Walmart, the big blue superstore chain, recently had a shakeup in getting their inventory to the shelf. This isn't a euphemism concerning supply chain troubles, they actually had serious problems getting items from their stock rooms onto the shelf. 

To restate the obvious for a bit of background: Walmart's business model is to sell common products at low margin but at extremely high volumes. The low prices are secured through the company's practice of supplier management, building relationships with high-volume suppliers and securing their lowest possible price by promising an incredibly large amount of orders. These high volumes are maintained through intricate and state of the art logistics planning to move products as quickly and efficiently as possible from the manufacturers to the distribution centers, then from there to to the individual stores, and from there to the shelves. 

So where did the problem arise?

In an article published in Bloomberg this week, it was alleged that individual Walmart stores were not operating with the necessary levels staff (if you've ever wondered why they have 50 register stalls but only six open, here's your answer). These budget-minded, intentional staffing shortages made by the company affected the stocking crew, and there were not enough employees on the floor to ensure the shelves were properly stocked. 

If a product isn't stocked, it can't be sold, decreasing profits. If a product isn't stocked, it's in the warehouse, increasing turnover times. Both of these problems are bad for a company with the business model like Walmart. 

The company identified and remedied this problem through the use of a consultant firm who identified approximately 800 SKUs across all departments that were indicative of common customer purchases. The consultants came in to various stores, performed anonymous shelf audits, and identified which products were under-stocked. In a later phase, the consultants placed stickers at each SKUs shelf location, allowing Walmart employees to key in on those critical products. 

The takeaway, if there is one other than "buy green stickers", is that for all the planning and forecasting that can be done on the manufacturing quantity, inventory cycling, and transportation angles, problems can arise at any point along the supply line. Often in the most basic areas.

Walmart Remedies Inventory Shortages

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When companies perform qualitative risk assessments, they often fail to consider the potential disruption from a sophisticated cyberattack. The frequency and complexity of cyberattacks is increasing, and hackers are more able to breach a company's security detection system, according to a recent study from Frost & Sullivan. Next-generation intrusion prevention systems (NGIPS) are becoming more widely adopted to mitigate the risk of a cyberattack.

Organizations have experienced a rise in long-term, targeted advanced persistent threats, which indicates hackers are better organized and more skilled. Many enterprises continue to install intrusion prevention systems to detect traditional malware, but some are upgrading protection measures as the threats to data security increase. However, the high cost of software upgrades can deter some businesses from investing in new systems. 

Earlier this month, the U.S. government cautioned businesses about the heightened risk of cyber crime could create disruptions for companies that provide critical infrastructure services, such as electricity and water, The Washington Post reported. U.S. officials are increasingly concerned about data breaches on authorized computer networks, and have warned that cybercriminals are probing into computer systems that control chemical, electric and water plants. Federal agencies are increasing efforts to share information about potential cyberattack risks with infrastructure industries and encouraging computer network security. 

Although such attacks are rare, targeted cybercrime could cause a severe business disruption. While data security breaches are a risk for many industries, the government warned it would be particularly damaging for infrastructure providers, The Washington Post stated. The government issued specific measures that could be taken and gave detailed descriptions of tactics used to gain access to company networks. Adequate measures to prevent data security breaches are important for the risk management process.

Cyberattacks should be accounted for in risk management process

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Although Mexico is becoming an attractive manufacturing destination, delays at the border cost U.S. businesses $7.8 billion in 2011, Bloomberg reported. The value of logistics between the U.S. and Mexico is expected to reach $463 billion by 2020, and this could cause the total losses to grow to $14.7 billion annually. 

The average wait time for commercial vehicles at the Mexican border is just over an hour, though the wait is longer at peak times, according to Bloomberg. The amount of money lost accounted for costs of fuel and trucker wages as well as lost business opportunities. More than 5.1 million trucks crossed the border in 2012 at the largest commercial ports of entry. This number is expected to climb to 7.3 million truck crossings per year by 2020. Land ports of entry are an average of 40 years old, and modernization would cost $6 billion. The ports were built before security regulations tightened after 9/11. Approximately half of the cost would be for improvements on the Mexican side of the border.

Mexico has recently been seen as an advantageous location for companies to move production to reduce manufacturing costs. Direct labor costs are relatively low, and it is more cost effective to ship merchandise. The five industries that carry the highest trade value - electrical machinery, computers, automobiles, plastics and precision health instruments - experienced the highest impact from logistics difficulties.

