Category Archives: Supply Chain

Collaborate, Collaborate, Collaborate, Collaborate (II)

Collaborate, Collaborate, Collaborate, Collaborate

Collaborate, Collaborate, Collaborate, Collaborate

Collaborate, Collaborate, Collaborate, Collaborate

Collaborate, Collaborate, Collaborate, Collaborate

Yesterday we discussed how “Supply Is Where It’s At”, as per a recent issue of Inside Supply Management, that “Winning Together”, in the last issue of CPO Agenda is “Where It’s At” (as per the e-Sourcing Forum, [WayBackMachine]), and that “The Reward for Good Relations” (on the European Leaders Network [WayBackMachine]) is worth the effort, as described in a recent issue of the European Leaders Network. Today we are going to talk about flow, strengthening the weakest link, and how collaboration helps avoid the cost of inefficency.

Over the last few months, Supply & Demand Chain Executive has published a pair of articles that together serve to emphasize the importance of collaboration in sourcing. In “Applying Flow Principles to Collaboration”, we are told that improving supply chain performance is improved by focusing on improving flows – material, information, and money – throughout the supply chain, which is no longer bounded by the four walls of the enterprise. Collaboration is thus paramount due to the absence of centralized control.

The article recommends the creation of trust and interdependency at three different levels to get past the “us vs. them” mindset that is all to common in today’s relationships and detrimental to overall success:

  • operational: there should be a minimum level of coordination and visibility between stakeholders
  • tactical: there must be a basic desire to create a win-win relationship where value is created through shared processes with expanded scope
  • strategic: the highest level of collaboration where value is created results from the long term alignment of business strategy

In “Supply Chain All the Way: Strengthening the Weakest Link”, the notion that shared strategies, competencies, and trust, along with the sharing of information, can provide the edge required to ensure success in your efforts to aggressively capture market share and ward off competition in a tight market where success often depends on demand visibility and negating “the bullwhip effect“.

Finally, in “Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management” from Knowledge @ Wharton, which tells us that supply chains in many industries suffer from an excess of products and a shortage of others owing to an inability to (accurately) predict product demand, you need to build a supply chain based on sound strategy, good consistent data, and empowered people and make sure it is comfortable with uncertainty and that this requires collaboration based on trust, not just information sharing. Furthermore, be sure to take a holistic view in your efforts since its the global optimum, not the local optimum, that counts.

Collaborate, Collaborate, Collaborate, Collaborate (I)

Collaborate, Collaborate, Collaborate, Collaborate

Collaborate, Collaborate, Collaborate, Collaborate

Collaborate, Collaborate, Collaborate, Collaborate

Collaborate, Collaborate, Collaborate, Collaborate

I said before that Collaboration is Key and then I said Collaboration is Key again. And now I’m shouting it, backed up by a chorus.

In the past few months, a barrage of articles have surfaced on the Inside Supply Management, CPO Agenda, Supply & Demand Chain Executive, European Leaders Network, and Knowledge @ Wharton publication websites promoting the benefits of collaboration.

According to the article “Supply Is Where It’s At” published in Inside Supply Management back in October, new forms of supplier collaboration are some of the last strategic forms of competitiveness left to exploit. Buyers should consider going back to the drawing board with supplier quality training, meetings of the mind, and “new” old approaches that fight price inflation and promote supply reliability tactics like those last used in the seventies. When you get right down to it, do you really want to be the next Ford or GM?

The article also highlights three key points for continued growth:

  • supply chain professionals need to enhance the organization’s overall performance, not perform narrow administrative buying services
  • contributions must be measured across a spectrum that includes price, wider margins, lower overhead, reduced cycle times, faster time to market, reduced asset bases, and collaborative value
  • supply chain professionals need to take the initiative to identify and seek mutual product or service enhancements and organizational performance improvement

The recent article “Winning Together” in CPO Agenda stresses that successful buyer-supplier partnerships require deep understanding and joint problem-solving and that it is collaborative partnerships that provide breakout results in procurement.

It also states that changing the classic approach requires a new paradigm that is based on concentrating efforts on making major improvements with a few, carefully selected, suppliers and on major development and transformation on a select set of smaller suppliers that have been identified as “high future potential” suppliers. Suppliers in the first group are usually large suppliers where improvements can be leveraged over large volumes and suppliers in the second group are typically good, low-cost production suppliers with restricted capacity, a high ambition to grow, and the right attitude.

