Monthly Archives: June 2008

There’s No Excuse for Food Shortages in the Developed World!

I don’t know about you, but I’m tired of agflation – and the worst of it hasn’t even hit Canada yet as we’re able to grow a lot of the basic foodstuffs we need (given our relatively large abundance of land). However, some of the larger retailers have started rationing how much of certain products, like rice, that you are allowed to buy at any one time, for example, and I’m thinking it’s just the tip of the iceberg.

And it shouldn’t be. Not only do we import more than enough food, but we have the potential to continue to produce sufficient food for the global population for years to come. The solution, at least in the mid-term, is quite simple.

  1. Stop Wasting Food
    The US wastes over 20B in food each year.
  2. Stop Wasting Food
    Poor quality monitoring leads to extremely wasteful recalls.
  3. Stop Wasting Food
    Way too much food is diverted to energy inefficient bio-fuel.
  4. Stop Wasting Food
    Crop yields are lower than they need to be globally because the right knowledge and technology takes too long to be applied.

Lets start with (1). According to this recent article in the Economist, nearly 20B worth of food was dumped by retailers in the US alone because of their inefficiency – that’s somewhere between 8% and 10% of “perishable” goods being wasted in the US alone each year – a ratio that’s almost twice that of European retailers! Considering the investments made in inventory-management software, cold-storage, and other supply chain paraphernalia, this is ridiculous.

Why are things so bad? Too much food is imported, which means that food has to travel further, and this increases the risk that it will rot in transit. American grocers are poor at predicting demand, as most don’t even capture and analyze basic transaction data. And American grocers have an unhealthy enthusiasm for huge displays and a wide range of produce – which almost guarantees waste since the huge displays won’t sell and the customers will be overwhelmed with choice.

What they should do is take a lesson from Stop & Shop which reduced the size of boxes and the number of products on display by almost a fifth. Not only did this initiative reduce waste by a third, but, since the chain was able to focus on insure the produce it did carry was as fresh as possible, it improved customer satisfaction. And the initiative is only two years in … meaning that better results could be coming.

Let’s move on to (2). How many recalls for spinach and beef alone have we heard about in the past year alone? Too many! And how much food is wasted as a result of a single recall – when only an extremely small amount of the food is actually tainted? Tens to Hundreds of Millions of dollars worth of food – or, in some cases, enough food to feed a country the size of Canada for a week.

And let’s not forget (3). On average, it takes over 6 barrels of crude to produce 8 barrels of ethanol … for an energy gain of 20%, if we’re lucky. To put this in perspective, if the average North American stopped driving like a road warrior, we’d achieve the same gain. (Driving 15 over the limit with the gas pedal to the floor every time you hit a hill can easily decrease fuel efficiency by 20%.) The answer lies in better engines, better power plants, and more efficient use of fuel – not in wasting food.

And, finally, in reference to (4), there’s the fact that we have developed very efficient methods of farming, crops that grow faster while being more resistant to drought and insects, and better methods of harvest, storage, and distribution – but have done little to ensure that these methods reach the countries, and farms, where they are needed most. What’s the point of having a World Community Grid that IBM and the University of Washington are going to use to develop stronger and more nourishing strains of rice if the YouTube generation can’t get off of FaceBook long enough to realize it exists.

Stop Fraud Before It Stops You!

Hopefully after Tuesday’s post that asked does trouble-free mean fraud-free you realize that it doesn’t and that if you’re not watching, there’s a very good chance that fraud is occurring somewhere in your supply chain. It might not be in your four walls, but it still affects you – because every dollar lost by your supplier, or your supplier’s supplier, results in increased costs to you. However, knowing that, more often than not, a deep dive into a large corporation’s spend data by an expert will, at the very least, result in the identification of spend that violates policy, if not spend that is outright fraudulent, and knowing the statistics on just how many products have hit North America in recent years that violate safety requirements and pose serious health hazards, I’d be willing to bet that if you’re international, and you’re a mid-size business or larger, there’s fraud somewhere in your supply chain. Relatively speaking, it might not be on the scale where entire truckloads of product go missing or where fraudulent employees are siphoning millions of dollars out of your operations, but even minor frauds that result in a loss of only a few thousand dollars will add up.

So what can you do? How can you stop something you don’t know about – especially when you can’t monitor everyone in your supply chain every minute of every hour of every day? When you can’t afford to secure everything? When fraud is only one risk that you have to deal with on a daily basis?

The answer is simple – visibility and oversight. If you monitor your supply chain, it’s going to be a lot harder for fraud to occur without you knowing about it. And if you implement mechanisms that insure that the actions of each individual with authority are monitored and reviewed, they’ll know that if they commit fraud, they’ll likely be caught, the risk will outweigh the reward, and they’ll take their illicit schemes elsewhere. (Unless they’re really dumb, in which case you’ll catch them.)

