Monthly Archives: January 2011

VFS Level 1: Eliminate Value Leakage, Part I

This week will explore the four levels of Value Focussed Supply (VFS) as put forward in a CAPS recent research report on “Linking Supply to Competitive Business Strategies” and the holistic approach put forward by CAPS to get more value out of your Supply Management Association.

According to CAPS, you start with the elimination of value leakage. While this is a good place to start in theory, in practice, at least until now, most organizations increased value in supply management purely by accident. They were given a mandate to reduce cost and when they were no longer able to negotiate better prices or optimize incurred costs (logistics, storage, VAT, etc.), they looked for new ways. Not knowing any, they got creative, and sometimes they got lucky and found strategies that not only lowered costs but increased the overall value of supply management to the organization. At this point, the organizations began an effort to find more value, and began their progression up the supply management value curve, which, in the view of CAPS, and the author, starts with the elimination of value leakage (although the author believes one or two critical steps were overlooked in the report).

According to CAPS, value is obtained at each level of the value curve by focussing on four components of the balance sheet — revenue, cost, assets, and intangibles — and finding ways to improve them such that the overall corporate position is improved. At this level of VFS, this means that a company would:

  • Protect Revenue
    by improving quality and stability of supply
  • Reduce Cost
    by reducing unit cost and managing demand
  • Reduce Working Capital Requirements
    by improving working capital management
  • Protect Corporate Reputation
    by taking steps to prevent the media fiascos that would result if
    tainted food or dangerous products were released into the marketplace

Furthermore, such a company might go about these actions by:

  • Working with Key Suppliers
    to implement Lean, Six Sigma, or TQM (Total Quality Management) processes to reduce defects, streamline production, and increase schedule accuracy like Powercon worked with a key supplier to correct dismal delivery performance and increase customer loyalty in the process
  • Looking at Alternate Fee Arrangements
    like Pharmacare did with ancillary legal services which could be contracted on performance-based fee arrangements and other ABM (alternate billing methods) to reduce costs by 20% to 40%
  • Adopting Better Inventory Management Strategies or Early Payment Discounts
    as reduced inventory translates into a reduction of cash locked up in inventory (as well as reduced storage costs) and early payment discounts not only reduces invoice payments, but reduces a supplier’s need for financing (which is often at higher rates), which reduces future costs
  • By Improving Testing and Quality Inspection Practices
    even though this might increase costs slightly up front since having a better brand increases revenue in the long term and the up front cost quickly translates into long-term savings

These are all great strategies, and, for the most part, great starting points for any supply management organization that wants to increase the total value it provides (and do true “Total Value Management” [e-SourcingForum] [Sourcing Innovation]), but a few of them seem to skip the starting points, at least in SI’s viewpoint. This will be the focus of Part II.

It Truly Is The Great Recession

A recent inforgraphic on “The Great Recession” over on Focus.com really puts things into perspective on how bad the Jobless Recovery really is. As the infographic begins, Americans are suffering the highest figures of unemployment since The Great Depression, and the worst part, there’s no end in sight. Employers are still intending to make do with what they have for as long as possible, even though job satisfaction is at an all time low.

Considering that it will take the US nine more years to recover the jobs lost during the recession at the current rate of job creation, it’s unlikely that the economy is going to bounce back quickly. The end of the recession is going to linger on and when the emergency benefits run out for the 4.04 M people on it, it’s going to be obvious that it truly is the Great Recession.

America and India Respond to Rising Food Prices

America: Let’s introduce S. 510, a bill so poorly designed that not only will it fail to increase food safety (as the FDA doesn’t have the budget to properly enforce it), but it will increase food prices even further as most small food producers, farmer’s markets, and organic growers in particular will not be able to afford to comply and go out of business (which decreases the food supply and increase prices).

India: Let’s open vegetable sales counters (IndiaEveryday.in) in an effort to make sure our own people can afford to eat despite the spiralling prices of essential commodities and vegetables (as it’s unconscionable that our own people can’t afford onions).

What response do you think is better?

Will This Be The Year That We’re Back in the USA?

With unemployment hitting all time highs in certain parts of the country, logistics costs still high, duties and taxes rising across the globe, disruptions affecting over 4/5ths of extended supply chains, and home-sourcing looking more-and-more attractive for many US-based enterprises, will this be the year that we all start singing Chuck Berry’s Back in the USA?

Happy Birthday, Wikipedia!

For some of us, it’s hard to believe that Wikipedia went online only 10 years ago today in the same month that saw the creation of AOL Time Warner and the launch of iTunes, which put Apple back on the map.

Where would we be without Wikipedia?

Sitting in the library waiting six weeks for an inter-library loan? (Those of us who did graduate degrees more than 10 years ago remember this, and not too fondly might I add!)