Category Archives: NPX

Getting to Value (Key NPX Take Away 2)

As per yesterday’s post, last week I attended The Mpower Group‘s Next Practices Xchange and took part in the discussion of what is required to get to the next level of supply management. There are no easy answers, as value is often context and situation dependent, but there are good questions and appropriate starting points in the quest for answers. Yesterday we discussed our perceptions of value and how they often differ from the stakeholder’s perceptions of value and how we need to speak a common language to make headway. Today we will discuss some of the steps an organization can take to get to value.

The first step is to align perspectives on value. To do this, the Supply Management organization needs to go beyond simply understanding the stakeholder’s view of value and genuinely explore value from their perspective. Supply Management needs to engage in an open conversation about what value really is to the internal customer and what Supply Management can do to help the customer realize that value. Once the shared vision is understood, then Supply Management needs to work with the organization to make sure that the key points of the shared vision are reached. For example, if the customer needs a deal in three weeks, then Supply Management may have to make cost or contract concessions to make sure that a deal is reached in three weeks. It’s not perfect, but it will give Supply Management credibility and increase the chances that Supply Management is not only approached much earlier in the contract cycle for the next category, but will be more trusted to work on issues that the customer organization does not yet see as highly valuable.

The next step is to do whatever it takes to accelerate from planning to actual execution. While Supply Management may see value in extended planning, analysis, negotiation, and contracting, the customer only sees value in the result. In early projects wth a customer organization, Supply Management will need to identify only the most critical issues that it feels need to be addressed and sacrifice the rest of its concerns to get to a contract that delivers value in the eyes of the customer as soon as possible. This may mean that it will have to restrict its attention to the current supply base, start with supplier’s paper, or trust the customer that the supplier does deliver best-in-class quality.

The third, and most important step, is to take the best deal in the customer’s eyes, even if it costs more, increases certain risks, or violates Supply Management standard operating practice, especially if it’s a first project from, or critical project for, the internal customer. For example, even if another firm offers to defend a case for $50,000 less, management must be comfortable with the firm selected. Sometimes $50,000 is a small price to pay to keep management happy. A key point that is often overlooked is that Supply Management must be seen as the go-to organization for advice and support where procurement and suppy is concerned and the central cog in the organizational wheel that keeps everything turning. That is going to require a lot of trust and respect from the other organizational units, and it will take time to build.

Along the way, the Supply Management organization has to make the finance organization a partner, garner and keep the support of top management, promote the competencies of its customers, and, most importantly, communicate the value it delivers in customer and organizational terms. For example, we got the best firm on the case for only $50,000 above market average is actually a win in the Chief Council’s eyes.

Are you Really Focussed On Value? (Key NPX Take Away 1)

Last week I attended The Mpower Group‘s Next Practices Xchange which is a gathering of some of the top supply management personnel from a select group of Fortune 500 companies who met to discuss how to get to the next level of supply management. Realizing that today’s best is not enough to sustain value in an increasingly competitive and economically challenging global marketplace, the best of the best are already trying to figure out how they are going to maintain their edge in tomorrow’s supply chain landsape. It’s a hard question that is not getting enough attention (as per my recent posts on Next Generation Sourcing and Supply Management), but there are answers to be found for those willing to look hard enough. This series will address some of the questions that a Supply Management organization needs to address to get to the next level, as well as providing some starting points for those looking for answers.

Whether you call it Next Level Supply Management, Next Generation Supply Management, or simply Next Practice, the key commonality to advancing the supply management function is moving from a cost focus (even if it is TCO) to value. However, before one can get to value, one has to understand what value is. Lamar Chesney, CPO of SunTrust, had a great presentation on value perspectives and how our view of value is rarely their view of value and how we fail to realize the value that is available in a Supply Management initiative because of this.

For example, while everyone may agree that price reduction is value, our view of value is generally not their view of value.

When we focus on What they really want is
cost avoidance speed to realization
TCO sense of comfort
specificity of deliverables practical certainties
contract certainties and flexibilities feeling of specialness
risk mitigation and governance contributions beyond sourcing & SRM

And, more over, this is how a Supply Management organization often responds to their view of value (even if the Supply Management organization does not realize it is doing it):

What they want What we believe
speed to realization speed kills
sense of comfort a good contract trumps the soft stuff
practical certainties a good contract, which can take months to negotiate, insures you get what you want
feeling of specialness everyone knows the supplier is providing a commodity and there’s nothing special about the product or service
contributions beyond sourcing & SRM sourcing strategies, contract management, category management, SRM, etc substitutes nicely for my help with your business strategy

See the problem? Not only does the (internal) customer rarely want what Supply Management wants to deliver, but the messages that Supply Management sends scares the internal customer away because the core message the internal customer hears is that what you value doesn’t matter. Not a good foundation for building the cross-functional team necessary for generating value.