So how do you get that visibility? The first step is to map out your supply chain. Steven Belli provided a good description of this process over on The Strategic Sourceror in his recent post that asked how much are you betting and what are the chances of losing. Once you have the map, the next step is to identify potential areas where fraud may be occurring. Start by identifying areas where:

  • there are pain points such as quality issues, frequent re-orders, serious delays, etc.
  • your proprietary technologies or expensive fixed assets are used
  • tasks that should probably be separate overlap
    such as the same individual or team being responsible for vendor selection and quality control

Then, and this is the key step, perform a supply chain audit. This starts by identifying what should be happening at each stage of the supply chain, how tasks should be separated, how much responsibility is required for each task, and who has ultimate responsibility for each task and hand-off. Then, audit your people, information, technology, and, most importantly, processes. Make sure that your people don’t have more authority or access to your systems or bank accounts than they need. Make sure your information is complete and accurate. Make sure your technology is doing what you need it to do. And make sure you have processes that are appropriate. They should insure visibility and accountability. If your processes don’t, then that’s fraud just waiting to happen.

If you’re wondering how to start, or wondering where you can get outside help on a fraud audit (and you should bring in an expert, and possibly someone with a Certified Fraud Examiner or equivalent designation, because you’re not likely to catch what you’re already overlooking – and consultants are cheap), one company you can look to is Katzscan and their Supply Chain Fraud services. (And, at the very least, check out the supply chain fraud site. It’s a good resource.)

The Complexities of Strategic Service Management

I first introduced you to Strategic Service Management in February of last year where I indicated that it was a proactive approach to making the customer satisfied and efficient while making a profit that balances strategy, resources, commitments, and pricing. It supports the integration, optimization, and efficient management of core business processes, adds to your overall business solution, and helps to differentiate your offering from that of your competitors. And it is a practice that is growing rapidly at many consulting firms as it is a topic that is now become common in many boardrooms that are feeling the squeeze in both directions on the product front: production costs are rising rapidly but prices need to remain flat in order to move any product at all.

For many companies, Strategic Service Management is now the only way to increase profits – as it not only allows premium prices to be charged for quality services that are perceived as valuable by the customers, but can also substantially reduce service costs when the right product is in the right place at the right time to be put in the hands of the right technician to do the job. The fact of the matter is that poor service often translates into real losses – which go beyond the financial penalties specified in your SLAs. If the product isn’t available or is priced too high when a customer wants it, that can result in a lost sale as well as dissatisfaction that may prevent the customer returning to you in the future. If your service team is unresponsive, not only will you lose repeat business, but your brand can take a hit. And if you price too low, you’re losing profit.

So what is involved in Strategic Service Management? As I covered in depth in my piece on Strategic Service Parts Management a few months ago, a lot of it revolves around parts and price management – having the right product available at the right place at the right time and at the right price – and this involves forecasting, inventory management, and price optimization, but it also involves having the right technician available to install the part and get the repair right the first time and making sure the technician has access to the knowledge she needs to do her job – and this involves workforce management, scheduling, routing, and knowledge management.

In other words, good strategic service management has to address all aspects of the entire service value chain (that may also include other suppliers, distributors, OEMs, dealers / value added resellers, and after market services) and not just the part or the price of the service. It also has to go beyond just the short term issues of problem diagnosis, replacement part location and delivery, technician scheduling and dispatch, and price optimization and address the long term issues of regular re-orders of parts when inventory reaches threshold levels, appropriate workforce training and staffing, and performance monitoring to insure that price levels and service remain at optimal levels.

Furthermore, the fact that this has to be done across geographies, diverse customer segments, product types, various types of SLAs, various levels of customer commitments, and both company-owned and third-party resources, should be enough to convince you that this requires a dedicated solution designed to address strategic service management. A spreadsheet (despite the fact that Aberdeen found that 91% of companies still use spreadsheets to plan and forecast parts and service levels in its report on The Emergence of the Chief Service Officer) is NOT enough. Furthermore, neither is your ERP.

An ERP was designed for inventory control, work order processing, basic product tracking, catalog management, simple case management, and, maybe, basic call center management. Enhanced add-ons may also handle inventory forecasting and planning, replenishment planning, exception monitoring and analysis, simple GANTT scheduling, and work order tracking, but this barely covers stage 2 (operational control) of SSM (where stage 1 is firefighting) and doesn’t even begin to address stage 3 on the optimization of performance management, and definitely doesn’t even hint at stage 4 where true integrated service management is reached and strategic service management acts as a growth engine for your company. To get there, you need the foundational capabilities that include parts optimization, integrated PLM, order planning and sourcing optimization, manpower planning and optimization, knowledge management for issue diagnosis and resolution, and performance analysis which then enable multi-enterprise collaboration, integrated part location and technician dispatch; integrated parts, labor, and pricing optimization, contract and market profitability analysis, and integrated service offerings – the ultimate key to successful strategic service management.

