Monthly Archives: August 2008

Twenty Reasons Why All Retailers Should Use e-Procurement Tools Now

Today’s guest post is from Ron Southard of Safe Sourcing and originally appeared on the Safe Sourcing Blog on July 29, 2008. It is reprinted with kind permission.

Sometimes the detail gets lost in translation, so for those of you that are following on a daily basis here is a simple list. These are certainly not all of the benefits that retail can drive from the use of e-procurement tools, but it is a good starting point.

Since this is not Late Night with David Letterman, our list is not ranked in order of importance although many might argue that not much is more important than improved earnings.

1. Guaranteed to improve net earnings
2. Guaranteed to improve safety
3. Guaranteed to improve Corporate Social Responsibility
4. Guaranteed new sources of supply
5. Retail has less spend assigned than any other industry
6. Streamlines the procurement process
7. Holds suppliers accountable to your standards
8. Improves quality
9. Coast avoidance in a volatile market
10. Creates a competitive environment
11. Drives reliable market pricing
12. Maintains a reliable history for future comparison
13. Educates suppliers as to how retailers wish to procure products
14. Supplier training eliminates questions
15. Improved and consistent product specifications
16. Improved negotiation
17. Improve carbon footprint
18. Simple award of business process
19. Frees up time for other tasks
20. Works for procurement of all product categories

This author is not sure why a derivative of this list could not become the mission statement for any procurement department.

I look for ward to your comments, which may also be posted here (login required).

Thanks Ron!

Seven Deadly Supply Chain Wastes

Having posted about the Seven Deadly Sales Suppressors and the Seven Deadly Supply Chain Sins, it should be no surprise that the Supply Chain Management Review’s recent article on the Seven Deadly Supply Chain Wastes caught my attention. According to the article, the resources consumed in the process of delivering a product or service that do not add value — be they people, time, or equipment — should be eliminated.

The article, about the Toyota Production System (TPS), or Lean, went into detail on the seven wastes that keep supply chain management from achieving its full business potential and how TPS principles can be used to eliminate the wastes. TPS does this by applying five core ideas that lead to better processes and performance.

The five core ideas that underly TPS are:

  • Muda
    That which is wasteful and doesn’t add value (should be eliminated).
  • Process Focus
    Work cross-organizationally to develop and sustain robust business processes.
  • Genchi Genbutsu
    Collect facts and data at the actual site of the work or problem.
  • Kaizen
    Continuous and Incremental Process Improvement
  • Mutual Respect
    There should be a strong relationship between management, employees, and business partners.
  1. Overproduction (Build first, wait for orders)
    Don’t deliver products before they are needed and avoid “created demand” where a quantity greater than what is needed is requested. This typically adds 40% to supply chain volume fluctuation at the part number level, which is very wasteful. Move to a “sell one, buy one” method with minimal lead times to prevent this waste.
  2. Delay / Waiting (between activities)
    Any delay between the end of one activity and the start of the next activity, such as the time between the arrival of a truck for a pick-up and the loading of the trailer, and the delay between receiving the customer’s order information and beginning to work on fulfilling the order is wasteful. Coordinate production and shipping operations with cutoff times to maximize throughput and efficiency.
  3. Transportation / Conveyance (that is unnecessary)
    Any kind of unnecessary transport. Out-of-route stops, excessive backhaul, locating fast-moving inventory to the back of the warehouse and other transport wastes cause unnecessary material handling distances to be incurred. This can be addressed by applying genchi genbutsu techniques to methodically identify specific lanes and the deadhead miles that are travelled within each account network. Then work collaboratively with other account teams to systematically combine multiple shipper networks into a single network.
  4. (Unnecessary) Motion
    Any kind of unnecessary movement by people, such as walking, reaching and stretching. Motion waste also includes extra travel or reaching due to poor storage arrangement or poor ergonomic design of packaging work areas. Use lean storage, small batch processing, and kaizen to minimize the work required to produce the product.
  5. Inventory (Mismanagement)
    Any logistics activity that results in more inventory being positioned than needed or in a location other than where needed. Examples include early deliveries, receipt of order for a quantity greater than needed, and inventory in the wrong distribution center (DC).
  6. Space (Mismanagement)
    Use of space that is less than optimal, such as less than full/optimal trailer loads, cartons that are not filled to capacity, inefficient use of warehouse space, and even loads in excess of capacity. Figure out why the space is being misused, and then find better ways to package, store, and stack the product.
  7. Errors
    Any activity that causes rework, unnecessary adjustments or returns, such as billing errors, inventory discrepancies and adjustments, and damaged/defective/wrong/mislabeled product. One way to address this is to develop a comprehensive set of performance metrics that align overall execution with strategy and eliminate conflicting performance objectives by department.

