Category Archives: Best Practices

The Creative Challenge I (Marketing and Procurement)

As pointed out by Jason Busch over on Spend Matters in “Sourcing the Sacred Marketing Cow”*, Efficio recently released a white paper entitled “The Creative Challenge: Driving Efficiencies in Marketing Procurement” that focuses on how procurement can target marketing spend. Since I wondered how it compared to the “Magic and Logic: Redefining Sustainable Business Practices for Agencies, Marketing, and Procurement” research report co-sponsored by CIPS (Chartered Institute of Purchasing and Supply), the IPA (Institute of Practitioners in Advertising), and the ISBA (Incorporated Society of British Advertisers) last summer, I decided to give it a read and summarize it in a 2-part blog post so that you, dear reader, could do a high-level comparison for yourself by referencing the posts I did on the latter last fall (Part I and Part II).

The report presents some of the major challenges to the initiation of rewarding discussion and collaboration between marketing and procurement, a taxonomy through which marketing spend can be understood, and the outline of an approach to driving efficiencies in marketing procurement. This post will review each section.

The key challenges addressed are the following:

  • Understanding that Close Relationships are Good for Both Sides
    Marketing often believes procurement is not interested in learning about their market or relationships while procurement often believes that marketing does not want them to be involved in relationships with them or their agencies.
    However, a productive understanding can be reached if procurement takes the time to learn the marketing business and both sides agree on clear roles and responsibilities.
  • Realizing that It’s Not Just About Cutting Costs
    Marketing often believes that procurement is only interested in cost-reductions at the expense of the client-supplier relationship while procurement often believes that marketing has a “money is no object” viewpoint that is exploited by suppliers.
    However, a productive understanding can be reached if procurement takes the time to position themselves as a growth enabler, educating marketing about the total supply chain approach, and focus on the value they can bring.
  • Acceptance that Good Procurement Does Not Stifle Creativity
    Marketing often believes that procurement only knows how to apply a rigid process while procurement often believes that marketing departments are unable to follow processes.
    However, a productive understanding can be reached if procurement develops a structured commercial approach tailored to marketing and a joint agreement is made on objectives and key performance measures.
  • Understanding Properly Structured Relationships are Effective
    Marketing often believes that procurement is only interested in tendering and tactical savings while procurement often believes that marketing’s relationships with their suppliers are too cozy and that suppliers take advantage of this.
    However, a productive understanding can be reached if procurement takes the time to demonstrate their value add.

The taxonomy breaks marketing spend down into categories and sub-categories according to “Above the Line” (ATL) and “Below the Line” (BTL) spend. ATL generally refers to all activity related to advertising and all other marketing activity, which is generally undertaken to support the messages created in ATL, generally falls into the BTL category.

“Above the Line” spend includes media space acquisition (divided into media space buying, free-standing inserts, and media planning) and campaign production (divided into creative agency spend, broadcast commercial production, and pre-press) while “Below The Line” spend includes other marketing services (design agencies, direct marketing data management, direct marketing campaign fulfillment, market research, promotions, public/consumer relations, and sponsorships), printed marketing materials (divided into pre-press and printing services), branded merchandise, and meetings, incentives, conferences, and events.

The lion’s share of the marketing budget in most companies is directed towards “above the line” activities and usually towards media space acquisition through agencies in particular. Furthermore, even though the markets often lack transparency when it comes to costs, since markets range from strongly regulated markets to highly negotiable markets (in Europe alone), there is a significant opportunity for a company with a large budget, especially when distributed across several markets, to achieve savings through a structured approach to selecting, managing, and giving incentives to its media buying agencies without impacting the quality or creativity of individual campaigns.

Tomorrow we’ll review the efficio approach to driving efficiencies in marketing procurement as well as some of the typical savings levers that a procurement professional can apply to gain savings in each of the categories and sub-categories of marketing spend.

