Category Archives: Supply Chain

Managing Business Risk

There were a number of really good presentations at the Symposium on Supply Chain Management on Friday, but one of the ones that really stood out was the presentation by Francis Borromeo of Shell Oil Canada on Business Continuity Planning.

Business Continuity Planning is one of the best ways to manage risk, including supply chain risk, and last year, Shell Oil proved it. Hurricane Katrina devastated multiple oil refineries in South Texas. The effects were that plants were closed for months, with a mid-term effect on supply and a detrimental effect on oil prices. It was all over the news. However, what they didn’t tell you was that it could have been much, much worse.

Oil refineries process more oil than most oil tankers carry. And we all remember how many years it took to clean up those spills off of Alaska. And multiple refineries were almost destroyed. Had they been processing oil at the time, it could have been one of the worse environmental impacts of the decade, putting the plants out of commission for years, if not closing them down permanently. But not one dropped was spilled. Why?

Shell Oil, like the other major producers in the region, had rock solid business continuity plans that identified all of the major risks as well as measures to not only recover from disasters, but prevent the severe ones from occurring in the first place. As soon as the hurricane started heading toward the region – processing stopped. Tanks were emptied. Above ground pipes were pumped empty. Stockpiled oil was relocated inland.

In addition, thousands of people could have been seriously injured or killed. This did not happen. All non critical personnel, and their families, were airlifted out of the region well before the storm hit. Critical personnel were evacuated as soon as possible. The end result, only buildings – easily rebuilt – were destroyed. It was a disaster, but it paled in effect to what it could have been.

And you can do this too. Business continuity planning and risk management does not have to be ridiculously expensive. The key is that you

  1. have a business continuity plan with
  2. prioritized risks and recovery plans that you can use to
  3. manage the recovery process in order to
  4. transition to business as usual in a manner that permits an
  5. after action review to allow you to improve and thrive.

A business continuity plan not only provides a framework for the recovery of the critical business processes, but it allows you to safeguard your brand and reputation.

But it’s probably last on your management priority list. After all, you only see a return when a major disruption or disaster happens. However, considering that Aberdeen recently found that your average international company experiences two significant disruptions per year, it is critical that you have one. So how do you get the support and resources you need to initiate one?

Francis outlined the following arguments that you can use. On their own, chances are not one of these will win you the support you require – but taken as a whole, the business case becomes very compelling.

  • the insurance provided vs. the cost of insurance;
    a well designed plan will only cost pennies on the dollar and will deliver a ROI many times what it cost to prepare in the event of a disruption … many times …
  • a business impact analysis is bound to identify process improvements
    no business does everything optimally … and often the only way you figure this out is through documenting the process and identifying recovery methodologies
  • tangible, documented, business knowledge
    which can then be shared throughout the organization vs. silos that reside in your employee’s head
  • validation of organizational focus
    once you’ve identified the critical processes, you know what you need to focus on … and chances are you’ll discover a few processes that are a lot more critical then you otherwise thought
  • customer requirement
    a marquis customer will only work with you, or stay with you, if they know you can recover as fast as they can in the event of a major disruption

New Technology Strategies for Supply Chain Management

The first keynote at the Symposium on Supply Chain Management yesterday was Beth Enslow’s (of Aberdeen Group) presentation on New Technology Strategies for Supply Chain Management. Over the last 6 months, Aberdeen has produced a slew of reports on Supply Chain that have identified a number of common findings that point the way to a best in class supply chain.

