Category Archives: Best Practices

Should You Be The Best?

This sounds like a silly question as it sounds like a question where the answer should always be a resounding yes, but a recent Harvard Business Review blog that said you should stop competing to be the best, which made some good points, makes you think about it.

The blog, which quotes the current thought leadership of Michael Porter, known for his five force analysis, says that “may the best X win” is absolutely the wrong way to think about competition, because it’s practically a guarantee of mediocre performance. Why? First of all, in the vast majority of businesses, there is simply no such thing as “the best”, so this would make the competition-to-be-the-best mindset completely wrong.

This is because many consumers in a market segment have different needs and wants. Some just want functionality. Others want style. Some want goods with average durability. Others want goods that can can take extreme abuse. Some want basic designs. Others want luxury. How can you define best when there are so many market needs?

Business, despite the claims of those who promote Sun Tzu’s Art of War as the ultimate business strategy rulebook, is not war and, in many markets, there can be more than one winner that can thrive. Consider retail. As the blog points out, both WalMart and Target co-exist and thrive and win in their market segment by offering different types of value to their customers.

And when rivals all pursue the “one best way” to compete, they find themselves on a collision course, trapped in a destructive, zero-sum competition that no one can win. Eventually all products and practices become almost indistinguishable, leading to pure price wars, which leads to a deterioration of profitability. This isn’t good for anyone.

The real way to win, according to Porter, is to compete to be unique. Innovate and deliver superior value to your chosen customer segment, not market segment. Make price only one factor in a multi-factor consideration. In doing so, generate positive sum competition and grow the industry — and, in the mean time, earn sustainable returns from the value generated.

New White-Paper! Spend Visibility: An Implementation Guide

Sourcing Innovation is excited to announce the release of Spend Visibility: An Implementation Guide. Clocking in at over 130 pages, this is the first white-paper that not only defines what spend analysis and spend visibility really is, but that also offers a step-by-step, vendor-free, implementation guide that demonstrates how an organization can achieve substantial year-over-year savings. Truth be told, it’s chock-full of information that many spend analysis service providers don’t want you to know. In the past, many organizations would pay tens of thousands of dollars for the information contained within its pages, which would be gathered incrementally during projects with third party experts, but it is now free for the taking as Sourcing Innovation wants everyone to understand what Spend Analysis and Spend Visibility is, and is not. As per the introduction, it’s important to understand that:

Almost any attempt by an organization to analyze spending patterns is likely to be fruitful, especially if there hasn’t been a serious prior attempt. It is easy to find thousands of breathless testimonials about a particular product or method — independent of the quality of the product or method — because almost any product or method will find savings if a spend visibility initiative has never been launched before. “In the land of the blind, the one-eyed man is king.”

However,

This simple fact has confused end-user organizations and analysts for many years. In fact, it has convinced most spend visibility vendors (and most analysts) that spend visibility is a fundamentally simple process of mapping Accounts Payable spend, and then drilling for dollars. This is why many spend analysis products have remained largely unchanged for years; there is no perceived need to do anything “more”.

And this is a BIG problem. The savings come from doing more. Much more. As the introduction continues:

What is not so obvious is that this initial burst of savings is short-lived; and that many of the “quick saves” that result are unsustainable. The key question is what to do next; in other words, how to implement a true strategic spend visibility initiative that will return value and keep returning value over time. There are too many spend visibility products that are lying unused or on the shelf, after the first burst of excitement has passed; and too many organizations who are tired of hearing a spend visibility message that has no further relevance to them.

The reality, as advanced organizations understand, is that:

Strategic spend visibility is much more than building a simple Accounts Payable cube, and that analysis of spend requires deep thinking on many dimensions, along with many different analysis cubes.

And the real question is:

How is this to be accomplished? Although much of the strategic spend analysis “lore” has been locked up inside consulting organizations, this is starting to change. The hope is that this Guide will help to promulgate some of the key ideas around strategic spend visibility, and ideally point organizations toward strategies that can result in sustainable savings through a continuous succession of intelligent spend control initiatives.

And that’s why it’s being made available to you completely free. No pay wall, no registration wall, and no restrictive distribution license. In order to advance spend analysis and spend visibility to the next level, you need to understand what it is. So download your copy of Spend Visibility: An Implementation Guide today. It will be worth the time it takes to read it.

Safety Stock or Service Levels?

The answer is easy. Both!

A recent article in Industry Week on “The MRO Dilemma” asked if you should focus on safety stock or service levels. The answer is both.

The article, which notes that waste is generated every time a piece of equipment breaks down or runs at less than optimal speed because of needed repairs, and that these repairs are delayed if there is not enough spares on hand, notes that more MRO inventory translates to higher inventory carrying costs but also likely higher service levels while less inventory will reduce the carrying costs [while putting] service levels in jeopardy. This is obvious.

It is also obvious that trying to maintain 100% service levels is likely not an option for most companies because that would mean you just about built a duplicate plant in your store room.

