Monthly Archives: November 2008

The Green Goblin is Coming … Are You Ready?

One of the overriding themes at this year’s 6th Annual International Symposium on Supply Chain Management was Green … and how you need to be ready for the Green Goblin before he takes a huge bite out of your bank account. Carbon caps and strict regulations are starting to take effect around the globe, and if you’re not ready, it could cost you a lot more in fines and carbon credits than it will cost to be proactive and identify year-over-year sustainable savings by acting now.

Chances are you won’t be hit as hard as public sector institutions in BC, who only have until 2010 to be carbon-neutral, or face an offset of $25 per ton of CO2 emitted, but there’s a lot of talk these days among the more progressive provinces and states in North America to institute carbon taxes, and you can be sure that, one way or another, some form of carbon tax, be it direct or indirect, is going to hit you eventually.

Fortunately, there are a large number of easy ways to take a big bite out of your carbon footprint if you just look. An easy first step is facility retrofitting and IT virtualization — both of which make a big impact on energy needs. Most buildings use at least 40% more energy than they need to just in heating and cooling, and today’s technology generally allows for retrofits, with 30 to 50 year life-spans, that starts paying off in as little as 5 years. Furthermore, most organizations use 30% to 80% more energy to power their IT infrastructure than is necessary, and today’s virtualization solutions (as I’ve discussed in this post on data centers and this post on desktops) often have a 12 month payback (as per this savings template)!

If you’re in transportation, you can optimize routes, keep your fleet well maintained, and use nitrogen-filled tires — which both extend tire life span and reduce average fuel consumption by 5%. You can also optimize loads, using appropriate load planning optimization software, and work with your customers to maximize available lead times, which may let you use rail instead of truck for the majority of the distance, which emits significantly fewer units of CO2 per pound.

And you can get creative like UBC did to reduce your carbon footprint. They analyzed their carbon footprint and found a large amount of it was due to mail and package deliveries across campus. The courier that they did the least business with made an average of 85 stops per day. Considering that they already had centralized mail distribution, which now runs off of electric vehicles (which can be powered by clean hydro-power) there was no reason that they couldn’t centralize courier drop-off and pick-up to 2 drop points, which would reduce CO2 production from deliveries by over 95%! Plus, they also substantially reduced the cost to the couriers, many of whom had to have 2 or 3 trucks dedicated to their campus, and they can use this as leverage in negotiations to reduce annual courier payments by hundreds of thousands of dollars.

They also found that a lot of carbon was contained in the unnecessary packaging that accompanied the majority of deliveries on campus. So they went to their largest supplier, who was just a few kilometers from campus, and told them that they were not allowed to add packaging to anything delivered anywhere on campus and they were to start using reusable totes (since anything that needed safety packaging would have safety packaging added at the manufacturer). Whenever the supplier dropped off a standard cage of totes at the central mail distribution facility, they could pick up an empty cage of totes ready for return. They plan to roll this out to more suppliers … and the environmental … and cost … savings are going to add up here as well. (They are a large University of tens of thousands and faculty, staff, and students … think of all of the stuff that flows into a campus on an annual basis!)

They’ve also instituted a program where a product cannot be requisitioned unless it is locally recyclable or the manufacturer has a recycling program where they will take the product back when it’s end-of-life is reached. That way, they are not responsible for the CO2 associated with disposal of a product. And they’ve saved money in all of their initiatives … saving over 25 Million since the Sustainability Office was formed in 2001.

And the good ideas don’t stop here. There’s no reason you can’t go paperless in your office. What do you really need to print out besides the final version of a contract where you need a signature? A fax? Nope – it’s already in e-format and ready to be redirected to a user’s inbox. A policy document? Nope … leave it on the central server, where it is automatically backed up to redundant storage nightly. A meeting report? Nope! Either give your workers laptops or equip the meeting room with thin terminals and flat-screens, which could be laid flat under a glass table, and let everyone access their own copy of the report electronically in the meeting. If you set your mind to it, you’ll find that you rarely need to print anything … especially since the majority of what is printed in an average office (up to 80%, in fact) ends up in the recycle bin by the end of the day. It’s much more economical to give all of your workers two large LCDs than to buy paper. Much more!

So get creative, and cut back on carbon wherever you can, or the Green Goblin might be taking a big bite out of your bank account when the regulations come in, and you have to buy credits off of the exchanges (Montreal, Chicago, EU) where they are now trading anywhere from $6 to $30 a ton.

