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A recent article in Logistics Viewpoints, the ARC Advisory Group Blog, asked a very important question given that many of the smaller vendors in this space are not on the solid footing they once were -- What If Your Supply Chain Software Vendor Goes Out Of Business?

It's a good question, especially since you'll be in bad shape if you haven't negotiated perpetual rights to not only the application but the code-base if you're using a hosted solution and the vendor goes under or if you haven't negotiated 24/7/365 full data access if you're using a SaaS solution with mandatory notices before ceasing of operations, as I have noted you must do on several occasions.

In the first case, unless you happen to have an A1 development team in-house who can maintain the code base and customize it to your liking with little impact to your overall IT budget (which is likely not the case for 99% of non-IT supply chain companies), you're going to have to migrate to another solution. If you suspect your vendor is going to go bust, and see the gradual warning signs of multiple layoffs, lack of solution updates, increased turn-around time on issue resolution, lack of insight into the roadmap, and the run-around when you try to inquire into their financial health with (what's left of) senior management, then you need to start evaluating your options. If you start early, you can analyze your options, find the best one, and develop a staged migration plan that will minimize interruption to your day-to-day operations. If you don't, you'll be relying on expensive third party maintenance and prayers to keep you running until you can accomplish a stressful, organizational wide, all-at-once changeover.

In the latter case, you still have to migrate to a new solution, but if you negotiated full data access in a standard format, it's just a matter of selecting the next best SaaS solution, loading all of your data, and then hiring a third party integrator to re-create any linkages to your current applications for automatic data exchange. You'll have extra work while you manually export and import data until the new linkages are live, but since you'll (again) negotiate full data access and the ability to export and import what you need, when you need it, with a bit of training and documentation, the interruption to your staff's daily routine should be moderate at most.

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A recent article in Supply Chain Digest listed the seven timeless challenges of supply chain management, as described by Dr. J. Paul Dittmann, the Director of the Office of Corporate Partnership at the University of Tennessee. While I have to agree that these challenges are "timeless" in that we (needlessly) see them again and again and again, I don't understand why ... since all of them are solveable with today's technology. More specifically:

• Too Much Product Complexity
  Most companies have too many SKUs, and, to be precise, too many underperforming SKUs. But a good "spend analysis" with a modern data analysis package, which includes profit and loss data, can easily identify these SKUs which can be phased out and eliminated when contracts end.
• Too Much Slow-Moving and Obsolete Inventory
  While good forecasting and demand planning can never eliminate obsolete inventory, a regular "profit" analysis that factors in the carrying cost to date and current price point makes it easy to identify when it costs more to hold on to inventory than to get rid of it at a discount, making it an easy decision from a loss-prevention perspective.
• Supply Chain Considerations Not Part of the Product Design Process
  Simply do a total cost of ownership in the design phase and your critical supply chain considerations come into play right away.
• No Supply Chain Strategy
  This is an easy fix. Sit down and define one.
• Ineffective Matching of Supply with Demand
  With a slew of (near) real time supply chain visibility solutions on the market, all you have to do is implement one.
• Physical Network Problems
  There are a number of strategic sourcing decision optimization platforms on the market that can perform detailed network analysis at very reasonable price points. Get one, and if necessary, get the consulting help to do it right. A few hundred K on a network optimization project can easily save you a few million.
• Global Issues and Outsourcing Problems
  With a number of expert niche consultancies and deal architects that are very affordable, this problem is easily solved as well.

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Industry Week recently ran a great article on why going green can mean less red for your bottom line. The article quoted some great statistics from a recent Economist Intelligence Unit study that found that companies undertaking green initiatives as part of a strategy to cut costs and increase profits are

• much stronger than their closest competitors in their ability to find and exploit new opportunities (20% compared to 11%),
• much more profitable (24% compared to 13%), and
• ahead in revenue growth (23% compared 11%).

In other words, green-based initiatives are twice as likely to increase your revenue, increase your profit, and increase the new opportunities available to you. In other words, going green yields more green in your pocket.

