Category Archives: Guest Author

Is there a T in BPM?

Today’s guest post is from Sudy Bharadwaj, ex-analyst extraordinaire of the Aberdeen Group, former VP of MindFlow, former CMO of Informance, and, most recently, a star at Inovis.

I don’t get it. I have been involved in numerous business process improvement projects over the past 20 years. I have been in numerous meetings about “business process management”. I’ve read white papers and looked at discussion groups. In way too many cases, very early in the conversation, a business process discussion gets down and dirty into integration processes, XML and other related technologies. At a certain point in time, a technology discussion becomes necessary and important, but not early in a BPM initiative. Here is my vote — don’t get techie in a business process discussion. The point is to review, understand and diagram your business process.

Here are some quick guidelines I have pieced together over the years for various business process improvement initiatives:

Engage in a discussion. With respect to Global 2000 executives in particular: discuss your business process internally before you engage an outside vendor, be it a consulting or technology company. If you want to use a technology, use a white board and markers. After a thorough understanding of the process, only then should modern technology be used, and even then the first piece of modern technology employed should only be used to capture the process flow. In other words, you start with something like PowerPoint or Visio. If the organization is large and/or distributed, you might also leverage social networking and collaborative tools, such as wikis, to engage a larger team and obtain input into what your business process actually looks like. Social networking is a great tool to garner input and gain consensus on what a business process looks like, since the challenges of including a large, extended and distributed team is greatly simplified.

Don’t get myopic. Many business processes are cross-functional and extend beyond the walls of your own enterprise. Don’t let those boundaries affect the improvement initiative. Many times, a business process is only as good as its inputs (garbage-in/garbage out). Make sure you understand your inputs/outputs, and in some cases, it is not wrong to extend beyond your own scope of control to better understand and diagram the process. This can be a delicate process, so it may not be for everyone, but if you can engage externally and collaboratively, your results can improve.

Use common phrases and definitions. One way to get team members to understand and define the process better is not to use internal acronyms. Try using industry terms and/or terms you would use to explain a concept at a party. If this is a customer-facing business process, explain it in terms of benefits to your customers. A supplier-facing initiative, benefits to suppliers. By struggling to obtain new phrases/definitions, you will gain insight and, more importantly, challenge the establishment (“now that I say it that way, why do we do it that way?”) — a great 1st step in developing the improvement plan.

To summarize, engage your team, both a core team and an extended team, in defining your process, get it on paper (or electronic form) and have everyone agree that this is at least close. I have seen organizations who engage technology vendors about a business process realize that they did not truly understand the business process. It can get very amusing to watch executives learn about their own business and get insight from putting the business process on the table (hey — how about that for the “t” — the table).

Want to get creative? One business improvement initiative I was involved in actually fined members of the team for using technology acronyms and even internal names. We fined them $1.00 each. I donated $2.00 myself and the pot got as high as $14.00 — that got us an appetizer at dinner that evening!

Thanks, Sudy.

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Strategic Sourcing is Dead!!

Today’s guest post is from Dalip Raheja, President and CEO of The Mpower Group (TMG) and a contributor to the News U Can Use TMG blog.

And if it’s not, it should be. In our last post, we talked about one of the major challenges in a transformation journey for Sourcing/Supply Chain organizations — namely, the vowels A, E, I, O, and U (which stood for Adoption, Execution, Implementation, Optimization, and Utilization). In this post we’re going to address the second, equally important, challenge. Strategic Sourcing has not delivered the promised results years ago, and it isn’t delivering the right results today. Why not?

First, some assumptions. We can safely assume that the goal of every transformation is Exceptional Business Results (EBR). Furthermore, based on an analysis of recent market events, which contain a very high rate of bankruptcies and warnings, we will also assume that most supply chain organizations are not achieving Exceptional Business Results. Our own research over the years appears to affirm this assumption. It is safe to say that the vowels are not the only major challenge organizations face today.

Basically, we believe that the Strategic Sourcing process is fundamentally flawed. And while our research has shown that that fixing the vowels will drive better performance and results, we will never achieve maximum EBR executing a flawed process. In fact, we go one step further and surmise that the flaws sometimes lead to destruction of overall, or system wide, value (which ultimately drives Exceptional Business Results). At some point in the maturation of every organization, if we are going to maximize Exceptional Business Results, in addition to tackling the vowels, we must address the process itself. We do not expect everyone to agree with us, and we hope that there will be some spirited exchanges to flush out where the problems lie and what can be done. We strongly encourage our colleagues in the professional services community to challenge their thinking, and especially their clients’ thinking, on this topic. We are all responsible for the situation we are now in. It’s up to us to change it!

