Monthly Archives: January 2010

If You Really Want a Renaissance Education …

then Get Back To The Classroom!

While I was pleased with the fact that the recent article on “Supply Chain 2010” noted that a Renaissance education was needed in the supply chain because, in many ways, it is … I was very displeased to see that “employers are finding short term education most attractive as it doesn’t keep employees out of the office as much” and “can’t justify them being out of the office even for a full day”.

I’m sorry, but these are among the most imbecilic statements I’ve ever read. The cost of an employee being out of the office for a day is nothing with respect to the value a better educated employee brings to your organization, especially in supply chain. In fact, the cost of an employee being out of the office for three months is still literally nothing with respect to the value a much better educated employee will bring to your supply chain organization.

For example, let’s say that employee, who is well paid and makes 100K a year, is about to renegotiate a 10 Million dollar buy. Let’s say the price of the primary raw component is 10% higher than last year and you usually end up accepting price increases that equal 50% of the rise in the raw material index. This says you would be expecting a 10.5 Million contract renewal. Now let’s pretend that there’s a one day class on supply chain finance where your employee learns how, in some situations, companies can save big by financing supplier’s raw material costs. Let’s also pretend this smart employee comes back, does some research, and finds out your supplier is constantly carrying a credit line at 24% to finance the raw materials for the 60 days it typically takes to produce and ship the product and the 60 days it typically takes your accounts payable to pay. And let’s pretend that the raw material is 40% of the cost and that the supplier’s margin is only 10%. This says that the supplier is financing 40% of roughly 9M for 120 days at 24%. Doing some simple math, this says the supplier is paying roughly 288K (0.4 * .24/3 * 9M) in finance fees, or almost 3% of the sale, to service you.

Now, if your buyer figured out that if you bought the raw material on behalf of the supplier and charged them 0% interest that you would be saving them 3%, she could go back to the supplier and say “we know that your raw material costs went up 10% and that you’d normally expect a 5% price increase to cover this cost, but we also know we could take 3% off of your bottom line by buying the raw material for you and charging you 0% interest.” “So, since we also need to keep costs down, we’ll do this for you if you hold prices steady for another year. Your margin will be unaffected and we get better prices that allow us to outsell our competition. It’s win win.” The supplier, who we’ll assume is also well educated, agrees, and your buyer saves you almost 5% with respect to what you expected to pay, which equates to about 500K. Let’s assume this was an expensive one day seminar that cost 2K and tack that on to the 400 in salary and 150 in benefits it cost you for that employee to be out of the office for one full day. That says that the return on your employee being out of the office for one whole day was approximately 196:1. This says the author is purporting to tell me there are still managers out there who can’t justify a 196X return. Ouch! I was hoping their sorry asses would have been the first to be shown the door Fresh Prince style* because you can’t afford managers like that now that we’re returning to the old normal.

Now, this isn’t to say that I’m not a big fan of focussed half-day workshops or online self-study courses, because I am, but that you can’t overlook the value of a classroom education which cannot be equalled. While you can learn a fair amount from self-study, and should learn as much as you can to supplement and enhance your classroom education, you’re only going to learn so much from an on-line class. They’re great for learning the basics and will help you get the most from your classroom experience, as you’ll go to class prepared to engage in a real discussion and learn the advanced applications and deep concepts behind the material (and know what questions you really need to be asking), but they’ll never replace the education you get from a true sensei (which literally means “one who has gone before”). Plus, how much are you really going to learn at work, where you are interrupted with another “fire” or “emergency” every 5 minutes? To really learn something, you have to get out of the office, turn off all your electronic gadgets, and focus on the material. Then, you need to go back to the office and apply what you learned under the guidance of an old pro or a mentor. It’s as simple as that.

*This is how you show Maury the Management Moron the door, Fresh Prince style:

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There’s No New Normal — And There’s Definitely No New New Normal Either!

I was very, very, very disappointed to come across this recent article on ‘The “New Normal” and Its Effects on Supply Chain Management’ in the Supply Chain Management Review because it’s one of the few publications in the place I hold in high regard and, as I pointed out in a recent post, there is no new normal. This means that there is definitely no new new normal either.

The author, who pointed out that senior managers in many businesses are using the catchphrase “The New Normal” as if it were a prescient view of the way things will be from now on, suggested that — since most decisions today are driven by economic conditions — we should consider a New New Normal, defined as a frame of mind where we choose to take the risk of utilizing practices that always work whatever the conditions are. Huh? And double Huh?

