Where Should Your Supply Management Organization Be Located? Part II: The Talent Factor

Yesterday’s post began the discussion of where a better-than-average Supply Management organization on the path to becoming a world-class Supply Management organization should locate its new Centre of Excellence (COE) for its new centre-led Supply Management organization. We discussed the traditional factors of customer proximity, supplier proximity, business incentives, infrastructure, and the local talent pool and ended up demonstrating that the only thing that really matters is the local talent pool. This is because it is the people, not the process or the technology, that ultimately identify and drive the results, and without good people, the best process and technology in the world won’t take your organization where you want it to go.

So this brings us to the next logical question — where are the people you need to power your Supply Management Centre of Excellence? To try to answer this question, we’ll turn to the work of Richard Florida, as chronicled in Who’s Your City, who attempted to put together a book that would help people decide where they should live. And since you have to go where your talent is, wherever your talent is [going is] where you should be.

The first thing one has to realize is, despite claims that the world is flat and that talent is evenly distributed, today’s key economic factors — talent, innovation, and creativity — are not distributed evenly across the global economy. They concentrate in specific locations. It’s obvious how major new innovations in communications and transportation allow economic activity to spread out all over the world. What’s less obvious is the incredible power of what Richard calls the clustering force. In today’s creative economy, the real source of economic growth comes form the clustering and concentration of talented and productive people. New ideas are generated and our productivity increases when talented individuals locate close to one another in cities and regions.

Despite the recent flat-world hypothesis put forward by Thomas Friedman, we still see the explosive growth of cities and urban areas worldwide. More and more people are clustering in urban areas — and there’s no evidence to suggest that they’ll be stopping anytime soon. In 200 years, the number of people living in cities has increased from 3% to over 50%, and the urban population is still rising. So, as you already knew, you definitely want to be in a major urban area, but the question is, which one?

A key requirement is talent, but what kind of talent? Supply Management requires a special kind of talented individual who harbours a wide range of hard and soft skills, that complement her high IQ and EQ, who works well with people across cultures, and who has the creative insight to find opportunities others miss. This eliminates your average city from the equation. Furthermore, your average city will not have the creativeness, innovation, or economic activity required to continue to attract top talent.

Which city will? In our next post we will discuss the requirements for such a city.

Where Should Your Supply Management Organization Be Located? Part I: Factors

Chances are, if your organization is a better-than-average Supply Management organization on the path to becoming a world-class Supply Management organization, then it is in the process of moving from a centralized to centre-led organization — and in the process of trying to figure out where to locate the centre of excellence (CEO). It’s a tough decision. Chances are the organization has identified the following factors as important in location selection:

  • customer location
    the organization should be close to its customers
  • supplier location
    the organization should be close to its suppliers
  • business incentives
    the location should provide some business advantages over other locations
  • infrastructure
    there should be a good infrastructure (in terms of utilities, business support, and personal services for the employees) to support the organization
  • the local talent pool
    there should be a good mix of talent to draw from

And on the surface, these sound like good selection criteria. However, for an organization on the path to world class centre-led Supply Management excellence, only one of these factors really matters. Can you guess which one?

Let’s take them one by one, starting with customer location. The organization should be close to its customers, but this doesn’t mean Supply Management has to be. Sales and support should be close, because they interact with the customer on a daily basis, but Supply Management can be half a world away as long as they take the time to consult with a customer focus group periodically to find out what needs are emerging and with sales and support regularly to find out if the current customer needs are being met with the current products and services being sourced.

Similarly, while the organization should desire to be close to its suppliers, generally speaking, it’s more important for the manufacturing organizations to be close to the raw material and component suppliers, as this minimizes shipment time and lead-time requirements when a spike in sales requires a corresponding spike in production or a quality issue or supply interruption requires a quick shipment replacement (from a different supplier). Plus, your suppliers today may not be your suppliers tomorrow and some are unlikely to be your suppliers in three to five years with constantly shifting market conditions and organizational needs. Thus, any attempt to locate near suppliers (unless, of course, your organization is a significant shareholder of a supplier and it’s part of the organizational strategic plan to take a strategic interest in the supplier for the long term) is likely futile.

