Monthly Archives: September 2008

Inventory Reduction Tips

Inventory is expensive. Often very expensive. In addition to the storage costs that result from having to maintain extra space, it ties up working capital, which can cost you dearly. Therefore, unless you’re getting a deal too good to pass up on a plastic or metal that is currently skyrocketing in cost, you want to get your inventory as lean and mean as possible. How can you do this? A recent article in Industry Week, inspired by Cornerstone Solutions, had a fairly exhaustive list of what you can do to reduce inventory. The suggestions were:

  • Reduce Demand Variability
    Get a better handle on what you are using, when, and make sure that you order consistently from your suppliers.
  • Improve Forecast Accuracy
    Combine your improved insight into your current usage with upcoming marketing campaigns and market projections to forecast better. Then alter your order sizes and intervals as appropriate.
  • Re-examine Service Levels
    How fast do you really have to service a customer if something breaks. If you’re selling a key component in a production line, then you definitely have to do next day, if not same day, servicing and must have the part(s) in stock. But if you’re selling tractors, and Farmer Joe’s breaks down on a Friday, I’m sure that, even if he is a little disgruntled, he can wait until Monday. And if you’re selling iPods — guess what, your user can go without a replacement for a couple of days.
  • Address Capacity Issues
    Make sure your low-lead time suppliers can produce enough products to meet unexpected demand spikes (that you sense on the front-end because you’re carefully monitoring your sales data with amalgamated nightly feeds through your supply chain visibility solution).
  • Reduce Order Sizes
    If you only use 100 a month, don’t order 1000, even if the discount “looks” attractive — chances are, after you factor in the holding cost and the working capital cost, you’re losing money.
  • Reduce Manufacturing Lot Sizes
    Find a supplier who can produce smaller lot sizes economically, especially for items that you have low volume requirements for.
  • Reduce Supplier Lead Times
    The faster you can get a product, the less of it you have to keep in stock. Work with your suppliers to reduce lead times as much as possible.
  • Reduce Manufacturing Lead Times
    Select manufacturers who can quickly re-configure their production lines and who have short lead-time relationships with their raw material suppliers.
  • Improve Supply Reliability
    Make sure that you either dual-source or have a back-up plan ready to go if something should happen to your primary supplier or its primary facilities.
  • Reconfigure the Supply Chain
    Revise your distribution network to be as efficient as possible. Don’t be afraid to deploy strategic sourcing or distribution network optimization solutions.
  • Reduce the Number of Items
    Standardize on common components across your product lines and across your business units. One type of memory, one type of power supply, and one type of paper when one will do.
  • Eliminate Questionable Practices
    Given that certain types of questionable practices can land you in jail under SarBox, this should be a no-brainer.

Great advice (even if the article itself was a little too brief).

Coming Soon: The 6th International Supply Chain Management Symposium

The 6th Annual PMAC/MeRC International Supply Chain Management Symposium is coming up next month. It starts with the 3rd annual Doctoral Colloquium on Wednesday, October 15 and the welcome reception that night and the main body of the conference is on Thursday, October 16 and Friday October 17.

This year, their keynotes are from Mr. Dean D. Loria from Shell Canada Limited, Dr. Terry L. Esper from the University of Tennessee, and Jason “The Prophet” Busch, the Spend Master of Spend Matters. Jason’s always an energetic speaker, Dr. Esper is rather well reknowned, and although I must confess that I don’t know the dude from Shell, I’ve never attended a bad presentation from a Shell representative. (Not that they’ve all be gems, but compared to some presentations I’ve attended, including an Ariba keynote from last year, they were never bad.)

In addition, they again have a number of tracks on timely supply chain issues that include green supply chains, health care supply chains, energy sector best practices, and remanufacturing supply chains as well as the old standby topics that include global logistics, procurement management, and negotiation. In addition, this year’s panels are on green supply chains, non-profit supply chains, and supply chain education.

As I noted in last year’s announcement, there aren’t a lot of good Supply Chain / Sourcing / Procurement conferences north of the border, and this is one of the few. So, if you’re in Canada or the northern states and do business in, or with, Canada, I strongly encourage you to consider checking it out. Plus, you get to check out Cowtown this year, which might be a nice change after five years of Hogtown.

