Friday, September 29, 2017

Change your Purchasing Outlook using Bids

Image result for biddingHave you taken advantage of or another online auction site to get the best deal possible on a product? Well the web has revolutionized procurement and purchasing much in the same way.  Generic Pharmaceuticals as an example are just that, they are generic and can be purchased from multiple sources with different skus/NDC numbers andpackaging. But they are the same product. This purchasing paradigm puts you as a distributor in a unique situation. You can pick and choose your supplier.
 Since this is the case you should make them compete to earn your business. 
The same paradigm can be found in many other industries, and while contracts and purchasing agreements may seek to lock you into a specific vendor, before you agree to the terms lets see if you can negotiate from a position of power. 
Knowledge is the key to this plan. 

Freedom of information

We are living in world which allows small to medium enterprise businesses to compete on exactly the same footing as huge conglomerates. No longer do you have to go through a formal leveraged buying exercise to deliver the best possible combination of price and service when buying products.

Creating competition with the web

Utilizing the web and your MDS software, you are able to essentially create competition on each individual order and procurement is a very different, much better process, because you can create fundamental competition and a broader supply chain.

Using the MDS Tender and Bid Systems a user can interact with suppliers and actually review information provided easier because they all deliver it in standardized format. This allows you to compare apples with apples. This is fundamental to proper procurement.
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Using The MDS Tender/Bid  System Users will: 
  • Create tenders or requests for quotations  
  • Select from a pre-approved list of vendors
  • Send those vendors  the list of products 
  • Enter the bids received from vendors. 
  • Compare the bids received and 
  • Have the system automatically review and select the best vendor to purchase from

Since we are able to capture every element of the interaction. We can create a service agreement or a contract which is the combination of everything submitted over the web, all the detail around the conversation.

One type of procurement model that delivers best value is restricted tendering, which limits the request for tenders to a number of select suppliers. This is also sometime called competitive bidding. From a procurement perspective, if the due diligence is done in creating your list of approved suppliers, then ultimately the bid response is going to be very high and accurate.

The other model would be Open tendering or a more generic auction concept , There are many disadvantages to open tendering (a type of auction); including limited time frame for completion; but the primary issue is that it focuses only on cost as a solution. IE Lowest Total Bid/Price.
If it is price driven then it stifles innovation, and that is a major risk to choosing the wrong type of approach.

Restricted tendering has clearly been shown to be better over and above any other tendering process, it certainly has delivered value for money and enhanced innovation.  Restrictive tendering delivers value. The right suppliers get invited to tender, the procurement process is really informative and it doesn't begin and end with price.

By changing your procurement model to a competitive bidding process you can build a resilient, cost effective and sustainable supply chain for the future.  

For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556. Or send a message to

Click here and tell us how we can help you with your business solutions.

Friday, September 22, 2017

Whipping your Inventory into shape...

The Bullwhip Effect and Your Supply Chain

If you own a business, then you might be aware of the bullwhip effect, Sorry no Indiana Jones involved here. The Bullwhip effect is is an important supply chain phenomenon first noted by MIT systems scientist Jay Forrester. Even if you have never heard of this effect, perhaps you are familiar with the beer distribution game, which is an experiment designed to show the dynamics of managing a supply chain. If you are not please click on the links to learn more. 
To put the bullwhip effect in simple terms, in looking at businesses further back in the supply chain, inventory swings in larger and larger "waves" in response to customer demand (the handle of the whip), with the largest "wave" of the whip hitting the supplier of raw materials.
What causes the bullwhip effect? There are numerous reasons cited for this phenomenon. First of all, there are the more obvious operational factors, some of which you have probably experienced firsthand either through the beer game, or through managing your own business
For example, lead time issues are a common supply-chain challenge. As participants often learn in the game, two overdue shipments arrive about the time customer demand has dried up. But aside from the well-researched operational factors, supply chains are also clearly influenced by human behavior. for today let's assume that human behavior is the major factor in the bullwhip effect.
If that is the case - how can we exploit this to become a smarter distributor?

Example of the bullwhip effect

Let’s look at an example; the actual demand for a product and its materials start at the customer, however often the actual demand for a product gets distorted going down the supply chain. Let’s say that an actual demand from a customer is 8 units, the retailer may then order 10 units from the distributor; an extra 2 units are to ensure they don’t run out of floor stock.
Bullwhip effect exampleThe supplier then orders 20 units from the manufacturer; allowing them to buy in bulk so they have enough stock to guarantee timely shipment of goods to the retailer. The manufacturer then receives the order and then orders from their supplier in bulk; ordering 40 units to ensure economy of scale in production to meet demand.  Now 40 units have been produced for a demand of only 8 units; meaning the retailer will have to increase demand by dropping prices or finding more customers by marketing and advertising.

