Category Archives: Sustainability

Cut Inventory, Not Headcount for Sustainable Cost Reduction

As noted in a recent Industry Week article which made the astute observation that you should “layoff your inventory, not your employees”, inventory carrying costs can easily range from 15% to 25% of total inventory value on an annual basis (and at low performers, it can get as high as 35%). On a million dollars of inventory, that’s a $150,000 to $350,000 expense which could potentially wipe out your entire profit margin. For an average organization, that’s 2 to 6 employees whose jobs could be saved through better supply chain execution.

A great way to achieve this savings is to acquire modern demand planning and inventory optimization software that will help you improve your forecasts, trim your inventory, and your associated costs. The less inventory you have, the less you have to store. The less time it is in a warehouse, the lower your overhead costs. And having it when you need it prevents the extra transportation costs associated with expediting.

But most importantly, you don’t have to be a large organization to take advantage of today’s affordable on-demand inventory management solutions. Chances are a small organization with only a million dollars of inventory will see a decent return on a basic SaaS inventory management solution.

Profiting from Environmental Regulation

A recent article in Industry Week on “the regulation opportunity” noted that companies with an environmental vision and plan can mitigate increasing environmental regulation and actually profit by improving:

  • Revenue
    Companies perceived as green by consumers have increased customer loyalty and attract higher rates of sale.
  • Cost Structure
    Companies that place importance on environmental compliance are generally better run and costs are more fully understood. Having an environmental strategy helps to trim the fat, reduce waste, and improve the overall operating cost structure.
  • Public Relations
    These days, many consumers will actively punish companies that they feel are environmentally irresponsible.
  • Government Relations
    You’ll garner regulatory “good-will” and be considered a key stakeholder who can help shape future regulations.
  • Employee Relations
    Gen-Y job seekers actively look for environmentally friendly organizations and actively shun those that aren’t. You’ve been warned!

Furthermore, you don’t need to wait for regulations to put a halt to current operating practices, you can improve them now and reap the rewards.

Cutting the Right Costs with Technology

A recent article in Industry Week, which advocated that you “cut the fat, not the limb”, reminded us that there are a number of strategic projects, based on appropriate supply chain technology, that can provide a far greater internal rate of return than merely slashing costs. After all, companies that layoff employees, consolidate suppliers, reduce product offerings, and halt key projects may inadvertently get rid of the very things that made them successful in the first place!

As Jim Thompson pointed out, in his Supply Chain Brain article, cut, cut, cut is NOT a cost reduction strategy. The only real strategy for cost reduction is the strategic reduction of fat in capital and operating costs … which is easily exposed by technology designed to root out inefficient and redundant processes. Now, more than ever, managers need to look at innovative and aggressive technology projects that will provide increases in operational efficiency.

And, as per the Industry Week article, three great places to start are:

  • Excess Inventory
    Synchronizing actual inventory to recorded inventory provides the data necessary for sound purchasing decisions based on good forecasts.
  • Manual Processes
    Unnecessary manual processes lead to errors and wasted time. Error-handling, re-processing, and lost productivity costs add up, especially if these costs can be affordably eliminated.
  • Supply Chain Weak Links
    Vendor Managed Inventory and longer-term collaborations offer opportunities for both parties.

And when you’ve mastered these, you can move on to the ideas chronicled in Dead Company VII: Even More Ways to Avoid the Graveyard.

Addressing Climate Change Requires a Revolution in Business Thinking

A recent article in Strategy + Business discussed the next industrial imperative and the costs of climate change industrialization, which are enormous. According to a 2007 Oxfam International study, the financial impact of climate change on poor nations through drought, crop damage, water shortages, species extinction, and disease already exceeds US $50 Billion annually, and the costs continue to rise as developing countries, like China (that just exceeded US CO2 emission levels), continue to increase their carbon output. Closer to home, insurance premiums are rising rapidly for areas that are (potentially) the hardest hit by climate change. They’ve gone up as much as 20% in coastal Massachusetts, 40% in Florida, and 400% for some offshore oil rigs. The costs now make self-insurance economical for many businesses and home-owners in high-risk areas.

The article points out that we cannot meet the 80-20 challenge under the current industrial system and that success will require a “sea change” in the prevailing kinds of energy we use, cars we drive, buildings we design to live and work in, cites we plan, and ways we travel the world. Although it does not require a return to a pre-industrial way of life, it does require a movement away from the “borrowed energy” society we built during the industrial age to one that lives within the “energy income” granted to us in the form of solar, wind, tidal, and plant-based energy that comes from renewable sources. (Nature produces no waste and every by-product of one natural system is a nutrient for another.)

