SUPPLY CHAIN RESOURCE COOPERATIVE

I spent some time working with IBM this past month on a slide share that covers 6 key questions on the minds of many of the Chief Procurement Officers I’ve spoken to in the last year.  Many of these questions relate to comments that you’ve read before (if you keep up with this blog), but they are all focused here in a concise way.

Most of the questions have a common thread:  the importance of data an analytics as a key component of the operating environment we find ourselves in.  The topic of procurement analytics was covered in-depth at our last SCRC meeting in December, and the research paper “Procurement Analytics:  Enabling the Journey to Value” that I developed with IBM around this meeting is also posted on IBM’s website.

The inability to engage with stakeholders that is so often experienced by supply chain professionals are often impeded by alack of credibility, due to a lack of metrics and data, and the resulting absence of a business case. As a result, procurement is often brought in at the last minute. Annual budgeting becomes a guessing game, with little input solicited or provided by procurement. Whether it’s due to a lack of dataor to procurement’s inability to anticipate and gather the data required, this disconnect is causing significant challenges for businesses.  This problem forms the basis for the slide share, and also provides reasons why data is becoming such a big issue for organizations.

The other important characteristic of data is the ability to creatively employ it to “visualize” what is going on in your supply chain.  Visualization ensures that large amounts of data can be interpreted quickly and decisions on how to allocate our attention can be made.  Every executive has limited amounts of time in the day and too many complex issues vying for their attention.  The real objective of data processes in supply chains to make acquisition of data easy, but more importantly, to determine the right data that should be visualized, and ensure that we are plugged into those key data streams and KPI’s to ensure we are plugged in to those events and issues that are most important for us to focus on.  Think of a dashboard of a vehicle.  Nor every function of the vehicle is critical – but you sure as heck need to pay attention to your speed, your distance, and your fuel levels.  If there are other issues that pop up and need your attention (tire pressure or oil light) than they only come on as necessary.  If only procurement could get to this!

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I had a chance to review the new book by Jim Hansen and Kelly Barner, “Procurement at a Crossroads“, which explores the many changes that the profession is facing, and challenges individuals to do things differently.  (I blushed a bit at the number of my  citations in the book including an interview I did with Kelly, so I promise this is not self-promotion!)  The authors do a great job of exploring what change in procurement consists of, and how it is likely to unfold in the next five years.

There is ample discussion in the first part of the book regarding the maturation of the profession as a whole.  They delineate the groups of procurement talent as traditional buyers, Generation Net, and second career professionals.  But to move towards change, they also point out that many of the people leaving the profession will be taking with them a huge amount of tacit knowledge.  One of the nice features of the book is the “back and forth” dialogue between Jon and Kelly, that provides differing perspectives on a number of topics.  For instance, they argue that influence will be one of the most important elements, and that until this capability is actively harnessed, procurement’s coming of age may be a long time in coming, but offer competing views on the subject.

I also like how they come up with a number of “rules” or “truths” throughout the book.  For instance, the three truths of purchasing we pursue which is “spend, supplier, and social” truths.  Spend truths will require improved data enrichment, supplier truth is about understanding multiple dimensions of our suppliers, and social truth is an accepted truth around sustainability and doing the right thing, which must bring facts to underscore it.  But they also tackle the issue of data and predictive analytics, pointing to the fact that prediction is much more difficult than historical reviews of what happened in the past.

The authors also go through and explore a number of other procurement issues that are often debated.   Many of these are drawn from Jon’s BlogTalk Radio show on procurement, as well as Kelly’s interviews and blogs.  For instance, they explore the issue of how familiarity can often breed contempt, yet how collaboration is difficult without familiarity!  They take on the need for financial understanding, and how procurement must be able to speak the language of finance.  The importance of social media as an indicator of supply market changes is also explored, and the emergence of cloud-based procurement as the new standard technology.  They look at the public versus private sector procurement, a topic which is indeed very brave of them to broach!  they explore how procurement can better exploit the media, rather than the other way around.  And they conclude with some future predictions about where procurement will go next.

That’s all I’m saying – no punch line.  You’ll have to read it!

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The focus on corporate sustainability often calls for companies to increase transparency in all aspects of an organization’s operations, and much more so in the supply chain. Apparel and electronics companies that source all of their products from factories in emerging countries are especially targeted for allegedly hiring contractors that push the boundaries of human rights labor laws.

