Our company recently was contracted by a customer to execute an upgrade of their Tier-1 transportation planning system that they originally implemented back in 2006. As part of the initial project planning and justification, we collaborated on which pieces of functionality the customer would ideally take advantage of within the latest version of the software; these included:
• Hub and Pool Point Route Optimization
• Web-based Carrier Tender and Accept
• Continuous Move Route Optimization
• Freight Audit Payment and Claims

Ironically, the functionality needs in the latest version were on the customer’s original functionality list back in 2006, yet were not implemented for a variety of reasons:
• Functionality could never be configured to work as documented by the vendor, even with the vendor’s participation.
• Functionality was rigidly programmed by the vendor and did not allow for flexible use by the customer
• Advanced functionality not able to be implemented because pre-requisite functionality did not work.

Given the challenges of the initial implementation, our team recommended that we execute a proof of concept on the latest version of the software as a milestone step in the upgrade process; this would take approximately three weeks to setup and execute. If the proof of concept did not show the required functionality the project could be stopped. The client also collaborated with the vendor on the proper version of their software that would support their required functionality.

Fast forward two months and the proof of concept never occurred. The functionality required by the customer and verified with the vendor that is operational still did not work. A Tier-1 software vendor that boasts investing $20M in R&D on their existing products now has not had working functionality documented as being supported by their software in over five years. Two of the four critical pieces of functionality communicated by the customer had known bugs and had never been implemented by a client. The software vendor even submitted billable hour invoices to the customer for their role in the project.

Lesson learned: as a customer, you are well within your right to take your software vendor to task on documented functionality. Reference the verdict handed down this week by a jury in the state of Texas awarding approximately $248 M in damages to Dillard’s against software vendor JDA because the vendor “…failed to meet obligations to Dillard’s regarding two products the customer has been using for over ten years under a software license agreement and services agreement for which the customer had paid the vendor $8 M.”
You can read more about the JDA lawsuit at the following link: http://www.jda.com/company/press-release-details.html?ID=1962

I worked recently with a customer focused on improving worker performance and productivity. This customer had implemented a variety of compensation plans with their current work force and wanted to benchmark their current productivity against best-in-class LEAN operational processes. During our observation of the customer’s current inbound unloading and receipt staging process, enVista’s team noted that our customer had implemented a very successful team-oriented approach aimed at maximizing productivity thru cooperative accountability. The name of this type of cooperative compensation and work force alignment is “pool pay”.

The idea of “pool pay” for this company’s inbound freight handling process consists of a group of workers, typically eight on a shift, who are incented to properly unload and receive as many trailers in a given shift as possible. The incentive is driven because the group will earn a specific flat amount into their “pool” for each trailer unloaded; each member of the group receives an equal share of the pool pay amount. The on-site group supervisor does have the ability to alter the percentage a specific team member receives which helps guard against a group member purposely slacking off compared to other group members; a change to the pool amount must be thoroughly documented and have the signed consensus of the other group members.
enVIsta’s team observed the “pool pay” concept consistently over a three day period across multiple shifts and consistently found the following results:

• There was a consistent level of pro-active collaboration across active loads from all team members. The on-site supervisor would originally assign one or more group members to a specific load to begin the process, but when one load experienced a delay (ex. waiting for a specific piece of material handling equipment) the group members assigned to the load instinctively went to another load to assist without having to be told to do so. By comparison, enVista has observed organizations that pay individuals or teams by a specific load; in these environments there is ownership by the group to the load, but only that load since these workers are not financially incented to assist another load.

