Category Archives: Best Practices

VFS: Will Yet Another Acronym Solve Our Woes?

A recent publication of CAPS Research and A.T. Kearney, Inc. on “Linking Supply to Competitive Business Strategies” introduced us to yet another acronym for modern supply management: Value Focussed Supply (VFS). As per usual, there’s a lot of good advice that accompanies the acronym, but do we need it?

According to CAPS and A.T. Kearney, Value Focused Supply (VFS) strategies will provide the next breakthrough opportunity for companies to create and capture value from their most strategic purchases because they go beyond the typical price/cost focus of competitive sourcing. However, anyone who has been keeping track would know that a number of supply strategies have been developed over the last few years that were not (just) cost/price focussed, including AMR’s DDSN (Demand Driven Supply Network) and TVM (Total Value Management,  (e-Sourcing Forum) an optimization-based approach).  [Also: Sourcing Innovation]

According to the executive summary, leading companies are clearly demonstrating the power of this more comprehensive approach. This isn’t the first time we’ve heard these claims either. The MPower Group has been making the same claims for over a year now with their next practices approach, which they’ve described in a number of posts here on SI, including Strategic Sourcing is Dead and The Sourcing Emperor Has No Clothes. Plus, any organization that extends its focus beyond just cost is bound get better results after a while. And once a suitable strategy and focus is adopted, there will be opportunities to protect and create significant competitive advantages.

While I agree that the widespread use of [traditional] completive sourcing techniques and tools (and e-RFX and e-Auction in particular) has eroded the major advantage that it gave pioneers in the 1990s, we don’t need to resort to new acronyms. The average organization has yet to even try strategic sourcing decision optimization or embrace true spend analysis. Then, as mentioned above, there are next generation supply strategies based on decision optimization, such as TVM. The average organization just needs to keep up with the times.

Furthermore, it’s not necessarily an issue that the savings gap between “leader” and “follower” companies has shrunk in half since 2004. For example, if all of the organizations were employing some form of sourcing strategy, then you would expect the gap to close over time. Furthermore, the recent recession has caused many suppliers to slash prices in efforts to keep afloat. If suppliers slash prices on their own, there’s not much to cut in a competitive sourcing event.

And while companies must find and mine additional value from their supply relationships, current techniques will more than suffice — no new abbreviations required. As long as supply is linked to a competitive business strategy, value can be increased — for both parties.

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The 9 Cs of Site Selection

A couple of weeks ago I penned a post on Finding the Right Site where I discussed a recent article in Strategy + Business on five factors for finding the right site and noted that I thought there were at least six critical factors. It wasn’t long before Dick Locke corrected me and upped the count to seven. However, after reading this recent article in Global Services on “Location Selection Best Practices”, I am now convinced that there are 9 Cs of site selection.

In addition to the five Cs, outlined in the Strategy + Business article, of:

  • Cost
    What is the total cost of the location, including the costs of land, office equipment, communications, wages, training, taxes, infrastructure, and wages. etc.
  • Capacity
    What is the current availability of talent in the region and the expected availability in years to come? etc.
  • Capability
    What percentage of the talent has the specific engineering skills that the company needs (and/or can be easily trained to acquire those skills) and how easy will it be to find the talent to build and maintain the appropriate operational environments? etc.
  • Communications
    What will be the ability to seamlessly share information between the site and headquarters without cultural, language, or distance obstacles? etc.
  • Culture
    What is the ability of the location to attract talent that will fit in with the company culture? etc.

And the two additional Cs identified by myself and Dick Locke of:

  • Competition
    How many similar companies are setting up in the region? etc.
  • Citizenship
    What is the marketing impact of the location? Are you going to participate in the local economy? etc.

I now believe the following two factors are equally important:

  • Core
    Is the core infrastructure sufficient for your operations? Chances are that you’re going to need a lot of power and water. Can the infrastructure handle it, or is it already at capacity? If the operation can’t go down, are redundant power, water, and/or communications feeds available? You can’t always wait for the infrastructure to catch up.
  • Call
    An extended site visit is absolutely essential before you make a long-term commitment to a new location. A 2-day fly-by to sign the papers and celebrate is not enough to make a selection. The location has to be surveyed, the talent pool has to be evaluated on the ground, and the local living conditions have to be experienced. Someone has to spend at least a few weeks, if not a few months, evaluating the ins and outs, ups and downs, and pros of cons of any location on the short list before a final decision is made. And unless this factor gets its own category, and weighting, it won’t be done and “gotchas” will go undetected.

