2006 and 2007 have been eventful years for the automotive sector. It has seen a huge amount of restructuring, not only in its supply chain but also among the vehicle manufacturers themselves. DaimlerChrysler has ceased to exist with the sale of the Chrysler business to a private equity house and VW Group is now effectively controlled by Porsche. And a large proportion of the US component suppliers remain in bankruptcy protection. The implications of these changes for logistics are substantial. In the case of VW, there appear to have been organisational changes directed in part to creating new logistics systems. This is a response to the success of the KOVP logistics system at BMW, a major competitor to VW’s Audi brand.
While the automotive logistics markets is mature in the traditional markets of Japan, Western Europe and North America, it is growing vigorously in the new markets, such as China, central Europe, Russia and Turkey.
Over recent years, logistics has risen up the corporate agenda of almost all vehicle manufacturers. Most now either have programmes in place or are working on projects to develop their logistics systems. It has been realised by most VMs that logistics is fundamental not only to the efficient working of their assembly plants, but is also key to the management of their markets.
In parallel with the greater sophistication of these logistics systems is an increasing need for more sophisticated services from LSPs. This is seen particularly in finished vehicle logistics, where capabilities such as track-and-trace and greater visibility of inventory are now essential.
A large number of logistics providers compete for contracts with the vehicle manufacturers, which, in contrast, are few in number and well informed about the market.
The result is that operating margins among LSPs servicing this market are often poor, with low organic growth. LSPs, however, continue to be attracted by the large volumes offered.
Assembly plants can easily cost t500m and the vehicle manufacturer feels under intense pressure to utilise this investment to the maximum. This can be characterized as "production orientation".
Raw materials and components need to be fed into the assembly plant, coordinated with the production schedule. This has been perceived as the central logistics task in the automotive supply chain and one that in the past was given to production engineers.
The attitude to logistics changed in the 1980s with the emergence of the Toyota Production System. The greater prominence given to logistics-related ideas such as JIT has resulted in increased prominence for logistics managers and more integration between different types of logistics process in the supply chain.
Toyota has the most coherent approach to logistics, closely followed (but in a very different manner) by BMW. It is no coincidence that these two companies are among the most successful vehicle manufacturers.
Most passenger vehicles are made near the market where they will be sold. Even components are manufactured near the assembly plant. Within Europe, for example, it is quite usual for 90% of component suppliers to be located within 100km of the assembly plant. This supply chain geography is so pronounced that the car industry has created specific locations for suppliers next to its assembly plants, known as supplier parks. Components are then fed directly into the assembly plant often using conveyer belts or forklift trucks.
The use of supplier parks also improves communication between component supplier and vehicle manufacturer.
But Tier 1 suppliers are also faced with the contradictory demands of vehicle manufacturers. On the one hand they want suppliers to invest in logistics or assembly facilities near assembly plants, but are unwilling to commit themselves to suppliers for long enough to ensure that the investment is covered. Consequently there is a danger that suppliers will be left with facilities at or near the VM's assembly plant which are redundant or under-used.
Many LSPs view this as an opportunity for outsourcing, with several suppliers sharing facilities owned and run by the LSP. This appears logical, but conflicts with the unwillingness of many T1 suppliers to outsource assembly operations which they regard as core competencies.
Logistics is usually one of the core functions of such near-plant facilities. Their main function is to break-bulk, and feed components into the assembly plant in a sequence dictated by the production schedule. This would suggest that LSPs are well positioned to offer such services within shared-user facilities, certainly the case in many plants. However, many larger T1 suppliers are very aware of the importance of logistics as a core competency and are unwilling to relinquish it to LSPs on a large scale.
As a consequence, the market for such centres may appear more promising for LSPs than in reality.
Reference: International Freighting Weekly
Showing posts with label Procurement Transformation. Show all posts
Showing posts with label Procurement Transformation. Show all posts
Friday, August 3, 2007
Thursday, July 26, 2007
Rest of Asia exporting more Japanese cars
Japanese automakers are scrambling to increase exports from production bases in other Asian nations to take advantage of improved worker skills and trade deals.
Asia replaced North America as the largest overseas production base for Japanese automakers in 2006, with output reaching 4.13 million vehicles. Though these vehicles were intended to meet local demand, about 400,000 were shipped to other regions. The figure is expected to reach 600,000 in 2008, more than 10% of production.
In one example, Honda Motor Co. is boosting exports from Thailand to Australia and New Zealand by 40%, or 47,000 units.
Nissan Motor Co. this fiscal year is doubling exports of its Tiida subcompact from Thailand to Australia to roughly 10,000.
Last year, Toyota Motor Corp. exported 100,000 IMVs (Innovative International Multi-purpose Vehicles) to more than 90 countries from Thailand. It will step up exports this year and continue doing so in the future.
Suzuki Motor Corp. plans to triple output capacity to 300,000 vehicles a year at its second Indian assembly plant in 2008. Half will be shipped to Europe and the Middle East. Nissan will launch a new plant in India in 2009 and export subcompact cars to Europe from there.
At a joint venture for export models in the Chinese province of Guangdong, Honda doubled output of subcompacts to 50,000 a year this past spring. The cars are bound for 10 countries, including the U.K., Germany and France. Beginning this month, they will be shipped to Poland and the Czech Republic as well.
One reason for all these exports is the improved quality of Asian-made automobiles, thanks to technology transfers and parts suppliers setting up local operations.
Trade deals are another reason. Thailand signed a free-trade agreement with Australia in 2005, shedding a 15% tariff on passenger cars. More may be on the way. The Association of Southeast Asian Nations and India have agreed with the European Union to launch trade negotiations.
In fiscal 2006, Honda earned nearly 10% of its group operating profit in Asia and Suzuki generated about 40% of its group pretax profit in India alone.
Referenced from Nikkei Weekly
Asia replaced North America as the largest overseas production base for Japanese automakers in 2006, with output reaching 4.13 million vehicles. Though these vehicles were intended to meet local demand, about 400,000 were shipped to other regions. The figure is expected to reach 600,000 in 2008, more than 10% of production.
In one example, Honda Motor Co. is boosting exports from Thailand to Australia and New Zealand by 40%, or 47,000 units.
Nissan Motor Co. this fiscal year is doubling exports of its Tiida subcompact from Thailand to Australia to roughly 10,000.
Last year, Toyota Motor Corp. exported 100,000 IMVs (Innovative International Multi-purpose Vehicles) to more than 90 countries from Thailand. It will step up exports this year and continue doing so in the future.
Suzuki Motor Corp. plans to triple output capacity to 300,000 vehicles a year at its second Indian assembly plant in 2008. Half will be shipped to Europe and the Middle East. Nissan will launch a new plant in India in 2009 and export subcompact cars to Europe from there.
At a joint venture for export models in the Chinese province of Guangdong, Honda doubled output of subcompacts to 50,000 a year this past spring. The cars are bound for 10 countries, including the U.K., Germany and France. Beginning this month, they will be shipped to Poland and the Czech Republic as well.
One reason for all these exports is the improved quality of Asian-made automobiles, thanks to technology transfers and parts suppliers setting up local operations.
Trade deals are another reason. Thailand signed a free-trade agreement with Australia in 2005, shedding a 15% tariff on passenger cars. More may be on the way. The Association of Southeast Asian Nations and India have agreed with the European Union to launch trade negotiations.
In fiscal 2006, Honda earned nearly 10% of its group operating profit in Asia and Suzuki generated about 40% of its group pretax profit in India alone.
Referenced from Nikkei Weekly
Tuesday, June 19, 2007
SCM Case Study - Supply Chain Model of 'Unilever Group'
The business strategy of Unilever is to achieve the highest profitability, growth, and return-on-assets. It has sold many plants and has had to put in place processes to coordinate with the third parties that own them, complicating its processes to meet its asset goals. Unilever’s operating model has three components: quality, service, and cost. While keeping its global branding, the company’s strategy is to have local supply chain for local demand to minimize complexity.
Non Production Items (NPI) Organizational Model
Unilever has recognised the importance of implementing a global supply management programme focused on reducing Non Production Items (NPI).
The NPI organisation model being implemented in both Europe and North America (which will be extended to the rest of the world) is founded on clear cross-business governance and effective executive buying. Strategic sourcing is being supported by the global rollout of e-procurement and participation in some key Exchanges, particularly in Transora, where an equity stake is held. Regional and a few global NPI cluster teams have been formed which are undertaking a rigorous methodology to deliver the strategic sourcing strategies and implementation plans required to achieve the targeted savings.
Historically the majority of NPI's have been purchased locally, although there has been an increased move towards national and in a few instances, trans-national negotiations. European and to some extent global supply markets are becoming well established enabled in many instances through e-procurement. In such areas as IT hardware and software, travel & accommodation, energy, logistics and fleet management European and in some cases global supply markets and suppliers already exist. European markets are also emerging for office facilities, telecommunications, marketing point-of-sale items and technical supplies.
The supply-chain model's primary function within Unilever is to provide the Group’s business with shared understanding of the scope of the supply-chain and its sub-processes. The model provides the common language for the different Business Groups and thereby enables the identification and implementation of synergies. Some of Unilever's most important supply-chain model applications are assessing supply-chain performance and KPI development and alignment.
Distribution and Selling
# Unilever’s products are generally sold through its sales force and through independent brokers, agents and distributors to chain, wholesale, co-operative and independent grocery accounts, food service distributors and institutions. Products are distributed through distribution centres, satellite warehouses, company operated and public storage facilities, depots and other facilities.
# Home and Personal Care in North America (HPCNA) has also developed distribution centres for third-party manufacturers where products are collected to create heavier more efficient loads to re-supply customer distribution centres.
