Monthly Archives: June 2010

Great Tips for Supplier Performance Management

A recent article from ChainLink Research noted how never before have companies been so dependent on the performance of their suppliers as a result of today’s companies becoming so lean, fast, and outsourced that monitoring and responding quickly to deal with and continually improve suppliers’ performance has become a key determinant of success or failure. This article on Supplier Performance Management had a number of great tips for managing supplier performance, including the following:

  • Automatic Initiation of Corrective Action Workflows

    Not only must metrics be tracked rigorously, but they must be fed into monitoring systems that immediately notify the responsible individuals and start a corrective action workflow as soon as an issue is detected or a downward trend is identified. Hiccups must be addressed before they balloon into major supply disruptions, not after.

  • Reverse Rating

    Just thinking you’re a great customer doesn’t make it so. You might think that your performance exceeds the performance you expect from your supplier, but it might be the case that nothing could be further from the truth. The delivery might be late because your people kept the driver waiting for two hours while they prepared to accept the delivery. The shipment might be late because you only gave two days notice of significantly increase demand and not the two weeks you agreed to in the contract. Sometimes your processes are just not best practice … and sometimes your supplier knows ways you can improve them. Etc. Take your medicine and your overall supply chain health will improve.

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Rolling Up Resolutions with RollStream

In our last post, we talked about Rollstream‘s new workspace capability and how you could steamroll your compliance problems into submission. We also mentioned how Rollstream was in the finishing phases of a new dispute management and resolution solution, as part if it’s overall supplier development and performance management solution.

While the problem may sound simple, and while the solution isn’t all that complicated compared to other supplier management solutions, for a large Multi-Billion dollar company, the administrative costs alone to resolve disputes can exceed millions of dollar a year. (One of their beta customers, an 8 Billion dollar company, estimated that just their administrative costs were over 2 Million annually!) Add to this the costs associated with having to dispose of damaged inventory and the losses from overpayments if a loss is not appropriately tracked and billed back to the supplier, and disputes can cost a large company over 10 Million a year!

That’s a lot of money at risk, especially when a properly designed supplier management solution can easily identify, track, and streamline the resolution process and see the average dispute resolved quickly and easily. Plus, it helps the supplier. In the US, more than 61% of receivables remain open for over 50 days (and it’s worse in Europe). Considering that this type of solution can reduce the average resolution time from weeks to days in your average large company (as there’s no paperwork to lose and everyone gets promptly notified — through the system and e-mail — when they have to respond to a dispute or take an action), a supplier could see considerably more invoices paid on time.

While its primarily being used to resolve shipping disputes (overages, shortages, and damages) by the beta testers, it was designed to allow the community to track and resolve any kind of dispute, including cost, pricing, transportation, invoices, rebates, and contracts — and since it recognizes POs, invoices, and contracts (and their IDs), it can be used in conjunction with the full sourcing and procurement process.

The solution is fully integrated into the Rollstream platform and easily accessed from both the community (supplier) portal and the users you authorize to use the application. When the user logs in, they see all of the issues associated with them as well as their current status (pending, open, waiting on, [recently] closed, etc.) and can filter based on status, supplier, organization, creator, date, etc., or any other active field associated with an issue. The application is fully configurable and, in addition to the pre-defined standard fields (which can be renamed or removed), the user can define any text, date, numeric, or selection field they would like to track. In addition, if a number of disputes are related to the same shipment, purchase order, invoice, etc., there is also a bulk update capability that can be used to address them all at the same time. In addition, there’s an easy to use import and export function. You can import issues from a standard CSV file and export to excel. The import is well thought out and will automatically map input columns to application fields through a matching algorithm, which can be overridden by the buyer as needed. Finally, the dashboard reporting, which by default displays number of incidents by status, number of incidents by type, and average days to resolution, can be configured to track and report on metrics of interst to the buyer. Finally, when an issue is resolved, the application can be configured to track the relevant information related to reconciliation.

Considering the price tag for this solution starts in the five-figure range, and the manpower savings alone could be seven figures (as you’ll free up more resources to address other, more strategic, parts of the procurement and sourcing process), dispute resolution is definitely a solution that should be considered as part of your supply chain management platform — especially if you’re already using the Rollstream solution.

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Only One More Week. Give Dave Your Support!

On July 6, 2009, Dave Carroll shared his story with the world about how United Airlines carelessly smashed his guitar on March 31, 2008, when he was on the way to a week-long tour of Nebraska, and how United refused to accept any responsibility or fix it. (Full story.) As you may recall, his story, first expressed in a music video on YouTube, was an overnight sensation that quickly received over Three Million views in the first week. It was such a sensation that it even inspired the Harvard Business Review to do a case study on how viral videos spread and what firms can do about them.

