Category Archives: Strategy

How Do You Achieve Indirect Procurement Success?

As per this morning’s post on Common Challenges of Indirect Procurement, often the best way is to start with better technology and better processes, beginning with spend analysis. If the organization can quickly identify which categories will yield sufficient savings to make a sourcing project viable, then it can integrate high-opportunity projects into the strategic sourcing plan, put mid-opportunity projects out to auction, and simply ignore low-opportunity categories as the 20/80 rule generally applies to indirect Procurement as well. If better technology and processes are not possible due to budget or other constraints, sometimes the organization can outsource the categories to a third party. However, if the organization is not good at outsourcing, this could backfire.

So what does your Supply Management organization do to enable success if it can’t get better systems and can’t outsource? As per this recent article over on the HBR Blog Network on “how we killed our strategy to save our mission”, the best thing it can probably do in this situation is to get out of the way. Just like Question Box ultimately achieved success by shutting down its field operations (and killing its physical product line) to build toolkits to help local community organizations be successful, maybe the best thing Supply Management can do is to deliver a knowledge service that provides the other departments with the knowledge and tools they need to manage their major indirect categories efficiently and effectively. If Supply Management provides each department with the appropriate market information, strategy, contract templates, and other key sourcing tools for managing their high-dollar indirect procurement categories, then Supply Management can enable better results by acting as a consultant to the rest of the organization. It might not be the ideal situation for some Supply Management organizations, but if it improves the bottom line, and Supply Management’s reputation, it’s still a big step forward.

Six Key Lessons for Sustainable Supply Management

A recent article over on the CPO Agenda on “Platforms for Growth” that discussed the challenges for Supply Management involved in procuring goods and services for decommissioning oil rigs had some great lessons for Supply Management professionals involved in projects in new or emerging areas of spend. While cost control is important, it’s even more important that Supply Management prevent their organization from becoming the subject of media headlines — as this is never a good thing. Plus, early approaches to category strategy can set a pattern within an organization and even drive market structures across the industry that, once established, become difficult to change. Thus, it’s important to get spending in new categories right.

Think Strategy
Supply Management needs to be a part of all of the strategic decisions of the organization as true commercial advantage can only be obtained if Supply Management is involved early enough in projects to influence raw material and service requirements. Not only does the design stage lock in up to 80% of the cost, but it can lock in up to 100% of the market risk. If the design locks in a raw material in tight supply as necessary, such as tantalum, instead of a more available material, such as aluminum (for capacitors), and unrest along the African coast suddenly makes 15% of the global supply unavailable, the organization will be in for a major price shock.

Influence the Plan
Not only does Supply Management need to be involved in all strategic decisions, but it has to come to the table with a good understanding of potential scenarios and a plan in mind. If, by working with marketing and external market research agencies, it understands that sales will be maximized at a certain price point, it can ensure that the selected design can be profitably produced for that price point.

Go for Global Category Scale
Even if the product must be customized for different regions, Supply Management should still attempt to aggregate global demand and award it to a small number of suppliers who are capable of producing variants for the global market to take advantage of economies of scale.

Build the Desired Marketplace
If the product or service being designed is (relatively) new, then Supply Management might be buying from an immature market. In this situation, the organization has the ability to influence market development, which occurs quickly once demand exceeds a critical mass. If Supply Management implements a category strategy that meets the objective of the organization, and it is the first major player in the market, the market will likely mould itself to that need. If the market strategy is low-cost, then the suppliers will focus on no-frill production and delivery. If the market strategy is the full service experience, suppliers will focus on creating end-to-end value added services. If the focus is on being the epitome of cool, then suppliers will focus on creating the most stylish and sleek product they can, with a price tag to match.

Do Your Homework
Market intelligence is the lifeblood of effective category management and the best way to influence the strategy, plan, and marketplace. Even if the organization does not agree with the proposed category strategy, it’s much harder to refute facts than opinions. Plus, it’s much harder for a supplier to exploit the organization in negotiations if Supply Management goes in armed with full knowledge about the current market state.

Examine New Buying (Structure) Options
Don’t limit your options to the current organizational buying strategy. Consider in-house, industry buying groups, vertical integration and even the creation of a Global Business Services organization. New markets sometimes offer new opportunities for doing things different. Take advantage of this.

