productivity gains of 20% to 30% relatively easily through taking decisive action to improve organization and eliminate waste and often with little or no capital expenditure.
This is great news for the owners and managers of any business with processes that are amenable to productivity improvement because it means that you have the power to take action now that is going to be massively positive for your company and for the whole economy.
Furthermore, and this is even better news, it has got nothing to do with government policy, the state of the banks or the oft cited “current economic climate”, but rather only with how you perform work, how you organise the resources already at your disposal and how creative and innovative you are with these resources to add more value to your business.
Great news indeed!

September 23, 2014 0 Comments Blog

Top 5 Tips for Improving Warehouse Performance

The performance of warehousing operations whether in manufacturing, distribution or logistics will significantly impact both your top line and bottom line business outcomes.
Here are my top 5 tips for agressively driving dramatic performance improvement in warehouse operations in record time.

1. Develop accurate time standards for the key work tasks performed in the warehouse; receipt, put away, picking etc.

2. Use the time standards to advance plan a structured daily work schedule and analyse any differences between the actual work day and the planned work day on a daily basis.

3. Develop and track, on a daily basis, key output performance measures such as pick rate productivity, order accuracy, on time delivery etc.
4. Collate, publish and review these output performance measures and planned versus actual work outcomes with warehouse operatives and management on a weekly basis.

5. Develop and proactively pursue quarterly improvement targets on your key performance indicators.

And here’s a sixth for the price of five – be relentless in removing any obstacles that stand in the way of implementing these five steps. Implement and follow these simple steps and you will drive significant performance improvement in your warehouse operations that will dramatically impact your business results.

September 23, 2014 3 Comments Blog

Improve Picking Productivity

Whether in manufacturing, distribution or logistics services, the picking and preparation of orders in warehouse operations takes up between 50% and 70% of all labour employed in the warehouse. Consequently, any drive to improve productivity and output performance in the warehouse must prioritize order picking to the top of the list.

THE OPPORTUNITY

The scope for improvement is truly breathtaking. In the WERC’s DC metrics publication, the median pick rate productivity is quoted as 30 lines picked and shipped per hour as compared to the performance of best-in-class operations which are in the region of 80 lines picked and shipped per hour.

THE BENEFITS

Given the high wage rates now commanded by skilled warehouse operatives and the difficulty in finding suitably qualified staff, pushing towards best-in -class levels of productivity is a must in today’s competitive business environment. Even in small to medium sized operations with 10 to 15 people employed in order picking these productivity improvements can deliver hundreds of thousands in savings per year.

INITIATIVES

Pick rates can be improved by a wide range of initiatives from locating the most frequently picked stock in the most accessible locations, through to introducing improved mechanized equipment and information technology, and on to improving the design of pick sheets, enhancing the quality of lighting and implementing better planning and sequencing of work tasks.

MEASUREMENT

Measuring and monitoring pick rates on a daily basis is an essential management capability in warehouse operations. This will enable both effective planning to match resources to work demand in the immediate term and help will drive productivity improvement in the longer term. To do this effectively requires the ability to capture, process and translate the data effectively into effective improvement initiatives that will deliver gains to the business both on the top line through improved service, and on the bottom line through optimum costs.

September 23, 2014 0 Comments Blog

Warehousing Priorities: Get them Right

Top class warehousing is an essential competence in any successful business in the 21st century for three main reasons.
1. Warehousing impacts business top-line performance. The warehouse is the last step before the customer and your last chance to gets things right in the customer’s eyes.

2. Warehousing impacts business bottom-line results. Warehousing is labour and energy intensive and the difference in operating performance between well run warehouses and poorly run warehouses is dramatic.

3. Warehousing impacts working capital requirements. Effective warehousing supports optimum inventory levels to support the real requirements of the business. Ineffective warehousing results in higher levels of inventory and obsolescence.

Of course, not all warehouse operations have the same priorities or focus. These will be driven primarily by the type of business – Manufacturing, Distribution or Logistics Services.
The top three priorities for warehousing that supports manufacturing operations are compliance, control and quality. On the other hand, for distribution businesses the top three priorities will include efficiency, speed and accuracy whereas logistics services businesses will prioritise service, flexibility and communication capabilities in their warehousing operations.
Different priorities will drive different warehouse layouts, equipment, ways of working and performance metrics. Whatever your business sector, make no mistake about this, top class warehousing is a competitive differentiator in today’s business world and will make a dramatic contribution to your business results.
Make sure that you have got your priorities right for your warehousing operations.

