Global Supply Chain

The global commerce landscape is markedly different than it was only 2 to 3 years ago. Available solutions provide global trade management, visibility, track and trace, compliance and landed cost either as a SaaS, hosted or traditional licensed model. Yet, companies still struggle to fully command and control their global commerce environment to drive the exceptional values promised.

The next wave of global commerce solutions will enable the shipper or logistics’ provider to drive exceptional competitive advantage by leveraging a true command and control capability over the organization’s extended global commerce network.

Command and control is a military phrase. While command and control often connotes a top-down hierarchy for decision-making and action to achieve a defined military objective, it’s more broadly understood to be the marshalling of resources for information collection, situational clarification, decision support and action.

In true global commerce management, command and control gives seamless integration to an organization’s resources to be able to view, orient, decide and act with timely and rapid organizational effectiveness. A command and control capability enables the streamlining and synchronization of the organization’s people, processes and technology — with analytics and visibility in a highly developed collaborative environment. The results are an organization that is highly flexible and adaptable in a rapidly and ever-changing global environment.

Four fundamentals must converge for an organization to truly command and control its global business environment and achieve the values promised. Systems must:

1. capture and present the underlying information required by operations and management. This requires clean data that supports multiple user-defined views of an organization’s business in an on-demand, right-time environment.

2. provide standardized contextualization of information through analysis and visualization so that individuals responsible for task execution or decision-making can orient themselves quickly to the issues requiring resolution.

3, support on-demand collaboratiion with internal and external partners based on shared information that is contextualized across diverse partners.

4. streamline decision processes and enable timely, decisive action. Acting decisively requires the ability to collaborate with all affected partners so that full transparency and traceability exists on the final command and follow up actions.

Management of global supply networks requires three tightly integrated capabilities -– visualization, collaboration, and execution — in order to support the four basic competencies of command and control: view, orient, decide and act. While each capability is important, the real promise in delivering optimal value from the global supply network happens when a company can execute comprehensive command and control over all participants, activities and costs across its entire global business environment.

A recent Aberdeen study reported that the greatest problem for executives in global supply chain management is still visibility. In the study 79% of the executives from large companies and 41% of executives from SME that responded ranked “Lack of critical supply chain visibility” as the overall most important issue. The second greatest problem was “Uncoordinated multi-tier supply chain processes” which garnered 56% and 37% respectively from the executives responding.

The results are rather telling given the emphasis and investment that has been made by organizations to insure that they have the critical visibility required to enable their global supply chains to operate efficiently.

Are the results really surprising? The answer is Yes and No.

Yes, because it is believed that if people have visibility into where an item is within the global supply chain they are able to make optimal supply and demand decisions based on the information.

No, because the visibility solutions provided are only stop-gap solutions that provide snapshots into where an item is in the supply chain, but provide no, or very limited, visibility into the financial and compliance implications surrounding the item. With no integrated visibility into the physical, financial and compliance status of the item it is virtually impossible to have the critical view of the supply chain necessary to significantly improve supply chain performance.

Without context it is virtually impossible for individuals responsible for managing products across complex global supply chains to make decisions that are optimal for the organization. To get context the organization requires cross-functional execution, information and financial visibility and implication analysis.

Operations areas include internal functional areas such as sourcing, purchasing, international logistics, customs, inventory management, accounting and finance. Each functional area is affected by the activity within the supply chain. However, in most instances both the operational unit and the systems supporting it are not integrated and the information is often not easily reported in a meaningful way. This lack of integration is even more evident with external partners. The result is the lack of critical supply chain visibility.

Critical supply chain visibility is not just about the location of an item in the supply chain but it includes the ability to see virtually all aspects that affect the item. Critical supply chain visibility includes views into where an item is anywhere in the cash-to-cash cycle and the views into all of financial and compliance issues that accompany the item.

It is undeniable that getting complete physical, financial and compliance visibility still does not exist in almost any organization, large or small. Which leads to the second finding of the study – uncoordinated multi-tier supply chain process. In order to deliver this level of capability and the benefits that come from it organizations must be able to capture the information at these levels, make it visible, and put that information into a comprehensive contextual picture. The two issues of visibility and coordinated processes across an organizations global supply chains are inextricably linked together. You cannot get multi-tier coordinated processes if operations is not linked to integrated and synchronized global supply chain information. This information must be visible at all levels of the supply chain and include the physical, financial, and compliance information.

Until that happens, the issue of global supply chain visibility and coordination of multi-tier issues will remain a very high ranking issue on executives minds because they will continue to lack the information required to support optimal demand and supply chain challenges.

What are your comments?

Globalization – a wave to ride or a tidal wave of massive destruction?

Globalization is changing traditional business practices and for many companies the changes are of tidal wave proportions. In North America many senior managers are having nightmares of their products are drowning in a flood of low-cost import competition. The company’s or its divisions’ survival is at stake and if the company does not learn to ride the wave it will be crushed by the sheer force of the wave and render its organization uncompetitive and obsolete.

