Category Archives: Miscellaneous

A Simple Guide to Improving (Procurement) Organizational Efficiency

Recently, the CPO Agenda published a simple guide on how to “improve organizational efficiency” that is worth a quick review, as an efficient organization is one that expends minimal time, resources, and cash on any specific activity. According to the article, it’s a simple 5-step process:

  • Review Processes
    Review all of your processes and their associated workflows for inefficiency, and eliminate it. You shouldn’t need multiple systems to accomplish one task (and if you currently do, chances are you can eliminate one or replace multiple systems with a new, lower-cost, SaaS offering).
  • Reassess Tasks
    Eliminate any task that doesn’t have value (unless it’s necessary from a regulatory, compliance, safety, or quality viewpoint). Reviewing all invoices manually? Implement a modern e-Procurement system that automatically compares invoices to POs and POs to contracts and only presents exceptions for manual review.
  • Remove Unnecessary Layers
    Three approvals for a $75 toner cartridge? Get real. Establish budgets and budgetary controls in the mandatory e-Procurement software and only require additional approvals if reasonable spending thresholds are met.
  • Collaborate Cross-Functionally
    Make sure process and system improvements make everyone’s job easier. If you can consolidate tasks across departments, you can get additional efficiency gains.
  • Drive Extra Savings
    Once your processes are streamlined, your unnecessary approval and management layers removed, and extraneous tasks abolished, you have more time to focus on strategic cost savings initiatives. Be sure to bring in experts to help you with this.

A Simple Risk Management Framework

In the article that discussed “an upside to the downturn” in the CPO Agenda, the authors, who discussed the two faces of risk, presented a simple executive risk framework that grouped risks into four categories:

  • Strategic Risk
    This category of risk, which include demand risks, market risks, and partnership risks, corresponds to risks which affect the strategic direction of the company.
  • Operational Risk
    This category of risk, which includes production risks, performance risks, and transportation risks, corresponds to the risks inherent in day-to-day company operations.
  • Financial Risk
    This category of risk, which include commodity market risks, exchange risks, and supplier solvency risks, corresponds to the financial risks inherent in business.
  • Hazard Risk
    This category of risk, which include natural disasters, political unrest, war and terrorist attacks, corresponds to all non-financial, non-strategic, and non-operational risks which can not be predicted.

The advantage of this simple executive risk framework makes it easy to see the opportunity that each risk offers if you capitalize on the opportunity it presents.

  • Strategic Opportunity
    While a strategic partnership might bring with it the risk of intellectual property, it brings with it the strategic opportunity for joint innovation. And where innovation is concerned, the more minds at your disposal, the better.
  • Operational Opportunity
    If product shortage is a risk, product assurance is an opportunity. If a material shortage is likely, redesigning the product to use an alternate material is an opportunity … that will allow you to take control of the market when your competitors fail to deliver.
  • Financial Opportunity
    If unexpected commodity cost increases is a risk, then a price monitoring and control strategy that allows you to lock in low prices for the long term when the market conditions are right is an opportunity.
  • Hazard Opportunity
    If natural hazards pose a risk, the identification of geologically disparate sources is an opportunity. While your competitors could lose a significant portion of their supply, you’ll just keep on truckin’.

Tried-and-True Strategies on the Road to CPO-dom

e-Side Supply Management recently published an article on “The Road to CPO — and beyond” that chronicled advice from David Nelson (of TRW, Honda of America, and Deere & Company) and Maureen Corcoran (State Street) for up-and-coming procurement professionals who aspire to take on the CPO role.

  • Be Curious, Ambitious, and Open to Change
    A willingness to go anywhere and do any job in order to advance shows initiative and helps you stand out. It also helps you think beyond ‘the way we’ve always done it‘ mentality, which is a trait of successful C-suite executives.
  • Develop Strong Successors
    Always hire a younger, smarter backup person so you are easy to promote. You’re not going to get promoted if there’s no one to assume your present job.
  • Learn the Organization Inside and Out
    There’s immense value in having broad knowledge and a wide skill-set. CPOs know the enterprise and how to execute, negotiate, manage and mitigate risk, and do deals and this adds up to general business effectiveness that can be applied in many other situations.
  • Understand the Efficiency/Risk Dynamic
    CPOs must do more than understand the close relationship between supply chain efficiency and increased supply risk; they must also have the tools to analyze, prioritize and act on these risks.
  • Collaborate with Suppliers for Competitive Advantage
    The ability to collaborate with suppliers for competitive advantage is one of the most critical CPO traits. Although it may seem counterintuitive to expect gains from a ‘softer’ approach to supplier negotiations, there are lessons to be learned from the Japanese experience.
  • Aim Even Higher
    The bottom-line value of an effective CPO can’t be overemphasized. A CPO is a natural fit for the corner office.

Not bad. Not bad at all.

Empirical Proof that Layoffs Kill Profits

As summarized in this Strategy + Business Research Brief on a Harvard Business School Working Paper, laying off store employees is a tactic retailers use to cut costs but it’s likely to have a negative impact on the bottom line. The author spent four years studying a national retail firm with more than 260 stores and found a direct link between staffing levels and profitability.

Specifically, the author found that when a store maintained too few employees, which were overworked, conformance quality — which measures how well employees follow specific processes — suffered and this led to higher levels of customer dissatisfaction and lower profitability. More importantly, it only took a slight increase in conformance quality to generate a 4% increase in margins. Considering that some retailers, especially in grocery, operate on razor thin margins that are less than 10%, an improvement in conformance quality alone can result in a 50% to 100% improvement in margins.

So again, one has to ask, given the risks associated with cutting your talent (productivity, morale, quality, revenue, profits, and lawsuits), the benefits of keeping your talent, and the fact that there’s always better savings opportunities to be had with process transformation and strategic supply chain initiatives, is it really worth it?

Is Constant Change A Supply Chain Risk or a Supply Chain Reward?

A recent article by Noha Tohamy of AMR Research claimed that “constant change” was the buggest supply chain risk of all. (I assume she meant biggest, as otherwise it would just be a flea-sized annoyance and gnat worth discussing.)

Referencing a study that found that volatile fuel, energy, and commodity prices were the top three risks reported by companies last October, Noha noted how global companies faced a dilemma between the cheaper production costs and labor wages in China and other low cost countries and the high costs of transportation that result during periods of high fuel and energy prices and concluded that constant change must be the biggest supply chain risk at all.

I have to disagree. While volatile markets are a supply chain risk, which is sometimes only dwarfed by supplier solvency (which is probably the biggest risk these same companies are facing today as entire factories are closing up shop overnight without a warning in China) they are only one example of constant change.

Other examples of constant change are the constant improvements in supply chain technology, supply chain risk management processes, and supply chain finance. Today’s on-demand SaaS platforms, when adopted by your supply chain partners, can give you real time visibility into your supply chain and let you know where your order is at any time, anywhere. Improvements in scorecarding and supplier management practices can delivery higher quality products at lower costs. And modern supply chain finance methodologies, that include properly managed early payment discounts and buyer financing, can lower costs for all parties. I think these rewards far outweigh the risks of constant change in the supply chain.

What do you think?