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costA recent article by the Wall Street Journal’s Paul Ziobro (6-28-18) highlights the ways that big companies like retailers Home Depot, Wal-Mart and Target are cutting back on inventory to boost the percentage of cash they get back from the amount they invest in inventory.

“Get comfortable with days of inventory, not weeks,” said Tom Shortt, Home Depot’s Sr. VP of Supply Chain.  While targeting significant sales growth of 15% by 2018, Shortt plans to keep inventory levels flat or even slightly down.  And it’s happening across the retail sector, in many cases due to the competitive challenge of ascending growth in online sales.

Increasingly, these large chains must predict whether demand will come from the internet or a store visit, and plan their inventory locations and shipments in consolidated accordance, that is, whether from a store or from a distribution center.   Companies and supply chain software providers are being forced to rethink “the science, the math and the strategy behind the inventory pool,” notes Scott Fenwick of Manhattan Associates, a software (WMS) provider.

The retail chain Kohl’s, for example, plans to cut inventory by 10% by 2018, after seeing it grow 15% over the past five years.  At Wal-Mart “inventory rose slower than sales, helping to improve gross profit margins,” notes the Journal’s Ziobro.  Wal-Mart’s CEO called this effect “like oxygen in the store… the weight of inventory has been relieved to an extent.  And I think that bodes well for the future.”

Inventory, it’s well known, is a major cost, whether you’re a retailer, manufacturer or distributor.  Any reduction in capital tied up in unsold goods frees up resources to invest elsewhere – from beefing up your online presence to increasing wages or opening new locations.  Thus, improved inventory turns or reduced stocking levels have a direct benefit to the bottom line, as well as to any growth strategies a company may be considering.

So today companies seek to put less inventory in the stores and replenish more frequently.  They’re looking to fulfill based on demand rather than on a forecast.

But it’s a fine line, of course.  Carry too little inventory and you risk having the shelves look bare or even being out of stock and thus annoying customers who took the time to visit your store.  But too much inventory costs more cash than is prudent.  Hence the goal of putting in less and replenishing more frequently.  As an example, Home Depot’s “Project Synch” includes changes that provide a steadier flow of deliveries to its 18 sorting centers.  “Instead of being slammed with five trucks twice a week… Home Depot now wants… two trucks five days a week.”

These kinds of savings add up.  Home Depot expects to raise operating margins from today’s 13% to 14.5% by 2018, while boosting return on invested capital.  This also helps improve in-stock levels even as they keep a lid on inventory growth.  (No word on the effect on its (often much smaller) suppliers, we might note.)

When inventory arrives at stores, the Journal reports, workers move them directly to lower shelves, eliminating the need to store and retrieve products from upper shelves using ladders and forklifts.  The savings allows them to employ more workers on the floor, and keeps stock from collecting dust up high.

All of which only goes to prove that for even the biggest operations, inventory management and improvement is a never-ending quest for perfection, an increasingly exacting science and a key focus of any modern company seeking to continually reduce one of its largest ongoing costs.

For the little guys to compete, therefore, requires all the diligence, attention and inventory automation they can muster.

 

Dollars750x300We’ve recommended online, automated sales tax compliance solutions – like those from Avalara – before.  As states become more desperate for revenue, the broadening of sales tax collections is increasingly in their sights.  A timely update from our friends at Avalara, taken from a recent white paper entitled “The State of State Sales Tax in 2016” brings this into focus.

States are indeed broadening their tax collection efforts, Avalara notes, and rates in some states are increasing while exemptions are being temporarily suspended.  The challenge of compliance has never been greater, especially among companies operating in multiple states.

State legislatures are debating the issue across the country.  Options under review include taxing remote sales… increasing state rates… expanding taxes to services… eliminating exemptions to increase revenues — or expanding them to stimulate growth.  Each state is unique, but if you sell in their states, it’s still your problem.

Meanwhile, federal lawmakers, Avalara notes, seem at an impasse.  So states are launching frontal assaults on ‘Quill,’ the 1992 Supreme Court Decision that “affirmed that out-of-state sellers must have a physical presence in a state to be required to collect sales tax.  Their goal: Create an opportunity for the Supreme Court to reverse Quill.”

