Monthly Archives: July 2006

Supply Chain Direction: Collaboration is Key

Back in April, EyeForTransport, the organizers of the Supply Chain Directions Summit 2006: Strategies & Tactics to Optimize Inventory and Supply Chain Visibility, released a report entitled Supply Chain Directions 2006: How Fortune 500 shippers overcome their supply chain challenges.

This report analyzed the results of a survey of almost 400 logistics professionals who were primarily executives from Fortune 500 manufacturers and retailers in charge of their companies’ logistics and supply chains and sought to identify the biggest supply chain issues and the methods that these companies were planning to employ to overcome those issues. The largest supply chain issue identified as relevant, by a whopping 62% of respondents, was a lack of collaboration. Furthermore, a whopping 59% of respondents identified enhanced collaboration schemes as the most likely method for decreasing their supply chain woes, 10% more then the runner-up option of optimizing warehouse management.

So how can you improve collaboration? One approach is to deploy new technology. In particular, Transportation Management Systems (TM) and Supply Chain Management Software (SCM) with built in collaboration capabilities can go a long way towards meeting these goals. In fact, these were the two leading systems identified by respondents as the most likely technologies to enhance their supply chain performance (at 56% and 44%, respectively).

Regardless of what direction, or directions, you choose, I’d recommend you check out the speaker list for EyeForTransport’s Supply Chain Directions Summit 2006 (November 28-29, 2006 in San Francisco, CA, USA) which reads like a who’s who list in the logistics and SCM trenches with speakers like Scott D. Burnette, the Director of National Transportation for Coca Cola North America, Ashley Hall, the 3PL Sourcing Manager for Intel, David Pieper, Supply Chain Strategy Principle, and Mike Passon, Director, Global Logistics, Program Management at Hewlett Packard, Arun Kumar, Director, Americas Logistics and Worldwide Compliance at Dell, Walter Gimenez, the Logistics Director at Nike, and 28 other confirmed speakers.

It appears to me that despite only being in its second year, the Supply Chain Directions Summit could be on its way to becoming recognized as one of the premier annual SCM events around the globe. (For a larger list of events coming up, see this blog’s companion site, Sourcing Innovation.) The only advice I would give EyeForTransport is to consider doing what SAP did for SAPPHIRE, and fly in some leading bloggers to cover the event. This will help boost the event’s profile and visibility this year, as bloggers notify their ever growing reader lists in advance on their plan to be there, and next year, as those who do not attend read about what they missed. After all, I’m sure Jason Busch’s coverage of Ariba Live on Spend Matters probably provided more visibility for Ariba with almost 2,000 dedicated readers every day than a fistful of traditional publications. It’s a thought.

Supply Risk Management IV: WisdomNet’s Point of View

As mentioned in Jason Busch’s recent post Another Perspective on Supply Chain Risk on SpendMatters , WisdomNet recently published a whitepaper that serves as a good introduction to Supply Chain Risk, and a good companion to my introductory posts on Supply Chain Risk (An Introduction, Risks and the Need for Resilience, and Managing Risk) that ran this weekend on e-Sourcing Forum. Although I agree that there are not any breakthrough findings or thoughts in the work, I also found it to be quite a worthwhile read — a perfect supply risk management 101 type of study, if you will. As such, I’m going to highlight the key points made by the author as a comparison and contrast to the key points that I made this weekend (in an effort to encourage you to read more).

According to the white paper, five key factors have an impact on supply chain resilience:

  1. Supply Chain Design
  2. Business Process Management (BPM)
  3. Demand and Supply Visibility throughout the Supply Chain
  4. Supplier Relationship Management (SRM)
  5. Culture

Supply chain design is the primary driver of resilience, and the level of risk in a supply chain is affected by process structure, level of vertical integration (that results from make or buy decisions), the location of supply, the concentration of capacity, and inventory decisions. Process structure is dictated by the choice of make to stock, configure to order, make to order, and design to order. The extent to which suppliers that cannot be easily replaced perform critical steps in the vertically integrated supply chain increases the level of risk. Sourcing outside of the local market in which the goods are to be sold adds considerable transportation and delivery risk. Concentrating supply to a single region, country, or city adds considerable risk and risk (which includes obsolescence, quality, shelf-life, and loss) increases with the number of inventories in the chain.

