Category Archives: rants

What Do You Mean You Need Cash? Your Company Is Full Of It!

I was intrigued as to what direction an article titled “Need Cash? Look Inside Your Company” would take, found in the new edition of the Harvard Business Review, as I know that most companies can find plenty of cash if they just look for it and take the appropriate action. After all, most companies are spending at least 10%, 20%, or 30% more than they need to be … and if they put the right emphasis on strategic sourcing, e-Procurement, contract management, and spend analysis … many companies could find millions without scratching the surface.

The problem is, as the article points out, that the boom years have made your average business careless with capital. But cash is king again … and if you’re not taking a hard look at your cash management strategies, you could be filing for bankruptcy instead of thriving. So where do you start? Well, if you’re in supply chain, you start with sourcing … but if you’re in finance, apparently you start by managing your working capital and freeing up the capital you have needlessly tied up in receivables and inventory. To this end, the HBR article outlined six mistakes that, if avoided, will help in this regard.

  1. Managing to the Income Statement
    Throw those profitability performance measures out the window … it’s about the balance statement. If you measure against contribution to reported profits, then purchasing will be incentivized to buy more inventory than you need to secure a discount … but inventory ties up capital and has holding costs, which will likely cost more than you’ll save from the discount!
  2. Rewarding the Sales Force for Growth Alone
    This encourages sales to book sales at any cost. They’ll grant long payment delays, insist on larger than necessary finished-goods inventories, but then be unwilling to chase down late payments.
  3. Overemphasizing Production Quality
    While quality is important, an undue emphasis can cost more than it saves. Quality Control slows down production and locks up capital in work-in-process inventory. If we’re talking food production, given the recent fiascos, undue emphasis might be justified. But if we’re talking mp3 players, attempting to reducing defects from 50 PPM to 5 PPM might cost more than it saves from just recycling the extra 45 defective products.
  4. Tying Receivables to Payables
    Generally, your customers are not your suppliers, your suppliers are not your customers, and the two are completely different financial concepts. Relative bargaining power, the nature of competition, industry structure, and switching costs will ultimately determine the terms that a company can dictate to its customers or must accept from its suppliers.
  5. Applying Current and Quick Ratios
    Although popular with bankers, who want to ensure companies have enough money to repay their loans in the event of distress, they are inappropriate for management as they encourage companies to manage according to a “death scenario”, which means they are good IF you want to go out of business.
  6. Benchmarking Competitors
    Although it might sound good to benchmark against your competitors, it tends to lead to complacency when the scoreboard indicates a company’s metrics are above what it believes to be the industry norm.

The Worst Cut You Can Make

Times are tough. Your sales are dropping. Your costs aren’t. And your balance sheet is bleeding red. You have to cut. I get it. But you DON’T have to cut resources – especially A level and B level talent! As yet another recent article (in Material Handling & Management) points out, cutting talented staff is a desperate measure that diminishes value in the long run.

Not only does it have a severely negative impact on productivity (the drop in morale decreases productivity across the board, which is a double whammy as you no longer have enough resources to get the job done right), but it greatly increases the risk of a major supply chain failure which could bankrupt you. Consider the recent highly publicized peanut recall. According to media reports, Stewart Parnell, president of the bankrupt Peanut Corporation of America, told employees that quality measures were too expensive and time consuming. If you have a sufficient number of high quality resources, you can do quality control in-house cost effectively — but only if you have a sufficient number of high quality resources, which you won’t have if you go around indiscriminately cutting your workforce without regards to the total cost to the business.

Furthermore, I’ve never encountered a situation where there wasn’t a better option. Not that long ago I was talking with a colleague at a consultancy who spent weeks working out a 500,000 productivity improvement that would be realized over the next 12 months and cost the company less than 50,000 to implement. Instead, the company chose to reduce costs by cutting a 45,000 resource (which prevented them from undertaking the initiative). All I can say is where’s the logic in that? Especially since the company *guaranteed* the savings and was offering a contract where they wouldn’t get paid until the savings were achieved. (Save 4K a month at the expense of 40K a month? That’s just dumb.) And I hear this story day after day and week after week from consultancies that identify 500,000 to 5,000,000 (or more) but the customer won’t pull the trigger because it will cost them a few thousand of expenses up front. (And I mean a few thousand, most of the bigger consultancies these days, and even some of the SaaS solution providers, are willing to offer results-based pricing where you don’t pay consulting fees until the contract is completed or until you realize the savings necessary to cover the consulting fee.)