Business incentives sound like a great idea, until you realize that any incentive on tax reduction is probably not going to result in any savings as most taxes are based on the (country) headquarters location. Similarly, any reduction on payroll taxes is going to be minimal as Supply Management tends not to the anywhere close to the largest division in the organization. And any one-time start-up grants that may be offered are going to pale in comparison to the savings a good Supply Management organization is going to deliver. So, from a Supply Management perspective, business incentives are rather irrelevant.

This takes us to infrastructure. This is somewhat important, but nowhere near as important as it is for the placement of a manufacturing facility. It’s not like a Supply Management organization requires 3-phase 480-Volt power, hundreds of thousands of gallons of water each day, or a thousand telephone lines coming in. The only thing it requires is decent phone service and good bandwidth so its people can collaborate in real time with their colleagues around the world. And these days, you can get decent bandwidth in just about any city, so infrastructure is only a minor concern.

This leaves us with talent, and this is the one factor that really matters. You can take the doctor‘s advice and get the best technology available, and manage the implementation using the best transition process that change management gurus can provide, but without talent to properly use the technology or implement the transition, it will all be for nought. Processes and systems don’t find savings, people find savings, implement the changes to capture those savings, track those savings, and ensure that those savings are delivered. This says that you need a good talent pool available to you. While a few top-notch people may be willing to relocate to your chosen centre for the experience, and a few more new hires might be willing to move for a chance to rise rapidly through the ranks, most people won’t move just anywhere for a job — no matter how good that job is. Consider the findings of Professor Richard Florida, as chronicled in Who’s Your City, when he asked his students if they would move anywhere for a great job. While most initially said yes, diving deeper into the answer (by asking if they would move to a place like Des Moines, Iowa), we find that most people would not be willing to move just anywhere. Most people who say they will consider moving anywhere in fact mean they will consider moving to any big city with lots of opportunity or a growing city where they have lots of connections. This means if you don’t already have a talent pool locally, you’re not likely to attract one.

So where should you locate your new centre-led Supply Management organization? Using talent as our indicator, we’ll discuss that in detail in Part II.

If You Do Not Get Sustainable Results, Blame Yourself!

Let’s Talk!

It’s deja vu all over again!

Robert Rudzki is not the only blogger and consultant to recently hear that a potential client had, just a few years ago, hired a large consulting firm to do a high-profile “strategic sourcing program” with nothing sustainable to show for it, as he indicated in his recent SCMR blog post on Deja vu all over again. I’ve heard the same sentiments echoed to me by a number of consultants at a number of small and mid-size niche and specialty services and software providers in the e-Sourcing & Supply Management space in recent months.

It would appear that a common trend last time money flowed into laggard Supply Management organizations before the recent downturn was to simply hire a Big-X consulting firm to fast track the organization to strategic sourcing success. While this is a great way to fast-track a project, and a contract, that is expected to result in significant savings, the only thing that is fast-tracked from a finance perspective is payment to the consulting firm that runs all the way to the bank! As leading Supply Management professionals know, a contract does not guarantee savings. The only way to achieve savings is to execute against the contract and make sure savings are realized. Just because you have a new contract that allows you to source widgets at $8 a pop, instead of $10 a pop, this doesn’t mean you are going to save $200,000 on your annual purchase of 100,000 widgets. For the savings to materialize, all of the following has to happen:

  • the buyer has to place the order with the contract supplier
  • within the contracted lead-time and the supplier
  • has to ship on time
  • using the approved carrier and shipping arrangement
  • and pay all required third party and government export fees
  • and file all appropriate paperwork at the same time your organization, or a 3PL acting on your behalf,
  • files all of the appropriate import and compliance paperwork
  • and pays any associated duties to make sure that
  • the product arrives at the warehouse when its supposed to
  • where it is received, inventoried, and appropriately stored which results in
  • an invoice being accepted and verified against the contracted rates and
  • paid at the appropriate time only when all goods are received and verified as acceptable.

