Author Archives: Teddy Nee

External Insights Critical to Effective Supply Chain Performance

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Traditional forecasting models that leverage historical data to predict future performance are the tools used by most supply chain executives to plan critical functions, yet these predictions are frequently inaccurate. In fact, research from KPMG International, in cooperation with the Economist Intelligence Unit, shows that most quarterly forecasts are off by 13 percent—meaning that supply chain managers are basing their decisions for ordering materials and scheduling distribution on erroneous projections. The result can mean surpluses or shortages, potentially costing companies millions either way.

There is a better way to anticipate supply chain demands—one that can vastly improve projections, and decrease the discrepancies between forecasting and reality, therefore helping supply chain executives perform their jobs more effectively. Few companies take into account macroeconomic factors, global manufacturing activity, consumer behavior, online traffic, weather data, etc. when making business projections. Yet companies that do identify leading performance indicators using such external data earn more than a 5 percent higher return on equity than those that use only internal metrics. Leveraging external factors, in addition to internal performance measures, is proven to result in more accurate, effective forecasts. Not to mention that improving forecast accuracy can represent huge bottom-line benefits. For a billion dollar manufacturing company, for example, improving forecast accuracy and overall return on equity even 1 percent can equal a $3 million increase in net income.

Forecasting accuracy, improved through external factors, benefits multiple business functions—from financial operations (shareholder value) to human resources (adequate staffing) to marketing (product innovation)—but is especially impactful on the supply chain management function.

Improves Inventory Management

Improved forecast accuracy using external drivers equates to reduced inventory management costs, ultimately improving bottom-line profit. By accounting for external factors, companies can see a 10 to 15 percent improvement in forecast accuracy, significantly decreasing the cost of excess inventory. By ordering raw materials based on correct projections, supply chain managers no longer have to worry about discounts necessary to move excess inventory or the cost of warehousing excess materials because they are ordering accurately from the start.

Read more at External Insights Critical to Effective Supply Chain Performance

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Monitor Financial Distress in Your Supply Chain

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While American manufacturing has experienced a resurgence in recent years, some manufacturers continue to face challenges. Witness for example the recent chapter 11 filings of Colt, Boomerang Tube, and Everyware Global. Sometimes, manufacturers struggle because a supply chain partner—a major supplier or customer—is struggling. In order to manage supply chain contracts, manufacturers need to watch for early signs of financial distress in their customer or supplier base. Then, they may quickly react to red flags and garner an advantageous position.

Trouble in the Supply Chain?

Manufacturers should watch for supplier requests to increase prices or accelerate payment terms. Similarly, cash-strapped customers may ask for financing support. In addition, a manufacturer’s deteriorating market position, failure to effectuate cost reductions, and changes in key management positions all may indicate financial distress. Manufacturers should employ tactics in order to secure continued supply when faced with a financially troubled supplier. By managing contracts after identifying a troubled supplier or customer, manufacturers can often mitigate risks, or even improve their positions.

Manufacturers should prioritize, understand, and address troubled supplier situations with advance awareness. That’s why companies should continually analyze their contracts to maximize leverage, and understand available legal options. To alleviate the pressures of financial distress, manufacturers should exercise common law and statutory remedies in order to purposefully tweak standard terms and conditions of new contracts (or negotiate changes to existing contracts). The terms of these contracts significantly impact the manufacturer’s ability to re-source production to a healthier supplier, recover tooling, and utilize certain remedies.

Read more at Monitor Financial Distress in Your Supply Chain

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10 Tips For Getting Started With Global Supply Chain Risk Management Programs

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In exploring AGCO’s success with implementing a global supply chain risk management (SCRM) program, we can summarize our key recommendations to other manufacturers and services oriented companies in 10 tips:

  1. Start to engage with solution providers – Try them out, start to inflict the pain of visibility on your internal stakeholders, teach your organization to act with many blinders removed and adopt a more strategic level of thinking.
  2. Solutions are in a state of flux – Early adopters will likely have to go through radical changes in their programs as this industry matures, but this is preferable to remaining on the sidelines, getting stuck deeper in the old ways.
  3. Heuristics will make a big difference over time – Both in helping to eliminate false positives and also in identifying real issues with greater precision. Aggregated metadata from your third parties, combined with other big data sets, all processed in real time, will drive a change toward solutions that not only show what your supply base looks like but also helps manage risk scenarios and develop mitigation plans of action.
  4. A picture is worth a 1,000 conference calls – Think of a map, showing all your major internal and external business relationships (manufacturing facilities, warehouses and distribution facilities, logistical paths, suppliers and their suppliers, etc.). This simple illustration can quickly rally stakeholders around a common cause.
  5. Good SCRM analysis requires good data – Don’t skimp on the prep work. You know that sooner or later you do need to get to a clean master data management understanding, as well as item level PO analysis. You also need to fully assess your key suppliers and their immediate supply base and product lifecycles. This is a good time to start on that journey.

