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Automating Purchase-Automating Purchase-to-Pay at BAE Systemsto-Pay at BAE Systems
Page 18
Extending QualityExtending Qualityinto the Globalinto the Global
Supply ChainSupply Chain
Next-generation Supply Chain Training
Page 16
Third-party Logistics - Survival of the Fittest
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Is ERP Still a Four-letter Word?
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INSIDE
ALSO
Issue 3e Volume 10August 2009
Vested Outsourcing: Game-changing Rules for BPO66 1212 Inbound Shipment
Management – The New Frontier
Outsourcing
S o l u t i o n s - b a s e d I n t e l l i g e n c e f o r S u p p l y C h a i n R O I
Business ProcessBusiness Process
2121 Supply Chain Readiness for REACH and Global Material Regulations
August 2009 | www.SDCExec.comwww.SDCExec.com 2
T he economic downturn has driven a great deal of
handwringing in the supply chain community about
risk management. Much of the debate has been around
whether supply chain executives should be spending more time
proactively scrutinizing their suppliers to identify “at risk” vendors,
or proactively putting in place back-up plans in the event of a
supplier failure. The consensus, of course, is that supply managers
ought to be spending ample time doing both.
One danger, however, in concentrating too much effort on the
“now” is that supply chain executives might not be prepared for
the “next.” “The current recession has seen many companies scal-
ing back on facilities and staffing for production or warehousing/
distribution to a point that it will be difficult for them to scale up
to meet demand when the economy rebounds – making this one
of the greatest risks facing the supply chain today,” notes Mark
Humphlett, director for supply chain solutions marketing with
Infor www.infor.com. Humphlett believes that companies need to
understand that risk management is pervasive and, just like quality
management, needs to be built into daily practices – examining how
fluctuations within the supply chain affect production, customer
service levels and, ultimately, the bottom line.
Another danger is that by focusing on the “known unknowns” in
front of them, supply chain executives might miss the “unknown
unknowns” coming at them from behind. Rory King, an executive
with IHS www.ihs.com, likens it to drivers who worry about the
highway patrol officer with a radar gun behind the billboard along
the side of the freeway. While a speeding ticket is no doubt an
inconvenience, the real threat to life and limb is the reckless driver
coming up from behind and swerving into your lane, says King,
who is my co-author on the report “Supply Chain Readiness for
EU REACH and Global Material Regulations” in this issue.
The looming danger, in this case, is the potential for supply disrup-
tions as the effects of environmental legislation begin to ripple through-
out the supply chain. Based on our research, many companies have yet
to recognize the significant impact that these regulations will have on
their continuity of supply. As a result, they are leaving themselves open
to being blindsided as engineers are forced to redesign old products to
incorporate new materials, as suppliers “end of life” components that
no longer have a large enough market, or as companies are compelled
to realign their entire supply networks around new carbon tax and
trade costs – to list just a few of the potential impacts.
Call to Action: We’ll be continuing our look at supply chain risk
in the August/September print issue of Supply & Demand Chain
Executive due out in mid-September. In the meantime, write me at
[email protected] to let me know what you view as the greatest
risks to your supply chain, how you are responding to those risks,
and where you see the greatest danger from “unknown unknowns”
in your supply networks. Your feedback will help shape our coverage
of this topic in the upcoming issue and beyond. I’ll look forward
to hearing from you. ■
Unknown Unknowns
Andrew K. ReeseEditor
Supply & Demand Chain Executive
executive memo Supply Chain Risk Management
August 2009 | www.SDCExec.comwww.SDCExec.com 4
table of contents Issue 3e Volume 10 – August 2009
Executive MemoSupply Chain Risk ManagementBy Andrew Reese
Unknown Unknowns
Best PracticesThird-party Logistics By Mike Schoenfeld
Survival of the Fittest
Best PracticesEnterprise Resource Planning By Ned Lilly
Is ERP Still a Four-letter Word?
Best PracticesProcure-to-pay Automation By Editorial Staff
Automating the Purchase-to-pay Process at BAE Systems
2
34
?
29
1212
31
66
Supply Chain Readiness for REACH and Global Material Regulations21 Special Research Report: Preparing for the impact of REACH is a supply chain imperative to
mitigate the impact of coming supply and demand discontinuities. Here’s your REACH Readiness Action Plan.
18
ff
he Purchase-to-pay E Systems
Meeting the numbersis easier for some companies.
Your data. Our insights. One month.
No brainer.
Looking for something other than short-sighted cost cuts or sporadic performance adjustments to meet your numbers? Maintenance, Repair, and Operations includes spare parts, materials, and chemicals that can tie up 15% of procurement spend and 75% of purchasing requisitions. This leaves signifi cant dollars - and opportunity - on the table. In a month’s time, IHS MRO Inventory Optimization can identify measurable opportunities to increase, maintain, or strategically
reduce production capacity while simultaneously decreasing inventory investment and operating costs. Tough decisions. No brainer. Contact IHS.
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Major cost reduction?Cut people
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Adjust MRO inventory and
maintain production?
PO’s and portions of PO’s to cancel
Items to return
Items to consume
Items to sell
Items to buy
August 2009 | www.SDCExec.comwww.SDCExec.com 5
table of contents Issue 3e Volume 10 – August 2009
Vested Outsourcing: Game-changing Rules for OutsourcingBusiness Process Outsourcing By Kate Vitasek and Mike Ledyard
Building stronger relationships and greater value from your outsourcing relationships by moving from win-lose to win-win
Inbound Shipment Management – The New FrontierTransportation Management By Jay Friedman and Jerry Levy
Th e case for deploying a Web-based inbound transportation management system
Let the Sims Begin: Next-generation Supply Chain TrainingProcurement By Jim Wexler
Leveraging simulation training to keep key personnel on top of their game
Extending Quality into the Global Supply ChainGlobal Focus By Andrew K. Reese
Trek Bicycle Corporation uses a Web-based SPC solution to gain real-time visibility into quality on its suppliers’ plant fl oor
Streamlined Connectivity Makes for Good Chemistry between Trading PartnersIndustry Focus By Editorial Staff
WACKER uses a business process network to automate processes with global supply chain partners
6
18
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16
12
2929
3131
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27
August 2009 | www.SDCExec.comwww.SDCExec.com 6
In Search of a Better Way to OutsourceFor the past two years, the authors have participated
in a University of Tennessee research program funded
by the Air Force to formally study companies that
were employing performance-based approaches for
outsourcing. This article is based on our research and
hands-on experience working with organizations that
have adopted symbiotic performance partnerships that
truly unlock win-win solutions.
While many believe win-win is a simple buzzword
that is theoretical in nature, our research has uncovered
there is indeed a set of unwritten rules that companies
can use to develop performance partnerships where
both parties in the outsourcing relationship go the
distance to achieve much higher levels of performance
and cost savings than previously thought possible.
We have distilled our lessens and approach into what
we call Vested Outsourcing – because it is typified by
an outsourcing relationship where both parties have
a stake in maintaining the arrangement and work
together to create a performance partnership that
takes both the company outsourcing and the service
provider to levels of cost, service and profitability levels
not realized previously.
A Better Approach: The Rise of Vested Outsourcing
After reading many articles that detail all the things
that go wrong in outsourcing relationships, you might be
asking yourself, “Is there a better way?” The good news is
that thought-leading companies have been challenging
conventional outsourcing models over the past 10 years.
The result has been an evolution to a “next-generation”
outsourcing model we call Vested Outsourcing.
In the familiar terms of strategic sourcing, there are basically three types of suppliers:
Transactional – the supplier is effectively kept at “arm’s
length,” and a purchase order is issued for every order.
cover story Business Process Outsourcing
Vested Outsourcing:Game-changing Rules for OutsourcingBuilding stronger relationships and gaining greater value from your outsourcing relationships by moving from win-lose to win-win
By Kate Vitasek and Mike Ledyard
August 2009 | www.SDCExec.comwww.SDCExec.com 7
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Illustration 2. The best Vested Outsourcing partnerships align the interests of both parties and ensure tangible benefi ts for both partners.
Illustration 1. Vested Outsourcing Performance Partnerships take the Preferred Supplier relationship to a whole new level.
Preferred Supplier – this supplier is pre-qualified,
either by certification or years of experience. The
Preferred Supplier is often exempted from certain
procedures, given releases against blanket purchase
orders, etc.
Strategic Alliances – this is characterized by a
C-level relationship between the companies, with
shared intelligence and operational tie-ins. The
two companies often develop working relation-
ships that more closely resemble divisions of the
same company.
Vested Outsourcing creates a new level in be-
tween Preferred Suppliers and Strategic Alliances.
(See Illustration 1.) The relationship is more fo-
cused than a Strategic Alliance, and does not
require as much operational infrastructure. But
it takes the Preferred Supplier relationship to a
whole new level.
While no two Vested Outsourcing partnerships
are alike, all good ones achieve a performance part-
nership based on optimizing for innovation and
improved service, reduced cost to the outsourcing
company, and improved profits to the outsource
provider (see Illustration 2). The trend towards
performance partnerships has evolved such that
companies that outsource and service providers
work together to develop a performance-based
solution in which both parties interests are aligned
— and both parties receive tangible benefits (either
through tangible or intangible incentives).
The heart of a Vested Outsourcing contract is an
agreement on desired outcomes that explicitly state
the results on which both companies will base their
outsource contract. A Vested Outsourcing agree-
ment clearly defines financial penalties or rewards
for not meeting or exceeding agreed upon desired
August 2009 | www.SDCExec.comwww.SDCExec.com 8
cover story
outcomes. In such an agreement, regardless
of what is being outsourced, the outsourc-
ing partner has the ability to earn additional
financial value (e.g., more profit) by con-
tractually committing to achieve the desired
outcomes. Simply stated, if the outsource
provider achieves the desired outcomes (achieves
results), they receive a bonus. It is important to
understand Vested Outsourcing is not gainsharing.
The manner in which Vested Outsourcing agree-
ments work is outlined in more detail later.
Under this dynamic, the outsource provider is
challenged to apply “brain power” and/or invest-
ments to solve the company’s problem. They also
take on risk to do it, in essence putting “skin in
the game.” The outsource provider looks at how
they can best apply world-class processes, technolo-
gies and capabilities that will drive value to the
company that is outsourcing. This commitment
to deliver against projected value for the company
outsourcing (such as a commitment to reduce
costs or improve service or both) shifts risk to the
outsource provider. In exchange, the company
outsourcing commits to allow the outsource pro-
vider to earn additional profit (above and beyond
industry average profits for their service area) for
achieving this incremental value. The result is a
win-win Vested Outsourcing partnership — a
paradigm shift we will explore next.
Changing the Game: Going the Whole Nine Yards with Your Outsource Relationship
It’s important to understand that Vested Out-
sourcing is much more than delivering a higher
level of service on a given activity. For example, it is:
• NOT about achieving 99 percent fill rate for
your warehouse provider versus 95 percent;
• NOT about answering 95 percent of all calls
in 20 seconds versus 30 seconds;
• NOT about going from 3,000 defective
parts per million (DPPM) to 3.4 (Six Sigma)
DPPMs from your contract manufacturer;
• NOT about ensuring that janitorial service
provider cleans the toilets every two hours;
• ... and the list can go on and on.
Unfortunately, many people on both sides of an
outsourcing relationship simply do not understand
the fundamental business model concepts behind
Vested Outsourcing. A common mistake occurs
when an organization thinks they have a Vested
Outsourcing agreement because they have taken
their existing contract and simply added a clause
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Improvements Within Your Organization. Illustration 3. Vested Outsourcing is based on a “What’s in it for We” philosophy.
August 2009 | www.SDCExec.comwww.SDCExec.com 9
cover story Business Process Outsourcing
stating that if a service provider achieves the metrics
they are paid a bonus. This completely misses the
mark. Vested Outsourcing is a fundamental busi-
ness model paradigm shift in how the outsourcing
company and its service providers do business.
WIIFWe versus WIIFMeWhile many organizations tout they have “part-
nerships,” our experience and research found that
most organizations have an internal desire to opti-
mize their own self interests. This is often known
as a “What’s in it for Me” approach (WIIFMe ).
How could they not when we are ingrained with
“winning” from early childhood and most busi-
ness schools and law schools focus on “winning.”
