Category Archives: Miscellaneous

What are The Drivers of Procurement Excellence? Part II

Yesterday’s post discussed the recent article in the Supply Chain Management Review on “The Drivers of Procurement Excellence” that discussed seven megatrends that are currently exerting their impact on the global procurement function which the authors claimed to be driving procurement excellence by way of the pressures they are exerting on procurement departments across the board. While I agree that all of the megatrends are driving the need for a greater procurement function, and while I believe that each of the five elements that they listed as being core to a procurement transformation are necessary, I do not think that megatrends drive procurement excellence.

As far as I’m concerned, procurement excellence is driven by one thing — and one thing alone. Talent. People drive excellence — and although this excellence generally needs to be supported by kick-ass processes and kick-ass technology, excellence is driven by people first, process and technology second, and external influences third.

Face it, as the SCMR article deftly notes, the skills and capabilities required in today’s procurement function are vastly evolved and nearly unrecognizable from those of 10 to 15 years ago and no technology or process is going to come close to meeting a fraction of the requirements, or deliver the results today’s procurement functions need, without a very talented individual at the helm. An individual that is an experienced, collaborative, customer-focused market zen master team player who is driven to succeed. An individual that is adept at analysis, skilled at strategy, and focussed on sustainability and who will seek out the knowledge she needs, consult with experience, and innovate all the while. A new breed of professional who is a jack-of-all-trades and master of one — spend and supply management!

Of course, given that there’s a talent crunch, and maybe even a talent war, for A-level procurement professionals that has already progressed to the point that only 11% of executives are confident that they will be able to recruit and retain the needed talent they need, attracting the talent you need might be easier said than done. That’s why true leaders will take their intelligent, hard-working, driven B-level players and provide them with the training (possibly through industry-leading certifications such as the SPSM offered by Next Level Purchasing) and job experience they need to become A-level players and kick ass. (And when you consider that, as pointed out in this Supply Excellence piece, A players, who only cost 40% more, often deliver an overall return of 100% or more in a given year, the payback on talent acquisition and development is almost exponential!)

So hire the best, train the best, and retain the best … and you will achieve procurement excellence, because the best will accept nothing less.

The Resource Site Rocks

This is just your friendly reminder that the Sourcing Innovation Resource Site [archived in 2017 and removed in 2024], always immediately accessible from the link under the “Free Resources” section of the sidebar, is a supply manager’s best friend. It collects all of the on-line resources you need as a supply management professional into one place. As of today, it has links to:

  • over 175 Event Listings including over
    • 105 Conferences,
    • 60 Seminars, and
    • 10 Workshops
  • over 125 Blogs, Wikis, and Communities in the supply management and enterprise technology space
  • over 45 Publications that will keep you abreast of today’s global supply management issues
  • over 50 Societies where you can find people with the same needs and interests as you
  • over 15 Centers of Excellence which publish ground-breaking and thought-leading research on a regular basis
  • over 20 Analyst Firms which explore the vendors, technology, and issues that populate our space
  • over 590 Vendors for all of your supply management needs
  • over 310 Linked-In Groups for all of your supply management networking needs
  • and over 15 Job Sites when you’re ready to take that next career step

When you combine it with the e-Sourcing Wiki that has almost 35 wiki-papers on all of the relevant global supply management subjects (co-)authored by the doctor, the integrated PurchSearch procurement search engine (powered by Google Custom Search and brought to you by Next Level Purchasing), the Sourcing Innovation Illuminations, and the free Iasta-sponsored e-Sourcing Handbook, you’ve got everything you need. So check it out!

Don’t forget that the resource site is only as good as you make it. If you have an event (conference, roundtable, seminar, training program, workshop, or webcast), blog (wiki, or community), publication, journal, center of excellence, society, analyst firm, linked-in group, or job site that your fellow supply management professionals would benefit from, you can always submit it for inclusion on the resource site! This will insure that the site continues to meet all of the supply management needs of the sourcing nation!

And while you’re at it, don’t forget to Subscribe to the Sourcing Innovation Mailing List and join the Sourcing Innovation Linked-In Group!