Read more at 10 Tips For Getting Started With Global Supply Chain Risk Management Programs 

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The Next Revolution in Supply Chain Management

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In the first revolution, the concept of supply chain, as opposed to logistics, was put forth. Constraint based optimization tools for the extended supply chain were developed to support the new philosophy. As this was going on, Lean and Six Sigma approaches to improving capabilities, not just at the factory level, but in other internal departments, as well as across the supplier and 3PL base, were gaining in strength.

It took a while, but it was recognized technology was not enough. The key process in SCM is the sales and operations planning (S&OP) process that balances supply with demand intelligently. S&OP itself is going through a second rev and we now talk about integrated business planning (IBP), a form of S&OP that is more closely aligned with finance. A related “revolution” that improves the demand half of S&OP is based on the concept of demand driven supply chains; this is the idea that it is important to not just create a forecast based on historical shipments, but having real visibility to demand at the point of sale to improve demand management.

In recent years, the topic of supply chain risk management has emerged and new processes and ideas have begun to be codified and turned into a distinct discipline. An emerging topic is supply chain sustainability; and indeed in many corporate social responsibility reports the topics of both supply chain risk management and sustainability are addressed.

Read more at The Next Revolution in Supply Chain Management

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Financing the Supply Chain with Big Data

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To many, supply chain finance still leans primarily on approved invoices and credit. And yet, over the past 15 years, there’s been a complete transformation in the way financial processes are handled within the supply chain. Fifteen years ago, letters of credit predominated the payment interactions between buyers, suppliers and financial institutions. Financing was arduous and expensive. Today, online, cloud-based platforms are revolutionizing both payment and financing.

Data is the driver. Today, we have unprecedented visibility into all the transactions and interactions that take place in the supply chain. The cloud, as a central information hub, not only can host these interactions and provide a real-time picture of them, but it can also keep long-term records.

This gives financial institutions what they always wanted—a better way to assess risk.

Big Data Financing

Credit rating was historically the key factor for financial providers to assess risk. In many cases, it’s the buyer’s credit rating that counts most, even when the supplier is the one receiving the financing. The problem with credit rating, though, is that it depends on a lot of factors, not just on how reliable a supplier is in delivering goods or how reliable a buyer is in paying on time.

But as far as risk assessment goes, proven transaction history is what lenders prefer to set their decisions and rates upon. But for the longest time, financial providers didn’t have a good way to assess risk independently of credit rating. Now, thanks to big data, they do.

Read more at Financing the Supply Chain with Big Data

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Why Supply Chain Visibility Tools are a Good Investment

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Global supply and demand networks introduce distance, cultural and time-zone challenges, creating a need for greater visibility. Moreover, businesses are under constant pressure to cut supply chain costs and improve cycle times while meeting customer expectations. Ongoing mergers and acquisitions create even more complexity as each new division finds itself operating in silos and unable to leverage economies across the organization.

According to a recent report by Lora Cecere, founder and CEO of Supply Chain Insights LLC, two of the top global supply chain business pains for companies are increasing regulations and compliance and decreased clarity on decision-making across global and regional teams. Other major pain points included the ability to effectively use data; product quality and supplier reliability; availability of skilled people to do the job; and risk management.

To manage the opportunities and risks requires three supply chain visibility capabilities: quick access to global supply chain information; proactive supply chain alerts and the ability to manage by exception; and efficient collaboration with global trading partners. This type of visibility is more than tracking and tracing on the transportation leg. It’s following a product concept and subsequent purchase or sales order from design to final delivery, with all the compliance and finance steps along the way.

With easy access to real-time information, a company can monitor performance across the commercialization and purchase order lifecycles, including sourcing, logistics and import and export operations. With this insight, a company can improve its understanding of the impacts of decisions across its supply chain and respond quicker to potential issues. Similarly, supply chain visibility tools can help identify key metrics and create alerts to manage safety stock levels and minimum/maximum inventory levels, for example.

Read more at Why Supply Chain Visibility Tools are a Good Investment

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China’s supply chain plan could pose threat to Taiwan

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A plan laid out by Chinese authorities to cultivate a domestic supply chain for the country’s high-tech manufacturing sector is expected to pose a serious threat to Taiwanese companies, government sources said Saturday.

In voicing the concerns, Ministry of Economic Affairs sources said China’s efforts to help its own high-tech supply chain flourish to lower dependence on imported parts have already reduced China’s trade dependence on Taiwan.