In early December 2005 I attended a supply chain summit and met with many manufacturing divisions of Fortune 500 companies that are facing the threat of globalization and the commoditization of their products. Each in its own way was experiencing a tsunami like wave in their business brought on by the rapid influx of competitive products manufactured in low-cost countries. The question that was implied but not fully articulated by each of the companies was how to respond to a competitive situation that literally turned its business on its head and threatened its very existence.

How real is their concern? Do they have time to respond or will they be swamped and weighed down by events and washed away by the influx of inexpensive products manufactured in low cost countries? What are their options? Who will survive?

The answer to these questions lies in recent history. Industries have been moving to global sourcing for years. The North American apparel and textile manufacturing industry has all but vanished in a period of 10 years. The traditional big 3 North American auto manufacturers are floundering and the historical global leader – General Motors – will in all probability lose its number one status in 2006 and has acknowledged that in order to survive it cannot continue to defend that role against its more agile and adaptable Japanese competitors – Toyota, Honda and possibly Nissan. Big steel is being overwhelmed by high quality, low cost competition from Korea, China and Japan and depends on life support by its government. Ditto the apparel, textile, footwear, electronics, consumer packaged goods, etc. industries.

Scenario: A major North American manufacturer of barbecues, located outside of Toronto, Ontario has seen its ability to compete against low-cost imports from China greatly compromised. The company’s costs relative to the imports are roughly 40% greater and their quality advantage is no longer appreciated. The market is moving rapidly to low cost imported cast-iron aluminum barbecues from the traditional domestically produced, higher cost cast iron barbecues. To make matters worse, its traditional customers have now moved to directly sourcing and importing the barbecues from China further pressuring the manufacturer. It is committed to its committed workforce and instinctively wants to resist the move to low cost sourcing of finished barbecues. Its very survival is at stake.

Scenario: A major supplier to the automotive aftermarket located in Michigan recently sold approximately $1.0 billion of glass and paints manufactured in their North American facilities. Protected for years by high tariffs and counter-vailing duties the company was able to compete successfully against low-cost glass from China. Several years ago the dumping duties were removed and the company’s business model literally changed overnight. In order to survive the company quickly expanded its fledgling sourcing group to purchase the majority of its glass from low cost sourcing countries. The result of the tectonic shift was a complete change in its competitive environment. Its margins were quickly eroded; its quality advantage evaporated and its major competition was now import/distributors not glass manufacturers. The company recognizes that it is on steep learning and execution curve to catch up to its non-asset based import-distribution competition in order to survive. Time is of the essence for this division.

Scenario: In 2003 a leading U.S. manufacturer of home furniture located in North Carolina was manufacturing 80% of its products in the United States. By 2005 it had shifted its sourcing to low-cost producing countries and imported 80% of its product line. Although it benefited from lower costs it found that its margins had been eroded so that now it was marginally profitable. It recognizes that its business model and competitive position has changed but does not fully understand the drivers that will allow the company to return to the levels of profitability it previously experienced.

In each case the competitive environment apparently shifted in a matter of months. The competitive comfort that each company had as a manufacturer shifted dramatically and their new paradigm threatens the very existence of the organization. The new model strips their previous competitive advantage –design and manufacturing excellence – and positions them in a business environment where they have little core competency and equally deficient execution and management capability. These companies each recognize that they are in serious trouble and if they don’t respond to the new challenges that they face in global commerce execution they will go the way of the dinosaur.

Without exception each company that I met with (and there were 10) all had the same fundamental problems:
The ERP systems designed to support their manufacturing and financial business are grossly inadequate in supporting their global commerce requirements.
Their business processes are designed for manufacturing and not global sourcing/distribution.
The competency of the organization lacks the expertise and experience in the area of global sourcing, logistics and importing.
Costs visibility is immature and doesn’t provide the necessary granularity to understand the best procurement strategy or true cost of goods.
Lack of visibility into outsourced partners reduces the organization’s ability to control the supply chain and negatively impacts inventory levels.
They are making costly errors and don’t understand what is required to resolve them.

Each company is wrestling with the problems it faces and is working through their own challenges. Some are embracing the new paradigm while others resist. Some are looking strategically at globalization and others continued to respond tactically to the shifting environment.

The good news is that those companies that are moving strategically understand that their business model has switched from a four-wall centric view where manufacturing drove their strategic competitive advantage to a “four-corners of the world” approach where managing the global supply chain dominates the battle for strategic competitive advantage.

So what do companies have to do to execute an efficient global commerce strategy?

Firstly, it is critical that senior management understand the magnitude of the threat that globalization presents to their companies. Secondly, it is vital to create a sustainable strategy to respond to the threat and actively support the initiatives to develop the capabilities and infrastructure for the new paradigm. It is important to recognize that the new model is about designing lean, flexible global supply chain networks that include both domestic manufacturing and global sourcing and provide the organization the agility to move quickly in response to global conditions of supply.

Whatever the level of global competition companies are currently experiencing, creating lean global commerce organizations is critical for profitability in the new paradigm where margins are much thinner, supply chains much longer, more complex and highly risky, and mistakes much more costly and harder to correct. Finally, creating an organization that thrives on constant and accelerating change is vital because the organization is required to adapt to continuous monstrous tidal-changes in the business current as the tectonic plates underlying global commerce shift.

