Monthly Archives: October 2006

Are you getting what you’re worth?

Tim Minahan of Supply Excellence offered us a great post on How to Assess Your Net Worth back in June IF you were a purchaser in the US, leaving Canadian purchasers out in the cold. Fear not, as reported in this month’s Frasers/PMAC NewsLetter, the 2006 Purchasing b2b/PMAC Salary survey was recently released and here’s what the numbers say.

On average, supply chain practitioners are receiving a salary of $66,357, up 4.2% from last year; male purchasers are still earning 17% more than their female counterparts, $70,089 vs $60,119; and Alberta is the best place to be with an average salary of $75,418. Furthermore, the most lucrative industry is retail and wholesale trade, where purchasers pulled in an average of $81,092, followed closely by natural resources at $80,709.

Here are the average salaries, by job title, for the last three years.

Title 2006 2005 2004
VP Dir Net $90,700 $84,250 $78,158
VP Dir Purch $87,118 $80,068 $75,182
VP Supply Mgmt $104,000 $99,000 $84,000
Chf. Dir Supply Mgmnt $96,750 $91,000 $84,500
Dir Mtrls Mgmnt $85,000 $79,000 $76,000
Mtrls Mgr $88,778 $91,967 $85,328
Purch Mgr $71,465 $66,728 $62,108
Purch Agent $52,218 $48,428 $45,415
Sr Buyer $58,779 $56,583 $54,951
Other Buyer $48,617 $46,800 $44,718
Other $66,162 $66,600 $65,215

The full report is available. How do we stack up to the US, the average buyer makes more $66 vs. $62 (adjusted to Canadian based on the average of the ISM and Purchasing Magazine surveys), the average Director makes less $91 vs. $120, and the average VP makes significantly less $94 vs. $160. This is bad news for Canada, already number two in the world in the talent crunch with 76 million baby boomers in the US eligible for retirement in the next five years, since you know the US compensation for supply chain leaders is only going to increase, making it even more unattractive for those leaders to stay in Canada when south of the border starts paying not 33% to 70% more, but 50% to 100% more.

The only thing on a Canadian company’s side right now is that it’s more profitable for a purchaser to start his or her career and gain valuable experience in Canada. So my message to corporate leaders is this: make an effort to slowly increase your pay scales to match US rates for senior professionals and keep our talent here – and over the next decade we can show the US how efficient operations are done Canadian style.

Sometimes Good Advice for IT is Good Advice for Sourcing

A while ago, ZDNet published a short article that described a 10-Step program to SOA Success. What’s neat about this article is that it could have been titled 10-Step Program to Sourcing Success as it is a great primer if you are just entering the world of eSourcing.

Let’s examine the ten steps carefully.

  • Who’s Your Daddy?
    Without support, any project is doomed to failure. If your organization does not yet have a Chief Procurement Officer on the senior management team, you need to find someone in senior management who is responsible for a top business imperative and convince them the project will save money and let them champion your cause.
  • Have a Vision!
    You need to articulate your vision regularly and consistently to gain support from other teams, departments, and upper management. You’re implementing the foundations for sweeping business change that is going to affect the business for decades to come.
  • Identify Attainable Projects.
    Start with an initial project that has immediate value and that can be finished in a few months since nothing speaks louder than a successful project delivered on time with better-than-planned savings.
  • Support the Business.
    If you choose the projects with the greatest potential impact to the business, you will ensure that your sourcing projects get the attention they deserve.
  • Flexibility Matters.
    Create flexibility through loosely coupled on-demand services that can be formed to create composite applications that automate business functions across the sourcing and procurement cycles. This flexible infrastructure will form the basis of business processes that are capable of adapting quickly as markets change.
  • Networking is Not Just for Salespeople.
    A key to success is the establishment of corporate-wide support at all levels of the organization. Be visible, promote your success, and find a way to make your success their success.
  • Don’t Lose Control.
    Establish strict governance procedures from the outset. With stringent government regulations, organizations need to be acutely aware and be held accountable. In sourcing terms, this means documenting each step of the process and ensuring compliance with negotiated contracts.
  • Don’t Fear Change.
    Organizational changes are imminent and you should be prepared to not only adapt to them, but guide them. After all, procurement is a central business unit in a successful organization.
  • Learn as You Go.
    Even if the first projects go very well, which they can if you use good tools, best practices, and follow the advice of experienced category professionals (that you should consider hiring as consultants if you do not have the expertise internally), there is always room for improvement. The most successful aspects should be recognized, captured, and carried to the next project while the less successful aspects should be identified and improved.
  • The Best and the Brightest.
    Create a center of excellence and staff it with the best and brightest. This team will be responsible for identifying best practices and guiding your procurement teams in their implementation.

