Monthly Archives: January 2011

VFS: Accident or Planned?

If you haven’t figured it out by now, I’m in the process of dissecting the latest report from CAPS Research on Value Focussed Supply (VFS) with ultra-fine tweezers because it might just turn out to be the most important report of the new decade — if you can get past the fact that they’ve thrown YAMA (Yet Another Meaningless Acronym) our way. Or, it might just be a trivial summary of obvious supply chain improvements from the past few years and have no lasting impact. However, unless we dive in to the details of the 90 page report, we won’t know for sure.

Early in the report, the authors state that the aim of the report is to understand how a holistic value approach differs from traditional competitive sourcing approaches. The hypothesis is that companies that are successful at VFS (which The Mpower Group would term next practices) do two things:

  1. Follow a Value-Focussed Process for Key Categories
    that links to current and future business and technology needs, establishes fact-based value goals for the category, and formulates, implements, and measures strategies designed to achieve the fact-based goals
  2. Invest in Process Enablement
    to conceive, identify, deliver, and sustain value for the near and long term

And while one must agree that any organization that does these two things has a good chance of increasing the value obtained from supply management — as the organization will be looking beyond simple cost reduction to sustainable value creation through supply risk reduction, alternate supply sources, quality improvements, and increased value add to the core product — there is also a chance that, for an average organization, VFS is arrived at by accident. A significant disruption occurs. The team steps up and finds a creative way to solve the problem and restore quality supply in a timely basis, and, in the process, creates additional value as a side-effect because the new process is more efficient or the new materials are more reliable, etc.

Consider the case study for Powercon Co. It had 300 part numbers that could only be obtained from a sole-source supplier that was 40 days late, on average, when a delivery date was missed and that only managed to achieve 50% on-time delivery performance. As the company could not identify any alternate suppliers that would meet all of the company’s needs (affordably), the company had to do something about the problem to improve the supplier’s performance in order to maintain its productivity (and, presumably, profitability) as the late orders brought about a host of problems for the company which did not want to delay its own shipments and face customer service level issues due to a supplier’s problem. In addition, the late orders were also limiting the company’s ability to optimize its manufacturing operations, forcing it to keep excess inventory on hand.

In this situation, even though the company eventually took a formal effort, based on Six Sigma, to improve the situation, VFS was as much an accident as a planned project. The Supply Management team didn’t wasn’t sitting around looking for new ways to add value, they were responding to a dire situation and looking for a way to put out the flames. With the help of an external expert who designed the Six Sigma program, the company improved the supplier’s performance by over 95%, achieving an on-time delivery of 98%, and reaped all the benefits that came from the improvement, but not all of the value was by design.

But sometimes value is by design as well. Consider the case study of F&B that rationalized specifications to reduce SKUs and requirements to those that customers valued and paid more for. This effort had a significant design element up front. But is it really VFS from the get-go? The ultimate goal was cost reduction, and this was a way to achieve the same goal since increase profit per unit is sometimes just as good as reduced costs since it reduces the percentage of revenue spent on raw materials.

What do you think? Is VFS by design or is it by accident?

More to come.

Ariba Redefines What?

I usually don’t make a point of promoting vendor blogs, or posts therefrom, as those posts are usually designed to promote the vendor that owns the blog (and, to be honest, the post I’m about to reference does promote the vendor’s solution to a limited extent), but this post over on Coupa Cabana (the Coupa blog) on how “Ariba Redefines What?” is totally awesome.

If you follow the press-releases (which, I must admit, I try not to as most of them are just steaming piles of marketing and PR BS, regardless of which vendor they come from), you’ll see that Ariba has recently announced that it has redefined enterprise software. (And if your first thought upon reading that isn’t Get Real! How stupid do you think I am?, then you need to read more of Sourcing Innovation’s rants, particularly my recent rant on the cloud. Or, if you don’t have time, just listen to Larry .) Puh-leaze!

If I knew where the Sourcing Maniacs were right now (as they have been missing in action for a year … they said they were going to visit their European Neighbors, and I haven’t heard from them since), I would have asked them to have their way with this announcement as Ariba is just asking for it with this one.

But, fortunately, Noah found it and he did a dissection that would make even Wacko proud. Ariba Redfines What? is a piece that truly put[s] it up to eleven.

Improving the State of Sustainable Procurement Reporting

A few weeks ago we reviewed the state of sustainable procurement reporting and found that it still wasn’t very good. Over half of American companies are not effective at communicating their goals and structuring their policies, only half have sustainability targets, only 1 in 10 have a sustainable procurement team, and only 1 in 20 train their suppliers to be sustainable. All in all, it’s just not good.

