Monthly Archives: February 2007

Six Sigma NOT a Silver Bullet

Shout if from the rooftops! Six Sigma is NOT a Silver Bullet! And now you have research from business advisory firm The Hackett Group to back it up. According to Hackett Senior Business Advisor Penny Weller (who is a Motorola Certified Black Belt), as quoted in a Supply & Demand Chain Executive article, Six Sigma is great, particularly for companies seeking to streamline operations and eliminate variation in processes, but, like any tool, it can be used properly or improperly, to varying results. The goal is to create a continuous improvement mindset that is embraced at all levels of the organization.

I’m not trying to put down Six Sigma, as I’ve been known to promote it on occasion, but simply the stigma that goes with the sigma – that it is the silver bullet, the ultimate solution for all of your business problems. Not only is there no silver bullet for all of your business problems, there is no silver bullet for even one of your business problems. There is no 100% solution. There are solutions that work the vast majority of the time, maybe even more than 99% of the time, but the unpredictable, sometimes chaotic, nature of business indicates that there is no perfect solution, and the only true way to be a market leader is to identify when a solution will and will not work, and where it will not work, identify an alternate solution and keep building toward that perfect solution, knowing that you’ll never truly get there.

The second paragraph of the Supply & Demand Chain Executive article makes a great point. Many executives use Six Sigma or other continuous improvement programs to drive enhancements in finance, information technology (IT), procurement, human resources (HR) and other selling, general and administrative (SG&A) functions. But according to Hackett research, many executives fail to realize the benefits of these initiatives because Six Sigma is, by definition, an incremental process improvement methodology and is not appropriate for situations that require significant transformational change.

If you don’t have the right process to begin with, no amount of improvement will make it right. It all comes down to understanding the problem, identifying the right solution, implementing that solution, and continually striving to make it better. Six Sigma is just one methodology you can use to make it better, there are others.

The Vendor in Black

The sun did not shine.

We had no time for play.

So we sat in the office.

On that dark, stormy day.

I sat there with Sally.

We sat there, we two.

And I said, “How I wish

We had good tools to use!”

We’re deep in the red.

Our paychecks are stale.

So we sat in the office.

And tried not to wail.

So all we could do was to

Sit!

Sit!

Sit!

Sit!

And we did not like it.

Not one little bit.

>BUMP!<

And then

something went BUMP!

How that bump made us jump!

We looked!

Then we saw him step in on the mat!

We looked!

And we saw him!

The Vendor in Black!

And he said to us,

“Why do you sit there like that?”

I know you are broke

And your paychecks are flat

But we can find

Savings to tuck under your hat.”

“I have some tools that you can use,”

Said the Vendor.

“I have some new tricks,”

Said the Vendor in Black.

“A lot of good tricks

I will show them to you

Your boss

Will not mind at all if I do.”

Then Sally and I

Did not know what to say.

Our boss was out of the office

For the day.

But Diligence said, “No!, No!

Make that vendor stand by!

Tell that Vendor in Black

You do NOT want to try.

He should not be here.

He should not be about.

He should not be here

When our boss is out!”

“Now! Now! Have no fear.

Have no fear!” said the Vendor.

“My tricks are not bad,”

Said the Vendor in Black.

“Why, we can find

lots of savings, if we try

with a report that I call

vendor-GL_code drive by!”

“Please get out!” said Diligence.

“This strikes me as void!

Please get out! said Diligence.

I do NOT wish to be unemployed!”

“Have no fear!” said the Vendor.

“My tool will always work.

It will find you savings

Wherever they lurk.

With a click of a button.

And your ERP app.

It will find you savings!”

Said the Vendor in Black.

“Look at it!

Look at it now!” said the Vendor in Black.

“It’s finding you savings.

To tuck under your hat.

It’s comparison report.

Can handle two divisions.

Broken down by category.

Into subdivisions.

And look!

Pie chart comparisons for one and for all!

But that is not all!

Oh, no.

That is not all … ”

“Look at it!

Look at it!

Look at it now!

It can handle AP data,

with the module that knows how.

It doesn’t cost much more.

Than the basic module costs.

But it’s worth the price.

To prevent savings loss!

And with extra reports.

Your savings explode.

You’ll find hidden treasure.

With that extra code.

Don’t fear the price tag.

It’s a nominal fee.

You heard me clear.

Have no fear!

Just a nominal fee!”

