Tag Archives: Strategic Supply Chain

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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Hewlett-Packard and Seeing the Bigger Picture

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Back in August, Hewlett-Packard announced a complete overhaul of their business by lessening the company’s reliance on PC and splitting the company in two. The Chief Executive Officer at the time, Leo Apotheker, wanted to lessen the company’s reliance on PCs as tablets and cloud services have started becoming more popular. In many ways the announcement made sense as Michael Gartenberg, an analyst at Gartner Inc. stated “The hardware business has become a difficult business. In many ways it’s a commodity-driven business. This is a major strategic shift for HP.”

Fast forward two months and now there is a new CEO in town and she is looking at the change in a whole new light. According to the Wall Street Journal, Meg Whitman, the new CEO has been looking at the numbers and things don’t seem to be as cut and dry. The new analysis shows that the company might be better off keeping the division which contributes $40 million in annual revenue. The reasoning, however, goes beyond the revenue numbers. Separation would lessen the company’s economy of scale and diminish their buying power AND leverage with their supply base. The supply chain could also become more complicated and decrease profit margins on their other products as well.  Some feel that because of this, the spin-off isn’t worth it.

Let’s take a look at this situation beyond a cost perspective and focus on Value.  HP sold 14.9 million PCs in the second quarter of 2011 alone, which means they are a huge player in the marketplace – particularly with their suppliers.  That scale gives them leverage that can and should go way beyond cost.  They should be using that leverage with their suppliers to help them manage risk, increase innovation (which should impact H-P’s top line not just their bottom line), expand their product offerings, etc.  H-P should be using this “leverage” to help move away from being viewed as a commodity to their customers and start viewing themselves as a “Value” provider.  When approached from a value perspective H-P would be foolish to exit the PC market.

So what, if any, is the lesson here? For one, it shows just how far reaching and influential the supply chain organization can be.  In times when we constantly hear that sourcing and supply chain organizations are losing their influence, H-P shows that there is still some bite left in those functions.  I wonder whether Supply Chain even had a seat at the table when the original decision was made.  I guess they do now, which is a VERY good thing!

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Hitting a Strategic Sourcing Home Run

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I’m not a huge baseball fan, but my daughter gave me the book Moneyball (used at many leading business schools) by Michael Lewis and I was eager to see the movie.  Brad Pitt takes a break from his jet-setting life with Angelina Jolie to play Billy Beane, the General Manager of the Oakland Athletics baseball team. Billy Beane is well-known for fundamentally redefining the way baseball teams make decisions and challenging the way teams had been managed for over a century.  He essentially changes the decision criteria used to select players to a much more fact-based model, which focuses on the real value the players bring toward the Intended Consequences (getting a win).  Once he redesigns the consonants (People, Process, Technology), he quickly realizes that getting to the expected results is still far away. It’s not until he focuses on the vowels (Adoption, Execution, Implementation, Optimization and Utilization) that the results start showing up.  The constraints he faces should sound very, very familiar to everyone.  Follow the trail and tell me if you agree that we all need to be a Brad Pitt (no that does not come with Angelina Jolie).

  • Faces resource constraints in terms of total budget available – SIGNIFICANTLY less than the competition
  • Entrenched resistance
    • Scouts who still evaluate talent the way it’s been for decades (decision models and processes)
    • Salaries of players based on old metrics (reward system)
    • Players who define their roles based on those metrics
    • Middle management (Manager) a TOTAL barrier to change
    • Players totally fighting the change
    • An organizational attitude that accepts failure
  • An environment (the entire sport of baseball) that is openly hostile to every move he makes
  • Changing the entire Value Chain and redefining the way value is created(getting on base leads to wins)
  • Dealing with early losses and still getting the organization to stay committed
  • Getting rid of some of the players to set an example
  • Create value from a supply market (players) that has been sourced by the competition already

The parallels continue.  By the way, those of you not familiar with this particular story or baseball in general, a parallel might be what Lionel Messi and Barcelona have done in terms of redefining soccer away from long kicks and passes to short passes and a possession game.  Even though they have clearly proven that it is far superior to the competition, others have been very slow to adopt.  This concept is why you need Next Practices as a way to create an advantage while others chase Best Practices.

