Category Archives: Best Practices

Supply Chain Finance

Earlier this month, Jason Busch wrote a blog entry about “Hackett, Working Capital, and a Massive, Untapped Opportunity”* where he commented on a recent Wall Street Journal article that captured the essence of a recent Hackett Group study that noted the 1,000 largest US Companies were able to free up approximately $72 Billion last year by reducing working capital requirements through improvements in collecting bills, turning over inventory and stretching out the amount of time they take to pay their own suppliers.

Later in the blog entry he alludes that perhaps the largest, low-risk untapped working capital reduction opportunity is a nascent area that Aberdeen and a handful of vendors refer to as supply chain finance, which helps companies treat their payables as an asset. This reminded me of a recent Research Brief from Aberdeen entitled “Get Ahead with Supply Chain Finance: How to Leverage New Solutions for End-to-End Financial Improvement” where they noted that enterprise benefits from Supply Chain Finance include lower end-to-end supply chain costs, working capital optimization, and shorter cash-to-cash cycles. The research brief notes the financial productivity of enterprises is being undercut by a widespread lack of global supply chain visibility and automation and that SCF solutions can eliminate paper documentation, minimize data errors, provide faster dispute management and easier detection of duplicate payments, and enable increased transparency of purchase-to-pay and order-to-cash processes which drive additional hard-dollar cost savings on top of the SCF benefits of cash flow and cost of capital improvements.

Furthermore, SCF includes not only the technology to automate settlement processes (e.g. EIPP), but also provides a path for accessing financing services throughout an entire transaction lifecycle, including related raw material, asset, and inventory financing. The financing arrangements can be done using a company’s own cash reserves or via third-party financial institution partners.

In other words, a Supply Chain Finance Solution is a combination of trade financing provided by a financial institution, a third-party vendor, or an enterprise itself, and a technology platform that unites the trading partners and the financial institution electronically and provides the financing triggers based on the occurrence of one or several supply chain events.

Makes sense to me … I’m excited to see new innovative ideas on how to maximize use of your capital in this four party arrangement. I’m going to keep a watchful eye on Aberdeen and Hackett Group research as well as Spend Matters in the coming weeks, because I think there is great value to be had in maximizing use of capital and I’m sure Jason is going to dig until he finds it. In the meantime, I’ll probably offer a few more entries on risk management and visibility, which actually bear many similarities to network risk management and visibility at a sufficiently abstract level, but that’s something for the fringe academics to debate.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Lack of Visibility Kills

I know it’s Saturday, and I know you’re probably expecting me to talk about something along the lines of Flaming Laptops since I usually take the day off from sourcing, but something happened this week that not only cost many large retailers a significant amount of money, but killed someone. If you haven’t figured it out yet, I’m referring to the “E. coli outbreak that has hit 20 states” (so far) (CNN Health, Sep 15, 2006) as a result of tainted spinach.

Even though Wal-Mart Stores Inc., Safeway Inc., SuperValue Inc., and other major grocery chains stopped selling spinach and removed it from their shelves and salad bars, the problem is not over – since investigators still are not sure about the source of the problem, which they believe to be somewhere in California’s Monterey County, which grows more than half of the nation’s spinach crop.

The CNN article seems to suggest that the nation’s “fractured network” of food safety agencies is the problem – that they do not “communicate” well enough, implying that one of the agencies, or someone at one of the agencies, did not do their job. I do not think that is the problem. As far as I’m concerned, the problem lies with Wal-Mart, Safeway, SuperValue, and every other chain that sold the spinach. You should know who your suppliers are. You should be aware of their health and safety processes and policies. You should verify that they do regular health and safety inspections or do your own. Your supply chain should be visible to you and you should know that you can trust everyone in it and that everyone in it is doing their job.