Choose Your (Project Management) Metrics Appropriately

A recent article over on CIO.com highlighted recent findings from Forrester Research which found that Common Project Management Metrics Doom IT Departments to Failure. According to Forrester, the idea that a project must be on time, on budget, and deliver the initial requirements is problematic and sets up an IT project for failure.

According to Forrester, the problem with these metrics is that they perpetuate the idea that a project is only successful when it is completed according to the initial schedule, budget and requirements — and therefore, that anything less is a failure. Project requirements change for a variety of reasons, and schedules and budgets change during the lifetime of the project based on better information as to effort, complexity and interdependencies, and, thus, the initial plan should not be adhered to if additional information leads to a better understanding of how the project different from initial estimates.

The reality is that, as the project requirements are explored, complexity will increase or decrease, and, more importantly, requirements will change. Some features and functions will be determined to be unimportant while new features and functions will be discovered that have more value than the initial requirements. Thus, even if these cost more, if the ROI is greater than the ROI predicted by the original project plan, the plan should change. This holds true regardless of the application area — operations, CRM, or supply chain. When it comes to IT, the reality is that you never know exactly how long it is going to take, how much it is going to cost, or just how much benefit you’re going to find until it’s done. You can estimate, and if you have an expert help you, the estimate will usually be close, but it won’t be perfect — and this is why may projects fail, because those who don’t understand IT expect that perfect plans exist. There is no perfection in IT project planning. Accepting this is the key to success.

The metrics that should be used are the ones that identify fundamental issues that cause projects to fail: like lack of governance, unrealistic plans, and limited understanding on the part of management. Better metrics are how many milestones are hit (as long as the project plan is updated at each milestone based upon knowledge gained and lessons learned), what percentage of people are using the system at the end of each phase of the rollout (w.r.t. what percentage of people should be using the system), and how many executives are using the system (even if only for reporting purposes).

Furthermore, project management personnel must play a more active role in managing project sponsors’ and business stakeholders’ perceptions of success and failure. Forrester recommends that project management personnel take the following four measures:

  1. Keep Project Steering Committees on Task
    Insure that the steering committee makes decisions in a timely matter and addresses problems and issues as soon as they arrive.
  2. Improve Communication with Project Sponsors
    Keep the sponsors up to date with changes in requirements and the impacts these changes have on the budget and timeline to insure that they see progress and success and not failure.
  3. Improve the Reliability of Project Plans
    Establish best practices for developing plans with significant unknowns. This can help with setting sponsor expectations for reasonable project performance.
  4. Better Communicate Estimates of Cost, Schedule, and Resources
    … and how they are based on current business conditions, current requirements, and current assumptions — and that they could change as the project progresses and understanding is improved.

Supply Chain IT Assessments

Warning! This post contains shameless plugs.

SourcingMag.com recently ran a good piece by Dian Schaffhauser on How To Do IT Assessments (8 Practices for SMBs) that is also appropriate for any organization looking to gauge the effectiveness of its Supply Chain IT systems.

