Monthly Archives: March 2016

The Logistics Industry Talent Shortage Is Its Own Fault

For years we’ve been hearing about the logistics industry worker shortage which, over the years, has had the worker shortage projection increase from a little over 100K when the shortage was first reported as bad in the mid 2000s to 1.4M jobs in 2018 according to a 2014 Fortune article. Now, not all of this is a driver shortage — some of this is a shortage of talent in high tech, analytics, robotics, engineering, seasoned managers, marketers, data analysis, and even human resources — but a significant portion of this shortage *is* a driver shortage.

But why is there a driver shortage, especially when the “un”official U-6 unemployment rate in the US, which includes all unemployed persons as well as persons marginally attached to the labor force plus persons employed part time who would like to be employed full time, is still 9.9%? (If you do the math, that’s over 31M people looking for at least some work … should be easy enough to fill a few hundred thousand driver jobs, right?)

Wrong. The shortage keeps getting worse. But why?

The answer is multi-faceted but one of the big problems is the double-edged sword of perception. How the general populace outside of the logistics industry views logistics and how the workforce inside logistics views the general populace. We will discuss both of these.

The first problem is that, in the US in particular, truck driving is seen as an unglamorous blue-collar job for those who are average, lack drive, and live in a trailer park. It’s not a job for the middle class or those who are part of the respectable community. It’s hard to get truckers if you can’t even get applicants.

But this is only half the problem. The other half is that truckers believe that their brethren should be like them — middle-aged men who like to share crude jokes in old-school truck stops and who fit the stereotype of the trucking industry. If a young women were to apply for the job, she’d have to put up with funny looks and crude, disrespectful jokes, on a daily basis. This is a shame, because now that the job no longer requires brute strength, it can be done by anyone, including a woman — who probably has better time management skills, a calmer head during traffic jams, and less tarnishes on her record (which is a statistical fact).

But, as per this great article over on the BBC on why don’t women become truckers, no matter where you go in the world, it’s the same. A woman driving a lorry gets funny looks and has to listen to unfunny jokes and has to listen to things like wow, I didn’t know women could drive trucks. But a woman can like driving a truck just as much as a man. And a woman who needs a job can be just as willing to drive one as a man. Especially if it was to be again seen as a respectable profession (which first requires people in the industry to treat others with respect).

If the perception improves, the industry can attract more truckers. There might still be a worker shortage, but it would not be nearly as bad if the industry was attracting applicants of both sexes on a regular basis.

Why You Need MROaaS

Yes, you need MROaaS. Everyone needs MROaaS. ( But don’t tell your boss you need MROaaS, spell it out, because we all know what she’s likely to hear when your tongue trips over this one. 😉 ) Next to T&E (not T&A), it’s probably the biggest tail-spend savings opportunity in the enterprise. And it deserves to be addressed.

MROaaS, short for MRO-as-a-Service, which is itself short for Maintenance-Repair-and-Operations-as-a-Service (which is very unsexy when you say it this way), is, for large organizations that need to maintain a lot of inventory on hand, the biggest overlooked outsourcing opportunity in the business. Inventory is costly (and many estimates put annual inventory overhead at 25% of product cost). But not having the right inventory at the right place at the right time is even costlier. (Downtime leads to lost production and, ultimately, lost sales which is very costly when you still have to pay the day-to-day overhead, including your employees’ salaries.) And MRO is often the biggest consumer of long-term inventory (because the majority of goods for sale will move in and out within a few months, or even a few weeks, while MRO inventory could shit on the shelf for two years). So inventory optimization alone is a good reason to have good MRO.

But that’s not the only reason to have good MRO. The reality is that, in an average organization:

  • over 20% of inventory on the shelf is excess and/or obsolete
  • fill rates for most MRO storerooms are closer to 75%
  • there is supplier “lock-in” even where alternative sources of supply exist

And the losses mount quickly.