In a sense, “sustainability” is a word that became very fashionable about 15 years ago, and which everyone is now promoting as another facet of “the new normal”. In fact, sustainability is about nothing more than “doing the right thing” – and most people would know what that means. If a 12 year-old tells you “that ______  isn’t right”, then this is a good measure for whether it’s acceptable to consumers. Try running the statement “we are using suppliers that we audit to ensure they are sustainable, but we can’t help it if they pollute or don’t pay a fair wage” by a 12 year old. The response is likely to be something like “But that’s still wrong.  Everybody knows that.”  And in a sense, returning to values focused on “what is naturally the right thing to do” is a good indicator for sustainable behavior.

But what happens when you can’t see what is going on in factories?  Does that alleviate your responsibility, using the rationale that “we don’t know what goes on in their factories because it isn’t our business, and we tell them not to do it”?  This rationale doesn’t stand up any more.   Sustainability is less about multi-tier audits – it is more about knowing who you are buying from, and the implications of your behavior when you choose to purchase a product or service from someone. We need to know who and what we are buying. A great example is that when you walk into a Whole Foods, you go to the meat counter and you see a picture of the farmer who raised the cow that became your steak. Or you go to the produce counter and you see a picture of the farmer who grew the tomatoes. This is something that any consumer will “get” and which will resonate with them. So why can’t you also see the factory where your shirt was sewn, and be able to check and see what it looks like, what they pay their workers, and the working conditions of that factory? It is not only possible, but is happening today.

I recently spoke with a Chief Procurement Officer, who recalled his experiences in driving green manufacturing practices and labor conditions in the semiconductor industry.  “Years ago the electronics industry aligned on an Electronic Industry Code of Conduct.  We would do a heat map around auditing suppliers, essentially a “check the box exercise”, and then declare that “we are sustainable!”  So now we’ve gotten a bit better – we have people who do self-assessments in the supply base, and we still put out a heat map, we do a little more due diligence – and so we think we are okay. In the opinion of this executive – “this is the minimal acceptable approach”.   But let’s not pretend that we can’t do better…

So what about if we base our sustainability on a label like “Fair Trade”? Isn’t that visibility using a proven standard? With the introduction of labels, the fair trade movement has created a de facto standard for consumers to recognize that a product is “sustainable.” But, as Andrew Pederson points out in a Supply Chain Management Review article we co-authored last year, the process used to certify producers in order to get such a label is often flawed. That’s not just Pederson’s opinion. It was validated by a recent study conducted by the Fair Trade, Employment and Poverty Reduction Project (FTEPR) team based at SOAS at the University of London. Their study identified three major points of concern: First, wage employment in areas producing agricultural export commodities is widespread. Second, people who depend on access to wage employment in export commodity production are typically extremely poor. Third, there is limited evidence that fair trade has made a positive difference to the wages and working conditions of those employed in the production of the commodities produced for Fairtrade certified export in the areas studied. In fact, the researchers find that those employed in areas where there are Fairtrade producer organizations are significantly worse paid and treated than those employed for wages in the production of the same commodities in areas without any Fairtrade certified institutions. In response to these findings, the Fairtrade organization has provided a detailed rebuttal, noting that the results are generalized and not adequately covering an appropriate sample.

Which brings us back to the original question.  Being sustainable isn’t enough.  We have to be transparent to be clear about what is going on in our supply chains.   This may mean acknowledging that there are problems in our supply chain, because a global supply chain will always be full of problems. Is there crime in the city of Pittsburgh? Yes, of course, just like any major metropolitan area. Is there any city that doesn’t have crime? Highly unlikely! Does that mean we should try to hide the fact that there is crime in cities? Of course not! But if we actually have data that tracks the location and types of crime, and make the community aware of it, we can get all of the eyes and ears of people out there in the community more aware of what is going on, and they can become part of the solution!”

So let’s start with the assumption that there will be crime, and there will be non-compliance to our sustainable standards in our supply chain. But if we develop a capability to identify crime (non-compliance to sustainable standards), deal with it, move quickly to respond to crime when it happens, conduct post-mortems to identify the source of crime and get ahead of it – then my city will always be tougher on crime and there will be less of it.  Any my supply chain will be more sustainable.

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The concept of “Collaboration” has been getting a lot of grief lately. For instance, recent articles in the Harvard Business Review and the Economist emphasize that collaboration has reached the point of “godliness” in modern business, and that managers are overwhelmed with collaborative tools.  They complain that multi-tasking through collaboration is reducing the quality of work, and actually renders the time to complete tasks to take too long.  HBR estimates that 20% to 35% of value-added collaborations come from only 3% to 5% of employees. The cost of collaboration is also estimated to be severe, with researchers from the University of Virginia estimating that knowledge workers spend 70-85% of their time attending meetings, dealing with e-mail, talking on the phone, or dealing with an avalanche of requests for input or advice.  they estimate the “soft costs” of collaboration are enough to procure a small company Learjet!  Such distractions are believed to make “deep work” difficult if not impossible. Schumpeter (in the Economist) suggests that distraction is the enemy and we need to recognize that workers have a finite amount of time, and that small demands can quickly escalate into massive invasions into their ability to get work done.

