Category Archives: Supply Chain

Why Finance Needs to Work With Supply Management

A recent survey by KPMG that was highlighted in a Supply & Demand Chain Executive article on how “finance executives [are] at odds with dated, ineffective technology” made it abundantly clear why finance needs to work with Supply Management. The global study found that the number one weakness in finance processes, as reported by almost one-third of respondents, was planning, budgeting, and forecasting.

It’s hard to plan without a budget, and its hard to budget without a forecast. To get a forecast, Finance could work with Marketing, but that’s not meaningful from a Finance perspective. What’s meaningful is how many units are actually bought and used / sold. And how much is actually paid. Who does the buying? Supply Management. And who is most likely to have a price locked in, or at least reasonably estimated? Supply Management. If Finance works with Supply Management, they can get meaningful acquisition/production forecasts (distilled from input from Marketing and Manufacturing), generate meaningful sales forecasts (using historical fill rates), calculate a realistic budget (once target sale prices are factored into account), and then construct an actionable plan. But if Finance doesn’t work with Supply Management, then everything is a crap-shoot estimate based on unrealistic interpolation curves.

Is Supply Management the Economic Cure Everyone is Looking For?

In a recent article over on the ISM site that asks “[if] your supply chain [is] ready for stagflation”, the authors state that the current economic outlook for the long-term is stagflation, which they also state is practically unavoidable because the drivers are difficult to reverse. However, they also state that it may be shortened if the right actions are taken.

What are the right actions? According to the authors, the period of stagflation may be shortened if investments are geared toward revamping and improving supply chains, a task which falls under the purview of Supply Management. Why will this help?

Consider the situation, as summarized by the authors:

  • we’re in a recession that is the deepest since WWII,
  • the NIA thinks we are headed toward hyperinflation, but the US Federal Reserve believes otherwise; regardless
  • a long recession builds pent-up demand for consumer goods, at a time when
  • interest rates are at a historical low,
  • unemployment is still high, and
  • the Federal Reserve Bank has pumped significant capital into the economy.
  • Historically, increased consumer spending pulls the economy out of recession, but
  • consumer confidence, and spending, usually improves with expectations of (near) future improvements in the economy. When this occurs
  • if companies cannot meet demand, we’ll see “demand-pull” inflation and
  • if inflation occurs, the Federal Reserve will likely increase interest rates.
  • Right now, inventories are too low and
  • manufacturing is experiencing significant cost pressures. Thus,
  • the outlook is low profitability for manufacturers and
  • low profitability and inflation will result in slow, or no, economic growth — stagflation!

Now consider what will happen if Supply Management is allowed to invest considerable dollars in revamping supply chains.

  • Increased efficiency and optimally balanced inventories will prevent the “demand-pull” inflation that is predicted to occur and
  • as a result, interest rates will likely stay reasonable.
  • Cost pressures will decrease as a result of re-balancing of production to minimize logistics costs, increase efficiency, and use more affordable materials which will result in
  • profitability for manufacturers increasing.
  • A resurgence of corporate faith in the economy will lead to more hiring,
  • which will renew consumer confidence, and since they will have more dollars to spend as a result of decreased unemployment levels,
  • spending will increase, releasing the pent-up demand for consumer goods, and then the
  • economy will rebound.

No stagflation. I think the authors of the piece over on the ISM site that asks “[if] your supply chain [is] ready for stagflation” are brilliant. Because, with a careful analysis, it really does look like better Supply Management, with investments in supply chain improvements across the board (which result in more job creation immediately), can pull the economy out of the funk it is in.

