Executive Briefings

It's Mid-Year Supply-Chain and Logistics Checkup Time. Let's See How You're Doing.

Everywhere you turn, RFID developments, added security procedures for international shipping, new hours-of-service rules in trucking, and a host of other supply-chain-related topics abound. With so much going on, it is sometimes difficult to keep supply-chain and logistics priorities on track, but mid-year presents a good opportunity to conduct a review and assess how you are doing. A "Top Ten" list of elements critical to supply-chain success follows. For each topic, ask yourself: What progress toward this goal has been made? What are the roadblocks? What isn't on the radar screen today, but should be? What are the key next steps?

1. Develop meaningful collaboration programs beyond the typical "partnership" rhetoric. Lots of companies say they have a strategic supplier program and avow partnerships with key customers. But, frankly, most programs are limited to passive data sharing - which often happens too late to be useful - and doesn't drive major economic advantages in sales, inventory, product design and other areas.

Making collaboration count means you should seek out ways to more openly share critical information on sell-through, promotional plans, supplier capabilities and other areas, and to redesign inefficient practices internally and with key customers and suppliers.

2. Accelerate supply-chain actions and decision-making. Today's supply-chain leaders put a premium on speed. Companies that respond faster to changing customer needs, more flexibly adjust manufacturing and delivery cycles, and expedite new products to market can achieve significant competitive advantage.

How do you stack up against your competitors ... and those who are best of breed outside your industry (because your customers take a broader view, and so should you)? Now is a good time to renew efforts to understand and minimize non-value-added time and eliminate bottlenecks that slow the supply chain ... and reap the rewards in faster time to market, inventory replenishment, product features and assortments, and a host of other areas.

3. Improve financial supply-chain operations by optimizing cash flows. Many supply-chain initiatives focus on the flows of products and information, but overlook the flows of funds across trading partners. How and when companies pay and get paid is a critical factor in delivering shareholder value. Are you setting and managing appropriate payment terms and establishing efficient invoicing and collection mechanisms? Do you have efficient, automated and low-cost methods in place, so that your staff can focus attention on activities higher in value than processing bills and checks?

Following the money can help you deliver additional value, while improving relationships with key suppliers and customers.

4. More aggressively develop supplier spend data to enhance the visibility of your purchases. Spending with external suppliers is most companies' biggest expense item. Yet recent research by Capital Consulting & Management Inc. (CCMI) shows that spend analysis is still only selectively used today.

About half of companies reported using spend analysis only "sometimes" - typically when data is already easily available or when the spending magnitude is large. Only 44 percent of the 400-plus purchasing managers and corporate executives surveyed said they were able to use spend data across locations or divisions today. And a mere 20 percent said they used dedicated spend analysis tools and software today.

Ninety percent of respondents said they plan to deploy enterprise-wide spending analysis within three years. If you haven't already, allocate the resources now to gather the key baseline data on supplier spending. A proper baseline view enables you to develop and execute strategic sourcing and supplier management initiatives that can deliver bottom-line value.

5. Develop more comprehensive supply-chain security plans. Every company doing business beyond its own backyard faces an increased risk of future supply interruptions, as well as a slew of new regulations and procedures for international shipping. But is your company, like many others, simply adding inventory to cover all potential events?

Do you know your key vulnerabilities? Have you prioritized them and devised plans to address each one? Get creative on this one: should certain product specifications be changed to reduce dependence on individual key suppliers overseas? Should you establish strategic relationships with on-shore secondary supply sources? What are your logistics suppliers doing to help your company sustain operations in a crisis?

6. Align incentives and metrics to improve performance across your supply chain. For breakthrough supply-chain performance, reexamine how you incent and measure. Organizations tend to base traditional measurements and rewards on internal activities, and they frequently focus on individual silos - how much total product the manufacturing plant produced, not whether it produced the right specific products to meet market needs, or what item price the purchasing department obtained, not whether the total delivered cost and cycle time was what the market required.

How can you align with key suppliers and customers on win-win metrics? These entities and specific individuals within them must create and manage incentive programs that drive people to pursue improvements, and then those people share in the rewards. As the saying goes, "You get what you measure."

