SourceMap: Striving to Bring Supply Chain Visibility to the Masses

SourceMap is a supply chain mapping tool that is designed to help an organization map out their end-to-end supply chain to help them gain critical insight and understanding into their performance, costs, sustainability, and risk. Especially risk. Most companies don’t understand the risks hidden in their supply chain — the sole-source parts, the over-dependence on high-risk geographic areas, or the ability of a single port strike to knock out multiple shipping lanes. (Nor do most companies understand the cost of risk, which is discussed in detail in Sourcing Innovation’s upcoming white-paper on Playing With Fire, but that’s a discussion for another post.)

SourceMap, born as a research project at the MIT Media Lab to publish and measure the environmental footprint of all the products on earth, was launched as a public platform for supply chain mapping in 2009 that allowed individuals to see every aspect of a product’s life — the good and the bad. Then, in 2011 it partnered with the MIT Centre for Transportation and Logistics to pursue opportunities in automating supply chain visualization and risk management. Shortly after, the 2011 Tohuku tsunami hit and wiped out over 45,000 buildings, damaged over 144,000 more, shut down all of Japan’s ports (including 15 that were located in the disaster zone). All told, it did over $300 Billion in damages and sent shockwaves throughout global supply chains. Companies were scrambling to understand the impact on their supply chains, SourceMap was approached, an incorporation followed, and the private sector solution was born.

Hands-down, SourceMap is the best visualization of the supply chain to hit the scene since Resilinc, which is, in Sourcing Innovation’s view, is still the leader in Supply Chain Risk Management solutions, but if all an organization needs is visibility and Supply Chain Visualization, SourceMap is now a leading contender in that arena. SourceMap has the ability to use an organization’s ERP data, public data sources, and survey data from the organization’s suppliers, the suppliers’ suppliers, down to the raw material suppliers, to create a complete point-to-point map of the supply chain that an organization can use to trace it’s products from source-to-sink on a (Google Earth) Map and visually see what is happening. This is a very powerful feature that allows an organization to gain insights into their supply chain that they never knew before. And just like an organization is typically shocked the first time they run a spend analysis (we spend that much with who?!?), they are typically just as shocked when they run a map and see that a number of distributors and tier 1 suppliers are using, or outsourcing a significant portion of, spend to the same tier 2 supplier and just pushing the single-source point of failure an organization is trying to avoid one step further down into the Supply Chain.

And the SourceMap solution, which only needs common location data points, can quickly import and combine all data sources an organization can get its hands on and SourceOne can often create a starting supply chain map for an organization in less than an hour. It’s not complete or perfect, but it allows the organization to quickly drill into the supply chain and see where the data, and focus, is needed.

SourceMap is quickly becoming the new supply chain visibility solution to watch, and for a real in-depth analysis, Sourcing Innovation would recommend the in-depth write-up that the doctor and the prophet collaborated on over on Spend Matters Pro (membership required) that provides four pages of deep insight into the solution.

Environmental Sustentation 15: Waste, RoHS, & WEEE

As per our damnation post, waste, dangerous chemicals, and unnecessary disposal is bad and legislation that requires waste to be minimized, dangerous chemicals to be avoided, and perfectly good materials to be reclaimed is good — unless new legislation comes in faster than your supply chain can keep up.

And while the US may not be as advanced as the EU in terms of legislation to this effect, some states, like California, are making a push for a plethora of new legislation and some countries, once expected to be behind the times in such legislation, are now attempting to lead the way (like India and China which are considering much more restrictive environmental legislation akin to European RoHS than one ever thought they would consider).

More legislation is coming, and your product supply chains are going to be hit hard if you are unprepared. Getting a good bill of materials system in place, a better trade document management system, and an online collaborative design solution, as discussed in our damnation post, is a good start, but it’s not enough. In addition to the basics, in order to maintain compliance with the ever increasing amount to environmental legislation in effect, and coming into effect, around the globe, the organization also needs:

1. Drill-down Bill of Materials Capability

A complete bill of materials is a good start, but many items will be components, made of subcomponents, each of which uses a number of sub-subcomponents and raw materials. Complete drill down visibility is needed to ensure 100% compliance with environmental legislation.

2. Regulatory Compliance Monitoring (by product by country)

So that the organization knows at all times the requirements for each product by country as well as any restrictions or bans for each component or raw material by country.

3. CSR Monitoring

This is the best way to get early warning of current issues and future legislation coming down the pipe. You don’t want to know about a new piece of legislation that is going to require a partial (or complete) raw material formulation the day after it is signed into law, which could only give you a few months to get in compliance, but the day it is first drafted and released for public consultation (or, if drafted in private, first brought to a legislative body for review). To stay ahead of the game, you have to get ahead of the pack.

