Monthly Archives: June 2012

Looking for Something to Read this Weekend? Download Chris LaVictoire Mahai’s ROAR for FREE today only!

Chris LaVictoire Mahai, managing partner at AVEUS, a global strategy and operational change (consulting) firm (on LinkedIn), has made the e-book / Kindle version of his new book ROAR available for FREE on Amazon (at this link) TODAY (and Monday through Wednesday of next week) for anyone who wants it.

The book, which uses the animal kingdom as a metaphor for building peak performance, and includes interviews with several executives to explore what drives peak performance, was written in an effort to help companies adopt a systematic approach to strengthening their performance chain. A good performance chain must be fast, flexible, predictable, and leverageable — and simultaneously balancing these requirements to achieve better customer outcomes can be tricky. As Chris implies, it’s like trying to combine the best qualities of the cheetah, elephant, coyote, and ant into one animal. (The Greeks found it difficult to combine the Lion, Goat, and Snake into a Chimera. So imagine the challenge we’re faced with!)

the doctor hasn’t made it through the whole book let, but the lessons learned summarized in the 4-Lens Profile are good ones:

  • speed at any cost becomes a negative
  • predictability delivered too late or for something that has lost market appeal is of little value
  • flexibility that extends every process, decision, or outcome is more harmful than helpful
  • leverage of every resource to the nth degree will deteriorate performance and increase risk

So, anything you can take away from Rashida Cheetah, Oralee Elephant, Ace Coyote, or Rickie Ant, or, better yet, the many executives that Mr. Mahai interviewed, is definitely worth your time.

SAP bought Ariba. What Should You Do?

Don't Panic

With one hand, pick up your copy of The Hitchhiker’s Guide to the Galaxy, with your other hand grab a Pan Galactic Gargle Blaster, have a seat, and read a few random entries while you have a nice relaxing drink. And definitely don’t panic.

In fact, don’t even give the acquisition a second thought right now. Why? Despite what every e-Procurement, e-Sourcing, and Supplier Network vendor seems to be implying with their comments (as summarized by Peter Smith over on Spend Matters Europe), press releases, etc., the reality of the situation is that, for the time being, nothing is going to change and you don’t have anything to worry about.

Since no one else is going to spell it out for you, the doctor is.

  • Ariba was the largest pure-play vendor in the Sourcing/Procurement space
  • SAP is one of the largest ERP vendors in the space
  • Large Companies are slow moving
  • Large Companies have high overheads
    (and can’t afford to sacrifice revenue streams without replacements)
  • SAP has a Fusion road-map through 2020

When you put all this together, and consider what has happened with past acquisitions in both companies, the following picture quickly emerges:

  • SAP is going to slowly merge Ariba products into its suite(s) through Fusion
    but this is going to take years and in the meantime
  • SAP is going to continue to sell and support Ariba as-is in the interim
    because it needs to not only make its money back, but support the high overheads until it is in a position to absorb Ariba into it’s core platform and do away with needing to maintain a separate suite.

In other words, you have a few years to come up with a backup plan if the way SAP merges Ariba’s suite into their platform isn’t to your liking or if the renewal costs when it happens are too rich for your blood. The only people who need to panic now are SAP partners where a significant percentage of their business came from SAP referrals as SAP will no longer be referring anyone with Sourcing, Procurement, or Supplier Network needs to third parties. (Companies like Hubwoo might be in this boat.)

Now, depending on where you are in terms of a renewal, or how much data you have in the system, or how much you use the system, you might not want to wait a few years to start thinking about moving off of the platform if you are worried about it meeting your future needs, but you don’t have to rush into a decision. And you certainly don’t have to panic. Time is on your side.

How Do You Handle Inside Theft? Same Way You Handle Drug Dealers!

Apparel just ran a fascinating article on how former federal agents can help solve retailers’ employee theft problems. According to the article, the same practices used in fighting drug dealers applies to tracking down thieves inside the workplace. In particular, professionally conducted interview and interrogation tactics and procedures play a critical role in identifying the prime suspects in inside theft and solving this costly problem.

Given that the employee theft rate, which held steady at 15% from 1969 to 2006, skyrocketed to an alarming 75% later that year, and that employee theft cost U.S. Retailers $18.4 Billion in 2011, this is becoming a critical issue.

So where do you start? First, start with the red flag employees.

The article notes that there are four types of employee thieves actively engaged in stealing time, money, or products from their employers:

  1. Thieves by Nature
    who enjoy stealing
  2. Employees who feel Entitled
    because the world owes them more than what they earn
  3. Employees Stealing out of Desperation
    as they are in extreme debt or have a drug/gambling/other problem compounded by a weak economy
  4. Theft by Target of Opportunity
    where money in plain sight will be taken

These employees can be identified by well trained private investigators, with experience in the right areas of law enforcement, who can ask probing questions, confirm facts, corroborate allegations, and identify the full magnitude of theft in your organization. These interviews should focus on scheduling, accounting and inventory activities, and similar supply management practices where the greatest opportunities for theft occur. And conducted properly, in full accordance with the law, they will identify the perpetrators of theft much faster than if the organization waits until its losses mount to the point where law enforcement agencies take notice.

Good Tips on Strategic Cost Management from the eSide

That’s right. The eSide. Not necessarily where you would expect them if you’re old school and always flipping to the b-Side, but that’s the beauty of high-tech. Even though the goal of Supply Management should be to increase value to the organization, the reality is that the C-suite in most organizations, big or small, global or local are still focussed on maintaining — or, preferably, reducing — the costs for procured goods and services. Plus, quick wins in these categories give the organization more leverage to take-on bigger, value-focussed, projects.

