Monthly Archives: August 2008

A Transformative Supply Chain Strategy

Aligning demand and supply profitability determines the competitivepositioning of an enterprise in a challenging marketplace. However, disconnected cross-organizational communication and collaboration often get in the way of achieving that alignment and result in drawn-out, dysfunctional sales and operations planning (S&OP) cycles. The situation is further complicated due to unforeseen or uncontrollable factors such as volatile customer demand, proliferating SKUs, increased new product introductions, global sourcing options and competition from multiple manufacturers.

Additionally, current manually-driven S&OP processes fail to alleviate many of these pressures and are not sufficient in today’s high-pressured business environment. In order to be successful, S&OP approaches must evolve to adopt the attributes of “integrated business planning” — incorporating truly cross-functional, multidimensional processes that include all elements of demand, supply and financial analysis in relation to the business goals and strategy. As a result, enterprises looking to modernize their S&OP processes need to embrace transformative strategies that encourage collaboration to drive improvement, according to a recent article on Transformative Supply Chain Strategies in Industry Week.

This can be achieved by breaking down the organizational silos in a transformation initiative that addresses key people, processes, and technologies. Such an initiative will prioritize forecasting, inventory, and production, assign clear ownership and accountability for specific processes, conduct proper business analyses in place of seat-of-the-pants reactions to current market conditions, and, most importantly, move away from technology silos to a single version of the truth.

Specifically, as the article points out, it will eliminate reporting tools and spreadsheets at the department level and move to an Integrated Business Planning (IBP) or a single Supply Chain Visibility (SCV) solution. If each department uses its own technology solution to address its own planning processes, the business works off of a myopic and disconnected view of S&OP that is inefficient, costly, and not sustainable. It’s the paradox of traditional “Business Intelligence” technology (and also why you can’t use traditional BI for Spend Analysis): the more you use, the less you know. Especially when spreadsheets are involved — which accomplish nothing more than generating multiple, inaccurate, versions of the data and not the single version of the truth that an enterprise needs to make good business decisions (especially when you consider that 90% of spreadsheets have non-trivial errors).

So throw out your spreadsheets and adopt proper sourcing, procurement, and supply chain solutions that centralize your transactions and supply chain data and generate the necessary reports off of a single version of the data. You’ll be better for it!

The Comic Art of Strategic Intelligence Using Nanotech Digital Forensics in Sustainable Business

The U.S. Bureau of Labor Statistics (BLS) projects that the U.S. economy will add 15.6 million jobs in the decade between 2006 and 2016. But those jobs won’t be evenly split across regions or industries. Many traditional industries, like manufacturing, will see declines. Industries that hire graduates of popular majors in business, social sciences / history, and education may see a rise if the opportunity is there, but may not. But since not every student has the aptitude to be successful in these fields, and since many will ultimately have to take positions outside of these fields of research due to limited jobs in these fields today, it’s hard for a college student these days to pick a major these days that’s likely to land him or her a job.

That’s why it was good to see an article in the current edition of The Futurist on Majoring in the Unusual that highlighted degrees in unusual fields from the recent edition of They Teach That In College? that might help a new graduate secure a job in an emerging field.

The article highlighted the following five fields as the most eye-catching:

  • Sustainable Business
  • Computer & Digital Forensics
  • Comic Book Art
  • Nanotechnology
  • Strategic Intelligence

… and, in my view, among the most lucrative. Here’s why:

  • Sustainability is soon going to be a necessity. You can follow the doctor and lead the way or get caught up in the tide.
  • Everything is “e” these days. Since you can’t follow someone who never leaves their office, the days of Sam Spade and Dixon Hill are coming to an end. Digital is here, like it or not.
  • Die hards will hold onto books for a long time, but the days of the text-based books are coming to an end as we read more and more on our computers and e-readers. But since e-readers still can’t replicate the texture of art on the page, graphic novel and comic sales are going to stay strong for a while.
  • We love miniaturization … and nanotech, which will be very useful in medicine, is miniaturization to the extreme. It’s true we might accidentally build replicators, but it’s also true that the new large hadron collider might destroy the planet next month, and we built that.
  • Considering that, in the doctor‘s view, most businesses don’t have a lot of intelligence to begin with , there’s always a need for strategic intelligence!

Protecting Your Brand From Counterfeiting

A few months ago in Does Trouble-Free Mean Fraud-Free, I pointed you to a recent study by Kroll that found that, in some sectors, fraud in the supply chain has increased five-fold in the last six years. Even though these numbers include fixed asset fraud, inventory fraud, distribution fraud, and return fraud, a lot of this fraud, especially in certain sectors (like pharmaceuticals and CPG) is manufacturing — and counterfeiting — fraud. This is because, as a recent Industry Week article points out, counterfeiting is one of the largest and most profitable businesses in the world.