While this perspective has some merit, I beg to differ.  This point of view ignores the fact that not all collaboration, is in fact, productive collaboration.  I’ve discovered that leading supply chain companies have found a way to manage the fine line between too much invasion into people’s thinking time, and the ability to drive improved decision-making through a more process-driven form of collaboration, one that has a level of governance and oversight to it that results in the right behavior. Jeff Ng from Steelcase put it very well:

“Trust is the currency of collaboration, in that it requires individuals to demonstrate that there is a visible effort to listen, understand, and be inclusive. It is up to senior executives and all leaders to invest in relationships with local leaders, to establish a culture that seeks to understand what is happening.”

This need to understand many different points of view is the central theme of collaboration. It requires that you be able to understand who people are, and what they do. It also requires that you understand how work happens today, and be willing to allow some variation in processes, up to a point.

There has always been a need for organizations to establish standards of performance embodied in policies and procedures, but in a recent global study of logistics providers published by BVL, we discovered that leading organizations develop a form of governance that allows some level of flexibility to adapt to local requirements. This is achieved by establishing a global standard in the form of a “maturity framework” against which to measure outcomes and results.

For example, many of the leading organization we met with have recognized regional logistics requirements are very different, and as such have moved to a regional logistics design, governed by a centralized supply chain council. The council establishes overall guidelines and structures for regional work to operate at a world-class level. Typically such councils have developed standards consisting of three components: process, policy, and playbooks. First, the standards define the processes that must be in place (e.g. customer order promising, transportation planning, order fulfillment). Second, they define the policies that must be followed (e.g. finalizing orders, allocation, scheduling). Finally the standards come with “playbooks” that act almost as a user guide on how to think through the process requirements and get them done!

In cases when there are major tradeoffs or conflicts that occur between regional requirements, organizations have adopted a global sales and operations planning function to optimize global requirements across regional requirements, especially around global product lines. Once established, however, top executives realize that these plans will be interpreted and acted on differently at a regional level.

This approach is based on the simple thesis that supply chain leaders cannot standardize the entire world, and need processes that will be a solution in 80% of the cases, allowing for local adoption for the remaining 20% of cases, (so long as the outcome meets the process playbook). This requires a clearly defined organization, with clear roles, and responsibilities, so that people can speak to the same processes, with the same toolboxes. This ensures that all parties are “speaking the same language” and are using comparable metrics and plans. At the same time, differences should be highlighted. Leaders should be aware of the challenges and successes of regions, what they struggle with, and what they are proud of. Leaders should also be prepared to accept a different point of view on what is working locally and what is not, and be prepared to adapt the process to fit the right local requirement.

So what does this mean for collaboration? It means that organizations need to create a culture that welcomes transparency, for the very reason that it leads to trust. When there is a culture of transparency and trust, collaboration becomes something that occurs naturally, and I not “forced” on people by apps, social media, or forced tools. The central theme is that people speak up when there is a need to speak up, but otherwise, the guidelines to maximize flow and velocity drive the right balance of input.

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I spent the last two days meeting with members of the Global Supply Chain and Manufacturing team at Nike, in Beaverton, Oregon.  Nike has developed a partnership with NC State’s Supply Chain Resource Cooperative, and we are working together to explore new approaches to creating a sustainable supply chain.

The visit comes on the heels of my visit to Flextronics, discussed in my last blog.  Not surprisingly, Nike and Flex have the same DNA when it comes to working on supply chain innovation.  In an article on Flex’s website, Recoding the Run, there is a great description of the partnership between the companies as they seek to re-design the process for producing shoes.  This partnership is moving towards the ideal of “mass customization” – using new technology and approaches to do so.  Nike already lets consumers customize select sneakers through its NikeID website, where you can choose between various graphic prints and colors, including adding your name or a personalized message.Once you place your order, however, it can take up to four weeks for your special kicks to travel from the factory to your door. In an age where the “real time” supply chain is emerging as dominant paradigm,  that long lag can be a turnoff.