Selecting the wrong site will cost you tens, if not hundreds, of millions, so take your time and use the 9 Cs to select the right one.

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To Be a Good CSCO, Don’t Forget the Don’ts!

A recent article over in eyefortransport on the “DOs and DON’Ts for Chief Supply Chain Officers” had a good list of things to do to be a successful CSCO (or CPO) but what really got my attention was the list of things not to do, because it’s so easy to do five things right and then watch everything unravel when you do only one thing wrong. Here are some of the most important don’ts from the article:

  • don’t create a separate KPI team
    KPIs should be created by the people who are performing the functions they measure. Otherwise, you’ll have good-meaning people who don’t truly understand the function deciding that the right metric is average order completion time and not on-time shipments as you can have a great average order completion time but still be late for 30% of your orders.
  • don’t create a function without a well defined purpose
    Just like you shouldn’t outsource to China because the company down the street is doing it, you shouldn’t create a new function because the company next door is doing it. Your team is already overworked, so don’t add something unless you know why you’re adding it and what benefits it’s going to bring.
  • don’t cut the training budget
    This cannot be stressed enough — you need highly skilled and educated people to make it in this knowledge economy. (That’s why we can have 15% unemployment and still have millions of jobs unfilled.) If you’re people don’t have the necessary skills, they won’t get the job you need done.
  • don’t speak supply chain language with other departments
    They won’t understand a word you’re saying and will think that you need a “vacation” at the local “resort“. That’s why you need to learn to lean to speak the language of the CFO.
  • don’t let the board think supply chain is just about cost
    If you do, they’ll have you cut, cut, cut until the quality falls through the floor and there’s melamine in the milk, salmonella in the spinach, lead in the paint, or asbestos in the insulation and your supply chain falls apart.

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Why Haven’t You Put a Knowledge Retention Policy in Place Yet?

While reading a recent article in Corporate Executive on “solving the problem of the aging workforce”, I was shocked at a statistic they quoted from a 2008 study conducted by the Institute for Corporate Productivity (i4CP) that noted that 30% of companies admitted they retained knowledge either poorly or not at all and 78% of companies admitted that they did not have anyone responsible for organizational knowledge retention. In other words, 4 out of 5 companies do not have an individual responsible for insuring knowledge in their company does not get lost!

Without anyone responsible for insuring knowledge retention, a knowledge retention policy will not be created and knowledge will not be captured. As a result, as your aging workforce retires, key knowledge will retire with them. With between 29% and 36% of your workforce eligible for retirement within the next 9 years, that’s 1/3rd of your corporate knowledge at risk of disappearing. Given the amount of knowledge that’s already been lost in the outsourcing craze, where many companies just handed functions over to outsource providers in their entirety — without any thought as to how key knowledge would be retained in case the tasks needed to be reassigned, brought-back in house, or managed internally — can you really afford to lose 1/3rd of your corporate knowledge? I doubt it.

It’s time to put a knowledge retention policy in place … before it’s too late!

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HBR’s Advice on Getting Your Idea Approved

As per the eSourcingWiki article on “The Quest for Purchasing Fire”, it can be tough to get your idea approved. That’s why you need to take the advice of the experts from time to time, and this recent post over on the HBR Blogs on “How to Get Your Idea Approved” is a great start. Especially the second step of:

Prepare, Prepare, Prepare

As Michael Norton says, “when you watch someone stumble through an answer, you make an inference that they don’t know what they’re talking about“, so if you stumble through an answer, you can expect that your audience will think that your idea is half-baked, which will greatly reduce your chances of getting it approved. A major key to success is to identify the potential concerns of your audience up front and then prepare concise, honest answers to their challenges that you can deliver with confidence. Even if they don’t buy in, they’ll be a lot less likely to fight your idea. And then, you need to:

Keep it Simple

As Norton says, the curse of a presentation is that you know much more than your audience about the topic, but you have to avoid overwhelming your audience when you present the idea. You need to focus on the main points, which should be presented in the language of your audience, so that your audience will grasp the benefits quickly, and avoid tangential wanderings into secondary points unless they come up in the course of Q&A. And even then, you have to keep your answers concise. (Only go into the full details in the full written proposal, and only give it to those who ask. Provide everyone else with short executive summaries.) Finally, it’s important to:

Maintain Alliances

While its important to form alliances early, it’s also equally important to maintain those alliances. You’d be surprised how fast those alliances could go up in a puff of smoke if you don’t maintain your connections, keep them apprised of what is going on, continually address their concerns, and, of course, socialize.

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