The article quotes YottaMark, a SaaS-based innovator in security coding, who estimates the direct loss due to counterfeiting of technology products alone at over $100 Billion a year, as 1 out of every 10 technology products sold in the world is counterfeited. For example, even before the iPhone 3G was released on July 11, hundreds of iPhone counterfeits were available overseas, for less than half of Apple’s suggested retail price, as reported in the Irish Times.

So what can you do to protect your brand? The article suggests turning to a trusted partner that specializes in brand protection solutions, like YottaMark or Brady Corporation that offer a combination of overt, covert, and semi-covert technologies that uniquely identify your products.

Overt technologies, like holograms or color-shifting ink, include a clearly visible mark of authenticity on the product; covert technologies, that include hidden bar codes and images, allow the product to be authenticated by a trusted party using a specific tool or knowledge of what to look for; and semi-covert technologies blend overt and covert features into a multi-faceted security solution that can be used to instill trust in the consumer and in trusted supply chain participants.

I think the article is on to something here. Sure you could follow the lead of big corporations and create brand protection teams and do your own research into overt and covert technologies to protect your solutions, but how well are you going to do on your own when there are a number of disreputable organizations out there that dedicate all of their resources to cracking the latest security technology? Not well. In comparison, a partner company that is 100% dedicated to creating the best security and anti-counterfeiting technology possible will be years, if not decades, ahead of you and using their solutions will make your products much more secure than you could make them on their own. It’s sensible outsourcing — do what you do well, and outsource the rest to a partner that can do it better, faster, and, most importantly, more cost-effective.

We Didn’t Start the Auction

Free Markets, Ariba, Procuri, Iasta
Perfect Commerce, PurchasingNet, B2E Markets

Ketera Tech, VerticalNet, Trading Partners, and Moai Tech
K2 Sourcing, the Commerce-hub, and e-Breviate

Emptoris, SciQuest, Sorcity, Synertrade
WhyAbe, eDynaQuote, and aGlobal eProcure

Procusoft, Quadrem, Co-exprise Marketplace
AECSoft, A.T Kearney, B2B Marketplace

We didn’t start the auction
It’s been always raging
Since the world’s been trading
We didn’t start the auction
Though we did ignite it
We just couldn’t fight it

Generally speaking, the conventional wisdom is to run auctions in loose markets where supply exceeds demand and the power resides in the hands of the buyer. However, auctions can also be helpful when supply is tight and commodity costs are rising, when the power theoretically rests in the hands of the supplier, especially if we have an inflationary market. Why? Even though demand may be tight, in an inflationary market, spending goes down, and demand will only remain high if consumers can ultimately afford the products being produced.

In these conditions, if you are unable to control prices, demand for your products will drop. And your suppliers, whether or not they want to admit it, recognize that demand could drop for end-user products at any time, and thus the components and materials they provide, at any time. This means that they are likely desperate to lock in business and should be willing to agree to an ethical auction.

This is good news, because a well-designed and well-run auction allows you to determine the true market price for a product or service, especially those where only part of the cost is due to commodities that have increased in price since your last sourcing event. If a supplier believes its business might drop, it might be a lot more willing to reduce it’s profit margin on the value-add component of its offering.

Thus, if the category is one that you’d normally auction, you should probably still do so. Don’t get jumpy and switch sourcing strategies just because the market has changed since the last time you examined the category. If your analysis indicates that the category is right for a sealed-bid negotiation, do a sealed-bid negotiation; if your analysis indicates that you need strategic sourcing decision optimization, use decision optimization; and if your analysis says that the category is appropriate for an auction, use an auction. As long as it’s well planned and well executed, even though your costs might not decrease, they could still be less than the average market cost. Good analysis and strategies withstand the actions of the market. So stick to them.

If You Missed the Purch-lympics, Here’s What You Missed

For the last week, Next Level Purchasing has been hosting its own Purch-lympics. For the last five days, it has been posting short essays submitted by Purchasers around the globe that described a problem they encountered, the action(s) they took to resolve the problem, and the ultimate results. Each day, readers were allowed to vote on the best essay, and the top five advanced to a final voting round, which takes place today, where the winner receives a full scholarship to the SPSM Certification. (You can vote here or watch the vote here.)

Some of these essays had good tips from Purchasers like you that you could use in your daily jobs to solve your problems. To help you identify which essays are relevant to you, here is a brief overview of what each essay covers.