4. Design for Sustainability

All new designs should not only use as few hazardous or restricted substances as possible, but should also use as many renewable, or at least abundant, resources as possible. Sustainability is the name of the game, as environmental sustainability is becoming a key component of business sustainability.

5. Design for Reclamation and Reuse

Metals and rare earth minerals are becoming in increasingly short supply, but, when a product is appropriately designed, becoming increasingly easier to reclaim. Plus, in many complex systems, not all parts wear out at the same rates, and if the system is designed for component-based upgrades, it can be used, and re-used, for a much longer lifespan. (The same way that servers designed for memory, storage, and processor upgrades can be used twice as long as integrated laptops.) Or, components with a significant life-span left, can be easily extracted and re-used in refurbished systems.

This is not necessarily everything that can be done, but it’s a great start, and when you get there, you will be considerably in the lead.

One Hundred and Twenty years Ago Today

Mr. Charles Dow published the first edition of the Dow Jones Industrial Average, a mere 12 years after Mr. Charles Dow composed his first stock average (of nine railroads and two industrial companies). And while there have been many averages, including a number created by Mr. Charles Dow himself, the Dow Jones Industrial Average (DJIA), the second oldest US market index (after the Dow Jones Transportation Average) is the most famous of these. The only index that come close in fame is the S&P 500.

It’s famous as many investors believe it can be used to describe the market, but all it can really be used for is a baseline to compare the return on specific investments in a historical period to the index. A good investor should beat the index, and a bad investor doesn’t hit it. However, simply judging a price against a price weighted index doesn’t really tell you much about the market, just the historical performance of a small portion of it. It’s a useful measurement of past performance, but not necessarily a good indicator of future performance of the market overall. But all analysis has to start from somewhere, and this did give rise to a new era in stock market analysis, which, for better or worse, did lead to new advancements in analytics and computing, we have to at least recognize it.

Economic Sustentation 09: Oil & Gas Price Shocks

For the last twenty (20) years or so the West Texas Intermediate Crude Oil Price chart has been bouncing up and down like a yo-yo in the hands of a novice who doesn’t know how to work it, but doesn’t stop trying. And any other chart you pull up for international oil and natural gas prices is going to look similar. In other words, as we stated in our damnation post, within a one-year period, prices can double or be cut in half with little or no warning. And either situation will run havoc with your supply chain.

If prices double seemingly overnight, your costs are going up — way up. If you have a contract, you might be able to insist that your supplier absorb the increase since they were, at signing, charging you higher than market cost since they were taking a risk over a predefined period. But, at some point, their margins go to zero, and soon after that, the supplier is not going to put up with it anymore, especially if they are struggling financially. Then the shipments stop.

But it’s not much better when prices drop. While the first to cry foul when prices rise, suppliers are the last to play fair when the prices drop. Arguments that the deal was so good they were losing money on delivery, arguments of higher overhead costs, and arguments of temporary blips are brought to the table whenever you ask for a price concession, even if the contract guarantees you one.

So what can you do?

1. Tie Prices to an Index – Updated Daily, Averaged Weekly or Monthly

Base the contract on index prices, averaged weekly or monthly, and tie the price to that cost on the purchase order date. You’ll pay more if prices rise quickly, but you’ll also pay less when prices fall faster than expected. Then, you can simply acquire good prediction algorithms that have performed well over the long term, and plan for the shocks and not waste time arguing when they happen, leading to much more cordial relationships that can be focussed on service and customer service.

2. Master Predictive Analytics

Don’t just acquire an algorithm, understand it, and run models with slight market changes to see how oil prices shift when other correlated indicators shift. Get better than the competition and over the course of years, you will always, always, always come out ahead.

OR, if this is too mathematically advanced for you, and you are willing to accept sub-optimal outcomes (which will still be better than what you get now)

A. Always Lock Prices in for the Long Term.

So the cost stays the same unless a ceiling or floor, defined as a price percentage, is met. If the average price over a month goes up or down more than, say, 10%, then the price shifts by a fixed percentages, such as half of that. In addition, negotiate for clauses that allow the organization to auto-renew automatically at the current price at an time in the last six months, for the same time-frame.

B. Make sure the ceiling and floor shifts with every price change.

While the cost shift will be absolute, the price should only change every time the price changes by more than a fixed percentage from the price being paid, not the locked-in price.

C. Reduce Oil and Natural Gas Dependence.

Invest in renewable power sources such as solar, hydro, and geothermal so that, over time, you become less dependent on oil and natural gas and the price uncertainty they bring.