Ninety Years Ago Today …

The Ford Motor Company taught us how long a product line built to last should last when it unveiled its Ford Model A as its new automobile NINETEEN (19) years into production of the Ford Model T. Can you believe it! What else lasts nineteen years (besides versions of Unix and Linux, but even then support is sometimes only guaranteed for a decade) in today’s economy?

When you look at fast moving industries like fashion, sometimes you are looking at product lifespans of 19 days! And most companies roll out a brand new mobile phone model every twelve to eighteen months and an upgraded model every six to nine months. You cannot get a laptop or computer warranty for more than three years. And you’re supposed to trade up to a new car as soon as the current model is paid off.

But products can, and should, be built to last. Will we ever remember what the Ford Motor Company taught us?

30 Days Left to Get Your Supply Management Solution Budget In Order …

… unless, of course, you are a government / defense contractor and on the government fiscal year. But we’ll assume you’re not, and move forward.

There isn’t an organization in existence that has a complete Supply Management Solution platform, not even an organization in the Gartner Top 25 or the Hackett Group top 8% even though they are much, much closer than the average organization. Most (average) organizations only have part of the Source-to-Pay spectrum covered, and almost half don’t even have a modern solution at all.

And, as we have indicated previously, this cannot continue. But you can’t afford everything, and big bang implementations usually go up in a big bang. So you need to start by figuring out what you need first, what the average price point is for the solutions most likely to meet your need, and get that in the budget.

And that will require a good ROI argument, which needs to be a believable one. Which means you have to understand the full impact of the acquisition, implementation, and usage cost of a new purchase, as well as the time it will take to reach the ROI the solution will achieve. For example, while an optimization-backed sourcing platform will identify 10%+ savings on the top 30% of spend, delivering at least 3% to the bottom line, if the contracts are three years, it will take 3 years to realize the savings, and not all will materialize without a proper Procurement platform that insures the contract is properly executed.

Plus, when it comes to Sourcing platforms, even if you pay a monthly SaaS subscription, there will still be the integration costs with the current platforms (including ERP), the training costs for the intended users, any customization costs that result, and delayed ROI costs as it will take a few months to get all users on the platform, which means that it will take a few months before significant savings are identified, and a few more months before savings start to materialize.

The savings will materialize, and the ROI over the long term will be considerable, but the best way to get the necessary budget for a Sourcing, Procurement, SRM, or Analytics platform is to be honest about the cost and the time to significant ROI, which will typically be 6 months to 12 months, minimum, not the first 3 to 6 months like some vendors will promise. But there was a time company’s would take the long, 5 to 10 year, view, and if you take the long view, you will save Millions, maybe Billions (if you are a Fortune 100).

And that can be true of any best of breed (conglomerate) Sourcing, Procurement, SRM, or Analytics platform. So, get your well researched, well thought out, arguments.

Fujitsu is Launching a Blockchain Money Transfer Service

Which is a step in the right direction, but it’s not enough.

As per a recent article, Fujitsu Eyes Cryptocurrency Trading with Cross-Blockchain Payments Tech. The goal of the platform is to allow two different cryptocurrency networks to interoperate.

Interoperable networks are the future of supply chain, as per a recent article on we need blockchain, but not for the reasons you think, as, implemented properly, it could allow supply chain partners on different platforms to securely, but openly, trade information that multiple partners need access to in an unalterable way.

But that, of course, is easier said than done. Company X might post that it has a 10 Million Renminbi receivable in China that it wants to trade for a 1.5 Million USD receivable in the USA, but even if that is the exact exchange rate, are the two debts equal? Only if both parties can, and will, pay the same amount at the same time. If one debt is due now and one is due in 30 days, there is a cost of capital if one organization has to borrow in the interim to meet cashflow requirements. Also, if both debts are due in 30 days, something could happen within 30 days that would result in one organization being unable to pay its debt for 60 days, and this again could result in a cashflow issue for one party that traded a debt.

As a result, unless both parties pay into a network and the funds can be immediately transferred, then you need a network where parties are trading at negotiated discount rates (subject to credit ratings or other agreed upon factors), and that could get tricky.

We could be left with a situation where each IOU is auctioned off to the highest bidder in one of the counter-party currencies of choice (1.4M USD, 1.0M British Pounds, etc) or the situation where each block is put up with a (set of) offer requirement(s) and the first offer takes it. In the first situation, which requires a fixed time auction over block chain, you have a lot of overhead (and blockchain’s primary application — bitcoin — already takes too much energy), and the second case this could leave trade possibilities on the table.

Unless a truly global currency facilitation fund where a number of entities establish a global bank, each funding in their own currency, and agree to pay out debts in the local currency in an established timeline for each IOU placed on the network, the dream could stay that, a dream. But with a global organization, the global organization would do its own risk checks, insure the risk is acceptable, and then take a cut just like supplier networks and payment networks take a cut. It would be like a bank or an invoice factoring network, but could offer lower costs as it wouldn’t need to exchange currency all the time, could weather currency storms, minimize global transfer (and global transfer costs), and generally improve global trade efficiencies. Just like the Knight’s Templar did when they effectively established one of the first global banks.

