Societal Damnation #44: Education Quality

Supply Management is hard. Real hard. And it’s only getting harder. SI has said it before, and it will say it again — in order to excel at Supply Management a Sourcing or Procurement professional has to be a jack-of-all-trades and master-of-one.

But this is not an easy thing to do. The skill set required by today’s Procurement professional is longer than Santa’s naughty and nice lists put together and is growing by the day. And that’s just the basics. The EQ, IQ, and TQ required for an average Procurement professional to get through the day is enormous. It’s to the point where a person of average intelligence can’t cut it. It used to be that only the best and brightest could do law and medicine and engineering but now only the best can do supply management. And, to make matters worse, just EQ, IQ, and TQ is not enough.

A modern Supply Management Professional needs knowledge — and lots of it. With constantly changing market conditions, new inventions, and new modes of operation, whatever a supply manager knows today is unknown tomorrow. As new methods of production come online, old methods become cost prohibitive. As new products are invented, old products become obsolete. As market conditions change, old plans become irrelevant.

Supply Managers need to keep tabs on the market. They need to identify new modes of production that will become more cost effective before they are under-cut by the competition; they need to identify new inventions that will threaten the organization’s market as soon as they are announced; and they need to detect market changes as they happen. They not only need oodles of market intelligence but the knowledge on how to interpret it. Not every new production technique is a threat, not every invention breaks existing or creates new markets, and not every market change has lasting effects — some are corrected in days. But others are atom bombs, iPhones, and extreme supply and demand imbalances caused by a major production plant being destroyed by an earthquake or tsunami.

But where is a Supply Management professional to get that knowledge? Most universities have a curriculum that is still mired in old-school logistics and operations research. Most professional associations are still teaching you old-school negotiating tactics. Most blogs are mired in the noughts and still preaching the gospel according to Ariba and Emptoris (which no longer exist). And the analysts … well, we’re not too sure just what they are inhaling before they do their preaching, tragic quadrants, and dangerous graves.

In other words, not only is education quality in general (especially in North America) bad, with the US ranked 14th (as per the global heat map), but education in Supply Management in particular is particularly bad. We’re desperate for education, but almost no one is giving it to us. We truly are the damned. Let’s hope we can learn on our feet as we are dancing amid the flames. (As we no longer have the frying pan to shield us.)

Influential Damnation #96: Consortiums

Consortiums, better known as Group Purchasing Organizations (GPOs), will be one of your biggest organizational conundrums of the year. Regardless of whether your organization is currently using a GPO or not, this will be the year that you can’t live with them, you can’t live without them.

Backing up, a Group Purchasing Organization (GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain price reductions from vendors based on the collective buying power of the GPO members. The idea is that the GPO is able to leverage economies of scale, in the form of more volume and more efficiencies, then the members can individually achieve on their own.

For example, a supplier might offer price reductions at 1,000 units, 10,000 units, and 100,000 units and offer 2%, 3%, and 6% discounts at each price level. On its own, an organization that only buys 20,000 units would only be able to obtain the 3% discount but if it banded with five other organizations that required a similar amount of units, each organization could obtain the 6% discount. In addition, if only one contract needed to be negotiated and cut, each organization could reduce the amount of negotiation and administration overhead required to negotiate the contract and save even more.

From this perspective, given the rapidly rising costs and the increasing difficulty in negotiating discounts, GPOs look like a dream come true and a way to cut costs across the board.

But this comes at a costs. First of all, the GPO has to be funded — so, either the organization has to pay a fixed membership cost every year or a percentage of each transaction. Secondly, the GPO has to be managed just like every business processing outsourcing (BPO) provider. This isn’t always easy because not only does the organization have to manage the relationship and insure that the GPO is working on categories that are important to the organization, but it has to make sure that the GPO is taking the organization’s needs into account.

And now we get to the double edged sword. The best deals materialize when the combined volume allows a supplier to hit peak production (which allows them to produce the product at the lowest possible cost) and offer their customers the lowest possible cost. However, getting to peak production often requires combining the needs of a dozen or so different organizations, each of which has its own viewpoints and goals for each category. In other words, while you might prefer Supplier A’s products, because your Engineering department feels that they are of superior quality, the other GPO participants might prefer Supplier X — the least favoured supplier of your organization.

And this is why GPOs are quickly going to become the “you can’t live with them” (because you will always be fighting your coopetition to get your needs addressed first) but “you can’t live without them” (because, with costs skyrocketing, you won’t find any savings in your low-volume or indirect categories without them).

There’s a reason we call them “consortiums”, and that’s because “consortium” is derived from the word “consort” which is the action of habitually associating with someone or something that is done with the disapproval of others. And consortiums breed disapproval. But this is the year of damnation, so jump right in. You will regret it. But what choice do you have?