# Home & Personal Care business in Europe (HPCE) selects hauliers on cost, performance and environmental impact.
E-Procurement
Unilever meets two of the key corporate strategic thrusts: World Class Supply Chain and Simplification by implementing NPI strategic sourcing and e-procurement enablement. These are two of the six thrusts for implementation of world-class supply management:
# Implement executive buying
# Attract, develop and retain world-class buyers
# Professionalise NPI sourcing
# Enable e-procurement globally
# Accelerate and leverage simplification
# Drive information and measurement
Aggregation of demand and access to new suppliers through real time partnership has enabled Unilever to improve efficiencies of the extended supply chain. Workflow automation has helped in simplification of the internal processes, which has created scale for Unilever to leverage. For Unilever e-procurement represents the opportunity for sustaining the benefits gained from strategic sourcing through information, compliance and business process simplification. There are four ways of defining the benefits of e-procurement:
# A structural enabler for re-engineering the NPI procurement process enabling further benefits to be gained through strategic sourcing, business simplification, visibility of total spend and effective integration routes both internally, e.g. ERP, and externally.
# The means for conducting electronic business upstream using lowest cost links, i.e. cXML.
# A business model prompting re-evaluation of the mechanisms for connecting customers, enterprises and suppliers (incl. Exchanges and Marketplaces)
# A single front-end interface both externally to suppliers and internally for ERP and other areas of integration
Strategically e-procurement complements Unilever's overall e-initiatives. Learning from these and the strategic sourcing expertise gained during implementation, has improved business ability for the future e-procurement of both NPI and direct materials. Workflow automation and simplification to global sourcing processes has resulted in increased productivity and reduction of transaction costs. Data made available can then be applied to harmonise items purchased, rationalise needs with suppliers and monitor and reduce usage, thus further increasing Unilever's buying opportunities.
Exports
Unilever sells its products in nearly all countries throughout the world and manufacture in many of them. The company exports a wide range of products to countries where it does not makes them. For example, inside the European Union, Unilever makes many of its products in only a few member countries, for sale in all of them. The chosen manufacturing configuration is generally determined by an optimized regional sourcing strategy, which takes account of requirements for innovation, quality, service, cost and flexibility.
Global Supply Chain Management Solutions Providers
In an effort to streamline its daily operations, Unilever has partnered with several technology and logistics providers on a worldwide basis. Some of the major providers are:
Technology Providers
Some other technology providers are: -
# Manugistics Group Inc.
# SSA Global
# Syncra Systems Inc.
# Vastera Inc.
Logistics Providers
SCM Technologies in Unilever’s Business Model
Unilever's overall technology vision includes a strong push from client-server to thin-client architecture, Web technologies that bring the company closer to its customers, and business analytics to make management information easier to access, according to Rick Ballou, IT business-area director for Unilever Home and Personal Care North America.
With a market capitalization of $28 billion, the consumer-products giant reported that its recent IT achievements include the rollout of business-intelligence software from Hyperion, and "SAP ERP wall-to-wall" as a global standard. Unilever also has seen significant cost savings from its investment in Ariba's sourcing technology, which has resulted in a reduction of the office-supply purchasing budget by millions of dollars, and a consolidation of data centers from 18 to five; eventually, the number will fall to three.
A cross-functional global committee already is working on the shift from desktop client-server to portal technology. On the B2B front, in addition to its RFID efforts, Unilever is participating in an industry-wide effort to standardize data elements throughout the supply chain through UCCNet. Unilever has also expressed their continued interest in CRM.
Unilever collaborates on statistical and market promotion forecasts for key products with a few large customers, using a collaborative system from Waltham, Mass.-based Syncra Systems Inc.
The organization as whole had multiple ERP and CRM systems from several vendors, and 34 custom-built data warehouses. Unilever currently runs 100 separate, complete SAP enterprise resource-planning systems.
Similar on these lines, some of the major SCM technologies and IT solutions implemented in the business model of The Unilever Group are discussed below: -
ISIS Supply Management Information System: ISIS is Unilever’s integrated supply management information system. It helps its local, regional and global supply managers make appropriate sourcing decisions, allowing them to collate and analyse information quickly and easily. The system enables its managers to negotiate with suppliers in a transparent and efficient way, benefiting both parties. For more details on this, please visit https://isis-unilever.com/Sourcing.
E-procurement Solutions from Ariba: Unilever selected the Ariba Buyer software for e-procurement following a rigorous selection process and initial pilot in North America. Although initial success has been achieved Unilever believes that these are still early days and that the return of investment has still to be proven. While e-procurement is an inevitability for future supply chain optimisation the supply market, particularly in Europe, is still suffering from under-development. There is an emerging recognition that e-Procurement can affect total supply chain operation rather than just transactional activity. Until recently few have taken action to implement or sponsor the necessary changes. Encouragingly though, Unilever believes that this position is changing and unquestionably e-Procurement provides a catalyst for positive improvement in supply management profile.
Enterprise-Scale Data Warehouse and Business Intelligence Solutions: In order to gain a clear view of business performance across its 34 companies in 19 countries, Unilever Latin America has embarked upon an enterprise-scale data warehouse and business intelligence project called Sinfonia.
At the heart of Sinfonia, KALIDO® enterprise data warehouse creation and management software (KALIDO) provides a solution that will grow to encompass one of the largest databases in the world by 2007. KALIDO delivers an aggregated view of data across Unilever Latin America at high speed throughout constant business change such as acquisitions and market consolidation. KALIDO is now making it possible for Unilever Latin America (Unilever LA) to build and manage a fully functional, adaptive data warehouse throughout its lifecycle while simultaneously rolling out an underlying regional SAP system in a 4 to 5 year sister project called Harmonia.
The flexibility of KALIDO is enabling Unilever LA to maintain business continuity as the Sinfonia and Harmonia projects continue to roll out. The KALIDO data warehouse will grow both in geographic coverage and in scope, and is expected to reach 12 TB in size. Throughout this period of growth it will deliver consistent business information, taking increasing volumes of data from the ongoing SAP implementation.
Unilever LA is converging processes, systems and information to enable a truly regional approach to business. Using the KALIDO enterprise data warehousing solution, the organization is successfully delivering a large-scale enterprise data warehouse, on time and within budget, while simultaneously rolling out a region-wide SAP system.
The new information architecture Sinfonia, powered by KALIDO, will deliver high-quality data to 4,000 users by 8 am every day across five time zones. The solution will enable better understanding of regional supply chain processes, brands, customers and suppliers, and will allow Unilever to respond rapidly to new opportunities, even against a backdrop of constant internal and external business change.
Finally, KALIDO will facilitate strategic planning and drive improved decision-making, by delivering tailored information at high speed to key business users, enabling Unilever LA to realize substantial cost savings and improved ability to capitalize on business opportunities.
Supply Chain Information Systems: Using a variety of information systems and several other supply chain management technologies, Unilever aims to enhance its supply chain business model. The following diagram describes the company’s supply chain system vision: -
Discussed below are the various types of information systems used within the business model of The Unilever Group with their specific usage: -
# R&D System R&D System (LIMS): Used for formula development
# Specifications Systems: Used for Packaging, Raw Material, Formula, Master BOM, Finished Products and Process Specifications
# Manufacturing Planning Systems: Used for MRP, Production Orders, Purchase Orders, Standard Costs, RM/Pack/WIP Inventory, Financial Transactions, Material Masters and Production Reporting
# Planning Systems: Used for Demand Planning (DP), Demand Req Planning (DRP), Constrained Prod Planning (CPP), VMI and Finite Scheduling
# MFG Execution Systems (Various): Used for Finished Goods Production, Compounding/Batching, Quality/Lab Systems and Plant Maint Systems
# Order to Cash Systems: Used for Order Entry/Management, Terms of Sale, Deduction Tracking, Stock Allocation and Invoicing
# Finished Goods Management Systems: Used for Shipping, FG Warehouse, Transportation, Finished Goods Production (PIN) and Traceability
Supply Chain Strategies of Unilever N.V
Unilever’s logistics operations present perhaps the biggest opportunity to streamline its supply chain and boost the company’s ability to achieve its lofty growth goals. The company is in the process of consolidating its nearly 30 warehouses down to five massive distribution centers capable of shipping customer orders within a day’s time.
Much of that consolidation is a recognition that retailers are adopting zero-inventory policies, which require an optimal use of flow-through and cross docking in the warehouses. To increase asset utilization, lower inventories and improve service, Unilever adopted collaborative planning, forecasting and replenishment (CPFR) relationships with some retail customers. Thanks to those CPFR efforts, Unilever has been able to achieve 10% inventory reduction, 10% forecast accuracy improvement and 5% increase in sales due to better on-the-shelf availability.
According to Fred Berkheimer, vice president of logistics for Unilever Home and Personal Care, since orders are often impacted by factors that cannot be projected, collaboration between manufacturer and retailer is necessary to increase forecast accuracy. “High accuracy in replenishment can only be achieved through order forecast collaboration and extended supply chain visibility,” says Berkheimer. Today, Unilever’s logistics department is experiencing include improved relationships with retailers, better planning, improved on-time performance and more efficiency in handling promotions.
Path to Growth
In 2000, the company launched a five-year Path to Growth initiative to drop the total number of brands down to 400 by the end of 2004, achieve 5%-6% annual sales growth and a 16% increase in operating margins.
Three years ago, the company was running hundreds of manufacturing sites under an umbrella of 300 operating companies. Path to Growth mandates a reduction in sites to 150 locations.
Unilever's supply savings programme is one of the cornerstones within the Path to Growth Strategy towards the implementation of a world-class supply chain. Through Path to Growth, Unilever’s five-year strategic plan announced in February 2000, the company has greatly strengthened its business.
Unilever's Path to Growth Strategy
=> Reconnect with the consumer - to anticipate the future
=> Focus the brand portfolio - reflecting consumer appeal and growth potential
=> Pioneer new channels - to be in the right place at the right time
=> Develop a world-class supply chain - simplifying sourcing, manufacture, and marketing
=> Simplify the business - reducing complexity
Significant progress has been made towards the achievement of its strategic ambitions with a much more focused brand portfolio and faster growth in the leading brands, while the major reductions in costs and streamlining the asset base have resulted in sharply higher margins and improved capital efficiency.
Under the so-called "Path to Growth" strategy, Unilever first reorganized into two units—foods and nonfoods—in each major geographic area. Path to Growth also calls for Unilever, by 2004, to cut its collection of brands to 400, from a high of 1,600 two years ago. That core of 400 strong sellers—which includes SlimFast, Dove, Ben & Jerry's ice cream and Lipton tea—is expected to make up 90% to 95% of Unilever's total sales, up from 84% today. So far, 700 slow-moving brands, plus an incongruous industrial dry cleaning business, have been sold. Five hundred more are still to be divested, including a group of oils and spreads put up for sale last month.
