It’s hard to believe with the advent of the intelligent supply chain, or smarter supply chain that people still stubbornly stick to manual processes. One suspects that they still pick up their daily newspapers and think Kindle is what you do to start the fireplace.
It would be easy if it boiled down to a simple question like: How valuable are your trading partners to your business strategy? But there’s more involved.
The first thing to understand is the savings. Some company leaders see this as a larger partner and high volume situation. You’ll hear, “it’s not necessary for smaller partners or low volume.”
Wrong.
It doesn’t matter whether it’s high volume or low volume or 100 big partners or 1,000 small partners. The issue here is the cost of a transaction – or the cost of manually processing of an order. It doesn’t change.
Volume Doesn’t Enter Into It
Let’s say you have 100 big partners and 1,000 transactions and the cost is $10 per transaction. Conservative, I know, but lets use it here. That’s $1 million. Now, what if you have 1,000 small partners and 100 transactions? The cost: $1 million.
Volume really doesn’t enter into it. And be wary when you see an average cost. It varies. Now imagine what happens when you have a manual entry error on a document? That cost goes up, way up. But that’s just one domino. What happens if you miss an SLA because of a typo? What happens when a manual error slows down the payment cycle?
Can’t Afford Not to Automate
Can you really afford to not automate? That’s really the one question it boils down to, especially when you’re talking about meeting customer expectations on order timeliness and accuracy. Or not missing an SLA because of a simple typo.
And cost is just one benefit here. Here are some others:
- Reduced cycle times. The increased speed and overall efficiency provided by best-practice automated workflows dramatically reduces cycle times.
- Improved quality and service levels. Key controls are strengthened. The extension of self service capabilities to all participants in transactions, including line-of-business staff and suppliers enables those involved in the process to answer many of their own questions and dramatically reduces inquiries to Finance, while providing improved service.
- End-to-end process visibility. This is vital. Increased visibility and information means better and more informed decisions on pending financial transactions.
- Optimized cash. Through access to real time process data, from comprehensive overviews to detailed financial reports, managers are empowered to optimize cash resources — pay on time, avoid late payment penalties and capture all available discounts.
As a follow up to You Are Your Supply Base, I’ve come across a lot of research that seems to indicate the need for better supply base management and analytics is working its way to the top of the list of priorities for many companies.
In a recent Accenture report, senior managers are still relying more on “gut feel” due to a limited access to enterprise-wide data and supply base analytics. Even more disturbing is that many of these senior managers are failing to see fact- and data-driven analysis as critical when making key business decisions and instead rely heavily on ‘soft’ factors such as consultation with others, intuition and experience.
Structure Defeats Enterprise-Wide Insight
The survey of 600 senior managers at more than 500 blue-chip organizations in the United States and the United Kingdom & Ireland (UK&I) found that more than half the respondents said their organizations are structured in a way that prevents data and analytical talent from generating enterprise-wide insight.
One disturbing aspect is that some organizations are making analytics-based decisions using flawed data, as the survey identified issues related to the consistency, accuracy, completeness and format of company data applied to analytical decision-making. The findings indicate that little has changed since 2008, when a previous Accenture survey found that 40 percent of business decisions were based on judgment rather than business analytics, often due to a lack of good data.
So this begs the question: With the bottom and top line benefits so significant, why aren’t more companies taking advantage of up-to-date analytics and supplier base management tools?
Misunderstanding
Most likely it’s a combination of several factors. In some cases you have limited analytical talent, in others siloed and incomplete data. Then there are the limitations of current infrastructures. But perhaps the most salient reason is the misunderstanding and failure to grasp the difference between business intelligence and analytics.
No one is saying BI tools aren’t important, but they are limited to what, when and where. If you want predictive insights that allow you to optimize future business decisions and mitigate risk, analytical capabilities such as forecasting, supplier performance, risk analysis and compliance are not only important, but critical in this new economy.
Many of the earlier obstacles like cost of integration and existing technology are no longer an issue. With cost-effective on demand services, you no longer have to leave the comfort of your own planning modules and ERP.
Making Better Decisions
“While there are many tools that enable organizations to examine historical data, what’s needed is the ability to properly identify and analyze the data and gain the insight that enables one to make better decisions,” said Dave Rich, managing director of the Accenture Analytics Group. “Organizations that fail to tackle the issues around data, technology and analytics talent will lose out to the high-performing 10 percent who have leveraged predictive analytics to become more agile, adaptive and gain competitive advantage.”