For those of you who haven’t been to Canada’s wild wild west, you can check out the the city web site, the Tourism Calgary site, the Calgary Community Events Guide, and even the WorldWeb.com travel guide and vacation planner. And even though the event is not being held during the annual Folk Festival, Blues Festival or during the world famous Stampede, you can always check out the Calgary Zoo and Heritage Park and see how your average Canadian still lives outside of the big nine Canadian cities (which, from east to west are: Halifax, Quebec City, Montreal, Ottawa, Toronto, Winnipeg, Edmonton, Calgary, and Vancouver). In addition, you can also check out the Calgary Herald, the Calgary Sun, and The Gauntlet from the University of Calgary for the down-low on what’s happening. (And you music lovers can check out Calgary Music Lives here, Music Calgary, and the Calgary Music Special Interest Group.) And, for us bloggers, there is the Wild Rose Brewery and the Brew Brothers Brewery … so we’ll be just fine.

Maximum Value From Your Consultants

There was a great article recently in Supply Chain Brain that described a litany of failure. In measuring the value of supply chain consultants, the authors review five horror stories that resulted from consulting engagements. This article was very enlightening as it did a great job of what can go wrong when you fail to work with your consultants and heed their advice. Even though consultants are cheap, and often the best resource you have to identify savings, this is only true if you work with them. Otherwise, they become just as expensive as all the other boneheaded initiatives an average organization will introduce on a daily basis.

Fortunately for us, the article also does a great job of describing the proper approach to maximizing the benefits your consultants can offer you through the advice it offers in each of its tales of horror. The proper attitude, approach, and attention is paramount to your success, and makes the difference between a project that is classified as a dismal failure and a project that generates 10X ROI. As the article notes, in many cases, the best a consultant can do is to give you a good roadmap. When all is said and done, you still have to drive the car to the destination.

So what do you need to do? At a high level, you need to:

  • Listen to the consultant, even if it’s not what you want to hear.
    A good consultant is one who comes in, tells you what’s wrong, and what you need to do to fix it. There’s no value in a consultant that pays you lip-service for a big paycheck.
  • Be prepared for “scope creep”.
    A good consultant will likely uncover problems that neither of you were aware of at the outset. Although you will be able to push off some of these problems to a future project, others will need to be addressed. For example, if the goal of the project is to design or identify a software-based solution to automatically generate import and export documentation for customs and the consultant identifies that your organization is not capturing certain types of critical, required, data, then you will need to extend the project scope to the creation of a process and implementation of a system to capture the necessary raw data.
  • Be ready to take action and implement at least some of the recommendations.
    There’s no benefit in paying a consultant thousands upon thousands upon thousands of dollars simply to identify problems and respective solutions. The benefit comes in implementing the solutions identified by the consultant.
  • Put your own ego in check.
    Maybe you built your company from nothing to a 25-person 5-Million a year operation on nothing but sweat, resolve, and pennies you found on the street while your heavily-funded venture-backed competitors went-belly up faster than lemmings can get to their favorite cliff. That’s great, and you definitely deserve a pat on the back, but that doesn’t mean you know what it takes to grow your company from a small 5-Million nickel-ante player to a mid-size 50-Million market force to be reckoned with.
    Or maybe you were the one who last sourced that 100-M category three years ago and saved 10-M. That doesn’t mean you’re the right person to source that category again today when the balance of power has shifted to suppliers, when raw material costs according to the market indexes have risen 50%, and when your key suppliers are already maxed. You did well, but you likely don’t have the expertise and experience of the consultant being brought in who has sourced this category half a dozen times in the last year in similar market conditions and who knows what you need to do to get results.
    The consultant’s goal is to bring you value, which you will only get if you’re willing to admit that “Ok, I’m good, and I certainly know more about this consultant than X, but right now, I really need to do a good job with Y, and this is the right person for that job.” And you have to remember what happens at the end of a successful engagement — the consultant moves on to the next project and you’re the only one left to get the pat-on-the-back, and the big bonus, from the boss-man.
  • Recognize that sometimes technology is the answer.
    A smart person recognizes that technology, by nature, is not intelligent and that she should not blindly follow any “advice” it has to offer, but she also recognizes that, on the right equipment, it can do more computations per minute than she can do in a lifetime and mine through more data in a few minutes than she’ll ever be able to. If you’re lacking good visibility or data upon which to base decisions, you need technology that can get you that visibility and data.
  • Work with the consultant (and leave the politics to the politicians).
    Regardless of the rumors you might hear, the consultant is not there to take your job. Trust me when I say she doesn’t want it.
  • Get the consultant the data she needs promptly …
    Every day a consultant waits for data is another day the project is delayed and another day you will have to wait to get the advice you need to improve your operations and cash-flow.
  • … and make sure that data is good data.
    A consultant’s recommendations are only as good as the information you provide.
  • Don’t limit the consultant to focussing on just process or just technology.
    The two go hand in hand. There’s no value in automating an inefficient, incorrect, or just plain poor process and there’s no value in adapting your processes to fit the wrong technology. Give the consultant the freedom to address the full scope of your problem.
  • Be serious about problem solving and process improvement.
    If you’re doing a project merely to “check a box” on standardized RFXs, then you’re just wasting everyone’s time. For example, if you undertake a SAS-70 initiative just because your competitor did it without a solid goal of improving your service offerings and production processes, the effort will simply result in a large collection of “manuals on the shelf” gathering dust that cost you hundreds of thousands of dollars.
  • Be prepared to go back to school.
    Sometimes the consultant will find that you’re significantly behind the curve and the only way to catch you up is through radical updates to your processes or technology, which are well beyond where you are today. If you’re not prepared to learn and innovate, you will not be able to act on the recommendations, which might literally mean the difference between staying viable and going bankrupt.

