Category Archives: Best Practices

What Determines Best in Class in Energy Management?

Energy prices are going up. Energy consumables (oil, natural gas, and coal) are going down. Electric vehicles are still not an option for major forms of supply chain transportation (plane, train, and tractor trailer). And they need to be charged from a grid that is probably not set up to handle large quantities of renewable energy, as production is not constant (as winds come and go, tides ebb, and clouds mess with direct sunlight) and grids require constant power levels (or they overload and blow — and even though the sky lights up a beautiful shade of blue when it happens at night, it’s a pretty sight you really don’t want to see).

As a result, energy conservation, which starts with energy management, is becoming more important by the day — especially when supply management needs to keep costs down (which are starting to skyrocket in manufacturing plants and data centers), be socially and environmentally responsible, and deal with (impending) carbon legislation. For some organizations, that’s easier said than done and they need a roadmap from an external expert. The goal of this post is not to provide that, but to define what best-in-class in energy management is and key capabilities required to get there.

According to a recent Aberdeen study on Energy Intelligence, best-in-in class is defined by:

  • High Operating Equipment Effectiveness (91%+)
  • Aggressive, continual, reduction in energy consumption
  • Aggressive, continual, improvement in operating margins

And, in particular, best-in-class organizations exceed their energy consumption and operating margin goals by 20% or more.

To this I’d add:

  • aggressive, continual, movement to renewable sources
  • continual shift to low-energy technologies and process

Let’s face it. High OEEE is good, but if the equipment being used is an energy hog, 90% efficiency is still bad if there is an alternative piece of equipment that only uses half the electricity at 88% efficiency. And energy reduction is good, but moving to renewable sources is better. No coal is better than less coal.

So what are they key capabilities you require to become best-in-class in energy management?

According to the Aberdeen report,

  • accessible real-time and historical energy data,
  • standardized energy management processes across the enterprise, and
  • metrics to benchmark the performance of the energy program across different plants.

This is a good start, but your energy management expert in supply management also needs

  • a solid data analysis tool to analyze the cost and usage data,
  • a strategic-sourcing decision optimization solution that can handle energy models in all their complexity to allow the analyst to optimize the buy in a manner that balances cost with sustainability and risk management goals and provides the most value to the organization, and
  • a supply chain visibility solution that allows an analyst to monitor the energy usage across different plants in near-real time to find usage patterns that are problematic or appropriate for optimization.

If an analyst had all these capabilities, there’s a good chance the organization would be on its way to becoming a best-in-class energy manager. Unless you think these capabilities are not sufficient and they also need a few SCRAPS. Thoughts?

De-Mystifying Economics

A few months ago, Bob Rudzki pointed out a great article on economics that appeared over on the Talking Points Memo (TPM) site this summer where the “CBO Schools Tea Party Freshman on Basic Economics”.

The article, which reprints a letter from Douglas W. Elmendorf, CBO director, starts off by noting that changes in government spending can affect the economy in two different ways: in the short term, by changing demand for goods and services and over the long run, by changing the potential supply of goods and services. Then it goes on to note that economic activity can deviate for substantial periods from its potential level in response to changes in aggregate demand and that increasing government spending can increase aggregate demand and thereby narrow the gap between the economy’s actual and potential levels of output. But most types of government spending have this short-run effect on demand and changes in government purchases and transfers create demand-side effects that are usually only temporary because they raise or lower output relative to what it would be otherwise only for a while because, over time, stabilizing forces in the economy tend to move output back toward its potential.

In other words, government intervention has only a temporary effect and can not be depended upon to increase demand for your products in the long term. In order to increase demand, you need to understand that demand — which is the desire to own, the ability to pay, and the willingness to pay — is dependent upon price point. It could be the case that while only 100 people want your product at $100, 100,000 could want it at $80.

Thus, if the organizational goal is to increase demand, the price point will have to be effectively lowered — and if the organization is going to get through tough times, it’s going to be dependent upon supply management to either reduce costs, increase quality, or find a way to offer more (value-add) features without increasing the price point. That’s why supply management is one of the most critical functions in today’s enterprise and why they need better tools and technologies to achieve their goals. And a few SCRAPS to help them keep the focus to get there.

Change, Unchained


Change, nothin’ stays the same
Unchained, and ya hit the ground runnin’
Change, ain’t nothin’ stays the same
Unchained, yeah ya hit the ground runnin’

Unchained, Van Halen, 1981

Change. The age old * on organizations everywhere. Conjuring up images of the bottomless black pit, nothing causes more job stress for the average employee. And as noted in this recent SIG article in “The Art of the Change”, “Change” is now ever present. So how should you go about implementing change to minimize the stress and fear and maximize success?

The author starts by quoting Stanislao and Stanislao who defined four criteria to consider before implementing a change:

  1. What Should Be Changed?
  2. What Type of Change Needs to Be Made?
  3. Who Will Be Affected By The Change?
  4. Who Will Be The Change Agents?

These are good criteria, but what about
0. Why Do We Need A Change?
5. What Is The Goal Of The Change?
6. What Are The Expected Results?

Let’s face it, if something ain’t broke, you shouldn’t fix it. If there is no why, there is no what. If there is no end goal, then how do you know if the change is appropriate? And if you can’t define the expected results, it’s probably not the right change.

The author then notes that workers who have no real input into a change repel it for several reasons, including surprise, unknown workload, unknown job security (if a task is being automated), etc. As a result, the author recommends that you should:

  • Give Employees Advance Notice.
  • Give Employees Information About the Change.
  • Give Employees Training to Cope With the Change.