  • Leonard Ruhukwa on Supplier Relatinoships Finalist
    Monitoring and being aware of the foreign currency exchange rate helps you in negotiating a realistic price from your suppliers.
  • Aung Kyaw Than on Specification Errors
    Often the best way to win a dispute with your supplier is to do your homework.
  • Grace Paddy Wanzala on Alternate Sources of Supply
    If you know your suppliers’ capacity before awarding a large bid, you know when you can safely sole source and when you have to multi-source.
  • Reybien Basto on Documentation
    If you’re stuck between a rock and a hard place, keep good records — that way you can’t be blamed for someone else’s screw-ups.
  • Jehu Selman Mamven on Bidding
    In order to procure fairly, you need to stand by the rules of the bid.
  • Evans Mudake on Implementing Payment Controls
    A good purchase order / goods receipt system is needed to insure that you are getting what you pay for.
  • G.P Thushara Sampath Gunasekara on Increasing Supplier Competition Finalist
    If you make your RFP too strict, you will eliminate competition. Before issuing the RFP, research the market to make sure at least two or three suppliers can meet the minimum requirements. If the contract is long-term, and you partner with them, sometimes a tier-2 supplier can improve to the point where they are world-class.
  • Enoch Dugbatey on Improving Cash Flow
    If cash flow is limited, appropriately constructed Purchase Frame Agreements (FAs) and Blanket Purchasing Agreements (BPAs) can ensure that materials keep flowing on schedule (as suppliers are more confident they will get paid).
  • Dylan Tao on Switching Distribution Channels
    Before accepting a price increase due to “raw material price increases” do your homework on the cost structure. If most of the cost is value-add, and not raw materials, you might actually be able to negotiate a price concession, especially if you can work with the design team to re-engineer the product to require less effort in production.
  • Bizerka Oreskovic on Creative Logistics Solutions
    Logistics doesn’t have to be limited to rail, big trucks, and super-size cargo ships. Depending on how much you need, there are alternatives – like smaller boats and, for small deliveries, even cargo areas on busses.
  • John Ransom on Evaluating Vendor Viability Finalist
    To get through these tough times, take a positive attitude, re-balance the supply chain, and identify those vendors most likely to survive and partner with them to make it through the storm.
  • Annette Opondo on Dealing with Internal Conflict
    If you’re having a hard time securing the best deal because your manager has a preferred supplier, work out the cost models in detail and properly take them through the appropriate channels.
  • Daniel Haakuria on Improving Logistics
    A good understanding of shipping schedules and nascent negotiation skills will allow you to take advantage of opportunities when they become available and allow you to obtain a much greater ROI later for a little more up front.
  • S.B. Odegha on Proving Supply Chain’s Sourcing Abilities
    Sometimes you will have to educate Engineering and other departments in order to do your job effectively, as they will insist that only they can procure certain parts.
  • Mukut Roy on Project Management
    Sometimes you have to be creative to see a project to fruition, especially when a war splits the country you’re sourcing from into two or more countries!
  • Abdul Khan on Vendor Managed Inventory
    Sometimes the best way to identify the root cause of a problem, and an appropriate solution, is to form a cross-functional team that involves the vendor. And sometimes this will lead to a joint decision that vendor managed inventory is the right way to go.
  • Alfred Onyango on Procurement Ethics
    Ethics are important, but there are times you will have to stick to your guns to make sure your department behaves ethically.
  • Sandi Derouin on Fixing Internal Customer Errors Finalist
    Sometimes the best way to gain respect in Purchasing is to help other departments out of the mess they create for themselves by not involving Purchasing in the first place. But to do that, you’ll have to do some digging to get to the truth.
  • Lynn Hoover on Surviving a Supplier Catastrophe
    Sometimes the best way to insure continuity of supplies is to maintain some production capabilities in house.
  • Khin Aye Myint on Sourcing and Sanctions
    Sanctions can throw a wrench into your sourcing plans if you are not careful. Check denied party lists carefully before sending out an RFQ, or you might not get any usable responses.
  • Burt Schilder on Implementing an ERP System
    ERP still has a lot of value if properly deployed, maintained, and used … especially if you don’t overpay for it!
  • David Ah-Tow on Obtaining Vendor Information
    Sometimes you have to work with your vendor to get what you need.
  • Denis Minnich on Obtaining Emergency Vendor Services Finalist
    If your current vendor is non-responsive to your needs, all is not lost, there is always someone else ready and willing to take your business if you look hard enough.
  • Yvetta Koleva on Negotiation
    If you want to get the best price, do your homework. Some vendors will quote as much as they think they can get away with.
  • Kacwa Ronnie on Increasing Procurement Visibility
    Sometimes it will take a lot of education on your behalf to convince management of procurement’s value.
  • Antony Naploli on Internal Customer-Supplier Relations
    Sometimes the best way to improve relations is to take an active approach and form a process improvement team to get the job done.