July 21st, 2015 2:58 pm Category: Global Supply Chain, Network Design, Operations Research, Optimization, Optimization Software, Profit Network, Publications, Supply Chain Agility, Supply Chain Optimization, Supply Chain Planning, Warehouse Optimization, by: Ted Schaefer
Profit Point’s recent article in Industry Today, “The Future of Supply Chain Network Design,” describes how to fully leverage the new advances in a traditional supply chain optimization process to include not only your internal supply chain, but the supply chains of your competitors, as well.
Supply chain network design optimization tools have become well integrated into modern business decision-making processes at leading edge companies. The tools are used to rigorously analyze and make the best decisions in response to both short-term events such as weather disruptions, spot sales opportunities, utility outages and to longer-term strategy issues, such as capacity expansion or mergers and acquisitions. These analytical approaches and technologies can be game changers. The newest versions of SCND tools have been expanded: businesses can now analyze not just their own operations, but also the sum of multiple supply chains in the competitive marketplace, creating a new way to integrate competitive risk into the design of your supply chain.
Please contact us if you’d like to learn more about new ways to leverage traditional ideas.
A few weeks ago, Steve Westphal with Edge Network posted a piece on our blog about the benefits of SKU Optimization. This past week, Packaging Digest posted the results of a survey of the beverage industry that suggests new packaging may be one of the key drivers for profitability this year. The survey also illustrates how new packaging can cause the proliferation of SKU’s. One more reason why industry leaders maintain an ongoing SKU Optimization process within their supply chain.
If you’d like to to know more about SKU Optimization and how it can impact your bottom line, please contact us.
July 17th, 2014 5:04 pm Category: Global Supply Chain, Green Network, Network Design, Optimization Software, Supply Chain Agility, Supply Chain Improvement, Supply Chain Optimization, Sustainability, Transportation, by: Gene Ramsay
Many of our activities at Profit Point are focused on helping clients in identifying and implementing changes that improve the efficiency of existing supply chain networks, ranging from planning to operations and scheduling. In the short term we are usually trying to find ways to use existing capabilities more effectively, but as you look out over longer time horizons supply chains evolve to develop new links, and these must be considered as you plan.
One instance of this evolution was described by my colleague, John Hughes, who recently wrote about the rise of a “New Silk Road”– a rail network stretching through Western China, Kazakhstan, Russia and Belarus to Europe – used for transporting manufactured goods from Asia to meet demand in Europe.
But Asia has a complementary demand that must be met for their manufacturing systems to function, the demand for energy to power their factories and cities. The growing worldwide demand for energy, and for faster routes to market, is opening up another new link in the global trade routes – the Northern Sea Route, a maritime route connecting Pacific ports with Europe via the Arctic.
Lawson Brigham, professor of geography and Arctic policy at the University of Alaska Fairbanks, was recently quoted on the arcticgas.gov website as saying “What’s really driving the Northern Sea Route is global commodity prices and natural resource development, particularly in Russia.”
The northern reaches of the earth are currently hotbeds of energy development, and much of the activity is focused on adding Liquefied Natural Gas (LNG) production capacity. Projects are on-line or in progress stretching from the North Slope in Alaska to the Yamal Peninsula in Siberia to Hammerfest in Norway. The Northern Sea Route offers quicker shipments of many of these supplies to major Asian ports, shaving ten to twenty days off one-way transit times from Russia and Norway to ports in Korea and China, compared to routes through the Suez Canal.
Climate change has made these routes generally ice-free for several months of each year, and thus more cost effective, but ice-strengthened cargo ships, with icebreaker support, are still required to keep the route open in the colder months, thus driving up the costs.
Supply chain planning activities on a global scale will over time need to expand to consider the potential impact of these types of shipping options. Keep an eye out for this and other new links in the global chain as they become available – change is inevitable.
For a more information on this route see articles like these:
A couple of years ago, there was a book written by Thomas L. Friedman called “The World is Flat” which made the case that businesses and organizations are becoming more and more integrated across physical locations and national boundaries. His point was that in the future, the various different functions and processes of any enterprise will increasingly be done in different parts of the world by the most efficient and effective individuals regardless of where they happen to be or who their employer is. It will no longer be necessary to have all of the people working on a project to be co-located; they can be practically anywhere in the world and actually be members of multiple different departments or totally separate organizations.
Although Friedman did recognize the impact of companies’ supply chains becoming ever more efficient and expansive in this process (‘Supply Chaining” was one of his 10 basic forces), he focused mainly on the ramifications of the increased power and availability of the internet as the driving force behind this increasing integration. For sure, it’s true that over time the ubiquitous nature of the web will continue to profoundly shaped the way people in different parts of the world share information, and as a result increases each others’ creativity and productivity. But the impact of developments in supply chain management will are also have a huge impact on the way people in different parts of the world think of each other, interact and inter-relate.
This was reinforced to me by the recent news that workers at the Volkswagen plant in Chattanooga recently voted against allowing the UAW union to represent them. This is the latest evidence that relatively un-skilled production workers in the US are finding themselves in direct competition with workers in India, China, Korea, and Europe. The workers at Volkswagen realized that they had to send a message world-wide to prospective employers that Tennessee was a “business-friendly” location. If somehow they were viewed negatively, then companies because of their super-efficient supply chains will seek out lower wage locations for their production.
When Volkswagen opened their Chattanooga plant in 2011, the starting wage for assembly-line workers was $14.50 per hour. This is roughly half of what traditional, unionized personnel at GM and Ford make. With benefits, this salary comes to about $27 per hour. The ‘funny-sad’ thing is that Volkswagen personnel in Germany make roughly $67 per hour. So in effect Volkswagen exported those German jobs from their high-wage home country to the low-wage United States. It’s a similar story when General Electric started up a new line at their Louisville Ky. Factory in 2012. There, the starting rate for line workers was $13.50 which comes out to less than $30,000 per year.