The article also pointed out a recent WSJ article that detailed an academic group's independent confirmation that a Subaru auto plant in Indiana not only decreased solid waste by 99% but saved millions in the process by undertaking appropriately chosen green initiatives.

And the article pointed out that you don't need to undertake massive efforts to get massive results. You can start with a series of small efforts and the collective results will yield big savings, which you can then put towards bigger efforts down the road. For example, regular maintenance on the right equipment will cut energy costs 20% to 30%. Compressed air systems are a prime example. Small part failures and minor leaks alone can increase energy utilization requirements up to 30%.

For more great ideas, see previous green category posts.

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Editor's Note: Today's post is from Dick Locke, Sourcing Innovation's resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

I've got incredible respect for bloggers that post daily. I'm trying for a bi-weekly schedule and trying to keep the posts newsworthy. Not much happened in the last two weeks except for the possibility that the new US energy bill might include new trade barriers. I'll need some time to get my head around that one. Right now all I know is pollution bad, free trade good.

So let's go with a lighter note. And a test. Here are three pictures of hand gestures to avoid when traveling internationally.

Can you name some countries where these gestures would be considered rude, crude, or obscene?

Answers (in the comments) in a few days.

Dick Locke, Global Procurement Group.

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A recent article in CSM Worldwide Insights about Stress on the Supply Chain: Where is the Weakest Link? about the perilous state of the US automotive supply chain hints at a much deeper question than just who will fail when one of the big three fails. Why will they fail, and how could failure have been prevented?

They'll fail because they were too reliant on one company that has been essentially financially insolvent for years. What could have been done to prevent this? They could have diversified among not just the big three, but the big three foreign manufacturers who also have, and are opening up plants in, North America. Moreover, they could have diversified beyond the automotive industry. Cars aren't the only things with gasoline-based engines. We have buses, trucks, boats, airplanes, and even riding mowers. Is it the same part for every vehicle? No, but there are similarities since all gasoline engines pretty much work the same way.

Why did they choose to overspecialize? Most likely because, during the last boom, business was so good that the CFO advised them to follow this path. A CFO who was more concerned with presenting an unrealistically and unsustainably good set of financial statements to Wall Street and investors than insuring the business was diversified and stable for the long term. The same CFO who, when times get tough, cuts New Product Development and Marketing first, the two things that could actually help the company thrive during a downturn, and then, more recently, kicks procurement in the face (and cuts positions, budgets, and new technology implementation) when, in fact, they could be the organization's saving grace.

For this, I name CFOs, with their reluctance to focus on the big long term picture, the weakest link in the supply chain.

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Editor's Note: This post is from regular contributor Norman Katz, Sourcing Innovation's resident expert on supply chain fraud and supply chain risk. Catch up on his new column in the archive.

When most people see the term "military sacrifice" they think of what our service men and women give up in terms of their personal lives, safety, and well-being for the honor of protecting the interests and citizens of the United States and our allies.

Yet some frauds sacrifice our military in ways that could have deadly consequences, and these fraudsters do so for nothing more than financial gain.

In the case of a Miami Beach (FL) man, this twenty-something year old entrepreneur somehow secured government contracts worth tens of millions of dollars to provide ammunition to US troops overseas. Not only was some of this ammunition decades old and effectively not operational, but some of it came from China (not okay with the US military) though it was labeled as coming from Albania (okay with the US military). Can you, readers, imagine the harm and death to US troops using dysfunctional ammunition? Imagine fighting for your life in a combat zone and having your own weapon malfunction -- perhaps even causing serious or otherwise life-threatening injury -- due to substandard ammunition while someone in the country you are sworn to protect is living the high-life from profiteering off this fraud? Imagine being pinned down and not being able to fight back due to ammunition failure.

