“Today, sustainability has replaced cost, value and speed as the dominant topic of discussion among purchasing and supply professionals,” asserts the authors of one Oracle white paper. But according to a report from PricewaterhouseCoopers, EcoVadis and Insead, a lack of vision and strategy can deter these initiatives:

One of the main difficulties might be linked to the fact that few organisations have the necessary vision, organisation and budget to risk certain costs…for uncertain benefits.

In this article, I will discuss the five conversations I feel must occur within supply chain leadership for sustainability to become synonymous with reduced cost, risk mitigation and a socially-responsible business.

1. How Can We Better Measure Sustainability?

While most organizations plan to reduce their carbon-footprint, many lack the measurement capabilities to connect sustainability to supposed cost reduction. Richard Bank, Co-Director of the Sustainable Supply Chain Foundation, says that sustainability projects can be used to greatly reduce costs–if efforts are well-measured and patterns are identified.

For example, Bank explained how one materials transporter successfully reduced fuel consumption and truck wear-and-tear by becoming more scientific in its route planning and its truckload layouts. The project positively impacted the environment and saved the business hundreds of thousands per quarter.

In addition to using transportation management and route-optimization systems, sustainability scorecards (like CSRware’s Sustainability Supply Chain package) are necessary for success with these projects. These programs can help present the value to decision-makers–and assist strategists in directing future campaigns that are sustainable and reduce costs.

2. How Can We Instill Sustainability into Our Suppliers?

Though technology and logistics have improved throughout the supply chain, many buyer-supplier relationships have become stagnant. There’s been little reason to innovate among these suppliers, according to Monica Gelinas, strategic sourcing expert and Principal at GritWork LLC.

“We need to review grandfathered-product specifications,” says Gelinas. She proposes that buyers propose an olive branch to suppliers–by asking how the suppliers could make components more sustainable.

Insisting on accountability through scorecards can incentivize suppliers and encourage sustainability. Proctor and Gamble’s new Supplier Scorecard is a good example of a company demanding sustainable excellence of its partners.

“It’s this kind of pressure from the big buyers that’s impacting the entire eco-system,” believes Lisa Harrington, Co-Director of the Sustainable Supply Chain Foundation. Bank adds that accountability can lead to improved public perception, investor relations and supplier productivity.

“At the end of the day, companies can realize this efficiency through lower prices,” says Bank.

3. How Can We Design More Sustainable Products?

Addressing sustainability further upstream–at the level of product design–can lead to greater savings and decreased stress on logistics networks, as well as improved sustainability.

“Sit down with your team and and just ask, ‘What can we redesign?’” suggests Gelinas. However, Gelinas notes this discussion has to involve sales, research & development and other departments to realize benefits from these sustainability efforts. “It has to be built into the company’s DNA.”

Cleaning materials companies have done a great job integrating sustainability into their products, as well as marketing these initiatives. Concentrated-formulas detergents, for example, reduce the the cost of transporting materials (i.e., mitigating against the impact of rising gas prices), as well as produce a tentpole to use in marketing.

4. How Can We Avoid Socially-Negligent Suppliers?

Social responsibility is enveloped within a sustainable supply chain strategy, and a lack of oversight has shown to have both direct and indirect implications on an organization’s financials. In 2007, Mattel spent $110 million on product recalls and saw its share price drop 5.8 percent in just two months after its Tier 2 Suppliers used unsafe levels of lead paint in Mattel toys.

“Even though Mattel has excellent supply chain management, one slip-up cost them in terms of reputation loss,” says Diane Osgood, Ph.D. and founder of Osgood Sustainability Consulting. “Better transparency could have saved them.”

Social responsibility within the supply chain requires both public transparency and supplier accountability. In response to its own supply chain crisis, Nike has become a leader on both of these fronts. Its openly-disclosed factory list was a first in its industry when released in 2005. Likewise, Apple’s 2012 Supplier Progress Report mentions partnering with the Fair Labor Association for external auditing.

5. Who Can We Trust to Drive Sustainability?

While best-in-class supply chains have become more technology-dependent, they are still driven by effective people. According to Osgood, the key for many organizations is shifting their best employees to head sustainability projects.

“Companies need to figure out that it’s worth putting its ‘good people’ on these issues–to realize eco-efficiency, to figure out they’re not only compliant with new laws, but that they have meaningful policies in place,” says Osgood.

A shift in the perceived importance of sustainability is necessary for some companies–and employees, as well. Ron Ashkenas recently argued that such “horizontal moves" are necessary for both individual and company-wide progression in today’s environment. I believe this is especially true as the importance of sustainable supply chains continues to increase.

What kind of questions need to be asked in order to improve the sustainability of our supply chains? Please leave your thoughts in the comments below.

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• Sean Canning, LEEP AP, licensed architect and owner of 10|70 Architecture in San Diego, California.
• Shawn Casemore, President at Casemore & Co., a supply chain consultancy based in Ontario, Canada.
• Dan Gould, President at Synergy, an energy-efficient lighting consultancy based in Boston, Massachusetts.
• Dave Homerding, Marketing Manager of WeatherSure Systems, a commercial roofing and waterproofing contractor based in Colorado.

Based on our conversations, here are nine great warehouse retrofit suggestions that won’t break the bank.

1. Increase Natural Lighting with Solar Light Tubes

Natural lighting is a great way to cut down on energy use. To bring in more light without major construction, Canning suggests light tubes. These tubes are composed of highly-reflective material that channels natural light into the warehouse. And installation generally doesn’t cut through the structural components of the roof.

2. Cool Your Roof

In older warehouses, there are a number of quick roof improvements that can greatly reduce energy consumption. Canning suggests warehouse managers apply a “cool roof,” which is a coating of highly-reflective paint to reduce the amount of heat that the building absorbs.

Homerding mentions that just coating around the roof’s air conditioning units can reduce the the temperature of these units, increasing their efficiency and thus reducing the amount of energy needed to cool a building.

