Monthly Archives: January 2012

How Do We Drive Technological Advances? Part II

In our last post, which noted that an organization must master the three T’s to excel in Supply Management, we lamented that an average organization has not yet mastered any of the T’s, with technology often being the T in which the organization is the furthest behind in (as most organization’s have people, which is a talent foundation, and process, which is a transition foundation). We then lamented on the lack of advice on what to do to drive organizational advancement and adoption in the organization. Certainly training and incentive will help, but it obviously isn’t enough in the average organization as an average organization in Supply Management is way, way, way too far behind the curve. (So far, in fact, that Wile E. Coyote comes closer to catching the Road Runner than an average Supply Management organization comes to obtaining a technological advance that is still relevant.)

SI’s proof? The extreme low rate of adoption of supplier performance management (SPM), spend analysis, and decision optimization in an average Supply Management organization — three technologies which consistently deliver double-digit (percentage) savings opportunities that have been around for over a decade and that are still sparsely adopted in an average organization. (And while many organizations may claim to have spend analysis, the reality is that most of these organizations are only using old-fashioned OLAP-based spend reporting technology.)

As a result, SI was very interested to see that Chief Executive recently published a piece on Seven Strategies for Driving Technological Advances because any piece of advice that can help spur technology adoption is useful. But the question is, was the advice good, and was it enough?

Chief Executive had the following pieces of advice, which will be discussed one by one.

  1. Be a student of technology best practices.

    The article notes that leaders should strive to understand their industry’s best technological practice, so that they can combine their knowledge with that of the CIO for greater impact and decision making, but this is not going to drive technological adoption. While this may lead to better technology selection, this is not enough.
  2. Connect weekly with the CIO.

    This will definitely help the Supply Management leader to understand the impact of business decisions throughout the technology lens and, in turn, the impact of a poor technology decision on the business, but, as with the first recommendation, all this will do is lead to better technology selection, not adoption, which is the key to advancing technology in the organization.
  3. Encourage constant IT learning in the Department.

    This is a good start, because, once a Supply Management professional understands what a new piece of technology can do, he or she may be more open to trying it, but if it doesn’t work right away, it might be labeled as junk or inappropriate and left on the technology shelf.
  4. Communicate and share best practices through technology.
    This is a good practice, as it will increase the organization’s overall comfort level with technology, but unless the organization understands that modern technology is a best practice, the extent of technology adoption in your organization might not go beyond Twitter (which makes you stoopid) and Facebook (which is ruining society).
  5. Think benefits, not features.

    This is very good advice, because organizations (that use supplier-generated RFPs) that fall for the feature buffet typically end up getting software solutions that don’t do what the organization really needs them to do, which is enable talent to manage transitions that result in cost reductions and avoidance. However, just selecting the platform that will provide the organization with the most benefit does not guarantee that the platform will be used.
  6. Prepare to invest.

    The article notes that it’s important to be realistic about how much investment is required to drive beneficial technological advancement within your business, but doesn’t indicate what the investment needs to be in — leaving you to believe the investment needs to be in the technology. Typically, this is not the case. Even enterprise software systems are very low cost these days compared to the investment that was required a mere ten years ago. The necessary investment, which could be significant, will be in the training and transition programs required to secure the adoption necessary to make the technology investment a success.
  7. Establish meaningful metrics for your CIO and yourself.

    Measure the technology in a meaningful way and hold your team accountable to the results. Well, the technology should certainly be measured, and the team should be accountable for what they do, but the reality is that until they can use to do their jobs more effectively than they are doing their jobs today and feel comfortable with the technology, they’re not going to use it. Until their trepidations are overcome, the team will assume it’s just a fad and wait a week to see if you forget. Or a month. Or whatever it takes.

The verdict? While this article was well intentioned and gave SI hope that the adoption problem was understood, the advice contained within really wasn’t that good. While it may encourage a leader to be more receptive of new technology, it’s not going to encourage the organization as a whole, and besides the investment advice (and this is assuming the author meant training the talent for a transition), it’s not very adoption focussed. So what do you do? We’ll discuss that in our next post.

