Author Archives: thedoctor

LOLCat is Anxiously Awaiting Your Garden

While LOLCat appreciates the indoor lawn, now that spring has been with us for a month, LOLCat really wants to enjoy the outdoor garden again.

Also, LOLCat would like to remind you that some of the most famous people in history, ever since Nebuchadnezzar II commissioned the Hanging Gardens of Babylon, have commissioned famous gardens (including Thomas Jefferson, 19th American President), some of the most brilliant scientists have been gardeners (including Ralph Gardener, a famous research chemist), and many of your most beloved celebrities (including Oprah) are avid gardeners. It is said that the founding fathers love of gardening shaped their vision for America, and the British have always been enthralled by gardens (just count the number of famous public and private gardens in the greater London area alone).

Not only does gardening bring a number of expected, and unexpected (mental) health benefits, but it gives you a strong appreciation of the work that goes into raw material (food) production and, in turn, a greater appreciation for the complexity of the supply chain you manage a portion of on a daily basis. Remember, LOLCats are always smarter then they look. 🙂

Boost Your Procurement Value Engine

As per our last post on the subject, Procurement does not exist to buy stuff (which was its origins, but thanks to the Internet, everyone can buy stuff), but to provide value to the organization. But the identification of organizational value is not always straight-forward. Every organization is different, and every Procurement function has a different level of organizational maturity. As per the classic Hackett Hierarchy of Supply, a supply organization could still be at the level of supply assurance, could have moved on to analyzing landed cost, may have begun its entry into the modern era with an analysis of TCO, might be poised to become a leader with a foray into demand management, or, and this is the highest level of maturity, may be focussed on the art of value management.

But delivering value first requires understanding what value is to the organization (and how Procurement can contribute to it) and then requires getting a mechanism in place to repeatedly deliver that value at regular intervals. There are various mechanisms that can be considered, but regardless of the mechanism you choose (and whether it is process-based, platform-based, or a hybrid approach), it needs to be powered by an engine. And in particular, that engine, which needs to keep on churning out value like a real engine keeps churning out power, needs to be efficient and effective.

One has to keep the productivity plateau in mind. An organization that only focusses on efficiency will, at best, fail slowly. Similarly, an organization that only focusses on effectiveness will, at best, survive. But what an organization really wants to do is excel, and that requires the right intersection of efficiency and effectiveness. In particular, the organization has to focus on effective goals, implement them as efficiently as possible, and then use the savings to take on even more effective goals.

So how does a Procurement department improve its productivity? Generally speaking, the Procurement organization increases its value (for money, VfM), and the basic formula for that is simple:


Value Increase = Reduce Input + Increase Output + Reduce Energy
 

while focussing on categories important to the business

And how can it do that? In a category-agnostic way, it can:

  • reduce demand
  • increase Spend Under Management (SUM)
  • decrease contract costs
  • increase contract compliance
  • decrease storage and utilization costs
  • reduce risk

And how can it do this efficiently? In a general way, it can:

  • implement systems to improve cycle times
  • implement processes to reduce maverick spend
  • manage market dynamics better

And how can it translate the general to the specific? That’s a harder question to answer, but one that is addressed in considerably more detail in a new white paper co-authored by the doctor and the procurement dynamo, sponsored by Pool4Tool, on how to Boost Your Procurement Value Engine. Part I of a II-part series (with Part II coming out in Q3), this paper will give you the insights you need to understand the various levers you have to deliver true value and how you can do so in an efficient, effective, and sustainable manner.

Technological Sustentation 86: Template Mania

While template mania isn’t nearly as bad of a damnation as Big Data, Cyberattacks, Spreadsheets, Dashboards, and The Cloud, it’s a damnation nonetheless. Why?

Let’s start with the definition of a template. A template is defined using, well, any one of a dozen different definitions, including the following found on Wikipedia:

  • a pre-developed page layout in electronic or paper media used to make new pages with a similar design, pattern, or style;
  • a standardized non-executable file type used by computer software as a pre-formatted example on which to base other files, especially documents; and
  • a master page on which you can globally edit and format graphic elements and text common to each page of a document.