The border delays could increase costs of consumer electronics and complicate logistics for major automakers. Honda, Nissan, Mazda and Audi have all offshored some manufacturing to Mexico, Bloomberg said. Car companies often shift parts across the southern border multiple times during the manufacturing process, causing operating costs to jump. 

Mexican border delays costing US businesses billions

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As a company grows, so do logistics operations. However, rather than getting bigger, logistics becomes more complex, according to Forbes. Having more than one warehouse is a sign a business is growing, but it can make distribution more complicated. 

As a business grows, order processing in retail sourcing is one of the tasks that can become significantly more complicated, Software Thinktank stated. Depending on the number of warehouses used by a company, order processing can become more difficult. The company recommended warehouse maps with product locations, while electronic procurement through an asset management software can create better organization. Inventory levels can be updated in real time, which allows employees to work faster and fill multiple orders at a time in some cases. 

When orders become larger, it is harder for businesses to assess how much inventory they need at any given time, Forbes said. Large orders could delay future shipments if products are backordered, but too much inventory is a waste of resources and space. If a company does not track inventory levels, the warehouse can end up with a surplus of one product while running out of another. The solution to inventory management is good recordkeeping.

"If you always update your inventory records when you sell, order or receive products, you'll have a firm grasp of your situation, and you'll be able to respond to changes quickly," Software Thinktank said. "It doesn't hurt to plan ahead either. If you notice that certain products are more popular at one location or at a specific time of year, you can stockpile more of those products at the right place and time."

Receiving more orders and expanding to multiple warehouses can be growth opportunities for businesses. Simplifying retail logistics can facilitate the growth process. 

Simplifying logistics helps companies grow

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The environment ministry of China granted permission for the world's tallest hydroelectric dam to be built on the Dadu River. Construction plans were approved despite acknowledgement of impacts to endangered plants and rare fish species during environmental risk assessment procedures, according to Reuters. The dam will measure 1,030 feet in height and will be located in the southwestern Sichuan province. When completed, the dam will generate a total installed capacity of 20 gigawatts.

The region is home to diverse plant and fish species, many of which are under government protection, The Guardian reported. The environmental ministry proposed mitigation efforts, such as protection of fish habitats in tributaries and increased efforts for fish breeding and releasing. 

China has made the move to strengthen its energy portfolio by upping non-fossil fuels to 15 percent of the total energy used by 2020, Reuters said. Hydropower is predicted to make the largest contribution. Chinese authorities approved a controversial group of dams along the Nu River, The Guardian stated. A previous hydroelectric dam project on the Dadu River sparked unrest among farmers in the region who would be forced to relocate. 

In addition to the potential impacts on endangered species, scientists have cautioned that excessive damming in southwest China could increase the region's risk of natural disasters, such as earthquakes and landslides. Rivers often form along fault lines, so planned dam projects are at risk of damage, according to New Scientist. Seismologists have suggested the creation of reservoirs could partially trigger massive earthquakes in geologically unstable provinces like Sichuan because the weight of the water increases pressure on fault lines. A recent quake in China damaged two medium-sized dams and 52 smaller ones, causing residents to be evacuated downstream. Natural disasters could have a dramatic effect on logistics and other business operations in the region.  

Chinese environmental officials approve world's tallest dam

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Whether for work or play, travel is a necessary evil for all of us at some point.

Between travel, gifts, attire and other costs, guests are expected to spend an average of $539 per wedding this year -- up more than 50% from last year's average expected expense of $339, according to the American Express Spending and Saving Tracker's recent survey of about 1,500 adults.

Almost 140 million Americans (59%) are planning a summer vacation. They expect to spend an average of $1,180 per person, on par with 2011.

With statistics like that it is important to plan for any and all expenses that you might incur while travelling, however, as much as we try to plan for any unexpected costs it is inevitable at times that we will run into situations that will leave our budgets a little shorter than anticipated. This article will highlight some common events that you may not consider and how to avoid them and their price tags.

1. AVOID ROAMING CHARGES – one way to avoid roaming charges while traveling is to ensure that you tap into available WI-FI where you are located when using data. You should also consider turning off apps, data roaming, and fetch data.

2. EAT LOCALLY – tourists often flock to touristy attractions or restaurants that they feel comfortable with, if you go to downtown Cancun, Mexico its like being right at home with Outback Steakhouse right on the corner. Of course if dining at the tourist traps you are likely to pay out the nose. Ask around or at the hotel for local restaurants to try, they are generally a lot less costly and you can be adventurous with your choices!

3. EXCHANGE RATE SCAMS – be careful about where you exchange your money when traveling abroad. Anyone with a little spare cash can set up an exchange booth and charge outrageous fees on top of the national or local exchange rate. Avoid this by exchanging money through a secure provider like at your hotel.

