Monthly Archives: October 2013

Insufficient Sleep is a Public Health Epidemic – Don’t Let Your Supply Chain Give You Insomnia!

As per this feature on the Centers for Disease Control and Prevention website, insufficient sleep is a public health epidemic, which shouldn’t be surprising given that over one third of the US adult population gets less than 7 hours of sleep a night, when the average adult needs 7 to 9 hours a night. (Source: National Sleep Foundation)

Why? There’s a plethora of reasons. Overwork. Stress. Late Night Talk Show Addictions. Facebook and Twitter Addictions. And Insomnia. However, Supply Chain Insomnia should not be a reason.

According to this ridiculous article (on causes of supply chain insomnia identified) over on Supply Chain Digital, the following 10 issues are keeping supply chain leaders up at night and giving them insomnia:

  1. Collaboration
  2. Inventory Management and Planning
  3. Demand Management and Forecasting
  4. Supply Chain Network Optimization
  5. Supply Chain Risk Management
  6. Training and Development
  7. Sales and Operations Planning
  8. Material Purchase Price Reductions
  9. Performance improvements in warehouses and RDC’s
  10. Supply Chain Segmentation

There’s no excuse for any of these issues to be keeping you up at night. There have existed great Best-of-Breed technology solutions that have enabled an organization to solve the following issues for years, many of which have been profiled on this blog:

  • Collaboration
  • Inventory Management and Planning
  • Demand Management and Forecasting
  • Supply Chain Network Optimization
  • Sales and Operations Planning

The following can be appropriately addressed with the right mix of talent, process transition, and technology:

  • Supply Chain Risk Management
  • Performance improvements in warehouses and RDC’s
  • Supply Chain Segmentation

And the following is easily solved by actually putting money back into the training budget and letting your people go on courses, instead of taking money out of the training budget to increase CXO pay while working your talent half to death:

  • Training and Development

Which leaves only one issue to worry about:

  • Material purchase price reductions

But when you get right down to it, we’re in inflationary times and everyone knows it. Prices are going to go up and people are going to grudgingly pay reasonable, minimal, price increases. So the issue is not price reductions, but cost containment, and this is easily accomplished with

  • market intelligence and an understanding of what the real price currently is,
  • process improvement that takes price out of raw material acquisition, product production, and logistics, and
  • creative re-design that reduces the need for costly raw materials and production processes.

And all of this can be accomplished if you have the right talent with the right training. So invest in your talent*, give them the right technological tools, and let them transition your processes to where they need to be. Then you won’t have to worry about any of these problems.

*It’s not like the 95% investment in the top 1% has done any good! (Source: UC Berkeley Study)

Why Aren’t We Dealing With Extra-Planetary Supply Management on a Daily Basis? Part II

Why not? Lack of funding and focus.

It’s going to be expensive, but we have the money. Even if it costs ten times as much to put a man on Mars as it did to put a man on the moon, that’s only 4 Trillion. The annual GDP of the US is close to 16 Trillion. If the goal was to reach Mars in 10 years, that’s 160 Trillion, and only 2.5% of GDP would be required annually. The US definitely can afford this. Right now, the US is pouring its money into its military at a rate that is unfathomable given that it has not been attacked in a declared act of war on its own soil since Pearl Harbour. The US is spending close to 18% of its budget on military efforts, compared to China which is spending less than 2% of its budget on military efforts and which still has the second largest military expenditure in the world. the doctor will concede that the US has other problems to fix, and the military budget should probably be reduced by more than 2.5% so that those problems can be fixed as well, but there’s no reason that 2.5% couldn’t be redirected to this effort, especially considering it could still be considered military expenditure and employ just as many (if not more) people. This could still be a win for the US that likes it’s military, and appears to like deploying its military given the number of wars its been involved in since WWII. Furthermore, when you consider the dangerous nature of going first, the US probably wouldn’t want to send anyone but its best and brightest. And if we’re not alone, and we advance our technology to the point where inter-stellar travel becomes possible, we might attract the attention of an aggressive alien race and need the ability to defend ourselves. (Which would give the US an excuse to try and democratize space!) It would be a win for the US any way you want to look at it.

But the US isn’t the only country to blame. China, the world’s oldest culture, wants to regain its glory as the dominant empire (even though it’s been centuries since it could make that claim). As the world’s second largest economy, with a GDP exceeding 8 Trillion, and the fifth country to launch a satellite back in 1970, it should be making more efforts to establish itself as a dominant player in space, and focussing more on Mars. A target of 2040 – 2060 for a crewed mission to Mars is just too far off. If China dedicated itself to this goal, it could spark a new space race (as the US would want to be in the lead), which is just what we need to advance not only our space exploration ability, but mankind as a whole.

In addition, if one considers these big, mostly non-political, problems facing the US right now:

  • High Unemployment, partially due to a
  • Continual Decline in Manufacturing Jobs and Expertise, another impending
  • Housing Crisis,
  • Privacy Issues, the never-ending
  • Drug War and,
  • Unfunded Liabilities, partially due to the
  • Collapsing Dollar.

And if one considers these big, mostly non-political, problems facing China right now:

  • the need to maintain an appearance of success and save face,
  • 1.3 Billion citizens to keep happy and 930 Million to keep employed,
  • population growth that can’t be adequately managed by the one-child policy,
  • factories that need to run and products that need to be consumed, and
  • corruption and the age-old tradition of bribery.