First of all, as I said in my last post on the topic, there is no new normal. We’re just in a transitory state on the way to the old normal … coming back after an extended hiatus. Secondly, no practice will always work. Markets always evolve, and practices that work regardless of economic state need to evolve with them. Third, smart companies are already using flexible practices that can adapt with the markets. In short, kill this new normal and new new normal BS and kill the new new new normal BS before it starts. Dust off those old business and economic texts from 20 years ago and start remembering how things in stable economies work — and if you need a reminder, look at the European economies which have been around longer. Then we can get back to the business of running the supply chain.

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BravoSolution Collaboratively Optimizes Its Way onto the doctor’s Short List

As many of you know, there are not many vendors out there that (claim to) offer strategic sourcing decision optimization, and fewer still that meet the doctor‘s basic requirements for a strategic sourcing decision optimization platform. Up until a few days ago, I could only certify six such solutions, though I suspected BravoSolution, especially with its recent acquisition of VerticalNet, made the grade as I knew both were close. However, with the recent addition of the infamous Paul Martyn (formerly of CombineNet fame) as VP Marketing, BravoSolution has been reaching out to analysts and bloggers alike and I received the demo I needed to certify BravoSolution (and it’s Collaborative Sourcing platform) as one of the doctor‘s Optimization Sourcing Samurai.

I’ll keep this post fairly short since, by now, you all know the minimum requirements for a strategic sourcing decision optimization (SSDO) solution, and thus what the BravoSolution Collaborative Optimization platform offers by definition, which are:

  1. solid mathematical foundations,
  2. true cost modelling,
  3. sophisticated constraint analysis, and
    • capacity
    • basic allocation
    • risk mitigation allocation
    • qualitative
  4. what-if capability.

What I will point out is the following:

  • They have one of the easiest-to-use constraint definition UIs
    Not only is it wizard-driven, but they have their constraint categories broken down into four primary categories and 15 sub-categories. In addition, their capacity switches and supplier and lane filters make it really easy to define capacity constraints and supplier exclusions.
  • Their switches make it incredibly easy to construct scenarios from varied data sets.
    They have four types of scenario switches:

    1. Functional
      which let you determine whether or not you want to include bundles (to allow you to compare bids with and without bundles), volume discounts, and capacity constraints
    2. Price Component
      which allow you to select your baseline scenario data and whether or not to include (projected) fuel surcharges
    3. Demand Component
      which lets you switch between different historical and forecast volumes
    4. Filters
      which act similar to other providers’ attributes and allow you to determine whether or not you want to include suppliers, groups, carriers etc. and (automatically) define constraints that would exclude new suppliers, intermodal carriers, or suppliers without a valid contract status or force the inclusion of WMOB suppliers, etc.
  • They have a very extensive library of built in reports
    Not only do they have full-featured comparison reports (like any good SSDO vendor), award detail reports, carrier reports, but they have reports by business unit, geography, bid attribute, lane, incumbent, and scenario detail. The last report makes it easy to determine the differences between two scenarios (which is necessary to understand the cost differential) and their award reports include cost differentials that allow a negotiator to tell a supplier how much their prices would have to decrease in order to get an award.
  • They have a very extensive help library.
    The help library has information tailored to each screen, each constraint, and each option and includes a discussion of the possible ramifications of each constraint and option on the model as a whole.

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It’s the Year of the Tiger … and China is Going to ROAR!

In 2008, according to the World Bank, China had a GDP of approximately 4.326 Trillion. Given that China projected growth of 8% in 2009, that puts them at about 4.672 Trillion for 2009. Continuing this trend, as China is projecting similar growth for 2010, that puts them at a GDP of about 5.046 Trillion this year. Meanwhile, Japan, which clocked in at 4.909 Trillion in 2008, just downgraded its projected growth to 1.3% for 2009, putting it at 4.973 Trillion for the year. As its economic outlook is not looking up, holding steady, this puts Japan at an estimated GDP of 5.023 Trillion for 2010. What does this mean? This will likely be the year that the Tiger ROARS and China becomes the 2nd largest producer of GDP in the world.

So what should you do besides learn Mandarin, if you haven’t already? (You can even start for free at sites like Chinese-Tools.com.) Good Question! While I still adamantly believe that you should not be importing goods from China that you can produce closer to home — as there’s nothing lean about an 8,000 mile supply chain — that doesn’t mean that you shouldn’t be producing in China for the Chinese market. Or that you shouldn’t be tapping the collective knowledge of the almost two million geniuses that live in the country.

But where do you start with the world’s fastest-growing economy? I’m not sure, but a recent article from Knowledge@Wharton on “The Road to China” that interviewed Harbir Singh, Saikat Chaudhuri, and Lawton Burns on their recent trips to China provided some fresh insights that are worth a second thought.

