Category Archives: Best Practices

Keeping Strategic Decisions on Track and the CFO Happy

A recent article in the McKinsey Quarterly on “How CFOs can keep strategic decisions on track” is a good read for any CPO looking to impress the C-Suite. Noting that judgement can often be colored by self-interest, and that CFOs are generally the most disinterested parties where strategic decisions are concerned, the article points out how a disinterested CFO can often provide hard financial data to counter inherent biases.

This implies that a great way to keep your strategic supply management decisions on track, keep the CFO happy, and impress the C-Suite is to run your proposals, with your projections, by the CFO before you take them to the rest of the executive suite. And if you need number crunching help, and they have staff, the CFO, who will likely be impressed that you asked for help before making a final recommendation, will probably be glad to lend you some support to confirm or verify your projections. Not always, but much more likely than if you make a presentation first and ask for help later.

It’s Sourcing, Procurement, and Global Trade

A few years ago, I took the time to remind you that it’s Sourcing and Procurement because it appeared that some vendors wanted you to believe that it’s e-Sourcing or e-Procurement, or some fractured combination of both, because that’s what they have and they want all of your business.

As I said before, e-Procurement and e-Sourcing are not the same thing. From a supply management perspective, they’re two halves of a whole, one tactical and one strategic. And while they bring value alone, combined they bring much greater value. Sourcing leads into Procurement, usually off of a contract, but sometimes after e-Negotiation or decision optimization alone, and Procurement leads back into Sourcing, through the analysis step. Without Procurement, the organization wouldn’t have a large transaction database and extensive visibility into spend, and without Sourcing, there would be no strategically negotiated contracts to buy against, leaving procurement managers the freedom to spend willy nilly.

But when it comes to supply management, Sourcing and Procurement are still not the full picture. While they are the full picture from the viewpoint of the buyer / analyst in a mid-sized or larger supply management organization, they do not address the supply side, or the fact that goods need to come from a supplier, sometimes by way of a distributor, and end up in the buyer’s warehouses for shipment to stores and/or end consumers.

The goods have to be packed, shipped, exported, imported, and, sometimes, financed. And the settlement function has to take into account invoice discounting and chargebacks, at a minimum. This doesn’t sound too bad until you realize that the average international shipment requires twenty or more documents for export and import, especially when the US or the EU is involved. Ever since the introduction of 10+2 and new advance cargo declarations in the EU, it seems that documentation requirements have been compounding ever since.

And while this functionality does not necessarily have to be in the e-Sourcing or e-Procurement system, it is needed by any company doing international business and it should be easy for a company to push data out from the e-Sourcing/e-Procurement system into the appropriate Global Trade Management system and pull the necessary data back in for analysis.

Because, when you consider the average transaction in today’s global supply chain end to end, this is what you usually end up with.

Sourcing – Spend Analysis (what needs to be sourced)
Sourcing – e-Negotiation (RFX, Auction – who will it be sourced from)
Sourcing – Decision Optimization (optional, to analyze the bids)
Sourcing – Contract Management (to store the awards)
Procurement – Requisition (for a Bill of Materials)
Procurement – Approval (for the requisition)
Procurement – Purchase Order (for the supplier)
Global Trade – Financing (can be pre or post invoice)
Global Trade – Packing (goods have to be properly packed and labelled)
Global Trade – Shipping (goods have to be shipped)
Freight Forwarder (if a third party handles the shipping)
Export Documentation (for the supplier’s home country)
Import Documentation (for the buyer’s home country)
Procurement – Good Receipt
Procurement – Invoice
Global Trade – Invoice Discounting (if the buyer pays early)
Procurement – Reconcilation
Procurement – Payment
Global Trade – Settlement (the purchase has to be settled in the source accounting system)
Global Trade – Chargebacks (chargebacks for penalties or returned goods have to be accounted for)
Procurement – Tax Reclamation
Sourcing – Spend Analysis (what needs to be sourced)

Pierre Mitchell on The Hackett Group Best Practices Conference


Today’s guest post is from Pierre Mitchell, Director, Procurement Research and Advisory for The Hackett Group.

the doctor is coming to our annual best practices conference in Atlanta in a couple of weeks (May 11-12) and wanted me to say a few words about it. He is doing this on his own nickel, which is appropriate since the Canadian nickel has a beaver on the back, and the beaver is nature’s engineer (which many an MIT alumn has pointed out to me), and Michael is an engineer. More importantly though, I really applaud the bloggers who get out there and press the flesh as much as the keyboard keys!

Anyway, I really love the event which is held every year in Atlanta at the Intercontinental Buckhead hotel. Our website has all the official marketing about the event, but what I really like about it is not only the chance to reconnect with our Procurement Executive Advisory Program clients at our CPO summit the day before and at the event proper, but also the cross functional nature of it. Don’t get me wrong, dressing up for Procurement-only black-tie events can be fun, and vendor-sponsored golf events can provide welcome respite from the typical CPO workweek insanity, but this is the only executive forum (majority of the hundreds of our conference attendees are VP level and above) I’ve seen that is cross-functional in nature. Many of our Procurement clients remark how it’s nice to see other functions like IT, Finance, HR, Shared Services, etc., also going through the same set of issues. Hasbro‘s CIO Denise Clark will talk about agility and service excellence, communications, governance, metrics and more. Procurement leads a very similar life to IT (although the internal buyer-supplier relationship is not always ‘optimal’).

