Kehat Shahar, the Vice President of Supply Chain Planning at SanDisk, spoke on the journey that SanDisk has taken to improve their supply chain operations at the eft conference on June 18th in Chicago.  While most of the content for this article came from the speech at eft, some information came from the company’s 10-K, and some from an interview Mr. Shahar gave at a JDA conference that is posted on LinkedIn.

SanDisk is a leader in flash storage solutions.  This $6.6 billion company garners about two thirds of their sales from commercial clients, all the smart phone companies buy their flash drives.  The other third of their products are sold through retail chains.

sandisc flash

SanDisk has invested heavily in a vertically integrated business model, which includes a high volume, manufacturing facility in Japan based upon a joint venture with Toshiba.  This supply is “captive” – it is fully controlled by SanDisk. They also purchase non-captive flash memory from other suppliers.

The wafers are sorted and tested at captive and third-party facilities in China, Japan and Taiwan. Their products are then assembled and tested at both their in-house facilities in Shanghai and through a network of contract manufacturers.  Finally, the millions of units they produce are shipped out of regional distribution centers run by 3PL partners.

Mr. Shahar said that SanDisk’s journey to substantially improve their supply chain operations began in 2008.  At that time, they primarily served the retail channel, including big retailers like Walmart and Best Buy.  In 2008, they were a build to forecast company with a frozen forecast period of six weeks.  But their forecast accuracy was poor, only 50-60 percent accurate.  Consequently, they had too much inventory and poor service levels.  They knew they had to change.

They did not believe they could sufficiently improve forecasting to solve their problems, so they focused on responding to “certain demand” – committed orders.  This required manufacturing and replenishment agility.  They moved from a build to forecast to a build to target process.  This allowed them to reduce their frozen production fence for their captive WIP manufacturing to two times per week.  To support these quicker planning cycles, SanDisk became more rigorous in measuring variability in supply, manufacturing quality, and demand, and then working to reduce that variability. Less variability allows for quicker lead times and the ability to hit service levels with lower inventory levels.

SanDisk also worked to delay product differentiation through postponement.  They build generic inventory and delay creating the unique SKU until an order arrives.  The company also continues to work to drive in more component commonality across their product lines.  Agility is supported by air transport; their raw materials, work-in-process, and finished products are primarily shipped via air.

While their agility was greatly improved, they realized that different customer segments need different service levels.  Big collaborative planning, forecasting and replenishment (CPFR) retail customers in the US require that they make inventory commitments at the store level.  In emerging markets, customers want a low price and quick delivery; for some SKUs they need be able to deliver within 24 hours.

Further, in 2009-10, their focus on the commercial business greatly increased.  These are primarily vendor managed inventory relationships; SanDisk’s goal is to be the number one or two supplier on these customer’s scorecards.

All of this planning was, and continues to be, facilitated by supply chain planning tools that recommends what to build on a daily basis.  They use an advanced planning system (APS) and a multi-echelon inventory optimization (MEIO) solution from JDA to support this.  The APS starts by planning for 3 weeks of inventory to be held by their DCs.  Then the IO solution looks at the supply and demand inventory variability and the lead times they have experienced over the past 13 weeks, and adjusts the inventory targets accordingly.

But optimization is not enough.  They have set up an analytics center of excellence staffed by two PhDs in operations research.  This team takes a data driven approach to looking at their network flows and supply chain policies.  As one example, this team looked at how many factories should be enabled to manufacture particular products.  Previously, they had assumed the more products that could be made at more factories, the better their service levels would be.  But they discovered that enabling just two factories to produce most products was sufficient from a service level perspective and also much less costly.  Optimization is great, but optimizing an inefficient network is itself not optimal.

To support customer segmentation, in the last one to two years SanDisk began pricing service levels and value added services into their customer contracts.  Their goal is to maximize the dollars per gigabyte.  Higher service levels typically means more inventory and thus higher costs.

In emerging markets, some customers buy high volumes of only a few key SKUs.  Despite fast turnaround requirements, this ordering pattern reduces forecast variability and the inventory they must hold.  For some customers they operate virtual hubs – manufacturing capacity that is allocated to the customer with their resulting inventory positioned in one central location; for some customers where they receive sufficient lead time, they will engage in build to order; for many customers it is a configure to order process.  Each of these processes has a different cost structure that must be priced into the customer contract.

Mr. Shahar had a few key pieces of advice for companies that might want to develop a segmented supply chain.  First, their SCP system is a key enabler of the segmented supply chain.  The software manages the eight different supply chains they run, but all of this is invisible to the factory.  The factories are just told what they need to produce and when.

