Monthly Archives: March 2008

Transportunity Identification Requires Decision Optimization

I recently discovered an archived “expert insight” on SupplyChainDigest from last summer on “Transportunities: What Kind of Results Can You Expect from Carrier Bid Optimization Projects” that was pretty good, but lacked advice on the right way to go about the more technical aspects of the project.

The article, which noted that savings in the 5% to 15% range are usually achievable, noted that there are factors that will affect the achievable savings range, namely:

  • How good have you been?
    It will be hard to generate savings if you have already captured them in a prior sourcing project. Remember, fuel costs keep rising, and with labor shortages and inflation, so do savings. You’re only going to capture savings if there are (significant) inefficiencies to be eliminated.
  • How good will you be?
    If you have been unable to capture transportation savings in the past, why will this time be any different? You need to be sure you have the knowledge, tools, and support you need before you begin the project, or you will just be wasting your time.
  • What is your freight profile?
    If you are a low-volume shipper moving light bulky freight from Hong Kong to LA … or need a “reefer” out of Florida after the citrus ripens, you can only expect to do so well or rather not so well. You need regular, high-volume shipments on the same lanes that have not been (properly) sourced in a couple of years if you want to find real opportunities.
  • What is the state of the market?
    In the midst of a capacity crunch, like we were a few years ago, you’re not going to get good rates. However, in the midst of an economic slowdown, like the one we are currently in, conditions are prime to negotiate better rates.

In other words, if you have not been stellar, have the resources at your disposal, and have an appropriate freight profile in a receptive market, then chances are you have a good shot of saving a sizeable chunk of change if you, as the article suggests, broaden the scope of the sourcing project and, most importantly, use the right tool for the job.

It’s critical to use the right tool for two reasons. The right tool enables the right process and, most importantly, the right tool makes sure you aren’t sacrificing other savings opportunities simply to get better freight rates. For example, if you over-allocate to a certain carrier, then you could lose the required volumes needed to achieve the TL rates you need for low freight costs on lanes only served by other carriers. Also, if you lock in freight lanes, then you restrict your supplier pool – and if freight is less than a quarter of your overall sourcing costs, this can be bad.

That’s why you should always source categories at a time in a sourcing project, so you can balance unit cost vs. freight cost, and do freight projects at least once, if not twice, a year where you amalgamate across needs based on expected lane-volume combinations using current contracts and most likely award scenarios.

For more information on the right way to handle freight projects, see my post on Missing the Point … or … The Right Way to Handle Freight.

Foundational Principles of Supplier Performance Management

The Supply Chain Management Review recently ran an interesting article on Embracing Supplier Performance Management for More Profit, Less Risk. The article noted that if each business unit is measuring suppliers with a different set of criteria, and not sharing data at the corporate level, how do you know which suppliers are achieving the desired outcomes? With no real visibility, how can you be sure that your most important suppliers won’t suddenly experience quality issues that disrupt deliveries? How do you know if your business practices, and those of your suppliers, are in compliance with the latest government and industry regulations?“, which are all good points. If you don’t have a good supplier performance management program, how can you expect good results?

So what is SPM? According to the article, it is a management program and set of processes that help define, measure, and collaboratively enhance supplier performance and business goals. Although, as the article correctly notes, SPM will never eliminate uncertainty, it will help you understand where the uncertainty is and what the risks are – so that you can take appropriate measures to minimize the uncertainty and the risk.

