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Monthly Archives: May 2013
What’s the Biggest Supply Chain Risk?
Us!
The biggest supply chain risks are not bankruptcy and plant failure, they are not unusual and damaging weather patterns, and they are not natural disasters. As clearly pointed out in the Supply Chain Risk Leadership Council (SCRLC) in their 2013 Emerging Risks in the Supply Chain study, the biggest risk is us — the human race — as a collective whole.
To see this, let’s review the fourteen (14) risks that were identified and discussed.
- Climate Change
A key contributor to climate change is the amount of carbon emissions we are producing. We keep burning oil, coal, and natural gas, and we keep doing so without any significant attempt to trap and sequester the carbon back in the ground it came from, allowing it to creep back into the atmosphere and increase the carbon dioxide percentage. - Global Supply Chains
We keep outsourcing and offshoring even though, in May 2012, the total industrial capacity utilization in the U.S. was a mere 76.3%. To put that in perspective, one in every four plants is sitting idle at any one time. - Increasing Social Inequity
Less than 1% of households control 40% of the world’s total financial wealth, with inequality ranging from their 34.5% share in the U.S. to their 70% share in China. And we don’t seem to be doing much about it, especially given the number of tax shelters available to the extremely wealthy in much of the developed world. - Gender Imbalance
The one-child policy in China and the cultural history of favouring boys over girls in India has led to the situation where, in the next decade, there will be significantly more men of working, and marrying, age than women. People, trying to fix one problem, created this problem instead. - Population Increase
Statistically speaking, we are expecting a population increase of almost 30% by 2050 where we expect the earth’s population to be 9 Billion people! We’re all contributing to this. - Population Migration
It was only six years ago that the urban population exceeded the rural population. By 2050, we will have 70% of people living in urban areas. We are creating the mega-cities which, instead of being a sustainability boon, are, in many cases, an environmental nightmare. - Global Democratization
What is likely to happen is that instead of replacing years of corruption, political repression, and economic disparity with stable democracies we are going to end up with the chaos and disorganization that could arise from new political systems being established by individuals with little governing experience. - Dependence on Information Technology
We have come to rely on information technology to the point that when the software fails, we are immobilized. We allowed ourselves to become too reliant on technology. - Government Financial Crises
Governments, run by politicians that we elect and allow to stay in office, around the world have taken on too much debt. - Government Social Policies
In many countries, the majority view is that social policies are not properly funded, not equitably applied, and not equitable with those of whatever nation is currently being looked upon as the best role model for social governance. But we elected the government that created and maintains them. - Global Economic System Disruptions
We created the rules that govern the financial systems that are starting to break down. - Social Media Threats
Social engineering, anti-brand campaigns, and other socially-based attacks are all people-driven, not technology driven. - Global Mega Cities
All over the world, we keep building mega cities and keep moving into them, creating extreme levels of congestion and infrastructure problems. - Aging Population
Thanks in part to the baby boomers, we are getting older as a population. The number of people over 60 is growing at a rate that is 2.5 times the population growth rate.
In other words, directly or indirectly, people are the cause of the majority of supply chain risks, and that’s why supply chain visibility and third party management, focussing on the management of people, is so important.
(And while we’re all to blame, as hinted at in the study, the 1% deserve at least 34.5% of the blame! Their unequal tax treatment is a big reason we’re so deeply in debt and can’t adequately support social programs. Statistical models have demonstrated that their campaign contributions play a significant part in who gets elected and forms the governments that control our social, economic, and trade policies. They are collectively the biggest social inequality. And they could do the most towards moving us to sustainable energy models.)
We Have Supply Management Problems. Where Will We Find Solutions?
Scandinavia.
That’s right, Scandinavia! Apparently.
According to the Global Creativity Index, put out by the Martin Prosperity Institute* and published in 2011, Sweden takes first place, Finland takes third place, Denmark takes fourth place, Norway takes eighth place, and the Netherlands takes tenth. The U.S., Canada, Australia, New Zealand, and Singapore round out the top 10, creating North American and Australasian pockets of creativity, but most of it is centered in Scandinavia. (And that’s likely why Spend Matters is expanding into The Netherlands. They’re hoping to tap into that creativity that huge pocket of creativity.)
The report, which takes the three main classes of economic inputs — Technology, Talent, and Tolerance — attempts to go beyond simply ranking the 82 nations considered in the study and shift the classical focus on competitiveness and growth (which resulted in the pursuit of short term profits to the point where some of the world’s most advanced and affluent economies reached the brink of collapse) to creativity, prosperity, and well-being. As a result, in addition to the classical measures of economic growth and competitiveness, the research also takes into account broader measures of economic equality, human development, and subjective well being.