The more interesting question is what you do to stay on top while others adopt the same style and strategy.  And if you think I’m stretching the argument, you will find that since a large portion of baseball has adopted Billy Beane’s vision, his old techniques no longer provide the leverage.  In fact, he cannot compete because he does not have the resources that the other teams do.  And since they are sourcing the same pool of players using the same techniques, his leverage (exploiting market inefficiency) is gone.  This is no different than Supply Chain/Sourcing organizations going back into the supplier market using the same techniques that everyone else is using (Best Practices).  In fact, the best model of that are now the Milwaukee Brewers, not the Oakland A’s.  And even they have had to continuously adapt because everyone has adopted the same tools.  And oh by the way, we all assume in the Supply Chain world that the supply market has not adjusted to the techniques that we have been using?  If you think of it as a system that seeks equilibrium, that assumption just does not hold true.  If you would like a more detailed presentation on this, let us know.

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Troops in Afghanistan – a Dramatic Case Study for AEIOU

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Today’s post is from Anne Kohler, COO & Executive Vice-President, of The Mpower Group (TMG) and a contributor to the News U Can Use TMG blog.

What do these historic events have in common?

  • U.S. Invasion on North Korea
  • The Bay of Pigs
  • Watergate
  • Escalation of the Viet Nam War
  • The Hostage Rescue in Iran
  • The Challenger Disaster
  • The Bush Administration’s Invasion of Iraq

This list represents some of the biggest decision-making disasters in history.

A few weeks ago, the famous Washington Post White House author, Bob Woodward wrote an article entitled “Military thwarted president seeking choice in Afghanistan” which was all about the critical nature of decision-making.  What greater decision can there be than deciding the fate of tens of thousands of young U.S. men and women as they are sent into war-torn Afghanistan?   The article chronicles the process that President Barrack Obama undertook in finally deciding to send 30,000 additional troops as opposed to the 40,000 (which came highly recommended by his military leaders) in December 2009.

Obama discovered after months of negotiating with national security officials and being in the middle of a war entering its ninth year that three simple questions could still NOT be answered:

  • What is the mission?
  • What are we trying to do?
  • What will work?

In other words, what is the intended consequence in Afghanistan? . . . . . . . . . . . . . . . .

As it turned out, Obama’s military leaders wanted to provide a solution (40,000 new troops) without defining a strategy – the answers to those three simple questions (obviously not so simple!).  Obama asked for a strategy (the answers to those questions) and asked for options, but the inability to answer those questions kept leading back to NO viable options except for an option that was UNacceptable to Obama.

Having been well versed in decision-making disasters from the past (see above), Obama chose to follow a more structured decision-making process.  He knew he had many intelligent key stakeholders at his disposal and wanted input, alignment, and buy-in from all of them.  He actually made a meta-decision – he decided how to decide by answering the following:

  • Who needed to be included in the decision-making process (stakeholders)?
  • What role would each stakeholder play in the decision-making process?
  • How would the decision be made – what criteria would they use to decide?
  • When did the decision need to be made?

Obama did a thorough stakeholder analysis to determine who needed to be included in the decision-making process.  He realized that it was critical to include both military and civilian leaders.  He also determined each stakeholder’s role in the process; keeping the final decision for himself.  He then determined the decision criteria and insisted on being provided options by his advisors, which was critical.  Finally, he did not allow himself to be rushed into making a quick decision (his military leaders tried to do just that) which allowed him the opportunity to consider many alternatives.

At the end, he “sold” his decision to all his stakeholders and insisted that they put their full support behind it.  Obama said, “I don’t want to have anybody going out the day after [the speech] and saying that they don’t agree with this.”