However, as the article notes, before you start, it’s worth noting that there’s a discernible difference between price reduction and cost reduction. Cost reduction is typically sustainable over the long term, while price reduction is often a short-term commercial concession, which is then typically reversed later when the power balance in the buyer/supplier dynamic changes. And, most importantly, managing cost with suppliers who can often considerably help with cost savings is complex and requires a lot of effort.

However, costs are controlled by drivers, and suppliers often have a better understanding of these drivers than your organization does, especially since your organization is typically buying components from these suppliers that are buying raw materials that are the primary components of your cost. And even if the supplier provides a cost breakdown that underpins the price structure, it can be very difficult to understand what the information is telling you. You need a cost model that allows you to provide repeatable analytic capability that lets you understand what the information is telling you and whether costs are going up or down or staying flat. And, as you know, this will require working with knowledgeable colleagues in other functions such as finance and engineering, and the best candidates for the latter will often be in your supplier’s organization. Plus, suppliers will often bring new and innovative ways of reducing cost to the table that might not have been considered previously. Especially if you explore looser specifications with suppliers to broaden the opportunity for cost reduction through innovation and generation of alternative solutions. Remembering that for manufactured products in particular, the majority of suppliers’ costs are incurred at their factories, the suppliers will often have the best ideas for cost reduction — which might come in the form of an alternative (easier to manufacture) design, different raw materials, or even a different manufacturing process.

Suppliers are your allies, not your enemies, and collaborative efforts, focussed on profit sharing, can be the best way to control cost for the long term.

Is Co-opetition a Good Thing for Your Supply Chain?

Not too long ago, the ISM ran a cover story on Collaborating with the Competition. In this article, they addressed horizontal collaboration, which is the sharing of supply chain assets for mutual benefits, and which is becoming common among some manufacturing groups. This typically occurs between companies in the same industry that, while not direct competitors, market and sell to similar customers and consumers. As an example, if one manufacturer made HDTVs and another made Blu Ray players, which do require similar raw materials and even chipsets for encoding and decoding, they could cooperate in sourcing because, while they are selling to the same consumer, they are not selling the same product. However, this is now occurring between companies that, at least in some product categories, often directly compete with each other. The case of Hershey Co. and the Ferraro Group, as pointed out in the article, is one example. “Higher-end” hershey bars and “lower-end” Ferraro chocolates are in the same price category and target the exact same consumer that will likely only buy one of these products during a trip to the store. This is an example of co-opetition in the supply chain.

According to the North American Horizontal Collaboration in the Supply Chain Report, published by EyeForTransport, while still in its early stages, the benefits [of horizontal collaboration] are clearly recognized and there are companies already optimizing their supply chains with this cutting-edge strategy. This is especially true if the collaboration is deep, and extends into sharing warehousing, distribution and even manufacturing capabilities. And of course, the collaboration is going to achieve efficiencies and savings beyond what either company can achieve on its own if you collaboratively optimize everything, as the article recommends. [This echos what the doctor has been saying for years. No other technology or process delivers the returns that optimization delivers, and the maximum effectiveness is always in a collaborative application.] But the real question is, what is the value that is going to be delivered? When you optimize everything within your organization, you maximize the value to your bottom line. But this isn’t necessarily the case when you optimize a joint supply chain.

Why? To understand the rationale, we need to take a step back to the predecessor of horizontal collaboration — the Group Purchasing Organization. The idea behind the group purchasing organization was that if a bunch of companies came together and pooled their total purchasing volume, they could get a better deal from a single supplier than each could on their own. (In simple terms, they are the enterprise version of today’s consumer GroupOn or TeamBuy.) This was true for each company if they all had volume requirements in the same order of magnitude and there was enough companies in the group to take the volume to the next order of magnitude (which, in manufacturing terms, is defined based on the throughput of a production run and the threshold at which manufacturing the product becomes cheaper). If one company had an order of magnitude more demand than the others in the GPO, then the reality is that it could get just as good of a deal if it had a good negotiator, and if a company had an order of magnitude less demand, then it was getting a way better deal than everyone else.

In addition, a deal is only a better deal if it doesn’t help a competitor more than it helps you. So if the GPO contained direct competitors, typically it was only used for buying indirect or non-essential products or services (like office suppliers, maintenance parts, and temporary labour services), and never for components or raw materials used in direct manufacturing. So the organization never saw the full value of what a GPO could deliver unless it joined a smaller GPO that prohibited direct competitors from belonging to the GPO. And then it still didn’t get the best possible deals across the board because smaller GPOs generally had smaller volumes, especially since not all companies were buying the same products or services, or they were not all ready to buy the same categories at the same time.

Co-opetition is taking the concept of a GPO to the next level. It’s essentially saying “why stop at products and basic services when you can also collaborate on warehousing, transportation, and manufacturing asset purchases and take GPOs to the next level”. And while this sounds good in theory, the reality is that you can really only collaborate this deeply with an organization in the same space as you making similar products, and maximum benefit (from an optimization viewpoint) will only be achieved when they are making the same category of products. And if the other companies are making the same categories of products, even if they are not directly competing (like tablets and laptops), they are probably close enough that they are vying for the same consumer dollars (as many consumers have limited disposable income these days), and if the products are that close, and your competitor ends up getting more efficiency gains then you, with the indirect knowledge of your products that they are going to acquire, what’s to stop them from creating a product that directly competes with yours, at a lower production price, using the supply chain you helped them build?

And yes, there are always legal precautions you can take, but first of all, you have to think of every eventuality and then, if the competitor is determined, be prepared for a lengthy, and costly, court case. In other words, the greater the savings are for you, the greater the value your competitor is likely to see. Is it worth it? the doctor doesn’t have the answer, but thinks it is very important that you ask the question!