Category Archives: Guest Author

From Strategic Spend to Strategic Value-Add, Part I

Today’s guest post is from Ayush Sharma, a Strategic Sourcing Consultant with Trade Extensions in the Americas. His particular speciality is the application of optimization to Retail Sourcing, Dedicated Transportation, 3PL Logistics Sourcing, and Direct and Indirect Materials Sourcing. Ayush has a Masters degree in Supply Chain Management from the University of Texas at Dallas, certifications in Lean Six Sigma and Supply Chain Management, and has served as a Technical Director for a local branch of the Institute for Supply Management (ISM).

Supply and Demand Chain integration has been viewed as key to an efficient, profitable and fluid business. This is especially true today with several organizations looking for deeper synergies between their supply and demand planning processes as they look to drive costs out of the value chain. But soon enough, all the “costs” will be cut and companies will be looking to increase the efficiency and long-term profitability of their supply chain. ‘Long-Term Profitability’ is an interesting term given the context.

In today’s volatile business environment it’s even more imperative to insure your supply chain is primed to mitigate risk and deliver real-dollar savings year after year. If the last two years have taught us something, it’s the extent to which regional disturbances can affect supply chains worldwide. The high-level solution is to integrate supply and demand planning processes with each other. But even more important is that they be integrated with the strategic business plan. Specifically, on the supply-side, Strategic Sourcing is an important cog in the supply chain wheel simply because of the level of spend at most large organizations and the pressure to drive ‘savings’ year after year.

While trying to add value to the Strategic Sourcing process, combinatorial bidding as a methodology has seen some success in recent years. In the Sourcing space, the term ‘Combinatorial Auctions’ is widely used to denote a process that allows you to elegantly capture suppliers’ pricing in an auction-type event while taking into account several considerations like bundled pricing and supplier capacities. However, one must also realize that combinatorial bidding (in non-auction RFx type events) has been used with tremendous success by several companies spanning a wide variety of industries. The effects of combinatorial bidding are great because of the nature of the process — suppliers place bids based on what they think their competitive advantage might be and buyers can efficiently take these into account while consistently honouring their own business requirements.

Pair this with optimization and you can drive even more value (not just “savings”) out of the process. Optimization allows buyers to run several what-if scenarios in minutes and generate reports that show exactly how the overall spend distribution changes as newer business requirements are taken into account. The reason this is important is because a low-cost solution, even with combinatorial bidding, is never really tailored for any business. Given the wide-ranging scope of business requirements, optimization allows you to make an informed decision as it can quickly give you the information you need to identify the best ‘Overall Value’ rather than just the lowest cost — not to mention being better prepared for supplier negotiations.

The truth is that even today, with a variety of tools available to support these processes, too many businesses fail to see hard-dollar results. The reasons for this obviously depend on the specific nature of projects conducted and are generally complex and varied. But a common theme that ties them together is the thought that a few sourcing events with the methodology above would help realize immediate savings. This might be true in some cases, but even then, the savings realized are probably low-hanging fruit that should’ve been captured through either traditional spend analysis, cost modelling, or an appropriately designed auction. Furthermore, especially in cases where suppliers’ costs have been ‘driven down’, these ‘savings’ can quickly fade away as suppliers try to recover business in creative ways once the contract has been signed. This aspect should be given special consideration because of the macro- and micro-economic factors that come into play.

In order to drive down costs and at the same time maintain long-term viability, the sourcing process must be tightly integrated with the strategic plan. Further, bidding and optimization tools must be part of the sourcing process as these tools allow for increased collaboration with suppliers while maintaining control over the sourcing process. In Part II, we will discuss the requirements for a strong and measurable sourcing process.


Thanks, Ayush!

Storytelling in Data

Today’s guest post is from Doug Hudgeon, Director of PitchMap, and a long-time Procurement blogger. Back in the day, he authored a vendor relations blog on WordPress (at hudgeon.wordpres.com) and more recently he authored the Operating Efficiency blog (at OperatingEffieciency.org), which has now been ported to the PitchMap Blog. It originally appeared on the PitchMap blog yesterday (Storytelling in Data), and is being reprinted with kind permission.