Mulally’s Turnaround Strategies Are Good Fodder for Supply Management

A recent article in Industry Week on “management lessons you can learn from Alan Mulally” presented six pieces of advice that should be taken to heart by any Supply Management organization looking to turnaround its operations and take its performance to the next level. Simply put, they are:

  • One Vision
    Just like Mullally created a “One Ford” plan, which charted a course for product development, manufacturing strategy, and financial rehabilitation, your Supply Management organization needs to help the business construct its own “One Company” vision that defines what products and services its going to focus on, the manufacturing strategies it is going to employ, and the market goals. Then Supply Management needs to create the “Single Supply Management Operation” plan that describes how Supply Management is going to operate to support the “One Company” vision.
  • Act with Urgency
    Why put off until tomorrow what can be done today? That being said, there is a difference between acting with urgency and rushing things out the door. Never put anything off, but take the time that is needed to get it right.
  • Develop the Guiding Coalition
    Be sure to involved all of the affected stakeholders, internal and external. This will significantly increase buy-in and support for Supply Management.
  • Communicate the Vision
    Everyone inside and outside of Supply Management needs to be on the same page. Savings only materialize if contracts are adhered to, best practices only provide value if followed, and efficiency is only obtained when operations are in sync.
  • Generate Short Term Wins
    Go for the low-hanging fruit, get some success stories, and then communicate them up the wazoo.
  • Make Change Stick
    Instill a disciplined sourcing review process and make sure it is followed at all times. Support will be easier to obtain after the organization sees some short-term wins.

In addition, it will help if you are a charismatic, creative, and decisive collaborator. You need to work with your stakeholders, but when an impasse is reached, you have to clear the way.

Will Procurement Heads Also Be Responsible for Facilities and CSR?

A recent article over on the CPO Agenda on how the CPO is “an agent for change” pointed out that, at many organizations, the CPO is getting a broader realm of responsibility as she has to be well versed in change management to succeed at her job. In particular, many CPOs are now being tasked with logistics, risk, revenue, demand management, IT, sales support, property, CSR (Corporate Social Responsibility), and/or FM (Facilities Management) — with CSR and facilities becoming increasingly common.

The article highlighted three individuals in particular who were also responsibile for property and/or Procurement — Kath Harmeston, CPO of Royal Mail; Steve Jones, Director of Procurement and Property at Biffa Waste Services; and Patrick Dunne, Director of Procurement and Property at Alliance Boots — and how their role is not only cross-functional, but logical. Property and Facilities Management require great Procurement skills to keep costs down and value up, and combining the functions results in synergies that reduces internal management costs across the board. Plus, CPOs who are responsible for multiple functions get a much broader view of the business and the experience they gain gathers them a lot of respect in the C-Suite. As Kath Harmeston noted:

I was accepted as a budget-holder, a stakeholder and CPO at the same time. I was seen as quite a different animal — one that could see both sides, played a fair game and stood for accountability, traceability, auditability and transparency.

Similarly, CSR fits well with Procurement. Both Siemens and Clarks, where Barbara Kux is the head of Supply Chain Management and Chief Sustainability Officer and Matt Turner is the CPO and CSR officer, respectively, have combined the functions. It makes logical sense since Procurement directly dictates how sustainable the company is with what it buys and determines how sustainable the company’s suppliers are.

Reading the article, it appears only logical that, as more
companies figure out that the head of Procurement is the perfect candidate to lead these functions, more and more CPOs are going to be tasked with property, facilities, and sustainability as time goes on. What do you think?

Apprenticeship is the Answer

Back in March when I asked if we can fix supply chain education because academic programs, third-party programs, private programs, and vendor programs are, for the most part, not meeting our needs, I pointed out that the answer was to go back in time to when apprenticeshipos were common. When students studied on the job under the guidance of a master who prepared them for the job they had to do, not to advance an understanding of purely intellectual pursuits devoid of a real world application.

While I didn’t get much of a public reaction, I did get some very positive feedback from some old-school folks who have tried everything and realized that work-alongside training is the best answer. But a few old coots, as brilliant as they may be, do not deliver enough critical mass to get the idea out there. However, it seems that India is proving my point. As per this recent article over on Global Services that asks if “everything we know about offshoring innovation is wrong”, not only does an appropriately designed test prove to be a better indication of ability than a University degree, but intensive on-the-job training under a skilled expert tends to produce a better worker in months than is typically produced by years of higher education.

In other words, apprenticeships are the answer.