Category Archives: Robert Rudzki

Cornerstones of Strategic Procurement

Yesterday I pointed you to Bob’s post on Smart Working Capital Management where he pointed out the pitfalls of being preoccupied with DPO (Days Payable Outstanding) and how a DPO focus can be counter-productive. Specifically, the requests for DPO extensions that tend to result from the DPO focus tend to leave untested the willingness of suppliers to entertain aggressive discount payment terms in exchange for early payment by the customer.

Today I want to remind you of a post Bob wrote back in early January that you might have missed if you returned late from the Christmas vacation. In the evolving landscape of low cost country sourcing, Bob outlines the three fundamental requirements of strategic procurement:

  1. fact-based approach based on a thorough understanding of current reality and anticipated trends
    that should be based on whatever data you have available
  2. an investment in the appropriate skills and enough of the right resources to develop and execute the strategies
    including the right technology to perform the necessary analysis
  3. constant monitoring and adjustment to optimize results in an ever-changing world
    that should include simulation and modeling software where appropriate

For more information on strategic procurement, be sure to check out Bob’s new book on Next Level Suppply Management Excellence, hitting the (e-) shelves on June 28, 2011.

Listen to Bob and Avoid the Pitfalls of DPO

In a recent post over on the Supply Chain Management Review on smart working capital management, Bob points out the pitfalls of being tempted to be preoccupied with DPO (days payable outstanding). While the objective to match DPO up with DSO (days dals outstanding) is an admirable one, as this would balance the cash cycle time tied up in accounts receivable (waiting for your customers to pay you) with the cash cycle time contributed by supplier payment terms, this can be counter-productive. Since this usually results in requests for DPO extensions, it leaves untested the willingness of suppliers to entertain aggressive discount payment terms in exchange for early payment by the customer. From a balance sheet perspective, cost savings are always better than favorable DPO terms. Plus, if the organization can negotiate aggressive discount terms from its supplier(s), it can then offer its customers discount terms which could speed up their payments to the organization.

If the organization speeds up its payments to its suppliers and its customers speed up their payments to the organization, the net result is not only a shorter cash cycle time, but, as a side effect, the payment cycles will start to line up — allowing Procurement to accomplish its original goal of balancing DSO and DPO while saving money. That’s a win-win that all parties at the table can win with. So listen to Bob and avoid the pitfalls of DPO preoccupation.

Enlisting Suppliers to Create Competitive Advantage


Today’s guest post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the supply management best seller Straight to the Bottom Line.

Feedback is a familiar term to most people, and its principles can be found in many aspects of business. For example, some supply management departments regularly request “feedback” from their internal clients as well as from their supply base. Sometimes this is done formally, with a predetermined list of questions about performance in the past year; sometimes it is done informally. Asking the right questions, and acting upon the feedback, are important elements of improving your performance.

A complementary concept is “feed-forward.” Feed-forward, as opposed to feedback, is a proactive approach. Based on its origins in the technical world, feed-forward watches for and monitors changes in the environment, as a way to anticipate process changes that may be required in order to maintain a desired level of performance. From a business application perspective, it tends to focus on a desired future state, and identifying ideas to help create that future state.

Next-level organizations are interested in both feedback and feedforward insights as one avenue to creating competitive advantage. One way to accomplish this is through a carefully-constructed and executed “Supplier Satisfaction Survey.” Interested to learn more? Take Greybeard’s Supplier Satisfaction Survey.

Using Consultants and Advisors Wisely


Today’s guest post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the supply management best seller Straight to the Bottom Line.

Maybe it is the urgency of the current business environment, but in the past few months we’ve heard about several large procurement consulting projects that did not turn out well. For a recap of some of the classic reasons for potential trouble, see my earlier posting on Consultants: Use Them Intelligently.

Two of the most recent stories that came to our attention involved different firms but a common thread: “success fee” or “risk free” procurement consulting engagements. For those of you who are not familiar with the practice, “success fee” or “risk free” consulting obligates the client to pay to the consulting firm a fairly hefty percentage of the “savings” generated during the project. Often, 30 to 40% of the first year’s benefits are due as payment. These arrangements are also sometimes known as “shared savings” engagements.

Beyond the large total cost of this option (often 3 to 4 times more expensive than the classic professional time and expenses approach), major challenges/drawbacks of a success fee approach include:

  1. Potential misalignment of interests between client and consulting firm (the client often wants not just negotiated cost reduction, but implemented results — along with fundamental transformation and capability building; consulting firms in a pure success fee or “risk-free” arrangement are incented to drive quickly for negotiated savings, and then depart for their next client.)
  2. Administrative and practical complexities of agreeing on savings calculations, and the potential of disputes regarding payments due.
  3. Unpredictable, and potentially unproductive, behaviours from client employees if the existence of the shared savings arrangement becomes known.

When a client asks us whether we would entertain doing sourcing advisory work on a success basis, we take the opportunity to have a full disclosure conversation on the subject. For example, at a minimum, Greybeard presents the detailed pros and cons, including estimated total costs for the project scope, for three options: professional time and expenses, success fee, and a hybrid of the other two. That information is the catalyst for a meaningful conversation. And, it enables the client firm to make an informed decision that is in its best interests, not the consulting firm’s best interests.

Thanks, Bob!

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Want to Get Ahead? Speak the Language of the CFO!

For those of you who have been following the thought leaders in the space, you know that Robert Rudzki has been advocating that the key to your success is to Speak Like a CFO (Part I and Part II) for quite some time now. The reason? It’s often the fastest way to gain respect in a C-Suite that runs on financial metrics.

However, thanks to the jobless recovery, it might also be the fastest way for you to get ahead. As per this recent article in CFO Magazine on the incredible shrinking finance department, a combination of increasing automation, new business models, and offshoring has pushed down the average size of a finance staff by 30% over the past six years (according to The Hackett Group). Furthermore, as CFO’s are more concerned about how can I save my company than how many jobs can I save, the jobs that went away, usually to offshore locations, aren’t likely to come back to the states — ever. As a result, the majority of CFOs (75%) plan to keep domestic finance head count steady in 2011 (while only 15% plan to hire).

This means that Finance departments are going to continue to be lean, mean, and as overworked as anyone else in the organization. So when you come to them with a great proposal that’s in your language and not theirs, it’s yet another report they have to analyze and do a cost-benefit analysis on before they can judge how good your proposal is relative to the dozens of other proposals on their desk that require the same sort of analysis on which to make a decision. A task that they just don’t have a lot of time for.

But if you come to them with a proposal in their language, with all of the ROX (ROI, ROIC, and ROE) metrics, the impact on cash-flow, the internalized rates of return, and the cost of delaying the decision on a daily, weekly, and monthly basis, all of sudden your proposal (assuming it does have a significant return) becomes many times more attractive than everyone else’s. They not only see the value immediately, but they see that you are trying to help them accomplish their goal of saving the company by insuring that it doesn’t spend more than it can afford to in this tough economic climate.

So learn the language of the CFO. It might just make you the organizational superstar you know you can be.