Johan van Hamme

Looking to hire a supply chain consultant ? Read this first …

Let’s assume you are looking to hire a Supply Chain company. What you need is assistance with cost reduction in sourcing materials and services, improving your operations and streamlining your processes rather than a complete systems re-fit which may be expensive and time consuming.

Usually supply chain companies have expertise in certain industry sectors and very often have an international footprint and experience in making improvements specific to that industry globally. Choose one that knows your sector. All the leading firms can assist you from A-Z in the supply chain: demand planning, purchase, store, move, and logistics. They may apply their own methods and systems and use their own proprietary technology. They are often protective of their intellectual property and will require you to sign confidentiality agreements.

If your need is to move into new markets, speed up your time-to-market, launch into low-cost country sourcing, choose a company that has experience in international trade and can provide testimonials in this functional area. There are quite a few pitfalls in foreign trade for a novice, you are not recommended to go it alone. Instead of paying too much for goods and services, ending up with too much inventory because of bulk-buying, and taking too long to implement logistical support, you can use the expertise of a supply chain company to avoid costly mistakes.

If your need is to face and counter the competition you most likely need to increase output whilst maintaining quality, eliminate waste, reduce inventory levels and manage your labor costs. All this has to be achieved without incurring any additional risks. Your company may have a lack of expertise and skilled staff challenges which limits your chances of developing and implementing the required improvements without assistance.

Areas that supply chain companies can assist with are:
• Integration of sub-processes
• Technology upgrades
• Talent management and alignment
• Risk mitigation• “Lean” manufacturing processes
• Sustainability and “green” issues

There are companies that specialize in environmental and related legal and governance rules. This may be an opportunity to pull ahead of competitors and become more compliant. Some companies are using their leadership in this area to their advantage in the market. Waste disposal and recycling is a business opportunity as well as good practice.

If your main objective is to serve the customer better whilst managing your operational costs, the intervention of an external expert may be the answer. Every organization has the same goals, to improve customer service, decrease operating costs and ensure continuity of operations. If you are looking to hire a supply chain company, read this first!

It’s all about efficiency !

Looking to increase efficiency in your supply chain? It’s a challenge, because pressure of work and increased day-to-day responsibilities mean that key supply chain people do not realistically have time. It is necessary to stand back and work out what can be done to improve the efficiency of the business. You probably need to hire some help from a Supply Chain consultant!

What can a supply chain consultant do for your business?

• Provide clarity by identifying weak points and non-productive steps in your current supply chain. A clean hands-on look at your systems and processes can deliver this by also working with your staff to assess the current situation.

• Evaluate current business processes by assessing the status quo and the risks, issues and benefits against best practice. You can benefit from their knowledge and experience of various cost reduction technologies that you may not have been exposed to before.

• They design specific solutions to identified problems with you, plan the changes together and thereby ensure a successful outcome. This is especially important when the changes are cross-functional. The use and application of project management skills and proven concepts can provide you with the assurance that the proposed improvements will improve business efficiency.

• Train your key staff in new technologies and introduce best practice. Apply a skills transfer process to create self-sufficient staff.

• Work with you throughout the implementation, manage the changes and resolve any issues as they arise until you are satisfied. This could include managing cultural and language issues when working with low-cost countries.

What to consider when selecting a supply chain consultant

• Prepare a clear brief of the intended work and negotiate the fee which needs to be tied to the deliverables. Contract with the service provider to pay at intervals based on milestones achieved.

• Get involved with the selection of the consultants that will work on your project to make sure that they have the knowledge, expertise and cultural fit.
  Control the deliverables through a structured reporting mechanism which provides for remedial action.

• Consider incentives and penalties for successful completion of the project. The consultant must document the financial savings achieved through cost reduction and process improvements and must explain how they will be sustained.

Some forward planning when engaging a supply chain consultant will pay off handsomely. Technology is moving fast and external support for implementing new systems and processes is almost mandatory. If you are looking to increase efficiency, hire a supply chain consultant.