And if one goes on to examine the root causes of these problems, one will find that many of them could likely be significantly addressed, if not solved, by a space race to Mars. How so? Come back next Sunday for Part III!

Why Should You Go Paperless? Paper is Very Expensive!

Hackett just released the first report in their new Category Insight Report series from their “Procurement Advisory Service” on “Commercial Print”. What did Hackett find? First of all, it found that the Commercial Print (CP) industry is shrinking in the US due to a shift toward digital-based solutions, which is in line with what we would expect as on-line advertising has been increasing. However, surprisingly, the global market is expected to grow at a 2.8% CAGR (Compound Annual Growth Rate) between 2011 and 2016, primarily as a result of expected growth in Asia-Pacific.

Thirdly, it found that the most significant costs are raw materials, which we would also expect. However, we might not expect that raw materials, and paper and ink in particular, account for nearly 60% of Commercial Printing Cost! In comparison, labour, averaging at 27%, is less than half of the cost. Thus, if you go digital, as the layout costs are probably similar, you can save 60% of the costs and spend that money on value-generating creative activities instead!

In addition, the report also highlighted that while paper accounts for approximately 50% of the costs in Asia-Pacific (AP) and Europe, ink accounts for about 44% of the costs in the United States. This is because printer ink, in the US, can cost over $5,000 a gallon, making it at least 25 times as expensive as a pint of blood (based on the average amount a hospital has to pay a provider to guarantee a tested, safe supply), and because the manufacturers design printers to reject cartridges when they are nearly, but not yet, empty. It’s ridiculous. Based on the average costs in Europe and Asia-Pacific, the cost of ink is 10 (ten) times what it should be — and it’s doing environmental damage to boot! (Because manufacturers make their money on the ink, they are making low-quality disposable printers that just end up in landfills when the drum nears the end of its useful life or it’s cheaper to buy a new printer on sale with a half-cartridge than buy a new cartridge.)

It also had a few surprising insights. For example, it found that the CP industry is experiencing a shift towards low-cost country sourcing. Traditionally, most companies printed at home, using either the printer preferred by their advertising firm or the local printer that gave them the best price, because quality control was vital (and transportation costs for paper can be high). But the internet makes project management and quality control possible from anywhere, and costs in countries (without the ink monopoly) can be significantly cheaper, especially if they are close by (like Poland, Slovenia, and Turkey are for European countries).

It also had some great insights into the dynamics of the industry, with a medium threat of potential entrants to existing suppliers (fighting for a low-growth or dwindling market), a medium to high threat of substitutes (as buyers go electronic), a high rivalry, and strong bargaining power on the buyer-side. For complete details, check out the Commercial Print report, which, like future reports in the series, in addition to the category overview and key market trends, addresses:

  • the cost structure in detail,
  • the competitive landscape and key industry players,
  • category tools,
  • the sourcing and procurement Capability Maturity Model (CMM) for the category,
  • category best practices, and
  • optimal channel design(s).

Hackett isn’t the first group to offer Category-Specific Market Intelligence, and players like the Denali Group and Mintec, have been offering it for a while, but it is one of the few research firms that have the expertise to deliver industry-leading category-specific market intelligence. If you’re already a Hackett client, and you need category-specific market intelligence, it’s probably the product you need. If you’re not a Hackett client, but need category-specific market intelligence, be sure to put Hackett on you’re shortlist!

FTZ, As Easy as 1-2-3

A recent article over on Inbound Logistics did a good job of dispelling Three Top Myths About Foreign Trade Zones. In short, despite some opinions, free / foreign trade zones (FTZs) are not risky, hard to use, or costly. (Although they are well-regulated with their own intricacies and do involve a setup cost like everything else. But the future benefits surpass the set-up costs quite quickly!) This is because:

FTZs are no more risky than regular imports.

Customs always has the right to inspect your imports, and import process, at any time whether or not you are using a FTZ. And whether or not you are using an FTZ, you still have to deal with a slew of reporting and transparency regulations, such as 10+2 and advance notifications, so there really isn’t more reporting or record keeping involved (as much of the information required already needs to be maintained for customs and inventory control). Plus, FTZs can allow duties to be deferred — which can improve company cash flow. In fact, properly utilized, FTZs can be less risky than regular imports.

FTZs are easy to use — with the right process.

Basically, instead of landing your goods to your warehouse, you land them to a Free Trade Zone where they stay until they are manufactured/reconfigured, extracted for consumption, or re-exported. In the first two cases, the goods become subject to duties at this time. In the third case, the goods, destined for manufacturing or consumption in another country, are sent on their way to their final destination duty free.

And if there is a Government run multi-purpose FTZ set up at or near the port of import, utilization of an FTZ is as simple as an application. (If, however, the importer wants to set up a special FTZ at its warehouse or manufacturing location, the process is considerably more complex and the company will have to bring in an expert and will definitely need to acquire best-of-breed global trade management software.)

FTZs improve Working Capital Management.

As mentioned above, FTZs allow a company to defer duties until such time as the goods are consumed and avoid paying duties on goods that are destined for re-export as-is. This can be an incredible cost saving for a company that does a lot of importing and exporting.

In addition, as noted by the author of the article on Three Top Myths About Foreign Trade Zones Dispelled, FTZs can also eliminate duties on waste, scrap, and rejected or defective parts as such parts are never consumed! In other words, a properly configured and utilized FTZ insures that you only pay duties on goods that you use or sell, when you use or sell them! This is a much better way to improve your working capital situation than extending DPO to your cash-strapped suppliers!