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Industry Magazine features SerCom Solutions
31 January 2006 Industry Magazine , a leading UK publication, carries a feature on Ireland in it's January edition. The feature starts with an outline of Enterprise Ireland'd developmental strategy from it's CEO Frank Ryan. A small number of Irish companies are featured, including SerCom Solutions. Attached is the article concerning SerCom Solutions: The next step : Kevin Henry, CEO of SerCom Solutions, one of Ireland’s leading providers of supply chain solutions unravelled some of its mysteries to Jayne Flannery and gave his thoughts on how the industry is evolving Supply chain management (SCM) is a much used phrase in contemporary business circles. Kevin Henry, CEO of SerCom Solutions is sanguine about a term which he believes is frequently misused. SCM, according to the company’s definition, is the provision of solutions for firms in all vertical markets that optimise the flow of materials, information, and funds across the value chain between raw material suppliers and end customers. The debate over definitions aside; one thing is certain. Over the past decade, thousands of companies all over the world have realised enormous savings from outsourcing their non-core processes to companies specialising in SCM. SerCom Solutions has been in business since 1978 and was one of the earliest pioneers in developing this new business model with both customers and consumers. Today, the company acts as a global outsourcing partner to many of the world’s leading technology and communications companies, including Apple, Canon, Dell, Nortel and Microsoft. What they all have in common is a desire to achieve more cost effective and efficient manufacturing and distribution, shorter lead times to market and a reduced cost base. “At the moment we are geared to communication and information technology customers,” he said. The solutions are somewhat like an a la carte menu, often starting with a single piece of outsourced business, such as manufacturing or logistics. As mutual trust grows, the business generally develops organically, both in terms of additional volumes and additional outsourced activities. “However, I would contend that there is nothing unique about their needs that is not also relevant to manufacturers in other sectors. Our current customer base is just a natural result of the way Ireland’s economy has evolved. Ireland has been very successful over the last 20 years in persuading companies of this type to headquarter their European operations here. That is now starting to change as we see IT businesses increasingly looking towards lower cost base economies.” He is not phased by the corporate migration eastward. Rather it is an opportunity for the company. “There is no reason why we could not support other engineering and manufacturing companies. The health sector and medical devices market, for example is an area in which SerCom is currently having active discussions re the solution of feeding directly into wards and floors in exactly the same way as we feed into the production lines for modems or digital cameras.” However, one way in which the present customer profile has shaped working practices is the strong focus on Class C components that typifies SerCom’s operations. Henry explained why this has been the case. “The way IT companies operate is that they typically want to focus their procurement energy on the biggest items of expenditure, or those items that are termed class A or B components. Class C components like cables, power cords or labels might make up 60 per cent of the volume of components that go into the finished product, but they only account for a fraction of its overall value. Yet they add an enormous administrative burden because of the amount of interaction with vendors that is required needed.” Typically, customers pay no more for components sourced through SerCom than they would have done if they had sourced independently. “Because we are buying for a number of customers and the parts tend to be generic, we benefit greatly from economies of scale. It means that the price paid by customers, including our fee is generally no more than they would have paid if they had managed that process themselves,” he said. Indeed, SerCom quite often work with customer directed suppliers, where a significant priority is the elimination of any risk of business interruption. An example of this process was the recent migration of a customer’s assembly from France to Poland, where the customer enjoyed a 12% saving (after SerCom costs), while staying with the same supply base. Eighty per cent of the components bought by SerCom are on a consigned stock basis, which means further savings. The customer does not take title until the part is used. It is obviously better for the balance sheet than being compelled to take ownership of the goods in China or while they are in transit. “We supply three million items a week direct to the line of our customers,” he said, to illustrate another of the ways in which SerCom can drive out cost. “We literally have 20 people running up and down the assembly plant all day filling trays with cable and labels. It is a very big saving for that customer because they can manufacture without any warehousing or inventory holdings.” This example is at the high end of the service spectrum – many customers prefer more conservative outsourcing programmes, and SerCom are happy to tailor a specific programme for each