Monthly Archives: April 2012

If You Do Not Get Sustainable Results, Blame Yourself!

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It’s deja vu all over again!

Robert Rudzki is not the only blogger and consultant to recently hear that a potential client had, just a few years ago, hired a large consulting firm to do a high-profile “strategic sourcing program” with nothing sustainable to show for it, as he indicated in his recent SCMR blog post on Deja vu all over again. I’ve heard the same sentiments echoed to me by a number of consultants at a number of small and mid-size niche and specialty services and software providers in the e-Sourcing & Supply Management space in recent months.

It would appear that a common trend last time money flowed into laggard Supply Management organizations before the recent downturn was to simply hire a Big-X consulting firm to fast track the organization to strategic sourcing success. While this is a great way to fast-track a project, and a contract, that is expected to result in significant savings, the only thing that is fast-tracked from a finance perspective is payment to the consulting firm that runs all the way to the bank! As leading Supply Management professionals know, a contract does not guarantee savings. The only way to achieve savings is to execute against the contract and make sure savings are realized. Just because you have a new contract that allows you to source widgets at $8 a pop, instead of $10 a pop, this doesn’t mean you are going to save $200,000 on your annual purchase of 100,000 widgets. For the savings to materialize, all of the following has to happen:

  • the buyer has to place the order with the contract supplier
  • within the contracted lead-time and the supplier
  • has to ship on time
  • using the approved carrier and shipping arrangement
  • and pay all required third party and government export fees
  • and file all appropriate paperwork at the same time your organization, or a 3PL acting on your behalf,
  • files all of the appropriate import and compliance paperwork
  • and pays any associated duties to make sure that
  • the product arrives at the warehouse when its supposed to
  • where it is received, inventoried, and appropriately stored which results in
  • an invoice being accepted and verified against the contracted rates and
  • paid at the appropriate time only when all goods are received and verified as acceptable.

Simply put, if

  • the order is placed with the wrong supplier
  • or placed late and the order has to be expedited
  • or shipped late and a different shipping method has to be used
  • or export documents are not filed on time
  • or fees are not paid and fines are issued
  • or import documents are not filed on time
  • or taxes are not paid and fines are issued
  • or the product is not properly inventoried or stored and can’t be found and unnecessary replacements
    need to be ordered
  • or the invoice is not verified and the old rate is still being charged
  • or the invoice is paid late and a penalty is applied

then those (significant) savings negotiated on your behalf go out the window. And you’re not going to get them back! First of all, once they’re gone, they’re gone. Secondly, because you weren’t actively involved in the project and didn’t insure that the knowledge that you required to achieve a sustainable transformation was transferred, you’re not going to be able to keep costs down when you renegotiate the contract in this economy where supply is tightening and costs are rising. So you’ll pay even more, even if the rate should stay almost flat.

In order to get results, you have to work with the consultants to understand the strategic sourcing process, the strategies applicable to your organization, the goals of each individual project, the savings opportunities in each project, the key contract terms, the changes that need to be made to capture the savings and adhere to each
contract term, the key metrics, the measurements that need to be made regularly, and the warning signs that something is happening / has happened that could jeopardize the savings the organization expects. Failure to do any of this is a sure-fire way of making sure that nothing changes and that your organization continues to leave money on the table.

In short, if your organization continues to be one of those organizations that leaves up to 40% of the contract value on the table because you did not do all of the above, don’t blame the service provider unless you did all of the above. As Charles, Bill, and Bob said in their recent books on The Procurement Game Plan, Managing Indirect Spend, and Next Level Supply Management Excellence, success is your responsibility and you have to actively manage your service providers and make sure that the knowledge required for a sustainable transformation is transferred to you.

A Digital Transformation Requires At Least Five Critical Factors, Not Three!

A recent article over on Chief Executive on Digital Transformation that asked [If] CEOs [are] ready for the Challenge? caught my attention. And it kept it when it said less than 20% of the companies surveyed are truly reshaping their businesses for digital and many are only partially fulfilling their potential because, as a technophile, I know this to be all too true.

But I screamed NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO with @rantinggirl when I read that you need three factors in place — top-down vision, clear governance and investment — to deliver a true transformation. While these factors are a necessary condition, they are not a sufficient condition, and if all you have is vision, a governance model, and the willingness to invest current resources into the problem, then you should pack it in now as your days as an organization are numbered.

