Category Archives: Best Practices

Don’t Forget The Post Mortem in Your Strategic Category Management of Services!

A couple of weeks ago, after running our series on Strategic Category Management (Part I, Part II, Part III and Part IV), we said Don’t Forget Strategic Category Management in Your Services Categories. This was because a lot of organizations believe that strategic category management is only for direct categories or physical goods, when nothing could be further from the truth (especially when indirect spend can approach 50% in some organizations).

In this post, we outlined the nine phases of strategic category management and how they relate to services categories. Although we did not make Post Mortem a separate phase, it is still a critical part of the process. In fact, it’s one of the most critical parts – because if you do not analyze how you did, you will not improve the next time around. So why isn’t it a separate phase? Two reasons. One, it’s a required input to the first, rationalization, phase because if you don’t do a post mortem and analyze how well the last strategy worked, you can’t be sure if it was the right strategy or not. (The fact that the results were not what you expect is not sufficient to declare a strategy incorrect. Maybe the team didn’t follow though on the strategy as required in each phase.) Two, and this is the real reason, you should be doing a post mortem after each phase. Face it. If you’re procuring discovery services for the next three years, and you wait until thirty-three months in to start the post mortem, how well can you reasonably expect to assess the job you did in the supplier identification and sourcing phases three years earlier, when half of the team has changed, memories has faded, and a lot of the details of the process has been lost? Here’s what you should be doing from a post-mortem perspective at the end of each phase.

At the end of the rationalization phase, you should be documenting not only what strategy you are pursuing, but why. What are the assumptions you are making that favour this strategy? What other strategies did you rule out and why? (If it turns out an assumption was wrong, then another strategy might have been viable and you will have saved work the next time around.)

At the end of the supplier identification phase, you should document how you conducted your search and how effective you were at identifying additional suppliers. How long did it take, how many new suppliers did you uncover, what percentage were suitable to push to the sourcing phase, etc?

At the end of the sourcing and contract award phases, document the process that was followed, how long it took, what seemed to work well and what didn’t, and anything you wish you would have done (differently).

During the supplier management phase, which is ongoing from contract award until the end of recovery, conduct regular supplier assessments and thoroughly document the results against well defined metrics, any benchmarks you have, and any expectations that were included in the contract. For each issue, document the root problem, what you did to address it, and what you think you could have proactively done to prevent it.

During the procurement phase, review actuals to expected at the end of every quarter. (This will be “easy button” simple if you have a decent e-Procurement system that allows you to define budgets at the line-item level.) For all line items that are off more than 20%, do a quick manual review to identify any that aren’t easily explained (a payment slipped, you moved some work back, you ordered extra inventory as a precaution, etc.). Dig into these. If they can’t be adequately explained in five minutes, someone didn’t do a good job of budgeting or project management. This needs to be identified and documented as part of supplier management.

Then, at the end of the phase, and before you execute a new sourcing event, you need to do a more detailed analysis. At the very least you should:

  1. Run the spend reports on your complete transactional data
  2. Compare the results to your original spend analysis data (which was likely incomplete if this is the first time you are doing strategic category management)
  3. Focus on the gaps – where the data does not match, is it because you brought new spend under management or is it because there was some off contract spending
  4. Focus on the differences that are +/- 20% (adjusted for inflation or demand, as required) – for each difference that was not already detected and adequately explained, do a deep dive
  5. For each gap and each difference >= 20%, document what could be done to prevent this in the future – better forecasting, new processes to keep purchases on contract, better supplier / demand management, etc. and what changes, if any, are required to the overall strategy

This is the phase where you “close the loop” and begin to loop back to the next, hopefully better, iteration of the strategic category management cycle. If the loop is not closed, spend under management will not effectively increase and the organization will only see savings the first time. If the loop is effectively closed, then, when inflation and demand is adjusted for, the company will see savings each time through the process as efficiency, in both the buying and supplying organizations, is increased (and unnecessary fat is taken out of the margin).

During the recovery management phase, you have to document what actions you take and how well they do.

Don’t Forget Strategic Category Management in Your Services Categories!

Even though there is no inventory, nothing physical to return, and very few recovery opportunities available, even if the supplier fails to perform, you still need to manage your services categories strategically. Why? As per the Hackett Group Spend/Savings Visibility Study (in 2010), 48% of indirect expenditures (composed of T&E, Marketing Spend, Logistics Spend, and Professional Services) are primarily services-related, and an additional 35% (composed of IT/Telecom) are largely-services related.

