Category Archives: Guest Author

Stagnant Sourcing, Part II


Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC and co-author of “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing”.


In yesterday’s post, Joe began to address the fact that despite the clear path laid out before them — the path of “take a strategic approach, see positive results” — many procurement groups are still falling behind and failing to do just this. He noted that while the reality of the situation is different for every organization, there are some trends that weigh more heavily than others and discussed two of these trends. In today’s post, he discusses two more.

Lack of Skill Sets and Vision

While everyone might jump on board and say they do not have the proper resources, this reason is a little harder for some to admit. A large portion of procurement groups are operating without the analytical skills and foresight necessary to implement more strategic initiatives. While some might see this as the result, or the validation, of Jack Welch’s infamous quote, it is also due to the traditional role procurement currently plays or has played for most of the department’s existence.

In many companies, procurement is nothing but a rubber-stamp — just another step in the issuance of a purchase order. In others, they may have implemented a three-bid process or another similar purchase control method to try and secure savings, at which point they become viewed as not a rubber stamp but as a hindrance — not a step in the issuance of a purchase order, but a hurdle. And I will stop for a second and explain that procurement is not always pigeonholed into this tactical role because it is all they can do. This tactical limitation is often just as much an indictment of a failure by management to capitalize on the full abilities of all of its resources as it is a statement on the limited capabilities of procurement professionals.

Skills carried over from education and prior experience are not like riding a bicycle. These skills fade and fall away. This limited role, when performed for a long enough period, can limit the effectiveness of any prior analytical skills that fall outside the needs of the assigned role. Luckily, one of the benefits attributed to the rise of Supply Chain Management programs at major universities is the resultant increase in incoming supply chain personnel with college-honed analytical skills tailored to the procurement industry.

Procurement may soon be equipped with the skilled resources needed for strategic changes.

Management Is Not Interested

A final hurdle for procurement groups looking to make a strategic leap is disinterested leadership. Executive management, whose approval is and would be needed for a procurement group to “resource-up” and/or take on new challenges, might not think procurement is capable of such initiatives. Alternatively, leadership may be disinterested due to their inability to see the benefits to procurement taking on strategic endeavors. This can be frustrating, but it can be solved.

Disinterested management has to be persuaded, and the easiest way to persuade is through a prolonged effective internal marketing campaign. Reports should not be seen as an administrative chore, but rather as an advertisement for a procurement department. Operating transparently should not be seen as micromanaging, but as a way to actively show interested parties how effective the procurement department can be. Other successful procurement groups — when they make the news — can also be used as leverage to convince an otherwise-disinterested leadership group that strategic procurement endeavors can be worth the investment.

Additional marketing methods could include a training program designed to mitigate the frustration that comes from procurement’s involvement with some stakeholders. One of the most effective methods is securing a “bell cow”. A procurement department wishing to be given a more strategic role should identify an influential stakeholder and work to get that person onboard with their efforts. They should then use that person as a cheerleader for the group.

Wrapping Up

There is no single reason why procurement groups do not undertake strategic endeavors, just as there is no single party at fault. However, the evidence is mounting that those procurement groups that do not set themselves up strategically will face a widening gap between themselves and the best-in-class operations.

Thanks again, Joe!

Stagnant Sourcing, Part I


Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC and co-author of “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing”.

Late last year, I wrote about the “evolution” of procurement — how the department’s practices have moved from simple purchasing, to strategic sourcing, to category management, and to a level of control and strategic involvement that I called “change management”. In the conversations that stemmed from the article, both on- and off-line, I heard from many people out there that organizations don’t need to worry about “change management”, or even “category management”, yet. Many purchasing groups still struggle with implementing any strategic change at all.

This is troubling. If you have read anything related to procurement/supply chain in the last decade, you know that procurement’s ongoing success is tied to strategic improvements. Not only has this been preached, but it has been realized at best in class companies like Apple and Toshiba, where procurement took on a strategic role, optimized supply chain operations to the extreme benefit of the company, and saw executive leadership incorporate procurement leaders more openly. As you are probably aware, both Apple and Toshiba’s current CEOs were formerly CPOs at their respective organizations.

So with a clear path laid out before them — the path of “take a strategic approach, see positive results” — why are so many procurement groups falling behind and failing to do this? The reality is the situation is different for every organization, but over time I have seen a few trends that weigh more heavily than others.

