Author Archives: thedoctor

Stagnant Sourcing, Part II


Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC and co-author of “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing”.


In yesterday’s post, Joe began to address the fact that despite the clear path laid out before them — the path of “take a strategic approach, see positive results” — many procurement groups are still falling behind and failing to do just this. He noted that while the reality of the situation is different for every organization, there are some trends that weigh more heavily than others and discussed two of these trends. In today’s post, he discusses two more.

Lack of Skill Sets and Vision

While everyone might jump on board and say they do not have the proper resources, this reason is a little harder for some to admit. A large portion of procurement groups are operating without the analytical skills and foresight necessary to implement more strategic initiatives. While some might see this as the result, or the validation, of Jack Welch’s infamous quote, it is also due to the traditional role procurement currently plays or has played for most of the department’s existence.

In many companies, procurement is nothing but a rubber-stamp — just another step in the issuance of a purchase order. In others, they may have implemented a three-bid process or another similar purchase control method to try and secure savings, at which point they become viewed as not a rubber stamp but as a hindrance — not a step in the issuance of a purchase order, but a hurdle. And I will stop for a second and explain that procurement is not always pigeonholed into this tactical role because it is all they can do. This tactical limitation is often just as much an indictment of a failure by management to capitalize on the full abilities of all of its resources as it is a statement on the limited capabilities of procurement professionals.

Skills carried over from education and prior experience are not like riding a bicycle. These skills fade and fall away. This limited role, when performed for a long enough period, can limit the effectiveness of any prior analytical skills that fall outside the needs of the assigned role. Luckily, one of the benefits attributed to the rise of Supply Chain Management programs at major universities is the resultant increase in incoming supply chain personnel with college-honed analytical skills tailored to the procurement industry.

Procurement may soon be equipped with the skilled resources needed for strategic changes.

Management Is Not Interested

A final hurdle for procurement groups looking to make a strategic leap is disinterested leadership. Executive management, whose approval is and would be needed for a procurement group to “resource-up” and/or take on new challenges, might not think procurement is capable of such initiatives. Alternatively, leadership may be disinterested due to their inability to see the benefits to procurement taking on strategic endeavors. This can be frustrating, but it can be solved.

Disinterested management has to be persuaded, and the easiest way to persuade is through a prolonged effective internal marketing campaign. Reports should not be seen as an administrative chore, but rather as an advertisement for a procurement department. Operating transparently should not be seen as micromanaging, but as a way to actively show interested parties how effective the procurement department can be. Other successful procurement groups — when they make the news — can also be used as leverage to convince an otherwise-disinterested leadership group that strategic procurement endeavors can be worth the investment.

Additional marketing methods could include a training program designed to mitigate the frustration that comes from procurement’s involvement with some stakeholders. One of the most effective methods is securing a “bell cow”. A procurement department wishing to be given a more strategic role should identify an influential stakeholder and work to get that person onboard with their efforts. They should then use that person as a cheerleader for the group.

Wrapping Up

There is no single reason why procurement groups do not undertake strategic endeavors, just as there is no single party at fault. However, the evidence is mounting that those procurement groups that do not set themselves up strategically will face a widening gap between themselves and the best-in-class operations.

Thanks again, Joe!

Stagnant Sourcing, Part I


Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC and co-author of “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing”.

Late last year, I wrote about the “evolution” of procurement — how the department’s practices have moved from simple purchasing, to strategic sourcing, to category management, and to a level of control and strategic involvement that I called “change management”. In the conversations that stemmed from the article, both on- and off-line, I heard from many people out there that organizations don’t need to worry about “change management”, or even “category management”, yet. Many purchasing groups still struggle with implementing any strategic change at all.

This is troubling. If you have read anything related to procurement/supply chain in the last decade, you know that procurement’s ongoing success is tied to strategic improvements. Not only has this been preached, but it has been realized at best in class companies like Apple and Toshiba, where procurement took on a strategic role, optimized supply chain operations to the extreme benefit of the company, and saw executive leadership incorporate procurement leaders more openly. As you are probably aware, both Apple and Toshiba’s current CEOs were formerly CPOs at their respective organizations.

So with a clear path laid out before them — the path of “take a strategic approach, see positive results” — why are so many procurement groups falling behind and failing to do this? The reality is the situation is different for every organization, but over time I have seen a few trends that weigh more heavily than others.

They Think They Are

One of the most common objections lobbied from stakeholders when Source One is brought in to pitch our services is “We are already doing that” or, worse, “We tried that already and it didn’t work”. If brought out early into the pitch, it is clear that the objections are being lobbied by someone protecting their turf, or who sees our being there as an indication of their poor performance. As you drill in on these concerns, you will normally find they are an indication that there is a fundamental confusion regarding what strategic endeavors actually entail.

