Monthly Archives: March 2009

A Very Simple Definition of Risk

Not only is risk everywhere on the map, so are the types of risk and associated definitions thereof. Risk: a concept that denotes the precise probability of specific eventualities (Wikipedia). Financial Risk: probability of loss in the methods used in financing a firm (Business Dictionary). Supply Chain Risk: the damage — assessed by probability of occurence — that is caused by an event within the company, within its supply chain, or its environment affecting the business processes of more than one company in the supply chain negatively (Kersten).

Fortunately, there’s a very simply actionable definition of risk that everyone can understand:

If you’re counting on it, it’s a risk.

This covers every type of risk you can think of.

    • Production Risks
      Machine Breakdowns: check.
      You’re counting on the machine to work.
      Supply Shortages: check.
      You’re counting on parts and raw materials to be available when you need them.
      Talent: check.
      You’re counting on having the operators you need, with the right skill sets and experience, when you need them.
    • Communication Risks
      Network Outages: check.
      When you pick up the phone, you expect a dial-tone. When you send an e-mail, you expect it to leave your server.
      Broken Channels: check.
      When you issue an order, you expect it to be relayed.
    • Business Model Risks
      Disruptive Technology: check.
      You expect that your product will continue to be in demand and viable in the marketplace.
      Disruptive Business Model: check.
      You expect that your pricing model is valid, and that you’ll be able to sell your products at a profit against competitors in the same ballpark.
    • Environmental Risks
      Natural Disasters: check.
      You expect that an earthquake won’t level your plant tomorrow.

Resource Shortages: check.
You expect the water and electricity to keep flowing.

  • Political Risks
    Trade Barriers: check.
    You expect that you can keep importing from your suppliers and keep exporting to your customers.
    Civil Unrest: check.
    You expect that your plants won’t be blockaded and that they won’t be attacked by a terrorist organization.
  • Economic Risks
    Currency Fluctuations: check.
    You expect the currency exchange rate will stay within your predicted window.
    Commodity Market Instability: check.
    You expect prices won’t yo-yo out of control over your contract period or that your current strategy will be able to deal with yo-yo pricing.
  • Internal Compliance Risks
    Maverick Spending: check.
    You expect your employees will buy off contracts using approved methodologies and that expected savings will be realized.
    Contract Adherence: check.
    You expect your employees will live up to supplier, customer, and partner commitments and SLAs.
  • External Compliance Risks
    Trade Documentation: check.
    You expect that your partners will produce all of the necessary import and export documentation, and deliver it on time, to all of the appropriate customs and government agencies.
    Regulatory Requirements: check.
    You expect that your production facilities are complying with the RoHS, WEEE, and REACH directives.
  • etc.

This is also why it’s actionable. To identify risk using this definition, all you have to do is review every business activity and outline what you’re depending on AND assuming, and you have your list of risks. Then, you can prioritize the risks and begin working on the definition of your risk management plan.

Identifying Individual Learning Patterns is Key to Effective E-Sourcing Training

A recent article on Supply Management . com by Aneela Nasim on “effective e-Sourcing” notes that you will only maximize your benefit if your staff are effectively trained on the system and know how to use it. In order to help you devise an appropriate training program, the author notes that the best way to devise training programs is to tailor it to user roles and individual learning methodologies.

The author suggests you start by outlining the key roles, such as “regular buyer”, “super user”, and “cross-functional team member”, defining the activities required, and then outlining the key methodological and technological aspects of the process and system that need to be addressed.

Then, within each group, determine the learning styles will be displayed by your users — such as the activist, reflector, theorist, and pragmatist learning styles defined by Honey & Mumford — and tailor your training materials and presentations appropriately.

Finally, encourage and enable your team members to share what they learned with each other. Users who teach each other and support each other are more likely to buy into the system and champion its use.

Maximize Your Supply Management Learning With All Of The Free Resources Available To You

As a regular reader of the Sourcing Innovation blog, I know you’re a consummate professional always on the lookout for ways to enhance your capabilities and advance your career. One of the best ways to do this is to take advantage of the wide range of free resources that are available to you. Today’s World Wide Web, which has enabled an unprecedented level of information sharing since it’s introduction by Tim Berners Lee in 1990, contains a wide array of resources that you can use to increase your knowledge and supply management skill sets. In this article I will introduce you to some of these and the advantages they have to offer.

Free Newsletters

While some free newsletters amount to nothing more than spam marketing by the sender who wants to sell you something (that you may or may not need), others can be packed with informative articles that can help you expand your knowledge base. There are a number of good, informative, newsletters in this space. Some of the ones that I’ve found to be very informative include Paladin’s Checkmate News, Aptium Global’s GunPowder, and Denali’s e-Whitepaper
Newsletter. You can find more in the growing newsletter directory on the resource site.

Free Whitepapers

Free Whitepapers from independent analyst firms and supply chain bloggers can give you an unbiased educational view into important issues and innovative technologies. Aberdeen makes many of its benchmark studies freely available for a limited time, and both Spend Matters’ Perspectives and Sourcing Innovation Illuminations are free as well. Plus, Charles Dominick has made it a weekly wont to review some of the better whitepapers that are freely available in his Whitepaper Wednesdays on the Purchasing Certification Blog.

