The Edge Factor - Dec 2015

The changing business dynamics is leading to decreasing clockspeed of new product introduction and consequently less time to react to any disruptions in supply chains, if any. How can we tackle these two important emerging trends of business? Read the two articles below to get a perspective on these.

(Contributions by: Vivek Saigal, Charvi Mittal, Neha Uttam, Rahul Ravi, Mayank Kumar)  

 

Detecting early risk signs in Supply Chain
 

Are you able to spot early risks in your supply chain??

With increasing globalization, companies are moving towards global supply chains making it cost effective but complex! This has led to a desperate need for supply chain risk management like never before.

“Production in assembly plants of Honda, Ohio was put on hold because of disrupted supplies of auto components caused by Japan Tsunami in 2011”. Clearly, supply chains are stretching as distance between nodes is increasing.

As reported by WSJ, “Heavy equipment maker, Caterpillar, told its steel suppliers back in 2010 that it would double its purchases of metal. In order to avoid any bullwhip effect with this announcement, Caterpillar took the unusual step of visiting its key suppliers and even financing some of them”. Evidently, Digital interaction in supply chain has surpassed the physical interaction leading to a surge in demand for ‘Accurate’ and ‘Timely’ information.

Overall, there is a shift in industry’s paradigm of the ‘risk management’.

 

Risky supply chain leads to huge cost impacts and loss of customers for any organization. Maruti Suzuki lost $307 million revenue because of a labor strike in its Manesar plant in 2011. Production levels reached 50% lower the initial plan, MSIL surely lost on potential customers.

Manufacturers need to detect early signs that have the potential to weaken or disrupt the supply chain. A distressed Tier-2 supplier awaiting payments from the Tier-1 supplier is a good enough reason to analyze financial health of the Tier-1.

Manufacturers should also track regular requests from suppliers regarding financial funding or the financial ratios of the supplier in order to gauge financial crisis of the suppliers.

Owing to their regular interactions and close proximity with suppliers on day-to-day basis, procurement managers play a crucial role in assessing the overall health of the supplier. A supplier with regular quality issues possess a great threat to a smooth functioning supply chain.

Close monitoring of operational risks of suppliers is imperative for the non-stop working of production plants at the manufacturer’s end. High employee turnover at supplier is an indication towards risk at the supplier’s side. Buyers should be beware of theoretical stocks and should have regular inspection of physical stock at the supplier warehouse. This applies to both raw material and finished goods inventory. 

Overall, a comprehensive analytical tool equipped with a contingency plan can help manufacturers predict and eliminate supply chain risks well in advance. Risk factors should cover the breadth of functions that can affect the supply chain viz. operations, finance, geography and regulatory norms and need to be studied and monitored in great detail and length.

 

Therefore, manufacturers need to ensure the repeatability, periodicity and the maintenance of such tools to regularly assess risks in supply chain. As companies perform fire drills at manufacturing plants, what is stopping them from performing a “supply chain risk assessment drill” to test the effectiveness of the contingency plan?

This attitude change at the manufacturer’s end will have a trickle-down effect at the supplier’s end and will help in overall improvisation of supply chain. 

REFERENCES:

http://www.dispatch.com/content/stories/business/2011/03/26/honda-plants...
http://www.wsj.com/articles/SB10001424052970204346104576638321502667138
http://www.wsj.com/articles/SB10001424052748704509704575019392199662672

 

Forecasting for New Products: Is it an Oxymoron?
 

Have you ever wondered how many new products are launched every year in the consumer space? And how many of them are successful launches? As per an estimate there are close to 250,000 new products launched worldwide every year, and 70-80% of them are not successful depending upon the sector. Out of the numerous factors which contribute to the failure of new product launches, reacting to consumer response, is one of the most prominent. The ability to respond effectively is highly correlated to the quality of demand forecast for the product.

The two examples of new product launches given above showcases the difficult task of forecasting. Even organizations like Apple and Ford, find it difficult to accurately determine the demand for new products in India. So is there a way we can solve this problem?

The process of new product forecasting is more complex than those used for launched products; the resulting forecasts are subject to the highest level of uncertainty and error. The forecast accuracy for new products is anywhere between 40%-60%. Hence, it is important that we embrace this deficiency and have a decision making process for it.

Furthermore, decisions based on these forecasts often irrevocably commit resources with little or no opportunity to adjust in the light of forecast inaccuracy. Therefore, organizations must create an effective process to manage the output of new product forecasts and establish an effective decision making process that acknowledges the limitation and ensures timely action.

“A good forecaster is not smarter than everyone else; he merely has his ignorance better organized”
-Anonymous

Dr. Kahn, a leading forecasting expert, correctly notes, “New product forecasting can be conceived as a process of assumptions management”. Each assumption has an associated uncertainty and it is therefore necessary to quantify both the impact and likelihood of the assumptions within the forecast model.

For example, a vertically integrated e-commerce company, has new product launches every month in close to 30 categories. CGN is working on a customized solution which will decrease the lost sales by close to 20%. The key component of the solution is to capture the early response of the customer and then include it in the SKU forecasts.

In the current business scenario, the life of a product is getting shorter, lead times are getting longer and overall volumes per SKU is decreasing. One should ensure that accurate forecasts are available quickly after a product is launched, as even a small volume of overproduction can mean many months of inventory.

REFERENCES:

http://www.forbes.com/2010/12/03/most-memorable-products-leadership-cmo-...
https://hbr.org/2011/04/why-most-product-launches-fail
http://timesofindia.indiatimes.com/tech/tech-news/No-midnight-queues-for...
http://www.businesstoday.in/sectors/auto/ford-india-president-nigel-harr...
http://www.amazon.in/New-Product-Forecasting-Applied-Approach/dp/0765616106

 

What We
    Found Interesting
 

Managing risk is very important, we found a doodle explaining the importance of risk management in global supply chains
Watch full video at: https://www.youtube.com/watch?v=uy7TdpmdSJs

One of great gears for new product success is the right forecasting ways. We found an interesting article focusing on sales forecasting roles especially for new products. The link below gives more insights
https://www.linkedin.com/pulse/forecasting-sales-new-product-mohamed-salem

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Alagu Balaraman

Alagu Balaraman

 

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