Category Archives: Supply Chain

Kinaxis – A New Paradigm for Real-Time End-to-End Supply Chain Management! Part II

Yesterday, in Part I, we re-introduced you to Kinaxis, one of the most interesting companies in the entire Supply Management space. Billing themselves as a platform for Rapid Response designed to assist supply chain professionals in managing their change-ready supply chains, it is actually a very extensive, but deftly integrated end-to-end cross-functional supply chain what-if platform designed to help supply chain professionals determine how to respond to various unexpected situations.

How do they do it? The built a platform that functions as a Global Control Tower for your supply management operation by integrating all of your cross-functional Supply Chain Management (SCM) applications into one centralized control center application that allows you to access all of your data through one centralized application and

  • model current, projected, and variations to, demand,
  • plan how production would have to ramp up, down, or shift to meet demand,
  • determine what the impacts would be to other customers if a preferred customer’s order was filled sooner,
  • understand the impacts to inventory and production if a certain raw material or part were unavailable for a short, or long, period of time,
  • comprehend the impacts to new product development and introduction of there is a delay in production, raw material acquisition, distribution, or if marketing wants to introduce a last minute change, and
  • manage the change process associated with demand, inventory, development, or production changes

among other capabilities. By integrating all of your key SCM applications, including your ERP, transportation and warehouse management, SRM (Supplier Relationship Management), demand planning, and S&OP systems, it can construct elaborate supply chain models that link inputs, outputs, and resources that can answer these questions.

For example, by integrating your ERP/Inventory System with your order management system, it can not only generate an optimization model that can be used to create a distribution plan that minimizes the number of late shipments or missed orders, but automatically generate what-if scenarios that demonstrate what will happen if a certain customer order is given priority. It might be the case that accelerating an order for one customer will cause orders for 10 customers to be late due to volume requirements or production times.

In addition, because it can model dependencies and production cycles, it can also immediately calculate what would happen if a raw material shipment to your supplier’s production facility is six weeks late. It can immediately calculate how many customer orders would be missed or late, the impact on revenue, and the associated loss based upon inventory carrying costs, overhead costs, and workforce costs, among others. Thus, if your organization has a good visibility solution in place, the minute that a disruption is detected it can begin to calculate the impact, and within an hour understand the extent of the associated loss. Plus, it can start modelling the extent that the loss can be countered with each mitigation option the organization can identify using the what-if modelling capability to generate variant scenarios and analyze the associated costs and profits. Thus, if the organization can identify three different sources of replacement supply with different lead times and costs, it can use the Kinaxis platform to determine which option is best in a matter of hours and get on it.

And the best part of all is that the application is as easy to use as a multi-tab spreadsheet. They built a spreadsheet like interface that is familiar to Supply Management professionals with extensive drill-down capability, a visual supply chain network model, and visual reporting capabilities. The interface, which can display multiple linked spreadsheets automatically, and highlight where you are in the master sheet when you are drilling into a sub-sheet, automatically highlights warning situations, including late shipments, overruns, and projected losses. And if you’re not sure what to do, the built-in help not only explains every column, shading, and warning, but how to easily create new what-if scenarios (as a copy of the current scenario) where you can calculate the impacts of adding orders, removing inventory, changing shipments, etc.

The modeling and real-time optimization of the inventory, demand planning, and order management functionality is unique in the supply management space, but its not for the feint of heart.

Although the application is available on-demand, it’s not like an e-Sourcing or e-Procurement solution where you can start using it as soon as they create an instance for you. In order for your organization to experience the full potential of the platform, which has the potential to save a multi-billion dollar Global 3000 hundreds of millions of dollars, a few things have to happen:

  • all of your Supply and Operations Management applications have to be integrated,
  • the models have to be tailored to your business rules, processes, and constraints, and
  • the cross-functional team members critical to each function that is to be modelled and each task that is to be performed have to be trained on what the platform needs and how to use it.

This doesn’t happen overnight, and for the Global 3000, doesn’t happen for six figures either. While many of today’s on-demand Supply Management applications in e-Sourcing, e-Procurement, SRM, etc. can be obtained and implemented by a Global 3000 in the six-figure range, this isn’t the case for this type of a solution. Kinaxis has put ERP to shame where complexity is concerned. When you consider how much the application can do, ERPs, which are considered by most system integrators to be the most daunting integration projects in the private sector, look like simple App Store app installs in comparison. And, unlike ERP providers and integrators, they have a much better track record (with double digit revenue growth seven years running). They built their platform, and business, slowly — taking the time to understand the requirements and get it right. In other words, this isn’t a solution for an organization wanting a quick fix. It’s a solution for an organization that wants the ability to plan, and respond, in the long term. So where the mid-market is concerned, Kinaxis is for those organizations that are willing to make the effort and commitment it takes to become a market leader.