Dealing with Demand Volatility

Demand Planning is probably at the forefront of your thoughts these days. You don’t want too much inventory, because you can’t afford to tie up working capital, but you don’t want too little inventory either, because, with sales down, you can’t afford to lose even a single sale. You need to operate lean, mean, and ready for anything at a drop of the hat. You do this by harmonizing sales, marketing, and supply management into a cross-functional team that focuses on meeting demand in the most effective and efficient way possible.

This team should start by segmenting demand by volume and variability, as per this TBM Consulting Group Graphic found in an Industry Week article from earlier this year on demand management. This allows the company to optimize planning, control, and manufacturing around each product depending on whether it should be pulled, made-to-stock, made-to-order, or rationalized (where it may be replaced with a similar product or discontinued altogether). Furthermore, by analyzing and understanding the demand patterns of different product families, looking at average volumes and variations in demand, managers [may] determine that their own inventory management policies are responsible for creating the sharp spikes in production and shipments that historically caused inventory shortages and liquidations in the past.

It’s important to note that demand planning is not a game of chance, but a strategy, as highlighted in this recent Industry Week article by a principal of Tompkins Associates. Done right it eliminates, or greatly reduces:

  • out-of-stock situations
  • long, unknown, or unreliable lead times
  • inventories with discontinued and obsolete SKUs
  • overstock of slow-moving SKUs
  • non-optimal inventory deployment

But done wrong, each of these problems magnify. That’s why it’s important to have a demand management plan that not only addresses each of your products, but addresses how you will respond to demand volatility. The reality is that the plan can never be completely accurate given the certainty of daily changes that will occur inside the planning horizon. You need to be able to rapidly sense and respond to shifts in demand that deviate from your current plan, work with your colleagues and supply chain partners to understand true demand, identify plan updates and alternatives, and use decision support tools that will help you identify profitable responses to demand changes.

The best way to insure that you stay on top of demand volatility is to implement a multi-tier, multi-enterprise visibility solution that allows for near real-time demand data to be shared downstream, that can alert suppliers when demand unexpectedly rises and falls, and that can allow partners to collaborate on the best way to respond to unexpected demand spikes and drops. The system should be able to tap into the relevant CRM, ERP, SCM, POS, forecasting, and demand planning tools in place and not require manual re-entry of data and should consolidate the data for easy “what-if” analysis and reporting. As the article notes, good demand planning and response management can represent the largest opportunity for companies to increase customer service, enhance margins and attain more predictable revenue across the entire value chain, and allow supply management to simultaneously increase profit as it avoids unnecessary cost.

Logistics Providers Are Not Created Equal

World Trade Magazine recently ran an article on customized solutions offered by logistics providers and 3PLs where it asked thirteen different experts how they would meet the logistics needs described in a ‘hypothetical case study’ for a leading developer or electronics. I think that this is one of the most interesting articles that World Trade Magazine has ever published because it clearly shows that even though a group of logistics providers might offer the same services, they might approach the solution in completely different ways and you likely won’t know who the best logistics provider is for you until you find out how they will handle your transportation needs.

A brief description of the hypothetical situation is as follows. The electronics developer jumped on the LCCS bandwagon and moved the majority of its manufacturing operations offshore. It established relationships with two major contract manufacturers and a major international logistics provider to ship product from factories in China and Hungary to distribution centers in Singapore, the Netherlands, and Memphis. The logistics provider was selected based upon freight rates and the promise of product visibility during shipment, which has been slow to materialize, forcing the electronics developer to make decisions based on the expected transit time, rather than a firm delivery date (as the provider is routinely off by as much as two weeks). In addition, invoicing is poor. Although they get the total bill weekly, details about each shipment are missing and they can’t allocate costs to a specific product. Finally, although the logistics provider is living up to negotiate freight rates, the electronics developer is constantly getting hit with handling fees that weren’t in the initial contract, as well as higher taxes and duties that may not be justified. How should the company proceed?

Expert number one, who noted that visibility is important, that a minimal level of connectivity is required between each node in the chain, and that predictive monitoring needs to be put in place, had the following advice:

  • conduct a full review of existing contract provisions and identify gaps between promises and realizations,
  • convene a summit meeting with the 3PL senior executives to discuss the gaps and develop a plan to address them, and
  • if the 3PL cannot realize its commitments, find a replacement logistics carrier.

Expert number two, who noted that the electronics developer probably didn’t understand the concept of total delivered cost, needs to go back to the table and focus on measurable goals that will be committed to by all parties and then develop contingency plans if the current relationships fall through.

