Monthly Archives: December 2011

Do You Know How Much Your Trash Costs You?

An average organization is filled with cost-savings opportunities. One big opportunity is cleaning services — and the savings go beyond manpower savings by identifying those third parties charging above market average rates for unskilled janitorial services and replacing them with third parties charging market average rates.

For example, trash removal often represents a considerable savings opportunity in a large organization, and one that can be identified and executed in a matter of hours. Typically, the cost of emptying your dumpster out back is a function of two factors:

  1. Hauling Fee
    The cost to obtain a dumpster and to have it removed; driven by the frequency of the pickups.
  2. Tipping Fee
    The cost to ‘tip” the dumpster into a landfill. Driven by the local landfill costs.

Assuming the organization does not change the amount of trash it is generating, it can look at the size of the dumpster it uses. If it has a bunch of small retail locations with mostly non-food trash, it may be able to reduce its costs by increasing the size of the dumpster it uses and reducing the number of hauls.

For example, let’s assume the organization has a 2 cubic yard dumpster and that the hauling fee is fixed at X for dumpsters between 1 and 8 cubic feet. If the tipping fee for a 2 cubic yard dumpster is X and this is emptied every week, the total cost for a month is going to be:

Two Cubic Yard Picked Up Every Week:

Monthly Pickups 4 once per week
Tipping Costs X X for 2 cubic yards
Hauling Costs X fixed
Total 8X 4 * (X + X)

If the organization replaces the 2 cubic yard dumpster with a 4 cubic yard dumpster, while the amount paid to tip will stay the same per cubic yard, the hauling fee will effectively be halved (as it does not increase for a 4 cubic yard dumpster).

Four Cubic Yard Picked Up Every Other Week:

Monthly Pickups 2 every other week
Tipping Costs 2X twice the 2 cubic yard
Hauling Costs X no change
Total 6X 2 * (2X + X)
SAVINGS 25%

This is just one of the many savings opportunities detailed in Spend Visibility: An Implementation Guide — the newly released white-paper from Sourcing Innovation that is, to the best of our knowledge, the first white-paper that not only defines what spend analysis and spend visibility really is, but that also offers a step-by-step, vendor-free, implementation guide that demonstrates how an organization can achieve substantial year-over-year savings!

Download your FREE – No Registration Required – copy of Spend Visibility: An Implementation Guide, which is already being called “The Definitive Book on Next Level Performance” (Spend Matters), and find out what other, significantly larger, savings opportunities await you!

Should You Be The Best?

This sounds like a silly question as it sounds like a question where the answer should always be a resounding yes, but a recent Harvard Business Review blog that said you should stop competing to be the best, which made some good points, makes you think about it.

The blog, which quotes the current thought leadership of Michael Porter, known for his five force analysis, says that “may the best X win” is absolutely the wrong way to think about competition, because it’s practically a guarantee of mediocre performance. Why? First of all, in the vast majority of businesses, there is simply no such thing as “the best”, so this would make the competition-to-be-the-best mindset completely wrong.

This is because many consumers in a market segment have different needs and wants. Some just want functionality. Others want style. Some want goods with average durability. Others want goods that can can take extreme abuse. Some want basic designs. Others want luxury. How can you define best when there are so many market needs?

Business, despite the claims of those who promote Sun Tzu’s Art of War as the ultimate business strategy rulebook, is not war and, in many markets, there can be more than one winner that can thrive. Consider retail. As the blog points out, both WalMart and Target co-exist and thrive and win in their market segment by offering different types of value to their customers.

And when rivals all pursue the “one best way” to compete, they find themselves on a collision course, trapped in a destructive, zero-sum competition that no one can win. Eventually all products and practices become almost indistinguishable, leading to pure price wars, which leads to a deterioration of profitability. This isn’t good for anyone.

The real way to win, according to Porter, is to compete to be unique. Innovate and deliver superior value to your chosen customer segment, not market segment. Make price only one factor in a multi-factor consideration. In doing so, generate positive sum competition and grow the industry — and, in the mean time, earn sustainable returns from the value generated.

