Category Archives: Guest Author

Musings on Talent Management

Today I’d like to welcome Dick Locke from Global Supply Training.

Thank you to the doctor for the opportunity to contribute. Here are my thoughts from the perspective of someone involved in the training aspects of globalizing supply management.

I’m optimistic overall. The caliber of people attending my seminars has improved, and the caliber of commentary on supply management issues has gone up. In my field, the nadir was reached in approximately the year 2000 when ISM removed all international content from their C.P.M. exam. The reason? Very few of the companies that participated in ISM surveys sourced internationally. (That included their retail participants, believe it or not.) Since then, ISM essentially reinvented itself and scrapped not only their own Board of Directors but also the whole C.P.M. program. Their new certification is intended to have strong international content.

The reasons that we are seeing better talent, in my view, is that there is

  1. a significantly better recognition of the strategic nature of sourcing and supply chain management and
  2. a better division of those strategic functions from the tactical aspects of procurement.

Sourcing and supply chain management are complex and challenging. Sourcing in a global environment requires skills in analysis, human relationships, laws, regulations, economics and a great deal of flexibility. Complexity and multi-faceted challenges attract talented people as long as the tasks they tackle are achievable.

In the computer industry, we realized sourcing remains a core competency even when manufacturing isn’t. All the computer companies use the same small group of component suppliers and subcontract manufacturers. To differentiate the cost or flexibility of manufacturing products, the computer companies have to be able to negotiate better deals than either their competitors or the subcontract assemblers can.

Now, a couple of caveats.

One is that talent is one thing, knowledge is another. In the United States, Japan, and a few other countries, imports and exports are a low percent (around 18-20%) of the country’s GDP. People can come away from training programs or even university degrees with very little global knowledge. I have a 10-question quiz on international skills on my website. About 4 people per day take the test. Up to a few years ago, people typically got one or two questions right. Now they are typically getting four or five right. While both talent and knowledge are increasing, don’t assume even the most talented professional will know about foreign exchange risk management, for example.

The second is that it’s easy to drive talent away. Talented people don’t tolerate bureaucracy and routine very well. I can think of three types of bureaucracy that need to be contained.

One is just plain rules and regulations. I know of one ex-client with a good reputation whose people couldn’t carry on a substantive conversation on procurement issues for more than a few minutes without reference to their book of rules. Back when I worked at HP, I inherited a department who believed they had to ask companies such as Texas Instruments once per year if they were a small business or not. When suppliers see that kind of silliness, it diminishes the buying company. When talented people see that kind of demand on them, they vote with their feet and walk away.

Another is giving too much power to departments such as legal and finance. As a consultant, I’ve received 30 page contract proposals with a quarter page of statement of work in them. It takes a mighty big potential level of business for me to spend any time on those proposals. If you have a standard purchase contract, it’s reasonable for a legal department to control maybe five or ten percent of it. The rest is pure business issues that your professionals should be able to (and expected to) control. Lawyers are wonderful people but there’s an old saying that “when your only tool is a hammer, every problem looks like a nail”.

I’ve also seen finance departments unilaterally decide to pay suppliers late. Successful heads of procurement must be able to claim and maintain their department’s role as the manager of the relationships.

Finally, I’m a bit concerned about “technological bureaucracy”. Hard-to-operate software can become all-consuming or can result in the technical wizards being given all the recognition. And the idea that all interfaces (such as e-RFX) can be automated can eliminate the human aspect of procurement. That aspect of procurement is vital for business relationships in most of the world. The challenges of doing this will also attract talented people.

So, for obtaining and maintaining talent effectively, here are a few guidelines.

  • Create jobs that talented people will want.
    Don’t try to put talented people into bureaucratic situations.
  • Separate the tactical and strategic functions.
    Tactical problems will too often take priority over stragegic issues. Not only will your strategies not advance, your most talented people will leave.
  • Train your people.
    Talent and knowledge are two separate issues.
  • Fight fiercely against practices that can drive talented people out.

Services Sustainability

Today I’m pleased to welcome John Martin of and Building SaaS.

Sustainability and social responsibility aren’t often associated with services purchasing, as most people tend to think of social responsibility in conjunction with the performance of manufacturing and resource extraction in lower-impact and more-sustainable ways. However, especially with the recent trend toward low-cost-country sourcing of services, the concept of “socially responsible outsourcing”, as one example, is taking root.

