Category Archives: X-Mas

On the Fifth Day of X-Mas (Cross-Functional Sourcing Team)

On the fifth day of X-Mas
my blogger gave to me
five golden rings,
four little words,
tri-focal lens,
two boxing gloves,
and a lesson in strategy.

Five Golden Rings

Legal.
Finance.
Sales and Marketing.
Product Development.
Human Resources.

A good procurement/sourcing/supply chain department is at the intersection of each of these departments. It works with Product Development to understand their needs with respect to quality, reliability, and functionality. It works with Sales and Marketing to understand what product characteristics can be expounded upon to generate buzz or increase perceived value (and, ultimately, the sale price). It works with Human Resources to understand organizational values and qualities to look for in potential strategic partners. It works with Finance to understand cash-flow requirements and preferred payment terms. It works with legal to create the best contracts for the organization and to make sure they appropriately protect the organization against all foreseen risks.

Representatives of each of these departments should be involved to the appropriate degree from the get-go of any sourcing project to streamline the process. During RFP formulation, legal and finance can help you nail down the terms and conditions in the template contract to streamline contract signing down the road. Product Development and Human Resources can help you pre-qualify suppliers. Sales and Marketing can assist you in the RFP evaluations.

Involving the right stakeholders throughout the process will help you make the right decision every time and assist you in maximizing the value of each and every sourcing effort.

On the Fourth Day of X-Mas (Collaboration)

On the fourth day of X-Mas
my blogger gave to me
four little words,
tri-focal lens,
two boxing gloves,
and a lesson in strategy.

One of my favorite presentation titles at eyefortransport’s recent Supply Chain Directions Summit in the San Francisco Bay Area was Coca Cola’s presentation “Winning Together“.

Coca Cola is now making a big push to improve its supply chain through collaboration and information sharing. According to Coca Cola, success depends on:

  • relationships,
  • communications,
  • commitments, and
  • visibility.

Ok, so these words are not so little, but they are fundamentally important. They define a blueprint for successful collaboration between you and your supply chain partners. As outlined in the presentation, the keys to sourcing success are not canned processes or over attention to metrics, but working as a team internally and externally with dedicated partners and by focusing on communication to customers when a shipment is in danger of being late, not on-time percentages, as this allows both parties to work together to resolve a potential problem before it occurs. Strong relationships are the key to success and sustainability – take the time to get it right!

The presenter also made the point that very little information is truly confidential, and that the best way to resolve issues and collaboratively improve supply chain performance is to put everything on the table. Share all relevant information with your partners, and give them anything else they ask for if it will help them help you. This isn’t saying that you should publish all your corporate information on your web site, you can always enter into two-way information protection agreements, but that you should not hold back in sharing with a partner trying to make your operations better.

Note that eyefortransport’s sister organization, eyeforprocurement has a number of upcoming events next year custom designed for today’s procurement professionals, including the Supplier Management Forum next April in Miami. Registrations received before year’s end save $400 off of the regular registration rate and those who quote “sourcing innovation” in the discount code field save an additional $100.

On the Third Day of X-Mas (Emotional Intelligence)

On the third day of X-Mas
my blogger gave to me
tri-focal lens,
two boxing gloves,
and a lesson in strategy.

When coming up with a good strategy for your supply chain, you first need to understand that there will always be three views of the best decision, the procurement view, the logistics view, and the executive view. Your number one challenge could easily be the transformation of these viewpoints to a common viewpoint that permits a common solution.

This will probably require a lot of good negotiating skills, good listening skills, and innovative problem solving skills to propose designs and solutions that can appease everyone’s desires. This is where Jason’s “Emotional Intelligence”* (on Spend Matters [WayBackMachine]) really comes into play. You have to see their viewpoints, understand their perceived problems, get to the real issue, and come up with solutions that can meet your needs and theirs.

Management will want the solution with the perceived lowest cost or highest profit, or both, logistics will want the solution that makes their life easiest, and you should want the solution that meets the needs of your stakeholders – engineering, marketing, etc. – while keeping your costs down. A narrow focus on lowest cost can lead to quality issues, a narrow focus on the easiest solution (local sourcing enabled by a national carrier that can meet all of your shipping needs) can overlook lower cost or higher quality sources of supply, and a narrow focus on minimally meeting your shareholder’s needs in a cost-controlled manner can overlook opportunities for innovation.

