Category Archives: Supply Chain

Early Payment Discounts vs. Early Payment Rebates

Are we dealing with six of one and half a dozen of the other? After reading “The Art of the Play” (PCubed.com), I have to wonder.

They are different in that you get one right away and you get the other later, and they are different in that one is just a reduction in spend and the other can be treated as an income stream, if the CFO so desires, but in the end they both have the same effect on the bottom line — less spend.

So why would an organization favour one over the other when the big difference is capturing the savings now versus capturing the savings later? If the organization was limited in cash and was trying to maximize savings, then capturing the savings right away would definitely make more sense, but if the organization was flush with cash and the supplier offered tiered rebates that improved with volume, then the organization might want to wait until later. Otherwise, the doctor can’t see much of a difference.

However, one area where there is a big difference is paying for a platform vs. paying for a service, especially for a big company. For example, the Oxygen Finance model described in the article is to provide you with a service where you pay up to 50% of the discount or rebate captured by transaction. While this is a good deal for a mid-sized company that might not have the up-front cash required to implement the end-to-end e-Procurement solution required to effectively take advantage of discounts and rebates offered by suppliers for quick payments, this can be a very expensive solution for a large enterprise. Consider a company that spends 250 Million a year, the low-end of the market for Oxygen Finance. If the average rebate is 1.5%, and you give one third of that up to the service provider, then the organization is paying 1.25 M a year for the solution, and only achieving a 2X ROI.

A company of this size can acquire a SCF solution for a fraction of this cost and realize a much larger ROI.

When you dive in, you realize that there are only three reasons most companies can’t create or take advantage of most of the early payment discount and rebate opportunities available to them:

  1. Invoices aren’t getting in the system fast enough
    because most of them are coming in as (e-)paper.
  2. Approved invoices aren’t getting to AP fast enough
    because routings for approval take too long.
  3. Procurement doesn’t have the manpower to negotiate rebates on 100% of spend
    because there are too many suppliers.

And while these were valid problems a few years ago, without (m)any real solutions (that an average organization could afford), today:

  1. An organization can acquire a SaaS end-to-end invoice automation framework, such as the one offered by Nipendo, that will convert all incoming invoices into one standard e-format for six figures.
  2. An organization can acquire a number of rules-based e-Procurement and invoice automation solutions (including Nipendo‘s) that will automatically approve and route all error-free invoices that match a PO or contract to the AP system and route those that require manual correction or approval to the right individual for online (e-mail) approval.
  3. An organization can see significant returns addressing only 80% of the spend which is typically with less than 20% of the supply base.

An organization that takes this approach can typically acquire a solution for (much) less than 500K a year, save 1.5% on 200 M of spend, and see a (minimum) 6X return, which is the return you should be looking for from an e-Procurement solution.

Maybe there’s another reason for a large enterprise to go transaction-fee SaaS for discount and rebate management, but if there is, the doctor ain’t seeing it — and he’s been covering SCF for years. As far as he is concerned, the sweet-spot for transaction-fee SaaS for discount and rebate management is the 50M to 250M range, because the implementation cost of the necessary end-to-end e-Procurement, invoice-Automation, and SCF solution isn’t that much cheaper for a mid-sized organization than for a Global 3000, and at less than 200M of addressable spend, the ROI multiplier starts to drop considerably.

Any differing opinions?

Supply Chain Insights 7 Steps to Failure

A recent Slideshare presentation by Supply Chain Insights (SCI) on 7 Reasons You May Fail in the Race for Supply Chain 2020 had some great insights into what many organizations are doing wrong but, more importantly, cemented the need for the 3Ts, as discussed in SI’s recent post on Supply Chain 2020 – What Will It Take to Get There, if you want you Supply Chain organization to make it to 2020.

