Category Archives: Sourcing/Supply Chain – Lessons Learned

45 Million People Are Blind today!! Cheesecake Factory Might Be the Answer? Part 2

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Written by Dalip Raheja for Sourcing Innovation.

Would You Go to McDonald’s for Surgery?  What if I Added the Happy Meal Toys? 

Atul Gawande just wrote a piece in The New Yorker in which he applies The Cheesecake Factory (TCF – restaurant chain) model to the healthcare system.  He cites soaring costs, mediocre service, unreliable quality and significant variability in outcomes/results as the dominant attributes of the current medical system in the USA.  Sounds like the typical Supply Chain/Sourcing issues that almost all of us are trying to deal with on a daily basis.

Why did Atul choose The Cheesecake Factory as a model?  Because they are a chain with 160 restaurants with 308 dinner items and 124 beverage choices serving more than 80 million people a year.  And they manage to do it with very high quality, every entre cooked fresh, reasonable prices, etc. etc.  Oh by the way, they put out a new menu every 6 months! I will let you read why TCF is highly successful but mostly it’s all the stuff that you and I are so used to dealing with in our professional lives.  Size gives them buying leverage, centralized common functions, demand forecasting integrated with inventory management, etc. etc.  They aim for no more than 2.5% waste in an industry where the shelf life is very short.

In addition, there are some things about TCF that are quite intriguing.  They’ve laid out their kitchen like a manufacturing production line. They have a very good POS system integrated with their kitchen to track “manufacturing” and “delivery” times.  They make sure that their staff is well trained and provided with all the tools necessary.  They have a well -defined oversight process that provides positive and negative feedback at the end of the manufacturing line.

An immediate challenge is that doctors have been historically paid for effort, and not results.  While Hammurabi dictated that a surgeon’s hand be cut off if the patient died, we have apparently moved away from that as I don’t see too many one handed surgeons out there.  Healthcare reform is now starting to link compensation to outcomes.  Standardization has long been looked at very suspiciously by the medical community.

Gawande discusses an attempt at standardizing knee replacement and how it impacted his mother’s surgery – reducing recovery time in the hospital by more than half and reducing rehabilitation time by 3/4ths!  And did I mention all at lower costs and better outcomes?  The doctor has gathered best practices and then standardized them – an unheard of phenomenon.  All the way from anesthesia to rehabilitation, including cutting down on the number of options for prostheses surgeons could order.  It is a fascinating must read for ALL supply chain/sourcing people as it reads like a classical case study.

The challenges that Gawande lays out for the medical community are very significant.  The first and biggest challenge is the incredible amount of time it takes for this profession to adopt (AEIOU) new ideas – decades for new protocols and guidelines to be adopted.  This should come as no surprise to readers of the Doctor’s blog and our numerous discussions on this topic.   Competency Development in the medical community is still not focused appropriately – “In medicine, we hardly ever think about how to implement what we’ve learned”.  An example he cites is Dr. Armin Ernst who is essentially the Chief Adoption Officer.  Ernst does not deal with patients – but works with the doctors at their 10 ICUs in ensuring that best practices are being adopted.  He provides the same kind of oversight that was found at TCF.  Do you have a Chief Adoption Officer?

The transformation in the health care sector is underway and it will borrow heavily from our profession.  Supply Chain/Sourcing can and will contribute significantly.  As Dr. Gawande points out, “We’ve let healthcare systems provide us with the equivalent of greasy spoon fare at four-star prices, and the results have been ruinous. The Cheesecake Factory model represents our best prospect for change”

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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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Who is the First Person You Should Hire?

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If I had a dollar for every time I’ve been asked that question-well you know how that story goes?  At every single conference across the globe I’ve spoken at, that question has been asked in some way, shape or form.  Almost every single client has asked that question or some variation thereof.  And the ones that did not should have asked that question.  You can think about it in terms of what is a critical role that you must fill in your Sourcing/Supply Chain organization or any other internal “support” function (IT, Finance, legal) or shared service to confirm my contemporary bona fides.

Before I give you the answer, we need to make sure that we are asking the right questions.  And for those of you that have been through TMG’s decision making module, that refrain will sound very familiar.  Remember the New England Journal of Medicine exercise where physicians were asked to evaluate patients for toncillectomies and they were wrong 49% of the time ?  Otherwise, we can turn to what a couple of my friends said.  Pete says “The most common source of mistakes in management decisions is the emphasis on finding the right answer rather than the right question.” My friend Al goes on to say basically the same thing: “The formulation of a problem is far more essential than its solution, which may be merely a matter of mathematical or experimental skill.”

