Blue Friday

Apparently this Monday was Blue Monday, the most depressing day of the year, as determined by the following non-sensical calculation:

[W + D -d]TQ

MNa

where d, D, M, Na, and TQ are a bunch of random variables arbitrarily considered to be correlated to mood.

But if you really want to be depressed, consider the following stats:

  • 64% of companies do not have a person responsible for managing supply chain risk, down a whopping 1% from 2008, but 80% of companies are vulnerable to a major supply chain disruption!
  • companies without e-Sourcing and e-Procurement solutions are over spending by 170 Million on every 1.17 Billion of spend (a rate of 14.5%), and when you consider that less than half of companies out there have either solution, less than 25% have both!
  • and up to 17 Million of this overspend is due to over payments, duplicate payments, missed rebates, missed dicounts, lost credits, and fraud because they don’t even have a decent e-Payment / Recovery solution in place!

In short, chances are that your organizaton is grossly overspending, paying your richest suppliers twice (while bankrupting your poorest suppliers with your 200 day payment terms), and at risk of a major supply disruption that will financially ruin you because you won’t see it coming! That’s a real reason to be blue.

Let’s hope this is the year you stop sitting on that cash reserve and:

  • implement integrated end-to-end e-Sourcing and e-Procurement
  • put a solid monitoring and recovery solution in place to make sure every negotiated cent of savings is captured
  • hire a risk manager and get a grip on risk so you can identify, and if needed, source around it before a disruption costs you every dime of savings you negotiated over the past three years and
  • actually get some training on modern processes and technologies so you implement and utilize the new systems properly.

Are You Going to Be Able to Control Costs this Year?

Costs are rising across categories and verticals and will likely continue to do so. There are a number of direct and indirect reasons for these increased costs, but the most substantial are the following reasons which could collectively rip a supply chain out from under even the largest of multi-national corporations.


1) Inflation is back with a vengeance

Commodity costs are rising across the board. According to the Royal Bank of Canada, the commodity price index increased for the third straight month and hit a five-month high in September. They increased 8.2% since June! Barley and Corn have exceeded the highs of 2008. The price of Live Cattle is almost 50% more than it was just two years ago. Copper is climbing back to its recent high. And these are just a few examples.


2) Market growth is stagnant and, as a result, so is job growth.

Stagnant growth in their markets can limit a company’s ability to increase the breadth of its strategic sourcing activities and get more spend under management, a critical key to cost control. While stagnant markets should be the bugle call for a company to get more spend under management, the lack of resources, primarily due to lack of hiring of new talent and investment in new technology, has kept many companies from expanding the growth of their sourcing efforts. In addition, stagnant market growth means that volume is not going to increase, and this limits a Supply Manager’s ability to negotiate (additional) volume-based savings going forward.


3) There is a widening gap between risk identification and mitigation.

The amount of research on risk and risk mitigation has reached an all time high, but there has been little or no movement towards the identification and implementation of an effective risk identification and mitigation strategy. In 2008, a Marsh survey found that only 35% of organizations self-reported that supply chain risk management was moderately effective at their companies. Stated another way, 65% of companies did not have a risk management program that was at least moderately effective. In 2011, researchers at Vlerick Leuven Gent Management School and Ghent University did a supply chain risk management study and again found that 64% of
the companies have no one responsible for managing supply chain risks! That’s essentially zero improvement in the last
three years!

And these are just three of the reasons (or fates) costs are rising across categories and verticals! For the other four reasons, the seven elements missing from an average Supply Managemnt organization exposing it to these seven fates, and the ten competencies that every Supply Management organization needs to master in order to acquire the seven elements that will allow a Supply Management organization to fend off the seven fates, remember to download the Top Ten Things to Do in 2013 to Control Costs, a free white-paper from BravoSolution (registration required) authored by Sourcing Innovation.

Have We Reached the Supply Chain Plateau? Part II

Yesterday, we noted that Lora Cecere discovered, after reviewing balance sheets of process companies over the last decade, that the average process manufacturing company has reached a plateau in supply chain performance. And, moreover, that the majority of progress improvements over the last decade came from lengthening days of payables and squeezing suppliers. That’s Not Progress!

So have we reached the supply chain plateau? SI doesn’t think we have, but agrees that growth has stalled. But why has it stalled?

Lora conjectures that while complexity has increased, many well-intentioned executives lack the understanding of the supply chain’s potential or how to manage the supply chain as a system. So, while individual projects are getting great results, departments as a whole are not performing as well, and being managed even worse. SI has to agree.

Why? One hypothesis, as implied in Lora’s pot, is supply chain technology, and ERP (and forecasting) systems in particular. As Lora notes, the current state of supply chain technologies is such that, in an average company, the greatest gaps are in the areas of the greatest importance. Gaps in supply chain planning are high, and the ability to use the data from ERP and order management remains a gap.

This is true. And SI has to agree with Lora when she says that there is a discontinuity and we need to declare the APS and ERP systems of the 1990s obsolete and start again. But SI doesn’t think this is the core problem. The core problem is manpower capability. Not only do most executives not understand the supply chain from a holistic perspective, treating each step as its own function (and disassociating NPD/Design from Sourcing (a manufactured product) from Logistics and Distribution, when they all have to be examine and managed as part of an integrated supply chain, but neither do the function managers. Moreover, these function managers often do not even understand the best practices associated with their job.

Why is there a manpower capability issue? A lack of education. These people generally don’t leave college or university with a solid supply chain background, as few institutions offer such programs, and they haven’t been properly trained. Year after year training budgets are slashed and leaders are run ragged fighting fires and dealing with tactical issues instead of being given time to focus on long-term strategy, how the supply chain works, and how it should work for optimal performance and optimal corporate gain. Where supply chain is concerned, not only do we have the reality that you can’t manage what you don’t understand, but you can’t even manipulate what you don’t understand with any level of success. People have to be educated and trained at all levels of the function, and until that happens, up-to-date technology or not, there is not going to be any progress.

Have We Reached the Supply Chain Plateau? Part I

Last week, Lora Cecere stated over on Supply Chain Shaman that she believes we have reached the supply chain plateau.

I believe that, while we have been in a bit of an innovation dry spell the last few years relative to the early noughts, there is still innovation to come and mountains to climb, but Lora’s evidence is pretty damning: while analyzing the balance sheets of process companies over the past decatde, she discovered that the average process manufacturing company has reached a plateau in supply chain performance. Specifically Lora found that:

Growth has stalled. To compensate and stimulate revenue, the companies increased SG&A margin by 1%. However, the conditions were more complex; the average company, over the last ten years, experienced a decline of 1% in operating margin, and an increase in the days of inventory of 5%. While cycle times have improved, the majority of the progress has come from lengthening of days of payables and squeezing suppliers.

And delaying payments and squeezing suppliers is not progress!

This is scary! Really scary! And before I discuss this any further, you need the facts and you need to read Lora’s post.

SI’s post is going to end my here today so you can go read it and dwell on it. We’ll discuss this more in SI’s next post.