Supply chain management june10

The quest to deliver greater value to the customer has sent Western companies to distant locations in search

of low-cost goods. Stretching sup-ply chains across the globe to low-wage economies, such as China and India, has brought an influx of cheap goods. But the complex-ity of distant sourcing has dramati-

cally increased supply-chain risk. Longer lead-times require greater investment in inventory and cor-porate brands are now exposed to increased risks from their suppliers.

The recession has highlighted a number of these risks and has caused many to re-evaluate the way they run their supply chains. Flex-ibility to respond quickly to market

demand is now seen by many to be more valuable than price alone.

One significant development that has occurred over recent months is the move by shipping lines to moth-ball fast but fuel-hungry container vessels – built for rushing Chinese goods to the United States – utilis-ing instead slower moving, larger and more economic container ships. The net result is an extra few days on the lead-time for goods arriving from the Far East. This may not sound a great deal, but holding inventory for even a few days more can add to costs and impact responsiveness.

In uncertain times procurement professionals want greater flexibility,

not longer lead-times. There is ris-ing anecdotal evidence of companies reconsidering their sourcing strate-gies, with some moving manufactur-ing back closer to Western markets. “Buyers are looking for shorter pro-duction runs and they are looking for flexibility,” says Stephen Rinsler of Bisham Consulting. “The problem with long supply chains is that they are not flexible. A retailer of electri-cal units may have one technology in store, another on the water and yet another technology in production. What happens if the first technology doesn’t sell too well?”

According to Mr Rinsler, there is some evidence that a growing number

“may be doing their first production run a long way from home, but their top-up runs much closer to home, mainly in Eastern Europe”.

“There are a lot of issues around de-mand planning, production planning, timing of acceptance of stock, getting it into the store and selling it through,” he says. “There are signs that some companies have found that the costs of getting it wrong are too high and they are starting to outweigh the ben-efits of lower manufacturing costs. If you want smaller quantities, because you want to change your stores much more frequently, you need to be much closer to home. Only then are you able to cope with the change in design, pat-tern, colour, and specifications needed for fast-changing markets, such as with technology goods.”

Driving value through the supply chainoVERVIEW Achieving competitive advantage is now a delicate balance between seeking best value and managing complex risks within the supply chain. Nick Allen reports

This supplement is an independent publication from Raconteur Media

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June 10, 2010

continued on page three

SUPPLY CHAIN

MANAGEMENT

So if you would like to find out more about the total visibility and competitive advantage provided by our award winning supply chain management team, then go to:

or drop an email to [email protected]

www.allport.co.uk

Allport has helped Pets at Home come on in leaps and bounds

www.allport.co.uk/scm

S u p p l y c h a i n S o l u t i o n S t h a t h E l p y o u G R o W

Pets at Home is the UK’s leading pet care retailer, providing pet lovers with thousands of products for their dogs, cats, birds, fish and other animals. The company is still growing fast, with a clear strategy to go on expanding - with more stores, more products and a global supply chain to help make it all happen.

That was the brief for Allport - the UK’s leading independent freight forwarder. The result has been an on-going transformation of Pets at

Home’s supply chain, building enterprise solutions such as finance tools, ready reckoners and vendor performance measures. In the words of Logistics Director Phil Hackney: “Allport’s approach has certainly been a keen enabler to success.”

What Allport are doing for Pets at Home, we can do for you. Already three of the top four supermarkets use us, as well as many high street retail giants and some of the biggest names in the fashion industry.

SUPPLY CHAIN MANAGEMENT 3

INSIDE

EditorPeter Archer

Contributors Steve AggNick AllenPeter ArcherRon CondonIain MartinJames Silver

Publisher Jamie Simon

Production manager Fabiana Abreu

Design Hervé Boinay

Published in association with:

For more information about Raconteur Media publications in The Times and The Sunday Times, please contact Freddie OssbergT: 020 7033 2100 E: [email protected] W: www.raconteurmedia.co.uktwitter.com/raconteurmedia

The information contained in this publication has been obtained from sources the proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the Publisher.© RACONTEUR MEDIA

4 Delivering the goods Spending on roads slips down the agenda And volcanic ash means no sushi

6 Managing risk How companies cope with the unexpected and the unpredictable

7 Insuring the supply chain Taking out insurance can make a business a better bet for the bank

8 Shop till you drop So many ways of shopping pose challenges for retailers

10 A question of finance Industry experts engage in a roundtable Q&A

12 How to keep the cash flowing Buyers want more time to pay while suppliers need prompt payment

14 Technology tips Supply chains stretching around the world need tracking And public sector procurement is centre stage as cutbacks begin

DILEMMAElizabeth Tyrrell, business develop-ment director at upmarket gift com-pany, Basket2U.com, highlights the dilemma facing many companies. “Presentation is absolutely critical for us. With our latest range of newborn baby gifts, we wanted to respond to market demands for a top-quality gift box to sit alongside our established luxury baby baskets. Sourcing a box from the Far East would offer the lowest unit price but lead-times were three months,” she says. “We wanted to capture early market positioning with the packaging concept and test acceptance of the product without committing to large production runs. We needed to launch the range in two weeks, not three months time, and we wanted to check that the foil block-ing of our logo was reflective of our brand image. So it made sense to go for a short run from a UK manufac-turer, even though the cost per unit was higher, and then source bulk or-ders from the Far East once the prod-uct was proven in the market. That flexibility is more valuable to us than simple unit cost. It allows us to keep one step ahead of the competition.”

A major consideration for buying organisations sourcing from suppliers in distant locations is the potential for exposure to risks related to Corporate Social Responsibility (CSR). Business ethics are now an issue.

Damage to corporate reputation and brand are central concerns for businesses operating in a global market. How a company behaves in one part of the world can have huge ramifications on how its reputation and brand are perceived in another. And nowhere is this more impor-tant than in how an enterprise sources its products and services.

In recent weeks a significant col-laborative initiative from within

the electronics sector seems set to have an influence on the way many industrial sectors will monitor sup-pliers concerning CSR risk. At the beginning of March, Achilles and the Global e-Sustainability Initiative (GeSI) signed a memorandum of understanding to set a new three-year strategic plan to drive forward the Electronics Tool for Accountable Supply Chains (E-TASC). Subscrib-ers enter details of how their supply facilities manage and reduce their labour, social and ethical, environ-mental, and health and safety risks, and share the information, through the online tool, with their customers. In this way they drive continuous improvement in the supply chain.

Although E-TASC has been used extensively by the electronics in-dustry since 2007, with more than 1,000 supply facilities on the system and over 50 global brands now sub-scribing, the new agreement puts it in a strong position to be adopted by other industries for managing CSR compliance globally.

OUTSOURCEBoardroom awareness of the com-petitive advantage a considered, well-planned and efficiently execut-ed supply chain delivers is leading many to outsource this increasingly complex function. Roger Williams, chief executive of the United King-dom Warehousing Association

(UKWA), says: “The need to drive cost out of the supply chain is often cited as a major reason for using third-party logistics service pro-viders. However, perhaps a better reason for engaging outside experts is the in-depth knowledge, flexibil-ity and added value that a specialist contractor can provide. In short, as well as helping companies to achieve significant cost savings, a good serv-ice provider will enable a business to enjoy shorter order cycles, better customer service and improved all-round business efficiency.”

Another concern for corporate en-tities is the resurgence of interest in carbon management within the sup-ply chain. Buyers are now increasingly

looking to source from suppliers that are actively in-volved in measur-ing and controlling their carbon emis-sions. According to a report just pub-lished by manage-ment consultancy, AT Kearney, 6 per cent of leading companies already

deselect suppliers who fail to manage carbon and 56 per cent are commit-ted to do so in the future. Some also indicated that they intend to develop contracts which require improved car-bon management. These companies are choosing to take such steps ahead of regulation because they make good business sense. However, regulation on carbon usage is already upon us.

From April 1, some 5,000 UK companies were required by new legislation to register for the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, commit-ting them to submit an information statement on their carbon usage. Many organisations operating on an international basis are perplexed by

demands to comply with a growing number of standards. But things are changing for the better.

The UK Environment Agency has just approved CEMARS, the chosen certification standard of Achilles carbonReduction programme, as an early-action metric or measure-ment in the CRC Energy Efficiency Scheme. It is the only programme in the UK with a standard that provides certification to ISO14064 Part 1, is government-approved and is recog-nised in major global economies.

