Category Archives: Best Practices

Not all Gaps are Good! (Especially When Your Supply Chain is Involved)

Some Gaps sell clothing, and as long as that clothing is made and distributed in a socially responsible fashion and sold for a fair price, that’s probably a good thing, but some gaps identify gaping holes in your supply chain, and that’s not a good thing!

According to “Getting ready for tomorrow’s supply chain” in the Supply Chain Management Review, many supply chains have six significant gaps. These are:

  • Lack of Strategic Visibility and Alignment
    Supply chains are global – and visibility is key in Global Trade Management. Improving the performance of the supply chain requires an increased awareness of its operation and overall contribution to the corporation’s bottom line.
  • Lack of Supply Chain Models, including Risk Management and Optimization
    51% of companies don’t understand risk. 79% of companies are not even considering optimization as per an Aberdeen Study on Advanced Sourcing. Decision optimization is the only way to optimize TCO and consider risks, and risk management is the only way to reduce your odds that a single snafu won’t occur and hit you with millions, tens of millions, or hundreds of millions in losses. Model your supply chain – and start now!
  • Inadequate Processes, including Measures, Information, and Integration
    Even innovation can be measured – but yet many companies don’t even capture, trend, and analyze basic operational and financial measures. Measure, find your inefficiencies, implement lean, and improve.
  • Insufficient Trust and Relationship Building Skills
    All I can say is that you need to:
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
  • Lack of Ongoing Frameworks for Supply Chain Architecture
    In some corporations, there are as many as four supply chains: the product chain that deals with the design, manufacture, and delivery of goods; the financial supply chain that follows the flow and ownership of money; the information supply chain that follows the flow, management, and ownership of information; and the physical supply chain that deals with the location of supply chain partners, the physical linkages that exist between partners, and the number/type of supply chain nodes. In order to take your supply chain to the next level, you need to take your ONE supply chain to the next level, not your four partial uncoordinated chains.
  • Insufficient Management Talent & Leadership
    There’s a talent war due to the crunch in available talent. It’s almost guaranteed that you will lose your top talent and that Got Talent? will be first question on everyone’s lips in the near future. Not only do you need to implement talent acquisition and management today, but you need to develop effective incentive strategies before it’s too late.

The Future of Purchasing Certification

Next Level Purchasing (NLP) [now the Certitrek NLPA] launches their new “SPSM Certification and Enhanced Results Program” which, in addition to the basic SPSM Certification, which I have reviewed previously, includes additional certification components – namely a 30-minute implementation consultation by phone with the instructor, the “Supply Management in the Real World” e-book, and NLP’s new SPSM Multimedia Study & Implementation Guide which is a collection of 50+ audio and video clips – and an iPod preloaded with all of the multimedia material that the student gets to keep upon course completion.

The program is priced at $1,749 … only $600 more than the basic SPSM certification program. Considering an iPod will run you $300, it’s really only $300 more than the basic program – which is definitely worth it for many students. As a former university professor and professional trainer, I know first hand that multimedia can greatly enhance the learning experience and increase the rate of retention for many students, and thus think that it’s a great idea.

For more information on the new program, check out the NLP site. For more information on some of the standard courses, you can refer to my previous posts, linked herein.

Mastering Purchasing Fundamentals, A Review Part I
Mastering Purchasing Fundamentals, A Review Part II
Savings Strategy Development, A Review Part I
Savings Strategy Development, A Review Part II
14 Purchasing Best Practices, A Review Part I
14 Purchasing Best Practices, A Review Part II
Supply Management Contract Writing, A Review Part I
Supply Management Contract Writing, A Review Part II

As well as my review of their advanced course:

Expert Purchasing Management, A Review, Part I
Expert Purchasing Management, A Review, Part II

How To Get The Most From Your Spend Analysis System

Simply put, systematize the tactical and free up your power sourcer(er)s to focus on the strategic. You should automate everything you can from an extraction, classification, categorization, amalgamation, enrichment, and standard financial reporting perspective so that your team can spend the bulk of their time slicing, dicing, refining, dimensionalizing, and re-classifying your spend data in new and creative ways using a true spend analysis tool in search of that next big opportunity. Sometimes the gold nuggets are there for the picking in the shallow stream, but you always have to mine deep into the mountains to find the vein.