How Do We Drive Technological Advances? Part I

Any organization that wants to excel in Supply Management today needs to master the three Ts:

  • Talent
  • Transition, and
  • Technology.

Yes, SI is using talent instead of people and transition instead of process because PPT has been failing us for years. (Which is not surprising considering that death by PowerPoinT is a leading cause of corporate suicide.) Supply Management is not a function where HR can fill a room full of warm bodies and get results. Some organizations still think so (as illustrated by the fact that a few organizations have approached consultancies looking to expand their global supply management organizations by 200 overnight), but it’s not the case. The people need to be talented and that talent needs to be managed. This is an issue that has been discussed a lot recently on SI and will be discussed more in the months to come.

In addition, Supply Management is not a function where Operations can just take some random processes from a best-in-class competitor and treat them as gospel. The reality is that every organization is different, and every process will need to be customized, or transitioned, to fit the Supply Management organization before any results will be obtained. Similarly, supply chains are fluid and organizations need to adapt to unexpected changes that will continually arise. As a result, the processes will have to be fluid and capable of being transitioned to accommodate new suppliers, distributors, distribution methods, and requirements. This is an issue that will be taken up more in months to come as SI renews its discussion of Your Next Level Supply Management Journey, which will be the topic of an SI white-paper that will be released in March.

However, the technology element hasn’t changed. The reason — the average organization still hasn’t adopted modern technology, including half of the must-have solutions SI identified in its recent white-paper on the Top 10 Technologies for Supply Management Savings Today (minimal registration is required). When the first pieces of feedback is that “we don’t have the top four technologies on this list”, that’s not a good sign. Especially since all of these technologies have been out there for at least ten years! It’s true that a few of them were not user friendly until about five years ago, but that still shows the burning need for modern technology in an average Supply Management organization. (Especially since SI has not addressed the Top 10 Supply Management Technologies an average Supply Management organization will need tomorrow — which is much closer than any organization will want to believe. The King may have proclaimed that tomorrow never comes back in 1971 when he sang the words of Ernest Tubb, but that was another time and another place.)

So what can we do? Certainly a focus on adoption, which includes usability, training, and incentive will help. But is that all? Needless to say this conundrum drew my attention to a recent article over on Chief Executive on Seven Strategies for Driving Technological Advances because any piece of advice that can help spur technology adoption is useful.

Chief Executive had the following pieces of advice:

  • Be a student of technology best practices.
  • Connect weekly with the CIO.
  • Encourage constant learning in the IT Department.
  • Communicate and share best practices through technology.
  • Think benefits, not features.
  • Prepare to invest.
  • Establish meaningful metrics for your CIO and yourself.

So how good is this advice for Supply Management? That will be the subject of SIs next post.

A Primer on Private Equity for CPOs

Private Equity (PE) investment is on the rise in the EU and the US. However, most of us still don’t know very much about what PE is, how it works, or what Procurement’s role is when dealing with a PE firm. That’s why it was great to see this recent article over on CPO Agenda on The Final Frontier for CPOs that tried to create more transparency around the practices and importance of Procurement and Supply Chain in this field.

The first thing to note is that PE groups generally make their money by increasing the value of their portfolio companies while retaining part of the generated value by the time they exit the investment in the company at a higher financial valuation. The acquisition of a portfolio company is financed from funds that are raised from private and institutional investors that give the PE group the task of investing the money, managing the portfolio companies and returning an appropriate profit on the investments.