Furthermore, when you consider that, in some organizations, indirect spend can approach 50% of spend, and that the organization is often left with nothing tangible to show for the spend when all is said and done, strategic category management becomes even more critical on these categories. And extra attention should be focussed on the seven steps that come into play.

Phase 1: Rationalization

When it comes to services, you need to not only analyze your options from multiple perspectives, but consider different strategies. While it is often beneficial to dual-source from a product perspective, to insure continuity of supply, dual-sourcing from a services perspective is often detrimental. For example, hiring two agencies for a marketing campaign is a waste of money, and if, by chance, your cell phone carrier goes out of business, there are at least six more to pick up the business the next day. You will likely need to single source, so you need to do so with care.

Phase 2: Supplier Identification

Not only is it important to open up your search, but it is important to qualify your options more completely. For example, where Marketing is concerned, if the primary need of Marketing is brand building, then the focus should be on agencies with that specific specialty. If the primary need for management consulting is to help the company with international expansion, you need to find a consulting organization with expertise in the target market – and it may not be a Big 5.

Phase 3: Sourcing

Unless you have an in-house expert, you will likely need to call in an expert if you want to get the best deal. Services, and services firms, have their quirks that you will need to understand intimately to get the best deal. For example, in advertising, bundling creative and print is not likely to save you money, as savings in print come from consolidated volumes with a single print house, and volume comes from consolidating orders across campaigns. In Logistics, the best deals are often found on the spot-market, especially if you have a little leeway in delivery schedules. In Telecom, you’ll get a great deal on the most common base package for your mobile devices, but the outliers who go over or who need the high-end packages will be laden with 100% profit margins to help the carrier make back what it gives up on the base. And so on. You need to know the gotchas, and how to avoid them.

Phase 4: Contract Award

The contract is very important, and detailed delivery and performance requirements are a must, otherwise, you’ll have no recourse if the service provider fails to deliver. In agency spend, make sure you have fixed delivery dates, penalties for late delivery, and termination clauses for repeat offences. In print spend, make sure you have contracts that state you don’t pay for their mistakes. In telecom, make sure there are no-pay clauses that state you don’t have to pay after notice of termination is given, even if they forget to deactivate the device/account for 30 days, and that you can apply rebates immediately. In professional services, make sure you have the right to withhold final payment until the final deliverable has been completed and accepted.

Phase 5: Supplier Management

Supplier management needs to be more active than it does in product-based supply chains. In a product based supply chain, once the chain has been worked out, and the first batch of products has been accepted as meeting quality standards, visibility solutions, that inform you of a potential hiccup, can often minimize the need for day-to-day interaction with the supplier until a change is required. No news is often good news. Not so with services. No news is almost always bad news. It typically means things aren’t going to plan and the supplier is trying to avoid telling you. If you aren’t managing the supplier and monitoring the situation, it’s likely that you won’t find out until it’s too late.

Phase 6: Procurement

It’s very important to send a purchase order with a clear statement of work, approved amounts, a payment schedule, and specific instructions (and account codes) for the invoice. It’s critical to capture the correct data for reconciliation, reporting, and evaluation purposes. If you can’t compare approved budget to actuals, you really don’t have a good grip on what your services are costing you.

Phase 9: Recovery Management

If deadlines are not met, overpayments are (accidentally) made, discounts aren’t applied, or other terms and conditions are not met, you will need to recover monies from the supplier. If you have cut a proper contract, appropriately managed the supplier, and procured properly, recovery will be possible (although you may have to threaten / go through with arbitration and/or legal action with suppliers unwilling to cooperate — but be sure you’re ready to sever the relationship before progressing to legal action).

Want to Get Ahead in your Supply Management Career? Read!

CEO.com recently released a short study on “CEO Information Consumption: How Business Leaders Stay Informed” that contained the results of a joint study by CEO.com and Domo who surveyed more than 350 chief executives. With the goal of finding out how CEOs consume information, the study made one thing crystal clear for anyone looking to get ahead in their career. You have to read!

Consider the following responses to the question that asked what forms of media do you (as CEO) prefer?

  • 02%: Podcast
  • 08%: Video
  • 18%: Inofographics
  • 22%: No Preference
  • 57%: Text

In other words, a total of 75%, or 3 out of every 4 CEOs, prefer to read. They don’t waste time on Youtube or Riotcast, they read. And, 3 out of 4 CEOs mostly consume information online! So read this blog, Supply Chain Matters, CPO Rising, Strategic Sourcing, and others that bring you education and insights on a daily basis and prepare yourself for career progression!

