What are the keys to a successful supply chain?

In a recent article over on Inbound Logistics on three keys to a successful supply chain trading partner network, Christopher Mazza, SVP of Business Development at IAS (International Asset Systems) claims that the three keys to a successful supply chain trading partner network are connectivity, visibility, and optimization. And those are definitely the fundamental requirements of a trading partner network.

But since a supply chain goes beyond a trading partner network, it leads one to ask what are the keys to a successful supply chain. This is a bit harder to answer in general because the depth and breadth of supply chain required is different for every vertical, and every company, and it can be argued that the most critical success factors are different across verticals and companies, but there are some common fundamentals. In this post we will attempt to identify some of them.

  • Analysis
    The first step is figuring out what is needed, when it is needed, and how much it should cost.
  • e-Document Management
    Then you need to find suppliers, send specs, get designs, get quotes, send responses, make awards, cut contracts, send orders, get invoices, process payments, etc. — all e-Documents.
  • Collaboration
    You need software that allows you to interact online with your suppliers and partner and customers virtually and in real-time. (Connectivity in this day and age is a given — but it’s not enough unless there are collaborative elements to the connectivity).
  • Optimization
    Bid analysis, awards, logistics management, inventory management, real-time order management, etc. all require optimization to keep costs down and value up.
  • Visibility
    Knowing what is, and is not, where all the way back to suppliers of critical raw materials and sub-components, is key to avoiding devastating disruptions in today’s supply chain. If a raw material doesn’t reach a component supplier on time, then the component is not going to reach the tier 1 supplier on time, and your product is not going to reach you on time.
  • Risk Monitoring
    Hand in hand with visibility is near real-time risk monitoring. This involves monitoring significant global events (so that you know an earthquake has damaged a tier 2 supplier’s plant when it happens, not 60 days later when the product doesn’t ship), monitoring supplier’s financials and/or brand (as irresponsible corporate practices such as the use of child labour could be more damaging then to your organization than if they went bankrupt), and monitoring shipments and inventory for risk of loss or theft for starters.
  • Innovation
    The supply chain needs to be progressive, constantly on the look-out for new processes and technologies that can improve it, and forward moving when opportunities arise.

Furthermore, these requirements hold true across the board. And if you have trouble remembering them, think of the fact that when you bring these needs up, you are A VOICER of truth.

If You Really Want to Reduce Costs, Reduce Waste!

SI recently asked if you, like your peers, were chasing the lost cause of cost reduction, giving the recent findings by Supply Chain Insights that, from 2000 to 2011, 75% of companies in process industries lost ground on margins despite best efforts to reduce costs over the last decade or so. That being said, there is one cost that can be reduced — and that’s the cost associated with waste.

As per a recent article in Forbes on How GM Makes $1 Billion A Year by Recycling Waste (which should be titled how GM reduces costs by $1 Billion a year) that referenced a GM media publication on how “GM Makes the Business Case for Zero Waste”, the US generates 7.6 Billion tons of industrial waste a year that ends up in landfills. Given that the average tipping fee for a ton of waste exceeds $53/ton, industrial manufacturers are wasting over 402 Billion a year!

And that’s the losses assuming that the best that could be done with the waste is diverting it from the landfill. If the waste is scrap steel, which can be melted down, or cardboard that can be recycled, or smaller batches of chemicals that can be resold, the cost reductions can be extremely significant. Furthermore, 98% of these cost reductions go straight to the bottom line. As per the GM press release, the waste manage costs associated with its mature waste management program are about eighty cents per ton of solid waste reduced! In other words, in the long run, it costs pennies to save tens of dollars (and at the rates tipping fees are increasing and metal costs are rising, it will soon cost GM pennies to save hundreds of dollars). And once GM converts the other half of its manufacturing facilities to landfill-free facilities, it’s savings will double!

So if you really want to reduce costs, stop burying your money in landfills.