individual customer. The consigned stock programme is one of many services. SerCom Solutions offers supply chain planning and optimisation, demand management, kitting and assembly as well as sourcing and procurement. However, Henry is eager to point out that comprehensive as the service is, it is still not enough to offer an end-to-end solution, which is where the market is moving to next. “There are many elements to the supply chain,” he said. “These typically include forecasting, ongoing demand management, production, assembly, shipping & distribution, procurement and handling the raw materials and finished goods. Many supply chain companies manage portions of this chain, but there are very few companies in the world that can lay claim to managing all of these facets. “What customers are now asking of logistics and supply chain managers is an end to end solution,” he continued. “Logistics tenders with the biggest companies, for example, now include a procurement and demand planning element, yet very few providers can undertake every task. Typically logistics companies do not have expertise in procurement. Whilst they might have very sophisticated IT systems for warehousing, they are not geared up for demand forecasting or manufacturing planning. Different skill sets are required.” Forward thinking companies in both logistics and supply chain managers are looking for partners. SerCom Solutions has announced a partnership with leading European logistics provider Kuehne and Nagel. They will handle the direct interface with the customer and the logistics element. SerCom will provide demand planning and sourcing and procurement and critical IT support and integration services. IT is one of SerCom’s particular strengths. The information technology platform is built on SAP and is used to manage all material movements, fulfilment transactions, planning and manufacturing execution, warehouse management, in-bound and out-bound material flow and financial analysis. The system is run on a centralised model with all sites connecting to a central system and database in Dublin. One of the key benefits of this sort of system is the visibility of information across the entire supply chain. “Vendors and buyers only need Intranet Explorer to be able to see live movements within our system, and access is fully secured and firewalled” he added. It is his belief that the worry and stress associated with oversea’s procurement increases exponentially in relation to the distance that goods must travel. “Vendors like to be able to see goods moving in and out of the system and know they will automatically be paid for the day’s movements. We have even installed a webcam so people can physically see their goods sitting in the warehouse. It’s amazing the reassurance that people get from this,” he said. Reassurance to buyers and vendors alike has been particularly important given the speed with which procurement has migrated towards China. SerCom is already spending €60 million per annum there, but he expects that figure to continue to rise. China has become so important as a producer that SerCom has now committed a permanent full-time presence there. Physical proximity in the form of a new office in Shezehen will make it easier to spot procurement opportunities as they arise. It will also allow SerCom to function as an aggregator – sourcing on behalf of groups of small to medium sized enterprises whose size does not warrant a sophisticated internal procurement function. “Because people are naturally nervous about buying from so far away, a quality assurance professional on the ground is also very reassuring,” he continued. When SerCom brings on stream a new vendor, he explained that they must first undergo a series of exhaustive trials. “It is a gruelling process and we will often issue a whole batch of corrective action reports that set out the improvements we require if we are to have a working relationship. The good ones see it as free consultancy; the rest we have to work much harder with. We may have a situation where the customer has designated a supplier, and the supplier is not meeting our quality criteria. We will work to ensure that customer requirements are met. The issues to be addressed can range from a proper understanding of expectations to a full analysis of the supplier’s process from end to end. We also take a great deal of care to ensure that our vendors have quality audit processes in place that will monitor quality constantly, not just at the outset.” Henry expects eastern Europe to become more important as an assembly base. If components are sourced in China, customisation for the European market will take place in central, or increasingly eastern Europe. “We already have a partner in Poland, where we outsource assembly and customisation for a modem, which is a relatively low value product. It is all a question of weighing up the cost of reverse logistics against the savings made on labour. Ultimately, I expect to see only high value products being made up close to the end user,” he said. Against this backdrop, he is convinced that market forces are compelling OEMs to re-evaluate how they manage their supply chain. “If businesses don’t change their processes, they will simply end up elongating their supply chain at a critical time where there is a simultaneous trend towards shorter lead times for new product launches and shorter product lifecycles. If they want to sustain a competitive advantage, then they need a partner like us,” he concluded.