Category Archives: Best Practices

Is Your Supply Chain Organization Ready for the Decade Ahead?

A recent article in the Harvard Business Review outlined “seven questions to ask” to find out if you are ready for a rebound. What I found enticing about the article is that these seven questions have supply chain corollaries. If you can’t answer yes to these seven questions, chances are that your supply chain will not be ready for the decade ahead.

  1. Do You Take Advantage of Opportunities Others Miss?Many companies continue to miss market and technology shifts that their rivals exploit. If you’re in this camp, you’re going to fall behind your competitors as they adopt better practices, better technologies, better suppliers, and better transportation options. For example, this means that you should have adopted real spend analysis and strategic sourcing decision optimization by now, as these are the only two sourcing technologies proven to repeatedly deliver double digit savings time and time again (at an average of 11% for spend analysis and 12% for decision optimization).
  2. Are Your Hydraulics Oiled and Flowing Smoothly?As per the HBR article, organizational hydraulics are the mechanisms that senior executives use to translate corporate objectives into aligned action by individuals across the organization. If there are too many initiatives, priorities, or conflicting goals, then the hydraulics get overburdened and break down. Limit your goals to 2 or 3 and initiatives to the top 4 or 5 opportunities and excel in the execution of those initiatives most likely to deliver the desired results. For example, if your sourcing team is limited, do a spend analysis and identify the top 5 categories with the greatest savings opportunities and those are your priorities for the quarter. Everything else can wait. It’s better to save 10% off of 100M than 20% off of 10M.
  3. Does Your Organization Reward Excellence?Or does it reward mediocrity and call it teamwork? Organizations should not only reward individuals who do what they say the will and meet, or exceed, their (stretch) goals with outsized bonuses, but remove compensation caps. If your top sales person or top buyer ends up taking home more than the CEO, that’s a good thing! It generally means that he sold (tens of) millions worth of product or services or she saved (tens of) millions of dollars for the organization. And if you’ve hired a smart CEO, and given her a piece of the company, she’ll be grinning from ear to ear as the value of her stock soars as a good CEO is in it for the long term.
  4. Are Your Core Values Aligned to Success?Or are they a joke? If your organization looks up to a bullcrap mission statement like “we synergize our processes to bring value to our customers”, then your values are probably a joke. But, on the other hand, if you focus on achievement, ownership, teamwork, creativity, and integrity … then you’ve got the framework for building a truly world class supply chain organization.
  5. Are You Talking About the Right Things?Or focussing on irrelevant minutia because you don’t have the guts to take on the elephant in the room that is the real impediment to your progress. If you spend your days looking for the next fire to put out instead of addressing how you’re going to weather the market storm that’s brewing, you’re talking about the wrong things and will be battered badly when the storm hits. Optimality in the supply chain is fleeting — even if you’re lucky enough to obtain it, it will quickly fade. The organization must always be on the lookout for the next process or technology that will increase efficiency and stability.
  6. Are Your Warriors Still Fighting?Or have your Vikings become farmers? If your team spends their time tweaking the last initiative until they’ve eeked out every last fraction of a percent of the perceived savings opportunity instead of diving into new opportunities as soon as they’ve extracted 80% of the potential value of the current opportunity, then your team has transitioned into a community of farmers content to live a peaceful and stable life. From an organizational viewpoint, this is bad since fields can be wiped out by a single flood and the only way to sustain success is to keep going after the next big opportunity. Furthermore, since it will generally take four times as much work to eek out the last 10% to 20% of savings, it’s just not a good investment of your team’s time. Follow the 80/20 rule if you want to maintain success.
  7. Are Your People Self-Sufficient?Or does everything come to a stand still every time you spend a few extra minutes in the lavatory? As the article says, senior executives who dash from crisis to crisis are a sign of organizational weakness, not leadership strength. If your team is truly strong, they will be able to function without your leadership and solve crisis on their own. You should be able to disappear for a month without any adverse effects to the organization. A good leader focusses on building the team, providing them with the support they need, and preparing them for future advancement — she doesn’t solve their problems for them. She gives them the training and support they need to solve their own problems

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A Hitchhiker’s Guide to e-Procurement: Reconciliation, Part II

Mostly Harmless, Part XIII

Previous Post

In the last post, reconciliation was defined as the process of comparing and matching figures from the accounting records of one system with the accounting records of another system. This meant that records in the system not only needed to match up, but match any associated records in the inventory system, the human resources system (if temp labor was procured), and the records in the supplier systems. This often requires a number of challenges to be overcome. This post will address some of the challenges of reconciliation, some associated best practices, and a few of the benefits that could be expected from an appropriate e-Procurement solution.

Common Challenges

  • Manual SKU Assignment

    If a line item can not be automatically matched with a purchase order line item and a corresponding price, then it can be difficult to match an item with the proper item in the buyer’s system.

  • Overpayment Identification

    As explained in the previous post, sometimes overpayments will slip through the most controlled system, especially if it’s difficult to match a conditional discount against a line item or if a contract is late being entered into the system.

  • Tax Verification

    Is the tax rate correct? Are the items being taxed subject to taxation? Is the organization exempt? Is the organization eligible to recover (part of the) tax payment? These can all be difficult questions to answer.

Best Practices

  • Flagging of Manual Assignments

    The system should automatically flag any manual assignment, and queue any manual assignments above a certain value for supervisory review.

  • Automatic Identification of Potential Overpayments

    The system should automatically identify any off-contract payments for goods and services that relate to existing contracts with suppliers in case the goods or services were covered by general discount clauses or in case the opportunity arises to negotiate them into a (future) contract revision.

