Category Archives: Corporate

Bob Engel’s Ten Fundamental Strategies (for Supply Chain Success)

One of the presentations at the 6th Annual International Symposium on Supply Chain Management was a presentation by Bob Engel of Resources Global Professionals that summarized his 10 Fundamental Strategies for Exceeding in Supply Management. Although you’ve probably encountered all of these strategies before on this blog, they are worth repeating. They are:

    1. Establish a governing council
      Those companies that establish a governance council are the companies that excel.
    2. Align the supply chain organization
      The theme here is centralized consensus with decentralized execution, as this gives you the best of both worlds.
    3. Recruit supply chain professionals
      You need to focus on strategic thinking in both recruiting and incentivizing. For example, if you decide to base an employee’s bonus on the number of purchase orders cut, guess what’s going to happen? That’s right! Every item on Engineering’s Bill of Materials is going to become its own purchase order.
    4. Set the strategic sourcing strategy
      Strategic Sourcing is the cornerstone of Supply Chain Management.
      (And Spend Analysis and Decision Optimization are the cornerstones of Strategic Sourcing.)

 

    1. Establish key supplier alliances
      It’s not SRM … it’s Alliance Management, especially on strategic and complex categories. It’s a partnership (and that’s why we are finding that mutually accepted common scorecards work.)
    2. Manage total cost of ownership
      TCO needs to be the mindset.
      (At a minimum, if it’s a strategic or complex category, you should be focussed on TVM.)
    3. Manage compliance and risk
      Consider a recent Aberdeen Survey that asked the question “How do you manage your company’s contracts?” to 150 fortune 500 CXOs only to have 100 of these fortune 500 CXOs respond that “We can’t even find them, let alone manage them!” … that’s a problem! (Need a solution? E-mail the doctor <at> sourcinginnovation <dot> com.)
    4. Optimize company-owned inventory
      Remember, with an average holding cost of 20% to 48% per annum, inventory is money.
    5. Gather information on a timely basis
      Good data is timely data.
    6. Establish processes and controls
      And once you simplify processes and controls, so that they are easy to understand and execute, they key is to select complementary technologies that enable them! (And not the other way around!)

 

 

 

(More Than Ever) You Need Experts (if You Want Cost Reductions)

In his Friday Rant, Mr. Busch asked if “kicking out consultants was a smart cost cutting strategy”. I promptly answered, Hell, No and pointed out my posts on why Consultants are Cheap, it’s easy to get maximum value from consultants, and that any we don’t need no consultants here logic is flawed. (I also pointed out that there are better ways to cut costs, as I chronicled in my recent posts on ways to avoid the graveyard, more ways to avoid the graveyard, and even more ways to avoid the graveyard, and that if a company is seriously looking to trim labor costs, it should consider firing its overpaid, under-performing executives. [And if you’re wondering, I fully support Obama’s desire to limit executive pay. There’s no way you should get 20 Million for running a company into the ground. If it was up to me, I’d limit base pay to 1 Million and additional compensation to performance based awards as a percentage of total profit or revenue improvement. I’d still allow for unlimited pay with unlimited performance improvement, but you’d have to earn every penny.])

Let’s face it … with your head down in day to day operations, you’re not going to be up on the latest cost savings strategies, market conditions, or technology improvements … whereas an expert will be breathing the latest strategies and technologies for improving performance and cutting costs day in and day out. Furthermore, as pointed out in this recent article from Chief Executive, using external expertise is in harmony with the modern approach to business which is all about [staying] lean & agile, [being] virtual, and outsourcing. Furthermore, as the author astutely points out, economic turmoil creates unusual problems which might need extraordinary solutions … which are only going to come from an expert.

Design for Frugal Growth, Be Ready for Explosive Growth

A recent article in Strategy + Business pointed out the best reason why a company should design for frugal growth … it lays the foundation for explosive growth when the situation presents itself. To see this, let’s look at the design for frugal growth triangle that clarifies the five things a company designing for frugal growth has to focus on:

  • Accountability
    A company that is prepared for frugal growth is accountable for every dollar spent, and only spends dollars that lead to organizational improvement, such as increased efficiency, quality or productivity; cost savings and avoidance; and innovation-focussed R&D.
  • Innovation
    A company intent on frugal growth is constantly innovating new processes to improve efficiency and quality and reduce costs and innovating new products to bring to market to increase profitability.
  • Pull-based Functional Relationships
    A company designing for frugal growth does not tie up working capital in unnecessary and excess inventory … it uses a flexible and responsive supply chain to pull products and services on an as-needed and timely basis.
  • Differentiated Capabilities
    A company focussed on frugal growth knows that it needs to differentiate itself if it is to survive, especially in a down market.
  • Ability to Leverage Scale
    A company that has adopted the frugal growth philosophy has created economies of scale by consolidating research, manufacturing, and distribution. It has also established cross-functional teams and close collaboration between business units, removing the bottleneck that plagues so many of today’s departmentalized corporations.

All of this helps prepare a company for explosive growth when opportunity knocks. Here’s why:

  • Innovation Mindset Recognizes New Opportunities
    A company with an innovative mindset is always looking for problems to solve as well as new solutions to existing problems and will be the first to recognize a new opportunity when it presents itself.
  • Accountability Provides Focus
    An accountable company, used to focussing on getting results for every dollar spent, will be able to focus on the opportunity, develop a plan to take advantage of the opportunity, and execute the plan with the resources it has.
  • Differentiated Capabilities Enable New Product Design
    A company with differentiated capabilities will be able to quickly design new products to meet the specific opportunity presented to it, or streamline production processes to meet a surge in demand for existing products.
  • Pull-based Functional Relationships Allow for Rapid Response
    A company with optimized pull-based functional relationships will be able to quickly scale up production to fuel explosive growth when the time is right.
  • Ability to Leverage Scale Opens Up Markets
    A company that can leverage scale can use the same cross-functional capabilities to open up new markets, and expand globally when the opportunity arises.

