Monthly Archives: April 2012

Open Up Your Supply Chain With E2Open

Today is the official launch of E2Open‘s new Collaboration Center, E2Open Version 8.0. The focus of this release are their new supply dashboards with real-time KPIs, predictive analytics and exception notifications designed to allow an organization to manage its global trading network across multiple supply tiers.

E2Open was founded in 2000 with the vision to provide supply chain managers visibility into their entire supply chain network — beyond just the first tier of suppliers because problems often start with your suppliers’ suppliers and your suppliers’ suppliers’ suppliers. Getting visibility into a late shipment or raw material shortfall as soon as it happens gives an organization time to find an alternate supply or alternate go-to-market strategy, as opposed to finding out the day after your supplier was supposed to ship. Since then, E2Open has gone through multiple versions of its platform and its E2open Business Network (8 to be precise) and now offers solutions in Collaborative Supply Planning, Demand Management, Logistics Visibility, Order Management, Inventory Management, and B2B Managed Services with a customer list that includes Blackberry, Dell, FoxConn, Hitachi, Motorola, and Seagate to name a few.

However, today we are only going to focus on its new collaborative platform and its supply management dashboards to be precise. Why would I do such a thing, especially since I repeatedly claim that Dashboards are Dangerous and Dysfunctional in full agreement with Robert D. Austin? Because the reason they are dysfunctional is that they lull you into a false sense of security when you see a lot of green. As I said in SI’s now classic post:

a dashboard can not tell you how well you’re doing … the best it can do is capture the data it’s been programmed to capture, roll-up the metrics it’s been programmed to roll up, and do the built in calculations of efficiency based on those roll-ups.

As a result, even if it tells you that 90% of spend is “on contract”, that doesn’t mean it is. It won’t tell you that 10% of spend has been misclassified under the wrong code and is being reported as on-contract when it’s really, really not. The truth is that:

a dashboard can only provide an upper bound on how well you’re doing, and this is useless. Reporting that my efficiency is at most 98% when it is in fact 92% is useless and unactionable.

However, if the goal is reversed from trying to tell you how well you are doing, and giving an inaccurate upper bound, to how poor you are doing, and give an accurate, minimal lower bound, it becomes useful. And if you can then define metrics such as inspected orders, reviewed invoices, verified shipments, etc. and report on the uninspected orders, unreviewed invoices, and unverified shipments (etc.), then you not only know everything that’s wrong but how many dark corners could be holding problems waiting to materialize but where to look when the problems you know about have been solved.

And that’s why E2Open’s new dashboard, developed in HTML5 and available through your browser, is useful. Not only does it provide deep, near real-time insight into your global supply network, with data aggregated across the multiple tiers of your supply network as fast as the platform can get access to it (which is real-time if the suppliers are using a modern supply management system with real-time query / export capability or once a day if the supplier is still on an old ERP/MRP that does a daily export in CSV to a secured FTP directory), but the drill-down dashboard can be configured to display whatever KPIs and metrics you want, however you want.

You can choose the standard indicators that show that 98% of your orders are expected to ship on time, based upon tier-1 and tier-2 suppliers shipping their components and raw materials on time, or you can invert it and show that 2% of your orders are late. Every metric can be reversed and you can filter what is displayed. So, if you want, you can set it up to show ALL RED and just show you

  • all the problems the system has identified that need an investigation and/or resolution and
  • how many records, products, shipments, etc. have not been manually reviewed, tested, verified as this will tell yo exactly where problems could be lurking and, if the count is high, where more oversight might be required to prevent new problems.

It’s not the standard configuration, but it is supported — and the ability to razor sharp focus into issues two levels down into your supply chain within 24 hours of your supplier’s supplier reporting a delay is fantastic. And, unlike most “dashboard” products, they support the creation of multiple public and private “dashboard” pages, at different levels of visibility and granularity, to allow each user to track all KPIs, metrics, and issues relevant to them. It’s not trying to be a one-size fits all solution because E2Open recognizes that, in supply chain, one size does not fit all.

Furthermore, 90% visibility at each tier is possible very quickly as they have done over 400 ERP / MRP / Supply Chain system integrations to date and can on-board suppliers on all of the major platforms very quickly. And they even have the ability to do trending and predictive analytics to identify where problems might occur — which is useful when you know that somewhere in a certain data blackhole there is likely an issue but are unsure where to start.

