SUPPLY CHAIN RESOURCE COOPERATIVE

This week I’m adding a guest post from Mike Challman, VP, North American Operations for CLX Logistics.

 

Supply chain management is defined as the active streamlining of a business’ supply-side activities to maximize customer value and gain a competitive advantage in the marketplace[1].

Yet, as supply chain industry professionals can attest, there’s a plethora of strategies you can employ to maximize value and efficiency.

Most companies turn to a third-party logistics (3PL) provider for help because they have not just market-intelligence and expertise at their disposal, but also proprietary technological advantages such as transportation management systems (TMS).

Optimizing Freight Management with TMS

Logistics providers often create these intelligent software platforms to enhance supply chain visibility and optimize freight management. These programs are increasingly popular amongst the supply chain management (SCM) and logistics community. In fact, the TMS market was valued at $6.85 billion in 2013 and is expected to reach $19.2 billion by 2022, according to Transparency Market Research.

TMS software helps manage your carrier network and address inefficiencies in your freight management processes that are otherwise difficult to diagnose. For example, should your product utilize intermodal transportation methods?? Which route will be the most cost-effective and eco-friendly?

Measuring Your Performance

Although ROI is the most obvious metric for determining the success of your SCM, don’t overlook other performance indicators of your freight management process.

Safety is a crucial consideration, especially if you’re transporting heavy or hazardous material on behalf of a client. Regularly review regulations in the United States (and other countries, if transporting globally) to ensure compliance.

Another matter of importance is route guide compliance. Are the directives being properly communicated and carried out? If not, this could be an opportunity to bridge an internal gap.

Optimizing Operations

Learn about the remaining freight management KPIs and how to fine tune your reports to properly measure them in the infographic below.

 

 

Mike Challman, VP, North American Operations for CLX Logistics. CLX is a global provider of transportation management, technology, and supply chain consulting services.

[1] http://www.investopedia.com/terms/s/scm.asp

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Continuing my reporting of the Procurement Leaders meeting in Miami, I sat in on a very interesting session that included three professionals from very different walks of life:

  • Captain Harry Thetford – Defense Logistics Agency
  • Robin Shahani – CPO, TD Ameritreade
  • Cynthia Dautrich, CPO from Kimberly Clark

Each of these individuals had an excellent perspective on what cross-functional teaming really means. Too often, people throw out the term loosely, without really thinking about what cross-functional teaming truly implies. In particular, management will often say “Oh yeah – we use cross-functional teams.” But what happens in these team meetings is what really matters – and a lot of it depends on the behavior of the individuals, the culture of the organization, and the leadership mandate for the team to develop a goal and the resources to carry out that goal.

Captain Thetford noted that in the military, it is always a challenge to get these teams to work as they are envisions.

“For cross-functional teams, it is hard to impose collaboration. It requires a lot of communication. There are two views of collaboration – and leadership may think we are collaborative, but workers may think differently. Open offices are important – but open minds are more important. It is about hiring the right people with the right fit and experience – and I’d rather have a jack of all trades, then an expert, working on a team.

A really important component, to begin with, is whether people actually show up for the meeting! You demonstrate collaboration by being there, and being part of the team. If you aren’t there and you don’t show up – then you aren’t part of the team. We were working on a new project, and it was important the supplier be there, to ensure the money was going to the right people, and to be involved in every meeting and every action. Procurement is their own organization and often doesn’t see the need for going to team meetings, and if you don’t show up, people don’t take you seriously. And being there upfront from a logistics and procurement perspective becomes key. Having people who have the authority to make it happen is key.   And the right attitude is also important. If an expert says you know how to solve the problem – then maybe they are thinking it is too easy. There should be a learning curve, as every problem is unique and requires a different approach. Even if you have done the problem before – challenge yourself on how can we do it better this time! Then this becomes a great forum for innovation.”

Robin Shahani from TD Ameritrade offered a different view.

