Category Archives: Best Practices

Dos for Procurement Leadership, Part I

A recent article in the CPO Agenda had some good “Dos and Don’ts of Procurement Leadership” that are worth repeating. Today we’re going to dive into five of the dos and put an SI slant on them. DO:

  • Put a Man on the MoonHave a clear vision of success, a plan to get there, the ability to articulate this to your team in an inspirational manner, and the willingness to see it through — even if it takes almost a decade.
  • Build Your Vision on Solid FoundationsMake sure your measures of success are specific, measurable, achievable, realistic, and timely. These will be essential to not only communicate success within your organization, but to manage any processes you outsource to a consulting firm or a BPO. (See the roles of performance in the (out)sourcing process.)
  • Be a Business FunctionUse Total Value Management, which is the root of all value models, to make sure your objectives are aligned with overall (strategic) business objectives. Your wins become business wins, and you look like a superstar.
  • Develop Your CapabilitiesMake sure you develop personal development plans (PDP) for each and every team member and follow them through. Charles outlined some good ideas you can use in his post on Procurement Transformation in the archives.
  • Always Deliver on Your PromisesYou need to be seen as reliable and trustworthy. This will help you get the resources you need for continued success.

What is Strategy? And How Is It Obtained? (Part I)

While seeking a successful supply chain, chances are that one of the first three things every “consultancy” will mandate is the need for “supply chain strategy”, which must be in-line with the “business strategy”, where strategy is defined, on Wikipedia, as a plan of action designed to achieve a particular goal. But what does it entail? And how is it achieved?

It’s a good question, and one that Walter Kiechel III tried to answer in Seven Chapters of Strategic Wisdom over on Strategy+Business with his shortcut to the big themes in the conversation about corporate strategy. In the article, he offers a review of the best writing on strategy: not books, but seven of the best chapters from books related to the topic which covers the main definitions and arguments put forth by:

In essence, these “critical chapters” in strategic history defined strategy as:

  • the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals;
  • the pattern of major objectives, purposes or goals and essential policies and plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be;
  • that which provides competitive advantage (which, in Porter’s viewpoint, basically boiled down to the pursuance of cost leadership, differentiation, or narrow focus on a geography, territory, or product segment);
  • an emergent property that begins with the hand the organization has been dealt and goes from there, with all the existing strengths and weaknesses, setting off in a general direction where the organization runs into reality — including markets, products, and competitors that don’t behave the way the organization expects them to, learn from organizational mistakes, make corrections, and “execute like hell”;
  • an exercise in pattern recognition, which is often centred around emerging technology and its “S” curve;
  • an attack mentality, even if it means innovating to supplant current organizational technology; and
  • a means of getting past the fallacies of predetermination, detachment, formalization, and marketing myopia.

However, a strategy:

  • has to indicate how the long-term goals translate into short term actions;
  • has to address geography and internationalization;
  • could also be differentiated in terms of service, environmental impact, or market definition;
  • has to be proactive as well as reactive;
  • has to be able to shape patterns as well as recognize them;
  • has to be defensive as well as offensive; and
  • has to account for the unknown.

Thus, these definitions, on their own, are not a sufficient definition of strategy. So what is? And given a definition, how is a strategy created? Part II will explore some other definitions of strategy and arrive at a working definition of business strategy.

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If Your Quest for Purchasing Fire Involves a Fight …

You better make sure you’ve picked a good one! Not only can your Quest for Purchasing Fire require a lot of work, but it can also require that you fight a number of battles with people who don’t want to change, don’t want to spend money, or just don’t want to admit that there might be a better way. As a result, if you want the odds to be on your side, you need to make sure that the fight you pick is a good one. To this end, a recent article in the Harvard Business Review on “how to pick a good fight”, which should be based on the kind of conflict that can spark creativity and innovation, can help you figure out if your fight is the right one.

