January 25th, 2012
Fernando Silva, Best Buy�s director of Private Label Product Lines, will be delivering a keynote address at the Consumer Electronics Supply Chain Academy that will leave no doubt that we live in a consumer-centric world, in which collaboration from all areas of the supply chain should drive innovation.
At Best Buy, customer-centricity means �treating each customer as a unique individual, meeting their needs with end-to-end solutions, and engaging and energizing our employees to serve them,� he said. �It is our primary strategy for providing a differentiated experience for customers.�
By listening to customers and employees more closely, Best Buy is benefiting from new ideas that in the past would never have reached corporate headquarters. Through employees that regularly engage with customers, the retailer has discovered several growth opportunities. Those with the highest potential include small-business customers, new services offerings and international growth, which account for a total of at least $230 billion in revenue, according to the 2007 Best Buy Annual Report.
For decades, CE manufacturers focused on creating products while retailers have focused on selling them. Silva demonstrated that retailers are sharing some of the roles that manufacturers used to dominate, such as developing a deeper understanding of the consumer. By doing so, Best Buy is emerging as a new ally of manufacturers and technology product developers alike.
For example, Best Buy has assembled a team of engineers, technologists and product experts from Apple, Xerox, Kodak and other leading R&D companies. Silva said, �they receive, reiterate, vote and synthesize end-to-end solutions to improve the lives of our customers by listening to them. It is the intersection of the three constituents – Best Buy, partner suppliers and product developers that determines what customer needs have to be met. Silva�s team – which invites input from approximately 120,000 sales associates in over 1,150 stores in the US, Canada and China – taps into the �one million hours spent daily by the sales associates wearing blue shirts who are now agents of our customers and not of product manufacturers, as they used be in the past.�
In the supply chain, as the evolution takes place from technology to ideation to shelf, the sales associates are empowered to identify who the products are actually designed for by obtaining customer feedback, understanding the customers� needs and wants, Silva said. As a result, the Best Buy customer base has been segmented into basic lifestyle groups. The purchasing officer is identified for each segment and an associated purchasing index is developed. The data obtained from inputs is collected and analyzed. The intelligence is then extracted for product development, product redesign, new business model development and new service offerings. The results are there for everyone to see, especially as they are applied to Best Buy�s own product brands, including Geek Squad, Insignia, Dynex, Init and RocketFish.
January 2nd, 2012
An industry organization called The Sustainability Consortium (TSC), initiated by Walmart in 2009, recently released a new set of “Category Sustainability Profiles,” analyses of the environmental impacts of products in 10 important consumer product categories such as coffee, toilet tissue, televisions, laptop computers, and yogurt.
Helen van Hoeven of the World Wildlife Fund and a board member of the Consortium says that these profiles allow companies to “identify and prioritize the largest impacts in the life cycle of a product. This information allows retailers, manufacturers, and suppliers to focus their efforts on innovating and improving on products and their supply chains where it matters most.” (Photo: Delicious and a good deal — but what are its life cycle impacts? Credit: John M. CCy-Sa 2.o.
According to the organization’s announcement Nov. 1, 2011, they are researching an additional 50 product categories and plan to release Category Sustainability Profiles for those very soon. TSC’s 80 members include Walmart, Bayer, Best Buy, Clorox, Coca-Cola, Dell, Dow, General Mills, Kellogg’s, L’Oréal, Panasonic, Pepsico, P&G, Samsung, Tesco, Tyson, Unilever, 3M, Campbell’s, HP, Johnson & Johnson, Kroger, and Safeway.
Speaking to Joel Makower of GreenBiz in August 2011, TSC’s executive director, Bonnie Nixon, describes the organization this way:
We’re a very diverse group of stakeholders, grounded in the science. We’re collaborating to design and implement transparent, credible, reputable, and scalable science-based measurement and reporting systems, for not just the users of consumer products, but also for the producers of consumer products.
Walmart’s Sustainability Push
These developments represent an important step in the improvement of supply-chain environmental accountability for companies. Walmart is known as a pioneer in this field. Traditionally, the company was notorious among its suppliers for applying continuous pressure on them to squeeze out greater efficiencies and reduce costs to help the company maintain its traditional “Always Low Prices” marketing strategy (Photo: Walmart says it plans to provide training in sustainable farming practices to a million farmers and farm workers. Credit: Walmart Stores, CC BY 2.0)
Walmart also was known for its efforts in recycling and reduction of waste — these activities just made good business sense.
