Category Archives: Technology

Algorhythm: Still Pounding Out the Optimization Rhythm on the Tabla (Part I)

Since I last covered Algorhythm and their supply chain optimization rhythm, they’ve been pounding out a steady beat and extending the breadth and power of their unique supply chain optimization platform. Not only do they have extensive optimization capabilities in production planning, network planning, and logistics planning — with specialized solutions for oil, steel, and packaging, but they now have a best of breed multi-echelon inventory optimization capabilities and a best of breed distribution network design optimization platform that can take multi-echelon inventory requirements into account and allow you to optimize your distribution network around your detailed inventory requirements, which can be specified at daily demand levels if you desire. This is a very powerful capability that sets their platform apart from the other solutions on the market, as most of the other supply chain optimization platforms focus on inventory, or network design, but not both simultaneously.

To understand just how powerful their new solution is, we have to start by discussing how hard it is just to optimize inventory. There’s a lot more to inventory than just the carrying cost that is recorded on the books. There’s the cost of replenishment, the cost of a stock-out, and the cost of missed service levels, for starters. If your planning is poor and you’re always having to rush inventory, or if you’re not maximizing truckload volume, you’re spending a lot more on inventory replenishment than you should be. If a stock-out results in lost sales, that’s missed revenue opportunities which go straight to the bottom line. And if you keep missing your service level targets, your customers might just find a new source of supply at contract renewal time. (And on the flip side, if you are constantly carrying too much inventory to make sure you don’t miss service levels, your carrying costs will go through the roof.)

To optimize inventory, you have to take into account the many layers of your distribution network: factories, (first tier) national warehouses, (second tier) regional / provincial warehouses, and (third tier) local warehouses; storage space at each location; valid flows from one tier to another, as well as valid flows between nearby warehouses at the same tier; transportation options available; stores or end-use facilities that require the SKUs; the individual SKU demand patterns (and [expected] forecast accuracies); lead times (and variabilities); service levels; and costs associated with storage, transportation, and stock-outs at various inventory levels. (Transportation costs in particular will vary.)

This is because you don’t need the same service level at every node in the network to achieve that service level at an end customer location, especially if a customer location can be serviced by multiple distribution centres. For example, if an end customer location can be serviced by three different distribution centres, you can achieve a 98% service level (defined in terms of SKU availability) as long as each individual distribution centre has a 75% service level (as the chance of all three distribution centres being simultaneously out of stock and unable to service the customer location is 0.25 * 0.25 * 0.25 or 1.5625%). Furthermore, as the lead time from each DC to each customer location will vary depending upon distance, transportation options, and local routes, and so on, the inventory levels at each DC can vary and still allow you to meet your target service levels, which can in fact vary by location (as you’ll want a higher service level at a high-profit location than you will at a low-profit location as service levels drive inventory which drive costs). In fact, the deeper you dive into inventory, the more complex the cost equation becomes and you see that you really do need to take into account all of the elements supported in the Algorhythm Xtra Sensory Inventory Optimizer, inventrhythm, if you truly want to optimize your inventory costs.

But this is just the beginning. Since your distribution network design will ultimately dictate your inventory costs, to truly optimize your inventory costs, you have to simultaneously optimize your network (to the extent that you are able). Algorhythm’s platform can do this, and we’ll discuss what’s involved in Part II.

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Sourcing Innovation Welcomes EC Sourcing Group as New Lead Sponsor

Sourcing Innovation is pleased to welcome EC Sourcing Group, a leading provider of Sourcing, Vendor Management, and Document Management solutions for the Mid-Market. Established back in 2001, EC Sourcing Group has spent the last nine years quietly building out a very respectable sourcing and spend management suite as they amassed a large, global, customer base (of almost 100 customers, a number they are on track to pass before 2010 is up). Formed by strategic sourcing professionals with decades of experience running projects in the CPG and Retail space, EC Sourcing Group is also able to offer strategic sourcing services where they bring their wealth of sourcing experience to bear.

As per my post earlier this month on how EC Sourcing Makes Sourcing Easy and Affordable, EC Sourcing Group offers a full e-Negotiation suite with RFX, Auctions, Project Management, Document and Contract Management, and a brand new Corrective Action Reporting Module, which is pretty snazzy. Plus, they are in the process of internationalizing and simplifying the platform that is already used by a number of multi-national clients. The platform currently supports (four) 4 European languages, will support at least six (6) by the end of 2nd quarter, and will also support at least two (2) Asian languages by the end of the year, including Mandarin. To make their SaaS offering even easier to use, they’re currently adding a new quick-access layer to the existing UI that will allow more advanced users to do basic tasks even quicker and easier than before. Finally, as the founders come from a strategic sourcing background (as sourcing managers in retail and CPG), EC Sourcing Group also offers sourcing and spend analysis services, and maintains a network of consulting partners who they can refer to you if you encounter a scenario that requires specialist sourcing expertise.