We started by challenging our own beliefs and modifying our own core processes — and we were surprised by the results. And while it could be the case that our research to-date may not apply to the larger population, we have been testing our “next practices” approach on clients for the past year. This group includes a number of very large and complex multi-national organizations who thought that they were already achieving EBR, and found that when they tried our new approach they were able to achieve EBR that were significantly beyond what they were already seeing with their best practices methodologies. Now, every other organization we have spoken to has jumped on the argument and embraced it almost viscerally. (After all, shouldn’t the goal of every supply chain organization be to achieve EBR for the year that are better than last year?)

Our belief that the core processes need to be transformed to truly achieve EBR is striking a chord. At a recent workshop with a Fortune 25 client, where we had the senior executives from the supply chain organization and their internal customers, the reaction was ecstatic. It literally reminds me of the old days back in the early nineties when we talked about change management as the absolute single most critical issue for supply chain organizations. (How time flies when you’re having fun!) The reaction then felt very much like the reaction now. In addition to the very positive responses we’ve been receiving from industry, we have also found some academic research that supports our argument (including some by Prof. Michael Jensen of the Harvard Business School, but we’ll address that in a later post). We even went back and talked to some of the very early proponents of Strategic Sourcing from A.T. Kearney (whose benchmarking roundtables we participated in), who strongly nodded their heads in support of our argument.

If we go back to the beginning, it started with cost … and to this day, it is still about cost. While we have moved from unit cost to landed cost to total cost of ownership, it’s still cost focused. And while cost cannot be ignored, we firmly believe that a process rooted in cost can never be a strategic process. Cost as a strategy, for the majority of organizations, is not, and has never been, a core strategy. Long term growth has not been achieved from a foundation of cost cutting. Cost cutting is not viewed favorably by the rest of the supply chain, which then explains the absolutely horrendous change management issues that we have all faced. And while we are not trying to add to the discussion generated by recent headlines outlining the major hiccups for some of the world’s largest and most admired corporations (like Toyota, Apple, BP etc.), a significant portion of the conversation around those hiccups has been focused on them squeezing costs out of either the supply chain (the entire system) or just the supply base (and no, they are not the same … I assume we all agree on that). Furthermore, cost reduction is not very high on the goal sheet of any of our major internal stakeholders.

Since the focus on cost ignores almost all of the other elements of the entire system that contribute to EBR, it may actually be sub-optimizing the entire system. While we do recognize that we have moved from the traditional three-bids-and-a-buy to using TCO and risk and supplier management and all of the other best practices out there that you can buy in cubes, magic boxes, checker boards, and benchmarking quartiles, the reality is we are still trying to roll a large boulder up the devil’s staircase with this myopic focus on cost. We can say this with certainty as we have all been there, done that as industry executives and at the MPower Group and have not seen much in the way of change in the last 15 years. We need to move from cost, which is not a strategy, to value delivery, which is.

When we focus on cost, we lose the argument with the entire supply chain system before we even start the conversation because the system sees the goal of cutting costs as a threat to the rest of the elements that are contributing value towards EBR. Furthermore, in most cases when we’re sourcing, we don’t even know what those elements are! If we don’t know them, we can forget about knowing what their impact is on the EBR.

Let’s use an example to illustrate our point … a simple hamburger. While deploying the current best practices, I am sure that we will all be able to provide the best lead times and quality and cost with the least amount of risk, and so on. But how will we identify the impact of the hamburger on the quality of work life for the corporation and therefore its ability to attract and retain the best talent? And if attracting and retaining the best talent is a competitive advantage, especially if that talent does not end up with the competitor, then how will we ever include that impact on the entire system? Will our current best practices ever uncover that value contributor to EBR? (The cost of acquiring and retaining talent is nothing to be sneezed at either. If you’re snickering right now, think about how an offshore drilling platform feeds their people, or Google’s famous cuisine) Should we be purchasing Kobe beef for the hamburger because the value that the hamburger contributes to the entire system is far greater than the 5% that we might have saved on our TCO models? Capturing this value is what will get us closer to EBR. Our stakeholders know that; the head of HR knows this issue intimately. But wouldn’t you agree that most sourcing strategies around hamburgers would NOT include talent management as one of its major decision variables? Voila … we have met the resistance because our stakeholders know that we are approaching it from a cost management perspective and that we are ignoring their many other performance metrics. Unless we figure out a way to approach the decision starting with their value perspective, we will not succeed and we will continue to roll a large boulder up the devil’s staircase.