Kinaxis – A New Paradigm for Real-Time End-to-End Supply Chain Management! Part I

Kinaxis, which was first reviewed on SI by the Sourcing Maniacs in their classic 2008 Vendor Tour, is one of the most interesting companies in the entire Supply Management space. Billing themselves as a RapidResponse solution, which was initially designed to be a demand management platform (available on-demand) to assist supply chain professionals in managing their change-ready supply chains, it is actually a very extensive, but deftly integrated, platform that also does:

    • Demand Order Analysis,
    • S&OP (Sales and Operation Planning),
    • Supply & Capacity (Constraint) Planning,
    • Master Production Benchmarking & Scheduling,
    • Inventory Management,
    • New Product Introduction,
    • Order Analysis & Planning,
    • Supply Management,
    • Profitability Management,
    • Supplier Collaboration,
    • Integrated Project Management,
    • Process Orchestration,
    • Change Management,

and

  • Cross-Functional Supply Chain Management.

And it’s used by customers to do all of this, and more. It’s the next level of Supply Management. Once you’ve implemented e-Procurement and put your Spend Under Management, e-Sourcing and Strategic Sourcing Decision Optimization and established processes that keep your costs down and value up, e-Transportation and Trade Management to optimize your distribution and global trade (import/export processes), e-Visibility to manage your risk, and e-Supply Chain Network Optimization to manage your network design, it’s what you do next.

Why? Because each of these solutions only get you so far on their own. e-Procurement eliminates the time-consuming, value-less tactical buying functions that waste time and money, but doesn’t deliver much beyond manpower savings and doesn’t generate value on its own. That’s where e-Sourcing comes in. e-Sourcing takes the spend the organization has under management, analyzes it, and runs strategic sourcing events (such as auctions and optimization driven negotiations) to execute buys and delivery schedules that save the organization time and money, but doesn’t actually manage the distribution or global trade aspects, which can cost time and money if the right documents aren’t executed in the right way at the right time to streamline imports and exports. e-Transportation and Trade Management optimizes the logistics and distribution and ensures everything runs efficiently and smoothly in a non-loss generating manner, but doesn’t optimize the entire transportation and inventory/warehouse management network. When the organization has the opportunity to change its production locations, 3PLs (Third Party Logistics carriers), and/or warehouse and distribution locations, an e-Supply Chain Network Optimization solution will, given current demand and contracts, optimize the entire production, storage, and distribution network to the extent permissible, but will not be able to do anything about change, order analysis and demand generation, optimization of new product development and introduction processes, sales and operations planning around new and upcoming products, production benchmarking and scheduling, cross-functional supply-chain process orchestration, or change management when an unexpected event (such as a material shortage, natural disaster, or supplier bankruptcy) forces a rapid, real-time change to the plan.

This is where Kinaxis comes in. Starting from the premise that what product, risk, and change managers need are answers to common 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?

Kinaxis has built a solution that 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. How? Come back for Part II!

It Took 40 Years, but BPOs (Bank Payment Obligations) are now Truly SWIFT!

SWIFT, formerly known as the Society for Worldwide Interbank Financial Telecommunications, and a global provider of secure financial messaging services, turned 40 on May 3 of this year, and that’s noteworthy on it’s own as this tells us that we’ve only been thinking about electronic financial transactions on a global scale for 40 years, but that’s not the most important piece of news to come out of SWIFT, which processes 90% of traditional global trade transactions, this year.

The most significant piece of news to come out of SWIFT this year, and this decade, is the fact two weeks later on May 17, two months ago, the electronic Bank Payment Obligation (BPO) for an open account transaction became an official financial instrument under the International Chamber of Commerce’s (ICC) Uniform Rules for Bank payment Obligation (URBPO). The URBPO, which is an element in the electronic matching of open account trade data, and which utilizes the ISO 20022 messaging standards, provides an irrevocable payment guarantee in an automated environment and enables banks to offer flexible risk mitigation and financing services across the supply chain to their corporate customers.