Expert number three, who noted that the electronics developer is probably not agile enough, pointed out that they need a services oriented supply chain based on a SOA (services oriented architecture).

Expert number four, who believed that the electronics developer underestimated the importance of due diligence when selecting a logistics partner, said that the developer has to work with the carrier to first and foremost satisfy customer needs, which will require better visibility and firm delivery dates. In addition, they should get tax help to reclaim likely overpayments if their taxes increased without any clear reason why.

Expert number five, who noted that the electronics developer is no longer master of its own destiny, advises the developer to “staple itself to an order” and map its entire order-to-cash process to obtain a detailed understanding of the physical, financial, and information flows. Then it needs to work strategically with its key vendors to resolve the issues.

And so on.

The key thing to note is that, just like each expert views the problem definitely, so will each 3PL and selecting the right one will require some research to find the one that has the same understanding of your supply chain as you do.

Do Common Scorecards Help (with Supplier Management)?

One of the presentations at the 6th Annual International Symposium on Supply Chain Management was on Performance Management in Buyer-Supplier Collaboration Programs. It focussed on the implementation of a common scorecard between a buyer and supplier and described the impact of the implementation.

A common scorecard, which extends the traditional balanced scorecard, was selected because the parties believed that it would lead to mutual success since it would clarify performance measurements, which in turn would align partnership goals, link strategic objectives to day-to-day tactical execution, and communicate the overall effectiveness of the partnership. Once the performance indicators are mutually agreed upon, a common scorecard can be implemented by way of regular data exchange between the parties.

The presentation described a case study on custom packaging materials where consignment stock (VMI) was used. In this particular example, where goods were being transported from Asia to Western Europe, the lead time was eight weeks, the demand viability on the buy-side was high, and the goods had to be expedited by air on a regular basis due to regular stock-outs. The motivation behind the implementation for the buyer was to decrease shortages and increase forecast accuracy and the motivation for the supplier was to improve operations efficiency and overall customer service.

The parties chose to monitor production cycle time, transit time, consumption vs. forecast, stock-outs at the buyer site, number of expedited shipments, the value of stock on hand for the next eight weeks of forecast, and the value of stock materials without demand. To enable these measurements, the buyer shared stock, consumption, minimal target stock, and consumption vs. forecast data on a weekly basis and the supplier shared its dispatch (supply) plan and stock levels with the buyer on a weekly basis.

After implementing a common scorecard, supplier production cycle time decreased 60%, consumption vs. forecast accuracy improved 40%, the number of expedited shipments in a month dropped from an average of 7 to 1, and the value of stock on hand decreased 25%, while the other measures remained constant or improved slightly. Thus, when properly implemented, common scorecards appear to do quite well. This is what one would expect if both parties enter into a collaborative partnership, share data, and work toward a common goal. More information will be released in an upcoming special issue of the Journal of Operations Management next March in a paper by Barros et. al.

The Sourcing Maniacs 2008 Vendor Tour Part 15: Upside

This post is a little lengthy, so it’s been broken into Flipside and Upside.


Wakko Why are we in Texas? I thought we were headed Northward.
Yakko We’re not in Texas, Wakko. We’re in Alberta.
Wakko Alberta?
Yakko Yes, Wakko. We’ve crossed into Canada.
Wakko But the plains. The bright sun. The cowboys.
Yakko Are also found in Alberta, who’s biggest trading partner is Texas.
Wakko So that’s why everybody’s oot and aboot, eh?
Will we get to meet Bob and Doug MacKenzie?
Yakko They’re not real Wakko.
Wakko Not real? NOT REAL? They’re my heroes!
  Editor’s note: Oh Dear!
Dot So what are we here for?
Yakko Upside.
Dot What upside can we possibly find in Canada. I’m a sophisticated girl. How sophisticated is a country where most of its population still lives in igloos most of the year!
  Editor’s note: While some traditional Eskimo’s in the far, far noth still live in igloos, the vast majority of the 33 Million plus Canadians do not live in igloos. In fact, except for the fact our money is colorful like European money (only our twenties are green), and we pay more taxes (supposedly to cover our public healthcare costs and additional social programs, but you can check the news to see where it really goes), Canada is extremely similar to the US. Canada may have stayed tied to Britian longer, but the US, our largest trading partner, is Canada’s primary influence. About the only other difference is that we still follow the British parliamentary system, and we don’t get to vote for whether we want tweedle-dee or tweedle-dum as Prime Minister.
Yakko Actually, Canada is quite sophisticated. Although it is true that the majority of e-Sourcing companies are in the US, and more recently, in the UK, there are a few players in Canada and some, like Upside, have attracted a significant user base outside of their native land. And remember, the doctor is Canadian, and currently lives in a place called Halifax, Nova Scotia, which he claims is the best place to do international business in Canada.
Dot So what’s the upside?
Yakko Upside Software, a specialty provider of Contract Management solutions.
Dot So where are they?
Yakko Edmonton.
Dot Edmonton. Never heard of it!
Yakko It says in the guidebook that it has the West Edmonton Mall which was, since its construction in 1981, the World’s Largest Shopping Mall until Jin Yuan, the Golden Resources Shopping Mall, opened in Beijing, China in 2004.
  Editor’s note: Only three malls are larger. The Golden Resources Shopping Mall in Beijing, the South China Mall in Dongguan, and the SM Mall of Asia in Pasay City in the Phillippines.
Yakko It also says in the guidebook that the mall contains the Galaxyland Amusement Park with the Mindbender, the world’s largest indoor high speed, triple loop roller coaster.
Yakko To Upside?
Yakko & Dot Yes, Yes, To Upside!