CERTIFICATIONBy attaining CEMARS certification, companies will have verified infor-mation that can be submitted with confidence for their CRC reporting and, with no additional work or cost, have the opportunity to achieve the early-action metric. Furthermore, for companies that operate globally, they can apply CEMARS to all operations, which will fulfil UK legislative re-quirements on carbon consumption while being in line with emerging in-ternational standards.

Perhaps the greatest contributor to carbon emissions within most supply chains is transport. Vehicle manufac-turers are making significant efforts to reduce fuel usage by introducing sympathetic designs. Trailer manufac-turer Schmitz Cargobull has recently introduced a range of trailers with a lightweight steel roof which allows the overall weight of the trailer to be reduced, thereby significantly reduc-ing fuel consumption on a typical journey. Initiatives such as this will become increasingly important as companies search for ways of reducing their carbon footprint in order to hit their carbon reduction targets. Ensur-ing full utilisation of the vehicle, avoid-ing empty running and smarter route planning will all play a part in reduc-ing footprints and, importantly, will help drive value in the supply chain.

continued from page one

Flexibility is more valuable to us than

simple unit cost. It allows us to keep one step ahead of the competition

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Shipping lines are mothballing faster but fuel-hungry vessels and using slower container ships

4 SUPPLY CHAIN MANAGEMENT

W ith its dependence on fresh fish, few businesses have as complex and

finely-calibrated supply chains as the sushi trade. The journey from fisherman’s net to chef ’s blade can be tortuous, often clocking up sev-eral thousand air miles. As a rule sushi restaurants dislike discussing their Godzilla-size carbon footprint, which made it all the more eyebrow-raising when the boss of one top New York chain recently revealed that the bluefin tuna served at his tables was caught in Greek waters, flown to Japan to be gutted, cut and boxed, before being air-freighted to New York, a roundtrip of 12,676 miles. Not so much a supply chain as an around-the-world tour.

No wonder then that, when an Icelandic volcano, dormant since 1823 near the Eyjafjallajoekull gla-cier, erupted on April 14, sending a plume of ash into the atmosphere, leading to the closure of swathes of European airspace for seven days, the global sushi supply chain was badly disrupted. At the height of the crisis, April 18, there were just 5,204 flights in Europe compared with 24,965 on the same day a week earlier. Exports of Norwegian salmon to Taiwan dropped by up to 20 per cent, for ex-ample, forcing Taipei’s largest chain, Sushi Express Co, which imports three to five tonnes of salmon daily, to switch to Canadian and Australian alternatives. In Malaysia, the price for fresh salmon more than doubled to US$16 per kilo.

Leading UK sushi chain itsu de-clined to comment on how the Ey-jafjallajoekull eruption impacted on their supply chain; itsu’s rival YO! Sushi claimed that that they had not been affected. However, a customer who visited a City branch of itsu during the flight ban was informed that tuna sashimi was off the menu because of the volcanic ash cloud. A subsequent conversa-tion with a branch manager con-firmed that the company’s supply of yellowfin tuna, which is sourced from the Indian and Pacific oceans, had been interrupted “for one or two days”. French beans imported from Kenya were also hit, she said.

If the butterfly effect refers to the theory that the flutter of a butter-fly’s wings might create tiny atmos-pheric changes that may ultimately alter the course of a tornado thou-sands of miles away, 2010’s Icelan-dic volcano might be viewed as a sort of butterfly effect in reverse. A major faraway natural event rippled out to cause thousands of small dis-ruptions across the world. Prime ministers and heads of states could not attend the funeral of the Polish President Lech Kaczynski, who had been killed just a few days earlier in an air crash; families found them-selves stranded on holiday; sushi-addicts in London had to make do with tuna sandwiches.

Effective supply chain event management gauges the risk of all conceivable events and factors that can disrupt a supply chain. Every-day risks can be screened out and contingency plans woven in. Some events fall into the category of un-likely, but foreseeable: if you have goods on a vessel passing through the Gulf of Aden or the Somali Ba-sin, it is entirely possible that that ship may be hijacked by pirates. After all, in 2009 there were some 214 attacks in the region, of which 47 resulted in hijacking.

But other events are entirely un-foreseeable. Few in the sushi busi-ness are likely to forget Eyjafjal-lajoekull in a hurry; even if they never learn to spell it.

coNTINgENcy plANNINg Supply chain event management is all very well but there are some things you just cannot plan for, no matter how much risk assessment you do, as James Silver reports

Volcanic ash means no sushi

The likely low priority of government spending on transport and logistics is bad news for an industry

which turns over £75 billion a year, employs 2.3 million people, and is of absolute importance to the operation of the economy and the needs of the population. If you have it then it has certainly travelled on a lorry or a train or a boat or a plane and most likely a combination of some or all of these.

Of course, given their innovative and can-do nature, the logistics and transport professionals will contin-ue to deliver the goods. But, as the nation recovers from recession, and we once again see increasing traffic levels, as we move more people and freight, we are sure to see increased congestion, and the increasing waste of man-hours and money which inevitably accompanies it.

As a whole, UK industry cries out for improvement in the road network so that goods and services

can be delivered efficiently and eco-nomically. The British Chambers of Commerce has estimated that road congestion is costing the economy some £23 billion a year. Investment in the network is both essential for our economy and for our environ-ment; the roads need to be open and well-maintained for the UK to do business, and congestion does nothing for air pollution and car-bon-dioxide emission levels.

Quite rightly the new Secretary of State for Transport, Phil Ham-mond, has declared that he will “sweat the assets” of roads by im-proving traffic information, quick-er clear-up of accidents and max-imising the capacity utilisation of the current network. Amen to that. But it seems certain that there will be little funding available for the construction of new road capacity; spending on roads is a soft target for the dreaded “cuts” in that it does not hit individual taxpayers.

Mr Hammond has also ruled out the prospects of road pricing being introduced in this Parlia-ment, despite the growing con-viction of many industry groups that it is a sensible way forward. It seems clear that we must find a new way of raising funds for any additional road capacity and road pricing is thought by many to be a potential option. On the subject of taxation and the raising of rev-enues, perhaps our new Govern-ment, with its stated commitment to “fairness”, will take a fresh look

at how it raises the revenue that it needs from both the motorist and the road transport industry.

The time has surely come for government to listen with attentive ears to arguments for an equitable taxation system which is capable of distinguishing between the needs of users-of-choice and those of necessity as well as, of course, ad-dressing the structural disadvan-tages that the UK transport op-erators face when competing with their neighbours from other Euro-pean countries. Yes, a fundamental

review of transport taxation across the board is long overdue.

As I have said, the logistics and transport sector is smart, innova-tive and efficient, and it will contin-ue to deliver the goods come what may. And while we recognise the Government’s problems, the fact is that we could do so much better with a little more help.

Steve Agg is chief executive of the Chartered Institute of Logistics and Transport which represents some 19,000 professionals

Delivering the goods come what may

TRANSpoRT The new coalition Government faces tough choices over cutting public spending and, according to Steve Agg, investment in transport networks is unlikely to be at the top of the agenda

On route to becoming part of the transport network

Threat to airspace: volcanic ash grounded freight as well as passenger flights

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The informed-compliance cul-ture, established in the US in the 1990s through the Cus-

toms Modernisation Act and suc-cessive amendments by the Federal Maritime Commission of the Ship-ping Act of 1984, has been adopted globally post 9/11 and is being ag-gressively implemented in the EU currently. The customs regime is increasingly complex and the pen-alties for non-compliance can be severe. UK Customs are increasing the number of audits and visits to traders, with fines of up to £2,500 for each individual error. Even so, few organisations have in-house compli-ance experts, which is where Charles Kendall can provide assistance.

AvOIDING PENALTIESSerious infractions, such as rebat-ing or illegal discounting, regularly incur severe penalties. A multi-national agent was fined $1million in 1980 for accepting illegal rebates from ocean carriers.

SOLUTIONSAnalysis of customs procedures can benefit businesses in many ways from duty and demurrage savings to fiscal representation which can improve your cash flow, and pro-vide consistent delivery lead times. Drawing on more than 30 years’ experience, they provide technical assistance and advice on all aspects

of supply chain and freight man-agement, including on-site audit of current import and export practic-es by former senior Customs staff, and product classification advice and follow-up with Customs for rulings to establish correct rates of

duty. Charles Kendall recently ad-vised a client to use an alternative Customs Procedure Code (CPC) which has produced savings of €2 million per annum through im-proved cash flow, and reductions in clearance and freight costs.

