Archive for October, 2008

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Are You Part of the Problem?

October 29, 2008

A recent invitation to the Gartner 2009 BI Summit opened with the following quote:

Through 2012, overcoming complex organizational dynamics and having the skills to use BI more broadly will become the most significant challenge to the success of BI initiatives and implementations.

This is a rather, let’s call it generic, summary of the challenge facing BI in the future but there was also an interesting estimation based on recent Gartner surveys:

Gartner estimates that no more than 20% of business users actually use BI proactively.

There is room for interpretation here, since proactively would mean using it the right way. Still, 20% – that is a horrible number.

So what is the problem? I am assuming you read the invitation and got Gartner’s take on it but lets look at it from a procurement perspective instead of a more generic one.

Everybody involved in eProcurement implementations know that just providing access to a system does absolutely nothing in itself and I think this is especially true for BI. It is a term that is often linked to a very specific application, rather than being the umbrella term for the surrounding policies and processes associated with making a decision based on the system output it should be.

This is the main problem I think – If you do not know where you are going or why, speeding up will not help you (I’ll spare you the automotive metaphor jokes).

There are a lot of factors to take into consideration before starting out on an implementation project (or launching a retake of a previous one):

  • Are your organization ready for fact-based management? Management must willingly accept that facts, unlike opinions carry the same value regardless of position
  • Look into your KPI structure and make sure its not tied to old constraints on data availability – Plan for Benchmarking right at the start if you are not already doing it
  • Focus on usability and empowerment is great but make sure everyone will be working towards the same goals by enforcing a mandatory reporting framework
  • Secure both experience, time and money for ongoing change management and organizational development efforts, BI is the tool not the goal

The list could just go on and on but I think those are the main factors to consider – if you do not, chances are you are part of the problem (and Gartner’s remaining 80%)

All things being equal though – I think it is fair to assume that the vast majority of BI implementations where run with the help of an external partner. In the light of that, I think it is a good idea to be weary of the lone genius or guru approach often promoted at e.g. BI Summits. I will support that by a quote (my bold) from the Harvard Business Review ‘Decision-making’ feature (Issue #1, 2006):

The business world is among the few places where the term “guru” has primarily positive connotations. But a focus on gurus masks how business knowledge is and ought to be
developed and used. Knowledge is rarely generated by lone geniuses who cook up brilliant new ideas in their gigantic brains. Writers and consultants need to be more careful about describing the teams and communities of researchers who develop ideas. Even more important, they need to recognize that implementing practices, executing strategy, and accomplishing organizational change all require the coordinated actions of many people, whose commitment to an idea is greatest when they feel ownership.

This particular section is titled: Celebrate and Develop Collective Brilliance – I think the real challenge for BI in the future is to support that statement.

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Posted in Business, Organization, Supply Chain Management | Leave a Comment »

When Purchasing’s Lost Control

October 28, 2008

The rapid decline of the music business has hardly escaped anyone; rarely has a downfall of business model been so public. Yet one has to wonder in which world the executives of EMI were living in as details of their day to day exploits start to trickle out. The record label responsible for acts such as The Beatles, The Beach Boys and Rolling Stones as well as contemporary stars such as Robbie Williams, Spice Girls and Coldplay has in the last few years experienced a dramatic crash; just five years ago the group reported profits of £401m on turnover of £2.1bn. Last year revenue had fallen to £1.458bn, and losses to an incredible £757m.

In August 2007, EMI was acquired by the private equity firm Terra Firma; ending a long lasting courtship from rival industry giant Warner. Terra Firma set up a financial vehicle to run EMI called Maltby Capital Ltd, who oversees the EMI businesses and provides a corporate governance role.

Maltby Capital recently published the annual report for the year ending March 31 2008 and it’s an amazing story of not only a business model in grave need of change but a company totally out of control.

Spend management and governance highlights include:

  1. Reporting structures so dysfunctional that the new management struggled to find out the true picture.
  2. A decision which abolished EMI’s global procurement function, resulting in the use of multiple suppliers – as many as 10,000 was in use in the UK alone.
  3. An exceptionally liberal approach to cost control, while there were appropriate policies, they were not consistently applied.