So don’t cut head-count. Use them to tackle 3X, 5X, 7X, and even 10X ROI opportunities that will help you get back to the black before you bleed to death.

Did We Need Yet Another Study To Tell Us That Slave-Driving Isn’t Productive?

A recent study from the University of Melbourne, covered by Computer World, found that workers are more productive if allowed to use the internet for leisure. Duh! Anyone with two working brain cells in IT should be able to tell you that.

Specifically, it found that People who do surf the Internet for fun at work – within a reasonable limit of less than 20% of their total time in the office – are more productive by about 9% than those who don’t. The explanation given is that people need to zone out for a bit to get back their concentration. Duh! Anyone who’s taught can tell you that. Every 17 to 20 minutes, you lose 1/3 of your audience if you don’t shake things up a bit, change the topic, wake them up, etc.

And even more insightful, the press release notes that it is important such browsing is done in moderation, as internet addiction can have the reverse effect. Duh! If you spend 8 hours a day following the twits that comprise the twittersphere, then you’re obviously not going to get anything done.

At least the computerworld article had the good sense to state the obvious points that should have been made.

  • It gets personal things off your mind.
    It’s hard to work distracted. If you can pop-on the internet, and get an annoyance like paying a bill, pre-ordering take-out, or getting out a message you can’t forget to deliver over with, you free yourself of distractions and this enables you to concentrate (providing you turn off those twitter feeds).
  • It converts unnecessary real-time interactions into asynchronous ones
    Nothing destroys deep concentration more than a five minute “pop-in” by a colleague who just feels the need to “talk”. If it’s unimportant, they can write you an e-mail, and you can read it later when you’re not in the middle of something important.
  • It makes work enjoyable.
    No one is productive in workplace hell where bosses spend all their time reciting garbage along the lines of “personal time steals from the company” and doing everything they can to squash happiness. Happy workers are productive workers. Productive workers create value. And that’s what sells in today’s economy.

So keep your workplace fun and free of too many unnecessary restrictions. As long as employee behavior is responsible, you’ll get your money’s worth.

A Procurement “Metric of the Month” is a Bad Idea

As a prominent blogger, I get a lot of e-mail (or should I say spam?). One of them had “Procurement Metric of the Month” in the title. I was about to trash it, as this is one of the worst ideas I’ve ever heard (as I’ll explain shortly), but then I noticed it was from Hackett. Needless to say, this got my attention. Why would one of the leading research firms in the space, which produces the very useful and relevant Book of Numbers, be touting a “metric of the month”?

It turns out they weren’t promoting a “metric of the month”, which would be an incredibly bad idea because a metric is only useful if you benchmark against it month after month after month for an extended period of time to measure your progress (and changing metrics too often gets you absolutely nowhere), but a new free research offering as part of their Hackett Performance Network (where, if you qualify, you can get access to selected research reports, performance studies, and webcasts). Designed for Finance, HR, IT, and Procurement, this new offering is apparently going to showcase an important metric in each area each month, starting with “Tax Book Entries Requiring Correction Percentage”, “Outsourcing Utilization by HR Process Category”, “IT Business Value Contribution through Portfolio Optimization”, and “Level of Supply Risk Management Adoption”.

With respect to the latter metric, which focusses on procurement, Hackett points out how 67% of world-class organizations implement supply risk management consistently across the business as compared to only 13% of their peers, indicating that top performers are 5 times as likely to have a comprehensive supply risk management strategy. Considering that effective supply risk management is a way for procurement to elevate its value proposition and help the business protect its brand, cost leadership, and stability, this makes sense. It’s free, so check it out. Just don’t take “metric of the month” literally.

