Monthly Archives: August 2013

Stop Blaming the Supplier! Melamine in the Milk is Your Fault!

Research reveals that only 6% of procurement managers and directors have ever been made aware of unethical activity in their supply chain. (Source: EY.com)

As much as we’d like to believe that only 6% of supply chains have unethical activity, given that almost 86% of North American companies have a supply chain reliance upon China alone for key parts1, that’s a pipe dream. Depending on how rigid you want your definition of ethical to be, I’d guess that the number should be closer to 60%.

So why is it your fault if your supplier does it? Simple. It’s because less than half of your organizations do any due diligence in their supply chains! Only 48% of UK firms do any due diligence at all! Even worse, 14% of respondents to the EY survey did not even know what third-party due diligence meant, for crying out loud! You have to do due diligence and you have to ask tough questions and someone who can be trusted has to do a site visit to major suppliers at some point. If you do all this, and the supplier lies through their teeth, then, while your company may still be held financially responsible, it won’t be held criminally responsible and ethically you will know you did all you could (except cut the supplier loose before they did the unethical act, but at least you can cut them loose as soon as they do).

This is why you need good supply chain visibility, document management, and CSR monitoring. There are companies that do this, including Resilinc, Integration Point, and Ecovadis. (See the Vendor Post Index or Resource Site for more.) Reach out and get these types of solutions if you don’t already have them. They will be worth it.


1 Supply Chain Disruptions, Ted Landgraf, Above the Standard Procurement Group, July 15, 2012

It’s Time for California to Update It’s Passenger Rail Solution

BART, Bay Area Rapid Transit, turns 40 today! While rail has more or less stood still in North America, High Speed Rail has been progressing rapidly in Asia (Japan, China, South Korea, and Taiwan) and Europe (Germany, Italy, and Spain). In fact, some high speed rail lines reach 300 km/h (185 mph). Considering a 767 cruises at 858 km/h, that’s quite impressive. In comparison, the top speed of BART is 129 km (80 mph), it’s definitely time for an update.

But things aren’t looking good, as per this recent post on SI which notes that despite the fact that the US has a 100 year lead on China on the rails, it will be at least 15 more years before the US has a decent high-speed rail line. And that’s only if the California High-Speed Rail Authority starts to build their high-speed rail line between Anaheim and San Francisco, which appears to be perpetually stalled as they continue their efforts to save a dime while losing the dollar. Otherwise, we’re looking at 25 years before Amtrak builds its high-speed rail line between New York and Washington.

California, please take the lead because we’re not going to get high-speed rail for cargo until someone builds a high-speed rail line for people.

Squeezing the Most Out of Your Supply Chain

Supply chain investment is finally on the rise again, but many companies are finding that effectiveness still declines over time after the introduction of a new solutiould be n, be it technology, business process, outsourcing, or some combination thereof. Why is your average supply chain, which, by now, should be powered by best-of-breed technologies, still not operating at peak efficiency? I’d argue that there are a number of reasons, including a continued lack of proper visibility, a continued lack of proper monitoring processes, and a continued lack of proper training, but a classic article in Supply and Demand Chain Executive takes a different twist. In Squeezing the Most Out of Your Supply Chain, the author, who notes that it is likely that your average supply chain is not operating at peak efficiency, indicates that a supply chain opportunity assessment can help you you determine if, and where, this is happening. This would imply that one of the reasons your supply chain is still not efficient, five years later, is that your average company probably doesn’t know where it should be focussing and that the systems it is employing might not be the right systems or the systems the company needs the most. Given that very few companies do detailed assessments before deciding what they need, instead waiting for a major disruption or fiasco that needs to be dealt with reactively, SI has to agree.

A supply chain opportunity assessment gives your company a complete look at the overall state of one of its most critical functions and provides your company with a comprehensive list of opportunities for improvement. With this knowledge, your company can define a set of actions to improve its operating efficiency and ensure that its supply chain is properly designed to support growth and flexibility to prevent supply disruption.

A supply chain assessment is a straightforward process, which, as per the classic article, can be boiled down to a succinct series of steps.

  1. Define the scope.
    Business Unit or Entire Operation? Subset of processes or full spectrum? Although you should assess your entire supply chain, it’s often best to start small, focussed on key areas, to generate some initial improvements and wins that will fund future assessments.
  2. Examine the ongoing challenges in your business model.
    Document how information, materials, and financials flow through the organization and review the metrics that are being used to evaluate effectiveness. This will help to reveal the challenges.
  3. Identify key issues impacting performance and perform a root-cause analysis.
    Also be sure to compare the company’s existing processes to industry best practices. This will help you zero in on the real improvement opportunities.
  4. Identify and prioritize opportunities.
    Determine the potential business impact of each opportunity and the relative ease with which they can be realized. Then select the most valuable ones and start with those.
  5. Develop a solutions roadmap.
    Once you’ve identified the appropriate improvements, develop a roadmap that outlines the project plan, estimated timelines, and expected costs. And follow through!

Still great advice, and advice every Supply Management organization should take.

What The A-Team Can Teach Us About Supplier Negotiations, Part II

Today’s guest post is from Mason Lee, Manager of the Strategy and Operations Practice at Archstone Consulting, and Matt Kucharski, a Senior Consultant in the Strategy and Operations Practice at Archstone Consulting, a division of The Hackett Group.

In Part I, we discussed how the Hackett Group’s point-of-view on Strategic Sourcing Negotiations is that it is a team effort, and that you should be sending in your A-Team. We also overviewed the role of “Face”, the Frontman. Today we will discuss the rest of the roles.

