Monthly Archives: May 2014

Dick Locke On The Yin-Yang of the Business Universe (Repost)

Editor’s Note: This is a repost of a classic post by Dick Locke. (His guest posts are all archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.

Steven Guth proposes that “Procurement pros should be in sales“. He
implies, but never quite says, that procurement pros should have sales
skills. That’s right on. I’ve been there, done that and even got a
tee-shirt. Sales skills are essential, especially if you are in a
corporate central group that is outside of any profit centers.

Here’s the situation. I won’t mention the company name, but I hope
people will figure out who it is. They had a Corporate Procurement group of which I was a part. I received an assignment to start up International Purchasing Offices (IPOs) in Asia back in the mid 1980s. Funding those offices quickly became an issue. It had been an issue all along for the Corporate Procurement Group, with big annual negotiations and discussions about how much each profit center would pay to fund the corporate group. Now we wanted to add more people and expense for an unproven new function. They might as well have painted a big target on our backs.

The funding solution we came up with was that we had to generate our own funding and using us had to be voluntary. That meant we had to charge our users a fee and that we were in competition with two other groups. One was reps and subsidiaries of (largely) Japanese and European companies who had set up a sales subsidiary structure in the US. The second group was our own company’s buyers and purchasing managers in profit centers who felt they could source, purchase from, and manage overseas suppliers themselves.

We realized we had to not only charge less than what sales subsidiaries
charged but also less than our profit centers felt it would cost to do
it themselves. We came up with essentially a sliding scale of markups on
purchase orders. Small users might pay as much as 5%. Large users might pay less than half a percent.

I’m glad to say it worked. The operation was handling more than a
half-billion dollars per year in orders when I left. That’s not to say
there weren’t, err, “learning experiences.” One of our big issues is
that we had selected employees for their purchasing and engineering
skills, and not for their marketing skills. It required a tune up for
several of our people, not excluding me. It took about three years to
become fully self funded. If we had avoided some mistakes we could have shaved about a year off that time.

It had some very pleasant side effects. We essentially were running a
small business within a big corporation. Our people got lean,
entrepreneurial and very customer-oriented. We quickly developed an
antipathy to bureaucracy. We became really efficient. It also took us out
of the annual budget battle and the annual exercise to calculate what we were saving. (I refer to that as “lies, damn lies, and purchasing
statistics.”) We merely had to state that we received x number of
purchase orders per day from people who didn’t have to use us and were paying us for our services. That kept management happy nearly all the time.

Where is this model applicable? In companies where there is a lot of
independence on the part of profit centers, a center-led purchasing
effort, issues with funding the central department and finally where an
internal department can develop and market an advantage over their
competitors. Check it out, it may be right for you.

Dick Locke, Global Procurement Group and Global Supply Training.

This was, and is, and a great post, Dick.
(And why SI is including a few games to sharpen your sales mindset in it’s Gamer’s Guide to Supply Management.)

Your SI! (Repost)

To the tune of “UHF
by Weird Al Yankovic, who completed the soundtrack to the cult classic UHF 25 years ago today.

Put down your old-school textbook
Throw out your online Guide
Put away your jacket
There’s no need to go outside

Don’t you know that we control the horizontal
We control the vertical, too
We gonna make a sourcing leader out of you
That’s what we gonna do now

Make it your home-page
Don’t touch that dial
We got it all on Your SI!

Kick off your sneakers
Stick around for a while
We got it all on Your SI!

Don’t worry ’bout ISM
Forget about the glitz
Just resize the window
And kill your favorites
We got it all, we got it all,
we got it all on Your SI!

Disconnect the phone and leave the iPhone in the drawer
You better put away your paper
Prime time ain’t no time to weave
Time to go and make yourself a TV dinner
Press your face right up against the screen
We gonna tell you things you’ll wanna believe
If you know what I mean, now

Make it your home-page
Don’t touch that dial
We got it all on Your SI!

Kick off your sneakers
Stick around for a while
We got it all on Your SI!

Don’t worry ’bout ISM
Forget about the glitz
Just resize the window
And kill your favorites
We got it all, we got it all,
we got it all on Your SI!

