Category Archives: Strategy

Service Leaders Speak: Jim Wetekamp of BravoSolution on “Sourcing Leadership for the Recovery”

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Today’s guest post is from Jim Wetekamp of Bravo Solution, a global provider of supply management services and solutions (with offices across 3 continents).

It’s been just over a year since the financial crisis that signaled the worst of the global economic recession, and as we head back to work after summer vacation, businesses around the world are looking with a glimmer of hope towards the future. As the evidence in favor of a turnaround mounts, I am increasingly approached by sourcing leaders who are looking for ways to position their businesses for sourcing leadership in the recovery.

In truth, the visionary sourcing executives recognized early on that the objective for sourcing leadership doesn’t change at all as we dip into recession and then begin to recover. It is only the resources that they are allowed that changes. Ambitious executives will have seized the opportunities presented in the last year to be a strategic value driver for their businesses, driving cost out of the supply chain and helping to improve profitability in lean times. And they’ll have done that by adhering to the priorities that matter for sourcing leaders no matter the state of the economy:

Visibility, Fundamentals, and Evolution
Figure 1: Evolving Supply Management Priorities
The most successful sourcing leaders will have continued along this path over the last year; they will have kept their teams strong and armed them with the tools they need to succeed. These leaders are the ones who will find themselves best able to ride the crest of the recovery wave. They will not waste time staffing, training, and re-booting their sourcing organizations. Sadly, few organizations have weathered the past year fully intact, so what do sourcing executives need to do to lead in the recovery?

Sourcing Leadership’s job as the economy begins to recover is to rebuild the capabilities that were lost and get back on mission. This is not the time for a slow build; the most successful teams will be those who can quickly ramp their teams up and begin firing against all their priorities immediately. If you do nothing else, you should make sure your organization has best-in-class capabilities in three main areas:

Visibility and Opportunity Planning
If you don’t currently have visibility into your spend, it’s time to get a quick snapshot while laying the groundwork for a longer-term spend management program. Long term, a spend visibility tool will help you analyze and interpret your spending; you’ll likely also need a service provider experienced in rapid spend analysis to get you quickly through the initial opportunity identification phase. BravoSolution routinely delivers detailed opportunity analysis in a matter of weeks, even where our clients have spent months prior trying to understand their spend with internal resources.

Sourcing Fundamentals and Technologies
If you’re not using e-Sourcing tools, then you’re denying your business enormous efficiency gains, and wasting the time and expertise of your team on mundane recordkeeping tasks. You can move through the opportunities you identified faster and start realizing savings and managing vendors sooner if you’re using tools designed to accelerate that process. If you don’t have the bandwidth or expertise for a particular category, don’t be afraid to ask your technology provider for support – most leading e-Sourcing technology vendors, including BravoSolution, offer templates, advice, and even fully managed or outsourced events for their e-Sourcing customers.

Evolution and Extending Reach
The biggest disservice you can do for your organization (and your career) is to shy away from your most complex, highly visible categories at this moment. Strategic categories like transportation, packaging, and services mean too much to your business to be left to languish while your team rebuilds. You need to tackle these categories now, while suppliers are still eager to negotiate, and before a recovering economy begins to drive up costs in your biggest categories. Clearly, in categories that have such far-reaching impact across the organization, you cannot afford to fly blind. The value of pulling in a knowledgeable partner at this stage cannot be underestimated. Like other leading solution providers, BravoSolution regularly works with our customers to build tailored sourcing events that help our clients gain a deep understanding of their suppliers’ cost models and priorities, and to identify awards that drive efficiencies for both buyers and suppliers, reducing costs for both parties, and driving lasting, collaborative sourcing relationships.

By preserving, or better yet enhancing, your capabilities in these areas before the recovery takes hold, you will be poised to ride the wave of recovery and create competitive advantage for your business over the long term.

Thanks, Jim.

Is the Downturn an Upturn for Offshoring?

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A recent press release from the Conference Board announced the results of the fifth annual survey on offshoring trends that was done in conjunction with the Duke Offshoring Research Network. The survey found that more than 50% of companies had a corporate offshoring strategy last year, up from just 22% in 2005 and that 60% of companies currently offshoring have aggressive plans to expand existing activities.

Wow! Twice as many companies are now planning to offshore, and almost two thirds of companies offshoring are planning to increase their offshore activity! Risk be damned. The threat of peak logistics costs rolling around again in ten years or less be damned. The threat of losing a shipment to the Somali pirates and being stocked out for three months be damned. The threat of IP theft be damned. We’re offshoring anyway!

Let’s be clear … I’m not against offshoring when it makes sense, but I think many companies have been overdoing it and I fear that, in efforts to cut costs quickly to “get through this recession” they are going to take overdoing it to the next level. It’s not about the lowest cost today … it’s about the highest value over the lifetime of the project. When you offshore when the economy is down, costs can only go one way — up! Wages will rise as the new “low-cost” locale gets used to a higher quality of life. Raw material costs will only increase as demand in the region skyrockets. Shipping costs will only increase as the ocean carriers approach capacity again. And unless you’re outsourcing to a mature region with mature plants and experienced people, quality will be an issue, IP theft will be an issue, and lack of innovation will be a big issue. Investing in the right innovative partner who can help you find ways to take costs out of design and production while improving quality will usually provide you more value in the long run than the lowest cost provider today will provide you (because their costs will go up while their contributions stay flat).

