Category Archives: Manufacturing

From the Brink to Cash in the Bank – Supply Chain Management Can Save You Too

The SCMR is back, Quinn is still in charge, and it looks like he’s striving to maintain the quality that the SCMR was known for. I was quite impressed with one of the first articles on driving a turnaround in tumultouos times, which presented a case study on PolyOne and how it came back from the brink of bankruptcy. In March of 2009, it’s share price reached an abysmal low of $1.32. On May 27, it was $10.19. That’s an eightfold improvement in a little over a year and the reason analysts are now recommending it as a buy.

In the past year, it generated $218 Million of free cash flow and reduced its net debt by $233 Million. This is very significant given that it’s sales in 2009 were only 2.061 Billion as it means that PolyOne not only freed up 10% of their total sales for working capital but also managed to direct over 10% of their total sales to reduce their net debt. Plus, not only is their long term debt only 60% of what it was in 2005, but they went from a net loss of 273 Million in 2008 (when sales were 33% higher) to a net income of 68 Million in 2009, an incredible turnaround.

So how did they do this? Great supply chain management. Specifically:

  • Manufacturing RealignmentA series of mergers and acquisitions left PolyOne with over 40 global production facilities, considerably more than it needed to meet demand and mitigate risk. A detailed network analysis indicated that they could more than meet demand and mitigate risk with only 80% of manufacturing capability. This allowed them to close nine production facilities and significantly decrease operating costs.
  • Inventory ReductionAt the end of the third quarter in 2008, the company was carrying $331 Million in inventory, a number equal to 16% of sales in 2009 and an incredible cost. They undertook a two-day Kaizen event to identify opportunities to reduce inventory and cash-to-cash cycle times that identified consignment inventory reductions, opportunities to reduce costs by way of distributors, better inventory transfer practices with key suppliers, and opportunities to improve reorder points. Specifically the first thing they did was kill the re-order points that were on autopilot in the SAP MRP, which didn’t reflect the plummet in demand that came with the economic downturn. Moving to regular, manual review, helped them reduce inventory by $139 Million in just six months.
  • Process ImprovementsThrough numerous process improvements that included inventory stratification, PolyOne also reduced DSI, which dropped from 55 days in first quarter to 37 days in third quarter, while improving on-time delivery.
  • Greater Customer FocusManagement established the mindset that on-time delivery was critical and by improving customer focus, PolyOne improved on-time delivery from 81% in 2005 to 93% in 2009, a 15% improvement.

In short, it was supply chain that saved the day, and its the best practices described in this blog that will get you there. Get a strategy, manage your finances, lean your supply chain, improve your forecasts, optimize your inventory, analyze your opportunities, adopt e-Sourcing, and optimize your awards and you too can go from a net loss of 10% to a net income of 3% literally overnight, on your way to becoming a best in class supply chain company.

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Green Your Packaging

Supply Chain Brain recently ran a decent article on 10 Steps to Green Packaging in the CPG Industry that had a few insights that are worth a closer look.

  1. Replenish
    Purchase raw materials from suppliers who employ sustainable resource management policies.
  2. Re-explore
    Use recyclable material.
  3. Reduce
    Use ergonomic design and optimization to minimize the use, and size, of packaging material.
  4. Replace
    Replace hazardous and harmful substances with eco-friendly materials.
  5. Reconsider
    Use renewable materials whenever possible.
  6. Review
    Inspect, monitor, and control waste in the packaging process.
  7. Recall
    Immediately recall harmful packaging and put processes in place to insure that harmful packaging does not get used again.
  8. Redeem
    Collaborate with retailers and collect reusable and recyclable packaging materials in exchange for discounts.
  9. Reinforce
    Set up a Centre of Excellence (COE) to disseminate environmental best practices throughout the organization.
  10. Register
    Sign up for carbon reduction commitment initiative and follow-through.

For more information on the 10Rs, as well as examples on how to achieve them, check out 10 Steps to Green Packaging in the CPG Industry.

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Kalypso’s Best Practices in Collaborative Innovation

According to a recent Kalypso white paper on “Best Practices in Collaborative Innovation: How Manufacturers and Retailers Can Profit from Collaborative Innovation”, there is an urgency for collaborative innovation as 95% of companies surveyed felt that collaborative innovation was very important to achieving their business objectives. One respondent even went so far as to say:

If you’re not collaborating, you won’t be around in 20 years. You’ll be gone.

With the global economic crisis driving a changing consumer focus on value, the need to streamline supply chains, and the need for consumer safety, companies are under increasing pressure to simultaneously deliver cost reductions and innovation at a faster pace. However, this is getting harder and harder to do in a vacuum. Hence the need for collaborative innovation.

This is a good thing. When successfulm collaborative innovation between manufacturers and retailers comes with a number of benefits which include:

  • differentiation, which makes them more indispensable to the retailer,
  • improved focus on consumers across departments and categories, and
  • brilliant retail execution

for manufacturers;

  • provision of a differentiated shopping experience,
  • more “shoppable” stores,
  • total shopper solutions,
  • improved focus on destination categories, and
  • new opportunities for product and brand differentiation

for retailers; and

  • shared sales and profit growth,
  • better ideas and improved decision making from shared shopper and consumer insights,
  • more innovative offerings, and
  • reduced rework, improved speed to market, and improved execution

for both parties.