In another case, a US military subcontractor manufacturing night-vision goggles was going to outsource production to China strictly for profit purposes. The technology behind the US military's night-vision goggles is one of the most closely guarded secrets in our arsenal, and yet these folks were going to hand over to China -- a well-known Communist country -- the plans and details. So much for a key technological advantage our military troops have in nighttime combat. What would have prevented this technology from falling into the hands of the Chinese military, let alone being sold to the militaries of countries and groups truly at odds with the US? And again, US citizens would have profited by sacrificing the lives of our service men and women.

In both cases, the motivation was greed, pure and simple. I don't know how these people can live with themselves and what examples they are setting for others to follow, but as I recall both of these instances I am seething with anger. Our military forces deserve nothing but the very best: the military cook deserves to use the finest pots and pans and utensils available, and the combat troops worldwide deserve every advantage -- food, technology, armaments, defenses, support services, etc. -- that can be provided to them.

Fortunately both frauds were caught in time before secrets were revealed and serious harm done. Yet frauds that can ultimately cost lives continue to occur: when military contractors overbill for goods and services, if monies must be diverted from other uses to pay those bills, then the fraud can be more than just about overcharges and billing -- the consequences of such frauds can result in injury and death due to underfunding or delays in other critical areas.

Similarly, consumer product frauds risk the health and well-being of the product users. Avoiding quality assurance testing to save money and shipping knowingly bad product puts lives needlessly at risk. What is the cost of a human life? Well, it seems that some organizations have figured out the price, and it looks pretty cheap from my perspective.

Honest mistakes happen all the time, readers, but in this day and age we've got more technologies and business practices than ever to help ensure errors are caught and corrected before damage is done. Yet just like at some point in our lives we've each got to act our age, at some point an organization has to act its size and get itself together, simply as a matter of course and without being asked to do so. To the executives out there I say this: The life that is ultimately saved may be yours or that of someone close to you.

Norman Katz, Katzscan

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A recent article in Information Week on getting started with your energy efficiency program had a few good tips that are worth sharing.

• Identify current power usage
  Use real data which measures power utilization on an hourly basis. Contact your utility provider if you have to.
• Understand how the bulk of your energy is consumed.
  Once you've identified the peak load times, identify the major culprits. Is it a production line or particular piece of production equipment? Air conditioning for your data center? Consider getting an independent energy audit.
• Look for ways to minimize energy use at peak times.
  Set your charging units to kick in after midnight ... not when the batteries are plugged in when people leave at 5:00 pm. Adopt a casual work environment and turn the thermostat up (to 25C) in the summer, down (to 17C) in the winter, and consider instituting a siesta. And if you run a data center, fight to bring back liquid cooling. Why try to cool an entire room when the only part of the machine in danger of overheating in a standard operating environment is the CPU?
• Sniff the Air
  Compressed air, like electricity, is often a necessary evil in many industries, but it is not monitored closely and systems are typically laden with leaks. Every leak (exponentially) increases the energy required to maintain the pressure.
• Mechanical Drive Trains Use Energy Too
  And just like variable rate motors can save energy, so can different types of gear reducers.

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A recent article in Strategy + Business that discussed a recent survey that found that information technology is a neglected asset in joint ventures, besides unearthing a very disturbing trend, attempted to outline the major roadblocks to IT recognition and some ways to overcome those roadblocks. In Global Partnerships Unplugged, the authors do a good job of providing some good advice that can help you insure that your global sourcing projects don't get sidetracked, or, even worse, fail due to poor information technology alignment or support.

The article covered a recent survey by Booz & Co on Keeping IT Relevant in a Hyper-Changing Environment that found that information technology was shortchanged on a disturbingly regular basis at overseas joint ventures. This had a significant negative impact on costs and efficiency. Cheap (and often used) computers and software that don't fit in with the current infrastructure or business processes don't save money ... they cost money. Not only are people less productive, but it takes a lot more IT support to keep an ad-hoc jumbled network running than a well-planned homogeneous one. Not to mention the security concerns and losses as a result of IP theft that can easily be extracted from unpatched and unsecured machines that the primary IT department is unfamiliar with, if they even know the machine is on the ad-hoc network to begin with.

