“Balancing Speed and Costs”

Borderless ambition, inspiration and ideas

Manage or ignore supply chain risk Board game supply chain risks History: Nokia versus Ericsson Changes in chemical industry

M Orchestration of SC flowers SUPPLY CHAIN movement

Kris van Ransbeek No. 3 | Q4 2011 www.supplychainmovement.com Former VP Supply Chain Chiquita “Balancing speed and costs”

RISKS THERE ARE MANY DIFFERENT

SUPPLY CHAIN STRATEGIES...

ACTUALLY THERE'S ONLY ONE.

TruEconomy is specialized in Supply Chain Management consulting services ranging from Management Consulting services to solution design to Supply Chain Management implementation services and has over 90 SCM consultants, making TruEconomy the supply chain experts. With offices in the UK, Italy and its head offices in The Netherlands, TruEconomy has a strong European focus. Out of its nearshoring facilities in Greece, TruEconomy also offers development and support services.

TruEconomy has profound knowledge of SAP, JDA, Oracle/JDE and other leading supply chain management solutions.

Stationsstraat 2 P.O. Box 501 4000 AM Tiel The Netherlands T +31(0) 344 713000 www.trueconomy.com

Customers we serve: 3M • Ahold • Airbus • AkzoNobel • Asco Numatics • ASML • Barco • Bticino • Bugaboo • Canon • Caprabo • Carrefour • Comifar • Crippa • Crocs • Cycleon • Eneco • ESA • Estee Lauder Etos • FloraHolland • Fluke • Gambro • Gazelle • GeesinkNorba • Harsco • Heineken • Hema • Hoogenbosch Retail Group • Intergamma • Joulz • Lamb Weston / Meijer • Logitech • Maxeda • Merck Serono Miss Etam • Nuon • NXP Semiconductors • Oiltanking • Oshkosh • Pearle • Philips • Plantronics • Pon • Re-Flex • Reell • Schneider Electric • Siemens • Soitec • Stegeman • Stevanato • Stolt-Nielsen • Stryker • Tata Steel Telfort • Ter Hoeven Groep • Teva • Thales • ThyssenKrupp Steel • Tornier • UPM • UPS • UTi • Vandemoortele • Van Helden • Vlisco • Vodafone • Weir Minerals • Wienerberger • Xerox • Zeeman • Zwanenberg

Contents THERE ARE MANY DIFFERENT

SUPPLY CHAIN STRATEGIES... Natural risk behaviour ow does your company behave in the face of risk and threats? Natu- Hral disasters in recent years have made companies increasingly aware of supply chain risks. The earthquake and the subsequent tsunami in Japan clearly exposed the risks in the supply of components, especially in the high- tech industry. A company needs to know how and where its supply chain could suffer in the event of a natural disaster, and upstream supply chain visibility is essential for providing insight into areas of vulnerability. According to a recent survey by Gart- ner analysts, supplier visibility focuses on reducing business risk and the need better for lead times. 7 | News & Background But there is a difference between supply chain status infor- 10 | Do or die: Manage or ignore mation from a company’s direct suppliers (Tier 1) and from Tier 2 and Tier 3 suppliers. Supplier engineering and quality- supply chain risk related events double the need for status information at Tier 2/ Tier 3 level compared to Tier1 suppliers. Additionally, Gartner 18 | Facts & Figures Supply Chain Risk sees government legislation and regulation increasing further upstream for the ‘secure’ supply chain, which will drive the need Management for additional upstream visibility and control in some industries, including medical, aerospace and defence and high-tech. 20 | Supply Chain Risk board game ACTUALLY THERE'S ONLY ONE. Companies that seek Tier 2/Tier 3 data do so to obtain ‘early 22 | Case study Nokia in 2000 warnings’ on upstream engineering and quality issues before 26 | Profile Kris van Ransbeek they impact Tier 1 and brand-owner manufacturing processes. Approximately 70% of the companies studied by Gartner are TruEconomy is specialized in Supply Chain Management consulting services 32 | Chemical industry’s supply chain obtaining Tier 1 visibility in terms of shipment and order status, ranging from Management Consulting services to solution design to Supply Chain Management implementation services yet only 30% of them have the same kind of visibility at Tier 2/ and has over 90 SCM consultants, making TruEconomy the supply chain experts. 35 | Tools & Technology Tier 3 level. With offices in the UK, Italy and its head offices in The Netherlands, TruEconomy has a strong European focus. 36 | Case study FloraHolland For me, the main question remains how companies react to cri- Out of its nearshoring facilities in Greece, TruEconomy also offers development and support services. tical information upstream. In the natural world, different ani- TruEconomy has profound knowledge of SAP, JDA, Oracle/JDE and other leading supply chain management solutions. mal species behave differently in the face of danger; elephants, Colophon and ostriches, for instance, are all highly sensitive to threats but their responses are different. In moments of imminent danger, Supply Chain Movement is a quarterly Contributors to this issue: magazine published by Supply Chain Helen Armstrong, Roberto Crippa, an elephant will charge – just like most chemical companies do SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 Media B.V. Marco van der Hoeven, Lars Leemhorst, when safety is at risk. Meanwhile, most banks apply all manner Ruben Oppenheimer, Lynn Radford, Volume 3, October 2011 Sarah Thompson, Tom van Woensel, of risk calculations to their products but, similar to ostriches, Ton Zonneveld they are not responsive enough to structurally change their busi- ISSN: 2211-6400 Concept & design: ness behaviour despite the growing corporate risks of the past Editorial address Onnink Grafische Communicatie B.V. few years. And, having not taken sufficient precautions, many Supply Chain Movement P.O. Box 207, 7000 AE Doetinchem The reuse and reproduction of the arti- transport companies have been caught like a rabbit in the head- The Netherlands cles and reports in this magazine is only lights as a result of rising fuel prices. permitted with an acknowledgement of Editor sources and the prior written consent of Martijn Lofvers (Publishing Director & the publisher. What kind of animal is your company when it comes to risk Editor-in-Chief) behaviour? An elephant, an ostrich, a rabbit or a monkey? 3 Stationsstraat 2 P.O. Box 501 4000 AM Tiel The Netherlands T +31(0) 344 713000 www.trueconomy.com T +31 (0)6 54 76 13 83 E [email protected]

Sales Martijn Lofvers, Publishing Director & Editor-in-Chief Customers we serve: 3M • Ahold • Airbus • AkzoNobel • Asco Numatics • ASML • Barco • Bticino • Bugaboo • Canon • Caprabo • Carrefour • Comifar • Crippa • Crocs • Cycleon • Eneco • ESA • Estee Lauder Marjolein Lacet (Account Manager) Etos • FloraHolland • Fluke • Gambro • Gazelle • GeesinkNorba • Harsco • Heineken • Hema • Hoogenbosch Retail Group • Intergamma • Joulz • Lamb Weston / Meijer • Logitech • Maxeda • Merck Serono T +31 (0)6 54 76 13 84 Supply Chain Movement Miss Etam • Nuon • NXP Semiconductors • Oiltanking • Oshkosh • Pearle • Philips • Plantronics • Pon • Re-Flex • Reell • Schneider Electric • Siemens • Soitec • Stegeman • Stevanato • Stolt-Nielsen • Stryker • Tata Steel E [email protected] [email protected] Telfort • Ter Hoeven Groep • Teva • Thales • ThyssenKrupp Steel • Tornier • UPM • UPS • UTi • Vandemoortele • Van Helden • Vlisco • Vodafone • Weir Minerals • Wienerberger • Xerox • Zeeman • Zwanenberg

ADVERTORIAL Van Leeuwen Wheeler achieves 40% stock reduction with no loss of service level Van Leeuwen Wheeler, part of the Netherlands-based Van Leeuwen Pipe and Tube Group, is the UK’s leading distributor and processor of carbon and stainless steel pipe, tube and bar products. With a head office and distribution centre in Brierley Hill in the West Midlands, a flagship sales and stockholding facility in Middlesbrough and sales offices in Sheffield, Bury, Eastleigh, Dundee and Tullow, in the Republic of Ireland, the company serves customers in a wide range of markets. Following a major investment programme, the company’s management identified the need to streamline its stockholding processes.

Being able to forecast accurately has given us the ability to be dynamic

Dave Jenkins

Van Leeuwen Wheeler Group Commercial Dave Jenkins: “We were looking at 7 days Slim4 identified the need for a small Manager Dave Jenkins was given the task of to calculate what we would need for the increase in stock lines, seen as an inevitable reviewing stockholding practices. He says: next three or four weeks. As well as being consequence of being able to service a “As recession hit, our priority was to identify a lengthy process, it was no longer giving us broader customer base. ways of supporting our customers by operating the accuracy we needed. The risk was that Other key improvements include improved in a way that best met their needs. Many if we continued on the same basis, service identification of item seasonality and were reducing their own stocks, which meant levels might suffer and lead times become accurate pin-pointing of obsolete stock. that they looked to us for much faster order extended. It also made good commercial By analysing precisely what is ordered turnarounds to enable them to meet critical sense to upgrade our stockholding systems and where, Slim4 also identified cost deadlines. At the same time, we took the to ensure that we were operating as cost savings by changing transport patterns, realistic view that we would not be immune efficiently as possible.” essentially eliminating several road trips and from the effects of recession so it was essential Of the many benefits offered by Slim4, Dave rationalising inter-depot stock movement. that we looked to our own housekeeping to Jenkins cites visibility as being the key. He ensure that our stock levels were sufficient to says: “It was clear that we needed to manage Dave Jenkins concludes: “The partnership meet customer needs but appropriate to the stock as efficiently as possible. Being able to with Slimstock has given us a completely economic environment.” forecast accurately has given us the ability new way of analysing and planning One specific need that was identified was for to be dynamic, which offers a powerful inventory control, allowing us to become an improved forecasting system. Under the advantage.” more proactive rather than reactive in a existing ERP system, forecasts were based on changing market. The net result is a very the top fifty lines in each product area with an Having pledged to cut inventory levels by strong relationship that has enabled Van Excel spreadsheet system that took a week to 25% to 30%, Slimstock actually achieved Leeuwen Wheeler to save both time and implement. a 40% saving, this despite the fact that money.”

Slimstock-SCM '10-11.indd 13 04-10-11 09:31 Index Persons, companies & organizations in this issue

PERSONs Companies & other organizations A Isabel Agudelo 35 A Ahold 7 P Perdue University 14 Bruce Arntzen 35 AkzoNobel 11 Philips 22 Amazon 7 Procter & Gamble 7 B Jaap-Willem Bijsterbosch 36 Alcatel 26 PRTM 18 Edgar Blanco 9 Aon 35 Cor Boonstra 24 Apple 7 R Reckitt& Colman 26 Rob Braat 38 Research In Motion 7 B Business Continuity Institute 18 REWE 31 C Roberto Crippa 11 C Capgemini 9 S Shell 33 D Matt Davis 7 Carrefour 7, 26 Sony Ericcson 25 Chiquita 26 E Jack Eggels 33 T Tesco 7 D Danone 31 TLN 38 F J.W. Forrester 13 Dell 7 TruEconomy 11, 36 Deloitte 32 H Jurgen Hoppenbrouwers 32 Dinalog 9 U Unilever 7 DSM 33 L Lars Leemhorst 11 V VGB 38 Martijn Lofvers 3 E Eindhoven University of Technology 9,38 VU University Amsterdam 38 Erasmus University Rotterdam 38 M Tapio Markki 24 Ericsson 22 W Wageningen University 38 Kent Miller 14 Walmart 7 F Ferrari 7 O Jorma Ollila 24 FloraHolland 36

P Tim Payne 7 G Gartner 3,7

R Kris van Ransbeek 26 L LOGyCA 35

S María Jesus Saenz 35 M Massachusetts Institute Frank Schaapveld 11 of Technology 9, 11, 30, 35 Collin Seyger 11 McKinsey 18 Pier Luigi Sigismondi 7 Medtronic 11 David Simchi-Levi 11 Migros 31

V Michiel van Veen 36 N Nokia 22

W Jan Warby 25 O Ortec 38 SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 Edwin Wenink 36 Klaas Wouterlood 33 Tom van Woensel 9

Frank Schaapveld, Medtronic: “Anything that holds me back from delivering 5 to the customer is classified as a risk.” >> pag. 10 supply chain embedding performance.