The plan unveiled by Beijing in May to create a manufacturing revolution underpinned by smart technologies over the next 10 years could deal a further blow to Taiwan’s exports, they said.

The latest plan for the mainland to grow its own high-tech sector, called “Made In China 2015,” takes aim at various sectors, including the information technology, and puts a heavy emphasis on the semiconductor segment.

According to figures compiled by the Bureau of Foreign Trade (BOFT), the ratio of China’s imports from Taiwan to total imports fell to 7.76 percent in 2014, from 11.3 percent in 2005.

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Tapping into the ‘big data’ that can help Greek supply chains to be more agile

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Supply chain platform provider GT Nexus has begun tapping into the big data that has accumulated in its system to help shippers, carriers and forwarders provide “assurance of supply”.

In an interview prompted by the possibility of a Greek exit from the Eurozone, GT Nexus’s EMEA director of marketing, Boris Felgendreher, said the Greek crisis bore all the hallmarks of major disruption – the sort that shows the limitations of supply chain planning.

“This sort of situation puts a premium on being agile, in respect of companies being able to move from one sourcing location to another, and that is always difficult. This particular disruption has an added element in that it is financial,” he said, alluding to the fears of a ‘Grexit’ and the problems Greek companies have with making and receiving payments.

And although Greece itself has accepted the terms of its bailout, a number of Eurozone countries have still to ratify the deal, meaning the threat of a Greek exit persists.

However, Mr Felgendreher explained that a recent development by GT Nexus could offer firms a way to circumvent these issues through a “fusion of the physical and financial supply chains”, following an agreement between the platform developer and trade finance solutions provider SeaburyTFX.

SeaburyTFX has developed a funding programme that leverages big data on the GT Nexus platform to deliver suppliers access to low-cost capital. The programme opens the flow of capital into the supply chain to reduce costs and risk by basing funding decisions on the trading partners’ performance history, instead of the buyer’s or supplier’s credit.

Read more at Tapping into the ‘big data’ that can help Greek supply chains to be more agile

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Visibility Is Key when Driving Supply Chain Performance

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At its heart, supply chain management requires a balancing of operational efficiency, customer satisfaction and quality. Managing the true cost to serve for each and every order is the aspiration to allow better negotiation and value creation across the supply chain. Customer- and consumer-centricity helps anticipate product and service requirements. Supply chains are becoming more extended and complex with a consequent increase in risk and the need for resilience. There are multiple data sources making it difficult to manage and measure end-to-end processes and metrics. Aligning priorities through integrated planning remains pivotal, but there is an explosion of data available that needs to be incorporated and the value extracted to understand how supply and demand issues impact profit and revenue targets.

New technology provides greater supply chain transparency. Strategic supplier engagement continues to be important as a way of reducing costs and mitigating risk. Effective supply chain management can be either a compelling competitive differentiator or, conversely, a source of risk, cost and poor customer service.

Organizations are looking to enable better and more consistent decision-making across complex processes with diverse systems and data. Many are leveraging business intelligence (BI) platforms to give them the capability to make decisions across the organization, including environments in which mobility and access to decision-critical information on the go is crucial. Putting the information in the hands of the people on the front line—those managing supply chain processes—is key to enabling decision-making at the point of decision. But this requires synchronizing an enormous amount of data that comes from many systems and sources in a way that it can be easily consumed by people who need to act on the insights.

Read more at Visibility Is Key when Driving Supply Chain Performance

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A farm-level view on supply chain water risk

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Managing any kind of risk starts with good information, but collecting and managing water use data up the supply chain can be a surprisingly tough nut to crack.

Agricultural supply chains are highly complex. Willoughby, for example, sells to four shippers who wash and bag his greens before moving them quickly up the supply chain to retailers such as Walmart and food service companies that supply restaurants, colleges and other institutions all over the country.

At the end of this supply chain, Willoughby’s greens are sold as branded bag lettuces, comingled with other growers’ greens. That means his farm level water use data is averaged in with many other growers’ data.

“The longer the supply chain, the weaker the connection between the farmer’s management information and the ultimate consumer,” said Daniel Mountjoy of Sustainable Conservation, which led a recent tour of Willoughby’s fields.

Inexact water use data is more of a problem in fragmented supply chains such as Willoughby’s, where each link acts independently and contracts are subject to change.

“My shipper may say I need five acres of red lettuce on May 30,” Willoughby explained, “but when May 30 comes around, they’ll say, ‘Actually I only need half of what you grew.’”

That’s because his shippers are at the mercy of restaurants and grocery store chains’ forecasting models.

Read more at A farm-level view on supply chain water risk

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