Monthly Archives: June 2007

Global Trade Management 2007: Part II

Recently, I wrote about Aberdeen’s recent research brief on Global Trade Management in 2007 in my post Global Trade Management 2007 that highlighted this year’s focus in Global Trade Management (GTM): improving agility, trade compliance, and risk management. This brief was followed by their Global Trade Management Strategies: Surviving Growing Complexities in 2007 report.

This report found that best-in-class companies are about one and a half times as likely as all lower performing peers to report reduced lead times and lead time variability over the past two years, are twice as likely as laggards to have increased their customs clearance speed, and are twice as likely as average performers as well as almost four times as likely as laggards to be using a global supply chain visibility platform.

However, my favorite finding in the report is that laggards are twice as likely than average companies and almost three times as likely as best-in-class to report that Global Trade Management at their companies is still manual/spreadsheet-driven. Like I said in Save Billions the Easy Way. Spreadsheets are bad! Well designed on-demand supply chain applications that do what you need them to do are good.

The report had some great suggestions with respect to the creation and implementation of a visibility strategy. According to the report, top actions should include:

  • Upgrade visibility data quality by including service level agreements in your contracts with suppliers and logistics partners that focus on complete, accurate, and on-time delivery of specified documents and event milestones.
  • Push visibility upstream to capture status events at suppliers such as raw material arrival, in-process steps, and ready to ship statuses. It is less expensive to make midcourse corrections before goods are shipped.
  • Manage in-transit inventory, including setting up the ability to reroute and reallocate goods while in-transit based on updated consumer demand signals and logistics bottlenecks. Move to more drop shipping, cross-docking, and Distribution Center bypass to increase the speed of your supply chain.

The report also had some compelling statistics for laggards, average, and best-in-class companies across the process, organization, knowledge, technology, and performance competitive framework that clearly indicate which processes and systems will be most effective in helping a company improve its overall global trade management / supply chain operation.

The report concluded with some recommendations for action that are worthwhile pointing out.

  • Adopt a global supply chain visibility technology platform.
    Current visibility platform users should gradually incorporate more in-process and in-transit milestones and apply scorecards, dashboards, and analytics.
  • Combine supply chain visibility with dynamic demand signals
    to reallocate and reroute goods in process and in motion to higher points of demand. Also start implementing data quality SLAs with your carriers, forwarders, and suppliers.
  • Improve the accuracy of supply chain costing for your international transactions.
    Pay special attention to inventory and transportation related costing, which are often underestimated.
  • Institute a global trade center of excellence
    that advises the corporation on total landed cost and risk reduction actions from the point of product design and sourcing through final delivery decisions.
  • Turn trade compliance automation and the use of preferential trade agreements, free trade zones, and other duty deferral programs into profit drivers for your company.

(e-Sourcing Helps You) Save Billions the Easy Way

Not that long ago, Oregon State University released a press release stating that its computer scientists have created a new, much simpler approach to fixing errors in spreadsheets, a system that is easy to use and might help businesses around the world reduce mistakes and save billions of dollars.

According to the article in the United States it has been estimated that 11 million people create about 100 million spreadsheets a year, which in turn might be managed by up to 60 million users … but they are notoriously prone to errors. And that most users of spreadsheets are overconfident, they believe that the data is correct but that it has been observed that up to 90 percent of the spreadsheets being used have non-trivial errors in them. In fact, one auditor has said he never inspected a single spreadsheet during his entire career that was completely accurate.

Thus, the new approach to fixing errors, which allows a non-specialist to identify and fix a problem by selecting a fix from a short list of change suggestions, is expected to be quite beneficial. The system, which attempts to try and identify the ways that humans commonly make mistakes and then suggest what the correct approach might have been, can suggest several programming mistakes that might have created the error when an error is found and allow the user to sort through them and identify the root cause. The system is currently performing rather well. In 80% of the cases, the fix is in the top five suggestions and in 72% of the cases, the fix is among the first two suggestions. The GoalDebug System (short for “Goal Directed Debugging of Spreadsheets”) gives end users the chance to explore, apply refine, and reject suggested changes, a systematic approach that allows people with comparatively little training in programming and spreadsheet development to identify and repair errors.

However, as far as I’m concerned, this is not good news. All I see is tens of thousands of man hours and millions of dollars of research funding wasted on a patch solution that doesn’t address the real, underlying problem – spreadsheets are bad!

As far as I’m concerned, the answer is the development of appropriate financial applications that contain the calculations and report creation abilities end users need and negate the need for them to develop these huge complicated spreadsheets. Then there wouldn’t be errors to track down in the first place.

Fortunately, for your procurement department, there is an answer – and the answer is e-Sourcing complete with spend analysis and decision optimization. That’s the easy way to save billions.

