Monthly Archives: May 2012

Have You Reached the Summit of Cost Cutting?

Cost cutting has been a major focus of your average Supply Management organization for most of the decade. A few efforts have been focussed on the long term, but the majority have been short-term efforts. And this is not a good thing, because, as Patrick Dunne of Alliance Boots said in a recent article over on the CPO Agenda on “Reaching the Summit of Cost Cutting” everything has to be a long-term activity. Every strategy within a Procurement world, or cost-based management as I like to call it, has to have an end-state.

In a strategic Supply Management organization, delivering a cost conscious culture is the long-term objective, everything in-between, short-term, or medium is initiatives, tactics and strategies towards that cultural change. As Daniel Baun Christensen of Lego says, there are no quick wins as such. Successful Supply Management is all about collaboration. Your customers in your organizations are your stakeholders and if you don’t get aligned there are no quick wins and long-term wins. There is no ‘one size fits all’ in procurement.

But when you engage with the larger business, as Ron Needham of SAP found out, you expand your thought leadership and do a better job of being viewed by the CEO as professionals rather than just the folks who have to save money on pencils. By working alongside the marketing, sales, and IT teams to communicate the role of Supply Management and the value it can bring, you see the stock of the internal Supply Management team increase. For example, they were able to institute a bring-your-own-device initiative, frightening to IT in terms of security and liability, which had the net effect of lowering IT spend and increasing environmental sustainability (as you no longer had executives who needed to carry work devices and home devices).

I take these quotes from the article to make a point — there is a need, and an advantage, to focussing on long term cost cutting and not just short term cost cutting. And if you truly believe that the recession is ending and this is going to be a better year, then now is the time you start. You should have started years ago, but I know that most of you reverted to, or stayed in, the cut-costs-now mentality being forced upon Supply Management by short-sighted C-Suites that should have focussed on the long-term the last time things were good instead of chasing unreasonably high profit margins to increase their Wall Street valuation.

The reality is that the 11% savings enabled by Spend Analysis and 12% through advanced sourcing / decision optimization technologies are not repeatable on the same categories year-after-year. They only deliver these savings because average contracts are 3-5 years and its typically (at least) that long before an average category comes up for evaluation again. As with auctions, savings will deteriorate unless your sourcing strategies are taken to the next level (through VFS or Collaborative strategies), and this next level requires two things:

  • supplier involvement and
  • long-term thinking.

And, unless you take your sourcing strategies to the next level (and take the first step on your next level supply management journey [registration required for download]), you may find, that in these turbulent times of rising commodity, freight, and regulatory-related supply chain costs, you may have just reached the summit of cost cutting.

820K for a Las Vegas Conference? Amateurs! Just Ask The UK Public Sector.

I’ve been watching the headlines on Spend Matters and Spend Matters UK the last few weeks where they have been harping on the 820K GSA Conference in Las Vegas (and the fact that the GSA cited their maximum budget in advance with no intention of negotiating lower rates) and the lack of spending ethics in an organization charged with helping the Government save money. While this is an example of “excessive and wasteful” Procurement practice that is likely in violation of the policies of just about any Public Sector agency, it’s more of a personnel issue (with a few bad apples who like to misuse funds) than a Procurement issue.

This story, which broke in early, should be dwarfed by a much more important story that broke around the same time, that dealt with an amount 2,800 times as large. And that is, as first reported on SupplyManagement.com (to the best of the doctor‘s knowledge), the result of the 2012 Annual Fraud Indicator, as published by the National Fraud Authority.

