Category Archives: Supply Chain

Justifying 2014 Investments in Supply Chain Resiliency

Are you looking to justify investments in supply chain risk and resiliency programs in 2014?

Can you determine a return on investment (ROI) from investing in supply chain resiliency?

How are other organizations leveraging supply chain resiliency solutions to drive real business benefits?

If you want to learn the answer to these questions, and more, attending the complementary upcoming webinar from Resilinc and Sourcing Innovation on Justifying 2014 Investments in Supply Chain Resiliency on January 29, 2014 @ 11 am PT, 14 pm ET, and 19 pm GMT.

Supply chain resiliency is becoming more important daily because the frequency, magnitude, and associated costs of supply chain disruptions are steadily increasing.

This webinar will examine the different types of cost savings and examples that can be obtained through a proactive supply chain risk and resiliency strategy based on multi-tier supply chain visibility.

Looking forward to seeing you there!

It Shouldn’t Be Hard to Justify Investments in Risk Avoidance

But if it still is, despite the enormous losses that many firms have sustained in recent years as a result of mega-disasters, a recent article over on Supply Chain @ MIT on “Justifying Investments in Risk Avoidance” by Yossi Sheffi (author of The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage) provides you a good starting point.

The article outlines three possible approaches for presenting a convincing case for investments in supply chain resilience.

Approach 1: ID Situations Where Resilience is a By-Product

Some actions taken by business will increase resilience even though the objective is entirely different. Examples include investments to insure superior service, postpone production (to adapt to market shifts), and adapt to different (raw) materials and components if the current primary (raw) material or component becomes unavailable. If another business justification can be made for the investment that will be looked upon more favourably by the C-Suite, focus on that justification (and that justification alone).

Approach 2: Highlight Other Benefits

If the investment is, or will be, primarily to support resilience and no business case can be made without mentioning resilience, be sure to highlight any and all additional benefits the business can expect to receive. For example, if the investment in resilience will improve operational efficiency, provide additional capability, or even improve the image of the organization it will be worth it. The example Sheffi provides is that of Walmart’s Emergency Operations Center (EOC) that manages flow of supplies in crisis situations. Many days before Hurricane Katrina hit the Gulf Coast in 2005, Wal-Mart had prepared 45 trucks full of critical supplies at its distribution center in Brookhaven, Mississippi. By deploying these trucks Wall-Mart reopened 66% of its stores in the affected area within 48 hours, and within one week 93% of stores were reopened. This boosted Walmart’s image in a way nor advertising campaign ever could!

In addition, a resilience effort that maps the supply chain, at least for critical goods and services, down to the raw material suppliers not only supports quicker responses to crises, but can also be used to support social responsibility and sustainability audits. Not a money-maker by any stretch of the imagination, but it can do wonders for the brand if you can show that your supply chain is, for example, free of conflict diamonds when your competition’s supply chain is not.

Approach 3: Hitch Resilience to Other Goals

In this approach, when you cannot find another justification or highlight the benefits enough to get approval, you take on the role of a PR spin doctor and show how the effort can contribute to another, sometimes entirely unrelated, goal. The example given by Sheffi in this case is if you need most, or all, of your staff to be able to telecommute in the event of a crisis, present the project to support this as a diversity and inclusion initiative that would allow mothers to stay with their babies and empower disabled employees to stay active. It’s not an optimal approach by any means, but if the shoe fits …

It’s good advice from a great article. And for those of you in logistics, Sheffi recently published Logistics Clusters: Delivering Value and Driving Growth that you might want to check out. (Clusters can also be a form of resilience.)

8 Key Design Considerations for Optimizing Your Demand Planning Process: Part II


Today’s guest post is from Josh Peacher, a Senior Consultant in the Operations Practice of Archstone Consulting, A Hackett Group Company.

In the first installment, we focused on defining the 4 basic design considerations for optimizing your organization’s demand planning process. These considerations included:

  1. Utilization of time series forecasting and exception management to drive a base forecast
  2. Selecting the right software tool for your business
  3. Identifying a set of core metrics and KPIs that help to identify opportunities and drive accountability
  4. Effectively leveraging external information to elicit a more accurate forecast

These design considerations are foundational in nature and effectively addressing each will ensure that your organization’s demand planning process has a solid base. However, to truly move the needle towards world class performance, a set of more advanced considerations must be applied.

