Monthly Archives: April 2016

Trend Analysis: Mantic or Misguided

Trend Analysis, formally defined by Wikipedia as the practice of collecting information and attempting to spot a pattern, or trend, in the information is typically presented by providers of analytics packages as the miracle your organization has been looking for to power your productivity and process improvements. After all, if you can’t use the data you have to get a good sense of how you are doing, how are you going to figure out how you are doing, if you can improve, by how much, and what you should do.

This is true, provided that the trend analysis is statistically reliable, on accurate data, and comparable to a meaningful benchmark. But this is not always the case, and when the trend analysis is poorly implemented or applied to poor data, definitely not the case. In fact, if the trend analysis is not accurate, it will cost the organization precious time, money, and resources and result in considerably worse, instead of better, performance. And even though you don’t hear about it (as the last thing a major provider of analytics solutions wants to do is scare you away from their very complicated, and extremely expensive, solution that is supposed to save you 3X to 7X its annual cost), analytic-based screw-ups happen more often than you think. And if they happen to you, you will be cursing the analytics package until it’s off the asset sheet (and beyond).

the doctor is being dead serious here. Trend Analysis (like dashboards) hide half a dozen serious dangers that can seriously hinder productivity, savings, and even innovation. Half of these are common to internal trend projections and half to external trend projections.

One of the most significant dangers of internal trend analysis is missed opportunities. If an analysis of fulfilment time analysis over the past six months indicates that the organization is likely to continue to hit its 90-day delivery guarantee by at least 3 days, the organization may think that all is fine and well, but not realize that just hitting the 90 day delivery guarantee is costing the organization money. What if the average stock-out rate is 10%, and 6% of that are stock-outs that are less than 40 days. What if the organization could change lanes and carriers and get the delivery guarantee down to 50 days? This could reduce the stock-out rate by as much as 60%, and if this stockout rate is costing the organization 10M a year, that could be a 6M savings overlooked because the trend analysis creates an all-green dashboard.

One of the most significant dangers of external trend analysis is innovation stunting. For example, the trend analysis could show that the organization’s conversion to sustainable energy is outpacing its peers by 5% and think that it is doing great. But what if it has the opportunity, due to its locale, to switch to solar or hydro at a rate that would outpace its peers by 10% and take another 20% off its annual energy bills? Without knowledge of the possible, the analyst could completely miss that innovative opportunity.

But these are only two of the six major hidden dangers that can rear their ugly heads as a result of the misapplication of trend analysis. For a detailed insight into the other four, download the doctor‘s latest white-paper (sponsored by Trade Extensions) on The Dangers of Benchmarks and Trend Analysis (registration required) today. You need to know these inside out before even considering using trend analysis (which, when improperly constructed and improperly interpreted, can be just as deadly and dangerous as a dashboard).

Societal Damnation 41: Fraud & Corruption

As per our damnation post last year, fraud and corruption is everywhere and running havoc on your organization and your supply chain. A recent Kroll Global Fraud Report in late 2013 found that 70% of companies were affected by fraud in the prior 12 months, which represented an increase of 15% over the previous twelve months. In other words, at the time, 7 in 10 companies were hit by fraud in the previous year. But it gets worse. The Economist at the same time also found that fraud was on the rise and predicted that it would continue to rise. If the rate of increase remained steady, then 4 of 5 businesses got hit with fraud last year and 9 out of 10 business will get hit with fraud this year. Yowzers!

Procurement fraud can be particularly costly and damaging regardless of if you are in the public sector or the private sector. The UK public sector estimated that fraudulent purchasing on an annual basis cost it £ 2.3 Billion in 2012! Zoinks! And while it’s harder to find good numbers for the US, a 2011 report by Computer Evidence Specialists found that Fraud cost the US $1.32 Trillion in 2010, of which 733 Billion was Corporate (with 68% committed by corporations and 32% committed by employees). Hamana! Hamana!

If you are a large organization, whether you want to admit or not, there is a small percentage of employees, suppliers, and customers that are looking to rip you off for as much as they think they can get. Every day of the week, including Sunday. Not everyone, not by a longshot, but enough people to make your job miserable.

So what can you do? As per our damnation post, a good start is to

  • have an invoice policy that is strictly followed that only accepts invoices from approved suppliers, only for approved goods or received services, and only at contracted or publicly advertised rates
  • have strict spending limits and controls that enforce them which ensure that only people with authority can grant approvals for bypass, and that such approval is clearly logged in an auditable fashion
  • careful inspections of all goods received to make sure the organization gets what was ordered and what is paid for

But that’s just a start. The organization should also:

