Monthly Archives: December 2006

Creating a Proactive, Demand-Driven, Value-Creating Supply Chain

This was the title of one of the panels at eyefortransport’s Supply Chain Directions Summit on November 28 and 29 in San Francisco. The panel, which consisted of David Pieper from HP, Ashley Hall from Intel and Lonny Warner from Menlo Worldwide, offered suggestions for enhancing value in your supply chains. These were some of their suggestions:

David Pieper

  • Don’t try to do everything in-house
  • Your partner data is important too
  • Event management capability is important
  • Measure your KPI’s across your supply chain
  • Don’t just push inventory and costs down the chain
  • Collaborate closely with your strategic suppliers
  • Improve your fill rates
  • Use Dynamic Replenishment
  • Adopt innovative terms and conditions in your contracts

Ashley Hall

  • Use outsourced inventory handling services
  • Use an internal ERP for tracking all of your transactions
  • Outsource manufacturing where it makes sense
  • Use a common data standard

Lonny Warner

  • Replace inventory with information
  • Consider direct-ship strategies
  • Use information to manage your overall supply chain network
  • Use smart-docks
  • Move from make-to-stock to finish-to-order strategies
  • Collaborate

In other words:

  • collaborate,
  • achieve visibility,
  • outsource,
  • reduce inventory,
  • manage your data, and
  • optimize your network.

The best supply chains are those where everyone collaborates and shares information to achieve visibility up and down the chain. This allows for event-based management and proactive alerts notifying you of a potential problem before it occurs. For example, if a product should reach the outbound port in three days and it hasn’t and you need it in twenty-one days, there may be a problem and you need to know whether it is just delayed a day or if it hasn’t even left the warehouse yet due to a production problem that shut the line down.

The best supply chains track all of their transactions and demand data and share the information that is derived to pull inventory out of the chain, not just push it down to a supplier. They also use finish-to-order strategies for flexibility and postpone orders late into the chain.

The best supply chain partners focus on their strengths and outsource their weakness to a partner that is strong in those areas. They collaboratively optimize the network to be robust and adaptive and capable of handling single points of failure. They use new technology and do as much as they can at each touch point, using smart-dock technology, for example, to minimize the number of parties and transit points requires.

Note that eyefortransport’s sister organization, eyeforprocurement has a number of upcoming events next year custom designed for today’s procurement professionals, including the Supplier Management Forum next April in Miami. Registrations received before year’s end save $400 off of the regular registration rate and those who quote “sourcing innovation” in the discount code field save an additional $100.

Next Level Purchasing’s Annual Purchasing Survey

Next Level Purchasing’s (now the NLPA, part of Certitrek) Annual Purchasing Survey is now available. Sourcing and Procurement professionals who complete the survey will receive Strategic Sourcing Questions & Answers, a document that answers questions about the most common issues related to implementing a strategic sourcing initiative, from how to build a cross-functional sourcing team to what some of the pitfalls of strategic sourcing are, as well as a $5 (US) discount voucher towards enrollment in the online mini-course “Negotiation No-No’s'”.

AMR’s 7 Supply Chain Best Practices

The following are the best practices covered by Greg Aimi of AMR in his presentation Is the World “Flat” or Not? at last week’s Supply Chain Directions Summit sponsored by eyefortransport.

  1. Use an integrated S&OP process team
  2. Collaborate with a “transparency” information infrastructure
  3. Consider Geography and Supply Chain Network Redesign
  4. Build in Distribution Flexibility
  5. Monitor and Manage Logistics Complexity
  6. Explore RFID
  7. Customer / Supplier Collaboration

Use an integrated S&OP process team

  • Form a cross functional team that breaks down silos
  • Analyze and rationalize all sources of data with a customer focus
  • Change sales priority from revenue to profit
  • Embrace demand variability in optimization
  • Adjust forecasts more frequently based on sense-and-demand
  • Attempt to “shape” or “influence” demand
  • Push for integrated product introduction “design for supply”

Collaborate with a “transparency” information infrastructure

  • Intra enterprise departments, freight forwarders, customs brokers, international and domestic carriers, suppliers, contract manufacturers, customers, and consolidators should all be working off of the same data

Consider Geography and Supply Chain Network Redesign

  • Fight the all-or-nothing bias (multiple sources of supply mitigates risk)
  • Mitigate capacity shortages and distribution network congestion
  • Consider new and mixed geographies
  • Understand Free Trade Zones and tax implications
  • Frequent analysis to (re)position inventory optimally
  • Total landed cost modeling

Build in Distribution Flexibility

  • Develop configurable postponement capability
  • Enable multi-channel fulfillment
  • Mix traditional DC fulfillment, direct to store, and supplier direct strategies
  • Consider building outsourced networks for flexibility

