Category Archives: Best Practices

Which Ideas Should You Have Stolen in 2013? Part II

Back in January, Stores Magazine wrote an article on “20 Ideas Worth Stealing in 2013” that had some ideas worth stealing by your Supply Management and Marketing organizations. But were they all worth stealing?

These articles sounded good on the surface, and were good when you dug in. SI would definitely recommend stealing these ideas if you haven’t already:

  • Meld Physical with Virtual
    This makes a lot of sense. Physical flows should be managed by virtual SaaS supply chain solutions that manage the information flow end to end. And wherever possible, technology that helps the consumer should be integrated into the process as well.
  • Healthy Choices
    In 2010 the CDC (Centers for Disease Control and Prevention) reported that 35.7% of adults are obese and 17% of children are obese in America. It’s just the right thing to do. And if you really want to be healthy, push GMO out of your supply chain. Just because you can splice DNA from completely unrelated organisms doesn’t mean you should. We still don’t know what the long term effects of GMO are. For starters, there was a time when lactose and gluten intolerance was rare. Now it’s common. That correlation is too hard to ignore. Plus the increase in cancer rates in countries heavily reliant on GMO food. It’s just an unnecessary risk.
  • Right-Size the Footprint
    It’s all about lean and sustainability. No waste, no unnecessary drain on the environment.
  • Add Zing to Rewards
    Whether it is for consumers to drive loyalty to your brand, or for your employees to encourage greater drive towards success, zing helps.
  • A Wink and a Nod Toward Innovation
    Innovation is key, but sometimes the only way to succeed if it’s new to you is to take baby steps.
  • Seniors as a Featured Attraction
    All too often, experienced personnel are pushed into early retirement in short-sighted corporate efforts to reduce costs. All this does is push experience and wisdom out the door. Experience and wisdom need to be retained. New employees bring new energy, methods, and technology — but without experience and wisdom to guide the proper implementation, it will be wasted energy, methods, and technology. So focus on the wise inside and outside of your organization and you might find that your potential soars.
  • Flexible Format
    As market and supply chain conditions change, you need the ability to adapt.

So, were these all of the ideas that were good? Come back tomorrow to learn more.

Which Ideas Should You Have Stolen in 2013? Part I

Back in January, Stores Magazine wrote an article on “20 Ideas Worth Stealing in 2013” that had some ideas worth stealing by your Supply Management and Marketing organizations. But were they all worth stealing?

Even though they sounded good on the surface, SI would not have recommended stealing these ideas:

  • Offer More Options
    While it might help a new startup break into the market, options add complexity, complexity adds cost, and unless you are serving the luxury marketplace, your corporate sustainability could be put at risk. And SI is not too fond of unnecessary shipping of product back and forth – that’s just not green.
  • Picture Success
    A picture may be worth a thousand words, but you need the words – in particular, you need the strategic transformation plan to get there, whether we are talking about a new marketing initiative or a new Supply Management initiative.
  • Social Crowd-Sourcing
    Offering progressive discounts against unknown inventory might get attention in the consumer world, but it also risks creating unhappy customers if you greatly underestimate demand. Similarly, how long would you deal with a supplier who would never commit to a price or an inventory level? Especially if you valued your CBI insurance!
  • Place Ad Here
    While using existing programming may sound like a good idea to get your message out in the Marketing world, you risk alienating your customers that do not want to be exposed to advertising in the few aspects of their lives that are still free from advertising. And there is no equivalent in Supply Management that would make any sense at all.
  • Quality Facebook Time
    Facebook is the New Egypt. We don’t need to go back in time thousands of years to when civilization was just learning to preserve its accomplishments for posterity. ‘Nuff said.
  • Friends Helping Friends
    If you don’t know what you need, then you shouldn’t be making a purchase. Period. This is a ridiculous idea.
  • Bring the Runway to the Consumer
    If you suspect demand is going to be high, and that consumers are not going to want to wait long, then don’t advertise your product until you know what the fulfillment date will be. It’s that simple. There’s a point where acceleration becomes so fast that consumers and suppliers can’t keep up. Remember that.

So, were all the ideas bad? No. Come back tomorrow to learn more.

Squeezing the Most Out of Your Supply Chain

Supply chain investment is finally on the rise again, but many companies are finding that effectiveness still declines over time after the introduction of a new solutiould be n, be it technology, business process, outsourcing, or some combination thereof. Why is your average supply chain, which, by now, should be powered by best-of-breed technologies, still not operating at peak efficiency? I’d argue that there are a number of reasons, including a continued lack of proper visibility, a continued lack of proper monitoring processes, and a continued lack of proper training, but a classic article in Supply and Demand Chain Executive takes a different twist. In “Squeezing the Most Out of Your Supply Chain”, the author, who notes that it is likely that your average supply chain is not operating at peak efficiency, indicates that a supply chain opportunity assessment can help you you determine if, and where, this is happening. This would imply that one of the reasons your supply chain is still not efficient, five years later, is that your average company probably doesn’t know where it should be focussing and that the systems it is employing might not be the right systems or the systems the company needs the most. Given that very few companies do detailed assessments before deciding what they need, instead waiting for a major disruption or fiasco that needs to be dealt with reactively, SI has to agree.