The CPO’s Agenda

A CPO has a lot on her mind these days. As per SI’s recent “Future Trends” expose series, the reason that so many ancient trends are being recycled as future trends is because so many issues are still current for Procurement organizations struggling to catch up to the times and become best in class. That’s why we have to continually deal with:

  • Governmental Regulations
  • Globalization
  • Increased Competition
  • Margin Pressure
  • Outsourcing
  • Risk
  • Collaboration
  • Demand Planning
  • Governance
  • Systems
  • System Integration
  • Process Convergence
  • Raw Material Scarcity
  • Strategic Focus
  • Talent
  • Supplier Relationships
  • Product Life Cycles
  • The Cloud
  • Sustainability
  • KPIs

and a dozen more issues that should have been put to rest a decade ago. But which of these issues are the most important issues and which issues are being overlooked by a CPO who is being blindsided by false issues? And which issues are top on the list?

Fortunately for you, this is a question you don’t need to ask anymore. On the new Chief Procurement Officer site, the doctor of Sourcing Innovation and Pierre Mitchell, of Hackett Group and AMR fame, have collaborated on a 20-part series on the The CPO’s Agenda, which is overviewed in the preamble post on What is Top of Mind for CPOs, that will tell you, as a new or aspiring CPO, what you need to focus on.

And stay tuned to this new, first of its kind site which, for at least the next six months, will be bringing you a cross-blog collaboration between the doctor of Sourcing Innovation and Pierre Mitchell of the Spend Matters Group (with occasional contributions from Thomas Kase and Jason Busch). The new Chief Procurement Officer is the first of its kind and the education that is coming your way will be unequalled! This is only the first of three in-depth series between the doctor and Pierre Mitchell that are almost ready to roll, with more in the works. Stay tuned!

The CPO Defined

What is a CPO? We all know that CPO stands for Chief Procurement Officer, but what is a Chief Procurement Officer? Considering that the only about half of organizations have a VP or CPO heading up Procurement and that only one in five of these allow the CPO to sit at the C-Suite table, it should be obvious that this position is still not that well defined.

Even less defined is who this individual is. Is the CPO an executive, leader, strategist, tactician, buyer extraordinaire, supply chain guru, visionary, or rouge? What skills should the CPO possess? What should the CPO be measured on, and, more importantly, how does this relate to what the CPO is actually measured on?

However, these problems are trivial when compared to the problems possessed by a new CPO (or VP) or a senior buyer or director aspiring to the CPO position. These individuals, desperately in training and guidance, have no where to turn. There is no one location where they can go to

  • find out what a CPO is
  • find out what the CPO job description means
  • find out what an organization that needs a CPO is really looking for
  • find out what qualities and skills a CPO needs
  • find out what issues the CPO should be concerned about
  • find out what strategies and tactics the CPO needs
  • find out what best practices need to be put in place
  • find out what technologies will be needed to support them
  • find out what transition management skills will be needed to effect the changes
  • … and so on …

This is because no one person, and to be honest, no one site has all of the necessary expertise in:

  • Sourcing & Procurement
  • Operations Management
  • Strategy & Tactics
  • Best Practices & Technology
  • Internal Sales & Fire Lighting
  • Education & Training
  • … and so on …

You see, it takes a lot of knowledge and ability to be a great CPO, and a lot of this knowledge can only be parted by true experts. Given the fact that it typically takes an average person ten years to become an expert in just one skill, it’s not surprising that there is no one person with all of this knowledge and capability. Moreover, given the fact that most small expert consultancies are formed by people with like interests and skills, it’s also not surprising that you are only going to get expertise in a few of these categories.

However, when the right people with the altruistic goal of fulfilling a need come together, to fill a need that would otherwise not be fulfilled, they can combine their expertise to create a curriculum and a resource that fully defines what a CPO is, the skills and knowledge the CPO needs, the strategies and tactics to get the CPO through the day, the best practices and technologies to put in place, and the transition management skills that will be needed.

And that’s what has happened. Today, the Spend Matters network launches Chief Procurement Officer. This new initiative, overseen by the legendary Pierre Mitchell, is starting off as the first collaboration between Spend Matters and Sourcing Innovation designed to fully define what a CPO is, what a CPO needs, and what a CPO should expect upon starting a new job. Over the next few months you will see a number of multi-part series on:

  • What is a CPO?
  • Tearing Apart the CPO Job Description
  • The CPO’s Agenda
  • The CPO’s Journey
  • … etc. …

the doctor has already co-authored over thirty posts with Pierre on these topics, with dozens more in the works. When you combine Pierre’s expertise on Supply Management, Operations, and Organizational Planning with the doctor‘s expertise on Supply Management, Technology, and Education with Thomas Kase‘s expertise on Strategy, Tactics, Best Practices and Field Operations with Jason “The Prophet” Busch’s ability to show you how to internally sell and light the fire — the whole gambit of what you need is covered!

So I recommend you head on over and check it out, starting with:

It’s Only Been One Hundred Years

Since U.S. transcontinental telephone service was inaugurated by a call between Alexander Graham Bell, who invented the first practical telephone, and Thomas Watson, his assistant who later used his royalties from the Bell Telephone Company to found the Fore River Ship and Engine Building Company, which would become home to one of the biggest shipyards in America by 1901.

That’s right, it’s only been one hundred years since the inaugural telephone call from New York to San Francisco was made by Bell to Watson. And yet, one hundred years later we can call, email, tweet, and message in real time not just with New York and San Francisco, but with London and Shanghai.

When you consider how many years we existed as a civilization before we even had a light-bulb, it’s simply amazing.