New White-Paper! Spend Visibility: An Implementation Guide

Sourcing Innovation is excited to announce the release of Spend Visibility: An Implementation Guide. Clocking in at over 130 pages, this is the first white-paper that not only defines what spend analysis and spend visibility really is, but that also offers a step-by-step, vendor-free, implementation guide that demonstrates how an organization can achieve substantial year-over-year savings. Truth be told, it’s chock-full of information that many spend analysis service providers don’t want you to know. In the past, many organizations would pay tens of thousands of dollars for the information contained within its pages, which would be gathered incrementally during projects with third party experts, but it is now free for the taking as Sourcing Innovation wants everyone to understand what Spend Analysis and Spend Visibility is, and is not. As per the introduction, it’s important to understand that:

Almost any attempt by an organization to analyze spending patterns is likely to be fruitful, especially if there hasn’t been a serious prior attempt. It is easy to find thousands of breathless testimonials about a particular product or method — independent of the quality of the product or method — because almost any product or method will find savings if a spend visibility initiative has never been launched before. “In the land of the blind, the one-eyed man is king.”

However,

This simple fact has confused end-user organizations and analysts for many years. In fact, it has convinced most spend visibility vendors (and most analysts) that spend visibility is a fundamentally simple process of mapping Accounts Payable spend, and then drilling for dollars. This is why many spend analysis products have remained largely unchanged for years; there is no perceived need to do anything “more”.

And this is a BIG problem. The savings come from doing more. Much more. As the introduction continues:

What is not so obvious is that this initial burst of savings is short-lived; and that many of the “quick saves” that result are unsustainable. The key question is what to do next; in other words, how to implement a true strategic spend visibility initiative that will return value and keep returning value over time. There are too many spend visibility products that are lying unused or on the shelf, after the first burst of excitement has passed; and too many organizations who are tired of hearing a spend visibility message that has no further relevance to them.

The reality, as advanced organizations understand, is that:

Strategic spend visibility is much more than building a simple Accounts Payable cube, and that analysis of spend requires deep thinking on many dimensions, along with many different analysis cubes.

And the real question is:

How is this to be accomplished? Although much of the strategic spend analysis “lore” has been locked up inside consulting organizations, this is starting to change. The hope is that this Guide will help to promulgate some of the key ideas around strategic spend visibility, and ideally point organizations toward strategies that can result in sustainable savings through a continuous succession of intelligent spend control initiatives.

And that’s why it’s being made available to you completely free. No pay wall, no registration wall, and no restrictive distribution license. In order to advance spend analysis and spend visibility to the next level, you need to understand what it is. So download your copy of Spend Visibility: An Implementation Guide today. It will be worth the time it takes to read it.

The Risk of Being a MultiNational

A recent article over on ChiefExecutive.net for those who “want to be a multinational” did a great job of pointing out many of the risks that a company has to prepare for in order to become a multi-national. It zeroed in on the following seven risks:

  1. Country Risk
    Third parties from countries with less mature corporate governance laws/regulations are more likely to create a compliance breach for a multinational firm.
  2. Industry Risk
    Some industries are riskier than others. For example, food distribution — the risk of contaminants from unknown factories or partners with less rigorous quality control could be high and exposure you as the importer to massive liabilities and lawsuits. Defence is risky as well. Maybe only non-controlled components are being outsourced, but one accidentally exposed document can lead to very serious repercussions to the company and the executives, who could be held personally liable.
  3. Spend Exposure Risk
    If a single vendor accounts for 80% or more of a specific business unit spend and something happens to that vendor, negating the ability of the vendor to meet its commitment, the entire business unit is then at risk.
  4. Compliance Risk
    Failure to comply with import or governing regulations in the importing country from a product perspective can lead to entire shipments being size and destroyed. This is particularly bad in Europe where certain chemicals have been severely restricted or banned by RoHS, WEE, or similar EU directives. It’s also becoming a problem in North America, where substances such as BPA are finally being restricted or banned.
  5. Discovered Exposure Risk
    The supplier, who may not be corrupt today, may have been corrupt in the past — and the corruption could come to light during the time in which your organization is doing business with the supplier. This could be devastating as it could bring your firm under investigation.
  6. Partner Disruption Risk
    If the supplier is supplying a critical part or service, and is the only (significant) source of such product or service, it could jeopardize an entire product or service line and bring significant financial risk to organization as a whole, even if the spend on the supplier is less than 20%. (This risk is complementary to the Spend Exposure Risk.)
  7. Dependency Risk
    If the organization cannot function without the supplier, then each of the above risks that apply to the relationship increases substantially. The financial risk could escalate from significant financial loss to bankruptcy as significant supply chain failures, as chronicled in Supply Chain Digest’s 11 Worst Supply Chain Disasters, can bankrupt even a multi-billion dollar organization.