But none of these help Supply Management. Consider the definitions of templates commonly used by Supply Management vendors, which include, but are not limited to:

  • RFX templates to quick start sourcing projects for common or previously sourced categories
  • Strategic Souring Decision Optimization templates for pre-defining models
  • Data collection templates for analyzing surveys using BI tools
  • Scorecard templates for supplier performance monitoring
  • Workflow templates for setting up a sourcing project
  • Workflow templates for (automatically) approving invoices

And, by now, you should be thoroughly confused. And that’s the point. Extreme proliferation makes it hard to even identify what a template is. Even if we can define what a template is, it’s hard to know when it can be used. And even if we know when a template can be used, we don’t often know the right one. So how can we overcome this damnation and get through it.

1. Identify Where Templates Can Be Used

Templates can be used in spend analysis, sourcing events, contract creation, procurement monitoring, supplier monitoring, and related tasks. Start here.

2. Have Experts Identify the Right Templates for Each Instance

Have the experts in the organization identify the right templates for each area. For example, there are “canned reports” that can be used to jump-start any spend analysis effort, standard workflows / RFIs / lot structures for sourcing events that have been repeatedly found to work well, standard templates that legal starts with for templates, well known KPI-scorecards that effectively monitor Procurement progress, and best-practice supplier scorecards for strategic and tactical suppliers by vertical. Create and adopt these where needed.

3. Adopt Platforms that Embed the Templates into the Process

Now, considering that some platforms have customers with 1000+ spot-buy templates, 100+ category templates, and 200+ RFIs tied to verticals and supplier type and category, the number of templates the organization will have after step 2 will be overwhelming unless they are embedded into a platform that, using known data, guides the user to the rather small set of templates appropriate to the situation at hand, possibly by way of a few supplementary questions embedded in a wizard-guided workflow. The user should not have to search for a template, the platform should present the right template(s) based on the situation. Only then do templates become a blessing rather then the curse they have historically proven themselves to be.

Trend Analysis: Mantic or Misguided

Trend Analysis, formally defined by Wikipedia as the practice of collecting information and attempting to spot a pattern, or trend, in the information is typically presented by providers of analytics packages as the miracle your organization has been looking for to power your productivity and process improvements. After all, if you can’t use the data you have to get a good sense of how you are doing, how are you going to figure out how you are doing, if you can improve, by how much, and what you should do.

This is true, provided that the trend analysis is statistically reliable, on accurate data, and comparable to a meaningful benchmark. But this is not always the case, and when the trend analysis is poorly implemented or applied to poor data, definitely not the case. In fact, if the trend analysis is not accurate, it will cost the organization precious time, money, and resources and result in considerably worse, instead of better, performance. And even though you don’t hear about it (as the last thing a major provider of analytics solutions wants to do is scare you away from their very complicated, and extremely expensive, solution that is supposed to save you 3X to 7X its annual cost), analytic-based screw-ups happen more often than you think. And if they happen to you, you will be cursing the analytics package until it’s off the asset sheet (and beyond).

the doctor is being dead serious here. Trend Analysis (like dashboards) hide half a dozen serious dangers that can seriously hinder productivity, savings, and even innovation. Half of these are common to internal trend projections and half to external trend projections.

One of the most significant dangers of internal trend analysis is missed opportunities. If an analysis of fulfilment time analysis over the past six months indicates that the organization is likely to continue to hit its 90-day delivery guarantee by at least 3 days, the organization may think that all is fine and well, but not realize that just hitting the 90 day delivery guarantee is costing the organization money. What if the average stock-out rate is 10%, and 6% of that are stock-outs that are less than 40 days. What if the organization could change lanes and carriers and get the delivery guarantee down to 50 days? This could reduce the stock-out rate by as much as 60%, and if this stockout rate is costing the organization 10M a year, that could be a 6M savings overlooked because the trend analysis creates an all-green dashboard.

