Monthly Archives: February 2011

Another Headline from the Land of D’oh! Financial Crisis of 2008 avoidable

According to this recent BBC article, which summarized a report from the US Financial Crisis Inquiry Commission, Regulators, politicians and bankers were to blame for the 2008 US financial meltdown. Well, duh!

From page 17 of the report:

The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.

The only thing the report, and article, got wrong was that the cause of the crisis is the same fundamental cause of the financial crises for the last 30 years. Simply put, it was greed.

  • Greed (by the lenders and the regulators, who wanted to believe the market was strong) led to the tide of toxic mortgages
  • Greed led to reckless actions by executives
  • Greed led to households taking on too much debt
  • Greed led to fundamental breaches in accountability

And while the report may be correct when it states that to pin this crisis on mortal flaws like greed and hubris would be simplistic because it was the failure to account for human weakness that is
relevant to this crisis, the reality is that, despite the repeated financial crises of the past 30 years, federal regulators have yet to put checks in place for greed. And until regulators recognize that they have to be looking for greed whenever markets rise too fast (because that’s what produces unsustainable evaluations and toxic assets) and actually do so, their hubris is going to allow these crises to happen again and again. The boom and bust will repeat until the economy just can’t take it anymore and future historians discuss the fall of the great American Empire along side the fall of the great Roman Empire.

Are You Ready for the New 1099 Tax Laws?

As of January 1, 2012, as per reporting requirements set forth by the Patient Protection & Affordable Care Act that passed in March 2010, which provides an Amendment to Section 6041 of the Internal Revenue Code, 1099-MISC reporting will now be required for all payees that receive payments that total $600 or more in a calendar year.

No longer will service providers that were incorporated be exempted, and no longer will companies that provide you with physical goods be exempted. A 1099-MISC must be filed for any payee that receives more than $600 worth of payments in a single calendar year.

For many organizations, this will increase the 1099 filing requirement from about 10% of the supply base to 90% of the supply base, a nine-fold increase in 1099-MISC reporting!

Furthermore, the IRS intends to make sure that everyone complies through the establishment of 16,000 new auditor positions. Right now, the Joint Committee on Taxation is estimated this is going to result in 17 Billion in additional revenues from 2012 to 2019 (which will likely cover the cost of the auditors 3 times over). And this amount does not include the revenue from fines that will be collected from each company not in compliance, which are increasing to $250 for each supplier that is not properly reported (from a current fine amount of $50), to a maximum liability of $1,500,000 in a calendar year (from the current liability of 250,000).

Right now, chances are that your organization doesn’t even have a TIN for most of the suppliers that need to be reported under the new legislation. So what do you do?

As per a recent white paper from Lavante that describes the impending challenge that your organization is about to face as well as a series of steps to become compliant, you could start with good Supplier Information Management (SIM). Not only will this solve your immediate 1099 reporting requirements (when integrated with your ERP / Accounting System), but it will enable a slew of other benefits (as described in previous posts here on Sourcing Innovation).

Lavante is the first to offer a SIM solution that will solve this challenge, which will be the subject of our next post.

Why You Should Optimize Your Logistics

Because half of the time (on average), that truck you use is running empty. But you’re still paying for fuel, maintenance, driver time, etc. Consider this statistics from a recent article on “How to Combat Logistics Inefficiencies in Your Organization” over on Environmental Leader.

  • 25% of all freight vehicles in Europe run empty
  • 50% + of all freight vehicles in Europe run only part-full

As the article states, this is a monumental waste and has a staggering negative impact on the environment. In Europe, freight transport is believed to account for 1/4 of all carbon emissions. That’s 25% — and one sixth of the emissions are 100% unnecessary (as the equivalent of half the trucks are running empty and road transport accounts for 1/3 of the emissions). Given that road freight alone accounts for about 420 Million tonnes of CO2 per year in Europe (more than the entire carbon footprint of some countries, including South Africa, and 1/3 of global road freight emissions), that’s a lot of environmental damage!

And don’t tell me it’s not your problem, or that it’s your logistics carrier’s problem, because it’s not. It’s your freight, and you can do something about it. When you send out that RFI that asks if a carrier can service a given route, also ask if they currently service that route, how many trucks travel down the route on a weekly basis, and what % of trucks go FTL, LTL, and empty each way. Then you can define empty transport costs, carbon costs, and efficiency discounts in your sourcing model based upon how many empty trucks you will create or get rid of. If there are no full trucks going to the vicinity of your warehouse now, then the carrier will have to add trucks which will go to your warehouse empty, adding cost and carbon to your supply chain. But if there are full trucks going to the vicinity of your warehouse that always leave empty, you will be increasing the efficiency of the carrier while reducing the overall carbon footprint of the logistics carrier’s operation — and be in a position to potentially negotiate even better rates. And while the exact breakdown of FTL/LTL/empty on any lane varies by week, carriers on top of their game have these stats for the last month, quarter, and year at all times. The data is there. You just have to get it and make use of it. (And with a good optimization platform, you can!)

