Category Archives: rants

An Integrated View Is Needed, But Integrated Dashboards Are Deadly

A recent piece from ChainLink Research on going “from complexity to clarity” suggests a “management dashboard” that allows a manager to see the status of the end-to-end supply chain and the potential implication of a decision with respect to its impact on key metrics is the key to getting a grip on your complex supply chain.

It sounds great in theory, but it’s very dangerous in practice. Why? In addition to all the reasons I’ve already given you on why dashboards are dangerous and dysfunctional (in this post and this post), when you start chaining dashboards from different systems, you introduce the following additional risks:

  1. inconsistent views
    Different systems may calculate metrics in different ways. For example, the WMS (Warehouse Management System) may present an on-time delivery rate of 90% while the SIM (Supplier Information Management) System has an on time delivery rate of 85%. Which is right? What if they’re both right? For example, the WMS may calculate on-time as percentage of shipments that arrive on the designated day using arrival time while the SIM calculates the on-time as the percentage of shipments that arrive complete on the designated day.
  2. propagated errors
    What if the dashboards propagate erroneous metrics that are used in calculations to produce even more erroneous metrics? For example, what if the WMS incorrectly calculates on-time using date and not delivery time, and doesn’t capture the reality that everything after 11:00 am is late (as the truck can’t be unloaded during the normal shift if it doesn’t arrive by 11:00 am)? An inflated metric is then passed to the IMS (Inventory Management System) which uses this metric in its perfect on-time metric, which calculates this metric using parts that pass visual inspection but not quality testing. An inflated metric is then passed to the SIM system which might calculate perfect orders using orders that pass initial component testing, but ignore failures or returns within the full integrated QC (Quality Control) testing process.
  3. overconfidence
    The more information you have, the less likely you are to notice missing information. For example, if you have a dashboard that tells you your highest spend categories, current sourcing projects, upcoming payables, on-time orders, missing orders, expiring contracts, current and past-due project tasks, etc. you might not notice that your logistics costs are going through the roof.

In other words, integrated dashboards don’t necessarily improve visibility, but they do increase risk!

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Where is the Knowledge Network?

Supply Network. Invoicing Network. Payment Network. Risk Network. It’s network frenzy out there. But where’s the knowledge network to make sense of it all?

It’s not the internet. It may be the information highway, but with all the marketing billboards, the best you can get is an obstructed view of the signage intended to give you directions.

It’s not the supply management organizations. While they collect a lot of data points from their members, they don’t necessarily distill down to the underlying wisdom, and when they do, it’s usually specific to the membership base they serve — which is typically restricted to a single country or geographic region.

It’s not the for-profit training organizations. They may do a good (and sometimes great) job of training you to be effective at a set of supply management tasks, but don’t expect any wisdom beyond what they promise in the fine print. The purpose of their existence is to take your money, so they’re not about to enable the market at large.

It’s not the new vendor wikis, forums, or knowledge exchanges. These exist to serve their members first and you second, as clearly evidenced by the restrictive nature of many of these network. And even though a few of these have opened the doors to anyone who wants to join, they exist first and foremost to deliver the education most relevant to the vendor. If the vendor is focussed on selling e-Sourcing, they don’t really care about certain aspects of e-Payment or the 3rd party logistic’s you’ll need to deliver your products. And forget about these networks playing nice with the competition.

It’s certainly not the analysts. We all know that the greatest influences on an analyst firm are the vendors who get the most face time, which, in turn, are the vendors who pay the most to get that face time. As a result, most vendor reports are simply repackaged vendor marketing. A few go deeper, but even then, the vendors that get the most focus are the ones that pay for it.

And we don’t even have our own supply-o-pedia! And even though, back in 2007, it looked like the independent blogs would be plentiful and collectively serve as our guideposts when we wandered off the path, at this point in time, we’re a dying breed. There might be dozens (and dozens) of blogs currently active in the space, but almost all of them are authored by vendors or analyst firms, who are using them as part of a core marketing strategy. And while a few of these do a great job of education, the education is focussed on the processes and practices you need to know to make the best use of the platforms and services offered by the company or firm.

And with all of these vendor blogs augmenting the traditional publications, supply management organization reports, and analyst briefs that are now focussed on online distribution, we’re drowing in a sea of infomation without a life vest. We need a knowledge management network to keep track of it all, but given that we don’t even have a common language for supply management information interchange, it’s probably a long way off. So what’s an aspiring supply management professional to do?

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There’s No Such Thing As Savings!

I’ve said it before and I’ll say it again: There’s No Such Thing As Savings. And I’m glad to say that I’m finally not the only one screaming it. As per this recent editorial in the CPO Agenda on “an escape from the tyranny of savings”, the problem with savings — whereby procurement is executed properly and there is early engagement, demand challenge, functional specifications, and diligent supply-market analysis — is that there are none. The more preparation that is done, the narrower is the range of offers from candidate-suppliers. The more radical the procurement solution, the less it fits a standard unit-price-difference calculation.