We do have some great Procurement speakers. Christie Breves, CPO at Alcoa, will discuss the evolving role of procurement at Alcoa and how it contributes to the broader enterprise, especially with its integrated team of procurement and business unit members that helped it quickly respond to the economic downturn. Rick Wertsching, VP Sourcing & Procurement, The Walt Disney Company, will discuss Disney’s results and lessons learned in category management, global sourcing and global operations. Thomson Reuters‘ will be talking about how they optimized sourcing, real estate and facilities, accounting and transaction operations within their Global Business Services (GBS) organization. Air Products, will talk about their experiences on both the sell-side and P2P side. Finally, Chris Sawchuk and myself will be featuring some of our latest Procurement insights from recent research and our latest benchmark data cut.

The big themes for the conference will be agility (as antidote to volatility) and global service delivery:

  • Solo Cup will talk about its ‘next generation’ Integrated Business Planning (IBP) process and moving finance from “reporting” numbers to “making” numbers. In response to rising commodity costs, the company’s management team developed IBP to provide a more robust planning capability than we typically see — especially between Procurement and Finance.
  • Kohler will discuss how to go from multinational to global and balancing need for global vs. forces driving local customization, including the evolving role of the finance organization — from transaction provider to strategic business enabler. Procurement must similarly “mass customize” its processes in both sourcing and in P2P.
  • Michael Bordoni, VP Finance Strategy & Transformation at HP, is a top-rated returning speaker to discuss HP’s journey to world-class finance performance. He will address process design and sourcing, technology and automation, skills and talent, governance and organization — including the use of global business service centers and centers of excellence.
  • Not to be outdone, Dell will also discuss their EPM (enterprise performance management) journey and their fundamental shift from country-based segmentation to one aligned with global customers and products.
  • Unilever will focus on its interesting “global operating model” and how the company delivers based on a model that is being “designed in the East” and “transported to the West”.

While there’s nothing like actually being there, I’m sure Michael will write up some good insights to share back with the blogosphere. If you do make it down though, I look forward to seeing you!

Thanks, Pierre!

The Voice of the Customer

As mentioned in yesterday’s post on What Can The Right Supply Chain Transformation Do For You, there are a number of best practices that should be followed when undertaking a supply chain transformation but by far the most important is to listen to the voice of the customer. Since the whole purpose of the supply chain is to serve the company and the whole purpose of the company is to serve the customer, the best supply chain is one that serves the needs of the customer from end to end and enables the company to excel in the products and services it provides.

Even when considering manufacturing, service, and raw material suppliers, the voice of the customer has a hand to play. The voice of the customer has a role to play at each stage of the supply chain mega process. Whether you are Planning, Buying, Making, Moving, Storing, Selling, or handling a Return — the customer’s needs must be considered. The following are just a few of the questions that can be asked at each stage:

Stage Question
Plan What needs does the customer have?
What products or services might meet these needs?
Which of these do we have the competence to offer?
Buy What materials or services do we need to offer the products or services we plan to offer?
What level of quality is the customer expecting?
How robust do the materials or services need to be?
Make What features are most important to the customer?
What level of quality is required?
What materials should be avoided because they might be hazardous?
Move How fast does the customer need the product?
How environmentally concerned is the customer?
Are there any special transportation requirements required to insure the product arrives to the customer as expected?
Store Where should we place the product to get it to the customer when they need it?
What are the storage requirements to maintain quality and integrity?
Sell What price point is the customer expecting?
Where does the customer expect to buy the product?
Return If something goes wrong, how does the customer expect to accomplish a return?
Where does the customer expect to make a return?
How efficient does the customer expect the return to be?

If you answer these questions correctly, then you just might have a customer who says:

  1. I need a solution.
  2. I know where I can get it.
  3. I buy from you.
  4. My order goes “in production”.
  5. My order is then put “in transit”.
  6. I get and use the product.
  7. I get support when I need it.

And that’s a successfully transformed supply chain.

What Can The Right Supply Chain Transformation Do For You?

There’s a two-fold reason one of the top themes for SI this year is Next Generation Sourcing and a reason SI has spent posts (upon posts) discussing CAPS Value Focussed Supply, Tompkins Associates’ Supply Chain Value Creation Framework, BravoSolution’s High Definition Sourcing, Purchasing Practice’s Innovation Framework, The MPower Group’s Next Practices, and, shortly, Greybeard Advisors’ Next Level Supply Management. Not only is your supply chain not likely to survive the prolonged global economic recession and “jobless recovery” without it, but it’s going to mean the difference between survival and smashing success.

As proof, I point you to The Lessons from Dell’s Supply Chain Transformation, a recent videocast and article over on Supply Chain Digest.

While Dell’s investor relations group edited out some of the more detailed metrics that resulted from their recent supply chain transformation, the ones that stayed were extremely compelling.

  • 300% reduction in forecast error
  • 30% freight cost reduction
  • 30% manufacturing cost reduction
  • 37% improvement in product availability
  • 33% improvement in order delivery times

That’s more-or-less a 30% improvement across the board! All you have to do is implement best practices and, most importantly, listen to the voice of the customer at each stage. (And yes, it’s often easier said than done, but those returns are worth the effort.)