Supplier performance scorecards and supplier stratification modeling are related concepts, but very different in how they should be used.
A supplier performance scorecard program should be used between an organization and its suppliers as a means of evaluating the performance of the suppliers against mutually agreed upon or accepted criteria.
A scorecard or performance measurement program is critical in the development and maintenance of supplier relationships, as it provides quantitative measurements that can be used to engage suppliers about improving their performance and incentivize them to do so (especially if high scores mean new opportunities for the supplier). Having a program that is well developed and executed helps keep suppliers focused on their internal process improvements, which will ultimately impact your organization’s business goals.
Supplier stratification should be an internal metric, where an organization takes other criteria (one of which can be the scorecard metric) and combines them to rank its suppliers.
Stratifying the supplier base of an organization allows for collaborative partnerships to be formed through the segmentation of the supplier base into smaller and more manageable categories. This feeds directly into the concept of strategic supplier relationships, in which you will be able to identify the suppliers that your organization targets to do business with, the ones the organization must do business with, and the suppliers that the organization could likely do without.
Many organizations that attempt to stratify their suppliers do so based on only one or two factors (usually landed cost and cost of goods sold). A more comprehensive methodology is a combination of taking the final rank from the supplier scorecard exercise and then adding a few more factors, as shown below.
Successful implementation of these concepts can have a positive impact on supplier relationships, operational efficiency and improvement of EBITDA. To learn more about these topics, including scorecarding criteria and reasons for stratifying suppliers, read the two-part series on supplier performance scorecards and supplier stratification recently published in Industrial Distribution.
Posted by Brad Vance, Senior Business Process Consultant, Epicor Software
Year-end is a perfect time for distributors to review their current Enterprise Resource Planning (ERP) software utilization. Here are some suggestions to get started.
First, make sure to stay current on the software build, confirming that you can indeed update. (Some blocks could be custom software and the like.) Many of the new features that come in with each Epicor Prophet 21 software build often go unnoticed. Make a list of each new feature with each build that you have missed by not staying current. Work through this list as to what is important, and what can save you time.
Then review your day-to-day processes. Ask questions such as, “Can we design the order entry screen with the new Epicor DynaChange features, adding new fields, moving fields with Field Chooser, creating a faster way to add carriers’ order types, and so on?”
Even more important is Demand Replenishment Planning—purchasing options for long lead times. Many times, buyers may be “tagging” items to be handled differently for long lead times, and then they extract data and manage it in Microsoft Excel. But these long lead time items can actually be managed directly in Prophet 21.
Smaller options such as item class and customer class will enhance reporting for items that need deeper review than just product groups. What about territories on customers? Did you know you can actually print invoices and sales history reports by territories?
Discount groups are available for possible use in sales pricing, as well as supplier price libraries. Are you using the “next break” option in purchase requirements generation, where the system can tell the buyer if buying up to the next break in quantity is a good investment or not? And are you combining customer libraries into your customer contracts?
What about “Go-Together” items? This feature is a great way to have the system add items that have previously been sold together, such as batteries with flashlights, so inside sales can recommend additional purchases. Of course, the sales staff knows to do this, but having the items pop up so they do not need to type them in is a big timesaver.
Image: As a customer order is placed for a Face Mask, Prophet 21 suggests that it “goes together” with Gloves.
How many of you use the available CRM (Customer Relationship Management) options: entering opportunities, seeing these opportunities in order entry, and tracking lost opportunities to competitors?
Looking at warehouse options, you can always rank your inventory by how many times you pick the items, making sure these items are stored close to the shipping area of the warehouse.
There are many options in accounting, as well, such as controlling customers’ credit, tracking ARO days, and ranking customers by sales and/or profits.
Implementing these options does not have to be an overwhelming task. With the help of a Business Process Consultant from Epicor, you can design an internal continuing education class for your users, focusing on shortcuts and new features.
Posted by Neil VanWalbeck, Senior Professional Services Consultant at Epicor Software Corporation
According to a post on The Data Warehousing Institute, this year’s major trends in analytics were expected to focus on delivering the data and capabilities needed to become a truly analytic-driven enterprise. The organization calls out three top trends:
- More organizations will move to cooperative processing architectures.
Data warehouses are straining from the surge of new data and complex analytic workload requirements. Traditional data warehousing wasn't designed for big data or real time, social, and converged analytics, so the new expert-recommended architectures emphasize multiple, well-integrated systems working together to deliver a broad range of analytic capabilities.
- Converged analytics will become the new normal.