Automation Does Solve the Supplier Enablement Problem …

… but it has to be done right! Regular readers of the Supply Chain Management Review will remember an article from about four months ago that attempted to address “How Automation Solves the Supplier Enablement Problem”. Noting a study from Aberdeen that found that enterprises with properly deployed supplier enablement strategies are able to drive down their costs by 71 percent, while also realizing an average cost more than 45 percent lower than their peers, the article noted that the utilization of automated processes instead of manual systems improves supplier enablement.

The article is right in that automation improves supplier enablement, right in that it is an ongoing effort that requires the utilization of software and the deployment of services, and right in that you have to engage the proper buyer-automation strategy. But it’s wrong when it states that only key and high-volume/high-dollar mid-tier suppliers should be integrated directly into the on-line marketplace. I understand why the recommendation is being made — it’s authored by an employee of a vendor of a marketplace solution that still uses punch-out and hosted catalogs — B2B 2.0 solutions.

(Simply put, the B2B 2.0 vendor logic is as follows:
(1) High dollar, high volume, low-maintenance members of the supplier community are usually already punch-out enabled, and, thus, easy to hook up directly,
(2) About half of the high dollar, high-volume, high-maintenance members of the supplier community will be punch-out enabled, and easy to hook up directly. The rest will likely have staff dedicated to maintaining catalogs in a common format, so it won’t be too much work to get these catalogs on a regular basis in a form that allows most of the products and services to be automatically imported into the vendor’s hosted catalog. Furthermore, the transaction revenues should come close to covering our hosting costs, but
(3) Low-dollar, low-volume members of the supplier community are not only not likely to be punch-out enabled, but also not likely to have an up-to-date catalog in a modern, standard, data-format. Hosting these catalogs will require a lot of work on our part at a cost much greater than the transaction revenues we are likely to see from them.
Thus, since
(1) a buyer’s key suppliers are high-dollar, high-volume, low-maintenance suppliers who are already punch-out enabled, and since
(2) a buyer’s mid-tier suppliers are high-dollar, high-volume, high-maintenance suppliers with good catalogs in a clean XML format,
we’re safe in recommending that the buyer integrate these suppliers directly into the on-line marketplace as it will be relatively easy and cost effective for us. But since low-dollar/low-volume suppliers who are not punch-out enabled and without good catalogs drive up our costs, drive down our margins, and risk pricing us out of the deal, we have to recommend that buyers deal with this group on a company-specific basis and host some of their enablement and offer encrypted email channels for other low-volume suppliers … because, not being B2B 3.0, we just can’t do it at an affordable price-point.)

If you are still using a vendor who is still on B2B 2.0, then the approach outlined in the article is the right one for you, since there is a cost associated with every supplier you integrate and you should only integrate suppliers where you’ll achieve an ROI. However, if you’ve progressed up the value-chain to B2B 3.0, then it doesn’t matter what format the supplier has their data in — punch out, hosted catalog, flat-file, on-line database, or proprietary XML. This is because a B2B 3.0 solution uses meta-search, web services, agents and mash-up technology that can automatically convert and search the suppliers’ catalogs, in any format it happens to be in, in real time, to the format used by your procurement or marketplace solution, and the cost for each supplier, once you’ve purchased and deployed the solution (which is usually implemented as a web-service) is minimal, and, more importantly, always fixed because it is SKU and format agnostic.

Furthermore, B2B 3.0 gives the supplier the choice on how he wants to be enabled … he can come direct from his existing XML punch-out, he can send you his catalog, he can send you his web-based database connection information, or he can just send you the URL of his web-site with on-line, real-time, pricing information. He can even direct you to a third-party marketplace that is already hosting his catalog if he wants to. And regardless of where your suppliers’ data comes from, the enabling technologies of B2B 3.0 will give you a single, simple, unified, and meta-search enabled view of your suppliers and their product and service offerings. This is because B2B 3.0 technologies aggregate the catalogs, punch-outs, and marketplace listings into a single, virtual marketplace customized for you.