3. Upgrade Insulation

If a warehouse currently contains traditional batt insulation, Canning suggests replacing it with loose-fill or sprayed-foam to increase its efficiency. Loose-fill insulation often requires only a small hole to be made between studs and blowing in the insulation. Alternatively, sprayed-foam insulation costs about twice as much as loose-fill, but is almost twice as efficient as batt insulation.

4. Install Fluorescent or Induction Lighting

Gould says that one of the first retrofits to consider in commercial warehouses is to replace traditional metal halide light fixtures with fluorescent lights. Flourescents use 50 percent less energy and their cost can be recovered in two to three years.

Casemore also suggests considering a slightly more costly upgrade to induction lighting. Induction lights offer up to a 40 percent efficiency increase over their fluorescent counterparts, though have a larger up-front cost.

5. Revamp Lighting Scheme to Reduce Usage

While copious, ambient lighting may be a necessity in some warehouses, switching to a task-lighting scheme can greatly reduce energy usage. Move lights away from the ceiling and closer to the workers, and overall usage can be reduced, notes Canning. These benefits are increased when combined with natural, ambient lighting and artificial lights with motion sensors.

6. Deploy Controllable Thermostats

While most residential and commercial properties have programmable thermostats, Casemore points out they’re less common in warehouses, or simply not programmed. By regulating and measuring the warehouse temperature, users can reduce their energy usage with shorter heating and cooling cycles. For even more cost savings, Casemore suggests users connect these thermostats to a monitoring system to analyze their energy usage.

7. Install Lighting Sensors

Motion sensors can be attached to lighting systems to decrease use when zones are inactive–a great option for warehouses with low-traffic areas or where lighting is not crucial. Where this isn’t realistic, Canning suggests daylight-level sensors to adjust levels to the amount of natural light in the facility.

Gould points out that sensors are essential to minimizing artificial lighting in a facility that also utilizes natural light. Without them, he says, these facilities are often over-lit and often don’t actually reduce energy usage.

8. Invest in Destratification Fans

In colder climates, the energy needed to heat a warehouse can be reduced by investing in destratification fans. Gould explains that these fans channel hot air down to the floor of the warehouse. Depending on the warehouse layout, managers can heat large spaces with large fans like those from Big Ass Fans (yes, that’s the company’s name) or smaller fans like those from Air Pear to channel warmer air to direct warehouse zones.

9. Join a Demand-Response Group

Casemore suggests a final energy-savings solution that doesn’t require installing anything whatsoever: joining a demand-response energy program. Companies like EnerNOC and EnergyConnect help devise a conservation plan that users enact when demand peaks. Users receive payment for participating in the program and for energy they sacrifice when called-upon during peak usage periods.

These experts had some great ideas, and I highly recommend reaching out to them if you are looking to make any green retrofits in your warehouse. Do you have any ideas on warehouse retrofits that can reduce energy consumption and assist warehouse operators trying to go green? Please take a moment and share in the comments.

Blog post images created by Till Kretch, U.S. Army Corps Engineers Europe District, sleeping pill, Joelk75, Idaho National Laboratory, dunktanktechnician, Luis Argerlich, Jan-Erik Finnberg and Anton Fomkin.

These positions have become increasingly strategic. Businesses are now turning to their supply chain teams to slash costs and improve overall business performance.

“Years ago, the supply chain was considered a cost. Now, it’s seen as an area of savings. [Supply chain professionals] can directly impact the bottom line,” says Rhoda Isaacs, President of logistics recruiting firm R.I. James.

In this article, I look at which jobs are in high demand, and what skills are necessary for success in those roles.

Five Hot Supply Chain Jobs

Based on conversations with executive recruiters, academics and industry professionals, here are five supply chain jobs that are in high demand today.

1. Demand Planning Analyst

What they do: Match product demand with appropriate inventory levels.

Why it’s important: Carrying too much or too little inventory can have dire consequences on a company’s bottom line. Demand Planning Analysts prevent this from happening.

Skills: This role is heavy on quantitative analysis, so an academic background in mathematics is useful. Experience using enterprise resource planning (ERP) software such as SAP or Oracle is also beneficial. Many individuals in these roles have advanced certifications, such as becoming a Certified Supply Chain Professional (CSCP) through APICS or a Six Sigma Black Belt.

2. Procurement Manager

What they do: Manage (in)direct sourcing, negotiate with suppliers and keep tabs on supplier performance.

Why it’s important: A successful supply chain requires inventory flexibility and redundancy while keeping costs down. Ensuring this is possible falls on the shoulders of the Procurement Manager.

Skills: These professionals require both an analytical rigor and excellent negotiation skills. For this reason, a background in supply chain operations, statistics, marketing and sales are all beneficial. While the ISM’s Certified Purchasing Manager (C.P.M.) accreditation is available via re-certification only, there are other options, such as the ISM’s Certified Professional in Supply Management (CPSM) or the Senior Professional in Supply Management (SPSM) certification through Next Level Purchasing.

3. Distribution Center (DC) Supervisor

What they do: DC supervisors manage a team of warehouse workers and logistics professionals to ensure that the DC is organized and efficient.

Why it’s important: The DC is a crucial convergence point for a business’ product as it nears customers. The DC Supervisor keeps logistics moving smoothly

Skills: While advanced certifications aren’t necessary for career success, an understanding of both supply chain principals and technologies is beneficial. Those who excel in these positions aren’t afraid to take a hard-stance to achieve results, nor get their hands dirty when needed. Good work in this role can lead to lucrative career paths, as companies look for intelligent young executives with “floor-level” experience.

4. Supply Chain Consultant

What they do: These consultants work with multiple clients on specific supply chain problems.

Why it’s important: Consultants offer third-party advice to businesses looking to improve their supply chains. Firms such as Capgemini and A.T. Kearney are some of the hottest career destinations. 