  • Develop a Ratings System and Apply it Consistently
    For each area — data management, process support, compliance, etc. — develop a simple rating system, such as a numeric system from one to five or one to ten, that lets you see how good you are doing at a glance compared to best-of-breed. Then you can quickly see what systems need to be upgraded the most. Consider doing the same for each supply chain employee — logistics, sourcing, contract management, etc. — against a standard set of modern job descriptions. Look to the local professional society (ISM, CIPS, SCL, etc.) for these, since you shouldn’t waste time “reinventing the wheel”.
  • Bring in an Outside Evaluator
    If you really want an accurate assessment of where you are, you need to bring in an outside expert (such as the doctor) who is familiar with best of breed systems and processes to help you. This expert can also help advise you as to what system or process updates will be the most beneficial to your organization.
  • Select a Framework and Use It
    Frameworks really do work when it comes to managing, measuring, and improving the delivery of services. Any industry standard framework — such as Lean, Six Sigma, or CMM — will do, as long as you are comfortable using it.
  • Take a Holistic View of Time Measurement
    Where are your employees spending their time? And where shouldn’t they be spending their time? If they are routinely spending time on tasks that are not value-add to your business, then you should be focussing on automating or outsourcing those tasks. Note that it’s not the amount of time that matters. It’s whether the task has value. Some tasks, such as pre-sourcing project research, will take a long time, and that’s okay, because, done by an internal expert, they will result in considerable value. So don’t sit down with a stopwatch and blindly focus on the most time consuming tasks, it’s not productive. Identify those tasks that your people should not be doing, automate or outsource them, and watch the process improvements and savings roll in.
  • Be Upfront About Your Intentions
    If your intention is to outsource, be clear, especially if the intention is not to eliminate jobs, but to make your people more productive at their jobs. If you need to improve operations because the company isn’t doing well financially, explained properly, your people will understand and buy-in. After all, most people grudgingly prefer change over losing their jobs (which will happen if you don’t plug the leak in the ship and it sinks). If you are honest with your people, they’ll be honest with you — and give you an honest effort.
  • Technical People Need To Be Evaluated By Technical People
    … and experts need to be evaluated by experts. (Which is yet another reason to enlist outside help, like the doctor, when trying to evaluate the state of your supply chain organization and it’s supporting systems and processes.) Otherwise, it will not be a fair evaluation, and you could trigger unnecessary animosity within your organization.
  • End With Recommendations and Move On to the Next Project
    The assessment should have a goal — specifically, the goal should be to determine the appropriate improvement project(s) that you are going to move forward on.
  • Outsource or use SaaS Where it Makes Sense
    Do the strategic and outsource the tactical. System implementation? If you’re not good at it, let a third party do it. New trade rules? Let a SaaS GTM provider keep your system up to date. Office supplies? Use a third-party e-procurement provider that integrates 4+ providers and spot-buy as needed.

Simplifying Global Trade Management Systems

Recently, Industry Week ran a piece by Melissa Irmen of Integration Point, a company I covered not too long ago in this post, that offered 10 suggestions on how to make the implementation of a new Global Trade Management (GTM) system as painless as possible. Since some of the suggestions were quite good, I’m going to summarize them for you in this post.

  • Consider SaaS
    As discussed in my e-Sourcing Wiki Paper, SaaS has a slew of advantages that traditional behind-the-firewall systems do not. Plus, in addition to being a low-cost way of getting started, it’s an operating expense.
  • Buy Only What You Need
    Find an extensible system that can be upgraded later as your needs mature. (Another reason to look at SaaS.)
  • Check References
    Ask current users of the provider about usability and weaknesses. Also, I’d include references the GTM provider doesn’t provide if you know about them!
  • Inform Your Supply Chain Partners
    Not only can they help you acquire the right data for the system, but they might be able to collaborate with you through the system.
  • Get Buy-In From Upper Management
    GTM crosses organizational boundaries. Without a mandate from upper management, it might be hard to get other teams to buy in to the system.
  • Ensure Access to Transactional Information
    Make sure all affected parties can access the information they need when they need it.
  • Insure the Solution Contains E-Document Management
    This saves time, effort, and money and insures documents are not “lost” when they are needed.
  • Evaluate Adaptability
    New GTM systems will generate a number of “false positive” alerts on the black-and-white rules of global trade embedded in the system — but some of these will not apply to your company’s particular situation. Make sure that the system can not only accept authorized overrides but that the rules can be updated to handle these situations by a system administrator.
  • Determine How You Will Stay Up To Date
    If you go SaaS, the vendor will take care of updating not only the system, but the critical data that includes free trade agreement amendments, denied party list updates, etc. But if you go installed, you will either have to update this data yourself or subscribe to a service that does it for you.
  • Check for Governmental Connectivity
    If the relevant government body can accept electronic documents, the system should support it.