Monthly Archives: July 2008

Design Thinking Your Way Into Innovation

The Harvard Business Review recently ran a great article on “Design Thinking” and how thinking like a designer will transform the way you develop services, processes, and even (operating) strategy. The article, which starts off by noting:

Thomas Edison created the electric lightbulb and then wrapped an entire industry around it. The lightbulb is most often thought of as his signature invention, but Edison understood that the bulb was little more than a parlor trick without a system of electric power generation and transmission to make it truly useful. So he created that, too. Thus Edison’s genius lay in his ability to conceive of a fully developed marketplace, not simply a discrete device. He was able to envision how people would want to use what he made, and he engineered toward that insight.

has some very good points. Innovation is often powered by a thorough understanding, through direct observation, of what people want and need in their lives because any innovation that doesn’t make someone’s life easier is not likely to catch on. And I think the author, Tim Brown of IDEO, is right when he says he believes that design thinking has much to offer a business world in which most management ideas and best practices are freely available to be copied and exploited. After all, simply asking a designer to touch up an existing idea is tactical while allowing a designer to come up with ideas that better meet your market’s need is strategic, and there’s much more value in strategic work than there is in tactical.

In addition, innovation also involves (rapid) prototyping, to allow a design team to quickly zoom in the solution the users really need. The prototyping should not be rigid, but should be flexible in nature and require only as much time, effort, and investment as are needed to generate useful feedback and evolve an idea. It’s about getting to the solution, not getting bogged down in the process.

Furthermore, the process works for services and processes as well as it works for products. The author gives an example of service innovation undertaken by Kaiser Permanente, which undertook a project to make its nursing staff more efficient so they could deliver better patient care. At their hospitals, nurses often spent the first 45 minutes of their shift at the nursing station being debriefed by the outgoing shift on patient status. After working through a project to re-engineer the information capture and exchange process, which included the addition of customized software that could be used by nurses to quickly capture information in a friendly format during the shift, the amount of time required to pass information at a shift change reduced substantially while increasing patient care quality. I don’t know about you, but I think it’s pretty rare for a nurse to comment “ I’m an hour ahead, and I’ve only been here 45 minutes” or “[This is the] first time I’ve ever made it out of here at the end of my shift.

So how does a design process work? While it’s different for each project, the three generic stages of inspiration (recognizing an opportunity), ideation (generating, developing, and testing ideas), and implementation (where a path to market or implementation is charted) are common for all projects. Note that the three stages are not necessarily linear. Sometimes you’ll bounce back and forth between them until you have the right solution. But if you make an effort, you’ll get there.

So what does this mean for supply management professionals? If you can identify a problem, you can identify an opportunity. And if you can identify an opportunity, you can identify a solution that improves service and saves money with a little bit of innovation. They key is to be in the right frame of mind.

Culture Matters

Culture Matters. Especially when dealing with overseas suppliers whose native language is not your own. After all, you don’t want to accidentally call your best customer Mr. Stinky Fish Face, do you? (Unless, of course, you’re using UK SuperMarket Negotiating Tactics (UK Telegraph), in which case, maybe you do.) That’s why a recent article in SourcingMag titled “Culture Matters: Communication and Culture Tips for Global Managers” caught my eye because, as the article points out, whenever difficulties arise, it’s often due to “communication problems”.

The article had tips for global managers who needed to manage projects, communicate on a personal level, and deal with cross cultural boundaries.

When managing projects, a project manager should:

  • insure a first-rate project management information system is in place
  • integrate project management processes with those of business partners
  • train team members on all aspects of enterprise communication processes

Translation:

  • Carrier Pigeons won’t get the job done
  • Parallel lines never meet
  • Leaving Bob alone with his trusty fax when the rest of the team has moved to e-mail is asking for trouble

In order to ensure the communication capability is there, a project manager should:

  • assess communication skills as part of the hiring process
  • identify gaps and provide remediation through training and coaching
  • develop team cultures that are self-reflective and self-correcting with regards to interpersonal miscommunications

Translation:

  • If you’re communicating in English and the best a candidate can muster during the interview is “Me For Job, Yes?”, you’re probably going to have a problem
  • If one of your team members responds “Mr. Roboto” when your Japanese supplier says “domo arigato”, you’ve got a communication breakdown
  • If you have a team of Loud Howards … time for a new team!

