To Maximize Value, Don’t Overlook Tail Spend

A recent article in the Sourcing Interests Group Newsletter on “understanding tail-spend management” noted that while ROI for tail spend categories will generally be lower than for core categories, those companies that keep their eye on the efficiency/effectiveness equation and approach tail-spend intelligently can still find significant savings that make the effort worth while. So how does an organization properly approach tail spend, which:

  • rarely includes direct materials
  • contains a disproportionately high percentage of spend from the furthest-flung subsidiaries
  • contains suppliers that no one in procurement has heard of
  • contains large percentages of non-compliance and maverick spend

Intelligently. And iteratively. Data must constantly be reviewed in the light of changing business requirements to determine the best course of action using the following process:

  1. Spend Analysis
    Focus in on the tail-spend data and figure out what is being bought, from whom, where, and for how much compared to market value.
  2. Filtering
    Focus on commodities that can be reclassified into a category that will have enough spend to be worthwhile.
  3. Sourcing Strategy
    Once the category with the biggest opportunity has been identified, determine the right sourcing approach. If a sourcing project is the right approach, accelerate it with standardized templates, RFX, and/or auctions.
  4. Spot Buy
    If the right strategy is to spot-buy in a weak market, then aggregate demand across the organization and spot-buy through e-RFX or automated auctions.
  5. P2P
    And, regardless of the right sourcing strategy, drive as much spend onto technology platforms, like P-cards, so that it can be tracked and analyzed.

And, most importantly,

  • use procurement technology
  • simplify processes and increase controls
  • establish resources and manage performance

Talent Development: A Litmus Test

A recent post on the SCMR blogs by Robert Rudzki on “Talent Development” provided a great litmus test for determining whether or not your organization has what it takes to achieve the next level, which requires top-notch talent.

Bob provides an 8-point litmus test which includes the following key points:

  • Has the company’s strategy and objectives been translated into the required skills and competencies for the supply management organization?
    Talent cannot be developed appropriately if the organization does not even know what skills and competencies its talent needs to have.
  • Has a curriculum of development opportunities being created and made available to all personnel?
    It’s going to be hard to get talent interested in development if they are not even aware of the opportunities available to them.
  • Has a time budget been established?
    Talent development takes time. Time must be allocated for talent to train and develop, and such training and development must be mandatory, not optional.
  • Has a career ladder been established and communicated?
    If the organization wants talent to apply themselves and reach the next level, the talent must see a reason for doing so. If talent does not think they will get a reward for their effort, they will not see a reason for doing it.

Sustainability Requires More Than High Level Planning Guidelines

A recent article in Supply & Demand Chain Executive on how “CEOs pursue business opportunities where corporate and societal priorities converge”, summarized a recent Accenture study that noted how many CEOs are looking for sustainable profitability and ways to create value in line with societal goals.

The article, which noted that the Accenture study found that

  • 70% of CEOs realize that Sustainable Value Creation strategies must be evaluated using different criteria than traditional opportunities due to the longer time horizon required to generate returns and
  • 91% of CEOs face difficulties in identifying societal issues that link to competitive advantage and in measuring the societal and business performance of ‘sustainable’ initiatives

is promising in that it indicates that CEOs are now open to strategies that create value in a sustainable manner, but disappointing in that the five implementation imperatives to help companies create sustainable value that it summarizes are reduced to the point that they are nothing more than fluff that will result in the creation of bad strategy in your average organization.

Consider the following pieces of advice:

  1. Recognize the Opportunity
    This is obvious. If the organization does not understand that it should be sustainable and conscious of societal desires, it’s not going to even go down the sustainable path.
  2. Recalibrate Your Radar
    If the organization doesn’t change the way it thinks, then it’s not going to seriously consider sustainable strategies. Also obvious.
  3. Research, Develop, Repeat
    A good strategy does evolve over time. An organization that doesn’t realize this gets left behind. But stating fact is not helpful.
  4. Rewire the Organization
    Sustainable strategies do often require a different modus operandi. It’s not business as usual to go sustainable.
  5. Reinforce the Value
    The CEO must take a leadership role. But that’s true of any initiative.

