Sustainable Transportation, It’s Harder Than You Think

Material Management & Distribution recently published an article that asked if “your international shipments [could] be more sustainable”. It’s a good question since not all modes of transportation are equally damaging to the environment, but the issue, as the article attempts to point out, is not as simple as carrier selection. Consider the following factors put forth:

  • ocean vs air freight
    while air shipments can emit up to 35 times more carbon than ocean container shipments, let’s not forget that a single giant container ship can emit the same amount of cancer and asthma-causing chemicals as 50 million cars and that the ocean shipping industry is responsible for 6,000 times the emissions of every single automobile on the planet — many of the older container ships in operation are the dirtiest modes of transportation on the planet
  • container size
    bigger is better if the port and the trucks can handle it, but you have to service the lowest common denominator in the supply chain
  • fuels and fuel treatments
    biodiesel blends are better, provided the equipment is built for the blends and the blends deliver sufficient octane; otherwise, the savings are minimal if the switch doubles the amount of fuel that is required
  • speed
    slower-moving vessels will consume less fuel if they are moving in the range of optimum performance; too slow will just increase fuel requirements
  • “electric” ships
    a ship that plugs into a grid only reduces its carbon and GHG footprint if the grid’s primary energy source is cleaner than the ship; if it happens to be a brand-new ship that uses low-sulfer fuel, catalytic converters, and particle traps and the grid’s primary power source is a dirty coal plant, plugging in isn’t that much greener
  • trains vs trucks
    trains are better than trucks, but the carbon savings only kick in if you use less trains than you would need trucks; if the dock is a primary distribution point and load sizes are small, it might be better to send a truck or two to five geographically dispersed DCs then to load one train with five cars that have to split off to five different trains at the closest yard
  • gate and container yard operations
    trucker friendly is good, but the whole operation needs to be efficient
  • efficiency of inbound routes
    optimization is key
  • location of production
    choosing the right location (even overseas, if it’s close to a port) has a significant impact on overall carbon production

Sustainable transportation is important, especially with impending energy and carbon costs, but getting there won’t be as easy as selecting the right carrier. A detailed analysis of the end-to-end distribution chain will be required.

Why You Should Optimize Your Supply Chain

Besides the host of reasons this blog has provided you with in the past, which include:

if the supply chain isn’t optimized, it might not be nimble enough to keep up. As per this recent McKinsey article on building the supply chain of the future, ““the competitor that’s best at managing the supply chain is probably going be the most successful competitor over time“. Furthermore, as supply chains are becoming more splintered, they are getting harder and harder to manage by the seat of one’s pants, which increases the management complexity. In many organizations, instead of increased agility, this actually leads to increased inefficiency as managers struggle to manage the complex splintered chains efficiently.

But if supply chain optimization is employed, the splintered chains can be quickly optimized. But more importantly, an organization can progress beyond managing splintered chains to managing supply chain segments, which is likely the ultimate key to supply chain success in the years ahead. Think about it … if the origin and destination of goods has to continually adapt due to changing low cost locales and emerging (consumer) markets, then the ultimate key to quick adaptation will be to just change the relevant segments of the (splintered) chains and not the whole chains. If the organization was sourcing from Thailand but switches to Vietnam, but is still shipping to the US, why should the whole supply chain change? Maybe it’s still the same ocean carrier, and all that changes is the port and the carrier that gets the goods to the port. And if the organization has general contracts with a number of different international carriers, it will be quick to run an optimization and build the modified change from available segments.

And that, in a nutshell, is why you need supply chain optimization.

Lavante – The Newest Contestent in the SIM Arena

As mentioned in yesterday’s post, Lavante is the latest provider of Supplier Information Management solutions in the Supply Management space (which includes Aravo, AECSoft (just acquired by SciQuest), CVM Solutions, Hiperos, and Rollstream, which have all been covered on SI). And while it arrived late, it comes ready for battle.

Since you all know by now what a good SIM solution should do (and if you don’t, reread the classic vendor SIM posts linked above), I’m not going to waste any time describing what it should do or spend a lot of time on the details. Instead, I’m going to mention all the standard stuff that the platform does and then focus on what makes Lavante different from the competition and why it should be included in your SIM vendor short list.

Like its competitors, Lavante allows you to collect detailed information on all of your suppliers, including detailed information on each contact. By default, this detailed information includes tax information, headquarters information remit-to information, business structure information, ERP (System) information, ownership information, certifications, services/materials information, risk management information, insurance information, bank information, and user defined summary information. A supplier has the option of entering all of the information on-line or downloading a template. Lavante can import your current supplier master (in a standard format such as XML) or provide a buyer with a (CSV) template to enter information for new suppliers. The information collected can be customized for every supplier, notifications on change can be configured at the element level, and approvals can be required before critical information is changed.

In addition to the standard browser interface, suppliers can also respond to e-mails or faxes (and even call a rep who will enter the information for them if they are still technologically illiterate). The supplier interface allows a supplier to log-in and manage 100% of their information, which minimizes buyer effort if suppliers take an active role in buyer interaction.

