Monthly Archives: April 2009

The Worst Cut You Can Make

Times are tough. Your sales are dropping. Your costs aren’t. And your balance sheet is bleeding red. You have to cut. I get it. But you DON’T have to cut resources – especially A level and B level talent! As yet another recent article (in Material Handling & Management) points out, cutting talented staff is a desperate measure that diminishes value in the long run.

Not only does it have a severely negative impact on productivity (the drop in morale decreases productivity across the board, which is a double whammy as you no longer have enough resources to get the job done right), but it greatly increases the risk of a major supply chain failure which could bankrupt you. Consider the recent highly publicized peanut recall. According to media reports, Stewart Parnell, president of the bankrupt Peanut Corporation of America, told employees that quality measures were too expensive and time consuming. If you have a sufficient number of high quality resources, you can do quality control in-house cost effectively — but only if you have a sufficient number of high quality resources, which you won’t have if you go around indiscriminately cutting your workforce without regards to the total cost to the business.

Furthermore, I’ve never encountered a situation where there wasn’t a better option. Not that long ago I was talking with a colleague at a consultancy who spent weeks working out a 500,000 productivity improvement that would be realized over the next 12 months and cost the company less than 50,000 to implement. Instead, the company chose to reduce costs by cutting a 45,000 resource (which prevented them from undertaking the initiative). All I can say is where’s the logic in that? Especially since the company *guaranteed* the savings and was offering a contract where they wouldn’t get paid until the savings were achieved. (Save 4K a month at the expense of 40K a month? That’s just dumb.) And I hear this story day after day and week after week from consultancies that identify 500,000 to 5,000,000 (or more) but the customer won’t pull the trigger because it will cost them a few thousand of expenses up front. (And I mean a few thousand, most of the bigger consultancies these days, and even some of the SaaS solution providers, are willing to offer results-based pricing where you don’t pay consulting fees until the contract is completed or until you realize the savings necessary to cover the consulting fee.)

So don’t cut head-count. Use them to tackle 3X, 5X, 7X, and even 10X ROI opportunities that will help you get back to the black before you bleed to death.

Top 10 Reasons That Good Employees Quit

A recent article on Material Handling Management on-line which noted that, according to the U.S. Department of Labor and Statistics, turnover can cost an organization 33% of an employee’s total compensation was kind enough to summarize the top 10 reasons good employees quit. It’s an important read because they’re all preventable, and keeping good employees not only lowers costs, but it maintains morale … and a happy employee is a productive employee.

  1. The Job Was Not As Expected
    The job changes from the original description to something else. The employee, who believes that his new employer played a bait-and-switch game, wonders what else the company lied about and seeks greener pastures.
  2. Work Life Imbalance
    Forcing your staff to pick up the slack when a project’s behind, when a team-mate departs, or when you just finished a right-sizing might look like a great cost-savings opportunity, until your employees get tired of 60, 70, and 80 plus hour weeks and decide to stick it back to you.
  3. New Hire Mismatch
    Square pegs don’t fit in round holes. ‘Nuff said.
  4. Management Freezes Raises and Promotions
    Generally speaking, money isn’t the top reason someone takes a job or the top reason someone leaves one, but if an employee can earn 15%, 20%, or 25% across the street …
  5. Feeling Undervalued
    No one wants to feel less useful than a door-stop. A little praise for a job well done goes a long way.
  6. Lack of Decision-Making Power
    No one wants to be micro-managed, and there’s no need to micromanage a good employee who was hired because she can do the job better than you in the first place.
  7. Not Enough Coaching/Feedback
    Good employees want a career path … and want help getting to the next level.
  8. Management Lacks People Skills
    Not only do people not want to feel like doorstops, they don’t want to work for them either. Make sure that your managers are properly trained and developed, or they might just cost you your best employees.
  9. Too Few Growth Opportunities
    If there’s no career path within, your employees will look for one without (you).
  10. Lost of Faith and Confidence in Leaders
    Make sure you always do the right thing.

What Comes After Just-in-Time? (Inventory Management)

The World Trade Magazine recently published a very good article that noted that the new premiums placed on cost control, speed-to-market, and credit as a result of the global economic crises are in direct opposition to the need for inventory buffers when sourcing globally … creating a dichotomy between the goals of minimizing inventory (the goal of Just-in-Time) and maximizing supply chain resiliency (through reduced risk). As a result, it noted that change, a constant in the supply chain, is coming and that we probably need to be asking What Comes After Just-in-Time?