Skills: These positions are great for recent business, economics, engineering or supply chain undergraduates, or newly-minted MBAs. While the work is more demanding than other entry-level supply chain positions, the experience gained in these roles can open the door to management positions overseeing supply chains, positions within supply chain management software companies or at independent consulting firms.

5. 3PL Business Development Manager

What they do: Business Developers at 3PLs drive new business and manage customer relationships.

Why it’s important: As businesses look to outsource their logistics, 3PLs are continually gaining importance. Acquiring new business and managing customer communication is an essential role in these operations.

Skills: Advanced certifications aren’t required for success in this role, but the individual with experience and a basic knowledge of core supply chain concepts can better relate to the 3PL’s customers. Solid experience in sales or account management is helpful, too.

Three Skills in High Demand Throughout Logistics

In addition to these jobs, I discovered three skills in high-demand throughout the supply chain, regardless of the role:

• Supply Chain Fundamentals – Joel Sutherland, Managing Director of the University of San Diego Supply Chain Management Institute, says that industry professionals are asking universities to instruct on the downstream effects of actions within the supply chain. “Through teaching an end-to-end perspective, students have a better understanding of the total delivered cost and the optimized solution,” explains Sutherland. This includes a greater focus on the subjects of finance and accounting and general business administration.
• Analytical Thinking and Quantitative Acumen – Professionals with an exceptional knowledge of engineering, statistics and finance are in high demand. Michael Hasler, Associate Director of the University of Texas Supply Chain Management Department, says that UT has responded with new coursework and degree programs, such as its certificate in Supply and Logistics Optimization and an upcoming Masters in Business Analytics.
• Written and Verbal Communication – Excellent communication skills are especially important for successful supply chain professionals. Jeff Karrenbauer, CEO of software and consulting company Insight, describes its importance as the following: “If you’re speaking in front of an executive and you nail your supply chain presentation–that’s the fastest way to be remembered in this business.”

Multiple Paths to Career Success

The supply chain as a whole is only as good as its components, and those components are only as strong as each field’s professionals. Continually broadening one’s knowledge is crucial to success.

“It’s hard for a single person to be an expert at the advanced aspects of procurement, inventory management, and logistics,” says Charles Dominick, CEO of purchasing certification provider Next Level Purchasing. “There’s room for experts for each field, as competency in each requires advanced specialization.”

Additionally, there’s room at the top of many businesses for professionals with expert insight into the entire supply chain. According to Art van Bodegraven, President of Van Bodegraven Associates, the marketplace is demanding executives that can take a holistic view. “These professionals have to have an understanding–if not mastery–of all elements of supply chain execution and planning,” says van Bodegraven.

What jobs and skills are you seeing in high demand in the supply chain? Please leave a note in the comments with your thoughts.

An additional thanks Jeff Flannery, Managing Partner of Teldar Group and Donald Jacobson, President of Optimum Supply Chain Recruiters for their insight for this piece.

Images created by Oracle PR, buddawiggi, Mark Hunter and Skyhawk4Life.

These best practices can help guide effective scorecard and performance management initiatives that benefit sourcing experts, purchasers and other supply chain leaders that use supplier relationship and performance management software.

1. Build Scorecards Around Business Goals

Quality is more important than quantity when it comes to performance metrics and key performance indicators (KPIs). Further, the best scorecards align KPIs with business goals.

Before developing scorecards, company executives need to understand the business case – how better supplier performance can support overall business goals and strategies by the following:

• Uncovering hidden cost drivers and risks
• Finding business and performance improvement opportunities
• Reducing risks and supplier cost
• Discovering additional value from suppliers

Establishing supplier performance expectations is the first step to any successful performance management program.

2. Establish Processes to Evaluate Performance

Once the right metrics have been built into the scorecard, managers need to create specific business processes to communicate performance with suppliers. Managers will need to establish how suppliers will be recognized and rewarded for good performance, how new business will be awarded to existing suppliers as well as when to disengage with an underperforming supplier.

Sherry mentioned that one complication for many service companies is that they do not posses the systems that can collect and provide performance metrics. In these instances, internal stakeholder surveys can be used to measure performance data.

3. Communicate Information to Suppliers and Take Action

Scorecards are built, KPIs are set and performances are measured. But a lack of action on these evaluations leads to no change in supplier performance. With metrics in place and performance evaluations established, it is then critical that scorecard results are actually shared with each supplier – and that improvement actions are taken. From initial service level agreements (SLAs) to contract re-negotiations, performance managers should constantly keep communication lines with suppliers open. This dialogue between customers and suppliers can strengthen the relationship and provide insights for both groups about areas that can be improved.

Luckily, software solutions are making the performance managers’ job easier. Both standalone/niche supplier performance management (SPM) applications and SPM applications within enterprise suites provide scorecarding capabilities and performance data that is easy to access, share and analyze.

I asked Charles Dominick, President of Next Level Purchasing, how improved technology will assist the communication process. “The direction that supplier relationship applications are going is encouraging because it makes the whole process easier to implement and less intimidating," said Dominick.

4. Share Information Internally

Beyond communicating with suppliers on their performance, this information needs to be visible internally. Stakeholders outside of procurement and supply management who are impacted by supplier performance all need access, as supplier performance affects the entire business. A product manager at a tablet computer company could use performance data on its touchscreen suppliers to determine the next product iteration. Additionally, the manager could evaluate which suppliers may be candidates for collaborative product development. These are examples of how advanced supply chains can wholesale improve the business, rather than just reduce costs and logistical efficiency.

To mitigate risk, it is critical that supplier scorecard information is shared with stakeholders throughout the organization whose work is impacted by supplier performance. For example, performance data can be shared with financial managers to help paint a clearer picture of how susceptible the supply base is to unforeseen supplier bankruptcies. Additionally, supplier performance is a leading indicator for supply risk, and poor performance may indicate troubles ahead. Supplier performance data can provide risk assessment managers with early warning signs and provide time to take action.