The bottom line

How can supply chain consulting affect your bottom line? Supply chain consultants come in all shapes and sizes and it is prudent to research their offerings carefully. Many consultants specialize by industry and some even concentrate on specific steps in the supply chain or in a given type of technology solution.

Some supply chain managers can detect their own problems. However, one challenge is the availability, visibility and accuracy of information. Poor quality of information limits the efficiency and effectiveness throughout the supply chain. What can be visible is escalating prices of raw materials and services, high labour rates and obsolete stockholdings. An external intervention is often needed to tackle these and similar issues due to the on-going pressure of day-to-day operations and lack of the appropriate skills to make improvements.

A good consultant ….

Using supply chain consultants as advisors on strategic cost reduction and how to create competitive advantage is becoming a requirement rather than a nice-to-have intervention. Most successful companies have tackled making savings in conventional ways such as achieving economies of scale, leveraging their purchasing and making obvious process improvements but they are finding that this is not enough.

Supply chains are becoming more complex all the time as the global business environment is constantly changing. To stay competitive firms need to move fast to keep ahead and innovative companies are looking deep into their supply chain structures, relationships and workflows to find long-term cost reduction solutions. For this they need help.

So here are some of the potential areas supply chain consultants can demonstrate added value:

• Technology Enablement
• People alignment
• Minimising risk
• Sustainability and green issues
• Supply Chain Integration

Using the right technologies
Technology is an enabler, not an end in itself. Advances in I.T software can provide solutions to problems that were previously too challenging for non-experts to tackle such as planning and demand management through to execution and asset management.

Supply chain experts and consultants use statistical and analytical tools applying the relevant technology to develop workable solutions. One aim is to integrate various disparate supply chain functions by streamlining the processes. An example of the successful application of technology to warehousing, inventory and logistics is the use of Radio Frequency Identification (RFID), a data collection technology that uses electronic tags for storing data. It can also be used to track humans!

Many supply chain consultants have alliance partnerships with leading vendors of I.T solutions and ERP systems and some specialize by industry sector. Clients rely on their ERP partners for supply chain advice and require them to develop customized solutions.

Using the right tools
However, sometimes clients need their supply chain consultants to provide informed and impartial advice. Consultants need to devise supply chain strategies based on an organization’s operations, resources, and other capabilities and not design solutions around the available technologies.

Analytical tools such as Six Sigma can detect defective processes and implement remedies that can reduce costs and provide efficiencies. Lean manufacturing techniques aim to eliminate waste and deliver better “value” for customers. The best consultants have qualifications and experience in using these tools and can provide quick results without major upheavals to the business.

Choosing the right supply chain consultants depends on the industry you are in, the technology you use and your appetite for continuous improvement in the supply chain.

Supply Chain Experts

There are supply chain experts available to solve all your problems. Some specialize in the application of new technologies, some focus on revised strategies and better management and others use tried-and-tested tools to improve efficiencies across the supply chain. Here’s some areas that are current challenges in organizations.

Outsourcing
The outsourcing of key functions in business to low-cost countries has grown and this trend has introduced more partners and therefore more complexity into the supply chain. Raw material suppliers, service organizations and logistics sub-contractors mean more complicated processes and more “distances” that material and information must travel. Companies need to review their operating models to be more flexible and to work in a more collaborative manner so that they can fulfill customer requirements whilst benefitting from outsourcing.

Data and technology
Lack of data or errors in critical supply-chain information contribute to organizations’ inability to manage their supply chain processes effectively. Organizations need information systems that link applications across multiple partners, languages, geographies and cultures. Software collaboration tools can identify these weak links and supply chain professionals can take action to mitigate their impact. However, some of these tools come with different capabilities and degrees of difficulty in terms of implementation so often this is where expert help is needed.

Risk management
CEOs today have a new and intense focus on risk, compliance and governance and the supply chain is one key area that is under scrutiny. Increasing supplier disruptions, logistics delays, product recalls and safety issues are introducing new challenges into supply chains. Many businesses are ill-prepared to handle the rising risk levels and so external intervention from experts can provide assistance in this area.

