3 Easy Steps to Take Up To 7% Off Of Your Organization’s Bottom Line Costs!

  1. Mandate Organization-Wide Cooperation with Supply Management on all Spend.
  2. Implement an e-Procurement/P2P solution and Mandate that 100% of Your Spend Goes Through the Platform.
  3. Give Supply Management the Talent it Needs to Apply the Appropriate (Advanced) Sourcing Techniques to all Categories.

It’s that simple. Why?

  1. 70% of revenue is spent on non-labour costs
    as per Proxima’s recent “Corporate Virtualization Report”
  2. 100% of spend through a single system gets all 70% of the revenue being spent on non-labour costs under management
  3. (Advanced) Sourcing saves an average of 10% to 12% across-the-board on all spend being addressed (as per back-to-back studies from Aberdeen) and 10% of 70% is 7%!

That says an average 1 Billion organization could add up to 70 Million to its bottom line at the end of a year with a proper focus on Supply Management. Supply Management truly is the organization enabler!

Supply Chain Finance: A European Bank Perspective

Late this spring, the Euro Banking Association (EBA) released their “Supply Chain Finance European Market Guide”. This gives us some insight into the European Bank Perspective on Supply Chain Finance.

The guide defines Supply Chain Finance (SCF) as the use of financial instruments, practices and technologies to optimize the management of the working capital and liquidity tied up in supply chain processes for collaborating business partners. It then goes on to state that SCF is largely ‘event-driven’ and that each intervention (finance, risk mitigation or payment) in the financial supply chain is driven by an event in the physical supply chain.

The EBA then goes on to state that the key categories of SCF are:

  • Buyer-Centric Accounts Payable
    Also known as “Approved Payables Finance”, “Reverse Factoring”, “Supplier Finance”, or even “Confirming”, it’s generally based on discounted payment of accounts payable in favour of suppliers by accessing a financial institution’s liquidity. “Dynamic Discounting” is a related instrument.
  • Supplier-Centric Accounts Receivable
    Also known as “Receivables Finance”, “Receivables Purchase”, and “Invoice Discounting” or “Invoice Factoring”, it’s where a supplier finances their operations by factoring their invoices or taking loans against the receivables.
  • Inventory-Centric Finance (PO/Inventory Finance)
    Which can be used by the supplier to gain financing based on a PO or a buyer to gain financing based on inventory.
  • Bank Payment Obligation (BPO)
    As described in this recent post on how it took 40 years, but BPOs are now truly SWIFT, a URBPO (under ISO20022), provides an irrevocable payment guarantee in an automated environment and enables banks to offer flexible risk mitigation and financing services across the supply chain to their corporate customers. An alternative to L/Cs (Letters of Credit), it is a new middle ground between L/Cs and Open Account finance which can be used to offer pre- and post-shipment finance.
  • Traditional Documentary Trade Finance
    Letters of Credit and related trade loans.

In other words, supply chain finance is simply

  • a bank or third party lending the buyer money based on inventory;
  • a bank or third party lending the supplier money based on POs, invoices, accounts receivable, or BPOs; or
  • the buyer paying the supplier early for a discount.

And the primary mechanisms by which a supplier gets financing is:

  • receivables, BPO, or L/C financing from a bank,
  • discounting or dynamic discounting from the buyer, or
  • factoring from a third party.

This is a traditional supply chain finance definition and these are, with the exception of the new SWIFT BPO, the traditional mechanisms, so the guide is good in this respect. And it also has a good discussion of risk. However, when it comes to a discussion of automation, it is pretty much limited to e-Invoicing and this is a problem. e-Invoicing is just the foundation — technology has to go beyond just e-Invoicing if SCF is going to not only take off but become a pillar of supply chain support. But that’s a topic for a future post.

Supply Chain Insights 7 Steps to Failure

A recent Slideshare presentation by Supply Chain Insights (SCI) on 7 Reasons You May Fail in the Race for Supply Chain 2020 had some great insights into what many organizations are doing wrong but, more importantly, cemented the need for the 3Ts, as discussed in SI’s recent post on Supply Chain 2020 – What Will It Take to Get There, if you want you Supply Chain organization to make it to 2020.