Another way to look at this is that unless we start expanding our pool of stakeholders to start considering our stakeholders’ stakeholders’ stakeholders needs, and start with those needs, we will never uncover these value contributors. They are real, they are tangible, they are measurable, they are observable, and, in most cases, they are ignored! Consider Prof. Jensen’s basic argument which states that in trying to maximize things like Balanced Scorecards (TCO, risk etc.), we can destroy value because it leaves managers with no way of making the tradeoffs. Thus, a balanced scorecard is in fact counterproductive as a performance evaluation system, even though the process of creating the scorecard is critical because it helps “managers understand both the company’s strategy and the drivers of value in their business”. While we may not necessarily agree with everything that Prof. Jensen claims, the similarity between our arguments are pretty clear. Approaches like TCO and Balanced Scorecards do end up actually destroying value and leading us away from the EBR they claimed they would deliver.

There are a series of articles coming out from us at The Mpower Group that will continue to lay out the next practices that we have proposed to our clients. We will explore why we think the strategic sourcing process needs to be fundamentally altered. While we do not expect everyone to agree with us (and we are sure that there will be some spirited exchange), as we pointed out, we have been and are talking to a number of very large and complex organizations, as well as some not quite as large, and every organization that we spoke too has literally jumped on the argument and embraced it. In addition, we conducted a fairly comprehensive comparison with the the doctor’s favored approach TVM (Total Value Management) and Demand Driven Value Networks proposed by AMR and Gartner. These conceptual frameworks appear to go the furthest in extending current thinking. In our upcoming posts, we will discuss where our approach is very similar to TVM and DDVN but we’ll also point out where our thinkings diverge.

We will tie in the concepts of AEIOU that we discussed in our first post. We will also tie in some very powerful academic research that supports most of what we are saying. There is a significant amount of value in our respective organizations and we suspect most of our organizations are frustrated because they cannot seem to capture this value. It’s time to change the axis, to fundamentally alter the way we make these decisions. So whether you agree or disagree, please join us in the discussion. Keep watching and sharing your thoughts with us!

Strategic Sourcing is Dead!!

Thanks, Dalip!

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Do We Really Need Supply Risk Programs Anyway?

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

OK, now that I have your attention. Am I being provocative? Yes … and no. If the purpose of supply risk management is to ensure supply that is: available, reliable, high quality, well priced, supporting lowest TCO, ethically sourced, etc. (per the enterprise mission and brand), then we really “just” need to clarify what constitutes the performance of supply and the causal factors which impact it. But, this is a big “just”. It means first translating the performance of supply from the business (i.e., the true ‘risk owners’ who ultimately own the performance of supply) to the inbound supply chain to a commodity to the supplier and even down to the part/spec/site level — and then ensuring that your processes for extended network design, sourcing, and supplier management are addressing the risk factors that can impact that supply performance. That’s a tall order to expect as a bottoms-up outcome.

For example, if you look at a company’s sourcing and supplier management processes, you might find risk-oriented knockout criteria in an RFI. Or you might find a regulatory compliance driven process in supplier measurement. But for the latter example, do you have an explicit risk score in your supplier scorecard? Most organizations don’t. There is a direct analog to the quality area here in terms of placing emphasis on process capability and managing upstream causal factors. A TCO model that includes quality costs (i.e., a ‘cost of quality’ model) is not only similar, but actually overlapping with the ‘cost of risk’. In other words, you can pay for risk prevention now or pay for external failure later.

This is why, although you should theoretically be able to bake your supply risk management processes systematically into your existing supply management processes (sourcing, SPM/SRM, etc.), the fragmented and reward-biased performance measures don’t encourage this end-state approach. This is why a bottoms-up process usually does not work and it requires that Procurement/SCM not only work with the natural risk owners to build the cost/risk models, but also use that to have the top-down discussion with senior management on how the firm wants to deal with it and what is the cost of doing nothing. To quote the rock band Rush: “If you choose not to decide, you still have made a choice“. (Freewill) And for some organizations, they might be able to tie into an existing enterprise risk management and corporate sustainability governance structure.

