Category Archives: Best Practices

Talent, Training, and Transition: Three Emerging Themes from the Best Practices XChange

Last week, I attended the Best Practices XChange (BPX) hosted by The MPower Group in Chicago. This quarterly, one day BPX roundtable, event brings together senior procurement professionals (director and above) from BPX members and interested organizations.* The event was well put together, and I’ll be diving into the presentation by Dr. Lloyd Rinehart in a later post, but I wanted to start by summarizing the emerging themes from the roundtable discussion.

As pointed out by Brian Sommer in his post last week on The New Sourcing Concerns, one of the big concerns is transition management, both in terms of knowledge transfer and change management. Not only will a large number of baby boomers be bolting for the bay doors by the boatload as soon as the economy rebounds and their 401K will allow them to, but most companies don’t have any processes in place to capture their knowledge while they are still here and transition the knowledge to their new employees. Furthermore, they are starting to recognize the need for advanced sourcing systems to help them with their global strategic sourcing projects, but don’t have any processes about how to go about selecting, implementing and switching over to those systems in a risk and hiccup-less free manner. And while many companies still don’t have good answers, it’s nice to see the senior level recognition of this problem because the solutions are out there, and any company that gives this issue priority will find them.

The next major concern is talent availability. Even though the unemployment market has reached a high, averaging over 10% in North America (especially when you take into account all the underemployed “self-employed” and the “discouraged workers” who are conveniently left out of the US statistics to make the situation look better than it really is), there is still a dearth of talent in the sourcing marketplace, which is only going to get worse when the market recovers. Sourcing needs highly skilled workers, and with falling levels of graduates in science and engineering programs, economics, and other programs that train us to think logically and analyze complex situations, these people just aren’t out there in great numbers.

Furthermore, even when you find the talent, they still need to be trained since even most “supply chain” programs don’t prepare students for the complex sourcing environments present in most multi-nationals — which brings us to our third challenge. The fact of the matter is that there is no mass-market training program out there that will produce an advanced sourcing professional, yet alone a senior leader. (The NLP SPSM and the ISM CPSM, in particular, don’t come close enough. While I am a big fan of the SPSM certification program, because it captures the basics that every sourcing and procurement professional should know, but still doesn’t, and, through the SPSM2, introduces them to the world of international sourcing, on the doctor‘s scale of basic beginner – intermediate – advanced – senior expert, it still only gets you to intermediate. Better than the majority of the offerings out there, but still not where you need to be on a technical, EI, or cultural level if you want to be a senior professional at a major multi-national handling 8, 9, and sometimes 10 figure categories in today’s very challenging global sourcing marketplace.) The only answer is to find the best talent you can, augment them with advanced training from one of the leading consultancies who have been doing this in the field day-in and day-out for decades (after you have insured they have the basics), and then put them under the wing of a senior sourcing professional who needs to transition her knowledge to your rising superstar before she retires (because, when you get right down to it, what really makes a sourcing expert an expert can’t really be taught in a [n on-line] class, and can’t be learned until you have the advanced tools, techniques, and processes at your fingertips to learn from a master).

The story I’ve been pulling together lately, reinforced by this event, is that unless you can

  • find, and hire, talent while unemployment is high (and some of these individuals are available),
  • train them on advanced tools and techniques, and
  • use this new talent to lead your knowledge capture and transfer efforts
    while working under the guidance of a mentor
    (as they will be more comfortable with new systems and processes than your in-house experts)

you could be, to coin a colloquialism, up sh*t creek without a paddle.

I wish you the best of luck in your endeavours. You might just need it.

*In order to ensure best practice sharing amongst peers, each quarterly BPX roundtable is limited to 35 participants. As a result, BPX members get first priority. Remaining slots are then opened up by MPower to senior procurement professionals that are considering membership or interested in finding out more about the value BPX could offer them. For more information, feel free to contact Nicolas Hummer ( nicoh <at> thempowergroup <dot> com ) at any time.

Share This on Linked In

7 Sourcing Secrets More Than 2 People Should Know

A recent article over on Cracked listed “7 Secrets Only Two Living People Know” (for some reason … that the doctor must admit he doesn’t understand in a few of the cases). While entertaining, it did cause me to ask why there are so many truths in sourcing that most people still don’t seem to get. Since some days I feel like only 2 people know the following, I decided I should do my own post on 7 sourcing secrets more than 2 people should know. Because you really, really, really should know the following sourcing “secrets”. After all, they’re truths, even if no one’s bothering to tell you. So without further ado, here they are:

1. Spend Analysis is flexible Data Analysis, not canned reports on a data warehouse populated via automated classification

Real spend analysis is the ability to dive into your data and find out not just where your true spend is higher than it should be, but why. This requires you to have the ability to slice, dice, and cube your data on any dimension you can think of, because you’re never going to know where the losses are until you find them. (After all, if you knew where your holes were, wouldn’t you have plugged them already?) Canned reports on a static data warehouse can only tell you how fixes you’ve already implemented are working, not where the holes are. Furthermore, “automated classification” just doesn’t work. Any good consultant worth his salt can load your data into a real data analysis product and find two dozen mistakes in twelve minutes. You need the ability to define and redefine mapping rules on the fly as all automated classification can do is fix previously identified mistakes. It can’t identify new ones. Software isn’t intelligent. People are.

