Monthly Archives: August 2006

The Global Supply Chain Benchmark Report

Yesterday we discussed the “Innovators in Supply Chain Security: Better Security Drives Business Value” report recently released by the Stanford Global Supply Chain Management Forum and IBM that detailed the qualifiable and quantifiable business benefits that result from supply chain security investments. Although the report detailed some of the initiatives being undertaken by the participants, including:

  • additional storage and transportation security,
  • anti-piracy features / methods for identifying genuine products,
  • product tracking tools / RFID,
  • implementing measures to comply with voluntary security initiatives,
  • advanced training programs,
  • incorporation of security requirements into supplier contracts, and the
  • development of a security knowledge base;

The report did not really detail generic priorities for visibility, collaboration, and trade compliance for companies that have identified the need for increased supply chain security or risk management. However, again Aberdeen comes to the rescue with the Global Supply Chain Benchmark Report (sponsored access) that identifies industry priorities for companies about to embark on risk management initiatives.

The report, which notes a critical lack of global supply chain automation, notes that the most critical areas that a company needs to address to keep up with global trade growth and increased competitive pressures are:

  • Supply Chain Visibility
    to increase the transparency and velocity of global activities
  • Business to Business Collaboration
    to improve supply/demand synchronization
  • Trade Compliance
    to ensure undisrupted movement across borders and take advantage of preferential trade agreements to lower total landed costs
  • Risk Management
    to ensure resiliency in the face of supply chain disruptions

The report found that:

  • On average, global supply chains are only 50% as automated as their domestic supply chains at large companies;
  • An astounding 90% of all enterprises report that their global supply chain technology is inadequate (to provide the corporate finance organization with the timely information it requires for budget and cash flow planning and management); and
  • Only 11% of the 82% of companies concerned about supply chain resiliency are actively managing risk.

As a result, Aberdeen recommends that you:

  • Extend supply chain visibility
    by moving to exception-based management of activities and increasing the number of monitored milestones
  • Scale business-to-business collaboration
    and implement collaborative forecasting, advanced inventory management, and replenishment applications
  • Go corporate-wide with trade compliance
    and move toward a single corporate wide trade compliance platform with comprehensive origin and trade agreement management
  • Institutionalize risk management
    and make risk assessment and contingency planning part of your standard operating procedure

In addition, based on the Innovators in Supply Chain Security report, I would recommend that you

  • insure your trade compliance platform incorporates advanced product features,
  • insure your visibility applications are fully RFID compatible, and
  • augment your risk assessment and contingency planning with extensive training on your visibility, collaboration, and compliance systems.

After all, according to the report, best-in-class companies:

  • have end-to-end and cross-functional automation,
  • use commercial visibility solutions to monitor order-line level status, inventory, and mobile assets,
  • collaborate across 3+ processes across multiple supplier and customer tiers,
  • run on an enterprise-wide trade compliance platform that includes preferential trade agreement optimization,
  • frequently perform 3+ logistics agility actions,
  • use managed services or BPO solutions to augment staff, supported by visibility and collaboration technology, and
  • manage supply chain resiliency to risk related events.

The report also contains some great recommended actions for laggards, industry average, and best-in-class companies, so check out the “Global Supply Chain Benchmark Report”!

(e-Sourcing) Resistance!

There’s no easy solution.
The price is high, and it’s time to pay.
Turn of the century vision
focused on a better way.

Recently, Tim Minahan over at Supply Excellence [WayBackMachine] has been very focused on e-Sourcing, why it is good for suppliers, strategies to make the most of e-Sourcing, why it’s not all about reverse auctions, and, why there is so much resistance.

And although I indubitably agree with the vast majority of his points, I have to disagree with his rationale for a continued resistance to e-Sourcing by many buyers (and suppliers). However, before I continue the story, we should summarize the story to date.

It started with Why e-Sourcing is Good for Suppliers: Part I in which Tim set out to dispel “The 7 Myths of e-Sourcing” where he succinctly stated, contrary to some archaic popular beliefs that:

  1. e-Sourcing is NOT all about lowering prices
    proper e-Sourcing tools allow qualification and evaluation on all attributes of a supplier’s capabilities and costs, allowing a buyer to make a decision on value
  2. e-Sourcing is NOT unfair to suppliers
    e-Sourcing introduces integrity, opens the playing field, and insures that all suppliers get a fair shake
  3. e-Sourcing is NOT unfair to incumbents
    since good e-Sourcing tools allow the buyer to evaluate the value provided by the incumbent, by way of innovation credits and switching costs, a competitive incumbent is in a good position to actually win more of the business
  4. e-Sourcing does NOT make it difficult to win new business
    since e-Sourcing dramatically shrinks sourcing cycles, suppliers can participate in more events and increase their opportunities
  5. e-Sourcing does NOT lengthen the sales cycle
    since e-Sourcing shrinks sourcing cycles, it also shrinks sales cycles and getting to no fast can be as valuable as getting to yes fast
  6. e-Sourcing does NOT burden suppliers with new cost, technology, and resource requirements
    not only is there compelling evidence that e-Sourcing reduces overall SG&A costs, but a proper on-demand solution can reduce supplier technology requirements to a PC and a net connection, which is likely to already be on the desk of most of the supplier’s analysts and sales people
  7. e-Sourcing does NOT eliminate buyer-supplier relationships
    e-Sourcing platforms allow buyers and suppliers to gain better visibility into costs and risks in the supply chain and work together to come up with innovative cost-saving, value-enhancing solutions that build stronger relationships over time

