Monthly Archives: February 2011

What’s the Secret Sauce to Good SPM?

SupplyChainBrain recently published a piece by APQC that outlined 10 Steps to designing an effective supplier relationship management program. It had some good tips, and was dead-on when it said that successful programs have four major components — methodology, collaboration and supply chain synchronization, technology processes, and measurement and rewards — but it overlooked the fact that not all components are created equal.

Methodology, Technology, and Measurement are all necessary conditions, but without collaboration, none will be sufficient. But collaboration is not an instant cure. As the article states, strategic relationships require time, trust, mutual understanding, regular and consistent communications, and mutual commitment to establish a long-term relationship. Collaboration will make the difference between good results and great results, but the great results won’t happen over night. They will only happen after the relationship has had time to simmer. Collaboration is the secret sauce, but it’s not a sauce that can be brought to a rapid boil and served.

A Brief Guide to Procurement Success in the Public Sector

SupplyManagement.com recently ran an article on “12 tips for effective processes” that your public sector organization can use to get the most out of your upcoming eSourcing / eProcurement project if your organization is new to eSourcing / eProcurement. The hope is that there will be a quest for purchasing fire, but even if there is not, these tips will still help.

  1. Offer Guidance
    Make sure internal customers are given proper guidance on what their requirements should address.
  2. Assess Project Risks
    Identify what can go wrong, take steps to prevent the risks, and make contingency plans.
  3. Involve Stakeholders
    Make sure they all get a chance to review the package before it goes out to bid.
  4. Seek External Expertise
    Make sure you have sufficient knowledge before the project is begun.
  5. Insure Sufficient Resources
    Be sure the financial and human resources are in place before the project starts to prevent it from stalling.
  6. Form an Acquisition Plan
    Identify how transactions will occur, how goods and services will be tracked, and how the project will be completed.
  7. Target the Right Bidders
    No project will succeed if the right suppliers are not in the mix.
  8. Evaluate Bids Correctly
    And according to the evaluation methodology set out up front (that was included in the bid package).
  9. Involve Legal and Technical Experts
    These can be internal or external, but all legal and technical aspects are reviewed by competent professionals.
  10. Involve Key Players Early
    And make sure this involvement goes beyond a simple review of the draft bid package.
  11. Monitor the Project
    Projects tend to stall and die when not monitored.
  12. Record Savings Made
    And report progress regularly.

These are all good tips, and not hard to implement. It basically all comes down to preparation, preparation, and more preparation … and the willingness to work with others and, if necessary, share the success.

Are You Keeping Up with Your Customers?

As per this recent post over on TechCrunch, Global E-Commerce Revenue To Grow By 19 Percent In 2011 To $680B. That’s right, your customers are embracing e-Commerce in droves. How about you?

How many events are conducted on-line? How many payments are made by ACH, p-Card, or wire? Be honest. While you might still need the physical meetings, you don’t need the paper — and that includes the cheque. So if you are still doing things the old-fashioned way, maybe its time to finally break down and buy an eSourcing and eProcurement suite? Your suppliers, and the trees, will thank you.

How Much Can A Small Enterprise Really Save With Just In Time Inventory?

A recent article on “wringing cost out of the supply chain” in World Trade Magazine suggested that carrying too much inventory can lead to a significant hit on the balance sheet for a SME and that SMEs should use a JIT inventory strategy to lower costs. And while I agree that this is a good strategy for MEs and LEs, I’m not convinced this is always the case for SEs with less than 100 Million in revenues.

First of all, as the article notes, SMEs often struggle to come up with the resources for payroll, much less [the resources to] develop intricate supply chain models, optimize inventory levels, and calculate their carrying costs. Unless the savings are significant, they will quickly be eaten up by the additional manpower needed to design, execute, monitor, correct, and maintain the JIT strategy.

Secondly, they will likely need help at first. And while this could come from a logistics provider, this too will come at a cost. Either the logistics provider will assign a resource to manage the JIT strategy for the SE and up their rates to cover the cost of the resource assigned to manage the JIT strategy, or the provider will simply store inventory on behalf of the SE in shared warehousing, which still increase the logistics cost. So even though some savings may be found, they won’t be as significant as one might expect. Furthermore, the logistics provider is not likely to be in a position to sense demand changes and this could increase the possibility of a costly, and even business threatening, stock-out. Since most SEs operate on (relatively) slim profit margins, a stock-out on a key product line could not only cost revenue, but customers vital to business success.

Thirdly, and most importantly, the expected savings can be wiped out by a single, short-term, supply disruption. Consider the example presented in the article for a 40M company. After all is said and done, the reduction in net income before taxes is a mere 47,000! That’s an expected reduction of only 0.1%! A single volcano erupting, port going on strike, or political breakdown that causes a one-week delay in your next order and that projected savings is dwarfed by the magnitude of the loss the SE will be facing. The extra 50K is now an insurance payment.

I might be wrong, but I don’t think JIT is right for SEs. Good inventory management with reasonably low safety stocks in shared low-cost warehousing, certainly. But lean? I’m not sure the SE can afford it!

Why Your Supply Chain Needs To Be Flexible

Thanks to economics, your forecasts will be right only 30% to 40% of the time, as per this recent article over on BBC News that asks why do economists get it so wrong. Whether you care to admit it or not, all forecasts implicitly assume that the general economic condition will stay the same, since that determines not only how much money your potential customers will have, but how much they will be willing to spend. But since the foundation of the economy — humans, resources, wars, natural disasters, technology, etc — are in a constant state of change and flux, all of the models used to describe the economy are flawed.

Thus, your forecasts are only likely to be right at the macro level. Since nearly every economic forecast will be right at some point, every product line forecast will be right at some point, but like a broken clock, may only display the correct volume 0.13% of the time. If you have years of past behaviour, you’ll be able to create a good forecast at the macro (year) level, but it will get less and less reliable as the time period shrinks, no matter how much you throw into your model. That’s why you need an adaptive and flexible supply chain that allows for relatively quick replenishment — so you can ramp up production and distribution when you need to, but not have too much inventory on hand when you don’t.