That’s why B2B 3.0, a revolution that is about to take the enterprise software world by storm, is so critical to your future success. As the first generation of enterprise technology to enable true B2B e-Commerce that consists of simple, fast, low-cost transactions at true market prices, it’s also the first generation of technology with no limitations on content or community, as it’s able to take advantage of the full underlying connectivity offered by the Internet. For more information on B2B 3.0, check out the inaugural Sourcing Innovation Illumination Introducing B2B 3.0 and Simplicity for All, and for more information on how the right automation truly solves the supplier enablement problem, watch for the upcoming Sourcing Innovation Illuminations that will describe how Simplifying B2B for Suppliers Enables Buyers and how Content Enablement Technologies Enable e-Procurement 3.0.

the doctor’s Sustainability Solution: The 10% Blogger Challenge

the doctor is a big believer in sustainability. He’s one of the few bloggers in the space who’s been blogging about green since before it became a hot topic. That’s why, even though he is not in the position that you are as a buyer to enforce the production of sustainable goods and services (because your money speaks louder than words to a supplier), he wanted to do something anyway.

So what’s the doctor‘s solution? Donate 10%* of all current and future sponsorship and advertising revenue on the Sourcing Innovation Blog, web-site, and future on-line properties to charitable causes that are pursuing sustainability options. Every quarter, after the sponsorship and advertising cheques come in, the doctor is going to take 10% of the gross revenue and immediately donate it to one or more charitable causes – and then tell you which causes, and how much, he donated.

This quarter, the doctor chose to make two $525 donations. One to the David Suzuki Foundation, which works to find ways for society to live in balance with the natural world that sustains us, and one to Doctors Without Borders, known as Medicins Sans Frontieres en Canada, which endeavors to find ways to respond rapidly and effectively to public health emergencies, with complete independence from political, economic, and religious influences. I’m a big fan of both of these organizations. David Suzuki is a tireless crusader on behalf of our planet Earth, and Doctors Without Borders recently started trying to mass produce Plumpy’nut, a very simple food that does wonders in keeping young children in third world nations healthy. (There are lots of videos on YouTube that describe its success.) I look forward to being able to make additional donations to both of these charities on behalf of Sourcing Innovation in the future.

Unfortunately, the doctor is not as dim as he looks (or, at least according to some trusted colleagues) and realizes that, on his own, he’s not going to make much of a difference. Even if this site was fully sponsored, at what the doctor perceives it’s market value to be, he’d only be donating thousands a year. A nice number for an individual donation, but peanuts in the grand scheme of things. But the doctor has a solution!

The Solution: The 10% Blogger Challenge!

the doctor is hereby challenging all bloggers who generate advertising or sponsorship income off of their sites to donate 10% off the top (off the gross for you financial types) to sustainable charities of their choosing from all advertising and sponsorship income they receive, and to do so at least yearly, with quarterly donations being preferred. Furthermore, each blogger should advertise the charities they are donating too, and why, and try to convince their readers to persuade their companies to also donate 10% of at least one revenue line, off the top, to sustainable causes.

Just think of the difference it would make if every organization in the developed world took 10% of their revenue and applied it to sustainable causes (charities, community programs, green energy investments, etc.). And since you can supposedly take 10% off the top of everything when buying, there’s no good reason you can’t spare 10% yourself. (Maybe your company would have to do away with the private box at the track, or cut back on it’s over-priced private art collection, but does it really need those?) So join me, and let’s show them that us bloggers are the future, on-line and off.

*The fine print. 10%-off-the-gross of all sponsorship and advertising revenue from the Sourcing Innovation Blog and the Sourcing Innovation Website in 2008 will be donated to registered charitable causes on a quarterly basis, after the revenue is received. This excludes any revenue that is due to a partner through a joint effort or due to an individual or enterprise that sells sponsorship or advertising on behalf of Sourcing Innovation. So, if a quarterly Sourcing Innovation sponsorship is sold for $10,000 by itself, $1,000 will be donated to a registered charity within 3 months of receipt of the funds; and if a partner, with a 30% gain-share agreement, sells an advertising slot for $1,000, then $70, or 10% of the $700 net, will be donated to a registered charity within 3 months of receipt. Furthermore, the doctor is open to having his books audited by any sponsor or advertiser who makes a minimum $1,000 donation to a registered charity of the doctor‘s choosing, as long as they agree to a rigid non-disclosure agreement and make the donation up-front.