  • Automatic Tax Rate Verification

    The system should automatically verify that the tax rates used are correct, that each tax the organization knows it has to pay is included, and that any taxes it gets to reclaim are appropriately flagged.

Potential Benefits

  • Overpayment Detection and Recovery

    Good reconciliation support will increases the number of overpayments that are detected and increase the chance of full and timely recovery.

  • Tax Recovery

    Good reconciliation support will increase the chances that recoverable tax payments are identified.

Once the reconciliation phase is complete, it is time to reclaim any tax payments to which the organization is due, which is the subject of a future post.

Next Post: Payments

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A Hitchhiker’s Guide to e-Procurement: Reconciliation, Part I

Mostly Harmless, Part XII

Previous Post

Reconciliation is the process of comparing and matching figures from the accounting records of one system with the accounting records of another system. In e-Procurement, it generally refers to the reconciliation of the invoice and associated payments against goods receipts, purchase orders, contracts, and / or tax records.

While reconciliation should be done at each step of the process — as the purchase order should be matched against the approval and a contract, the goods receipt against the purchase order(s), and the invoice against the goods receipt(s) and the purchase order(s), there should be a separate, (semi-)manual reconciliation phase as not everything can be reconciled automatically and there will always be new situations and exceptions not accounted for in the automatic rules.

If there is an error in a SKU or other identifying attribute, it may not be possible to automatically match one or more invoice line items against the purchase order(s) they correspond to. In this situation, the e-Procurement system would flag the invoice for manual review, at which point the individual who (first) processed the invoice would do a manual match. If the amount is significant, this match should be rechecked at a later time, because if there were two similar items in the procurement system (catalogs) and the match was made to the wrong, off-contract item, the organization might end up paying a higher price.

A review should also be made of all purchases against a supplier’s account for which there are no contract prices if there are contracts in place with the supplier. For example, a contract with an electronics vendor might be such that the organization gets 10% off of list price for all items for which a contract price is not specified or that the organization gets 15% off of all purchases once it has purchased One Million Dollars worth of goods and services. These situations may not be caught by the system automatically as it might not be easy to encode which goods or services are covered, especially if items are being ordered / purchased not yet in the system.

In addition, a review should be made of all tax payments. Is the tax rate correct? Are the items being taxed subject to taxation? Is the organization exempt? Is the organization eligible to recover some of the payments (such as GST in Canada)? This is a difficult subject and a manual review will be required to ensure that the right taxes are being made at the right amount and that the organization is capturing the right information that will be required for tax reclamation, which is the subject of an upcoming post.

Next Post: Reconciliation, Part I

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You Say You Know How To Balance Competing Objectives. Are You Sure?

You need to source some more cocoa for your chocolate factories to keep production moving (and the oompa loompas working). In years past, you’d just hold an auction and cut a contract with the lowest cost bidder, but you can’t do that now that you’re a socially responsible buyer. You can’t buy from some sellers on the Ivory Coast that you know are using child labor, you can’t buy from further away than necessary as long hauls greatly increase your carbon footprint, and you can’t buy inferior products for your luxury chocolate production lines. You can buy some inferior products for your mass economy goods, provided they are blended with higher quality goods, but only so much. You can ship further if the cost is low enough that you can buy carbon credits. And you can source a portion of your award from a select handful of Ivory Coast suppliers who are making an active effort to approve their socially responsible operations.

It’s a complicated decision as you have to balance cost vs. carbon vs. quality vs. brand value. In fact, the only way to truly make the best decision is to use a (strategic sourcing) decision optimization solution that allows for multi-criteria multi-variate optimization that allows a buyer to determine the cost and benefits of various solutions with respect to each objective. In addition, it’s the only way a buyer can truly examine the effect of different weightings of the various criteria under consideration.

While many of the SSDO (strategic sourcing decision optimization) platforms do not yet support this capability, you can be sure that most of tomorrow’s platforms will. To find out what other capabilities are forthcoming in the world of decision optimization, visit BravoSolution‘s website, fill out a short 8-field registration form, and receive your free, exclusive, copy of The Future of Optimization, a new Sourcing Innovation white-paper with groundbreaking insight on eight directions that strategic sourcing decision optimization is likely to take in the decade ahead.

Imitation is More Than Flattery

It’s good business. In fact, for most businesses, it’s good innovation. Innovation is difficult and costly for most businesses, and most innovators are unable to capitalize on their innovation to become the market leader. In contrast, most of the market leaders are companies that perfected innovative imitation, where they come up with cheaper and better versions of the innovative technologies developed by their competitors (which use new and improved technologies and processes that “invent around” whatever patents the competition might possess).

Good examples are given in this Harvard Business Review article which explains why “imitation is more valuable than innovation”. McDonald’s imitated and perfected a system pioneered by White Castle; Visa, MasterCard, and American Express all learned from Diners Club; and even Wal-Mart’s founder admitted that he borrowed most of their practices from predecessors, improving and combining them into a winning formula. In other words, today’s lions are the descendants of copycats.

However, as pointed out in the article, success is more than just a cheap knock off (even though that may work in China). As the article points out, the art of “true imitation” requires one to develop the capabilities that enable its effective use and to learn to deploy imitation strategies. True imitation is a complex and demanding process that requires high intelligence and advanced cognitive capabilities. It’s a form of innovation in its own right … and one that an organization needs to master if it’s not effective at coming up at truly original ideas.

But even more than that, it’s the foundation of a great supply chain. A great supply chain is built on best practices that are derived from the innovation of others and improved over time.

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