Category Archives: Supplier Management

Alcatel Blames Parts Shortage for Steep Loss

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Here’s a headline supply managers don’t want to see about their own company:

Alcatel Blames Parts Shortage for Steep Loss

(New York Times, May 7, 2010)

Alcatel Lucent, which makes network equipment for AT&T, Verizon and Sprint, said Thursday that the U.S. economic recovery was accelerating so rapidly it was unable to obtain enough basic electronic parts to meet the demand of U.S. operators.

Alcatel cites supply problems as the key reason their sales declined by nearly 10 percent.

There are so many high level, advanced efforts going on in supply chain integration that it’s easy to lose sight of the basics. The most basic element of a supply strategy is assurance of supply of proper quality parts.

I see a parallel between Maslow’s hierarchy of human needs and supply management needs. It’s also known as the Maslow pyramid. Maslow believed that unless needs at lower levels of the pyramid were met, higher level needs would not be considered or addressed. I\His most basic needs were physiological. His highest need was “self actualization”. To put it simply, he said it’s hard to worry about making friends if you can’t get enough oxygen. Similarly, it’s hard to develop advanced supply management programs such as collaborative R&D, technological road mapping, quality improvement programs or lead time reduction if you can’t get enough parts to keep your lines running.

I put assurance of supply at the bottom of the supply chain need hierarchy. What’s at the top? I believe it’s the ability of the supplier to see through your need pyramid and recognize they are part of your customer’s supply chain, and to cooperate with you on meeting your customer’s needs.

What went wrong at Alcatel? I can hypothesize based on my experience as an electronic component commodity manager. The industry is characterized by wild swings between a buyers’ market and sellers’ market that last for a few years. There’s about 20 minutes of equilibrium during the transition. A lot of the ability to maintain supply when demand increases depends on the relationship the buying company maintains with their supply base during the buyers’ market.

If I were a forensic examiner I would look at how Alcatel treated their suppliers during the downturn. I know what we did and it was successful: We put in place major improvements in our ability to forecast to suppliers. We pressed hard on quality improvement programs, something our good suppliers wanted to do anyway. We got strong commitments from our suppliers not to lengthen lead time in an upturn. We didn’t alter our price renegotiation schedule so we didn’t seem to be taking advantage of the suppliers’ difficulties. In hindsight, that resulted in paying more than we had to during a downturn and less than we would have had to during an upturn. Also, (did I mention this?) we had sufficient supply at short lead times when the market turned.

Thanks, Dick. (Global Supply Training)

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Giving Your Supply Management a Competitive Edge

A recent article on “five strategies to give your business a competitive edge this year” in industry week for product development efforts is appropriate for supply management as well. Written by Renee Martin, co-author of The Risk Takers, it highlights how entrepreneurial strategies can help your supply chain to succeed.

What are the five strategies put forth, and what do they mean for your supply management practice?

  • Go on a Treasure Hunt and Find an Underserved NicheThis is easy if you have a real Spend Analysis solution that will let you slice and dice a data set of up to 50 Million transactions any way you want on your laptop in real time.
  • Spot a New Trend and PounceOnce a new technology or solution has proven itself as significant generator of ROI, adopt it. For example, this means that it’s past time that you adopted strategic sourcing decision optimization and global trade solutions.
  • Buck the Conventional WisdomJust because your current practice is considered a “best practice”, this doesn’t mean that it’s the absolute best practice for you. Maybe a revolutionary lean factory redesign could produce your product much more efficiently, maybe a distribution network redesign could greatly improve service levels without increasing costs, and maybe the best way to get the best price is to forget negotiation and work with your incumbent supplier to find a more cost-efficient product design.
  • Exploit Your Competitor’s Weaknesses and Make It Your StrengthAre they slow to market? Find a faster means of delivery. Are their products more customized? Find a new manufacturing shop that can do smaller lots and quick line changes.
  • Trust Your GutIf you think a certain supply strategy is too risky, it probably is.

