Will the Heinz and Kraft merger impact your supply chain?

 

The food industry has been consolidating for the last decade with a big impact on its supply chain. Traditionally, the supply chain has been a combination of small suppliers producing ingredients that are combined by the manufacturers and then sold to food service and retail distribution channels. In my opinion, consolidation, regulation, increased cost of doing business, demand for additional inspection, demand for longer payment terms, just in time production systems and drive for lower cost has driven many suppliers out of the business.

Consolidation has also caused issues for the industry leaders since there are fewer suppliers, reduction of capacity, increased risk and increased costs and fewer choices for key ingredients. Many of the key ingredients and specialty packaging solutions come from only one or two suppliers. As companies like Heinz and Kraft merge and focus on homogenizing specifications and the supply base, it is essential that attention remains on maintaining a strong supply chain that can deliver in the ever-increasing demands of the industry.

For the suppliers in the industry, it will be essential that they maintain a healthy bottom line, innovate new products, remain lean and align with strategic partners both up and down-stream in the supply chain. The ability to continuously improve, remove risk and compete will be an essential factor in the ability to survive in an age of massive industry consolidation.

No one can predict the future, but understanding the ever changing environment will be the key to survive and thrive.

Will your strategic supplier get “voted off the island?”

Economy predictions and interest rate hikes: Is it a buyer’s or seller’s market?

Setting your strategy through 2016

In today’s economic environment, how should procurement professionals look at the market?

Let’s review the forecasts. Most economists are forecasting growth through 2015 and accelerated growth through 2016 with leading forecasters predicting that the world economy will grow between 2.8 and 3.0%. Looking at the October 2014 forecast of the International Monetary Fund (IMF), world growth was measured at 3.3% for 2014. There is little doubt that the US is leading the way with strong performance and lower unemployment numbers. However, while Janet Yellen sees “some of the headwinds that have been holding the economy back are beginning to recede” and sees a possible interest rate hike in as a sign the economy is healthy, what impact will a possible June interest rate increase have on the tricky financial supply chain?

As I review these numbers, consider the decline in oil pricing, increase in consumer spending and predictions of a strong global economy, I am placing my bet that the buyer’s market of cost containment, available supplies and increasing volumes back to pre-recession levels is here for a while, even if interest rates start to raise this summer.

Buyer’s market is great news as procurement professionals prepare plans for 2016. It’s always a challenge and worry when setting standards and budgets, but it looks like buyers can go forward with a great deal of confidence. Understanding the macro and microeconomics is an essential skill required by any purchasing professional.

Go forward with some confidence and capitalize on the buyer’s market as long as you can.

Make hay while the sun shines.

Manufacturing Today: Innovate or be Commoditized

Today I read an interesting article in Chief Executive magazine by J. P. Donlon about Dow Chemical’s CEO Andrew Liveris’ winning formula for driving manufacturing at Dow Chemical. Mr. Liveris’ message for fellow US manufacturers:” rethink your role in the evolving global supply chains and partner with others in training and developing the workforce you will need for the future.”

As I work with clients in the US, it is interesting that, for many in procurement and some areas of manufacturing, there are no strategic plans that exist beyond the next quarter. The focus seems to be in the near term and immediate. I dedicated myself in my new business to build strong category strategies linked to a strong strategic planning process. Some of the key priorities lacking in many manufacturing companies are acquisition of talent, developing the workforce to meet future strategic needs and the understanding of management of the supply chain and value chain. The other key message that I got from reading the Chief Executive article is that Mr. Liveris believes “manufacturing today means you’ve got to innovate faster than they commoditize you.”

After looking at many business strategies, supply chain strategies, and category strategies, I can say that there is no strategy if it doesn’t lead to topline growth, innovative new products, innovative processes and continuous development of  purchasing and supply chain business teams.

Looking at Dow’s success as a growing $57 billion company with 201 sites in 36 countries, a lot can be learned by their strategy of continuous reinvention of manufacturing to meet the needs of end customers.

Are you focused on innovation or will you be commoditized?

Why doesn’t management understand?

Suppliers are not a source of incremental profit

If a strategic category-sourcing manager has done her job, she has a full cost analysis, understanding of the supply base and global market place for the category. Every one understands that companies need healthy supply chains where their suppliers are reinvesting, innovating and buying automation to reduce cost. Yet, in some companies, the drive from top management is cost reduction. The lesson that suppliers must be profitable rather than leveraged to the edge was learned by the automotive industry when most of the domestic supply base was either bankrupt or close to it.

When buyers turn their focus to value extraction and not just cost reduction, the results are outstanding. I am writing a book entitled “The Best Customers Get the Best Ideas”. The preliminary research shows that companies with truly integrated supply chains have a high degree of supplier-led innovation, lowest cost of production and lean, flexible responsive suppliers. Two examples that come to mind are Apple and Toyota, but there are many more.

If you are a purchasing and supply chain executive whose focus is cost reduction, you will find that you have a short life in the job. It is difficult to extract 10% a year from the supply base, especially when you run out of ideas or have a unstable supply chain with constant change and high switching cost.

Supplier relationship management is a skill that all commodity managers, procurement and supply chain executives need to assure longevity in the job and a stable productive supply chain.
Think about the value-add that your strategic suppliers can bring to the table. They can bring R&D, new processes, new products, exclusivity, speed to market and supply chain integration.

Time to make the change to value management rather than cost reduction. Remember:

the best customers get the best ideas!

Will cost containment make a comeback in 2015?