Essentially, low or un-skilled manufacturing workers in the U.S. are in a race to the bottom (though what the bottom looks like is a function of the industry). The only way for these workers in improve their living standard is through increased training, education and flexibility. I’m not saying that everybody should go to college… not at all. After all, I’m college educated and nobody in their right mind would want as an industrial welder. It would be a scary thing to see me with a blow torch. And my wife has already prohibited me from going near the electrical system in our house. But learning specific skills and trades such as CNC Machine Programmer, skilled mechanic, CAD technician, electrician etc. will distinguish non-college educated workers from their competition. These are the skills that are valuable to employers and are in short supply, and will allow the U.S. blue-collar labor force to insure that they are not competing with other low-skilled workers in far off places in the world.
March 4th, 2013 4:19 pm Category: Global Supply Chain, Operations Research, Optimization Software, Scheduling, Supply Chain Agility, Supply Chain Improvement, Supply Chain Software, by: Danielle Cohen Jarvie
In a recent sailing trip to Croatia, we lost our sailboat. Sounds outrageous, but it really wasn’t difficult at all. It was early evening when we anchored in the harbor and took our dinghy to shore for dinner. A few hours later, seeing the wind pick up, we returned to the spot where we thought we had left the boat and it had vanished. It was dark, very dark. Looking for the boat on the dark ocean at night was like looking for a needle in a haystack. After hours of searching, we finally found the boat headed out to sea, we had not let out sufficient line for the anchor. The harbor was surrounded by rocky cliffs, and we had no idea what course the boat had taken, and if it had incurred any damage in its renegade voyage. We shook a mechanic out of bed to evaluate if any damage had been done. After it was all said and done, we were very lucky, the boat was fine.
I can’t help but liken this to a manufacturing supply chain, without a business process to chart the way, without software helping to navigate and support the process and without people in place trained to captain the process, the business, like an unanchored sailboat, drifts into sometimes dangerous territory. Yet, this scenario is not atypical for many companies.
How do you know if the anchor is set on your supply chain? Here are some attributes:
- A clear and documented business process that serves as the guide to how you operate under normal conditions as well as defines flows for unexpected changes and events. As conditions change, the process should be reevaluated and assessed in an ongoing fashion.
- Software that supports the business process and enables users to react quickly to unexpected events making your business adaptable and flexible. Software should be tailored to your business needs, one that is one size fits all does not necessarily work for all products and customers.
- Trained people who are living the business process and using the software giving your business a competitive edge. Additionally, attention to detail and data driving the software is crucial and can have a big impact on the business.
To learn more about Profit Point’s Global Supply Chain services, please contact us.
Watch your thoughts, for they become words. Watch your words, for they become actions. Watch your actions, for they become habits. Watch your habits, for they become your character. And watch your character, for it becomes your destiny. What we think, we become. “My father always said that”. Margaret Thatcher
The year 2012 is behind us. If you are like me, you may not have accomplished all the goals that you had in mind at the beginning of the year. No worries, the year 2013 is before us.
Here are Seven Rights of Fulfillment taken from the CSCMP website, which I believe are relevant for our industry, but also can be adopted as a framework for your goals for this year:
1. The right product
2. To the right customer
3. At the right time
4. At the right place
5. In the right condition
6. In the right quantity
7. At the right cost
The ability to meet customer requirements is built upon the expectation that everything is done correctly in the supply chain. In the quest to provide quality service and satisfy customers, world-class companies along the supply chain are guided by these Seven Rights of Fulfillment.
Goal setting involves establishing specific, measurable, achievable, realistic and time-targeted goals. Take a moment right now and think of one goal that you want to accomplish in 2013. Done? You just primed your subconscious.
June 22nd, 2012 3:46 pm Category: Distribution, Enterprise Resource Planning, Global Supply Chain, Green Network, Green Optimization, Network Design, Optimization, Supply Chain Agility, Supply Chain Improvement, Supply Chain Planning, Transportation, Vehicle Routing, by: Editor
Supply Chain optimization is a topic of increasing interest today, whether the main intention is to maximize the efficiency of one’s global supply chain system or to pro-actively make it greener. There are many changes that can be made to improve the performance of a supply chain, ranging from where materials are purchased, the types of materials purchased, how those materials get to you, how your products are distributed, and many more. An additional question on the mind of some decision makers is: Can I minimize my environmental footprint and improve my profits at the same time?
Many changes you make to your supply chain could either intentionally – or unintentionally – make it greener, so effectively reducing the carbon footprint of the product or material at the point that it arrives at your receiving bay. Under the right circumstances, if the reduced carbon footprint results from a conscious decision you make and involves a change from ‘the way things were’, then there might be an opportunity to capture some financial value from that decision in the form of Greenhouse Gas (GHG) emission credits, even when these emission reductions occur at a facility other than yours (Scope 3 emissions under the Greenhouse Gas Protocol).
As an example, let’s consider the possible implications of changes in the transportation component of the footprint and decisions that might allow for the creation of additional value in the form of GHG emission credits. In simple terms, credits might be earned if overall fuel usage is reduced by making changes to the trucks or their operation, such as the type of lubricant, wheel width, idling elimination (where it is not mandated), minimizing empty trips, switching from trucks to rail or water transport, using only trucks with pre-defined retrofit packages, using only hybrid trucks for local transportation and insisting on ocean going vessels having certain fuel economy improvement strategies installed. These are just some of the ways fuel can be saved. If, as a result of your decisions or choices made, the total amount of fuel and emissions is reduced, then valuable emission credits could be earned. It is worth noting that capturing those credits is dependent on following mandated requirements and gaining approval for the project.)
If your corporate environmental strategy requires that you retain ownership of these reductions, then you keep the credits created and the value of those credits should be placed on the balance sheet as a Capital Asset. Alternatively, if you are able, the credits can be sold on the open market and the cash realized and placed on the balance sheet. Either way, shareholders will not only get the ‘feel good’ benefit of the environmental improvement, but also the financial benefit from improvement to the balance sheet. If preferred, the credits can be sold to directly offset the purchase price of the material involved, effectively reducing that price and so increasing the margin on the sales price of the end-product and again improving the bottom line. If capital investment is required as part of the supply chain optimization, the credit value can also be a way to shorten the payback period and improve the ROI, or to allow an optimization to occur
So, when you consider improving your environmental impact or optimizing your supply chain, consider the possibility that there might be additional value to unlock if you include both environmental and traditional business variables in your supply chain improvement efforts.
