Category Archives: Supply Chain

Product Recall

Product Recall

It’s coming. It costs US business over 700 Billion each year. And your product could be next. Are you taking steps to make sure that it’s not?

Remember, the supply chain doesn’t start when an order is made or stop when the product is delivered. It starts in the NPD design phase (and considers compliance and safety issues) and keeps going until the product reaches end of life and is recycled. And it only takes a single misstep for a Product Recall to rear its ugly head. That’s why good processes and quality control are vital.

Bugs and Cecil Predicted the Current State of Affairs 60 Years Ago

In 1941, Tex Avery directed a Merrie Melodies animated short starting Bugs Bunny and Cecil Turtle called Tortoise Beats Hare. A new twist on the classic tale of the Tortoise and the Hare, it had a pretty simple message buried within:

You snooze, you lose.

And that’s precisely what will happen if you fail to constantly improve your supply chain.

Is It Time To Vertically Integrate Your Supply Chain?

Will reading a recent Wired article over on CNN Tech on why nobody can match the iPad’s price, I began to wonder if maybe it was time for multinationals to start vertically integrating their supply chains again. Now that the perfect storm of cost, supply risk, and market turbulence has hit, it would appear that the outsourcing and right-sizing craze of the nineties and early noughts has revealed its dark underbelly. The shiny paint of internal cost reduction has cracked and pealed and all the hidden costs associated with logistics, delays and stock-outs, and lack of buying power on the part of your suppliers are now exposed.

The article, which notes that none of Apple’s competitors can meet the $500 that it asks for an entry level 16 GB wi-fi iPad, notes that Apple is able to achieve this feat for two reasons:

  • It’s unique retail strategy:
    It sells primarily through its own retail stores and, thus, doesn’t have to share a big chunk of the profits with third party retailers.
  • It’s unique vertical integration:
    The article notes that Apple is the most vertically integrated company in the world – it operates its own retail chains, all hardware and software is designed in-house, and it runs its own digital content store. As a result, it doesn’t have to pay licensing fees to third parties (as even the A4 chip is owned by Apple).

This results in a company that is able to not only able to use a vast ecosystem to design, build, and sell its products, but that is able to control that ecosystem as the last company in our industry that creates the whole widget (Steve Jobs, Wired.com).

Makes you wonder if its time to integrate those key pieces of the supply chain that you spun out over the last two decades because some consulting organization, looking for an excuse to further drain your bank account, convinced you it was a good idea. Or at least take a significant (share-based) interest in a few key suppliers so that you can guide them towards a successful path and, when it makes sense, buy raw materials on their behalf.

Is Your Supply Chain About To Get A Lot Leaner?

We already knew that food prices are rising considerably across the board. They’ve risen so much (29% in the past year) that the World Bank estimates that 44 Million people have been forced into poverty since last June as a result.

If this isn’t enough, thanks to the skyrocketing price of cotton (which has more than doubled in the past year, hitting all time highs), “clothing prices are set to rise 10% this spring” (BlazeMedia). Considering that the average household spends about 15% of their budget on food and 5% on clothing, which are not discretionary expenses, the average household is now looking at a total increase in their non-discretionary food and clothing expenses of 5%. Given that, after housing, food, clothing, transportation, health care, insurance, and debt payments, the average household had less than 15% of their funds for discretionary expenditures, this says that the average household now has less than 10% of their funds for discretionary expenditures. That’s a 33% reduction in discretionary funds in less than a year!

This says that any company that provides a discretionary product or service to an average consumer is now fighting over a market-share that might have shrunk by a 1/3rd. Someone is going to lose and someone’s market share is going to get smaller. This means that a number of supply chains are going to have to get a lot leaner this year for those companies to survive. Is yours ready?

Could Word Smarts Get You That New Supply Management System Sooner?

You’re an ambitious Supply Management Professional who wants to do the best job you can. (That’s why you read SI everyday.) However, it’s tough to be the best when you don’t have the best tools at your disposal, as it limits your productivity and savings potential. You know you need that new system (be it spend analysis, decision optimization, or next generation supplier information management) and the sooner you get it, the better you’ll do.

However, you know that the company still has tighter reins on spending that are tighter than a prairie dog’s butt in a dust bowl. You need to get around them. Your boss has to want to buy that new system if you have any hope of getting it. How are you going to make that happen?

Ask smart. As per this recent post in the Harvard Business Review on “why it’s better to be smart and wrong than just silent”, if you ask smart, even if you’re wrong, you impress your boss and make it easier for her to help you. Similarly, if you ask for a new supply management system smartly, it will be easier for the boss to agree with you and fight your case.

Which is more likely to get the boss’ support?

I’ve been doing my homework and I think our best chance of hitting that 15% savings target is to identify the categories with the biggest savings potential, not the categories we spend the most on. We’ve been hitting those hard for the past two years and I don’t think there are much savings to be had in them at this point. If we procured a modern spend analysis system, we could quickly rank our categories by total spend and then compare the prices to index prices for the categories using these indexes I’ve identified. A single report would identify our most likely opportunities. Furthermore, we could use the tool to compare our purchase order totals to invoice totals at the end of every quarter and make sure the supplier isn’t overcharging us. And that’s just the beginning of what we’ll be able to do.

or

I don’t know how we’re going to save 15%. Maybe we should buy some consulting services from Supply Management Vendor XYZ and then buy whatever new-fangled tool they recommend.

I don’t know about you, but I think one way is superior.

And if you can spin it in a way that will let your boss take all the credit, then you’ll probably double your chances of success.

What do you think? Can you apply psychology to this situation or not?