Shoe retailer gives its inventory a technological boost

on Wednesday, April 23, 2014

Shoe retailer gives its inventory a technological boost

Satisfying the needs of customers shopping online and in-store consists of multiple operational factors, but it all starts out with the procurement process. A comprehensive view of all direct inventory enables retailers to determine how shipments should be organized based upon varying consumer demand. This omnichannel strategy is forcing businesses to utilize technology that can provide a real-time vision of all distributed materials. 

Putting the best foot forward 

According to Retail Info Systems News, footwear merchandiser Aerosoles merged its direct and e-commerce avenues to streamline inventory processing, with the goal of having all stock lists housed in one location. Aerosoles Vice President of Merchandising Steve Siebel told attendees at the 2014 Retail Technology Conference in Orlando, Fla., earlier this month that linking core functions such as assortments, warehouses, material management and demand planning has had a profound impact on the retailer's omnichannel blueprint. 

"The organization needs to realign to one customer service team and one allocation team to handle the new demands," said Siebel, as quoted by the news source. "We realized we have to determine what the best level of inventory actually needs to be at each location." 

As opposed to having two disparate procurement software systems - one to handle e-commerce, the other to administrate brick-and-mortar operations - Aerosoles chose a holistic solution that would enable it to monitor fluctuations in consumer demand and compare those changes to current product storage. 

The rise of radio frequency identification (RFID)

The ability to log incoming materials at a warehouse bay and have managers be able to view the inventory changes in real time is one of the benefits associated with RFID. The technology has grown in popularity as companies realize they can sync the information recorded by the system with records management software. When an item arrived at a facility, where it was stored, and the time it left a distribution center can all be entered into a comprehensive solution.

Merchandisers throughout the globe have recognized the significance of RFID, so much so that a conference showcasing the technology - appropriately named RFID Journal LIVE! 2014 - was held in early April. RFID Journal reported that the event attendees displayed RFID-related services at the Item-Level Retail and Apparel Workshop on April 8, displaying how the systems improve inventory accuracy and enable users to adequately meet the demands of customers. 

Marks and Spencer Head of Packaging Kim Philips opened the conference's keynote presentation by explaining that RFID will become more prevalent as merchandisers move toward omnichannel practices. 

Share/Bookmark

Protecting data throughout the distribution process

on Tuesday, April 22, 2014

Protecting data throughout the distribution process

The prevalence of procurement software and other related programs in materials acquisition has obligated users to find new ways to secure their data. Digital intelligence collected from sensors, expense reports and other sources are often aggregated onto cloud servers where the information can be dissected by data analytics. Though this technique provides suppliers with valuable insight, it opens up avenues that hackers could exploit. 

Too good to ignore

With security considered, the benefits associated with spend management cannot be ignored. Many of these programs sync with automated invoicing, allowing companies to quickly process and file purchase orders. This electronic workflow allows organizations to quickly and efficiently determine which expenses are congesting budgets and where savings can be achieved. 

According to Supply Management, Head of Indirect Procurement at textile manufacturer CWS-boco Marcin Chramega stated that his centralized team managed about 40 percent of the company's $278 million annual indirect spend with the assistance of an expense analysis program. Chramega noted that the software allowed his department to eliminate operational inefficiencies, in addition to helping him deduce how the company can save money.

"I will show all these misses and gaps with the assessment of the data," said Chramega. "This will help me to drive the business and procurement to the next steps."

Where the challenges lie

However, with electronic invoicing comes avenues through which malevolent figures could gain access to company networks, meaning that business account information could be compromised. Dan Wiech, managing director of Tools4ever, a company offering robust identity and access management software, stated in an interview with Manufacturing.net that data protection is just as much a part of distribution as procurement and spend management. Wiech noted that companies should implement policies that allow access to financial information only when it's absolutely necessary.

Although Wiech believes that manufacturers and distributors alike are cognizant of data security, there are three components that they may be neglecting:

  • The use of role-based access control arrangements to prevent unauthorized people from accessing sensitive information. 
  • When a worker's responsibilities shift, firms need to ensure their security permissions are appropriately updated.
  • Once an employee leaves an organization, his or her database entry must be terminated immediately. 

