Monthly Archives: January 2015

Twenty Five Years Ago Today

The Big Mac Index went truly global when the first McDonald’s opened in the Soviet Union, only twenty-three years after the first international franchise was opened in BC, Canada, in 1967. By the time McDonald’s finally burst through the iron curtain, it was only two years away from reaching global restaurant domination, which it achieved in 1992 when it opened its first restaurant in Casablanca, Morocco and was able to claim a restaurant on all six continents.

When it comes to global supply management, few companies have the global breadth of McDonald’s and, except for a few global food companies, none are in the food and beverage business. But it shows what determination — and great supply chain management — can enable. (Especially if you’re not afraid of a little red.)

Technological Damnation #75: Mobile Movement

Two damning posts ago we wrote about influential damnation #75 Consortiums and how they were the damnation you couldn’t live with but yet couldn’t live without. However, consortiums are not the only damned-if-you-do but damned-if-you-don’t situation that you need to deal with this year. The other is the mobile movement.

Consumerization has been coming to supply management for almost a decade, heralded in by the likes of Coupa who lead the quest to bring B2C to B2B. And the current consumer craze is the mobile craze (which, by the way is so bad as a result of the social media frenzy that recent studies indicate that mobile devices are damaging 70% of relationships). It’s not just taking consumer sites by storm — every enterprise software provider and their doggy mascot are running around in circles trying to figure out how to implement mobile functionality in their supply management software suite.

This will be both a blessing and a curse. A blessing in that you will be able to access reports and key data on the go, your delivery personnel will be able to log deliveries on the go, and your customers will be able to check the status of deliveries on the go — but it will also be a curse. First of all, your ability to work anywhere, anytime means that you will be expected to work anywhere, anytime. Secondly, even small amounts of data entry will be painfully difficult due to small screens and even smaller keys. Third, the limited computing power and mobile bandwidth will make even simple processing tasks difficult and drive you absolutely crazy when you try.

And then there’s the social media craze that that’s going to ride the mobile movement bandwagon and bring a whole new level of craziness to the B2B world. You need to manage relationships with your suppliers, which means you have to manage relationships with your suppliers’ personnel — who believe that relationships are best maintained on FaceBook, that brief communiques are best delivered through Twitter, and that pictorial communications are best communicated through Instagram — on your phone. It’s mobile mania — and it’s going to take over your organization and your personnel. (And continue to ruin society.) Get ready!

Societal Damnation #44: Education Quality

Supply Management is hard. Real hard. And it’s only getting harder. SI has said it before, and it will say it again — in order to excel at Supply Management a Sourcing or Procurement professional has to be a jack-of-all-trades and master-of-one.

But this is not an easy thing to do. The skill set required by today’s Procurement professional is longer than Santa’s naughty and nice lists put together and is growing by the day. And that’s just the basics. The EQ, IQ, and TQ required for an average Procurement professional to get through the day is enormous. It’s to the point where a person of average intelligence can’t cut it. It used to be that only the best and brightest could do law and medicine and engineering but now only the best can do supply management. And, to make matters worse, just EQ, IQ, and TQ is not enough.

A modern Supply Management Professional needs knowledge — and lots of it. With constantly changing market conditions, new inventions, and new modes of operation, whatever a supply manager knows today is unknown tomorrow. As new methods of production come online, old methods become cost prohibitive. As new products are invented, old products become obsolete. As market conditions change, old plans become irrelevant.

Supply Managers need to keep tabs on the market. They need to identify new modes of production that will become more cost effective before they are under-cut by the competition; they need to identify new inventions that will threaten the organization’s market as soon as they are announced; and they need to detect market changes as they happen. They not only need oodles of market intelligence but the knowledge on how to interpret it. Not every new production technique is a threat, not every invention breaks existing or creates new markets, and not every market change has lasting effects — some are corrected in days. But others are atom bombs, iPhones, and extreme supply and demand imbalances caused by a major production plant being destroyed by an earthquake or tsunami.

But where is a Supply Management professional to get that knowledge? Most universities have a curriculum that is still mired in old-school logistics and operations research. Most professional associations are still teaching you old-school negotiating tactics. Most blogs are mired in the noughts and still preaching the gospel according to Ariba and Emptoris (which no longer exist). And the analysts … well, we’re not too sure just what they are inhaling before they do their preaching, tragic quadrants, and dangerous graves.