That is what the vendor said.

Then he fell on his head!

He came down with a bump!

From up there high on the wall.

And Sally and I,

We saw ALL our prospects fall!

And Diligence he gloated.

While grinning he did.

He sad, “Did I not tell you?”

Oh, yes! I sure did!

This was not a good game,”

said Diligence in a fit.

“No, I did not like it,

Not one little bit!”

“Now look what you did!”

Said Diligence to the Vendor in Black!

“Now look at this mess!

Look at this! Look at that!

You took all our money.

Sank us deep in the red.

You made us false promises.

Then you fell on your head.

You SHOULD NOT be here.

When our boss is gone out.

You get out of this office!”

Said Diligence with clout!

“But I like to be here.

Oh, I like it quite a bit!”

Said the Vendor in Black

To Diligence with wit.

“I will NOT go away.

I do NOT wish to roam!

And so,” said the Vendor in Black,

“So,

so

so …

I will show you

Another module you should own!”

And then he ran out,

And, then, fast as a fox,

The Vendor in Black

Came back in with a box.

A shiny blue box.

It was sealed with red tape.

“Now look at this,”

Said the Vendor.

“Take a look!”

Then he climbed on the soapbox.

And with a tip of his hat.

“I call this module Enhanced-Data-Blocks,”

Said the Vendor.

“In this box, two CDs.

I will load for you now.

You will like these apps,”

Said the Vendor with a bow.

“I will unseal the tape.

You will see something new.

Two apps. And I call them

App One and App Two.

These two apps will not hassle you.

They integrate well.”

Then, out of the box

came CDS for App One and App Two!

He installed them at once.

Then said, “They’re ready to use.

Would you like to try out

App One and App Two?”

And Sally and I

Did not know what to do.

So we decided to try out

App One and App Two.

We loaded them both.

But Diligence said, “No! No!

Those Apps should not be

on our system! They must go!

“They should not be installed

When our boss is not here!

Uninstall! Uninstall!

Said Diligence, wrought with fear.

“Have no fear, Diligence,”

Said the Vendor in Black.

“These apps are good apps.”

And he gave them a nod.

“They are great. Oh, so great!

They were built to work well.

They will save you more money

and make you feel swell.”

“Now, here is a new trick that I like.”

Said the vendor.

“They augment your data,”

Said the Vendor in Black.

“No! Not in our system!”

Said Diligence, quite hot.

“They should not change the data

in our system! They should not.

Oh, the errors they’ll make.

The mistakes I will find.

Oh, I do not like it!

Rewind, Rewind!”

Then Sally and I

Saw them merge our transactions.

We saw those two Apps

Put our systems in traction.

Bump! Thump! Thump! Bump!

For hours on end there was no reaction.

App One and App Two!

Power Down! Power Up!

Our processors maxed!

It was not abrupt!

In want of more memory,

swap space was used.

And our brand new SAN,

those Apps did abuse.

Then those Apps they spit out

A slew of reports.

Across all our data,

they said we were short.

And I said

“I do NOT like the way that they run.

If our boss saw this,

would he have bought one?”

Then Diligence said, “Look! Look!”

And trembled with fear.

“Our boss is on her way back!

Do you hear?

Oh, what will she do to us?

What will she say?

Oh, she will not like it

To find our systems this way!”

“So, DO something! Fast!” said Diligence.

“Do you hear!

I saw her! Our boss!

Our boss is near!

So, as fast as you can,

Think of something to do!

You must get results from

App One and App Two!”

So, as fast as I could,

I loaded Excel.

And I said, “With Excel

I can get meaning I bet.

I bet, with Excel,

I can use those reports yet!

Cut and Paste, Slice and Dice

Make our new reports useful and nice!”

“You see!” said the vendor

“Our new apps work great.

You’ll save.

Yes you’ll save.

Oh you’ll save

Ain’t that great!”

Then he left us the box

with the CDs inside.

And the Vendor went away

gleaming with pride.

“That is good” said Diligence.

“Vendor’s gone away. Yes.

But our boss will come back

She will find this big mess!

And the mess is so big

And through all systems spread,

We can not clean it up.

We are so dead!”

And THEN!

Who was back in the office?

Why, the Vendor!

“Have no fear of the mess,”

Said the Vendor in Black.

“I solve all your problems,

And so …

I have here another module

to answer your woes!”

Then we saw Vendor install

App Three, Your Original View.

