Monthly Archives: May 2011

Afraid of a Hostile Take-Over? Get a Shareholder’s Rights Agreement!

Also known as a “poison pill”, a shareholder rights agreement can be a valuable anti-takeover device for a company that wnats to remain independent. Given that M&A activity is likely to go on an upswing as the economy slowly recovers, any company that sees itself as a likely takeover target that wants to remain independent should consider taking any steps it can to stay that way. As per this recent Industry Week article on how “poison pills still offer protection”, especially if the poision pill triggers below the 5% IRS threshold.

It also summarizes a few suggestions from a new report from the Conference Board, titled Poison Pills in 2011, that recommends that board members absain from certain defensive tactics, such as introducing supermajority voting requirements or disallowing action by written consent or limiting the ability to call special meetings, because they could cause the ire of ISS and attract activist shareholders.

S&OP Must Be Integrated “Within and Across” The Organization

Proper Sales and Operations Planning (S&OP) is critical to supply chain success. If the forecasts are low, the organization stocks out and loses sales (and profits). If the forecasts are high, the organization gets stuck with excess inventory, that soon becomes obsolete (and that has to be sold at a loss just to move it). Supply chain success comes from accurate forecasts, which requires good Sales & Operational Planning.

But S&OP is more than just getting the product line managers to sit in a room and agree on a forecast, and it’s more than using good modelling and simulation software (which is a must). Proper S&OP planning is getting sales & marketing and operations (& product line management) together in a room working collaboratively towards a realistic and trustworthy forecast. All of these conditions are necessary.

1. It is not S&OP if you do not invite sales and marketing.
You can have the best forecasting models and software in the world, but they are still useless without the right demand data, which is only going to come from sales & marketing who can tell you what is selling and what changes in the market are likely to lead to increases or decreases in demand.

2. It is not S&OP if you are not working together as a cohesive group.
Just being in the same room is not enough. Both teams must be working towards the same goal, must believe in the process, and must trust the capabilities and insights of the other team. Just like operations must trust sales and marketing to provide real POS data and demand projections based on current campaigns and the state of the market, sales and marketing must trust that operations can build good models based on the data and schedule production and distribution accordingly.

Good examples of how not meeting these conditions can lead to failure are provided in Dr. Terry Esper’s recent article in the Supply Chain Management Review on Demand and Supply Integration: “Within and Across” Integration – The Key to DSI. Despite the introduction of yet another acronym to our space (DSI), and a bit of a long-winded introduction to the issue, it makes some good points and is definitely worth a read. It also provides three ideas to help you create a more cohesive S&OP team and process, which are worth noting:

  • Better Performance Measures
    the performance measures must facilitate integration
  • Ownership Structure
    there must be ownership of the S&OP process that includes both sides of the table
  • Corporate Leadership
    there must be leadership attention and focus on integration

Your Global Supply Chain is Getting More Dangerous By the Day

As per this recent blog post over on the Supply Chain Management Review on how escalation in piracy places supply chain under pressure, ocean piracy has it an all time-high with 142 attacks worldwide in the first three months of of 2011. Yikes!

The International Maritime Bureau ( IMB ) has been tracking piracy worldwide since 1991 and the number of attacks in the first three months of this year are higher than any number ever recorded. To be precise, there were 142 attacks that resulted in 45 vessels being fired upon, 45 boardings, 18 hijackings, 344 hostages, and 6 kidnappings.

If the trend continues, energy AND insurance prices are going to go through the roof, or, in this case, the stern.

Cornerstones of Strategic Procurement

Yesterday I pointed you to Bob’s post on Smart Working Capital Management where he pointed out the pitfalls of being preoccupied with DPO (Days Payable Outstanding) and how a DPO focus can be counter-productive. Specifically, the requests for DPO extensions that tend to result from the DPO focus tend to leave untested the willingness of suppliers to entertain aggressive discount payment terms in exchange for early payment by the customer.

Today I want to remind you of a post Bob wrote back in early January that you might have missed if you returned late from the Christmas vacation. In the evolving landscape of low cost country sourcing, Bob outlines the three fundamental requirements of strategic procurement:

  1. fact-based approach based on a thorough understanding of current reality and anticipated trends
    that should be based on whatever data you have available
  2. an investment in the appropriate skills and enough of the right resources to develop and execute the strategies
    including the right technology to perform the necessary analysis
  3. constant monitoring and adjustment to optimize results in an ever-changing world
    that should include simulation and modeling software where appropriate

For more information on strategic procurement, be sure to check out Bob’s new book on Next Level Suppply Management Excellence, hitting the (e-) shelves on June 28, 2011.

Listen to Bob and Avoid the Pitfalls of DPO

In a recent post over on the Supply Chain Management Review on smart working capital management, Bob points out the pitfalls of being tempted to be preoccupied with DPO (days payable outstanding). While the objective to match DPO up with DSO (days dals outstanding) is an admirable one, as this would balance the cash cycle time tied up in accounts receivable (waiting for your customers to pay you) with the cash cycle time contributed by supplier payment terms, this can be counter-productive. Since this usually results in requests for DPO extensions, it leaves untested the willingness of suppliers to entertain aggressive discount payment terms in exchange for early payment by the customer. From a balance sheet perspective, cost savings are always better than favorable DPO terms. Plus, if the organization can negotiate aggressive discount terms from its supplier(s), it can then offer its customers discount terms which could speed up their payments to the organization.

If the organization speeds up its payments to its suppliers and its customers speed up their payments to the organization, the net result is not only a shorter cash cycle time, but, as a side effect, the payment cycles will start to line up — allowing Procurement to accomplish its original goal of balancing DSO and DPO while saving money. That’s a win-win that all parties at the table can win with. So listen to Bob and avoid the pitfalls of DPO preoccupation.