Twenty-Two Years Ago Today …

The PlayStation was released in Japan. Even though Sony was late to the scene, as the PlayStation was released with the fifth generation of video game consoles, it was the first “computer entertainment platform” to ship 100 million units and set the gold bar for computer entertainment platforms at the time.

But this is not the only reason it is significant. It’s also significant because it also set the need for a gold bar in supply chain management as Sony lost $150 Million in sales and product reformulation when Dutch authorities halted a shipment of 1.3 Million PlayStations back in 2001 due to illegally high cadmium levels.

What do you think, LOLCat?

All PlayStations are great to sleep on!

MBAs, If You’re Still Not 100% Convinced You Have to Put Procurement First …

… we’re going to make it even clearer in today’s post.

Let’s start by reminding you that your organization depends on goods and services provided it to by suppliers — suppliers who have also invested heavily in sales and marketing, and sales especially, in an effort to make sure they gouge as much cash out of you as they can. They’re always on the hunt to find those organizations with the least educated, experienced, and supported buyers that they can take the most advantage of while you are focused on marketing, sales, and revenue increase. And the more successful you are at fattening the revenue stream, the more successful they feel they can be. After all, they know the Rules of Acquisition as well as you do, and they are going to apply them to your fullest.

Those MBAs selling to your organization live by the first rule of acquisition which says once you have their money, you never give it back, so you better do all that you can to make sure you hand over no more than you need to, because even if you have what looks like an iron-clad contract that says you handed over too much, good luck recovering any funds without spending additional funds to get the lawyers involved. That will quickly wipe out any recovery you might realize. This means that you need to support Procurement in strategic sourcing to identify deals with value, support Procurement in their efforts to negotiate solid contracts, and support Procurement in their efforts to implement best-in-class e-Procurement software with m-way invoice match that insures that an invoice is not allowed to be placed in the payment queue unless the goods have been received and the invoices amount matches the contract or purchase order amount without an executive override that leaves a full, unalterable, irrevocable audit trail.

A properly supported Procurement department is in the best position to ensure that the third rule of acquisition is enforced. Their job is to make sure you never spend more for an acquisition than you have to . Similarly, as they are often charged with risk management, they are naturally in tune with the eight rule of acquisition, small print leads to large risk and are not likely to accept seller paper unless it has been thoroughly vetted by legal, even if it means that Engineering or Manufacturing or Marketing have to wait a little longer for their goods or services.

Plus, a great Procurement organization knows the eleventh rule of acquisition by heart, even if it’s free, you can always buy it cheaper. They know that every initial quote has a considerable margin built in, any value add that is “free” is included in that margin, and that if it really is “free”, it’s probably not worth anything, and the reason it’s free might just be because it would cost the seller more to pay someone to take it away or haul it to the recycling depot than give it to a customer as a “thank you” for the deal, on the condition the customer pays to have it shipped.

You know deep down the tenth rule of acquisition is the truest of all the rules. Greed is eternal and your suppliers are as greedy as you are, so while you’re out there doing what you do and living by the second rule of acquisition, the best deal is the one that makes the most profit, you need someone minding the fort making sure that deal is not undermined by a an even more cunning supplier. Remember the sixty-sixth rule of acquisition, someone’s always got a better sense for business, and only Procurement stands in the way of them getting the better of you.

MBAs, Here is Why You Have to Support Procurement!

You have to support Procurement because this is the next big thing78. You might still be engrossed in the ad-driven world created by the marketing mad-men that can drive mega-sales when done right, but face it, there is only so much revenue to be gained from incremental sales with a 3% margin. But Procurement, this is the real low-hanging fruit74. Sales would have to double to add the same amount to the bottom line as Procurement could add if it simply took an extra 3% off of the lifecycle cost for a product with a 3% margin. Given that Sales doesn’t have the bandwidth11 to double sales, and Procurement always has the bandwidth to shave off a few percentage points on the right categories, the choice should be obvious.

Let’s face it, you need a few quick wins75 — and what better place to get those wins then with a new initiative that can deliver real ROI5 with relatively minimal investment. In fact, Procurement is a cash cow25 that is typically undernourished and one, that if it dies of starvation, could take the business with it. Face it, it’s the one part of the business whose primary focus is to not leave money on the table.

Yes, you need to be a team player8 with more than an open door58 policy. You need to tear down the silos internally47 to get things done, but remember, it’s all about synergies26 and you are a self-proclaimed agent of change42. Plus, once costs are under control, data driven2 Procurement will go back and sharpen their pencils, think outside the box10, and when more immediate savings are not immediately identifiable, focus on value-add63 and look for ways to get more for less.

Maybe you have to manage the optics18 of what you do, and maybe you will need to initiate some creative destruction19, but the savings and value generated are scalable61, applied to every unit. Best-of-breed62 organizations are best in class in Procurement. (In fact, every year they will take at least 4% to 6% off of the entire bottom line when properly supported. That’s a huge number!)

In fact, Procurement can bring about a paradigm shift1 in the organization. It might be tough to wrap your head around3, but it’s true. We can ballpark the opportunity6 easily. Going back to our example above and peeling the onion87, if the category sells 10,000 units at 100 each, the organization takes in 1,000,000 in revenue and makes $30,000. If aggressive marketing could increase sales 20%, the profit would be $36,000. But if Procurement, with the same investment, could decrease costs by 3%, the profit would be $60,000. How could you not want to run with this89?

We realize we’re not quite comparing apples to apples86 here, but at the end of the day32, if you step up to the plate27, square the circle24 between organizational units, it will be a win-win4 for everyone and no one will be stuck putting lipstick on a pig34. When you cross the chasm14 and sail into that blue ocean14, the bottom line will go from good to great14 and inflate as you pass the tipping point14 and you will definitely want to run with it89.

