Monthly Archives: April 2015

Are Conferences Perpetuating Supply Chain Stasis?

It’s conference season, and you know what that means. Thousands of people flocking to ISM next week to hear about the “state-of-the-art” practices and technologies that will revolutionize your supply chain, take you into the modern age, and prepare you for what comes next. Except they won’t.

For the average organization that still hasn’t adopted a modern e-Sourcing or e-Procurement system, the technologies being presented by even the vendors who haven’t updated their core platforms since last decade will still be revolutionary and for the average organization that is just dipping their toes into the waters of modern supply management processes, the talks will be inspirational and progressive and, for all practical purposes, look like a transition from the industrial revolution to the information age. (And, for some organizations, it will be. But it won’t prepare you for what comes next.) It will be like seeing the world through rose coloured glasses for four days straight. By the end of the conference, the average attendee will be in awe of the possible and leave in a state of hippie bliss (until he gets back to the office and crushing reality cracks his lenses and he’s forced to again see the cold and depressing blue sky, the blood red losses, and the blackness of the bottomless pit that new ideas get tossed into).

But for a leading organization, the majority of technologies will be outdated, the practices insufficient, and the talks sleep inducing. That’s because, for the most part*, it will be the same vendors as last year, the same practices that were being presented as revolutionary five, if not ten years ago, and different speakers giving the same scripted success talk that you have heard from the leaders who have used these technologies and processes for the last five years.

the doctor downloaded the thirty-four (yes, 34) page “brochure” for ISM and didn’t see one new idea in the entire publication. Not one. Moreover, while a few of the topics only became trendy in the last few years, there appear to be only two talks focussed on TCO (Total Cost of Ownership), one on integrated supply chains, and zero on supply chain modelling.

This is a serious problem. We’ve reached the point where supply chain success for the average organization is becoming dependent on preventing supply chain disruptions and failures. Supply chains span the globe, lean is the name of the game, JiT is widespread, disasters (natural and man-made) are on the rise, margins are thin, and customer loyalty and patience is thinner. It doesn’t matter how well you source if you can’t execute. It doesn’t matter how well you procure if you can’t control your costs. The best laid risk avoidance and mitigation plans are worthless if you can’t monitor for risks and implement mitigation plans at appropriate times. The best spend analysis system in the world is useless if the data is incomplete or too dirty. You can’t optimize what you can’t model. And so on.

Moveover, every savings opportunity you identify at one stage of the supply chain or management process can result in a larger loss at a different stage if the opportunity is not analyzed appropriately. Sure you can save money by consolidating supply, but if a single source is unable to deliver and the organization has to buy on the spot market at the last minute, the 5% savings could be a 10% loss. Reducing inventory can significantly reduce the 25% inventory overhead cost, but could result in stock-outs that lead to million dollar revenue losses if the organization runs too lean and a transportation strike cuts off the just-in-time supply. Better supplier oversight and management can certainly increase quality and reliability, but is the additional cost of the SRM systems and staff to manage the relationship less than the additional value generated?

True value comes from looking at an integrated supply management process, which might take the form of a full category management lifecycle or a complete strategic sourcing execution lifecycle, modelling the physical supply chain and associated costs, and computing the full total cost of ownership of the current scenario and an expected improvement.

But good luck finding anyone who looks at the supply chain as a whole from this perspective, especially when few people will even address the subject.

And this is why the doctor does NOT attend ISM. When you’re trying to identify the next evolution of supply management, or even if you are a true leader, unless you enjoy preaching from the pulpit, it’s a little depressing.

* There will be some exceptions.

Why Finance is Failing Procurement

Today’s guest post is from Pierre Mitchell, the maverick of Spend Matters, who needs no introduction.

I’m doing a 5-7 minute poll (here) on Procurement-Finance misalignment (in conjunction with ISM).

This poll is basically geared around the question below regarding what Finance needs to do differently.

