Category Archives: Best Practices

Actions for Big Supply Chain Improvements

Supply Chain Digest recently ran their top 10 list of “the easiest actions for big supply chain improvement”. Leave off the “easy” and I’ll agree, since some of the actions they recommended weren’t that “easy” and they left off a couple that were.

Their list was the following:

  • Centralize Transportation Management
    (At least they admit this isn’t easy!) As the author notes, the potential freight and overhead savings are huge – and you can make better informed sourcing decisions.
  • Take Control of Inbound Freight
    There is money to be saved on both inbound and outbound freight and all freight should be looked at objectively. Although it’s true that sometimes a large supplier can get you the best deal, it’s often true that often they can’t. Remember, you can leverage freight across your suppliers. They can only leverage freight across the customers they handle freight for. This means that often you’ll have the leverage with the freight provider – so you should use it.
  • Enforce Routing Guide Compliance
    You only save money from a good plan that was carefully constructed from a detailed analysis if it is implemented. Make sure that your sourcing and logistics professionals understand that when it comes to approved plans, it’s the company’s way or the highway for them.
  • Use Labour Management in Distribution Centers
    It’s important you have the staff you need when you need them. Not enough staff when a truck arrives causes delays that could lead to lost sales – too much staff when there are no trucks to load or unload costs you money!
  • Profile SKUs and Orders to Reslot the DC
    A simple analysis of this data can lead to simple improvement opportunities in slotting and warehouse layout that can drive big productivity improvements. Be lean.
  • Revisit Safety Stock Levels and Policies
    Too much inventory leads to markdowns and losses – not enough leads to missed sales and even more losses. Monitor stock levels regularly and update levels and policies as needed.
  • Analyze Supplier Lead Time Variability
    Find the variability, develop corrective action plans to reduce it, and implement them.
  • Use E-Auctions
    Many companies are leaving huge amounts of money on the table by not utilizing this technology when it makes sense to do so.
  • Constantly Compare Actual Total Landed Costs with Forecasted Costs
    If you want to realize your savings, you have to insure you get the savings you negotiated.
  • Start a Lean or Six Sigma Initiative
    … but be smart about it! Don’t go overboard, especially at first, as all you’ll end up with is Sick Sigma, and that won’t help at all.

To that I’d add the following:

  • Invoice Analysis
    Get a real spend analysis tool, mine your invoices, and see if you’re paying what you’re supposed to be. SKU analysis is good, but in many categories, like office supplies, computers, and electronics, you’re probably overpaying – and it won’t take much effort to find savings. If you need help, there are a number of consultancies that specialize in these efforts.
  • Enforce Supplier Contracts
    Route adherence is important, but buying off the contract your sourcing team painstakingly researched and negotiated to get you the best buy is even more so. Many organizations have maverick spend of 40% or more. That’s 40% of your negotiated savings gone … before the product is even shipped!
  • Use Decision Optimization!
    Not only is this the best way to optimize your freight spend, but it’s the best way to optimize your total spend – especially if you select a solution that allows you to optimize all of the aspects of the buy at the same time. e-Auction is good … but it’s not always appropriate, and not always going to net you the best buy from a total value management perspective.

Basically, there’s a lot more to supply chain optimization than just Inventory, Warehouse, and Distribution optimization – which, with the exception of e-Auctions, this article focusses on. If you truly want to see a big improvement, you have to start at the time a need is first identified and analyze the sourcing, procurement, and distribution cycles from the time the first requisition is placed to the time the last unit is delivered to the customer. You don’t know where your largest inefficiencies are or which single improvement is going to have the greatest impact – and often the largest impact comes from aligning your processes to insure the optimized award is received and delivered at the right time and at the right price. There’s no silver bullet – but a continual process of analysis and improvement will do wonders.

Expanding Procurement’s Role in a Financial Services Company

Today’s guest post comes courtesy of Per Blomquist, Katie Boord, and Bob Derocher of Archstone Consulting (acquired by The Hackett Group), a consulting firm that focuses on strategy and operations consulting in supply chain, strategic sourcing, and procurement.

With today’s uncertain economy, volatile capital markets, and ever-worsening credit crisis, it is more important than ever for companies to stay focused on spend management in order to weather the storm.