Written by: Peter Chant, President, The FReMCo Corporation Inc.
At the risk of sounding like a supply chain nerd, here at Profit Point, I get a similar sense of exhilaration in enabling our clients to increase the velocity in their supply chains by implementing decision support tools that enable faster and better decisions.
These decision support tools enable faster and better decisions in at least the following 3 ways:
1. Faster visibility to the data – By having a software tool that holds all the data needed to make a particular decision with automated interfaces to source systems, our users don’t have to spend countless hours combing through multiple spreadsheets and other software systems to get the data they need. We bring all the data needed together in one place for the user to be able to make effective decisions.
2. Faster understanding of the data – Supply chain decision support tools have huge amounts of data coming in and going out of them. Making sense of it all can be challenging. Typically what we do is build tools that allow the user to sort through all this data by:
a. Having graphical user interfaces that make it easier to understand what is going on. After all a picture is worth a thousand numbers any day of the week.
b. Show only the exceptions or problems that need to be resolved to help the user focus on what needs to be changed.
3. Faster processing of the data – Oftentimes we will automate tasks that are menial and time consuming or if the task is very complex it may be appropriate to employ an optimization or heuristic solution approach to speed getting to a feasible or better solution. We like to call these “Power Assist” tools that greatly ease the burden on the user while still giving them ultimate control over the decisions that are made.
Do you feel the need for more speed in your supply chain? Give us a call so we can discuss how we can help to get you moving faster.
Applying Lean Logistics Principles in Combination with Tactical Software to Improve Distribution Transportation Planning
May 23rd, 2012 3:56 pm Category: Distribution, Green Network, Profit Vehicle Planner, Profit Vehicle Router, Supply Chain Agility, Supply Chain Improvement, Supply Chain Planning, Supply Chain Software, Transportation, Vehicle Routing, by: Richard Guy
As the competitive environment changes the way companies do business, transportation managers are embracing lean principles mixed with tactical planning software to support cost reductions and quality improvements. Applying lean initiatives to supply chain and logistics operations is one method that allows businesses to reduce cost, but the marriage of tactical planning software with lean principles introduces a new approach and additional opportunity to eliminate waste.
Lean is a team-based form of continuous improvement that focuses on identifying and eliminating waste and increase of speed and flow of an operation, such as distribution of products. Waste can be defined as activities that do not add value for the customer.
A short waste target list for a distribution transportation planner may include the following:
- Underutilizing employees or behavioral waste
For example, managing a large delivery fleet with a relatively fixed, repeating delivery pattern will benefit from an optimal territory planning and routing solution. Since lean adds emphasis on waste, non-value added work, queue times, to traditional process analysis, improving the distribution and routing plan for a company’s fleet can eliminate waste in all of the above categories.
Selecting strategic territory planning software that will optimally divide a customer region into geographical “territories” based on customer delivery requirements can be an important first step in the lean process. Think of each territory is a contiguous area containing the customers that will form a single route, or a regular pattern of routes, over a day, week, month or other time period. Lean solutions can include optimal delivery territories shaped to minimize total travel and to equalize the delivery workload for drivers.
Most software packages utilize geographical mapping software such as MapPoint or Google Maps to generate a solution that will minimizes total travel miles while meeting customer service and delivery requirements. Some of these tools can also be personalized and customized to meet specific business requirements. Planning tools that create both territories and routes in a single integrated package appear to be the most popular.
Before implementing the territory planning software solution, let’s compare the results to the target list of waste. Transportation waste is minimized. Drivers (“employees”) become more productive since they now have a delivery territory designed to adhere to the driver profile, which may specify shift time and driving break intervals. Routes are optimized, so there is no more wasted motion time. Routes can be built to ensure sufficient inventory is available at all stops. Natural boundaries such as rivers, mountains, canyons and man-made boundaries such as rail tracks, major highways, canals can be model to create optimal delivery territories that are bounded by these constraints, thereby eliminating driver waiting to go around these obstacles.
In summary, managers that use transportation routing and territory planning software are following the lean principles to identify and reduce waste. Implementing the solution can potentially reduce transportation costs by 5% to 20% by decreasing miles traveled and increasing on-time delivery while dramatically increasing driver productivity. Lean principles when married to tactical planning software can be competitive weapons and a great advantage in tough economic times. Start considering lean logistics principles in conjunction with territory planning software applied to distribution transportation problems as opportunities to reduce waste.
IDK (“I Don’t Know”)
After listening to a Freakonomics Radio podcast on NPR, the following question and blog comments emerged:
Why do people feel compelled to answer questions that they do not know the answer to?
What I’ve found in business is that we are all prone to hiding our ignorance when asked a question that we cannot answer. So even if someone absolutely has no idea what the answer is, if it’s within his or her realm of expertise, “faking” seems to be an essential part of the response.
My professor friend told me that she has learned the following from teaching MBA students: “One of the most important things you learn as an MBA student is how to pretend you know the answer to any question even though you have absolutely no idea what you’re talking about. It’s really one of the most destructive factors in business. Everyone masquerades like they know the answer and no one will ever admit they don’t know the answer, which makes it almost impossible to discover the correct answer”.
I ask: Does every question need to be answered?
Everyone expects answers to every question, especially if the question comes from someone higher up in an organization. However, not every unknown question is worth the time and resources to research. If it comes down to the choice of making-up an answer or being saddled with a research project, many people will prefer to make-up an answer. Perhaps in some situations, combined with the ego/self-image issues, every question will be answered, regardless of the person’s knowledge.
I ask: Should IDK be a legitimate response?
Perhaps, if the question has minimal economic impact on the business, and you know something related to the question, then maybe a guesstimate (an estimate made without using adequate or complete information) is fine.
But then, for significant economic impact questions …maybe it’s better to say “IDK the answer to that question, but we are studying it”, and then do the study!
As an example, management asks: Will our delivered cost per SKU increase or decrease if we add more distribution centers to meet expected growth rates and satisfy customer service levels?
