Category Archives: Procurement Innovation

For A Believable Vision Of Procurement 2020, Head Back To 2008

Long Before Ariba published their 20/30 Vision of the Future of Supply Management and Aberdeen took us back to 1999 with their vision of the next decade of Supply Management, the leading Supply Management minds at Hackett sat down and came up with their vision of Procurement in 2020 which was a heck of a lot better than most of the stuff I’ve seen this year (with a notable exception being Bob’s Next Level Supply Management).

In Hackett’s 2020 Vision For Procurement: A Revolution Through Evolution of Capabilities and Value (which was released as their Procurement Executive Insight on April 15, 2008 and followed by their 2020 Vision: Delivering on the Evolving Value Proposition of Procurement which was detailed in their 2008 Book of Numbers), Hackett identified the emerging trends that will define tomorrow’s world-class performance and help an organization move up the capability path. Realizing that transformation in most organizations is evolutionary, and not revolutionary, Hackett’s leading minds lay out an evolutionary path that takes organizational capability from reactive to strategic in a four-step process that passes through planning and alignment along the way.

The authors note that while an average Supply Management organization starts out with the goal of assuring supply, this is a very reactive strategy. Supply Management has to get to the point where it is harnessing the power of supply markets to maximize the value it is getting from its spend, to enable business strategy, and to optimize its tactical execution. Along the way, Supply Management will progress through TCO and demand management. As it progresses to harnessing the power of supply management, the organization will continually expand its circle of influence, dig deeper into its customers needs, and provide better service as time goes on.

In addition, it will also need to acquire the following strategic capabilities:

Business Process Sourcing
Supply Management will need to become the starting point of BPS activities and skillfully integrate disparate methodologies surrounding core competency analysis, resource management, service delivery models, business process management, and portfolio management into its overall supply management practice so that it is the first business unit consulted, and not the last, in any conversation surrounding business process (out)sourcing.

Supply Performance Management
Supply Management will go beyond simply managing the inbound supply chain to shaping strategies, goals, and objectives for the business as a whole based on its knowledge of global supply markets for materials, talent and technologies. It will need to seamlessly integrate supply planning with financial planning and operational planning so that each decision is best for the business overall.

Knowledge Management
It will need to master content-driven analytics which integrate external data into internal data models for supply prediction, planning, and risk mitigation that will allow it to build robust and agile (virtual) supply models that can be redesigned as needed in response to significant events.

Talent Management
Supply Management will need to adopt a cradle-to-grave talent management framework that includes knowledge management and advanced training models that allow it to advance its personnel to the next level. The framework will need to contain an innovative “brand management” model that will differentiate Supply Management as the career path of choice for new talent.

New Product Development and Introduction (NPD/NPI)
Supply Management will have to include advanced design-for-supply support that incorporates multi-tier cost modelling, scenario
planning and optimization that will allow the organization to understand the critical relationships between requirements, specifications, costs and constraints and make the best design decisions for the business overall.

Supplier Management
Supply Management will have to proactively engage suppliers and extend internal competencies and knowledge into suppliers’ operations
to increase their process capabilities, financial health and goodwill toward the buyer. Supply Management needs to progress to the point where it is able to detect a potential problem before the supplier detects the problem, and then step in to help the supplier resolve it before it materializes.

Next Level Strategic Sourcing
Strategic sourcing has to advance well beyond TCO modelling and the application of the best e-Sourcing tools to the point where it is using deep supply intelligence to identify unseen risks and anticipate supply capabilities that can deliver breakthrough improvements in innovation, environmental sustainability, new market entry, brand enhancement and other key business strategies. It will utilize scenario planning on the extended supply network to provide visibility of opportunities and risks that will guide Supply Management to the right buy for the organization every time.

How Do You Build a High Performance Supply Management Organization?

A recent study by Dr. Andre de Waal of the HPO Center that involved more than 3,500 organizations across 60 countries confirmed what leaders already know:

  • Leadership
    In High Performance Supply Management organizations, leaders lead with exemplary behaviour, make decisions, adopt a results focus, act with integrity, and coach staff. They don’t micromanage and do the work of their staff.
  • Talent
    Leading organizations have top talent that is diverse, complementary, and able to work well together. The talent is also flexible and resilient and committed to making the organization successful.
  • Openness and Action Orientation
    Everyone is involved in important processes through shared dialogue, change (for the better) is encouraged, and actions are taken to improve performance.
  • Continuous Improvement and Innovation
    There is an eternal focus on improvement and innovation.
  • Long Term Focus
    Long term success take precedence over short term profit. Management and employees are in it for the long haul and act that way.

Six Key Lessons for Sustainable Supply Management

A recent article over on the CPO Agenda on “Platforms for Growth” that discussed the challenges for Supply Management involved in procuring goods and services for decommissioning oil rigs had some great lessons for Supply Management professionals involved in projects in new or emerging areas of spend. While cost control is important, it’s even more important that Supply Management prevent their organization from becoming the subject of media headlines — as this is never a good thing. Plus, early approaches to category strategy can set a pattern within an organization and even drive market structures across the industry that, once established, become difficult to change. Thus, it’s important to get spending in new categories right.

Think Strategy
Supply Management needs to be a part of all of the strategic decisions of the organization as true commercial advantage can only be obtained if Supply Management is involved early enough in projects to influence raw material and service requirements. Not only does the design stage lock in up to 80% of the cost, but it can lock in up to 100% of the market risk. If the design locks in a raw material in tight supply as necessary, such as tantalum, instead of a more available material, such as aluminum (for capacitors), and unrest along the African coast suddenly makes 15% of the global supply unavailable, the organization will be in for a major price shock.