About a dozen states are working on changes, while trade associations work to combat them, with major retailers sometimes refusing to comply.  The bottom line is that across the country, sales tax laws and policies are in flux.  The tax lawyers, of course, are having salad days.

Of course, Avalara sells a product called AvaTax to help.  It’s a cloud-based, real-time sales tax calculation, compliance and filing system that guarantees its users that they will be in compliance at all times.  Our experience with it has been that, while not exactly cheap, it is indeed safe and cost-effective, given the large fines and fees associated with even accidental non-compliance violations.

Let’s face it: sales tax compliance is a time-consuming burden for everyone.  But it’s not going away.  Avalara’s solution provides a way to manage the process and vastly reduce the stress, while eliminating potentially costly penalties.  We recommend to all our multi-state sales clients that they investigate their options.  We’re not being shills here, we just know the consequences, and as our 6th grade teacher used to say: A word to the wise is sufficient.

blockchain_2We began in our prior post with a brief primer on a new database technology called blockchain.  Today, we’ll look at its potential impact on supply chains and other areas.

Blockchain has the potential in supply chains to save costs, and of course reduce errors.  Since all sides have the same view of a common transaction, there is no re-scripting or recording.  According to Blythe Masters, CEO of Digital Asset Holdings, in an interview with the Wall Street Journal’s Kimberly Johnson on 6-20-16, the major market infrastructure providers – think: exchanges – are operating on decades old infrastructures.  In banking alone, she estimates, there are billions of dollars out there in potential savings.

In supply chain coordination, you are “managing the movement of money in return for the provision of goods and services,” notes Masters.  And the most efficient way to do that is when “there’s no disagreement between those parties about the timing of when cash should flow… and/or goods are needed to be supplied [or] manufactured, as you work your way back in the manufacturing process.”

Essentially, blockchain then is software, in that it allows you to share information in a secure environment between different points on a network.  And importantly, it doesn’t require all new, capital intensive hardware infrastructure.

What blockchains ultimately will do, of course, is greatly improve the speed of transactions, which saves costs all up and down the chain.  In the finance arena, for one, transactions that originally required, days to be consumed for legal or administrative reasons will now happen in seconds.  Eliminating these delays, whether in banking or in supply chain, frees up capital, eliminates the need for most low-value-added handling processes done largely by back office operations spent tying together two or more different records of the same transaction, and lubricates the flow of trade and money.

Circling back to bitcoin and crypto-currencies one last time, a later article in the Journal mentions yet another “hot thing in cryptocurrencies,” one of the newest variants on blockchain.  It’s called “Ethereum” and it’s an open-source software platform with a currency called “ether.”  It too is a public blockchain ledger, with all the “tools for building so-called smart contracts that automatically make payments when their terms are fulfilled.”  With Ethereum’s open-source software construct, anyone can develop applications that take advantage of its code.

The Journal notes in a June 21st article (“Bitcoin Rival Gains Steam”) that the investors in Ethereum are part of a growing revolt “against the centralization of the internet under big companies like Google and Facebook by creating financial structures that can run themselves.”

But, just like bitcoin, the platform has its challenges.  It recently suffered a large theft of its virtual security when “a hacker rewrote some of the startup’s code and funneled money into a private account.”  The price of ether dropped 43% upon disclosure of the hack.  Still, as the Journal notes again, the underlying technology that underpins currencies like these “open and immutable transaction ledgers” could transform a wide variety of commerce for millions of consumers, in particular in finance and banking.

Ultimately, these blockchains are going to grow, becoming more transparent, efficient and secure than existing online platforms.  Still, critics say they have a long way to go before it reaches stability and mainstream adoption, and that the technology is largely unproven.

But then, we’ve heard that about just about every technology that’s come before.  Including of course, the Internet.

 

 

 

blockchain_1If you follow technology… or finance… or digital era trends at all… you’ve probably heard about something called “blockchain.”

We’ll post this today on our tech blog because blockchain is, after all, about technology – actually, software – at its core.  Because it will eventually affect the supply chains many of us work with, and because it’s likely to affect all of us soon enough, today we’ll provide some simple background – and perhaps clear up confusion – about this burgeoning new technology.

If you know about blockchain at all, chances are it’s because it’s the structural foundation for something called “bitcoin.”  Bitcoin has gained notoriety for being a new form of cryptocurrency that’s been in the news mostly because of its favored role by folks engaged in certain darker parts of the economy, where anonymity in fund transfers is a desirable trait.

