Category Archives: Best Practices

How can we minimize our costs while maximizing the use of our current assets?

Modelling, Simulation, and, most importantly, Decision Optimization … and I’m very glad to see that the ISM recently ran an article in Inside Supply Management on “Improving with M&S”. Because, as the article points out, once the behaviour of a system is understood, supply managers can realign assets with the intent of finding the arrangement that will yield the most optimal measures of performance.

Furthermore, as the article points out, modelling, in its most basic form, is the creation and arrangement of representational elements that approximate reality. Simulation is the potential interaction, or playing out, of these elements over time. And optimization is the application of rigorous analytical techniques to a well-defined scenario to arrive at the absolute best decision out of a multitude of possible alternatives in a rigorous, repeatable, and provable fashion. Together, the technologies can be used to determine how to balance costs and resources.

The article gives some great tips for novices in MOS (Modelling, Optimization, and Simulation). Specifically, it notes that:

  • the goal is not to mirror the real-world system in all its detail but to represent those aspects that are expected to meaningfully affect the performance variables of most interest
    as it is impossible to model everything, there is a need to focus on what is relevant; for example, there may be 50 different cost elements in a breakdown of a component down to raw materials, but if 10 of them represent 80% of the cost, and only 5 of them are variable, focus on those 5 and wrap the other 46 into one
  • if the model and simulation are producing behaviour similar to the known real world, then the model most likely is an appropriate, or valid, reflection of that real-world system
    if the model works well, don’t second guess it; unknown is unknown and trying to guess the unknown doesn’t make it known
  • we learn through experimentation
    but experimenting with the real system is costly, counterproductive, and could meet organizational resistance
  • the process of modelling and simulating a real-world system assists in identifying major system strengths and weaknesses
    strengths which can be leveraged through targeted interventions and weaknesses which can be overcome through appropriate system redesign; the process of identifying strengths and weaknesses and virtually experimenting with changes to the system allows analysts and supply managers to see unintended second- or third-order consequences that might not have been readily apparent otherwise
  • selecting and analyzing various supply management activities and processes can be crucial in improving efficiencies and performance
    if the organization doesn’t know where its performance can be improved, then it will not be able to improve its performance

All great tips and all reasons why modelling, simulation, and optimization should be used by each and every Global 3000 organization.

VMO Best Practices or General Organization Best Practices

A recent article over on SIG on “How to Build A World Class Vendor Management Organization” noted that the most important element of success was execution. Execution that involves the:

  • identification and allocation of appropriate resources (people)
  • identification and implementation of enabling technology
  • development of policies in collaboration with key stakeholders
  • documentation of processes and workflows for key programs
  • application of segmentation strategy to align resources
  • pilot strategy and program that supports Business Units and Suppliers
  • testing, refinement, and redesign of processes as required
  • communication, communication, and communication

This is all good, and everything that should be done in the establishment of a Vendor Management Organization, but an organization would do the exact same if it was establishing a Global Procurement Organization. Or if was establishing a Shared Services Organization. Or if was establishing a Consulting Services Organization. No matter what organization is being established, it will not be successful without:

  • people who know what they are doing
  • technology to support them
  • policies to guide them
  • processes to enable them
  • strategies to make the best use of resources available
  • support from affected Business Units (which is won through incremental wins)
  • adaptability to changing circumstances and
  • constant communication

In other words, the article contained good advice, but nothing specific to VMOs.

So what is the real key to a good VMO?

A focus on the vendor. It may take different forms, but the vendor, and its success, should come first as vendor success enables organizational success.