Classical economists, who followed in the footsteps of Adam Smith, may have believed that economic development came down to land, labour, and capital, but physical factors alone no longer determine progress in
today’s modern, advanced economies, where factors like technology, innovation, knowledge, and human capital play much greater
roles. And creativity underlies all of these factors. Also, as the report points out, everyone is potentially creative. But not everyone produces creativity. A lot of this depends on the tolerance of the culture in which they live. New ideas are generated most efficiently in places where different
cognitive styles are tolerated — and different cognitive
styles are linked to demographic diversity. It’s important to remember that, in today’s world, technology and talent are mobile and tend to flow to areas with the most tolerance.
What’s interesting to note is that leadership in any two measure is not enough to guarantee leadership across the board. Finland is first in Technology and talent, but 19th in tolerance, and thus lag Sweden by 3% in the index, putting them in third place. Canada, which is first in tolerance, is in seventh place because it’s eleventh in technology and seventeenth in talent. The United States maintains it’s second place position because it manages to maintain a ranking in each category that is top ten, giving it a narrow margin over third place Finland. Sweden is number one because it maintains the best overall balance, second in talent, fifth in technology, and seventh in tolerance (and since it maintains the best balance, people and technology are unlikely to flow out of the country).
So what does Scandinavia have to offer us? That’s a very good question. While SI knows there is a lot of innovation and creativity coming out of Europe in Supply Management, it has to admit it wasn’t expecting the creativity to be centered in Scandinavia. But it does explain why if you are seeking spherical supply solutions that you will succeed in the EU.
The Martin Prosperity Institute, directed by Richard Florida, author of Who’s Your City (referenced in SI’s series on Where Should Your Supply Management Organization Be Located), is the leading think-tank on the role of sub-national factors in global economic prosperity.
Don’t Forget Strategic Category Management in Your Services Categories!
Even though there is no inventory, nothing physical to return, and very few recovery opportunities available, even if the supplier fails to perform, you still need to manage your services categories strategically. Why? As per the Hackett Group Spend/Savings Visibility Study (in 2010), 48% of indirect expenditures (composed of T&E, Marketing Spend, Logistics Spend, and Professional Services) are primarily services-related, and an additional 35% (composed of IT/Telecom) are largely-services related.
Furthermore, when you consider that, in some organizations, indirect spend can approach 50% of spend, and that the organization is often left with nothing tangible to show for the spend when all is said and done, strategic category management becomes even more critical on these categories. And extra attention should be focussed on the seven steps that come into play.
Phase 1: Rationalization
When it comes to services, you need to not only analyze your options from multiple perspectives, but consider different strategies. While it is often beneficial to dual-source from a product perspective, to insure continuity of supply, dual-sourcing from a services perspective is often detrimental. For example, hiring two agencies for a marketing campaign is a waste of money, and if, by chance, your cell phone carrier goes out of business, there are at least six more to pick up the business the next day. You will likely need to single source, so you need to do so with care.
Phase 2: Supplier Identification
Not only is it important to open up your search, but it is important to qualify your options more completely. For example, where Marketing is concerned, if the primary need of Marketing is brand building, then the focus should be on agencies with that specific specialty. If the primary need for management consulting is to help the company with international expansion, you need to find a consulting organization with expertise in the target market – and it may not be a Big 5.
Phase 3: Sourcing
Unless you have an in-house expert, you will likely need to call in an expert if you want to get the best deal. Services, and services firms, have their quirks that you will need to understand intimately to get the best deal. For example, in advertising, bundling creative and print is not likely to save you money, as savings in print come from consolidated volumes with a single print house, and volume comes from consolidating orders across campaigns. In Logistics, the best deals are often found on the spot-market, especially if you have a little leeway in delivery schedules. In Telecom, you’ll get a great deal on the most common base package for your mobile devices, but the outliers who go over or who need the high-end packages will be laden with 100% profit margins to help the carrier make back what it gives up on the base. And so on. You need to know the gotchas, and how to avoid them.
Phase 4: Contract Award
The contract is very important, and detailed delivery and performance requirements are a must, otherwise, you’ll have no recourse if the service provider fails to deliver. In agency spend, make sure you have fixed delivery dates, penalties for late delivery, and termination clauses for repeat offences. In print spend, make sure you have contracts that state you don’t pay for their mistakes. In telecom, make sure there are no-pay clauses that state you don’t have to pay after notice of termination is given, even if they forget to deactivate the device/account for 30 days, and that you can apply rebates immediately. In professional services, make sure you have the right to withhold final payment until the final deliverable has been completed and accepted.
