Category Archives: Miscellaneous

Why is the Perfect Order So Difficult?

Reading the latest research, you’d think that finding the Holy Grail would be easier than filling a perfect order. According to “Benchmarking the Perfect Order”, a recent study by Kate Vitasek of Supply Chain Visions and Karl Manrodt of Georgia Southern University that was commissioned by the Vendor Compliance Federation, the Perfect Order Index for 2007 was a measly 27.2%, assuming that every order was damage free (due to data unavailability for a proper estimate). Let me say it again — 27.2% at best! That means that three out of every four orders was flawed. That’s performance so bad, that it’s three times worse than the US aviation industry, the poster child for poor performance, where, on average, only one out of four flights was delayed.

After all, how hard should it be to deliver an order:

  • on-time,
  • complete,
  • damage free, and with
  • correct documentation

Think about it:

  • you know the delivery date when you agree to the order,
    and you shouldn’t be agreeing to anything you can’t deliver on
  • you know, line item by line item, what you have to deliver,
    as well as how many units are required
  • you know the fragility of your products,
    and should be packaging and handling them accordingly, and
  • you have to know the documentary requirements, especially if you’re exporting
    as failure to know can result in seized and destroyed shipments at your expense

So what’s the problem?

Well, obviously, you are!

But Why?

That’s the Billion, if not Trillion, dollar question, isn’t it? And the answer is, ultimately, that you’re not prepared for it. Why not? Although it’s hard to say in any individual case, it’s most likely because you haven’t shifted your focus from internal performance to customer delivery. In essence, you haven’t prepared for it. Instead of abondoning outdated software, processes, and metrics that focus on you for newer software, processes, and methods that focus on the customer, and allow you to get everything that really matters right, you’re still using the software, processes, and metrics that you were using 20 years ago during the quality revolution.

Let me explain.

With regards to on-time, most of you are probably still tracking “on-time” as shipped on-time with respect to whatever internal production and distribution schedule you devised. When you ship is irrelevant if the stores need it by Monday for a promotion on Tuesday that’s expected to generate tens of thousands of sales. If on-time to your system is “shipped four days before due date”, but you’re shipping by truck from Texas to Alaska, you’ve got a problem! With limitations on how many hours a driver can drive in a day and border delays, you ain’t gonna make it. You need logistics management software that understands minimum, average, and worst case delivery time requirements (by season) and you need to schedule each shipment to a different location in a large order separately.

With regards to complete, you can’t tackle it on a line-item by line-item basis, split across half a dozen shipments on two different carriers and wash your hands of it when the system says everything’s shipped. It’s only complete if it arrives complete. This means that you have to have an extensive shipment and delivery tracking system in place to insure that everything in a disaggregated order hits the checkpoints that need to be hit when they need to be hit so that part of an order doesn’t get lost. Again, just shipping it “complete” doesn’t make it “complete” if you’re breaking the order up across shipments – because then all shipments have to arrive by the designated date and time for the order to be complete. You need a web-based supply chain visibility solution that can be utilized by your partners to update progress as it happens.

With regards to damage-free, you can’t just package it in accordance with minimally acceptable padding, check a box, dust your hands, and call it a day. You have to ensure that all third parties in your distribution network that handle the product do so with the necessary care and that it passes through each checkpoint undamaged. If one of your distributors screws up and breaks something, you need to get a replacement shipment out, and maybe even expedited, before it arrives broken and useless at the customer site. Again, you need a web-based supply chain visibility solution that can record the order status as it clears each checkpoint.

With regards to correct documentation, you need to make sure that all of the documentation required by each check-point is included before it leaves your facility. These days, if you’re importing or exporting, this requires a Global Trade Management Solution, because it’s almost impossible to manage the dizzying array of requirements otherwise.

In short, unless your key metrics have been defined to be 100% customer-focussed, and you have the proper logistics management, supply chain visibility, and / or global trade solutions in place, you’re not going to be able to achieve the perfect order the majority of the time, and the perfect order will continue to be a “holy grail” when, in actuality, it should be a common occurence. The solution, like the problem, rests with you.

A Tale of Murder and Intrigue in India

The Murder: I just read a short piece in Supply Chain Digest that noted that Lalit Kishore Choudhary, the India CEO of an Italian transmission company, was murdered by an angry mob after dozens of angry laid-off workers pummelled him during a meeting to discuss possible re-instatement.

The Intrigue: Searching for further information, I found this story in Industry Week which quoted India’s labor minister, who declined to criticize the attack, who said it should serve as a warning for management, workers should be dealt with compassion, and the workers should not be pushed so hard that they resort to whatever happened.

WTH?!? As far as I can tell, it sounds like the labor minister is saying that if you get fired for violence, and the discussions to reinstate you don’t go your way, that you can form a mob and kill your former boss. What?!?! You have the right to demand better pay and employment guarantees, but in today’s economy, you can’t expect the latter. If you don’t get what you want, you have the right to leave, and if you get laid off, you often have the right to severance. But you don’t have the right to resort to violence, and you definitely don’t have the right to kill your boss — who may not even have any say in the matter. Even the CEO has to answer to a self-serving Board of Directors!