But in 2005, something changed at Walmart. In a speech he delivered Oct. 24, 2005, Walmart’s then-CEO Lee Scott announced a set of groundbreaking goals for the company:
Our environmental goals at Wal-Mart are simple and straightforward:
1. To be supplied 100 percent by renewable energy.
2. To create zero waste.
3. To sell products that sustain our resources and environment.
Scott told his audience,
As one of the largest companies in the world, with an expanding global presence, environmental problems are our problems. The supply of natural products — fish, food, water — can only be sustained if the ecosystems that provide them are sustained and protected. There are not two worlds out there, a Walmart world and some other world… Our Associates, customers and suppliers occupy the same towns, our children go to the same schools, and we all breathe the same air. These challenges threaten all of us in the broader sense, but they also represent threats to the continued success of our business.
The company’s new goal to develop sustainable products naturally led the company to focus on its supply chain. And its traditional influence over its suppliers gave it considerable leverage. Scott hinted at how it was going to be working on its supply chain, mentioning its seafood suppliers:
For example, in the area of seafood, we will certify all shrimp farms supplying Walmart in the U.S. according to environmental and socio-economic best practice standards through third party accreditation. It’s better for our customers, it’s better for the world, and it’s better for our company.
The Sustainability Consortium got its start in 2009, when Walmart announced that it would be developing a new sustainable product index to “establish a single source of data for evaluating the sustainability of products.” To develop that index, the company would be providing initial funding for a consortium of universities, suppliers, retailers, government organizations, and NGOs “to develop a global database of information on the lifecycle of products — from raw materials to disposal.”
Life Cycle Management: A Key Tool for Corporate Sustainability
TSC’s initial Category Sustainability Profiles, says the Nov. 1, 2011, announcement, are Beef, Coffee, Cotton Towels, Yogurt, Fashion Dolls, Laptops, Laundry Detergent, Televisions, Toilet Tissues, and Wheat Cereal. Discussing how the profiles might help companies improve the life cycle impacts of their products, the announcement uses the example of laundry soap:
The Category Sustainability Profile for laundry detergents tells retailers and manufacturers that by incentivizing the correct use of cold-water detergent, they can have the biggest impact on the sustainability of laundering, enabling consumers to use cold-water settings on laundry machines.
The Consortium develops its profiles using a knowledge base of published research on the life cycle environmental and social impacts of products and by consulting with subject-matter experts in academia, business, government, and non-governmental organizations (NGOs). Joby Carlson, knowledge base manager for the group says that,
From that, we begin to understand the most well supported environmental and societal issues related to a product category. We also reveal relevant and actionable best practices or product attributes that organizations can implement to address these priority issues. What is most exciting about this effort are the opportunities for better design and business model innovation.
The newly-developed life-cycle-based Sustainability Profiles make up an important piece of the Sustainability Measurement and Reporting Standards the Consortium is developing. Explaining the standards, the organization says that
Sustainability Measurement and Reporting Standards (SMRS’s) … will define, for a particular product type, what product manufacturers should measure, how to measure it, and how to report it to a common database. This reporting will be facilitated by IT tools and standards that make this viable in real supply chains, and by research concerning how buyers, merchants, and end-consumers make decisions about sustainable products. Once the product-level sustainability information is in a common database, then manufacturers, retailers, and third-party certification and index owners will be able to use these data for a variety of purposes, all aimed at driving communication of and improvement in product sustainability.
Life cycle management (LCM) is a process used by businesses to continuously analyze and improve the sustainability of products and supply chains. A key characteristic of LCM, according to a report from the United Nations Environment Programme (UNEP) “is that this approach requires companies to move away from just looking at their own operations and to look at what is happening in their value chain (upstream and downstream operations that are outside the company’s direct control).” (Photo: What happens when they’ve finished with the product? Credit: woodleywonderworks, CC BY 2.o)
Life cycle assessment (LCA), one of the key tools of LCM, is described by UNEP as “a compilation and evaluation of the inputs, outputs and other interventions and the current or potential environmental aspects and impacts … throughout a product’s life cycle — from raw material acquisition through production, use, end-of-life treatment, recycling and final disposal.” LCA helps a company identify ways to measure and improve the environmental performance of a product throughout its life cycle, and to report that performance to company stakeholders, regulatory agencies, and consumers.
