Monthly Archives: July 2012

And the Gold Goes To…

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WHEN TO JUST SAY NO WHEN YOUR RISK MANAGEMENT IS FULL OF RISK  

The flame will soon be lit (although the sporting events have already started – go USA women’s soccer!), the crowds will be cheering, the opening ceremony will be spectacular (in the best understated British tradition I assume) and thousands of voices will be singing God Save the Queen in their very, very British accents.  And all the planning that has been going on for years will be on display…and so will thousands of British soldiers making sure the Games are secure.

Soldiers at the Olympics you ask?  In the land of the unarmed bobbies?  In fact, one of the selling points of the London Olympic bid was just that…unarmed bobbies for security.

By now you have probably heard about the security fiasco and the name G4S.  It’s quite an irony that London’s risk management process was itself full of risk.  From what can be gathered so far, G4S was contacted to supply about 2,000 security personnel and then in December it dawned on the organizing committee that they really needed 10,000 personnel.  G4S said no problem and everyone went away feeling very secure…till it came time to deliver the 10,000 and that’s when the proverbial %^$# hit the proverbial fan and now people are trying to wipe it off their faces.  Enquiring minds everywhere want to know what happened and especially those of us in the Supply Chain/Sourcing community so I took the liberty of positing a few questions:

  • What kind of “Demand Planning” was going on in the committee that made them increase their requirements 5 fold – JUST MONTHS BEFORE THE GAMES!
  • Was the supplier involved in helping them craft their solution requirement (ummm sir, are you really sure you need ONLY 2,000 personnel??)
  • When the increase in the requirements was placed, did the committee ask for some kind of fulfillment strategy from G4S?
  • Was the lead time and process to “create” (screen, hire, train, deploy etc. etc.) these security personnel ever discussed and validated?  If so, how could the fulfillment strategy for the increased numbers stand any kinds of scrutiny?
  • Was there any discussion inside G4S before accepting the increase?  Who says no to additional business in your company and when do they say no? Does sales ever say no? Does “manufacturing” (fulfillment capability)?  I have yet to see/hear of any disciplined process that would allow a company to say no to a fivefold increase from a customer.
  • Was there any kind of ongoing progress monitoring of G4S put in place to ensure that they were on track?

I’m assuming that by now, this is starting to sound like a fairly common supply chain problem that we all deal with on an ongoing basis.  We have poor demand planning, lack of supplier involvement in the solution (perhaps), no supplier capability validation, no ongoing risk monitoring of this supply chain, etc. etc.  And remember, this is a risk management solution with no intrinsic risk management – kind of ironic.  I now wonder what kind of supply chain/sourcing expertise did the committee have access to?  If none or very little, then may we expect other supply chain problems to crop up as the games go on?  While I’m sure that the games will go on flawlessly and hearing will be held and fines levied and suits filed, I’m sure that the committee could have done without this major last minute glitch and the subsequent bad publicity.  I’m also quite sure that there are many conversations within G4S on whether they should have accepted the huge risk that they took when they went along with the significant increase in demand.  If only they would have called upon some of our British professional brethren because here is the kicker…”Somehow, G4S was awarded a sole-source contract by the organizing committee in a process where little transparency exists.”

Your honour, I rest my case!!

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The New Role of Spend Analytics

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One of the key differentiators between Strategic Sourcing and Tactical Purchasing is the decision to invest up-front in spend analytics and opportunity profiling.  This crucial planning step provides a holistic snapshot of where money was spent and the results associated with that expenditure.  Done properly Spend Analysis (SA) focuses the organization and prioritizes scarce resources towards opportunities that best meet the future needs of the business.

While these goals are noble, we find that many companies view and approach spend analytics the wrong way.  As a result they end up destroying not creating value.

Over the next weeks, we will be sharing next practices gained from recent Spend Analysis (SA) engagements as well as explore the role of technology and other 3rd party enablers.