According to the report, Procurement fraud, which made up the largest portion of the total loss, cost central government £1.4 Billion and local government £890 Million as a result of false and ‘double invoicing’, price fixing, altering payment details, and giving kickbacks to determine contract awards. Note that the first and last instances of fraud can only occur when someone on the Procurement team is taking part in the fraud. (And don’t tell me the buyer didn’t double invoice. While true, if he didn’t catch it, he’s guilty. It doesn’t take much work to check an invoice, and if you acquire a good P2P system, invoices are checked automatically against invoices in the system, rejected if obviously duplicate [same invoice #, etc.] and flagged if potentially duplicate [similar details, amounts, etc.].) If a large number of false or double-invoices slip through, then someone on the team is letting them. (Unless they are really, really stupid. But, hopefully, by now such people would have been eliminated from such a significant role given the focus on Procurement in the last decade.)

Think about that for a moment. £2.3 Billion or $3.7 Billion U.S. That’s an amount greater than the economy of at least 30 countries (Tuvalu, Kiribati, Sao Tome, Tonga, Dominica, Comoros, Samoa, Saint Vincent, Saint Kitts and Nevis, Vanuatu, Grenada, Solomon Islands, Guinea-Bissau, Gambia, Seychelles, Liberia, Antigua and Barbuda, Saint Lucia, Djibouti, Belize, Bhutan, Cape Verde, Maldives, Central African Republic, Sierra Leone, Burundi, Lesotho, Guyana, Eritrea, Fiji, Togo, and Suriname)! Gone. In the crapper. Down the drain. From fraud! So, Martha Johnson may have had her fun, while single-handedly propping up the economy of Las Vegas for a few days while doing so, but this wasteful spending (on real goods and services, though very heavily inflated in cost) was only a drop in the bucket compared to the money lost in public sector fraud every year.

The message — if you are a public sector organization, get an audit and do something about the fraud. If you don’t know where to start, get help. There are consultancies that specialize in this. Katzscan is one example.

the doctor’s Top 10 Cities for Supply Management Centres of Excellence (Where Should Your Supply Management Organization Be Located? Part V)

Yesterday, I gave you the top 10 mega-regions in which to locate your Supply Management Centre of Excellence, and indicated the major cities in each region that should top your list. For those of you keeping count, I listed 46 cities. If you’re indecisive, that’s a lot of cities to choose from! So, today, I am going to give you the doctor‘s top 10 cites for your Supply Management Centre of Excellence and his rationale!