Mobile phone life cycle. Credit: United Nations Environment Programme.
Kevin Dooley, a professor of supply chain management at Arizona State University, serves as one of TSC’s academic directors. A few days after the Consortium’s announcement, Dooley told The Atlantic, that product life cycle management is the innovation that will have the single most significant impact on corporate sustainability efforts:
Most people are largely unaware of the life cycle of the products they purchase, and their environmental and social impacts. They worry about the packaging and whether it’s recyclable, which is good, but are unaware of the effects related to the product’s supply chain, from raw material extraction to manufacturing to distribution and retailing…
I think life cycle approaches will bring about great strides in product and supply chain innovation as this approach becomes more widely adopted. While we have had efforts to reduce certain impacts in particular life cycle stages, this more holistic approach will help us grapple with the more complex problems that await us.
TSC’s Bonnie Nixon told GreenBiz that a science-based approach to product sustainability will help companies find the path to business models that are both environmentally sound and financially viable. She told the publication,
I think companies need to ask, “How do we redesign products? How do we take full responsibility for the impacts that we’re having? How do we accurately assign value to the social and environmental benefits that we receive today for our planet?” I don’t think to date that we’ve fully taken responsibility for the impacts of our production and consumption patterns.
What we’re doing at the Consortium is designing a consensus-based accounting system that essentially enables companies to internalize the societal and the environmental externalities.
December 13th, 2011
Manufacturers have spent years building low-cost global supply chains. Natural disasters are showing them just how delicate those networks really are.
FORTUNE — The image to the right is almost surreal: It shows part of a Honda auto factory in central Thailand, one of the largest in Southeast Asia, swamped under 15 feet of water, brand-new cars floating in the currents. The devastating November flooding in Thailand, which killed more than 600 people, also knocked out some of Honda’s key suppliers, including electronics component maker Rohm & Co., forcing production delays in plants as far away as Ohio.
The Thailand floods alone would test any company’s operational prowess; now consider that much of the auto industry and many technology companies are still recovering from the earthquake and tsunami that tore through north-central Japan in March, shutting down dozens of contractors and subcontractors that supply everything from glass to test parts.
The twin tragedies in Asia have shone a spotlight on the often anonymous but incredibly important niche companies whose products and parts go into every MacBook or Prius. Invented by Toyota Motor Corp., (TM) and perfected in the era of globalization, the lean supply chain completely decentralized manufacturing: Big manufacturers developed a multinational network of specialists to supply them with parts and to make sure those components arrived at assembly plants at the moment they were needed. When things go as planned, the system benefits everyone in the chain: The assembly plant is more efficient (no pesky inventories to manage), suppliers keep the cost of parts down by locating in regions with cheap labor, and consumers enjoy lower prices.
But natural disasters such as the earthquake and tsunami reveal just how fragile this carefully crafted ecosystem can be, As Bob Ferrari, a leading supply-chain consultant, puts it: “You never want to hear about the guys who run the supply chains for multinational companies. When you do, usually it means something really bad has happened.”
Insurers and companies are still calculating the direct costs of the devastation. Munich Re, the big insurer, pegs the economic cost of the earthquake and tsunami in Japan at $210 billion for the first nine months of 2011 alone. Thailand’s insurance commissioner estimates some $30 billion in losses from flooding in his country to date.
Scattered shipping containers in Sendai Shiogama Port in Japan on March 13
Because of the interconnected nature of supply chains, the economic impact of these disasters will be felt well beyond Asia — and for many months to come. Computer hard-drive maker Seagate (STX), which operates two factories in Thailand, predicts disruptions to its customers (Seagate supplies hard drives to makers of PCs and servers) through 2012, and CEO Stephen J. Luczo says the industry won’t “be back to normal” until 2013. iSuppli, a market research firm, says the computer industry is in need of 175 million hard drives but suppliers can deliver only 125 million units — a shortfall of 29%. Apple (AAPL), Hewlett-Packard, (HPQ) and most recently Intel (INTC) are among the companies that have told investors that the flooding will have an impact on future earnings.