In my last post, I walked you though the basic e-Negotiation platform. Today, I’m going to describe their new Corrective Action Module that can be used by all affected parties to track, report on, and resolve issues that can arise in the delivery of goods and services. The importance of being able to identify, track, report on, and correct issues quickly, which is often overlooked by sourcing groups who have not yet graduated to best-in-class status, cannot be underestimated. Savings identified during the sourcing process are only potential until they are realized — they are not realized until they are captured. These savings are not captured until the supplier delivers at the service level committed to and the buying organization pays at the price committed to. And while an EIPP/P2P system that makes sure invoices are paid at contracted rates and that maverick spending (that erode rebates) is stopped dead in it’s track is a good start, as it can be configured to make sure you don’t overpay, if the supplier continually delivers bad shipments, these “savings” will soon be eaten up by the cost of dealing with repeat problems.

With EC’s solution, anyone can report an incident as soon as it’s discovered and start the tracking and resolution process right away — the buyer, the receiver at the warehouse, the engineer who discovers the components are all faulty, etc. And once the incident is created, it’s added to the repository where it gets compared against alerts, repeat occurrence triggers, and running reports. The right person will be immediately notified when a priority shipment is botched, if the supplier has been late 3 times in the last 3 months, or if the number of incidents this year has entered the double digits — or if anything else of interest happens. The alerts, triggers, and reports are all 100% user customizable and can be defined by supplier, location, reason (customizeable 3-level reason codes), product or service, item number, time-frame, key-words, status, and other custom fields defined on your custom corrective action report templates.

The template-based solution allows each organization to create it’s own corrective action report templates appropriate to the goods and services it is buying and streamlined for creation by the individuals who will be receiving and working with the products and services. To report an incident, all an end-user has to do is log-in, select the template, fill out the appropriate fields, and submit it. Then, depending on organizational rules, it goes to an administrator/buyer (who is alerted that it is ready) for review, who then releases it to the supplier; or it goes straight to the supplier, who is given a fixed amount of time to respond. If the supplier doesn’t respond on time, the supplier is reminded and people higher up the organizational hierarchy are alerted.

It also has all the standard features you’d expect in terms of template creation, incident status tracking, user-defined report generation, and export to Excel and PDF, as well as an audit feature that lets you find out who did what and when. That way, if a template, or data is changed, and something doesn’t seem right, you can examine the history, and take corrective action if you need to. It’s a great way to kick-off your Supplier Performance Management program.

So please join me in welcoming EC Sourcing Group. It’s forward-thinking companies like them that keep this blog, and the education it gives you, going!

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A Quick Reference to Perfect Order Fulfillment in Your Warehouse

I enjoyed the recent white paper from Motorola on Warehouse Management: A Quick Reference Guide To Improving Inventory Accuracy For Perfect Orders because it was short and got straight to the point. Defining the perfect order as an order that is

  • delivered on time and in full,
  • in compliance with a customer’s three-way match (invoice, PO, and receipt), and
  • free of quality issues,

it goes on to say that multiple factors contribute to imperfect orders and that the most important starting point is a value stream map that identifies where the most errors are occurring in your current operations.

It then presents some straight-forward resolutions to common operational challenges that you can use to quickly increase your perfect order accuracy. Examples include:

Operational Challenge Resolution
Manual Order Processing & Improvement automation technology, RFID, barcodes, and mobile printers
Picking Methods hands-free wearable computers, scan verification, and voice recognition
Software Systems central database/ERP, WMS module, continuous training and improvement
Labor include employees in improvement processes, reward workers for achieving goals, communicate regularly, and hold everyone accountable for following the right processes

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Decideware: Agency Performance Management Experts

DecideWare, an Australian Company (with offices in the US and the UK) that dubs itself as a Supplier Performance Expert with a Scorecard Deployment Service, offers a niche Vendor Management Solution that excels in managing certain types of vendors. Specifically, their niche solution, which started out as a niche play in HR Management, is used globally by a number of Fortune 500 Multi-Nationals — which include P&G, Dell, Pfizer, Target, and Wal-Mart — to manage their vendor relationships, and their Agency relationships in particular.