This idea of driving visibility and flow is a theme a lot of people at Nike are talking about these days.  With massive growth aspirations, Nike is thinking a lot about improving flow and reducing friction in its end to end supply chain.  In one area, Nike wants to slash the wait time for custom orders from weeks to days. To do that, it is working with Flex to develop efficient methods for making orders of one, rather than 1,000—something its factory partners already do well. Flex is experimenting with new laser cutting technology, that allows one-off production  – with no setup changes in between!  The machine can go from cutting size 13 pieces to size 7 pieces without interrupting the factory-line flow, bringing Nike closer to its goal of faster turnarounds for custom orders. “We think that unlocks a lot of growth,” says Eric Sprunk, Nike’s COO. “It’s just a very different way to think about the supply chain that our industry has built over 50 years, where the order goes for a thousand pairs of size 9’s, and they ship in a container to a warehouse to be distributed to a store where you can buy one if you like the color.”

Flex is also working in other areas of Nike’s supply chain, to introduce  other innovations while speeding up the process. Flex hasn’t disclosed what those tweaks will be, but they could involve sensors embedded in equipment to feed back data that could be used to optimize the whole operation.

In my discussions with executives, we talked about whether automation would ever replace the factory network that exists at Nike today.  It is clear that traditional manufacturing methods, and the factories that use them, continue to be an essential part of Nike’s supply chain. These factories will benefit massively from the Flex partnership, too, and benefit from learning how visibility and transparency can be adopted in the global supply chain..

 

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PulseCenter

The current environment we find ourselves in is indeed perilous. As the stock market continues to spin up and down in a volatile fashion, brokers and Wall Street types are looking at a dour projection. Growth is projected to be running at an anemic 2-3% or worse, China’s economy is dragging, and the only element that is growing is volatility in the global ecosystem.  CEO’s responding to Deloitte’s new study on global economic growth participating in the World Forum in Switzerland this week have nothing but doom and gloom in the forecast.  But there’s nothing stable about the environment we operate in, as there is plenty of volatility and disruption to go around in the global supply chain.

Pundits are not only perplexed but at a loss.  “This is the new normal!” they shout from the Wall Street trading floor.  Operating in a state of near zero growth, this economy is still bursting with challenges around global complexity, sustainability challenges, and volatility is definitely not where we’d like to be.  But in this environment, there is a need for a “new” type of thinking – one that embraces the complexity, that is based on a collaborative “non-zero sum” approach to managing volatility and change, and one that exploits the emerging technologies of social media, web-based portals, and instantaneous transmission of information globally. It’s time to start operating in “real-time”

The real-time supply chain is based on two essential elements of technology: 1) The rapid digitization of the supply chain, and 2) the rise of real-time information enabled by technology.  Digitization allows people in organizations to speed things up – and provides greater visibility to what is going on in an organizations ecosystem. Real-time information allows that information to be broadcast instantaneously. Although many organizations have adopted these technological elements, one essential element is missing from their strategies: the democratization of data sharing.

The real-time supply chain is being created at Flex today.  Flex is an organization that most people on the street have never heard of, yet which produces most of the electronic products and technologies found on store shelves and which power buildings, transportation systems, and a multitude of other technologies. They create intelligent products, that produce insights and data that allow people to make decisions in a rapid manner. The Internet is merely the utility that is used to transmit data used in an intelligent fashion.  Browsing through their tabletop magazine, Intelligence, you see how they are enabling this in apparel technology, medical devices, automobiles, airplanes, and multitudes of other products that you use every day.

On a trip to Flex’s Milpitas offices this week, I got a glimpse of what the real-time supply chain is going to look like.  Working with their software partner, Elementum, Flex’s  CSCO Tom Linton showed me how they are shaping the culture, people, and technology that will enable this organization to manage and respond to real-time events.  We viewed the Pulse Center, a virtual dashboard that shows every event occurring globally int he world, which is driven by a massive data mash-up pulling from multiple internal sources, partner sources, and social media all over the world.  All of this is encapsulated in a room with massive TV screens, and broadcast simultaneously through people’s mobile devices based on an appropriate governance structure.  As a supply chain guy, this demo blew my mind!

At Elementum’s offices in Mountainview, surrounded by Google offices springing up everywhere, we sat and chatted about what this would look like.   (I knew I was truly in a California software company, as people played ping pong in an open space surrounded by white boards, and two dogs wandered around looking at me curiously).  Nader Mikhail, Elementum’s CEO, talked about what was involved.  “We deal more with psychology than we do with data issues.  The biggest challenge we face is having people be able to share data openly and deal with the reality of what is going on out there.”  Elementum’s website states what they are doing in a fairly simple manner:

We monitor over 10 million incidents every single day and relate them to your supply chain. We then overlay your data with the supplier info you need to coordinate a resolution when issues arise. We’ll even provide automatic product and part impact assessment, so you can focus on beating your competition and getting your unfair share of constrained resources.

