Category Archives: Supply Chain

Scott Adams, A Supply Management Guru?

Regular readers of this blog or Spend Matters should recall Jason Busch’s post on “The Spend Management Talent Game”# where he indicated that when seeking out talent, an organization should value generalist skill sets, raw intellect and EQ (emotional intelligence) over industry and domain knowledge. Spend Management professionals need to understand the world around them and possess general problem solving skills that go beyond functional — or even technology — knowledge. Technology skills can be taught. It’s far harder to find someone with the analytical skills to navigate complex total cost decisions and the emotional maturity and interpersonal skills to sell such analyses both up and down the company.

In simple terms, if you want to be a better supply chain professional, you should focus on improving your general problem solving skills and EQ first, since domain knowledge is much easier to learn and can be readily absorbed from an appropriate expert once you have the raw intellectual capacity to absorb it. Furthermore, since EQ is required for general problem solving skills, and since general problem solving skills can be improved through repeated application using tried and true problem solving methodologies as guides (some of which I have discussed here in this blog or in my summer series over at e-Sourcing Forum [WayBackMachine]), it should be clear that your number one goal is to improve your EQ.

So how do you improve your EQ, which is not the same as improving your emotional range? (i.e. Sitting around watching chick-flick movies all day won’t help us guys.) I’ll admit that I struggled with this for a bit until I realized the answer was obvious – learn from the best, and if you can find one, a guru. But where do you find an EQ guru? One who will happily share his or her wisdom, and preferably, share such wisdom with you regularly simply for the satisfaction of knowing that he or she may make you a better person? (After all, a true guru is one who readily shares his or her knowledge, not one that sells you snake oil until you’re broke and then vanishes.) After all, the world of business is littered with “finance” gurus or “real estate gurus” or “M&A gurus” or “management gurus”, not EQ gurus. So I was back to square one – no idea on where you should go to improve your raw EQ (since my strengths are in problem solving and application of such techniques to the supply chain domain and imparting sophisticated domain knowledge in the areas of math, computer science, and logic) since I wasn’t sure where to go to improve mine.

Then it dawned on me – the answer was under my nose all along! (Literally, since today I’m smelling sweet Bay Area California air, and since I live in the real NorthEast, at this time of year my nostrils would normally be too cold to smell anything!) I was already absorbing great advice from an EQ guru everyday, and didn’t even know it! And for you non-observant, that Guru is Scott Adams, author of the Dilbert Blog (and the Dilbert comic strip, and four of the best business books ever published, etc.).

Moreover, some of his advice is so good, that I would say he could even be proclaimed a Supply Management Guru! Furthermore, I am going to present my case solely on the insights that he has shared with us in the past month alone!

October 24, 2006 Good News Day
Scott proves that optimism is a powerful tool and that just because no one else has ever recovered from a seemingly hopeless situation or solved a problem before does not mean that you can’t be the first! Furthermore, I would like to add a corollary to this that just because someone says you cannot do something, it does not mean they are right. Usually it means that they cannot (or believe they cannot, but that’s the same thing.) There is a chance that they may be right, but it is often a (diminishingly) small one. Furthermore, a failure is always relative to certain conditions or assumptions. So next time someone says something like “We tried that ten years ago, and it didn’t work.“, don’t accept it at face value. Find out precisely what they tried, what precisely they did, and precisely what the assumptions and market conditions were. If the conditions have changed, if the project was managed poorly, or if the arrangement was arms-length, maybe a different arrangement or management structure will work today.

October 25, 2006 My Day as a Neanderthal
Scott tells us that he feels cut off from the world when his primary means of communication and interaction goes down, and points out that we are at our best not only when we use all the resources that are at our disposal, but work with others whose knowledge and skills can complement our own.

October 28, 2006 I Got Your Free Will Right Here!
Scott asks “If free will exists, why do the tallest candidates with the best hair usually win elections?” and points out that the correlation is incredibly strong despite that the most poorly informed voter understands that neither hair nor height have any correlation with competence. He also points out that you can see the same bias in favor of tall, good looking people in business too and that there are plenty of studies showing that tall and/or attractive people earn substantially more than short, ugly people and they get promoted faster too. Furthermore, there are tons of similar examples where companies can manipulate customer behavior by altering colors and music and odors at stores and that none of those things change the quality of the products, and yet they change people’s buying decisions.

In other words, we’re naturally very illogical people and we have to work hard to make sure that logic is the basis for our decisions, not just gut instinct.

