Category Archives: rants

Have We Reached The Supply Chain Plateau Part III?

In Part I, we noted that Lora Cecere discovered, while analyzing the balance sheets of process companies over the past decade, that the average process manufacturing company has reached a plateau in supply chain performance as noted in a recent piece over on Supply Chain Shaman which stated she believes we have reached the supply chain plateau.

In Part II, we noted that growth has stalled, and asked why it has stalled. Lora conjectures that while complexity has increased, many well-intentioned executives lack the understanding of the supply chain’s potential or how to manage the supply chain as a system. This means that even though individual projects are getting great results, departments as a whole are not performing as well, and being managed even worse. Why? One conjecture, as implied in Lora’s post, is the current state of supply chain technology and ERP (and forecasting) systems in particular. And while there is a discontinuity and we need to declare the APS and ERP systems of the 1990s obsolete and start again, SI does not agree this is the core problem. The core problem is manpower capability. Not only do most executives not understand the supply chain from a holistic perspective, but neither do the function managers … who often do not even understand the best practices associated with their job because of the lack of education (and training).

But is this the whole picture? Robert Rudzki, of Greybeard Advisors, recently ran a 4-part series on the SCMR blogs where he summarized the results of a survey last quarter which asked “has our profession advanced, or regressed?”, which was administered as a result of anecdotal evidence that Procurement and Supply Management has regressed at some companies during the past 3 to 5 years. The survey, which was primarily filled out by Supply Management function leaders or direct reports and which drew interest from better-performing companies, produced some interesting results:

  • Only 38% of the respondents agreed with the statement that their “top management really understands and appreciates the enormous potential of modern supply management”, which is lower than the 47% who agreed with the statement in Greybeard Advisors’ 2008 survey
  • About a third of respondents indicated that they developed and presented a business case, also lower than the original survey
  • Not surprisingly, less than 30% of respondents indicated that “top management strongly supports the supply management organization with sufficient resources and budget”, also lower than the original survey.

And led Bob to conclude that overall, based on the companies that participated in the survey, we cannot show that our profession has advanced during the past four years; in fact, at some companies, there has been a return to more tactical approaches and objectives. Ouch! Why is this?

For All Our Sakes, Let’s Hope Shipping Cleans Up Its Act!

Everybody likes to blame the pollution in our cities on our cars. They do emit pollution, especially poorly maintained cars, and there are quite a lot of them, and they make an easy scapegoat. But they are far from the worst offenders. Every since the introduction of the catalytic converter, we have the reality that the riding mower you use you cut your lawn is probably more polluting than the car you drive to work every day.

People who put a little more thought into it blame the trucking industry. Those 18 wheelers are big, burn a lot of gas, and, in olden days, used to emit more fumes than a small mill. But that was yesteryear. Today, these trucks are as clean as the common automobile and, in some cases, cleaner as many shipping giants are experimenting with, and moving to, hybrids.

And airplanes aren’t the problem either. Modern jets take a lot of expensive fuel to run, which airlines don’t want to pay for. Plus, unless the burn is clean, you can’t get the same power.

The real problem are container ships. As per my post back in 2009 where I asked, What’s Worse? The Personal Automobile or 15 container ships, a single giant container ship can emit the same amount of cancer and asthma-causing chemicals as 50 Million cars in the course of a year. Think about that. There are roughly 250 Million passenger vehicles in the US, which says that it only takes 6 container ships to produce more pollution than all of the vehicles on the road! And there are over 10,000 container ships in the world!

So what brings on this rant again? A recent article over on CNN.com on how shipping looks to clean up its act. According to the article, some ships are now burning low-sulfur fuel while in port, which can reduce toxic sulfur dioxide emissions by 85%. And this is supposed to be a good thing. First of all, at an 85% reduction, that means the ship could still be as damaging 7.5 Million automobiles. Ouch! Secondly, ships spend most of the time at sea. If they are still burning high-sulfur fuel at sea, then, at least three quarters of the time, they are as polluting as ever, which means the 85% pollution reduction in port, reduces their pollution output by at most 20%.

At least (part of) the IMO (International Maritime Organization) greenhouse gas reduction program comes into effect this year and, for the first time ever, includes CO2 emissions. Maybe now that the industry is forced to do something, we’ll see some progress. Because, as noted by Chew Hwee Hong, a good 95% of (shipping industry green initiatives) is incentivized or is driven by international regulations. Shippers ain’t doing it for themselves!

Think about that next time you needlessly outsource something to China. No matter how many CSR (Corporate Social Responsibility) programs you put in place, the minute that product hits the ship, you’re doing more environmental damage than you’re likely to negate with any lean or sustainable development / production program.

