Category Archives: Procurement Innovation

Masco Knows the SCORE

I enjoyed this recent article over on Supply Management . com on how when you “know the score”, like Masco, and use collaborative two-way scorecards (like Canada Post does), you can save a lot of money. Masco saved over $5M with its pilot project with just one supplier, exceeding their initial savings goal by over 40%. And that’s just the tip of the iceberg. When they roll the program out to their other strategic and high-volume suppliers, I’m sure they’ll save 10 to 100 times that.

Although it’s hard to measure, and even harder to define, true collaboration — where both parties commit to continuous improvement — works. And it generates significant returns when both parties work together and merge their strengths, knowledge, and experience pools. This is because, as the article points out, good collaborative two-way scorecards will:

  • Put the strengths of your purchasing professionals to use
  • Leverage suppliers with whom you do significant business
  • Transfer technical expertise from suppliers to you and vice versa
  • Focus on win-win opportunities that engage both parties
  • Allow both parties to honestly evaluate operations and identify areas for improvements and realistic targets

For more on Masco’s Score methodology (formally labeled their Supplier Collaborative Cost Reduction Evaluation initiative), see the SupplyManagement.com article. It also has their five steps to success, which, though high level, are pretty good.

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Glad To See I’m Not Alone On My “Don’t Be Dumb” Bandwagon

As my regular readers know, after the recession started, I tried my best to convince anyone who would listen not to be a dumb company until I was blue in the face. As I predicted, I wasn’t very successful (as I lost track of the number of companies who put new solution acquisition on indefinite hold and of the number of smaller solution providers that put new development on indefinite hold), but I was still glad to see this recent article in Industry Week on “how leading companies will thrive after the recession” which said that some companies will emerge in a downturn in a better position than their competitors and start to outperform them because they have a commitment to innovation and a drive to become immersed in emerging growth markets.

The truth is that without investments in innovation and new markets, growth will stall even as the economy rebounds. I understand that less business means less revenue which means less money in the corporate coffers, but this doesn’t mean you cut the innovation budget. If money is really tight, you reduce the innovation budget in line with other budget reductions, but you don’t cut it. You cut the non-essentials like the box at the ballpark, the Nascar sponsorship, the deadweight middle management, and — even though you’ll despise me for saying this — your bonus. I strongly believe that management should not get big bonuses during times of poor performance. (However, congruently, I also strongly believe that management should be entitled to big bonuses during times of record growth because I believe management bonuses should be based on the overall corporate performance they drive.)

The simple truth of the matter is that innovation must be a priority, no matter the economic outlook because the right innovation will drive growth even in a down market. The article gives two examples of companies, namely Snap-on Tools and Makita, whose sales are increasing because their products match what consumers want. If you can find a way to give consumers want they want with higher quality and lower cost, they will switch to you, even if your product is considered a luxury. Although they are more thrifty, consumers will still treat themselves in down markets — just not as often.

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Robert Rudzki on “Procurement and Supply Chain Transformation: How Fast?”

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.)

How fast can a company transform itself to world-class supply management?

One of the most interesting conversations I participated in recently centered around the subject of how long it takes to transform procurement to become world-class at a large (or medium sized) company. The conversation started with this comment:

“We benchmarked Company X, and learned that it took them 7 years to transform their indirect procurement activities to become world-class.”

That’s a quote from a recent meeting I attended, and the speaker was interested in my reaction. Company X was identified, and is a well-known company in its industry.

My reaction to this statement was, and is, straightforward: lacking an assessment process and a transformation roadmap, it can take a long time to achieve successful transformation of your procurement activities (direct or indirect spend). In fact, without a roadmap and the associated business case, the goal is probably not achievable in any reasonable amount of time.

On the other hand, with a well-constructed roadmap, it is possible to achieve a great deal within 18 to 36 months.

What’s involved in creating a good transformation roadmap? It starts with an independent, candid and comprehensive comparison of the “current state” at your company versus appropriately identified “best practices” in supply management (for your company). That provides input to an opportunity assessment, as well as input to constructing a roadmap that is tailored to your company’s situation — and to your desired speed of progression. In our experience, I can tell you that sequencing the roadmap elements is part art, and part science*. Finally, a credible business case is developed which wraps it all together: what you are proposing to do, the expected $ results over the next few years, and the requested internal and external resources to accomplish the plan.

Done well, this Assessment and Roadmap process creates executive understanding, excitement, and support (budget and otherwise). Believe me, this works. I say that as a former corporate finance guy who became a successful CPO (and obtained all the executive support you could wish for) and as an advisor to clients who I’ve guided in their transformations. (I’ve even helped clients obtain approval to expand their strategic resources while the recession was gaining speed.)