“I’m a big fan of the trusted advisor framework– which involves having the credibility to show stakeholders you have the right expertise, and the right intimacy and the right relationship when you show up at a cross-functional team meeting. Procurement has to have a demonstrated record of success and expertise to bring value of the table, and this is divided by the amount of self-interest. The less self-interest, the better. You can’t come in and say – ‘here is the policy, but actually I’m only here to help’.   There has to be a reason for the team to pull you in. At TD we try to pull people in when we need them on a targeted basis. We identify what the team is doing, and ensure that we assemble the best people together for the problem. It is important to be able to be agile and pull people together on projects on an as-needed basis, to look at an opportunity and bring the right people together quickly on an as-needed basis. If you think about it, the reason a a startup can move more quickly is that they are 60 people, not 600. Start-ups are more agile. And what you see is that when start-ups are acquired by a large company, they end up disappearing in the ocean of the big copany. Big companies take so much longer to do things. They bring together ross-functional teams because it is political, to make sure everyone has a voice, not because there is a need to bring in the right expertise together.

Successful cross-functional teams also need to understand the headwinds and tailwinds they face. For example, if we meet with another function, who may not know anything about our business, and we don’t feel that they will run with the idea, then we don’t have confidence in their contributions. It is important to see ambassadors from Procurement in the same way, Do they understand the business – and do they really get it? ”

Cynthia Dautrich also added another dimension of thought to the subject of cross-functional teams.

:Empathy and understanding regarding what the other party is going through is important on a team. Actions speak louder then words. This means jumping into action as part of the team, and ensuring that everyone agrees and is aligned on what we are here to accomplish. It is also important to develop an end to end measure of what we are trying to achieve. We can focus on the customer – and is the measure being on time and in-full? To achieve these things means we need to help procurement to build confidence and understand how to be a good ambassador. We have to be clear on what skills we expect our people to bring to the table, and if you are hiring the right people we will have greater confidence. But this also means we need to coach, mentor, and train people along the way, so they feel equipped.”

These insights left a lot for people in the audience with new ideas to take back to their jobs next week…

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I had the opportunity to sit in on a number of sessions at Procurement Leaders American Congress 2017 in Miami this week.  Despite the snowstorms that prevented many from making it down, there was a full house at the opening keynote.

PL’s research shows that for procurement, cost savings is still the main issue that executives focus on.  Cost savings were on average 4.5% in 2015, down from 7% in 2016. About 83% of procurement organizations are changing operating models, with 33% are undergoing transformation.   year over year savings – and 25% are reporting revenue metrics – but 97% stick to cost savings.

Joe Agresta – VP Enterprise Procurement Excellence J&J, spoke at the keynote.  Joe has been at Johnson and johnson forg 17 years.  He elaborated further on the theme, “Conquering the Next Frontier” – which focused on thinking about the strategic positioning of the function, through collaboration and supplier-enabled innovation, as well as using technology as a disruptor.

Joe shared some insights from his time at J&J.  “J&J”s credo is about our communities and our people and our stakeholders. It is about the patient. It guides everything we do.  Innovation is our life blood – not just with products, but with processes, in the way we are organized and the way we use technology.

What is a culture of innovation? J&J’s Credo encourages everyone to innovate.  Here are a few points.

  • Patients are waiting for a solution, the next medicine.
  • When we look to innovation, we innovate with an eye on safety, quality and sustainability.
  • We need to look at the impact of innovation and how to prioritize those that will have an impact on our business and our customers.
  • The world is our Window – as procurement leaders we are one of the only functions that has an outside view of what is going on.
  • We have to resource to win – don’t do it half-baked. But also “Fail Fast” – and the two go together.
  • If you think it is Innovation – it is! If you believe it is an innovation – then it is and put it out there.
  • Perseverance and Passion is key – we may get discouraged early and it doesn’t get on the portfolio. Don’t forget about a project and persevere on a multi-year portfolio.
  • Aligning our research is critical and understanding where suppliers’ research is, where ours is, and aligning on that is key.
  • You want the A team and A suppliers on your investments.
  • We have to “LIVE a learning partnership” – sharing one of your best practices while you are here. It builds momentum and belief.
  • We need to share our stories – and do a better job of sharing stories on innovation.