When a multi-national pro-ducer of consumer goods decided to launch a new

distribution-centre (DC) facility near Saltillo, Coahuila, in Mexico, the chal-lenges of operating in a volatile region, marked by an escalating narco-civil war, soon became apparent. They turned to Charles Kendall to provide the essential risk-management advice needed for the shipment in 2010-11 of 5,000 TEU shipping containers of highly pilfer-able consumer goods. Charles Kendall undertook a disciplined approach to risk management through a four-step process of assessment, quantification, mitigation and ongoing audit.

ASSESSMENTAssessing the risk is an important first step to address and Charles Kendall quickly determined that a significant, ever-present risk of theft, vehicle hi-jacking and contra-band smuggling exists and the cus-tomer’s product range falls within the five highest risk categories for theft in Mexico.

QUANTIFICATIONAdditional risks exist in the form of federal penalties, fines, and dam-age to brand image and reputation. Cargo theft was the most prevalent property crime in Mexico in 2008 and led to the cost of road transport increasing by 40 per cent in three years. Insurance premiums increased by $1 million year-on-year between 2007 and 2008. Overall, the cost of

road transport in Mexico is 20 per cent higher than in the United States.

RISk MITIGATIONCharles Kendall made specific recom-mendations including undertaking background checks on all drivers, no weekend or Friday deliveries, routing through Houston to a secure, private-security compound on the Laredo bor-der, escorts with radio control to central law enforcement, and use of steel-bolt seals. Charles Kendall re-designed the supply chain to mitigate specific, pre-quantified threats, and have put a check-and-balance system in place to ensure that these are maintained.

ONGOING AUDITQuarterly site visits occur to inspect infrastructure, ensure adherence to standard operating procedures (SOPs) and to audit the process. Charles Kendall also source daily high-level security briefings on the Mexican market to ensure that the customer is briefed immediately on any relevant developments. Since im-plementation in March 2009, a zero-loss record has been maintained.

Supply chains can be vulnerable to more than just the financial pressures of the global downturn. As well as the possibility of a supplier defaulting, there are risks of compliance, ethical responsibility, cultural and political issues and supply chain disruption, such as physical or natural disasters. Companies such as Charles Kendall are increasingly asked to produce significant cost savings through tailored risk management and compliance programmes. Charles Kendall is a highly experienced global company, who provide supply chain solutions tailored to individual needs through the procurement cycle from sourcing to delivery to the end customer

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Customs Advisory & ComplianceMexican Lock-down

Middle-East markets: opportunity or risk?

Entering the Middle-East markets can seem a daunting prospect but there are solutions which make it more than worthwhile. One solution is to use the Jebel Ali Free Zone (JAFZA) in Dubai where companies, such as CH Field, have established import services. CH Field holds a General Trad-ing Licence issued by the Dubai Government and this allows them to offer a rare service by acting as your company in JAFZA and providing a low-cost, low-risk entry point for a wide range of products, with no duty due at the time of import into the valuable markets of the Middle East and beyond. More information about CH Field can be found at www.charleskendallfreight.com/solutions/ch-field

AEO Status

Authorised Economic Operator status (AEO), plays a vital role in the security amendment of the Customs Code (Regula-tion (EC) 648/2005) which came into force on 1 July 2009. The amendment aims to ensure an equivalent level of protection through customs controls for all goods going through EU cus-toms territory and stipulates that relevant security data must be provided electronically by economic operators before the goods enter or leave the Community customs territory. With the transition period due to close at the end of 2010, all importers and exporters operating in the EU zone must comply with the changes in EU law or face potentially hefty government fines. As one of the relatively few companies to hold this standard in the UK, Charles Kendall have a lower risk score within HM Revenue and Customs systems and in turn they benefit from a fast track service through Customs controls. They are also ready for the changes due later in 2010 with ICS (Import Control System).

www.charleskendall.com/times Contact Peter Sunderland 0208 831 1300e: [email protected]


The global economic down-turn in the last two years has highlighted significant weaknesses in many com-

panies’ supply chains. These range from minor and easily resolved weaknesses to some with the poten-tial to put companies out of business.

Risks can be split into four catego-ries, according to supply chain infor-mation specialists Achilles: financial risk; compliance risk; supply chain disruption risk; and ethical respon-sibility risk. The economic slow-down has largely focused minds on financial risks. Achilles chief execu-tive Colin Maund says: “The possi-bility of key suppliers going bust saw some companies providing loans or other financial support to suppliers. In a few cases, companies bought out suppliers in financial difficulties to protect their supply chain.”

Gordon Colborn, lead director in the UK of supply chain manage-ment consultants PRTM, says the

financial effects of the global reces-sion had been a “wake-up call” for many companies. From a situation a few years ago where supply chain risk was not on the radar screen, he believes that the fear of suppliers going under made it a boardroom issue for many UK organisations.

“Companies are increasingly realising that risk management af-fects the end-to-end supply chain and not just suppliers. The sup-ply chain has so many potential sources of risk that assessment and mitigation need to be wid-eranging. Leading companies are looking at a comprehensive col-lection of mitigation strategies, like dual-sourcing, increasing stock levels, increasing customer collaboration, modifying their manufacturing processes and fi-nancial support to suppliers, to name just a few,” says Mr Colborn.

DHL, the world’s largest contract logistics specialist, deals with some

of the most challenging supply chain risks. Andrew Leahy, DHL’s vice president for product develop-ment, believes the increased possi-bility of suppliers going into liqui-dation has sparked a wider review of supply chain risks. “Companies are now monitoring the potential risks of tier-two or tier-three sup-pliers as well as their main, tier-one, suppliers,” he says. “We’re also see-ing supply chain risks being incor-porated in organisations’ enterprise risk management models.”

The disruption caused to Euro-pean air travel from volcanic ash since April has caused chaos for supply chains. It highlights that companies need to have flexible supply chains to cope with surpris-es. Peter Sunderland, managing di-rector of supply chain management specialist Charles Kendall, thinks European governments could have handled the situation better and kept more flights flying. However, he points out that whatever the problems “the one thing custom-ers want is continuity of supply to agreed deadlines”.

The outbreak of labour dis-putes in Greece, France, the UK and other European countries in recent months creates more po-tential disruption to supply chains. The geopolitical risks associated with countries such as Greece are causing more companies to review where their manufacturing plants are located. “The logistics and risks of getting supplies to customers on time from a plant close to Greece may outweigh the cost benefits of manufacturing in the region,” says Mr Sunderland.

Risks are being exacerbated by extreme swings in exchange rates and commodity prices. Mr Maund, of Achilles, warns: “Companies have seen nothing like the degree of volatility in US- dollar, euro or ster-ling exchange rates experienced in recent months. Hedging currency risk is not necessarily a cost-effec-tive solution for companies and not many manufacturers have em-

ployed hedging. Companies have also suffered from strong swings in commodity prices, such as oil and copper, which have been going up and down like a fiddler’s elbow.”

A string of significant weather disruptions, European labour dis-putes and supplier quality failures – exemplified at Toyota, BMW and BP – are causing a rethink of the Lean, globalised, supply chain model with its emphasis on cost management.

The failures of oil production sup-pliers at BP’s Deepwater Horizon drilling rig in the Gulf of Mexico – clocking up $1 billion in clean up costs and rising – and component suppliers for Toyota, highlight the substantial brand and financial risks for companies from supply chains. “There is no doubt that today’s glo-bal economy and the resultant global supply chains have raised the level of supply chain risk,” warns PRTM’s Mr Colborn. For example, he believes that jet engine manufacturers, like Rolls-Royce, will be examining their supply chain to assess the level of risk and identify potential mitigation strategies should volcanic ash clouds turn out to be more than an unneces-sary hindrance to air travellers.

More flexibility in supply chains and transportation is an important component of mitigating risks such as bans on flights or road haul-age strikes. DHL’s Mr Leahy says: “We’re seeing greater flexibility in shipping goods to customers. This could involve using sea freight over relatively short distances in Europe rather than via road.” The flipside of this is that, by saving costs or di-versifying transport risk by using sea freight, lead times are far longer.