That’s the real litmus test — senior management committed to creating world-class supply management regardless of the economy. That’s an indicator of what is possible if you approach this subject properly.

To read more about building a transformation roadmap, you can download A Leader’s Guide to Supply Management Transformation , which was featured in the Supply Chain Management Review.

Thanks, Bob!

*Editor’s Note: For a discussion of Supply Chain Process: Art or Science, see the linked post.

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Nine Survival Tips for a Down Economy from PurchasingNet

Almost a year ago, Supply & Demand Chain Executive published PurchasingNet’s top 10 survival tips in a down economy. Even though the consensus is that the economy is starting to recover, the recovery is likely going to be a slow recovery and, if you’re not prepared, a painful one. That’s why it’s important to keep operating lean and mean, and nine of the tips put forward by PurchasingNet are still very relevant. In this post I will explain why they are still relevant, and also explain why one of the tips, while well-intentioned and seemingly a good idea, is actually not that great in practice.

Top 9 Survival Tips from Purchasing Net:

  • Make sure you have a “Descending Dollar” list of your supply-base for at least the last 12 months.
    I’d also do it for the last 2 years, 3 years, and 5 years. It’s the first step of a good spend analysis, which should also answer what are you spending your money on, and how it breakdowns by supplier. This helps you keep track of your low-hanging fruit opportunities, which helps you find savings fast and lets you know whether your spending has improved over the last year.
  • Rank your suppliers as A, B, or C according to spend.
    A suppliers are the first suppliers you should target for savings. Also make sure that any “strategic” suppliers that supply non-commodity, hard to replace, “strategic” parts or services are not ranked as a “C” supplier.
  • For each high dollar spend category, initiate negotiations or renegotiations.
    Renegotiations are ok if it is the difference between survival and bankruptcy. Just make sure to follow these tips and renegotiate with integrity.
  • Use “Demand Management Techniques” for indirect spend.
    Don’t let your employees spend willy-nilly or buy what you don’t need. Also consider adopting an e-Procurement platform that steers employees to preferred or low-cost alternatives for needed office supplies and equipment.
  • Determine which KPIs are important to your success.
    You should only have a few of these.
  • Measure actual performance vs. best practices KPI benchmarks.
    Measure and report progress monthly.
  • Match invoices to purchase orders automatically.
    Not only will this dramatically reduce errors, it will dramatically increase actual savings as you will immediately know when you are not being billed at contracted rates or when you are being shipped substitutions which are off contract (which is a favourite tactic of some office supply vendors).
  • Track and report the number of “after-the-fact” purchase orders.
    This helps you determine how well your processes are being followed as well executed processes should produce very few “after-the-fact” purchase orders.
  • Push all purchases and invoices through a central procurement system.
    This will help reduce maverick buying.

The last tip put forward by PurchasingNet was to consolidate as much spend as possible with one supplier. This is a bad idea in practice, especially in current economic conditions. While it seems to make sense from a savings perspective, as it would theoretically give you more leverage in negotiations with the high volume supplier, it is very dangerous from a risk perspective. Putting all of your eggs in one basket when earthquakes (bankruptcies) are at an all time high is just not a good idea.

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Celebrate Your Failures!

A recent article in Strategy + Business asks: Are You killing enough ideas? It asks this because, chances are, you’re not. You’re probably wondering how that can be when your number one chance to emerge victorious from a downturn is to innovate. Well, the answer is that you need to kill losing ideas, or at least those ideas that don’t have any support, and do so quickly to free up the supporting resources for those ideas that look like winners that you can get most of the organization behind. You also need to put them in their final resting place so that you can do a post mortem, identify lessons learned, and share that knowledge throughout your organization so that you don’t make the same mistakes when trying to implement those ideas that you expect to be winners.

However, you won’t be able to do this if you don’t celebrate your failures. If your organization treats failure as something that is to be swept under the rug and never discussed again, you’re not going to learn anything — ever — because no one else in your organization will ever know what won’t work, why, and how to avoid making the same mistake again … and someone else will eventually repeat the mistake. The perception that winners don’t fail is false. The difference between a market leader and a market follower is that a market leader doesn’t fail publicly. Internally, they fail multiple times because they are always taking risks and trying new things before their competition. Some of their efforts don’t pan out, but they don’t hide the fact from their employees … they analyze what went wrong, why, learn from it, and correct it in the next attempt. Then they succeed and grab market share from their competitors who aren’t willing to learn from their mistakes, and who are thus doomed to repeat them.

So celebrate your failures … because if you do so, you’ll probably find that, over time, you have fewer and fewer and that, in the market, you do better and better. After all, it’s not a failure if you learn something and use that knowledge to do something else that helps you conquer the market!

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