Another important strategy is to have a good diagnostic, and some external benchmarking intelligence, as part of this process — especially when trying to justify the effort beyond ‘it is the right thing to do’. Showing where you are vs. other firms and how well you/they are performing in supply risk (and comparing that performance to capabilities) is a good way to support the discussion. And so is having a good ‘cost of risk’ model. But quantification is tricky, and that’s why we launched a supply risk study about a month ago that we’re closing down this weekend, that uses this type of model (and other existing benchmark data that we have) to help firms arm themselves with some good insight on elevating the conversation. Why? To get more attention, resources, and proper measures/alignment that cascade back down to get baked into the processes. Once they’re baked in, you won’t need a ‘program’ anymore — you’ll have a proper risk-adjusted process. The corporate practitioner study takes 30-40 minutes or so, but like other Hackett performance studies, it is: complimentary, confidential, credible, and hopefully invaluable.

Thanks, Pierre!

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Global Sourcing: Addressing Myths with Capabilities Part IV: Politics, Local Context, and Enabling Infrastructures

Today’s post is from David Henshall, Founder of Purchasing Practice. Dave can be reached at dhenshall <at> purchasingpractice <dot> com.

In this four part series, we examine eight dimensional capabilities that will help you overcome the myths surrounding global sourcing. In today’s post, we will focus on the final dimensions of politics, local context, and enabling infrastructure. (Yesterday’s post addressed risk and opportunity.)

Dimension #6: Politics

Politics matters in LCCS. As stated in my introduction to the series (Part I), much of the political noise from politicians, humanitarians and environmentalist can be misleading, resulting in flawed policies and strategies for governments and companies alike. This noise generally consists of allegations of:

  • Job exportation
  • Sub-standard quality
  • Child labour
  • Slave wages
  • Environment pollution

The problem with many of these allegations are that they come from a benchmark of western standards applied in a developing nations context. The assumption is that if we apply these standards it must surely help the people in developing countries. However, there is a real risk that codes of conduct, when applied inappropriately, may worsen social and environmental conditions for workers in these communities. To avoid such unintended consequences, Wilding & Braithwaite (of the Cranfield School of Management) advise companies that they must:

  1. anticipate the ultimate impacts of implementing codes of conduct,
  2. contextualize their application instead of simply demanding compliance with conditions that make little sense in a particular developing country context, and
  3. incorporate the voices of workers and communities in the design, implementation, monitoring, and impact assessment of codes in order to ensure a better fit between what workers and communities prioritize as opposed to what Western society think they ought to prioritize.

Some companies panic in response to negative media exposure of poor working conditions or the use of child labour at their supplier factories, and choose to sever their connections with these suppliers. Companies need to resist this ‘cut and run’ response and engage deeper with suppliers in applying policies which fit the local context.

Dimension #7: Local Context

Dr. Peter Lund-Thomsen, a visiting Researcher with the Copenhagen Centre for Corporate Responsibility, advises that organisations need to take the social, economic, environmental, and linguistic contexts into which codes of conduct are being implemented into consideration if we want to avoid producing unintended, often negative, consequences for the intended beneficiaries of codes.

The implementation of codes in isolation is unlikely to bring about sustained improvements in working conditions. Lund therefore advises that the emphasis needs to be placed on incorporating the concerns and voices of the ultimate beneficiaries of codes of conduct in the design, implementation, monitoring and impact assessment of codes.

Dimension #8: Enabling Infrastructure

For buyers, technology is a key component. The capability to view supply chain data on a single platform can be critical to achieving the real time visibility necessary to successfully mitigate the risk in extended supply chains. Technologies such as RFID can also support the transactional visibility as goods move between handling units in the supply chain.

Buyers can play a role in enforcing local legislation and in providing the necessary expertise, resources, and infrastructure that enable developing country suppliers to meet their legal obligations.

