Category Archives: Market Intelligence

the doctor Would Like To Remind You That Any Balloon Will Pop Under A Sufficient Pressure Differential

I don’t care what it’s made of – there isn’t a container in existence that won’t explode if filled to a point where the internal pressure exceeds the external pressure by a sufficient amount. Remember the second law of thermodynamics – the entropy of an isolated system not in equilibrium will tend to increase over time, approaching a maximum value at equilibrium .

In free-market economics we have a similar law, called the law of supply and demand which predicts that in a competitive market, price will function to equalize the quantity demanded by consumers and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity . Taken to extremes, it means that if prices skyrocket, demand plummets, falling to zero at the extreme. This holds true in the stock market as well, as it’s a free market where the good is ownership.

That’s why we have boom and bust cycles and why an unrestricted boom is guaranteed to result in a spectacular bust. There comes a point where investors en-masse are going to decide that the price is just too damn high and want out, even if we don’t know what that point is in advance. That point is much more likely to be hit if share prices rapidly skyrocket. If this happens market-wide, due to a sizable increase in invested capital in a short time-frame, we have a boom. If the boom continues unabated, a bust is guaranteed.

So, needless to say I was quite annoyed to see an article titled “Emerging Market Mania: Is It Different This Time” on the Knowledge @ Wharton site (one of my favorite publications) – because the answer is bloody obvious. It’s not different! It’s never different! The laws are immutable! As long as we use a system of measurement that places a finite value on the GDP of each nation, the sum of the GDP for all nations is going to be finite. This guarantees that there will exist a point in each stock market, and each stock, where the price will be too high for the average investor, and these investors will want out en-masse. When this happens, you have a bust. “Market Mania” is always bad! Participating in market madness again and again is equivalent to putting your hand on that hot burner again and again. You’re going to get burned. That’s not going to change! And don’t give me that “it’s a different company” or “it’s a different market” bullshit as your excuse. The fact is that any burner on the stove will burn your hand just like any burner on any stove will burn your hand.

So, before you go diving into a market everyone else is diving into, be sure to do your homework and make sure it’s a justified move. If a market is extremely under-valued or under-served or has a considerable excess of supply, then it will be able to support a large influx of competitors and currency. However, if it is over-valued or over-served or does not have enough supply to meet current demand, any investment or entry by any organization is a very bad idea and you never know what entry is going to be the entry that causes the market to reach the tipping point and start the rapid downhill slide from boom to bust.

If you’re wondering why I’m rambling on about the inevitable bust that’s sure to follow an irrational boom, just remember that it’s not just finance that needs to worry about market valuations – supply management has to as well! The financial strength of your supplier is at least partially dependent on the financial strength of the market it’s shares are traded in or on the strength of the local economy. From a risk management perspective, the financial strength of your supplier is a key factor in terms of evaluating how much risk an award to that supplier poses – and any supplier in a risky market is going to carry a certain amount of risk.

Before I conclude this blogologue, I should point out that the article did have some good points. It pointed out that emerging markets cannot be evaluated en-masse – each is distinct and needs to be evaluated on its own. It stated the need for differentiation between emerging markets like Brazil, Russia, India, and China (the “BRIC”) and the frontier markets like Egypt, the Balkans, Bangladesh, and parts of Africa that could be the next investment hotspots. It noted that countries with abundant natural resources will likely experience an economic boom for the foreseeable future (thanks to increasing demands from the developing economies). And it noted that knowing where to go next with investment capital is always a challenge.

It’s Time To Get Your Trade Data In Order

Did you know that, right now:

  • You could be eligible for VAT rebates?
  • You could be eligible for Import Duty refunds?
    or that …
  • You could be overpaying for freight?
  • You could be saving more if you took advantage of trade agreements or trade zones?
    or that …
  • You could be buying counterfeit goods?
  • You could be weeks away from having your supply chain frozen?
    and more!

Let’s start with the Aberdeen findings, which have been, more-or-less, corroborated by Hackett. There are millions (upon millions) of dollars in working capital languishing in your international supply chain. A $1B company can easily free $10M to $40M in cash by better controlling just its basic global trade processes. Aberdeen found:

  • Large companies’ international supply chains are only 50% as automated as their domestic supply chains.
  • 87% of large enterprises have inadequate staffing to manage global supply chain and global trade compliance processes.
  • Trade compliance is consistently a low priority for IT funding.