7. Fix the "shelfware" problem in supply-chain software. Companies have invested billions in supply-chain software covering forecasting, planning, optimization and a range of other topics. Yet only 20 percent indicated that they can document a solid return on investment, according to 2003 CCMI research. And it's not just a case of overconfident IT executives predicting a fast payback, or a matter of purchasing the "wrong" applications. In many cases, companies have not achieved full implementation of what they've bought, or have not provided adequate training programs and follow up. So, overworked IT departments have moved on to new issues, and the software has been "orphaned." In your company, ask yourself: are any applications sitting idle?

8. Take a fresh look at the performance of outsourced service providers. You probably use third-party logistics providers in some part of your supply chain. How well these partners perform has a direct effect on customer satisfaction and supply-chain effectiveness. Recent studies of international air cargo providers and trans-Pacific ocean carriers, co-sponsored by CCMI, found substantial variations among providers in terms of service quality and a range of emerging issues that need to be addressed.

A key finding of the ocean carrier survey, in particular, illustrated that network, delivery and performance factors were more important than price in the minds of shippers and forwarders looking for quality providers. Are you too focused on cutting costs and forsaking quality because of it? Are you constructing RFPs that attract and select the highest-quality carrier, based on the above factors? Make sure you've got the objectives set right before you proceed further.

9. Apply advanced analytical tools to your supply-chain planning and execution. How accurate is your forecasting? Most companies still can't accurately forecast future requirements, despite the tremendous amount of data now available all along the supply chain. Managers don't need to feel overwhelmed by the amount of data they're receiving; they need to worry about receiving the right data, having the tools and skills to manipulate it, and applying what their IT applications and their personal experience tells them.

Do issues such as expediting, production schedule changes, and inventory write-downs generate ongoing frustration? By capitalizing on new data mining capabilities and related analytical tools and methods, you can better leverage available data to analyze trends, improve forecast accuracy and reduce supply-chain inefficiencies.

10. Conduct a practical investigation of the role of RFID and related technologies in your supply chain. As the costs of radio frequency identification, smart tags and related technologies decrease and the capabilities for capturing and transmitting data increase, companies should assess these technologies for realistic application and deliverable value, up and down the supply chain.

Taking the opportunity now to pause and consider these "Top Ten" issues will reground your plan for the balance of the year, and possibly take it in some new, lucrative directions.

Scott Elliff is president of supply-chain and logistics consulting firm Capital Consulting & Management Inc. (CCMI, www.ccmiservices.com) in Alexandria, Va.

Everywhere you turn, RFID developments, added security procedures for international shipping, new hours-of-service rules in trucking, and a host of other supply-chain-related topics abound. With so much going on, it is sometimes difficult to keep supply-chain and logistics priorities on track, but mid-year presents a good opportunity to conduct a review and assess how you are doing. A "Top Ten" list of elements critical to supply-chain success follows. For each topic, ask yourself: What progress toward this goal has been made? What are the roadblocks? What isn't on the radar screen today, but should be? What are the key next steps?

1. Develop meaningful collaboration programs beyond the typical "partnership" rhetoric. Lots of companies say they have a strategic supplier program and avow partnerships with key customers. But, frankly, most programs are limited to passive data sharing - which often happens too late to be useful - and doesn't drive major economic advantages in sales, inventory, product design and other areas.

Making collaboration count means you should seek out ways to more openly share critical information on sell-through, promotional plans, supplier capabilities and other areas, and to redesign inefficient practices internally and with key customers and suppliers.

2. Accelerate supply-chain actions and decision-making. Today's supply-chain leaders put a premium on speed. Companies that respond faster to changing customer needs, more flexibly adjust manufacturing and delivery cycles, and expedite new products to market can achieve significant competitive advantage.

How do you stack up against your competitors ... and those who are best of breed outside your industry (because your customers take a broader view, and so should you)? Now is a good time to renew efforts to understand and minimize non-value-added time and eliminate bottlenecks that slow the supply chain ... and reap the rewards in faster time to market, inventory replenishment, product features and assortments, and a host of other areas.

3. Improve financial supply-chain operations by optimizing cash flows. Many supply-chain initiatives focus on the flows of products and information, but overlook the flows of funds across trading partners. How and when companies pay and get paid is a critical factor in delivering shareholder value. Are you setting and managing appropriate payment terms and establishing efficient invoicing and collection mechanisms? Do you have efficient, automated and low-cost methods in place, so that your staff can focus attention on activities higher in value than processing bills and checks?

Following the money can help you deliver additional value, while improving relationships with key suppliers and customers.