The report states:

In particular, EMI operated in an industry in which generous spending on hospitality, travel and similar expenses were considered normal. In EMI Music, this type of cost was not closely monitored and employees were not encouraged to feel accountable. The approach to travel and expense policies was more than generous. Recent investigation showed EMI Music to be the fourth largest spender on a well-known taxi firm in London, with a bill of over £700,000 in the last year. This was only slightly less than the bills of 3 investment banks, with 8-10 times more staff than EMI Music.

But the report not only gives the insight into a business in decline, it also outlines how they plan to deal with the situation. The full report can be downloaded here: EMI Group Report (PDF).  It’s a roadmap to what may happen when governance and corporate control are lost.

Posted in Business, Governance | 1 Comment »

The Right to Choose – Why Pooling IM&S Doesn’t Work

October 27, 2008

Last Friday I was in a meeting with several senior managers at IBX when the question of IM&S pooling came up. As pros and cons were discussed from both strategic and pragmatic angles one of the participants finally blurted out:

The only (IM&S) commodities for which pooling works are those which are so standardized that specifications have become obsolete (such as gasoline), for all other commodities, specifications quickly become so essential (and diverse) that trying to pool even within your own company quickly becomes overwhelming. Pooling across company borders is simply not doable.

As usual I was taking notes of the discussion and as I let my eyes wander across the table I started to realize that maybe he was right, because in front of me were four purchasing professionals who preach the gospel of standardization and consolidation on a daily basis; yet all were taking notes in different notebooks. And if there ever was a commodity that should be seen as a poster child of standardization it is office supplies – after all; we’re mostly talking about pens and paper here; it’s so non-core that even the most liberally minded purchaser could think of it as potentially “five-year-plan:able”.

As the discussion continued I used the notebook example to illustrate the complexity of the issue; when asked all of us had different reasons for choosing our notebook of choice ranging from “it was in the office storage” (which I suppose was the most correct answer from a purchasers point of view) to “I got it for free at a conference” (a good answer from a cost perspective) to my defence of my Moleskine; “I honestly believe that I take better notes in this notebook than in any other” and then I added “and it makes a statement”.

I suppose the quality of the notes taken in the notebooks are only vital to those that assume their notes are core-business; a group of people that are (and should be) quite small to be honest.

Walking away from the meeting one question was lingering in my mind: why is it so hard to standardize IM&S?

Could it be that the same libertarian philosophy that has enabled global trade at the same time work against procurement by emphasising people’s right to choose?

Posted in Business, Procurement, Supply Chain Management | 2 Comments »

The Effects of Wal-Mart’s Recent Supplier Summit in Beijing

October 24, 2008

Earlier this week; Lee Scott, president and CEO of Wal-Mart Stores, Inc. and Mike Duke, vice chairman for Wal-Mart’s international division addressed more than 1000 of Wal-Mart’s leading suppliers, Chinese officials and NGOs at a Wal-Mart supplier conference in Beijing, China.

Lee Scott sent a crystal clear message to Wal-Mart’s Chinese supply base:

My intention here is to send a message about how serious we are. Meeting social and environmental standards is not optional… And let me say to our own associates, an environmentally and socially responsible supply chain will not be optional for Wal-mart, we will hold our own associates accountable… Make no mistake; we expect from suppliers a firm commitment to meet strict social and environmental standards; to be open to rigorous audits; and to publicly disclose all appropriate information.

He continues to state that suppliers that do not meet the standards set by Wal-Mart are expected to put forth a plan to fix the problem and those who still do not improve will be banned. Mr Scott drove his point home by saying that:

No-one should be under any illusion that moving a factory to another country will avoid accountability.

Before Mr. Scott took the stage; Mike Duke had outlined Wal-Mart’s strategic sustainability goals.

  • To build an environmentally and socially responsible supply chain.
  • To make our stores more sustainable.
  • To bring our customers products that are more sustainable; how they are made, how they are packaged and how they are used.

Wal-Mart has issued a press release detailing most of the points delivered at the summit in Beijing which can be found here. But the best thing is (although it doesn’t show the audience response); videos of both Mr. Scott’s and Mr. Duke’s speeches can be seen in the video section of the Wal-Mart corporate web site.