Globalization is a challenge and an opportunity. The options for companies that are experiencing sustainable global competition are to develop workable strategies and processes to survive and thrive or die. Being global is not an option for many companies. Developing a comprehensive global strategy is critical to remain viable.

Surf up or is it a Tsunami? In this case it all depends on how you respond to the opportunity that globalization provides.

With globalization and outsourcing of manufacturing capabilities to offshore producers it is time to look at the effect this is having on inventory across the global supply chains. The analysts, Gartner, Aberdeen, ARC and AMR who have looked at the issue of inventory in the supply chain have come to the conclusion that globalization is beginning to have a major negative impact on the amount of inventory in the supply pipeline.

Much has been written on the value proposition of managing inventory across the supply chain. In most instances the issue of inventory control is discussed in terms of domestic supply chains. This perspective is understandable because until recently most companies were not participating in global sourcing and therefore the need to understand supply chains from a global perspective was not of much interest. However, this view of inventory pre-supposes relatively short supply chains that are reasonably forgiving. The literature generally focuses on the ability of organizations to position their raw material and semi-finished products to meet their tight manufacturing or distribution environments.

Companies like the automobile manufacturers, computer manufacturers (Dell comes immediately to mind), and others have been able to lean their supply chain by working with their suppliers to have supplier inventory pods close to their facilities to meet their demanding manufacturing schedules. True, they collaborate with their suppliers, to a greater of lesser extent, and share demand information so that suppliers can adjust their production and distribution schedules. But the reality is OEMs have been able to “lean” their supply chains by pushing the inventory back onto their tier one, tier two and tertiary suppliers.

Research has shown that over the past 10 years the amount of inventory in the supply chain has declined very little. I am hearing from these same analysts that their research is beginning to show that with globalization and the outsourcing of manufacturing to off-shore companies the amount of inventory across the supply chain is beginning to swell and this is a hidden component that most domestic manufacturers are as yet unaware of and ill prepared to address.

There are 3 major strategic areas that a manufacturer must address if it truly wants to take advantage of globalization. Firstly, it must understand whether its business model is still fundamentally a manufacturing model or has shifted to that of a brand-marketing model. Secondly, it must recognize that if its model has changed the skills required of some key people in the company are fundamentally different from those that have been employed. Thirdly, it needs to understand that the way to manage outsourced manufacturers and the logistics providers requires extremely different tools than are currently being offered by their ERP suppliers.

Without understanding the impact in the change in the supply model because of globalization, companies will not begin to take the required action to address the opportunities that are promised. There are many solutions that are being offered that address elements of the global supply chain. Global Track and Trace, Global Customs Compliance, Total Landed Cost calculators, and the 3PL phenomenon are several that immediately come to mind that are designed to extend ERP systems and make them adaptable to the global sourcing environment.

While each of these solutions is of value by themselves, they are limited constrained in truly helping companies manage their global supply chains. Our experience shows that track and trace solutions that are currently supplied by software ASPs or 3PLs and focus on global shipments (purchase order and shipping information) are really limiting. In truth one of the areas that is most offered as a solution but is most controlled in the global supply chain is the shipping/logistics component. Carriers have very tight schedules and barring major disruptions due to congestion compounded by security issues goods that are prepared for shipment will most likely be laded and arrive at the port of receipt as planned.

The areas of the supply chain that are the most difficult to monitor and control are:

• the performance of the suppliers in preparing products to meet shipping schedules
• the tracking of raw materials, semi-finished parts and components, and packaging materials from primary and secondary global sources to suppliers
• the ability to manage costs in a complex multi-level outsourced contract supply chain environment
• the managing of compliance at multiple levels – country, supplier, service provider, product, customs, security, etc.

To create a complete global supply chain solution requires strong ERP functionality where owned manufacturing capability is a strong component and equally powerful global supply chain management functionality to manage the global outsourced contract manufacturing environment. Both systems must be integrated and synchronized and provide a global view of the entire supply chain. Without integrating full ERP and full global supply chain functionality into one seamless environment information will be maintained in disparate systems and provide limited actionable information.

ERP systems are fundamentally designed to manage within the four walls of the organization. In many instances large organizations have multiple ERP solutions or multiple instances of the ERP solution. The corporate information environment is far from homogeneous and getting a view of the entire organization is virtually impossible. ERP solutions are augmented with additional business intelligence systems that are intended to collect and normalize information and provide it in a manner that is actionable.

This business environment is now made more complex with globalization. A global supply environment requires different tools and skill-sets than are currently available within the organization. To build a complete environment to support direct manufacturing and outsourced supply chains requires a comprehensive strategic view of the entire supply demand environment. Companies that understand this will have a powerful advantage over their competitors.

Companies are going global but there are very few that understand what the real benefits are and fewer still have a plan of how to achieve them. Those companies that build the infrastructure to take advantage of global sourcing will have significant competitive advantage that delivers dramatic and continuous value across the entire organization.