You can read it all day
You can read it all night
You can read it any time that you please
You can sit around and stare at your big flat screen
‘Till your brain explodes from the caffeine

Well, now

Make it your home-page
Don’t touch that dial
We got it all on Your SI!

Kick off your sneakers
Stick around for a while
We got it all on Your SI!

Don’t worry ’bout ISM
Forget about the glitz
Just resize the window
And kill your favorites
We got it all, we got it all,
we got it all on Your SI!

We got it all on Your SI! (Your SI)
We got it all on Your SI! (Your SI)
We got it all on Your SI! (Your SI)

We got it all on Your SI! (We got it all!)
We got it all on Your SI! (Your SI)
We got it all on Your SI! (Your SI)
We got it all on Your SI! (Your SI)

We got it all on Your SI! (We got it all!)
We got it all, we got it all,
we got it all on Your SI!

The (Board) Gamer’s Guide to Supply Management Part XXI: Dark Minions

In Part V and Part IX, we introduced you to Small World, a delightful game from Days of Wonder (also on iOS) that, in the words of Wil Wheaton, combines the military strategy of Risk with the delightful art and fantasy races of Cosmic Encounters. Except it’s more dynamic than Risk, more variable than Cosmic Encounters, and a good introduction to how your suppliers’ sales and marketing forces are going to try and counter, and undermine, your every effort to procure and manage supply at a fair and sustainable price (as profit is the name of their game, not cost control).

Small World, with its 14 races and 20 powers, leading to 280 different possible pairings of race and special ability, did a great job of capturing the many different types of sales professionals that will ascend upon you in the course of your day job, but it lacks a mechanism that accurately captures the hoard mentality of larger vendors with seemingly endless and disposable sales forces. Larger vendors, when they lack the ability to win on saleability alone, resort to trying to overwhelm a potential customer with a large sales team that will descend upon the potential customer on every front in an effort to overwhelm the potential customer and wear them down until they just give in and sign on the dotted line.

On the other hand, Dark Minions not only captures that hoard mentality to a tee, but effectively lets you take on the role of a Sales Director of a large vendor with undifferentiated commodity products who’s only sure method of success is to strategically send his hoard of disposable snake-oil salesmen against the most susceptible targets. In the mindset of Dark Minions, differentiated capability doesn’t matter, as the organization doesn’t have anything unique to sell, only strength in numbers. More on this later. For now, let’s introduce the game.

In Dark Minions, hordes of dark minions have descended upon the countryside, eager to secure their reputation as a scourge on mankind. The despicable evil marauders attack everywhere in search of conquest. The citizens are helpless and will soon be overwhelmed. Death and destruction awaits all those in the path of the evil ones …

In Dark Minions, you are a great evil one and your goal is to vanquish the medieval towns in your domain. Every time you vanquish a town you gain vanquish points, and the first great evil one to a fixed number of vanquish points (which varies according to the number of great evil ones playing) wins the game.

In Dark Minions, you control an evil hoard, equal to 50 minions to start, and on each turn you can either use part of that hoard to attack a town or capture a defense tower, or you can choose to re-spawn some of your evil minions from the graveyard. When you send part of your hoard against a town or a tower, you knowingly send them to their doom. (But you are a great evil one, and minions exist to be sacrificed! Plus, since you have the power to re-animate them at a later time, their deaths have no impact on your overall power.)

Unlike most of the games we have covered in our series, Dark Minions is a dice-based game, which adds a considerable element of randomness to your strategy (which mimics nicely the apparent strategy of some sales forces), as each roll dictates what you can, and cannot, do on your turn. (This is a good analogy to the real-world where a sales organization is often limited by the number of sales resources currently available for deployment, the financial resources free to deploy them, and the organizational resources to acquire more sales resources.) At the start of the game, each player rolls three six-sided black dice (as you are evil, remember) on their turn, numbered +1, 2, … 6. If a 4, 5, or 6 (or higher) is rolled on a die, and one is available, the player may choose to commit that many minions to attack, and capture, a white, grey, or black tower (on a 4+, 5+, or 6+ respectively). When you have captured one of each tower, you can trade them in to gain a level. If a 2 or higher is rolled on a die, the player may choose to attack a town with the number of minions allowed by the die (and if the total number of minions attacking the town exceeds the strength of the town, the town falls), and if a 1+ is rolled, that is added to another die. Alternatively, you can choose on a roll of 2 to 6 to re-spawn that many minions from the graveyard. (Minions go to the graveyard when a tower or town falls.) [Each die in the 2 … 6 range is a separate hoard and cannot be combined in the conquest of an individual town or tower. Only +1, or +2 rolls can be added to another die to increase the size of a hoard.]