What are The Drivers of Procurement Excellence? Part I

The Supply Chain Management Review recently ran an article on “The Drivers of Procurement Excellence” that discussed seven megatrends that are currently exerting their impact on the global procurement function. More specifically:

  1. Managing Extreme Competition and Pressures for Deep Cost Reduction
    There’s a widespread sense of incessant urgency to take steps that help reduce prices for end consumers. This is challenging in an era of rising energy and commodity prices. Oil and certain metals categories (that had reached ridiculous highs) may have dropped recently, but energy production costs from non-renewable sources have increased across-the-board and many commodity categories are still climbing.
  2. Addressing the Accelerating Pace of Globalization
    Globalization has multiple impacts. It drives some organizations to expand markets, others to move closer to their customers, and others to improve their global sourcing capabilities.
  3. Addressing the Proliferation of Unique & Dynamic Relationships with Customers, Supplies, and Outsource Partners
    Profound shifts are happening with respect to supply. Some suppliers are customers while others are strategic suppliers for direct competitors, and in both cases the supplier might be strategic or critical. It’s not enough to consider a supplier just as a source of supply anymore.
  4. Coping with the Rapid Advance of Technology in Products and Services and (in) Procurement Operations
    Technological advancements arrive now so quickly that the right technology for any given product or service may change dramatically nearly overnight. Procurement organizations have to constantly deal with the obvious technology-driven dichotomy: a strategically focused sourcing function must simultaneously pursue both closer collaboration/partnership and yet maintain greater flexibility.
  5. Assisting with Revenue Growth and Innovation
    New products and services, key drivers of revenue growth and innovation, directly relate to technological innovation and similarly, companies are pursuing revenue growth through globalization and new markets. Procurement is smack-dab in the middle of both of these trends.
  6. Managing Constantly Changing Customer Demand
    Customers want the newest and most effective products possible and customers want companies whose products and services seem responsive to their individual needs.
  7. Dealing with Complex Regulatory, Environmental, and Ethical Requirements
    Procurement functions take the lead in helping their organizations navigate an ever more complex web of issues such as corporate responsibility.

In response to these challenges, the article notes that many procurement departments are:

  • beginning to rethink their business and organizational models to deliver organizational break-throughs, including center-led procurement.
  • considering outsourcing or off-shoring non-critical procurements, or transactional processes (which free staff up to focus on more strategic initiatives that offer greater savings opportunities)
  • rethinking global sourcing strategy and global supply chain structure
  • brushing up on current, and upcoming, global regulatory requirements and refining product lines for global acceptance
  • considering innovative supply configurations to simplify production, distribution, and supplier relationships
  • thinking differently about materials, commodities, components and/or services that they’re buying and throwing sustainability, green, and CSR requirements into the mix
  • realigning with business strategy with a focus on product/service development and IT
  • streamlining processes on a channel-by-channel basis, optimizing the mix of methods by category, and not relying on too few or too many options for sourcing, buying, and paying
  • implementing well-defined balanced scorecard for the internal procurement organization
  • partnering with the business at-large to find relevant sources of supply to enable these growth strategies
  • spending more time identifying who their current and likely future customers are and what they are most likely to buy
  • collaborating with engineering and suppliers to optimize packaging, reduce shipping weight and size, use low-environmental impact materials, and design for sustainability
  • beginning to develop the talent they’ll need internally using formal training, rotational assignments, and international appointments

This is because, as the article points out, the era of incremental improvement is passed and companies need to focus on the megatrends of global procurement to identify and extract breakthrough performance. The game is no longer simply about better sourcing strategies or merely greater efficiency in transaction processes. Today, the goal is an end-to-end approach featuring optimized business models, metrics, people, and organizational structures — a program of strategic transformation.

And at the heart of such a transformation is, according to the article:

  • Attaining closer alignment between procurement and overall business strategy.
  • Where necessary, redefining operating and business models.
  • Improving policies and procedures, methods, and controls.
  • Improving technology, data collection and interpretation.
  • Developing and leveraging talent.

But are these truly the drivers of procurement excellence? That’s the topic of tomorrow’s post.