Scenario 1: A large global 2000 company (it really doesn’t matter which industry) views itself primarily as a manufacturer. It has owned manufacturing facilities on several continents that manufacture most of the company’s products. It views its competitive advantage as being able to streamline its manufacturing facilities. However, because of competitive pressures for lower prices and the need for flexibility it has started to outsource some of its products to 3rd party contractors. It distributes its products in over 30 markets around the globe.

Scenario 2: A large global 2000 company views itself as a marketer of branded consumer goods product. It contracts out almost all its products to contract manufacturers that are located around the globe. It sees its competitive advantage in its research and design. Its brand is distributed in over 50 countries around the globe through a combination of owned distribution centers and direct sales forces and 3rd party logistics providers and independent sales channels.

These company profiles are caricatures of two business paradigms. They have defined themselves in old world business models that will shape the way they execute their business strategies. The company in scenario 2 reflects a more contemporary view of the world. By decoupling itself from its manufacturing component it has opted for flexibility over control. The company in scenario 1 is more representative of an industrial age company that focuses on manufacturing as its competitive advantage and sees control of its manufacturing environment more important than flexibility over its business model.

The traditional ERP systems (SAP, Oracle, QAD, Axapta) are more geared to the companies in scenario 1 than 2. However, when you are seen to be the only game in town you will still be the dominant player with the scenario 2 players.

There are many companies on the continuum from pure manufacturer to pure product/brand distributor. The companies in these 2 scenarios are simplistic in their nature. The reality is that there are no pure business models or best business models. What is important is that companies recognize that they play a role in the supply chain from the raw material to the end-consumer and managing their supply chains effectively and efficiently will provide real competitive advantage opportunities.

The Supply Chain Council definition of the supply chain applies to every company that exists, whether product or service centric. The SCC defines a company’s supply chain as everything from its supplier’s supplier to its customer’s customer. Indeed the product supply chain is a series of these company links, with each company of the chain managing “stuff” from its suppliers to its customers.

ERP systems inherently look at a company from within the four walls. Basically the ERP solutions are enterprise resource planning tools for each independent location with global accounting and financial capability, localized distribution management, and some inventory control tools. ERP systems primary orientation is to most effectively support the physical, human and financial resources within the manufacturing facility.

Supply chain focused companies are designed to look at how product moves to the customer from the supply side most efficiently and effectively. Supply chain focused companies strive to manage the flow of product from their suppliers (raw material, semi-finished, or finished goods) through their facilities (manufacturing plants or distribution centers) to meet the demand requirements of their customers.

ERP solutions weren’t developed and still don’t look a company from a holistic supply chain perspective and therefore fail to deliver a comprehensive global supply chain approach for companies to manage their business. While the major ERP solutions have significantly enhanced their customer and supplier focused capabilities there fundamental orientation and design has always been from that of a manufacturer.

Globalization has fundamentally changed the way the world functions. With globalization and the outsourcing of much manufacturing and many services, global companies must take a global supply view to excel. Success will not be defined by how well a company controls the flow of product into and within its four walls. Success will be determined by how well a company designs its supply chain to “flex” to the ever-changing competitive environment in which it exists.

Obviously no two companies are exactly alike. They have differing leadership styles, physical structures, goals and objectives, and values. However, what they all have in common is the need to buy products and services from suppliers, add value to them, and sell them to customers. This has not changed over time. However, as the world becomes more “globalized” the way companies construct and manage their supply chains to support their unique buy/sell environments will determine their competitive position.

I can hear the pragmatists screaming – What are the tangible benefits we will get from a global supply chain approach to our business? Show me the money! If I believe what you say what do I need to do to get a solution that supports my current and future plans as we continue to go global?

I can hear the realists screaming – I have a major investment in my ERP solution (we are talking $10’s of millions) and getting rid of it is not an option. What are my options if I want to transform my company into a global supply chain capable organization while still protecting my investment in my ERP solution?

In my next few blogs I will lay out:
1. the value proposition that almost every company can achieve by managing their organization with a powerful global supply chain orientation
2. the secret ingredients needed to build great global supply chain excellence
3. the reason that global supply chains are different and much more complex than domestic supply chain
4. the high level blue print as to what is needed to achieve best-in-class global supply chain excellence.

I have just returned from visiting several potential clients and I am still surprised how despite the discussions by consultants, analysts and the media about the need of companies to manage their business as an integrated enterprise demand/supply chain most still view their environment from a “within the four-walls” perspective.

While controlling activities within the four walls is essential, and indeed the foundation, for managing the company – purchasing, manufacturing, resource planning, sales, distribution and financial management are only several of the critical elements needed to insure success. I believe it can be argued that by focusing the vast majority of resources on these functions, organizations are ultimately short-changing themselves and indeed jeopardizing their competitive positions.

During my visits I met several companies that are just beginning or are in the midst of a major ERP implementation with the leading ERP vendor. These are large multi-billion dollar companies that are leaders in their industry. They are spending tens and hundreds of millions of dollars for the ERP software and the attendant implementation services. They are spending tens of millions more on their own resources required to support the implementation. More importantly for the next several years the companies ability to move forward with other IT initiatives is frozen so that they cannot even look at improving their externally facing environments.

