Monthly Archives: October 2011

Is Polygamy Good for the Supply Chain?

A recent article over on CFO by Shawn Casemore, President of Casemore & Co, on why you should mend your spend in order to grow, offered up Casemore and Co’s four crucial steps to building a big-business attitude. Step two, which stated that the procurement department is not the place for monogamy, caught my attention because sometimes “monogamy” is needed for successful procurement.

According to Shawn:

     

Human nature has demonstrated that the longer we remain in a stable relationship, the less effort we place into maintaining or improving the relationship. In a supplier-to-customer relationship, this tendency is often substantiated through escalating prices and diminishing customer service over time.

As an example, he gives the anecdote of when he worked with an organization that used a sole transportation source for all of its inbound and outbound freight needs — remnants of its early days when it was a small business. The prices offered by the carrier had been steadily climbing, and freight damage was quite prevalent. Despite those problems, the company president was hesitant to change. But when they moved the business away from the incumbent and divided it between two alternative carriers, service levels improved and the firm reduced overall transportation costs by nearly 10% per year.

And this is a common story among consultant firms that specialize in transportation / logistics / 3PL cost reduction. Competition is good for the corporate coffers. And in this situation, a secondary source of supply can mitigate risks and increase competition.

But this isn’t always the case. If you need a specialized widget, or microprocessor, and you split the award, you drive up costs as setup costs, which often involve new equipment purchases, for production of a new, customized, product are high — and you’re paying them twice and information protection and losses due to IP theft — as there are two routes IP thieves can take to steal your IP and produce black-market copy-cat products — are higher.

In other words, competition is great when you have a tactical category where there are lots of low-risk, high quality suppliers to compete for your business, but if you have a strategic category where there are few high-quality suppliers and set-up costs are high, sole-source (with production distributed at geographically dispersed plants) might be the way to go.

Your thoughts?

JDA and Oliver Wight’s Top 10 Realities of S&OP (II of IV)

In yesterday’s post, we stated the top 10 myths of S&OP as defined by JDA and Oliver Wight in a recent white paper. Today we define the top 10 realities of S&OP planning. Tomorrow we will review the myths vs. realities and decide what is myth, what is reality, and what is the real deal. But first, here are the:

Realities

  1. S&OP is an executive process employed to plan and manage the business that must be executive-owned and led.
  2. Advanced
    S&OP is an aggregate planning process that occurs monthly to ensure all company plans and strategies are aligned over at least a 24-month rolling planning horizon.
  3. Aggregate plans from S&OP are translated as necessary into detailed product management plans, detailed demand and replenishment plans, and item-level supply chain and production plans over the planning horizon.
  4. The focus of the S&OP process is on the future: the rolling 24-plus month planning horizon. S&OP is a fact- and assumption-driven process, not a numbers-driven process.
  5. Fact and assumption management and the qualitative aspects of S&OP are more important than the quantitative aspects of the business plans.
  6. When executives take control of the process, they define the information that they need and how they need to see it to make smart decisions.
  7. Demand-shaping strategies and scenarios are evaluated through the monthly S&OP cycle.
  8. Winning companies are collaborating with their trading partners more closely than ever before.
  9. The new paradigm for S&OP incorporates financial analysis into each key step of the S&OP process.
  10. S&OP must have a combination of people, processes and
    tools working collectively.

Now some of these are obviously realities. But are all of them realities? Or are some of them perceived realities through rose coloured glasses which look a lot different with the rose coloured glasses off? We’ll provide our take on the myths vs. realities in our next two posts.

The BRIC is Becoming Really Investment Critical

As per this recent article over on World Trade 100, it’s time to ask if your company [is] ready to export to BRIC, it’s time to start thinking about exporting to BRIC countries because:

  • 45% of global GDP is estimated to originate from seven emerging economies: Brazil, Russia, India, China, Mexico, Turkey, and Indonesia
  • it is estimated 55% to 60% of the nearly one billion households that will have incomes in excess of 20,000 will be from the developing world within a decade

However, one thing that needs to be noted is that many of these countries have sub-markets, and if the products aren’t localized to the sub-markets, it could be difficult to maximize your return. For example, China has 20 to 40 different sub-markets on its own. And some of these markets are only two hours apart. For example, Guangzhou and Shenzhen are both tier-one cities in China, located in the same province and just two hours apart but there is a marked cultural difference between the two. According to a study done by McKinsey, “Guangzhou’s people mainly speak Cantonese, are mostly locally born, and like to spend time at home with family and friends. In contrast, more than 80 percent of Shenzhen’s residents are young migrants, from all across the country, who mainly speak Mandarin and spend most of their time away from their homes”.