They Think They Are

One of the most common objections lobbied from stakeholders when Source One is brought in to pitch our services is “We are already doing that” or, worse, “We tried that already and it didn’t work”. If brought out early into the pitch, it is clear that the objections are being lobbied by someone protecting their turf, or who sees our being there as an indication of their poor performance. As you drill in on these concerns, you will normally find they are an indication that there is a fundamental confusion regarding what strategic endeavors actually entail.

So, to clarify: A three-bid process is not strategic sourcing. Subscribing to an index on its own is not sufficient market intelligence to make informed decisions. As I have stated previously here on SI, supplier management software is not strategic supplier relationship management.

It is inefficient to continue to dedicate resources to an issue if you believe it is resolved. Procurement groups that mistakenly believe they are engaging strategically are not going to commit resources to actual strategic endeavors, and their failure to act is to their detriment.

Lack of Resources

If a procurement group is cognizant of the tactical nature of their current practices, they still face an obvious hurdle. Despite the numerous ads and pitches from software and service providers, strategic initiatives require significant resources to design, implement, and carry out. These are resources that most procurement groups simply do not have.

We did a survey of procurement professionals a little over a year ago and released the results throughout the spring and summer of last year. The first paper was on resource shortages, and the big number was that 30% of all procurement groups feel they are understaffed. Digging deeper for statistics more relevant to strategic endeavors, 34% of all polled procurement groups have zero resources dedicated to strategic activities, and 52% of all polled groups have less than half of their resources working on strategic endeavors.

While the need for strategic action may be evident, many procurement groups simply do not have the resources available to commit to the development of these long-term strategic initiatives.

“Engineers who can’t add, operators who can’t run their equipment, and accountants who can’t foot numbers become purchasing professionals”
— Jack Welch

Thanks, Joe! I bet our readers can’t wait for Part II tomorrow!

Optimize Your Supply Chain (and Your Company’s Worldwide Operation)


Today’s guest post is from Srini Vasan, CEO of eShipGlobal, a Transportation Management Software Company.

Our new global economy has opened the door to more opportunities than ever. Businesses have never had so many choices for products and services, or the chance to work so efficiently across borders. Technology has expanded options, as instant communication has made it possible to carry on business in three (or more) continents simultaneously. And the global nature of these innovations makes supply chain management more important than ever.

Companies are beginning to recognize the importance of maximizing supply chain efficiency and minimizing costs. In a 2012 U.S. Supply Chain Survey conducted by IDC Manufacturing Insights, 80% of supply chain managers reported that reducing their total supply chain costs was a top priority. And supply chain improvements can have positive implications across the board: A freight transportation infrastructure study by Boston Strategies International showed that a 10 percent reduction in direct transportation costs would result in supply chain improvements that could reduce companies’ overall operating costs by 1 percent.

Successful management of a global supply chain can be daunting — there are so many moving parts than ever before — but there are steps that can help your company tackle the inevitable issues and take advantage of the opportunities.

Review Your Talent Pool — Three-fifths of the supply chain management executives who responded to a 2013 PricewaterhouseCoopers’ survey said that the “acquisition or development of supply chain talent and skills” was essential to their current success. Note the word “development”. Of course your company can hire new talent, but you can also better utilize existing staff by ensuring their skills are up to date. Provide ongoing and intensive training, whether through internal education or by outsourcing training to supply chain management academies.

Focus Your Energies While Broadening Your Horizons — It’s not just training that can be outsourced. Consider your company’s core competencies. Where does your company shine? What are the tasks your managers and staff must do? Are there any that could be done more effectively out-of-house? Outsourcing can focus your staff’s energies and help them perform at the top of their game. And keeping a global perspective can be very cost-effective. According to a 2013 white paper by Fifth Third Bank (on optimizing the global supply chain), analysts report that companies can substantially lower supply chain expenses by identifying countries or regions with low-cost suppliers (and by keeping managerial staff limited).

Communicate and Collaborate — An optimized supply chain is just that, not a bunch of independent activities and functions, but a chain. All of its links — from small internal departments to large global trading partners — must communicate with each other in order to optimize efficiency. Better communication and collaboration between manufacturers, suppliers and retailers can improve everything from data-driven forecasting to inventory management.

Today’s technology can make communication easier than ever. Andrea Robinson, the UK business development manager for CargoWise, suggests that “using a single automated database ensures trading partners can communicate in a language compatible with other companies to identify common key performance indicators that provide a level of integration for shared systems and processes.”

