Category Archives: Supply Chain

If You Truly Want to Achieve Supply Chain Innovation …

Stop relying on spreadsheets!

I thoroughly enjoyed this recent article over on SupplyChainBrain on how Intel Takes The Top Spot in the Supply Chain Innovation Awards. The article pointed out that Intel enhanced product availability by scrapping its reliance on spreadsheets and embracing technology that creates a real time, available-to-promise (ATP) environment.

As a business management tool, Spreadsheets Suck, straight and simple. Considering that up to 90% of spreadsheets contain non-trivial errors and that they are barely adequate at the task they were designed for (which was day-to-day ledger-keeping, and nothing more), it should be pretty obvious that they are not an operations management tool. And while it used to be the case that you didn’t have any other option as a small or mid-sized business because the traditional, installed, behind-the-firewall enterprise software packages were ridiculously expensive and beyond your grasp, that’s no longer the case. In many areas of technology, you can now take your pick of multiple SaaS options that cost, at most, a few hundred per user per month. And that’s for the really good stuff. If you can get by on the more-than-good-enough 80% solution, you can probably find a solution for $20 to $50 per user per month.

After ditching their spreadsheets and implementing real tools, within three years Intel:

  • increased the percentage of change orders confirmed in one day from 21% to over 70%
  • increased Committed Dock Date from under 25% to over 96%
  • reduced manufacturing cycle times by 62%
  • decreased raw material, Work-In-Progress, and finished goods inventory by 33%
  • improved Weighted Mean Absolute Percent Error by over 20%

Isn’t it time you stopped relying on spreadsheets to drive your business?

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Another Way Supply Chain Optimization Increases Profits

A recent article in Supply Chain Brain on “Planning and Managing Demand: A Modern Supply Chain Imperative” provided a great example of how you could use scenario-based what-if optimization to slash costs and increase profit at the same time.

Another approach [to maximize the profitability of a given inventory investment] is for operations to look at the sales pipeline and see that a customer is currently in the pipeline and is expected to order 50 widgets. What if sales approached that customer with an offer of $1/widget price reduction on 20 widgets if they made a decision within two weeks? Assuming the customer accepted the offer, how much does it impact revenue and profitability?

[Let’s say that] in the original factory order, total revenue would have been $1,500 (100 at $15/widget). Cost of the factory order is $630 (90 at $7/widget) plus $90 (10 at $9/widget) for a total of $720. Margin is thus 52 percent [because a widget costs $5, a $60 container holds 30 widgets and a partial container cost $4 a widget].

[But] what is the situation if the discount offer is accepted? Total revenue for the order would be $1,500 (100 at $15/widget) plus $280 (20 at $14/widget), or $1,780. Total cost of the order would be $840 (120 at $7/widget). Margin increases to 53 percent. By cutting prices the company ends up making more money. Furthermore, it does not impact total demand (since the customer would have made the purchase anyway), but rather it affected profitability and cost, since the customer saved $20, and the company saved an equal amount.

And this is something you could easily figure out with a good scenario-based what-if decision optimization solution that allowed you to adjust prices to see what offers you could make that would benefit you and your customer(s).

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What’s Really At Risk This Year?

The recent SCMR article on “Supply Chain 2010” addressed the following as what’s at risk in 2010.

  • currency-driven inflation
    Especially for U.S. based companies … because that’s what happens when you start flooding your local economy with government paper.
  • lengthy recovery
    I thought this was pretty much understood … especially with every major publication running a story on the “jobless recovery” on a weekly basis.
  • more financial crises
    The article refers to the large block of bonds, notes, credit lines, and other paper assets scheduled to mature in early 2011. Then you have all of the government debt, including the 56 Billion in Dubai World that just said it needed to delay payments on the 29 Billion of that in Nakheel for at least six months, and potentially worse situations in Greece or Italy.
  • interruption of supply
    the risk that the supplier will go out of business, cut off the buyer’s contract, or simply run out of product is still there
  • “black eye” risk
    is your supplier sustainable, responsible, and fair … or is your supplier producing your products in a sweat-shop in a third world country? (for example)
  • compliance issues
    a government regulator could come knocking down your door if a supplier or manufacturer runs afoul of the law

But these are essentially the same risks we saw in 2009. So what should you really be looking out for? I’d start with a focus on these often ignored risks:

  • lack of global trade visibility
    there’s already 106 steps to global trade, it’s only going to get worse before it gets better, and missing even one of them could cost you Millions in fines (especially since we’re now in the penalty phase of 10+2)
  • lack of flexibility
    you need to be demand driven, on short production cycles, and constructing scenario-driven long term plans which you can tweak at least quarterly as it’s likely going to be a long, rocky recovery to the Old Normal
  • lack of education
    to do more with less, your people need to know how to do more with less, and that means they need to be better educated; fortunately, supply chain is the one area where education can deliver returns in excess of 100:1 so make sure your people get at least a week’s worth of education every quarter

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Not All CRM Ideas Will Translate to the Supply Chain

A recent article in Stores offered up “20 Ideas Worth Stealing”. It was interesting, but what really struck me is how sometimes even the greatest ideas don’t translate when we take the supply chain as a whole into consideration.