We bridge strategy into reality.

We align your Supply Chain to perform to your overall Business Strategy:

• value chain design • strategic master planning • supply chain integration • supply chain operations performance (measurement)

We embed sustainable improvements in the performance of your Supply Chain: • mastering inventory • supply chain operations performance (measurement) • optimization of warehousing and transport operations • emerging economies supply chain connection

Riverland Management Consultants B.V. Stationsstraat 18 4001 CE Tiel The Netherlands www.riverland-scm.com News & background

Gartner Supply Chain Conference, London Segmentation proves crucial for the supply chain

“One size supply chain doesn’t fit all.” These were the words used by Matt Davis from research bureau Gartner to summarise one of the Supply Chain Executive Conference’s most important messages in London this September. Pier Luigi Sigismondi, Chief Supply Chain Officer at Unilever, also emphasised the importance of segmented supply chains as the best way to serve clients’ needs. He presented Unilever´s product pyramid with exclusive products per unit with high service at the top, and the low cost products per pallet at the bottom. Formula 1 According to Tim Payne from Gartner, the ultimate goal of supply chain management is orchestration. He compared this to For- mula 1 racing. “Flawless performance should be second nature. “Supply chain is a central part of our business,” commented Pier Luigi Sigismondi, Chief Supply Chain Officer at Unilever, during the Supply Chain The Ferrari team knows how different components work together Executive Conference in London in the middle of September. on different race circuits, each with its own strategy. The race is the implementation phase in which Ferrari carries out multiple simulations. The championship, with its 21 races, represents the strategic level.” Added value Payne commended Unilever as a shining example of progressive Pier Luigi Sigismondi, Chief Supply Chain Officer at Unilever, supply chain management. “Unilever is one of the first compa- underlined the strategic role the supply chain plays at Unilever nies to have created the position of Chief Supply Chain Officer during a very convincing presentation. “We don’t always want in the board of directors. This company has actually gone from to focus on costs. This year, we are trying to create value in our financial reorganisation to creating value in the supply chain. In supply chains. In the next two years, we want to become the best eighteen months, this company has improved its performance.” whilst heading towards demand-driven value chains.” Increasing pressure from retailers like Walmart, Ahold, Carre- four and Tesco has led Unilever to set up complete test shops for European Gartner Supply Chain Top 25 consumers, so-called Customer Integration & Innovation Cen-

ters, in order to improve packaging. “We will use retail data to SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 help us grow,” Sigismondi explained. “Forecasting based on point Gartner compiles a global Supply Chain Top 25 every year. In of sale (POS) data reduces the chance of false predictions. The the top 5 this year, apart from Apple, are Dell, Procter & Gamble consequences of forecasts that are too high are wastage and too and two newcomers: Research In Motion (the maker of the much stock. We have already managed to halve our stocks at Wal- BlackBerry) and Amazon. For the fourth time in a row, Apple mart using POS data.” has taken first place in this global Top 25, initiated by AMR Research which has recently been acquired by Gartner. One crucial element to having the best supply chains is talent Recurring criticism of the annual Supply Chain Top 25 has been development, according to Sigismondi. “The current technology how American businesses seem to dominate it. In response to puts us in a position to set up global, virtual teams. We need each 7 this criticism, Gartner will be organising an Asian Top 25 and other and, at the end of the week, each and every member of staff an EMEA Top 25 in 2012. Brazilian companies will be included needs to ask themselves what their added value has been. Make in the American Top 25. sure you have found the answer by the following week at the latest, otherwise someone else will find it for you – and that may just be too late.” MPO Supply Chain Suite

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We are proud to advise, implement and www. mp-objects.com operate the MPO Supply Chain Suite for +31 10 2900304 Order, Transport & Crossdock Management +1 646 520 0841 in dynamic international Supply Chains. [email protected] Column Emerging countries, cities and logistics Door Tom van Woensel

ity logistics in emerging countries (like South America, India, China, etc.) is more challenging and of higher complexity than C doing city distribution in Western regions (like Europe or North America). This is not my statement but expressed by dr. Edgar Blanco from the MIT Center for Transportation and Logistics. Obviously, as a good academic, he also motivates this statement. In a nutshell, there are a number of reasons, all interacting with each other. The key reason is that the important logistical dimensions are completely different than what we are used to. Global Trade Flow Index Q2 2011 Specifically, stores are much smaller (think of the size of a garage or smaller), there are really, really a lot of these stores. Added to this, the cities Big negative impact themselves are huge, at least in density (i.e. inhabitants per square meter) with the well-known problems related to congestion, emissions, etc. On of Tsunami top of this, due to a lack of trust in the chain, giving credit is not done, leading to a purely cash-driven supply chain. The earthquake and tsunami in Japan on March 11 of this year had a big negative impact of on manufacturing industries worldwide. The Global Trade Flow Index by Capgemini Consulting Interesting, no? So how different is this to city distribution in the shows that levels of global trade continued to fall in Q2 2011, by a Netherlands or Belgium? I participate as professor Freight Transport and further one percent quarter-on-quarter (q-o-q), leading to an eight Logistics in the DINALOG funded project 4C4D (Cross Chain Control percent decline in global trade volumes overall in the first six Centers for City Distribution). In this project, we look into coordination months of 2011. and consolidation in order to improve logistics flows into cities. Here, issues like retail ordering, sustainability (green zones), congestion, time The report also highlights the impact of the recent E. coli out- windows, etc. are driving logistics’ efficiency. The focus of this research break in Europe on global trade levels. The analysis reveals that project is on Logistics Service Providers and retailers, leading to innova- while heavily impacted by Japan’s reduction in industrial production and a rise in commodity prices, the US retains its positive distribution concepts based on sound business models, while meeting tion as global leader in overall trade volumes, despite a reduc- objectives and restrictions set by municipalities. tion in total trade of two percent in Q2 2011 q-o-q. I wonder whether all these nice new innovative distribution concepts Capgemini Consulting’s Global Trade Flow Index tracks the would survive in the city of Bogota. It seems that we in Europe and the US trade of goods and services by quarter based on an analysis of a are used to a large amount of structure, data availability, and well-followed number of trade and market-related parameters from the latest rules and legislation. Once, we take this out of the picture, the challenge available official data (related to the import and export of goods is, next to new concepts, to find ways to set up a structure and the right in- and services) from national agencies of the 23 top countries in formation. So I would conclude, terms of global trade. SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 that city logistics in emerging countries is really harder but CONTAINER THROUGPUT INCREASE Q2 2011 leads to richer business models than we are traditionally used to. 12.00 10.00 8.00 6.00 Tom van Woensel, Professor at Eindhoven University of 4.00 Technology, Faculty of Industrial 2.00 Engineering and Innovation 9 0.00 Q2 09 q3 09 q4 09 q1 10 q2 10 q3 10 q4 10 q q1 11 q2 11 E Sciences and Board Member of the -2.00 European Supply Chain Forum. -4.00 -6.00 -8.00 % change in Container Throughput of Top 6 Port % change in Total Trade Management

H igh R esponsiveness to D anger SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011

LOW

LOW Risk & Danger Awareness High What’s your reaction to supply chain risk? Bury your head in the sand or charge at it full on, confronting the possibilities to minimise the risk? In nature each animal has its own way of dealing with risk, be it the ostrich or the elephant, the bird which flies away or the rabbit which lies low. So is it in the business world; companies try to mitigate risk at different levels. The higher the stakes, in terms of human life or financial loss, the more seriously it’s taken. Not only that, as companies have become leaner and more globally orientated the risk of a significant disruption in the supply chain has become greater. Supply chain risk management is getting momentum and is of increasing focus on executives’ agenda’s. By Lars Leemhorst and Roberto Crippa of TruEconomy Consulting

Do or Die: Manage or ignore supply chain risk?

he earthquake in Japan, the erup- reporting and updates) or requested by safety is key but we often assess the risk tion of the Eyjafjallajökull volcano credit rating agencies. Only some risks in terms of Euros. After some discussion T in Iceland, riots in London, geopoli- are systematically assessed, such as the we come to a common picture. The big- tical developments in the Middle East and ones related to product quality, regulatory gest risk is not taking time to think about Tropical Storm Irene in the Eastern U.S. compliancy, pollution and other risks lin- the risks.” highlight supply chain risks. Not only that, ked to disruptions or financial/macro- structured developments in supply chains economic events. And in most cases their Define risk have increased the level of risk: outsour- full implication on the supply chain is not There are many definitions and mathe- cing and offshoring increased complexity; taken into account. One of the root causes matical formulation for risk but ISO31000 lean manufacturing reduced buffers and is the lack of an agreed approach to iden- defines it as the effect of uncertainty on flexibility by focusing on efficiency; globa- tify and analyse supply chain risk, which objectives. However, Frank Schaapveld, lisation resulted in longer lead times and would lead to proper mitigation strategies senior director supply chain EMEA, for more uncertainty; and reduction of the and tactics. Medtronic, a world leader in medical equi- supplier base increased interdependency. This is not so at AkzoNobel, the global pment and technology, says “Anything SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 These developments mean that identify- producer of paints, coatings and specialty that holds me back from delivering to the ing and mitigating risks in supply chains chemicals. “We have a tool which all our customer whether it be long term or short management is gaining momentum and supply chain executives use. Once a year term is classified as a risk.” is of increasing priority for supply chain about 15 directors from the supply chain, But supply chain risks are relative; there executives. The ability to control risk and logistics, financial department, planning is usually no objective measure for risk, react fast greatly impact supply chain per- and projects get together and write down only perceived risks and the probability of formance and the company’s competitive what they see as the potential risks for it occurring. The notion of absolute risk position. the company. In that way we get a cross always ends up being somebody else’s Many companies, however, still have a functional opinion,” says Collin Seyger, perceived quantitative definition. There- 11 poor understanding of (supply chain) risk the company’s Decorative Paints finance fore, in order to approach supply chain and its impact on operations. Often, risk director supply chain EMEA. “We classify risk management (SCMR) in a structu- management is seen as an external only everybody’s ideas on a yes or no basis or red and business-oriented way, Professor focused activity: a periodic exercise rela- on a scale of ten in terms of how big each David Simchi-Levi, of MIT, describes two ted to investor communication (annual person sees the impact. At AkzoNobel elements that must be appraised: Supply chain risk planning minimises impact