Over the period 2000 – 2003, Unilever has generated over €16 billion of un-geared free cash flow. The company has also successfully integrated Bestfoods, one of the largest acquisitions ever made in the industry. With one more year to go under Path to Growth this creates a strong basis for the next phase of company’s development.
"Chipping of "Goods" Initiative – RFID
Unilever's Supply Chain Innovation team wants to understand how better tracking of products will affect manufacturing plants, distribution centers and stores. Unilever anticipates that manufacturing plants will have to reduce the length of product runs and make other refinements to react more quickly to changes in demand. And retailers will have to provide more timely information to suppliers.
In continuation to this strategy, on July 29, 2002, Unilever launched its third phase of a supply chain-tracking project under Britain's "Chipping of "Goods" initiative. The company planned to put RFID tags on 30,000 six-packs of Lynx deodorant and monitor them as they move from a manufacturing plant to three Safeway stores. As part of the initiative, Unilever's U.K. home and personal care products company, Lever Fabergé, is putting RFID tags on six-packs of Lynx deodorant at its factory in Leeds. After the individual cans of deodorant are made, they are vacuum-sealed and a small white label with an RFID tag in it is affixed to the package.
Sources: Company Reports, Press releases, M-a-p.co.uk, Findarticles.com, Sap.com, Logisticstoday.com, Kalido, “Unilever's NPI initiative”, By Tim Cooper-Jones, Published at M-a-p.co.uk, IEE (www.iee.org/OnComms/PN/controlauto/Unilever.pdf) and Rfidjournal.com
Non Production Items (NPI) Organizational Model
Unilever has recognised the importance of implementing a global supply management programme focused on reducing Non Production Items (NPI).
The NPI organisation model being implemented in both Europe and North America (which will be extended to the rest of the world) is founded on clear cross-business governance and effective executive buying. Strategic sourcing is being supported by the global rollout of e-procurement and participation in some key Exchanges, particularly in Transora, where an equity stake is held. Regional and a few global NPI cluster teams have been formed which are undertaking a rigorous methodology to deliver the strategic sourcing strategies and implementation plans required to achieve the targeted savings.
Historically the majority of NPI's have been purchased locally, although there has been an increased move towards national and in a few instances, trans-national negotiations. European and to some extent global supply markets are becoming well established enabled in many instances through e-procurement. In such areas as IT hardware and software, travel & accommodation, energy, logistics and fleet management European and in some cases global supply markets and suppliers already exist. European markets are also emerging for office facilities, telecommunications, marketing point-of-sale items and technical supplies.
The supply-chain model's primary function within Unilever is to provide the Group’s business with shared understanding of the scope of the supply-chain and its sub-processes. The model provides the common language for the different Business Groups and thereby enables the identification and implementation of synergies. Some of Unilever's most important supply-chain model applications are assessing supply-chain performance and KPI development and alignment.
Distribution and Selling
# Unilever’s products are generally sold through its sales force and through independent brokers, agents and distributors to chain, wholesale, co-operative and independent grocery accounts, food service distributors and institutions. Products are distributed through distribution centres, satellite warehouses, company operated and public storage facilities, depots and other facilities.
# Home and Personal Care in North America (HPCNA) has also developed distribution centres for third-party manufacturers where products are collected to create heavier more efficient loads to re-supply customer distribution centres.
# Home & Personal Care business in Europe (HPCE) selects hauliers on cost, performance and environmental impact.
E-Procurement
Unilever meets two of the key corporate strategic thrusts: World Class Supply Chain and Simplification by implementing NPI strategic sourcing and e-procurement enablement. These are two of the six thrusts for implementation of world-class supply management:
# Implement executive buying
# Attract, develop and retain world-class buyers
# Professionalise NPI sourcing
# Enable e-procurement globally
# Accelerate and leverage simplification
# Drive information and measurement
Aggregation of demand and access to new suppliers through real time partnership has enabled Unilever to improve efficiencies of the extended supply chain. Workflow automation has helped in simplification of the internal processes, which has created scale for Unilever to leverage. For Unilever e-procurement represents the opportunity for sustaining the benefits gained from strategic sourcing through information, compliance and business process simplification. There are four ways of defining the benefits of e-procurement:
# A structural enabler for re-engineering the NPI procurement process enabling further benefits to be gained through strategic sourcing, business simplification, visibility of total spend and effective integration routes both internally, e.g. ERP, and externally.
# The means for conducting electronic business upstream using lowest cost links, i.e. cXML.
# A business model prompting re-evaluation of the mechanisms for connecting customers, enterprises and suppliers (incl. Exchanges and Marketplaces)
# A single front-end interface both externally to suppliers and internally for ERP and other areas of integration
Strategically e-procurement complements Unilever's overall e-initiatives. Learning from these and the strategic sourcing expertise gained during implementation, has improved business ability for the future e-procurement of both NPI and direct materials. Workflow automation and simplification to global sourcing processes has resulted in increased productivity and reduction of transaction costs. Data made available can then be applied to harmonise items purchased, rationalise needs with suppliers and monitor and reduce usage, thus further increasing Unilever's buying opportunities.
Exports
Unilever sells its products in nearly all countries throughout the world and manufacture in many of them. The company exports a wide range of products to countries where it does not makes them. For example, inside the European Union, Unilever makes many of its products in only a few member countries, for sale in all of them. The chosen manufacturing configuration is generally determined by an optimized regional sourcing strategy, which takes account of requirements for innovation, quality, service, cost and flexibility.
Global Supply Chain Management Solutions Providers
In an effort to streamline its daily operations, Unilever has partnered with several technology and logistics providers on a worldwide basis. Some of the major providers are:
Technology Providers
Some other technology providers are: -
# Manugistics Group Inc.
# SSA Global
# Syncra Systems Inc.
# Vastera Inc.
Logistics Providers
SCM Technologies in Unilever’s Business Model
Unilever's overall technology vision includes a strong push from client-server to thin-client architecture, Web technologies that bring the company closer to its customers, and business analytics to make management information easier to access, according to Rick Ballou, IT business-area director for Unilever Home and Personal Care North America.
With a market capitalization of $28 billion, the consumer-products giant reported that its recent IT achievements include the rollout of business-intelligence software from Hyperion, and "SAP ERP wall-to-wall" as a global standard. Unilever also has seen significant cost savings from its investment in Ariba's sourcing technology, which has resulted in a reduction of the office-supply purchasing budget by millions of dollars, and a consolidation of data centers from 18 to five; eventually, the number will fall to three.
A cross-functional global committee already is working on the shift from desktop client-server to portal technology. On the B2B front, in addition to its RFID efforts, Unilever is participating in an industry-wide effort to standardize data elements throughout the supply chain through UCCNet. Unilever has also expressed their continued interest in CRM.
Unilever collaborates on statistical and market promotion forecasts for key products with a few large customers, using a collaborative system from Waltham, Mass.-based Syncra Systems Inc.
The organization as whole had multiple ERP and CRM systems from several vendors, and 34 custom-built data warehouses. Unilever currently runs 100 separate, complete SAP enterprise resource-planning systems.
Similar on these lines, some of the major SCM technologies and IT solutions implemented in the business model of The Unilever Group are discussed below: -
ISIS Supply Management Information System: ISIS is Unilever’s integrated supply management information system. It helps its local, regional and global supply managers make appropriate sourcing decisions, allowing them to collate and analyse information quickly and easily. The system enables its managers to negotiate with suppliers in a transparent and efficient way, benefiting both parties. For more details on this, please visit https://isis-unilever.com/Sourcing.
E-procurement Solutions from Ariba: Unilever selected the Ariba Buyer software for e-procurement following a rigorous selection process and initial pilot in North America. Although initial success has been achieved Unilever believes that these are still early days and that the return of investment has still to be proven. While e-procurement is an inevitability for future supply chain optimisation the supply market, particularly in Europe, is still suffering from under-development. There is an emerging recognition that e-Procurement can affect total supply chain operation rather than just transactional activity. Until recently few have taken action to implement or sponsor the necessary changes. Encouragingly though, Unilever believes that this position is changing and unquestionably e-Procurement provides a catalyst for positive improvement in supply management profile.
Enterprise-Scale Data Warehouse and Business Intelligence Solutions: In order to gain a clear view of business performance across its 34 companies in 19 countries, Unilever Latin America has embarked upon an enterprise-scale data warehouse and business intelligence project called Sinfonia.
At the heart of Sinfonia, KALIDO® enterprise data warehouse creation and management software (KALIDO) provides a solution that will grow to encompass one of the largest databases in the world by 2007. KALIDO delivers an aggregated view of data across Unilever Latin America at high speed throughout constant business change such as acquisitions and market consolidation. KALIDO is now making it possible for Unilever Latin America (Unilever LA) to build and manage a fully functional, adaptive data warehouse throughout its lifecycle while simultaneously rolling out an underlying regional SAP system in a 4 to 5 year sister project called Harmonia.
The flexibility of KALIDO is enabling Unilever LA to maintain business continuity as the Sinfonia and Harmonia projects continue to roll out. The KALIDO data warehouse will grow both in geographic coverage and in scope, and is expected to reach 12 TB in size. Throughout this period of growth it will deliver consistent business information, taking increasing volumes of data from the ongoing SAP implementation.
Unilever LA is converging processes, systems and information to enable a truly regional approach to business. Using the KALIDO enterprise data warehousing solution, the organization is successfully delivering a large-scale enterprise data warehouse, on time and within budget, while simultaneously rolling out a region-wide SAP system.
The new information architecture Sinfonia, powered by KALIDO, will deliver high-quality data to 4,000 users by 8 am every day across five time zones. The solution will enable better understanding of regional supply chain processes, brands, customers and suppliers, and will allow Unilever to respond rapidly to new opportunities, even against a backdrop of constant internal and external business change.
Finally, KALIDO will facilitate strategic planning and drive improved decision-making, by delivering tailored information at high speed to key business users, enabling Unilever LA to realize substantial cost savings and improved ability to capitalize on business opportunities.
