Category Archives: Best Practices

Don’t Take Late Payments Lying Down

As pointed out repeatedly by Pete Loughlin over on Purchasing Insight (and in this recent post on “social media the new weapon to combat late payment”) and SI (including this recent Blue Friday post), big customers are trying to push payment terms to ridiculous extremes and, frankly, hoping their suppliers will bend over and take it without any resistance. But just because it’s their fantasy, it doesn’t mean it should be your reality. You have to stand up for yourself and help bring this foolishness to an end.

How do you do it? A recent article over on CFO.com on what to do “when your big customer wants to pay late” had some great advice. Summarizing, and extending, it, we can see that you should:

  • Know Your Worth
    Chances are that you are providing a unique value and you should not be afraid to make it clear. And if it’s really unique, your customer doesn’t have (very m)any options besides you.
  • Understand the Relationship
    Has it been a long term relationship? A good relationship? Have you been paid on time regularly in the past? Have you been providing value over and above committed levels? If the relationship has been good, if you were contracted to provide a product but have also been providing free value-add consulting, if you were always paid on time for always delivering on time and maintained a good relationship, point that out.
  • Create Flexible Payment Strategies
    This doesn’t (necessarily) mean early payment discounts, but it could include such for (really) fast payments. Consider multiple (milestone-based) billings that the customer can digest over time, rather than one big bill at the end (within reason).
  • Avoid the Procrastinating Accounts Payable (AP) Department
    They are the boneheads that still believe extending DPO is a good thing (even though a recent Hackett study demonstrated that playing this game actually costs them an extra 10% in the end). Deal with Procurement and/or the buying organization who have a better chance of understanding that delaying payments unnecessarily only hurts everyone in the long run.
  • Suggest Financing
    where the customer enters into a relationship with a bank who pays you right away, at a small discount, and then the customer pays the bank on their schedule, for a fee. Done right, it’s better (for you) than an early payment discount as its an immediate payment.

and if all that doesn’t work, do what Pete suggests:

  • Name and Shame Them Publicly
    Be civil and respectful, but don’t be afraid to let the world know, in no uncertain terms, that they are either being deliberately cruel or incompetent.

SI likes Pete’s suggestion best, but agrees that you should try the more professional methods listed in the CFO article first. But if they don’t work …

Some Decent Tactics for Working Capital Management Improvement

A recent white-paper by GT Nexus on “Holistic Supply Chain Management” had some decent tips for improving WCM (Working Capital Management) that, amazingly enough, didn’t focus on DPO extension at the expense of the struggling supplier. Because of this, SI is going to review some of the better tactics identified in the white-paper and recommend that you read it.

Remembering that the goal of working capital 101 is to improve the Cash Conversion Cycle (CCC), which is generally defined as DIO (Days Inventory Outstanding) + DSO (Days Sales Outstanding) – DPO (Days Payable Outstanding), there is more than one way to improve the CCC. You don’t have to increase DPO, you can decrease DIO or DSO.

Starting with DIO, the paper recommends to lower the amount of buffer stock needed to maintain customer service levels. While there is safety in safety stock, there is also cost in safety stock. Cost that is likely unnecessary when you consider that most companies have way more stock on hand then is needed when you add stock in transit, stock in production, and stock at other locations that could quickly be moved if necessary. As a result, a company needs less stock than it thinks it needs.

Moving on to DSO, the paper recommends to use a collaborative platform for shipment planning and execution. This allows the company to ensure that inventory doesn’t sit idle and is shipped as soon as sales come in and to make sure that the shipments reach the customer quickly to allow for faster invoicing, and subsequent payment.

It also has other recommendations to balance DIO and DSO, reduce COGS, and minimize errors, but the primary point is the important one — you don’t have to increase DPO to improve your CCC and WCM. Remember that.

How Do You Identify a Stellar Supplier?

Relating to Wednesday’s post where we asked what is necessary to get a grip on risk before outsourcing to a new supplier, you also want to know how you can identify who is likely to be a stellar performing supplier in the first place. This is also a difficult question, but if you approach the subject from a supplier performance leadership perspective, you have one good starting point, which is mentioned in this recent article over on SIG on “why supplier performance management should be supplier performance leadership” .

Specifically, you look for a supplier that actively self-manages. You want a supplier which measures and reports its own performance against SLAs and KPIs, identifies the corrective actions it needs to take, devises a plan to put those actions in place, and then promptly informs you when it has determined that it is not meeting its targets with an outline of the corrective actions it intends to take, when they will be implemented, when it expects to improve, and when you will get a follow-up report. The supplier should want to not only meet the expectations placed on it, but get to the point where it can exceed those expectations before the contract comes up for renewal. In short, a supplier that talks the talk when it comes to customer service is good, but a supplier that walks the walk is better.