At any time, a buyer can get a list of all suppliers who have not provided requested information as well as suppliers who have registered and completed their profile. The buyer can also see which communication attempts have been tried or whether or not the supplier has not provided an e-mail or fax number.

The distinguishing characteristics of the platform are the following:

  • it was built on the cloud
    it was designed to be 100% multi-tenant and cloud compliant from day one
  • extremely configurable
    many early platforms only had the ability to send an alert when a change was made; later ones allowed for alerts to be configured to change type; Lavante’s platform allows each individual data element to be marked as notify/don’t notify on change
  • automatic validation of Tax ID
    Lavante does a real-time check of every TIN that is entered and a supplier is not allowed to register without a valid TIN that matches their name
  • multi-mode outreach
    whereas most providers assume browser or e-mail data provision, Lavante also accepts faxes and integrates OCR and provides supplier outreach services that will get suppliers onboard by e-mail, fax, or phone if necessary
  • a supplier portal that equals the buyer portal
    suppliers were an afterthought in many first generation SIM platforms and a supplier had to log in to a separate instance of the portal for each buying organization they dealt with; in Lavante’s platform, a supplier can manage their data for all buyers who use Lavante through a single log-in — information needs to only be entered once and common information is segregated from buyer specific information
  • very large supplier database
    Lavante, which started as a recovery audit vendor, has been around for 10 years and has amassed a database of over 2 Million vendors that its client do business with — as a result, it has current information on over 2 Million vendors in its database

Plus, Lavante can use this platform to streamline its recovery audits and save an organization up to 10X more than a recovery audit without access to detailed information would save. So when you add the initial savings that will come from 1099 reporting compliance with reduced SIM (when 20% to 40% of supply base information needs to change annually) resource requirements and more successful cost recovery audits, the solution pays for itself almost immediately. Plus, since it’s true multi-tenant cloud, Lavante can turn your organization on in less than an hour.

Another Headline from the Land of D’oh! Financial Crisis of 2008 avoidable

According to this recent BBC article, which summarized a report from the US Financial Crisis Inquiry Commission, Regulators, politicians and bankers were to blame for the 2008 US financial meltdown. Well, duh!

From page 17 of the report:

The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.

The only thing the report, and article, got wrong was that the cause of the crisis is the same fundamental cause of the financial crises for the last 30 years. Simply put, it was greed.

  • Greed (by the lenders and the regulators, who wanted to believe the market was strong) led to the tide of toxic mortgages
  • Greed led to reckless actions by executives
  • Greed led to households taking on too much debt
  • Greed led to fundamental breaches in accountability

And while the report may be correct when it states that to pin this crisis on mortal flaws like greed and hubris would be simplistic because it was the failure to account for human weakness that is
relevant to this crisis, the reality is that, despite the repeated financial crises of the past 30 years, federal regulators have yet to put checks in place for greed. And until regulators recognize that they have to be looking for greed whenever markets rise too fast (because that’s what produces unsustainable evaluations and toxic assets) and actually do so, their hubris is going to allow these crises to happen again and again. The boom and bust will repeat until the economy just can’t take it anymore and future historians discuss the fall of the great American Empire along side the fall of the great Roman Empire.

Are You Ready for the New 1099 Tax Laws?

As of January 1, 2012, as per reporting requirements set forth by the Patient Protection & Affordable Care Act that passed in March 2010, which provides an Amendment to Section 6041 of the Internal Revenue Code, 1099-MISC reporting will now be required for all payees that receive payments that total $600 or more in a calendar year.

No longer will service providers that were incorporated be exempted, and no longer will companies that provide you with physical goods be exempted. A 1099-MISC must be filed for any payee that receives more than $600 worth of payments in a single calendar year.

For many organizations, this will increase the 1099 filing requirement from about 10% of the supply base to 90% of the supply base, a nine-fold increase in 1099-MISC reporting!

Furthermore, the IRS intends to make sure that everyone complies through the establishment of 16,000 new auditor positions. Right now, the Joint Committee on Taxation is estimated this is going to result in 17 Billion in additional revenues from 2012 to 2019 (which will likely cover the cost of the auditors 3 times over). And this amount does not include the revenue from fines that will be collected from each company not in compliance, which are increasing to $250 for each supplier that is not properly reported (from a current fine amount of $50), to a maximum liability of $1,500,000 in a calendar year (from the current liability of 250,000).

Right now, chances are that your organization doesn’t even have a TIN for most of the suppliers that need to be reported under the new legislation. So what do you do?

As per a recent white paper from Lavante that describes the impending challenge that your organization is about to face as well as a series of steps to become compliant, you could start with good Supplier Information Management (SIM). Not only will this solve your immediate 1099 reporting requirements (when integrated with your ERP / Accounting System), but it will enable a slew of other benefits (as described in previous posts here on Sourcing Innovation).

Lavante is the first to offer a SIM solution that will solve this challenge, which will be the subject of our next post.