What is new is the development of enterprise applications on force.com to satisfy a variety of processes, including an ERP solution.  And these are being developed in 3-8 months from initial concept to go-live.  Vetrazzo developed production planning, inventory management, order management, returns, warrantees, and ton of other ERP capability in 4 months!!  At a fraction of the cost that would have been required to purchase let alone implement SAP or Oracle. Even better, the CEO of Vetrazzo used to implement SAP systems, so he knows the full (in?) capabilities of SAP. OK, OK, so it does not have any accounting capability. But who cares, accounting packages are a dime a dozen and not related to your operational effectiveness.  Plus there are any number of applications available on AppExchange for linking salesforce.com to accounting packages. 

I can only imagine how SAP and Oracle execs are sweating. Even if we discount the technology story, the change in the business model is profound and is going to rock them to their foundations.  In our own customer base, customers that a year ago flatly refused to go on-demand are now discussing the option with us.  And these are companies over $20B!!  Yes, that is a B as in billion, not an M as in million.

What do you think?  What is the timeline before we see full ERP systems developed native to the cloud?

MIT is conducting a global survey on Supply Chain Risks and Risk Management,  and is looking for business and supply chain professionals within manufacturing, retail and distribution organizations to participate.

If you complete the ~12-minute survey you can sign up to get a copy of the results in early 2010 when it is completed. 

Scope of survey includes:

• Gauging the importance of risk prevention, event response, control points
• Understanding risk and disruption frequencies and priorities
• Understanding what companies are doing to address risks
• Questions about the respondent’s region, country, languages spoken, work setting, size of company, and type of industry.

To take the survey go to: http://tinyurl.com/RiskSurveySN1

To learn more about the project go to: http://ctl.mit.edu/RiskSurveySN1

I know I am certainly looking forward to the results!

I have the privilege of speaking with multiple companies every day….and they are all struggling, particularly with their supply chain.  They aren’t meeting their delivery commitments, their inventory is too high or they just don’t have enough visibility in their supply chain. There is an expectation out there that ERP systems will do everything for everyone in an organization and it is just not true.  Yes, it is certainly a good financial transaction tool and some companies find their ERP systems to be very successful. However you then find out that they have spent millions of dollars to make that happen.

I understand why a CIO of a company would want to have all of their business solutions on one ERP platform, but at what cost and compromise?

What do the users need in their day to day operations? They need better tools designed for users and not transactions. Organizations are continually being challenged to do more with less. The common theme in the business is being overworked, constant stress, change and disruption.

People in Demand Management, Sales and Operations Planning, Customer Fulfillment, and Planning and Scheduling have a right to be heard. They don’t have the time to source out better solutions that will improve their efficiencies and performance. Do they know that there are solutions that can vertically integrate their supply chain, providing them visibility to other aspects of their operation in other parts of the world or with their partners? Do they know that they can test changing a demand that will instantly regenerate MRP and tell them where their gating material and capacity constraints are? Do they know that they can create their own reports rather than relying on a queue with the IT department?

It is up to the management of an organization to ensure that people are properly empowered to do their jobs in the most efficient manner possible. There are ways to solve these problems.   Don’t wait until it is too late to address these issues. Look for disruptive SaaS technology…to augment your ERP….without getting ‘duped’ as Roger Burkhardt, the author of the article so eloquently puts it.

What is your experience?

This month’s challenge discusses a large, multinational manufacturer of industrial equipment that is looking to improve its purchasing practices after discovering that they were literally leaking money by not fully leveraging its purchase volumes and buying power.

I took part in providing one of the solutions, as did Corey Billington, Professor of Operations Management and Procurement at IMD.

Tell us what you think of our responses to the challenge as described below:

I am the CFO of Tevper Performance Products, a large, multinational manufacturer of industrial equipment. Tevper sources hundreds of thousands of components, materials, and services every year, which account for billions of dollars. The VP of procurement and I have convened a team to review and improve our purchasing practices throughout the organization.

The impetus for the review was discovering that we are literally leaking money by not fully leveraging our purchase volumes and buying power. I don't expect all of our 13 production locations to source in an identical manner: Many have total-cost formulas that are best served by tapping into local suppliers. Others require nearby sourcing to reduce lead times. Some are constrained by how and what their outsource manufacturers choose to purchase. But even after lightly scratching the surface, I see countless missed opportunities for Tevper to lower our costs for direct and indirect materials. For example, at our Arizona location, I can find a variety of suppliers, product numbers, product names, and pricing for the exact same component. This must stop.

In my five years at Tevper, we've taken a light hand toward strategic sourcing, believing that well-trained, local procurement departments would make the right decisions: implement sourcing processes and systems that enable them to understand, aggregate, and control procurement activity that is occurring within their location or division as well as make purchasing decisions consistent with other business units. I have respected their autonomy, but cannot afford to do so any longer.

The VP of procurement, the review team, and I must, first, uncover the most egregious purchasing problems and put an end to them as quickly as possible. But, more importantly, we need to begin developing the means and systems that allow comprehensive and real-time tracking and reporting required to achieve high levels of purchasing performance even within our diverse and distributed business model. It will be a challenge, and, as word has leaked out, I am seeing the emails stream in: “Our supplier relations are unique,” “You'll never get our purchasing data to be compatible,” and “We don't have time to make every purchase align with corporate mandates.”

