Category Archives: Market Intelligence

Where Do the Savings Lie?

Inflationary times are back, economic growth is slow, the job-situation hasn’t improved much, employers would rather keep a job vacant nine years waiting for the perfect candidate over spending even a single dollar on training, and CFOs are being told to put pressure on Procurement to cut costs to the bone. In other words, despite all the talk in recent years about training, innovation, and value-generation, it’s still business as usual at review time.

You’ve beat your suppliers senseless, kept overhead to a minimum (not by choice, you weren’t allowed to replace people lost to attrition), done some automation and strategic sourcing, and put as much effort as you could into high-cost categories. As far as you’re concerned, you’ve squeezed all the blood out of the stone and there’s nothing left. And if you are a sourcing leader, that might be true for the categories you’ve been focussing on for 6 to 9 years and that you’ve strategically sourced 3 times in a row.

But is this all the savings to be had? Not by a long shot.

The first thing to remember is that costs fall into two categories: recurring and one-time. Recurring costs include human resources (employees and mid to long term contractors); raw material, component, and production costs; overhead; COGS (cost of goods sold), transportation, and insurance. If your organization is a leader in Procurement and Supply Management and seen as a value generator, then, in addition to reducing raw-material, component, and production costs, it works with operations to keep overheads and insurance costs low, works with logistics to keep transportation costs low, works with Sales & Marketing to keep COGS low using its expertise, and even works with HR to get contractors at competitive rates. (In other words, it’s directly or indirectly reducing every cost except salary, which it has no control over.)

One-time costs include expedited shipping, temporary/contingent labour (to address seasonal spikes, such as the surge in demand many retailers get around Christmas time), switching costs (when switching suppliers or raw materials), and one-time costs associated with recalls, settlements, and stock-outs (on the shelves and in the factory). Most Supply Management departments work with logistics to optimize and keep transportation in check to minimize shipping costs, work with HR to make sure temporary/contingent labour is sourced appropriately, and take switching costs into account when evaluating sources of supply, and this is a good start, but these one-time costs pale in comparison to the cost of a recall, settlement, or stock-out. Recalling a contaminated or unsafe product that makes it to the shelves can easily cost in the tens of millions of dollars, a settlement that results from a class action lawsuit can cost in the hundreds of millions (especially when legal costs are factored in), and a supply chain disruption that results in the assembly line for the key, or only, product line being shut down for months can bankrupt a company (and a number of companies have gone bankrupt as a result of serious disruptions in production). How much is your Supply Management organization doing to prevent these very costly incidents, which can wipe out years of savings, from happening? Remember, Supply Management has, or should have, the supplier relationship and be doing its utmost to insure quality (preventing recalls or lawsuits), supply management has (or should have) the visibility to detect shortages or stock-outs well before they happen (and is the only organization in the position to take action and locate another source of supply in time), and only Supply Management has (or should have) the cross-functional capability to address these issues.

So, do you know where the savings lie?

Homeland Security Turns 224 Years Old Today!

Everyone thinks the Department of Homeland Security (established by the Homeland Security Act by Congress in November 2002), which opened its doors on March 1, 2003, was the beginning of the U.S. focus on homeland security, but nothing can be further from the truth. The U.S. focus on Homeland security started on this day in 1789 when the U.S. Department of Foreign Affairs changed its name to the Department of State. The inward focus has continued and progressed since that day while the rest of the world still deals with foreign affairs.

How Do You Monitor Your Supply Chain for Disruptions?

Are you in the top tier of organizations who actively monitor the global news for potentially disruptive events and that identifies those events that will likely disrupt the organization’s supply chain before the shockwaves disrupt the chain and cause shipments to be late or missed entirely in first, second, and even third tier suppliers, or do you wait until a shipment is late, Sales is screaming, and then figure out what happened?

Be honest. Even though SI readers are the most intelligent, progressive, and sexy Supply Management professionals in the world, the reality is that many work for organizations who are still stuck in 1699 with respect to making the most of modern technological solutions.

