Author Archives: thedoctor

How Do You Identify Dead Companies Still Standing?

They still use Excel.

We’ve known for over a decade now that errors in spreadsheets are pandemic. Needless to say that it boggles my mind that Microsoft Excel still continues to be the application of choice for supply chain and logistics managers around the world. Why do we need to remind you that Fidelity lost 2.6 Billion as a result of a spreadsheet error, that Fannie Mae made a 1.13 Billion honest mistake with a spreadsheet, and RedEnvelope lost more than a quarter of their value in a single day after they warned of a fourth-quarter loss due to a spreadsheet-based budgeting error that resulted in an overestimate of gross margins.

How long is it going to be before someone accidentally uses a plus sign instead of a minus sign in a profit formula and forgets to uncap an inventory calculation and instead of ordering 100,000 units of a profitable product, instead orders 1,000,000 units of a product that actually results in significant losses at the target sale price, for which the market demand is weak, ties up all of the organization’s working capital, and essentially bankrupts the company?

My guess, with the steadily increasing complexity of S&OP, JIT inventory management models, and supply chains, any day now! But, maybe after a few companies are brought to their figurative knees from spreadsheet errors, we’ll see the day when Excel is sh!tcanned along with the dinosaurs who still think it has any more use than a HP or TI calculator.

It’s time for anyone still using Excel to wake up and realize we don’t live in Walt Disneyland and that the story of the prince and the pauper is a fairytale. A pauper is not going to become the benefactor of princely riches by trying to save money on real supply chain and logistics software by stretching Excel to the limits just so that it can temporarily inflate the balance sheet or the profit and loss statement. In today’s uber-connected world, appearances don’t account for much. It’s not long before someone digs deep and uncovers the truth.

There’s a reason why customers are demanding end-to-end visibility of their supply chains, including those of their supply chains logistics’ partners. And a reason customers ow expect all of their suppliers and business partners on the supply chain (including logistics providers) to participate in a supply chain network. It’s because they know that the only way they can accurately manage their supply chain is to keep on top of it, that the only way they can build accurate models is with accurate data gathered from partners, and that the best reports they are going to get are going to come from supply chain visibility and planning software plugged into these “networks” (where, in reality, these are “enterprise communities” that allow the necessary collaboration, not “consumer [social] networks” where you can poke, prod, and shake your buddy for no apparent reason).

In other words, Excel has become the new paper, and, like paper, it needs to be abandoned. So if you don’t want to be the pauper, move off of this outdated technology and onto solutions designed for your supply management needs. With a plethora of Best-of-Breed solutions on the market, including modern Source-to-Pay solutions, designed for large and small providers, it’s extremely likely that there’s at least one solution that meets your needs almost exactly without too much tweaking. If you look hard enough, the doctor would bet that there’s at least three, or will be before you can look twice

Suppliers in the Solution Economy are NOT Suppliers in the Industrial Economy

Given that, in today’s Solution Economy, a company that suppliers a customer with a product or service often outsources the production of that product, or the implementation of the service, to a third party, the company needs to thoroughly understand its suppliers’ strengths and weaknesses to select the right supplier to manufacture that product or provide the service to the end consumer.

This means that, where its suppliers are concerned, a company needs to have a much better understanding of its suppliers than it did in the industrial economy. This means that a company has to start by:

  • Asking different questions, much more often
  • Observing the supplier directly

The questions need to move away from “do you have the facilities to make this product” to “what value-add do you add in the term of usability, reliability, or warranty support that we can use to meet the needs and want of our customers” and the questions have to be asked every time the customer needs change, not just once every three years when the category is resourced. You may not be able to change suppliers or alter the contract, but if you put in continual improvement and collaborative design clauses, you can at least make sure that subsequent iterations improve in the right direction. Similarly, on the service front, the focus should move from “do you provide service X” to “give us examples of how your delivery of service X met the following customer values and led to higher satisfaction ratings”.

Similarly, it’s not enough to just do a plant visit during the supplier qualification phase. There needs to be continual observation and interaction through the full contract life-cycle to make sure that the supplier undertakes continual improvement efforts, that issues are quickly identified and brought to your attention if they can not be quickly resolved, and that the level of professionalism and attention paid to you does not decrease over time as new customers enter the pipeline.