Embrace Technology — An investment in information technology is critical for supply chain infrastructure development. IT supply chain solutions can:

  • Organize and unify supply chain processes
  • Integrate department activities
  • Enable sharing of software and information resources
  • Provide metrics that help to evaluate performance
  • Provide transparency
  • Offer customer service
  • Identify trends and changes more quickly and enable the supply chain to respond faster to both

Mobile technology can also be a supply chain game-changer. According to Ms. Robinson, “This technology can help improve field sales, merchandizing and marketing, and enable direct services to the consumer (through customized location-based coupons or services that improve employee productivity in the field). Providing information such as provenance, origin, item contents and specialized information on demand about sustainability, local content or manufacturing methodology enhances the brand and allows companies to connect directly with the consumer.”
Of course, an investment in IT is like any other. It’s vitally important to assess your needs, conduct a thorough search, and carefully choose the right solution for your company.

Plan (but keep an open mind) – IT solutions can also aid in planning, by providing information that helps to predict needs, forecast trends, and identify strengths and weaknesses within a supply chain. Companies can (and should) utilize this information to set goals, remembering to be realistic, flexible, and open to input from collaborators. “Adaptability is key!” was one of the takeaways from a recent “successful supply chain optimization by HP” on supply-chain.org, the operator of the largest IT supply chain in the world.

By following many of the steps above, HP was able to “streamline, simplify, standardize” and profit. By optimizing its global supply chain, the company leveraged scale spend and common parts; consolidated suppliers manufacturing partners and logistics providers; eliminated unnecessary or duplicate nodes; reduced the number of drivers; and decreased the number of IT processes and applications used.

HP also learned a few lessons along the way. As mentioned, the company found that adaptability is crucial, as is business continuity, especially during transformational efforts. But the most important idea behind the company’s success is also one of the simplest: Strong organizational leadership is essential. In the end, a thoughtful plan created by collaborative, creative leaders is the strongest link in an optimized global supply chain.

Thanks, Srini.

8 Key Design Considerations for Optimizing Your Demand Planning Process: Part II


Today’s guest post is from Josh Peacher, a Senior Consultant in the Operations Practice of Archstone Consulting, A Hackett Group Company.

In the first installment, we focused on defining the 4 basic design considerations for optimizing your organization’s demand planning process. These considerations included:

  1. Utilization of time series forecasting and exception management to drive a base forecast
  2. Selecting the right software tool for your business
  3. Identifying a set of core metrics and KPIs that help to identify opportunities and drive accountability
  4. Effectively leveraging external information to elicit a more accurate forecast

These design considerations are foundational in nature and effectively addressing each will ensure that your organization’s demand planning process has a solid base. However, to truly move the needle towards world class performance, a set of more advanced considerations must be applied.

5. Drive Towards a Consensus Demand Plan

A formal demand planning process should conclude with an aligned set of forecast numbers that the entire organization understands and can speak to. This doesn’t necessarily mean that a “One-Number” forecast must be reached as this can be very difficult and cause a whole set of different issues. However, organizations should look to align on a set of numbers and be prepared to speak to and manage to the gaps. Key participants in the consensus demand plan conversation include Sales and Account Teams, Finance, Supply Planning, and Demand Planning. Each of these groups will bring a different perspective and set of information to the discussion resulting in a more informed final demand plan.

6. Identify the Right Level of Detail

When defining the appropriate level of detail to forecast at, leading companies strike a balance between importance to the business and complexity of the process. The diagram below defines a general set of guidelines for identifying the appropriate level of forecast detail based on the situation. As a general rule of thumb, the more important and complex the set of items is to the business, the higher the required level of detail and rigor.

Complexity vs. Importance

7. Ensure Adequate Resources

As I mentioned in the first installment, demand planning is commonly an overlooked element of supply chain planning. This often leads to an insufficient allocation of resources by the organization. Demand planning is an arduous process that requires a high level of dedication and attention. More times than not, I see organizations that have failed to realize this and leave their demand planning team without the necessary bandwidth to perform effectively. The net effect is a less accurate forecast, poor demand signals trickling through the system, and a higher turnover rate. A few simple rules of thumb to ensure that your organization is not falling into this trap include the following:

  • Install dedicated analysts for demand planning.
    This will ensure that demand planners are focusing on value-add activities and have the right information on hand to make informed decisions.
  • Make sure that your demand planners aren’t wearing too many organizational hats.
    It’s an odd phenomenon but demand planners often end up taking on responsibilities that are well outside of their job scope and not essential to their core function. The best way to decipher this is just to simply ask them where their pain points are. Trust me … they will tell you!
  • Understand which segments are the most critical and complex to the business and distribute them across your demand planner resources.
    Ideally, each of your demand planners will have a portfolio of demand responsibilities that are evenly distributed amongst the four quadrants of the above diagram.