This is the essence for creation of the real-time supply chain. People need information to be able to act, and need to be able to communicate what they are seeing so others can act on it. In turn, they need to be provided a context in which to understand what is happening globally – so they can also adopt to these changes in an agile fashion. And this impacts not just people in procurement and logistics but indeed the entire organization. This ability to “act as an integrated network” however can only occur when there is a bond of trust, a common understanding and desire to do what is best for the supply chain as an integrated network, not just for the individual pieces. Through the optimization of the end to end supply chain linked by people, process and technology, amazing things can happen.  Because we have to start behaving differently.  The old view of managing supply chains isn’t going to be effective in the “New Normal”.

 

 

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An article published in the Wall Street Journal identifies what I have been saying for years now….Supply chain talent is a hot commodity!  Many of the skills that we’ve identified in prior posts on this site have discussed the key skills and knowledge that recruiters are looking for in supply chain students.  And schools like NC State University are producing them, because we are listening to our partners.

But organizations also need to work on investing in a talent management strategy, beginning by partnering with targeted universities to help shape and develop the people that they need to fulfill these roles.  In my most recent blog, I described the type of person that organizations such as Apple are seeking to find:  tech savvy, smart, humble, able to work on unstructured projects with challenging requirements, analytically oriented, and most of all, willing to learn and take on new problems!  In fact, Apple’s new CEO, Tim Cook, came directly out of their supply chain organization.  So did Tom Falk at Kimberly Clark.  And the list goes on.

The way that people learn to deal with new and difficult challenges is by diving into them headfirst.  That is exactly what initiatives like the SCRC do, is bridging the world of industrial and service supply chains with the academic and learning environment.  People need to have the ability to explore, use new tools, and tackle new problems in a safe environment.  That is how learning takes place.  We need to be up to the challenge of creating the “impossibly talented” procurement professionals of the future.  Our organizations need people who are ready to take on the many challenges that exist in the supply chain environment we face today.

One of the key differentiators identified in the WSJ article is the need to think about procurement, operations, and logistics in an integrated fashion.  For example, Kimberly Clark looked at the cost of raw materials and the cost of purchasing freight transportation service “independently”. Several supply chain managers at the company reported to different people in different departments, and none reported directly to him—so he set out to hire someone to bring those functions together for the first time. Being able to think in terms of value streams and process flows is key to “supply chain thinking”.

Our student projects this semester reflect this thinking around supply chain integration.  Some of the projects include studies on key supply chain competencies and best practices at American Red Cross, integrated planning at Duke Energy, and supplier risk management at Merck.  We are also launching three new projects with MetLife, focused on supplier rationalization, common sourcing processes, and re-thinking travel policies given the plethora of new technologies that are emerging in the marketeplace.  We are also working on creating a major healthcare analytics taxonomy, working with RJR on establishing a global carbon emissions network measurement framework, and working with Nike on supplier risk management.  These are just a few of the exciting things going on in the Supply Chain Resource Cooperative.  If you are a prospective student looking at supply chain as a potential major, get on board!  We promise an exciting ride!

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I recently participated in a workshop of oil and gas leaders in Calgary Alberta. With the announcement of $30/bbl oil, the long-term view of the oil and gas industry is that it is going to be a long time before oil goes back up to prior levels of $50/bbl plus, and may never reach the levels of prior years. The need for oil and gas companies to re-think their supply chain operating models has ever been greater. This was echoed by many of the comments of leading companies participating in this effort. Some of the comments that came out included the following:

  • There is a gap in people skills, and negotiation and conflict management is key. People are struggling to deal with difficult situations brought on by economic challenges, and the ability to derive appropriate solutions when having challenging conversations will be key. Pulling in market opinion and cost models can help diffuse many of these problems.
  • We need to understand what is truly “best in class” for market and service providers. What is happening not only nationally, but what does it look like regionally. Building a market opinion on the required level of capabilities is critical to ensure we are establishing the service expectation, and establishing a dashboard to monitor the relationship is key.
  • Logistics is a major opportunity and logistics knowledge is low.
  • SCM is too focused on their own abbreviations and alphabet soup. Business stakeholders don’t care about what SCM people are talking about. We need to speak in their language.
  • We need to be able to work more closely with suppliers, and align them with our business stakeholders to survive. We have to find different ways to be effective. Taking heads out of the business isn’t a solution to the problems we are facing. We have a key role to play with the business partner, and we need to get internal alignment and include them in the business solutions that will result in value. The biggest challenges are the people problems, and we need a process to address this.
  • SCM is about the multiple organizations that are in the network – the producers and the distributors – and there is a tremendous need to get everyone to pull together in the same direction. We are too worried about price, and not about solutions that drive value.
  • The biggest and most important skills in the supply chain that are in short supply are commercial acumen and business relationship skills. How to establish deals that work for both parties and that both can commit to. How do we become a customer of choice – the current environment is when we need your suppliers more than we’ve ever needed them.
  • Our business partners are walking in the room and asking us to please help them. Back when a barrel of oil was $100, nobody cared. Our CFO is acutely aware that supply chain can deliver value. Now is the chance for supply chain to stand up!