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Supplier Risk Management Doesn’t Have to Be Hard

Michael Levin of Integrity Interactive is right … risk assessment doesn’t have to be complicated. Many companies put off risk assessment, management, and mitigation because they think it is too time intensive, hard, expensive, etc. … when in reality it usually isn’t. The vast majority of what you buy doesn’t have to be single sourced from a single factory or be made of a single raw material only found in one place in the world. As a result, it’s usually not too hard to define risks (we’re single sourcing oranges from the coast of Florida or RAM chips from a factory on the Shanxi Border in China) or come up with mitigations (buy Oranges from Florida and California and RAM from the Shanxi border factory as well as a factory in Korea).

Furthermore, the six-point approach to risk minimization he outlines in “when the CPO gets a request for quote” is a great way to kick-start a risk management program:

  1. Ensure the initial supplier selection process is comprehensive, repeatable, and documented.This must include inquiries into ethical standards and history.
  2. Establish ethical standards and expectations for suppliers.Include labour, environmental and anti-corruption standards. SI’s series on the John Lewis Partnership Responsible Sourcing Supplier Workbook has a lot of good standards you can start with.
  3. Publish and actively communicate those standards to suppliers on a persistent basis.Not simply at the initiation of the supplier relationship. Regular newsletters and reminders when they log into your system as well as educational pieces about how to be more socially responsible. (You don’t just want to nag them, you want to inform and better them.)
  4. Perform routine audits of suppliers.This is to ensure they continue to meet your ethical standards. Make sure that your contract states that you can do at least one surprise audit annually. (While you shouldn’t do it unless you expect your supplier is not being ethical or socially responsible, as it’s a big drain on you and your supplier, if you get wind of shenanigans, you want to be able to check them out.)
  5. Perform risk assessments of your supply chain.Identify suppliers as high risk, low risk, minimal risk and no risk. (Yes, you do have no risk suppliers. For example, if your office suppliers vendor goes out of business, you just go down the street to the next one.)
  6. Establish in advance a remedial action plan in the event trouble is discovered.Make sure it’s one you can act on quickly. Otherwise, your brand and reputation will be on the line. After all, by institutionalizing an approach, a company at the centre of an ethics scandal in its supply chain will fare much better with the public and potentially avoid the media storm that is inevitable. It’s a matter of enduring six weeks of pain rather than six months or more of media pain.

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AECsoft: SIM-Powered e-Negotiation, Part II

In our last post, we discussed AECsoft’s Supplier Information Management platform, which is one of the oldest and most mature solutions on the market (with R&D starting on some aspects five years before CVM Solutions hit the scene in 2002). It stacks up very well in terms of basic SIM capabilities, although some of its competitors like CVM Solutions and Aravo, which chose to stay SIM-centric and to integrate more data feeds (which may or may not have value to your organization, as these feeds will get very specialized after a certain point and have no value to the vast majority of businesses) or more customized program management around SIM-based programs (like compliance, sustainability, and risk), are deeper in terms of specialized SIM applications. However, it’s the only major SIM player that also offers a complete, tightly integrated, e-Negotiation management suite as well which makes it a compelling solution for the mid-market in particular who may not have the money for a best-of-breed SIM platform and a best-of-breed e-Sourcing platform and who can do without decision optimization (or do it on a project basis when needed with a vendor that has a project model) and a pricey data warehouse driven spend analysis solution. (And while I would argue that no-one can do without good spend visibility, for some companies, who don’t have the data and analysis skills in house, sometimes the best solution is a consulting firm who has access to the best spend analysis tools and who does an spend and opportunity assessment for you on a quarterly basis.)

As with most suites on the market, the entry point is a management dashboard that gives you the status of all of your RFX’s (draft, pending, open, closing), auctions (draft, pending, open, closing), vettings (AECsoft’s terminology for compliance [verification] projects), and projects (which is AECsoft’s terminology for any SIM or sourcing project).