Their uniquely designed solution — which allows for simultaneous 360° degree assessments and self-assessments between buyers, agencies, and vendors (which allow a buyer to rate an agency who can self-assess while it rates the buyer and a third party vendor, such as a print shop, which can rate the agency in turn) — is built on the ultimate application of the KIS(S) (Keep It Simple, Stupid) philosophy. Knowing that their target market are not very technically sophisticated, they opted for the 80% solution, free of bells and whistles, with easy SaaS deployment and an easier-to-follow step-by-step methodology for building vendor capability repositories, scopes of work, vendor assessments, and reports that allow vendor performance to be quickly determined, performance gaps immediately identified, and a vendor’s relative performance graphed against their competitors.

While the base capabilities may not exceed the capabilities of a standard RFX tool with extensive survey creation (which they have), process management (which the tool is built around), and reporting capabilities (which are fairly extensive), the extensive amount of industry knowledge they’ve built in for their niche markets is impressive. They understand that organizations have units, geography, account structures, account types, locations, functions, and accounts; that profiles need criteria, contacts, priorities, questions, and documents; that accounts have definitions, assessors, and reviews; and that business people in non-technical areas of the business like lots of ready-to-use pre-packaged reports and easy-to-use drop down interfaces for drilling into performance data and performing gap analysis. The tool literally walks an administrator through the definition of a vendor capability database, a scope of work, and an assessment step-by-step. (And the tool is even more streamlined for the assessors.)

All of these tools have all of the basic capabilities, and a few advanced ones, that you would expect in a scorecard-based on-demand performance management tool. The vendor capability database, which is a streamlined Supplier Information Management (SIM) tool, allows you to approve supplier (agency) representatives to manage their supplier profiles. The scopes of work (or, for us in North America, statements of work) module allows you to define the services, initiatives, and deliverables that are required, broken down by organizational unit, type, and geography, as well as the details of the quotes required (line items, fees, expenses, etc.), with fees that can be broken down by type and include overhead rate, profit margin, and total hours and benefits for FTE quotes. And the assessment creator, which is part of their Relationship Optimizer, includes all of your standard RFX Survey creation features including configurable variable weight scales, the ability to include quantitative measures, and the ability to define weightings to each section and each component question. The tool contains significant support for comments and detailed explanations for questions as the goal is to take the qualitative and fuzzy and generate numeric scores that are quantitative and precise which can be used to generate actionable intelligence for semi-annual, or quarterly, performance reviews.

In summary, while a number of providers might offer more powerful Supplier Information Management (SIM), RFX, Reporting, or Supplier Performance Management (SPM), the tool is exceptionally well defined for the niche Vendor Management Spaces DecideWare is going after. And their client list, most of whom have rolled out the solution globally, speaks for itself — as will the case studies from Pfizer and Dell that they will be releasing in the near future.

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Seven Warning Signs Your ERP System Is Extinct

I enjoyed this white paper from PLEX Systems on “Seven Warning Signs Your ERP System Is Extinct” because there are so many ERP systems out there today that are literally technology dinosaurs and so many companies who are unaware, thanks in part to continuous efforts on the part of their providers (charging 22%+ maintenance) to keep them in the dark. It’s nice to know that someone besides myself and Vinnie is willing to speak a little truth on the issue now and then.

The white-paper doesn’t beat around the bush and gets straight to the seven warning signs it promised:

  1. Your ERP system can’t integrate mission critical business data
    “Silos” of data are not useful. You need integrated data to do meaningful analyses that can deliver meaningful results.
  2. Changes to the system are costly and time-consuming
    Are your new releases on a 24 month schedule? Do new features only appear years after you need them? Do custom changes start in the six figure range and take months to complete? In comparison, new SaaS platforms tend to do major releases on a 3-6 month schedule, develop new features as soon as they are identified as important, and use integration platforms that allow them to develop customizations in a matter of weeks that start in the five figure price range.
  3. Your disaster recovery plan involves tapes
    A technology that has all but disappeared because it is easily eaten by players, easily erased by nearby magnets, easily destroyed by a spilled drink, and easily lost. (When was the last time you saw a tape produced by the Music Industry?) A modern system that maintains an on-line remote backup can be recovered in minutes as compared to the hours, or days, it can take to reload data off of tapes — which could be days, or weeks, out of date.
  4. Maintenance fees are high
    Maintenance fees on current technology should be low, not 22%!
  5. Upgrades are Disruptive to the Business
    Outdated ERP systems often require OS, database, and hardware updates which take time to plan and even more time to execute and take your business ‘down’ for a period of time to do the conversion. (In contrast, modern SaaS systems can be upgraded instantaneously.)
  6. Trading partners can’t easily interact with the system
    There’s no ability for partners to get data from, or submit data to, the system — which is problematic considering how importance visibility is in today’s supply chain.
  7. Globalization is too difficult
    Many legacy systems require you to run a different version of the system to support China, Russia, India, or another country. A modern system supports multiple languages and allows you to run the same system in every company you operate in, and only the language used in the UI is different.

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