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on Tuesday, October 20, 2020 0

This guest blog comes to us from Megan Ray Nichols of Schooled by Science.

Even logistics professionals with years of experience in the supply chain may face new challenges when working with construction companies that need heavy equipment. 

Finding the best equipment for the job can often be a challenge — especially if you're working with a construction company that faces difficult site conditions or a limited budget. It can also be difficult to make decisions about equipment — like whether to lease or buy outright. 

These best practices will help any logistics professional ensure they provide the end user with the construction equipment they need — even if they face unique obstacles or project conditions. 

1. Start With Project Specs 

Not every construction job is the same. Challenges posed by certain job sites — like uneven terrain or excessive dust — may require specific equipment or safety features. 

If possible, get a sense of the job site conditions this equipment will be up against. Information from investigations and condition reports on future projects can give you a sense of what your end user will need to handle. Fielding potential concerns from a customer can also help you source the right equipment for them. 

2. Consider Length of Use 

Some construction companies may only need a piece of equipment briefly — just long enough to cover a few projects or seasons. If your customer doesn't need a machine for long-term use, leasing or renting may be a better option than buying. 

3. Prepare for Transportation 

Heavy machinery, once purchased, will need to be hauled to the job site. When selecting a dealer, make sure the equipment or location won't result in prohibitive transportation costs. 

Some vendors will help you find local dealers to minimize travel distance. 

Depending on the equipment your end user has available, you may need to work with a third party to haul it from the dealer to the intended location. 

4. Consider Buying Used 

Not every piece of heavy equipment needs to be new. Often, used heavy equipment may be significantly more affordable and typically won't need extensive maintenance or repairs compared to new equipment. 

Used equipment also doesn't lose as much value as new machinery over time. Most market depreciation is seen in the first year of use. Because preowned items are typically older, you won't have to worry nearly as much about that lost value. 

5. Take Depreciation Into Account 

When buying used equipment, it can sometimes be hard to know if you're getting a good deal — especially if you're unfamiliar with the particular niche or industry that uses the tool or machine you are looking to buy. 

Estimating market depreciation can give you a ballpark idea of how much money you should be spending, based on the wear and tear the equipment has likely seen. 

6. Source From Reputable Dealers 

If you decide to purchase used equipment, be sure you're working with a reputable dealer. Asking for testimonials and reviews will help you identify trustworthy vendors, even if you don't have strong industry knowledge. 

If you buy used machinery, working with a reputable dealer will help ensure you don't invest heavily in equipment that's not worth the asking price. Factors that affect the cost include damage or extensive wear and tear. 

7. Vet New Sources 

In the construction industry, good sourcing practices can still help you identify if a source is trustworthy. For example, when buying from a new vendor, asking the dealer for proof of ownership can help you avoid purchasing stolen equipment or counterfeit parts. 

8. Don't Forget About Maintenance 

Unless you rent or lease a piece of equipment, the end user will need to regularly maintain it to keep the machine functional. 

Some machines are easier to repair than others. Manufacturers may not fabricate replacement parts for some models. The end user may also use third-party tech that isn't compatible with a certain piece of equipment. Factors like these can complicate repairs, making maintenance more expensive or difficult. 

9. Consider Testing Equipment 

A reputable dealer that's confident in the value of its products may be willing to let you test out a piece of equipment. 

A quick walk-through can let you know if the machine is in good working condition — though it may require assistance from a worker with certifications or training necessary to operate it. 

10. Plan for Additional Parts and Equipment 

The business you’re working with may have additional wants that you'll need to fulfill with outside solutions. For example, telematics systems — like those provided by equipment manufacturers — are becoming a popular choice for companies that want to track their equipment across a job site. Some RFID-based safety solutions can provide workers and heavy machine operators with some extra protection from backover incidents. 

Successful Sourcing of Heavy Equipment for Construction 

Even skilled logistics professionals may run into difficulties when sourcing and procuring equipment for a construction firm. Fortunately, foresight and the right planning can help keep you on track. Using these best practices — especially those that involve considering unique industry needs or potential job site hazards — will help you secure the best possible heavy machinery for a business in the construction industry.

Thanks, Megan!
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on Thursday, August 15, 2019 0

Conversations around artificial intelligence and automation tend toward the apocalyptic. In January, the Brookings Institution reported that more than 35 million Americans hold jobs with "high exposure" to automation. These vulnerable professionals - occupying roles in production, food service, and transportation - could already see at least 70% of their day-to-day tasks replicated by a machine. It's clear that these machines will soon graduate from replicating tasks to replicating entire jobs, even mechanizing entire industries. The report anticipates this massive shift and concludes with a call to action. To "mitigate coming stresses," it reads, organizations will need to pursue a number of strategic initiatives. This should include "promoting a constant learning mindset."

A new study from the Technical University of Munich and Rotterdam University echoes this advice. In addition to teaching new skills, the researchers encourage business leaders to consider the psychological impact of replacement and unemployment. This impact, they suggest, is even greater when an employee is replaced by another human. Their study arrives at the intriguing conclusion that employees in automatable positions feel more threatened by other people than by machines. Intelligent machines might dominate the headlines, but they're not necessarily an immediate concern for the professionals who are preparing to confront them.

The study's findings appear almost paradoxical. A summary reads, "In principle, most people view it more favorable when workers are replaced by other people than by robots or intelligent software. This preference reverses, however, when it refers to people's own jobs. When that is the case, the majority of workers find it less upsetting to see their own jobs go to robots than to other employees." These same professionals do, however, consider automation that greatest long-term threat to employment.

People don't compare themselves to machines the way they compare themselves to peers. This, the study's authors suggests, is why robots pose less of a threat to self-worth. They go on to suggest that the social impacts of replacement and unemployment have gone largely un-addressed. Reskilling should help professionals experiencing technological replacement, but more psychological support might prove necessary for other displaced workers.

These workers, for their part, have largely expressed interest in reskilling. According to Randstad US, 67% of U.S. employees believe they'll need new skills to survive in a changing economy. Employers, however, have been slow to embrace the opportunity. While 80% of workers believe their company should provide for reskilling, nearly 40% have seen no progress.

Employees aren't just hungry for new skills. They're also beginning to insist that employers promote their mental well-being. Far from just a Gen-Z talking point, the demand for more empathetic workplaces touches every generation. As automation moves from theory to reality, businesses will need to devise plans for addressing its full economic, social, and psychological impact.
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on Tuesday, April 30, 2019 0


This guest blog comes to us from Christina Morrison at Top10ERP.org

 When we look at the top supply chain technologies to come, we see a ramped-up version of what we’ve been seeing consistently in the past five-plus years. There will be all sorts of digital innovations at play—drones, self-driving forklifts, virtual reality training! But while none of these technologies–collectively dubbed Industry 4.0–are new, we will see them used in all-new ways, with 2019 catapulting them into realms of higher accessibility
Small- and medium-sized enterprises (SMEs) and start-ups will finally have the chance to implement some of the long-prototyped automation equipment and connected devices that have made waves at revolutionary factories like Amazon, Audi and LEGO. From procurement to inventory management, there’s a lot to look forward to in terms of supply chain innovation this year. Here are some of the things we’re most excited to see enter the game.

