Category Archives: Supply Chain

The Long Tail Wags the Dog

Dave Stephens, author of Procurement Central [WayBackMachine]  isn’t the only blogger who likes to muse about Procurement’s Long Tail. As you may recall, Doug Hudgeon of Vendor Management (renamed Contract Capital Management [WayBackMachine]) prognosticated on the issue in Are your vendors the Spice Girls or Arcadia? and I wrote about some of my own musings last month in my post Build To Order.

However, for those of you who want some in depth discussion of the “long tail”, a new book about entertainment, technology and statistics that predicts that popular culture-and the business associated with it-will be transformed by the internet entitled “The Long Tail: Why the Future of Business is Selling Less of more” by Chris Anderson is now available.

Now I’ll admit that I haven’t had a chance to read the whole book yet, although I have read the original article that the author wrote back in 2004 a number of times, but I have read a number of reviews, including a great article in a recent edition of The Economist entitled “What the long tail will do” (subscription required). The article points out that one of the main points of Mr. Anderson with respect to entertainment is that the niche, the obscure and the specialist, will gain ground at the expense of the hit. As evidence, he points to a drop in the number of companies that traditionally calculate their revenue/sales ratio according to the 80/20 rule—where the top fifth of products contribute four-fifths of revenues. Ecast, a San Francisco digital jukebox company, found that 98% of its 10,000 albums sold at least one track every three months. Expressed in the language of statistics, the experiences of Ecast and other companies such as Amazon, suggest that products down in the long tail of a statistical distribution, added together, can be highly profitable.

Long-tail enthusiasts argue that the whole of culture will benefit, not just commercial enterprises. Although many people appear to be quite happy to watch and listen to what the mainstream provides, if individuals have the opportunity to pick better, more ideally suited entertainment from a far wider selection, they will take it, according to the theory of the long tail. For example, YouTube is now serving up 100 million videos a day.   (And I personally buy more music in mp3 form from AudioLunchBox, Mperia, and related sites then I do traditional CDs these days.  Post-Edit: As of last link verification, the doctor highly recommends you check out Bandcamp, especially if you like American Pie. )

Interestingly enough, Mr. Anderson, who developed the long tail theory in the aptly named Wired article “The Long Tail” back in 2004, has backed away somewhat from his original take in which he suggested that the long tail would be a bigger market than the hits. His book says, more cautiously, that “all those niches can potentially add up to a market that is as big as (if not bigger than) the hits.”

The article in the Economist indicates that one weakness of this otherwise excellent book is that it tries to apply the theory of the long tail to fields far beyond entertainment and e-commerce. The article notes that Mr. Anderson sees long-tails in labour (offshoring) and national security. Although I am inclined to agree in that the application of the long-tail theory to national security is too much of a stretch, I disagree with the author of the Economist article and believe that the long-tail theory does apply to labour. However, even though outsourcing is part of the distribution, I would classify Crowdsourcing as the long-tail of labour.

Even though I do not think that any one author, reviewer, critic, analyst, researcher, or futurist really understands long-tail in its entirety, and that no one can fully predict what the long-tail future will deliver, I believe that as time goes on, we will see it taking a greater hold of many marketplaces, not just entertainment and e-commerce. Furthermore, I think the open-source movement will continue to significantly contribute to the long-tail in the technology sector and redefine the sector as a whole as it contributes to the emerging “non-monetary economy” that seems destined to emerge at the end of the long-tail.

For more insight, you can check out CNet’s interview with the author. I found the most interesting parts to be the following questions and answers:

What was the most surprising thing you came across in your research?

The most surprising thing was industries that understood the long tail that I hadn’t anticipated. When you think of the long tail, it’s basically a large number of niches that compete with one-size-fits-all mass-market products. There are so many precursors. You know, fashion has always had boutique and couture. And you can think of that of as a long tail of clothing.

In food, we’ve seen the rise of organic and artisanal food as the long tail of agriculture in a sense. It used to be difficult to have that in the supermarkets. But what I learned is that even in the supermarkets because of efficiencies and supply chains and stock management technology, there’s been more than a doubling in products on the shelf. Even Wal-Mart is now offering organic, which is a day many thought would never come.

Who are the most important people in the long tail?

The producers. I mean the long tail is made up of millions and millions of people who are creating content and finding an audience for it. Look at all the bloggers out there. They have essentially extended the tail of media a millionfold because it’s so easy to do so and they have something to say.