Dead Company

Two weeks ago, I brought you Dumb Company, a starting list of things that companies who fail the CIRCUIT rating (Corporate Intelligence Rating Calibration Under Inflationary Times) tend to do. Today, I bring you Part III of the series, which will attempt to explain why your favorite vendor likely won’t be here next year at this time.

The harsh reality is that this year has seen a couple of big vendors, with credit lines severely diminished or cut off due to bank failures, lost lawsuits, and VC belt-tightening, go through a number of layoff rounds. Two of the larger vendors in the space, despite claims of “regrouping”, are in serious trouble and (could soon be) on the block … and they could soon be joined by up to a dozen small companies that, relatively speaking, took too much VC money, and sold too little product, in the last few years. Some have great products, and will be sorely missed if they don’t get a quick cash infusion and close their doors, but it’s a harsh reality when you don’t manage for frugal growth, don’t continually focus on innovation not just in your products but in your internal operations as well, and don’t bring in outside expert help when you need it.

Why is this happening? The reasons vary from company to company, but the following reasons are common.

Too much VC money, too soon, against an overly ambitious business plan

The days of your average company spending seven figures on yet another enterprise system are over. Especially if such system is unproven. The way to succeed is to plan for slow and steady growth; delay sales, marketing, and CXO hires until the product is (almost) ready for massive deployment; and take as little money as possible early on so that there’s equity left to get more money later if the market declines and throws a crimp into your five-year plan.

Poor Approach to Sales

Many companies believe that if you bring in a few big guns (knowing that 20% of the sales force is responsible for 80% of the revenue at enterprise software companies) or get enough feet out there, you’ll get sales. This isn’t automatically true for a number of reasons. (1) The big guns are used to selling proven systems with large organizations backing them up. (2) It’s not the size of your sales force that matters, it’s the quality. (3) If they’re not getting the right message through to the right people, they’re not going to sell a thing.  (And if you haven’t had one lately, a sales and marketing review by an expert in the space might be a good idea.)

Too Many Assumptions, Too Few Verifications

A lot of entrepreneurs come from big company backgrounds where they’ve worked in a job for a number of years and grew frustrated at the lack of a solution for a problem to which they’re sure they know the solution. What many don’t understand is that not every company has the same problems, or the same processes, or the same viewpoint as to what constitutes a solution and, believing they are the expert, they over-engineer the solution to the point where it only solves one problem for one company.

Belief that Innovation Bursts are Enough

Some companies believe that once they have a product that represents a new solution to an unsolved, or poorly solved problem, they don’t have to do anything else for at least a couple of years. They effectively stop New Product Development and divert all their efforts to Sales & Marketing. The problem is that anything that can be built can be copied and improved upon many times faster, and the way to gain, and keep, customers is through continual innovation.

Our Way is the Right Way

The entrepreneurial team comes up with a way to structure, and run, the business, usually on-the-fly and by the seat of their pants, and runs with it, no matter what. If the structure is ripe with inefficiencies, it can prevent scalability and lead to discontent, which can, in return, result in the loss of key personnel.

So what can you do if you don’t want to end up like your favorite vendor?
Remember that consultants are cheap and

  • Get a Sales Review
    Are your sales people getting the right message through to the right people? Are they aligned with marketing? Are they selling at the right price points?
  • Get a Technology RoadMap Review
    Are you solving the right problems? Is your solution advancing at the right rate? Do you have enough innovation to get, and keep, a customer’s attention?
  • Get an Operations Review
    Are you efficient? Are your people enabled? Are you ready for growth?

And if you don’t know who to call, call the doctor (or e-mail him). If he can’t help you, he’ll help you hook up with someone who can.

 

Getting the Most Out of Cost Reduction

Today’s guest post is from Patrick J. Hogan, a Partner at Paladin Associates, Inc..

A recent article in Paladin Associates’ CheckMate Newsletter entitled “Cost Reduction is NOT a No-Brainer”, generated interest and requests for more information. It made the case that cost reduction programs should be carefully thought out so mistakes and inexperience don’t cause harm. What follows are some common ways that cost reduction programs can be mismanaged, go wrong, and cause real headaches. It is NOT a complete list!

