Category Archives: Best Practices

The Value of Proactivity in the Current Business Environment

Today’s guest post is from Robert Rudzki, a former Fortune 500 senior executive of supply management who now runs Greybeard Advisors, a strategic management consulting firm.

Bob has authored several business books including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise and Straight to the Bottom Line.

He can be reached at rudzki <at> greybeardadvisors <dot> com and found on the SCMR Transformation Leadership blog.

Now is the time NOT to hunker down in a fox hole; rather, this is the time to be pro-active. One idea: take the opportunity to perform a candid assessment of your supply management and procurement practices. More companies are doing just that. In fact, in the past few months, my firm, Greybeard Advisors, has experienced an increase in requests for proposals to perform such assessments.

Proactive companies of all sizes seem to have renewed interest and seriousness about a number of critical topics:

  • understanding – candidly – how their current practices compare to “best practices”
  • identifying the specific financial opportunities, and quantifying them
  • developing a prioritized plan of action that creates near-term wins
  • using those near-term wins to help fund true strategic transformation along numerous dimensions required for achieving world-class status

Clearly, some of this renewed interest can be attributed to concerns about the economic downturn. But, what really excites us as practitioner-advisors: some of these companies are approaching it for other reasons; namely, wanting to be the premier firm in their industry, and realizing that procurement and supply management is a way to get there. Done well, procurement and supply management can impact not just total costs, but also revenues, and working capital. And that can have a powerful effect on total financial performance (ROIC, ROE, EPS).

These are very difficult and challenging times – all the more reason to approach your job with creativity, resolve and leadership.

Having been through a number of business cycles as a Fortune 500 corporate officer, I can attest to the challenge – and the opportunity – of being proactive in this environment. Companies that maintain their strategic focus and work to create their future will be well prepared to reap the benefits when the economy improves.

Thanks, Bob!

 

Spend Matters on SCM: If The Prophet is Right …

This is part two of a three-part series.

Yesterday we covered the five — new and improved — predictions of Jason “The Prophet” Bush, the Spend Master of Spend Matters, that he has issued from high (on his soapbox) to the supply management community as part of his fall conference tour. These predictions were:

  1. Procurement becomes as much about staying out of the headlines as it does about getting results
  2. Top performers will follow Teddy Roosevelt’s adage: “speak softly and carry a big stick”
  3. Si hablamos espanol … as the US gets over its love affair with China when it comes to global sourcing
  4. The management of information becomes the holy grail of all procurement and operations success
  5. Metaphorically speaking, the procurement combustion engine (and car) has now been invented — now the focus will turn to everything else that must come along with it

Are they correct? Time will tell. I agree with number four wholeheartedly, and mostly agree with the others, with the exception of number five, because, even though we now have a working engine, parts of it are still quite primitive. However, rather than argue their merits, which should be self-evident, I think we instead need to ask “if the Spend Master is right, what should we be doing?”. Prophecies are good, because someone should be thinking about the future, but results are better. That’s why you go to a doctor, and not a seer, when you are sick.

Procurement becomes as much about staying out of the headlines as it does about getting results.

What does this mean? Fundamentally, that supply management has to adopt the old adage that the buck stops here and take ultimate responsibility for quality control. They can’t rely on engineering or R&D or, as has been too often done the past few years, their suppliers to do that for them. They have to make sure that the proper quality control mechanisms are in place and that they are being followed. This means that they either have to perform site visits to the suppliers themselves, or, if they do not have the technical expertise, accompany engineers or third parties to supplier sites and production facilities to ensure that the required quality controls are in place and being followed. After all, it’s one thing if the new plasma TV your customer just forked over two grand for doesn’t work … but it’s another if your company just poisoned someone’s child. All the cost savings in the world aren’t going to matter when the lawsuits hit and you get shut down.

It also means that you have to ensure all of the regulatory compliance requirements are being met. Otherwise, you’re looking at huge fines, inventory destruction, and possibly even sanctions. Just a minor reporting omission alone can result in a fine equal to the total value of your shipment under the new 10+2 requirements. Banned materials can result in seizure and destruction, and repeated violations can result in country (and continent) wide bans.