Purchasing’s Best Practices in Risk Management

Although I’m not always impressed with Purchasing’s articles on strategic sourcing and risk management these days, their recent article on “Best practices in risk management” wasn’t too bad, as pointed out by Tim Minahan in his posts “Supply Risk: Purchasing’s Take” and “Supply Risk Profit Equation” on Supply Excellence [WayBackMachine]. In it, they outlined three simple strategies that can help reduce your supply risk.

  • Leverage Relationships with Suppliers to eliminate risk and gain protection in a crisis.
    Make sure your suppliers will provide you with an acceptable substitute or give you preference when demand exceeds supply.
  • Study the risks you could face, prioritize them and decide how much value they endanger.
    That tells you how much time, effort, and cost to put into the development and implementation of mitigation strategies.
  • Admit that in some cases it’s better to pay more to ensure continuity of supply.
    If the absence of single part could shut down your entire production line, it’s important to make sure that doesn’t happen.

The article also overviewed the most common risks that lead to supply chain disruptions:

  1. part shortages
  2. ramp/rollout problems
  3. order changes by customers
  4. production problems
  5. development problems
  6. quality problems

The fact of the matter is that, as devastating as:

  • natural disasters,
  • infectious disease pandemics,
  • regulatory pressures,
  • supplier insolvency, and
  • geo-political unrest, coos, and civil wars

are, they are not everyday occurrences.

Manufacturing Insights From Motorola

Last week, Manufacturing Insights hosted a Webinar called Supply Chain Innovation with Perspective from Motorola that caught my attention. Since this blog revolves around innovation, and since Motorola has historically been pretty innovative, especially for a company of their size (and one of the first companies to aggressively pursue decision optimization, which helped them win the Edelman Award), I was intrigued.

The focus of the seminar was to announce some of the preliminary results of Manufacturing Insights’ recent global supply chain survey (which should be available to members by now) of 823 manufacturers, retailers, and wholesalers across Europe, Asia Pacific (which includes China), and North America to identify motivation and IT investment in supply chain and relate it to the corporation’s overall business strategy.

Surprisingly, despite the fact that there’s never been a better time to be innovative with all of the great new technologies and strategies available to you, the survey uncovered that there was not much focus on innovation at all, with the majority of respondents focussed on reducing costs. Although this suggests that the supply chain is still not very strategic, the reasoning offered for this reality was that many of these companies rely on financing and regular access to capital, which is determined by their valuation, which is determined by Wall Street, which bases their valuation on numbers based on how well they control cost. So cost is king. And then there’s the added pressure of rising material costs across the board, which makes cost a double whammy in the forefront of one’s mind.

However, I would argue that this is precisely the reason you have to stop focussing on cost and start focussing on supply chain optimization, including award optimization, supply network optimization, inventory optimization, investment optimization, financing optimization, and working capital optimization. (The former three are good examples of sourcing decision optimization problems and the latter three are good examples of supply chain finance optimization.) But I digress.

The webinar also included an overview of Motorola’s current strategic plan for their supply chain and an overview of their progress to date which includes a 40% reduction in their manufacturing and logistics operation footprint, a 2X reduction in parts-per-million (PPM) defects, and consolidation of 91% of their top 150 suppliers. These are impressive goals for a company the size of Motorola only two years into a massive project to consolidate their four separate supply chains into one single supply chain.

Motorola is accomplishing this goal through strategic investments in critical IT systems that will give everyone on their team the ability to get the information they need when they need it. More specifically, 90% of their IT spend is targeted towards leveraged systems and visibility tools for business planning. This provides a solid foundation for good supply chain management.