Procurement and sales professionals are trained in
the art of negations to help them “win.”
The very word “partner” implies that there
are two sides. The progression towards a Vested
Outsourcing agreement should focus on creating
a culture in which parties are working together
to ensure the ultimate success of each other. The
mentality should shift from an “us versus them”
to a “we” philosophy, or what we call a “What’s in
it for We” (WIIFWe) philosophy.
Companies that embark on a Vested Outsourc-
ing agreement should approach it as a symbiotic
relationship. Only by working together can they
succeed. Consider the cartoon at the top of page 8.
The goal of a Vested Outsourcing partnership is
to focus on first identifying and then aligning the
interests of both players. The relationship becomes
more collaborative and expands beyond simply
meeting requirements.
A WIIFWe philosophy strives to increase the
size of the entire pie (unlock a greater opportunity
than is currently realized by either party) versus
maximizing the size for any one player (e.g., lower
costs at the expense of the outsource provider’s
profits). WIIFWe challenges the conventional
win/lose mentality and tosses it out the window.
A company that is trying to maximize their piece
of the pie instead of growing the whole pie is not
playing under Vested Outsourcing rules and will
most likely craft an outsourcing agreement that is
structured with one or more of the ailments we
have identified in our research.
Many of you might be thinking, “Win-win is
so fluffy. Is it really possible?” Consider a contract
manufacturer that had to “touch” the box 12 times
to assemble it, but refrained from saying anything as
they were “paid by the touch.” Under a performance
partnership, that supplier would have substantial
incentives to help the customer redesign the packag-
ing to reduce the total cost. Let’s say that the supplier
helped design a box that cost two cents more to
manufacture but reduced the “touches” from 12 to 7.
If the “touches” cost two cents each, and the annual
quantity was 5 million pieces, the annual net savings
would be $400,000. Wouldn’t you, as the customer,
be willing to share that with your supplier?
Developing a WIIFWe relationship is easier to
describe than it is to do. Evolving from a culture
of oversight and control to mutual respect is not
an easy transition for most companies that out-
source. Adversarial relationships often persist, and
getting to a true win-win relationship will likely
take practice. We frequently suggest assigning a
neutral party to the team to act as the “win-lose
cop” to point out when organizations slip into
conventional win-lose thinking.
The first place to watch for potential adversaries
is at the executive leadership level. Vested Out-
sourcing is not for the faint of heart; it demands
committed executive leadership from both or-
ganizations, willing to transcend the traditional
win-lose approaches most companies take when it
comes to procuring goods and services. Unfortu-
nately, some executives often feel they are too se-
nior to be coached by the win-lose cop and have a
strong conviction they have to do what they think
is right for the company, not what will further the
Illustration 4. The fi ve major rules of the “What’s in it for We” philosophy.
August 2009 | www.SDCExec.comwww.SDCExec.com 10
cover story Business Process Outsourcing
objectives of the Vested Outsourcing partnership.
Even when there is commitment at the most
senior levels in both organizations, individuals
at the lower levels can succumb to what we term
the “Junkyard Dog Factor” and begin to protect
their turf. In fact, we have seen this ailment afflict
some companies so severely that one or more of
the organizations had to fire some of their exist-
ing employees to remove “baggage” or get beyond
conventional win-lose thinking.
One common place all companies should watch
out for adversaries is among the contracting profes-
sionals and lawyers at both organizations. Contract-
ing professionals and lawyers can be the kiss of death
for Vested Outsourcing because their entire profes-
sion is built around the philosophy of “getting the
best deal” for their company. Much of our society’s
business culture and history has been hardwired
to play win-lose. The win-lose cop can come in
handy to keep the contracts and legal departments
in check. If their behavior presents an obstacle, the
individuals responsible should be removed and
replaced with different mindsets whenever possible.
True win-win requires effort and commitment
by both parties. Outsourcing does not mean abdi-
cation: it must be a partnership with regular, fre-
quent communication to manage the expectations
as well as the work. Although the most pernicious
problems that affect outsource arrangements are
brought on by micromanagement, a different set of
problems can emerge when a company hands over
a process completely to the outsource provider,
washes their hands and walks away.
True partnerships must often evolve over time
as both parties learn to work under a win-win phi-
losophy. For many companies a win-win approach
is a learned behavior, and they have to unlearn their
conventional approaches and ways of thinking.
Human relationships are fundamental to successful
Vested Outsourcing. Absent of mutual trust, any
attempt to implement Vested Outsourcing will
become mired in terms and conditions. In addition,
both the company outsourcing and the outsource
provider need to make sure they are comfortable
in their associated roles. The company outsourcing
needs to feel comfortable describing the “what” and
delegating the “how” to the outsource provider. The
outsource provider must be comfortable signing up
to take the risk to deliver the “how.” Both organiza-
tions must constantly seek to overcome roadblocks
in the processes, infrastructure, technology and
people that prevent the mutual success.
Most companies that use Vested Outsourcing as
an approach for outsourcing do not spend a lot of
time talking about how it gives their service pro-
viders the opportunity to make more money. They
prefer to focus on how it delivers better value or
better performance at the same or lower total cost.
Nevertheless, service providers who work under
Vested Outsourcing partnerships often focus on
the higher profit potential of Vested Outsourcing
and point to the fact that successfully designed
Vested Outsourcing partnerships create happier
clients. Because both organizations are working
together to achieve their goals, Vested Outsourc-
ing works as a true win-win relationship, which is
what partnership is all about.
In our experience, only those organizations that
truly challenge the WIIFMe mentality are able to
achieve true Vested Outsourcing partnerships that
deliver outstanding results. In our opinion, adopt-
ing anything less than a WIIFWe philosophy will
result in less-than-optimal results.
Deeply wedded to the WIIFWe philosophy are the following five major rules.
■ Outcome-based versus transaction-based
business model
■ Focuses on the “what” not the “how”
■ Clearly defined and measurable desired
outcomes
■ Pricing model incentives optimized for cost/
service tradeoffs
■ Insight, versus oversight governance structure
How Vested Outsourcing Rules Work Together
In Vested Outsourcing, the organizations work
together upon a foundation of trust, with mutual
accountability for achieving the outcomes. Through
the careful alignment of performance objectives,
accountability and control, the service provider,
while absorbing additional risk, is empowered to
pursue improvements that will deliver improved
performance, higher profits and lower total cost of
ownership. Vested Outsourcing uses the power of free
Vested Outsourcing changes the fundamental business constructs
of the typical outsourcing approach.
Illustration 5. Vested Outsourcing Implementation Plan.
About the Author:Mike Ledyard
Mike Ledyard is a veteran of international sourcing, manufacture
and importation of product and tooling, especially
from China and Eastern Asia. He is an author
and frequent speaker on process measurement and improvement, and was selected as one of the Top 20 Logistics &
Supply Chain Executives of 2001-2002. Mike is
also a co-founder of Supply Chain Visions.
About the Author:Kate Vitasek
Kate Vitasek is a thought-leader in the area of Supply Chain Management and is
a well-recognized authority on performance
management and performance-based
approaches for business. She is the founder of Supply Chain Visions
and has been the lead researcher and faculty
for the University of Tennessee’s Center for
Executive Education Performance-Based
Programs.
August 2009 | www.SDCExec.comwww.SDCExec.com 11
cover story Business Process Outsourcing
market innovation to improve the outsourcing relation-
ship. This can be challenging to achieve, but the Vested
Outsourcing journey should always strive to arrive at this
idealized end state to achieve the performance pyramid
where both the company outsourcing and the outsource
provider are consistently applying a WIIFWe foundation
and applying all five of the Vested Outsourcing rules.
For the service providers, Vested Outsourcing is an
opportunity to exercise greater flexibility in deciding
how support is provided, to ensure cash flow stability
through long-term contracts, and to increase revenue
by rewarding the service provider’s investment in im-
proving processes. For the company that is outsourc-
ing, it is a chance to obtain improved performance
while decreasing costs and assets by partnering with a
highly competent and properly motivated firm.
To say that Vested Outsourcing represents a depar-
ture from conventional outsourcing practice would be
to seriously understate the case. Vested Outsourcing
changes the fundamental business constructs of the
typical outsourcing approach.
Companies wanting to embark on a Vested Out-
sourcing partnership will need to deeply understand
both the central core of the WIIFWe approach and the
five rules. They will need to treat them as rules to live
by. In our opinion, a Vested Outsourcing partnership
that does not strictly adhere to the entire WIIFWe
core and all of the five rules can easily fall victim to
one or more of the outsourcing ailments that we have
identified in our research. We like to think of a Vested
Outsourcing partnership that does not adhere to the
rules as a pig with lipstick. You can’t simply pretty up
something that is essentially ugly!
Once you determine that you are ready to explore
Vested Outsourcing, we recommend using a struc-
tured framework to help you transform your existing
outsourcing relationship to a more productive perfor-
mance-based approach. The University of Tennessee’s
research has led to the development of an implemen-
tation framework wrapped around the five rules as
illustrated in the Vested Outsourcing Implementation
Plan diagram in Illustration 5. (Read clockwise starting
with “Lay the Groundwork.”) We have been piloting
the framework with the Air Force and will be working
with Intel on transforming their outsourced logistics
and transportation to more productive performance-
based approaches. We also are actively soliciting other
companies to help pilot our implementation framework.
In Conclusion…While the ailments afflicting many outsourcing ar-
rangements occur as frequently as the common cold,
they share a common cure: Vested Outsourcing can and
does create an outsourced business model where both
the company outsourcing and the service provider make
every effort to achieve the elusive win-win. And the risk
of catching one of these ailments through outsourcing
is more than made up for by the achievement, through
a productive Vested Outsourcing partnership, of lower
costs by the outsourcing company and higher profits by
the service provider, neither of which can be attained
by each organization working alone.
Our upcoming book, scheduled to be published
by Macmillan early in 2010 (see www.SDCExec.
com/VestedOutsourcing), will offer a comprehensive
guide for developing successful Vested Outsourcing
partnerships. It is designed to help all companies begin
their effort to take their outsourcing relationships to
the next level. For those wishing to explore Vested
Outsourcing further today, we offer three resources:
• The University of Tennessee offers a three-day
open enrollment class at its Center for Executive
Education, “Performance-based Outsourcing:
Buying Results, Not Activities!” (See http://
PBO.utk.edu.) You can contact Bric Wheeler
at the University of Tennessee, at BWheeler@
utk.edu, for customized, in-house training on
PBO for your company. These can be individual
companies or a combination of a company out-
sourcing and their service provider(s).
• Visit our blog at www.vestedoutsourcing.com
and receive additional resources, success stories
and insights offered by the authors. You can also
request a complimentary e-book that expands
on the concepts of this article.
• Contact the authors at the e-mail addresses
below their bios on this page. ■
August 2009 | www.SDCExec.comwww.SDCExec.com 12
The last several years have witnessed a wide proliferation of
transportation management systems (TMS) executed in
various environments, such as on-site software licensing,
ASP environments or, most recently, software-as-a-service (SaaS).
Regardless of delivery model, the success of TMS in reducing
transportation costs, simplifying administrative functions and
enabling shippers to measure key performance indicators (KPIs)
is well documented. However, while major efficiencies have been
achieved on the outbound supply chain, inbound shipment
management represents a huge opportunity to further reduce
transportation costs.
Implementing an outbound solution has been a classic “low-hang-
ing fruit” in the supply chain. First, it is relatively easy to enforce,
as users are under direct control of the application owner. Second,
the number of outbound locations is usually much less than on the
inbound side. And third, the technology infrastructure is close at
hand, managed and maintained by in-house resources.
On the flip side, those factors that make outbound TMS imple-
mentations relatively easy don’t necessarily apply for typical inbound
implementations. Most manufacturers have numerous suppliers, all
with different systems and processes, and all of whom are operating
in far corners of the world. The terms of sale can make measurement
of the transportation spend very difficult to gauge. Some suppliers
may not even wish to give visibility to their transportation costs
inbound shipment Transportation Management
Inbound Shipment Management – the New FrontierThe case for deploying a Web-based inbound transportation management system
By Jay Friedman and Jerry Levy
Transportation Management
August 2009 | www.SDCExec.comwww.SDCExec.com 13
inbound shipment
since prepay and surcharges can be profit centers
for them. In addition, in today’s environment,
much of the inbound comes from international
suppliers and involves complex documentation,
regulatory and technology issues that some TMS
systems simply don’t manage.