2. e-RFX is electronic support for the full information and quote gathering cycle, not just bid collection

If all your e-RFX does is allow you to collect bids, it’s not e-RFX. It’s e-RFQ, and a poor e-RFQ at that. It should allow you to create questionnaires, surveys, and entire RFX packages with closed and open-ended questions, allow you to compare responses side by side, and allow you to collect not only all of the pricing, but all of the discounts, rebates, and promotions the supplier offers. It should help you manage the process, guide you through it, and support data import and export in open formats so that you can also use analysis, optimization, and contract management tools.

3. A Reverse Auction is simply an online auction event, it’s not a substitute for proper sourcing project management

I follow the space closely and not a month goes by where I don’t see an article on how Company XYZ is now refusing to participate in online auctions. When you dig down, this is because they had a horrible experience. When you dig deeper still, you find out it is typically either because Company ABC simply threw an auction tool at the supplier and told they had to bid through the tool or lose all their business or Company ABC threw up an auction tool and said they’d award to the lowest bidder but ended up going with a different supplier, usually the incumbent, after the auction closed.

I find this appalling, because e-Auctions, like e-RFX, are not only a great time saver, but a great way to bring parties together from around the globe and allow them to participate in an e-Sourcing event that, when run right, is more transparent, educational, and profitable for all parties concerned than traditional methods of sourcing where you get bids by phone and fax until you find three bids you like and then meet in a room to “negotiate” until a deal is struck with a winner. (And I use the term “negotiate” loosely because old style purchasing methods usually boil down to the party with the most leverage beating up the party with the least leverage.) But this is only true if the event is run right. This takes proper project planning and management. Tools can facilitate the process, but they can’t replace it.

4. Decision Optimization is for everyone, not just for math geeks

I’ll admit this is my own personal bandwagon, but having seen savings of over 40% and ROIs of over 400 on a number of projects, and average savings in the 10% to 20% range and average ROIs of 5X to 10X or more, I think I have a good reason for riding it. Despite the fact that true self-service decision optimization for sourcing has now been around for almost a decade, it’s still the “black sheep” that almost no one uses — and it’s a real shame because now is the time you need it most. Furthermore, the new tools coming out of the leading providers are a lot more usable than the first generation tools and can be easily used by any college graduate who can build a cost model and specify some business constraints. In other words, if you have the pre-requisites for strategic sourcing, you can use these tools to save time, to save money, and make better, more informed, decisions.

5. Contract Management is just a new name for document management with integrated monitoring, it’s not a replacement for contract managers

Lately I’ve noticed how contract management is coming into vogue. And while that’s a good thing, it’s important to understand what contract management is and isn’t because it seems that some vendors, and some publications, are promoting the new offerings as the latest and greatest tools to solve all your contract woes when the reality is that these tools are nothing more than document management tools with monitors and alerts. I won’t deny the importance of having a good contract management tool that can monitor expiration dates, contract pricing, and, most importantly, invoiced pricing against contracted rates, but these tools, even if they contain sophisticated contract creation capabilities, can’t replace a contract expert, a master negotiator, or a good spend analysis tool that can uncover devious work-arounds by less-than-reputable vendors looking for a way to make back that buck they gave up in negotiations. (For example, I’ve talked to a number of consultants who told me how they found that some office supply management vendors regularly changed SKUs to bill you twice as much for that pen as it’s really worth.)

6. e-Procurement is tactical, and not a substitute for e-Sourcing

There’s still a lot of confusion in the marketplace between what is e-Procurement (and how it relates to P2P, EIPP, and the other new acronyms old players are coining to differentiate their new, streamlined, offering) and what is e-Sourcing, even though it should be fairly clear cut (as I attempted to outline in this post on why it’s sourcing and procurement). A few of the e-Procurement vendors are even claiming that you don’t need sourcing at all if you use the wisdom of crowds (which is not the case because there’s a big difference between a great deal on a commodity office supply and a great deal on raw cocoa or custom circuit boards, which are not commodities). Sourcing is the strategic part of the purchasing cycle, procurement is the tactical. You need both, and one is not a substitute for the other.

7. It’s not what you know, it’s what you can learn

Plain and simple,

  • it doesn’t matter if you’ve been doing it that way for 20 years if it’s not optimal,
  • shift happens, and
  • whatever happens, the world of tomorrow will not be the world of today.

You have to keep learning. That’s why this blog is here.

