Monthly Archives: September 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?

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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!

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The Unspoken Key to Successful Supply Chain Transformation?

There are many keys to supply chain transformation success including, but not limited to, good people, good technology, an effective globally integrated sales and operation planning process, a well designed network, tight links with customers and suppliers up and down the chain, effective logistics partnerships, and a good go-to-market strategy. But there is an unspoken secret to success, as suggested by this recent Harvard Business Review article which asks why is it so hard to tackle the obvious.

As per the article, the unspoken key to success is knowing what to forget. That’s right, the unspoken key to success is knowing not what practices and processes to keep, but what practices and processes to throw out with the trash — including those practices and processes that were successful in the past.

The key is to ask the following questions:

  • What processes are not working?
  • What processes are not adaptable to the proposed supply chain?
  • What positions* are no longer needed?
  • What systems are not equipped to handle the change

And then lose those processes, positions, and systems and replace them with new processes, positions, and systems more suited for the modern supply chain you are trying to build. (And then train your people accordingly.)

* Positions, not people. If a good person is in a role that is being eliminated, you train them for a new role that is being created.

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Where Does Strategic Sourcing Fit In?

Today’s post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the supply management best seller Straight to the Bottom Line.

There has been increasing debate in the blogosphere about the alleged death of strategic sourcing. Today, I’d like to propose several more fundamental, and on a company-specific basis, more revealing questions:

     

a) Do your senior executives understand the enormous potential of modern supply management (only one element of which is strategic sourcing)?

b) Do your senior executives understand how to achieve that enormous potential — i.e., how to build the transformation roadmap and how to support it?

c) If the answer to the first two questions is “no,” are you prepared to take a leadership role in helping your senior executives achieve the necessary awareness? If not, then debating the “strategic sourcing is dead” question is moot at the company level.

In past contributions to Sourcing Innovation, I have described the importance of Speaking Like a CFO (Part I and Part II).

I’ve also described essentials of Procurement and Supply Management Transformation.

Consistent with my past blogs, leading edge companies introduce strategic sourcing as one element of a comprehensive transformation roadmap. They recognize that trying to introduce and embed strategic sourcing without the supporting pillars of a transformation roadmap is likely to generate only short-lived benefits.

These leading companies are the ones most likely to be using true strategic sourcing (and other best practices) over an extended timeframe — not as a fad — yielding substantial and sustainable value. Done as it should be, and led properly, true strategic sourcing generates lasting benefits that go well beyond price or cost.

And, the importance of approaching this subject as more than just a narrow focus on implementing strategic sourcing is captured in this quote from the Institute for Supply Management: “Without real procurement transformation, only 60% of the value of procurement initiatives are retained by year two. This value drops by 10% for each subsequent year.”

So, it’s time to put the birth or death of strategic sourcing in its proper context: the leadership, or lack thereof, at each company. Here are some observations from my combined experiences as a CPO-practitioner, advisor and speaker:

  • Believe it or not, 25 years after the birth of strategic sourcing, many companies of all sizes still are not aware of “true” strategic sourcing.
  • Equally astonishing, a surprising number of companies believe they are using strategic sourcing, but in fact are not.
  • Perhaps as a reaction to the need for “quick wins” in the current business environment, some companies who previously used a true strategic sourcing process have since “dumbed down” their process into a tactical ghost of what it used to be.
  • As noted above, trying to introduce and embed strategic sourcing without the supporting pillars of a transformation roadmap is likely to generate only short-lived benefits.

Thanks, Bob!

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