Vol II - Edition IV (May 2006)

Central America is changing... We need to stay updated with what is going on to be able to adapt and respond to the market as needed.
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Copper, Zinc Rise to Records; Supply Squeeze Fuels Fund Buying

May 5 (Bloomberg) -- Copper prices rose to a record in London as threats to production fueled buying by investment funds. Zinc also climbed to an all-time high for a second day. Copper has risen 76 percent this year as disruption at mines from Indonesia to Mexico limits supplies at a time when demand is increasing.
Pension and hedge funds are pouring money into commodities to tap returns that are outpacing other assets. Fund investments in commodities may exceed $120 billion by 2008, up from $80 billion last year, according to Barclays Plc. ``Every hedge fund and gun slinger is getting into this market,'' Sean Corrigan, chief investment strategist at London- and Lausanne-based Diapason Commodities Management SA, which oversees $4 billion in assets, said in a telephone interview. Copper for delivery in three months rose as much as $150, or nearly 2 percent, to $7,800 a metric ton and traded at $7,670 as of 10:21 a.m. on the London Metal Exchange. Zinc advanced $15, or 0.4 percent, to $3,455 a ton, trading as high as $3,490. Strikes and delays have depleted the world's stockpiles of copper, a metal used in wiring and plumbing equipment. Inventory in warehouses monitored by the London Metal Exchange dropped 1,725 metric tons, or 1.5 percent, to 114,250 tons, the LME said in a report today, the biggest decline since April 5. Zinc inventory fell to the lowest in five years, losing 1,700 tons, or 0.7 percent, to 255,900 tons. A six-week strike at a mine operated by Grupo Mexico SA, the world's No. 7 copper producer, is no nearer ending, the company said yesterday. Workers at Falconbridge Ltd.'s Lomas Bayas copper mine in Chile, the world's largest copper-producing nation, threatened to strike on May 8, asking for higher wage.

Seven Best Practices of an Agile Enterprise

Start your company on a journey to competitive excellence
 

By Sanjiv Sidhu
 

Today's consumer marketplace operates at breakneck speed, blazing an array of goods to customers through a host of different channels. In the past, companies offered a limited product line through a single channel that was delivered by one shipment method. No more. Today's supply chain copes with scores of new product introductions, alternate forms of delivery, changing government regulations and varying customer packaging needs. Complexity, variability and transitions are ever increasing, to the point that the traditional way to conduct forecasting — which largely depends on history — is no longer working.
Industry leading companies finding success in today's climate have a common feature: agility, an exceptional nimbleness and effectiveness in responding rapidly to change. In high-tech, of course, the stellar example is Dell. Some people believe their success comes from the direct sales model, some people think it's low inventory. Others believe it's due to their tremendous commitment to a philosophy of execution, centered around speed and agility. In consumer goods, Frito-Lay stands out, largely based on their focus on agility. They've been able to differentiate themselves to a point where they have 60 percent market share of salty snacks.
How do top companies maintain their agility, even while using many of the same tools used by less successful companies? Following are the seven best practices that are key in agile supply chain enterprises.
Best Practice 2 — Know Your Supplier Well
It's impossible to meet a plan without having command over supply. When a best-practice company asks a supplier to ship 200 units they expect a confirmation and a commitment. What happens if the supplier is unable to meet that commitment? The first question to ask is, "What happened, and when did you know?" Supply chain leaders know that being kept in their suppliers' plan-do-check-act loop increases agility.
One way of knowing suppliers well is to go onsite and inspect their processes, and confirm that they actually have a plan behind them. This is similar to total quality management (TQM), where an original equipment manufacturer (OEM) needs confirmation that the supplier has the necessary quality processes in place. Smart businesses require a plan behind a supplier's commitment so that when things go wrong — and you know that something could go wrong — they learn about it themselves and advise you promptly, so you can take immediate action.
In the electronics industry, flex agreements are common. These agreements outline what happens when the real world deviates significantly from the plan, ensures that a supplier can adequately serve your needs, and protects the supplier from excessive capacity and cost. A variance of up to 10 percent may be acceptable, but beyond that specified measures may be implemented. For example, some companies don't expect a supplier to be stuck with excess, so they will promote a lagging product or share some of the damage.
Often, suppliers are chosen strictly on cost, not on their capacity to support agility. This can end up being more costly in the long-run. The trade-off for low price may be long, inflexible lead times. If short-term demand for one of your products spikes upward, the long lead time can become a lost revenue opportunity. You need more than attractive costs from a supplier — you also need reliable order fulfillment and flexibility that supports agility.
Most companies resist doing post-mortems with their suppliers for fear of revealing how flimsy their own company's demand plan is and how much it actually fluctuates. But good companies want to know if their forecast was wrong, because they understand that ultimately it's their product and their delivery that is becoming inefficient. Sharing scorecards can be extremely valuable, as no learning comes without measurement.
Best Practice 3 — Live and Die by the Plan
The truth is, most plans are dead on arrival. They're based on outdated and inadequate information, and owned by teams that don't have full accountability for their execution. Second- and third-tier companies make excuses, saying planning is unimportant because there's so much variability. That's not so. Instead, planning needs to become faster and more constraint-sensitive. We expect plans to experience variability. Say a company develops a reasonable plan to sell 300 units a month. But then competitors begin promotions and there are snowstorms that shut down shipments and there are supply issues. Suddenly you're plan is in jeopardy. Just like in TQM, critical success of the plan is based on implementing the full plan-do-check-act loop.
Best Practice 4 — Synchronize Across the Enterprise

In a typical enterprise, discrete departments or divisions each have their own metrics and focus. I call these separate islands of activity "silos," because each one stockpiles and tracks information in its own area. Shipping, warehousing, sales, marketing, design and finance often operate in silos. For example, a regional sales manager focuses on overall revenues and margins in his specific region, and is less interested in which individual item or brand sells there. A brand manager, on the other hand, is focused on how flat panel TVs sell throughout the world.
Best Practice 5 — Fulfill Rapidly and Reliably

In most enterprise resource planning (ERP) systems, when a sales transaction is handled well you know that the product was built, shipped and billed. Each step is handed off to the next for a smooth flow. But this type of process integration is not the same as efficient fulfillment. The ERP process is often slow, inflexible and opaque. Even at the point of billing, you just can't know for sure if the customer's needs were effectively met.
Best Practice 6 — Design for Supply Chain Agility

Traditionally, companies focus on network design, such as how many warehouses they have and where to locate them. While those are important issues, it's more important to design for rapid response to shifts in demand or supply. An agile corporation keeps channels open so they can share updated demand information rapidly with suppliers, and identify and promptly implement the best alternative option when supply is disrupted.
Best Practice 7 — Manage IT to Support Change

An ERP system intended to handle sales transactions and financial controls typically doesn't manage planning or sourcing. It won't optimize visibility and decision making, nor will it necessarily ensure clean data. For the professional who is trying to close the supply chain loop with plan-do-check-act, the question becomes how quickly can the IT environment mirror the real world and react. Often a tool that was supposed to be helpful turns into a hindrance to achieving agility.
Your Next Step
Look closely at each of these seven best practices, and consider how your company measures up on each point. Where is there room for improvement? Where can you start taking incremental steps to make changes?
Become an agility evangelist in your company. Be a champion for faster planning, for putting into place not just tools but processes that speed up the plan-do-check-act cycle.
 

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