Companies buy services to utilize expertise they don’t have internally, to access a different talent pool (at an offshore location), to match their workforce to workload variability, or to take advantage of a supplier’s economies of scale or scope (though this is far less achievable or important for services than for most goods, as many outsourcing buyers have found out the hard way).

Most large companies use a large and growing group of external providers for a broad range of services, from thousands of temporary workers around the world to high-end consulting services. Services are inherently tied to the people that deliver them, and so the key sustainability concept for services is talent pool sustainability. To purchase services in a sustainable and responsible way, companies should adopt practices (and engage with suppliers who adopt practices) that don’t negatively impact the talent pool.

For example, a large employer in a cyclical business has been a significant employer in dozens of small towns for over 50 years. To ensure the development of a talent pool that can support their seasonal business long-term, they have several types of contingent workers such as long-term temps, temp-to-hire, day labor and seasonal part-time temps, each with different responsibility possibilities and education investments. Known as a preferred employer who invests in people long-term, they have worked with their staffing providers to ensure a sustainable talent pool for their highly seasonal business.

Engaging services responsibly is especially important for low-skill services and temporary workers, since they typically receive less training than employees, and hence are more easily left behind by shifts in technology or skill requirements. Responsible companies extend skill-development practices (via their suppliers or sometimes directly) into their contingent workforce. Wages, benefits, and training for temporary workers can often be directly controlled by buyers, and other “Labor Practices and Decent Work” guidelines of the Global Reporting Initiative can also be extended to services suppliers.

When working with services suppliers, some key metrics help demonstrate their commitment to a sustainable talent pool:

  • Staff Turnover: Turnover is the ultimate measure of good employment practices. The specific rate is highly industry-specific, however, so compare suppliers within the same service category.
  • Training Investment: Good training will result in higher productivity and lower turnover – both positive results for the buyer. While training investment is fairly easy to game, it’s still helpful to track it and the positive results that derive from it.
  • Pay Rate: Especially for lower-skill services, many buyers negotiate and track the actual pay rate to the individual worker, to ensure that the worker is getting not only correct pay, but sufficient pay. As a beneficial side-effect, this can also help ensure a sufficient quality level in the work force.

In short, work with suppliers who invest in their services delivery chain – their people.

Supplier development is also important, just as it is for goods. Some types of services that have more innovation are also sourced quite frequently (e.g., consulting engagements, legal services, marketing services), which allows finding and rewarding the innovators who deliver more value.

Part of working with responsible suppliers includes engaging them responsibly. Many services businesses are cash-flow businesses, required to pay their workers weekly, long before the terms of their invoice – so paying them on time can be even more important.

In short, sustainability in services revolves around sustaining and growing the talent pool, which requires responsibly engaging and working with services suppliers who engage in positive practices for their talent.

Some Thoughts on Sustainability

Today I’d like to welcome Paul Martyn of Track Management Group with his thoughts on the sustainability debate.

Friedrich Nietzsche loves sustainability.

I feel safe in saying this because sustainability is inline with Nietzsche’s philosophy of perspectivism. Not to bore you to death, but, according to Wikipedia, the basic idea of perspectivism “is that there are many possible conceptual schemes, or perspectives which determine any possible judgment of truth or value that we may make; this implies that no way of seeing the world is more correct” – much like today’s sustainability discussion, there are many ‘sustainability’ perspectives/schemes, however, in the absence of an absolute ‘standard’ (i.e. Kyoto) there is no way to say which perspective/scheme is more correct – this is where, I believe, the sustainability debate is today …

So, why all the philosophy talk?

Sustainability is enormous in scale and suffers a shortage of predictability – a philosophical approach to sustainability looks at logical tradeoffs, often, in contrast to empirical methods. As a math problem ‘sustainability’ is impossible to solve, so we must develop ‘common sense’ methods for evaluating our decision making at policy, corporate and individual levels. Philosophy has, by definition, helped us look at how we should live when confronted with an uncertain end. Sustainability is more a question of how we should live rather than a question of right/wrong. Philosophy is well suited to address the questions posed by sustainability.

Economically speaking, modern sustainability is based on the premise the current system is going to break and systematic changes need to be made to maintain a ‘set’ level of supply and service, indefinitely. It’s the ‘indefinitely’ part that makes sustainability a tricky problem to approach with a strictly mathematical approach. Given the system’s unpredictability, empirical methods are, often, less effective than common sense or a ‘sustainable’ philosophy. Not to mention the troubles that arise when trying to maintain ‘fixed’ levels of supply and service indefinitely – talk about a planning conundrum.

