Monthly Archives: October 2011

Another Lesson In The Peril of Spreadsheets

A recent article in Supply and Demand Chain Executive on why you should NOT Let This Happen To You had some scary lessons on why spreadsheets should be tossed out of your operations management process forever and ever.

  • a high-volume software company unwittingly threw 20 Million annually into the scrap bin because of a hidden, devastating, logical spreadsheet error that systematically triggered over-ordering of seasonal printed materials
  • a financial services firm underestimated support centre demand by over 250 agents, roughly 25 percent of total demand because of formula errors and inappropriate assumptions
  • a national build-out of a digital service network was beset with months of delays and millions of dollars in lost revenue because spreadsheet-based material planning and execution tools were overwhelmed with the size and complexity of the job

And, as the article pointed out, management is usually unaware of the issues until crisis is upon the company. Spreadsheets might “get the job done” when a quick and dirty calculation is needed for an estimate, but calamities incubate when an application is extended to problems that are too large or complex and eventually significant error creeps in that could devastate your business.

This is especially true in Supply Management. As the author notes, the high-volume software company that lost 20 Million annually relied on spreadsheets that not only included forecasting information, but that extended all the way into the Procurement of materials. The authors neglected to include materials already on order as part of supply requirements. As a result, every time the spreadsheet was reviewed, another unnecessary buy was signalled.

And it’s true in Service Management. The financial services firm that underestimated support centre demand used a spreadsheet that assumed demand would stay constant with a major service platform roll-out.

For any calculation that goes beyond an initial estimate, the repeated use, alteration of, and reliance on spreadsheets quickly leads to manual error. And for any calculation that is large (in value) or complex, it isn’t long before a scenario arises where consequences and execution risk become very high — and costly.

So ditch the spreadsheets and put in place proper financial, enterprise planning, data analysis, and supply management tools. The corporate bank account will thank you.

Trade Partnership Programs: Are You Ready for Global Compliance?

Chances are that, if you are a US based organization, you are up to date on you C-TPAT (Customs-Trade Partnership Against Terrorism) and if you are a multi-national, your AEO (Authorised Economic Operators) initiatives to achieve a safer supply chain while streamlining trade through self-compliance security initatives (designed to withstand comprehensive audits). And while this may have been enough in the beginning, today the C-TPAT and AEO are just two of many global trade partnership initiatives that you should be aware of. If your organization is to be a major player in the global marketplace, you should be aware of at least the following seven initiatives:

  • AEO (EU)
    Authorized Economic Operator: AEO status is granted to reliable operators that are compliant with respect to security and safety standards and who can therefore be considered “secure” traders. Benefts include fast-tracked consignment, streamlined declarations, and mutual recognition with countries with a similar program.
  • C-TPAT (US)
    Customs Trade Partnership Against Terrorism: A voluntary supply chain security program focussed on securing supply chains against terrorism. Benefits include reduced customs inspection, reduced border delays, and eligibility for account-based operations.
  • Customs Co-operation and Mutual Administrative Assistance in Customs Matters
    An European Union program that provides the necessary tools for customs cooperation between EU member countries and other importers and exporters, including Korea, Canada, Hong Kong, the US, India, China and Japan.
  • FAST
    Free and Secure Trade: A voluntary joint initiative between the Canada Border Services Agency (CBSA) and U.S. Customs and Border Protection that enhances border and trade chain security while making cross-border commercial shipments simpler and subject to fewer delays.
  • ISA
    Importers Self Assessment Program: a voluntary approach to trade compliance that provides the opportunity for importers who have made a commitment of resources to assume responsibility for monitoring their own compliance in exchange for benefits.
  • SAFE Framework
    SAFE Framework of Standards to Secure and Facilitate Global Trade: a WCO Framework that includes requirements for Customs and Authorized Economic Operators that is designed to facilitate the implementation of secure trade programs in member nations
  • SEP
    Secure Export Partnership: A US-New Zealand Customs security arrangement (which is representative of emerging US security arrangements with other countries).

The Growing Importance of Water Conservation

Chances are, somewhere along the line, your supply chain requires freshwater — and lots of it. If it’s not already costing your organization a lot of money, it will soon. Why? Consider these facts, as collected in Greenhouse Gas and Energy Co-Benefits of Water Conservation by Carol Maas and Water for Energy by the World Energy Council.

  • 70% of the planet may be covered in water, but only 3.0% of that is freshwater, and five sixths of that is frozen in glaciers
  • 60% of freshwater is found in nine countries: Brazil, Russia, China, Canada, Indonesia, United States, India, Columbia, and the Democratic Republic of Congo
  • one third of the Earth’s population does not have the necessary quantity of 100 to 200 litres/day of water available to them
  • the US estimates that by 2050, half of the world’s population will live in nations short of water
  • over the last 70 years, water withdrawals have increased at more than twice the rate of population expansion
  • on average, 70% of available freshwater is used for agriculture and 22% is used by industry
  • water is required to produce energy
  • municipalities in Ontario consume more electricity than any industrial sector outside Pulp and Paper
  • water and wastewater services in Ontario municipalities represent a third to a half of electricity consumption – double that of street lighting
  • global water requirements for energy production are expected to increase from approximately 1.8 Billion cubic meters in 2005 to almost 2 Billion cubic meters in 2020 to about 2.1 Billion cubic meters in 2035
  • the increased need for energy production combined with increased agricultural needs and industrial process needs (to produce goods for an increasing population) is going to add considerable strain to an already strained water supply

The cost of water is going to increase as freshwater becomes more scarce, just as the cost of energy has increased with the cost of oil, which is still a primary fuel for electricity generation. As a result, water conservation is quickly becoming just as important to your supply chain as energy conservation, and any measures taken today will pay off in spades tomorrow.

A.T. Kearney’s Four Dimensions of Strategic Value

In a recent article over in IndustryWeek on why it is time to tell your CPO to collaborate with suppliers, A.T. Kearney outlined their four dimensions of strategic value that they claim will allow an organization to unlock the next level of value. The four dimensions of value they outlined are:

  • growth
    through improving the value proposition for existing customers or generating sales to new customers
  • risk management
    to deal with a world of increasingly unpredictable and devastating risks
  • value-chain optimization
    by tweaking the value chain to benefit all players by allowing them to focus on their strengths
  • structural capabilities
    that improve agility, responsiveness, scalability and even corporate social responsibility

And, according to the article, they depend on collaborative relationships with the supply base. However, in order to succeed in these relationships, the parties must reach mutual value. So how do the parties reach win-win situations? They start by using a value-screening process that takes the following steps:

  1. Develop a Relationship Baseline
    does the existing relationship provide a competitive position, strategic direction, and/or joint commercial flow in an aligned culture?
  2. Identify Initial Value Hypotheses
    is there a potential opportunities that brings a level of value to both parties?
  3. Align with Internal Partners
    which opportunities bring the most value to the organizations?

Then, according to A.T. Kearney, the next step is to turn supplier collaboration into a core competency. This is not an easy process, but it is a manageable one. It revolves around:

  • the formation of value creation teams,
  • the establishment of foundational processes, and
  • management of the transformation.

These core actions become part of a two-to-three year transformational roadmap which, when completed, will address all key suppliers and, hopefully, provide value well above and beyond typical cost reduction strategies. And if they are done right, they should enable the four dimensions of value outlined above.

Are they worth it? Any organization that grows, controls risk, and improve its structural capabilities and value chain should be able to create and sustain value even in weak economic environments, so they are worth it. Are they enough to get you to the next level? On their own, probably not as they don’t require innovation (as renovation is often enough for companies who are not leaders), but they are good value dimensions.