So, to clarify: A three-bid process is not strategic sourcing. Subscribing to an index on its own is not sufficient market intelligence to make informed decisions. As I have stated previously here on SI, supplier management software is not strategic supplier relationship management.

It is inefficient to continue to dedicate resources to an issue if you believe it is resolved. Procurement groups that mistakenly believe they are engaging strategically are not going to commit resources to actual strategic endeavors, and their failure to act is to their detriment.

Lack of Resources

If a procurement group is cognizant of the tactical nature of their current practices, they still face an obvious hurdle. Despite the numerous ads and pitches from software and service providers, strategic initiatives require significant resources to design, implement, and carry out. These are resources that most procurement groups simply do not have.

We did a survey of procurement professionals a little over a year ago and released the results throughout the spring and summer of last year. The first paper was on resource shortages, and the big number was that 30% of all procurement groups feel they are understaffed. Digging deeper for statistics more relevant to strategic endeavors, 34% of all polled procurement groups have zero resources dedicated to strategic activities, and 52% of all polled groups have less than half of their resources working on strategic endeavors.

While the need for strategic action may be evident, many procurement groups simply do not have the resources available to commit to the development of these long-term strategic initiatives.

“Engineers who can’t add, operators who can’t run their equipment, and accountants who can’t foot numbers become purchasing professionals”
— Jack Welch

Thanks, Joe! I bet our readers can’t wait for Part II tomorrow!

The First Flight Around the World Began 90 Years Ago Today!

It’s hard to believe that it was only 90 years ago today that Seattle, the lead aircraft in the 4-aircraft squadron of the United States Army Air Service, took off from Sand Point, Washington for Alaska in the first leg of what would become the first successful circumnavigation of the world by flight in a journey that took 175 days and covered 44,342 km.

It’s especially hard since we can now fly halfway around the world in a day and a half and are used to getting expedited shipments to fuel our supply chain from halfway around the world in three days (or less). But back in 1924, even though some had tried, including Britain and France, no country had succeeded in flying around the world until the United States Army Air Service, led by Maj. Frederick Martin, managed to circle the globe with the squadron of specially modified DT-2s, with interchangeable wheeled and pontooned landing gear and a fuel capacity of 3,438 litres, made the voyage which involved landings in over 20 countries.

Although SI typically avoids two history lessons in the same week, this was a significant milestone in aviation. With the first air freight shipment having occurred a mere three and a half years before this iconic journey, it allowed some people to dream of a future where air cargo ruled the skies — and make that future happen!

320 Years Ago The Bank of England Was Established …

It’s establishment is very important as it was the first bank to initiate the permanent issue of banknotes (which were initially offered to raise money to fund the war against France) …

And 200 years ago today, the Netherlands Bank issued it’s first banknote, bringing the Netherlands into the modern age of money de-coupled from the coinage they were originally a substitute for, 48 years before the Federal Government of the United States entered the modern monetary age (and 121 years before the Government of Canada did the same).

I’m sure our good friend Gert van der Heijden, author of Spend Matters Netherlands over in Amsterdam is very pleased about this, because it’s yet another reason why Europe, and Scandinavia in particular, are so far ahead of us in e-Commerce, e-Procurement, and even e-Government — as they are 50 years ahead of us in commerce practices.

For those who are interested, Wikipedia has a good history of the bank note. We all take paper money for granted, but it is only recently that it has become common place around the globe.

The Board Gamers Guide to Supply Management Part XIV: Le Havre

You’ve mastered Agricola and feel that you are an agricultural supply master and after sailing Upon a Salty Ocean, you feel you are also a master of logistics and market timing. But can you handle the full meal deal? Especially when you not only have to balance food and resource acquisition with trading and energy needs? Le Havre, an economic construction strategy game, adds a new dimension to put your supply management strategies to the test: having to balance the use of resources for food and the use of resources for energy to power ships, brickworks, iron mills, abattoirs, bakeries, and smokehouses which allow you to acquire and trade resources, convert raw materials into useable building materials, and turn raw fish and grain into food.

You win Le Havre by acquiring the most wealth over the course of the game, and you acquire wealth by collecting, selling, and using goods and by buying and constructing ships and buildings which have a monetary value. This sounds easy enough, but it is a significant supply management challenge as you have to continuously make enough money to cover the entry costs to the buildings you need (but don’t own), acquire enough raw materials that can be used to produce energy to power the buildings that produce food and building materials, and produce enough food to feed your constantly growing workforce at the end of every round (just like your payroll for an increasingly growing workforces increases in real life), which requires more and more food as the game goes on (just as your corporate workforce also grows as your company grows and you acquire more property and trade more resources).

