The CPO Agenda May Be Gone …

… but it’s checklist for staying center stage is still valid 10 years later.

Ten Year’s ago SI published the below, and every word of it stands today. (Of course today you have to do even more, but you still have to do the below.)

The CPO Agenda’s Procurement Checklist for Staying Center Stage

Now that Procurement has received board attention as the greatest potential for cost savings in the organization, CPOs need to start planning on how they are going to keep that attention once the recession ends and the spending monkeys try to steal the spotlight again. Thinking (way, way) ahead, the CPO Agenda recently put together a good checklist for staying center stage that summarizes some of the key strategies that CPOs will need to pursue to help the board see Procurement as a driver of growth, innovation, and long-term cost reduction and not just a one-trick cost-saving pony.

  1. A Vision for Growth
    • Value Chain
      As the central point of the organization, Procurement is in a prime position to define organizational needs, asses the capabilities of internal resources, and define organizational core competencies. What other business unit touches not only every other business unit, but all of your partners as well?
    • Solution Procurement
      Procurement can source solutions that leapfrog current best-in-class and create a paradigm shift in customer value.
    • Innovation
      As the glue that binds modern organizations together, Procurement can play a critical role in the innovation process by bringing partners and ideas together.
  2. Customer Relationship Management
    As the one business unit that has every other business unit as a customer, Procurement is in a prime position to help the company better meet its customer expectations.
  3. Supplier Relationship Management
    Procurement is already managing supplier relationships on a daily basis … it just has to help the organization understand that it needs to be the central point and the channel by which supplier capabilities are secured to support the company’s growth agenda.
  4. Supply Chain Optimization
    Without an efficient supply chain, companies cannot support the chosen customer needs. In order to achieve its plans, all aspects of a company’s supply chain MUST be optimized. Procurement is in the best position to do that.
  5. M&A Due Diligence
    The ultimate success of a merger or acquisition depends on whether or not the combined organization will be able to deliver more savings and more value … Procurement is in the best position to help make that call.

You Should Never Pay Your Supplier Late … Unless …

You can confirm that paying your supplier late is actually the right thing to do in the situation at hand.

There’s a reason that SI has been saying since day one that you should never pay a supplier late, and stands by that as a general rule, but every rule has an exception, and since there is a lot of economic stress as a result of the trade war (and other global political messes), and there will be times where smaller companies cannot always pay every invoice on time to the dot, SI is going to repeat the one, and only one, time you can pay a supplier late — and that’s when, and only when the particular circumstance at hand is such that it hurts the supplier less than it hurts you.

Furthermore, this isn’t a carte blanche to delay paying the invoice indefinitely, it’s special permission to avoid paying just until the funds come in to pay it. If you’re short because you’re waiting for your biggest customer to pay their large invoice, and you can’t pay everyone, then you can delay the invoices where it will hurt the suppliers the least to delay … but ONLY until the payment comes in.

In other words, if you have 1M in invoices, but only 800K, and you have invoices to (a) Mom and Pop’s Catering Services for the large event you just held; (b) the local meeting space you use every month; (c) the contingent staffing provider for seasonal workers you need; and (d) Big Computer Co for your 500L software renewal, where they won’t notice you’re late for at least 30 days, and they’ll just charge you 6% annual interest if they know you can pay late. So, who do you pay late? The answer should be obvious — (d).

Mom and Pop’s are probably surviving invoice to invoice, and any late payment seriously hurts their business. The contingent staffing provider might be able to afford it, but you don’t want to risk it as you need their staff and you can’t risk them having to lay those staff off because of cashflow issues. The local meeting space could probably swing at least a partial late payment, but they’re local and you need the preferred customer status they’ll give you as local if you pay on time. On the other hand, Microsoft has about 126 Billion in cash and equivalents, and can afford the late payment. And if you have to pay a 0.5% penalty, it’s way less than the heartache your other suppliers could experience if you don’t pay on time.

Remember, there are two reasons you always want to pay your suppliers on time. The first is to keep them financially sound. The second is to reduce your end to end supply chain cost. Just like you, your suppliers depend on your business and need that cash to buy raw materials, fund overhead costs, and, most importantly, pay their workers. If the supplier has to borrow money to buy those raw materials, fund overhead, or pay workers, it’s going to cost that supplier — and if their credit rating is less than yours, they’re not going to get a good rate — and, in fact, they might get a very bad rate of 20% or more … a lot less than the 6% you might be charged by Microsoft. And you can guess what’s going to happen down the road if they have to borrow at 20% interest for 3 months. That’s right, your costs are going up 5% on renewal. (And if the supplier has to layoff, and then bring people back later due to cash flow, that costs the, and you, even more.)

And what if a few days turns into a few weeks and then a few months and the supplier goes out of business just before they ship your big batch of products that take two months to make, then you’re not only out a supplier, you’re out products that you planned, which puts you out revenue, which puts you in an even worse situation.

So while it is sometimes okay to pay a supplier late if the situation is such that it hurts them less than it hurts you, it’s not okay to cart blanche pay them late on every invoice or delay payment even a day more than necessary.

So as a general rule, never pay a supplier late.

Have You Mastered the 4th T of Tracery Yet?

Regular readers will know that the time of PPT — People, Process, Technology — has long passed. In today’s fast paced world where product life-cycles are sometimes over as soon as they hit the market, and where your competitors are constantly striving to outpace you in both sales and supply management, you can’t live on processes anymore — they go stale almost as soon as you’ve got them figured out. And in a knowledge economy, just having a butt in a seat or a worker at an assembly line isn’t enough to succeed — you need a worker who, at the very least, is smarter than the average worker and, preferably, smarter than the worker employed by your competitor. And your technology cannot get out of date.

