Monthly Archives: July 2010

You Say You Know How To Balance Competing Objectives. Are You Sure?

You need to source some more cocoa for your chocolate factories to keep production moving (and the oompa loompas working). In years past, you’d just hold an auction and cut a contract with the lowest cost bidder, but you can’t do that now that you’re a socially responsible buyer. You can’t buy from some sellers on the Ivory Coast that you know are using child labor, you can’t buy from further away than necessary as long hauls greatly increase your carbon footprint, and you can’t buy inferior products for your luxury chocolate production lines. You can buy some inferior products for your mass economy goods, provided they are blended with higher quality goods, but only so much. You can ship further if the cost is low enough that you can buy carbon credits. And you can source a portion of your award from a select handful of Ivory Coast suppliers who are making an active effort to approve their socially responsible operations.

It’s a complicated decision as you have to balance cost vs. carbon vs. quality vs. brand value. In fact, the only way to truly make the best decision is to use a (strategic sourcing) decision optimization solution that allows for multi-criteria multi-variate optimization that allows a buyer to determine the cost and benefits of various solutions with respect to each objective. In addition, it’s the only way a buyer can truly examine the effect of different weightings of the various criteria under consideration.

While many of the SSDO (strategic sourcing decision optimization) platforms do not yet support this capability, you can be sure that most of tomorrow’s platforms will. To find out what other capabilities are forthcoming in the world of decision optimization, visit BravoSolution‘s website, fill out a short 8-field registration form, and receive your free, exclusive, copy of The Future of Optimization, a new Sourcing Innovation white-paper with groundbreaking insight on eight directions that strategic sourcing decision optimization is likely to take in the decade ahead.

A Hitchhiker’s Guide to e-Procurement: Goods Receipts, Part I

Mostly Harmless, Part VIII

Previous Post

A goods receipt is a written (or electronic) acknowledgement by a buyer that a specified set of products or services was received by the buyer in acceptable conditions. It’s primarily used for the receipt of goods by a buyer’s warehouse or distribution network. A goods receipt tells the supplier that the buyer has accepted the goods and that the supplier can expect to be paid subject to the terms of the associated purchase order(s) or contract(s).

A goods receipt is so simple in principle that one might believe that it hardly warrants its own post. However, a goods receipt is not so cut-and-dry in practice. There are many reasons for this, including:

  • The goods receipt has to be meaningful to the supplier.

    This means that it has to contain the product codes, or SKUs, used by the supplier, indicate the quantities, and reference the purchase order(s) given to the supplier.

  • The goods receipt has to be meaningful to the buyer.

    This means that it has to contain the product codes, or SKUs, used by the buyer for purchasing. It needs to reference the appropriate purchase order(s) and/or contract(s) and it needs to provide an ability to reference a forthcoming invoice.

  • The goods receipt has to be meaningful to inventory management.

    The goods receipt also has to contain the product codes, or SKUs, used in inventory and warehouse management, if they differ from the purchasing codes, and any auxiliary information required by inventory management and warehousing for storage and distribution.

  • The goods receipt has to account for irregularities that could form the basis of disputes.

    The supplier might require a receipt as soon as goods are delivered, but before they can be adequately inspected. Upon an initial inspection of a damaged box, it may or may not be possible to determine whether or not any, some, or all of the contained products are damaged. How can this information be captured so that there is a foundation for a dispute if damage is found upon future inspection?

  • The goods receipt has to be acceptable to multiple systems.

    Chances are the supplier uses one system for receiving goods receipts while Purchasing uses another for cutting purchase orders while inventory management uses yet another for managing inventory.

As a result, the goods receipt must be expressible in at least one universal format that is capable of supporting multiple product codes or SKUs, multiple references to related buyer and supplier documents, and multiple instances of such documents, as a supplier could ship goods relating to multiple purchase orders in a single shipment. (Also, a single purchase order could be related to many goods receipts if different goods on a large BOM are shipped in different shipments.) As a result, the requirements for the goods receipt cannot be overlooked in the selection of an e-Procurement system.

Next Post: Goods Receipts, Part II

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Imitation is More Than Flattery

It’s good business. In fact, for most businesses, it’s good innovation. Innovation is difficult and costly for most businesses, and most innovators are unable to capitalize on their innovation to become the market leader. In contrast, most of the market leaders are companies that perfected innovative imitation, where they come up with cheaper and better versions of the innovative technologies developed by their competitors (which use new and improved technologies and processes that “invent around” whatever patents the competition might possess).

Good examples are given in this Harvard Business Review article which explains why “imitation is more valuable than innovation”. McDonald’s imitated and perfected a system pioneered by White Castle; Visa, MasterCard, and American Express all learned from Diners Club; and even Wal-Mart’s founder admitted that he borrowed most of their practices from predecessors, improving and combining them into a winning formula. In other words, today’s lions are the descendants of copycats.