J&J has developed a Supplier Innovation Center, that is focused on unmet business needs, and created an innovation culture through advanced sourcing and innovation teams with NPD people looking at product launch and innovation.   They have also split out innovation sourcing teams, in consumer innovationto drive collaborations to facilitate broad-based innovation opportunities. They have people who work closely between innovation and R&D to drive discussions with suppliers, and identify risks to bring potential innovations to market. Others work on health care solutions on global design offices, and who work on a Leadership team to build enterprise capabilities to deliver healthcare solutions in new ways, to motivate people, and to get the right technology at the right time. Design thinking is customer-centric, which is inclusive of the patient, considers the feasibility and viability of the business, and desirability for people. This drives meaningful solutions for positive health outcomes, working collaboratively with supply chain and suppliers on customer-centered innovations into development. Integration with other innovation centers between procurement and these groups is key. Procurement is not always comfortable and we are often too focused on saving money and expediting, and may not be comfortable with integration into the global design center, looking at unmet needs, and working with suppliers to target these. It is about having the right people in the right roles, to seek to understand and to seek to coach. No idea is a bad idea – this sounds simple, but it is not easy to do.

Cynthia Dautrich, former CPO from Kimberly Clark,  talked about talent.  The fundamentals for people they are looking for are key, but we are looking for people who are humble, hungry and smart.  But if procurement is only wanting to be recognized for cost savings, this doesn’t recognize what stakeholders always value.  So being humble, and influencing and managing relationships without authority is key to a successful career in procurement.  About 1/3 of the procurement was meeting the profile.  About 1/3 had to come in from outside.  And 1/3 we had to recruit from inside the function, in IT, sales, and marketing.  This required improving the procurement branding, and understanding what we needed to do in procurement to change the supply chain.  And moving people around in the function is also key.

Part of that involves taking your partner’s business measures, and making those procurement’s outcome measures.  Using revenue generation, profit margin speed to market, and market share, and making those part of procurement’s outcomes.  TCO and cost savings are the traditional measures that procurement uses – so assessing these other measures will become increasingly important.

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Many executives I speak with express reluctance at wanting to invest people, time, and money into projects that have a dubious return on investment.  Supply chain analytics projects, particularly those involving “big data”, “Internet of Things”, and real-time data are all being talked up in the popular press, but most companies are loath to dive in.  Why?  The response is often “we are waiting to see what happens in the market”, or “we are on the sidelines until we see a real benefit in terms of return on investment.”

So what exactly is the right “return on investment” number you have to hit to give the go-ahead?

The “wait and see” excuse, in my humble opinion, is the wrong one when it comes to the digital supply chain, and it will cause you to miss out on many opportunities for growth.  This opinion is supported by a recent article in the Harvard Business Review, “Strategy in the Age of Superabundant Capital“, that provides a compelling argument for how investment in new technology are imperative for success.   The authors argue that as financial assets have grown faster then the global GDP, the weighted average cost of capital has shrunk to about 5-6%.  And yet, hurdle rates for internal business investments have not changed significantly in the past two decades.  As a result, too many investment opportunities are being rejected, while cash is building up on balance sheets, and companies have no other option but to buy back stock.  But share buyback only makes sense if the company’s common stock is undervalued in the market….which is hardly the case, with equity prices at an all time high!

So what is the alternative?  Growth.  For companies to grow, they need to invest in new technologies, new products, and new businesses.  One of the biggest opportunities for growth today is the massive set of changes we are seeing in the ecosystem, in terms of real-time data, supply chain analytics, mobile computing, cloud computing, and the massive trove of data that exists in most companies.  DATA, as I’ve indicated in the past, is the gold at the end of the rainbow, yet few companies I meet with are truly exploiting this data in a fashion that will produce insights and new business opportunities. Investments in creating the real-time LIVING supply chain are all around us, yet so many companies are dragging their feet. A good place to start would be to invest in creating a data governance council, and assemble a center of talented individuals tasked with verifying data standards, but also start to experiment with new approaches for working with this data.

Mankins and his colleagues support this view.  Amassing cash on the balance sheet is a poor use of capital on behalf of shareholders, and leaders should have a strong bias towards reinvesting earnings in new digital products and technologies that is rapidly shaping our new world.  These projects should be focused on growth opportunities, and may involve tolerating failure.  As Bill Harris, the former CEO of Intuit and PayPal once said, “Rewarding success is easy, but we think the rewarding intelligence failure is more important.”  That means putting together special teams of individuals who have the time and motivation to work on new digital products, explore the art of the possible, and creatively test new technologies.  Not all these projects will succeed.  In fact most will fail.  But the learning that occurs will reward those organizations who truly view themselves as research leaders, and who are intent on growth.