●       Lightning-Fast 5G—The latest iteration of cellular communications will officially roll out in April of 2019, offering speeds at as much as 1,000 times faster than its 4G predecessor. Every advancement in information speed is a noteworthy one for manufacturing, as it helps enhance high-tech systems and makes real-time, relevant results possible. 5G has the potential to improve factory efficiency by speeding up both software and—now that just about every piece of manufacturing equipment will soon be digitally connected—hardware as well. 5G is poised to be one of the biggest tech trends of 2019 in all industries, not just manufacturing.
●       Do-it-All ERPs—Take a look at some of the top manufacturing software out there and review see mind-blowing solutions for data tracking, management, facility optimization and beyond, and it’s only going to get better. This year, we’ll see enterprise resource planning (ERP) solutions that revolutionize the way manufacturers produce, manage and fulfill, with core functions becoming automated. Companies will rapidly migrate to the cloud for lighter, more flexible solutions while leveraging their software to build out detailed analytics. We can also look forward to many more industry-specific ERP options, more customization tools and systems that help manufacturers earn government compliance and approvals.
●       All Things VR and AR—Virtual reality (VR) and augmented reality (AR) have the power to transform many industries, and manufacturing is not immune. From allowing remote employees to complete full-scale equipment inspections to providing staff with engaging, virtual trainings, there are so many incredible ways savvy businesses will leverage this technology this year. We can expect to see these innovations move away from the realm of gimmick and into the realm of practicality this year. For example, AR is already being used in medical manufacturing to help companies see the positions of a medical device inside a person’s body. This is just one awesome way AR can actually be useful to the intelligent entrepreneur.
●       Enhanced Security—Manufacturers, warehouses and distributors are tasked with a double-whammy security-wise—they must simultaneously safeguard their physical assets and protect their digital ones, or they risk reputation-damning breaches. Luckily, we’re seeing incredible new trends in both realms, helping us safeguard materials, goods and data for the long-term. Some examples include embedded, microcontroller security systems that protect through cryptography and stronger cloud security solutions to keep a facility’s data safe, even if it’s entirely cloud-based.
●       (Even) More Connectivity—“Internet of Things (IoT)” is arguably the buzz phrase of the decade, but it’s not unearned. Wi-Fi- and Bluetooth-connected devices are ubiquitous in both the consumer landscape and the business one, and it’s only expected to grow. Some hot new supply chain gadgets to look out for include connected manufacturing equipment, mass-market picking robots, self-driving forklifts and even an incredibly efficient and precise connected screwdriver. Looking even further into the future, we expect to see intelligent factories becoming fully connected.
●       Drones Everywhere—One of the biggest hurdles in large-scale fulfillment, distribution and warehousing centers has long been magnitude. Of course, it’s not super simple (and practical) for employees or heavy machinery to retrieve fast-moving items from the very top of the rack day in and day out. That’s where drones come in. The high-flying robots can do a whole lot from above, including measuring inventory and inspecting facilities, giving manufacturers a much broader, eagle-eyed view of their business. When paired with the right software, drones impress further in applications such as creating 3D building models and more.
●       Robotics Adoption—The automation of manufacturing is more like an innovation of the century rather than the year, but new robotics technologies are especially noteworthy for 2019. The biggest development in this space is that more robotics will be adopted in medium-sized facilities, with top developers making their machinery more accessible to smaller companies. In terms of innovation, we’ll see industrial robotics become more collaborative with humans and watch as they’re more reactive and flexible than ever.
●       Virtual Prototyping—We tend to celebrate the tangible innovations in manufacturing, but there are so many incredible but silent revolutions in the mix. For example, Industry 4.0 will embrace digital twinning, a technology that lets engineers produce virtual prototypes that can be maintained and iterated digitally, creating a leaner product development process that works significantly faster with much less waste. This is just one example of a supply chain link that will go from physical to digital this year and in the coming years.

Prepare for Manufacturing to Be a Big Part of the Conversation

Since the advent of outsourcing and automation, manufacturing has been highly politicized. With more and more companies rolling out hyper-efficient models of production, we can almost guarantee that the debate will heat up as we brace ourselves for yet another election year. But we can’t ignore the sheer ingenuity and creativity born out of manufacturing. From this industry comes the pre-laid groundwork for many revolutionary innovations, making Industry 4.0 one of the biggest drivers of technological advancement within the global marketplace. We will continue to observe this sector to identify digital trends at large.

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on Friday, March 01, 2019 0
Inventory is an unavoidable component within most businesses. And no matter the size of the business, establishing an inventory management system is going to make operations much more fluent. Common elements of inventory management include not only the inventory itself, but also the data surrounding inventory such as historical usage or cost data. Additionally, forecasting or inventory projections are going to come into play with managing the inventory levels, and will grow into a larger piece of the process as several business units or facilities are involved. Dependent on the industry in which the business operates, it is also important to identify safety stock or a buffer inventory. In some cases, establishing a reorder point or inventory par level is going to be necessary.

You might be wondering why businesses should put emphasis, or even more emphasis on this area. With regards to Procurement and more specifically, Procurement Transformation, there are key segments in which businesses focus on as far as making improvements is concerned: People and Organization, Process, Tools and Technology, and Metrics. However, inventory management tends to be an area that is often overlooked or underestimated. Though the other segments of a traditional Procurement Transformation are highly evaluated to identify opportunities for spend optimization and process efficiencies, these opportunities can more easily be identified and acted upon within inventory management. Therefore, there should be an added emphasis on this component within a business’ current Procurement function, as well as in a warranted Procurement Transformation. Having a well-established flow of inventory, whether that be raw materials, work in process, or finished goods, that keeps up with the company’s demand will empower them to maintain consistent production and fulfill customer orders in a timely and effective manner.

A business is not much of a business without inventory circulating through its operations. As the business grows, and even for small businesses, it is mandatory that the inventory is managed properly. Some businesses manage inventory manually, and many businesses leverage dedicated software to automate the process. As a business is putting more focus on this portion of their Procurement function, they will be better equipped to understand their demand flow and will be able to better gauge future demand, and do so proactively. While appropriately managing stock levels and circulating inventory, businesses can gain more control over how much they are spending on inventory, and make adjustments to improve the costs of having too much inventory or not enough.

