Category Archives: Guest Author

Service Leaders Speak: William Dorn of Source One on “Doing More With Less”

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Today’s guest post is from William Dorn, Director of Operations at Source One Management Services (who bring you Why Abe), and Kathleen Daly. William is a regular contributor to The Strategic Sourceror.

As companies continue to cope with the current economic conditions, Purchasing Departments, equipped with fewer resources than ever before, are expected to deliver continuous savings. Task lists lengthen due to internal and external pressures, and it becomes increasingly difficult to produce results in the form of cost reduction, cost avoidance and increased supplier value. The requirement of accomplishing more with less may be an overwhelming responsibility; but with the proper toolsets, resources and solutions available in the marketplace, Purchasing Professionals can begin to position their companies for growth as the economy recovers.

Before taking any further action, Purchasing Managers must first assess the situation in which they may find themselves. What internal and external pressures are influencing my productivity? Is my company able to withstand a supply chain disruption without serious repercussions? Do I have a risk mitigation strategy in place? Can I realistically reach my company’s goals with the resources I have available to me?

Internal pressures may be coming from many different directions. Executive Management asks for results in the form of costs savings and stable supply chains. The Finance Department requests extended payment terms. IT Departments may perceive the Purchasing Department as a cost center rather than a profit center, creating the impression that no technological investment is needed. Sales and Production Departments need inventory availability in order to deliver a product in a timely fashion. HR is not able to allocate more resources. Each department is focused on fulfilling their own responsibilities which often leads to additional constraints placed on other departments, namely Procurement.

The external environment and its increasing complexity have created additional burdens for Purchasing Departments. Let’s sum up what is taking place …

  1. Suppliers are refusing to agree to longer payment terms because they simply cannot afford the impact this would have on their cash flow. Also, many suppliers may no longer exist, and this requires buyers to invest time in forming relationships with new suppliers.
  2. Fuel prices are also starting to increase again, which will lead to rising commodity prices as well.
  3. Buyers may also experience reluctance from suppliers to participate in reverse auctions; and some are even refusing to respond to regular RFP events.

Whether Purchasing Professionals can relate to some of these pressures or, unfortunately, to all of them, the reality is that their supply chains may be unstable and action is required to bring them back to solid ground.

Now that we have covered some of the stress that Procurement Departments have been facing, Procurement must look internally to determine what efforts have been made in the past, what is working and what needs to be reevaluated. Procurement must reevaluate old strategies before implementing new ones. Slight modifications to legacy purchasing or sourcing methods could lead to more efficient processes and lower costs. You should not focus strictly on new categories; revisiting categories you have recently sourced may lead to drastically different results with a new approach. Markets change constantly and your company’s spend in a certain category may have increased, or perhaps the market demand for the product or service has decreased, enabling you to possibly leverage better pricing. Your past just may be the key to your future.

Alternative methods to what have been used in the past should also be explored. A recent study, published by AMR Research, found that organizations that rely heavily on technology could experience the same or greater inefficiencies and missed opportunities than their not-as-heavily tech-invested competitors. Procurement must reevaluate their existing methods and adoption of technology. Are you paying for an expensive, feature-rich procurement and sourcing suite, when in fact you only use 20% of the capabilities. If so, you must reevaluate the cost of deployment and take advantage of the other components, or eliminate the costs of the software by seeking out lower-cost alternatives that fit your organization’s individual needs.

Fortunately, the market for e-sourcing and procurement technologies has significantly expanded your options over the last few years. Low cost providers have emerged that often offer equivalent features to the largest tool providers. In fact, in the last several months, completely free toolsets, such as WhyAbe.com and ThomasNet.com’s Purchasing Manager, have seen a significant increase in adoption by not only companies that are new to procurement technologies, but by large organizations that are abandoning expensive toolsets in order to adopt free alternatives that serve the exact needs of their organizations. Moving to a lower-cost technology will not only help your company’s bottom line, it could help eliminate the idea that Procurement is a cost center, and could potentially allow Procurement to allocate funds into investing in new human resources.

However, regardless of which solution you adopt, be careful to use the tools properly in your organization. Purchasing and e-sourcing software solutions must be used as tools and not answers. No tool provider has the exact answer for any vertical market. Find a solution that best fits your organization’s requirements, don’t allow a technology dictate how you do business. Tools can facilitate project communications, shrink project timelines and retain templates and analysis for future use, but should not be used as a replacement for true strategic sourcing. Keep in mind that over-reliance on purchasing technology tools and processes may only automate the inherent problems with the existing processes in place. Before investing in new technology, be sure to put existing processes through a thorough analysis to identify opportunities for improvement. Whatever you do, be sure that your organization does not become an “RFP Spammer”.