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Recent articles in the New York Times and in the International Business Times highlight the emerging role of blockchain as a key enabler of improved integration between parties in the extended global supply chain.  For instance, IBM and WalMart are partnering to begin tracking The blockchain — the buzzy, bewildering technology behind cryptocurrencies like Bitcoin — is starting to be applied to real-world problems like tracking pork chops, shipping containers and footwear with a speed and security not currently possible. The IBM-Walmart partnership is one of the biggest practical tests to date.

IBM seems to be leading this charge.  Recently, the Supply Chain Club in the Poole College of Management featured a presentation by IBM Vice President Steve Rogers from IBM,  discussing how BlockChain represented a new opportunity to drive trust between parties in the end to end supply chain.Believe block chain will change our lives.  Steve discussed blockchain as the  “trust” protocol, the Internet Axis, the Internet Value, the Democratization of the Digital World.  He began with a history of block chain, dating back to  1989 and a paper was released by Timothy Berners-Lee, called  “Information Management: A Proposal“. Which laid out the basis for the WWW. They released it and the Internet was born. Now 3B people use it every day. New business models came about and new information. It also changed how people interacted – and how business occurred and how governments are run.

But there is a flip side, some would say the darker side, to the Internet.  You get cyber bullying, phishing, identify theft, and online fraud. You could argue the Internet has a trust issue.  And then someone called Sakoti Nakamoto published a paper on what he called Bitcoin, which was a peer to peer cash system. He laid out the details about creating what he called a cryptocurrency. It was in October 2008. This was the time of the economic crisis collapse, and confidence was at an all-time low.

A blockchain simply refers to a bookkeeping method that “chains” together entries so that they are very difficult to modify later. It provides a way for large groups of unrelated companies to jointly keep a secure and reliable record of their transactions.  More then anything – it is a technology, upon which transactions can be layered over it.

This approach has real implications for the world of supply chain and supply chain financial transactions.  As Spend Matters Pierre Mitchell notes, there can be value realized in 1) the elimination of redundant data maintenance activities across the supply chain, 2) the reduction in PO or AP mismatch issues on the transaction side and 3) ease of access to a wider and more universal sales/sourcing network that is not closed to participants based on membership and network fees.  Also, he imagines a world where a supplier could publish information about itself in a peer-to-peer blockchain-type distributed and discoverable registry!

There are also other potential benefits for shippers.  Maersk had found that a single container could require stamps and approvals from as many as 30 people, including customs, tax officials and health authorities.  Pilots with IBM have shown that all these documents can be captured in a blockchain, and could potentially reduce shipping delays due to lack of paperwork..

But there are lots of issues here to work out.  For instance, what happens if you are the Middleman between customers and suppliers?  You are then not the supplier of record. How do you keep the trust of both without having to share that trust end to end?  That is how middlemen make money – they sell at a higher cost than they buy at. How would they be able to build trust with this transaction flow?

There are also lots of concerns about who will own the technology.  Critics are concerned that IBM will corner the market, although they have maintained an open source approach.  The Times article notes that

“Many technologists who got excited about Bitcoin have said that the newer, corporate-designed blockchains — like the one being built by IBM — are missing one of the main elements of Bitcoin’s success, namely the extremely decentralized structure. Anyone in the world can join Bitcoin and, in effect, study its ledgers. But only a limited set of participants can gain access to ones like IBM’s.  That could make them more vulnerable to attack from, say, a hacker who targets a few of the participants. Even though the IBM technology for tracking shipments is more decentralized than previous methods, “it still concentrates power in a handful of entities,” said Emin Gun Sirer, a professor at Cornell who studies distributed systems.”

There are certainly many issues to work out in this space.  But there is no doubt that companies are beginning to invest in Blockchain technologies, and may even begin to start working on their own corporate platforms.  Keep an eye on this one…

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This week we announced the theme of our upcoming Supply Chain Resource Cooperative meeting.  The theme of the meeting, “Mapping the Road Ahead in Uncertain Times”, brings together a number of industry experts to share insights and develop some thoughts on how organizations can plan ahead to deal with the many surprising events that pop up every week in the news.

The current political and economic environment we find ourselves in is indeed full of surprises, both positive and negative. The election of Donald Trump surprised the pundits, the general public, and I believe, Donald Trump himself! The global community has also expressed the uncertainty imposed by these events, which is stoked further by the on-going ad hoc communications from the new President.  Not a day goes by without Trump’s Tweets sending individual investors and executives scrutinizing the press, trying to understand the impacts of what the sudden changes mean for their industry, their company, and their jobs.  Our loyal readers of Supply Chain View from the Field have also expressed surprise at what this means for the supply chain.

