Monthly Archives: March 2011

How to Tell the CEO that Your Legacy ERP is a Disaster Waiting To Happen

This recent post over on the HBR blogs about “a system for speaking IT truths to CEOs” is a must read for every CIO and CPO alike. Both the CIO and CPO know that every IT purchase has a life-span and that every piece of legacy software is a ticking time-bomb waiting to detonate and cost the company millions of dollars in a matter of days (or hours, as Comair found out in 2004) if it is not safely disposed of before the clock runs out, but both often have problems conveying the message.

According to the author, who modified a methodology used by medical doctors who often have to deliver bad news on a regular basis, the following seven-step process will often make the process easier.

  1. Understand the CEO’s perceptions
    Does the CEO grasp what a legacy systems issue is?
  2. Hold the calls
    Deliver the bad news in one, uninterrupted, focussed session.
  3. Enlist a business ally
    Make it a business problem, not just a technical one.
  4. Stick to the Facts
    Focus on the risk and the associated loss. CEOs are generally NOT technical.
  5. Don’t Improvise
    Have a set of best-, typical-, and worst-case scenarios prepared in advance and do not deviate.
  6. Insist on Immediate Action
    Infuse a sense of urgency and a time line for corrective action.
  7. Have a Clear Next Step
    Have a specific plan for getting to the goal.

It’s certainly worth a try if you don’t have a better option (and, chances are, you don’t).

Four Ideas to Make Your Procurement Department More Strategic

It’s a new year, and your Supply Management organization is again being asked to step up its game, which is getting harder and harder to do as there is only so much cost you can squeeze out of the supply chain. So what can you do? You can start by taking a fresh look at the strategic mission of your procurement department and look for ways to be the driver of change and value for your organization. As per our recent posts on Value Focussed Supply and High Definition Sourcing, the value in Next Generation Sourcing savings will come as much from Supply Management’s contribution to profit margins as it will from their contribution to cost reduction as Supply Management is in a unique position to bridge organizational silos and help the organization understand not only the drivers of cost, but the drivers of value and what value is available to be had, for little or no cost, in the supply base.

In an attempt to help your organization get started down the strategic path to Supply Management, BravoSolution has released a white-paper that provides 10 Ideas to Make Your Procurement Department More Strategic that is quite thought provoking. Containing great ideas on how to increase price, take better advantage of volume, and reduce fixed and variable costs, the white-paper is a must read for any Supply Management department struggling with how to improve value when there isn’t much cost left to take out of the equation.

For example, the white paper points out that you need to:

  • learn more about your company’s customers and what is really important to them
    as this will not only allow you to zero in on what they really need, and lower cost, but identify suppliers and products that could provide them with more value and allow them to increase price
  • learn about the markets you aren’t currently serving
    because maybe there is a profitable niche that you could easily serve with your current supply base and minor changes to product designs or pricing models
  • learn about technologies that could reduce your variable costs
    even if the technology is designed to be utilized in production and has to be utilized by your supplier because if it costs 100K and saves 1M a year, it should be a no-brainer
  • teach your organization about where it spends (too much) money
    because it really doesn’t know (and that’s why analysis has to be ubiquitous). It might not know that every department is buying its own toner off-contract at 2x the negotiated contract price. If you’re a large organization buying thousands of cartridges a year (because everyone is print-happy) that’s hundreds of thousands of dollars a year being flushed down the virtual toilet.

So check out these 10 Ideas to Make Your Procurement Department More Strategic. (They’re not vendor platform specific and will be more than worth your time.)

Always Put Function Before Specifications When Buying

It makes no difference whether your organization is in the public sector or private sector and no difference whether it’s a service, product, or piece of technology. It goes double if the buy requires a (long-term) contract. And it doesn’t matter if there are government, health-and-safety, or other regulatory requirements (as these can always be worded in functional terms or shifted over to manufacturing or raw material requirements).