As part of enhancing the business, the Procurement function may assess the cost benefits associated with closely managing inventory across operations. Whether this be by performing periodic inventory counts and manually monitoring stock, or by implementing a specialized inventory management system that actively monitors inbound and outbound product, identifying opportunities to enhance the various inventory levels and effectively manage this portion of the business can lead to significant, and almost immediate cost savings. In the context of direct materials, companies can drastically benefit from understanding their inventory rotation and either using or eliminating the parts that are subject to go obsolete. Keeping a lean inventory inclusive of a buffer will help the company accurately forecast demand and maintain a tight rein on the costs associated with this portion of operations. Ultimately, when companies are identifying options for better managing or reducing costs, it is worth looking into the obvious areas first, such as inventory.
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on Monday, November 19, 2018 0
Several industries (medical and manufacturing, for example) are being impacted by the newly implemented tariffs, and many companies across the country are fearful of the potential impact. Those industries who have not been impacted yet, will be affected with time. To begin the trade war earlier in March of this year, the US announced tariffs of 25% on steel and 10% on aluminum imports, drastically hindering the manufacturing industry as material costs have concurrently been on the rise for the better half of 2018. Not only have these particular tariffs impacted the manufacturing sector, they impact a significant amount of companies who rely on manufacturers for products and services for their own business, such as automotive or medical device companies.

There are many types of companies that are being influenced by the trade war, and the tariffs appear to be implemented in waves. Tariffs on metals appeared first at approximately 25% on imports, and continue to be placed on thousands of other core commodity groups. It is difficult to say what commodities will be impacted as the coming waves of tariffs that are put into effect, however it is possible to develop strategies in an effort to be proactive as the trade war progresses.

The trade war can present several challenges when it comes to developing strategies to mitigate risk and save business operations. Being proactive and thinking ahead is going to be a large component in identifying a feasible strategy to manage the impact of the tariffs. Performing quick, yet comprehensive research on areas such as if and how the business is potentially going to be impacted by the tariffs and identifying and qualifying alternate suppliers in other countries is going to be a crucial starting point for American companies. This will allow the company to gain a strong basic understanding of how the tariffs impact them and be able to piece together components for a suitable go-forward strategy.

Identifying alternate suppliers in other lower-cost countries and transitioning manufacturing operations away from China is a viable strategy that many companies are exploring as a result of the trade war. In order to maintain current costs and product quality, extensive supplier identification and qualification is going to be required as part of this strategy. Determining suitable countries that can businesses can migrate operations to, comprehending supplier capabilities in relation to the business needs, and analyzing costs associated with transitioning the business are going to play an important role in this primary strategy to operate around the tariffs. Additionally, it is important to maintain a level of diversity and refrain from putting all operations in one country, as it allows for more risk associated with having all Procurement's eggs in one basket.

Though there has not been one strategy that fits all scenarios regarding the tariffs, there are common elements to keep in mind as companies develop the strategy that best suits their company’s changing needs. The trade war has certainly become a challenge to work around, however it is important to identify the challenge it may pose on your company, and take action to develop a strategic plan to implement in order to limit the excess costs during this time.
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on Tuesday, July 03, 2018 0

To say that today's Supply Chain professionals are at the brink of a technological revolution constitutes a mild understatement. More accurately, they're living in the (very) early stages of a revolution that's been underway for quite some time. Popularly known as the "Fourth Industrial Revolution" (or Industry 4.0), this evolutionary era is still largely theoretical. Though digital and physical technologies are already harnessing advanced data analytics and artificial intelligence to encourage more informed, strategic decision making across the supply chain, it's clear the potential of these technologies is mostly untapped.

That's not just a sign of unrealized technical ambition. Business leaders remain less than certain of their internal capabilities. This January's issue of the Deloitte Review reported that a paltry 14% of CXOs are "highly confident" in their organizations' capacity to leverage the changes brought on by Industry 4.0.

Their excitement and efforts, however, suggest that many companies are already effectively living in the Fourth Industrial Revolution. Though the full slate of expected changes have yet to occur, the Third Industrial Revolution - posited as recently 2013 -  seems almost like an afterthought. Supply Management's true leaders are already preemptively on to bigger and better things.

So, what changes is Supply Management hoping and preparing for? Before we gaze into the future, let's get into the Fourth of July spirit a little early with a look back at what the first three Industrial Revolutions meant for America's supply chains.

Industry 1.0
America's first industrial revolution began in earnest when mechanized textile production made its way from Great Britain to the colonies. Post-Revolutionary War, the spirit of invention and innovation that drove British advancements found itself written into the foundation of our new country. The very first Article of the Constitution introduced the idea of patents and encouraged Congress to "promote the progress of science and useful arts." Eli Whitney's 1794 patent for the Cotton Gin brought America its first major manufacturing boom while simultaneously helping sew the seeds for an eventual Civil War between the industrializing North and agrarian South.

Continued conflict with Great Britain compelled America to ramp up its manufacturing efforts in the early decades of the 19th century. The famous textile mills of Lowell and other New England cities were supported by a growing network of canals made navigable by new steam-powered shipping. Increasingly independent, the United States new systems for refinement and transportation set the stage for the new nation to dominate the next Industrial Revolution.

Industry 2.0
Beginning around 1870, the Second Industrial Revolution saw the emergence of high-volume steel and iron production, mechanized manufacturing, more expansive railroads, and the beginnings of electrification. Like the one before it, this era came about in Great Britain. It was the United States, however, that witnessed the greatest economic growth throughout the period's latter decades.

American's railroad mileage tripled between 1860 and 1880 and would do the same once again before 1920. This period also saw the rise of America's first billion-dollar corporation in United States Steel. Powered by efficiency-boosting methods like the Bessemer Process and batch manufacturing, America successfully re-branded itself as an industrial giant on the world stage.

Monumental as these changes were, America's most enduring and transformative contribution to the Second Industrial Revolution would come at the era's close. In 1913, the Ford Motor Company's moving assembly line began to churn out Model Ts. Reducing costs and cutting production time down to just 93 minutes, the technology quickly became the standard in automotive manufacturing.

Industry 3.0
This is where things get a little trickier. The vast majority of American organizations and supply chains are currently situated somewhere between the digital innovations of Industry 3.0 and the almost science fiction-like promise of the next Revolution. Essentra Manufacturing even describes the period as a distinctly transitional one. "Industry 3.0," they write, "is the bridge between Henry Ford's move towards greater productivity and the intelligent processes that we are now seeing arise under Industry 4.0."

Further complications arise from the fact that the concepts of  'Industry 3.0' and 'Industry 4.0' appear to have emerged almost simultaneously.  In 2012, The Economist described the ascendance of "clever software, novel materials, more dexterous robots . . . " as a "Third Industrial Revolution." Prior to this article's publication, the German government had already described their move toward advanced, computerized manufacturing as "Industry 4.0." Just 4 years later, that term would make an appearance at the World Economic Forum.