E2Open’s new release is worth checking out. The platform strives to give you a single version of the truth across your supply network and does a good job at doing it. And the inventory management / collaborative forecasting drill down capability is just as detailed as some of the best inventory solutions on the marketplace.

Avoiding the 88 Million Dollar Fine

In our last post, we pointed out how the likelihood of a multi-million dollar fine, which could range from the $3.1 Million recently paid by Maersk to the $88.3 Million recently paid by JP Morgan, is increasing almost daily for an average mid-size multi-national that is importing and exporting regularly as more sanctions, specially designated nationals (SDN), and denied parties are being added to the OFAC (Office of Foreign Asset Control) and BIS (Bureau of Industry and Security) lists.

The problem is that with dozens of major country sanctions in the Federal Register; hundreds of individual sanctions against countries for specified commodities, services, or financial transactions; and thousands of names on the SDN, denied persons, and denied entities list, it is impossible to keep on track of the situation manually — even if you have a team of clerks and lawyers reading around the clock. You need an automated solution. But not any solution will do.

Why? You can’t just do a(n) exact name match. First of all, the individual doing data entry could make a typo — and all of a sudden instead of AIR CESS HOLDINGS LTD, it’s AIR CHESS HOLDINGS LTD, and you’re shipping to a denied national in the UAE. Oops! Secondly, the individual placing the order could slightly alter his or her (company) name so that the local delivery person still knows the shipment is for him or her (since no illiterate American is going to spell Abdelwadoud Abou Mossaab correctly and Abdelwadod Abou Mosab is the best you can hope for) but so that it doesn’t match on a name search. You also have to check for close (mis)spellings.

But this isn’t enough. If the spelling is off enough, it will still be missed. You also have to check by address. If the address is an exact match and the name could be a match, then it’s probably a denied party. But even address isn’t enough. A smart denied party that is a corporate entity will just open a new PO Box and abbreviate their name enough so that a simple match algorithm will fail. However, you could argue that you can combat this with a greater than 80% success rate with some good AI and AR (automated reasoning) and then argue that if you do screw up once, you could have the fine minimized by working with the OFAC and/or BIS and demonstrating due diligence, but even this is not enough.

First of all, if the company knows it is on a denied party list and wants to get product from the US bad enough, and it is a “holding company”, or has a parent “holding company”, the first thing it’s going to do if it’s smart is open a new subsidiary or sister company at a new address with a new Director and then approach a new mid-sized supplier who will be thrilled at the opportunity to get new business and who will likely cease checking once there are no partial matches on the sanctions or denied parties lists. And then the minute the Federal Government marks the company as associated with denied (terrorist) entity, you pop up as supplying contraband and, to be blunt, you’re in boiling water.

Secondly, it might not be you that violates the sanction, but one of your first tier suppliers who violates it on your behalf, which, depending on what sanction is violated, could be just as bad. For example, your logistics carrier could decide to load perfectly fine Cargo destined to sanction-free Egypt (at least where your cargo is concerned), which is ok, but then stop at a Canadian port to pick up cargo for Saudi Arabia, and then, before it drops your cargo off in Egypt, stops at a Saudi port where your cargo is contraband under export requirements. Then, because of bad record keeping, it can’t prove that none of your cargo was off-loaded in Saudi Arabia, and that all of the cargo made it to Egypt, and, again, you are in hot water.

In other words, a first generation Trade Data Management Solution that automatically scans the sanctions and denied party lists is not enough. It also has to keep track of corporate relationships and verify that the company isn’t a shell or entity acting on behalf of a denied company or entity, and that it’s suppliers and services providers are not violating import and export restrictions on its behalf.

I’ve seen solutions that do a great job of applying AI and advanced analysis to detect denied parties on the lists that would not be spotted manually, and I’ve seen solutions that do a great job of providing visibility into first, and even second tier, supply chain in terms of what product is where, when, and where it’s going to go — but I haven’t seen a solution that does both superbly. To be honest, it’s been over a year since I have seen the best companies like Integration Point, TradeCard, CDC Tradebeam, QuestaWeb, and EcoVadis have to offer with respect to denied party / sanction screening, so I am issuing a challenge to all Global Trade Management (GTM) and SCV (Supply Chain Visibility) Providers. Show me a solution that can prevent OFAC and BIS violations and fines 100% when used properly, and I’ll give you a 3-part series.

Will Your Supply Chain Avoid the 88 Million Dollar Fine?

