Category Archives: Supply Chain

Bob’s Three Dimensions of Sustainable Success

I’d like to point your attention to a recent post of Robert Rudzki, author of Straight to the Bottom Line and the forthcoming Next Level Supply Management (which is a must read for anyone who desires to take their Supply Management organization to the Next Level) over on the SCMR Blogs on alignment and compatibility with supplier partners. In it, he reviewed his simple, yet powerful, framework for evaluating the likely success or failure of two companies working together.

The basic idea is that success is more likely to occur — and be sustainable over time — if there is alignment, and compatibility, across three key dimensions:

  1. Strategic
    the overarching business strategies of the two parties should be close since they will need to be in sync for success
  2. Operational
    the two company’s systems and procedures will need to be integrated into one set of systems and procedures; if the will is not there to make this happen, the chances of success will be diminished greatly
  3. Cultural
    the business cultures must be similar; the core mission and values must be similar and it holds true whether you are merging two operations in New York or an operation in New York with an operation in Singapore and puting a head office in London

While these conditions are not sufficient for success, they are necessary. So if you fail the SOC test, sock the partnership from the get-go.

the doctor’s top 11 priorities for supply chain information technology

Industry Week recently ran an article of “Tompkins Associates’ 11 priorities for supply chain information technology”. It was pretty good. Here is the doctor‘s version.

1. Get a Talent Management Solution in Place Now (TA01)

The talent gap is widening by the day in supply chain despite unprecedented unemployment levels as a result of the ever increasing skill set required for success.

2. Define your on-site vs. off-site (SaaS / Cloud) needs (TA03)

Before selecting new solutions, understand what your options are.

3. Update your base Supply Chain transaction store (TA02)

Get all of your transactions into one place for effective and efficient management.

4. Make sure your spend analysis solution is world class. (TA08)

BI is key to right decisions, but good intelligence requires good data, and the starting point is always organizational spend.

5. Make sure your e-Negotiation solution contains decision optimization.

There are only 2 e-Sourcing solutions that consistently deliver average returns in the double digits: spend analysis and decision optimization.

6. Make sure your e-Procurement/P2P solution contains m-way match against Purchase Orders and/or Contract terms.

Otherwise, somewhere between 30% and 50% of your negotiated savings will leak away due to maverick spend, misbillings, and overpayments.

7. Put a Global Trade Management Solution in place. (TA10)

With many transactions requiring dozens of documents, and significant delays resulting from any missteps, an appropriate global trade automation solution is a must.

8. Have automated solutions for regulatory compliance. (TA07)

Regulations like REACH, WEEE, and RoHS are springing up not only in Europe, but around the globe.

9. Get a solution that enables stronger SRM. (TA11)

Your success is dependent upon your suppliers’ success.

10. Make sure your freight management solution can handle as many bids and cost models as you can throw at it. (TA05)

Due to the rising cost of fuel, and the impending driver shortage, freight is going to go up.

11. Get a NPD solution in place and take costs out from day one.

Once 80% of the costs are locked in, the opportunities for savings are minimal. Take costs out from the get-go.

A Streamlined Supply Chain Is Integrated

I was pleased to see this recent piece on “Making It Right” over on Stores.org that quoted Brandon Arbiter, the Business Intelligence Manager for FreshDirect LLC, who said that we are operating three businesses simultaneously and that to execute each of these on a daily basis, every department needs to use the most up-to-date information and have that information at their fingertips.

Just like FreshDirect is simultaneously a grocer, an online merchant, and a transportation company, an average CPG supply chain is a manufacturer, a broker, a transportation company, and a bank that has massive amounts of data that needs to be managed in the physical, financial, and information flows. The business operations of manufacturing, brokering, transporatation, and finance cannot be conducted independently if the supply chain is to be successful. Otherwise, goods will be produced too fast or too slow, or they will get held up in customs somewhere, or they will sit in a warehouse for too long, or they won’t ever leave the factory because the last order wasn’t paid for on-time. That’s why a successful supply chain has to be integrated, and also why it’s the only way to arrive at a streamlined supply chain that has to simultaneously minimize the physical, financial, and information flows that need to be in lock-step for success.

