Category Archives: Guest Author

Pierre Mitchell on The Hackett Group Best Practices Conference


Today’s guest post is from Pierre Mitchell, Director, Procurement Research and Advisory for The Hackett Group.

the doctor is coming to our annual best practices conference in Atlanta in a couple of weeks (May 11-12) and wanted me to say a few words about it. He is doing this on his own nickel, which is appropriate since the Canadian nickel has a beaver on the back, and the beaver is nature’s engineer (which many an MIT alumn has pointed out to me), and Michael is an engineer. More importantly though, I really applaud the bloggers who get out there and press the flesh as much as the keyboard keys!

Anyway, I really love the event which is held every year in Atlanta at the Intercontinental Buckhead hotel. Our website has all the official marketing about the event, but what I really like about it is not only the chance to reconnect with our Procurement Executive Advisory Program clients at our CPO summit the day before and at the event proper, but also the cross functional nature of it. Don’t get me wrong, dressing up for Procurement-only black-tie events can be fun, and vendor-sponsored golf events can provide welcome respite from the typical CPO workweek insanity, but this is the only executive forum (majority of the hundreds of our conference attendees are VP level and above) I’ve seen that is cross-functional in nature. Many of our Procurement clients remark how it’s nice to see other functions like IT, Finance, HR, Shared Services, etc., also going through the same set of issues. Hasbro‘s CIO Denise Clark will talk about agility and service excellence, communications, governance, metrics and more. Procurement leads a very similar life to IT (although the internal buyer-supplier relationship is not always ‘optimal’).

We do have some great Procurement speakers. Christie Breves, CPO at Alcoa, will discuss the evolving role of procurement at Alcoa and how it contributes to the broader enterprise, especially with its integrated team of procurement and business unit members that helped it quickly respond to the economic downturn. Rick Wertsching, VP Sourcing & Procurement, The Walt Disney Company, will discuss Disney’s results and lessons learned in category management, global sourcing and global operations. Thomson Reuters‘ will be talking about how they optimized sourcing, real estate and facilities, accounting and transaction operations within their Global Business Services (GBS) organization. Air Products, will talk about their experiences on both the sell-side and P2P side. Finally, Chris Sawchuk and myself will be featuring some of our latest Procurement insights from recent research and our latest benchmark data cut.

The big themes for the conference will be agility (as antidote to volatility) and global service delivery:

  • Solo Cup will talk about its ‘next generation’ Integrated Business Planning (IBP) process and moving finance from “reporting” numbers to “making” numbers. In response to rising commodity costs, the company’s management team developed IBP to provide a more robust planning capability than we typically see — especially between Procurement and Finance.
  • Kohler will discuss how to go from multinational to global and balancing need for global vs. forces driving local customization, including the evolving role of the finance organization — from transaction provider to strategic business enabler. Procurement must similarly “mass customize” its processes in both sourcing and in P2P.
  • Michael Bordoni, VP Finance Strategy & Transformation at HP, is a top-rated returning speaker to discuss HP’s journey to world-class finance performance. He will address process design and sourcing, technology and automation, skills and talent, governance and organization — including the use of global business service centers and centers of excellence.
  • Not to be outdone, Dell will also discuss their EPM (enterprise performance management) journey and their fundamental shift from country-based segmentation to one aligned with global customers and products.
  • Unilever will focus on its interesting “global operating model” and how the company delivers based on a model that is being “designed in the East” and “transported to the West”.

While there’s nothing like actually being there, I’m sure Michael will write up some good insights to share back with the blogosphere. If you do make it down though, I look forward to seeing you!

Thanks, Pierre!

Interpreting Japanese Communication

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Note to readers of the Purchasing Certification Blog: most of this post appeared in this morning’s post on Japan’s Supply Chain Recovery: Interpreting The Estimates.

I’ve been watching and reading the various sources of information coming out of Japan and trying to interpret it after filtering it through the cultural differences that can impede communication and sometimes action. I see one apparent difference and am concerned about another potential difference.

One consistent complaint is that the various spokespeople in Japan seem to be understating the seriousness of the radiation hazards. It’s very likely that this is due to a cultural difference that strongly affects communication. The difference goes by various names, and I call it a “need for harmony”. It could also be called a “low score on a frankness scale”. A strong cultural need for harmony can make it difficult for people in that culture to deliver bad news directly. They will often resort to various expressions such as the Japanese “honto ni muzukashii“. That literally means “truly difficult” in English. However, people in Japan will correctly take it to be a very frank statement that something will not happen.

A classic example is in the Japanese Emperor’s speech to the nation announcing the surrender at the end of World War II. It included “the war situation has developed not necessarily to Japan’s advantage”. This was after two nuclear bombs and a total collapse of manufacturing and logistics.

While Japan is especially strong in this need for harmony, it’s a fairly widespread characteristic among Asian and some Latin American cultures. Keep in mind that Japanese may be perceiving the messages differently than Westerners.

