Monthly Archives: December 2015

State of Flux Has the Treatment for Your SRM Ailments: Part VI The SRM Platform

So far in this series we have discussed the need for SRM (Part I), Chicago and a foundation for your SRM effort (Part II), tips and tricks for foundational success (Part III), the importance of good supplier relationships and State of Flux‘s latest research report The Business of Supplier Relationships (Part IV), and the six pillars of supplier relationships and their importance (Part V). While all of this is important, it only discusses part of the treatment — the process part. As has been indicated, another part is also needed — the platform part.

In addition to offering a foundation for SRM and a process, State of Flux also offers a platform, which was recently renamed Statess and covered in our 3-part series on stabilizing your State of Flux earlier this year (Part I, Part II, and Part III).

The State of Flux Statess platform is a modular, flexible, and adaptable platform that is designed to meet your:

  • relationship management,
  • risk management,
  • performance management,
  • contract management,
  • innovation management,
  • sustainability & CSR,
  • benefits management,
  • category management,
  • intelligence, and
  • programme management needs.

The platform, which was designed to be easily configurable to provide the organization and the supplier with a 360-degree view from the buyer and supplier homepages, allows the buyer to create customized scorecards and reports using configurable widgets that can access data in any part of the implemented system. Moreover, should third party data feeds be enabled (through third party plug-ins), the buyer can also access trading information related to the supplier and its products, related news feeds, and third party intelligence on the supplier.

This third party data can be used to augment the very extensive supplier profiles the system allows you to maintain. Good SRM requires good SPM (Supplier Performance Management) which in turn requires good SIM (Supplier Information Management), so it should come as no surprise that the State of Flux platform is a first rate information management platform. These extensive profiles include information on the supplier’s organizational structure as well as extensive governance information that includes the individuals responsible for the relationship on both sides.

Furthermore, information collection is quite easy as the platform supports a very powerful generic survey mechanism that, like a good RFI solution, allows multiple types of surveys to be built with multiple sections, different response types (checkbox, numeric fields, free text, etc.) for each question, and automatic weighting mechanisms. This allows the organization to prepare the appropriate internal performance surveys and external 360-degree surveys that form the basis of good performance, CSR, Risk, and Relationship management programs.

Our third post in our series briefly covered the contract management, performance management, risk tracking, and innovation modules as well as the programme module which manages the projects. Each project can be associated with a business unit, one or more contracts or bids, zero or more other modules or initiatives in the platform (including performance management, risk management, and innovation), and can consist of one or more stages or tasks defined in accordance with well understand project management methodology.

And, as per our last post on the subject matter, the platform, while quite extensive, is still under active development. In our next post, we’ll discuss a few of the new features of the State of Flux Statess platform as well as some key features not addressed in our previous series.

Societal Damnation 50: Talent Tightness

Your organization is expected to deliver 6 miracles on a daily basis, and at least one before the CFO arrives for work. But, as we all know, miracles, by definition, are almost impossible. That’s why, in order to have any hope of accomplishing the nearly impossible feats put before you on a daily basis (such as sourcing an additional 1,000 kgs of dysprosium by the end of the week, even though a major mine just collapsed, and knock $50 off the price per kg [10%+] while you’re at it even though you’re in the midst of a supply shortage), you need exceptional talent.

But such talent is rare, especially when you need true polymaths who are simultaneously geniuses and jacks of all trades and a master of one (Supply Management). This says that only a small fraction of a percent of the population are even intrinsically qualified for Supply Management, and given that these individuals can, by definition, do anything they want, how many are going to want to do something us unglamorous as Purchasing. (Especially considering that, as far as the average person knows — which should not be a surprise considering most curriculums at the Universities they went to still teach decades old operational management theory as the basics of Supply Management — choosing Supply Management means being stuck in the dungeon in the tower of spend.)
This challenge is only exacerbated by the fact that:

Sales gets commissions on every dollar sold, even if such sales cost the organization money, but Procurement’s bonus for identifying value is at the complete whim of Finance.