Now that we’ve introduced Pitchmap, I’m returning to topics on business operation efficiency. Today’s topic is Telling stories in data: Using data to support your arguments

Yesterday, I attended the first Australian IACCM meeting of the year. The two presenters spoke on very different topics, “Clean energy laws and carbon trading” and “Utilities Benchmarking” but both presenters were equally adept at using data to underpin their arguments. Today, data is everywhere and an effective business person must be an expert in presenting their arguments using data. In my view, there’s nothing like a story to make your audience feel that change can happen and a vision can be achieved.

Storytelling in Data

Let’s look at some Pitchmap data to show how data can be used to tell a story. This data compares the procurement processes of three companies (Salamander Logistics, Melbourne Transport and Queensland Trucking) with each other and with an optimised process. The columns in the chart show the cost per transaction: the higher the column the greater the cost per transaction. The type of transaction is shown by the label above the columns.

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The first story in the above data is indicated by the red arrow. It shows that Melbourne Transport is spending about the right amount on Vendor Creation processes whereas the other two companies, Salamander and Queensland, appear to be under-investing. This does not say that Melbourne Transport is doing it right, just that they are spending about the right amount on it.

The second story is indicated by the yellow arrow. The story within the data is that Melbourne is better than its peers but higher priced than optimal. Interestingly, the purple section of the column (transaction costs relating to invoice processing) is the same as the optimised process but the green section of the column (transaction costs relating to placing orders) is significantly more expensive. This indicates that Melbourne Transport should be focusing its process improvement initiatives on order placement rather than invoice processing.

The last story is highlighted by the blue arrow. Melbourne Transport and its peers are significantly more expensive than the optimised process. This should serve as a red flag in any attempt to re-engineer this process given that no one is doing it particularly well. It may well be that there is some aspect of expense processing such as regulatory requirements in this industry or geography that adds to the cost of the process and further investigation should be undertaken to ascertain whether this is so.

The keys to successful storytelling

The keys to being able to tell stories with data are four-fold:

  1. The data must be clearly displayed – preferably on one page,
  2. The data must show where you are now and where you could be (either by reference to an optimal state or comparison against your peers or benchmarks or all three),
  3. The data must be sufficiently detailed to make the story interesting, and
  4. You need to be able to dive into the details underlying the data when your assumptions are questioned.

Doing so will enable you to present a compelling picture (as in the chart above) of what needs to be changed, how it needs to be changed, and what further inquiries need to be undertaken to resolve outstanding questions.

In my next post, I’ll discuss how to collect and present variable data in a compelling manner.

Thanks, Doug!

“Procurement’s Strategic Role in Driving Total Corporate Performance”


Today’s guest post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the just published text on Next Level Supply Management Excellence that is a follow up to the now-classic Straight to the Bottom Line.

 

Every CPO or chief supply chain officer needs to be conversant with the performance improvement framework shown in the following figure.

World Class Supply Management

This is one of my favorite charts, and is the essence of relating supply management to improved corporate performance. Let’s walk through this framework briefly — a more involved discussion appears in Chapter 4 of my new co-authored book “Next Level Supply Management Excellence”.

Two important measures of corporate performance are return on invested capital (ROIC) and cash flow. ROIC is calculated by taking the annual earnings of a business and dividing it by the total capital invested in that business (long term debt and stockholder’s equity). ROIC is important because it is an indicator of the current health of a business. For a business to deliver value to its shareholders, ROIC needs to exceed the corporate cost of capital. A company that operates where its ROIC is lower than its cost of capital is essentially liquidating itself.

Improving profits helps to improve both ROIC and cash flow. Reducing the capital intensity of your business also helps to improve ROIC and cash flow. Improving profits while also reducing the capital needed to run the business has a powerful compounding effect on ROIC and cash flow.

So how do we go about improving profits? There are two fundamental ways: revenue enhancements and cost reductions. Supply management can — and should — play an important role in each of those areas, as indicated with examples shown in the Figure above.