According to the Industry Week article, a domestic industry body said the incident would hurt India’s international business image. Furthermore, the Federation of Indian Chambers of Commerce and Industry has said that such a heinous act is bound to sully India’s image among overseas investors and deserves our utmost condemnation. All I have to say is that I nominate that as industry statement of the year. If the reporting is accurate, the labor minister effectively said it’s okay to mob and kill your boss if you get fired for violence. Who’s going to want to open an operation in India in that economic climate?

(Supply Chain) Initiative Cost Justification

Last year, over on the e-Sourcing Wiki, I brought you The Quest For Purchasing Fire, a guide on how to develop the internal strategies for selling the procurement tools internally. This process had two key steps that, if not done properly, could be major stumbling blocks in getting your initiative off the ground. These key steps were defining the value proposition and building the business case.

The fact of the matter is, when you get right down to it, often the biggest stumbling block is to secure funding for your initiative. Unless the project happens to be a pet project of the CEO or CFO, chances are you won’t be able to secure funding unless you have a clearly stated and easily understood kick-ass value proposition and a well-researched and documented business case to back it up — preferably one that shows big dollar signs to the company’s favor. Thus, it’s important to zero in on the cost-justification in both of these steps and reduce the decision to one that should be a no-brainer ( especially since we know that, in some companies, it would appear that having a functioning brain is not a requirement for an executive position ). If your CEO and CFO can see a significant ROI, which includes an ROI in the near-term, which they know makes Wall Street and / or the private investors happy, they’re much more likely to find the money you need “in the budget” than if they don’t see a savings opportunity that will make them look good.

That’s why it was nice to see an article last month over on the Supply Chain Digest site that offered up “six steps to improved cost justification for supply chain and logistics initiatives”. Simply put, when it comes to understanding the best way to put together a cost justification for your project, you can use all the good, free, advice that you can find.

The article offered up six useful guidelines to consider when putting together your value proposition and proposal. At a high level, these guidelines were:

  • Understand your company’s investment analysis model
    What does your CFO care about? IRR (Internal Rate of Return), PP (Payback Period), NPV (Net Present Value), ROIC (Return on Invested Capital), etc? Make sure to use the measures your CFO is comfortable with and wants to see. It will help insure that your proposal makes it to the top of his pile.
  • Link funding requests to key corporate strategies and objectives.
    The CEO wants to further the corporate strategies and objectives outlined by the Board, because, simply put, his success in that area positively impacts his annual review, and bonus. Talk to those strategies. That will make sure your initiative gets his attention.
  • Develop a Strong Summary with a Detailed Back-Up
    Your CEO is busy. Very busy. Probably doing stuff that’s not all that important (but that’s not entirely his fault – boards and wall street like to waste an executive’s time), but stuff that consumes his or her time nonetheless. Therefore, it’s important that you have a strong, straight-to the-point, executive summary that says why the company should do this, and what results it will have … because that’s all he or she might have time to read. However, if your CEO likes what she hears, he or she will ask the CFO or another member of the management team to “dive into it” which is where the detailed calculations and supporting materials come into play.
  • Use the Numbers to tell a story.
    Remember, the CFO likes numbers. So base the story around those numbers. “We will generate a 300% ROI by implementing an e-Procurement system that … “.
  • Review Preliminary Justification with Key Stakeholders
    And make sure to to have them verify every assumption that you make. The last thing you want is for the manager tasked with verifying your submission to find that one of your key assumptions is wrong. Even if the affect is minor on the final ROI calculation, being overworked, he’ll likely assume that the whole plan must be faulty, throw it out, and vote nay without even giving you a chance to correct it. But if you meet with the key stakeholders and everyone agrees, you can get it more-or-less right the first time and not have to worry about your initiative getting killed off before it even has time to begin.
  • Triple Check to Eliminate Math Errors and Risky Assumptions
    A CFO is likely to assume that if you can’t add, since you have a spreadsheet to do it for you, you probably can’t do anything else you say you can do either, and deny your project without even considering it. And CEO’s don’t like risk, so if you can get (almost) the same results with less risky assumptions, you should use them.

Good advice all around.

Baseline’s Seven Sins of Offshore Outsourcing

Having posted on the Seven Deadly Sales Suppressors, the Seven Deadly Supply Chain Sins, and the Seven Deadly Supply Chain Wastes, it should be obvious that I’d pick up on Baseline’s 7 Sins of Offshore Outsourcing.

When outsourcing, organizations that focus on short-term cost reductions often rush through projects without adequate planning, due diligence or consideration of the long-term implications of the inevitable changes in business requirements or offshore market conditions. This not only causes them to overlook most of their savings opportunities, but often leads to project failure. However, an organization that knows what to look out for can avoid the mistakes that others have made in the past, mistakes that can be understood in the context of the seven deadly sins: pride, sloth, avarice, lust/extravagance, envy, gluttony and anger.

