Category Archives: Best Practices

Last Day for Free Sourcing and Procurement Papers from Spend Matters!

As per a recent post over on Spend Matters UK, today is the last day that a set of recent Spend Matters white-papers, made available by sponsors, that is currently free to practitioners goes back behind the pay-wall and this set in particular contains three pieces authored or co-authored by Pierre Mitchell and two authored or co-authored by Thomas Kase. Pierre, most recently of Hackett Group fame, is well know for his thought leadership around Supply Management best practices and Thomas, who has worked for a number of providers, is known for his deep expertise in SPM/SRM solutions. When you can get your hands on their work for free, it’s not something you should pass up.

The papers in particular that are about to become “pro” access only are:

  • How to Justify Spend Analysis to Finance/IT When There’s No Clear ROI
    by Pierre Mitchell
  • Write Better RFPs — How to Get What You Want (and Need) From Suppliers
    by Thomas Kase
  • Metadata Explained: What it Means for Spend Analytics, Supply Risk, Supplier Performance, and More
    by Thomas Kase, Pierre Mitchell, and Jason Busch
  • Procurement Analytics: How to Plan (and Optimize) Your Process
    by Pierre Mitchell

Regular readers of SI know the utter importance of Spend Analysis, a subject which has garnered hundreds of posts on SI over the years. As one of the only two technologies that have been repeatedly to provide an organization year-over-year double digit ROI returns when properly used, your organization cannot afford to be without it! As such, the last thing you want is to be roadblocked by finance when there is no readily apparent savings opportunity (as you need the solution to clean your data to find the savings opportunity). In his piece, Pierre gives us you ten hints to getting your project approved, which can happen quickly if the project is presented appropriately. Always remember, the faster you get the system, the faster you can centralize and cleanse your data and find opportunities, and the faster you can start saving.

Just this week SI was continuing it’s RFX rants, which started back in 2007, about how the vast majority of provider RFPs suck and how you won’t get good results unless you write your own (using the provider RFP as a checklist of some key elements that need to be included, but in a way that makes sense to your organization). In Thomas’ paper he discusses some key elements of the RFP creation process that can make the difference between success and failure in your efforts.

Everyone talks about Meta Data, but not a lot of people really understand what they are talking about. In the collaborative piece between Thomas, Pierre, and Jason, the authors provide a discussion of meta data and how meta data aggregation can paint a picture not readily available from the elements. They then go on to demonstrate how the proper analysis of meta data can yield risk analysis and opportunity assessments that cannot other wise be performed and that can be very beneficial to the business day one. It’s another example of why your organization needs good data and tools to process and mine that data if it wants a true twenty-first century supply chain.

In the last piece on Procurement Analytics by Pierre, he notes that for an analytics project to be successful, you need the right scope. The scope is all of supply management, not just the tactical procurement function. All data collected from the first RFX during the sourcing process through the last on-contract procurement to the final warranty return needs to be collected and stored in one central or federated database so that an analysis can look at all relevant data, not just purchase data. It’s not just how much you paid, but how much you were supposed to pay, what you paid for, and if a different categorization would be more beneficial to your organization. And until you make an effort to centralize, or at least centralize on a common schema even if the data is scattered, you won’t even know what transformations and cleansings need to be done.

If you haven’t downloaded these yet, don’t miss your very last opportunity to do so. These are some great pieces with content that you should know, so read up!

You Need to Get Sustainable Because Customers Won’t Pay!

As per Monday’s post on Do as I Say, Don’t Do as I Do, while customers say they try to buy from companies with a good record on sustainability and ethics, but don’t always, the reality is that only 9% of UK customers and 16% of US customers rate ethical company/brand in their top 3 attributes, being considerably more concerned with value for money, price, and quality. Furthermore, while most customers say they will pay more to buy from a sustainable company, they won’t pay more than an extra 5%.

As a result, the inclination of most senior buyers might be to forego sustainability and ethics when sourcing and go for the supplier that provides the best value for money, quality, or price, especially since that’s what the average buyer wants. But this reactionist approach is the exact opposite of what you should be doing! In fact, you should be doubling down on sustainability efforts.