To sacrifice the benefits of automated processing and procurement software would put a distributor at a grievous disadvantage in the marketplace. Rather, they must implement common, non-technical best practices that will protect their data from a variety of different threats. 

Share/Bookmark

The Value of Subject Matter Experts

on



Who doesn't like good fried chicken? Nevermind that I'm asking this shortly before lunch, the work that goes into innovating the food you eat at your chosen establishments has a lot of parallels with your daily work, and I'm about to break down how. But first, a bit of backstory.

In my work prior to Source One, I was an editor and journalist. My last journalism job was for a startup men's publication running their Philadelphia bureau. The publication was very heavy in the food/drink/"new places to go to seal the deal", so I and my writers found ourselves in kitchens and the back rooms of bars a lot. The food scene in Philly is pretty diverse, but dining establishments can be over-generalized into one of three groups.

The Old Standbys - These range from your chain restaurants, to your mom & pop BYOs, to your diners. Good for a weeknight meal when you just want something familiar, these aren't going to have anything unique or adventurous on the menu - save for maybe that $3.99 steak & eggs "special" at the diner that's adventurous for all the wrong reasons - and no one in the front or back of the house has any culinary training above the mandatory food safety stuff, but they still serve their purpose and make a little money for themselves.

The High End Restaurants - This also includes some better chains, but this is mainly the domain of local restaurateurs who've been at the game for a while and have an education and experience. The chefs in the kitchen have c-school degrees, the front of the house is run by someone with a degree in hospitality management, and the experience is nothing short of what you'd expect. Your steak is expertly prepped medium rare, the flavors of the carb-laden sides complementary, and the decor is exactly what you'd expect from a steakhouse. And you can get that same experience in any of their well-run establishments around the city or region. They are perfectionists at the tactical level and very efficient. In Philadelphia, this is what you get from a Stephen Starr restaurant, or those from Jose Garces, Marc Vetri, and Michael Solomonov.

Boutique and Specialty Locations - These are highly specialized ventures and they run the absolute gamut. Maybe it's an 8-seat counter staffed by a lone chef who has studied noodles his entire life, and he only does ramen but it's amazing ramen. Or maybe it's an out-of-the-way bar run by an eccentric/lunatic who spent years traveling the world for cocktail ideas and inspiration, and learning about liquor. Or maybe it's the gastropub run by a beer expert bartender and a chef with such an in-depth knowledge of food that he's able to pull in unusual combinations that WORK, and a creative streak capable of producing things like deep fried Four Loko or a burger with  foie gras buns.

All three of these options will get you fed. And the High End Restaurants promise a great experience. But the boutiques and specialists, that third group - those are destinations. They are the best at their respective craft, and are able to perform at the highest levels because of the level of control they have over their work - their assigned subject matter - because of their expertise.

So, parlay this into your organization.

The old standbys are just following the same old procurement practices someone else showed them, slinging out three bids just as easily as big-as-your-head portions of chicken parm and just as prone to resorting to cutting down portions when the money gets tight.

The high-end spots have the best tools and educated resources at their disposal, but their methods are nothing new. "Overhead in Department X getting a little high? My MBA professors said to outsource it - Google "BPO" and go with the top result!" These efforts likely produce reasonably good results, but when dining trends change from grilled dishes to sous vide, or when industry trends change and the old school savings methods aren't enough, both are left with useless resources.

The specialist subject matter experts, with the freedom to leverage their expertise and creativity to properly innovate - the sourcing version of the guys in the kitchen going "Our exotic Asian restaurant's covers are plateauing, the move seems to be for more honest, simple food - BAM! Korean Fried Chicken!!" - are the ones who develop and succeed with innovative strategies that produce the next-level results that others soon follow. So, when one restaurant creatively, and successfully, fuses Asian spices with fried chicken wings for Korean Fried Chicken, others follow up with their own Korean Fried Chicken... and Jewish Fried Chicken and Israeli Fried Chicken from a donut stand. And suddenly everyone in Philadelphia is awash in fried chicken. Or, when one company has the supply chain knowledge and vision to see competitive advantages in consolidating their supply chain down to critical suppliers, then working so tightly with those suppliers that their relationships are practically partnerships, and has tremendous success from the resulting competitive advantages - Supplier Relationship Management becomes a hot topic and a sourcing "next step".

