Monthly Archives: January 2015

Finally, a Prediction SI Can Get Behind!

By now, everyone should know how SI, and the LOLCats who live under the desks, feel about futurists and their predictions. (You need only scroll back to December 31’s post if you have forgotten.)

So, needless to say, as per prior years, SI is not going to be jumping on the prediction bandwagon (and risk getting trampled by fellow bloggers on the way) as the new year rolls in.

That being said, it has to give a shout out to one prediction from a fellow blogger who may just have it right. Specifically, Peter Smith of Spend Matters UK who, pressed for a prediction, made the amazingly accurate prediction that we predict that all predictions will be wrong.

SI could not have said it better if asked.

LOLCat approves!

One Hundred and Forty Five Years Ago Today

One of the earliest US monopolies, as ruled by the US Supreme Court in 1911 under the Sherman Antitrust Act of 1890, was formed.

Until its dissolution into 33 smaller companies, Standard Oil, formed by John D. Rockefeller, was the largest oil refineries in the world. By 1890, it controlled 88% of the refined oil flows in the U.S. The company, which almost single-handedly innovated the business trust, mastered horizontal and vertical integration, streamlined production and logistics, lowered costs, and consistently undercut competitors. This alone is not a bad thing, as all supply chains should strive for this, but, as noted by the US Department of Justice, Standard Oil offered

Rebates, preferences, and other discriminatory practices in favor of the combination by railroad companies; restraint and monopolization by control of pipe lines, and unfair practices against competing pipe lines; contracts with competitors in restraint of trade; unfair methods of competition, such as local price cutting at the points where necessary to suppress competition; [and] espionage of the business of competitors, the operation of bogus independent companies, and payment of rebates on oil, with the like intent.”

and did what they could to force the competition out of business. This is monopolistic, illegal under the Sherman Anti-trust act, and, to be blunt, unfair. If your processes are efficient enough, your products good enough, and your costs low enough, the public will choose you on their own — there is no need for discriminatory practices or a refusal to work with suppliers that will also work with your competition. Plus, as some of us know all too well, some customers aren’t profitable and monopolies get stuck with those problem customers, but lean, mean, supply-chain machines don’t.

Standard Oil is a good business case to keep in the back of your mind. They did a lot right, and a lot wrong. Take the good, and leave the bad, and your business — and supply chain — might be better for it.

Grocery Retailers Waste So Much Food It Should Be Criminal!

Approximately 1/3rd of all food is wasted in North America. (See 2013’s Thanksgiving Post.) For years, I’ve been struggling to figure out why. It’s well known that the biggest offenders are

  1. processors in developing countries who (due to financial, managerial, and technical constraints) struggle to properly store, cool, and process the food on-time to preserve it.
  2. restaurants, who discard as much food as they discard other waste (Source SI)
  3. retailers, who through bad forecasting, order too much and then spoiled food goes in the dumpster

But it is not well known that retailers intentionally over-order and waste food just to make sure their produce section looks nice (Source Spend Matters). And that is definitely NOT OK! Never, ever, ever! Not when over 13% of the world’s population is undernourished (Source: KFF and Wikipedia) and 15% of Americans, that’s right, 15% of Americans are considered “food insecure” and experience hunger in their households. (Source: FAO Washington)

In other words, the produce that is being wasted by retailers as an “acceptable loss” might be enough to counter a sizeable portion of the undernourishment problem in America — and that’s not counting the waste by restaurants and food processors! There’s no excuse for this. Not only are people going hungry, but we’re paying more for our retailers’ stupidity.

Why do they do this? According to Spend Matters, retailers believe that having a good-looking produce section that is fully stocked with fresh products is essential to get customers in a store. And that having more products than needed rather than running out tends to be better for business. While both of these statements are true, this doesn’t mean that a store has to considerably over-order to avoid stock out or waste food.

Not only has computing power increased dramatically since the pentium was released twenty years ago, which allows large amounts of historical data to be processed on the Procurement Manager’s workstation, but so has the accuracy of demand prediction models which can very accurately predict demand for any product at any time of the year, and even take into account the impact of sales, market shortages, and market recalls. A 1% buffer in these models is more than plenty to prevent stock-outs 99% of the time if these models are properly applied on enough data.

Furthermore, the standard practice of marking the produce down 50% when it starts to rot in hopes in that it will sell before it is unconsumable is stupid. When you see rotting tomatoes, moldy oranges, or squishy cucumbers, you’re not even going to buy them for 75% off. Stores have to smarten up and do two things.

  1. Mark produce down when it’s shelf-life gets down to 72 hours or less.
    Considering we also have very accurate models of shelf life under given situations, this isn’t hard to do.
  2. Donate produce with a shelf-life of less than 48 hours to a local shelter on a nightly basis.

    At this point, the store is taking a 75%+ write-off anyway and it knows it. It would be much better to donate the food, and get a charitable donation tax credit, when the food can still be safely used than throw the food in the waste bin. Especially since the retailer could use this to get a brand boost if it advertises that it donates X$ in food each year to the local food bank.