Influence the Plan
Not only does Supply Management need to be involved in all strategic decisions, but it has to come to the table with a good understanding of potential scenarios and a plan in mind. If, by working with marketing and external market research agencies, it understands that sales will be maximized at a certain price point, it can ensure that the selected design can be profitably produced for that price point.

Go for Global Category Scale
Even if the product must be customized for different regions, Supply Management should still attempt to aggregate global demand and award it to a small number of suppliers who are capable of producing variants for the global market to take advantage of economies of scale.

Build the Desired Marketplace
If the product or service being designed is (relatively) new, then Supply Management might be buying from an immature market. In this situation, the organization has the ability to influence market development, which occurs quickly once demand exceeds a critical mass. If Supply Management implements a category strategy that meets the objective of the organization, and it is the first major player in the market, the market will likely mould itself to that need. If the market strategy is low-cost, then the suppliers will focus on no-frill production and delivery. If the market strategy is the full service experience, suppliers will focus on creating end-to-end value added services. If the focus is on being the epitome of cool, then suppliers will focus on creating the most stylish and sleek product they can, with a price tag to match.

Do Your Homework
Market intelligence is the lifeblood of effective category management and the best way to influence the strategy, plan, and marketplace. Even if the organization does not agree with the proposed category strategy, it’s much harder to refute facts than opinions. Plus, it’s much harder for a supplier to exploit the organization in negotiations if Supply Management goes in armed with full knowledge about the current market state.

Examine New Buying (Structure) Options
Don’t limit your options to the current organizational buying strategy. Consider in-house, industry buying groups, vertical integration and even the creation of a Global Business Services organization. New markets sometimes offer new opportunities for doing things different. Take advantage of this.

It’s Not Technology, People, or Process — It’s Execution (Key NPX Take Away 4)

As you probably guessed from the title, this post continues our discussion of the key take aways from The Mpower Group‘s Next Practices Xchange and its discussion of what is required to get to the next level of supply management. Now that we have defined value, defined how we get to value, and how we capture value in contracts, the next thing we have to discuss is how important it is to get to execution as quickly and efficiently as possible.

The reality is that it doesn’t matter how good a process is, how modern the supporting technology is, or how good and well managed the people are if the organization doesn’t execute. The foundations are not enough. A Supply Management organization needs to execute on those foundations to get to value. As Dalip Raheja of
The Mpower Group likes to say, it’s not about the consonants (the foundations), it’s about the vowels (the execution on the foundations) beause Old MacDonald Was Right.

A Supply Management organization that doesn’t execute on the foundations never gets beyond best practices and traditional TCO. This will get an organization good results, but it won’t get the organization to world class status in these tight economic times. An organization needs to Adopt the plan, Execute on the plan, Implement the required changes, Optimize its operations on an ongoing basis, and appropriately Utilize the skillsets and technology it has available to get to the next level. One has to remember that simply having the best practices, processes, and technology isn’t enough. Even though it will make an organization a Toyota, it won’t necessarily make the organization sustainable in the long term. Only an organization with sustainable sourcing strategies can get to the next level.

An organization focussed on getting to the next level will go beyond the metrics and KPIs used to measure suppliers but focus on how the relationships will be established and holistically managed to extract maximum value for both parties. The contract is only the beginning of the relationship. Similar principles apply to relationships within the organization. The Supply Management organization goes beyond being a tactical service provider (who gets the contract and secures the supply) to a strategic consultant (who advises on what types of products and services are truly required in the first place and what suppliers should be approached in any event).

It’s only when the Supply Management organization starts focussing on the needs of the organization as a whole that it can truly achieve value. Unlike cost, which is at the component (product or service) level, value is at the system level and only materializes when the entire system is balanced. A truly valuable supply contract doesn’t sacrifice quality for cost, risk mitigation for expediency, or comfort for potential (but not yet realized) innovation. Just like cost can’t be reduced by selecting a lower cost supplier that will result in higher logistics costs, value can’t be created by looking at any single component as it’s holistic, and it results from proper execution of the vowels. As Dalip likes to say, it’s E-I-E-I-O.

The Best Way to Handle Decentralized / Local Supply Management Groups

While a well designed Sourcing / Procurement / Supply Management organization will have as many functions center-led, if not centralized, as possible, in a large multi-national, some groups will have to be regional to be effective and some purchases will have to be local. For example, fashion purchases will have to be driven regionally by someone with a pulse on the market and it does not make sense to ask the central asset management organization in (southern) India to manage snow removal operations in (northern) Canada (unless someone wants to see some really strange looks).

But how does your hybrid center-led Supply Management organization effectively manage these decentralized / local groups for best results? A great post on how when managing complexity, “less is more” over on the HBR blogs had a great suggestion — restrict activies at the group level to a core set of five that enable and enhance business performance. Specifically, focus on:

  1. Portfolio Management
    which activities fall under Supply Management purview
  2. Performance Management
    what are the cost / quality / value goals for each unit and how will the center-led Supply Management organization help the units achieve the goals
  3. Capital Allocation
    what investments can be made in each unit (in terms of technology, process, and people) to deliver the greatest returns
  4. Talent Management
    are the best people working the right jobs
  5. Synergy Capture
    to identify new or large opportunities that should be pulled up into the center-led Supply Management organization

It’s all about the selection of the handful of critical leverage points that will have the biggest impact on success and [a] relentless focus on doing them better. The purchase was pushed out to a local group because it wasn’t of a high enough value to manage centrally or because the central organization did not have the (local) knowledge required to make the best decision, so it needs to focus on the leverage points that will help the local organization, not on the task itself.