Category Archives: Services

Clarity with Claro

When I was in Chicago, I had the chance to sit down with Bart Richards, a Principle of The Claro Group (now part of Stout), and talk about their consulting practice and their sourcing practice in particular. Although the Claro group is relatively new, being in existence for less than two years, it’s team, made up of a large number of ex-Arthur Anderson and Bearing Point consultants, has been in the business for a long time and have saved $2.2 Billion dollars in sourcing and procurement spend (on roughly $17 Billion in spend), which is nothing to scoff at. (They’ve also recovered over $4 billion in insurance settlements, but that’s not the focus of this post, or blog.) They’ve also serviced over 100 organizations to date and delivered tangible bottom-line results at each.

Before I get into their sourcing practice, I would like to note that The Claro Group is an interesting firm with three primary areas of practice: Sourcing and Procurement, Healthcare, and Insurance Management Services – making them a prime consideration for large hospitals, GPOs, and other HealthCare Providers as they can help these organizations across the board. This is a very interesting position considering the relative lack of vendors and consultants in the sourcing and procurement space with this focus. Besides VendorMate (acquired by GHX, acquired by Thoma Bravo) and CombineNet (acquired by Jaggaer), I have not yet identified any other solution providers with such a strong understanding of the space. (So, if you know of, or work for, any other providers with a strong sourcing or procurement capability in the healthcare space, please feel free to reach out using the contact information in the FAQ.)

Back to their sourcing practice. I could bore you with details on their methodology, practice, etc., but this time I’d like to stick to my impression of Bart. All I can say is that if all of their consultants are like him, then they truly are client focused and willing to do whatever it takes to help you save money and improve productivity. Although they do use vendor tools to help them, they don’t insist upon or sell any specific vendor tools and instead focus on the analysis, processes, and methodologies that they believe, based upon their extensive experience (with each team member having an average of 12 or more years of experience in sourcing and procurement), will lead to tangible, measurable, and meaningful value to clients. And in this regards, the numbers don’t lie. They’ve saved, on average 12.5%, across all of the projects they worked on, which is quite significant, especially considering this is the most you can hope to save, on average, if you implement advanced sourcing methodologies in house (as per Aberdeen’s recent “Advanced Sourcing and Negotiation Benchmark Report”).

Their process is a simple and to-the-point three-phased approach that they use to rapidly identify opportunities. They start with an assessment where they review your process, organization, technology, and historical data to determine your opportunities, estimate the required effort, and compose a timeline. They then execute the recommendations that result from the first phase by revising organizational and process design, implementing new technology, and managing the change to capture the identified savings opportunities. Finally, they measure the impact, report on compliance, and implement Supplier Relationship Management. Simple, but effective.

Protiviti: Manage Risk, Reap Reward

Your supply chain will be disrupted. Bet on it. You’ll win. The only two things more absolute in this world are death and taxes. I’ve told you that there is Real Risk in your supply chain. I’ve reviewed the basics of Managing Business Risk. I’ve even went so far as to tell you that Your Supply Chain is NOT Secure. But I still feel that I have not even come close to drilling the point home as to how at risk you are every minute of every hour of every day or how likely it is that your supply chain is going to be disrupted in a big way – and how much this will cost you if you are not prepared.

But that’s a post for another day. Today, I’m going to start helping you identify where you can go to get help, and the first company I’m going to point out to you is Protiviti, specialists in Independent Risk Consulting with an in-house expert group on Supply Chain Risk. Rising from the ashes of the old Arthur Anderson back in 2002 (with a little help from Robert Half International), Protiviti has more than quadrupled in size without diverging from their core practices of internal auditing, technology risk management, and business risk management (where the supply chain group resides).

Recently, I was fortunate enough to be able to talk to one of the leaders of the Supply Chain Risk group at Protiviti and talk about how they help clients identify, mitigate, and manage supply chain risk and I was quite satisfied with what I heard. Rather than trying to sell you a big black binder with an industry standard system generated risk management plan (which is not as useful as you might think since every company is different and has different risks), they instead work with you using a well-defined methodology that they’ve refined over the years to build a complete picture of the risks you face (a risk assessment), the mitigations you have in place or available to you, and a plan for managing those risks going forward. Furthermore, they help you build appropriate cross-functional teams that they work with throughout the process to make sure that when they are done, you understand not only what your risks and mitigations are, but how they were derived and how you carry the process forward.