4. More aggressively develop supplier spend data to enhance the visibility of your purchases. Spending with external suppliers is most companies' biggest expense item. Yet recent research by Capital Consulting & Management Inc. (CCMI) shows that spend analysis is still only selectively used today.

About half of companies reported using spend analysis only "sometimes" - typically when data is already easily available or when the spending magnitude is large. Only 44 percent of the 400-plus purchasing managers and corporate executives surveyed said they were able to use spend data across locations or divisions today. And a mere 20 percent said they used dedicated spend analysis tools and software today.

Ninety percent of respondents said they plan to deploy enterprise-wide spending analysis within three years. If you haven't already, allocate the resources now to gather the key baseline data on supplier spending. A proper baseline view enables you to develop and execute strategic sourcing and supplier management initiatives that can deliver bottom-line value.

5. Develop more comprehensive supply-chain security plans. Every company doing business beyond its own backyard faces an increased risk of future supply interruptions, as well as a slew of new regulations and procedures for international shipping. But is your company, like many others, simply adding inventory to cover all potential events?

Do you know your key vulnerabilities? Have you prioritized them and devised plans to address each one? Get creative on this one: should certain product specifications be changed to reduce dependence on individual key suppliers overseas? Should you establish strategic relationships with on-shore secondary supply sources? What are your logistics suppliers doing to help your company sustain operations in a crisis?

6. Align incentives and metrics to improve performance across your supply chain. For breakthrough supply-chain performance, reexamine how you incent and measure. Organizations tend to base traditional measurements and rewards on internal activities, and they frequently focus on individual silos - how much total product the manufacturing plant produced, not whether it produced the right specific products to meet market needs, or what item price the purchasing department obtained, not whether the total delivered cost and cycle time was what the market required.

How can you align with key suppliers and customers on win-win metrics? These entities and specific individuals within them must create and manage incentive programs that drive people to pursue improvements, and then those people share in the rewards. As the saying goes, "You get what you measure."

7. Fix the "shelfware" problem in supply-chain software. Companies have invested billions in supply-chain software covering forecasting, planning, optimization and a range of other topics. Yet only 20 percent indicated that they can document a solid return on investment, according to 2003 CCMI research. And it's not just a case of overconfident IT executives predicting a fast payback, or a matter of purchasing the "wrong" applications. In many cases, companies have not achieved full implementation of what they've bought, or have not provided adequate training programs and follow up. So, overworked IT departments have moved on to new issues, and the software has been "orphaned." In your company, ask yourself: are any applications sitting idle?

8. Take a fresh look at the performance of outsourced service providers. You probably use third-party logistics providers in some part of your supply chain. How well these partners perform has a direct effect on customer satisfaction and supply-chain effectiveness. Recent studies of international air cargo providers and trans-Pacific ocean carriers, co-sponsored by CCMI, found substantial variations among providers in terms of service quality and a range of emerging issues that need to be addressed.

A key finding of the ocean carrier survey, in particular, illustrated that network, delivery and performance factors were more important than price in the minds of shippers and forwarders looking for quality providers. Are you too focused on cutting costs and forsaking quality because of it? Are you constructing RFPs that attract and select the highest-quality carrier, based on the above factors? Make sure you've got the objectives set right before you proceed further.

9. Apply advanced analytical tools to your supply-chain planning and execution. How accurate is your forecasting? Most companies still can't accurately forecast future requirements, despite the tremendous amount of data now available all along the supply chain. Managers don't need to feel overwhelmed by the amount of data they're receiving; they need to worry about receiving the right data, having the tools and skills to manipulate it, and applying what their IT applications and their personal experience tells them.

Do issues such as expediting, production schedule changes, and inventory write-downs generate ongoing frustration? By capitalizing on new data mining capabilities and related analytical tools and methods, you can better leverage available data to analyze trends, improve forecast accuracy and reduce supply-chain inefficiencies.

10. Conduct a practical investigation of the role of RFID and related technologies in your supply chain. As the costs of radio frequency identification, smart tags and related technologies decrease and the capabilities for capturing and transmitting data increase, companies should assess these technologies for realistic application and deliverable value, up and down the supply chain.

Taking the opportunity now to pause and consider these "Top Ten" issues will reground your plan for the balance of the year, and possibly take it in some new, lucrative directions.

Scott Elliff is president of supply-chain and logistics consulting firm Capital Consulting & Management Inc. (CCMI, www.ccmiservices.com) in Alexandria, Va.