It boils down to a simple question. Do you want to stick with what you currently have – an out-of-date existing system where your senior managers are making decisions based on their gut? Or updating with a fully integrated platform that provides up-to-data data and analytics that will not only allow you to survive the new economy, but flourish.
Tags: supplier base management, Supplier Performance Management, supply base analytics, supply chain risk management, supply network manager
Stumbled across an interesting article in Supply Chain Digest the other day. A recent survey conducted by consultants at PRTM of some 350 supply chain executives from across the globe identified five key supply chain challenges for the next few years. Successful management of those challenges, the resulting report says, will be central to a company’s ability to capture benefit from an eventual economic upturn.
The article lists five emerging Supply Chain trends:
- Trend 1: Supply Chain Volatility and Uncertainty Have Permanently Increased
- Trend 2: Securing Growth Requires Truly Global Customer and Supplier Networks: Future market growth depends on international customers and customized products. Increased supply chain globalization and complexity need to be managed effectively.
- Trend 3: Market Dynamics Demand Regional, Cost-Optimized Supply Chain Configurations: Customer requirements and competitors necessitate regionally tailored supply chains and product offerings. End-to-end supply chain cost optimization will be critical.
- Trend 4: Risk Management Involves the End-to-End Supply Chain: Risk and opportunity management should span the entire supply chain—from demand planning to expansion of manufacturing capacity—and should include the supply chains of key partners.
- Trend 5: Existing Supply Chain Organizations Are Not Truly Integrated and Empowered.
Definintely a good read.
There’s an old business saying that always rings true. “What gets measured is what gets done.”
It’s no secret that procurement has seen a higher profile as companies seek to control costs and increase the overall value of their supplier relationships by reducing risk and increasing compliance across the board.
Assessment of Performance and Risk Top Survey
In a recent Institute of Supply Chain Management survey, the most important thing to procurement leaders was the ability to show a systematic measurement and assessment of performance and risk of the supply base. Other items included more visibility into supplier performance and tracking savings after sourcing is complete.
But the key to all of this, yes, I said key again, is the quality of the information about your supply base. Accurate, quality information about current, historical and potential supplier data is critical for Procurement, Risk and Compliance strategies and KPIs. Data that is out of date by even six months or a year is no longer acceptable from an efficiency or cost standpoint.
Gaining True Insight into Supplier Performance
But for many companies, setting KPIs across the board is a time consuming process. How can I look at Supplier Discovery? What kind of KPIs will I need to effectively track performance? What about Compliance? So how can you gain true insight into supplier performance and risk?
The first step is up-to-date master data and real-time supplier transaction data. You need a consistent and consolidated view not only from your internal procurement, accounting and sourcing systems, but your suppliers. Think of it like this: “You are your supply base.”
A Growing Trend
The answer to the above is Supplier Base Management: A trend that is growing rapidly in the supply chain universe. The ability to have all your procurement business process documents enabled and fully integrated into one tool – a single channel for master data aligned to your total supply community – is now completely achievable.
This on-demand tool allows you to directly collaborate with suppliers and get the most up-to-date information. Now you can align that supplier data with commodity strategies, pre-qualify suppliers to reduce risk and compliance issues and measure real-time supplier performance.
Notifications and Alerts
Let’s say you’re interested in managing supplier performance issues such as contract pricing, quality and compliance. Supplier Base Management applications like Quadrem’s Supply Network Manager provide notifications and alerts and allow you to search across all potential or existing suppliers to check performance plan status.
You can also create custom surveys to poll your suppliers or Risk Analysis Action plans to access each supplier’s risk to your business. Performance indicators add KPIs and quantifiable measurements for the invitation and qualification process. What’s not to like?
It is the true definition of the all-in-one tool. And the payoff is big according to AMR Research’s Mickey North Rizza.
“Supply management executives have an opportunity to reduce their per supplier management costs up to a whopping $848 per supplier.”
Yes, there’s no denying that the procurement function will never be same again. By being able to easily transform volumes of procurement data generated by SBM tools into information, you truly become your supply base.
Tags: supplier base management, supplier performance, supply network manager
In my position, I end up going though many articles and surveys and I came across one the other day that said almost 65% of all companies running sales order management systems had as many as 11 order management systems.
