Monthly Archives: January 2016

Do You Have Your 2016 Supply Risk Management Game Plan?

Here at SI, the doctor certainly hopes so because you are going to get hit with at least one disruption this year, and chances are it is going to be fairly significant. (I.E. one that will result in, at least, a 3-month stock-out if not promptly mitigated, and not a 3-day stock out that, unless you are Apple launching an iPhone, won’t affect sales noticeably.)

As regular readers know, risk is still increasing, and the odds of your organization not getting hit with at least one significant disruption over the next 12 months is, at best, 1 in 10. You have better odds of winning a prize in a Lotto 6/49 draw (in Ontario, Canada where you win a Free Ticket and effectively get your investment matched on the next draw when your ticket matches 2 of 6 numbers) than of not experiencing a significant supply chain disruption over the next twelve months. Ouch!

But you’re overworked, underpaid, and not trained in risk management and probably don’t have a game plan yet. So what can you do?

Well, you can start by checking out the doctor‘s and the maverick‘s recent four part series on Your Supply Risk Management 2016 Game Plan over on Spend Matters Plus (membership required) which dives deep into how you can best define manage your supply risk programs. This series:

  • defines the types of supply disruption, product cost volatility, regulatory compliance, and reputation risk you need to plan for
  • explains why you have to think global and implement local to develop an effective strategy
  • gives you strategies to identify primary risks, mitigations, indicators, and monitors
  • helps you understand how you can align risk and reward to get support
  • helps you understand how to get more C-level visibility
  • and presents a scoring methodology that demonstrates business impact, which is critical to getting C-Level support

All four parts were up as of last month, and all four are a must read for anyone who needs to get a grip on supply risk and how to handle it. Don’t wait until it bites you in your backside three days after a critical order was supposed to arrive (but didn’t because the tier 1 supplier decided not to tell you when the tier 2 supplier didn’t supply the raw material needed for production, which is no longer available because a mine collapse reduced the available, limited, global supply by 10%). The bite a supply disruption can take out of your business is much worse than a boghog will take out of your backside. So SI strongly recommends you check out the following now:

Seventy Years Ago Today …

… we entered the communication space age with the successful completion of Project Diana, an experimental project of the US Army Signal Corps in 1946 to bounce radar signals off of the Moon and receive the reflected signals. The first experiment in radar astronomy, it used a large transmitter, receiver, and antenna array constructed for the purpose in a laboratory at Camp Evans. The transmitter, provided 3 kw at 111.5 MHz in 1/4 second pulses applied to the antenna, a reflective array attend composed of an 8×8 array of half wave dipoles in front of a reflector that provided 24 dB of gain. Reflected signals were received about 2.5 seconds later (which is the time required for the radio waves to make the 768K km / 477 mi journey), proving the technique and successfully completing the experiment.

While moonbounce communication was not that practical (outside of its use in radar astronomy to map Venus and other nearby planets), as it was abandoned by the military with the advent of communications satellites a mere two decades later, and is now only used by amateur radio operators, it did usher in the communication space age and should not be forgotten.

Two Hundred Years Ago Today …

… saw the first successful test of a Davy Lamp, a safety lamp for use in flammable atmospheres that consists of a wick lamp with the flame enclosed inside a mesh screen that acts as a flame arrestor. The idea is that air (and firedamp) can pass through the mesh freely enough to support combustion, but the holes are too fine to allow a flame to propagate through them and ignite any firedamp (like methane) outside of the lamp.

While this lamp, designed to decrease accidents by preventing explosions that would maim or kill miners when there was an abundance of methane or other combustible gasses, actually increased mine accidents (as miners believed it was now safe to work in parts of the mine that had previously been closed for safety reasons), successors did eventually increase mine safety and allow mines to be worked more safely (when the lamps, such as the Protector Garforth GR6S flame safety lamp, are properly used).

When the lamp was first released, miners believed they could work in sections of the mine that had unsafe levels of methane because the lamp would not ignite the methane. This was true only insofar as the lamp was not damaged, but, in the original design, the bare gauze was easily damaged and the lamp became unsafe as soon as a single wire broke or rusted. Plus, because the mine owners thought the safety lamps were enough, they did not install proper ventilation to keep methane levels down (which would have prevented methane explosions from slightly damaged lamps).

But, eventually, legal requirements for legal air quality and safety lamp improvements made mining safe, and the raw materials we all depend upon to create our products became easier to mine and supply became more predictable. While the Davy Lamp may have been a bump in the road, it was an important invention on the road to modern mining.

The 101st Damnation!