A Systemic Blindness (in the Supply Chain)

One of the presentations at the Fourth Annual International Symposium on Supply Chain Management was by Mark Gallant of Accenture on Supply Chain Management: The Road to High Performance based on yet another global study that they have recently completed on 600 Global 300 companies.

One of the most interesting aspects of this study was, as far as I was concerned, the lack of any new results. It might as well have been Capgemini reporting on their results (which I mentioned in my post on The Need for Supplier Relationship Management Education and which Jason critiques in The Consulting SRM Research Pile-On Continues) or another consulting firm.

This leads me to hypothesize that not only are many companies not spending enough time and money training and educating their procurement team, they are not concentrating enough of their focus on their supply chain and still not attributing the necessary amount of importance to it.

I know I should not find this surprising given the traditional pace of transformation in the corporate world, but I do. After all, I reminded you of Dr. John K. Potter‘s claim that most major initiatives in an organization required 5 to 10 years in The Change Management Myth: Why e-Procurement Initiatives Fail, indicating that many enterprises have just not caught up with the speed of business – even though, as I have pointed out a couple of times now, Aberdeen recently found that your average company experiences two major supply chain disruptions a year.

However, when you consider the direct impact that supply chain performance has on the stock market price of your corporation, and the considerable focus financials have always received, this systemic blindness should be changing as I type this.

After all, SAP’s recent analysis of supply chain glitches (as presented by Al Norrie in the software panel discussion), has found that stock prices drop by an average of 7.5% to 11% after a supply chain disruption.

Glitch Stock Price Delta
Product Development Delays 10%
Rollout Delays 11%
Production Problems 10%
Quality Problems 9%
Material Shortage 7.5%

In addition, Accenture analyzed stock prices of market leaders, transformers, laggards, and decliners over the last decade and found that while leaders maintained a market cap approximately 15% above average for their industry, laggards were roughly 5% below market average and decliners were as much as 15% below market average. In simple terms, bad supply chain performance can result in a stock price 30% less than the market leader under an apples-to-apples comparison!

So what can you do? According to Accenture, you should

  • incorporate supply chain into your core business strategy
  • make strategic in-source vs out-source decisions
  • build effective linkages with trading partners
  • adopt leading edge technology and best practices
  • relentlessly shorten your supply chain
  • flawlessly execute against your capabilities
  • continuously evolve strategies and optimize models
  • have a vision and a strategy
  • adopt the right culture

In other words, just follow all of the good advice that bloggers such as Jason, David, Dave, Tim, and I have been imparting since we started blogging and most importantly, if you truly believe your supply chain is very important or critical (as 44% and 45% of survey respondents, respectively, believe), be sure to commit the appropriate resources to address it.

(Cost Reduction) It Only Starts With Cost Cutting

Looks like someone’s been secretly reading my blog. But seriously, you know I’m not going to be able to resist a review of any article entitled Sourcing Innovation (It Only Starts With Cost Cutting) (Managing Automation Magazine, registration required), after all, that’s pretty much what this blog is about.

According to the article, sourcing and procurement needs to shift away from a single-minded focus on cost cutting to a more holistic approach that considers quality, risk, and product innovation as well as cost. New emphasis needs to be placed on process optimization and collaboration both internally and with suppliers. … Well, yeah!

More interesting is that it also notes that many manufacturers are turning to options-based contracts and indexed-based pricing to counter rising costs and price volatility, especially for energy. This is more interesting – since I find options-based contracts to be uncommon, even though Jason Busch has preached their virtues in this blog as well as his own. (As for indexed pricing, hopefully you are doing that already!)

It also discusses how HP uses Procurement Risk Management (PRM) (also known as Supply Risk Management) engineering to manage uncertainty in the procurement process by way of a set of mathematical and statistical solutions that analyze hundreds of potential scenarios and determine the likelihood of potential outcomes. Knowing the most likely outcome(s) allows you to predict volumes with confidence and make commitments to a supplier about volume levels and prices.

And, of course, it discusses decision optimization, although it simply lumps it in under the “spend management” heading. (Ouch!) For example, Oracle Sourcing from Oracle Corp. (Redwood Shores, CA) generates recommendations after analyzing various combinations and permutations to balance cost, quality, risk, and product innovation as well as “what if” scenarios. Decision optimization in a nutshell … too bad the author doesn’t look below the 100 million threshold when picking representative companies … since there are much more innovative decision optimization companies out there than Oracle. (And if you don’t remember, start with my optimization series: I, II, III, and IV).

It’s a good article, but I would have liked more. But then again, it took thirteen installments of The Future of Sourcing to even scratch the surface of Sourcing Innovation.