Big data analysis in a silo often paints an incomplete picture. That is why organizations are now moving toward converged analytics, combining analytic results across domains
(customer, supply chain, marketing, etc.) for more complete insights.
- Everyone will play with big data, thanks to new big data applications.
Big data has been decidedly DIY to date, embraced by tinkerers and architects. That's about to change. New big data applications offer prebuilt models and analytic functionality for specific business problems and data types. They are focused, single-purpose applications that can make a big impact on businesses, such as analyzing sensor data from a particular type of machine, or sifting through supply chain data to identify potential “weak links.”
Additionally, a recent article from Information Week notes that big data analytics is increasingly becoming a topic of focus for chief financial officers (CFOs). It quotes Hewlett-Packard’s Thomas Dobis, acting global finance and account service line leader of business process outsourcing (BPO) at HP Enterprise Services, as saying CFOs are increasingly using big data analysis to control collections, customer retention, and fraud and loss, among other money-related matters.
But a number of recent articles are sounding cautionary notes on the rise of big data and data analytics. In a piece titled “Don’t Be Blinded by Big Data,” Michael Healey, senior contributing editor at Information Week, points out that making decisions based on flashy macro trends while ignoring "little data" fundamentals is a recipe for failure:
In most organizations, big data mining prioritizes activities such as social media monitoring and macro trend analysis—the shiny stuff that can dazzle even experienced executives—while sidelining routine "little" data, which includes detailed financials, customer and vendor records, product quality information, customer service data, and supporting sales stats such as store traffic, website visits, and CRM information.
That there is a revolution underway in big data and data analytics is not in debate. The question is the nature of the transformation, and how people and organizations will ultimately be affected by it. In the quest for big data, it is important not to lose sight of your key business drivers, such as inventory and customer service. Focus on gathering and analyzing the information that will have the most impact on your bottom line.
Posted by the Epicor Social Media Team.
For industrial distributors, managing margins and negotiating terms are key to successful operations. What’s the best way to approach the challenge? In an article in Supply Management, Sue Preston, director at Negotiation Resource International (NRI), puts forth seven key planning and preparation steps for negotiation success:
Manage your time. NRI research found 62 percent of people spent one hour or less preparing for a negotiation. Sixty-eight percent said that better preparation for their last deal would have produced a better result.
Prepare open questions. Typically, closed questions can be answered with a yes/no or a short phrase, while open questions demand more information (e.g., Will you innovate for us? How will you innovate?). Of those surveyed, only 1 percent typically prepared 20 open questions for negotiations; 44 percent relied on just 1-5 planned questions.
Design a strategy route map. Negotiations have clear phases, and these must be planned. Avoid entering a negotiation without having drawn up a careful map of the direction and destination of the meeting and any subsequent events. The route may not be completely sequential—you may have to backtrack—but at least you will be prepared.
Consider style and personality. Personality types as well as negotiating styles and interests are key factors in building rapport and managing behavior during a negotiation. It is vital to consider these areas in the planning stage. The research found that 43 percent “sometimes” consider these aspects, while 4 percent “never” do.
Define your targets. Set well-defined targets for each issue or variable. The research showed that negotiators often lose sight of their objectives. Setting objectives from “ideal” and “realistic” to “walk away” is paramount. It will help to control the extent to which you move from your ideal settlement point and to understand the cost implications of any movement.
List your tactics. According to NRI, more than 75 tactics can be used during negotiations. Some will work on certain personality types, but not on others. Skilled negotiators are unpredictable in their use of different approaches. If you continue to use a pattern of the same tactics in each negotiation, the other party will prepare to counter them next time. Consequently, list and carefully plan the tactics you will use in each negotiation.
Rehearse your opening statement. A clear, well-defined and well-rehearsed opening statement is crucial. The first thing you say should condition the other party and manage their expectations.
Posted by the Epicor Social Media Team.
For distributors who are rethinking their businesses, technology is just one of several enablers of innovation. Innovation occurs by blending emerging technologies with existing processes, according to Stuart Maxel, Continuous Improvement Director at Epicor Software Corporation.
Maxel recently revealed the results of an Epicor study on innovation within distribution to the Unleash WD community. The report showed generally strong growth within distribution, as both growth and profitability pointed up, with median growth of 7 percent and profitability of 12 percent for companies involved in the study. (See chart: Innovation and Effects on Profit and Growth.)
