Stop Hoarding and Invest In Your Supply Chain

By now you might think SI is a broken record, since this is the third day in a row it has complained about the fact that the “Global 2000” are hoarding cash like it’s never to be seen again, but when even Forbes.com decides companies are hoarding too much cash, as per its recent article on how cash isn’t king, this should drive the point home.

And the situation is even worse than Financial Director and Hackett reported. According to a recent Forbes article, the Federal Reserve reported in June that U.S. businesses were saving cash at unprecedented levels, with balances climbing to 1.9 Trillion! That’s 2.23 times the cash reserves of the top 1000. If the situation is the same in Europe, cash reserves must be topping 1.6 Trillion Euros (or 2.16 Trillion US). That’s an estimated 4 Trillion in cash reserves! To put this in perspective, this is 100 Million jobs for one year at the average US salary, and unemployment is roughly 74.7 Million across the US and the EU. Get the picture?

Now, saving for a rainy day sometimes makes sense, but when you start saving to the point where even your investors are concerned that cash is not being put to work earning a reasonable return, not only are you helping to tank the economy, but you are biting the hand that feeds. And given that, due to the lack of innovation and planning, which is largely due to the lack of manpower to do innovation and planning, your transportation costs are about to soar, your commodity costs are rising across the board, and your current talent pool is overworked, unhappy, and ready to change jobs as soon as the next better offer comes along (with job satisfaction at an all time low), how much longer can you really afford not to invest in new talent and new technology to help them innovate your way to a better future?

Then, as the Forbes article points out, as the ever increasing gap between high-quality borrowers (you) and low quality borrowers (your cash-poor suppliers) widens, more and more of your suppliers will experience cash flow issues (as you are not only hoarding all your cash, but borrowing from limited funding reserves to do so). This will lead some into bankruptcy and failure, which will create disruptions in the supply chain that will disrupt your operations and cost you sales and brand equity and, in the end, time and resources to regain your customers’ trust. But all of this can be prevented by investing into your supply chain up front. It’s your choice. Spend and profit. Or hoard and lose.

High Definition Adoption Measurement Part IV

Today’s guest post is from John Shaw (Senior Director, Adoption Services) of BravoSolution, a leading provider of spend analysis, (e-)sourcing, supplier performance management (SPM) and healthcare sourcing solutions and a sponsor of Sourcing Innovation (SI). It is the fourth of an eight (8) part series, which, when complete, will form a white-paper that BravoSolution will be releasing to the general populace next Wednesday.

Yesterday’s post (Part III) discussed the concept of adoption from 30,000 feet and how this typical view is both useful and useless from an adoption perspective. While it is usually directionally accurate and good for identifying low-hanging fruit, it typically does not indicate if supplier value is increasing, transparency is improving, or efficiency intensifying. For that, more visibility is needed.

 

Today’s post will provide an example to illustrate this claim.

Company A: Measuring Supplier Value

So let’s go deeper into the challenges of each of our example companies. Company A is a global manufacturer who has been using their e-Sourcing tool for some time. At the 30,000-foot view the project appears to be progressing nicely. However, a key question that is important to Company A remains unanswered: “Are users using the system in a way that helps them to maximize supplier value?”

In order to answer this question, we must first understand what system behaviours drive supplier value. If we start simply, we can conclude that an event should have some basic characteristics:

  • Supplier Participation:
    Maximizing qualified suppliers generally increases award quality.
  • Event Structure:
    Well structured events facilitate a better understanding of supplier capabilities.
  • Spend Value:
    Managing greater volumes of spend increases potential event value.

Next, we create simple measures at the User and Category level. This becomes our “10,000-foot view”. We are drilling deeper into the current situation and finding our next layer of adoption improvement opportunities.

Using this level of data we can now begin to look deeper into understanding how system activity is correlating to our business objectives.

By creating a few simple metrics for each of our basic event characteristics we can see the symptoms of poor adoption emerge.

Symptoms of poor adoption.
These patterns become a roadmap of improvement activities for the Adoption Team to explore. Notice on the chart below that Adoption Team activities typically start with an interview and continually ask more questions!

Part V will discuss the importance of understanding the category impact and its implications for the transition to high definition adoption measurement.

Is Good Corporate Citizenship At An All Time Low?

In yesterday’s post we noted that “working capital has bounced back” in Europe and that Europe’s biggest companies have seen the most significant revenue growth in five years. We also noted that, at the same time, these same companies are hoarding their cash and, in many cases, borrowing to do so, while smaller companies remain starved for capital and unemployment remains near 10% in the EU. And SI stated that this is, in its view, disgusting. A lack of jobs is resulting in significantly reduced spending across the board because the people out of work can’t spend while the rest of the people are fearing that they are next on the chopping block given that it’s been all bad news in the job market for a few years now. This reduced spending has significantly contributed to the global economic decline which has brought entire countries to the brink of defaulting on their (sovereign) debt.