The article puts forth a change management process that begins by selecting approximately five key suppliers and ends with agreements with your chosen suppliers that centers on shared objectives. The process contains the following five steps that are detailed in depth in the article:

  • Visits/Interviews
  • Questionnaire
  • Network Mapping
  • Summary
  • 3rd-Party Facilitator Workshop

The article concludes by noting the very important point that the maxim “the customer is always right” is just not so, and, more importantly, that suppliers are often reluctant to tell customers when they are wrong or be the messengers of bad news. Lean supply chains require that all problems be identified, acknowledged and addressed. Moreover, when the customer is willing to admit that they are perhaps responsible for at least half of the problems, the authors have found that there is a significant increase in goodwill and enthusiasm for collaboration and joint efforts from the supplier.

The European Leaders Network [WayBackMachine] published the outcomes of a recent SRM roundtable in their article “The Reward for Good Relations” which featured commentary from a number of industry professionals including Matthias Gramolla, Paul Lucas, David Marchant, Jim Robinson, Mark Simmons, and Phil Reeves. These commentators made a number of important insights that revolved around the importance of collaboration as a key tool to address supply risk management.

One of the key points in the article is that managing the health of the relationship is a bigger priority than managing the risks associated with the relationship – since this collaboration will allow you to identify, address, and solve problems much more quickly than in a relationship without collaboration. The partnership approach is critical, relationship skills are crucial, and success relies on an objective focus with clear roles, responsibilities and measurable goals.

The Global Financial Supply Chain

Back in September, a really good article materialized over on the Supply Chain Management Review site that complements Aberdeen’s recent research brief “Get Ahead with Supply Chain Finance: How to Leverage New Solutions for End-to-End Financial Improvement” that I wrote about in Supply Chain Finance and their recent report “New Strategies for Financial Supply Chain Optimization: Rethinking Financial Practices with Your Suppliers to Maximize Bottom Line Performance” that is briefly summarized over on Supply & Demand Chain Executive in their post “Supply Chain Finance Techniques Seen Yielding Significant Savings”.

“Managing the Financial Supply Chain”In , Supply Chain Management Review starts off by noting that business leaders need to assess the unintended consequences of their global sourcing and outsourcing strategies beyond direct cost and capital savings since there are impacts to the financial side of the business as well. For example, since plants and equipment are often far more expensive to finance in emerging markets, the capital efficiency of the value chain can be decreased with global sourcing and outsourcing and global sourcing/outsourcing can also weaken control which can affect shareholder value, erode competitiveness, and introduce new business risks such as compliance, complex chargeback management processes, and implicit foreign exchange risks.

Even though today’s enterprises are enabled to become “core competency centric with global outsourcing allowing corporations to exist as virtual entities whose brand and CRM are the central value add, the longer lead times, multiple party involvement, added duties and taxes, longer delays, disruptions, and security regulations all complicate financial flows and cash management and leveraging global supply chain visibility to control and optimize the financial flows of a business value chain is essential for the long-term viability of companies that have outsourced manufacturing or are sourcing globally.

Furthermore, 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. In addition postponement, merge-in-transit, and VMI supply chain strategies only complicate the process.

In other words, even though global outsourcing is attractive due to the significantly lower labor costs, lower landed costs of nearby raw materials (due to significantly reduced transportation requirements), and the reduction of fixed assets required by the firm for production, the supplier to which the manufacturing is outsourced usually has a higher cost of capital and a higher equipment acquisition cost, thereby negating some of the savings you had hoped to achieve.

Therefore, 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 to have a well thought out strategy in place to reduce product costs, enhance overall performance, and insulate the business from unexpected exchange rate fluctuations up front.

For example, the article offers three strategies you can use to lower your suppliers financing costs, and thus your overall total cost of ownership. These are:

early payment programs
which will allow your supplier to offer you a discount
inventory ownership solutions
which could include logistics services as well
virtual consignment financing with assignment of proceeds
where you buy the raw materials with your added leverage and sell them to the supplier at cost

The article also offers some good going forward recommendations that you can use to improve your overall financial supply chain.

adopt a formal supplier-risk assessment process
to understand the capital costs and foreign exchange risks embedded in the unit costs
evaluate payment policies and systems
to mitigate Sarbanes-Oxley risks and assure that what you’re paying for is what you’ve ordered
develop collaborative financing solutions
since earlier visibility can be leveraged to create flexibility around early payment options for suppliers
ensure inventory-reduction programs eliminate inventory across the total supply chain
since this reduces costs throughout the supply chain for all parties
integrate information about the physical flow of goods with the financial flow
since this allows for financial supply chain optimization

Contract Management II

Looking back, it would appear that this is one topic that I have not really tackled yet. Back in week one, I made an initial post on Contract Management, but although I have mentioned the importance of good contract management in a number of posts here and over in my summer series on e-Sourcing Forum. I haven’t really dived into contract management and contract lifecycle management systems in detail.