• The role each worker has during unloading and receiving process rotated by day, as decided upon by the group members. When asked to describe the value of this rotating assignment each team member consistently responded that this helped each member better appreciate the holistic task required by the team to complete a successful trailer unload and receipt. The team members also said that working the same role day in and day out would be monotonous while rotating provided them opportunities to work with different equipment (e.g. forklifts, pallet jacks) as well as technology (e.g. data collection devices, bar-code scanning). Our team also observed new roles that had evolved thru trial and error, green-light thinking, and open group member suggestions, all in an effort to expedite and improve the quality of their process. In one example, a new position had been created for specific loads where the received pallet quantity had to be broken-down into dynamic permutations assigned that day; the worker would mark each received pallet with a specific separation line thus facilitating a fluid process from unload to final stacking.

• The team functioned consistently with LEAN processes that minimize non-valued added product handling and touches. At the time of this writing, every team in the unloading and receiving process, across all shifts had gone fifty-five weeks without an incident or accident. What is even more amazing is that over 80% of the work-force had less than one year with the organization as this was a new site operation for the company.

In summary, consider the above-mentioned points when determining how to staff your new operation, as well as an option to consider in your existing operation to generate better productivity, a consistent awareness of dependent upstream and downstream processes to your current job, and implement LEAN best practices that are safe and efficient.

There is a continual theme I see when companies want to understand if they can justify new technology (software, data collection, material handling) where an organization will execute a complete software evaluation process, including Request For Proposal (RFP), demonstration scripts, and final vendor pricing all BEFORE they have appropriated funds for this engagement. For most organizations executing this on their own, I can understand that this process (which can take six to nine months to complete) is a valuable education on the industry, vendor functionality and stability, and budgetary pricing for these solutions.

The challenge with implementing these "steps to project validation" is that if your project is NOT approved or delayed until a later time, you have invested a lot of time both internally and externally with vendors without the promise of a technology sale or the opportunity to save money without your company sooner than later. While your organization will rebound and move forward with the next high priority initiative, the vendors will be licking some wounds and may start to become weary of a company that is developing a reputation for "kicking tires" then actually executing.

There is an alternative to consider: execute a Lean Project and Return on Investment Analysis. When we engage with companies to help them select new technology, the first phase of our engagement is the Lean Project and ROI Analysis. This phase can typically be executed in four (4) weeks and focuses on the organizations' needs as opposed to what the vendor's can provide; thus, it is typically void of any vendor involvement.

How can this type of process be executed so quickly, yet still provide the type of information that an organization can use to justify their project? Simple. Partner with an organization that can provide the following credentials and experience:

1. Executes a significant number of assessments and evaluations (12+) each year - this will allow the partner to be able to provide RECENT trends in technology functionality and pricing for the solution you are considering.

2. Has access to return on investment modeling tools that can quickly calculate your organization's conservative AND aggressive savings potential using your organization's dynamic data and metrics. This data should come from not only what industry organization's publish, but also the partner's experience and actual results.

3. Has practical implementation experience with the requested technology. This will allow your organization to benchmark the costs for hardware, implementation services, potential enhancements, integration costs, and expenses, all in addition to the technology capital expenditure.

I completed this type of analysis late last year for a multi-billion dollar food service provider with a 30+ warehouse network in just over four weeks and the information allowed them to educate their executive steering committee on the investment timing compared to expected return. While their project was delayed almost six months and finally approved in Q1 of 2009, laregely supported by Economic Stimulus Incentives (see my previous blog posting for more information on this topic), they invested minimal time and cost internally AND were able to focus on other low cost/high impact savings opportunities that this analysis also identified.

So the next time your organization is considering a technology investment of any kind, consider the value of a Lean Project and ROI Analysis and who to partner with if you don't have this type of expertise in house.

If you are an organization that has previously justified a supply chain initiative and is now challenged to properly fund this initiative OR your organization would like to investigate a new supply chain initiative, but has hesitated even performing the justification and analysis because you fear the challenge of properly funding this initiative, there may be some new options to consider. enVista is currently working with several customers and prospects to understand the impact of Internal Revenue Code Section 179, recently revised from 2008 provisions for 2009.