November 2, 2006 Stem Cells
Scott says I don’t debate with advocates. An advocate says that everything is right about one position and everything is wrong about the other side. You might as well debate with a doorknob. I only debate people who say, in effect, “There’s an argument to be made on both sides, but here’s why one side seems more persuasive.” That person could theoretically be swayed by new information or a better argument. Simply put, you can’t be logical with the illogical. Don’t butt heads – it’ll have the same effect as pointing out the inconsistencies in the bible to a Jehovah’s Witness. If you can, work around these individuals. If you can’t, you’ll either find a creative way to make your position more attractive to the irrational nitwit or consider a job change. (Otherwise, you’ll just stress yourself out for no good reason.)

November 7, 2006 My Search for Clarity
In a clear demonstration of his wisdom, Scott says as regular readers know, I am too ignorant to have opinions on most big issues. It does not matter who you are, you do not know everything. This also means that you cannot be an expert in everything. The only way to grow as a person and improve your skills is to admit what you don’t know and then seek out that knowledge.

November 14, 2006 Are Smart People Dumb?
Scott asks Why would I limit the quality of my advice to people who don’t know any more than I do? In other words, just because someone is famous, your superior, or your mentor, it does not mean that they will always have the right answer. Just like the rest of us, they have their areas of weaknesses as well as their areas of expertise. When you have a tough problem, go to the experts and see what they have to say. And the s is bold for a reason. You should seek multiple opinions, and explanations therefor. Experts are people too, they don’t always agree, and they will occasionally be wrong. (Just significantly less than the average person, as that’s the definition of an expert.) Furthermore, Scott also points out that genius alone does not a smart person make, especially when it comes to a (specific) real world problem.

November 16, 2006 Who Can’t be Hypnotized?
Scott deftly points that we are all in the business of influencing people and outlines the technique of hypnotic induction that you can use to help calm the tense individuals who will be reading and judging your work and ease them into the relaxed state of mind that they will need to be in to make a fair assessment.

November 17, 2006 Aging Brains
Scott tells us that we should release all knowledge of complicated explanations for the world whenever simpler ones will do the trick. The KISS rule is universal. Don’t forget it!

November 18, 2006 Philosophical Brevity
If you want to get your point across, be smart and brief.

November 24, 2006 Complicated Decisions
Scott points out that he often makes a decision on the easy to predict and important factor(s) and ignores the impossible to predict factors. This is because while you can’t know the RIGHT decision, you can know the RATIONAL decision. Although you can’t always ignore the unknown, the reality is that the unknown should not be the basis for your decision. After all, there will always be unknowns. Let’s choose freight. The airplane could crash. The boat could sink. The truck could be stolen at gunpoint. It doesn’t matter, there is always risk. If you’re worried, take out insurance. However, the airplane will be fastest and cost the most. The cargo ship will be slowest and cost the least. If speed is of the utmost importance, choose air. If cost is of the utmost importance, choose sea. Strike possibilities, terrorist attacks, etc. etc. etc. are always there, regardless of method, so don’t base your decisions on these unknown factors. Simply have a backup plan in place to mitigate risk, insurance to mitigate loss, focus on what’s important, and get the job done. Otherwise, you’ll be a hypochondriac before you know it.

And if that does not convince you that Scott Adams is an EQ and Supply Management Guru, I don’t know what will. Furthermore, he also doles out great advice on a wide range of topics on a regular basis. In the last month alone, he has told us how to Avoid Obscenity in our Documents^*, select Comic Assess we can safely post on our cubicle walls, and be featured on 60 Minutes. What more could you ask for?

^* If you don’t get it, you should use bullets, not asterisks.

It's too bad Scott Adams had to take these classic posts down on request of Portfolio Hardcover when they published Stick to Drawing Comics, Monkey Brain that was a collection of his blog posts through part of 2007.

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

Disaster Recovery Planning

In Managing Business Risk, we discussed Business Continuity Planning and how it is one of the best ways to manage risk, including supply chain risk. A major component of business continuity planning is disaster recovery planning, and after my recent posts on how Your Supply Chain is NOT Secure, diaster recovery planning should be at the forefront of your thoughts.

If you find planning for a disaster daunting, it never hurts to bring in some outside help, and if you think the costs of setting up a backup operation are prohibitive, then you might want to consider outsourcing that as well.

A recent article in the Outsourcing Journal, “Why Every Business Needs a Disaster-Recovery Plan”, demonstrates how it can be an effective option. It discusses how Citrix was able to literally move their factory from one side of the country to the other with the flick of a switch thanks to HP’s disaster recovery service which had the backbone and infrastructure needed to take over Citrix’s world-wide ordering and fulfillment process across all 670 SKUs.