The RFX is workflow driven, and guides you through the process. It starts with configuration (title, number, currency, standard payment terms, project dates, etc), description, details, and contact information; moves on to user (buyer representative) selection, supplier invitations, prerequisite definitions, and document attachments; then to actual RFI/RFP/RFQ construction (which can include internal components); and finally to supplier delivery, response evaluation, and (scorecard) summarization. The advantages of the platform is that it can automatically pull in all supplier and product information related to any invited supplier, which makes construction simple and minimizes the pre-qualification and supplier survey effort (as the supplier will simply have to verify that the relevant data is still current and accurate), and automatically push any updated information back to the repository or into an e-Auction if the RFX is being used as a pre-qualification for the reverse auction. The auction tool, which is basic, is similarly straight-forward. One of the big advantage that both tools have is that all RFXs and Auctions can be scheduled, repeated as many times as you like, and fully automated. Some of their clients hold in excess of 40,000 sourcing events a year! Every day they’ll automatically push out a group of items in a category to a pre-qualified set of suppliers (with which they have standing offers) for updated bids. Some items will be pushed out weekly, some monthly, and some quarterly … depending on the category and how often prices tend to change. This allows them to focus the majority of their time on those few dozen to few hundred events which are truly strategic. As you can imagine, this feature is particularly useful in a vertical which does a lot of spot-buys to get best market pricing in categories where prices tend to fluctuate regularly or where prices tend to drop continuously (such as in electronics and computers).

The platform also includes decent library management functionality which can be used to easily track and find projects, documents, templates, vetting groups, and currency exchange rates. The master document library, which tracks all of your documents through meta-data, supports versioning and full meta-data search, and also forms the basis for the limited contract management capabilities offered by the platform. The platform can track your contract templates, contracts, and all relevant metadata, associate the contracts with suppliers, and generate alerts at renewal time.

The platform contains basic scorecarding functionality, built on the same capabilities used to weight and score RFXs. Scorecards can be on suppliers, on buyers, and filled out by buyers or suppliers. They can be filled out by a single individual, or by a team, and the results averaged. Each section can be weighted separately to compute the final score.

Finally, the platform, which can be extensively configured by the AECsoft development team, supports a decent amount of configuration by the administrator within the product itself. Administrative buyers can define and alter workflows, system settings, (SIM) menus (and data categories), permissions, user accounts and roles, category and sub-category questions, commodity codes, dashboard displays, and basic report configurations.

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There Are Fifty Ways IT Can Help To Optimize Global Supply Chain Management …

However, NOT ONE of the five ways offered up in this recent Supply & Demand Chain Executive article on “Five Ways IT Can Help Optimize Global Supply Chain Management” are included! Let’s look at the feeble five suggestions profferred up for (what I can only assume is for) our amusement:

  1. Partner CollaborationBy it’s very definition, collaboration requires people to work together. It’s irrelevant if your systems talk to each other if your people don’t … and no fancy UI is going to get people talking if they don’t want to.
  2. Clear, Concise CommunicationsIf your people don’t speak the same language, no piece of software is going to fix that. You need to invest in training to overcome the cultural divide, not technology.
  3. Process ImprovementAll technology does is take your process and accelerate them. It doesn’t fix them. Unless your people undertake a project to methodically improve your processes, you’ll just end up executing your bad processes, 5, 10, 50, or 100 times faster.
  4. Invest Wisely in ITHUH? This isn’t even an action … it’s what you have to do! Is the article saying that IT can help you invest wisely in IT? I hope not! There’s no such thing as BI, SI, or any other XI vendors want to sell you. The intelligence is in your head, not the software. All the software can do is present you with the ability to look deep into your data to make a good decision.
  5. Manage MetricsWrong again. Five for Feeble Five. Software tracks metrics. It doesn’t manage them … people do. And, as per my piece on why dashboards are dangerous and dysfunctional, if you track the wrong ones, your performance will only worsen over time!

While S&DC Exec usually isn’t at the top of my list when you ask me what the best publications in the space are, it’s usually not at the bottom either. I can’t tell if the editorial staff was sleeping at their desks when this article came their way or if they were jealous of all the recent attention I gave Purchasing who recently told us about Purchasing 0.3 and got it wrong again. What do you think?

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