Everyone thinks the Department of Homeland Security (established by the Homeland Security Act by Congress in November 2002), which opened its doors on March 1, 2003, was the beginning of the U.S. focus on homeland security, but nothing can be further from the truth. The U.S. focus on Homeland security started on this day in 1789 when the U.S. Department of Foreign Affairs changed its name to the Department of State. The inward focus has continued and progressed since that day while the rest of the world still deals with foreign affairs.
Monthly Archives: September 2013
Pinky and the Brain are not Amused
PPM is important, but it should be done by a COE that functions as a PTO. Not a PMO.
Confused yet? Let me explain.
Late this spring, over on Spend Matters, Pierre Mitchell, noting that PMOs have failed in IT asked Should We Really Use Them in Procurement. This post, which followed Jason Busch’s post that asked Does Procurement Need a PMO? (Spend Matters Plus Content) offered may reasons why a PMO should be pursued in Procurement. However, in SI’s view, not one justifies the focus on a PMO.
A PMO, short for Project Mmanagement Office, is a group or department within a business, agency or enterprise that defines and maintains standards for project management within the organization. (Source: Wikipedia) This department, which strives to standardize and introduce economies of repetition in the execution of projects, sounds good in theory, but has often failed in practice, especially in IT. Why? Simply put, you can’t manage what you don’t understand — and IT projects, which are exceedingly complex in nature, can only be understood by the senior engineers, software architects, and developers capable of implementing them. They’re not going to be understood by a two-bit run-of-the-mill project manager whose background is a basic business degree and training on the PMBOK (Project Management Body of Knowledge). The few IT projects that succeed are those that are managed by former engineers, software architects, and/or developers that have been trained in basic project management (and not the other way around). It’s the same reason mathematicians (given enough Ritalin*) can make great (forensic) accountants, but accountants make bad mathematicians. (Who, when they see 2x + 2 will ask “two times what”.)
Similarly, there are some Procurement projects, especially in high-tech, medical, and automotive, that are too complex for an average project manager. These should not be managed by a project manager, but by a domain expert. However, they should be tracked and the appropriate resources made available by a Center of Excellence (COE) that functions as a Project Tracking Office (PTO). This COE would insure that the domain expert has the appropriate tools, methodologies, and processes at her disposal and the training to use them, as well as the necessary training in project management. In addition, it would focus on Procurement Performance Management (PPM) and, as Pierre Mitchell noted, act as a TMO — Transformation Management Office.
In other words, SI agrees with Pierre Mitchell in that there is a need for better Project Management, and in particular, Project Performance Management, in Procurement — but disagrees in the approach. We need to focus on the COE — not the PMO. It’s important that the focus is on excellence, not the mundane.
* Let’s face it, Accounting is pretty boring to a mathematician who might need a little help focussing on it for eight hours a day.
How Do You Monitor Your Supply Chain for Disruptions?
Are you in the top tier of organizations who actively monitor the global news for potentially disruptive events and that identifies those events that will likely disrupt the organization’s supply chain before the shockwaves disrupt the chain and cause shipments to be late or missed entirely in first, second, and even third tier suppliers, or do you wait until a shipment is late, Sales is screaming, and then figure out what happened?
Be honest. Even though SI readers are the most intelligent, progressive, and sexy Supply Management professionals in the world, the reality is that many work for organizations who are still stuck in 1699 with respect to making the most of modern technological solutions.
And while automatic event monitoring software is, relatively speaking, quite new, as the underlying news monitoring and semantic processing technologies they are built on are quite new, the technology has been around for a few years and is maturing nicely. For example, Resilinc‘s* new’s release, called EventWatch Processional, monitors over 25 different types of disruption events ranging from catastrophic global crisis and natural disasters (such as earthquakes, hurricanes, and floods), to isolated incidents (such as factory fires, labour strikes [at the port], and plant meltdowns), and government regulatory actions (such as border closings and economic sanctions). And while the software can’t pick up on every type of possible disruption (because a single truck getting hijacked inside China carrying your microprocessors might not make the news), if you look at the most costly disruptions over the last two decades, most were due to natural disasters, labour strikes, and port/border closures — and these are all picked up by the EventWatch solution. From a coverage perspective, it’s an 80%+ solution and most of what it misses (such as the theft example above) will be picked up by appropriate collaborative supply chain solutions that track shipments, delivery dates, and milestones. (For example, if your second tier supplier was supposed to get a shipment of microprocessors on the 5th, and they still aren’t there on the 7th, communicates the potential delay to the first tier supplier, who incorporates those microprocessors into power regulator units for your engines, and who knows that every day of delay will delay their production and shipment to you, communicates the potential delay to you, and that’s a problem, and the communication of such problem flows back from you through the first tier supplier to the second tier supplier, the second tier supplier can begin looking into the problem immediately. If the second tier supplier then calls the logistics company who says that the truck can’t be located, a theft can be reported, the information can be communication back up the chain, and mitigations can immediately be investigated in a collaborative effort between all parties).
A good event monitoring solution, like EventWatch, will provide email notification of identified threats that can potentially disrupt the supply chain along with
- event details,
- industries and geographies potentially affected,
- links to further information, and
- potential impacts to the organization’s supply chain based upon
information provided by the organization.
