Monthly Archives: February 2009

We Don’t Need No Consultants

Today’s guest post is from Patrick J. Horgan of Paladin Associates.

Why Some Companies Don’t Seek Needed Cost-Reduction Help

Cost-reduction is essential in today’s economy, but unfortunately many managers have little experience in these activities. Mistakes in cost-reduction can damage morale, productivity, and can even precipitate a corporate death-spiral. Experts recommend independent cost-reduction consultants, but most companies don’t seek external help. Their reasons sometimes make sense, but they are often emotional and thought through poorly. Here are some common rationalizations which prevent many companies from seeking the help and getting the results they really need:

“We don’t need help.”
“We can do cost-reduction ourselves”. Or, “we should be able to do it ourselves.” “We already have cost-reduction initiatives.” “We will soon have cost-reduction initiatives underway.” “External consultants will probably try to take credit for things we have already identified.”

“We don’t want help.”
“Consultants may find things that are embarrassing or that we probably should have found. We may be blamed for these things.” “We will not be able to personally control what they find or communicate.” “We are currently too disorganized to undertake such an initiative.” “We don’t want a lot of change and turmoil.”

“We can’t afford help.”
“Consultants charge a lot, usually up front.” “We have no budget for this.” “We can do it for less.”

“We don’t believe consultants can actually help.”
“Consultants just feed back what we already know. They don’t actually produce results.” “Consultants won’t understand our business.” “How would we know if we actually saved anything?” “We’ve had bad experiences with consultants and cost-reduction projects in the past.” “External consultants are against company policy, or require high-level approval.”

“We are not the decision makers.”
“We don’t really know who decides this, and we don’t want to ask.” “Someone else is in charge of this; it’s not our job.” “IT/Telecom has sourcing responsibility; not Sourcing.” “IT and Telecom are under different organizations, yet buy off of the same contract.”

“It is not in my personal political interest to support this.”
“Cost-reduction can be risky… might result in reorganization, reassignment, budget cuts, layoffs, new priorities, loss of power, change — could be bad for me personally.” “Our boss doesn’t want to do this.” Or, “Our boss might want to do this, but we don’t.” “If this doesn’t work out, we might be blamed.” (But maybe we should pretend to be interested and slow-roll this.)

“We don’t have or control the resources to support such an effort.”
“We have other priorities.” “We don’t have good data on costs and spending.” “We don’t have the staff for this.” “We have lots of contract leakage as internal components are organizationally fragmented.” “To capitalize on many initiatives may require cross-functional cooperation and coordination which we don’t control, and priorities which we don’t have.”

“We don’t want to disrupt our vendor relationships.”
“We already have great prices.” “We depend on our vendors for things other than price.” “The supplier has a personal relationship with the CXO.” “We really enjoy the annual Vendor Golf Weekend at Pebble Beach.”

The Real Facts
Sometimes these rationales are valid, but most often they are not. Companies may have excellent relationships with their suppliers, but it’s inescapable that continuous competition improves the breed and reduces cost. Cost-reduction falls directly to the bottom line, and should be pursued aggressively despite fuzzy reasons to the contrary.

Even though companies “ought” to be able to run effective cost-reduction programs themselves, in reality they frequently do not. For many reasons — budgets, staffing, expertise, priorities, timing, politics, whatever — the opportunities go unmined… and the potential savings go unrealized. Or they are done in an amateur fashion, often with unintended consequences. Most companies don’t and probably can’t have enough qualified resources to do this thoroughly.

Cost-reduction consultants do this for a living, not just during the occasional recession… they are experts and know all the tricks. External consultants can often help cut through internal politics and conflicts of interest. They can catalyze stalled activities and get them rolling.

Independent consultants can help analyze spending patterns, and specifically focus on and drive results… particularly if they are paid on a percentage of savings realized. This approach eliminates upfront fees, reduces risk, and insures an excellent ROI. The money saved can pay for fees many times over. External resources can accelerate cost-reduction savings. Additional bandwidth leverages employees, and gets more done, faster. Time is money.