One can only wait and see which impact this will have on the Chinese manufacturing industry, in the last few years labor costs have gone up 70 to 100 percent, yet many factories have been able to raise their prices because companies such as Wal-Mart are saying no price increases. One indication of what might be in store was published earlier this week. The official Xinhua News Agency reported that 3,631 toy exporters — 52.7 percent of the industry’s enterprises — went out of business in 2008. The causes: higher production costs, wage increases for workers and the rising value of the yuan.

Posted in Business, Global trade, green procurement, Supply Chain Management, Sustainability | Leave a Comment »

The Re-emergence of Nearshoring – aka Best Cost Country Sourcing

October 23, 2008

In response to the latest business trend (as reported by most American business press) backshoring Booz&Co has authored a piece in their strategy+business publication called “Is Backshoring the New Offshoring?”. Their answer is a vague “not yet”. The increasing presence of India’s Wipro and TCS and the backshoring efforts of Dell and American Express might be a sign of things to come but it’s not nearly enough to make backshoring a viable business trend.

So is there a definite trend in offshoring vs. nearshoring vs. backshoring?

From a European perspective the answer is rather clear. As deregulation efforts are increasing in Eastern Europe and the near East; this is where European business is going. And it’s easy to understand why: it’s close, it’s cheap and it’s a great place for doing business.

Just take a look at the results of Doing Business 2009 – the sixth annual in a series from IFC and the World Bank; out of the ten economies making the most regulatory reforms, the top four are from Eastern Europe or the near East (Azerbaijan, Albania, the Kyrgyz Republic and Belarus).

Whilst backshoring might be something to think about for strategic or customers value reasons; I believe that what the press is really talking about (and this is echoed by Booz&Co as well) is plain old fashioned best cost country sourcing. In the words of Booz&Co:

..,companies have begun to rethink their offshoring decisions in a way that ultimately will render “offshore” and “onshore” no longer meaningful or relevant. Instead, companies are making choices about the best place to do a given piece of work — be it offshore, onshore, or nearshore.

Posted in Best Cost Country Sourcing, Business, Global trade, Low Cost Country Sourcing, Outsourcing, Supply Chain Management | Leave a Comment »

Is Your E-Procurement Solution Doing the Right Things

October 21, 2008

Little over a year ago I came across a blog-post titles ”Why Procurement is Meant to be Hated”; the posts author argued that it was the purchasing function’s mission to have people stop buying things.

The reality is that the purpose of procurement, a centralized service in the business, is to monitor and control all purchasing decisions, from a new pen through to a new building. The system should be painful to both suppliers and users, ensuring that both sides try and avoid interaction unless completely required. In this way procurement helps to focus spending on what is really required and removes spending on items that are just “wanted” because its not worth the effort.

What the author (albeit with his tongue firmly planted in his cheek) chooses to ignore is the fact that e-procurement is everything but a poorly functioning company branded web-shop. On the contrary; an e-procurement solution should enable the buyer (the employee) the opportunity to easily compare and purchase goods and services with an open mind.

Sad to say; many e-procurement solutions are still only poorly functioning webshops – and the end-users (and purchasing functions) treat them as such. End-users; trained to lovemark brands and vendors; rather browse vendor catalogs than search for needed goods regardless of supplier.

So stop pitching e-procurement as a place to “shop” for goods and services; start to sell it as a product comparison web site. E-procurement is not an Amazon, it’s a Pricerunner. And if you’re shopping for an e-procurement solution; make sure that the solution includes a search engine that enables users to find necessary goods and services instead of popular suppliers or vendors.

Posted in Uncategorized | 2 Comments »

Who Wants a Green Supply Chain?

October 20, 2008

I think that all of us agree that environmental and sustainability initiatives have been front and center for many management teams in the last few years; but the question is how these inititatives will fare in the face of todays economic downturn.

A former colleague of mine used to say that green initiatives will be a non-issue in the future; I believe his view was that the market would find a common view on these issues and that the problem would solve itself, yet most reports on the issue all point in the same direction; green initiatives might be good for the planet, but as a business opportunity (or differentiator) it’s as good as a dead duck.

Take the results of the recent “2008 3PL Provider CEO Perspective” (a well researched short take on the report can be found WSJ MarketWatch. Although the 3PL industry has really taken up the gauntlet and established environmental responsibility as part of their corporate strategies few actually track any performance in the area and few (if any) of the CEO’s surveyed believe that the initiatives are significant in winning new business (or even retaining the existing customers).