Monitor and Manage Logistics Complexity

  • Automate transportation optimization and execution
  • Reduce variability (take control of shipments early, for example)
  • Form strategic supply relationships with carriers
  • Use international security requirements to raise priority of automation initiatives
  • Build a 4PL organization internally for increased 3rd party execution

Explore RFID

  • For real time sell through visibility
  • Insure products are where they need to be when they need to be there
  • Help manage new product introductions
  • Increase productivity in goods handling
  • Speed handling of SC security requirements

Customer / Supplier Collaboration

  • VMI / SMI programs
  • Late stage final product postponement strategies
  • Increase customer fulfillment flexibility
  • Use the latest systems to automate flexibility

Since many of these recommendations are posts in themselves, I will not attempt to tackle them all in a single post and simply point out that many of these are issues I have covered and will continue to cover in the months ahead.

Note that eyefortransport’s sister organization, eyeforprocurement has a number of upcoming events next year custom designed for today’s procurement professionals, including the Supplier Management Forum next April in Miami. Registrations received before year’s end save $400 off of the regular registration rate and those who quote “sourcing innovation” in the discount code field save an additional $100.

AMR’s Top 10 Supply Chain Issues

One of the presentations at last week’s Supply Chain Directions Summit, sponsored by eyefortransport, was Greg Aimi’s presentation on Is the World “Flat” or Not?. In this talk, which I’ll also cover in later posts, Greg presented AMR’s top 10 Supply Chain Issues. These were:

  • Customer preferences / product option explosion
  • New product introduction speed and lifecycle end decisions
  • Reducing forecast issues / better demand visibility
  • Right-sizing network inventory levels
  • Creation and coordination of a multi-tiered flexible supply network
  • Obtaining the right landed costs for sourced products
  • Controlling complex global logistics
  • Minimize expediting need
  • Lowering operational costs and improving profit
  • Managing outsourced relationships for flexibility and profit

Customer preferences / product option explosion

These days, SKU’s are proliferating like wildfires through gasoline soaked dry deadwood on a zero humidity day. What can you do? I’d start by adopting a Product LifeCycle Management (PLM) solution.

New product introduction speed and lifecycle end decisions

Not only are SKU’s proliferating out of control, but product lifecycles are getting shorter and shorter. Not only do you need a good PLM to manage the cycle, but you need a good methodology to make sure you are designing the right products with the right technology. I’d recommend starting with TRIZ-based “Innovation on Demand”, as elucidated on e-Sourcing Forum [WayBackMachine].

Reducing forecast issues / better demand visibility

This is where collaboration takes center-stage. The entire organization needs to be working off of one number, that is collectively agreed upon based upon demand data coming down the chain and manufacturing capability data moving up the chain.

Right-sizing network inventory levels

Once you have good demand visibility, this is where inventory management systems and transportation network optimization come into play. See my 4th post on CombineNet (acquired by Jaggaer) for some insights on how to accomplish the latter.

Create and coordinate a multi-tiered flexible supply network

This is where supply chain visibility comes into play. Make sure you are using multiple tier 1 suppliers and that each tier 1 supplier uses distinct tier 2 suppliers and so on. This helps to mitigate risk in case a supplier goes out of business, a lane goes down, or a disruptive force affects your supply chain.

Obtaining the right landed costs for sourced products

These days, everyone is focusing on low cost country sourcing with its promises of cheap labour and cheap manufacturing. However, these countries typically have poor infrastructures, little or no IP protection, and higher crime rates. Furthermore, they are usually located far away from you and with rising fuel costs, transportation costs can dwarf your manufacturing and labor costs to the point where your perceived outsourcing savings evaporate, especially when you add import and export tariffs and duties.

Controlling complex global logistics

How do you get your order from a factory deep in mainland India or China to your distribution centers deep in the American heartland – in thirty days or less – guaranteed – every time – affordably?

Minimize expediting need

This involves getting a good handle on your demand and your global logistics. Expediting adds multiples to your logistics costs, eating away both your savings and your profit!

Lowering operational costs and improving profit

To be truly effective, procurement best practices need to be applied across the board, not just to your direct goods, indirect goods, and services procurement. Your best practices need to be applied to internal operations, sales, and marketing. See my posts on Magic and Logic for some insight onto how good procurement best practices are often universally applicable across the organization.

Managing outsourced relationships for flexibility and profit

In today’s ultra competitive marketplace, success often depends on doing what you do best and outsourcing the rest. However, outsourcing only adds value if the proper relationship is formed, managed, and used to improve your business. This is a topic I tackled briefly in my procurement outsourcing series (I, II, and III) over on the e-Sourcing Forum [WayBackMachine] and a topic I’ll take up again in future posts.

In response to these top 10 issues, Greg Aimi presented seven best practices to tackle them. Check back tomorrow to find out what AMRs recommendations are.

