Tag Archives: Strategic Sourcing

Listen to Your Customers – Netflix Did!

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Who remembers the summer of 2011 when Netflix, Inc.  raised its prices by 60%  and lost almost one million customers?  Fast forward to October 22, 2013 where Netflix reported adding 1.3 million U.S. customers just in the third quarter ( “Subscribers Fuel Netflix Stock” – WSJ) to eke out HBO by one million subscribers.  In addition, its stock price is up 282% since the beginning of the year.  How did they do it?  Well, according to Brian Stelter, a media reporter for the New York Times (in an interview on NPR) it was simply . . . . “Netflix listened to its customers and has continued to listen to its customers ever since.”

This particular story really struck a chord for me and caused me to reflect on two conversations I had over the last several weeks with potential clients. In both cases, these are former clients that have moved to new companies and are challenged with their “customers” not wanting to “buy” what they are “selling”.  Both companies are large and global and up to this point do little to no Strategic Sourcing.  These companies are also very entrepreneurial and highly profitable – in other words, if it’s not broke why fix it?  The struggle they are having is that they are trying to “sell” supplier consolidation and cost reduction to an audience that could not care less about either of those things.  So what do they do?  Increase the heat and “create” a burning platform? Put policies in place to force compliance?  Plow forward without customer support?  Any one of these might work BUT it will be painful and short-lived.

Here’s a thought – do what Netflix did and LISTEN TO THE CUSTOMER!  Now, you may be sitting there thinking that your job as a Sourcing professional is to save money and if you are not ALLOWED to save money then, what are you supposed to do?  Once again – Listen to the Customer!  The skill set required of a Strategic Sourcing professional (analysis, problem solving, relationship management, collaboration, change management, facilitation, project management, negotiation, contracting) allows you the luxury of providing value beyond cost cutter.   Here are just a few thoughts for those that are struggling to think beyond TCO:

  • Establishing new supply chains in new global markets
  • Assuring supply (or substitutes) is available when a weak economy is causing the supply base to shrink
  • Monitoring and managing supply risk when the unexpected happens
  • Utilizing the existing supply base to help your company develop new products or enter new  markets
  • Determining ways to extract efficiencies from existing technology
  • Finding ways to standardize specifications and streamline processes
  • Providing supply market intelligence to accelerate critical decision making
  • Extracting additional value from your strategic supplier relationships

If your “customer” is not interested in cost savings (and some are just NOT) then listen to what they do want.  Or, like NetFlix, offer them solutions (e.g. original content ala “House of Cards”)  that they did not even know were possible.  The opportunities are endless . . . . .and you might even find that what once seemed like a sinking ship is now blowing the competition away . . . . . .

Let us know what you think and join in the conversation.   

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Supply Chain Management – A Hot NEW Discipline?

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As we are working “in the weeds”, every day, we often lose sight of how critical our function is.  We, at The Mpower Group,  do a lot of Strategic Sourcing and Supply Chain Management training as one of our service offerings because WE KNOW the value of a strong Supply Chain. I guess it has just taken the rest of the world a little time to catch up . . . . . .

There was an article in the Wall Street Journal last week “Hot New MBA:  Supply-Chain Management”  which describes the increasing demand of employers to hire people with supply-chain expertise.  For many, many businesses, their supply chain can be the difference between success or failure.  So having the right, skilled resources in place is a critical success factor.   But let’s be real here . . . this is not NEW, but it is clearly a move in the right direction.

I do have a few words of caution for employers  . . . . . .  as you know, a college degree in any discipline is helpful BUT it is not a silver bullet.  To be a strong supply chain professional there are skills beyond “Supply Chain” which are important.  It is those strategic competencies like problem solving, change management, communication, collaboration, business acumen, etc.  that are true differentiators when hiring any professional.  These are also the skills that are often missing in the Supply Chain Management curricula offered today.  I have written about this quite a bit because I am a strong proponent of integrating those critical strategic competencies into the functional (supply-chain) competencies – see Could Supply Chain Skills Return America to Prosperity?.  So, I would advise employers to target graduates from programs that are integrating those skills or use professional training firms to provide those skills.

