Category Archives: Best Practices

Stagnant Sourcing, Part II


Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC and co-author of “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing”.


In yesterday’s post, Joe began to address the fact that despite the clear path laid out before them — the path of “take a strategic approach, see positive results” — many procurement groups are still falling behind and failing to do just this. He noted that while the reality of the situation is different for every organization, there are some trends that weigh more heavily than others and discussed two of these trends. In today’s post, he discusses two more.

Lack of Skill Sets and Vision

While everyone might jump on board and say they do not have the proper resources, this reason is a little harder for some to admit. A large portion of procurement groups are operating without the analytical skills and foresight necessary to implement more strategic initiatives. While some might see this as the result, or the validation, of Jack Welch’s infamous quote, it is also due to the traditional role procurement currently plays or has played for most of the department’s existence.

In many companies, procurement is nothing but a rubber-stamp — just another step in the issuance of a purchase order. In others, they may have implemented a three-bid process or another similar purchase control method to try and secure savings, at which point they become viewed as not a rubber stamp but as a hindrance — not a step in the issuance of a purchase order, but a hurdle. And I will stop for a second and explain that procurement is not always pigeonholed into this tactical role because it is all they can do. This tactical limitation is often just as much an indictment of a failure by management to capitalize on the full abilities of all of its resources as it is a statement on the limited capabilities of procurement professionals.

Skills carried over from education and prior experience are not like riding a bicycle. These skills fade and fall away. This limited role, when performed for a long enough period, can limit the effectiveness of any prior analytical skills that fall outside the needs of the assigned role. Luckily, one of the benefits attributed to the rise of Supply Chain Management programs at major universities is the resultant increase in incoming supply chain personnel with college-honed analytical skills tailored to the procurement industry.

Procurement may soon be equipped with the skilled resources needed for strategic changes.

Management Is Not Interested

A final hurdle for procurement groups looking to make a strategic leap is disinterested leadership. Executive management, whose approval is and would be needed for a procurement group to “resource-up” and/or take on new challenges, might not think procurement is capable of such initiatives. Alternatively, leadership may be disinterested due to their inability to see the benefits to procurement taking on strategic endeavors. This can be frustrating, but it can be solved.

Disinterested management has to be persuaded, and the easiest way to persuade is through a prolonged effective internal marketing campaign. Reports should not be seen as an administrative chore, but rather as an advertisement for a procurement department. Operating transparently should not be seen as micromanaging, but as a way to actively show interested parties how effective the procurement department can be. Other successful procurement groups — when they make the news — can also be used as leverage to convince an otherwise-disinterested leadership group that strategic procurement endeavors can be worth the investment.

Additional marketing methods could include a training program designed to mitigate the frustration that comes from procurement’s involvement with some stakeholders. One of the most effective methods is securing a “bell cow”. A procurement department wishing to be given a more strategic role should identify an influential stakeholder and work to get that person onboard with their efforts. They should then use that person as a cheerleader for the group.

Wrapping Up

There is no single reason why procurement groups do not undertake strategic endeavors, just as there is no single party at fault. However, the evidence is mounting that those procurement groups that do not set themselves up strategically will face a widening gap between themselves and the best-in-class operations.

Thanks again, Joe!

Stagnant Sourcing, Part I


Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC and co-author of “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing”.

Late last year, I wrote about the “evolution” of procurement — how the department’s practices have moved from simple purchasing, to strategic sourcing, to category management, and to a level of control and strategic involvement that I called “change management”. In the conversations that stemmed from the article, both on- and off-line, I heard from many people out there that organizations don’t need to worry about “change management”, or even “category management”, yet. Many purchasing groups still struggle with implementing any strategic change at all.

This is troubling. If you have read anything related to procurement/supply chain in the last decade, you know that procurement’s ongoing success is tied to strategic improvements. Not only has this been preached, but it has been realized at best in class companies like Apple and Toshiba, where procurement took on a strategic role, optimized supply chain operations to the extreme benefit of the company, and saw executive leadership incorporate procurement leaders more openly. As you are probably aware, both Apple and Toshiba’s current CEOs were formerly CPOs at their respective organizations.

So with a clear path laid out before them — the path of “take a strategic approach, see positive results” — why are so many procurement groups falling behind and failing to do this? The reality is the situation is different for every organization, but over time I have seen a few trends that weigh more heavily than others.

They Think They Are

One of the most common objections lobbied from stakeholders when Source One is brought in to pitch our services is “We are already doing that” or, worse, “We tried that already and it didn’t work”. If brought out early into the pitch, it is clear that the objections are being lobbied by someone protecting their turf, or who sees our being there as an indication of their poor performance. As you drill in on these concerns, you will normally find they are an indication that there is a fundamental confusion regarding what strategic endeavors actually entail.

So, to clarify: A three-bid process is not strategic sourcing. Subscribing to an index on its own is not sufficient market intelligence to make informed decisions. As I have stated previously here on SI, supplier management software is not strategic supplier relationship management.

It is inefficient to continue to dedicate resources to an issue if you believe it is resolved. Procurement groups that mistakenly believe they are engaging strategically are not going to commit resources to actual strategic endeavors, and their failure to act is to their detriment.