Top performers will follow Teddy Roosevelt’s adage: “speak softly and carry a big stick”

Modern procurement professionals recognize that there’s more to procurement these days than just the mallet and the carrot and act accordingly. Generally speaking, you get further with collaboration and trust than with an untrusting dictatorship mentality. That being said, a smart procurement professional still keeps his mallet close-by, just in case a supplier strays from the open road and starts to take advantage of the trust placed in it by the buyer.

Si hablamos espanol … as the US gets over its love affair with China when it comes to global sourcing

Smart procurement professionals realize that it’s a combination of best-cost country sourcing and home-cost country sourcing … not low cost country sourcing … especially when the low-cost country is half-way across the globe! Sourcing across the globe adds cost, complexity, and tons of GHGs to your environmental footprint … which is not sustainable when it’s not necessary. And it’s not best-cost or total cost of ownership … it’s best value or total value management from an entire life-cycle perspective. This means that, given the choice between a slightly higher price from the company down the street that will work with you to improve value and decrease costs over time and a slightly lower price from a company in China that only cares about pumping out product today, you go with the solution down the street. And that you look to your neighbors before you look across the globe. Sometimes you have to go across the world, especially for certain food items and raw materials that are only available in quantity in certain areas, but for the vast majority of materials, products, and services, you can usually get them pretty close to home.

The management of information becomes the holy grail of all procurement and operations success

Great procurement professionals realize that great decisions are actionable decisions based on great information, which is their number one asset. They utilize solutions that gives them the data they need, when they need it, in the form that they need it and use all of the external data sources available to them to improve their understanding of market conditions and make better decisions. (They also read Sourcing Innovation daily, but that should be obvious.) To this end, they utilize best of breed technology that is capable of extracting, organizing, and displaying relevant information on a daily basis. And this leads into …

Metaphorically speaking, the procurement combustion engine (and car) has now been invented — now the focus will turn to everything else that must come along with it

In some cases, today’s technology is more like the (in)famous Model T than a new Ferrari, but the Spend Master is right on this point: more-or-less, a procurement professional, who’s willing to open her mind and use multiple best-of-breed solutions in conjunction with traditional ERPs and data warehouses has access to all of the tools she needs. Some will be ugly, others will be a kluge, and others will require some custom development in house (or through a 3rd party custom development house), but when we look at the sourcing and procurement cycle, logistics and transportation, inventory and warehousing, forecasting, PLM, and the other fundamental areas of SCM, we have technologies that, collectively, more-or-less cover the key points of the full cycle. Now, it’s true that it’s still the case that not a single player in the best-of-breed category has, as a whole, a best-of-breed fully-integrated end-to-end e-Sourcing or e-Procurement solution (despite what a few may claim) built on a common platform, but a few have end-to-end solutions that are pretty damn good (and much better than the horse and buggy that many shops are still running on, metaphorically speaking) and the solutions are getting better every year. As Hackett’s research clearly pointed out, the best shops have the best people that make use of the best technology to get the best results. Thus, if you don’t have a good end-to-end solution (which you might have to cobble together from as many as half-a-dozen vendors, depending on your needs) that fully enables your processes and best-practices, you go out and get one. Furthermore, as long as you stick to best-of-breed players who embrace openness and give you open APIs and full import/export capability through XML, you don’t have to worry about being stuck on the same platform for the next ten to twenty years, as many companies that spent eight and nine figures on ERP systems are now stuck on.

In other words, the best procurement professionals:

  • Take control of quality.
  • Get a handle on compliance.
  • Collaborate and trust …
  • … but keep a big stick nearby, just in case.
  • Don’t jump on a LCCS bandwagon, but focus on best-cost countries …
  • … and total value management over a product and / or relationship life-cycle.
  • Constantly strive for better information.
  • And ensure that they have the right tools and technologies in place to take their processes and best-practices to the next level.

Come back tomorrow for part three.

