Daily Archives: July 14, 2009

Reducing the Footprint of Your Supply Chain EcoSystem

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A recent article in Industry Week contained an interview with Christian Verstraete, the CTO of Worldwide Manufacturing & Distribution Industries of Hewlett Packard Co. who is pushing the lean frontier to see “how it can be incorporated into the wider view of the complete ecosystem”. This is because companies must have a handle on risk management and mitigation across the supply chain while simultaneously reducing the variants. Rather than do Six Sigma within the company, do Six Sigma across the supply chain“.

HP, which actively models proposed changes to its supply chain in modern simulation software before making any significant changes that could have (significant) repercussions, won Wal-Mart’s 2008 Home Entertainment Design Challenge which revolved around reducing the amount of packaging material in an effort to be environmentally responsible. HP was able to design one package to meet shipping needs for PCs and laptops from China or Thailand that reduced shipping material by 97%.

While the article was short, Christian did make one very good point … a company is a community of human beings and everyone is responsible for doing their part. And today, that means being socially responsible. So before you make a new (global) sourcing decision that’s going to require significant changes to your supply chain, when you’re running that Total Value Model, be sure to take into account the carbon footprint as well. It might not be a very valuable decision after all, especially once carbon credits become mandatory.

Plugging the Leaks in Your Contracts that Erode Your Savings

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A recent article in the CPO Agenda on how to keep the value attached to your contracts started of by noting that purchasers and suppliers are often disappointed by the results of strategic sourcing, as over half of the negotiated savings never materialize the vast majority of the time.

Over the past year, the CPO agenda has been conducting a global study across more than 600 companies (and 800 respondents from buy-side and sell-side executives and professionals). Based on the results of this research, they have devised a number of recommendations that they believe will help procurement leaders weather the challenges of today, position themselves for success and, most importantly, plug the leaks in their contracts. And some of their recommendations are pretty good.

In a nutshell, they recommend the following:

  • focus on developing sophisticated negotiation and supply chain management strategies and capabilities
    spend consolidation and e-auctions alone don’t cut it
  • take a more collaborative approach
    over 80% found their negotiations adversarial; furthermore, those who believe they were taken advantage of operated defensively, refused to share information, focussed on compliance rather than execution, and actively looked for ways to “make up losses”
  • balance the use of competitive sourcing and bidding with negotiation strategies that are more collaborative, fair and sustainable
    63% of the top performing buy-side study participants described their negotiations as collaborative
  • effective preparation is key
    leverage in negotiations is largely a matter of perception and structural factors have far less impacts on leverage than effective preparation
  • systematically assess leverage from multiple angles
    it’s just as important to understand your trading partner’s business model and strategy as it is to understand your own
  • take a structured approach to negotiations
    67% of top performers characterize their negotiations as structured and predictable while 69% of bottom performers characterize their negotiations as unstructured and unpredictable
  • adopt a formal supplier relationship management program
    organizations with these programs were found to realize 17% more value from their strategic sourcing efforts
  • align your internal stakeholders
    lack of internal stakeholder alignment was consistently touted as a top barrier to success
  • involve business and technical stakeholders
    a lack of involvement leads to internal stakeholders, and suppliers, trying to work around procurement processes and policies

Good advice. For more, see the article.