Category Archives: rants

5 Sure-Fire Ways to Sabotage Your (Competition’s) Supply Management Operation

Sometimes the only way you can do better is if your competition does worse. It’s sad, but true. To this end, a colleague of mine forwarded me a great piece on Procurement Transformation on 5 surefire ways to devastate a supply management operation. All you have to do is convince your competition to take this advice, and down they go!

Clearly labelled “Step 3: Run down” at the end of the white paper, these tips and tricks will do exactly that … run down your (competition’s) operation straight to the ground. A tanker filled with kerosene wouldn’t get the job done any faster. These tips were so great we can’t help but share them.

1. Aggressively trim smaller vendors to consolidate the
supplier base by each category in order to increase
negotiating leverage and press for lower rates.

Yes, increased volume and category consolidation can often extract better prices from the suppliers large enough to supply the volume and/or breadth of products needed to get the volume, but it comes at a price. Less suppliers to pick up the slack if the primary, or sometimes single, supplier fails due to a plant accident, natural disaster, or government shutdown. And failure will happen. Your chance of a major supply disruption not happening in the next 12 months is less than 10%. But hey, you always beat the odds. And you don’t need innovation, right? After all, if you wait long enough, the big bloated supplier will buy the little guy that comes up with the innovation if it is needed, right? (And it is always the little guy who comes up with the innovation, but that doesn’t matter, right?) The new economy runs on innovation, but your big clients are slow to move, and your suppliers should be just fast enough, right?

2. Institute a ‘champion/challenger’ model for all key
categories with 70 to 80% of the business going to
the champion and the remainder going to a single
challenger. This will keep both parties hungry. The
champion and challenger should also be rotated
periodically, though not too often as business
disruption is also costly.

Well, this eliminates the risk of one supplier right? And flipping will definitely keep them hungry. And they won’t be p1ss3d that every few years you just snatch 60% of their business because “it will make them hungrier”. We’ll ignore the fact that they must have been pretty damn hungry to sharpen their pencil and submit the lowest bid even though that meant that their sales people probably didn’t get the commission they expected, and aren’t happy. So yeah, make them so hungry they’d rather eat your competition’s handout.

3. Search for new suppliers and give new suppliers a
chance to prove themselves if the pricing is better
than the incumbent. Potentially try a new vendor
as the ‘challenger’ (or as a second ‘challenger’) to
balance disruption with cost savings.

This is probably the suggestion you share first when trying to discreetly bring your competition from the ground. Third challenger is a good idea, except when the challenger is brought in purely for cost savings. And then even less of a good idea when the category is one that doesn’t need much innovation. After all, why waste a good idea on a good implementation.

4. Execute a ‘cost-to-price’ initiative. Assemble a cross-functional
team to help quickly understand the
direct relationship between input-cost inflation and
necessary customer price increases to maintain or
improve product margins. For global companies,
this should be done on a country-by-country basis
with key performance indicator heat-maps to ensure
proper indexing of price inflation.

It’s all about price after all. Who cares about quality, reliability, or even form and function that a customer actually wants. And who really cares about innovation after all — choose a supplier that lets someone else do it and then just copies it to the extent legally permissible. It’s good enough, right? And, of course, ignore the fact that all the lowest cost suppliers will be overseas and require complex supply chains to make your good and even more complex logistics chains to get your goods to your customers. That’s just details.

5. Hold a supplier conference in which the
suppliers are given indicative cost reduction targets
and asked to come and present to the company
their ideas. This demonstrates a commitment
to the relationship and working together to solve
pricing concerns.

After all, every supplier loves a beat down, right? They love a hard-nosed negotiation customer who only cares about cost, cost, cost. Who doesn’t respect their innovation, quality, reliability, and overall effort to bring the product that’s the best overall value, not just the lowest cost.

Combined, it’s a sure-fire powder keg that, when lit, will burn your operation to the ground. It definitely is a run down …

Oh wait, it’s not run down, it’s run downwind and it’s step 3 in a course designed to sail through Rough Seas Ahead for Procurement … and it’s meant to help your organization sail in heavy weather!

EEEK!

I can’t think of any advice that would be worse. They’re basically telling you the only way to combat the rough seas ahead is to sail right into the heart of the Bermuda Triangle in the middle of a category 5 hurricane!

