Category Archives: Best Practices

Service Management Mistakes

A recent article over on the Shared Services & Outsourcing Network addressed the “top 10 mistakes when implementing shared services” pointed out some common services mistakes that you need to avoid if you are considering a move to shared services. And even if you aren’t considering a move, these tips are quite helpful if you want to get your house in order.

  1. Not measuring costs or service levels.
    You can’t manage what you don’t measure and you can’t improve without a baseline to improve against. This is as true for services as it is for products. How long is it taking? How much is it costing? How do you compare to published industry average and best-in-class metrics?
  2. Not documenting processes and work streams.
    If you don’t know how things are supposed to be working, how do you know whether or not they’re even accomplishing their goals? How do you train new employees? How do you identify opportunities for improvement?
  3. Not appointing a full-time head honcho early.
    A services centre needs a strong, solid team with a strong, solid leader. Even if services are a secondary focus for your business, you should still have a senior executive in charge of their execution who is responsible for overall performance and budget expenditures.
  4. Not focussing sufficiently on the transition period.
    Even if you plan to keep all of your services internal, if you want to improve them, you have to include good change management in your planning, which dictates a sufficient amount of training and a sufficient transition period where your employees move off of the old process and onto the new process.
  5. Not having a robust project plan clarifying resource needs.
    You need to understand what’s required to execute your service processes and how many employees will be needed for the volume you need to handle, or something bad will happen. Quality will slide, balls will be dropped, and key filings won’t get made … and all of a sudden customs is seizing your shipment for lack of paperwork.
  6. Fighting yesterday’s battles instead of tomorrow.
    For better or worse, yesterday’s gone … and it’s probably already too late to win the battle today. So focus on what you’re going to need to win tomorrow … and make sure you have it before today ends.
  7. Becoming bogged down standardizing technology and processes pre-implementation.
    While you need to have your processes well defined and your platform needs to be designed before you can start making improvements, you can’t cross every i and dot every t until the e-paper is in front of you. Besides, once the system is implemented, you might find that some processes need to be modified slightly either because of configuration or because of additional improvements you identified during implementation. Remember the 80/20 rule.
  8. Believing that “it’s already centralized – it can’t be better”.
    You can centralize a crappy process just as easy as you can centralize a worthy process. Centralization in-and-of itself does not make something good or efficient. Centralization just means that everything is done in one place. (So if you don’t analyze your processes, instead of creating a Center Of Excellence of Unified Processes, you might be creating a Center of Crap Upwind, or COC-UP.)
  9. Having no, or (woefully) inadequate, risk management and/or monitoring.
    How do you know things are being done right at the right level of efficiency if you don’t monitor? What if the actual efficiency is only 80% of expected and your overworked staff is only processing 80% of purchase orders on time and costing you millions of dollars in negotiated discounts and rebates? What if they don’t notice that an evergreen contract signed 3 years ago at all time market highs is about to automatically renew when you could re-source at 40% less? What if they fail to get the order out on time and your entire (Chapek 9) production line shuts down for want of a lug nut!
  10. Omitting the “make vs. buy” or “in-house vs out-of-house” equation.
    How much is your service (centre) costing you? Would it really be more cost effective to move it out of house? Is the economy of scale really there? Will the savings still be there after you account for the management costs (you will need people to manage the relationship), communication, and travel costs?

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Procurement Should Handle Your Travel Strategy

Every time a downturn hits, your average organization immediately responds by cutting the two T’s, travel and training, despite the fact that these actions are among the dumbest things it can do. First of all, you want your people to do more with less, which is something they can only do if they are well trained and up to date. Furthermore, with training usually clocking in at 10% of overall compensation for an average employee, or less, it’s a drop in the bucket. Secondly, you have to keep buying and selling … and as much as you’d like to think it can all be done “virtual”, sometimes you need face-to-face interaction. Ask the top 20% of your sales team the secret to their success and why they account for 80% of your sales and they’ll all tell you the same thing … face-to-face negotiations and customer relationship development. Then ask the procurement managers responsible for managing your top performing suppliers and you’ll hear the same thing … face-to-face negotiations and regular face-to-face interaction.

