Daily Archives: September 23, 2010

Catch the doctor on the West Coast

While I don’t advertise my whereabouts often, because it’s usually the case that I barely have enough extra time to even see everyone who’s put a request in since the last time I was in a certain geographic area, I’m purposely spending a couple of extra days on the West Coast next month to give anyone who’d like to talk to the doctor in person a chance to do so, as I don’t make it over there as much as I’d like.

Specifically, I’ll be in the San Francisco Valley area from October 4th through October 10th and still have some free time on half of those days. If you’d like to meet, e-mail me at the doctor <at> sourcinginnovation <dot> com, let me know where you are (and who you represent if it’s not clear from your e-mail address), and I’ll let you know when I’ll be close(st) to you and what times I have available.

See you soon!

Are You Measuring the Right Stuff?

It’s a simple question. Are you?

I’ll give you 4:1 odds that you’re not. Why? It’s hard to know what the right stuff is, and, these days, there seems to be an overwhelming focus on quantity, and not quality, and savings, and not value.

For example, if we’re talking about e-Procurement, many organizations measure the number or percentage of invoices processed through the system. (As many of the “leading” analyst firms report that as a good measure.) Sounds good, but since the 80/20 rule is just as applicable here as anywhere else, the reality is that 20% of your invoices take up 80% of your time (due to number of line items, number of amounts that need to be checked, number of errors that need to be fixed, etc.) and 20% of your invoices represent 80% of your spend. If those invoices are not being put through the system, then it hasn’t really reduced your processing costs all that much as the most significant cost associated with PO processing is the cost of the personnel doing the processing. What you need to be measuring is the % reduction in human interaction time. If a new system only reduces human involvement by 20%, it’s not working. Sorry.

If you’re measuring year-over-year savings, you’re not measuring the right thing. If your price went down 10%, but the market price of the raw materials dropped 20%, did you do a good job? No. And if your price went up 5% while market indices went up 15%, you did a bang-up job. You have to measure performance against market average, otherwise, you don’t know how good you’re really doing.

It’s like Charles said in his recent post, you’ll always think you [are] do[ing] a great job (until you benchmark). It doesn’t matter if you beat your performance goals by 50% if you’re still coming in 24th (out of 25). If you truly want to win, you have to be leading the pack, not trailing it, and for that you have to be measuring in a manner that will allow you to benchmark against the competition. (And not necessarily what the “analysts” tell you to measure.) So, are you measuring the right stuff?

Share This on Linked In

The Strategic Sourcing Debate, Part IV

In Part I, we noted how Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest last month by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. This was quickly picked up across the supply management blog-sphere and resulted in powerful reactions from a number of prominent bloggers. Then, in Part II, we noted that of all the responses, only one blogger got it right. Joe Payne, the quiet cub among the roaring lions, was the only one to note that at most companies, the concept of strategic sourcing hasn’t even been born yet. In our last post (Part III) we reviewed each of the responses and pointed out what the contestants got right (as well as a few mistaken assumptions) in our efforts to help you get a better grasp of what Strategic Sourcing really is. And in this post we’re going to discuss Dalip’s posts that instigated the debate.

After our last post, I’m sure you’re wondering if Dalip got anything right as I just spent a page and a half pointing out how pretty much every other blogger had valid points in each of their counter arguments. The reality is that quite a lot of what Dalip said in the four pages that constituted Strategic Sourcing is Dead and The Sourcing Emperor Has No Clothes was right, especially if you look beyond the words to the points he was making. (Yes, his posts probably could have been a little clearer, but they were deliberately written in a way that was designed to make you think. As was clearly stated near the end of both posts, the point was not that you agreed or disagreed, but that you joined in the debate.)

So what did Dalip get right?

Strategic Sourcing has not delivered the results it promised years ago, and it isn’t delivering the right results today.

This is because, as partially pointed out by Bob, at most organizations, strategic sourcing is:

  • tactical procurement with bells and whistles,
  • dumbed down to the point where the process is not strategic, and
  • a bunch of supply management processes shoddily slapped together without any coherent strategy in hopes that the whole will be more than the sum of the parts.

Until organizations employ true, modern, strategic sourcing, they will never see the right results.

Flaws in a process sometimes lead to the destruction of overall, or system wide, value.

You can do a bang up job defining your sourcing strategy, defining the process, selecting an initial supply base, conducting a sourcing event, making an award, and drafting a contract only to see it all go to hell when the supplier delivers an inferior product that starts failing en-masse when it hits your user base or a product that poisons your customers. One flaw in quality control brings down the whole supply chain, which pulls the business down with it.

If we are to maximize results, at some point we must address the process itself.

As noted by William and Jason in particular, you can’t just take someone else’s strategic sourcing process and run with it, because the process has to be customized to your organization and your organizational strategy. Furthermore, as Dalip implies, if everyone else is implementing a particular process, it’s a commodity, and therefore not strategic. The process must be implemented correctly, and it must grow and evolve over time as the needs and strategic foci of the organization change.

Many organizations do need next practices.

“Best practices” don’t stay best practices forever. They must be evolved or replaced with new best practices on a regular basis, or they go stale. At one point, paper RFQ packages was a best practice. That’s a stone-age practice today. Then electronic Excel bid packages sent through e-mail. That’s bronze age technology. Today, it’s on-line, real-time, web-based bidding and negotiation platforms. (In other words, some of us have finally reached the iron age!)

While cost cannot be ignored, we firmly believe that a process rooted in cost can never be a strategic process (unless the organizational strategy is to compete solely on cost).

You can’t focus on cost if you are competing on value. ‘Nuff said.

Unless we start expanding our pool of stakeholders to start considering our stakeholders’ stakeholders’ stakeholders needs, and start with those needs, we will never uncover these value contributors.

Unless we’re meeting the needs of all organizational stakeholders and the end customers, we have not yet reached true maturity in our strategic sourcing process and we aren’t making the right trade-offs.

The conceptual frameworks of Total Value Management (TVM) and Demand Driven Value Networks (DDVN) go the furthest in extending current thinking.

I’ve been telling you for years that you need to move from TCO to TVM.To borrow a phrase, hallelujah.

Plus, if you read very carefully, you’ll realize that Dalip doesn’t truly believe Strategic Sourcing is Dead, just that the current, shoddy, implementation that is common at way too many companies that have not yet learned what true strategic sourcing is (and made the leaps necessary for a proper implementation thereof) needs to die. Dalip was just using shock value to bring attention to a subject that we’ve become too complacent with. As astutely observed by William, Dalip was masquerading his thoughts behind buzzwords, round table discussions and slogans to grab your attention. The lack of proper strategic sourcing processes across organizations of all sizes is a big problem, and one we need to collectively address. After all, if there are still Billion dollar plus publicly traded internationals that allow administrative assistants, IT gurus, and marketing people with no formal procurement training to manage million dollar spends, as pointed out by Joe, collectively, we have a problem!

Share This on Linked In