Posts Tagged ‘SSCM’

Today I am launching my new web site under the new company name of Greve Consulting, formerly known as Metreks.  The focus of my practice is to help companies develop their returns management, aka reverse logistics capabilities.  Viewers will find a lot of useful information on returns including the Reverse Logistics Podcast, which will feature industry leaders from the world of reverse logistics, and my blog which is packed with articles and information to help service providers, manufacturers, retailers, and liquidators make more money.

Register to get the blogs sent to your desktop automatically or save www.GreveConsulting.com as a favorite on your browser.  Your comments, questions, suggestions and feedback are encouraged.  I will use your feedback to improve the value delivered from the site.

Check in from time to time to see what is new.  For example, you might want to check out The Cost of Doing Nothing.  This is a form you can fill out to find out how much opportunity you and your company have in developing your reverse logistics capabilities.

Whether you call it returns management or reverse logistics, it’s all about improving returns and maximizing profits.  I hope you enjoy the new site and get a lot of value out of GreveConsulting.com.

For the last 15 years the Third Party Logistics industry (3PL’s) have been growing at an average rate of 15% annually.  More and more companies are outsourcing pieces of their supply chains to 3PL’s.  They do this for three primary reasons:

1. The function outsourced is not the company’s core competency
2. Outsourcing provides speed and flexibility
3. To save money

Often, the structure of the agreement between the customer and their 3PL partner is cost plus.  This can come in a number of tailored formats but for the most part, the 3PL is paid their cost plus a management fee.  While fees vary based on the service provided, costs are suppose to be what the 3PL paid.  Here is where many companies overpay.  For most, this overpayment could be avoided by asking a few questions upfront and checking the bills a little closer  throughout the life of the contract.

As stated earlier, cost plus contracts are set up to charge the customer for actual costs paid for goods and services plus a fee, which is ideally the profit for the 3PL.  There are four areas that companies should consider, both when negotiating the agreement with the 3PL and when paying the 3PL’s invoices.

The first area to focus on is benefits.  Unless specified in the contract, benefits charged on wages should be the actual cost of the benefits.  That means that rebates that the 3PL  gets on health insurance and workers comp should be credited to the customer.  If you are charged a “standard percentage” and you don’t ever get a rebate, but the language in the contract says nothing other than cost plus, you are being over charged.

If, however, the contract stipulates that there is to be a standard percentage applied to wages for these categories, then the charge would simply be the percentage applied to actual wages.  Remember, in many operations hourly wages can be as much as 40% to 55% of total operations costs.  If you are charged a couple of extra points over cost of benefits, that could be a lot of money during the life of the contract.

The next area to consider is temporary labor charges.  Many temp agencies offer rebates to 3PL’s based on volume over  the quarter or year.  As the customer, you have the right to see the agreements and call the temp agency to discuss the specific arrangements.  If there is a rebate from a temp agency, or from any supplier for that matter, in a cost plus arrangement, you have the right to your share of the rebate.

Many operators also provide systems and systems support.  While support typically is based on a percentage of software license cost, the actual systems license costs are much less direct, and in reality are in large part profit.  You will hear arguments that the license costs have to cover a lot of R&D, overhead, and other indirect costs you, the customer will never see.  Truth is it is profit.  You should not pay management fee on this. This is one of those areas that should be addressed up front.  If it isn’t spelled out or included as a line item on a budget, you should not be charged a management fee.

The last point to look into is corporate allocation or charges for overhead.  Like some of the topics above, unless this amount is clearly defined as a percentage of total costs or something similar, it should be the actual costs.  The big mistake that many make, however, is that they pay a management fee on top of a corporate allocation / overhead.  In effect, you are compounding the fee paid to your provider.

Most experienced supply chain executives throw out charges associated with corporate allocation / overhead right from the start.  You should have one fee to negotiate.  Don’t allow yourself to be put in the position of negotiating two, three or four fees depending on the activity.  This is a tactic used by some 3PL’s to simply make more profit.

There are many areas that companies must watch out for when negotiating and managing their 3PL agreements.  Hopefully you have these four critical components in control.  If you aren’t sure, at least you know where to start looking.

The leading reverse logistics academic program is threatened by Nevada state budget cuts. Under the direction of Dr. Dale Rogers, the University of Nevada, Reno has built one of the best Supply Chain Management Programs in the country.