Supply management should, for example, take a leadership role in creating a more responsive supply chain, thereby helping the company to win more business (and increase revenues) from customers. Supply management should also take the lead applying good processes to better manage all areas of spend, not just those typically assigned to procurement.

So far so good, but how do we reduce capital intensity? Again, there are two ways: working capital improvements and capital expenditure improvements. Once again, supply management can play an important role in each of those areas. In many companies, for example, there is no clear responsibility for analyzing and coordinating supplier payment terms. This area is ideally suited for supply management to take a lead role (as detailed in Chapter 15 of “Next Level Supply Management Excellence”).

With regard to capital expenditures, experience demonstrates that the sooner Procurement is involved in new projects (even at the concept stage), the better the overall project economics and ramp-up time will be.

A thorough opportunity assessment for supply management requires a careful evaluation of the improvement opportunities in each of the four categories shown on the exhibit. Then, to tie it together for the executive audience, you relate those improvement opportunities to the company’s income statement and balance sheet. Going that extra step allows you to demonstrate the impact of supply management on net income, earnings per share, ROIC and cash flow — all key areas of interest for senior executives. It’s a powerful way to communicate the enormous potential of a transformed supply management organization in the language of senior executives and in a manner relevant to your company.

And, based on our experience, it can pave the way for significant executive support for your agenda.

(Note: Portions of this post are based on the author’s new book “Next Level Supply Management Excellence” — a sequel to the bestselling book “Straight to the Bottom Line“.)


Thanks, Bob.

How Supply Chain and Fulfillment Services Improve Your Brand

Today’s guest post is from Jesse Langley, a blogger and self-professed internet geek who writes mostly about education technology, education reform, job searching, and all things internet, including business logistics. Today’s post discusses The Opportunity of Order Fulfillment and gets to the heart of Fifth Gear’s recent white-paper on “Branding Beyond the Sale”.

The connection between supply chains and fulfillment services along with branding success is becoming more popular and evident. Once considered only necessary “back office” cost centres, both functions are now held in high esteem as effective branding mechanisms.

Supply chain management attracts different definitions in diverse companies and industries. However, regardless of the definition in your company, there is a growing regard for supply chain gurus and efficiency. Observers who favour this position proudly point to Tim Cook, who was selected as CEO of Apple after Steve Jobs had to step down because of his terminal illness. Cook’s career at IBM and Compaq established him as one of the leading supply chain management talents in the U.S.

The sleek, strategic integration of related functions within a business or multiple companies that are components in the full supply chain reinforces and strengthens your brand as no amount of expensive advertising campaigns can. Managing your supply chains efficiently and in a customer-focused manner establishes your brand as one deserving of customers’ trust and loyalty.

Quality fulfillment services accomplish the same brand enhancement goal, often more effectively. The explosion of e-commerce has catapulted high qualify order fulfillment services to the forefront of brand awareness and trust. Effective order fulfillment, when used properly, can accentuate the natural customer anticipation while awaiting the arrival of treasured items ordered via the Internet or from catalogs.

When you employ professional fulfillment services, that customer anticipation can morph into joy and new levels of trust in your company to deliver on its promises. While the popular phrase in force is “engaging” your customers to “care” about your products, services and company, this result is valuable, but only the start. Using superior fulfillment services can go far beyond simple engagement. These services create a level of trust in your products that every company, large and small, wants more than any other result.

Think of the brick-and-mortar retailers that have achieved this goal, e.g., Nordstrom. Unlike most other retailers, they need not spend valuable time on drastic sales, price cutting or specials that drop below desired price-points, they are so trusted that they can price their quality products to ensure profitability. Nordstrom has historically concentrated on quality and customer-oriented fulfillment services to create a loyalty that transcends classic “what have you done for me lately” customer attitudes.

Take advantage of order fulfillment services to harness their power to establish and fortify your brand. Pay close attention to your supply chains, though, as even the best order fulfillment company cannot package and deliver your product on time and as agreed if they lack the inventory they need.

