Category Archives: Best Practices

Managing Business Risk

There were a number of really good presentations at the Symposium on Supply Chain Management on Friday, but one of the ones that really stood out was the presentation by Francis Borromeo of Shell Oil Canada on Business Continuity Planning.

Business Continuity Planning is one of the best ways to manage risk, including supply chain risk, and last year, Shell Oil proved it. Hurricane Katrina devastated multiple oil refineries in South Texas. The effects were that plants were closed for months, with a mid-term effect on supply and a detrimental effect on oil prices. It was all over the news. However, what they didn’t tell you was that it could have been much, much worse.

Oil refineries process more oil than most oil tankers carry. And we all remember how many years it took to clean up those spills off of Alaska. And multiple refineries were almost destroyed. Had they been processing oil at the time, it could have been one of the worse environmental impacts of the decade, putting the plants out of commission for years, if not closing them down permanently. But not one dropped was spilled. Why?

Shell Oil, like the other major producers in the region, had rock solid business continuity plans that identified all of the major risks as well as measures to not only recover from disasters, but prevent the severe ones from occurring in the first place. As soon as the hurricane started heading toward the region – processing stopped. Tanks were emptied. Above ground pipes were pumped empty. Stockpiled oil was relocated inland.

In addition, thousands of people could have been seriously injured or killed. This did not happen. All non critical personnel, and their families, were airlifted out of the region well before the storm hit. Critical personnel were evacuated as soon as possible. The end result, only buildings – easily rebuilt – were destroyed. It was a disaster, but it paled in effect to what it could have been.

And you can do this too. Business continuity planning and risk management does not have to be ridiculously expensive. The key is that you

  1. have a business continuity plan with
  2. prioritized risks and recovery plans that you can use to
  3. manage the recovery process in order to
  4. transition to business as usual in a manner that permits an
  5. after action review to allow you to improve and thrive.

A business continuity plan not only provides a framework for the recovery of the critical business processes, but it allows you to safeguard your brand and reputation.

But it’s probably last on your management priority list. After all, you only see a return when a major disruption or disaster happens. However, considering that Aberdeen recently found that your average international company experiences two significant disruptions per year, it is critical that you have one. So how do you get the support and resources you need to initiate one?

Francis outlined the following arguments that you can use. On their own, chances are not one of these will win you the support you require – but taken as a whole, the business case becomes very compelling.

  • the insurance provided vs. the cost of insurance;
    a well designed plan will only cost pennies on the dollar and will deliver a ROI many times what it cost to prepare in the event of a disruption … many times …
  • a business impact analysis is bound to identify process improvements
    no business does everything optimally … and often the only way you figure this out is through documenting the process and identifying recovery methodologies
  • tangible, documented, business knowledge
    which can then be shared throughout the organization vs. silos that reside in your employee’s head
  • validation of organizational focus
    once you’ve identified the critical processes, you know what you need to focus on … and chances are you’ll discover a few processes that are a lot more critical then you otherwise thought
  • customer requirement
    a marquis customer will only work with you, or stay with you, if they know you can recover as fast as they can in the event of a major disruption

Spend Management Changes Business

Before the Sourcing Innovation Series, where the mighty prophet of the spend management space Jason Busch offered up his thoughts on “Sourcing Innovation: Securitizing Direct Materials”* and “Sourcing Innovation: Next Generation On-Demand”*, he published a whitepaper for Ariba entitled “Spend Management: Changing Business”, A Case for Reexamining Procurement’s Role In Organizations of All Sizes, that you should read, or read again, as you’re unlikely to find all of the nuggets of wisdom Jason packs in on a first read.

Spend Management can lead an overall business strategy. And it can create significant competitive differentiation that is much harder to replicate than a product or service that is sold on the revenue side of the business … Spend Management is not a business strategy and philosophy. It is the business strategy and philosophy that leaders practice and followers fail to fully understand.

Spend Management is not just cost management. It is not just procurement. It is not just new software. It is not just an incremental change in function or process. It is not a new fad or methodology being pushed by the consultants simply to define their value and take your money. It represents a new type of thinking, a way of taking integrated approaches to not just procurement, but all aspects of non-revenue generating operations. It is a way of thinking about your global supply chain strategy that will reduce costs, improve processes, and increase profits even when inflation is rampant, economies tight, and transport lanes continually overtaxed.