On the plus side, the markets have reacted favorably. The new administration has promised to spend more money on infrastructure, highways, airports, and other elements that could ease the ailing logistics networks that have been sagging under the pressure for years. He has also promised to revisit Dodd Frank, improve the clogged approval processes of the FDA, and lower the corporate tax rate which could generate a boost to the economy.

But everyone is holding their breath for the budget to come out. It costs money to build infrastructure, yet Trump has stated he wants to cut taxes, which could produce a deficit. He has taken to attacking specific companies on their globalization strategies. In fact, he seems to be on the side of eliminating all trade agreements including the TPP and NAFTA. These changes produce uncertainty, and could impact not only the balance of trade, but also the regulatory environment and tariffs that could impact many companies. There are many questions that arise in this environment for supply chain executives.  This is an example of the types of questions on the minds of many executives I am speaking with.

  • What does Trump’s withdrawal of the TPP mean for domestic and international trade in the U.S.?
  • What is the likely outcome of the repeal of the Affordable Care Act for the healthcare and life sciences industry?
  • How will the global economic community react to the changes that are likely to occur?
  • What will be the overall impact on global and regional economic growth?
  • How will the ban on immigration, as well as the construction of “the wall”, impact the domestic labor force? Which sectors are likely to see labor shortages, escalating wage rates, and capacity constraints in the market?  I have spoken with numerous supply chain students who are very worried indeed about their chances of landing a job in this environment.
  • How will regulatory changes in the energy and agriculture market change the flow of goods and services in the domestic economy?
  • What will be the likely impact of Trump’s impact on acquisitions in multiple markets, (AT&T and NBCUniversal being the most recent)?
  • What are the key triggers and events that supply chain executives should monitor and be aware of that will impact supply and demand in the economy?

My Keynote Address, “Impact of the New Administration on the Supply Chain” will kick off the meeting, followed by a number of presentations by economic and industry experts who have deep knowledge of these issues. The meeting is a private forum for open discussion of problems faced by executives with a common interest in driving intelligent solutions to a largely undefined and challenging public sector environment.

The meeting agenda will include:

  • An SCRC Board of Advisors meeting (by invitation only)
  • An update on SCRC programs and services since the last meeting.
  • The Keynote address “Impact of the Trump Presidency on the Supply Chain” by Dr. Rob Handfield, Bank of America University Distinguished Professor of Supply Chain Management and Executive Director of the SCRC.
  • Timothy Barnes, Asia Pacific Consulting, on “What Does the US Departure from the TPP Signify?”
  • Jason Schenker, Prestige Economics, on “Planning for Fat Tails: Economic, Financial Market, and Policy Expectations in a Time of Uncertainty”. (All participants will receive a free copy of Mr. Schenker’s online book)
  • Industry Perspectives on the Trump Presidency.” An industry panel will follow with insights and opinions offered by a group of cross-industry professionals from the electronics, manufacturing, energy, and government sectors.
  • Supply chain professionals and practitioners networking opportunities.
  • The meeting will culminate with the Poole College of Management Gallery Walk, known as the “Leadership and Innovation Showcase” presenting ~70 graduate and undergraduate practicum projects completed by all academic concentrations within the Poole College of Management this semester.

A networking reception with presentation of student awards will follow the gallery walk on Thursday, April 20th and will be attended by supply chain professionals, as well as a number of NC State administrators, faculty and students. This is an enjoyable event that showcases our students and facilitates an informal networking opportunity for them to interact with corporate executives and to learn about supply chain issues in person, face to face with executives who are also seeking insights from these young people.  You won’t want to miss this one!

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In the RFQ process, procurement should ideally be transparent about answering this question.  Too often, however, the sales team at suppliers providing the bid have to “guess” at what they think will be important.  The Request for Quote process, if done correctly, is a way for procurement to be able to quantify the elements of value and in many cases, and for the sales team at suppliers to educate the customer on what their true performance capabilities are.  The RFQ process is really an opportunity to explore and understand the potential range of performance outcome that are possible.  Unfortunately, many outsource tenders are “botched”, often because the procurement organization does not have a full level of understanding of the different forms of performance and value that a third party outsourced provider can deliver to their business and/or does not fully understand what the true business need is. Safety is almost always a primary concern – but there are many five other elements that come into play that should be explored and defined specifically with the customer in the context of the current and targeted business.

