Originally posted on on the e-Sourcing Forum [WayBackMachine] on January 29th, 2009

The Supply Chain Management Review recently ran an article on “Maximizing e-Sourcing through a Center of Excellence” where they noted that software alone is not sufficient — organizations must have the knowledge and policies in place to support these tools. The article then says that, because of this, leaders today are establishing Centers of Excellence (CoE) to fully capture the value and savings from e-Sourcing technologies.

As per the article, a Center of Excellence is a small center-led group of sourcing experts who focus on standardizing processes, leveraging technology, capturing best practices, sharing knowledge, and streamlining activities. The model allows the flexibility to tailor purchases at the local level while leveraging corporate spend for strategic categories and commodities. (For a more complete definition of Center Led Procurement, as well as the benefits that normally accompany it, see my three part series: Part I: Introduction , Part II: Center of Excellence, and Part III: Best Practices).

The article also proclaims the benefits that often accompany a CoE and points to an Aberdeen study that found that the savings performance of an organization that has established a CoE is typically 39% better than its competitors. Furthermore, the organization is 32% more likely to have employed advanced sourcing strategies, 54% more proficient in their usage of e-Sourcing technology, and 25% ahead of their competition when it comes to maverick spend.

Considering that other studies from other organizations have reported similar results, there’s no arguing that a well designed and properly executed center of excellence gets results. However, I have to wonder how much is due to the center of excellence and how much is due to the mindset of excellence. It’s not the center that achieves results – but the people. It’s not the technology that the center employs – but the people who use it. It’s not the processes that the center recommends – but the people who
employ them. The mindset to apply best practices, processes, and technologies and be best in class resides in people.

Furthermore, if you have a team that has the mindset, do you really need a physical center? Many organizations like to “centralize” their “center-led” procurement organization in a single location – but considering the global talent crunch, is this really a good idea? First of all, your best talent is probably distributed globally – and many of them probably aren’t going to want to relocate (half-way around the world). Secondly, with the increasingly global nature of business, you need talent distributed globally to help your global teams understand the best practices, processes, and technology and properly apply them. If you think that once a year training sessions in a central location is enough these days, you’re trapped in the past. Thirdly, you can’t always aggregate demand across disparate divisions when each division could be making slightly different goods for different markets with different regulatory requirements. Sometimes demand just has to remain distributed.

Thus, I have to ask whether a Center of Excellence is the answer or if what you really need is a Team of Excellence. Furthermore, do you really need this team centralized in the same office, or can they be distributed out across your global purchasing organizations? It seems to me that if they have a Mindset of Excellence, this is all you need. Furthermore, since you’ll have one or more experts in each of your divisions, it seems to me that not only will you have increased adoption of the mandated processes, technologies, and best practices, but that you’ll get even better performance across the board. Now, it’s true that you’ll need networked persons to pull this off, but hey, it’s the noughts. Get used to it.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Thursday, 2 August 2007

In a recent issue of the Supply Chain Management Review, you’ll find an article entitled “Motivating Supply Chain Behaviour: The Right Incentives Can Make All the Difference”, that not only points out the effectiveness of incentives, but also tackles the issues surrounding them. Incentives work, but only if they are the right incentives based on the right metrics.

The second paragraph in the article points out the challenges in managing incentives holistically throughout the supply chain. “The most pervasive problem is that, in many companies, the supply chain is organized as a set of functions or departments such as receiving, production, and logistics. Each function is likely to use metrics that optimize performance inside its box on the organization chart. But when managers’ bonuses are based on criteria that make sense only within their own departments, the resulting behavior may conflict with the interests of the company as a whole”.

However, it’s not always easy to develop metrics that both serve to optimize performance across the entire supply chain and within individual departments. This is problematic when a company wants to award each individual department, and manager, individually and objectively. Furthermore, in highly volatile demand driven industries such as electronics, performance is often heavily tied to forecasting, which is difficult, if not impossible, to get accurate – especially in today’s age of global sourcing where you need average lead times of four to six weeks just to get product from your contract manufacturer.