The long version takes about 15-20 minutes, but gets you entered to win an Apple Watch or one of 10 Spend Matters PRO monthly subscriptions.

I’m presenting provisional results at next week’s ISM Conference, and I’m going to take a snapshot of the data this Friday and need some good provisional data to present!

So, if you are a practitioner (and I apologize for not reaching out 1-to-1) I would like to personally appeal to you to take the 5-7 minutes required to help the profession build this case for change.

If you are a provider, I would greatly appreciate if you could pass this on to any of your practitioner contacts this week.

The study link that you can forward is here:


And here’s the question in question …

How can Finance reduce misalignment with Procurement and unlock impactful value for your firm?

Please choose all that apply that would have a favorable and meaningful impact on your performance.

These items would have a favorable and meaningful impact:

  1. Don’t reduce working capital at the expense of supplier health and TCO
  2. Look beyond headcount reductions for project justifications
  3. Provide more resources to get spending, contract, and savings visibility in place (for mutual benefit)
  4. Include Procurement in upstream strategy & planning activities (M&A, JVs, Innovation, Tax Efficiency, Variabilization, etc.)
  5. Fix the “use-it-or-lose-it” budgeting process that encourages end-of-period spending
  6. Establish a more effective procurement involvement/approval policy and process
  7. Be an advocate, enabler, and leader for strategic cost management processes/ practices
  8. Help manage external expenditures with the same rigor that is applied to internal expenditures
  9. Provide Internal Auditors and Controllers as change agents to help Procurement
  10. Treat procurement as a true partner and a profit center rather than just another cost center
  11. Don’t try to use the General Ledger as a spend data warehouse
  12. Move A/P from a payment efficiency focus to a spend management effectiveness focus
  13. Measure Procurement on value beyond purchase cost reductions (especially PPV)
  14. Help get Legal involved appropriately in the contracting process as an enabler and partner
  15. Help coordinate and prioritize corporate risk/compliance activities that should be taken out to the supply base coherently
  16. Get a supplier master data management process and policy that works for everyone
  17. Invest in needed supply risk management capabilities to help protect the business

Environmental Damnation 24: Rare Earth Metals

As defined by Wikipedia, a rare earth metal (REM), or rare earth element (REE), is one of a set of seventeen chemical elements in the periodic table, specifically the fifteen lanthanides, as well as scandium and yttrium (because they tend to occur in the same ore deposits and exhibit chemical properties). While many of these elements are relatively plentiful in the Earth’s crust, they are rare in that, due to their geochemical properties, they are typically dispersed and not concentrated in ore deposits that are (easily) economically exploitable.

They are a damnation because:

  • almost every piece of modern technology depends on at least one of these elements
  • many of these elements are in short supply and supply, based on current mining capacity, is expected to be insufficient as early as 2020 for some of these elements
  • many of them cost more than precious metals
  • on average, 95% (or more) of rare earth metals are now being mined and provided by a single country: China
  • … and China is considering export restrictions that could significantly cripple global production of modern technology if implemented

To illustrate just how important these metals are, consider the common uses:

Metal Selected Uses
Scandium aerospace, metal-halide and mercury vapor lamps, and radioactive tracing agents
Yttrium lasers, superconductors, microwave filters, and spark plugs
Lanthanum flint, hydrogen storage, battery electrodes, camera lenses
Cerium oxidizing agent, polishing powder, catalytic uses
Praseodymium magnets, lasers, carbon arc lighting, didymium glass
Neodymium magnets, lasers, didymium glass, ceramic capacitors
Promethium nuclear batteries and luminous paint
Samarium magnets, lasers, neutron capture, masers
Europium phosphors, lasers, mercury-vapor and fluorescent lamps
Gadolinium magnets, lasers, X-ray tubes, computer memory, neutron capture, MRI contrast agent, magnetostrictive alloys
Terbium phosphors, lasers, fluorescent lamps, magnetostrictive alloys
Dysprosium magnets, lasers, magnetostrictive alloys
Holmium lasers, optical spectrophotometers, magnets
Erbium lasers, vanadium steel, fiber-optics
Thulium X-ray machines, metal-halide lamps, lasers
Ytterbium lasers, decoy flares, stainless steel, nuclear medicine
Lutetium positron emission tomography, lutetium tatalate hosts