And it mentioned the following risk, which is buried under discovered exposure risk, that should probably be front and centre:

  • FCPA and Bribery Act Risk
    Your subsidiaries or partners could violate the US FCPA or UK Bribery Act in the course of doing normal business in the country in which they are operating. Although both acts allow for a form of facilitation payments, as that is just the way business is done in some parts of the world, there’s a difference between a facilitation payment and an outright bribe and, in some countries, while they still exist, facilitation payments are not as common as they used to be as they adjust to doing business with the West. (Of course, they find new ways to extract blood from your stone, but I will leave that discussion to a global trade expert.)More importantly, especially under the UK bribery act, even relatively inexpensive gifts — such as business dinners, sports tickets, or Christmas Party invitations — can be construed as bribes. Extra care has to be taken, especially if such gifts go to the winning party.

There can be great rewards to being a multinational that taps the opportunities in emerging markets from both a supply, and demand, perspective, but there are similarly great risks. Is your organization prepared? And more importantly, is your supply chain?

CBTM #4: Mind the Gap – Training vs Competencies


Today’s guest post is from Crystal Jones of The Mpower Group and is the fourth in a series of seven posts on Competency Based Talent Management.

In our previous posts we talked about designing your talent management program and implementing a recruiting plan. However, these are only parts of a larger Competency Based Talent Management (CBTM) program. You have hired the people you needed. So what? How can you make sure they are integrated into your organization and are able to hit the ground running, creating the optimum amount of impact? Not only do you need to look at training your existing team, you need to create a training program for new recruits as well.

This sounds well and good (and perhaps a bit easy). However, it is not as easy as it sounds. We have heard from many of our Sourcing / Supply Chain peers, particularly at our last NPX, that they are struggling with their training efforts. Training is completed, but the learning is never adopted. So what can they do to change the results?

Adoption brings us back to our vowels (AEIOU). In the past we have talked about the importance of Adoption, Execution, Implementation, Optimization and Utilization in any organizational effort. However, training is just not about the act of learning (a consonant); it is about adopting and implementing that learning to drive business results. Using the vowels ensures that the people being trained start applying what they learned. Implementing the vowels is the key difference between training people and developing competency.

To effectively turn a training program into competency development, you must have a good understanding of your desired needs. This requires that you start with the strategic direction and objectives of the company and what role your organization will play. This will show you which organizational competencies you need and will give you an understanding of the gaps you have within your organization. Now, the closure of those gaps can be tied directly to the company’s strategic direction and the role your organization will play, adding value not just for individuals, but for the company as a whole. Sending 2-3 people at a time to some public seminar designed for the masses may develop individual competency but it is never going to develop organizational competency.

Your gap closure strategies must follow a multi-faceted approach (coaching / mentoring etc.). Make sure your entire approach is rooted in Adult Learning Theory and has experiential learning as its basic tenet. Making people sit through day long lectures with no ability to actually practice the new behaviours and competencies in a safe learning environment is of little value. In addition, the curriculum must include the strategic competencies found during the initial gap assessment. A program consisting of functional or process skills alone is doomed. The strategic competencies must also be integrated into the core process modules so that people know how to actually deploy the new process.

Your training strategies must look beyond the technical skills and focus on the strategic skills needed to be successful like change management, communication, collaboration, and decision making. Oftentimes these skills are overlooked when training, although they are the most important to organizational success. Anyone can learn to use any process and those are the skills most organizations worry about when hiring and training. However, developing strategic skills can take your team to the next level and have more lasting effects on the group. It takes your group from Best Practices to Next Practices.

Developing the right competencies within your organization is not easy. It takes a lot of thought and energy to train and develop your team. Sometimes closing the gap can make you feel like you are trying to build a bridge across the Grand Canyon. If you start by looking at competency development in terms of AEIOU and strategic alignment, you will no longer need to build a bridge across the gap. You will find that your organization will soar.

In our upcoming posts we will continue to address Next Practices associated with the Competency Based Talent Management lifecycle.

If you are interested in getting involved or would like to follow this topic further, here are a series of critical activities coming up:

  • Release of the results of the Executive Forum we just facilitated at the IACCM Global Forum for Contracting & Commercial Excellence on Talent Management.
  • A major research project to not identify the problem one more time but to identify Next Practices to solve the problems.
  • A webinar with IACCM on CBTM.
  • A White Paper to focus on Next Practices in CBTM.

Please contact Crystal Jones at crystalj <at> thempowergroup <dot> com for more information.