4. DON’T GET TAKEN FOR A RIDE – before traveling outside of the country research the best way to get around and the costs associated. When you are in an unfamiliar place taking a taxi for example may be more costly than necessary, they have little regulations around charging fares and can take you on the scenic route to increase the fare.

These are just a few ways that you can save while traveling this summer. Your best bet is to try to do some research before you head out to your destination. Most local information is readily available and just a little extra time spent researching can pay off big when you get where you are going.

While these tips can be used for personal or business related travel, check out the May issue of Strategic Sourcing News and Views for more tips on how to save on your travel expenses both for yourself and your company.

Hidden Travel Costs

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Just a reminder, Source One will be heading to Widener University next month to attend the Continuing Professional Education (CPE) Conference hosted by The Association of Accountants and Financial Professionals in Business.  Source One representatives, Jennifer Ulrich and David Pastore will be presenting their discussion piece titled "Collaborate with Procurement & Improve Your Bottom Line.  The event starts at 7:30 am on Friday, June 7th and will continue until 4:00 pm.  The conference will be held at Widener University's Webb Room located at University Center, 700 E. 14th Street, Chester, PA.

This event is right around the corner so don’t forget to register soon to get your tickets.  For more information on this event or if you'd like to schedule a one on one appointment to speak with someone from Source One please contact us at info@sourceoneinc.com.  We hope to see you there!

Source One To Present At Widener University

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In April, Source One quietly moved to its new corporate headquarters in Willow Grove, PA. The relocation served as an indicator of our continued growth over these past 20+ years, but also reflects our ability to stay ahead of the continuing shifts in the strategic sourcing playing field and enhance the performance and profitability of our clients.

As you might have seen in the AberdeenGroup’s whitepaper titled “The CPO’s Agenda for 2012 …and Beyond”, which was circulated late last year, the priorities of CPOs across the U.S. are shifting in terms of how they plan on improving their organization’s spend management. This shift in priorities resulted in Strategic Sourcing, which has historically proven to be the most efficient and productive method of managing a business’ spend, being ranked last on the list, overshadowed by “increased focusing on spending categories” and “aligning procurement’s strategy with the organization’s goals as a whole”. This shifting to the organizational center by procurement departments reflects the success of companies like Apple, whose supply chain optimizations and supplier management practices under Tim Cook’s time as CPO helped make the company the most valuable corporation in the world.

In our providing of consultative services concerning strategic sourcing and cost reduction, we have been building relationships with companies across a broad range of industries for more than two decades. Last year, our growth accelerated and hasn’t slowed as a result of our emphasis shift from cost-cutting to a consultancy that offers value-add services related to supply chain management, which includes supplier relationship management, project management, and top-line revenue growth.

Our rapid growth required us to relocate to our new headquarters, but this relocation also served as the final step in our organizational restructuring. To support the demand for a more comprehensive service offering, Source One created a Supply Chain Center of Excellence within our new headquarters, with Source One now acting as an incubator for the development of new ideas and best practices for category management, supplier relationship management, and Supply Chain/Finance Integration. The initial focus includes curating a stakeholder engagement process to allow procurement to effectively support their marketing groups, while crafting thorough & accurate spend analyses and opportunity assessment tactics for IT.

To get an idea of how this works, we were able to flex our Supply Chain Center of Excellence’s muscles in our nearshoring initiatives. In assisting our clients manufacturing moves to locations nearer to the U.S., we discovered that Mexican companies were unfamiliar and struggling with strategic sourcing – their business practices were centered around doing business with those they had personal relationships with, and advertising their products and services was not an established practice. Their negotiation tactics also differed greatly from those used in the United States. These differences made it difficult for U.S. companies to find the right suppliers in Mexico, and even if they did, the differences led to inflated prices, reducing the country’s competitive advantage. Source One developed a strategy to act as ambassadors for strategic sourcing in Mexico, helping regions within the country build foundations to work efficiently and effectively with its partners in the U.S. We were invited to CONAMA in 2011, a gathering of Mexican businesses, politicians, and scholars, to further define strategic sourcing and provide insight on the opportunities and challenges facing Mexico’s, and Latin America’s, nearshoring industry. Since then, we have continued the dialogue, and have spoken at various events for LaSalle University students in Mexico City, furthering their education on U.S. business practices.

To sum it up, Source One is leveraging our industry knowledge to stay ahead of the advances of the changing procurement industry by shifting away from cost reduction practices and moving towards proactive supply chain and risk management. As procurement moves from purely cutting costs to managing projects and offering market intelligence in the name of offering their company’s a competitive advantage, we are ready to help.