According to SCI, these are the 7 reasons your supply chain may fail:

  • You treat your supply chain like a function
    rather than an end-to-end process.
  • You hired a boatload of consultants and spent buckets of money on “best practices”
    that were actually “emerging practices”.
  • Your technologies are more about you than your customers
    even though customer data is more readily available.
  • You are moving like a snail in a fast-paced world
    when you need to be executing in real-time.
  • You are simply not prepared to compete for supply chain talent
    which is the missing link in the supply chain.
  • Your technologies are quickly becoming legacy
    while new technologies are emerging every day.
  • Your supply chain is too reactive
    when it needs to sense and learn.

SCI is right on the money. If your supply chain:

  • lacks talent
  • runs on antiquated technology
  • hasn’t transitioned to new processes in decades
  • only reacts to disruptions, instead of trying to predict & mitigate them
  • doesn’t work with customers and never asks for their data
  • doesn’t focus on solutions instead of the “hot” methodology of the day and
  • doesn’t focus on strategic organizational planning because it’s spending all it’s time executing tactical processes

it’s not going to be around very long.

A supply chain needs to be:

  • driven by talent
  • enabled by technology
  • transitioning to improved processes all the time
  • focussed on risk management and mitigation
  • collaborating with customers and suppliers up and down the chain
  • solution-driven, not “emerging practice” focussed and
  • strategic, not tactical.

And that’s just the start. For more insights into what attributes your supply chain needs to adapt in order to survive the race for Supply Chain 2020, check out SCI’s 7 Reasons You May Fail in the Race for Supply Chain 2020 before your supply chain starts stumbling too (if it hasn’t already).

The Road to Riches? The Rails, My Friend, the Rails.

Every day, SI is becoming more convinced that if you want your Supply Chain to be a success, you need to ride the rails. It used to be if you were shipping goods long-haul over land, you’d ship them by train. There was no long-haul trucking and air was just too expensive. But then the war ended, Dwight D. Eisenhower championed the National system of Interstate and Defense Highways, the Federal Aid Highway Act of 1956 came into effect, long-haul trucking became an option, buses became more popular than trains for many trips, the railroads started to struggle financially, and ground eventually overtook rail for most cargo in the US.

And today, people in North America associate trains with the Wild, Wild West despite the fact that rail is, by far, the most cost-efficient way to move cargo over ground for distances in excess of 500 miles. It’s also typically the best choice for intermodal ocean freight as the major rail networks will not only have their terminals in the ports, but SLAs (Service Level Agreements) to make sure cargo is quickly transferred from ship to rail-car. For example, agreements between the Port of Halifax and CN Rail gives you a double-stack rail-service direct link to Chicago in 71 hours, which is typically a 3-day drive when you factor in daily driver limits and border crossing.

Why is SI becoming more convinced that Rail is the Future? Three reasons:

  1. Fuel Efficiency
    Trains can move a ton of freight nearly 450 miles on a single gallon of fuel. Find a truck that can do that!
  2. Predictability
    The railroads control the rails – and can schedule them to maximize capacity and prevent traffic jams that can delay trucks for hours or more. Plus, well maintained lines and trains that keep to schedules suffer significantly less accidents than traffic on the road.
  3. Adoption by the East
    While the young and immature west might have dumbly abandoned trains just like it abandoned trams (and replaced them with gas guzzling polluting busses), the East is investing Billions in new (high-speed) rail lines everywhere. Consider this recent article in the Economist on how its One Night to Bangkok with Laos committing to invest 6.2 Billion on a new 260-mile passenger and freight railway between Kunming and Vientiane straight through the mountainous region of Northern Laos. Think about that. The GDP of Laos is only 9.3 Billion! That’s a huge commitment for a country the size of Laos, even if the commitment connects China to Thailand and will capture a sizeable portion of the 4 Trillion worth of imports and exports that flow into and out of China. This 6.2 Billion dollar railway will require 196 km of blasting and will create 76 tunnels. To put this into perspective, combined they would form a tunnel long enough to connect Korea to Japan under the sea.

It’s time to ride those rails!