8. Define your Organization Process Model

Too often I have seen organizations operating in an environment of chaos because they lack a defined process and cadence for their demand planning cycle. You may believe that you have a process in place, but can you articulate what it is? Can the demand planning resources in your organization define the calendar of events that make up the process? Many times what people believe to be a process is actually floating tribal knowledge and tends to vary depending on who you ask within the organization. Without a well-defined process, it’s difficult to hold others accountable and overall performance tends to suffer. An optimal process must be defined for each organization based upon it’s unique set of variables and constraints. However, the list below is a set of monthly activities that can be found in most leading company processes.

  • Prepare Data –
    Cleanse and gather all required data for the demand planning process (internal and external)
  • Generate Initial Forecast –
    Generate both the base statistical forecast and manage exception SKUs manually
  • Incorporate Market Intelligence –
    Collaborate with trade partners and external contacts to incorporate quantitative and qualitative data into the forecast (e.g., POS Data, Customer Forecast, Promotional Calendars, Pull-Forward Buys)
  • Consensus Reconciliation Meeting –
    Meet with sales and finance to reconcile the bottoms up forecast with top down financials and sales forecasts
  • Refine and Publish Final Forecast –
    Make final adjustments to forecast before transmitting to ERP
  • Monitor Performance –
    Monitor forecast for large anomalies and diagnose root cause of error

Thanks, Josh!

Why Big Brains Will Beat Big Data in Procurement


Today’s guest post is from Ryann Kahn, Marketing and Communications Manager at Source One Management Services.

Two weeks ago, the Sourcing Innovation blog published an article about how the three cognitive traps stifle global innovation. I couldn’t help but think about how the same points could be made in procurement: data (though usually we don’t have Big Data) can help overcome some common issues, but ultimately Big Brains are more important and effective at the same job.

Take a procurement sourcing project for example.

The commonly used traditional three-bid process is data driven. It implies that if you collect enough (i.e. three pieces of) data, then you are making a good decision. Now, by collecting three bids, you know you are not getting the worst price and service out there and you are encouraging some competition. But without category expertise or a strategic process in place, can you really consider the data alone enough to justify that you have made a wise and innovative decision? Data != strategic sourcing.

But the data itself can often lead to the confirmation bias that the doctor referenced previously. Was your RFP template (or software solution) structured in a way that drove you to the conclusion that you already had envisioned? For example, if you want to remain with your local incumbent supplier, does your scorecard penalize suppliers for not having a location near you? Did you only request pricing on a specific product, which you knew your preferred supplier had the best (or only) price available? Confirmation bias in the sourcing world is real and common. Many companies effectively eliminate competition with better solutions because of the way they structure their questions.

By contrast, a true strategic sourcing process uses data in a Big Brain process.

The first step is a spend analysis of data from contracts, supplier invoices, P-Cards, supplier reports, POs, and more. (That’s a lot of data.) Then we look at market intelligence, historical trending, new products or process enhancements and benchmark data. (Now that’s Big Data!) All of this information is pulled, assessed, and analyzed. But the data alone does not give a full picture of a company’s spend. It takes the “curious, open mind” to uncover the whole story. Data may suggest inadequacies, but only through more in-depth research and thorough interviews with stakeholders and end users will one be able to identify problems and usage requirements.

The next step of the strategic sourcing process is the sourcing strategy. Again, it begins with data collection to cast a wide net of suppliers and determine their capabilities. But the bulk of the work in this stage belongs to the Big Brain: creating the supplier strategy, envisioning an RFx strategy, and planning for an execution strategy.

Even if procurement evolves to join the Big Data bandwagon, data will never be able to replace a human category expert. A category expert comes armed with nuanced knowledge of market trends, characteristics, players, and history, and uses analytical skills to apply that to plain data. Or, as the HBR article says, “When we look at markets different from our own we often have little information”. An expert who has been intimately involved with sourcing a category for years will be able to achieve better results than a novice armed with data, or the most powerful e-sourcing tool, any day.

In the final phases of the strategic sourcing process, implementation and compliance, it is entirely the work of a Big Brain. Experts must ensure that a company is actually achieving the results that were identified in the earlier phases in terms of savings and level of service. These experts may use tools to help collect the data to support the process, but the tools themselves don’t do an adequate job of capturing the data that is important to the unique organizational situation.

Data can, and does, help make good sourcing decisions, but ultimately it’s the Big Brains that lead the way. A Big Brain will always be needed to strategically apply the data (big or small), and be the “curious, open-minded researcher” to make a good decision.

Thanks, Ryann.