Category Archives: Manufacturing

It’s Time To Rev Up Your Procurement Value Engine. But Do You Know How?

Procurement doesn’t exist to just buy stuff. Procurement exists, at least if it’s a modern Procurement organization, to identify and deliver organizational value. Long gone should be the days when Procurement, staffed by the island of misfit toys, existed only to process the paper work that allowed manufacturing to buy the parts it needed or the back office the paper and calculators required to do the day-to-day accounting.

But the identification of organizational value, as long-time readers of SI know all too well by now, is not always straight-forward. Every organization is different, and every Procurement function has a different level of organizational maturity. As per the classic Hackett Hierarchy of Supply, a supply organization could still be at the level of supply assurance, could have moved on to analyzing landed cost, may have begun its entry into the modern era with an analysis of TCO, might be poised to become a leader with a foray into demand management, or, and this is the highest level of maturity, may be focused on the art of value management.

However, delivering value takes more than just realizing that your function is to deliver value. It is understanding what value is to the organization and how Procurement can contribute to it. Simply put, one way of defining value to the organization is whatever allows the organization to increase its revenue potential. (More sales, more market share, more brand recognition and brand love, and so on.) One way of assisting the organization in the capture of this value is to deliver products, services, and knowledge that will assist the organization in strengthening its Unique Selling Points (USPs) or Unique Value Propositions (UVPs) that give the organization the competitive advantage it needs to increase its revenue (or profit) potential.

It is not easy to do, especially since a Procurement organization has to understand not only what it must do, why it must do it, and how it will achieve it, but how to be good at it. Few organizations get demand management under control and step up to the highest level of the pyramid. Fewer still can stay there as they will struggle with the how. And even if they occasionally understand the how, they may never master the art of being good.

If one wants to be good and drive to success, one has to have a vehicle powered by a finely tuned engine that can deliver value lap after lap around the sourcing track. Such an engine must be efficient, effective, and sustainable. Only then will Procurement be able to get good and stay good. So what does such an engine look like, what sort of value will it deliver, and how will it deliver that value?

For the answer, check out the new white paper co-authored by the doctor and the procurement dynamo, sponsored by Pool4Tool, on how to Boost Your Procurement Value Engine. Part I of a II-part series (with Part II coming out in Q3), this paper will give you the insights you need to understand the various levers you have to deliver true value and how you can do so in an efficient, effective, and sustainable manner.

Regulatory Sustentation 36: Labelling

As per our damnation post, while the the subject of labelling sounds harmless enough, it can still pose a nightmare for your supply chain. Products that are not properly labelled can be held up or seized at the border, seized for violation of state or federal labelling regulations from your warehouses or shelves, or result in massive fines and trade embargoes until the problem is corrected.

And it’s not as easy to adhere to labelling requirements as one might think. For example, in food and beverage, many jurisdictions require not only that all products contain nutritional information but also indicate whether or not the products are derived from GMO (Genetically Modified Organisms). In the tobacco industry, despite continuous threats of lawsuits from the tobacco companies, countries are starting to impose plain packaging laws and third parties dictate what packaging can and can not contain. In electronics, some countries are considering imposing laws that force a company to indicate the expected lifespan of the product being produced and how long it will be supported (as this is very important to a consumer spending hundreds, or thousands, on a new electronic device with the belief that the manufacturer is going to support the hardware and software for at least a few years). And different countries require different units, warnings, languages, etc.

This is not necessarily a bad thing, because consumers deserve to know what they are buying, but if multiple jurisdictions require different labelling requirements, it can be difficult to produce a label that satisfies all of the jurisdictions that operate under the same language. And if the company needs to produce a multi-lingual label that satisfies multiple jurisdictions in multiple countries, it can be a nightmare.

As per our damnation post, there are steps a company can take, namely:

  • the implementation of a Global Trade Management (GTM) solution,
  • careful review of each proposed label for full compliance before it is seen to the packaging supplier, and
  • monitoring for changes in labelling requirements so that the company does not get caught off-guard

but if a company is really ahead of the game, it will also:

    • monitor for proposed changes in labelling requirements and make sure it is in compliance before they happen if approval is likely and
    • monitor for key issues and complaints by buyers and find ways to proactively address issues before lawmakers tackle them and take a leadership position, which will improve the brand.

And, of course, make your labels as easy to understand as possible. If the product is packaged in 1L, don’t put nutrition counts for 278 ml against suggested daily values that aren’t even indicated on the package. NO one can quickly do that math in their head!

