Monthly Archives: May 2011

Straight to the Bottom Line: Part I.i – A Roadmap to Successful Supply Management

In preparation for next month’s June 28 release of Robert A. Rudzki and Robert J. Trent’s Next Level Supply Management Excellence: Your Straight to the Bottom Line Roadmap, we’re going to do a formal review of Bob & Doug’s (& Michael & Shelley’s) classic Straight to the Bottom Line: An Executive’s Roadmap to World Class Supply Management. Even if you have read it, now would be a good time to read it again to make sure you’re well versed in all of the foundations before starting your Next Level Supply Management journey.

The classic text starts with an overview of the opportunity available to those organizations willing to embark on a Supply Management journey. Packed with success stories, including that of a 40B Manufacturer who saved 1B over three years with a modest investment of 20M, of Xerox and how it slashed produt development time by a year and manufacturing costs by 50% by including suppliers strategically in design, and of Lucent and how it achieved 20% year-to-year price savings when it needed them most, the underlying theme is that supply chain management can play a significant role in profitability.

In addition to describing the great opportunity that Supply Management offers an organization, the first chapter also does a great job in defining the new role for Purchasing in a modern supply management focussed organization and the benefits that can be achieved. Some of the key changes and benefits are:

Changes Benefits
  • Ongoing Priority
  • Transformation Mandate
  • Central Point of Contact for Suppliers
  • Strategic Corporate Objectives
  • Cross-Functional
  • Reduced Cost Structures
  • Higher Return on Assets
  • Better Risk Management
  • Reduced Cycle Times
  • One Voice

Before diving into the basic roadmap, the authors state that an organization must first understand where it is before it can define the roadmap to where it is going. And the organization should start by asking some important questions, which the authors define as follows:

  1. Are supply chain goals integrated into the strategic plan of the business?
  2. Does the chief executive know who the chief purchasing professional is?
  3. What is the relationship of the chief purchasing professional to the chief executive?
  4. Does the procurement team have top- and bottom-line objectives?
  5. What percentage of external spend is supervised by purchasing and covered by a written strategic sourcing plan?
  6. What percentage of spend is leveraged through internal spend pools?
  7. Does the organization have the right leadership in the Procurement function.
  8. What is the working relationship between Procurement professionals and those in other disciplines?
  9. What are the opportunities available to Purchasing professionals for training and improvement?
  10. What is the chief executive’s personal commitment to achieving improved corporate performance through a best-in-class Procurement organization?

There are right answers and wrong answers to each of these questions. Before an organization can truly begin it’s journey, it must have the right answers to most, if not all, of these questions. Otherwise it won’t have what it takes to move up the Procurement maturity curve. And an organization does want to be best-in-class because best-in-class organizations see the following transformations:

Before After
Little/No Strategic Sourcing 100% of Sourcing Covered by Written Sourcing Plans
Spreadsheet Analysis Optimization Analysis
Defect Rates > 40K PPM Six Sigma Quality
On Time Delivery (OTD) of 65% to 90%    Optimized OTD
Prices Rise 3% to 5% Annually Costs Drop 5% to 7% Annually

And these benefits just scratch the surface. For more benefits, more success stories, more insights, and the right answers to the above questions, check out Bob & Doug’s (& Michael & Shelley’s) classic Straight to the Bottom Line while you wait for Robert A. Rudzki and Robert J. Trent’s follow-up on Next Level Supply Management Excellence.

The Time For Lean Is Now

But that does not mean you should rush an implementation. While lean can save time and money while increasing efficiency, a poorly thought out lean strategy will do nothing but disrupt operations, which will only waste time, increase cost, and decrease efficiency. And when you rush the implementation of any transformational program, chances are that you will make one or more mistakes that will lead you down the wrong road.

So, not only should you take the time to plan it out and get it right, you should learn the lessons from those who have went, and messed up before. The Supply Chain Digest recently ran a short piece documenting some common mistakes when implementing lean principles that is worth a read.

Don’t Implement Lean with a Weak Strategy or Insufficient Resources
If the strategy is weak, the workforce will see that it is half-assed and quickly lose faith. If the resources aren’t there, the overworked workforce will quickly lose interest in the initiative and fail to support it. As the article points out training, target setting, and communication tools all need to be carefully planned for proper implementation of Lean.

Don’t Take Lean Concepts Beyond the Lean Maturity Level of the Organization
Just because the lean designer has advanced theoretical knowledge and years of practical experience, that doesn’t mean the rest of the organization does or that they’re ready to be an advanced organization. The key to success is to take it one step at a time, one change at a time, and work your way up to a more advanced level.

Don’t Try a Cookier Cutter Solution
True Lean optimizes your business, not someone else’s. It’s impossible to take a cookie cutter plan and apply it out of the box. It will need to be appropriately tailored to your business by an expert, who will map out stages that the organization will have to pass through to obtain true lean success. As the article points out, each Lean solution must match with the company size, industry, ethnic cultures, product price structure, location, environment and a number of other related variables.

Follow these nuggets of advice, and you can start your journey down the road to lean success.

You Know Your Procurement Rules Are Onerous When

Even your public sector organizations are saying the rules are inflexible, complex, and onerous! Seems that the NHS, who need to find 50% more savings and make up to twenty billion pounds of efficiency savings by 2015, are heeding my advice that they need to stop buying like a government agency and have made a submission to the European Commision’s consultation stating that EU public procurement law should be amended to allow for greater negotiation with bidders during the selection and award process.

According to a recent article over on SupplyManagement.com, the NHS Confederation has called for a significant increase of the threshold at which organisations are obliged to follow EU rules. The current level applies to many relatively small contracts, putting them through the same onerous tendering processes as ones worth many millions which, as I pointed out in my post on how the NHS can find 50% more savings, is moronic. When the bid is too low, you get organizations bidding that have mastered the art of the “change order”. They agree to do “X” where “X” sounds like it is what you want, but really isn’t, and then to get what you really want, because of the tight contract, you’ll have to pay a ridiculous amount in change order fees, and the result is that the net cost will be more than the highest bid, and significantly more than the lowest bid from a competent, honest, vendor.

Hopefully when the EU revises the regulations this summer, they’ll listen to the NHS request. Otherwise, there’s no way the NHS is going to find the savings it needs to continually reinvest in patient care, wait times are going to continue to go up, and quality of service is going to continue to go down.

Headline from the Land of D’Oh: Foxconn Employees Asked to Sign ‘No Suicide’ Pledge

This cracks me up. It’s a shame that there are “appalling” working conditions at the Foxconn factory that include excessive overtime and public humiliation, but this isn’t the answer. After all, how do you enforce a no suicide pledge (TUAW.com)? What can you do to someone who’s already dead?

Sounds like management has to smarten up and start acting like it’s the 21st century where we treat employees fairly.