Moving beyond technology, Procurement must evaluate other non-conventional options that it has available to it. Pre-negotiated contract websites (such as Master Negotiator), group buying organizations, and solution providers (such as Source One) can provide additional resources that help Purchasing Professionals accomplish goals without adding to a company’s cost structure. These resources enable buyers to let someone else manage the sourcing process for them, saving time and resources. Service organizations can provide low-risk solutions for companies of all sizes. These engagements allow access to market data, best practice processes, domain or category expertise, on-demand resources, effective tools, negotiation experience and insights, alternate sources of supply, and the establishment of long-term supply relationships.

Adopt the right blend of sourcing strategies for your organization. Many Procurement Service Providers can obtain better pricing than a GPO. Many companies excel at sourcing their strategic spends. Many purchasing departments have subject matter experts in particular categories that are considered market-leaders in their own rights. However, NO COMPANY is the best at every category. A GPO may work for you in several tactical spend areas, and can help reduce the overhead costs associated with sourcing and category management. Some spend categories are better served without the use of technology tools and require good old fashioned thinking, creativity and supplier interaction. Understand that a person who is incredibly familiar with a technology or product does not necessarily make them into a procurement guru or master negotiator. Using the correct blend of strategies in your organization can produce results far superior to sticking with one sourcing/procurement process across all of your spend areas.

One positive of this difficult economy is that it is opening the eyes of many Procurement Professionals. In the past, many Procurement departments would only seek out external help or external strategies if they were required to by executive management. In this day and age, Procurement is determining on their own that they need help and they are actively looking for it. Procurement Professionals have already realized the need to become more resourceful and proactive in their efforts in navigating the changing business climate, in many cases, much faster than the rest of their organization. Some have taken the initiative in identifying outsourcing services that provide low-risk solutions or temporarily help them increase their human capital. Adoption of contingency based sourcing consultants has seen a significant uptick, as it allows Procurement to expand their resources and tools without assuming any additional costs or risk to their businesses. With a contingency based service organization operating as an extension of a company’s Purchasing Department, there is no need to be concerned with whether or not the soft costs of an initiative will pay off in hard costs savings, as the right providers will agree to only get compensated on hard-dollar cost savings. With certain solution providers, implementation and all expenses are included in a pay for performance model and fees are contingent on achieving hard cost savings results. In the past, executive level individuals and finance departments have pursued these types of engagements. Now, the drivers of these engagements are Procurement Professionals as they reach out for help on their own. These proactive efforts will deliver improved results for a Purchasing Department.

The majority of an Organization’s internal resources should be allocated to optimization of the company’s strategic spend. If a certain product has a high supply risk and high value, it is essential to establish a secure and responsive supply base with the capabilities of meeting current and future business needs. Agreements with suppliers should be established so that both parties can share information and closely integrate systems to obtain operating efficiencies. This should result in reduced costs for both parties.

When faced with many challenges in this dynamic environment and accelerating expectations from within their organizations, Purchasing Professionals must take full advantage of the resources available to help them begin their climb out of the recession.

Thanks, William.

Service Leaders Speak: Robert Rudzki of Greybeard Advisors on “Consultants: Use Them Intelligently”

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Today’s guest post is from Robert A. Rudzki, a former Fortune 500 senior executive of supply management who now advises other companies as President of Greybeard Advisors LLC, a strategic management advisory 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. Bob also writes the “Transformation Leadership” blog for the Supply Chain Management Review. (e-mail Bob at rudzki <at> greybeardadvisors <dot> com.)

Chapter 22 of the book Straight to the Bottom Line has an intriguing title: “Consultants: To Use or Not to Use — That is the Question“.

When my co-authors and I wrote the book a few years ago, we were speaking as corporate practitioners, having led successful procurement transformations in a variety of industries.

Today, I’d like to build on that corporate perspective (in my case almost 30 years at Fortune 500 companies), to share some additional observations that emerge from my experiences working with clients as their advisor.

First of all, let me say that I reread Chapter 22 before writing this post, and found its advice sound and very timely. If you haven’t read the book, or the chapter on consultants, you really ought to.