According to SCI, these are the 7 reasons your supply chain may fail:

  • You treat your supply chain like a function
    rather than an end-to-end process.
  • You hired a boatload of consultants and spent buckets of money on “best practices”
    that were actually “emerging practices”.
  • Your technologies are more about you than your customers
    even though customer data is more readily available.
  • You are moving like a snail in a fast-paced world
    when you need to be executing in real-time.
  • You are simply not prepared to compete for supply chain talent
    which is the missing link in the supply chain.
  • Your technologies are quickly becoming legacy
    while new technologies are emerging every day.
  • Your supply chain is too reactive
    when it needs to sense and learn.

SCI is right on the money. If your supply chain:

  • lacks talent
  • runs on antiquated technology
  • hasn’t transitioned to new processes in decades
  • only reacts to disruptions, instead of trying to predict & mitigate them
  • doesn’t work with customers and never asks for their data
  • doesn’t focus on solutions instead of the “hot” methodology of the day and
  • doesn’t focus on strategic organizational planning because it’s spending all it’s time executing tactical processes

it’s not going to be around very long.

A supply chain needs to be:

  • driven by talent
  • enabled by technology
  • transitioning to improved processes all the time
  • focussed on risk management and mitigation
  • collaborating with customers and suppliers up and down the chain
  • solution-driven, not “emerging practice” focussed and
  • strategic, not tactical.

And that’s just the start. For more insights into what attributes your supply chain needs to adapt in order to survive the race for Supply Chain 2020, check out SCI’s 7 Reasons You May Fail in the Race for Supply Chain 2020 before your supply chain starts stumbling too (if it hasn’t already).

These Transformations Worked For Samsung. With a Few Tweaks, They Will Work for You Too!

Samsung is not only none of the most successful global electronic brands, but one of the most successful brands period. (And with the surging popularity of Android, and it’s new Galaxy tablet, it’s market share is increasing rapidly in that market – one of the hardest to compete it.) On top of this, it is a supply chain leader, ranked #8 on the Gartner 2013 Supply Chain Top 25. How did they do it? A recent piece over on Supply Chain 24/7 on 7 Best Practices that Transform Samsung Electronics’ Supply Chain by SupplyChainOpz that referenced research by the Harvard Business Review, Supply Chain Management: The International Journal, and the Journal of the Operational Research Society did a great job of identifying the key decisions, and transformations, that helped propel Samsung from a much smaller player in trading, food processing, textiles, insurance, securities and retail to a world leader in electronics and digital technology.

Since they will work for any Supply Chain with a few tweaks, SI is strongly suggesting that you (re-)read SupplyChainOpz 7 Best Practices that Transform Samsung Electronics’ Supply Chain before continuing on to SI’s 7 Transformations that will transform your CPG Supply Chain.