As defined by the U.S. Department of Commerce’s International Trade Administration in their Trade Finance Guide, an open account transaction, which is the preferred transaction type by most North American and European multi-nationals, is a sale where the goods are shipped and delivered before payment is due. This option, which is often the most advantageous to the importing buyer, is often the most disadvantageous to the exporting supplier, as they will have difficulty getting financing from their bank to finance the production and shipment of the goods until they are paid by the buyer without proof that they will be paid. That’s why many suppliers will insist on a Letter of Creditworthiness from the buyer’s bank, which will often need to be provided direct to the supplier’s bank. This paperwork takes time, especially since it has to flow through banks, slows down trade, and aggravates buyers who need to move fast to keep up with constantly changing customer demand. That’s why they insist on open accounts, even though the supplier’s bank may not accept them because the buyer, or the buyer’s bank, isn’t known (well enough) to the supplier’s bank, which is fair.

This is a situation that, theoretically, could be easily corrected with an electronic replacement for a letter of credit, that could move at the speed of light down a fiber cable, as the buyer’s bank, which can see the buyer’s ability to pay, can immediately send the supplier’s bank an electronic Bank Payment Obligation that the bank will pay when the goods are shipped and adequate proof has been provided. The supplier’s bank could then advance the supplier as it has a trustworthy bank obligation, and not just a copy of a purchase order (PO), from the buyer’s bank that it can rely on. And now that we have the ICC URBPO, this is finally a reality. And if you’re a multi-national, it’s a reality that’s at your fingertips!

All that is required to create a BPO is a purchase order and an acceptance by the supplier. All that is required to complete the BPO is a commercial invoice and acceptance by the buyer. No other documents are required.

The process is as follows, provided the buyer has an open account with a bank on the SWIFT network that is, or soon will be, URBPO enabled:

  • the buyer sends their PO to their bank and requests a BPO be sent to the supplier’s bank
  • the buyer’s bank delivers the BPO through the TSU (Trade Services Utility) operated by SWIFT to the supplier’s bank
  • the supplier’s bank delivers the PO to the supplier
  • the supplier accepts the PO and sends confirmation to their bank
  • the supplier’s bank delivers the confirmation to the buyer’s bank

and, voila, a valid BPO, which is irrevocable once all conditions are met, has been created. Once the terms of the PO have been completed in full,

  • the supplier informs their bank and provides the commercial invoice
  • the supplier’s bank informs the buyer’s bank that the terms have been completed
  • the buyer’s bank asks for confirmation from the buyer
  • the buyer confirms completion

and the supplier is paid! It’s that easy.

Since only banks have access to the TSU, it’s likely that you’ll probably still have to use e-paper to communicate with your bank if you’re a small or mid-size operation, but if you’re a large multi-national, you can work with an approved vendor (of which there are at least 6 and more in the process of being certified) to integrate your finance system into the bank’s SWIFT system and if you have an open account with the right permissions, automatically create BPOs within your transaction limit (and seamlessly submit requests for approval and conveyance with the click of a mouse), just as easy as you can do ACH payments and wires today with advanced business banking solutions from the major banks.

Of course, it goes without saying that you have to be a client of either the 6 banks that are currently live, the 10 banks that have implemented the capability and that are in the process of implementing their big clients, or the 50 banks that are adding the capability, but if you’re not, and you’re a major player in international trade, maybe you should be! e-Invoicing was e-Procurement 1.0. e-Payment was e-Procurement 2.0. But e-BPO/TSU is e-Procurement 3.0, and if you want to get to the next level, you have to get there.

Optimization: Is It Time to Move Beyond Sourcing?

A big focus of this blog is, of course, Strategic Sourcing Decision Optimization (SSDO), one of the few advanced sourcing methodologies guaranteed to save your organization, on average, 12% if correctly applied (as demonstrated in two back-to-back studies by Aberdeen) and the doctor‘s speciality. But it’s not the only place you can apply optimization in Supply Management to save money. Another area, as covered a number of times on SI, is Supply Chain Network Optimization (SCNO). And, of course, some companies just focus on the intersection and do Logistics optimization. But this is not everything that can be done, or should be done, especially in an age where many industries now see The End of Competitive Advantage and don’t actually own physical assets, leasing them as need be to create the products and services desired by their prospective customers.

In this situation, what matters is Asset Optimization, where you optimize a one-time dynamic network to minimize sourcing, network, and logistics costs to minimize the total supply chain costs associated with the product you wish to produce. This is easier said than done. In sourcing, you are mainly considering bids, lanes, and associated costs to compute the optimal TCO (Total Cost of Ownership), and if lifetime costs and metrics are available, or TVG (Total Value Generated) with respect to a fixed situation. In network optimization, you are optimizing the location of owned factories, supplier production centers, warehouses, and retailers to optimize the distribution costs. But in asset network optimization, you have to simultaneously consider the network and associated distribution costs, the sourcing requirements and associated production costs, and the costs of using, or not using, the resources you already have available and contracts you have already negotiated. In addition, you have to consider the risks associated with each potential supplier and location, the sensitivity of the overall asset network to each supplier and location (and is there a single point of failure), and the ability to dynamically alter the network should a failure occur or customer demands change.

