Lessons Learned from Best-in-Class, Part V

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

21. Make people a priority
Sourcing Innovation has already established that talent management is a top priority, and that must start with making people a priority. They must be supported, empowered, recognized, and rewarded appropriately as they are the most vital part of the Procurement organization. After all, results require more than processes and technologies, they require intelligent and creative people driving them.

22. Move to One System
Larry Ellison has always known the power of One. That’s why Oracle was one of the first companies to have the enterprise system vision as it is impossible to get more leveraged than one system across your entire enterprise.

If the organization has one system, then it has one transaction store. If it has one transaction store, then even the most unsophisticated transaction processor can easily do highly accurate and levaregeable spend analysis and spend forecasting at any time.

If the organization has one system, then it has one maintenance contract and one head to roll if something goes wrong. No worries about the endless finger pointing and blame games between two (or more vendors) refusing to admit fault when they should be getting it fixed.

In other words, the fewer systems the organization has, the more the organization can leverage its IT model, which is often a key to success.

23. Never forget the value add
Just like a consumer will always prefer the product from the manufacturer with a great warranty and a great service record if everything else is equal, the internal business partner will always prefer the Procurement organization that goes the extra mile to deliver more value. To insure that the Procurement organization, and not a GPO, outsourced / shared services center, or consulting / vendor organization is seen as the go-to organization when needs and challenges arise, the organization constantly has to add value, otherwise the Marketing department might be swayed the next time a specialist consultancy calls up and explains how they just saved the competition 30% in their advertising budget.

24. No matter the value delivered, it is never enough
It’s a great success that Procurement managed to get the customer free maintenance for two years in their IT buy, or a few weeks of free lean training from the consulting organization that is designing the new plant, or managed logistics for their retail distribution channel, but it’s not enough. The internal customers of the Procurement organization will always expect more, and to continue to be seen as the go-to organization, Procurement will have to find new ways to constantly delier more value every time it re-sources a category or undertakes a major new project for the organization.

25. No matter how small the fee is, it is never small enough
This is especially true if the Procurement organization is based in a (global) shared services organization and is forced to charge-back the organizational units for its services. Even if it saves the Marketing organization 10 Million dollars, they’ll still bicker over the 500 Thousand support bill (that will barely cover the personnel and systems cost) despite the 20:1 ROI. Procurement will have to find ways to constantly lower costs internally or add value externally and raise the ROI, be it hard or soft, over time to maintain credibility and gain influence.


Our next post will continue our overview of the lessons learned that were shared by some of the participants at this year’s Hackett Best Practices conference.

Some Ideas for Reducing Transport Costs from Rising Fuel Prices from Supply Chain Digest

A recent piece over on Supply Chain Digest had some ideas for reducing transport costs given rising fuel prices from strategic, tactical, and operational viewpoints that is worth a review by anyone moving product from point A to point B. While most of the suggestions will be top of mind for most transportation managers, I’m sure there will be a few that are overlooked and worth remembering. Some of the more valuable ideas were:

Strategic

  • tradeoff inventory for transportation as low cost warehousing at TL (truckload) may be cheaper than JIT (just-in-time) at LTL (less-than-truckload)
  • centralize transportation planning
  • invest in a network optimization tool

Tactical

  • reduce packaging to minimal levels when shipping air
  • plug in rail/intermodal options into the TMS
  • manage inbound and outbound freight

Operational

  • optimize pallets and trailer cubes
  • insure shippers are compliant with the routing guide
  • avoid expedited shipping unless its a true emergency

Where is Global Trade’s Groove?

A recent headline over on the World Trade Magazine site that asked whether or not global trade still has its groove got my attention because, even though the global economy tanked from 2008 to 2010, a lot of leading companies are focussed on accelerating the development of Global Business Services centers (which was one of the foci of the recent Hackett Group Best Practices conference) in order to take advantage of lower labour rates in other parts of the world. Plus, I haven’t seen any drop in services outsourcing to India or product manufacturing outsourcing to China. And there has been a resurgence in interest (though not necessarily much in the way of action yet) in moving or creating new manufacturing locations in Mexico and Brazil by US (and even European) companies. So while Global Trade may not have grown as fast as we were predicting back in 2008 before the global recession, it does not appear to have taken any backwards steps by any stretch of the imagination.