But these aren’t the only problems organizations face. Most also have to deal with

  • recall inventory not getting identified and then being used when it shouldn’t (which creates hazards)
  • significant expediting when a part is out of stock and it is needed yesterday
  • inefficient returns management when the wrong part gets shipped or a part is identifies as bad six months (or three years) down the road (when it might not even be returnable)

And the losses continue to mount.

But with good MRO:

  • excess and obsolete inventory can be reduced by up to 90% (or more)
  • fill rates can exceed 95%
  • alternative sources of supply are easily identified
  • recall inventory is immediately identified and returned
  • expediting becomes the exception rather than the rule
  • returns are properly handled in a timely fashion

And the organization stops bleeding red.

And this is why the organization needs good MRO. But why does it need MROaaS. Slowing down the cash hemorrhage is one thing. Improving the organization’s overall health is another. Good MRO can add value in a lot of ways. In addition to the inventory optimization that will see the results above, it can also provide:

  • proactive shipment monitoring to insure the right shipment is made at the right time
  • lean process improvement to take time and cost out of the process
  • supplier consolidation to allow for more volume-based cost reduction opportunities and more time to focus on each supplier
  • supplier development programs to insure that supplier performance improves over time

And this is just the tip of the iceberg a good MRO program can provide. But a typical organization, which never gets to the MRO tail-spend, is not an expert in MRO. It’s not even a novice in MRO management in most cases. This is where MROaaS comes in. For the most part, the only organizations that are true MRO experts are those that provide MROaaS. And since it takes true expertise to go from cost reduction to value generation, you need MROaaS.

And if you are still not convinced, the doctor and the maverick have put together a detailed four-part series over on Spend Matters on the subject that should provide all the education you need on why MROaaS is something that has to be considered if MRO spend is a significant part of the organization’s tail spend. Parts I and II are already up and available here:

Why You Need Mass Adoption Of An Optimization-Backed Sourcing Platform

Last week, in our post on why Higher Adoption is Where the True Value of Optimization Lies, we emphasized the importance on not just having optimization, but an optimization-backed sourcing platform that can be used by the most junior of buyers. We focussed on the efficiency, time savings, and value such a platform would bring, but didn’t give you any hard numbers. While the hard numbers will be hard to come by, SI expects that the savings that hit the bottom line from such a platform will increase by at least 150% over using stand-alone optimization, and more than likely will double what an organization would see if it just used a regular strategic sourcing platform without optimization. We know that 2.5X is not a very impressive number when vendors go around talking about 10X ROI, but the ROI that vendors promise is relative to the cost of the platform, not the ROI relative to the organization’s bottom line, and that’s what really counts.

The reality is that, at the end of the day, after COGS, depreciation, taxes, etc. are factored in, a good Procurement organization might only take 2% off of the bottom line. This doesn’t sound that impressive, unless the organization is a 10B organization where 2% is 200M, in which case it’s knock your socks off impressive. Now imagine if that same Procurement organization could increase the straight to the bottom line savings by 150% and show a bottom line savings of 5.2%. That’s another 320M in annual savings for a total savings of 520M! That’s buy everyone on the Sourcing team a custom made Jaguar savings because no other initiative is going to take that much off the bottom line.

But you don’t have to be a 10B organization to see the impact. Imagine you are a small mid-size organization with only 100M in annual spend. Instead of seeing an average year-over-year impact of 2M, you’d see 5.2M. If a fully burdened FTE is 200K and you had a small Procurement department of 5 people managing your spend, the department’s ROI would go from 2X to 5.2X in a single year, and that is quite significant.

So where are these, quite conservative, numbers coming from?

  • A Best In Class Organization has 80% of spend under management (Hackett, Gartner, etc.)
  • A Best in Class Organization will strategically source approximately 1/3 annually (due to resource restrictions) (Crowd Wisdom approximation used by many vendors)
  • A Best In Class Organization with stand-alone or hard-to-use optimization capability will only put the top third of complex, strategic, or high volume spend through the organization (Generous crowd wisdom approximation based upon SI’s interaction with optimization vendors)

As a result, (at most) one-third of one-third of four-fifths of spend gets optimized on an annual basis, or about 9% gets optimized using strategic sourcing decision optimization and the full extent of its capability.

