Monthly Archives: May 2011

Hackett’s Myths and Realities of Global Growth

After a keynote presentation by David Kepler of Dow, Chris Brennan and Sean Kracklauer dove right in and hit the attendees hard and heavy with Hackett Research focussed on the key enablers of global growth. A key part of the presentation was focussed on the myths and realities of the three key enablers of global growth and blasting through the ill-conceived perceptions that must be abolished before companies can achieve world class performance. Here are the three big myths for each area.

Global Leverage

Myth Reality Proof
Our organization is too complex or unique to manage end-to-end. Most processes can be designed and managed end-to-end. (At most, 20% of processes will need some localization.) 80% of top performers are either on the path or already there.
Most companies are only beginning the globalization journey. Most companies have their globalization initiatives well underway. Within 2-3 years,

  • 67% of top performers will have predominantly or fully global policy & strategy processes,
  • 50% of top performers will have predominantly or fully global functional management processes,
  • 66% of top performers will have predominantly or fully global technology and support operations, and
  • 62% of top performers will have predominantly or fully global process design.
The costs to move to end-to-end processes is prohibitive. The costs of fragmentation far exceed the cost of transformation. Hackett has found that transformation and consolidation will save a $10B company 44% in the finance organization alone!

Better, Broader Information

Myth Reality Proof
Enterprise Peformance Measurements (EPM) addresses our enterprise issues. EPM is mostly financial and historical. That’s why 59% of world class companies use analytics in proactive decision making vs. 44% in the peer group.
Shortening planning cycles will get us to world class performance. Emphasis must shift from calendar to event driven decision making. That’s why 67% of organizations now use rolling forecasts.
Our company requires ever more information to make a decision. Companies require less, but more targetted information, to make a decision. That’s why there is 38% utilization of self-serve drill-down dashboards and reports in management by top performers vs. 8% in the peer group and 50% utilization in operations by top performers vs. 23% in the peer group.

Agile Execution

Myth Reality Proof
Centralization & Standardization erodes service quality. Centralization & Standardization actually reduces cost and improves service quality. We’re talking a 2X reduction in cost and a 5X improvement in quality!
Deep functional expertise is enough for global business services success. Global business services success requires a value mindset. The proof is in the pudding. World class organizations meet 100% of cost targets vs. 61% in the peer group, 100% of quality targets vs. 66% in the peer group, and 94% of delivery targets vs. 75% in the peer group. In addition, world class performers acheive more than 40% savings 73% of the time vs. only 33% in the peer group.
Optimization of technology and process will get us to world class performance. Without employee engagement, you’re only half way there! Not only are talent management leaders 16X more likely to link employee engagement to business impact, but there is 21% higher employee engagement in double-digit growth companies when compared to single-digit growth companies.

In other words, blast through the myths and you’re on the path to double digit growth.

Cargo Costs Getting You Down? Go Fly a Kite!

It takes a lot of fuel to carry a (post/new) Panamax vessel across the ocean and the 3,001 to 14,500 TEU (twenty-foot equivalent units) of cargo they contain. Even though they might be more fuel efficient than air transport, and account for 90% of international trade, they’re still a very dirty mode of transportation. A single contain ship can emit more chemicals than 50 Million cars and the ocean shipping industry as a whole, which is mostly unregulated from a clean-air standpoint, emits 6,000 times the emissions of every single automobile on the planet. (Source)

That’s why I was thrilled to see this article over on Industry Week on how “Cargill is Flying a Kite to Reduce Fuel Consumption”. According to the article, Cargill is in the process of installing a 320 square meter computer-controlled kite on an ocean cargo ship that will function 100 to 420 meters above the ship and generate enough propulsion under ideal sailing conditions to reduce fuel consumption by 35%. Working with German-based SkySails, Cargill plans to have the kite based propulsion up and running by 2012. Given that Cargill alone transports more than 185 Million metric tons of cargo a year, this will have a significant impact on its carbon footprint.

Alignment is Pivotal in the Supply Chain Too

A recent post over on the HBR blogs by Nilofer Merchant, author of The New How, on how “We Can’t Agree to Disagree” discussed the importance of alignment and three areas where alignment is pivotal in a business. The post was excellent, but overlooked a fourth major area where alignment is critical to success: the supply chain.