Gaining levels is important because, at each successive level, you get to replace 1 black dice with 1 (blood) red dice, which allows you to roll 2 to 7 instead of +1, 2 … 6. Then, once all of your black dice have been replaced with (blood) red dice, at the fifth and final level, you get to roll a bonus white die (which has +1, +2, and re-spawn 10 minion squares) every roll. So if you were to roll a 4, 5, and 6 on your first turn, and if they were available, you would likely want to attack and capture a set of (white, grey, and black) towers, and turn them in for a level. But if you rolled a 3, 5, and +1, you would likely add the +1 to the 5 to attack and capture a black tower (which is the hardest to capture) and attack a town with 3 minions. Towns will take, on average, between 15 and 25 minions to vanquish (as the game progresses), and will typically take multiple turns to collectively vanquish.

The strategy is figuring out when to attack towns versus towers and which town to attack when. The evil one who sent the most minions against the town gets the vanquish points associated with the town (which will generally be between 3 and 9 points, as the game progresses) when the town is finally overrun, the evil one with the second most minions gets 2 Vanquish Points, and the evil one who triggered the vanquish of the town (by committing the minions necessary to bring it to its tipping point) gets 1 Vanquish Point.

Additional variability is added by the fact that on any turn, you can choose to roll the white die in place of any other die. Generally speaking, you will take this gamble when you need to re-spawn minions since using this die (at levels 1 through 4) means that you will only be able to attack 2 towns and/or towers. The advantage is that a successful roll allows you to respawn 10 minions (instead of 2-7) but the disadvantage is that an unsuccessful roll simply gives you a +1 or +2 on another die (which will increase your chance of capturing a tower, assuming you have enough minions left to commit to the tower). A good roll will allow for a more effective re-spawn, a bad roll (which is twice as likely as a good roll) will dictate a weaker round. But, if you still have your two starting tokens (worth 1 and 2 VP, respectively), you can use these as re-spawn tokens (which are equivalent to a white die re-spawn roll) and if you use both of these in conjunction with a successful white die re-spawn roll, you can re-spawn all of your minions. Properly timed, you can get all 50 minions back in one turn, which can be a great boon early game (especially if you just went up a couple of levels, getting a red die edge on your competition). (The sales analogy is that instead of sending a hoard of average, run of the mill, salesman, you can send specialists, represented by the +1 and +2, who often have the ability to tip a worn down customer into a sale a little bit faster, or, in the case of the re-spawn roll, better apply your financial resources to hire even more salesmen to send towards the next unsuspecting target.)

While it won’t teach you the strategic planning skills you need to design supply strategies that will deliver value in the long term as well as the short term, as Rosenberg’s games tend to do (and, so far, we’ve covered Agricola [Parts I, II-A, and II-B], All Creatures Big and Small [I], Le Havre [Parts I and II], and The Inland Port [I]), it’s a fun distraction that will help you relax at the end of a tough day because, just once, you get to play the evil black knight salesmen instead of the white knight of procurement — and possibly learn to identify hoard mentality sales organizations fast enough to put defenses in place before your organization gets overrun.

The Logistics Shortage Keeps Getting Worse

At least if reports are to be believed. According to a recent Fortune article on “supply chain jobs”, the shortage is up to 1.4 Million jobs by 2018. Wow! Especially when estimates last year put the driver shortage at a mere 240K. While logistics needs talent in high tech, analytics, robotics, engineering, seasoned managers, marketers, data analysts, and maybe even human resources, it primarily needs drivers — no drivers, no shipments. No shipments, no logistics industry.