The first reaction guesstimate might be “yes they will increase”, although, this might not be true.
The smart analyst will say: “Hmmm, IDK! Give me a few hours (days) to do a quick analysis, and see what the true impact will be.”
A small spreadsheet study looking at the increase in production and distribution levels combined with the increase fixed and variable costs associated with adding a few new distribution centers may be surprising. It may indicate that the increase volume and revenues and lower transportation costs will offset the increased DC costs.
This small study may also be the first in a stage gate approach to perform a forward looking comprehensive supply chain infrastructure study. A detailed strategic infrastructure study can capture the manufacturing and distribution details, including costs and constraints, generating results that will allow management to make a reliable strategic economic decision.
No field is exempt from their know-it-alls, even when the correct answer really is IDK.
I submit, if you are in an uncertain position, try the IDK approach and then offer the following response “I can check into that and find an answer for you”. You may be surprised to learn that your credibility with management will improve.
“Every act of conscious learning requires the willingness to suffer an injury to one’s self-esteem. That is why young children, before they are aware of their own self-importance, learn so easily.”
November 21st, 2011 12:20 pm Category: Global Supply Chain, Network Design, Optimization, Risk Management, Scheduling, Supply Chain Agility, Supply Chain Improvement, Supply Chain Planning, Sustainability, by: Jim Piermarini
Change is hard.
In the businesses that I help, change comes for several reasons. It may be thrust upon the business from the outside, a change in the competitive landscape for instance, or a new regulation. It may come from some innovative source within the company, looking for cost savings to increase profitability of productivity, or a new process or product with increased productivity. Change can come from the top down, or from the bottom up. Change can come in a directed way, as part of a larger program, or organically as part of a larger cultural shift. Change can come that makes your work easier, or harder, and may even eliminate a portion (or all) of the job that you were doing. Change can come to increase the bottom line or the top line. But primarily change comes to continue the adaptation of the company to the business environment. Change is the response to the Darwinian selector for businesses. Adapt or decline. Change is necessary. It is clear to me from my experience that businesses need to change to stay relevant.
This may seem trite or trivial, but accepting that change is not only inevitable, but that it is good, is the shift in attitude that separates the best companies (and best employees) from the others.
So, you say, I see the need to change, it is not the change itself that is so difficult, but rather the way that it is inflicted upon us that makes it hard. So, why does it have to be so hard? Good question.
Effective managers know that change is necessary but hard. They are wary of making changes, and rightly so. Most change projects fail. People generally just don’t like it. Netflix is a great example. Recently, Netflix separated their streaming movie service from their DVD rental business. After what I am sure must have been careful planning, they announced the change, and formed Quikster, the DVD rental site, and the response from the customer base was awful. As you likely know, Netflix, faced with the terrible reception from their customer base and stockholders, reversed their decision to separate streaming from DVDs. What was likely planned as a very important change, failed dead. Dead, dead, dead. Change can be risky too.
If change is necessary, but hard and risky… how can you tame this unruly beast?
The secret of change is that it relies on three things: People, Process, and Technology. I name them in the order in which they are important.
People are the most important agents relative to change, since they are the one who decide on the success or failure of the change. People decided that the Netflix change was dead. People decide all the time about whether to adopt change. And people can be capricious and fickle. People are sensitive to the delivery of the change. They peer into the future to try to understand the affect it will have on them, and if they do not like what they see… It is the real people in the organization who have to live with the change, who have to make it work, and learn the new, and unlearn the old. It is likely the very same people who have proudly constructed the current situation that will have to let go of their ‘old’ way of doing things to adopt to the new. Barriers to change exist in many directions in the minds of people. I know this to be true… in making change happen, if you are not sensitive to the people who you are asking to change, and address their fears and concerns, the change will never be accepted. If you do not give them a clear sense of the future state and where they will be in it, and why it is a better place, they will resist the change and have a very high likely hood of stopping the change, either openly, or more likely passively and quietly, and you may never know why the fabulously planned for change project failed.
Process is the next aspect of a change project that matters. A better business process is what drives costs down. Avoiding duplication of efforts, and removing extra steps. Looking at alternatives in a ‘what-if’ manner, in order to make better decisions, these are what make businesses smarter, faster, better. A better business process is like getting a better recipe for the kitchen. Yet, no matter how good a recipe; it still relies on the chef to execute it and the ovens to perform properly. Every business is looking for better business processes, just as every Chef is looking for new recipes. But putting an expert soufflé recipe, where the soufflé riser higher, in the hands of an inexperienced Chef does not always yield a better soufflé. People really do matter more than the process.
Technology is the last aspect of the three that effect change. Better technology enables better processes. A better oven does not make a Chef better. The Chef gets better when they learn to use the new oven in better ways, when they change the way they make the soufflé, since the oven can do it. A better oven does not do it by itself. An oven is just an oven. In the same way, better technology is still just technology. It by itself changes nothing. New processes can be built that use it, and people can be encouraged to use it in the new process. Technology changes are the least difficult to implement, and it is likely due to this fact that they are often fixed upon as the simple answer to what are complex business problems requiring a comprehensive approach to changing the business via it people, process, and technology.
Change is necessary, but hard and risky. Without change businesses will miss opportunities to adapt to the unforgiving business world, and decline. However, change can be tamed if the attitude towards it is changed to be considered a good thing, and is addressed with a focus on people, process and technology, in that order. Done right, you can implement the change that will increase the bottom line and avoid a collapse of your soufflé.
November 10th, 2011 6:46 pm Category: Enterprise Resource Planning, Global Supply Chain, Network Design, Operations Research, Optimization, Optimization Software, SAP Integration, Supply Chain Agility, Supply Chain Improvement, Supply Chain Planning, Sustainability, by: Richard Guy
The rise of zombies in pop culture has given credence to the idea that a zombie apocalypse could happen. In a CFO zombie scenario, CFO’s would take over entire companies, roaming the halls eating anything living that got in their way. They would target the brains of supply chain managers and operations people. The proliferation of this idea has led many business people to wonder “How do I avoid a CFO zombie apocalypse?”