Now let’s add the Global Data Mining findings that error rates in global trade processes approach 10 to 20% and that effective control of global trade processes is often 100 to 200 times worse when compared to accounts payable processes in an average company!

Basically, the following is a reality for your average multi-national, whether it realizes it or not:

  • It’s manufacturing facilities in China are still failing to claim VAT rebates they are eligible for, because it is unaware that some of its goods are now eligible under the recent changes that took place this summer.
  • It’s using outdated HTS codes and some of these codes have a higher tax rate than what it could be paying if it was using the new HTS codes that took effect in January of this year.
  • It’s not keeping track of total freight payments by carrier and cross-referencing its 3PL agreements and not demanding the discounts that were supposed to come into play once a certain threshold was reached – discounts that sourcing spent a lot of time negotiating into the contract in an attempt to save the organization money.
  • It’s not taking advantage of special economic zones in India and China that offer tax exemptions for items simply passing through the country and / or lower tax rates on corporate profits and not taking advantage of US Foreign Trade Zones that allow payment of duties to be deferred until the product leaves the trade zones.
  • It’s going through a distributor to buy its goods from China, and this distributor is actually distributing counterfeit goods!
  • It still hasn’t updated it’s entire fleet to be ACE compliant. Now that ACE has been rolled out at almost every land border port in the US, CBP expects that all truck-based shipments will be supplying ACE-compliant e-manifests BEFORE the truck reaches the border. Send the wrong truck – and it won’t be going anywhere for a while – freezing your supply chain!

So what can you do? Besides better educating yourself on what’s involved in Global Trade, starting with the Introduction to Global Trade wiki-paper, and the Customs and Security Primer, Free Trade Primer, and Regulatory Compliance Primer on the e-Sourcing Wiki [WayBackMachine], you can start by getting an audit of your processes and data and see where you’re weak and where the greatest refund and savings opportunities are.

Make sure to do a complete review of trade agreement management, FTZ/STZ analysis, HTS classifications, VAT payments, supply chain finance strategies, freight, and sourcing opportunities. If you’re a Fortune 500 company, this could easily identify 20M to 100M (or more!) of savings that are instantly attainable, above and beyond what you’re going to find in an average strategic sourcing project (even if it does use strategic sourcing decision optimization as this only optimizes the model provided at the category level – it does not look at your sourcing network holistically from a trade perspective, which should be done once every one to three years, on average).

And we still didn’t talk about the fact that “Gender & Age Discrimination is Costing US Importers Billions of Dollars!” (Global Data Mining, acquired by CUSTOMS Info, acquired by Descartes) Data mining analysis has determined US Importer’s have overpaid more than $1.3 billion in discriminatory duties over the past two years. When it comes to tariffs on clothing, shoes, and other age or gender differentiated products, there is often no apparent pattern which penalize men in some instances, and women in others. Research has identified more than 2,200 pairs of US Harmonized Tariff codes (HS codes) impacted by discriminatory duties, over 300 for Age Discrimination and more than 1,900 for Gender Discrimination. More than 40 importers have already filed a lawsuit to protect their interests. Have you?

That’s why Global Data Mining is Sourcing Innovation’s Vendor of the Week. Not only is it one of the few companies offering these desperately needed audit and data mining services, and doing so at a rate every company can afford (it’s goal is to provide you with a blended cost of under $100 per man hour – compared to the Big Consulting Shops who want to charge you at least three times that), but it’s also one of the few companies making a concerted effort to educate you on what savings opportunities you may be missing in your global trade operations and what issues, such as the gender & age discrimination in HTS duties, you should be aware of, and speaking out against. Check them out.

Achieving Supply Chain Visibility

Supply & Demand Executive recently ran an article by Aatish Goel & Murali Krishnan Sundararajan on “The Flat Supply Chain” that noted that globalization has created a massive increase in supply chain complexity and that supply chain visibility is emerging as a critical differentiator for companies to stay ahead of the competition.

The article also suggested that companies should manage supply chain visibility according to the process-technology-organization framework, and recommended the following from the process angle.

  • Effective S&OP Process Deployment
    An effective S&OP process brings the right information in front of all stakeholders in a timely manner.
  • Internal & External Inventory Turns Review
    Use a multi-echelon inventory visibility system that allows for regular review of inventory status inside the company and inside the supply chain as a whole.
  • Alerts & Exception Management
    The amount of data produced by a well-run supply chain at any point in time is huge and almost impossible for anyone to review manually (even with great analysis and reporting tools). Thus, it is important to have exception reporting and alerts to bring critical incidents and issues to the immediate attention of the right person.
  • Alignment of Supply Chain Metrics with Business Goals
    Use process-based metrics that complement business goals to monitor and improve the process.

