Monthly Archives: February 2011

Implementing VFS: A Beginner’s Guide, Part II

In yesterday’s post, we discussed CAPS’ Value Focussed Supply (VFS) and how it represents a valid methodology for taking supply management to the next level. Given that many leading organizations are seeing decreasing returns in their supply management efforts, it is becoming clear to leading analysts, providers, and thought leaders that this decade needs to see the introduction of Next Generation Sourcing and Supply Management Techniques if Supply Management (and Procurement) are to have a hope of getting, and keeping, their seat at the C-Suite table.

In addition to discussing the four levels of VFS in their recent report on Linking Supply to Competitive Business Strategies, the report outlined a high level process that can be used as a starting point. As noted in our last post, this process can be broken down into a seven-step program that will get a company on its way. Specifically:

  1. Understand Customer & Supplier Markets
  2. Identify Directional Changes
  3. Link Insights into Directional Changes to the Business Strategy
  4. Evaluate the Company’s Strategic Options
  5. Set Holistic Value Focussed Goals
  6. Evaluate and Select Strategic Supply Options
  7. Identify and Implement Levers

To understand this process, we’ll start with an example that’s easily understood. To do this, we’ll have to travel in time and space and go back to Cupertino circa 2006. Apple, having just conquered the mobile music device industry with the iPod, is looking for the next market to conquer. They make computing hardware, the iPod was a natural progression, and they are looking for the next killer product. Where should they go?

  1. Their suppliers are great at supplying leading-edge computer components for compact and mobile devices and good at innovation.
    Their customers are interested in cool gadgets and entertainment and keeping in contact with their peers.
  2. These two observations quickly lead the organization to two potential markets, gaming platforms, which was a very lucrative market for Nintendo and Sony and which their competitor (Microsoft) had entered five years previous, and smartphones, which was a quickly growing market as cell phones were already in the hands of 1/3 of the global population.
  3. The business strategy was continued growth and market leadership in any computing device or mobile market that was entered. Both the gaming marketplace and smartphone marketplace had a number of big players with well established market share, including Sony, Nintendo, Microsoft, and Sega in gaming and Nokia, Motorola, RIM, Samsung, and LG in smartphones. Both could be hard to break into, but ( a) the mobile market is more fractured, ( b) there are more similarities between smartphones and iPods then between generalized computers and specialized gaming systems, and ( c) the market for smartphones is growing rapidly with projections that half of the global population will have cell phones within two years.
  4. The strategic options are to fight it out in the mature and relatively flat gaming market and go head to head with their main competitor on another platform, or fight it out in the growing smartphone market where platforms are not as mature and there are more opportunities for innovation.
  5. The obvious goal is to enter the smartphone market with an innovative new product and capture a leading market share, especially among current, discerning, Apple customers.
  6. Apple evaluated it’s supply chain and locked in a sufficient supply of strategic components to ensure it could meet projected demand.
  7. Knowing that a phone was useless without a carrier, Apple signed a strategic agreement with one of the largest carriers who would see the 3 years of exclusivity it was granted as a way to significantly grow its own market share and, in turn, aggressively promote the new product for Apple.

Now, we’ve made a few assumptions and taken a few liberties, but it’s easy to see that Apple obviously used some type of VFS strategy when they decided to introduce the iPhone and enter the mobile market, because, within 2 years, they were the top selling mobile phone on the market.

In our next post, we will begin to dive into the steps in more detail.

Is Your Supply Chain About To Get A Lot Leaner?

We already knew that food prices are rising considerably across the board. They’ve risen so much (29% in the past year) that the World Bank estimates that 44 Million people have been forced into poverty since last June as a result.

If this isn’t enough, thanks to the skyrocketing price of cotton (which has more than doubled in the past year, hitting all time highs), clothing prices are set to rise 10% this spring. Considering that the average household spends about 15% of their budget on food and 5% on clothing, which are not discretionary expenses, the average household is now looking at a total increase in their non-discretionary food and clothing expenses of 5%. Given that, after housing, food, clothing, transportation, health care, insurance, and debt payments, the average household had less than 15% of their funds for discretionary expenditures, this says that the average household now has less than 10% of their funds for discretionary expenditures. That’s a 33% reduction in discretionary funds in less than a year!

This says that any company that provides a discretionary product or service to an average consumer is now fighting over a market-share that might have shrunk by a 1/3rd. Someone is going to lose and someone’s market share is going to get smaller. This means that a number of supply chains are going to have to get a lot leaner this year for those companies to survive. Is yours ready?