analyse the potential impact. We do take into a system whereby people know they should account natural disasters or internal root stay at home, log in and wait for instructions. causes like power outage but I’m not really It is important to communicate and you need interested in the nature of the disaster, only a procedure for that. its impact. Will a location be out of action for By applying this structured approach we one hour, one day, or one week? How long also confirmed that having only one DC in will I be without critical personnel? What Europe posed too much risk. Therefore, we caused the impact is less relevant. recently opened a second distribution centre Can we still deliver and, if not, how long in Europe - a proactive approach. it will take to deliver 10 per cent, 50 per We have since executed a risk assessment cent, 80-90 per cent and how long it will on the first DC to check that the risk has take before we are fully back to normal. We actually been lowered by opening the sec- assess the impact of, for example, a power ond centre and it has. cut for one hour or half a day, or if the build- Last year our supplies were impacted by the ing burns down or, as last yea,r we can’t ship volcanic ash clouds, both inbound and out- Frank Schaapveld, Senior director supply product because of volcanic ash. bound. Within a day we resumed distribution chain EMEA, Medtronic At organisational/entity level we have by road and, when there was a window, we a disaster recovery plan, a matrix which chartered a plane to get product out to Asia “We do a risk analysis at each Medtronic describes the main processes required. At Pacific. We flew it back with components. location based on four factors: location; a certain level it is no longer necessary to We had to look at all the dynamics, but systems; people and processes. From this we have a detailed plan because there are so because we have a good disaster recovery generate a disaster recovery plan. many dynamics. You need to have some plan in place I am very satisfied about how The frequency with which we identify the procedures in place and some off-the-shelf quickly we responded. risk depends on what we’ve classified as solutions but we also realise the need for Chartering a flight is not cheap, especially risk. For example we monitor materials on creativity and judging the actual situation. at a opportunistic moment, but it meant a daily basis but if we’re talking about busi- For instance, we focus on the people we we were able to keep our reputation. We ness continuity planning( BCP) we assess need for disaster recovery and this will be received very positive feedback from Euro- risk on a yearly basis and review it every six based on their experience. Also, if the loca- pean hospitals who hardly noticed that we months. If we need to make change we do tion is impacted then we have a plan which had been impacted. It is something we are the whole exercise again. allows people to work from home. We have very proud of. In this kind of medical busi- After we have quantified the risk, based on already changed our policy so that everyone ness it is very important and helps drive our the four factors mentioned previously, we has laptops instead of desktops and we have risk awareness and responsiveness to it. ”

• a company’s ability to control the (risk) Schaapveld says he takes into account pany has a proper (tailored) list of the

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 event natural disasters and internal root cau- exogenous and endogenous risks, as this • the (risk) event impact on the business, ses, like power outage, but is more con- heavily impacts the intimate relationship once occurred cerned about the impact of the disaster between risk management and supply rather than its nature. chain strategies. For an exogenous risk As trivial as it may seem, being able to put “For example, if a location is affected there are not many alternatives: basically, envisaged risky events in the right-upper then we need to know how long it will you accept it or try to get it somehow pro- corner of a Risk Knowledge Matrix is the be out of action, how long we will be tected by forms of insurance, disclaimers only way to start talking about supply without critical personnel, perhaps one or risk sharing among other business chain risk management strategies. hour, one day, one week etc. Then based partners. For the second kind, there is 12 These risks may be linked to events that on that particular location we decide more room of action: by properly shaping are totally out of the supply chain play- what to do. Because we have a good the upstream and downstream network ers’ control, i.e. exogenous events, or they disaster recovery plan in place I am very and relationships, as well as properly dri- may be endogenous in which case, supply satisfied about how quickly we can res- ving product and process innovation, mul- chain strategies or optimisation can help pond.” tiple risk mitigation strategies can be put to mitigate their business impact. Therefore it is crucial that each com- in place. “The biggest risk is not taking time to think about the risks.”

Six step approach ness risk is concerned we might have to 3 Create a model The potential impact of supply chain risks accept some risks as being acceptable,” Once the scoping phase (i.e. the two pre- can be significant for financial reasons, says AkzoNobel’s Collin Seyger. vious steps) has been accomplished, con- reputation and health and safety concerns. “We assess certain risks/mitigation fre- struct a model that links all relevant vari- A good SCRM approach within a com- quently, some even on a daily basis, but ants in a cause/effect relationship. This pany ensures early detection of the risk our standard risk assessment is carried step is a typical System Dynamics exer- event. That brings a quick reaction, better on a yearly basis. We may find that there cise, whose conceptual bedrock dates back mitigation of consequences and reduced are no new risks but the risks might have to the middle of the 20th century and was impact. Companies without SCRM are taken on a different priority. For example laid down by MIT Professor J.W. Forres- likely to react slower or in a more emotio- this year the raw material shortage is kic- ter. Network Design and other modeling nal, gut-feeling, unstructured way, which king in heavily because many suppliers tools can be helpful as well. means a bigger impact and loss of value reduced capacity during the economic It is one of the most delicate steps of the for the company. To do it well requires a crisis. We are now considering very care- whole approach. It lays the foundation for comprehensive, structured approach. fully how we approach it. We find that risk properly understanding supply chain risk assessment is very good at being proactive behaviour, its dynamics and impact on 1 Keep it tight as it makes us analyse the business too, ” operations management. A sound exer- In big, complex, organisations approa- he said. cise enables a company to make a quan- ching the entire enterprise all at once At this stage, precise quantitative measu- titative appraisal and provide figures that could be an overwhelming task that in the res are not needed: a qualitative/quanti- are key to evaluating proper risk mitiga- end will simply fizzle out. tative appraisal is enough for positioning tion actions and their cost/benefit. Instead, carefully choose a specific sup- potential risks in the matrix quadrants. Modeling should be performed in two ply chain area and weigh up the expected There are no golden rules which link phases: benefits and costs, resourcing and timing. supply chain risks to specific quadrants: - Qualitative modeling explores the It could be a geographical area, an opera- positioning depends on specific busines- cause/effect relationship between key tions process subset (e.g.: manufacturing ses and company environment and the elements. This is best carried out as a flexibility rightsizing), an offering subset Matrix is, in fact, dynamic. It needs to “workshop”. Then decision makers have (e.g.: a new product family launch), etc. be systematically revised and updated at the opportunity to build a shared con- least twice a year or every time any major sensus and comprehensive understan- 2 Identify the risks change occurs. Not a big effort, and defi- ding of what influences what and how. Even within a defined supply chain area, nitely worth doing! It will bring to light a complex relation- dealing with the numerous risks could be too complex and the benefits not worth the effort. Therefore prioritise the risks by means of a likelihood/business impact Professor David-Simchi-Levi’s Risk Matrix matrix. A low likelihood, low impact risk can probably be ignored. If the likelihood of the risk occurring is high but it has a Natural Suppliers Disasters Performance Risk low impact on the business then it can be Currency Epidemics addressed either on its occurrence or by Fluctuations SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 Counterfeits means of tactical mitigation techniques Commodity (e.g. safety stock management that is a Fuel prices Forecast Prices Accuracy kind of risk mitigation against acceptable Port Delays demand and supply dynamics fluctuati- Geopolitical Product Design Goverment problems Problems ons). Regulation Environmental

Supply chain executives may choose to e x pected b u ssiness impact Risks also ignore low likelihood, high impact risks or could employ strategic risk management. However, risks which have 13 a high impact and are highly likely to LO ability to control HI occur need to have a definite supply chain risk strategy in place. This framework does not include all aspects: Supplier performance, product design problems and fuel/commodities prices, as well as many “Some risks such as those around safety Product/Process/Network design aspects can also be included. we have to try and eliminate. Where busi- Risk management – a proactive business tool

acceptable. Without risks, no business risk with the key people, and having a pro- We classify supply chain risks based on gramme in place. The important factor is three parameters: what is the potential how long is the impact. If we discover risks impact on the business in million Euros; are getting higher we have to be sure we what is the likelihood of it occurring and will carry out the right action. thirdly what is the control effort around One of our major risks is losing our supply the impact. This does not include the risks of raw materials due to a catastrophic event which we have to control by law. These are leading to the inability to manufacture some covered by an annual assessment which product for a period of one month. deals with all the legal entities. Our raw materials come from all over the We analyse the supply chain risk on a world. We ask ourselves if we don’t get our yearly basis. All our supply chain execu- raw materials, what can we do to overcome tives get together and write down the poten- that? If there is a catastrophic event at one tial risks for the company. Being aware of supplier, do we have other suppliers? But the risks and how they interconnect to dif- for some non-commodity materials we have ferent functions is very important. specific suppliers so what do we do if we Collin Seyger, Finance director supply chain Risk assessment is also very good at being don’t have a dual supplier? Can we reformu- EMEA, AkzoNobel Decorative Paints proactive as it makes us analysis the busi- late? if it’s a key material what kind of con- ness. It is the only way to prepare yourself. tracts are in place? We do have a strategy in “Risk awareness is very high in our com- The contingency plans depend on the risk. place to overcome these potential risks. pany particularly as we regularly require For example, we have more than one sup- Some disasters can have an impact on risk assessments. Some risks, such as those plier, several manufacturing sites, fire bri- our image as these may affect the end around safety, we have to try and eliminate. gades on certain sites and computer system customers. Therefore our supply chain risk At AkzoNobel safety is key and taking safety back up to run production processes. analysis goes all the way to the customer. measures has become part of the culture. Our disaster recovery strategy is writ- However, we don’t tell customers about We say it’s not worth hurting people for the ten down but not to the last letter. Things our risk assessments and recovery plans. sake of making paint. Where business risk change so fast that that would not work. We have to make sure that the products are is concerned some risks might have to be It is more about being able to assess the available. ”

ship model that would be otherwise dif- “ Then we take into account how the risk 4 Select a mitigation strategy ficult to pinpoint. is rated, the impact and duration and what Next determine a supply chain risk miti- - Quantitative modeling gives the afore- is the mitigation for the measurements gation strategy. In 1992 Kent Miller of mentioned relationships a functional we can take and how quickly these will Perdue University, USA, described a risk (quantitative) form. The biggest issue be effective.” A supply chain is a complex mitigation strategy as: “strategic moves

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 during this phase is coping with infor- environment by its nature so it is easy to organisations deliberately undertake to mation and data availability, its relia- make the model too complicated. Although mitigate the uncertainties identified from bility and choosing the best estimate seven centuries old, the so-called Ock- the various risk sources”. With that in should the required information not be ham’s Razor principle is extremely helpful mind each supply chain risk can be tac- available. to avoid this pitfall. In short this means kled with one or more risk mitigation keeping the variables as small as possible strategies. The options are too numerous “At Medtronic, we quantify risks based and selecting options that make the fewest to fully describe here but here are some on four factors - location; systems; people new assumptions. The simpler (beware: guidelines: and processes. After we have quantified not “simplistic”!) the model, the greater its • Postponement, allows you to reduce 14 the risk we analyse what the impact could value. demand mix variability (provided the be. We ask ourselves, can we still deliver The final outcome will be a baseline risk proper product/manufacturing process and if not how long it will take to deliver model that will help to give more insight structure is in place). 10 per cent; 50 per cent; 80-90 per cent and into the risk impacts. This will allow you to • (Targeted) redundancy in materials and/ how long will it take before we are fully redraw the Likelihood/Impact Matrix in a or capacity, so there will always be the back to normal?” says Schaapveld. more precise and quantitative way. capability to successfully react to sud- “Anything that holds me back from delivering to the customer is classified as a risk.”