Supply chain managers are seeking and developing new and improved ways to exploit the volumes of data available from their ERP systems. They are choosing advanced analytics technologies to understand and design efficient sustainable supply chains. These advanced analytics technologies rely on the use of optimization technology. I am using the mathematical concept of “optimization” as opposed to non-mathematical process of making something better.
Mathematical optimization technology is at the heart of more than a few supply chain software applications. These applications “optimize” some process or decision. Optimization-base programs, for example, those frequently found in strategic supply chain network planning, factory scheduling, sales and operations planning and transportation logistics use well-known mathematical techniques such as linear programming to scientifically determine the “best” result. That “best solution” is usually defined as minimizing or maximizing a single, specific variable, such as cost or profit. However, in many cases the best solution must account for a number of variables or constraints. Advanced analytics technologies can improve a company’s bottom line – and it can improve revenue, too! CFO’s like this.
Advanced analytics technologies provide easy-to-use, optimization-based decision support solutions to solve complex supply chain and production problems. And, these solutions can help companies quickly determine how to most effectively use limited resources and exploit opportunities.
So, from my perspective, there are seven practical reasons to embrace advanced analytics technologies:
- Your company saves money, increases profits.
- You get to use all your ERP system’s data.
- It’s straightforward and uncomplicated.
- You have the tools to discover great ideas and make better decisions.
- At the end of the day, you know the total cost of those decisions.
- You have a roadmap to make changes.
- You avoid the CFO zombie apocalypse
“With every passing year, the amount and variety of information available to make business decisions continues its exponential growth. As a result, business leaders have an opportunity to exploit the possibilities inherent in this rich, but complex, stream of information. Alternatively, they can continue with the status quo, using only their good business sense and intuition and thereby risk being left in the dust by competitors. Top-tier companies have learned to harness the available data with powerful decision support tools to make fast, robust trade-offs across many competing priorities and business constraints.”
Read the complete article here: Face Complexity – Making Sound Business Decisions
Okay. I am an anomaly. I live in Utah and drink coffee. The majority of the people that live in Utah do not drink coffee, and that is OK, but I do. So, is there a shortage of coffee Cafés in Utah? No. There are many cafés and several that serve outstanding coffee.
We have an exceptional espresso café downtown, located on a side street off of Main. They roast their own coffee and use triple certified organic grown beans. It is the type of place the local coffee lovers go to hang out and have good conversation over a morning or afternoon latté or espresso. Possibly the best coffee I have ever had. What is interesting to me is that a large percentage of the residents in my area do not even know that this café exists.
So what is my point? When it comes to outstanding services or products most people are unaware of what is available, primarily because it does not fit into their lifestyle or what they’re accustomed to. I believe you can transfer this similarity to the business world. Manufacturing logistics and transportation people become accustomed to doing things a certain way. Over time they may become blind to ideas for improving the supply chain. They are unaware of an exceptional Supply Chain Café, even when it is located just seconds from a combination of keystrokes and Google.
It is not their fault they are missing the best latté available. We, as consultants, who prepare those delightful solutions from the Supply Chain Café menu, have probably not done the finest job of promoting our services and software to your neighborhood, but that is changing.
There are many empty cups in the supply chain, waiting to be filled with successful solutions. Supply Chain and Logistic managers tackle difficult supply chain problems every day, but they are so focused on getting their job done and making it through the day that they have little time to think of alternatives that may improve their processes and well being. I am not sure how we can help everyone, so let’s focus on the window shoppers. These are the ones that are aware of the café, but have never been inside. Maybe you are one?
If you are reading this blog, then you must be a window shopper. I am guessing you are looking for a better espresso. OK, you found “Profit Point”, although you may not know what we do. Guess what? Help is on its way. We can share our menu with you. We just published four videos that will introduce you to the Profit Point team and what we do. Embrace three minutes out of your day, select one of the videos, and watch it. Learn how we help companies improve their supply chain, by serving the best coffee with a smile.
Yes, you can improve your supply chain with our help. The supply chain solution that you are looking for, is about to be yours. And if you place an order, we can fill your cup to the top, with the “good triple certified” stuff. If you cannot seem to find that special item on our Supply Chain menu, then no fear, we love special orders.
So, is there a shortage of Supply Chain Cafés? No. You just need to find the one that serves the optimal latté. I know it’s out there somewhere.
There is a better way to qualify consultants and software vendors and award business, rather than using the RFP process.
Request For Proposal’s (“RFP’s”) are used by many organizations to gather information and details about services and prices from various consultants and software vendors. These organizations believe that this is an efficient (for the RFP issuer, at least) method and process to acquire the best possible services at the lowest price. This is not true.
And what about government organizations that are often required by law to go through the RFP process? They do so with the belief that the RFP effort will improve accountability and reduce favoritism, corruption, and nepotism. Does it? I am about to share with you some ideas and thoughts from a consultant’s viewpoint. It is my belief that organizations can do better without the RFP process and even government agencies or businesses that do not have the flexibility, can take some steps that will enhance an out-dated process.
RFP’s do not create a healthy relationship
Initially, a majority of the effort involved with RFPs is creating an RFP instrument. The instrument is pushed from the issuer to the respondent, typically in a word document that is sent electronically with a deadline to respond. It is a one-way distribution channel. From my experience, the RFP document does not capture all the thoughts of the business. Some RFPs are rewritten and tweaked so many times, that sometimes it is actually difficult to uncover the true “needs” message from the final document.
There are also applications and services available that allows an organization to post an RFP on a website and ask for respondents to use this medium for their response. This may make sense if you are buying commoditized widgets, but not consulting services or special-use software. This may seem efficient in the organization’s viewpoint, but it is inherently one-sided. Many of these instruments set up communication rules that are rigid and sterile with the thought that they are being fair to all the vendors. What they ignore is the working relationship, which often has a major impact on the success of a consulting engagement.
Healthy, productive relationships start with healthy communications. It has been my experience that organizations that take the time to engage in a conversation with a potential vendor to explore a possible relationship have a far better chance of developing a healthy and productive business relationship and get services and/or software at a much better price.