September 23, 2014 0 Comments Blog

Warehousing Case Study: Massive Improvement in Operating Efficiency

THE CHALLENGE

A manufacturing client in the pharmaceutical sector was about to embark on a major uplift in finished goods output and called on us to help them to work with their logistics service provider to help them to prepare their warehouse facility operationally for the throughput volume increase of approximately 25%.
The warehouse operated offsite by the logistics service provider received finished product straight from production for storage and later despatch to markets around the world. Added complexity derived from the fact that the same facility and warehouse team was used to receive raw materials from suppliers and for selection for just-in-time delivery to the production plant on a daily basis.
Initial thoughts on the part of the manufacturer and the logistics service provider were that an additional overlapped evening shift would need to be introduced in order to cope with the increased throughput thus resulting in increased labour and overhead costs.

THE APPROACH

We carried out an activity sampling exercise on the warehouse receipt and despatch activities to see what proportion of time was dedicated to what tasks and the how the work was structured and organized in time.
We determined that through some minor changes to the warehouse racking and materials handling methods combined with a change in the sequence in which work was done, how manpower was deployed to tackle the work, and the removable of non-value added tasks such as searching for information and equipment there was potential to increase work throughput considerably without any increase in headcount or working time.
Implementation of the changes, in addition to the physical changes to racking and handling, included the introduction of more proactive frontline supervision to direct the work teams in real time based on a daily target plan, improved information transparency between the production plant and the warehouse to allow forward planning of the working day, a formalised daily planning template, and vision board inside the warehouse to track actual work done versus the target through the working day and the working week.

THE BENEFITS

The changes to equipment and ways of working took 12 to 15 weeks to implement and bed in. Six months after the changes were introduced the facility throughput had increased by more than 30% with respect to the original throughput, improving the efficiency of the operation and reinforcing the business relationship between the manufacturer and the logistics service provider.

September 23, 2014 0 Comments Blog

Warehousing Case Study: Maximizing Return in Investment in a Finished Goods Warehouse

THE CHALLENGE

A multinational manufacturer in the food sector asked for our help to optimise their investment in a new finished goods warehouse alongside their manufacturing plant. The warehouse was to be used to store finished product and to pick and despatch orders to markets around the world.
The product was bulky, palletized and made in batch sizes that ranged from 1 pallet to more than 50 pallets. When there are batch sizes in a stock profile that are larger than 12 to 15 pallets like this, there is an opportunity to increase the utilisation of available cubic space in the warehouse by using high density storage solutions such as Push-Back racking and Gravity Flow Racking.

THE APPROACH

To achieve high average utilisation with these high-density storage systems, experience indicates that the average batch size stored in the racking must be at least 3 to 4 times greater than the depth of the channels in the racking. For example, this would mean that for a 4-deep push back rack we would be looking to store average batch sizes in the range 12 to 16 pallets and in an 8-deep gravity flow rack about 25 to 30 pallets per batch.
For this project, we carried out an analysis of the Production Receipts data over time and projected into the future to determine the average batch size ranges coming in from manufacturing that would have to be accommodated in the facility and we selected three types of storage solution as optimum for this application.

THE SOLUTION

Firstly, 55% of batches were in the range of 1 to 12 pallets and these smaller batches represented about 10% of the throughput. Conventional single deep pallet racking was selected for this group.
Then another 30% of batches were found to be in the range 12 to 25 pallets representing about 30% of the throughput and 4-deep push back racking was specified for this portion of the stock profile, and..
Finally 10% of batches were greater than 25 pallets each representing 60% of the throughput and 8-deep gravity flow racking was specified for these.
Choosing the right storage solution for the right segment of the stock profile, optimised the trade off between space utilisation and product accessibility for this warehouse thus accelerating the return on invested capital and ensuring efficient and cost effective operation throughout the lifetime of the facility.

September 23, 2014 0 Comments Blog