Low Cost Country Sourcing 2007

Back in March, EyeForProcurement released its 2007 Sourcing in Low-Cost Countries Report that surveryed 185 procurement professionals from manufacturers, retailers, and 3PLs across Asia, North America, and Europe. The report found that 41% of respondents have been Low-Cost Country Sourcing for more than five years and 57% for over three years, which is good, but that 54% of respondents gave lower labour costs as a primary reason while 43% gave lower material costs as a primary reason, which is bad.

The rate of wage inflation in many countries commonly considered Low Cost Countries, including China and India, is rising rapidly, and over 10% in some of these countries, and material costs are going up across the board, especially in some of these “low-cost” countries which are scrambling to build up their infrastructure and offerings on the global market. Just see Tim Minahan’s recent post that notes that Inflation Woes to Get Worse. As far as I’m concerned, only the 27% that gave shorter distances to final customer’s markets and maybe some of the 21% that gave other get what low-cost country sourcing should be about.

The major countries and regions were, as expected, China (which is utilized by 76% of respondents), other countries in Asia (which are utilized by 53% of respondents), and India (which is utilized by 33% of respondents).

It was nice to see that 36% of respondents indicated that logistics cost was a major element of total cost, almost as many respondents that indicated materials cost was a major cost element (42%) and close to the number of respondents that indicated labour cost was a major cost element (48%).

It was also nice to see that three of the four largest obstacles listed were trade regulations, customs & tariffs, increasing complexity of transport & logistics operations, and government regulations, clearly indicating that global sourcing to “low cost” countries is complex.

For those interested in Low Cost Country Sourcing, I’d like to remind you that EyeForProcurements 2nd Low Cost Country Sourcing Conference takes place August 29-30, 2007 in Chicago. Early bird registration, which is accompanied by a $400 discount, expires this Friday, June 15, so if you’re interested, and not registered yet, I’d recommend you do so quickly. (There’s a good chance The Doctor will be there, but, given that it’s in Chicago, I’d say you can almost count on The Prophet [of Spend Matters] being in attendance.)

The Supply Chain Innovator’s Technology Footprint

About six weeks ago, Aberdeen released The Supply Chain Innovator’s Technology Footprint 2007, A Benchmark Report on Companies’ Technology Investment Plans for Gaining Immediate and Strategic Payback that noted, among other findings, that five times as many study participants plan to spend more on new supply chain technology in 2007 than plan to spend less. I’m glad to hear it since good technology investments in sourcing and procurement can yield returns that are multiples of what a firm invests.

The report noted that while cost control is a strong desire, 72% of companies have other higher-ranking motivations, such as the ability to better meet customer’s top fulfillment requirements, the ability to better manage increasingly global supply chains, and the ability to minimize supply-demand imbalances. Add risk management to the list, and one would be able to say that companies are finally starting to understand there’s a bigger picture to e-Sourcing and e-Procurement than just cost reductions.

The report also found a sharp distinction between strivers, defined as companies striving to reach industry average with their supply chain technology roadmap, and innovators, companies looking to create new supply chain management innovations. Strivers are still much more likely to continue to focus on reducing costs with their supply chain initiatives while innovators are focused on delighting customers with tailored fulfillment capabilities and streamlining fulfillment across multiple channels. In other words, strivers have a myopic focus on cost reductions while innovators realize that better processes and customer service lead to more efficiency and sales, better supply chain visibility, and fewer returns. This will, by default, reduce costs and risk.

My favorite finding, of course, was that when compared with their peers, innovators are more likely to priortize price optimization and short-term forecasting. Cost reductions are great, but you get more bang for your buck when you minimize input costs and maximize output costs. Furthermore, inventory in the warehouse costs you money, empty shelves cost you sales, but the right inventory at the right place at the right time minimizes product storage costs and maximizes sales revenue – and the best way to tackle both of these problems is through optimization.

Another great finding was that innovators are two-and-a-half times more likely to want to leverage on-demand for sourcing and global trade management. I’ve written many times about the benefits of SaaS and On-Demand (including last summer’s weekend series: Part I, Part II, Part III) and am pleased to see that industry is catching on. Unfortunately, only 24% of respondents indicated they were looking to use new packaged applications from a best of breed vendor to extend their current capabilities as compared to the 38% of respondents that were focusing on upgrading current packaged supply chain applications from their ERP or SCM vendors. Oh well, I guess every company can’t be best-in-class.

But for those that want to be innovative, the study indicates that innovation can be achieved with commercial technology via one of four methodologies for most companies:

  • employing existing packaged or on-demand software in ways that are ground-breaking for the industry
  • creating new ways to leverage the data and decision-making smarts of commercial supply chain technology for other parts of the organization
  • using commercial software but collapsing the gap between planning and execution cycles
  • using a composite application approach to create new workflows across multiple commercial applications

As usual, the report concludes with recommendations for action that focus on the technology priorities for strivers, best-practice seekers, and innovators. The priorities for innovators are worth mentioning:

  • a profit optimized supply-demand balanced S&OP plan
  • short-term forecasting
  • true multi-echelon inventory optimization
  • warehouse process flexibility
  • preferential trade agreement optimization