This was followed with Why e-Sourcing is Good for Suppliers: The Sequel where Tim offered strategies for suppliers to make the most of e-sourcing events. Succinctly, Tim suggested that a supplier should:

  • Teach their buyers well
    by educating buyers on the total cost and value drivers of the industry and using the e-RFX process to lobby buyers to incorporate qualitative metrics such as innovation, fulfillment, and quality into the award criteria
  • Fire bad customers
    since the top 20% of your customers will generally contribute 80% of your profits, you should focus on those customers that provide the same value to you that you provide to them and drop the rest; e-Sourcing facilitates this by letting you quickly gather the information needed to determine whether a potential new customer shares the same attributes and capabilities of your current top customers
  • Do your homework
    make sure you fully understand the buyer’s specifications and award criteria and provide all of the information in a timely fashion
  • Have a game plan … and stick to it
    pre-determine your starting bid, bidding increments, and lowest sustainable price; bidding away your entire margin is not good for anyone
  • Play fair
    not only will you get fired on the spot by a savvy buyer if you attempt to circumvent the process, but you could get a bad reputation which would hinder future business
  • Win the business everyday
    remember, a buyer uses e-Sourcing to help him find the supplier that offers the most value – and a supplier who consistently exceeds basic requirements and expectations is much more likely to be given high marks on the qualitative analysis of future awards, leading to a higher overall value in the mind of the buyer

Then, as a result of the number of comments and e-mails Tim received, Tim inferred that his recent posts on the myths of e-sourcing must have touched a nerve and quickly fired off another short post where he explained that “e-Sourcing: It Ain’t All About Reverse Auctions” and that e-sourcing is not a euphemism for reverse auctions. Instead, auctions are just one flavor of negotiation types available on the e-sourcing menu. Other negotiation types include electronic RFI, RFP, RFQ, sealed bids, transformational bidding, flexible or expressive bidding, and optimization. (…) And, as stated in the previous post, nearly all e-sourcing projects utilize multi-threaded or iterative negotiations, moving from e-RFI-to-e-RFx, etc.

Tim furthermore noted that negotiation itself is only one area of functionality supported by an e-sourcing platform. It is also only a small portion of the strategic sourcing process. Time dedicated to negotiation accounts for less than 20% of the overall sourcing process. The bulk of sourcing efforts come pre-negotiation (…) and post-negotiation (…). These activities largely determine the success and total value derived from any form of only negotiation. This led to a revised definition where he stated that a more apt definition of e-Sourcing is the use of Web-based applications, decision support tools, and associated services to streamline and enhance strategic sourcing processes, determine best-value supply relationships, and advance knowledge management.

And since this last post was a week ago, it looked like it was the end of the story. But comments continued to poor in, and yesterday Tim blogged “Whither e-Sourcing?” in response to a particular remark by Kevin Brooks of Apexon (acquired and merged with Infostretch in 2022) that essentially pointed out that despite all the value, you still often find tremendous resistance to the e-Sourcing process. In this post, Tim offered a conjecture as to why buyers and suppliers resist. The conjecture:

Laziness

Tim states that buyers don’t like the way e-sourcing adds discipline and accountability to the process and that suppliers don’t like e-sourcing because it introduces a level of competition and quotes Dave Nelson (of Honda, John Deere, and Delphi) who said buyers do not like e-sourcing because it makes them do their work and Jason Busch of Spend Matters who said ”e-sourcing doesn’t allow buyers to select suppliers based on the size of their Morton’s [steakhouse] expense account.

And even though we are all quite capable, and probably guilty, of becoming quite lazy every now and again, especially when we are tired, bored, and worn out, I do not think this is the cause, only the perceived symptom.

So let’s assume that what Tim, Dave, and Jason said is true and that buyers and suppliers are lazy when it comes to e-Sourcing, that this is only the symptom, and try to deduce the root cause(s).

(1) Buyer’s don’t like the discipline and accountability e-Sourcing adds to the process.