When you think about it, living within our “energy income” shouldn’t be a problem since the sun emits more energy in one minute than we use in a year (and a single point on the earths surface currently creates enough tidal energy to power the globe), but, as the article points out, it will require new, basic, innovations of a scale and speed never seen before. And the shift must come from businesses that can apply their skills in management, entrepreneurship, and economic acumen to galvanize a collective shift. We all need to be more like Sweden, which depends on oil for only 30% of its energy, down from 77% in 1970, and which recently announced its goal to be the first oil-free economy.

And considering that there are Billions to be saved, and made, it’s a worthwhile effort. DuPont alone has saved $3 Billion in its sustainability efforts. General Mills now earns more money selling its oat hulls (a Cheerios by-product) than it used to spend to dispose of them. And the market for green buildings is expected to reach $38 Billion in 2010.

And we’re only at the tip of the iceberg. It’s going to take a massive shift in business to achieve the 80% reduction goal in 20 years, and a massive amount of innovation, and whoever steps up to the plate with innovative new solutions first is going to reap massive rewards. Just ask GE, whose orders for low-emission air-craft engines and locomotives, wind-power turbines, and new classes of energy-efficient equipment based on its Ecomagination technologies surpassed $70 Billion in the first quarter of 2008.

Cross Blog Challenge: (Supply Chain) Anti-Trends for 2009

A week and a half ago I alerted you to Vince Kellen’s Technology Duds for 2009 which highlighted five “anti-trends” for 2009 that stand out as a brilliant counterpoint to the rose-colored predictions of the laissez-fair wannabe analysts that tend to dominate the technology landscape.

After writing the post I started thinking about how great it would be if there were more voices like Vince’s that spoke the truth and opened our eyes to reality and not marketing fantasy. Thus, I have decided to make anti-trends the focus of the next Sourcing Innovation Cross-Blog series, which I will kick-off with this post.

My first two and a half trends echo Vince Kellen’s. My last two and a half diverge into the space.

1. Social Networking Will Unravel
As Kellen says, “at the risk of offending Web 2.0 enthusiasts, most firms, especially those hardest hit in this recession, consider social networking speculative and in some cases frivolous. And as I said in my last post, there’s a reason why “facebooked” has become an urban slang slam, “myspaced” has become a synonym for a late-night booty call, and why the blogger elite (including the doctor and Loren Feldman of 1938 Media) slam Twitter on a regular basis (as the only thing you can do with it is say nothing in only 140 characters). There’s no real value in these technologies, and no commercial value to a productive business. Businesses will drop these efforts to focus on projects with value.

2. Web 2.0 will soon be Web 2.Done
Similarly, mash-ups, fancy portals, and other web 2.0 projects are going to be axed because speculative ROIs or projects not directly assisting with significant savings are going to be difficult for IT leaders to advance. While mashups can be a useful component of B2B 3.0 platforms if they focus on enhancing content, community, and connectivity, on their own they are just useless eye-candy.

3. Traditional “Spend Analysis” will Lose Luster
Although a sound spend analytics package (you know the one) in the hands of a true expert (you know who they are) will find you limitless savings opportunities, the reality is that most of the offerings on the market are just static data warehouses with static reports in the hands of recent grads with little real-world experience and almost no training. As a result, as early adopters come to the end of their maintenance agreements, which came with six figure (plus) maintenance fees, you’ll see a lot of movement towards modern low-cost B2B 3.0 data analysis packages or spend analysis as-a service offerings.

4. Home Country Sourcing finally comes back in vogue
Regular readers will know that I’ve been pushing not just for best-cost, but home-cost country sourcing for a while now. Giving the skyrocketing transportation costs from mid 2007 to mid 2008, the repeated product safety scandals with imported products, the current recessionary environment, the low dollar, and fears of protectionism with the new US administration, more companies will finally start looking for strategic sourcing opportunities close to home — which will also come with more predictable costs, and savings, over the long term.

5. Sustainable green catches on, despite the recessionary environment
Although green initiatives that cost more than they return will be scrapped faster than unburied copper cable, as my fellow bloggers on Supply Excellence and 2 Sustain are pointing out, more and more companies will be looking at sustainable initiatives to save them money, and those green initiatives that save money as well as improve the corporate social responsibility image will catch on.

Now it’s time for my fellow bloggers to join in with their anti-trends in and help you understand where supply and spend management is headed.