The article then goes on to define the basic components of a SPM program as:

  • Defining SPM objectives aligned to a spend management strategy
  • Defining a straightforward, repeatable process
  • Establishing a supplier ownership and segmentation strategy
  • Establishing KPIs
  • Defining scorecard and survey templates
  • Gathering performance data
  • Analyzing results and communicating to suppliers
  • Collaborating with suppliers to improve performance

And follows these with it’s 7 foundational principles of SPM:

  1. Know Your End-Game
    And set metrics only for the elements that bring you there.
  2. Face Facts
    Employees must understand that SPM provides a more accurate assessment and that KPIs need to be held steady for at least 12 to 18 months.
  3. Be Firm
    Suppliers must understand the program, goals, and benefits before it is implemented – and you must be willing to follow through with corrective actions when required.
  4. But Work With (not on) Suppliers
    It’s not a student-teacher relationship or boss-subordinate relationship – it’s a collaboration.
  5. Assign SPM Owners
    Someone has to take responsibility.
  6. Drive Ongoing Improvement & Reset Metrics
    The output of the last performance review, and subsequent action plan, should be the input to a supplier’s next review period.
  7. Automate Whenever Possible
    Implement resources that automate surveying and scorecard functions to minimize resource requirements.

This is all great advice – but it misses one very important element: the supplier! Everything that the article outlined was to help the buyer manage the supplier’s performance – there was not a single recommendation to help the supplier manage its own performance! When all is said and done, it’s the supplier that has to perform – not the buyer. Thus, it’s important to provide the supplier with tools and processes that it can use to perform better. In other words, you need to provide them with an enablement solution that allows them, at any time, to see how they’re performing, collaborate with you on improvements (and, when necessary, corrective actions), and manage their own processes and procedures. Only then will all the great advice provided in the SCMR article take you as far is it should.

Making BI Available to Everyone

A recent article in Information Week on The Road to Making BI Available to Everyone noted that, on average, only 25% of workers use BI. Considering that we’re in the information age, this is rather pathetic. Why is this?

According to the article, there are five major reasons for this:

  • The tools themselves … as most of them are not very usable
  • Company managers … that promote gut-feel decision making
  • Company cultures … that essentially promote information hoarding
  • Failure to convey the value … to business executives & decision makers
  • Lack of training … which promotes use of all-too-familiar Excel

Which are all-too-true, but I’d also add:

  • Cost … costs per user are often ridiculously high for many of today’s BI tools

So how can we change this? Good question. The author believes that several roads must converge before BI will get widespread adoption. Namely:

  • Businesses need to fully appreciate the data gold-mine
  • Vendors need to provide lower-cost ways to license and deploy BI
  • BI interfaces need to be upgraded to present data in a manner amenable to the user
  • BI tools need to be able to work on relevant data stores

These points are also correct, but what really needs to happen is:

  • The tools need to allow the user to build as many data cubes as they need, on as many data sources as they have available – as a stale data warehouse is not very useful to anyone
  • The tools need to be available on-demand – current tools overload IT resources and limit implementation
  • Users have to think outside-the-cube when it comes to recognizing what a BI tool is and how they can use it
       – and
  • Users have to understand that a few of today’s on-demand spend analysis tools can be used for more than just spend-analysis

For example, tools like BIQ can be used for more than just spend analysis. This post details how the tool was used to detect overspending, find fraudulent claims, determine when failed equipment under warranty is worth reclaiming, and detect questionable resource usage patterns. Plus, compared to traditional behind-the-firewall BI tools, they’re very affordable for massive deployments across your organization.

In other words, even though they’re not perfect, with their built-in ETL, cube generation, and pattern-based rules engine, they’re significantly more powerful than Access and Excel and would allow the vast majority of office workers who need BI to use BI today.

Are Your International Procurement Skills Up to Snuff?

the doctor is pleased to welcome Dick Locke of Global Procurement Group back to Sourcing Innovation.

My guest post on the issue of keeping talent mentioned a ten-question quiz on global supply management skills. After the post, there was a surge of people who took the quiz. I have to say the results were disappointing. I graded the first thirty answers that came in after my guest posting. The average number of correct answers was 1.5 out of 10. Two people tied for top score with six correct answers. The average number of questions that were answered at all was 5 out of 10.

If I assume that the answers largely came from readers of this blog, I suggest some training is in order before you source outside your home country.

The quiz had questions on cultural differences, legal issues, customs and logistics, foreign exchange risk management and sourcing techniques. I’ll be the first to admit that it’s not a perfect quiz. Two of the questions are US-centric, and one has some wording that misled a few people. However, there were many areas where basic knowledge was obviously lacking.