You need to create a high-performing integration of products that customers want, at prices they are happy to pay, employ an efficient supply chain to ensure product availability, and use outstanding fulfillment services to deliver products to your customers when you promise them. Do not cut corners on talent, product or fulfillment costs. You may have a wonderful uptick in initial sales, but suffer the fate of much of your competition, fighting to entice these same customers to buy more products in the future.

Trusted companies have world-class products, outstanding customer service and quality products. Accomplishing these objectives allow you to proudly trumpet your brand, create loyal customers and continue to increase revenue and profits.


Thanks, Jesse.

CBTM #7: Succession Planning – Where the Present Meets the Future


Today’s guest post is from Dalip Raheja of The MPower Group, who declared that Strategic Sourcing is Dead last year and who has returned to give us one of his alternatives.

I’m sure you expect us to say this but it’s worth repeating: Succession Planning has to be part of an overall Competency Based Talent Management (“CBTM”) strategy. We start with the basic premise of Succession Planning which is ensuring that you have sufficient qualified bench strength for key roles in the future. This means that you need to know what your key roles are and the competencies you need so you can determine if you have qualified candidates. By the way, those competencies need to be defined for the future, not today. All of this requires a CBTM strategy to ensure that you have managed the significant risk of not having the right talent when you need it. To further illustrate this point, your Succession Planning process will need to be tightly integrated with your recruiting process to ensure that the right types of competencies are being used to select potential candidates.

If you truly believe that your people are at least one of your critical assets, then why would you not manage your risk of replacing those critical assets, especially when these assets can walk away at will and there really is no expected life of that asset for you to plan around? It would seem to me that the risk of replacing these assets is far greater than any other asset in your organization? Yet we continue to absorb that risk without any mitigation plan? And this is not a risk that you should pass on to your HR partners to manage on your behalf. You should lead this just as you would your overall CBTM strategy and actively use your HR partners as consultants. Please do manage your expectations in dealing with your HR department as most of them are not geared up for this kind of work yet. You actually will be leading them in some cases and become the test bed, and leader, for the rest of the company

Successful Succession Planning necessarily starts with an understanding of what your future competency needs are for key roles and then designs a strategy that encompasses both an internal and external sourcing process. While some of the “high potential” programs do an adequate job of at least identifying some of the replacement candidates, even fewer have a pro-active process in place for their success. “High potentials” cannot be a replacement for a Succession Planning strategy within the context of CBTM. A comprehensive understanding of your company’s long term business strategy is critical to knowing what your future competency needs are going to be. If your company is going to be much more active in the global market than it is today, then your Succession Planning strategy of replacing Joe, who is your most critical employee today with Joe’s competencies, will expose you to significant risk. And if those competencies are not present in your organization, then you will have to start developing them internally and acquire them externally to manage your overall risk.

Let me try and conclude the conversation with some quick summary thoughts on a very complex issue. Succession Planning:

  • must be part of an overall CBTM strategy – the core of this process and the first step is a competency model for the future that is tightly integrated with your company’s long term strategy
  • must be approached as the management of a significant risk of a critical asset and therefore must be sponsored at the highest levels and directly led by you, not HR
  • cannot be replaced by a “high potential” program
  • must incorporate both internal and external sourcing strategies
  • is not a periodic event but an integrated, pro-active, ongoing process
  • has a retention programs as a key component

A successful Succession Plan as part of an overall CBTM strategy is key to sustainable value creation. It will also position you as an innovative leader in your company and position your organization as adding value beyond the confines of a narrow functional definition. Your organization will also be looked at as a leadership factory where other executives come to pluck the best candidates to seed their organizations.

If you are interested in getting involved or would like to follow this topic further, here are a series of critical activities coming up:

  • Release of the results of the Executive Forum we just facilitated at the IACCM Global Forum for Contracting & Commercial Excellence on Talent Management.
  • A major research project to not identify the problem one more time but to identify Next Practices to solve the problems.
  • A webinar with IACCM on CBTM.
  • A White Paper to focus on Next Practices in CBTM.

Please contact Crystal Jones at crystalj <at> thempowergroup <dot> com for more information.