Is the labor market “ripe for a lift off “ as reported by The Wall Street Journal? We’ve seen Wal-Mart raise the wages for 500,000 employees and we are seeing many states legislate increased minimum wages for workers. The employment market is showing its strongest growth in jobs since 1997 and all indications are that wage increases will continue after such a slow recovery from the recession.

It should come as no surprise to astute procurement professionals that rising employment costs will soon trigger price increase announcements. It’s time to actively monitor the supply base, keeping a check on key suppliers, create a message for expectation management, audit suppliers for productivity gains and build an effective strategy for containment action.

Don’t be surprised if suppliers capitalize on increasing labor markets to bolster prices and margins. So, like the scout motto,

Be Prepared.

The Talent Management Game

I was asked to speak about talent management to a group of about 1,800 procurement leaders in the insurance industry. In the same week, in meetings with two CEOs in different industries, both discussed talent management as a key strategic imperative for their respective businesses.

I started to think about the attributes of a great talent management program. I pondered which industry sets the standard for attracting, retaining, developing and deploying talent. Perhaps because I just experienced the Pro Bowl and Super Bowl in Phoenix and attended a workshop for sports related philanthropy, the sports industry stood out for managing talent.

Finding Talent

Both college and professional coaches scout talent, follow high potentials throughout their high school and college careers, consistently review player strengths and weaknesses, create a shortlist of needs, cultural fit and potential, then they recruit. While they may recruit star players, they always have their eye on recruits who have few bad habits, but are extremely coachable.

Starting with talent with the right attitude, smarts and cultural fit, coaches teach players the business by starting them in a rotational program, introducing them to mentors, shaping thinking, behavior and practices. They pare down the team; are they good enough to make the cut? Some companies like GE, Textron and others have embraced this process and move future leaders through the rotations, make them survive boot camps and grow into their destined positions.

I lived in Ann Arbor when Tom Brady played for the University of Michigan. He started college as 7th on the quarterback depth chart, and moved to back-up QB for two years. Then he battled Drew Henson for the starting position when Brian Griese graduated. In the 2000 NFL draft, he was selected with pick #199 in the 6th round. Now considered by many the top NFL pick of all time, he’s the poster child for finding “talent” with a high degree of coachability and high drive to improve.

Retaining Talent

Players are not developed to leave the team in free agency. Coaches must have defined career paths, challenging projects, continued coaching, training and development processes to drive the competence and capability of players to another level. Teams must also have an incentive scheme that makes it more difficult to leave once an investment is made in an individual. Just like sports, company development programs must be focused on individual and team needs to retain the talented employees they’ve invested in.

Playing the Game

Professional athletes are not only expected to have high skill levels and good game thinking, they are also expected to provide leadership to new recruits. The same is true in business, when the leadership and technical skills are in place, the business is learned and the team member is playing to his or her capability, it is important to align responsibility, authority and accountability with the individual and their position to help them become winners.

Winning the Championship

To get the best players, coaches and general managers know that they must grow, manage, develop and invest in talent to get to the championship. Talent management, whether leading procurement, supply chain or company organization, is not a short term proposition. It requires a plan, patience and investment to put the best team on the field. Great talent, customized to your business strategy, is not usually found as a star; find the coachable player and develop talent–great draft picks are waiting!

What’s your winning talent management strategy?

Strategic Agility is a Leadership Imperative for Procurement and Supply Chain

I read an interesting blog post by Steven Krupp (CEO Magazine) on strategic agility that can be applied to Procurement and Supply Chain leaders. In my 20+ years of consulting, I’ve learned that procurement leaders will fail and lose all credibility and effectiveness if they are not flexible and display strategic agility. It’s a career-ending move to say we don’t do it that way, we can’t do it, we tried it before and it doesn’t work. All of these demonstrate non-openness to change, lack of flexibility and limited strategic agility. Today’s business environment with its uncertain economies, drive for short-term earnings, increasing regulation and unstable markets can threaten the procurement leader who likes the status quo. It takes consistency, a great deal of courage, discipline and tenacity for leaders to be flexible during change and agile in strategy. Good leaders lead their charges to calculate and take the right risks to achieve their goals.

Each Procurement and Supply Chain leader must develop these skills:

  • Anticipate changes in the supply chain
    Do a minimum review with the team once a quarter to identify where key markets are headed. Be able to anticipate changes in the global economic climate. Review where exchange rates are strong and where they are weak. Be sure that you have a supply chain that is aligned with your business strategy. Work to develop strong supplier relationships that add value that will be seen all the way to the customer.
  • Challenge the conventional wisdom
    Strategic leaders are not afraid to challenge the conventional wisdom. Rather than having extensive category and industry experience, recruiters and organizations are now looking for a proven track record of conventional challenge. To challenge conventional wisdom, it’s necessary to speak up and voice your opinion on key topics even if not popular to show how ways, processes and opportunities can be met by changing traditional business thinking. Leaders display innovative ideas, strategic plans and solutions to age-old problems.
  • Learning from Experience
    There is no better teacher than experience. Giving people the responsibility, authority and accountability for decision-making will make them stronger and provide the opportunity for changing the status quo. Of course, there may be mistakes, but good leaders use those mistakes to build a learning organization that takes calculated risks for the benefit of the entire company. A true leader is open to this type of delegation and a culture of learning vs. retribution.

To be successful in this profession, a leader must anticipate changes in the global economy, category markets and integrated supply chain. Leaders of the future are those who challenge conventional wisdom, create new ideas, consistently improve performance and encourage their teams to take calculated risks and rewards, modifying plans as necessary.

How are your strategic agility skills?