So I think that the real lesson of “The Long Tail” is that that notion that professionals produce and amateurs consume is really being blurred and we’re realizing that amateurs often have as much as to contribute as the professionals do and there are so many more of them. Wikipedia, I think, is perhaps the best example of that.

In other words, the long tail is just about everywhere and each and every one of us is carrying it forward. Now that’s food for thought.

Supply Chain Direction: Collaboration is Key

Back in April, EyeForTransport, the organizers of the Supply Chain Directions Summit 2006: Strategies & Tactics to Optimize Inventory and Supply Chain Visibility, released a report entitled “Supply Chain Directions 2006: How Fortune 500 shippers overcome their supply chain challenges”.

This report analyzed the results of a survey of almost 400 logistics professionals who were primarily executives from Fortune 500 manufacturers and retailers in charge of their companies’ logistics and supply chains and sought to identify the biggest supply chain issues and the methods that these companies were planning to employ to overcome those issues. The largest supply chain issue identified as relevant, by a whopping 62% of respondents, was a lack of collaboration. Furthermore, a whopping 59% of respondents identified enhanced collaboration schemes as the most likely method for decreasing their supply chain woes, 10% more then the runner-up option of optimizing warehouse management.

So how can you improve collaboration? One approach is to deploy new technology. In particular, Transportation Management Systems (TM) and Supply Chain Management Software (SCM) with built in collaboration capabilities can go a long way towards meeting these goals. In fact, these were the two leading systems identified by respondents as the most likely technologies to enhance their supply chain performance (at 56% and 44%, respectively).

Regardless of what direction, or directions, you choose, I’d recommend you check out the speaker list for EyeForTransport’s Supply Chain Directions Summit 2006 (November 28-29, 2006 in San Francisco, CA, USA) which reads like a who’s who list in the logistics and SCM trenches with speakers like Scott D. Burnette, the Director of National Transportation for Coca Cola North America, Ashley Hall, the 3PL Sourcing Manager for Intel, David Pieper, Supply Chain Strategy Principle, and Mike Passon, Director, Global Logistics, Program Management at Hewlett Packard, Arun Kumar, Director, Americas Logistics and Worldwide Compliance at Dell, Walter Gimenez, the Logistics Director at Nike, and 28 other confirmed speakers.

It appears to me that despite only being in its second year, the Supply Chain Directions Summit could be on its way to becoming recognized as one of the premier annual SCM events around the globe. The only advice I would give EyeForTransport is to consider doing what SAP did for SAPPHIRE, and fly in some leading bloggers to cover the event. This will help boost the event’s profile and visibility this year, as bloggers notify their ever growing reader lists in advance on their plan to be there, and next year, as those who do not attend read about what they missed. After all, I’m sure Jason Busch’s coverage of Ariba Live on Spend Matters probably provided more visibility for Ariba with almost 2,000 dedicated readers every day than a fistful of traditional publications. It’s a thought.

Supply Risk Management IV: WisdomNet’s Point of View

As mentioned in Jason Busch’s recent post Another Perspective on Supply Chain Risk* on SpendMatters , WisdomNet recently published a whitepaper that serves as a good introduction to Supply Chain Risk, and a good companion to my introductory posts on Supply Chain Risk (An Introduction, Risks and the Need for Resilience, and Managing Risk) that ran this weekend on e-Sourcing Forum [WayBackMachine]. Although I agree that there are not any breakthrough findings or thoughts in the work, I also found it to be quite a worthwhile read — a perfect supply risk management 101 type of study, if you will. As such, I’m going to highlight the key points made by the author as a comparison and contrast to the key points that I made this weekend (in an effort to encourage you to read more).

According to the white paper, five key factors have an impact on supply chain resilience:

  1. Supply Chain Design
  2. Business Process Management (BPM)
  3. Demand and Supply Visibility throughout the Supply Chain
  4. Supplier Relationship Management (SRM)
  5. Culture

Supply chain design is the primary driver of resilience, and the level of risk in a supply chain is affected by process structure, level of vertical integration (that results from make or buy decisions), the location of supply, the concentration of capacity, and inventory decisions. Process structure is dictated by the choice of make to stock, configure to order, make to order, and design to order. The extent to which suppliers that cannot be easily replaced perform critical steps in the vertically integrated supply chain increases the level of risk. Sourcing outside of the local market in which the goods are to be sold adds considerable transportation and delivery risk. Concentrating supply to a single region, country, or city adds considerable risk and risk (which includes obsolescence, quality, shelf-life, and loss) increases with the number of inventories in the chain.