Plus you have all of the difficulties associated with each type of optimization. With respect to the network, there will be many alternatives for production site, each site will have multiple, and different, asset lines, and each asset will be qualified for a certain operation with respect to a certain product. In addition, some assets will be more efficient and cost effective, and unqualified assets will have a qualification/certification step, which will require limited manpower – a variable that does not need to be modelled in traditional sourcing or SCNO models. It’s a very difficult problem that requires modelling of multiple types of variables and constraints at multiple levels at multiple times. And this last requirement makes the model even more complex. In a traditional sourcing model, you don’t really need to consider “time”, as it doesn’t matter how often the trucks deliver your product, just how many trucks are needed to deliver your product as you are billed FTL or LTL by the delivery. And it doesn’t matter what production schedule the supplier(s) use(s) as long as your products are ready on time, so only the total volume need be considered. But when you are dealing with production models, especially when trying to dynamically construct and optimize an asset network, production schedules are significant. If a certain location only has 30% of capacity left available and can only schedule it during a given timeframe, that has to be taken into account. If some of the products have to be delivered before they can complete the first production run, then there has to be a location that is able to do so. And if a continual supply is needed over nine months, the production cycles should more or less line up with minimal overlap as, otherwise, inventory costs would soar.

It’s a complicated problem, but one that is becoming more and more important in fast moving industries such as fashion and consumer electronics — and one that most SSDO providers can’t address. But I’m happy to report that there are a few optimization vendors in the space who can. One is Algorhythm, in India, that has been doing SCNO for many years, and who has built up a lot of this capability over time while working for it’s global multinational clients such as Unilever. Another, newer entrant, is Trade Extensions, that has been doing SSDO for many years and, at the request of its major multi-national clients, including P&G and Coca-Cola, built up the capability in their solution with innovative new platform enhancements since SI last reviewed their solution in 2011 that make it very easy to define the models, run the scenarios, compare and navigate the results. A few of these enhancements will be described in a future post. Stay tuned!

If You Are In Food and Beverage, You Can Not Afford NOT to Have Supply Chain Visibility!

As per this recent article in Inbound Logistics, product recalls cost the U.S. economy $7 Billion annually, and the average product recall costs $10 Million. That’s Ten Million US Dollars that will disappear from your bank account if you are faced with a recall and are unable to quickly and effectively recall product. This is an incredible risk to your viability, and a real risk for the vast majority of companies that struggle with real-time visibility and managing inventory across a network of suppliers, distributors, and manufacturers.

Every day of recall delay results in lost revenue and lost consumer confidence, and, if you’re talking products with salmonella or e-coli poisoning, additional lost lives. The first empties your bank account, the second dries up your revenue stream, and the third can shut you down if consumers decide they do not trust your brand anymore (even if the regulators chalk it up to an accident and allow you to continue operating with additional monitoring and safety precautions).

Ten years ago, given the dearth of supply chain visibility solutions and the cost of extended enterprise ERP systems that could manage your inventory and talk to supplier systems through EDI, you might have had an excuse to not have such a system as it would have cost you 10 Million to acquire and implement such a solution and millions in annual maintenance costs to maintain it. Given that serious incidents, like supply chain disruptions, were much rarer than they are today, the cost savings just weren’t there (and by the time you extracted the relevant data and sent the message out to the affected parties, who probably had to be faxed, the damage was done, the news was on TV, and the opportunity to prevent a significant number of injuries and death wasn’t there).

But today, when you can acquire such solutions for six figures and completely map the supply chains of the suppliers who account for the majority of the goods you buy, and all critical or perishable items, there is no excuse. Properly implemented, these systems can track the complete chain of custody for any item manufactured, stored, or shipped within the supply chain and when (not if) a recall is needed, a simple query will pull up the inventory location by item, batch, and lot — anywhere, and at any time.

In addition to the quick location of an affected product, the system allows a manufacturer to focus in on contaminated or faulty batches, instead of recalling an entire product line because the affected product cannot be isolated quickly enough. So not only is the supply chain more visible, but actions can be taken on a more granular level – allowing a company to minimize the impact to the revenue and reputation with minimal effort and cost. As Nike would say, Just Do It.