Focus on streamlining the following:

  • Extraction from the External Data Systems
    This will likely require your IT or accounting team writing scripts to automate the extraction of relevant data from each ERP or other data system.
  • Cleansing, Classification, and Import
    Your central repository should cleanse and classify new transactions automatically, based on the classification rules that you (or your vendor or services partner, on your behalf) have created. You will need to review the results of this classification for new and existing spending, and you will need to update your vendor and GL masters, but you should ensure that these processes are managed consistently and smoothly.
  • Baseline Reports and Spend Reports
    Your spend analysis tool should be set up to create the reports and summaries that your finance teams and executives will want to see on every data refresh.
  • “Low Hanging Fruit” Opportunity Analysis
    Your spend analysis tool should be configurable to run “low hanging fruit” opportunity analysis reports that look for variances between actual spend and estimated spend based on external benchmark results. Those external benchmarks must be managed and updated on a regular basis to keep these reports useful.
  • Integrate with your Contract Repository
    Maverick spending can’t be positively identified until you’ve eliminated spend which might be on contract. Integrating contracts with your spend analysis system will enable you to definitively identify off-contract spend (although be careful: the inverse is almost certainly NOT true, since true compliance requires much greater insight than is available from the A/P level).
  • Run Maverick Spending Reports
    In line with the above, make your life easy by running maverick spend reports on every refresh.

Once the tactical grunt work is out of the way, make sure your senior sourcers have access to a leading analysis tool like BIQ [acquired by Opera Solutions, rebranded ElectrifAI] (which is also used by Iasta [acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric] as part of their end-to-end sourcing suite), and let them dive in to the data and find savings opportunities you never knew you even had, like:

  • Overspending on Computers and Peripherals
    Many sellers and resellers love to give you “best price” guarantees because they know that as long as they don’t raise the price during the contract term, you’ll probably never notice when they charge you $995 in 6 months for the same system you paid $1000 for today. Given that electronics typically depreciates 3% (or more) a month, it’s easy to calculate that you probably shouldn’t be paying more than $844 for the same configuration in six months.
    You do this by loading in historical market pricing for the last year and comparing what you’ve spent to what you should have spent. If you have a “best price guarantee”, you use the generated report to go to your vendor and demand a refund.
    This happens so often, and many big companies overspend so much, that there are some boutique consultancies that pretty much make their living just finding overcharges on commodities such as electronics equipment and office supplies.
  • Fraud Reduction
    This could take the form of spending on a commodity in a department that should never be buying such a commodity (such as X boxes by accounting) or spending on non-approved or banned suppliers (such as to a company owned by a friend of an employee or, worse, the employee himself). It could also take the form of finding fraudulent charges made by your employees (like the sales rep who submitted the same dinner receipt for $484 six months in a row under “client entertainment” or the executive who likes to charge his weekly lap dances to his corporate credit card).
  • Loss Prevention
    Did you know that sometimes it’s more profitable to let your customers keep old equipment for which leases have expired or which has broken down and is still under warranty? If the cost of reclaiming it, inventorying it, and then re-selling it or auctioning it is more than what you will realize, it’s cheaper to let the customer keep it. At least one insurance firm is saving a fortune by using their spend analysis tool to determine when it’s more cost effective to let the customer keep the damaged car. If it’s going to cost $1,000 to transport and process but only sell for an average of $500 at auction, what’s the point of taking it?
  • Invoice Analysis or Compliance, Compliance, Compliance
    How many spend cubes should you build? The answer is, “many.” That’s because invoice analysis (required for true compliance) requires analyzing invoice data that can vary in format and content between suppliers.
    As Jack Welch once asked, “How do you know you’re getting the pricing you contracted for?” If this question reduces your procurement staff to incoherent splutters, as it usually does, you’ll understand the need for invoice analysis!
  • On Beyond Compliance
    Suppose that you find that the price for 5 pound express mail packages was correctly calculated by the freight vendor in every instance. But are you correctly estimating how many 5 pound express mail packages you are sending? Is the loading dock staff perhaps forgetting to fill in the weight fields on one-pound packages?

