Category Archives: Technology

The Truth About RFID … as the doctor Sees It

I recently encountered yet another RFID article that took a look at how RFID will impact supply chain optimization and control and decided that I just can’t ignore the subject any longer. As you have probably guessed from that first sentence, I’m not a big RFID fan. It’s yet another technology that greatly over-promised and greatly under-delivered, and it did this for two reasons. ( 1 ) The promises were outlandish with respect to what the technology actually does and ( 2 ) the technology, by nature, is not as “plug and play” as the vocal proponents would have you believe.

RFID, which is short for Radio Frequency IDentification , is a method of “automatic identification” that relies on storing and remotely retrieving data using RFID tags or transponders. These tags generally contain an integrated circuit for radio-frequency signal processing and an antenna for signal receipt and transmission, however some tags are read-only and do not contain an integrated circuit for signal processing.

RFID proponents promote the use of RFID tags for supply chain use because they improve the quality of material location/movement data versus current data collection technology and this provides more accurate data delivered to existing ERP systems that drive supply chain optimization systems. As a result, forecasting, master production scheduling, and distribution resource planning can produce better, timelier and more granular outputs based on more accurate, near real-time inventory and/or material movement. In addition, RFID allows manufacturers to keep in contact with, or at least “hear” from, their material as it moves through the supply chain.

The idea is that since the tags can automatically be read by readers at each checkpoint in the supply chain, the data is immediately available for processing and immediate transmission to your systems. And even though real-time data is valuable, and the benefits of this real time data that RFID proponents promote are significant, the fact of the matter is this: you don’t need RFID to know where your goods are in a supply chain and when they hit a checkpoint. You can just as easily slap a plain-old fashion barcode on every box and get the same results. Of course, you’d need someone at each step of the supply chain to scan every box, but as long as the systems are properly configured, the data could still flow automatically up and down the chain. The advantages of RFID are efficiency and human-error reduction, and that’s it. It’s more efficient because, as long as the scanners are properly configured, and the goods properly passed through the scan points, the tags are automatically read for the whole pallet simultaneously. It’s less prone to human error, because, as long as the tag is properly attached to each box on the pallet, it will be read automatically at each point and you don’t have to worry about a human missing a barcode or two each time the pallet is supposed to be scanned in full.

Therefore, RFID is valuable if, and only if the savings that result from increased efficiencies and reduced human error outweigh the costs of its implementation, which not only include the up-front equipment and installation costs, but continued costs associated with maintenance and each and every RFID chip. But it’s not going to save you a fortune … its the systems that you buy to take advantage of that extra data and optimize your chain that are going to generate significant savings, and, as a I pointed out above, they don’t care if the data comes from an RFID chip, a scanned barcode, or, if you want to go back to basics, a human operator typing in a box or pallet number into a terminal that automatically propagates the data up and down the chain.

I guess what I’m saying is, before jumping on the RFID bandwagon, see it for what it is, talk to your industry peers about the increased efficiencies they saw, and do the TCO calculations before committing to it. For most operations, I doubt it’s the best thing you can do to save money.

IT Enables Big Savings

A recent article on “managing IT in a downturn” in the McKinsey Quarterly had a couple of great points.

1. In some instances, IT investments deliver more value to a company’s top and bottom lines — by creating new efficiencies and increasing revenues — than any savings gained from traditional IT cost cutting.

2. The impact on run-rate EBIT from optimizing supply-chain processes with streamlined systems is 3 to 4 % … which is 6 to 8 times the impact on run-rate EBIT from transactional IT cost reduction which tops out at 0.5%.

In other words, you get more bang for your buck from process improvements than from reactionary across the board budget cutting. The reality is, as the article points out, simplistic cuts, applied across the board, may endanger critical business priorities from sales support to customer service and could cripple your IT and supply chain operations.

Where do you start? With your data of course! As the article notes, few companies have successfully capitalized on the explosion of data in recent years. Often this information, residing in separate IT systems or spread across different business units, has never been mined for insights that could add value. So you start with a spend analysis and opportunity assessment. Then you tackle the opportunities with the largest savings potential first.