Trying to get to the root of the problem, Booz & Co discovered that IT, because of the up-front investment required, was often looked upon as a cost center to be cut, and not a source of cost savings. Done right, especially where supply chain management technology is concerned, good IT will pay for itself many times over in productivity improvements, insightful reporting, and, in e-Procurement, immediate identification of maverick spend or invoice discrepancies. But if you decide you can replace computers with typewriters (as one company in the survey did) at your offshore locations, those savings will NEVER materialize. One of the biggest costs, and sources of loss, in an Procurement department that has yet to be automated is paper invoices. They take time to enter, and even more time to process. Generally speaking, because of the effort involved just to confirm goods receipt, they're usually paid at face value which may not be (and for some categories often is not) at the contracted rate. You need good systems to support good people. Period.

So how do you overcome the challenges that prevent IT from being seen as the productivity enhancing and cost saving toolset it really is? The article gave these tips for the three major challenges it outlined.

• Cost Pressures
  Don't tie IT funding to a site's P&L. Manage it from a centralized IT budget established to support the entire operation, which allows for a meaningful calculation on ROIC.
• Standardization
  Mandate that the entire business is to be run off of one set of standards and set up a global governance forum to insure that it happens.
• Security
  Task Risk Management with IP management on systems. Once they understand the security risks posed by disparate systems across a non-standard network, they'll become vocal proponents of good IT systems.

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I read a very startling article this weekend on SupplyManagement.com. A recent study across 550 financial directors and CFOs from large organizations in the US, UK, Scandinavia, Germany, Spain, Belgium, the Netherlands, Luxembourg, and France found that only 17% of CFOs believe procurement heads deserve a place on the company board.

That's right, 83% of CFOs surveyed essentially believe -- to quote Adrian Done, a professor at the Navarra IESE Business School and supply chain expert, that procurement deserves nothing more than a "kick in the face". Ouch. At a time when their top priority is to save money, this is how they view procurement? Let's hope their replacements, when they eventually get fired or laid off when company performance goes down the drain because they did the usual blind cut across the board which irreparably damaged the business, are smarter than this.

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Last week, SupplyManagement.com published a 5-page article on E-Sourcing Made Easy. Done right, e-Sourcing IS Easy, and if it takes 5 pages for you to make that point, you're doing it wrong. Especially when you spend 5 pages explaining that:

• among some people, e-Sourcing has a bad rap you'll need to overcome
• that you should start small and manageable and work your way up
• that you should have buy in from key stakeholders before proceeding with an e-Sourcing event
• that marketing spend is a prime candidate for cost reduction, but that you'll have a turf war if you don't approach it carefully and collaboratively
• that temporary labour is another prime candidate for cost reduction, but that you'll have to do a lot of preparation to understand the category before you can proceed with an event
• that health care buying is another prime opportunity, but that you might get push back from professionals worried about quality
• that many areas of professional services, such as legal, are also ripe

which I just explained in a paragraph, and then proceed to spend no time at all on the actual implementation steps that make it easy. So here is a simple 5-step process to make e-Sourcing easy:

1. Identify your biggest opportunities.
   Bring in a consultancy that is an expert in spend analysis to help you identify where you have the most cost reduction potential.
2. Identify the negotiation processes likely to give you the most savings.
   Multi-round sealed bid e-negotiation? Open Auction? Decision Optimization? e-Procurement with price enforcement?
3. Select a best-of-breed SaaS provider that has those capabilities.
   And insure that it is supported by third party consulting firms with category experts.
4. Bring in a cost reduction consultancy with category experts.
   Contract them to manage the projects for your top five savings opportunities and have them train you on how to use the system to implement the proper processes as the projects progress.
5. Retain the consultancy in an advisory role on your next five to ten projects.
   That way you can be sure you learn the system, and processes, right.

That's it. Then you'll be ready to run your own projects and save every time.