Supply Chain Frontiers issue #54
How does a supply chain keep on improving in a changing competitive environment? There is no single answer, but two key elements in the quest for continuous improvement are technology and talent.
Technology appears to be developing at a faster rate that it can be adopted and absorbed by organizations. At the same time, supply chain knowledge is becoming more specialized. To effectively use both technology and knowledge, talented professionals are needed to integrate and coordinate across organizations –sometimes between competitors.
Here are four guiding principles that can help companies address these challenges.
1. Understand your business and its competitive edge
In 2103 Inditex opened a warehouse in its distribution center (DC) in Zaragoza, Spain. The DC handles Zara Woman product. The warehouse is known as “the largest clothes closet in Europe” because it handles hanging garments. From this single, hi-tech facility, products are distributed by truck and air to almost 2,000 stores across the globe. In fact, all Zara Women merchandise – some 3.5 million pieces a week – passes through the DC.
Using one warehouse to supply stores worldwide would probably not make sense for other retailers. But Zara’s business model includes fast fashion (design to rack) with twice weekly shipments to stores, a readiness to give up sales owing to limited production runs, and minimal advertising (yet Zara shoppers return to the store every 17 days on average). The warehouse strategy is aligned with this business model, and as such, is a key element of the retailer’s competitive edge.
2. Use the right tools and technology
In the late 1980s most automotive assembly plants were introducing welding robots to body shops. Programmable Logic Controllers (PLCs) became a standard feature of every station in assembly lines. The new technology enabled IT departments to collect immense amounts of data about assembly line operation, but they could not see beyond these new databases. Production teams continued to manage bottlenecks as they had always done – by experience. They could not see how this flood of data could be put to use.
This changed when some talented professionals recognized that applying queuing theory to the data derived from PLCs would enable auto manufacturers to forecast production line bottlenecks. The applications were rolled out – programs also made possible by talented professionals – and throughput improved by 5%.
The right set of tools (queuing theory) coupled with the right technology (PLC data collection and analysis) and the right talent made this significant improvement in productivity possible, and unlocked the analytical potential of data that was already available.
3. Promote integration and cooperation
In Manhattan, New York City, USA, there are about 13,000 official medallion taxis. Coordination between these vehicles is manual and based on individual drivers/dispatchers perceptions and preferences.
A detailed analysis of the business performed by Jordan Analytics shows that with the benefit of central coordination and optimization, the cost of each taxi trip can be reduced, fewer taxis would be needed, and passengers could enjoy shorter waiting times.
Yet New York City is increasing the number of taxis by 2000 cabs. The first batch of 200 additional taxi medallions was sold in November 2013 at a cost of $1 million each! Existing coordination and optimization technology could improve the service and offset the need for a bigger fleet, but the city chose not to go this route.
Collaboration and coordination is difficult – much more so than developing technology. Vested interests can prevent an effective solution from being implemented.
4. Employ talented people
As is illustrated in the second principle above, it takes talented individuals to turn ideas into results. And talent is not just about being “smart” but also about the ability to get things done without direct authority.
Technology and talent can keep your supply chain humming, however, you need to invest in both resources over the long term and deploy them smartly.
This article is based on a Keynote address given by Dr. David Gonsalvez, Director, Zaragoza Logistics Center, Zaragoza, Spain, to the European PetroChemical Association Conference on Supply Chain and Logistics, Brussels, June 3, 2014. For more information contact ZLC Marketing Manager Cristina Tabuenca at ctabuenca@zlc.edu.es.