So that’s the bad news. The good news is a new
wave of Web-based solutions can give your in-
bound supply chain 1) automated carrier and
service level selection with shipment execution,
2) global visibility to shipments in transit, and 3)
measurement of key performance indicators.
The Light at the Far End of the Inbound Tunnel
In the not too distant past, when companies
implemented supply chain execution software or a
new logistics module for inbound shipping activity
within an enterprise resource planning (ERP) sys-
tem, the challenge for their suppliers was to ensure
that they had in place technology platforms that
enabled them to communicate with their clients’
systems. Today Web technologies and the support-
ing services bring powerful options to the table,
allowing companies to more easily deploy a full-
fledged inbound shipment management solution.
Web-based solutions give suppliers easier access,
greatly simplifying the process of connecting with
client systems.
No special hardware is required other than a
Web-connected computer. When authorized by
you, your suppliers can access the inbound solu-
tion from anywhere around the world at any time.
Leveraging a TMS solution delivered under a Web-
native software-as-a-service or “cloud computing”
model allows companies to bring the suppliers to
the technology, rather than bringing the technol-
ogy to the suppliers as in the typical software in-
stallation model. In the latter situation, a version
of the software needs to be loaded at every user
location, requiring on-site installation, IT support,
training and ongoing maintenance. With the cloud
computing model, just one shared instance of the
software resides with the technology provider, and
access is available anywhere there is an Internet
connection. Deployment, implementation and
training can be accomplished with a phone call and
a Web-based demo. This is the first step in assuring
your suppliers that your intentions of managing
this component of your transportation will have
no adverse effect on their operation.
However, simply giving access to thousands of
suppliers on its own does not provide a solution,
it only opens the door. What they do – or, more
important, cannot do – with the software is of
critical concern. With a built-in automated rout-
ing guide, companies are in essence holding the
hands of their suppliers, requiring and enforcing
the proper selection of carrier and service level
for every shipment. Since this selection process is
automated and driven by the parameters of each
individual shipment, companies can ensure the
best mix of service and price for every shipment.
Seeing Is BelievingThe next critical aspect to be addressed is vis-
ibility to shipments in transit. Many times supply
chain professionals learn a shipment is on its way
only because it arrives at their dock. Inbound
transportation, for many, remains a very large
black hole.
Spinnaker provides a unique combination of supply
chain execution services that help customers improve
operations, quickly realize tangible benefits and sustain
higher levels of business performance. Our focus
everyday is on Delivering Supply Chain Excellence
across the globe and numerous industries. Leveraging
a collaborative, client-focused approach and years
of relevant experience, we offer customers a true
end-to-end service delivery partner with a proven track
record of success. Contact us at 1.877.476.0576 or visit
us online at www.spinnakermgmt.com/execution.
STRATEGY – LOGISTICS – WAREHOUSING
INVENTORY MANAGEMENT – SOURCING & PROCUREMENT
August 2009 | www.SDCExec.comwww.SDCExec.com 14
inbound shipment Transportation Management
By implementing a Web-based inbound TMS
solution, companies can have instant real-time ac-
cess to shipment information immediately upon
shipment execution. Additionally, this new wave of
TMS solution brings shipment update information
to a central repository, allowing multiple views of
current shipment data across all carriers and modes
from a single application.
With shipment execution being the data entry
point, managers do not need to wait for informa-
tion to come from their Accounts Payable depart-
ment or to consolidate multiple reports in multiple
formats from multiple transportation providers.
Rather, by simply clicking on a couple of but-
tons, multiple views of shipment data – filtered,
grouped and sorted every way imaginable – are
instantly available. This gives companies action-
able information to help become better educated
supply chain decision makers.
Managed Services Increase the ValueEven the simplest software applications require
some upfront training and ongoing support. Com-
panies with suppliers that ship infrequently need a
solution that is even easier to use than what we’ve
discussed so far.
Where volume doesn’t justify the time for soft-
ware training, solutions with a managed services
component afford an even greater value — sup-
pliers just contact a support center where a trained
associate takes shipment information, enters the
shipment information on behalf of the supplier
and then simply e-mails documentation to the
shipping location.
Not only does this simplify the suppliers’ opera-
tion, but it also ensures proper carrier and service
level selection and rate application for the receiver.
Once the shipment is executed, the receiver can
also have instant visibility, even before the selected
carrier makes its pickup.
Set (Terms of) Sale for SuccessIn order to control your inbound freight, you
have to own it. First and foremost, if shipments
are coming to you on a “bill receiver” basis and
you’re not getting 100 percent compliance with
carrier and service selection, a Web-based inbound
TMS solution can help achieve transportation cost
savings of 10 percent or more, which means that
time-to-payback for these tools can often be as low
as a couple months.
If your freight payment terms are anything other
than “bill receiver,” then you have some home-
work. Your first step though is to acknowledge that
your shippers are most probably not sharing their
transportation discounts with you, and your cost
of transportation, even if supposedly included in
the cost of goods, represents another profit center
for your shipper. If you’ve made the effort to ne-
gotiate transportation rates and services with your
preferred providers, you need to leverage them to
the best of your ability and theirs.
Tame the New FrontierCompanies looking to evaluate the adoption of
an inbound TMS solution should consider the
following steps:
1. Grasp the magnitude – If you think the
number of suppliers your company deals with
is simply “a lot,” then you have some homework
to do. To really understand the potential savings
one
www.blinco.com
th
Everyone has heard “there’s no such thing as a free lunch/truck/
transportation cost.” As your inbound transportation
project builds momentum, ask your suppliers to break out transportation from the
cost of goods.
About the Author:Jerry Levy
Jerry Levy has over 20 years of sales and marketing experience
in the logistics and transportation industries.
He recently served as vice president for corporate
marketing for Agility, where he was responsible
for all the marketing and branding across the over $6 billion dollar network.
Levy joined the former PWC Logistics during their initial integration and was instrumental in launching Agility as a top ten global provider of supply chain
solutions.
About the Author:Jay Friedman
Jay Friedman is a senior account executive at
Gartner Group, the information technology research and advisory
company. He has almost 30 years of supply chain services and technology
experience. Friedman also is president of the Arizona Roundtable of the Council of Supply
Chain Management Professionals and CSCMP
Roundtable Advisor.
August 2009 | www.SDCExec.comwww.SDCExec.com 15
available to you by controlling your inbound transpor-
tation spend, you need to know how many suppliers
you have and where they are located.
2. Set your baseline – Establish buckets based on
freight payment terms (e.g., “bill receiver,” “prepay
and add,” “included in cost of goods”). Then divide
up your inbound transportation spend by bucket
(ballpark percentages are fine).
3. Analyze your data – You’ve spent the time and
effort to negotiate service and price packages with
your preferred carriers. They’re only valuable to you
if they’re being used. If your supplier selects their own
option or is sloppy about following your directives,
you are throwing money out the window.
Start with the easiest bucket, “bill receiver.” This is
where you have the most control — if you pay the freight
costs, you should dictate the carrier and service selection.
Run reports, or manually pick out random transporta-
tion invoices, and verify that your preferred carrier and
service levels are being selected by your supplier. Using
your preferred carrier is not good enough — there usually
is a quite substantial price differential between expedited
and standard services, for example, so validate service
selection as well. Also, make sure the correct carrier ac-
count number is used — not all account numbers are
properly coded by the carrier for your corporate rates
and/or discounts. This should be an eye-opening exercise.
You can stop here for now and move to Step 4 as Web-
based applications and their associated pricing models
allow you to pay for what you use, supporting a phased
approach. This way you can validate your program with a
proof-of-concept by starting with the “bill receiver” ship-
ments while continuing to analyze your other buckets.
Eventually, though, you’ll want to go to the “prepay
and add” bucket. This is harder to measure because
you don’t get transportation invoices. But play “CSI
detective” and find out what you’re paying on a per-
shipment basis (random selection is fine to start).
Many (dare we say most?) suppliers who ship “prepay
and add” do not pass on their actual discounted carrier
rate to their customers — they build in a markup and
this becomes a profit center for them. Not only are
you paying higher than the actual price of transporta-
tion, odds are very good this line item is also higher
than your negotiated rates with your preferred car-
ries. Too many companies ignore this bucket simply
because they don’t get transportation invoices. If the
“bill receiver” bucket exercise was eye-opening, the
“prepay and add” bucket analysis may be life-changing!
Usually after analyzing the first two buckets, trans-
portation professionals feel invigorated and empow-
ered to take on bucket number three — transportation
costs built into the cost of goods. Buyers can have a
tendency to believe a sales promise that their transpor-
tation is free. But certainly everyone has heard “there’s
no such thing as a free lunch/truck/transportation
cost.” As your inbound transportation project builds
momentum, you should ask your suppliers to break
out transportation from the cost of goods and then
revisit the “prepay and add” exercise above. Support
from other areas of the organization, obviously includ-
ing Procurement, is critical at this stage.
4. Weigh the benefits – Of course, inbound TMS
solutions are not free. But after doing the homework
in step three, you can gauge your upside and then
measure that against the cost of the solution. Today’s
Web-based TMS solutions generally charge on a
monthly subscription fee basis, making acquisition
and deployment more affordable, with paybacks that
can be as short as a couple of months.
5. Make it happen – Simply communicating routing
requirements, although certainly a step in the right di-
rection, is not enough. No matter how reputable your
supplier is, your routing directives are only as good as
the person processing the shipment. Take advantage
of the TMS technology and service solutions.
Don’t let the cowboys run wild over this new frontier
of inbound shipment management — lasso them in,
control their actions and reap the financial rewards! ■
inbound shipment Transportation Management
Don’t let the cowboys run wild over this new frontier of inbound
shipment management — lasso them in, control their actions and
reap the fi nancial rewards!
T he adrenaline rushes as the snowboarder
navigates the slopes, performing tricks
and jumps with sharp precision. In the
background, Nokia billboards attract the attention
of the audience with images of the hottest cell
phones on the market. Meanwhile, the pressure
is on to win.
While the scene seems straight out of an extreme
sports competition, the reality is that this is a dif-
ferent kind of race —
a thrilling 3-D game, “Nokia Buzztribe,” designed
to educate sales reps in retail locations throughout
the United States about the latest products from
the Finland-based phone manufacturer.
Since when is on-the-job training so much fun?
Ask Arrow Electronics, Inc. a global provider
of products, services and supply chain solutions
to industrial and commercial users of electronic
components and enterprise computing solutions,
Arrow serves as a supply channel partner for ap-
proximately 800 suppliers and 130,000 original
equipment manufacturers, contract manufacturers
and commercial customers through a global net-
work of more than 340 locations in 53 countries
and territories.
Arrow wanted to help its sales force recognize dif-
ferent supply chain customer segments and orient
them to the power of consultative solution selling.
Through MAX!, a global supply chain business
simulation, Arrow challenges the sales force to
identify, segment, close, manage and upsell seven
discrete customers in various customer segments.
With Max!, Arrow reps work through the cycle of
identifying potential supply chain customers, conduct-
ing interviews, segmenting customers to formulate
solutions selling approaches, recommending appropri-
ate supply chain services, negotiating customer
contracts and managing accounts with
an eye out for potential problems or
further opportunities.
“We wanted to communicate this complex topic
to our sales force in a more engaging way,” says
Bob Martin, director of supply chain solutions at
Arrow. “Through the simulation, we can depict
real client situations and provide our reps with a
risk-free environment in which to learn.”
Programs like MAX! capitalize on the fact that
many sales reps and managers grew up playing
videogames. The old stereotype of traditional video
gamers is changing. According to the Electronic
Software Association, 60 percent of Americans
August 2009 | www.SDCExec.comwww.SDCExec.com 16
professional development Staff Development & Training
By Jim Wexler
More companies are leveraging simulation training to keep key personnel on top of their game
Let the Sims Begin: Next-generation Supply Chain Training
Transportation and logistics professionals need strategic, critical thinking skills to navigate multiple disciplines. APU has online undergraduate and graduate degree programs in:
APU. Affordable education for a complex world.