Note that eyefortransport’s sister organization, eyeforprocurement has a number of upcoming events next year custom designed for today’s procurement professionals, including the Supplier Management Forum
next April in Miami. Registrations received before year’s end save $400 off of the regular registration rate and those who quote “sourcing innovation” in the discount code field save an additional $100.

Spend Matters Not

Not long ago, sometime after my post where I asked Is it the Case that Spend Matters Most?, the posts “Emptoris: Readying the Spend Visibility Armaments for Battle”* and “Ariba: Not Sitting Still in the Spend Visibility Arms Race”* appeared on Spend Matters and generated quite a buzz. I’m now convinced that most of the providers still have not progressed beyond Spend Analysis 1.0 and, more importantly, that spend, or at least the amount of spend, doesn’t matter.

It’s not how much you spend, how you store it, how you cube it, or how you report on it – it’s how much you get, how you profit from it, and how you improve on it. It’s all about value, profit, and continual improvement. The fact of the matter is, sometimes spending more is the right thing to do. If you’re spending more to build higher quality products that allow you to double your profit margins and drastically increase revenue, compared to spending less, building the same products, and having your profit margins shrink to nil because they are not innovative and desirable compared to the rest of the products on the market, then you’ve made the right choice. Just like you should focus on Total Value Management, and not Total Cost of Ownership, when you make your award decisions, you shouldn’t be focused on how much you’re spending when doing spend analysis. It’s what you are spending it on, who you are buying from, the prices you are paying relative to the prices you could be paying and the rest of the market, and opportunities you have to drive value from the spend.

So, how do you figure this out? Analysis. Flexible, powerful analysis that allows you to aggregate, slice and dice, associate, break-out, normalize, aggregate, and slice-and-dice again. Analysis that allows you as the user to see the data any way you want to see it, any time you want to see it, any how you want to see it. A rigid view on a fixed set of dimensions might tell you that you’re spending 30% more on supplier X, but it might not tell you that you’re spending 60% more on servers, 10% more on workstations, and 10% less on laptops compared to other suppliers. In other words, a rigid cube analysis might lead you to conclude that you should be dropping supplier X for suppliers Y and Z, when really you should only be dropping them as a server supplier, aggressively negotiating with them on workstation pricing, and routing more laptop purchases through them for a larger discount.

I have to agree with Eric (Strovink) of biq (acquired by Opera Solutions, rebranded ElectrifAI). It’s the analysis. The value added services, especially those provided by Emptoris (acquired by IBM, sunset in 2017) in their new release, are great, and they can be used to create some top notch reports that will knock the socks off of your stodgy old CFO, especially compared to what you can pull out of a traditional ERP, but that’s not how you drive maximum performance. Drop the spend. Focus on the value. Which supplier is giving you the highest value ratio (the most quality product for the least spend)? On which categories? Why? Which categories are performing the worst? On which categories? Why? Which suppliers do you have multiple contracts which? Any way to leverage the volume? And so on. You need to be able to build a cube, analyze it, slice off dimensions, extract a sub-cube, aggregate the data, run a report, and then compare it to a report generated off of another sub-cube for a different, but complementary, data set.

After all, it all comes down to the bottom line. It’s not what you spend. It’s not the revenue you take in. It’s not your operating costs. It’s how much profit the business makes at the end of the day and the value it returns to its shareholders. And that requires smart spend management based on actionable intelligence – the kind enabled by next generation spend analysis and visibility solutions. Everything else is just reporting – sometimes really, really, really good reporting – but just reporting.

And if the user can’t hack it … then the user needs to be trained or be replaced. Commodity prices are going up. After the third reverse auction, there’s no more fat left to trim. Once you’ve implemented the latest IT system, there’s little room for productivity improvements. That simply leaves collaboration, innovation, and smart spend management.

On a side note, I applaud Iasta for basing their new spend analysis solution on BIQ’s solution instead of trying to build their own from scratch. It takes years to build a good spend analysis solution, and since they are on-demand, they can easily integrate BIQ’s on-demand solution into their platform and extend it with value added services, which is where the real value is. This complements their core strength, the executable sourcing cycle, with a SaaS solution that helps the user determine the best category candidates for dedicated eSourcing events. Furthermore, as time progresses, they can build up baseline cubes and reports for common categories to jump-start the process for new customers and junior analysts. And, since it’s a partnership and not an acquisition, you don’t have one company swallowing another. Although this sounds great in principle, what usually happens is that the development teams merge, the new blended company adopts “one focus”, and a lot of the distinctive expertise that made the acquired company the best at what they do gets masked or disappears. BIQ is going to continue to build a better, differentiated, spend analysis product, Iasta is going to continue to develop better services around the product for the sourcing professionals it serves with its end-to-end executable eSourcing suite, and everyone is going to win. The only thing keeping it from being a perfect solution is the ability to easily integrate 3rd party data sources for spend augmentation and market-based reporting. But I’m sure that will come in time.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.