Improving the Supplier Base with Performance Management

By aligning scorecard metrics and business goals, improving evaluation processes and communicating performance with both suppliers and stakeholders, performance managers can greatly improve their operations’ efficiency. Holistically evaluating suppliers and working to improve performance empowers managers to fill the gaps in their supply base and establish a stronger foundation to build upon.

Managers can showcase high performance at a supplier performance, and show how these role models achieved their success. In addition, when assessing future suppliers, managers can look for new suppliers that excel where their current suppliers have fallen short.

Has your organization implemented a successful supplier scorecarding program? What advice would you have for others to increase the value of these programs? Be sure to share in the comments or contact me on Google+.

Thumbnail image created by Julie Rybarczyk.

There are a number of benefits that can be realized with improved visibility, including optimized inventory, improved forecasting and increased collaboration. So what’s hindering leaders from achieving visibility? According to Karin Bursa, Vice President of Logility, one of the biggest challenges is that leaders often lack access to the data they need to make decisions. “The problem is many companies either don’t have access to [data], or are spending too much time trying to make heads or tails of the data,” she says. “The right visibility affords the supply chain team to proactively identify and resolve issues.”

I would agree. By creating more transparency throughout the supply chain, managers can prioritize where to invest in network improvements. Today, integrated software solutions are essential in helping leaders collect, manage and share the types of data that make this level of visibility and proactive decision-making possible.

Spreadsheets Lead to Delayed, Disconnected Data

The first step to increasing levels of visibility is abandoning what Bursa calls a “silo-based approach.” Or more specifically, organizations will need to move away from spreadsheets and isolated software systems, which limit access to real-time information.

The truth is, very few supply chains can be considered “simple” anymore. Even companies with streamlined product lines often source from all over the world. Therefore, access to accurate data in real time is vital to an organizations’ ability to plan, analyze and react.

When using spreadsheets, there’s a wide range of potential issues – from information being more difficult to track down to out-of-date and inaccurate information. Additionally, these offline spreadsheets are often disconnected from other supply chain members – making it more difficult to keep track of key aspects of operations. Yet even with these drawbacks, many can’t beat the Excel addiction. Spend Matters Editor Jason Busch even wrote a comical article on the topic, likening Microsoft Excel to an addictive substance for procurement experts.

However, “Excel junkies” aren’t limited to procurement departments. According to Logility’s Bursa, spreadsheets are still a primary source of frustration throughout the supply chain. “Just mention, ‘death by spreadsheets,’ to any supply chain practitioner and you’ll get a nervous chuckle of agreement,” says Bursa.

The answer to this dilemma goes beyond simply ditching spreadsheets or adopting a standalone supply chain software solution. Rather, organizations should look to adopt a centralized suite of software solutions that connect various departments, suppliers and distribution partners.

Software Collaboration Required for Visibility

By creating a centralized network of software, organizations can increase communication and share information in real time – giving leaders an accurate picture of the supply chain at every critical point.

The U.S. Navy, for example, recently adopted such a supply chain hub. In the article, John Simone, CTO of IBM’s Public Sector Supply Chain Practice, notes this hub supports approximately 8,000 transactions per month. It’s an approach that’s already proving beneficial, with a reported $2.5 million in cost savings. Establishing this type of network means adopting an enterprise software suite that offers integrated forecasting, sourcing, purchasing, warehousing and transportation applications.

While the hub system is ideal, it requires all departments and groups within the supply chain to adopt an enterprise solution suite in unison. However, some businesses would rather use the departmentalized route: Invest in best-of-breed applications for each specialized group on an as-needed basis. Whether researching a sourcing, supply chain planning or warehouse management system (WMS) application, organizations should be on the lookout for a few core requirements that will assist in visibility improvement:

1. Automatic identification and data capture (AIDC) throughout the entire manufacturing and logistics life cycle.
2. Visible inventory data that is accurate, up to date and accessible to users across the supply chain.
3. Programmable and pre-set notifications that alert pertinent groups and empower increased collaboration.

In an article, John Atherton, VP of Strategic Consulting at GT Nexus, stresses that executives need to turn on the lights and focus on visibility if they want to make sound investments in the supply chain that yield the highest return. By adopting solutions with these features, supply chain managers gain access to not only more accurate inventory data, but can also obtain greater insight into all supply chain processes.

Three Examples of Visibility Impacting the Supply Chain

To get a better idea of how visibility can impact the supply chain, let’s look at how it can directly affect supply chain planning, procurement and execution. Some examples of how managers can take advantage of increased visibility include:

1. Improved inventory policies. Supply chain planners can ditch “rule of thumb” inventory policies (such as holding 20 days’ worth of supply for all products), and analyze inventory rules on a per-item basis. They could analyze the impact on costs of changing service levels, such as a change of 98.0 percent to 97.9 percent customer service.
2. Accurate procurement analysis. Purchasing leaders can include prior supplier performance when considering recurring bids. Additionally, visibility allows purchasers to more accurately analyze spending habits, prioritize commodities and identify areas to improve.
3. Better communication with transportation and manufacturing. With electronic data interchange (EDI), information from manufacturing and transportation departments can be integrated and compiled within the warehouse manager’s WMS. All parties can be notified of an incoming shipment or a production delay – smoothing out the entire logistics process.

As shown above, improved end-to-end visibility allows supply chain managers to better automate day-to-day activities and focus on more strategic responsibilities – leading to operational excellence that can reduce costs and increase efficiency.

Now I would like to open up the discussion to hear about more real-world anecdotes of visibility and what it provides. If you’ve engaged in initiatives to improve visibility, or had increased visibility lead to cost savings, please share your comments below.

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What’s most surprising about Cook’s move up the ladder at places like IBM, Compaq and then Apple, however, isn’t his track record or reputation, it’s his origins in manufacturing and the supply chain. Widely viewed as the father of Apple’s best-in-class supply chain, Cook’s success as a supply chain-minded executive is a rare sight – not because supply chain experts lack knowledge or skills. Rather, it’s that the industry is lacking supply chain talent in the first place.

