Category Archives: Risk Management

Technology Trials 2012 – Part VI

In Part V we outlined the most critical question that needed to be addressed after you decided that you needed a BoB or FuSS solution and what the critical features of that solution was, namely, what was required for globalization.

Now that we have outlined the high-level functional requirements from a multi-faceted view, we’re ready to go to market with a supplier RFI, and, in particular, an RFI that answers the following (set of) question(s):

(06) How will you support my solution requirements as a vendor?

And, more specifically:

  (06.1)Who are your references who are comparable in size, scope, and needs to us?
  (06.2)Does your solution support the functionality we absolutely require? Explain.
  (06.3)Do you currently have customers in the (majority of) countries we need to deploy in and do you support the (majority of) languages that we require? (If you don’t currently support all the languages we need, how long does it take to add another language into your solution?)
  (06.4)What is your organizational culture?
  (06.5)How many non-critical functions on our wish-list can you address?
  (06.6)How financially stable are you? Will you open your books to us or let us speak to a reputable third party that has seen your books?
  (06.7)What is the total end-to-end cost of your solution up-front and on an annual basis? Will you guarantee this in writing?
  (06.8)What third parties can we talk to who will verify your claims

  (06.1)Who are your references who are comparable in size, scope, and needs to us? And can we speak to them?
As they say, the best proof is in the pudding, and the best pudding that a vendor can give you is references who are comparable in size, scope, and needs that they are currently serving successfully. They don’t necessarily have to be in your industry, but the industry should be similar enough that you can feel confident that the vendor could handle you. For example, electronics and component manufacturing are similar, but finance and pharmaceuticals aren’t that close.

  (06.2)Does your solution support the functionality we absolutely require? Explain.
After you’ve divided your requirements into must-haves, should-haves, and nice-to-haves, ask the vendor to describe in detail how all of your must-have requirements will be met and briefly how they will meet each should-have that is on your list.

  (06.3)Do you currently have customers in the (majority of) countries we need to deploy in and do you support the (majority of) languages that we require? (If you don’t currently support all the languages we need, how long does it take to add another language into your solution?)
If you need to deploy your solution across 20 countries and the vendor has only deployed across two countries and both were English speaking, how likely is it that the vendor will be able to meet your needs? On the other hand, if you only need to deploy across 6 countries and the vendor has deployed across 30 countries in twice as many languages, you know that you’re covered now and likely will be covered for years to come.

  (06.4)What is your organizational culture?
When all is said and done, if you have three vendors who appear equal from every other perspective, the tie breaker will be the vendor’s organizational culture and how cleanly it meshes with yours. Even if you are IT and services savvy, you’re always going to need some help from the vendor. Maybe not that much compared to its other customers, but the vendor is typically the only expert in tweaking every last bit of value out of its solution.

  (06.5)How many non-critical functions on our wish-list can you address?
Even though the functions are non-critical and wish-list, they’re on the list because someone wants them, and every wish-list item put there by a stakeholder that can be met is one less reason for resistance that you won’t have to overcome.

  (06.6)How financially stable are you? Will you open your books to us or let us speak to a reputable third party that has seen your books?
Considering the effort that goes into solution selection, the last thing you want is to select a solution from a vendor that goes bankrupt in a year. Even if the code is under escrow, and you get complete rights to it, the value of the solution will decrease rapidly once the vendor stops improving it. That’s not a situation you want to find yourself in.

  (06.7)What is the total end-to-end cost of your solution up-front and on an annual basis? Will you guarantee this in writing?
Considering that there will likely be implementation costs, integration costs, and training costs in addition to up-front license costs and annual maintenance costs, and may be costs for third-party middleware, data feeds, and other solution components, it’s important that you know all of these costs up-front and account for them accordingly. Otherwise, that 500K solution with an expected ROI of 9X return might actually be a 1.5M solution with an expected ROI of 3X – which won’t impress the CFO at all come performance evaluation time.