Yikes.
This not only seems like a waste of money and resources, but the perfect storm of inefficiency and miscommunication.
Communication Chain
Purchase order management isn’t just a communication chain between you and your suppliers, it’s also a chain with your business itself that includes many processes, including opportunity to order capture, order capture to order fulfillment, order fulfillment to order completion, and order completion to order settlement.
For instance, a common problem is having too much inventory. One side is working to reduce the level of inventory in the warehouse using lean principles. But on the sales side, someone could be trying to sell something, and the system is showing the product isn’t available. If you have 11 different processes working, or in this case, not working together, it’s a cacophony of waste and duplication of orders.
That’s why order companies should look at it from an end-to-end process, starting from the time the order is taken to the time payment is made. Stringing those processes through multiple departments is a recipe for disaster. Those processes should all be aligned.
20 Steps to Perfect Order Management
Ray Wang, Forrester vice president and principal analyst with the Cambridge, Mass.-based firm, offers a video that features the 20 Steps to Perfect Order Management. Wang developed these steps to help companies deliver the perfect order — one that consistently meets customer, supplier, partner and employee expectations.
Of course, the biggest challenges are having the right technology for your company as well as the funding. The purpose of the 20 Steps, according to Wang was to provide a blueprint for determining how well an organization was aligned with the steps and the idea that it could help companies consolidate applications and decommission others.
Going back to the 11 order systems in the survey, Wang says, cutting that number down to three could save a company as much as 20-23% in cost savings.
Quadrem’s SupplyCentre solution, for instance, uses one application and process for multiple customers.
A Solution That Pays for Itself
While there has been some resistance to invest in given the sorry state of the economy for many businesses, it can pay for itself rather quickly, especially a hosted solution. By consolidating and saving time and money, businesses can free up capital for other new technology projects and purchases.
It also makes a difference customer service-wise. The repetitive and low-margin orders can be handled by Web-based channels and companies can place a higher priority on more human interaction into the higher-dollar-value orders.
And , as they say on TV, that’s not all. Increased accuracy of orders, simple tracking, and scaling your processes closer to your customers, tends to create more return business and better customer retention.
In this new customer-driven environment, it is imperative to improve collaboration by creating more visibility with your trading partners at both ends of your supply chain. One of the best ways to do that is by consolidating your order management processes.
Tags: sales order management system, sales order managment, supplycentre
While overcoming the internal company culture seems to be the biggest obstacle, according to Healey’s survey, it’s no easy task for IT when it comes to the technical either.
The Electronic Data Interchange (EDI) standards have been around since 1980, starting with invoices and orders, but they have evolved and expanded into much more. There are now more than 300 standards for everything from manufacturing, finance and retail to health care and various other professional services.
EDI Standards
There are four major sets of EDI standards:
- The UN-recommended UN/EDIFACT is the only international standard and is predominant outside of North America.
- The US standard ANSI ASC X12 (X12) is predominant in North America.
- The TRADACOMS standard developed by the ANA (Article Numbering Association) is predominant in the UK retail industry.
- The ODETTE standard used within the European automotive industry
Now that you have the definition and the background, here’s the issue. These standards are largely ignored by many large vendors creating data exchanges.
Healey writes: “If a standard doesn’t serve the interests if a particular provider, that provider simply doesn’t follow the standard and instead makes up his own.”
Roll Their Own
What this means is that if a vendor is big enough or you want the business, IT basically has to adapt and overcome the obstacles. It doesn’t matter if there’s one standard or five, many companies in Healey’s words “opt to roll their own.” Thus, IT is forced to create a new format or modify an existing one to suit their needs.
Nowhere does this show up more than in electronic catalogues. Product and pricing is the critical element for any company’s go-to-market strategy. In the Web-centric world, users go online to check your pricing. If you don’t have it, they’re likely to go somewhere else, namely your competitors.
Google also adds another layer of problems for IT. The powerful search engine is popular when it comes to looking for prices, but here’s the rub. Google doesn’t follow anyone’s standards for product information.
So what does this mean for data sharing and the challenges IT faces?
Don’t Wait for It
Healey writes: “The existing levels of standards and interoperability aren’t going to improve any time soon. “Don’t wait for it,” he says. “Take your supply chain out for a beer and you get the full story. Most companies offer one or more of the standards, but they have their own rules and they don’t share.