What we’re asking is not an easy network to design, but one we need to be thinking about.

If You’re Still Negotiating With the Carrot and the Stick …

… you’re not getting anyone’s attention but good ol’ Bugs. And, generally speaking, giving all the hijinks he causes, it’s best if his attentions are focussed on your competition.

So how should you be negotiating? With facts. Preferably binders of facts (but they can be in e-form on your tablet — no need to kill trees unnecessarily.)

Facts that show:

  • you know what the product should cost to make,
  • you know what margin should be healthy for the supplier,
  • you know what value-add services the supplier can offer more economically than you,
  • you know what performance metrics are reasonable, and
  • you know what the market offers are right now (and whether or not the supplier can beat them).

Suppliers don’t respond to sticks if they believe you really need them and they can get away with what they want, nor do they respond to carrot if other customers seem more enticing. Plus, they will wonder what crawl-out shelter you just climbed out of because no one from a modern organization negotiates like that anymore.

Especially if they are a typical sales organization that is all about the relationship (and talking win-win even if their definition of win-win is win for the organization, win for them at bonus time) or a more modern, Gen-X led, millennial-influenced organization that’s all about the synergy.

In the first case there will be value pitches followed by claims no one can do what they do as well and lots of smooth talk to get you off guard for when they indicate that their price (even if it has a margin that is twice industry average) is really as good as it gets and the latter will try to entice a deal from the synergy.

But regardless of organization type, every organization will respond to fact-based negotiations. With fact-based negotiations, they can’t hide fat margin behind claims of high cost, high-value, or synergy as the only way they can dispute your models, metrics, and market insight is to provide their true costs (or own research from third parties if they expect their costs to rise over the expected contract term).

And the above isn’t that hard to gather. It might take some elbow grease and a category expert, but once you’ve built the proper model and identified the proper data sources, it’s quick to update.

All you need for a fairly accurate should cost model is:

  • the bill of material break down
  • the typical energy required to produce one unit (kWh)
  • the typical labour required (labourer hours by labourer type)
  • the average industry margin

If it’s a contract manufactured product, you have this, if not, you can get an industry expert to help you craft a typical bill of materials. Your current supplier, or an industry expert, should be able to roughly estimate the typical energy overhead (based on typical production process). Similarly, your current supplier (or industry expert) should know average labour requirements against the production line.

All that’s left is understanding the acquisition cost of the materials, energy, and labour. Most raw materials are traded on exchanges, so it’s easy to get an average market cost. Most countries either have electrical utilities as state owned organizations or as highly regulated private organizations with standard prices per kWh. And most countries or labour bureaus compile average labour rates. Industry insight gives you standard margins, and you can see it’s not hard to build a reasonably accurate should cost model with expertise and elbow grease. And since the only way for a supplier to challenge it is to provide their costs, you can get even the model more accurate if their costs are actually higher. (And if they don’t challenge your model, then its relatively accurate or their costs are actually lower. In the latter case, they might get a bit more margin than you want to give in negotiations, but chances are you’ve lowered your cost as well with the model.)

This just leaves an identification of what services they can likely offer more economically, which again comes down to good modelling, and performance metrics (along with cost / profit impacts), which you should be gathering across your supply base. Then you can negotiate for better performance metrics (with penalties if they are not met) with an incumbent that isn’t doing as well as they should and wants to keep the business, or baseline metrics with a new supplier that wants the business based on current average performance across the supply base for the metric in question.

So gather your facts, and give yourself a true edge in negotiations.

New Year, New Challenges … Are you Ready?

Probably not. At this point you’re trying to get through the rest of the year without too many supply chain stock-outs or digital disruptions, especially with the X-mas season just a few weeks off, winter storms on the forecast, and key personnel going on (extended) vacations.

But at the same time you need to start thinking about 2018. How you still don’t have enough modern tech. How you still don’t have enough modern best practice knowledge. How you still don’t have enough staff to get everything done.

And, despite the fact that management should just increase your budget based upon the ROI you’ve delivered, as per our post last Friday, you know that’s not going to happen just because it’s the right thing to do. If you are going to get the software, services, and support you need, you are going to have to fight for the budget. Tooth and nail. And push out Sales & Marketing who also have a history of delivering results.

You are going to have to create a presentation that makes it clear that not only will you get a ROI of at least 5X with the increased budget you are requesting, but that ROI should be seen as an ROI of 40X compared to the ROI that Marketing and Sales will net you because your savings go straight to the bottom line, but, on average, only 1 out of every 10 dollars of additional sales they get goes to the bottom line. Whereas every dollar of savings you get goes straight to the bottom line.

They have to get an additional $10 in sales for your dollar in savings. That’s significant. And that’s why Procurement is significant. That’s why you need to start building your ROI model now so you can get what you need to deliver the savings the C-suite wants. That’s how you will be ready for the new challenges in the new year.