The second difference is just a concern at this point. There’s a well known cultural difference called “Uncertainty Avoidance”. It influences the willingness of people to make decisions without being sure of the outcome. It makes people much more comfortable with routine situations and incremental improvements than they are with dealing with the unexpected. While Japan is extremely high on the “Uncertainty Avoidance” scale, I really haven’t seen any indication of lack of creativity in solving the problems.

Now, for those of you who are trying to gauge potential supply disruptions:

If you can manage face to face meetings that’s clearly the best way to handle it. You’ll have to judge the danger of traveling to a particular Japanese supplier of course. Second best is video conferencing, so you can watch facial expressions and body language. Third best is telephone. In all cases, send some questions ahead of time by email. In questioning, be sure to probe assurances of continuing supply more deeply than you would with people from a frank culture such as Germany or the US. It’s best to ask open ended questions such as “how are the roads to the airport” or “how are your suppliers in the affected area” than questions that can be answered with a simple yes or no such as “is everything OK”.

You should also keep in mind that Japanese communicators are usually not being dishonest when they seem overly reassuring. It’s just that their culture makes it difficult to say some things too directly and they are seeing themselves as courteous.

Dick Locke, Global Procurement Group and Global Supply Training.

A Futuristic Look at High Definition Sourcing

Sourcing Innovation would like to officially welcome its newest sponsor, BravoSolution.

Normally SI would include a review of the vendor’s primary offering in the welcome post, but since Bravo’s new Collaborative High-Definition Sourcing platform was just covered extensively by SI in High Definition Sourcing … with the Business Center … and Category Sourcing (as well as in Making Spend Analysis More Useful, Part I and Part II), SI would instead like to offer BravoSolution’s perspective on how a new sourcing paradigm could change Supply Management in the years ahead.

To this end, I have asked Paul Martyn (VP of Marketing), who can be reached at p <dot> martyn <at> bravosolution <dot> com and who recently penned a guest post on Achieving Category Excellence with High Definition Sourcing, to look ahead three years when High Definition Sourcing and Next Generation Sourcing Techniques (which include the Value Focussed Supply Techniques described in last week’s posts) are commonplace in the leading Supply Management organizations and put together a picture of what e-Sourcing might look like.

It’s 2014. I’m a senior sourcing professional at a large multi-national company and I’ve got major sourcing programs planned for categories that share the following characteristics:

  • Large amounts of spend
  • International, operational, marketing and/or finance stakeholders
  • Complicated cost models
  • The category leader is frustrated with traditional sourcing techniques
  • The category is avoided by the faint of heart
  • Dynamic corporate, supplier, and market conditions

Sound daunting? Maybe even impossible to succeed? Three years ago, I would have shared your skepticism and been completely frustrated by the sheer complexity of tackling these challenges. When I look back, there was a lot holding me and my team back, including:

  • A one-size-fits-all approach to sourcing:
    For successful sourcing of complex categories, what my team really needed was the ability to define the world of their particular category. A flexible framework would allow us to state the opportunity/problem, gather the necessary inputs to evaluate possible reactions, make a decision, and track the implementation and monitor the changing conditions around the decisions we’ve made to constantly take advantage of changing realities — all while staying consistent across the organization.
  • Silos, silos everywhere and not a bridge in sight:
    The conventional approaches I used created nonsensical boundaries across functions. I couldn’t get engineering, distribution, supply chain, and customer service aligned or more importantly — involved in the decisions. Worse, we weren’t really in problem-solving mode, these were merely sequenced ‘events’ executed with no ability to create and manage a ‘process’ that ended up as a ‘system’ to manage key categories. All we created were more damn task lists. My category leaders didn’t need more “to-do’s”, they needed laboratories for research and testing, board rooms for decision-making, and a ship’s bridge from which to monitor and control.
  • Drowning in useless data:
    We made great use of data at first, but wrestling with it was so manual and there was no way to easily refresh it. It very quickly became like a can of soda: when first opened, it’s great, but the longer it sits, the flatter — and less useful in providing relief — it gets.

So what’s changed? I’ve used ‘High Definition’ Sourcing with category specific ‘Business Centers’ for complex categories. With this sophisticated approach:

  • Category managers have a panoramic view that allows them to manage their categories, end-to-end with regards to
    1. defining new opportunities/problems
    2. gathering a full spectrum of metrics to use in evaluating potential solutions,
    3. establishing, monitoring, and tracking of key decisions to highlight deviations from expectations

    These three (3) parameters form our ‘system’ for managing complex categories, where the stakes are high and the opportunities for value, even higher.

  • With a category management Center of Excellence we have two critical resources for successful management of high-definition sourcing:
    1. A Data Management Guru (DMG) responsible for the data capture and informatics. The DMG establishes connections to gather baselines; refreshes usage and capacity details; links to spend sources for up-to-date consumption figures and arranges performance data aggregation and design.
    2. A Business Intelligence Management Professional (BIMP) responsible for configuring the new analytics necessary to analyze key categories within an initiative. Every problem is a little different, and the right analytics are crucial to making the right decision.