Simply put, if

  • the order is placed with the wrong supplier
  • or placed late and the order has to be expedited
  • or shipped late and a different shipping method has to be used
  • or export documents are not filed on time
  • or fees are not paid and fines are issued
  • or import documents are not filed on time
  • or taxes are not paid and fines are issued
  • or the product is not properly inventoried or stored and can’t be found and unnecessary replacements
    need to be ordered
  • or the invoice is not verified and the old rate is still being charged
  • or the invoice is paid late and a penalty is applied

then those (significant) savings negotiated on your behalf go out the window. And you’re not going to get them back! First of all, once they’re gone, they’re gone. Secondly, because you weren’t actively involved in the project and didn’t insure that the knowledge that you required to achieve a sustainable transformation was transferred, you’re not going to be able to keep costs down when you renegotiate the contract in this economy where supply is tightening and costs are rising. So you’ll pay even more, even if the rate should stay almost flat.

In order to get results, you have to work with the consultants to understand the strategic sourcing process, the strategies applicable to your organization, the goals of each individual project, the savings opportunities in each project, the key contract terms, the changes that need to be made to capture the savings and adhere to each
contract term, the key metrics, the measurements that need to be made regularly, and the warning signs that something is happening / has happened that could jeopardize the savings the organization expects. Failure to do any of this is a sure-fire way of making sure that nothing changes and that your organization continues to leave money on the table.

In short, if your organization continues to be one of those organizations that leaves up to 40% of the contract value on the table because you did not do all of the above, don’t blame the service provider unless you did all of the above. As Charles, Bill, and Bob said in their recent books on The Procurement Game Plan, Managing Indirect Spend, and Next Level Supply Management Excellence, success is your responsibility and you have to actively manage your service providers and make sure that the knowledge required for a sustainable transformation is transferred to you.

A Digital Transformation Requires At Least Five Critical Factors, Not Three!

A recent article over on Chief Executive on Digital Transformation that asked “[If] CEOs [are] ready for the Challenge?” caught my attention. And it kept it when it said less than 20% of the companies surveyed are truly reshaping their businesses for digital and many are only partially fulfilling their potential because, as a technophile, I know this to be all too true.

But I screamed NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO with @rantinggirl when I read that you need three factors in place — top-down vision, clear governance and investment — to deliver a true transformation. While these factors are a necessary condition, they are not a sufficient condition, and if all you have is vision, a governance model, and the willingness to invest current resources into the problem, then you should pack it in now as your days as an organization are numbered.

You see, a successful digital transformation requires at least the following Five Critical Factors:

  1. Top-Down Vision
    that emanates from, is communicated by, and is embraced by the top
  2. Clear Governance
    that consistently communicates and enforces the vision, ensures the allocated resources are directed towards the effort, and that keeps the vision on track when fires threaten to cloud the business with smoke or people want to return to the old ways
  3. Investment
    in resources and dollars, as money will need to be spent requiring the right infrastructure
  4. Technologically Adept Talent
    since going digital requires being digital
  5. Transition Commitment
    since there will always be those that fight the transformation and, more importantly, since some of these resources may not be able, or willing, to adopt to the new way of doing business and have to be let go

Anything less is like skydiving without a properly packed parachute. You had a clear vision of jumping out of the plane, you invested in the plane, and you convinced the pilot to take off, but you forgot about the nature of the landing and that if the chute doesn’t properly deploy, you’ll be hitting the ground at 195 km/h (or 122 mph) — without much chance of survival. Mr. Boole may have survived, but chances are you’ll end up like the skydivers on CSI.

As the article points out, the transformation journey is full of roadblocks, including organizational skill gaps, culture, and legacy IT (that is more antisocial than your average arrogant PhD, and I should know).