Category Archives: Market Intelligence

True Cost Reduction Doesn’t Increase Risk

While reading a recent article over on the Inbound Logistics site on Serving up the Perfect Meal, I came across the following quote from a general manager for C.H. Robinson that worried me:

“One thing all restaurants are doing is managing labor farther up the supply chain, and pushing inventory levels back to suppliers to manage, thereby controlling costs, keeping inventory fresh, and allowing menu planning variability.”

Can you see why? While managing labour considerations further up the supply chain is a great idea, as it forces you to have good supply chain visibility, and keeping inventory fresh will give you an edge in the food service industry, pushing inventory levels back to suppliers to manage is a disaster waiting to happen unless:

  • they are at least as competent as you in inventory management,
  • they have deep insight into your expected demand requirements over time (at least six months into the future), and
  • they have a basic understanding of the market volatility and the ability to handle unplanned demand surges.

If any one of these assumptions are false, at some point in time, your supplier is going to be out of inventory when you need it most, and you’re either going to have to spot-buy elsewhere, at considerably higher prices, or, even worse, go out of stock and have to slash profitable menu items for the duration of the shortage.

You should only let your supplier manage your inventory if you have deep visibility into the supply chain and collaborate with them to make sure they have all of the data they need to predict your needs as well as you can. And you need this visibility, given that quality, safety, and traceability are critical to a food service provider’s supply chain, especially given the recent introduction of the Food Safety Modernization Act.

The Other Five Reasons People Resist Change

Change is important, as every Supply Management organization should be constantly improving, and some improvements will require change, which could be significant. But change is not always easy as it is often resisted by individuals who fear the loss of control, excess uncertainty, unfamiliar situations, additional work, and surprise that change represents. This is something we know all too well, and something that has been discussed many times before.

But these are not the only reasons people resist change, and in a recent post over on the HBR Blog Network on “Ten Reasons People Resist Change”, the author does a great job of pointing out the other five reasons, which are often overlooked.

  • loss of face
    Change is a departure from the past, a shift away from the current process or strategy which was created, and instituted, by one or more individuals. As a result, you’re not just moving away from a process or strategy, but from the people who created it, who might get the impression that if there is a need to move on, they must have been wrong. And since they may not be able to accept the stigma of being wrong, they will be forced to defend their process or strategy and resist change, even when it is needed. As a result, a good leader will have to point out that the reason for the change is that the world has changed and the organization needs to keep up. They will have to make it clear that the shift has nothing to do with the process or strategy, which worked well when it was instituted when the world was different, but everything about keeping up with the shifting times.
  • competence concerns
    If the individuals who will be responsible for implementing the change are questioning their ability to do so, they will resist the change (as no one likes to feel incompetent). Unless the leaders provide sufficient education, training, and support, this reason for resistance will be hard to overcome.
  • ripple effects
    Like a pebble tossed into a pond, the effect of a change is never localized. The ripples produced by a change will inevitably affect other processes, departments, and even customers. These people will, in turn, rebel against the change they had nothing to do with that they perceive as interfering with their activities. Unless all stakeholders are included, and a plan collaboratively constructed to minimize their disruption, at some point, significant resistance will spring up seemingly out of nowhere.
  • past resentments
    The ghost of Change-mess past is always lying in wait to haunt us when the next change is introduced. If past errors are not corrected, and past hurts are not healed, they will return to plague our efforts and curse our prosperity.
  • a real threat
    Let’s face it, when new processes and technologies come into play, jobs can be lost, prices can be cut, and investments can be wiped out. Leaders have to make sure to be honest, transparent, fair, and fast to address the issue — and have a plan to retrain and reallocate displaced workers (who are interested in staying with the company).

There’s a reason change management is all the rage. It’s often much tougher than one thinks.

How Do You Identify Tomorrow’s Supply Chain Paupers?

They still use paper today.

Although I don’t understand how any supply chain focussed business, and a logistics carrier in particular, could still be paper-based. It blows my mind that the WT 100, in their recent article on “Rounding the Optimization Curve”, reports that there are still a significant number of carriers that keep their records on paper. How can you survive in today’s cost-competitive, just-in-time, value-conscious supply management landscape and work on paper?

And while we’re at it, let’s talk about how you can identify the dead men walking of the day after. They use Excel. We’ve known for years that errors in spreadsheets are pandemic. Needless to say that it boggles my mind that Microsoft Excel continues to be the application of choice for supply chain and logistics management around the world. Fidelity lost 2.6 Billion as a result of a spreadsheet error, Fannie Mae made a 1.13 Billion honest mistake, and RedEnvelope lost more than a quarter of their value in a single day after they warned of a fourth-quarter loss due to a budgeting error that resulted in an overestimate of gross margins. How long is it going to be before someone accidentally uses a plus sign instead of a minus sign in a profit formula and forgets to uncap an inventory calculation and instead of ordering 100,000 units of a profitable product, instead orders 1,000,000 units of a product that actually results in significant losses at the target sale price, for which the market demand is weak, ties up all of the organization’s working capital, and essentially bankrupts the company? My guess, with the steadily increasing complexity of S&OP, JIT inventory management models, and supply chains, not much longer. But, maybe after a few companies are brought to their knees from spreadsheet errors, we’ll see the day when Excel is sh!tcanned along with the dinosaurs who still think it has any more use than a HP or TI calculator.