While product-based businesses tend to have fairly mature procurement organizations due to the criticality of direct materials, service-based businesses often lag behind. Without a prominent and centralized role, and without the leadership of a CPO with budgetary influence, procurement groups within these companies often struggle to make inroads into functional silos where much of the enterprise spend resides. Bringing this spend under management by a disciplined procurement organization can have a dramatic impact to the bottom line.

Recent experiences with clients in the financial services industry have illustrated the existence of decentralized procurement efforts by functional areas such as marketing, e-commerce, legal, and collections. These engagements have highlighted some critical success factors for procurement organizations looking to break down barriers to spend beyond their current scope, as well as the resulting opportunities that exist.

CRITICAL SUCCESS FACTORS

  1. Executive Sponsorship
    In the absence of a CPO, procurement organizations need to have visible senior management support in order to encourage business units to partner with them.
  2. Change Management and Communication
    Recurring and consistent communication is necessary to convey the spend management goals of the company and the value that the procurement organization can provide in order to meet those goals.
  3. Spend Analytics
    All external spend data needs to be compiled, scrubbed, categorized, and verified in order to understand what products and services are being purchased from which vendors by which areas of the enterprise.
  4. Partnership Development
    Procurement “ambassadors” need to meet with senior stakeholders across the enterprise to articulate their value proposition (see three guiding principles listed below) and explore partnership opportunities.

    • Efficiency
      Providing best-in-class tools, templates, and processes that can be deployed quickly with minimum effort from the stakeholders.
    • Flexibility
      Supporting stakeholders with any part (or all) of the procurement process.
    • Stakeholder Ownership
      Assuring the stakeholders that the procurement organization will not dictate vendor decisions.
  5. Results Tracking and Reporting
    Results (e.g., savings, improved contract terms, enhanced supplier relationships) must be tracked and reported to ensure appropriate progress and to bolster enterprise support.

OPPORTUNITIES

  1. Increased Savings
    The engagement of procurement organizations in the sourcing of categories such as Search Engine Marketing, Online Banner Advertising, Corporate Jets, Debt/Credit Protection Outsource Provider, Online Banking Website Design and Development, Online Banking Middleware Solutions, Market Research – Consumer Insights, and Consulting Services (to name a few) can result in millions of dollars in incremental savings and cost avoidances. Each “win” can strengthen existing stakeholder relationships and generate new partnership opportunities through referrals.
  2. Decreased Risk
    Employing a disciplined procurement process can reduce enterprise risk through consistent NDA execution, standardized contract terms (including security and insurance requirements), and transparent communication of vendor utilization and performance metrics.
  3. Improved Governance
    The tracking and reporting of procurement results can increase executive awareness and organizational accountability to formal savings targets. Spend analytics can support joint initiatives between procurement and finance organizations, such as the restructuring and redefining of AP account codes to enable the monitoring of category spend and policy compliance.
  4. Enhanced Process Efficiencies
    Utilizing standardized processes and templates can save time and avoid duplication of efforts. Furthermore, better procurement results are achieved when best practices are followed, and lessons learned are communicated across the enterprise and leveraged for further improvements.

The authors would welcome the opportunity to discuss your experiences on this topic. They can be reached by email.

The e-Sourcing Handbook (Free e-Book)

The e-book edition of the e-Sourcing Handbook, co-authored and edited by yours truly, and sponsored by Iasta [acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric] (an e-Sourcing solution provider), is now available on request (through e-mail).

The e-Sourcing Handbook is your modern guide to Supply and Spend Management Success which utilizes and enhances strategic sourcing technology and best practices. Covering the full spectrum of the e-Sourcing cycle, the handbook helps you understand not only what spend analysis, e-RFx, e-Auction, decision optimization, and contract management are, but where and when to apply these technologies for maximum benefit.

Building on the resounding success of the e-Sourcing Wiki [WayBackMachine] and the e-Sourcing Forum [WayBackMachine] and Sourcing Innovation blogs, the handbook takes the concept of open access to knowledge and best practices one step further by compiling the best information on e-Sourcing to appear on all three public information sources into one definitive source. Furthermore, by mixing content from factual and informative wiki articles with blog postings that are both controversial and opinionated in an innovative manner, the juxtaposition of the two in the handbook allows the reader to see where the boundary lies between information and advocacy. It is the goal of the authors that, through this ground-breaking effort, the reader will gain a better understanding of e-Sourcing and how to take their supply and spend management efforts to the next level.