Supply Chain Information Systems: Using a variety of information systems and several other supply chain management technologies, Unilever aims to enhance its supply chain business model. The following diagram describes the company’s supply chain system vision: -
Discussed below are the various types of information systems used within the business model of The Unilever Group with their specific usage: -
# R&D System R&D System (LIMS): Used for formula development
# Specifications Systems: Used for Packaging, Raw Material, Formula, Master BOM, Finished Products and Process Specifications
# Manufacturing Planning Systems: Used for MRP, Production Orders, Purchase Orders, Standard Costs, RM/Pack/WIP Inventory, Financial Transactions, Material Masters and Production Reporting
# Planning Systems: Used for Demand Planning (DP), Demand Req Planning (DRP), Constrained Prod Planning (CPP), VMI and Finite Scheduling
# MFG Execution Systems (Various): Used for Finished Goods Production, Compounding/Batching, Quality/Lab Systems and Plant Maint Systems
# Order to Cash Systems: Used for Order Entry/Management, Terms of Sale, Deduction Tracking, Stock Allocation and Invoicing
# Finished Goods Management Systems: Used for Shipping, FG Warehouse, Transportation, Finished Goods Production (PIN) and Traceability
Supply Chain Strategies of Unilever N.V
Unilever’s logistics operations present perhaps the biggest opportunity to streamline its supply chain and boost the company’s ability to achieve its lofty growth goals. The company is in the process of consolidating its nearly 30 warehouses down to five massive distribution centers capable of shipping customer orders within a day’s time.
Much of that consolidation is a recognition that retailers are adopting zero-inventory policies, which require an optimal use of flow-through and cross docking in the warehouses. To increase asset utilization, lower inventories and improve service, Unilever adopted collaborative planning, forecasting and replenishment (CPFR) relationships with some retail customers. Thanks to those CPFR efforts, Unilever has been able to achieve 10% inventory reduction, 10% forecast accuracy improvement and 5% increase in sales due to better on-the-shelf availability.
According to Fred Berkheimer, vice president of logistics for Unilever Home and Personal Care, since orders are often impacted by factors that cannot be projected, collaboration between manufacturer and retailer is necessary to increase forecast accuracy. “High accuracy in replenishment can only be achieved through order forecast collaboration and extended supply chain visibility,” says Berkheimer. Today, Unilever’s logistics department is experiencing include improved relationships with retailers, better planning, improved on-time performance and more efficiency in handling promotions.
Path to Growth
In 2000, the company launched a five-year Path to Growth initiative to drop the total number of brands down to 400 by the end of 2004, achieve 5%-6% annual sales growth and a 16% increase in operating margins.
Three years ago, the company was running hundreds of manufacturing sites under an umbrella of 300 operating companies. Path to Growth mandates a reduction in sites to 150 locations.
Unilever's supply savings programme is one of the cornerstones within the Path to Growth Strategy towards the implementation of a world-class supply chain. Through Path to Growth, Unilever’s five-year strategic plan announced in February 2000, the company has greatly strengthened its business.
Unilever's Path to Growth Strategy
=> Reconnect with the consumer - to anticipate the future
=> Focus the brand portfolio - reflecting consumer appeal and growth potential
=> Pioneer new channels - to be in the right place at the right time
=> Develop a world-class supply chain - simplifying sourcing, manufacture, and marketing
=> Simplify the business - reducing complexity
Significant progress has been made towards the achievement of its strategic ambitions with a much more focused brand portfolio and faster growth in the leading brands, while the major reductions in costs and streamlining the asset base have resulted in sharply higher margins and improved capital efficiency.
Under the so-called "Path to Growth" strategy, Unilever first reorganized into two units—foods and nonfoods—in each major geographic area. Path to Growth also calls for Unilever, by 2004, to cut its collection of brands to 400, from a high of 1,600 two years ago. That core of 400 strong sellers—which includes SlimFast, Dove, Ben & Jerry's ice cream and Lipton tea—is expected to make up 90% to 95% of Unilever's total sales, up from 84% today. So far, 700 slow-moving brands, plus an incongruous industrial dry cleaning business, have been sold. Five hundred more are still to be divested, including a group of oils and spreads put up for sale last month.
Over the period 2000 – 2003, Unilever has generated over €16 billion of un-geared free cash flow. The company has also successfully integrated Bestfoods, one of the largest acquisitions ever made in the industry. With one more year to go under Path to Growth this creates a strong basis for the next phase of company’s development.
"Chipping of "Goods" Initiative – RFID
Unilever's Supply Chain Innovation team wants to understand how better tracking of products will affect manufacturing plants, distribution centers and stores. Unilever anticipates that manufacturing plants will have to reduce the length of product runs and make other refinements to react more quickly to changes in demand. And retailers will have to provide more timely information to suppliers.
In continuation to this strategy, on July 29, 2002, Unilever launched its third phase of a supply chain-tracking project under Britain's "Chipping of "Goods" initiative. The company planned to put RFID tags on 30,000 six-packs of Lynx deodorant and monitor them as they move from a manufacturing plant to three Safeway stores. As part of the initiative, Unilever's U.K. home and personal care products company, Lever Fabergé, is putting RFID tags on six-packs of Lynx deodorant at its factory in Leeds. After the individual cans of deodorant are made, they are vacuum-sealed and a small white label with an RFID tag in it is affixed to the package.
Sources: Company Reports, Press releases, M-a-p.co.uk, Findarticles.com, Sap.com, Logisticstoday.com, Kalido, “Unilever's NPI initiative”, By Tim Cooper-Jones, Published at M-a-p.co.uk, IEE (www.iee.org/OnComms/PN/controlauto/Unilever.pdf) and Rfidjournal.com
Tuesday, June 5, 2007
Global Logistics: Thinking beyond BRIC
Business dialogue around low-cost-country sourcing and emerging markets has become almost ubiquitous. But many of those conversations are limited to the BRIC countries: Brazil, Russia, India, and China. That’s unfortunate, since a great many opportunities also exist in Central and Eastern Europe (CEE).
In fact, Accenture’s recent research initiative on global operations found that emerging CEE markets are coveted by more companies than those of any country with the exception of China and India. Among European executives, Central and Eastern Europe was cited as the second most important emerging market next to China.
Why Central and Eastern Europe? One good reason is that most CEE countries are now part of the European Union. Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia joined in 2004. Bulgaria and Rumania were admitted in early 2007 and admittance of Turkey is pending. For companies outside the region, EU accession means new market and offshoring opportunities—as well as more freedom to conduct barrier-free business.
Central and Eastern European companies are also working hard to update their facilities, seeking to match Western levels of unit cost, quality and product availability, and thus make their businesses more sustainable and attractive to Western buyers. Even with these upgrades, CEE wages remain far lower than in Western Europe, and it could be 20 years before the gap closes completely.
Other potential advantages for non-CEE companies include more potential transportation modes and fewer problems with language and culture. Distance-related savings can also be a factor since, compared to Asia, the back-and-forth movement of parts and finished goods between CEE and Western Europe involves about one-tenth the distance. However, distance-related cost differences are not always as significant as one might suppose. Careful study is critical.
Barriers and challenges
While the reasons above are promising for those looking to the region as a source of new sales and sourcing opportunities, the road to Central and Eastern Europe can still be a bumpy ride. In fact, many companies may find that the time is not yet right to factor this region into their global strategies. They may, for example, discover that the advantages of EU accession, lower wages, and shorter distances are offset by lingering problems with intra-country transport. Cabotage is still prohibited for the 12 recently joined EU countries. This limits outsiders’ ability to formulate pan-European Union strategies now—when opportunities to secure competitive advantage are greatest.
To make their CEE programs work, most companies will need the help of third-party services providers. Unfortunately, the availability and performance of third parties in Central and Eastern Europe is inconsistent. In a recent survey, only 25 percent of Western European respondents characterized the performance of their offshored logistics services as high or very high in terms of reliability, quality, lead times, and customer service. And only 29 percent stated that their 3PL-related savings exceeded 10 percent.
It’s also worth noting that the CEE remains an agglomeration of a dozen countries, most with their own taxation system, regulations, language, and socio-cultural idiosyncrasies. There are even variations in their receptiveness to outside business. For example, companies in Slovakia, Romania, and Slovenia tend to be more interested in sourcing partnerships with Western Europe than those in Hungary and the Czech Republic. Accenture also has observed that state-owned enterprises (holdovers from the communist epoch) are less hungry for trade than public or privately held corporations. Fortunately, the number of state-owned enterprises is falling rapidly.
Making the choice
Deciding to source parts from, or expand sales, into Central and Eastern Europe is no less complicated than it is for any extra-national region. First and foremost, the choice must be made in light of a larger global operations strategy that integrates product development, sourcing, manufacturing, transportation, storage, sales and operations planning, and provision of after-sale services. Key components of the strategy will be formal programs for analyzing and redesigning supply chain networks, aligning (and potentially flattening or centralizing) the organization, and assessing the need for, and potential value of third parties.
Most important, however, is the recalculation of each affected item’s total cost of ownership. Like any such expansion, penetration of Central and Eastern Europe could result in supply chain cost increases that negate anticipated savings. In order of impact, the supply chain cost categories most affected by an offshoring decision tend to be:
- Aligning logistics, manufacturing, and assembly.
- Redesigning and maintaining the extended network over time.
- Compensating for changes in lead times and higher raw-material inventories.
- Transportation/distribution network restructuring and optimization.
- Exception handling.
- Ensuring supply chain flexibility to accommodate shifts in demand.
Given these factors, any sound global strategy should include a detailed total cost of ownership analysis that goes beyond calculating the acquired cost of materials and components..
An exceptional global strategy will also acknowledge Central and Eastern Europe’s potential to help meet an organization’s changing sourcing needs, provide new markets for its products and services, and widen its path in the race to high performance.
Reference: Article originally published in Logisticsmanagement written by Patrick M. Byrne, the managing partner of the Accenture Supply Chain Management practice, which helps clients improve their performance through supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management. Based in Reston, Va., he can be reached at pat.byrne@accenture.com
In fact, Accenture’s recent research initiative on global operations found that emerging CEE markets are coveted by more companies than those of any country with the exception of China and India. Among European executives, Central and Eastern Europe was cited as the second most important emerging market next to China.
