Category Archives: Finance

One More Step To Go and Maybe CFOs Will Finally Get It Right

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A recent article in the Supply Chain Management Review notes that, for CFOs, these days, “Survival Trumps Profits”. This is a step in the right direction as it’s not all about the almighty dollar, and, more specifically, how many of those almighty dollars you can bring in this quarter, it’s about doing good, doing right, and being around for the long term. After all given the choice between 1,000,000 in profit this year, and potentially going out of business tomorrow, or 500,000 this year and at least 500,000 a year for the next ten years, I’ll take the 500,000 a year because no investment vehicle is going to quintuple my investment in 10 years.

The article, which summarized a recent study commissioned by Basware and produced in cooperation with Indiana University’s Kelley School of Business and the University of Navarra’s IESE Business School, noted that most corporations these days are doing one of the following:

  • relentless restructuring
    slashing expenses, massive layoffs, and other drastic measures
  • cash flow
    cracking down on late payers, reducing customer payment terms, and extending supplier payment terms
  • the “holistic” approach
    integrating with procurement, eliminating siloes, and making operations transparent

But only one of these is the right approach. Can you guess which one puts you on the right track to building a long-term success story and, in comparison, which two put you on the fast track to failure?

The Supply Chain Opportunity in a Challenging Economy

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Spending less money seems to be a logical step when times are tough, but it can be a short-sighted approach. Companies must not just make fewer, smaller investments, but make smarter investments. Just because the economy has slowed down, it doesn’t mean you have to.

I couldn’t have said it better myself. This quote, from a recent article in i2’s Supply Chain Leader about “The Supply Chain Opportunity in a Challenging Economy”, gets to the heart of the matter … if you’re not investing smartly, you’re slowing down with the economy. And if you slow down, you risk becoming the next bankruptcy.

But getting back to the article, the next point it makes is that in this tough economy, a sharp focus on supply chain management is critical to your company’s success. Definitely. Remember Business 101: Profit = Revenue – Cost. Smart supply chain management lowers cost WHILE increasing value, which can increase revenue, which maximizes profit. It’s really that simple.

Now is the ideal time … for technology that provides a quick return on investment and long-term savings. Technology implementations that streamline manufacturing operations, optimize inventory, and focus on increasing cash through improved asset utilization and enhanced transportation management can enable your business to maneuver through volatile times, setting you up for success once the economy recovers. That’s why this blog has a large technology focus. Technology will help you optimize your supply chain, which saves you money and, done right, optimizes your cash flow.

And don’t forget to maximize the investments you’ve already made in your supply chain. This will help ensure that you are in a position to not only weather the storm, but to move past the competition once the storm clears. If you have systems that have been working well for you, even though it might seem a bit costly (at first), maintain the maintenance, acquire supplementary modules or systems that maximize your return, and hire consultants to help you figure out how to get more out of what you have. Remember, it’s all about ROI.

Then stay the course. A focus on innovation will lead to success … especially when so many companies have essentially curled up in the fetal position to wait out the storm. Recessions aren’t just when the losers are culled … they’re when the winners are made. And if you’re reading this blog, I am assuming you’re a winner … so go get ’em tiger!

Getting Ready for the Recovery … Whenever It May Be

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Industry Week recently ran an article on “repositioning your business for the recovery phase” that noted that it could be years before volumes return to the near record highs of 2007 and that many companies will need to restructure their operations if they wish to return to profitability. Specifically, companies need to focus on activities that are not dependent on volume to be profitable. The article recommends the following:

  • Design Cost Optimization
    Focus not on the design process but on design changes that can reduce production costs. This will reduce costs across the board.
  • Make vs. Buy Decisions
    Rethink what you make vs. what you buy. Now might be a good opportunity to offload non-core product design, process engineering, and quality control activities that are inefficient and costly for you but more efficient and affordable for a (new) strategic supplier.
  • Fixed Asset Productivity
    Optimize the effectiveness of your fixed asset portfolio. Increase equipment utilization and effectiveness, decrease required warehouse space, and get rid of, or lease out, unused or unprofitable assets.
  • Reduce Working Capital
    Up to 83% of working capital in your supply chain is needlessly tied up longer than it needs to be. It will take you a while to identify and make the necessary improvements to make your efficiency, so start by making sure you’re not paying more interest and fees and working capital loans than you need to. If you’re not sure how good your bank’s offer is, try The Receivables Exchange and see if you can get a (much) better offer.
  • Re-Analyze Your Business Model
    What was your optimal business model last year might not be your optimal business model this year. Re-analyze your products, markets, and regions and change your strategy accordingly.