The five key findings were as follows:

  • Compete on Agility
    Traditionally, technology has not had the required agility, but in today’s environment where product cycles are shortening, new product introductions are increasing, and transportation networks are taxed, agility is key if you want to be best in class.
  • Beyond 4-walls Control
    Today, there is more reliance on external partners and processes are often driven externally.
  • Collaboration is Popular Again
    Collaboration can drive more value than reverse auctions. Significantly more value.
  • Reinvigorated Focus on Inventory Management
    Inventory is costly – you have to store it, and many products are perishable with new products always just around the corner.
  • New Technology: SOA & SaaS
    These technologies are more agile and integratable and should be at the foundation of any new initiative you undertake. After all, when 86% of companies require more than 6 months, and 40% more than 18 months, to adapt IT systems to changing business requirements and many on-demand SOA / SaaS solutions can be implemented in 3 to 6 months, this just makes sense.

Amazingly enough, these key findings line up reasonably well with the top four investment priorities for SCM, considering there seems to be a systemic blindness out there to the importance of proper SCM processes and technologies, a topic I’ll discuss further in a later post.

The top four SCM investment priorities identified by Aberdeen were:

  • Inventory Management (63%)
  • Demand Management (S&OP) (63%)
  • Supplier Collaboration / Global Transportation Management (40%)
  • Supply Chain Execution (40%)

In other words, if a company implements these technologies using Business Process Management and Workflow driven on-demand SOA applications with the ability to be configured on a company-by-company basis, they will be multiple steps closer to being able to execute as a best in class company.

Other interesting statistics included the attributes of the best-in-class inventory management companies (which have customer service satisfaction levels over 95% and reduced inventory carrying costs):

  • 45% use multi-echelon optimization systems
    vs 14% for all others
  • 57% have existing supply chain visibility systems
    vs 22% for all others
  • 52% have a forecasting system supporting customer-level forecasting
    vs 23% for all others

… and the on-demand vs. traditional statistics …

Metric better same worse
ROI 64 32 3
Upgrade Ease 66 19 16
Implementation Time 57 34 9
Customer Service Level 46 47 7

… and fact that for certain managed services, up to 50% of companies are somewhat interested and up to 30% of companies are highly interested … which is promising considering that best-in-class PSPs (Procurement Service Providers) can often outperform your in-house staff on categories outside of your core strengths.

Beth concluded with five recommendations that I strongly suggest you keep in mind when selecting new supply chain technologies:

  • Choose SOA-based solution offerings to ease implementation and improve usability and agility.
  • Consider on-demand and managed services.
  • Demand quick implementation and payback. You should be fully implemented within 6 months and see a return within 1 year.
  • Exploit the value of improved supply chain management information internally.
  • Agility! Agility! Agility!

Global Supply, Visibility, and Performance

Not too long ago, I wrote about Aberdeen’s “Global Supply Visibility and Performance Benchmark Report” in my Global Supplier Visibility and Performance post where I noted that Aberdeen has found that the average company has had an average of two major supply chain disruptions per year and that industry average and laggard companies are only able to meet customer-requested ship dates 40% of the time. I also noted that I would post more of my own thoughts on it later.

First of all, the great Sudy Bharadwaj, your report author, is absolutely and positively correct when he said that spreadsheets and in-house software development are not the answer! Considering the requirements for a real-time GSVP system, and the expertise required to build one, you really should be using best-of-breed software from a best-of-breed provider.

Secondly, your humble report author is also dead-on when he states that any GSVP process must be repeatable year-over-year. GSVP is not a one time quick-fix, and the real benefits only materialize as a result of year-over-year continuous improvement.

Thirdly, you should focus on the top 10% of your suppliers in the initial implementation of a GSVP program and start within a specific product line, business unit, or geographic location. All the big, scary software failure stories you hear about are generally simultaneous-wide enterprise roll-outs of a new system or methodology. Start small, work out the kinks (more often in your processes than your technology if you make the right technology choices), and build up gradually. Before you know it, 90% of your business will be GSVP enabled.

As I indicated previously, there are more great insights in this report and I highly recommend you download a copy before the sponsorship disappears.

Optimizing the Supply Chain

The Fourth Annual International Symposium on Supply Chain Management starts today. It looks like it’s shaping up to be a really good conference. I had some interesting conversations last night. Look forward for some great posts on, and inspired by, the event in the days ahead!