Avoid The Transformation Traps

You’ve been reading SI and after the considerable amount of discussion around Next Generation Supply Management that has taken place since January, you know your organization needs a transformation to get to the next level. Operational excellence isn’t enough — it’s all about strategic business enablement. Moving from tactical cost cutting to sustainable value generation. A long term vision that elevates Supply Management to the center of the business.

However, transformations are easier said then done. Getting it right is a journey, as compared to getting it wrong, which often only requires a single misstep. That’s why SI was pleased with this recent white paper form Wipro that summarized “the top three reasons supply chain transformations fail”. While not a how-to guide, it did point out the most common gotchas that an organization needs to keep an eye out for.

The Leading Practices Trap
While the organization will need to implement, and execute on, leading practices on a daily basis if it wants to be a world class Supply Management organization, it will not be able to go from 0 to 60 without passing through every speed in between, and it will not be able to adopt a competitor’s practices as is. Some processes will have to be adapted gradually. For example, trying to move from landed-cost to value-generation models might be too big of a step for an organization used to making buying decisions from landed cost. The organization might have to move to simple TCO models supported by an optimization solution with expressive bidding and get the stakeholders comfortable with this level of analysis first. Only when an organization understands that lowest landed cost does not equal lowest ownership cost will they be ready to accept that lowest (ownership) cost is not necessarily the best value. In addition, just because JIT inventory management works for the organization’s biggest competitor, this doesn’t mean it’s the right solution for the organization. If the organization uses a more time-intensive manufacturing process than the competition, or is subject to more unpredictability in sales, then the organization might need to maintain buffer stock to insure demand is met and profitable revenue levels are preserved.

The Technology Big Bang
While the organization will need to implement advanced supply chain technologies that automate processes, improve planning accuracy, streamline execution, expand visibility, and transform information into knowledge, an attempt to implement such systems simultaneously across the board is just asking for disaster. Just ask FoxMeyer. Oh wait, you can’t. A failed big-bang roll-out of a new ERP bankrupted the company. All that’s left is a case study (that used to be on SpringerLink). The implementation of new systems must be staged, well-planned, and rolled out in a controlled manner.

Ignoring the Organizational Big Picture
Change requires both buy-in across the organization and the leadership to instill that change. Leadership is required to break through the barriers of poor communication, lack of focus, distrust, and silo mentality. Don’t overlook the big picture.

The white paper also has some good tips on how to avoid the traps. Including:

  • Start from the Top
  • Focus on the Customer
  • Continuous Improvement
  • Fix the Process First

For details, see “the top three reasons supply chain transformations fail”. It’s worth the read.

Ariba Vision 2020: Tomorrow’s Shoes (Part I)

This is the first of two posts that address the fourteen predictions that were dead on in Ariba’s “Vision 2020 – The Future of Procurement” report. Any Supply Management organization that recognizes the truth of these predictions is well on its way to formulating a plan to be a leading Supply Management organization in the decade ahead.

01. Everything is automated

This prediction is dead-on. Next Generation Supply Management shops are investing heavily in technology to automate all non-strategic and low-value supply management activities, leaving the sourcing professionals to focus on strategic and high-value categories where they can extract the most value for the organization.

07. Spend management shrinks

I’ve said it before, and I will say it again: Spend Matters Not. It’s not how much you spend, how you store it, how you cube it, or how you report on it — what ultimately matters is how much you get from it, profit from it, and derive value from it. Next Generation Supply Management organizations are focussed on improving business outcomes, not cutting costs until quality and stability of supply suffer. Spend Management will shrink as true Supply Management focussed on value takes its place.

09. Service providers excel

Given the increasing cost of outsourcing complex and strategic functions to emerging economies where labour rates are rising exponentially, in order to maintain cost competitiveness and deliver value, the service providers will provide service that constantly improves in efficiency and execution.

13. Let’s get financial

Since overall financial success will still be the ultimate measure of value generation in public enterprises, Supply Management will revolve around the financial supply chain and will be heavily involved in optimizing cash flows, working capital, and financing programs from NPD through return and disposal.