To date, the trilogy has garnered over 9,942,000 views!

United Breaks Guitars Views (June 29, 2010)
Song 1  8,733,989 
Song 2  1,036,185 
Song 3  172,070 
TOTAL  9,942,244 

Since the first video was released on July 6, 2009, this means that we’re only one week away from the one year anniversary! It’s time to step up and thank Dave by ensuring that his fantastic efforts receive the Ten Million Hits they deserve before the anniversary is reached … because the airlines, as a whole, still haven’t gotten the message. United Breaks Guitars, Northwest Breaks Dulcimers, and now Delta Smashes Bicycles, proving that they just don’t care whether or not you TriAndGiveaDam or whether or not the children in Africa have water.

Share the links and spread the word! Surely 58,000 views in a week isn’t much of a challenge!

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The Impact of Poor Quality on Cost

Every since the Toyota Production System (TPS) made Toyota famous for efficiency, there’s been a lot of talk about six sigma, lean, and TPS for a reason — because efficiency is good, and quality (which can be obtained when the systems are implemented properly, like they are in Asia, and not like Toyota chose to implement them in the US and Europe) is even better. But do you know how much better quality is?

More specifically, when you buy an inferior product, do you know how much this costs your organization? Chances are, poor quality products cost your organization three times as much as you think they do. In other words, for every dollar you spend on a poor quality product, your organization is losing three. An AMR study demonstrated that two thirds of poor supplier quality costs are non-material. For example, if there aren’t enough quality parts to keep the production line moving at 100%, this will incur additional overhead costs and labor costs in addition to return (processing) costs.

So what can you do to increase quality? According to this recent article in Industry Week on how managing hidden supplier quality challenges can save millions of dollars, which contained a case study on Graham Packaging, you start with BI. When you can find the quality-related problems with each supplier, determine which ones are a significant cost to the organization, and quickly get to the root of the issues, you can generate quick savings which, in Grahams case, amounted to millions of dollars a year.

And if you already have a modern, powerful, spend analysis system that allows you to build cubes (and reports) on any data set you please, you can crunch all of the performance related data in the corporate ERP system, create roll-up scorecard reports that capture all of the performance metrics, create comparison reports that indicate which performance metrics are below average and unacceptable, drill down to find the reasons, calculate the projected savings by improving the performance metric and, if the savings outweigh the costs associated with implementing any required improvements, take the reports to the supplier and start working on a fix to stop the leaks. It’s that easy.

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Finance Needs Spend Analysis and e-Procurement, Part II

In our last post, we noted that Basware recently released its annual Cost of Control study for 2010 and pointed out that Finance’s top 10 challenges could be easily solved with good, modern, spend analysis and e-Procurement solutions. The study also outlined the top 10 strategic finance priorities for 2010 … which can also be addressed by the adoption of good spend analysis and e-Procurement systems. For example:

Spend Analysis would address:

  • Increasing Profits and Top Line Performance

    Profit = Cash In - Cash Out

    Spend analysis reduced cash out.

    Therefore, spend analysis improves profit margins.

  • Maintaining or Improving Profit Margins

    Spend analysis allows you to consolidate spend among fewer suppliers and fewer SKUs. This reduces overhead and increases profit margin.

  • Planning, Budgeting, and Revenue Forecasting

    Once you know your actual year-over-year spend, volume trends, and market trends, your forecasts and budgets improve greatly.

  • Risk Analysis

    Augment the data with (financial) risk information and quality/performance metrics, and you can quickly see which suppliers likely pose the greatest risk to your operations.

  • Regulatory Compliance

    You know what suppliers you’re spending on and how much is going to socially responsible suppliers and how much isn’t. Augment the product data with carbon emissions spending and you know if you’re within limits or not. Etc.

E-Procurement would address:

  • Reduce Overall Purchasing

    A modern e-Procurement system with approvals, checks, and balances would insure nothing is bought that isn’t approved, on-contract, and within-budget without managerial exception.

  • Cash Flow and Working Capital Management

    You can see how many purchase orders are outstanding, how many invoices are upaid, what discounts are available to you if you pay early, how much cash is actually free, and even take advantage of receivables financing.

  • Improving Short and Long Term Operational Efficiency

    You can cut DPO and DSO in half, eliminate paper processing, and make your team 80% more efficient. Over the long term, you can reduce the headcount devoted to tactical “paper pushing” and increase the headcount dedicated to strategic spend analysis and sourcing, which increases organizational savings per employee.

  • Environmental Practices

    No paper. Spending to environmentally irresponsible suppliers can be denied. Etc.

  • Accessing Credit

    If you know what you have, and you can demonstrate the reliable payment history, even if the banks turn you down, you can get receivables financing.

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