Focus on Value Creation vs. Value Destruction

Spend Analysis has greatly evolved over the last decade.  One key objective is increased visibility at the supplier, transaction, and commodity level.  Improving performance at these control points should be part of any Sourcing organization.  However enhanced visibility comes with the burden of responding to those findings.  In today’s competitive environment, many Supply Chain and Procurement organizations feel they simply cannot ignore any savings opportunities.  These groups pounce on purchase pricing differentials as a rationale to standardize on the lowest price.

I can count on one hand the number of companies that use SA to justify paying suppliers more.  As we’ve said before lower prices may be a destructive way to keep score.  Value added services, availability of supply, supplier performance under duress, quality, regional strengths, organizational familiarity, risk, health, decreased complexity, etc. usually get thrown under the bus for immediate price gains.

Establish the burning platform

The single most valuable activity in a spend analysis program is often the most neglected.  Many spend analysis programs are owned by the Supply Chain group.  And thus a crucial opportunity is lost.   Spend Analytics need to have visible executive sponsorship.

For a SA program to be transformational it needs to bring in perspectives from those affected by the product or services being evaluated.  If we go back to our earlier definition, SA is about understanding the results associated with spending money on goods and services.

C-Levels need to establish burning platforms that signal the necessity of the program, that every rock and stone will be looked at, and that participation is mandatory.  It needs to outline long-term company goals and address tough change management issues.  This communication should be customized to employees, investors, suppliers and customers.  It should especially encourage and reward opportunities that come from outside the Sourcing organization.

Forget about the data

Almost every SA process/project begins with the first step of data extraction.   This is costly.  Here are some tough facts:

  • Data is a perishable commodity.
  • If you extract it you have to clean it.
  • There is never enough data.
  • You will not use most of the data that is available.

We begin every engagement by asking the philosophical question “what if we didn’t have any data” to ourselves and our clients.  What information would we gather?  How would we convince the organization to share knowledge?  How long would the process take?  How do would we validate the opportunity?  Answering these questions get stakeholders involved and excited.

This week we talked about some of the shortcomings of traditional spend analysis.  Next week we’ll discuss the tools and resources that companies can use to enhance their analytic capability.

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Supply Chain Opportunities – Airbus’ New Approach AND Neiman Marcus vs. Target?

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I found two great articles yesterday in the Wall Street Journal that caught my attention. One article focused on Airbus’ epiphany to redesign their manufacturing process in “Hit by Delays, Airbus Tries New Way of Building Planes.”  This is a must read as it is a classic lesson on how Supply Chain Management is critical to either the success or failure of a global manufacturer.  More later on the Airbus journey. . . .  The second article entitled Retail’s New Odd Couple was much more fun for me as it focused on a new Supply Chain partnership between two retail giants, Neiman Marcus and Target.  This is another must read for anyone that can’t even imagine putting those two companies in the same sentence.  Both articles helped to reaffirm in my mind that the discipline of Supply Chain Management is complex, fascinating, fun, and most importantly can be a competitive advantage for any company that does it well. Time will tell whether either of these new ventures will be successful . . .

Back to Airbus . . . .  The large aircraft manufacturers, both Airbus (a unit of European Aeronautic Defense and Space Co.) and Boeing Co. have been plagued in recent years by major delays and multibillion-dollar cost overruns.  Daniel Michaels writes, “Over the past six years, Airbus and U.S. rival Boeing Co. have lurched through a string of expensive and embarrassing crises while developing new airplanes. Their customers are furious about receiving planes years late, and investors are fuming that the projects have devoured cash rather than generating profits”.  As a result, both companies are rethinking the way they build jetliners.  The gist of the article outlines Airbus new strategy to go down a middle path which combines outsourcing with their already highly centralized production system.  What this requires is:

  • Close, close collaboration with suppliers
  • Teams which join Airbus engineers with experts from their suppliers
  • Streamlined production processes
  • More effective management of subcontractors to minimize risk
  • Common standards and equipment
  • An effective program manager to oversee all the moving parts (a true supply chain manager)
  • Data sharing and visibility across the entire supply chain

Airbus as well as Boeing has some really bad press and past missteps to recover from.  I will be interested to see if these changes will turn out to be the wind beneath Airbus’ wings.   Interestingly enough, today Airbus announced a new $6.35 billion deal (see Boeing in focus as Airbus orders hit $16.9 billion) which was made just prior to Boeing’s announcement of a huge deal with United (see – Boeing wins $14.7 billion jet order from United).