I don't have time for their excuses. And my future with Tevper may rest on my ability to install a major strategic procurement program. Can it be done?

See our advice here. What advice would you give?

So shouldn’t the paper be titled “Do Less with More”?  Just try running a Google search on “SAP overrun cost”  and see the results.  Or “SAP maintenance costs”.

Or, I thought, perhaps the paper is referring to the fact that SAP is getting “less” license revenue, so the paper is about SAP becoming more efficient itself?  That just didn’t compute, so I knew I had to read the paper.

Well, I think I found my answer.  Buried in the paper is the following statement:

“Management by spreadsheet is a reality, and it’s not going away any time soon”. 

So finally, the admission that the functionality provided by SAP is simply not good enough so everyone has to resort to spreadsheets to get anything done.  And in a paper sponsored by SAP.  Wow.

Well, let’s think about what has been happening;

• Glaciers and polar ice caps have been retreating at an alarming rate and scientists are predicting that the arctic ice cap will melt by 2020 (if not earlier)
• Sea levels have risen between 4 and 10 inches since 1990 as a result of the melting polar ice caps
• We’re seeing Increasingly violent storms. 35 years ago, 1 in 6 tropical storms were considered to be major storms, in recent years, 1 in 3 are major storms.
• Increasing floods and droughts
• Scientists are constantly reporting on impact on wildlife due to global warming from polar bear problems in northern communities to changing bird migration patterns.

Scientists are now (mostly) in agreement that global warming is happening and that there is a significant need to do something now.   People and governments are starting to listen.  Many governments are setting targets for greenhouse gas reductions.  People are looking for information to help them make better decisions when buying. Walmart is instituting a major sustainability initiative that will result in a sustainability rating for all of its products, providing its customers with a basis for comparing products based on their environmental impact.   Many companies have started measuring and reporting the carbon footprint for their products.  More significantly, in order for these companies to report their carbon footprint, they must have detailed carbon footprint data from their suppliers.

The point is that your company will eventually need to address its carbon footprint.  In my opinion, you have two options; you can wait until you are forced kicking and screaming to report and reduce your carbon footprint or you can be proactive and start to measure and reduce the impact your company is having on the environment.  Those companies who take the latter path will find themselves far ahead of the pack when governments and your customers start demanding reductions in the carbon footprint of your products.

So where do you start?  John Nafis has published an excellent white paper titled “Providing Carbon Footprint Visibility and Planning Capabilities Across the Supply Chain:  Why you need to do it and What you need to do it”.    (In it, John describes the factors driving companies to consider their carbon footprint.  He also describes the many difficulties facing companies looking to track their carbon footprint.  Most importantly, he describes the tools needed to manage your carbon footprint. )

A very interesting concept is the need for carbon footprint planning  through simulation  What does this mean?  Companies make decisions everyday that impact the carbon footprint of their product. If you expedite an order, what impact does that have on carbon footprint?  What if you choose a supplier next door instead of a supplier on the other side of the world?  What if you used a component with a smaller carbon footprint?  Now, what if you could simulate these options and see what impact they would have on your carbon footprint before you made your decision?

We all need to make changes in the way we live and the way we do business if we want to leave a clean, green world for our future generations. The decisions we make today have a significant impact on all our futures.  Let’s make the right decisions and work proactively to reduce our personal and business carbon footprints.

What steps is your company taking to reduce its carbon footprint?  Post a comment and let us know?

The answer, like many for questions in life is:  it depends. 

Just to go on the record, I fully support the idea of supplier rationalization if it is done with the idea of improving the relationship with a smaller number of suppliers.  The reason I put conditions on my support for this practice is because I have seen far too many cases where companies eliminate a large number of their supply base then continue with business as usual with the remaining suppliers.  No improvement in communication, no sense of partnership, no added value.  

On the other hand, companies that truly understand supplier rationalization understand that by reducing your supply base, you have the opportunity to improve communication and partnership with the remaining suppliers through more detailed forecasts, sharing of product plans and resolution of financial issues. The supplier, because they are getting a much larger part of your business, could share cost issues (and savings!), capacity information, supplier concerns and other key information that gives your company far better visibility into potential risks.

Which brings me to the dichotomy between supplier rationalization and risk management (which really isn’t a dichotomy at all…) If you have a component that is key to a product (if you couldn’t get this component you would not be able to make your product(s)).  If that product is key to your business, you need to identify and evaluate the risk that this supplier won’t be able to supply your goods.  If you truly have a partnership with your supplier, this risk assessment ought to be pretty easy to do because the necessary communication has been happening.  

But what if you have been reducing suppliers but not putting effort towards improving communication?  In my opinion, you are in a much poorer position for evaluating risk and as such you should absolutely work towards either improving the partnership with that particular supplier or developing other sources.  Depending on the strategic importance of this component, you may wish to develop an alternative source regardless. No level of partnership can provide visibility to an earthquake, hurricane or fire for example.  Despite the strong partnership, that supplier would still not be able to produce.