In other words, it’s not just send out an RFQ, select a supplier, have the product shipped to the end consumer … it’s make sure it’s the right product that meet’s the consumers needs and gets there at the right time with the right level of usability and reliability.

The CPO Agenda May Be Gone …

… but it’s checklist for staying center stage is still valid 10 years later.

Ten Year’s ago SI published the below, and every word of it stands today. (Of course today you have to do even more, but you still have to do the below.)

The CPO Agenda’s Procurement Checklist for Staying Center Stage

Now that Procurement has received board attention as the greatest potential for cost savings in the organization, CPOs need to start planning on how they are going to keep that attention once the recession ends and the spending monkeys try to steal the spotlight again. Thinking (way, way) ahead, the CPO Agenda recently put together a good checklist for staying center stage that summarizes some of the key strategies that CPOs will need to pursue to help the board see Procurement as a driver of growth, innovation, and long-term cost reduction and not just a one-trick cost-saving pony.

  1. A Vision for Growth
    • Value Chain
      As the central point of the organization, Procurement is in a prime position to define organizational needs, asses the capabilities of internal resources, and define organizational core competencies. What other business unit touches not only every other business unit, but all of your partners as well?
    • Solution Procurement
      Procurement can source solutions that leapfrog current best-in-class and create a paradigm shift in customer value.
    • Innovation
      As the glue that binds modern organizations together, Procurement can play a critical role in the innovation process by bringing partners and ideas together.
  2. Customer Relationship Management
    As the one business unit that has every other business unit as a customer, Procurement is in a prime position to help the company better meet its customer expectations.
  3. Supplier Relationship Management
    Procurement is already managing supplier relationships on a daily basis … it just has to help the organization understand that it needs to be the central point and the channel by which supplier capabilities are secured to support the company’s growth agenda.
  4. Supply Chain Optimization
    Without an efficient supply chain, companies cannot support the chosen customer needs. In order to achieve its plans, all aspects of a company’s supply chain MUST be optimized. Procurement is in the best position to do that.
  5. M&A Due Diligence
    The ultimate success of a merger or acquisition depends on whether or not the combined organization will be able to deliver more savings and more value … Procurement is in the best position to help make that call.

You Should Never Pay Your Supplier Late … Unless …

You can confirm that paying your supplier late is actually the right thing to do in the situation at hand.

There’s a reason that SI has been saying since day one that you should never pay a supplier late, and stands by that as a general rule, but every rule has an exception, and since there is a lot of economic stress as a result of the trade war (and other global political messes), and there will be times where smaller companies cannot always pay every invoice on time to the dot, SI is going to repeat the one, and only one, time you can pay a supplier late — and that’s when, and only when the particular circumstance at hand is such that it hurts the supplier less than it hurts you.

Furthermore, this isn’t a carte blanche to delay paying the invoice indefinitely, it’s special permission to avoid paying just until the funds come in to pay it. If you’re short because you’re waiting for your biggest customer to pay their large invoice, and you can’t pay everyone, then you can delay the invoices where it will hurt the suppliers the least to delay … but ONLY until the payment comes in.

In other words, if you have 1M in invoices, but only 800K, and you have invoices to (a) Mom and Pop’s Catering Services for the large event you just held; (b) the local meeting space you use every month; (c) the contingent staffing provider for seasonal workers you need; and (d) Big Computer Co for your 500L software renewal, where they won’t notice you’re late for at least 30 days, and they’ll just charge you 6% annual interest if they know you can pay late. So, who do you pay late? The answer should be obvious — (d).

Mom and Pop’s are probably surviving invoice to invoice, and any late payment seriously hurts their business. The contingent staffing provider might be able to afford it, but you don’t want to risk it as you need their staff and you can’t risk them having to lay those staff off because of cashflow issues. The local meeting space could probably swing at least a partial late payment, but they’re local and you need the preferred customer status they’ll give you as local if you pay on time. On the other hand, Microsoft has about 126 Billion in cash and equivalents, and can afford the late payment. And if you have to pay a 0.5% penalty, it’s way less than the heartache your other suppliers could experience if you don’t pay on time.