The effects of Mother Nature’s wrath still are being felt in the U.S. Auto assembly workers in Ohio saw their hours cut in November because Honda (HMC) couldn’t get parts from Thailand. (In late November, Honda returned those plants to normal production levels.) On the other hand, a factory in Decherd, Tenn., that normally makes engines for Nissan cars sold only in the U.S. suddenly had to ramp up production after the Japan earthquake; Nissan had the American plant ship engines to Asia for use in cars sold both in Japan and in Southeast Asia.
Not surprisingly, the events of 2011 have forced many manufacturers to rethink their global infrastructures. “These recent ‘Black Swan’ or unprecedented natural disaster events have obviously exposed vulnerabilities among industry supply chains,” says Ferrari, the supply-chain expert. “The question now is, has the quest for lowest-cost production and hyper-lean supply chains overridden and exposed vulnerability to significant business risk?”
It is a big, knotty issue for CEOs: Are bottom-line-oriented executives prepared to pull back from a system of low-cost suppliers and “just in time” manufacturing in favor of a more old-fashioned model that has plants squirreling away components for a rainy day, or, more dramatically, investing in backup facilities?
For some companies the answer is a resounding yes. Seagate CEO Luczo says sophisticated companies have started asking his company for longer contracts on supply arrangements.
Analysts say Nissan has bounced back better than other Japanese automakers because it was able to ramp up production at its other plants, including the Decherd facility. (One stroke of bad luck: Nissan also bolstered production at one of its operations in Thailand, which has been slowed by flooding.) FM Global, an insurance company based in Johnston, R.I., surveyed 600 chief financial officers in early 2011 and asked what they feared could derail their companies’ revenue drivers. The most frequently cited answer? Supply-chain disruptions. And that survey was taken before the Japan earthquake.
Carlos Ghosn, the CEO of Nissan, is philosophical. “There’s going to be another crisis,” he told an audience in New York in late November. “We don’t know what kind of crisis, where it is going to hit us, and when it is going to hit us, but every time there is a crisis we are going to learn from it.” If he’s right, and crisis mode is the new normal, then the real cost advantage may not go to the manufacturer with the nimblest supply chain but the company with the most robust one.
This article is from the December 26, 2011 issue of Fortune.
December 4th, 2011
The exhibit will feature art created in the tri-brand mentorship program.
Hurley, a Costa Mesa-based youth lifestyle brand, is teaming up with Nike and Otis College of Art and Design to present the art and fashion event, “Considered.” The art show at Hurley’s H Space Gallery in Costa Mesa begins with a VIP reception on Oct. 20 from 6-9 p.m. and will continue until Dec. 16. The contemporary exhibit will feature art created in the tri-brand mentorship program established by Rosemary Brantley, the chair of Fashion Design at Otis College of Art and Design.
“The problem today is that fashion has become disposable and unsustainable. It is our responsibility as teachers and artists to empower our students to design with consideration,” said Brantley. “Consumers of the future will choose brands that can find solutions to challenges without compromising design or aesthetic. Designers who excel at creating beautiful and sustainable product will be the leaders of our future.”
When creating their designs, students were required to use the Nike Considered Index Tool. The platform analyzes all characteristics of the supply chain, from origins of the fabrics and throughout the lifespan of the product. In addition to these guidelines, students are challenged with three themes. The first theme, Regenerative, focuses on recycling and reusing materials to create new and innovative apparel. The second, Heirloom, forces students to consider how to design classic and valuable garments that will improve with age. And lastly, Sustainable Design advises students to create low impact and environmentally friendly apparel to challenge traditional beliefs about fashion design.
“For Hurley, the opportunity to support a design mentorship program rooted in sustainability and environmental awareness is one that makes perfect sense as it speaks to precisely who we are as a brand,” said John Cherpas, SVP of Design for Hurley. “This is more than just a fashion education. It is a consumer education, driving purchase behaviors that take into consideration the environment and sustainable practices in the fashion industry.”
October 16th, 2011
Cash flow issues keeping you up at night? Instead of throwing money at the problem, try strengthening each part of your supply chain.
Cash is the fuel that drives business, and many financial analysts consider the condition of a company’s cash flow to be one of the most important indicators of that business’s financial health. After all, a well-managed flow of cash–like a strong heart–is usually indicative of a healthy business, while poorly managed cash flow, or a weak heart, can cause problems that affect the entire business.