What else should you read? Based upon the top 10 business related searches for CEOs, you should also read:

  1. Supply Chain News
    You may live and breathe supply chain every day, but sometimes it’s easy to get trapped in the trenches and fall behind on what’s happening in the marketplace. Good sources included Procurement Leaders, the Supply Chain Management Review (SCMR), and Spend Matters.
  2. Market / Industry Trends
    It’s important to come up from the trenches on a regular basis to see where the industry is going and prepare yourself when it gets there. Good sources include The Economist, the ISM, and MetalMiner.
  3. Supply Chain Insights / Expert Advice
    Chances are that your organization, even if you think it’s above average, is only average. An organization only remains above average if it is continually improving, and that requires fresh insights on a regular basis. Good sources include Tompkins International, Supply Chain Shaman, and Supply Business (the former CPO Agenda).
  4. Technology Trends
    Technology drives the modern supply chain. Good sources include The MIT Technology Review, TechCrunch, and this blog*.
  5. Marketing Trends
    The lifeblood of a company is cash flow, and that comes from sales, generated by marketing. Getting a grip on what marketing is likely to be doing is key to cementing Supply Management’s place as the go-to organization for help and advice, which is where you need to be to get that critical spend under management and increase the value-add of the products and services you source. Since “good marketing” is largely a matter of opinion, I’m not going to direct you to any specific resources but advise you to get multiple inputs and take everything you get with a few grains of salt.
  6. Competitor Analysis
    You don’t necessarily need to keep up with the Joneses, but you should be aware of what they are doing. For this, you will need to work with the analyst/market research firms and keep an eye on import data. SI recommends The Hackett Group and Supply Chain Insights in the former case and you can look to Zepol and Import Genius in the latter.
  7. Case Studies
    Good case studies can often provide deep insights into improvement. In this case, look to the leading publications (including the SCMR and Supply Business (the former CPO Agenda referenced above)), purchasing associations (such as the Next Level Purchasing Association [now the Certitrek NLPA]), and leading Sourcing and Procurement Vendors (including SI sponsors BravoSolution and Wallmedien).
  8. Executive Lifestyles
    While SI doesn’t recommend spending too much time on this one, because, even if you are a CPO, you probably don’t have much time to enjoy the executive lifestyle, it is important to understand what executives like to do in their spare time so you can relate to them when you get the opportunity. Once they see you in a positive light, that light may carry over to what you do (and help you close the disconnect). **
  9. Webinars / Virtual Tradeshows / Events
    Busy executives don’t have a lot of time to travel to many events on top of all of the business travel they already have to do, and neither do you. So webinars are a good way to consume information quickly when you have a lunch hour free, for example. (Archived webinars are even better as you can scan the presentation and focus in on the key parts that are relevant to you.) Vendor web-sites are a great starting point for free (archived) webinars.
    Where events are concerned, focus on conferences that revolve around education, and not vendor offerings. And avoid the big expos like the plague (that they are a breeding ground for). Smaller groups allow for more interactive workshops and knowledge sharing between attendees, and tend to attract more senior, more experienced, and more career-focussed people. Procurement Leaders Conferences and the Next Practices Xchange are good examples of this type of event, and the upcoming Next Level Purchasing Association Conference should prove to be as well!
  10. Speeches / Panel Discussions
    This is really a continuation of #9 and the search for knowledge. Don’t be afraid to branch out from Supply Management to spark the creative juices and ask TED.

Finally, when it comes to social media, take a tip from the CEOs and stick to LinkedIn. Most CEOs, especially those over 50, don’t waste any time on Facebook or Twitter.

* (the doctor does have a PhD in Computer Science!)
** Apparently, executives spend a lot of time thinking about their shoes. the doctor would like to think this is not the case, but considering that Jason Busch, founder and Editor-in-Chief of Spend Matters, has felt the need to educate the reader about shoes on multiple occasions (including posts about business shoes and shoe lessons), it probably is. 🙁

How Do You Support Marketing? Get a Grip on Agency Lifecycle Management, Part II

In our last post we explained that even though Marketing thinks its spend is sacred cow spend, it’s really not and that proper Agency Lifecycle Management techniques can be used to get a grip on marketing agency spend and manage it through the services lifecycle. We also explained that basic Agency Lifecycle Management consisted of four necessary steps: selection, scoping, briefing, and evaluation. In this post we’re going to dive a little bit deeper into the requirements of each step as Supply Management will not be able to support Marketing in Agency Lifecycle Management, and get its hands on that sacred cow spend, unless it has the appropriate processes and technologies.

