Monthly Archives: July 2010

Where Are The Extreme Supporters?

A recent Vision Statement in the Harvard Business Review on why a business should “Behold the Extreme Consumers”, the 5% of customers so infatuated with the brand that they spend more than 10% of their lifetime income on it that many brand managers fear, had some impressive statistics:

  • 100% personally identify with and say they gain meaning from a favourite brand
  • 98% have defended the brand against perceived attacks in the media or from other firms or individuals
  • 96% describe their favourite brand as “part of the family”
  • 94% display their extreme behaviour in relation to just one brand
  • 94% agree strong that “more often than not, buying cheap is expensive”
  • 94% never even consider buying a brand that rivals their favorite

Which leads one to ask, where the extreme supply chain supporters? Imagine how much more respected (and successful) the supply management organization would be if it could find the 5% of company employees in other business units who:

  • personally identified with supply management and gained meaning from its involvement
  • defended supply management against unjust attacks, no matter where they came from
  • described supply management as “part of the team”
  • displayed extreme support for supply management and supply management alone
  • agreed that any buying decision was multi-faceted and should be left to the pros
  • never even considered making a major purchase without the involvement of supply management

What a wonderful world it would be.

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A Hitchhiker’s Guide to e-Procurement: Goods Receipts, Part II

Mostly Harmless, Part IX

Previous Post

In the last post, the goods receipt was defined and some of the complexity around the requirements thereof were discussed. This post will address some of the challenges associated with the goods receipt, some of the associated best practices, and some of the benefits that could be expected from an appropriate e-Procurement solution that effectively handled goods receipts.

Common Challenges

  • m-Way Matching

    The goods receipt needs to be matched back to the appropriate purchase orders and/or contracts and forward to the appropriate invoices. This can be very difficult without a good system.

  • Issue Tracking & Dispute Initiation

    As soon as a potential problem is detected, it has to be documented and reported as a supplier’s liability is often greatly minimized, if not released entirely, if an issue is not reported in a timely fashion.

  • Inventory Management

    If the goods are not appropriately logged and tracked, they could be lost in the system. Or, even worse, the inventory management system might think there is not enough stock when there is too much and automatically reorder more, causing inventory management nightmares (as well as huge write-offs down the line).

Best Practices

  • Line-Item Matching

    Since a single shipment can relate to multiple purchase orders, contracts, and / or invoices, matching should be done at the line-item level of the goods receipt.

  • Dispute Management Integration

    The goods receipt should be automatically sent to the dispute management system if any issues are noted and the e-Procurement system should be capable of importing any modifications output by the dispute management system, as a result of an agreement.

  • Inventory Management Integration

    The goods receipt should be automatically sent to the inventory management system, and the inventory management system should send back an error message if any of the SKUs are unrecognized (which would be captured by the e-Procurement system).

Potential Benefits

  • Faster Dispute Resolution

    If issues are immediately tracked and reported from the time the goods are received and the goods receipt issued, a formal dispute can be initiated faster — and solved faster since accurate information will be immediately available.

  • Faster Payment

    The issuance of a goods receipt that is free of disputes can trigger payment approval for an invoice (that is issue free), which is then more likely to be paid on time, or early if a(n attractive) discount is offered.

  • Significant Savings

    First of all, because no issue goes untracked, losses from damaged or spoiled merchandise are considerably reduced. Secondly, because shipments are automatically tracked and reconciled and because disputes are resolved faster, the buyer is more likely to be able to take advantage of any early payment discounts that may be offered to save even more.

Once the goods receipt is issued, an invoice can be expected in short order (if it is not issued upon shipment). This is the subject of the next post.

Next Post: Invoices, Part I

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What’s Driving Your Supply Chain Strategy?

The recent report on “Supply Chain Strategy in the Board Room” by the Cranfield School of Management and Solving Efeso listed the top 10 functional drivers of supply chain strategy at the 181 companies surveyed in the report. While all are valid considerations, the reality is that there should be only one driver of corporate supply chain strategy, because there’s a big difference between a consideration and a driver.

Customer service, distribution, and planning are all valid considerations, but none should drive the supply chain strategy. The supply chain strategy should be driven by the corporate strategy and corporate strategy alone. It does not matter what level of service the supply chain supports, how efficient or cost effective the distribution is, or how simplified planning becomes if the supply chain strategy is not in line with the corporate strategy. If the corporate strategy is to be the lowest cost provider, then customer service (which can be costly) is not at the top of the list — cost and availability are. If the strategy is immediate availability, quick distribution is a must, even if air shipments are five times as expensive as ocean freight. And if the business is subject to the whims of the market (like fashion), plans are short term.

The reality is that the customer service strategy, distribution strategy, customer proposition, production processes, planning, purchasing strategy, product design processes, returns management, and the disposal strategy should all be determined from the corporate strategy, not the other way around … because if the supply chain is not in synch with the rest of the business, it’s full value proposition will never be realized.

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Ecovadis: Ecovating the Globe

When we introduced you to Ecovadis back in 2008, we pointed out how this European start-up was building a sustainability solution for evaluating and monitoring suppliers in a manner that would help companies meet and exceed the emerging green and sustainability regulatory requirements. Fully compliant with GRI G3 (Global Reporting Initiative) standards and the ISO 26000 CSR Guidance with their solution that tracks metrics across 23 green/sustainable criteria for the 150 procurement categories they support, it provides a very extensive CSR scoring mechanism across environmental, social, ethical, and supply chain issues.