Although you want to focus on acquiring buildings and building ships, as this is generally what helps you accumulate the most wealth (especially if you leave out the special buildings), you’re constantly having to interrupt your strategy to acquire food to feed your workers, raw materials for future buildings, and energy sources. The last thing you want to do is run out of food, because then you have to buy food, and if you don’t have enough money you either have to fire sale a building (if you have one) at half of its value or borrow, and every loan accrues interest every round (and there’s no limit on debt or interest, just like there’s no limit in the real world).

The game consists of a fixed number of rounds (defined as 14 rounds for 2 players, 18 rounds for 3 players, and 20 rounds for 4 or 5 players), each of which consists of 7 turns. On each turn, you take one of two actions:

  1. take an offer from the harbour or
    on each player’s turn, new goods arrive in the harbour and are added to the appropriate offer space, which the player can take
  2. use one of the available buildings
    which can include the construction firm that allows you to build up to buildings of your own

The base goods that are available as offers for the player to take are:

  • fish
    a food source worth 1 food or 2 food if smoked in the smokehouse
  • wood
    used to construct buildings, ships, or supply 1 energy (via fire); it can supply 3 energy if converted to charcoal in the charcoal kiln
  • clay
    used to construct buildings, it can be upgraded to brick in the brickworks to build more buildings
  • iron
    used to construct buildings or iron ships, it can be upgraded to steel
  • grain
    a harvest good that can be baked into bread (worth two food) at the bakehouse, or used to grow 1 more grain (at the end of the round)
  • cattle
    a harvest good that can be upgraded to meat (worth three food) at the abattoir and hides (for every 2 cattle slaughtered); also, 2+ cattle produce one more cattle at the end of every round

All other goods have to be produced. These include:

  • charcoal: an energy source worth 3 energy produced from wood in the charcoal kiln
  • coke: an energy source worth 10 energy produced from charcoal in the colliery
  • brick: produced from clay in the brickworks
  • steel: produced from iron in the steel mill
  • bread: produced from grain in the bakehouse
  • smoked fish: produced from fish in the smokehouse
  • meat: produced from cattle in the abattoir
  • leather: produced from hides in the tannery

There are 33 standard buildings (and 36 special buildings, which you should ignore until you’ve built up some experience with the base games). In addition to the 9 resource conversion buildings already mentioned, specifically:

  • Abattoir
  • Bakehouse
  • Brickworks
  • Charcoal Kiln
  • Cokery
  • IronWorks
  • Smokehouse
  • Steel Mill
  • Tannery

The following 8 buildings are also available, and necessary:

  • Building Firms: necessary to build buildings
  • Clay Mound: a source of clay
  • Colliery a source of coal
  • Construction Firms: necessary to build buildings
  • Fishery: a source of fish, which is a vital food source
  • Shipping Line: necessary to trade
  • Wharf: necessary to build ships

In order to use a building, you have to pay the entry fee (if you don’t own it), have the energy sources to power it, and one or more of the base goods required to use its ability. In order to build a building, you have to have the resource cost, just like in Agricola. Not to mention, it has to be available. This is the challenge of Le Havre, not only do you have to balance food production (to feed your workers) with resource acquisition (to build), energy production (to power buildings) and ship production (to acquire fish and trade), but you also have to build at the right time, use the buildings at the right time, and trade appropriately. Especially since, just like in the real world, only one player can use one building at a time, take an offer from the harbour and the resource type associated with it, or get points for a particular building or action. And the increasing food costs make the game quite challenging if you don’t adequately prepare for food production from round one. In a four player game, you will need to produce 113 units of food and in a two player game, you will need to produce 177 units of food! A growing workforce needs to be fed (paid)! And you just can’t borrow willy nilly, as the bank only lends money to cover the cost of food (as in Agricola, you can only beg for food).

If you really want to test your supply management mettle, Le Havre is a good game to test it on. While it will likely take twice as long as Agricola to get through a session, it puts your thinking skills and ability to balance supply (offered resources) with demand (building [utilization] costs) in a way that maximizes overall value generated (as the winner is the one that acquires the most wealth by the end of the game). So give Le Havre a go. You might just get more than you negotiated for. (And get one step closer to the ultimate supply management challenge.)

P.S. If you want a good guided introduction to the game, try the iOS version and see if you can become Le Havre’s next titan of industry. The tutorial is good as is the gameplay. (But it won’t give you the challenge of going head to head with your team-mate — all AI’s have preferred strategies and predictable responses when you play them enough.)