This isn’t to say that it’s impossible, or that the use of supply chain wide metrics is exclusive of the use of departmental metrics. It’s not, and it’s not, but you might have to put some thought and creativity into coming up with the right metrics and incentives. (This task will be simplified if you incorporate the key elements outlined in Aberdeen’s “The Key to Talent Development” Market Alert: create a talent mindset and a performance culture, develop a “learning organization”, and align with the overall strategic plan of the company.) But, as the article discovered, it is worth the effort. The article, which was based on a study across fifty organizational divisions in companies that employ a make-to-stock manufacturing strategy, found that:

• Incentives drive improved operational performance.
• Incentives are more effective for easily controlled tasks.
• Companies with higher supply chain complexity are more likely to use incentives.
• Incentives can be used to encourage the effective execution of coordinated tasks.

It also found that most companies (85%) measure supply chain performance, which is good, because without a baseline, there is no way to measure improvement, and the number one goal of every organization should be constant improvement. Most of the companies surveyed used a supply chain scorecard, and while the contents of such scorecards varied, most respondents measured on-time delivery (89%) and inventory turns (79%) as key metrics.

Another great finding was that decentralized organizations outperform centralized organizations under the right conditions. Specifically when functional managers make decisions that consider the big picture rather than just focussing on their department. It’s unfortunate that they did not include center-led models in their study, since this finding could be construed to imply that center-led models might be the most effective as all as the center of excellence could come up with guiding principles that help keep each of the decentralized units on the right track while empowering them to make the autonomous decisions necessary for quick and effective customer service.

The article concludes with the following take-aways, which I would agree with:

• Have a balanced scorecard in place and monitor it regularly.
• Align the responsibility for achieving specific targets with the responsibility for the related operational activities.
• Align your use of incentives with your organizational model and your ability to measure performance.
• Apply the incentives in ways that promote the behavior you want.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Tuesday, 26 June 2007

The ISM “Project Management for Supply Professionals” Satellite Seminar Program Handbook, despite being limited mostly to presentation slides and a few article reprints, had a few great slides and a few great tips for supply management project management that are doubly true for e-Sourcing project management. Two slides in particular that I would like to point out and comment on are the Seven “Sins” and the Six “Tried and Trues”.

Seven “Sins”

• Arrogance
  Don’t assume you know the outcome before you start, that you can do it better without full utilization of the e-Sourcing tool, or that suppliers will not be interested. You need to go in with an open mind to achieve true success.
  When we see men of a contrary character, we should turn inwards and examine ourselves.
• Indecisiveness
  The end result of a successful e-Sourcing event is an award. This implies that one has to make a decision – and do it promptly, as e-Sourcing comes with the expectation of efficiency. Not to mention, one needs to make decisions at each stage of the RFx process as to which suppliers will be invited to continue through to the final auction or sealed bid negotiation and which suppliers do not make the cut.
  To see what is right, and not to do it, is want of courage or of principle.
• Disorganization
  Just because the tool keeps track of and organizes of RFQs, bids, and supplier information for you, this does not imply that your organization skills can slack. In fact, it implies the opposite. You need to be more organized. Instantaneous delivery allows for instantaneous responses and questions. Shortened cycles mean that you have to be prepared to help suppliers efficiently pass through the stages.
  If a man takes no thought about what is distant, he will find sorrow near at hand.
• Stubbornness
  Hand-in-hand with arrogance, stubbornness can kill your project before you start. Don’t resist the tools or cling to the old ways when a new way is faster, better, and more collaborative.
  Hold faithfulness and sincerity as first principles.
• Negativism
  Negativity is very unlikely to lead to a successful, positive result.
  Respect yourself and others will respect you.
• Cowardice
  Dogs aren’t the only ones that can sense fear. So can people. And not all suppliers will be fair and honest if they think they can walk all over you. Be bold and embrace the brave new e-Sourcing world!
  To know what is right and not to do it is the worst cowardice.
• Untrustworthiness
  e-Sourcing requires trust. Lots of it. If your suppliers don’t trust you, they won’t participate, and the project will be over before it even begins.
  The superior man is modest in his speech, but exceeds in his actions.