But what might not be so obvious is that the 95% service level recommended as a good target is not good advice at all. The target service level does not, as the article indicates, depend on what your company can afford, but depends on what is optimal for your company. And it is often production line / product specific. A production line producing your most profitable product line should never be down, and if that dictates a costly 98% service level, so be it. However, the turn around time on replacing a printer in the admin offices is not nearly as critical and you can accept a service level of 90%, or less, from your internal IT support, especially if they have outsourced the function to a vendor and a higher service level would increase costs 20%.

Just like you optimize your buy, you optimize your service levels. If downtime on a production line costs you $1,000,000 per hour, you spend $100,000 to make sure you have spares for every moving part that can break. If downtime on a secondary machine that is only required for custom orders, which account for less than 10% of profits, only costs you $10,000 an hour, and stocking the same level of spares would cost you $50,000, you opt for a lower service level. It’s all about optimization.

And, there are companies like Servigistics and MCA Solutions, just to name a couple, that can help you optimize this trade-off so that you’re not improving inventory carrying costs at the expense of service levels and vice versa. With optimization, you can have both … at the right levels that are the most profitable for your organization. Be smart.

How to Identify a Dangerous SalesPerson

A blog post over on the HBR last month on the worst question a salesperson can ask provides a great gauge that you can use to determine the quality of the salesperson selling to you.

If the salesperson starts out by asking what’s keeping you up at night, you know you didn’t get the best your vendor has to offer. Why?

As the article explains, you don’t always know what you want. Just because you know the symptoms of the problem you are experiencing, you don’t necessarily know what the problem is. Just ask a doctor. Fatigue (which we’re all facing being overworked and underpaid in this challenging economy) could be a result of post-viral fatigue, POTS, mononucleosis, epstein-barr, sturgeons, sleep disorders, heart disease, adrenal exhaustion, anaemia, cancer, depression, and diabetes just to name a dozen possible causes.

The same holds true in business. Chances are you need a technology solution to streamline something, but it may not always be the obvious solution. For example, you’re having trouble getting your supplier’s invoices turned around within the discount window. Maybe you need an e-invoicing solution, but maybe you need a better inventory management solution. For example, if Finance will not pay an invoice until it can verify all of the goods are received and in inventory, that a goods receipt has been generated, and there are no goods in need of immediate return, then, if your inventory system requires manual data entry of each item in a slow and laborious process, that’s a problem — especially if your supplier is equipping your palettes with RFID chips. In this case you need an inventory management system that allows automated addition of goods to working inventory once (  a  ) the line-item invoice has been received, (  b  ) the RFID chip has been scanned and (  c  ) a warehouse worker has verified that the containers are in your possession. If you’re not aware of Finance’s policies and not aware that it takes the warehouse a minimum of two weeks to complete the requirements because of the process required and constant backlog, you’ll never know you need a newer inventory management system and might get suckered into buying a new invoice management system that won’t help in the least.

As the blog post points out, you want a salesperson who is a Challenger who can identify, and reveal, potential problems, and solutions, that you don’t even see. That way you can explore all potential sources of a problem until you identify what the real problem is. Then you can select the right solution — which is one that maximizes the overall value you receive. Not before. So if a salesperson starts out by asking “what’s keeping you out at night”, show them the door before, as the authors note, you are robbed of an hour of your life.

Forget Mexico. Canada Will Take Your US Shipping Business!

A recent article in American Shipper quoted the head of the largest container port in the U.S. who said that the “U.S. [is] at fault for Canada diversion”. According to Geraldine Knatz, Executive Director of the Port of Los Angeles, Canada’s investment (of over 4 Billion) in its western ports to capture more Asian trade is smart policy and there should be a U.S. government inquiry into cargo diversion to the North that focusses on domestic impediments to U.S. port competitiveness.

This is one case where the doctor has to disagree. See, up North, we’re quite happy to take your shipping business. And what you need to understand is that Vancouver is only 200 km (that’s 125 miles for you metric-phobes) from Seattle, only 500 km from Portland, and less than 700 km from Spokane. And it’s a mere 2000 km from Los Angeles. Smart Logistics can get your shipment there by truck in two days even with driving limits if you team-up drivers or have them switch off at mid-points. And while Chicago might be 3500 km away, with an infrastructure that supports intermodal transport (including rail), it doesn’t take long to get your cargo to Chicago either. (As per the article, Canada’s value proposition is that can trim at least two days off the transit time from North Asia to U.S. destinations, with competitive intermodal rail service. The new port at Prince Rupert was designed to transfer all containers at the dock to Canadian National Trains which can reach Chicago in 100 hours!)

And if you’re shipping to the east, Halifax to Boston is only 1100 km — and the Port of Halifax, in the world’s second largest natural harbour, is undergoing continual expansion (and now has direct routes from Vietnam) — with two new super post-panamax cranes coming in 2012 (along with the Disney Cruise Line). In addition, to meet your air cargo requirements, the main runway at international award winning Halifax Stanfield International Airport is being extended.

We’re ready for your business! And we can handle way more than 7%. So send your business up North. We’ll take it — and save you money too.