For our purposes, the Third Industrial Revolution refers to the electronic and digital innovations of the late-20th century. The rise of personal computing, increasingly advanced robotics, and more robust analytics have helped Supply Management professionals distinguish themselves as strategically valuable within their organizations. Thanks to the increased inter-connectivity of supply chain networks, managing relationships and assessing risks have become as important as securing a great price.

Throughout this period, it's become increasingly essential for Procurement and Supply Management to distinguish itself as a data-enabled, tech-savvy entity. New technologies have automated components of spend analysis, contract management, and the sourcing process. Eliminating many tactical processes from the Procurement professional's daily life, they've helped redefine what it means to excel in the function.

Check back in tomorrow when we'll take a Fourth of July look at the Fourth Industrial Revolution.
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on Friday, March 31, 2017 1

The concept of supply chain in business has grown substantially over the last three decades as well as the need for young supply chain professionals. Universities across the country are quickly catching on to this as they continue to add courses into their curriculum in hopes to catch up to the likes of Michigan State and Penn State Universities. Everyone seems to have their own definition as the idea of supply chain varies significantly depending on a company’s point-of-view within a given industry.

Often when people hear the words “supply chain” they often think of logistics from a distributor’s or manufacturer’s mindset when there is much more to the equation. In short, supply chain focuses primarily on process improvement. The process improvement can come in a variety of ways and is represented by many key metrics or KPIs. Supply Chain encompasses all of the processes and activities that move a company’s product or service, from raw materials (or beginning stages) to finished goods/services, to the end-user, as quickly, safely, and cost-effectively as possible with a strict focal point on supplier selection and management. Given the definition it becomes easy to understand how a supply chain can vary when looking from unique point-of-views’ of a manufacturer, distributor, wholesaler, retailer, consulting firm etc. Departments within a company can include anything from inventory management, lean Six-sigma, manufacturing, engineering, operations, sourcing, procurement, logistics, category management, merchandising, and many more. In the best environments, these departments all work cross-functionally to increase revenue/profit margin or reduce cost in a healthy/sustainable matter.

The above definition lends itself to an ever-changing/ever-growing area in business that is supply chain. Technology has driven and will continue to drive a majority of this change but it’s equally important to understand changes in the market as well as the user base; whether it be generational or current trends. The goal of any business is to generate revenue. In order to maintain sales growth you need a flexible supply chain to react to all of the changes around you. Supply chain professionals must be equipped with the following:

Analytical capabilities – Being good with numbers is only the beginning. It’s what you can do with those numbers and how you can present them that is most important. Taking large sets of data and manipulating them into tangible tasks, goals, and strategies is what makes supply chain professionals so appetizing to employers.

Business acumen – Having the ability to think from a high-level is crucial. The best way to so is to draw from past experiences and keeping up with the industry you are in to make educated decisions based on your findings in a project. Business acumen comes from experience and continuous learning initiatives.

Interpersonal/Communication skills – At all stages of a project supply chain professionals must keep their key stakeholders engaged. Whether you are in scope of work, data collection, research, analysis, RFx, negotiation, contract, presentation, or implementation (http://www.sourceoneinc.com/consulting-tools/sourcing-and-procurement-services/strategic-sourcing-overview/) communication skills are essential to keeping things moving. The concept of relationship building is always present as you never know what potential business/projects are down the road.

Software/Program/Language understanding: Often times, companies require an understanding or fluency of certain software or programs. They may be (should be) willing to invest in training but becoming fluent in SAP, AWR (Advanced Warehouse Replenishment), Alternate Planning, Microsoft Access, PowerPoint, Visio & Excel, Tableau, SharePoint and writing Sequel will only help build a career in supply chain.

Flexibility: Act like a sponge absorbing as much category, department, and industry knowledge as possible.

·         Willingness to jump between departments and see the business and supply chain from as many perspectives as possible will aid in seeing the bigger picture

·         Willingness to jump between industries and sectors can also enhance one’s career

The main takeaway is that Supply Chain isn’t going anywhere! Young professionals who can analyze a problem and successfully communicate results and go-forward strategies will be needed for years to come. As technology continues to advance and the push to automate processes accelerates employers are actively searching for critical thinkers. There is more to it than first meets the eye. Building a career in supply chain requires experience in many departments, categories, and industries. As your resume continues to grow with subject matter expertise opportunities will follow. A lot of what you’ll learn along the way can be applied to new projects down the road. The exciting part is learning from your mistakes and drawing from past experiences. Inventory Management and Procurement are two of the larger sectors in supply chain. In a future post, I will discuss how many supply chain experts, have experience in both as they dramatically sharpen one’s analytical ability.
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on Thursday, March 09, 2017 0
The Manufacturing Phase of the Product Lifecycle - the product has now successfully been designed and now's the time to identify suppliers who will provide the materials and assembly. This is usually the phase of the Product Lifecycle where Strategic Sourcing and Procurement (SS&P) groups are "allowed" to get involved. In many cases, SS&P will help reduce the costs of each component, consolidate the supply base, or leverage higher volumes with existing suppliers. 
However, Procurement can deliver further value by working alongside engineering teams to expand on existing component opportunities - leveraging Engineering's insight on  critical vs. non-critical component selections and DFM services offered by fabricators to reduce component count and drive production efficiency. 

This is just one of the many ways SS&P can be leveraged during the Product Lifecycle that is explored in Source One's latest supply management whitepaper titled, Strategic Sourcing Throughout the Product Lifecycle: Balancing Competitive Costs with Innovation & Speed to Market. Source One's direct materials sourcing consultants share their experience helping enterprises optimize their budgets during product development and go-to-market, including real case study examples. Check out another example below on how Source One helped a microscopy manufacturer reduce costs.  

Case Study: Contract Manufacturing 

The Situation: A global microscopy manufacturer was looking to lower the overall costs of manufacturing operations with five existing product lines and transition two product lines from European/Asian to US managed manufacturing operations.

The Solution: Due to the complexity associated with the scale of the project and mounting pressure from their parent company to achieve savings targets, the manufacturer engaged with Source One to tap our extensive engineering subject matter expertise and bridge the widening gap between management, engineering, and the overwhelmed supply base. With our team’s unique background in both

Engineering and Procurement, along with the ability to speak a common language with all parties, we were able to set a realistic timeline and cost savings goals with management, then manage the outsourcing RFP process with the nation’s top contract manufacturing suppliers.

Our approach:

  • Parse out the distinct phases of the sourcing process and segmented it for the client so they could understand the focus of each stage and therefore develop realistic timelines and set internal and external management expectations.
  • Develop best practices for structuring large technical bid packages.
  • Streamline sharing complex specifications with suppliers, then enabled management of the bid process with the technical team within expected timeframes.
  • Effectively analyze the market to clearly present opportunities and challenges to the management team so they could make an informed decision and foster a long-term partner relationship with the final set of contract manufacturers.