Charles Kendall’s Mr Sunderland says: “Companies need to review possible risks in supply chains right from the start of the chain. This in-cludes where production facilities and warehousing are located. For instance, we’re seeing more compa-nies warehousing goods manufac-tured in China locally in free-zone China before they are transported to customers round the world.”

RISk MANAgEMENT How do companies cope with the unexpected and the unpredictable to deliver on time? Iain Martin finds out

Right product, right place, right time, right price

Bankruptcy, strikes or sabotage?

Events affecting companies’ supply chains in 2009

Severe weather event

Insolvency

IT failure

Increased tariffs

Lower quality standards

Labour dispute

Transport shutdown

Theft

Product Tampering

Sabotage

None of the aboveSource: Economist Intelligence Unit

40%

29%

22%

19%

16%

16%

13%

12%

5%

3%

20%

Supply chain risks in numbers

29% Percentage of companies experiencing a supplier insolvency in

2009 (RBS/Economist Intelligence Unit)

33% Percentage of companies cutting the number of suppliers in 2009 (RBS/Economist

Intelligence Unit)

69% Percentage of companies focusing on

effective stock management to mitigate

risk (PRTM, June 2010)

8m Size of Toyota’s car-recall programme due

to faulty component (December 2009)

$1.25bnBP’s clean-up costs from

Deepwater Horizon oil spill (BP, June 7)

Air freight is an important link in the supply chain


Your supply chain

Clear thinking.Kiln. Leading providers of insurance and reinsurance in the Lloyd’s market since 1962.

Contact: Paul Culham: [email protected] R J Kiln & Co Limited 106 Fenchurch Street London EC3M 5NRwww.kilngroup.com

In today’s competitive markets, businesses with goods to move need to keep surplus stock at a minimum. Adding just-in-time manufacturing and outsourcing to the mix can leave companies vulnerable when things beyond their control go wrong. Whether it’s fire or flood, oil spills or ash clouds, port closures or piracy, trade embargoes or political uprisings, Kiln’s TDI team can help you find a way to protect your profit.

with Kiln’s Trade Disruption Insurance

T he temptation may be to cut costs, but insuring against calamity can pay

off when money is tight.Despite the downturn, business is

buoyant for insurers who can help improve a company’s chances of se-curing finance from a potential lender.

“If a company can show it is in-sured against losses, a bank is more likely to lend it money,” says Paul Culham, head of the marine and spe-cial risks division at Kiln, underwrit-ers in the Lloyd’s insurance market.

Nevertheless, few companies seem to be aware of the full scope of cover when insuring the supply chain.

According to Nick Wildgoose, supply chain proposition manager at insurance giant Zurich, increased outsourcing of production has lengthened supply chains and shift-ed the needs of corporate insurance.

“So few people own the means of production these days,” he says. “Outsourcing to far-flung places brings with it a set of new risks com-pared to the days when the factory was just a few miles down the road.”

Trade disruption insurance (TDI), which tends to look at spe-cific risks has been on offer for a number of years but market pen-etration is relatively low. Supply chain insurance, often with all-risks cover including loss of profits, was launched in 2009 by Zurich in re-sponse to customer demand.

Alan Day, managing director at supply chain consultants State of Flux, says: “The disruption caused to air freight by Iceland’s volcanic ash cloud has raised the profile for the need of this kind of insurance. Events like this make supply chain insurance more important.

“The alternatives are living with the risk or changing to a supply chain with fewer risks,” he says.

There are types of cover which insure against the impact of phys-ical disasters, like the Gulf of Mex-ico oil spill. If oil pollution forced the closure of the Mississippi, movement of grain down river, for example, would be disrupted and result in alternative freight or warehousing costs which could be covered by insurance.

The impact on the supply chain of a natural disaster, like the recent earthquake in Chile, can also be in-sured against.

And there is insurance to cover the consequences of political events, such as unrest in China, which could interrupt manufacture and delivery of goods to the West. Trade embar-goes, port blockages, strikes, IT fail-ures, as well as war, terrorism and piracy, could all be covered.

Then there is insurance to cover economic problems; for example, if a company in the supply chain becomes insolvent and defaults fi-nancially, the right policy would pay out. Companies can also insure against incurring contractual pen-alties if a delivery is delayed by a weak link in the chain.

The cost of insurance depends on the degree of cover from a “sleep-easy” policy to a more workaday schedule. But policies are invariably bespoke to suit the differing needs of different companies.

“Customers have usually worked out their contingency costs, in the event of a problem, and want to cover that amount,” says Kiln’s Mr Culham. “They already know what extra costs would be incurred and want a policy to pay for them. We find that people buy between 0.5 per cent and 5 per cent of their limits. That may sound as though it’s expensive, but what it does for a business is put a cap on losses.”

INSuRANcE A breakdown in the supply chain can be costly so it makes good business sense to insure against loss and contingency costs, writes Peter Archer

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In case of disaster, dissent or default

Natural disasters can be covered by insurance


The age of multi-channel shopping is here. The bat-tle between high-street retailers and internet com-

panies like Amazon has been raging for the past ten years. And the retail landscape continues to change rap-idly, presenting consumers with an increasing array of ways to shop. The challenge facing traditional re-tailers is how to tackle the complex supply-chain issues surrounding the implementation of a multi-channel strategy. And it is not something that can be avoided for long.

The unfolding market position-ing of traditional retailers with online channels versus pure- play internet-only brands has highlighted the tre-mendous opportunities that the once traditional players have when they de-velop multi-channel outlets. Shoppers are now able to experience and inter-face with these multi-channel brands in many different ways, from purchas-ing online and having the product de-livered to either their home or a nearby store for pick-up, to ordering in-store for a home delivery. Research prior to purchase may be undertaken online at home or now, increasingly, via a mo-bile device, perhaps in the store itself. Catalogue, TV and telephone sales are further channels that feed into the mix. But providing a cohesive and consist-ent offering to the market across all these varied channels presents a very significant set of challenges to an organisation in terms of increased complexity and drives a need for cross-channel inventory visibility, order management, fulfilment and, impor-tantly, the breaking down of organisa-tional silos or management systems to create cross-channel capacity.

According to Steve Smith, senior vice president for Europe, the Middle East and Africa (EMEA) at Manhat-tan Associates, real-time inventory visibility and the ability to allocate that inventory to the most appropri-

ate channel, in the most cost-effective way, will offer a significant advantage to those with the capability.

Businesses will have to adopt more agile processes that are able to respond quickly, in real-time, to changes in demand. But to achieve this, they will first need absolute visibility of inventory across their entire supply network.

Mr Smith sees the process of evolu-tion from “bricks and mortar” to mul-ti-channel retailing as one of the big-gest problems facing established large brands. “Moving from a compara-tively uncomplicated process of sup-plying and replenishing high-street stores, with some added complex-ity around special promotions, to an online presence with fulfilment from either a store or a warehouse, be that dedicated or part of an existing facility, creates complexities associated with singles picking, small-order volume, the number of deliveries, time limits, availability issues, and so on,” he says.

CATALOGUE“But then when you overlay a catalogue service or perhaps a tel-ephone ordering service, or what most retailers are starting to do now, which is collection in store, it starts overlaying all sorts of delivery complexities that aren’t that famil-iar to the business. So, for instance, more frequent, multiple deliveries to store may be needed for dot-com order and collect from store.”

All this requires assortment plan-ning, forecasting applications and distributed-order- management capability to determine how best to create availability and fulfil the order at the lowest possible cost. Extended-enterprise-management applications are also used to show where products are on the inbound cycle. These are important ways of exchanging inven-tory for information, using informa-tion to make more intelligent deci-

sions and so enabling an enhanced offer of service to the consumer.

Evidence of change is quite ap-parent in the sector. According to figures recently released by Marks & Spencer, the company saved £35 million last year through efficiency improvements in its supply chain, including warehouse consolidation and implementation of a number of efficiency projects. The retailer says it has identified a site in the Midlands which will be a combined national distribution centre and a dedicated e-commerce facility. It is expected to open in the summer of 2012.

Marks & Spencer says: “We re-placed our old in-store ordering system, with a new click-and-col-lect service called ‘Shop Your Way’. It allows customers to order either at home or in-store and have mer-chandise delivered to any location.”

Along with the increased oppor-tunities and complexity in dealing with the customer-facing side of the supply chain, retailers are also looking at ways of speeding up transactions and improving visibil-ity across their supply base by mov-ing to electronic trading.

