Category Archives: Supply Chain

Trade Compliance

Last fall I introduced you to global trade data management (posts I and II), as well as Global Data Mining (acquired by CUSTOMS Info which was acquired by Descartes) and the International Trade Bureau.

A few months ago, even though it only hit the on-line edition recently, the Supply Chain Management Review published “Building a Strong Framework for Trade Compliance”. In the article, they defined five components of trade compliance that can help companies operate efficiently in an international marketplace.

  • A Culture of Compliance
    The culture starts with management who must define internal controls, starting with a corporate policy issued by the chief executive. The policy must communicate management support, an insistence on the ethical and lawful transaction of business, and intolerance for willful disregard of regulatory requirements.
  • Risk Assessment
    Know where you could fall afoul of government regulations and develop methods for managing those risks. Start by conducting an internal assessment of your current compliance program. Evaluate each area of compliance to determine if its effective, documented, consistent, and, most important, current. No regulatory or business environment is static, so your compliance program will continually need to evolve.
  • Establishment of Control Activities
    Create policies, procedures, and organizational structures that will minimize risk to your company. The procedures must be effective, but should not be more burdensome then necessary. The goal is to achieve compliance, not bring operations to a halt. Document what you do, and do what you document, but keep it efficient.
  • Constant Communication
    Train, train, and train again. Higher awareness allows for effective maintenance of a compliant environment. Keep materials up to date and send communications to affected departments whenever regulations are amended.
  • Implementation of a Monitoring Program
    Institute an internal audit program and check your internal controls regularly for effectiveness. Develop a corrective-action program that you can implement when discrepancies are found.

Non-compliance can impact supply chain performance, bottom line profits, and, thanks to Sarbanes-Oxley, executive liability. Thus, its important to do everything you can to insure compliance.

The Supply Chain Finance Movement

Last fall I introduced Supply Chain Finance (SCF) to this blog and noted that a supply chain finance solution is a combination of trade financing provided by a financial institution, a third-party vendor, or an enterprise itself, and a technology platform that unites the trading partners and the financial institution electronically and provides the financing triggers based on the occurrence of one or several supply chain events. Then, I started the year off with a review of an article from the Supply Chain Manufacturing Review on Managing the Financial Supply Chain.

The article noted that today’s supply chains complicate financial flows and cash management and leverage global supply chain visibility to control and optimize the financial flows of a business value chain which is essential for the long-term viability of companies that have outsourced manufacturing or are sourcing globally. It also noted that global outsourcing complicates the value exchange process, increasing the quantity, velocity, and complexity of inter-enterprise financial transactions while decreasing the number of financial transactions handled within the four walls of the enterprise and reducing the visibility into the timing of payments while introducing a higher degree of risk.

As a result, the article concluded that it is vitally important, particularly from the financial perspective, to analyze all of the costs associated with an outsourcing decision before committing to a contract and that you should consider strategies to lower your suppliers’ financing costs, and thus your overall total cost of ownership. These strategies include:

  • early payment programs
  • inventory ownership solutions
  • virtual consignment financing with assignment of proceeds

But strategies are not the only thing you can use to tackle your supply chain finance woes. These days, technology also exists to support you in your decision making process. For example, as announced mid-march in Supply and Demand Executive, PrimeRevenue has just released a new version of its SCF Platform, which offers new functionality related to payment offset information flows critical to retail, diversified manufacturing, high-tech and automotive markets.

PrimeRevenue offers an online payables visibility solution that allows a buying organization to upload electronic output from its Accounts Payable (AP) system with approved payables data and a supplier to log in and view the amount and payment maturity date for each of the approved receivables. The Supplier can then sell the receivables early at a discount and receive cash for any, or all, of these receivables at any point in time (up to the maturity date). The solution allows payment cycles to be reduced to as little as 48 hours in an automated, secure service that runs over a virtual private network (VPN). Essentially, it’s a simple type of Electronic Invoice Presentment and Payment (EIPP) system, but one that allows the supplier to choose when they get paid, and one that achieves the early payment programs option for a supply chain finance solution. (Other companies in the EIPP space include Avolent acquired by Genpact, Thermo Fisher Acquirex, Bottomline Technologies, Harbor Payments, and Osiris Innovations Group.) It’s not the most sophisticated solution that one could devise, but this type of solution could be a great start for companies without any supply chain finance solution. I’m sure we’ll be hearing more about PrimeRevenue and other companies in the EIPP space as the year progresses, especially since a Demica study just found that 73% of large corporates are looking to extend payment terms with their suppliers in 2007.

AMR’s Search for Strategy

AMR recently released a two-part article where they noted that a supply chain strategy can be an elusive enigma, something every organization should know it needs, but something many an organization is uncertain on.

To help organizations out, AMR searched and searched and, after answering some basic questions, outlined what a strategy might look like, what some of the important elements are for success, and developed a framework for strategy development based on their demand-driven supply network (DDSN) world-view (no surprises here!).

