Author Archives: thedoctor

When Managing Supply, Don’t Forget …

… sometimes supply comes from within the four (virtual) walls of your business. This is one fact that is overlooked by many S2P suites which are setup to acquire external goods and services (and, specifically, finished goods and services that typically fall into indirect categories.

When we are talking about MRO, the goods and services you need might be in a storage room in another building. If we are talking about consumables, like what you might need for a new hire, everything you need might be one floor down, left behind by another hire who, after the probation period, didn’t work out.

Inventory and Asset Management are key to successful Supply Management, and to successful Procurement. One should NOT buy what one does not need. This is the other form of demand management — which is two parts. The curbing of need for consumables (less paper for the printer, less usb drives when there are secure network share folders, etc.), and the re-use of what you have. Laptops or cell phones less than 6 months old should never go unused or reassigned. Expensive MRO replacement parts can often be couriered from site to site for $40 — why spend $5000 ordering another 4-pack to fix the production line and have your minimum “3″ on hand when another facility still has 8 in storage.

When you are upgrading your e-Pro / P2P / S2P system, keep this in mind. Either find one that includes inventory management or integrates with an inventory management system, and you’ll save a lot.

But to truly win, make sure it supports end-to-end asset management. It’s not just expensive hardware that often collects dust in storage closets, is also expensive assets. Like expensive snowblowers that are bought, put in the basement, forgot about when the business gets a new, better, facilities contractor and the internal maintenance team doesn’t have to do it anymore instead of being sold or sent to another facility. Expensive 3-D software licenses that are not transferred to another engineer, and then bought again 6 months later when a new hire needs them. Patent or other IP library that could be licensed by sales to a partner for extra revenue. Etc. This last part is key. Not only are unused assets costing the company money (because thy were bought to fulfill a need, which is not being met by them, but costing the company money if they can be licensed, rented, or, in the case their value becomes limited, sold.

So when you are upgrading your e-Pro / P2P / S2P system, keep this in mind too. Make sure it’s inventory and asset management or integrates with an inventory and asset management, and you will not only save a lot, but help the organization generate value.

Where’s the Beef?

Contrary to what you might expect, this isn’t a post about the beef supply chain, or the purity of beef that you source, but a post about modern media. I’m borrowing Wendy’s classic catch-phrase because, well, it’s what we should be asking anytime we watch the news or read an article that, simply put, does nothing more than summarize press releases and coverage from other sources.

Why is the doctor ranting about this now? Well, the day he’s writing this is just a little over a year since the inauguration of Donald Trump, whom, according to The Washing Post, made 2,140 false or misleading claims in his first year. But this isn’t what set the doctor off.

It’s the behaviour of media in the last year, and their repeated spreading of fake news, which is real, and, typically, not the fake news that the politically leaning media enterprises are rallying against (which each have their own set of alternative facts). And how this all popped to the forefront of his mind as he was scrolling through his archives and stumbled upon this classic post from January 2011 on why you have to Think!.

In this classic post, where he covered an awesome article by Atlantic Business of the same name, he started off by quoting the author who worries [that] we seem to have forgotten or dismissed the value of careful and considered thought because common sense seems to be in very short supply. And pondering on this, and the author’s statement that we always want an instant response or immediate gratification, he noted how it was becoming common for a journalist, or blogger, [who] doesn’t cover a “breaking” story the minute it happens, to feel that he’ll miss the boat.

And this, as the doctor noted, is a problem. We’ve gone from a world where a company would make a big announcement in a press conference and it would be a headline the next day — after the journalist had time to verify the statement, think about the impact, talk to experts, verify statements with references and customers, and so on — to a world where the press release goes up and 5 minutes later there are two dozen online sites offering “deep and complete coverage”. How “deep and complete” can a story be if someone spent 5 minutes of research on a press release and a couple of websites? The answer is NOT VERY.