For another small fee

our data renewed.

Our original views,

and our new views too

plus a hundred reports

and a slew of canned graphs

in bright shiny colors

to show us our gaffs.

Then Vendor was gone

with a tip of his hat.

Then our bass walked in

And asked of us two

“Did you accomplish your goals?

Tell me. How did you do?”

And Sally and I did not know

What to say.

Should we tell her

The things that went on here that day?

Should we tell her about it?

Or hope she never finds out?

Well …

What would YOU do

If your boss asked YOU?

MFG: A Community in the Making

After completing my whirlwind tours of Boston and North Dallas (more to come), I started my virtual whirlwind tour of Atlanta (since I couldn’t find three consecutive dates that coincided with the availability of everyone I wanted to meet with), and the first call on that tour was Mitch Free of MFG.com. For you loyal SpendMatters readers, you’ll probably recognize the name from Jason’s post Going Global With a Unique Leader back in September where Jason noted that even though he had some questions about whether MFG.com should serve as a stand-alone direct materials sourcing application for organizations, he had no doubt that the model is creating tremendous value and is resonating in the manufacturing world by taking supplier search capabilities to the next level, offering a true “parts marketplace” approach that is free to buyers.

Well, I have the same questions as Jason, but after diving in to understand what MFG.com really was about, I arrive at the same conclusions – it has tremendous value and should be part of the toolkit of every engineer and procurement professional at any company that needs custom manufactured parts and products. And it’s not just because of the large supplier base (after all, a number of marketplaces, such as Sorcity, have that), the free built-in sourcing tool (after all, why not WhyAbe) the fact that you don’t just get suppliers who make that type of parts but vetted suppliers (located in real-time) who have made similar parts (in similar price brackets), or the fact that you can access ratings for each supplier with respect to their prior performance with other buyers … it’s because MFG.com is taking marketplaces to the next level – the Collaborative Community.

First of all, with MFG.com’s real-time supplier matching capability, based on detailed part specifications, you can find prospective suppliers during the design stages through an RFI. Once you’ve found the right supplier, you can collaborate with them on the design, and as Apriori has taught us, the best way to get an affordable part is to design it affordably. Secondly, you can use their platform as an on-line collaboration enabler and use it to communicate revisions as well as begin and end the sourcing process. Thirdly, MFG.com, even though it’s been around for a while and has a large global presence (especially in China), is just getting started. Although I can’t say much yet, expect MFG.com to start introducing some new community features over the next year or so that should provide the sourcing community with an offering that would finally give the B2B community the power that the B2C community has enjoyed for years with offerings like eBay and Craigslist (but these applications will be finely tuned to the needs of the manufacturing B2B community).

So instead of taking the sourcing interstate to your next destination, pull off onto good old Route 66, make a pit stop on MFG.com, and stay a while. You might find that the old model is new again and that the best value you can get for your time and money is right there waiting to be discovered. Don’t just drive by – take it for a test drive. Otherwise, you’ll miss a treasure just waiting to be discovered.

Austin-Tetra … more than just Supplier Master Data

When I was in the Dallas area recently, I had the opportunity to sit down with Michael Zier of Austin Tetra and talk about what lies ahead for Austin-Tetra and how their recent acquisition by Equifax is going to help them to move forward.

Austin Tetra is a very interesting animal in the Supply Chain Space. Not only is it one of the few providers of Supplier Data Management Solutions that also comes with supplier data, one of fewer providers who understand that a credit-score is not a viability score, and maybe the only provider to focus on supply diversity solutions, but, unlike most companies in the space, it focuses on custom built vs. out-of-the-box solutions.

Austin Tetra recognizes that most companies that call on them already have data management, data analysis, and a host of supply chain and finance solutions in place and that their client’s goal is typically to understand how to identify the risk associated with a current or new potential supplier when the client is about to undertake a supply base rationalization or globalization effort, not necessarily to buy a new software solution. As such, they’ve spent a lot of time building integration solutions into many standard ERP, spend analysis, business intelligence, financial data stores, and sourcing platforms to allow you to get the data you need, where you need it, in the format you need it. After all, their primary value is in the data they provide and the proof is in the repeat business they get year after year.