Rant On Jason, Rant On (Procurement Solution Providers Are Doom and Gloom Too)

I tried to post this comment on Spend Matters, in response to Jason’s latest rant on “Getting Angry and Doing Something About It” about doom-and-gloom procurement practitioners, but his comment mechanism is “broken” due to an apparent mismatch between his CFML and Database (but I’m not a Cold Fusion expert, so I can’t say for sure). So I’m posting it here.

Jason, I hope your next rant is about how this is the time for the vendors and solution providers of the space to stand up and seize their opportunity to shine by helping buyers achieve never-before-achieved levels of productivity and savings that will help them shake the doom and gloom of this recession which, as you point out, provides Procurement and Supply Management with one of the greatest opportunities it’s ever had to shine.

Instead of putting their marketing engines into overdrive and making sure that all of the procurement and supply management departments, who desperately need solutions, are aware of their offerings and the problems their solutions can solve, I’ve seen many (of the smaller) vendors slash marketing budgets to 0 to “conserve cash” and reduce marketing and sales head count.

And instead of escalating New Product Development (NPD) to create leaner, meaner, easier-to-use solutions that can be brought on-line faster (and making use of streamlined out-of-the-box ready-to-start SaaS deployments), they’re putting NPD on hold and eliminating Product Managers, Quality Assurance, and Development Positions.

And most importantly, instead of taking their own advice and bringing in external experts who can help them get lean, mean, and thrive in a recessionary price-compression environment, they’ve cancelled all contracts and put a moratorium on external contractors until the recession is over.

As a result, the obvious has happened. Pipelines have dried up. Revenue has dived (as current customers have less to spend). And, in an effort to “survive”, they’ve slashed head-count by 10% to 50%, further impeding their ability to sell, build better solutions, service existing customers, and, most importantly, take on new customers. But, for some, even this won’t be enough as many of the smaller vendor’s aren’t sitting on years of operating expenditures in the bank. Their investors will likely have them on the block before year’s end. (You have to remember that many of the smaller vendors in this space are VC funded.)

There’s a reason I penned the “Dumb Company“, “Dead Company“, and “Your Marketing Really, Really Sucks” series (links below). I’m seeing the same mistakes being made again and again. Mistakes that were made by technology (based) solution providers in the last two recessions THAT ARE NO LONGER AROUND. Having worked for, and with, a number of start-ups and small companies (and collected piles of worthless stock in the process) earlier in my career, I see the writing on the wall. A number of companies that I thought were the more innovative companies in the space are acting like scared-stiff software providers instead of procurement enablers and blindly marching down the path to oblivion. If we lose them, the Big Co’s lose competition, and instead of thinking that solution X doesn’t need to be improved for 5 years, the Big Co’s will become the ERP providers of our space and we’ll be lucky if they update their solutions every 10 years!

So Rant On! Help me shake these dazed solution providers out of their slumber, because if we don’t, all of the buyers we so desperately want to help are going to suffer.

P.S.
If you’re a vendor reading this and you think this post doesn’t apply to you, think again. Based on my conversations and observations over the last three quarters, and my personal experiences working for, and with, a number of failed technology providers during the last two recessions, at least 9 out of 10 vendors in this space are making at least one potentially serious error at this point. And while one mistake won’t kill you, in a prolonged recession, it doesn’t take many. So I advise you … take a good hard look at yourself before shrugging this post off and going back to business as usual. I’ve already removed 3 service provider links from my Company List I hadn’t heard of over the past three weeks … and I’m really not looking forward to removing companies I have heard of, talked to, and rooted for.

Dumb Company

How Dumb is Your Company
Dumb Company
Dumb Company (The Lyrics)
Dumb Moments in Business not Aerospace, Automotive, or Bailout Related
Why Some Companies are Being Dumb

Dead Company

Dead Company
Dead Company II: If You’re Hoarding Cash … (You’re Not Going to Last)
Dead Company III: Fear is the Enemy
Dead Company IV: Avoiding the GraveYard
Dead Company V: More Ways to Avoid the GraveYard
Dead Company VI: New SI Offerings
Dead Company VII: Even More Ways to Avoid the GraveYard

Your Marketing Really, Really Sucks

Marketing is NOT Optional
How to Build a Bat House
The Brain Gives Pinky a Marketing Lesson
Web Marketer, Don’t Be Misled!