The survey of over 1,200 distributors revealed significant innovation in many areas such as pricing, inventory optimization and social media. More importantly, the survey gave an indication of the types of innovation driving the highest profits and growth for distributors. The survey specifically revealed that distribution companies with the highest growth were those that had focused on the “old school” distribution areas of process, ERP and supply chain/logistics along with new technologies.
An example of this could be integrating ERP systems with eCommerce and mobile. Customers of distributors could then benefit by ordering products on their smartphones while at a job site, saving time and money. For the distributor, it means being able to get more orders more quickly, increasing sales while decreasing traditional order-taking costs. “By investing in eCommerce with your ERP system, you can have orders come in from all over the world, at all hours,” Maxel said.
Voice of the Customer
To understand where and how to invest in technology, Maxel recommends a simple solution—listen to your customers. Prioritize customer needs and use innovation and technology to drive improvement. Epicor accomplishes this by creating beta programs for their customers to experiment with and provide feedback during the development process.
“At Epicor, we have done a lot of training with our design people on how to take the voice of the customer and put it into the design of the software,” Maxel said. “Even when we hire developers, we look for people with warehouse experience. Our software developers go out to work with distributors, to really understand their day-to-day processes.”
Process Improvement with Lean and Six Sigma
Technology alone will not save a struggling distribution business. Innovation also requires regular close examination to discover problems in processes and communication, explains Maxel, who holds certifications in both Lean and Six Sigma.
Lean is about increasing efficiency through a set of principles that originated at Toyota, with the intent to drive out waste. For example, Maxel is currently using the Lean process in Epicor’s finance department to map and eliminate delays in the order process.
Originally developed by Motorola, the Six Sigma process seeks to improve quality and reduce variance. Maxel is one of 16 Epicor employees to attain a Six Sigma Black Belt. Achieving this status requires weeks of intensive statistical process improvement training and testing, and completion of a project that creates or saves $500,000 in value for a company.
“Accounts receivables and payables are goldmines for Six Sigma,” Maxel said. “An invoice for $300,000 can be held up by a single line. With Six Sigma, you want to get to the core reasons why an order has been held up, and replicate the solution to the problem across all channels. If your organization is making a mistake on an invoice with one customer, then the likelihood exists that the same mistake is being made with other customers.”
Once an error has been identified, solving it once is not enough. The organization must put in place a system to ensure that these types of mistakes are not repeated in the future. Maxel recommends that companies follow Pareto’s Law, otherwise known as the “80/20” rule: maximize profits by focusing on the (typically) 80 percent of processes that generate most of your profits. In this way, Maxel helped to discover $3 million in savings in Epicor’s internal processes by eliminating errors and increasing productivity.
This content originally appeared on the UnleashWD Web site.
Posted by the Epicor Social Media Team
The value of inventory to distributors is obvious. Distributors profit by selling inventory to their customers; but for many, inventory can be a liability when it ties up capital as it sits unsold, costing more than the products per se—in warehouse space, finance charges, operational and handling expenses, and so on. As such, one would expect to see a broad-scale adoption of Lean principles in distribution, if only to better manage inventory. After all, Lean inventory management allows distributors to meet or exceed their customers’ expectations with inventory optimized for maximum profitability.
One of the common arguments against the adoption of Lean practices is that it is basically a tool for high volume manufacturing practices, and that processes such as distribution, where variability is high, can be a difficult fit for Lean. However, a recent post by Gregg Stocker on the Lessons in Lean blog disputes this strongly. The author notes that three basic questions related to the application of Lean demonstrate it is not dependent on the volume of products or services produced:
How do your processes need to perform (i.e., what is the ideal condition)?
How do your processes perform?
How are you going to deal with the gaps between ideal and actual performance?
“Knowing how a process needs to perform has absolutely no relationship to the size of the organization, the volume produced, or the repetitiveness of the work,” says Stocker.
In a recent Supply Management article, procurement consultant John Hatton also considers why the well-established principles of Lean supply have yet to be more broadly embraced. Among the principal reasons he cites: supply matters such as inventory take a backseat to other areas in terms of technology and process improvement, and the awareness of Lean methods is surprisingly low.
Among the advantages that Lean management has over traditional management is lower inventory risk. “A Lean supply chain is one that produces or provides only what is needed, when it is needed, and where it is needed,” Hatton says.
To apply Lean to supply processes, he points to five guiding principles:
Involve people: engage colleagues to improve continuously through waste elimination and problem solving.
Build in quality: design processes to make them mistake-proof, thus preventing errors before they happen.