Cook’s promotion is a move that other technology corporations should take note of. Why? Because Cook assuming the top spot is indicative of a growing need for supply chain expertise at the C-level. Carlos Cordón, supply chain professor at the Swiss business school IMD, describes this priority eloquently in his whitepaper, The Rise of the Chief Supply Chain Officer:

“In today’s business world, operations management is the backbone of many companies and efficient supply chain management, that is aligned with business strategy, is necessary to remain competitive and profitable. The effective integration of both internal and external operations is a key competitiveness driver in every company, and designing, refining and implementing new processes are key supply chain activities." – Carlos Cordón, IMD

Given the complexities in supply chain relationships – not to mention the difficulty of streamlining the supply chain in a global economy – a larger focus on supply chain management is becoming a necessity. That’s why I believe organizations need to take Apple’s lead and include supply chain-minded executives at the leadership table: to help organize, implement and manage strategies to improve the business’ value chain.

Built-to-Order Computing Changes Role of Supply Chain

A key driver of the efficient supply and manufacturing chain that we see in tech companies today has emerged from built-to-order manufacturing of personal computers. Michael Dell was one of the first successful proponents of this model, creating a business that ditched the convention of one-size-fits-all PCs.

Alternatively, Dell offered products that were assembled after customers selected their desired specifications. In the 1990s, this model was atypical of the PC market (and consumer technology, in general) as many companies developed their products in bulk and shipped them quarterly. Dell’s model was revolutionary for computer manufacturing – reinforcing lean and just-in-time (JIT) principles that helped Japan rise to manufacturing prominence years before.

As Dell entered the retail space and began to add B2B to its core B2C business, Dell again adjusted its supply chain back to a make-to-stock manufacturing model. Overhauling the supply chain Dell had seemingly perfected was one of the many tough decisions Mike Cannon, President of Global Operations (essentially the chief supply chain officer), oversaw before he retired from Dell in 2009. For a company that arguably found success thanks to its supply chain, Cannon made a tough call – green lighting a change that would help the company as the technology industry prepared for the transition into a seemingly “post-PC world.”

Executive Boards Need a Supply Chain Stalwart

Since Dell’s emergence in the 1990s, we’ve seen Apple and other tech companies also rise. Many have done so thanks to the foresight of leadership that understands the role of the supply chain in a give-it-to-me quick world. Today, consumers expect more from their technology and from the companies that produce it, and an agile and effective supply chain has become even more important.

However, businesses that aren’t addressing their supply chain inadequacies are flailing in quicksand, from both a logistics network and a talent perspective. Our modern expectations of multi-channel commerce hinge on a logistics network that can display inventory levels in real time and a leadership team that can anticipate fluctuations.

A supply chain expert on the board of executives can push for the complete integration of business initiatives and supply chain strategy. Additionally, because these decisions often directly tie into marketing, sales and general operational strategies, the argument can be made that a supply chain executive deserves to be the top dog – as in the case of Cook at Apple.

Prashant Bhatia, RedPrairie’s VP of Strategy, believes that consumer behavior is driving both technological innovation among supply chain software vendors and corporations, alike:

“Mature supply chains are also being challenged by new market dynamics, and doing the same old thing isn’t working for executives of these companies, so new innovation and a willingness to adapt is essential…But supply chain leadership is most impactful when it works in harmony with marketing, sales and product innovation. That’s a winning recipe.” – Prashant Bhatia, RedPrairie

Prior to Cook’s promotion, Scott Belsky, CEO of Behance Network, was quoted that Cook was just as important – or more so – than Jobs, and would be fine if he was required to take over. Likewise, Bob Ferrari of Supply Chain Matters commented after the news broke that Apple would be fine with Cook at the helm, adding that the supply chain is a great place for future executives to “cut their teeth.”

Much of Apple’s success can be pointed back to its centralized, integrated focus: from its supply chain, product marketing, retail experience, and unique company culture. As the COO, Cook helped create a team that is greater than the sum of its parts – a streamlined, lean and JIT technology company. Cook is a great example of the effectiveness of an executive with a “supply chain mentality” – and why other corporations should take notice.

Integrated Software Key to C-Level Supply Chain Success

While more supply chain-minded executives are certainly needed to articulate integrated strategies – it is also critical that these leaders understand the intricacies of how to optimize the supply chain using technology. In fact, Bhatia notes that modern supply chain software allows managers to analyze interdependant variables that one individual could never have done in the past. “Software has opened up opportunities for new levels of optimization and effectiveness,” adds Bhatia.

One of the keys, though, will be software that mimics integrated business initiatives. These solutions will feature:

• Integration with enterprise resource planning (ERP) software
• Full-featured business intelligence (BI) with data integration
• Web-based and mobile deployment
• A strong focus on communication and information visibility
• Accessibility of real-time and accurate data

Eric Schmidt, former CEO and current executive chairman of Google, recently discussed his thoughts on the future of technology, describing it as mobile, local and social. This holds for supply chain software as well, given that mobile deployment capabilities and access to real-time, local data are increasingly important for supply chain managers that often need to make decisions remotely. On cue, Salesforce.com recently announced its investment in supply chain and ERP software – further illustrating that even social marketing software vendors are decidedly looking to make enterprise solutions part of their footprint.

Talent is Still Crucial – and Lacking

What’s stopping a stampede of supply chain managers to the C-level? We have an economy and society driving demand and the powerful back-end software solutions to streamline operations – so where are the potential executives to step up to these C-level roles? The problem is that many corporations simply can’t source the talent.