Check out our Center of Excellence page here.

Source One’s Headquarters House A Center of Excellence

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Manufacturing used to be seen as an industry that required a great deal of capital, but as 3D printing takes off, companies may be able to reduce manufacturing costs while creating innovative products because it is much easier to create prototypes. Additive manufacturing is the process of building objects by adding thin layers on top of each other based on a computerized design, MIT Technology Review stated. On a large scale, this technique is used to produce specialized medical implants and to produce plastic prototypes for engineers and designers. 

Some major manufacturers are starting to move some production to 3D printing. General Electric will be producing jet engine nozzles with lasers rather than the traditional method of casting and welding metals, according to the source. Conventional manufacturing requires the welding together of 20 separate, small pieces together for the jet engine components, and this is a labor intensive process where much of the material is wasted. 3D printing will provide a way to make more complex shapes while also conserving material. GE expects the new manufacturing technique will give product designers greater flexibility and freedom from traditional manufacturing limitations. 

Benefits for small business manufacturing

In addition to large companies like GE, 3D printing could be very significant to small businesses because it allows entrepreneurs to make a prototype with ease, and it can be a way to reduce operating costs for a business, Forbes reported. While additive manufacturing is not new, the reduction of cost in 3D printers is a recent development. Depending on the capability, some 3D printers cost as little as $5,000, making the technology accessible to businesses with less capital. 

Manufacturers are constantly seeking ways to achieve cost reduction, and 3D printing will offer new ways to do this because of lower levels of raw material waste, according to Spend Matters. For example, a 3D printer can use only the necessary amount of steel dust to make a metal component rather than carving down a whole steel billet. Manufacturing used to have a great deal of material waste, and 3D printing generates no excess. 

Additive manufacturing challenges

Since 3D printing technology has only recently become widely accessible, the capacity is small and printers are typically slow. Projects such as the GE jet engine components will serve as tests to how significant this technology can become as it develops. Since additive manufacturing will enable small-business manufacturing, there could be intellectual property risks, Bloomberg stated. The accessibility of 3D printing could increase chances of counterfeiting. Larger organizations may try to force smaller producers out of business with lawsuits, and there could be the risk of products with questionable quality and safety entering the market. Since 3D printing is less labor-intensive than traditional manufacturing, it could mean fewer assembly line jobs, although ultimately the technology could lead to new opportunities.

3D printing will create new challenges for procurement as manufacturers may eventually be able to reduce their numbers of suppliers. If companies can make an object themselves, there is less incentive to procure a project from a third-party supplier, according to Spend Matters. Mass production of standardized products will likely continue because it will be the most cost-effective option. However, specialty items will have value from complex designs. Manufacturing suppliers that produce complicated products may experience a loss of value when other companies have the internal technology to make these components on their own. 

While additive manufacturing is still gaining traction, it is positioned to dramatically change the industry. Small-business manufacturing could benefit from cost reduction and increased capabilities for innovation. 

Impact of 3D printing for domestic manufacturing

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The news for Happy Family is pretty good recently, topped by a Mother's Day acquisition by French food conglomerate Danone that saw the Evian water-owner picked up 92% of stock in Happy Family. The date is doubly significant for Happy Family, as the company got its start on Mother's Day 2006, launched by a young woman upset at what was going into the processed baby food available at that time. The product was organic, nutrient-enhanced, and came in an easily carried pouch.

There were two key decisions she made when launching Happy Family. The first set her apart from her competition. The second sparked an industry trend. The first was the choice of using only organic yogurts, fruits, and vegetables, which compared to the preservative-laden baby food at the time, offered parents a healthier alternative that they previously did not have. Remember, this debuted right around the time people started getting concerned about aspartame, high fructose corn syrup, and other questionably chemical food additives.

The second decision is the one that set fire to the industry: the pouch. Up until that point, baby food came in jars. Occasionally plastic tubs, but predominantly tiny glass jars. With the pouch, consumers were sold on convenience -- take it anywhere, no spoons needed, your child will be able to feed themselves sooner. This managed to hit virtually every buzzword modern parents were looking for. You could leave the house, not bring a big/change of clothes/pressure washer, and help your kid hit a milestone. What was cleverly concealed under all this convenience, were the cost cutting measures enabled by the pouch. This concealment via clever marketing is beginning to fall under a larger term: cost structure transformation.

