Monthly Archives: May 2008

What is the State of the Discipline in Supply Chain Talent? Part I

AMR recently released its Supply Chain Talent: State of the Discipline report, sponsored by the Supply Chain Council (download link) where they surveyed 198 organizations to assess the state of the supply chain management discipline, identify key requirements to support a demand-driven curriculum, and construct the first functional talent attribute model. From their research they drew some interesting conclusions:

  • No two supply chains are alike
    AMR found that very few companies defined their supply chain in the same way and that almost every leader had different plans of control.
  • Leaders view supply chain management as a business discipline
    AMR found that supply chain management is still very engineering centric and that few companies include manufacturing and NPD (new product development) within the supply chain function (and that this is a differentiator among leading companies).
  • Globalization has created urgency
    AMR states that a general flattening and global broadening of supply chain organizations has boosted the need for a more extensive set of skills and competencies.
  • A common supply chain talent model is the foundation for improvement
    AMR states that for supply chain management professional development to evolve into a more universal body of capabilities, industries and academia need to adopt a shared, modern, comprehensive model that incorporates the growing depth and scope of the discipline.
  • Universities have an opportunity to take a leadership role
    AMR states that schools can lead the way in providing more universal supply chain management skill sets and that truly comprehensive programs would gain strong support from the industry.

These conclusions are interesting for three reasons. First of all, they sound very plausible, and the report does a very good job at convincing you they are right. Second, there is fair amount of truth and insight in these conclusions and in the report. But they aren’t quite right. Here’s why.

  • No two supply chains are alike – but definition is not the problem
    The fact of the matter is that every business needs to differentiate itself, which means that every business has slightly different needs, and this means that every supply chain will be slightly different. This makes the problem harder than just a definitional problem.
  • Leaders should view supply chain management as the business – not just a business discipline
    Many business leaders still think their business is what is within the four walls of their company. That’s just not the case anymore for the vast majority of industrial companies. These days, your business is the supply chain you create, and everything should revolve around the supply chain. Accounting tracks the money that flows through the part of the supply chain directly under your control. Marketing markets the differentiating factors you bring compared to competitors with similar chains. Engineering takes the inputs and designs outputs. HR manages the people that make it all happen. And so on.
  • Globalization is the result of urgency – created by market-driven capitalistic need to beat the other guy in any way possible
    We might sell the strength of our business on “better, faster, cheaper”, but at the end of the day, all that Wall Street (and its hoards of brainless automatons) cares about is profit – which is revenue minus expenses, and once your business can’t get any better / faster locally, globalization is the next logical step. However, AMR is right when they note that this has boosted the need for a more extensive set of skills and competencies, and without these competencies, global supply chains could start to crumble.
  • Talent is the foundation for improvement
    You can have the best damn model in the world, but if no one uses it, it’s useless. A shared, modern, comprehensive model that incorporates the growing depth and scope of the discipline is a great guide, but what we need is people who understand the depth and scope of the discipline and who can not only manage today’s supply chains, but evolve them into tomorrow’s supply chains. Good programs and teachers will be more important than good models, especially in the short term where expertise is about to be in critically short supply.
  • Universities always have the opportunity – but private programs will lead the way
    I had the (dis?)pleasure of teaching in a number of public Universities and of trying to move curriculums forward. To be blunt, a dentist has an easier time pulling teeth than a progressive individual has of moving a program forward where, typically, a third (or more) of the department is nearing (early) retirement and see no reason why they can’t teach the same course they taught last year (and the year before and the year before), and where they believe that, even in areas such as technology, a course should be good relatively unchanged for at least five years. And even if you’re lucky enough to be part of a progressive department who sees the need for regular program enhancement and redesign, the bloated process, the need for approval by committee upon committee, and the internal politics at most publicly funded institutions limit you to progress at a snail’s pace. Considering that very little, if anything, moves faster than supply chain these days, by the time you get a program approved, it’s ancient history. That’s why, in the short term, for-profit private institutions will lead the way.

Purchasing Certification as a Savings Strategy

One of the presenters at this year’s reSource 2008, Iasta‘s user conference, was Charles Dominick of Next Level Purchasing. In his presentation on Purchasing Team Skill Building and Certification, Charles suggest that one of the best strategies available to a CPO (Chief Purchasing Officer) or CSCO (Chief Supply Chain Officer) trying to deal with today’s challenges of increased competition, price pressure, supplier savvy, new technology, and expectations from the CEO might be to get their entire department certified – and initial results appear to be proving him right.

