Monthly Archives: September 2009

Why You Might Not Want A Check-Up By the doctor

One of the regular features on Sourcing Innovation are vendor solution reviews, which occur only after the doctor has seen the product. Normally occurring in the spring and fall, these vendor posts, which provide solution providers with a great opportunity to reach a broad global audience, are always well received. But not all vendors who receive a demo invitation accept. For a while now, I’ve been trying to figure out the most likely reasons why. These are the best I could come up with:

  • 5. The product doesn’t exist.
  • 4. The product doesn’t work.
  • 3. The product works completely differently than the marketing spin around it.
  • 2. A discussion of the product’s capabilities “gives too much away” to competitors.
  • 1. the doctor is distrusted for some reason.

As far as 3,4,5 are concerned, no legitimate vendor in our space is selling snake oil or moonshine. All the products work, and accomplish some significant fraction of their mission. So that can’t be it.

With regard to 2, companies should understand that their competitors know them well, perhaps better than they know themselves. Nothing that the doctor might say is going to give away any secrets.

Finally, with regard to 1, the doctor has never slammed a company with a product that accomplished its designated task reasonably well, especially when the company is open about its strengths and weaknesses. The Sourcing Innovation vendor post archives prove this, far better than any claim I could make here.

So, vendors, what are you waiting for? Let’s share your accomplishments this fall with the highly targeted audience that constitutes the readership of Sourcing Innovation!

Change By Design, A Book Review

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Although he was the engineer’s engineer, Brunel [who designed the Great Western Railway] was not solely interested in the technology behind his creations. While considering the design of the system, he insisted upon the flattest possible gradient because he wanted passengers to have the sense of “floating across the countryside”. He constructed bridges, viaducts, cuttings, and tunnels all in the cause of creating not just efficient transportation but the best possible experience … Brunnel was one of the earliest examples of a design thinker.

A purely technocentric view of innovation is less sustainable now than ever, and a management philosophy based only on selecting from existing strategies is likely to be overwhelmed by new developments at home or abroad. What we need are new choices — new products that balance the needs of individuals and of society as a whole; new ideas that tackle the global challenges of health, poverty, and education; new strategies that result in differences that matter and a sense of purpose that engages everyone affected by them.

Only gradually did I come to see the power of design not as a link in a chain but as the hub of a wheel. … I also noticed that the people who inspired me were not necessarily members of the design profession; engineers such as Isambard Kingdom Brunel, Thomas Edison, and Ferdinand Porsche, all of whom seemed to have a human-centered rather than technology-centered worldview.

The natural revolution from design doing to design thinking reflects the growing recognition on the part of today’s business leaders that design has become too important to be left to designers.

So begins Tim Brown‘s new book Change By Design (available September 29) that tackles the myth of innovation that brilliant ideas leap fully formed from the mids of geniuses while exposing the reality that most innovations stem from rigor and discipline … the kind that comes from the application of proper design thinking. Design thinking, a process for practical, creative resolution of problems or issues, attempts to match necessity to utility, constraint to possibility, and need to demand to meet end-user need and drive business success. The ultimate challenge for a design thinker is to help people articulate the latent needs they don’t even know they have. Fortunately, the search for insight — in contrast to the search for hard data — is that it’s everywhere and it’s free. You just have to open your eyes and look at what people are doing.

For example, when IDEO was hired by Zyliss to design a new line of kitchen tools for the home, they started out by studying children and professional chefs. While neither was the intended market, both yielded valuable insights. A seven-year-old struggling with a can opener highlighted issues of physical control adults have learned to disguise and the shortcuts used by a professional chef yielded insights into cleaning requirements. The exaggerated concerns of people at the margins of the market led the team to abandon the idea of a “matched set” and create a line of products with the right handle for each tool. The end result was a product line that flew off of the shelves. [Proving one of my favourite points: just because you’ve been doing it that way for years, it doesn’t mean you’ve been doing it right!]

The Zyliss success story happened because the willing, and even enthusiastic, acceptance of competing constraints by the design team is the foundation of design thinking. The first stage of the design process is often about discovering which constraints are important and establishing a framework for evaluating them. Constraints can best be visualized in terms of three overlapping criteria for successful ideas: feasibility, viability, and desirability. A competent designer will resolve each of these three constraints, but a design thinker will bring them into harmonious balance. The popular Nintendo Wii is a good example of what happens when someone gets it right.

For those trying to wrap their minds around design thinking, the basic innovation rules that Tim outlines in chapter 3, A Mental Matrix, are a great place to start because they’ll put you in the mindset required to grasp the key tenets of design thinking.