I plan to write more about them and their solutions in the future, after I’ve had another chance to talk to Michael Zier and their Product Manager and drill more in depth into their capabilities, but the most interesting part of our conversation centered around credit risk scores. The reality is that although most credit bureau’s still tend to think that they are the greatest indicator of business sustainability, they totally miss the point in that a financial institution’s credit-worthiness and on-time payment scores have nothing to do with corporate sustainability. Just because a company has a low credit score, or is typically slow to pay, does not mean it is in any danger of ever going out of business. If you analyze these scores carefully, you’ll find that a lot of big, stable, household name companies have low scores. Why? Because they are so big, they can get away with paying on their schedule, when it’s good for them. If their suppliers want their business, they put up with it. The reason that this was the most interesting part of my conversation is that Austin Tetra is currently working with Equifax to do something about this. They are in the process of developing metrics much more appropriate to supplier stability and longevity. Their goal is to have a product offering later this year.

So keep an eye on them, and an eye on this blog, and besides more related posts in the future, maybe I’ll even manage to wrangle one of their internal writers to guest author a post on this blog as well. Who knows? …

Five Types of Supply Risk, and How to Mitigate Them

Today I’d like to welcome Jim Lawton, VP and General Manager of Open Ratings, a D&B company with a range of supply risk management solutions for automotive, aerospace and industrial manufacturers.

Risk is a painful reality in manufacturing today. Strategic initiatives like low-cost-country sourcing and supplier rationalization programs only increase manufacturers’ exposure and vulnerability to the risk of supply chain disruptions.

Working with Open Ratings’ Fortune 500 manufacturing customers, I’ve come to realize that even the most sophisticated companies need a reminder for the different types of risk, and how to mitigate each. As I see it, the best way to avoid the inevitable is to understand the many sources of potential risk – which can be defined in five broad categories – and put strategies in place to mitigate each one:

  1. Strategy Risk = Choosing the right supply management strategy.

    Know that what’s right for one business might not be right for yours. For example, a small family-run business may opt to source locally because they don’t have the resources needed to keep an eye on global suppliers.

    Mitigation and Management Approach: Define the right up-front strategy, and identify and qualify the right suppliers, using reliable market intelligence to drive decisions.

  2. Market Risk = Brand, compliance, financial and market exposure.

    When outsourcing part production or even entire product lines, you’re putting your company at the mercy of your suppliers. If they deliver a sub-par product, or fail to deliver completely, your customer will be looking to you – not them – for an explanation.

    Mitigation and Management Approach: Pinpoint the product line’s quality standards tolerance, and determine the possible impact of a compromise. Monitor those lines closely to detect early-warnings before issues wreak havoc with your firm’s brand, ability to meet compliance regulations and the bottom line.

  3. Implementation Risk = Supplier implementation lead-times and production/performance ramp.

    Know who you’re working with and what their capacity issues are before signing on with them. Working with a supplier for whom your business only represents a fraction of their revenue means you may not get the level of attention that you want.

    Mitigation and Management Approach: Ramp new suppliers quickly to gain early visibility into any risk factors that might hinder production, lead-times, initial performance, etc.

  4. Performance Risk = Ongoing supplier quality and financial issues.

    Now that you’ve selected a supplier, there’s still a lot of work to be done. Businesses are acquired, go out of business or shift strategy every day, so constant vigilance is needed.

    Mitigation and Management Approach: Continuously monitor all of your suppliers to avoid disruptions caused by bankruptcies, performance issues, ownership changes, labor strikes, geopolitical changes, etc. You may need to tap technology to effectively achieve this level of monitoring.

  5. Demand Risk = Demand and inventory fluctuations and challenges.

    While some suppliers jump at the chance to take on new opportunities, enthusiasm doesn’t necessarily mean they’re in the best position to excel.

    Mitigation and Management Approach: Watch your suppliers carefully for signs that they are overwhelmed with new business. Don’t let their desire to grow their business affect your commitments.

Risk will always be inherent in the supply chain. By implementing a comprehensive, proactive approach and working with your suppliers to define a strategy based on shared business goals, you will reduce your exposure to risk – and the catastrophic impact it can have.

Not only will you gain new ability to mitigate issues before they wreak havoc on the supply chain, your brand, and the bottom line – a supply risk management framework also supports more informed supplier development, and total-cost decision making to further reduce inventory levels; improve supplier quality; and remove additional cost and waste out of your supply chain.

The best-laid strategies require your team to shift their mind-set, to divide their attention equally between cost-reduction efforts and risk mitigation considerations, but the rewards are well worth the effort.