Category Archives: Best Practices

Six Questions To Ask Yourself When Outsourcing

A recent article over on the Sourcing Interests Group Site on “Rocks to Turn Over in Outsourcing Arrangements” contained a number of questions an organization could ask when looking to maximize value from the relationship. The following six are especially pertinent.

  1. Do we share information the other party needs to be successful?
    One cannot outsource an activity and expect the outsourcing organization to be successful unless all of the information the outsourcing organizations needs to be successful is also shared. For example, if an organization outsources customer support, it must provide the third party with all of its policies, product details, available resolutions and average wait times (for repair, replacement and refund).
  2. How can we encourage more active planning for, and achievement of, innovation?
    An organization that outsources a function and does it right does a process analysis and redesign so that the outsourced organization implements an efficient desired state of the process in place of the inefficient current state. However, while this will be an improvement, it will not necessarily be an optimal implementation of the process. There should be a constant quest for process improvement and innovation.
  3. Is there commitment and follow-through when decisions are made?
    Decisions are ineffective if not acted on.
  4. Are key leadership roles understood and filled?
    Consistent leadership and executive support are necessary for any organizational initiative to be effective.
  5. Are adequate incentives in place to motivate collaborative behaviour and effective performance?
    Chances are that there will be metrics up the wazoo but very little motivation in place to improve them. In order to insure success, there should be incentives in place for the organization to go above and beyond the committed service level.
  6. Do we trust our counterparts to meet their commitments effectively?
    If you don’t trust the outsourcing provider, the outsourcing provider won’t trust you and instead of thinking about how to improve service to your organization, they’ll be thinking about how to make sure they don’t get screwed out of any money they were expecting to get. And instead of spending time trying to innovative and improve a process, they’ll be spending all their time documenting activity and compiling metrics and monthly reports to verify that they met performance commitments and are due to receive (additional) payment.

Outsourcing is not a guaranteed success. In fact, to see any improvement at all, it’s a lot of work. The rewards can be there, but it has to be done right. These are six great questions to ask if an organization wants to determine whether or not it is on the right tracks.

Have You Lost Your Mojo?

According to a recent article over on Industry Week on “Putting Creativity on the Company Agenda”, Josh Linkner, founder and chairman of ePrize, claims that due to a constant focus on cost-cutting, efficiency gains and top-down control, too many organizations have lost their mojo.

 

Yes, Austin, if true, that’s not a good thing, especially given the ever-increasing arms race for competitive edge. But Linkner is correct about one thing, when the dust settles, the only thing that can’t be commoditized is creativity. So the last thing your organization wants to lose in its quest to become a next-generation supply management organization is its mojo.
So how can your organization get its mojo back if its lost it? Screw up. Seriously. Sometimes a dose of humility is the best medicine.

Why Imitation may be the Best Form of Supply Chain Innovation … For Many

A recent article over on Forbes on how imitation with innovation reduces risk in startups had some great reasons why imitation with innovation is often superior to pursuing disruptive technology — reasons which are just as applicable to supply chain for the average company. While its true that some companies will need a next generation disruptive supply management strategy to get a performance gain, this is only true of the roughly 10% of companies that have been applying leading supply chain practices for close to a decade. Until a company has maximized value from current supply chain practices, it is likely that the company is not going to be ready to maximize value from next level supply management techniques.

Plus, as per the article, for an average company, imitating the leaders:

  • avoids large initial investments until the ROI is there
    which is important as Supply Management is not going to look good if it spends Millions of dollars before it realizes the savings to justify the investment
  • and reduces the cost of Supply Management innovation
    as the costs to be the first inventor are always a third higher statistically and any attempts to patent just make imitation easier due to disclosure requirements (as a smart technologist can work around any patent using techniques such as innovation on demand)
  • while learning from competitors and early adopters
    who will be the first to encounter the gotchas associated with implementation screw-ups and perfect the techniques
  • who are actively progressing the state of the art
    because once a couple of big players prove a new technique has value, they will find more and quicker ways to extract maximum value from the technique

Plus, initially it will be easier to get funding for the technology and resources you need to make Supply Management a success if you can point to a respected competitor and say that this technology or methodology saved them millions. And then, when Supply Management has proven itself, it will be much easier to get investment for next generation disruptive Supply Management technologies and methodologies. Just don’t lose site of the ultimate goal — Next Generation Supply Management — and the organization will eventually reach its goal with persistence and smart, initial, application of imitation with innovation.