Then what do you do? You implement the right systems to streamline your operations. This will allow you to get more of your spend under management and tackle more of the savings opportunities that you identify.

Then you see real savings. And while your understaffed competitors are running around like chickens with their head cut off, because they foolishly cut across the board and lost key people and resources, you’re growing your market share.

Public Sector vs. Private Sector Procurement : Does One Size Fit All? II

Yesterday we noted that if you were looking for a way to quickly and easily segregate the vast array of companies offering procurement solutions in the marketplace, you’d quickly find that they could quickly be divided into those that almost exclusively serve the public sector and those that almost exclusively serve the private sector. We also noted that public sector organizations operate quite differently than their private sector enterprise counterparts. We then discussed the differences in day-to-day procurement public sector organizations vs. private sector enterprises.

Based on the operational differences we identified, we reviewed the fundamental differences in workflow, awards, and approvals and discussed the underlying technology required to support both the public sector and private sector needs. And we found something quite surprising – pretty much the same solution was needed in both cases. Which left us scratching us head and asking, so what’s the difference?

Well, when you get right down to it, there are no differences in the fundamental e-procurement technology requirements for public sector and private sector organizations. They both need to create RFXs to solicit information, accept bids, generate awards, create and approve contracts, cut purchase orders and goods receipts, accept invoices, issue (e-)payments, and track and report on spending. And they need to be able to do it in a smooth and integrated manner that minimizes data entry (and eliminates rekeying of data already in the system, as that just leads to human error).

The fundamental differences are in the processes they use. Public sector organizations have one set of rules for whether it’s a public RFX, renegotiation with an incumbent vendor, or a direct award and private sector enterprises have another. Public sector organizations tend to use the RFX, Bid Management, and Contract Management solutions more heavily than their private sector counterparts who are free to chase the award with the greatest long-term value and use non-discriminating e-auctions and cutting edge decision optimization to get the best value for their shareholders. But the fundamentals of procurement don’t change.

So why are most e-Procurement companies either or?

I think the answer is two-fold.
(1) Most technology-focussed solution companies don’t understand the differences between public sector and private sector procurement, and thus focus on one or the other.
(2) Most technology solution providers are still selling B2B 2.0 solutions, which have been customized for one environment or the other. In order to support both environments on one platform, you have to have very flexible workflows that are extremely customizable by the customer (to meet their needs) and a user interface that is trivially easy to use. This is easy with flexible B2B 3.0 solutions, but almost impossible with rigid B2B 2.0 solutions.

And if you have the right platform, you can easily support both types of customers.

Bringing Up the Rear: Mark Usher, Jason Busch, and Doug Hudgeon

The Seven Grand Challenges for Supply and Spend Management cross-blog series has come to an end. We had some great posts, including those from front-runners Bob Ferrari of Supply Chain Matters and the Strategic Sourceror of The Strategic Sourceror, but participation was low this time around, compared to back in January when I gave everyone a chance to jump on the Sustainability band-wagon and I could barely keep up with the submissions that came fast and furious. And yes, I’m a little disappointed. It’s our job as bloggers to help define the future, and I thought doing so was something all of us bloggers liked to do. But anyway, back to the matter at hand.

Jason Bush of Spend Matters decided to tease us in hist post and only give us his top three challenges last week, and make us wait for the rest. His top three were:

  1. Procurement Integration
    According to JB when it comes to true integration with the business such as enterprise level involvement in budgeting and planning (a favorite Hackett Group KPI), most procurement organizations are still coming up woefully short. Based on my own experience, I’d have to agree. But is this a supply management challenge, a broader operational challenge, or an education challenge?
  2. Risk Management
    Couldn’t agree more. I think we’ve both had lots to say on this topic over the past few years.
  3. Spend Management Led Innovation
    As proof that supply can drive innovation throughout the business, JB gives us the automotive case of how Honda and Toyota helped redefine the basis of innovation through working more collaboratively with their supply base to engineer out cost as an example. But I don’t think this is the challenge, I think the challenge is educating the rest of the organization about the innovation that spend management can bring, as there are a growing number of examples of leading procurement organizations becoming the innovation leaders in their company.