Procurement could identify, and lock in, $100 M of expected savings on a Billion of spend, primarily through the Herculean effort of a small core team of 10 analysts, negotiators, and project managers, work with Engineering and Marketing to realize $70M of that, or $7M of savings per Procurement team member, who, because the CFO decided that they should have realized 50M anyway, decides to only credit the team with 20M of savings, or $2M per member, and give them a mere 1% of that as reward, or 20K. Meanwhile, the top 10 Sales people, who delivered an average of 1.5M each above their 1M (non-commission) quota (as they get a 150K salary), get a 10% commission on that 1.5M and effectively double their salary, even though only a fraction of the revenue hits the bottom line. For example, if the COGS is 70% and they get 10% commission, 20% of that, or 300K per sales person, hits the bottom line before taxes. But 100% of the savings per Procurement professional, or 2M in the CFO’s discount approach, hits the bottom line before taxes. But they only get a 1% reward for their bottom line contribution while the sales people effectively get a 50% reward for their bottom line contribution. Is that fair? Not at all. And that’s why you can’t get good talent and why all the high EQ people go to Sales.

Moreover, if the savings don’t materialize, or don’t materialize to the extent expected, through no fault of Procurement (because Engineering or Marketing decided to go off the plan or off the contract), Procurement will still be held responsible and Procurement will be rated poorly and the dream team who worked their collective assess off will get nothing at bonus time but a bad taste in their mouth, and instantly leave for the competitor who pays them the most (while giving your firm a bad rep in the process as they will be very frank about why they left your cheap, ungrateful, backwater organization).

Your competitors are desperate too, and those with deeper pockets will outbid you for top talent.

It’s not all about money, and that goes double for top talent, but that being said, money is a factor, and if your competition is offering 20%, 30%, and even 40% more, that’s a little hard to turn down. Especially if they are also offering flexible hours, training, course reimbursement for any course taken on the employee’s own time where the employee gets a minimum / passing grade, etc. So if your training budget is still 0, your corporate policy still mandates being in the office from 9 to 5 (even though your suppliers are in a time zone 9 hours shifted and this means everyone would be working 11 hours any day a supplier has to be consulted), and there are pay ceilings in effect from 5 years ago, the chances of getting anyone talented to join your Procurement department are slim to none, with an emphasis on none.

Talent wants to be sufficiently challenged and sufficiently enabled.

They know they have a challenge, but they also want to know they have the tools to tackle it. If you expect them to work for you, you better have some decent tools. It’s not the Procurement dark ages where the best tool available is an Excel spreadsheet and e-mail to deliver it. If that’s all you have to offer, don’t be surprised if they run to the hills.

Talent is tight, and everyone is working against you to keep it that way. Finance with unfair compensation policies. Competitors with deeper pockets. And the CIO who thinks the IT budget is better spent on new iPhones for the masses, even though they all got new iPhones last year! But this is just one side of the damnation …

State of Flux Has the Treatment for Your SRM Ailments: Part V The Pillars of Supplier Relationships

In our last post, we noted that State of Flux released their 2015 Global SRM Research Report: The Business of Supplier Relationships at the State of Flux Chicago and London Events. This report, which is their 7th annual research report that analyzes detailed survey data from over 500 global companies, provides deep input into the state of supplier relationship management and the benefits that it can bring.

The importance of good SRM cannot be underestimated. For example, more than 40% of survey respondents have achieved a positive, quantifiable post-contract benefit from their SRM activities, with 31% reporting a benefit of 4% or more. Moreover, 60% report cost reductions, 52% report cost avoidance, and 39% report preferential pricing. These are substantial across-the-board benefits.

So how do you achieve these benefits? According to State of Flux, it starts by mastering the six pillars of SRM value mastery. These are:

Business Drivers

As discussed in the next pillar, an SRM program needs to be adopted to be successful. This adoption will not happen if there is no clear reason for the program to be adopted, and given that many Procurement professionals are against the wall to deliver results, the most attractive programs are those with business drivers.

There should be business drivers that will deliver solid, measurable, value to the organization. This can include spend reduction and cost control, but can also include an increased rate of innovation, faster product design and delivery, and a more collaborative, problem solving, working relationship.

As per previous posts in this series, SRM can deliverable measurable savings. And even though the soft benefits can be hard to measure, over one third of the State of Flux survey respondents indicate tangible benefits from supplier innovation, service level improvements, and risk management / risk reduction.

Stakeholder Engagement and Support

SRM requires collaboration between all stakeholders and suppliers in order to work. SRM needs to benefit the organization as a whole, not just one department. That’s why all stakeholders need to be engaged up front and support the program up front. Many SRM initiatives fail because they start in one department and overlook other key stakeholders who need to be involved because their absence causes an inconsistent front to be presented to suppliers down the road.

