Monthly Archives: June 2011

Ariba Vision 2020: Yesterday’s News

The following three predictions from Vision 2020 – The Future of Procurement were totally off the mark and, in SI’s view, could only have been made by someone living in a Procurement cave for the last 10 years as any organization that thinks these define a future state of Procurement has a lot of catching up to do.

03. Work goes mobile
Work has been mobile among the IT crowd for about a decade now and among the (management) consulting crowd for over five years. Just because some organizations are slow to catch on to the fact that modern technology allows you to work anywhere, anytime and keep in touch 24/7 through real-time video conferencing does not mean that it is visionary for an organization to finally latch on to this fact. Furthermore, any organization that takes another 10 years to latch on to this realization is probably not going to be in good shape in 10 years.

19. It’s complicated

Uhm, it’s been complicated for over a decade. It’s been complicated ever since the first Fortune 500’s first started to outsource critical manufacturing processes to India and China a couple of decades ago. And while the risks and complications will continue to change as the focus shifts to different emerging economies, it’s not going to get any riskier or complicated as a whole. There’ll be more awareness of the risks, which will appear to materialize more frequently as more operations are shifted global, but the risks and complications will be fundamentally no different than they were 20+ years ago.

20. It takes a network

Just like it’s been complicated since global sourcing started to materialize among the Supply Management leaders in the late 80s, it’s taken a network ever since the manufacturing giants (in automotive and consumer goods in particular) started outsourcing assemblies to tier 1 suppliers that integrated components from tier 2 suppliers. And the major Consumer Goods companies realized in the 90’s that in house was not enough. P&G laid the foundations for Innocentive in the 90s at the same time Unilever was focussed on developing better supplier networks across its global markets.

The next post will address Today’s Blues.

Getting to Value (Key NPX Take Away 2)

As per yesterday’s post, last week I attended The Mpower Group‘s Next Practices Xchange and took part in the discussion of what is required to get to the next level of supply management. There are no easy answers, as value is often context and situation dependent, but there are good questions and appropriate starting points in the quest for answers. Yesterday we discussed our perceptions of value and how they often differ from the stakeholder’s perceptions of value and how we need to speak a common language to make headway. Today we will discuss some of the steps an organization can take to get to value.

The first step is to align perspectives on value. To do this, the Supply Management organization needs to go beyond simply understanding the stakeholder’s view of value and genuinely explore value from their perspective. Supply Management needs to engage in an open conversation about what value really is to the internal customer and what Supply Management can do to help the customer realize that value. Once the shared vision is understood, then Supply Management needs to work with the organization to make sure that the key points of the shared vision are reached. For example, if the customer needs a deal in three weeks, then Supply Management may have to make cost or contract concessions to make sure that a deal is reached in three weeks. It’s not perfect, but it will give Supply Management credibility and increase the chances that Supply Management is not only approached much earlier in the contract cycle for the next category, but will be more trusted to work on issues that the customer organization does not yet see as highly valuable.

The next step is to do whatever it takes to accelerate from planning to actual execution. While Supply Management may see value in extended planning, analysis, negotiation, and contracting, the customer only sees value in the result. In early projects wth a customer organization, Supply Management will need to identify only the most critical issues that it feels need to be addressed and sacrifice the rest of its concerns to get to a contract that delivers value in the eyes of the customer as soon as possible. This may mean that it will have to restrict its attention to the current supply base, start with supplier’s paper, or trust the customer that the supplier does deliver best-in-class quality.

The third, and most important step, is to take the best deal in the customer’s eyes, even if it costs more, increases certain risks, or violates Supply Management standard operating practice, especially if it’s a first project from, or critical project for, the internal customer. For example, even if another firm offers to defend a case for $50,000 less, management must be comfortable with the firm selected. Sometimes $50,000 is a small price to pay to keep management happy. A key point that is often overlooked is that Supply Management must be seen as the go-to organization for advice and support where procurement and suppy is concerned and the central cog in the organizational wheel that keeps everything turning. That is going to require a lot of trust and respect from the other organizational units, and it will take time to build.

Along the way, the Supply Management organization has to make the finance organization a partner, garner and keep the support of top management, promote the competencies of its customers, and, most importantly, communicate the value it delivers in customer and organizational terms. For example, we got the best firm on the case for only $50,000 above market average is actually a win in the Chief Council’s eyes.

Ariba Needs to Get Its Prescription Checked

Ariba recently released “Vision 2020 – The Future of Procurement”, which was intended to define what the Procurement function is going to look like in 2020. While it was a noble effort, it would appear that Ariba needs to get its prescription checked. While almost half of the predictions were on the mark, and others were close, some define the state of Procurement today, some define the state of Procurement yesterday, and some were just out to lunch. Since you know I can’t leave unanswered any report that I know is going to be taken as influential when it is not 100%, I am going to address each prediction one by one over the next six posts.

