Monthly Archives: March 2009

Take Your Eyes Off Of The Yellow Brick Road and Follow The Car

A recent article in Strategy + Business which tells us to Follow the Customer, Follow the Car makes a great point: when customers are scarce resources, you need to focus on your current customers, do more with them, and not churn your customer base.

A prime example of how to succeed is given by the Japanese auto companies who adopted “follow the customer” as a core strategy decades ago. When demand for new cars declined in their home market, they emphasized products that accompanies the car — insurance, loans, inspections, maintenance, parts, and accessories — with revenues that remain stable in recessionary times. This allowed them to survive the recession, and then grow when the market rebounded.

This strategy doesn’t just work for the automotive industry. In the last recession in Japan, it worked just as well for other machinery industries as well. Construction machinery, plant machinery, and aerospace are all prime examples that can benefit. In a recession, people want to keep their assets running longer, and anything you can do to help your customers maintain their hardware longer is a stable, and profitable, industry for you.

And if you’re in sourcing, that means you can expect to be sourcing more parts and services, and anything you can do to reduce these costs will benefit the company immediately.

Harvard Business Review’s Seven Truths about Information Technology Costs

The Harvard Business Review recently ran a short one-page article on “The Truths About IT Costs” that should be a must-read for every business executive. While they don’t capture everything you need to know about IT, every point they cover is a point you need to be aware of.

  1. Enhancements Don’t Necessarily Deliver Results Commensurate with their Costs
    Consider how much you pay for ERP upgrades, factoring in the upgrade costs and maintenance costs, relative to how much of the new functionality you end up using and compute the resultant impact on productivity and cost savings, especially compared to the acquisition of a new SaaS e-Sourcing or e-Procurement solution that automates a business function that’s currently manual and you’ll quickly realize this.
  2. Projects Are Often Too Big and Take Too Long
    Many projects have pages of “must have” features and functions that are nothing more than requests that came from a single stakeholder who will rarely even use the software. Create a short-list of essential functions that will be required daily and augment it until 90% to 95% of regular daily activity is accounted for. Stop. That’s the initial implementation.
  3. Previously Purchased Applications and Infrastructure Technology are Underutilized
    Invest six figures in your redundant WebsShere environment? Then you certainly don’t need WebLogic! Tell your vendor you want the WebSphere version or you’ll find another solution. Same goes for your hardware. Use what you have. Need a separate environment? No problem – use virtualization.
  4. Project Failure Rates are Too High
    That’s why you have to keep the initial implementation small … and why subsequent phases must also be small as well. The process should also be agile, with regular feedback and testing. That way you don’t spend hundreds of thousands of dollars having a third party build a custom solution that you can’t use because you only find out six months later during implementation that it can’t be integrated with your current platform without another three months and three hundred thousand worth of work.
  5. Technical Teams Often Do Not Have Sufficient Incentive to Deliver High Quality Applications
    Especially at your average chop shop. Just because the third party developer and integrator is charging you $150 an hour for a resource, doesn’t mean the resource is worth anywhere near that amount. It might actually be a junior consultant only two years out of school who gets a flat salary of 60K a year and who doesn’t see a penny of the performance bonus the firm collects if they deliver on-time.
  6. Managers Don’t Know Enough About the Systems that Support Their Areas
    As a result, your tech department is probably overwhelmed with “helpless” help desk costs that needlessly drain costly resources.
  7. IT is Too Risk Averse
    Many old-school IT managers still live by the “No one ever got fired for buying IBM, HP, or Microsoft”, even when those solutions cost three times as much as competitive solutions. There are huge cost savings opportunities just waiting to be found if you go thin client wherever possible (as it costs less and requires fewer costly hardware refresh cycles), discontinue costly (and often unnecessary) maintenance agreements, and embrace open source platforms and applications where it makes sense to do so.

Training Doesn’t Have to Be a Budget Buster

I was glad to see this recent article in Industry Week which echoed a key point I’ve been trying to make over the past few years, that “training doesn’t have to be a budget buster” and that affordable options are available.

Consider the following options outlined in the article:

  • Onsite
    Bring in an expert instructor for hands-on training. You’ll get a lot of bang for your 2K a day, especially if you qualify for federal reimbursement under the Workforce Investment Act of 1998 which can see you getting a reimbursement of 60% to 100%. Alternatively, you can send two employees to a train-the-trainers program, and they can pass the knowledge on to your entire workforce.
  • Seminars
    Instructor-Led seminars limited to 10 students insure that each student gets instructor time and maximizes the information transferred.
  • Online Training
    There are a slew of affordable on-line and distance training options these days, some of which even come with certifications for less than you’ll likely pay for your shiny new iPhone over the course of a year.
  • Local Colleges / Trade Schools
    Many of these have very cost effective programs, especially if they are state or province (co) sponsored for local students.
  • Simulation Software
    Allows students to learn through tutorials and trial-and-error without risks to equipment or currently operating processes, often for just a few hundred dollars per student.
  • Webinars
    A sequence of properly selected webinars can often provide basic information at little or no cost.

So where can you find these resources? Start with the Sourcing Innovation Resource Site which lists dozens of affordable seminars, classroom training, and on-demand online training options as well as hundreds of archived webcasts and podcasts.

Optimizing Your Procurement Technology Investments

The Sourcing Interests Group recently ran an interesting article on “optimizing your procurement technology investments in 2009”. Although it had some good suggestions, my top five suggestions would be the following:

  1. Get Visibility Into Your Spend (Spend Analysis)
    If you don’t know how much you’re spending on each category, sub-category, product, and service, who you’re spending it on, in what amount, by unit, you need to get this visibility. Get a good spend analysis solution and dive in!
  2. Take Your Strategic Sourcing up a Notch (with e-Sourcing)
    Start with the most attractive savings opportunities that were outlined in step 1. This is your best bet to negotiate big savings in this downturn.
  3. Focus on Contract Compliance (adopt Contract Management)
    You need to enforce hard-won savings by insuring that internal staff and suppliers are compliant with contractual agreements.
  4. Implement e-Procurement
    Done right, this will make it easy for your buyers to buy on contract.
  5. Get a Grip on Global Trade (adopt Trade Visibility solutions)
    Chances are your global sourcing endeavors are needlessly costing you more than you think! As per my recent Illumination on why you need trade visibility, you’re probably paying more than you need to on duty, using costly inefficient processes, paying unnecessary document preparation costs, and making costly errors that are costing you million of dollars a year.