den volume/mix variations. Exogenous and Endogenous supply chain risks • Manufacturing sources flexibility and diversification (production and pur- EXOGENOUS ENDOGENOUS chase), that allows reallocation of manufacturing in line with demand shifts • Disruptions • Relationships and up/downturns. - Natural disasters - Upstream collaboration • Prevention e.g. systematic product - Social disputes - Downstream collaboration inspection before leaving low cost - Fire, Breakdowns - Relative strength manufacturing areas for labour-inten- - War, Terrorism sive products, to reduce supply disrupti- - Epidemics ons and/or extra-rework costs. • Avoidance, which means deciding not to • Geopolitical • Supply Chain Structure be active (or only on a limited scale) in - Regulations - Source nodes (Suppliers) businesses/geographical areas deemed - Import/Export duties - Make nodes (Owned facilities) too risky/unsatisfying for the benefits - Tax - Deliver nodes (Distribution Network) obtainable. - Transportation costs • Risk sharing is an approach that requires - Transportation Lead Times partnering with suppliers and/or customers, to allow for agreements that split • Economic conditions • Product/Manufacturing the (financial) impacts of risks in the - Up/downturns - Capacity utilization/allocation supply chain. - Energy availability/costs - (In)flexibility Companies who already carrying out busi- - Raw materials availability/costs - (Poor) quality ness continuity planning, such as Medtro- - Labour availability / strikes - Obsolescence nics, ensure they have dual sourcing, flexi- - Fuel prices - Product structure bility on capacity, and in certain situations - Manufacturing process structure and costs will increase safety stocks. “For example - Technological dependence during the hurricane period in central America we ensure we have more stocks • Finance • Supply Chain dynamics in the region by applying a so-called hurri- - Exchange rates - Forecast (in)accuracy cane factor in our safety stock levels,” said - Credit availability - Demand volatility Schaapveld. - Events propagation Tesco, the UK’s largest grocery retailer, - Supply Chain visibility also has dual sources and specifically has one of its fresh food depots at a coastal location in southern England where the with a simultaneous but opposing structure and/or manufacturing process weather is milder. At least this area can impact (e.g.: materials redundancies, but at what cost and in what time frame? maintain supplies even when other parts that positively affect mix flexibility but Furthermore, make sure you have commu- of the country experience poor road condi- negatively impact obsolescence costs). nication plans in place to facilitate the exe- SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 tions due to wintery weather. cution of mitigation strategies. SUPPLY CHAIN MOVEMENT, No. 2, Q2 2011 It is easy to see that supply chain risk This step leads to one or more risk mitiga- Some key points with regards to mitiga- management is a complex balancing act tion sets that then need to be tested. tion strategies are self-evident: that requires a well-structured and com- AkzoNobel has a disaster recovery strategy a. Every risk mitigation strategy comes at prehensive approach. in place. “We have a list of risks, a risk a cost, that might also be significant level and a control level. If we discover the b. Some risk mitigation actions may 5 Put it in context risk is getting higher we have to be sure require time and effort to be put in Once you’ve chosen an appropriate mix of we will have the right action in place,” says place. In the short-term they may need risk mitigation strategies, they need to be Seyger. “However, the strategy is not writ- to be complemented by “tactical worka- translated into a set of specific actions and ten down in detail. Things change to fast 15 rounds” that must not be mistaken for policies. If the decision is to increase flexi- so that would not work. It is more about the right solution. bility, you need to decide where, how and having a programme in place, being able c. Many risk mitigation strategies are by how much? If the strategy is postpone- to assess the risk with key people, and peri- strictly interwoven and therefore may ment then where is the decoupling point? odically testing the recovery plan before- act on the same supply chain elements Perhaps you decide to rearrange product hand.” “We have a list of risks, a risk level and a control level.”

6 Test it The Likelihood/Impact Matrix During this last step risk mitigation sets are applied to the quantitative model designed in step 3. Evaluate the best-fit 4 3 against baseline and possible alternative business scenarios. ignore? Real strategic strategic strategic The value of a modeling approach beco- risk risk risk manage- management? management mes evident as the cause/effects relati- ment happens in onships are often non-linear, time-lagged quadrants three and four. The and burdened with feedback loops: defini- third quadrant 1 2

tely too complex to handle by relying only is where the b u ssiness impact on gut feelings. most intimate tactical relationships risk between risk ignore management What have we learned so far? mitigation and In spite of its utmost relevance, a struc- supply chain network design LO event likelihood HI tured approach to supply chain risk can be found. management is something new for many companies. Anyone introducing it to the “management toolset” portfolio might also like to consider the following “first mainly focus on the identification and lable so it is likely that the “first time” time” issues. registration of risks, rather than on the team will have to design and build its own continuous management and control. metrics. These need to be effective and Short-sightedness. Quite often the sup- SCRM requires an end-to-end view on simple enough to be explained to the deci- ply chain risk management topic arises supply chain risk, gathering and analysing sion-makers who will have to approve the when the risk is already becoming visible. information from multiple internal and best-fit risk mitigation mix and sponsor This brings an urgency to do something external sources (such as public informa- its implementation. Again, an issue not to quickly and not to devote the time nee- tion, rating agencies, industry organizati- be overlooked as it requires both expertise ded to think ahead properly. Moreover, ons, etc.) and being able to continuously and communication skills. because some risk mitigation strategies analyse identified risks in order to assess may take time to be implemented, the and prioritize these risks. Effective SCRM SCRM is here to stay bias is to focus on the “tactical worka- tools should support scenario analysis and Given the above, it is clear that developing rounds” and overlook the right (long- operational decision making in network- a SCRM strategy for the “first time” is a term) solution. and inventory management to mitigate challenging task and not all the suggested risks throughout the company’s supply approach steps might be perfectly fulfil- Internal know-how. Most likely, specific chain. led. Nonetheless the strategic relevance expertise, modeling know-how and tools of supply chain risk management means are internally not available. The latter is Getting a comprehensive it is crucial to start approaching the mat- a minor issue (reasonably good modeling understanding of supply chain risk invol- ter soon, and in a structured way. Its

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 tools are available at accessible prices and ves almost all organizations and depart- tightly knit relationship with network (re) often something can be done using office ments that are somehow linked to inno- design, sourcing and marketing strategies automation tools, provided the problem vation and operations processes: R&D, as well as new product development, also to be modeled is not too complex). Expe- marketing & sales; manufacturing; pur- demands that it be a key topic in corporate rience, however, comes through trial-and- chasing; logistics; finance and so on. A strategy decision-making processes. error that implies having done such a job multi-functional, team is required as well Supply Chain Risk Management is no lon- several times. The advice is to start with as good access to the needed informa- ger a trendy buzzword, it has become an external support while developing accep- tion. The team must have a good blend of absolute must for the top executives. For table internal expertise. The alternative vision, thought and practice, as well as the chemical and pharmaceutical companies 16 (i.e. adapting risk management to inter- model-thinking habit. Getting the proper it has long been so: The safety risks were nal modeling know-how) is, indeed, not a resourcing mix and people availability is always high. On the other hand most com- recommended one. easier said than done. panies so far have done little to mitigate risk to its supply chains, assuming some- Tools availability: Current SCRM tools (e.g. Design effective metrics: Measurements for one else will cover for them. Perhaps that @risk, , SCAIRTM ) are very limited and supply chain risk are generally not avai- will also change. Will you? ADVERTORIAL

Intensive collaboration between various disciplines is a vital prerequi- site for Sales & Operations Planning (S&OP). But how do you create the right mindset? Canon Europe arranged for 80 of its employees across ﬁ ve different time zones to take part in an in-company version of The Fresh Connection. CANON MAKES “THE IMPACT OF MY DECI- COLLABORATION SIONS BECOMES APPARENT MUCH MORE QUICKLY” Marco van Noppen, MEASURABLE EMEA Demand Management Manager

“There is a tendency to think, ‘Why did they and allocating stocks. As Supply go and do that?’ and believe that one’s own Chain Manager, Hendriks meanwhile way would have been better. People are quick is responsible for fulfi lment, from to judge their colleagues in other disciplines,” receiving orders right up to explains Marco van Noppen. “This project the moment of despatch. “PEOPLE ARE QUICK offered our company the chance to say to all Both of them know from those people: ‘Have a go for yourself’.” experience how important TO JUDGE THEIR Both Van Noppen and his colleague at it is to communicate and Canon Europe, Harm Hendriks, are full of cooperate well with each COLLEAGUES” enthusiasm for The Fresh Connection, the other. “I’ve come to realise in-company training from Involvation. This that I cannot expect our Harm Hendriks, business game involved seventeen teams from logistics department to EMEA Supply Chain Manager Canon battling it out over the course of ten assemble 80 per cent of the weeks to see which team provided the most kits on the last day of the month,” Van help to a fi ctitious fruit-juice manufacturer. Noppen says, by way of illustration. Each team comprised four people who each The training exercise has led to a fulfi lled a particular role for the purpose of considerable improvement in how people the game, ranging from Sales Manager to work together in practice too. “Since you’ve Operations Manager. “In this game, the impact become more familiar with colleagues of my decisions on my neighbour and my from other disciplines on a personal level, neighbour’s neighbour becomes apparent it’s easier to raise issues with them,” refl ects much more quickly,” says Hendriks. Hendriks. “In fact, we often still refer to As Demand Management the project. Mid-conversation, someone Manager, Van Noppen is will suddenly say, ‘Just like in The Fresh responsible for the sales forecast Connection, remember?’”