The program and Dr. Rogers has been recognized around the world for their quality and contributions to the supply chain management field. Organizations such as CSCMP, RLA, IWLA, and WERC have all recognized Dr. Rogers and his program for their thought leadership. In addition, to their leading programs UNR boasts of many graduates who are leading executives in their field throughout the world.

In spite of all of this, Dr. Rogers and his entire program is in jeopardy of being cut. Unbelievable but true! The SCM program, and maybe even the College of Business, could be casualties of the state budget crisis. This crisis means that the university can revoke the tenure status of faculty that are part of a discontinued program. That means that all of us in the SCM program: Dr. Carter, Dr. Lemke, Dr. Amato, and Dr. Rogers, may be forced to leave the university.

UNR President Milton Glick said in the Reno Gazette-Journal: “We have to make some vertical cuts,” he said. “We will probably eliminate a number of academic programs and probably one or two colleges … It’s better to maintain quality at the university than to degrade the quality of what we do.”

We need to help keep this vital program going. Everyone reading this, who has benefited from Dr. Rogers, the SCM school at UNR, or is better because of their work and their graduates should write and encourage UNR to keep this vital program alive. Write to:

Dr. Marc Johnson

Executive Vice president & Provost

University of Nevada

MS 0005 Clark Administration

1664 N. Virginia Street

Reno Nevada 89557-0005

Email: marc@unr.edu

Dr. Rogers, his staff, and students have helped many companies improve their reverse logistics programs and supply chains around the world. It is time for those of us who have benefited from this program to voice our support. Write today.

The majority of companies that outsource distribution or returns facilities to 3PL’s also run their own facilities and often they will outsource to two or more 3PL’s.  If you have multiple operators providing services, a great way to develop process improvement is to start benchmarking and ranking each operation.

While this sounds like common sense, surprisingly few companies actually rank all their operations based on a common set of metrics.  Your facility operations teams and the 3PL’s will complain that you are trying to compare apples and oranges but there are common metrics in every supply chain that you can use to rank operations and promote process improvement.

Common benchmarks include lost time accidents, variable cost per case, quality, productivity improvement or variance against plan, and many more.  There are some comparisons that are not valid but there are always key metrics that each operation shares with other operations within a supply chain network.

Once you have identified common benchmarks to measure, you then put together a program that rewards the best performer and most improved.  You can have a number of different recognition programs but too many “awards” will kill the program.  The actual rewards don’t have to cost much money and should be self funding based on the improved metrics.  In fact, if the rewards aren’t self funded, you have not picked the key metrics that really could impact your cost.

Once the program is put together, the rankings and metrics are ran monthly and rolled up into quarter and annual results.  To be effective, you must make sure that you review the metrics and talk about the rankings on a monthly basis.

To really make a program like this work, you should require that each operation review each metric and put together a plan to address it at the beginning of the year.  Then on a quarterly basis, a review should be presented by each operation detailing where they are versus their plan and what they plan to do over the next 90 days to improve.

Don’t underestimate the power of having a ranking posted in your newsletter and on the office walls.  3PL’s will want to be first and your internal operations will see this as a way to prove their worth and avoid their operations being outsourced as well.  At the end of the day, you’ll have a much improved supply chain which is the ultimate goal.

According to the recent McKensey Quarterly, India leads the world in providing offshore services in business and technology, with revenues of $58 billion in 2008, out of a global total of $80 billion. McKinsey estimates this is just the beginning: the global market for offshore business and technology services could grow to about $500 billion by 2020. Yet even with this growth, the industry will still serve less than 1/3 of the potential market for these services, which McKinsey estimates at $1.65 trillion to $1.80 trillion in 2020.

Source: Strengthening India’s Offshore Industry

Growth of domestic outsourcing continues to outpace GDP growth also. Why?

The answer is simple. Outsourcing non-core competencies cost less than developing and/or supporting inefficient, poorly run in-house functions.

The perception of many is that outsourcing costs more but that is usually because they don’t count all the internal costs of sub-par production, and often over look costs of supporting a poor in-house model.

If you do not have thought leading executives with core competencies in support functions such as systems, supply chain management, or call center operations. You should seriously look at outsourcing.