5. Drive Towards a Consensus Demand Plan

A formal demand planning process should conclude with an aligned set of forecast numbers that the entire organization understands and can speak to. This doesn’t necessarily mean that a “One-Number” forecast must be reached as this can be very difficult and cause a whole set of different issues. However, organizations should look to align on a set of numbers and be prepared to speak to and manage to the gaps. Key participants in the consensus demand plan conversation include Sales and Account Teams, Finance, Supply Planning, and Demand Planning. Each of these groups will bring a different perspective and set of information to the discussion resulting in a more informed final demand plan.

6. Identify the Right Level of Detail

When defining the appropriate level of detail to forecast at, leading companies strike a balance between importance to the business and complexity of the process. The diagram below defines a general set of guidelines for identifying the appropriate level of forecast detail based on the situation. As a general rule of thumb, the more important and complex the set of items is to the business, the higher the required level of detail and rigor.

Complexity vs. Importance

7. Ensure Adequate Resources

As I mentioned in the first installment, demand planning is commonly an overlooked element of supply chain planning. This often leads to an insufficient allocation of resources by the organization. Demand planning is an arduous process that requires a high level of dedication and attention. More times than not, I see organizations that have failed to realize this and leave their demand planning team without the necessary bandwidth to perform effectively. The net effect is a less accurate forecast, poor demand signals trickling through the system, and a higher turnover rate. A few simple rules of thumb to ensure that your organization is not falling into this trap include the following:

  • Install dedicated analysts for demand planning.
    This will ensure that demand planners are focusing on value-add activities and have the right information on hand to make informed decisions.
  • Make sure that your demand planners aren’t wearing too many organizational hats.
    It’s an odd phenomenon but demand planners often end up taking on responsibilities that are well outside of their job scope and not essential to their core function. The best way to decipher this is just to simply ask them where their pain points are. Trust me … they will tell you!
  • Understand which segments are the most critical and complex to the business and distribute them across your demand planner resources.
    Ideally, each of your demand planners will have a portfolio of demand responsibilities that are evenly distributed amongst the four quadrants of the above diagram.

8. Define your Organization Process Model

Too often I have seen organizations operating in an environment of chaos because they lack a defined process and cadence for their demand planning cycle. You may believe that you have a process in place, but can you articulate what it is? Can the demand planning resources in your organization define the calendar of events that make up the process? Many times what people believe to be a process is actually floating tribal knowledge and tends to vary depending on who you ask within the organization. Without a well-defined process, it’s difficult to hold others accountable and overall performance tends to suffer. An optimal process must be defined for each organization based upon it’s unique set of variables and constraints. However, the list below is a set of monthly activities that can be found in most leading company processes.

  • Prepare Data –
    Cleanse and gather all required data for the demand planning process (internal and external)
  • Generate Initial Forecast –
    Generate both the base statistical forecast and manage exception SKUs manually
  • Incorporate Market Intelligence –
    Collaborate with trade partners and external contacts to incorporate quantitative and qualitative data into the forecast (e.g., POS Data, Customer Forecast, Promotional Calendars, Pull-Forward Buys)
  • Consensus Reconciliation Meeting –
    Meet with sales and finance to reconcile the bottoms up forecast with top down financials and sales forecasts
  • Refine and Publish Final Forecast –
    Make final adjustments to forecast before transmitting to ERP
  • Monitor Performance –
    Monitor forecast for large anomalies and diagnose root cause of error

Thanks, Josh!

Are You Losing 2% of Your Revenue to Fraud? Are You Sure?