Surprisingly, getting buy in for a cost to serve segmented supply chain model was not difficult.  Mr. Shahar did not explain why this was so, but in a different part of the speech he mentioned that SanDisk has also improved their sales and operations planning process by tightly integrating it with the financial planning process.  This could be part of the explanation for why what has been a very difficult cultural transformation at many other companies, was not so difficult for SanDisk.

Finally, SanDisk did not take a “big bang” approach.  As this narrative makes clear, these capabilities were built step by step.

Nevertheless, it is clear that since 2008 when SanDisk began this journey, they have made substantial progress. They have improved on-time deliveries from 50-60 percent to best in class.  And these service levels are achieved with less inventory.  Their key measure on inventory is inventory turns above die bank.  Based on this metric, they have reduced their inventory by almost half.

summerIt’s finally summer. Which means a mixed bag of good and bad. The good? Less traffic heading in to the office, warm weather, no snow, summer vacations, longer days, and the disappearance of the winter blues. The bad? Mosquitoes, humidity, another disappointing Red Sox season, and cargo theft (see below). One of my favorite parts of the summer is the 4th of July. The fireworks, the bbq’s, and this year, the long weekend. With the 4th falling on a Saturday, next Friday, July 3, will be a company holiday for most US employees. As a result, will not be publishing a news round-up next Friday. So, even though it’s a week in advance, Happy 4th from the Friday news round-up team.

And now, on to this week’s news.

Amazon Prime 2Amazon is rolling out a new program which could dramatically increase the number of items that qualify for free two-day shipping for Prime members. The company is now listing items which can be shipped directly from merchant’s warehouses direct to the customer. Previously, these items had to be shipped to an Amazon warehouse to be eligible for Prime. This meant that merchants would be less likely to expedite shipping on cheaper items, making them unavailable for Prime delivery. The addition of drop-shipments could dramatically increase the number of items that are Prime eligible, well beyond the 20 million items currently listed.

instacart logoAs Clint Reiser mentioned last week, news broke about the California Labor Commission ruling on an Uber driver being classified as an employee, rather than a contractor. As a result, Instacart, the online grocery delivery service, is converting a large part of its contractor workforce into part-time employees. Instacart says it will make the change starting June 22 for staff members in Boston and Chicago, with more cities coming later. The newly converted employees will work between 20 and 30 hours a week, and make above minimum wage (although the exact amount will vary by market).

ups capitalUPS Capital, a branch of UPS which specializes in financing and insurance, is announcing the acquisition of parcel Pro. Parcel Pro was formed to insure shipments in the jewelry and wristwatch industry. As the demand for luxury items has increased, businesses have been forced to rethink their shipping strategies. Formerly, business shipping insurance has been limited to $50,000 in the US and $500 internationally. This meant companies had to break up shipments for insurance purposes, significantly raising their shipping and packaging costs. The newly combined UPS Capital and Parcel Pro can increase business shipping insurance coverage to $150,000 in the US and $100,000 internationally. This allows companies to reduce the number of shipments made for the same amount of merchandise. The price and closing date have not been disclosed, and it remain business as usual for the time being.

Rollover avoidanceThe DOT mandate for rollover avoidance systems has published, making the rule a law. The National Highway Traffic Safety Administration published a Final Rule in the Federal Register Tuesday that will require all trucks made Aug. 1, 2017, and after to be equipped will electronic stability control systems to prevent vehicle rollovers. The mandate is aimed at truck manufacturers, not truck buyers and owners, and applies to “typical three-axle tractors.” The mandate only requires stability control systems and not broader active safety systems that brake autonomously. The NHTSA says the rule will prevent between 1,424 and 1,759 crashes a year and prevent between 40 and 49 deaths a year.

CurbsideCurbside, a Palo Alto-based company offering a mobile app that allows customers to execute curbside pick-up of orders, announced the closing of $25 million in Series B funding. The round was led by Sutter Hill Ventures, and includes participation from prior investors Index Ventures, Yahoo co-founder Jerry Yang’s AME Cloud Ventures, Qualcomm Ventures and others. The funds will be used to help Curbside expand to new markets and stores. Currently, the service is available at select Target and Best Buy locations the San Francisco Bay Area, as well as in the New York metro region. The service is geared towards customers who want items same day without paying excessive fees. Curbside works at 25 locations today, but with these forthcoming additions and other planned expansions, that number is expected to reach 40 by the end of July.

4th cargo theftAnd finally, the 4th of July holiday is fast approaching. And Cargo Net has issued a warning to truckers: Beware! July 4th week is ripe for cargo theft. In its warning to drivers and carriers, Cargo Net cited potential for increased activity by cargo thieves this week and next, with the July 1-7 week accounting for 76 cargo theft incidents and nearly $11 million in loss value in the last three years. The top targeted commodities over the last three years include food and beverage, electronics, and metal. The top states include California, Florida, Texas, Georgia, and Illinois.