  • analyze all invoices or expenses without a PO very carefully to ensure they are not duplicate, that the goods or services were received, and that the prices billed are the prices the organization committed to pay
  • have strict policies on who is allowed to buy and what they can buy and have a policy that repeated or serious offences can, and will, result in immediate dismissal
  • have a standard contract rider that no invoices for off-contract goods or services will be accepted without a PO that all contracted suppliers must sign, as this will severely limit how many unexpected invoices show up
  • use data mining and machine learning to identify potential fraud as the same receipt submitted 3 times two months apart, or patterns of the same no-receipt charges, or duplicate billings for the same service months apart will be immediately identified as suspect, for example
  • keep up on fraudulent statistics and schemes and identify methods to enable the quick identification thereof before new fraud methods and attempts cost the organization too much money

But whatever you do, don’t target employees and treat them like criminals. If you treat them like criminals, they will become criminals. Create good procedures and processes for invoices and payments, install solutions where it is easier to follow the procedures and processes than ignore them, and make it about cost control, not fraud prevention, and you’ll find that fraud just isn’t as much of a concern. (Fraudsters choose easy targets.)

HICX: HI-C to the X for SXM

HICX Solutions, a provider of a leading Supplier Management platform, was founded in London in 2004 to create a platform to effectively tackle supplier master data management and supplier risk management. Recognizing that the Supplier Information Management (SIM) platforms of the day were not enough to effectively manage suppliers — especially since the data was needed in ERP/MRP, sourcing, procurement, logistics, and related systems — they embarked upon a mission to create a solution that fixes that.

The problem with SIM solutions, besides the fact that they aren’t true SPM (Supplier Performance Management) or SRM (Supplier Relationship Management) solutions; don’t address risk; and don’t address supplier development, is that SIM is not master data management. It’s supplier data management, but it’s data management within the platform. An organization needs supplier data management throughout the enterprise, not just a single platform. And that is effectively master data management (MDM).

And that is HICX’s core strength. It’s cradle-to-grave supplier management and contract management is built upon this core industry leading MDM capability that can not only accept data from and push data to dozens of ERP and best-of-breed systems throughout the enterprise, but can automatically match and merge the majority of such data, even upon an initial engagement. (HICX has already mapped common fields in dozens of ERP and best-of-breed systems and if your systems have already been mapped, you can skip the mapping step that typically precedes a data merge process.) The MDM system will automatically identify duplicates and conflicts and human data stewards will only need to correct records on an exception basis (when there is a conflict as the system can be programmed to ignore exact duplicates on import).

On top of this MDM capability, HICX has implemented a suite of solutions for:

  • Supplier On-boarding for discovery, enrolment, and enablement on the system
  • Supplier Data Management for supplier data centralization and management
  • Supplier Performance Management for KPI, issue, and initiative tracking
  • Supplier Risk & Compliance Management for risk factor, regulatory, and insurance tracking
  • Supplier Corrective Action Management for issue identification, resolution plans, and implementation tracking

The supplier on-boarding, which is built on the industry leading MDM, is a particular platform strength. In the HICX, the on-boarding process can start as early as the identification of a new supplier which is onboarded using a process that adapts to the type of supplier (be it under consideration as a long-term [strategic] supplier, a sub-contractor, a one-off vendor, logistics company, government organization, etc.) and that is simplified with the provision of a D&B (or equivalent) number that allows for all public information to be automatically imported. One advantage of the solution is that, even before a supplier is onboarded, potential matches or duplicates in the system are automatically identified to prevent a user from inviting a supplier that is already doing business with another organizational unit. And if additional data is needed, data can be imported quickly from any platform using their script-based import capability.

For more information on HICX Solutions, check out the 2-part series on Spend Matters Pro (Part I and Part II [coming soon]) [membership required] by the doctor and the prophet. This in-depth analysis is definitely worth your time if you are on the market for a SxM solution and trying to not only identify the leaders (of which HICX is one), but determine which of the leading solutions is right for you.

Environmental Sustentation 18: Natural Disasters

Natural Disasters are on the rise. The rapid rise to be exact. As per a 2011 publication from THINK Executive, the number of disasters between the 1970s and 1990s occurring worldwide tripled. But as if this was not bad enough, it is predicted that both natural and man-made disasters will increase five times in the next fifty years. Ouch!

Something bad is going to happen. And it’s going to seriously disrupt your supply chain. Are you ready?

Probably not. But regardless of the natural disaster, these tried-and-true techniques can help you survive the next earthquake, hurricane, tsunami, volcanic eruption, or ice storm.

1. Dual Source from remote regions.

That way if a crop or factory in a region is destroyed, you can switch to the alternate source.

2. Maintain visibility down to raw materials for key products.

This way if something happens that affects a supplier’s supplier, you will have early warning and can make plans to switch sources, or help a supplier find an alternate source of supply.

3. Continually investigate alternate designs that require less of raw materials in limited supply.

The less you are dependent upon that one rare earth supplier in China or petroleum based products, the better you will be.

4. Invest in your own renewable energy source.

Should the main grid be overloaded and go down or be destroyed, having your own renewable energy source that your own engineers can maintain can help.

We know you’ve heard this a hundred times, but there’s a reason for that. These techniques are among the few that can be used to prepare for, and deal with, any natural disaster that considerably disrupts part of your supply chain.