Four Ideas to Make Your Procurement Department More Strategic

It’s a new year, and your Supply Management organization is again being asked to step up its game, which is getting harder and harder to do as there is only so much cost you can squeeze out of the supply chain. So what can you do? You can start by taking a fresh look at the strategic mission of your procurement department and look for ways to be the driver of change and value for your organization. As per our recent posts on Value Focussed Supply and High Definition Sourcing, the value in Next Generation Sourcing savings will come as much from Supply Management’s contribution to profit margins as it will from their contribution to cost reduction as Supply Management is in a unique position to bridge organizational silos and help the organization understand not only the drivers of cost, but the drivers of value and what value is available to be had, for little or no cost, in the supply base.

In an attempt to help your organization get started down the strategic path to Supply Management, BravoSolution has released a white-paper that provides 10 Ideas to Make Your Procurement Department More Strategic that is quite thought provoking. Containing great ideas on how to increase price, take better advantage of volume, and reduce fixed and variable costs, the white-paper is a must read for any Supply Management department struggling with how to improve value when there isn’t much cost left to take out of the equation.

For example, the white paper points out that you need to:

  • learn more about your company’s customers and what is really important to them
    as this will not only allow you to zero in on what they really need, and lower cost, but identify suppliers and products that could provide them with more value and allow them to increase price
  • learn about the markets you aren’t currently serving
    because maybe there is a profitable niche that you could easily serve with your current supply base and minor changes to product designs or pricing models
  • learn about technologies that could reduce your variable costs
    even if the technology is designed to be utilized in production and has to be utilized by your supplier because if it costs 100K and saves 1M a year, it should be a no-brainer
  • teach your organization about where it spends (too much) money
    because it really doesn’t know (and that’s why analysis has to be ubiquitous). It might not know that every department is buying its own toner off-contract at 2x the negotiated contract price. If you’re a large organization buying thousands of cartridges a year (because everyone is print-happy) that’s hundreds of thousands of dollars a year being flushed down the virtual toilet.

So check out these 10 Ideas to Make Your Procurement Department More Strategic. (They’re not vendor platform specific and will be more than worth your time.)

Always Put Function Before Specifications When Buying

It makes no difference whether your organization is in the public sector or private sector and no difference whether it’s a service, product, or piece of technology. It goes double if the buy requires a (long-term) contract. And it doesn’t matter if there are government, health-and-safety, or other regulatory requirements (as these can always be worded in functional terms or shifted over to manufacturing or raw material requirements).

The reality, and Stephen Guth of the Vendor Management Office will back me up on this, is that as soon as you create a specification, you (essentially) lock in a (small set of) vendor(s). And just like 80% of the cost is locked in during the design phase of new product development (NPD), 80% of the price is locked in as soon as you limit yourself to a vendor (or two). Just like raw materials, components, and machines have relatively stable prices in a narrow band, your average vendor, with stable overheads, supply, manufacturing, and/or service delivery costs, has a relatively stable price band that its sales representatives will not be allowed to deviate from, often because the vendor cannot afford to because of its overhead cost.

Plus, it’s never about the product or service, but the value received from the product or service. Consider a tablet manufacturer. The end customer doesn’t care about the CPU, they care about the performance it delivers. Most customers don’t care if it’s AMD or Intel, just that the performance is on par with best-in-class. Consider outsourced back office accounting. Does it really matter what packages are used or how many resources are assigned to the team? No. What matters is whether acceptable standards are followed, how fast the monthly reporting is completed, and how much the service costs. And consider technology. When one is buying a new e-Sourcing system, the specific 400 features on the drop down lists don’t matter. What matters is whether or not it supports RFX, e-Auction, “What-If” Decision Optimization, and Contract Management; whether or not the workflows can be tailored and/or integrated to your existing Supply Management Systems; and whether or not it’s the most cost-efficient delivery model for your organization. The minute you use a “vendor-supplied” RFx or think you need 20 specific features is the minute a single vendor locks you in and doubles the price because no one else will have their specific feature list, but yet, for an average organization, ten off-the-shelf packages will be equally as effective for the organization in its quest to achieve Supply Management Value.

So forget the specs and focus on the function. That’s the best way to maximize value (and minimize sales person power).