Mark Usher of 1 Procurement Place went all out in his post and laid his seven challenges on the line for our critique. They were:

  • The Strategic Elevation of Procurement
    Mark, like almost every other contributor, also insists that procurement strategy must be an integral component of corporate strategy. I’ve been saying that for years, so I have to agree.
  • Achieve a Truly Seamless Cross-Functional Strategic Sourcing Process
    Considering that many organizations still don’t get that it’s Sourcing AND Procurement, I definitely agree with mark that we DO NOT need another seven-step consulting methodology. ( If you think we do, maybe you need a twelve-step program! ) Mark’s right when he says that procurement in any given organization needs to reach a state where the right organizational players are facilitated smoothly into the strategic sourcing process at the exact time that their respective value-adds are required.
  • Optimize the Outsourcing of Indirect Materials
    Well, I definitely like the word optimize. But I think the goal should be to optimize the outsourcing of those tasks that can be better done by someone else and to optimize the insourcing of those tasks that can be better done in-house. No need to be discriminatory.
  • Pursue Enterprise-Wide Spend Visibility
    Definitely! This fits right in with my challenge of Opportunity Analysis – and you certainly can’t identify opportunities without good visibility into what they are.
  • Pragmatically Manage All Elements of Supply Risk
    Mark says that Personally, I see a little too much talk of virtual reality dashboards and not enough about what is really important! Hear, hear! Glad someone got my message that dashboards are dangerous and dysfunctional!
  • Maximize the ROI of Sourcing and Procurement Technology
    Well, this is definitely a challenge, but I think it’s too broad to be useful. We need to identify what can be done to maximize the Sourcing and Procurement ROI, and then solve those challenges.
  • Make Procurement “Chill” or “Tight”
    According to Mark, who’s lingo is probably a bit behind the times since I understand it, the supply management profession must make itself attractive to young, degreed job seekers who would typically shun a career in Procurement for something more Generation X/Y such as, well, almost anything really. Well, that’s why we have to talk about Corporate Social Responsibility and Sustainability and why only Procurement can truly achieve it, since Procurement is the part of the company that spends the money, and, plain and simple, Money Talks.

Doug “The Blogging Thunder from Down Under” Hudgeon took a cue from an old-classic and gave us his challenges in-line with the 7 deadly sins. In his post, he defined the challenges as follows:

  • Lust: Demand Management
    No matter how good you are at negotiating, you’ll still never beat the buyer who figures out how to achieve their business ends without buying the product at all.
  • Gluttony: Lean
    The challenge for procurement professionals is to master existing methodologies such as lean to influence demand for products and services.
  • Greed: Fair Play
    Greed can manifest itself in a supplier taking advantage of a buyer … or it can manifest itself in a buyer with significant market value tearing the throat out of their supplier’s margins. The challenge for the procurement professional is distinguishing one situation from the other and managing the stakeholders on both sides.
  • Sloth: Contract Management
    The most valuable skill that a supplier can cultivate in its relationship managers is the skill of getting a customer to roll a contract over.
  • Wrath: Supplier Relationship Management
    When a relationship has soured to the point where either the buyer or the supplier is willing to risk supply disruption to extract their pound of flesh, a procurement professional can play a role in keeping the relationship on life support long enough to either revive the corpse or replace the supplier.
  • Envy: Lack of Respect for the Purchasing Profession
    Procurement professionals, as expert purchasers, can assist the business in differentiating true opportunity from fear-driven me-too opportunities.
  • Pride: Talent Management
    The core challenge that must be met to meet the previous 6 challenges is attracting and keeping people who are capable enough to meet these challenges.

So where does this leave us? With a lot of work to do!