David Grosvenor, managing direc-tor at Wesupply believes that “intel-ligent” business-to-business (B2B) solutions, delivered on a software-as-a-service (SaaS) basis over the web, offers trading partners the connectiv-

ity, flexibility and scalability that re-tail businesses need in a environment where supplier-buyer relationships are constantly changing.

EFFICIENCIES“The big grocery retailers are tap-ping into B2B and the significant ef-ficiencies that can be gained through re-platforming the exchange of data to enable electronic trading with all their suppliers, regardless of size,” says Mr Grosvenor. “Web-based platforms

present a homogeneous and organised way of sending orders using, in effect, a ‘single pipe’ for outbound orders.” Last year Sainsbury’s took the deci-sion to consolidate electronic trading with 4,000 of its suppliers through the Wesupply platform in order to boost visibility in its supply chain.

“One of the most interesting aspects of software-as-a-service is that it ena-bles smaller companies to take advan-tage of the latest ‘intelligent’ B2B tech-nology, creating a level playing field

Shop till you drop online,in-store, by phone or TVRETAIlINg Consumers now shop in a wide variety of ways. For the shopper this means greater choice, better service and added flexibility. For the retailer it means huge complexity, as Nick Allen discovers

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Businesses will have to adopt more agile

processes that are able to respond quickly, in real-time, to changes in demand

Efficient warehousing and flexible “picking” is vital

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of picking quality, although it’s the same people on different processes and systems, and that includes differ-ent types and ways of picking as well.”

Steve Richmond, general manager of Jungheinrich UK’s systems and projects division, says: “Clearly the dramatic rise in internet shopping has forced many retailers and their logistics service providers into a fun-damental rethink of their warehouse

design. Faced with falling distribu-tion volumes but increasing order frequencies, the ability to flex picking cycles and prioritise urgent orders is critical to winning online customers.”

John Maguire, sales and marketing director of Narrow Aisle Flexi, says: “First and second-tier retailers want less inventory in-store. This has led to a discernible trend in the mechanics of customer-order picking with more

demand for smaller volumes of out-ers per SKU picked more frequently, so the amount of break-bulk and ground-level picking of single items is growing fast. When the number of SKUs increases, the warehouse op-erator needs more of those valuable ground-level picking locations to maintain efficiency and, at the same time, maximize the use of expensive warehouse space.”


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Sainsbury’s tries something a little new

Combining processes under one roof is paying off for Sainsbury’s and its non-food business, writes Nick Allen

When the well-known retail giant added non-food ranges to its online operation last summer, Sainsbury’s saw sales take off. Product lines have since doubled and delivery options to the customer have significantly improved.

By combining online fulfilment, online returns and retail returns processing under a single roof at iForce’s 250,000 sq ft depot in Corby, North-amptonshire, the service for Sainsbury’s non-food goods represents a UK first.

The specialist multi-channel logistics services company is also assisting Sainsbury’s in provid-ing one of the broadest ranges of delivery op-tions available anywhere in Europe.

David James, Sainsbury’s regional operations manager, says: “We’re continually develop-ing our service proposition to make shopping online easier and more convenient for our customers. Since we launched our non-food ranges online last year, the number of products in the range has doubled and there has been significant development around the delivery options available to customers. The two most recent improvements, named-day-delivery and click-and-collect, have been well received by customers. It is now possible for customers to select the day they want their order delivered and they can even specify the time slot, morn-

ing or afternoon. Click-and-col-lect, which we are

just starting to roll out, will enable customers to place an order online and have it delivered to a participating Sainsbury’s store for collection.”

Sainsbury’s recently reported that sales of its non-food product ranges are growing three times as quickly as food. When the one-time grocers added non-food products – anything from toys to televisions and cups to computers – to sainsburys.co.uk, it marked a step change in the number and variety of items that can be purchased online from the site.

At Corby, iForce carries out the specialist task of fulfilling online orders for these non-food goods with the aid of its in-house SMaRT software to manage the process, while the company’s intelligent routing system (IRS) pro-vides carrier-management routing of parcels by weight and value to offer the most cost-effec-tive delivery solution.

Any returned non-food products bought from retail stores and online are consolidated at the depot. Using another in-house system, called ReSCU, iForce manages the return of these items to stock, back to suppliers or to a refurbishment agent. The service provider also recycles obso-lete items in accordance with the waste electrical and electronic equipment (WEEE) directive to all but eliminate waste going to landfill.

Awarded the contract in January 2009, iForce worked closely with Sainsbury’s to integrate and configure the Corby depot on time for the launch of its non-food range online, creating some 200 jobs during peaks over the last year.

Mark Hewitt, iForce chief executive, con-cludes: “By putting their non-food online fulfil-ment and returns under one roof, with a shared management resource rather than having a dis-parate service through a number of channels,

we are providing Sainsbury’s with a highly efficient one-stop solution.”

where they can scale up services as they develop and grow,” says Mr Grosvenor.

Analysis of supplier key per-formance indicators (KPIs) can be used to reveal the most reliable suppliers. “By knowing you can rely on a supplier that has a 98 per cent performance rating enables you to reduce the safety stock you hold or it may even allow you to move to a vendor-managed inven-tory (VMI) arrangement,” he says. “Some retailers use a type of ‘green lane’ system where trusted, high-performing suppliers are allowed to ship direct to store, bypassing quality-assurance (QA) processes.”

The rapid growth of online retail sales has had a major impact on ware-housing, particularly on picking proc-esses. “The order profile for e-retail orders is distinctly different from shop orders,” says Dave Bull, business devel-opment manager at automation com-pany Dematic. “While shops tend to order many items per stock-keeping unit (SKU), e-retail customers tend to only order one or two items per SKU, which has significant implications for picking productivity,” he says. “Picking ‘singles’ requires a far more efficient process, especially if you are going to keep the cost-per-pick down. That’s why a number of retailers operating multiple-channels are looking at au-tomating their picking operations to keep the cost of singles picking down and fulfilment rates up.

“The real development in recent years is the introduction of goods-to-person picking systems which are very efficient at handling the slowest movers.”

LOGISTICSMany retailers are looking to their logistics service providers to drive greater operational efficiency in the supply chain. Paul Brooks, divisional director at Unipart Logistics, sees adopting “Lean” practices within the warehouse as the way to improve productivity. “What we’ve discovered is that when you’ve got large-scale operations, the engagement of peo-ple into business processes allows you to be more flexible around the hourly and daily flex- requirements of multi-channel solutions,” he says.

At Unipart Logistics’ multi-client facilities, picking teams, despatch teams and goods-inwards teams are cross-trained for maximum flexibil-ity across several clients. As peaks and troughs hit the operation, Unipart are able to deploy resources across each area of the business accordingly. “We’ve had to cross-train the staff because each client operates different systems,” says Mr Brooks. “Although it may be all on one site, three differ-ent systems and three different busi-ness processes can be involved.” This allows Unipart to underwrite the quality of what they do, he says. “Each of those operations has the same level

Click-and-buy on the up

Online spending versus overall retail spending in the Uk, year-on-year

n Overall retail spending n Online spending (£ billions)

Source: Verdict

290

280

270

260

20

15

10

5

0

2005

2005

2006

2006

2007

2007

2008

2008

2009 (predicted)

2009 (predicted)


What impact has the global recession had on trade finance?Adnan Ghani: “World trade has been a casualty of the financial crisis,

contracting in volume by around 12 per cent in 2009, according to the World Trade Organisation.”Ian Armstrong: “The credit crunch has certainly led to a fall in overall demand for trade finance facilities. This is counter-intuitive as trade finance is the lifeblood of business and in many ways offers a better risk profile than longer-term investment finance.”Alexander Mutter: “The need for risk mitigation combined with suffi-cient access to liquidity, especially in such economic conditions, led to a steady need for trade products. Ad-ditionally, the growing demand for supply chain business, combining cash management and trade finance solutions, supported this trend.”

CJ Wimley: “There is definitely an increased focus on trade fi-nance, particularly within specific sectors such as retail. Large buy-ers are looking to ensure that they have a strong supply chain. And, to accomplish this with certainty, trade finance is emerging as a vi-able option to these suppliers. We’re also seeing an increased focus on vendor selection, much like what we see with customer risk assessments.”