For those looking to copy Motorola’s success, they are attributing part of that success to defining their top priorities and maintaining a sharp focus on those priorities. For Motorola, the top 6 priorities are:

  • Execution Excellence
    Meet commitments and numbers. Accomplish this by way of improved IT infrastructure and information visibility.
  • Deep Supplier Relationships
    Leverage the whole of Motorola in fact-based negotiations. Use supplier scorecards and cost management systems.
  • Manufacturing and Logistics Optimization
    Optimize the footprint, product flow, and lean best practice implementation across all sites. Integrate with partners and use advanced planning systems.
  • Quality Renewal
    Go back to the basics and ensure consistent deployment across all business units. Ensure product traceability and capture early returns indicators.
  • Common Leveraged IT Solutions
    Invest in common systems, drive efficiencies, and maximize the value of IT spend. Enhance software development processes and portfolio management.
  • Organization Efficiency
    Optimize the support structure and develop a (metric-based) culture to further growth and performance. Create a culture of doers, not talkers, and drive commonality and reuse worldwide.

In addition, Motorola is increasing their focus on market-based segmentation within the single supply chain, process simplification, and supplier collaboration. What’s great about this is that there’s nothing you haven’t heard about before as most of this is what leading bloggers, analysts, and vendors have been preaching for a few years now. This means that they key to success is to develop a good strategic plan, adopt the technology that is now available, and just do it. Couldn’t be simpler, right?

 

Catching up with Global Data Mining: Don’t Underestimate Trade Compliance

Last October, while discussing Global Trade Data Management, I introduced you to Global Data Mining (acquired by CUSTOMS Info which was acquired by Descartes), a company that specializes in helping high-volume, high-value global trade businesses build effective trade databases for extensive trade reporting and comprehensive auditing to significantly improve their processes, reduce their error rates, and save time and money in their global trade endeavors.

Even though one of my interests is understanding how you can improve your global strategic sourcing processes with better trade data, it’s clear that the most pressing issue today for most companies is just trade compliance. Today, Trade Compliance goes well beyond just assigning the proper Export Control Classification Number (ECCN) and the proper Harmonized Tariff Schedule (HTS), but also involves making sure you are paying the proper duties, qualifying for Value Added Tax rebates, and taking advantage of Foreign Trade Zones. It also means that, before you ship your goods to their destination, you make sure they are complaint with any local regulations such as the EU RoHS, WEE, or REACH directives, the HAZMAT requirements, or the EC ELV directive. (Don’t know what these are? Keep checking the e-Sourcing Wiki [WayBackMachine] – a wiki-paper defining the basics of Global Trade is forthcoming.)

It’s a lot more costly than most organizations think it is. According to their whitepapers, error rates in global trade processes approach 10% to 20% and effective control of global trade processes is often 100 to 200 times worse when compared to accounts payable processes within a company. And the savings opportunities often go well beyond the 2.5% to 10% that previous Aberdeen research studies have indicated it to be. In conjunction with the Aberdeen Group, in preparation for their upcoming benchmark study, GDM analyzed the actual trade data for five organizations with 66B in revenue and found direct-compliance related savings opportunities of $261.2M alone. It might not sound like much, but it’s likely just the tip of the iceberg as the savings came only from non-compliance, self-filing, and free trade zone savings that could be identified on data analysis alone. Imagine what better sourcing that considered trade compliance and import / export rates, free trade zones, and automatic e-filing opportunities from day one could accomplish!

With complex cross border transactions expected to account for more than 10T this year, according to the McKinsey quarterly, with many companies still struggling to adapt to the HTS reforms in January, with pre-arrival e-manifests almost the norm now for cross-border trucking into the USA, with the recent elimination of many VAT rebates in China, and with the rapid multiplication of foreign trade zones in dozens of countries around the world, each with their own laws and benefits, it’s a given that billions of dollars are being lost by businesses around the globe just on Trade Compliance alone. So take it seriously, and if you need help, seek it out.