But if we were still in that world, that would be almost acceptable. Today, when a company releases a press release about it’s new product, the journalists talk about whether the color will match your latest outfit based on what’s in style if it’s a phone or accessory. An executive makes a statement about the importance of sustainability and how the government should create regulations and laws, and instead they get unrelated backlash about how the additional cost will result in job loss because companies will just move to a locale where there are no regulations. The Prime Minister of Canada goes to the World Economic Form to discuss important global trade issues and all the journalists care about is what pair of socks he wore.
Who the F*ck cares?

Reporting is supposed to be about facts, issues, and deep information we can’t dig up on our own or deep thought and analysis. It’s supposed to be about the beef, not the bun, the sesame seeds, or the fancy box it came in.

And the worst thing is that our willingness to accept this as news is leading to our willingness to accept press releases as product tech sheets and scientific fact without any analysis whatsoever. At a time when we need to Think! the most, we are now, often, thinking the least when we should be echoing Dave Thomas and asking Where’s the Beef?!

Lost Value in Outsourcing

Recently we ran a piece on Hidden Costs in Outsourcing which described many of the costs and overpayments you could be making when outsourcing a function in an effort to reduce costs and increase efficiency, even if the outsourcing contract results in reduced costs and increased efficiency. And while SI believes in win-win agreements, they should be above board with each party only taking its agreed upon share of the pie.

But even if the outsourcer only bills what it agrees to and doesn’t markup rates, charge you for shelfware, pass through unauthorized expenses, or hike the commissions, that doesn’t mean they are delivering all the value they are promised. This happens regularly with “full service” management or technology consulting firms, and the client never knows. But due to his unique position, the doctor knows, and having figured it out, refuses to participate in any project that denies a client organization of the full value they deserve. But this doesn’t prevent it from happening — there’s always someone else who will help the consultancy continue the practice.

What are we talking about?

The simple fact that no single management or technology consultancy, no matter how big, is an expert in every process or system you need, despite what they claim.

And the doctor knows you’re saying, we know this, so we chose the consultancy that makes it a practice to bring in experts when it is weak in an area to get us the information we need when we need it. But do they? Specifically, do they bring in true experts? Do they get the right information? Is it appropriate to your situation?

Some firms do NOT bring in true experts. Why? They have no expertise on staff, and use a model to find experts that is not congruent with what it takes to attract experts. For example, some firms are employing the “network” or “network search” model where they build a “network” of experts they can tap into for help. But this network usually consists of freelancers who self-register and/or who are invited based on automated LinkedIn profile searches. Are these people experts? Some are, but unless they are semi-retired folk looking to keep busy, probably not. Most of the people in these networks are unemployed / self-employed and in need of work. Most experts are too busy to even think about registering on another expert or social network, and will not be there. And experts such as the doctor will not engage with this type of model. The last thing the doctor wants to do is provide an hour of advisory to a Big 6 only to have it turn around, take the information completely out of context, and tell its client to consider vendor X or product Y because the doctor recommended it.

Secondly, some firms do not contract the experts for enough time to get the information they need to truly have an advanced understanding from the market. For example, many of these firms will engage experts for as little as an hour or two and expect to get deep expertise on a market and technology and, at the end of it, understand what vendors to focus on or what technologies to dive into. Then, believing they know where to focus, they will have their interns do research on the specific vendors or technologies and produce deep reports. But interns don’t understand the intricacies that help differentiate similar vendors or similar technologies and can easily fall for marketing hyperbole and overlook deep capability.

Thirdly, as they are not experts, they will not understand the intricacies of your situation, what specifically they should be looking for, and what questions they should be asking the expert, should they actually get one. So whatever they do will be of limited value from the get go.

If a company is engaging a consulting firm for help, the amount situation-specific consulting needed from an expert is significantly more than a few hours. And if all your management consultancy is doing is engaging the expert for as few hours as they think they can get away with, and then assigning a junior consultant to go and do the market research, you’re not getting the value you deserve.