  1. Cost – What are the elements of not just the price of the outsourced process, but the total cost associated with operating the process?
  2. Serviceability – What are the elements of service and how can they be measured?
  3. Quality/Safety – How is quality defined? What are the key safety performance issues that are unique to this situation?
  4. Innovation – What are the proposed ideas to drive improved outcomes across all of these other factors?
  5. Contract Compliance – How will the terms of invoicing, payment, and all terms and conditions be defined in the contract?  (This is important to know upfront for the supplier!)

These elements may need to be reviewed and defined in specific terms at the beginning of the RFQ process, so that the appropriate set of responses can be appropriately defined in the supplier’s proposal. Each of these elements will have a different impact on cost drivers that will ultimately impact the proposed cost, etc.

Procurement may use a form of scorecard to not only evaluate potential suppliers of services during the RFQ process, but also to manage the on-going relationship after the contract is awarded. Scorecards can be built after the contract is awarded but also defined in more detail in the RFQ response. The weighting of the different factors is also important, and understanding this weighting is fundamental to how the response is crafted.

The RFQ ideally should also include other questions relative to past performance which the sales team should be ready to respond to:

  • How long have you performed this type of activity?
  • Who have you done it for?
  • What is the capability you possess to deliver a solution that meets our needs?
  • What are the capabilities and quality of the people who will be assigned to perform this work?

In turn, it is essential that a dialogue be established during the RFQ respond process for sales to engage procurement and understand the drivers behind the outsourcing initiative.  Procurement should be fully versed on stakeholder needs, and be open and transparent in their willingness (and ability!) to answer the following questions.  If procurement doesn’t fully understand the business need, then they need to go out and speak to business owners before they launch the RFQ!

  • What is the business outcome you are striving to achieve? What is driving the need for this outcome?
  • Why are you asking suppliers to provide solutions for these outcomes? What is the driver?
  • What is the reason you are engaged in the outsourcing exercise?
  • What is the level of continuous improvement you are expecting after the award is made?
  • What are the transformation costs, including the switch-out costs (if there is an incumbent) that need to be considered in this proposal?
  • What is the level of pre-and post-award contract savings you are expecting to deliver on the current state?

In many cases, the sales team may not know the exact weights assigned to each of thse criteria. However, these questions can help facilitate an “estimation” of the weights and can help deliver a more focused and coherent proposal. Asking the above questions during customer reviews can help the team to better understand the expectation.

In some cases, the procurement team running the RFQ may not be fully cognizant of the different criteria that need to be considered. This is often the case especially with a “price-conscious” procurement team that is only rewarded for price savings over the current state.   The cost of change is a significant factor that should also be well-understood and communicated in these discussions. This could also span the “political” costs, particularly when the incumbent is favored over any new party by local constituents. In many cases, an incumbent to the contract will try to sell the statement that “you can’t do without me, and I’m the only one who knows how to serve you,” while the potential competitor will sell the point that “changing over to our system is easy and will be seamless.” Neither statement is true.

It should also be emphasized that procurement has a responsibility to fully understand the capabilities of potential suppliers in the process. One executive noted:

“As a result of the RFQ, we selected two different suppliers for two different DC’s. We used an identical process, and they appeared both highly qualified based on their respective responses and proposals. One of the suppliers operated flawlessly, and only required two meetings annually to review performance. The other supplier had horrible performance, which required weekly reviews to deal with a stream of continued operational issues.”

To bar against the likelihood that the business will “game” the weights to get their preferred supplier, mature supply management organizations will establish the weights ahead of time. There should be a “referee” who sits on top of the weighting system, and in most cases it will be the company auditor. A good procurement practice will have an audit requirement to define the weights before the RFQ is issued, and not change them during the process.

If as a result of this assessment it becomes clear that the RFQ performance criteria and weights are not aligned with the supplier’s key capabilities, the sales team may make a decision to not pursue the proposal. However, unless these types of questions are asked through engaging the procurement team, the pursuit strategy will not be fully informed, which could lead to a tremendous waste of resources.

