If you have ordered something from Amazon and it was delayed, you may have the political gridlock in Washington to blame. So call your local member of congress and complain loudly. The U.S. Postal Service (USPS) is part of Amazon’s supply chain ……and it cannot keep up with the demand. This brings up a number of interesting points to consider in what may be a changing landscape.
Clearly, Amazon found that current delivery systems in the market (e.g. Fedex, UPS) were not enough to meet their Value Drivers(volume, delivery schedule, cost etc .etc.). USPS has been suffering contraction and their relationship with Amazon is a great strategy to re-invent themselves (which also now includes acting as a banking system). After all, USPS already has the infrastructure for the proverbial ”last mile” into your home and most people like their mailman. Which by the way means that Amazon will have significant influence on the physical “last mile” and they are already into the content development and delivery business in a big way and getting bigger. This raises the obvious question of how big is too big as far as Amazon is concerned? You may remember the drone delivery strategy from last year?
Clearly, Amazon and other retailers may have outpaced the capacity of the overall delivery system and is now including the Public Sector in its supply base. Does that mean that the next time you send out a logistics related RFP, you should include the USPS in it? Perhaps you do already and if so, does it present a different set of challenges and risks to consider? Are your negotiation tactics totally different? In this case, one of the obvious challenges would be the union who is actually quite supportive ” We are in favor of the Amazon delivery business and Sunday parcel delivery — it’s fabulous and we want it to continue”. The challenge is that USPS is not staffed up to handle the volumes, their temporary workforce strategy is not working and their entire workforce is overworked according to the article. Year over year volumes are up by 300% and the expectation is that this is a long term increase and not a short term phenomena. And the long term investment in increasing the USPS infrastructure including the workforce is a political issue which means you must include that as part of your assessment when looking at the USPS.
Does Amazon look to invest in the USPS like they might with another supplier and is there a model for that? Should that be of concern? Does that lead to privatization where your mailperson has an Amazon hat on? When the USPS has to decide between your card to grandma and the Amazon package, which one do they choose? Already Amazon customers are complaining that they are not getting on time delivery. How much influence does Amazon have over the USPS? Wait till that call from grandma! By the way, this is the same discussion happening in the virtual “last mile” issue between the FCC and the industry (net neutrality) – who controls delivery of content into the house. And content developers are bypassing cable(Netflix, HBO) but that’s for another blog.
Dealing with the Public Sector as a supplier clearly has its unique challenges and one where public policy and politics enter into the picture. It may also be the emergence of a new model where public sector institutions who have been under pressure to outsource and privatize are now actually a service provider to the private sector – they have become the Outsource (a totally made up word). It is also an interesting tipping point (thank you Gladwell) where one of the most dominant disruptors of the old economy (Amazon) is teaming up with one of the oldest institutions of that old economy (USPS) to make sure Santa is on time. And if he/she is not, then call your congressman and give them &^##.
Preparing a spend analysis, doing supply market research, determining your sourcing strategy, developing / executing a negotiation strategy, writing a contract, putting a new supplier place – these are the basic steps associated with Strategic Sourcing. These steps can be found in any standard sourcing process whether it has five, six or nine steps – they are all the same. Procurement groups that are striving to be more strategic or “transform” from a more tactical organization believe that having that process and discipline in place is the silver bullet to making magic happen – millions upon millions of dollars in savings. If only it were that simple !
For many years, more than I care to count, we have been talking about the REAL challenges in trying to move from tactical buying to more strategic. While all the activities I have noted above are important, they are the easy part. The difficulty comes when we try to coordinate our buying practices (creating leverage) within our own organization and need decisions to get made across the organization (across multiple business units) vs. within a single business unit (which is within the normal course of business). Another challenge area is getting our internal business partners to relinquish ANY of their decision making power when it comes to buying “what” they want and from “who”. A big concern is having Procurement making those buying decisions for them.
I sat through a client stakeholder meeting this morning where the Procurement organization was presenting their business case for “studying” professional services spend to their business units. It is a large spend area that is bought independently within each business unit today and may represent a huge opportunity for synergies (cost being just one element). This was the first time the three business units came together to even talk about this spend area and I was obvious that organizational lines were drawn. The sourcing team presented the objective of the “study” along with a RACI chart that laid out all the key decision that would need to be made throughout the study and defined the decision makers – giving the most important decisions to the stakeholder team (senior reps from all the business units. As an observer, it was interesting to watch the dynamics in the room. As soon as it was spelled out that Procurement was NOT the decision maker(just the facilitator of the process – no small task ) and that all the Business units would participate and have a voice in the “important” decisions, everyone relaxed.If you are not familiar with a RACI chart, it is a simple, very powerful tool for decision making – laying out key decisions and assigning decision making roles to either individuals or groups (e.g. a steering committee). The roles are as follows:
Here is an example of a simple RACI chart:
What you will notice is that this tool is VERY simple, easy to complete but delivers a very powerful message. If I am part of the Cross Business Line Steering Committee and see that I have the “A” on the two most important decisions in the process, then I can relax. Setting up the Cross Business Line Steering Committee is a great way to cajole disparate Business Units into working together to get decisions made for the overall organization. By the way, there may be committees like that already in place within your organization that you can tap into – it makes life a whole lot easier.Remember that the greatest challenges in most Sourcing organizations are internal . . And the decision goes to . . . . .
