Monthly Archives: April 2012

Social Media – My Fickle Friend

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Oh social media! You are my friend yet my foe. (Unfortunately, I am not as poetic as Dalip after he ended his last post with Shakespeare). My previous blog post covered social media and the use of it in the supply chain. Ironically enough, this post revealed some holes in my own social media plan.  Once the post was published, I easy found myself falling behind on the conversation, particularly on LinkedIn. I was quickly called out on my errors and soon realized that I had lost control of the tone of the conversation. Social media is like an avalanche, once it starts, it is almost impossible to stop.  I heard so much feedback (both positive and negative) that I decided to do a follow-up post.

One of the respondents sent me this report called “Monitoring Risks before They Go Viral: Is it Time for the Board to Embrace Social Media?” from Stanford Graduate School of Business. The report talks about how social media adds complexity to information gathering and that management needs to have a process in place for collecting, analyzing, and responding to the information.   Doing so will hopefully mitigate risk and help companies monitor and management organizational reputation.

I tracked down one of the report’s sources, Nielsen’s Social Media Report: Q3 2011, and found these interesting statistics:

  • Social media and blogs dominate America’s time online, accounting for a quarter of total time spent on the Internet
  • 4 out of 5 Internet users visit social networks and blogs
  • Americans spend more time on Facebook than any other website
  • 53% social networkers follow a brand

What does this mean? It means that there is more visibility over companies than ever before. Now, more than ever, companies need to be aware of the risks associated with social media. This does not mean banning or ignoring social media, but embracing it as a competitive weapon. This is particularly important to those managing the supply chain as consumers are paying more attention to how socially responsible companies are. And if people don’t like what you are doing, you will know. Look at how fast the “pink slime” issue took off? People were so outraged that pink slime was being used in their beef that a petition was started to force the USDA to stop using the substance in school food (the petition received 200,000 signatures in nine days). You can also look at Apple and Foxconn as another example.

This sounds all doom and gloom for supply chains. But while social media can be your worst enemy, it can also be your best friend (a fickle friend at that).  Monitoring sites can provide early warning signs of trouble to come. This would allow supply chain managers to address issues early enough and hopefully avoid a media firestorm.  As Adrian Gonzalez from Logistics Viewpoints says in his post “Lesson from Pink Slime Incident: Social Media is a Supply Chain Risk,” “The bottom line is that supply chain executives need to have social media on their risk radar, and they need to assess the potential consequences of a social media incident, just like they do for a natural disaster and other types of risks, and develop response plans to minimize the impact.”

My snafu a few weeks ago was not much compared to Foxconn and pink slime. I realized what had happened and worked to correct it as fast as possible. But it made me realize more than ever how fragile a brand can be and how important it is to have a sound social media program to control your brand message. It looks like marketing and supply chain will now forever be linked together through social media.

Are you managing risk through social media? Is your company monitoring social media?  Is supply chain even considered in your social media program?

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Question of the Month! – We Want to Hear From You!

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TMG Blog Question of the MonthHave a question that you’ve been dying to ask?
Issue at work that you can’t figure out how to resolve?
Problem others have struggled with for a long time?
Challenge that you can’t seem to find any answers to?

We get a number of questions every month from the readers of our blog that we respond to in private. We assume that a number of you might be facing the same issue, so we are start going to share some of the questions and answers with you.

We will pick a question every month from a reader and feature it in our blog. The appropriate experts from TMG will look at the questions and provide a collective response. Think of it as free consulting, which is what it is. Others will also be able to learn from your question and contribute to the answer. Crowdsourcing a solution if you will.

We will also post your picture and a short background summary, in addition to the question. However, if you wish to submit your problem anonymously, we can do that also. Oh, did we mention that there is a surprise gift for you also? Seriously, we give you a gift AND free consulting on your biggest, most vexing problem!

So please send us your problem/question by Monday, May 7th to crystalj@thempowergroup.com and be the first to be featured on our blog.

