Category Archives: Best Practices

Category Management: Next Generation Sourcing at the Category Level

One of the themes that came up a few times at the Hackett Best Practices Exchange was that of category management and moving beyond the first generation category sourcing plans that defined “strategic sourcing” for most of the last decade. Just like the savings from repeated reverse auctions on the same category quickly trend to 0, the savings from a first generation sourcing strategy also trend to 0 over time unless the strategy is continually kicked up a notch over time.

Of all the presentations I attended, I think Disney best nailed where an average organization needs to be with its category sourcing vs. where it is today, a transition that takes the organization from category sourcing to true strategic category management.

Category Sourcing Category Management The Difference
Project-Based Value-Focussed The focus is on understanding the total cost associated with the category and the value it delivers.
Sourcing Waves Supply Chain Landscape Each category is managed holistically, and not as part of a wave, and reexamined anytime significant market changes that could impact the category occur.
Single Lead Cross-Functional Leadership Team In line with the holistic view of the category.
Compliance Strategy Compliance with sourcing plan and regulations is not enough. A strategy that goes beyond complying with current requirements to expected requirements to innovation is required.
Show Me the Money Let Me Help You Find the Value It goes beyond simple saving reports to actually engaging the business leaders and C-suite as part of overall strategy formulation.
Contact Engagement Engagement Plan There is a plan to engage the right stakeholders at the right time, not just as needed to put out fires.
Historical Spend Analysis Future Spend Forecasts Understanding past spend is a great start, but the best results come from optimizing against future demand.
Supplier Concessions Supplier Expertise Next generation supply management focusses on working with suppliers on cost reduction and innovation, not browbeating them with a hammer until they reduce their margins until their own viability is at risk.

The Time For Lean Is Now

But that does not mean you should rush an implementation. While lean can save time and money while increasing efficiency, a poorly thought out lean strategy will do nothing but disrupt operations, which will only waste time, increase cost, and decrease efficiency. And when you rush the implementation of any transformational program, chances are that you will make one or more mistakes that will lead you down the wrong road.

So, not only should you take the time to plan it out and get it right, you should learn the lessons from those who have went, and messed up before. The Supply Chain Digest recently ran a short piece documenting some common mistakes when implementing lean principles that is worth a read.

Don’t Implement Lean with a Weak Strategy or Insufficient Resources
If the strategy is weak, the workforce will see that it is half-assed and quickly lose faith. If the resources aren’t there, the overworked workforce will quickly lose interest in the initiative and fail to support it. As the article points out training, target setting, and communication tools all need to be carefully planned for proper implementation of Lean.

Don’t Take Lean Concepts Beyond the Lean Maturity Level of the Organization
Just because the lean designer has advanced theoretical knowledge and years of practical experience, that doesn’t mean the rest of the organization does or that they’re ready to be an advanced organization. The key to success is to take it one step at a time, one change at a time, and work your way up to a more advanced level.

Don’t Try a Cookier Cutter Solution
True Lean optimizes your business, not someone else’s. It’s impossible to take a cookie cutter plan and apply it out of the box. It will need to be appropriately tailored to your business by an expert, who will map out stages that the organization will have to pass through to obtain true lean success. As the article points out, each Lean solution must match with the company size, industry, ethnic cultures, product price structure, location, environment and a number of other related variables.

Follow these nuggets of advice, and you can start your journey down the road to lean success.

Selected Insights from the Hackett Best Practices Conference

Despite talking to Hackett personnel for years, including the one and only Pierre Mitchell, it was the first time I made The Hackett Best Practices Conference. It was interesting, to say the least. I took lots of notes and will probably write a number of posts over the next few weeks, but for those of you who missed it and are anxious to find out what you missed, here are a few takeaways until Thomas* (who is the new Analyst at Spend Matters) and I have a chance to collect our thoughts and publish a more detailed analysis on our respective platforms. (We’re still waiting for a deep dive into the new Hackett Performance Exchange.)

Do more with less and grow at the same time (or at least add more value) is the new mantra for Procurement and (Shared) Service Organizations.

Despite the uncertainty and volatility of the market, many organizations believe now is the time for growth while simultaneously believing that they still need to conserve (or is that hoard) cash. As a result, they are tasking every organization to achieve growth without an increase in budget or headcount.

Talent is on everyone’s mind.

The leaders / world class organizations can’t find talent. The average performers / Hackett “peer group” can’t afford talent. And the laggards / those below the median can’t get their cost of temporary / contract labour low enough.