Organisations who engage with suppliers over the long term, in terms of providing the necessary resources and expertise that will enable them to improve their social and environmental performance, are likely to be the most successful in maximising the benefits of LCCS. The ‘cut-and-run’ response in relation to negative media publicity is likely to do more harm than good if the aim is to improve the workers’ conditions and reduce environmental pollution at supplier factories.

Thanks, Dave.

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Global Sourcing: Addressing Myths with Capabilities Part III: Risks & Opportunities

Today’s post is from David Henshall, Founder of Purchasing Practice. Dave can be reached at dhenshall <at> purchasingpractice <dot> com.

In this four part series, we examine eight dimensional capabilities that will help you overcome the myths surrounding global sourcing. In today’s post, we will focus on the dimensions of risk and opportunity. (Yesterday’s post addressed corporate social responsibility.)

The decision to pursue a global sourcing strategy will ultimately depend upon the amount of value that it creates. Value in this context, however, should include not only the available savings opportunities, but also the inherent risk after considering the organisational capabilities in managing the increased vulnerability from sourcing in higher risk countries or region.

Dimension #4: Risk

Increased risk comes in the form of damage to brand and reputation, unplanned cost, supply chain failure, delay, currency fluctuations and IP theft, for starters. Professor Richard Wilding & Professor Alan Braithwaite, from the Cranfield School of Management in the UK, have identified six capabilities for the effective management of global sourcing risk:

  1. ‘Total Acquisition Cost Management’ – the ability to analyse and predict the total cost of a good from the source of supply to its final point of sale. They advise it is important to analyse and build into the costing the inherent lost sales risk of the product by developing and applying a market-risk and cost risk profile. The inventory holding cost through the chain must also be factored in.
  2. ‘One touch information flow’ – to avoid double entry, duplication, mistakes and inconsistency as the same transaction moves through the many points of contact in the chain. Accuracy of information is a precondition of pro-active management and the ability to exercise risk mitigation measures. This capability is systems enabled; it is critical to have the widest view of the total chain on one information platform with the ability to recognise inconsistencies.
  3. ‘Total product identification and compliance’ – to ensure fast accurate product and handling unit identification that feeds the “one touch information” requirement without delay. The use of bar codes and RFID (Radio Frequency Identification) to the correct standards is the enabling technology; this needs to be quality assured and enforced on the ground across many sites with failures being fixed where they occur.
  4. ‘Real time routing through dynamic visibility’ – the capability to see through the chain, know what is coming, and test for events that have not happened as planned; to interpret the implications of failures in a pro-active way and make decisions to minimise their impact.
  5. ‘Vendor development’ – cycle time compression linked to real demand’ – the capability to understand and improve the long-term performance of vendors in terms of cycle times, timeliness, quality and accuracy is central to time compression and risk reduction. Based on historical performance of the end-to-end chain, it is possible to identify improvement programmes to develop supplier reliability. The ultimate goal is to issue orders and schedules on shorter lead times, reflecting real demand or more accurate forecasts. Understanding the underlying performance of the vendor, and his category of products in the marketplace, is the starting point for this; it is dependent on information across the chain.
  6. ‘Information platform’ to provide consistent and timely information – the capability to put in place, operate and maintain a full supply chain visibility solution. All of the above capabilities are anchored by the operational skill to secure and maintain the information backbone with the diverse data structures that are needed by each supply chain function.

All of these capabilities relate to management information and the skills to apply that information with greater precision; information on the extended chain in terms of accuracy and speed of availability is central to these capabilities.

Dimension #5: Opportunities

Global sourcing can facilitate both supply side and demand side opportunities. On the supply side, Ford Motor Company cites these as:

  • Annual cost reductions in LCC markets have consistently exceeded those in mature markets due to:
    • Expanding scale
    • Deepening relationships with suppliers
    • Competitive environment
  • Wage rate growth in China and India will be limited by the large number of under-employed:
    • China has 1.338 Billion people living in the country
    • India has 25 million English-speaking, educated workers, and this number is expected to increase every year (as there are 232 Million people who speak English as a second or third language)
  • Labor rate differential is so large, gap is expected to remain substantial for the foreseeable future

On the demand side, global sourcing can facilitate the pursuit of export opportunities. Organisations can leverage supplier relationships to open the global marketplace, allowing them to market and sell their products in new markets across the globe.

Part 4 will examine Politics, Local Context, and Enabling Infrastructures of global sourcing.

Thanks, Dave.

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