Part 1: Strategic Cost Reduction: What is strategic about cost reduction?

Last year brought in difficult times for everyone. From individuals to small, mid size and large global companies’ echoed one sentiment – reduce costs to survive.  We saw large scale layoff’s as knee jerk reactions. Not sure why companies saw their people costs as the first level opportunity to tackle and their only scope for survival.  Buyers were beating down their suppliers to get the best price against target goals, 10% per annum over their scope of supply or haggling over the increasing the payment terms, not realizing that the suppliers were also going through the same issues on liquidity crunch. Net result, suppliers went bankrupt and along with them the entire industry started collapsing, e.g. automotive industry.
Things have started turning around now and we felt it was time to take the learning’s from these experiences and reactions to prepare a strategic response approach to the situation. Surely we need not wait for the next recession but get started on a systematic process of quick wins, tactical  and strategic initiatives that can keep the organizations going strong at all times.

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http://www.infosysblogs.com/supply-chain/2009/12/part_one_strategic_cost_reduct_1.html#more

Winning over this “Tsunami” called Global Recession

Apply the balm where it hurts  the most …In the first of part of the blog series here, we are trying to understand the global economic problem through the the view that matters most for organizations , the lens of “Free Cash Flow”, a measure of liquidty and business performance that most organizations operate on. In the interest of keeping this discussion focused, we have limited the point of view around the “procurement and supply management” processes and response strategies , but is well applicable across all operations . As we may still be getting over the worst of this ” Tsunami ” , wish if all of us could share the experiences and the survival stories for the benefit of the larger supply management community .

We keep getting lashed by these heavy waves of destabilization at frequent randomness, from Katrina, to Avian flu, to global recession and while we were still struggling on these, as if not enough, now the Swine flu. The USP of all these are that we don’t know what, when and how this hit us, when we were least expecting. It takes a good toll of all of us. The good thing about this is that it wakes us all from the slumber and complacency to make us take note and innovate.

The current economic crunch is one such great “Tsunami “which has jolted all the greats and spared none.

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http://www.infosysblogs.com/supply-chain/2009/06/part_i_winning_over_this_tsuna_1.html#more

Part 3 : Is Supplier Relationship management a “technology need” or a “strategic business capability” for your organization?

I thought we would be nearer to the end my blog series on SRM with this one hoping to get onto the solutions, but it was not to be. I was in a couple of solution discussions in SRM implementation situations over last week and realized we were far away from getting to the solution discussions if we do not do more to confirm our understanding on this topic.

What is Supplier Relationship Management for you?

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http://www.infosysblogs.com/supply-chain/2009/12/part_3_is_supplier_relationshi.html#more

Part 2: SRM is Real

In my last blog “ Do we really understand SRM ( Supplier Relationship Mgmt)?” we defined Supplier Relationship Management” as a collaborative win-win business discipline of strategically managing the supplier engagement process to maximize the potential value of those relationships by providing seamless integration capabilities for smooth harmonized operations and aligned business goals with the partner supplier community”.

We had some valid questions coming up from the readers of how to address SRM in a bilateral relationship where the supplier is also a customer , how do we define a metrics model to track we are realizing what we planned etc but there were some very fundamental questions that needed answers to ensure the rubber meets the road. I have put my thoughts here to a couple of them for I believe this is essential to get to a solution which addresses this vision

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http://www.infosysblogs.com/supply-chain/2009/11/part_two_srm_is_real.html#more

Part 1: Do we really understand SRM ( Supplier Relationship Mgmt) ?

I like statistics ……..Because it makes me think

1) 62% of Supply Chain operations did not have an accepted definition of Supplier Relationship Management in their organization

2) 50% of the companies having implemented SRM applications do not know how to measure the benefits of these initiatives.

I was equally confused as many others in the supply management function, of the various terminologies that are used interchangeably for the same sourcing and procurement processes e.g. supply management , supplier relationship management , strategic sourcing , spend management , supplier performance management .

I opted for a deep dive and surfaced more confused than ever. Depending on who was talking SRM the definitions also kept changing – product vendors have an application centric view; consultants talk transformation or implementation approach, and buyers look at this as managing categories and transactions.

Till I came across a white paper by Pierre Mitchell and understood the concept in a jiffy.