Remembering that conflict is healthful only when people’s energies are pointed in the right direction and when carried out in a productive way, a good fight is material, focussed on the future, and noble in nature. More specifically:

  • The Fight Has Value.As per the article, the initiative you want to undertake should save 15% or more of your resources and time a year, allow you to charge at least 10% or more for your services than you do now, or grow your sales or market share faster than your competitors. If the initiative doesn’t have this level of significance, find another one.
  • The Fight Focusses on Future Possibility.The quest should not be about sorting out what happened in the past or figuring out who is accountable for the current state of affairs. That just won’t fly. Make sure you’re focussing on how to improve in a blameless way and that you’re proposing innovation and a vision the organization can get behind, with a little persuasion.
  • The Fight is Noble. The goal must be about more than making or saving money, reflect a larger organizational cause, and align with the values of the organization. Make sure it addresses risk, sustainability, or corporate social responsibility if you really want to tip the odds in your favour.

If you follow these tips, you’re well on your way to a successful Quest for Purchasing Fire. Bon voyage!

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Key Performance Indicators, A Book Review

Today I’m going to briefly review Key Performance Indicators, 2nd Edition, by David Parmenter, a regular contributor to BetterManagement.com and a big supporter of The Balanced Scorecard by Kaplan and Norton and Stephen Few‘s work on Visual Business Intelligence, highlighted on PerceptualEdge.com.

The book is very informative on the subject and literally presents a step-by-step how-to guide, complete with checklists, surveys, workshop outlines, reporting templates, and key task descriptions that will guide you though a successful project execution. It spends over 50 pages detailing a 12-step model, complete with key tasks that need to be completed at each phase, that, when properly applied, will almost guarantee the success of any KPI project that is appropriately undertaken with the right support. It outlines the critical success factors of any KPI initiative and even provides 23 pages of performance measures that you can review when searching through the right performance metrics for your organization.

But most importantly, it clearly outlines the difference between key performance indicators, performance indicators, results indicators, and key results indicators. Many organizations mix up performance and results indicators, and mixing up key performance indicators with non-key result indicators can do more harm then good. Consider the example of a UK hospital that decided the most important metric was the time between patient registration and patient review by a house doctor. Since the nurses realized they could not stop patients from registering with minor injuries, which did not require immediate treatment, but that they could delay the registration of patients in ambulances, because they were receiving quality care from the paramedics, the nursing staff started asking paramedics to leave the patients in the ambulances until a house doctor could see them, as this improved the “average time to see patients”. It wasn’t long before there was a parking lot full of ambulances, and on some days there were even ambulances circling the hospital because the parking lot was full. This not only created a major problem for the ambulance service, which was unable to deliver an efficient emergency service, but put patients lives at risk, as they couldn’t be effectively triaged until they were registered. In business terms, the classification of a minor result indicator as a key performance indicator put lives at risk!

So what’s the difference? A result indicator tells you what you did while a performance indicator tells you what you should do. Not all results or performance indicators are important. In the case of the hospital, it doesn’t always matter that some patients with minor sports injuries or flus have to wait three hours to see a doctor, it matters that car crash victims, heart attack patients, and patients with other life threatening injuries see a house doctor as fast as possible. While the average wait time should be tracked (because if the average wait time for patients with minor injuries is consistently three hours, it means you probably need more doctors), it’s not critical. On the other hand, the wait times for the top three triage levels (code, critical, and urgent) are critical. Code patients need to be seen immediately, critical patients within a few minutes, and urgent patients within an hour at most. These are critical success factors, and, as such, key performance indicators.

Parmenter provides some easy classifications early on to help you distinguish key & non-key results indicators from key & non-key performance indicators, as well as a hierarchy to help you understand them. KRIs, at the top of the hierarchy, are influenced by RIs and PIs, which are driven by KPIs. Basic classifications include:

Key Result Indicators (KRIs)

  • customer satisfaction
  • net profit
  • customer profitability
  • employee satisfaction
  • return on capital employed

Result Indicators (RIs)

  • net profit on key product lines
  • sales made yesterday or last week
  • customer complaints from key customers
  • hospital bed utilization in a week

Performance Indicators (PIs)