Back in my first posting, I noted that today’s (E)C(L)M (Enterprise Contract Lifecycle Management) systems are quite powerful and offer a number of advanced features above and beyond just contract tracking. These features will generally include a searchable centralized contract repository, collaborative capabilities, workflow capabilities, monitors, alerts, reporting, and even template and clause-based contract creation capabilities.

In addition, I noted that I believe that one of the areas of future improvement will be in the area of business intelligence, specially in the area of automatic recognition of contracting patterns. These systems will not only point out What types of contracts and clauses are usually used for a certain type of supplier and / or commodity, but what types of contracts and clauses should be considered given the financial status of the supplier, historical performance, and commodity specifics. They will automatically draft starting contracts for you and indicate when you are missing important clauses like IP protection or delivery terms and when recommended updates are inconsistent with your usual practices.

Since then, I’ve put some considerable thought into what’s missing in today’s C(L)M systems, and how they can be used to provide you with benefits above and beyond simple document management and drafting. I’ve come up with a few more ideas, but two in particular stand out.

The first major breakthrough in next generation contract management systems, which has already crept into some current best-of-breed C(L)M systems, such as pure-play Nextance (acquired by Versata Enterprises) offering (another company that I spent some time chatting with recently), is contract optimization. What is contract optimization, you ask? It’s the ability to globally analyze all of your contracts and determine where you spend is going, where your products are going, and what IP you collectively possess. For example, as Ralf Vonsosen states in his recent article in Contract Management, ECM plays a role in solving the new complexities of IP management and optimization. On the front end of the IP life cycle, ECM solutions can improve revenue by creating and negotiating attractive IP portfolios. On the back end, these solutions can optimize royalties, by carefully and effectively managing the resulting IP licensing agreements. These recent advances in ECM technology are no longer just for procurement or contract professionals – they now ensure companies that they are creating, managing, implementing, and tracking their IP licensing agreements to optimize revenue, mitigate risk, and improve compliance. In addition, a complete CLM system defines what you should be spending. Contrast this with what you are actually spending, as determined by your leading spend analysis solution, and you have identified the areas you need to work on to improve your compliance and realize your negotiated and planned savings. Finally, it helps you understand whom your biggest and best customers are, and where you should focus your marketing and sales efforts.

The second major breakthrough in next generation contract management systems will be in the area of supply chain visibility. If you think about it carefully, since today’s business runs off of contracts, the contracts in your repository collectively provide the best picture you can get of your immediate supply chain. Data on all of your suppliers and all of your customers in one place. Furthermore, by tagging your strategic suppliers and customers, as well as the suppliers you heavily buy from and the customers you heavily sell too, you can immediately identify the key branches of your supply chain that need to be mapped out. Any single sources of supply, or restricted transportation routes, that are subsequently identified are your starting points in your risk mitigation planning efforts.

Regardless of what happens, I’m sure you’ll hear a lot more about (E)C(L)M systems in the coming years, and that some of the advances they will include will surprise you.

On the Fifth Day of X-Mas (Cross-Functional Sourcing Team)

On the fifth day of X-Mas
my blogger gave to me
five golden rings,
four little words,
tri-focal lens,
two boxing gloves,
and a lesson in strategy.

Five Golden Rings

Legal.
Finance.
Sales and Marketing.
Product Development.
Human Resources.

A good procurement/sourcing/supply chain department is at the intersection of each of these departments. It works with Product Development to understand their needs with respect to quality, reliability, and functionality. It works with Sales and Marketing to understand what product characteristics can be expounded upon to generate buzz or increase perceived value (and, ultimately, the sale price). It works with Human Resources to understand organizational values and qualities to look for in potential strategic partners. It works with Finance to understand cash-flow requirements and preferred payment terms. It works with legal to create the best contracts for the organization and to make sure they appropriately protect the organization against all foreseen risks.

Representatives of each of these departments should be involved to the appropriate degree from the get-go of any sourcing project to streamline the process. During RFP formulation, legal and finance can help you nail down the terms and conditions in the template contract to streamline contract signing down the road. Product Development and Human Resources can help you pre-qualify suppliers. Sales and Marketing can assist you in the RFP evaluations.

Involving the right stakeholders throughout the process will help you make the right decision every time and assist you in maximizing the value of each and every sourcing effort.