Monthly Archives: June 2011

Every Supply Management Vendor Should Review Their Strategy, Not Just Ariba

There was an interesting article over on Fast Company recently that described three steps for re-evaluating your company’s strategy. To illustrate why a company might need to reevaluate, the article chronicled Ariba’s rise, fall, and their recent 300% growth in their stock price over the last year.

According to the article, Ariba, which has a Supplier Network with over 500,000 participants that conducts 170B in transactions a year, had to change their model and refocus when their stock crashed from over $700 a share to $10 in a matter of months. This included opening up their network and switching to SaaS. Furthermore, according to the article, this change was the result of learning the following three strategic lessons:

  1. Don’t Confuse Missed Timing with Missed Vision
    Often the vision is right but ahead of its time.
  2. Look for the Rise in the Fall
    When a company is forced to revisit its strategy, it may find an opportunity it overlooked.
  3. Build the Snowball
    Find a solution that will draw in customers that will in turn draw in more customers.

While the lessons are important for Ariba, if Ariba has truly learned them (as I believe they could have done, and could still do, better than they have done with respect to lessons two and three), they are equally important for Ariba’s competitors. And, as the article points out, Ariba’s competitors have to ask the following questions:

  • If it ends up taking three times as long to achieve our vision, what would we do differently today?
    While some would argue the Supply Chain space is dead, only the leaders have adopted modern solutions, and the laggards are still struggling to get past a spreadsheet to an outdated ERP.
  • If our core business fails, how else could we profit from the assets and activities of our business?
    Sometimes it’s the right vision, but the wrong implementation. Sometimes an idea belongs in the consumer space. Sometimes the add-on becomes the application. And sometimes its just a different deployment model. The original business plan is just the starting point.
  • What is the kernal of our snowball?
    It’s all about making it almost viral.

If they do, many will be in a better position than they are today.

The Emerging Focus on Talent, Part IV

Now that the importance of talent to a Supply Management organization’s success is well understood, an organization needs to know how to get started on its talent management journey.
Based on the collective insights on talent management brought to you by SI over the years, which includes some great insights from the recent Hackett Group Best Practices conference, some key starting points are:

  1. Admit You Have a Talent Management Problem
    Even if the organization is world-class and has a team filled with extremely talented individuals, it still has a problem. First of all, its top talent is being recruited daily and eventually one of its competitors is going to make an offer that each of its top X talented individuals are not going to be able to refuse. Then it will have to deal with the fact that the only pool of talented resources out there with the education, experience, and expertise needed are already employed by competitors. So even if the organization doesn’t have a problem today, it will tomorrow.
  2. Make Supply Management Attractive
    If you want raw talent to choose Supply Managemnt as a career path, it has to be attractive. If Marketing or Finance or Legal gets all the glory, that’s where the talent will go.
  3. Put a Hire-to-Retire Plan in Place
    Not only does raw talent have to see Supply Management as an exciting career option, raw talent has to see Supply Management as an exciting career option in your company with a well defined, long-term, growth plan that can lead all the way to the C-Suite.
  4. Make Cultural Diversity a Core Value
    Cummins, Disney, and HP understand the critical importance of a diverse team — your organization should too.
  5. Talent Comes First
    Great leadership is important, but team success is more important. Make sure leadership puts the good of the team and the success of their employees above their own. That’s how a world-class Supply Management organization is built.

And while this list of starting points certainly isn’t exhaustive by any stretch of the imagination, it will put the organization in the right mindset to formulate its talent acquisition, retention, management, advancement, and retirement strategy and ensure talent is put first in the H2R (Hire-to-Retire) strategy, which is much more than just another metric of a world-class organization.

Lessons Learned from Best-in-Class, Part VIII

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

35. The key to success is to change the score from cost to desired result (without losing cost control)
Procurement can no longer be an organization focussed on cost savings but must be focussed on results and value if it is to become a Next Level Supply Management organization. It’s only possible to take out so much cost. Eventually there is no fat left in the raw material buy, the manufacturing process, or the supplier’s margin and as costs rise with inflation, not only will savings stagnate, but costs will increase unless the organization has shifted to focussing on the end-to-end product and service lifecycle and the value that can be generated. If the goal is an affordably priced product with a great warranty and service, then maybe Procurement will have to find the savings in quality improvement (to minimize the defect rates and return costs) and service level improvements at the same cost point.

36. The Procurement roadmap must be milestone driven
The only way to keep Procurement truly focussed on results and value is to define milestones at a macro level, a category level, and a project level and keep the team working towards those goals. If the team is constantly focussed on meeting the milestone and the associated result, it will keep the team from slipping back into a cost focus, which is no longer a behavior that can be tolerated in a Procurement organization that wants to get to world class.

37. There is only ONE procurement team
Even if the organization is centre-led and there are individual teams scattered across the business units and geographies, and even if projects are managed at a category level, it must still be one unified Procurement team focussed on the overall goals of the business and the needs of its internal customers. For example, if logistics costs can be greatly reduced by syncing two different category buys, then the teams will work togehter to sync the buys and reduce the overall TCO and increase the value delivered. The team must speak with one voice in its requests for new systems and processes. And the team must speak with one voice when dealing with suppliers, or they will either not take Procurement seriously or try to sneak in a back door during negotiations.

38. Transition Management is Key
It is absolutely crucial that change management not be overlooked when a new supplier is being brought on board or an old supplier is being removed from the day to day Procurement equation. If change is not managed carefully, and planning not done sufficiently in advance, there can be significant disruptions as the new supplier is ramping up, especially if the old supplier decides to retaliate and delays orders or skips the quality check.