The plastic pouches are cheaper to produce than glass jars, they typically hold fewer ounces of food (3.5 oz. pouch vs. 6 oz. jar), they expire faster (baby food jars are good for two days after opening if refrigerated, pouches have less than 24 hours) thereby generating more purchases, and they are essentially 100% labeling; producing far more space for brand recognition purposes than jars. All of these factors serve to benefit the company first and foremost, but that's never discussed thanks to clever and effective marketing.

In the realm of revenue generation, this is as effective as it is devious, and it's really effective. It's right up there with the "grocery shrink ray" and "planned obsolescence". But as your own organization hunts for savings, it's not a bad trick to pull out, if possible. Mull the idea over a "lunchbox-friendly" 8 oz. soda (down from 12 ozs.) or a "responsible" (read: shrunken) Snickers bar. Tell us what you think below.

Cost Transformation & Convenience

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When people think of manufacturing, they typically imagine cars, airplanes, electronics and home appliances, but many of the opportunities for production in the U.S. may be on a much smaller scale, according to Bloomberg Businessweek.

Many manufacturing companies have under 500 employees, however, they still have great potential to grow. Some people believe the manufacturing renaissance is due to the reshoring movement, but small-business manufacturers will most likely be responsible for the highest amounts of growth in the sector. 

Direct labor costs are causing offshore manufacturing destinations like China to lose cost reduction advantages, the Washington Post reported. As technology has improved, American worker productivity has increased, which has made the case for reshoring production compelling. Despite this positive news, most of the new manufacturing positions in the U.S. have not been the result of companies returning operations. The average U.S. manufacturing company has less than 50 employees, Businessweek stated. 

Some studies show that smaller manufacturing firms produce a greater number of innovations per employee. Many experts believe new manufacturing positions will come from these firms, and small companies provide parts and components to larger manufacturers. Small and mid-size manufacturers account for one-third of total U.S. export value, Businessweek said. Unfortunately, small-business manufacturers often have difficulty obtaining financing and venture capital to restructure and grow, which can make it difficult to manage business overhead costs. 

Metropolitan areas that have the most manufacturing momentum often have the highest amounts of economic growth and job expansion, according to Forbes. Cities with higher levels of manufacturing production have experienced greater job growth overall. With the rebound of car and truck sales, many cities with high concentrations of auto production have increased manufacturing and high-tech employment. 

Small-business manufacturing has opportunities for innovation and growth

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Facebook was once the hip and trendy social media site for teens and college age students, but just like with everything trendy there comes a time when it’s on its way out. According to a new report done by the Pew Research Center at Harvard University quantitatively social media use among the teenage community is higher than ever. However, conversely on a qualitative side teens are no longer as happy with the Facebook community as they used to be, and frankly I’m not either. “Focus group discussions with teens show that they have waning enthusiasm for Facebook disliking the increasing adult presence, people sharing excessively, and stressful drama but they keep using it because participation is an important part of overall teenage socializing.”

Here in lies the issue with the ever expanding presence of Facebook and its ease of availability and use among all generations. Gone is the element of freedom and personal privacy. The report indicates that today nearly 70% of teens are friends on Facebook with their parents and 30% are friends with teachers or coaches.  Of course you can limit their settings but then comes the questions from your mom or dad after doing so. With parents, teachers and extended family members all using Facebook there is almost no way around the social expectations. Teens used to flock to Facebook in search of privacy. It was in some ways your own little world with your friends you could still enjoy even while at home.  One 14 year old girl even goes so far as to say, “My dad said if you’re going to have a Facebook, I want you to be friends with me so I can see what you’re doing.” And he admits to it, he stalks me on Facebook.”

In my own experience Facebook for me has become somewhat mundane and obsolete, filled with friends posting pictures of food or people I barely know spamming me with advertising and events I could care less about. On its onset I initially signed up for Facebook to share pictures of my friends having a good times, set up private events and groups, and to connect with people I had just met. Grant it you can still use Facebook for all these things but the newness of it just isn’t there. Somehow it’s become somewhat diluted. For the teens growing up today it has become somewhat of a necessity, but with the rise of social media sites like Instagram, Twitter and Pinterest which have revolutionized key elements of Facebook it is only a matter of time before Facebook becomes a site of the past. After all how many teens today remember Myspace? Is it possible for Facebook to remedy the potential situation without overstepping too many boundaries? Maybe the answer is simple, but I believe Facebook needs to acknowledge the fact that no longer are they the same trendy site they used to be. I believe that in the near future in order for Facebook to stay relevant they need to be more proactive instead of just waiting for the next big social media site to blossom and reacting.

Teens Falling from Facebook

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