So, the next time you're headed out to dinner, and you pick a spot that "does amazing things with chicken", think about why they're able to do that and how that appeals to you as a customer. It just might help you reconsider how you utilize those subject matter experts within your sourcing department and organizing.
Share/Bookmark

The challenges of supplying humanitarian aid

on

The challenges of supplying humanitarian aid

Strategic sourcing for organizations such as the International Committee of the Red Cross often revolves around providing food, basic housing and medical supplies to people living in particularly impoverished regions around the world. Due to the absence of consumer data, obtaining the necessary materials becomes quite a challenge, as Red Cross personnel have to accurately determine which materials are needed.

Working with humanitarian distribution 

Although demand for particular items is prevalent, humanitarian supply is not derived from consumerism, but genuine need. People affected by natural disasters require robust distribution strategies so that materials essential for human sustenance can be readily obtained. National governments are typically charged with maintaining a viable procurement process by providing regular aid, but deducing how much of which particular products are required becomes a challenge

According to Supply Chain Brain, researchers at the Massachusetts Institute of Technology Humanitarian Response Lab are devising new critical situation assessment methods of delivering aid. Jarrod Goentzel, founder and director of the department, claimed that comparing conclusions derived from social media and big data with seaport and highway operability could give organizations a better perception of how essential materials should be transported to areas affected by natural disasters or disease. 

Goentzel also noted the importance of the private sector, stating that brick-and-mortar stores should leverage data to figure how to best meet supply needs. Before a hurricane shakes a region's infrastructure, it's imperative that retailers stock up on necessary items. 

Deducing government intervention 

Sometimes, organizations such as the International Committee of the Red Cross have to deduce how public authorities will hinder procurement management. According to the Sudan Tribune, Sudanese officials recently announced that they were suspending ICRC activities after the organization refused to abide by Khartoum's extortionate demand that funds and resources be transferred to the Sudan Red Crescent.

In addition, the news source reported that the National Islamic Front/National Congress Party regime in Darfur recently expelled the Agency for Technical Cooperation and Development (ACTED), a humanitarian aid organization from France supporting water and sanitation infrastructure for camps surrounding the region of Zalingei. An anonymous UN official told the Sudan Tribune that this move left many charitable sectors without effective spend management or oversight, leaving many of those living in poverty with little to no knowledge of how operations should continue. 

These suspensions and expulsions ultimately hinder materials acquisition. For this reason, it's important organizations such as ACTED and the ICRC take a diplomatic approach to procurement and work with national governments so that aid can be delivered. 

Share/Bookmark

Building a Supplier Relationship Management Program

on Monday, April 21, 2014

Establishing a formal supplier relationship management program within your organization can be challenging. Some risks that come into play include ensuring the right level of accountability with the suppliers versus the organization, the effect that ill-defined roles and responsibilities can have on the program, and maintaining a successful program throughout the life of the contract. The best way to mitigate these risks is to ensure that the program is well structured from its onset and that the right people are in place to manage the program on an ongoing basis. The following tips will help guide the proper design of a Supplier Relationship Management (SRM) program.

Developing an SRM program starts long before the supplier on-boarding process with effective strategic sourcing. It is critical to select the right business partner – one that shares an understanding of the organization’s culture and goals – especially in more strategic partnerships. Always try to keep in mind the end state vision and future plans when selecting suppliers during the sourcing process, this will help to ensure the supplier will fit into those plans adequately.