But blockchain also has the potential to change the way companies make and verify transactions (hence, our earlier nod to supply chains).  As Blythe Masters, CEO of Digital Asset Holdings said in an interview with the Wall Street Journal’s Kimberly Johnson (6-20-16), the simplest way to think about what this technology is all about is actually very unexciting.

And that is: a new, clever form of database architecture.  We all use databases every day in business extensively, from our CRM applications to our accounting systems.  They are mostly just two dimensional tables of rows and columns.  They’re “siloed and generally centralized,” and usually managed by folks with the administrative rights to do so.

But here’s the thing about the new blockchain database technology: When multiple parties to a common transaction interact, they are each, notes Masters, “inclined to keep their own separate records of their respective piece of a joint transaction, and that leads to tremendous inefficiencies.”  An enormous amount of time, and not just in financial services, can be spent reconciling differences between records kept in these separate databases, all of which ultimately refer to the same base transaction between the parties.

Blockchain, then, provides the ability to coordinate that information in a centralized place… “where only the entities with the need and right to know their respective piece of the information can access it.”

Blockchain uses the modern science of encryption to create what’s called a “distributed ledger” to enable the parties to any transaction share a common infrastructure.  This has great appeal to banks, exchanges, and market-infrastructure providers.  With a distributed ledger commonly but securely available to all, you can cut a significant amount out of the cost of a transaction, not to mention reduce the time it takes (and time equals money, eventually) to complete a transaction that has been agreed to by the common parties in the marketplace.

In our concluding post, we’ll look at the implications of blockchain on supply chains (and thus, ERP).  Stay tuned…

surestepToday we’ll briefly consider a question we get asked all the time: How long should our ERP project take?  Our comments are a mix of our own experience and input with those of other consulting, research and implementation firms (like one of our favorites, Panorama Consulting).

According to annual Panorama surveys, the “typical” (if there is such a thing) implementation for a software initiative is about 21 months, a pretty good average over the past several years – though they do see it trending up.  In our own experience 18 months to 24 months is a fair median.  Hopefully, those numbers help in terms of a starting benchmark when comparing to other organizations.

Of course, many software vendors will tell you that they can have you “up and running in a few months.”  Be wary.  We have found their assumptions to be unrealistic, as their “perfect world implementation scenario” may not apply to your company, and it’s highly likely they will make a lot of overly standardized setup assumptions that may not be appropriate for your company.  And if you’re in a complex environment, like say manufacturing or distribution… be even more wary.

As Panorama says: “Don’t believe the hype.”  Sales hype can easily lead to happy ears and unrealistic expectations.  It happens all the time.  Promises of rapid implementations due to trendy clichés like utilizing the cloud, or pre-configured best practices, sound enticing.  Just remember to take these for what they are: sales messages.  That’s not inherently bad, but we’ve found such statements are usually the very definition of ‘your mileage may vary.’  And it usually does.

Remember as well, your project team needs to invest time in changing processes for the better… in educating and training staff (not just in software, but in better practices)… and in addressing the change management complexities of figuring out who will do what, and how, in your new scenario.  These elements typically take the most time of all – and they simply cannot be rushed.

Adopting the right project management controls is a challenge that needs to be addressed clearly.  Implementations take longer than expected because controls aren’t in place, or aren’t being managed or followed.  Make sure you have a clearly defined set of project tasks and agreed upon solutions to workflow issues, roundly communicated to all.  Appoint a project administrator who acts as the control point for all major project decisions – especially those that could cause a change in scope, like customizations, process changes or project extensions that creep in and which, while perfectly valid, still need to be quoted and managed appropriately.

Finally, make sure that your project plan is complete and comprehensive.  That’s more or less implied by everything stated above, but not to be overlooked.  If you are missing key activities, or hope that skipping some elements will reduce the project timeline or cost, you’re setting yourself up with unrealistic expectations and a larger project than you expected – but should have known better.  There are few shortcuts in ERP, but countless stories of implementation time and cost overruns, too often caused by an unrealistic project plan in the first place.  If you only want to do it once, work closely with a trusted adviser to ensure that you are doing it right.  It all starts with a realistic, comprehensive, mutually agreeable and well-structured project plan with appropriate timelines, benchmarks and personnel assignments.