And every computing device requires magnetics, memory, and optimal transmission (and this includes your laptops, phones, cameras, cars, etc.). These days almost everything has a microchip with a persistent (flash) memory. So when you consider the five-pronged reality described above, rare earth metals are quickly becoming a thorny Procurement Damnation.

If You Still Rely On ERP, You Could End Up in the Supply Chain Disaster Record Books!

Back in 2006, Supply Chain Digest put out a paper summarizing the 11 greatest supply chain disasters, which it revised in 2009. (Download from SCD.) They are summarized in the following table:

Company Impact Cause
Foxmeyer Bankruptcy ERP and Automation Failure
GM Billions Lost Robotics
WebVan Bankruptcy ERP and Automation Failure
Adidas Forecasts 80% off; market losses persist for years ERP and Automation Failure
Denver Airport Late opening; PR fiasco Automation Failure
Toys R Us 1000s of orders unfulfilled; huge PR fiasco Serious Understaffing
Hershey Foods 150M+ revenue loss; 19% profit loss; stock plummet ERP and Warehouse failure
Cisco 2.2B inventory write-down; 50% stock plummet ERP and Inventory Forecasting
Nike 100M Profit shortfall; 20% stock drop ERP and Inventory Forecasting
Aris Isotoner Fire Sale Outsourcing Snafu
Apple PR Black Eye and Major Market Share Loss Conservative Inventory Strategy

See a commonality? Six (6) of the Eleven (11) failures are directly or indirectly caused by an ERP fiasco. Three (3) are due to poor inventory planning and/or management and ERP (integration) failures, and three (3) are due to warehouse automation failures (and include an ERP integration failure or management component). Technology has been the leading cause of major supply chain disasters, and the technology has always been either the ERP, or dependent on the ERP.

If this does not convince you that ERP is NOT Enough and an over-reliance on your ERP system is just a supply chain disaster waiting to happen, I don’t think anything will and will advise that if you are religious and pray, start praying for a smooth supply chain today. (Not that the doctor thinks praying will help, but nothing will as long as your organization over relies on the ERP.)

For a detailed discussion of Why ERP is not Enough, I suggest, if you have not already done so, downloading the linked white-paper by b2bconnex today (registration required).

As the doctor pointed out in his last post, not only does the paper address some critical ERP shortcomings in detail that you need to understand, but it also helps you understand why you need, depending on your business, ether a modern sourcing platform, a modern procurement platform, or, particularly in manufacturing, a modern supply chain communication and collaboration platform that handles all critical communications. And it does so without any reference to any particular platform and contains no marketing spiel, a rarity for a vendor white paper today.

So go ahead and download Why ERP is NOT Enough today and begin your journey to the adoption of a modern supply management platform so that your organization does not end up on the top 11 supply chain disasters list due to an inevitable ERP failure. (Like a natural disaster, it’s not a matter of asking “if” it will happen, it’s a matter of being prepared for “when” it will happen.)

45 Years Ago Today

Your intellectual property became safer throughout most of the world when the WIPO Convention entered into force and formally established the World Intellectual Property Organization.

The goal of WIPO is to provide a global policy forum where governments, intergovernmental organizations, industry groups, and civil society come together to address evolving IP issues. In addition, it manages the International Patent System that allows an individual or organization to seek patent protection by filing one international application and provides an international Alternative Dispute Resolution service to resolve IP disputes outside the courts in a neutral forum that can save you time and money. While big American companies prefer the courts, IP cases can run up legal bills in the hundreds of thousands of dollars, often more than the patent is ultimately worth.