A supply chain opportunity assessment gives your company a complete look at the overall state of one of its most critical functions and provides your company with a comprehensive list of opportunities for improvement. With this knowledge, your company can define a set of actions to improve its operating efficiency and ensure that its supply chain is properly designed to support growth and flexibility to prevent supply disruption.

A supply chain assessment is a straightforward process, which, as per the classic article, can be boiled down to a succinct series of steps.

  1. Define the scope.
    Business Unit or Entire Operation? Subset of processes or full spectrum? Although you should assess your entire supply chain, it’s often best to start small, focussed on key areas, to generate some initial improvements and wins that will fund future assessments.
  2. Examine the ongoing challenges in your business model.
    Document how information, materials, and financials flow through the organization and review the metrics that are being used to evaluate effectiveness. This will help to reveal the challenges.
  3. Identify key issues impacting performance and perform a root-cause analysis.
    Also be sure to compare the company’s existing processes to industry best practices. This will help you zero in on the real improvement opportunities.
  4. Identify and prioritize opportunities.
    Determine the potential business impact of each opportunity and the relative ease with which they can be realized. Then select the most valuable ones and start with those.
  5. Develop a solutions roadmap.
    Once you’ve identified the appropriate improvements, develop a roadmap that outlines the project plan, estimated timelines, and expected costs. And follow through!

Still great advice, and advice every Supply Management organization should take.

P2P: Points 2 Ponder when People are Pushing Off Procurement Platforms

As far as SI can tell, not enough companies are using good, modern, fully electronic, Procure 2 Pay technologies when they should be. Even worse, many of these companies have realized the importance of good Supply Management and adopted modern e-Sourcing and Supplier (Performance/Information/Risk) Management software. But that’s not enough. SI has been ranting for years about the fact that it’s Sourcing AND Procurement and that if you don’t implement the full cycle, you’re not only leaving savings on the table but failing to capture all of the value available to you.

Why are otherwise smart, moderately progressive, companies doing this? Because they have deep concerns that the platform won’t do what they need it to do and fears that the only reason these platforms exist is to eliminate their jobs the same way machines and automation have led to our manufacturing woes. And while they have good points, since some of the early solutions didn’t do everything they needed to do in order for the company to obtain the promised benefits, and since automation typically leads to elimination of workforce in the function, when you look at some of the current solutions and look at the goal of Procurement in the right light, their points are no longer valid.

Nevertheless, if the points of trepidation are not addressed, the solutions won’t be considered, the function will not advance, and, vendors, you won’t survive. So, because SI encourages the proper use of technology platforms to increase efficiency, eliminate non-value-add tactical tasks, and augment the capability of your workforce (which is different from replacing it), SI is going to give the vendors building these solutions a helping hand by identifying the common trepidations, the solution requirements needed, and, as a result, the message you have to get across to calm the prospective buyer’s nerves (provided, of course, that you do have the solution requirements).

Trepidation # 5: It Won’t Save Money. There will always be exceptions to manage, suppliers who can’t use it, and administrative requirements and the costs will just be shifted.
Many early systems claimed big savings, typically in the 80% range, but never really delivered. The reality is that if the organization still has to support offline paper processes, still has to review all the invoices for errors, has to have an IT person administer the system, etc., the costs just shift. A modern P2P system has to support, and be usable by, all suppliers (and not just the top X that constitute 80% of spend), has to automatically detect errors and unmatched invoices, and has to be low, or no, cost to administer for the 80% savings to materialize. Otherwise, the buying organization won’t be able to achieve the 5X ROI the system is supposed to deliver and will not want it.

Trepidation # 4: We use X for purchase orders and / or Y for payables tracking. We can’t replace these systems.
A lot early systems expected that they would be the system of record for whatever the system did, and that all the system had to do was export the payments to a flat file for importing into the finance system. This is not the case. The platform has to integrate, in a straightforward manner, with the systems the buying organization uses for Purchase Orders and Inventory Management and the systems the buying organization uses for Accounts Payable.

Trepidation # 3: It Won’t Work For Us. Our Processes are Unique.
A lot of early systems followed the Henry Ford philosophy in that “you can have any colour as long as it’s black”. This doesn’t work for organizations that have distinct invoice approval workflows, distinct payment procedures, and different master-data storage policies. While the basic workflow is the same at a high level, it is different in the implementation across companies and the platform needs to support workflows that can be customized.

