Monthly Archives: November 2007

the doctor Says Duh! (Of Course Leadership is Crucial in the Retention of Talent!)

I recently stumbled upon an article over on the European Leaders Network that was titled “Leadership Crucial in Retention of Talent”. Needless to say, I was a little shocked. How much more obvious can you get? Come on! I don’t know about you, but I’ve never heard anyone say “My boss is a a**h0l3! I work nine hours, he tells me I should have worked ten. I do my job and his job, and then he asks if I can do the administrative assistant’s job as well so she can accompanying him on that Bermuda trip. I arrive five minutes late because I was honestly stuck in traffic due to a six-car pile up on the interstate, and I get my head chewed off for the next forty-five minutes. He arrives forty-five minutes late for the all-hands meeting he scheduled, and then gets a big bonus later that day. Of course I love working here and would never think of leaving, even it was for a job where I would get treated like a real human being!

But it gets better – it’s based on a study by US-based Kenexa Research Institute who, apparently, had to survey workers in six countries to find out that those [senior management] teams who demonstrate a strong emphasis on customers, an unwavering commitment to ethical behavior, and who keep employees informed about the direction the company is headed, are the [senior management] teams who build more highly engaged workforces and outperform their competitors. It makes you wonder what type of hypothesis they started with – did they honestly think it was the companies who hired trained chimpanzees to manage their workforces that succeeded?

You don’t even have to pay me my not-insignificant day rate to get this consulting advice from me. I’ll give it to you for free! After all, it’s just the old adage of treat others as you would want to be treated yourself (unless, of course, you’re a masochist who revels in pain and mental anguish – then simply treat others as you would not want to be treated).

Are You Strange Enough (for a Competitive Advantage)?

Browsing through the Knowledge @ Wharton site, which is another one of those sites (like the Economist) that is just as important as the supply and spend management sites you visit every day, I stumbled upon an article published this summer that asked “If Your Workforce Is Strange Enough to Guarantee Competitive Advantage”. It’s a very good question.

The article excerpted part of Chapter four of Daniel M. Cable’s book, Change to Strange that notes what characterizes successful companies these days is a “strikingly different, obsessively focussed” workforce, one that — compared to competitors’ workforces — is “downright strange”. More specifically, to get the best results, companies have to build a workforce “that is extraordinary in a way that customers care about”.

In the excerpted chapter, the author argues that a successful organization is built around measuring and gaming performance drivers – and this is what results in a strange workforce. The development, measurement, and enactment of the performance drivers is what provides the required insight into what the organization is creating, and not creating, that is required to differentiate it from its competitors, attract customers, and, most importantly, win.

The process starts by identifying the outcome metrics that provide a valid reflection of what you think your organization exists to create. Then you find a way to make these metrics move in a way that your competitors are not willing or able to pursue. For example, if you’re a procurement outsourcing organization, you might decide that what customers value most is spend under management and spend put through the system. If this was the case, then you’d find a way to integrate best of breed on-demand SaaS technology into your offering so that not only could you put every purchase you make on behalf of the client through the system, your clients could also put every purchase they make against the contract through the system. Then, used meticulously, your customers would find over 95% of their spend against a contract you cut on their behalf would be in the system and that their spend under management goes up as a result. If your competitors think that the most important metric is total leverage-based purchasing power, you’re in a unique position if you’re right as to what customers want.

It’s also important to answer each of the following questions when you believe you have identified an outcome:

  • What produces the number – and what makes it go up or down?
  • What are the two or three most important beliefs our customers need to have about us relative to our competition to affect this outcome? How do we measure our progress toward our goal of having these beliefs accepted by the majority of our target market?
  • How can we influence the outcome in a way that is valuable, rare, and hard to imitate? What are we willing to do that the competition is not in order to drive this outcome?