Resilience can be added to the supply chain design by:

  • using common components and configure to order processes whenever feasible,
  • avoiding sole source arrangements,
  • reserving capacity, implementing maintenance and spares strategies when single sourcing must be used, and allowing for process redundancy,
  • distributing supply among multiple cities, countries, and regions
  • centralizing safety stocks regionally,
  • holding inventory in unprocessed states for flexibility,
  • consistently and regularly measuring and improving forecast accuracy,
  • rationalizing product lines,
  • building rapid re-supply provisions into supplier contracts,
  • collaborating with customers for “early warning” of potential needs,
  • using performance-based contracts with Service Level Agreements, and
  • sourcing locally within your target market to facilitate site visits, minimize cultural differences, and increase manageability.

A focus on business process management can enhance capability through the supply chain. Participants whose processes are controlled and reliable are less likely to induce supply chain disruptions internally than those whose processes are not under control. Operations where statistical process controls and improvement programs, such as Six Sigma, are in place tend to have more predictable processes and introduce less variability when compared to those operations without such controls.

Resilience is the result of business process management that includes

  • using fact-base process improvement and control techniques like Six Sigma,
  • working with partners to build the same process disciplines into their operations (as your supply chain is only as strong as your weakest link),
  • focusing improvements on reducing economic order quantities to increase flexibility, and
  • building the ability for flex capacity.

Enhancing visibility through the supply chain improves your ability to deploy appropriate levels of resources where needed and reduces the risk of internally generated disruptions. Also, the more open the participants are about providing early warnings about (potential) disruptions, the more likely the chain can either avoid them altogether, or at least reduce their effect and duration.

Resilience results from increased visibility when you

  • implement collaborative forecasting, planning, and replenishment,
  • use partner agreements to provide inventory visibility,
  • implement systems that integrate data feeds in (near) real-time, and
  • (contractually) require suppliers to provide immediate and specific notification of (potential) disruptions as soon as any event of significance occurs.

Competency in Supplier Relationship Management is the key to building and maintaining a strong supply chain team. SRM skills enable an organization to reduce supply chain interruption risk by strategically spreading business among multiple suppliers and multiple locations. SRM techniques include good performance measurement processes, collaboration and supplier development, and solid category management programs wherever sole sourcing is required.

With regards to performance measurement, it is important to establish clear expectations, provide timely feedback when performance falls short, and manage consequences. Reward suppliers that succeed and penalize suppliers that fail. Performance is increased when joint efforts with strategic suppliers are undertaken to optimize cost, inventory, processes and flexibility. Manage key categories with a sound understanding of the underlying commodity markets and devise substitution options when you foresee an impending shortage or crisis.

Resilience results from Supplier Relationship Management when you

  • establish supplier performance measurement processes and apply them consistently,
  • invest selectively in strategic supplier development,
  • manage categories for strategic and single-sourced components,
  • use supplier segmentation to guide relationship management, and
  • move toward performance-based contracts that build risk sharing into contract pricing.

Culture is used to refer to the level of trust, delegated decision-making structure, and rapid information movement. In order to build resilience:

  • participants need to share information about demand, inventory positions, capacities, and vulnerabilities,
  • lower levels of the organization need to be empowered to sound alerts regarding problems or potential problems (as the sooner a problem is found, the cheaper it is to fix, and the smaller the duration of the associated disruption), and
  • processes should be in place to enable timely information flow.

In addition to the steps that have been outlined above to improve resilience, there are actions that can, and should, be taken by an organization to prepare for a disruption. These are:

  • Identify potential risks, possible ramifications, and associated likelihoods.
  • Explore risk-reducing measures and decide on actions to mitigate risk, investing more in plans and processes to mitigate high likelihood and high impact risk scenarios.
  • Prepare business continuity plans that address both emergency response and plans for business resumption.
  • Practice drill the continuity plans against different scenarios to uncover and address potential weaknesses before a crisis happens.
  • Work with critical suppliers to make sure they are prepared and have business continuity plans in place.
  • Update plans regularly and as conditions change.
  • Respond to disruptive events as they occur.

In addition, the business continuity plans should include:

  • event impact analysis,
  • organizational roles and responsibilities for crisis management,
  • crisis communication plans,
  • well defined procedures for the evacuation of personnel,
  • consideration for means to provide food, water, shelter, clean air, security, and basic medical, and
  • secure back up of key business data and systems required to run the business and service your customers.

Events that cause supply chain disruptions are inevitable. The impact of these events, however, can be minimized by proactively taking steps to build a resilient supply chain and by preparing for disruption. For an in depth discussion, I refer you to WisdomNet’s white paper Managing Supply Chain Risk: Building in Resilience and Preparing for Disruption (registration required).

EPEAT: Electronic Product Environmental Assessment Tool

EPEAT, short for Electronic Product Environmental Assessment Tool, designed to identify high-performance, environmentally friendly computer equipment through an online, searchable database, goes live today.