Time will tell whether or not this was the right decision for the U.S.  BUT what we can glean from this article is the importance of having a disciplined approach to decision making.  Even if all of Obama’s stakeholders did not necessarily agree with the final decision, it appears that they did respect the process.  Right before the decision was announced Obama gave Robert Gates, his Defense Secretary, a final opportunity to dissuade him saying, “Can you support this?  Because if the answer is no, I understand it and I’ll be happy to authorize another 10,000 troops, and we can continue to go as we are and train the Afghan national force and just hope for the best.”  Gates did not take Obama up on his offer.

This is just one example of the importance of decision-making.  This is the one skill that most leaders are never trained in, even though it is the most critical part of their job.  It is one of the elements of our AEIOU model, which stresses that the best infrastructure (people, process, tools, and technology – the consonants) in the world is useless without the glue that holds it together (Adoption, Execution, Implementation, Optimization, and Utilization – the vowels that turn the consonants into a language).

Some of the most important events in history required effective decision making and yet we spend little to no time on developing the skills necessary to make good decisions.  The recent deaths in the California wildfires have been attributed to poor decision making by the firefighters.  The good news is that this has led to the addition of decision-making to firefighter training.  One of the most critical decisions that affects all of us is that of a jury.  Yet numerous articles have been written about the fact that our present system does nothing to provide jurors with the tools to decide the fate of a human life.

We need to think about this key skill beyond our politicians and public servants.  How about executives of any kind?  Supply chain leaders?  Sourcing teams?  This should be a critical leadership skill that is purposely taught to all professionals – let’s provide the vowels to complete the language!

Thanks Anne!

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Strategic Sourcing is Dead!!! (The Debate Rages On!)

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This is a repost from Sourcing Innovation.

The Strategic Sourcing Debate, Part VI: Yup. It’s still dead!!

Today’s guest post is from Dalip Raheja of The MPower Group, who declared that Strategic Sourcing is Dead, and who has returned to poke the hornet’s nest once more.

A very special thanks to those who engaged in a substantive debate, whether you agree or disagree with us. I am grateful for your time and kind consideration of our arguments and hope that you will continue to engage in the conversation. That was the Intended Consequence. The Un-Intended Consequence was the tone and tenor of some of the reactions. Let me apologize to those who got quite offended by my writing/language skills. As I have said in almost every conference I have spoken at over the years, I am a 3rd world immigrant trying to make a living here and learn the language at the same time, and that is still obviously a challenge for me. :)

I did not realize that this was a contest and that the doctor was playing Simon Cowell.  :)  Had I known this, I at least would have gotten a haircut and put on a nice suit! But let’s forget for a moment who won or lost, according to the doctor, and let’s look at the substantive points made by a number of the respondents. I will address some of them here, and others in a later post.

Clearly, Tim Cummins (IACCM, The Death of Procurement) and I mostly agree on the substance of the hypothesis. Where we may disagree is how to solve some of these issues. What is unique about IACCM is it represents a very innovative nexus in that it brings both the buy and the sell sides together. Especially if you fundamentally believe at the end of the day that the Intended Consequence for both sides is to establish relationships (commitments according to Tim) which create and deliver mutual value beyond the contracted transaction. In fact, there are organizations where both of these functions (buy AND sell side contracting) have been organized under a single leader and we think that is just a fascinating opportunity to maximize value. We call it the JANUS model (feel free to come up with your own name). We think one of the Next Practices the community should adopt is that the Sourcing/Supply Chain function should be an integral part of the sales process (Mpower Blog). Let that sink in for a while and hopefully you will agree. For a detailed discussion between Tim and me on this topic, you can listen to arecording of the webinar Tim and I just delivered:

It is also interesting to note the most recent post entitled “(The) Strategic Sourcing (Debate Part V): My 2 Cents” where the author states in his opening paragraph:

“It’s called strategic, but it’s not used strategically.”

Strategic sourcing, for the most part is seen as a procurement function, and typically, a transactional process leveraging tools such as RFx and Reverse Auctions in a tactical manner. Some large consulting firms, who offer services, treat Strategic Sourcing services similarly and mainly are utilized as “staff-augmentation”. For manufacturing organizations, where materials can be 60%-80% of the cost of goods, sourcing of direct materials needs to be approached as a Supply Chain challenge. Take the direct materials at the point of consumption and work backwards in the supply-chain several tiers, and understand costs. When the Supply Chain is worked cooperatively with suppliers, an organization can ask the question “How we reduce each others costs without adversely impacting each other’s margins”?

