Category Archives: Supply Chain

Manufacturing Supply Chain Challenges and Opportunities

The increased complexity of today’s supply chain brings with it a host of challenges for manufacturers. These include:

  • brand identify protection
    major brands are a bad press — and litigation — magnet if anything goes wrong
  • recall efficiency
    if a health-risk is found, it can be a challenge to recall the product in time
  • counterfeit prevention
    the EU seized six million counterfeit personal care products and one point two million food and beverage products at the border last year and the problems in pharmaceuticals are even worse
  • supply chain disruption bypass
    when a natural disaster, energy crisis, or a political situation arises, a company needs to quickly divert its supply chain around the situation to avoid disruption

However, as pointed out in a recent Industry Week article, “manufacturers are seizing opportunities across the supply chain” by tackling these challenges head-on. Companies that recognize the complexity of the modern supply chain and adopt serialization solutions that enable greater visibility, increased agility, and improved efficiency see the following opportunities:

  • improved responsiveness
    a company with an agile supply chain can quickly respond to changing demand patterns and maintain near-optimal inventory levels
  • consumer demand capitalization
    a company with downstream visibility can gain insights into consumer demand and produce the products customers want before its competition and gain a greater market share
  • SLA enforcement
    traditionally, outsourcing led to reduced visibility … but modern visibility and serialization solutions help manufacturers insure that the third party they outsource to lives up to their performance obligations

The Death of the (Linear) Supply Chain

Globalization, outsourcing, and technology are pervasive and dramatically transforming the traditional notion of a supply chain from a traditional linear model to a highly dynamic demand-supply network. As a result, visibility is greatly diminished in your average supply chain. And, as this recent Industry Week article on “The Death of the Supply Chain” points out, that’s a problem.

Loss of visibility results in, among other things,

  • a loss of insight into inventory,
  • a loss of insight into product location,
  • a loss of insight into quality,
  • a loss of insight into regulatory compliance,
  • a loss of insight into trade opportunities,and
  • a loss of insight into unexpected delays.

However, visibility, which requires real-time information across a complex global network of suppliers, contract manufacturers, distributors, retailers, 3PLs, brokers, and even customers, is not as easily obtained as it once was. Traditional on-premise SCM solutions and ERP systems were built for the linear supply chain and, for the most part, are not up to the task of managing a modern supply network.

But all is not lost — many of the new on-demand B2B 3.0 SaaS solutions were built to support complex many-to-many networks and to (easily) plug into to your existing platform. Seek them out and you shall profit. However, as the article points out, to maximize your investment, make sure they support:

  1. B2B 3.0 Integration
  2. Business Process Management and Workflow
  3. Exception and Event Management
  4. Business Intelligence
  5. Your Operations

Winning Support from the CFO for Your Supply Chain Project

You can win over the CPO, the CIO, the COO and even the CEO, but if you don’t win over the CFO, chances are your project, even if it has an expected 10x ROI, won’t go anywhere if the CFO won’t cut the check. You need the support of the CFO, and fortunately for you, it’s not as hard to get as you think it might be if you do your job and demonstrate how the project helps the CFO do his.

Remembering that it is the CFO’s job to not only control cash-flow and monitor the financial health of the company, but to serve the shareholders, you should have no problem winning over the CFO over if you can clearly demonstrate that your project will improve the financial health of the company AND serve the needs of the shareholders in a reasonable time-frame.

But how do you do this? As I described in The Quest for Purchasing Fire on the e-Sourcing Wiki, you clearly define the value proposition, build the business case, create a great presentation, and, most importantly, address the concerns of the CFO.

What are the concerns of the CFO that you can address? As outlined in a recent article in i2’s Supply Chain Leader on “linking the CFO to Supply Chain Execution”, your well thought-out supply chain project should reduce the company’s cash-to-cash cycle times, reduce the company’s risk profile, support profitable growth, and deliver predictable revenue … big concerns of every CFO in today’s economy.

  • Reducing cash-to-cash cycle times
    If you increase your perfect order rate, you’ll optimize cash collection and shorten cash-to-cash cycle times. A number of projects will increase perfect-order rates. They include:

    • e-Procurement
    • Transportation Management Systems (TMS) and Warehouse Management Systems (LMS)
    • Just-In-Time (JIT) and Vendor Managed Inventory (VMI) initiatives
  • Reducing the company’s risk profile
    If your project addresses supply risk, currency risk, or total landed cost risk, it will reduce your company’s risk profile, and total cost.

    • Better inventory management will reduce supply risk and decrease costs as less shipments will need to be expedited
    • Negotiating contracts in relatively stable currencies, like the Euro, or your home country currency can reduce currency risk.
    • Implementing a global trade management system to help you insure compliance reduces the risks of customs delays, fines, and seizures.
  • Achieving profitable growth
    If you can calculate the top-line and bottom-line returns of your project, you can win the CFO over more quickly.

    • E-procurement systems will instantly eliminate high manual invoice processing costs, which are between $30 and $90 in an average organization
    • e-Sourcing platforms with decision optimization will cut at least 10% off your total spend, and keep it off
    • indexed contracts will insure that your price increases never rise more than raw material costs and, more importantly, insure that you see price decreases when commodity indexes drop
  • Deliver predictable revenue
    A project that you can repeat month after month, such as the application of e-Sourcing to category after category, or spend-analysis on different areas of the business which looks at the data in different ways, can deliver long-term predictable revenue streams. If you identify projects that keep on giving, your CFO will be very happy.