I do not believe that buyers fundamentally have a problem with discipline – after all, discipline is process and a well-defined process can streamline your work, not make more of it. Maybe they don’t like the accountability, but when you consider that it is their ass is on the line, and that a well designed system can actually make it more transparent that they are doing their job well and the screw-up down the line is someone else’s fault, the system seems kind of attractive.

However, if the buyer does not judge the system to be well designed, well explained, and easy to use, then the buyer is going to equate that system with more work, and not less, and since your average buyer is more likely overworked than not, it’s only logical that they would resist. But it’s not resisting out of laziness, it’s resisting in an effort to keep their workload down in an effort to maintain their current level of productivity.

(2) Suppliers don’t like e-sourcing because it introduces a level of competition.

Suppliers are always under fire from competition with or without e-Sourcing – and most recognize this fact! However, if the process appears to favor the competition, it is logical that they would resist, and this would be out of fear and not laziness.

Thus, not only does the supplier need to be educated on how e-Sourcing improves the process and levels the playing field, the supplier has to have confidence that the buyer will use the tool fairly.

(3) Buyers do not like e-sourcing because it makes them do their work.

As I said in my response to the first point, for the most part, I do not believe that buyers do not want to do work, I believe that buyers do not want to do extra work that will detract from their productivity (and make them look bad). And since a poorly designed, or poorly explained, system will only cause them extra work, it is natural they would resist.

(4) E-sourcing doesn’t allow buyers to select suppliers based on the size of their Morton’s [steakhouse] expense account.

This is actually the most valid point – but not because buyers are greedy and want kickbacks, but because buyers want to be recognized for what they are worth and get what they deserve – just like the rest of us. I’m willing to bet that if a buyer is willing to select a supplier based on a few free dinners or a “supplier forum” in a tropical paradise that they are doing this because they are over worked and under paid with respect to their peers due to a poor, or more likely still, lack of incentive program on their employer’s part. And as regular readers will know, I strongly encourage incentive-based compensation since the best productivity stems from incentivized workers.

In other words, for the most part (*), I do not think that buyers or suppliers are resisting e-Sourcing because they are lazy. I think that they resist because they are overworked, under paid, or under-supported. If the evangelist took the time to properly demonstrate how the expected results could be achieved, management made the effort to insure that workloads were reasonable and that proper incentive and reward structures were in place, and everyone approached e-Sourcing open, honestly, and with the best of intentions, then I believe that a large number of buyers and suppliers would be willing to at least give e-Sourcing a try. However, if you continue to live in organisation man’s world and simply try to shove an e-Sourcing solution down their throats as the latest “flavor of the month” software system, then I expect the resistance will continue. That’s my view. (If you disagree you can try the comment feature or e-mail me directly.)

(*) I say for the most part because there is always the exception. In that case, all you can do is show the lazy moocher the door and move forward with the rest of your sourcing team.

Aberdeen’s Top 10 Technology-Enabled Best Practices for Accelerating Sales and Operations Planning Business Results

When I reach the bottom of my virtual stack of white papers and research briefs on sourcing, procurement, and supply chain, I often troll for related best-practices articles on related and overlapping business processes. Scouring the Aberdeen site, I came across a recent Perspective entitled “New Strategies for Sales and Operations Planning: How Technology-Enabled Best Practices Accelerate Business Results” (AberdeenAccess) about, oddly enough, sales and operations best practices that can be enabled by technology.

While most of Aberdeen’s top ten technology enabled best practices were as expected and contained no surprises, I was delighted to see that not only was the need for role-based functionality and data manipulation recognized, but that demand shaping was fourth on the list.

The report notes that in addition to the enterprise security needs dealing with planning authority domain and roles, there is a need for user role specific functionality. A requirement of this function is the ability to show data in different ways based on the role, for example, unit level for the manufacturing users, margins for the finance users and revenue for the sales and marketing users. The reality is that everyone in your organization needs a different view of the data to do their jobs effectively and productively – and any product that tries to force a one-view fits all solution is not a true enterprise solution for your sales and operation planning needs.

More importantly, the report also notes that once the unconstrained forecast has been generated as part of the demand forecasting process, the forecast needs to be refined based on events such as promotions, downturns, and new product introductions. The system should predict and shape consumer response by building a business strategy that incorporates forecasting and promotional impacts into the demand plan. These solutions also should determine when and how to price and promote products – throughout a product’s lifecycle – to achieve revenue and profit objectives. A product has a non-linear dynamic lifecycle and the only way to truly maximize your return on production is to take this into account.

In order, Aberdeen’s top ten technology-enabled best practices are:

  • Collection of external Sales and Market Data
  • Demand Collaboration
  • Demand Forecasting
  • Demand Shaping
  • Supply Constrained Plan
  • Profit based S&OP
  • What if Analysis
  • S&OP Plan Quality & Metrics
  • Master Data Management
  • Role-based Functionality and Data Manipulation

For full details, I would encourage you to read the full perspective.