  1. The best ideas emerge when the whole organizational ecosystem has room to experiment.
    And room to fail! The greatest successes will often emerge after you get the false starts and failures out of the way (and make an effort to understand why you failed).
  2. Those most exposed to changing externalities are the ones best placed to respond
      and the most motivated to do so.
    Furthermore, if you have someone who thrives in that sort of an environment, make sure she’s on the team!
  3. Ideas should not be favoured based on those who create them.
    The most successful individuals are often those who latch on to, and promote, good ideas.
  4. Ideas that create a buzz should be favoured.
    Nothing’s better than viral marketing!
  5. The “gardening” skills of senior leadership should be used to tend, prune, and harvest ideas.
    Not to create them.
  6. An overarching purpose should be articulated.
    You’re looking for new ideas to solve a problem that people want solved.

And you want to grasp design thinking, because it works. Probably the best example is that of “Cool Biz“, the imaginative program from the award-winning Japanese advertising agency Hakuhodo designed to help the Ministry of the Environment in Japan get people moor involved in meeting Japan’s commitment to the greenhouse gas reduction goals of the Kyoto Protocol. Within a year of the launch of this program, the slogan “Cool Biz” was recognized by a staggering 95.8% of the Japanese market. Can you imagine the boost to your corporate brand if 95.8% of your potential market recognized your corporate offerings?

For more information on design thinking, which is becoming more necessary by the day in a world where constant change is inevitable and everything is a prototype, see the Design Thinking blog, IDEO’s website, the The Harvard Business Review article on Design Thinking, the Innovation 100 Interview with Tim Brown on YouTube, the Design Thinking video (extended version) on YouTube, and the Global X Interview with Tim Brown on YouTube.

And if you’re still not convinced you should buy the book, consider the following quote which literally made my day:

Business school professors are fond of writing learned articles about the value of brainstorming. I encourage them to continue to do so (after all, some of my best friends are business school professors, and it keeps them busy and out of my way).

If You Truly Want Intelligent Decisions, Get a Real Data Analysis Tool

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And before we go any further, Excel DOES NOT Count!

Backing up, a recent article over on SupplyManagement.com on intelligent decisions notes that BP has set up a market intelligence team to make faster and better decisions and that, to date, it has helped them to save 20M while avoiding unnecessary expenditures of an additional 690M. And I have to admit that’s eye-catching. But just setting up a team isn’t going to get you that level of savings. You’re going to have to train them and give them the tools and resources they need. While one of those resources will be access to market data feeds and analysis channels, another will be a real data analysis tool.

The reality is that your team won’t be able to amalgamate and normalize all of the data sources, identify trends, and develop appropriate predictive models if they don’t have the right tool for the job. This is a significant analysis and modelling exercise, one that spreadsheets like Microsoft Excel are not equipped to handle. Just like a carpenter needs a hammer and a nail to attach two boards, an analyst needs the right software tool to properly combine and trend two distinct data feeds. Don’t forget that.

Service Leaders Speak: Bernard Gunther of Lexington Analytics on “Reducing Bypass Spend”

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Today’s guest post is from Bernard Gunther of Lexington Analytics, a leading provider of spend analytics services for global procurement organizations.

Savvy sourcing managers are finding ways to uncover new savings despite spending freezes and heavy workloads. Just because the economy is suffering and budgets are frozen, it doesn’t mean you have a pass when it comes to demonstrating your value to the organization. In fact, it’s the perfect opportunity to show your stuff. You just have to be smarter and more creative about it.

One sourcing pro managed to reduce bypass spending and save over $100,000 a year by investing a couple of days of her time. You can bet this didn’t go unnoticed, especially during this economy.

Any sourcing manager looking to deliver value to the organization can do the same thing. Here’s how.

We’ll make three assumptions:

  1. You have some sort of spend analysis system*. You should be able to do this analysis whether you have a first-generation style data warehouse, use a third party to analyze your spending, or have a modern spend analysis tool. You just need basic spending information.
  2. You have done a deal with a selected vendor where you are now getting better pricing and quality for the same services than you were previously. You may have done this deal with a paper RFP or a very sophisticated optimization engine. You just need to know the pricing for the new deal.
  3. Some users in your organization are not buying from your preferred vendor. If you are covering a range of categories and have 100% compliance to all your deals, congratulations! This is a very rare accomplishment. Most organizations have some level of bypass or maverick spending.

If you have a good information system, the following should get done in a few days over a few weeks. If it takes you longer to get this done, you may look at your information systems. There is a great deal that can be done to make this faster and easier.

