Category Archives: Knowledge Management

All Models Still Lead to Total Value Management

Not that long ago, Sourcing Innovation released “Taking the First Step on Your Next Level Supply Management Journey”, a white paper sponsored by BravoSolution that defined a simple 3-level maturity model that an organization can use to determine where it is on it’s Supply Management organizational journey. Noting that your organziation is either below average, above average, or best-in-class*, SI did not see any point in trying to be more complex (even though many industry associations, consulting firms, and analyst powerhouses will often proffer four and five level models).

And while the acronyms and acclamations — including VFS, Hi-Def Sourcing, Next Level Supply Management, Next Practices, and Value Chain Creation — will fly fast and furious, there is still one commonality among all leading models, including Gartners Global Trade Management Maturity Model, which is nicely summarized in this free white paper from Amber Road that offers “A Model for Value Chain Transformation”.

That commonality is something that the doctor has been prescribing for over five-years — Total Value Management (TVM). When you get right down to it, that’s what Strategic Business Enablement is all about. Maximizing value across the orgnization, end-to-end. In the sourcing process, the organizational model, the finance operation, the (information) technology platform(s), product management (& marketing), risk management, asset management, and relationships — the eight directions of the supply management navigator’s compass. QFD (quality function deployment), maximization of SUM (Spend Under Management), and end-to-end transportation management is all about extracting maximum total value for the organization. Demand creation, joint innovation, and new market entry is all about creating maximum total value for the organization.

And that’s why, if you’re not already there (above average and on the road to best-in-class), and more than half of you are not, you need to be moving to an advanced sourcing platform that supports in-depth spend-related analysis, decision optimization, collaboration, and market-informed category-based sourcing. These tools allow you to identify, maximize, extract, and retain value in your operations. For more information on these technologies, check out SI’s other recent white-paper, also sponsored by BravoSolution, on the “Top 10 Technologies for Supply Management Savings Today”.

*but not average as average can only be defined as an organization that is dab-smack in the middle of every other organization

The Category Sourcing Scorecard – An Essential Tool for Collaborative Category Sourcing

Collaborative Category Sourcing is the foundation for eSourcing 3.0, whatever that happens to be. Why? As pointed out on SI, it is the only way to achieve savings above and beyond the limits of spend analysis and/or decision optimization, which max out at an average of 11% and 12% respectively, and this is especially true when the category has been strategically sourced (repeatedly). And the savings can be substantial. As pointed out in SI’s recent white-paper (sponsored by BravoSolution) on the “Top 10 Technologies for Supply Management Savings Today” (registration required), if the right combination of technologies are applied in the right way, they can often deliver 15%, 20%, 30%, and even 40% savings on hundred-million plus categories which were heavily scrutinized in the past and where little or no savings are expected. That’s why collaborative sourcing — which works best when it’s category focussed — is needed.

But how do you select the right category to start with? It’s certainly not as simple as selecting the category with the largest spend, the category with the least recent sourcing exercise, or the category coming up for renewal in six months. There are a number of internal, market, supplier, buyer, and category-specific factors that need to be taken into account — and this recent post on The Category Sourcing Scorecard over on CPO Rising did a great job of summarizing the vast majority of them.

Internally, the right category is the one with a contract maturing at the right time (which is typically three to nine months in the future, depending on the time it will take to do the sourcing project right), a documented sourcing history, a number of concerned stakeholders — who are willing to be engaged, and an accessible spend history (which, although not clear from the summary, should also contain usage, return, and inventory history).

From a market perspective, there should be enough competition to make an event worthwhile, the availability of one or more substitutes (if the current product has one or more patented, single-source, components), some bargaining power for the buyer, and barriers to market entry for both the product the buyer is producing and the capabilities offered by the suppliers (as, otherwise, new suppliers could set up shop overnight, sell to new buyers at cut-rates to establish business, and hurt your entire supply chain). In addition, the supply/demand (im)balance, which factors into the buyer’s bargaining power, should be known and relatively predictable.

From a supplier perspective, it should require some specialization (that the supplier can use to set itself apart), provide for profit margins, contain value-add components (valuable to the supplier and your customers), and a level of technical excellence. In addition, there should be suppliers who are financially stable, innovative, and willing to work with you to find substitute raw materials, components, designs, or production processes that will take costs down and push quality up.