Operational Performance is More Than Just Operations

One thing you’ve probably noticed as a long-time reader of this blog was a lack of coverage of Aberdeen Research for the past year or so. To be honest, I haven’t been that thrilled with the work coming out of Aberdeen since the Harte-Hanks acquisition, which culminated a year long departure of some of the best talent in the Analyst world, including practice leaders Tim Minahan (who is now CMO of Ariba), Sudy Bharadwaj (who is now CMO of Informance), and Vance Checketts (who is now COO of Mozy) and Beth Enslow (who is now SVP of Supply Chain Risk Management at Marsh), one of the visionaries behind proper Supply Chain Finance. (Of course, to be fair, I should point out that the departures likely had more to do with the former CEO than the looming acquisition by Harte-Hanks.)

I had pretty much planned to continue ignoring Aberdeen, until I stumbled upon a rather lengthy article in Intelligent Enterprise that claimed to define “what sets best-in-class companies apart” from an operational performance perspective (and that set me off). Basically, as far as I’m concerned, although they still draw useful conclusions about the forest, they are still lost in the trees.

According to the article, which starts off by noting that best-in-class companies succeed by finding the right key performance metrics and tying day-to-day decisions to larger corporate goals, best-in-class performance can be defined based on the following four metrics:

  • Customer Satisfaction
    percent year-over-year change in customer satisfaction
  • Customer Issue Resolution Capability
    percent year-over-year change in the speed with which customer issues are resolved
  • Conversion of Inquiries to Sales Leads
    percent year-over-year change in the rate at which inquiries are converted to leads
  • Sales Forecast-to-Plan Performance
    percent year-over-year change in the accuracy of sales forecast-to-plan measurement

What?!? Although customer satisfaction is key to customer retention, since only monopolies tend to be able to get away with lousy customer service, and although sales are the life-blood of the company, as they are often the only thing Wall Street cares about, there’s a lot more to performance than just today’s customer satisfaction and sales metrics! For starters, there’s innovation and drive.

But I understand why Aberdeen is ignoring these critical factors, among others. How do you measure innovation … whose impact goes far beyond simply sales of an end product and marketshare into mind-share, brand, and influence on overall corporate culture. And how do you capture drive, which is more than just the hours you clock but how much of yourself you put into succeeding in each and every one of those hours on … and off … the job. Certainly not as easy as you can come up with a check-the-box metric on customer satisfaction (which I personnally don’t believe is as simple to measure as “are you satisfied“, but it looks like I’m alone in that view) or a forecast-to-plan metric, which is easily calculated as dollars forecasted vs. dollars sold (which is actually pretty useless given the dark, damp places most companies blindly pull forecasts from).

But how can you say you’re performing if you’re not constantly trying to innovate? Unless you have a (partial) monopoly, in today’s marketplace, you’re dead in a year or two if you’re not continually improving your product or service offerings (or both). And if your employees don’t care about their jobs, how much effort are they going to put into quality and making a product that truly satisfies the customer and, moreover, what’s to stop your best employees from exiting en-masse the next time your competitor goes on a big recruitment drive and offers them all a 10% raise? I’m sorry, but customer satisfaction and sales conversions alone don’t define best-in-class … not even close!

Poor Metrics Will Undermine Your Marketing Efforts

A recent article in the McKinsey Quarterly discusses how “how poor metrics undermine digital marketing”, something The Brain and I have been trying to tell you for a while now. (Hint: clicks and page-rank don’t matter!) The article notes that, at least as far as measurements are concerned, the digital world has developed faster than the tools needed to measure it and as a result marketers are failing to tap the digital world’s full power. This is a problem, because the old standby metrics usually tell you to spend the bulk of your marketing dollars in the worst way possible.

Traditional metrics, and to some extent even traditional web-advertising strategies, are very limited in their applicability. The realities are the following:

  • Ad-words are only good when you’re selling well-known widgets.
    They do nothing when you’re trying to make a conceptual sale, or even a sale of anything even modestly complex, because the universe of ad-words you would have to “cover” is impossibly wide. This is doubly true if the buyer doesn’t even know what to search for. If you’re selling a facial tissue product, you probably have to buy 3 ad-words: “kleenex”, “facial tissue”, and “facial wipes”. If you’re selling a spend-analysis enterprise solution, the universe increases to at least a couple of dozen ad-words, including: “spend analysis”, “data analysis”, “business intelligence”, “spend reporting”, “data reporting”, “spend visibility”, “transaction analyzer”, “transaction reporting”, etc. Now imagine that you’re a consulting firm trying to sell purchasing / sourcing / procurement / supply management / spend management / supply chain / etc. consulting. What ad-words do you buy?
  • Ad-word and targeted-search clicks aren’t as relevant as you think.
    There are three things you have to remember here. (1) Most surfers click on the top few links that are returned. (2) Many surfers don’t know the best term to search for. (3) Many words, especially in the English language, have multiple meanings. Let’s say you’re Bob’s Sponge Emporium, and you just ran a big ad campaign that you expect will entice people to search for your online store. Guess what, an average user searching for “Sponge Bob” WILL NOT be searching for you! They want the Nickelodeon character who lives in a pineapple under the sea. Of course this is an extreme example, but you get my point.
  • Page views can be misleading.
    For example, Purchasing gets A LOT of page views. But in addition to the buyers, vendors, and consultants you might expect to reach, guess who you’re also going to reach a lot of — sales people who are reading it because it is viewed (by those who think that numbers alone tell the whole story, as it has the largest distribution list) as the leading traditional print publication in the space.
    If you’ve already reached the Purchasing audience, you might try a publication with a larger circulation that would include people affected by the purchasing profession — for example, Information Week, which covers all types of technology. But then the number of purchasing professionals who saw your ad would be an even smaller percentage of the total number of people who see your ad — for which you’re likely paying by the impression.
    The reality is that only two types of sites get mega page views: sites that are generic in nature, or sites that are popular culture (gossip) in nature. Chances are that, unless you’re selling trinkets to travelers, neither is going to be very effective in reaching your target audience.
  • Position and placement on the page is VERY important.
    Consider your average companion web-site to a print publication. Banner ads at the top. Mini-banner ads on the sides. Small banner windows in the page. Banner ads at the bottom. Is anyone going to notice all those ads? Especially if average page width is wider than the average browser window (since not everyone surfs with a wide-screen with a maximized browser window, especially if they’re doing research and have their screen split to view on one-side and take notes on the other) or, as I find to be quite common these days, the page depth is four or five screens deep. Sure your advertisement might be displayed 25,000 times, as per your agreement, but if it’s at the bottom of the page, I doubt even 2,500 people saw it … and, if it’s on a site that gets generic readership, I doubt that even 25 of those people would be your target market. (Which means you’re paying a lot more per ad than you think you are!)
  • It may be hard to quantify, but it all boils down to brand.
    People buy the brands they know. If you want a sale, and in particular, a complex software or service sale, if people aren’t aware of your brand, you’re never going to be invited to the table. More importantly, new research shows that a very large number of people are never going to buy on a click anyway — instead, they “store up” your impression for later, and then navigate explicitly to your home page. Furthermore, many surfers are likely to combine on-line and off-line research before making a decision, and they may then contact you through a traditional channel rather than going through an impersonal web contact form, or what they may perceive as a “dangerous” click-through.

So what are the right metrics? That’s a good question. It’s very hard to capture brand impact from clicks, downloads, and “impressions” when you don’t know whether your ad was somewhere on the screen where a surfer would see it. What we do know is that repeat impressions matter (because impressions build brand awareness). And, those companies who have tried to rigorously measure the success of their on-line marketing efforts against traditional marketing efforts have found that digital marketing, done right, is successful. Per the McKinsey article, 55% of them are cutting their expenditures on traditional media in order to increase funding for their online efforts.

So forget about click-throughs and downloads and focus on brand. Ask yourself where you can place your logo so that your brand will repeatedly reach the largest percentage of your target market — and not just a random web surfer. Don’t forget “Web 2.0” blogs, wikis, forums, and social media sites that not only attract a large number of visitors in your target market but primarily attract visitors in your target market. Chances are, that’s where you’re going to get the exposure you’re looking for.