Dot Why are we stopping?
Yakko I think we’re here.
Dot I don’t see a Mall!
Yakko Remember, work first, play later.
Wakko rather solemn
out comes the mini-mallet
tap … tap
Spectabled Sales Guy ‘Ello, ‘ello!
Dot What’s my upside?
Spectacled Sales Guy Excuse me?
Yakko I think she means to ask, is this Upside Software?
Spectacled Sales Guy Why, yes it is.
Yakko And what’s the upside of using Upside Software for Contract Management?
Spectacled Sales Guy Well, that’s a rather involved question. Who are you?
Wakko I’m Wakko.
Spectacled Sales Guy No comment.
Spectacled Sales Guy I’m Yakko.
Spectacled Sales Guy Obviously.
Dot And you can call l’il ol’ me, Dot.
Spectacled Sales Guy Hi Dot. And where are you from?
Yakko Well, we used to be from the valley …
Wakko … but we got wak’d.
Spectacled Sales Guy O …. K …. and who do you work for now?
Wakko No one … we’re fancy free!
Spectacled Sales Guy So why do you want to know what the upside of using Upside Software for Contract Management is? You obviously don’t have any use for it in your current predicament.
Dot We’re trying to better understand the sourcing space.
Yakko It seems our view is a little narrower than it should be.
Spectacled Sales Guy But why are you here? There are obviously dozens of other companies you could talk too, some of whom may even be hiring, and most a lot closer to California than us.
Wakko the doctor sent us.
Spectacled Sales Guy You really are wacko. Doctors prescribe medicine …
Dot Not a doctor, the doctor … of Sourcing Innovation.
Spectacled Sales Guy Sourcing Innovation … hmmm … the blog?
Yakko The one and only.
Spectacled Sales Guy So if I answer your question, I’ll get some free publicity?
Yakko Of course!
Spectacled Sales Guy Well, even though we don’t really need it … we’ve been in the press a lot lately … we are, after all, one of Canada’s Best Employers … and companies … but it’s a fair exchange. So have a seat. And I’ll tell you why we’re different — and what the upside to using Upside is.
Dot Great!
Spectacled Sales Guy First of all, we support the full life-cycle of the contract. How familiar are you with enterprise contract management?
Yakko Isn’t it just the centralization of all of your contracts in a centralized, searchable repository so that you can find out who you have contracts with, what they’re for, when they’re expiring, and, most importantly, how much you should be paying for a good or service?
Spectacled Sales Guy Well, that’s where it starts, but it’s much more than that. To quote your doctor, it’s not just “managing your contracts” but “managing the information that is within the contracts and related to the contracts”. “It’s being able to not only find the contract for the part you need, but share that information with your sourcing and procurement systems for automated compliance verification of invoices. It’s about being able to not only create standard terms and conditions in your contract templates but being able to annotate them with the reasons therefore. It’s about being able to determine not only what contracts are about to expire, but what risks you are open to with respect to your current contract base with respect to liability, supply stability, and corporate social responsibility. It’s about being able to drill down from a supplier contract into relevant supplier data to determine compliance. It’s about being able to drill down from your customer contracts to your supplier performance metrics to determine on-time delivery performance. Its about being able to truly manage your operations off of your contracts.” (From Enterprise Contract Management.) And more.
Dot More?
Spectacled Sales Guy It’s budgeting, project management and risk management. And it’s about simultaneously meeting the needs of accounting, legal, and procurement, whose needs are quite diverse.
Dot Really? That too?
Spectacled Sales Guy You draft a contract for goods or services in specified quantities in specified amounts. The contract has a committed amount, which comes out of a budget that needs to be carefully tracked. And if you’re in construction, consulting, or exploration, for example, most of your contracts are project based, and need to be managed against projects. And these days, contract management is as much about risk management as it is about price and service levels. You need to identify the risks, mitigate the risks, and monitor that the identified mitigations are being implemented.
Yakko And your tool does all that?
Spectacled Sales Guy To the extent that a Contract Management tool can.