I’d be comfortable starting with Global Data Mining or their partner, the International Trade Bureau. They’re open about their tools, capabilities, and results, and will happily work with other vendors if you need a solution they can’t supply on their own. As to whom else plays in the trade management space, there’s Bearing Point Consulting, Core Solutions, Management Dynamics, Integration Point (acquired by Thomson Reuters), QuestaWeb (acquired by Descartes), and Tradebeam (acquired by CDC Software). As with PLM, I’m not an expert in the Global Trade Management space when it comes to all the players and their capabilities, but I do think a few of capabilities of Global Data Mining, along with a few of the reports, are unique and certainly worth investigating if you do a significant volume of global trade and have never analyzed your compliance or cost efficiency. Having them audit your data and prepare a summary will not cost you much, but could identify millions in savings. In one $3B apparel company alone they found $161.5M in potential duty and free trade savings – 5% of revenue – not cost, revenue! It’s something to think about.

What Got You Here Won’t Get You There

As a good follow up to last week’s piece on Managerial Delusions, Knowledge @ Wharton recently ran a piece titled on “To Marshall Goldsmith: Thank You for Writing This Book” that reviewed Marshall’s Goldsmith new book What Got You Here Won’t Get You There.

The article states that the power of the approach, and the book, lies in its simplicity, and the basic insight that good manners is good management. The review states that the book is built around the bad habits that keep highly successful people from succeeding even more. Basically the hypothesis is that, once a certain professional level is reached, neither intelligence nor skill accounts for the fact that some people continue to advance while others plateau. According to Goldsmith, the secret lies in behavior, identifying the hidden behavioral tics that are preventing you from succeeding and eliminating them, and, furthermore, recognizing the delusion that the behaviors that allowed you to advance to a certain point will continue to serve you.

The article then goes on to outline the “twenty habits that hold you back from the top” that Goldsmith discusses in detail in his book, but before we get to those, I’d like to point out that this philosophy mirrors the philosophy I have for successful companies – that what served you well yesterday is not enough to serve you well tomorrow. That’s why you need to continually improve, and innovate. This is what Goldsmith is telling you. He’s saying that, at a personal level, you must continually improve as a person in order to continue to achieve. I agree, but whereas he believes all of the answers are behavioral, I’m not sure I entirely agree. But it’s definitely part of the puzzle, and all of his insights are true, and one should definitely work to eliminate the bad habits he identified.

The bad habits, as summarized by the McKinsey article, are:

  • Hyper-competitiveness
    The need to always best others.
  • Adding too much value
    The need to always improve an idea, even those that are quite good.
  • Passing Judgement
    It’s not always required.
  • Destructive Comments
    Too much criticism, and not enough constructivism.
  • Starting with “No”
    Start with “Yes”, then modify.
  • Constant Bragging.
    Or, constantly flaunting your greatness.
  • Speaking when angry
    Good rarely comes of it.
  • Negativity
    Try to be positive instead.
  • Withholding information.
    As I continually try to impress, Collaborate, Collaborate, Collaborate, Collaborate
  • Failing to recognize.
    Others in the organization can succeed too. Recognize when they do.
  • Claiming unjustified credit.
    As with “failing to recognize”, it’s important to give credit where credit is due.
  • Making excuses.
    If you’re management, it’s important to remember the buck stops with you.
  • Clinging to the past.
    It’s important to learn from the past, but it’s also important to let it go.
  • Playing favorites.
    Rewarding suck-ups creates hollow leaders.
  • Refusing to express regret.
    There are times to say “I’m sorry”.
  • Not listening.
    Just not good. Not good at all.
  • Failing to express gratitude.
    There are times to say “Thank you” as well.
  • Punishing the messenger.
    Remember, as a manager, the buck stops with you.
  • Passing the buck.
    “The buck stops with you” means no passing!
  • Excessive need to be “me”.
    Well, as much as you want to be, you’re not perfect. Recognizing that and continually striving to improve is the best way to build commitment and loyalty.

There’s also a bonus bad habit, but you’ll have to read the book, or at least the McKinsey article for that one, just as you’ll have to refer to the book for his advice on overcoming the bad habits.