Daily Archives: July 13, 2009

Remember The Three Key Objectives of Supply Chain Risk Management

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As emphasized in an article in Industry Week from last fall on Supply Chain Risk Management, from a risk manager’s point of view, the following are the three key objectives of an effective supply chain risk management strategy:

  • identify and prioritize critical business elements,
  • map the entire supply chain to determine interdependencies, and
  • identify the potential failure points along the chain.

Not only is it important to keep these objectives in mind as you are analyzing your current supply chain for risks, especially those that could result from the failure of one or more suppliers or logistics providers, but it is doubly important to keep them in mind when you start re-evaluating your global sourcing strategy in the forthcoming upswing. Otherwise, you could make decisions that will put you right back where you are today when the next inevitable downswing rears its ugly head.

Myths and Realities of Services Procurement

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A recent article in the Supply Chain Management Review did a good job exposing some of the myths, and realities, of service procurement.

Myth: You can manage costs through RFPs.
Reality: Sourcing is only the beginning. Over half of all negotiated savings can be leaked during Procurement.
    Negotiated savings aren’t realized until a transaction occurs … and they only happen if you pay the right price for the right quantity of the right product at the right time. That’s why you need a good e-Procurement system and someone monitoring all the alerts and running queries and random spend analysis-based audits monthly (for what can’t be caught automatically).

Myth: Managing services spend is complicated and expensive.
Reality: It’s never been easier … and it was never hard to begin with if you approached it properly.
    If you know what you’re doing, have a checklist, and have a solution that supports that checklist, it’s a breeze. If a pre-surgery checklist can cut serious complications by over 35% and inpatient deaths by over 40%, imagine what a good solution can do for something, like transaction management, that is a lot simpler!

Myth: It’s just temp labour … let HR handle it.
Reality: Most businesses start with temp labour, but there’s also marketing, legal, and other areas to address.
    And don’t forget about print spend, which often presents one of the biggest savings opportunities, at least percentage wise.

Myth: If you build a system, your staff will use it.
Reality: Users find a way around any system they don’t like.
    At a minimum, any system you intend to use to manage services spend must include:

  • A consumer-like user interface and requisition process.
  • Single sign-on for any purchase request, goods or services.
  • Visibility into the status of all orders that are in process by the user.

Myth: The best way to cut costs is to cut services.
Reality: It’s sometimes the worst way … the best way to achieve a significant cost reduction is to employ effective spend management practices.
    Maverick buying is often the biggest loss of spend in your organization, and the reason that over 50% of negotiated savings are never realized. Manage the spend, and savings will materialize almost instantaneously.

Myth: Any e-Procurement solution can handle services.
Reality: Most e-Procurement solutions were not designed for services.
    While you can fit a square peg into a round hole if you trim it down and force it … it’s not always the best idea. Especially when there are solutions defined specifically for services procurement.

Myth: Services are unique …we need point solutions for each one.
Reality: Any service solution should be part of an overall strategy … and some solutions are built to handle multiple types of services.
    Multiple solutions can create more chaos, not less.

Myth: Vendor-funded software is Free!
Reality: The hidden costs of vendor-funded software could bankrupt your supplier.
    Every time you use a vendor funded solution, you’re costing the vendor money. That means they have two choices, raise their prices to you to cover the cost, or take the hit in hopes that they’ll make it up on volume, which they never do, and this approach, ultimately, takes them closer to bankruptcy than to profit.