For example, if you were a procurement outsourcing organization, you might come up with the following answers:

  • Spend through the system is calculated as total dollars on contracted items spent through the system divided by the total dollars spent on contracted items. It goes up when maverick spend is down, and down when maverick spend is up.
  • The two most important beliefs a customer has to have is that we mean what we say and we eat our own dog-food. We do all of our spend through the system. We measure our progress towards this goal by determining the percentage of outsourcing deals we are getting invited to bid on versus the total number of outsourcing deals that are currently happening in the marketplace.
  • We can adopt an open book policy on our own spend, and let prospective clients (under NDA) access the system and verify that our claims are valid – and this is something our competition might not be willing to do. We can also offer an on-demand spend analysis solution to our clients as part of our service offering so that they can calculate for themselves how much spend goes through the system, how much maverick spend is happening in their organization, and what commodities or categories we should be handling for them.

Thus, even though it might be a little too academic for your tastes (as the book was written by an academic who used a Business School as the example – ick!), the article had a very good point and asked some very good questions once you isolated the core of its message. If you want to be the best, it’s not enough to just work harder and more productively than everyone else … you have to be just a little bit different … and maybe even a little bit strange.

the doctor On Dashboards: They’re Dangerous and Dysfunctional

A colleague of mine recently remarked that the whole dashboard concept is stupid beyond belief and just a lot of malarkey and I have to agree. “Dashboards” as they exist today are completely useless, and, in general, the concept is mostly useless.

As my enlightened colleague would say, a single metric on a dashboard is like saying one idiot light is better than the combination of oil pressure, water temperature, and battery voltage gauges. Sorry, it’s not. And, guess what, you can’t see the relationship between oil pressure and water temperature, so you could have a “TEMP” light that’s going off because oil pressure is nonexistent and you’re scraping the metal off the cylinder walls! It’s useless.

The fundamental flaw is that today’s dashboards are marketed as a snapshot view of how well your organization is doing. A dashboard can not tell you how well you’re doing. To do that, it would have to know everything you’re not doing well, determine how much that is impacting your overall performance, and report that. However, the best it can do is capture the data it’s been programmed to capture, roll-up the metrics it’s been programmed to roll up, and do the built in calculations of efficiency based on those roll-ups.

Just because it reports 90% of spend “on contract” does not mean 90% of your spend is “on contract”. Maybe 10% of your total spend on a commodity under contract has been misclassified under the wrong commodity code, and all of this spend is off contract, meaning that only 82% of your spend is actually on contract. Just because it says on-time supplier delivery is 95%, does not mean that you’re doing a fantastic job of managing your suppliers and that only 5% of shipments are late. Maybe it’s only recording shipments late if they don’t arrive on the designated day and not taking into account the time of arrival – which could be a consistent 2 to 4 hours late. Since this could require a lot of overtime by your warehouse crews who arrive early with nothing to do for the first two hours, this costs you. And so on.

A dashboard can only provide an upper bound on how well you’re doing, and this is useless. Saying my efficiency is at most 98% when it is in fact 92% is useless and unactionable. I can say your efficiency is at most 100% and always be correct – and I don’t need an overpriced software hack to tell you that!

The most a well designed “dashboard” could do, if the goal was reversed from trying to tell you how well you are doing, which it cannot do, to how poor you are doing, is give you a lower bound on how poor you are currently performing. Whereas “my efficiency is at most 96%” is not useful, “my inefficiency is at least 4%” is useful. That tells you that not only are you not performing at 100%, but that the system, even though it’s unable to identify all sources of inefficiency, has found 4% inefficiency that is immediately actionable. Whereas “at most 88% of spend is on contract” is not useful, “at least 12% of spend is off contract” is useful because it identifies some low hanging fruit that should be immediately tackled to improve spend compliance within your company. Of course, this is assuming that the process used to compile the data and calculate the metrics isn’t fundamentally flawed (which it very well could be in some of the dashboards out there).

Of course, this is still nowhere as useful as a good spend analysis or business intelligence tool that allows a seasoned analyst to construct some well formed cubes and drill around as she desires – as such an analyst would find anything the “dashboard” would find in about five minutes of drilling into the “spend cube” or “efficiency cube”. Furthermore, even if you covered an entire wall with dashboard displays, you still wouldn’t get close to all the perspectives you could come up with by drilling around a couple of well formed data sets.