Organizational Sustentation 53: Engineering

Engineering designs the products that represent a product-based company’s life-blood, as they generate the cash necessary for operations. No company exists without revenue (NO Sale, NO Store), and revenue only comes from the sale of products or services. And those have to be designed by someone, and that someone is typically an engineer. And while Engineers are the top talent in the company, as well as the best educated talent, they can also be stubborn rigid perfectionists.

As per our damnation post, each engineer has a process, a design, a set of approved raw materials, and that is the process, the design, and the set of approved raw materials. Trying to convince them that there is another process, alternate design, or other raw material that could be useable is like trying to force molasses to flow up a glacier, as this would mean that they would have to accept that there are better processes, designs, and raw materials, and that they exist today (despite the engineer’s expensive research and experience).

And even if they are willing to accept there are better processes, design, and approved raw materials — they are perfectionists. The cost model might say that 98% reliability is good enough because, in practice, only 1% of units will break down before the warranty period expires and the cost of flat out replacement will have little impact on profit margin, but Engineering will say otherwise. They will insist on the supplier with 99% reliability even with a 30% cost increase because a good engineer makes the best product they can make, cost be damned.

So how do you deal with this damnation so Procurement can achieve some sustentation? Education.

The first thing you need to educate is that reliability is not the number one concern, safety is. If a laptop, music player, TV, etc. stops working, it doesn’t harm anyone. The buyer might be annoyed, but if you immediately rush out a brand new replacement, the buyer won’t be annoyed for long. As long as the product doesn’t short out and electrocute the user, there’s no issue with a little less reliability.

The second thing you need to educate them is that sustainability trumps supplier longevity. A company has to plan for the future, not rest on past laurels, especially if those past laurels are suppliers that have never been questioned. While every supplier was likely a great choice for one reason or another at the time the supplier was selected, the supplier might not be such a great choice today. All suppliers have to be reviewed at one point in time, and if there are more sustainable suppliers, they have to be investigated.

The third thing you need to do is educate them that you can help them identify suppliers that could have better processes, designs, or raw material formulations and save them a lot of time searching for new alternatives, as you will be scouring the market on their behalf and only bringing them suppliers that might truly have a better, or different, option. As the gate-keeper, you will save them a lot of time.

Engineers are your best allies – they are educated, rational, and want to do the right thing for the organization, like you. So show them how you can help, and be willing to listen (and learn) from them, and you will be able to overcome this organizational damnation.

Societal Damnation 43: Rapid Urbanization & Mega-Cities

There are a lot of societal damnations converging upon your organization and threatening ruin. To date, we’ve covered the sharing economy, crime & piracy, fraud & corruption, (the lack of) education quality, the utter lack of math competency, (mega) project management, and Everything-as-a-Service (XaaS). Today we’re going to cover rapid urbanization and mega-cities.

You’re probably wondering why this isn’t a good thing. More people in less area means the organization can sell more goods in a smaller area and this means Logistics has less areas to ship to and Procurement fewer areas to buy for. This is true, but it doesn’t mean that Procurement’s or Logistic’s task is any easier. In fact, while rapid urbanization can often make Sales’ and Marketing’s job easier, it can make Logistics’s and Procurement’s job harder. Much harder.

Typically when a city starts to rapidly urbanize, it’s infrastructure is not ready for the rapid urbanization. It’s water plants are stressed (and may not be able to accommodate the introduction of factories that require large amounts of water). It’s energy grids are stressed (and it’s not unreasonable that rolling brown-outs or blackouts could be temporarily required at peak periods). It’s public transportation is stressed (and even getting a taxi can be a 45 minute ordeal). It’s roads are stressed (and there can be regular delays to pick up and drop off goods at cross-docks and warehouses). Plus, it’s core roads may only be 2 or 4 lanes in many places, with large trucks prohibited – meaning that Logistics will have to secure, and use, a number of smaller trucks for pickups and deliveries — which means a need for more drivers in an industry where the driver shortage is in the tens of thousands in some countries. And then there’s waste management. The sewer system could be taxed (with the end result that the rivers are used to handle the excess until they run full of waste like the Mithi river). The capacity to collect garbage might not be there (which leads to stringent limitations on how much trash a home or business can throw out unless they haul it out of town to dump by themselves). And process and recycling stations could be overloaded (leading to a stench, unhealthy buildup of noxious fumes in the air).

Then comes a rapid increase in pollution, which can see a rapid increase in hazardous airborne (smog-inducing) particles to the point where it is almost triple the national air quality average (as is the base in Beijing). This will, of course, eventually result in legislation to limit the amount of pollution an organization can produce, which will, if the organization hasn’t planned for it, result in costly production plant and fleet retrofits that could easily cost millions of dollars. However, this probably won’t equal the increase in taxes that will come if the city, state, or country tries to clean up its problem and decides to spend billions of dollars doing so (as China is about to in preparation for its bid to host the 2022 winter olympics, an effort that will cost about $7.7B using the exchange rate of August 16, 2015).