“The Web has transformed business and social relationships on multiple levels, but most Web-centric vendors don’t want true interoperability,” says Healey.
“Now that you know the answer, don’t gripe about it, plan around it.”
Tags: data analysis, data management, Data sharing
In my previous post I discussed the cloud in terms of its most salient benefit: Information sharing.
There’s no question that sharing data will improve relationships with customers and suppliers. As companies go from the cost-cutting that was prominent in the recession to growth, data sharing should be the main driver to opening new markets, winning new customers and expediting the process from materials delivery to payment.
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Data Sharing Before and After the Sale
Yet, data sharing of any kind among customers and suppliers is low, especially at points before and after the sale.
In an Information Week article called Share!, IW’s Michael Healy talks about a recent survey that showed that barely half of companies even share order status with customers.
“FedEx and UPS make package tracking so simple, it’s easy to take it for granted, Healey writes. “Almost every company we surveyed shares data with someone. Most (74%) share data with customers while 62% share with suppliers. Almost half of the respondents are required to share with third parties, most government agencies.”
But Healey found a wide disparity in data sharing strategies. Only a fourth of the companies surveyed considered it important enough to be a priority. Some build connections on request by another quarter admit they resist data sharing.
So, what’s the problem?
Healey does cite the classic culprit as budget limitations followed by the usual complaints about multiple sets of tools and the care and feeding required by legacy connections. But there was something deeper.
Integration Taking Months, Not Days
Healey found that while sales, manufacturing and merchandising tend to drive the decision to share data, the relationship with IT is contentious and creating such integrations end up taking months, not days.
“The company does really care about sharing data,” said one senior developer in the story. “There’s usually an initial scream to get the integration project done quickly to meet a short-term target, then it’s never looked at again.”
Healy thinks IT needs to break out of the reactive mode and become more proactive. One example given was a distributor who was trying to figure out a way to cut costs, especially in a paper environment. IT’s idea was to build a sales campaign to push all forms of streamlined invoicing, including integrated data and electronic invoicing.
The result was a 20% increase in customers switching from paper, saving a few thousand dollars a month and two full head counts in terms of man hours.
Fewer Than 1,000 Connections
Still, most companies do not move fast enough. These are some scary figures: When asked how long it would take their teams to establish a new data link with a customer or supplier when both have compatible connections, only 23% could do it in less than week. Another 41% could get it done in month while others just “added it to a list.” Yikes! That’s for “compatible” connections. Almost 83% of companies surveyed have fewer than 1,000 connections.
Healey notes that a mid-size $200 million company that has an average order size of $1,000 would likely have more than 20,000 clients and 2,000 to 5,000 suppliers. A larger enterprise is likely to have more than 100,000 possible connections.
Where should your company be, he asks? Good question.
Next: EDI Standards
In the business world, you hear many interpretations of what “the cloud” truly represents for a supply chain. Software as Service. On Demand. Business Process Outsourcing, etc.
When you discuss value, the response most often given by business leaders is cost, specifically no capital expenditures and only paying for what you use. Others think the value lies in the speed of deployment or resources needed.
Real Value or Benefits?
But are those the real values or just the benefits?
For those who appreciate true value, the cloud means information. Or better yet, information sharing.
In the old version of the supply chain, information sharing was as only as good as your Enterprise software system. And that wasn’t always good. Like a person who tells a story to one person who repeats his version to the next person and so on. By the end of the chain, the story was only remotely recognizable.
For years, and even still today, many supply chains operate, if you want to call it that, in similar fashion. The company sends a file; let’s say a purchase order, to a partner or supplier, who in turn, sends his version to another partner and so on. Thus, the PO says one thing. The packing slip says another and shipping notice yet another. Now imagine this issue in a global context and the cost and effort to get everyone on the same page.
Massive Information Exchange
It’s not entirely the fault of original ERP, which was designed to focus on mostly transactions and process flows inside the company. But it wasn’t necessarily designed to support the massive information exchange that global commerce now requires.
This is where the real value of the cloud comes in. Information that should be shared among suppliers, partners and other companies both upstream and downstream needs a place where it can be shared. A place where it exists. It’s more than just sending a purchase order or an invoice across an electronic platform. In the cloud, the platform becomes the intercompany transaction system of record. It can be tracked, recorded, captured and is accessible to any partner in the network. All of whom can get to it quickly and easily – in one place.
