Monthly Archives: March 2010

Your Boss Giving You a Hard Time? Have you Considered War?

You’ve played shoot your boss a hundred times. You bought White Goat so you could wipe your behind with his memos. You even altered the bar code on his car so he couldn’t get into his gated community last night. But it’s still not enough.

Your boss is an obnoxious jackass to you and you need your revenge. Cubicle Wars just aren’t enough anymore. You need more. And if you’re in San Francisco or New York, StreetWars* wants to give it to you!

Tell your boss if he’s all he says he is, that he should accept your challenge and sign up for street wars — a three week long, 24/7 assassination tournament (with water guns). If he has what it takes, you’ll see him in the finals. If not, then you’ll know who the real sharp shooter of the office is.

* Neither Sourcing Innovation nor the doctor have any affiliation with StreetWars. the doctor just thinks it would be a really cool way to settle a grudge match and find out once and for all who’s better — you or your boss. Have fun! (And remember, it’s all about the thrill of victory and the humiliation of defeat.)

A Quick Introduction to Finance, Part III

A recent article over on CPO Agenda on Skills for the Future that summarized the findings from a recent workshop that debated the skills the future would require identified better finance skills as keys to future purchasing success. Since the article simply rambled off a list of terms with no definition, I decided I’d define the basics for you.

Asset Turnover: is the amount of sales generated for every dollar worth of assets. Simply put, it is revenue divided by assets. It measures an organizations efficiency at using assets to generate revenue. The higher, the better. It can also indicate pricing strategy. A company with a low profit margin tends to have high asset turnover, while those with high profit margins tend to have low asset turnover.

Return On Investment: (ROI) is a performance measure used to evaluate the efficiency of an investment. It is calculated as the return on investment divided by the cost of the investment. The higher the ROI, the better the investment.

Return on Invested Capital: (ROIC) is a performance measure used to assess the company’s efficiency at allocating the capital under its control to profitable investments. It is calculated as the Net Return for all Investments divided by the Total Capital available. (Where Net Return is Net Income minus Dividends).

Profit Margin: net margin, net profit margin, or net profit ratio is a measure of profitability that is equal to the net profit (after taxes) divided by revenue. Like Asset Turnover, ROI, and ROIC, bigger is better.

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Efficient Sourcing In Marketing, Part II

In our last post we discussed how Marketing Procurement was still a sacred cow at many companies, despite the fact that significant savings, which exceeded 42% at one CPG company, are to be had. Even though CIPS and the IPA tried to highlight the potential three years ago with their report on Magic and Logic: Re-defining sustainable business practices for agencies, marketing, and procurement, which was followed by Efficio‘s treatise on The Creative Challenge: Driving Efficiencies in Marketing Procurement which laid out an eight-step approach to driving efficiencies in Marketing Procurement.

Then Booz & Co. decided to get in the game with their recent whitepaper on Efficient Sourcing In Marketing, which is a good candidate to complete the trilogy. In this paper, which described the all-too-common scenario that represents the sourcing side of marketing at large companies, Booz & Co. outlined some of the many advantages that can result from bringing a disciplined process to Marketing Procurement and laid out their six step process for getting results, which we’ll cover today.

1. Analyze Marketing Spend in Detail

As with any sourcing process, you need to know where and how the money is being spent. Currently, most CMOs have no idea of their marketing expenditures or a comprehensive profile of their supply base as their budgets are divided between “above the line” items, such as advertising and creative services, and “below the line” items, such as promotion and direct mail. Furthermore, most marketers manage against budgets and campaigns rather than vendor compliance to contracted terms.

2. Adopt a More Rigorous Approach to Spend

There are two ways Marketing can be disciplined in cost control. The first way is to rebid and consolidate the vendor base. The second is the through the manipulation of demand and process levers through the requirements placed on suppliers by marketing staff themselves. Procurement can help with both levers using the methodologies identified by Booz and Co. in the white paper.

3. Deploy Decision Support Tools to End Users

These tools can alert marketers when their current suppliers are overly expensive, less experienced, or less capable compared with other suppliers they are spending on (when performance metrics are tracked). These tools can also automate price comparisons, cost trade-offs, and complain analysis — offering tangible metrics that quantify the results of marketing’s efforts.

4. Create a Clear Delineation of Roles and Responsibilities

Cost savings rarely happen where decision rights and lines of responsibilities aren’t clearly delineated in most departments, with Marketing being one of the worst offenders. Categories of spend that span business units should be centrally managed, whereas those that are business unit specific or local should be done according to well defined rules that define vendor selection. Typically, final decision rights will remain with Marketing, while Procurement works to facilitate and continually improve the effectiveness of the strategic sourcing process.

5. Define an Operating Model

The operating model should be governed by the roles and responsibilities define above but be streamlined to support the nature of the company’s marketing activity.

6. Use Change Management to Implement the New Paradigm

Each of the previous steps require a company to change established strategies and practices and implement new ones. As a result, the appropriate application of change management must be anticipated and provided if the initiatives are to succeed.

In other words, if you deploy a good cross-functional strategic sourcing process, you’re already well on the way to Marketing Procurement success.