Minimizing Late Payments

In yesterday’s post, that said don’t take late payments lying down, we noted that big customers are trying to push payment terms to ridiculous extremes and that their fantasy should not be your reality. We referenced a good article over on CFO.com that gave some advice on what do to “when your big customer wants to pay late” and concluded that if none of those tips help you out, then you should do what Pete Loughlin suggests on Purchasing Insight and name and shame them publicly. No one should ever think that 200+ day payment terms are fair. EVER!

Hopefully you’ll be one of the lucky ones and not find yourself in this situation, but, to be frank, that is not likely unless you take steps to avoid being in the situation. To that end, a recent piece in Inbound Logistics that offered some advice from Scott Pezza, a research analyst at the Aberdeen Group, had some good suggestions that you should always keep in mind.

  • Conduct Pre-Sales Credit & Risk Analysis
    You want to identify problem payers before you sign the contract. One method to do this is the credit bureaus. Another is quick calls to other suppliers. Accountants, believe it or not, are people too and, speaking the same language, they like to talk to each other. They have skills that go beyond the general ledger that your organization should be making maximum use of. Basically, if the customer always pays six months late, then you probably don’t want to turn away the business, because a paying customer is a paying customer, but you’re going to want to adjust your terms accordingly. This may mean jacking the price up (and offering early payment discounts) or forcing the customer to agree to interest and penalties. But if the customer has a history of trying to evade payments that will require significant and costly collection efforts, you probably want to turn that customer away.
  • Follow the Finances
    Don’t just use the credit bureaus to assess pre-sale credit risk, keep on top of their financials. Subscribe to a credit monitoring service that gives you quarterly updates, or a news monitoring service that tracks major stories, and get a grip on when their financial situation may be going south fast so you can get paid, or get out, before you have a situation where the relationship is not worth it.
  • Standardize Receivable, Collection, and Resolution Processes
    Always send out complete and accurate invoices, have a common approach to collection efforts, and standardize resolution processes that involve multiple parties to make it simple for the customer to understand your concerns, share theirs, and reach a resolution in a clear and concise process.
  • Make Getting Paid Easy
    Send invoices in customer’s preferred formats and, if you can, accept whatever payment method the customer wants to use – be it purchasing card, wire, ACH, or old-fashioned cheque.
  • Be willing to Negotiate Payment Terms on a Customer by Customer Basis
    Scott actually suggests to tailor collections to individual customers, but it’s better to tailor contract and payment terms and to be willing to renegotiate if the customer needs to (provided the customer really does have restricted cash-flow and is willing to make best efforts to pay on a reasonable schedule — don’t renegotiate just because they don’t want to touch the 10 Million reserve in the bank).

Hopefully these tips will help you avoid the late payment fiasco and having to name and shame your customer.

Don’t Take Late Payments Lying Down

As pointed out repeatedly by Pete Loughlin over on Purchasing Insight (and in this recent post on “social media the new weapon to combat late payment”) and SI (including this recent Blue Friday post), big customers are trying to push payment terms to ridiculous extremes and, frankly, hoping their suppliers will bend over and take it without any resistance. But just because it’s their fantasy, it doesn’t mean it should be your reality. You have to stand up for yourself and help bring this foolishness to an end.

How do you do it? A recent article over on CFO.com on what to do “when your big customer wants to pay late” had some great advice. Summarizing, and extending, it, we can see that you should:

  • Know Your Worth
    Chances are that you are providing a unique value and you should not be afraid to make it clear. And if it’s really unique, your customer doesn’t have (very m)any options besides you.
  • Understand the Relationship
    Has it been a long term relationship? A good relationship? Have you been paid on time regularly in the past? Have you been providing value over and above committed levels? If the relationship has been good, if you were contracted to provide a product but have also been providing free value-add consulting, if you were always paid on time for always delivering on time and maintained a good relationship, point that out.
  • Create Flexible Payment Strategies
    This doesn’t (necessarily) mean early payment discounts, but it could include such for (really) fast payments. Consider multiple (milestone-based) billings that the customer can digest over time, rather than one big bill at the end (within reason).
  • Avoid the Procrastinating Accounts Payable (AP) Department
    They are the boneheads that still believe extending DPO is a good thing (even though a recent Hackett study demonstrated that playing this game actually costs them an extra 10% in the end). Deal with Procurement and/or the buying organization who have a better chance of understanding that delaying payments unnecessarily only hurts everyone in the long run.
  • Suggest Financing
    where the customer enters into a relationship with a bank who pays you right away, at a small discount, and then the customer pays the bank on their schedule, for a fee. Done right, it’s better (for you) than an early payment discount as its an immediate payment.

