Monthly Archives: December 2008

On the Fourth Day of X-Mas … (Collaborate)

On the fourth day of X-Mas
my blogger gave to me
four little words,
tri-focal lens,
two boxing gloves
and a lesson in strategy.

One of my favorite presentations from the last few years is Coca Cola‘s presentation on “Winning Together” from eyefortransport‘s Supply Chain Directions Summit back in 2006.

The presentation, which described Coca Cola’s big push to improve its supply chain through collaboration and information sharing, noted that success depends on:

  • relationships,
  • communications,
  • commitments, and
  • visibility.

These little words have a meaning that’s just as big today as it was two years ago. They’re still the blueprint of success between you and your supply chain partners. Although important, the keys to sourcing success are never canned processes or over attention to metrics, but working as an extended team with your supply chain partners and focussing on the customer. This means communicating to them early when a shipment is in danger of being late, working with them to find alternate sources of supply if the primary source dries up, and suggesting material and design changes that will reduce costs and improve quality. Strong relationships are the key to success and sustainability — take the time to get it right.

Furthermore, it’s important to remember that, when you get right down to it, very little information is truly confidential, and the best way to resolve issues and collaboratively improve supply chain performance is often to put everything on the table. It’s important to share all relevant information with your partners, and give them whatever they ask for if it will help them help you. Remember, there’s a big difference between sharing information with a trusted partner and blasting it all over your corporate web-site. You can always enter into two-way protection agreements if need be, but you can’t collaborate if you don’t share.

On the Third Day of X-Mas … (Three Sides to the Supply Chain)

On the third day of X-Mas
my blogger gave to me
tri-focal lens,
two boxing gloves
and a lesson in strategy.

When coming up with a good strategy for your supply chain, one of the very first things you need to understand is that there will always be three views of the best decision: the procurement view, the logistics view, and the executive view. Your number one challenge could easily be the transformation of these viewpoints to a common viewpoint that permits a common solution.

This will probably require a lot of good negotiating skills, good listening skills, and innovative problem solving skills to propose designs and solutions that can appease everyone’s desires. This is where Jason’s Emotional Intelligence (or EQ) really comes into play. You have to see their viewpoints, understand their perceived problems, get to the real issue, and come up with solutions that will simultaneously meet your needs and theirs.

Management will typically want the solution with the perceived lowest cost or highest profit, or both; logistics will typically want the solution that makes their life easiest; and you should want the solution that meets the needs of your stakeholders – engineering, marketing, etc. – while keeping your costs down. A narrow focus on lowest cost can lead to quality issues, a narrow focus on the easiest solution (local sourcing enabled by a national carrier that can meet all of your shipping needs) can overlook lower cost or higher quality sources of supply, and a narrow focus on minimally meeting your shareholder’s needs in a cost-controlled manner can overlook opportunities for innovation.

So not only do you need to be able to understand each of these viewpoints, you need to be able to see their strengths and weaknesses so that your team can collaboratively design an over-arching supply chain strategy that exploits all of the supply chain strengths available to you while blocking out the potential weaknesses.

On the Second Day of X-Mas … (Cost Avoidance Basics)

On the second day of X-Mas
my blogger gave to me
two boxing gloves
and a lesson in strategy.

The first boxing glove that I hand to you, to help you beat down proposed price increases, is market and category intelligence. For those of you who have been following the blogs for a few years now, you’ll recall Charles Dominick’s insights over on Supply Excellence a couple of years back in Caveat Emptor: Economic Indices Could Be Misleading You and Supply Market Assessment 101 where he noted that a single commodity index alone does not justify a price increase (or decrease) for that matter.

To truly understand when the price of a part should be rising (or falling), you have to truly understand the marketplace and the component (and raw material) breakdown of the part you wish to buy. The best way to understand this is with the new category intelligence offerings that are being put forth not just by the traditional vendors (like Ariba Supply Watch) but niche vendors with particular specialities like Denali Intelligence and Power Advocate.

Even when buying refined raw materials, to accurately determine a price you need to know where the supplier is buying from, the relevant cost indices of the raw materials in those regions, the relevant exchange rate between your supplier’s supplier and your supplier, it’s expected stability, the relevant exchange rate between your supplier and you, and it’s expected stability. An increase in the steel index in the U.S. is irrelevant if your supplier buys its steel in China. Also, the cost increase in a commodity can often be offset by a recent currency devaluation. Therefore, your first defense against a commodity price increase is a deep understanding of your should-cost structure, gleaned from good category and market intelligence, which will include a supplier’s cost structure.