“B.A”. Baracus – The Muscle
When all else fails, sometimes you need to bring the pain and, to do that, you are going to need some Muscle. “B.A”. pities the fool who takes NO for an answer. At the negotiations table, people often have a tendency to stop when they first hear that word. If you want to maximize the result of your negotiation, be sure to bring your “B.A”.; his role on the mission is to handle challenging topics like price. Just make sure that you have enough ammo (fact-based analysis) to give him the confidence to negotiate aggressively.

While supporting our client through their negotiations with a major Hotel chain, both parties were far apart on price. The hotel representative continually stated that the room rates offered were the best they could do and insisted that they did not have visibility into our client’s historic spend and stay volume. Armed with analysis, our “B.A”. presented the client’s historic data and proved more aggressive pricing was warranted if the chain desired to keep the business. As a result of providing proper ammo and “B.A’s” inability to take no for an answer, an incremental 15% savings was achieved.

“Howling Mad” Murdock – The Unconventionalist
In many circumstances, it is impossible for a sourcing professional to know as much about the category in question as the subject matter expert they are supporting. In these circumstances, do not be afraid to bring in “Howling Mad” Murdock, your subject matter expert, to help you develop a creative approach and gain credibility as a result of their knowledge. Since some subject matter experts may not be experienced in negotiations, it is valuable to conduct a preparation session with the individual in order to gain alignment on the objective; if you just turn them loose, you never know what may happen.

During the course of lengthy negotiations between our client and HVAC providers, progress was at a standstill. Our client was facing an increase in equipment pricing from all engaged providers. Out of conventional options, our “Howling Mad” Murdock saw an opportunity to expand the scope of the negotiations and bring HVAC services into the mix. By combining equipment and services, our client was able to contract with a single supplier for all their needs and realize 20% in savings.

Hannibal – The Tactician
During the course of negotiations it is important to observe and proactively modify your plan based upon the actions of the supplier. “Hannibal” knows how to do this best. After establishing your preliminary strategy, it is crucial to be able to modify your ground-game based upon what you observe. Is a supplier representative highly analytical? Time to bring out the reports and quantitatively demonstrate where you stand. Is the supplier agreeing to everything? Maybe you have not asked for enough and need to recalibrate.

During negotiations with a German-based metals supplier we hosted, company representatives clearly believed they had won the business, were stonewalling, and were engaging in side conversations at the table. Our “Hannibal” knew it was time to act, calling for a break. During the pause in action, the team revised tactics and sent in the Sr. VP (who had been previously quiet) with a stern message and strong proposal. Our “Hannibal” also decided that only the Sr. VP should speak while the rest of the team remained silent and stoic to reinforce the seriousness of the proposal and shutdown cross-talk. The result of “Hannibal’s” plan was an additional savings of $500K.

Conclusion
The next time you reach the point of Supplier Negotiations it is of the highest importance that all planning, strategizing and due diligence have been completed before attempting to channel the characteristics of the A-Team. A great negotiations team should have the ability to leverage the expertise of “Hannibal”, “Face”, “Howling Mad”, or “B.A”. in order to capitalize on the unique elements that arise. At the end of the day, you’ll “love it when a plan comes together”.

Thanks Mason and Matt for this great two-part post!

What The A-Team Can Teach Us About Supplier Negotiations, Part I

Today’s guest post is from Mason Lee, Manager of the Strategy and Operations Practice at Archstone Consulting, and Matt Kucharski, a Senior Consultant in the Strategy and Operations Practice at Archstone Consulting, a division of The Hackett Group.

From 1983 to 1987, The A-Team delivered five seasons of action-packed episodes to its cult following. The ex-U.S. Army Special Forces unit, turned mercenaries, were constantly on the run for a “crime they didn’t commit”. The four “soldiers of fortune” who made up the team were Colonel John “Hannibal” Smith, Lieutenant Templeton “Face” Peck, Captain H.M. “Howling Mad” Murdock, and Sergeant First Class Bosco “B.A”. Baracus. The sitcom has left its mark on popular culture through its iconic van and catchphrases. But the creators of the A-Team were unlikely to be aware that they were also providing us with valuable lessons in Supplier Negotiations.

Supplier Negotiations are a critical step within the Strategic Sourcing process. After profiling a category, developing sourcing strategies, and engaging the market, it is time to more personally engage your potential future state supplier(s). The Hackett Group’s point-of-view on Strategic Sourcing Negotiations is that it is a team effort. Your A-Team should be comprised of individuals with different skill sets in order to increase its strength and ability to adapt.

“Face” – The Frontman
“Face” had a knack for making friends everywhere. “Face” was the master of the win-win, excelled at breaking the ice, and had an ability to get both parties feeling good. On your negotiations team, “Face” is the persuader and consummate influencer of the group. Use your team’s “Face” to open up the meeting and set the tone or when negotiations get rocky, consider channeling your inner “Face” to diffuse the situation.

In the show, “Face” also had a knack for scrounging up whatever resource the team needed no matter where in the world the team was. You can apply this invaluable ability in business. When negotiating with incumbent suppliers, chances are that there are opportunities for you to become a better customer. Give your incumbent the opportunity to constructively communicate what is not working optimally for them then send your “Face” back into your organization to locate a solution.

We had a negotiation in which our supplier and buyer were equally frustrated with each other (to the point of shouting and nearly ending the relationship) because the supplier was missing orders and the buyer’s orders kept changing. Our “Face” intervened, calming everyone down and eventually helped the supplier revise its planning systems all-the-while also going back into her buying organization and securing commitments to provide better forecasts.

Come back tomorrow for Part II!

Thanks Mason and Matt!