At the very core, it is the process of driving sourcing innovation to new levels across your organization. Continual Spend Management Innovation, to squeeze more and more from every dollar you spend, is your ultimate goal as it is the only way to guarantee long-term sustainability of results. You focus on value, which could be defined as the simultaneous maximization of total cost, production efficiency, and innovation.

Spend Management success requires creating specific goals and having a destination point in mind. To do this, it is necessary to identify where a company stands today and how to overcome the gap between the current state and market leadership. After all, there is no panacean spend management solution, even though there are a number of platforms that cover different aspects of spend management, which include spend visibility, eRFX, eProcurement, catalog search, contract management, supplier performance management, category management, and supplier risk management, quite well. After all, if you know where you need to go, you’ll get there a lot faster.

Accelerating Spend Management results requires that executives move beyond looking at procurement solely as an agent for cost reduction. To sustain results, organizations must now examine cost, spend, vulnerabilities, and risk as assets to be managed and reduced. … Organizations need to think creatively about the best – and most cost-efficient – ways to mitigate and manage vulnerabilities and risk to drive Spend Management results. Every company is different. Every supply chain is different. And every solution that outperforms a competitor will be slightly different. The key is to learn from the best – and then improve upon it.

When upgrading capabilities and investments, it is not necessary to switch out existing providers. It is now possible to use and improve what they already have by turning to other providers to augment and enhance existing capabilities. I’ll say it again, there is no panacean spend management solution. Although some providers offer extensive integrated solution suites, some of which are quite spectacular, each provider tends to have a strength in a different area, such as eProcurement, eSourcing, contract management, spend analysis, supply visibility, or supplier risk and / or performance management, and the best solution for your company will probably be a combination of vendors – and sometimes you’ll even have multiple vendors that offer the same capability as you will find some vendor solutions more suited to certain parts of your supply chain than others. However, since most of the best vendors on the market today offer on-demand solutions, building an optimized heterogeneous solution should not be problematic.

To ensure that an organization is headed down the Spend Management path to sustainable savings and potentially industry-shaping results, it is essential for executives to keep three key objectives in mind. First, they should take a flexible approach and expect the same dexterity from their partners, realizing that Spend management is not a one-size-fits-all proposition. Staying nimble allows a company to take advantage of opportunities as they arise, and to react to – or ideally predict – changes in market conditions. Second, they should establish longer term goals and programs without sacrificing near-term objectives that can motivate the organization and prove the value of Spend Management as a continuous process. And third, they should invest in creating company-wide systems and capabilities that use the best of internal and external knowledge and processes to maximize – and guarantee – ongoing results.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

The Talent Series IV: The Talent War

This series seems to get more relevant by the day. On Thursday, the European Leaders Network published “The War for Procurement Talent” where they noted that you need the right environment to attract and retain the highest calibre procurement talent. After all, talented people tend to make above average contributions to any organisation; every good business has talented and motivated people at its heart.

According to the article, the best way to attract talented individuals is to ensure that the purchasing challenge presented to the candidates is BIG and NEW. Great talent is drawn to the opportunity to work on big things and to apply new thinking. Furthermore, it states that the best way to keep them is to ensure your business has the capacity to change. Talented people need to be successful, and change creates the opportunities that talented people can exploit in pursuit of success.

However, as the article points out, not every category is big or wrought with the opportunity to change the business. So how do you attract talent to these categories? One possibility is to hire recent graduates. A recent article in Canadian Business (Sep 11 – 24, 2006 print edition) by the title of “Hire Education” offers some good advice in this area.

The article, which discussed the results of a survey of 30,000 students from 143 post-secondary institutions across Canada, jointly conducted by Toronto based Brainstorm and D-Code to guide recruiters on what the new crop of employees want found that the number one attribute young people value most when considering employment is opportunity for advancement. Since they will be starting at the bottom of the pyramid, if you have a decent size organization, you can offer them lots of opportunity for advancement – or at least change – by rotating them through different categories to broaden their skills and bring a fresh view. In addition, the number two and three attributes were good people to work with and good people to report to. So build a good team, and talent will be attracted to you.

As you have probably guessed from my recent posts, I more or less agree with these statements. Opportunity attracts, while the capacity for change and advancement retains, but, as I’m quick to point out, only if the compensation is fair and balanced. Otherwise, they’ll probably be attracted to the bigger carrot on the shinier stick held out by your competitor.

