Category Archives: Strategy

Ariba Vision 2020: Tomorrow’s Shoes (Part I)

This is the first of two posts that address the fourteen predictions that were dead on in Ariba’s “Vision 2020 – The Future of Procurement” report. Any Supply Management organization that recognizes the truth of these predictions is well on its way to formulating a plan to be a leading Supply Management organization in the decade ahead.

01. Everything is automated

This prediction is dead-on. Next Generation Supply Management shops are investing heavily in technology to automate all non-strategic and low-value supply management activities, leaving the sourcing professionals to focus on strategic and high-value categories where they can extract the most value for the organization.

07. Spend management shrinks

I’ve said it before, and I will say it again: Spend Matters Not. It’s not how much you spend, how you store it, how you cube it, or how you report on it — what ultimately matters is how much you get from it, profit from it, and derive value from it. Next Generation Supply Management organizations are focussed on improving business outcomes, not cutting costs until quality and stability of supply suffer. Spend Management will shrink as true Supply Management focussed on value takes its place.

09. Service providers excel

Given the increasing cost of outsourcing complex and strategic functions to emerging economies where labour rates are rising exponentially, in order to maintain cost competitiveness and deliver value, the service providers will provide service that constantly improves in efficiency and execution.

13. Let’s get financial

Since overall financial success will still be the ultimate measure of value generation in public enterprises, Supply Management will revolve around the financial supply chain and will be heavily involved in optimizing cash flows, working capital, and financing programs from NPD through return and disposal.

14. SM pros get sophisticated

Supply Management professionals will definitely be much more sophisticated in 2020 than they are today. As the secret agents that essentially drive all aspects of the business, their business savvy, analytical capabilities, relationship skills, and overall execution abilities will be, for the most part, a level above where they are today.

15. Supply pros expand expertise

This is the obvious result of a supply managmeent professional getting more sophisticated. It should not have been included as a separate prediction because it’s impossible to get more sophisticated in Supply Management without expanding depth of expertise in key areas.

16. Strategy scope widens

One does not get to the next level by maintaining a narrow focus, so it should also be obvious that the scope of strategy addressed by an average Supply Management organization is going to expand as well. The strategy will be more closely aligned with the needs of the organization’s end customers and be more cognizant of the needs of the current, and future, customer base. Supply Management will be increasingly called upon not only to analyze merger and acquisition possibilities, but to lead the initiative as success will depend upon succesfull integration of the end-to-end supply chains. And it will be involved in all NPD from day one to help identify customer needs and supplier capabilities before any decisions are made.

The next post will address the other seven predictions that were dead-on.

Step 1 To Building a World Class Supply Management Organization

Adopt a start-up mentality.

Yes, it’s that simple. A lot of blood, sweat, and tears will still be required, but, getting it right really is that simple. And a big thank you to Mark Suster, regular TechCrunch contributor, who wrote a great article on Whom You Should Hire at a Startup that allowed me to realize this.

As you may have noticed, a number of issues have been on my mind of late. In addition to Next Generation Sourcing and Supply Chain Education (or lack thereof), I’ve been trying to figure out how an organization without any modern supply management capabilities, a follower if you will, can go about laying the foundations of a world class supply management organization to become tomorrow’s leader. Obviously if next generation sourcing is the goal, it can’t be the starting point, and education, while critical, requires a foundation. And, more importantly, you can’t turn a “B”-Team into an “A”-Team if there is no raw talent waiting to be released, molded, and shaped under the leadership of the right Colonel.

But if you want to build a new capability, you’re essentially building a new organization, and how do you build a new organization? You create a new start-up, and since, as an organization, you have the one thing that most start-ups don’t — money (and lack of adequate funding is the biggest reason most start-ups fail), you’re almost guaranteed to succeed if you follow successful start best-practices. And since there’s really only three best-practices that you need to remember, this isn’t hard to do.

So what are these best practices?

  1. Hire a talented team
  2. Give them a goal
  3. Get out of their way

Taking these points in reverse order, the biggest mistake many first-time entrepreneurs make is that they overvalue their importance in the start-up success equation. They think that no one gets it like they do or that it won’t succeed if they don’t champion it 24/7 or that the team will lose momentum if they’re not constantly preaching the doctrine, when, in fact, nothing could be further from the truth. In fact, entrepreneur ego is the second biggest reason most start-ups fail. An entrepreneur who believes the start-up can’t succeed without him or her tends to make multiple, deadly, mistakes which include micro-managing top-talent who get frustrated at the inability to do their job and the lack of forward progress (because the CEO isn’t an expert in finance, technology, marketing, or other critical functions that the top-talent is supposed to be leading); overchampioning the cause 24/7 to the point where the talent gets sick of all the cheering and actually loses excitement and drive to succeed; refusing to step to the side and play nice when new leadership is required to take the company to the next level; and overvaluing the company and turning away reasonable investment offers, which drives away any future investment when the rumour gets out the founders are too greedy.