Remember, the need for a mitigation strategy depends on the risk and the impact of that risk.  You need to do the risk assessment for those suppliers that will have a significant impact on your business.  In today’s environment with the efforts towards supplier consolidation, you have much fewer suppliers to assess. On the other hand,  if any one of those suppliers fail, the impact on your business will be much higher. 

What is your approach to supplier rationalization?  How is this impacting risk management in your company?

The 1st note that popped out was a reference to a PRTM report which said that the outsourcing return is at most 17%.  There are many banks that are no longer in business that would have been had they had a 17% return. Many bailouts would not have been required with a 17% return. The focus on the 17% shows two things. The first is that people are surprised that there are supply chain management costs. After 30 years in supply chain, I am still shocked that supply chain management is rarely considered in the cost analysis for outsourcing. The second, and more positive item is the attitude that no matter how well something is done, if it can be improved it is not good enough.  The white paper properly focused on the latter item - how to improve.

Between the lines throughout the white paper I see the implied request for a study of what are the real cost of out sourcing or off shoring vs. in house. There are some true costs that would not be in house (for example, trade regulation, transportation time, language issues, etc.) After those ‘real’ differences are identified, any other cost increases that would not be there if in house are exactly what the paper addresses: the costs of treating outsource differently than in house.

The paper makes a simple point - you have to perform the same communication whether you have in-house manufacturing or you outsource. So what's the problem?  The problem is that most manufacturers traditionally have a double standard when it comes to communicating and collaborating with outsourcing partners versus internal operations…and there are significant costs implications of that. 

Data exchange was noted as not being the same in-house and out of house.  One item cited is the effectiveness of tactical data exchange creates a glut of ineffective data.  If in-house, a modern company would not provide a bunch of data from a department with the expectation that the receiving department would find what is needed within it. Instead, there would be a well-coordinated decision as to what information is needed, how and when. Why should anyone not expect the same needs to be present when outsourcing? The same work needs to be done, just in different location.

The second cause of the lack of communication and strategic data alignment cited was the tendency to provide information to outsourcing partners on a ‘need to know’ basis. Though the white paper clearly points out the need for true collaboration, perhaps the issue is psychological? The fear of losing control? 50 years ago the franchising industries got past these issues.  Production operations and supply chain can take some pointers.

I am tempted to say that we cannot operate like we have in the past in the new world, but that statement does not even fit. I cannot remember any world when the right way to do business was to throw something over the fence, say it is now your job, and expect results.

The companies that will excel will do their job properly in this arena.

Carbon is challenging business in many ways and companies will continue to be pressured to better  manage their carbon emissions.  Companies that get ahead of the curve will be rewarded by  investors and consumers alike.  Companies that lag the curve run the risk of losing investor  confidence, consumer trust, and falling behind in product development.

It is estimated that between 40 and 60 percent of manufacturers’ carbon emissions reside in their supply chains. As such, new supply chain visibility and planning tools need to be adopted in order to be able to consider carbon emissions as an additional factor in the decision making process.

This paper provides a brief exploration of the current carbon landscape and will outline the attributes of an ideal supply chain carbon management application.

During my tenure implementing the true ERP suite vision (everything included; HCM, Financials, SCM, Mfg, CRM, etc.) for a company, the company would always struggle  during the SCM and manufacturing part of the project.  This was generally because every manufacturer runs their company differently in order to maintain a competitive advantage and trying to fit a one size fits all product into a company doesn’t work.  In addition, the ERP vendors would sell the company on a single platform for integration, and many times some of the SCM products were really acquired products that are more like bolt ons and the integration doesn’t necessarily exist.  So, not only is there generally more work to integrate the product, but the functionality may not exist that the customer requires for their business.  These were difficult customer situations to manage.

I believe that customers should really do a thorough vendor selection when looking to procure SCM or manufacturing software, and I don’t think I am alone in this belief.  In an ErpPandit.com article entitled “Basic ERP Features” the author gives a primer on comparing mid-market ERP providers and when discussing SCM module states “Of all the ERP modules, SCM has the greatest variability between vendors: It is vast and varied, yet often adapted to the needs of specific industries.”  If that is true (which I believe) then how can a company not do their due diligence when selecting software?  Certainly you don’t want to be a food and beverage manufacturer and implement a product which is designed for the high tech industry.

This of course doesn’t mean that the SCM software from your ERP vendor won’t work for you, all I am suggesting is that it is worth the time to look at alternatives.  Companies should not fall into the trap in assuming that just because the SCM software was part of an ERP solution that fits your company that the SCM software either works for your unique business or is tightly integrated into the back office ERP functions. 

There is another post on the Adexa blog entitled “Cost of ERP vs. Best-of-Breed Supply Chain Planning Systems” which also does a nice job educating the reader as to what to consider when performing a software evaluation data integration, planning analytics and configuration cost.  There is now a lot of evidence out there of failed SCM implementations and I personally don’t want to have to be on the hook to deliver an SCM software implementation for a company where the software doesn’t match the requirements.