Category Archives: Procurement Innovation

To Be a Good CSCO, Don’t Forget the Don’ts!

A recent article over in eyefortransport on the “DOs and DON’Ts for Chief Supply Chain Officers” had a good list of things to do to be a successful CSCO (or CPO) but what really got my attention was the list of things not to do, because it’s so easy to do five things right and then watch everything unravel when you do only one thing wrong. Here are some of the most important don’ts from the article:

  • don’t create a separate KPI team
    KPIs should be created by the people who are performing the functions they measure. Otherwise, you’ll have good-meaning people who don’t truly understand the function deciding that the right metric is average order completion time and not on-time shipments as you can have a great average order completion time but still be late for 30% of your orders.
  • don’t create a function without a well defined purpose
    Just like you shouldn’t outsource to China because the company down the street is doing it, you shouldn’t create a new function because the company next door is doing it. Your team is already overworked, so don’t add something unless you know why you’re adding it and what benefits it’s going to bring.
  • don’t cut the training budget
    This cannot be stressed enough — you need highly skilled and educated people to make it in this knowledge economy. (That’s why we can have 15% unemployment and still have millions of jobs unfilled.) If you’re people don’t have the necessary skills, they won’t get the job you need done.
  • don’t speak supply chain language with other departments
    They won’t understand a word you’re saying and will think that you need a “vacation” at the local “resort“. That’s why you need to learn to lean to speak the language of the CFO.
  • don’t let the board think supply chain is just about cost
    If you do, they’ll have you cut, cut, cut until the quality falls through the floor and there’s melamine in the milk, salmonella in the spinach, lead in the paint, or asbestos in the insulation and your supply chain falls apart.

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Look to Niche for Innovation

In a recent post, I asked if now [is] the time of niche. Upon further reflection, I think it is for those companies looking for true innovation. I realize this may sound a little counterintuitive at first to those of you following the market and the M&A buying sprees going on where the big players like SAP, Oracle, JDA, and, now, Ariba, are doing their best to buy everything (and everyone) under our sun, but if you think through it, I believe it is quite logical.

First of all, if all of your time and effort was going to into buying and selling companies and divisions, how much is going into true innovation? In all likelihood, zero. And while the product or technologies being bought may be innovative to you, your customer base, and, if you’re lucky, the market at large, all products or technologies have an innovation shelf life that ends as soon as a more innovative product or technology hits the market. And while the more innovative product or technology could theoretically be the next version of your product, there is only a chance of this happening if R&D on the product or technology is continuing. Thus, if everything is put on hold for an M&A activity that could drag on for months (or years), there’s no way that the companies involved are going to maintain their innovation edge.

Furthermore, as highlighted in this recent Industry Week article that asked “what would Steve Jobs do”, to be innovative in today’s economy where time and resources are at a premium, you have to be focussed on a small number of products or solutions. You have a limited number of people with a limited amount of time and creativity and a fixed set of resources to support them. If you split your focus 1,010 ways and try to be everything to everyone, there’s essentially zero chance that you are going to stumble upon any truly groundbreaking innovation. But if you say no to 1,000 things and focus on the handful (5 to 10) of products or services you excel at where you have a chance to truly make a difference, the chances of real innovation increase exponentially.

So if you’re looking for truly innovative products and services to revolutionize your supply chain, look to the niche players that specialize in spend analysis, decision optimization, or predictive analytics. When you plug these into an end-to-end framework enabled by one of the big behemoths (that specialize in end-to-end platforms that can serve as a good foundation), or assemble your own from best-of-breed e-Sourcing, e-Procurement, and e-Logistics vendors (if you are tech savvy enough to do it, possibly with some third party expertise), that’s when you’ll start to see the truly innovative results that deliver double digit percentage returns year after year after year (and not just one-time reverse auction savings that disappear once you’ve sucked all the fat out of the supplier’s margin).

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You Are Invited to the Wake For Strategic Sourcing


Today’s guest post is from Dalip Raheja, President and CEO of The Mpower Group (TMG) (former leader of the Strategic Initiatives Group for Bank One and former Principal of DEC) and a contributor to the News U Can Use TMG blog.

You are invited to the wake … the tab is on us!! This will be the last of our posts on the Death of Strategic Sourcing. It has become clear to us that most of our community is generally in agreement that we need fundamental change.