Under Code Sec. 179, a taxpayer can elect to deduct as an expense, rather than to depreciate, up to a specified amount of the cost of new or used tangible personal property placed in service during the tax year in the taxpayer's trade or business. The non-indexed annual expensing limit for tax years beginning in 2008 was $250,000. The maximum annual expensing amount generally is reduced dollar-for-dollar by the amount of section 179 property placed in service during the tax year in excess of a specified investment ceiling. For tax years beginning in 2008, the investment ceiling limitation was $800,000. For tax years beginning in 2009, the Recovery Act keeps the expensing limit to $250,000 and the investment ceiling limit to $800,000 in place.

Under the Economic Stimulus Act of 2008, for property placed in service after Dec. 31, 2007 and before Jan. 1, 2009 (Jan. 1, 2010 for certain longer-lived property), an additional depreciation deduction is allowed equal to 50% of the adjusted basis of qualified property. The Recovery Act extends this rule for property generally acquired before Jan. 1, 2010 (before Jan. 1, 2011 for certain longer-lived property). Qualified property includes most types of new property other than buildings.

For companies considering supply chain opportunities in 2009, The Recovery Act specifically calls out “off the shelf computer software”, “testing equipment” and “machinery and equipment” as examples of qualifying property, while “warehouses”, “rental property”, “buildings”, “docks”, and “trailers – immobile with wheels detached and permanent utilities” as examples of non-qualifying property.

enVista recommends developing a quantifiable capital expenditure bill of materials with associated costs, combined with an associated return on investment to support your supply chain project and your potential use of the 2009 Recovery Act.

For more information on Internal Revenue Code 179, you can access the following link:
http://www.taxalmanac.org/index.php/Sec._179._Election_to_expense_certain_depreciable_business_assets

We are all very aware of the current economic struggle facing most organizations in the country today. In an effort to combat slumping sales, companies are rationalizing their internal expenses to include site closings, employee layoffs, and eliminating unnecessary travel; all of this I understand. But companies are also using this economic trend to put on hold capital projects previously justified to reduce costs within their organization withi a reasonable period of return and payback; this I don't understand.

Most companies embark on supply chain cost savings initiatives because they believe in the opportunity to reduce transportation cost, inventory carrying costs, non-value added processes, and inefficient labor. So why not continue with these cost cutting initiatives?

If funding for these initiatives was reliant upon lending institution financing, which is now more difficult to get, I understand the need to look at alternative cost cutting measurements, ideally those that are foundation builders with the larger initiative in mind. But if you are an organization stock-piling cash because of uncertainty in the market, stay the course and understand that executing in the present time will help you drive savings that much sooner.

If you haven't exercised a strategic planning process for your organization, it does not have to be costly or time-consuming (typically executed within 4-8 weeks); realistically, you have valuable resources internally who can allocate their time to this study and execution during these slow times, thus helping to reduce your capital cost. Remember the cost to recover from making a poor or reactive tactical decision can be more expensive then the cost of a strategic assessment. Here are some potential short-term cost savings activities (and their conservative cost savings percentages) for you to consider in conjunction with a simple labor percentage reduction:
* Transportation Contract Management (~ 5% Savings on Current Freight Spend for Applicable Carriers)
* Transportation Freight Auditing (~ 2% Savings on Current Freight Spend for Applicable Carriers)
* Labor and Performance Management (~ 11-13% Savings on Current Labor Spend for Applicable Business Units)
* Product Slotting Analysis (~ 5-10% Improvement in Warehouse Space Utilization)

In terms of "soft" cost savings initiatives that are more difficult to attach hard dollar savings to, but can be executed quickly and cost effectively, consider:
* Assess your current operations and existing technology for a best-practice wellness check-up (Typically Two-Days To Complete)
* Stakeholder and Supervisor-Level On-Site Supply Chain Operation Education and Certification (Typically One-Three Days Depending Upon the Class Agenda and Content)

If you are a stakeholder or executive from companies experiencing these expense rationalization decisions, I want to hear from you and understand why these proven initiatives could not work in your company.