As Nietzsche said ‘A man without a plan is not a man’.

Sustainability must become a process or commitment to get better rather than a destination in and of itself. A sustainable plan needs to make sense in a broad and inclusive context and make more sense than just what’s best for the US or what’s ‘most profitable’ or ‘least expensive’, etc.

There are many perspectives to view sustainability and one near and dear to our hearts is ‘purchasing’; in a purchasing sense, sustainability includes a focus on responsibly evaluating the environmental, economic and social impact of your actions. Sustainable purchasing looks to put cost and quality in a context that includes looking at the environmental impact, supply levels, efficiency, consumption, labor and other, yet gathered, perspectives. A sustainable purchasing ‘common sense’ includes evaluating the environmental, economic and social impact of purchasing decisions.

At the end of the day, the value of debate is to regularly question our beliefs/definitions of living in a sustainable world and then act in a manner, across all of our roles (husband, father, consumer, professional, etc) consistent with our beliefs.

Kudos to Michael – this cross-blog series is an excellent example of gathering perspectives to define sustainability. I look forward to reading lots of other perspectives on sustainability and to keeping the dialogue lively in 2008.

Lastly, a little humor to lighten up this post:

“Heating bills this winter are the highest they’ve been in five years, but President Bush has a plan to combat rising bills. It’s called global warming.” — Jay Leno

Promoting Sustainability Throughout Your Ecosystem

Today I’m welcoming Jason Rushin of Nextance [acquired by Versata Enterprises] who is focussing on the importance of sustainability throughout the ecosystem.

What is sustainability? As the doctor mentioned in the kickoff post for this series, there are many definitions. But, I like the UN’s view that it is the intersection of social, environmental, and economic concerns. To truly sustain your business, your surroundings, and yourself, you have to take all three of these aspects into consideration.

If moving to more energy-efficiency requires you to cut costs in other areas, like workforce reductions, is that truly sustainable? Does a decrease in carbon emissions offset an increase in unemployment? Or, in reverse, would an increase in carbon emissions be OK if it came with a decrease in unemployment? How you define sustainability – social, environmental, and economic factors – is very relevant to how you achieve sustainability. But, how far you extend your vision of sustainability means even more.

Are you truly working towards your definition of sustainability if you are doing so with an inward-only focus? Sure, that’s the best place to start, but to be truly sustainable, you need to promote that vision throughout your ecosystem of employees, suppliers, partners, and customers.

Internally, responsible business practices are becoming more and more important to maintaining a progressive, diverse workforce, and enhancing and growing a business. Look at Google and how they offer free shuttles to employees to cut down on commuters, $5,000 rebates (CNN Money, June 7, 2006) to employees who purchase hybrid cars, and their “solar panel project”, designed to reduce their use of carbon-generated electricity. These items are all cultural components of Google’s business, and are reflected in the way that they treat their employees, customers, and partners. It permeates their workforce and it expands their vision of sustainability into everything those employees do in their jobs.

Looking externally, your first thought might be on the supplier side, forcing (or incenting) suppliers to invoke more sustainable practices. But, that can have the effect of just moving the “bad” part of the supply chain farther away from your business. Sure, it makes for a great sound bite to say that you and your tier one suppliers are on a sustainability kick. But, if that just means production of hazardous materials is moved from Pennsylvania to China, did you really accomplish anything?

A recent article on Dell touted their support of the “Carbon Disclosure Project”, which standardizes the measurement of carbon emissions. This not only makes it easier for suppliers to comply with requests for carbon emission rates, it allows a baseline measurement system to reduce (or just maintain) carbon emissions going forward. Even Wal-Mart has an ambitious “greening” program, and their first step was to identify metrics. To quote Peter Drucker, “What gets measured gets managed.”

The point here is again that you need to focus on your entire ecosystem as a whole. Working with suppliers to identify areas of concern and plans for improvement is the key. It is not sustainable to pass the carbon (or social or economic) buck down the supply chain.

Granted, a large corporation has a high level of influence with suppliers, especially the Dells and Wal-Marts of the world. But, what about their customers? Obviously, given the proliferation of green ad content these days, consumers are responding to a “greener” message from their favorite brands.

Apple announced responsible business practices to increase the cachet of their brand and their products. Not that Apple needs any help increasing their coolness factor, but they are progressive enough to know that sustainability matters to their customers. A few years ago, the iPod came in a package nearly the size of a shoe box. Now, they are in a tiny box barely bigger than the iPods themselves — a reduction in packaging of 69%. Apple even made note of reductions in harmful chemicals in their just-released MacBook Air laptop. It may not increase sales, but it surely helps maintain their lead as the most desirable tech brand out there.