It’s not just the benefits of global visibility, or the costs associated with having to trash or scrap and write-off a large buy since the quality was sub-par and the product unusable. In cases where you are producing a product for public consumption, lack of visibility, as this example clearly demonstrates, can produce a product so unsafe that someone dies. And that’s going to cost you a lot more than the high dollar lawsuit sure to come your way – it’s going to cost you brand image, customers, and if you’re the poor sap whose job it was to insure quality, a hell of a lot of sleep.

I’m not saying you need to rush out and buy a six, seven, or eight figure visibility solution (although I’m sure Apexon (acquired and merged with Infostretch in 2022) would love to talk to you if you thought that was the answer for you), although a solid visibility solution is definitely worth a reasonable investment, but that you need to develop a visibility mindset. Institute processes to make sure each supplier meets your health, safety, and quality requirements, perform your own random checks, make sure your suppliers do their checks when they say they do, and to the required level of quality, and, finally, make sure your suppliers have a culture of making sure their suppliers aspire to the same level of health, safety, and quality that they do. Visibility needs to permeate your supply chain to provide maximum benefit.

eyefortransport’s 2nd Supply Chain Directions Summit

As I mentioned in my post Supply Chain Direction: Collaboration is Key back in July, eyefortransport’s 2nd Supply Chain Directions Summit is coming up in November. This year it is being held at the Sofitel San Francisco Bay, Redwood, Hotel on November 28-29th in San Francisco, California.

Billed as the only event that gives you proven strategies to achieve a demand driven seamless supply chain through Collaboration, Forecasting, Inventory & Disruption Management, Data Integration, Top Sourcing & Outsourcing, as I stated in my previous post, what caught my attention was the speaker list, which reads like a who’s who list in the logistics and SCM trenches. In addition, attendees are going to be treated to case studies from Nokia on best practices in handling global transportation security, Coca Cola on delivery and inventory level optimization, Michelin on RFID implementation, intel on 3PL costs, Nike on 3PL lessons learned, the Gap on turning security requirements to your advantage, and M-I SWACO on multi-tiered supply chain management as well as panel sessions on the creation of a proactive demand-driven value-creating supply chain, global sourcing options, outsourcing logistics strategies, and supply chain immunization.

If you’ve kept up with SourcingInnovation and e-Sourcing Forum over the summer, you’ll notice that these are all topics I’ve spent a considerable amount of time on (especially in my weekend series) and all vital to your continued supply chain success. I know there are a lot of supply chain (related) events being held annually (but given the speaker line up and the topics being focused on, I don’t see how you could afford to ignore this one, especially since, to the best of my knowledge, it does not conflict with any other significant supply chain event. (Feel free to email me to have your event added to the list!) Check it out, and feel free to contact the Events Director, Rodrigo Canete if you have any questions about the 2nd Supply Chain Directions Summit.

The Global Supply Chain Benchmark Report

Yesterday we discussed the “Innovators in Supply Chain Security: Better Security Drives Business Value” report recently released by the Stanford Global Supply Chain Management Forum and IBM that detailed the qualifiable and quantifiable business benefits that result from supply chain security investments. Although the report detailed some of the initiatives being undertaken by the participants, including:

  • additional storage and transportation security,
  • anti-piracy features / methods for identifying genuine products,
  • product tracking tools / RFID,
  • implementing measures to comply with voluntary security initiatives,
  • advanced training programs,
  • incorporation of security requirements into supplier contracts, and the
  • development of a security knowledge base;

The report did not really detail generic priorities for visibility, collaboration, and trade compliance for companies that have identified the need for increased supply chain security or risk management. However, again Aberdeen comes to the rescue with the Global Supply Chain Benchmark Report (sponsored access) that identifies industry priorities for companies about to embark on risk management initiatives.