The second boxing glove that I hand to you, to help you beat down proposed price increases, is a good strategic sourcing process that you can use to find alternative sources of supply. This process should take advantage of the readily available supplier networks that are out there on sites like MFG.com and ThomasNet Purchasing Tools and should be enabled by cross-functional teams that will allow you to quickly and efficiently work through a best-practice sourcing process. After all, even if there are genuine reasons for a cost increase, but your supplier refuses to collaborate to keep costs down for both parties, sometimes you will need to find an alternate source of supply.

On the First Day of X-Mas … (Sourcing Strategy Selection)

On the first day of X-Mas
my blogger gave to me
a lesson in strategy.

Even in these uncertain times, everything should be sourced.

As I said before, two years ago to the day in fact, this doesn’t mean that you should apply an intense multi-stage strategic sourcing effort to everything you buy, but that you should have a strategy for dealing with every category — since that’s the key to success across the board. Some categories will be tackled with negotiation, some with strategic sourcing decision optimization, some with reverse auctions, and some with spot buys.

One way to start is to breakdown your spend by category (direct, outsourced, indirect/MRO) and part type (commodity, custom part, or strategic part). This gives you the following methodology grid:

Part Type/Spend Direct Outsourced Services Indirect / MRO
Strategic Collaboration with a small set of strategic suppliers Dedicated Contract Owner Collaboration with a best-in class provider for each category of services
Custom Decision Optimization on a Pre-Qualified Set of Suppliers Managed by a Strategic Outsourcing Provider Managed by a Senior Sourcing Professional
Commodity Reverse Auction Multi-Stage RFX Lowest Bid

For direct and indirect spend, you can also approach the problem by opportunity type:

Opportunity Methodology
Too many vendors Spend consolidation with 2-3 vendors
Too few vendors RFX to add vendors
Insufficient vendor knowledge RFI
Insufficient solution knowledge RFP
Insufficient vendor bids RFQ
Insufficient bid movement Auction
Complex bids / Constraints Decision Optimization
Contracts unavailable Contract Management
Unmonitored contracts Procurement Audit
No spend baseline Spend / Invoice Analysis
Overly complex category Disaggregation
Uncoordinated Sourcing Efforts Program Management

And, as Charles (of Next Level Purchasing), Eric (of BIQ), and I have said before, you should segment your opportunities into quick hit opportunities (that can be accomplished by an invoice review or quick reverse auction event), near term strategic sourcing opportunities (that can be accomplished by a multi-round sourcing event employing sophisticated negotiation and decision optimization techniques), and longer term supplier relationship / collaboration opportunities (that require changes in methodology and production). This allows you to get some quick wins to fund your efforts, some near term wins to demonstrate the long-term effectiveness of a strategic sourcing program, and long-term wins to bring continued success in the years ahead.

Although it’s hard to say with complete confidence what the best methodology is for any given organization without knowledge of the organization and its needs, it is easy to say with complete confidence that the existence of a methodology is sometimes more important than the actual methodology itself as organizations with well-defined methodologies for sourcing consistently outperform those without. (Just like organizations with well-trained and certified teams outperform those without consistent training and experience.) Furthermore, these organizations will tweak the methodology over time based upon experience and continued learning until they end up with a best-in-class approach to organizational supply management.

Dumb Company (The Lyrics)

In the spirit of CIRCUIT (the Corporate Intelligence Rating Under Inflationary Times), Dumb Company, and Dead Company, I bring you Dumb Company, in lyrics.

Company, always on the run
Destiny … we’re all chasing the sun
We’re downsizing, pink slips in hand
Without a prayer, we make our final stand
That’s why we are called

Dumb Company
Oh, we can’t deny
Dumb, Dumb Company
Till the day we die

Brainless souls
Innovation we do stall
Use the axe
It’s time to drop the ball
All the blogs
They know us by name
A slashing sound
It’s our claim to fame
That’s why we are called

Dumb Company
Oh, we can’t deny
Dumb, Dumb Company
Till the day we die

Enjoy the Song
Time’s up, we move on


To the tune of Bad Company