This was a good starting list, but I’d also add at least the following:

  • Integrate PoS data and forecasting across the supply chain
    A supply chain view of inventory is not very useful if you do not know how much product you should have at any given location at any given time, and given that demand can fluctuate, using static forecasts to plan inventory is not optimal.
  • Use collaborative issue resolution processes
    When a critical incident occurs upstream in your supply chain that effects you, it’s important not just to insure your supplier, or your supplier’s supplier, starts working on a resolution immediately, but that you work with the supplier to not only insure a quick resolution, but to understand why the critical incident happened in the first place. Then, you can pass that knowledge onto your other suppliers and make sure it doesn’t happen to them.
  • Regular Review of Transportation Timeframes
    When calculating inventory requirements, it’s vital to understand how long, on average, it will take to restock a location in order to insure that you can handle demand spikes and not lose sales. If it takes 7 days, but a demand spike due to an upcoming promotion could wipe out inventory in 3 days, then it might be wise to temporarily increase the inventory requirements of that remote location.
  • Use Process Models
    Standardized, Integrated, S&OP processes are good – but streamlined process that are sound and complete are better. A process model will help you analyze your processes to make sure they are of just the right complexity. If your process is too simple, you could miss critical incidents or key data that could significantly change your forecasts and inventory requirements. Too complex, and you could lose the ability to react quickly.

From an organizational technology angle, the article had the following to offer:

  • Use an extended enterprise system.
    This will allow you to create a centralized data store, on which you can execute the data mining applications needed to detect exceptions and critical incidents, the analytic applications need to determine required inventory levels and transportation timeframes, and the reporting applications necessary to insure key information gets to key stake-holders in a timely and comprehensible manner.
  • Extend it with specific business solutions.
    The article recommends inventory optimization tools, business intelligence tools, and master data management tools.
  • Look at Service-Oriented Architectures (SOA)
    This can enable flexible collaboration at a lower cost.

This is a great start, but you should also consider the following:

  • Look at On-Demand SaaS
    Building a completely integrated supply chain management framework, even using SOA, will be a very time-consuming and costly endeavor even for the most technologically sophisticated organization. Starting with on-demand SaaS can allow an organization to get a fairly sophisticated system of supply chain management tools up-and-running quickly and cost-effectively.

In conclusion, the authors have it right – with supply chain complexity having increased exponentially in the last decade thanks to globalization and increased outsourcing, visibility is becoming key to managing risk and total cost and the time to do something about it is now.

“Demand Shaping” or “Demand Sensing”?

The EE Times ran a great article by Romit Dey and Manoj K. Singh last month on “Demand Shaping” and how it aligns customer trends with supply. But I have to ask, is it really “demand shaping” or is it more “demand sensing”. Is not “demand shaping” what marketing and advertising does? It’s true that supply chain has a supporting role, in terms of letting marketing know how much a product can be produced for, how many units can be produced, and how fast the units can be in consumers hands. However, what supply chain really does, in a company that runs like a well-oiled machine, is sense the demand that has been created, and the demand that is in flux, and adapts to the situation.

So what is “demand sensing”? According to the article, which calls it “demand shaping”, it is a demand-driven, supply-constraining customer-centric approach to planning and execution that aligns process with customer demand at strategic and tactical levels and with an organization’s capabilities which helps optimize use of resources, reducing excess inventory and improving inventory turns. More specifically, at the strategic level, the emphasis is on aligning customers’ long-term demand patterns to long-term resource and capacity constraints and at he tactical level, the focus is on understanding demand patterns and then influencing customers’ demand toward available supply, using the levers of price, promotion and products/services bundling.

How do you sense demand? As the article points out, you need three key capabilities:

  • demand pattern recognition
    who is buying what, when, and in what quantity
  • supply supportability analysis
    how much can be made, when, and how fast can it be delivered
  • optimal demand steering
    if demand patterns suddenly change, and you do not have enough of product A, can product B be used as a substitute and can customers be steered to that product instead

The first skill is obvious – you need to manage inventory appropriately so you aren’t holding too much, and generating excessive inventory carrying charges, or holding too little, and selling out before supply can be replenished. The second skill is less obvious, but easily understood – you need to know how much you can make, and how fast it can be made, to appropriately plan your inventory level.