Why Central and Eastern Europe? One good reason is that most CEE countries are now part of the European Union. Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia joined in 2004. Bulgaria and Rumania were admitted in early 2007 and admittance of Turkey is pending. For companies outside the region, EU accession means new market and offshoring opportunities—as well as more freedom to conduct barrier-free business.
Central and Eastern European companies are also working hard to update their facilities, seeking to match Western levels of unit cost, quality and product availability, and thus make their businesses more sustainable and attractive to Western buyers. Even with these upgrades, CEE wages remain far lower than in Western Europe, and it could be 20 years before the gap closes completely.
Other potential advantages for non-CEE companies include more potential transportation modes and fewer problems with language and culture. Distance-related savings can also be a factor since, compared to Asia, the back-and-forth movement of parts and finished goods between CEE and Western Europe involves about one-tenth the distance. However, distance-related cost differences are not always as significant as one might suppose. Careful study is critical.
Barriers and challenges
While the reasons above are promising for those looking to the region as a source of new sales and sourcing opportunities, the road to Central and Eastern Europe can still be a bumpy ride. In fact, many companies may find that the time is not yet right to factor this region into their global strategies. They may, for example, discover that the advantages of EU accession, lower wages, and shorter distances are offset by lingering problems with intra-country transport. Cabotage is still prohibited for the 12 recently joined EU countries. This limits outsiders’ ability to formulate pan-European Union strategies now—when opportunities to secure competitive advantage are greatest.
To make their CEE programs work, most companies will need the help of third-party services providers. Unfortunately, the availability and performance of third parties in Central and Eastern Europe is inconsistent. In a recent survey, only 25 percent of Western European respondents characterized the performance of their offshored logistics services as high or very high in terms of reliability, quality, lead times, and customer service. And only 29 percent stated that their 3PL-related savings exceeded 10 percent.
It’s also worth noting that the CEE remains an agglomeration of a dozen countries, most with their own taxation system, regulations, language, and socio-cultural idiosyncrasies. There are even variations in their receptiveness to outside business. For example, companies in Slovakia, Romania, and Slovenia tend to be more interested in sourcing partnerships with Western Europe than those in Hungary and the Czech Republic. Accenture also has observed that state-owned enterprises (holdovers from the communist epoch) are less hungry for trade than public or privately held corporations. Fortunately, the number of state-owned enterprises is falling rapidly.
Making the choice
Deciding to source parts from, or expand sales, into Central and Eastern Europe is no less complicated than it is for any extra-national region. First and foremost, the choice must be made in light of a larger global operations strategy that integrates product development, sourcing, manufacturing, transportation, storage, sales and operations planning, and provision of after-sale services. Key components of the strategy will be formal programs for analyzing and redesigning supply chain networks, aligning (and potentially flattening or centralizing) the organization, and assessing the need for, and potential value of third parties.
Most important, however, is the recalculation of each affected item’s total cost of ownership. Like any such expansion, penetration of Central and Eastern Europe could result in supply chain cost increases that negate anticipated savings. In order of impact, the supply chain cost categories most affected by an offshoring decision tend to be:
- Aligning logistics, manufacturing, and assembly.
- Redesigning and maintaining the extended network over time.
- Compensating for changes in lead times and higher raw-material inventories.
- Transportation/distribution network restructuring and optimization.
- Exception handling.
- Ensuring supply chain flexibility to accommodate shifts in demand.
Given these factors, any sound global strategy should include a detailed total cost of ownership analysis that goes beyond calculating the acquired cost of materials and components..
An exceptional global strategy will also acknowledge Central and Eastern Europe’s potential to help meet an organization’s changing sourcing needs, provide new markets for its products and services, and widen its path in the race to high performance.
Reference: Article originally published in Logisticsmanagement written by Patrick M. Byrne, the managing partner of the Accenture Supply Chain Management practice, which helps clients improve their performance through supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management. Based in Reston, Va., he can be reached at pat.byrne@accenture.com
Retail revolution in Russia - Driving factor for Supply Chain Market
The retail sector is driving supply chain development in Russia, says a study by global consultancy Capgemini. The retail market, actively expanding from Moscow and the Central Region deeper into the country, is responsible for churning logistics development in Siberian cities. Novosibirsk and Yekaterinburg, Siberia’s two largest cities, are rapidly developing their logistics and transport infrastructure to accommodate the growing needs of retail chains. Russia’s logistics development goal: to become a gateway to Europe for product flowing from Asia.
Top 25 Supply Chain Models
AMR Research released its annual Supply Chain Top 25 report. The report identifies the top 25 manufacturers and retailers that exhibit superior supply chain capabilities and performance. The companies in this report demonstrate excellence across basic metrics related to execution - return on assets, revenue growth, and inventory turns - and are recognized by their peers and AMR Research as supply chain leaders. In this year's list, Nokia, Apple and P&G are at the top three of the list. Others in the list of top 25 include Motorola (12), Johnson & Johnson (14), Nike (18), GSK (20) and HP (21). AMR Research analysis also shows that supply chain leadership translates into stronger market performance. Consistently, the Supply Chain Top 25 as a whole has outperformed the Dow Jones Industrial Average, the S&P 500, and the NASDAQ.
Following is the list of Top 25 Companies with Best Supply Chain Models:
To read the entire article, please visit:
http://www.amrresearch.com/Content/View.asp?pmillid=20450
Following is the list of Top 25 Companies with Best Supply Chain Models:
To read the entire article, please visit:
http://www.amrresearch.com/Content/View.asp?pmillid=20450
Wednesday, May 9, 2007
Top Procurement Transformation Leaders
Discussed below are the profiles of some of the top procurement transformation leaders worldwide: -
Greg Shoemaker, Vice President Procurement, Hewlett-Packard
Greg had responsibility during the pre-merger integration of HP and Compaq to identify the best procurement practices of both companies and then make them work for the combined company. With more than 23 years experience, of which 18 years has been spent with Compaq and HP, Mr. Shoemaker is integral in driving cost savings and efficiencies throughout the procurement process for HP. In his role on the Procurement council for HP, he drives the development of HP's procurement policies, best practice implementation, and creation of strategic supplier programs. During the integration process of pre-merger HP, Mr. Shoemaker was directly responsible for identifying the best procurement practices of both companies and developing strategies for the successful integration and value capture for the new procurement team. Leveraging his expertise extending partner relationships deeper into the supply chain, improving HP's influence over quality, security and information processes, Mr. Shoemaker will speak to best practices and key learnings from HP's collaboration with supply chain partners in a way that will bring value to OEMs of all sizes.
Thomas T. Stallkamp, Chrysler Corporation
Thomas T. Stallkamp changed the traditional paradigm or purchasing when he introduced the SCORE program at Chrysler in 1992. SCORE created a framework in which suppliers submitted cost reduction ideas and received a percentage of the reward. In the traditional model of supplier relations in Detroit, the Big Three use their leverage to beat up their suppliers and play one off against the other. Thomas T. Stallkamp is currently vice chairman and chief executive officer at MSX International, a global provider of collaborative enterprise services. Parts of this bio were taken from that company.
During almost 20 years at Chrysler Corporation, Stallkamp helped lead the company to new stability and growth in the uncommonly competitive automotive industry. During his tenure as president, Chrysler was the most profitable company in the auto industry. Indeed, many thought he would be tapped to replace Bob Eaton. His last position in Chrysler was as vice chairman and a board member of DaimlerChrysler Corporation; he left in 2000. Stallkamp became known for developing new business processes and enhanced partnerships with the automotive supply community, thereby improving product quality and cost efficiencies. As an example, Chrysler's SCORE (Supplier Cost Reduction Effort) program was a successful, structured approach by which suppliers sought ways to reduce cost or to improve product or process performance for the same cost. He pioneered the development of a unique partnership approach to corporate supplier relations under Chrysler's Extended Enterprise concept. These programs focused on reducing overall cost rather than simple parts costs.
Stallkamp serves on the boards of Visteon Corporation, K-mart Corporation and Baxter International. He is also on the board of advisors of Georgetown University's McDonough School of Business and teaches at Babson College's Graduate Entrepreneurship Center. Stallkamp holds a bachelor's degree in industrial management and economics and a master's degree in business administration from Miami University (Ohio).
For more information on Tom, please visit:
http://www.whartonsp.com/press/press_releases_detail.asp?promo=2399&rl=1
http://waw.wardsauto.com/ar/auto_nice_guys_dont/
http://globalcpo.com/_wsn/page17.html
R. Gene Richter (1937-2003)
Mr. Richter was the former chief procurement officer at IBM, Hewlett-Packard, and Black & Decker, who created the modern concept of the chief procurement officer.
With degrees from Maryland and Michigan, Gene worked at Ford Motor Company in a variety of purchasing management positions for 23 years. In 1984, he became vice president of purchasing at Black & Decker, and four years later his team won Purchasing Magazine’s Medal of Professional Excellence for leading-edge procurement programs. It was at B&D where Gene fine-tuned his strategies of global sourcing, long-term agreements and centralization of key commodities.
Later, as executive director of procurement at Hewlett-Packard, he worked with a team to develop written sourcing strategies and to negotiate strategic alliances with worldwide leading-edge suppliers. In 1992, HP won Purchasing Magazine’s Medal of Professional Excellence.
IBM convinced Gene to help revamp their global procurement operations in 1994. He centralized purchasing though commodity councils, saving millions of dollars. Gene’s team also formed customer solutions procurement, set up a technology convergence office to tap into suppliers' technical know-how, and moved the purchasing process to the Internet. IBM won the Medal of Professional Excellence in 1999.
In all, Gene led three completely different corporate teams that earned the Medal of Professional Excellence during his career. No one else can claim this achievement.
For further details on his work in companies like IBM, Black & Decker, HP, please read http://dot-richterfoundation.org-1143892.namezero.com/sitebuildercontent/sitebuilderfiles/genetributearticle.pdf
http://www.purchasing.com/article/CA337311.html
Jon Beers, Associate Director of Worldwide Purchases, The Procter & Gamble Company
Mr. Jon Beers is an associate director of worldwide purchases at Procter & Gamble (P&G). Jon has worked at Procter & Gamble for more than 30 years, and one of his key focus areas is to standardize and improve contract management for P&G. Jon's experience includes manufacturing, research and development, quality assurance and purchases.