AMR points out that before one can explain what a strategy is, one must first point out what it is not. To this end, AMR notes that a supply chain strategy is not:

  • focused solely on supply or company operations
  • inward-facing
  • focused only on your company
  • technology centered
  • point-in time based
  • a substitute for business strategy
  • a financial plan
  • buzzword bingo

AMR then points out that a good plan is realistic, clear, actionable, and approved by leadership and stakeholders. It is based on market performance, emerging market dynamics, and supports the strategy. Furthermore, it considers and defines the following elements:

  • holistic design
  • process evolution
  • talent
  • predicted power shifts
  • key relationships
  • network design
  • simulations

Furthermore, a good supply chain strategy supports the business strategy from start to finish. It supports the current and expected future states of the business and details relationship strategies and process for demand, supply and innovation over five to ten years.

Furthermore, the strategy addresses:

  1. business strategy
  2. supporting supply chain strategy
  3. supporting business processes

Each of these components are devised by starting with a proper goal and asking the right questions.

Business Strategy

Goal: What is the right direction to increase the value of the company?

  • What is the best way for the company to compete?
  • Which businesses and markets best support the strategy?
  • What events and market shifts need to be incorporated?
  • How are evolving technologies, customer preferences,product competition, and channel dynamics changing the ecosystem?
  • What is the true market opportunity?
  • To capture this market opportunity, should the company be a cost leader or a differentiator?
  • What is the brand?
  • What are the risks and how are they balanced?
  • How are assets and relationships aligned to win the market?
  • How does the business strategy translate into a financial strategy?
  • What is the role of technology?
  • How should award systems be aligned?
  • What is the necessary organizational culture?
  • Is the plan actionable?
  • What will success look like?

Supply Chain Strategy

Goal: What supply chain strategy is necessary to support the business strategy?

  • What organizational structure and talent is required?
  • What does success look like?
  • How many supply chains are required and how are they designed for success?
  • How are demand, design, and supply networks aligned to maximize the value of relationships?
  • What should be global and what should be local?
  • How should demand, supply, and product processes be synchronized to create opportunity?
  • What supply chain competencies are core and what should be outsourced?
  • How is risk to be mitigated?
  • What does global mean to the organization?
  • How is the profitability of relationships increased?
  • What is the right level of complexity?
  • What is the right IT strategy for the supply chain?
  • What are the right supply chain metrics?
  • How does the organization measure up to its peer group?
  • What is the execution roadmap?

Business Process

Goal: How do I do the right things right in the execution of the strategy.

  • What are the supporting business processes?
  • What are the gaps in process and organizational roles and responsibilities?
  • What is the best organizational structure?
  • How is continuous improvement best enabled?
  • How should network relationships be defined?
  • How should opportunity sensing, complexity, and risk mitigation be balanced?
  • How is demand best measured?
  • What is the right balance of assets?
  • Are there untapped opportunities in working capital or cash-to-cash efficiency that can improve cash flow?
  • What reliability is required to support the supply chain strategy?
  • How should manufacturing quality, logistics, and IT systems be aligned to support reliability?
  • How should shared-services organizations be aligned?
  • How should processes be designed to be outside-in and adaptive to the business climate?
  • What can be learned from leaders?
  • What must be measured?

Once all these questions are answered, then, provided that the end result is:

  • feasible from a physical capacity perspective,
  • feasible under a price / volume analysis, and
  • feasible from a profit perspective using activity-based costing

The organization should now have a decent, starting, supply chain strategy. (I say starting because a first cut should always be revised using input from all affected stakeholders and the plan should be reviewed every year for continued relevance in light of market changes and new knowledge obtained by the organization.)

All-in-all, not a bad pair of articles.

The Basics of Competitive Intelligence

Last week, in “A Competitive Advantage” I too discussed the recent article Competitive Intelligence: The New Supply Chain which recently hit the on-line edition of the Supply Chain Management Review. However, I only discussed what I believed competitive intelligence really was, and did not really discuss the article in detail.

Even though I was unhappy with the fact that they did not paint what I believed was the whole picture with regards to what competitive intelligence really was, they did a great job with respect to defining what competitive marketplace intelligence was, how to ethically acquire it, and how to analyze it. To that extent, I’m going to elaborate on some of the great points the article made.