Last year, Next Level Purchasing started stepping up their efforts to sell training and certification programs on a department level, and the first few departments to obtain the SPSM certification on a department level quickly recouped their investment, and one of the first companies to complete certification on a department level – a 1 Billion plus furniture manufacturer – doubled their annual savings one year after completing the certification! That’s an astronomical ROI! An average 1 Billion company these days is probably spending 600M to 800M and capable of sourcing at least half that – 300M to 400M. If it was saving 10% on average using basic e-Sourcing technologies and techniques, it would be saving 30M or 40M. If it doubled that, through better processes and use of technology, that would be an additional 30M to 40M. For a certification program that would cost less than 100K to 200K for a department of 20 to 40 people, that would be an ROI of over 20 to 30! (Certification is less than 1500 per person, plus the cost of department-wide training courses to accelerate the process and learnings.)

So how can certification alone achieve such impressive results? It has to do with the fact that the average purchasing team today is a mish-mash of employees that range from Generation Y’ers to imminent retirees, high school graduates (and, in some cases, that’s if you’re lucky) to recently minted MBAs, career purchasers to other departments’ cast-offs, and tactical grunts to strategic thinkers. As a result, you have a team that generates inconsistent results across unevenly distributed workloads, a lack of independence, a lack of unity, and a consistent communication breakdown, often due to a lack of understanding of current tools, processes, and terminology.

However, with a department wide certification, where everyone has the same understanding of modern processes, tools, techniques, and, most importantly, terminology, you begin to see more consistent results across the board as all of your buyers, who are now on the “same page”, are not only appropriately trained for their jobs, but are able to build a “true team” where they are able to learn from and leverage each other’s successes. And when you consider the potential that exists in a well-trained team, it’s definitely worth some serious consideration.

For more information on NLP’s certification offering, you can check out my reviews of some of their standard courses:

Mastering Purchasing Fundamentals, A Review Part I
Mastering Purchasing Fundamentals, A Review Part II
Savings Strategy Development, A Review Part I
Savings Strategy Development, A Review Part II
14 Purchasing Best Practices, A Review Part I
14 Purchasing Best Practices, A Review Part II
Supply Management Contract Writing, A Review Part I
Supply Management Contract Writing, A Review Part II

As well as my review of their advanced course:

Expert Purchasing Management, A Review, Part I
Expert Purchasing Management, A Review, Part II

e-Sourcing Roll-out Success Tips

At reSource, Iasta‘s annual user conference, last week, both Fluor and First Group, two of Iasta’s larger customers, gave presentations on successful rollout tactics and lessons from complex implementations that had some good tips on getting the most from your e-Sourcing solutions. Considering that every additional day required for solution roll-out, and subsequent mastery, is another day where you’re losing process efficiency AND leaving money on the table, in these challenging times, every tip helps.

Some of the tips were what you’d expect, and included:

  • executive sponsorship
    it’s almost always easier to get buy in when support comes from the top down
  • retention of experts
    there’s often no faster way to kick-start your project than to bring in appropriately qualified experts
  • don’t overlook “change management” and the importance of a “change culture”
    e-Sourcing is all about change for the better, and it requires buy-in across the board to be truly successful
  • form true cross-functional teams
    every impacted department, including legal, marketing, and R&D, should have a seat on the cross-functional purchasing team
  • get financial support up-front
    you not only need the right tools up front, but you need the right expertise (in the form of consultant subject matter experts) up front as well – and this requires seed money (upon which you’ll see a great return when the project is executed right)
  • a standard sourcing process
    that is executed across projects

But some of the tips were a little less obvious, such as:

  • use the tool, not e-mail
    most of today’s sourcing platforms have companion supplier portals and allow for all communication with the supplier to take place through the platform – using e-mail fails to centralize knowledge and, more importantly, can allow the process to be side-stepped, which could not only allow for a loss of efficiency and savings, but could violate the ethics of e-Sourcing
  • don’t overlook mid-management
    even if you obtain buy-in from senior management and the team, if mid-management doesn’t buy in, there could be daily struggles
  • make greater use of all available features sooner rather than later
    most platforms these days come with basic spend analysis, decision optimization, and / or contract management – all of which deliver savings above and beyond what you can obtain with e-RFx and e-Auctions, which is not only where most companies start their e-Sourcing journey, but in too many cases, where they prematurely stop it as well
  • monthly meetings
    make sure that the cross-functional project team meets (at least once) every month – not just during project kick-off and project completion
  • build the standard agreements up-front
    and make sure each is reviewed by legal before being sent to potential suppliers as part of the RFx
  • roll your own buyer’s guide
    have one of your senior team members combine the relevant vendor product documentation, process guides, training materials, and free resources (such as the wiki-papers on the e-Sourcing Wiki) into a single, printed, easy-to-follow buyer’s guide for each of your buyers that they can use as both a quick-start guide AND an easy reference

(Strategic Sourcing Decision) Optimization: Can you afford NOT to do it?

Last week at reSouce 2008, Iasta provided 5 optimization case studies of recent projects that they did for, or in conjunction with, their e-Sourcing clients (who have free access to basic Decision Optimization in a basic suite license as well as access to enhanced Smart Optimization, with extensive freight support that includes support for LTL and TL at buyer-defined freight brackets, for an additional fee). In one of the projects, they only saved a measly 5.5%! That’s only 55,000 of savings for every 1,000,000. Pocket-change to your CFO, right?

Well, in case you haven’t figured it out yet, I’m being sarcastic. Iasta not only proved the twice-discovered Aberdeen result that optimization saves 12%, on average, above and beyond e-Auctions, but that, for categories with untapped opportunities, this doesn’t capture the true savings that can be extracted from categories that can’t be efficiently analyzed without optimization. Although two of the projects were below 12%, at 7.0% and 5.5% in the worst case, three of the projects were not only above average, but two were considerably above average, clocking in at 35% and 40% savings, respectively. The first project was a new national roll-out for Dairy Queen, who would have spent 29% more had they gone with their pre-optimization strategy for award distribution, transportation, and inventory management. Instead, they walked away with approximately 1.8M in savings while reducing analysis time by over 2/3rds. The second project was a national award of temporary labor contracts for a large insurance company who would have spent 25% more had they used their traditional spreadsheet analysis methodology. Instead, they walked away with 20M in savings AND reduced the analysis phase by over 75% – completing a project that normally took over a month in less than a week. Furthermore, the project that only achieved 18.2% savings was also quite significant – as it was on a 110M hardware category for Conoco Phillips – who also walked away with over 20M in savings. I say “over” because the 75.6% cycle time reduction they achieved also allowed them to capture an additional 1.6M in savings because they were able to complete the project in 2 weeks, instead of the usual 6+ weeks.

Thus, I must ask you again – why aren’t 75% of you even considering optimization? Can you really afford to leave millions … if not tens of millions … on the table when prices are skyrocketing across the board, revenue is falling, and your job is on the line? Especially when a savings of even 5% on a 2M-3M category can be the difference between the company being able to afford your salary over the next year? (And, to be honest, the chances of you not racking up a cost avoidance of at least 5% with optimization on any category of even moderate complexity are quite low.)

Is it because you think it’s hard? Although I would have conceded this point to you even three years ago, and would still concede this point to you if you are using the wrong vendor who still believes that everyone can use a mathematical programming language interface, the fact of the matter is that some vendors, like Iasta who has put a lot of R&D into making optimization usable by the average buyer over the last few years, now offer solutions that you can be up and running on with only a day or two of training. Now, it’s true that you won’t master some of the more advanced features that quickly, but when even the basics will shave 5% to 10% off the total cost of the award, that’s one heck of a good start and your mastery will improve with each project you do. Furthermore, now that most vendors with UI-based optimization products, like Iasta, now offer you a multitude of options to get started, which include full service and guided support in addition to self-serve, you are free to start at your level of comfort. And when buyers with only a few months under their belts are creating scenarios beyond what people like myself could envision as model designers, and suggesting enhancements that experts like myself (who have been designing these types of solutions for eight years now) never even thought of, you begin to understand that it’s really pretty easy compared to the state of affairs of a few years back.