But how do you get there? As Mike Oswalt of Fluor, a global leader in international sourcing and procurement, has astutely noted in the past, collaboration is hard to define. No one can quite put their finger on what it is, or how you get there. Outside of a recent Industry Week article I covered when we discussed the requirements for collaborative innovation, there aren’t many roadmaps. That’s why it was nice to see this white paper discuss four best practices of collaborative innovation which included a planning framework to help you get there.

The best practices of collaborative innovation addressed were:

  1. Develop a Strategy
    The strategy should be focussed on a win-win approach based on categories or brands that are best suited for collaborative planning and that represent the best opportunities.
  2. Collaborative Business Planning
    The goal of joint business planning is to align the goals and objectives of both parties around the brands and categories identified as the best opportunities. The iterative process consists of the following steps:

    • Define the Landscape
    • Develop a Growth & Innovation Strategy
    • Co-Develop the Joint Business Plan
    • Jointly Execute with Brilliance
    • Measure, Improve, & Renew
  3. Get Your House in Order
    Internal obstacles — such as management challenges, organizational challenges, and business process challenges — are often the largest roadblocks to executing upon collaborative innovation. Company leadership of both parties must provide support, incentives, and resources and the focus has to be communicated throughout both organizations.
  4. Build a Trusted Relationship
    This type of relationship can create a “barrier to entry” for competition as well as provide a competitive advantage as trusted relationships result in greater information sharing, which is a cornerstone of innovation.

Not a bad set of recommendations at all. The report also concludes with some questions to ask in a self-assessment to help you determine if you’re ready for collaborative innovation. You might want to check them out.

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B2B Connex: e-Document Management for Small & Mid-Size Manufacturers

B2B Connex provides a web-based sourcing and procurement document management solution that is a great fit for all types of small and mid-size manufacturing organizations that need simple e-Sourcing and e-Procurement functionality at a low price tag. It’s basic portal solution, that plugs in to your existing ERP & MRP solution, can be acquired for as little as $30,000 (plus 20% annual maintenance) for a small operation. Mid-size operations are generally priced by the number of locations and users, but even their larger customers don’t pay much more than 100K. (Pure SaaS configurations and pricing are also available, but most of customers with traditional on-site ERPs/MRPs generally prefer on-site installations.)

Designed to fill the niche in the small and smaller mid-sized business market left by the big end-to-end e-Sourcing and e-Procurement suite vendors whose solutions often come with a big price tag, the B2B Connex solution allows you to easily manage the following e-Document types (among others) and efficiently conduct your day-to-day procurement operations.

  • RFQs
  • Purchase Orders
  • Kanban Orders
  • Shipment Notices
  • Payment Inquiries
  • Invoices

In addition, it can also handle the CRM side of your business and allow you to manage the following e-Document types (among others):

  • Inbound RFQs
  • Sales Orders
  • Inbound Shipment Inquiries

It’s implemented as a simple web-based portal solution, that can be accessed as needed by your procurement personnel, and it integrates with your back-end ERP and/or MRP systems. (Right now, they support about a dozen ERP/MRP systems with no or minimal configuration work, including SAP, Oracle, JDE, Intuit, Avantis, and Mapics.) And since it handles all the key document types, it allows you to do m-way matching and insure that the invoices are accurate (and represent actual shipments and agreed upon pricing) before you pay them. Since the lack of this capability is one of the two biggest reasons that up to 60% of negotiated savings never materialize (with the other being maverick spending), it’s a good one to have!

In addition to document status (such as new, acknowledged, reviewed, accepted, etc.), the system also supports state management, and a supplier can, for example, accept, reject, or mark each line item for negotiation on a purchase order. This is a useful feature for spot buying, which is common for MRO, SG&A, and low dollar spending in smaller organizations. Also, each e-Document can have an unlimited number of e-Document attachments, so your RFQs can contain detailed item descriptions and sample contracts and your purchase orders can contain detailed specifications and shipment terms and conditions, etc.

If you’re a small or smaller mid-size manufacturer still on EDI and holding off on an e-Procurement system because you think it’s too extensive for your needs, or you think it won’t integrate with your ERP/MRP, or you think you’re too small for such a solution, it’s certainly a system you should check out. Plus, they have an ROI guarantee. If the system does not pay for itself in a year, they’ll refund the purchase price. However, considering the implementation of even a basic e-Procurement e-Document management system such as this generally comes with at least a 25% productivity improvement across your Procurement department, it’s pretty hard not to see savings (especially since the automatic matching will reduce payment errors and the built-in e-Negotiation capabilities on spot buys will help you get price reductions).

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‘Made in China’ Now ‘Made in Egypt’

I got a bit of flak for my last global sourcing post on how Some Companies Will Move To China but Others Will Move Closer To Home despite the fact that before the China revolution, Mexican manufacturing was all the rage — and the fact that Mexico still has capability and lots of capacity. While my antagonists may be right in that some verticals will stay in China due to the significant investments that have been made in China in those verticals, not all verticals have made the same level of investment as the high-tech vertical, for example. Also, as per this recent article in Industry Week, even China is adopting near-sourcing!

According to the article, so far, around 950 Chinese companies have set up operations in Egyptian free zones, which represents a total investment of about $300 Million. The breakdown is about 55% (manufacturing) industry, 33% (service), and 12% other (agricultural, tourism, etc.). This is because Egypt is now offering cheap labor (as salaries compete with those in China), investment incentives, and unrestricted exports. Furthermore, given that China is already quite comfortable with Africa (where it invested 7.8B in 2008, up from $0.5B in 2003), this is just the beginning.

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