The Results:
Through these efforts, the client became familiar with standard industry practices and processes, adapted an industry-focused outsourcing strategy, became more competitive in their market by reducing manufacturing cost in excess of 12%, and freed up Engineering resources for New Product Introduction projects to sustain their market leadership position.

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on Thursday, March 02, 2017 0
Source One's new white paper explores how Sourcing can support the entire Product LifecycleWhen it comes to getting products to market, the pressure can be extreme. The manufacturing industry, a highly competitive and innovation-driven industry, is no exception. Between meeting aggressive timeframes while still maintaining top quality design, addressing compliance regulations, and aesthetically pleasing marketing and sales teams, opportunity to reduce costs and gain a clear view of the market landscape can quickly be lost during the Product Lifecycle. Enter the role of Strategic Sourcing and Procurement (SS&P).

Throughout the Product Lifecycle, SS&P can help alleviate the burden off engineering teams to help shorten the development timeframe and meet cost targets to make the design of a quality product. While in the traditional approach, SS&P is brought in later Product Lifecycle – when costs need to be cut immediate to offset dwindling sales. However, by doing so, companies limit the impact their SS&P groups can have in not only reducing costs, but gaining access to supplier innovation, and more. Elaborating on this concept, Source One has recently released its newest supply management whitepaper titled, Strategic Sourcing Throughout the Product Lifecycle: Balancing Competitive Costs with Innovation & Speed to Market.

The white paper also explores how SS&P teams can be leveraged at each step of the Product Lifecycle, including the Ideation Phase, Production, Manufacturing, Maturity, and After Sales and Decline -reinforced with case-study examples for each phase. Check out another example, not included in the white paper, of how Source One’s direct materials sourcing experts helped and electronics manufacturer reduce costs during the Production Phase.

Product Re-Design - Embedded OS and Motherboards

The Situation: A global industrial electronics manufacturer with operations facilities across North America, Europe, and Japan was interested in maintaining a stronger focus on cost cutting during the design phase of a new product development. The system’s motherboard was being developed from the ground up, leading to potentially higher costs than an OTS alternative product could offer. Additionally, the firm faced a risk of being locked into a sole supplier given the customization being built into this component.

The Solution: Source One was brought in to determine if any cost savings could be identified at the component level prior to the start of production. Source One sought to confirm if any commercial-grade, OTS solutions could be implemented as an alternative to a custom component. Using our engineering expertise, Source One was able to:
  • Develop a Scope of Work and specification documentation based on the integration requirements of the solution’s individual components and interrelated hardware and processing requirements. 
  • Conduct market research and go to market with an RFI to identify commercial-grade, OTS solutions that fit the requirements of the product under development. 
The Results: The client was provided with a list of viable manufacturers and OTS components that would serve as cheaper alternatives to a custom-developed motherboard. Additionally, Source One provided a shortlist of Value Added Resellers (VARs) carrying these components.

Using such OTS components offered two key benefits to the client. First, the supply chain risk of working with a single supplier was removed, as multiple VARs could provide a common product. Second, by introducing competition among the VARs into the sourcing process, the client was able avoid a loss of negotiation leverage that would have been a key concern from a potential single-source supplier.

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on Wednesday, February 22, 2017 0
Traditional vs. Holistic Approach to Product Lifecycle Sourcing
We see it all too often: A product makes its debut. It experiences popularity but then sales begin to dwindle. Costs remain higher without revenue to offset production.

Enter strategic sourcing and procurement. 

SS&P is then brought in as the "necessary evil" to help cut costs. And, we can do this in a number of ways: negotiate prices decreases through order volume increases, partnering with a contract manufacturer, or even support the process of taking manufacturing on internally. These may all be viable options, but the truth is, waiting later in the product lifecycle is selling SS&P short. Waiting until maturity or even the decline stages of the product lifecycle caps the impact SS&P could have when it comes to not only optimizing budgets, but also innovation.

It's a symptom of a greater challenge for many Strategic Sourcing and Procurement Groups - a lack of strong collaboration between SS&P and other functional department stakeholders. Demonstrating SS&P's impact beyond cost savings remains a challenge in the industry and a topic to be addressed during the Institute for Supply Management's Annual Conference coming up in May. For many companies, functional departments simply see SS&P as an added obstacle to the process of obtaining the goods and products they need. As a result, particularly in direct materials sourcing, SS&P is brought in later in the Product Lifecycle. As a result, major opportunities are left on the table.

Addressing this continued challenge, Source One's direct materials sourcing experts have published a new supply management white paper titled, Strategic Sourcing Throughout the Product Lifecycle: Balancing Competitive Costs with Innovation & Speed to Market. The white paper, which includes case study examples, presents the business case for engaging SS&P at each stage of the Product Lifecycle, including Ideation, Production, Manufacturing, After Sales Service, and Product End of Life. The white paper aims to demonstrate Sourcing's value as a strategic partner and not just a resource for cutting costs.










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on Wednesday, December 07, 2016 0



In order to have an efficient, well run supply chain within your organization, there are a few key elements that are necessary for ensuring you are getting the most out of your people and machines. Resources need to be properly staffed, machines maintained, and WIP (Work in Progress) needs to continue to move and not get backed up a certain operation or link in the process flow. An efficient supply chain can be a work of art if properly managed. Ensuring your supply chain operations are on track, you have to start from the top – even before anything gets moving!


Semiconductor manufacturing is a prime example of an industry where truth in planning is essential for hitting lead times, improving variability, and avoiding delays that ultimately expose deliverables to the end client. Semiconductors (computer chips) have extremely long lead times compared to most manufactured consumable items. With an average lead time of six-to-seven months from order receipt to delivered goods (silicon wafer, chip, module), one would think that it would be easy to plan for the various material and capacity needs throughout the supply chain. However, in a world that is becoming more and more metric focused, supply chain leaders are finding more of their manufacturing facilities are sandbagging their production lead times, and over shipping to meet internal organizational metrics or exceed them depending on which metric they want to satisfy.


The Real Truth in Planning

What manufacturing teams fail to realize is that these inaccurate projections – while looking good on paper – cripple the downstream stages of the supply chain, and can cause massive churn. Semiconductors that are built into computer modules require several key components that make up their respective bill of material (BOM) including capacitors, lids, and laminates. Lead time for these materials can take up to six weeks, and MRP systems rely on pitched completion dates to generate purchase orders within lead time. These systems are designed to order components at lead time to avoid having too much inventory on hand prior to the rest of the materials arriving. If a wafer (manufactured silicon) arrives at a testing machine three or four weeks ahead of schedule, there is a high probability that something else is already scheduled to be run on that tester, so, the wafers will have to sit, consequently wasting the energy and time spent to move the WIP to that point. As WIP piles up at various operations, keen supply chain managers should inquire to understand why the WIP is sitting there instead of moving forward. Supply chain analysts will then highlight that components, and/or capacity is not available since the WIP arrived earlier than planned, with no advanced notice. It wasn’t supposed to be there yet…so naturally they’re not ready!


