Category Archives: Supply Chain

Will 2011 Be The Year Supply Chains Go Purchase Order Free?

Back in the early days (of Sourcing Innovation), I suggested purchase-order free supply chains — and not just because such a strategy could reduce buyer direct material by 30% and supplier component inventory by 25%, drastically reducing inventory costs in addition to eliminating the thousands of man hours spent by the organization each year processing meaningless purchase orders.

And yes, purchase orders are meaningless if they are for a good or service on contract. If you did your job right during the sourcing event, you know what you need, when you need it, were it has to come from, and where it has to go to. And you can provide this information to the suppliers up front during bidding and then revise it for the winning supplier when the award is made. Suppliers can create appropriate schedules and the inventory will be ready when it is required. Then, when the goods are needed, they can be ordered with a call (or an electronic demand signal).

While purchase orders are a good policy for any goods or services of significant value not on contract, when you have a contract that specifies volumes, delivery schedules, etc, why should you waste time and effort with purchase orders? You’re just doing the work twice! And since you’re not hiring more people to help you clear the increasing workload (as per yesterday’s post), this is only going to create headaches. Either your people will work overtime, tire themselves out, and/or get sick, or they’ll try to work faster. Either way, they’ll make careless errors and more man-hours will be needed to accomplish the m-way reconciliation to try and figure out why the invoice doesn’t match the PO which doesn’t match the contract.

So ditch the purchase orders for contracted goods and services. If you collaborate with your suppliers and implement sales, forecast, and demand-supply synchronization systems, they won’t be needed. Your buyers, accounting personnel, and suppliers will thank you. And so will the company bank account when you’re not wasting up to one or two hundred dollars processing each purchase order you don’t need.

Share This on Linked In

Capital Costs are Going Up. Can Your Supply Chain Handle It?

The McKinsey Quarterly just published a great article on “how the growth of emerging markets will strain global finance” (registration required) that should be read by every CPO who doesn’t work for a mega-corporation with a large cash balance. The article will help them understand what’s keeping the CFO up at night and why the CFO, who already has to deal with Basel III, might be afraid to invest in long-term capital projects (or, at the very least, have difficulty committing the capital).

The article points out that when you combine low savings rates in developed economies, decreasing savings rates in the more mature emerging economies, the increasing expenditures required to support the aging population in developed countries (that will further reduce savings), and the growing need for capital-intensive investments in infrastructure in the new emerging economies, in less than 20 years there will be a significantly greater need for investment in the global marketplace than there will be investment dollars available. When you combine this increasing demand for capital with the looming threat of increased inflation, and factor in the increased risks associated with short-term funding, it quickly becomes clear that interest rates have no where to go but up, especially since these rates are now at their 30-year lows. At the very least they will return to their 40-year average (which is about 150 basis points above current rates), but they could rise even higher.

As a result, capital for supply chain infrastructure investments could soon be in short supply. This means that if your supply chain is aging and needs significant infrastructure upgrades in terms of facilities or vehicles, the last thing you want to do right now is extend end-of-life (planning) too far into the future if a costly upgrade is inevitable. At the very least you want to start planning and analyzing different upgrade cost scenarios that factor in different (potential) costs of capital so that you’ll know how much capital the supply chain upgrades are going to require and at what point it becomes too expensive. Then you will be in a good position to work on securing the capital before it’s too late.

Share This on Linked In

Are You Really a Futurist if You Predict a Future That’s Already Here?

I found a recent article over on SupplyChainBrain on Five Fearless Visions of the Future very entertaining, and not just because I found a few of the predictions to be out of left field, but because some were not really predictions at all … as the predictions were simply describing the current state of affairs.