The economy is barreling ahead in high gear in major cities like Shanghai and Beijing which have literally transformed over the last decade. They have a strong infrastructure, a very strong manufacturing-based economy (as they are the manufacturing hub of the world), and are investing a lot of money to set up firms and an ecosystem to foster innovation. They’re trying very hard to move up the global value chain very fast. Plus, a lot of overseas Chinese are now returning to China — junior people as well as senior people.

However, they’re still a big country with a huge population which collectively has many different types of people with varied interests. As a result, where China is concerned, it’s still about managing diversity. It’s about meeting the aspirations of those people and managing the differences, as much as its promoting some uniformity in a standard of living.

In other words, you probably have to start by diving in head first because there’s so much happening, so fast, that it’s hard to really wrap your head around it all unless you’re immersed in it. But check out the article. Although it’s five pages, it is quite interesting.

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Is it Time for a New Renaissance in the Supply Chain?

The Renaissance was a cultural movement that encompassed a resurgence of learning based on classical sources and a gradual, but widespread, educational reform. It was also known for the humanist method of study, which focussed on the study of grammar, rhetoric, moral philosophy, poetry, and history by Latin and Greek literary authors, the development of techniques to render perspective and light in a natural way, and a scientific revolution that began with the likes of Leonardo da Vinci who intermixed art and science in remarkable ways.

After reading a recent article on “Supply Chain 2010” in the Supply Chain Management Review which noted that a “Renaissance” education is needed, I’m wondering if it’s not high time we brought a new renaissance to supply chain. I’m not saying we should dig out the dusty Latin and Greek texts (after all, how many of us could read them? I know a few Greek roots and could probably refresh myself on grade school Latin if I had to but beyond that …), just that we should look back a few decades to when growth was slow and steady, the market didn’t change overnight, and crashes didn’t come faster than we could log them. The Old Normal Is Coming Back, and it wouldn’t be a bad idea if we knew how to deal with it … especially those of us who weren’t working in the real world 20 years ago.

We have a rapidly expanding discipline. Sourcing, Procurement, Contract Management, Global Trade Management, Compliance Management, Green, Sustainability, Logistics Management, 3PLs, Asset Management, Supply Chain Finance, Inventory Management, Warehouse Management, Demand Driven Forecasting, Marketplaces, Supply Market Insight, Warranty and Returns Management, Service Management, IP Management, Talent Management, Supplier Information Management, Supplier Performance Management, Negotiation Management, and dozens of other self-contained disciplines that are impacting every aspect of the supply chain. In addition to having deep expertise in one of these areas to differentiate yourself and offer value above and beyond your peers (to ensure you keep your job in these lean and mean times), you also have to be reasonably well versed in each of these other areas to understand your role, where it fits in your organization’s supply chain(s), and where you fit on the cross functional teams. You literally have to be a jack of all trades and master of one.

We have technology platforms proliferating even more rapidly on a wide array of deployment options that leave even experienced IT pros dizzy. Traditional installed, single-instance ASP, multi-tenant SaaS, single-tenant Cloud, multi-tenant Cloud, Virtual Beowulf Clusters, and so on.

And it’s finally being recognized that not only is Supply Chain the core of the business, with the ability to contribute much more to the bottom line in a slow-growth (or flat) economy than sales and marketing ever will (as every dollar saved is equal to between 5 and 20 dollars of additional revenue as far as the bottom line is concerned), but an opportunity for revenue generation. Robert Rudzki (Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise) and David Jacoby (Guide to Supply Chain Management: How Getting it Right Boosts Corporate Performance) have written entire books about how the supply chain can boost your revenue and corporate performance.

And that’s just the tip of the iceberg. The experts are realizing that Supply Chain Process is Art and Science, that Collaboration Innovation is required for success, that we’re in for energy and water shortages if we don’t revolutionize our supply chains, that the 106 steps discrete steps to global trade are only going to multiply as more and more environmental and security regulations come into play (as we try to figure out how to truly trade across global boundaries), and that inefficiencies are costing the global supply chain hundreds of Billions of dollars each year.

When you try to achieve a coherence, you realize that we need a way to render global supply chain perspectives in comprehensible ways, a more humanist approach that links the man with the machine — which is extremely unlikely to acquire the true intelligence we have in our lifetimes, that integrates the morals of sustainability and responsibility into everything we do, that uncovers the poetry of an optimized supply chain, that outlines a philosophy for how an ideal supply chain should flow, and that scientifically revolutionizes how we produce and consume throughout the chain. And if that’s not a Modern Renaissance, I don’t know what is!

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