However, if the organization has an optimization-backed sourcing platform that is configured for one-click evaluations and automatic weighted auction awards for low-cost / standard categories,

  • 98% of spend can be under management (as it can flow through the platform as easy as it can flow through an auction or spot buy RFP),
  • one half of that can be sourced annually due to efficiency gains
  • and all of this spend will be subject to optimization.

This means that about one half of organizational spend, or about 48% of spend, can get at least partially optimized on an annual basis. In other words, an organization can subject 5x its spend to optimization on an annual basis.

The net result is that an organization that adopts an optimization-backed sourcing platform that can be used by every buyer will see at least 150% more savings hit the bottom line every year. Why?

If we look at the numbers:

  • the average return from Procurement at a world class organization is 4.7% (Hackett Group)
  • the average return on tail spend (which is never strategically sourced) is 7.1% (Hackett Group)
  • the average return from SSDO on a strategically sourced category where the full power of the solution is enabled is 12% (Aberdeen)

This leads to the following (where we assume 20% of spend is “tail spend”):

Traditional:
09% using SSDO @ 12.0% savings = 1.0% savings
18% using SS   @ 04.7% savings = 1.0% savings
TOTAL = 2.0% savings
 SSDO Platform
38% using SSDO @ 12.0% savings = 4.5% savings
10% using SSDO @ 07.1% savings = 0.7% savings
TOTAL = 5.2% savings

Now, mileage will vary among organizations, but this example should make it pretty easy to see that optimization is a huge value driver that will have a significant impact on your bottom line when it is widely deployed.

So if you want to know what to look for in an optimization-backed sourcing platform, download Optimization: Higher Adoption is Where True Value Lies (registration required) today and find out what you need to take optimization from a success to a smashing success in your organization.

Technology Sustentation 80: The Cloud

As SI said in our post on technology damnation 80, software was good. Hosted ASP was better. True multi-tenant SaaS was better still. But the “cloud” is, more often than not, the one step back that follows the two-steps forward.

The cloud is not a white fluffy cloud full of day dreams, it is a gathering storm cloud that could soon erupt and flood your entire operation while the hail it dispenses pummels you to a bloody pulp.

As per our damnation post, if you are not careful, you could:

  • lose your mail,
  • lose your data,
  • lose your platform, and
  • lose your customers as well as
  • lose your supply chain visibility,
  • lose your revenue stream, and
  • lose all the cash in your bank account

And you could be permanently lost at sea when the floods carry you away.

Unless, of course, you take precautions. What kind of precautions? Every kind of precaution you can take. But at a minimum:

  1. Make sure that your providers’ platforms are designed in such a way that not only is there no data cross-pollination, but that there is no access cross-pollination. This may require that the provider not only create a new instance for each client, but run it on a new virtual machine. (The database can be on one server, as long as it’s encrypted and the encryption for each client uses a unique key so that if a hacker gets through to the database through another client’s poor security configuration, and gets all the data for that client, your data can’t be decrypted.)
  2. Make sure that the provider supports encryption across all of your data, not just parts of it, and that it is up to date (and up to snuff). Even data that might be considered inconsequential can be enough to be damaging if enough bits of it are pieced together.
  3. Make sure the provider does near-real time incremental, replicated, distributed, off-site back-ups to make sure that, in the case of hardware failure (or FBI/NSA server seizure), your data is not lost.
  4. Make sure the provider has multiple real-world data centres that the platform can be run on in case one (or more) data centres become unavailable.
  5. Make sure the provider has a distributed fault-tolerant up-time monitoring solution that can detect if an application instance becomes unavailable and restore the most recent back-up to a different data centre and do the necessary re-routings in (near) real time.

In other words, security, fault-tolerance, and distributed processing and back-up are critical. Without it, you’ll be hacked, your system will go down, and you may not get it (or even your data) back.