To help bridge any cultural communication differences, a project manager should:

  • assure region-specific cross-cultural awareness
  • insure your partner is doing the same
  • involve everyone in cross-cultural training

Translation:

  • Japan and China might use the same kanji character set, but they don’t speak the same language or have the same culture (and if you confuse them, calling your partner Mr. Stinky Fish Face might be the least of your worries)
  • Make sure they understand that American English is not the Queen’s English … ( unless you want a room full of blank stares if a British counterpart starts using local colloquialisms in a Dallas boardroom )
  • Don’t forget religion awareness if your overseas outsourcing partner has followers of religions with a lot of praying and / or chanting at regular times during the day (so your employees can understand and adapt)

Another Notch on the Belt for Procurement

It was great to see Procurement take center stage in a recent Forbes article article by Knowledge@Wharton that interviewed Marshall L. Fisher, director of Wharton’s Fishman-Davidson Center for Service and Operations Management. It was even greater to see the article start off by noting that Procurement, historically an uncelebrated topic among business strategists, is now taking center stage and that these days, purchasing departments are playing pivotal roles within global firms in ways old-fashioned purchasing managers could never have imagined.

In the lengthy and informative article, Fisher noted that two of the biggest phenomenons in recent history are the outsourcing and offshoring of manufacturing operations, which is in sharp contrast to the 1980’s when the focus was on trying to strengthen and preserve US manufacturing. These days there are many companies that don’t make anything in the US, if they even make anything in-house. They’ve taken outsourcing and offshoring to “low-cost labor regions” to the extreme.

And “low-cost labor regions” evolved to meet the needs of companies that took outsourcing and off-shoring to the extreme. Fisher gives the example of Luen Thai, a company in southern China that is one of the largest private-label apparel manufacturers in the world. In order to meet the growing needs of their global client base, they set up a massive facility that is known as “supply chain city” just to produce apparel. It was designed as a “one stop shop” that does everything from initial design through final production, including prototyping and redesign on the spot.

Another example Fisher gives is Foxconn, “Hon Hai” in China. They’re a 32 Billion company that produces a large percentage of branded consumer electronics globally, with clients that include Dell, Motorola, and Apple. They have 12 facilities, and one facility alone is so large that it’s literally the size of a small city with 245,000 employees, as well as its own police force, hospital staff, and school.

But once the low-cost labor regions proved themselves, like China, business started pouring in, and then the same problems that were encountered a decade earlier when everyone was outsourcing to Japan came back. Labor became scarce and costs started to rise. And then we had the recent slate of quality issues. In other words, in outsourcing to low-labor-cost countries, you get a short-term benefit, but there is a risk you may be spawning a competitor.

In summary, procurement is taking center stage, but the global supply chain is more challenging than ever.

Sourcing Innovation Welcomes Lexington Analytics as a Lead Sponsor

Sourcing Innovation is pleased to welcome Lexington Analytics as a lead sponsor. Lexington Analytics is a very appropriate sponsor for Sourcing Innovation because it believes in pushing the innovation envelope by using advanced data analysis techniques to find hidden savings opportunities in PxQ (price X quantity) data. Lexington Analytics was founded by Bernard Gunther, who has in the past been kind enough to post How much do you know about your spending? and Do you have a plan? right here on Sourcing Innovation. Bernie was one of the co-founders of The Buying Triangle, and has a long pedigree as a partner in several leading sourcing consulting firms.

Over the last few years, The Buying Triangle surprised skeptics by performing project after project for Fortune 500 companies that not only identified millions in savings opportunities, but also recovered millions of dollars in overspending and overcharges. Lexington Analytics has taken this key IP forward, continuing to refine those techniques to become one of the few consultancies to aggressively apply market-leading spend analysis technology and business intelligence techniques to commodity-specific procurement. LA typically builds not only an A/P view of spend, but also dozens of commodity-specific cubes to drill down on concrete savings and refund opportunities. Bernie and his Lexington Analytics team bring decades of data analysis expertise to each and every project.

The Lexington Analytics solution is based on the traditional prepare-analyze two-step, but with a crucial difference: with LA, it’s a continuous feedback cycle, as they employ state-of-the-art analysis tools (including BIQ) that allow them to rapidly create, analyze, and throw away data cubes until they identify a high value savings strategy. They don’t just create one cube, run a standard set of reports, and give you a “top ten spend” report. They create multiple cubes, run some analytics, look for anomalies, then drill in, out, and, if necessary, drill sideways until they’ve uncovered the hidden opportunities that canned analysis reports completely miss — opportunities that can often translate into massive additional savings.