The Talent Series III: Finding, Training, and Retaining

This week was another good week. To start off, Charles Dominick of the Purchasing Certification Blog (now the NLPA blog) started us off with a post on “Talent Management” that offered some suggestions for a mid-sized company to retain talent. In summary:

  • hire the “right” person, not necessarily the “best” person,
  • have a career development plan from junior buyer to VP of, Purchasing
  • don’t change the plan “on a whim”, and
  • reward employees for educational achievements.

Dave of Buyer Analytics chimed in with a great post on “Practical Talent Management for Procurement”. Dave shared with us five best practices for finding, retaining, and nurturing procurement talent. Briefly, these were:

  • Take advantage of the “Feeder Pool” of College Graduates available to you,
  • pair recent graduates with purchasing managers in direct materials,
  • rotate new buyers to indirect materials,
  • rotate the now more-experienced buyers back to direct materials, and
  • at the right time, put them on the management track.

Dave of Procurement Central [WayBackMachine] followed up on his teaser “Thought of the Day” with an insightful post on “Performance Based Pay – Thoughts from a Silicon Valley guy”.

He really hit the nail on the head with the following:

Dave Stephens (annoying young engineer): “Doug, why isn’t going above and beyond rewarded more here?”

Doug White (CEO): “Dave, this is a company of engineers. Engineers value stability above all things. We don’t differentiate much on performance – that would make things unstable. We like it that way and we’re not changing things.” (but more polite and CEO-like)

I knew right then I was working for the wrong company.

Your best people work hard, perform well, and expect to be rewarded. The best answer we have right now is performance based compensation. Now, Dave is right in that measuring performance can be extremely tricky, but if you do it regularly, include objective and subjective ratings from an individual and corporate performance, do your best to approach fairness & correct mistakes as you make them over time, then not only will you get better, but your people will see the effort your making, realize you value their contribution, and, odds are, stick around for the long haul. I agree with Dave, “by being honest & upfront and not getting overly specific, management can ensure performance based pay, just like procurement, is good medicine for your business.

Finally, even though it is not part of the talent series, I’d like to mention a post on Joe’s Corner Blog. In “When Small is Big”, Joe gives us some great advice that can be applied to the talent gap. Think of the principle of small is big, or less is more, and success will follow. In other words, if you find the right people, you may not need as large a buying group as you think you do to succeed (especially if you empower them with the right tools and incentivize them to stick around!).

The Talent Series II: Attracting and Maintaining Great Talent

This week, a number of bloggers responded to my suggestion and offered up some great posts on closing the talent gap. Tim wrote a great post on “Attracting Great Talent the Jack Welch Way” on Supply Excellence [WayBackMachine] Doug of Vendor Management (renamed Contract Capital Management [WayBackMachine]) reminded us of “Five Leadership Behaviors Correlated to Performance”, Matthew of Purchase Realm responded to my post with his own on “Procurement Succession Planning” and then came up with an idea to take the cross-blog discussion to the next level by soliciting posts on “A Day in the Life of a Buyer”.

Tim summarized some great simple, straight-forward advice from Jack Welch. The best way to attract great talent is to be a preferred employer. He offered a simple summary of Welch’s tips for becoming a preferred employer, which are:

  • demonstrate a real commitment to continuous learning
  • establish a meritocracy
  • allow, and encourage, people to take risks
  • be societally cognizant
  • focus on high standards
  • be profitable and growing

Doug reminded us of a recent study at Harvard business School that identified five leadership behaviours that are correlated with increased motivation, creativity and performance of team members. After all, no point attracting the best talent if you are not going to foster it. Briefly, leaders support people, monitor work in a positive way, recognize people for good performance, and consult with the team. The fifth? Check out Doug’s post or the Harvard study.

Matthew offered his thoughts on why succession planning almost never happens. In addition to finding the topic unpleasant, most people in the corporate food chain assume that either the person is planning on leaving or using the discussion as a back-door to state that he or she feels it is past time for a promotion. However, as Matthew points out, without proper succession planning, there is a general sense of chaos when someone leaves a position unexpectedly.

A great first week. I know a couple of other bloggers have some great ideas that they should be posting this week, so keep your eyes on the blogs!