 

 

erp_pic3A report we came across recently, based on a survey of ERP buyers, revealed a number of trends gaining momentum in 2016.  A few worthy of note included…

Increasing adoption of ERP systems among small and mid-size organizations.  Newer ERP systems, including SaaS options, along with the latest mobile technologies, have put business management software within the grasp of virtually any business today, thereby negating the edge once held by the larger, more tech-savvy industrial firms.  Gone are the days of multi-million dollar ERP implementations.  Today’s company can get started for a figure in the thousands to tens of thousands, easily.

High profile lawsuits expose the causes of ERP failures.  There have been some pretty high-profile ERP failures over the years.  (There have also been many more great successes.)  The record shows that the failures are much less failures of technology, and much more failures of sound strategic planning, organizational change management, well-scoped process analysis, misaligned (or unrealistic) expectations between provider and consumer, pure communications, or unrealistic budgets and timeframes.

“Best of breed” makes a comeback.  For several years, standalone ERP systems with little integration to other systems were much in fashion.  But the increasing ubiquity of systems that hook out to the rest of the world has made that approach a more viable alternative.  These core systems don’t – in and of themselves – try to be all things to all people.  Instead, they focus on the core ERP functionality, and then let others with vertical expertise provide certified and well-integrated extensions that truly do enable them to become “best of breed” instead of “one-size-fits-all” solutions.

ERP project recover becomes a skill set.  Lots of ERP installations ‘go south.’  Deeply knowledgeable implementers with appropriate domain experience can unravel what went wrong, and where, and then recover with the steps necessary to do the job right the second time.  It requires strong domain experience and unique skill sets that can get to the root(s) of the problem, and rebuild, implement and train users from there.

Customization becomes more accepted by the mainstream.  The word ‘customizations’ used to terrify CEOs, CFOs and other execs.  But the fact is, about 90% of all implementations (according to a 2015 survey by Panorama Consulting) are (and must be) customized to some degree to meet business requirements.   But today’s tools make it a lot less risky to do so.  With an experienced provider, customizations and modifications can be executed and tested safely and made to fit each client’s unique needs – all with a minimum of operational risk.  Just be sure you’re dealing with someone with domain and customization experience.

These are a few of the most recent, growing trends in the world of ERP, as the increasing breadth of software and technologies bring it within range of nearly every business today.

3d_metal_GEThere’s disruption on the horizon in the world of manufacturing once again, “as disruptive as the adoption of cast iron, steel and aluminum over the past two centuries,” according to a recent article in the Wall Street Journal (6-8-16: “The Future of Manufacturing“).

While the idea of 3-D printing for plastic – or additive manufacturing as it’s often called – is becoming common and cheap, it’s another thing entirely to apply it to metal.  That field remains in its infancy, but it’s coming to life in places from Carnegie Mellon University to General Electric.

Traditionally, the limitations of molds and machine tools mean that engineers design parts based on what’s possible, often falling short of the ideal product.  With 3-D metal printing, they can come closer to that ideal.  “It starts with advanced modeling software that can analyze a part being developed, based on likely stresses and forces,” points out Journal editor Daniel Michaels.  The software can then indicate ideal shapes and minimum structures necessary to build the product.  The resulting designs can end up being lighter and more complex than anything made by traditional technologies.

And, they can be printed.

It gives the power to move beyond simply improving on existing designs, and “embracing the freedom to redesign parts that couldn’t have been imagined before,” according to a professor at the Univ. of Nottingham, in England.  Designers and engineers will be asked to fundamentally rethink what they’ve always done before.

General Electric is currently printing thousands of fuel nozzles for Boeing jet engines.  They’re 25% lighter than the ones being replaced, and has reduced an 18 part piece down to just one – and it’s said to be five times as durable.

Alcoa is developing both new processes and materials to make 3-D printing faster and more affordable.  The combination of new alloys, designs and properties has led to a great deal of excitement there.

In the long run, notes a chief engineer at Boeing, taking advantage of 3-D printing’s full potential will require companies in fields as varied as software, metallurgy and machine-building to support one another.  “Additive manufacturing is an ecosystem,” he says.

And when that happens, says a GE VP of manufacturing, “that’s when it gets exciting.”  Click the WSJ link above for the online article.

 

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