As a result, my sourcing tools can

  • Flexibly define the problem opportunity for a specific category
  • Utilize robust data sources to feed the evaluation and performance processes
  • Allow creative scenarios to complete the evaluation process
  • Support the determination of specific decisions and actions
  • Establish KPIs for tracking ongoing performance
  • Effectively report the impact of our initiatives in terms (EPS/Profit Contribution) the entire organization understands

All in the context of a given category.

And the return on investment for the staff augmentation and additional tools? An additional 5-8% savings in my most strategic categories, an overall improvement in my supplier performance post-contract, and an overall reduction in organizational risk by involving all of my stakeholders, their key data inputs, and constraints.

My only regret: I didn’t do it sooner.

Thanks, Paul!

High-Definition Sourcing: Category Excellence Moves to the Next Level


Today’s guest post is from Paul Martyn, Vice President of Marketing for Bravo Solution.
Paul can be reached at p <dot> martyn <at> bravosolution <dot> com.

the doctor — along with many others — has been advocating for “next-generation sourcing” for some time. I couldn’t agree more that modern supply management organizations must take sourcing practices to the next level if they are going to continue to distill value from the discipline and practice.

But like most New Year’s Resolutions, while the aspiration to improve may be great, the effort may be too much for even the most committed. I see this a lot, especially when it comes the challenges of sourcing strategic, complex categories. Not without reason of course, but more and more I also see that the benefits of mastering the art of sourcing these challenging categories far outweigh the difficulties of the actual process.

Strategic categories mean different things to different businesses. For one company, the category may be transportation; for another, packaging material. The common denominator: the business can’t succeed without it, and can’t afford to over-pay for it.

To make decisions based on the most strategic objectives of the business, sourcing teams need to integrate many dimensions of information from areas well outside their domains. For example, if non-price factors like diversity or sustainability are part of the company’s corporate social responsibility initiative, those factors can — and should — be part of sourcing strategies.

As a result, the volume and the sheer variability of the information render common e-sourcing tools or Excel spreadsheets useless for collecting and evaluating proposals. That’s where high-definition sourcing — which combines technology, expertise and process — delivers the goods at the lowest total landed cost, and aligned with the greater organizational strategy.

So how do you know if high-definition sourcing can turn even the most complex categories into real value for your organization? There are generally three scenarios where the opportunity to apply this discipline will help you capture meaningful and sustainable savings

  1. The category leader is frustrated with traditional sourcing techniques
  2. The category is avoided by the faint of heart
  3. Sourcing alone will not deliver the value

Sound familiar? Odds are good that at least one of these reflects what’s happening in your organization. Regardless of which situation you face, there are immediate opportunities to be gained with high-definition sourcing

  • Use technology to design and execute more sophisticated proposal collection and analysis, including the ability to use “what-if” scenarios.
  • Build supplier performance monitoring and triggers for re-evaluating supplier selection into your category management solution
  • Partner with suppliers to drive costs out of the system and strike the perfect balance between suppliers’ pricing and capabilities with buyer business constraints and preferences
  • Tap domain and process experts to bring market and industry best practices to bear on your own sourcing process

The results will be well worth it. Best-in-class companies make the connection between complex categories and the business’ charter. Lowering initial costs is a given. More importantly, these leaders make better decisions based on capabilities and price and secure meaningful — and sustainable — savings.

Thanks, Paul!

Using Consultants and Advisors Wisely


Today’s guest post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the supply management best seller Straight to the Bottom Line.

Maybe it is the urgency of the current business environment, but in the past few months we’ve heard about several large procurement consulting projects that did not turn out well. For a recap of some of the classic reasons for potential trouble, see my earlier posting on Consultants: Use Them Intelligently.

Two of the most recent stories that came to our attention involved different firms but a common thread: “success fee” or “risk free” procurement consulting engagements. For those of you who are not familiar with the practice, “success fee” or “risk free” consulting obligates the client to pay to the consulting firm a fairly hefty percentage of the “savings” generated during the project. Often, 30 to 40% of the first year’s benefits are due as payment. These arrangements are also sometimes known as “shared savings” engagements.

Beyond the large total cost of this option (often 3 to 4 times more expensive than the classic professional time and expenses approach), major challenges/drawbacks of a success fee approach include:

  1. Potential misalignment of interests between client and consulting firm (the client often wants not just negotiated cost reduction, but implemented results — along with fundamental transformation and capability building; consulting firms in a pure success fee or “risk-free” arrangement are incented to drive quickly for negotiated savings, and then depart for their next client.)
  2. Administrative and practical complexities of agreeing on savings calculations, and the potential of disputes regarding payments due.
  3. Unpredictable, and potentially unproductive, behaviours from client employees if the existence of the shared savings arrangement becomes known.

When a client asks us whether we would entertain doing sourcing advisory work on a success basis, we take the opportunity to have a full disclosure conversation on the subject. For example, at a minimum, Greybeard presents the detailed pros and cons, including estimated total costs for the project scope, for three options: professional time and expenses, success fee, and a hybrid of the other two. That information is the catalyst for a meaningful conversation. And, it enables the client firm to make an informed decision that is in its best interests, not the consulting firm’s best interests.

Thanks, Bob!

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