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One of the truths that is often overlooked in the splurge of press and hype around “Analytics” is the need for data integrity.  You can’t have analytics without data that is reliable, timely, validated, and accurate.  In a 2014 Deloitte survey of 239 chief procurement officers and directors from 25 countries, 67% of respondents stated that poor data quality was a key barrier to implementing systems. In another recent study by Procurement Leaders, 95% of procurement professional identified data quality as extremely important or crucial to achieving procurement objectives.  Another Deloitte study in 2017 also found that 49% of CPO’s believe the quality of data is a major barrier, and the lack of data integration was the number two barrier (42%).

Why is data integrity such a barrier?  The primary reason:  the lack of a data governance standard business process. One of the biggest challenges faced by major companies who are seeking to build real-time integrated supply chains is to keep the data synchronized across the data execution systems. This is especially important across transactional data, to ensure that the entire system is aligned in terms of using the same “source of truth”.  This only occurs when there is a strong governance structure across the end to end supply chain.  There is no point in having lead-time data if it is not coming together very well and misleading in terms of the conclusions people will make based on this information.  Poor data integrity will undermine the viability of the entire system.  The top supply chain executives I meet with note that this is the biggest challenge they face today.  And data governance is challenging, because it is a “people problem”, not a data or technology problem.  Bad data has a source and a root cause- and it is almost always due to human errors in inputting information into a system.  It is easy for people to fall back into their old behaviors, once a data synchronization standard is put into place.   The fact is that the data integrity flows are part of our life. You never can get to 100% correct data;  rather, the challenge for analytics is to figure out these flows and mend the integrity issues so they are synchronized and people can trust the execution of the systems, and not have to question the integrity of the data underlying them.

It is important to not only have lead-time data, but the RIGHT data lead-time data, and the correct execution related data. Once collected, data also has to be filtered in analytical approaches to eliminate noise and prioritize what data is looked at, to render it truly exception-based. With current trends around data capture, the amount of data we are exposed to is exponential. Most of the data says the supply chain is fine, so there is no need to look at this information.   Instead, people need to focus on the things that are delayed, and have to extract information from data on what needs to be done to fix the problem.   Filtering and prioritizing – allows people to focus on the decisions that can be made faster and impacted by performance.

On the downside, incorrect data can have massive repercussions.  Think of the price of a single component, and if it is off by only 10 cents.  That can escalate based on the millions of parts that are in the product line and bills of material for that company, and lead to incorrect pricing and cost reporting in the customer base.  It can lead to massive discrepancies.  The same goes for lead-time data, which can impact working capital and free cash flow.  Bad data is an easy excuse when people complain about their systems.  It’s about time managers start doing something about it.

 

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I recently interviewed a large semiconductor company that developed a cross-enterprise initiative to drive analytical learning across its entire supply chain. The company established a supply chain IT organization that reports up to the CIO. It focuses on leveraging the corporate infrastructure and its SAP and SAP Hana implementation, in order to span all activities from order to cash and from demand planning to customer delivery and return. There are systems directors in both the procurement and logistics/planning teams. There are two IT support teams: one creates business process informatics centrally, and the other delivers locally required capabilities. The linkages between the enterprise and local teams are very tight, to ensure that functionally unique applications are inventoried centrally so all parties can leverage these tools. Recognizing the importance of having the right mix of data scientists and SMEs, the company has established a supply chain information and analytics organization composed of data scientists, operations research, and statistics PhDs to work on problems they are directed to from the business.

An important governance mechanism that drives analytical process is the Supply Chain Director’s Council, whose mandate is to focus on the availability and ability of the supply chain to deliver parts and core finished goods to customers. All of these groups (supply chain IT, systems, supply chain analytics, planning and logistics analytics) participate in the Supply Chain Director’s Council. Because of the long lead-times associated with the manufacturing infrastructure required to source and produce semiconductors, the Director’s Council espouses a long-term vision and tactical planning scenario. They work with the Supply Network Steering Committee (senior executives in supply chain and IT) who set the direction for the company’s supply chain capability. This includes setting direction for how the company will use emerging technologies (e.g., 3D printing, IoT technologies, and artificial intelligence). However, the Director’s Council defines the critical needs and availability requirements for existing and mature product lines, as well as experimental and emerging growth categories. Questions addressed include, “What will be the next generation of products?” The team also leverages insights from university research centers and consulting groups, including CAPS Research, MIT, XEM, Gartner, ProcureCon, and Procurement Leaders, to ensure they are connected to emerging ideas. They are also involved in pilot programs with multiple customers exploring the application of IoT and analytics approaches, with customers such as Caterpillar, P&G, Monsanto, Amazon, and Unilever. These pilots are used to provide input into how the enterprise wants to design data collection and analysis structures; for instance, how environmental requirements impact wafer fabrication, constrained timeframes, and temperature. The supply chain analytics team is involved in a great number of simulations to address these industry-specific local questions. The team acknowledges that there is much work to do in predictive analytics, to create mature systems for on-going operations, and to be able to collect insights from third parties.