Nevertheless, it’s always good to check the pulse. The article addressed the question from a risk, optimism, and emerging market viewpoint.

Risk
The eruption of Eyjafjallajokull in Iceland, the disaster in Japan, and the political upheavals in Egypt, Libya, Bahrain, Algeria, and even Albania are placing risk front and center in the Supply Management landscape. Plus, the consistently high price of oil, which could go even higher due to the instability of oil-exporting countries, puts global sourcing of certain goods at risk as the cost of transportation could soon make some global buys unaffordable. In addition, as more of the household budget goes towards fuel, consumers will have to spend less on unnecessary consumer goods. Then we have price increases across certain categories of raw materials as countries like China implement quotas on rare earth metals and create global supply constraints.

Optimism
The article has an interesting quote from Carlos Rice, Vice President of Supply Chain Services for Crowley Logistics who says that we’ve seen an upturn in the economy recently and we are watching the emergence of new markets — not only in India and greater China — but closer to home in Central and South America. What is happening with Brazil’s economy today is almost unprecedented. So, we see lots of opportunities not just east-to-west, but also north-to-south as well. Plus, there has been continuous growth in the trans-Pacific and Asia-to-Europe markets for some logistics carriers, balance is returning to many global trade lanes, and some carriers are seeing up to 20% growth in logistics to emerging markets that are creating a consistent demand for commodities. The expectation is that container trade will be at upper single-digit growth as a whole.

Emerging Markets
Adrian Gonzalez, director of Logistics Viewpoints, notes that the traditional economic powers like the U.S., Japan, China, and Germany are all looking at other developing areas as opportunities for future growth and you see these countries starting out first as sources of low-cost labor in much the same way as China began its development. Then you see the development of a middle class that begins buying products. And we have the situation where countries like China and India are now able to grow and thrive independently of richer countries. In fact, the World Bank states that developing economies were responsible for 45% of world growth in 2010.

So what’s the projected return on equity (ROE) for those invested in global trade? According to Paul Bingham, economics practice leader at Wilbur Smith Associates, barring another unexpected calamity, the [logistics] industry anticipates a slow yet steady global economic recovery. Right now, about 20% of what comanies manufacture is consumed in other parts of the world. Carlos Rice expects that this number will grow to 80% in the next 10 years or so. I personally think this is a bit ambitous with the high price of fuel, but don’t doubt that it will continue to rise as multi-nationals find new low-cost locales to produce in and new markets to sell it. I think the big difference is that there will be more near-sourcing from neighboring countries, or at least countries on the same continent, than there will be global sourcing from locations halfway around the world. What do you think?

Bob’s Three Dimensions of Sustainable Success

I’d like to point your attention to a recent post of Robert Rudzki, author of Straight to the Bottom Line and the forthcoming Next Level Supply Management (which is a must read for anyone who desires to take their Supply Management organization to the Next Level) over on the SCMR Blogs on alignment and compatibility with supplier partners. In it, he reviewed his simple, yet powerful, framework for evaluating the likely success or failure of two companies working together.

The basic idea is that success is more likely to occur — and be sustainable over time — if there is alignment, and compatibility, across three key dimensions:

  1. Strategic
    the overarching business strategies of the two parties should be close since they will need to be in sync for success
  2. Operational
    the two company’s systems and procedures will need to be integrated into one set of systems and procedures; if the will is not there to make this happen, the chances of success will be diminished greatly
  3. Cultural
    the business cultures must be similar; the core mission and values must be similar and it holds true whether you are merging two operations in New York or an operation in New York with an operation in Singapore and puting a head office in London

While these conditions are not sufficient for success, they are necessary. So if you fail the SOC test, sock the partnership from the get-go.