And now, the damnation you’ve all been waiting for. The one that even tops damnation 100, bloggers, like the doctor.

Have you figured it out yet?

It’s obvious, isn’t it?

The last damnation is … is …

YOU!

You chose a career in Procurement (or at least accepted it when you were forced into it).

You stuck with it.

You believe you can make a difference.

You continue to stick with it, day in and day out, while everyone else tries their best to discourage you, circumvent you, and utterly make your life more of a living hell than it already is.

You continue to fight the underdog fight when the entire C-Suite is in the other corner.

In other words, while we didn’t start the fire, as it was always burning since the world’s been turning (as the world’s second, or is it third, oldest profession), our continued effort to fight the fire feeds the flame of damnation.

In our continued attempt to make the business world a better place, we clash with all of the departments, feel pressure from all of the authorities and influencers, and feel the constant consumer wrath as we struggle with infrastructure, regulations, and society as a whole. We get caught up in the geopolitical environment, get crushed under the weight of the economy, get reigned in by the environment, get boxed in by our providers, and, finally are constantly hindered by the technological limitations we are forced to live with.

Damnation is not self-perpetuating, but it gets reinforced every time we acknowledge it and fight against it.

But all is not lost. We might still be losing the battle, but if we are strategic in all of our actions, someday, we might just win the war.

Beyond Sourcing Optimization: The Best Bundle is Only the Beginning Part II

As per our last post we recently discussed the criticality of optimization in
It’s Not Optimization, It’s Strategic Sourcing, explained that Even “Simple” Categories Hide Extreme Complexity, and pointed out Why Your First Generation Platform is Not Ready for Modern Sourcing in the hopes that you would understand that you need to be ready for Complex Sourcing.

But Strategic Sourcing Decision Optimization (SSDO) is only one area where optimization can be applied to add organizational value. There are at least half a dozen other areas where optimization can be successfully applied in a progressive organization that is a leader in its industry. As noted in our last post where we briefly discussed inventory optimization, production optimization, and demand optimization — three areas that can hide considerable cost savings when properly analyzed — there are a number of areas in an organization where optimization can identify considerable value. Today we will discuss three more areas.

Service (Level) Optimization

The goal of service level optimization is to find the right balance between customer satisfaction and service cost to maximize profitability while minimizing customer dissatisfaction. While everyone would like a robust high-quality product that lasts until they are done with it, that’s not always feasible. The very nature of many product lines — electronics, automotive, plastic-based CPG is that the products will break down with regular use and/or regular exposure to the elements. Better materials, better manufacturing, and better care will lengthen lifespans, but computing equipment, cars, and plastic boxes don’t last forever. And if the intended lifespan is 3 years, it’s not cost effective to build a product expected to last 13 years. However, the nature of things is that if you build a product expected to last 3 years, some units will breakdown and need to be replaced before the 3 year mark is up (and some will last longer). So what level of warranty do you need to offer, what level of service (in terms of repair / replacement window), how much will it cost, and how much will the market bear. Finding the right base / extended offerings and price points is key to maximizing both consumer demand and customer satisfaction.

Asset Optimization

Big organizations have a lot of assets, often assets they often don’t know that they have. For example, unused compute power in the data centre, unused production time at the factory, and unused equipment in the yard. This last category can be a huge burden to an organization that is paying a lease or amortized monthly payment on a 10-year plan for equipment that is only being used part of the time. (That’s why renting by the job or renting out might be a better solution.) And if an organization is continually renting the same equipment for multiple projects, it might make sense to buy and share the equipment between projects, even if it has to be transported between locations. Asset optimization can save an organization a lot of money and can often, when done properly, considerably increase working capital. This brings us to:

Working Capital Optimization

Optimizing the balance between assets and liabilities, working capital ensures that a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses without creating a crushing debt load or jeopardizing long term profitability. Working capital optimization is tricky as it involves balancing with DPO (days payable outstanding) with DSO (days sales outstanding), early payment discounts (on the inbound and outbound supply chain), supply chain and invoice financing, short and long term investment opportunities, and short-term gains vs. long term cost reductions. It’s not easy, and, like all of the other examples of optimization covered in this brief two-part series, often requires sophisticated optimization.

These are just a few of the examples where optimization can yield significant benefits beyond sourcing and where Sourcing can bring additional savings and value to the enterprise since it will be able to collect a lot of the data and intelligence that is required to build, and solve, the sophisticated models required.

In future posts we will discuss these types of optimization in depth as well as the new breed of providers tackling these types of supply chain optimization. Stay tuned.