7 Transformations that will Transform Your CPG Supply Chain

  1. Listen to the Voice of the Customer
    Look at the top 10 of the Gartner Supply Chain Top 25. Apple, McDonald’s, Amazon.com, Unilever, Intel, P&G, Cisco, Coca-Cola, and Colgate-Palmolive. Every single one of these companies sells products the customer wants in every market they are in. To better understand the market, Samsung sends senior employees to MBA programs at local universities to help them understand the market and then establishes connections with appropriate leaders and partners in those markets to keep the insights coming in after the executives return to their HQ. While it’s not critical to attend a program in the target market, it is critical to be tapped in. Pay attention to market intelligence, go to trade shows and see what is attracting attention, follow the emerging trends, and consider what an average individual in your target market does in the course of a day and a week.
  2. Setup a Cross Functional Team Composed with the Right Talent
    As a Supply Management practitioner, this is a best practice that should be well ingrained by now as you should be setting one up for every strategic sourcing project. However, there should also be a cross-functional team that guides the over-arching supply chain strategy.
  3. Adopt a Measurable Supply Chain Improvement Methodology
    Samsung adopted Six Sigma and transitioned to DMAEV (Define, Measure, Analyze, Enable, and Verify). There’s also TPS and the Lean Methodology that fell out. The particular improvement methodology is not as critical as the commitment to implementing and executing on it day in and day out.
  4. Transition to Standardized Technology, Processes and Parts
    Samsung standardized parts and processes and produces the majority of its components in Korea to enable them to better monitor and manage product quality. But don’t stop at parts, and production processes, move to planning and management processes and the underlying technology processes. For every function, there should be one system and one version of the truth. Each department can use its own best-of-breed systems if, and only if, there is a central data store that functions as the master data repository that each system works off of and that is always taken as the one version of the truth.
  5. Utilize Advanced Sourcing, CRM, and Production Systems
    An Advanced Planning and Production System is a good start, but lets face it, true efficiencies materialize by getting the sourcing right. Be sure to source all strategic or high-value components using a strategic sourcing process that makes use of spend analysis and decision optimization and other advanced technologies. In addition, be sure to capture all of the sales data and user feedback that you can with good CRM systems. And be sure to make sure that you react to sales forecasts appropriately with your advanced planning and production systems.
  6. Implement Risk Monitoring and Measurement
    The best laid plans are easily and quickly ruined by a single supply chain disruption. Implement an advanced supply chain visibility and monitoring system that monitors your suppliers and their suppliers to detect minor supply hiccups before they become major supply chain disruptions and to make sure you are aware of any significant event (such as an earthquake, border closing, civil uprising, etc.) that could affect your supply chain as soon as it happens.
  7. Focus on Your Talent
    Samsung threw out the seniority-based performance evaluation system and implemented a performance-based system in its place that allows the best and the brightest to have their career fast-tracked. Make sure you have a system that allows talent to advance through your organization if you want to attract, and retain, the talent you need for your supply chain.

Supply Chain 2020 – What Will It Take to Get There?

I’ve been noticing an uptick in Supply Chain 2020 discussion and blogging lately, despite the fact that 2020 is only 7 years away. Why do I say only? While 2020 may be 28 years away in ‘Net Time, given the pace at which the average Supply Management Organization moves, that’s breakneck speed! (It shouldn’t be, but it is. That’s why, despite the fact that it’s 2013 and e-Invoicing is old enough to drink, approximately 90% of invoices are still paper-based.) Furthermore, most prognosticators want to make predictions that are far enough away that either their prediction will almost guaranteed to be a reality by that time or everyone will have forgotten completely about their prediction by then. (Given the rate of increase in ADD/ADHD in recent years, that might be long enough for all of us to have forgotten everything from today, but I’d like to think that some of us may still have a long-term focus, and a longer-term memory, in 2020.)

A lot of these discussions are focussing on what the Supply Chain is going to look like in 2020, what technologies are going to drive it, and how the Supply Chain is going to run. These discussions are interesting, because we all want to know what tomorrow is going to look like today, but it’s not 2020 — it’s 2013. And whatever vision you have of 2020 is not going to become a reality without a plan to get there. That plan will, of course, depend on your vision and your end goal, but regardless of the plan you choose, there are three elements that will be required to get there.

What are these three elements? The Three Ts of Strategic Supply Management, of course!

  1. Talent
  2. Technology
  3. Transition

No innovation, or renovation, will succeed without these 3T’s, and an alignment thereof.

Despite the need for transportation, Supply Chains don’t run on trucks and trains — they run on Talent. Talented people identify potential suppliers. Talented people run strategic sourcing events. Talented people negotiate and execute contracts. Talented people collaborate with supplier personnel to ensure quality, on-time delivery, and quick issue resolution. Talented people deliver to Sales and Marketing what the consumers want.

And what do these talented people use to accomplish their tasks? Technology. Real-time communication with suppliers around the globe requires modern technology. Value-generating strategic sourcing events require good strategic sourcing technology. Contract generation, management, and supplier performance management requires good collaboration technology. And the list of technological needs goes on.