A Weak Chain

This is where inaccurate planning can break a supply chain. Whenever parts sit in queue longer than planned cycle time WIP begins to build up. MRP systems see WIP build ups and project them to close in time for quarter and year end which is actually not feasible. Other components also end up being affected. When parts arrive early, pressure mounts on missing components that are needed to continue to move WIP forward. Expedited shipping requests, expedite fees, personalized handlers, and additional unnecessary churn on all parties ends up costing time and money.


Supply chain managers and executives are then forced to prioritize this WIP over regularly scheduled deliverables in hopes of achieving revenue targets. While some additional parts may get expedited through the supply chain and additional revenue achieved, the hidden costs of that expedited energy (missed deliveries, WIP buildup, MRP ordering) sometimes prove more costly than initially thought.


Just because certain areas of your supply chain are operating more efficiently than others, does not necessarily mean the overall chain is performing well. In order to make your supply chain efficient, make sure you plan accordingly! There is something to be said when you hear “truth in planning.” Don’t be the one to get stuck in neutral when you could be moving forward with fundamental, accurate planning!
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on Friday, August 19, 2016 0
      Packaging is typically the first attribute noticed by a consumer making an in-store purchase, acting as an ambassador to the finished good inside.  The quality of packaging materials is important to protect the product and prevent loss from damage in transit.  The branding and design is equally as important for marketing and product differentiation.  These essential characteristics come at a cost, and are typically considered a direct material, one that is wrapped up into the cost of goods sold (COGS).

      Procuring direct items is a challenging endeavor, as the materials directly impact the customer’s perception of the finished good.  Quality and costs must reach a fragile balance to match the perceived value of the item and drive consumption.  To add to this, direct materials are often commodity items, meaning pricing may be volatile.  Packaging materials are not an exception to this rule, and there are certainly tactics that can be placed to reduce the level of risk associated with fluctuating raw material pricing.  While important in maintaining competitive pricing, hedging commodity indices is not the only opportunity for cost optimization in the packaging category.  Advanced purchasing strategies can reduce pricing margins beyond the raw material cost, and lead to more efficient sourcing.
      The first area of impact for cost reduction is in analyzing optimal run sizes.  A run size is the quantity of materials produced in one production cycle.  Purchasing strategy should take these quantities into consideration to fully optimize costs.  Ordering in quantities outside of the manufacturer’s optimal run size exposes the supplier to risk in holding overage inventory or having to short-run their production, both of which will come at an increased cost.
      Placing blanket purchase orders is a way to take advantage of pricing associated with these favorable volumes without taking on more inventory than is required.  Under a blanket PO, an order can be placed to cover the full run size with periodic releases of inventory from the manufacturer.  This also further reduces overhead costs associated with processing frequent purchase orders.  Once all releases have been fulfilled, the blanket purchase order is complete.  Inventory cost and risk can be reduced further through the implementation of a Vendor Managed Inventory (VMI) program. This allows the manufacturer to control inventory replenishment and have direct visibility into the quantities to prioritize and optimize their production schedule.
      Finding the ideal product mix is an additional way to leverage volumes for better pricing without necessarily having to take on additional inventory risk.  A high volume, low mix market basket is the ideal scenario for taking advantage of these benefits.  Periodically, packaging material specifications should be reviewed and rationalized, seeking areas of overlap to reduce the amount of differing items.  For example if item A utilizes a corrugated box with dimensions 8” x 16” x 4” with a custom foam insert and item B requires a slightly larger corrugated box with dimensions 8” x 18” x 4” also with a custom foam insert, there is opportunity for review and consolidation.  It may be more cost effective to use the larger box across both products, as the volume leverage reduces cost drastically enough to justify the extra material.  Alternately, the foam insert for item B may be able to be reduced in size to fit item A box specifications. As a result, material costs well be reduced while negotiation leverage simultaneously increases.
      Furthering specification rationalization is branding rationalization.  Procurement and marketing must work together to find the ideal balance of promotional package branding and cost optimization.  Custom prints using multiple colors while pleasing to look at, can be costly to produce.  Frequent design changes can require additional upfront investment in reengineering fees.  The level of detail in a design should strike a balance of consumer friendly and conscious of small details that may be better off omitted due to the risk of frequent change requirements.
      Frequently evaluating purchasing tactics and coordinating optimization strategies with internal departments and suppliers is an excellent step in becoming a procurement center of excellence.  It is important to exhaust every angle when seeking areas of opportunity, and to never assume an item’s cost is not impactable due to commodity material pricing. 
      Source One Management Services has developed expertise in sourcing direct material across many sourcing categories, including packaging.  Contact our strategic sourcing experts today, to learn more about optimizing your packaging spend.
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on Thursday, June 30, 2016 1
Chipotle is known for its sustainable business practices and captivates a large customer base because of it. Chipotle purchases only natural, cage free/free range chicken, pork, and beef from local, heavily audited ranches and farms. They also source vegetables from local farms and their dairy is free of added hormones. Chipotle has a sustainable building program in which they use low VOC paints, energy efficient appliances and kitchen equipment, and their paper products made out of recycled materials (bags, bowls, and napkins). The aluminum lids are made from recycled beverage cans. Even Chipotle’s uniforms are made from organic materials. The list goes on.

These “sustainable” and eco-friendly practices are great for the environment and make a lot of people feel better about paying the higher price. For those who haven’t checked-in to a store in a while, the cost for guacamole is a $2.00 add-on depending on store geography. People are aware of this, and people are aware that they will need to pay a bit more for better quality meats, locally sourced produce and eco-friendly in-store materials. Hence why many of their loyal customers are coming back day after day because they feel like they are supporting a good cause – food with integrity. Many of these same people claim to be pesca-pescatarian.

With all that said, Chipotle has historically maintained good margins and has been very profitable over the past 10 or so years, experiencing rapid growth. Chipotle has produced double-digit comps figures more years than not over the past 10 years. Their company culture coupled with their profitability seemed to have beat the odds by becoming a healthy fast-food restaurant/QSR.  With the exception of the recent e-coli breakout, and subsequent temporary closures of stores (which has caused their stock as of late to drop), Chipotle has a bright future ahead. On a side-note, Chipotle’s policy of avoiding the industrial food supply chain may have, ironically, actually led to this outbreak due to the increased variability, and subsequent increase in exposure of food sources to variable environments. I digress.