These are not unique situations. This situation has been repeated time and time again and the results while meaningful have generally been less than expected.

This view is not meant to diminish the need for companies to strive to achieve excellence in their resource planning, manufacturing, distribution and finance capabilities. However, by focusing enormous amounts of both financial and human resources on ERP solutions instead of a comprehensive supply chain strategy companies limit their strategic options. This has never been truer than in our current globalized economies where outsourcing of manufacturing and logistics has become a competitive necessity for most companies.

I think that there is little room to argue that resource planning in support of manufacturing and distribution is essential. But I think that a greater argument can be made for a complete supply chain strategy of which resource planning and manufacturing play a more balance role in terms of insuring that the right product gets to market efficiently and effectively.

Several factors have dramatically altered the business landscape in the past 5 years. Firstly, globalization has created a powerful incentive for companies to look for raw materials, semi processed and finished goods from anywhere in the world that is price sensitive (and what products are not price sensitive today) and where the quality is acceptable. Secondly, outsourcing of many strategically critical activities, including manufacturing, have changed the way business must be managed. Most large and medium sized “manufacturers” are now hybrids of owned and contract manufacturing and logistics. Even in the “owned” manufacturing instance, companies have off-shore plants that require different planning, execution, monitoring and logistics tools to insure that products flow through the supply chain to meet the distribution requirements of the organization.

A complete supply chain view of the world requires that companies look at what their markets demand in the way of products and services and then create the appropriate infrastructure to insure that all activities required to support customer/consumer satisfaction is achieved while the company makes the required profit to sustain viability and adequate or superior returns for its stakeholders.

In my travels to clients and prospective clients issues that constantly come up are related to insuring that the right product is delivered to the right location at the right time and at the right price. The problems are more about resource execution than resource planning. Forecasting and planning is an essential part of the supply process and constant monitoring of the demand environment to drive better forecasts and planning is essential. Although forecasting has its own considerable challenges, companies must still manage their supply to meet the constantly changing demand environment regardless of the veracity of the forecast. From an execution perspective the ability to match supply with demand requires an inclusive view of where product sits across the entire supply chain. The ability to react, as changes in the velocity of demand occur, requires parallel changes in the supply of product to meet the “new” real demand requirements.

I believe that today’s conventional wisdom that ERP is the foundation on which information solutions must be built in order to insure integration of information is too narrow and therefore misplaced and outdated. The foundation for true success in either demand or product driven businesses is the ability to build and maintain highly integrated and adaptable supply/demand capabilities – supply chains that deliver the right product, to the right place, at the right time and price. One needs only look at those companies that have dramatically surpassed their competition in highly competitive businesses; Wal-Mart in retail, DELL in computers, UPS in 3rd party logistics, Zara in fashion retailing. While in highly diverse industries, each is highly customer focused and each has built the best supply chains in their business that allow them to dominate their competitors.

Is this a coincidence? I don’t believe so. I think that these companies are examples of organizations that understand that the entire supply chain must be the focus of their competitive strategy and they must excel across all functional areas within the supply chain. They realize that their ability to excel is only as good as their weakest capability.

Companies that have taken an ERP centric view of their business were initially focused more on execution within their four walls than on their entire supply chain. Today they are finding that this view has been too limiting and results often less than satisfactory. That is why the major ERP solutions providers; SAP and Oracle are scrambling to create supply chain capabilities as adjuncts of their suites. That is why I2, Manugistics, WebPlan and other supply chain solutions are seen as required enhancements to mid-tier ERP solutions.

However, by not having the supply chain as the fundamental strategy of their IT solution most companies have still not achieved the dramatic success that they hoped they would attain when they embarked on their huge investments in ERP.

Which brings me back to the feedback from my travels. Inevitably the issues I hear from virtually all members of a cross functional team is that their ability to control and execute across their supply chains is compromised because they don’t have visibility into points across the entire supply chain. With their current ERP and supply chain solutions they have achieved better control over what goes on within their immediate manufacturing facility and they have been able to optimize what inventory is required at the manufacturing facility or distribution center. They have achieved greater visibility and execution capability over their financial execution and visibility with their ERP solutions than the pre-ERP implementation state. However, most companies lack the ability to manage and gain visibility into inventory supply availability and execution at remote or 3rd party contract manufacturing facilities across their diverse supply chain networks.

The bottom line is that in order to truly optimize the value proposition for the organization inventory must be controlled and optimized across the entire global supply chain while meeting the demand requirements of the customer. Whether the organization model is fundamentally manufacturing or distribution the ability to minimize inventory while insuring maximum fulfillment across the global supply chain is critical to drive value.

Today’s ERP approach just doesn’t do it.

So what is required to achieve an optimal level of global commerce management?

The answer lies in building a highly flexible, adaptable supply chain environment that can respond quickly to demand requirements and minimize resource requirements in the process. It requires a fully integrated information environment that provides the organization with a 360-degree view of their environment. There is a blueprint for achieving this highly integrated, synchronized global supply chain environment at
Creating Value from Global Commerce Management.