Unfortunately, companies facing cash flow crunches simply throw money at the problem, which is a temporary solution at best, akin to treating heart disease with drugs alone. And just as heart surgeons encourage their patients to eat well, increase their physical activity and reduce stress, cash flow management requires more than just a financial fix. It requires a holistic approach that focuses on making a company’s entire supply chain operate more efficiently. After all, the faster goods move from seller to buyer, the faster sellers can be paid.
It’s important to note that a cash flow crisis is usually a symptom of a broader supply chain sickness. Treating this illness requires the attention not only if the CFO but also of the logistics manager, the purchasing department, operations, the tech guys and even the CEO. And while working with a bank to open a line of credit or amending an existing financial instrument can certainly help, the only real way to address a cash flow problem is to take a holistic, long-term view of the issue. Fixing a cash flow problem requires companies to examine and improve the three key flows of commerce: goods, information and funds. Let’s take a look at the first key flow.
Follow The Goods
The faster a seller moves goods to a buyer, the faster the buyer will pay for those goods, and that impacts cash flow. Therefore, businesses must ask themselves how they can better improve the speed at which their goods exchange hands. And this goes well beyond the actual transportation of the goods. Rather, it requires an examination of the entire process–from sales all the way through invoicing.
Let’s start with sales. It’s vitally important for a company’s decision-makers–and for small and growing firms, that usually means the owners–to be plugged into the sales process, examining the data from the sales staff on a regular basis. How much was sold yesterday, how much will be sold today, and what about tomorrow? The more accurate this information, the tighter the inventory. And the tighter the inventory, the better the cash flow.
After all, every item that’s sitting on a warehouse shelf represents inaccessible capital. Turning that inventory into sales begins to unleash that capital. If the inventory isn’t moving, you’re not moving cash. On the flip side, you have to be prepared to quickly replace sold or outdated inventory. Robust and accurate sales data ultimately drives inventory levels. Of course, this is sometimes a game of chance, but your chances of having optimal inventory levels increase with the accuracy of our sales data.
Next comes fulfillment. When a customer places an order, what happens behind the scenes? Who handles the fulfillment–that is, moving the goods out of inventory and toward the buyers? Is the pick and pack of the goods and the preparation of the shipment an arduous, manual process that delays shipments from leaving your facility? Or have you integrated technologies that create a streamlined, automated and efficient fulfillment process?
And, of course, transportation decisions are also important. Sometimes the cheapest form of transportation–usually also the slowest–isn’t the best choice. Spending more on expedited services can often result in improved reductions in the cash flow cycle.
Use The Information
Your next vital key to good cash flow is information, and for that, you must have visibility of your product shipments. Once your goods leave the dock en route to your buyers, how much visibility do you have regarding the progress each shipment is making? Do you have a tracking number for every package? Did you share the tracking number with the customer? Are you aware that a package was delayed due to weather? While all these questions primarily reside in the operations side of the house, they can also have a major impact on customer service, which in turn can impact cash flow. After all, a customer who feels well treated is more inclined to pay on time–and buy from you again.
In addition to tracking your shipments, using the information you have about each shipment’s status and delivery time enables you to put invoices into the hands of your buyers as soon as possible. Once the goods are delivered, does your business receive confirmation that the order’s been delivered? And upon receiving that confirmation, do you automatically trigger an invoice? All this information helps to build solid, long-term relationships with your customers while improving cash flow.
Speed The Funds
This is the area where business owners usually look for a quick solution. After all, most of us have heard the laundry list of best practices from a financial perspective on how to improve cash flow. Some of these traditional but important remedies include:
- Doing customer credit checks. Perform credit checks on all new and non-cash customers. This process can immediately reduce bad debt, since you’ll stop offering credit to customers who haven’t proved they deserve it.
- Offering term discounts. To encourage customers to pay on time, consider offering term discounts. For example, if your invoice terms are “net 30/2/10,” customer payment is expected in 30 days; however, you’re offering the customer a 2 percent discount if payment is made in 10 days.
- Asking customers to pay by cash or credit card. Rather than sell on term payments, sell on cash or credit card payments. Once you’ve got the cash in hand, deposit the funds immediately.
- Charging late fees. Indicate on your invoice when payment is due, and specify the penalty interest for late payment.