And while automatic event monitoring software is, relatively speaking, quite new, as the underlying news monitoring and semantic processing technologies they are built on are quite new, the technology has been around for a few years and is maturing nicely. For example, Resilinc’s* new’s release, called EventWatch Processional, monitors over 25 different types of disruption events ranging from catastrophic global crisis and natural disasters (such as earthquakes, hurricanes, and floods), to isolated incidents (such as factory fires, labour strikes [at the port], and plant meltdowns), and government regulatory actions (such as border closings and economic sanctions). And while the software can’t pick up on every type of possible disruption (because a single truck getting hijacked inside China carrying your microprocessors might not make the news), if you look at the most costly disruptions over the last two decades, most were due to natural disasters, labour strikes, and port/border closures — and these are all picked up by the EventWatch solution. From a coverage perspective, it’s an 80%+ solution and most of what it misses (such as the theft example above) will be picked up by appropriate collaborative supply chain solutions that track shipments, delivery dates, and milestones. (For example, if your second tier supplier was supposed to get a shipment of microprocessors on the 5th, and they still aren’t there on the 7th, communicates the potential delay to the first tier supplier, who incorporates those microprocessors into power regulator units for your engines, and who knows that every day of delay will delay their production and shipment to you, communicates the potential delay to you, and that’s a problem, and the communication of such problem flows back from you through the first tier supplier to the second tier supplier, the second tier supplier can begin looking into the problem immediately. If the second tier supplier then calls the logistics company who says that the truck can’t be located, a theft can be reported, the information can be communication back up the chain, and mitigations can immediately be investigated in a collaborative effort between all parties).

A good event monitoring solution, like EventWatch, will provide email notification of identified threats that can potentially disrupt the supply chain along with

  • event details,
  • industries and geographies potentially affected,
  • links to further information, and
  • potential impacts to the organization’s supply chain based upon
    information provided by the organization.

This will allow an organization to quickly identify potential supply chain impacts from significant disruptions and, if necessary, begin to work on mitigation plans immediately. Identifying disruptions early is critical given the potential ramifications of a prolonged disruption event. For example, consider the Chilean port strike in 2012. This strike, which first made the global news on March 20, prevented Codelco, Chile’s largest copper mine that was also suffering from an internal strike, from sending shipments — a reality that was identified by Resilinc’s monitoring software on March 28th. Four days later, on April 1, the mine declared a critical force majeure. Since force majeure events result in an unavailability of supply from one or more sources, knowing that they are likely to occur, even four days in advance, gives an organization a significant edge as it can lock in supply from the lowest cost competitor (with excess supply) before that supply, and other sources, becomes unavailable as everyone scrambles to find alternate sources of supply once the unavailability of the primary supply makes the global news.

This is just one example of the importance of disruptive event monitoring. Where supply chain disruptions are concerned, knowledge is power — and the first to know have the power to take actions while there are still actions to be taken. Once all remaining supply is locked up, it’s locked up — and unless the organization can find a substitute product, material, or service (which is not always possible due to regulatory and/or material requirements of the product being manufactured or service being delivered), the organization is, simply put, screwed.


*Just in case you haven’t been paying attention, in full disclosure, Resilinc is an SI sponsor.

Have You Aligned Your Measurements?

It’s a simple question. Have you?

I’ll give you 5:1 odds that you’re not. Why? It’s hard to know what the right stuff is, and, these days, there seems to be an overwhelming focus on quantity, and not quality, and savings, and not value.

For example, if we’re talking about e-Procurement, many organizations measure the number or percentage of invoices processed through the system. (As many of the “leading” analyst firms report that as a good measure.) Sounds good, but since the 80/20 rule is just as applicable here as anywhere else, the reality is that 20% of your invoices take up 80% of your time (due to number of line items, number of amounts that need to be checked, number of errors that need to be fixed, etc.) and 20% of your invoices represent 80% of your spend. If those invoices are not being put through the system, then it hasn’t really reduced your processing costs all that much as the most significant cost associated with PO processing is the cost of the personnel doing the processing. What you need to be measuring is the % reduction in human interaction time. If a new system only reduces human involvement by 20%, it’s not working. Sorry.

If you’re measuring year-over-year savings, you’re not measuring the right thing. If your price went down 10%, but the market price of the raw materials dropped 20%, did you do a good job? No. And if your price went up 5% while market indices went up 15%, you did a bang-up job. You have to measure performance against market average, otherwise, you don’t know how good you’re really doing.