I have created the Global Supply Chain blog. I created this blog because there is a need for a venue where professionals and practitioners (read operations, finance and IT) people can come and freely exchange ideas on Global Supply Chain issues.

People who are actively involved in Global Supply Chain management have always understood that their business is different from other aspects of the organization. The global supply chain is complex. It requires a cross-disciplinary approach to business. It involves planning and forecasting, purchasing, global logistics, compliance (regulatory, product, supplier, and service provider), inventory management, sales, customer service and finance. All of these areas are siloes of work within the four walls of the organization. All of them require information that is the fundamental responsibility of another department within the organization. More than almost any other area global supply chain control requires collaboration between more partners than any other area of the business.

Most people within North American business organizations don’t understand what managing the global supply chain requires. Senior executives are virtually clueless of the complexities and risks surrounding the global supply chain but are being driven to global practices because competitiveness demands it. They realize the potential benefits but don’t understand what is needed to achieve a “best-in-class” organization.

I am looking for people dedicated to this area who are willing to engage with me and other professionals, share their challenges and solutions, discuss goals and objectives and how they might be reached, provide metrics and benchmarks that they have found useful.

I am looking for participants who want to achieve excellence in managing their global supply chain,

My ideas may be of interest, they may prove mainstream or unconventional. Hopefully, they will create interest and dialogue.

I have sent this message with the link to the blog because I believe you are interested in this area and it may be an opportunity for you to share information with others and benefit from their knowledge and experiences. I have several articles posted that will give you a flavor of what will appear on these pages. Most importantly I am very interested in your feedback on topics that you would like to have discussed in the area of global supply chain management and control.

If you wish to be removed from my list please send me an email and I will do so immediately.

Kind Regards
Ned Blinick
Blinco Systems Inc./3rdwave

There is a huge rift in understanding and language between operations and finance people within an organization. Although both appear to deal with similar information the ability to communicate with each other is limited by common vocabulary, perspective, responsibility, and experience. This lack of commonality between these 2 groups leaves a very large gap in aligning corporate objectives. It leaves a major gap when it comes to evaluating and selecting IT solutions to help the organization achieve their objectives.

This problem exists in most companies, large and small. Best in class organizations have overcome this problem.

In my previous blog I talked about why clients often are disappointed with the results of their application solutions. Most companies still lack a cohesive solution architecture that provides integrated information flow, synchronized activity across the organization and collaboration with external partners. The IT solutions often mimic the siloed architecture of the organization making the integration and synchronization of the information network virtually impossible to maintain if it was ever a deliverable.

Compounding the situation is the inability of finance to meaningfully communicate with operations on the strategic goals of the organization and the inability of operations to explain the functions they are mandated to execute. Aggravating the communications is that operations operate at a functional level and most often don’t understand how their activity fits into the greater whole and its impact on the financial well being of the organization.

Is it realistic to expect that finance that views the organization through dollars and cents can communicate with operations that relates to organization through physical units?

A real (and repeatable) vignette sheds light on this reality. Outside of plant and equipment the 2 factors that make up the vast majority of the companies assets and expenses are inventory and people. Indeed whenever a company hits upon hard times the finance types immediately look to reduce inventory and head count. The solution to their immediate financial problem is obvious. There is almost an immediate improvement in the balance sheet and liquidity by converting inventory to cash. Head count reduction also improves the company’s income statement in the short term.

However, as important as these goals are in a crisis, they are always reactive, invoked by finance and are rarely strategic. Operations rarely have planned input and the resulting actions rarely provide long-term benefit to the organization.

In fact the decisions are almost always implemented to protect share value. This is true for both public and private companies. In the short-term these activities do deliver the expected results but rarely do they provide sustainable benefit.

If finance feels that reduction of inventory and headcount are so critical and important in a financial crisis and necessary to protect shareholder value why are these goals not strategic actionable objectives, day, after day, after day? Certainly it is not for lack of stating that optimal inventory levels and operational efficiencies are strategic goals.

In a financial crisis the lower levels of inventory and head count provide the necessary short-term cash results but are achieved at the risk of the long-term market interests of the organization. Finance’s objectives are the preservation of capital in the financial crisis not the strategic market positioning of the organization.

In best in class organizations the finance and operational groups have found ways to work together by constantly aligning the financial and operational goals to maximize the company’s long-term market and financial strength.

The critical element in aligning finance and operations is their ability to communicate and understand one another on each other’s specific goals and objectives. This ability to communicate and understand is equally critical between operational silos. The ability to communicate is based on a commonality in the language between the parties. This commonality of language within the business is based on intelligent information. Intelligent information is the enhancement of raw data into information that can be shared and understood and effectively acted upon. In order for the information to be supportive of intelligent decision-making it must be accurate, timely, and intelligible from the perspective of the person using the information.

IT solutions that don’t facilitate the communications between finance and operations fail to deliver the results that they are often expected to provide. Without proper communications between finance and operations it is virtually impossible for companies to align their short-term tactics with long-term strategy. IT solutions that are aligned provide useable information to all users in a manner that they can use to make informed decisions. However, too often this alignment in IT solutions fails because IT decisions are not made holistically. IT decisions are often driven by operational and financial silos without concern or thought on how the results may impact overall objectives. IT decisions made this way will almost inevitably lead to IT misalignment which in turn delivers misaligned information which in turn results in suboptimal communication and results.

