Daily Archives: August 12, 2011

Global Collaboration Tips

A recent post on how to be a better global collaborator over on the HBR Blogs had some really great tips for those Supply Management professionals working with their global counterparts. My favourite tips were:

  • Be Prepared to Be Uncomfortable
    At least one of your global counterparts will speak or act in a way that makes you uncomfortable on a regular basis, and won’t even notice it because it’s normal behaviour for him. For example, he might get way too close in a conversation or always try to dominate the conversation.
  • Be Aware of the effect of Your Actions
    Similarly, there will be at least one global counterpart who will be uncomfortable with the way you speak or act from day one, and you will need to observe which communications or actions make that person uncomfortable and try to deliver them in ways that are less imposing to that person to foster a working relationship.
  • Prototypes are Not Perfect
    Your training classes will train you on the attitudes and behaviour of the average person. There is no average person. Maybe you were told that your Chinese counterparts would be relatively “shy”. And while most Chinese counterparts who are in subordinate positions might act “shy”, there are Chinese people who are very outgoing and aggressive. Be prepared to adapt to the personality and not the person.
  • Be curious
    Show an interest in them and their culture. Just remember what topics are sensitive and stick to the safe topics at first.

I’d recommend checking out the post on how to be a better collaborator. I know it’s worth your time.

Save Yourself an Hour — There’s Only ONE Real Driver Behind Inventory Costs

There’s only one real driver behind inventory costs.

Inventory. No inventory, no inventory costs.

Now you can skip the first ten minutes of the over-promoted webinar coming up three weeks from two days ago. (Deliberately confusing.)

As for proven, practical techniques for controlling inventory, there’s only two of those you really need to know.

  1. Don’t buy what you don’t need and
    You’d be amazed at the cost avoidance you’ll realize.
  2. Don’t buy more than a moderate buffer beyond what you expect to need by the next replenishment cycle. (Altering the quantity every order if need be.)
    Then inventory doesn’t build up beyond an expected level and storage costs don’t escalate out of control.

Ten more minutes saved. As for smart use of technology to manage inventory data — upstream and downstream — and to improve forecasting, there are three key points:

  1. get sales updates at least as frequently as orders are made,
    forecasts will always be more accurate with recent data
  2. be sure to factor in upcoming marketing or (predictable) market events expected to make an impact,
    so you won’t be surprised by a rapid spike or drop in demand and
  3. put the tool in the hands of an expert.
    Forecasting is art and science. You need an artist who knows how to select the right model and use the tool properly or you’ll be repeating the i2/Nike fiasco all over again. (Don’t get the reference, Google It.)

Okay, twenty more minutes saved. Now on to procurement and transportation tactics to reduce inventory build up. This is where it could get interesting, but it could also get quite obvious. If you review the six key points from above, you will reduce inventory build up if you:

  1. don’t order product you don’t use
    no inventory, no build up — the best way to cut inventory costs is to control demand
  2. don’t order more product than you expect to sell or use within the next two replenishment cycles
    as more than a moderate amount of buffer can add exorbitant cost
  3. re-run the forecasts before each replenishment cycle
    as downward projections must result in an inventory reduction and
  4. don’t forget the expert
    as this is one application where the tool alone isn’t enough

You can certainly get much more advanced than this, but is it worth it? The most successful organizations follow the 80/20 rule. They apply 20% of the effort to get 80% of the savings and then move on to the next low-hanging fruit big savings opportunity. Inventory management is as old as the Procurement profession, and best practice inventory management and forecasting hasn’t improved that much over the last decade. Returns are diminishing and at some point you have to wonder if it’s worth it when there are so many other opportunities on the table for cost reduction and avoidance. You can disagree, but the most successful Supply Management organizations use cost reduction waves (and implement multiple cost reduction strategies) and only go after the last 20% if the effort is really worth it. With raw material and fuel costs rising rapidly, unless you’re using a third party storage facility that is significantly over-billing (and this is almost as common as office supply vendors replacing cheap contract SKUs with expensive off-contract SKUs when the products reach end of life) or maintaining a buffer that is much too high, inventory costs are no longer a significant portion of lifecycle costs for many products.

That’s the doctor‘s view. Leave a clearly defined different one if you wish.