IMPLEMENTATION S&OP Canon level and decided to bring the game to Ca- aspect, without exception .” Europe has used the in-company training non. “S&OP is all about communication and In the meantime, the exercise as part of a large-scale business considering the implications for roles beyond implementation of S&OP is transformation project. Sales & Operations your own. The Fresh Connection makes col- going entirely according to Planning (S&OP) is currently being imple- laboration measurable,” says De Marie. plan, states De Marie. “Two mented throughout the whole of Europe. The seventeen Canon teams played a total previous attempts have been “We have to learn to approach our supply of fi ve online rounds with a two-week gap in unsuccessful, so this time we chain differently. It needs to revolve around between each one. In the intervening weeks, are taking a more thorough approach. The the customer,” explains Remco de Marie, Involvation specialists held a series of we- Fresh Connection game defi nitely helped us EMEA Demand & Supply Management Direc- binars covering various theoretical topics. De to create the right mindset.” tor of the Canon Imaging Group. Marie is more than satisfi ed with the results De Marie had previously taken part in The of the exercise. “The competitive element Fresh Connection competition at nationwide provided extra motivation for the participants to work well together. And all of the highest- fi nishing teams scored strongly on this

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Advertorial Eng.indd 1 06-10-11 13:32 Facts & Figures

Supply Chain Risk Management

Supply Chain Risk Management Strategies Supply chain risks

in 2012 recent planning cycle

Effective inventory/ stock management General availability, cost, quality of labour Improve delivery performance to customers Regulatory concerns

Focus on profitability Reliability of suppliers and cash management Commodity shortages/price Service innovation and fluctuations product lifetime management Fluctuations in Reduce order fulfillment lead time foreign-exchange rates

Simplification of the global Intellectual property theft supply chain footprint Obsolescence of product inventory Reduce your company’s footprint or technology

Accelerate new product introduction War, terrorism, other geopolitical concerns Extend your global supply chain footprint Problems with supply chain infrastructure Tightly manage supplier risk Plant breakdowns/ Optimize accounts payable and mechanical failures receivables management Natural disasters Improve product quality/safety Other Source: PRTM (2010) Source: Mc K insey (2006)

in% 0 30 40 50 60 70 80 in% 0 10 20 30 40 50 60 Graphic: SC M Graphic: SC M

Change in supply chain risk Assessment of risks to its supply chain in the past 5 years 2 7 7

23 24 n No formal assessment n Increased significantly 26 n Source: Mc K insey (2006) Qualitatively/intuitively 28 n Increased slightly n With rough quantitative estimate n No change n With detailed models of cash flow at risk 42 34 n Decreased slightly n Decreased significantly SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011

Graphic: SC M Graphic: SC M Source: Mc K insey (2006)

Capability to mitigate

key supply chain risks Loss of productivity Increased cost of working 1 Service outcome impaired 9 Customer complaints received n Extremely capable 11 Loss of revenue 18 n Somewhat capable Stakeholder/shareholder concern n Slightly capable 27 Damage to brand reputation/image n Not very capable Delayed cash flows n Not at all capable 53 Product release delay Payment of service credits

Graphic: SC M Source: Mc K insey (2006) Supply chain risks Record, measure and report supply chain disruptions

17,5

n No 41,1 n Yes, with certain departments/functions n Yes, across the whole enterprise 41,4

Graphic: SC M Source: Business Continuity Institute (2010)

Number of supply chain disruptions in past 12 months n 0 (27.1%) n 1 (18.0%) n 2 (13.6%) n 3 (9.7%) n 4 (7.3%) n 5 (4.4%) n 6 (3.9%) n 10 (5.3%) n 20 (1.9%) n >52 (1.9%)

n Other number (6.3%) Source: Business Continuity Institute (2010)

Graphic: SC M

Sources of disruptions

0 10 20 30 40 50 60 in the supply chains Adverse weather events incl. flooding Visibility key suppliers’ supply chains IT or telecom disruption Failure in service provision by outsourcerer n Only focus on immediate suppliers Transport network disruption 16,3 Human illness n Suppliers required checking Energy scarcity their suppliers in turn Financial failure of a supplier 57 Fire n Identification of potential points 25,7 Health & safety incident of failure in total chain Industrial dispute Other Source: Business Continuity Institute (2010)

Graphic: SC M 0 10 20 30 40 50 60 70 80 Graphic: SC M Source: Business Continuity Institute (2010) SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011

Measurable impacts Frequency Business Continuity planning

Capability to mitigate of supply chains disruptions with key suppliers

Loss of productivity Increased cost of working Every 12 months Service outcome impaired Customer complaints received At contract renewal Loss of revenue Service outcome impaired Stakeholder/shareholder concern 19 Damage to brand reputation/image At major change event Delayed cash flows Never Product release delay Payment of service credits Every 6 months Source: Business Continuity Institute (2010) Source: Business Continuity Institute (2010) Graphic: SC M 0 10 20 30 40 50 60 Graphic: SC M 0 10 20 30 40 50 60 SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011

20 SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011

21 Supply Chain History (2000)

The fire at Philips in 2000 lasted just ten minutes, yet the mobile phone market would continue to feel the effects for years afterwards – and it even contributed to the face of the entire sector changing dramatically: Nokia cemented its name as a mobile phone supplier while its competitor Ericsson was almost forced to throw in the towel, just managing to survive thanks to a radical restructuring programme and a partial merger with Sony. By Marco van der Hoeven SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011

22 Risk management (2000) Nokia’s victory over Ericsson down to superior risk management

he high-tech supply chain is expo- players in the mobile handheld market, Philips Electronics NV factory in Albu- sed to a multitude of risks. No inci- Swedish company Ericsson and Finland’s querque. T dent has illustrated this more clearly Nokia, were both preparing for the launch The factory’s safety procedures were acti- than the Philips factory fire that affected of a new generation of mobile phones vated immediately: the sprinkler system both Nokia and Ericsson in 2000. At that when a supply chain problem endangered was triggered which, in combination with time, the mobile phone sector was an their plans. staff members’ intervention, ensured that extremely competitive and rapidly gro- On 17 March 2000, during a severe storm the fire was extinguished within the space wing market. It had been expanding at that was raging across the American state of ten minutes. By the time the Albuquer- annual rates of some 40 per cent or more of New Mexico, lightning struck an over- que Fire Department arrived, the situa- for several years, which represented a con- head power cable. The resulting fluctu- tion was under control, at least in terms siderable challenge for the supply chains ations in power levels in the electricity of staff and building safety. Damage see- within the telephone companies that were grid caused a fire to start on part of the med minimal and a disaster appeared to striving to keep up with the demand for production line for microchips in a Royal have been averted. hardware. In addition, an extra factor weighing on the telecoms supply chain was the rapid expansion of not just the telecoms sector, but the ICT market as a whole. This had led to an overstretched sector in which electronics suppliers – from computer manufacturers to network suppliers – were all fighting over the same raw SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 materials and basic components such as microchips. The shortage of raw materials for liquid crystal displays (LCDs) at that time was legendary; it resulted in the supply of flat screens consistently falling short of demand and prices persistently remaining artificially high. Victory for the new mobile networks on this ‘battleground of the handhelds’ 23 depended on them introducing new devi- ces in rapid succession, each with new and improved features aimed at a predo- Production of Nokia E75 in minantly young and very demanding tar- Salo factory, get group. In early 2000, the two largest Finland As a result of the knocks it took in the summer of 2000, the company was forced to embark on heavy restructuring.

However, the situation subsequently pro- ved somewhat more complex than was first thought. ‘Clean rooms’ – completely dust-free areas in which goods are manu- factured – are essential for the production of microchips. Such clean rooms have the toughest hygiene standards in the world: one single particle of dust is permissible per square metre, which is ten thousand times cleaner than a hospital’s operating theatre. The fire’s smoke combined with the fire-fighting measures had severely contaminated the clean rooms, rendering them unfit for chip-manufacturing activities. Nokia was quick to hear that there was a problem with the production of microchips. It was standard procedure for Nokia to closely monitor all aspects of the mobile-phone manufacturing process from its headquarters in Helsinki. As soon as the fire in Albuquerque interrup- ted production, a signal was activated within the Helsinki system. Such a signal did not necessarily mean that there was a major problem, since it could simply have been a deviation in the reporting system. Nevertheless, the production planner took action in accordance with the company’s clearly prescribed risk management procedures: he alerted the purchasing manager concerned, who in turn informed the head of purchasing for components, Tapio Markki. After conducting an initial damage assessment, Philips itself estimated that pro- Anticipating risk duction would be down for a maximum of one week. On 20 March, three days Involving so many different parties and with so many individual links, a process as fragile

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 after the fire, the manufacturer informed as supply chain cannot possibly operate without risk management. its two largest customers, who together The ‘Albuquerque case’ demonstrates that risk management can make all the difference accounted for forty per cent of manufactu- between carrying on unheeded and suffering substantial financial losses. The simplest ring capacity, of this fact. Ericsson reacted and most common definition of risk is risk = probability x impact. There are many varia- to Philips’ news – incidentally the first it tions on this, but most of the qualitative and quantitative methods for risk management had heard of the production problems – are based around this equation. with a degree of indifference. A delay of And irrespective of which of the countless methods one chooses to assess the risks, one week would not create supply chain a simple consideration of the abovementioned calculation can be enough to expose problems since Ericsson was holding suf- potential problems. In the case of the Philips fire, the probability was minimal: the 24 ficient stock to absorb one week of down- event – a chance lightning strike causing fire in a chip factory – was unique and has time. never occurred since. However, the impact of the interruption to chip-manufacturing Meanwhile over at Nokia, which had been operations was considerable, and Nokia reacted to the situation directly and effectively. forewarned by its vigilant production Ericsson on the other hand underestimated the impact, initially expecting to be able to planner, the first alarm bells were starting compensate for the lack of supplies with its own stock, and by the time it became appa- to ring. Markki had previously worked for rent that its risk assessment fell short, it had missed the boat. a chip manufacturer, and he considered Sales of mobile phones by Nokia and Ericsson it extremely optimistic to expect the clean rooms to be operational within just one week. He expressed his concerns to his Nokia boss, the senior vice president of opera- x billion euro tions, logistics & sourcing for the mobile 1999 2000 2001 2002 phone division. At the same time, activi- Net sales 13,2 21,9 23,2 23,2 ties in the Philips factory were monitored Operating profit 3,1 4,9 4,5 5,2 even more closely, with Nokia receiving a daily status update. Ericsson Reserve stock x billion euro It soon became apparent to Nokia, which 1999 2000 2001 2002 was keeping a very keen eye on the situ- Net sales 411,0* 489,7 223,5 n.b.** ation, that Philips was making little pro- Operating profit 2,7* -140,9 -138,3 -11,8 gress with the clean-up operation. Nokia increased the pressure on Philips to get its production up and running again * Ericsson’s 1999 figures are of its consumer products division. ** In 2002 Ericsson’s mobile phone division merged with Sony. quickly, but to no avail. On 31 March, Philips was forced to admit that the situ- Although Nokia was a relatively small player at the turn of the century, it succeeded to remain ation was still not under control, and the profitable after the fire at an important supplier in 2000. The main competitor Ericsson took a fatal financial hit. New Mexico factory would not be able to restart its chip manufacturing activities for Source: Annual reports by Nokia and Ericsson some time. And because of the booming demand for chips for mobile phones, Phi- lips had no reserve stock. As soon as it was confirmed that there ation did not escalate internally until some- party. Contract manufacturer Flextronics was indeed a major problem, Nokia took time in April, when the head of the mobile acquired Ericsson’s plants on several conti- action. First of all, it intensified its col- phone department, Jan Warby, finally nents. Meanwhile, no longer in a position laboration with Philips to identify viable heard that there were major problems to survive on its own in the highly compe- alternatives. In actual fact, Nokia exerted with chip production and hence with the titive mobile phone market, Ericsson went considerable pressure on Philips at several planned launch of the new generation of in search of a partner which resulted in levels to come up with a solution, even to mobile phones. the formation of Sony Ericsson in 2001. the extent that the CEOs of both compa- By that time, Nokia’s contingency plans Ericsson made a profit again in 2004, but nies, Jorma Ollila and Cor Boonstra, held a were in full swing and were already uti- sales were down by more than 50 per cent top-level meeting. As a result, various Phi- lising the entire global reserve capacity compared with the situation before the fire lips factories around the world, including for the manufacture of chips. Ericsson and the company was employing just half the plant in Eindhoven (The Netherlands), had missed the boat, with disastrous con- the number of staff it had four years earlier. allocated some of their capacity to Nokia. sequences. According to Ericsson’s own In comparison, Nokia not only escaped SUPPLY CHAIN MOVEMENT, No. 2, Q2 2011 Meanwhile Nokia had immediately gone figures, the lack of chips resulted in a loss from the crisis unscathed, but it emerged in search of supplementary suppliers, and of 200 million euro for its mobile phone even stronger than before. In 2000, the had found the first new ones after just a division in the second quarter of 2000. The company’s global market share grew by 30 couple of days. Finally Nokia sent a num- total loss for the whole of that year would per cent and its profit increased by 42 per ber of its own engineers to the Albuquer- eventually be 1.68 billion dollars, and the cent in the third quarter of that year. que factory to help Philips restart its pro- market share would shrink by three per While this story has come to be regarded duction activities. cent. as a classic case study of risk management In the meantime things remained quiet In effect, this marked the end for Ericsson in the supply chain, the companies them- on the Ericsson front. The Swedish com- in the mobile phone sector. As a result of selves have a totally different perception of 25 pany had received the same information the knocks it took in the summer of 2000, events. Whereas the fire was a catastrophe as Nokia, namely that they would have to the company was forced to embark on for Ericsson, it had little impact on Nokia do without chips from Philips for the fore- heavy restructuring. Thousands of jobs and Philips; in fact, neither of them even seeable future. But for some inexplicable were lost, and an essential part of the sup- referred to the fire in their annual reports reason, Ericsson took no action. The situ- ply chain was outsourced to an external for 2000. Profile