If you don’t have the critical mass for these functions, outsourcing could leverage an expert provider’s base, resulting in significant cost reduction.

If flexibility, dynamic growth, or restricted capital are realities you face, often times, outsourcing is a great strategy that will result in dramatic bottom line improvement.

Because of these and many other reasons, most of the Fortune 1,000 companies outsource / off shore significant pieces of their core functions.

The Sustainable Supply Chain Management Podcast is hosted by Dr. Dale Rogers and Curtis Greve. This podcast is focused on sustainable supply chain management issues and best practices.

Podcast #3 Agility and Supply Chain Management

Agility will enable a company to get to the mythical next level by ensuring they focus on demand, not a misguided forecasts that can lead to expensive errors resulting in out of stocks, markdowns, unhappy customers, and lost profits.  Join Dr. Rogers and Curtis as they discuss what Agility is, what are the four “R’s” of Agility, and why Agility in Supply Chain Management will be the next evolution in supply chain management.

Podcast #3 – Agility and Supply Chain Management

Show Notes

What is an agile supply chain? A supply chain that is an interdependent network that is demand driven instead of an independent, forecast driven supply chain.

Is there a difference between being lean and being agile? Lean means no waste, reducing the fat. Agile means nimble.

What are the differentiations between a typical supply chain and an agile supply chain? Independent vs Interdependent

Agile supply chain must possess the following characteristics:

• Market Sensitive – supply chain is capable of reading and responding to real demand.

• Virtual – The use of information technology to share data between buyers and suppliers is, in effect, creating a virtual supply chain. Virtual supply chains are information based rather than inventory based

• Process integrated – collaborative working between buyers and suppliers, joint product development, common systems and shared information. This form of co-operation in the supply chain is becoming ever-more prevalent as companies focus on managing their core competencies and outsource all other activities. In this new world a greater reliance on suppliers and alliance partners becomes inevitable and, hence, a new style of relationship is essential. In the ‘extended enterprise’ as it is often called, there can be no boundaries and an ethos of trust and commitment must prevail.

• Network based – the supply chain as a confederation of partners linked together. We are now entering the era of ‘network competition’ where the prizes will go to those organisations who can better structure, co-ordinate and manage the relationships with their partners in a network committed to better, closer and more agile relationships with their final customers. It can be argued that in today’s challenging global markets, the route to sustainable advantage lies in being able to leverage the respective strengths and competencies of network partners to achieve greater responsiveness to market needs.

The Agile Supply Chain model suggests that ideally the supply chain should become a ‘demand chain’ – in other words, everything that is moved, handled or produced should ideally be in response to a known customer requirement. A supply chain tends, by its very nature, to focus on creating efficiency in terms of the flow of material from source to user. On the other hand a demand chain is focused more on effectiveness in the sense that it seeks to be market-driven responding to the needs of the market more rapidly. The key to this transformation – from supply chain to demand chain – is agility.

Source: “Creating the Agile Supply Chain” by Martin Christopher, Cranfield School of Management

Many executives today still think that sustainability is just another form of green that will cost money.  If you have a new enviromental program that has a detrimental impact on your bottom line I can guarantee you two things.

First, you aren’t doing something right.  You may not be looking at the entire picture and realizing the full benefits.  You may be doing something like spending more money on fuel picking up recyclable materials than the revenue you gain; ie doing stupid programs.

Second, if your program really is costing you more money, it is not sustainable.

A true sustainability program improves the enviroment, improves the impact on your workforce in someway, and IT IMPROVES THE BOTTOM LINE!!

Case in point:

The CEO of BP committed BP to reducing greenhouse gases, especially carbon dioxide.  The CEO sent out word to all BP businesses to find ways to reduce these gases.  After three years, BP had discovered many ways to accomplish this goal.  They cut emissions, improved efficiency and saved money.

The initial process changes cost BP roughly $20 million but SAVED $650 million in the first few years.  When asked about this Lord Brown, BP CEO, said “We set out to do good…. and we ended up doing well.”   (“Green to Gold” by Esty and Winston)

Committing to a sustainability strategy has to come from the top and it has to be institutionalized to really work.  However, when done correctly, sustainability will avoid risks, improve labor relations, improve stockholder relations, and increase the value of your firm.