Category Archives: Miscellaneous

Is Your Supply Management Organization Being Held Back?

A recent article over on the CPO Agenda on “Fresh Thinking”, which noted that Procurement must be bolder in bringing about wholesale change that delivers effective results for the business, highlighted a number of areas that could be ripe for change. These areas need to be looked at carefully because their current state could actually be holding the Supply Management organization back. In order to advance, Supply Management cannot accept the status quo when the status quo is an outdated, ineffective, and or costly way of running the business.

The following five areas are ripe starting grounds for a Supply Management organization that wants to take its operations to the next level.

  • Organizational Rules
    Are organizational rules limiting opportunities for efficiency and effectiveness? There are a number of ways organizational rules could be impacting the Supply Management organization, including, but not limited to:

    • Diversity/Buy American Mandates
      While it’s often a good idea to diversify spend and buy at least some products or services at home (to address offshoring risks), excessive diversity or buy american mandates can severely limit options and have a dramatic impact on efficiency and effectiveness.
    • Payment Terms
      If finance is imposing egregious payment times on suppliers (of 90 days or more), this will limit the supply base that is available to the organization as some suppliers won’t stand for such BS.
    • Approval Chains
      If Procurement has to get a sign-off from each affected organization before every buy, and executives for buys over a certain dollar limit, they will be spending more time trying to get signatures than doing their job. Sign-offs should only be required for critical buys or very high dollar buys, not for office supplies or temp services.
  • Specifications
    The specifications could be outdated, non-standardized, or overly specific and all of these can add cost and drain efficiency.

    • Overly Specific
      If the specifications call for specific components from specific suppliers that are essentially commodities, they are overly specific and limiting competitiveness.
    • Non-Standardized
      If each department has their own specification for a workstation with a different configuration, this can limit leverage — especially since it’s very easy to standardize on an office workstation configuration for business people and one for technical people.
    • Outdated
      If the specs are calling for components that are now only being manufactured by a 10th of the total supply base or using materials that are no longer in common use, then the specs are outdated and should be refreshed.
  • Marketplace
    The marketplace could be holding Procurement back by holding on to outdated products or insisting on a wide-diversity of products when only a few should be required. For example, customers may love the old, regular un-concentrated laundry detergent which costs more to package and transport and is less environmentally friendly than the new concentrated formula or may be split between six scented varieties of your dish detergent. In the first scenario, Procurement will need to work with Marketing to push the new, environmentally-friendly, product while phasing out the old product and in the second, Procurement may have to work with engineering to find a way to mass produce the base detergent and mix the scent in later to avoid six low-volume, high-cost production runs.
  • Perception
    If the rest of the organization thinks of Procurement as the back-room, paper-pushing organization where careers go just before they are put out to pasture, it is going to be challenging for Procurement to gain respect, exert influence, and get a majority of spend under management. Procurement will have to work on its image first, get some quick successes, and leave major organizational change to later.
  • The Ideal Solution
    If the concept for the “ideal solution” is outdated, then Procurement’s efforts will be outdated. Before effecting significant change, Procurement has to know what the optimal state is and why.

Can Your Supply Management Organization Spot Bad Strategy?

As per this recent article on “the perils of bad strategy”, a good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them. It embodies the hallmarks of Admiral Horatio Nelson’s victory against the French and Spanish armada in 1805 where, outnumbered and outgunned, he prevailed against the enemy fleet without losing a single ship.

In comparison, bad strategy, which is often without focus, accommodates a multitude of conflicting demands and interests. It covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values which are no substitute for hard work and good strategy. A good strategy is like a good brand. It makes an impact. It encourages a specific action, or set of actions, towards a specific goal. Stakeholders, customers, and market analysts love it or hate it. It is not another same-old, same-old slogan-based market statement that is heard today, forgotten tomorrow.

So how do you spot bad strategy? The McKinsey article on “the perils of bad strategy”, you look for the following hallmarks.

  • Failure to Face the Problem
    A strategy is a response to a challenge. There can be no strategy until the challenge is defined. If the real issue is not defined, the strategy will not work. For example, if labor relations are bad, new equipment will not improve productivity. If manufacturing costs are high, increasing sales will not increase profit margins.
  • Mistaking Goals for Strategy
    Audacious goals are great, but will never be achieved unless the company can identify a point of leverage to achieve that goal. An organization can only compete if it has a competitive advantage. It’s not just a push to succeed, it’s creating the conditions that will make the push effective.
  • Bad Strategic Objectives
    Strategic objectives cannot be fuzzy. They must be clearly defined. They can’t be blue sky. And they can’t be long lists of things to do. Good strategy works by focussing energy or resources on a select few pivotal objectives whose accomplishment should lead to a cascade of favourable outcomes. If the strategy doesn’t do this, it’s likely bad strategy.
  • Fluff
    If the strategy is nothing more than a restatement of the obvious, combined with a generous sprinkling of buzzwords, with no original thought, it’s bad strategy.

Your organization doesn’t have a bad strategy. It has a choice. Can your supply management organization make it?

How Important is OEE to Your Performance Measurements?

OEE, Overall Equipment Effectiveness, captures the percentage of time that equipment, when running or required for production, is producing good-quality product at an acceptable rate. It is calculated by multiplying the availability rate by the production rate by the first-pass yield.

On the shop floor, OEEE can be measured hourly and gives the on-site manager a real-time look into productivity. It also has the advantage of limiting a drop in productivity to one of three factors: machine up-time, machine speed, and production quality. If the machine was not down during the hour, then there is a problem is with either the speed or quality. If the machine/process speed is within the acceptable range, then there is a problem with quality. And if there is a problem with quality, either a machine is malfunctioning or a worker is not producting up to par. If, after testing each machine, it is found that machines are working within acceptable parameters, then a worker needs more oversight or training.

In addition, according to a recent article in Industry Week, it can help to eliminate ‘silo’ thinking as the manufacturing process is measured as a whole, and not a system of discrete steps. However, if misunderstood, OEEE can promote “over production” as any increase in the production rate without a(n unacceptable) decrease in quality or machine availability improves the metric, and this is often the easiest path to metric improvement.

So how important is “(revisiting) OEEE” to your Performance Measurements? At the plant level, it is certainly important. However, at the Supply Management level, it’s more about the value generated from manufactured goods, which depends on their ultimate cost and ultimate sale price. Thus, if costs go down and revenue goes up when less produt is manufactured and an artificial scarcity is created, then a lower OEEE might be desired. But if costs go down and revenue goes up when the market is flooded, then a high OEEE might be desired. While maintaining an OEEE in an efficient range is desirable, it’s probably not the most important metric in the Supply Manager’s toolkit.

Will Twitter Be the Downfall of the Western World?

I can’t help but notice that as GDP growth in the BRIC rises, the growth of Twitter usage in BRIC countries, and the continents they belong to, slows (in comparison) while GDP growth in the US, Canada, and Western Europe falls as the relative growth of Twitter increases rapidly.

If you don’t believe me, check out this visual map of the world in tweets by Eric Fischer.