The article has some good thoughts to keep in mind when planning to expand into China, India, Brazil, and Russia. So ask yourself, Is Your Company Ready to Export to BRIC?.

JDA and Oliver Wight’s Top 10 Myths of S&OP (I of IV)

A recent white paper by JDA and Oliver Wight attempted to set out the top 10 myths and realities of Sales & Operation Planning. According to the authors, these are the

Myths

  1. The S&OP process should be owned or sponsored by the demand planning or supply chain function.
  2. S&OP is a tactical, real-time process that enables the quick identification and response to problems as they arise.
  3. S&OP deals with product families and a fixed hierarchy.
    The devil is the details and S&OP doesn’t go there. So that doesn’t really help us.
  4. S&OP is really just a review of historical data. There is no ability within the process to do any simulation of suggested changes, let alone compare a differing scenario to the optimal plan.
  5. S&OP is limited to quantitative views of supply, demand and financial plans. Just look at the numbers and you’ve got what you need to support decisions.
  6. S&OP is just another executive meeting; nothing really ever comes out of it. Decisions made in the meeting stay in the meeting and rarely get executed.
  7. S&OP relies on a fixed demand plan or statistical forecast. It doesn’t emphasize how we may need to shape demand up or down to meet business objectives.
  8. S&OP processes are too complex and difficult to manage — especially when trying to systematically incorporate external trading partner feedback into the internal consensus demand and supply plans.
  9. We spend so much time striving to create a perfectly balanced supply and demand plan, yet too often it’s a futile exercise. The finance team is just going to override any S&OP plan that we create, so why bother?
  10. S&OP can be solved with the implementation of a tool. Just configure the software and turn on the “black box”.

Now some of these are obviously myths. But are all of them myths? We’ll review the crux of the realities in the next post as a first step in our effort to understand to what extent these are myths and to what extent they are just minor misunderstandings.

Is It Time To Move Your (Supply Chain) Operations to an Emerging Economy?

After reading this recent piece in Chief Executive (CE
) on how US companies are garotted by red tape, SI is wondering whether the time has come to follow the lead of IBM and other big multi-nationals and move your supply chain, followed by your headquarters, to China or another emerging economy. Even though I still think North America is going to retain the edge in High-Tech Innovation for a few more years (despite the fact that the numbers say that both India and China should be producing four times as many geniuses each year), the cost of doing business, or at least of keeping your supply chain and headquarters, in the US is becoming too high.

Consider these vary scary stats from the CE article:

  • In 2010, the Feds spent 55.4 Billion enforcing regulations
  • In 2009, economists Crain and Crain estimated the true cost of the Feds’ regulations was 1.75 Trillion – or 12% of GDP – compared to only 1.46 Trillion in pre-tax profits businesses earned
  • The Federal Register that compiles regulations is over 81,405 pages long
  • Since Obama took office, regulators have imposed 38 Billion in new costs
  • There are 2,785 proposed rules in the pipeline and 144 are economically significant and will add burdens of over $100 Million each for a collective burden of over $14 Billion on this 5%!

At the moment, federal regulations are a runaway train that no one can stop. And until the US gets a Denzel Washington or a Keanu Reeves that can deal with the situation, it’s only going to get worse before it gets better.

As a result, it might be time to consider moving your supply chain operations somewhere where the regulations are a little less severe … even if you have to pay a few government bribes or deal with a few pirates. After all, 238 Million (which is the amount paid to pirates in 2010 for ransom) is a lot less than 1.75 Trillion (at 0.01%), and a few hundred thousand goes quite a long way in developing economies where bribes are concerned. And while SI is not condoning bribery or pirate ransoms, there are much better uses from an innovation and jobs standpoint for 1.75 Trillion dollars than red tape.

Maybe if a few big companies start leaving and the feds realize that if they don’t stop the runaway train that the city will be empty by the time it arrives they’ll bring in a Denzel or Keanu to deal with it. SI doesn’t know, but thinks it’s a good question to ask.