Category Archives: Miscellaneous

What are a CEOs Top Concerns?

Over on e-Sourcing Forum, Blaine Mathieu, CEO of Selectica, penned a post on the CEO’s Top Three Concerns and How CLM Can Help. CLM (contract Lifecycle Management) and SLM (Sourcing Lifecycle Management) can definitely help with these concerns, but are these really the top three concerns of the CEO, or are they the concerns that should be the top three?

The reality is that the top three concerns of any CEO are:

  • Profit
    We all know that at the end of the day all the Board really cares about is lining the pockets of the shareholders that they answer to. That’s it.
  • Economic Collapse
    Profit requires revenue and revenue requires a reasonably strong economy where consumers are willing to spend.
  • Supply Chain Disruption
    While the reality is that the average CEO doesn’t give a rodent’s behind about the supply chain, because that’s the head of Procurement’s problem, the last thing an average CEO wants to hear about is a disruption that is going to result in a stock-out and lost revenue. The Board won’t be happy, and the CEO’s job could be on the line.

Even though the top-three concerns should be:

  • Value Generation
    Continued profit relies on continued revenue which relies on continued customer demand which requires that customers continue to see value in the products and services the companies offer.
  • Global Expansion
    Individual economies wax and wane, and sometimes connected economies surge and fall with them, but, generally speaking, the economies of entire zones or continents don’t collapse at once.
  • Supply Assurance
    No supply, no product. No product, no fulfillment. No fulfillment, no revenue, even if the organization could provide value to the customer.

As part of these concerns, the CEO should be helping the CPO with:

  • Cost Avoidance
    Forget savings. They are ephemeral and temporary. But reducing demand and avoiding unnecessary cost is permanent.
  • Innovation
    Value requires continued delivery of better products and services, which will often only be identified through innovation.
  • Compliance
    A big part of supply assurance is making sure all local and foreign laws, import and export requirements, and industry regulations are met so that the company isn’t faced with unnecessary disruptions, lawsuits, or government interventions.

which, while not the CEO’s top three concerns, are the top three concerns the CEO should share with the CPO.

75 Million . . . for a Wallet!

In our recent damnation post on e-Currency, we noted that if you think trying to manage real currency exchange is bad, just wait until you have to start using non-country based e-Currency, like Bitcoin — which is going to happen sooner than you think if CoinBase, which just raised 75 Million to create a better Bitcoin Wallet, has its way.

What do you think LOLCat?


Please, take my dollars.
 

Is that a compelling endorsement, LOLCat — or are you just trying to hide the fact that you are a cat?

Authoritative Damnation #64 Major Activist Investors

An activist investor is technically defined as an individual or group that purchases a large number of a company’s shares and/or tries to obtain seats on the company’s board with the intent of effecting a major change in the company. A (public) company can become a target for an activist investor if it is mismanaged, has an excess cost structure, or is not capitalizing on its value.

And while one might be tempted to think that an activist investor is only bad news for Procurement if the company has excessive costs, that’s not the case. An activist investor is always bad news. It might be the C-Suite that is overspending (on private jets and tropical locales for “strategy meeting” getaways), it might be Sales and Marketing doing a lousy job, and it might be R&D failing to focus on the right products, but the first thing the activist investor will want is a balancing of the books — and that always, always, always starts with a focus on cost reduction across the board. Procurement could be in the top tier of spend management in its vertical or industry group, with an average spend that is 5% less than the industry average benchmark, but the activist investor will still demand that the organization pursue an across the board cost reduction at least in the 5% to 15% range — a reduction that will not be possible in many of the categories currently under management.

Plus, additional opportunities will likely only be available if Procurement is able to get more categories under management — which could be difficult even with Board Support as many departments, fearful of cuts that almost always occur when activist investors sway the Board, will not want to give up budget, authority, or supplier relationships for fear of becoming unnecessary. This will make it very hard for Procurement to deliver against unreasonable demands and increase the chances that they end up under-performing on the activist investor’s scorecard and end up looking bad when they are actually the top performing department in the organization.

(And we haven’t even mentioned the expectations that will be levied if Procurement is expected to play a key role in a merger or acquisition that an activist investor, investing in multiple organizations, is trying to engineer between it’s investments — because that’s a damnation in its own right that will be discussed at a later time.)

So what can you do? Baseline, Benchmark, Model, and Expose. Specifically:

  • Baseline
    Baseline actual costs for commodity groups and categories under management.
  • Benchmark
    Benchmark against publicly available rates and obtainable GPO rates to prove that performance is good and that any additional cost comes with a value add (in the form of quality, marketing, service, additional functionality, etc.)
  • Model
    Build should cost models that justify the validity of the baselines and/or benchmarks under current market conditions.
  • Expose
    Expose the overspending in categories not under Procurement’s control using baselines, benchmarks, and should-cost models and divert the attention of the activist investor elsewhere.

Do You Know the Difference Between Direct and Indirect?

Direct materials are typically classified as raw materials, standard or specialized parts, and sub-assemblies required to manufacture a product. As a result, direct goods and services are typically classified as those goods and services that are strategically important to the organization. For example, for a CPG it is the goods it sells, for a Pharmaceutical it is the chemicals and biological materials it uses for research and drug production, and for a Bank it is the systems and market intelligence feeds it uses to run.

Indirect goods are those goods and services that are not strategically important to the organization. For example, for a CPG it is back office systems, for a Pharmaceutical it is office suppliers, and a and for a Bank it is office supplies.

However, these back office systems for the CPG are strategic for a software and services reseller. Office supplies are strategic for the office supplies vendor and janitorial services are strategic for the janitorial services provider.

But it’s not just the type of organization that determines whether a good is direct or indirect, it’s the organization’s place in the supply chain. What’s direct at one level is indirect at the next. And knowing where you are in the chain not only lets you know how to approach the category but how your supplier approaches the category. And, more importantly, where in the chain the most savings can be obtained.