The first thing they do, and you must commit to this for the process to work, is a risk assessment that evaluates your overall operations, supporting supply chain, regulatory environment, and organizational goals to help them build a risk profile that helps you understand where your risks are, the probability of them happening, and the dampening effect of any mitigations you currently have in place. They then categorize the risk universe into meaningful groupings, such as operations, supply base, distribution chain, and regulatory environment, that can be addressed and evaluated from a similar functional perspective. Then, working with your cross-functional teams, they help you qualify the probabilities, potential impacts, and mitigations that you can use to address them, including controls and monitors that you already have in place today. They then help you refine any identified and approved mitigations into processes and procedures that you can use to detect and manage a risk. After all, risk management is not a one-time project, but a continual process. However, you have to start somewhere, and a project focussed on supply risk is a great place to start.

They also assist you in putting in place critical and sustainable/repeatable risk management capabilities including, but not limited to, strategies, policies, processes, organizational accountabilities, information for decision-making, continuous identification, monitoring and control, tools and methodologies, and base data integrity procedures.

However, what I really liked hearing was that Supplier Relationship Management (SRM), Contract Lifecycle Management (CLM), and Compliance Management (CM) best practices done right were really risk management processes. SRM is not about managing your supplier, it’s about managing the risk associated with a supplier not performing. CLM is not about keeping track of a contract over it’s lifetime, but about making sure the critical terms of the contract, designed to mitigate your risk, are adhered to. CM is not about making sure your purchasers don’t go rogue, it’s about managing maverick spend to non-approved suppliers that increases your risk. After all, the key to long-term sustained financial performance is not cost savings – you’re always going to have to spend money – it’s cost avoidance – making sure you don’t spend any more than you have to. I know a lot of executives, and CFO’s in particular, these days only care about cost savings, but they’re just a bunch of short-sighted nitwits who need a good smack up-side the head. After all, there’s a limit to how much you can save! Once you’re performing at the best-in-class level, sourcing every category at market value, and optimally allocating the award so as to minimize your Total Value Management (TVM) lifecycle cost (or Total Cost of Ownership on steroid cost) – there’s nothing left to save – the best you can do in such a situation, should you be enlightened enough to reach it, is to avoid unnecessary spending. You avoid unnecessary spending by making sure everything goes according to plan. You do that by managing risk.

Another tidbit worth repeating is that they are currently working with Michigan State University(and AMR) on a new certification program for C-level executives in value chain risk management to help them understand, and proactively manage, risk. After all, considering one supply chain disruption can wipe out all of your strategically sourced savings, it’s critical that not only you, but your financial decision makers, understand this and allow you to invest in the methodologies and tools you need to make sure that if something really bad happens (your primary contract manufacturer’s plant goes up in smoke, for example), you know about it in time to do something about it (such as immediately route all your orders to your secondary manufacturer) before your supply chain shuts down, and you lose millions of dollars in sales.

So when you embark on your next risk management planning effort, be sure to put Protiviti on your list of potential vendors. (The reality is that such an effort is something you should never embark upon entirely in house – you’ll never see all of your own weaknesses.)

Lean Services

Last week at Aptium Global’s private 10 Ways to Significantly Improve EBITDA and Reduce Operational Risk in Your Portfolio Companies, Lisa Reisman, Mark Pruitt, and Ara Surenian presented ten real-world examples of cost reduction and EBITDA improvement in small and middle market operations that proved that Lean can be used to save significant amounts of money even in categories where annual spend is in the low seven digits. Jason Busch did a good job of summarizing the event at the macro-level in his post “Small / Middle Market Private Equity Investments and Spend Management”* on Spend Matters [WayBackMachine], so, with the kind permission of Aptium Global, today I am going to detail the first of two case studies that serve to illustrate that not only can lean significantly improve operations in companies with revenue as small as ten or twenty million, but do so outside of traditional manufacturing operations.

This first example is based on the results obtained by Aptium Global for the US Division of a high-end manufacturer (in tubing) for the automotive market. This division was finding it extremely difficult to “baseline” services spending, such as machining or heat treating, which was generally based on price per piece quotes, compounded by the fact that many pieces were of odd sizes and shapes, and further compounded by the fact they are usually produced on the basis of capacity and/or geographic proximity.

By creating a pricing matrix that included piece grade, weight, and invoice value, Aptium Global was able to calculate a price per pound for each service to estabish a baseline. This allowed the division to source strategically as it allowed for a straightforward negotiation process, provided a way for savings to be monitored on an on-going basis, and fixed pricing going forward. Furthermore, since the baseline reduced sourcing confusion, it allowed the division to spend more time on quality control and develop of on-going process control methods to insure that quality issues were detected quickly, and the supplier notified promptly.