However, executive level stakeholder support is critical for success. As per the state of flux survey, 46% of leading companies have the backing of their chief executive. This is more than double the number of non-leading companies that have senior executive backing for their SRM initiatives (which check in at 21%).

Governance and Process

SRM programs need to be well designed, well run, and well executed. This requires a good governance program and a good process that all parties can follow. A good governance program requires a number of factors, which include, but are not limited to:

  • a designated, accountable executive
  • regular performance review meetings
  • period strategic review meetings
  • an agreed upon issue escalation process
  • performance scorecard(s)
  • contract reviews
  • risk reviews

Leaders in governance and process have all of this, and more.

People and Skills

SRM requires the right people with the right skills to be involved. They should not be led by the former office manager with no negotiation or account management experience who was thrust into a buying, and then a relationship management, role as a result of a couple of reorganizations.

Just like the skill set required by a sourcing professional (who must be a jack of all trades and master of one) is quite diverse, so is the skill set required by a(n) SRM professional. While a number of skills were identified as important by survey respondents (with over 50% of respondents identifying over 12 different skills), the following five were identified as the most important (by over 70% of respondents):

  • communication
  • strategic thinking
  • trust building
  • influence
  • cross-functional collaboration

Information and Technology

Modern supply chains, and the buyers and suppliers who keep them moving, run on information and information technology. SRM is no exception. Even though supply chains are fundamentally driven by people, as highlighted in the last pillar, these people need good information and good technology to not only get their jobs done, but excel at their jobs.

However, as we have seen, SRM is more than just process and the best SRM platforms are those that augment (or include) existing technologies that manage key aspects of relationships that affect the entire organization. For example, contract management, sustainability management, risk management, and performance management are critical to SRM success, but, with the exception of contract management, only a small number of organizations have systems for these core capabilities in place. Specifically, as per the survey:

  • Contract Management 62%
  • Performance Management 42%
  • Risk Management 31%
  • Sustainability Management 12%

Relationship Development and Culture

SRM is not a set-it-and-forget-it process or platform, it is an ongoing endeavour that must be managed as relationships must be continually nurtured and developed. In addition, cultural alignment is very important. The State of Flux Survey found that over 90% of respondents said that good cultural alignment was key to good supplier relationships. This is rational and logical — if both you and your supplier want the same thing and work the same way, it will be a lot easier to work together than if both organizations have different goals and different business processes.

To master SRM, you must master these pillars, but we have just scratched the surface with regards to what is involved and what success looks like. We highly recommend that you download the new State of Flux 2015 Global Research Report on The Business of Supplier Relationships, which is jam packed with not only definitions, but findings that will help you address each pillar appropriately. You won’t be disappointed.

Environmental Damnation 16: PETA

After our coverage of Environmental Damnation 17, Greenpeace, you probably suspected this damnation was coming. After all, when it comes to activist organizations, two always come to mind, Greenpeace and PETA. And while you might not think that PETA is an environmental & sustainability damnation, because it’s best known for its rather go naked than wear fur campaigns, which is all about not wearing fur as the harvesting of fur is typically the result of animals being killed, and sometimes raised in inhumane circumstances just to be killed, only for fur. As a result, you might think that PETA is only a damnation for fur traders, but that’s far from the truth.

But for those of you who don’t pay too much attention to PETA, or the huge hassles they cause for any organization that the feel is unfairly treating animals, if you take the time to go to PETA‘s site, you’ll see in great big letters at the top of the screen:

Animals are NOT ours to eat, wear, experiment on, use for entertainment, or abuse in any other way.

This means that if your operation or supply chain is any way, shape, or form dependent upon animals, either for food, clothing materials, entertainment, or, and may your favourite deity grant favour on you here if this is the case, sale, you could end up in PETA’s crosshairs and feel the pain.

It’s not just big chains like Kentucky Fried Chicken (which has to deal with the perpetual onslaught from PETA which maintains the Kentucky Fried Cruelty site) and which has enlisted the help of A-list entertainers to join in its crusade) that feel the wrath of PETA. Smaller operations can also feel the pain. For example, just last month PETA decided to go after the wool processing industry, allegedly recently released a video that reveals workers on an Australian sheep farm mistreating sheep. (Source: MagicOnline), and called for a boycott on the industry as a whole (claiming that over the past 16 months it released five exposes that resulted from a review of 37 facilities on three continents where sheep are “mutilated, abused and skinned alive — even for ‘responsibly sourced’ wool on so-called ‘sustainable’ farms”).

