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A Structured Approach to Cost Management
SUPPLY CHAIN COST MANAGEMENT FRAMEWORK
1. Define Goals and Objectives
A structured approach to cost management would obviously first involve defining its goals & objectives. The supply chain cost management & reduction exercises should be well aligned with the overall business strategy. With overall business strategy we mean key business plans, customer expectations, opportunities & threats, supply chain road-map, marketing plans and last but not least, a clear understanding of the relationships shared between various functions and departments. Those that are not tied to these long-term strategic goals are often misguided and create havoc due to the myopic focus on short-term productivity gains.
Team goals should be set with the involvement of all departments & functions, so as to infuse the interest & concern of all. Again, a pure department-focused cost reduction exercise will only motivate a single department and not multi-departments that actually forms a team.
Just as in any strategic exercise, cost management drives also require a core team entrusted with adequate responsibility & authority to drive manage and monitor all cost management initiatives. They should also keep in mind that goals should be realistic, focused, measurable and quantifiable. It should be breakable into clear units of work which can then be assigned to each team. On the other hand, unrealistic or vaguely defined goals can dampen motivation and guarantee the failure of cost management.
2. Identify Supply Chain Costs
Now that the Goals & Objectives have been identified, it is now important to classify all the supply chain costs and its flow. From the primary costs that have been stated in the previous step, the secondary costs and sub costs will emerge. Now the team can drill down on all the activities to be taken up in order manage all these costs step by ste
Last Updated On:7/23/2010 2:40:08 PM
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Transportation Management Systems : An Indian Perspective
Thumbs-Down to the Global Meltdown
The global melt-down is here and the nay-sayers are all on a roll about the impending doom. Companies are looking at multiple options to manage the challenging situation that the occurrences in the global economy have put them into. Supply Chain costs therefore are of special significance in such market conditions as they hold the key to managing profitability and ensuring better health of the organization.
India is no exception!
Logistics costs in India are estimated to be nearly 13-14% of the GDP of around $1 trillion. This cost is significantly higher as compared to the developed economies where the logistics costs are around 7-8% of the GDP. What this means to companies is that there is a huge potential to optimize the costs of logistics.
Supply Chain costs are spread over multiple domains starting from Import-Export Logistics to Transportation to Warehousing and finally Distribution. In a country like India which has a large geographic dispersion and manufacturing clusters based at key locations, transportation becomes a key link to managing the costs. In fact, Transportation accounts for the largest single cost component of logistics, estimated to be nearly 35%-40% of the total logistics costs.
There are multiple reasons for this. India has traditionally been a country that thrives on the entrepreneurial spirit of the hinterland. Hence all transportation needs, especially ground transport, were being met by small transport operators (more than 80-85% of the market) who own less than 5 trucks of smaller tonnage. This leads to an extreme fragmentation of the industry and thereby the cost of managing the overall delivery is high.
In addition, the Indian transportation industry has multiple layers of demand and capacity agents who are essentially people who play the intermediary role of matching demand and capacity albeit a
Last Updated On:7/30/2010 1:39:54 PM
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2. Do you really need a TMS in your organization?
There is never a clear answer for this question and customers are always grappling with the timing for investing in a system. In an economic low period, typically we see customers reducing IT Spend and are postponing IT purchases. We turn the question completely around and asking ‘Can you afford to not have a complete visibility of your business? ‘
However, it is important for customers to keep in mind a few things while making that decision:
1. Transportation becoming a key spend area: For many industries, transportation is the key to ensuring that products are available in customer markets at the right time. However, as company operations become larger and the number of service providers and fleet size increasing, the entire transportation management activity may become too complex to manage without having a system to manage and provide visibility
2. Be clear about your objective for getting the system: There have been many occasions when organizations chose complex systems assuming that they will need the entire suite of capabilities including high-end analytics and optimization algorithms. However, their organization may not be mature enough or ready to use such a system. Therefore it is important to be cognizant of the maturity level of the organization and what the objective of procuring such a system is. The objective may be to set up the basic execution processes which may not warrant a high-end optimization algorithm. The bottomline being that, it is important to do a Maturity Assessment and set down the objectives.
3. Operational Gaps: In a tough market condition, preserving cash and ensuring that money is not ‘left on the table’ is arguably the most important thing to help ride out the storm. What this means is to ensure that all the inflow and outflow of money in addition to closely managing operational metrics is being done with precision. To do that, it is important for
Last Updated On:7/30/2010 5:41:50 PM
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COLLABORATIVE PLANNING, FULFILMENT & REPLENISHMENT
The VICS committee, who have originally defined CPFR and consists of leading retailers, manufacturers and solution providers, defines it as a business practice wherein trading partners use information technology (IT) and a standard set of business procedures to combine their intelligence in the planning and fulfilment of customer demand. By linking sales and marketing practices to supply chain planning and execution processes, it enables trading partners – retailer and manufacturer – to improve visibility into one another’s critical activities through a structured process of information sharing and joint decision making across firm-level boundaries. CPFR helpsaddress uncertainty, of customer demand and all dependent upstream variables. The retailer doesn’t want to lose a sale; neither does a business want lose an order and similarly the material supplier. But customer demand is uncertain and affected by numerous macro & micro economic and environmental factors. Given this situation, usually the above parties protect their sales revenues by building inventories which entail excess procurement, production, logistics and storage thus driving up costs. Information sharing between all trading and internal parties about demand signal, capacities and inventories across the network allows for reduced individual risk hedging measures and productive utilization of effort and resources. By linking sales and marketing practices to supply chain planning and execution processes, CPFR improves visibility into critical activities across the value chain and thus enabling across-enterprise joint decision making.
The VICS committee prescribes a 4 stage guide to implement CPFR. The adjoining figure shows the CPFR reference model explaining the four stages. This model can fit multiple partner relationship scenarios and we discuss here the four most popular deployments 1 .
Retail Event
Last Updated On:7/11/2011 6:09:57 PM
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Services »Domains »Service Management
Service Management
Service Management is an essential part of managing one's customer relationships. Service management processes need to be implemented if an organization wants to retain the loyalty of its existing customer base. The benefits of a good service management process are lower inventories of the service parts, reduced service costs, reduced visits of the technical support team and above all increased customer satisfaction.
The following are the key elements of service management:
Service Contracts - These are long term contracts signed between customers. The characteristics of service products are defined in Service Level Agreements (SLA), which in turn are validated by different parameters, such as Availability Time and Response Time . The parameters can be used to control service processing.
Warranties and Claims Management- A warranty is a commitment from a manufacturer or salesperson to a customer that a product has no defects, and that services such as repairs and exchange of defective parts are guaranteed for a particular period of time without the customer being billed. Warranty management includes the following activities:
Identify warranties within the processing of business transactions in service (service processes, confirmations, complaints)
Check whether the claims on the warranty services are legitimate
Check whether an incoming problem message is a case for warranty
Define the effects of warranties on pricing and billing
Monitor warranty costs
Complaint Processing and Reverse Logistics -
Last Updated On:9/19/2008 12:57:07 PM
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