Category Archives: Best Practices

Is it Time for the Mass Implementation of Knowledge-Based Sourcing?

Share This on Linked In

In Win-Win Sourcing by Bill Jackson and Michael Pfitzmann in Booze Allen’s “Sourcing Reloaded”, the authors define knowledge-based sourcing as an approach where manufacturers and suppliers share a long-term commitment to improving each other’s capabilities, starting by working together to eliminate wasted effort and other inefficiencies. They then highlight the Honda Motor Company approach to contract formation. The executives of each company come together in a room, put their concerns on the table, write their proposed actions on a whiteboard, discuss them, and when everything on the whiteboard is agreed upon, the meeting is over. The contracts are typed up, printed, signed, and the contract is executed.

It has many benefits. For example,

  • there is no wasted effort in months of back-and-forth point-counterpoint negotiation
  • openness and trust is established up front
  • action plans are defined day one
  • teams can focus on building value and sharing knowledge

Instead of being at odds, the two sides collaborate openly to lower costs and raise overall performance, with the expectation that this mutual effort will continue over many years and benefit both companies. The focus is on value creation, and not just the lowest price. Considering that the lowest price is rarely the lowest cost when you consider transportation, reliability, quality, and “value” that you can charge a premium for, the approach certainly makes sense. That’s why the knowledge-based sourcing model traditionally outperforms the traditional bid-based model and one of the reasons why Honda and Toyota are not in the same straits as their American counter-parts.

But we all know that there is no silver sourcing bullet or universal sourcing model that will always work. So when and where should you use it? I believe it really comes down to what are you buying and the faith you have in your supplier. Are you buying raw material or finished product? Commodity or Premium Product? Production or Value-Add Design? I also believe that it should be part of a multi-step sourcing process and not just the go to method. A deep relationship is only going to benefit both parties if it is a good match and your supplier is going to be around for the long term.

Basically, I think it’s just another method instead of “sealed-bid” or “e-auction” as part of a multi-round process. If the category you are sourcing could benefit from the approach (i.e. it is of sufficient complexity and there is an opportunity for joint value creation), then I would start with a two-step RFX process. First, I’d do an RFI to find out what suppliers have the potential to meet my needs and then an RFP to find out how, and in what expected price range. Then I’d take the best RFP and stat the knowledge-based sourcing negotiation. If it went well, there’s my supplier. If it didn’t, next supplier on the list. Thoughts?

Six Steps to Better Sales Forecasting and Demand Planning in an Intelligent Enterprise

Share This on Linked In

A good article from last year’s Intelligent Enterprise covered “six steps to better sales forecasting and demand planning”. The process, which should revolve around the four critical components of people, process, information, and technology at its core, is straight-forward and a good guide for any organization that needs to improve its demand planning (since good demand projections are critical to getting good sourcing results).

  1. Conduct an SF/DP process and system assessment
    Start with an independent and unbiased evaluation of your financial and operational performance planning processes and systems that establishes benchmarks for current effectiveness and identifies areas for improvement.
  2. Identify user requirements and project scope
    Define the business requirements, develop clear definitions of information needs (for proper planning), and what product / service lines you will be addressing.
  3. Build a business case that improves value and results
    Decide whether you need better systems, better processes, or both … then, once you’ve quantified the costs, outline the expected improvements in the results and build a business case that will define the expected value and ROI.
  4. Assemble the program and plan
    Once you have approval, it’s time to define the implementation and change management program that will realize the expected benefits. Then determine the communication plan that will insure that each affected individual knows what she has to do, when, to insure project success as well as the value the program will deliver to them (to give them incentive to contribute to the overall success).
  5. Evaluate new technology against the program plan
    As you are implementing the technology, you’ll need to evaluate its effectiveness. This will require specific product evaluation criteria that should be defined in advanced.
  6. Deploy the integrated SF/DP program and set of processes
    Be sure to implement the new processes in a way that minimizes disruptions to the business, culture, and technology infrastructure.

