Despite The Cynical Sourcerer’s prodding that we bloggers should tackle the subject of naughty procurement now and again, like how MyPrivateDance.com has come up with an innovative way to advertise its services (through field advertising) or how Brooklyn, Il collects three quarters of it’s revenue from the adult industry (primarily because he doesn’t think we have the perfect balls to do it), I think it more relevant to tell you about the amazing disappearance of the 100-foot deep Andes lake as this is a perfect metaphor for your corporate bank account if you do not have good e-sourcing and e-procurement processes and systems in place.
Monthly Archives: June 2007
Avoiding Supply Chain Disasters
Last year, Supply Chain Digest documented The 11 Greatest Supply Chain Disasters of all time which contained a number of lessons on what not to do if you want a successful supply chain. Since it’s probably been a while since you scanned it, now would be a good time for a brief review. The lessons therein are valuable.
- Don’t rely on unproven / untested technology or aggressive automation.
The rate of technological advancement these days is rapid, but that’s not a guarantee the systems will be ready when you need them.
(Foxmeyer, GM, WebVan, Adidas, Denver Airport)
- Don’t upgrade all your core systems at once.
Integration is usually more involved and time consuming than you think. The big-bang approach doesn’t work.
(Foxmeyer, Hershey, Nike) - Don’t overestimate your capabilities.
A sure way to lose customers is to over-promise and under-deliver – especially if the short-fall is significant.
(Toys R Us.com) - Don’t forget the basics of good demand planning!
Forecast, read signals, and repeat.
(Cisco, Apple) - Don’t sacrifice quality for perceived lower costs.
Lower costs don’t always exist, especially if your costs are low and quality best-in-class, relatively speaking.
(Aris Isotoner) - Don’t count on an unlimited budget.
Capital is always limited.
(WebVan)
Invest in Sustainability
In McKinsey’s May 2007 Web Exclusive Investing in Sustainability: An interview with Al Gore and David Blood (of Generation Investment Management), we are introduced to an extended investment model that fully integrates sustainability into its core. But more than that, we are reminded of some basic truths by Blood & Gore that we should not forget.
Blood:
- It is best practice to take a long-term approach to investing.
- The leading CEOs are the ones who explicitly recognize that sustainability factors drive business strategy.
- There are material sustainability challenges in all industries.
- You need to tackle the three or four long-term issues that will really affect corporate profitability.
Gore:
- Focusing only on the quarter can blind you to the most important factors of all.
- I think that the board of directors has a growing responsibility to address these very topics.
- In addition to helping us assess the quality of a business model, a company’s response to the climate challenge can tell us an enormous amount about a management team.
- Your employees, your colleagues,
your board, your investors, your customers are all soon going to place a much higher value-and the markets will soon place a much higher value-on an assessment of how much you are a part of the solution to these issues.
And even though these bullet points don’t do justice to the in-depth discussion that was recorded in this four-plus page article, which pointed out that good sustainability practices and investments are the result of tackling the three or four long-term issues that will really affect corporate profitability, and not the 50 different tick-box sustainability criteria that might appear on someone’s list, they do serve to point out that sustainability is all about basics because sustainability is basic Fundamentally, businesses exist to make profit – but the only way to do that is to insure you stay in business. To do this, you will continue to need increasing raw-material supplies, manpower and brainpower, and customers to buy your product. Without the adoption of sustainability practices across the board, a corporation will not be able to insure that everything it needs tomorrow to sustain profitability will be available. Thus, sustainability should be a corporation’s first thought when developing its business plan, not its last.
Outsource?
Recently, the European Leaders Network published How fast, how far?, a summary of a recent European Leaders in Procurement Roundtable in London on Procurement Outsourcing. If done right, outsourcing can lead to great results, but if done wrong, it can lead to nothing but headaches and failure.
The report contained a number of tips and insights that are worth summarizing.
- The key to successful outsourcing lies in the preparation.
- Strategic Sourcing is a key benefit driver and one should select an outsourcing provider with the competency.
- A good procurement outsourcing provider should provide you with financial value on a discounted cash flow basis – you should see savings very quickly.
- Ruling out parts of the procurement process for outsourcing could prove counterproductive.
- Before trying to outsource or optimize a process, make sure you understand how it fits into the larger business process.
- There are not a lot of procurement outsourcing specialty providers in the marketplace. Thus, the best way to select a provider is to identify a small number of providers who could be right for your organization and collaboratively arrive at a proposal – then select the best mutually beneficial deal.
- Technology is simply an enabler – effective delivery is the key.
- A contract should include well thought-out and clear strategies for ending a relationship if it should prove necessary.
In addition, SupplyManagement.com asked the eternal question, To outsource or not to outsource?. which summarized trends and the basic outsourcing models of basic proposition, access to expertise, focus on core, and no role.
The article noted that outsourcing projects are not easy, communication with cross-functional teams may be a challenge, and trust could become a barrier. Furthermore, it noted that procurement outsourcing organizations are likely to be judged against tighter savings definitions, which leads to more challenging savings targets, which in turn can drive different behaviors. (Which may or may not be a good thing. Another reason why it’s important to mutually collaborate on the relationship definition.)
For reference, the models that it presented are:
- Basic Proposition
Traditional, cost-focused tactical procurement outsourcing.
- Access to Expertise
Traditional procurement outsourcing for reasons over and above the basic proposition of cost.
- Focus on Core
Strategically mature procurement department that wishes to outsource certain elements of its operation to focus on core competence.
- No Role
A strategically mature procurement department outsourcing elements of its operation that are in fact core competencies of its operations. In this situation, a company is unlikely to gain anything from procurement outsourcing.
Manufacturing Process Optimization
New methodologies and standards can make the difference between a relatively smooth-running, flexible infrastructure or a maelstrom of competitive and proprietary systems that can only be modified by vendors at an annual cost running in the millions.
Lance Murphy, Process Optimization : Fine-Tuning the Manufacturing Enterprise,
Supply & Demand Chain Executive
This is important because many management teams don’t understand that their current operational infrastructures may have reached critical mass because most of their so-called heterogeneous environments consist of patchwork layers of new and legacy applications and systems, often hard-wired, point-to-point integrations designed to perform yesterday’s tasks with an every-changing array of co-conspirators. Even though, in manufacturing, there has been an almost exclusive focus on powerful design and collaboration tools to stay ahead of escalating product complexity and global complication this has just further complicated the interopability challenge.
So, what can be done to improve the situation? Process improvement based on “business flow” and not just function. Apply Product Lifecycle Manufacturing (PLM) methodologies to manage not just the product development, but the process behind it. Identify and evaluate critical path processes and focus on streamlining and managing those while eliminating any process not on the critical path that does not provide any added value.
Furthermore, you can take advantage of advances in XML standards, application programming interface (API) design, web services, business process management (BPM), and service oriented architecture (SOA) frameworks to develop and integrate the PLM processes you need to streamline and manage your critical process flows.
And it works. According to Lance’s article, a Canadian company that has led the market in the design and manufacturing of state-of-the-art aircraft engines that employed PLM-based process optimization substantially improved their process for managing corrective action requests. Seventy-five percent of these requests, which have averaged around 5,000 at any one time since program inception, are now processed in minutes rather than days – a savings of hundreds of man-years annually! In addition, the resources required to manage these requests has continued to plummet and standardization has reduced risk and streamlined processes, making most operations easier to modify and adapt to changing conditions.