As a result of the implementation of this simple lean sourcing methodology, the division was able to realize an average savings of over 20% on services spending. Furthermore, the net operational improvements allowed the division to rationalize their supply base and reduce their three (3) day lead time to twenty-four (24) hours.

Next entry: Lean Commodity Sourcing

Servigistics – Tomorrow’s Strategic Service Management Today

In yesterday’s post, Strategic Service Management, I talked about the importance of making the customer efficient while maintaining a profit – something you are likely to only achieve in today’s highly competitive marketplace with strategic service management – a proactive approach to service management that balances service strategy, resources, commitments, and pricing that supports the integration, optimization, and efficient management of core business processes, adds to your overall business solution, and differentiates your offering from that of your competitors.

Why is it important? Despite the huge investment in IT to support the front end of the sales cycle (which can consume up to 85% of the IT budget in some organizations), in today’s competitive market, you can still see declining sales without the right strategy – which today needs to involve services. After all, in a well run services organization, particularly in the durable goods and consumer goods verticals, post sales service can provide a nice margin of 20% to 50%, which not only turns service from a cost center into a profit center, but increases your profit while decreasing your costs (since you simultaneously optimizing your resource allocation).

So, how does Servigistics (acquired by PTC) tackle Strategic Service Management? Three ways: parts management, pricing management, and workforce management. What’s the difference?

Service Parts Management is the process of ensuring the right part is available at the right place at the right time. The alignment of planning, forecasting, and inventories, it makes sure you can respond to a customer need as it arises, without costly expedited shipping, unnecessary wait times, or financial losses (that can result from service level guarantees).

Service Price Management is the management and optimization of service parts prices by way of sophisticated pricing methodologies, advanced optimization techniques, and adaptive business logic to maximize revenue. Pricing is more difficult than you might think. It’s not about charging as much as you can – because that limits you to a few customers. It’s not about charging the most competitive price, because that might cut your margins to the point where sustainability is at risk. It’s finding the right balance that maximizes your customer base while maintaining profitability.

Workforce management is the process of optimal workforce scheduling to make sure that you have the right number of service professionals on duty and the right amount of service equipment (and vehicles) available to deliver committed levels of service 24 hours a day, 7 days a week, 365 days a year. This involves monitoring and adjusting your schedules on a continuous basis, optimally dispatching and routing service professionals as service calls come in, and aligning your workforce skill set to meet your evolving customer needs.

So, optimize the workforce to deliver the right part at the right time at the right price and you simultaneously minimize cost and maximize resource utilization and revenue opportunity. Does it address everything? Well, for starters, you still need a good strategy and product life cycle management tool to understand what might go wrong, when, and what you will need to fix it, so it’s not yet a panacea solution, but it is a great start. All you have to do is look at their customer list – a Fortune 500 who’s who of High Tech, Heavy Equipment, Automotive, and Aerospace – and the magnitude of savings a service management solutions suite has enabled for them. (As per a 2005 Business Week article, Avaya reduced service parts inventory from $250 million to $160 million, Sun Microsystems saved $40 million and Dell nosed out Hewlett-Packard for the top spot in the U.S. hardware support market, growing its service business unit by more than 20%.)

Strategic Service Management

As I’ve been mapping out the supply chain space, one of the oft-overlooked areas that I keep stumbling on is service management – and by that I am referring to customer service management, and not just outsourced services management. After all, I do preach Total Value Management (TVM), and unlike Total Cost of Ownership (TCO), TVM is concerned with all of the life-cycle costs associated with a product, and that includes servicing and customer returns.

I know I haven’t blogged much about this area in the past, in fact, my only post to date has been my post on The Art of Service Management back in November. In that post, I described P.T. Harker’s talk on the evolution of service management and how the new goal of service management is to make the customer efficient and how making the customer a part of the process helps to ensure that the product or service is what the customer wants, which in turn increases your chancing of selling the product or service to the customer.

But service management is about more than just making the customer efficient and sufficiently satisfied – it’s about making the customer efficient and sufficiently satisfied and making a profit at the same time. With enough effort, you can make almost any customer efficient and sufficiently satisfied, but if you spend more than you get, you will not stay in business very long.

How do you do that? Strategic Service Management. A proactive approach to service management that balances service strategy, resources, commitments, and pricing that supports the integration, optimization, and efficient management of core business processes, adds to your overall business solution, and differentiates your offering from that of your competitors. How do you get there? Well, as with any new initiative you find a partner to help you get to the next level. Who should you choose? That’s up to you, but one provider you should look at is Servigistics (acquired by PTC) – the second stop on my whirlwind virtual tour of Atlanta – and the subject of an upcoming blog post.