This will allow an organization to quickly identify potential supply chain impacts from significant disruptions and, if necessary, begin to work on mitigation plans immediately. Identifying disruptions early is critical given the potential ramifications of a prolonged disruption event. For example, consider the Chilean port strike in 2012. This strike, which first made the global news on March 20, prevented Codelco, Chile’s largest copper mine that was also suffering from an internal strike, from sending shipments — a reality that was identified by Resilinc’s monitoring software on March 28th. Four days later, on April 1, the mine declared a critical force majeure. Since force majeure events result in an unavailability of supply from one or more sources, knowing that they are likely to occur, even four days in advance, gives an organization a significant edge as it can lock in supply from the lowest cost competitor (with excess supply) before that supply, and other sources, becomes unavailable as everyone scrambles to find alternate sources of supply once the unavailability of the primary supply makes the global news.
This is just one example of the importance of disruptive event monitoring. Where supply chain disruptions are concerned, knowledge is power — and the first to know have the power to take actions while there are still actions to be taken. Once all remaining supply is locked up, it’s locked up — and unless the organization can find a substitute product, material, or service (which is not always possible due to regulatory and/or material requirements of the product being manufactured or service being delivered), the organization is, simply put, screwed.
*Just in case you haven’t been paying attention, in full disclosure, Resilinc is an SI sponsor.
What Do Bid Optimization and Corporate Strategy Have in Common?
Last month, Pierre penned a very interesting piece over on Spend Matters when he asked What Do Bid Optimization and Corporate Strategy Have in Common and answered Everything. SI doesn’t entirely agree, but definitely agrees that bid optimization and corporate strategy have a significant amount in common.
Pierre is 100% correct when he says that people who say sourcing optimization is too complex and a nice area barely used and needed by most sourcing folks are dead wrong. As Pierre says, ignorant statements like this throw out the philosophy, methodology and techniques that are behind the tool. Optimization is more than a mathematical model embodied in a piece of software — it is an encompassing process designed to make sure you achieve the most value from your efforts. It starts during the problem definition phase where you define your objectives and then figure out the appropriate model, data elements, options, methodology and measurements of success — not after you’ve collected a bunch of semi-random data.
Furthermore the methodology employed is critical and relates to corporate strategy. Pierre says the overarching methodology is corporate strategy, but SI believes that the relationship is a little more subtle — corporate strategy limits the methodologies that can be used. The objective of corporate strategy, which is a fact-based process of developing strategic scenarios and then determining how to best allocate finite resources to support various business objectives and a balanced scorecard, is to define strategies that should be “optimal” in the sense that they minimize trade-offs and are doable by the various stakeholders. The chosen strategy limits the methodologies that can be employed because only so many methodologies will support the strategy, and only a subset of those will be capable of delivering an optimal result. For example, if the corporate strategy is to dominate a foreign market, then the methodology employed must support getting more knowledge and demand for the brand, getting the product on more shelves in the market, and making it affordable for the consumers in that market. The methodologies would have to support developing advertising congruent with the market, logistics efforts that work on the ground, and cost control to insure the product could be priced to maximize sales. If the corporate strategy is to reduce costs to improve the bottom line, the methodologies would have to support better sourcing, more efficient production/distribution, and better supplier relations. With respect to better sourcing, we’re limited to strategic efforts — tactical or catalog buys are out. And with respect to cost minimization, depending on the product being sourced, where it is being sourced from, and the market dynamics, this may dictate an open auction, a multi-round negotiation, or decision optimization based upon final best bids, logistics costs, incurred and usage costs, and/or other value drivers. Optimization doesn’t always mean the most complex model you can imagine, but it does mean insuring everything you do is optimal and that every sourcing event is driven off of a lowest-cost baseline, which is easily calculated by a decision optimization solution built on a proper model. (This is because you only spend more if you get value back — whether it is better quality, marketing power through the supplier’s brand, or joint development efforts — that is at least equal to what you spend.)
And when you apply the proper methodology and process to a category, as Pierre explains, it will improve how Procurement will tap supply market power to help the stakeholders meet their objectives. After all, resources are limited, stakeholder requirements are diverse, and trade-offs and constraints are plentiful — which is the precise problem strategic sourcing decision optimization was designed to solve. And when scenarios are developed with stakeholders during the planning processed and then used to improve the robustness of the category strategy, how can you not win?
In short, corporate strategy has a lot to do with bid optimization, as it drives the sourcing strategy and model objectives, and you really can’t succeed in one without the other. They have a lot in common. Not everything, as some aspects of strategy have nothing to do with bid optimization (such as advertising tactics employed or market positioning, although other types of modelling will be used to determine the expected effects of each potential strategy), and some aspects of optimization and based purely in math and logic (which not all strategies are).
And using the two hand-in-hand makes perfect sense. So, just like Pierre, I have to ask why is it when we take this approach to a specific market basket and sourcing project, it somehow becomes an obtuse technology thing rather than just doing good strategy work? It just doesn’t make sense. Without both, you are playing a game of win, lose, or draw with a greater chance of losing or drawing then winning.
Remember, the power of “collaborative sourcing” or “market informed sourcing” is not the tool, but rather the philosophy of cross-functional teams doing scenario planning, defining what they really want as an objective, reducing or eliminating unneeded constraints, and fully tapping supply market power. The optimization tool is just an enabler, albeit a critical one.
Go, Pierre, Go.