Spend Management Changes Business

Before the Sourcing Innovation Series, where the mighty prophet of the spend management space Jason Busch offered up his thoughts on “Sourcing Innovation: Securitizing Direct Materials”* and “Sourcing Innovation: Next Generation On-Demand”*, he published a whitepaper for Ariba entitled “Spend Management: Changing Business”, A Case for Reexamining Procurement’s Role In Organizations of All Sizes, that you should read, or read again, as you’re unlikely to find all of the nuggets of wisdom Jason packs in on a first read.

Spend Management can lead an overall business strategy. And it can create significant competitive differentiation that is much harder to replicate than a product or service that is sold on the revenue side of the business … Spend Management is not a business strategy and philosophy. It is the business strategy and philosophy that leaders practice and followers fail to fully understand.

Spend Management is not just cost management. It is not just procurement. It is not just new software. It is not just an incremental change in function or process. It is not a new fad or methodology being pushed by the consultants simply to define their value and take your money. It represents a new type of thinking, a way of taking integrated approaches to not just procurement, but all aspects of non-revenue generating operations. It is a way of thinking about your global supply chain strategy that will reduce costs, improve processes, and increase profits even when inflation is rampant, economies tight, and transport lanes continually overtaxed.

At the very core, it is the process of driving sourcing innovation to new levels across your organization. Continual Spend Management Innovation, to squeeze more and more from every dollar you spend, is your ultimate goal as it is the only way to guarantee long-term sustainability of results. You focus on value, which could be defined as the simultaneous maximization of total cost, production efficiency, and innovation.

Spend Management success requires creating specific goals and having a destination point in mind. To do this, it is necessary to identify where a company stands today and how to overcome the gap between the current state and market leadership. After all, there is no panacean spend management solution, even though there are a number of platforms that cover different aspects of spend management, which include spend visibility, eRFX, eProcurement, catalog search, contract management, supplier performance management, category management, and supplier risk management, quite well. After all, if you know where you need to go, you’ll get there a lot faster.

Accelerating Spend Management results requires that executives move beyond looking at procurement solely as an agent for cost reduction. To sustain results, organizations must now examine cost, spend, vulnerabilities, and risk as assets to be managed and reduced. … Organizations need to think creatively about the best – and most cost-efficient – ways to mitigate and manage vulnerabilities and risk to drive Spend Management results. Every company is different. Every supply chain is different. And every solution that outperforms a competitor will be slightly different. The key is to learn from the best – and then improve upon it.

When upgrading capabilities and investments, it is not necessary to switch out existing providers. It is now possible to use and improve what they already have by turning to other providers to augment and enhance existing capabilities. I’ll say it again, there is no panacean spend management solution. Although some providers offer extensive integrated solution suites, some of which are quite spectacular, each provider tends to have a strength in a different area, such as eProcurement, eSourcing, contract management, spend analysis, supply visibility, or supplier risk and / or performance management, and the best solution for your company will probably be a combination of vendors – and sometimes you’ll even have multiple vendors that offer the same capability as you will find some vendor solutions more suited to certain parts of your supply chain than others. However, since most of the best vendors on the market today offer on-demand solutions, building an optimized heterogeneous solution should not be problematic.

To ensure that an organization is headed down the Spend Management path to sustainable savings and potentially industry-shaping results, it is essential for executives to keep three key objectives in mind. First, they should take a flexible approach and expect the same dexterity from their partners, realizing that Spend management is not a one-size-fits-all proposition. Staying nimble allows a company to take advantage of opportunities as they arise, and to react to – or ideally predict – changes in market conditions. Second, they should establish longer term goals and programs without sacrificing near-term objectives that can motivate the organization and prove the value of Spend Management as a continuous process. And third, they should invest in creating company-wide systems and capabilities that use the best of internal and external knowledge and processes to maximize – and guarantee – ongoing results.

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