While you can certainly reduce travel in tough times, and significantly cut costs with good management policies, you can’t cut travel completely. And if the budget is tight, you certainly can’t let each department manage it willy nilly. That’s why I was glad to see a recent article in Procurement regarding travel expense management and how “purchasing insight figures big in winning strategy”, even if it was a long, meandering article that took too long to get to the point.

As the article points out, every company has two types of travel: necessary and unnecessary. Key contract negotiations with (big) potential customers, key contract negotiations with suppliers, supplier site inspections, and regular performance review meetings with suppliers are necessary travel. A finance or sales retreat to Tampa (from San Francisco, for example) is not. In the first case, the human interaction is often the key to a deal. In the latter, while your team does need an off-site every now and again for training, interaction, and a little relaxation, if money is tight, there’s no reason it can’t be at the glitzy hotel or conference center down the street. Many of us move and travel so much these days, it’s often the case that the city we know the least about is the one we live in. Procurement, used to strategically analyzing spend and supply, is in the perfect position to help you figure out what travel spend is strategic, what travel spend generates returns, and what travel spend should be cut. Thus, they’re in the perfect position to help your organization revise the travel policy so that you not only get the most bang for your buck, but turn the cost center into a revenue generating center.

Furthermore, as the organization that analyzes and negotiates deals day in and day out, they’re in the best position to help you select the right preferred carriers, define booking policies to minimize costs, and implement travel management systems, such as the service management solution provided by Rearden Commerce (the unique solution for travel procurement), that will help your employees adhere to policies and select the lowest cost options that meet their needs every time. So use Procurement to maximize your travel spend. Maximizing spend is what Procurement does best.

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Are You Ready for the Mega-Risks?

A recent Supply Chain Digest piece recently covered a few of the supply chain mega-risks that you need to be prepared for, because chances are that you can statistically count on at least one of them happening in the near future.

The mega-risks highlighted by Supply Chain Digest include:

  • Terrorists Attack Your Port
    The article focussed on an attack at at US port, such as the Ports of Los Angeles or Long Beach, which could cripple supply chains for a number of multi-nationals, but an attack at a major port in China, for example, could be just as devastating.
  • A New War Breaks Out
    The article hypothesized that Israel could attack Iran over nuclear capabilities, but war could break out anywhere tensions are high. Northern Ireland, Africa, Venezuala … who knows.
  • Pandemic
    The article mentioned the Swine Flu. But it could be Bird Flu. Or SARS. Or something worse.
  • Rapid Inflation / Deflation
    The dollar could rise, or fall, rapidly.

But those are just a few of the mega-risks. As highlighted in nine cautionary tales (which I reviewed in your supply chain is not secure I and II), you also have:

  • Massive Power Failure
    A targeted attack or opportune failure in a critical region of the grid can take out a city, state, or even an entire region of the country.
  • Toxic Atmosphere
    A train wreck could unleash toxic chemicals into the air and make an entire subdivision, town, or city uninhabitable for an indefinite amount of time.
  • Severe Oil Shortage
    A single attack on a major refinery or drilling platform could take out a sizeable chunk of global production.
  • Agro-Armageddon
    Mad-cow could spread faster than a viral outbreak and decimate national farm populations.

And natural disasters and catastrophes, though unlikely, that are still too numerous to mention. Are you ready?

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Great Tips For Smarter Procurement From … CNN Money?

Yes, that’s right. A recent article in CNN Money about reducing your spending as a consumer, if you read between the lines and focus in on the principles, and not the tips, had some great advice for reducing your corporate spend. It might sound a little crazy, but their article on “cut your spending by $500 a month” had some tips that, if properly applied, could save your company millions of dollars. Really.

Let’s focus in on the first 10 tips.

  1. Slash Your Grocery Bill
    • Shop Once a Week

      Aggregate your purchases into fewer orders. This will not only give you volume discounts, but it will reduce maverick purchases … which is often the greatest single source of negotiated cost reduction leakage in an organization.

    • Give Up the Bottle

      Bottled water costs a lot more than you think if you add it up. If each person in your office consumers $15 a month worth, and you have a 1000 people, there’s $15,000 in instant savings.

    • Eat What’s Ripe

      Just like in-season produce is 20% to 50% less, in-season technology purchases for products being produced in bulk could save you a bundle. Remember that when replacing your cell-phones, laptops, and peripherals.