Along these same lines is the necessity to have a person or small team assigned to manage the supplier relationship from contract negotiations through the on-boarding process and throughout the life of contract, the earlier they are involved the better chance they have of appropriately establishing the parameters of the relationship. This should include regular communication at the account management level to ensure that service levels are being consistently met, that the scope is being adhered to, and that pricing remains within the agreed upon conditions. These interactions aid in the support of assigning accountability to each side of the relationship. Understanding who is responsible for what in the contract is dependent on the scope of the category and agreement, however typically the supplier is required to maintain such conditions as service level agreements, processes and procedures, quality and on time deliverables, and more. Consequently, accountability is not a one-sided story, the business is typically responsible for maintaining up to date information provisions, processes and procedures, and ensuring that approvals are provided in a timely fashion as to not disrupt the supplier’s timelines, among other things. Communication is the key to ensuring that all involved parties are maintaining their end of the deal. Within these elements lie accurate and well-defined roles and responsibilities. Accountability cannot loosely fall on one party or the other, there needs to be clear assignment of tasks and general duties. Just as in any well-organized plan, without specifically assigned roles and responsibilities, the relationship and subsequent contract can easily become derailed.

Another key element to Supplier Relationship Management is continuity. At the onset of a new contract all those involved typically pay close attention to the contract terms but within months this attention slowly begins to slip away and drive to other priorities. Before you know it the contract is up for renewal and there is a convoluted mess to deal with – irrelevant SLAs, out of date account structures on file, and pricing that does not apply to the scope of work being conducted today. This is another vital reason that a specific team be assigned and held accountable for managing all aspects of the relationship throughout the entire life cycle of the contract. Not only is there a great deal of risk to the business, but there is also much more work involved in renewing an agreement that is essentially obsolete.

Developing and implementing a proper Supplier Relationship Management takes time and expertise. Follow me to learn more about Supplier Relationship Management and Source One’s experience.
Share/Bookmark

Mitigating risk with procurement software

on

Mitigating risk with procurement software

Surviving in the global economic arena necessitates an eye for risk management and an understanding of the capabilities of procurement software. Manufacturers, distributors and retailers throughout the world have to orchestrate profitable relationships while abiding by inter-governmental regulations, considering social responsibilities and exercising sustainable practices. In order to satisfy these demands, market participants must possess a comprehensive view of all material sources.

Assessing risk management requirements

Whenever merchandisers buy a particular product, they're inherently taking a risk. There's no guarantee that the purchased item will be sold, that it won't be damaged or stolen en route or even that it will function properly when it's taken out of the package. The only factor that retailers have on their side is probability. Through assiduous market research and analysis, commodity-based companies deduced that obtaining such a good would result in a return on investment. Consumer demand supports this claim.

Carlos Alvarenga, a contributor to Procurement Leaders, noted that risk management is currently in its nascent stages as it relates to contemporary strategic sourcing practices, but its role is going to become much more prominent in the near future. As of now, charting probabilities primarily consists of conducting qualitative analyses in the form of supplier audits and typically scrutinizes discrete, disruptive and unlikely transactions. However, the future will produce material acquisition that inherently carries out the following tasks:

  • Identify which third-party factors (i.e. governments, associations, competitors) may hinder procurement.
  • Deduce the total cost of risk at the distribution and supplier level.
  • Determine which in-house investments either will or will not produce a return on investment.

Spearheading this movement will be cloud-based software capable of aggregating data from multiple different sources and processing this to form actionable intelligence. Warehouse management systems, port administration programs and other technologies will contribute, providing executives with a comprehensive perspective of all product obtainment practices

Attaining more to reduce expenses

Richard Waugh, a contributor to Spend Matters and vice president for a materials acquisition technology developer, stated that the majority of procurers utilize some form of technology that helps them execute more effective spend management strategies, find cheaper goods for better quality and enhance distribution routes. Looking toward the future, Waugh noted that these organizations are beginning to attain more technology that pertains to specified areas, such as supplier performance measurement and financial savings execution.

However, attaining advanced technology all depends on how much capital organizations have available. A study conducted by Waugh's company surveyed an unspecified number of global enterprises regarding procurement management. Out of the respondents, those that reported higher cumulative savings were much more likely to claim higher software adoption rates. What's even more interesting was that enterprises that encountered such success often reduced operational expense by using computing solutions in the first place.