However, the technology that is required, for most organizations, is not the technology that the organization currently has. In order to acquire and implement this technology, the organization will have to transition appropriately. This will involve mapping current processes, mapping desired processes, identifying technologies that can appropriately support the desired processes, and putting together a transition plan, that takes into account the needs (but not necessarily the wants) of all of the stakeholders and that is supported by the appropriate executive(s) in the C-Suite, that will get the organization there.

So if you want to get to 2020 in style, first get to 2014 in-style and focus on the 3Ts. This is one best-practice that is year-independent.

While You Were on Summer Vacation, Vendor Posts, Part II

While you were on summer vacation, SI was powering away with daily posts and continuing to cover some of the leading vendors in the space, presenting a number of deep dives on their technology platforms. Here is a short recap of some of the coverage you might have missed!

Trade Extensions

In our post on Trade Extensions (TE), where we noted that there is still no rest for the wickedly powerful, we told you that their coders never sleep (or at least not very often) and that, since SI’s last coverage in 2011, they have added more powerful fact sheets, enhanced browser-based reporting and visualization, and a formula analyzer – that pacts a much bigger punch than you’d expect. It’s often the case that a user has no clue why one model solves in a second and an almost identically sized similar model is still being processed an hour later. This is because the more complex the models get, the harder it is to pin down why they aren’t quite doing what they are supposed to be doing. The TE formula analyzer allows a user to analyze a formula and see how it is defined, how long it is taking to calculate with respect to the other formulas in the model, and what is affected by the formulas or changes to the formula. In addition, if they exist, it can suggest formula modifications that would allow the model to solve faster. However, just knowing where the problem lies is a great help if a model is solving slow.

Coupa

In our post about how it’s 24/7 for Robbie and the Coupa Factory, Part III, we noted that Coupa had completed Release 9, were on their way to finishing Release 10 (now available) by the end of the quarter, and had just released a new e-Sourcing module, which made them one of the first providers to offer an integrated end-to-end e-Sourcing and e-Procurement solution. Their new sourcing offering, which is e-Sourcing 1.0 with RFPs, RFQs, RFIs, basic reverse auctions, and basic project management and not much more than you’d find in any basic e-Sourcing suite, is still enough for an average mid-market company and impressive in that it’s as easy to use as the rest of the platform. It’s a quick way for a company using Coupa that does not have a sourcing solution to transition from Procurement to Sourcing. Plus, when you add the new expense management capabilities and catalog functionality, it’s a very quick way for a mid-market organization behind the sourcing and procurement curve to get closer to where they need to be quickly.

Kinaxis

In our posts about Kinaxis and their new paradigm for real-time end-to-end supply chain management (Part I, Part II, and Part III), we described how this extremely unique Supply Management vendor offers a single platform to take your Supply Management Operations to the next level once you have implemented e-Procurement and put your spend under management, optimized your strategic sourcing, mastered e-Transportation and Trade Management, achieved e-Visibility to manage your risk, and optimized your network design. This platform, which is successfully used by product, risk, and change managers in Supply Management to manage demand, do S&OP, undertake supply & capacity planning, do production benchmarking and scheduling, manage inventory, handle new product introduction (NPI), perform order analysis and planning, manage supply, improve profitability, and collaborate with suppliers, among other things, is designed to allow supply management professionals to get answers to strategic planning questions like the following in real time:

  • what is the impact of a supplier shutdown due to a fire in the plant?
  • how can I launch a new product a quarter early?
  • what if a user mistakenly changes an inventory parameter?
  • what would happen to our ability to fulfill demand to our other customers if we accelerate fulfilment of an emergency order for a preferred customer?
  • how can we effectively reengineer our planning processes

The Kinaxis solution supports very complex, but easily generated, what-if scenarios that will allow a user to ask these questions and get an answer in a few hours, as compared to the days, or weeks, it would have taken them in the past.

Come back Monday and we’ll tell you about three more recently covered companies you might have missed!