As my previous entries on Servigistics and MCA Solutions addressed strategic parts, pricing, and warranty management, my next two contributions to this series will cover workforce planning and knowledge management for service success, and, specifically, Servigistics’ new offerings in these areas.

Greenwashing: A Brief Introduction

Since I like to talk about Green a lot (and will have some posts in the near future about Green IT and how it can save you money while saving the planet), I thought I should write a post about greenwashing. Greenwashing is a practice used by a company to mislead consumers about the environmental benefits of a product or service. A common example of greenwashing is when a company tells you a product is “certified organic” even when there is no verifiable certification. However, this is not the only common example of greenwashing (or the green sheen) that you are likely to encounter. As noted in Wikipedia, a recent study by TerraChoice called The Six Sins of Greenwashing surveyed 1,018 randomly selected common consumer products found that 99% of them were guilty of greenwashing. As a result, they formulated the six sins of greenwashing which were:

  • Sin of the Hidden Trade-Off
    Many “Energy-Efficient” electronics contain hazardous materials (which would likely be banned in the EU under RoHS, WEE, and / or REACH)
  • Sin of No Proof
    Many products, like shampoos, claim to be “certified organic” but the company does not have any verifiable (third party) certifications.
  • Sin of Vagueness
    Products are advertised as 100% natural even though many naturally occurring substances (like arsenic, formaldehyde, and cyanide)
  • Sin of Irrelevance
    For example, claiming products are CFC-free, even though CFCs were banned 20 years ago.
  • Sin of Fibbing
    Claiming your product is certified by an internationally recognized environmental standard like EcoLogo, Energy Star, and Green Seal.
  • Sin of Lesser of Two Evils
    For example, “organic cigarettes” or “environmentally friendly” pesticides. WTF?!?

So how can you identify greenwashing? A page over on Green Home Beta has some tips you can use to find the real green amongst the wannabes. They included:

  • First, remember that not everything that claims to be green or sustainable actually is.
  • Consult Greenpeace’s Greenwash Detection Kit
  • Keep your eyes on CorpWatch’s Greenwash Awards.
  • Check out the University of Oregon’s Greenwashing index.
  • Check the Unsuitablog which is updated regularly with greenwashing examples and which also contains a post on How to Spot Greenwash.
  • Finally, be suspicious of all environmental campaigns. If a company is going overboard trying to sell its green credentials, ask yourself why? What are they trying to hide? Use your instincts. If it doesn’t feel right, then it probably isn’t.

Does Trouble-Free Mean Fraud-Free?

In a recent post on e-Sourcing Forum, I alerted you to a recent press release from Kroll that summarized the results of their Global Fraud Report which found that in some sectors, fraud in the supply chain has increased five-fold in the last six years – and that’s something to be worried about because, if you think you’re trouble free, there’s a good chance you’re not!

In my last post, I described some of the red-flags that indicate your supply chain could be at risk, which included:

  • Abnormal Vendor Selection
  • Payments Outside the Normal Accounting System
  • Unusual Payment Patterns
  • Rates Out of Line with Your Company’s Standing in the Market
  • Unexplained Lifestyle Improvement
  • Complaints or Tips

But the following can also indicate fraud:

  • automatic order triggers in a VMI system
    a vendor can manipulate stock levels to indicate a re-order prematurely to increase their revenue
  • more purchase orders than usual
    although it looks like your team is doing a good job by getting more purchases through the system, this could represent collusion between your buyer and a seller to inflate either the sales person commission or the buyer’s bonus by submitting false orders that will just be cancelled or returned at a later date
  • an unusual number of returns
    your buyer could be colluding with an individual at a shipper’s facility to create orders for unwanted goods which will be filled incorrectly; the buyer will then demand a refund and the goods will get lost during the return process
  • more defective returns than usual
    your quality assurance personnel might be accepting inferior products for bribes

The reality is that the supply chain is ripe with opportunities for fraud. These include:

  • Fixed Asset Fraud
    Fixed assets might be used for purposes other than what they are designated for, or used more than they are supposed to be. This misuse can damage the asset or reduce its useful life-cycle.
  • Inventory Fraud
    Your employees help themselves to your inventory and falsify records so that you don’t notice the loss until weeks or months later. They might even falsify good receipts to indicate less was received than actually was.
  • Manufacturing Fraud
    Your supplier might send you a high quality product (from another supplier) during the evaluation process for testing, but then send you inferior products made from inferior materials after the contract is signed that look the exact same – and you don’t notice the problem until you get an extraordinary number of returns due to defects or inferior quality.
  • Picking and Return Frauds
    Your order pickers in your warehouse might be picking extra items during shipment preparation and pocketing them for private off-the-books sales.
  • Distribution Fraud
    One or more boxes of your shipment will not be loaded by the shipper who will falsify records and blame the third party carrier for the loss.

And this is just the tip of the iceberg. So, in a follow-up post later this week or early next week, I’ll address what you can do about it. Stay tuned!