For example, Lexington Analytics personnel helped a regional bank with $770 Million in spend develop a plan for saving $85 million. Using that plan, the bank was able to deliver $93 million in savings over the next 18 months. LA helped a financial services provider discover that total enterprise spending with a certain vendor with whom they had a $1.5 million contract, and who was classified differently in different systems by different departments, was actually billing $14 million, translating to substantially better discount levels. A national insurance company had established a corporate purchasing program with an office supply vendor, but employees were also using their corporate cards to purchase from the vendor’s retail outlets. This represented 20% extra cost for 3% of their total spend. Using the information provided by LA personnel, the vendor was able to return 0.6% savings to the company without making any changes to behavior or programs. And that’s just a few of LA’a success stories. They have many more (which they’d be more than willing to share if you contact them).

Please join me in issuing a sincere welcome to Lexington Analytics. If you are in the market for assistance in starting a spend analysis program, performing an opportunity assessment, improving your current spend analysis program with invoice-level analysis, or simply need some training or a jump-start to help your staff take your current program to the next level, I would recommend that you add LA to your list of potential partners. I’d also recommend that you take a few minutes to visit their site (through a Sourcing Innovation link) to let them know that you approve of their decision to support Sourcing Innovation – your #1 independent source for education and innovation in sourcing, procurement, and supply management.

Some Examples of Supply Chain Fraud

Today’s guest post is courtesy of Norman Katz, Certified Fraud Examiner, of Katzscan, Inc. and maintainer of the Supply Chain Fraud website as well as the Supply Chain Sarbanes-Oxley website. Both of these supply chain sites are worth checking out. After all, you don’t want to join Fox in SOX!

In accepting the holistic view that the supply chain extends beyond the walls of the company, can encompass raw materials, finished goods, monies, and services, and can be in fact more internal than external, the types of supply chain frauds become more numerous and in some cases, more severe.

One of the most glaring examples of supply chain fraud is the tainted product scandals that have surfaced over the past year. However, not all of the problems were associated with lead-tainted paint; some product recalls of toys were due to small parts breaking loose that a child could put in their mouth and choke on. If the toy was not being designed overseas, but just manufactured overseas, than the toy designer should be faulted for a poor – if not dangerous – design. Was the overseas manufacturer given any guidelines in regards to stress tests to gauge whether a child could pull off a small piece?

In this example, the fraud itself would have started with a poor design and would have occurred early in product lifecycle management (PLM). Was there a quality assurance (QA) review during PLM to cover aspects such as this? Was there QA testing of prototypes and products after go-live production to ensure quality standards – if established in the beginning – were being adhered to?

Similarly, in terms of the tainted food products, what tests were performed by the product company to ensure the manufacturer was adhering to standards and not introducing unsafe ingredients? This is especially true in the pet food scandal, were an unsafe ingredient was added by the overseas raw material supplier and/or overseas manufacturer to (artificially) boost protein levels during product testing. Why was there no testing for foreign substances?

In the above examples, if the QA department’s ability to function as needed was reduced due to unnecessary or unwise cost cutting by executives, especially if the goal was to increase executive bonuses or inflate stock prices by reducing costs, the executives themselves can be considered the perpetrators of the fraud and may be civilly and/or criminally liable for the results.

In another case that was caught before the supply chain fraud occurred, a military contractor was prevented from outsourcing the manufacturing of night vision goggles to a company in China. The US military is quite particular about who can manufacture their technologically advanced equipment, and rightfully so! The reason the company executives stated they were looking to outsource the production was greed, pure and simple: they wanted to lower costs to gain more profits, and were willing to do so at the real risk of giving away US military secrets to a country known for producing pirated software, videos, music, and merchandise imitations!

Internal thefts of raw materials and finished goods are an obvious supply chain fraud. How about when machinery and equipment are not maintained according to schedule, even though the maintenance supervisor swears they are? Abuse of equipment is most certainly a type of fraud, but when the abused equipment produces less-than-first-quality finished goods, the fraud has now become more widespread. Further, if the less-than-first-quality finished goods can cause injury or death, then the impact of the fraud just became much more serious.

Internal thefts can also include monies when fraud happens in the account department. Also, a person with the right authority may be able to set up a fraudulent services-only vendor for the purposes of stealing money via the submission of fake invoices paid to a fictional vendor who is really the fraud perpetrator themselves.

Thanks, Norman!

For more examples of where fraud can occur in the supply chain, check out the new Supply Chain Fraud wiki-paper over on the e-Sourcing Wiki.