Keeping process and information aligned is a serious problem. Business realities ultimately dictate business process. IT solutions that require companies to fit their business process to the software architecture compromise the ability of the business respond to their business realities. Maintaining alignment over time between disparate IT software and hardware solutions is probably the greatest challenge and cost to IT organizations as they constantly fight to align their IT infrastructure with the needs of the organization. (See Joshua Greenbaum’s article Software as Disservice, Managing Automation, April 2005)

Constantly aligning the business IT solutions to meet the changing business process requirements is vital to improving communications between operations and finance.

I had a talk with Larry Lapide at the Council of Logistics Management convention in Chicago about the perceived risk by many companies, large and small, in buying software solutions from small and medium sized software vendors. His comments were extremely interesting.

Larry said that he is advising students and industry execs that the risk factor of doing business with “smallish” firms that have longevity in business and good client references is significantly lower than doing business with medium size or larger firms that are relatively new to the business area, have few if any referenceable clients in the business area, and have no longterm track record for profitability.

So who is Larry Lapide and why should what he says matter. Larry currently research director at the MIT Center for Transportation & Logistics. Prior to joining MIT he had a career and reputation as a leading analyst in the supply chain practice at AMR. Larry has not always held this position, but upon reflection and experience over these past 10 years, concluded that size, although a factor, must be looked at critically when assessing risk in the selection of software solutions.

Larry’s point is particularly important when evaluating solutions to manage your global commerce. The past seven or so years have seen many small/medium sized software solution providers in the area of global commerce come and go. In fact there are very few solutions providers, large or small, that exist in this area.

This point would seem to support the contention of small companies are at risk of not surviving long term and therefore not being able to support the clients that invested in their solutions. However, a review of the industry will reveal that the companies that failed to survive did so not because they were small but because their business concept was wrong for the market, the market was too small, and their business plan was ill-conceived. Most of these solutions providers built their business plan around an IPO supported with large VC investments.

Companies that have littered the global solutions software landscape – Syntra, Celerex, Open Harbor, IMC, Rockport, Vastera are among the few that come to mind. Each focused on growth at the expense of managing their business based on market size reality. They all had revenue streams from solid clients. But each failed to build a business to support its base and chased after the growth and the potential IPO … the mantra of the industry.

This reality is not only that of small companies. One only need look at other players in the Supply Chain or ERP area to realize that failure to pay attention to matching revenue with expenses can lead to failure. I2 and Manugistics are clearly poster children for companies that have large customer bases, relatively large revenues, and are on the brink of going out of business.

In the space of global commerce management there are relatively few players that have a proven track record of delivering successful solutions over the long term. Up until recently it can be argued that the market has been uninteresting to a large number of companies – large, medium or small. The percentage of a company’s business that was dedicated to global sourcing or sales was often less than 10% of their overall business and didn’t warrant the attention of senior management.

The Wal-Mart factor has changed all this. With the drive for lower prices across all industries and markets, companies have been forced to go off-shore for raw matierals, semi-finished and finished product. No longer can they sit back and pass on prices to customers and consumers without risking competitive disadvantage. The need to globalize is driven by the need to constantly maintain low cost operations.

Managing the global landscape is now gaining “C” level attention. Over the past 18 months there is a dramatic increase in the number of executives with the word “global” in their titles; Chief Global Supply Chain Office, V.P. Global Supply Chain, Director Global Supply Chain, V.P. Global Sourcing, etc. The large ERP solution providers (SAP) and Microsoft (Axapta) and the large TMS (Trade Management Solutions) providers (Red Prairie, Manhattan Associates, Catalyst) have not been slow to recognize that this is an area that is potentially huge and they are all trying to carve their niche in this space.

There are also some new global solutions providers that have started up with significant Venture Capital backing. Over the past 3-4 years TradeBeam has been on an acquisition binge supported by about $35 million in 1st and 2nd round VC money. Their method has been to buy the assets of failed global solutions companies and try to provide one integrated solution. In November they announced another $18 million in 3rd round VC financing. This model is one that SSA is also pursuing.

Then there are the smaller companies that have been providing global commerce management solutions successfully for over 10 years. They have focused on this area and built up significant global commerce expertise, highly robust solutions, strong client relationships and references and solid business models. They are small but deep with experience and expertise in the area.

So where does the greater risk lie? With companies that are large but have no significant expertise in delivering solutions in the area of global commerce but see this as an opportunistic area of growth OR with companies that are small or medium size but have a proven track record of successfully delivering and deploying solutions with clients over many years.

If the market doesn’t provide the size and revenue opportunities that these large ERP and TMS companies envision will they continue to invest in the area? Will they limit their involvement in the area if this proves to be less financially rewarding? Do they have the expertise and experience to deliver integrated solutions that provide the real value proposition?

What is absolutely clear is that companies that have been involved in this space over many years, have a solid business model and good strong clients will be there for the foreseeable future – whether they are large or small.