And these are musts. But the author misses the most important thing you should do if you want a change to be successful. That is:

  • Explain The Rewards (To The Employee) Associated With the Change.

Let’s face it, the first thing an employee wants to know is what’s in it for them if you expect them to work hard to prepare for and implement a change — especially when they believe the same ol’, same ol’ is good enough. Will it make their jobs easier? Will it improve profitability and their potential bonus? Will it, in hard times, simply ensure that the corporation will be operating lean enough to allow them to keep their jobs? Enquiring minds want to know!

In addition, as the author notes, you should be aware of the very fundamental reasons that humans resist change, which, according to Gilley, Godek, and Gilley include:

  1. Fear of losing one’s position in the hierarchy.
  2. Not being aware of the company’s vision and/or purpose.
  3. Fear of losing one’s job entirely.
  4. Growing apprehensions about taking on additional roles and responsibilities.
  5. Working longer hours so that personal life becomes severely affected.

And make sure that the information and training communicated to the employees addresses each of these concerns. If you do that, engage your employees, and make them part of, and, when possible, leaders of, the process, you are much more likely to be on your way to a successful change initiative.

Did “The Gambler” Teach Us Everything We Need To Know About supply Management Operational Success?


You Got to know when to hold ’em, know when to fold ’em,
Know when to walk away and know when to run.

Thirty three years ago, Kenny Rogers unleashed upon the world this country classic, written by Don Schlitz, which was the inspiration for a movie that came out two years later. And it seems, thirty three years later, that this is the message that SAP is unleashing upon the supply management world as the foundation of their advice for “achieving operational excellence in any economic climate”.

In the aforementioned article, the author provides four (4) tactics that are employed by best-in-class performers to elevate procurement proficiencies. Simply put, the author is recommending that you hold ’em, fold ’em, walk away, and run.

  • Hold ’em: Hold On To Your Suppliers through a Supplier Connectivity Strategy
    Integrate suppliers into key points in the supply management process. This will reduce mutual overheads and costs through better insights into your process.
  • Fold ’em: Fold Your Employees Into Your Organizational Procurement Process through a Compelling End-User Purchasing Experience
    Utilize the fact that your employees are web-savvy online shoppers with expertise in navigating online purchasing sites in such a way that allows them to slice and dice their options and get the best deal. Provide them with the right enterprise supply management portals and they will get the best value available to them.
  • Walk Away: from Non-Existent Savings and Unprofitable Efforts by Prioritizing Spend Categories with Significant Cost Reduction Opportunities
    Start with categories that will deliver a high return with minimal effort (usually by way of standardization) and then progress to categories that will deliver reasonable savings with reasonable effort, staying far away from those categories that yield only minimum returns for maximum effort. Remember the 80/20 rule – 80% of savings will typically come from 20% of categories. Focus there.
  • Run: Away from Unnecessary Processes by Moving towards a “Zero-Touch” Procurement Process
    Leading organizations use procurement solutions to do the “heavy lifting” on approvals, order delivery, and invoice management that streamline approvals and automate approvals for low-value, low-risk purchases where manual review would often cost more than could be saved through a detailed analysis.

And it’s all great advice. Now if only they had remember that you:

Never Count Your Money While You’re At The Table

    • :

because Failure is Imminent without Constant Innovation

    Simply put, what is leading-edge today, is average tomorrow, and yesterday’s technology the next day. You can never rest on your laurels — you have to keep improving your processes. The minute you stop to count your money, you stop innovating, you stop identifying new cost reduction or value generation opportunities, you stop saving or generating value, and you begin the slow decline from leader to laggard. Today’s corporate world has evolved to a high-stakes winner-take-all poker game and there’s no time to pause and count your savings until the supply management game is won.

It would be a great starting recipe for supply management organizational success.

A.T. Kearney’s Four Dimensions of Strategic Value

In a recent article over in IndustryWeek on why it is “time to tell your CPO to collaborate with suppliers”, A.T. Kearney outlined their four dimensions of strategic value that they claim will allow an organization to unlock the next level of value. The four dimensions of value they outlined are:

  • growth
    through improving the value proposition for existing customers or generating sales to new customers
  • risk management
    to deal with a world of increasingly unpredictable and devastating risks
  • value-chain optimization
    by tweaking the value chain to benefit all players by allowing them to focus on their strengths
  • structural capabilities
    that improve agility, responsiveness, scalability and even corporate social responsibility

And, according to the article, they depend on collaborative relationships with the supply base. However, in order to succeed in these relationships, the parties must reach mutual value. So how do the parties reach win-win situations? They start by using a value-screening process that takes the following steps:

  1. Develop a Relationship Baseline
    does the existing relationship provide a competitive position, strategic direction, and/or joint commercial flow in an aligned culture?
  2. Identify Initial Value Hypotheses
    is there a potential opportunities that brings a level of value to both parties?
  3. Align with Internal Partners
    which opportunities bring the most value to the organizations?

Then, according to A.T. Kearney, the next step is to turn supplier collaboration into a core competency. This is not an easy process, but it is a manageable one. It revolves around:

  • the formation of value creation teams,
  • the establishment of foundational processes, and
  • management of the transformation.

These core actions become part of a two-to-three year transformational roadmap which, when completed, will address all key suppliers and, hopefully, provide value well above and beyond typical cost reduction strategies. And if they are done right, they should enable the four dimensions of value outlined above.

Are they worth it? Any organization that grows, controls risk, and improve its structural capabilities and value chain should be able to create and sustain value even in weak economic environments, so they are worth it. Are they enough to get you to the next level? On their own, probably not as they don’t require innovation (as renovation is often enough for companies who are not leaders), but they are good value dimensions.