And, most importantly, unlike some of the recent e-books to pop-up, this is a real book – not a glorified marketing white paper doubled (or tripled) in size with a fancy (spaced-out) layout that contains dozens of colorful, yet useless, images. An exact mirror of the forthcoming print-book, it’s 220 pages of solid content backed up by a 4 page resource section, 8 page glossary, and 22 page bibliography for those who thirst for knowledge. The full table of contents and index are also included to help the reader quickly find what she is looking for.

But perhaps the foreward by co-author Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI) says it best.

The e-Sourcing space has undergone a major transformation since 2000. Vendors who were once dominant or cutting-edge have failed. Many have undergone asset fire sales, become part of the walking-dead, or been absorbed into larger companies; and still others have been forced by their investors into mergers that make little sense to the outside observer.

 

These consolidations have brought about a dangerous commoditization of ideas, along with a slowdown of innovation. Even worse has been the obscuring – by over-enthusiastic and under-educated vendor marketing departments – of deeply important issues that sourcing practitioners must consider and understand in order to be successful.

In response to this, my co-author, Dr. Michael Lamoureux, launched the Sourcing Innovation blog with the specific purpose of educating practitioners and cutting through the marketing babble that had begun to dominate the discussion. Another co-author, David Bush, started the e-Sourcing Wiki (from which the bulk of this Handbook is taken) in a similar attempt to put fundamental e-Sourcing ideas and concepts into a publicly accessible forum. Over the years, David has also built Iasta’s e-Sourcing Forum blog into a credible and useful resource.

These efforts are laudable, but blogs and wikis are sometimes hard to navigate, and effort is often required to extract related information in a useful way. This Handbook is an effort to draw together the knowledge base of the Wiki, along with relevant blog postings, into a coherent and readable framework. Of course, one might argue that none of the authors are readable or coherent – and that may be a fair criticism – but we’ve made a best effort.

Because Michael is a strong and independent voice in the space, it’s appropriate that he is the editor of this Handbook. He has taken an interesting and unorthodox approach, choosing to mix factual and informative wiki articles with blog postings that are both controversial and opinionated. The juxtaposition of the two allows the reader to see where the boundary lies between information and advocacy. This is perhaps the first effort of its kind where two very different resources are interlinked in a constructive, and hopefully interesting, way.

 

I trust that this edition of the Handbook will be the first of many similar efforts, and that together we can collectively energize our space with accurate information and useful insights. Remember, the e-Sourcing Wiki is a public resource – anyone can contribute – so everyone should consider “sharing the wealth” and do so.

Supplier Metrics that Matter

With skyrocketing costs and stagnant growth, performance is becoming ever more important to your supply chain. But how do you insure you get it? You start with measurements – against good metrics. Today we’re going to tackle supplier metrics.

Back in the fall of 2005, CPO Agenda ran an article titled “Supplier Metrics that Matter” that contained some good advice for developing good supplier metrics – including the following checklist that needs to be highlighted and expanded upon.