Good Public Procurement Recommendations from the McClelland Report, Part III

It may have been written five years ago, but the recommendations from the McClelland Report, which inspired Scotland Public Procurement to new levels of efficiency and performance, are as poignant today as they were then. These recommendations include:

  • Procurement “Centres of Expertise” should be established on a commodity-by-commodity basis.
    And these centres of expertise, which can be cross-disciplinary should be coordinated by a centre of excellence.
  • It is obvious that there is a level of mandatory compliance required for the effective operation of the [contracts] model described above.
    Projected cost avoidance is only realized if the plan is followed.
  • A Charter for Suppliers should be established for the complete public sector in Scotland. It should essentially describe the sector’s commitment to suppliers by defining the generic standards which suppliers can expect from the operation of public-sector procurement and in turn what will be expected of them as suppliers to the sector.
    Suppliers should know what to expect and what to deliver.
  • There should be total transparency in connection with procurement decisions.
    Hidden opportunities are lost opportunities.
  • There should be a review of non-core activities to establish candidates for outsourcing evaluation.
    Remember, outsourcing doesn’t necessarily mean offshoring. You can outsource to an operation down the street. Outsourcing is about doing what makes financial sense. Letting someone do non-core activities that they are better at than you so that you can do what you’re good at.
  • A clear and unambiguous central information systems strategy for the Scottish Public Sector would deliver major benefits in terms of effectiveness of services, staff productivity and overall cost, including improved benefits to procurement.
    Good technology enables good processes and good results. Plus, good technology enables good data, which enables good data analysis, which leads the way to good results.

Good Public Procurement Recommendations from the McClelland Report, Part II

It may have been written five years ago, but the recommendations from the McClelland Report, which inspired Scotland Public Procurement to new levels of efficiency and performance, are as poignant today as they were then. These recommendations include:

  • The procurement leadership role should extend to those activities associated with functional excellence including staff communications, education and training, staff development, career paths, job gradings, salary scales and where appropriate workload balancing.
    Procurement leadership is more than negotiations and contracts. Good procurement is also about good people.
  • A public sector-wide Procurement Policy Handbook should be established offering a standard and well-documented approach to be utilized across all of the public sector.

    It must also cover ethics as well as procedures.
  • Each organization within the Public Sector should review its procurement organization to establish the adequacy or otherwise of the resources including skill levels dedicated to the procurement activity.

    The team must be appropriately skilled.
  • Work should be undertaken to establish how a complete, cross-public sector career path or ladder can be established which will facilitate career management and employee development and retention.
    Talent wants a career path.
  • Every public-sector organization should have a formal programme of procurement internal efficiency measurement and management.
    Improvement requires a baseline.
  • Absolute information and performance data should be exchanged and shared across the public sector in a formally co-ordinated procurement benchmarking programme.
    A little data goes a long way. Let the teams challenge each other for better performance based on the metrics.

Good Public Procurement Recommendations from the McClelland Report, Part I

It may have been written five years ago, but the recommendations from the McClelland Report, which inspired Scotland Public Procurement to new levels of efficiency and performance, are as poignant today as they were then. These recommendations include:

  • The optimum reporting line for the Head of Procurement is directly to the Chief Executive but at a minimum he or she should report to an Officer or Executive who reports to the Chief Executive. The Procurement Function should not have a less senior reporting line than this minimum.
    Procurement must have visibility at the highest level.
  • Contractual commitments on behalf of all organizations should be executed by a “Procurement Officer”. The Procurement Officer should have the sole authority to make these legal commitments on behalf of the organization.
    Large procurements must go through the Procurement function.
  • Procurement activities and transactions should be conducted by the appropriate staffed and skilled procurement function and its procurement officers. It should not be undertaken by non-procurement staff located either in central structures or employed in other (e.g. operational) sub-sections of the organization.
    Procurement must be done by procurement personnel with the skills.
  • In some cases internal business practices inadvertently facilitate the ease of unofficial buying. All organizations should review controls and practices with this in mind.
    Processes must be reviewed to insure that they do not facilitate maverick buying.
  • Where the procurement of low-value goods or services creates anomalies in administration cost versus value procured, then alternative methods such as payment on receipt should be developed and introduced within the principles of full procurement and financial controls.
    A buy that costs money is not a good buy. A buy should reduce costs.
  • A business conduct guideline document should be developed and issued for all of the Public Sector.
    Standard procurement processes should be developed, clearly documented, and distributed.