  • Two people out of 30 recognized my description of the U.N. Convention on the International Sale of Goods.
  • Two people out of 30 knew that forward contracts were the standard way to protect future exchange rates.
  • Five people out of 30 knew that the buyer has the in-transit risk of loss under the CIF Incoterm.
  • Estimates of the time it takes a container vessel to travel from Japan to the US West Coast ranged from 5 hours to 56 days. The average and median were about 18 days. Only one person came within 5 days of the correct answer (9 days for a Panamax or post-Panamax vessel). OK, that one is US-centric.
  • On the brighter side, twenty out of thirty recognized that Japan is a country where people have difficulty saying “no” or giving bad news directly. That question had the best result.

At the risk of appearing self-serving, I think it’s obvious that the people who took this quiz need a skill upgrade on global issues before they work outside of their home country.

As a final note, Dick’s company, Global Procurement Group offers training on international procurement issues.

Onegai shimasu, Dick.

Exploring EcoVadis

Last month, Jason Busch gave the sourcing world an introduction to EcoVadis in his two part series (Part I and Part II) over on Spend Matters.

In his posts, he noted that EcoVadis was a European (and, in particular, a French) provider of a sustainability solution for evaluating and monitoring suppliers whose primary focus is helping European companies meet emerging green and sustainability regulatory requirements. According to Jason, not only does EcoVadis monitor environmental and operational practices, but they also consider labor practices & human rights, fair business practices, customer and product responsibility, and sustainable procurement. This is important because, in the EU, there are country-specific laws that require green and sustainability efforts.

Jason also notes that not only does EcoVadis provide capability with respect to supplier assessments, supplier audits, and corrective action procedures, but that they are also compliant with GRI G3 standards and the pending ISO 26000 certification with respect to the 150 procurement categories they are currently supporting across 23 green/sustainable criteria (and the 1200 plus pre-defined questions at a user’s disposal).

In this post, I’m supposed to be tackling the technology underpinnings of the solution, but the fact of the matter is that the technology underlying the platform is quite basic – which it should be when you consider the goal. The goal is to give a procurement buyer a quick overview of the sustainability status of a supplier on a single screen while also giving the buyer the ability to drill down deep into the rating and understand where the supplier is strong and where they are weak from a sustainability perspective.

All you need is a “dashboard” that shows a snapshot rating of a supplier on each of the key categories with the ability to drill down (which is key, because, otherwise, a “dashboard” is useless) into scorecards for each rating to find out why the score was high, low, or zero and linkages to relevant audits, alerts, and reports that led to the scores. In addition to this, EcoVadis offers a 360-degree watch that aggregates human-reviewed news articles relevant to the suppliers and their sustainability ratings, benchmarks against other suppliers in the industry on the relevant sustainability categories, and highlight summaries of each supplier. With regards to the solution they are trying to offer, the only critical component missing is an administrative interface where the head of CSR can add additional questions specific to the company and category in question (as some companies will want to go above and beyond the regulations and others will have special needs). The solution, which is multi-linqual, has the ability to add specific questions by category and customer – they just haven’t coded a web-accessible user interface yet (as most of their early customers have been more than content with the extensive question sets built into the product).

The big advantage of a standard web-based solution such as Ecovadis is the fact that suppliers only have to answer a question once and the result of an audit can be shared across multiple clients. One of the biggest downsides to wide-spread sustainability initiatives is the severe burden they place on a supplier. Think about it – not only is it resource constraining for a supplier to answer essentially the same questionnaire from each of its customers, and undergo multiple audits on the same indicators (when one surprise audit every couple of quarters should be more than enough), but it is resource crippling to have to answer the same set of questions for every potential customer, knowing that you’re only going to win a percentage of the RFPs you answer. A supplier should be able to answer the questions once, go through the (surprise) audit once, and then not worry about it for at least a couple of quarters.