  1. Measure
    Specifically, measure what is important – not just what’s easy. For example, prompt invoice delivery is easy to measure, but what’s important is invoice accuracy.
  2. Develop and Utilize
    Metrics and outcome measurement. Utilization is the key. If you see a performance metric dropping, dig in, find out why, engage with the supplier, jointly develop a corrective action plan, and make sure it’s followed through. Otherwise, the metric will likely continue to drop.
  3. Accept approximation
    Some critical dimensions, such as the quality of the working relationship and strategic value, will involve subjective measurements by experts. They won’t be perfect, but without any assessments, you’ll have no foundation for improvement.
  4. Embed the Metrics in your Supplier Management Processes
    This process should include a discussion of how a supplier is to interpret the metrics, how they could go about improving their performance (and becoming or staying a strategic supplier), and about how they can improve the quality of the relationship. Furthermore, this conversation should be two way and the supplier should be able to highlight processes, requirements, or directives that are prohibiting them from doing as well as they could. For an extreme example of how arbitrary directives can greatly increase cost or decrease performance, let’s take Alan Buxton’s example of why project design matters. The UK Ministry of Defence was mandating waterproof matches in boxes of 17. However, most suppliers produced these in boxes of 25 by default. In order to supply boxes of 17, the supplier had to unwrap and repackage boxes of 25 into boxes of 17 which increased costs by 300%!
  5. Jointly Define the metrics.
    This will insure that both parties understand the metrics, what the goals are, and what needs to be done to meet them. It also makes sure that the metrics match the intentions. For example, if you want to insure rapid replenishment, you shouldn’t be measuring just average delivery time, because replenishment will also require the supplier to produce the goods as well. You need to be measuring average turn-around time from the time the order is placed.
  6. Share Competitive Data
    If you want a supplier to understand how well, or poor, it is performing, you need to let it know how well it is doing with respect to its peers, in aggregate and individually. (Just be sure to cleanse the competitive data of identifying information.) If you’re telling your supplier that 93% on-time-delivery is bad, then it needs to understand that average performance is 97%, for example.
  7. Focus on Value
    Don’t define metrics for the sake of defining metrics – make sure there is an associated value to be gained by their definition. You can define a metric on everything – delivery, cycle time, invoice processing time, etc. – but if you define too many metrics, or too many metrics that don’t allow you to improve the overall value of the relationship, then you’ll get lost in the sea of data and not make much progress. Start by defining the major operational areas of importance and identifying the three to five most relevant metrics. If you get them right, you’ll likely find that they’re all you need.

Foundational Principles of Supplier Performance Management

The Supply Chain Management Review recently ran an interesting article on “Embracing Supplier Performance Management for More Profit, Less Risk”. The article noted that if each business unit is measuring suppliers with a different set of criteria, and not sharing data at the corporate level, how do you know which suppliers are achieving the desired outcomes? With no real visibility, how can you be sure that your most important suppliers won’t suddenly experience quality issues that disrupt deliveries? How do you know if your business practices, and those of your suppliers, are in compliance with the latest government and industry regulations?“, which are all good points. If you don’t have a good supplier performance management program, how can you expect good results?

So what is SPM? According to the article, it is a management program and set of processes that help define, measure, and collaboratively enhance supplier performance and business goals. Although, as the article correctly notes, SPM will never eliminate uncertainty, it will help you understand where the uncertainty is and what the risks are – so that you can take appropriate measures to minimize the uncertainty and the risk.

The article then goes on to define the basic components of a SPM program as:

  • Defining SPM objectives aligned to a spend management strategy
  • Defining a straightforward, repeatable process
  • Establishing a supplier ownership and segmentation strategy
  • Establishing KPIs
  • Defining scorecard and survey templates
  • Gathering performance data
  • Analyzing results and communicating to suppliers
  • Collaborating with suppliers to improve performance

And follows these with it’s 7 foundational principles of SPM:

  1. Know Your End-Game
    And set metrics only for the elements that bring you there.
  2. Face Facts
    Employees must understand that SPM provides a more accurate assessment and that KPIs need to be held steady for at least 12 to 18 months.
  3. Be Firm
    Suppliers must understand the program, goals, and benefits before it is implemented – and you must be willing to follow through with corrective actions when required.
  4. But Work With (not on) Suppliers
    It’s not a student-teacher relationship or boss-subordinate relationship – it’s a collaboration.
  5. Assign SPM Owners
    Someone has to take responsibility.
  6. Drive Ongoing Improvement & Reset Metrics
    The output of the last performance review, and subsequent action plan, should be the input to a supplier’s next review period.
  7. Automate Whenever Possible
    Implement resources that automate surveying and scorecard functions to minimize resource requirements.

This is all great advice – but it misses one very important element: the supplier! Everything that the article outlined was to help the buyer manage the supplier’s performance – there was not a single recommendation to help the supplier manage its own performance! When all is said and done, it’s the supplier that has to perform – not the buyer. Thus, it’s important to provide the supplier with tools and processes that it can use to perform better. In other words, you need to provide them with an enablement solution that allows them, at any time, to see how they’re performing, collaborate with you on improvements (and, when necessary, corrective actions), and manage their own processes and procedures. Only then will all the great advice provided in the SCMR article take you as far is it should.