But the trials and tribulations don’t stop there. Rapid urbanization is also typically associated with a rapid increase in crime (though often temporary from a long-term perspective, this temporary increase can still last decades), pandemics (as nothing spreads airborne and waterborne bacteria and virii faster than density), taxation to pay for the necessary improvements to infrastructure and social programs, a quickly changing political and regulatory environment, and a greater potential for mass hysteria and riots. Rapid urbanization can bring with it dozens of damnations, each of which will directly and indirectly affect Procurement on a daily basis.

Sales and Marketing may do the dance of joy, but they really ought to be shot in the foot for doing so as the good can often be outweighed by the bad in the short term, and the amount of rapid adaption that Procurement might be forced to deal with may not be worth it.

A Few Reasons Why Your ERP is a Disaster Waiting to Happen

In our last post we said that If You Still Rely On ERP, You Could End Up in the Supply Chain Disaster Record Books, and we meant it. Over-reliance on outdated and antiquated ERP systems is just a disaster waiting to happen, and here are just a few reasons why in half a dozen supply chain areas.

Sourcing and Contract Management

A critical requirement of a multi-round RFX or multi-round negotiation is the ability to support multiple prices at different volume levels and price history. One of the biggest ERP systems on the market today still does not support this simple, basic, requirement. It’s crazy, but it’s true. And without the ability to store proper prices, volume breaks could be missed and millions could be lost.


A critical part of Procurement is m-way matching between the invoice, purchase order, and goods receipt. And a critical part of procurement performance management is tracking each mismatch. How often does a supplier over-bill? How often does a supplier under-ship? This can only be tracked if there is a complete invoice history, but many so-called “modern” ERPs only allow for one version of an invoice. So when it is corrected, the history is lost. And a supplier’s true performance is never known. Performance that could cost you dearly if an under shipment results in a stock out that costs millions in revenue.


A critical part of logistics is tracking not only order dates and received dates, but required ship-by dates, receive-by dates, and outbound ship-by dates to avoid missing customer requirements. Some ERPs can only track the date the PO was cut and the date the goods were received — that’s not enough. Another critical part of logistics is ensuring that each carrier has enough insurance to cover the replacement cost of the load, which requires tracking the cost of the load and the insurance coverage of the carrier. With respect to this, the best the average ERP system can do is allow you to look up the PO total and, if you are lucky, extract the last copy of an insurance certificate stored as a PDF in a blob or similar structure in the document store. No meta-data to tell you what’s in the certificate or if it’s even still valid — which could expose you to a huge liability.


Most ERP systems are still using 20 year old forecasting models, and look at what these models did for Cisco and Nike! Should you still be using them?


Most of these systems were built before the introduction of acts like 10+2, REACH, SOX, and WEEE — acts which require you to track, report, and store certain data to maintain compliance with these acts. Compliance which is critical to avoid fines, penalties, seizures, [temporary] business closures, and even criminal charges. Compliance which is not maintained by ERP systems that aren’t set up to store all of the data required on an import/export form, track detailed BoM (Bill of Material) data to ensure acts like REACH and WEEE are not violated, and the detailed audit trails required to satisfy SOX.

Risk Analysis

While there are a plethora of risks that can not be predicted due to their nature (like natural disasters, geopolitical uprisings, etc.), there are a plethora of risks that can be predicted with high likelihood if they are monitored for. However, this monitoring depends on the availability of good data. For example, supplier failure can often be predicted if the organization monitors shipments, third party risk data, and market data. If shipments get progressively later, contain higher defect rates, and third party financial ratings for a supplier get weaker every month, that’s a sign of supplier distress and a potential bankruptcy, and it’s critical that the buyer assess the supplier’s health and monitor the situation. This will only be detected if the system tracks delivery dates and defect rates, third party data, and appropriate econometric models. However, all most ERPs track is good receipt dates and returns (but no meta data tying them to orders to calculate defect rates). No market data, no financial ratings, no modern econometric models. No way to detect imminent disaster.

And this is just a short list of ERP failings that could bring imminent disaster. To find out more about ERP’s shortcomings, if you still have not done so, (register for and) download the recent white-paper by b2bconnex on Why ERP is NOT Enough. The sooner you learn this, the sooner you can correct the situation and join the leaders with a modern supply chain.