Category Archives: Sourcing Innovation

Some Takeaways from the E2Open sponsored SCM World Collaborative Execution Study

SCM World recently released a study on “Collaborative Execution” (defined as two or more parties working together to improve supply chain performance by continuously solving real problems with better information), focussed on Speed, Innovation and Profitability, overseen by Kevin O’Marah, and sponsored by E2Open that had some rather interesting, and in a few cases, surprising results. First off:

For suppliers, collaboration is primarily a means by which their customers share demand information, with 73% strongly agreeing this is a key aspect of collaboration.

For buyers, an overwhelming 83% believe collaboration revolves around the supplier sharing availability information (e.g. capacity, lead times, etc.).

In other words, both sides agree that collaboration centres on information sharing and, furthermore, the study also found that,
both sides need visibility and want a dedicated problem solver.

This means that the primary barrier to collaboration between most supply chain partners is the fact that companies struggle to share information effectively, with 54% seeing lack of data visibility across trading partners as a perennial problem. Furthermore, the next biggest barrier was speed of issue resolution, with almost 50% agreeing that this was a barrier to effective collaboration. (In addition, 92% agree that quick problem resolution is part of good collaboration.)

But the most surprising result of the survey was that trust, governance, and benefit sharing were not the biggest barriers to collaboration, as commonly suggested, but the ability to connect trading partner information flow, insure quality of information, and synchronize that information for quick problem solving. (For example, almost one half of respondents felt granularity of data was a problem, speaking to the quality issue, and almost one half of respondents saw timeliness of information as a problem.) This says that, for the most part, it is not lack of desire, trust, or willingness to collaborate that is the problem, but a lack of technology to enable collaboration. (And this is a shame, considering that such technology has existed in more than adequate form for at least five years now for even the largest of multi-nationals with the most complex supply networks. It may take some effort to get used to some of the technology, which is only now maturing on the usability front in some cases, but how much of a barrier is it really to spend a few days learning a technology that is going to cut your issue resolution time in half and decrease your risk substantially?)

Given that:

  • collaborative relationships were more cost effective,
    55% of respondents agree
  • good collaboration minimizes risk, and
    75% of respondents agree
  • learning is faster in a collaborative environment
    70% of respondents conclude that the rate of leaning increases by at least one-and-a-half times

Acquiring the technology that your organization needs to take collaboration with your trading partners to the next level should be a no-brainer. (Especially since the last finding means that any operational metric targeted such as inventory days, total landed cost, cash to cash cycle time can be expected to improve one and a half times as quickly as would be the case without collaborative execution. Thus, any appropriate technology acquisition is going to give you a very quick ROI.)

The only other point of interest was the not-so-surprising result that management by exception it seems is still not part of a “truly collaborative” trading partner relationship for a substantial number of companies. This would indicate that collaboration, even among market leaders, is still not very mature. In a mature relationship, each party trusts the other to do what they do best and only gets involved when a deviation is detected or an idea is devised to improve the process or product. But still, it’s nice to know that both buyers and sellers do not see trust as a barrier to collaborating for mutual gain.

Invoking Innovation In Your Organization Internally

Supply Management magazine recently ran a great piece on innovation from the head of SRM at Best Buy Europe (where they might have it together better than Best Buy USA where you are not likely to get a Best Buy Experience) on “Creative Industry” where he described the difficulty of jump-starting an innovation initiative in an organization which has not been innovative in a (very) long time.

In the article, he detailed and exemplified an eight step process which is a good starting point for anyone trying to get in an innovative mindset.

  1. Lose the Fear
    Of being judged. Of disappointing others with your idea. Of just plain doing something different. Jamie says to be childlike in your approach and embrace the initiative with excitement. And if that don’t work, and it’s not against your religion, start with martini hour. Inhibitions are bad for innovation.
  2. No Idea is a Bad Idea
    It might not be the right idea for the organization, but it doesn’t mean it’s necessarily bad. In different circumstances, it could be a great idea. All ideas should be captured, and explored, at the right time, in a search for a better idea.
  3. Understand the problem.
    What is the issue? What is the objective? It’s the measurement stick for any idea you come up with.
  4. Diversity is King
    Have both experts and novices in the room. Make sure the novices are not afraid to ask “why can’t we do this”. Sometimes opposition is just knee-jerk. When there is no rebuttal to the question, you’re on the right track.
  5. Get Visual
    Draw. Illustrate. Sculpt clay if you have to. Make a prototype out of cardboard and play-doh. Whatever gets people thinking differently enough to actually innovate.
  6. Safe Environment
    Everyone is equal. No idea is bad. Freedom to speak up and speak out during the brainstorming process. Keep it out of management offices where positions of authority are implicitly conveyed.
  7. Subdue the subconscious
    It has default knee-jerk reactions to everything and default knee-jerk visualizations for every concept and pre-assigned meanings to every word. This gets us through the day, but is not always good where innovation is concerned. (Of course, if you start with martini hour, this may not be much of a problem. 😉 )
  8. Be Committed.
    Almost to the point where a conservative middle manager (who doesn’t understand the importance of relentless innovation) wants to have you committed. It takes a lot of effort to get an innovation project rolling, and even more to keep it rolling until the first positive, revenue-producing, output is produced.