Here’s the process and some illustrative results:

  1. Pick a category where you have a preferred vendor with favorable pricing.
  2. Find the past year’s spending for this category. For illustration, let’s assume the category spending is $3 million.
  3. Estimate the opportunity. Let’s assume you have 70% compliance with your program. This means that there is a bypass rate of 30% (or $900,000). When you sourced this category, your preferred vendor saved you 15% on your rates. 15% savings on $900,000 is $135,000 — money worth going after. In addition, your incumbent could increase their business by over 40% — something that any vendor would be happy to do. If the opportunity is large enough, continue.
  4. Get the spending by vendor. Find the largest bypass vendor. Let’s assume this vendor represents one third of the bypass or $300,000 of spending. If you could move this bypass spending to your preferred vendors, you would save 15% of $300,000 or $45,000.
  5. Verify the opportunity. Obtain a few invoices for this bypass vendor. In the ideal world, you would be able to get a detailed file with all the specifications, quantities and pricing for this bypass vendor to make this analysis quick and comprehensive. But you don’t need to live in this world of perfect information to get results. Price out the invoices using your preferred vendor. If your pricing grid doesn’t cover the items in question, talk to your preferred vendor and see if they sell the items and can give you firm pricing. You may need to call this bypass vendor to understand the specifications and ensure you have an apples-to-apples comparison. At the end of the day, one of the vendors will have a lower price. If your preferred vendor is lower, you have the information to go to the business unit. If your preferred vendor is higher priced than this bypass vendor, you should use this information to get the preferred vendor to lower their price, generating savings on the rest of your spending.
  6. Estimate the savings for the largest business unit. Use your spending information to calculate savings for this business unit. Let’s assume this business unit represents half of the bypass spending with this vendor. This means shifting the spending would save $22,500 for this one business unit.
  7. Talk to the people in the business unit who used the other vendor. Find out why they use the bypass vendor and ask what it would take to use the preferred vendor in the future. Ask them if this extra money would be useful. (If they aren’t concerned about the money, perhaps the budget pressures aren’t as serious as you thought. Keep a log of “wasted spending”. When the next round of budget pressure comes around, you can haul out the list.)
  8. Reduce the bypass. Develop a plan to eliminate this bypass in the future. If this business unit regularly buys from the bypass vendor, this is straightforward. If you have tight and centralized ordering, work through the system. If this is an episodic purchase done by many units, you may need to let more people know about this preferred vendor and the savings opportunity.

If you did this once a month, you’d save $22,500 x 12, or around one quarter of a million dollars every year — easy money for a few days of work a month. And you still have 90% of your time left to do what you normally do.

So what’s stopping you?

Thanks, Bernard.

Educating to Reduce Risk (in Your [Retail] Supply Chain)

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Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archive.

Being just a little past my mid-40s I realize I’m at risk (how appropriate or rather inappropriate is that in this blog!) of dating myself, but does anyone remember the phrase “The Three Rs”?

This phrase represents the basic foundation of education: reading, writing, and arithmetic.

Still to this day, and probably emphasized by all the standardized testing done which grades the performance of schools, I don’t think the necessity of this trio of core skills is any less important. However, I’d like to throw in a fourth (and actually fifth) R in regards to the benefits of education: risk reduction.

Of all the supply chains in the world, the retail supply chain in the United States is arguably the toughest and most sophisticated of them all. The smallest disruptions can result in profit losses and missed sales. Timeframes are very tight and the drive towards 100% perfection is relentless.

Retail suppliers invest heavily in technology, automation, and business processes to ensure they are complimentary collaborators with their retail trading partners, all with the goal of reducing the risk of not shipping the right products in the right time at the right quantity to the right destination in order to ensure their products are on the shelf when the consumer wants to buy them.

But what about investing in education to reduce risk? Can technology and automation eclipse the need for some sound, basic education on how to participate in a supply chain, retail or other? I would argue that such education is absolutely necessary. Without a good educational foundation, enterprises run the risk of incorrectly investing in technology and business processes that fail to truly address the root-cause of problems or don’t enable growth, planned or otherwise.

Selecting the right education provider can be tricky in-and-of-itself. There are plenty of companies who offer quality training. Do your due diligence and investigate the company and its trainers for experience and depth of knowledge. Keep in mind that anyone can offer training classes and that slick sounding company names may be just that and offer little in terms of training that will have any substance or credentials in daily business activities.

Certifications and training courses are often provided by trade associations. This is good because trade associations often carry a “name” or brand with them so there should be confidence in the quality of the education and that it will be recognized through one or more industry verticals.

Some associations are independent and are thus self-certifying. For these independent associations some have grown quite large and are well-recognized such that their certification is accepted and respected. Look at who is backing the certification and whether the backer has respect and visibility throughout one or more industry verticals. Is the training endorsed by outside entities? And just because a list of well-known companies is provided does not necessarily mean that the training is recognized as a standard or is widely respected. Do your homework! How long has the association been around and how many members does it have?

What this boils down to is that fraud can be perpetrated by training and education organizations too. Knowingly misrepresenting goods and services is fraud.

Buyer beware. Trust but verify. Due diligence.

Not just catchy phrases but ones to live by.

Norman Katz, Katzscan