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• Transportation and Logistics Mgmt
• Homeland Security
• Information Technology• Management• And more
About the Author:Jim Wexler
Jim Wexler is a vice president with
BrandGames, a New York-based firm
specializing in talent communications issues.
www.brandgames.com
August 2009 | www.SDCExec.comwww.SDCExec.com 17
professional development Staff Development & Training
play video games; the average age of
game players is 28; and 43 percent of
game players are female. Americans now
spend more money on videogames each
year than they do going to the movies,
and more time at home playing video-
games than watching DVDs at home.
“Games and simulations are a key
part of our culture and have always
been part of the learning process,” says
Scott Randall, president of Brand-
Games, the New York-based agency
that developed MAX! for Arrow. “Air-
line pilots can’t fly multimillion dollar
planes until they do hundreds of hours
of flight simulation. The military, CIA
and other organizations have all used
simulations to teach hard skills, combat
skills and basic leadership for years.
Games have proven to be a winning
platform. Now, these tools are avail-
able for the more practical, but equally
important, job of training executives,
sales teams and others.”
The simulation approach is gaining
popularity in the current economy, with
the mandate to reduce travel, class-
room and executive expenses. “One of
the biggest benefits is controlling the
message and delivering best practices,”
says Martin. “We extend our hard-won
business practices across the enterprise
through a shared experience of carefully
designed scenarios that put everyone on
the same page.”
Farmers Insurance is testing simu-
lation as a learning tool with Farm-
ers HelpPoint call center employees.
“We see ‘serious gaming’ as an ideal
delivery system for a number of learn-
ing opportunities,” said Mike Cuffe,
vice president of learning at Farmers.
The company is piloting IBM’s In-
nov8 2.0, a 3D simulation game based
on real-world business scenarios that
challenges players to drive results for
both the company and the customers
they serve. The challenges include call
center management and optimizing a
company’s supply chain.
As the nation’s third largest personal
insurer, Farmers receives more than
3.75 million claims per year – which
equates to 10,274 claims a day, 428 an
hour, or seven per minute. Its claims
employees log more than 95 million
miles in some 6,000 company vehicles,
and its 3,000 Farmers HelpPoint call
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center employees respond to more than 5.5 million
customer calls each year.
“Since my team redesigned Farmers claims’
curriculum to provide a learn-by-doing focus,
our employees achieve competence more quickly,
serve our customers more effectively and compas-
sionately, and are better prepared for advancement
opportunities,” Cuffe says.
Training materials that leverage this “next gen-
eration” learning paradigm earn improved engage-
ment with the audience. According to an Arrow
company survey, 82 percent of Arrow participants
said that their understanding of the supply chain
sales process improved as a result of the program,
and 74 percent said Max! will help them be more
successful at Arrow.
“A high percentage of Arrow’s sales force agreed
that Max! positively impacted their job perfor-
mance,” says Martin. “The feedback is for us to
do more, to keep raising the bar. Business success
depends on maintaining a workforce that is mo-
tivated, supportive and productive.” ■
August 2009 | www.SDCExec.comwww.SDCExec.com 18
W hen Alberto Contador and Lance Armstrong
stood on the podium at the end of the
Tour de France this year, one of the biggest
winners not standing beside them was Trek Bicycle
Corporation. The Waterloo, Wis.-based manufacturer
provided the bicycles that Armstrong rode to seven
consecutive Tour victories, and they were back again
this year with the carbon-fiber marvels that helped
propel Contador and Armstrong into first and third
place, respectively, in Paris.
Trek started out with five employees making hand-
built steel touring frames in a rented barn in Waterloo
in 1976. Today, Trek has long since expanded beyond
the barn into modern research, engineering and manu-
facturing facilities in Waterloo, where the company still
produces high-end carbon frames. At the same time, like
many manufacturers, Trek has formed partnerships with
overseas suppliers in Taiwan and the People’s Republic
of China that provide components, frames and some
fully assembled bikes.
Quality is of supreme importance in the bike industry,
of course – no one wants to think about defect issues
while they’re riding on a sliver of rubber at 40-plus
miles per hour down a twisting mountain road – and
Trek has been working to drive quality back into its
supply chain to ensure that every product coming into
its facilities from overseas is up to spec every time. To
that end, the company has ramped up the involvement
of its supplier quality group with all the new products
being developed in Asia. As part of that effort, the
global focus
By Andrew K. Reese
Extending Quality into the Global Supply Chain
tance in the bike industry,
hhininkk ababouout defect issues
ver of rubber aatt 4400-plus
ng mmouountain road – and
ive quality bbacckk ininto its
ery product coming into
up to spec every time. To
mped up the involvement
with all the new products
part of that effort, the
Global Supplier Performance Management
Trek Bicycle Corporation uses a Web-based SPC solution to gain real-time visibility into quality on its suppliers’ plant fl oor
Knowing the “culture” of your suppliers makes it easier to work with them to introduce new processes and technologies within their own four walls.
August 2009 | www.SDCExec.comwww.SDCExec.com 19
global focus Global Supplier Performance Management
company has been working with key suppliers to
deploy a system that will give the quality team in
Waterloo real-time insights into product quality
before a component or frame even leaves the fac-
tory in Taiwan or Mainland China.
Quality in Real TimeJulie Wilhelm, manager of Asian quality and
compliance with Trek, says that, in the past, the
bike manufacturer did not have visibility into qual-
ity issues until products arrived at its U.S. facilities,
when it was too late to take corrective action. “It
was the same cause all the time,” Wilhelm says.
“We hadn’t reviewed what the supplier was doing
thoroughly enough, and we didn’t always provide
them with the best specification.” Trek was already
using a quality solution called ProFicient from In-
finityQS International for statistical process control
(SPC) within its own facilities, but the company
had no way of extending the quality process out
to its suppliers’ plant floor.
That changed when Wilhelm learned about
the eSPC solution that InfinityQS launched in
2006. eSPC is a hosted solution that can con-
nect disparate, far-flung manufacturing locations
within a single enterprise or across a supply chain
to a shared database of quality data. That allows
quality managers and engineers at a central loca-
tion to analyze supplier quality data and evaluate
incoming materials prior to delivery. “Because
eSPC is Web-based and was meant to work with
suppliers, I latched onto it,” says Wilhelm, who
had worked with the solution provider’s offer-
ings both at Trek and in a previous quality role at
Rayovac Corporation.
The functionality that drew Wilhelm to eSPC
included the potential to gain real-time access to all
key dimensions of Trek’s products being manufac-
tured by suppliers. The company’s engineers would
be able to view those data as they were generated
in trend chart format and do capability or other
analyses, or download the data for further process-
ing. The solution also provided for real-time alerts
via e-mail so that Trek’s quality staff on the ground
in Asia could learn about developing issues imme-
diately, allowing them to show up at the supplier
the same day if necessary to deal with problems
before any product left the plant.
Cultural AwarenessBeginning in late 2007, Trek initially targeted
four suppliers to begin working with eSPC – two
in Taiwan, two in Mainland China. The company
chose to start with suppliers of higher-end product
and focused initially on just one parameter, weight,
which is crucial in its top-end bicycles. “We sold
it to them from the angle that they were key ven-
dors and that weight is crucial, so they could get
onboard with us and start collecting the weight
data to stay at the high end of our business,” Wil-
helm explains.
She adds that Trek chose these specific suppliers
Related LinksInfinityQSwww.infi nityqs.com
Trek Bicycle www.trekbikes.com
August 2009 | www.SDCExec.comwww.SDCExec.com 20
global focus Global Supplier Performance Management
in part because they were more proactive in seek-
ing new ways to work with the bike manufacturer.
“There are other companies that would have been
tougher to work with because they are very much
inspection-based and they didn’t see the value
in investing money upfront to prevent defects,”
she says. “We purposely picked companies that
were more willing to work with us and do what
we need. So knowing the culture of the company
you’re dealing with is very beneficial.”
Deploying the software and having it pull data
directly from the suppliers’ production line did
present some minor difficulties specific to the
locale. For example, the relevant gauges were
manufactured in Asia, and the manuals were
in Chinese, so it took some time to understand
how to connect the equipment into the soft-
ware. More significantly, progress in getting the
deployment fully rolled out was affected by the
amount of time that Wilhelm was able to spend
on the ground at the suppliers’ facilities making
adjustments or improvements.
Wilhelm, who travels to Asia to visit the suppli-
ers at least five times a year, says that, in retrospect,
she would have recommended training Trek’s staff
in Asia to provide more of the front-end support
for the deployment of the software. “We relied too
much on me being there to fix small issues that
came up, or to make improvements,” she says.
“Our people could have handled that if we had
given them the training upfront, although we’re
working on that now.”
Protecting the BrandTrek started the project by collecting data on
product weight from the suppliers’ assembly lines,
but the company has since expanded the data
they are managing through eSPC. For example,
the quality team developed a test to proof load
all the forks – the part of the bicycle that holds
the front wheel and permits steering – to ensure
zero construction defects before this critical com-
ponent leaves a supplier factory. Data from these
tests are fed into eSPC, alerting Trek’s quality and
engineering staff to issues with a given part, but
also allowing them to access data on every single
fork at any time. “It helps us sleep better know-
ing that our bikes are undergoing these tests, that
we’re tracking them and that we know exactly what
happened to each one,” Wilhelm says.
The company’s plans call for further using eSPC
to manage the key dimensions on components and
bikes coming in from suppliers, as well as data
from additional tests that will be put in place to
ensure compliance with applicable consumer safety
requirements. Trek also is looking to extend use
of the solution to additional high-end vendors
with more critical products, such as the carbon
components, and eventually to any key supplier
for OEMed or aftermarket products.
For companies looking to extend their quality
management programs out onto their Asian sup-
pliers’ plant floor, Wilhelm recommends carefully
considering the infrastructure within the vendors’
facilities. “Their Internet connections are generally
a lot slower than ours, they don’t always have their
buildings wired like we do, and obviously access
to the Internet is key with eSPC,” she notes. And
she repeats her suggestion to ensure that local team
members are trained up on the solution prior to
the deployment. “Getting the support staff trained
on the ground before you implement would help
move the project a lot faster, changes could be
made faster and you could expand its use a lot
faster,” she advises.
The benefits from the project for Trek have been
two-fold. First, it has prevented defective product
from leaving the suppliers’ facilities – many of
those products would have been uncovered during
a check when it reached Trek in Wisconsin, but
two months would have been lost while the goods
were in transit across the Pacific. The system also is
preventing products intended for the aftermarket
– products that go directly into a warehouse and
then onto the dealer’s floor – from reaching the
market, which helps protect the Trek brand name.
Wilhelm further believes that using the eSPC
solution will have additional cost benefits down
the road. “If the vendors buy into it and start us-
ing it even further upstream in their processes,
they’ll end up saving money and hopefully pass
that along to us, and then we can pass that on to
our customers as well.” ■
“It helps us sleep better knowing that our bikes are undergoing these tests, that we’re tracking
them and that we know exactly what happened to each one.”
— Julie WilhelmManager of Asian Quality and Compliance
Trek Bicycle Corporation
Failing the Grade?Supply chains are at risk today from significant dis-
ruptions stemming from many known sources. But the
European Union’s REACH regulation (Registration,
Evaluation, Authorization and restriction of Chemical
substances) represents a “hidden risk” that many corpo-
rate executives appear to underestimate. This “Report
Card” highlights the extent to which industry currently
is ready for REACH and provides a benchmark against
which companies can rate their own level of prepared-
ness for the regulation.
The REACH legislation took effect on June 1, 2007.
The regulation provides for phased requirements over
an 11-year period, including obligations to register, with
the European Chemicals Agency (ECHA) in Helsinki,
substances imported into, or used within, the European
Union. Nearly 150,000 substances were pre-registered
with ECHA by 65,000 companies by a December 1,
2008, deadline. In addition, an expanding list of “Sub-
stances of Very High Concern” (SVHCs) will be subject
to potential substitution in products. Companies also
must be prepared to proactively notify downstream us-
ers regarding the presence of SVHCs in their product
and respond to consumer requests for information on
SVHC presence within 45 days.