Supply Chain Performance Improvement For the Beginner

Industry Week recently ran an article on “supply chain performance improvement for the rest of us” that is a good read for any organization just starting down the supply chain improvement path. The article outlined four strategies which can be used to jump-start a performance improvement initiative in an organization that is not best-in-class, or, in layman’s terms, your average organization. (Less than 20% of organizations are truly best-in-class, and the reality of supply chain improvement is that you need to do it in stages and trying to bite off too much too fast will just lead to failure.)

  1. Stop Obsessing Over Six Sigma
    It’s not the methodology, but where you apply it and how you use it to better your operations. It’s about leveraging the chosen process life-cycle improvements to focus on customer-visible process improvements, not about the processes themselves. Eventually you’ll want to optimize every process to the nth degree, but not when you’re starting out. An 80% improvement across the board is much better than a 98% improvement on one process that only affects 10% of production. After all, would you rather be 1.8 times as productive as a whole or 1.198 times as productive?
  2. Forget About “The Perfect Order”
    The “Perfect Order” is Supply Chain Nirvana, and every budding Buddhist knows that this is a lifelong journey. You need to start by improving your basic processes, which will minimize errors, and managing the mistakes (or order exceptions) better when they do happen. Install visibility systems that allow you to identify and deal with exceptions as soon as possible and the process improvements this will inevitably lead to will result in a significant drop in errors almost overnight.
  3. Pay Your Suppliers Better
    This will save your company money. Not only will it strengthen vendor relations, which could lead to happy suppliers willing to share insights and best practices and go the extra mile, but it will reduce the amount of capital the supplier has to borrow, which usually comes at a high cost. This reduces the supplier’s cost of capital, which reduces the supplier’s overhead, which decreases the mark-up the supplier has to charge, which enables the supplier to offer early payment discounts or charge you less (at renewal time).
  4. Don’t Talk to Customers
    Stop wasting time haggling over credit and other meaningless disputes. Automate the dispute resolution process and spend time listening to your customers’ product and service interests and business process priorities instead. That way you can find out what your customers really want and improve your offerings accordingly.

A Very Simple Definition of Risk

Not only is risk everywhere on the map, so are the types of risk and associated definitions thereof. Risk: a concept that denotes the precise probability of specific eventualities (Wikipedia). Financial Risk: probability of loss in the methods used in financing a firm (Business Dictionary). Supply Chain Risk: the damage — assessed by probability of occurence — that is caused by an event within the company, within its supply chain, or its environment affecting the business processes of more than one company in the supply chain negatively (Kersten).

Fortunately, there’s a very simply actionable definition of risk that everyone can understand:

If you’re counting on it, it’s a risk.

This covers every type of risk you can think of.

    • Production Risks
      Machine Breakdowns: check.
      You’re counting on the machine to work.
      Supply Shortages: check.
      You’re counting on parts and raw materials to be available when you need them.
      Talent: check.
      You’re counting on having the operators you need, with the right skill sets and experience, when you need them.
    • Communication Risks
      Network Outages: check.
      When you pick up the phone, you expect a dial-tone. When you send an e-mail, you expect it to leave your server.
      Broken Channels: check.
      When you issue an order, you expect it to be relayed.
    • Business Model Risks
      Disruptive Technology: check.
      You expect that your product will continue to be in demand and viable in the marketplace.
      Disruptive Business Model: check.
      You expect that your pricing model is valid, and that you’ll be able to sell your products at a profit against competitors in the same ballpark.
    • Environmental Risks
      Natural Disasters: check.
      You expect that an earthquake won’t level your plant tomorrow.

Resource Shortages: check.
You expect the water and electricity to keep flowing.

  • Political Risks
    Trade Barriers: check.
    You expect that you can keep importing from your suppliers and keep exporting to your customers.
    Civil Unrest: check.
    You expect that your plants won’t be blockaded and that they won’t be attacked by a terrorist organization.
  • Economic Risks
    Currency Fluctuations: check.
    You expect the currency exchange rate will stay within your predicted window.
    Commodity Market Instability: check.
    You expect prices won’t yo-yo out of control over your contract period or that your current strategy will be able to deal with yo-yo pricing.
  • Internal Compliance Risks
    Maverick Spending: check.
    You expect your employees will buy off contracts using approved methodologies and that expected savings will be realized.
    Contract Adherence: check.
    You expect your employees will live up to supplier, customer, and partner commitments and SLAs.
  • External Compliance Risks
    Trade Documentation: check.
    You expect that your partners will produce all of the necessary import and export documentation, and deliver it on time, to all of the appropriate customs and government agencies.
    Regulatory Requirements: check.
    You expect that your production facilities are complying with the RoHS, WEEE, and REACH directives.
  • etc.

This is also why it’s actionable. To identify risk using this definition, all you have to do is review every business activity and outline what you’re depending on AND assuming, and you have your list of risks. Then, you can prioritize the risks and begin working on the definition of your risk management plan.