And when you think about it, big data scientists go where the money is; high tech workers go where the tech is; robotics engineers go where the robots are; marketers are attracted by cool message and money to burn; most industries are shedding managers, who need work; and HR is HR. I don’t think forwarding thinking logistics companies are going to have any trouble attracting high tech, engineering, marketers, managers, or even HR talent. They’re going to have problems attracting drivers and warehouse workers — the same type of people they’ve been having problems attracting for a decade, because, in North America, transportation ain’t sexy, doesn’t pay well, takes a toll on your health, and still puts you in risky situations. As explained in SI’s last post on the subject, until these issues are addressed, the problem will remain.

Spend Analysis – How Do You Get It Right?

As an expert in optimization and analytics, I’m regularly asked, with respect to spend analysis, where do I start, which solution is best, how do I get fast savings, etc. All good questions, and as per the dozens of posts on this subject over the years, they all have multiple answers, highly conditional on the skill of the analyst, the solutions available, the data available for the solutions to act on, the categories that can be impacted in the short term (as some contracts are effectively unbreakable and some vendor contracts all but prevent cost recovery), etc.

More sophisticated analysts ask what built-in reports are necessary and the most useful, how much real-time slicing and dicing capability they really need, how much can be automated, etc. Also good questions, but questions which, depending on the particulars of the situation, also have multiple answers which are dependent on what the organization is buying, who the organization is buying from, where the products and services are coming from and going to, how much data is available with respect to the product and service cost components and composition, how powerful the data amalgamation and computation engines are, how variable their spend patterns are, etc.

Which leads many people to believe that it’s almost impossible to get it right, when the reality is that, with the right type of tool and the right mind set, it’s easy to find success, but very hard to predict where and when you will find success. It’s like being a skilled professional during a market boom where the demand for individuals with your skills outstrips supply. While you don’t know who will offer you a job, if you have good references, work hard, and apply yourself to finding a job, offers will come. Spend analysis often works the same way – if you have the right tools, work hard, and apply yourself to finding opportunities, they will present themselves. It’s just a matter of digging until they materialize.

As I’ve said time and time again, you’re not likely to find your best opportunities in the canned top-N reports which for many years were the staple of spend analysis solution vendors. Because, as I’ve pointed out for years, if you go to manufacturing and ask a handful of buyers who the top 10 suppliers are, you’re going to get a set of overlapping lists which will easily allow you to identify the top 7 or 8 suppliers. The same for categories and commodities. And the AP system tells you who the top departmental and individual spenders are. You may not know the exact spends or exact volumes, but you can quickly get a pretty good idea and focus your negotiation efforts on those categories while you work towards improving your data. The net result is that these reports will only identify a few opportunities that you missed, which you will quickly identify, attack, and capture within 6 to 18 months. That’s why the year-over-year return of most spend analysis efforts falls flat within two years. The biggest opportunities are not in what you know, they’re in what you don’t know. They’re somewhere in the next 20 or 30 suppliers or the next 20 or 30 commodities that can be consolidated into moderately high spend categories that when effectively rationalized and sourced can deliver 10%, 20%, and even 30% savings as well as process efficiencies that deliver further organizational savings still.

A consolidation that will only happen if you can define category groups and supplier families and analyze collective spend and compare it to market rates and identify patterns of overspending not detectable using only top n spend reports or traditional organizational categorizations and supplier codes (where the same supplier has four different entries in the vendor master because, as a non-top n supplier, no one bothered to make sure all spend associated with that supplier was with a single vendor entry in the ERP). And you can only do this if you can slice, dice, and rearrange the data on the fly in non-traditional ways only you, as a creative intelligent being, can do. A rule-based system can only check for previously identified transgressions. It can’t check for unknown transgressions or future transgressions by organizational buyers.

So if you want a short answer to the question of how do you get spend analysis right, you make sure you buy a tool that gives you a lot of different flexibility in the amalgamation, organization, and analysis of the data available to you. It should let you build, in technical terms, “multiple cubes”, allow you to create multiple roll-ups and reports on these cubes, using multiple analysis techniques. It should let you build a cube, appropriate roll-ups, and reports that answer any question you care to ask. If you see a spending pattern or trend that is not in line with what is expected, you need to be able to dive into the data and find out why. That’s how you save money. Flexibility, a toolkit of techniques, and the creativity to apply them in different ways until you stumble on the big savings or value generation opportunity that everyone else has missed.