14. SM pros get sophisticated

Supply Management professionals will definitely be much more sophisticated in 2020 than they are today. As the secret agents that essentially drive all aspects of the business, their business savvy, analytical capabilities, relationship skills, and overall execution abilities will be, for the most part, a level above where they are today.

15. Supply pros expand expertise

This is the obvious result of a supply managmeent professional getting more sophisticated. It should not have been included as a separate prediction because it’s impossible to get more sophisticated in Supply Management without expanding depth of expertise in key areas.

16. Strategy scope widens

One does not get to the next level by maintaining a narrow focus, so it should also be obvious that the scope of strategy addressed by an average Supply Management organization is going to expand as well. The strategy will be more closely aligned with the needs of the organization’s end customers and be more cognizant of the needs of the current, and future, customer base. Supply Management will be increasingly called upon not only to analyze merger and acquisition possibilities, but to lead the initiative as success will depend upon succesfull integration of the end-to-end supply chains. And it will be involved in all NPD from day one to help identify customer needs and supplier capabilities before any decisions are made.

The next post will address the other seven predictions that were dead-on.

Step 1 To Building a World Class Supply Management Organization

Adopt a start-up mentality.

Yes, it’s that simple. A lot of blood, sweat, and tears will still be required, but, getting it right really is that simple. And a big thank you to Mark Suster, regular TechCrunch contributor, who wrote a great article on Whom You Should Hire at a Startup that allowed me to realize this.

As you may have noticed, a number of issues have been on my mind of late. In addition to Next Generation Sourcing and Supply Chain Education (or lack thereof), I’ve been trying to figure out how an organization without any modern supply management capabilities, a follower if you will, can go about laying the foundations of a world class supply management organization to become tomorrow’s leader. Obviously if next generation sourcing is the goal, it can’t be the starting point, and education, while critical, requires a foundation. And, more importantly, you can’t turn a “B”-Team into an “A”-Team if there is no raw talent waiting to be released, molded, and shaped under the leadership of the right Colonel.

But if you want to build a new capability, you’re essentially building a new organization, and how do you build a new organization? You create a new start-up, and since, as an organization, you have the one thing that most start-ups don’t — money (and lack of adequate funding is the biggest reason most start-ups fail), you’re almost guaranteed to succeed if you follow successful start best-practices. And since there’s really only three best-practices that you need to remember, this isn’t hard to do.

So what are these best practices?

  1. Hire a talented team
  2. Give them a goal
  3. Get out of their way

Taking these points in reverse order, the biggest mistake many first-time entrepreneurs make is that they overvalue their importance in the start-up success equation. They think that no one gets it like they do or that it won’t succeed if they don’t champion it 24/7 or that the team will lose momentum if they’re not constantly preaching the doctrine, when, in fact, nothing could be further from the truth. In fact, entrepreneur ego is the second biggest reason most start-ups fail. An entrepreneur who believes the start-up can’t succeed without him or her tends to make multiple, deadly, mistakes which include micro-managing top-talent who get frustrated at the inability to do their job and the lack of forward progress (because the CEO isn’t an expert in finance, technology, marketing, or other critical functions that the top-talent is supposed to be leading); overchampioning the cause 24/7 to the point where the talent gets sick of all the cheering and actually loses excitement and drive to succeed; refusing to step to the side and play nice when new leadership is required to take the company to the next level; and overvaluing the company and turning away reasonable investment offers, which drives away any future investment when the rumour gets out the founders are too greedy.

A good entrepreneur realizes that they are the enabler, not the doer, and after giving the talent they hire a goal, gets out of the way of the team and, moreover, does everything they can to remove distractions and barriers to team success because a good team wants to excel and will do whatever they can to shine if allowed. Because, as Suster’s great article on Whom You Should Hire at a Startup points out, an A-Team

  • punches above their weight class,
  • doesn’t care above roles and stretches their job description to do what has to be done,
  • has the right attitude, and
  • gets the job done.

So if you want to build that world-class supply management organization, adopt a start-up mentality, hire an A-Team, give them a goal, provide them with whatever they need (including the right training and technology, which they will help you identify), stand back, and don’t be surprised if miracles happen.