How can supply chain products help companies weather the economic storm?Alexander Mutter: “Supply chain products meet companies’ profita-bility, working-capital management, partnership, and process efficiency and transparency needs. Those ben-efits stabilise the whole supply chain. Supply chain finance solutions also act as risk mitigators. The need for hedging buyer-risk and to avoid supplier failures is critical, especially in tough times, and also provides profitability in better times.” Adnan Ghani: “The impor-tance of maintaining a healthy and cost-effective supply chain has never been greater. The sup-ply chain finance solutions that mitigate collection risk and op-timise working capital by mon-etising assets available on balance sheets have been most welcome for prime names. Integrating sup-ply chain finance solutions with cash-management activities is an-other value-added service which

has helped companies to serve several core objectives on liquid-ity, risk and sales enhancement, concurrently.”Ian Armstrong: “Suppliers have several problems when collecting payments. Consequently, buyers are at risk of an interrupted sup-ply of goods, increasing costs and a constantly changing supplier base, which in turn can affect quality and service. These issues are dra-matically escalated during a credit crunch, but are avoidable with the right partner and products.”

How much is supply chain financing technology improving companies’ supplier relationships and information flows?Adnan Ghani: “Supply chain finance solutions allow full vis-ibility through web-based tools. This is an essential part of the end-to-end solution, allowing companies to have full control over the process flow from pur-chase order to payment.”CJ Wimley: “While these plat-forms help with information flows, it still comes down to in-tegration of internal and third-party systems. It also comes down to secure communication channels between the parties. So the end result of using some of these newer supply chain financ-ing technologies is a better infor-mation flow; however, it is not solely those platforms that result in this visibility.”Adnan Ghani: “Using an online portal updated with real-time data allows counterparties to talk to each other regardless of their loca-tion on the globe, which is key to identify problems and addressing them in a timely manner.”

A question of finance to float world tradeRouNDTAblE Iain Martin asks a panel of industry experts how trade finance and supply chains can survive the economic downturn?

ADNAN gHANI Head

of global trade finance at RBS global

transaction services

AlExANDER MuTTER Director at Deutsche Bank,

and responsible for trade and supply chain solutions in Europe, the Middle East

and Africa (EMEA)

Ian Armstrong: “Supply chain financing can be further en-hanced if the buyer and supplier move their relationship forward to e-procurement and e-invoic-ing. These systems remove slow, error-prone manual processes and accelerate approval, allow-ing even more rapid payments and an efficiently financed sup-ply chain.”

What are the key challenges facing the trade finance industry?Ian Armstrong: “I think there are two main challenges. The first is confusion around all the different messages associated with supply chain finance. The main challenge is to standardise the messages and provide clarity around the schemes available to both buyers and suppliers. This leads to the second challenge, which is col-laboration. Many parties work throughout the supply chain and a more joined-up approach will reduce risks, increase efficiency and, ultimately, liquidity to all parties involved.”

CJ Wimley: “Transparency.More visibility in a timelier manner means less risk, which can lead to a lower cost of funds and/or more funding on the same asset. Additionally, this data needs to be normalised so that it can be used with little transformation. Normalising the data across all finance providers would allow technology solu-tions to meet these needs in a cost-effective manner.” Alexander Mutter: “Finance providers are facing shrinking numbers of documentary-based business because of the objective of more efficient processes. Fi-nancial supply chain solutions are more and more important to cor-porations as well as for financial institutions. Challenges in this field are the complexity of inter-national supply chains which lead to the involvement of different le-gal jurisdictions.”Adnan Ghani: “The economic crisis has significantly reduced the supply of trade finance, both in volume and value terms. We believe only dominant and es-tablished trade finance players will survive by addressing key is-sues, such as product differentiation and flexibility on struc-tures offered, and understanding cli-ents’ needs.”

IAN ARMSTRoNg Head of financial supply chain solutions at Santander UK corporate banking

cJ WIMlEy Executive vice president of corporate solutions at SunGard’s AvantGard corporations business

Trade finance figures...

$15,459bn Global exports of goods

and services in 2009

$1,202bn Chinese exports in 2009,

overtaking Germany as world’s largest exporter

$1,057bnUS exports in 2009

9.5% Expected trade growth in 2010

(World Trade Organisation)

12.2% Contraction of global

trade volumes in 2009, largest annual fall since

Second World War

40% Companies with lower trade credit

lines in 2009 compared with 2008 (ICC

Information)

84% Organisations expecting increased

demand for trade finance products in 2010 over

2009 (ICC)

Global trade collapsed in 2009

Growth in annual exports (%)

n World n Asia n Europe n US

Source: World Trade Organisation

15%

10%

5%

0%

-5%

-10%

-15%

2007 2008 2009

+6.4

+2.1

-12.2

+11.7

+5.5

-11.1

+4.20

-14.4

+6.7+5.8

-13.9

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strengthen key trading relationships and help you seize opportunities for growth.

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the new commerce cloud and, as he says, it could be used to speed up payment and achieve early-payment discounts, even without the involve-ment of a third-party financier.

But Mr Lugli adds that many fi-nance companies are already part of his global community and they can be brought in to create a supply chain financing solution to meet the individual company’s needs. “It’s a win-win solution,” he says. “The investment-grade buyer is able to extend their days-payable-outstanding (DPO) through ex-tended payment terms, while the supplier can reduce their days-sales-outstanding (DSO) by getting paid earlier, for instance on the in-voice approval date.”

He says procurement profes-sionals are keen to achieve new ef-ficiencies in the way they do their jobs and that solutions such as his provide a double benefit. Not only do they allow paper to be taken out of business transactions, with the immediate savings in work and time taken, but they can also help to manage cash more efficiently.

Furthermore, procurement pro-fessionals need to ensure the secu-rity of supply and that means help-ing their suppliers stay in business. “In today’s economy, the ability to mitigate financial risk is rising to

the top of their agenda,” he says. “There is a sense that they have become their brother’s keeper in ensuring that their suppliers can weather the storm of the financial turbulence they still face.”

Supply chain finance also benefits the banks by providing them with a way of lending while managing risk. By tapping into networks such as Ariba’s and others, they have di-rect access to the activities of the trading partners of their customers. They can peg their payments to the approval of an electronic invoice or a delivery note and they are better able to quantify their risk.

Avarina Miller, a senior vice president at Demica, says: “Sup-ply chain finance is just the lat-est twist on invoice finance. It is similar to invoice discounting or factoring or securitisation in that it is funding a pool of trade re-ceivables. Where it differs is that you are funding a single obligor or debtor and the suppliers to that single-buyer company have the option of selling their receiv-ables due from that single buyer to a financial institution at a dis-count, so the suppliers can get their mitts on the cash early.”

Ever since the banking cri-sis of 2007-8, businesses have struggled to get credit. The banks, eager

to rebuild their reserves and smart-ing from a general loss of confi-dence, have become risk-averse and willing to lend to only the most copper-bottomed institutions, and then only at a high price.

An unfortunate knock-on effect is that many companies try to ex-tend their payment terms to sup-pliers, who themselves are already struggling to maintain their own cash levels. And so the pain ripples down the supply chain, as each link attempts to share the burden with the company below them.

The danger, of course, is that somewhere in the supply chain, companies will run out of cash and go bust, leaving their customers without the supplies they need. It is a difficult balancing act.

A recent study carried out by Demica, a London-based provider of working capital solutions, found that 88 per cent of UK firms and 55 per cent of German companies have identified that key suppliers are un-able to sustain further lengthening of payment periods. Indeed, in 2008, insolvency rates increased by some 24 per cent in the UK as companies’ cash reserves ran dry.

Another study in late-2008 by research firm AMR also identified supplier failure among the top-ten risks for big organisations, and es-timated that risk associated with “volatility and supplier failure” had increased by 54 per cent between mid-2007 and mid-2008.

Yet, as the Demica report makes clear, many supply chains rely on a set of specialised suppliers who cannot be easily replaced, if at all. It is therefore in the interests of large firms to preserve the health of their supply chain, while at the same time maintaining pressure for economies and efficiencies wher-ever possible.

EARLY AND LONGEROne answer – at least until the good times return – is to find ways of keeping all sides happy, with early payments for suppliers and longer payment periods for purchasers.

This is where supply chain fi-nancing comes in. If the buying company has a good enough credit rating with the banks, then they can use that to unlock financial aid for their suppliers.