Since most companies cannot or should not replace their entire staff with recent grads, investing in professional supply chain training is a great investment.  But be sure to select a training firm that does two things:

  1.  Integrates strategic competencies with the functional,  supply chain skills
  2. Requires application of the new skills to ensure that the learning sticks AND is applied

If these two points sound intuitive, they are BUT they are seldom followed.  As with everything else, companies spend millions of dollars in implementing solutions but very little in ensuring that those solutions are adopted by employees – AND ADOPTION is where you actually get a return on your investment.  Think about all the training you have attended and reflect on what, if any, you actually applied when you returned to work – probably very little.  By the way, the same can be said for hiring talented, supply-chain grads.  If you do not provide them opportunities to apply what they learned in school you will not benefit, as an employer, from their skill set.   In addition, those supply chain skills will not be sustained if they are not used.

The good news is that the rest of the world is starting to recognize what we already know – supply-chain management is an important function and requires a unique set of skills to be successful.  Universities are gearing up to meet the demands of employers that recognize the value of supply-chain management.   As supply chain professionals we need to insist that our employers provide us with the training we need to round out our skill set and also provide us the opportunity to utilize those skills.  I think supply-chain can be an exciting and rewarding career. I am encouraged to see that others are recognizing that as well.

Don’t forget The Mpower Group when you are thinking about investing in your employees . . . . we are the best!

Please join in the conversation . . . . . . .

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How Much and How Hard Can / Should We Squeeze?

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I admit this is a rant so please proceed with caution.   We, at TMG are busy – more than busy, which is great but for me it means that I have limited patience for anything that takes me away from doing what I need to do for my clients.  Every week we rotate who is responsible for writing this blog and today was NOT my turn, BUT yesterday I picked up my WSJ at the end of my driveway (yes I still like to read a “paper”) and saw a front page headline “Firms Pinch Payments to Supplier” and I went nuts.  I walked into the office and said. “I’ve got the blog this week”!  So here goes . . . .

I spent the last two days working with a F500 retail client on the long term strategy for their Strategic Sourcing organization.  We talked about what we, at TMG, have been advocating over the last two years – “old school” cost/price based Strategic Sourcing is DEAD and focusing on VALUE is a Next Practice.  I walked out earlier this week and said “YES” because I felt like I had convinced a room full of Supply Chain executives that key suppliers must be treated like assets NOT adversaries.  The day of beating down suppliers for every last nickel is over and yet numerous large, global consultancies (I refuse to name them but you are probably paying them $$$$$$$ – millions to give you old / lazy / bad advice) AND research firms continue to advocate a “cost focused” approach.

Here is where the rant comes in . . . the WSJ article talked about a global, Fortune 50 company moving to 75 day payment terms to their suppliers.  “ . . . could use that cash to fund investments in new factories overseas or to help pay for stock buybacks.”   This practice of squeezing even more out of an already lean supply base made the front page of the WSJ as a best practice???  By the way, there are several other large, global Fortune 50 Companies also named that have adopted that practice as well.  REALLY!!!  I’m not shocked, but I am mortified!!!   By the way, this company has been named to the TOP 25 (Top 5 to be exact) Supply Chain Leader list of a major research firm for at least the last three years.   I must ask myself, “what is the criteria to be considered a TOP 5 Supply Chain company when 75 day payment terms is being thrown around as a best practice?”   Perhaps it is the fees they are paying this research firm . . . .

Now, many of you are thinking, OK, The Mpower Group is a supplier and therefore the 75 day payment terms is hitting too close to home . . . . . Here is our current thinking AND the first question we ask ALL our client, “have you asked your suppliers what they could do for you if you GAVE  them $1,000,000?”    Our discipline has moved so far toward the cost continuum that we have forgotten the VALUE that is generated from relationships.  Come on everyone, how do you select a partner (any type of partner)?  Is it based on cost?  Or is it things like compatibility, shared values, trust, ability to expand “the size of the pie”, etc.?  I hope the aforementioned company is smart enough to realize that suppliers will eventually need to make themselves whole and that can happen in a variety of ways – higher future prices, shifting their capacity to competitors, reducing quality, etc.  This practice can also significantly increase their  supplier risk profile.   One safety / quality incident that adversely impacts consumers because a supplier is trying to make themselves whole from 75 day payment terms, can prove to be a legal / PR nightmare.

 I think this company has been given some bad advice . . . perhaps they need to be working with The Mpower Group.  The only thing is we won’t accept 75 day payment terms.  On the other hand, we will accept $1,000,000 and will promise an ROI of at least 10X . . . . . .

Sorry for the rant . . . . . join in the conversation.

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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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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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