Back in 2008, all they had on the technology side was the core supplier assessment module for the buyer — which was built around a “dashboard” that provided a snapshot rating of a supplier on each of the key categories with drill down ability into the scorecards for each rating, cross-industry benchmarking, and integrated news feeds (with human reviewed articles, relevant legislation, etc.), and a supplier portal — which allowed the supplier to log in, answer questions, provide relevant data, and see their scorecard. On the services side, they had the ability to arrange and verify audits on your behalf, scan and classify relevant documents automatically, and support suppliers in five languages even though the platform only supported English and French. And when SI last covered them, they had only three public customers.

Flash-forward to 2010, and they have made considerable progress on the technology, services, and customer front. On the technology front, they have made significant updates to the core supplier assessment platform (the newest of which are in beta testing now and will be in general release at the end of the quarter / start of next quarter), released an audit module, released a new risk analysis module, and improved the multi-lingual capabilities of the platform. On the services side, their partnership with SGS, the largest certification company with over 1500 auditors certified in CSR auditing, allows them to do 2nd party audits on your behalf on your suppliers anywhere in the world and they have added a few more languages to their back office. On the customer front, they have increased their customer base tenfold, with 30 public customers that include 10 companies in the Global 500 who are in the top 10 in their vertical (including the largest construction company, the second and third largest insurance companies, the third largest building materials company and the third largest industrial manufacturer), with a few more big names to be announced soon. These customers represent over 2,500 users that collectively track CSR data on over 4,000 companies across 40,000 sites in 80 different countries with a 94% adoption rate among suppliers.

The upgrades to the core supplier assessment module include an improved UI, feedback capability within scorecards, guidance for buyers and suppliers on how to improve ratings and the most critical weaknesses that need to be tackled, and a new corrective action plan capability for suppliers to allow them to propose corrective action plans and collaborate with buyers on their design and implementation. The guidance highlights key issues across each of the 23 categories, primary weaknesses, (upcoming) regulations and initiatives of import, policy recommendations, and proposed actions.

The Risk Analysis module, designed to allow all users to perform a quick check of the potential CSR risks associated with a specific supplier profile, and identify those suppliers which should be subject to a formal assessment or audit, is pretty simple, but it’s a great start considering that most organizations don’t have any tools at all. (Plus, you can’t automate risk analysis — this will always require human interaction. Software is not intelligent and can’t identify unknown threats — only humans can.) Basically, the user fills out a (proposed) usage profile (direct or indirect, country, turnover, categories, branding, influence, etc.) which can be uploaded from an Excel file, the system extracts the CSR profile of the supplier and all of the related data, and an automated analysis engine determines the primary potential risks, the probable degree of supplier CSR risk relative to buyer CSR exposure on a nine-by-nine grid (which goes from low to high as you progress from the lower left [green] zone to the upper right [red] zone), and the action you should take (which is either no action, assessment, or full audit). While not perfect, it will quickly identify the majority of the company’s riskiest suppliers, which is where the company should start its risk management efforts.

The real value in their solution to procurement is in the massive cost savings it enables. CSR is important, but we all know that North America tends to follow the mantra of Gordon Gekko and that, unfortunately, when times get tough, the mighty dollar trumps everything else. Companies like to feel good, but they like to profit more. These days, profits come not from sales (which are sluggish), but from savings that come from cost reductions and risk avoidance. Ecovadis’ platform assists you on both accounts. Without the platform, buyers are wasting a lot of time and money chasing suppliers, who are fatigued from answering the same damn survey over and over again, for data, analyzing that data, and shelling out for expensive benchmarks from high priced consultants to put that data into relative light — data that might be suspect to begin with. Similarly, suppliers are wasting time cutting and pasting data instead of providing the buyer with the products and services the buyer needs, which drives up costs for both parties, and not even getting any decent feedback in return that they could use to improve their operations. But with the centralized sustainability marketplace Ecovadis provides, suppliers only have to answer a question once, they only have to suffer a time-consuming and costly audit once, and they get a scorecard which not only rates their performance, but benchmarks them against their peers and identifies areas for improvement. Buyers get up-to-date reliable data and actionable scorecards which they can use to leverage suppliers and make better decisions. Everyone wins. Plus, if the buyer has a SPM tool (like that offered by Ariba, Aravo, Hiperos, SAP, etc.), Ecovadis’ can plug their platform into the tool and greatly simplify the CSR SIM that the buyer would likely have to do manually.

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You Say You Know How To Balance Competing Objectives. Are You Sure?

You need to source some more cocoa for your chocolate factories to keep production moving (and the oompa loompas working). In years past, you’d just hold an auction and cut a contract with the lowest cost bidder, but you can’t do that now that you’re a socially responsible buyer. You can’t buy from some sellers on the Ivory Coast that you know are using child labor, you can’t buy from further away than necessary as long hauls greatly increase your carbon footprint, and you can’t buy inferior products for your luxury chocolate production lines. You can buy some inferior products for your mass economy goods, provided they are blended with higher quality goods, but only so much. You can ship further if the cost is low enough that you can buy carbon credits. And you can source a portion of your award from a select handful of Ivory Coast suppliers who are making an active effort to approve their socially responsible operations.

It’s a complicated decision as you have to balance cost vs. carbon vs. quality vs. brand value. In fact, the only way to truly make the best decision is to use a (strategic sourcing) decision optimization solution that allows for multi-criteria multi-variate optimization that allows a buyer to determine the cost and benefits of various solutions with respect to each objective. In addition, it’s the only way a buyer can truly examine the effect of different weightings of the various criteria under consideration.

While many of the SSDO (strategic sourcing decision optimization) platforms do not yet support this capability, you can be sure that most of tomorrow’s platforms will. To find out what other capabilities are forthcoming in the world of decision optimization, visit BravoSolution‘s website, fill out a short 8-field registration form, and receive your free, exclusive, copy of The Future of Optimization, a new Sourcing Innovation white-paper with groundbreaking insight on eight directions that strategic sourcing decision optimization is likely to take in the decade ahead.