From a buying perspective, there should be the potential to achieve some supply assurance, minimize production impact, save money, and require a production volume that will be attractive to the suppliers. In addition, there should be some signs that costs and risks can be reduced significantly enough to make the project worthwhile. This could take the form of falling raw material prices, the recent introduction of innovative new manufacturing technologies, or increased market competition.

From a category perspective, impact, complexity, and lead time will definitely be key factors, as noted by the post, but so could organizational importance, sustainability, and C-suite support. This will often be the hardest category to judge and score.

Which brings us to the following question – how do you score the scorecard? Do all the categories have equal weight, or are some more important than others? Making them all equal is certainly a valid starting point, as it will let you quickly eliminate categories that are really bad (with low scores in multiple categories), but may not be enough to let you choose between a category which scores great except for market factors, another which scores great except for supplier factors, and a third which scores great except for category factors.

In reality, the right scoring framework will be dependent upon the ultimate goal. If the ultimate goal is (still) to reduce cost, then the market factors should get the most weight. If supply assurance is the most important goal, then the buying factors should get the most weight. And if innovation is the desired outcome, the supplier factors should likely get the most weight. While it’s hard to make a hard and fast rul, here’s a good starting point for weighting.

 

To Focus On: Put a Higher Weight On:
Cost Market Factors
Supply Assurance / Risk Mitigation Buying Factors
Innovation / Value-Add Supplier Factors
Stakeholder Inclusion Internal Factors
Organizational Strategy Category-Specific Factors

 

What’s Worse Than a Walmart Consultant? A Sleazy Consultant!

After my recent post on how Walmart Changed the World … But Not Necessarily for the Better, I reminded my Twitterers* about what happens when you use Walmart Consultants. In a nutshell, when you pay a cut rate, you get a cut job … and the pleasure of the consultant blaming you for his or her incompetence.

However, this is still better than what you get when you use a sleazy consultant (who, in another life, was probably a lemon, err, used car salesperson). As per this great post over on the Enterprise Irregulars on “Screwing the Customer” (Tales from the Crazy Consultant File), we can still be surprised by the antics of some consultants. The post chronicled two stories.

In the first story, a small, profitable business that was a multi-million dollar money machine, bought on-premise ERP software from a reseller that poorly fit their needs. Since the reseller did not specialize in implementation, the firm wanted the vendor to find them another implementation services company. But since the vendor had no relationship with the buyer, the buyer was dependent on the reseller to find, and manage, the implementation of software that poorly fit their needs. The buyer has outsourced control, leverage, and judgment to an unworthy consulting firm. Translation — the customer is screwed.

In the second story, a small consulting organization has a multi-million dollar change management contract with a large state agency. Part-way through the project, the consulting company unilaterally shifted its focus to advising on tools and methodologies. The state agency threatened termination, and the consultancy responded with a large invoice and threats of legal action. Meanwhile, the agency hiring manager has limited options since any change would involve delays and additional expense. Translation — this customer is also screwed.

Unfortunately, the sleaze is not limited to these two examples. The Supply Management space also has its share of sleazy consultants, which are our equivalent of the the used car (lemon) salespersons, and many of them fall into the following two categories:

Slippery Spend Analyst

Yes, it’s true, that the doctor promotes a good spend analysis almost as often as he promotes a good optimization-based sourcing project, but there are two types of spend analysts in the world. Those that educate you, and those that just tell you where your spend is too high and offer to negotiate it down for you. In the short term, this works great — the consultant identifies a category, like telecom, where you are 15% over market average and the consultant negotiates your rates down to 5% below market average and you save 20%. But in the long term, as users are added to and removed from the plans, and usage changes, rates creep back up and in three years your organization is again paying 15%-plus over market average. And, again, you have to pay the consultancy to do the spend analysis to reduce your rates. Now, if they had trained you on their process and one or more tools, you’d have the option to do it yourself, or to just use them for the negotiation. But since they didn’t, you’re left in the dark.

Recovery Specialist

This is a wonderful racket. Almost every big organization overpays its suppliers due to duplicate payments on the same invoice (by accident, when it is resubmitted due to a late payment), duplicate payments against the same products (as the organization will resend the invoice with each shipment corresponding to the same PO), overpayments (because negotiated payments were misapplied), and failed deductions (because parts were bad and payment was not refunded). But not every organization catches all of these overpayments, which can add up to Millions for Global 3000s. There are consultancies out there that specialize in this recovery, and this is a good thing as long as they don’t take advantage of you.