How does Chipotle remain profitable? The first reason is obvious – they charge a premium price that consumers are willing to pay. In addition, they are able to produce and distribute lots of their ingredients in-house. They get produce, meats and dairy products from farms (some owned, others not) no further than 350 miles from each local store cutting down on import other transportation costs for non-local goods. This cuts into the margins of would-be markup costs associated with buying ingredients from distant third parties and industrial food factories. Their eco-friendly stores also keep overhead relatively low. Side note: The margins on the guacamole also HAVE to be lining their pockets as well (personal opinion).

One area that I recently identified where Chipotle goes against all fabrics of their being resides in their takeout bags. Yes, their takeout bags. Don’t get distracted by their quirky marketing campaign where inspirational quotations are included on the bags and cups. Don’t get distracted by their 100% recycled fiber bags either. Have you ever noticed the takeout bags are much larger did they need to be? You can fit at least five or six orders in each bag, and probably more (assuming the standard recycled bowl and lid). Have you ever noticed that there is only one size option for takeout bags? Well I have.

Now why does this go against the message that Chipotle is trying to convey in their sustainability culture? And how does this relate to their stance of sacrificing cost for quality? Well first, by creating one oversized bag this creates a significant excess of waste since the packaging does not fit the product meant to go inside. If Chipotle was to offer different sized bags they could use small bags (say 50% smaller than current size) for orders of one or two people, medium bags for 3-4 orders and large bags for orders of four or more. Rarely do I ever see takeout orders of 3-4 orders or more. If small bags were issued 50% of the time and were 50% smaller than the current size this would reduce the waste from takeout bags by 25% alone. Even though Chipotle uses primarily recycled materials in these bags and have a strict recycling policy in-store, most takeout bags are disposed of outside of the store and end up at landfills rather than recycling centers. So not only are they creating an excess of waste, they are not able to adhere to their internal recycling process because the disposal of these bags happens outside their stores thereby compounding the issue.

As a packaging industry best practice to reduce the amount of waste, package sizes need to be precisely fitted for the item(s) they are housing. By having different sized takeout bag options this would minimize Chipotle’s carbon footprint by tailoring each packaging container to optimally fit each unique order.

Presumably Chipotle has one large bag option to chip away at their production costs in order to remain semi-competitive on price with other QSR and fast food competitors while still focusing on sustainability and high quality ingredients. By using a universal bag size the outsourced packaging company can, by default, produce more of the same bags at once. This results in a lower cost per order which occurs for a few reasons: First it minimizes the tooling costs necessary to produce different size takeout bags as different tooling is required for different size cuts and folds. Different adhesion patterns are required for each bag bottom. Different print patters are required for each bag face. All of these variables, coupled with smaller run sizes that are required for different bag sizes, attribute to a one size-fits-all solution being the most cost competitive option. But it is not the most “sustainable” solution.


So why does Chipotle choose to skimp on their takeout bags of all things? Did they think we wouldn’t notice? As Chipotle continues to promote sustainability while remaining semi-cost competitive I’m sure there are other areas I have not yet noticed in which they go against their values in order to cut-costs. I may notice something new next week for my periodic Chipotle visit. Stay tuned.
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on Wednesday, December 16, 2015 0



In the context of the manufacturing industry, as the relationship between an OEM and their downstream suppliers mature, it is a supply chain best practice to seek continuous cost reduction opportunities by leveraging economies of scale, streamlining transnational and manufacturing processes, and developing cost conscious product and design improvements. There are other tactics that contribute to reducing the true cost of a product, however the three aforementioned practices from my experience are the most commonly pursued by best in class companies and have the largest correlation to achieving cost savings over time.

Way too often I hear of annual price increases that are “published” by downstream OEMs at the start of each fiscal year. These cost increases are often justified with standard language that many just take at face value. Common reasons I’ve been given range from “we have received general labor and overhead increases” to “vendor costs have gone up”. Whenever I hear this I think to myself: Shouldn’t costs be going in the opposite direction over time? Don’t get me wrong, sometimes price increases are justified and the supplier is merely passing through the cost to the customer or passing through inflation. Material prices go up, labor prices go up, and indexes take hits. This is normal in a day in the life of a procurement professional -- though as a procurement professional you should always be asking for official letters or publications detailing pass-through increases.

However best in class organizations don’t think this way. And as a procurement professional myself, I don’t think this way. Over the life of a supplier relationship a continuous joint effort should be taking place to work on reducing costs. Even if costs do go up for a supplier these cost increases should be offset and/or exceeded by leveraging economies of scale, streamlining processes, and continually looking for product and component improvements that result in lower costs.

To leverage economies of scale, downstream OEMs should be constantly evaluating optimum production schedules (or shipment schedules/order quantities in the context of distributors) to reduce the variable unit cost of the goods they are producing. This results in operational efficiencies due to larger run sizes and more precise delivery schedules. The supplier should be able to achieve this by better predicting the trends in demand and usage as they become more familiar with their customer’s business over time. Over time, synergies should be developed between the supplier and the customer’s forecasting/planning team which allows the supplier leverage economies of scale where possible and pass those savings on to the customer.

Suppliers should also be able to reduce unit costs over time by developing more efficient manufacturing processes. As time goes on, suppliers should be leveraging their tribal knowledge to optimize the manufacturing process. This can come in the form of purchasing machinery and equipment that reduces labor and overhead costs, or coming up with other lean manufacturing processes to reduce the total production time. It is all too often that suppliers are instead using this best practice to pad their margins instead of passing on cost savings to their customer.

Lastly, customers should always be evaluating new opportunities to pursue cost efficient design or part changes. Design and development costs to the customer are either charged up front as an NRE (non-recurring expense) or amortized into the unit cost of the products being sold. The latter is a dangerous proposition from the customer’s point of view since the incremental design costs cannot be easily tracked and therefor a break-even point for the supplier cannot be easily determined. As an industry best practice and something to push for with your suppliers, the unit costs of a product should eventually go down after the supplier has had a chance to recoup their costs from the design project if an NRE was not charged up front. The time to elapse before the supplier recoups their engineering resources costs all depends on the scope of the design or development project and should be collaboratively determined between supplier and customer.  If an NRE was not charged up front and a supplier claims that a design project was free of charge or a value added service, this is more times than not simply not true. Engineering resources are extremely expensive. There is no such thing as a free lunch. Weather evaluating a completely new, cost efficient design of a product or component, or analyzing a swap-out of a custom component with a more cost efficient OTS part, engineering and development costs need to be decoupled from the unit price charged by the supplier. This industry best practice will take away the suppliers ability to continually cash-in over time on historical development projects and will also give increased visibility to the customer to the true cost of a product.
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on Friday, October 09, 2015 0
Mexico is experiencing a manufacturing renaissance, one that presents both a number of opportunities and challenges for companies looking to nearshore. On October 22, Source One’s Latin America and Mexico sourcing pundit, Diego De la Garza, will be attending a half-day conference: Mexico as a Strategic Business Partner hosted by the Illinois Manufacturer’s Association and the US Mexico Chamber of Commerce.