That’s it for the news this week. Enjoy the weekend and the song of the week, The Star Spangled Banner, by Jimi Hendrix.

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Evan-Puzey-156x192Supply chain execution convergence is a hot topic these days. The need for end-to-end visibility and solutions that proactively enable planning and the ability to react to the unavoidable disruptions is paramount. Organizations need to evaluate their overall supply chain approach and to consider how supply chain execution convergence can get them to the next level.

Rethinking the Traditional Supply Chain
More than just a buzzword, supply chain execution convergence allows for better collaboration and optimization between each team and silos in the enterprise. Rather than optimizing individual operations – transportation, warehousing and others independently – it optimizes the entire flow to get the most benefit. The idea is to bring together the individual silos within a business, from the front end to the back end, from warehousing, manufacturing, logistics, purchasing, etc. to manage the end-to-end supply chain. Wouldn’t it be great to break down the silos between those parts of the organization, and start to get the systems, processes and people working together?

Two Factors Driving the Need for Convergence
Visibility and collaboration. It’s that simple. Or is it? If the functional domains have optimized their own internal business processes for better visibility, then getting to the next level of organizational visibility should be the natural next step. The problem is that each of these functional areas has gone about this process utilizing their own systems and technology and what works there might not be the best solution for the overall business.

One goal of the organization when developing its visibility and collaboration strategy is to understand the “what”, “who” and “how” with regards to the data – what information do we want to gather; who do we want to share it with and how do we want to share the information. By answering these questions, an organization can start down the path of supply chain convergence.

As an organization, another goal is to get systems aligned to enable end-to-end visibility and to facilitate cross functional collaboration. It may or may not be necessary to acquire new systems. It’s important to have a systems “strategy” that says these are the systems we are going to use and the ones we are going to integrate for information flow. Then wrap that up into an overall business process that links each of the individual components of the business and look to optimize those business processes to benefit the whole business rather than the individual silos that form the end-to-end supply chain network.

In order to have true visibility, a third goal for organizations is to have both internal and external supply chain convergence. Even though businesses today understand the need for visibility across the extended supply chains, they don’t have it. In a 2014 research study by Forbes/KPMG entitled “Global Manufacturing Outlook 2014,”40 percent of senior executives acknowledged their supply chains lack visibility and that they realize the value in data sharing with business partners.*

The challenge organizations face is that the problem starts to get more complex once they go outside their own business. In looking across the organization’s supplier and logistics networks, there are tens, hundreds or thousands of partners that you work with. In that network, there are a few very large partners, some medium partners and potentially many smaller suppliers. Cloud technologies can help break down the barriers for the small to medium supply chain partners, enabling them to afford systems and connectivity which will ultimately increase visibility and collaboration.

The ultimate goal for any organization is to move away from the notion of visibility as the ability to “see where my stuff is” and even beyond exception-based management to a more sophisticated level of visibility which truly enables them to proactively respond to the inevitable disruptions in their supply chain. More than ever, organizations want a control tower solution that oversees their entire set of processes, from PO to delivery. Agility is key in today’s organizations.

Technology that Worked Yesterday Might Not Work Today
Begin by taking stock of where your organization is at the enterprise level and bring people together to start thinking about a converged platform. Then map out the processes, from start to finish, making sure the right systems and technologies are identified, before getting people aligned and moving forward with connecting the processes and systems. Once that is solidly in place, you can move that forward to connect with like-minded business partners.

Businesses still have many options, from a “one-system fits all” to a “best-of-breed” approach –and there are benefits to both. A best-of-breed approach can optimize the best technological features and enable the combined solution to provide the individual functional domains their specific applications while providing the larger organization the visibility, collaboration and agility it so vitally needs. Organizations must understand what their goals are for supply chain convergence and end-to-end visibility and choose a solution that will best fit its unique needs.

* Source: KMPG Global Manufacturing Outlook 2014: Performance in the crosshairs.

 

With nearly 20 years experience in the supply chain industry, Evan Puzy has assisted enterprises and logistics service providers in more than 30 countries, across 5 continents, with their supply chain initiatives. Evan has been with Kewill since 2004 in senior Marketing and Product Management roles, most recently as Chief Operating Officer for Kewill Asia Pacific.

Omni-channel fulfillment is arguably today’s hottest supply chain topic. My colleagues and I have written a number of blog posts on individual case studies on this topic. Here is a case study on an anonymous major US retailer that likely has a store location near you. How do your fulfillment operations compare to this leading retailer’s? I will refer to this anonymous retailer as “Retailister.”