Now, as per this recent article over on BNet on how “bad corporate management is killing the economy”, we find out, from a recent study by CFO Magazine and REL (a division of The Hackett Group), the thousand largest companies in the US are sitting on cash reserves of 853 Billion. Given the relative equality between the power, and cash position, of US and European multinationals these days, it’s probably a safe bet to say that the Global 2000 is probably sitting on 1.5 Trillion in cash reserves. Now, while it may be true that this is likely not enough to solve the economic crises of the world, given that the US National Debt is almost 15 Trillion, we have to remember that there are only 11 countries in the world with a GDP greater than 1.5 Trillion. We also have to remember that the national average wage in the US is slightly under 41 K, and that this means that these companies could collectively employ another 36.5M people for one year without going into debt. To put this in perspective, at the current published unemployment rates, there are only 27.9 M unemployed people in the US and 46.8 M unemployed people in the EU. That means half of the unemployed people could be working at the top 2,000 corporations in the US and the EU. This would give effective unemployment rates of 4.5 and 4.8 in the US and the EU. The last time the unemployment rate dropped below 4.6 in the US was back in 2000, and the economy was booming.

So while it’s not an absolute that corporations can fix the economy, it should be pretty clear that the author is right and that big corporations are killing the economy when they could be the economic saviours. Instead of hoarding cash, they should be focussed on innovation and hiring bodies to propel that innovation forward. That’s how you print money in a knowledge economy, and with the current state of affairs in most public sectors and banks around the world, they are the only organization left with a license to print cash. But they have to be willing to use it.

High Definition Adoption Measurement Part III

Today’s guest post is from John Shaw (Senior Director, Adoption Services) of BravoSolution, a leading provider of spend analysis, (e-)sourcing, supplier performance management (SPM) and healthcare sourcing solutions and a sponsor of Sourcing Innovation (SI). It is the third of an eight (8) part series, which, when complete, will form a white-paper that BravoSolution will be releasing to the general populace next Wednesday.

Yesterday’s post (Part II) introduced us to High Definition Adoption Measurement (HDAM) and framed the solution in the context of e-Sourcing, which presents a common complex adoption challenge.

 

Today’s post addresses the typical view from 30,000 feet and how it leaves something to be desired.

Adoption from 30,000 Feet:

The report below highlights what appears to be a very successful Go-Live followed by a year of continual growth of system usage. This is the 30,000-foot view and it should answer some very fundamental questions like:

  • “Have we trained everyone?“
  • “How many of our Souring Events are going through the system?“
  • “Is usage increasing according to plan?“

A view of adoption from 30,000 feet.
These 30,000-foot views are useful. The report could apply to any of our three (3) companies and might be presented at an executive level as evidence of a successful first year of rollout. In this example, it seems our companies are generally moving in the right direction. If we saw problems at this level, we could easily identify the low hanging adoption fruit to pursue.

But if we reflect back upon the business case of each of our example companies, this view does not really tell us much on how any of them are progressing in increasing supplier value, maintaining transparency or increasing efficiency.

Take the following “unknown issues” common in e-Sourcing organizations. Each issue is counter-productive to the organization’s goals, but is not evident on the report:

What you don't see at 30,000 feet.
These examples are the tip of the iceberg. They illustrate how users can appear at a 30,000-foot level to be using a system correctly but also how that 30,000-foot view can be deceptive. When this occurs to your organization, the results are simple. Your organization isn’t realizing the full ROI that you set out to achieve and the Adoption Team doesn’t have visibility into the problems they need to fix.

Part IV will provide an example case study that describes some of the adoption challenges at a global manufacturer.

Working Capital in Europe is at an All Time High

But yet, so is unemployment. What’s the deal? According to this recent article over on the Financial Director site (in the UK), on how “working capital bounces back”, Europe’s biggest companies have seen the most significant revenue growth in five years. However, these same companies are hoarding their cash and, in many cases, borrowing to do so, while smaller companies remain starved for capital and unemployment remains near 10%.

This is, in a word, disgusting. As SI posted last Thursday, you get nothing for nothing, so if all your company is doing is hoarding cash instead of spending it on talent and innovation, it doesn’t, at least in SI’s view, have a very bright future. Especially given the overall state of the European economy with entire countries risking default on debt. While SI doesn’t know exactly how much cash the 1000 largest Europe-headquartered public companies are hoarding, SI is sure that it’s enough to make quite a dent in the unemployment wake and economic stability of the EU — something that would be very good for global supply chains that probably can’t afford more costly hits from economic instability and the rising prices that such instability entails.