Secondly, you should look for a supplier that wants to collaborate. While it’s great to have a supplier that will bend over backwards to give you anything you want, if what you want is inefficient and costly, it’s better to have a supplier who will work with you to jointly identify opportunities for efficiency improvements and cost reductions. You need to remember that most of the smart people are outside of your organization, no matter how big you are, and if you want to out-innovate the other guy, you have to use all of the know-how available to you up and down your supply chain. There’s a reason the big buys have set up innovation networks to tap external parties — they know they can only do so much. The real winners in today’s economy are not necessarily those that can innovate, but those that can identify the right innovations to incorporate into their products and services at the right times to maximize profit.

And while this may not be everything you should look for in a perspective supplier, if you want a supplier that will lead the pack, this is where you start.

Delivery Success Demands Delivery Planning

DC Velocity recently ran a good article on how “Home Delivery Success Starts at the Order” that had some good pointers on delivery success in general. The article, designed to help retailers, gave the following advice:

  • Steer the Customer to the Delivery Times You Want Them to Take
    If you’re not really setup for next-day service, but you have optimized 2-day service, steer them to 2-day.
  • Upsell Premium, Expedited, or Tighter Time Windows and Value-Added Services
    Delivery doesn’t have to be free, and if it’s low-cost (or free), it doesn’t have to be speedy. After all, the if the customer wants a speedy, free, delivery — he can pick it up in the store (unless it’s Best Buy, where he’ll get to stand around and be ignored by no fewer than three associates before anyone even attempts to serve him). Time may not always be money to the end consumer, but it is always valuable. If you’re working, an evening install is worth a small premium vs. having to sit home all day waiting. And if you’d rather watch the game than drive 2 hours to get something for tomorrow, that’s worth it too.
  • Omni-Channel Retailing Needs Omni-Channel Delivery
    All deliveries should go through one scheduling solution — whether the order was made in-store, on-line, or over the phone.

If you reverse this, you can see how you can optimize your inbound supply chain delivery success when ordering from a supplier.

  • Try to Choose a Delivery Schedule a Supplier/Distributor Wants You to Take
    If you have a set of almost equal choices to you, pick the one that’s the easiest / most cost-effective for the distributor / supplier. Not only will it keep your costs down, but it will maximize the chances of getting the order on time as you will be using schedules (and routes) the distributor / supplier has optimized for.
  • Avoid Unnecessary Expedited Shipping or Value Added Services
    Suppliers will use the same tactics on you that you use on consumers to maximize their revenue. It doesn’t mean you have to buy into them. In many cases, shaving a few days off of shipping time to the warehouse doesn’t make much of a difference, especially if you forecast properly, and paying the supplier to do trade document management that your 3PL can do cheaper with an effective system integration isn’t worth the savings of dealing with one less partner.
  • Single-Channel Ordering Should be Fulfilled, Whenever Possible, by Single-Channel Delivery
    If you are ordering five products from the supplier, and they can all fit (and go) on the same truck, they should all be on the same truck. Delivery density reduces costs.

Pretty simple, eh? Almost as easy as getting the mouse in the bottle …

Maximizing ROI from Technology

Logistics Management recently published a piece on Maximizing ROI from Technology that included some good tips that deserve to be repeated.

The first point to note is that, as stated by Beth Peterson (President of BPE Global), the biggest mistake [companies] make is that they implement a solution without even beginning to measure what they were doing before they implemented it. You can’t maximize ROI if you don’t even know what you’re measuring against!

The second point to note is that expectations have to be realistic. You’ll never achieve your goals if they are unrealistic. Also, as the article suggests, when setting goals, try to be as precise as possible. Is it cost savings? Better customer service? Faster delivery? What are the specific metrics that you are trying to improve and by how much?

In addition, as noted, make sure that the objectives do not benefit one functional area to the detriment of others or to the company as a whole. Otherwise, you’re not going to get much support for your endeavor.

Then select the right vendor. One can start with the vendor evaluation and selection criteria evaluated in the article, but as pointed out in SI’s recent series’ on Technology Trials (Part I, Part II, Part III, Part IV.1, Part IV.2, and Part V, Part VI) and Best Practice Vendor Selection for True Multi-Nationals (Part I, Part II, Part III, Part IV, Part V), selecting the right technology vendor just isn’t that easy. Remember, in the end, it doesn’t matter how strategic the IT Vendor is, it only matters how strategic the solution they offer is.

And get the implementation right. As per the article, Key factors that need to be in place include the flowing: effective user training; management support of and commitment to the initiative; sufficient allocation of resources; and, perhaps most importantly, buy-in from the users. All of these pieces (which have been discussed in the SI Archives) are essential. Forget one, and it crumbles since you’re building a cube, not a pyramid.