  • percentage increase in sales on the top ten percent of customers
  • number of employee suggestions implemented in the last thirty days
  • sales calls for the next week or two weeks
  • late deliveries to customers

Key Performance Indicators (KPIs)

  • late planes
  • number of trucks leaving not at capacity
  • average time to treatment for code, critical, and urgent patients

Basically, as per Parmenter, KPIs must have the following characteristics:

  • non-financial
  • measured frequently (at least weekly, if not daily or hourly)
  • acted on by the CEO
  • clearly indicated required action(s)
  • tied to a team
  • significant impact
  • encourage appropriate action

In addition, they must be current- or future-oriented, must make a difference, and must result in the CEO picking up the phone and calling the team leader when performance slips out of the acceptable zone. Finally, there must be no more than 10 of them. While you can have up to 80 performance and results indicators, and up to 10 additional key results indicators, you should never have more than 10 KPIs, many organizations can get away with only 5 KPIs, and some industries can see dramatic performance improvements by focussing on only 1 KPI. And regardless of what KPIs you settle on, make sure they can be understood by a 14-year old. You want them to be abundantly clear to everyone in the organization, and this is the one way that’s guaranteed to achieve that.

Finally, the book presents an expanded balanced scorecard that Parmenter believes is more relevant to the success of a KPI program, which he insists should not be undertaken until you have the support of the C-suite and the CEO who will allocate adequate time and resources to the project.

All-in-all, it’s a very well done and informative book that could easily be used as a text in a University level course. The only bad thing I have to say about it is that parts of it, like the chapters on the KPI Team Resource Kit and the Facilitator’s Resource Kit, are as dry as the desert. Done right, the interesting insights should materialize in the workshops, but the planning for them is probably not going to be very exciting.

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Can The Five Attributes of Enduring Family Business Strengthen Your Supply Chain?

A recent article in the McKinsey Quarterly on “the five attributes of enduring family businesses” got me thinking about whether some of the finer points could be translated to supply chains. According to the article, the five dimensions of enduring family businesses are:

  • Foundations,
  • Ownership,
  • Wealth Management,
  • Business & Portfolio Governance, and
  • Family.

Basically, four dimensions of any good business plus the family dimension. But what got my attention was some of the points elaborated upon in the article. Specifically:

  • Long-term survivors usually share a meritocratic approach to management.They recognize and reward talent. This is a trait that is common to all winners.
  • Enduring family businesses regulate ownership issues — for example, how shares can (and cannot) be traded inside and outside the family — through carefully designed shareholders’ agreements that usually last for 15 to 20 years.They structure the business for long term stability. Supply chains need to be designed to stand the test of time as well if the business is going to survive.
  • Strong boards and a long-term view coupled with a prudent but dynamic portfolio strategy.Where supply chains are involved, there are no quick fixes that will generate long term gains and, in fact, most quick fixes will actually generate long term problems if a holistic view isn’t taken. Consider the case of the chemical manufacturer chronicled in the Strategy + Business article on Virtuous Connections that successively made matters worse with each quick fix they tried to make. However, when a more holistic view was taken with the eye to the long term, significant, rapid improvements materialized.
  • By diversifying risk and providing a source of cash to the family in conjunction with liquidity events, successful wealth management helps preserve harmony.Stable supply chains manage risk and diversify their supply base to prevent significant disruptions should one source of supply fail. They focus on cost avoidance, not savings, and reward their top performers for their success, sharing the wealth that is generated.
  • Charity is an important element in keeping families committed to the business that promotes family values as the generations come and go. The best Supply Management organizations are socially responsible and in addition to only supporting sustainable businesses, also support sustainable charities because they are good corporate citizens.

In other words, they plan for the future in everything they do. They don’t think about what is best today, they think about what is best tomorrow as they want to pass a successful company on to the next generation. And if you start thinking about passing a successful Supply Management organization on to your successor, whomever that happens to be, and think about the long term, I think you’ll find that you’ll build a stronger organization in the process that reduces emissions, avoids costs, and adds value in everything it does.

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