Share This on Linked In

If You’re Always Firefighting, Don’t Be Surprised If Your Business Goes Up In Smoke

A recent article on “the top 10 myths and realities of S&OP” made some great points about what S&OP is and isn’t and why you need it. I particularly liked myths #2 and #3 which pointed out that if your leaders focus on real time issues (firefighting), they are not thinking strategically over the long term. As the article points out, firefighting is simply an expensive, non value-added attempt to recover for inadequate aggregate planning, lack of foresight and poor execution.

There is simply no amount of adjustment at the detail level will correct an error at the aggregate level. Companies who try to plan at the detail level over the long term, such as the 24-month planning horizon common to most good S&OP processes, simply waste time and resources since such plans will need to be updated almost daily. More importantly, they lose the forest for the trees and might not notice the clearcutter coming their way. If you’ve always got your head down correcting for minor deviations in consumer demand, you are going to miss the major deviation coming up with the next major shift in consumer preferences (such as the introduction of a new product that uses new technology or offers a brand new feature). And when this happens, you might just find that your already struggling business goes up in smoke.

So if you haven’t already done so, implement proper S&OP practices. You might just find that you have fewer fires to put out.

Share This on Linked In

Three Simple Tips for Renegotiating With Integrity

A recent article in ISM’s eSide by Marc Freeman, who is the author of “Renegotiating With Integrity: It’s Not Business, It’s Personal”, offered three simple and straight-forward tips on what to do when you are in the uncomfortable position of having to tell a supplier that you can’t fulfill your current obligation. While never a position we want to be in, it is a position that we can often work out if we take the right approach. After all, there are many a supplier who would rather take a 50% volume reduction in this economy than a 100% reduction (which will happen if you go out of business, for example).

As per the article, renegotiating is the art of revising, altering or changing a previously negotiated contract or relationship. This means that the concept of win-win does not apply. You can’t expect to tell the other party that it won’t be getting what it expected and expect to turn it into a win-win outcome. This means that your focus should be on creating a scenario in which both parties are satisfied enough to move on. If you can move forward, then, when things turn around, the next time you go into a negotiation you might be able to look for the coveted win-win.

So what are the three simple tips?

Actively Listen

Once you have calmly and respectfully presented your case, you need to sit back and listen carefully. You need to find out what the supplier needs, not what the supplier wants. (You already know what it wants. It wants the same thing you want, to maximize its profit.)

The author claims that the best deals are often secured by supply management professionals who do the best job of listening, and all other things being roughly equal, I suspect that this is definitely the case. For example, he notes how he once secured a deal not by matching the price of his competitors, which he couldn’t do, but simply by reducing his price until the buyer could accept it and choose his product because everyone recognized the superior quality.

Be Nice

This means that you have to be genuine and respectful. You can’t fake it. You need to be someone the supplier wants to work with if you want to have any hope of a reasonable renegotiation.

Keep Track of the Orange Ball

The orange ball represents who’s in control. If the renegotiation isn’t moving forward in a suitable direction, you have to find out who has the orange ball and get it back.

Share This on Linked In

Watch Out for the Force Majeure Imposters!

A recent article over on the Association of Corporate Counsel (ACC) website on “the top ten force majeure imposters” by Kate Henry Gonzalez caught my attention because it contains an expose on the ridiculous extensions to the standard force majeure clauses that have started to appear in standard contracts put forward by some suppliers. And while we should all agree that we need to be fair when truly exceptional situations do occur, this a difference between a category 5 hurricane that levels a data centre and two consecutive days of rain in a semi-desert. Seriously.

While each of the 10 situations outlined in the article should be avoided at all costs, the following five are my favourite:

  • Abnormal Weather Conditions
    Two consecutive days of rain is abnormal for Yuma, Arizona. Does that mean your shipment of widgets should be delayed a week? I don’t think so!Only extreme weather phenomenons like hurricanes, tornadoes, and tsunamis should count as force majeure.
  • Telecommunication Error
    The fax machine breaking down could be a telecommunication error. Does that mean the supplier should suspend operations for three days? Puh-leaze! Hook up a PC with a fax-modem or go buy a new one down the street at staples. 10-minute fix, tops!
  • Broken Equipment
    A knob falls of a handle, and all of a sudden the production line comes to a stand-still? Yeah. Right … Not! Put on a glove and crank the handle anyway. Fixed!
  • Inability to obtain sufficient shipment capacity
    Your supplier had fair warning that they had to ship your product to you on a certain date. If they forgot to reserve the capacity with their preferred carriers, too bad. They can pay the premium and use a different carrier.
  • Unforeseen Market Conditions
    No one can predict the market … that’s the risk that comes with doing business. If you can’t handle it, quit. But don’t cry foul when the price of oil increases 25% the next time a pipeline breaks. You knew it was bound to happen.

For more ridiculous situations that your supplier’s lawyers might be trying to slip into the force majeure clause, check out the article. You won’t be disappointed.

Share This on Linked In