These comments are very similar to ones I heard in workshops during 2008-2009 and one of my observations was that people were frozen and didn’t know what to do. They extended payments out to suppliers to save cash. They cut training. But they didn’t act. What I emphasized then – and what is applicable now – is that action is required. This is an opportunity for the SCM organization to deliver real value – in a time of need. But SCM needs to be able to make the business case, to begin to harness suppliers to create innovative approaches to drive value and sustain the business because this is something that is not a blip there will be major fall out in the industry.

The biggest opportunity today is in working capital – driving cash out of the supply chain and what is one days of working capital to your business! Logistics is a big opportunity!

Organizations in the oil and gas industry, as well as others, need to develop a business process that can help to deal with the current challenges in the current environment. This is a process which begins with engagement of stakeholders, understanding their needs, and development of market research and market opinion, leading to a strategy, and building of cost models and converting into a negotiation strategy, followed up by execution management.  Now is the time!

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If there’s anything we’ve learned in the last year, it’s that prediction is not only much more difficult than it looks, but also that the volatility and uncertainty  in the global supply chain operating environment is making life a whole lot LESS predictable.

Prediction generally involves developing some sort of forecast, and in this case, we aren’t going to predict more volatility and complexity….that is just too easy!  We know uncertainty and volatility is going to be a reality in our world.  For instance, we know that e-commerce will continue to drive smaller package size, and will drive up volumes even further.  (UPS and FedEx both saw package volumes soar by 17% or more during the Christmas season over last year).  As people conduct more  transactions electronically, whether it’s consumers on Amazon or organizational buyers on Ariba, Coupa, or other P2P solutions, the relational component of supply chains may be seen as less important.  We are also seeing massive technology shifts, such as the rise of 3D printing, embedded digital chips, and other digitization technologies that will not only produce larger and larger pools of data, without necessarily greater insights. Security issues such as counterfeit, theft, fraud, and other activity in the global supply chain will continue to be a challenge.   Insights will follow for those who invest in increasing their capability to monitor and manage large volumes of data.  We will also continue to increased customer expectations, lower tolerance for poor performance, and less brand loyalty, making this a truly treacherous environment for companies of all sorts.  This creates a “double whammy” effect, in that digitization is driving up the need for analytics but to truly find collaborative solutions that rely on new technology solutions, companies will need to find ways to partner.  My observations over the past year havae produced the following predictions about what the leading companies will be pursuing in terms of competitive supply chain strategy in 2016.

Prediction 1 – Supply Chain Analytics Will Become More Predictive (Not Backward Looking)

My recent interviews with a number of executives leads me to believe that, like the old Wayne Gretzky hockey adage, players need to skate to where the puck is going, not where it is at the moment.  In other words, many supply chain and purchasing solutions looks at historical transaction activity (what happened in the past and is captured in our ERP systems).   This can be interesting as a “post mortem” after action review, but doesn’t tell you where the puck is going!  As one executive I met with said:

“It is important to have meaningful data – but what you do with it is the issue.   Can you form insights that are actionable? That is the real question!”

What this individual was emphasizing is that asking the right questions about our data will become important.  We need to be able to impute and project data using statistical approaches such as multiple regression, cluster analysis, and other tools that provide us meaningful insights that isn’t just correlational in nature.  Historical transaction analysis can certainly provide one set of insights – but only a partial view.  Organizations need to be able to tap into multiple sources of information from both structured and unstructured, internal and external sources, to provide greater insights into key research insights into business strategy questions.  Such insights, fed by data, can result in the right types of dialogues that will support business decisions and drive competitive actions that are meaningful and impactful on both cost and revenue components of the P&L.  To understand what data you need requires first building the right research question.

In one company I interviewed, the analytical team explored the relationship between economic activity, consumer demand, and demand for their products. They discovered that there were several leading indicators of demand, including coal (a 10 month leading indicator). Other indicators included data pulled from the Federal Reserve economic database, the Producer Price Index, the Purchasing Managers Index, as well as internal metrics such as the size of the company’s own sales force. Using multiple regression models, a predictive forecasting model was developed which allows users to input data into the model, and develop specific forecasts for different categories of products purchased from overseas suppliers. The model is also being used to adjust company revenue and budget growth estimates – and can effectively be used to either curb or expand budgeted growth estimates based on these economic forecasting models.