and if all that doesn’t work, do what Pete suggests:

  • Name and Shame Them Publicly
    Be civil and respectful, but don’t be afraid to let the world know, in no uncertain terms, that they are either being deliberately cruel or incompetent.

SI likes Pete’s suggestion best, but agrees that you should try the more professional methods listed in the CFO article first. But if they don’t work …

Supply Chain Syllabi Suck – But Should You Be Designing One?

It’s an interesting question, and one I have to ask after coming across Adrian Gonzalez’ recent post over on Logistics Viewpoints on A Supply Chain Course Designed by You. While I agree that the average life of a supply chain text is two to three years where case studies are concerned (but not where core principles are concerned as some of the classics by Robert Rudzki and Dick Locke are still holding up eight and seventeen years later), I don’t necessarily agree that syllabi go out of date that fast, or that you are the best person to be designing one.

I also agree that trends do develop every day, that most traditional syllabi are about two decades out of date, and that an instructor should update the syllabus as required before every course delivery, but I’m not sure it should be based solely on student requests. While an instructor should attempt to address as many student questions as possible, they should be restricted to the subject matter of the course. More specifically, if the course is on sourcing and procurement technology, the instructor should not go off on a tangent on proper multi-tier supply network design, which should be a different course.

However, the real reasons that an instructor should not design an entirely student driven course are the following:

  1. Every student will likely have a different problem that he or she believes he or she needs addressed that is
  2. based on a different understanding of what proper supply management for (what) a proper supply chain (is) and
  3. that problem is not necessarily the root problem or representative of the core theory, and practical solutions, that need to be addressed.

If the student knew what she needed to learn, she would not be a student, she would, at the very least, be a mentor, if not a teacher herself. For those of you with a martial arts background, you would not be deshi, you would be yudansha or sensei yourselves. Because you have not gone before, you don’t know the way you need to go. That’s why you need a teacher, a guide, to show you the way and teach you the basics you need to know in a cohesive, relevant framework appropriate to the course. A well-designed course by an instructor who is trained in the theory and experienced in the practice will weave together the foundations with relevant examples in such a way that the student will learn to identify what the root problems are, what solutions might work, and what questions should be raised, and addressed by the instructor — who will have no problems weaving the answers in, on the fly, to the lectures at hand.

In other words, I don’t think the methodology proposed by Adrian is necessarily the right process for designing a course, but I do think it’s a great process for tweaking a course, and, more so, for determining what course(s) a student should be taking. In other words, an organization or institution offering Supply Management and Supply Chain training should, before allowing students to enrol in a course,

  • request that the students fill out a questionaire that outlines their key questions and topics of interest a month or so in advance,
  • analyze the responses and determine potential best fits between the students and the courses being considered, and
  • create pre-course discussion groups, facilitated by the likely instructor, a few weeks in advance and invite the students to participate in the group to gather consensus on key topics, issues, and questions that should be addressed — and figure out if the course is really for them.

Then the provider can let students register, knowing that there will be good fits, and the instructor can tweak the course to be as relevant as possible to the needs and interest of the students, using the most relevant case studies and focussing on the secondary topics of common interest once the core material has been covered.

Of course this is just the doctor‘s opinion (and his only real qualification for this argument is that he has been an Assistant Professor in Academia and an Industry Trainer), and it will be interesting to see the results if 30 (thirty) practitioners take Mr. Gonzalez up on his offer.