Human behavior in relation to perceived risk is a particularly interesting topic.
First of all, fear is a significant motivating factor in human behavior, The fear of loss, or of being wrong, is also a key human factors issue with supply-chain management.
Supply-chain managers who can calmly make decisions and act according to a plan while competitors panic, do nothing or become too greedy, typically do not have a problem. People who act out of fear or greed along with the herd of reactive people in the marketplace will often be wrong, will not benefit and may do real harm to their business.
This "fear factor" builds upon a second issue, which has to do with decisions under seemingly ambiguous and anxiety-provoking circumstances. For generations, people have wracked their brains trying to find market, commodity and equity "bottoms," or the point at which it is time to buy and "go long."
With the bullwhip effect, which models herd behavior, it may be useful to face supply-chain risk and decision-making like an old stock trader. Pressing past nervous indecision, the effective manager will stoically acquire some inventory while others sit on their hands or take drastic discounting or liquidation measures due to slack demand.
When product demand picks up, those that maintained their "safety stock" and then added cheap inventory on "dips" will benefit from favorable margins on a small bump up in demand. Such positioning allows one to take a chunk of the competition's sales while they remain underwater on their ill-timed, high-priced inventory purchases.

Where and how do you find these dips/opportunities? 

By using the MDS Sales Analysis Tools you can visualize Sales Cycles for an Item using Trend Graphs and up to three years of Sales Data. 

As an item dips you can see the bullwhip effect in action and understand that the sales of the item will likely come back.  A contrarian stance isn't about blindly doing the opposite. Rather, it is about using psychology and Data Analytics  to gain leverage from understanding typical group behavior, such as that we see with the bullwhip effect.  When it makes sense, based upon customer and supplier data, as well as sound logistical planning and experience, taking a contrarian approach offers a hedging strategy that will tame volatility and make the bullwhip effect work for you. 

For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556. Or send a message to

Click here and tell us how we can help you with your business solutions.

Friday, September 15, 2017

Disrupting the Supply Chain in a good way..

Image result for disrupting the supply chain

The Uberization of Distribution

Uber has disrupted the taxi industry.  But how can you copy the Uber model and bring that level of innovative service to your clients? 
Image result for uber
That question is generating a great deal of discussion among logistics and distribution executives.  Here are some of my thoughts mixed with theirs.. 

Transporting goods long distances can be done far more cost efficiently than the delivery of the last few miles when goods arrive in congested metropolitan areas. Last mile delivery has taken on added urgency as traditional retailers have embraced omni-channel capabilities as a way to compete with ecommerce giants like Amazon. Omni-channel fulfillment, which spans a variety of delivery flow paths – store to home, delivery from warehouse, etc. – is all about last mile.

Uber has definitely created buzz. The company has grown incredibly quickly and has a very high valuation.  Founded in 2009, it is reported that the company may now be worth $50 billion.

Uber’s secret? In is easy to use, often cheaper than taxis, and is generally a more pleasant experience than a taxi ride. If you are live in a metro area in the U.S., it may be hard to believe that there are people that don’t know about Uber. But Uber has not fully penetrated smaller towns in the U.S., and while Uber is a global company, it is not as widely available in other regions of the world as it is in North America.

So for non-Uber users a quick tutorial is in order. Uber is the tech company that developed an easy to use app that can be downloaded to smartphones. Using this app a person can order a ride.  Uber is designed to leverage “the sharing economy.” In logistics we call this a “non-asset based model.” Both of these terms mean that Uber does not own any vehicles. Rather Uber drivers use their own vehicles to taxi passengers to their destination.

Carriers who own logistics assets and make last mile deliveries, like FedEx and UPS, are not competing based upon an Uber style business model. Nor is Amazon, who steeply subsidizes their deliveries, but still makes money based upon retail sales and other nonlogistics business lines.

Dick Metzler the Chief Marketing Officer at uShip, a sharing economy-based company that makes deliveries of vehicles, furniture and other bulky goods to consumers, is emphatic that the Uber model will not work for “on demand” parcel or food delivered in 1-2 hours.

“More volume just makes it worse.”  Dick’s work history includes time at FedEx Freight, DHL Express and APL Logistics , so Mr. Metzler has a strong understanding of freight industry economics. “What works is route density; short miles between stops.  One to two hour deliveries destroys the ability of a carrier to consolidate a route.  There is lots of dead venture capital dollars chasing the wrong stuff. If you back off to one day deliveries, there is at least some prospect at getting to delivery density. But consumers don’t want one day. And they want free deliveries.”

In contrast, Dave Mount, a partner in Kleiner Perkins’ Green Growth Fund, believes there could be an Uber type play in last mile.  Kleiner Perkins, incidentally, is an investor at UShip and that investment is “doing well.” According to Mr. Mount, “you would need participation of existing local fleets to create the necessary density. If a plumber or service technician is already going to a certain neighborhood – why not pick up omni-channel order for delivery” and make some extra money.
Image result for chickens home to roost

Mr. Metzler adds, “venture capital dollars are shielding (consumers) from the real costs of delivery. The chickens will come home to roost.”

Here is where I add my two cents. 
the first piece is why don't we concentrate on the ease of use for Uber?
It's so much easier then calling a cab, and they give real time feedback on the driver as well as personalize the interaction. 

These are all things any distribution company can do. From simple stuff like including notification when items ship, to customized billing and invoice forms. 
To including a one click option for the most frequently ordered items by customer on your web app. 

These are all ways to "Uber" up your current business. 

Want to leverage the delivery model? 
Here are some innovative views on the supply chain we discussed a few months back  or another unique delivery model that may also get you to the Uber level is the warehouse on wheels concept.

So the concept for today is not to be exactly like Uber but rather look at what they do that works and builds market share. Then take those ideas and incorporate into your business model and make it work for you.

For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556. Or send a message to

Click here and tell us how we can help you with your business solutions.