And if we’re talking about Sourcing, if you’re measuring the percentage of spend strategically sourced, you’re definitely not measuring the right thing. While it’s true that an organization will not have the resources to strategically source 100% of spend, and that 100% of spend should not be strategically sourced, there is a percentage of spend that needs to be strategically sourced, and a percentage of that which needs to be sourced while the market opportunity is good. You need to determine, with good spend analysis, what that percentage is and make sure you get to that spend – not just the next ten categories on the high volume spend list. The near-decade of near-zero inflation is over. We’re back to inflationary times, and we will probably stay there for the rest of this decade. It’s time to measure what is costing you, and focus on optimizing that.

While You Were on Summer Vacation, Vendor Posts, Part II

While you were on summer vacation, SI was powering away with daily posts and continuing to cover some of the leading vendors in the space, presenting a number of deep dives on their technology platforms. Here is a short recap of some of the coverage you might have missed!

Trade Extensions

In our post on Trade Extensions (TE), where we noted that there is still no rest for the wickedly powerful, we told you that their coders never sleep (or at least not very often) and that, since SI’s last coverage in 2011, they have added more powerful fact sheets, enhanced browser-based reporting and visualization, and a formula analyzer – that pacts a much bigger punch than you’d expect. It’s often the case that a user has no clue why one model solves in a second and an almost identically sized similar model is still being processed an hour later. This is because the more complex the models get, the harder it is to pin down why they aren’t quite doing what they are supposed to be doing. The TE formula analyzer allows a user to analyze a formula and see how it is defined, how long it is taking to calculate with respect to the other formulas in the model, and what is affected by the formulas or changes to the formula. In addition, if they exist, it can suggest formula modifications that would allow the model to solve faster. However, just knowing where the problem lies is a great help if a model is solving slow.

Coupa

In our post about how it’s 24/7 for Robbie and the Coupa Factory, Part III, we noted that Coupa had completed Release 9, were on their way to finishing Release 10 (now available) by the end of the quarter, and had just released a new e-Sourcing module, which made them one of the first providers to offer an integrated end-to-end e-Sourcing and e-Procurement solution. Their new sourcing offering, which is e-Sourcing 1.0 with RFPs, RFQs, RFIs, basic reverse auctions, and basic project management and not much more than you’d find in any basic e-Sourcing suite, is still enough for an average mid-market company and impressive in that it’s as easy to use as the rest of the platform. It’s a quick way for a company using Coupa that does not have a sourcing solution to transition from Procurement to Sourcing. Plus, when you add the new expense management capabilities and catalog functionality, it’s a very quick way for a mid-market organization behind the sourcing and procurement curve to get closer to where they need to be quickly.

Kinaxis

In our posts about Kinaxis and their new paradigm for real-time end-to-end supply chain management (Part I, Part II, and Part III), we described how this extremely unique Supply Management vendor offers a single platform to take your Supply Management Operations to the next level once you have implemented e-Procurement and put your spend under management, optimized your strategic sourcing, mastered e-Transportation and Trade Management, achieved e-Visibility to manage your risk, and optimized your network design. This platform, which is successfully used by product, risk, and change managers in Supply Management to manage demand, do S&OP, undertake supply & capacity planning, do production benchmarking and scheduling, manage inventory, handle new product introduction (NPI), perform order analysis and planning, manage supply, improve profitability, and collaborate with suppliers, among other things, is designed to allow supply management professionals to get answers to strategic planning questions like the following in real time:

  • what is the impact of a supplier shutdown due to a fire in the plant?
  • how can I launch a new product a quarter early?
  • what if a user mistakenly changes an inventory parameter?
  • what would happen to our ability to fulfill demand to our other customers if we accelerate fulfilment of an emergency order for a preferred customer?
  • how can we effectively reengineer our planning processes

The Kinaxis solution supports very complex, but easily generated, what-if scenarios that will allow a user to ask these questions and get an answer in a few hours, as compared to the days, or weeks, it would have taken them in the past.

Come back Monday and we’ll tell you about three more recently covered companies you might have missed!