A green message is easy, but it is difficult to actually influence the actions on the customer side of your ecosystem. Do Apple’s actions actually get customers to change their behavior? A truly sustainable organization needs to be more proactive on the customer side.

Companies that simplify a sustainable process, like Hewlett-Packard with their ink and toner cartridge return programs, are promoting sustainability beyond their walls and into their customer’s homes and offices. HP makes it easy for their customers to recycle by giving them a pre-printed, postage-paid return label and easy-to-understand instructions right on the box. It’s just as easy to recycle the cartridge as it is to throw it away.

These are all great examples of how companies are successfully promoting sustainability – however it’s defined – throughout their ecosystems. Looking inward is the first step, but then turning that view around and helping your suppliers and customers to do the same is the only way to become truly sustainable.

Even on a personal level, each of us has our own ecosystem, and our every-day choices impact that ecosystem. For the most part, I have the naive belief that when it comes to sustainability, most people want to do the right thing. I guess that’s the ultimate definition of sustainability: everyone doing the right thing, whether in their homes or at their jobs.

Sustainable Savings

Today I’d like to welcome Eric Strovink of BIQ [acquired by Opera Solutions, rebranded ElectrifAI] who, in his contribution, reminds us not to overlook the importance of verifying we actually achieve the savings we negotiate, because that’s the foundation of a sustainable business. Even though this might not be the definition of sustainability that most of us have in mind, the fact of the matter remains that any business that is not financially stable can not contribute to sustainability from an environmental or social perspective, regardless of where it’s collective heart is. Thus, sometimes its important to be reminded of the basics.

P. J. O’Rourke’s Circumcision Principle states that you can take 10% off the top of anything. That seems to be true for sourcing many categories, true at least if you’ve never sourced the category before. However, it’s irritating to listen to (some) sourcing consultants’ confident claims about “10% savings,” when they clearly have no visibility into what may have been very competent internal initiatives that have already taken place.Can one keep taking 10% off the top, year after year? At some point, no matter how much fat was on the carcass originally, there’s nothing left; and even if there is, 10% of it can’t amount to a hill of beans. Conventional wisdom would seem to mandate that there’s a limit to the savings that can be achieved, and that there is diminishing value to sourcing over time.

Of course, this has not been the case historically — after all, if it were, sourcing consultants would be out of business. What happens in practice is that sourcing initiatives either fail to achieve their objectives, or they erode over time. For example, suppliers know that in order to win business they must compete in auctions and see their margins slashed to zero or even to negative numbers; but they are not foolish. They will find a way to restore those margins, either over time, or almost immediately, by raising prices that aren’t in the negotiated contract, or, in some cases, by ignoring the contract entirely. How many office supplies sourcing endeavors have returned zero actual savings? Answer: a lot of them. Of course, if suppliers are pushed to the wall, they may simply walk away; or worse, if they are a key supplier, go bankrupt and take you down with them.

Furthermore, some sourcing initiatives that appear to generate theoretical savings can’t be implemented in practice. If there’s a management change, and new management are unaware of (or dismissive of) the efforts of the previous regime (human nature means that they usually are), that same initiative is “discovered” all over again, fails once more, and it’s lather-rinse-repeat. Each new group of consultants or sourcing staff that’s brought in has its own ideas and agendas, but the underlying infrastructural problems that prevent the implementation of the initiatives remain.

Even when a sourcing initiative is implemented and a contract signed, there’s still no guarantee that savings have been achieved. As Jack Welch once asked an over-enthusiastic buyer who was claiming huge savings (I wish I could find the original quote, this is a paraphrase from memory): “How do you know you got the price?” Stammers ensued. Buying from an e-procurement system doesn’t mean you’re getting good prices, and negotiating a good contract doesn’t mean anyone’s paying attention to it. I saw a contingent labor invoice analysis a few months ago where not a single contractor — not one — was being billed within the price ranges negotiated.

Wendell Phillips said, “Eternal vigilance is the price of liberty” — and it’s the price of sustainable savings, as well. Economics mandate that suppliers will try for the highest prices possible, and that any means necessary to increase revenue probably be applied, despite all the fancy talk in this blog (and elsewhere) about “supplier collaboration.” Tariq Hassan has said, “Trust, but verify,” which is probably the most accurate summation I’ve seen of the attitude one should have.