It could be said that these savings were accomplished by factoring in the risks involved with procuring certain goods from particular sources. For example, a spend analysis program could correlate manufacturing costs in India with those of South Africa and then compare the quality of the goods being produced. In addition, other elements would be factored into the equation, such as:

  • Which ports are more expensive to dock ships at?
  • Are the goods manufactured in politically volatile nations?
  • How do companies producing raw materials treat their employees? (This point is particularly relevant, as many consumers base their purchasing decisions on how socially responsible an organization is.)
  • Do the original source manufacturers utilize automated or manual processes?

Procurement risk management essentially takes basic economic principle and seeks to derive the most information out of probabilities through algorithms. A global enterprise is connected to dozens, if not hundreds, of indirect partners and subsidiaries all engaged in different aspects of the distribution chain. Figuring out which transactions will carry the less amount of risk is imperative.

Share/Bookmark

Logistics hub to be constructed in Oman

on Saturday, April 19, 2014

Logistics hub to be constructed in Oman

Located just below the Strait of Hormuz, Oman serves as a key player in the global energy procurement process. Iranian and Iraqi oil producers ship millions of barrels of the material from their respective ports on a regular basis, often rendezvousing with Omani vessels to deliver to countries located all over the world. In addition to fossil fuel transportation, Oman plays a signature part in the distribution of materials bound for Yemen, India and the Middle East.

According to Arabian Supply Chain, Ahmed al Azkawi, project director of the Omani Supreme Council of Planning, publicly stated that the nation will begin construction of a 90-square-kilometer logistics center in South Batinah at the end of this year. Al Azkawi informed the press that the endeavor will be completed by 2030. It is hoped that the initiative will invigorate the growth of a distribution-based economy.

The news source stated that the South Batinah Logistics Hub will consist of the Sultanate's first ever inland port, featuring zones dedicated to supporting multi-modal transactions, light industries, commercial services, warehousing and procurement management. In addition, infrastructure will be built to supplement the livelihoods of South Batinah workers, such as residential developments, convention centers and leisure areas. 

Fostering economic growth 

Conrad Prabhu, a contributor to The Oman Daily Observer, claimed that the ambitious project is appropriately located between Muscat and Sohar, connecting the two regions through commercial road and railways, ocean ports, airports and manufacturing hubs. Many claim that the region will become a key participant in both domestic and Asian strategic sourcing. Al Azkawi told the news source that the initiative will bring other residual markets to South Batinah, such as hospitality and tourism. 

"Imports by sea, air or land will go into the logistics hub, where it will be value-added and then go out in the form of exports or goods for distribution within the country," Al Azkawi said to The Oman Daily Observer. "The goal is to build a state-of-the-art facility, which offers one-stop-shop services to logistics providers and customers and thereby promote Oman as a gateway to the region."

Al Azkawi also noted that the inland port aims to foster growth in private sector logistics and industry, decrease empty container activity on highways and mitigate the congestion of commercial traffic in Muscat. Al Azkawi and the Supreme Council of Planning's proactive efforts to boost the Omani distribution market shows that the country intends on being a major player in the southwest Asian market. 

Share/Bookmark

Ocean carriers strive to attain profit

on Friday, April 18, 2014

Ocean carriers strive to attain profit

Global economic growth remains steady in 2014, but ocean carriers have struggled to gain profits from increased shipping activities. Although recent alliances between a few European companies have largely mitigated this issue, spend analysis reports have shown that quarterly profits from 2013 resulted from cost reductions, slow steaming and service cutbacks. 

The current overview 

According to SupplyChainBrain contributor Robert J. Bowman, JOC Group economist Mario Moreno anticipated that the United States' containerized imports will grow by 6.7 percent over the next year, reaching a new high of 19 million 20-foot equivalent units (TEUs). In addition, American exports will most likely rise by 1.8 percent, totaling 12.4 million TEUs. Bowman noted that the activity looks promising, but whether or not carriers will be able to handle the demand is another matter entirely. 

So what's hindering the oceanic procurement process? Bowman pointed toward an increase in ship scrapping, with many of the vessels still functional. In addition, the slack demand as a result of the global economic downturn of 2008 slowed trans-Pacific and trans-Atlantic distribution, causing many carriers to scrap ships in order to make whatever money they could. Leaving liners to sit idle at foreign ports is expensive, so jettisoning the material appeared to be the best option. 