The reality, and Stephen Guth of the Vendor Management Office will back me up on this, is that as soon as you create a specification, you (essentially) lock in a (small set of) vendor(s). And just like 80% of the cost is locked in during the design phase of new product development (NPD), 80% of the price is locked in as soon as you limit yourself to a vendor (or two). Just like raw materials, components, and machines have relatively stable prices in a narrow band, your average vendor, with stable overheads, supply, manufacturing, and/or service delivery costs, has a relatively stable price band that its sales representatives will not be allowed to deviate from, often because the vendor cannot afford to because of its overhead cost.

Plus, it’s never about the product or service, but the value received from the product or service. Consider a tablet manufacturer. The end customer doesn’t care about the CPU, they care about the performance it delivers. Most customers don’t care if it’s AMD or Intel, just that the performance is on par with best-in-class. Consider outsourced back office accounting. Does it really matter what packages are used or how many resources are assigned to the team? No. What matters is whether acceptable standards are followed, how fast the monthly reporting is completed, and how much the service costs. And consider technology. When one is buying a new e-Sourcing system, the specific 400 features on the drop down lists don’t matter. What matters is whether or not it supports RFX, e-Auction, “What-If” Decision Optimization, and Contract Management; whether or not the workflows can be tailored and/or integrated to your existing Supply Management Systems; and whether or not it’s the most cost-efficient delivery model for your organization. The minute you use a “vendor-supplied” RFx or think you need 20 specific features is the minute a single vendor locks you in and doubles the price because no one else will have their specific feature list, but yet, for an average organization, ten off-the-shelf packages will be equally as effective for the organization in its quest to achieve Supply Management Value.

So forget the specs and focus on the function. That’s the best way to maximize value (and minimize sales person power).

Will Printing Bring Production Back Home?

A recent article over on Supply Chain Digest that asks how soon will “printed” parts revolutionize supply chains — and the world brings up a great discussion point when it notes that consumer product areas could be revolutionized by the approach and some people [are] wondering if the dynamics will, in some cases, lead to domestic digital production of some items versus offshore manufacturing in low cost countries. When you consider that 3-D printing is getting better, faster, and cheaper everyday and is already used to produce

  • aircraft titanium landing brackets
  • industrial gloves made out of nylon, stainless steel, or titanium
  • mobile-phone cases where the shape and colour is personalized for each user
  • dental crowns custom shaped to a patients mouth
  • medical implants

and that these printers can currently handle a wide range of materials including

  • plastics
  • glass
  • metal
  • ceramics
  • nylon

and that

  • 20% of the outputs are now finished products (and not just prototypes) and
  • 50% of the outputs are expected to be finished products by 2020

it makes a great case for moving to digital printing to keep costs down since the only costs are the cost of the machine, the room to put it in, the power to run it, the materials to feed it, and the engineer to come and do preventative maintenance after every X products. No HR costs for assembly workers and, most importantly, no exorbitant shipping costs, which are rising every day as the price of oil is now climbing again.

Plus, the ability to give each and every user a “custom” product without a price increase and still do mass production is enticing. It’s a great way to corner a market if your organization can do it first. And the supply chain can spend more time focussing on improving, and lowering the price of, raw material supply instead of renegotiating logistics contracts and battling fuel surcharges every six months. Furthermore, if a product can be printed faster than it can be air freighted half-way around the world, even if volumes are too high to be met entirely with a printing operation, it’s a great risk — and cost — mitigation strategy.

Sustainability: The Math is Simple

Since ‘net years are equal to dog years, I’m getting cantankerous in my old age. It seems it only takes a sentence or two to set me off these days. I was reading a good article over on the Arabic Knowledge @ Wharton site on “fashion or strategy” when I stumbled across this quote from a Senior Manager at Accenture:

“We need to better understand the consumer and see how sustainability can drive the purchase decision. About 75% of people would say, ‘All things being equal, I would buy green‘. How you translate that into an actual purchase decision … is something else.”

Are you kidding me? How do you become a Senior Manager at Accenture if you can’t do that math?

75% = 3/4
and
3/4 + 1/4 = 4/4 = 100%
That says, if all things are equal, there are three times as many people who would buy your product if it was green. The hard part is figuring out what consumers really mean when they say all things being equal. Obviously, price is a factor since, no matter what they say, they never want to pay more. And so is quality, since they won’t buy an inferior product. But figuring out that your market will be three times as large as a competitor who is not green is not hard.