    • Differentiate Between Clean and Dirty

      Just like organic produce will always cost $1 to $2 more, “premium” suppliers will also charge more for products that might not be noticeably better. For example, can you honestly tell the difference between an organic and a non-organic onion or cabbage?

  2. Ditch your second or third car

    Maybe the boss won’t let you get rid of the company cars, but do they really need to be driving high-end BMWs on the corporate dime? A lot of car companies are producing luxury cars now for 30K to 40K. Get them a Hyundai Genesis, for example.

  3. Visit your Local Cobbler

    Are you replacing equipment too aggressively? Regular maintenance can often considerably extend the useful life of expensive equipment. There are companies that specialize in the delivery of software solutions that help you monitor and proactively schedule service calls to keep your mulit-million dollar production equipment working efficiently well beyond the amortization period.

  4. Twitter to Save

    While I don’t recommend the use of Twitter, there are many commodities and office suppliers that you can buy opportunistically and save a bundle. Just keep your eyes open.

  5. Time Your Buys Right

    Many industries go through cycles in supply and demand. If you buy during a trough, you can negotiate a considerably better deal than if you try to buy during peak demand.

  6. Stretch it Out

    Are you being over-serviced? For example, do you need full janitorial service every night? Think about it … do you vacuum your living room every night? Train your staff to empty their own recycling and garbage on the way out every night … because, if your facility is designed appropriately, they’re heading out the back service entrance to the parking lot and going by the maintenance room anyway. Analyze the “management consulting” spend and see how much you need. And you could save some big bucks if you can go to a 4-day work-week via either 10 hour days or telecommuting and turn the power off another day a week.

  7. Get to Work Cheaper

    In the corporate world, you want to get to the client cheaper. Enforce travel policies that require advance scheduling and bookings and compliance with policies.

  8. Step off the Gas

    Make sure your trucks don’t idle, that their tires are always adequately inflated, that they are serviced regularly, that your drivers are trained to drive easy, and that, where possible, they avoid left-hand turns. Chances are, you can cut your fuel consumption by over 30%. That’s going to save you millions if you do a lot of shipping.

  9. Buy Ink, Not Cartridges

    Overpriced, disposable packaging IS overpriced, disposable packaging. Minimize the non-recylable / non-reusable / non-refundable packaging and reduce purchase and shipping costs.

  10. Reconsider Brand Loyalty

    Printer paper is printer paper. Tomato paste is tomato paste. Iron nails are iron nails. Don’t pay for a name … pay for a quality product.

The secrets to smarter spending are more-or-less universal. When you understand what they are, you can usually translate a good consumer tip to a good corporate tip, and vice versa. There will be exceptions, but the reality is all cost avoidance is based on sound analysis and good judgement. Use both, and you’ll save. Always.

A Simple Recipe for Post-Recession Market Leadership

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A recent Industry Week article outlined “a recipe for post-recession market leadership in manufacturing” that will work for your industry too. After all, the real key to a quick recovery is good execution. So what’s the secret to turn-around success?

  1. Leverage Your Human Capital
    Your people should be the biggest asset you have. Use them. Solicit their ideas, get them on board, and let them take ownership.
  2. Benchmark the Gap Between Reported, Actual, and Potential Efficiency
    You’re never as efficient as you think you are, and you probably don’t know how efficient you could be.
  3. Take Action
    Identify the efficiency improvements that will give you the biggest bang for your buck and go for them.

For many of you, you’ll start with step 2 and hire a consultant who is an expert in efficiency in each of the areas that offer the greatest opportunities for savings. She’ll help you understand how well you’re really doing against how well you think you’re doing, how well you could be doing, and some general directions to get there. Then you’ll use your people to select the roads that are likely to work best for your company and the modes of transportation to get there. Then you’ll take the trip.

With respect to (your) sourcing and procurement (department), this means that you will:

  1. Hire a data analysis and category expert to analyze your spending and operations and identify your best cost reduction opportunities.
  2. Use your people to evaluate systems that will help you capture the cost reduction potential and manage the opportunities you have identified.
  3. Decide on the categories to attack and the systems to use and empower your team to take action.