Large firms have almost always opted for large size solution providers because it gives them comfort. However, in the area of global commerce management the level of expertise in the area and the ability to develop, deliver and deploy proven solutions that deliver value is where the real risk lies.

I would argue that in this area size is significantly less important than expertise and past performance. Global commerce is new to many companies. In the United States understanding of this area is relatively limited and the expert resources are a scarce commodity. The number of solutions providers with proven deliverables and value is relatively few.

The risk for clients lies in not taking the time to understand what is required to deliver successful solutions in the area of global commerce management. Size may matter…but not the way one generally thinks.

Ned

Yesterday I had an interesting experience. I received a telephone call from a consultant who advised me that because of our firm’s size his client had not selected us for consideration. He agreed that the application had a great functional fit. The client’s concern with our size was that in dealing with us (or other small software suppliers) they were at more risk than dealing with a larger solutions provider.

Clearly, on the surface this “gut” reaction to small size appears logical and reasonable. Clearly the vast majority of IT professionals subscribe to it in there selection process.

However, I just couldn’t get my head around the conclusion. It’s true that we are not a large vendor, neither in size nor number of installs so what I have to say may appear as rationalization. But I got to thinking about why companies looking for IT solutions are at such a disadvantage and why so often the results of their software technology decisions are so unsatisfactory.

Fundamentally, there are prejudices that exist in the IT solution selection process. Size is just one. Non-traditional development and implementation methodology is another. Vertical experience vs. domain experience is yet another. There are others. These prejudices are based on preconceived, generally accepted ideas about what is necessary to insure a successful selection and implementation of an IT solution.

I think that the solutions provider community (developers, service providers, analysts, consultants, media) has been masterful in establishing the rules by which software licenses and OnDemand service is provided and supported. It appears to me that almost everything has been skewed in favor of the solutions provider. Most importantly the client community has bought into and heartily endorsed the business model.

For the most part the solution provider, whether a software development company or provider of OnDemand services, creates supposedly low-cost, easy-to-use “packages” of software solutions that incorporate what they determine is “best of breed” functionality that can supposedly be configured to the client’s requirements. However, more often than not this does not happen.

ü What does a package solution mean? Do packaged solutions benefit the software provider of the client? Clearly the package is what the software provider has decided is the best solution that fits most of the needs of his client market. If the client needs customized modifications to support its unique business process, chances are the software solutions provider won’t be structured to provide it and the client will have to go to a 3^rd party consultant or integrator. When that happens does the low cost, relative ease case goes out the window? Who supports the solution going forward? From our experience any company of reasonable size is constantly going through business and process change. It is important for the client that the software solution be flexible enough to be able to form to the changing needs of the business.

ü What is “best of breed” and who is defining it? The software or solution provider has decided what are the services that are to be incorporated into its solution and defines them as “best of breed”. True the solution provider might incorporate functionality from world class clients, but does that functionality necessarily reflect the way the client does its business. Whether a specific client requires the “best of breed” functionality is secondary to the fact that it is easier for the software provider to support applications if they are in control of the functionality rather than taking responsibility and delivering solutions that support the client’s specific requirements. The accepted wisdom is that if it is good for a “world class” client it must be good for all clients. The flip side of the argument is that if functionality is not considered to be of significant interest to many clients then it can’t be best of breed and therefore should not be deployed.

ü The software provider defines “best of breed” functionality and provides it as part of his packaged solution or as an upgrade. What happens if the client doesn’t want or like the functionality? Is the software provider flexible enough to support a client’s unique business requirements and processes if they fall outside of the package version and upgrade path? If the answer is yes isn’t the solution now a custom solution? Will the standard Service and Maintenance agreement cover the off-package solution? How will the customized functionality be supported going forward as new versions of the “package” are released. What will the cost of the specialized maintenance be?

ü The package solution is supposedly easy and less costly to maintain because the cost of maintenance is spread over the user base and does not fall to the individual user. This works in theory. However, in practice as soon as clients required specialized functionality the cost of service and maintenance increases because the client needs dedicated services.

There are probably other factors that have weighted the odds in the software or solutions providers’ side of the ledger. What is amazing is how the client side have bought into it. The analysts and consultants will all say that “packaged license solutions” are necessary in order for solutions to be economically deployed and maintained. These same analysts and consultants will tell you that the OnDemand model is an excellent alternative to the license model because it will be more responsive to client needs. Why? Because the OnDemand provider will need to service the client or the client will withdraw its business because the cost of entry and exit is purported to be low (transaction based). The arguments in favor of “packages” or OnDemand solutions are valid to a point. However, they are also designed to support the historical premises that the industry is based on.

I believe that the model is broken. There are viable alternatives. The client community just needs to have some courage and initiative to look for suppliers that have developed client centered business practices. Maybe its wishful thinking. But those clients that have had the courage to pursue these relationships with smaller client focused solutions providers are gaining major benefits that their less aggressive competitors.

Certainly there are people that will disagree with me. Please feel free to comment – pro or con. I would like to hear experiences –good and bad- from solutions providers and clients.

Ned