Six “Tried and Trues”

• Define a clear purpose
  What is the goal of the e-Sourcing Project? To secure supply? To reduce costs? A combination of both?
• Take the time to gain team buy-in
  You need all of the affected stakeholders in your organization as well as your potential suppliers to be comfortable with the project and the process. Take the time to educate them on the benefits and get their support.
• Be supremely organized
  e-Sourcing is designed to be a very efficient process. When the project starts, you need to be ready and available to take it to a prompt conclusion.
• Lean about unfamiliar areas
  Inspiration rarely springs forth from the mundane or the familiar. Explore related and unrelated areas to understand the far reaching effects of your project and look for insight into ways to improve the process.
• Protect your impartiality
  The supplier qualification and award guidelines should be decided before the project begins and to be perceived as fair and trustworthy, you need to do your upmost to adhere to them.
• Be collaborative, then decisive
  The purpose of a multi-round RFx process is not just to qualify potential suppliers, but to get their input to refine your needs, RFP, and sourcing plans to the best they can be. Collaborate with your suppliers to get the best set of requirements and designs possible before deciding on the final award decision after the sealed-bid negotiation or auction takes place.

All in all, great advice.

Originally posted on on the e-Sourcing Forum [WayBackMachine] in April, 2008.

I enjoyed the recent article over on Global Services by the title of “Wrecking Ball” that noted that “implementation of new operating models requires the corporate equivalent of wrecking an old building in order to build anew, yet few corporate managers are trained to swing the wrecking ball carefully, communicate in the most effective way to employees, and prepare for the fallout”.

As the author notes, “for many corporate change managers, preparing to communicate with employees is the last tick in the box”. Too many managers assume that the responsibility can be offloaded to HR or the internal communications department when the reality is that only the managers who understand the scope – the work, employees, internal customers and potential impacts – can effectively swing the wrecking ball and manage the inevitable issues that are going to arise from a major change.

Furthermore, communication preparation should begin at the strategic planning stage, not at the beginning of implementation. This is the best time to prepare the right message – which must be clear, factual, and consistently communicated. Employees need to understand the reasons for change if they are to embrace them. As the article notes, “simple oblique statements such as ‘we need to be competitive’ can sound like corporate code for increase executive compensation” – and is not going to be very inspirational.

Once the core message is drafted, it’s time to list all the affected stake-holders, determine who realizes the rewards and who pays for the gains, and develop a plan to address their specific concerns. This will require targeted messaging to them on top of the basic message. Be sure to plan for the inevitable backlash, and craft appropriate responses as well.

Once the messaging is worked out, you can work out the roadmap and implementation plan as you know you will be able to start delivering the right messaging to the right stakeholders at the right time. This plan should include performance incentives as productively tends to decline precipitously immediately after a major change is announced. It should also include a plan for dealing with voluntary attrition, as some people will get nervous, fear for their jobs, and seek new employment elsewhere. And, of course, constant communication that addresses all of the concerns as they arise.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on January 29th, 2008

Purchasing B2B had a good article over the summer called “Suppliers Like You Because? Discovering All Your Leverage Points” by Terence Lillew that had a list of nine discussion points that should be considered in the development of a cost management strategy for a category.

1. Dollar Volume

Dollar volume is generally the primary leverage point. When a regular order over a period of time is locked in, suppliers can budget resources, plan appropriately and rein in their costs. Thus, you can insist that some of that savings is passed on to you.

2. Size

After dollar volume comes organization size. The larger the organization, and the greater the potential for future business, the greater the discount structure that the supplier can offer.

3. Leadership

The organization’s leader sets the tone for business value. If the leader is respected, and has demonstrated long-term effectiveness, the company can leverage itself into a better position.

4. Business Philosophy

A fair and ethical business philosophy that looks for solutions instead of attaching blame and that continually improves and a philosophy that supports creativity will give the organization a competitive edge in all negotiations.

5. Policies and Process

The company’s purchasing department must be responsible for the policies and processes if they are to leverage their position, and they must be sure to make sure the policies and processes are fair and up-to-date.

6. Early Influencer

A company known as an innovator gains a certain amount of prestige that can be leveraged to improve their position in a negotiation because they will be seen as a company you want to do business with.

7. Benchmarking

A leading organization constantly benchmarks its performance against peers and competitors. Suppliers know that a benchmarking company is often a successful company and may be more inclined to do business with such a company.

8. Buy Locally

Organization’s that buy locally have a natural advantage over those that don’t. A supplier wants to service a local buyer.

9. Payment Cycles

In an industry where most buyers are trying to extend payment cycles, any buyer that can reduce payment cycles is in a strong position to negotiate for additional discounts.

These are all great points. Be sure to think each and every one through before finalizing your negotiation strategy and starting an e-RFX or an e-Auction.