So not only do you need to be able to understand each of these viewpoints, you need to be able to see their strengths and weaknesses so that your team can collaboratively design an over-arching supply chain strategy that exploits all of the supply chain strengths available to you while blocking out the potential weaknesses.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

On the Second Day of X-Mas (Market Intelligence)

On the second day of X-Mas
my blogger gave to me
two boxing gloves
and a lesson in strategy.

In the Autumn issue of CPO Agenda, you will find the article Raw nerve by Richard May which indicates that sometimes a tough response is required when suppliers demand raw material price increases. Sometimes there are reasonable justifications for the request, but sometimes the justifications are not warranted. If you remember my post on The Internet & the Purchasing Knowledge Revolution, or Charles’ recent insights on Supply Excellence [WayBackMachine] on “Caveat Emptor: Economic Indices Could Be Misleading You” and “Supply Market Assessment 101” you might recall that a single commodity index alone does not justify a price increase.

You need to know where the supplier is buying from, the relevant cost indices of the raw materials in those regions, the relevant exchange rate between your supplier’s supplier and your supplier, it’s expected stability, the relevant exchange rate between your supplier and you, and it’s expected stability. An increase in the steel index in the U.S. is irrelevant if your supplier buys its steel in China. Also, the cost increase in a commodity can often be offset by a recent currency devaluation. Therefore, the first defense you have against a commodity increase is a deep understanding of your should-cost structure, including that of your supplier. It’s your first boxing glove.

Your second boxing glove is a good strategic sourcing process that you can use to find an alternative source of supply, enabled by a cross-functional team that will allow you to quickly and efficiently work through the process. If there are genuine reasons for a cost increase, but your supplier refuses to collaborate to keep costs down for both parties, sometimes you need to find an alternate source of supply.

On the First Day of X-Mas (Strategic Sourcing Strategy)

On the first day of X-Mas
my blogger gave to me
a lesson in strategy.

Everything should be strategically sourced.

As I’ve indicated before, this does not mean that you should apply an intense multi-stage strategic sourcing effort on everything you buy, just that you should have a strategy for dealing with every category – since that’s the key to success across the board.

Where do you start? One method would be to create a nine-cell grid that divided your purchases into direct goods, outsourced services, and indirect / MRO along one axis and strategic, non-strategic but custom / non-commodity, and commodity along the other axis and then assign a default strategy for each grid cell.

For example:

Direct Outsourced Services Indirect / MRO
Strategic Collaboration with a small set of strategic suppliers Dedicated Contract Owner Collaboration with a best-in class provider for each category of services
Custom Decision Optimization on a Pre-Qualified Set of Suppliers Managed by a Strategic Outsourcing Provider Managed by a Senior Sourcing Professional
Commodity Reverse Auction Multi-Stage RFX Lowest Bid

Another method would be the one described in Detail in Next Level Purchasing’s (now the NLPA, part of Certitrek) course “Savings Strategy Development” that I reviewed last week. At a high level, NLP recommends segregating opportunities into quick hit opportunities (which can generally be executed rapidly using best-practiced based eSourcing tools), supplier relationship / collaboration opportunities, and strategic sourcing opportunities, which can be attacked using NLP’s 10 phase approach to world class sourcing. The course is worth it for the details on these segmentation and detailed sourcing methodologies alone. ( Maybe I should be asking for referral fees. )

I’m personally not sure what the best methodology for you is, but what I have personally found is that the existence of a methodology is sometimes much more important than the actual methodology itself – and that the best methodology is usually one based on a best-practice methodology that has worked well for others, tweaked to your own needs. So if you don’t have a methodology and a coherent across-the-board strategy for your procurement organization – get one, it will enable more success than any tool ever will – since it will tell you where to apply the tool for maximum return.

And yes, I know the Christian twelve days of Christmas traditionally start on Christmas day, but this is the twelve days of X-Mas. Moreover, do you really want to be reading a series of posts that start on Christmas Day?