Thanks again to:

  • Bob Ferrari of Supply Chain Matters for his posts
    The Seven Grand Challenges for Supply Chain Management – Part One
    The Seven Grand Challenges for Supply Chain Management – Part Two
    The Seven Grand Challenges for Supply Chain Management – Part Three
  • The Strategic Sourceror of The Strategic Sourceror for his post Challenges in Supply Chain Management
  • Jon Miller of Gemba Panta Rei for his post
    The Seven Grand Challenges for Supply and Spend Management in the Next 25 Years
  • Ron Southard of Safe Sourcing for his post
    Where technological focus can improve retail procurement
  • Randy Littleson of The 21st Century Supply Chain for his post
    Seven grand challenges for spend and supply chain management
  • Justin Fogarty of Supply Excellence for his post
    Spend Management 3.0 and Beyond …
  • Jason Busch of Spend Matters for his post
    Spend Challenges – Today and Tomorrow
  • Mark Usher of 1 Procurement Place for his post
    Seven Grand Challenges for Supply and Spend Management
  • Bernard Gunther of Lexington Analytics for his post
    Opportunity Analysis: The Challenge is Having Accurate and Usable Spend Information
  • Doug Hudgeon of Vendor Management for his post on the
    Seven Deadly Challenges

Centering the Pack: Ron Southard, Randy Littleson, Justin Fogarty

Slowly but surely, the Seven Grand Challenges of Supply and Spend Management cross-blog series is lumbering along. Since my last post, Ron Southard of Safe Sourcing, Randy Littleson of The 21st Century Supply Chain, and Justin Fogarty of Supply Excellence have offered us their (introductory) posts on the subject.

Ron starts off with a tale of technology, noting that to some extent, too much thought leadership in these technologies is being invested in games, consumer gadgets and the like instead of less sexy tools focused on reducing the cost of goods which will instantly improve profitability and foster economic growth creating new jobs. Especially when the technology exists today to attack the problem of escalating costs of raw materials, shipping, retail price increases and other associated supply chain costs, as it has for years. And it’s only getting better. As I am attempting to illuminate in my B2B 3.0 series, innovative companies have been, and still are, introducing technologies that put buyers on even footing with consumers — and the only thing standing in the way of a better business model is adoption. (I urge you to check out the inaugural Sourcing Innovation Illumination Introducing B2B 3.0 and Simplicity For All as well as the upcoming Illumination on why Simplifying B2B for Suppliers Enables Buyers, to be released next Tuesday.) You can be sure, based on his initial post, that his contribution is going to be a good one.

Randy decided that five challenges alone were enough to fill your plate, and gave us his list, which contain a couple of doozies:

  • Connecting Outsourcing and Lean
    Lean requires synchronization, and outsourcing, at least today, makes synchronization a challenge.
  • Controlling That Beyond Your Control
    A huge challenge for brand owners will continue to be balancing the issues of being in control when they are not directly in control of all aspects and to continually adjust to changing conditions “on the ground” that impact costs.
  • Sustainability
    This is a real and serious issue that will only increase in priority on a global basis. Since it fits in with one of my seven grand challenges, I have to agree!
  • Identifying Supply Chain’s Role
    Too many companies are taking far too tactical a view on their supply chains. I agree, and so does Bob. So what are we going to do about it?
  • Volatility
    … things are moving at a faster pace and customer expectations continue to climb while their loyalty is less. Volatility is on the rise …

Justin decided to skip the challenges get all prophetical, but at least he took a page out of my B2B 3.0 handbook. Noting that it’s obviously difficult to envision exactly how the medium will look from a UI or feature/function standpoint on the 30 year time frame … I think it’s safe to say that finding potential suppliers will be easier via powerful discovery tools and networks. And that’s just the start. Starting with communities like MFG.com and CustomPart.Net, and moving on-to custom mash-up search engines like the Supplier Search Engine, the movement is already starting. As for suppliers … they’ll have a greater ability to evaluate their buyers and potential customers. Tomorrow’s B2B 3.0 will be interactive, and will allow for true collaboration, not just data-push. Companies like Co-exprise and Apriori are starting to make that happen in new and innovative ways for direct and custom-part manufacturers. And the new world provides tremendous opportunity for buyers and suppliers who embrace discovery and discussion, as Vinimaya is demonstrating with its new enterprise search technology. The opportunity is there, but, more importantly, as Justin astutely points out, those companies that fail to adapt to increasingly connected world, the challenge may be staying afloat.

Also, in addition to Bernard Gunther’s commentary on Opportunity Analysis that went up Monday, Bob Ferrari has posted parts two and three of his series as well!