Future disruptions 

DC Velocity contributor Toby Gooley recently interviewed Brian Conrad, executive administrator for the Transpacific Stabilization Agreement, a self-proclaimed research and discussion forum that creates voluntary, optional pricing and service guidelines for ocean carriers serving trade between Asia and the U.S. Conrad noted the following factors that may disturb the 2014 contract negotiation season:

  • Alliances between different shipping companies may put independent operators out of business, as larger concords between three or more carriers result in more resources being available to efficiently transport goods across the Pacific. 
  • Though short-term rates are often viewed as ways to drive down long-term pricing, Conrad cited this technique as misguided spend management. Temporary charges won't cover lengthy rate agreements and could destabilize pricing. 
  • Budgets are expected to be constricted in 2015 and 2016, as more carriers move toward low-sulfur fuel, which costs on average $120 per metric ton more than traditional resources. 

Also, the addition of larger vessels could exceed demand in 2016, resulting in more idle ships. Though bigger ships will be able to satisfy immediate demand more efficiently than smaller counterparts, carriers should be wary of this predicted shift in demand. 

Share/Bookmark

Procurement software affected by Heartbleed Bug?

on Thursday, April 17, 2014

Procurement software affected by Heartbleed Bug?

Though the systems themselves aren't necessarily vulnerable, the data that procurement software attains from sensors located throughout all facets of the distribution process may be compromised by the Heartbleed Bug. After specialists revealed that the Open Secure Sockets Layer/Transport Layer Security protocols were unprotected, consumers expressed the most concern. However, new revelations show that manufacturers and logistics experts may also have something to worry about.

Holding on to effective programs

By integrating the Internet of Things into procurement programs, public and private organizations alike have benefited from better visibility into their materials acquisition processes. Walt Sirene, a contributor to Washington Technology, explained that the software has helped the United States federal government - as well as foreign authorities - scrutinize which aspects of product obtainment are hindering expense reduction. He also noted that spend management strategies have been optimized by the integration of data analytics tools.

"When done correctly, spend analytics can unlock valuable insights that can help federal acquisition and procurement organizations drive structured acquisition strategies and make informed decisions," noted Sirene.

As such programs utilize information that is primarily aggregated from Web-driven sources, it's possible that the Heartbleed Bug could be used to distort the intelligence being processed by the spend analytics program, which would in turn produce inaccurate, inapplicable knowledge. Executing analytics programs isn't an easy task and in the event that this distortion occurs, the resources spent collecting and processing the data would be wasted.

Securing all assets

The Heartbleed Bug allows hackers to tap into certain electronic devices used to integrate data into spend analysis programs. Any gadgets connecting to the Web could possibly be exploited to manipulate company market intelligence or even listen in on corporate video calls. According to CNN, tech companies Cisco and Juniper identified a number of networking mechanisms that have been profoundly affected by the Heartbleed Bug, servers, routers, switches, phones and video cameras among them.

  • Allowing warehouse managers to upload and access files pertaining to facility inventory is quickly becoming the norm, but malevolent figures could possibly hack into devices to view any information stored on them.
  • Select versions of Juniper's virtual private network service are exposed, meaning that anyone who managed to tap into the VPN can obtain whatever is on the user's PC's memory.
  • Though difficult to access, one type of Cisco software that operates Internet switches is at risk.

As multiple departments within a procurement agency utilize a number of Web-connected devices, critical information pertaining to the business is at risk. However, software developers and server engineers are developing ways in which Heartbleed can be addressed and resolved.

Share/Bookmark

Boeing Pushing for Major Supplier Discounts

on Wednesday, April 16, 2014


In today’s commercial aircraft production industry, Boeing is being pushed to tighten the pressure on their suppliers in order to produce higher volumes of fuel efficient planes at lower costs.  There are multiple forces at work within the industry that are causing OEM’s such as Boeing to place a microscope over their supply chain configuration. Diminished government spending has led to a sharp decrease in sales in Boeing’s Defense, Space and Security market segment, representing their second largest revenue stream. The decline of this segment, coupled with airlines demanding aircraft at lower costs, has required that Boeing lower their operating costs by making significant changes to their supplier relationships and margin strategy.