Dead Company

Two weeks ago, I brought you Dumb Company, a starting list of things that companies who fail the CIRCUIT rating (Corporate Intelligence Rating Calibration Under Inflationary Times) tend to do. Today, I bring you Part III of the series, which will attempt to explain why your favorite vendor likely won’t be here next year at this time.

The harsh reality is that this year has seen a couple of big vendors, with credit lines severely diminished or cut off due to bank failures, lost lawsuits, and VC belt-tightening, go through a number of layoff rounds. Two of the larger vendors in the space, despite claims of “regrouping”, are in serious trouble and (could soon be) on the block … and they could soon be joined by up to a dozen small companies that, relatively speaking, took too much VC money, and sold too little product, in the last few years. Some have great products, and will be sorely missed if they don’t get a quick cash infusion and close their doors, but it’s a harsh reality when you don’t manage for frugal growth, don’t continually focus on innovation not just in your products but in your internal operations as well, and don’t bring in outside expert help when you need it.

Why is this happening? The reasons vary from company to company, but the following reasons are common.

Too much VC money, too soon, against an overly ambitious business plan

The days of your average company spending seven figures on yet another enterprise system are over. Especially if such system is unproven. The way to succeed is to plan for slow and steady growth; delay sales, marketing, and CXO hires until the product is (almost) ready for massive deployment; and take as little money as possible early on so that there’s equity left to get more money later if the market declines and throws a crimp into your five-year plan.

Poor Approach to Sales

Many companies believe that if you bring in a few big guns (knowing that 20% of the sales force is responsible for 80% of the revenue at enterprise software companies) or get enough feet out there, you’ll get sales. This isn’t automatically true for a number of reasons. (1) The big guns are used to selling proven systems with large organizations backing them up. (2) It’s not the size of your sales force that matters, it’s the quality. (3) If they’re not getting the right message through to the right people, they’re not going to sell a thing.  (And if you haven’t had one lately, a sales and marketing review by an expert in the space might be a good idea.)

Too Many Assumptions, Too Few Verifications

A lot of entrepreneurs come from big company backgrounds where they’ve worked in a job for a number of years and grew frustrated at the lack of a solution for a problem to which they’re sure they know the solution. What many don’t understand is that not every company has the same problems, or the same processes, or the same viewpoint as to what constitutes a solution and, believing they are the expert, they over-engineer the solution to the point where it only solves one problem for one company.

Belief that Innovation Bursts are Enough

Some companies believe that once they have a product that represents a new solution to an unsolved, or poorly solved problem, they don’t have to do anything else for at least a couple of years. They effectively stop New Product Development and divert all their efforts to Sales & Marketing. The problem is that anything that can be built can be copied and improved upon many times faster, and the way to gain, and keep, customers is through continual innovation.

Our Way is the Right Way

The entrepreneurial team comes up with a way to structure, and run, the business, usually on-the-fly and by the seat of their pants, and runs with it, no matter what. If the structure is ripe with inefficiencies, it can prevent scalability and lead to discontent, which can, in return, result in the loss of key personnel.

So what can you do if you don’t want to end up like your favorite vendor?
Remember that consultants are cheap and

  • Get a Sales Review
    Are your sales people getting the right message through to the right people? Are they aligned with marketing? Are they selling at the right price points?
  • Get a Technology RoadMap Review
    Are you solving the right problems? Is your solution advancing at the right rate? Do you have enough innovation to get, and keep, a customer’s attention?
  • Get an Operations Review
    Are you efficient? Are your people enabled? Are you ready for growth?

And if you don’t know who to call, call the doctor (or e-mail him). If he can’t help you, he’ll help you hook up with someone who can.

 

The Value of Proactivity in the Current Business Environment

Today’s guest post is from Robert Rudzki, a former Fortune 500 senior executive of supply management who now runs Greybeard Advisors, a strategic management consulting firm.

Bob has authored several business books including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise and Straight to the Bottom Line.

He can be reached at rudzki <at> greybeardadvisors <dot> com and found on the SCMR Transformation Leadership blog.

Now is the time NOT to hunker down in a fox hole; rather, this is the time to be pro-active. One idea: take the opportunity to perform a candid assessment of your supply management and procurement practices. More companies are doing just that. In fact, in the past few months, my firm, Greybeard Advisors, has experienced an increase in requests for proposals to perform such assessments.

Proactive companies of all sizes seem to have renewed interest and seriousness about a number of critical topics:

  • understanding – candidly – how their current practices compare to “best practices”
  • identifying the specific financial opportunities, and quantifying them
  • developing a prioritized plan of action that creates near-term wins
  • using those near-term wins to help fund true strategic transformation along numerous dimensions required for achieving world-class status

Clearly, some of this renewed interest can be attributed to concerns about the economic downturn. But, what really excites us as practitioner-advisors: some of these companies are approaching it for other reasons; namely, wanting to be the premier firm in their industry, and realizing that procurement and supply management is a way to get there. Done well, procurement and supply management can impact not just total costs, but also revenues, and working capital. And that can have a powerful effect on total financial performance (ROIC, ROE, EPS).

These are very difficult and challenging times – all the more reason to approach your job with creativity, resolve and leadership.

Having been through a number of business cycles as a Fortune 500 corporate officer, I can attest to the challenge – and the opportunity – of being proactive in this environment. Companies that maintain their strategic focus and work to create their future will be well prepared to reap the benefits when the economy improves.

Thanks, Bob!