Which is a great start, but don’t forget the basics:

  • Analyze Your Spend
    Do a real spend analysis, possibly with the help of a leading spend analysis consultancy, to find out not just where you’re spending money (direct, indirect, operations, etc.) but where you have the biggest cost savings opportunities.
  • e-Source
    e-Source those direct and indirect categories with the biggest cost savings potential.
  • e-Procure
    implement e-Procurement to save time and money … a good solution can automatically insure that you don’t pay more than the contracted price or miss an early payment discount you intended to take advantage of

Fighting Corporate Payment Fraud

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A recent article in Supply & Demand Chain Executive on “Fighting Corporate Payment Fraud” noted that nearly three-quarters of organizations experienced payment fraud in 2008. While the typical loss was only $15,200, some organizations experienced fraud that was orders of magnitude greater, and if you’re a small business, $15,200 could be the difference between paying two employees this month and not.

So what can you do? Given that the most common type of fraud is check fraud (with over 90% of the organizations who suffered fraud being attacked with check fraud), the second most common is credit and debit cards, and the third is ACH payment fraud, one thing you can do is implement a comprehensive defense against payment fraud by improving your internal controls and utilizing bank solutions available to you. For example, in addition to the paper, electronic, and online security controls that you can institutionalize, many financial institutions now offer payment fraud protection solutions that include debit blocking, payee verification, and post-no-check solutions. It won’t address every type of fraud, but if it prevents you from losing a hundred grand for a few bucks, it’s worth it.

March Madness 2009 Statistics

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Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archives.

First, my apologies to any college basketball fans who are thinking this post will be discussing hoops. I get about 15 different business magazines each month; they are a very useful resource for keeping up with what’s going on in the world.

In the March 2009 edition of Inbound Logistics, the top 12 corporate ethics and compliance concerns of executives surveyed were listed. Product Safety & Liability came in at # 6, with Information Security and Financial Integrity last at numbers 11 and 12 respectively. Anti-bribery, Conflicts of interest & gifts, Anti-trust contact with competitors, Mutual Respect, and Records Management beat Product Safety & Liability. Information Security and Financial Integrity was bested by Privacy, Proper use of computers, Export Controls, and Careful Communication.

Hmmmmm … I’m a little more concerned for my own health and safety now, I think.

In the March 30, 2009 edition of Information Week, 400 respondents to the senior management top security priorities survey showed that 35% of respondents are concerned about protecting data from outside hackers, and 18% are concerned about protecting data from unauthorized employee access.

In the April 2009 (well, it’s close enough to March) edition of CSO Magazine, 1000 ex-employees were surveyed about data security: 79% said they took data without their employer’s permission, with 59% admitting outright to stealing data, and 82% said that employers did not perform audits prior to their dismissal. (24% also stated that they had system access after dismissal.)

Okay…..with Information Security and Financial Integrity ranked so low in the area of concerns, and employers more concerned about outside hacks than inside theft (by a 2:1 ratio), is it any wonder that so many employees were able to steal data before and possibly even after their dismissal?

The distribution of intellectual property – customer lists, item prices, suppliers & costs – can cause serious competitive harm to an organization, so much so that it could suffer serious impacts to financial performance.

Protecting an organization from leaking data requires internal and external focus, and I submit that it takes two different groups of talented people to properly address each security vantage point. Protecting the network infrastructure via the use of hardware & software firewalls, anti-virus software, spam monitoring, web site filtering, data copying & transmission prevention, etc., are tasks best left to the folks who are experts in network infrastructure hardware and software. Identifying gaps in business processes and excessive application user rights & roles – especially those that contradict a person’s job description – are best left to business systems analysts and the folks who are in charge of business software application functional administration.

Taking this a step further, I have long wondered why CIO’s (Chief Information Officers) are given responsibilities better designated for CTO’s (Chief Technology Officers). In my opinion, this is an ideal separation of responsibilities. Working separately the CIO and CTO can focus their talents and resources on their individual areas of expertise. Working together, the CIO and CTO – and their respective teams – can ensure that any solution presented for the enterprise satisfies the business need and works within the technology standards established. (And if the right solution requires standards changes or other enhancements, let the right group handle it.)

What do you think readers? Is it better to have a CIO and CTO working together in mutual collaboration, or keep all technology tasks – from network infrastructure to business applications – under one C-level executive?

Norman Katz, Katzscan