The impact of REACH will extend beyond companies
engaged directly in business within the EU. It will apply
to companies with relatively low levels of EU revenue
– and even companies that do no business in the EU
but that engage with suppliers or customers that are
involved in the European market. A customer that sells
into the EU may require information on SVHC content
to satisfy its own regulatory obligations, while suppliers
that service customers in the EU may opt to discontinue
production of parts or component that include SVHCs
rather than continuing to provide both “compliant” and
“non-compliant” product lines.
The recent executive briefing, “Report Card: Failing
the Grade on Risk in the Supply Chain,” prepared by
Supply & Demand Chain Executive, in conjunction
with IHS, suggests that many organizations are behind
in their preparations for REACH. The briefing presents
an overview of the results of a research study conducted
in 2009 by Supply & Demand Chain Executive to quan-
tify the risk of supply chain disruptions associated with
REACH and understand current levels of preparation
among the 200-plus global organizations that partici-
pated in the study.
The Report Card at right represents the high-level
conclusions of the study. The remainder of this report
provides greater detail on the Supply Chain Readiness
Areas highlighted in the Report Card, breaking each
RESEARCH REPORT:Supply Chain Readiness for REACH and Global Material Regulations
WHITEPAPER
S o l u t i o n s - b a s e d I n t e l l i g e n c e f o r S u p p l y C h a i n R O I
is an indication of the current readiness of people, process, and technology.
A—Very High Level B—High Level C—Sound Level D—Limited F—Very Limited
Supply Chain Readiness Area Overall Heath Effort & Action
EXPLANATION OF MARKING SYSTEM
OVERALL HEALTH
Organizational ReadinessLevel of Visibility, Stakeholder Engagement, Executive Engagement, Executive Sponsorship, Reach Program Formalization
Supply Chain ReadinessSupply Chain Awareness, Level of Concern, Acknowledgement as Supply Chain Issue, Priority Level, Preparation & Control
is a measure of the steps being taken to close gaps and enable an appropriate strategy.
A—Excellent B—Very good C—Satisfactory D—Needs attention F—Unacceptable
EFFORT & ACTION
REPORT CARDC-B-
C+C
Information & SystemsReadiness to Notify, Confi dence in Ability to Respond to SVHCs, Methods of Gathering SVHC Information & Outsourcing, Data Management
D C-Execution ReadinessProgram Establishment, Activity Prioritization, Budget Allocation C- C-
into subcategories that are themselves as-
signed a letter grade, based on results of the
research study. This grading system not only
provides a snapshot of industry preparedness
for REACH, but also will allow companies to
benchmark their own readiness to mitigate
the coming supply chain disruptions that
REACH will cause.
Each Supply Chain Readiness Area in-
cludes grade for “Overall Health” and “Effort
& Action.” “Overall Health” refers to com-
panies’ current state of readiness, in terms
of people, process and technology, to meet
the challenges posed by REACH. “Effort &
Action” gauges the impact and effectiveness
of the steps being taken to close gaps and en-
able an appropriate strategy for dealing with
REACH. Each Readiness Area is followed by
an explanation of the grades and a breakout
of the Performance Criteria upon which the
Area grades are based.
As stated in the executive briefing, the
bottom line is that REACH is a supply
chain issue and a data management pri-
ority. Organizations have significant risk
exposure for which they are unprepared,
and senior executives must elevate REACH
readiness to the level of a strategic impera-
tive or risk substantial financial impact for
their companies.
Preparing for the impact of REACH is a supply chain imperative due to the
potential for supply and demand discontinuities as the effects of the legisla-
tion propagate upstream and downstream throughout the supply chain. The
potential threats to a company’s financial, brand, social responsibility and
competitive position in the marketplace as a result of REACH necessitate
senior executive involvement. Establishing a baseline of corporate management
visibility to issues around REACH, and maintaining that visibility through
regular reporting on progress on REACH, is a first step toward mitigating the
impact that the legislation will have on the supply chain.
Essential to meeting the REACH challenge:1. Understand Your Supply Chain Location and REACH Identi-
ties and Exposure.
■ Define your role in the supply chain based on the substances, materials
and articles that you purchase or supply globally, and how REACH will
apply to organizations in your role and the subsequent legal obligations
that REACH imposes.
■ Perform the same exercise for your upstream and downstream supply
chain partners to understand your exposure and assess the preparedness
of the supply chain as a whole for REACH.
2. Mobilize Cross-functional Stakeholders, linking Supply and Demand.
■ Bring together both supplier- and customer-facing organizations. On the
downstream side, handling customer requirements around REACH calls for
educated and enabled sales, marketing and support teams. The supply side
must be engaged to ensure suppliers understand, and can be responsive to,
your own requirements for REACH – and to understand how your suppliers’
strategies for handling REACH align with your own objectives.
■ Additional key roles that must be engaged in the REACH process
include Legal (to understand and explain the legal ramifications); IT
(to tackle the enormous product data management challenge posed by
REACH); and materials experts (to participate in redesign and substitu-
tion, where necessary, and to assist in securing existing supply).
3. Evaluate the Impact, Regulatory Obligations and Source of Supply Risks.
■ The cross-functional stakeholders team must work to assess the require-
ments that REACH will impose on the company, vulnerabilities in terms of
the company’s ability to meet requests for information, preparedness of the
company to meet those requirements, and preparedness of the company’s
supply chain to assist the company in meeting the requirements.
4. Prioritize and Expedite Your Data Strategy: “No Data, No Market.”
■ REACH’s mantra of “No Data, No Market” means that companies must
be able to collect, manage and report on the substances they – or downstream
customers, where applicable – use, manufacture or import into the EU, or
be barred from EU market entry. Companies must ensure that they have the
people, processes and technology in place to manage REACH-related data.
5. Align Goals/Objectives with Appropriate Funding Needs.
■ Align the REACH strategy with other company programs and goals,
including its competitive strategy, corporate social responsibility goals,
product strategy and risk management strategy.
The impact of the regulation is broad at present and will continue to
expand as additions are made to the SVHC list. No company can afford
to be left behind as customers, trading partners and competitors execute
on their own REACH readiness strategies. The time to begin addressing
REACH is now.
Critical Steps to Mitigating Risk and Enabling the Supply Chain
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Overall REACH has achieved a critical mass of enterprise and supply
chain visibility, with appreciable awareness top to bottom. However, stake-
holder engagement remains widely skewed towards supply-side functions,
and organizations must shore up the link to customer- and market-facing
responsibilities that touch competitive position, demand and legal liabil-
ity. Similarly, executive visibility appears “high,” yet senior management
engagement is only “satisfactory,” if not deficient to some degree. As a
result, many organizations appear to underestimate the business impact
of REACH, the organizational change or investment required, or both,
and the survey responses on planning, preparation and budgets (discussed
later) all serve to validate and accentuate these concerns.
Level of Visibility (B+, C+)■ REACH is most visible to mid-management, nearly 50% of both
Director and Manager levels (48.5% and 53.3%, respectively). However,
executive visibility may be higher than reported, especially since some re-
spondents cited budgets in ranges exceeding $100,000-$5 million, which
would necessitate executive approval.
■ The sharp drop off from 53.3% to 28.2% from Manager to Individual
Contributor level is perhaps logical as well. Practitioner expertise at the
individual level will be required to analyze new materials, demonstrate
compliance, or deal with other aspects of REACH, but these are likely vis-
ible to concentrated pockets of affected employees rather than widespread
enterprise groups of professionals.
■ Bottom Line: REACH has significant visibility at the right levels, but
we would anticipate a higher overall level of visibility, and senior manage-
ment involvement is imperative for the organizational change and budgets
required to adequately address REACH for most companies.
Stakeholder Engagement (B, C)■ Half of companies have the Sourcing & Procurement, Engineering
& Design, and Supply Chain organizations engaged in their REACH
effort. This is logical given the nature of materials and substances under
scrutiny, as well as the dependency on data, communication, and col-
laboration with suppliers.
■ Demand-Side Sales & Marketing (customer-facing) involvement
may be “logical” (at 26%), but it is still a noteworthy “blemish” on orga-
nizational involvement.
■ Overall, there is evidence of very strong organizational involvement in
REACH, with a call to action for greater Corporate Management (25%)
and Demand-Side involvement.
Executive Engagement (C, C)■ REACH’s impact on legal liability, environmental or corporate re-
sponsibility position, financial and operating performance as well as supply
and demand continuity warrants more that the 30.4% of companies that
state that REACH has C-Level or Executive visibility.
■ Executive visibility and engagement are both necessary to align the
critical nature of REACH with the necessary organizational and process
changes required, and to align budget with tools or systems to enable
capabilities or close gaps.
Executive Sponsorship (B, C)■ There is no clear consensus on line-of-business ownership of REACH,
with six different areas hovering near the 10% range in terms of having the
executive tasked with REACH ownership: Engineering & Design 14.5%,
Regulatory / Compliance 13.2%, Supply Chain 13.2%, EH&S 10.6%,
Manufacturing & Operations 9.3%, Sourcing & Procurement 9.3%.
■ REACH should have a greater level of customer-facing involvement
due to the need for organizations to have a strategy that provides to cus-
tomers, free of charge, information regarding the presence of SVHCs in
their products.
Reach Program Formalization (D+, C-)■ 63% of survey respondents reported a REACH effort structure of
some kind, with half of these organizations placing responsibility at the
individual employee level (15.9%) or tactical group level (24.7%), and
the remaining companies having goals and objectives supported by an
executive sponsor (12.8%) and performance monitored at the senior
executive level (9.7%).
■ Formal involvement at the executive level is key, and therefore nearly
one in five companies is giving appreciable consideration to the steps
necessary for a REACH strategy. Those companies with tactical groups
or employees trying to drive change, may want to reevaluate their position
and consider higher-level involvement.
The good news for the supply chain is that level of awareness, un-
derstanding and acknowledgement of the impact on the supply chain,
and what risks need to be mitigated, all seem to be well understood.
The short-comings and major concerns are apparent in the current
state of readiness, and slowness or lack of action taken, especially
when viewed against the overall risk present and lead-time required
to close gaps. Certainly there are areas of improvement in all aspects
of supply chain engagement, but fundamentally these can and will
be addressed. The big challenge is picking up the pace, and taking
a leadership position in doing so, since it is apparent that REACH
is a supply chain domain issue, and this line of business appears to
play a big role in organizational knowledge and execution of the
REACH strategy.
Supply Chain Awareness (B, C+)■ 50% of companies have Sourcing & Procurement, Engineering/
Design, and Supply Chain organizations engaged in their REACH
effort. The Supply Chain itself was clearly in this top tier, albeit third
of three, at 50.7% involvement.
■ Both Supply Chain and Engineering/Design were leaders in
Executive Sponsorship ultimately responsible for REACH.
■ Bottom line: REACH clearly is a supply chain issue, and Supply
Chain’s involvement should grow over time as the impact of REACH
extends to nodes further upstream in the supply chain.
Level of Concern (A-, C)■ 87.3% of study participants are concerned about REACH,
whereas only 12.7% are “not concerned.” Removing those on the
fence (“somewhat concerned”) still leaves twice as many “very con-
cerned” vs. “not concerned.”
■ No one, 0%, in the EU were “not concerned,” and 48% in the
EU were “very concerned”, which was nearly twice the amount of
other geographies.
■ Geographic proximity to the EU, as well as location upstream or
downstream in the supply chain will play a role in REACH aware-
ness and priorities, but paying close attention to the EU and those
closest to the issue could pay big dividends.
Acknowledgement as Supply Chain Issue (B, C)
■ A critical mass of 60 percent cite REACH as equal or greater pri-
ority among supply chain and regulatory compliance issues, serving
as fundamental acknowledgment of REACH as a supply chain issue.
■ 70 percent agree that REACH will cause price, availability,
supplier and material obsolescence as chemicals become at risk or
phased out in the marketplace.
Priority Level (B+, B)■ Approximately 60% say that REACH has at least “equal” im-
portance among supply chain or regulatory compliance issues at the
company. This is more than twice as many as the 28.2%, who feel
it is less important. Almost 5% say it is much more important and
12.8% say it is generally more important.
■ REACH’s general priority would suggest both the subject mat-
ter of materials as well as the discontinuity potential it imposes as
converging in the supply chain domain.
Preparation & Control (C, C-)■ Only 5% of organizations feel they have all the information
they need for REACH, while roughly 25% of companies believe
they have all OR most of the required information.