Consider the following:

  • The cloud is upon us.
    The “cloud” has been hovering over us for a few years now. There’s been a strong movement to SaaS for the last five years. When even companies like Ariba buy SaaS players and start converting all their legacy systems to SaaS, you know its time has come.
  • Companies that blindly outsourced their manufacturing to Asia will start bringing some of that capability back to the U.S.
    Already happening. I’ve been reading articles all year about companies that are pulling manufacturing back to North America, and not just Mexico. Area Development had a good article back in January. Yes, there are still more companies on the outsourcing bandwagon than off it, but it’s already started. Outsourcing will continue, but not for items with high shipment costs or low production costs where it makes more sense to produce them locally. Also, we’ll start to see more service outsourcing. With goods, you have to deal with ever-increasing shipment costs, but with services, it’s just the cost of the pipe that carries the bandwidth.
  • We are in the midst of a transition to electronic software delivery.
    This was my favourite as you’d pretty much have to be Rip Van Winkle to come up with this one. When was the last time you bought software that came in a box? That wasn’t out-dated the minute the CD was burnt? If this were 2000, it would almost be timely. But this is 2010!

When you get right down to it, the only good prediction that wasn’t either already happen or mostly obvious to anyone knee-deep in supply chain was Jim Miller’s (of Google) prediction that Fifteen years from now, the world will realize that China is not the juggernaut that we make [it] out to be. The nation faces a number of systemic problems, including the prospect of the mother of all real estate bubbles. Here, here! They won’t be #1 GDP for another 2 decades, and then they’re going to have to face all the problems the US has faced since WWII. They’ll always be a major player, but they won’t be the only one.

Share This on Linked In

Another Reason to Be Wary of Outsourcing

As per this recent article in Industry Week on how the “New CPSC Complaint Database Is Trap for the Unwary”, as of March 2011, the US is going to have a searchable electronic database of consumer complaints, implemented by the Consumer Product Safety Commission (CPSC). In a mere four months, instead of having to file a request to the CPSC for the release of documents and wait for the results of a manual search, a consumer will be able to go online and do their own search at any time — and retrieve all complaints that are over 10 days old unless the manufacturer has proven (and the CPSC agrees) that the reports are inaccurate.

However, instead of having 15 days to review a complaint, a company will now have as little as 5 days (as the CPSC will have 5 days to forward a complaint to the manufacturer) to review a complaint and, whereas before the CPSC would not release the documents until the manufacturer’s response was reviewed (provided the response was provided by the deadline), the CPSC is now required to release all complaints after 10 days, whether the manufacturer’s response has been reviewed or not.

As per the article:


[I]ncorrect reports are likely to be included in the database and available to consumers, reporters or advocacy groups. … [T]he CPSC could perform compilations that may lead it to believe that a substantial hazard is presented by your product. Finally, plaintiff’s attorneys will use these complaints to prepare class action petitions, which will require significant resources to derail or defeat.

In other words, if a product that you manufacture fails, you could be in serious trouble … even if you outsourced the manufacturing to a contract manufacturer. It’s yet another reason to be wary of outsourcing, because if your contract manufacturer doesn’t enforce strict quality control, and the product fails, not only will everyone be able to find out each and every complaint 10 days after it is filed, but every class action lawyer in the country looking to make a quick buck will be automatically compiling evidence against you!

Maybe it’s time to bring (some of) your core supply chain back in house?

Share This on Linked In

The Three Best Habits of Highly Successful SME Supply Chains

A recent article in Canadian Manufacturing on “the seven habits of highly successful SME supply chains” had three great habits that all supply chains should follow:

  • Long-Term Approach
    As the article points out, identifying overseas export markets and establishing supply chain partners in those markets can be a time-consuming and costly endeavour. As a result, it’s important to take a long term view when identifying overseas markets and selecting supply chain partners in those markets as you won’t be able to make a quick change if you make a mistake.
  • Inventory Intelligence
    In a downturn, it’s easy to get stuck with excess inventory that will have to be sold at a loss, if you’re lucky, or written off entirely, if you’re not. Also, in an upturn, it’s easy to sell-out and lose sales to a competitor with a similar product. In both cases, poor inventory management can cost your company a lot of money. Inventory needs to be based on real demand, which comes from demand signals. That’s why you need to take the leap of faith and tie into retailer PoS systems for current demand signals.
  • Cultural Cleverness
    It’s not just SMEs in Canada who have been vexed by unanticipated strains in relations and delays due to miscommunication sparked by cultural differences. That’s why this blog ran two series, edited by Dick Locke, on Overcoming Cultural Differences in International Trade and Cultural Intelligence. Before you work with a different culture, better get some cultural training.

Share This on Linked In