    No consumer expects every item to be in stock every time they go to the store with the never-ending stream of supply disruptions we experience these days, so the game has to change. And no consumer wants food to go to waste if people in their own city are starving! It’s not about the most fresh produce, but the most responsibility — and these days, a little goes a long way and the first store or chain in a region to capitalize on this is going to get a big brand boost.

And if you are a eco-nut who wants to protest something, here’s a cause. Protest grocery stores that build waste, or shrink, into their model without making sure that such food doesn’t end up in the dumpster. While some sustainability problems aren’t easily addressed, this one is.

Prove Your Mettle with Source-to-Settle

We all know the importance of having both Sourcing and Procurement* solutions as neither solution on its own is sufficient to enable an organization to extract the savings and value inherent in each sourcing and procurement project. For example, the savings that result from the best negotiated contracts in the world as a result of an intense strategic sourcing project will never be realized when a lack of good procurement processes and systems results in over 30% maverick spend. Similarly, the best procurement processes and systems in the world are useless if the organization is unable to take advantage of the data and inherent efficiencies to source better contracts next time around.

However, if an organization wants to achieve the best results, just having both solutions is not enough. Certain categories of savings and value only materialize when the solution is integrated end-to-end. What do we mean by this?

Consider the situation that occurs when an organization has separate Source-to-Contract (S2C) and Procure-to-Pay (P2P) solutions. In this situation, what typically happens is there are two code-bases, relying on three separate databases, that rely on the ERP, the Vendor Master database it controls, and the Inventory Master database the ERP connects to, which is generally under the control of the Logistics and Warehouse Management solution.

In this situation, in order to accomplish a task, the Supply Management professional may need to consult three databases to find the information she needs, use two completely different workflows to issue an RFQ and then issue a PO, and use two completely different solutions to extract the relevant transactions for analysis and do the analysis. It’s not efficient, and, moreover, since data has to be entered in (at least) two different solutions, it’s error prone. As a result, the organization is missing out on up to sixteen different efficiencies and benefits that would otherwise be available to it.

What are these efficiencies and benefits? To find out, download Sourcing Innovation’s latest white-paper on how An Integrated Source-to-Settle Platform Brings Unparalleled Benefits to Supply Management and register for Ivalua’s upcoming webinar that will Help Build Your Business Case Today! on January 28 @ 11 PST / 14 EST / 19 GMT!

Remember, it’s Sourcing and Procurement!

Regulatory Damnation #34: Tariffs

While taxes alone are not damning, as taxes, like death, are one of the only two certainties in life, tariffs, on the other hand, are one of the ongoing nightmares of the Procurement world. Tariffs make the complete personal income tax code of the United States look like a kindergarten book.

For example, the current HTS (Harmonized Tariff Schedule) of the United States is 3,536 pages. And that’s just the US HTS code. The 2007 LIGIE for Mexico is 684 pages, and there have been hundreds of pages of amendments since then.

With 196 countries in the world today, extrapolating, that’s over 200,000 pages of HTS / HS (Harmonized System Code) classifications that an organization needs to be on top off to determine international import and export duty rates. But that’s just the tip of the iceberg. It’s not just keeping track of rates, it’s figuring out the rates that apply. For example, let’s say you want gloves, is it:

    4007.11.70 Leather - full grains   - glove and garment
    4017.12.70 Leather - split grain   - glove and garment
    4107.19.70 Leather - whole hide    - glove and garment 
    4017.91.70 Leather - other         - glove and garment
      ..
    4023.10.40 Apparel - articles      - gloves, mittens and mitts
    4203.29.XX Apparel - cowhide       - gloves
      ..
    6116.10.08 Gloves  - coated        - other
      ..
    6116.92.08 Gloves  - cotton        - other
      ..
    6116.93.08 Gloves  - synthetic     - other
      .. 
    6116.99.35 Gloves  - other textile - other
      ..
    6216.00.08 Gloves  - impregnated   - other
      ..

there are so many (dozens upon dozens of) classification of gloves, that it’s hard to find the right one – and if you pick the wrong one, and especially if you pick the wrong one with a lower tariff rate, then your organization is at risk of significant fines and penalties.

So how do you deal with this? There’s only one way — get a trade market intelligence solution which is kept up to date by people around the globe as classification updates and rate changes come up and easily searchable by the average Procurement professional who is not an expert in H(T)S code structures. There aren’t a lot of options, but SI recently covered one company, Integration Point, that has been building such a solution for almost 10 years. Why do you need a third party? Integration Point, which maintains a global content team, made over 2 Million updates to their global H(T)S code database in 2014 in an attempt to keep up with the never ending string of updates that are regularly released by countries around the globe. (Some countries release updates on a weekly basis. For example, Brazil once updated its HS code 80 times in one year.)