As an example, the company is beginning to triangulate analytical approaches with external data to drive improved planning. Demand planning is influenced by GDP growth factors, how this affects the movement in semiconductors, customer refresh cycles, current order status, and seasonal variations. It also considers leading indicators that provide clues as to what customers are planning to ship, interesting correlations that have been developed, and hypotheses and their implications for internal capital investment and capacity planning. This is broken down into more minute analyses of what could happen with a smaller range of capital, and what could be delivered with different product health indicators including yield or other operational metrics. All of these pieces get meshed together and reviewed by a pricing team and corporate economists who understand the macro trends and impact of pricing changes on the market. There is a fine line between investing too little in capacity that would leave money on the table, and investing too much in capacity that would incur a waste of investment dollars. The company always tries to err on the side of supporting customers at the highest level.

The data analysis today is intense, involving a huge amount of data crunched for review. According to the team, “One of the biggest limiters for us is the ability to ask the right questions!” The team relies on the aggregated insights of practitioners and analysts in solving problems. Practitioners bring the operational reality of construction programs to light so the environment can be modeled correctly, while analysts provide skills like Monte Carlo simulation that can model the range of variability and the level of risk each scenario implies. The outcome of these simulations is used to plan supplier capacity and supply network design, with mix and model monitoring information passed on. The company recognizes that both mobile and cloud computing are new vectors that must be planned for, and the new technology group considers these developments in its long-range strategic plan. Leaders believe that two of the biggest changes for supply chain will be in robotic automation and the application of artificial intelligence and how we improve the learning of the workforce to leverage the tools and available data to parse and leverage talent in new ways.

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One of the most important elements suppliers seek to avoid involves participation in an RFP when there is a low probability of success.  Procurement people think that every supplier will go after every RFP they put out.  Think again . Request for proposals require a business development team to expend resources.  An RFP can be just to gather ideas and do nothing. And so suppliers may often push back to do  a customer assessment upfront, and test whether the organization is all-in or not.

Generally, there are several “red flags” that will lead a supplier to explicitly decide NOT to respond to an RFP:

  • Is it the right relationship with the client?
  • What is our market position and strength of our portfolio relative to the other competitors? If this is an area that is not our strength, then don’t pursue it.
  • What is our ability to deliver and execute over the life of the contract with this customer in the past?
  • Is the customer very price-sensitive to the exclusion of other forms of value? (“We will not be the lowest cost supplier.”)
  • Do we want to bid and put some hurt on our competitors? (This is generally not a good reason to compete in the RFP, as it is not good for the client)
  • Does the client have data that can be compiled through interviews and templates? If there is low access to data, we can’t build a case. However, we may not want to work to collect data to present to the client, which they in turn present to their incumbent!
  • Are we just a third supplier added to the bid list? Are they really committed to a change in the incumbent? Or are they just shopping for bids, which they will turn over to procurement to put pressure on the incumbent for a price reduction?
  • Is the customer just looking for a “directional quote” (sometimes positioned as a “hypothetical”)? This can lead to confusion, particularly if the scope of work has not been effectively articulated.
  • The RFP is sent out with a short time period (less then two weeks), and there is no way to mobilize a well-developed proposal in that period of time. The minimum time required for a typical logistics outsourcing proposal is generally 6-8 weeks.

In all of these cases, suppliers must pick and choose RFP’s that make sense for their limited business development teams to pursue. These teams are often constrained by design, so as to not have to pursue every RFP, and achieve a lower win rate. Many business development groups are expected to complete about 12 major deals in a year, with a 50% win rate yielding 6 major deals. But if the win rate goes up to 9 deals to yield 6 wins, the resources can be better focused and allocated efficiently. That means that the team can be unconstrained, so long as the right resources are dedicated to the right opportunities.

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