In other words, when a procurement department is well run, it will generate less of the head-turning savings that CPOs are obsessed with. So there is actually a perverse incentive not to change at all, and to manage spend badly. Because, as I’ve said many times before, savings is just money you shouldn’t have spent in the first place. That’s why “savings” quickly disappear after a company runs all its top spend categories through an open reverse auction for the first time. Once a company is getting market price, there are no more “savings” on the unit price. The only “savings” left are in efficiencies, and once an optimization is run to optimize the network, there are no “savings” left in the buy. The only option left is to go back and reengineer the product to reduce production and/or raw material costs. Then when that’s done there are no “savings” left. Success is then measured by controlling costs and preventing the inevitable rise to previous levels of excess that always happens when a category is put on the back burner and unmonitored. (That’s why “saving” consultancies can come back and revisit a spend category every three to five years and find “savings” when, in reality, there shouldn’t be any if they did the job right the first time and the category was properly monitored at contract renewal time.)

I understand that a Procurement Department still has to track and report its progress against a standard performance metric, but it definitely shouldn’t be savings. In the past I have recommended “cost avoidance” as a possible metric, but the CPO agenda article offers another recommendation which, if properly implemented, might be better. The author suggests using a “Procurement Control Index” which is to be developed by applying the following five criteria against each relevant procurement category:

  1. Is there a policy that describes how staff approach suppliers, what their financial authorities are, and what kinds of goods and services they may buy?
  2. Is there a procurement strategy document that is developed and agreed jointly with the ultimate budget-owner?
  3. Is there compliance with policy and strategy?
  4. Are current contracts and delivery performance actively monitored and managed?
  5. Are there improvement targets for assessing compliance, delivery performance and user satisfaction?

If the appropriate measurements are defined with respect to each question, for example:

  • % of categories with policies
  • % of categories with strategies
  • % of categories where policies are followed
  • % of contracts that are actively monitored
  • % of categories where improvement was seen

and these measurements are combined into a single perfect procurement metric through straight-forward multiplication, then a good measurement of overall procurement performance would be whether or not the PCI increased over time.

Of course, if this is too much, you could always start with Charles’ cost indices over on the Purchasing Certification Blog, but I’d hope the ultimate goal is a more comprehensive metric that applies organization wide.

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Procurement Tasks are Not Clear-Cut Regardless of Organizational Size

A recent article on SupplyManagement.com on “Making Waves” which tries to compare and contrast procurement at SMEs and procurement at large companies seems to suggest, a few pages in, that buyers in large organizations are less willing to sit down face-to-face and negotiate as it’s all about getting the RFP, doing an assessment, and then getting someone in and talking through their proposal while their counterparts in a smaller organization see it as more a case of negotiating face-to-face and you can do two or three of those a day.

 

It also seems to suggest that procurement at most large organizations is a mature function with a systemized approach to procurement while most smaller organizations have almost no process in place for procurement.

The reality is that the state of procurement is very organizational dependent and that the preferred methodology is very buyer centric. If a buyer is an introvert, doesn’t like face-to-face negotiations and has access to modern e-Sourcing and e-Negotiation tools, then the buyer is going to focus on events. If the buyer is an extrovert, doesn’t believe in new-fangled technology that removes the human element, and believes that the best deal always results from face-to-face negotiations, then the buyer is going to focus on negotiations. Company size be damned in either case.

While the article has some good examples of real-world scenarios faced by procurement professionals, it is dangerous to draw broad conclusions from just a few interviews with a scattering of procurement professionals. It’s never clear-cut.

 

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Seven Supply Chain Commandments? I Think One Commandment Is Enough!

SupplyManagement.com recently posted an article on “Command and Supply” which stated that if you apply the seven supply chain commandments to your procurement practice — and ensure its daily execution is faultless — you will achieve superior performance. While I don’t disagree, I think the commandments can be simplified and amalgamated. In fact, I think they can be reduced to one!

But first, the commandments:

  • Articulate a clear value-creation algorithm
  • Approach the supply chain as a comprehensive value delivery system
  • Segment the supply chain and consistently adapt it to the characteristics of each segment
  • Optimize the global operations architecture for scale, access, flexibility and risk mitigation
  • Selectively invest for mastery in differentiating capability areas
  • Deploy information systems that deliver insightful analytics, alignment and responsiveness
  • Drive process execution discipline with the right talent, powered by a culture that enables high performance

They’re all good. But I think this one commandment covers it:

Focus on Value

If you do, you

  • will create a value creation algorithm,
  • focus on the creation of a value delivery system,
  • segment the supply chain into segments which require different approaches for value creation,
  • optimize for scale, flexibility, and risk mitigation,
  • invest for mastery where the returns are greatest,
  • will acquire systems that provide real analytics, and
  • drive for continual improvement in process execution.

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