Regards,

Dalip

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Friends, Romans and Countrymen – Lend Me Your Ears! I Come to Bury TCO………

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Julius Caesar coingI read with interest Michael Lamoreaux’s recent blog post called “Are You Revenue/Growth Enabled?” In this post, Michael talks about whether Supply Chain/Sourcing/Procurement organizations are revenue/growth enabled?  Perhaps Michael has forgotten the spirited debate that he facilitated two years ago when we declared that Strategic Sourcing is Dead. We welcome all new converts to the conversation and yes the Emperor Has No Clothes, but can we all stop defining the problem with more surveys and benchmarks?  I sincerely applaud Michael for continuing to be on the soap box on behalf of the community but I would like to shift the debate to actual solutions.  Haven’t we been doing the same thing to the issue of Talent Management for the last 2-3 decades?

The good news is that almost everyone is having the same conversation.  I have spoken at ten events in the last three months, and at every event my focus has been on value (no surprise there) but the real surprise has been how many others are now focused on this.  The not-so-good news is that almost all organizations are still focused on TCO and reducing costs (excluding your organization of course).

Supply Chain/Sourcing/Procurement processes are destroying value in most corporations.  I know it sounds like heresy but let me say it again, we are be destroying value.  And we’re doing that by our focus on cost as the primary driver.  Sometimes it takes time for it to show up, especially if you are en early adopter and therefore enjoy the arbitrage that goes along with being an early adopter (e.g. Apple).   Sustainability cannot just have an environmental context.  It also means that which lasts and a cost focused supply chain is typically not sustainable.  The system will try to find a balanced state over time.

Michael goes on to make the following point, “For Procurement to earn, and keep, that seat in the C-Suite, it has to continue to deliver value year-over-year. And the best way to deliver that value, once it has trimmed costs, is to help the organization grow (with its expertise in operations management), globalize (with its expertise in foreign markets) and increase revenue (with its expertise in logistics, multi-stage and multi-channel inventory management, and new product introduction [NPI]).” This is the exact conversation we had when we were discussing Value and the Intended Consequences. The issue I have with that statement is the part that is underlined. It would be better said if we replace “once” with “while”.  It does not need to be a binary and sequential choice.

I understand the argument that we must earn the right by first reducing costs.  I think that makes the job of getting a seat at the table significantly more difficult, if not impossible.  By the time we have spent X number of years focusing on costs and not the Intended Consequences (Value Drivers) of all of the extended stakeholders, we have boxed ourselves in and the resistance has already set in.  It’s like Internal Audit all of a sudden wants to be your friend (my apologies to all internal auditors).  How we frame the discussion matters.  The argument may be more powerful if we say we are focused on the Value Drivers  and one of them happens to be cost.

Michael goes on to make another interesting point when he says that ”only 5% of companies have a category-focused strategic sourcing process that is very well implemented or truly strategic.”  And that’s the second equally important issue.  Not only does the process need to be fixed (Cost to Value), but we must make sure that this time we implement it differently.  The focus cannot be just on the consonants but it also has to be on the vowels (AEIOU).

I speak not to disprove what Michael spoke,
But here I am to speak what I do know.
We all did love the cost stuff once, not without cause.
But it’s time to let the cost stuff go
O judgment! thou art fled to brutish beasts,
And men have lost their reason. Bear with me,
My heart is in the coffin, there with TCO,
But my head has moved on to Value (adapted from The Life and Death of Julius Caesar, apologies to my friend Will).

 

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Law Firms – Welcome to the World of Strategic Sourcing

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Often referred to as a “sacred cow” of Sourcing, law firms are finally feeling the squeeze felt by every other business that supplies goods or services to clients.  It took the recent recession for companies to realize that “everything is negotiable”, even the legal fees charged by their outside legal counsel.  According to an article by Jennifer Smith in the Wall Street Journal entitled “Companies Reset Legal Costs” now that the recession is over (is it??) . . . “clients who won concessions on their legal bills when law firms were scrambling for business still are calling the shots when it comes to paying by the hour”.   Finally!!  Welcome to the conversation!!  Could this mean that including legal fees as part of sourceable spend is finally happening?

I remember venturing into the world of Strategic Sourcing 15 years ago and being told that legal fees were out of scope.  We were able to get it done all those years ago BUT it took a lot of selling AND it was painful.  Still, today, as we work with client organizations, legal will end up in Wave 5 where all the most difficult categories are placed.  Not because it is so difficult to actually source legal spend but because the internal resistance is so great.  I believe this is primarily due to the fact that most Strategic Sourcing is cost focused and this particular category of spend really requires a Value-based approach.  In addition, most general counsel do not want any part of negotiating with their external partners even though they are supposed to be the “experts” at negotiating.  Talk to the Chief Legal Officer about outsourcing legal research to India and you can literally see the bow tie unravel.  If you look at legal services as being similar to other professional services such as accounting, finance, IT, HR, management consulting. etc., it’s a wonder that legal has been able to fly under the Sourcing radar for so long.  Or could it be that those well-honed negotiating skills have been used to justify why Sourcing is not applicable.

