Reading the 1st chapter of Chopra and Meindl’s “Supply Chain Management” book in preparation for the class last week reminded me about a short document that I had seen on the TV some time ago. It was about China’s change of diet and its increasing pressure on the global meat supply chain.
As China experiences better economic performance in recent years, its growing middle class is able to afford more luxurious choices on the dining table and in particular: beef. But the process of feeding 20% of the world’s population with only 8% of cultivable land will involve a large amount of trade agreements.
Thus, the Chinese government and trading firms initiated a global supply battle by out-bidding many other countries and caused the beef price to almost double within 6 months, from late 2014 to early 2015.
As a result:
- Japanese trading firms were forced to import cheaper cut of meat in order to keep supplying their customers with enough beef.
- Australia was quick to take advantage of the situation: many farms were switched from sheep to beef rearing to catch up with the surge of demand.
- On the other side of the supply chain, Brazil sold out more than 60 million acres for growing soybean – main feeding ingredient for the thriving beef farming industry.
And so, with this example you can some impressions of how the change in customer’s demand can set off great ripples throughout the supply chain.
The company founded in 1994 has become in the last five years in the giant of the ecommerce. This is mainly due to the amazing management of the logistics with an innovative management system of stocks, which reduces the time between the ‘click’ and the delivery.
The biggest warehouse of the company in Spain is in San Fernando de Henares (Madrid), which has 32.000 square meters is going to be extended to 77.000 square meters by adding 12.000 square meters tall and the construction of storage towers.
Amazon has 29 warehouses in 7 different countries and between them, they have developed a logistical framework that connects each one as a node of a great network. Thus, when someone buys something in a country, the system automatically detects the stock of all the stores and the commitment of delivery and assigns in milliseconds the order to the nearest center of the network, which can be the one of Spain, Germany or Italy.
Another of the great innovations of the company is the stock system. Instead of classifying the products by categories, the location of the products is done randomly “If we ordered the products by categories, to put together two different articles, for example a book and a bottle of wine, we would have to walk much between one zone and another of the store”, they explain. With this system, the company seeks to reduce to the maximum the displacements of its employees and with this the time between the ‘click’ and the delivery. Moreover, they have implanted a system that calculates the shortest route when searching for several different items in the same trip through the store.
Following, there is a clip about the inside of an Amazon warehouse:
In our last lesson we heard about a classification with the parameters predictable/non predictable demand and stable/non stable processes (which you can see in the table below). This made me think about my previous working experience where I was responsible to send our suppliers forecasts of what our customer wants.
We had many projects regarding process improvements and saving of money. But these projects haven’t been really successful as this can only be realized when the processes are stable and when the demands are more or less predictable.
In my case, we worked very often like fire fighters, because of the heavily varying demand of our customer. Differences of more than 40% for the next month were normal whereas our suppliers need a reaction time of 3 months due to their lead times. You can see, this is getting complicated..
As this situation should not become routine in any company, we had to think about a solution. We were positioned in the right down corner of the table which is where you definitely do not want to be. To get out of there, we needed to stabilize our forecasting process. This was reached by introducing a safety stock for the most critical parts and by freezing a forecast time of 3 months with our suppliers. The next step was to make our customers (which are company internal) more aware of the lead times which we cannot change due to the complicated production processes.
In the end, we could solve our emergency problem with these “little” changes as our process became more stable. The total amount of escalations for this product decreased by more than 80% and therefore safed a lot of money (and a lot of my nerves).
In the end a short clip about excellent forecasting 🙂
I have recently read about decathlon and I’d like to introduce you the warehouse strategy they are following. Decathlon is one of the world’s largest sporting goods retailers. Today, there are more than 850 stores in 22 countries.
Principally, the products that they have stocked in their warehouses, the called 20/80 (Originally from the Pareto’s Principle) products, that is to say, the 20% of their products represents the 80% of the sales, which are mainly the sports shoes and textiles. For other products, they have in stock just the cheaper range. Therefore, if you need an expensive product or minority sports products, they have to order it directly to the factory.
In this way, Decathlon focuses more producing cheaper products that will be sold soon and avoid the accumulation of stock.
Last Friday Jorge and I went to the TEDxUPV talks conference. One of the talks was about Crowdfarming. But, What is Crowdfarming? It is an initiative that entirely changes the Orange Supply Chain in Valencia which eliminates the intermediaire between the agricultor and the final consumer.
They give the customer the opportunity of taking part in the growing of his oranges!!! They will plant a tree for the customer, who will be included in every single step of the process, since harvesting its fruits to receiving them at home.
With this method Crowdfarming not only eliminates the spoilage of a large quantity of orange due to the demand is known by the producer, but also preserves the original flavour of the oranges, as they only provide their service during the orange season.