■ Meanwhile, just 14% feel that their supply chains are prepared
or very prepared for REACH. For the 95% of companies that do not
have all the information they need, the supply chain could represent
a significant risk when it comes to obtaining information necessary
for REACH.
■ Bottom line: Whether they are deeply involved in the REACH
effort or not, the supply chain must understand the company’s
exposure, and supply chain will be pulled in when suppliers are
unwilling or unable to provide material substance information and
declarations that will be called upon at some point.
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REACH is a supply chain issue, but it is also an information
issue, and just 5% of the supply chain feels it has all the in-
formation it needs to satisfy REACH obligations today. There
is a large dependency on suppliers to provide the information,
and yet suppliers, too, suffer from lack of preparation and
dependency. Steps are being taken but this is a big gap for
the initial phase of REACH. Approaches seem heavily tied to
reliance implementing capabilities with ERP or “homegrown”
systems, which may be like changing a tire on a car going 90
miles an hour. In addition, Excel based approaches are a source
of major concern if not coupled to a much more sophisticated
and robust strategy.
Readiness to Notify (D, D)■ Only 4.9% of organizations have all the information they believe
is necessary, and none of the EU participants reporting having all
the information they need. Just 25% companies feel they have all
or most of what they need.
■ Overall these are low figures for the supply chain. It be-
comes even more significant when put in the context of the
broader dependency of downstream supply chain partners who
must rely on their suppliers, who are in turn dependent on
their suppliers.
Confidence in Ability to Respond to SVHCs (D, C)
■ Consumers must be provided with information regarding the
presence of SVHCs within 45 days of a request, free of charge. While
generalizing the overall survey pool, the previous figures suggest
that, today, just 1 in 4 suppliers have all or most of the informa-
tion customers might request. This may explain why twice as many
respondents are “concerned” versus “not concerned” about their
ability to respond to address this request (42% compared to 21.7%).
Methods of Gathering SVHC Information & Outsourcing (D, C-)
■ Nearly 1/3 of all respondents have mobilized internal data
gathering and are asking suppliers for SVHC declarations and/or
full material disclosure of substances. Despite the need to finish
these activities and reconcile gaps, this is a step in the right direction.
■ 19% are aware of the requirement but don’t have a plan. This
requires attention.
■ 8% have outsourced gathering of this information, which one
may expect to lower cost and expedite completion.
■ An area of concern is a 20% gap of the respondents who are
aware of RoHS yet lack a definitive REACH strategy. Those in the
“gap” without a strategy appear undecided between “collect & process
in house” vs. “outsource to a third party.” In light of RoHS lessons
learned and given the additional volume, complexity, and dynamics
of REACH, one may expect to see a greater number considering
third-party assistance.
Data Management (D, D)■ Survey respondents felt more “prepared” than “unprepared” for
the Data Management challenges associated with REACH, although
this level of confidence must be contrasted with the clear indication
that the majority of companies will use multiple systems to address
REACH. This is satisfactory as an interim measure, but companies
will want to ensure processes involving multiple systems are well-
coordinated, robust and adaptable to constant change.
■ Three times as many (~49%) will build home-grown systems or
leverage ERP against 16.4% taking a best-of-breed approach. The
former can take considerable time or be dependent upon critical
mass or industry standards to materialize.
Doing the Math: Just 5% of companies are prepared for REACH
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About the AuthorsAndrew K. Reese is Editor of Supply & Demand Chain Executive.
He has nearly 20 years of experience researching and writing on
topics related to global business, regulatory and social affairs. He
has been with the magazine since 2000.
Rory King is Senior Manager, Product Lifecycle and Environment
solutions at IHS. He began his career in industry at John Deere &
Company, and his subsequent experience includes senior positions
with information management and supply chain solution providers
Requisite Technology and i2 Technologies.
About Supply & Demand Chain Executive (www.SDCExec.com): Supply & Demand Chain Executive is the executive’s user
manual for successful supply and demand chain transformation,
utilizing hard-hitting analysis, viewpoints and unbiased case studies
to steer executives and supply management professionals through
the complicated, yet critical, world of supply and demand chain
enablement to gain competitive advantage.
About IHS www.ihs.com: IHS (NYSE: IHS) is a leading
global source of critical information and insight, dedicated to
providing the most complete and trusted data and expertise. IHS
product and service solutions span four areas of information that
encompass the most important concerns facing global business
today: Energy, Product Lifecycle, Security and Environment. By
focusing on customers first, IHS enables innovative and successful
decision-making for customers ranging from governments and
multinational companies to smaller companies and technical
professionals in more than 180 countries. IHS has been in
business since 1959 and employs approximately 3,000 people in
20 countries. e-Mail IHS: [email protected].
REACH is well in motion, with important compliance
obligations and direct threats to supply volatility that have
materialized. Furthermore, it’s evident that there’s a long lead
time associated with completing many of the activities, such
as data collection for material declarations. Meanwhile, the
organizational lead time to mobilize internal resources and
plans in response to REACH’s requirements can be substantial.
The supply chain lacks overall execution program maturity,
and gaps are not on track to close fast enough. What’s most
alarming is that some organizations have not even begun
proper planning.
Program Establishment (C-, C-)■ 30% of organizations have established a REACH program,
while another 13.2% are planning such a program and another
15% are considering it. These are steps in the right direction,
but not adequate, and 29.5% have no plans for a REACH
program at present. Current health needs attention, as does
progress to close gaps.
Activity Prioritization (C, C)■ Supply Chain appears to have a sound understanding of
steps required to interpret regulatory exposure and acquire
information necessary to execute a strategy and communicate
to downstream customers. 30%+ have identified and logically
sequenced all the prerequisite steps necessary to get the house in
order and send outbound notifications. However, these should
have ranked more “critical” in general priorities.
Budget Allocation (D, F)■ Only 15% of the supply chain have identified a budget,
whereas 55% have not. Of the latter, only 12% plan to establish
one in 2009 or 2010, whereas 23.4% are considering the busi-
ness case and 34.4% have no plans for a budget.
■ Of the budgets established, almost an equal number of
companies have budgets above and below $500,000. In light of
the survey demographic, the criticality of REACH, and gaps in
preparedness, this would suggest a satisfactory overall allocation.
■ REACH requires closer attention and a more aggressive
schedule for those building or not yet considering a business case.
www.ihs.com/reach
August 2009 | www.SDCExec.comwww.SDCExec.com 27
W ACKER, the Munich, Germany-based
chemical company, is known for pushing
technological innovation and developing
new products in the chemical and semiconductor
sectors. The company, with 2008 sales of about $6
billion, also has developed a reputation as a forward-
thinking organization focused on efficiency and
lowering its costs of doing business while providing
a superior customer experience.
Technology is playing a key role in WACKER’s
drive to maintain its leadership in the industry. As
part of its efforts in this regard, the company has
been leveraging a business process network operated
by Elemica as its platform for supply chain process
integration and collaboration.
Complex Supply ChainWACKER operates in five divisions that manu-
facture products ranging from hyperpure silicon
wafers for the semiconductor industry to surface
coating resins, industrial salt, acetyls and insulation
materials. Each business unit within WACKER
has a supply chain director who is responsible for
the “plan-source-make-deliver” process within that
unit. It is notable that the supply chain is not a
logistics function – logistics and procurement are
centralized, whereas supply chain resides within
the customer-facing business units.
With production locations and warehouses spread
around the globe, the synchronization and coordina-
tion of the different units are critical to maintaining
efficient operations and high customer service levels,
according to Joern Mierke, director of supply chain
management for performance materials at WACKER.
“We have to distribute customer orders across
our production facilities in a way that maximizes
capacity while avoiding logistics costs by sending
the right production step to the right location,
with consideration of the import duty implica-
tions,” Mierke says. The company also must ensure
that it stocks its warehouses around the world
to meet demand on short notice while avoiding
overstocking and material out of shelf life.
WACKER operates an SAP backend system to
help automate and coordinate its own processes.
Since 2001, the company also has been leveraging
a business process network operated by Elemica to
automate processes with its top customers and to
facilitate mutual collaboration and increase cus-
tomer satisfaction. Founded in 1999 by 22 lead-
ing companies in the chemical and oil industries,
Elemica today offers a global, neutral information
and transaction network that facilitates the order
processing and supply chain management of con-
tract and repeat chemical purchases.
Simplifying ConnectivityThe chemical industry continues to be plagued
with various message languages, formats and dispa-
rate systems, and order processing between trading
partners remains challenging. For WACKER, Elemica
provides a single channel for system-to-system con-
industry focus B2B Connectivity
By Editorial Staff
WACKER uses a business process network to automate processes with global supply chain partners
Streamlined Connectivity Makes for Good Chemistry between Trading Partners
August 2009 | www.SDCExec.comwww.SDCExec.com 28
nectivity with its trading partners. By maintaining
one connection to Elemica rather than multiple
point-to-point links with each of its partners, WACK-
ER simplifies B2B connectivity for both itself and its
customers, reducing complexity and cost.
Partners can connect to WACKER via Elemica
regardless of which “flavor” of EDI or XML they
use for their communications, since the Elemica
network translates the messages into the ChemX-
ML format before forwarding them directly into
WACKER’s SAP system. Similarly, the network
enables WACKER product data, such as material
and order numbers, to be directly translated into
partners’ systems so that they can be processed
without encountering disruptions and without
the need for rekeying data, saving both time and
money for both parties to the transaction.
Regardless of whether WACKER acts as a cus-
tomer or supplier to other Elemica-connected
companies, all purchase orders, confirmations,
order changes, delivery notes and invoices are
integrated directly into the partner’s ERP system.
Processing steps are fully automated, from order
placement to product packaging instructions.
An additional advantage that WACKER has found
in using Elemica is that the network allows for connec-
tivity with partners regardless of their level of technical
sophistication. Moreover, Elemica acts as more than
just a value-added network (VAN) or EDI provider;
it ensures that data moving through the network
conforms to a business process by enforcing “business
rules” specifying the logical content of documents.
“Each member accepts Elemica’s business rules, which
apply to everyone,” Mierke says. “This enables us to
meet high standards with reduced complexity.”
Mierke notes that one key to success in auto-
mating B2B processes between companies is to
collaborate closely with customers to find a con-
nectivity solution that works best for them. “We
work hand-in-hand with customer to pinpoint the
best way to optimize business processes in terms
of efficiency, quality and speed,” he concludes. ■
industry focus Your supply chain is changing.
Get the experts on your side.Whether you realize it or not, your supply chain is changing. EU REACH regulation concerns the Registration, Evaluation, Authorisation and restriction of Chemicals. It’s not just a compliance issue. REACH poses serious potential threat to the unprepared when chemical transitions ripple throughout industries. “No data. No market.” is the industry mantra, yet adequate data is not available as the supply chain prepares itself and requirements are designed to evolve.
IHS is a leading provider of critical information and insights. We offer a unique approach to enable compliance, mitigate supply chain disruption, and address the fundamental reality that your partner relationships and their capabilities are vastly different. Our proven ability to enable green performance in areas such as RoHS, REACH, Climate Change, and Total Chemical Management helped us earn the SDCE 2008 Green Supply Chain Award.
Contact IHS to prepare yourself: [email protected]/reach
REACH
No data. No market. Our insights. Seamless transition.
Related LinksElemicawww.elemica.com
WACKER www.wacker.com
Electronic Data Interchange (EDI) is an electronic process for transmitting structured messages automatically between various systems. EDI enables direct communication between different systems, saving both time and money because transactions take place much faster and more ef-fi ciently. It was a medium that proved monumental to the growth of global electronic commerce.
August 2009 | www.SDCExec.comwww.SDCExec.com 29
With the current economic situation, it is no surprise
that companies are looking for ways to help cut costs
and condense staffing. Many are turning to third-party
logistics (3PL) providers to help them develop an outsourcing
strategy. As experienced solution providers, 3PLs are successful in
helping companies fight through financial burdens and survive
the recession. While there are those who think 3PLs are adjusting
their services because of the recession, the reality is these services
are essentially more appealing than ever before.