YIKES!

Do they truly hate their readership? Or, as a consultancy, are they trying to increase the number of companies that will be in dire need of consulting help? Because any company that follows this decades old advice, which might have worked in the 80s [when everything was home sourced, innovation was rare, and margins were fat] will definitely need help after trying this!

RPA: Robotic Process Automation or Redistributed Process Automation

RPA, ML, and AI is all the rage these days, with RPA being the most mature technology. But just because it’s a mature technology, that doesn’t mean it’s a mature technology offering from the vendor you are considering, as powerful as they are purporting it to be, or even as general purpose as you might expect (especially if it relies heavily on ML or AI techniques).

In fact, like early spend classification technology, which was usually 60% auto-class and 35% behind-the-scenes manual-class by the hundred interns in the backroom (in India, Poland, or another outsource locale with a relatively high percentage of English-as-a-second-language speakers), a lot of the RPA technology being promoted today is in fact supported by, if not done by, humans behind the scenes.

This is especially true when natural language processing is involved, and doubly true when interpretation is involved. And it even comes in to play with something as simple as calendar scheduling. For example “book me an appointment with John Russell” next Wednesday is not often straight forward. John Russell the person, or John Russell the company? And the next calendar Wednesday, or the calendar Wednesday in the next week? (English speakers typically refer to the next calendar Wednesday as this Wednesday and the Wednesday in the following week as next Wednesday, but certain European cultures always refer to the next calendar Wednesday as next Wednesday.)

So imagine how much human intervention is required behind the scenes if you want to do document analysis or contract interpretation! Quite a bit. When it comes to document and contract processing, it’s one thing to break it up into sections and annotate what’s in the document, it’s another thing to interpret what each section means, and yet another to determine whether or not its enforceable, or even allowable, against a regulation or law.

Advanced RPA / ML systems can analyze a document or contract and break it up into relevant sections, identify the constituent components of each section (party, address, obligation, description, explanation, etc.), and make it easy to determine whether or not a section, entity, or value is contained within. With sufficient ontological definitions, training, and tweaking, these systems can get highly accurate.

But when it comes to interpretation, that’s different. It’s easy to determine that a document contains the phrase “the receiving party is bound to provide the sending party with a hold payment to be applied against the obligation of the sending party upon transmission”, but harder to figure out precisely what that means if the hold payment, receiving party, sending party, and obligations are specified elsewhere in the document. And then if you want to determine whether or not that obligation is in line with organizational policies or contract law in the jurisdiction of choice, that’s yet another level.

Really good tech might be able to sift the document and make probabilistic guesses as to what the hold payment is, what the obligation is, and maybe even what transmission means (providing to a courier, being received by a local courier, showing up at the recipients door if its a physical good, or confirmed receipt / acknowledgement if an electronic IP deliverable), but chances are it will be wrong a good percentage of the time and require human confirmation. And when it comes to interpretation, frankly, unless a human is reviewing the clause and given the most likely scenario, a random number generator mapped to an outcome table is likely to be just as accurate. (In other words, trusting RPA means you are rolling the bones.)

Thus, any RPA system that performs an advance task is likely not true Robotic Process Automation but in fact Redistributed Process Automation, even if the vendor doesn’t advertise it as such. But if you are curious, there are tells. How long does the system take to perform the task? An hour or two to process a document? Definitely RPA of the second category. Fifteen minutes or more to schedule that appointment? If both sides were using true RPA of the first type, it would take seconds, maybe a few minutes if there was limited bandwidth and email delay. And so on. Look at service times, customer counts, and what’s being heavily promoted. The truth is under the covers.

But redistributed process automation is not necessarily bad. It’s probably the most efficient use of your organization’s time, especially if the vendor has RPA-lite algorithms that can quickly determine what needs to be done by a human and what can be automated. Anything that saves your organization time and money while improving outcomes is a step forward, and as long as the vendor continues to reinvest its profits into system development, the system should get better over time.

But don’t buy RPA with eyes wide shut. Otherwise, you might not get what you are expecting. Or put too much faith into the system.

Agile Procurement? Or just go faster?