Ken Cottrill, MIT Global Communications Consultant, discusses this in his whitepaper Are You Prepared for the Supply Chain Talent Crisis? In the whitepaper, Cottrill notes that the decreasing baby-boom workforce and shift in workforce talent are leaving the talent pool dry. Additionally, the talent isn’t ready for what the economy is demanding – supply chain experts that can not only connect multiple corporate divisions, but can also transition from a traditionally execution-based role to a strategic one. He summarizes:

“Supply chain faces a severe shortage of talent at a time when the demands of a profession have never been greater. Globalization, market uncertainty, shifting demographic patterns, and the emergence of supply chain as a strategic function are some of the factors that are driving the skills shortfall.” – Ken Cottrill

What Cottrill describes as necessary for supply chain talent success also describes talent capable of C-level ascension. So if we were building the ideal candidate from the ground up (since they appear so few and far between), this individual would have:

1. Experience managing large, global supply chains.
2. A track record for being able to adhere to lean and just-in-time fundamentals.
3. Experienced enough with SCM software to know how to implement and leverage its benefits.
4. The ability to continually push both strategic and operational supply chain improvements.

It’s a tall order, and the industry simply lacks the talent to fill the roles, today. Put simply – we don’t really have time for the talent to work up the ranks 20 years. Fellow ERP Analyst Derek Singleton wrote a great and timely piece recently about how U.S. manufacturing needs a youth infusion. Many of his thoughts apply to the supply chain, as well.

Apple’s got their man, and Cook will undoubtedly be very successful. Who else will we see move to a similar position? Do you see other companies making similar appointments in the near term – either by appointing an individual at the C-level to manage the supply chain or to hand the reigns to a supply chain expert? Share your thoughts below.

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Lean manufacturing – established as the gold standard by Toyota and other Japanese manufacturers – relies on the knowledge that processes and conditions will stay the same day after day. Harnessing this predictability and empirically analyzing results have allowed our global economy to become what it is today.

Yet the very nature of our global economy makes “leaning out” difficult. Disasters can halt production for weeks. War and social struggle put business on the back burner. And the default on sovereign debts threatens to rip apart the supply chain one link at a time.

However, fast-forward four months after the destruction of the March tsunami began, and select Japanese manufactures have not only begun to rebuild, but emphatically rally back. So, who are these all-stars, and how did they do it?

Sharing Secrets Saved the Japanese Big 3

Supply chains are known for their secrets. The “secret sauce” of many supply chains is their connections, relationships, and deals with suppliers. Ironically, the Japanese Big 3 of Toyota, Honda, and Nissan were forced to share these secrets and work together to help assist the auto parts suppliers affected by the earthquake and tsunami.

The result? Parts in high demand and short supply have been reduced from 500 to about 30 for Toyota, who is now operating at 90% of its normal capacity. Nissan is reportedly operating at near-normal production levels, while many Honda plants are ramping-up production to pre-earthquake production levels. While production levels are still less than desired, and certain models’ availability is limited, this is a positive movement for the industry. Car manufacturers expect a brighter second half of 2012.

The results aren’t all rosy, however. Honda has reportedly increased production of all units except the 2012 Honda Civic, which is expected to be delayed until later this year. Toyota, meanwhile has seen sales drop 21.1% over the past year.

Given the wide-scale havoc in Japan, these numbers could have been much worse without all three players’ cooperation. Plus, by developing these types of inroads now, Toyota, Honda, and Nissan are laying the foundation for future cooperation in the event of additional disasters.

Diversified Production Centers Put Canon Ahead of Schedule

Canon, the Japanese producer of many of the world’s printer and camera products, has been one of the great success stories of production post-disaster. Although it was initially expected to take the remainder of the year to recover, Canon is now at pre-disaster production levels. These results even surprised Canon, whom initially announced it wouldn't be until the end of the year before production reached desired levels.

How did they do it? One of Canon’s overall strategies and focal points has been diversifying its parts production efforts, including focusing on plants in southern Japan and mainland China. Diversification is a central, reoccurring theme within Canon; general business diversification is core to Canon’s strategy. Canon’s success is a great example of how investing in supply chain redundancy can be fruitful both today and tomorrow.

Apple’s Supply Chain Investment Pays Off

Apple’s iPad 2 was announced days before the earthquake and tsunami hit Japan. Many expected the disaster to greatly affect availability of Apple's newest tablet model. In reality, supplies for U.S. markets and other parts of the world were largely unaffected. Apple’s investment in its supply chain has made it seem almost impermeable to disaster.

In fact, Apple’s supply chain has been called one of the secrets to its success. The company’s ability to produce large amounts of high-quality tech products – at a price that consumers are willing to pay – has helped Apple become the third-largest vendor of PCs in the world.

Apple has found the right combination of investing in technology manufacturers and negotiating attractive supplier contracts to effectively mass produce its high-quality products. Reinvesting its profits in its supply chain has ensured Apple continued access to key components, even in light of natural disasters and increasing competition.

Fujitsu Recovers Faster Than Other Semiconductor Suppliers

One of the major manufacturers of semiconductors in Japan, Fujitsu, has wafer fabrication operations near the heart of the earthquake disaster zone. Yet, the company recovered more quickly and efficiently than any other semiconductor supplier. In fact, five plants dedicated to manufacturing the chips were back at pre-earthquake production levels in less than three months.

How did they do it? iSuppli notes that Fujitsu was actually ready for a such a disaster before the earthquake. The company had developed an emergency response strategy after an earthquake rocked Iwate three years earlier. Fujitsu quickly weathered the storm by shifting front-end product manufacturing to unaffected plants in central Japan and back-end product manufacturing to southern Japan and China. Fujitsu also included redundancy in its manufacturing capabilities, such as preparing its plant in Mie to handle processing 150mm, 200mm and 300mm silicon wafers.

What’s Important to Focus on in the Meantime?

Back in April, supply chain software executive Paul Martyn blogged for Forbes that he expected full recovery to take 9-12 months. These supply chain all-stars have beat these expectations by collaborating with other businesses and suppliers in crisis, focusing on redundancy in the supply chain and effectively preparing for disaster situations.