Strategic Sourcing / Procurement has become so complex at the leaders that they can’t find anyone that fulfills the job description, regardless of what they are willing to pay. The average performer, where sourcing and/or procurement is moderately complex and can be done by someone who worked for a leading organization, as a result of the budget crunch brought on by the downtown, can’t lure the talent they need away from the leaders who will, literally, pay whatever it takes to keep the talent they have. And laggards, with rising cost of oursourced labor in “emerging” economies that, in many ways, have “emerged” in their own right, can’t keep costs down (as they haven’t moved to an appropriate global services model and learned how to be more cost effective with more higher paid workforces who are more skilled and can realize exponential efficiency gains with automation).

Transitioning to Global Services Model is a Journey.

And it will take you longer to realize sustainable value than just throwing work over the wall to a GPO or outsourcing to India. If you’re a large organization, you’re generally looking at a minimum of two years to realize any sustainable value and five years to maximize value from efficiency and effectiveness if you’re doing it right.

While everyone likes to talk about their success, few will talk about their failures.

Not a single speaker didn’t tout the success of the finance / services / procurement organization over the last X years, due at least partly (if not largely) to Hackett’s help and expertise in benchmarking and best practices. However, not every speaker would openly discuss lessons learned (as that would imply some roadblocks / failures). Only a few would talk about mishaps or false steps along the way (and a shout out to Rick Wertsching of Disney for willing to be candid in this regard) and only one speaker (of the presentations I attended) was willing to not only admit that they weren’t world class, but show exactly how they compared to world class (even though they aren’t yet anywhere close to where they need to be). (And major kudos to Thomson Reuters for being completely honest about the fact that while they have made great progress in the last 4 years, they still have a journey of at least 4 years ahead of them.)

If you want Spend Matters to attend and cover your event,
the surest way to get their involvement is to make sure Sourcing Innovation has already committed.

*I’m thrilled that Jason added Thomas to the Spend Matters team. His technical prowess is a great complement to Jason’s business savvy and provides a solid foundation for Spend Matters to become the next great Analyst 2.0 firm.

Hackett’s Myths and Realities of Global Growth

After a keynote presentation by David Kepler of Dow, Chris Brennan and Sean Kracklauer dove right in and hit the attendees hard and heavy with Hackett Research focussed on the key enablers of global growth. A key part of the presentation was focussed on the myths and realities of the three key enablers of global growth and blasting through the ill-conceived perceptions that must be abolished before companies can achieve world class performance. Here are the three big myths for each area.

Global Leverage

Myth Reality Proof
Our organization is too complex or unique to manage end-to-end. Most processes can be designed and managed end-to-end. (At most, 20% of processes will need some localization.) 80% of top performers are either on the path or already there.
Most companies are only beginning the globalization journey. Most companies have their globalization initiatives well underway. Within 2-3 years,

  • 67% of top performers will have predominantly or fully global policy & strategy processes,
  • 50% of top performers will have predominantly or fully global functional management processes,
  • 66% of top performers will have predominantly or fully global technology and support operations, and
  • 62% of top performers will have predominantly or fully global process design.
The costs to move to end-to-end processes is prohibitive. The costs of fragmentation far exceed the cost of transformation. Hackett has found that transformation and consolidation will save a $10B company 44% in the finance organization alone!

Better, Broader Information

Myth Reality Proof
Enterprise Peformance Measurements (EPM) addresses our enterprise issues. EPM is mostly financial and historical. That’s why 59% of world class companies use analytics in proactive decision making vs. 44% in the peer group.
Shortening planning cycles will get us to world class performance. Emphasis must shift from calendar to event driven decision making. That’s why 67% of organizations now use rolling forecasts.
Our company requires ever more information to make a decision. Companies require less, but more targetted information, to make a decision. That’s why there is 38% utilization of self-serve drill-down dashboards and reports in management by top performers vs. 8% in the peer group and 50% utilization in operations by top performers vs. 23% in the peer group.

Agile Execution

Myth Reality Proof
Centralization & Standardization erodes service quality. Centralization & Standardization actually reduces cost and improves service quality. We’re talking a 2X reduction in cost and a 5X improvement in quality!
Deep functional expertise is enough for global business services success. Global business services success requires a value mindset. The proof is in the pudding. World class organizations meet 100% of cost targets vs. 61% in the peer group, 100% of quality targets vs. 66% in the peer group, and 94% of delivery targets vs. 75% in the peer group. In addition, world class performers acheive more than 40% savings 73% of the time vs. only 33% in the peer group.
Optimization of technology and process will get us to world class performance. Without employee engagement, you’re only half way there! Not only are talent management leaders 16X more likely to link employee engagement to business impact, but there is 21% higher employee engagement in double-digit growth companies when compared to single-digit growth companies.

In other words, blast through the myths and you’re on the path to double digit growth.