Reduce lead times: establish a continuous flow of materials, equipment, and process, such that products are pulled through the supply chain at the right place, the right time, and in the right quantity.
Standardize: document the best practices and make sure they are followed.
Improve continuously: no matter how good a process seems, there’s always room to improve it.
After all, Lean has its deepest roots in inventory management—a fact that distributors might reflect on profitably. Lean was first developed by Kiichiro Toyoda and Taiichi Ohno in the 1960s for Toyota. They received their inspiration not from the American automotive industry, which at that time was the world's largest, but from visiting an American grocery store: Piggly Wiggly. They were impressed by how the supermarket only reordered and restocked goods once they’d been bought by customers—the precursor of the just-in-time inventory system.
Posted by the Epicor Social Media Team
These two Business Intelligence tools were highlighted at day two of the 2013 Epicor Insights Global Customer Conference.
The Customer Buying Trend Analysis module for Epicor Prophet 21, available for v. 12.9 and higher, looks at sales history (as far back as two years), identifies normalized buying patterns (i.e., what customers should have bought), and calculates the standard deviation (using a series of Six Sigma statistical models). Any statistical anomaly beyond this deviation (excluding seasonal/erratic customer/item combinations that don’t fit any pattern) indicates that you missed a sales opportunity. The system tells you this in real time, so that you can take action with customers who have stopped buying, and shows you exactly how much each miss cost your business.
There are many ways to filter the data that is produced; for example, by sales rep, so you can send them a real-time notification. (The sales rep can then enter an annotation of a follow-up call made to the customer, and 30 days later, they’ll receive another alert if the opportunity remains open.) Other filters include by minimum sales amount, by minimum invoice lines, by supplier, etc. By selecting a number of filters, you can reduce the data down to a workable list.
Customer Buying Trend Analysis can also help a distributor’s internal buyers, finding underlying issues even before your purchasing algorithms would. It is simple to set up, and creates a powerful basis for strategy. Epicor distributors are using this functionality to anticipate customer issues and recover tens of thousands of dollars every year that would otherwise have been lost.
The Sales Master Inquiry window is a tool for distributors to analyze their customers’ revenues and bookings. Using Sales Master Inquiry, the distributor can help discern problems in the sales cycle, identify opportunities, and then take action.
Part of the CRM functionality of Epicor Prophet 21 v. 12.11 and higher, Sales Master Inquiry shows executives, Sales and Marketing which customers are trending up or down, and allows them to review customer and prospect data that suggest the creation of tasks (e.g., assignment of Customer Care calls, or targeting of prospects for a campaign). This data can help you determine where and how your Sales and Marketing teams should spend their time; e.g., which customer deserves discounts or free freight; or who didn’t buy add-ons or peripherals and might be receptive to a follow-up offer.
This tool can distinguish between sales “leaders” and “bleeders” among your customers year over year, as well as return-to-sales ratios and cost to serve. As with Customer Buying Trend Analysis, the data can be boiled down to the fields that are most relevant to you.
Posted by the Epicor Social Media Team
Epicor experts at the 2013 Insights Global Customer Conference shared tips for managing the fundamentals in this critical area. As a distributor, your goals should be to:
· Fulfill orders accurately and on time
· Minimize cycle time (from receiving at the warehouse to shipping)
· Minimize expense.
Factors that can influence demand for your inventory include new product releases, offering proprietary vs. commodity products, minimizing inbound or outbound freight, setting minimum order quantities, providing vendor managed inventory, etc.
Many tools are available to predict demand. Forecasting involves using historical data to predict future requirements; it’s your best estimate based on what you know, excluding one-time events (statistical outliers) such as seasonal/cyclical demand, special promotions, etc.
For example, one well-known formula for setting a minimum stock level is:
Minimum stock level = re-order point – average or normal usage X normal re-order period (i.e., lead time)
Safety stock is used to make up for issues with lead time, suppliers, transportation, inconsistent demand, spoilage, promotional or discount programs, etc. You never want your safety stock to get down to zero.
Suggested ways to reduce inventory include:
· Maintain accurate minimum stock and safety stock levels
· Make more frequent purchase orders (spreading them out) – of course, always weighing this against the tradeoff of any additional cost
· Eliminate the root cause that’s requiring you to “cover yourself” with safety stock.
Posted by the Epicor Social Media Team
You can't manage inventory properly if the counts are not correct in your system. Good counts bring better inventory management.
What is Cycle Counting?
Cycle counting means taking a manageable section of your warehouse, daily or weekly, and verifying the quantity of the item(s)—instead of doing one total year-end physical count, possibly making 3-4 passes through the warehouse.