Benefits of an Outsourcing StrategyDuring tough economic times, the availability of capital comes
at a premium cost; companies in a myriad of industries struggle
to maintain their investment in infrastructure and continuous
improvement. Long-term strategies are often postponed or aban-
doned in favor of short-term or temporary cost avoidance. An
outsourcing strategy can help mitigate these effects. 3PLs have a
sizeable advantage over a “go-it-alone strategy” because their capital
investments are typically leveraged across their entire client base. No
single company needs to build the entire infrastructure necessary
to execute their supply chain.
For example, a major U.S. manufacturer of power tools uses a
3PL to execute its service parts supply chain. Services performed
on behalf of the manufacturer include sourcing, forecasting and
procurement of inventory, global and domestic freight management,
warehousing and distribution. In this case, the manufacturer was
able to tap into an existing infrastructure of information systems,
trained personnel, forecasting tools and facilities. There were no
upfront capital costs to secure a solution.
Implementation of TechnologyMajor continuous improvement strategies typically involve some
sort of technology investment. 3PLs can offer technology strategies
quickly and inexpensively. More than likely, the more sophisticated
3PLs are experienced in leading large system implementations. Their
implementation of systems that control order, inventory and logistics
flows are done in a precise and cost-effective manner because most
often they are simpler. By their very nature, 3PL companies are de-
signed to focus on simplifying processes and eliminating non-value
added effort. They also have the luxury of being separated from the
bureaucracy and business requirements of the larger organizations
of their customers. Not to mention their ability to offer a unique
perspective as they execute what they implement.
The ideal scenario occurs when a company can simply ride on the
back of an already implemented system. Many of today’s supply chain
software companies have specifically targeted the 3PL marketplace.
They are developing enterprise resource planning (ERP) and other
supply chain execution systems with data structures that support
best practices Third-party Logistics
Survival of the FittestLeveraging a 3PL to help beat the recession
By Mike Schoenfeld
August 2009 | www.SDCExec.comwww.SDCExec.com 30
best practices Third-party Logistics
About the Author:Mike Schoenfeld
Mike Schoenfeld is executive vice president at
Fidelitone Logistics. Prior to Fidelitone, Schoenfeld served as vice president
of solution design and vice president of customer
development with Exel, and he previously spent
11 years with RedPrairie.
www.fi delitone.com
multi-client implementations. Thus, when a 3PL adds a new
client, there is simply a setup process rather than a new imple-
mentation. This greatly reduces the risk and implementation
costs. The best 3PLs in the industry have capitalized on these
capabilities by adding software-as-a-service to their business
offerings. Thus their clients can purchase capabilities such as
order, inventory or transportation management as an entire
service, offering both the software and execution expertise.
The consumer electronics and appliance retail business
offers excellent examples of a 3PL providing software-as-
a-service. Major retailers in this market have purchased
end-to-end supply chain execution of service parts for their
in-home repair service offerings from a 3PL. These services
include the buying, forecasting, order management and the
entire trading partner order-to-cash process. However, unlike
the traditional model where the service provided by the 3PL
is physical handling of goods, this process happens virtually.
The 3PL purchases and executes its ERP application on
behalf of its clients. All the physical handling of parts happens
back at the supplier level. The manufacturers ship their war-
ranty and service parts directly to the retailer’s customer. The
value here is that the software application running as the back-
bone was sold as a service. There was no need for the retailer to
invest in systems or training of personnel to run those systems.
The secondary value, which is by no means small, is that by
enabling the manufacturer to ship direct to the end consumer,
an entire node of the supply chain was eliminated. The 3PL
did not have to physically handle the products.
Variable StructureWhen 3PLs have their own infrastructure (warehouses,
equipment and software), costs for their clients can be moved
from a fixed structure to a variable structure. 3PLs provide the
flexibility and capability that allow their costs to be entirely or
mostly transactional. In tough times, the transactional nature
of the fees is far more advantageous because as sales volumes
drop, there are fewer transactions and thus fewer transaction
fees. In other words, their clients pay for what they use and
do not have to carry the burden of the infrastructure costs
without the sales volume to support it.
In the wake of a recession or economic downturn, it is com-
mon for individual saving to increase and consumer spending
to decrease. As a result, demand for products and services
declines and increased inventories and prices ensue. This is
where it pays to have flexible supply chain management. In
such instances, companies do not want to be caught in fixed
distribution and warehousing costs.
Do What You Do BestFinally, an outsourcing strategy enables companies to focus
on the core competencies they wish to retain in house. During
uncertain economic times, companies need to concentrate on
what will enable them to compete in tough market condi-
tions. Executives should be spending their time on new prod-
uct and service offerings, marketing strategies and competitive
concerns. They should not have to worry about their products
reaching their customers or whether they should invest in
new distribution centers or inventory systems. A good 3PL
partner can remove this burden completely.
In a recession, many companies choose outsourcing for its
economic advantages – primarily lower operating costs and
the freeing up of capital. However, outsourcing also enables
them to focus on what truly drives their success. Timeliness
is key. Taking advantage of the capabilities a 3PL offers not
only helps companies in difficult times, but enables them to
concentrate on company growth and innovation. ■
Taking advantage of the capabilities a 3PL offers not only helps companies
in diffi cult times, but enables them to concentrate on company growth
and innovation.
August 2009 | www.SDCExec.comwww.SDCExec.com 31
I s ERP still a four-letter word? While the larger players in the
supply chain market understand the benefits of enterprise
resource planning software, many smaller companies continue
to recoil from the complexity and expense they have long associated
with a full-fledged enterprise platform. For many years, “real ERP”
seemed like overkill for most companies – and the benefits promised
by spiffy sales people seemed far from certain.
But this perception is changing quickly as even the smallest com-
panies are adapting to a more mobile, global, integrated marketplace
in order to survive – and even thrive – in this difficult economic
climate. To meet these challenges, communities of software develop-
ers are responding with more affordable solutions to old-school ERP,
and new, exciting approaches for engineering and delivering them.
We are currently in the midst of a period of significant disruption
for the ERP marketplace. The rise of open source software, in par-
ticular, is bringing a revolution in business capabilities to companies
of all sizes, while adding to what already looked like mortal challenges
for the business models of old-line vendors.
Open Source Driving More Than Cost SavingsProprietary ERP software vendors used to be king. But following
in the footsteps of infrastructure tools such as the Linux operating
system, databases and Web servers, a new generation of open source
application vendors saw an opportunity and
made their move. Open source solutions are gain-
ing popularity among both large and small enterprises
while traditional solutions maintain an increasingly tenuous
hold on incumbent customers.
Some have dubbed 2009 as the “Year of Open Source,” with new
solutions in nearly every domain debuting each day. The economic
downturn has created huge demand for solutions with lower entry
costs, accelerating the consideration of open source solutions in com-
panies of all sizes. Eighty-five percent of the companies surveyed in
a 2008 report by the Gartner Group reported they were using open
source software in their organization – an increase of nearly 25 percent
since 2005. A December 2008 Forrester Consulting study commis-
sioned by Bull found that the primary motivation to adopt open
source enterprise solutions has thus far been cost savings (56 percent).
However, the conversation is now expanding beyond basic dollars
and cents to focus on some of the other core benefits of open source
software – namely, flexibility, control and a greater ability to tailor
software to meet a company’s unique business requirements. While
CIOs and CFOs alike have long understood the potential for cost
savings, the operational argument for open source is at least as strong
as the financial one. Here’s why.
best practices Enterprise Resource Planning
Is ERP Still aFour-letter Word?By Ned Lilly
How Open Source Communities How Open Source Communities Are Revolutionizing ERPAre Revolutionizing ERP
August 2009 | www.SDCExec.comwww.SDCExec.com 32
bestbest practicespractices Enterprise Resource Planning
Community-driven Development Trumping Proprietary Product Roadmaps
A primary reason that open source is succeeding
even in products as complex as ERP is the power
of real community-driven product development.
Before open source, large software makers, with
quarterly timelines and shareholder pressures top of
mind, followed the model of infrequent, large-scale
updates to already hulking platforms. (Of course,
software maintenance costs would reliably rise
every year, regardless of the frequency or quality of
product updates.) The changes that did come were
as likely to be influenced by the software company’s
commercial objectives as by actual customer requests
for product enhancement. By contrast, today’s
open source ERP products are driven wholly by
real-world challenges and actual user requirements.
This is, to a great degree, attributable to the mar-
ket power gathered by a large community
of highly skilled and experienced users
– many of whom may have little to no
commercial relationship with the vendor. Initial
claims by proprietary vendors that open source solu-
tions lacked support or documentation have been
blown away by the sheer depth of the communities
that surround many open source products. This
depth sets a high bar for commercial product devel-
opers – to create additional value over what’s freely
available. The good ones do. But the benefits go
beyond support into development and extend into
the way that software is created and maintained.
Today’s open source community members not
only can request enhancements but can also enact
meaningful changes to the product themselves
independently. This can be as simple as fixing a
bug that a larger vendor might not ever bother
to address, or as involved as creating wholly new
functionality. Open source “best practices” call
for a robust, public discussion of any proposed
enhancements, and shared learning from the
successes and failures of other products in the
past. Once the change is written, this real-world
innovation is shared across the community of
users, quickly making available even the smallest
enhancement for the entire user group.
This is a fundamental business process im-
provement – arguably akin to the supply chain
improvements of the Japanese automakers – and
it is having profound long-term effects on the
companies that are exposed to it.
This community approach to collaboration is
even moving beyond software to be applied within
corporate cultures. The same Forrester study found
that 42 percent of respondents said they are work-
ing to better collaborate and share intelligence
within their businesses, creating a “corporate open
source community” of sorts.
Traditional Solutions Hedging Bets, Playing Catch-up
In the face of this game-changing competition,
and with IT decision makers and financial man-
agers alike looking for more bang for their buck,
some proprietary ERP vendors have raced to make
changes in order to try to stay competitive with
lower-cost options.
Proprietary vendors looking to stem customer
defections have put forward various approaches to
ERP that provide greater flexibility and relinquish
more control over the product to the users. One
notable company in the space has acquired and
integrated dozens of legacy products in ERP, cus-
tomer relationship management (CRM), enterprise
asset management (EAM), and other related fields.
The company recently launched a program aimed
at giving customers lower-risk options to upgrade
to one of the company’s more current products.
It’s largely a banking program akin to GMAC
(uncomplicated by any hard assets), but give them
credit for trying.
Other vendors are experimenting with various
implementations of software-as–a-service (SaaS),
hosted/managed services or cloud computing – which
certainly reduce the upfront cost investment of tra-
ditional perpetual licenses. But it’s still too early to
draw definitive conclusions about whether SaaS really
gives users more control, or whether it just changes
the nature of their dependency on the vendor.
CDC Supply Chain, a heritage that includes over 70 years of collective experience solving supply chain challenges with world class solutions.
CDC Supply Chain - formerly Catalyst International and Industri-Matematik International Corp. (IMI)For more information, please visit www.cdcsupplychain.com
About the Author:Ned Lilly
Ned Lilly is the president and CEO of xTuple, a
provider of open source enterprise resource
planning software. Lilly co-founded xTuple,
originally called OpenMFG, in October 2001 with
the aim of bringing the worlds of open source and
ERP together to solve the unmet needs of small to midsized manufacturers.
August 2009 | www.SDCExec.comwww.SDCExec.com 33
bestbest practicespractices Enterprise Resource Planning
But overall, it’s fair to say that these software makers are
feeling pressure to release new, simplified, lower-cost options
that allow managers more control over their ERP platforms,
including deployment options. In fact, all the major open
source ERP products can be deployed as SaaS solutions, and
often are.
Bruce Richardson, chief research officer at AMR Research,
notes: “[Proprietary] ERP vendors don’t seem to be getting
the big picture regarding SaaS. Like the Big Three domestic
automakers, the largest ERP vendors will have to embrace and
develop a hybrid strategy. In this case, it means supporting
multiple deployment options.”
Further, these larger vendors that have been “swallowing
up” smaller vendors in attempts to gain market share must
contend with an additional objection. Users see a significant
risk working with a platform or application that has been
recently acquired. Customers are unsure how long the acquir-
ing companies will support and continue to enhance these
applications. And they’re concerned about compatibility issues
across multiple platforms. In many cases, if they’re starting
anew anyway, open source looks like the option with the least
potential for vendor lock-in.
