Category Archives: Corporate

CPOs Deserve to be in the C-Suite

And the general belief is that because Supply Management is so important to organizational success, CPOs should report to the CEO. And while this should be the case in theory, should it be the case in practice?

According to a recent study by A.T. Kearney (as highlighted over on S&DC Exec) conducted in association with CIPS and the ISM, only 10% of procurement functions have established recognition with their CFOs regarding how procurement contributes value and that the benefits are real and measurable. Ouch! Reading this make one wonder if maybe the CPO should be reporting to the CFO.

Why? Because if the CPO is a direct report, it might convince more CFOs to spend more time trying to understand the ways of Procurement and convince more CPOs to spend more time trying to understand the ways of Finance. The joint effort might result in more CFOs and CPOs coming to a joint understanding, which might result in more CFOs understanding the true value of Procurement.

Right now, as per a recent Cap Gemini Survey (available at this link), 20% of CPOs report to Finance. It’s unfortunate that we don’t know how many of these CFOs are among the 10% of those that understand the value of Procurement. Because if the majority of CFOs who understand the value of Procurement were those who had the CPO as a direct report, then the answer would be simple. Have the CPO sit at the table but report through the CFO on a daily basis until such time that Finance understands the true worth of Procurement. However, if the percentage of CFOs with direct CPO reports who understand the value Procurement brings is only in the 20% range, then having the CPO report to the CFO makes no difference.

Any thoughts on the issue?

Procurement Trend #24: Better Governance Model

Twenty-one dreary, and weary, trends still need to be discussed, so let’s keep the fire burning. The sooner we get through these, the sooner we can expose these charlatans once and for all.

So why do so many historians keep pegging this as a future trend, and keep poor LOLCat regressed in his past life? There are a number of reasons, but among the top three today are:

  • models may be few but most organizations don’t use the right one

    and even those organizations that have selected the right model don’t always apply it properly

  • compliance regulations make governance critical

    since SOX can put you in the Box with Fox!

  • investors want a return
    and they know a lack of governance won’t give them one

So What Does This Mean to You?

Governance Model

De-Centralized, Center-Led, Centralized, or Control Tower — which is right for your organization? The answer is all of them, depending on the situation.  For example, snow-clearing services should probably be de-centralized as it makes no sense to run them out of Houston, Texas or San Jose, California. IT Support should be center-led, as regional providers will probably give you the best price. Global contracts for your core product production should be centralized, as you need the volume for leverage and you need good supplier management. And it’s likely that a Control Tower model will be needed to manage the proper application of each model to each category it is suited to.

Fox in the Box

SOX can put your CEO and CFO in the box with fox if your company doesn’t make an acceptable effort to comply with the Sarbanes-Oxley Act of 2002. But this isn’t the only regulation that can get your company in hot-water. Labour regulations, environment regulations, etc. can all put your company at risk with unlimited (legal) liability in some cases. So companies have to make sure that the governance model takes into account compliance and supports the collection of all necessary data to insure that the organization doesn’t go foul of SOX or other regulations that could get it in hot, hot water.

Greedy Investors

They want a return and won’t be satisfied until they get one. And unless you can convince them that you have things well in hand, you’ll have a group of very clingy monkeys on your back, weighing you down. So you want to make sure that you have good, documented, governance procedures that will keep them happy and keep hundreds of pounds of monkeys off of your back.

Corporations Will Soon Rule the World

To the tune of Everybody Wants to Rule the World by Tears for Fears.

     Welcome to our life
     There’s no turning back
     Even while we sleep
     They’ll continue
     Acting on their worst behaviour
     Turn their backs on mother nature
     Corporations will soon rule the world

     It’s China’s design
     It’s Harper’s recourse
     A social divide
     That will take the most (of)
     our freedom and our pleasure
     Nothing ever lasts forever
     Corporations will soon rule the world

     There’s a room where the light won’t find them
     Counting money while the poor go bankrupt
     When they do they’ll buy the shelters too

     So sad they’ve almost made it
     So bad Obama’s played it
     Corporations will soon rule the world

     I can’t stand this lack of vision
     That will soon put us all in prison*
     Corporations will soon rule the world

     Say that we’ll never never never never need it
     One headline why believe it ?
     Corporations will soon rule the world

     Our freedom and our pleasure
     Nothing ever lasts forever
     Corporations will soon rule the world

By now, at least 3/4ths of North Americans should know that the Trans-Pacific Partnership, which allows you to be thrown in jail simply for clicking on a hyperlink embedded in a web-page, is bad. Very bad.

But what is not so obvious, as astutely pointed out in this article over on A Corporate Coup in Disguise on, is that the Trans-Pacific Partnership will create a virtually permanent corporate rule over the people. No wonder the US and Canada, led by the worst prime minister ever, are getting on-board. Under this wonderful trade agreement, any food safety regulations and food labelling laws stricter than “international standards” become “illegal trade barriers” and get stricken down. Exports of natural gas cannot be regulated, and un-regulated instances of destructive fracking will sky-rocket. Big Pharma will get an additional 10 years of monopoly pricing on patented drugs and the ability to block generics until the monopoly runs out. Not only would the NSA would be given legal authority to police the entire internet, but all ISPs would have to act as the NSAs private on-line police force while banking regulations designed to prevent economic collapse get thrown out the window. And Corporations get to relocate all of their factories to the lowest cost TPP member country risk free thanks to enhanced foreign-investor protections.