A good entrepreneur realizes that they are the enabler, not the doer, and after giving the talent they hire a goal, gets out of the way of the team and, moreover, does everything they can to remove distractions and barriers to team success because a good team wants to excel and will do whatever they can to shine if allowed. Because, as Suster’s great article on Whom You Should Hire at a Startup points out, an A-Team

  • punches above their weight class,
  • doesn’t care above roles and stretches their job description to do what has to be done,
  • has the right attitude, and
  • gets the job done.

So if you want to build that world-class supply management organization, adopt a start-up mentality, hire an A-Team, give them a goal, provide them with whatever they need (including the right training and technology, which they will help you identify), stand back, and don’t be surprised if miracles happen.

Are You Willing To Go Out On A Limb?

A recent Industry Week article on how “Manufacturers are Redfining Themselves” had a great quote by Michael Collins who said you can’t cost-reduce yourself to growth. “I look at some of these companies that have been successful and see what they’re doing differently from those that are just floating along. You know what I see? They’re willing to go out on a limb and develop unique strategies. That’s what separates them. And whether you’re trying to grow a business or a supply chain, the net requirements are the same — if you want your supply chain to be successful, you have to invest in it and take chances every now again. New technologies, new processes, and new distribution models will be key to future growth and success.

And you have to rethink the value that the supply chain contributes (from a value-focussed or high-definition perspective). The sidebar provided in the article lists some good starting points, once appropriately translated to the supply chain.

  • Identify “Blue Ocean Space”
    Where are the real savings opportunities that supply chain has not yet tackled. Are there any sacred cows such as marketing, legal, or HR spend where supply chain could make a huge impact? Is supply chain involved in NPD, or only in sourcing after the design has been approved and expensive single-source components locked-in?
  • Think Beyond Processor Mentality
    Real savings come from strategic planning, sourcing, and network design – not tactical PO processing.
  • Offer a Value Proposition that Goes Beyond Sourcing the Cheapest Part
    What about quality, sustainability, and end-customer value? Customers will pay more for high-quality products that give them a (perceived) value end, and since profit is revenue minus cost, any contributions to revenue also have a huge impact on overall business performance.
  • Ask the Right Questions that Identify Risks and Opportunities
    Don’t just focus on opportunities or risks. The greatest success will come from a careful balancing of risk vs. reward.
  • Offer specialized high-value services that can’t be easily duplicated.
    Find ways to save other departments money that they can’t duplicate without your help. For example, better e-negotiations, deeper spend analysis, or better JIT inventory management with 3PL support.

Think Canada Can’t Handle Your Distribution Needs? Think Again

As per this recent article in Canadian Transportation & Logistics on how “Canadian firms [are] rethinking logistics business models” that summarizes some of the findings from the Global Business Strategy and Innovation: A Canadian Logistics Perspective, in the last five years total annual investment in distribution facilities in Canada has grown from $674 Million in 2005 to $1.39 Billion in 2010, an increase of 106%.

There’s no need to service Canadian operations from US distribution centres. In fact, with lower operating costs in Canada compared to many traditional US hubs, it might even make sense to service the Northern US from Canadian distribution centres. It’s another option, and one that should be consider in your total costs of operations logistics models.

Four Ideas to Make Your Procurement Department More Strategic

It’s a new year, and your Supply Management organization is again being asked to step up its game, which is getting harder and harder to do as there is only so much cost you can squeeze out of the supply chain. So what can you do? You can start by taking a fresh look at the strategic mission of your procurement department and look for ways to be the driver of change and value for your organization. As per our recent posts on Value Focussed Supply and High Definition Sourcing, the value in Next Generation Sourcing savings will come as much from Supply Management’s contribution to profit margins as it will from their contribution to cost reduction as Supply Management is in a unique position to bridge organizational silos and help the organization understand not only the drivers of cost, but the drivers of value and what value is available to be had, for little or no cost, in the supply base.

In an attempt to help your organization get started down the strategic path to Supply Management, BravoSolution has released a white-paper that provides 10 Ideas to Make Your Procurement Department More Strategic that is quite thought provoking. Containing great ideas on how to increase price, take better advantage of volume, and reduce fixed and variable costs, the white-paper is a must read for any Supply Management department struggling with how to improve value when there isn’t much cost left to take out of the equation.

For example, the white paper points out that you need to:

  • learn more about your company’s customers and what is really important to them
    as this will not only allow you to zero in on what they really need, and lower cost, but identify suppliers and products that could provide them with more value and allow them to increase price
  • learn about the markets you aren’t currently serving
    because maybe there is a profitable niche that you could easily serve with your current supply base and minor changes to product designs or pricing models
  • learn about technologies that could reduce your variable costs
    even if the technology is designed to be utilized in production and has to be utilized by your supplier because if it costs 100K and saves 1M a year, it should be a no-brainer
  • teach your organization about where it spends (too much) money
    because it really doesn’t know (and that’s why analysis has to be ubiquitous). It might not know that every department is buying its own toner off-contract at 2x the negotiated contract price. If you’re a large organization buying thousands of cartridges a year (because everyone is print-happy) that’s hundreds of thousands of dollars a year being flushed down the virtual toilet.

So check out these 10 Ideas to Make Your Procurement Department More Strategic. (They’re not vendor platform specific and will be more than worth your time.)