Companies with inadequate spend information really don’t know what they are spending, who is doing the spending, and what suppliers they are spending with. Without such fundamental intelligence, chances are high that resources will be misdirected or wasted, and results will be sub optimized.

Many companies simply need to focus on fundamentals. It is surprising how many companies do not consolidate purchases or buying points, do not require system or product specifications, or do not require suppliers to compete on a regular basis. Many firms simply need to get back to basics.

A common oversight is indirect spending. Companies often focus exclusively on strategic direct materials and ignore indirect spending on telecom, facilities, transportation, office supplies, and so forth. Yet big savings are often available in these areas.

A frequent obstacle to efficient cost savings is lack of buy-in by the organization. It is an unfortunate fact that not everyone in a company is cost-sensitive, or sees cost reductions as being in their interest. In fact, many employees, and even managers, are “empire builders” who are actually more interested in maintaining or growing budgets, organizations, and perceived power. They may talk a good game, but really are not committed to cost-reduction. They may even fear cost reduction. Internal politics and power struggles are very often the chief obstacle to more efficient processes and procurement.

Frequently, the cost-reduction “team” lacks the specific functional expertise to effectively cost-reduce certain functions. Finance or Procurement personnel are generally not the best people to effectively cost reduce Marketing & Sales, Human Relations, Customer Service, Telecom, IT, and many other functions requiring specific product, market, contract, technical or professional functional expertise and judgment. This requires balancing both functional skills and cost awareness. Establishing cross-functional teams with both functional and procurement expertise is one solution.

“Right-sizing” or down-sizing is an area of great risk. Downsizing can improve a company’s health dramatically, or destroy morale and precipitate a “death spiral”. Many of the issues are not intuitive. This topic needs a book in itself, and requires experienced hands to get positive results.

Frankly, overly cozy vendor relationships can get in the way of effective cost-reduction. Suppliers’ sales people work to establish personal relationships and “differentiate” their products for reasons other than price. They are often successful in minimizing competition as a result. But this usually costs the buyer money!! Some favorite sacred cows are sales commissions, legal fees, HR benefits, ad agencies, and printing companies.

On the other hand, not understanding a supplier’s full capabilities can result in overlooked opportunities for savings. A supplier might well have the resources to help reduce costs through process or product changes or simple suggestions, or other approaches not defined in a formal specification or RFP.

An ironic mistake that companies can make in tough times like these is locking into a new “low” contract price, only to find that prices actually drop below that level over time…resulting in overpayment during the contract period. Don’t mortgage the future simply to insure short-term savings.

Many companies have a do-it-ourselves mentality. They do not believe they need help, or they don’t want to pay for consulting help. But nonetheless they are just not getting the total job done. “Not-invented-here” and the “we-already-thought-of-that” syndromes are common themes in many companies. The “fear factor” also plays a role… many employees are concerned about getting credit for cost-savings ideas, or of being blamed for ideas someone else may find. In our increasingly “blaming” society, they are not always being unreasonable either. Many companies have inadvertently set up win-lose scenarios on cost reduction that block the free flow of ideas and participation, and inhibit the use of consulting experts whose savings ideas might expose waste. But all companies have waste, and wise companies want to find it and remove it ASAP. Setting up a win-win environment is key, and getting outside help is smart.

A very common problem for procurement organizations is a lack of appropriate resources. Most companies, even those with large procurement staffs, lack all the skills, the manpower, the funding, and the time to turn over all the rocks required to get the total job done. An ROI analysis would frequently justify more resources. Or, temporary use of consulting resources may be appropriate.

Another common phenomenon is excessive focus on identification of cost reduction opportunities and process development, but inadequate attention on execution and results. Many companies have long lists of opportunities, but short lists of what have actually been accomplished or resulted in tangible savings. In a related vein, savings can erode over time if companies don’t monitor results, update specifications, record engineering changes, housekeep their records, etc. Implementation, follow-through, and measurement are essential in driving for results.

Effective cost reduction is not just about common sense. Like so many other things in life, it requires experience to do it right and avoid costly pitfalls. In tough times like these, with so many “new” managers being pushed into cost-reduction exercises, finding experienced hands to guide the process is critical. Professional consulting help must be considered, particularly with a company with a results-driven focus.