It’s time for anyone still on paper or Excel to wake up and realize we don’t live in Walt Disneyland and that the story of the prince and the pauper is a fairytale. A pauper is not going to become the benefactor of princely riches just by looking like a bigger, richer, company. In today’s uber-connected world, appearances don’t account for much. It’s not long before someone digs deep and uncovers the truth.

There’s a reason why customers are demanding end-to-end visibility of their supply chains, including those of their supply chains logistics’ partners. And a reason customers ow expect all of their suppliers and business partners on the supply chain (including logistics providers) to participate in a supply chain social network. It’s because they know that the only way they can accurately manage their supply chain is to keep on top of it, that the only way they can build accurate models is with accurate data gathered from partners, and that the best reports they are going to get are going to come from supply chain visibility and planning software plugged into these “social networks” (where, in reality, these are “enterprise communities” that allow the necessary collaboration, not “consumer networks” where you can poke, prod, and shake your buddy for no apparent reason).

In other words, paper is dead, and Excel will be the new paper, and then, someday, it too will be dead. So if you don’t want to be the pauper, move off of these technologies and onto solutions designed for your supply management needs. With a plethora of Best-of-Breed solutions on the market, designed for large and small providers, it’s extremely likely that there’s at least one solution that meets your needs almost exactly with minimal tweaking. If you look hard enough, the doctor would bet that there’s at least three, or will be before you can look twice.

Supply Management and Investor Relations

This summer, e-Sourcing Forum ran a three part series on Procurement’s Role in Investor Relations that was quite interesting. In the series, the author, David Henshall of Purchasing Practice outlined the four essential roles played by procurement in investor relations. In a nutshell, these roles are:

  1. Ensuring the Investor Community has a Timely and Accurate Picture of Supply Side Activities
  2. Helping the Investment Community Comprehend how Supply Markets Impact Strategic Decisions
  3. Delivering Shareholder Value by Maximizing Opportunities and Minimizing Risk
  4. Supporting Senior Management in Making Strategic Decisions

And they must be fulfilled in the terminology and metrics understood by the investment community – EBITDA, ROIC, EPS, etc.

And these are key roles, but in today’s profit-focussed economy, the importance of the following roles should not be de-emphasized

  1. New Market Identification
    Supply Management is likely already sourcing from the markets the company wants to expand into to spur growth, the investor’s holy grail.
  2. New Product Design & Introduction
    While engineering and marketing can come up with great ideas, they are typically not the most cost effective ones in their initial instantiations. Supply Management can suggest alternate materials, components, and services to lower costs and suggest value-adds to increase revenue. Profit margins can often be doubled or tripled and everybody wins.
  3. Brand Development
    Sometimes, the best way to get a quick boost to the brand is to partner with another brand that already has a great brand. For example, we’re all familiar with “Intel Inside”.

The importance of Supply Management cannot be understated, especially given the centrality of supply management to value creation.

Do You Know What’s At Risk? Resilinc Does!

Resilinc, a new player in Supply Management, has a unique approach to identifying and evaluating risk in your supply chain. Eschewing the transaction-and-finance focussed approach of other players in the risk management space, and building on the lessons learned from SIM (Supplier Information Management) vendors, Resilinc has built a unique approach to identifying and quantifying the relative risks in your supply chain.

Started by a Risk Management practitioner in the high-tech and electronics supply chain, who has a Masters in Engineering in Logistics (from the Massachusetts Institute of Technology), Resilinc not only builds on the lessons learned from SIM, but on the lessons learned from real risk management practitioners and specifically focusses on the electronics and high-tech, medical device, and automotive supply chain – realizing that, when it comes to risk, not all supply chains are created equal.

So what is Resilinc? It’s an affordable DSS (Decision Support System) for larger mid-size and large multi-nationals that need to

  1. identify the most significant risks in their supply chain,
  2. keep tabs on what facilities may be impacted by a significant external event, and
  3. be immediately informed when an event could cause a disruption that requires immediate action.

The solution, delivered using the SaaS (Software-as-a-Service) model, does this by tracking all of the relevant information on each supplier and facility in your organization’s multi-tier supply chain. Whereas a typical SIM solution (that powers a typical financial risk analysis product) will track each supplier, their official information, their insurance certifications, their corporate addresses, etc., Resilinc’s solution tracks each individual manufacturing facility, the products produced at those facilities, the inputs required, the lead times required, and the time taken to get the plant up and running again as a result of a serious disruption (such as a natural disaster, border blockade, strike, etc.). Based on this information, integrated financial and location risk metrics imported from other systems (for which you have a license for), and the relative revenue impact of each product on your total organization revenue, Resilinc is then able to

  1. provide an overall risk score, delivered in terms of the revenue impact of a disruption, for each location and product,
  2. give you the ability to determine the impact of an external event in a given location with respect to supplier locations and sourced products, and
  3. determine which locations and products are likely to be impacted by a significant event anywhere in the world, as soon as it happens (and e-mail you a notice that the event — which may be an earthquake, war, or labour strike — is potentially impacting one or more locations in your supply chain).

Risk Managers can use this to determine which locations and products have the biggest risks, which facilities will be impacted the most as a result of a supply disruption in an area, and which product (line)s are at risk as the result of an event that just happened. And then they can take action.

Resilinc is a powerful tool for the high-tech, medical device, and automotive supply chain, which, until now, were probably too reliant on financial metrics, which are not the only risks one needs to be concerned about in a multi-tier supply chain.