Leading Blogs

Bloggers delight in providing you with free information, and in addition to Sourcing Innovation, Spend Matters, Supply Excellence, and Deal Architect have deep content archives of over a thousand deeply informative posts that address best practices, technologies, and innovative developments going back three, four, and even five years. Plus, you can find over 100 supply chain and related enterprise blogs indexed in the Supply Chain Blog Directory on the resource site. (Just remember that not all of them will publish as regularly as the aforementioned blogs.)

Web 2.0 Wikis and Social Networks

As a regular reader of this blog, you’re probably familiar with Facebook and the Next Level Purchasing Facebook group in addition to the new Sourcing Innovation Linked-In group. But that’s just the tip of the iceberg.

The e-Sourcing Wiki, the Safe Sourcing Wiki, and the WikiSCM are jammed packed with dozens of white-papers and hundreds of entries on a wide variety of subjects that are sure to increase your supply management awareness.

In addition to the univerally known Facebook, we have the supply chain social networks that include iProcurement.org, the SCM Profesionals group, the Buyers Meeting Point, and the Shared Services Outsourcing Network. On these networks you can interact with, ask questions of, learn from, and even educate your peers anytime, anywhere. These wikis and communities are indexed, with others, on the Resource Site.

Webinars and Podcasts

Educational webinars and podcasts can be a great supplement to the deep content that you find on leading blogs like Sourcing Innovation and Supply Excellence. That’s why the Sourcing Innovation Supply Chain Resource Site indexes over sixty archived podcasts and three hundred and twenty archived webinars that you can access at your leisure to dive into a wide variety of topics, all indexed and searchable from the Search page.

Profiting from Environmental Regulation

A recent article in Industry Week on “the regulation opportunity” noted that companies with an environmental vision and plan can mitigate increasing environmental regulation and actually profit by improving:

  • Revenue
    Companies perceived as green by consumers have increased customer loyalty and attract higher rates of sale.
  • Cost Structure
    Companies that place importance on environmental compliance are generally better run and costs are more fully understood. Having an environmental strategy helps to trim the fat, reduce waste, and improve the overall operating cost structure.
  • Public Relations
    These days, many consumers will actively punish companies that they feel are environmentally irresponsible.
  • Government Relations
    You’ll garner regulatory “good-will” and be considered a key stakeholder who can help shape future regulations.
  • Employee Relations
    Gen-Y job seekers actively look for environmentally friendly organizations and actively shun those that aren’t. You’ve been warned!

Furthermore, you don’t need to wait for regulations to put a halt to current operating practices, you can improve them now and reap the rewards.

Now That You Have Your Demand Planning Strategy in Place, Use It!

In our last post, we reviewed Infor’s top ten demand planning strategies. In this post we’re going to illustrate why you need to put your demand planning strategy into action immediately using a recent case study from Global Logistics & Supply Chain Strategies as our example.

In Free The Enterprise! Bust the Silos in the Supply Chain, Robert Bowman tells us how, not too long ago, Linksys (the router division of Cisco Systems Inc.) had a record of only 20% accuracy and could only manage supply and demand for its top 200 SKUs. However, after taking appropriate actions, it was able to reduce inventory by 35%, backlog by 60%, and obsolete inventory by 40% in only twelve months. It also increased supplier fill rate from 65% to 95% while reducing expedited shipments more than tenfold from 40% down to 3%. And forecast accuracy at the SKU level increased 350% to a much more acceptable 70%.

How did Linksys do this? The Vice President of Operations tore down the silos between the demand forecasting and product management teams and created a formal S&OP organization that served as a data clearinghouse and a foundation for a company-wide demand forecast. No longer was forecasting a monthly spreadsheet exercise conducted in isolation by the demand forecasting team. In the new structure, a cross-fuctional forecasting team was formed that solicited input from finance, sales, marketing, purchasing, and supplier management before constructing a forecast. This is a much better situation than the one where no one trusted the forecast and sales would inflate its numbers to insure product availability.

In addition, the VP instituted an aggregated view of forecast, inventory, and production data for each SKU that he called “gameboards” supported by a an underlying software platform. No purchase was permitted unless it was based on factual information from the gameboard.

However, the effort ultimately succeeded because the internal walls were torn down and all organizational groups learned to work together in harmony and trust the forecast that was produced as a group. This is not always an easy effort. As the author astutely notes, “companies might find it easier to tear down functional walls separating them from external partners, such as suppliers, than those between internal departments“. In addition, “independent partners understand the need to work closely together, while individuals with a common employer tend to gravitate toward their immediate areas of responsibility“. And this tendency to stick to silos will continue unless you align incentives. If sales is incented to push product even if inventory is high and factories are incented to increase production even if the demand is not there, everyone ultimately loses. Everyone needs to be incented against the same goal and off of the same metrics, which must capture TCO reductions and ROI improvements. And the organization needs to move to a collaborative demand-driven mentality focussed on compliance with the agreed upon operational procedures.