But one interesting aspect of the findings is that many of the initiatives have come into focus not because the customers wanted it; instead many are primarily instigated from inside, as part of the companies corporate social responsibility initiatives.

The question is; especially in these times of economic downturn; will this trend have the perseverance to really reshape logistics (and other parts of the supply chain) or will customer demands for lower prices knock environmental issues down the corporate agenda. I; for one; hope that this will not happen and that the ethics and morality (as displayed by the urge for companies to establish CSR-agendas) will prevail over the short term goal of lower costs.

Posted in Business, green procurement, Logistics, Supply Chain Management | 2 Comments »

Time to Address Some Marketing Spend

October 16, 2008

Marketing has long been off limits for purchasers; alongside legal it ranks among the categories which purchasing functions have the least control over. But if there ever is a time to grab this holy cow by the horns it is now.

Earlier this week, the UK press reported that marketing budgets are being slashed; 35 percent of the respondents to the Institute of Practitioners in Advertising; the U.K.’s agency association; Q3 Bellwether Report said that they’re revising their budgets downwards in the third quarter. Only 8 percent of respondents were optimistic about the state of the advertising industry.

Now, if there ever was a door opener for purchasing into marketing spend, this is it. Marketers; by nature; want to be seen as winners, and if purchasers can show that marketing can still get their messages out, at a lower cost, with retained quality; they’ll listen to what you have to say.

Posted in Business, Marketing, Sourcing | 3 Comments »

Will Omaha Become the Next Shenzhen

October 15, 2008

Take a brief look at the following supply chain migration (GM Supply of Wiring):

  • 1980 – USA/Germany
  • 1990 – Mexico/Spain
  • 2003 – China/Honduras
  • 2005 – Thailand/Ukraine
  • 2008 – ?

Notice anything special?

Over the years GM’s migration frequency increased. Now there are probably many reasons for this but if anything, this is a clear cut example of how important supply chain flexibility has become in order to stay competitive (although one can argue the competitiveness of GM, but I believe that owes more to strategic decisions rather than supply chain practices). To ensure that the supply chain provides the necessary competitive advantages it needs to be constantly monitored by a number country relative cost drivers such as cost of labour, relative purchasing power, cost of energy, health care, relative capital costs, transportation, raw material costs, etc.

These sentiments are echoed in this World Trade Magazine article from a few weeks ago; which – quite surprisingly – points out the US Midwest as one of the places where companies migrate their supply chains.

Omaha might not become the next Shenzhen, but I truly believe that a number of smaller “Shenzhen’s” will develop over the next few years, all with their own specific offers and possibilities. As this happens; we will truly begin to see what global trade is really all about.

Posted in Business, Global trade, Supply Chain Management | Leave a Comment »

Trust matters

October 13, 2008

In these times of turmoil; many cite the lack of trust as one of the key factors in the appearant crash of the financial markets. It goes without saying; the foundation of any business agreement needs to be based on trust; or at least a common understanding; between the different parties.

And this needs to be remembered in the world of purchasing as well. Ponder the following scenario:

Company A is sourcing for suppliers for a certain product. The contract is awarded to Supplier C, and the price is based on a number of different parameters such as volume etc. Yet Company A is experiencing a 50 percent rate of maverick buying for the contracted category (and this is not a very unusual number for many IM&S categories). A well informed supplier knows this; and they will exploit this fact; as a buyer you are not going to get the best possible price because the supplier does not trust you to deliver on your promise (i.e. the predicted volume).

This is where the trust-based e-procurment pitch comes in handy; many purchasing functions experience supplier resistance to e-procurement implementation – and suppliers do this more on instinct than anything else – due to the fact that suppliers rarely see an upside to the initiative; suppliers are still used to being promised one thing and then experiencing something completely different.

When selling e-procurement to suppliers, the purchasing organization needs to stress that they are doing this in order to ensure that suppliers get what they were promised in the negotiations. Once this value is delivered and real trust is restored in the relationship purchasing functions should start to see improved results in their sourcing efforts by becoming a valued buyer/partner; one that delivers on their part of the bargain.

Posted in eprocurement, Negotiation, Procurement, Supplier Management | Leave a Comment »

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