Up Next: Contract Management Integration – It’s Easier Than You Think

YOU WILL COMPLY!
Seven of Nine

Overcome The Seven Deadly Sales Suppressors by Knowing Your True Demand

As I mentioned in my recent post Supply Chain Does Not Have To Be A Dirty Word, TrueDemand (acquired by Acosta) has recently made an effort to publicize the Seven Deadly Sales Suppressors which any organization who sells consumer purchased goods should be aware of and address. These are:

  • Out of Stock
  • Price Compliance
  • Incorrect Merchandising
  • Poorly Executed Trade Promotions
  • Damaged Merchandise
  • Unsuccessful Product Roll-Over/New Product Introductions
  • Steadily Declining Retail Orders (the “death spiral”)

If you’re a store operator, retailer, sales execution professional, or account team at a CPG company – take these to heart. Your success depends on preventing each and every one of them every single day.

So, what can you do? Let’s address each issue in term.

  • Out of Stock
    Simply put – you make sure the item is on the shelf when a customer wants to buy it! How do you do that? Inventory visibility. This involves knowing not only where the product is in your supply chain, but where it is in each retail facility. Just because product is in the store, does not mean it is on the shelf – and just because a product is in the storeroom, does not mean that the retailer’s employee can locate it should a customer have the patience to wait while the employee looks.
    Make sure your retailers are consistent not only with their shelf checking and restocking policies, but also in when they take inventory and how they organize their store room. If they have RFID at the shelf, work with them to make sure your product is RFID enabled in a compatible way. If they have problems managing their warehouse, work with them to improve it. Consider color coding your boxes or using unique symbols on each box to help them find your product should a box get misplaced.
  • Price Compliance
    Are they charging what they are supposed to be charging? There are at least two ways to ensure this is the case. You can use the traditional method and send an account representative to the store on a regular basis to check, or you can make sure you get, integrate, and monitor their point-of-sales feed in a near-real time basis (at least daily) and check that the prices charged are in the correct range, or if there are no sales for a period you projected sales, actively look into what they are charging. This may mean sending an account representative to the store once in a while, but it is much more efficient and cost-effective since you can’t afford to send a representative to every store every day for every product.
  • Incorrect Merchandising
    The best way to avoid this disaster is to have the right information at the right time. You do this through collaboration – which involves – gasp! – having the right supply chain systems in place that enable your people around the globe to connect and work together at any time on any issue as soon as it surfaces – before it becomes a problem.
  • Poorly Executed Trade Promotions
    The best way to ensure your promotion goes as planned is to have smooth collaboration between your account teams and your retail partners. The best way to do this is to use communication and collaboration technology to work together. Furthermore, you’ll get the best results if you spend more time working with the retailers, or retail locations, you’ve had problems with in the past. And the best ways to identify these is to use predictive analytics that analyze past promotions. (In other words, the key is again the right supply chain systems.)
  • Damaged Merchandise
    This involves making sure the products are not defective when they are shipped and that your logistics and distribution partners know how to handle them properly during shipments and delivery so they don’t become damaged. In other words, good quality control up front.
  • Unsuccessful Product Roll-Over / New Product Introductions
    The key is effective change management. Good processes backed by enabling technology will again save the day!
  • Steadily Declining Retail Orders (the “death spiral”)
    Well, this is the ultimate issue, isn’t it? It’s the only one where you may not ever know the true reason, unlike most of the previous problems which can only have a small number of reasons which can each be identified and mitigated in advance.
    However, with a bit of elbow grease and the right technology, you can remove almost all risks but one – demand. Perceptions, wants, and financial situations can change overnight for reasons beyond your control, so you can never truly control demand. However, you can make sure that orders aren’t declining because you’re out of stock, that they aren’t declining because the wrong products are targeted to the wrong markets, and that they aren’t declining because the products are of poor quality, etc. Furthermore, you can take active efforts to manage demand by using JIT production, reserving capacity, and setting the right price point so that you can minimize the risks.

In other words, there’s rarely a good excuse for lack of sales at the shelf as each of the Seven Deadly Sales Suppressors can be adequately addressed – especially if you have the right technology that enables you to do so.

What’s the sound of a lost sale? It’s not cha-ching!