Furthermore, not only are the operations and data flows integrated, but so are the metrics. Instead of metrics like shipped complete and on-time delivery, you have metrics like perfect order that say right product at the right time at the right price that integrate all of the operations. So take a lesson from FreshDirect and integrate your supply chain operations.

Disadvantages of Home Country Sourcing

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.)

I’m afraid it was a Republican who used the line “There you go again” in a US Presidential debate. But … there you go again.

I have a few specific comments on the doctor‘s article on the advantages of home country sourcing:

  • Lower freight costs:
    Often true. However, consider that the distance from nearly all of Mexico (except the Zihuatenejo area) to Chicago is less than the distance from San Francisco to Chicago. And Shanghai is closer to San Francisco than Rio is.
  • Air freight is too expensive except for electronics:
    Often true. However you should do your own risk analysis. If you are considering ocean freight, also get an air freight quote. See what percent of the volume would have to go by air before the lowest cost supplier is no longer lowest cost. I’ve seen analyses showing more than 100 percent would have to ship by air.
    Incidentally, this is the basis of risk analysis during the sourcing phase. Find the lowest landed cost supplier and then evaluate several risks to see how much would have to go wrong before the lowest cost supplier is no longer the lowest cost. Consider if the same thing would happen with the second lowest cost supplier. If possible, assign costs to risk-mitigation techniques.
  • Fuel Prices increasing:
    True. That will raise costs for all forms of transit. It will be a smaller increase for ocean freight than it would be for air or truck.
  • Lower inventory Times:
    Having to hold safety stock is a risk mitigation technique. Do a risk analysis and see how much safety stock you would have to hold to make sourcing from the lowest cost supplier the wrong decision.
  • Time Zone Advantages:
    That’s right, unless you are in about the same time zone. It is tiring to make and receive those phone calls at odd hours. On the other hand, during development, there are advantages to having a supplier working during your night shift.
  • Labor productivity:
    Possibly true. The US has the world’s highest labor productivity. However, it might not apply to your product. And labor productivity isn’t the only factor affecting cost. Purchasing skills at the suppliers is another.
  • No Culture Clashes:
    That’s just silly. Try telling your boss that you can’t source from country X because you can’t deal with cultural differences. In most companies, proclaiming ignorance isn’t the road to success unless you state it as part of a training request. It’s a bit self-serving for me to suggest this but there are international purchasing training programs available. Good ones will help you understand the differences between domestic and international purchasing. Cross cultural skill is one of the most important.
  • Low cost factory repair:
    It might well be true that it’s cheaper to repair product at the manufacturer. That’s of course true for domestic suppliers too. But wouldn’t you require the supplier to cover transportation costs for returned goods? And why are you buying from a supplier from whom you expect failures?

It’s the easiest thing in the world to raise objections to buying outside of your home country. Unless you make that decision on a product by product basis based on facts and unless you separate costs from risks, you aren’t doing your job right. At the very least, any professional buyer should know the costs of products, shipping, and duties from major potentially supplying countries.

Dick Locke, Global Procurement Group and Global Supply Training.

Alignment is Pivotal in the Supply Chain Too

A recent post over on the HBR blogs by Nilofer Merchant, author of The New How, on how “We Can’t Agree to Disagree” discussed the importance of alignment and three areas where alignment is pivotal in a business. The post was excellent, but overlooked a fourth major area where alignment is critical to success: the supply chain.

If the supply chain is not aligned, one or more of the following will happen:

  • wrong product in the wrong place
    the product will be in a truck when it should be in a warehouse, in a warehouse when it should be on the shelf, or shelved in a low-traffic store instead of a high-traffic one where it will sell five times faster
  • overstock on poor selling SKUs, across-the-board stock-outs on high selling SKUs
    this will result in the need to take losses to clear out the excess inventory on the poor selling SKUs and lost sales on the high-selling SKUs
  • (severe) production delays
    when the required raw materials don’t arrive when needed or when orders are sent to factories that are near capacity instead of factories that are idling 50% of the time

And this is jus tthe tip of the iceberg. So when you are aligning you brand, your board, and your market, don’t forget the supply chain that is required to serve the market your company is focussing on.