The conference, taking place at the NI Naperville Conference Center, will include two panel discussions: Mexico’s Legal, Labor, and Fiscal Framework and Supply Chain, Logistics, and Manufacturing. The first panel, will educate attendees on the legal aspects of working with Mexican entities, how to establish operations, as well as key issues and common mistakes when doing business. In addition, the event will also cover new tax developments in 2015, latest news on invoicing, VAT certification renovation for IMMEX companies, labor law, differences, and key considerations.

Source One’s De la Garza will share his nearshoring expertise as a panel member for the second panel discussion: Supply Chain, Logistics, and Manufacturing. The discussion will cover challenges, opportunities, and developments in logistics and the supply chain, as well as manufacturing advantages, infrastructure and competitiveness; sourcing and supplier development programs. De la Garza will be sharing his insights on the challenges he’s experienced while sourcing from Mexico, along with his advice for navigating some of the obstacles when trying to engage suppliers.

For more information on Source One’s nearshoring services visit: Strategic Sourcing in Mexico and Other Near Shore Countries.
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on Thursday, October 01, 2015 0
Like most Americans these days I do quite a bit of my shopping online. Don’t get me wrong, I still enjoy the retail experience of going to a store, sifting through racks or shelves of products, and then waiting in a long line (if self-service isn’t available) to make my purchase. The benefit to that approach is of course instant gratification, you don’t need to wait anywhere from overnight to six weeks for whatever it is that you want. As a society of compulsive spenders we are buying everything from toys and clothes to food and cars online. However, with online shopping being one of the most prevalent means of receiving goods these days I am still surprised at the chaos that occurs more often than not throughout the process.

I don’t know what it is lately but it seems as though I spend more time sorting out issues with damaged packages arriving than I do on the actual browsing and purchasing of the goods. As a consumer it is hard to say where the defect truly is when you get a box that appears to have been through the ringer and back, for example a lightweight package that clearly states “Do Not Bend” and it shows up bent to hell in multiple places. Is the issue at fulfillment or through the sometimes multiple carriers that handle the package? These days even if something is said to be shipping FedEx, UPS, or USPS, you will find that there are third party contractors used to meet the SLAs that these organizations are required to. It is clear that companies are being so distracted by the need to meet ordering quotas and shipping SLAs that they overlook quality check points in the kitting and fulfillment arena and then again in the care of the shipping of the goods.

However ultimately when damaged goods continue to go out again and again it costs everyone time and money to fix. The company has to deal with claims that not only cover the cost of the goods but the people that have to process those claims. The customer loses some degree of faith in the organization and reconsiders their next purchase, depending on the severity of the issue and the resolution of it. So what is the solution? Do we stop ordering online? Not likely!

It starts with the retailers themselves and within their warehouse and distribution networks. Setting up more stringent quality checks to ensure the packaging of the goods meets the quality standards that the company establishes. During the sourcing and procurement process it is important for companies to focus on the qualitative aspects of their people and processes and not just on the costs of goods sold. Finding suppliers that fit their needs overall is critical to the continuity of their business model, not just in retail but in any industry. Most consumers appreciate high quality standards and will return based on positive experiences.
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on Tuesday, June 30, 2015 0

When working with your suppliers there are certain things that are in your control and certain things that are not. It is of paramount importance to identify those variables in which you (the customer) have control over, and what effect your expertise and your relationship with the supplier will have on pricing. In my experience, the top three “customer-controllable” factors that will have the strongest impact on cost include: 1) effective forecasting & planning, 2) an understanding of vital requirements and accompanying regulation of superfluous demands, and 3) monitoring compliance. When these three best practices are optimized, my experience has shown it will result in lean, efficient, and symbiotic relationships between customers and suppliers. Here I will talk about the first best practice: Forecasting & Planning.

Accurately forecasting consumption and demand of products/materials from your suppliers and communicating it, enables effective planning and allows the supplier to run a lean operation with rapid product turnover. However, when suppliers and customers are not aligned on expected volumes, delivery schedules, and appropriate run sizes (in the case of custom materials), excesses and shortages of product may occur that will have detrimental consequences to pricing and service levels. If there is an excess of inventory, this inherently takes up warehouse space in which the supplier absorbs this cost. If a supplier is consistently experiencing this with a customer, they typically will hedge the cost of extra or “flex” warehouse space and will absorb that risk in the form of higher unit pricing.

On a recent packaging project I participated in, a similar situation to the one I describe here took place  in which the supplier had over a thousand units of finished goods taking up shelf space in their warehouse because the customer ordered a years’ worth of expected inventory and only ended up using half. Oftentimes a misstep in forecasting is a result of demand shifts, product recall, or other uncontrollable factors from the buyer’s perspective; however, sometimes they result from conscious decisions that are well-founded in their making, and tight controls should be placed in a similar circumstance. For example, if a buyer over commits to volumes in order secure competitive material prices a supplier will often stipulate large run sizes. In other words, the supplier agrees to the customer’s price demands by running larger quantities of product at once. This results in efficiencies from the suppliers’ standpoint and the ability to order materials from their supply chain in bulk (thereby lowering material costs). The higher cost of this practice to the customer comes from larger run sizes exacerbating the inventory levels (over ordering) in a situation where forecasted usage may have been slightly off. Again, though the intention of securing cost savings was well-founded in this example, the customer agreed to terms that exposed them to compounding risk as run sizes go up, only worsening the inventory that could potentially be stuck in the suppliers’ warehouse which drove up unit pricing in the first place.

During our market evaluation and sourcing effort, we realized that consistent poor forecasting practices were the primary driver for higher pricing from the incumbent supplier when compared to the alternate suppliers’ pricing in the market. As a result of our RFP and supplier optimization efforts, the obsolete inventory was bought out scrapped, or repurposed in order to take the first step towards fixing the problem. The long term issue however, i.e. the mistrust in accurate forecasting by the supplier and bulk run sizes indirectly initiated by the customer still needed some fixing.

This situation had transpired for over 15 years, where the customer would approve large run sizes in which they thought they were getting a “sweet” deal. Once it was identified that there were recurring forecasting and planning issues, which were being magnified by the large run sizes, the solution was clear. By implementing a forecasting and ordering best practices program (optimum inventory triggers, smaller run sizes, enhance forecasting capabilities, and consistent communication, etc.) excess warehouse space issues were resolved and true lower cost initiatives that offered a sustainable warehousing model were enacted and resulted in a win-win scenario for both the customer and supplier.
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