It lets you define your budgets, which contracts, and associated line items, are billed against the budgets, and then, as invoices are entered into the system and billed against contracts, it tracks expenditures against budgets.

It lets you define projects, and project components, and associate contracts, and component line items, with projects. Projects can also be identified with funding levels, required forms, and have associated alerts when budget levels are reached, actions need to be taken, or insurance or certifications need to be (re)verified.

And the application allows you to establish, and track, “risk drivers”. You can define a risk event, the “risk driver” that would cause the event, the impact the event would have, and the probability that the impact would be realized. For example, for an early contract termination event, you could define a “risk driver” of no on-time delivery and an “impact” of lost dollars with 75% probability. You can then track the risks by contract, by project, and by budget and this helps to ensure that your risks, and identified mitigations, get monitored.

Dot Wow!
Yakko But what about basic contract management. Since your tool does so much, is it difficult to use?
Spectacled Sales Guy Not at all! It’s a streamlined SaaS offering that supports single sign-on and customization by each client. This insures that you only have to use as much as you need, on a contract-by-contract basis. Furthermore, it’s a wizard-based tool that guides you through the process of requesting, creating, and monitoring contracts, and is thus incredibly easy to use.

Contract creation is as simple as selecting a type, defining a jurisdiction, choosing an appropriate template, customizing the options, defining the duration and boundary dates, and adding a searchable description.

Dot So you have to have a template first?
Spectacled Sales Guy No, but we highly recommend it … because the template can be re-used again and again. And our templates aren’t static Word document templates, they’re dynamic templates where each clause can have different, auto-configured, options depending on jurisdiction, risk tolerance, duration, and value. In addition, legal can define additional alternatives for each clause for special situations that can be selected as needed. This allows contracts to be quickly and easily generated with very little customization.
Dot But I’m comfortable with Word!
Spectacled Sales Guy Most people are … which is why our contract creation tool is 100% Word compatible. You can export to Word for editing, and then import the updated contract at any time. But our tool is much more powerful. Not only can you create drop-down alternatives, including auto-selecting alternatives, for each clause and sub-clause, but you can also track how often an alternative clause is used, how often a clause is modified, and define notes that allow usage to be properly interpreted. Plus, you can define levels of approval and equivalents in foreign languages. This is what allows our system to automatically draft a base contract once the basic meta-data of jurisdiction, duration, risk tolerance, etc. are defined. Whereas most systems just retrieve a static template, our system retrieves a customized contract.
Yakko So creation is powerful. What about management?
Spectacled Sales Guy Equally as powerful. You can search by any associated piece of information; organize contracts by geography, supplier, product, project, budget; and customize the meta-data you want to track. It’s a fully functional repository.
Wakko And all that other stuff having to do with enterprise contract management you rambled on about?
Spectacled Sales Guy All there. There’s compliance management functionality that allows you to specify, track, and alert the affected parties to the requirements at different points in the life-cycle. There’s performance management that allows you to define and track metrics — and we can tie into external systems to automatically load the approptiate data. There’s invoice and receipt tacking, which is supported by our ability to link into ERP systems to pull transactions and status levels. There’s planned expenditure and budget tracking. There’s a powerful wizard-based form-building tool that allows just about any form you might need to support a contract or relationship to be built. E-mail functionality is built into the system, and it can track all communications by contract. All of the data can be exported in flat-file, csv/Excel, and XML, and reports can also be exported in HTM, RTF, and PDF formats. And there’s a very extensive adminitrative tool that allows just about everything to be customized. Wherever possible, we use reference tables to define data, workflow, and functionality and all of them can be customized by our customers in their implementations.
Yakko I never knew there was so much to contract management!
Spectacled Sales Guy Well, it really depends on the organization. A small organization might not need more than decent templating and a centralized repository, but a large multi-national enterprise has very extensive contracting needs — needs that we continually work hard to meet each and every day. And with that, I bid you good day. There’s a wide world out there that also needs my attention.
Wakko & Dot Off to the Mall!