And if you don’t think it will move the needle48, we have four words for you: Supply Chain Top 25. Deal with it.21 You don’t need to do a SWOT analysis30 to realize that the answer to the 64,000 question23 that if you want to monetize29, the fastest way to increase profit is decrease costs. It’s a strategy that is more than actionable enough53, one you should incent41, but the net of it is13 you will come out ahead. When the rubber meets the road12, results oriented36 Procurement wins. So, going forward57 be a visionary7 and support Procurement. My 2 cents is54 that if you give Procurement the support they need, you can phone it in88 and still win big.

A big shout-out to Eric Jackson of Ader Investment Management who took the time to compile the brief dictionary of the MBA language for the rest of us who like to stay in the trenches90.

Also, if you select text the last two posts, you will see that we used every key phrase of the MBA language, so this should help you, as a practitioner, get their attention.

MBAs, Sourcing Innovation Feels Your Pain!

MBAs, let’s address the elephant in the room77. You’re drinking from a firehose65 right now while burning the candle on both ends60. It’s a perfect storm31. Profits are down, your visibility into the quarter is a little fuzzy37, and you don’t want to get thrown under the bus71. The organization is going through a re-org84 in an attempt to right-size16 and correct the perception, right or wrong, that there were too many Chiefs and not enough Indians56.

By way of housekeeping22, you know you need to increase mind-share with the customer85, but you don’t have enough boots on the ground20 to scale your marketing efforts. You need to treat the big deals as one-offs40, but you are facing some headwinds39 with the COO who wants to standardize. You need to put your game face on69 and manage expectations52, but you don’t know what to do and you don’t want the R33. But if we take the 30,000 foot view50, unless you want to be re-org’d out, you better take the R33.

Hope is not a strategy46, but you think that’s all you have. You don’t know the next steps73 or the competition killer76 that will allow your organization to move up and to the right83 and regain its profitability and its fame. You don’t have a go-to-market64 strategy, any paradigm shift1 would be outside your core competency38, and you don’t know what your next deliverable81 is.

But it doesn’t have to be that way. If you eliminate the ready, fire, aim45 approach, put a stake in the ground35, remember the old 80-20 rule51, put aside the basic blocking and tackling68, and do a level-set67, you’ll realize there is a radical solution. Procurement.

And while it’s good to put a face to the name49, it’s even better when you realize that it is the next-generation, turn-key, plug-and-play17 solution that will finally deliver the ROI5 you’ve been searching for. Sure you will get some push-back66 when you suggest it for the first time, but Procurement has it covered from soup to nuts70. Of course you should do a little more due diligence there43, but Procurement really is the cash cow25 you’ve been searching for.

And while you can expect that Marketing will sound like a broken record55 when you bring this up and continue to push their agenda, you need to circle back to that9 later, push your agenda, and loop them in82 when they are ready to cooperate. Once you’ve done your research and identified leading organizational best practices80, you’ll know that Procurement is the way to stop leaving money on the table44 and close the loop72 on organizational success.

There’s a reason that strong Procurement support has gone viral59 in leading organizations and that’s because Procurement’s constant quest for value-add63 increases profits. And while previous business fads have failed, this time its different79 because Procurement has to eat its own dog food28 and is very incentivized41 to buy premium.

MBAs, be sure to come back tomorrow as we explain, in your language, why you have to support procurement.

Virtual Procurement Centers of Excellence: The Next Level of Complex Direct Procurement

We have already discussed Value-Based Sourcing in Complex Direct Supply Chains and how it can generate an ROI well beyond what cost-savings focussed Procurement can generate on its own. We also indicated that a key requirement of success for value-based sourcing was a platform designed for complex direct procurement, and outlined the basic requirements for such in previous posts.

However, the right platform not only allows Supply Management to extract more value from every event than it would otherwise, but, when properly implemented, also provides the foundation for a Virtual Procurement Center of Excellence — a VP-COE if you will. A VP-COE is the next phase of Procurement Evolution for leading Procurement organizations that have evolved from decrentralized models through centralized and center-led models but which now need another evolutionary transformation to excel in today’s increasingly sophisticated global supply chains.

Today’s leading Procurement organizations are center-led. These Centers-of-Excellence are focussed on the identification of appropriate supply chain strategies, strategic categories, best practices, and knowledge sharing and often leave individual buys and tactical execution to the individual units in an effort to get the best of both worlds.

These centers of excellence typically build cross-functional teams to tackle strategic categories that represent all of the key divisions and business units, allow for the creation of flexible supply chain processes and commodity strategies through collaboration, and find ways to fully leverage strategic category spend across the enterprise. They, theoretically, give the organization the best of both worlds and many organizations that employ this model have evolved to be leading Procurement organizations, often recognized in the Hackett Group Top 8%. But is this as good as it gets?

Not even close. The view painted by consulting organizations offering to transform your Procurement organization into a COE is one shared through rose coloured glasses. First of all only high dollar “visible” strategic categories will make the cut due to the limited manpower and additional time required to manage global communications and project teams. A lot of spend will go unmanaged, and a lot of opportunities left untapped. This does not sound like the definition of a true center of excellence to us. Does it sound like a true center of excellence to you?

The long and short of it is, in order to get all spend under appropriate management in a large, distributed, global organization, a virtual procurement center of excellence is required.

So what, precisely, is it and what, precisely, do you need to enable it? Good Questions! And you will find the answers in Sourcing Innovation’s latest white paper The Benefits of a Virtual Procurement Center of Excellence for Complex Direct Procurement, sponsored by Pool4Tool. Download Now! [registration required]