What comes out of this relationship are conference sessions that generate ideas, thoughts, and brain storming that focus on developing a methodology or application design that is on target and meets the needs of the organization. Projects that promote an open and dynamic communication style from the beginning will be more likely to succeed. This communication process is powerful and creates a solid foundation for an ongoing business relationship. Allocate more time to engage and verbally communicate with the potential consultant and you will truly understand whether they can add value to your organization.
RFPs attempt to get something for nothing
Or at least something for real cheap. As someone once said: There ain’t no such thing as a free lunch. It is a law of economics. If you are searching for a business solution with a goal of the best possible outcome for you and your company, then think of this. You spend a few hours or days searching the Internet for companies that offer the type of services you are looking for. You may already be doing business with or have talked to a few companies, but want to compliment that list with several others. You sent out a standard formatted e-mail requesting more information about the company and their services. 60% of those e-mails go unanswered. You ask yourself why? Because, the busy companies will not waste their time with your solicitation. Why? Because they are busy helping other companies. Why are they busy? Because, they offer a solution that is in demand. A solution or service that is based on performance and price.
RFPs limit your options to those that are on your short list. RFPs limit your visibility to those solution providers that actually have the time and inclination (at that very moment) to respond. RFPs limit your responses to those that do not avoid RFPs, as is the case with many successful firms. The 40% of the e-mails that are answered are from companies that are sitting on the bench because no one is using their services. Hmmmm, I wonder why? Intelligent and professional organizations will not give you something for nothing. I am sure, they would be pleased to engage in a conversation with you or your team if there is a real opportunity for them to help you. You can get value and information from these companies, but not with an RFP.
Qualified suppliers ignore RFPs
Many suppliers of professional services believe that the RFP process is “fixed,” as in “rigged,” and another vendor has already been chosen. This may or may not be the case, but since the perception for many vendors is no hope to win the business, the smart allocation of their valuable resources is not to respond.
Surveys have been conducted to understand why qualified suppliers ignore RFPs. These are some of the responses from these surveys:
“…the winner is often decided before the RFP even goes out.” – J. H.
“…you can assume a presumptive winner has been chosen.” – M. H.
“…often RFPs are all but awarded when they go out.” – T. M.
Effective and experienced consultants know better than to waste their time on low-probability activities, so they typically read the request in part, and then trash it. This process not only eliminates a significant number of consultants that might have been well-qualified for the project or application, but it is quite likely that it eliminates the best candidates for the project.
Consider the example of hiring a key executive or business manager. Posting a job opening and reviewing the resumes that are submitted will rarely, if ever, yield the best candidate. The best candidates are gleaned from a careful, personal vetting process.
RFPs reward the wrong things
Answer right, and win the business. Firms who are forced to respond to a lot of RFPs hire specialists who know little about the craft, but do know how to write RFP responses. In even more cases, RFPs reward “gamblers” who have the time to throw excessive man hours at responding to an RFP. These vendors are very successful in winning business through the RFP process. Someone pays for all of this work. The RFP costs are embedded in the rates the client pays. These rates are typically higher than their standard rates. You will pay the piper.
In addition, does the organization receive a solution or service that is best in class? What they receive is exactly what they asked for. They may receive all the deliverables outlined in the scope, but to add additional functionality to software, or expanded scope will cost more. RFPs make everything a commodity. By definition, extraordinary work it is not.
RFPs provide a false sense of confidence
Just because you put a lot of time, energy and money into something does not make it great. It just helps you to convince yourself that it is great. If I managed to group, whether it was IT or operations, I would question why they always recommend an RFP p
rocess. Are they afraid to step out of the box and try something different? Are they so set in their ways that they resist change? Can the RFP process be a liability to your company and actually make you pay more for services than you should? I think so.
Is there a more efficient process?
Yes. Organizations need to follow the basics. Ask questions such as:
- How much does this sorta thing cost?
- Do you have capacity?
- What is your approach?
- Are you qualified?
- What is an example of a similar problem that you have solved?
All of these questions can be answered through referrals, web site research, a couple phone calls, and emails. For example, if you are in charge of supply chain improvement at your company and do not already have a list of focused consultants that would likely be a good fit for your business, then you may be missing an opportunity to add significant value in your organization.
Personally solicit vendors who you would like to work with. Start by communicating with the sales and marketing people of vendors. You may look at them as “sales” people, but they play an important role and a good consulting firm has well-informed and experienced sales staff. They have the power and keys to provide you with valuable information about their company, their services, and their products. They also have direct links to others in the organization that will be useful to meet. Ask them to introduce you to the experts, meet the people who will be providing the consulting, the support services, etc. Ask to meet the management team. If you cannot get access to these people early on in the discovery process, then you certainly will not have access to them once a project starts. You never have access through an RFP.
There are companies and agencies that have legitimate needs and are willing to pay for services and software, but are required by law, or policy, to submit RFP. This may be a formality or a company policy, but this should not prohibit you from developing a relationship and internal process to provide you the best services or software to meet your budget. The most successful projects are a collaborative effort between the company and the vendor or consultant.
A word for those that must follow an RFP process. Since there is a general feeling in the suppler arena that RFPs are a big waste of time, is it any wonder that potential vendors do not respond? This leaves legitimate buyers for services and software in a pickle. Their reputation is soiled by those who issue bogus or pre-won RFPs. How can you prevent the hard work of your RFP from being greeted by the lonely silence of an uninterested vendor community? How do you get on the radar of capable suppliers? Sometimes just being aware of the problem gives you a solution. Knowing that vendors have this negative perception, you can take steps to remove their fears by following a few simple steps. First and foremost, make it personal, talk to potential vendors. Ask the important questions and prescreen their responses.
- Are they interested in developing a relationship with your company?
- What work have they delivered in this area?
- Are they flexible with their work process and approach to match your needs, or does their product do everything for everyone?
- What makes them different from other service or software providers?
Share your timeline. Share your concerns. Share your budget and asked if they can deliver a solution within these constraints. Be honest with the overview of your needs, and your questions and your feedback to the potential vendor. Be flexible with your process, and listen to the supplier. Most suppliers will respond in a like way, and provide you honest feedback on your RFP. There may be a faster, better, cheaper approach than you have so meticulously spelled out in the RFP.
