Technology as a myth creater

While discussing the more mundane aspects of ERP and SCM technology solutions for SCMluxe in the previous post Selecting Technology for SCMluxe an interesting point by Kapferer and Bastien in their seminal book “Luxury Strategy” caught my eye. They argue that the function of technology in the luxury industry (with specific reference to the luxury auto sector) are two fold:

·         As a base to justify the “quality” of the product especially in auto and electronics products which rely heavily on the technological superiority of its products. This is especially true for non traditional products where artisanship and old world hand finished values are not enough to sell the product

·         As a strong component in creating a myth or aura around the product. The mythic ability to perform tasks (which may have no practical use in most cases) which seem super human are mostly aided by technology. The ability of a Rolls Royce to drive for 100km even with flat tyres (why would one want to do that?) or the fact that a coin balanced on its hood will stay balanced even while driving is an outcome of the superior technology used. This creates legends and myths that helps build a luxury brand and makes it exclusive.



James Bond's mythic Aston Martin



On a lighter note, an easy way to comprehend the mythic qualities of technology is the Aston Martin driven by James Bond – it even has the ability to turn invisible (with the help of mirrored bodywork!) and fire torpedoes at oncoming spies in tanks or plebian BMWs!!!



Selecting and implementing an integrated SCM technology solution for SCMluxe

Technology is an important enabler of supply chains and SCMluxe requirements encompasses the standard requirements of technology with the addition of those components that are peculiar to the luxury goods sector. Let us look at what factors/features of an ERP system or supply chain solution that one must look at while evaluating and selecting a ERP system for SCMluxe

·         Technical backbone and integration capabilities

o   Look for system integration capabilities with supply chain partners. For eg: does it seamlessly integrate and support your suppliers (leather manufacturers, diamond polishers or downstream partners like retailers etc) systems. Is the planned integration going to be difficult and expensive – in which case will supply chain partners bear part of costs?

o   Prefer technologies which work on web rather than client architecture based systems. The future will be cloud based systems which will enable seamless integration of systems across the internet with mobility solutions (eg: your sales persons can order from the customer’s premises) that are independent of hard connections between systems. These have lower upfront investments and can run on a “pay as you use” model (think SalesForce.com)

·         Prioritize requirements

o   Typically a laundry list of requirements are doled out by all stakeholders during the requirement gathering phase – some of them critical, a lot of them wishful thinking and some pure fantasy. Prepare a document which will prioritize these requirements into (a) critical requirements where costs are not a criteria  (b) enabling requirements which will drastically improve processes but will require some investments which need to be debated (c) requirements that offer competitive advantages for which cost-benefit analysis need to be done (d) ground breakers which will provide quantum benefits but implementation and availability of these tools are fuzzy

o   Plan investments according to this priority plan

o   Ensure relevant modules are included – for luxury goods companies, modules on brand management will be very vital

·         Ask for References and Demo

o   Speak to organizations which have implemented the product and ask for a demo. Importantly ask your process managers to use the demo version and comment on its user friendliness – this will bring in the “user buy in” which is critical for speedy and effective implementation

o   Get customized reports as required from system and analyse how easy/difficult it is to do so vis a vis your legacy system (eg: dashboards of sales/inventory analysis/ brand value etc)

·         Evaluation and selection of implementation partner

o   Ensure that partner has experience in not only implementing the chosen solution but also has experience in the luxury industry

o   Ask for some domain consultants in your business. Interview them so as to bring in industry perspective (typically implementation partners will hire experts for a short term period – say SAP experts with experience in implementing for a luxury fashion house

Ensure the SCM solution is integrated across the value chain

·         Customise to your industry

o   Ensure that modules are customized to the requirements of your industry. A good example would be that consignment stock and invoicing alongwith CAD/CAM for designing is vital for the jewellery industry – make sure this is built in or designed to take into account your organizations requirements

·         Implementation partner

o   Will it be done by the OEM or a stand alone service firm. Whichever case be sure to have all customization requirements, maintenance costs etc clearly spelt out in the agreement. One normally finds out much later that the AMC (annual maintenance  costs) are much higher than budgeted for, especially when the OEM charges for the product and the OEM partner charges separately for AMC and regular customization required

·         Confidentiality agreements

o   Make sure to sign iron clad confidentiality agreements before you get to actual implementation. A lot of very highly confidential and sensitive data will be available to the OEM and implementation partner and its careful control is vital

·         Implementation methodology

o   Big bang or phased implementation? Check with your implementation partner and ask for a detailed implementation plan, with deliverables, effort estimate, resources provided, rates etc all specified in black and white. Most importantly don’t forget to agree on timelines for each activity and plan to deal with any extensions or overruns in timelines (from budget/cost and resourcing perspective)

o   Remember to include key SLA (Service Level Agreements) in the contract

·         Models of Cost/Profit Sharing

o   Costs include:

§  One time product costs – typically low

§  One time implementation fee – depends on scale of implementation

§  Annual license fees charged by OEM (15-20% of AMC)

§  AMC fees for maintenance and documented customizations (15-20%)

§  Additional fees for any services – helpdesk/hotline services for instance

o   Any gain sharing model that the partner can provide – say a % of the savings generated will be shared by the vendor and the organization

o   The exact modalities the unit of pricing especially if it’s a “pay as you go” model built on price per transaction – here the unit that is the transaction or bandwith (for infrastructure) has to be very clearly defined to prevent rude shocks later when the invoice finally arrives at the end of the month

o   Keep term of contract fairly short – 2- 3 years. This will prevent unnecessary risks in longer time contracts, risks of vendor slacking in the second year and the ability to re-negotiate earlier on

Any further points that must be noted when implementing an ERP solution - in particular to SCMluxe? Write in and we'll update this list.

Meanwhile thanks to http://www.knowscm.blogspot.com/ for the inputs to this post

Compliance and the Marange diamond



Compliance of a supply chain to various international regulations and certifications is common. Certifications on environmental regulations such as WEEE and RoHS, Carbon emissions etc have been widely documented. However compliance to trade embargoes, international sanctions is something supply chains are still grappling with. An interesting example comes from the diamond supply chain. The Marange diamond field in Zimbabwe has come as a godsend to its rather insular rulers and the government has taken over the mines under Mugabe's control. The resultant exploitation, murder, torture and rape of miners and local populace has been documented by BBC and bought to several human rights commissions. The resultant ban on Marange diamonds (now becoming a synonym for blood diamonds) has thrown up a conundrum for SCM-luxe. How does one identify, track and prevent the sale of Marange diamonds in the markets of the world? The problems start with the very root of the sanction - its validity. The kimberly process (a certifying agency and regulator of diamonds in the market and mainly consisting of NGOs) which certifies diamonds and prevents blood diamonds from being marketed, has been in the process of withdrawing its sanction on Marange diamonds, stating recent checks have indicated no human rights violations occuring in the mines. The BBC report and several other media have argued to the contrary with the Rapaport foundation banning the sale of Marange diamonds in the market.



The Marange Diamond mines



Next comes the complexity of identification of a Marange diamond. Most high street jewellers admitted it was almost impossible to identify the origin of a diamond (atleast 99% of the non-spectacular ones) unless it came with a certificate of origin which in itself could be dubious - say the origin could be India where it is polished and gains the form of a diamond as we know it. Polishers in India again maintained that though they dont go out procuring blood diamonds they have no control over stocks which do originate from there. So in this rather murky scenario the only way compliance can be bought about is to ensure that the diamonds are certified by say a body like the GIA and all others are suspect. But only diamonds which are of a certain size and value (read uber expensive) are certified while the majority of the diamonds in the market do not command a value which will justify the cost of the certification. So, what is the way out? Maybe cheaper certification for smaller diamonds? better visibility and tracking tools for blood diamonds? Also will the customer pay for it?

Most interestingly when London's Hatton Street jewellers were asked about thier customer's response to the issue of blood diamonds - the response was that customer's just could'nt care less as long as they had some bling on thier fingers. In which case will they pay for any kind of certification, leave alone less expensive ones.



What is the way out? what are the other issues confronting compliance in SCM-luxe? Do write in with your thoughts and interests and we'll create more research and articles to debate this conundrum



Price of luxury and the Chinese customer

The price of luxury goods in China has grown year on year. A Hurun study indicates the rise in prices between June 2010-June 2011 was 7.73% as against the explosive 11.73% in the previous 12 month period (2009-10). One must remember that this price increase has happened in a recessionary period where most western markets have seen almost no price increases at all. However one could argue that this price increase is an inflationary trend seen in most BRIC or growing economies. Even here we see that the luxury consumer price index  (LCPI) at 7.73% growth this year outstrips the general consumer price index (CPI) which stands at 6.4%.

But demand for luxury goods seems no signs of slowing down inspite of the high prices.  Rich Chinese consumers are still queuing up for their share of $ 4.87 million Sunseeker yachts (up by 24%), bottles of 1982 Chateau Lafite at $62,000 (up 29%) and Beijing-Shanghai  return trips on the Gulfstream G550 at $43,000 (up a modest 15.60%)

It would be interesting to study the comparative figures in traditional luxury markets in the West and Japan to analyse the trends in the industry. It may well provide insights into how markets for luxury products will involve in a rapidly growing economy and will prove valuable to develop strategies to address future growth in Brazil, Russia and India as well

Meanwhile the insatiable thirst for luxury goods in the east will be welcome news for luxury goods manufacturers in the west currently reeling under recession.