This is a really great starter list and Jamie’s article on “Creative Industry” is really good. Take 5 minutes and read it end-to-end. It’s worth your time.

Procurement Game Plan: A Review Part II.1

Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. In our first post, we set the stage with The Purchasing Professional’s 10 Commandments. In our last post, we covered the first four chapters of the book that discuss organizational role, supply management strategy, talent, and social responsibility — the stage that a modern supply management professional has to act upon. In Part II, we will continue our detailed review with a discussion of strategic sourcing, supplier qualification, and negotiations — the subjects of chapters 5 through 8 and critical skills for strategic sourcing success. This post will focus on strategic sourcing and supplier qualification.

The chapter on strategic sourcing starts off with a short and concise definition of what strategic sourcing is — the rigourous process of identifying the right supplier. Not necessarily the supplier of cheapest or highest quality, but the one that offers the greatest overall net benefit to the organization with respect to the project and organizational goals.

The chapter has a detailed discussion of the steps that is not much different than what you would find in any paper or book on the strategic sourcing process, but does a good job of pointing out that the version of the strategic sourcing process you implement does not matter as the key is that proper strategic sourcing is collaborative and organized process that promotes cross functional teams for unified decision making with the guidance and leadership of executive level supply management. It also gets the implementation right — start with easy wins, move on to bread-and-butter categories, and end with tougher, non-traditional categories that are usually ripe with savings — but does not necessarily get the starting points in each category right. Sure office supplies are easy wins because this is a category you can always take 10% off of, but if it’s a relatively small spend for your organization, it’s not worth it. Sometimes just getting a category under contract that is not currently under contract on a core purchase will save you five or ten times as much. In order to properly segment the categories, you have to start with a proper spend analysis. It does point out the importance of spend analysis for understanding the savings opportunity in each category, but this has to be done before you segment the categories into your three sourcing waves. The reality is that no indicator, including the four great indicators defined on page 74, is enough to guarantee a category has, or does not have, savings. A more detailed spend analysis is always required.

One section of the chapter on strategic sourcing I particularly liked was the skills for future nontraditional category strategic sourcing. In order to be able to gain support of the organizations with the sacred cow spending and work with them to get these costs under control, you are going to have to learn their business — and this is going to require new skills. This point is so important it’s too bad that this wasn’t a chapter in and of itself.

Another section that was great in this chapter was the section that defined the eleven signs of ethical competitive bidding. If you want successful strategic sourcing events, you need the participation of the best suppliers on the market. And the only way you’re going to get that participation is if they believe you are a customer worthy of their product. If they see you doing shady back-room deals, you will not be perceived as a customer-of-choice, and it is likely that they will only participate in your events when they are in financial trouble — which is not a situation you want your supplier in.

The chapter on supplier qualification starts with a section on predicting supplier performance — which is a great place to start. If your prediction is that a supplier will not perform well, and there are multiple suppliers likely to perform well, it probably makes sense to not invite the supplier to your event. If your prediction is that only a handful of suppliers will perform well, maybe you should forget the auction and go straight to negotiations, in order of predicted performance. The three questions it provides are a great place to start. A supplier who does not have a core competency in your category, who does not have experience satisfying requests with requirements like yours, and who does not have the right capacity is not likely to perform well. The third question is more important than you think. If your contract would take up more than 15% of their business, and they are busy, not only will capacity be tight, but if your demand fluctuates significantly, it could have a significant impact on their ability to perform. Inversely, if your requirements constitute less than 1% of their demand, while they may have the capacity, they may not have the incentive to service you timely if a customer that represents 10% of their capacity suddenly needs an extra production run.

The sections on the evaluation of big and small suppliers are also good reads, as suppliers should be evaluated carefully, but I’d be wary of testing the escalation plan (which requires calling points of contact and timing their response) until you are in actual negotiations. If every buyer called every supplier during the initial supplier qualification phase, they suppliers would be overwhelmed and unable to respond to anything or get their jobs done. They’d have to hire more people just to answer phones all day. Their cost to serve would increase, and, as a result, so would your cost. The section on dual vs. single source was always great. The answer to this question is never as easy as it seems.