The article also discusses a Maturity Model, the potential impact of failure, and the role that people, process, information, and technology impacts.

Defining Senior Management Support in the Context of Your Supply Chain Projects

Share This on Linked In

A recent article over on Supply Chain Digest asked a very good question — “what is senior management support for supply chain projects”. We all know that no project can succeed without senior management support, but what precisely does that mean? According to the author, two types of support are necessary:

  • support from the supply chain executive for projects in her organization and
  • support from each executive whose division is impacted by a cross-functional initiative.

But that still doesn’t define what, precisely senior management support is. The question is, can it be defined? Especially when the needs of every project are different?

I think it can, if you take it on a project-by-project basis and take the advice of Gene Tyndall and define a “Project Charter” for every project. If this charter identifies the executive sponsor, specifies the objectives, defines the success requirements — and what is required from the sponsor, and specifies the steering committee, then, if the sponsor(s) agree(s) to it, then you just might have what you need to achieve project success.

Scorecards Have Value … But Only If They’re Constructed Right

Share This on Linked In

There’s been a lot of buzz around scorecards over the last few years, but, as noted in a recent article in the Supply Chain Management Review, only a handful of companies have effectively utilized them to drive value. Wal-Mart is one example … Canada Post is another.

To be effective, scorecards need to be simple in concept, with metrics that are clear and easy to assemble, yet measure the few, truly impactful supplier actions. The biggest mistake companies typically make is designing overly complex metrics that are confusing to suppliers. A good scorecard selects a handful of the most important metrics that will allow the supplier to focus on the most important factors. These operational metrics, that focus on cost compliance, service performance, quality and damages, and administrative efficiencies, allow the supplier to monitor is performance and improve over time.

And to be truly effective, the scorecard needs to be:

  • used frequently
    once or twice a year isn’t enough … they should be reviewed monthly
  • ranked in a weighted fashion
    as this allows a supplier to get an overall picture of its performance
  • monitored
    the article recommends a dashboard … but a report that calls out the most important issues will do just fine
  • improved collaboratively
    if the supplier is doing well on the scorecard, but not meeting your needs, then the scorecard needs to be refined
  • implemented in three phases
    for details, see the article on “unlocking value through the supplier scorecard”

Five Great Ideas for Supply Chain Value Generation

Share This on Linked In

A recent Supply Chain Management Review article presented “10 ideas for value generation” that were quite good. Here are five in particular that you should not ignore:

  • Adopt a “Follow the Sun” model for skill development
    If you’re going to have a global IT or Services support base, use it wisely. Properly globalizing your support supply chain will save you money and create value. As the article notes, it can allow you to tap into the English speaking skills in the Philippines, the tax advantages of Ireland, and the technical skills of India and deliver 24/7 support.
  • Focus on real-time updates to increase agility
    Static forecasting without dynamic updates is passe. In today’s dynamic environment, you need to dynamically adjust the plan based on real-time market signals such as point-of-sale data, purchase order activity, and competitive market factors. Although you can’t function without good forecasts, even the best laid plans will go awry, and they’ll do so before you know it if you don’t monitor against them and update them regularly.
  • Make your supply-chain, and your company, value chain-centric.
    The supply chain function in most corporations is initiated and integrated at the time of new product commercialization and continues until the product is shipped. For supply chain to truly add value, it needs to be involved at the stage of conception to help the design team select designs with sourceable components and to select those designs that use the components with the lowest cost and highest quality.
  • Shift to a product-and-services management focus.
    Product excellence and direct cost savings are great, but services (still) provide a huge untapped opportunity. Furthermore, value-added services can create “stickiness” with their channel partners.
  • Utilize on-demand processes and associated supporting technology.
    This approach will allow for the optimal usage of capital expenditures while leading to higher than average adoption rates of the process in order to derive maximum benefit. And there is a wide selection of e-Sourcing, e-Procurement, e-Logistics, and Analytics solutions to choose from.