Category Archives: Manufacturing

Another Decade Has Passed. How Are You Doing on the 10 Rs?

Ten years ago (yes, this blog has been around for a long time, especially in internet years), we picked up on a great article by SupplyChainBrain on Ten Steps to Green Packaging in the CPG Industry which was a great article not just because it demonstrated just how many ways there were to make packaging green, but because it gave us so many ideas on how to make our entire supply chain green.

In brief, the ten steps were:

  1. Replenish
    Purchase raw materials from suppliers who employ sustainable resource management practices.
  2. Re-use (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 end harmful packaging.
  8. Redeem
    Collaborate with retailers and collect reusable and recyclable packaging materials.
  9. Reinforce
    Set up a Centre of Excellence (COE) to disseminate environmental best practices.
  10. Register
    Sign up for a carbon reduction commitment initiative and follow-through.

And they are globally applicable.

  1. Replenish
    Regardless of what you are buying, you want a supplier who is focussed on sustainability.
  2. Re-use (Re-explore)
    Modern science has advanced us to a point where most materials are reusable and recoverable. You should be working to get to 90% re-used/recycled/replenished content within a decade.
  3. Reduce
    Modern structural analytic techniques (especially with the low-cost availability of high-powered computing, low-power cores, and the ability to host data centers in naturally cooled environments) allow for the usage of much less material than before, without compromising any structural integrity
  4. Replace
    There is no need for hazardous materials in the majority of products on the market today. Science has delivered us alternatives.
  5. Reconsider
    Non-renewable materials are becoming limited. It’s not just a cost or green consideration anymore, it’s becoming a necessity.
  6. Review
    Waste should be minimized inside your organization and eliminated in your supply chain. Waste to you can be raw material to someone else. Food stuffs don’t meet your level of quality for human consumption? Might more than surpass the level of quality for animal consumption and, if not, there’s always bio-mass energy production. Metal scraps? Straight to smelting and recycling. And so on. Your waste can always be someone else’s inputs if you are smart about your process.
  7. Recall
    Whatever you are creating should be benefiting the consumer, not harming them. If you screw up, recall the product, immediately fix or recycle it, and improve your processes so it doesn’t happen again. (Don’t reprimand the workers, but fire the pointy haired idiot who requested it or was responsible for guiding the workers. And yes, SI still disdains the average Master of Bullshit Administration.)
  8. Redeem
    Make all of your packaging reusable and get it back. (Considering how many empty miles exist in the trucking industry, this is not a big deal or big cost if properly planned. Coupa Sourcing Optimization and Jaggaer One Advanced Sourcing Optimization in particular have models customized for transportation and reverse transportation. USE THEM!)
  9. Reinforce
    … and mandate! Set up the COE, make an executive mandate that policies must be followed, and green your operation.
  10. Register
    Make a public commitment to carbon reduction, waste reduction, and energy usage reduction, measure annually, publicly report, and follow-through. (And don’t just buy carbon credits or carbon offsets. Don’t make your problem someone else’s.)

Sustainability isn’t hard anymore … and the organizations that start now will be the ones that will be around in the decades ahead.

Are You Doing Your Own Quality Spot Checks? And Should You Be?

By now, if you haven’t heard of the Kobe Steel Scandal, you’ve been living in a cave. (Which, in some organizations, is highly probably given that one of the tricks the CFO likes to do to Procurement when fiscal year end is approaching is to lock them in the basement until the mandatory savings objective is reached … hence our post yesterday on why every day is Halloween for some Procurement departments.).

This scandal is scary. Not only because the data falsification on strength could go back as far as 10 years on some batches, and who knows what bridges, high-rises, and busses that steel has gotten into (and even a .1 degradation, while not enough to jeopardize immediate safety, can impact expected life span and increase susceptibility to decay, making safety a concern down the road before inspection and maintenance schedules kick in).

But this brings up a good point? If more companies were doing more spot checks on shipped product and quality, instead of just trusting Kobe, would it have been 10 years before the scandal was exposed. Even if only a small percent of batches are affected, I highly doubt this would have been undetected for 10 years, even if only one bar or sheet in multiple shipments were tested.