In other words, not only is education quality in general (especially in North America) bad, with the US ranked 14th (as per the global heat map), but education in Supply Management in particular is particularly bad. We’re desperate for education, but almost no one is giving it to us. We truly are the damned. Let’s hope we can learn on our feet as we are dancing amid the flames. (As we no longer have the frying pan to shield us.)

Influential Damnation #96: Consortiums

Consortiums, better known as Group Purchasing Organizations (GPOs), will be one of your biggest organizational conundrums of the year. Regardless of whether your organization is currently using a GPO or not, this will be the year that you can’t live with them, you can’t live without them.

Backing up, a Group Purchasing Organization (GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain price reductions from vendors based on the collective buying power of the GPO members. The idea is that the GPO is able to leverage economies of scale, in the form of more volume and more efficiencies, then the members can individually achieve on their own.

For example, a supplier might offer price reductions at 1,000 units, 10,000 units, and 100,000 units and offer 2%, 3%, and 6% discounts at each price level. On its own, an organization that only buys 20,000 units would only be able to obtain the 3% discount but if it banded with five other organizations that required a similar amount of units, each organization could obtain the 6% discount. In addition, if only one contract needed to be negotiated and cut, each organization could reduce the amount of negotiation and administration overhead required to negotiate the contract and save even more.

From this perspective, given the rapidly rising costs and the increasing difficulty in negotiating discounts, GPOs look like a dream come true and a way to cut costs across the board.

But this comes at a costs. First of all, the GPO has to be funded — so, either the organization has to pay a fixed membership cost every year or a percentage of each transaction. Secondly, the GPO has to be managed just like every business processing outsourcing (BPO) provider. This isn’t always easy because not only does the organization have to manage the relationship and insure that the GPO is working on categories that are important to the organization, but it has to make sure that the GPO is taking the organization’s needs into account.

And now we get to the double edged sword. The best deals materialize when the combined volume allows a supplier to hit peak production (which allows them to produce the product at the lowest possible cost) and offer their customers the lowest possible cost. However, getting to peak production often requires combining the needs of a dozen or so different organizations, each of which has its own viewpoints and goals for each category. In other words, while you might prefer Supplier A’s products, because your Engineering department feels that they are of superior quality, the other GPO participants might prefer Supplier X — the least favoured supplier of your organization.

And this is why GPOs are quickly going to become the “you can’t live with them” (because you will always be fighting your coopetition to get your needs addressed first) but “you can’t live without them” (because, with costs skyrocketing, you won’t find any savings in your low-volume or indirect categories without them).

There’s a reason we call them “consortiums”, and that’s because “consortium” is derived from the word “consort” which is the action of habitually associating with someone or something that is done with the disapproval of others. And consortiums breed disapproval. But this is the year of damnation, so jump right in. You will regret it. But what choice do you have?

The CPO’s Agenda

A CPO has a lot on her mind these days. As per SI’s recent “Future Trends” expose series, the reason that so many ancient trends are being recycled as future trends is because so many issues are still current for Procurement organizations struggling to catch up to the times and become best in class. That’s why we have to continually deal with:

  • Governmental Regulations
  • Globalization
  • Increased Competition
  • Margin Pressure
  • Outsourcing
  • Risk
  • Collaboration
  • Demand Planning
  • Governance
  • Systems
  • System Integration
  • Process Convergence
  • Raw Material Scarcity
  • Strategic Focus
  • Talent
  • Supplier Relationships
  • Product Life Cycles
  • The Cloud
  • Sustainability
  • KPIs

and a dozen more issues that should have been put to rest a decade ago. But which of these issues are the most important issues and which issues are being overlooked by a CPO who is being blindsided by false issues? And which issues are top on the list?

Fortunately for you, this is a question you don’t need to ask anymore. On the new Chief Procurement Officer site, the doctor of Sourcing Innovation and Pierre Mitchell, of Hackett Group and AMR fame, have collaborated on a 20-part series on the The CPO’s Agenda, which is overviewed in the preamble post on What is Top of Mind for CPOs, that will tell you, as a new or aspiring CPO, what you need to focus on.

And stay tuned to this new, first of its kind site which, for at least the next six months, will be bringing you a cross-blog collaboration between the doctor of Sourcing Innovation and Pierre Mitchell of the Spend Matters Group (with occasional contributions from Thomas Kase and Jason Busch). The new Chief Procurement Officer is the first of its kind and the education that is coming your way will be unequalled! This is only the first of three in-depth series between the doctor and Pierre Mitchell that are almost ready to roll, with more in the works. Stay tuned!