One of the most significant dangers of external trend analysis is innovation stunting. For example, the trend analysis could show that the organization’s conversion to sustainable energy is outpacing its peers by 5% and think that it is doing great. But what if it has the opportunity, due to its locale, to switch to solar or hydro at a rate that would outpace its peers by 10% and take another 20% off its annual energy bills? Without knowledge of the possible, the analyst could completely miss that innovative opportunity.

But these are only two of the six major hidden dangers that can rear their ugly heads as a result of the misapplication of trend analysis. For a detailed insight into the other four, download the doctor‘s latest white-paper (sponsored by Trade Extensions) on The Dangers of Benchmarks and Trend Analysis (registration required) today. You need to know these inside out before even considering using trend analysis (which, when improperly constructed and improperly interpreted, can be just as deadly and dangerous as a dashboard).

Societal Damnation 41: Fraud & Corruption

As per our damnation post last year, fraud and corruption is everywhere and running havoc on your organization and your supply chain. A recent Kroll Global Fraud Report in late 2013 found that 70% of companies were affected by fraud in the prior 12 months, which represented an increase of 15% over the previous twelve months. In other words, at the time, 7 in 10 companies were hit by fraud in the previous year. But it gets worse. The Economist at the same time also found that fraud was on the rise and predicted that it would continue to rise. If the rate of increase remained steady, then 4 of 5 businesses got hit with fraud last year and 9 out of 10 business will get hit with fraud this year. Yowzers!

Procurement fraud can be particularly costly and damaging regardless of if you are in the public sector or the private sector. The UK public sector estimated that fraudulent purchasing on an annual basis cost it £ 2.3 Billion in 2012! Zoinks! And while it’s harder to find good numbers for the US, a 2011 report by Computer Evidence Specialists found that Fraud cost the US $1.32 Trillion in 2010, of which 733 Billion was Corporate (with 68% committed by corporations and 32% committed by employees). Hamana! Hamana!

If you are a large organization, whether you want to admit or not, there is a small percentage of employees, suppliers, and customers that are looking to rip you off for as much as they think they can get. Every day of the week, including Sunday. Not everyone, not by a longshot, but enough people to make your job miserable.

So what can you do? As per our damnation post, a good start is to

  • have an invoice policy that is strictly followed that only accepts invoices from approved suppliers, only for approved goods or received services, and only at contracted or publicly advertised rates
  • have strict spending limits and controls that enforce them which ensure that only people with authority can grant approvals for bypass, and that such approval is clearly logged in an auditable fashion
  • careful inspections of all goods received to make sure the organization gets what was ordered and what is paid for

But that’s just a start. The organization should also:

  • analyze all invoices or expenses without a PO very carefully to ensure they are not duplicate, that the goods or services were received, and that the prices billed are the prices the organization committed to pay
  • have strict policies on who is allowed to buy and what they can buy and have a policy that repeated or serious offences can, and will, result in immediate dismissal
  • have a standard contract rider that no invoices for off-contract goods or services will be accepted without a PO that all contracted suppliers must sign, as this will severely limit how many unexpected invoices show up
  • use data mining and machine learning to identify potential fraud as the same receipt submitted 3 times two months apart, or patterns of the same no-receipt charges, or duplicate billings for the same service months apart will be immediately identified as suspect, for example
  • keep up on fraudulent statistics and schemes and identify methods to enable the quick identification thereof before new fraud methods and attempts cost the organization too much money

But whatever you do, don’t target employees and treat them like criminals. If you treat them like criminals, they will become criminals. Create good procedures and processes for invoices and payments, install solutions where it is easier to follow the procedures and processes than ignore them, and make it about cost control, not fraud prevention, and you’ll find that fraud just isn’t as much of a concern. (Fraudsters choose easy targets.)