Now on to the fun stuff – the partnership between Neiman Marcus and Target.  Two very different retailers with a very different customer base (or not?).  Neiman Marcus discovered that many of their high end clients were also shopping at Target (a fairly new phenomenon as a result of the recession) for basics.  In this new venture, Neiman Marcus will put together a limited collection from 24 American designers which will be cobranded and sold at both retailers.  What is the value proposition for both sides?  Neiman Marcus becomes more accessible to a broader range of customers, specifically those that are younger and less affluent.  In addition, Neiman’s needs to be able to tap into Target’s extensive Supply Chain (there it is again!) to produce the apparel in bulk.  This partnership allows them to attract customers that might be otherwise intimidated to enter their stores.  Brilliant!!!   For Target, they have the opportunity to work with numerous designers that would not have given them the time of day without Neiman’s clout.  Target has proved that they can sell designer wear which was proven last September when they carried a line by Missoni and sold out immediately.  This partnership gives them access to many more designers AND rubbing elbows with Neiman’s is a bonus.

The Neiman’s / Target example is a testament to how Supply Chain creativity can have a major impact on top line results not just bottom line cost savings. I will keep an eye on this one to see if it really is a success!  Nevertheless, we should add this to our many examples of how Supply Chain organizations can move beyond cost to create real value for their company.

Join in the conversation . . . .

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The Tortoise and the Hare

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I hope you enjoyed your Fourth of July. Besides the heat it was a great day, and when you live in Chicago heat beats cold any day. I am sure many of you are enjoying a nice long break, one of the perks of the holiday being on a Wednesday. I have to admit that my commute was much easier.

I am sitting here, wracking my brain, trying to think about what to write about. Something that is topical and relevant, but I think my brain is working slower due to all of the sunshine and BBQ I enjoyed yesterday. Everyone must feel this way, because I am looking through the business news and see not much of note. I could talk about the winner of Nathan’s Hot Dog Eating Contest, but I will save that gem for another day.

During my morning news rounds I did come across this article called “The Wimpy Way to be Fearless: Just Do it for 10 Minutes” by Laura Brady Saade. This article fits my mood perfectly, light with just the right amount of advice. I don’t know about you, but I have a good amount of anxiety about trying new things, especially now that things in business and life in general are changing so quickly. It seems that every day is a Brave New World, and we don’t have an instruction manual on how to tackle some of the challenges that we are facing.

Saade describes herself as “a slow and steady girl: I do ambitious things (climbing Mount Whitney; running marathons), but very slowly.” She goes on to say that she felt that without bursts of energy, she couldn’t get things done. The solution to her dilemma was to dedicate at least ten minutes a day to a task until the task was done. She says that the plan is perfect for people with the following symptoms.

  • Short attention span
  • Lots of other pulls on your time
  • Dread of unpleasant tasks
  • Fear of not succeeding at something new
  • Worry that you’ll be devastated if you put too much heart and soul into something and then fail

I don’t know about you, but these symptoms fit me perfectly. I have those occasional bursts of energy, but what I accomplish is usually something new that was not on my to-do list. I have piles of books that I intend on reading (not counting what is on my iPad); my desk looks like a tornado hit it with white papers, proposals, and article drafts scattered everywhere; and my attempts at new projects (making macarons) usually wait and wait until the initial excitement wears off (which doesn’t take long considering my short attention span).

However, I think this 10-minute plan is perfect for today’s professional. We have a lot of pulls on our time, and much of our time seems to be consumed with learning new skills and tackling uncharted projects. This is where procrastination comes in. Why worry about that new project when I can work on something safe and familiar? The 10-minute plan can help us take down the barriers and fear and tackle things head-on, and once we start we will forget why we were worried to begin with. I can’t help thinking about the old Aesop fable “The Tortoise and the Hare.” Does slow and steady always win the race?

Are you the Tortoise or the Hare?

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