Category Archives: Supply Chain

Supply Chain Management Gets SaaS

A recent headline in Industry Week stated that “On-Demand Supply Chain Management Solutions (are) to Increase as Economic Pressures Accelerate”, so I clicked on the link hoping for a new study that would indicate the further rise of cost-effective SaaS solutions in the SCM space. What I got was an article by Mr. John Sicard of Kinaxis, a vendor who offers Rapid Response Management On-Demand. But even though it wasn’t what I expected, I ploughed on, knowing that it was likely to contain some good tidbits as Randy Littleson, blogmaster of The 21st Century Supply Chain and a VP of Kinaxis, has been publishing some great pieces lately, and I expected that the article would build on them.

With many companies now outsourcing most, if not all, of their manufacturing operations to regions outside their target markets, which dramatically increases supply chain complexity and volatility, the need for supply chain management solutions is greater than ever. Add this to the fact that the precarious global market place is demanding more from corporate performance than ever before while stressing staff and budgets, and we have the ideal situation for SaaS offerings. By consolidating multiple traditional desktop SCM solutions into a single low-cost on-demand offering, companies can rapidly gain tangible benefits without stressing IT or the bank account because SaaS removes many traditional barriers to software adoption by minimizing ownership costs and implementation risks.

SaaS solutions generally deploy faster, cost less, and reduce risk when compared to traditional on-premise enterprise solutions and can be a much easier sell to finance departments willing to pay a small monthly fee for an immediate ROI rather than pay out a large sum for a system whose timeframe for return is uncertain at best — especially when you consider that software licenses, unlike physical equipment assets, tend to have 0 resale value. They can also be more flexible (especially since, if the vendor fails to perform, you can extract your data, terminate your contract, and move to a new provider next month), provide superior security (as they have IT security experts on staff while you don’t), and scale better, and faster, as they were built for the cloud.

Nothing SaaS converts didn’t already know, but it’s good to reiterate it regularly as new SaaS solutions come online every day and just because there wasn’t one that met all of your needs yesterday doesn’t mean that there isn’t one today. Keeping an open mind might allow you to find a great new solution at a cost that is but a fraction of the ROI it will return.

Will We See The Two-Per-Category Theory Where Supply Chain Technology is Concerned?

A recent TPMA (Trade Promotion Marketers Association) Outlook contained an article by Bob Houk (of the TPMtoday blog) that expounded on the two-per-channel theory that refers to the idea that retail channels are consolidating to the point that there will eventually be only two significant players in each channel. The article also discussed the two-per-category corollary that states that as retail channels consolidate, and as shelf-space decreases and increases in cost, the suppliers to the few remaining retailers will also consolidate.

This reminded me of my recent post on why Marketing is Not Optional and how, as a result of too much inaction on the part of too many vendors and a lack of faith by too many buyers, this prolonged recession is likely to accomplish what years of M&A activity couldn’t, namely, condense the market to a small handful of key players for each technology and services offering. And I got to thinking, what happens if the space over consolidates and we see the two-per-category theory take effect in core e-Sourcing and e-Procurement offerings? What would happen then? We already have the situation where the suite solutions offered by the big providers are essentially the same solutions offered five years ago, with a few more “bells and whistles” in the UI that really don’t offer much in the way of value improvements. Would we have any innovation at all? And more importantly, even if we don’t see the two-per-category, but only see a small handful of providers … would they all centralize on a “value system” like SAP or Microsoft? What value would there be if all the savings they offered up had to be pumped into (ridiculously?) high license fees and maintenance fees with “empty-calories“? Good questions. Scary questions!

And questions we’ll have to ask unless the more innovative vendors wake up and small the espresso, double down, show you the value, and find a way to sell it to you with essentially no up-front cost — which is very realistic with a SaaS model where they can give you a free 30 day trial and not bill you until the end of month two, giving you enough time to get your first quick wins, demonstrate value, and justify the low monthly service fee that you’ll pay for the 3, 5, 7, and 10+X ROI that these solutions will deliver.

A Supply Chain Risk Management Checklist from PricewaterhouseCoopers

The Global Supply Chain Council recently published an article on “managing supplier risks in a downturn” that had a good checklist for global companies looking to improve their supply chain risk management. It’s definitely worth an expanded review.

As the author clearly points out, focusing on the processes that drive risk rather than reacting to specific events will allow supply managers to be more proactive. Risk mitigation should be incorporated into the sourcing strategy and qualification along with the traditional Price, Quality, Delivery, and Design Selection Criteria. Regular monitoring, and frequently a second source strategy, is necessary — but this should take a more insightful form than traditional third-party plant audits and quality checks. While quality checks are important, they are not a means to manage risk — they occur too late (in the process).