Consider what the average consumer wants to buy. Fashion. Electronics. Media. Now consider what these items are made of. Cotton. Rare earth Minerals. Paper. All of these items are in limited, decreasing, supply. Increased drought and increased need of limited farmland for food production are causing cotton prices to increase. Rare earth minerals are decreasing but demand in modern electronics gadgets is steadily increasing. And paper, well, there are only so many trees and some take decades to grow.

In other words, costs are going to go up — and, at some point, costs are going to go up significantly. At that point in time, the best strategic sourcing and negotiation skills in the world aren’t going to be worth a dime because you can’t source for less than cost, and if costs skyrocket because there is (much) more demand for the materials than there is supply, your costs skyrocket and your consumers go elsewhere.

But if you double down on sustainability, and source products that use alternative, more readily available, and if possible, renewable materials, from suppliers that focus on recycling and material recovery, then your costs will stay down while your competitors’ costs go up. That’s why, despite your inclination to follow your customers, you have to do a 180 in the other direction to make sure that you keep those customers as time moves on.

Have You Mastered the 4th T of Tracery?

Regular readers will know that the time of PPT — People, Process, Technology — has long passed. In today’s fast paced world where product life-cycles are sometimes over as soon as they hit the market, and where your competitors are constantly striving to outpace you in both sales and supply management, you can’t live on processes anymore — they go stale almost as soon as you’ve got them figured out. And in a knowledge economy, just having a butt in a seat or a worker at an assembly line isn’t enough to succeed — you need a worker who, at the very least, is smarter than the average worker and, preferably, smarter than the worker employed by your competitor. And your technology cannot get out of date.

That’s why SI has been promoting the 3 T’s for years — Technology, Talent, and Transition. You need a solid, regularly updated, technology foundation upon which to build your modern Supply Management Organization. You need talent to put together good operating procedures, properly use the technology, and to constantly identify new opportunities for cost reduction or value generation. And you need great transition management as even best six sigma process today won’t cut it tomorrow when you need to upgrade your product offering, switch suppliers, change distribution methods, and make sure your product is Designed for Recycling from the get-go as new regulations are forcing you to take back your product at end of life and recycle it as you are using chemicals and / or rare earth minerals that are heavily regulated.

But while these are necessary conditions for Supply Management success, they are not necessarily sufficient. While it is true you will not succeed without a mastery of technology, talent, and transition management, as per our first post on Project Assurance, organizational success also depends on selecting a superior strategy and seeing it through until the desired results are achieved (or the organization changes its strategy, which hopefully wasn’t done arbitrarily on the whim of a CXO after talking to a buddy on the golf course). However, in order to properly implement a strategy, you have to not only see it through from start to finish, but you have to make sure all of the process streams necessary for success are both completed and properly synched. Just like the key to a good weave, as one might find in Egyptian Cotton, is a skillful interleaving of the thread, the key to a good strategy, is a skillful interleaving of the process strands into an effective transition plan from where you are to where you need to be.

And this, dear readers, is Tracery — the “delicate, interlacing, work of lines as in an embroidery”, or, more modernly, “a network” — the glue that not only binds the Technology, Talent, and Transition Management that your Supply Management organization needs to succeed, but that interleaves these threads in a way that causes each of them to reinforce each other and make a stronger whole.

Could You Be Doing It Right? Part I: Category Management

In last Friday’s post, we asked if you were doing it wrong. In particular, we mentioned category management, supply chain risk monitoring, and big data, and asked if you were doing these three thing wrong. We noted that even though a number of companies have jumped on these runaway bandwagons, most have yet to grasp the reigns and take control of the wagon and get it on the right track.

Why is that?

Fundamentally, it’s the same reason that there are no world class Procurement Organizations in Asia Pacific — the classic Triple-T problem.

  • Talent
    the organizations don’t have the right talent to properly manage the initiative
  • Technology
    the organizations don’t have the right platforms to capture the right data and support the right processes
  • Transition Management
    the organizations don’t have the right processes in place to handle the necessary organizational shift to properly manage the initiative

Once the talent, technology, and transition management is in place, the organization has what it needs to fully embrace the initiative and take it to the next level. And do it right.