And the discussion of risk mitigation is equally challenging. However, the suggestions that you get a sample, ask for a money-back guarantee, and conduct a quality audit are all good ones. A supplier confident in their work will generally agree to all this and the added comfort will smooth the relationship. An audit will take time, but as the authors note, choosing the wrong supplier is guaranteed to take even more time, more money, and an endless array of aggravation and frustration. Take the time to get it right.

Managing Indirect Spend: An In-Depth Review, Part I.3

In Parts I.1 and I.2 we began our review of Managing Indirect Spend, a new book by Joe Payne and William (Bill) Dorn of Source One that is the culmination of everything they have learned while doing nothing but Strategic Sourcing, primarily on Indirect Spend, since 1992 — before it was cool. And as SI noted in its last two posts, clocking in at 422 pages, this book is an incredible handbook for anyone who wants to get a handle on indirect spend, which has increased in organizations across the board since outsourcing and right-sizing rose to fame in the 1990s. (And if you think otherwise, download SI’s free eBook white-paper on Spend Visibility: An Implementation Guide, dive into your spend, and see just how much of it is indirect.)

Today we’re going to conclude our review of Part One — The Process, as well as review the last chapter in Part Two, on building stakeholder engagement (which, in the doctor‘s view, is as much process as tool), and discuss implementation, stakeholder engagement, continuous improvement, and, finally, what not to do if the organization wishes to conduct a successful sourcing event.

As Bill and Joe correctly point out, the vast majority of savings opportunities are squandered because there is

  • no implementation plan and
  • no supplier management strategy.

And the implementation is often the biggest challenge. It must be monitored continuously because the historical volumes that analysis and award are often based on do not predict future purchases. Users may start buying new items, more items, or a combination of items that provide new savings opportunities and, more importantly, especially in categories like office supplies or electronics, vendors may substitute other items when the items that were contracted are unavailable (or discontinued) and not give the organization the agreed upon, or even market, rates. So, not only can maverick buyers endanger organizational savings opportunities (when they buy off contract), so can suppliers.

However, monitoring is a challenge because it will require the end users that are the ones using the category to do most of the monitoring — and any appeals about organizational benefits may fall on deaf ears unless a message that resonates with the end users is given. For example, instead of talking savings numbers, which no one believes (because they were never historically achieved), talk jobs. How many jobs might the initiative save? Could it save their job(s)?

And, the organization will have to break down the traditional customer / supplier relationship view that still pervades the organization. Since most innovation will often come from outside the organization, the supplier must be viewed as a collaborator, and not an antagonist only out to get the most money from the organization for the least service possible. Treated with respect, most suppliers will rise to the challenge. Suppliers often have great ideas to reduce energy consumption, downtime, freight costs, and process slowdowns if asked. Plus, they are constantly monitoring the market to identify ways to outperform their competition. Tap into that. It’s a great way to start a continuous improvement initiative.

Of course, all of this will require stakeholder engagement. A stakeholder can be defined as any person, group or department that has influence in a spend category or is influenced directly or indirectly by that spend category. Stakeholders aren’t just end users or category owners. Depending on the project, they are also finance departments, management, shareholders, customers, and even marketing teams. Not only do stakeholders have to buy in for implementation success, but they are a key source of information. They are the often the best source of information on the current supplier, alternate suppliers on the market, the range of spend in the category, similar categories that may be leveraged with the supplier(s), and future requirements. Plus, stakeholders can provide the following value:

  • raw data
  • identification of organizational pain points and a project focus
  • research support and research enhancement
  • detailed business requirements
  • go-to-market support in negotiation and implementation management

Finally, once there is supplier and stakeholder engagement, make sure the organization doesn’t screw up and do any of the following:

  • allow misinformation to spread unchecked
    misinformation can spread like wildfire through an organization and kill a project before it starts (if a rumour that only one supplier can serve organizational needs ot that the goal is to improve efficiency so jobs can be eliminated takes hold, for example, it’s game over)
  • create overly complex or long RFxs
    this will eliminate small suppliers without the resources to complete them or the best suppliers who won’t find the business opportunity worth it when other (potential) customers are more reasonable
  • target the wrong audience / spam suppliers
    make sure the suppliers are pre-qualified as capable of likely meeting organizational needs, otherwise, needs won’t be met and suppliers will be alienated
  • ignore suppliers during the RFx process
    make sure reach-outs are performed before and after the first RFx is sent out to ensure a response
  • let the supplier write the RFx
    this is a great way to ensure no other supplier comes across as capable of meeting organizational needs as the supplier will fill the spec with useless features and functions that only they have
  • over-rely on technology
    nothing can replace the competent, creative guidance of humans
  • take an entitled attitude
    the organization is not entitled to the supplier’s offerings
  • expect a blind bid
    suppliers know that “blind bids are for suckers”; if there is no relationship before the bid, there will be no relationship after
  • forget to train
    if the suppliers can’t use the platform, they won’t bid; if the buyers don’t understand the process, they won’t follow it
  • ask the supplier to put skin in the game
    only desperate suppliers will pay to participate in an RFx, and all the organization will get are higher prices as a result. It’s the one of the stupidest things the doctor ever heard and whoever the moron is who came up with the idea should be ashamed of himself.
  • do everything on your own
    recognize when you need help — and get it!