These solutions have been and will remain key ingredients in helping to cure cash flow ailments. But they’re not the only funds-related prescriptions. Consider these options:
- C.O.D. (Collect On Delivery). C.O.D. delivers cost savings and processing efficiencies that improve cash flow. This process may seem archaic, but the reality is that you’ll be paid faster with C.O.D. than a traditional 30-, 60- or 90-day term agreement.
- Inventory financing. Have you ever thought about unleashing working capital generated from inventory that traditional banks won’t finance, such as inventory you’ve got housed overseas? What about moving that inventory to a different location that enables those goods to be financed? Unfortunately, many businesses simply throw up their hands in defeat when they learn that overseas inventory can’t be financed. But that’s giving up too soon. If you take a holistic supply chain approach, you’ll realize that realigning your supply chain can enable you to gain economies of scale, reduce inventory expenses and ultimately obtain additional working capital. Most traditional banks are simply focused on the money flow, not the supply chain.
- Credit insurance. Today’s business environment pretty much mandates that small companies go global. But conducting business with trading partners overseas can be risky. Credit Insurance can help mitigate the risks by protecting the value of your receivables. By guarding your bottom line against nonpayment–or even slow payment–of invoices, you can breathe easier about your decision to conduct cross-border trade. And credit insurance can be used on a case-by-case basis–for example, with new customers whose payment histories you’re unfamiliar with. Once you’ve established a more solid relationship with them, you can then stop charging them for the credit insurance.
To be successful at cash flow management is to make sure all three flows of commerce–goods, information and funds–are working together to accelerate the movement of money through your supply chain. In all my years in business, I’ve learned that cash flow can be–and must be–managed wisely, and that better cash flow management goes hand-in-glove with better supply chain management. This will help you create a healthy, strong business.
October 11th, 2011
Made in America is gaining momentum as more Americans now understand that we have given to much away. We have a real chance to start a movement and recharge our economy. Chinese employees who are tired of working long hours, in conditions that are sometimes not favorable are wanting more pay and incentives for labor. Our challenging economy is also creating a passionate movement and getting people to stop and think about the benefits of made in America. Global supply chain is costly and difficult to manage. Because of all the moving pieces and delicate relationships between Supply Chain, Engineering, Quality, Sales, Customer Service and costly day-today delivery of product companies are taking a more serious look at things.
The once great cost savings gained from doing business in China, India and other countries along with soaring transportation expenses; increasing risk of supply chain disruptions when doing business globally; and, unregulated overseas markets where companies cannot be as assertive about their rights for quality control, intellectual property and at times a fear of managing a staff that may not maintain its loyalty to their distance clients.
For years the Chinese and Indians have gained from the U.S. thanks to mega stores such as Wal-Mart and others who have done business abroad. As consumers, we are very much to blame for ignoring the little sticker on our clothes, at the bottom of our products and the key compenents to international participation in the supply chain delivery process.
If you know someone who is a Veteran they will most likely tell you that we need to buy American to keep our country financially strong and secure. These vets usually drive Fords, Chevys and look at labels because they know that buying other than American is going to come at a much bigger price than what they may be saving if buy foreign goods. Why do they get so emotionally charges when you ask them why it is so important to buy American made goods, because they have fought for this country. They have watched what can happen when we are too dependent on others for our day-to-day goods. We all were striving for a global economy but we all know that things have gone to far at the sacrifice of our American jobs. It is not all about China, India or anyone else, it is about respecting and appreciating the great things that this country manufacturers, grows and delivers. There is a big incentive to understanding the benefits of buying from your own backyard, all we have to do is look back in history.
Our country offers intellictual advantage with some of the brightest minds in Engineering and Supply Chain in the world. We have well managed harbors with millions of products going and coming in every single day. American companies are modern with high tech automation, assembly, and packaging systems that are respected world wide and are located in proximity to the world’s largest markets. As a nation, we are more stable than other arising countries and can easily function in any language because of our diversity.
If we stay committed we can change how Washington thinks, we can change the trend of what our teachers are telling their students and foster a lasting beneficial commitment. The cause is for our livelihood and an investment for all generations to come. Stand and take notice of where your products are coming from and speak of the benefits of made in America from a supply chain strategy.
Imagine how much easily life would be with Engineering, manufacturing, Quality and sales being all in this country.