Category Archives: Best Practices

Six Red Flags In Any Relationship, Not Just Outsourcing

A recent article over on the Outsourcing Center, an Alsbridge Company, highlighted “six red flags to help avoid a bad outsourcing relationship from ever starting” that is a good read for anyone negotiating any kind of deal with a product or service provider, including a deal for (supply management) software and associated services.

The following six soft characteristic red flags are indicative of a provider that is likely to bring with it a dysfunctional and damaging relationship.

  1. Selling, Not Solving
    Is the provider listening and offering what you need, or selling what they have, whether or not it solves your problem.
  2. Telling, Not Listening
    Does the provider assault you with the triple digit PowerPoint presentation rapid-fire, without letting you get a word in edgewise, or let you drive the conversation, breaking out slides only as needed.
  3. Homogeneous, Not Diversified
    Is the provider diverse enough to understand your cultural nuances, or only aware of his or her own company’s culture.
  4. Complicating, Not Simplified
    Is the sales process, and proposed solution, overly complex, or is it simple and straight-forward, addressing the problems you have now, not the problems you may have in five years. While it’s important that the provider can grow with you, it’s not important that they dive into details of problems you don’t have today, or sell you solutions before you need them.
  5. Far, Not Near
    Relationships and decision making should be as close to you as possible, not half a world away.
  6. Arrogant, Not Supplicant
    The provider should be confident, but not arrogant. The provider should be willing to listen and understand your problem before proclaiming that they have solved it before. That’s confidence. And that is what you want.

While the lack of these red flags will not guarantee a good relationship, as a nearby supplicant solution-driven diversified provider that listens and simplifies can still be incompetent, at least there’s a good chance that the relationship can work. And any odds of success are much better than virtually guaranteed failure.

Should You Be Using CEI?

Chances are, like every other organization on the block, your Finance department is tracking DSO and if the DSO metric is close to the corporate goal of, say, 30 days, declaring everything to be wonderful and right with the customer base. But is this really the case?

As a recent article over on CFO.com that points out “the trouble with DSO”, an acceptable DSO might not be acceptable at all. First of all, DSO can be manipulated. Secondly, increases in DSO can indicate a situation where a company is “forcing” sales by accepting poor receivable terms, or selling its product at a discount to create sales. (Not good at all!) Thirdly, not only will most customers not pay a net 30 day invoice early, some customers will pay on day 30 like clockwork and should probably be excluded from the DSO calculation.

According to the authors of the aforementioned article, what is really important is collections relative to accounts that have come due, not the current receivables unlikely to be paid early. In order to capture this, the authors are recommending a different metric, the Collection Effectiveness Index (CEI). In this index, 100 is a perfect score, but 100 can be exceeded if a company asks for, and gets, cash in advance. The calculation of CEI is as follows:

 

Beginning Receivables + (Credit Sales/days) – Ending Total Receivables

Beginning Receivables + (Credit Sales/days) – Ending Current Receivables

 x 100

 

It’s an interesting calculation, and I see one advantage for Procurement. During the calculation, the analyst will have to identify those customers with amounts due in “current”. If a customer shows up in this bucket month after month, they probably aren’t a good customer to have. And if a customer never shows up in this bucket, they are probably a good customer to have. This will help Procurement prioritize customer requests as the requests from good customers should get priority, as that is what can keep an organization afloat in trouble times.

Any different thoughts?

Remember the Dangers of Centralized Buying

In an effort to combat the inflation across the board, I’m hearing a number of consulting firms emphasize the need to leverage your spend across the board, which is good advice. However, I’m worried about how some firms might be interpreting this advice. I’m getting signs that some firms, not yet as advanced in Supply Management as they need to be, are interpreting this as a need to “centralize”. While this has been the common historical response when a firm needs to obtain spend leverage and Supply Management for the categories in question are decentralized, it’s usually the wrong one. What needs to happen is the firm needs to move from decentralized buying straight to center-led buying and skip the centralization step and the growing pains that will result.

When you centralize, you lose:

  • local opportunities
    while a national temp labor agency can offer you better rates across the board, sometimes a local agency that is 10% more is actually 40% cheaper because you don’t have any travel expenses for local resources
  • local knowledge
    and sometimes a local buyer has a better understanding of the ups and down of commodity or service pricing in a region than a buyer on the other side of the globe and knows that she can spot buy a better price 80% of the time
  • (some) control over supplier performance
    as a centralized buy will typically be with one or two international suppliers who will not only have a lot more weight and leverage, but distributed production; in comparison, if buys are more local, they are typically with smaller suppliers where the buyer has the dominant position in the relationship and more control over quality and the production schedule

In addition, when you centralize, you can pave the way for organizational conflict as a result of:

  • the divergence of subunit goals
  • conflicts of preference between the central units and remote units
  • the lack of subunit inclusion
  • higher costs of certain purchases on the corporate contract as compared with local costs from a local supplier

However, a center-led purchasing organization will work with each subunit to insure that the best buy is made every time. Sometimes that will be through amalgamation of volume to obtain leverage through a larger contract with an international supplier (where costs are high) and sometimes it will be through the provision of best practices to each unit, which will secure the best rates in their region. You only get leverage where it exists to be found.