For the organizations that are willing to learn, there are some great lessons in how these companies recovered. Today, businesses must identify and plan for the vulnerabilities in one’s supply chains now to prevent future weaknesses. This focus is the most sound way of balancing disaster-readiness while still focusing on profits.

Have you analyzed your supply chain and assessed which points are most vulnerable? What have you done in terms of developing a disaster action-plan? Share your experiences below.

Thumbnail image created by Adam Browning.

June’s Strategic Sourcing & Procurement (SS&P) Group conference call focused on a question posted by group member Ray Van Amerom from earlier in the year. Ray asked, “True or False: Do penalties improve supplier performance?” The call, which was hosted by Ariba’s Justin Fogarty, featured experts from around the world that provided an insightful look at issues related to supplier performance.

While the heart of the discussion centered on issues related to supplier penalties, the main takeaway was clearly about one thing: put the emphasis on improving buyer/supplier relationships. Here are the top takeaways from the call:

1. Incentives Needed to Balance Supplier Penalties

Supplier penalties should go hand in hand with supplier incentives. The intent of penalties shouldn’t be to save the buyer money for late shipments, but to ensure that the shipments are never late. Incentives help reinforce this.

Wal-Mart’s policy on supplier penalties for inventory delivered outside its time windows have been well documented. This works because, well, they’re Wal-Mart. They have the clout to ask for what they want, and the ability to turn to another supplier if their demands aren’t met.

Buyers other than Wal-Mart, however, will need to establish a relationship with their suppliers that is mutually beneficial. That relationship begins with rewarding success in addition to penalizing failure.

2. Increase Supplier Performance Visibility & Communication

Procurement operations rely on key performance indicators (KPIs) to evaluate suppliers and determine internal effectiveness. With the focus on specific metrics – such as return on investment, cycle times, and managed spend – many get so involved in the numbers that they forget about the suppliers needed to make it all happen.

Instead, use additional KPIs such as overall satisfaction to help keep a pulse on supplier relationships. In addition, ensure that goals and metrics are visible and clearly understood by suppliers. Instant, continuous feedback will ensure that suppliers keep these goals in mind and don’t unexpectedly under-deliver.

An interesting anecdote from the SS&P call was from a wine and spirits distributor. He described an instance where a supplier actually created its own KPI and self-imposed penalty. If the metric was missed, the supplier would provide free goods for 30 days. The metric was designed to increase the supplier’s confidence in its process automation, and it worked – to the tune of only one penalty being issued in over 9,000 transactions. This is a great example of how collaboration can help both parties.

3. Create Escalating Expectations to Avoid the Status Quo

An interesting debate during the call revolved around the long-term effects of supplier incentives and penalties. If suppliers find the happy medium of never late and never early, how will you encourage them to increase efficiency and output?

Escalating expectations help alleviate this worry. Penalties and incentives should only be set for a period of time, perhaps a few quarters or an entire year. Evaluating the successes (and failures) in that time period helps establish a better set of parameters to find the best balance between maximizing profits and increasing efficiency. This also helps cultivate relationships that ensure long-term success for both buyers and suppliers.

One caller described how he effectively managed his scorecard. In each supplier’s service level agreement, three tiers of expectations were established for failing to meet, maintaining, or exceeding expectations. When it came time for contract renewals, the buyer would evaluate how the supplier performed and set new expectation levels. He described the process as one that improved both the buyer and supplier.

4. Start Incentives & Penalties with High-risk Suppliers

These relations are relatively simple to envision managing, yet become increasingly difficult as supply chains become more complex and dynamic. Procurement departments get stretched thin, and keeping track of individual supplier metrics often takes the back burner.

Start by selecting suppliers that are the greatest risk. Whether they’ve had difficulties performing in the past, or are experiencing internal turbulence – these suppliers will have the most to gain from these efforts. And, the extra attention stands to have the greatest impact on improving both sides’ bottom lines. In addition, creating a h3 foundation and understanding is pivotal to applying these metrics to other suppliers.

One caller described such an example in starting small and growing their efforts to effectively execute penalties and incentives. He mentioned that his team of 30 would have been unable to monitor these metrics for over 20,000 suppliers. Instead, they selected the clients they felt were most “at risk,” and have kept a watchful eye on those suppliers.

5. Set Unique Goals for Suppliers Across Different Industries

At the same time, what works for some suppliers doesn’t work for others. Different suppliers and product inventories should not have to perform to the same KPIs to be effective.

For suppliers in telecommunications, for example, ideal performance may be tied to low defect rates, the ability to deliver on time, and in the amount of inventory promised. For someone supplying perishable goods, it may be more important to balance quality with time of delivery. Punishing for late deliveries may encourage suppliers to value delivery time over quality. The ability to understand each industry and how incentives and penalties will play in to that is an important aspect to manage.

How Can One Implement Penalties and Incentives?

Here at Software Advice, we’re big believers that software is just part of the solution; training and careful change management are critical to success. The right people must be thoroughly trained and seasoned to take on the complex task of managing supplier relationships. Otherwise procurement and SRM software will never be fully utilized. A methodical look at supplier relationships and deciding where to start is the best way to grab the reigns of any wayward supply chain.

What strategies have you used to better your supplier relationships? Let us know of any of your experiences below.

Thumbnail image created by Sudhamshu Hebbar.

The cause? Rising gas prices.

As consumers, we feel it at the pump. But businesses also rely on efficient (read: cheap) transportation to survive. Many consumers fail to realize the effect soaring energy costs have on other commodities, such as minerals, food, and consumer goods.

So just how bad is the rippled effect of $100/barrel gasoline? Let’s take a look and see just how much rising gas prices affect everything else we buy.

Gas Prices Are Approaching Record Levels

Adjusted for inflation, even the oil crisis of 1979 only brought gas prices to about $3.50 per gallon. That’s a far cry from the $4.00 per gallon range we’re approaching. In the past two years ago, gas prices have nearly doubled in the US, and crude oil is now regularly topping $100 a barrel.