If there does not appear to be a future relationship, then move on. It is also fair to ask vendors if they are aware of any companies that can provide you the services or software that you are looking for. You may be surprised at their answers. Most legitimate companies will recommend another company and sometimes even a competitor.
It is also helpful to let the vendor know if there is internal competition or not. This allows the vendor to assess whether this is a fishing expedition for your internal IT department to get ideas and a strategy, or if it is a real opportunity. In addition, if there is no external influence on the formulation of the RFP from another supplier, then declare that. Some RFPs are written with so much detail that it is fairly obvious that the document was prepared by third party for that party’s benefit. Do not let the vendor selection date slide. You have asked for a vendor to respond by a specific date, therefore you have a commitment to meet your decision date too. Not selecting a vendor by the selection date says much about the company. Keep the relationship professional and build trust with meeting deadlines.
Now, this does not guarantee that you will get an enthusiastic response from the most-qualified suppliers. You will, however, remove some of the chief fears that they have about you as a buyer. Anything that you can do to raise the vendors’ trust level will encourage them to respond.
There is a better way to award business and qualify consultants and software vendors, rather than using the RFP process. Engage and communicate with the consulting firm or vendor on a personal level, be honest and realistic on costs, dates, and deliverables. Build in some flexibility, and reasonableness, and follow a communicative and collaborative process. You will help your company improve, have more fun, and see some amazing results.
If you would like to learn more about our Supply Chain Optimization services, please contact us. And if you would like to receive future updates on the supply chain optimization industry, subscribe to our SCO Journal and our SCO Newsletter.
Contributed by Richard Guy, Profit Point’s Director of Sales.
Logitech is a world leader in personal peripherals, driving innovation in PC navigation, Internet communications, digital music, home-entertainment control, gaming and wireless devices. With a history of fast-growing distribution channels and a product line that is frequently being updated, Logitech’s key supply chain challenges are similar to those of many other consumer electronics heavyweights. Its product life cycles are relatively short and consumer demand can be fickle. But when Logitech gained global, mass market status with customers ranging from Walmart and Best Buy to direct online sales, its supply chain challenges were compounded.
With mounting distribution challenges, Logitech engaged Profit Point to bridge the gap between their ERP and their real world need to compete. Click the link below to access the case study:
This month’s issue of Supply & Demand Chain Executive features an informative article entitled The Future of Network Planning. The article, which was co-authored by Profit Point’s President, Dr. Alan Kosansky, and the firm’s Director of Supply Chain Services, Ted Schaefer, looks at the emerging trend towards a more “local” supply chains.
You can read the complete article here.
We’ve heard a lot about supply chain agility over the past decade. While many companies have taken steps to improve their agility, how many actually achieve their agility potential? So, in light of the current economic situation, this brings the following question to mind, “Is your company’s supply chain as agile as you thought it was?”
If today’s economic doldrums aren’t a good litmus test for your organization’s true agility, then what is?
What is Supply Chain Agility?
First off, what is supply chain agility anyway, and what does it mean to be agile? We most closely associate the term agility with some type of athletic endeavor, so let’s frame our understanding of agility from that perspective. Referencing Wikipedia, we can find the following definition: “Agility is the ability to change the body’s position efficiently, and requires the integration of isolated movement skills using a combination of balance, coordination, speed, reflexes, strength, endurance, and stamina.”
So, agility has something to do with responsiveness, presumably to respond to an internal or external stimulus.
What does agility mean in business terms, more specifically what does agility have to do with a supply chain? Again referencing Wikipedia, “In business, agility means the capability of rapidly and cost efficiently adapting to changes.”
For businesses, agility reflects the supply chain’s ability to deliver in a rapid and cost efficient manner, through the integration of physical infrastructure and processes that govern supply chain execution.
Theory is well and good, but the real question decision makers like you are concerned with is “How agile is my supply chain?” Is your business capable of making adjustments during periods of slower economic activity without sacrificing its principles – loyalty to employees, customers and stockholders – and remaining fiscally viable? Are you well-positioned to react to an uncertain, but eventual economic turnaround? And, how do manage the trade-offs associated with these uncertainties?
If you are concerned with these questions, then use what follows as your own litmus test to challenge or verify your perceived agility. If you’re not too concerned, then hopefully you’ll gain some insights on where you can focus your energies to move your organization to a more responsive and agile supply chain network.
What is a Supply Chain?
In order to apply agility to a supply chain, we need to know a little more about what we’re dealing with. For purposes of this article, a simplified description of what is needed to make a supply chain work yields the following elements:
- Physical infrastructure
- Organization and people
- Business systems
- Processes, policies and business rules
In essence, a supply chain is comprised of the physical network infrastructure and the people, processes and systems that govern it.
Most advice on supply chain agility focuses on one or many of these aspects providing enlightened visions of how to make the world better, stronger, faster. While much of this advice is well formed and well intentioned, very little addresses what to do when the purse strings are drawn. Let’s take a look at these four factors that make a supply chain tick and see what can be done to improve agility in a capital constrained environment.
Opportunities to Improve Agility
We’ve all heard the saying “there’s no such thing as a free lunch”. While, for the most part this may be true, it is also said that you have to “spend a buck to make a buck.” Agility improvements don’t come for free, but there are areas where you can get substantial returns on your investment and others that just require you to roll up your sleeves. Endeavors related to the 4 factors can vary significantly in cost but that does not imply that one should start seeking improvement in less expensive areas simply because they are less expensive. Rather, focus on areas where you expect the greatest leverage and return, or where you are currently feeling the most pain.
Physical Infrastructure (Network Design)
The physical infrastructure or network design consists of production facilities and equipment, storage and distribution facilities, etc. The agility of a supply chain’s physical infrastructure relates to the age old question, “Do you have the right assets in the right place at the right time?” Well, do you? How well does your ability to supply match your projected demand? Do you need to restructure your physical infrastructure to better align supply with demand? The name of the game here is low cost and short lead times. Unfortunately, when it comes to infrastructure, we’re usually talking big bucks. The flip side is that the money spent restructuring to improve operational and economic efficiencies has the potential to save far more than you spend.