39. Use customer terminology
One of the quickest ways to gain respect when trying to get the support of the business units is to talk in their language. Engineering, Marketing, Legal, and Finance will be significantly more impressed if Procurements learn the language of design, of advertising, of contracts, and of finance, demonstrates that Procurement has done its homework, and makes an extra effort to show the business units that their success comes first.

This concludes our eight part series on lessons learned from best-in-class companies that were shared by some of the participants at this year’s Hackett Best Practices conference.

The Emerging Focus on Talent, Part III

The first post of the series discussed the emerging focus on talent, why top talent, and, more importantly, engaged talent, is important and why an average organization can’t find top talent. The second post discussed some of the insights on the talent topic that were put forth by Cummins, Disney, and Pitney Bowes at the recent Best Practices Conference put on by the Hackett Group. This post will cover some additional insights from HP and the Hackett Group and the final post of the series will outline some key first steps to help an organization start on its talent management journey.

When HP realized it needed to undergo a Finance transformation to become a world-class financial organization, it also realized that a critical component of migration would be its people and that a highly engaged, globally deployed workforce would be a critical success factor. It instituted a people development culture that focussed on reaching out with the current team (through an ambassador program), hiring the best (through a unified on-boarding process), developing its talent (through a centralized people development portal), mentoring its talent (through a high potential program), and effectively managing its talent (across groups within finance and the company as a whole). This helped it to create centers of excellence for high-value work delivery.

The Hackett Group, both in their presentations and in my private conversations, emphasized not only the critical nature of top talent in the Procurement / Supply Management organization, but the importance of understanding the nature of the talent market. What many companies don’t realize is that talent is a market, like IT, but unlike IT, where you have new vendors with new technology popping up every day, in Procurement, you don’t have newly trained professionals entering the talent pool every day because the vast majority of colleges and universities do not produce talent with the education and expertise necessary to succeed in today’s next generation supply management organization. This means that the organization has to have a game plan to recruit and retain raw talent that can be taught the skills, and a methodology program in place to teach the talent the skills, which should include (virtual) “classroom”, on-the-job, peer-group, and mentorship components to get the talent up to speed. It also means that it has to market Procurement as an attractive career opportunity and have a corporate succession path that allows supply management personnel to move out and about in the company. If business grads still think, like the older generation, that Supply Management is where you go to retire, it will be very hard to recruit raw talent with a high EQ.

So how does an organization begin a talent management journey? That’s the subject of tomorrow’s post.

Lessons Learned from Best-in-Class, Part VII

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

30. Procurement must be run like a business
Just like a business is profitable, Procurement must be profitable and must be seen as a profit-generator, not a sunk cost. If Procurement is being run as a services organization and has to charge the other organizational units internally for its services, it must insure that the charges cover its costs. Furthermore, it must reduce it’s cost per dollar of value generated year over year just like it reduces the costs of product or service acquisition on the projects it participates in. If it is not profitable, it will not have the respect of the C-suite.

And if it doesn’t have to charge the other business units to cover its costs, it should find a way to directly contribute to revenue generation to such an extent that it not only shows savings, but profit for the organizational unit for the balance sheet. Even if it can’t roll up its expertise and sell outsourced Procurement functions to smaller businesses like IBM, maybe it can still package some market expertise in a market intelligence service or offer NPD consulting to Engineering or manage the SRM projects internally to deliver even greater value to the organization.

31. Show sensitivity and respect for existing external relationships
Just because the current provider for a certain component required in production of the flagship product is the most expensive on the market doesn’t mean that Engineering will think that Procurement has the right to replace a vendor they’ve been working with for 10 years, even if the proposed vendor can deliver a higher quality product at a lower cost. Depending on the nature of the relationship, Procurement will have to either accept that this supplier is going to get some categories no matter what and will have to focus either on introducing a new supplier as a back-up, secondary source, that can also be used by Engineering to secure non-critical parts of the business or on working with the supplier on a lean initiative to take costs out over time.

32. Simplify and standardize
This may be among the most challenging initiatives the Procurement department ever takes, but it is one of the most essential. First of all, the last thing the organization wants to do is automate a broken process. Secondly, it can’t just throw a broken or inefficient process over the wall to a BPO or outsourcer and expect efficiency and costs savings. Thirdly, the organization will never achieve economies of scale if it uses three different systems for completing organizational transactions (such as a P2P e-invoicing system, a p-card system, and an accounting-based AP system where paper invoices are manually entered and paid) or for conducting e-Negotiation projects.

33. Sometimes its easier if services precedes manufacturing when expanding into new markets
As stated above, Procurement needs to be an enablement function. One of the ways it can do that is to use its knowledge of emerging economies where it sources from to help Sales and Marketing or Engineering expand into those economies. When expanding into new markets, its often easier if services are introduced before new plants are built or new products are introduced. Services provide “a personal touch” and can help the local talent pool (which will be needed to staff a new plant) and early adopter consumers (who will be counted on to buy the new products being introduced) get comfortable with the company.

34. Strong leadership is a must
It take more than the right people, processes, and technology for a Procurment organization to become world class. It takes strong leadership that will rally the troops to advance to the next level of performance, that will speak up and get the organization a seat at the big-boys table, and that will go out and make the case for Procurement involvement in each organizational unit of the business — sacred cows be damned. Without strong leadership, the talent, who will need to be critcal parts of cross-functional teams, will never advance beyond the status quo; the CPO will never graduate from the kiddie table (and that’s if she even makes it that far); and the


Our next post will continue our overview of the lessons learned that were shared by some of the participants at this year’s Hackett Best Practices conference.