They are not likely to produce good strategy. Why?

  1. They do not address the fact that the organization must also recognize the challenge to be overcome.
  2. They do not address the fact that the organization first has to understand what sustainable means. Otherwise, the radar can’t be recalibrated.
  3. They do not indicate what the measures are that will indicate success.
  4. They do not address How? It’s difficult to successfully engineer massive organizational change.
  5. They do not address how the CEO reinforces this value vs. other organizational values.

Organizations need lots of help, and lots of depth, to get sustainable. High level fluff is not going to help them.

There’s More To Risk Than Natural Disasters

As per this recent article in Industry Week on how “manufacturers must brace for global uncertainty and risk”, the following, entirely predictable, events can be just as devastating to an organization’s supply chain if not planned for.

  • Rapid Growth
    What if sales double overnight? Can the supply chain keep up?
  • Facility Expansion / Opening
    Can the organization ramp up supply, staff, and logistics fast enough to maintain productivity levels?
  • Massive Churn in Product Offerings
    If the organization has to continually offer new versions of products, or rapidly expand its product offerings, can the supply chain adapt quickly enough?
  • New Customers that Account for Double-Digit Percentage Volume
    Can the supply chain keep up? Can it provide any new services that will be required at the agreed upon service levels?
  • Substantial Changes in the Supplier Base
    If current suppliers go out of business, can new suppliers be incorporated into the supply chain fast enough? Will new suppliers be able to meet demand? If new suppliers enter the space, will the organization be able to identify them and take advantage of new technologies they offer?
  • New IT Systems
    A failed IT implementation can bring down a multi-billion dollar company. A poor IT implementation can cost millions and stop production in its tracks. It’s rare occurence when an IT system upgrade doesn’t result in at least some downtime. IT system implementations and upgrades need to be planned for carefully.

So, if your Supply Management organization is not yet thinking about risk on a daily basis, maybe it should be.

Can Your Supply Management Organization Spot Bad Strategy?

As per this recent article on “the perils of bad strategy”, a good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them. It embodies the hallmarks of Admiral Horatio Nelson’s victory against the French and Spanish armada in 1805 where, outnumbered and outgunned, he prevailed against the enemy fleet without losing a single ship.

In comparison, bad strategy, which is often without focus, accommodates a multitude of conflicting demands and interests. It covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values which are no substitute for hard work and good strategy. A good strategy is like a good brand. It makes an impact. It encourages a specific action, or set of actions, towards a specific goal. Stakeholders, customers, and market analysts love it or hate it. It is not another same-old, same-old slogan-based market statement that is heard today, forgotten tomorrow.

So how do you spot bad strategy? The McKinsey article on “the perils of bad strategy”, you look for the following hallmarks.

  • Failure to Face the Problem
    A strategy is a response to a challenge. There can be no strategy until the challenge is defined. If the real issue is not defined, the strategy will not work. For example, if labor relations are bad, new equipment will not improve productivity. If manufacturing costs are high, increasing sales will not increase profit margins.
  • Mistaking Goals for Strategy
    Audacious goals are great, but will never be achieved unless the company can identify a point of leverage to achieve that goal. An organization can only compete if it has a competitive advantage. It’s not just a push to succeed, it’s creating the conditions that will make the push effective.
  • Bad Strategic Objectives
    Strategic objectives cannot be fuzzy. They must be clearly defined. They can’t be blue sky. And they can’t be long lists of things to do. Good strategy works by focussing energy or resources on a select few pivotal objectives whose accomplishment should lead to a cascade of favourable outcomes. If the strategy doesn’t do this, it’s likely bad strategy.
  • Fluff
    If the strategy is nothing more than a restatement of the obvious, combined with a generous sprinkling of buzzwords, with no original thought, it’s bad strategy.

Your organization doesn’t have a bad strategy. It has a choice. Can your supply management organization make it?