It might work as follows: when the buyer receives and approves an invoice from a supplier, he sends it to the third-party finance company, which could be a bank, and in so doing makes a commitment to pay it. The financier makes an immedi-ate payment to the supplier, pos-sibly at a pre-negotiated discount for prompt payment. Then at some later pre-arranged date, the buyer pays the financier the full amount of the invoice.

In this way the buyer gets his ex-tended payment terms, the supplier gets prompt, albeit discounted, payment and the financier gets his

slice. The point is that the risk to the financier is minimised because his arrangement is with the credit-worthy buying company rather than with the smaller supplier com-pany whose financial position may be less solid. It also keeps down the cost of finance because the larger company can command better credit terms. And for the banks, which want to lend but fear damag-ing their risk profiles further, it pro-vides an imaginative way to extend credit secured against solid assets, such as invoice debt.

For any such arrangement to work well, of course, it has to

work quickly, and this inevitably entails the removal of paper doc-uments – purchase orders, de-livery notes, invoices and state-ments – in the process, and the use of some form of electronic communication.

To meet the need, we are seeing the creation of more electronic trading platforms to facilitate and expedite communications between trading partners and their finan-ciers. One new offering comes from Ariba, a 15-year-old company that has built up a community of more than 300,000 trading companies around the world.

COMMERCE CLOUDNow it has launched the Ariba Commerce Cloud, a web-based platform that it says will provide everything businesses need to buy, sell and manage cash more effi-ciently.

Peter Lugli, the company’s head of working capital management and business development, ex-plains: “There is now a laser-guided focus on working capital. Com-panies are putting in systems to remove paper and gain better vis-ibility into their money flows. And that includes e-invoicing solutions.”

E-invoicing is a key element of

If the buying company has a good enough

credit rating with the banks, then they can use that to unlock financial aid for their suppliers

How to keep the cash flowing…FINANcE Buyers want more time to pay but suppliers are already stretched to the limit and risk going bust if they do not get paid. Ron Condon explains how supply chain financing can keep all sides happy

Liquidity can be a problem in the supply chain

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on a 3PL for this type of data decreases the flexibility a business has to move from supplier to supplier.”

The best supply chains work when there is full visibility for all partici-pants, according to Pascal Durdu, head of innovation at technology company Zetes, which specialises in systems for identifying goods in transit.

“You need to move to a demand-driven supply chain. Most com-panies tend to push stuff to the market because they don’t have a detailed view for their forecasting or planning,” he says.

“If you have more visibility of each buffer stock in the supply chain, you can adapt to demand and help the producers adapt their production based on the customer demand.

And if you can move the demand information upstream, you can help the producer to reduce stock. Physical and information supply chains need to be integrated.”

Real-time information gathered from each stage of the supply chain is obviously key to making that happen, and there are plenty of data-capture technologies available to suit each

situation, from the simple barcode, to radio-frequency identification (RFID) tags, voice-picking systems and even vision-based readers that can scan a whole batch of barcodes at a time.

Being able to track the movement of components and goods at every stage has multiple benefits. From the viewpoint of scheduling, it al-lows companies to avoid overstocks or shortages and it helps suppliers to plan. But it can also provide a valu-able audit trail and proof of prove-nance for goods, such as organic food or pharmaceutical products.

With the right technology in place, it is fairly straightforward to capture and share the information if all the parties are willing. “Some people talk about data formats and standards, but that is not a problem,” says Mr Durdu, of Zetes. “If there are barriers to sharing, it tends to be because of competition be-tween different suppliers and retailers.”

A critical component in successful supply chain collaboration is partner-ship. Supply chain consultancy All-port teamed up with pet-care retailer Pets at Home whose logistics director Phil Hackney says: “Our partnership is more than merely transactional. Through sharing our strategy and aspirations, Allport have been able to build more enterprise solutions to our supply chain, such as finance tools, ready reckoners and vendor perform-ance measures.” Use of Allport’s inter-national supply chain software enabled Pets at Home to have total visibility and control of their entire supply chain.

SILOBut poor communication between de-partments in the same company can prove a problem, according to Rich-ard Forrest, a director of Barloworld, a provider of supply chain software. “Most companies have implemented

enterprise resource planning (ERP) packages, such as SAP and Oracle, in their own businesses, but the systems do not allow them to simulate the whole supply chain,” he says. To make matters worse, many organisations run multiple ERP systems and this can result in a silo-based approach in different parts of the company.

In order for the process to work, there has to be collaboration at all stages of the supply chain and a clear picture of what is happening, and where. That way, when an ash cloud halts flights or storms disrupt shipping, decisions can be made with all the information to hand.

Crimson & Co’s Jon Nicholas says there are no easy answers to the chal-lenge and he advises companies to get closely involved in the process rather than trying to outsource it too early to a third-party supplier. “Using a 3PL, you don’t necessarily get an ac-curate picture of what’s going on and you also lose flexibility,” he says.

Provided you can get accurate feeds from the disparate sources in the supply chain, then you can learn how to manage the information. “As long as they can provide the infor-mation you need, all you need is a consolidation tool, and that’s not expensive,” says Mr Nicholas.

Doing it piecemeal yourself may seem hard, but it is a good way to learn.

“As long as you can get the infor-mation from your suppliers, then your team can start collating it,” he says. “Some of the good companies I’m seeing have gone through do-ing it in a slightly ad-hoc labour-intensive way, getting a real feel for what’s going on, and then stepping back and looking at how they can do it better. They are now looking at it from a position of knowledge. They are prototyping on the way.”

Low-cost manufacturing in the Far East fuelled growth in the West for the best part of a decade but in the proc-

ess created long and complex sup-ply lines that became unpredictable and hard to manage.

“Supply chains expanded very fast. Companies were in a hurry and gave little consideration to fac-tors such as transport costs,” says Narayanan Viswanathan, a sup-ply chain specialist with the Aber-deen Group consultancy. “In the past, companies dealt with a small number of large suppliers, but now we’ve seen an explosion in the number of smaller suppliers.”

Those suppliers, often on the oth-er side of the world, present a huge challenge. As Mr Viswanathan says, they may not have access to sophisti-cated systems for electronic data in-terchange (EDI) and they will work in multiple languages, making com-munication difficult. “Data qual-ity is a key requirement for gaining visibility over the supply chain,” he says, “but it can be hard to achieve with so many small suppliers.”

Jon Nicholas, of supply chain consultancy Crimson & Co, agrees:

“Data integration is probably a topic that is not going to get the blood pumping in many buyers but, unfortunately, getting an end-to-end view of the stock in the supply chain is the key to making better decisions.”

Information tends to be very frag-mented, he says. You might know about stock at the supplier, or at the port, on containers at sea, or on con-tainers awaiting clearance and stock in the distribution centres, but all that information needs to be assem-bled before it can be put to any use.

“Pulling this together into a co-herent view is vital to managing the ‘in-flight’ process,” says Mr Nicholas. “You need to know at a stock-keep-ing-unit (SKU) level, what is available when, what is the best view of fore-cast sales and therefore what should be being ordered, and from which of the supplier options,” he says.

THIRD-PARTY LOGISTICS“Trying to pull this together from a number of disparate data sources is possible, but time-consuming and likely to be riddled with errors. A third-party logistics company (3PL) may well be able, and desperately keen, to do some of this, but relying

Visibility is the keyto unlock successTEcHNology With supply chains stretching around the world, all participants need up-to-date information to make their businesses work efficiently. Technology can help but good planning is essential, says Ron Condon

Links in the supply chain tracked by technology

Coalition cuts: Conservative Chancellor George Osborne and Liberal Democrat Danny Alexander, new Chief Secretary to the Treasury

Procurement professionals are coming under unprec-edented scrutiny as the new Lib-Con Government

slashes public spending and demands greater efficiency as well as cost cuts.

Commodity procurement by cen-tral government is undergoing radical changes in a bid to meet the challenge. The idea is that compulsory central-ised purchasing of common goods and services by government depart-ments acting together will seal a bet-ter deal based on committed volumes.

Under the watchful eye of the Office of Government Commerce (OGC), an independent unit at the Treasury established to help deliver best value from government spend-

ing, departments will be required to combine through central Procure-ment Authorities. Initially categories covered will include office solutions, travel, and information and commu-nication technology (ICT) hardware.

These new commercial arrange-ments are expected to go further to encompass all selected central gov-ernment spending by March 2011.