Kris van Ransbeek (46) born in Belgium and lives in Geneva. Education: Master’s Degree in Engineering, Free University, Brussels. MBA Vlerick School of Management, Gent. Career: June 2006 – July 2011: Chiquita, Geneva. Vice president product supply and general manager food ingredients, EMEA 1997 – 2006: Carrefour, Belgium. Logistics director fresh food supply chain, Belgium 1992 -1997: Reckitt & Colman, Brussels and Paris. Logistics manager, Northern Europe. 1989 -1992: Alcatel, Antwerp. Telecommunications procurement manager.

A store without bananas. Unthinkable! They are the largest SKU in the store and they are here to stay. Kris van Ransbeek was responsible for ensuring that this fresh tropical fruit, which cannot be stored easily, crosses the Atlantic and hits European outlets as fast, and as fresh as possible. With a dedicated team on board there is also always an opportunity for innovation. By Helen Armstrong Photography: Ton Zonneveld

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 Kris van Ransbeek, former VP product supply and general manager food ingredients, Chiquita EMEA “Balancing

speed and costs” on Z onneveld hoto’s: T P hoto’s: SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 27 “We want to offer European customers the same level of service they would expect from a local manufacturer.”

ruit giant Chiquita has pioneered a global supply chain for fresh produce for well over 100 years, shipping from the tro- F pics to North America and Europe. Bananas remain the most important part of the company’s portfolio but there is more to Chiquita than just bananas. They account for just under 50% of the company’s USD 3 billion global turnover. The rest comes from fresh cut salads, which account for about half of Chiquita’s turnover in the USA (USD 1 billion); other tropical fruits such as melons and pineapples; fruit ingredients (processed and IQF fruits); convenience fruit products as well as smoothies, which it operates as a joint venture with Danone. The company employs around 23,000 people worldwide. Within Europe the business is still 90% bananas. Just as 100 years ago, Chiquita sources them from Central and South America and trans- ports them by ship. So what makes the supply so special and how can it be improved? The key to Chiquita’s success: speed and corporate focus on sustainability.

What attracted you to Chiquita? “I’ve been in the Fast Moving Consumer Goods (FMCG) environment for 20 years and Chiquita is the oldest global supply chain in fresh fruit going back as far as 1899. Before anyone spoke about global supply chains Chiquita was already a global supplier of fresh produce, shipping products from Central and South America first to the USA, and later to Europe. To make this happen, it had to have its own plantations, commission its own railway lines, build its own ports and operate a fleet of specialised banana ships. Chi- quita has always been committed to the supply chain and quality products. For Chiquita, the two go hand-in-hand. The challenge is finding ways to make improvements.”

What were your responsibilities? “I was responsible for all Chiquita supply chain activities on the European continent. This starts when the ship sails into port and includes port operations, discharge, storage, inland transportation and delivery to customers, both infrastructure and strategy. I

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 Portret

Work and travel: I live half way between Lausanne and Geneva overlook- ing Mont Blanc with just a ten minute commute to work. No two days are the same. Last year I made 44 trips varying from one day to two weeks. If I’m in the office I arrive around 8.15am and 28 leave around 7pm. I travel one to two “We are now linking days per week in Europe and I visit the data for quality USA and the tropics twice per year; control for online visibility in the sup- trips that usually take up to two weeks ply chain at pallet at a time. level.”

“We want to offer European customers the same level of service they would expect from a local manufacturer.”

was also business unit manager for the European fruit ingredients using different shipping routes to our competitors. We ship business. I was based at our European headquarters and managed from Panama via Sweden for example, which takes 12 days; to a team of 18 people. I didn’t get involved with the day-to-day busi- Germany, and then back again. The competitors ship directly ness at the ripening centres but I did make decisions on where and to Germany and transport the goods by road from there. when to renovate or build new ones.” In addition to speed, we have the flexibility to adapt. The crops are grown in areas where the weather is very unpredictable and subject What makes bananas different to other fresh products? to tropical storms, which can lead to flooding. So we need to be “Bananas are grown in countries near the equator and are not able to switch sources quickly. The supply chain is a balancing act a seasonal product: one plant gives one bunch of bananas every between high speed and keeping the costs under control.” nine to ten months. Europe is mainly supplied from Costa Rica, Panama, Columbia and Ecuador and we harvest them in the green How much of the supply chain is out of your control? state three days before the ship leaves the port. Unfortunately, they “There are always elements which we cannot control, like the cannot be stored for very long, so it’s always a race against time to weather, but it’s in Chiquita’s culture to adapt. It has clear con- get the bananas to market in the best possible condition. Chiqui- tingency plans for shipping the bananas from different sources ta’s aim to achieve this is a central part of its business. It takes an should the weather effect the harvest for example. The contact with average of 13 days for the bananas to reach an EU port, travelling sales is very close so that we can reallocate supply from another on pallets below deck at a controlled atmosphere of 13°C (which is source if there is a shortage elsewhere. It may not be possible to high for fresh produce), and 2% to 5% oxygen to prolong the green fulfil 100% of the demand when conditions are against us, but state. there is never need to panic. It’s just part of life.” Within Europe the pallets are transported to one of its own 11 ripening centres or to ripening centres owned by our customers. Why does Chiquita not source from Africa? Chiquita ripens about one third itself. Depending on the require- “Africa is closer to the European market, but historically, it produ- ment, it staggers the ripening process under controlled conditions, ces bananas for the UK and France. Also, from a quality point of which takes five to six days. Once a banana is yellow, a store has view, the bananas grown in Africa are a different product.” 100 hours (four days) in which to sell it. My role was to ensure that the continuous weekly supply coming in, matches the demand. If How can you continue to innovate in a supply chain as old as a store wants to do a big promotion then it has to be planned very Chiquita’s? carefully.” “Chiquita has made a strategic choice to maintain a sustainable supply chain. Having said that, sustainability has to make eco- How does the supply chain differentiate Chiquita from its compe- nomic sense as well as environmental. Innovation in the sup- titors? ply chain comes from introducing a variety of sustainable strate- “Chiquita has two important parameters in its supply chain: gies. Take a reduction in energy consumption for example. This cost and speed. The supply chain accounts for more than 25% not only saves the environment, but it saves money too. Another of the cost of a banana, so it has to be managed economically. example of innovation in our supply chain is the introduction of a The second factor is speed. Getting fresher fruit to the custo- higher storage temperature for the bananas during transport. This mer faster, is a real competitive advantage, and we do this by is 13°C, which is higher than normal and unique to Chiquita. SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011

Clothes: Chiquita is a non-tie com- Reading: I mostly read two types of facing some key challenges in our that it is important to be open- pany and if you are not meeting books, either detective stories such society, such as an aging popula- minded and listen and learn from customers you can even wear as Wallender, or historical-political tion. However, we will be facing a other executives, also from other jeans: our CEO is also on the board non-fiction. The last book I read considerable problem in the future industries. Often people are locked for Levis! was Congo, a history about an old because the brightest people are into one profession or one industry. Belgian colony. avoiding politics. It should be made I was attracted to the supply chain Leisure time and hobbies: Switzer- more attractive because we need because many different discipli- land is a fantastic country to live Music: I don’t spend much time talented people in politics to guide nes work side by side, each with 29 in. I love skiing in the winter and listening to music. us. its own priorities, and yet we all biking in the summer. I also play have to find a common language. tennis and enjoy lots of outdoor Politics: I believe politics is very Major influences in life: An edu- Chiquita is cross cultural and that activities. important because Europe is cation is just the entry ticket. After makes work even more enjoyable. “When Chiquita introduced the smoothies, we had to design an entirely new supply chain.”

with a short shelf life. We had to make sure that we had the tools, capabilities and business processes in place before we started. It is important to remember that the supply chain is not just a cost centre. It can be a business enabler if it is successful in getting products to market faster, or getting them into particular distribution channels or geographies. This then becomes a differentiating factor. An example of this would be if I could get our products to all of the petrol stations across Europe whilst our competitor’s cannot. Let’s not forget though, that if you can see things aren’t working, you should be brave enough to quit, minimising the financial risk: Quit early, fail cheaply.

What kind of technology helps you make savings? “In some cases we decided to build new ripening centres instead of renovating older ones in order to incorporate state-of-the-art, low-energy technology. In fact, in Dec 2010, Chiquita opened a new ripening centre in Belgium and is in the process of building a new one in Gorinchem in the Netherlands that should be fini- shed by the end of this year. The engineers were commissioned The improvements made to the supply chain have been gradual. to create the most sustainable ripening centre in Europe with the We are currently working on improving visibility in the supply lowest possible energy consumption. The new centre will incor- chain by linking it to the traceability data we have for quality con- porate three specific elements: firstly, an ammonia chiller for trol. When this is in operation, it will provide online visibility in refrigeration, which is better for the environment than the new the supply chain at pallet level, which will allow the inventory to be ‘freons’. Ammonia has been used in big cooling installations for managed more efficiently.” a long time and is now being applied in smaller installations such as ours. The second element is the ripening rooms, which use two You say Chiquita is more than just bananas. How does the supply proprietary technologies of reversible airflow or ‘stop and go’. chain get involved in the innovation process and supply of new I’ll explain: when bananas start to ripen they generate heat which products? has to be removed so that they don’t ripen too fast. This is achieved “It is possible to be innovative with the supply chain when by blowing cold air across the bananas, hence the holes in the sides launching new products. Take the smoothies for example. When of the boxes. We use reverse airflow technology which means that Chiquita introduced this new product, we had to design an enti- every few minutes the airflow changes direction so it goes from left rely new supply chain. Compared with bananas, smoothies require to right and right to left. This reduces the energy requirement. On a much lower storage temperature; smaller drop sizes, different top of that the cooling installations not only cool down the fruit but customers, and a different ERP (Enterprise Resource Planning) also the offices, so in addition to being sustainable, the warehouse system. in Gorinchem should make savings as well.” We wanted to make sure we got it right from the start because we knew that doing it wrong would be very costly. Mistakes are often Is Chiquita a socially responsible company?