You see, a successful digital transformation requires at least the following Five Critical Factors:

  1. Top-Down Vision
    that emanates from, is communicated by, and is embraced by the top
  2. Clear Governance
    that consistently communicates and enforces the vision, ensures the allocated resources are directed towards the effort, and that keeps the vision on track when fires threaten to cloud the business with smoke or people want to return to the old ways
  3. Investment
    in resources and dollars, as money will need to be spent requiring the right infrastructure
  4. Technologically Adept Talent
    since going digital requires being digital
  5. Transition Commitment
    since there will always be those that fight the transformation and, more importantly, since some of these resources may not be able, or willing, to adopt to the new way of doing business and have to be let go

Anything less is like skydiving without a properly packed parachute. You had a clear vision of jumping out of the plane, you invested in the plane, and you convinced the pilot to take off, but you forgot about the nature of the landing and that if the chute doesn’t properly deploy, you’ll be hitting the ground at 195 km/h (or 122 mph) — without much chance of survival. Mr. Boole may have survived, but chances are you’ll end up like the skydivers on CSI.

As the article points out, the transformation journey is full of roadblocks, including organizational skill gaps, culture, and legacy IT (that is more antisocial than your average arrogant PhD, and I should know).

I Am The Infotainer

I am the infotainer
and I know just where I ebb
Another social blogger
on another social web
Today I am your favourite
I may have earned your likes
But I know the rag, you’ll forget my tag
And I won’t be here in another year
If I don’t maintain the spikes

I am the infotainer
and I’ve had to pay my price
The sites I did not join at first
Now make me post it twice
Ah, but still they come to taunt me
Still they want their say
So I’ve learned to blog with an eye on the log
I let ’em scrawl my wall and I follow ’em all
Then they go their merry way

I am the infotainer
Read all around the world
I’ve graced all kinds of forums
And blogged about the squirrels
I can’t remember topics
I don’t remember tags
Ah, but what the hell
You know it’s just as well
‘Cause after a week and a thousand tweets
It all becomes the same

I am the infotainer
I bring along my pen
I’d like to write a page or two
But you can’t wait ’til then
And I’ve got to meet expenses
I got to stay in line
Gotta place those ads for new brake-pads
and online gaming and picture hanging
So I just don’t have the time

I am the infotainer
I’ve come to speak my mind
You’ve read my latest blog post
It’s part of my timeline
It took me days to write it
They were the best days of my life
It was a beautiful piece
But you found it obese
If you’re gonna get a tweet
You have to make it neat
So you cut it down to one-three-five

I am the infotainer
The idol of my age
I don’t make any money
When I become the sage
and post with the Technoratti
and the LinkedIn messiahs
If I miss a day, I’ll fade away
I’ll drop off of the page like I had the phage
Like another pariah

I am the infotainer
and I know just where I ebb
Another social blogger
on another social web
Today I am your favourite
I may have earned your likes
But I know the rag, you’ll forget my tag
And I won’t be here in another year
If I don’t maintain the spikes

Did Descartes Miss the Point in Its List of Four Things You Can Do Today To Reduce Fuel Costs?

Given that Gas Prices are Too Damn High and that this situation is not about to change anytime in the near, and even not-so-near, future, a recent white paper by Descartes on Reducing Fuel Costs: Four Things You Need to Know and Can Act on Today caught my attention. However, while their suggestions are good, I think they kind of missed the point. Going straight to the section on What You Can Do Today, Descartes suggests that you should:

  • Decrease the Total Miles/Kilometers Driven by the Fleet
    Since the vast majority of fleets still drive inefficient routes to serve their customers, this is a good suggestion on the surface, but it’s easy to take this too far. For example, while the shortest route from Birmingham, Alabama to Indianapolis, Indiana might be straight through Nashville, Tennessee, driving through there at rush hour is not the best move as the trip could take an extra 3 hours and every hour the engine is running, gas is being consumed. This requires some smarts. Sometimes longer trips are more efficient.
  • Minimize Idling
    This is a great suggestion. Not only does this burn fuel, but it harms the environment. However, when a conscientious driver is idling, it’s not when he’s making a delivery, but when he’s waiting to make a left hand turn. The right routes don’t have left turns. That’s why UPS does it’s best to eliminate them. However, this can slightly lengthen a route, which is in conflict with the last suggestion.
  • Change Driver Behaviour
    If driver behaviour is a major cause for fuel inefficiency, then this is obviously a good thing, especially if the driver is excessively speeding (well beyond the fuel efficiency zone), (too) rapidly accelerating, and hard-braking on a regular basis. But the driver’s behaviour might not be entirely his fault — it could be a fault of your training program, which might be mentor-driven by your senior drivers who have had bad habits all of their driving career and pass them on. The first step should be to check your training programs and requirements and make sure your drivers get the right behaviour day one.
  • Implement regular maintenance monitoring plans.
    Vehicles with properly inflated tires, well maintained engines, and good braking systems do maintain less fuel, but don’t go overboard with preventative maintenance. An overly aggressive maintenance plan will replace parts needlessly and eat up the savings you get in decreased fuel utilization pretty quickly. Monitor aggressively, but maintain sparingly.

In other words, it’s suggestions for what you can do today were good, but not great. However, the section on how technology can help was much better. In this section, it made four recommendations, and three of them were on the money.

  • Route Planning and Optimization
    This optimizes the routes to balance minimum driving distance and minimum run time (by adding in right turns to reduce idling and slight detours to bypass commonly congested areas) across the fleet and, as the paper notes, can result in a reduction of total route length by 5% to 30% when done properly.
  • Mobile & Tracking Solutions
    This allows you to track your trucks and know the exact location of your drivers, the routes they have taken and, most importantly, how the fleet is performing against the plan.
  • Telematics
    A constant measurement of engine data and driver performance can allow engine problems to be identified immediately and bad drivers to be singled out for training to improve their performance.

The last recommendation, not so much. Basically, the paper recommended a cloud-based solution for all the standard reasons, but clearly forgot that the cloud is not a fluffy magic box and not all of the promised advantages will materialize.

If you track, measure, and optimize, you will minimize fuel requirements while improving performance, but no one tip is going to save you and over-simplifying the problem can cause as many problems as it solves. The only way to truly save fuel is to reduce delivery requirements. Do you need as much? Do you need it as often? Can you get the product from a geographically more proximate supplier at a comparable cost? These are the real questions you need to ask!

If You Are Using a 3PL, Should You Focus on Outcome-Based Pricing?

Yesterday we discussed whether or not you should hedge your transportation costs, given this recent article in Canadian Transportation & Logistics (CTL) that found global shipping lines grapple with plunging rates, overcapacity, and faltering recover. Today we discuss another recent Canadian Transportation & Logistics article on why it pays to focus on outcomes rather than transactions in procuring supply chain services.

While an outcome-based focus is starting to take hold in some leading Supply Management organizations in their strategic sourcing processes, it’s often focussed on more traditional services where outcomes are easily defined and well understood by the organization. For example, procurement back-office functions where it’s all about throughput improvement (in terms of invoices processed), customer service (where it’s all about trouble-ticket resolution), and preventative maintenance (where it’s all about reducing downtime).

But back-office, customer service, and system up-time are not the only things that can be measured as outcomes. So can 3PL. As per the CTL on global shipping challenges, only 56% of containers delivered on time globally. Fifty-six percent! For those of you going for the perfect order, that’s 44% of your orders that rely on globally sourced products that won’t be perfect as of day one! (That’s why Maersk launched its Daily Maersk service in late October of 2011 which, with daily cut-off and built-in safety margins, allows it to guarantee virtually total reliability between select ports in Asia and Europe.)

Of course, this will require a shift in mindset in both buyers and 3PLs, but if both parties are willing to share greater risks, both parties could reap greater rewards. Current trends seem to indicate that. For example, by focussing on outcomes, Microsoft saved $30 Million by outsourcing its procure-to-pay operation to Accenture One, which doubled profit by focussing on value add activities. And Proctor & Gamble saved $1 Million in the first year of outsourcing $70 Million of facility management to Jones Lang LaSalle.

When the 3PL focusses on process and productivity improvement, and not price reduction, the efficiencies that fall out will most likely lead to cost reductions in the long term. For example, just getting the on-time delivery rate to 94% from 56% will likely decrease expediting costs 86%. And reducing “empty miles” will reduce costs (and likely speed up delivery time-frames as well, shortening lead times).