  (06.8)What third parties can we talk to who will verify your claims
The vendor should be willing to give you names of investors, analysts, and bloggers who can verify their claims. If these do not exist, be wary. A good vendor is open about it’s capabilities and claims. It doesn’t hide behind NDAs and embargoes.

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.

When (Out)Sourcing Goes Wrong

Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement.

Three hundred Pakistani garment workers die in a factory fire. (Source: New York Times) Doors were locked, windows were barred. And the factory had just been inspected by a subcontractor to a certification agency. Lesson here: If you can’t afford to visit the factory you are sourcing from, then no cost savings is sufficient. Do not let other companies do the research for you.


Thanks, Dick, for the valuable lesson here. (Global Supply Training)

Will Resilinc Resonate With Your Supply Chain?

On Monday, we introduced you to Resilinc, a new player in Supply Management that provides a Decision Support System (DSS) for identifying and evaluating risks in your supply chain if you are in the high-tech, medical device, and automotive space and have vast multi-tier supply chains.

We noted that Resilinc is unique in that it is able to provide an overall risk score, delivered in terms of the relative revenue impact of a disruption, for each location and each product; give you the ability to determine the impact of an external event in a given location with respect to specific supplier locations and sourced products; and identify with locations and products are likely to be impacted by a significant event anywhere in the world as soon as it happens. But we didn’t address another aspect of why Resilinc is unique and why they might shake up the risk management space.

Resilinc was founded, and the technnology was designed, and built, by risk management practitioners in the high-tech / device supply chains, and they have added experts in the medical device and automotive supply chains. One of the difficult, and unique, aspects about risk management is the differences in impact and effect of a supply disruption across industries. In some industries, like automotive, bringing a production line back up is not as simple as getting the missing parts or raw materials; in others, like electronic manufacturing, it’s not as simple as substituting one microchip for another if they have different input/output and voltage specs; and in others still, like medical device, it’s not as simple as switching suppliers when one runs out of production capacity as the industry is heavily regulated and it is often the case that all suppliers must carry certain certifications and insurance policies. Without practitioners who understand the specific requirements, and the differing severities associated with each type of disruption, you never get the right models. And if you don’t have the right models, you have zero chance of producing the right metrics and measurements.

For example, the founder, Bindiya Vakil, has served as the Program Manager for Supply Chain Risk Management at Cisco and the Supply Chain Manager at Solectron. Summit Vakil has worked in product management and leadership roles in Brocade, Cisco, and 3Com.

In addition, they recognize the criticality of solid Supplier Information Management as a foundation, and brought in Jon Bovit, with a long history in SIM at Ariba, Aravo, and CVM, to insure they got their unique functionality-focussed SIM model right for the problem they are tackling, which is different from the problems the standard SIM players are focussed on. (For example, in risk management, it really doesn’t matter where the headquarters are and whether you spend 100K or 100M with the supplier. A hurricane could shut down the headquarters and have no effect on your supply chain but if a supplier is sole source, even if you only buy one part, and only spend 100K, if the absence of that part could shut down the production line, that supplier is still a huge risk if they are located in a high risk zone.)

And their CEO is formally trained in Supply Management. She has a Master of Engineering in Logistics from MIT with a thesis on Design Outsourcing in the High-Tech Industry and its Impact on Supply Chain Strategies. Not many companies these days have a CEO who is technically competent in what the company actually does. It is my belief that having a CEO who knows what the product has to do, and how it should do it, greatly increases the chances that the company will develop the right products. (Because when you don’t, you get devices that light-up when they’re off and drain the battery until they die, and million-dollar toilet paper dispensers that limit you to 5 squares. Don’t laugh. Both have happened.)

So while Resilinc, like all new technology platforms, may carry a technology risk, for those of you in the high-tech, medical device, and automotive industries, I believe that it is more likely that it will resonate with your supply chain.