Category Archives: Sourcing Innovation

Open Innovation Will Help Your Supply Chain Cope in Lean Times

A recent article in the Harvard Business Review’s spotlight on innovation on “how open innovation can help you cope in lean times” is just as appropriate to supply chain organizations as it is to R&D organizations. In a nutshell open innovation will help you move innovation from the inside out to get the greatest value from your initiatives. Specifically, it will help you:

  1. Become a Customer of Your Projects For example, if you require an important capability that you can neither afford to develop nor acquire on the open market, and it’s something that other organizations would also want, join with these other organizations to fund, develop, and launch the capability … and become the first customer. This is how a number of exchanges, procurement platform providers, and BPOs started in Supply Management. And there’s a good chance it will be how a number of future players in the space start. So if you have a brilliant idea, don’t miss out on your chance to be the one that brings it to market.
  2. Let Others Develop Your NonStrategic InitiativesHopefully your business is in the midst of embarking on a project to focus on its core activities, and hopefully your supply chain organization is following suit. If you are, you’ve probably identified some activities that drain too much time and money for the value they return to the organization and classified them as non-strategic. You’ve probably also identified some activities that, if you had the right strengths, could return a lot of value and should be strategic, but aren’t in the hands of your current staff. In both cases, you should spin out the tasks to outside organizations who can do them efficiently and cost effectively. In the first case, you’d spin the tasks out to a tactical BPO and the second to a consultancy who can act as a strategic partner. Then, every effort undertaken by Supply Management will return value.
  3. Make Your IP Work Harder for YouIf you’ve developed a lot of Sourcing IP (category or commodity expertise, process expertise, etc.), but most of the time it just sits on the shelf and generates no direct financial benefit outside of cost savings on specific categories, then consider licensing the expertise to outside partners and/or spinning off an organization that generates and sells the IP at a profit. For example, if you have a strong market intelligence team in energy and metals, spin off a market intelligence organization which can do the research much more cost effectively, license the content back to you for a dollar, and make the organization’s investment arm a profit.
  4. Grow Your EcosystemLook beyond your four walls, direct customers, and direct suppliers for innovation. Also engage with trade associations, analysts, and industry experts. You never know where the next big idea is going to come from.
  5. Create Open Domains to Reduce Costs and Expand ParticipationOnce you have your ecosystem in place, you need to maximize it. Do that with open domains, exchanges, forums, and other knowledge network tools that will allow everyone to collaborate.

And when you’re done, you’ll be doing more for less and getting more for everything you do.

Share This on Linked In

Don’t Squander Your Intelligent Failures!

A recent HBR post that asked if you were “squandering your intelligent failures” noted that instead of learning from failures, many executives seek to keep them hidden or to pretend that they were all part of a master plan and no big deal, which is all too true and a shame because you can often learn more from a failure than from a success (which sometimes, in CPG, is just pure luck and hard to learn from).

Furthermore, some scholars believe that learning from failure is crucial to organizational learning, because they demonstrate where assumptions are wrong, where future investment would be wasted, and where directions need to change. More succinctly, failures are about the only way in which an organization can re-set its expectations for the future in any meaningful way … but only if you take the time to learn from them!

According to some scholars, including Sim Sitkin (who is mentioned in the post), the most useful failures (from a learning perspective) is an intelligent failure, which he defines as a failure that results from an action that is:

  • carefully planned (which allows you to identify when things go wrong),
  • genuinely uncertain,
  • modest in scale, and
  • managed quickly.

Such an action plan not only prevents a catastrophe, but allows you to identify not only when something goes wrong, but why. If you take the time to figure out the way, and do so in a timely fashion, you can learn from the action and propagate that knowledge throughout the business, especially if you insure that underlying assumptions (which turned out to be wrong) are explicitly declared and that you can test results at well defined checkpoints. As such, should a failure occur, it is an excellent learning opportunity and should not be squandered!

Share This on Linked In

Efficient Sourcing In Marketing, Part II

In our last post we discussed how Marketing Procurement was still a sacred cow at many companies, despite the fact that significant savings, which exceeded 42% at one CPG company, are to be had. Even though CIPS and the IPA tried to highlight the potential three years ago with their report on “Magic and Logic”: Re-defining sustainable business practices for agencies, marketing, and procurement, which was followed by Efficio‘s treatise on “The Creative Challenge: Driving Efficiencies in Marketing Procurement” which laid out an eight-step approach to driving efficiencies in Marketing Procurement.

Then Booz & Co. decided to get in the game with their recent whitepaper on “Efficient Sourcing In Marketing”, which is a good candidate to complete the trilogy. In this paper, which described the all-too-common scenario that represents the sourcing side of marketing at large companies, Booz & Co. outlined some of the many advantages that can result from bringing a disciplined process to Marketing Procurement and laid out their six step process for getting results, which we’ll cover today.