Basically, all today’s dashboards do is present a pretty picture of a rather useless report. And I don’t want to hear any arguments that they’re “flexible” or “configurable” or “customizable” and that they can do whatever you want them to do – they can’t – they can only be “customized” or “configured” to the extent that they were built to be “customized” or “configured” by the development team – who probably had little understanding of your business, your data collection methodologies, your processes, and the information you really need to understand your business – and, in my experience, that’s usually not nearly as “configurable” or “customizable” as they would need to be to be useful even to the limited extent they could be if they were designed properly.

So next time someone tries to sell you a “dashboard”, thank them for the offer, and instead ask them about their analytics engine. That’s what you really need!

Supply Chain Finance : You Have To Get It Right

Aberdeen and Hackett are right – Supply Chain Finance is important – and poor supply chain finance can trap millions, tens of millions, and, if the organization is large enough, hundreds of millions of dollars in the supply chain. However, the only way to free up that money is to get it right – and that doesn’t necessarily mean following someone else’s lead. A lot of the initial strategies that have been devised to free up cash are not strategies for success – but strategies for dismal failure in the long run.

And, even worse, a lot of articles, including “Where’s The Money? It’s Trapped In Your Supply Chain”, which I recently discovered over on Supply Chain Brain, don’t distinguish between the good strategies and the bad strategies. This article in particular mixes recommendations for better handling of payables, early payment discounts, extending days payable outstanding, inventory reduction, better handling of receivables, better supplier management, deployment of EIPP, better collaboration, closer cooperation with finance, VMI, consigned inventories, transit time reduction, global inventory leverage, and activity-based management, and network optimization as if they’re all good and equal – sometimes mixing recommendations for multiple options in the same sentence – when in fact some are quite good, some make little difference, and some have the potential to be disastrous to your supply chain.

Only six of these – better handling of payables, inventory reduction, better handling of receivables, better collaboration with finance, transit time reduction, and network optimization – are guaranteed to always be good if done right. Seven of these – early payment discounts, better supplier management, deployment of EIPP, better collaboration, VMI, global inventory leverage, activity base management – can be good if done right, but can be done perfect and have little effect. This leaves extending days payable outstanding and consigned inventory, two options that are generally bad decisions.

Let’s start with the good. Better handling of payables and better handling of receivables are obviously good – since they deal with the movement of cash, but as suggestions, they aren’t very helpful. How do you handle payables better? How do you handle receivables better? In the latter case, you keep track of who owes you what, when, and make sure to follow up if the payment doesn’t show up when expected. In the former case, well, that’s really a large part of what supply chain finance is all about. The most common recommendations are early payment discounts and extending days payable outstanding, but the first has to be done right to be good and the second is rarely the right decision, unless you have the habit of paying for goods before they are received.

Inventory reduction is always positive, since it costs you money to hold goods in inventory. And if the goods take up a lot of room, or have a high value and require a lot of security, a large amount of inventory can be very costly. Similarly, transit time reduction within a given carrier mode can save money since each day a good is on the truck, or ocean freight liner, adds cost. (Transit time reduction does not imply switching carrier modes as this can raise costs. It means optimizing routes and handoffs within a mode to reduce overall costs.) Collaboration with finance is probably the best thing supply chain can do. Supply chain needs to understand how much each potential buy can cost from a TCO perspective, and this includes taxes, VAT rebates, potential rebates for dealing with MWBE suppliers, and other costs only finance will have a good handle on. Furthermore, finance cannot optimize use of working capital if it doesn’t understand what commitments are outstanding. Finally, network optimization can be effective as this can lead to reduced inventory, shorter transit times, and a better understanding of costs and working capital needs. But it’s not easy – and will require some good optimization tools and a good knowledge of network planning. (In other words, it’s something that should be left to the experts and not the low-hanging fruit you should start with to see some early successes and gain support for your initiatives.)

This brings us to the middle ground where the strategy can be good, or even very good, if effectively employed or of almost no benefit at all if not employed judiciously. Early payment discounts often make a lot of sense, especially when compared to the shortsighted strategy of extending days payable outstanding, but this is only true if the supplier is not forced to take the discount and if the discount amount is more attractive from a suppliers total cost of operation when compared with the costs the supplier would incur from borrowing working capital. Better supplier management is always a positive from a supply chain perspective, but this doesn’t mean that the supplier will be capable of reducing costs. This tactic is very situation dependent.