Last year, JP Morgan had to pay $88.3 Million in fines for breaking U.S. embargo laws and trade sanctions, including Global Terrorism Sanctions Regulations and Weapons of Mass Destruction Proliferators Sanctions, in three incidents between 2005 and 2011 that involved Cuba, Iran and Sudan, as reported on AllGov. That’s a huge penalty that resulted from simply making loans and wire transfers. And in 2010, Maersk had to pay a $3.1 Million fine for using ships registered in the U.S. to carry commercial cargo to Sudan and Iran between January 2003 and October 2007. Another huge penalty for carrying goods that had never touched the US.

The issue at hand is trade sanctions and all of the pitfalls associated with them if you are US based, importing into, or exporting out of the US. As pointed out in this recent World Trade article on “avoiding the pitfalls of trade sanctions”, a company has to deal with:

  • (broad) country sanctions,
  • import or export specific country sanctions, and
  • Specially Designated National (SDN) sanctions against
    front companies, non-state entities, or individuals

maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury and:

  • denied persons list and
  • entity list

maintained by the Bureau of Industry and Security of the U.S. Department of Commerce.

There are dozens of country sanctions, hundreds of import/export (commodity) specific sanctions (and more could be on the way, including, of all places, a new sanction against the UK which could appear as early as 2013 as a result of allegations that they gave Airbus illegal subsidies (as per this recent Daily Mail article). And then there are thousands of denied persons and entities and this list also changes regularly.

So, what can you do? You can start by monitoring the sanction programs on the Treasury web site, country information, and the SDN list.

Then you can monitor the denied persons list and the denied entities list on the Bureau of Industry and Security site, which summarizes a multitude of export administration regulations. But considering that these are only summaries, and the full details can only be found in the Federal Register on the Department of State web site, including the pages on non-proliferation sanctions and chemical and biological weapons sanction laws as well as the pages of the counter narcotics group, you would also need to monitor the pages of the office of terrorism finance and economic sanctions policy, and the energy, sanctions, and commodities group of the bureau of economic and business affairs.

But that’s a lot of work … and it may not be enough! So what’s next?

Can You Endure the Exacerbated Euro?

Greece may be almost taken care of, but now Spain (and Portugal) are threatening to endanger the Euro’s future. Procurement’s problems with the Euro are far from over. But what can a Procurement Professional do?

Be cautions and ever vigilant. As explained by Julian Catchick in this recent article over on CPO Agenda on “How to Deal with the Troubled Euro”, about the only risk minimization strategies a buyer has available to her are to:

  • hedge,
  • spot buy in bulk to take advantage of a favourable exchange rate movement, and
  • fix the exchange rate with suppliers for a mutually agreed duration.

All of these strategies have their advantages and disadvantages.

  • Hedging on a different currency that tends to fluctuate in a manner opposite to the Euro (going up when the Euro goes down and vice versa) can mitigate the impact of a rapid Euro fluctuation if currency trades are made at appropriate times, but if the performance of the currency hedged in is not what is expected, losses can actually mount.
  • Spot buying can reduce acquisition costs significantly if done at the proper time, but if too much inventory is bought too early, inventory management costs will go up and eat into the savings.
  • A fixed exchange rate will mitigate currency fluctuation risk and allow for predictable purchase costs, but since the supplier will have to assume additional currency risk, a buffer will be built into their costs and the organization may end up paying more than it needs to.

Regardless, one strategy that should not be pursued is pulling out of the countries in question. Even though some banks are minimizing exposure to these countries, it is not the country that poses the risk to the buyer, but the supplier. As Julian states, it is not likely that buyers face a material risk as long as they look into the suppliers’ financials and credit ratings and also establish how balanced their portfolios are across other geographies. Plus, given that the buyer can get much credit better terms than the suppliers in these countries, the buyer has an opportunity to reduce costs further by pre-paying for goods and services (with a stable supplier) at a substantial discount. Suppliers need regular cash flow, and if their terms are 30%, and your terms are 5%, there’s no reason that your Procurement organization couldn’t extract a 20%+ discount due to their cost of capital. That’s a smart Procurement move!

And if there is concern about future risk, build additional break and termination clauses into the contract. If a major currency fluctuation (or collapse) would make the supplier potentially insolvent, give the buying organization the right to terminate the contract, just like you’d do with any insurance or hedging contract. But, as Julian advises, don’t forego long term (strategic) relationships just because there is a potential currency risk.