1. Analyze Marketing Spend in Detail

As with any sourcing process, you need to know where and how the money is being spent. Currently, most CMOs have no idea of their marketing expenditures or a comprehensive profile of their supply base as their budgets are divided between “above the line” items, such as advertising and creative services, and “below the line” items, such as promotion and direct mail. Furthermore, most marketers manage against budgets and campaigns rather than vendor compliance to contracted terms.

2. Adopt a More Rigorous Approach to Spend

There are two ways Marketing can be disciplined in cost control. The first way is to rebid and consolidate the vendor base. The second is the through the manipulation of demand and process levers through the requirements placed on suppliers by marketing staff themselves. Procurement can help with both levers using the methodologies identified by Booz and Co. in the white paper.

3. Deploy Decision Support Tools to End Users

These tools can alert marketers when their current suppliers are overly expensive, less experienced, or less capable compared with other suppliers they are spending on (when performance metrics are tracked). These tools can also automate price comparisons, cost trade-offs, and complain analysis — offering tangible metrics that quantify the results of marketing’s efforts.

4. Create a Clear Delineation of Roles and Responsibilities

Cost savings rarely happen where decision rights and lines of responsibilities aren’t clearly delineated in most departments, with Marketing being one of the worst offenders. Categories of spend that span business units should be centrally managed, whereas those that are business unit specific or local should be done according to well defined rules that define vendor selection. Typically, final decision rights will remain with Marketing, while Procurement works to facilitate and continually improve the effectiveness of the strategic sourcing process.

5. Define an Operating Model

The operating model should be governed by the roles and responsibilities define above but be streamlined to support the nature of the company’s marketing activity.

6. Use Change Management to Implement the New Paradigm

Each of the previous steps require a company to change established strategies and practices and implement new ones. As a result, the appropriate application of change management must be anticipated and provided if the initiatives are to succeed.

In other words, if you deploy a good cross-functional strategic sourcing process, you’re already well on the way to Marketing Procurement success.

Share This on Linked In

Efficient Sourcing In Marketing, Part I

Three years ago CIPS and the IPA came out with their report on “Magic and Logic”: Re-defining sustainable business practices for agencies, marketing, and procurement in their attempt to change the game and get the sacred cow marketing budget under control. It was an insightful report, as I noted in my two-part series on Magic & Logic (Part I and Part II), and a great first attempt at carving up the sacred cow.

Then, two years ago, Efficio entered the game with their paper on “The Creative Challenge: Driving Efficiencies in Marketing Procurement”. This report, which covered some of the key challenges involved initiating collaboration between marketing and collaboration, as well as some of the typical savings levers that can be used to negotiate savings anywhere from 3% to 50%, provided an 8-step approach to driving efficiencies in Marketing Procurement. As per my posts on The Creative Challenge (Part I and Part II), it was a good starting process and a great second attempt at serving that sacred cow on a platter.

Since them, I’ve been waiting for another paper that will complete the trilogy and, hopefully, provide us with the ultimate approach to Marketing Procurement. And while it certainly isn’t the ultimate approach, Booz & Co.’s recent attempt, “Efficient Sourcing In Marketing” is a good end to the trilogy. As noted in the introduction, the following, all-too-common, scenario speaks volumes about the sourcing side of marketing at large companies.

The large retail bank’s approach to buying marketing-related services and materials was typical. On direct marketing efforts, decentralized business units worked with advertising agencies of their choice — agencies usually chosen on the basis of demonstrated capabilities, their understanding of the nuances of the individual businesses, and the personal relationships they had built over time. The relative cost was hard to compare, as each of the bank’s business units negotiated its own agreements with its marketing partners. Pricing was usually project-based, with no standardization from one business unit to another, even when it involved universally used items, such as envelopes, mailing inserts, and postcards, or when units shared the same vendors. By ignoring costs, which can represent a quarter of many companies’ total purchasing outlay, the company is leaving huge sums of money on the table — as much as 40% to 50% in some cases. This can easily mean tens of millions of dollars of savings at many large companies in the CPG, Pharmaceutical, or Automotive sectors that rely heavy on marketing. These savings can be reinvested in more successful campaigns, truly allowing marketing to do more with less when efficient strategic sourcing comes to the table, provided both departments collaborate to an unprecedented degree.

This will require adherence to a six-step process, that I’ll address in Part II, but the good news is that the payoff can materialize quickly. Often, merely creating more visibility into a supplier’s relationshipsacross a firm and discussing the level of business with the supplier can elicit more favourable pricing. Furthermore, the appropriate identification of savings target for different types of services can lead to rapid savings. The report gives an example of a CPG company that targeted 8% savings on creative services, 16% savings for less complicated services (that could be done in-house or by lower-cost resources), and a 18% savings through the adopt of a preferred set of enterprise-wide vendors. Overall, the company reduced cost by 42%, saving 10 Million on what was a 25 Million spend!

Share This on Linked In