Maximum Value From Your Consulting Advisors II

As I clearly pointed out in Consultants are Cheap, a good consultant can be the most cost effective business savior you’ll ever have the good fortune to hire. Especially when you consider that, unlike your top-performer who is forever consumed with the tactical day-to-day operations of the business, a good consultant can come in and spend all of his or her time applying his or her hard-earned market leading education and experience on the core strategic issues that, when effectively addressed, can take your operation to the next level.

However, as I pointed out in Maximum Value From Your Consultants, you’ll only get your money’s worth — and more — if you’re willing to:

  • Put your own ego in check.
    This will be hard for a few managers (who take after Dilbert’s Pointy-Haired Boss), especially those whose general reasoning abilities fall in the low percentiles (as per a recent psychology paper in the APA by David Dunning and Justin Kruger, summarized for the average Joe in this Salon article on Sep 22, 2008), but I know that the majority of you will understand me when I say that if you don’t do it, you’ll never truly hear what the consultant has to say.
  • Listen intently to what the consultant has to say, even if it’s not what you want to hear.
    You might think that you’re doing good in procurement and great in marketing, only to find out that you’re procurement is so-so at best and that your marketing truly sucks. It’s important to listen intently because the only way to improve is to fix your flaws, and that’s something you can’t do if you won’t admit you have a problem.
  • Be ready to take immediate action.
    There’s less than zero value in a report that sits on the shelf. How can there be less than zero? Simple, you paid for a report you failed to act on. That’s negative dollars on the balance sheet. The way you get value is to implement the recommendations that fix your problems and save you money (and / or increase your sales).

Then, you need to

  • Work with the consultant.
  • Get the consultant the data she needs promptly …
  • … and insure that the data is good.
  • Free the consultant to focus on the core issues, not just process or just technology.
  • Accept that sometimes new technology will be the answer (and sometimes it won’t).
  • Be prepared for scope creep or scope shift.
  • And to go back to school if need be.

And then, finally, you have to select the right consulting advisor for you. Start by reviewing the Advisory Checklist, because a good consultant has:

  • a depth of experience
    in the most critical areas that need to be addressed
  • a breadth of experience
    that helps him or her understand how the issues being addressed involve and impact your operation as a whole
  • true independence where YOUR outcome is concerned
    as the consultant must be free to select the right solution for you, not a solution from a solution vendor that his or her firm has a stake in
  • a deep focus on IP, Research, and Success
    as a good consultant tries to constantly stay ahead of the market in his or her primary areas of expertise
  • a strong firm behind him or her that practices internal knowledge management
    which allows their consultants to leverage their collective experience, best practices, and lessons learned from every engagement for every client

And finally, in addition to a deep down desire to generate value for each dollar they charge, a great consultant (from the consultant corral) will:

FOLLOW HER OWN ADVICE
And so will the firm that stands behind her!

That’s probably the single most important thing to remember when trying to select the consultant that’s right for you. I probably should have pointed this out before, but I thought it was obvious, and, more importantly, we’ve only just begun the consultant craze which happens every time markets start tanking and companies hemorrhaging cash go looking for consultants in a panic (when they should have been engaging those consultants all along to avoid hemorrhaging cash in the first place). In consultant crazes, good consulting firms tend to rack up big successes one after the other in a short time frame. And sometimes, these successes go to their heads, and they start thinking they can expand beyond the niches they carved out for themselves. Sometimes they have the knowledge and skills they need to expand in-house, sometimes they don’t. In the latter case, a good firm will not expand their menu of services until they get new partners on board and plugged into their methodology, even if a customer asks. So how do you know if a consultant follows her own advice? Ask her what she can’t do. A good consultant knows her limits, will tell you her limits, and, most importantly, when you encounter a problem outside the original project scope that she is unable to bring you a first class solution to, she’ll tell you, and, if her firm can’t help you (because it’s a sales operations problem and you hired them for procurement process and technology, for example), she’ll work with you to find the right consultant who can.

Furthermore, good service providers, no matter how good they are at project management, will not rush to bring software development in house — because this will substantially increase their cost of operations, and thus of service delivery, if they do not have the time, resources, and funding to devote to a full-fledged product development operation (and most [niche] consulting firms don’t). Good service providers partner with rapid-development SaaS providers when their clients need specialized solutions. They offer to manage the work for you, not do it themselves.