Resilience can be added to the supply chain design by:

  • using common components and configure to order processes whenever feasible,
  • avoiding sole source arrangements,
  • reserving capacity, implementing maintenance and spares strategies when single sourcing must be used, and allowing for process redundancy,
  • distributing supply among multiple cities, countries, and regions
  • centralizing safety stocks regionally,
  • holding inventory in unprocessed states for flexibility,
  • consistently and regularly measuring and improving forecast accuracy,
  • rationalizing product lines,
  • building rapid re-supply provisions into supplier contracts,
  • collaborating with customers for “early warning” of potential needs,
  • using performance-based contracts with Service Level Agreements, and
  • sourcing locally within your target market to facilitate site visits, minimize cultural differences, and increase manageability.

A focus on business process management can enhance capability through the supply chain. Participants whose processes are controlled and reliable are less likely to induce supply chain disruptions internally than those whose processes are not under control. Operations where statistical process controls and improvement programs, such as Six Sigma, are in place tend to have more predictable processes and introduce less variability when compared to those operations without such controls.

Resilience is the result of business process management that includes

  • using fact-base process improvement and control techniques like Six Sigma,
  • working with partners to build the same process disciplines into their operations (as your supply chain is only as strong as your weakest link),
  • focusing improvements on reducing economic order quantities to increase flexibility, and
  • building the ability for flex capacity.

Enhancing visibility through the supply chain improves your ability to deploy appropriate levels of resources where needed and reduces the risk of internally generated disruptions. Also, the more open the participants are about providing early warnings about (potential) disruptions, the more likely the chain can either avoid them altogether, or at least reduce their effect and duration.

Resilience results from increased visibility when you

  • implement collaborative forecasting, planning, and replenishment,
  • use partner agreements to provide inventory visibility,
  • implement systems that integrate data feeds in (near) real-time, and
  • (contractually) require suppliers to provide immediate and specific notification of (potential) disruptions as soon as any event of significance occurs.

Competency in Supplier Relationship Management is the key to building and maintaining a strong supply chain team. SRM skills enable an organization to reduce supply chain interruption risk by strategically spreading business among multiple suppliers and multiple locations. SRM techniques include good performance measurement processes, collaboration and supplier development, and solid category management programs wherever sole sourcing is required.

With regards to performance measurement, it is important to establish clear expectations, provide timely feedback when performance falls short, and manage consequences. Reward suppliers that succeed and penalize suppliers that fail. Performance is increased when joint efforts with strategic suppliers are undertaken to optimize cost, inventory, processes and flexibility. Manage key categories with a sound understanding of the underlying commodity markets and devise substitution options when you foresee an impending shortage or crisis.

Resilience results from Supplier Relationship Management when you

  • establish supplier performance measurement processes and apply them consistently,
  • invest selectively in strategic supplier development,
  • manage categories for strategic and single-sourced components,
  • use supplier segmentation to guide relationship management, and
  • move toward performance-based contracts that build risk sharing into contract pricing.

Culture is used to refer to the level of trust, delegated decision-making structure, and rapid information movement. In order to build resilience:

  • participants need to share information about demand, inventory positions, capacities, and vulnerabilities,
  • lower levels of the organization need to be empowered to sound alerts regarding problems or potential problems (as the sooner a problem is found, the cheaper it is to fix, and the smaller the duration of the associated disruption), and
  • processes should be in place to enable timely information flow.

In addition to the steps that have been outlined above to improve resilience, there are actions that can, and should, be taken by an organization to prepare for a disruption. These are:

  • Identify potential risks, possible ramifications, and associated likelihoods.
  • Explore risk-reducing measures and decide on actions to mitigate risk, investing more in plans and processes to mitigate high likelihood and high impact risk scenarios.
  • Prepare business continuity plans that address both emergency response and plans for business resumption.
  • Practice drill the continuity plans against different scenarios to uncover and address potential weaknesses before a crisis happens.
  • Work with critical suppliers to make sure they are prepared and have business continuity plans in place.
  • Update plans regularly and as conditions change.
  • Respond to disruptive events as they occur.

In addition, the business continuity plans should include:

  • event impact analysis,
  • organizational roles and responsibilities for crisis management,
  • crisis communication plans,
  • well defined procedures for the evacuation of personnel,
  • consideration for means to provide food, water, shelter, clean air, security, and basic medical, and
  • secure back up of key business data and systems required to run the business and service your customers.