Trade Extensions Keeps Extending the Platform

The fact-sheet based RFX module is not the only improvement that Trade Extensions has made since it last traded up its UI and improved its optimization and reporting capabilities. Since Trade Extensions was last covered on Sourcing Innovation, it has made a number of significant improvements to its platform, including:

  • RFI-driven supplier data requests
  • multiple dimension ranking in e-Negotiation
  • integration with Google Earth
  • more cost support and new incumbent rules in optimization
  • conversion of all reports to OLAP reports and implementation of a new n-way comparison report

RFI-driven supplier data requests

In the Trade Extensions platform, supplier data collection can be configured to be dependent on supplier responses. If a supplier indicates that they don’t have a certain capability (or don’t wish to bid on particular item or category), then they don’t see the associated fact sheets (which they can download as an Excel Spreadsheet if they like). Also, if they indicate they do perform a certain function, the RFI can be configured to request additional information.

Multiple dimension ranking in e-Negotiation

Most auction platforms rank by bid, volume, or another relevant factor to the buyer. The Trade Extensions platform can be configured to rank (and report on) bids on multiple dimensions, such as supplier and location or supplier and quality. This makes it easy to quickly see how a bid stacks up against multiple relevant factors.

Integration with Google Earth

Often times when I hear about integration with Google Maps or Earth I say “that’s nice” because it usually doesn’t add much value. But the TE implementation actually makes Google Earth useful. Not only can you quickly see the lanes, relative volumes [by line thickness], and carrier distribution [by line colour] at different scales, but, with a click, you can pop up a box that provides the full details of what is flowing down the lane (products, volume, from, to, frequency, total weight, etc.). A warehouse manager can quickly zoom into her facilities and see what is coming and when. It can take a scenario with thousands of allocations and make the information quickly comprehensible.

More cost support and new incumbent rules in optimization

Relative and absolute fixed, on-, cost support has been greatly improved in the application. A buyer can define a cost on supplier selection, on a certain volume threshold, on a specified property, etc. This allows for incredibly detailed and accurate costing formulas to be created. Trade Extensions has also added four new incumbent rules to the optimization solution, two new allocation and two new keepers. The user can now choose to allocate an incumbent volume at least equal to what they have now, or to the current percentage of volume, or to incumbent proportions and allow redistribution between incumbents, or between winners in incumbent proportions.

Conversion of all reports to OLAP reports and implementation of a new n-way comparison report

When Trade Extensions last traded up their UI, they had just implemented their new OLAP reporting feature and were in the process of converting their existing reports. Now that the OLAP reporting feature has been fully implemented, all of the reports have been converted and the new report creation facility is complete, allowing users to define their own OLAP reports on the dimensions of their choosing. Also, the user can now create arbitrary n-way comparison reports and “glue” reports together from existing report definitions.

And Trade Extensions has no intention of slowing down. In addition to a commitment improve SIM/SPM/SRM, Trade Extensions is also working on:

  • auctions – simplifying them for low-end spot buys
  • e-Negotiation – instant messaging, better charting, etc.
  • enterprise features – search across projects, track cross-project metrics, integrated BI
  • roles – admin, project manager, buyer, viewer, etc.
  • new project types – to simplify auction setup
  • on-demand training – the wiki is under constant development and walkthrough videos will soon be available

It should be an exciting year for this European company that has just started to gain traction in North America (where they opened a new office last year).

Deferred Spending Isn’t A Recovery

A recent article over on CNNMoney.com on “Made in America. Staying in America”. (CNN Money, Jan 28, 2011) reported that a turnaround in the U.S. economy is contributing to the solid fourth quarter profits reported by manufacturers that have been staying afloat by making a killing by selling industrial goods to customers in emerging markets.

As the CEO of Eaton said, people that deferred maintenance eventually have to buy new products. And people who prolonged a product’s life with maintenance eventually have to buy new products. And after two or three years of deferred spending, no matter what efforts are made to keep old machinery working, it’s going to start to break and the organizations are going to have to replace it. This doesn’t mean that there’s a recovery in the works or that demand is going to skyrocket, and acting like this is the case will only lead to the appearance of the bullwhip effect in your forecasting. And that’s not good for anyone.

The economy will recover, but it’s going to be a slow-and-steady recovery this time. Not only is the North America is tired of the boom-and-bust cycle of the past decade, but the jobless recovery and continuing mortgage crisis is going to ensure that it will be a while before exuberance returns to the market. So take it slow. Your supply chain will thank you.