RetailisterRetailister currently operates 9 traditional store replenishment DCs and 4 e-commerce fulfillment centers. The company also engages 3PLs during the peak season. Retailister operates with a global inventory system that provides comprehensive inventory visibility. This capability is enhanced with an established distributed order management (DOM) system. Going forward, Retailister is expanding its inventory visibility deeper into its supply chain by obtaining production and inventory information from suppliers to obtain chain-of-custody and “factory to port” visibility.

Omni-Channel Fulfillment Operations
Retailister predominantly utilizes its traditional store replenishment DCs for that purpose and the e-commerce fulfillment centers for online orders. However, store replenishment DCs also fulfill high-volume SKUs ordered online during the holiday peak season. Come November, the store replenishment peak has diminished, providing slack resources in time to support the retail ordering peak.

Retailister’s stores are also enabled to ship items. But the practice of ship-from-store is used as an exception because the company does not want the stores to initiate split shipments (As a side note, Steve’s post from Monday on Walmart’s omni-channel initiatives states that 65 percent of customers want to have items consolidated in fewer packages). However, Retailister’s stores do fulfill a lot of buy- online, pick-up-at-store orders. They also make sure that safety stock is retained at the stores, as store traffic is the store’s primary customer. This year, the company is engaging in a smart fulfillment sourcing initiative that is further evaluating the merits of ship-from-store.  Previous ARC research has shown that many organizations are concerned with the efficiency of ship-from-store operations. In particular, Retailister will be evaluating the merits of shipping from the closest stores to shipping destination and the use of underperforming stores for this purpose.

Conclusion
I consider Retailister’s omni-channel fulfillment operations to be more sophisticated than most organizations. In particular, the company’s global inventory visibility and distributed order management system serve as a foundation for the integration of channels and the expansion of additional order and fulfillment combinations. The company’s initiative to obtain greater visibility into its sourced orders from suppliers will increase its ability to properly match supply with demand. I am interested in learning about the findings of the company’s “smart fulfillment sourcing” initiative. If this pilot uncovers efficient scenarios for ship-from-store operations, Retailister’s omni-channel fulfillment practices will move into the Leaders category in my book.

NagyIt used to be that clothes shopping for me was an in-store experience, browsing the aisles and casually perusing around to find the perfect item.  These days, life is filled with work, play dates, and kids sporting activities leaving little time for enjoyable store visits.  Online shopping from my computer or my phone has become my go-to.  Items can be shipped to the house or a local store for pick up and, if returns are needed, I can send them back in the mail or drop them off at the store.  These touch points make it easy for me as a shopper, but make the multichannel supply chain of products, deliveries, and returns challenging for the retailer—especially when the touch points are both global and country specific.

Consumers, like me, demand the same experience, whether shopping at a store or online, whether product is delivered to the store or home.  Retailers and manufacturers are under increased pressure to support that level of consistency to avoid losing a consumer to another provider who can meet their needs.  And, consider those demands as retail volumes continue to increase around the world, particularly in regions like China where more and more consumers living in Tier 3 and 4 cities are turning to the internet to make purchases.

According to a recent analyst report, The Evolution of Supply Chains in a Direct-to-Consumer World, manufacturers and retailers are increasingly looking to global transportation management systems (TMS) to support a seamless multichannel experience. They are upgrading physical assets and IT assets, using more technology to provide comprehensive status information and better manage transportation and warehousing. Warehouse management system (WMS) and TMS technologies are essential to developing a cohesive approach capable of combining network design, inventory management, delivery priority, and lane choice in a dynamic way to offer best-in-class fulfillment.

Companies that plan to purchase or upgrade their TMS systems should be looking for particular capabilities that support this complexity. Companies should choose the best mix of options, depending on what they consider most important to gaining a competitive advantage: agility and speed, supply chain visibility, event management and on time delivery, freight flow density, inventory management, and continuous improvement. In a supporting role, a TMS solution can be tailored to each network, and it can provide essential features that are shared by different multichannel operations so the company can continue to meet consumers’ rising expectations, even as shipment volumes increase.

 

Brent Nagy is Director of Customer Strategy for C.H. Robinson. Brent has been with C.H. Robinson for over 10 years and has spent the majority of that time consulting, engineering and implementing onsite at client locations. His experience spans multiple sectors with a focus on heavy manufacturing and automotive supply chains. In his current role, Brent oversees strategic customer engagements whereby leveraging account management talent and C.H. Robinson’s broad menu of services to deliver on client expectations.