Today’s guest post is from Tony Bridger, an experienced provider of Procurement Consulting and Spend Analysis services across the Commonwealth (as well as a Lean Six Sigma Black Belt) who has been delivering value across continents for two decades. He is currently President of UK-based TrainingWorx Ltd, a provider of a wide range of Procurement and Analytic business training programs (inc. GDPR, spend analysis, project management, process improvement, etc.) and focussed short-term consulting solutions. Tony can be contacted at tony.bridger@data-trainingworx.co.uk.

Yves St Laurent was an outstanding fashion designer in very many respects. However, he had very clear views on how fashion works. He summarised it in five words:

“fashions fade, style is eternal”.

There is little or no doubt that the procurement world has (once again) jumped on a fashion trend. In the fashionista world, everyone is busy being a transformer, a value-adder, a people empoweree – and now agile. This must leave so little room in the day for saving money – it is costly to keep up with fashion trends as we all know.

Agile is an interesting word. Agile applied to procurement is a very interesting word.

Agile springs from an alternative approach to software development. However, it seems to have neatly morphed in to a word that seems to express some form of new, vague approach to sourcing. Mark C. Layton in the Dummies Guide to Agile Management and Procurement Practices (2012) focuses on software acquisition and development as the basis for an agile approach – and how vendors can be managed in agile technology driven development projects.

CIPS published a paper in their Knowledge Summary series (undated) where some four pages of (unfocused) discussion results in the conclusion that:

“As this paper makes clear, ‘lean’ and ‘agile’ concepts have been, and continue to be, the subject of academic research………… (and) that ‘lean’ and ‘agile’ are not simply theoretical concepts.

Well, no help there then. After a little rummaging through much word-smithing (I hope I don’t start a new fashion with that phrase), I found an article on Rev-International (Source) – so, quite recent. The article states:

“To be agile means to be able to think, understand, and move quickly and easily. To be agile, according to Cornell, procurement organizations need to have the knowledge and ability to move quickly.”

Sadly, this deductively implies that unless they adopt the new fashion, procurement teams will remain inherently slow and unfashionably nerdy. It gets worse:

“It’s about using market knowledge and business intelligence to exploit profitable opportunities,”

From experience both as a member of, and supplier, to a wide range of procurement organisations, this is pretty much what most seem to do for a living. However, admittedly, there is still a major capability gap in the use of business data intelligence in many procurement teams. Many writers still focus on Agile as a procurement technology driven function – not much to do with “the rest” of the sourcing portfolio. So where does this leave us? I am now really not sure what to wear.

Don’t you just hate it when a piece of music gets in to your thinking….and you can’t turn it off? The Kinks, in 1966, wrote a song called “Dedicated follower of fashion”. There is one line that he/she is:

“……. Eagerly pursuing all the latest fads and trends”

It is too easy to become distracted by the fashionable and the pursuit of a silver bullet – by all means learn new techniques – and adapt if it fits. However, it would be much better to see good procurement teams (continuing) to deliver quickly, using business intelligence and supplier collaboration – but with style – and a perhaps a little panache. It’s really business as usual, save money, avoid chasing fashions. Who knows, perhaps I am just plain old-fashioned and too focused on style.

[1] https://www.jaggaer.com/agile-procurement-achieve/

Thanks, Tony.

Why You Need a Master Data Strategy for Proper Supplier Management (Repost)

This post originally ran on June 24, 2013, but seeing as it’s still a relevant message five years later, it is being re-posted to educate newcomers on the importance of Master Data Management strategies in this data-centric era.

Supplier Information Management is more than just buying a Supplier Information Management (SIM) solution and plopping it into your data centre. Much more. But yet, it seems that some people — anxious to deal with the visibility, risk management, and supplier performance issues facing them — believe that merely obtaining a SIM solution will solve their problems. A proper solution properly acquired, properly implemented, and properly used will go a long way to increasing supply chain visibility, enabling risk management and mitigation, and providing a solid foundation for supplier performance management, but the mere presence of such a solution in your supply management application suite is about as useful as a drill in the hands of a carpenter holding a nail.