Deployment of an e-Procurement solution will usually help in terms of speeding up invoice processing and increasing supply chain visibility, but unless checks and balances are put in place to make sure invoiced amounts equal contracted rates and that payments are made at appropriate times, it’s not guaranteed to be a win. Better collaboration always helps, but like supplier collaboration, is not guaranteed to reduce costs or free up working capital. Sometimes, all it does is improve quality and reliability.

VMI can be a good call if the vendor can manage your inventory better, but if the vendor is not experienced in 3rd party inventory management, this can actually end up costing you. Global inventory leverage sounds great, but not all banks will be willing to lend against inventory in countries they do not operate in – you’ll generally have to get a 3rd party financing solution to buy in. Finally, activity based management is good in that it helps you identify the costs corresponding to a process – but your supply chain is more than a collection of activities, so you really have to understand where this fits, and where this does not, to get any benefit out of it.

This brings us to the bad. Let’s start with consigned inventory. All this does is pass the costs on to your supply partner, who might not be in your financial position. This will force them to take out more loans, at higher rates, which will only increase their total cost of operation and, thus, the total cost per unit they have to charge you in the future in order to be sustainable. Then there’s extending days payable outstanding, which like consigned inventory, simply passes operating cost onto your supplier. But it’s even worse – because now the supplier doesn’t even have any inventory to leverage in negotiation for that working capital loan! As a result, they might be forced to take out loans at 20% to 40% interest just to pay their employees, while you fret about only making 2% in your money market investments and only having 500M in your bank account. What do you think that’s doing to do to your cost when the contract comes up for renewal, provided the supplier is still in business and willing to have you as a customer? Extending days outstanding to 60, 90, or even 120 days might make short-sighted wall-street happy, but all it’s going to do is hurt you in the long run. Winners don’t follow the market, they lead it. So do the right thing and pay your suppliers promptly, just like you expect your customers to pay you promptly.

Furthermore, if you really want to get a good handle on what Supply Chain Finance really is, what strategies you should be considering and, more importantly, what strategies you should not, start with the wiki-paper A Supply Chain Finance Primer over on the e-Sourcing Wiki [WayBackMachine]. I think it will be worth your time.

the doctor Wonders If The Age of American Innovation Is Coming To An End

Recently, I predicted that India would be the eventual winner of the talent war. This is because they have the people, the culture, continually increasing capital inflow, education, the will, and an increasing amount of openness – in contrast to the US, which is more intent on keeping just about everyone out than letting innovators in.

I’m not going to make a prediction as to who’s going to win the innovation challenge, because innovation takes more than just talent, but I am willing to predict that, the way things are going, it’s not going to be North America. (I’m also excluding Canada because, these days, you can’t be Prime Minister unless you’re willing to take your lead from the US President, whomever that happens to be.)

Basically, I agree with John Kao, as quoted in The Age of Mass Innovation. I think America will lose its global lead and become “the fat, complacent Detroit of nations“, even with Silicon Valley. As Mr. Kao points out, America’s under-investment in physical infrastructure, its pitiful public schools, and frostiness towards immigrants – even though immigrants built North America into what it is today – is the first step on the road to complacency.

Furthermore, as pointed out in Revving Up, China now makes half the world’s motorcycles and India’s Tata Motors is working on a “people’s car” that might radically change the process of design, manufacturing, and distribution in an effort to achieve its target price of no more than $3,000. Today, China is the country that’s pioneering new types of management techniques – that’s a long way from the low cost country we still like to think it is. The fact is, developing countries now have higher levels of “early stage” entrepreneurship than just about every country in the developed world.

And let us not overlook the fact that, as pointed out by Diana Farrell and quoted in The Fading Lustre of Custers, the real problem holding back innovation in many developed countries is too much government in the form of red tape and market barriers. These days, the government has to regulate everything – including the things it knows nothing about.

Considering that we’re full-tilt into the “knowledge economy”, with manufacturing down to a fifth of economic activity in rich countries, it’s down to innovate or die.