Implementing VFS: A Beginner’s Guide, Part I

Last month, before our detailed dive into Next Generation Sourcing, we discussed the four levels of CAPS’ Value Focussed Supply, as put forth in their recent research report on Linking Supply to Competitive Business Strtegies. Companies on the VFS path start by eliminating value leakage (Part I and Part II), before increasing current value, and creating tomorrow’s value on their way to the stretch for added value. Companies will embark on the VFS path because if they don’t take their value to the next level, the value they see from the current generation of (e)Sourcing strategies and technologies will start to disappear as more and more companies adopt leading supply strategies and increase average performance across the board.

But how does an average company go about starting? Without a starting point, it is likely that if VFS emerges in an average supply management organization, it will be by accident, especially since this is how it appears to have emerged at a number of leading companies profiled in the report. And while a market leader may have the time and resources to experiment with different strategies (due to their superior market position and better financial position), in today’s economic climate, an average organization does not. So what should an average company do?

To this end, CAPS offered a “framework” in Chapter 4 of their report to get companies started. However, as it only outlined a high level process, and not any supporting technologies or (advanced) methodologies, it was more of a guide than a framework. But it’s still a good starting point, and appropriately presented outlines the mindset required to move from traditional supply strategies to value focussed supply strategies, such as High Definition Sourcing that can Move Category Excellence to the Next Level.

And like many guides these days, it can be broken down into a seven-step program that will get a company on its way. Specifically:

  1. Understand Customer & Supplier Markets
  2. Identify Directional Changes
  3. Link Insights into Directional Changes to the Business Strategy
  4. Evaluate the Company’s Strategic Options
  5. Set Holistic Value Focussed Goals
  6. Evaluate and Select Strategic Supply Options
  7. Identify and Implement Levers

The next few posts will explore this “program” and how a company can get started down the value focussed path.

Enlisting Suppliers to Create Competitive Advantage


Today’s guest 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.

Feedback is a familiar term to most people, and its principles can be found in many aspects of business. For example, some supply management departments regularly request “feedback” from their internal clients as well as from their supply base. Sometimes this is done formally, with a predetermined list of questions about performance in the past year; sometimes it is done informally. Asking the right questions, and acting upon the feedback, are important elements of improving your performance.

A complementary concept is “feed-forward.” Feed-forward, as opposed to feedback, is a proactive approach. Based on its origins in the technical world, feed-forward watches for and monitors changes in the environment, as a way to anticipate process changes that may be required in order to maintain a desired level of performance. From a business application perspective, it tends to focus on a desired future state, and identifying ideas to help create that future state.

Next-level organizations are interested in both feedback and feedforward insights as one avenue to creating competitive advantage. One way to accomplish this is through a carefully-constructed and executed “Supplier Satisfaction Survey.” Interested to learn more? Take Greybeard’s Supplier Satisfaction Survey.

Could Word Smarts Get You That New Supply Management System Sooner?

You’re an ambitious Supply Management Professional who wants to do the best job you can. (That’s why you read SI everyday.) However, it’s tough to be the best when you don’t have the best tools at your disposal, as it limits your productivity and savings potential. You know you need that new system (be it spend analysis, decision optimization, or next generation supplier information management) and the sooner you get it, the better you’ll do.

However, you know that the company still has tighter reins on spending that are tighter than a prairie dog’s butt in a dust bowl. You need to get around them. Your boss has to want to buy that new system if you have any hope of getting it. How are you going to make that happen?

Ask smart. As per this recent post in the Harvard Business Review on why it’s better to be smart and wrong than just silent, if you ask smart, even if you’re wrong, you impress your boss and make it easier for her to help you. Similarly, if you ask for a new supply management system smartly, it will be easier for the boss to agree with you and fight your case.

Which is more likely to get the boss’ support?

I’ve been doing my homework and I think our best chance of hitting that 15% savings target is to identify the categories with the biggest savings potential, not the categories we spend the most on. We’ve been hitting those hard for the past two years and I don’t think there are much savings to be had in them at this point. If we procured a modern spend analysis system, we could quickly rank our categories by total spend and then compare the prices to index prices for the categories using these indexes I’ve identified. A single report would identify our most likely opportunities. Furthermore, we could use the tool to compare our purchase order totals to invoice totals at the end of every quarter and make sure the supplier isn’t overcharging us. And that’s just the beginning of what we’ll be able to do.

or

I don’t know how we’re going to save 15%. Maybe we should buy some consulting services from Supply Management Vendor XYZ and then buy whatever new-fangled tool they recommend.

I don’t know about you, but I think one way is superior.

And if you can spin it in a way that will let your boss take all the credit, then you’ll probably double your chances of success.

What do you think? Can you apply psychology to this situation or not?