When using the cycle count feature in Epicor Prophet 21, you have the option to count by item, bin and even ABC classes. Counting by either purchase or putaway class, the option becomes available to count specific classes such as A more often than, say, class B. One theory is to count by putaway hits, assuming the items touched the most stand a better chance of being less accurate.
Another good gage is monitoring the service level of miss-ships, and how many times during the shipping process the quantity needed to be edited. There is a company lost sales feature to help you monitor this.
When to Do It
It is always best to count in the early morning, before any pick tickets have been printed and pulled. You always need to verify items removed from the bin before the count, as the bin will be less that amount.
Most times, I recommend blind counts, meaning you don’t list the quantity that should be in the bin. This “forces” a count, demonstrating why it is better to perform the count before any activity.
The other option would be to list the quantity as well as any allocations, and then, the counter could locate the missing quantity that has been pulled, to verify the count.
Types of Counts
I always recommend bins for the best success in counting. This way, when using advance bins in Epicor Prophet 21, the counts will walk through the warehouse in a manageable path. If tracking lots, tags or serial numbers, these will be verified, as well. Keep in mind that during an item adjustment, you can check “add to the next count”; this will help verify these items being adjusted.
Another option is physical count; the physical count feature will allow you to select a range of bins, ABC purchase class, and limit by supplier. With either method, the “physical vs. on hand” report can be used to obtain a list of items to be recounted, whether by quantity or value, but the cycle count accuracy report is only a cycle count feature—not a physical count.
Cycle Counting and Wireless
When using Epicor Prophet 21 Wireless Warehouse Management System (WMS), any bin activity is captured in real time, so there is no need to verify allocations. Once the item has been picked or moved, the count sheet is updated, maintaining accurate bin counts. With WMS, there is also no need to count early in the morning, since the counting process can happen any time during the day.
Posted by Neil VanWalbeck, Senior Professional Services Consultant at Epicor Software Corporation
As we move towards the end of the year’s opening quarter, the general consensus is that the distribution market will mirror manufacturing and continue steady if unspectacular growth. In a Wall Street Journal article, economists surveyed by the publication expected the economy to grow by 2.4 percent, the same figure they expected when predicting last year’s growth. While the Commerce Department pegged 2012 growth at 1.5 percent, experts see more supporting strength to this year’s economy.
"We're definitely in a better place now than at this time last year," said Arun Raha of Eaton Corp., who the Journal says was the most accurate individual forecaster last year. Among the reasons he cites for the improved position: domestically, strong auto sales and recovery in the housing market; internationally, renewed vigor in the Chinese economy and signs of Europe moving out of recession.
In Logistics Management, contributing editor Josh Bond agrees that modest growth is likely, but notes lower expectations among respondents to an update of McGladrey’s “Manufacturing and Distributor Monitor”: “While most executives expect some upward movement in key metrics such as net revenue and domestic sales, the percentage of executives expecting increases—and the size of their projected increases—across all key performance indicators tracked by the survey are down significantly.”
Harris Williams & Co.’s “Specialty Distribution Industry Update” calls 2013’s distribution outlook “optimistic.” They cite a PwC report that analyzes the 2013 industrial distribution outlook. According to the PwC report, 83 percent of manufacturers are forecasting revenue growth this year, a strong indicator of returning strength in the sector. “Overall sentiment among U.S. industrial manufacturers regarding the prospects for the domestic economy rose in the fourth quarter along with company growth projections, which trended higher as well,” said Bobby Bono, U.S. industrial manufacturing leader for PwC.
Elsewhere, a Global Purchasing article says that the economic climate has left distributors focused on executing existing market strategies: “Many indicate their intention to stay focused on core competencies in 2013 in the hope that a return to higher growth rates is on tap for the second half of the year. An air of uncertainty still hung in the balance as 2012 came to a close, with global economic and political climates leaving little certainty about where markets were headed.”
In the electronics sector, distributors agree that the industry’s long-term outlook is positive, due to the steady pace of research, development, and design as well as the overall increase in electronic content in all kinds of consumer goods. “Everyone has a different opinion on what’s going to happen in 2013,” says Lindsley Ruth, executive vice president of Future Electronics, to Global Purchasing. ”There’s so much global uncertainty and political uncertainty that it’s tough to predict; but we’re in an investment mode right now on a worldwide basis. Regardless of what happens in the market, we believe we can grow.”
Posted by Epicor Social Media Team