In fact, a table that appears in the chapter is worth repeating here:

 

Unnecessary to Use Consultants Consider Using Consultants
Benchmarks confirm that your internal processes/results are best-in-class You lack benchmarks and are uncertain how good your processes and staff are
Company is able to make ongoing investments (people, systems) to achieve and remain best-in-class Not able to invest as needed
Best-in-Class Category/Market Expertise No particular internal strength
No urgency to achieving significant cost reductions Time is of the essence for achieving improvements
Best-in-class already, and still reaping new benefits each year Not generating significant new benefits each year
Internal staff able to effectively deal with internal politics Internal politics constrain achievement of cost reduction objectives; a “third party” might have credibility
Your organization lacks a leader, and you hope that the consulting firm can fill that gap You want to supplement your internal talent for a defined time period

 

Source: Straight to the Bottom LineNote: Straight to the Bottom Line is a registered trademark of Greybeard Advisors

Since Greybeard Advisors was formed five years ago, my colleagues and I have had the pleasure of working with large and medium size companies in most industry segments (including manufacturing, process, health care, services, retail). We’ve seen some excellent practices relating to using consultants (or advisors) intelligently.

We’ve also seen some poor practices that are all-too-common. In one case, we were invited in to do a “post mortem” on a consulting project by a large firm, and saw examples of fundamental errors by both the client and the consulting firm.

As I reflect on what I have seen and heard, some of the key learnings can be boiled down to the following chart. Take a minute or two to carefully review it. You should notice that using consultants intelligently requires mindset and behavior changes by both the client company as well as the consulting firm.

 

What Typically Happens Leading Edge Practice
Top-down directive that the procurement department will work with a specific consulting firm Procurement leader takes the initiative and sends an RFI to a broad range of potential service providers (large and small firms; consulting vs. advisory firms); short list invited to respond to an RFP
Selection criteria unknown, beyond assumed personal relationships at the executive level Selection criteria established as part of the RFP process, and are consistent with the needs/desires of the procurement organization and the company
Consulting firm uses “A” team to manage the executive relationship, but sends the “B” team of inexperienced junior consultants to learn on the job and “do the project” Firm is selected only after ironclad assurances that the “A” team of experienced advisors will be assigned; resumes of advisors are provided; and the client is encouraged to interview each advisor.
Consulting agreement is rigid and aggressive, requiring a hard commitment to a large number of full-time consultants for a defined timeframe (often 6 to 12 months, or more). Agreement is flexible, reflecting the client’s workplace realities, needs and timing
Consulting firm disrupts everyone’s “regular job” in bid to ensure that its project is everyone’s priority and is a success Firm works with the reality of client’s workplace and schedule, and is careful not to be a disruptive force
After consulting firm leaves, reported “savings” start to evaporate or can’t be found Firm has embedded processes and capabilities into the client organization, which now can create more successes on its own

 

(c) Greybeard Advisor LLC, All Rights Reserved

One of the fundamental choices you need to consider is whether you want to employ a “consultant” or an “advisor”. The distinction is not just semantics, it is core to what you are trying to achieve.

Do you want a hired gun to knock out some work and then depart? Or do you want an advisory approach in which process knowledge (e.g. specific best practices such as strategic sourcing and negotiations management) and commodity knowledge are transferred to your team?

To use a familiar analogy: Do you want someone to hand your team a fish dinner, or do you want your team to learn how to be successful fishermen themselves while they catch their first few fish?

Thanks, Bob!

Dietary Changes to Our Risk Appetite

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Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archives.

The cover story of the June 22nd, 2009 issue of Information Week magazine was titled: “What’s Your Appetite For Risk?“. The article was part of the magazine’s annual security survey.

What we initially learn in the article should be of little surprise: the recession is taking its toll on all aspects of company operations, including investments in technology security and compliance, though these two concepts should not be confused with one another. A lot of focus was given to security and compliance within cloud computing.

With budgets stressed and spending trimmed, the appetite for risk has been forced to grow a little larger as priorities are examined in more detail to determine where — and how — limited dollars should be spent. As the article continues, compliance requirements are getting funded to keep (public) companies surviving from one audit to the next, but that doesn’t really mean that risks are being managed properly.

A reader of my blog posts (on Sourcing Innovation) contacted me in early July to tell me about a supply chain risk management success story. Nick Woods is in the public relations department of Red Prairie, a software company that specializes in warehouse management, transportation, and workforce management solutions. Nick shared with me a press release on the implementation of Red Prairie’s warehouse management solution at Sargento Foods who is known for their cheeses, sauces, and snacks.

In the press release, the VP of Logistics at Sargento Foods, Dennis Roehrborn, was quoted as stating: “By upgrading the solution in our Plymouth, Wisconsin distribution center and satellite plants in Kiel and Hilbert, we are better equipped to exceed customer expectations for accurate order fulfillment and on-time delivery.”

While there are many risks to supply chain operations, the failure to meet customer expectations is certainly a critical one. Regardless of how great your product is few customers will tolerate repeated supply chain disruptions that increase operating costs and result in a failure to cost-effectively get the right product on the store shelf when the customer wants to buy it.