Of course, you do have to know what you are doing – and as I pointed out above, you do need a little bit of training. But it’s often a lot less training than you think, especially if you’re a self-starter (which you should be if you’re in sourcing these days) and willing to take steps to self-educate. In addition to readily available buyer-training (most vendors will give free demos, free support, and schedule training on short notice for their customers – and do it on your site if that’s what you want), there are also a number of resources out there that you can use to begin to understand what optimization is, what it can do, and how you can begin to use it. There’s the optimization archives on this blog, the optimization archives on e-Sourcing Forum, the optimization wiki-paper on the e-Sourcing wiki (which also forms the basis for the chapter on strategic sourcing decision optimization in the e-Sourcing Handbook), the Next Level Purchasing podcasts (part I and part II), and the extended transcript with commentary (as well as the introductory purchasing tips article). And your vendor, with extensive experience, will be able to help you identify relevant issues for any project you wish to undertake.

It might take a little bit of effort initially, but when your analysis time is reduced by 50%, 66%, and even 75%, it will be more than worth it … especially since successive projects will be faster still as you’ll already have the data templates ready for future projects as well as the basic scenarios you need to build and compare defined. Plus, you’ll have to do less projects to meet your savings / cost avoidance targets … which means that you’ll hit your bonus faster. And, if nothing else, isn’t that reason enough for you to take the leap?

As I have already fully disclosed, Iasta is a client and I am responsible for much of the model that their product (and Smart Optimization in particular) is based on, but the UI innovations are entirely Iasta’s, as are the results reported.

Top 10 Mistakes by Entrepreneurs … and Managers

Over on Xconomy, Steve Woit had a great post on the top 10 mistakes by entrepreneurs last quarter. According to the post, they are:

  1. Undervaluing the importance of the management team.
  2. Attempting to build the business around rocket science.
  3. Assembling the wrong ownership group.
  4. Over-valuing the business at critical junctures.
  5. Failing to communicate with important constituencies.
  6. Failing to tap knowledgeable advice.
  7. Fear of dilution or loss of control.
  8. Spending too much for too little.
  9. Partnering for too little.
  10. Failing to understand the changing roles of founders.

What really struck me is how similar this is to the top 10 mistakes made by managers, which I could argue are:

  1. Under-valuing the importance of your senior staff.
    Face it – half of the best ideas anywhere are going to come from them. Take the cotton out of your ears and listen. It’s your job as a manager to identify and implement the best ideas. This doesn’t mean that you have to come up with all the ideas yourself.
  2. Attempting to build your business around the business opportunity of the day.
    I’ve seen company after company after company fail with this short term thinking … every quarter was a new project (despite the fact the project from the last quarter never got finished) and then they’d wonder why they went bankrupt.
  3. Assembling the wrong advisory board.
    A group of ass-kissing yes-men might be good for the ego, but it’s bad for the business.
  4. Under-valuing key parts of your offering.
    Sometimes an auxiliary product or service is actually more valuable than what you think your core product is. Failing to recognize this will rob you of your best revenue opportunity.
  5. Failing to communicate.
    Your employees what to know what’s happening, and, more importantly, why. Half a message is often worse than no message – don’t make this mistake.
  6. Failing to understand the value of a good consultant.
    As I pointed out in consultants are cheap, consultants are a very valuable resource that you can use to take your operation to the next level.
  7. Fear of experts.
    Many managers think that they’ll be seen as weak, stupid, or dispensable if they turn to experts, when, in fact, the opposite is true. A good manager knows when there is a problem that requires expert input, and that she doesn’t have to worry about being replaced because managers who make the right decisions get rewarded (and promoted).
  8. Spending too little.
    Many managers cheap out just to make the short term financials look good, even when the net result is a long term loss. This is particularly true when it comes to getting employees the tools and training they need to be productive – especially in IT and Supply & Spend Management when the company doesn’t understand the productivity enhancements that the right tools and training generates.
  9. Partnership avoidance.
    You shouldn’t partner too early, but sometimes it takes a partnership to take the business to the next level. Also, the right partner at the right time can help a company address an emerging market trend quicker, and this can make a huge difference in the scale of new market penetration that a company can achieve in the short term.
  10. Failing to understand the changing nature of the business.
    Some managers don’t think they’re doing a good job unless the business runs like clockwork … but considering even Canada’s top economist admits that if you’re doing business today the same way you were doing business even five years ago, that you’re on your way out of business … clockwork management just doesn’t cut it anymore.

Now, regardless of what I say, or don’t say, you’re going to make some of these mistakes – you’re only human, and it’s hard to get a 360 view when you’re inside the box. But whatever you do, don’t forget #6! If you can’t see the problem, chances are good consultant can – and it will be money well spent!