Monthly Archives: March 2011

Always Put Function Before Specifications When Buying

It makes no difference whether your organization is in the public sector or private sector and no difference whether it’s a service, product, or piece of technology. It goes double if the buy requires a (long-term) contract. And it doesn’t matter if there are government, health-and-safety, or other regulatory requirements (as these can always be worded in functional terms or shifted over to manufacturing or raw material requirements).

The reality, and Stephen Guth of the Vendor Management Office will back me up on this, is that as soon as you create a specification, you (essentially) lock in a (small set of) vendor(s). And just like 80% of the cost is locked in during the design phase of new product development (NPD), 80% of the price is locked in as soon as you limit yourself to a vendor (or two). Just like raw materials, components, and machines have relatively stable prices in a narrow band, your average vendor, with stable overheads, supply, manufacturing, and/or service delivery costs, has a relatively stable price band that its sales representatives will not be allowed to deviate from, often because the vendor cannot afford to because of its overhead cost.

Plus, it’s never about the product or service, but the value received from the product or service. Consider a tablet manufacturer. The end customer doesn’t care about the CPU, they care about the performance it delivers. Most customers don’t care if it’s AMD or Intel, just that the performance is on par with best-in-class. Consider outsourced back office accounting. Does it really matter what packages are used or how many resources are assigned to the team? No. What matters is whether acceptable standards are followed, how fast the monthly reporting is completed, and how much the service costs. And consider technology. When one is buying a new e-Sourcing system, the specific 400 features on the drop down lists don’t matter. What matters is whether or not it supports RFX, e-Auction, “What-If” Decision Optimization, and Contract Management; whether or not the workflows can be tailored and/or integrated to your existing Supply Management Systems; and whether or not it’s the most cost-efficient delivery model for your organization. The minute you use a “vendor-supplied” RFx or think you need 20 specific features is the minute a single vendor locks you in and doubles the price because no one else will have their specific feature list, but yet, for an average organization, ten off-the-shelf packages will be equally as effective for the organization in its quest to achieve Supply Management Value.

So forget the specs and focus on the function. That’s the best way to maximize value (and minimize sales person power).

Will Printing Bring Production Back Home?

A recent article over on Supply Chain Digest that asks how soon will “printed” parts revolutionize supply chains — and the world brings up a great discussion point when it notes that consumer product areas could be revolutionized by the approach and some people [are] wondering if the dynamics will, in some cases, lead to domestic digital production of some items versus offshore manufacturing in low cost countries. When you consider that 3-D printing is getting better, faster, and cheaper everyday and is already used to produce

  • aircraft titanium landing brackets
  • industrial gloves made out of nylon, stainless steel, or titanium
  • mobile-phone cases where the shape and colour is personalized for each user
  • dental crowns custom shaped to a patients mouth
  • medical implants

and that these printers can currently handle a wide range of materials including

  • plastics
  • glass
  • metal
  • ceramics
  • nylon

and that

  • 20% of the outputs are now finished products (and not just prototypes) and
  • 50% of the outputs are expected to be finished products by 2020

it makes a great case for moving to digital printing to keep costs down since the only costs are the cost of the machine, the room to put it in, the power to run it, the materials to feed it, and the engineer to come and do preventative maintenance after every X products. No HR costs for assembly workers and, most importantly, no exorbitant shipping costs, which are rising every day as the price of oil is now climbing again.

Plus, the ability to give each and every user a “custom” product without a price increase and still do mass production is enticing. It’s a great way to corner a market if your organization can do it first. And the supply chain can spend more time focussing on improving, and lowering the price of, raw material supply instead of renegotiating logistics contracts and battling fuel surcharges every six months. Furthermore, if a product can be printed faster than it can be air freighted half-way around the world, even if volumes are too high to be met entirely with a printing operation, it’s a great risk — and cost — mitigation strategy.

Sustainability: The Math is Simple

Since ‘net years are equal to dog years, I’m getting cantankerous in my old age. It seems it only takes a sentence or two to set me off these days. I was reading a good article over on the Arabic Knowledge @ Wharton site on “fashion or strategy” when I stumbled across this quote from a Senior Manager at Accenture:

“We need to better understand the consumer and see how sustainability can drive the purchase decision. About 75% of people would say, ‘All things being equal, I would buy green‘. How you translate that into an actual purchase decision … is something else.”

Are you kidding me? How do you become a Senior Manager at Accenture if you can’t do that math?

75% = 3/4
and
3/4 + 1/4 = 4/4 = 100%
That says, if all things are equal, there are three times as many people who would buy your product if it was green. The hard part is figuring out what consumers really mean when they say all things being equal. Obviously, price is a factor since, no matter what they say, they never want to pay more. And so is quality, since they won’t buy an inferior product. But figuring out that your market will be three times as large as a competitor who is not green is not hard.

Implementing VFS: A Beginner’s Guide [2011] (Consolidated Links)

VFS: Value Focussed Sourcing

Implementing VFS: A Beginner’s Guide

  1. Part I
  2. Part II
  3. Part III
  4. Part IV
  5. Part V
  6. Part VI

Looking to Transform? Make Sure The Organization is Ready!

Transformation, which many companies will require to survive the next few years, doesn’t work unless it’s taken seriously, and the organization is ready for it. To judge awareness, ask these “six questions for company transformation” from a recent Industry Week article.

  1. Where is the Organization’s Culture?
    Before an organization can begin a change management initiative, it must understand the culture of the organization. What are the beliefs and expectations of the employees? If this is not understood, then it is not likely that an initiative can be designed to change their spirit. And unless the employees get behind the initiative, there is no hope for success.
  2. What starts the process?
    Most companies want to take action right away, but action is often no more effective than reorganizing lines on an organizational chart, which is rarely effective. A successful transformation begins with knowledge — a pervasive awareness of what needs to change, why, and how it will improve the company’s situation.
  3. Whose culture is it?
    The organizational culture must be owned by the employees, not by the management team or the consultants brought in to lead the change management initiative. Furthermore, the effort must allow the people to reach their potential or the change will not be as successful as the organization hopes.
  4. How Do You Know If You Are Making Progress?
    It’s not just about the metrics, which won’t convey meaningful information for months, but about the visible changes in behaviour that signify that change is taking place within the organization.
  5. When Can You Change the Culture?
    Change can only happen now, not at some future time. Each day must be an effort focussed on meeting that change.
  6. Why Do People Change?
    There are two critical steps to transformation success. The first is to understand that organizational culture will need to change. The second is to understand why it will change, which is not always obvious. For more details, see the article or The Seven Arts of Change (DavidShaner.com).