External cost-reduction experts jump-start and insure execution of cost-reduction programs that can preserve a business in times like these. Cost-reduction programs should be win-win initiatives, structured and empowered to encourage cross-functional cooperation. They should be supported and regularly reviewed by high-level executives, not just lower-level employees who may fear blame or loss of status.

Thanks, Pat.

The Sourcing Innovation Resource Site Really Rocks

This is just your friendly reminder that the newly redesigned and functionally extended Sourcing Innovation Resource Site, always immediately accessible from the link under the “Free Resources” section of the sidebar, is a supply manager’s best friend. It collects all of the on-line resources you need as a supply management professional into one place. As of today, it has links to:

  • 260 Event Listings that include
    • 133 Conferences,
    • 7 Roundtables,
    • 61 Seminars,
    • 30 Training Classes,
    • 13 Webcasts, and
    • 16 Workshops
  • 624 Vendors for all of your supply management needs
  • 315 Linked-In Groups for all of your supply management networking needs
  • 209 Archived Webcasts that will interactively expand your supply management knowledge
  • 147 Blogs, Wikis, and Communities in the supply management and enterprise technology space
  • 68 Societies where you can find people with the same needs and interests as you
  • 52 Publications that will keep you abreast of today’s global supply management issues
  • 50 Podcasts that you can use to expand your supply management knowledge when on the go
  • 24 Job Sites when you’re ready to take that next career step
  • 20 Centers of Excellence which publish ground-breaking and thought-leading research on a regular basis and
  • 18 Analyst Firms which explore the vendors, technology, and issues that populate our space

When you combine it with the e-Sourcing Wiki that has almost 35 wiki-papers on all of the relevant global supply management subjects (co-)authored by the doctor, the integrated PurchSearch procurement search engine (powered by Google Custom Search and brought to you by Next Level Purchasing), the Sourcing Innovation Illuminations, and the free Iasta-sponsored e-Sourcing Handbook, you’ve got everything you need. Plus, the new search functionality combined with the extended indexes for events, vendors, and linked-in groups makes it even easier to find what you’re looking for. So check The Resource Site out today!

Don’t forget that the resource site is only as good as you make it. If you have an event (conference, roundtable, seminar, training program, workshop, or webcast), blog (wiki, or community), publication, journal, center of excellence, society, analyst firm, linked-in group, podcast, or job site that your fellow supply management professionals would benefit from, you can always submit it for inclusion on the resource site! This will insure that the site continues to meet all of the supply management needs of the sourcing nation!

And while you’re at it, don’t forget to Subscribe to the Sourcing Innovation Mailing List and join the Sourcing Innovation Linked-In Group!

Working with Your Users III: (Spend Analysis) Reports keep changing — and that’s a good thing.

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

Several years ago, I was involved in a data warehouse project. At one point in the design phase, the discussion turned to the creation of the initial reports. We discussed a number of different things we wanted from the system and explained how each report was likely to change once it was populated with data. At this point, the Programmer became frustrated, “Why can’t you guys just figure out what you want? Get those specs right and we can be done with the reports once and for all.” In his mind, Procurement was doing a horrible job because it couldn’t make up its mind about what it really needed.

This story of the frustrated programmer sticks with me as an important lesson because it highlights one of the key challenges facing users of procurement data — there isn’t one perfect report! And, even if there were, it would only be ‘perfect’ for a brief time. One observation leads to another, which leads to another, and so on. A good report should lead to questions — and the need for another report. Reports are forms of communication and they are tools for users to get their jobs done. As such, they should be dynamic not static. Once they become static, chances are good that no one is using them — either because the format doesn’t work for them or it’s no longer relevant to the current situation.

Let’s take the example of the preferred vendor within a category. Let’s pick on temporary labor for this example.