No disagreement with what he has to say. He does go on to give some examples of exceptions and while I don’t agree with all his examples, I would be very happy to agree there are many examples of pockets of excellence and we should find them and extract the Next Practices. However, I still maintain that to make the kind of dramatic change we need to make, mere CPR at this stage may not be enough.

In the post titled “Where does Strategic Sourcing fit in?”, the author shares a very similar professional background as mine (been there/done that, speaker and advisor) and has clearly posted a very thoughtful, measured response and I could not agree more with the gist of what he has to say. He lays out three questions, which he writes are even more fundamental, and I am happy to concede his point for a minute. What becomes obvious is we both end up in the same place … it hasn’t worked, it ain’t working, and it needs fixing right away.

“Do your senior executives understand the enormous potential of modern supply management (only one element of which is strategic sourcing)?”

I concur with this totally and this is exactly the argument we are laying out. What the author calls the “enormous potential” is what we are referring to when we talk about the destroyed value. And it is very clear senior executives do not understand that their Sourcing/Supply Chain organizations can help them get at this value because they only see their Sourcing organizations focused on cost/TCO.

“Do your senior executives understand how to achieve that enormous potential — i.e., how to build the transformation roadmap and how to support it?”

The quick answer is no. The more detailed answer is almost all organizations assume if they keep investing in their infrastructure (the consonants), they will get the results. And if the past few years have proven anything, it’s that this misses the whole issue of the vowels … how will these practices and the latest gizmos and technology be Adopted, Executed, Implemented, Optimized and Utilized?

“If the answer to the first two questions is ‘no’, are you prepared to take a leadership role in helping your senior executives achieve the necessary awareness? If not, then debating the ‘strategic sourcing is dead’ question is moot at the company level.”

And this gets at the crux of the issue because in a large majority of the cases, the answer to number three is a resounding NO!!! Furthermore, the follow-up question is why are we still where we are after 25 years? Until we understand that issue, I’m not sure how we go about determining how to fix it. Our research suggests that the biggest reason is the singular focus on cost (TCO etc.) gets in the way of senior executives achieving the necessary awareness because cost is but one element of their decision criteria and that is why we must fundamentally alter the sourcing process and initiate the process with their decision criteria while not abandoning cost.

The author then goes on to say: 

And to all of the above, I have a simple one word response … AMEN!! And that is exactly why we are issuing the clarion call to acknowledge that it hasn’t worked, it ain’t working, and we need to fix it right away. It was also very heartening to see a reference to a Transformation Roadmap because that is exactly what we have been recommending and delivering to clients for more than a decade. I will agree we are going further and saying the current approach and process (even with the latest technologies, decision optimizers, risk simulators, etc.) ain’t gonna work; and, we can either keep trying to fix it or we can all agree that we need to apply a fresh perspective and come up with something totally different.

  • Believe it or not, 25 years after the birth of strategic sourcing, many companies of all sizes still are not aware of “true” strategic sourcing.
  • Equally astonishing, a surprising number of companies believe they are using strategic sourcing, but in fact are not.
  • Perhaps as a reaction to the need for “quick wins” in the current business environment, some companies who previously used a true strategic sourcing process have since “dumbed down” their process into a tactical ghost of what it used to be.
  • As noted above, trying to introduce and embed strategic sourcing without the supporting pillars of a transformation roadmap is likely to generate only short-lived benefits.

 

So please join the debate, and yes, debate implies a conversation. All I ask is that we keep the confrontations constructive and stay away from the name calling, innuendo, and disparaging comments. We will be the first ones to admit that if we are now right, then obviously we too have been wrong in the past. And if you are truly a committed defender of the status quo, our best wishes to you. I will respond to some of the other commentary in a later post. I will also provide my reading of the Doctor’s TVM and Gartner’S DDVN.

Thanks, Dalip!

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