Prediction 2 – Supply chain strategy will become increasingly segmented by customer and technology

Organizations are constantly going through re-organization events, trying to develop the right governance mechanisms that will enable agile decision-making and responsiveness.  But are supply chain organizations configured according to the right market and commercial taxonomy that are relevant?  Mudambi (2008) notes that “value-added is becoming increasingly concentrated at the upstream and downstream ends of the value chain” and that “activities at both ends of the value chain are intensive in their application of knowledge and creativity”. Value-added along the value chain is, thus, represented by a “smiling curve”, with increasing levels of value added on one end through R&D, Design, and Commercialization activities, as well as the other end where Marketing, Specialized Logistics, and Brand Management, and After-Sales Services that are customer-facing are critical.  What this suggests is that supply chain organizations may need to be segmented and organized according to customer requirements, on one hand, and technology maturity on the other.  This is a radical representation, as it requires thinking that the key performance metric in this case is agility and responsiveness to customer and technological change.

Supply chain organizations will also need to be organized around incident response, and positioning human and material assets in locations that are able to respond to rapid volatility and change.  Incident prediction involves understanding what issues are on the horizon, not just what are current risks. Potential sources of risk need to be identified, to be able to narrow the field and understand where the data needs to be collected and monitored, the form of that data, and how it needs to be consolidated and measured for consumption by decision-makers.  For example, if risk is believed to be occuring at the factory level, companies need to design systems that ensure monitoring of current workflow systems, as well as real-time systems will be needed to collect machine data and worker feedback, and to do so in a manner that ensures it is closest to the activity taking place.  Social media holds a lot of promise here. In addition, prediction will require simple, holistic metrics that capture all areas of business risk for contract factories, and which encompass both current and future risks.  We may also see forums for industry collaboration that identifies best practices, shared insights, and an opportunity to drive a standard approach to what are emerging as very large and complex risks in the global supply chain.  On-going research is needed to capture social media, “big data”, qualitative reporting insights, and other non-traditional data to enable predictive insight, and build a shared source of truth for factory and supply chain risk.  New insights are needed into risk mitigation practices that go beyond simply “avoiding” risky production locations when a decision is required, but instead drive better business decisions and improved community impacts for sustainable supply.

Prediction 3 – Corporate responsibility (diversity, environment, labor and human rights) will become an integral part of the supply chain strategy building process.

The recent publicity generated by the Rana Plaza disaster in Bangladesh, and other labor risks, has elevated the importance of integrating these issues into the sourcing decision.  As pointed out by my colleague Andreas Wieland in his blog, the United Nations Conference on Climate Change (COP 21) finally reached an agreement this past month.  The Paris Agreement is certainly not perfect, but it will provide a hook on which people can build on and a framework on which to drive future supply chain strategic performance goals.  There are many different data resources that are potentially available to augment and create a rich set of metrics that can be used to drive insights into improve sustainability performance.  Organizations will focus on creating centers of excellence tasked with creating indices that provides a quantitative and visual representation of Life Cycle Analytics that exist in the global supply chain, as well as the related financial cost impacts associated with these issues. Such indices should be proactive in nature, and provide an early warning system as well as an estimate of potential financial impact of diversity, environmental, and human labor rights violations (as well as opportunities) to procurement.  These centers should be not tasked not just with mitigating risks, but to provide early warning and a dashboard that can be used to alert management and serve as an early warning mechanism of possible threats to the supply chain, and the relevant financial impacts to the organization.

My friend Andreas believes we will see are totally new business models or as Unruh (2015) puts it in a nutshell: “A rule-of-thumb I give managers is that if your sustainability performance indicators only improvewhen customers use your product less often, it means you’re in trouble.” But if business will not be as usual, we cannot afford to manage supply chains the same way as before. Rather we need to revolutionize our supply chain toolset. I expect that a large part of our future research projects will be about whether supply chains, as the backbones of business value creation, can make CO2-neutral business models and fair labor working settings become a reality.

Prediction 4 – Organizations will build stronger modeling capabilities to plan and manage future supply chain talent requirements.

As we’ve noted in prior posts, talent is the key to building effective supply chain strategies.  People are the key to integration, not technology.  However, most organizations don’t think of talent as a critical input to value creation or cost savings.  (What is the first asset to go in a downturn?) The assumption is that you can find the right people “on demand” and that everyone is easily replaceable.   Unfortunately, this is proving to be a big assumption that is not panning out.  Organizations are finding a critical shortage of talent for many of the roles they are seeking.  As baby boomers retire, a lot of intangible knowledge (an asset) is going out the door.  Talent shortages are occurring not just at the management level, but in warehouses, transportation, regulatory, quality, and planning roles.  Talent should be part of building a procurement transformation, and not an after-thought.