Selecting a disaster recovery outsource provider is not an easy task, and Citrix spent 18 months interviewing and evaluating 20 firms globally before making a choice based on a 32-question report card. However, your process need not take quite as long if you heed Citrix’s advice and focus only on outsourcing provider willing to work with you and address your concerns. As the article notes, transition can be turmoil in most outsourcing arrangements, but if the company is willing to commit the necessary time and resources and work with you to make the transition seamless, it can be.

In addition, the provider should be comfortable with quarterly management reviews and clear metrics. Everybody should be looking at delivery performance, quality, customer satisfaction, and cost improvements every 91 days and identifying opportunities for improvements. Then, both parties should jointly choose two or three initiatives to work on during the upcoming quarter and follow through.

As per the article, done well, outsourcing has the following benefits:

Increases productivity
Increases mobility
Frees up resources to focus on core competencies and innovation
Provides business continuity and security
Reduces complexity and improves performance
Consolidates to create a single view into technology environment
Provides governance and compliance
Improves process
Reduces points of accountability
Provides accountability to service level agreements

Innovation and Opportunity: What’s Ahead in Supply Management

The ISM just released the seventh edition of the Supply Management Handbook (J. L. Cavinato, A. E. Flynn, and R. G. Kauffman) and my copy arrived late last week.

Chapter three (of the forty-two chapter book) is entitled Innovation and Opportunity: What’s Ahead in Supply Management. The chapter discusses four promising trends in supply chain technology and three other trends that are taking or expected to take the supply management world by storm.

Supply Chain Technology Trends

Maturing and Scaling of Procurement Technology
More Sophisticated Business Intelligence
Integration of Technology Functions with Other Parts of the Business
Stronger Influence of Web Services on Supply Management

The maturing and scaling of procurement technology is happening every day, business intelligence technology is also improving at a brisk pace, we’re starting to see new technologies aimed at integrating procurement with the rest of the business, and some of the best solutions out there are on-demand solutions built on or as web-services.

Other Trends

Global Sourcing and Supply Management
Procurement Outsourcing
Supply Management in Government and Financial Services

Global Sourcing is hot and Procurement Outsourcing is on the rise. Even financial services are hearing the call of the supply chain. (After all, Macquarie Bank scooped up one of our best bloggers earlier this year, The Blogging Thunder from Down Under, Doug Hudgeon of Vendor Management [renamed Contract Capital Management, WayBackMachine].) And, finally, some governments are starting to latch onto good supply chain management principles. Hopefully their good example will convince those that aren’t to hear the call of the “spend management party”*.

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

10 Things I Learned at INFORMS 2006

I attended as many talks as I could manage in the three and a half days that I spent at the worlds largest Operations Research / Management Science conference (separated by meetings with some local companies), and as a result I learned the following:

Under the right model:
- centralized models of production, decentralized make-to-stock models of production, and decentralized make-to-stock models of production can all be highly profitable
- sole sourcing is not always the right option
- but sometimes sole sourcing is the right option
- when supply chain participants collaborate and share processes, higher customer satisfaction can result
- better information leads to lower costs
- shifting inventory to the right supply chain participant can save everyone money
- large distribution networks are often bloated and inefficient
- increased flexibility often leads to increased cost and profit loss
- lean supply chains can be very profitable
- but sometimes modular supply chains with more inventory are more profitable
- a complete characterization of potential supply chain risk is challenging
Abstract, strategic, “big picture” thinkers often solve problems faster and better than concrete, tactical, “current crisis” thinkers.
Decreasing customer returns increases profit.
OEMS can profit greatly from secondary markets and those that try to shut them down might be severely jeopardizing their business.
Good supply chain planning is key to good disaster readiness planning.
1 in 5 outsourcing relationships are doomed to failure because they favor the client at the expense of the vendor from the outset
Highly skilled individuals prefer solutions with moderate amounts of complexity.
The benefits of centralization realized depend on commitment levels.
If you want to sell your solution, focus on the benefits, not the features.
Manufacturers benefit from innovative customers.

Well, as you probably guessed, I did not actually learn the above, but I did learn that academics now have solid mathematical models that explain why us practitioners have observed each of the above “teachings” offered by various talks that I attended. Don’t worry, I’m not going to bore or confuse you with the models, but simply point out why each of these is true from a “common sense” viewpoint.

