Monthly Archives: November 2012

A Managed Relationship is a Measured Relationship

I have to agree with the author of this recent piece in Inside Supply Management on Building Relationships who said that

if your organization isn’t seeking internal customer feedback – and using it as a learning tool – you may not be as strategic as you think.

As Thomas Nash, of First Line Consultants, says, “Supply management doesn’t own internal stakeholders’ budgets, we don’t own their spend and we don’t run their business unit/function.” The reality is that “Supply management provides stakeholders with fact-based proposals on how to better manage their spend based on reality, our expertise and best practice.”

This means that unless Supply Management is providing stakeholders with the proposals they need, in the manner they need, and the support to execute those proposals, it will not be doing a good job of managing indirect spend in the organization.

So how do you measure internal stakeholder satisfaction? The article gives some good tips to get you started:

  • Involve Staff
    Involve your staff in the process of creating the survey, choosing a process to deliver it, and a set of metrics to measure it.
  • Consider Timing
    The evaluation process should be done annually, but not during budget planning or vacation season. You need as many responses as possible, and they need to be good, thoughtful, responses.
  • Watch Your Language
    Use language the stakeholders can understand, not technical Supply Management terminology. In particular, when surveying legal, use their language; when surveying finance, use their language; and when surveying marketing, don’t be afraid to use a few buzzwords.
  • Be Patient
    The relationship-building and subsequent evaluation/measurement process won’t happen overnight. It will be a multi-year process, but with effort, the organization will get there and the results will improve year-over-year.
  • Share Results
    Share what you learned and the changes you intend to make as a result of the assessment. Do so quickly, and make sure the identified changes get implemented in a timely manner so the stakeholders can see that Supply Management is endeavoring to improve their service levels to the rest of the organization. This is how you become the trusted go-to department in the organization and get indirect spend appropriately managed.

The Price is the Price Only if You Pay the Price

Over at Next Level Purchasing, Charles recently published a good article on How Suppliers Defend Price In Negotiation. In summary, if the supplier thinks that you are not on your game, it will defend its price with a steaming pile of bull-crap.

Of the 7 examples that Charles gives for a common supplier response used when you attempt to start negotiations, my favourite has to be:

We are the only company that provides this product/service, so we don’t play pricing games – our price is our price.

First of all, unless you have it in your head that you have to have an iPad, there is no single source provider of any product or service. Pick a product. Any product. I guarantee there’s a dozen variations of it out there, somewhere. Maybe not all providers can meet your volume demands, and it’s probably the case that not all have the same quality level, but still, unless you’re insisting on a name-brand product, there are always multiple options.

Second, any supplier who wants to sell something bad enough will negotiate on price. Very few companies have the power to set a price in stone, and they are all selling branded products or services, like iPads, Wiis, or Playstations. Everything else is up for negotiation. And even if the price on the base product can’t move, maybe a value-added service can be thrown in at a deep discount.

The price is the price ONLY if you pay it. Given a choice between moving a line in the sand or being stuck with a mountain of inventory, which choice do you think a supplier is going to make?

Now, this isn’t to say that you should be requesting unreasonable price concessions, as everyone deserves a fair margin, but that you shouldn’t believe that the price is the price.

And if I was asked to choose a runner up, it would be:

Is price the only criterion on which you are basing your decision?”

Of course not, but don’t let the supplier distract you. If you’ve done a proper cost model and determined that the supplier has built in a hefty margin of 20%, compared to the market average of 10%, unless you’re getting very valuable value-added services thrown in for free, you need to cut that margin in half to stay competitive.

Who to Blame if Your Supply Chain Complexity is Spiralling Out of Control?

Management, for demanding ever cheaper costs? No.

Consumers, for demanding ever more variety in your product offerings? No.

You blame information and communication technology, or ICT. We made it all possible. We opened the world up to you. It’s true that you didn’t have to try and conquer it, but you did, and now you have supply chains with complexity spiralling out of control.

And this view is backed up by recent research by Mr. Richard Baldwin of the Graduate Institute of Geneva, which was summarized in a great article in the Economist this summer about Chains of Gold. According to Mr. Baldwin, cheaper communications allowed firms to manage supply chains over ever greater distances. Companies discovered they could build plants in cheap locations, ship components there to be assembled and export the finished product around the world. While the first unbundling separated producing markets from consuming markets, the second broke up production entirely across long, multinational supply chains.

And, in addition to a much faster rate of industrialization of developing and emerging economies, you now have supply chains that are increasing in complexity by the quarter where a single component may be exported several times, adding to tallies of gross trade but not to measures of value added. We have a plethora of Pakled emerging markets that now merely “borrow” technology from rich-world firms, who are incented to limit technology transfer out of fear of theft and unexpected competition.

But supply chains are maturing. As per the article, evidence suggests that supply-chain trade may have declined less and recovered faster than overall trade during the financial crisis, which is promising. So maybe you’ll get that complexity under control after all!

The First 100 Days

One week from today, at 11:00 a.m. GMT, in The Salle de Fete Private Dining Rooms in Kettners, on Romily Street in London, England, Bravo Solution is hosting the sixth and final instalment of their Real World Sourcing Series Expert Briefings on The First 100 Days of your tenure as a new CPO.

In this talk, the presenter, Guy Allen, will discuss the priorities of a new CPO against two very different contexts, one where there is a burning platform, requiring immediate action and the other where there is a little more time to plan and get it right. Both situations are difficult. In the first, the CEO/CFO is likely expecting rapid results, and in the second, the CEO/CFO is likely looking for a plan of action to deliver long-term, sustainable results. In either case, credibility with key stakeholders will be key.

A specialist in cost transformation and procurement, Guy Allen, now a managing partner at 4C Associates, has considerable first-hand experience as a senior Procurement professional at Fujitsu, Abbey, and GlaxoSmithKline.

This series is put together quite well. The last presentation was by Peter Smith of Spend Matters UK on Measuring Procurement’s Performance and included a great segment on 12 ways that buyers can falsify Procurement Savings (and get themselves in trouble if it’s ever discovered). The talk categorized spend into Opex vs. Capex and One-offs vs. Recurring and presented methodologies to accurately measure and report savings in acceptable, defensible ways.

If you’re in or around the London area, and are a new CPO, or a senior Director / VP vying for a CPO job, it would be worth checking this event out as the first 100 days is critical to your success as a CPO in an organization. In today’s tight economy, even if the C-Suite is not expecting rapid results, they are expecting rapid acclamation and signs that their faith in you will deliver results in the long run.