According to Ms. Smith  . . . “the number of companies seeking novel arrangements is on the rise and expected to grow further.  In 2011, 61% of U.S. general counsel in a Fulbright & Jaworski survey of 405 companies said they used alternative-fee arrangements, up from 48% in 2009.

So, it appears that the veil has been lifted.  When I read this article, I felt like I was in a time warp.  It addition to alternative billing structures, it discusses things like clients demanding visibility into what they are paying for, detail plans on how law firms will execute the work, questions around the number of partners required to sit through a deposition? Really, these are basic sourcing strategies that have been around for well over 20 years – they are not NEW, people!!

While companies are still trying to find ways to save money, now may be the time to jump on the bandwagon.  Legal departments may now be more amenable to exploring the Sourcing process, particularly now that it is becoming more mainstream.  Like every change though, develop your business case, brush off your selling document, let them know “what’s in it for them” and realize that it will not be easy.  Once the sourcing process is complete you need to ensure that the solutions are adopted (our AEIOU model) within the legal department or there will be no actual business benefit.  And if you are really brave and also want to have a little fun just mention outsourcing to India and watch the bow ties unravel . . . . . . . .

Join in the conversation and tell us about your experience in what appears to STILL be uncharted territory.

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Supply Chain a Competitive Weapon? Theory Z!

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Your Supply Chain can be a competitive weapon?  ABSOLUTELY!!! However, the fundamental principles that guide the creation and management of supplier relationships must change!

If your organization continues to look at your supply chain as nothing but a supply base from which you must extract the annual pound of flesh of a few percentage points, you are probably conceding a tremendous competitive advantage to your competitors.  Why?  Because your suppliers are probably working with your competitors to help them gain a competitive advantage.  The choice is simple for you as a supply chain/strategic sourcing professional.  You can either lead your organization to extract significant value from your supply chain and convert it to a competitive advantage, or you can continue to focus on getting the best contracts and SLA’s while your competitors are stealing your lunch.

Twenty-five years ago Professor William Ouichi of the University of California did not have suppliers in mind when he proposed that American companies could meet the Japanese challenge. He believed they could do this by changing their organizations faulty assumptions about management and the workforce that had led to sub-optimal productivity.  The relevant point here for us is that the assumptions we make about people drive our behavior towards them.  You could even refer to this as a self-fulfilling prophecy.

Professor Ouichi revolutionized organizational theory by proposing Theory Z, a theory that workers were motivated by long-term employment, collective decision making, individual responsibility, evaluation and promotion, and the feeling that the company had holistic concern for them as an employee.  We will similarly offer up our version of Theory Z but in a totally different context.

As both practitioners and consultants, we have observed significant sub-optimization in the value created by supplier relationships. Fundamentally, buyers and sellers have entered into relationships with a predetermined set of assumptions and these assumptions drive the wrong behavior on both sides. When relationships begin and are managed in such an antagonistic manner, value is lost.   We believe that most sourcing/supply chain professionals have the wrong end point in mind and therefore end up leaving a significant amount of unrealized value on the table.  When the end point is the best contract supported by well-defined SLAs, the behavior from both sides is defined and constrained by the contract.

The contract should be nothing but a step along the way to establishing mutual value creating relationships where both parties are focused on generating a significant amount of value for each other.  Some of the best value-creating activities occur after the contract is signed by starting with a focus on a “Mutuality of Interest.” Both sides, the supplier and buyer organizations, need to be cognizant of this “Mutuality of Interest” so that the benefits are realized from the beginning and throughout the relationship.

The most mature organizations have seen the benefits of this approach to Strategic Sourcing. There is a proactive push and fundamental change being made to foster development of the skills necessary to manage the activities essential to capturing the promised “mutual” benefits and to identify additional “mutual” benefits of a partnership between supplier and buyer organizations.   That is quite a fundamental shift and it requires a new set of attributes:

The shift requires a new set of skills, behaviors and competencies.  Is your organization making the shift?

Regards,

Dalip

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