All in all, Part One of Managing Indirect Spend contains some great advice that every indirect category manager should heed. Our next post will tackle Part II – The Tools. Continue to stay tuned.

Find Your Next!

Our last post discussed the need for Next Practices and an innovative approach that will get the organization there so that it can continue to survive, and even thrive, in today’s harsh economic climate. Today’s post is going to review Andrea Kates’ Find Your Next, a new book that describes the “Business Genome” approach — which is a strategic toolkit that an organization can use to identify one or more strategies that could take it to the next level.

The difference between a great idea and a great business result is the ability to integrate insights from lots of different sources and get an entire organization on board quickly.
Mark Vachon, GE Company Officer

No single quote better captures the state of business today and the need for a 360°view of the market in which an organization is competing and an enterprise-wide response to market changes in real-time. That’s why SI agrees with Mark Vachon when he says that Find Your Next is a must-read. Very few books capture the spirit of the approach that an organization must to take in its strategy formulation efforts like this book. As business has progressed beyond the point where a single blueprint can guarantee success, an inquisitive approach that can help an organization identify all of the relevant factors that are influencing the market from a product, process, customer, talent, trend, and innovation perspective is desperately needed as an organization must be continually asking the right questions and identifying the right answers if it is to compete effectively. Getting to the heart of the innovator’s dilemma, this is one of the few books that accurately describes a strategic formulation approach that is both powerful enough to meet organizational needs and easy enough to be adopted.

One of the great things about the book is the author states right off the reality of business strategy generation: there is no science to prediction. You can sit down in a laboratory with rats for a month and track what you see. Even armed with data on how biological change has occurred in the past for each rat, you wouldn’t be able to figure out what changes will happen next. And why not? Because you have not been trained to see the world of rats through the subtle cues and environmental shifts that would allow you to see ahead to the next phase. In other words, there’s no way to know for sure.

In addition, Andrea then goes on to note that forecasting is rarely enough. The traditional tools don’t adequately address the significant trends that shape today’s competitive arena. This is partly because adding up the elements of the past doesn’t get you to the full impact that you can have in the future but mostly because no model is complete — the market is continually shifting — and you have to keep up with it.

Just like Nilofer Merchant provided us with a simple five-step approach for achieving The New How when he noted that we needed a framework for collaboration if we were truly going to collaborate on business strategy, Andrea Kates presents us with a simple four-step process to the business genome approach that anyone can follow. But that’s not what makes this book great. Anyone that has been keeping up with recent thinking on innovation and innovation trends can probably figure out a process. What makes the book great is the advice provided on implementing each step and the detailed lists of important questions that need to be asked, that are not always so obvious. And then there’s the case studies that explain the importance of asking the right strategies and using the business approach to Find Your Next.

Consider the questions posed in relation to your secret sauce:

  1. What is it about you that keeps your customers coming back? Do they see all that you are and all that you have to offer?
  2. Who stands a chance of stealing those devotees or encroaching on your competitive space?
  3. How can you stay wired to the market pulse, even as it vacillates?
  4. What will make your company a market leader in the next year or two?
  5. What’s the secret to differentiating your brand in today’s competitive landscape. Have others in industries outside off yours figured it out?

Each of these goes beyond the traditional set of questions asked by a company employing standard best-practices when trying to determine it’s next product. A typical company

  1. would ask what is keeping customers coming back and not if the customers are seeing everything they have to offer now — this is important as your company might already have it’s next killer product on the market or might be offering products and services the market doesn’t want, and mis-applying resources that should be reapplied
  2. would focus on current competition and not on potential new market entrants that could move into its space and change the game — like Netflix changed video rentals and the iPad changed laptop sales
  3. would be focussed on reading the market now and now how it could ensure it could read, and react, to the market as the product was released and competitors’ products were released
  4. would be focussed on now, and not after-now, and overlook the importance of minitrends to continued success
  5. would focus on its market space, and not other market spaces where a new market entrant might have figured out the key to new customer acquisition in what was thought to be a stagnant or non-existent market (like Starbucks changed the coffee shop)

Find Your Next is a great book and a must read for any executive or strategic planner that wants to understand the foundations for asking the right questions that will be the ultimate key to success in a strategic planning session. As Seth Godin says:

Every great strategic thinker uses the ideas in thsi book … but it took Andrea Kates to write them down for the rest of us.