The report, which notes a critical lack of global supply chain automation, notes that the most critical areas that a company needs to address to keep up with global trade growth and increased competitive pressures are:

  • Supply Chain Visibility
    to increase the transparency and velocity of global activities
  • Business to Business Collaboration
    to improve supply/demand synchronization
  • Trade Compliance
    to ensure undisrupted movement across borders and take advantage of preferential trade agreements to lower total landed costs
  • Risk Management
    to ensure resiliency in the face of supply chain disruptions

The report found that:

  • On average, global supply chains are only 50% as automated as their domestic supply chains at large companies;
  • An astounding 90% of all enterprises report that their global supply chain technology is inadequate (to provide the corporate finance organization with the timely information it requires for budget and cash flow planning and management); and
  • Only 11% of the 82% of companies concerned about supply chain resiliency are actively managing risk.

As a result, Aberdeen recommends that you:

  • Extend supply chain visibility
    by moving to exception-based management of activities and increasing the number of monitored milestones
  • Scale business-to-business collaboration
    and implement collaborative forecasting, advanced inventory management, and replenishment applications
  • Go corporate-wide with trade compliance
    and move toward a single corporate wide trade compliance platform with comprehensive origin and trade agreement management
  • Institutionalize risk management
    and make risk assessment and contingency planning part of your standard operating procedure

In addition, based on the Innovators in Supply Chain Security report, I would recommend that you

  • insure your trade compliance platform incorporates advanced product features,
  • insure your visibility applications are fully RFID compatible, and
  • augment your risk assessment and contingency planning with extensive training on your visibility, collaboration, and compliance systems.

After all, according to the report, best-in-class companies:

  • have end-to-end and cross-functional automation,
  • use commercial visibility solutions to monitor order-line level status, inventory, and mobile assets,
  • collaborate across 3+ processes across multiple supplier and customer tiers,
  • run on an enterprise-wide trade compliance platform that includes preferential trade agreement optimization,
  • frequently perform 3+ logistics agility actions,
  • use managed services or BPO solutions to augment staff, supported by visibility and collaboration technology, and
  • manage supply chain resiliency to risk related events.

The report also contains some great recommended actions for laggards, industry average, and best-in-class companies, so check out the “Global Supply Chain Benchmark Report”!

Aberdeen’s Top 10 Technology-Enabled Best Practices for Accelerating Sales and Operations Planning Business Results

When I reach the bottom of my virtual stack of white papers and research briefs on sourcing, procurement, and supply chain, I often troll for related best-practices articles on related and overlapping business processes. Scouring the Aberdeen site, I came across a recent Perspective entitled “New Strategies for Sales and Operations Planning: How Technology-Enabled Best Practices Accelerate Business Results” (AberdeenAccess) about, oddly enough, sales and operations best practices that can be enabled by technology.

While most of Aberdeen’s top ten technology enabled best practices were as expected and contained no surprises, I was delighted to see that not only was the need for role-based functionality and data manipulation recognized, but that demand shaping was fourth on the list.

The report notes that in addition to the enterprise security needs dealing with planning authority domain and roles, there is a need for user role specific functionality. A requirement of this function is the ability to show data in different ways based on the role, for example, unit level for the manufacturing users, margins for the finance users and revenue for the sales and marketing users. The reality is that everyone in your organization needs a different view of the data to do their jobs effectively and productively – and any product that tries to force a one-view fits all solution is not a true enterprise solution for your sales and operation planning needs.

More importantly, the report also notes that once the unconstrained forecast has been generated as part of the demand forecasting process, the forecast needs to be refined based on events such as promotions, downturns, and new product introductions. The system should predict and shape consumer response by building a business strategy that incorporates forecasting and promotional impacts into the demand plan. These solutions also should determine when and how to price and promote products – throughout a product’s lifecycle – to achieve revenue and profit objectives. A product has a non-linear dynamic lifecycle and the only way to truly maximize your return on production is to take this into account.

In order, Aberdeen’s top ten technology-enabled best practices are:

  • Collection of external Sales and Market Data
  • Demand Collaboration
  • Demand Forecasting
  • Demand Shaping
  • Supply Constrained Plan
  • Profit based S&OP
  • What if Analysis
  • S&OP Plan Quality & Metrics
  • Master Data Management
  • Role-based Functionality and Data Manipulation

For full details, I would encourage you to read the full perspective.