A Synchronized Extended Retail Industry Optimizes the Supply Chain

Recently, TIBCO Software Inc. released a whitepaper entitled “Synchronizing the Extended Retail Ecosystem” (RetailSystems, registration required) discussing how retailers are being challenged by the consumer to provide solutions quickly and efficiently (“Time”) by offering the right combination of products and service and 100 percent “trip assurance” (“Value”) and making actionable information available at the point of decision (“Information”). How retailers are challenged to be a “brand” unto themselves”. And how in the Extended Retail Industry (ERI), retailers are part of an ecosystem of participants including manufacturers, wholesalers, logistics companies, and other service providers that [need to] work together to create solutions for the consumer.

However, the key takeaway is in the overview of traditional retail value chain and the potential value of ecosystem synchronization. Traditionally, product availability is guaranteed by excess physical inventory. This causes a distributor to over-inventory which, in turn, causes a manufacturer to over-produce. This produces a net effect of slower inventory turns, the need to sell-off excess inventory, and a negative financial impact. However, a synchronized retail ecosystem where a retailer is linked into its distributors which are in turn linked into their manufacturers, allows the retailer to share updated demand data in real time, allows the distributors to meet the retailers demand without significant overstocking, and this in turn allows the manufacturers to produce the right quantity. In addition to significantly reducing excess inventory, it allows for faster inventory turns. Furthermore, the distributors will see patterns across the retailers they support for different product lines and can push normal usage data back to the retailers to help them produce better forecasts.

In addition to optimizing the supply chain, an extended retail ecosystem, once implemented can reduce systems friction, technical complexity, and improve the cross-channel consumer experience. Integrated systems reduce erroneous, redundant, and unsynchronized data that lead to “garbage-in garbage-out demand forecasts. Web-services based integrated systems also reduce the complexity of the supply network for each participant who can now receive a cohesive picture instead of a collage of fragmented snapshots. Finally, the reduced occurrences of out-of-stock situations that will result will provide a better experience for the consumer who will not be leaving the store empty-handed.

Can Supply Chain Performance Really Induce a CFO to do Backflips?

When I hear CFO, I think of an aging C-level executive with grey hair in a grey suit and when I hear cheerleader I think of college student with brightly colored pom-poms doing backflips. So when I stumbled upon the Aberdeen Group Perspective entitled “Turning your CFO into a Supply Chain Cheerleader” (now for Aberdeen Access members only), I had a good chuckle, but then dived in to see what their take was.

The hard truth is that most C-level executives traditionally could care less about how the supply chain operates – they just care about results and they don’t want service excuses. However the trend of globalization, especially sourcing from low-cost countries such as China, is opening the door for the supply chain organization to gain a new C-level champion: the chief financial officer.

The reality is that CFO’s are now facing increasing pressures across the board and good supply chain practices are the key to reducing some of these pressures. The perspective overviewed four of the top pressures facing CFOs and their corresponding supply chain solutions.

CFOs are stressed with making the best use of corporate cash.
CFOs want to actively manage cash but uncertain international lead times make it increasingly difficult for finance organizations to make proactive use of the balance sheets. Supply chain organizations can help by implementing improvements that result in less errors, proof of delivery to trigger automatic invoice reconciliation, and e-procurement systems that result in full order visibility.

CFOs are charged with corporate budget oversight in a time when regulatory oversight requirements are constantly increasing.
Supply chain uncertainties contribute to budget overruns and erosion of expected gross margins. For overseas LCC shipments, Aberdeen benchmarks show that inadequate transportation cost forecasting is the top reason for discrepancies. Improved supply chain costing can be used to help companies protect gross margins.

CFOs are challenged to reduce working capital requirements.
Supply chain managers can impact working capital by reducing inventory investment and obsolescence by having strategic suppliers manage inventory positions, investigating inventory optimization technology, and connecting supply chain visibility initiatives to Six Sigma programs.

CFOs are concerned with cross-functional global trade disconnects that drain financial performance.
Aberdeen research identified that companies that decreased their total landed costs and cycle times the most were nearly seven times more likely than their peers to measure global trade management performance on a corporate-wide basis and invest in cross-functional processes. Supply chain organizations are in the best position to lead the development of these cross-functional processes and assist finance in the development of these metrics. And even though I really doubt that the significantly improved financial performance that will result will have your CFO doing backflips, there is a very good chance the CFO could be your supply chain organization’s biggest supporter once profits start skyrocketing from the significantly reduced costs and increased savings capture rates that result from your compliance initiatives.

In other words, CFOs are concerned with their primary responsibility: the corporate treasury, and making sure that the money is well managed, collected on time, and not lost on projected savings leakage. By implementing best practices, automated systems, and monitoring processes, supply chain organizations can make sure orders are placed on time, negotiated savings are maintained, invoices received, and payments made, on time.