So what needs to be done? There are a lot of proposals on the table, including this recent article on “graduating to the next level of sustainability” (in Industry Week), but the reality is that it’s not that complicated, at least in the beginning. It really boils down to these four steps:

  1. Put a Team in Place
    The first thing you have to do is assemble a team with responsibility and authority. Sustainability has to be part of their job duties and their bonus structure partially dependent on the results. Furthermore, at least one team member needs to be a C-suite executive with the authority to actually take action. If all the team can do is make recommendations, nothing will ever happen.
  2. Benchmark Current Performance
    If the current state of affairs is not understood, there will be no way to define or measure progress. The team has to start by defining some basic benchmarks and measuring against them. The team should not spend too much time on benchmark selection, as it’s pretty much impossible to get it 100% right the first time, but on selecting the most common benchmarks and measuring against them. As the understanding of the current, and desired, situation improves, the benchmarks can be modified to be more in tune with company operations.
  3. Define a Vision with Measurable Targets
    Once the current state of affairs is understood, the next step is to define the corporate sustainability vision and to translate it into specific, measurable, short-term and long-term targets. ‘Reduce waste’ is good, but ‘reduce waste by 20% over the current level of 1 Million tons within 24 months’ is better.
  4. Continually Measure Progress and Adjust Performance
    Progress must be measured at least quarterly and operational processes adjusted, or targets revised, if desired performance isn’t being achieved.

That’s it in a blog-shell. It will be a lot of work, but it’s not a difficult task to embark upon a sustainability effort.

It Looks Like We Can Sustain The Global Food Supply Chain, But

we may not be able to afford it!

Last year, when we asked if we [can] sustain the global food supply chain, we noted that global food reserves reached fifty, if not one hundred, year lows and that global shipping is currently responsible for 4.0% of all global climate change emissions due to an utter lack of regulatory requirements compared to the automative and trucking industries. This was pretty scary since it doesn’t take many natural disasters to wipe out a state’s (or country’s) crops.

According to this recent article in The Telegraph, global food prices have surpassed 2008 highs when shortages led to riots in a number of countries. Up for the sixth month in a row, primarily due to soaring sugar prices (which reached 398.4 points in December) and rises in cereals (which reached 237.6 points) and oil (which reached 263.0 points), the FAO Food Price Index was the highest since records began in 1990, reaching 214.7 points, topping the previous high of 213.5 in June 2008.

This does not bode well for the burgeoning poor, who have been out of work since the recession began in 2008.

Think!

Atlantic Business recently ran an awesome article that got my attention on the first word and reeled me in with the first sentence. Entitled “Think!”, the author starts off by noting that he

worries [that] we seem to have forgotten or dismissed the value of careful and considered thought. Common sense seems to be in very short supply. Examples of this are everywhere. We send an email, one which is important (at least to the sender) and we expect a reply virtually instantly. Indeed, if one is not forthcoming within 15 minutes we begin to wonder if the recipient has died.

But more importantly, you have to:

think about this: assume that the question being asked is important. We must therefore want a careful and considered response, a response which has had the complete attention of the recipient. Is it reasonable to assume this could possibly have occurred within 15 minutes?

I have to agree. There’s no way you can construct a deep and thoughtful response to an important question in 15 minutes. Even if you have been thinking about the question for days, it still won’t be possible to create a well crafted response in a few minutes — especially if something else is on your mind. But yet, if the call isn’t returned promptly, you fear that the caller is unable to focus on anything else.

Similarly, it seems that if a journalist, or blogger, doesn’t cover a “breaking” story the minute it happens, he feels that he’ll miss the boat. It used to be a company would make a big announcement and the next day it would be a headline. Now, the release goes up on the website, and 5 minutes later there are half a dozen stories about the latest funding round, merger, or acquisition followed by additional thoughts a few hours later — all based on the release or some cookie cutter responses from PR people in an advance call.

How much “analysis” can one truly come up with in in a few minutes? What can you possibly say that goes beyond a seat-of-the-pants reaction or a gut feeling? If you’re a true expert in the space, then the chances that your seat-of-the-pants reaction or gut feeling will be accurate will be (much) greater than 50%, but it’s still just a gut feeling. True analysis takes time and thought. And even if it doesn’t change your viewpoint, I know I’d much rather read a viewpoint knowing that deep thought (over a sufficient time period) was put it into rather than an impromptu piece where there’s a chance that the author might change his mind in a day or two. If most of don’t have the time to read a story on the same announcement twice, we definitely don’t have the time to be confused — and that’s what will happen if we read a differing opinion from the same source a few days apart.

And while I really couldn’t put it in a word before, that, in a nutshell, is why SI doesn’t cover “breaking announcements” as they happen. Not only is an average press release packed full of PR BS, and not only does it generally not contain enough information to truly analyze what the announcement means from a product/service perspective (which is what this blog really cares about and why the Editor insists on demos as a goal of SI is to help you in your quest to be a better Supply Management professional), but there’s no way you’re going to get a decent analysis and a reasonable opinion on a press release with insufficient information in a few minutes (or even a few hours).

You can be sure that if something’s important, SI will cover it when we’ve gotten to the heart of the matter. But we’re not going to ask “how fast” just because some PR person decides its time for the media to run with a story. The Editor wants deep thought put into what he takes the time to read, and it would be unfair to expect that you would be satisfied with anything less.

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