What To Look For in a Modern Inventory Management System

A recent article in Canadian Transportation and Logistics on “when choosing new logistics software, true competitive value comes from creative execution not just buying the hottest system” made some great points in what to look for when choosing a new inventory management / warehouse management system. Often overlooked, the following features are important:

  • multi-mode inventory update
    The system should accept automated updates from POS systems and manual updates from individuals who “eyeball” inventory.
  • automated “push” updates to individual locations
    A user shouldn’t have to log-in to a central portal to get inventory updates across corporate locations. The updates should be “pushed” to individual clients automatically, just like RSS feeds are “pushed” to client readers.
  • integration with Excel
    Let’s face it, some locations aren’t going to have modern inventory management systems and some users just aren’t going to let Excel die.
  • one-time event tracking
    Not all inventory moves in regular shipments. Unless one time events are tracked, the full picture is not gained and an understanding of the breakdown of regular inventory movement vs. special / expedited inventory movement will be missing.
  • equal support for inbound and outbound
    A storage container behind a store can be a “warehouse” which can redistribute inventory to other stores where its needed. Thus, inbound (to the store) and outbound (to other stores) are equally important.
  • Business Intelligence (BI) support
    Either built-in, or easily supported through XML export.
  • a Multi-Tenant SaaS Implementation
    The “cloud” is where it’s at for many companies, so failing to support the “cloud” will limit adoption and integration options.

Is Your Emerging Supply Chain Ready for Growth?

According to this recent article over on CNNMoney.com on how “emerging markets are hot” (CNN Money, Feb 1, 2011), total sales are expected to rise an average 10% among S&P 500 companies that derive more than half of their revenues overseas. In comparison, we’re expecting just a 6% uptick in total sales for companies that draw a majority of sales from the US, where GDP grew a paltry 2.9% last year.

Growth is skyrocketing across the BRIC, where Russia saw 4% growth, Brazil 8.4%, and China 10.3% last year. And this growth is expected to continue. But growth in these countries comes with challenges. China has pockets of prosperity among wide expanses of poverty. Russia is also vast and most of the profit to be made is on lower-end consumer goods. Brazil still has large pockets of poverty, serious problems with drugs and weapons struggling, and only easily reachable coastal areas. In other words, in each of these countries logistics outside of a few areas makes North American distribution look like child’s play in comparison, violence can be a constant threat in poorer areas, and relative lack of wealth among the population at large compared to the US (and UK) makes price control a huge issue.

So, is your emerging supply chain ready for growth (and the distribution challenges that lie ahead)?

Cross-Functional Tactical Planning Matters

Because if you don’t get tactical planning right, you cannot align cross-functionally, as pointed out in a post over on Supply Chain Shaman by Lora Cecere who said Enough!

So how do you get tactical planning right? According to Laura, you need to address four attributes:

  • Assessment
    Tactical planning aligns functions beyond the enterprise with market drivers and insights using outside-in thinking. It goes beyond a corporate silo.
  • Action
    The team must be knowledgeable and have the authority of line management to act.
  • Accuracy
    Companies need to have access to the right data model and recognize the different value networks because one model does not fit all supply chains. The appropriate risks and opportunities are only identified when tactical options for a strategy are evaluated against market drivers.
  • Timeliness
    Analysis needs to happen within a finite window of actionability.

Then you have to understand the success requirements. According to Laura, to be successful you need to first answer three questions:

  1. What is the goal?
    Good tactical outcomes cannot be reached if the company is not aligned on the strategy. The goal has to be well understood.
  2. What does good look like?
    How are incentives aligned cross-functionally to achieve the goal? The answer is more than rewarding organizations for the same-old same-old.
  3. What are our risks and opportunities?
    Has a proper sensitivity analysis been performed? Has the right data been used?

Once you have the answers, you can start proper planning. Until then, the questions need to be addressed and re-addressed until they are understood.

It’s Not Green If

It’s not green if:

  • it’s always on and using full energy requirements (even if it uses less energy than a previous model)
    Some systems can’t be turned off, even if they are only used (on average) five minutes a day because they have to monitor for, and respond to, exceptional events. But if they draw the same amount of power whether they are performing a function or just listening for a signal, they aren’t green. A green system will sleep when not required, and wake up when a signal is received, and in the case of computers, utilize only a fraction of full power to maintain the contents of active RAM.
  • production or disposal is less environmentally friendly than other options
    Truly green products do not contain hazardous materials and are designed so that they are easily recycled or the raw materials are easily reclaimed for future reuse. In addition, the production should require less power and water than previous generations.
  • you simply install new software on old, energy hogging, hardware
    Taking an old PC with a 300 watt power supply and installing Linux does not make it green.

and, finally, it’s not green if:

  • it’s painted green
    Taking an old product and painting it green does not make it green!

Transfer Pricing – Do You Know What You Need To?

Transfer pricing, which allocates profits and losses among different parts of a multinational entity for tax and related purposes, can have a significant financial effect on your supply chain because the companies in a commonly controlled supply chain must comply with transfer pricing rules and regulations in determining what companies should recognize what amounts of income, deductions, credits, and allowances among the various tax jurisdictions.

Transfer pricing regulations, which are governed under section 482 of the tax code that authorizes the IRS to adjust the income, deductions, credits, or allowances of commonly controlled taxpayers to prevent evasion of taxes in the US, and which must follow OECD Transfer Pricing Guidelines, can be quite complex, but as this recent article in Industry Week on “what manufacturers need to know about transfer pricing”, most regulations are based on one underlying principle: the arm’s length principle.

The arm’s length principle is the condition or the fact that the parties to a transaction are independent and on an equal footing. Transactions based on the arm’s length principle are arm’s length transactions and used in contract law to arrange equitable agreements that will stand up to legal scrutiny, even though the parties may have shared interests or are too closely related to be seen as completely independent. The principle requires that the amount charged by one party to another (related) party must be the same as it would be if the parties were not related. An arm’s length price is the same price that an independent company would pay for a good or service.

This sounds pretty easy until you get into international transactions when trying to split profits and you have to figure out who bears the product liability, the risk of currency fluctuations, and so on. At this point, most multinationals will use a transfer pricing study that performs a detailed analysis of the functions performed, assets employed, and risks borne by each party in the transaction. This will provide a justification of the cost breakdown that will stand up to regulatory and legal scrutiny.

For more information on transfer pricing, see the Transfer Pricing Network in the US, the Cole & Partners Transfer Pricing Site in Canada, or the Transfer Pricing Forum in the EU. Understanding the profit breakdowns will help you understand the cost savings that Procurement directly and indirectly generates for the supply chain.