Typically, would you agree that in most cases (not including yours of course):

  • Organizations struggle with convincing their stakeholders of the value they create?
  • They face strong resistance in expanding their influence or footprint?
  • Budget wars are an annual and the quarterly norm?
  • Savings numbers are always questioned for validity?

If any of the above is true, then the answer to the title becomes self-evident.  A Marketing person!  I kid you not.  In the first Sourcing organization I set up in my career 16 years ago we had a full time marketing person (Peter).  His job was to constantly market our services and we took a marketing approach to it.  This wasn’t about creating some spreadsheets or graphs of generated savings.  He had to make sure that we continued to expand our footprint inside the company.  To sell our value to the stakeholders.  To keep in constant communication with them.  To make sure we were getting repeat business.  To ensure that we were getting referral to other stakeholders.

Now I’m sure that you are doing all of the above but I’m talking about most of the other organizations.  We have not seen  a true marketing focus being applied to this effort and I’m always surprised by that.  Especially given the tools available today.  It does not necessarily mean that you need to have a full time dedicated resource but you do need to fulfill that role.  So next time you are sitting in a budget meeting being asked one more time to take another haircut, you may want to think about your marketing effort.  Oh, Pete is Peter Drucker and Al is Albert Einstein.  Let me know if you would like more details.

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The Unintended Consequence of Efficiency

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The Internet along with our iPads, Kindles, Androids, iPhones, laptops, etc. have made our lives infinitely more efficient over the last several years.  Twitter and Facebook give us access to information we didn’t even know we needed.  And who needs an encyclopedia when we have Google search and Wikipedia. We can do almost EVERYTHING virtually through technology – communicate, shop, learn, bank, pay bills, manage investments, etc. and the list goes ON and ON.  Our lives have been made immeasurably easier by our access to technology, almost to the point that we cannot function without it.  Most would agree that this has been a positive step forward and the “intended consequence” of creating efficiency has been accomplished.  BUT I would argue that the unintended consequence of having our entire lives exposed to the world is one that is rarely discussed and can have some serious and even devastating implications.

In an article titled “Google Defends New Privacy Policy” by The Wall Street Journal, it is apparent that we are being constantly monitored and followed when we use any Google product (and don’t we all?).  According to Google, this is being done to make our lives easier, not to mention making Google infinitely richer through increased advertising dollars.  What many users translate this into is receiving targeted ads every time you go to the internet – annoying but not necessarily devastating.  Right?  Wrong!  You are clearly being followed just as if someone was stalking you in a shopping mall.  It is an invasion of privacy and is pretty darn scary.

An article came out yesterday in Business Week entitled “Microsoft Ads Bid to Capitalize on Google Privacy Backlash”.  In the article, Microsoft Corp. is aiming to take advantage of a backlash against Google’s privacy policy changes by rolling out new ads that say its rival is risking users’ privacy to squeeze more revenue out of them.  Will Microsoft really be any better?

Facebook, by the way, may soon be facing the same issue.  In an article in the Daily Caller entitled “Facebook Surrenders Its Privacy In IPO Documents”,  Facebook  openly admits that it has concerns that both the U.S.  and Europe may impose tougher privacy rules that would make it more difficult for the company to stockpile information about its users.  Everyone is doing it!!!

So what does all this mean for the user?  Be careful!!!  In our eagerness to share excessive amounts of personal information from our daily/hourly goings-on in Facebook to our everyday (don’t even think about it anymore) transactions, we are opening ourselves to Trouble (yes, with a capital T).   Many negative unintended consequences such as cyber bullying, robberies, cheating, identity theft, reputation bashing, etc. are all a result of making our lives more “efficient”.  As a recent victim of one of these unintended consequences, identity theft, I can tell you that trying to fix the problem FAR exceeds the efficiency that was initially created.  By the way, my problems were not caused by a local hooligan but by a VERY sharp hacker (most likely tens of thousands of miles away) that helped himself to ALL my personal information.  But for the internet, I would never have crossed paths with this individual (this is an assumption since this person will most likely never be caught).  As a result, I have fallen back to the good old U.S. mail, writing checks that actually require a signature and no longer do any “transactions” on-line.  Inefficient maybe, safer YES!

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The Games People Play

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Sourcing/Procurement and sales professionals both want a solution that will fit the end user’s  needs.  Sourcing/Procurement needs to satisfy its internal customers that it is doing the job right and sales wants to get repeat business – which they will only get if their customer’s customer is happy with the buying experience and its results. However, both sides engage in behavior that is dysfunctional and doesn’t achieve what either party is attempting to do. 