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A Quick Introduction to Finance, Part II

A recent article over on CPO Agenda on Skills for the Future that summarized the findings from a recent workshop that debated the skills the future would require identified better finance skills as keys to future purchasing success. Since the article simply rambled off a list of terms with no definition, I decided I’d define the basics for you.

Cost Breakdown: is the process of breaking a cost down into its components.

Cost breakdowns are the basis of Total Landed Cost and Total Cost of Ownership calculations. For example, the cost breakdown of a transformer would be steel, labor & overhead, copper, oil, transportation, miscellaneous components, and supplier profit margin. The total landed cost would be the unit cost, the taxes, the export tariffs, the import duties, and the transportation and in-transit storage costs. The total cost of ownership would also include inventory costs, utilization costs, and waste / defective unit return costs.

Life-Cycle Cost Analysis: (also known as Whole Life Cost) refers to the total cost of ownership over the life of on asset. It starts with the costs incurred in the planning and design phases, includes production related costs such as new machinery or equipment, raw material costs, labor and overhead costs during production, distribution, maintenance, and eventual disposal. From a life-cycle cost perspective, the cost per unit is just one cost among many.

Cost Engineering: is an area of engineering practice concerned with the application of scientific techniques to cost estimating and cost control. It will use advanced statistics and cost models to try and accurately estimate the total cost of a product before it is built and to identify methods to control costs that could increase beyond acceptable bounds.

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How To Slow Your Supply Chain Transformation to a Crawl

In my last post, we discussed how transformation is necessary for high procurement performance and gave you some advice on how to get started. But transformation is not easy, and there are many pitfalls you can encounter along the way. In this post, we’ll addres some of those.

As a supply chain leader, you are probably in the midst of a process to redesign your supply chain to be more fault tolerant, more secure, and more safe to avoid the fiascos that your brethren (Huntington Meat Packing, Mattel, Toyota) have recently faced in the media. If you want the transformation to go smoothly, and be effective, you better avoid these six mistakes that can derail your company’s attempts to change its supply chain, as described in a recent HBR article on Accelerating Corporate Transformations. (Subscription Required)

  1. Cautious Management Culture
    There’s a time and a place for incremental improvement. That time and place is not during a supply chain transformation project. During times of “incremental improvement”, executives tend to be too preoccupied with daily operations and too busy to get involved in redesigning the entire business. During a transformation, the entire management team needs to be charged, focussed on the goal, and involved in making it happen as a team.
  2. Business-as-Usual Management Process
    A transformation can’t be pigeon-holed into established systems and processes and meeting times. It has to be its own system, it’s own process, and its own, all-hands-on-deck, meeting — run alongside the existing systems, processes, and meetings until you’re ready for a transition. People may feel that they don’t have quite enough time, but that’s normal, and often good. Put a little pressure on and stick to the schedule, otherwise a three-month initial phase can quickly become a six-month, nine-month, or longer phase as people keep delaying it because they’re too busy with current processes, systems, and meetings, which aren’t working and need to be replaced as soon as possible.
  3. Initiative Gridlock
    Sometimes you have to kill an old initiative for a new one to fly. As the article points out, executive leaders may lack the insight and courage to discard efforts that have come up short and, to avoid admitting failure, pile new initiatives on top of the ones that are struggling — and the result is gridlock. Success is best achieved when action agendas are restricted to only three or four companywide initiatives, each targeted to two or three carefully selected areas of focus and tied to clear outcome metrics. That way workers aren’t overloaded and can focus on achieving clear, non-conflicting, goals.
  4. Recalcitrant Executives
    Many executives … choose to avoid conflict and hope that the “clarity” and “efficacy” of their grand plan will quickly win people over. Problem is, what’s clear to them isn’t always clear to their counterparts or their direct reports. And if you don’t take the time to win over a “deep denier”, resentment, and a need to undermine your efforts, can build and eventually bring your project to a dead stop. You have to be willing to confront, debate, and fight-for your project. You might not be able to change everyone’s views, but if you can convince them you’re serious and that your initiative is well researched and thought out, and earn their respect, you greatly improve the chances that the dissenters don’t stand in your way.
  5. Disengaged Employees
    Employees, who do most of the actual work, are the key to your transformation. It’s critically important to involve them in the transformation process as early as possible. This should include sessions that inform them of the upcoming transformation before it starts as well as training and Q&A sessions as early as possible in project launch. Roll-out to the entire organization should be as rapid as possible.
  6. Loss of Focus During Execution
    If you don’t continually champion the transformation initiative as the day-to-day grind again takes centre stage, you might find that old habits gradually sneak back in, that leaders switch back to command-and-control mode, or that attention is turned to other “important” activities. As a leader, you have to follow the project through to the end to ensure success.

Basically, as the article points out, transformation launches must be bold and rapid to succeed. Even if the project can’t be done in less than a year or two, it still needs to get into gear quickly, and hit its early milestones as soon as possible, so that the team can see the early indicators of the improvements that will come their way. This will get their full support early on. And as the byline points out, to be successful, don’t lose your nerve!

I highly recommend you check out the full article. It has some great advice on avoiding each of these speed brakes that can bring your transformation to a grinding halt.

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