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 only unearthed when scaling up. So we hired a new team of people “Yes. Social, ethical and environmental aspects of production are with expertise in the FMCG sector and we dedicated certain people very high on the agenda and an important issue at board level. The from within our organisation to the new team. We realised that we company has incorporated a number of environmental programs couldn’t expect people to work on a new product alongside their into its business model. A MIT (Massachusetts Institute of Tech- daily work with bananas. We needed full commitment and this nology) study of its carbon footprint helped us make a clear action is what we got. I certainly feel this was a key success factor in the plan to reduce the carbon output. It identified different areas such launch of this new product.” as the ripening centres which as already mentioned, we are working to improve. Packaging was a second area we needed to work With what KPIs do you measure managerial performance in the on so we optimised the box, the cardboard, and sourcing of the 30 supply chain? cardboard. Chiquita is still looking at returnable boxes. It already KPIs are based on product quality, cost control and quality of ser- has its own purple pallet pool which is recovered from retailers and vice. However, in the innovation supply chain, the prime focus is sent back to the tropics because wood is becoming such a scarce getting the product and distribution system in place on time for material in South America. the launch date, so the KPIs were different. For smoothies, it was Wastewater from the fruit processing plants in Costa Rica is fer- important to have a waste recovery program in place for products mented to recover the methane gas which is used as energy to create electricity in the plant. Lastly, it has implemented reforestation bilities are available to service the company. After that it’s programs and in partnership with retailers REWE and Migros, it giving guidance especially around the big change pro- has set up wildlife sanctuaries. A lot of retailers have similar envi- grams alongside all the classical demands of management. ronmental objectives and by working together, this is a way to I need to be sure that people are up to the challenge, which is done improve our working relationships.” through training in various forms, whether it be exposure to different industries or learning about new technologies. When I joined You mentioned smoothies. Can we expect Chiquita to diversify Chiquita, we invested in planning, tendering and working with further? 3PLs and set-up score cards. It’s all about improving your people’s “It does have a few new things in the pipeline but bananas will knowledge and giving them the tools they need to succeed.” remain its core business. It’s not a market which will decline. It’s a mature market with a small steady growth in line with popula- What are your ambitions? tion growth. It’s slightly seasonal, driven by the availability of com- “There is still a lot for me to learn and a lot for me to accom- peting summer fruits so September to April is our peak season. plish inside and outside the supply chain. The business is Fresh Express (fresh cut salads) and Fresh Express (other fresh moving ever faster and you have to be aware of what’s going tropical fruits) are important parts of the business. The smoothie on. As European leaders we have to keep up with the glo- business is relatively new and is showing steady growth although bal challenges, in communication technologies for example. the peak is now over. Having set it up, this is now run this as a In the supply chain, transparency is key and our expectati- joint venture with Danone. Chiquita operates the supply chain and ons are bound to change dramatically over the coming years. Danone is responsible for the R&D and the marketing.” One exciting field for Chiquita is nutrition. The way we eat, especially in the west, needs to change. We need to change the nutritio- What do you feel is the most important aspect of your job? nal content of our diets which opens a whole world of opportuni- “The most important aspect is ensuring that the right capa- ties for Chiquita.” SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011

31 Industry report

The chemical industry’s supply chain is expected to change radically in the coming decade. BRIC countries in particular will gain in importance at Europe’s expense, the shortage of transport capacity will intensify, production will shift internationally, and regulations and legislation will become an even more dominant factor. By Marco van der Hoeven

‘Partnerships are increasingly important’ Radical changes ahead for the chemical industry’s supply chain

n collaboration with the CEFIC (Euro- taking place on a predominantly regional Heightened safety awareness is another pean Chemical Industry Council), level, this will increasingly shift to global development which is likely to impact the IDeloitte has researched the likely deve- production in the course of the next ten sector. Businesses in The Netherlands lopments in the chemical sector’s supply to twenty years. “The emerging econo- recently witnessed how a fire at a chemical chain over the next ten years and publis- mies, such as China, are key in this deve- plant in the town of Moerdijk led to intense hed the findings in a report entitled Che- lopment. The resulting shift in manufac- public and political scrutiny, while on a glo- micals Logistics Vision 2020. turing will create a completely different bal level the disaster in Japan resulted in As Director of Supply Chain Strategy at flow of goods, and hence a much more both governments and consumers taking a Deloitte Consulting, Jurgen Hoppen- complex supply chain. Transport will need keener interest in how the chemical indus- brouwers headed up the research project. to be organised differently: first from pro- try’s supply chain is organised. In parallel, “Previous Deloitte studies have already duction facilities in China, for example, to there is also a greater focus on sustainabi- indicated that several major changes lie the docks, then as sea freight to Europe, lity, such as in terms of carbon emissions. ahead in the chemical industry, and this and from the European docks to the custo- While legislation is drawn up with custo- played a role in us deciding to take a clo- mers. This will lead to much more trans- mers in mind, the call for sustainability has

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 ser look at what such changes will mean port activity than we have seen up until an impact on transportation too. for the sector’s supply chain and logis- now.” Hoppenbrouwers: “On the one hand, che- tics. In addition, the Special Interest mical manufacturers will have to carefully Group (SIG) Logistics within CEFIC was New dynamics consider their strategy regarding logistics considering its vision for logistics wit- Changes are also occurring within the services. Many chemical companies have hin the chemical industry for the decade logistics sector. Logistics service providers already reduced the number of service pro- ahead. Hence, the study ended up with a are becoming larger and more professio- viders they work with to a minimum. This broader scope than originally planned.” nal in their approach, while their margins has resulted in close collaboration between Indeed, numerous factors will influence are under continued pressure. A shortage the parties concerned, displaying the traits 32 the shape of the chemical industry’s sup- of transport capacity is likely to develop as of a partnership rather than a traditional ply chain over the next ten years, with the supply fails to keep up with the increasing customer-supplier relationship. In the largest supply-chain change arising from demand. This will lead to a change in the future we will increasingly see instances of the changing face of the chemical sector relationship dynamics between logistics collaboration, both horizontally with other as a whole. Whereas according to Hop- service suppliers and manufacturers of chemical companies and vertically with penbrouwers production has so far been chemical products. logistics service suppliers.” Jack Eggels, responsible for global logistics putting structures in place in the region to say that they will disappear altogether, but at Shell Chemicals and chairman of the control the goods flows there. The second in the future they will be coordinated by SIG Logistics within CEFIC, underlines aspect is that Europe and, to a lesser extent, our logistics partners – operating on our the importance of the study. “It is impor- America have a proven track record of sup- behalf – rather than being in direct contact tant for us to look ahead to predict deve- ply chain efficiency. The change will be that with us.” lopments in the chemical sector and their we will increasingly outsource tasks to ser- One additional aspect that is important impact on logistics so that we can make the vice providers who can carry out those tasks for DSM: “We need raw materials that are necessary adjustments in time to capitalise much better than we ourselves can. So in sourced from all corners of the world. We on the situation – not only as individual Europe and America, we will spend much recognise that some of these raw materials companies but also from a CEFIC perspec- more time focusing on core activities and may soon be in short supply. Our logistics tive. I am pleased that Deloitte invested so less of our employees’ time on managing operations, as within most companies, much time in this research project together the logistics side of our business.” are currently organised primarily around with CEFIC. As the findings revealed, we – “It remains to be seen what will happen in the outbound, with the inbound coming the European chemical industry – should Europe. It would be a huge waste of resour- second. For truly effective inbound logis- not underestimate the challenges that ces to close down our operations here, so tics, you need to have a suitable logistics await us. Logistics will be play a significant they will remain open. But growth expecta- model for each individual source. Many role in facing future challenges in any busi- tions will be increasingly directed towards raw materials suppliers in emerging coun- ness, but especially in the chemical sector.” the emerging markets. As a result, when tries are simply not able to arrange delivery The predictions contained in Chemicals machinery has to be replaced, it is likely to of their products from their location to Logistics Vision 2020 ring true throughout be done at other locations and in other regi- the door of our factory in America, for the sector. Klaas Wouterlood, in charge of ons, outside of Europe. Any investments in instance. This situation has created a need global logistics procurement at DSM, finds Europe are more likely to be done from a for a logistics platform that can organise it remarkable that the research findings maintenance perspective.” the inbound logistics for us. Since neither reflect his own expectations so precisely. The changes will also have an impact on we nor our suppliers have such a platform, “We create a new corporate vision every the company’s partners. “Those who will the solution will be an intermediate system five years. Our most recent vision dates feel the greatest effects will be parties who which connects the raw materials suppliers from last September and looks ahead to merely carry out the logistics services, and in far-off locations to our factories around 2015; it anticipates that growth will come in particular transportation. That is not to the world.” from the BRIC countries and China in particular, that we will experience a shift in manufacturing, and that we will see more Key trends & impact ‘supplier partnerships’. All of these aspects are contained in the report.” Wouterlood The chemicals industry will experience a production shift in the next believes that growth will remain very decade: modest in developed countries while emer- n Commodity facilities in the end of the lifecycle are not replaced and ging markets will expand very rapidly. the European asset base will be reduced. He also acknowledges the effect that the n Commodity chemicals are imported from the Middle East. The Middle increasing focus on corporate social res- East will continue to be a net exporter. ponsibility will have on the sector. “Sustai- n China becomes proficient on specialties production which impacts nability is a key focus area for us at DSM. the European share of chemical imports from and exports to Far East.

It is included in our corporate strategy, and n European chemicals industry faces additional pressure from com- SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 is even one of our four ‘growth drivers’. We petitors outside of Europe, mainly from the Middle East where new want to have drastically reduced our carbon petrochemical capacity is now being built up. emissions by 2020 and are currently working on a plan to achieve our objectives.” n The production shift in the chemicals industry impacts the global Future of Europe remains to be seen chemical logistic supply chains and trade balance: DSM intends to take a twofold approach to n The increase of imports from the Middle East and the resulting flows staying ahead of the future developments. from European sea ports to the clusters and final customers increase Wouterlood: “The first aspect concerns the the supply chain complexity of chemical producers. fact that growth in emerging markets also n The production shift leads to a change in the global trade balance 33 requires a logistics operation that can faci- and will lengthen the supply chain from suppliers via producers to litate that growth. You can set up a factory customers. This results in a change in logistic flows and longer lead in China, but you must make sure that the times for inbound materials. flow of goods from that factory is also well Source: Chemical Logistics Vision 2020: The next decade’s key trends, impacts and solution areas (Deloitte, March, 2011) organised. We are currently involved in Now you can read Supply Chain Movement! On your iPad

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The Political Risk Map is Aon’s benchmark review of the political risks corporations face doing business globally. It provides a practical guide to political risk insurance markets’ perceptions of key risks around the world. Specific risks fea- tured in the map include government interference, legal and regulatory risks, sovereign non-payment and supply chain disruption. In the online version user can select a map by country, by region, by risk type and by risk level.