In other words, corporations get to go where they want, do what they want, and not give a damn about sustainability, liability, or us. For you Christians out there, I think even the devil himself would be hard-pressed to come up with such a dastardly deal. Say NO to the TPP!

*Soon all prisons will be run by corporations too!

Should you “Mandarin-ize” Your Supply Chain?

After reading a recent post on the HBR Blog Network on how to unify your global company through a common language, which discussed Hiroshi Mikitani’s attempt to unify Rakuten, the third largest e-Marketplace company in the world (with a presence in the Americas, Europe, Asia, and Oceania) through a common language, this question surfaces.

In 2010, Mikitani, founder and CEO of Rakuten, decided that he was going to unify the global company through Englishnization — a commitment to make English the company’s official language. This commitment had three phases.

  1. All workers were required to take a 2-hour 200-question test (TOEIC) to assess their reading and listening comprehension of business English, and continue to take the test until they passed. (Failure to do so could result in demotion.)
  2. Outside help was brought in to coach employees on how to study and manage the process of learning English.
  3. English was made the language of meetings.

Why English? Practicality. Many of the most talented individuals in the industries important to Rakuten, such as technology and finance, already spoke English as a first or second language. Many of these individuals were educated in English-speaking institutions. Thirty percent of new hires in Rakuten are non-Japanese, with 50% of new engineer hires non-Japanese. The vast majority do not speak Japanese, but the vast majority do speak English. Their top engineers all over the world can communicate with their top engineers in Japan, who (now) speak English, with the average company TOEIC score having reached 737.3 out of a possible 990 (or 74.5%).

A common language will allow an organization to achieve a true unity of corporate purpose, because it will allow a unity of understanding. And then the organization will be able to manage and innovate as one with speed and precision and truly be global.

But should the language be English? For some multi-nationals, I am beginning to think it should be Mandarin. Despite the fact the cost of fuel keeps rising, that wages in China keep rising, and that supply chains have to adapt and respond faster and faster, outsourcing to China is still rapidly increasing. As per SourcingLine, China’s current outsourcing market is growing an estimated 30% annually, and many companies (like IBM) have relocated division or global headquarters to China to grow and strengthen their global business (and to try and get a dominant foothold in the market that consists of 1.3 Billion potential consumers).

In other words, these companies are sourcing from, managing in, and selling to China, where the dominant language is Mandarin – the language with the most native speakers in the world (that outnumber native English speakers almost 3 to 1). Plus, China is on the fast track to become the dominant economy in the world, an event that could happen in as little as three years (according to recent data from the International Monetary Fund, see the China Digital Times), and will most definitely happen in the next five to ten years if China’s economy keeps growing by leaps and bounds and America’s stays stagnant.

I will admit it will be much harder to Mandarin-ize your Supply Chain that it will be to English-ize, especially since Spanish, Portuguese, and French, which are other dominant global languages, use the same character set (A to Z) while Mandarin uses logograms known as hanzi (which are the counterparts to the Japanese kanji for those of you who speak Nihongo). Furthermore, there’s the special grammar rules for Germanic language speakers who are used to inflection, affixes that denote plurality and tense, and different rules for topic-prominence. However, if China is the heart of your Supply Chain, and thus the heart of your organization, it’s certainly worth considering!

Supply Management and Investor Relations

This summer, e-Sourcing Forum ran a three part series on Procurement’s Role in Investor Relations (Part I, Part II, and Part III) that was quite interesting. In the series, the author, David Henshall of Purchasing Practice outlined the four essential roles played by procurement in investor relations. In a nutshell, these roles are:

  1. Ensuring the Investor Community has a Timely and Accurate Picture of Supply Side Activities
  2. Helping the Investment Community Comprehend how Supply Markets Impact Strategic Decisions
  3. Delivering Shareholder Value by Maximizing Opportunities and Minimizing Risk
  4. Supporting Senior Management in Making Strategic Decisions

And they must be fulfilled in the terminology and metrics understood by the investment community – EBITDA, ROIC, EPS, etc.

And these are key roles, but in today’s profit-focussed economy, the importance of the following roles should not be de-emphasized

  1. New Market Identification
    Supply Management is likely already sourcing from the markets the company wants to expand into to spur growth, the investor’s holy grail.
  2. New Product Design & Introduction
    While engineering and marketing can come up with great ideas, they are typically not the most cost effective ones in their initial instantiations. Supply Management can suggest alternate materials, components, and services to lower costs and suggest value-adds to increase revenue. Profit margins can often be doubled or tripled and everybody wins.
  3. Brand Development
    Sometimes, the best way to get a quick boost to the brand is to partner with another brand that already has a great brand. For example, we’re all familiar with “Intel Inside”.

The importance of Supply Management cannot be understated, especially given the centrality of supply management to value creation.