Remember, there are two reasons you always want to pay your suppliers on time. The first is to keep them financially sound. The second is to reduce your end to end supply chain cost. Just like you, your suppliers depend on your business and need that cash to buy raw materials, fund overhead costs, and, most importantly, pay their workers. If the supplier has to borrow money to buy those raw materials, fund overhead, or pay workers, it’s going to cost that supplier — and if their credit rating is less than yours, they’re not going to get a good rate — and, in fact, they might get a very bad rate of 20% or more … a lot less than the 6% you might be charged by Microsoft. And you can guess what’s going to happen down the road if they have to borrow at 20% interest for 3 months. That’s right, your costs are going up 5% on renewal. (And if the supplier has to layoff, and then bring people back later due to cash flow, that costs the, and you, even more.)

And what if a few days turns into a few weeks and then a few months and the supplier goes out of business just before they ship your big batch of products that take two months to make, then you’re not only out a supplier, you’re out products that you planned, which puts you out revenue, which puts you in an even worse situation.

So while it is sometimes okay to pay a supplier late if the situation is such that it hurts them less than it hurts you, it’s not okay to cart blanche pay them late on every invoice or delay payment even a day more than necessary.

So as a general rule, never pay a supplier late.

Have You Mastered the 4th T of Tracery Yet?

Regular readers will know that the time of PPT — People, Process, Technology — has long passed. In today’s fast paced world where product life-cycles are sometimes over as soon as they hit the market, and where your competitors are constantly striving to outpace you in both sales and supply management, you can’t live on processes anymore — they go stale almost as soon as you’ve got them figured out. And in a knowledge economy, just having a butt in a seat or a worker at an assembly line isn’t enough to succeed — you need a worker who, at the very least, is smarter than the average worker and, preferably, smarter than the worker employed by your competitor. And your technology cannot get out of date.

That’s why SI has been promoting the 3 T’s for years — Technology, Talent, and Transition. You need a solid, regularly updated, technology foundation upon which to build your modern Supply Management Organization. You need talent to put together good operating procedures, properly use the technology, and to constantly identify new opportunities for cost reduction or value generation. And you need great transition management as even best six sigma process today won’t cut it tomorrow when you need to upgrade your product offering, switch suppliers, change distribution methods, and make sure your product is Designed for Recycling from the get-go as new regulations are forcing you to take back your product at end of life and recycle it as you are using chemicals and / or rare earth minerals that are heavily regulated.

But while these are necessary conditions for Supply Management success, they are not necessarily sufficient. As we noted five years ago when we first asked if you have mastered the 4th T of Tracery, while it is true you will not succeed without a mastery of technology, talent, and transition management, as per our first post on Project Assurance many years ago, organizational success also depends on selecting a superior strategy and seeing it through until the desired results are achieved (or the organization changes its strategy, which hopefully wasn’t done arbitrarily on the whim of a CXO after talking to a buddy on the golf course).

However, in order to properly implement a strategy, you have to not only see it through from start to finish, but you have to make sure all of the process streams necessary for success are both completed and properly synched. Just like the key to a good weave, as one might find in Egyptian Cotton, is a skillful interleaving of the thread, the key to a good strategy, is a skillful interleaving of the process strands into an effective transition plan from where you are to where you need to be.

And this, dear readers, is Tracery — the “delicate, interlacing, work of lines as in an embroidery”, or, more modernly, “a network” — the glue that not only binds the Technology, Talent, and Transition Management that your Supply Management organization needs to succeed, but that interleaves these threads in a way that causes each of them to reinforce each other and make a stronger whole.

And, hopefully, monitors them through a common network-enabled platform that can not only bring your internal stakeholders together on one platform, with appropriate views and collaboration features for each function, but also your partners and suppliers who have the data and best practice insights you need to actually get your supply chain in shape. Because it’s not something you can do alone, and it’s definitely not something that will never happen unless carefully monitored, as it’s always easier to “do it the old way”, even if the old way is unsustainable and will lead your down a path to organizational oblivion (through bankruptcy).