Innovation
Day-to-day operations need to carry on so innovation can sometimes take a back seat. It is more than improving technologies, training people or streamlining a process. It requires input from suppliers, internal users, business partners and customers combined with the necessary commitment from stakeholders and executive leadership.

Often ideas are sidelined or not expanded upon because people work in silos or they are just too tied up in their own sub-process in the supply chain. Taking a step back, an external view can provide insights into how to develop and harness improvement plans.

Many organizations are dealing with these challenges and new ones like sustainability and “green” issues, environmental legislation, and supplier quality. Companies can become more competitive through structured interventions by supply chain experts

The best possible training ?

Purchasing training is widely available on all functional areas in purchasing from transactional procurement in its simplest form through to leadership training and the management of large procurement teams. Training is delivered in workshops, classroom training, using on-line video and by distance learning. There is a course for everyone, at whatever stage in their personal and professional development.

Educational opportunities are available at all levels too. Diplomas, degrees and post-graduate courses can be undertaken in most developed countries. Many large companies require a post-school qualification in business for people entering the profession and often further education is expected for people wanting to advance to a higher level of achievement.

Training that is delivered in person, in the classroom, has the benefit of interaction with the other participants who can share their experiences. Learning from the trainer or presenter only is not as useful as working with a facilitator that can encourage discussion and debate. A combination of face-to-face training with examples and case studies, with work done outside the classroom to support it, works well. This method is particularly successful when applied to strategic sourcing of commodities, contract management and negotiation skills.

Courses that are available electronically by e-learning, distance learning, home DVDs, and webinars can be just as successful for those people who are comfortable working alone. Entry level courses such as “introduction to purchasing” are successful when delivered this way as they are instructional rather than interactive. Feedback is given, both directly on a one-to-one basis and as a class report, which creates the involvement needed. Continuing professional development is also achieved through this route where the latest trends are shared and discussed.

People starting out in purchasing or considering changing career should look into the various options offered by the national procurement and purchasing associations in USA, US and other countries which offer training courses from beginner level. Through these organizations seasoned professionals can also take advanced courses right up to masters level.
There are many private training companies that provide purchasing training in most countries. Anyone considering undergoing training in purchasing should first establish the reputation of the institution and the relevance of the course material. Employers will look for suitable accreditation of course content such as those courses approved by e.g. Institute of Supply Management (ISM), Chartered Institute of Purchasing and Supply (CIPS).

On-the-job training is not to be ignored. In purchasing any opportunity to move around in an organization to learn more about the various functional areas in purchasing should be taken up. From procure-to-pay, sourcing, vendor management, contracts administration through risk and compliance, any good purchasing training can teach a person more about the functional areas in the purchasing function.

Purchasing experts

There are purchasing experts available in the global marketplace for every conceivable requirement. Most international procurement consultancies offer services in designing and determining your strategy, setting out purchasing plans and identifying opportunities for cost reduction. There are specialists in e-sourcing, risk management, compliance, transactional procurement, and in every commodity or category that you wish to name from medical, aerospace to textiles and food.

Cost reduction

Cost saving is the #1 area of expertise where claims of potential and measurable savings of up to 20% are offered. Teams of specialists identify those areas where the greatest opportunities exist by providing visibility and analyzing third party spend. They look to leverage volume in both direct and indirect materials and in services by various means from a change in sourcing strategy to re-negotiation of existing contracts. Using commodity expertise and in-depth market knowledge, these service providers can reduce the true total cost of ownership (TCO) in any given area. There are experts in sourcing high value goods and services such as natural gas and fuels and innovators that can trim the costs of an item through a better design.

Becoming more efficient

 There are many other ways to introduce efficiencies in the purchasing process. Professional expertise can assist with broadening the supplier base and breaking into new markets. Benchmarking services can highlight areas of improvement and provide information that will increase competitiveness. A service that is most often used is to mapping existing processes, perform a gap analysis and introduce procurement best practices. This is achieved through implementing new technologies such as e-procurement and supplier relationship management (SRM) which help to provide a more effective procurement service to the business.