But how do you know what to do? The best way to accomplish this is through a network design (infrastructure) study. Even a back of the envelope effort can yield target areas for improvement, rough estimates of the magnitude of potential cost reductions or savings, and the anticipated ROI for restructuring physical assets. If the time isn’t right for capital improvement, at least you know where your strengths and weaknesses lie, and you can focus on the remaining three factors accordingly.
Organization and People
How important are the people in your Supply Chain Management team to your organization? The answer is often reflected in your organizational philosophy and the mindset of the people within the organization. Does your company promote or inhibit cross-functional communication and decision making? Does your company have consistent objectives from top to bottom that ensure aligned decision making? An agile organization promotes communication through interdisciplinary teams capable of establishing operational and financial objectives good for the organization as a whole. Incentives should be designed to eliminate conflicting objectives and allow functional departments to have a common goal.
Your test for agility here is how quickly information flows to the stakeholders and fuels decisions that can be put into action. The frequency of interactions between product development, marketing, sales and operations must increase to elevate your agility index. If the right people can’t congregate to make the right decisions, how can you expect to respond in an expedient, profitable manner? While organizational alignment is not without pain, it does not have to be financially burdensome. To add another cliché, “no pain, no gain.”
Business systems include information systems, decision support systems, execution systems, etc. Here are some more questions for you to ponder: Do you know what tools your organization has in place to manage your supply chain? The end game here is decision making and execution. Business systems cover a diverse range of technology and functionality but ultimately their collective purpose is to provide capabilities to collect, store, manage, synthesize and propagate information to promote sound decision making and timely execution of core business activities.
Modern organizations have configured database applications or ERP systems at the
core of their business system network, with integrated peripheral systems designed to perform more specific, detailed tasks. In regard to supply chain management, these systems provide tools for operations and finance to plan and manage customer activity, distribution, production, and procurement. Agility is dictated by how flexibly these systems are architected. Software design and integration are key. Do your systems talk to each other? Are data exchanges dynamic and generic or are they fixed and unresponsive?
Are your planning and scheduling systems capable of rapidly responding to shifts in demand, product or process changes, and evolving business priorities? Or are system updates and new integration goals costly and drawn out? If so, you may not be reaching your agility potential.
What can you do? Start with the mindset of “continuous improvement.” Business systems should be treated as living entities that require monitoring and nurturing to stay consistent and relevant to an ever-changing business environment. Choose software carefully and put design and maintenance in the hands of those who embrace the philosophy of the Agile Manifesto.
Unfortunately, business systems can also require big dollar investments with ERP systems costing tens or hundreds of millions of dollars. Start your quest by looking for low hanging fruit. Ask yourself, Which decisions make or lose the most money? What information is needed to make sound operational or financial decisions? Is the information current and readily available? Can the information be synthesized to answer the right questions within the necessary timeframe? While many systems are expensive, spreadsheets are not and you’d be surprised at the power of a spreadsheet application embedded in the right set of business processes.
Processes, Policies and Business Rules
Here is where you can make a big impact without breaking the bank. If your situation is not conducive to infrastructure or business system reengineering, consider improving the way you make use of what you already have in place. The process, policies and business rules that govern a supply chain’s behavior are referred to here as Supply Chain Management (SCM), as opposed to supply chain management software which falls under the business systems umbrella. Here we refer to the processes which make use of said software and the set of business constraints that guide decision making.
SCM processes usually take the form of strategic and tactical planning, scheduling and execution. They address the links in the supply chain from supplier to customer (in some instances supplier’s suppliers and customer’s customers). Agility is enhanced through vertical and horizontal process integration as well as decision propagation to other parts of the organization.
Vertical integration is how well connected your business processes are from strategic planning to execution. Does your organization connect these functions? How well do stakeholders follow the plan? How realistic is the plan? To become vertically agile, the first step is to align the frequency of each planning process with the frequency the issues addressed by that process significantly change. Second, information exchange, or feedback loops, must be bi-directional and immediate.
For example, if demand is highly uncertain, an S&OP (Sales and Operations Planning) process should capture the changes and reflect the consequential changes to distribution, sourcing and production. These needs are then conveyed to transportation and production to make the necessary routing and scheduling adjustments. Conversely, real time dynamic constraints recognized by these lower level functions should be communicated back to planning to alter sourcing plans if necessary.
Vertical integration promotes a responsive system with the agility to handle uncertainty at the customer or supplier end of the supply chain, as well as points in between.
Horizontal integration ensures the integrity of the supply “chain.” Procurement, production, distribution and sales are not independent activities. The processes that govern these activities should not be treated independently either.
Horizontally integrated processes allow visibility into the “ripple effect” that decisions or actions in one “link” of the supply chain have on preceding or subsequent activities. Horizontal agility is the ability to anticipate and manage consequences before they happen. While agile SCM business systems are designed to be reactive, agile SCM processes should be proactive so that business users spend their energies avoiding unwanted situations instead of fire fighting.
Policies and business rules determine everything from customer priorities to re-order points and policies, batch sizing to procurement policies. It is these policies, when applied in the planning processes, that influence your actual customer service levels, inventory levels, production line or asset utilization, and purchase material availability. The execution and adherence to these policies directly relates to your unit costs and profitability.
This can be a good thing or a bad thing. If your processes, policies and rules stay fixed, then they will not reflect changing business conditions. To attain high levels of agility, a policy of continuous review is necessary.
Start with knowing your customers, since without them you wouldn’t be in business. Review high cost activities on a regular basis to ensure the policies driving decision making are relevant and cost effective to your customer service goals.
Business process integration and a continuous review philosophy don’t cost much to implement but they can have a huge impact on your bottom line. What they do require, however, is discipline. If economic conditions do not allow for necessary physical infrastructure or business system alterations, then a methodical, disciplined approach to execute the supply chain’s governing business processes will put you in control of your supply chain’s agility.
At Profit Point, we understand supply chains and we’re mindful of your supply chain needs. Contact us to see how we can help you reach your agility potential.
This article was written by John Muckstadt, Profit Point’s Infrastructure Planning Practice Leader.