Nor is it just obvious targets that buy animal products for food or clothing. For example, right now PETA is also calling for a boycott of Air France because it is the only major airline that continues to ship monkeys to laboratories for experimentation where they were “routinely mutilated, poisoned, deprived of food and water, forcibly immobilized in restraint devices, infected with painful and deadly diseases, and psychologically tormented” after they were forced to “suffer from the long and gruelling transport in the cargo holds of planes and in the backs of trucks”. And since it was reported that 90 percent of drugs tested on animals failed in human trials, PETA claims that primate transportation for experimentation is unnecessarily cruel.

PETA is a damnation to your supply chain because even if you are only ordering the end product, or transporting goods for someone else, you can still find yourself in PETA’s crosshairs and your brand will take damage when they go after you. (So unless your company is one that only sources and sells synthetics for vegans that insures it’s supply chain is 100% animal free, good luck!)

Normally, LOLCat can’t be bothered to comment on our damnations, because it just doesn’t care, but after finding out that Air France transports primates for experimentation, LOLCat has something to say:


LOLCat Says Boycott Air France

Geopolitical Damnation 25: Government Actions

We already know governments can be a daily source of damnation, and even though we’ve directly or indirectly addressed some of these damnations in our coverage of Waste Legislation (15), Customs Acts (28), Trade Embargoes (29), TPP & the Poison Pill (30), Tariffs (34), Labeling (36), and, especially in Consumer Damnation 71 Government, we’re going to discuss governmental actions again because, from a geopolitical perspective (as opposed to the environmental, consumer, and regulatory perspectives where the government has already received a significant amount of coverage in our damnation series to date), there is still so much more that they can do to make your job living hell.

Here are just a few of the damnations they can create that will cause you never ending nightmares.

Budget Freeze

If a budget can’t be agreed upon by a deadline, or a budget is exceeded and an overspend is not approved, until such time as the budget, or overrun, is approved, any an all payments owed to your company are on-hold. If you desperately need that cash for daily operating expenses for the big order you just delivered before the freeze, tough luck. Let’s hope you can get invoice financing or a bank loan when an expected payment date is unknown. But this is not as bad as a

State of Emergency

In a State of Emergency, you may be forced to supply goods or services to the government and/or consumers at pre-approved rates, even if such rates could net you a loss due to increased production or delivery costs in the state of emergency, and even if such goods were earmarked for sale to another customer in another locale willing to pay a premium rate. Even worse, you could be forced to deliver those goods when there is a budget freeze on, which not only prevents the organization from being paid for an unknown amount of time (and a restricted cash-flow severely hampers Procurement when the organization cannot pay its suppliers), but also clears it of inventory. Then, as we all know, there is no sale, no store.

New Legislation Outlawing Your Product or Service

As makers of betting and lottery technology, radar detection units, and even video game consoles know all too well, a single incident of consumer outrage or, even worse, the single minded focus of an effect lobbyist or lawmaker can result in your primary product becoming illegal almost overnight. Then the organization can be stuck with a glut of inventory, ironclad contracts (with huge penalty clauses), and, sometimes, no (obvious) way to get the product to where it might still be legal to sell the product in a secondary market. But yet Procurement will be expected to save the day and get the contracts nullified in exchange for new contracts for other, still legal, products, get rid of the inventory, and manage the paperwork hell that will ensue.

Criminal Charges against your Organization and/or Executives

Even if your organization unwittingly broke the law as a consequence of a rogue employee who broke the rules (despite training and policies in place to prevent it), a contractor, or a supplier that you couldn’t monitor as closely as you’d like, your organization could still be the organization brought up on charges. If an authorized party, acting in the interest of your business, makes a bribe, conducts business with a terrorist (organization), or purchases from a supplier that uses forced labour, you’re on the hook. And since Procurement is ultimately held responsible for policies and purchases, the heat will be coming down hard on Procurement.

There are, of course, a dozen more areas where government actions can pile on the damnation, but as these are among the nastiest that have not yet been covered in this series, we feel we’ve made our point. Enjoy the heat. (On the bright side, at least you’re not freezing in the cold northern winter.)