If the supply chain is not aligned, one or more of the following will happen:

  • wrong product in the wrong place
    the product will be in a truck when it should be in a warehouse, in a warehouse when it should be on the shelf, or shelved in a low-traffic store instead of a high-traffic one where it will sell five times faster
  • overstock on poor selling SKUs, across-the-board stock-outs on high selling SKUs
    this will result in the need to take losses to clear out the excess inventory on the poor selling SKUs and lost sales on the high-selling SKUs
  • (severe) production delays
    when the required raw materials don’t arrive when needed or when orders are sent to factories that are near capacity instead of factories that are idling 50% of the time

And this is jus tthe tip of the iceberg. So when you are aligning you brand, your board, and your market, don’t forget the supply chain that is required to serve the market your company is focussing on.

Cost Reduction Success Requires More Than a Reverse Auction

As more and more companies have found out over the past few years, it takes more than a well-structured reverse auction to cut costs, especially during a recession. If your organization is not yet a next level supply management organization, here are a few tips to get you on your way.

Understand the Need
The current market environment is to do more, and grow more, but spend less. It’s an economic paradox, but it’s the reality for the time being. As a result, any company that fails to achieve continual cost reductions might find themselves the next victim of the jobless recovery.

Accept the Reality
Despite what South Park might suggest, it is not possible for an entire company to bury its head in the sand to get through some trying times. Nor is it possible to ignore the need for continual cost reductions even if there are no obvious “low hanging fruit” opportunities left to pick.

Negotiation is Not Enough
The days of yelling, table banging, and threatening to take the business elsewhere are long gone. Margins are tight across the board and no supplier is going to risk survival for a customer who may, or may not, be around next year. A moden organization needs a number of tools at their disposal, including good spend analysis and e-Negotiation solutions.

Make The Business Case (to be a Technolgy Ace)
Given the do more but spend less mantra, the C-Suite will probably want Procurement to get by with whatever tools they have now, even if those tools aren’t more powerful than a pencil, paper, and abacus. Fortunately, numerous studies exist documenting the ROI of Spend Analysis and Decision Optimization solutions that prove that these two solutions, on average, each deliver a year-over-year return of over 10% (and are the only e-Sourcing solutions that fall in that category). Thus, if Procurement focusses on Spend Analysis (to identify its most profitable opportunities in the short-term and the long-term) and an e-Negotiation suite that contains Decision Optimization (in addition to modern RFx and e-Auction technology), it has a lot of ammunition.

Focus on Erosion of Savings
Generally, 40% (or more) of negotiated savings in an average organization are never realized due to maverick spending and non-compliance on the part of the supplier. Implement e-Procurement policies and solutions that can ( a) prevent the approval of POs to non-contracted suppliers without appropriate executive sign-off and ( b) automatically m-way match each invoice to goods receipts and purchase orders (verified to be at contracted rates) and prevent payments until all items have been delivered and billed at contracted rates. While not perfect, as there will always be emergencies that require off-contract spend, such a solution will get an average organization from 60% to 90% compliance, and if the negotiated savings was 10%, increase implemented savings by 50%, which is a substantial amount on a multi-million category.

Work as an Interdisciplinary Team
It’s important to work with the joint S&OP team to insure negotiations, and buys, are based on good forecasts and with engineering to not only make sure the raw materials and component parts but to help them, during NPD, select alternate sources of supply that can reduce costs from step one.

Communicate, Communicate, Communicate
Procurement requirements change everyday, and if the organization is buying last year’s materials on last year’s forecasts, one can be sure that opportunities for savings are lost.

Is China Hampering Its Own Growth?

A recent article over on SupplyManagement.com on how “US firms [are] criticising ‘unclear’ Chinese purchasing rules”, just like their “EU counterparts did last month”, had a fairly shocking number: the EU states that inconsistent and poorly implemented legislation caused China to miss out on 1 Trillion of new Business. In other words, it missed out on business equal to 20% of its GDP! For a country that is obviously seeking to regain global dominance, that’s a lot to lose out on.

The blame is being placed on government procurement policies that favour domestic or “indigenous innvation” and the need for foreign firms to transfer IP, licenses, or technology to domestic firms to win business, a requirement looked upon very unfavourably by western firms. And while China may argue strongly for the “protectionist rule”, just like certain American politicians argue strongly for the Buy American provisions in the recent stimulus bill and the Buy American Act passed in 1933, there is a price to be paid. Every dollar of foreign investment that is deterred to another country in the BRIC keeps them one step further from GDP dominance and every opportunity missed to use a foreign firm makes it that much harder for them to get their hands on leading innovations from around the world.

It’s their country, their choice, and a tough call either way with two thirds of their country still considered poor by global (world bank) standards.