Rank City Mega-Region Rationale
10 Dallas The Dallas Triangle The telco corridor. Oil and gas USA. Just a few hours north of Silicon Hills. Finance. More Fortune 500 headquarters than any other city in the USA. The centre-point of the largest metropolitan area in the south and the fourth-largest metropolitan area in the USA. East-West and North-South focal point of the interstate highway system — get anything, anywhere, anytime. One of the largest, and busiest, airports in the world (so you won’t miss Chicago). Sports, sports, and more sports. The world famous Dallas Cowboy Cheerleaders. People named JR. A great education system. Birthplace of Amy Acker, who, before taking the Whedonverse by storm, made sure that those of us who were adults with young children didn’t get the short end of the Wishbone.
9 Frankfurt The Frankfurt-Gärtringen Corridor The stock exchange, renewable energy, great transportation and telecommunications infrastructure, and German engineering! And let’s not forget Frankfurther Rindswurst. Woot! Woot!
8 Rio de Janeiro The Rio de Janeiro to Sao Paulo corridor It’s not the CRIB, it’s the BRIC, and it starts with Brazil. It’s the emerging South American powerhouse, which is the most visited city in the southern hemisphere (and home to Carnival), on the coast, and surrounded by a great transportation infrastructure. It is the headquarters of many state-owned companies, the centre of the oil and gas industry in Brazil, and the second largest industrial producer in the country. Foxconn, who produces all of Apple’s iPads and iPhones is down the corridor in Sao Paulo, so you know that Brazil, and Rio de Janeiro, is here to stay as a major player in global trade.
7 Paris Greater Paris La ville des lumières. La ville de l’amour. La vie en rose. Audrey Tautou. La mode, l’architecture, et la philosophie. Quoi d’autre avez-vous besoin?
6 Seoul Greater Seoul A megacity with a population over 10 Million, it is the largest city proper in the OECD developed world, that is home to major multinational conglomerates and one of the world’s top ten financial and commercial centres. A very technologically advanced infrastructure and an openness to the Western Way of doing business. Architecture, fashion, and culture extrude from every crevice. And it’s home to the Wonder Girls of K-Pop. How can you go wrong?
5 Amsterdam Amsterdam – Brussels – Antwerp Central European location, an almost universal understanding of English, great international relations, strong fashion and tourism industries, architecture, and culture (even excluding its world famous Red Light District). Plus, lots and lots of conventions — no travelling required!
4 London London – Leeds – Chester More visits from The Doctor than any other place on earth (and the most likely city to be the first to participate in intergalactic trade). On a more current note, the LSE, the fashion scene and haberdashery shops, and the entertainment industry draw all shapes and sorts of creative talent. Plus, it gave us The Clash and Generation X. What more can you ask for?
3 Tokyo Greater Tokyo Domo arigato gozaimashita! You have to interact with a lot of people everyday. And not all of these people are polite. Why not go somewhere politeness reigns? Plus, it’s the home of Sanrio (hello kitty) and the J-Pop explosion. How can you go wrong? (Oh, and the financial clout, hi-tech infrastructure, and the wide range of cultural pursuits from ikebana and origami to shopping and whiskey, doesn’t hurt either.) And if that’s not enough, anime, manga, and gaming central! (If you think Gibson is inspired, just wait until you read Masamune Shirow!)
2 New York Boston – New York – Washington Corridor If you’re gonna be in Supply Management for the long haul, you gotta have Heart. And since New York is The Heart of Rock & Roll, it’s as good a place as any to start. Plus, the easy access to capital doesn’t hurt!
1 Los Angeles The California Coast Despite our desire to move to a paperless office, we still have to deal with a mountain of paper every day. Purchase Orders, Goods Receipts, Invoices, Import Forms, Export Forms, RFXs, etc. etc. So why not base your Supply Management organization in the home city of Wil Wheaton, the guy who made collating paper cool!

the doctor’s Top 10 Mega Regions for Supply Management COEs (Where Should Your Supply Management Organization be Located? Part IV)

Our first post in this series began the discussion of where a better-than-average Supply Management (SM) organization on the path to becoming a world-class Supply Management organization should locate its new Centre of Excellence (COE) for its new centre-led Supply Management organization. We discussed the traditional factors of customer proximity, supplier proximity, business incentives, infrastructure, and the local talent pool and ended up demonstrating that the only thing that really matters in the end is the local talent pool. (This is because it is the people, not the process or the technology, that ultimately identify and drive the results.) Our second post discussed what type of talent you were looking for and where they were likely to be found. We concluded that you were definitely restricted to major urban areas, but did not identify which particular urban areas are likely to contain the talent your organization needs. Then, in our last post, where we dived into the findings of Professor Richard Florida, as chronicled in Who’s Your City, we illustrated that your new Supply Management COE should be in one of the top 40 mega regions, and a mega region with a strong innovation focus and a lot of open minded talent. We then indicated that, if you intended to be North America based, that you should be focussing on one of the following five mega-regions: the Boston-New York-Washington (D.C.) corridor in the Northeast; Miami and southern Florida in the Southeast; the Houston, Dallas, and Austin triangle in Texas; the San Francisco Bay Area down to LA on the West Coast; and the Portland-Seattle-Vancouver corridor on the West Coast. But kind of left you hanging if you were looking for a global SM COE outside of North America.

So, today, the doctor brings you his top 10 Mega Regions for Supply Management COEs, culled from the list of the 40 Mega Regions based upon North America data, cultural analysis, and emerging or current trends.