Where should your Supply Management Organization start? By identifying the core capabilities that are required in each “T” category and finding the right talent, technology, and transition management plan to support the initiative, the organization will be well on its way.

In the rest of this post, we’re going to talk about the requirements for an organization to get on the right category management track.

Talent for Category Management

Good category managers need at least the following hard and soft skills:

  • Analysis
    to determine the volume and spend in the category
  • Modelling
    to determine the major cost components, and cost drivers, of the major products or services in the category
  • Commodity Market Expertise
    in the major raw materials and commodities used in the production of the major products in the category
  • Stakeholder Management
    as savings and performance improvement will usually come from consolidating related items with a smaller set of suppliers, which is going to ruffle some feathers when some departments lose their coveted suppliers and supply relationships.
  • Negotiation
    since not only will the individual need to consolidate a set of commodity purchases with a single supplier, but the individual will also need to cut a good deal and maybe even convince the supplier to take some business it normally wouldn’t want
  • Change Management
    since good category management typically requires changing the way the organization conducts business today

Technology for Category Management

Appropriate technology platforms for category management will have at least the following features:

  • Spend Analytics
    with extensive aggregation, cubing, and filtering capability
    as the category manager needs to not only extract volume and spend, but identify related products and services based on components, raw-materials, and sub/related services
  • Should Cost Modelling
    which allows the category manager to understand not only what the product should cost but the primary cost components and the appropriate inputs to an optimization model
  • (Real-Time) Market Data
    which allows the category manager to track historical market trends and predict future prices to time the market if prices are volatile
  • Supplier Performance Management
    which allows the category manager to track and manage supplier performance
  • RFX
    to manage the data collection and track supplier bids and responses before and during negotiations

Transition to Category Management

In order to transition to proper category management, the organization needs to hire someone with good change management skills and give that person the tools he or she needs to get it done. That person also needs to be a natural born leader and someone who can work with teams to get it done.

This isn’t a complete (laundry) list of what is required for proper category management, but it’s a good starting point. Get the right talent, technology, and transition management in place, and your organization will be well on its way to category management success.

The Intersection of Talent, Technology, and Transition – How Do You Balance It?

Supply Chains run on talent, technology, and good transition management — but it’s a difficult recipe to get right because it not only requires the right mix, but the right execution because, just like a soufflé, the perfect mix can still fall flat. So how do you get the right mix? And how do you execute it properly?

Let’s step back a bit. For years, consulting companies and project managers said it is all about people, who do the work; process, that people follow; and technology, that people use to execute the process. And they were right. That’s a basic requirement for success in any company. But it’s not enough in today’s supply chains. And there’s two big reasons for that.

First, we’re not in the industrial revolution where economic growth depends on manufacturing which runs on a production line where you need a lot of workers who do well defined, easy to teach tasks. We’re in the knowledge economy where you need educated, innovative, self-reliant growth leaders who can do a wide variety of tasks, dependent on the situation at hand. Warm bodies in seats are not enough anymore — you need talent.

Second, with supply chains global and the participants many and dynamic, processes are no longer static as they were in the late stages of the industrial revolution where one company controlled the goods supply chain end-to-end and processes were well defined and relatively static. Now they are dynamic and have to constantly adapt as parties change, trade routes become temporarily inaccessible, raw materials and components become (temporarily) unavailable, and consumer demands and market availability changes. Static processes are not enough anymore, you need dynamic processes and transition management to manage them.

The only component that hasn’t changed is the technology component, because technology is constantly changing and you still need the most advanced technology, just like you needed during the industrial revolution to keep up with your competition. However, the technology is always in transition and if your technology is too far behind, you may not be able to compete even with the best talent and transition management to throw into the mix.

So we definitely need the right mix of talent, technology, and transition management to succeed — but how do we balance it in our supply chain to make sure the supply chain rocks (because we are the rock stars of the resource revolution)?

The answer is simultaneously ridiculously easy and insanely complex.

Alignment.

Your talent, technology, and transition management game plan must all be aligned.
What does that mean? We’ll tackle that in an upcoming series of Sourcing Innovation white-papers this fall, and offer a few hints over the summer. So, keep your eyes here!