Though the aforementioned market conditions are unfavorable to Boeing, there are further reasons why Boeing has decided to rethink their supply chain strategy. Deloitte’s recently released 2014 “Global Aerospace and Defense Industry Outlook” calls for yet another record year for commercial aerospace growth.  This projected growth in global production is a result of airlines seeking to swap out older planes for more modern, fuel efficient models. Furthermore, the need to accommodate growth in passenger travel demand in the Middle East and Asia Pacific regions is also contributing to the projected increase in commercial aircraft production. Therefore, not only are declining market segments cause for internal strategic alignment, but other increasing market segments provide even more reason to increase profitability by renegotiating supplier contracts.

Historically within the Aerospace & Defense Industry, operating margins for OEM’s are very low when compared to their suppliers’. Boeing has maintained margins around 10% with its suppliers, while top tier suppliers typically make 15% and lower tier suppliers about 20%. This is unexpected considering the OEM carries the brunt of the risk with adherence to promised dates of delivery and promises of cost reductions to consumers. Seeing that Boeing carries a majority of the risk in the production of commercial aircraft, they have laid out a plan to increase their operating margins to be more in line with their suppliers’. This is yet another reason Boeing and others within the industry are opting to rationalize their supplier base and re-negotiate supplier contracts.

To address the margin structure issue with suppliers and the various other market conditions previously listed, Boeing has launched an initiative they have called their “Partnering for Success Program” in which they are targeting supplier margins that are historically higher than their own and pushing for cost savings. This new program is being implemented with suppliers as Boeing redesigns the 737 and 777 jets, two of their largest running programs. Boeing has indicated that discounts between 15 – 20% will be the starting point for these contract talks which they began in 2013. Thus far, as of mid-February 2014, about one third of contractors have locked in volumes at the requested discounted prices and the rest of the contractors are either still in talks or trying to wait for the program to go away, according to Boeing CEO Jim McNerney. To date, this effort has spawned several billion dollars in committed savings across Boeing’s supplier base.

Though programs like this generate massive savings figures, there are some potential downsides in over-valuing cost efficiency and ending supplier relationships when they are not willing to meet aggressive cost requirements, such as awarding contracts to inexperienced suppliers.  For example, Boeing awarded the landing-gear contract on the 777X jetliner in 2013 to Heroux-Devtek Inc., a Quebec based manufacturer and repairer of aerospace and industrial products. This company had no prior experience manufacturing the required landing gear systems for commercial planes and had sales of $233 million in 2013. To put his into prospective, United Technologies, the company who makes the landing gear for the current 777 model posted sales of $63 billion and has extensive experience and knowledge working with Boeing in commercial aircraft production. Switching this work from United Technologies to a company such as Heroux-Devtek Inc. is a testament to Boeing’s commitment in lowering their cost of production and ending relationships with suppliers who are not willing to get on board.

Boeing’s “partnering for success” program seems to be paying dividends with the savings locked in thus far and they continue to ensure quality by enforcing their rigorous standards with new suppliers. However, companies who are long time partners of Boeing continue to resist this unavoidable change in their operating margin structure and as a result Boeing has adopted the mantra of the “no fly list” of companies that are not willing to cooperate. With Boeing’s massive operation and volume potential, as a supplier, you would want to avoid being put on this list.   





 




Share/Bookmark

Why do some supplier relationships fail? (aka Has this happened to you?)

on

We’ve all been there.  Spent months and months with a supplier talking about ‘win-win,’ ‘synergy’ and mutual strategic alignment.   Top executives on both sides talk about additional shareholder value being generated.   And then…months pass.  Not much has really changed.  In fact, there might even be an increasing level of disagreements between the two organizations.  It leaves you wondering – what happened?  Where do we go from here?

Many business relationships of course fail to deliver on expectations each year, so how can you avoid being another statistic?  There are some key issues that tend raise their head regardless of industry or deal type and despite all parties’ best intentions.