Rank Mega-Region Economic Clout Major Cities Rationale
10 The Rio de Janeiro to Sao Paulo corridor 230 Billion Rio de Janeiro, São José dos Campos, Sao paulo, São Bernardo do Campo Culture, fashion, finance, and the centre of the emerging South American Economy, lead by Brazil (but followed by Colombia and Argentina).
9 The Dallas Triangle 400 Billion + Dallas, Austin, Houston Finance, Oil, easy access to the Gulf of Mexico, and a good old fashioned “don’t mess with” attitude.
8 Greater Paris 380 Billion Paris, Versailles Culture, fashion, architecture, and a strange attractor for top talent across Europe and the Americas.
7 The Greater Seoul Region 500 Billion Seoul, Incheon, Ansan, Hwaseong, Suwon The economic power-house of South Korea and an economic powerhouse of Asia with a new generation culture that, unlike their predecessors, is (openly) embracing western styles of business, fashion, and life and that is the most willing of all of the Asian nations to take risks (which are often necessary for true creativity and innovation).
6 The Frankfurt-Gärtringen Corridor 630 Billion Frankfurt, Darmstadt, Mannheim, Heidelberg, Stuttgart, Cärtringen The Frankfurt stock exchange, renewable energy, and German engineering!
5 The California Coast 1280 Billion San Francisco, Sacramento, Oakland, San Jose, Los Angeles, Long Beach, San Diego Fashion, Entertainment, Technology, a global innovation leader, and home to the largest ports on the West Coast.
4 London – Leeds – Chester 1200 Billion London, Northhampton, Leicester, Nottingham, Leeds, Manchester, Chester, Birmingham Not only do we have (one of) the major financial, fashion, and trade centre(s) of Europe in London, but we also have the home of the Commonwealth. The UK may have been overtaken by the US in the final years of the 19th century in GDP production, but it is still in the top 20 and will always be of prominent importance.
3 Greater Tokyo 2500 Billion Tokyo The world’s largest mega-region in terms of economic clout, Greater Tokyo cannot be ignored. And while the Japanese are typically wary of uncertainty and risk, unwilling to commit to deadlines, very orderly in business, extremely respectful of hierarchy, very shy, and extremely respective of face, Tokyo is an exception. The younger generation have adopted a lot of western values, have no problem relating to the west, and are even willing to behave like outsiders in their soto groups. It’s also close to other major centres (and mega regions) in Asia.
2 Amsterdam – Brussels – Antwerp 1500 Billion Amsterdam, Rotterdam, Brussels, Antwerp The world’s fourth largest mega-region in terms of economic clout, one of the most open and advanced regions in Europe in terms of broadband penetration and clean technology, and close proximity to the UK and Germany, two European powerhouses.
1 Boston – New York – Washington Corridor 2300 Billion Boston, Hartford, New York, Philadelphia, Baltimore, Washington As the world’s second largest mega-region in terms of economic clout, the centre of the North American finance and fashion industries, and the nation’s capital, there is serious clout and talent readily available here.

Where Should Your Supply Management Organization Be Located? Part III: The Mega Region

Our first post in this series began the discussion of where a better-than-average Supply Management organization on the path to becoming a world-class Supply Management organization should locate its new Centre of Excellence (COE) for its new centre-led Supply Management organization. We discussed the traditional factors of customer proximity, supplier proximity, business incentives, infrastructure, and the local talent pool and ended up demonstrating that the only thing that really matters is the local talent pool. This is because it is the people, not the process or the technology, that ultimately identify and drive the results. Our last post discussed what type of talent you were looking for and where they were likely to be found. We concluded that you were definitely restricted to major urban areas, but did not identify which particular urban areas are likely to contain the talent your organization needs. That is the subject of today’s post.