First Report: You produce a report which shows the overall spending for temporary labor by month with two columns, one for preferred vendors and one for non-preferred vendors. This gives the overall status that spending with preferred vendors has gone from 50% in January to 75% in June. Good work!

Second report: The data you provided in the first report needs to be distributed to the business units. The report now has to have the summary and the detail by business unit. Easy change, you’ve already built it into the initial specification.

Third report: The business units want to pass this report down to their managers. The report now needs to be done for each business unit. Again, a change you’ve planned on, so it’s easy.

Fourth report: The business units report that they have existing contracts which can’t be changed, so they need to tag certain vendors as “legacy contracts” so they can show that they are complying with the program and using the preferred vendors. All the reports now need a new category – “Legacy Contracts”

Fifth report: The commodity manager wants to estimate the incremental cost of using the bypass vendors. The report now needs to show this estimate for each business line based on their savings model. This needs to be done at the top level and for each business unit.

Sixth report: One of your business reports that the preferred vendor can’t supply a certain type of specialty services. You need to add a category for “specialty vendors”.

Seventh report: A manager in one division wants to eliminate the “legacy” category for her spending, “All this spending is bypass. I want my team to move more quickly to the vendors with whom we have contracts. Don’t show me any legacy or ‘specialty’ vendors”

Eighth report: The business lines are changing one of the preferred vendors. The report now needs to show the first 6 months with the original vendor, then the following months with the new preferred vendor making the spending with the original vendor as bypass.

Ninth report: The head of processing operations like the reports, but wants to make two sets of changes. He wants to change the categorization of vendors into “Primary”, “Secondary”, “Non-Group Contract” and the tagging needs to be done differently for each major production location. A vendor can be the primary in location 1; the secondary in location 2; and, non-group contract in a third location.

And the sago continues, but you get the picture. Each report was useful as it was created, but needed to be modified as users worked with it. And this is a great news story. People are using the information and acting on it. You company is saving money and the reports are highlighting the savings achieved and the actions necessary to achieve more savings. But the reports keep changing and that’s the reality of procurement information.

Are Your Best Practices Really Best Practices?

Best practices are important because, as per Wikipedia, they can deliver desired outcomes with fewer problems and without unforeseen complications and do so more productively and at lower costs. Many organizations claim to employ them, and chances are that your organization falls into this group. But do you really employ best practices?

Calling a procedure a best practice does not make it a best practice. And even if it was a best practice five years ago, that doesn’t mean that it’s a best practice today … even if it’s the best practice you know of. As Carlos Alvarenga points out in “When Is a Best Practice Not a Best Practice?”, “best practices” is often a misleading term used by some consultants and software vendors, a term misappropriated to refer to what are in fact just “rules” of daily operation.

As Carlos notes, by the time a “best practice” gets incorporated into a piece of software or a PowerPoint presentation at a big consultancy, it is usually no longer “best” but simply “good”. Most companies that devise truly innovative practices try very hard to keep them trade secrets for as long as possible. Chances are, by the time they are proclaiming the greatness of their best practices to the rest of the world, they’ve already moved on to a new suite of best practices, or improved the effectiveness well beyond the pasturized pablum they are milking for all the attention they can get from the media.

Furthermore, a best practice is not a best practice if your organization cannot, or will not, adopt it and implement it to its full extent. (For example, monitoring a supply chain visibility daily for unexpected demand fluctuations and actively taking action on that information, which would be a demand-driven best practice, are two completely different things.) A best practice is the best possible solution that your organization will implement, follow methodically, and try to improve on a regular basis.

Constant evaluation, and improvement, is key. New technologies, methodologies, and organizational structures crop up all the time … and you never know when one or more of these new innovations might provide the foundation for a two times productivity improvement, and a four times ROI, in one of your best practices. If you haven’t reviewed a best-practice methodology in a year or two, it’s time to review it now … with an open mind. You never know what opportunities you might find.