Whether it’s a shipment, invoice, purchase order, payment and on and on, the visibility and easy accessibility of the cloud ensure that errors and “different” versions of the story are much less likely to happen as each of the supply chain partners access the information. It is the information center of your supply chain for transactions that happen outside your company walls.
Providing Valuable, Hard-to-Get Data
Yes, your ERP is not going to go away, it is after all, your original system of record, but once information such as a purchase order is pushed outside the company to suppliers, service providers and partners, the data that drives logistics and payment processes may not and often isn’t captured by your ERP. This is why the ability of the cloud to provide valuable hard-to-get data such as status of the order while it’s being worked and fulfilled is vital. Whether it’s a packing list, shipment notice or an invoice, it all needs to be captured and tracked, and more importantly, accessible to all the players in the chain.
That’s the cloud’s most salient feature and the reason it’s starting to gain serious traction in the business world. The cloud doesn’t only enrich the company that employs it but the compnay’s community of suppliers, service providers and partners around the globe.
Whether your organization is using eSourcing, paper-based sourcing or just simply a review of paper catalog data to determine what vendors you will select indirect goods or services from, there is the potential for spend leakage in your processes.
Many companies execute well-thought-out sourcing strategies in order to achieve best-value outcomes for their organizations, but after the sourcing activity has completed they find those savings leak out through rogue spending, inconsistent use of negotiated contract rates and a general lack of compliance within their purchasing organization.
Staving off Spend Leakage
One method to stave off this spend leakage is to negotiate rates via sourcing for goods and services you would normally purchase off a catalogue. Capture best-value pricing data through your eSourcing process and then in the contracting effort require the use of eCatalogues for those goods and services within your purchasing organization.
To further insure success, note to suppliers upfront in the sourcing preliminary stages that they will be expected to maintain an electronic catalogue file for the negotiated goods and services with related pricing updates as the negotiated rates change year over year.
A number of global purchasing analysis organizations state that on average companies that have a significant portion of their indirect material/services spend under catalogue management (65% or more) recognize a decrease in rogue spending activities by buyers, by as much as 80%.
Establish Ground Rules
If as a buying organization you establish ground-rules in the sourcing process that catalogues will be the implementation arm of the sourcing results, you should see significant improvement in your compliance and spend efforts.
In addition to the tangible cost savings potential from sourcing-catalogue linkages, the process itself drives improved cycle times and enables consistent execution of negotiation to implementation strategies via eSourcing and electronic Catalogues. No more looking across multiple systems (electronic and paper) to determine who is best to purchase from, negotiate annual rates using eSourcing technology and simply update price files in eCatalogues to reflect your newly-achieved value pricing.
Buyers will enjoy the easy access to product and service information within the catalogue and your compliance team will see tangible results from sourcing and spend reporting that is resident in all applications on the market.
Most of you are probably aware of the Jeff Foxworthy “You might be a redneck if…” comedy routine. While I don’t plan to quit my day job, here’s my Jeff Foxworthy take on “Your business might be in trouble if…”
Your business might be trouble if…your ERP disaster recovery plan involves tapes.
Your business might be in trouble if…Your invoice dispute resolution is costing you more than $50 a document and your baseball box seats.
Your business might be in trouble if…you are connecting your suppliers one by one to each buyer and complying with disparate standards in a never ending game of supply chain musical chairs.
Your business might be in trouble if…Infrequent software upgrades leave your business down for enough of an extended time that you can catch up on a season of missed Lost episodes.
Your business might be trouble if…you think The Cloud is a new M. Night Shyamalan movie.
Your business might be in trouble if…your legacy system requires different versions to run in different countries. The Golden Era of Globalization? Not for you.
Your business might be in trouble if…your phone and fax number are the same and your address is listed on My Space.
Your business might be in trouble if…your quality management, EDI, design, customer orders and accounting all exist in different silos with separate versions of the truth that only Mulder and Scully can analyze.
Your business might be trouble if…you have so much dirty data that the federal government is demanding a clean-up.
Your business might be in trouble if…the only reason you won’t go to electronic invoicing is because you want to get all the use you can out of the new postage meter.
Your business might be in trouble if…your idea of web security is changing your password to a different one of your kids’ names every six months.
Your business might be in trouble if…you think Sarbanes-Oxley wrote Mrs. Robinson
Thanks. I’ll be here all week…unless someone reads this.