Events that cause supply chain disruptions are inevitable. The impact of these events, however, can be minimized by proactively taking steps to build a resilient supply chain and by preparing for disruption. For an in depth discussion, I refer you to WisdomNet’s white paper “Managing Supply Chain Risk: Building in Resilience and Preparing for Disruption” (registration required).

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

Product Information Management

Product Information Management, or PIM, according to Wikipedia, refers to the providing of product information for use in one or more output media and/or distribution channels, potentially involving multiple geographic locations. It involves ensuring that all of the data in your different systems, and those of the parties you interact with, is synchronous and synonymous. Even though it sounds like an easy problem to solve, just reference a master copy, it is still one of the biggest supply chain challenges. Global Logistics & Supply Chain Strategies on SupplyChainBrain.com magazine recently ran an article entitled “The Long Journey Toward One Version Of The Truth” describing how the inefficiencies in product information management are significant contributors to supply chain inefficiency and that data synchronization, internally and externally, can significantly help companies achieve one version of the truth.

PIM sounds simple enough:

  1. link to third party and legacy applications and import data into a centralized model,
  2. transform data by identifying and resolving duplicates and errors and enrich the data with external info, and
  3. synchronize the data by capturing all updates into the central master and pushing updates to the linked applications,

but when you consider that many organizations have dozen of systems with dozens of data formats and protocols for interfaces, its quite a challenge – especially when your suppliers, customers, and partners use different systems with different data formats and protocols.

I think the future of PIM lies in the exchange – where a third party maintains the master product information on behalf of a supplier and all of the users subscribe to this party to obtain the correct data. However, this does not resolve the integration issue, but I think this issue will eventually go away as on-demand SaaS (Software-as-a-Service) goes mainstream and the True SaaS providers integrate to the exchanges on your behalf.

After all, as reiterated in the article, the benefits are clear and well documented and include increased sales due to faster time to market, improved on-shelf product availability, improved productivity in the maintenance and publication of product masters, fewer errors to reconcile, lower transportation costs as a result of lower error rates, and more tax credits due to the ease in which they can be identified.

Feel free to share your thoughts.

Another Bite Out of the Apple?

Recently, CNN ran an article indicating that the Next generation of iPods could be delayed, and the iPod nano and the video iPod in particular. The new iPod nano, originally expected this quarter, is likely going to be pushed back to December and the new video iPod may not appear until 2007.

The expected delay on the iPod nano is the result of Apple switching suppliers for an internal chip whereas the expected delay in the video iPod is due to the need to increase screen size and improve battery life. On the bright side, the capacity of the iPod nano is expected to double.

Could this result in yet another blow to Apple, which must be taking a bit of a beating since a recent newspaper article alleged that staff in some of its Chinese iPod factors work long hours for low pay and in “slave” conditions, as summarized in this article . After all, Apple sold one million iPod nano’s in the first 17 days of its release, leading an AMR (acquired by Gartner) analyst to determine it had a “predatory supply chain”*, so any delay beyond the start of the holiday shopping season could be a major hit to the bottom line.

You’d think Apple would be more cautious, considering their recent switch to Intel last year caused them some supply chain problems. (As per an article in IT Managers Journal.)  However, what surprises me is that despite the fact they seem to have their distribution down, using the global logistics powerhouse BAX Global which was recently acquired by Deutsche Bahn AG (and integrated with Schenker), they appear to continually have difficulties getting products out on time.

I’d be curious to know what sort of development methodologies they use, and more importantly, when they involve procurement in the process. According to a recent Aberdeen report#, when procurement is included in new product design (NPD) in the design stages, product development cost is typically decreased by 16 to 18%, overall product cost is typically decreased 15%, and revenue is typically increased by 19%. Furthermore, whereas the majority of companies are not able to consistently hit product development targets with respect to percentage of products meeting revenue targets, cost targets, launch date targets, quality targets, or product development cost targets, the majority of best-in-class companies that have incorporated procurement into the process at the design stages hit these targets over 80% of the time.

Moreover, as I indicate in my Purchasing Innovation series over at e-Sourcing Forum, I strongly believe that procurement needs to be involved in R&D and NPD from day one, as procurement should be the major source of innovation within an enterprise.

* Link no longer available.  AMR was acquired and ZDNet, which had a summary article, is no longer operating.

# Link no longer available.  Aberdeen acquired by Harte Hanks in 2006, then Halyard Capital in 2015.