Specifically, the following ideas in particular don’t translate well:

  • 15 Seconds of Fame
    In supply chain, this usually results from a late shipment, a crisis, or a supply chain disaster, such as lead-painted toys, poisoned toothpaste, or tainted food.
  • Downward Dog = Upward Momentum
    You don’t get the same kind of collective experience in a classroom that you get at a concert, movie theatre, or yoga class. (And that’s probably a good thing.)
  • Lickity-Split Product Trail
    Try-before-you-buy is a great strategy, but it only works if you’re offering SaaS supply chain software. You can’t try out a custom made component before it’s built, and no plant is going to invest tens of thousands (or millions) to make a custom product before you commit to paying for it.
  • Luxury Goes Recession Chic
    “Good-enough” is not always “good-enough” where health and safety are concerned.
  • Temporary Stores, Lasting Impressions
    While it’s relatively cheap to put up a temporary store (just lease some available retail space), it’s very expensive to put up, or even lease, a temporary factory.
  • Tweet Success
    Please, No! Please, Please, No! (Like your suppliers are really going to care about your random thoughts.)
  • Putting the Gas in Gastronomy
    While a proliferation of easily configurable options might please the customer base of the food and beverage industry, a proliferation of SKUs will strain your operations.
  • Prime the Sales Pump
    The equivalent would be telling suppliers you’ll pick up the tab no matter how they ship. This is dangerous if they always ship late and you have to expedite every order.
  • Experts on Call
    Why is it your responsibility to hold all of the expertise? Shouldn’t it be a collaboration between you and your supplier?
  • Partnerships for Change
    Change is good, innovation is better.
  • Social Colonization Shifts the Power of Influence
    Customers usually know what they “want”, not what they “need”. They know the “problem” they want solved, but not the “solution”.
  • Crowd-Sourcing Flavour
    Again, customers can provide input, but not solutions. That’s why you’re in business.
  • Appetite for Apps
    While you need good technology to get ahead, application overload, or big-bang system upgrades, can kill you.
  • Door to Floor in a Flash
    While JIT sounds great in theory, too much in practice can be costly. Better demand management and demand planning is a smarter option.

On the other hand, these ideas do translate well:

  • Tapping Outside Expertise
    You should bring in outside expertise regularly to complement your own.
  • Driving Sustainability
    Sustainability helps you stick around for the long term.
  • Keeping Gen Y Engaged
    You need to keep them interested, if they are not already your employees today, they are your employees of tomorrow.
  • Credit Where Credit’s Due
    You should always credit your suppliers for the value and service they provide you.
  • Channel Shifting
    If you can shift, you have flexibility, and that can be a good risk mitigation strategy.
  • Smart Assist
    If you help your suppliers in their time of need, maybe some day they’ll return the favour.

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Nearsourcers – Is Brazil in Your Future?

I’ve been on a nearsourcing kick for a while now because I never really believed in the outsourcing craze (and the outsourcing craze to China in particular) as it’s just not rational that it should be cheaper to source the vast majority of products from half way around the world. Now, it was for a while, but I’m blaming that on ignorance and incompetence and not what pseudo-economists like to call “market reality”. Let’s face it, fuel is expensive. Labor is expensive … and if you need trucks, boats, and trains to ship your product, that requires lots of extra labor to load and unload. And lead-time is expensive. Who knows where the market is going to move during the 35 days it takes the product to reach your warehouse? You might end up with a lot of unmoveable inventory and that’s going to cost you. (So unless you can air-freight affordably and without a lot of environmental damage, and unless the other factors Dick pointed out in his recent post on Nearshoring are met, outsourcing half-way around the world just isn’t a good idea.) And if we’re as smart as we’re supposed to be, we should be able to innovate a way to produce the (vast) majority of products more cost effectively close to (if not at) home. (If we can’t, shame on us.)

Now, my thoughts were that the rising cost of oil and the rising cost of labor in the former “low-cost” countries would push us back to Mexico — which received a lot of investment before the China craze, which has a lot of excess capacity, and which has a good understanding of our needs — but after reading this recent special report on business and finance in Brazil in the Economist, I’m wondering whether or not Brazil should be getting more attention.

For what might be the first time in modern history, Brazil is democratic, experiencing economic growth, and realizing low inflation. If the trend continues, it could be one of the world’s five biggest economies by the middle of the century. It’s already self-sufficient in oil, it’s government paper is classified as investment grade by all three of the main rating agencies, it is now lending money to the IMF (which was wary of lending to Brazil but a decade ago), and FDI in Brazil is up 30% year-over-year while the FDI global average is -14%. Plus, GDP outpaced inflation in Brazil in 2006 for the first time in over 50 years.

Most economists are pegging its expected growth in the 4-5% range, which is pretty damned good considering the current global economy. Furthermore, this growth should pull its higher-than-average interest rates down to normal levels soon, which will make Brazil a fertile ground for (new) business expansion.

All-in-all, Brazil is looking like a very good location to be near-sourcing from.

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