This is an example of what happens when finance tries to get too greed or supply chains to lean by centralizing a function downstream. When one party is responsible for everything, one failure can reverberate up multiple chains undetected — and have potentially disasterous consequences. Now one might say this problem is solved by co-locating people on-site, but if those people never leave the site, even though you pay their salary, their work family is the people they work with day in and ay out and the existence of that company is their livelihood. Are you sure they won’t bow into the local culture and, if the culture dictates, defer to authority or collectively hide the shame?

Just like third party audits are needed, for critical materials, so are third party quality tests. Doesn’t have to be you, could be an independent organization set up between your co-opetition that does random independent quality spot-checks on 1 in 10 shipments and shares the data with everyone.

Just like a good Chef would never use an ingredient without insuring it’s quality, a good Procurement organization should never let a shipment be accepted without a high degree of confidence that it’s a quality shipment. And confidence like that only comes from organizational testing or trusted third-party independent testing. So don’t get too lean or too cheap — your organization, and the lives of its customers, could depend on it.

Cognitive is the New Buzzword. But what does it mean?

It seems that everyone is talking about Procurement these days. A Google search for cognitive procurement returns about 650,000 results that include news sites, analyst firms, and vendors ranging in size from Old St. Labs to SAP Ariba to IBM.

Definitions are varied as well. Quora defines cognitive procurement as the application of self-learning systems that use data mining, pattern recognition and natural language process (NLP) to mimic the human brain to around the processes of acquiring, buying goods, services or works from an external source. IBM’s Vice President of Global Procurement defines cognitive procurement as the use of systems and approaches that are able to learn behaviour, manage structured and unstructured data, and unlock new insights to enable optimized outcomes. Vodafone defines cognitive procurement as augmented intelligence capabilities that allow a category manager to make faster and smarter data driven decisions that deliver competitive advantage.

But what does this all mean? First of all, the only commonality is using systems to do a task better. Which systems? Which tasks? Who gets the benefits? And what precisely are the benefits?

To figure this out, we have to go back and define what makes for better Procurement. The first step is good Sourcing. What are the keys to good Sourcing?

There are a number of keys to good Sourcing. Some of the most important include:

Visibility. Who are your potential suppliers? What do they provide? Where are they? What do you know about quality, reliability, delivery, etc? What are the risk factors with dealing with them? What data can you get on finances and sustainability? You need good information.

Analytics. Once you get the information, you need to make sense of it. Roll up component and material costs across bill of materials. Amalgamate risk ratings into meaningful scorecards. Aggregate demand across categories. Determine what you need, when, in what quantities, and how much it should cost before you start a negotiation.

Modelling. The ability to define detailed should cost models based on components or materials, production costs that include energy and labour and overhead, and other relevant cost factors. To define how those costs change with market data or production volumes. And so on.

Optimization. Once you get the data, you need to figure out the baseline costs and what the optimal awards are assuming nothing changes. Then how those change as costs change as bids change. Also, what are the optimal logistics strategies and costs. How does logistics impact the award decision? How should the logistics supply chain be designed?

Negotiation Support. At some point, the analysis needs to turn to negotiation, because the goal of sourcing is to acquire the products and services the organization needs to support its operations and satisfy its customers. All of this capability needs to be brought to bear in a cohesive, assistive, fashion that can help a buyer make the right decision.

That’s what cognitive procurement is — presenting a user with the information they need when they need it to make the right decision. Not automated buying. Not artificial intelligence which doesn’t exist. Not trying to mimic the human brain, as we don’t even fully understand how that works now.

So, does any application meet these requirements?

Consumer Sustentation 74: Demand Planning

Demand Planning is a damnation. Why? As per our original damnation post,

  • traditional demand planning models require historical data
  • traditional demand planning models require market predictability
  • traditional demand planning models require market foresight
  • traditional demand planning requires knowledge of the expected price point

And how often in today’s constantly changing consumer marketplace, with new product releases coming faster and faster (to the point where your phone, laptop, and music device is out-of-date by a whole new release within a year), do you have good historical data, market predictability, and foresight? And how often can you be confident in the price-point, as a skunk-works product release by a competitor between sourcing and sale can force a price reduction to prevent inventory sitting on the shelves indefinitely.