Your Job Advertisement Actually Attracted a Good Candidate – Now What?

Unemployment may be approaching a long-term high, but in some sectors, including supply chain, we’re still in a major talent crunch because of the lack of appropriate skilled resources while the need for those skilled resources is still rising. That’s why, if you’re lucky enough to attract an application from a good candidate, you have to make sure you keep their attention. But how do you do that?

SI would recommend you start by writing a grateful acknowledgement of their application with a request to promptly schedule an initial call, at their convenience (within reason — either within your normal operating hours or at times you can guarantee availability). The focus of the call should be on selling your company and position to them, not on them selling themselves to you. Once you have verified that they are who they say they are and a real candidate (and not a placement form pushing a stretched resume of a junior resource at you), it’s time to explain why they want to work for you. This should involve a discussion of:

  • a day in the life in the role
    and a no holds barred discussion of the good, the bad, and the ugly and how you hope they can help you improve the role (and not just put another coat of lipstick on the pig)
  • the stakeholders they will be interacting with
    and how they fit into the organizational structure
  • the corporate culture
    and why it really is a great place to work, even with its beauty marks
  • the commitment to employees
    with a focus on the training and personal development options available to employees
  • the decision making processes
    in terms of selecting the new hire and executing the role
  • the goals for the role
    and what will be expected of the successful candidate in the first 30, 90, 360 days

However, be very careful to:

  • manage expectations
    Do not oversell the role, the culture, or the benefits. If the offer is more than fair, the benefits will sell themselves. If you are sincerely happy in your role, convey that, and if you click with the candidate, a soft sell will sell the culture. And any talented resource knows that every role has an interesting side and a boring side. It’s what you do to minimize the boredom that counts.
  • not throw money around
    If you offer too much money, a smart candidate will suspect something is up. If the role has a market value of approximately 125, and you’re offering 195 as a base, they’re going to wonder if you’re a bad place to work (and have to bribe people), dumb (and unaware of true market rates), or wasteful (and running out of rope as a result). While top talent wants to be paid well, they understand fiscal responsibility (as that’s their job) and will happily work for the high-end of market average with a good bonus structure, that should be performance based and unlimited.
  • get too personal
    While talent wants to feel like they will be able to communicate and work with you and other employees comfortably and productively, they other expect an air of professionalism on the job and know that there’s a time for work and a time for play.

If You Want to Attract Talent, Start with a Good Advertisement

As per SI’s blog on Friday that noted that you have a talent management problem if your job advertisement reads like carbon copy blah-blah-blah, if you want to attract talent your have to have an interesting job, an exciting career path, and an advertisement that conveys both.

So what makes a good advertisement? There are various theories out there, but, at a minimum, it must:

  • Be Specific
    From a clear and simple title or headline to a detailed job description to details of the company, specificity helps. “Sourcing Manager IV” means nothing outside your company, “buy goods and services” is part of every Sourcing Manager’s job, and “at a top tier CPG company” doesn’t differentiate you from Discount Dave’s trying to pretend they are bigger than they are.
  • Focus on the Role
    Remember, you are focussed on recruiting Gen-Y and they want a challenge, excitement, and an opportunity to advance their career. Not an opportunity to be stuck in a paper-based back office faxing POs to suppliers who haven’t heard of the internet yet. And if you don’t go into details, they are going to assume that your organization is a Supply Management laggard. Also, be sure to list the top five to 10 duties as well as normal working hours. If you expect the Sourcing Manager to be on the phone with China for 2 hours every day during normal working hours in Beijing, that better be clear.
  • Clearly Specify Minimum Experience and Education
    If you will not interview anyone with less than 3 years of relevant experience (which should include experience with the product or service in question and not just a Sourcing Role — who better to source a product than an engineer who used to make it who has had some financial and sourcing training), state that. Also, if your policies demand a bachelor’s degree or a professional certification, state that too. But don’t make ridiculous requests, especially if the pay is not on the high end or the locale is expensive. No Sourcing Manager with a Masters, 2 professional certifications, and 10 years of experience is going to accept a position for 90K in downtown Manhattan.
  • Sell the Culture
    Remember, Gen-Y is the most social, hooked-in, “hip” generation yet. They want a constantly communicating culture. (But don’t promise what you can’t deliver.)
  • Advertise the Benefits
    “Great Benefits Package” sounds like Used Car Larry’s “Solid as a Brick” sales pitch. Sure the frame is solid, but so is the engine. (And an engine that doesn’t turn doesn’t run.) Advertise the benefits. Health Plan. 401-K (or RRSP) matching. Gym membership. Show you put some thought into what prospective employees need.
  • Include FULL Contact Information
    Specifically, the company web-site and a link to a more detailed job description, the mailing address and fax number, and a contact number of someone to contact with questions.
  • Guarantee a Response
    And follow up. Guarantee receipt of application. Guarantee a time by which applicants will be notified of whether or not they will be interviewed. Guarantee a time by which selected applicants will be contacted to set up an interview. To find someone who will work hard and respect you, show that you respect them and their time.