  • Contracts don’t manage themselves.  You can have the most airtight well thought out contract executed, however it does little good lying the bottom of the legal departments desk drawer.  Don’t be surprised that if after many months (or a year) of neglect that when you pick up the contract again, the deal has gone off the rails.
  • As the deal or project expands in scope, there is sure to be concern around who will pick up the additional cost and resources for the scope creep.  To compound matters, without clear decision making authority, ownership, and leadership on both sides, issues will continue to fester.
  • Expectations on both sides must be carefully managed.  Everyone knows to “under promise and over deliver.”  That mantra applies with supplier relationships as well.  And in many cases, executives all have their own opinion of what a Supplier Relationship Manager is or should do.
Supplier relationship managers must manage expectations more craftily than Contract managers and Procurement/Sourcing managers.  As a relationship manager, one cannot simply cite regulation or policy as a reason to comply.  A Supplier Relationship Mangers must create a long-term vision of how the arrangement should benefit both sides.  Then it takes diplomacy, wile, and influence over multiple parties to motivate towards that vision.

These skills are quite different from typical Contract Management, Strategic Sourcing,  and Procurement.  There are not many best practices available as this is such a new discipline.  Source One's experts are well skilled in conducting market analyses and developing the best practices and next practices your department needs to gain a competitive advantage by implementing a proper Supplier Relationship Management (SRM) strategy. As unbiased consultants with more than two decades of experience, we have worked with tens of thousands of suppliers and fully understand what is important to them in a client supplier relationship. Our experts can work with your procurement team to pass on the knowledge and skills necessary to better your organization's supplier relationship management program. In addition to developing a supplier management strategy, Source One can serve as your Supplier Relationship Management team to identifying revenue drivers, ensuring organizational alignment, mitigating risk, reduce management costs, and developing supplier relationships that will create real value for your organization.
Share/Bookmark

Food industry pushes toward sustainable practice

on

Food industry pushes toward sustainable practice

Enlightening documentaries such as "Food, Inc." and insightful literature such as "The Omnivore's Dilemma" have shaken the global food industry. Now more than ever, consumers are looking for ways to ensure that the products they're consuming are being sustainably grown, produced and distributed, leading many corporations to include environmentally and socially responsible practices in the procurement process.

The fair treatment of livestock

Though organic, ethically grown edible material is often favored by those residing in economically developed nations, people are also paying attention to how animals are being raised and how they are killed. Due to revelations regarding inhumane practices in numerous slaughterhouses, many consumers have abstained from eating meat entirely. Those who continue to consume such products want to ensure that all livestock is being fed a proper diet and exterminated in a respectable manner.

As a result of constituent desires, many governments have even developed legislature to penalize food companies that fail to exercise humane procedures. According to Farm Weekly, the Australian Department of Agriculture is currently investigating Livestock Shipping Services' cruel treatment of cattle being shipped to Gaza after footage was leaked from an organization that enforces responsible distribution methods. In order to eliminate such unfavorable activity, federal authorities are using procurement software that can help them deduce which countries are applying best practices to their livestock acquisition processes.

Preparing for future generations

Annie Castellani, a contributor to Highbrow Magazine, noted that gimmicks such as taking a picture of executives dressed in Earth Day-themed clothing and building a garden no longer makes the cut. Instead, food companies need to implement strategic sourcing that involves sustainability throughout all facets of the edibles acquisition process. Aside from ensuring that all products are being distributed in an environmentally friendly manner, corporations are giving business to farmers who exercise responsible growing methods.

This tactic is used not only to satisfy the demands of consumers, but to ensure that future generations will be able to lead healthy lives. According to an alarming report conducted by the United Nations, an additional 2 billion people will live on earth by the year 2050, which is expected to put an enormous amount of pressure on agricultural resources. Castellani noted that food companies are responding to this statistic by outlining practices in their procurement management strategies that will reduce water usage, eliminate deforestation localize produce and livestock sourcing.

In order for the human race to survive, it's imperative that organizations begin making united commitments to responsibly obtain and distribute food.

Share/Bookmark