Compliance, risk and controls Experts in this area abound.

 The growing incidence of corruption and fraud, especially in emerging markets, has opened up opportunities for consultants and purchasing specialists and advisers. In addition, tighter internal rules for reporting exceptions and incidences of maverick spend and some new compliance requirements to laws and regulations mean that organizations need help and advice to fulfill their obligations.

Hot topics: sustainability, “green” issues and waste

Evidence of embracing green procurement is becoming more important. External assistance will be needed to provide guidance on developing a sustainable purchasing policy and suppliers will be required to conform to buyers’ guidelines and report on their carbon footprint. Recycling of waste is key to many companies especially in medical supplies and packaging/bottling companies. Many organizations are struggling with environmental regulations and a poor record of managing these issues can impact on sales. Purchasing experts have a role to play in this unchartered territory.

Expert in cost reduction !

Cost reduction experts can provide you with tools to understand and manage cost drivers throughout the supply chain:

Plan —– Source —— Make ——- Deliver — Enable — Sell

Cost reduction initiatives

Cost reduction can be much more than ad-hoc belt tightening. It can be a core competency, developed over time. Those experts in sustained cost reduction are contributing year over year to margin improvement through operational savings of 5 – 20% per annum.

A holistic view of your supply chain will assist in understanding the inter-dependencies and the impact of any proposed changes. Opportunities are to be found in capital and operating costs, labor and employment costs and strategic costs.

Capital and operating costs

Traditionally, these are the areas with the most potential for cost reduction. At each stage of the supply chain there are functions that are wide open for cost reduction and should always be pursued especially in tight economic periods. Here are some of them:

Source
• Source strategically to find the right partners
• Introduce supplier relationship management (SRM)
• Reduce material and labor cost
• Reduce packaging, delivery and transport costs

Make
• Reduce material usage and control waste through lean manufacturing
• Increase production throughput by streamlining the process
• Improve labor productivity using incentives
• Increase throughput using improved equipment and better controls

Warehousing
• Improve space utilization and reduce on-site and off-site storage
• Leverage best practices to eliminate unproductive activities
• Reduce energy and utility costs

Inventory
• Introduce better demand planning and forecasting
• Reduce stockholding (days of supply)
• Minimize non-performing inventory and action disposals
• Improve order fill rates and reduce stock-outs

Transportation
• Consolidate order deliveries
• Improve scheduling and routing, review and manage tariffs
• Reduce admin costs
• Tackle improvements in returns and reverse logistics

Performance metrics
• Review and confirm metrics to ensure they impact bottom line
• Measure the metrics and assess against objectives
• Take necessary corrective actions

Systems
• Identify obstacles such as lack of data visibility and accuracy, timeliness, completeness
• Configure systems to maximize full potential
• Integrate with other internal and supplier systems

Outsourcing
• Audit current service providers and develop improvement initiatives to shrink costs
• Identify other operations that will save money when outsourced and select and implement service providers

There is a tendency to cut employee costs without due consideration to tackling operational costs first. People can effect cost reductions up to 5 – 10 times their employee cost if directed properly.

A word of caution: long term competitive advantage can be lost if moves are made to cut costs in areas which impact on strategic initiatives that are designed to increase profits. Cost reduction experts will confirm that sustainability depends on ensuring the continuous flow of future business and limiting cost cutting in the wrong areas.

Lean Supply Chain

A lean supply chain is, by definition, an efficient supply chain. The supply chain process is streamlined to systematically reduce and eliminate waste or non-value adding activities. All activities that contribute to delivering goods or services to the customer should create value otherwise they are wasteful. Waste can be found in each step of the supply chain process, in time and in inventory.

Lean principles are well established in manufacturing but the same principles can be applied throughout the supply chain in the wholesale, retail and distribution industries.