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http://www.infosysblogs.com/supply-chain/2009/11/part_one_do_we_really_understa.html#more

SRM Implementations: Designing business solution for “predictable target performance”

I was reading on supplier relationship management (SRM) technology investments and came across industry numbers on implementation success mentioning of an average 25% of the indirect spend value and 7% of the supplier’s enabled through SRM investments. I smiled within. .. Least surprised. Wondered how the CFO’s / CPO’s would be justifying the benefits against the original business case they sanctioned for the investment.

Best in class implementations have benchmarked up to 98% enablement of procurement processes on SRM platforms.

It is experience that most technology investment business case documents gather dust after the budgetary sanctions are received for the implementation. The initial business case are often directional and at high level with certain best practice and reality assumptions. These do not get translated to the actual application blueprinting and implementation process. The typical implementation approaches of requirement gathering may have a role to play in this.

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http://www.infosysblogs.com/supply-chain/2009/08/srm_implementations_designing_1.html#more

DNA Therapy for Strategic Cost Reduction in Supply Chains

My recent hunt for stem cell banking information in South India got me excited on a subject of high interest in the biomedical world. Stem cell therapy is the latest medical wonder discovery and supposed to be a cure for 70 odd complex maladies of humans, especially interesting because till late these ill’s were supposed be hard to win over with the conventional medical treatment methods – treatments which were more focused on treatment of the symptom or providing a patch solution for the life threatening diseases, not usually a permanent cure.

DNA is the building block of all life and living on this planet. They are the smallest finite elements which determine the characteristic and personality of any individual. DNA or gene therapy gets to the root cause of the problem. They provided the paradigm shift in medical treatment from the symptomatic treatment of the yesteryears to treating or correcting the diseases cells at source.

What has DNA therapy got to do with Supply Chain Management?

Read on for more details

http://www.infosysblogs.com/supply-chain/2009/04/dna_therapy_for_strategic_cost_1.html#more

Supply Risk Management in Turbulent times

Study of Risk is probably as old as Murphy’s law, adage in Western culture that broadly states: “Anything that can go wrong will go wrong.” ,an American newspaper in Norwalk, Ohio printed this verse in 1841: 

I never had a slice of bread,

Particularly large and wide,

That did not fall upon the floor,

And always on the buttered side

 

The hard truth cannot be wished away, but irony is that the best of the organization will face the worst of the risks, the more efficient and optimized has been the supply chain , the more the prone one would be to the risks ( unless this has been factored in the SC design ). Most of the supply chain improvements have been to remove redundancies be it going lean, reducing inventories or single sourcing. These leave the highly efficient supply chains with very little back up and the potential damages can by really significant.

 We were having a chat on this the other day and came across this thought if risk management have an industry/ manufacturing strategy angle to it . an example of a bearing supply from a particular supplier and its impact on automotive production line ( line production ) compared to an Airbus ( batch/ project production ). 

Industry	Automotive	Aeronautics
Manufacturing model	Line Production	Batch Production
Supply Chain velocity                   ( measured on throughput time)	Unit in Hrs	Unit in Months
Disruption duration	2 days	2 days
Impact	Mn of $’s( production loss x cost of vehicles)	Project lag – needs correction

 It would be important hence to size the risk impact potential. Common sense says that risks can be managed by

1)      Preventing failures from happening

2)      If failed , then detecting failures early and efficiently

3)      Once detected , respond to rectify early and effectively

 

Risk (R)   Probability of Failure ( n) x Detectability ( d) x Impact ( I) or

and risk management strategies of organizations should address each of these levers

 

Probability of Failure ( n)	Profile risk supplies  and build redundancies ( dual source, near source , balanced sourcing , optimize inventory) Improve and track supplier performance Forecast failures ( statistical modeling) Advanced process collaboration
Detectability ( d)	Invest in global supply chain visibility for live inputs on SC events
Impact ( I)	Invest in supply chain agility and alerts Prepare disaster management plans Insure for risks Performance metrices on speed of responses

 Application of best practices for supplier risk analysis like  Altman Z scores , tools for statistical modeling and quantitative prediction of failures, Trade lane and genealogy analysis, inclusion of risk matrices like Var and RAROC in corporate performance management are a good start to assessing the SC risks . Risk Management programs will benefit from investment in supply chain visibility and performance management and collaborative supply management . Of course these need to be viewed in a different lens with caution on the risk strategy when selecting from the multitude of solutions available in the market.