These Transformations Worked For Samsung. With a Few Tweaks, They Will Work for You Too!

Samsung is not only none of the most successful global electronic brands, but one of the most successful brands period. (And with the surging popularity of Android, and it’s new Galaxy tablet, it’s market share is increasing rapidly in that market – one of the hardest to compete it.) On top of this, it is a supply chain leader, ranked #8 on the Gartner 2013 Supply Chain Top 25. How did they do it? A recent piece over on Supply Chain 24/7 on 7 Best Practices that Transform Samsung Electronics’ Supply Chain by SupplyChainOpz that referenced research by the Harvard Business Review, Supply Chain Management: The International Journal, and the Journal of the Operational Research Society did a great job of identifying the key decisions, and transformations, that helped propel Samsung from a much smaller player in trading, food processing, textiles, insurance, securities and retail to a world leader in electronics and digital technology.

Since they will work for any Supply Chain with a few tweaks, SI is strongly suggesting that you (re-)read SupplyChainOpz 7 Best Practices that Transform Samsung Electronics’ Supply Chain before continuing on to SI’s 7 Transformations that will transform your CPG Supply Chain.

7 Transformations that will Transform Your CPG Supply Chain

  1. Listen to the Voice of the Customer
    Look at the top 10 of the Gartner Supply Chain Top 25. Apple, McDonald’s, Amazon.com, Unilever, Intel, P&G, Cisco, Coca-Cola, and Colgate-Palmolive. Every single one of these companies sells products the customer wants in every market they are in. To better understand the market, Samsung sends senior employees to MBA programs at local universities to help them understand the market and then establishes connections with appropriate leaders and partners in those markets to keep the insights coming in after the executives return to their HQ. While it’s not critical to attend a program in the target market, it is critical to be tapped in. Pay attention to market intelligence, go to trade shows and see what is attracting attention, follow the emerging trends, and consider what an average individual in your target market does in the course of a day and a week.
  2. Setup a Cross Functional Team Composed with the Right Talent
    As a Supply Management practitioner, this is a best practice that should be well ingrained by now as you should be setting one up for every strategic sourcing project. However, there should also be a cross-functional team that guides the over-arching supply chain strategy.
  3. Adopt a Measurable Supply Chain Improvement Methodology
    Samsung adopted Six Sigma and transitioned to DMAEV (Define, Measure, Analyze, Enable, and Verify). There’s also TPS and the Lean Methodology that fell out. The particular improvement methodology is not as critical as the commitment to implementing and executing on it day in and day out.
  4. Transition to Standardized Technology, Processes and Parts
    Samsung standardized parts and processes and produces the majority of its components in Korea to enable them to better monitor and manage product quality. But don’t stop at parts, and production processes, move to planning and management processes and the underlying technology processes. For every function, there should be one system and one version of the truth. Each department can use its own best-of-breed systems if, and only if, there is a central data store that functions as the master data repository that each system works off of and that is always taken as the one version of the truth.
  5. Utilize Advanced Sourcing, CRM, and Production Systems
    An Advanced Planning and Production System is a good start, but lets face it, true efficiencies materialize by getting the sourcing right. Be sure to source all strategic or high-value components using a strategic sourcing process that makes use of spend analysis and decision optimization and other advanced technologies. In addition, be sure to capture all of the sales data and user feedback that you can with good CRM systems. And be sure to make sure that you react to sales forecasts appropriately with your advanced planning and production systems.
  6. Implement Risk Monitoring and Measurement
    The best laid plans are easily and quickly ruined by a single supply chain disruption. Implement an advanced supply chain visibility and monitoring system that monitors your suppliers and their suppliers to detect minor supply hiccups before they become major supply chain disruptions and to make sure you are aware of any significant event (such as an earthquake, border closing, civil uprising, etc.) that could affect your supply chain as soon as it happens.
  7. Focus on Your Talent
    Samsung threw out the seniority-based performance evaluation system and implemented a performance-based system in its place that allows the best and the brightest to have their career fast-tracked. Make sure you have a system that allows talent to advance through your organization if you want to attract, and retain, the talent you need for your supply chain.