- different production models can be highly profitable
  it really depends on how lean your supply chain is
- sole sourcing is not always the right option
  it is often a risky proposition
- sometimes sole sourcing is the right option
  since dual sourcing can often be costly
- higher customer satisfaction results from collaboration
  do you pick out your wardrobe with your eyes closed?
- better information needs to lower costs
  better forecasting alone saves you money
- properly placed inventory saves money
  it costs money to move improperly placed inventory around
- large distribution networks are often bloated and inefficient
  if JC Penney needs less than 10 DCs in the US, how many do you need
- increased flexibility often leads to increased costs and profit loss
  the more versions of a product you have, the less likely you are to sell a large quantity of any particular unit, and profits, like economy, come with scale (and each different variation has its own setup and teardown production costs)
- lean supply chains can be very profitable
  in fact, they can be more profitable than you think
- sometimes modular supply chains with more inventory are more profitable
  if you have to shut part of your supply chain down waiting on inventory, you’re losing money – the right amount of safety stock at each location can prevent this
- complete characterization of potential supply chain risk is challenging
  you can never come up with and plan for more than a finite number of possibilities but in real life, an infinite number of things can go wrong
abstract, strategic, “big picture” thinkers are better problem solvers
a “big picture” thinker is less likely to sacrifice better opportunities tomorrow for good opportunities today
decreasing customer returns increases profit
customer returns decrease profits, so reducing them increases profit
OEMS can profit greatly from secondary markets
considering how much today’s high-tech equipment costs, a company is a lot more likely to invest in a solution that has a decent resale value
good supply chain planning is key to good disaster readiness planning
if you do not know what is critical to your operations, then you do not know what to prepare for
1 in 5 outsource relationships is doomed to failure from the outset
considering the less than stellar returns from many outsourcing projects, this should not be a surprise
highly skilled individuals prefer solutions with moderate amounts of complexity
after all, using a simple solution does nothing to demonstrate your capabilities
benefits of centralization realized depends on commitment levels
an unsupported initiative never works (and center-led is probably more effective anyway)
focus on the benefits, not the features, in solution selling
with the exception of those few individuals who have to use the solution significantly in their daily tasks (who are usually not the decision makers), no one really cares how cool it is to use – they care about how effective it is at solving their business problem and saving money
manufacturers benefit from innovative customers
innovation helps everyone

The Efficio Survey (on the Changing Face of Procurement)

As mentioned in Spend Matters, Efficio recently released a study that looked at the changing face of procurement in Europe. Like Jason, I’m not going to spoil the report for you, but merely point out six key imperatives for procurement presented by Efficio.

Become a manager of relationships
Procurement must possess highly developed relationship skills to effectively manage both internal and external stakeholders as well as suppliers.
Grow into the role of managing networks, not “vendors”
As businesses continue to focus on core strength and outsource specialist activities, they have to manage increasingly complex supply chains.
Focus on value, not only on cost
Procurement’s new role of managing whole networks of business partners will increasingly require it to extract value from those relationships as well as cost.
Broaden the skills base
Procurement clearly needs a much broader set of skills than the core functional skills of tender execution and supplier negotiations.
Become part of the business
Procurement must continue to integrate with the organisations in which it operates and be seen as a multi-talented business problem solver.
Don’t stand still
Procurement needs to constantly focus on overcoming the challenges that lie ahead, and on proving its worth through excellent internal customer service and tangible results.

These recommendations are a great start, but I’d like to toss out five more of my own:

Smart Sourcing, not Low Cost Country Sourcing
Remember, it’s not unit cost, but landed cost, that has the larger impact on your overall cost, and when the number of “touch” (or transition) points from a Low Cost Country is typically four times the number of “touch” (or transition points) from a local supplier, you can see how your transportation costs can really add up. A good post on Low Cost Country Sourcing is JB’s post “Global Sourcing: Does Innovation Matter?”.* (This post was in response to my challenge post, Is Low Cost Country Sourcing to China Really Innovative?.
Visibility, not Reduction
All though a lean, rationalized supply chain is important, effective supply chain control is requires more than just a good design, it requires visibility, a topic I visit regularly. See my post Global Supply, Visibility, and Performance, for example.
Data, Data, Data
Bad data and / or bad classification can cost you a lot, especially in global trade. For more information, see my post on Managing Global Trade Data.
Compliance, Compliance, Compliance
Some estimates state that up to 70% of negotiated savings are never realized! Make sure all contracts are tracked and monitored from the date of inking to the date when the last product is delivered. Buyers have to buy against them, payments have to be on schedule, agreed upon rates need to be adhered to, and, most importantly, rebates and post-order discounts need to be recouped.
Don’t forget Legal!
Major procurements often come with a lot of risks. Make sure you engage legal counsel from day one to make sure you mitigate all of your legal risks before they happen. (See my post on Key Concepts for Major Procurements.)