Category Archives: Miscellaneous

Open Call for Category Consulting Clarity

As some of you may have picked up from a recent comment of mine on Spend Matters, I got a bit of blasting behind the scenes for my recent post on how to deal with Yo Yo Contracts, with the notable exception of the constructive feedback from Barb Ardell of Paladin who was willing to publicly share her advice with you. The private feedback ranged from statements that I didn’t know what I was talking about because I’m not a “real” sourcing consultant (I never claimed to be a sourcing consultant, I’m a sourcing technology and process expert who freely admits his only category expertise is in IT … and that’s why you never seen me advertising traditional sourcing services through my consulting practice), through statements that questioned practicality (a matter of opinion), to stuff that I wouldn’t (or couldn’t) post, repeat, or respond to.

Usually my readers are pretty quiet, so I found this a bit surprising and, upon further contemplation, promising. If people are willing to get riled up over this topic, then they must be passionate enough to want to write about it. So, in lieu of the cross-blog series that I would normally try to pull together to kick off spring conference season, I’ve instead opted to run a special guest series on category sourcing, starting the week of April 27. I’ve already invited some of the thought leaders who’ve previously posted on SI to submit a piece on how you can save money on raw materials, goods, and/or services in these troubled times, but I don’t want to exclude anyone who wants to take a crack at educating the space. So, if you want to be front and center on SI, just drop me a line or send me a draft post and we’ll get to work on putting you in the limelight.

A Procurement “Metric of the Month” is a Bad Idea

As a prominent blogger, I get a lot of e-mail (or should I say spam?). One of them had “Procurement Metric of the Month” in the title. I was about to trash it, as this is one of the worst ideas I’ve ever heard (as I’ll explain shortly), but then I noticed it was from Hackett. Needless to say, this got my attention. Why would one of the leading research firms in the space, which produces the very useful and relevant Book of Numbers, be touting a “metric of the month”?

It turns out they weren’t promoting a “metric of the month”, which would be an incredibly bad idea because a metric is only useful if you benchmark against it month after month after month for an extended period of time to measure your progress (and changing metrics too often gets you absolutely nowhere), but a new free research offering as part of their Hackett Performance Network (where, if you qualify, you can get access to selected research reports, performance studies, and webcasts). Designed for Finance, HR, IT, and Procurement, this new offering is apparently going to showcase an important metric in each area each month, starting with “Tax Book Entries Requiring Correction Percentage”, “Outsourcing Utilization by HR Process Category”, “IT Business Value Contribution through Portfolio Optimization”, and “Level of Supply Risk Management Adoption”.

With respect to the latter metric, which focusses on procurement, Hackett points out how 67% of world-class organizations implement supply risk management consistently across the business as compared to only 13% of their peers, indicating that top performers are 5 times as likely to have a comprehensive supply risk management strategy. Considering that effective supply risk management is a way for procurement to elevate its value proposition and help the business protect its brand, cost leadership, and stability, this makes sense. It’s free, so check it out. Just don’t take “metric of the month” literally.

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’.