For those that still need a bit more convincing, you can look at an interview (Next Practices Innovators Award – Executives Who Elevate Our Function) with Lamar Chesney, CPO of SunTrust Bank and the keynote speaker at the 2010 Aberdeen CPO (Chief Procurement Officer) Summit, whom I first met at Tim Cummins’ IACCM conference earlier this year. Tim was kind enough to provide me with a stage and Lamar and I ended up having a follow-up conversation over some drinks (ummm, I think it was called Scotch!!). If a very senior and highly respected current practitioner is generally in agreement, then I think it’s time to move on. If you need further proof, there is a very interesting report by Kevin O’Marah (“Supply Chain Almost at the Table in 2010” at blog.seeburger.com) at Gartner that clearly points out that even after 25 years, we’re still not there. While the initial numbers look very good, it becomes clear when you dig inside the numbers that the picture is not quite as rosy as we think. “But before we get too excited about this trend, it’s worth asking whether or not the business really knows what supply chain is all about. Only 29% used the label ‘supply chain’ to describe this leader. Nine percent called it ‘procurement’. Another 9% chose the label ‘operations’, while yet another 7% said ‘logistics’. Forty-three percent of respondents were unable to find the functional title for their highest-ranking supply chain executive among these terms“. Bazinga!! Or, as Paul Harvey used to say, “and now you know … the rest of the story“. Basically what Kevin points out is that even though we may have made some progress, we are clearly not there yet.

What is interesting are the views that Supply Chain organizations have about their role. According to Gartner,


“The most encouraging facts revealed in this research have to do with the expanding view supply chain has of its own role. … In terms of priorities, although the No. 1 overall stated goal is still cost oriented (56% chose ‘reduce operational costs’ as one of their top-five priorities), the No. 2 is ‘improve customer satisfaction.’ And even though they’re lower on the list, competitive imperatives such as product innovation, or ‘getting new products to market faster,’ (28%) and risk management (24%) rated significant awareness”.

Two points I would like to make here. First, please note that cost continues to define us, but even more importantly, the second point is that this is supply chain’s view of its own role and I would humbly submit that at the end of the day, it matters not what we think of ourselves but rather what our stakeholders think of us. And I would further submit that if asked, most of our stakeholders would view us through the cost prism and not much else. And here is the money quote from Kevin: “Supply chain has a lot to do with whether or not a company wins its competitive battles, and it’s trying to get the rest of the business to see this. It’s time we get our story straight“.

If you need further proof, take a look at the recent cover story in CPO agenda that screams out “When do we get to SRM?”. Here are some of the statements that strike a chord with me:

  • “… For all of the potential benefits, many organisations have struggled to make it further along the road to supplier relationship management than the contract monitoring stage ..”.
  • “SRM activity is about value creation, not cost reduction ..”.
  • “The best suppliers are going to be in demand ..”.
  • “Those organisations that take the SRM approach with a supplier are more likely to be seen as a preferred customer … the benefits of SRM show it is about more than process and procedure. It also requires the right behaviours, skills, resourcing, and organisational backing to ensure it delivers to its maximum potential”.
  • “The skills required for SRM are different from procurement’s traditional strengths, which underlines the importance of the people question — not only in development terms but in deciding whether it is procurement that should carry SRM responsibilities ..”.

 

That last quote should be very disturbing for us in the community because essentially the point being made is that procurement organizations are so mired in the traditional mindset of cost reduction that they don’t have the right competencies, and this is leaving value on the table. OK, so far that seems to be in line with what I said in Old MacDonald Was Right — It Is About E-I-E-I-O!), in The Sourcing Emperor Has No Clothes! and in Strategic Sourcing is Dead!!! (The Debate Rages On!). CPO Agenda even goes a step further in stating that perhaps Procurement is not even capable of handling such an important responsibility and perhaps it belongs somewhere else. Hmmmmm, I hope they are ready with their chain link armor to absorb the arrows headed their way because at least we were saying that we are more than capable of leading the charge on value.

Here’s what Jeff Dobbs, Global Head of Diversified Industrials for KPMG, had to say: “almost four in ten now acknowledge that driving down costs has damaged relationships with their suppliers“. “Those businesses that continue to follow the traditional low cost or bust models in supply chain management are at risk of losing a foothold in the market. … the expected marketplace winners are entering into strategic relationships with suppliers that not only deliver product, but provide innovation as well …”

Clearly, KPMG is also pointing out that this cost focus has actually destroyed value along the way. In fact, if you read the entire article, they point to this as additional risk being introduced by the sourcing organization.

Before wrapping up this conversation, I would be remiss in not pointing out the other part of the argument. Even if you think that you are a truly strategic organization that is adding significant value, we would postulate that there is still too much of a focus on the consonants (tools, process, technology, etc.) and not nearly as much as needed on the vowels (Adoption, Execution, Implementation, etc.). Even someone who has been called one of the greatest communicators ever (Obama) is now acknowledging that he paid way too much attention to the legislation and policy (consonants) and not nearly enough to the politics and selling of the change (the vowels). Whether you agree with him or not politically, he is clearly pointing out the imbalance between the two and how it has hurt him dramatically.