Here is a great example of a company who recognized risk and managed it by investing in the necessary technology. Mr. Roehrborn also states that the implementation was minimally disruptive to existing operations and that productivity target goals were exceeded with the new software.

Seems to me like Sargento Foods has such a large appetite for its supply chain relationships, (and probably a good appetite for the quality products they produce too), that they decided to put themselves on a diet when it comes to risk.

The need to exceed customer expectations is even more important in a recessed economy, and companies must proactively assess the risk of losing sales and customers versus the cost of doing nothing. Managing risk doesn’t require taking bigger bites than you can swallow at one time — that would be foolish when tackling most any project. Even if you have to nibble at it a little at a time, chewing carefully and thoughtfully, make the investments necessary to little-by-little reduce risk and improve performance.

And don’t forget to brush regularly and floss daily.

Norman Katz, Katzscan

e-Leaders Speak: Kevin Cornish of Aravo on how “Managing Supplier Risk Helps You Thwart Zombies, Mavericks, and Other Threats in the Supply Chain”

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Today’s post is from Kevin Cornish of Aravo.

Once the economy begins to rebound, some companies may start to scale back their risk management efforts.

Don’t be one of them.

If we’ve learned anything from this recession it’s that in today’s volatile global economy, businesses need to pay more attention to risk, not less. And, while there have been signs that the world economy is beginning to heal (Bloomberg), Federal Reserve Chairman Ben S. Bernanke and others have cautioned that the recovery is likely to be both muted and prolonged.

In other words, now is not the time to ease up on scrutiny of the financial scorecards of your critical suppliers. Why? Because we’re not out of the woods yet, and because you don’t want to unexpectedly find yourself relying on a “zombie” supplier, a business that is so undercapitalized and overleveraged that it’s essentially dead. A zombie supplier won’t be able to raise the money required to get itself back online — and that means it won’t be able to deliver the parts you need to your door.

Of course, fine-tuning your supplier risk management strategies can have other benefits, as well. For instance, as we’re digging out from the worst recession since Word War II, it will continue to be critically important to keep an eye on costs, and getting your supplier house in order can go a long way to reducing another sourcing threat that’s too often ignored: maverick spend.

Maverick spending may be costing you more than you think — not only in terms of per unit price, but with regard to leverage lost in future negotiations, as well. What’s more, it’s probably happening more frequently than you realize. In one study, over half of the employees surveyed (57%) considered it acceptable to make off-contract arrangements if they can get a better deal.

Earlier this year, a procurement trends report co-sponsored by OfficeMax and Purchasing magazine revealed some intriguing statistics regarding office spend. Take a look:

Percent of office spend under management by procurement
0-20%   :   9%
31-60%   : 21%
61-90%   : 36%
91%+: 34%
Average contract compliance rates
0-20%   : 16%
31-60%   : 12%
61-90%   : 41%
91%+: 31%

That data tells me that most businesses have plenty of room for improvement when it comes to optimizing purchasing power, improving compliance, and achieving total cost management — all of which stems from knowing, and managing, supplier information with diligence, transparency, and risk awareness.

A year ago, businesses were pre-occupied with supply risk. Then, concern shifted to supplier solvency risk. Now we’re back to keeping one eye on commodity prices, even while we’re on the lookout for zombies, mavericks, and a variety of other supply chain threats (compliance, environmental regulations, sustainability concerns, etc.). Without a doubt, the lens of risk is constantly changing. However, successful companies don’t just throw out the eyepiece when it no longer works. Instead, they repeatedly readjust their focus so that they can better respond to both the threats and the opportunities in today’s business environment.

Thanks, Kevin!

Characteristics of World-Class Supply Management Organizations

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Bob Rudzki, President of Greybeard Advisors, author of Beat the Odds, and blog master of “Transformation Leadership” recently penned a piece for Chief Executive on “Supply Management”. It is, of course, a great piece that summarizes how world-class organizations are different and how their leaders adopt aggressive objectives and focus on key categories that will make a profound difference in the short and the long term. Specifically, world-class leaders in supply management

  • set revenue enhancement goals and work with suppliers to achieve them,
  • pursue achievable year-over-year cost reductions,
  • develop expertise in commodity risk management,
  • focus on optimizing working capital,
  • institute “asset recovery” programs, and
  • optimize capital project costs.

This is because the total impact from a comprehensive supply management transformation involving all of these core initiatives can be enormous. An manufacturing company with an 8% (or less) ROIC can transform itself into a 20% performer. That’s huge.

For more information on how your company can achieve these improvements, check out “the hidden lever”, his tips to “avoid corporate death”, and the many greybeard resources.