Blue Friday

Apparently this Monday was Blue Monday, the most depressing day of the year, as determined by the following non-sensical calculation:

[W + D -d]TQ

MNa

where d, D, M, Na, and TQ are a bunch of random variables arbitrarily considered to be correlated to mood.

But if you really want to be depressed, consider the following stats:

  • 64% of companies do not have a person responsible for managing supply chain risk, down a whopping 1% from 2008, but 80% of companies are vulnerable to a major supply chain disruption!
  • companies without e-Sourcing and e-Procurement solutions are over spending by 170 Million on every 1.17 Billion of spend (a rate of 14.5%), and when you consider that less than half of companies out there have either solution, less than 25% have both!
  • and up to 17 Million of this overspend is due to over payments, duplicate payments, missed rebates, missed dicounts, lost credits, and fraud because they don’t even have a decent e-Payment / Recovery solution in place!

In short, chances are that your organizaton is grossly overspending, paying your richest suppliers twice (while bankrupting your poorest suppliers with your 200 day payment terms), and at risk of a major supply disruption that will financially ruin you because you won’t see it coming! That’s a real reason to be blue.

Let’s hope this is the year you stop sitting on that cash reserve and:

  • implement integrated end-to-end e-Sourcing and e-Procurement
  • put a solid monitoring and recovery solution in place to make sure every negotiated cent of savings is captured
  • hire a risk manager and get a grip on risk so you can identify, and if needed, source around it before a disruption costs you every dime of savings you negotiated over the past three years and
  • actually get some training on modern processes and technologies so you implement and utilize the new systems properly.

Have We Reached the Supply Chain Plateau? Part II

Yesterday, we noted that Lora Cecere discovered, after reviewing balance sheets of process companies over the last decade, that the average process manufacturing company has reached a plateau in supply chain performance. And, moreover, that the majority of progress improvements over the last decade came from lengthening days of payables and squeezing suppliers. That’s Not Progress!

So have we reached the supply chain plateau? SI doesn’t think we have, but agrees that growth has stalled. But why has it stalled?

Lora conjectures that while complexity has increased, many well-intentioned executives lack the understanding of the supply chain’s potential or how to manage the supply chain as a system. So, while individual projects are getting great results, departments as a whole are not performing as well, and being managed even worse. SI has to agree.

Why? One hypothesis, as implied in Lora’s pot, is supply chain technology, and ERP (and forecasting) systems in particular. As Lora notes, the current state of supply chain technologies is such that, in an average company, the greatest gaps are in the areas of the greatest importance. Gaps in supply chain planning are high, and the ability to use the data from ERP and order management remains a gap.

This is true. And SI has to agree with Lora when she says that there is a discontinuity and we need to declare the APS and ERP systems of the 1990s obsolete and start again. But SI doesn’t think this is the core problem. The core problem is manpower capability. Not only do most executives not understand the supply chain from a holistic perspective, treating each step as its own function (and disassociating NPD/Design from Sourcing (a manufactured product) from Logistics and Distribution, when they all have to be examine and managed as part of an integrated supply chain, but neither do the function managers. Moreover, these function managers often do not even understand the best practices associated with their job.

Why is there a manpower capability issue? A lack of education. These people generally don’t leave college or university with a solid supply chain background, as few institutions offer such programs, and they haven’t been properly trained. Year after year training budgets are slashed and leaders are run ragged fighting fires and dealing with tactical issues instead of being given time to focus on long-term strategy, how the supply chain works, and how it should work for optimal performance and optimal corporate gain. Where supply chain is concerned, not only do we have the reality that you can’t manage what you don’t understand, but you can’t even manipulate what you don’t understand with any level of success. People have to be educated and trained at all levels of the function, and until that happens, up-to-date technology or not, there is not going to be any progress.

Have We Reached the Supply Chain Plateau? Part I

Last week, Lora Cecere stated over on Supply Chain Shaman that she believes we have reached the supply chain plateau.

I believe that, while we have been in a bit of an innovation dry spell the last few years relative to the early noughts, there is still innovation to come and mountains to climb, but Lora’s evidence is pretty damning: while analyzing the balance sheets of process companies over the past decatde, she discovered that the average process manufacturing company has reached a plateau in supply chain performance. Specifically Lora found that:

Growth has stalled. To compensate and stimulate revenue, the companies increased SG&A margin by 1%. However, the conditions were more complex; the average company, over the last ten years, experienced a decline of 1% in operating margin, and an increase in the days of inventory of 5%. While cycle times have improved, the majority of the progress has come from lengthening of days of payables and squeezing suppliers.

And delaying payments and squeezing suppliers is not progress!

This is scary! Really scary! And before I discuss this any further, you need the facts and you need to read Lora’s post.

SI’s post is going to end my here today so you can go read it and dwell on it. We’ll discuss this more in SI’s next post.