Macro … and MicroOne area that’s drawing increasing attention from open
source and traditional vendors alike is the capabilities required
to contend with globalization. For example, ERP platforms
must enhance managers’ abilities to face the specter of dealing
with multiple and global supply chains – challenges involving
currency, language, tariffs, documentation requirements and
the like. As the supply chain continues to globalize, manag-
ers will also see more mandates for interoperability, open
standards and disintermediation of expensive, proprietary
middlemen (such as traditional EDI suppliers).
ERP platforms must also serve a larger role in not only re-
porting status but also in informing and spreading actionable
operational intelligence to organizational decision makers.
“Today’s supply chains need to be bi-directional, with every
link supporting the flow of not only goods but information
as well,” says Joe Sullivan, regional director for Canada with
Tompkins Associates. That means real-time data exchange
between suppliers, customers and other trading partners must
be made available on multiple platforms, devices and interfaces
to existing tools and solutions up and down the supply chain.
It also argues strongly for a more rapid and affordable
means to add needed functionality to existing ERP imple-
mentations without a wholesale “rip and replace.” A growing
number of vendors are following the lead of the Apple iPhone
“App Store,” where customers can purchase and experiment
with niche functionality in a modular, “widgetized” way.
As an example, my company, xTuple, recently announced
the debut of the xChange, an online marketplace of add-ons
and extensions to xTuple ERP, such as a point-of-sale (POS)
package, business intelligence dashboards and next-generation
EDI tools. The xChange provides users with a convenient
way to share and discover solutions ranging from third-party
Web site connectors to handy “snap-in” tools that enhance
the xTuple applications.
Development at Open Source SpeedThe effect of community-driven development clearly goes
well beyond the cost savings that first attracted organizations
to open source technologies. It has delivered not only a better
understanding of user needs but has even sped the develop-
ment of solutions to meet them.
What’s more, the community-driven approach has raised
expectations among even the customers of proprietary applica-
tions – they too are demanding that new capabilities be more
customizable and that enhancements come faster than ever
before. In all, open source communities will continue to play
a key role as companies of all sizes seek to refine their ability
to share data in real time, while working with an increasingly
global supply chain.
Given the momentum being gathered through community-
driven development, it’s clear that going forward, organiza-
tions that rely solely on proprietary software suites will be
left far behind. ■
www.xtuple.com
August 2009 | www.SDCExec.comwww.SDCExec.com 34
B AE Systems has crafted a multi-tier, worldwide network with
thousands of suppliers and other partners to support the
rapid, cost-effective delivery of its market-leading solutions
to the global aerospace and defense (A&D) industry. Collaboration
and interactions with these third parties directly affect how well BAE
Systems ultimately serves its customers.
The legacy purchase-to-pay process – initiated with the creation
of a purchase order (PO) and completed when a supplier is paid for
goods or services – typified the multi-enterprise communications
hurdles BAE Systems faced. In the company’s Military Air Solutions
organization, for example, the average time between PO generation
and ultimate acceptance by all parties was 50 days, with only 13
percent of supplier PO responses getting registered in the business
unit’s enterprise resource planning (ERP) system. The invoicing
phase of the purchase-to-pay process was similarly challenged. Too
many steps required manual intervention, including the validation of
incoming invoices and the execution of three-way matching between
these invoices and the corresponding POs and receipt of goods (RoG)
notices. The result? An inefficient process that took longer than
necessary to complete and consumed too many valuable resources.
This situation was unacceptable to BAE Systems because it not
best practices Procure-to-pay Automation
Automating the Purchase-to-pay Process at BAE SystemsAerospace leader streamlines and standardizes a complex, resource-intensive process
By Editorial Staff
August 2009 | www.SDCExec.comwww.SDCExec.com 35
best practices Procure-to-pay Automation
only threatened production schedules but also af-
fected valuable partner relationships. A number of
very common circumstances found across many
companies contributed to the situation. First, basic
processes differed from business unit to business
unit, limiting consistency and any opportunity
for economies of efficiency. Second, the process
required access to, and interaction with, a variety
of information systems, all with different user inter-
faces and disparate data, raising process complexity
and the likelihood of information mismatches.
As is often the case in the A&D industry, inter-
actions with most suppliers were too reliant on the
human factor, which opened the door to the unin-
tentional introduction of errors and delays, devia-
tion from the agreed process, or both. For example,
buyers and suppliers entered PO, PO response, and
PO change data into their respective back-office
systems by hand, printed and faxed/mailed forms
to one another, and checked on status via phone or
e-mail. Invoice processing also required manually
intensive interaction, as did the three-way match-
ing and progression through the remainder of the
invoice reconciliation and approval chain.
For BAE Systems, maintaining the status quo
for the purchase-to-pay process was a non-starter.
In the Military Air Solutions unit alone, upwards
of 11,000 POs and PO changes, as well as over
25,000 invoices, from nearly 1,000 suppliers were
processed in a one-year period. Across the company,
these numbers were on the rise, promising to exac-
erbate problems for these manual, legacy activities.
At the same time, BAE Systems’ customers were
strong proponents of automation and efficiency,
to the point of pushing toward their incorpora-
tion as evaluation factors for contract award. In
other words, establishing a streamlined, consistent
purchase-to-pay process would not only benefit the
company’s suppliers, but also BAE Systems itself.
Creating a standardized, automated purchase-
to-pay process is far from trivial, particularly for
a company with a global footprint and complex
network of trading partner relationships. That said,
BAE Systems was firmly committed to the standard-
ization and automation effort, because they clearly
envisioned positive impact on all parties. The po-
tential return on investment was highlighted within
a single business unit like Military Air Solutions,
where 95 percent of transactions were conducted
with only 35 percent of suppliers, and a mere 1
percent of suppliers were responsible for 32 percent
of POs/PO changes and 40 percent of all invoices.
Bringing the upgraded purchase-to-pay process
to life would require improved processes (both
internal and collaborative) and tools to enable
those processes. To achieve these objectives, BAE
Systems turned to Exostar and its Supply Chain
Platform (SCP), powered by E2open software.
Leveraging the Supply Chain Platform
A multi-enterprise supply chain collaboration
solution for aerospace and defense companies,
SCP operates via a hosted, software-as-a-service
model. This provided BAE Systems a ready-
to-deploy capability that required limited IT
investment to implement and maintain. SCP’s
service-oriented architecture and multiple inte-
gration options substantially eased the burden
of introducing the solution into the operating
environments of BAE Systems and its partners,
encouraging the adoption of the new approach by
business units and suppliers alike. SCP’s scalabil-
ity and performance meant BAE Systems could
start small and expand the scope of the solution
over time, as more business units chose to take
advantage of the e-gateway the company had
deployed to facilitate internal communications
and systems interaction.
The design of the solution was clean and elegant.
On the BAE Systems side, SCP integrated directly
to the e-gateway, leaving the critical legacy ERP
systems and corporate data backbone untouched
and allowing buyers to continue to work within
their enterprise systems. Suppliers received an easy-
to-use, secure Web interface to access SCP, or they
had the option to directly engage their back-end
systems with SCP. Exostar handled all training and
onboarding of suppliers into their secure, federated
operating environment, where many of those sup-
pliers already were using SCP for interactions with
BAE Systems and other large customers.
Because SCP was created for the A&D indus-
try, capturing and automating BAE Systems’
purchase-to-pay process was a relatively straight-
forward configuration effort. Like many A&D
businesses, BAE Systems issues POs that are likely
to be modified before they are fulfilled. To support
this process requirement, SCP tracks and controls
all PO-related activities based on buyer and sup-
August 2009 | www.SDCExec.comwww.SDCExec.com 36
best practices Procure-to-pay Automation
plier input, including the automatic creation and
electronic exchange of POs, PO responses and
PO changes. The solution monitors and presents
process status, ensuring the supplier views a PO
and subsequent PO changes in the order they were
received, while encouraging supplier acceptance of
POs or PO changes and automatically updating
the corresponding BAE Systems ERP system.
Once BAE Systems has acknowledged shipment
arrival with an RoG notice, suppliers can generate
an invoice in SCP using the data already in the
system, regardless of whether the invoice tracks to
a PO/PO change in its entirety or to one or more
individual line items within a PO/PO change. SCP
creates, validates, archives and forwards the elec-
tronic invoice to the appropriate BAE Systems ERP
system – with no supplier rekeying of PO-based
data necessary. With these process improvements
and electronic versions of the mutually agreed POs/
PO changes and invoices in place, BAE Systems
was well-positioned to invest in additional systems
upgrades that bring these documents and RoG
notices together to execute an automated three-way
match – freeing up resources while paving the way
for rapid invoice approval and improved identifica-
tion and exception handling of any mismatches.
Reaping the BenefitsThe impacts of SCP on BAE Systems’ purchase-
to-pay process have been dramatic. The time and
effort to issue and gain supplier confirmation of
a PO has been reduced substantially. The invoic-
ing phase of the process now can be executed in
fewer steps, thanks to reduced human interac-
tion. Invoices can be generated, transmitted and
reconciled with little to no manual intervention,
slashing processing time and eliminating errors.
And SCP’s Invoice Status Reports allow all par-
ties to see precisely where an invoice resides in the
process, reducing the volume of status calls and
e-mails between BAE Systems and its suppliers.
Capturing and automating the purchase-to-pay
process in Exostar’s SCP has many benefits for BAE
Systems’ supply chain community. Suppliers have
access to an easy-to-use solution that enforces a
well-defined process. With SCP, they can monitor
the progression of POs and invoices throughout the
purchase-to-pay process, eliminating uncertainty
with respect to status and required actions on their
part. Perhaps most importantly, automation has
streamlined the process, meaning suppliers are receiv-
ing payment from BAE Systems with even greater
speed and reliability – improving valued relationships.
For BAE Systems, the benefits of the move to
SCP are numerous. Encapsulating the purchase-to-
pay process in SCP has brought standardization to
the process itself, as well as the transactions (POs,
PO responses, PO changes, PO change responses
and invoices) it oversees. Whenever possible, docu-
ments are created automatically, and electronic
transmission of documents reduces administrative
processing, time and expense, while increasing
certainty of delivery and updates to the appropri-
ate BAE Systems ERP platforms. Automation and
the ability to track and archive progress minimize
inquiries, errors and cycle times, along with the
need for human intervention, most notably for the
matching and reconciliation of POs, RoG notices
and invoices. The Exostar solution not only cuts
costs but also minimizes BAE Systems’ role with
regard to supplier adoption, training and ongoing
support activities – allowing personnel to focus
exclusively on the highest-priority, most business-
critical tasks.
SCP provides BAE Systems with a secure solu-
tion that permits them to manage the purchase-to-
pay process by exception. The solution’s flexibility
and performance are enabling BAE Systems to
execute a phased conversion of its business units
and their suppliers to SCP as business unit owners
choose to connect their ERP systems to the e-gate-
way. Because it has embraced SCP, the company
anticipates a significant reduction in operating
expenses. As the scale and scope of the solution
expand, the magnitude of savings will grow.
With the e-gateway, SCP and the upgraded
purchase-to-pay process, BAE Systems is dem-
onstrating its commitment to automation and
efficiency to its customers. In fact, BAE Systems is
practicing what it preaches by utilizing the solution
for its customer-oriented interactions – receiving
POs from customers and sending invoices in return
– reinforcing the company’s stature as an innovator
and positioning it for future success. ■
Related LinksBAE Systemswww.baesystems.com
Exostar www.exostar.com
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ad index Issue 3e Volume 10 – August 2009
S o l u t i o n s - b a s e d I n t e l l i g e n c e f o r S u p p l y C h a i n R O I
Published by Cygnus Business Media
Group Vice President, Cygnus Publishing Division Dave DavelBrand Director Gloria Cosby
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Julie Murphree, Founding Editor, Supply & Demand Chain Executive R. David Nelson, C.P.M, Chief Supply Chain/Strategy Offi cer, HTC Global Services, Inc.
Jay U. Sterling, Ph.D., CPA, Sr. Research Scholar, Center for Business & Economic Research (CBER); Associate Director, University Transportation Center for AL (UTCA), University of Alabama
Joseph Yacura, Co–Founder and Chief Strategist, Supply Chain Management, LLC
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