In short, based on the research of Richard Florida, as chronicled in Who’s Your City, you should probably locate your centre-led Supply Management organization in a city within one of the forty mega-regions, which are the new economic units of the “spiky world” that we live in. By overlaying maps of continual, unbroken, light intensity around the clock, innovation (as measured by patents), and economic activity, Richard was able to identify forty global mega-regions that each produce more than $100 Billion in economic output and collectively account for 23% of the global population, 66% of economic activity, and 86% of patents. Led by Greater Tokyo and surrounding area and the Boston-New York-Washington (DC) corridor, which produce in excess of $2.5 Trillion and $2.2 Trillion respectively, these mega regions are the powerhouses behind the global economy in which your Supply Management organization functions. They are so productive that the top two mega-regions produce more GDP than all but the top three economies (now that China has moved up the list) and the top six mega-regions place among the top ten national economies in the world.

The talent you need is going to be in one (or more) of these mega-regions, clustered around one of the global innovation centres in the region (which include Tokyo, Seoul, New York, San Francisco, Boston, Seattle, Austin, Toronto, Vancouver, Berlin, Paris, Stockholm, Helsinki, Osaka, Seoul, Taipei, and Sydney). But which one? Not only do the most talented and ambitious people need to live in the means metros in order to realize their full economic potential because the proximity of talented, highly educated people has a powerful effect on innovation and economic growth, but they need to live close to people they collaborate well with. Close to other innovators where their collective efforts make a whole that is greater than the sum of the parts. (When the right people come together, it has been statistically demonstrated that a doubling of population in an urban area results in more than two times the creative and economic output.)

But, as Porter has found, the economic world is not only taking shape around clusters, the clusters are becoming more specialized in individual locations. For example, if I say New York, you probably think finance and fashion, and you are right. And if I san San Francisco, you probably think technology, and you are right.

But since Supply Management is just emerging, we don’t really have Supply Management clusters (even though places like Singapore, where global companies tend to cluster and bring their Supply Management talent with them, contain higher than average Supply Management professional populations), and since not all clusters in early stages actually crystallize into long term clusters, what we do have may not be long-term. So how do we pick the right mega-region? Lucky for us, we know that a good Supply Manager has a certain personality profile and not only do we find clusters of talent, but we find clusters of talent with similar personality profiles.

At least in North America, Richard helps us out here again. He presents clusters for each of the five personality types, including the open personality type, which is the personality type that is required for Supply Management success given the need to interact with a wide range of people in a wide range of cultures using a wide range of processes and technologies. In North America, while such personality types are spread out across the country, they are clustered in only some of the mega-regions, and only found in significant concentrations in the following five mega-regions: the Boston-New York-Washington (D.C.) corridor in the Northeast; Miami and southern Florida in the Southeast; the Houston, Dallas, and Austin triangle in Texas; the San Francisco Bay Area down to LA on the West Coast; and the Portland-Seattle-Vancouver corridor on the West Coast.

In other words, we’ve already weeded out the Chicago-Pittsburgh Corridor, most of the Houston-New Orleans corridor (outside of Houston which we’ve opted to place in the Texas Triangle), the Charlotte-Atlanta corridor, the Phoenix-Tucson corridor, the Toronto – Buffalo – Chester triangle, and Mexico. And if you want your COE to be based in another part of the world (like Europe or Asia), all you need to do is get similar personality profile surveys or, where they are lacking, cultural profiles and you will be able to limit your options even further. For example, if you are thinking of Asia, while Singapore may be a great choice and Beijing a good choice (given the recent increase in innovation and cultural offerings in the area), given the lack of individualism, the lack of tolerance for risk, and the polychronic view of time in the Thai culture (as detailed in this SI post on overcoming cultural distances in international trade with Thailand), Bangkok is not going to be a good choice for your Supply Management organization. (On the other hand, it’s probably an excellent place to put a factory as they will want the factory to work like a Swiss time piece.)

The reality is that, when you do your homework, you’ll find that you really don’t have many options in the spiky world, and if you want to consider infrastructure, corporate strategy, or the willingness of your current superstars to relocate to one of the places on your short list, you’ll have even fewer, But considering that, by 2025, our world will be considerably more concentrated around mega-regions than it is today, this might not be a bad thing.