That’s why SI has been promoting the 3 T’s for years — Technology, Talent, and Transition. You need a solid, regularly updated, technology foundation upon which to build your modern Supply Management Organization. You need talent to put together good operating procedures, properly use the technology, and to constantly identify new opportunities for cost reduction or value generation. And you need great transition management as even best six sigma process today won’t cut it tomorrow when you need to upgrade your product offering, switch suppliers, change distribution methods, and make sure your product is Designed for Recycling from the get-go as new regulations are forcing you to take back your product at end of life and recycle it as you are using chemicals and / or rare earth minerals that are heavily regulated.

But while these are necessary conditions for Supply Management success, they are not necessarily sufficient. As we noted five years ago when we first asked if you have mastered the 4th T of Tracery, while it is true you will not succeed without a mastery of technology, talent, and transition management, as per our first post on Project Assurance many years ago, organizational success also depends on selecting a superior strategy and seeing it through until the desired results are achieved (or the organization changes its strategy, which hopefully wasn’t done arbitrarily on the whim of a CXO after talking to a buddy on the golf course).

However, in order to properly implement a strategy, you have to not only see it through from start to finish, but you have to make sure all of the process streams necessary for success are both completed and properly synched. Just like the key to a good weave, as one might find in Egyptian Cotton, is a skillful interleaving of the thread, the key to a good strategy, is a skillful interleaving of the process strands into an effective transition plan from where you are to where you need to be.

And this, dear readers, is Tracery — the “delicate, interlacing, work of lines as in an embroidery”, or, more modernly, “a network” — the glue that not only binds the Technology, Talent, and Transition Management that your Supply Management organization needs to succeed, but that interleaves these threads in a way that causes each of them to reinforce each other and make a stronger whole.

And, hopefully, monitors them through a common network-enabled platform that can not only bring your internal stakeholders together on one platform, with appropriate views and collaboration features for each function, but also your partners and suppliers who have the data and best practice insights you need to actually get your supply chain in shape. Because it’s not something you can do alone, and it’s definitely not something that will never happen unless carefully monitored, as it’s always easier to “do it the old way”, even if the old way is unsustainable and will lead your down a path to organizational oblivion (through bankruptcy).

You Need To Get Sustainable On Your Own Because Customers Still Won’t Pay …

A recent survey by Accenture, summarized on their newsroom in June (Source found the same thing the Trade Extensions survey found five years ago — while customers say they want sustainable, the most important factors are quality and price, with 89% and 84% of customers, respectively citing those as their most important considerations … with environmental impact only cited by 37% of respondents.

So, even though slightly more than half of consumers indicated they would be willing to pay more for sustainable products designed to be re-used or recycled, you can bet that the premium is still limited to 5% or less (which is the maximum amount of cost increase an average consumer would tolerate, as per Trade Extensions’ 2014 survey as reported here on SI in do as I say, don’t do as I do).

So even though the inclination of your senior buyers might be to forego sustainability and ethics when sourcing on the go for the supplier that provides the best value for money, quality, or price, especially since that’s what the average buyer wants, this approach is, now more than ever, the exact opposite of what you should be doing as you need to be quadrupling down on sustainability efforts.

Inflation is here to stay, raw materials are getting scarce and increasing at multiples of the inflation rate, and with Trump inciting the trade-wars to new heights, if you’re not sustainable to the full extent possible, you can expect costs to skyrocket much faster than you can increase prices (as average salaries aren’t going up as fast as cost, and with GDP growth slowing globally, you can expect salaries to stagnate due to lack of market exuberance).

And when we say raw materials are getting scarce, we mean it. Let’s remind you as to what the average consumer wants to buy. Fashion. Electronics. Media. Now consider what these items are made of. Cotton. Rare earth Minerals. Paper. All of these items are in limited, decreasing, supply. Increased drought and increased need of limited farmland for food production are causing cotton prices to increase. (If even leading global clothing brands are starting to invest in recycling programs to try and harvest back cotton, you know scarcity is real and project cost increases significant.( Rare earth minerals are decreasing but demand in modern electronics gadgets is steadily increasing. And paper, well, there are only so many trees and some take decades to grow.

In other words, costs are going to go way up — and, at some point, costs are going to go up to the point the product becomes unaffordable to produce (as it won’t be able to be sold at a profitable price point … and then what does the organization do?). At that point in time, the best strategic sourcing and negotiation skills in the world aren’t going to be worth a dime because you can’t source for less than cost, and if costs skyrocket because there is (much) more demand for the materials than there is supply, your costs skyrocket and your consumers go elsewhere.

But if you quadruple down on sustainability, and source products that use alternative, more readily available, and if possible, renewable materials, from suppliers that focus on recycling and material recovery, then your costs will stay down while your competitors’ costs go up. That’s why, despite your inclination to follow your customers, you have to do a 180 in the other direction to make sure that you keep those customers as time moves on.

And if you design your products for reuse and recycling, even better!

Twenty Years, and Nothing’s Changed. It’s still all about the Pentiums!

Today they might be called Xeon Ws or something similar, and power Mac Pros, but at the core, they are still, more or less, Pentiums!

Rock on, Al Yankovic, Rock on!

Because It’s All About The Pentiums (Original Video!)

Al may have been Running with Scissor, but no one did a better job of predicting the future of the IT industry.

     
My new computer’s got the clocks, it rocks
But it was obsolete before I opened the box
You say you’ve had your desktop for over a week?
Throw that junk away, man, it’s an antique
Your laptop is a month old? Well that’s great
If you could use a nice, heavy paperweight

  It’s All About the Pentiums
    by “Weird Al” Yankovic (@alyankovic)