If you are in Toronto, Ontario, Canada, then yes you can. It’s Taco Fest.
If you are in Toronto, Ontario, Canada, then yes you can. It’s Taco Fest.
Yesterday we told you that Sourcing, like the many facets of Supply Management, is not as easy as it seems as the skills required to go from RFI to award are numerous and compose up a laundry list that is rare to find even in most sourcing teams, yet alone individuals, including:
The last of which we left off of yesterday’s list because this is a list in itself. You see, in today’s Sourcing landscape, turbulence is not just what you experience in an airplane on your way to a site visit – it’s what you experience trying to manage your supply chains on a daily basis. Just like fluid flows can become highly irregular with the slightest perturbation, so can the flow of goods in today’s ultra-outsourced ulta-global supply chains.
Turbulence is a hidden risk in every supply chain, and one most organizations are never prepared for because, when a risk assessment is done, it is always focussed on easy-to-identify technological, economic, market, financial, organization, environmental and social risks — not random events that can temporarily interrupt your supply chain and cause temporary disruptions with serious financial or brand consequences. Temporary disruptions which, if regular in nature, can put your organization in real jeopardy and temporary disruptions, which, by their very nature cannot be planned for or even identified in an up-front risk assessment.
For example, when buying product components from China, an experienced risk team is going to identify:
and a few dozen other common risks from the risk identification and management playbook.
But it’s not going to identify one-time random events such as:
Each of these events can happen, and each can cause a real, unexpected, and unpredictable turbulent impact to your supply chain. Are you ready for it? Can you sourcing team react and adapt when it does?
Sourcing, like many facets of Supply Management, is not as easy as it seems. The skills required to identify the products and services required, identify potential suppliers, construct an appropriate RFI, evaluate that RFI, construct an appropriate RFP, evaluate that RFP, identify suppliers for negotiations/RFQ, assess the market, assess the RFQ responses against the market, select one or more finalists, negotiate, define the award, create a contract, and manage the whole process are quite numerous. Especially since that’s just the basic process. A determination of demand, of current market conditions, of expected cost, etc. will require spend analysis, (should-cost) modelling, and (statistical) trend projection. If multiple bids are competitive, and an auction is out of the question, then (strategic sourcing) decision optimization, and the mathematical modelling it entails, is also required. Plus, if the buy is strategic, then multiple stakeholders will be involved and cross-functional team-management skills will also be required. All this, and more, may be required just to get to a contract.
Then comes the actual Procurement. This will involve considerable skills in logistics, inventory, and global trade. When do you place the order? What is the best mode of transportation? Do you cross-dock or not? If the inventory is available too early, do you store it over-seas, before export, or locally, after import. If there are value-add components, do you take them or leave them, as they can considerably increase import or export tariffs? For example, sometimes the difference between shipping a cartridge in a printer and shipping it separately will save a few percentage points off of the total cost. (Check the HTS codes if you don’t agree.)
So, to re-iterate, you need the following skills at a minimum:
These skills are not easy to come by and not easy to advance. For example:
Now do you understand why even if you could get approval for the staff you need, finding the right individuals might be hard?
Today’s guest post is by Anthony Mignogna, a Director at Source One, a Corcentric Company. He provides clients with expert, end-to-end support for their procurement software investments. Leveraging years of experience working with mid-market to the Fortune 1000 companies, he empowers procurement organizations to identify opportunities to better leverage technology, assess the software landscape, select best-fit solutions, and implement them to meet their business objectives.
“Numbers never lie.” It’s a popular saying that’s also far from true. In fact, numbers are often most interesting when they call the truth into question.
You can observe a few good examples of this phenomenon in Deloitte’s most recent CPO survey. Rather than painting a clear picture of Procurement’s path forward, the survey results suggest a function that’s uncertain of how it should proceed. CPOs, it seems, are eager to use the survey (and its numbers) as a way of lying to themselves. This is particularly true where talent and technology are concerned.
Though a majority of respondents suggest these are areas of concern, a shocking few report they’ve acted on these opportunities. Let’s take a closer look.