In particular, this series will divide the predictions into five categories:

  • Yesterday’s News
    These predictions clearly missed the boat that sailed a long time ago. Any organization that thinks this is Supply Management 2020 needs to take a close look at Supply Management 2000.
  • Today’s Blues
    These predictions would have been good if made in 2005 for 2010, as even though many of the capabilities have been around for a few years, most did not start to be adopted by leading Supply Management organizations until after 2005.
  • Tomorrow’s Shoes
    These predictions hit the mark. Leading Supply Management organizations are starting to embark on the journey that will see them realize these capabilities within 10 years, as they are necessary for these organizations to get to the next level of supply management.
  • Close, but no Cigar
    These predictions were close, but either went a little too far or a little to the side.
  • I Hope it’s Just a Ruse
    I don’t know where these predictions came from. They’re totally off base and anyone banking on them is in for a surprise.

Stay tuned! Agree or disagree, you can chime in with a comment or, according to the paper, join the conversation on the Ariba Exchange if you’re a registered member. SI prefers open discussions, but to each his own.

Are you Really Focussed On Value? (Key NPX Take Away 1)

Last week I attended The Mpower Group‘s Next Practices Xchange which is a gathering of some of the top supply management personnel from a select group of Fortune 500 companies who met to discuss how to get to the next level of supply management. Realizing that today’s best is not enough to sustain value in an increasingly competitive and economically challenging global marketplace, the best of the best are already trying to figure out how they are going to maintain their edge in tomorrow’s supply chain landsape. It’s a hard question that is not getting enough attention (as per my recent posts on Next Generation Sourcing and Supply Management), but there are answers to be found for those willing to look hard enough. This series will address some of the questions that a Supply Management organization needs to address to get to the next level, as well as providing some starting points for those looking for answers.

Whether you call it Next Level Supply Management, Next Generation Supply Management, or simply Next Practice, the key commonality to advancing the supply management function is moving from a cost focus (even if it is TCO) to value. However, before one can get to value, one has to understand what value is. Lamar Chesney, CPO of SunTrust, had a great presentation on value perspectives and how our view of value is rarely their view of value and how we fail to realize the value that is available in a Supply Management initiative because of this.

For example, while everyone may agree that price reduction is value, our view of value is generally not their view of value.

When we focus on What they really want is
cost avoidance speed to realization
TCO sense of comfort
specificity of deliverables practical certainties
contract certainties and flexibilities feeling of specialness
risk mitigation and governance contributions beyond sourcing & SRM

And, more over, this is how a Supply Management organization often responds to their view of value (even if the Supply Management organization does not realize it is doing it):

What they want What we believe
speed to realization speed kills
sense of comfort a good contract trumps the soft stuff
practical certainties a good contract, which can take months to negotiate, insures you get what you want
feeling of specialness everyone knows the supplier is providing a commodity and there’s nothing special about the product or service
contributions beyond sourcing & SRM sourcing strategies, contract management, category management, SRM, etc substitutes nicely for my help with your business strategy

See the problem? Not only does the (internal) customer rarely want what Supply Management wants to deliver, but the messages that Supply Management sends scares the internal customer away because the core message the internal customer hears is that what you value doesn’t matter. Not a good foundation for building the cross-functional team necessary for generating value.

Are You a Contract Hypocrite?

Tim Cummins penned a great article for the newly relaunched Negotiator Magazine site on how “Hypocrisy in Contracting Leads to Wasted Negotiation” since ridiculous demands just lead to repetitive, predictable negotiations that bring little or no value to either party. And this happens more often than not since most large companies would never sign their own contracts, which are diametrically different from those they demand when buying, which is just ridiculous.

Not only do we have to ask what happened to our ethics (that most professional associations insist upon), but we have to ask why we are risking failure for the sake of assigning blame should things go wrong instead of working together to insure that failure never happens. Especially when research is demonstrating that creativity and innovation are closely linked with greater mutuality in key terms which creates a joint responsibility to ensure success.

It’s not hard to harmonize buy-side and sell-side contracts, and it’s not hard to put together a contract you’d actually sign with fair, bi-lateral terms and conditions that share risks and rewards and protect both parties. (the doctor is just an engineer, his paper works that way, and he didn’t need an arrogant overpriced lawyer to create it — in fact, he didn’t need a lawyer at all!) So why can’t we move forward on this issue?