  • Pride
    Many organizations succumb to the sin of false pride and plunge headlong into an offshoring initiative without performing due diligence. They assume that they (already) have the internal capabilities necessary to plan and manage an offshore operation, when this is often not the case. They also seriously underestimate the management resources required to successfully set-up and run such an operation.
  • Sloth/Laziness
    You can’t just move an inefficient operation offshore and hope that lower salaries will result in cost savings. “Lift and Shift” doesn’t work, and, when the process is inefficient it will, in fact, often increase the personnel resources required to do the job, wiping out the cost savings the organization expected to achieve.
  • Avarice/Greed
    Many organizations will not be concerned enough about the ultimate fate of the business, or, even worse, possess disdain towards the offshore operation. This makes it difficult for the offshore operation to retain knowledgeable and productive staff, leading to quality problems and cost overruns as greater numbers of inexperienced resources need to be thrown at the problem.
  • Lust/Extravagence
    The desire to solve a problem by taking on more, cheaper personnel is extravagant and wasteful and has serious implications for service quality. It’s important to remember that many offshore operations have lower productivity and excessively high turnover, reducing cost savings. Don’t give in to the impulse to compensate for low productivity with more bodies: It’s a false economy. Before you offshore the process, make sure it is efficient. If necessary, re-engineer and improve the process first. Furthermore, even after your processes are off-shored, it’s important to continuously apply performance improvement initiatives.
  • Envy
    Don’t assume that offshoring automatically comes with big savings and be envious of your peers who are already doing it. Most of the claims you’ll find by the promotors of the strategy don’t take into account the lower productivity that comes with offshore personnel, higher communication costs with an offshore team, and the additional overhead required to govern an offshore process. Actual savings are often only half of what is claimed.
  • Gluttony
    Don’t offshore as much as possible as quickly as possible, like a glutton, with the ill-formed belief that this will maximize savings. Don’t overlook the average organization’s capacity to digest change, and even smaller capacity to digest offshore change — because organizations that offshore too much too quick often spend the majority of their time firefighting. The key to success is selective offshore outsourcing, following a careful analysis of what processes are the most likely to lead to savings if outsourced.
  • Anger/Wrath
    Don’t blame the outsourcer when the savings don’t materialize, especially if you committed one or more of the sins above. Blame-wise, at least half will always rest with you, and if you committed multiple sins, all the blame rests with you.

A Chief Executive’s Advice for Performance Improvement

In “Turnaround Time: Ways to Jump Out of a Slump”, Mark Gottfredson and Steve Schaubert wrote a remarkably perceptive article that outlined a clear and simple process for navigating your way out of a downturn:

  1. Diagnose the “Point of Departure”, or where your business went wrong
  2. Identify the “Point of Arrival”, or where your business needs to be at the end of a period of time to be successful again
  3. Define a small number of key initiatives that will sequentially get you from the “point of departure” to the “point of arrival”

Ok, maybe it’s not so simple as many business have a hard time identifying, at least internally, where they went wrong, have a harder time figuring out what will make them successful, and often have the hardest time of all identifying that sequence of innovative initiatives that will take them from here to there. However, the article does note that when businesses start to fail for performance reasons, the vast majority of the time it is because they violate one of the following four fundamental laws that, despite not being built on an economic theory, do capture, in an almost eery way, some fundamental truths of business:

  • Costs and Prices ALWAYS Decline
    It is a basic law that inflation-adjusted costs and prices in nearly every competitive industry decline over time. Raw material costs going up? Then you have to find an innovative method of production to keep costs done, or a way to make the product from an alternative, cheaper, material, or a way to make a higher quality product that carries more (perceived) intrinsic value. (Successful cell phone manufacturers live and die by the latter.)
  • Competitive Position Determines Your Options
    Leaders are always in a good position to gain more market share through investment or to raise industry standards in quality, service, and innovation. Followers are stuck with doing their best to keep up until they hit upon an aggressive innovation strategy that can move them into a leadership position.
  • Customers and Profit Pools DON’T Stand Still
    The desires of your customers will change over time, as will the amount of disposable income they have. You need to know what your most profitable customer segment is and meet their needs.
  • Simplicity gets Results
    In addition to simplifying your processes, you must also simplify your strategy, organization, breadth of product line, and, most important, usability. Apple understands this well.

The authors also give you a good working definition of “point of arrival”. Specifically, it means a set of defined, numerically specific goals that can be accomplished in just two or three years. In other words, don’t shoot for the moon if you haven’t even successfully launched a rocket into space yet. Although the goals should be bold and compelling, they must be realistic. No amount of motivational speaking will get your employees behind something they know is fundamentally impossible.

Finally, they give you some advice on how to select the right initiatives to get you there. Specifically, select ones with measurable metrics that address the following characteristics of the four laws:

  • Law 1: Costs and Prices Always Decline
    • Cost/Price Experience Curve
    • Relative Cost Position
    • Product-Line Profitability
  • Law 2: Competitive Position Determines Your Options
    • ROA/RMS
    • Market Share Trends
    • Capability Assets and Gaps
  • Law 3: Customers and Profit Pools Don’t Stand Still
    • Customer Segments and Trends
    • Customer Loyalty
    • Profit Pool Migrations
  • Law 4: Simplicity Gets Results
    • Product & Service Complexity
    • Organizational & Decision Making Complexity
    • Process Complexity