Select the Right Suppliers

  • Do Your Due Diligence
    Be sure the supplier is financially sound and operationally equipped to meet your needs.
  • Validate The Data You’re Basing Your Decision On
    Don’t rely on third party data sources if the supplier is going to be providing a critical part of service — validate the data on your own.
  • Understand Their Customer Portfolio
    Who else do they serve? How likely are they to understand your needs? How important will you be? If you would compose a significant percentage of their business, that could specify financial trouble. If your business would be a rounding error, it would be unrealistic to expect great customer service and first fulfillment if supply is limited.
  • Understand Their Supplier Management Process
    It’s not enough that they comply with your supplier management processes … if they don’t have any of their own, you have no way of knowing whether or not their suppliers are cost efficient, reliable, and socially responsible.

Improve Supplier Monitoring and Measurements

  • Utilize a Robust Risk-Based Monitoring Framework
    Make sure the framework, or scorecard, addresses regular reporting, financial and operational data collection, relevant information, and on-site reviews.
  • Analyze Risk Data Regularly
    A well designed monitoring framework / scorecard is one of your best early warning systems for a potential problem.
  • Focus on Suppliers Near the Limits
    Don’t just focus on suppliers outside the bounds of your risk tolerances … focus on those near the limits as well. This could represent an emerging problem or a malicious attempt to manipulate the system (with slightly skewed false data) to hide a serious problem.

Develop Supplier Development and Contingency Plans

  • Identify Suppliers Who Need Development
    Your efforts should be focused on critical suppliers who most need it.
  • Perform On-Site Reviews
    Self reporting is not sufficient. Do your suppliers understand the framework and metrics? Are they being completely honest with themselves, and with you? Do they even understand how well they could, and should, be doing?
  • Develop Performance Initiatives
    Tailor them to the specific needs of the supplier, as determined by your on-site reviews.
  • Provide the Appropriate Support
    They will need to be helped and guided through the process.
  • Identify Alternative Supply Sources
    Just in case.

Develop a Supplier Exit Strategy

  • Assemble a Cross-Functional Team
    This team will help you identify what the requirements are for a successful supplier.
  • Analyze Supply Alternatives
    Do a market assessment and identify likely candidates.
  • Determine the Appropriate Course of Action
    Stick with the supplier? Or move on?
  • Execute!
    Move on? Use your intelligence to put together the right RFX and begin the supplier selection process anew.

What Comes After Just-in-Time? (Inventory Management)

The World Trade Magazine recently published a very good article that noted that the new premiums placed on cost control, speed-to-market, and credit as a result of the global economic crises are in direct opposition to the need for inventory buffers when sourcing globally … creating a dichotomy between the goals of minimizing inventory (the goal of Just-in-Time) and maximizing supply chain resiliency (through reduced risk). As a result, it noted that change, a constant in the supply chain, is coming and that we probably need to be asking “What Comes After Just-in-Time?”

So it gathered a panel of eight practitioners and asked the question. Most of the responses, as one might expect, centered around risk management, finance management, and better visibility. Only one pointed out that, in the purest sense, there’s nothing better than just-in-time — because in an optimal scenario, if you need a widget for manufacturing, you’re never waiting for the widget, but it also never sits in inventory. It arrives just-in-time. There’s nothing beyond just-in-time, it’s the perfect supply chain model in theory … the problem is that it’s original implementation didn’t account for all of the risks that have materialized in today’s global supply chains since it’s initial definition and implementation in a market where supply was local, reliability of delivery was more predictable, and financing was easier to obtain.

The model just needs to be extended to take into account the risks and incorporate the appropriate responses to changes in the global market. And this, as a third contributor pointed out, requires more real-time information and visibility into your supply chain. Just plug the holes and deal with the risks, and you’ll find the model will work as well as it always has.

How Internal Pressures Cause Supply Chain Fraud

The recent Katzscan newsletter had a good article on how internal pressures cause fraud. Noting that the failure of executive management to properly staff for key positions, train employees, enable employees to ask for (and receive!) help when they really do need it, and the creation unattainable benchmarks all contribute to pressures that can force an otherwise honest employee to commit fraud, it concludes that powerless to ask for help, because it is seen as a sign of weakness and could jeopardize their job, too many people are left to toil and are forced to commit fraud to satisfy outlandish demands out of fear of reprisal.

Well said. There’s pushing your employees to be their best and setting stretch goals … and then there’s just being unrealistically stupid. A 10% savings on raw material heavy categories where the market price of those raw materials has increased 30% since the last contract? Inspect 10% of inbound raw materials when the average is 7% and you won’t replace the two staff members who just left? Faster clearance at the ports when you won’t spring for the costs associated with C-TPAT certification? Dream on. Your employees have two choices: tell the truth and risk termination, or lie. And it only gets worse from there.

So think about what you’re doing the next time you ask for the unreasonable. Otherwise, you might unwittingly join Fox in Sox with Knox in stripes.