Some of the research we’ve done has identified predictive models that consider the future requirements and skill sets  in different areas of supply management.  Given this future state, the model considers the current state, which includes a number of parameters including Staff Pipeline, Candidate Pipeline, Min/Max/Most Likely Inputs for each Recruiting Activity, % Interviewed, % Hirable, and % Accepting.  In addition, the model should consider retention rates for employees.  This is particularly challenging, given the many different companies that “millenials” will move around with over a period of time.  Efforts for building talent should be a partnership between human resources and supply management, to truly think about how to achieve the right long-term outcomes.

Prediction 5 – Real-time supply chain analytics will become the single greatest source for Total Cost Reduction and Cost to Serve effectiveness in the supply chain

Real-time analytics allows people to respond to what is happening now, not last week.  Real-time analytics are technologically possible, but the real issue is WHAT to measure.  Lost in this discussion is how to identify the right types of key indicators that captures key performance dimensions from suppliers through to customers.  Technology co-development will be key to this effort.  For example, P&G used their demand sensing algorithm to use customer signals to drive activity backwards throughout the suply chain.  Similarly, Flextronic has developed a “Flex Pulse” algorithm that pulls in data from multiple data sources into a data mashup visualization screen that allows people to drill down into any level of the supply chain to pull information as needed.  Although there are multiple solution providers who claim to offer this capability, the issue is not HOW, but WHAT to include.  What are the key leverage points that determine the bottleneck, the critical incident, the customer point of contact, or the key technical link that leads to the breakthrough market creation?  That is where the real genius of supply chain innovation will take place:  In the harnessing of analytical, technological, and relational capabilities that lie dormant and undiscovered today, and integrating them in a fashion that is unique, difficult to replicate, and creates insight unlike no other competitor in the market.

One executive at a major oil and gas company stated this very succinctly.  Oil and gas companies are in dire straits, and probably will continue to be, as the traditional sources for price reduction have dried up.  As many prepare for major reductions in capital spending, all areas of asset management spending are fair game for cost savings opportunities.

“Our existing systems and ways of gathering data and information is adequate for the category management or process – the pre-award work. We can you what is happening in terms of how much we spend in this category, what business unit level spending we have, what types of things we are buying, and derive “good enough” information to do strategy work and enough consumption information to negotiate volume tenders around the world. But were we fall down – is where we believe 80%+ of our opportunity for continuous improvement exists – which is in the brownfield post-award stuff. For example, do we have the information on when we are buying energy – during peak hours or not? How is the service or consumption information being used in real time at the asset to drive savings, and where is the analytics for that?”

Managing assets will have a much greater focus.  The opportunity to analytics that drive down working capital to build cash positions for their companies will continue to be critical.  Organizations I’ve spoken with recognize that this is the key.  One company I met with last week has a focus on improving productivity in its retail brands, by considering not just the price of food, but also the operational characteristics of food preparation that drive a total cost solution for many of the purchases they are making.  This level of operational and price-based management will be a key focus for supply chains in the future.

So that’s it for this year…see you in 2016!

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“Procurement Value Proposition” Recognized

December 27, 2015
by: handfield
categories: Supply Chain Management

My most recent book co-authored with Gerard Chick, the Procurement Value Proposition, has received some nice accolades recently.  The book was listed by Peter Smith of the site Spend Matters on the “Christmas Books for Procurement People“, based on Smith’s earlier review appearing back in May.

Gerard Chick and I were recently interviewed by Kelly Barner on the Buyer’s Meeting Point Blog Talk Radio, and this was posted on their site for any interested parties to view.  The interview was focused largely on the key themes we develop in the book.  We spent a lot of time talking about the need to move up the maturity ladder, as well as the different sets of capabilities required to move up the ladder.  We spent some time emphasizing how important it was to think about procurement talent, to enable analytics that drive conversations with stakeholders that enable value.

The biggest honor to date however came when our book won the Grand Prix of ACA Bruel, known as the “Plumes des Achats” prize. Founded in 1991, ACA was founded in France to promote the professional approach of the management of Purchasing and Supply Chain as taught in the programs for leaders of HEC Paris, and to create a network among its members, contacts and exchanges focused on strategic, managerial and operational developments of purchasing and supply management. Gerard Chick was on-hand to receive the prize on December 7, 2015. Our book was among several new procurement books considered for this award.

Gerard and I are now starting to think about what our next book might cover! Stay tuned!

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