Garry S. Berryman,Chief Procurement Officer, Sara Lee Corp.
Faced by rising costs and sagging stock values, on Mar 29, 2005, Sara Lee Corp. appointed Garry S. Berryman to the new position of chief procurement officer. In this role, Berryman, 52, will be responsible for the company’s global procurement operations. He will report to L.M. (Theo) de Kool, executive vice president and chief financial and administrative officer. Berryman joins Sara Lee from Applied Materials, Inc., where he served as vice president of global materials and supply chain management. Prior to that, Berryman was at Harley-Davidson for eight years as vice president of materials management and product cost and helped lead a major transformation at the American icon Harley-Davidson. Berryman introduced a unique approach to product engineering that incorporated use of procurement engineers trained at MIT and other top schools as well on-site engineers from supplier-partners. Berryman will face a different set of issues at Sara Lee, which has suffered due to retail price constraints and lack of brand focus. The company named a new CEO earlier this year and launched a restructuring.
Berryman has more than 20 years of experience that includes positions of increasing responsibility at Honda of America Manufacturing, Inc. and Deere & Company. Berryman received his bachelor’s degree in accounting from the University of Northern Iowa and is a certified public accountant.
Scott Allen, Former Chief Procurement Officer, H.J. Heinz Company
Scott Allen is a 25-year veteran of procurement and logistics. Scott Allen has 25 years of experience in procurement, working his way up through the food industry, holding positions at Carnation Company, Star-Kist Foods/Heinz Pet Products, Nestle Foods, and most recently H.J. Heinz. As chief procurement officer at H.J. Heinz, Allen was responsible for $5 billion in annual direct materials, indirect materials, and services spending. He led the global procurement business, centralizing procurement organizations and facilitating 10 percent savings globally.
Kent L. Brittan, Vice president, Supply Management, United Technologies Corp
Kent Brittan is leading a supply management transformation at United Technologies that began with a major electronic initiative and is now focused on meeting a lean manufacturing mandate. Kent L. Brittan became vice president of Supply Management at United Technologies Corp. in 1997 and has participated in a corporate transformation at UTC under CEO George David that consistently delivers double-digit annual earnings growth. In the past ten years, UTC’s total return to shareholders has outstripped General Electric by 50%. UTC was an industry leader in Internet buying with its leading-edge use of reverse electronic auctions through FreeMarkets and outsourced e-procurement transactions through IBM Global Services. UTC is now forging ahead in the Lean Aerospace Initiative and is breaking new ground in indirect sourcing, called general procurement at UTC. In 2001, UTC launched UT500, which set a $500 million savings goal for three years.
Pierre Mitchell, Director in Procurement and Supply Chain Management, Hackett Group Advisory Services
Pierre Mitchell is a Director in Procurement and Supply Chain for The Hackett Group's Advisory Services. As a member of the client service delivery team, he is responsible for advancing the procurement and supply chain practice and tools, which propel companies toward world-class performance in supply chain management. He has seventeen years of industry and consulting experience in procurement, supply chain, manufacturing, and information technology.
Most recently, he was the VP of SRM research at AMR Research, where he provided executives with objective business counsel. As an industry expert in supply management technologies, Mr. Mitchell has been recognized as one of the practitioner "Pros to Know" by Supply & Demand Chain Executive magazine. He is frequently quoted by the business press and regularly speaks at industry events. Previously, Mr. Mitchell was a manager at Arthur D. Little, where he led a number of procurement and supply chain transformations at Fortune 500 companies. Other industry positions include manufacturing project manager at The Timberland Company, materials manager at the Krupp Companies and engineer at EG&G Torque Systems.
Mr. Mitchell holds a degree in engineering management from South Methodist University and an MBA from the University of Chicago.
Greg Shoemaker, Vice President Procurement, Hewlett-Packard
Greg had responsibility during the pre-merger integration of HP and Compaq to identify the best procurement practices of both companies and then make them work for the combined company. With more than 23 years experience, of which 18 years has been spent with Compaq and HP, Mr. Shoemaker is integral in driving cost savings and efficiencies throughout the procurement process for HP. In his role on the Procurement council for HP, he drives the development of HP's procurement policies, best practice implementation, and creation of strategic supplier programs. During the integration process of pre-merger HP, Mr. Shoemaker was directly responsible for identifying the best procurement practices of both companies and developing strategies for the successful integration and value capture for the new procurement team. Leveraging his expertise extending partner relationships deeper into the supply chain, improving HP's influence over quality, security and information processes, Mr. Shoemaker will speak to best practices and key learnings from HP's collaboration with supply chain partners in a way that will bring value to OEMs of all sizes.
Thomas T. Stallkamp, Chrysler Corporation
Thomas T. Stallkamp changed the traditional paradigm or purchasing when he introduced the SCORE program at Chrysler in 1992. SCORE created a framework in which suppliers submitted cost reduction ideas and received a percentage of the reward. In the traditional model of supplier relations in Detroit, the Big Three use their leverage to beat up their suppliers and play one off against the other. Thomas T. Stallkamp is currently vice chairman and chief executive officer at MSX International, a global provider of collaborative enterprise services. Parts of this bio were taken from that company.
During almost 20 years at Chrysler Corporation, Stallkamp helped lead the company to new stability and growth in the uncommonly competitive automotive industry. During his tenure as president, Chrysler was the most profitable company in the auto industry. Indeed, many thought he would be tapped to replace Bob Eaton. His last position in Chrysler was as vice chairman and a board member of DaimlerChrysler Corporation; he left in 2000. Stallkamp became known for developing new business processes and enhanced partnerships with the automotive supply community, thereby improving product quality and cost efficiencies. As an example, Chrysler's SCORE (Supplier Cost Reduction Effort) program was a successful, structured approach by which suppliers sought ways to reduce cost or to improve product or process performance for the same cost. He pioneered the development of a unique partnership approach to corporate supplier relations under Chrysler's Extended Enterprise concept. These programs focused on reducing overall cost rather than simple parts costs.
Stallkamp serves on the boards of Visteon Corporation, K-mart Corporation and Baxter International. He is also on the board of advisors of Georgetown University's McDonough School of Business and teaches at Babson College's Graduate Entrepreneurship Center. Stallkamp holds a bachelor's degree in industrial management and economics and a master's degree in business administration from Miami University (Ohio).
For more information on Tom, please visit:
http://www.whartonsp.com/press/press_releases_detail.asp?promo=2399&rl=1
http://waw.wardsauto.com/ar/auto_nice_guys_dont/
http://globalcpo.com/_wsn/page17.html
R. Gene Richter (1937-2003)
Mr. Richter was the former chief procurement officer at IBM, Hewlett-Packard, and Black & Decker, who created the modern concept of the chief procurement officer.
With degrees from Maryland and Michigan, Gene worked at Ford Motor Company in a variety of purchasing management positions for 23 years. In 1984, he became vice president of purchasing at Black & Decker, and four years later his team won Purchasing Magazine’s Medal of Professional Excellence for leading-edge procurement programs. It was at B&D where Gene fine-tuned his strategies of global sourcing, long-term agreements and centralization of key commodities.
Later, as executive director of procurement at Hewlett-Packard, he worked with a team to develop written sourcing strategies and to negotiate strategic alliances with worldwide leading-edge suppliers. In 1992, HP won Purchasing Magazine’s Medal of Professional Excellence.
IBM convinced Gene to help revamp their global procurement operations in 1994. He centralized purchasing though commodity councils, saving millions of dollars. Gene’s team also formed customer solutions procurement, set up a technology convergence office to tap into suppliers' technical know-how, and moved the purchasing process to the Internet. IBM won the Medal of Professional Excellence in 1999.
In all, Gene led three completely different corporate teams that earned the Medal of Professional Excellence during his career. No one else can claim this achievement.
For further details on his work in companies like IBM, Black & Decker, HP, please read http://dot-richterfoundation.org-1143892.namezero.com/sitebuildercontent/sitebuilderfiles/genetributearticle.pdf
http://www.purchasing.com/article/CA337311.html
Jon Beers, Associate Director of Worldwide Purchases, The Procter & Gamble Company
Mr. Jon Beers is an associate director of worldwide purchases at Procter & Gamble (P&G). Jon has worked at Procter & Gamble for more than 30 years, and one of his key focus areas is to standardize and improve contract management for P&G. Jon's experience includes manufacturing, research and development, quality assurance and purchases.
Garry S. Berryman,Chief Procurement Officer, Sara Lee Corp.
Faced by rising costs and sagging stock values, on Mar 29, 2005, Sara Lee Corp. appointed Garry S. Berryman to the new position of chief procurement officer. In this role, Berryman, 52, will be responsible for the company’s global procurement operations. He will report to L.M. (Theo) de Kool, executive vice president and chief financial and administrative officer. Berryman joins Sara Lee from Applied Materials, Inc., where he served as vice president of global materials and supply chain management. Prior to that, Berryman was at Harley-Davidson for eight years as vice president of materials management and product cost and helped lead a major transformation at the American icon Harley-Davidson. Berryman introduced a unique approach to product engineering that incorporated use of procurement engineers trained at MIT and other top schools as well on-site engineers from supplier-partners. Berryman will face a different set of issues at Sara Lee, which has suffered due to retail price constraints and lack of brand focus. The company named a new CEO earlier this year and launched a restructuring.
Berryman has more than 20 years of experience that includes positions of increasing responsibility at Honda of America Manufacturing, Inc. and Deere & Company. Berryman received his bachelor’s degree in accounting from the University of Northern Iowa and is a certified public accountant.
Scott Allen, Former Chief Procurement Officer, H.J. Heinz Company
Scott Allen is a 25-year veteran of procurement and logistics. Scott Allen has 25 years of experience in procurement, working his way up through the food industry, holding positions at Carnation Company, Star-Kist Foods/Heinz Pet Products, Nestle Foods, and most recently H.J. Heinz. As chief procurement officer at H.J. Heinz, Allen was responsible for $5 billion in annual direct materials, indirect materials, and services spending. He led the global procurement business, centralizing procurement organizations and facilitating 10 percent savings globally.