Thirty Two Years Ago Today …

… Halley’s Comet Teaches Us a Thing or Two About Comets!

It was the last time Halley’s comet appeared in the inner solar system (where it won’t appear again for another forty-three years (in 2061). And it taught us a thing about comets. As per Wikipedia:

“During its 1986 apparition, Halley’s Comet became the first comet to be observed in detail by spacecraft, providing the first observational data on the structure of a comet nucleus and the mechanism of coma and tail formation.[15][16] These observations supported a number of longstanding hypotheses about comet construction, particularly Fred Whipple’s “dirty snowball” model, which correctly predicted that Halley would be composed of a mixture of volatile ices – such as water, carbon dioxide, and ammonia – and dust. The missions also provided data that substantially reformed and reconfigured these ideas; for instance, it is now understood that the surface of Halley is largely composed of dusty, non-volatile materials, and that only a small portion of it is icy.”

Why is this important? It’s not the only comet, and its not the only periodic comet. But considering this is likely the comet that showed us comets could break up, and throw off of asteroids, which many scientists believe was a primary cause of the extinction event that wiped out the dinosaurs, the insight it has provided us is scientifically vital. If an asteroid throw off of a comet was a major contributing factor in the dinosaur extinction, it’s something we don’t want to happen to us (provided we don’t climate change the planet to point its unliveable — after all, it’s already 2 minutes to midnight).

And why is this important to supply management? We rely on predictive algorithms every day, predictive algorithms which have their roots in interpolation algorithms developed by the early mathematical greats to, guess what, predict the periodic orbit of comets!

Hidden Costs in Outsourcing

A strategy used by many Sourcing and Procurement organizations to get quick wins is to outsource tactical Procurement operations and/or Category Management to BPOs or expert (niche) consultancies. This can be very successful if the BPO is reasonably efficient in processing compared to the organization or if the expert (niche) consultancy has considerable expertise and can quickly find a lot of savings the organization never could. But that doesn’t mean that you are getting the best value. These organizations are trying to maximize their profit, and if you’re happy with the value you are getting, why should they try to optimize their costs?

Before we continue, let me be specific here — we are NOT attacking the hourly rate for their (top) talent. Good category managers are worth their weight in platinum, and you should expect to pay top dollar for them. But you should also receive top value in exchange, not mid-level value and definitely not mediocre value. But that’s what you could be getting if you are not evaluating these services as closely as you would be evaluating your strategic direct material buys.

And, before we continue, let’s make it clear that while we are focussed on Supply Management, these hidden costs could be found in any outsourcing arrangement — marketing support, legal support, engineering support, etc. So what are the hidden costs?

  • Rate Markup this can take many forms, including A rates for B staff or onshore rates for offshore staff; you could be paying 200/hour for the expert, but a relatively inexperienced mentee could be doing most of the work, or you could be told you are being supported on-shore when really 90% of the work is being offshored to low-cost locales in Eastern Europe
  • Temporary Labour if the provider falls behind, they might hire temporary labour and bill you for it; this is okay if you ask them to, but if they do it without your permission for a fixed-cost task, this is definitely NOT ok
  • Shelfware/Bloatware where you are being billed for software not being used or you are being billed for a suite license when the organization is only using one module
  • Pass-through Expenses some organizations will try to pass through any and all expenses they think they can, even if they require explicit pre-approval or the contract says they are the responsibility of the outsourced company
  • (Hiked) Commissions some organizations will charge-back a percentage of savings, a value fee for a successful value-add negotiation, a percentage of a recovery, etc. this is usually okay as this is usually part of an agreement, but there are usually restrictions — minimum value, maximum percentage, and so on; sometimes an organization will charge commissions beyond what they are allowed to
  • Taxes some organizations will charge taxes based on their locale, taxes you may not be technically required to pay — double check the tax lines carefully

And these common overcharges could be just the tip of the iceberg. So be sure to be as cognizant about sourcing your services relationship as you are about sourcing your strategic products and services.