You see, Supplier Information will never be restricted to the SIM system. Supplier information will always be present in the ERP system used for resource planning and manufacturing, the accounts payable system, the transactional procurement / procure-to-pay system, the sourcing suite, the contract management system, the risk management solution, the performance tracking and scorecard system, the sustainability / CSR solution, and other systems employed in your organizational back-office to manage the different supply management AND business functions. Supplier data is everywhere, and without a strategy, just shoving it into the SIM system won’t help.

In order to get a proper grip on supplier information, the organization needs a master data strategy that dictates the sub-records that define a supplier record and which system holds the master data for each sub-record. What do we mean by this? For example, the ERP may hold the core supplier identifier sub-record that defines the unique supplier number in your system, the supplier name, the supplier’s tax number, and your customer number in the eyes of the supplier and be the system of record for this information. The accounts payable system, referencing the supplier by it’s supplier number, may be the system of record for the headquarters address and payment address. The contract management system may be the system of record for the list of employees authorized to sign contracts on behalf of the supplier. The CSR system may be the system of record for the suppliers’ carbon rating, third party CSR rating, and your internal sustainability rating. And so on.

If this is the case, the SIM system, to truly be a SIM solution for your organization, needs to integrate with all of these systems and encode the proper rules to resolve data conflicts as required. Specifically, three things need to happen. First of all, whenever a system of record updates data, that data must be pulled into the system and overwrite the existing data. Secondly, anytime data is updated in the SIM system for which it is the system of record, that data must be pushed out to all systems that use it. Thirdly, and this part is sometimes overlooked, whenever data is updated in a system of record, the data not only needs to be pulled into the SIM system, but it then needs to be pushed out to any system that also uses that data. The SIM solution is the centre of a hub-and-spoke data architecture — all updates flow in, and all updates flow out.

This can only be properly accomplished with an appropriate Master Data Strategy. Don’t overlook it. Otherwise your SIM solution will turn out to be a Stuck In Muck solution. An SI is not kidding about this.

Transformation, Transmogrification …. or business as usual?

The web is a fascinating place, your capacity to search, ponder and read is unlimited in reality. However, whilst rummaging around I happened to read an article in Forbes from 2015 entitled Why Business Transformation Fails and How to Ensure It Doesn’t.

There is little or no doubt that the “T” word has appeared in all functional areas of business life – Finance, Operations, Procurement, Human Resources and just about any type of business. Forbes suggests most transformations that fail are due to inefficient execution (41%), followed by resource and budget constraints (35%). It is likely that failure levels are much higher – but how do you define failure? Forbes also suggest that many failures are due to a “lack of buy-in”. Sadly, that phrase is largely overused — and meaningless if you think about it for a moment or two.

Many employees go to work for income — they may not see buying-in to changes as a high priority. The article also suggests that everyone needs to be “on the same page”. Again, there is a difference in understanding and interpretation by individuals of the reason why a change is occurring and what it means for them. As with many things — there is large scale charity, change and transformation fatigue – people just see inefficient execution as the same internal muddle repeated on a regular basis. Meanwhile, every day of the week the transformation word continues to bounce back. It is clearly a fad with some time to run.

Having been part of, and subject to, a considerable number of transformations over a number of years, the best performing companies (large and small) take changes in their markets and competitive environment as business as usual drivers. Change or die. There is no such thing as transformation. It’s simply good business management. No fanfare, just outcomes, jobs and profits.

In the procurement space in particular, social media articles exhort many large organisations who have managed to deliver “empowered staff within a learning organisation” and yet very little on “the net hard savings from this transformation were … $X”. In an analysis of some (as yet un-published) recent survey data, around 43% of Chief Procurement Officers in large companies had no analytics capability. However, many had advanced contract management, e-procurement and other sourcing capability. But no analytics numbers. One can assume the usual array of uncoordinated spreadsheets.

Whilst it is easy to accept the premise that executives inherit environments, the procurement focus should be on numbers and savings or realized value (if Procurement helped with an initiative that increased sales, that should be captured too). If you don’t have the numbers, get them. The issue may simply be that inefficient transformation execution means that little or no rigour is attached to the expected outcomes. It starts with a pre-change number and ends with a post-change number. What gets measured gets attended to. What people need to read are change strategies that they can emulate to drive down costs.

As will emerge shortly, the collapse of Carillion is likely to have been driven by managers who were transforming visionaries. They just needed to manage the business through market and competitive change. In effect, just get on with it.