The article points out that there is a code of ethics, complied by the Society for Competitive Intelligence Professionals (SCIP). The basics of this code is the following:

  1. You cannot lie when representing yourself or your company.
  2. You must strictly adhere to your company’s legal guidelines.
  3. Secretly recording an interview is not permitted.
  4. Bribes of any kind are not permitted.
  5. Eavesdropping devices are not allowed.
  6. Deliberately false or misleading statements are unacceptable.
  7. Under no conditions will price information be swapped, traded, or exchanged in any way with a competitor.
  8. Misinformation may not be swapped, traded, or exchanged with a competitor.
  9. Procurement of property indirectly is not permitted.
  10. “Pumping” someone for information is unfair.
  11. Dumpster diving is fair play (unless there is a municipal law prohibiting otherwise), but unnecessary because the SCIP estimates 95% of the information that you want is publicly available. *

Once you’ve mastered the code, you can move onto the following basic steps of competitive intelligence:

  1. Identify What’s Important
  2. Focus on Key Competitors
  3. Identify Potential Competitors
  4. Get the Data
  5. Don’t Wait for All of the Information to Come In
  6. Look for ways to improve*

Data can come from multiple sources. The article classifies these sources as either primary (straight from the source) or secondary (at least once removed from the primary source). Valuable primary sources include:

  • Annual Reports
  • Stockholder Communications
  • Financial Press Releases
  • Management Speeches
  • Employee authored Articles, Research Papers, and Books
  • Web site content
  • Patents and Commercial Registries
  • Surveys and Interviews
  • Remote Sensing
  • Building Permits
  • UCC (Uniform Commercial Code) Registration

Secondary data sources include:

  • Newspapers, Magazines, and Print Media
  • Electronic Sources (The Internet)
  • Analysts Reports and Expert Opinions
  • Books
  • Published Commentary and Observations
  • Legal Briefs and Filings
  • General Blogs
  • Employee Blogs

Once you have data, you move onto the analysis. A number of tools can be used, including the Balanced Scorecard, a simple SWOT assessment, and a Scenario Planning analysis.

Remember to keep in mind Michael Porter’s common barriers to competitive entry when conducting your analysis:

  1. Economies of scale, without which competing is most difficult.
  2. High costs of switching from one vendor to another.
  3. Customer loyalty and bonds created by your product.
  4. Difficulty of accessing alternative channels of distribution.
  5. High cost and amount of capital, coupled with the existing large investments of the market leaders.

It’s a lot of work but, as the article says, optimizing supply chains and managing them to outperform competitors will increase revenue, profitability, and ROI while at the same time providing the underpinning for solid business growth in the future. But, as the article states, management can no longer rely on their instincts to achieve supply chain superiority. Instead, they need a structured approach to benchmarking both their own supply chain performance and that of their competition. In the end you must not only understand where your competition is performing well, but where you are not. That’s where you start.

* Identifies author’s addition relative to the original article.

(Competitive Intelligence is) A Competitive Advantage (in the Supply Chain)

“Competitive Intelligence: The New Supply Chain Edge” hit the on-line edition of the Supply Chain Management Review. Almost immediately, Jason did a complementary post over on Spend Matters on “Building Supply Chain “Competitive” Intelligence”*.

However, consistent with the original article, I think Jason missed a key point in his post. Jason quotes the article, which defines competitive intelligence as the art of acquiring, presenting, analyzing, and refining knowledge about the competition’s supply chains and then reaching actionable conclusions about improving your own, when he points out the following questions that indicate types of competitive intelligence worth considering:

  • Would the availability of metrics for your competitors’ supply chains help improve your own supply chain?
  • Would it be helpful to know if your competitors’ supply chains were relatively better (cheaper, faster, more cost efficient, and so forth) than yours?
  • If they are better, what actions should you take in response?
  • Are your competitors automating parts of their supply chains to reduce costs and gain speed?

These questions are a good start, but they simply echo the sentiment of the article that states the basis for good competitive intelligence is a consistent probing and analysis of the competitive environment using primary and secondary data. However, as far as I’m concerned this is not the basis of a competitive analysis. It’s part of a good competitive analysis, but not the basis.

The true basis of a competitive analysis is understanding how well you are doing, compared to how well you could be doing. This will require studying the market, to get some general perspectives on how well you could be doing based upon the performance of your competition, but, more importantly, it will require studying your processes and identifying areas for, and means of, improvement.

If you do not know how much you are spending on a certain raw material, then it doesn’t matter how much you think your competitor pays. Competitively, you are doing poorly and even without knowing how much your competitor pays, you know you need more visibility (and a visibility tool). If you’re producing 1,000 units a day, but six sigma efficiency experts think you should be producing 1,200 units a day, then you know you probably need to shore up your processes even without knowing how many units your competitor produces with similar resources. Moreover, although your competitors might have some good ideas, they are not the only sources. Third party consultants, analysts, industry experts, and even your own people might have the ideas you need to improve. Just take the time to listen. Furthermore, a market comparison will only tell you whether or not your competitor appears to be doing better than you given the same resources. Thus, even if the analysis were to indicate that you are doing better than a competitor, it cannot indicate whether or not you could be doing better still.

As the article states, analysis, conclusions, feedback – and then ongoing refinement of those conclusions in the face of new information – are the key actions driving this process, but this process goes beyond just an analysis of your competition, it also includes an analysis of your operations. It’s a good article, and worth checking out, but just remember that although a competitive analysis will definitely point out weaknesses, it will not always provide you with the solutions.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.