The problem is that most of the consultancies that specialize in recovery use “black-box” methods to identify these overpayments, which are guarded more securely than Fort Knox. So even though they might find an organization a Million in savings, and take Two Hundred Thousand as a Fee, the organization isn’t that much better off than if it hadn’t hired the consultancy because. In as little as eighteen months, there will be another Million in overpayments hidden in the books because the consultancy didn’t tell the organization how the majority of overpayments originated or what best practices the organization could adopt to minimize the amount of overpayments it made. This could allow the organization to go longer between significant recovery audits, and the organization would likely pay less, and lose less, over time. A good recovery firm will do this, and a really good recovery firm will even advise you on the software options that exist to plug some of the holes in your payment processes and/or tolls that will automate part of the recovery process.

* Yes, the doctor is on Twitter, riding the Fail Whale as he chases the Twitter Bird (because the doctor wants his marbles back)!

The (Board) Gamer’s Guide to Supply Management Part III: Munchkin

I’m ecstatic to continue this one-of-a-kind summer series that will help you whether you are just interested in finding out about this new and exciting career opportunity, or ready to take your Supply Management career to the next level. As I said in my last post, learning Supply Management can be infinitely more fun than watching paint dry. And when you can grasp a lot of the basic concepts by playing the right mix of strategic (and sometimes tactical) board games with your friends, it’s a blast and a half!

While this might be a good time to move on to a game like Puerto Rico, an economic city building game where you select a trade (such as captain, mayor, trader, settler, craftsman, or builder) in an effort to achieve the greatest prosperity (and highest respect) by shipping goods, building impressive cities, and managing their colonists and plantations, it’s still a little advanced for our budding gamers, so we are going to select a different game for our third post. Plus, while Ticket to Ride (Part I) helped us understand the capacity limitations of the shipping industry and The Settlers of Catan (Part II) helped us to understand the balance between supply and demand in limited commodities, they both limited our view to a competitive market where each player was acting independently at all times. (And while trading is a big part of Catan, your opponent only traded when it was in his interest to do so, and partnerships were never formed.)

In Steve Jackson’s Munchkin, we still have the situation where every player is out for herself, but where players will often unite for brief periods of time to accomplish a goal where there are mutual rewards (or bribes) to be made. Plus, as we will quickly discover, Munchkin brings a reality to gaming that neither Ticket to Ride nor Catan bring to the table. And most importantly, we have another fantastic TableTop episode where Wil Wheaton (who still claims to be In Exile) introduces the game with the help of the game’s creator, Steve Jackson (and Felicia Day and Sandeep Parikh). As long as he keeps churning them out, we are going to take advantage of the priceless gifts that Mr. Wheaton has granted us.

When it comes to Munchkin, as Wil Wheaton says,

The goal is very simple. Get from level one all the way up to level ten. To do that we’re going to kick in doors. Bam! And fight the monsters that we find behind them. Now, if a monster is too tough for us, we can ask our friends for help. Maybe they’ll make it less scary. . . . Of course if a monster looks like it’s getting to be too easy for us to defeat, those same ‘friends” will turn around and make that monster harder for us to defeat. . . . If we are able to defeat the monster and don’t have to run away, we’re going to go up a level and we get to take one of its treasures, always something that helps us. . . . Munchkin is a game where you really find out who your friends are. Generally, not the people sitting around the table with you.

In addition, Munchkin is a turn-based game where, at the start of your turn, you may play as many cards from your hand as you’d like, trade items in play with other players, or sell items for levels. Then you have to kick in the door, where you will generally find a monster (which must be fought immediately), a curse (which applies to you immediately), or another card that may be put in your hand and saved for later or played immediately. Other cards are generally monster modifiers (that make them weaker or stronger), a race (such as dwarf, elf, orc, etc. that gives you a special ability), a class (such as warrior, wizard, bard, etc. that gives you a special skill), or another special card that can be played at a later time. If you fight a monster, you either beat it (with help), or you try to run away. If you beat it, you get its treasurer. If you don’t, you suffer bad stuff, such as losing a level, losing an item, or, in some cases, you die. If it’s not a monster, you get to look for trouble (and play a monster from your hand to fight, if you have one), or loot the room (where you take a second door card and put it in your hand).

