Daily Archives: November 16, 2016

Supply Dynamics: Tackling The Dynamics of Supply Head On! Part I

As per our last two posts on the nature of supply dynamics, anything that is unknown is unmanaged, and any information that is incomplete is misleading, distracting the analysts into barren, abandoned mines instead of yet undiscovered mines bristling with veins of gold. In the Procurement of manufactured products, if an organization is using systems originally designed for indirect (and/or services) spend, much of the information is incomplete and many of the opportunities identified by the system are misleading. This means that Procurement is likely to waste time pursuing opportunities that aren’t as valuable as they appear and, moreover, even when they strike gold, they won’t necessarily profit of it as they won’t have the visibility into how much of the gold is actually ending up in the organization’s vaults vs. how much is being lost as it is smuggled out by traitorous workers in league with the foreman who takes a cut [as in the classic Have Gun Will Travel episode “The High Graders” 1-19), which is exactly what happens when the supplier continues to buy off-contract from their preferred supplier (and not yours) in exchange for favoured treatment to them (and not you)]. Just because we’re not in the old west doesn’t mean that the long standing tradition of high-grading has not continued where the supplier’s personnel feel they can get away with it. (Remember, in some countries, finding creative ways to profit is applauded, whether or not it is ethical in the country of the buyer.)

But Supply Dynamics, a new-again stand-alone player (but a mature and seasoned offering that was recently spun out on its own from O’Neal Industries which bought it years ago when it was stand-alone for exclusive use before realizing Supply Dynamics was more valuable as a separate company) in the direct procurement space wants to change all that. Realizing that, like Claritum did for tail spend, cost control requires multiple checks and balances (which is why Claritum designed a multi-party system and not just a buyer system with limited supplier access through a portal), Supply Dynamics designed a system where buyers, suppliers, and third party distributors can all share information with each other. This way, the buyer sees exactly what raw materials are required, with their associated specifications, who they are being bought from (as reported by the organizations the suppliers have been authorized, or contractually obligated, to buy from), exactly what negotiated cost savings are being realized, and exactly what their untapped opportunities are (both from a volume leverage and a standardization viewpoint).

How does it do this?

First of all, it pulls in data from the (contract) manufacturers, their component and part suppliers, the raw material suppliers they are supposed to be buying from, and the distributors that manage the organizational inventory on a regular (monthly or weekly) basis. This allows an organization to track, for each part they have complete specifications on, the lifecycle of the part from the raw material to the finished product and whether the inflows and outflows match and are as expected. They can see the raw material shipments from the raw material suppliers to the component suppliers, the shipments from the component suppliers to the contract manufacturers, and the shipments from the contract manufacturers to the buyer’s warehouses.

This allows the Supply Dynamics solution to track not only supply chain costs but supply chain contract fulfillment — if the parts manufacturers are using the right raw materials from the right raw material providers, if the contract manufacturers are using the right parts from the right parts providers, and if the warehouses are ordering the right products from the right suppliers.

And you’re probably thinking this is all fine and dandy, because the real problem is not the tracking (since you could conceivably just ask each party to send shipment information and match it yourself, although that’s much easier said than done), but figuring out what to track in the first place. Even if you have a system that can track all of the appropriate bill of material and product attributes, how do you get all of the relevant bill of materials and product attributes in the system in the first place when the average manufacturing organization has tens of thousands of parts where the majority have not been strategically sourced or sourced with a cost breakdown beyond unit cost, tariff, transportation, and warehouse cost.

But, fortunately, Supply Dynamics has solved this problem too. They have an automated Part Attribute Characterization (PAC) process that allows them to quickly and inexpensively load the required information into the application. They do this by first extracting the bulk of the information from the blueprints (in CAD/CAM) format that the buying organization uploads. They have spent years developing and customizing this in-house software to extract and format as much information as possible and then, when the blueprints are uploaded, they automatically create accounts that give the manufacturers access to review and verify the PAC — as these manufacturers will be held accountable to buying and manufacturing against that PAC — and work with the buying organization to make sure the manufacturers do the necessary review and fill in any identified gaps. Then their in-house team of expert engineers does a quick manual sanity check, pushing any products into a review queue that don’t look quite right. (If the blueprints are complete and the manufacturers did their job, the bulk of projects will be okay.) Finally, the in-house experts complete the PACs and the system is ready to go. The software is quite efficient and the process is so refined after 13 years of refinement that most of the time it takes Supply Dynamics longer to get the files from the buying and supplying organizations than to process the files and verify the processing (which is all done in house by US persons for those concerned with IP and security).

Supply Dynamics is very good at this process. Over the years, they have performed Product Attribute Characterization on over 191,000 parts for 35 OEMs, including names like GE and Westinghouse, which cross over 378,000 detailed bill of material records. In addition, they maintain master specifications and detailed chemistries on over 39,000 raw materials that are used in the production of the parts used in the bill of materials. As a result, chances are they’ve already seen, and know the specs for, most of the raw materials you use, which means data load and completion is very fast for new organizations.

But they’ve built more than a system that just solves these two problems. We’ll cover Supply Dynamics, and their solution, in more detail tomorrow in Part II.