Between two thirds and three quarters of organizations experience fraud every year and the average organization affected by fraud loses 2.0% of revenue in the UK and EU and 1.7% in the US. This means that, even if your organization is not aware of fraud, there’s still a 66%, or more, chance that it is being defrauded. And it should know for sure, one way or the other. Because if fraud isn’t detected, dealt with, and discouraged quickly, you end up with headlines like this:

  • Alibaba.com CEO And COO out because of vendor fraud
    involving over 2,000 suppliers and 100 staff members
  • Former Vodafone employee facing fraud charges
    for the fraudulent requisition of €2.3 million of services
  • The great Sainsbury’s potato fraud:
    Jail for vegetable buyer who took £5 million in bribes

Which all have one thing in common — each of these frauds involved the payment of millions of dollars to fake suppliers. Not over billings, not duplicate billings, fake billings from fake suppliers. A situation that can easily be prevented with a good supplier information management or supplier visibility system that validated the accuracy of the supplier information and the legitimacy of the supplier. If the supplier information management and visibility system cannot validate the existence and legitimacy of the supplier, then AP knows that a detailed manual investigation should be undertaken before the supplier is authorized to submit invoices, and that such authorization should require at least two sign-offs by high-level personnel. This simple process, which is yet another example of the value of supply chain visibility, would prevent fraudulent invoices from non-legitimate suppliers from ever getting in the system and greatly decrease the organization’s exposure to fraud.

And this is only one example of the many types of savings opportunities that good Supply Chain Visibility can bring your organization. For a deeper insight into the other ways in which Supply Chain Visibility can bring your organization recurring year-over-year savings, download SI’s latest white-paper on The ROI of Supply Chain Resiliency: It’s More Than You Think, sponsored by Resilinc. You might be surprised at just how much hidden value you can extract from your Supply Management operations with good visibility and resiliency.

Is the Emerging Share Economy Going to Disrupt Your Procurement Practices?

My Purchasing Center recently ran a very interesting article from a Senior Consultant of the Hackett Group on “Considerations for Supply Chain and Procurement in the Share Economy” that did a great job of explaining how the Share Economy is disrupting consumer purchasing patterns, and thus demand. However, in SI’s view, it did not do as great a job when it came time to make the case that it would disrupt daily Procurement operations.

In SI’s view, while the share economy may change the approach to certain categories, it’s not going to change fundamental procurement processes, methodologies, or the best practices that a leading Procurement organization brings to the table. We will elaborate on this, but first let’s review the main points of the My Purchasing Center article.

Noting that the share economy is projected to reach 3.5 Billion this year, with no signs of slowing down, the author of the My Purchasing Center article posits that these trends are going to have a significant, innovative, and potentially disruptive impact on Supply Chain and Procurement.

Zeroing on on services like Lyft and Airbnb where legions of people use their own car or living space as an on-demand taxi-service or rental, the author notes that this reduces the demand for additional cars and short-term rental properties. Similarly, services like zip-car, where people can rent on demand, not only reduce the demand for taxis and limos, but for second vehicles altogether, and thus reduce the total demand for vehicles from a manufacturer. This can effect economies of scale, and increase the cost of each vehicle produced if the demand drop is significant.

Then there is the emergence of 3D printing that is now to the point where even non-engineers can assemble a 3D printer, download some software, and produce their own goods at home. When the cost drops, demand for products that can be just as cheaply printed at home may drop but, more importantly, demand for products that can be printed in bulk just as cheaply as needed on the shop floor could wipe out entire categories for a supplier.

And these are valid observations. Demand is going to change, and shift, and it’s going to have an effect on what an organization can and can’t sell and on what a supplier can and can not profitably produce. No argument there.

But, unless it takes us back to a barter economy, it’s not going to have much of an impact on a good Procurement organization. The first thing a good Procurement organization does when it starts a sourcing event for a category is analyze the category in depth to determine the demand for the product or service, the criticality of the product or service, the strategic nature of supply relationships in the delivery of the product or service, etc. to determine what supply strategy is the most relevant, how the sourcing event should be conducted, what technology should be brought to bear, etc. If demand has dropped 50% in a category since it was last sourced and the economies of scale have diminished, then sourcing is going to shift from a lowest TCO approach to a strategic relationship where it can work with the supplier to take cost out of the production or delivery process or, if necessary, innovative a new design that will allow it to use lower cost materials and production / delivery processes. With or without a share economy, the mandate, and function, of Procurement is the same — source each category in the manner which generates the most value to the organization and procure each part or service against the identified strategy.

Do you think SI is missing something? If so, leave a comment.