We’ve Got It Pretty Good Here in the U.S.

But maybe Americans shouldn’t complain. Taking a look at some global gas prices, other consumers across the world are paying much more for gas—mainly due to higher taxes.

Higher Gas Prices Are Causing Businesses to Raise Prices

Many fail to think about how increasing transportation costs lead to more expensive raw materials and consumer packaged goods. It seems like the only companies profiting are the ones processing that Texas tea.

Commodity Prices Are Soaring

There has been a direct correlation between the rise in energy prices, and increases in commodity prices. To show you what I mean, here’s price data that compares January 2010 to January 2011.

To-Date, PPI and CPI Inflation Has Remained Tame

To see how large of an effect this really is, one need only look at the rise of the US price indexes over the past few months.

By now, most of us are familiar with the retail notion of the “Connected Experience,” or, the personalized relationship that develops between customer and retailer. In one way or another, most of us are connected customers, having forged deep relationships with the brands of our choice.

From the perspective of the supply chain professional, the Connected Experience puts us one step closer to answering the most ubiquitous question of all: what do my customers want to buy?

The Power of Enterprise Resource Planning
The absolute real-time nature that is inherent in social media can act as a blessing and a curse for professionals overseeing a supply chain. In one sense, access to real-time data can help supply chains run ultra lean – as proper analysis can lead to producing just enough product to meet consumer demand.

For example, imagine you could predict the percentage of customers that were interested in purchasing black sneakers versus brown sneakers. This would empower you to stock your shelves with only the most necessary quantity of each style.

With the real-time capabilities built into Enterprise Resource Planning (ERP) software – especially ERP software outfitted with Customer Relationship Management (CRM) features – retailers are able to make these types of strategic predictions. Working together with social media, these systems provide instant analysis of customer data and interaction that can be used to make real-time supply chain adjustments. In fact, it was not uncommon over this past holiday season to see retailers analyzing customer data pulled from social media.

While ERP/CRM integration coupled with social media analysis means a leaner supply chain for retailers, it ultimately translates into a closer connection with the consumer. Even a global retailer can take on the persona of the mom and pop shop down the street.

Of course, as perfect as this all sounds, there exists two giant paradoxes built into two assumptions:

• Real-time data is always an accurate indicator
• A large percentage of your customers are actively interacting with your brand in social media

The Real-Time Paradox
Think for a moment about the notion of “real-time.” How often are the real-time decisions in sync with final purchasing choices?

For instance, imagine a customer expressed interest in the aforementioned pair of black sneakers through online activity (e.g., either by “liking” or Tweeting about them). If you aggregate this data quickly and combine it with similar insights from other social media channels, it would make sense to predict an increased demand in black sneakers.

But imagine that this interest in black sneakers is based on little more than the excitement of the new product. In other words, there is a strong correlation in social interest for a new product, but not a shared correlation in buying behavior. Acting too quickly on real-time interest produced in social channels can reverse the benefit of running a lean supply chain, and instead leave local shops fat with unwanted inventory.

Now, shift this example away from sneakers and into more complex goods, such as automobiles or major appliances. The risks of more expensive stops along the supply chain quickly grow.

The China Paradox
Earlier this year, analytics firm ForeSee Results found that social media is driving just 5% of visitors to retail websites. But across the world in China – recently named by CNBC as the world's hottest emerging retail market – an Internet population of 404 million trusts brand information from social media three times more than from an acquaintance’s recommendation (per 2010 Global Web Index data, cited by Ogilvy's Andrea Fenn).

In Fenn's article, “Social Media & China: Why & How,” Fenn cites China as a fertile social ground that is already being capitalized on by brands. To succeed in this social landscape, brands must adapt to certain peculiarities of the Chinese Internet culture. Not only does this include heavy use of “Made In China” social destinations, but also western social networks such as Twitter and Facebook.

This helps to sum up what I refer to as the China Paradox. While named for this market, it is defined more by questions that can affect us as we seek to operate a lean supply chain:

• Is our customer data segmented appropriately across all markets to ensure one large faction is not skewing our data?
• Have the peculiarities of any given culture been taken into account prior to any decisions being made?

Is Software Our Solution?
Is ERP software a solution to these paradoxes? The answer, of course, can be both “yes,” and “no.”

ERP systems are perhaps the most powerful tools we have at our disposal in analyzing customer data. But the recommendations made from this data are only going to be as strong as the data quality and how well that data is interpreted.

When you integrate social media analytics into your supply chain strategy, think of the data as an accumulation of individuals instead of a singular group. Consider the demographics of your social media data, and think about how you will monetize your inferences. In doing so, you will be in a better position to see the benchmarks being established, especially as they relate to correlations between social activity and your bottom-line.

For example, by spending time investigating your data, you may find that an increase in social activity pertaining to black sneakers only results in increased buying activity during fall, and primarily on the East Coast.

Even more interestingly, some research has found an increase in social activity is followed by sudden spikes in buying activity three months down the line. This may indicate that a small, yet influential, group of followers buy early, and then encourage the purchasing decisions of their social networks. Analyzing data through this type of lens can help encourage a new level of strategy in our supply chain decisions.

Understand, too, the cultural peculiarities of any group and the risk of looking at all social data in aggregation. Social media data, like the traditional data used to make supply chain decisions, ebbs and flows, from one extreme to the next. This is where behavioral analysis – especially from those embedded within your markets – can be invaluable in humanizing the ERP intelligence data.

Ultimately, software will never be the stand-alone savior that helps us capture the power of social media, any more than social media itself is the stand-alone savior for operating a lean supply chain.

Rather, using cultural, historical, and sales data, along with social media, holds the potential to connect brands and consumers more tightly than before. And of course, inherent in this tighter connection, will be a leaner and more profitable supply chain.

In his role as Global Industry Director for To-Increase, Luciano Cunha leverages more than fifteen years experience in IT to drive product and business growth worldwide for Microsoft Dynamics solutions.