The third skill is what takes “demand sensing” to a whole new level, to the point that it is almost “demand shaping”, but not quite, and hence the source of confusion. It is, as it’s called, “demand steering”. The Dell example the authors use is the best. By maintaining real-time visibility into its supply chains, Dell knows its inventory levels now and in the immediate future on an hourly basis. If a customer configures an order for a 60GB drive on their web-site, and Dell knows they don’t have enough stock to configure the system immediately, then Dell informs the user of a delayed ship date and presents the customer with an opportunity to replace it with an 80GB drive at a discount – steering the customer towards another product that can meet their needs, even if it is more expensive, but Dell takes a discount on margin to make the sale and keep the customer.

The key to success, as the article points out, is to make sure that all three processes are part of a single, integrated loop. A supply supportability analysis is run on a regular, automated, basis; inventory is updated on a near real-time basis; and short-term forecasts are updated at least daily. Each of these numbers is compared on an automated basis, and as soon as forecasts exceed inventory and obtainable supply, an alert is sent to a planner who determines whether there are alternative products that can be used to meet the need or if marketing and sales needs to be informed that they need to take actions to steer demand on their end. Then, customers are steered towards the alternative products through the appropriate channels – in real-time.

The article also does a good job at overviewing what is required for a demand sensing framework. The elements it outlines are:

  • inter and intra organizational connectivity
  • the ability to capture, structure, and comprehend data from customers and channels
  • advanced business intelligence to identify demand patterns
  • optimization
  • common processes
  • a common data model
  • common performance metrics
  • available-to-process capabilities
  • exception management
  • electronic negotiation and collaboration

The best thing about the framework is that these are basic capabilities and processes a good organization should already have in place. It’s just a matter of tying them together and using them wisely!

Why Spy When You Can PI? (Another Competitive Intelligence)

Recently, SupplyManagement.com ran an article on how competitive intelligence can be a huge benefit for buyers. It had some great advice, but since nothing’s perfect, I’m going to add a few tips of my own. But first, “Spies Like Us” should cover the basis.

According to the SM.com article, “Competitive intelligence” (CI) isn’t about code names, tapped phone calls or fake beards, but is a legal and ethical process that is fast becoming an essential part of a business’s operations. CI focuses on collecting and interpreting information about organisations, market trends and industry developments, to help companies foresee risks and opportunities. By analyzing competitors, firms can realize their strengths and weaknesses and make more informed decisions.

Furthermore, it’s useful to supplier analysis. It can be used to validate a supplier’s claim before a contract is awarded. Analyzing a supplier’s cost structure will help assess the reasonableness of prices suggested by the supplier’s agents during negotiations. CI can also create an early warning system on potential difficulties a supplier may have. Also, information on current or potential suppliers may also turn up details on the competition where there are common suppliers.

Start with the international media – which often have huge searchable databases. Then move on to external sources – such as academics who have worked with the company, software firms that have installed systems, customers, partners, sub-contractors, suppliers, or individuals who have studied the organization. Then, if need be, move to within the company … but remember, the more likely an individual is senior and knows the answers, the less likely they are to talk.

Don’t overlook forums, conferences, and networking – and the power of sharing. A little can often go a long way. Work with non-competitive similar goals … the old the enemy of my enemy theory. There’s also outsourcing, but that can easily cost in the six figures.

The article concludes with the following tips:

  • Bypass voicemail and switchboards
  • Call from abroad; you’ll be perceived as less of a threat
  • Harness the power of the female voice
  • Use native language speakers
  • Avoid the words “research”, “survey”, and “questions”
  • Never expect to get too much out of any one respondent

I’d add, or emphasize, the following:

  • Watch what your target does until you understand who they are
    A good PI is a master of surveillance and follows his target until he understands what his target does on a daily basis. Who are they dealing with? What are they getting from the relationship?
  • Target those with a valid need for the information you need
    It might be unethical to try and extract the information you need from your target under false pretenses, but it’s not unethical to chat up their partners and ask for it in casual conversation. After all, they might already have the information you want and be willing to discuss it over a bottle of well-aged Cabernet Sauvignon.
  • How is the product made?
    You can’t construct a good cost model if you don’t know what to put in it.

It is always awkward doing business with an alias.

Sherlock Holmes
The Adventure of the Blue Carbuncle