What to do to become more “lean”

The best supply chains are demand driven, i.e. the customer defines how much inventory there should be in the system, not the supplier who can cause a company to hold excess inventory. Leveraging existing technology can assist with making a leaner supply chain but other elements such as management commitment, visibility of information and understanding supplier risks can also deliver efficiencies.

Contributors to a lean supply chain

 • Understand your whole supply chain. First analyze and map the total process, both inbound and outbound. Be aware of the complexity and inter-dependencies with multiple suppliers, distribution centers and the end customer.

 • Top management commitment. Continuous improvement requires ongoing support from senior sponsors who need to visibly demonstrate their support, offer continued skills training and provide the means to track accomplishments.

 • Technology is only an enabler. Incorporating new and updated technology is part of process improvement but it is only an enabler. ERP systems or other specialist software may make a difference but know that technology cannot overcome process flaws.

 • Visibility. Widespread visibility and integration of data throughout the supply chain will deliver the best results. Information blind spots can be areas of waste.

 • Know the risks. External events can have a devastating effect on the supply chain, some of these are avoidable. Analyze and mitigate internal and external risks both because it makes business sense and is a legal requirement.

 • People and organizational culture. People are the key to success and can make or break any planned changes. Involve your employees, suppliers and service providers in designing improvements and include change management in your lean program requirements.

 • Supplier relationship management. Cost savings are always attainable in the sourcing process. Collaboration with suppliers on continuous improvement can deliver savings in raw materials, fabrication and logistics. Formalized measurement of supplier performance will deliver benefits.

Companies are going to continue to squeeze supply chains. The tendency may be to reduce flexibility to save costs during the process of achieving a lean supply chain but finding the right balance between flexibility and efficiency is the challenge.

Your bottom line …

Supply chain consultants – how can they impact our bottom line?

Profitability is impacted at every stage in the supply chain where processes are running at a less-than-optimum level. Lack of visibility due to poor or limited information is a key contributor.  Paying inflated prices, escalating labor rates, high inventory holding costs, too many product lines, poor transportation choices, the list goes on. Supply chain consultants are here to help you. 

What keeps supply chain executives awake at night?

Data and information are vital to an efficient supply chain. A major concern is the lack of critical supply chain process visibility.  Often this is due to no enterprise-wide information system and a low level of automation in areas such as forecasting, logistics and inventory management.

Focusing too narrowly on cost savings rather than reducing Total Cost of Ownership (TCO), not working on improving supplier relationships and ignoring sourcing risks, result in less than expected savings from the sourcing process.

 How does a supply chain consultancy provide answers?   

•  Strategy and Redesign.  Consultancies look for ways to streamline and rationalize the supply chain to impact the bottom line through increasing speed of operations and service, reducing complexity and increasing flexibility using technology.
•  Sourcing and Procure to Pay process.  Savings of up to 40% on purchased goods can be realized through streamlining the procurement process.  Sourcing direct materials from low-cost countries helps companies to improve their competitiveness.
•  Process Optimization. You can optimize the flow of goods and services by getting help to redesign key elements of the order-to-delivery process.  Improvements are achieved by consultants using expert tools such as Six Sigma and Lean manufacturing techniques.
•  Inventory Management.  Inventory costs are impacted by redundant and slow-moving stock, poor demand planning and erratic production.  Attention to formalizing demand planning, fine-tuning the number of stock items and managing wastage will impact the bottom line.
•  Organization Restructure. As companies become more global, new capabilities and a broader knowledge of industry markets are required. Decisions need to be made on how to deal with opportunities and how to stay competitive in an inflationary environment.

Measuring success of a consulting project  

Typical projects have a bottom line impact which consultancies will project as their deliverables.  Some of these could be

•  Up to 20% cost savings in procurement of specified commodities
• 1% to 5% of improvement in revenue through customer interfaces
• Inventory reductions reducing warehousing costs by up to 30%

 Supply chain consultants can provide bottom line savings.

Consultancies vary in size, capability and price.  They also vary in their range of services and level of expertise.  Do research your options and take note of others’ experiences before committing time and money.