But Peter Hunt, a partner at pro-curement consultants adr interna-tional, sounds a note of caution that the cheapest price may not be the best buy. “Total cost of acquisition has to take into account any switching costs involved,” he says. “For example, buy-ing different computer hardware or software because it’s cheaper may in-

volve other costs like retraining staff.” Local authorities, squeezed by

Whitehall and accountable to increas-ingly stretched council taxpayers, face similar financial stringencies. A number of authorities already have buying consortia, like the Central Buying Consortium which represents 17 big councils, in a bid to achieve economies of scale through bulk buy-ing and increased purchasing power.

It is, therefore, an anxious time for suppliers to public organisations as they face the prospect of renegotia-tion of contracts, tighter profit mar-gins and possible cuts to their order books, with the knock-on effects to their businesses and local economies, not least jobs and family incomes.

Renegotiating contracts could, of course, also have a negative impact on government and local authorities as spending or buying less overall may lengthen delivery times and adversely affect quality of service. Government will be hoping that centralised bulk buying will avoid these possibilities.

Other big public spenders are the National Health Service and police forces, who have specific and often specialised requirements.

According to adr international’s Mr Hunt, the NHS, in particular, faces huge challenges. “There are collaborative hubs of health trusts but they can be weakened when it comes to agreeing on suppliers often because doctors are intran-sigent in their views and ways of working,” he says. “A surgeon, for example, may prefer a certain type

of hip replacement and may have been trained specifically to use it or even involved in its design, and the suppliers will be aware of this.”

A further concern must be wheth-er procurement policies, to use gov-ernment’s collective spending power to build a fairer society, will be an early casualty of the economic crisis. For example, buying green or making equality count through public pro-curement, both look good on paper, but may be impossible to honour if spending cuts do not allow.

Government and local authorityspending in crisis spotlightpublIc SEcToR pRocuREMENT The economic downturn and subsequent cutbacks have placed purchasers and suppliers centre stage as order books are adjusted to meet a new bottom line. Peter Archer reports

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Whirlpool Corpora-tion is the world’s leading manufactur-er and marketer of

major home appliances. Its supply chain plays a critical role in build-ing and supporting the company’s brand strategy. With the recent ac-quisition of Maytag, the company needed to ensure that the brand’s reputation for dependability and durability was upheld as it set about to merge and consolidate the two different order-fulfilment and in-ventory-deployment processes.

“Because each of our brand names holds a unique and differen-tiated position in the marketplace, we can’t, at the last moment when that product is being delivered, have a glitch,” says Kevin O’Meara, director of supply chain operations. “We have to make sure our supply chain helps protect the brand im-age, ensuring the brand is enhanced by the service we’re providing.”

Whirlpool’s supply chain encom-passes more than 40 manufacturing facilities, sourcing from approximate-ly 7,000 different suppliers in every region of the world. Those facilities not only import but also export prod-ucts to separate regions where they are then delivered to about 30,000 retailers worldwide. The company also delivers products to builders and directly to consumers’ homes. At any given time, Whirlpool has 2.2 to 2.5 million units in inventory.

“Whirlpool’s supply chain is complex primarily because we’re not only a manufacturer but we also service tens of thousands of differ-ent retailers, along with our other channels,” says Brian Hancock, vice

president, supply chain. “So when you think about everybody from some of the world’s leading high-street brands to Mrs Jones down the road, they all expect the same type of products and service.”

With that in mind, Whirlpool determined it needed a supply chain with the flexibility, scalabil-ity and agility to address the dif-ferent requirements that go across multiple channels.

SUPPLY CHAIN ADJUSTMENTS ARE NEEDED TO PUT CHILL ON MARkETPLACE CHALLENGESThe appliance marketplace has evolved during the last several years and continues to change. Supply chains have in turn been affected by shifts in consumers’ desires and needs, driven in part by the econo-my as well as the more general avail-ability of different product mixes and multiple delivery channels.

According to Mr Hancock, as the industry continues to change, retail-ers want to carry less and less inven-tory, just as consumers are becoming

more demanding. “Mrs Jones doesn’t want to come in anymore and say, ‘It’s OK if my appliances show up in two weeks.’ Eighty per cent of our buyers have what’s called a ‘distressed buy’. In other words, something’s broken; the washing machine’s broken down or the refrigerator is not working. ‘Can you have that there this after-noon?’ is the question.”

To successfully adjust to these mar-ketplace changes, Whirlpool would first have to address these challenges: • To ensure products would be readily

available to customers within a new-ly established window of 48 to 72 hours, the company needed to move to a segmented inventory strategy supported by leaner processes; and

• As a large US manufacturer, the com-pany had to find a way to lower costs in both production and distribution because it could not reproduce the labour savings other competitors re-alised from overseas manufacturing. “The biggest problems for most

companies come from their inabil-ity to bridge supply chain silos,” says Mr Hancock. “They separate order management, product development, procurement and manufacturing from the final delivery. For our supply chain professionals to deliver on our corporate promises, we realised the way to attain the necessary efficiencies required building seamless visibility inside and outside our warehouses.”

For Whirlpool, creating a more efficient supply chain also meant al-tering traditional methodologies by consolidating distribution centres.

CONSOLIDATION BRINGS MORE COMPLExITYDuring the Maytag integration, Whirl-pool took its number of major facilities from 47 down to 25, which allowed the company to gain much-needed con-solidation. Yet, with each facility meas-uring approximately a half-mile long by a quarter-mile wide and boasting as much as 1.7 million square feet, consol-idation only brought more complexity.

“Because those facilities were so big, it just became more complex inside those buildings as we consolidated,” says Mr Hancock. “We knew we need-ed to restructure the warehouses and deploy the proper pick technologies to cut down on the number of miles workers travelled inside the facilities.”

MANHATTAN COOkS UP STANDARDISED TECHNOLOGY ACROSS WAREHOUSES, REGIONS AND ENTIRE NETWORk Whirlpool wanted to standardise processes and technologies across the entire network so the company selected Manhattan Associates to assist with the integration.

Having worked with Manhattan previously, Mr O’Meara knew the company not only offered innovative supply chain solutions and industry-leading experience, but also had a flexible organisation that could ad-dress Whirlpool’s unique needs.

“So many times, the technology product almost gets dropped off at your doorstep and it’s up to you to figure it out,” says Mr O’Meara. “Not the case with Manhattan. The team conducted a thorough needs assess-ment in order to understand the problems and challenges Whirlpool needed to overcome. They recom-mended the most viable solutions for our situation and stayed with us through the entire implementation.”

NEW EFFICIENCIES, INCREASED INvENTORY ACCURACY AND MORE UPTIME BUILD “GOURMET kITCHEN” OF BUSINESS SUCCESSBy using a combination of innovative solutions from Manhattan Associates, including warehouse management, slotting optimisation, labour man-agement and extended enterprise management, Whirlpool has achieved a number of business successes: • Eliminated 40 million travel miles

between facilities, reducing fuel costs and environmental impact;

• Reduced time associated with the pick process by 50 per cent, there-by speeding pick rates;

• Cut damage to products by 50 per cent;

• Improved warehouse uptime to more than 90 per cent towards an established goal of 99.9 per cent;

• Seamlessly integrated two compet-ing supply chains without customer or trading-partner interruptions;

• Built a more exact, real-time view of inventory inside warehouses which increased inventory accuracy;

• Gained warehouse efficiencies through integration of pick-pack logic and process with more exact inventory counts;

• Improved order-to-delivery time; and • Enhanced yard-management ca-

pabilities. Kevin Summers, Whirlpool’s

global CIO and corporate vice president, believes Manhattan has demonstrated how technology is an enabler for business success. “The message is: it’s not just tech-nology; it’s not just business; it’s a partner who brings both of them together that makes a successful implementation,” he says.

SponSored FeATUre

Whirlpool blends two supply chains to support brand strategy

Whirlpool spins optimised supply chain with help from Manhattan Associates

So many times, the technology product

almost gets dropped off at your doorstep and it’s up to you to figure it out. That’s not the case with Manhattan

kevin O’Meara, director ofsupply chain operations

The biggest problems for most companies come from their inability to bridge supply chain

silos. They separate order management, product development, procurement and manufacturing from the final delivery. For our supply chain professionals to deliver on our corporate promises, we realised the way to attain the necessary efficiencies required building seamless visibility inside and outside our warehouses

Brian Hancock, vice president, supply chain

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