Monthly Archives: September 2012

Supply Management and Investor Relations

This summer, e-Sourcing Forum ran a three part series on Procurement’s Role in Investor Relations (Part I, Part II, and Part III) that was quite interesting. In the series, the author, David Henshall of Purchasing Practice outlined the four essential roles played by procurement in investor relations. In a nutshell, these roles are:

  1. Ensuring the Investor Community has a Timely and Accurate Picture of Supply Side Activities
  2. Helping the Investment Community Comprehend how Supply Markets Impact Strategic Decisions
  3. Delivering Shareholder Value by Maximizing Opportunities and Minimizing Risk
  4. Supporting Senior Management in Making Strategic Decisions

And they must be fulfilled in the terminology and metrics understood by the investment community – EBITDA, ROIC, EPS, etc.

And these are key roles, but in today’s profit-focussed economy, the importance of the following roles should not be de-emphasized

  1. New Market Identification
    Supply Management is likely already sourcing from the markets the company wants to expand into to spur growth, the investor’s holy grail.
  2. New Product Design & Introduction
    While engineering and marketing can come up with great ideas, they are typically not the most cost effective ones in their initial instantiations. Supply Management can suggest alternate materials, components, and services to lower costs and suggest value-adds to increase revenue. Profit margins can often be doubled or tripled and everybody wins.
  3. Brand Development
    Sometimes, the best way to get a quick boost to the brand is to partner with another brand that already has a great brand. For example, we’re all familiar with “Intel Inside”.

The importance of Supply Management cannot be understated, especially given the centrality of supply management to value creation.

Good Advice from HBR on Understanding Suppliers in the Solution Economy

HBR recently published a post on understanding customers in the solution economy in which they noted that creating new value will require suppliers to combine their expertise with their understanding of their customers’ business needs. Which is completely true. They also said that this calls for changes in how B2B companies gather customer intelligence. Specifically, they need to

  • Ask different questions, much more often.
  • Observe the customer directly.

And they do. But since, generally speaking, a company that supplies a customer with a product or service outsources the production of that product, or the implementation of that service, to a third party, the company also needs to thoroughly understand its suppliers’ strengths and weaknesses to select the right supplier to manufacture the product or provide the service to the end consumer.

This means that where the suppliers are concerned, it has to:

  • Ask different questions, much more often.
  • Observe the supplier directly.

The questions need to move away from “do you have the facilities to make this product” to “what value-add do you add in the term of usability, reliability, or warranty support that we can use to meet the needs and want of our customers” and the questions have to be asked every time the customer needs change, not just once every three years when the category is resourced. You may not be able to change suppliers or alter the contract, but if you put in continual improvement and collaborative design clauses, you can at least make sure that subsequent iterations improve in the right direction. Similarly, on the service front, the focus should move from “do you provide service X” to “give us examples of how your delivery of service X met the following customer values and led to higher satisfaction ratings”.

Similarly, it’s not enough to just do a plant visit during the supplier qualification phase. There needs to be continual observation and interaction through the full contract life-cycle to make sure that the supplier undertakes continual improvement efforts, that issues are quickly identified and brought to your attention if they can not be quickly resolved, and that the level of professionalism and attention paid to you does not decrease over time as new customers enter the pipeline.

Procurement Value Creation Ideas, Part II

Recently, over on, Mickey posted her thoughts on Procurement Value Creation Ideas, highlighting four areas in particular that she thought were good targets:

  • Revenue
    Does your Supply Management team understand the value that needs to obtained from suppliers to bring innovation to products, materials, and business processes? Does sourcing reduce time-to-market for new products and services?
  • Costs
    Does Supply Management extend their focus to supplier variable and fixed cost structures, which materially contribute to the suppliers’ product and service costs?
  • Working Capital
    Does Supply Management understand the company DSO, ITR, and DPO equations and their interrelationships? [Days Sales Outstanding, Inventory Turnover Rate, Days Payable Outstanding] Does your Supply Management team work towards improving the ITR and balancing DPO with DSO? Does Supply Management Team contribute to S&OP? [Sales and Operations Planning]
  • Fixed Capital
    Does Supply Management play an active role in capital expenditure management? Are maintenance and service standard items contained in contracts and purchase orders?

These are great ideas, and a great start, but not all of Supply Management’s value creation potential is immediately realized, and not all can be easily measured in the revenue, cost, or capital management equations.


  • New Market Identification
    By the time you identify the market, identify the proper products services, design them, source them, and sell them, it will be a while before you can measure the effects on revenue. Even costs will be difficult to measure as they will decrease as efficiency and volume increases.
  • Brand Building Potential
    Sometimes, the right supplier can enhance your brand, and decrease the marketing cost and effort require to enhance your brand the same amount. This can be very hard to measure, but Supply Management will be critical in obtaining the right relationship with this supplier.
  • Alternate Material / Component Identification
    A Supply Management team that keeps tabs on the market may not only be able to identify more cost effective alternatives, but also more sustainable / environmentally friendly ones, which could boost your brand image and lower your long term costs and risks.