So it gathered a panel of eight practitioners and asked the question. Most of the responses, as one might expect, centered around risk management, finance management, and better visibility. Only one pointed out that, in the purest sense, there’s nothing better than just-in-time — because in an optimal scenario, if you need a widget for manufacturing, you’re never waiting for the widget, but it also never sits in inventory. It arrives just-in-time. There’s nothing beyond just-in-time, it’s the perfect supply chain model in theory … the problem is that it’s original implementation didn’t account for all of the risks that have materialized in today’s global supply chains since it’s initial definition and implementation in a market where supply was local, reliability of delivery was more predictable, and financing was easier to obtain.

The model just needs to be extended to take into account the risks and incorporate the appropriate responses to changes in the global market. And this, as a third contributor pointed out, requires more real-time information and visibility into your supply chain. Just plug the holes and deal with the risks, and you’ll find the model will work as well as it always has.

Entry Visibility: Your Trade Visibility Success Depends On It

A little over a month ago, I told you that You Need Trade Visibility, which helps you track your products from the time they leave a supplier’s warehouse until the time they reach your end customer, because it helps you to:

  • understand the factors that impact costs, cycle times, and service levels,
  • identify minor issues before they turn into major problems,
  • enforce compliance, and, most importantly,
  • prevent millions of dollars from being flushed down the drain.

And to highlight the last point, I pointed out how

  • A Global Data Mining study across 5 companies with 3 Billion to 31 Billion in revenue found over 150 Million in duty savings alone.
  • Most companies spend hundreds of thousands of dollars in manual filing costs a year for shipments that can be processed for pennies by global trade management solutions.
  • Most trade cycles are 65% longer than they need to be. Each day “in transit” costs roughly 0.5% of the total shipment value and costs an average company 5% of the value of an average shipment.

A key component of trade visibility is entry visibility. An entry visibility solution allows a company to manage the trade compliance process associated with the import of goods that starts when they leave a foreign supplier’s warehouse and ends when they reach their (initial) destination. It ensures that all the regulatory, compliance, and documentation requirements are met in an accurate and timely fashion at the lowest possible cost and prevents costly fines and delays.

Accuracy and timeliness are critical because:

  • An average international transaction could require as many as 35 documents across 25 parties complying with over 600 regulations and more than 500 free trade agreements.
  • Most companies are losing millions in overpayments due to misclassifications:
    • U.S. Customs estimates that between $1.5 and $2.3 Billion of the $20 Billion collectively paid by over 300,000 importers is likely an overpayment (due to a misclassification).
    • A recent Aberdeen Study on Global Trade Compliance Priorities found that the wrong duty was paid on 11% of international shipments.
  • Most companies are losing millions through Free Trade Agreement mismanagement.
    • A recent study quoted by Aberdeen found $17 Million in savings through better utilization of trade agreements across five companies.
    • Black and Decker was able to increase its NAFTA savings by 240%, from $3 Million to $7 Million over 4 years through better FTA management.
  • Inefficient administration of customs processes will cost you 7% of total trade value.
    • A United Nations study estimated that lost opportunities end up costing the global economy over $420 billion annually.

That’s why it’s important to implement an Entry Visibility solution, as it will reduce filing costs, enforce compliance, reduce data synchronization complexity across your supply base, generate the proper import packets, and provide the “Reasonable Care” required by the Mod Act. Furthermore, with a SaaS-based entry visibility solution, such as the solution offered by
Integration Point, you can be up and running in a matter of days, auditing every entry, and eliminating costly overpayments due to misclassification errors.

For more information on how Entry Visibility can save you time, money, and compliance headaches, check out Integration Point‘s new white-paper on Closing the Loop with Entry Visibility.

How Internal Pressures Cause Supply Chain Fraud

The recent Katzscan newsletter had a good article on how internal pressures cause fraud. Noting that the failure of executive management to properly staff for key positions, train employees, enable employees to ask for (and receive!) help when they really do need it, and the creation unattainable benchmarks all contribute to pressures that can force an otherwise honest employee to commit fraud, it concludes that powerless to ask for help, because it is seen as a sign of weakness and could jeopardize their job, too many people are left to toil and are forced to commit fraud to satisfy outlandish demands out of fear of reprisal.

Well said. There’s pushing your employees to be their best and setting stretch goals … and then there’s just being unrealistically stupid. A 10% savings on raw material heavy categories where the market price of those raw materials has increased 30% since the last contract? Inspect 10% of inbound raw materials when the average is 7% and you won’t replace the two staff members who just left? Faster clearance at the ports when you won’t spring for the costs associated with C-TPAT certification? Dream on. Your employees have two choices: tell the truth and risk termination, or lie. And it only gets worse from there.

So think about what you’re doing the next time you ask for the unreasonable. Otherwise, you might unwittingly join Fox in Sox with Knox in stripes.