As per a recent press release, “The database lists products that meet the tough new green computer standard for desktop computers, laptops, and monitors. EPEAT is as easy-to-use evaluation tool that allows the comparison and selection of electronic products based on environmental attributes, in addition to cost and performance considerations. EPEAT-registered products meet minimum performance standards in areas such as energy efficiency, toxicity reduction and material selection.

In addition, “EPEAT is already referenced in $32.25 billion worth of computer contracts, including contracts issued by the Department of Defense, Department of Homeland Security, NASA, the Commonwealth of Massachusetts, and the City of San Jose, California.

As you are well aware, I am a big fan of going and staying green, so I applaud the construction of a publicly available resource such as this.

More information is available on the website, and, according to the press release I received, if you still have questions, you can contact Kiren Gopal.

Problem Solving Series VI: General Problem Solving Strategies

This is the sixth, and final post, in our first series of posts designed to introduce you to problem solving strategies that you can use to attack your sourcing and supply chain problems.  Last Sunday we discussed some methodologies that you could use to evaluate a solution.  Today we are going to discuss ten general problem solving strategies that you can apply during the problem solving process to increase your chances of success.

( 1 ) Think of options without immediately evaluating them.

Although several options may be applicable to your problem, chances are one will be better than the others.  If you focus on one option too quickly, you might get “tunnel vision” and miss a better solution.

( 2 ) Set a goal

Make the outcome specific.  For example, “I want to decrease spend in this category by at least 10%”, “consolidate my supply base for non-critical indirect commodities to at most four suppliers per commodity”, or “decrease cycle time by 20%”.  It’s often easier to work towards a specific goal.

( 3 ) Avoid distraction

Good problem solving takes time, and distractions can significantly slow down the process.  It takes time to get into it, collect and organize all the information and your thoughts, and come up with a good plan of attack.  Every time you are interrupted, you will spend a considerable amount of time just working your way back to where you were.

( 4 ) Shake things up

Sometimes working in a new place, or at a different time, can be as helpful as trying a different approach.  Anything that stimulates those neurons is a good thing!

( 5 ) Make sure you have enough time

If you just spent a week coming up with an optimal sourcing strategy and award allocation for one key strategic direct material, you should not expect to do an entire category of ten strategic direct materials in anything less than six to eight weeks.  Sure, you will get better, and faster, as time goes on and learn to apply economies of scale, but only to a point.

( 6 ) Don’t work in a vacuum

Just like it helps to ask an expert, it also helps to bounce ideas of a colleague now and then.

( 7 ) Be positive

Negativity does not help, especially in problem solving.  Thus, do what you can to maintain a positive mood.  For some people that might be a well lit botanically decorated workspace, for others that might be metal blaring through the Altec-Lansings.  Whatever works! And remember, proving there is no solution is a valid solution!  It might be impossible to consolidate your supply base to only three suppliers for a given product and retain the desired amount of supply chain flexibility.  But if it is, a well constructed model run through an appropriate solver will prove it.  (And variations on that model will tell you the best you can do.)

( 8 ) It’s a Challenge!

If you don’t like problems, then it’s a challenge.  If you don’t challenges, it’s an opportunity.  And we all like opportunities.   This will help you keep a positive mood.

( 9 ) Be Confident in your abilities

A positive mood is good, but confidence is better.  If you think you can not, there’s a statistical psychological significance that you will not.  If you think you can, you have a much better shot.  And when you get right down to it, most problems are not that new or that difficult that you will not be able to solve them with a little brain power and a lot of hard work.  Although global supply chain problems can be hard, we are not talking P=NP or quantum gravity hard.  (Fortunately!)

( 10 ) Persist, Persist

If at first you do not succeed, try, try again.  And maybe even again.  I have a rule.  A Murphy’s rule, but a rule.  “You never get it right the first time.”  I’ve never encountered a counterexample in any realistic situation.  Never!   We live in an age where technically dependent accomplishments are so fundamentally complex, that we are virtually guaranteed to make a mistake the first time, because we are only human.  That’s why we have advanced QA processes, six sigma, and other tools to help us get it right (which limit the amount of exposure when we get it wrong the first, second, and even tenth time). 

Your first idea, even if it helps, will in all likelihood not be the right one.  And unless you’re inconceivably lucky, chances are the second idea will not be appropriate (or ideal) either.  There’s a reason they say “third time’s the charm”.  We may not get it right the first time, but we are intelligent, learn from our mistakes, and gradually make our way to the right solution, no matter how hard it is.  So keep trying – no matter what.  And as time goes on, you’ll solve harder and harder problems and devise better and better solutions, and learn a lot in the process.  If you need to, take a break, revitalize yourself, and then continue.

This concludes our first set of posts in the problem solving series.