It’s representative of our job many days because we never know what interruption (probably caused by a gremlin) we are going to have to deal with, and we never know if we’re going to be able to conquer it without help. Sometimes we can solve the problem with help from within our organization, but sometimes we will need help from our competition. And this is where Munchkin gets interesting when compared to Ticket to Ride or The Settlers of Catan. Maybe when our primary distributor ‘loses’ the shipment of tantalum we need to keep our mobile phone capacitor production line operational, we can call up our competitor a few miles away and find out that they will sell us some of their excess inventory (at a mark-up) that will keep our production line going until we can get a replacement shipment. But maybe they will instead take advantage of this moment of weakness to lock up even more supply from their distributor, in the hopes that our production line will stay down for weeks and give them a chance to leapfrog us on New Product Introduction into the rapidly evolving mobile market place. We don’t know. Munchkin is one of the few games that will help us understand the intricacies of a co-opetitive market (which may not be a good thing for your supply chain, as per this post).

The trading aspect introduces us to the ways that we can barter inventory when cash is at a premium, the selling aspect (treasure for levels) introduces us to the ways we can profit off of excess inventory if we are smart about it, and the cursing aspect introduces us to the dirty tricks we might have to deal with from shady suppliers. Plus, classes demonstrate how skills acquired through education can improve your capabilities and races demonstrate how specializations in certain functions, processes, or technologies can take you up the Procurement ladder. And, just like in real life, if you don’t have enough excitement in your job, you can always look for trouble and hedge your bets (by buying on the spot market or, even worse, hedging) or, if you see a supplier or competitor in trouble, you can, in effect, loot the room.

It’s a great game. And since, as Wil says,

Sometimes you don’t care about someone’s rich personal backstory. You don’t care about a character’s precious little hopes and dreams. Sometimes you just want to kick in the door, kill the monster, and take it’s treasure without any of that pesky role playing.

So, without further ado, it’s time to kick in the door, mutilate the bodies, and backstab each other as we fight to see which one of us in the biggest munchkin.

How to Ignore Bad Advice

Last month, Forbes ran an article that needs to be in every Supply Manager’s toolkit. Given that the number one priority of most Supply Management organizations is to gain trust across the organization and get more spend under management (SUM), an average Supply Manager, as she gains trust, is going to get a lot of advice from the individuals on the cross-functional teams she is going to build. Some will be good, but some will be bad (and downright ugly). A good Supply Manager knows how to latch onto, implement, and encourage the good advice while carefully avoiding the bad advice.

Ignoring bad advice, especially if is from an individual who’s buy-in you need and who thinks it’s really, really good, can be tough, so I’m glad Forbes ran this article. Even though the article was written more for entrepreneurs about to embark on a startup, it is just as applicable to Supply Managers about to take on a new category. So what was the advice?

  1. Look Forward – not back.
    Study trend lines that correspond to what you need to buy, not historical demand levels. Demand could be falling. The last thing you want to do is be stuck with a warehouse of obsolete inventory. So make sure you don’t just get last quarter’s numbers, ask for the last three years.
  2. Ignore Your Friends – talk to customers.
    It’s not what engineering or marketing wants — it’s what the end consumer wants. If you don’t procure the products and services that the end consumer will buy, it doesn’t matter how good you do your job as the organization won’t last long without sales. So no matter how good they claim the advice is, be sure to say that sounds like an awesome idea, let’s run it by our customers to see if they are ready for it.
  3. Consider the source.
    Everyone has their own bias and point of view. It’s important that you balance all the views in your sourcing decision to arrive at what’s best for the organization as a whole, not just what’s best for engineering, marketing, or even your own Supply Management organization. The best Supply Management organizations increase overall value. So when engineering gives you a great idea, be sure to say that’s great, now how do we sell it to marketing and vice versa. When everyone gets on the same page, the advice is likely to be better, or at least consistent.
  4. Learn to Love the Word No.
    Some requests will be so bad that there will be no way to address them besides just saying no. For example, marketing will insist on a certain print shop which costs 50% more than the next highest bidder because of a great relationship. There’s just no way to deal with this situation delicately. Print is print. It’s not creative, and there is absolutely no rationale argument for such a premium. In this situation, you will just have to say no and move on.
  5. Bet on yourself – always.
    At the end of the day, you have to make the decision, and, most importantly, as you are being held accountable, you have to make the right one. If you’ve done your homework, that’s something you will be able to do. You just have to have the confidence that you can do it, even if everyone else is pulling you in a different direction. Don’t expect other organizations to echo your views, they won’t. They have their own goals. Your job is to get everyone on the same page when you can, and make the tough call that is best for the organization when you can’t. C’est la vie de gestion des approvisionnements.

As the article says, simply put – advice is an input. Treat it as one of many.