Lack of Resources

If a procurement group is cognizant of the tactical nature of their current practices, they still face an obvious hurdle. Despite the numerous ads and pitches from software and service providers, strategic initiatives require significant resources to design, implement, and carry out. These are resources that most procurement groups simply do not have.

We did a survey of procurement professionals a little over a year ago and released the results throughout the spring and summer of last year. The first paper was on resource shortages, and the big number was that 30% of all procurement groups feel they are understaffed. Digging deeper for statistics more relevant to strategic endeavors, 34% of all polled procurement groups have zero resources dedicated to strategic activities, and 52% of all polled groups have less than half of their resources working on strategic endeavors.

While the need for strategic action may be evident, many procurement groups simply do not have the resources available to commit to the development of these long-term strategic initiatives.

“Engineers who can’t add, operators who can’t run their equipment, and accountants who can’t foot numbers become purchasing professionals”
— Jack Welch

Thanks, Joe! I bet our readers can’t wait for Part II tomorrow!

Want Lean Success? Get Lean With Your Lean!

Inbound Logistics recently published a short article on How to Deploy a Successful Improvement Program that chronicled the advice of APL Logistics’, who saved 30M through continuous improvement initiatives, foremast Lean/Six Sigma/JDI professional that had some really good advice.

To summarize, the article outlined a five-step method for deploying a successful improvement program.

  1. Choose One Quality Discipline and Focus On It
  2. Choose And Deploy Your Preferred Training Model
  3. Select the Right Members For Your Project Teams
  4. Choose the Right First Projects
  5. Continuously Improve Your Odds of Program Success

Two of these tips in particularly are especially poignant. In particular, tip #1 and tip #4. The secret to success is focus, focus, focus. Don’t try to adopt too many initiatives at once and don’t try to take on too many projects at once. Just like too many cooks spoil the broth, too many initiatives spoil the effort.

Lean projects, like any other type of improvement project, take effort to accomplish, and there is only so much effort that can be applied to any project. Thus, undertaking multiple types of improvement initiatives splits the effort that can be applied to each, and reduces the chances of success.

Similarly, undertaking multiple projects simultaneously reduces the effort that can be applied to each project, and extends the amount of time required to complete it. If a project takes too long, the chances of it being cancelled before it is completed increase, and, thus, the chances of failure.

When a new effort is undertaken, success often depends on a quick win, and a quick win depends on selecting a project that can be completed in the effort available — and focussing all of the effort available to make it a success. This means that the last thing you should do is start a second effort half-way through the first in an attempt to duplicate a success you do not yet have. Get one success, then start another project. Get another success, start a third project. Once you have a pattern of success under your belt, you’ll get more support (in the way of effort available) and then you can start multiple projects. Until then, get lean with your lean initiative.

4 Strategic Sourcing Mistakes Businesses Should Avoid Courtesy of the Strategic Sourceror

The best way to get out of trouble is to avoid trouble in the first place. In a recent blog entry on the Strategic Sourceror on “4 strategic sourcing mistakes”, it outlined four common mistakes that a company can avoid to minimize poor spend management and operational efficiency.

Overlooking the Importance of Supplier Visibility

Having a clear understanding of supplier practices is essential in evaluating the risks and possible sources of disruption that are inherent in sourcing partnerships. Blindly entering a relationship with a supplier may result in a procurement strategy that is misaligned with business goals, and this could result in slashed profits in the future. For example, the strategy could be high quality to support the brand, but the end result could be poor quality and the resultant impact to the brand from the high defect rate could result in lost sales and slashed profits.

Failing to Emphasize Results

Because Procurement resides in the back office, it is often tempting to think of it as a service function and not a driver of productivity and profit. It’s critical to focus on real, measurable, and substantial results and communicate the message to the rest of the business. Like any business process, procurement management needs to impact the bottom line. When it does, and the message is communicated, Procurement, unlike Rodney Dangerfield, will get more respect.

Overlooking Contracts

Without written contracts with specific language, businesses won’t have adequate protection if a supplier relationship goes sour. That’s why contracts should be reviewed by a corporate lawyer before being signed. But just getting the contract right isn’t enough. It’s also important to make sure the terms are followed, rebates and discounts are collected, and contracts are renegotiated and not allowed to go evergreen.

Permitting In-House Inefficiencies

An inefficient internal procurement process can limit firms’ ability to obtain the goods and raw materials they need in a timely fashion. Be sure to install the appropriate e-commerce tools that will help a company identify potential suppliers, execute RFxs, conduct auctions, optimize awards, and strategically manage the maximum number of categories.

The Best Leadership Lesson

Brought to you by one of the greatest Comedians ever. John Cleese, in his recent Life’s Work interview by Adi Ignatius (and available on HBR.org), defines a true leader.

In the book Life and How to Survive It, which I developed with Robin Skynner, we decided that the ideal leader was the one who was trying to make himself dispensable. In other words, he was helping the people around him acquire as many of his skills as possible so he could let everyone else do the work and just keep an eye on things, minimizing his job and the chaos that would come with a transfer of authority.

‘Nuff said.