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RISK DISPLAYS Global SCALE Risk Initiative How can a company quickly and efficiently identify and visually n European Coordination: Prof. María Jesus Saenz, mjsaenz@ display the weakest links in the supply chain? This is the main mit.edu question of the project to automate supply chain risk displays by n Latin American Coordination: Ms. Isabel Agudelo, iagu- MIT Center for Transportation & Logistics in Boston. [email protected] A combination package of both print and digital editions is also The MIT Global SCALE Risk Initiative studies the impact of http://ctl.mit.edu/research/global_scale_risk_initiative available for just € per year. supply chain risks on uniquely global supply chains. To launch 49.99 this initiative, MIT conducted a global survey of supply chain SUPPLY CHAIN MOVEMENT, No. 2, Q2 2011 risks and risk management. This survey was targeted at supply chain, finance, and general business managers in manufac- Download the Supply Chain app today to enjoy your first digital issue turing, distribution, and retail companies. Study teams were established in 11 countries. The survey was translated into 9 of the magazine on the iPad. languages and dialects.

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The Netherlands is at the heart of the global flower industry in terms of both production and distribution. The auctions have an annual turnover of more than Euro 4 billion and the industry is responsible for about 20 per cent of the country’s balance of trade. While the supply chain management of these perishable products is second to none, the industry wants to become even more competitive and keep its edge over other global production and distribution centres such as South America, East Africa, Russia or even China. The goal: less traffic on the roads, more profit for everyone in the sector.

Less traffic, more profit Dutch drive to stay top of world flower trade

he Netherlands is the gateway to Wenink sat on the Commission of Laarho- complete about 120,000 transactions per Europe and therefore it is not without ven, a government initiative which was set day and the Dutch growers use around 70 T reason that it has developed one of up to keep the Netherlands at the pinnacle logistics service providers to transport flo- the most efficient supply chain manage- of logistics and transportation. Its aim wers from their nurseries to the auctions. ment systems in the world. was to see how logistical costs could be To turn his mission into reality he gat- Around 10 million containers, containing lowered at the same time as adding value hered together more than 30 partners/ anything from computers to cars, frozen and expanding the profitability of the indi- companies, including growers, traders, fish to fresh fruit are transported annually vidual clusters. In a densely populated logistics service providers, knowledge from the Port of Rotterdam to Europe’s 850 country with an increasing volume of traf- institutes such as four Dutch universities million inhabitants. Advanced docking and fic, the objective is to keep transportation and other private companies to establish distribution centres at the ports and airports “HubWays”, a neutral platform to bring link seamlessly with road and rail systems about change. He also applied for a sub- to take products speedily to their destina- Michiel van Veen, sidy from the Ministry of Economy, Agri- tion. consultant supply chain culture and Innovation. development, FloraHol- “We qualified for a subsidy for Euro 1.2 But the country is not resting on its lau- land, who is managing rels. With globalisation, international com- the HubWays project: million on the grounds that if we could petition moves ever closer and the Dutch “Logistics service pro- substantially reduce transportation in viders should be able to urban areas it would have a positive social fear they could be knocked from their earn more than previ- prestigious position. Industry and govern- ously by running less lor- implication and secondly it would help

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 ment together are instigating a number of ries. In addition, working together and merging the Netherlands keep its position as a top deliveries provides a solution to the increasing logistical country and at the centre of the measures to become more efficient on the problem of insufficient drivers with product roads. As one of the largest industries in knowledge. ” floriculture world,” said Michiel van Veen, the Netherlands, the ornamental cut flower FloraHolland’s consultant supply chain and pot plant sector is already developing development, who has taken the Hub- an initiative which it reckons will make the flowing smoothly, without traffic jams, Ways project under his wing. industry savings of around 20 per cent. It and at the same time improve social and Amongst others, Wenink also invited also reckons that the bottom line profit of environmental aspects of society. Jaap Willem Bijsterbosch of supply chain everyone concerned, from small growers experts, TruEconomy, to become a partner Mission 36 to international logistic service providers, in the project. “We had a good idea about will improve: A benefit for all, not just the Wenink pledged to bring about coordina- which logistical steps to take but it was happy few. tion in logistics in the flower sector. This important to establish a partnership with The project, known as HubWays, was the is not an easy task. FloraHolland alone a serious and experienced specialist to idea of Edwin Wenink, of FloraHolland, has nearly 5,000 members including underpin and provide international know- the country’s flower auction cooperative. around 3,000 domestic growers. They ledge and best practices in supply chain management,” said van Veen. the physical location from the commercial it is strategically important for the Dutch transaction,” he said. floricultural sector and at the same time Objective it brings an individual benefit. If it is not “In April 2010 we had our objective: Neutral coordinator apparent how this will be achieved it is dif- improve efficiency; reduce costs; improve HubWays aims to be an independent plat- ficult to get everybody on board,” he said. service and importantly, prepare for the form to which everyone can be connected. “If everyone understands then it becomes future with a more digitalised and virtuali- “It is important to have a neutral coordina- easier to move forward. We must remem- sed flower industry,” he said. tor because a company must not feel that ber that the aim is not to compete with “col- The question was how could shipments be it’s commercial activities will be threatened. leagues” but with other international sup- handled differently, more efficiently. It must be free to make its own decision on ply chains. It might not be too long before FloraHolland knew that between the six the flower industry in the Netherlands is market places alone there are at least competing with the floriculture sector in 1,800 journeys per day. The centres in Jaap Willem Bijster- Germany, Ecuador or Kenya.” Aalsmeer, Bleiswijk, Eelde, Naaldwijk, bosch, of TruEconomy: “It is our utmost aim Working together Rijnsburg and Herongen in Germany, to allow the entire are relatively close to each other and so industry to join in Everybody working together is a different making these journeys more efficient and benefit from culture, says van Veen. “In the beginning HubWays, not just a became the starting point for HubWays. few big players.” we had most resistance from the logistics “In the flower sector transportation follows service providers. We had to make it evi- the commercial transaction: products are dent that the goal of HubWays is not to SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 brought to a physical market place for the minimise transportation but to optimise a commercial transaction and then trans- whether to participate, how, when and by network with the consequence that service ported to the buyer. What happens is that how much,” said Jaap Bijsterbosch. “We improves, costs decrease and the efficiency several lorries transport flowers to the same cannot be like the CEO of a company who and hence profit of a company increases. destination without coordinating the sup- can drive the commercial activities in a cer- “This could mean that turnover of logistics ply and demand,” said van Veen. “ Bearing tain direction. Each player has to take part service providers decreases but profit will in mind the reverse logistics too, the load voluntary and at their own pace. Therefore increase. They should be able to earn more capacity of the lorries is not maximised they clearly have to see the advantages, than previously by running less lorries,” he but could be optimised by cooperation and especially on their bottom line profit,” he said. 37 coordination. This doesn’t happen just once said. In addition, working together and merging a day but many times per day. “It is our utmost aim to allow the entire deliveries provides a solution to the incre- “We feel it must be possible for the sector industry to join in and benefit from Hub- asing problem of insufficient drivers with to work together to ensure we have full Ways, not just a few big players. product knowledge. Good drivers are scarce loads. Also, it must be possible to uncouple “We have to make it clear how it works, that and the problem is likely to get worse. Participants project Hubways which lorry and at what time.

Hubways is a independent project run mainly by amongst others, 20 per cent savings FloraHolland; the industry organisation, VGB (traders) and TLN (trans- With more coordination and bundling of porters) ; four universities (Erasmus University Rotterdam, Vrije Univer- resources in the flower sector the more siteit, Wageningen Universiteit and Technical University Eindhoven); competitive advantages can be realised lea- supply chain experts, TruEconomy; and advanced planning software ding to more individual savings. Van Veen provider, Ortec. The four people at the helm are: founding father Edwin and Bijsterbosch are confident that supply Wenink (photo on the right), of FloraHolland; Michiel van Veen, also of chain market forces will bring about opti- FloraHolland, who is managing the project; Jaap Willem Bijsterbosch, of TruEconomy, main misation as they are based on strong theo- advisor and Rob Braat, also of TruEconomy , who has comprehensively analysed the sector. retical mechanisms. “When you bundle scale, and have a network wide coordination mechanism you The message seems to be working. So far, “We realised, that because this is a volun- ensure the right trade-offs to improve effi- 70 companies have signed up to work toge- tary initiative, we have to grow in small ciencies, basically the theory of global opti- ther as partners on the project. steps and bring everyone along together. misation. And, if there is a neutral coor- “For this reason we developed the four dif- dinator, mathematically you achieve the Four entry points ferent points of entry to accommodate the most optimal situation,” said Bijsterbosch. So what will it mean in practice? So far size, type and ambitions of individual com- “But it won’t happen overnight. It needs to HubWays has devised four different ways panies. Each company can choose what is develop over a series of levels to reach the to join the initiative. best suited to them,” said Bijsterbosch. “It’s desired effect.” The four different concepts were formula- important that everyone has the opportu- Already, the information gained during the ted following extensive interviews with 42 nity to take part and nobody feels left out of 42 interviews with employers plus com- companies in the sector plus a quantitative the optimisation,” said Bijsterbosch. mercial information from FloraHolland, network study on all movements in the net- has been entered into a logistical model work. The four concepts are: to create a baseline. This estimates that “We asked them, for example: how they A: a digital market place where growers, savings on all transport movements bet- currently operate; what problems they expe- traders and logistics service providers can ween the six market places, so not inclu- rience; what could HubWays do to alleviate indicate what goods they have available and ding international transport, amount to ten the problems; what shouldn’t we do; and what capacity they have available. People per cent. However, van Veen points out that how do they envisage HubWays working,” using this system input – or output - the this is a cautious estimate and believes that said van Veen. data manually which in terms of the cut across the board, costs can be by cut by 20 “ This gave us a comprehensive overview of flower sector can be a slow way to do busi- per cent. how companies currently operate in terms ness. Theoretically everyone can save 17-20 per of transportation and logistics, information B: a platform operated by HubWays which cent but each individual must look at each transfer, software capabilities ectera. uses ICT to automatically match supply concept and try to determine the poten- “We also went one step further and broke and demand of flowers. The aim is to bring tial savings on each option. “Taking into down the complexity of the sector into 15 transparency to transportation routes and account the sector as a whole, one in nine

SUPPLY CHAIN MOVEMENT, No. 3, Q4 2011 segments. This analysis was important to facilitate the working together of logistics lorries on the Dutch roads are involved in indicate the effect on individual balance service providers. the ornamental sector. If we can reduce sheets, whether it be a small, medium or C: HubWays acts a service whereby it this by 20 per cent it will have a enormous large companies, and not just for the sector makes the bookings and guarantees effect, ” he said. as a whole,” he said. standard levels of transportation and ser- The four concepts are now on paper and vice. HubWays tenders the routes between Next step the next stage is to consult with a main the six auctions on a periodic basis to When the results of the questionnaire have group of stakeholders and to communicate logistics service providers. The company been analysed, the next stage will be to the concepts to the flower sector in the Net- gets the business for a competitive price implement pilots planned for the spring of 38 herlands. HubWays has 6,500 addresses of because he has to guarantee transportation. 2012. What is important for the Dutch is growers, buyers, auction and logistics ser- However, the aim is to stimulate a working that the Netherlands remains the main glo- vice providers to which it will send a short together with other transporters. bal hub for knowledge, logistics and coordi- survey to get an opinion on the project and D: HubWays acts as a 4PL chain coordina- nation, both physically and virtually, for the to find out what is important to each indi- tor. It decides with which transport service flower sector, keeping ahead of the compe- vidual. company flowers will be transported, on tition and ready for the future. Reduce inventory impRove cash flow & decRease costs take the next step with terra technology

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