However, as pointed out in the article, success is more than just a cheap knock off (even though that may work in China). As the article points out, the art of “true imitation” requires one to develop the capabilities that enable its effective use and to learn to deploy imitation strategies. True imitation is a complex and demanding process that requires high intelligence and advanced cognitive capabilities. It’s a form of innovation in its own right … and one that an organization needs to master if it’s not effective at coming up at truly original ideas.

But even more than that, it’s the foundation of a great supply chain. A great supply chain is built on best practices that are derived from the innovation of others and improved over time.

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Good Enough, Best, or Next — Which Do You Choose?

A recent article in the Harvard Business Review on how “best practices get you only so far” had some good points, as did the article on how “imitation is more valuable than innovation”, which illustrated how best practices can be used to get you further than your competitors (who you borrowed the ideas from), but neither of the articles address when you need to go “next”, when “best” is the right choice, and when there’s no reason to go beyond “good enough”. This is a critical question when formulating your supply chain strategy, just as it is when formulating your business strategy, because you only have so much time and so many resources at your disposal. And with so much to do, you have to be able to prioritize to get the most bang for your buck.

According to “best practices get you only so far”, the process of identifying best practices and implementing them may allow enterprises to catch up with competitors, but it won’t turn them into market leaders. Which is mostly true, because if you read “imitation is more valuable than innovation”, you’ll find out that copying alone isn’t enough to get you in first place, you have to improve on the practice during your implementation to make it better and cheaper.

But do you really need to be best at everything?

You need to be a market leader, and you need your supply chain to be at least as efficient and cost effective as your competition, and preferably slightly more efficient and cost effective, but does this mean every process, practice, and piece of technology employed has to be best? The reality is that best-of-breed is costly. It takes time, effort, and, more often than not, very costly technology. If there is an opportunity for a significant return, than it’s worth it. But if the return is not much more than the investment, it’s not.

To illustrate, let’s take a technology focus. Everyday you are bombarded with BoB e-Sourcing, e-Procurement, Trade Management, Logistics, and Inventory Management technology. The solutions range from stand alone “best-of-breed” modules to end-to-end suites to everything in between, and the price tags range from about 50K a year to 5M a year. What should you buy? And what should you pay?

It’s a hard question. The 50K you spend on a cheap contract management system might be a total waste of money (and cost you 500K a year to maintain), while the 500K you spend on spend analysis software and services might be the best investment the organization every made! The reality is that if the savings that results from moving from “good enough” to “best practice” or from “best practice” to “next practice” is not at least 3 times the total cost, it’s not worth it, especially when there are so many practices and technologies out there today that will generate a return of 3X, 5X, 10X, or more for the organization. (Decision Optimization on the right category can sometimes generate a return of 20X or more! A proper spend visibility and spend analysis initiative can easily generate a return of 10X year after year [and some organizations have seen returns as high as 100X in peak years]). Trade management can revolutionize the trade compliance effort and save millions for just a few pennies up front. And so on.

I’m not saying don’t go “next”, because sometimes it’s the right thing to do. I’m just saying, when you go “next”, make the right choice. Business is about returns, which is necessary for sustainability of the business. Just make sure the returns will be there waiting for you before you go all gung-ho on a risky initiative.

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I Am The Entertainer

To the tune of The Entertainer by Billy Joel

I am the entertainer
And I know just where I stand
Another crazy blogger
On another angry rant

Today I am your champion
I may have won your mind
But I know the game
You’ll forget my name
And I won’t be here
In another year
If I don’t put out the grind

I am the entertainer
And I’ve had to pay my price
Things that were not clear at first
I fixed by postin’ twice

Ah, but still they come to haunt me
Still they must be said
So I’ve learned to blog
Through the double-speak fog
Then I hit the deck
While I hope for a check
And I start another thread

I am the entertainer
Been all around the space
I’ve seen all the technologies
In the vendor rat race

I can’t remember faces
I don’t remember names
Ah, but what the hell
You know it’s just as well
‘Cause after a while
And a thousand miles
It all becomes the same

I am the entertainer
I bring to you my posts
I’d like to write all through the day
And share all of my notes

But I’ve got to meet expenses
I got to stay in line
Gotta get copies
to the agencies
I’d love to dwell
But there’s stories to tell
So I just don’t have the time

I am the entertainer
I give to you my best
You’ve read my latest musing
It’s been all around the net

Ah, took me hours to write it
The were the best hours of my life
It was a beautiful post
But it ran too long
If you’re gonna get a hit
You gotta make it fit
So it got cut down to size

I am the entertainer
The idol of my age
I don’t make that much money
When I become the sage

Ah, you’ve seen me in the blog-rolls
I’ve been in the trade press
But if I go blue
I won’t reach you
I’ll be put in the back
In the discount rack
Like an out-of-style fall dress

I am the entertainer
And I know just where I stand
Another crazy blogger
On another angry rant

Today I am your champion
I may have won your mind
But I know the game
You’ll forget my name
And I won’t be here
In another year
If I don’t put out the grind