Given the pivotal role that Procurement and Supply Management have in a company’s competitiveness, product innovation and environmental and social footprint, Procurement and Supply Management serve two important tasks in a corporate context from a PE viewpoint:

  • a strong cash flow contribution to meeting debt obligations under the financing terms in the short term
  • a dedicated and measurable effort to swiftly and sustainably improve EBIT and company valuation in the medium term

Remembering that cash is king in a PE buy-out, cash-flow is crucial. Giving Supply Management’s razor-sharp focus on cost reduction and cost control, Supply Management improves cash-flow that is the vital blood of a PE turn-around. It does this by

  • releasing supply-chain related working capital tied up in unnecessary inventories or unfavourable payment terms
  • achieving like-for-like annual company spend reductions of 3% to 6% though the establishment of price competitive with the most suitable suppliers

Plus, Supply Management’s focus on sustainability helps PE since

  • a lasting and recognizable improvement of the procurement and supply chain capabilities can have a considerable positiveeffect on the sale price of the company
  • the benefits of cost engineering, supplier development and supply chain relocation can be harnessed within the typical investment period of four to five years

And Supply Management can benefit from PE and their support for the establishment of procurement platforms they strive to harness spend synergies (mostly in indirect materials) and best practice across the portfolio companies. In other words, done right, PE and Supply Management can be a win-win relationship.

Toto’s Song

No hints this time. Consider it a challenge!

Oh, she likes to put me in compromising positions
I’m supposed to stay there with a smile on my face
Well, they think I’m so cute when she got me in that condition
Well I think it’s a total disgrace
So I said

I fight with Dorothy, but Dorothy always wins
Well, I fight with Dorothy, but Dorothy always wins
Well, I’ve been doing it since I was a young pup
I come out grinnin’
Well, I fight with Dorothy, Dorothy always wins

So I call up the tramp and
I say, “Give me strength for Round 5”
He said, “You don’t need no strength, you need to grow up son.”
I said, “Growing up lead to growing old and then to dying.”
“OO and dying to me don’t sound like all that much fun.”
So I said

I fight with Dorothy, but Dorothy always wins
Well, I fight with Dorothy, but Dorothy always wins
Well, I’ve been doing it since I was a young pup
I come out grinnin’
Well, I fight with Dorothy, Dorothy always wins

I said “Oh no no no”
I said “Oh no no no”
I said “Oh no no no”
I fight with Dorothy, Dorothy always wins

I fight with Dorothy, but Dorothy always wins
Well, I fight with Dorothy, but Dorothy always wins
Well, I’ve been doing it since I was a young pup
I come out grinnin’
Well, I fight with Dorothy, Dorothy always wins!

Good luck!
The LOLCats needed a break today.

Managing Indirect Spend: An In-Depth Review, Part II.2

Our last post continued our review of Managing Indirect Spend, a new book by Joe Payne and William (Bill) Dorn of Source One that is the culmination of everything they have learned while doing nothing but Strategic Sourcing, primarily on Indirect Spend, since 1992 — before it was cool. Specifically, it discussed the chapter on Market Intelligence, which is critical to the success of any sourcing initiative and one of the most important tools in any sourcing professional’s toolkit. In this post, we review the other non-software tools at a sourcing professional’s disposal that were discussed in Bill and Joe’s tome on Managing Indirect Spend.

The major tools at a sourcing professional’s disposal when conducting market research can generally be classified into the following categories:

  • Traditional Industry Publications
    One of the first stops should be one or more traditional industry publications that publish in-depth case studies that include best practices, savings achieved, and new processes or technologies being employed by suppliers and your competition.
  • Indexes
    Indexes such as the CPI (Consumer Price Index), the ISM Manufacturing Report, the ISM Non-Manufacutring Report, and speciality indexes such as the Pulp and Paper Weekly and American Metal Markets can be extremely valuable. Furthermore, for just about any commodity that can be listed, somewhere in the world is an index tracking it. For example, Mintec has over 15,000 indices in its database.
  • Blogs
    Practitioner, Commodity Specific, and General Supply Management blogs can all be helpful. Of course, we agree with Bill and Joe when they indicate that you should start your search in the latter category with SM and SI.
  • Import Records
    This is a great source of competitive intelligence. You can find out who your competitors are using, what types of products they are importing, and in what volumes. Sites like Panjiva, Import Genius, the Datamyne, and PIERS are great places to start for easy access.
  • Search Engines
    It is surprising just how much information is available through Google, especially if one takes the time to learn advanced search capabilities, like restricting to a domain or a set of document types. There are often a considerable number of presentations in PDF and PPT format on the web which already contain the data you need free for the taking. One just has to find them.
  • Social Networks
    It’s amazing the information that some people will let slip on a social network or how frank they will be in a one to one discussion in a group or forum. Don’t forget to use these tools as well – but be careful what you post – it may be archived for eternity.
  • Research Reports
    While most research reports are sponsored and skewed towards the sponsors, the generic market data as well as the capabilities they describe are always useful, and it’s especially useful to see which vendors didn’t make the tragic quadrant or grave analysis. Sometimes they are just as good for your organization’s needs.
  • Group Purchasing Organizations
    GPOs often have oodles of benchmark data. Your organization might need to join, and use them for some non-critical spend, but a judicious use of their master contracts where other members have more volumes can often result in better rates for the organization with very little effort.
  • Electronic Sourcing Tools
    Some SaaS/Cloud providers will often bake-in aggregate market intelligence into the tools they offer. If the organization is already paying for these tools, use them to their full advantage!