Selection

In order to support the selection process, Supply Management will need to use a full featured RFI solution that can capture, at a minimum, the following agency information for each agency under consideration:

  • firmographic data, including location, size, financial health, ownership, and affiliations
  • (core) capabilities and resource availability
  • (primary) and secondary specialties, and the relative percentage of business
  • experience in the vertical(s) of interest
  • (major) clients and (potential) conflicts

In other words, before a selection can be made, a rather complete profile is needed to narrow in on the agencies that are not only capable of doing the work, but appropriate with respect to the target mediums, populations, and desired branding. For complex requirements, you almost need a SIM application to capture, store, and analyze all of the data.

Scoping

Where Agency selection is concerned, it’s not as simple as just identifying the agencies that could do the work, it’s finding an agency that can do the work, do the work the way the Marketing department wants it done, commit the resources the Marketing department is acceptable with, and do so in the requisite timeframes. Where as any Tom, Dana, or Harry, at least in the eyes of a Marketing Department, can sweep a floor or use a copier, not just any Tom, Dana, or Harry is going to come up with that killer campaign. For that, you need a Sven, Celine, or Giorgio.

This requires, once potential candidate agencies are selected, the provision of a detailed scope of work and the collection of detailed responses to the scope of work that outline who the Agency has that can do the work, what the resources can do, when the resources can be devoted to the project, where the work will be performed, how the Agency intends to reach your target audience, and why the Agency is the best for the job at hand. This will require some back and forth negotiation until the response is acceptable to Marketing and the scope is acceptable to the Agency. Then an agreement can be cut. Then it’s on to the

Briefing

In the briefing phase, the scope of work is further refined to provide the Agency with details on demographics, target audience, budget, and desired creative elements for the current phase of the marketing campaign. Typically, the scope of work will be for the entire campaign and then a detailed briefing will be provided at the start of each phase. The Agency will then respond with any additional requests for clarification or refinement, some back and forth may occur, and then they will produce and, after the requisite review(s), deliver the work for the phase.

Evaluation

Marketing should be reviewing the results after each phase, particularly where the budget is concerned. If the scope of work was for a one year campaign, with a new set of tv, radio, and online advertisements each quarter, and halfway though the year the Agency has blown three quarters of the budget, something is very wrong. Marketing has to keep a continuous eye on budget, timelines, and (any measurable) results on a regular basis, and make sure everything goes to plan. This is where Supply Management, and it’s best practice Supplier Relationship Management and data analysis skills, can really help Marketing.

If Supply Management can effectively support each of these phases, then chances are it can effectively support Marketing and get some control over that sacred cow spend.

And if it doesn’t have the processes and tools it needs, there are Agency Lifecycle Management solutions on the market.

How Do You Support Marketing? Get a Grip on Agency Lifecycle Management, Part I

For many Supply Management organizations, Marketing is one of the sacred cow spends that they don’t get to touch. This is because Marketing insists that creative talent can’t be traditionally sourced due to the inability to quantify creativity systematically, and can’t be managed using traditional processes because creative talent is not like easily sourced janitorial services.

But this isn’t true. Creative talent can be sourced systematically, but not using a hands-off auction, outsourced GPO, or other inappropriate methodology. It can be effectively sourced using a proper RFX, Supplier Management, and negotiation process. And creative talent can be effectively managed using an Agency Lifecycle Management process that manages the services cradle-to-grave.

So what is Agency Lifecycle Management? It’s Services Lifecycle Management customized for Agency Management. In traditional services lifecycle management, you have the following basic steps:

  • supplier identification and selection
  • contract and scope of work
  • delivery
  • review and evaluation

In Agency Lifecycle Management, you have approximately the same steps, except the scope of work can take various forms and be much more involved, and the delivery step requires a lot more interaction than a traditional (services) delivery and usually takes the form of regular interactive briefings. In other words, in Agency Lifecycle Management, you have the steps of:

  • selection
    where agencies are identified, their core skills are captured, and the best match(es) are identified;
  • scoping
    where the scope of work is collaboratively defined between Procurement, Marketing, and the Agency to meet the needs of the initiatives Marketing has planned;
  • briefing
    where the specific requirements of each initiative are captured in a clean and complete manner for the agency to deliver against; and
  • evaluation
    where the work effort, cost, and other relative metrics are captured for verification and comparative purposes.

And, most importantly, each step is tailored to the specific needs of the Marketing department where Agency Management is concerned. So what are the specific needs? We’ll address those in Part II.