Kent L. Brittan, Vice president, Supply Management, United Technologies Corp
Kent Brittan is leading a supply management transformation at United Technologies that began with a major electronic initiative and is now focused on meeting a lean manufacturing mandate. Kent L. Brittan became vice president of Supply Management at United Technologies Corp. in 1997 and has participated in a corporate transformation at UTC under CEO George David that consistently delivers double-digit annual earnings growth. In the past ten years, UTC’s total return to shareholders has outstripped General Electric by 50%. UTC was an industry leader in Internet buying with its leading-edge use of reverse electronic auctions through FreeMarkets and outsourced e-procurement transactions through IBM Global Services. UTC is now forging ahead in the Lean Aerospace Initiative and is breaking new ground in indirect sourcing, called general procurement at UTC. In 2001, UTC launched UT500, which set a $500 million savings goal for three years.
Pierre Mitchell, Director in Procurement and Supply Chain Management, Hackett Group Advisory Services
Pierre Mitchell is a Director in Procurement and Supply Chain for The Hackett Group's Advisory Services. As a member of the client service delivery team, he is responsible for advancing the procurement and supply chain practice and tools, which propel companies toward world-class performance in supply chain management. He has seventeen years of industry and consulting experience in procurement, supply chain, manufacturing, and information technology.
Most recently, he was the VP of SRM research at AMR Research, where he provided executives with objective business counsel. As an industry expert in supply management technologies, Mr. Mitchell has been recognized as one of the practitioner "Pros to Know" by Supply & Demand Chain Executive magazine. He is frequently quoted by the business press and regularly speaks at industry events. Previously, Mr. Mitchell was a manager at Arthur D. Little, where he led a number of procurement and supply chain transformations at Fortune 500 companies. Other industry positions include manufacturing project manager at The Timberland Company, materials manager at the Krupp Companies and engineer at EG&G Torque Systems.
Mr. Mitchell holds a degree in engineering management from South Methodist University and an MBA from the University of Chicago.
Transformation to a Centralized Procurement Model - Case Studies
The following selected vignettes offer a small glimpse into the power of leveraged spending that leading corporations around the world have experienced recently.
The Limited Brands
The company operates 3,700 domestic retail store locations under four separate brands (The Limited, Bath & Body Works, Victoria's Secret, and Express) and has a sizeable $3 billion annual spend. Until recently, it had its 40 procurement professionals located in Ohio, New York, and Hong Kong working for the brands separately. But over the last five years, the company began consolidating several functions—including procurement—into one centralized shared services organization. "Now, these four brands continue to develop, design and market individually, but all of their support functions are within a central, shared services organization," explains Chuck Dahlman, director of strategic procurement at the company.
In mid-2002, as part of this effort, the company consolidated all of the purchasing people into one organization, called the Strategic Procurement Organization. The goal was to transform the purchasing organization from being engaged in strictly tactical functions (eg. processing purchase orders) to more expanded strategic functions, including strategic sourcing. "While they would still be involved in some transactional activities, we installed some technology to handle a lot of this," Dahlman says.
To achieve this transformation, it was necessary to create a process and subsequent training program that would involve helping the procurement professionals understand best practices for a world-class strategic procurement organization. "We wanted them to be able to gather all of the relevant data for a project, understand what they were looking for, and realize what was happening in the specific markets where they were sourcing, so they could develop the appropriate procurement strategies," continues Dahlman. "In this way, we hoped they would be able to do better than the market as a whole."
To achieve this, the company created a proprietary in-house talent assessment called an Organization & Leadership Review Process (OLRP). The first goal of the OLRP was to redefine roles, job descriptions, professional competencies, and leadership behaviors. Next, it assessed work history, education, performance, and career interest. Finally, it mapped talent gaps, strengths, and developmental needs. "As part of the training initiative, we began to strongly encourage everyone to get their C.P.M. certification," Dahlman says. "We began offering some courses here to help them prepare."
Once buyers were certified, they began to participate in continuing education courses, such as off-site seminars. The benefits of the efforts are coming through today. For example, when the procurement functions first consolidated, procurement management realized that the new department would need to market itself to its internal customers. Company policy did not mandate that people go through procurement when they were engaged in non-merchandise sourcing initiatives.
"For example, in a large project, businesses can go about sourcing any way they want," states Dahlman. To begin marketing themselves, the procurement professionals first became involved in some small projects, or got involved in large projects in small ways, such as taking care of the requisitions and purchase orders. "Gradually, they began making suggestions," he notes. "As a result, more people are coming to us when they have projects and are asking us for help in terms of qualifying suppliers, negotiating, creating better terms and conditions, and so on." For example, procurement professionals have become successful at creating price caps so that, when prices increase, the company doesn't see increases as significant as it might have otherwise seen.
The teamwork between procurement and internal customers has been paying off: The original goal was for purchasing to help reduce cost for the enterprise by $200 million over five years. "We are only in our fourth year, and we have already helped save between $320 and $350 million," he states.
While things are moving along smoothly, the department is not done fine tuning its efforts. "Before we made the transition, procurement people were aligned with a specific brand," states Dahlman. "When we made the transition, we trained them to become specialized subject matter experts who could support several different brands as needed." Now, there is an initiative to blend the best of both; where the department will continue to have subject matter experts but will also have some people dedicated to the specific brands in order to maintain internal customer relationships. "We are already getting pretty close to this ideal balance," he concludes.
(Ref: “Centralized procurement: Success breeds success”, William Atkinson, Purchasing, June 15, 2006)
Sanmina--SCI Corporation
As an electronics contract manufacturer within a $125B market, Sanmina embraced the core concepts of supply chain management and increased its focus on the global supply base. In 2001, by emphasizing supplier selection, supplier management, supplier development, and technology convergence through a dedicated core of procurement and commodity experts, Sanmina reduced the corporation's inventory by almost 90 percent and nearly tripled its inventory turns. By continuing to attack the islands of centralization at its factory level, Sanmina projected continued improvements of approximately the same magnitude over the next year. The benefits of centralized procurement and integrated supply chain management are readily apparent, as its supply chain vice president testified, "We don't do a lot of part shortage meetings anymore."
(Ref: Jim Sutherlin, vice president, supply chain, Sanmina--SCI Corp, "Global Inventory Management," 7 Feb 02)
ChevronTexaco Corporation
In 2001, ChevronTexaco (CT) created a center led strategic procurement organization with decentralized operational procurement organizations reporting directly to it and expanded the center-led focus from materials-only procurement to materials, services, and logistics procurement. Utilizing strong top management support from the CEO downward, the resulting corporate leverage enabled CT's procurement organization to save 34.3 percent in oilfield trucking costs, 39.3 percent in office supply costs, 22.4 percent in office furniture costs, 31.1 percent in telecommunications expenses, and more than $10.3M in information technology hardware. By consolidating suppliers, creating competitive threat with their incumbent suppliers, negotiating heavily, and obtaining tremendous consensus with its supply chain partners, CT also was able to save 18.5 percent in its refinery maintenance costs for its six US refineries. Notably, CT executed its consolidation and improvement efforts while also achieving outstanding goals in supplier diversity and small business utilization.
(Ref: Renee Lagorio-French, business manager, ChevronTexaco Corp, "ChevronTexaco Procurement," 8 Feb 02)
Motorola
Beyond the obvious advantages of leveraged buying power, strategic procurement is a key enabler of effective supply chain management (SCM). Motorola's Personal Communications Sector, the world's second largest cell phone manufacturer, acknowledged this often-overlooked fact as it placed Theresa Metty, one of the nation's top-ranked purchasing professionals, in charge of its SCM function in 2000. Through Metty's campaign to reduce supply chain complexity and leverage centralized purchasing power, Motorola PCS successfully increased its market share, "squeezed $2.6B in costs out of its supply chain, reduced inventory by $1.4B, and improved its customer response time 40 percent" in the following 2 years.
Metty, who was promoted in 2003 as Motorola's senior vice president and chief procurement officer, introduced the centralized commodity council concept at Motorola PCS, better equipping the organization to stay ahead of economic developments, technology shifts, changing demand, supply restrictions, and bottlenecks.
(Ref: Bolaji Ojo, "Motorola's Master Plumber," EBNonline, 31 Mar 03; James Carbone, "Motorola Simplifies to Lower Cost," Purchasing, 18 Oct 01)
The Limited Brands
The company operates 3,700 domestic retail store locations under four separate brands (The Limited, Bath & Body Works, Victoria's Secret, and Express) and has a sizeable $3 billion annual spend. Until recently, it had its 40 procurement professionals located in Ohio, New York, and Hong Kong working for the brands separately. But over the last five years, the company began consolidating several functions—including procurement—into one centralized shared services organization. "Now, these four brands continue to develop, design and market individually, but all of their support functions are within a central, shared services organization," explains Chuck Dahlman, director of strategic procurement at the company.
In mid-2002, as part of this effort, the company consolidated all of the purchasing people into one organization, called the Strategic Procurement Organization. The goal was to transform the purchasing organization from being engaged in strictly tactical functions (eg. processing purchase orders) to more expanded strategic functions, including strategic sourcing. "While they would still be involved in some transactional activities, we installed some technology to handle a lot of this," Dahlman says.
To achieve this transformation, it was necessary to create a process and subsequent training program that would involve helping the procurement professionals understand best practices for a world-class strategic procurement organization. "We wanted them to be able to gather all of the relevant data for a project, understand what they were looking for, and realize what was happening in the specific markets where they were sourcing, so they could develop the appropriate procurement strategies," continues Dahlman. "In this way, we hoped they would be able to do better than the market as a whole."
To achieve this, the company created a proprietary in-house talent assessment called an Organization & Leadership Review Process (OLRP). The first goal of the OLRP was to redefine roles, job descriptions, professional competencies, and leadership behaviors. Next, it assessed work history, education, performance, and career interest. Finally, it mapped talent gaps, strengths, and developmental needs. "As part of the training initiative, we began to strongly encourage everyone to get their C.P.M. certification," Dahlman says. "We began offering some courses here to help them prepare."