Another tool at the organization’s disposal for a successful sourcing project is a spcialized consultancy or Procurement Services Provider (PSP). A PSP with the tools, consulting experience, and skills in the right categories can jump-start an organization’s indirect sourcing efforts and get significant returns months, if not years, earlier. The key is to find the right one that is incentivized to do the job. As such, the organization should probably look for contingency providers that only get paid when hard dollar savings are realized. Providers that get paid based on man-hour effort often have no incentive to get the organizatio the best deal possible as they are paid regardless and providers that get paid based on estimated savings have no incentive to make sure the savings are actually realized. And while contingency providers that get paid on hard dollar savings may ask for a (significantly) higher percentage, it’s better to pay 30% of realized savings and realize 80% of the estimated savings than to pay 15% and only realize 40% of the estimated savings. In the first case, the organization still nets 56% of the savings in its pockets while, in the second case, it only nets 34% of the savings.

However, be sure to follow the best practices outlined by the authors if engaging a (contingency) PSP, or your organization might not get what it bargained for. Specifically, don’t engage an organization that

  • Baits and Switches
    Insist that if the organization provides a resume, that resource actually works on the project.
  • Overstretches
    Make sure the organization has the resources to complete the project – manpower and financial stability.
  • Asks for Double Payments
    If the consultancy gets a commission for (re)selling a certain product or service, they aren’t out to get you the best deal. Period.
  • Asks for Up-Front Payments on Soft-Dollar Savings Claim
    It’s not a savings until the goods are received, invoiced, and paid at the negotiated price without any extra financial gotchas tagged on.
  • Bakes in Hidden Additional Costs
    Read the Fine Print. If you are responsible for travel, software, hardware, and miscellaneous expense costs, your organization could pay more than it saves.
  • Makes Ridiculous Savings Claims
    If a PSP comes in and promises 30% off the board in a category where the base market index has gone up 20% over the last year, that’s probably not a valid claim (unless your organization has the worst sourcing team imaginable).
  • Lacks Analytical or Technical Skills
    Long-Gone are the days when hardball negotiations or reverse auctions were enough. Creativity and deep analysis are often key to uncovering new savings opportunities.
  • Doesn’t Include Audits in their Proposals
    How else will you insure you get the promised savings? Seriously – if the PSP forgets the audit, you forget them.

Finally, it’s important to note that if the organization uses an electronic sourcing tool, it’s doubly important to remember what not to do or the tool will blow up the event faster than you can read this post. Tools don’t replace the necessary human contact and it is vital that the team does not neglect to:

  • insure the right tool has been selected for the event
  • insure the right suppliers are being invited
  • personally invite suppliers
  • follow up on the RFx/Auctin invitation
  • insure the right specifications are included
  • insure the right training is provided to supplier representatives

There are a lot of tools at a Supply Management organization’s disposal for conducting market intelligence and managing indirect spend, but they have to be used wisely.

At this point SI is going to take a short break, but next month it will continue with Part III of it’s review of Managing Indirect Spend and discuss some examples from the field.