Suppliers complain that customers:

  • Can’t articulate what they need
  • Procrastinate (or seem to)
  • Don’t know what they need
  • Don’t give all of the right information 
  • Are unrealistic about the dollars, time and manpower needed to acquire a particular product or service.

 

When we talk to procurement folks we hear that sales people:

  • Think they know what the customer needs better than they do
  • Make assumptions that don’t reflect reality
  • Don’t listen and understand
  • Try to fit their solution into what they “think” the needs are. 

 

As a result, if you asked most customers, particularly higher level managers (Directors, VP and the “C” level) what their primary issue is with sales people today, most would argue that it is that they are tired of playing the game of Battleship — “C3!  Did I hit anything??”  And, if you asked most sales and marketing leaders what their primary issue is with sourcing / procurement professionals, most would say they are tired of playing the game of 20 Questions — “Do you know what I know??”

The situation where a sales person shows up for a sales call, knowing little or nothing about the account, the responsibilities of the individual they are calling on, or how to marry up their products and solutions with the client’s needs has become painful for both the seller and the buyer.  Most basic sales courses teach the sales person to come into the buyer’s office and “find their pain”. This usually manifests itself by their looking into the buyer’s eyes with a very earnest expression and asking some variant of, “So, what is your business pain?” or, “What keeps you up at night?” or, “Pick from this list of twenty problems and I’ll sell you my solution” (whether it fits or not).

My personal response, when I was in a “C” level position, (and I have received a lot of chuckles of agreement from colleagues of mine that have been in similar positions), was,  “Well right now, YOU’RE MY PAIN, because you’re the ninety-fifth sales person to come in here and ask me that question. It’s not my job to sit here and answer your questions – it’s your job to find out about my business, understand what my business needs are, and then match my needs up with what you sell to present me with ideas and solutions that can address my needs – I don’t have time to play this game with you”. The sales game of “Battleships” has become old and painful for all of us.   So how do we stop playing this game?

Many sales people will represent that, “Oh, I don’t do that, I research the companies I call on and know everything about them”. Unfortunately, when I have questioned those individuals about companies that they are working on, they have lots of isolated facts about the company (name of the CEO, gross revenues, EBITDA, etc.) but can’t use those facts for anything in particular. This is because they have data – not information. In order to have a meaningful conversation with someone in the enterprise that cares and knows about the business, it’s critical that sales people have some way to take all the facts and put them into a framework that can guide their conversations with enterprise managers and show that they can partner and add value to those conversations from the minute they walk in the door. 

On the other side of the desk, it has been interesting to me how many sourcing, procurement and other professionals cannot articulate this same information for their own company.  Far too many companies rely on their suppliers to come up with the best way to meet their needs.  (After all, they’re the experts in their industry!)  And, while everyone recognizes that needs and requirements are rapidly evolving in virtually every industry, sourcing and procurement people are all to willing to accept outdated specifications, poorly articulated requirements, and a whole host of other poorly defined needs as the basis for their RFQs, RFPs, and virtually every other communication with suppliers.

When the sales people don’t come in with the information, and the people they are talking to don’t know it, it’s no wonder that we have disconnects between sourcing and supply. The dysfunction is on all sides. Businesses need to make sure that the supply chain and sourcing groups understand the business and its needs and can articulate it when they go to market. The sales people and the sourcing / procurement people need to do their homework so that they are up-to-speed as much as possible before they get together. This saves everyone time and makes it more likely that the business will get what it needs from their suppliers.

At a high level, one of the ways to implement this as a solution is for both sides to map out the basics mentioned above. We’ve seen that many managers can do this with some initial assistance.  If sourcing / procurement professionals can visualize what the company is trying to achieve (Competitive Strategy, Business Initiatives), how it intends to achieve it (Operating Initiatives), and can then put it paper, they can more readily inform both themselves and their suppliers as to what the company needs.  Doing so avoids the Twenty Questions approach to securing the goods and services an organization needs.( It also insures that projects and programs within their division or departments are aligned with the corporation’s direction and as a result will be funded and ultimately successful.)

Similarly, if sales people can take the initiative to convert the data they have into information and make some educated guesses about where their customers are headed, they can skip playing Battleship and present some options that are on target from the outset.  (At first glance, many sales people (and sales managers) see this as a daunting task –  but, as it turns out, with templates and some guidance, most salespeople can put this kind of information together into a meaningful business map using publically available information.)

If both sides take the time to create this roadmap, understand it, and communicate relationships will rapidly improve, results will be improved for both sides of the relationship, and the value captured in the relationship will be unleashed.  Not a bad outcome!

If I’ve raised any questions or inspired any thoughts, please share them.  I’d be interested in your take on this topic.

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