I would also point to the series of posts by the doctor recently, where he has been analyzing this whole notion of “strategic” and especially the last one on the one commandment of value. I like the simplicity of that. It’s easy to absorb and talk about. I would hope that we can all agree that the definition of value requires a fundamental shift in the way we think and conduct business and that value goes way beyond what most of us have defined and measure today. If all it means is nibbling around the edges and focusing on more spend analytics and risk frameworks, then I’m afraid that the doctor and I will agree to disagree.

To those that think this debate is “nonsense”, “the most laughable statement”, “nothing more than market pitches”, “a long winded rant”, “an outlandish attempt to call attention to the idea” … we wish you all the luck and success in the world. To the rest of the community, many thanks for the support and encouragement, let’s continue our conversations and focus them now on solutions. We have already partnered with IACCM to conduct a research project on some aspects of this issue and will continue to look for others who wish to engage in constructive confrontation. But for those critics that still refuse to concede, we are in the process of documenting a case study where this process was implemented at a Fortune 10 company with incredible results.

Thanks, Dalip.

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Procurement – Why we really matter!

Today’s guest post is from David Furth, VP of Marketing at Hiperos. David has been in Procurement for over 20 years and has held senior positions at Perfect Commerce, BasWare, RightWorks/i2, and Deloitte Consulting.

Procurement is on the verge of experiencing its next major transformation. During the past ten years, the emphasis has been on optimization – leveraging spend, improving the sourcing process, and becoming more efficient across all aspects of the P2P and Order-to-Cash value stream.

As a result of these improvements, companies now rely on suppliers, outsourcers, and other third parties more than ever. A fact now recognized by C-level executives, boards of directors, and regulators, alike. Why? The increased reliance on these third parties has occurred without implementing the same level of control or having the same level of visibility that was in place when the work was being performed internally. The result is increased risk to company performance and brand reputation.

As a result, forward-looking procurement leaders are transforming their organizations. They still maintain the same obligation to keep costs down. But they have added the responsibility to continuously assess risk, pre- and post-award, and introduce integrated processes and controls across their companies to mitigate that risk by working closely with other functional areas, business lines, and geographies. During the next few years, procurement will be looked upon to provide important guidance around how key external contributors to their companies’ value chains are managed.

This is why more and more procurement executives are stepping forward to introduce a consistent method for managing providers across a wider breadth of their extended enterprise. These executives recognize that just because the contract assigns responsibility/liability for just about “everything”, this does not absolve their companies from the responsibility of ensuring each provider is living up to all contractual obligations. This requires implementing management control programs that actively monitor both performance and compliance to help ensure suppliers are meeting all their obligations.

This is an enormous responsibility that requires consolidating requirements across a large number of stakeholders, communicating expectations to all providers, collecting information and documentation about current status, and collaborating with providers to remedy issues when shortfalls are identified.To be successful requires a new attitude, a thoughtful approach, buy-in from key stakeholders, and the appropriate technology. Despite the best of efforts, responsibility or risk cannot entirely be outsourced.

So, when you consider the consequences of suppliers failing to meet their obligations, regulators handing out fines for poor oversight of third parties, and investors losing confidence in your brand, it is not surprising to see real action taking place. The past few years have made it abundantly clear, it is not a good strategy to expect that a great contract will get you great results, ensure providers follow the law, or prevent them from acting unethically. Therefore, it is imperative to have the appropriate level of controls to mitigate to the appropriate level of risk. This has not been the traditional way of thinking, but that is rapidly changing.

Thanks, David.

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Should You Be Sharing the Risk?

A recent article in the Supply Chain Management Review on “procurement risk management: what it takes to be a leader”, which correctly states that risk is part of business, noted that, even though procurement has become a frequent topic in the risk management conversation, few companies are translating their trepidations into formal procurement risk management capabilities. Considering that risks have grown considerably in recent years and that at least 7 in 10 companies will experience a major disruption this year, with almost 9 in 10 experiencing some form of disruption, this is not good. Risk management needs to be front and centre in supply chain planning.

But is that enough? Let’s say you put it front and centre, identify your top ten risks, and outline your risk mitigation and/or recovery plans for each risk. Classic thinking would say you’ve done a great job, but have you? If it’s a natural disaster, you’ve probably done all you can do since it’s an event that no one has any control over. But what if it’s a production line breakdown at a key plant of a sole-source supplier? Have you done everything you can? Maybe there’s nothing you could have done to prevent it, but, chances are, there was something your supplier could have done to prevent it.

And maybe they would have if they had more incentive — which leads me to believe that the leaders identified in the referenced 2009 Accenture Study who insist on risk-sharing clauses and back-to-back contracts might be on to something. If both parties agree to share risks, and the costs associated with such risks, both parties are more likely to be alert to risk signals and to take action before a minor interruption becomes a major disruption. If both parties are serious about risk, it’s the right way to go.

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