Let us know what you think and join in the conversation.
Thomas Friedman in a recent op-ed discusses the still lingering aftermaths of 9/11. Without getting into the politics of his piece, I think there are very strong corollaries in the business world. The gist of his thesis is that the long term effects of the “age of fear” has warped our institutions and priorities. He borrows the term from David Rothkopf’s book. According to Rothkopf, “not only did we overstate the threat, we reordered our thinking to make it the central organizing principle in shaping our foreign policy.” Friedman then states that fear of being blamed by the fearful permeates our foreign policy and Rothkopf underscores this by saying that it has “killed creative thinking”. Significant resources have been spent dealing with the “fear” and away from other critical priorities (education, infrastructure etc.). According to Friedman, “many more Americans were killed in their cars by deer last year than by terrorists”.
There are many such examples from the business world. We were working with a Fortune 15 client, helping them re-engineer their Supply Chain processes which were dis-proportionately dominated by lowest price considerations and ignoring significant Value Drivers (including risk). While we were in the midst of our work, they had a major disaster of epic proportions at one of their “manufacturing” sites….caused by a combination of their suppliers. As was Predictable and Inevitable, the pendulum swung all the way to the other side. We sat down with the leader and told him what was about to happen – suppliers that they had been doing business with for years would no longer be “qualified”, no one would sign off on any decisions unless everyone else had, their processes would come to a grinding halt, the risk department (a small sleepy unit of 3-4 people prior to the disaster) would gain prominence and accountability yet not have the competency to deliver etc. etc. The leader was not able to take any action on any of these and sad to say, all of these came true. This was 2-3 years ago and that supply chain organization is still trying to recover, after the predictable change in leadership. The “Age of Fear” had set in.
Friedman goes on to cite Gautam Mukunda from Harvard who says because of this very real phenomena, we have been distracted from building resilience. We are investing in low probability / high impact items (terrorist threats) and not investing in high probability / high impact items (education, infrastructure) or in low probability / high payoff innovations (internet).
Think about how corporations have handled situations like this – GM (ignition switch), McDonald’s (contaminated meat from suppliers), Takata (seat belts), Boeing (Dreamliner) and the list goes on and on. How many of these organizations have moved into the Fear Zone, how long will they stay there and how will they get out? Do they realize that they are multiplying the cost of the original disaster many times over by being in the Fear Zone? Do they even know that they are in the Fear Zone?
Has your organization spent any time in the Fear Zone? Over reaction to some minor audit points? Do you know how to recognize the Fear Zone and how to deal with it? Would you like to know more and discuss?
In a recent discussion with a client who is the Global VP of Services, the question of Collaboration came up from a unique perspective. In his industry, they often partner with competitors and suppliers to respond to and deliver solutions to their customers. And while they feel pretty good about their negotiating competencies, he was very concerned about the lack of collaboration competencies, especially where you are faced with multi-faceted relationship structures (competitors and suppliers). And when he layered on the fact that they were projecting a very healthy growth trajectory over the next 3-5 years, I had to point out that their ability to respond to that kind of demand was totally dependent on their ability to develop those collaboration competencies as quickly as possible. Now before you think that this may not apply to you, I would ask you to think about all those critical supplier relationships you have that for whatever reason you will never be able to break and therefore the only way to enhance the value of those relationships is through Collaboration? Or the amount of Collaboration you need internally to be successful in your role?
As our discussion continued, these points became quite apparent to him. For his organization to meet those growth targets (and their order book over the next 2-3 years already supports those growth targets), they were atrisk because the critical competency that was needed was Collaboration and as we all know, developing a competency has a lead time associated with it,especially one that typically doesn’t get a lot of attention. The Collaboration competency requires a totally different way of thinking and traditional competencies around negotiations can get in the way. For our client, this critical competency was sorely needed within his organization when dealing with those external relationship structures.
Developing these competencies can actually be a competitive edge for every organization. Let’s take the example where you have a supplier who has a near monopoly. Your ability to mine more value through Collaboration with that supplier gives you an edge or your ability to create a new supplier (as a credible threat) might require collaborating with some of their other customers in the same predicament. Where there are long standing supplier relationships that your stakeholders will never let you change, you can still generate significant value with those suppliers through Collaboration. Your sales organization may be contemplating entering a new market and the only way you can provide them with a Supply Chain to support that new market is through Collaboration. How about when you might have to Collaborate with competitors to create a new Supply Base because it’s a regulatory requirement.
In our experience in dealing with this issue with clients, we have often found that the attitudes held by senior leaders around collaboration are the most challenging. And unfortunately, those attitudes are allowed to permeate through their organizations. Your organization may be totally different ? Organizations are designed with competing goals which add to the complexity. Our basic attitudes have long been developed (as early as school) in a competitive environment, not a collaborative one. I still remember the biggest challenge my kids had when they went to college was with team assignments that had no active intervention from the professor.
We think that this will soon be recognized as one of the Next Practice competencies that create an explicit competitive advantage for organizations. And if your goal is to stay ahead of the curve and Best Practices that others are pursuing, then Collaboration should be your clarion call for 2015.