So what can you do? (Besides burying your head in the sand like an ostrich?)

1. Get as much market data as you can.

Collect as much data as you can on your competitors imports, sales, and revenue using publicly accessible import data, analyst data, and company annual reports. It won’t be accurate, but with enough data you can often identify better trends than you could on the most similar product in your own inventory (which might not be similar, or recent, enough to be sufficiently relevant).

2. Have third parties conduct surveys on your behalf.

Sometimes the best way to gauge a market forecast is to actually conduct customer surveys and have a third party use the data to estimate demand for you. If you have no clue, the best thing you can do is admit it and get an expert to help you come up with a realistic demand forecast range.

3. Don’t focus a number, focus on a range and a potential rate of ramp-up or ramp-down.

If you know the demand is expected to be in the 100K to 200K units a month range, and the demand could double overnight, then you know that you need to contract for the low-end, but with a supplier that could ramp up to double production in a matter of weeks if necessary. And you have to negotiate a contract that allows orders to escalate, with pre-defined increases if the supplier is forced to work overtime (so you don’t get any billing surprises or animosity down the road).

4. Keep on top of sales data in real-time.

Be sure to get at least weekly PoS updates, and re-run the projections on a regular basis to detect an upswing or downswing early, so that you don’t get caught with your pants down, or, even worse, your pants off.

If you follow these tips, then you can get a reasonable grip on demand planning while your competitors flounder with the flounders.

Boost Your Procurement Value Engine

As per our last post on the subject, Procurement does not exist to buy stuff (which was its origins, but thanks to the Internet, everyone can buy stuff), but to provide value to the organization. But the identification of organizational value is not always straight-forward. Every organization is different, and every Procurement function has a different level of organizational maturity. As per the classic Hackett Hierarchy of Supply, a supply organization could still be at the level of supply assurance, could have moved on to analyzing landed cost, may have begun its entry into the modern era with an analysis of TCO, might be poised to become a leader with a foray into demand management, or, and this is the highest level of maturity, may be focussed on the art of value management.

But delivering value first requires understanding what value is to the organization (and how Procurement can contribute to it) and then requires getting a mechanism in place to repeatedly deliver that value at regular intervals. There are various mechanisms that can be considered, but regardless of the mechanism you choose (and whether it is process-based, platform-based, or a hybrid approach), it needs to be powered by an engine. And in particular, that engine, which needs to keep on churning out value like a real engine keeps churning out power, needs to be efficient and effective.

One has to keep the productivity plateau in mind. An organization that only focusses on efficiency will, at best, fail slowly. Similarly, an organization that only focusses on effectiveness will, at best, survive. But what an organization really wants to do is excel, and that requires the right intersection of efficiency and effectiveness. In particular, the organization has to focus on effective goals, implement them as efficiently as possible, and then use the savings to take on even more effective goals.

So how does a Procurement department improve its productivity? Generally speaking, the Procurement organization increases its value (for money, VfM), and the basic formula for that is simple:


Value Increase = Reduce Input + Increase Output + Reduce Energy
 

while focussing on categories important to the business

And how can it do that? In a category-agnostic way, it can:

  • reduce demand
  • increase Spend Under Management (SUM)
  • decrease contract costs
  • increase contract compliance
  • decrease storage and utilization costs
  • reduce risk

And how can it do this efficiently? In a general way, it can:

  • implement systems to improve cycle times
  • implement processes to reduce maverick spend
  • manage market dynamics better

And how can it translate the general to the specific? That’s a harder question to answer, but one that is addressed in considerably more detail in a new white paper co-authored by the doctor and the procurement dynamo, sponsored by Pool4Tool, on how to Boost Your Procurement Value Engine. Part I of a II-part series (with Part II coming out in Q3), this paper will give you the insights you need to understand the various levers you have to deliver true value and how you can do so in an efficient, effective, and sustainable manner.