Supply Management can do more than just impacting the top and bottom lines in the short term, and do more than impacting these lines in the long term. It can improve your image, increase organizational stability, and lower your risk. Don’t forget this.

So, You Want Your Story on SI?

So what’s the first thing you do?

Send a press release, right?


PR Types take note. I’ve said it before, and I’ll say it again. I don’t give a rat-on-a-stick for your bull-crap press release. If you took 30 seconds to skim the detailed FAQ you’d know that not only does SI NOT post press releases, any request to publish such will just get your e-mail address black-listed. And if you bothered to skim a few of the about blog posts, you’d know that when it comes to press releases, SI DOES NOT CARE.

SI does not care that you just stole your competitor’s CPO, that you signed three new deals, that your Senior Director just published a glam piece in the local newspaper, or that you released version 8.07.05, which, on first glance, is indistinguishable from 8.07.04.

SI is not a wire service. It’s not TMZ. And the doctor is not a media whore. SI is not about how many hogwash* posts it can publish how fast, or even about who said what when. And the continual reluctance of many PR professionals to grasp this fact is one of the biggest reasons the doctor has a Problem with PR and, most days, wants everyone and their dog, including you, to Fire Your PR Firm.

In a nutshell, SI is an educational and technology focussed blog. And where your company is concerned, SI is only concerned about the solution that you offer, what it can do for Supply Management professionals and organizations, and how you can help raise the level of understanding and awareness about Supply Management issues and best practices. Because, in the end, that’s what my educated, experienced, intelligent, dedicated, hard-working, career-focussed readers care about. Like everyone else in today’s difficult economy, SI’s readers are overworked, underpaid, and don’t have the time to waste on gibberish. And while it may be somewhat interesting to a few readers that your competitor’s former CPO now works for you, that’s not a press release, that’s a tweet.

And now that getting only 20 press releases that are utterly irrelevant to SI and its readers is a good day, the surest way to get your e-mail automatically redirected to the trash bin is to send SI a press release. the doctor won’t read it, and if it doesn’t get redirected straight to the spam filter, he will delete it.

So, if you want your story on SI, and it’s one that fits, all you have to do is send a short e-mail saying who you are, what you do, and how you think it benefits Supply Management professionals. That gets the doctor‘s attention and even if he doesn’t agree, he will respond, and typically give you an angle that he feels would work. And, typically, he will respond very quickly. In addition, if you offer a demo, he will look at your solution and, in all likelihood, blog about it. He’s never refused a demo (except when asked to sign an NDA, but don’t open that can of worms, it makes him more ballistic than an onslaught of totally irrelevant press releases), and he’s never failed to write a fair and balanced review when the demo was open and honest. (If you don’t believe him, simply review every vendor post.)

the doctor would like to apologize to his long-time readers on having to rant about this subject yet again, but it seems that not everyone is as intelligent, considerate, and well-endowed as they are.

*the doctor‘s father is from Hogtown, so you can be damn sure the doctor knows hogwash when he sees it! It’s in his blood!

Another Reason Why China Will be #1 in GDP by 2021

As part of the 158B in infrastructure spend China recently unleashed, China’s NRDC approved 25 urban rail transit project plans and feasibility studies in 1 day. That’s a whole lotta transit. And they’re doing this at a time when the economy slows and growth stabilization becomes the top priority.

They may have spent much of the 20th century hiding behind a red curtain, but they have learned that if they want to again become the dominant economy (which they were uncontested from the beginning of the second millennia to about 1800, although the economy of Europe as a whole was about the same size as China from 1500 to 1800, which was still known as the Age of Chinese Dominance), they have to not only play in the global market, but invest at home to give themselves an edge. While we will spend decades bickering about the need for high-speed rail, they will identify the need and approve a feasibility study within the next five year plan at the latest. And if the feasibility study comes back positive, they’ll get it done. In comparison, California started talking about high-speed rail at least as early as 1996, when the California High Speed Rail Authority was established, did not decide to go for it until 2008, and did not approve the first phase until July of this year.

China realizes that if it is going to go head-to-head with the United States, it has to at least match the United States, if not exceed the United States, it in all of the metrics that matter, including education, R&D investment (to the tune of 2.2% of GDP), and infrastructure. And it’s doing that. It plans to meet its goals of 45,000 km of high-speed railway and 83,000 km of highway networks. The infrastructure will be able to move people and goods as efficiently in the interior as on the coasts, making most of China suitable for new factories and office parks. This will allow China to continue to dominate in global manufacturing and take on more back-office functions.

So when are we going to realize that if we want to maintain our lead a little longer, and push forward the date when India knocks down the USA to #3, that we are going to have to stop wasting money on ineffective broad-based buy-American stimulus programs and invest in infrastructure and R&D in an effort to at least keep pace with China?