Trepidation # 2: Our Suppliers Can’t Use It / It’s Too Much Work for Our Suppliers
A lot of early systems took the view that “we have a portal that accepts EDI format and that’s good enough”. The problem is that supply organizations, like buying organizations, have different systems and different processes and, typically, don’t have the manpower to support a different invoicing mechanism for each customer and, frankly, won’t. The system has to support the common processes and technologies used by suppliers in the buyer’s market. A few (small) suppliers can be given a single “portal” solution, but this has to be a minority.

Trepidation # 1: They Took Their Jobs and Now They Will Take Our Jobs!
A good P2P system, which is exception-driven and requires a buyer to only manually review invoices that don’t match POs and / or exceed a certain dollar value, and which provides mechanisms all suppliers can use to submit electronically, should reduce the tactical invoice processing effort by 80% or more. This means that if the people doing the invoice processing had no other skills, then 4 out of 5 would lose their jobs. But if these are true procurement people, their job function would just be shifted to a more strategic role as redeploying these resources to spend more time on strategic supplier management, category management, and risk management would provide the organization with a value that (far) exceeded their cost. You don’t get rid of smart people just because you got a new system. You just ask them to deliver more, which they can do thanks to the new system.

Procurement KPIs and Business Acumen – A Review, Part III

Next Level Purchasing (NLP) recently released a new four-part express course on “Procurement KPIs and Business Acumen” that is available to all premium Next Level Purchasing Association (NLPA) members for free (and to all free NLPA members at a one-time price of 54.99*). In SI’s opinion, this course meets it goals of delivering one of the key lessons a Procurement department needs to master to be seen as strategically contributing to the organization given the current view of Procurement’s role, does a great job of defining business acumen and relating it to a function Procurement should understand well (Sales), and does a deft job of indicating how properly defined synergistic KPIs can generate compound effects and deliver greater results than non-synergistic KPIs. But more importantly, as indicated in Part I, it develops and presents a basic, generic, framework that ties together the key synergistic KPIs for any Procurement organization that can be used by an Procurement Professional. This framework, which is beautiful in its simplicity, is the most innovative encapsulation of a core idea that I’ve seen from a purchasing organization, analyst firm, or consulting organization in years!

That framework, as we mentioned in our last post, is the Procurement Funnel. This funnel, which can be used by any organization to accurately determine it’s contributions that go straight to the bottom line, takes in the universe of total organizational spend and squeezes out the realized savings that Procurement is measured on, just like the Sales funnel takes the universe of potential leads and squeezes out organizational customers. The only difference is while a basic sales funnel can have as few as three tiers, the Procurement funnel requires five tiers.

  • Total (External) Spend
    The total expense incurred by a company over the course of a year. The base definition of total spend would also include things like salaries, etc. that Procurement does not, and will never have, control over (which is why SI believes this top tier should be external spend <sup**< sup=””>). </sup**<>
  • Spend Under Management
    The percentage of spend under the control of the Procurement organization. Should be a significant amount of total (external) spend, but may not be.
  • Addressed Spend Under Management
    How much of this spend the Procurement organization has actively sourced (or has under contract from a previous year).
  • Negotiated Savings
    The year-over-year savings the Procurement organization was able to negotiate on the addressed spend under management.
  • Realized Savings
    How much of this savings was actively captured (and did not get lost in maverick spend).
 The Procurement Funnel

This funnel is accurate regardless of the industry your Procurement or Supply Management organization is in, and the four implied synergistic KPIs — % Spend Under Management (SUM), % SUM Addressed, % Savings on Addressed Spend, and % of Realized Savings — are universal. Organizations in different verticals may have different KPIs around New Product Development (Influence), Supplier (Performance) Management, etc., but these spend related KPIs are universal and a great starting point. And improving two or more of these KPIs has a significant compound effect on the bottom line performance of the Procurement / Supply Management organization.

For more details on how to accurately compute each category, compute the KPIs, improve the KPIs, and address the organizational issues that could inhibit your ability to improve the KPIs, take the short course on “Procurement KPIs and Business Acumen” , which will also help develop your Procurement Acumen, your ability to distinguish KRIs from KPIs, do the math that will help you figure out how to make the greatest impact, and give you some techniques to achieve a higher percentage of cost savings on sourced categories. There’s only so much justice a 3-post review can do to a four-part, fifty-page short course.

* Note that premium NLPA membership is only 99.99 annually and grants you access to all nine express course series (of one or more courses) as well as the full NLPA library. SI would recommend that you consider premium membership if you are interested in multiple resources as it is much cheaper than paying by the drink.

** Internal spend is compensation and controlled by a compensation committee, while external spend, regardless of it’s nature, should be influenced by Procurement.