If you’ve attended a Supply Management conference this decade, you’ve attended a handful of sessions on the ‘talent gap.’ As more and more organizations invest in managing the cost side of their balance sheet, demand for procurement talent is far outpacing the available candidates. This is complicated further by the evolving set of skills and experiences we expect Procurement professionals to leverage. Based on the survey, roughly half of CPOs don’t believe they have the right talent in-house or the resources necessary to find it:
Alone, those numbers aren’t especially surprising. What’s interesting is the way they fly in the face of logic CPOs love to employ. Procurement often stands firmly on the buy side of the make vs. buy discussion, but that goes out the window where investing in talent is concerned. Procurement seems totally unwilling to take its own advice:
If you don’t have the talent to support your organization’s goals, and you can’t find that talent externally, outsourcing to organizations capable of scaling and focusing resources seems like an obvious path forward. It’s debatable why organizations it’s still an unpopular path. Are the nearly 50% of organizations that struggle with talent simply failing to consider all of their options, or are CPOs too focused on tactical, day-to-day operations to even consider pursuing more strategic initiatives.
If one topic trumps talent, it’s technology. Conference agendas, blogs, podcasts, and whitepapers are loaded with questions and suggestions around the incoming digital revolution. The conversation is inescapable. From eSourcing to AI and everything in between, technology is on the top of minds and tips of tongues for Procurement. Identified as a solution to inefficiency, poor visibility, low ROI, and perhaps even the talent gap, software looks like a magic bullet. Deloitte’s survey results support this. They indicate that CPOs are betting big on the promise of new solutions:
Again, this is not especially surprising, particularly when you consider that most of the pain points cited in the survey are closely related to technology. Two statistics, however, jumped out. Like the talent findings cited above, they suggest the numbers don’t tell the full story:
Suffice it to say, there is no amount of statistical error tolerance that can make 3% and 6% look like a significant chunk of the survey’s respondents. Juxtaposed against Procurement’s enthusiasm for new technologies, these statistics are especially alarming.
Again, the paradox could point to one of a few issues. Maybe it’s just a symptom of the talent and skills shortage. On the other hand, it might simply point to flaws in the way Procurement views technology. Expecting an antidote to cure all of their ills, they’re finding something less exciting. It appears that CPOs are good at speculating about technology and even good enough at purchasing. When it comes to building the necessary ecosystem to build a compelling business case and support implementation, however, they fall flat and realize disappointing results.
The survey results suggests that 9 in 10 CPOs are opting for the status quo – and they know it. It might be time to break the trend and give outsourcing some thought once again. Maybe then our actions will match our ‘priorities’ and the numbers will start to tell the truth.
You are very well aware that you are understaffed and that you need to do something about it. You’re also aware that you may need to, or want to, outsource your category, project, or staff augmentation requirements. And, after our last two posts, you know that you better make sure that the category or project first passes the sniff test and lends itself to vended outsourcing before you get ready to ship it out.
But you still don’t know if outsourcing is the best decision. How do you determine that? You compare it to your most viable insourcing option. And how do you make that comparison?
Return On Investment
More specifically, what is the ROI of going outside versus staying inside? If you’ve appropriately qualified the project, then you should have an expected return, which you used to determine whether or not the project was incentive-friendly. The base ROI is easily calculated as expected return / expected cost.
The ROI inside will be calculated similarly. What is the expected cost of augmented staff and what return do you honestly think that person will achieve. Remember that, unless that person is a seasoned professional with lots of expertise in that category or project, that person is not likely to achieve the same return as a professional working for an outsourcing provider that tackles that type of category or project day-in and day-out. Plus, as they won’t have the same level of experience, or the same tools at their disposal as an outsourcing professional at the outsourcing service provider, and will have to deal with your organizational politics, policies, and ramp-up, it will take them longer. So even though the hourly rate of an internal resource may be lower, when you consider that more hours will be required for a lesser reward in the average, the ROI is not likely to be as high as you might initially think.
In other words, while an outsourcing firm will always make the argument that outsourcing is the clear-cut solution, it’s not always. If they are willing to put their best on the line and the category or project is suited to them, it will usually be the case that outsourcing is the right decision. But if they don’t have an appropriate expert, it’s going to take them more time to deliver a lesser reward, which you might be able to top by bringing in a hot-shot pinch-hitter for a one-off project.
In other words, there’s no one-size fits all answer and each project will have to be judged on the merits of keeping it in versus the merits of sending it out. And if you need help with that analysis, get a qualified third party consultant to help you make that decision.