Phase 5: Supplier Management
Supplier management needs to be more active than it does in product-based supply chains. In a product based supply chain, once the chain has been worked out, and the first batch of products has been accepted as meeting quality standards, visibility solutions, that inform you of a potential hiccup, can often minimize the need for day-to-day interaction with the supplier until a change is required. No news is often good news. Not so with services. No news is almost always bad news. It typically means things aren’t going to plan and the supplier is trying to avoid telling you. If you aren’t managing the supplier and monitoring the situation, it’s likely that you won’t find out until it’s too late.
Phase 6: Procurement
It’s very important to send a purchase order with a clear statement of work, approved amounts, a payment schedule, and specific instructions (and account codes) for the invoice. It’s critical to capture the correct data for reconciliation, reporting, and evaluation purposes. If you can’t compare approved budget to actuals, you really don’t have a good grip on what your services are costing you.
Phase 9: Recovery Management
If deadlines are not met, overpayments are (accidentally) made, discounts aren’t applied, or other terms and conditions are not met, you will need to recover monies from the supplier. If you have cut a proper contract, appropriately managed the supplier, and procured properly, recovery will be possible (although you may have to threaten / go through with arbitration and/or legal action with suppliers unwilling to cooperate — but be sure you’re ready to sever the relationship before progressing to legal action).
Decideware: An End-to-End Agency Lifecycle Management Solution Part III
In our first post, we re-introduced you to Decideware, global providers of an end-to-end Agency Lifecycle Management (ALM) solution, with offices on three continents (in Sydney, San Francisco, and London) and quickly overviewed the five core modules of the integrated ALM solution that they offer. Then, in our last post, we dived into the Capability and Scope of Work modules and quickly touched on the briefing module. Today, we are going to dive into the Evaluation and Dashboard Modules.
Evaluation
When it comes to cost, most Marketing agencies have a terrible grip on this issue. Generally speaking, they know what they were budgeted at the start of the year, and what they spent at the end of the year when the Controller or CFO tells them. They do a terrible job of tracking costs by project, and if you asked them budget vs spend vs results for any one Agency, you’ll get a blank stare as if you asked them to explain why the tentative confirmation of the Higgs particle by the Large Hadron Collider is important when it comes to the validation of the Standard Model. It’s not a good state of affairs.
However, if they had a proper Agency Lifecycle Management solution where they could enter all cost information at the desired level of detail, or force the Agency to (if the Agency wants to get paid), the state of affairs is completely different. After every phase, they can find out where they are vs. where they should have been and, possibly with Supply Management’s help, take corrective action. In addition, they could track feedback and get an overview of the supplier’s running (balanced) scorecard (as this module grew out of their initial Supplier Performance Management offering).
The evaluation module, combined with the reconciliation sub-module (that is tied to the scope of work and collects the quoted cost data) allows an Agency (Relationship) Manager to dive into actuals vs. cost for any time period, at any level of detail, at any time and determine how spending is tracking according to budget. If costs are high, they can drill down into the primary components, and go right down to the resource level and, possibly, determine that Joe, the highly paid creative resource, who was budgeted to work 10 hours, worked 100 hours. They can then determine if this was a data entry error or a grossly inaccurate estimation on the part of the Agency, and use this data in the post-mortem Agency evaluation.
In addition, they can bring up the Agency’s (balanced) scorecard (history) and see (and compare) the Agency’s performance on each phase, for the project, and across all projects. They can even compare Agency scorecard to see if an Agency is performing average, better, or worse than the other approved agencies.
Dashboard
As noted in our first post, the dashboard, another new module from Decideware, provides a unified interface to all of the modules and functionality contained in the system. From the dashboard, which is designed to work like the user interface to a web-based cube-based spend analysis system, the user can search all of the Agency data, retrieve lists of agencies by geographies, capability, scope of work, and other relevant criteria, and drill down into any data category until they retrieve the (fine-grained) data they are looking for. The best thing about it is, unlike the dashboard offerings of many spend analysis or Supplier Information Management (SIM) providers, it’s almost devoid of fancy graphs and charts. Decideware understands it’s the data that matters and focussed on building an easy-to-use, yet powerful, search, and saved the real estate to display the requested data in an easy-to-understand tabular view with as much drill-down support as you will need.
In addition, from the dashboard, the user can quickly get to all of the reporting functionality embedded in the system, which includes scope analysis reports that summarize resource and fee schedules; organizational analysis reports that summarize costs and actuals; comparison reports that allow the user to compare agencies, fees, capabilities, and functions; and contract generation reports that can generate scopes of work and supporting contracts. (The platform has embedded contract management functionality just like it has embedded SIM functionality.) All of the data can be exported to Excel, and the system can automatically generate work-grids and rate cards.
Overall the system is well-designed and so easy to use that even a Marketer can do it. 😉 So if you want a solution to bring to the Marketing table, make sure Decideware is on your short-list.