Once buyers were certified, they began to participate in continuing education courses, such as off-site seminars. The benefits of the efforts are coming through today. For example, when the procurement functions first consolidated, procurement management realized that the new department would need to market itself to its internal customers. Company policy did not mandate that people go through procurement when they were engaged in non-merchandise sourcing initiatives.
"For example, in a large project, businesses can go about sourcing any way they want," states Dahlman. To begin marketing themselves, the procurement professionals first became involved in some small projects, or got involved in large projects in small ways, such as taking care of the requisitions and purchase orders. "Gradually, they began making suggestions," he notes. "As a result, more people are coming to us when they have projects and are asking us for help in terms of qualifying suppliers, negotiating, creating better terms and conditions, and so on." For example, procurement professionals have become successful at creating price caps so that, when prices increase, the company doesn't see increases as significant as it might have otherwise seen.
The teamwork between procurement and internal customers has been paying off: The original goal was for purchasing to help reduce cost for the enterprise by $200 million over five years. "We are only in our fourth year, and we have already helped save between $320 and $350 million," he states.
While things are moving along smoothly, the department is not done fine tuning its efforts. "Before we made the transition, procurement people were aligned with a specific brand," states Dahlman. "When we made the transition, we trained them to become specialized subject matter experts who could support several different brands as needed." Now, there is an initiative to blend the best of both; where the department will continue to have subject matter experts but will also have some people dedicated to the specific brands in order to maintain internal customer relationships. "We are already getting pretty close to this ideal balance," he concludes.
(Ref: “Centralized procurement: Success breeds success”, William Atkinson, Purchasing, June 15, 2006)
Sanmina--SCI Corporation
As an electronics contract manufacturer within a $125B market, Sanmina embraced the core concepts of supply chain management and increased its focus on the global supply base. In 2001, by emphasizing supplier selection, supplier management, supplier development, and technology convergence through a dedicated core of procurement and commodity experts, Sanmina reduced the corporation's inventory by almost 90 percent and nearly tripled its inventory turns. By continuing to attack the islands of centralization at its factory level, Sanmina projected continued improvements of approximately the same magnitude over the next year. The benefits of centralized procurement and integrated supply chain management are readily apparent, as its supply chain vice president testified, "We don't do a lot of part shortage meetings anymore."
(Ref: Jim Sutherlin, vice president, supply chain, Sanmina--SCI Corp, "Global Inventory Management," 7 Feb 02)
ChevronTexaco Corporation
In 2001, ChevronTexaco (CT) created a center led strategic procurement organization with decentralized operational procurement organizations reporting directly to it and expanded the center-led focus from materials-only procurement to materials, services, and logistics procurement. Utilizing strong top management support from the CEO downward, the resulting corporate leverage enabled CT's procurement organization to save 34.3 percent in oilfield trucking costs, 39.3 percent in office supply costs, 22.4 percent in office furniture costs, 31.1 percent in telecommunications expenses, and more than $10.3M in information technology hardware. By consolidating suppliers, creating competitive threat with their incumbent suppliers, negotiating heavily, and obtaining tremendous consensus with its supply chain partners, CT also was able to save 18.5 percent in its refinery maintenance costs for its six US refineries. Notably, CT executed its consolidation and improvement efforts while also achieving outstanding goals in supplier diversity and small business utilization.
(Ref: Renee Lagorio-French, business manager, ChevronTexaco Corp, "ChevronTexaco Procurement," 8 Feb 02)
Motorola
Beyond the obvious advantages of leveraged buying power, strategic procurement is a key enabler of effective supply chain management (SCM). Motorola's Personal Communications Sector, the world's second largest cell phone manufacturer, acknowledged this often-overlooked fact as it placed Theresa Metty, one of the nation's top-ranked purchasing professionals, in charge of its SCM function in 2000. Through Metty's campaign to reduce supply chain complexity and leverage centralized purchasing power, Motorola PCS successfully increased its market share, "squeezed $2.6B in costs out of its supply chain, reduced inventory by $1.4B, and improved its customer response time 40 percent" in the following 2 years.
Metty, who was promoted in 2003 as Motorola's senior vice president and chief procurement officer, introduced the centralized commodity council concept at Motorola PCS, better equipping the organization to stay ahead of economic developments, technology shifts, changing demand, supply restrictions, and bottlenecks.
(Ref: Bolaji Ojo, "Motorola's Master Plumber," EBNonline, 31 Mar 03; James Carbone, "Motorola Simplifies to Lower Cost," Purchasing, 18 Oct 01)
Dell may quit direct to consumer model
Michael Dell says that under the leadership of Michael Cannon (see Dell Names New Supply Chain Chief), Dell will revamp its existing manufacturing, logistics and distribution strategies. “The direct model has been a revolution, but it is not a religion,” Dell said in a leaked internal memo to staff. This statement is being taken as an indication that Dell will eschew sticking with its direct sales model, which accounts for nearly all of its computer sales to both businesses and consumers. In that model, Dell sells to customers directly without intermediaries such as retailers and wholesalers. Orders are placed primarily through Dell’s web site, and computers are built to order. Dell, in turn, uses “demand shaping” strategies and technologies to guide buyers towards models and options for which it has the parts and capacity to deliver immediately.
The direct model has served Dell extremely well, but commentators have noted with regularity that the advantages it provides have dissipated in recent years, especially as the cost of components and machines have dropped, making the holding of inventory less risky. The model has served Dell extremely well, but the advantages it provides have dissipated in recent years, especially as the cost of components and machines has dropped, making the holding of inventory less costly.
Major competitors such as IBM and Lenovo have also made substantial supply chain improvements in recent years to reduce gaps in cost and responsiveness. In certain market such as China , customers are believed to be more concerned about seeing laptops before buying; and cultural and other factors in emerging markets are thought to also favor a retail distribution over direct supply strategy.
I found an interesting post on this latest shift in Dell's strategy on Dwight Silverman 's Tech Blog thats says:
The New York Times has gotten hold of an e-mail sent to Dell employees by its CEO and co-founder, Michael Dell, that's essentially a warning of big changes coming -- something he's already signaled via previous statements and personnel changes.
Times reporter Damon Darlin says the e-mail (PDF) also hints that Dell may expand further into retail operations, significantly altering the direct model of sales that it pioneered -- and which upended the personal computer business:
It is the first time that Mr. Dell or any other senior executive has publicly conceded that the business model that was crucial to the company's success could -- and should -- be altered. Until now, the company responded with an adamant no when Wall Street analysts or customers asked whether the company would consider other ways of selling.
While Mr. Dell's memo was short on specifics, he also told employees, "We will continue to improve our business model, and go beyond it, to give our customers what they need."
As Dell faced slower sales and increased competition, it experimented with minor variations of the model. For example, late last year it opened a showroom in a Dallas mall that displays, but does not sell, computers, printers and TVs. The products still had to be ordered for delivery.
Business Model of Dell
Dell sells all its products both to end-use consumers and to corporate customers, using a direct-sales model via the Internet and the telephone network. Dell maintains a negative cash conversion cycle through use of this model: in other words, Dell Inc. receives payment for the products before it has to pay for the materials. Dell also practices |just-in-time (JIT) inventory management, profiting from its attendant benefits. Dell’s JIT approach utilizes the “pull” system by building computers only after customers place orders and by requesting materials from suppliers as needed. In this way Dell mirrors Toyota by following Toyota Way Principle #3 ("Use 'pull' systems to avoid overproduction"). Since the original dominance of telephone ordering, the Internet has significantly enhanced Dell’s business model, making it easier for customers and potential customers to contact Dell directly. Other computer manufacturers, including Gateway and Hewlett-Packard, have attempted to adapt this same business model, but due to timing and/or retail-channel pressures they have not achieved the same results as Dell.
The direct model has served Dell extremely well, but commentators have noted with regularity that the advantages it provides have dissipated in recent years, especially as the cost of components and machines have dropped, making the holding of inventory less risky. The model has served Dell extremely well, but the advantages it provides have dissipated in recent years, especially as the cost of components and machines has dropped, making the holding of inventory less costly.
Major competitors such as IBM and Lenovo have also made substantial supply chain improvements in recent years to reduce gaps in cost and responsiveness. In certain market such as China , customers are believed to be more concerned about seeing laptops before buying; and cultural and other factors in emerging markets are thought to also favor a retail distribution over direct supply strategy.
I found an interesting post on this latest shift in Dell's strategy on Dwight Silverman 's Tech Blog thats says:
The New York Times has gotten hold of an e-mail sent to Dell employees by its CEO and co-founder, Michael Dell, that's essentially a warning of big changes coming -- something he's already signaled via previous statements and personnel changes.
Times reporter Damon Darlin says the e-mail (PDF) also hints that Dell may expand further into retail operations, significantly altering the direct model of sales that it pioneered -- and which upended the personal computer business:
It is the first time that Mr. Dell or any other senior executive has publicly conceded that the business model that was crucial to the company's success could -- and should -- be altered. Until now, the company responded with an adamant no when Wall Street analysts or customers asked whether the company would consider other ways of selling.
While Mr. Dell's memo was short on specifics, he also told employees, "We will continue to improve our business model, and go beyond it, to give our customers what they need."
As Dell faced slower sales and increased competition, it experimented with minor variations of the model. For example, late last year it opened a showroom in a Dallas mall that displays, but does not sell, computers, printers and TVs. The products still had to be ordered for delivery.
Business Model of Dell
Dell sells all its products both to end-use consumers and to corporate customers, using a direct-sales model via the Internet and the telephone network. Dell maintains a negative cash conversion cycle through use of this model: in other words, Dell Inc. receives payment for the products before it has to pay for the materials. Dell also practices |just-in-time (JIT) inventory management, profiting from its attendant benefits. Dell’s JIT approach utilizes the “pull” system by building computers only after customers place orders and by requesting materials from suppliers as needed. In this way Dell mirrors Toyota by following Toyota Way Principle #3 ("Use 'pull' systems to avoid overproduction"). Since the original dominance of telephone ordering, the Internet has significantly enhanced Dell’s business model, making it easier for customers and potential customers to contact Dell directly. Other computer manufacturers, including Gateway and Hewlett-Packard, have attempted to adapt this same business model, but due to timing and/or retail-channel pressures they have not achieved the same results as Dell.
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