Now, I do agree that companies with a well-thought out corporate-wide offshoring strategy can achieve significantly better performance in cost savings while meeting target service levels and improving relations with providers and overcoming internal resistance if they do it right, but I also believe that many companies just aren’t there yet. If the offshoring craze heats up again and they jump in head-first without the experience and planning required for success they will fail before they succeed. Given the weakened financial state of many companies right now, I just don’t think many can afford even a single failure.

So if you must jump on the bandwagon that is looping around again, get some help before you do. Start with Dick’s seminar and course on International Sourcing through Next Level Purchasing (now the Certitrek NLPA) to get a grip on the basics and then bring in a professional consultancy that does this every day to help you. Because, as Arie Lewin, Professor of Strategy and International Business at Duke says, “simply offshoring more functions isn’t the solution … to achieve real savings, companies need to get the processes right“.

Four Tasks of the CPO

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In a recent edition of the Harvard Business Review, an article on “What Only the CEO Can Do” outlined the four tasks of the CEO who has to link the outside to the inside. They were:

  1. Defining the Meaningful Outside
    Which stakeholders matter most? What results are meaningful?
  2. Deciding What Business You Are In
    Where do you play to win? Only the CEO has the enterprise-wide perspective to make the tough choices involved.
  3. Balancing Present and Future
    The CEO needs to strike the right balance between the short and long term.
  4. Shaping Values and Standards
    Values establish a company’s identity and behaviors. If the company is out to win, the values must be connected to the meaningful outside and be relevant for the present and future.

This prompts the question, what are the four primary tasks of the CPO? Especially given the dozens, and dozens, of issues that the CPO has to manage on a daily basis? Well, they are very similar:

  1. Define the Meaningful Inside
    Most of the supply chain is outside … it’s the CPOs job to figure out what needs to be inside and how it’s going to be managed.
  2. Decide what Business You Are NOT In
    What products are not cost effective for you to make? What processes are you not first class in? What processes are not good candidates for outsourcing?
  3. Balance Present and Future
    It’s not about the lowest cost today, it’s about balancing value today versus value tomorrow.
  4. Focus on Sustainability
    It’s values, standards, ethics, compliance, social responsibility, and long term sustainability.

If you think about all of the things a CPO has to do, you see they fall under the above umbrella:

  • analysis : Business You Are NOT In
  • strategy : the Meaningful Inside
  • team recognition : the Meaningful Inside
  • innovation : Balance Present and Future
  • compliance : Focus on Sustainability
  • risk : Focus on Sustainability
  • technology : Balance Present and Future
  • sustainability : Focus on Sustainability
  • etc.

Strategy in a Structural Break

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Last December, the McKinsey Quarterly published an article on “Strategy in a ‘structural break'” that is even more appropriate now than it was then as the structural break, at least according to some, shows no sign of ending this year. The article, which started off noting that a structural break in the economy is an opportunity in disguise, made a good point … you need a strategy … a real strategy … a cohesive response to the challenge … to survive. This is especially true when the old ways no longer work and you have to change … and chances are, for the majority of companies out there, this is the case.

So what can you do? You definitely have to avoid the phenomenon by which process engenders further process, eventually becoming a self-sustaining buzz and reduce the complexity of corporate structures and transform your business models. You have to simplify and simplify again. Then provide lean central and support services that don’t require business units to spend time and energy coordinating their activities.

So what does this mean for your supply chain? What is your strategy for the structural break?

While it’s hard to say, as each company will need it’s own, unique, targeted strategy to survive, I can tell you this. You need to:

  • adopt a center-led strategy
    that allows you to use the best of center-led and distributed models and uses collaboration software to share best practices and knowledge throughout the organization in an easily searchable and retrievable anywhere, anytime model
  • adopt a dynamic real-time push-pull demand chain model
    it’s a volatile market, and old methods of forecasting, pull-only, and push-only don’t cut it anymore … you have to adapt in real time, pull when you sense a sharp uptake, and have your manufacturer push when they can predict uptakes ahead of you and create optimal production runs
  • organize around the “networked person”, not the organization man
    if you’re not on the move, you’re standing still and … in this economy … if you’re standing still, you’re being pushed off the cliff with the rest of the lemmings
  • implement SaaS or cloud e-sourcing and e-procurement technology
    make sure your entire team can use the applications anytime, anywhere to do their jobs and get what they need, when they need it, at the best value point
  • if you don’t have it, get optimization software …
    and if you have it, use it
    figure out where you’re spending the bulk of your money (by way of a good spend analysis if need be), and get the right optimization software for your needs: if it’s goods or services, get strategic sourcing decision optimization software; if it’s transportation get transportation and network optimization software; if it’s manufacturing and production, get production optimization software … applied against the right problem, you can expect a 10X return … or more … for your investment … if not more!
  • use more consultants
    but target them on near-term and mid-term ROI initiatives until you get your cash flow optimized, then go back to the long term planning

Recession-Resistant Demand Management Strategies and Tactics

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A recent article in i2’s Supply Chain Leader on how resilient companies can manage demand when the past is not a reliable indicator of the future had a great table that compared and contrasted demand tactics and strategies in stable vs. volatile economies that did a great job of summarizing the demand management strategies you need to weather the storm.

The following points from “Recession-Resistant Demand Management Strategies and Tactics” in particular are key:

  • level and seasonality in volatile economy are best determined from the last 2-3 months, not 2-3 years
  • constantly look for patterns that are different from expectations and make adjustments quickly
  • it’s not just about consensus forecasting — triangulate multiple scenarios across functions against leading and trailing indicators to come up with near real-time forecasts
  • combine and push-and-pull strategies to get the best results
  • monitor continuously … today’s patterns will not be tomorrow’s