Apptio – Helping you with your IT Portfolio

Earlier this week, in reference to an article on the SCRC site on The Supply Chain IT Investment Enigma and Hackett group recommendations, I asked what is the right portfolio view of the Supply Chain IT Investment. Given the laundry list of Supply Chain Technologies — DM, PLM, PP, APS, SCEM, SRM, WMS — that one has to consider; the dizzying array of hardware, software, infrastructure, and support options; and the difficulty in capturing and computing cost metrics and comparing them to industry averages, it’s a good question.

One vendor trying to make sense of the situation is Apptio. A Technology Business Management vendor with a background in system management and automation with capabilities in IT Services Transformation, Infrastructure Optimization, Application Rationalization, Cloud Business Management, Data Center Consolidation, and IT Financial Transparency, this week they released a new IT Service Performance Solution with supplier/vendor relationship management (SRM/VRM) capabilities. Building on their deep expertise of IT systems of record, application stacks, hardware platforms, and on-site and off-site infrastructure solutions, they have created a unique service performance management (SPM) solution that is customized to the unique needs of IT.

Designed to give an organization a holistic view of internal and external suppliers, and apply supply chain best practices to IT, the purpose-built vendor relationship management solution, which can import data from over 40 major systems-of-record (SAP, Oracle, JD Edwards, Peoplesoft, Ariba, etc.) out-of-the-box, allows an organization to define and manage vendors and contracts, understand spend by vendor and category, monitor and benchmark performance against pre-defined and custom KPIs, and hold vendors accountable to performance. In addition, due to their ability to also integrate with multiple major accounting systems out of the box, spend can be tracked against contracts at a category level by unit of time and IT managers can see how spend is trending relative to projections.

The Apptio VRM solution supports the full IT supply chain from IT planning and vendor identification, to Bill of IT creation, service costing, service performance, and IT benchmarking and allows IT sourcing personnel to effectively manage negotiations, contracts, costs, relationships, performance, and spending over the life-cycle of the relationship. In addition, a custom scorecard can be created for each vendor which can not only track custom metrics and KPIs, but also overall customer satisfaction.

Purpose built for IT, the solution allows the IT relationship managers to define a custom dashboard that displays, for each vendor, the current financial, quality, performance, and satisfaction ratings (which can be defined against pre-defined or custom KPIs) and whether the vendor scores good (green), satisfactory (yellow), or below contract requirements (red) on each rating — allowing problem vendors to be quickly identified. The user can then drill into the vendor and see the basic supplier info, contact info, contracts, debits/credits, and scorecard details summarized for each vendor (and whether each contract, balance, and scorecard is good, satisfactory, or below contractual requirements).

In addition, the top-n vendor and contract summaries allow the IT sourcing managers to quickly see which vendors and contracts are consuming the most spend and how these particular vendors and contracts are trending over time. In addition, the IT sourcing manager can just as quickly get breakdowns by internal vs. external spend, contract type, and vendor relationship. Given that most of the leakage will occur in the biggest contracts, this is a useful capability for IT sourcing managers. Especially since the metrics can be defined against activity based costing (ABC), which is not a feature common among many service or performance management platforms.

And while it’s true that most of the analytics can be easily computed with a good spend analysis tool that allows for the definition custom metrics in the hands of a spend analysis pro, if data needs to be pulled from mutliple systems, the reality is that performance will only be analyzed against most contracts one or two times a year, and by then it might be too late to insure real savings (as the organization is not likely going to get 1 Million in support overpayments back). Plus, most spend analysis tools or platforms are not going to be integrated with a benchmark database that allow an organization to quickly identify what the usual service/software/hardware costs are for its usage levels and save an average of 20% to 30% in its negotiations. (In fact, some beta testers saved 50% on some hardware, software and/or support categories due to a better understanding of usage, industry standard pricing, and past performance and the ability to do what-if analysis in conjunction with activity-based costing.) While it will be a while before we know ROI of the solution for an average organization, I agree that it is likely that an average organization with significant IT spend will begin to see payback within 90 days and that a 20% savings on major contracts will be common the first time around as only those organizations that have, or bring in, IT sourcing expertise tend to get best pricing in the IT category. It’s definitely worth a look for those organizations with a large IT spend as there are very few solutions out there that understand the unique nature of IT categories.