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?

Back On-Line

I apologize all my followers for not writing a blog for a while. As many of you know, I have been transitioning from the position of President of ISM Services to a new role. Consequently, I am the founder of a new firm, Aripart Consulting. This firm represents collaboration with media, clients, consultants and firms looking for innovation and improvement through procurement and supply chain.

Through the move from retiring from ISM to starting the new company, my wife Linda (@SourcingChick) and I have taken a lot of time to reflect on the experiences, opportunities and rewards from the procurement and supply chain profession that have so greatly enhanced our lives. Linda was part of the ISM-ThomasNet team that designed the 30 under 30 Supply Chain Stars program (whose amazing winners were just announced). This program was created to honor and reward Millennials who have chosen our profession. I have spoken to many manufacturing company owners and senior management who have said one of their biggest risks is that the younger generation is not attracted to manufacturing. I wish I had the chance to speak to every young person to describe the feeling of knowing how dirt in the ground becomes the can from which you’re drinking. Or of travelling on 6 continents and seeing the sights and being a better citizen because of exposure to many cultures. Or of understanding the good and bad aspects of regulation. And of the ability to give back to causes dear to my heart because the salaries in the profession are very good. Yes, Linda and I owe this profession a lot.

In all, it has been a great transformation. I would like to thank Tom Derry and the Institute for Supply Management for releasing the rights of Sourcing Guy back to me. I will start regular blogs this week.

Thank you all for your patience. I look forward to challenging and calling us all to action.

Bill Michels (Sourcing Guy)

Sustainability is key

If any suppliers needed more evidence of the importance of sustainability in the sourcing decisions of huge consumer goods companies, they certainly got it in spades over the last several weeks.

General Mills’ executive vice president of supply chain operations John Church announced a new corporate climate policy to track and reduce GHG emissions as part of its commitment to environmental stewardship and sustainable agriculture. In his blog post, he said this new policy requires key ingredient suppliers to demonstrate environment, social and economic improvements in their supply chains.

Shortly afterwards, Coca-Cola increased its investments in Africa to support, among other activities, key sustainability initiatives and programs there. The company also signed a letter of intent to launch Source Africa, an initiative to secure more consistent, sustainable local ingredient sourcing for its products, in partnership with the New Alliance for Food Security and Nutrition and Grow Africa.

On the heels of Coca-Cola, Tata Global Beverages announced their plans for 100% sustainable sourcing by 2020. A major focus of its sustainable sourcing strategy is sustainable agricultural practices, including reducing the use of Plant Protection Products in the tea industry.

Suppliers, take note.

The cost of being a bad customer

If John Henke’s calculations are accurate, General Motors could boost its operating income by $400 million per year just by improving its relationships with its suppliers. For Ford the number is $327 million, and Chrysler, $308 million.

We are not alone in claiming that suppliers don’t give their best stuff to their worst customers, but Henke, who is a Ph.D. and president and CEO of Planning Perspectives, Inc. has finally projected a dollar cost for bad relationships. He’s been studying supplier relationships and cost concessions within the automotive industry for many years, and he developed an index to measure it.

For the first time ever, however, Henke used proprietary data his firm has collected, public records, and media reports to calculate the costs when suppliers do such things as shift their innovations, A-Team support, or added value service to other customers. Foreign automakers have been able to take advantage of those shifts and have saved significantly over time as a result, according to Henke.

You might quibble with Henke’s formula, but the conclusion is pretty solid for any manufacturer in any sector. Beating up suppliers on price is a short-term tactic, not a long-term strategy for profitability. Are the Big Three listening? Here’s an Automotive News video report with Ford’s chief purchaser sounding like he’s read the study and is trying to catch up, while Toyota’s purchasing chief is taking steps to shore up his declining supplier scores.

 

White House endorses quicker supplier payments

One of the maxims of this blog is, “Suppliers don’t offer their best ideas to their worst customers,” and one of the quickest routes to the category of “worst customer” is stretching out payments to 60, 90 or  120 days — as has been fashionable in the automotive and other industries. We generally applaud the idea of thinking like a CFO when you are a supply manager, but too often the finance-department led idea of pushing the cost of money onto suppliers by delaying payments results in tighter margins for the supply base that stifle reinvestment in equipment or research and development.

Apparently President Obama has come around to our thinking on the topic because he recently endorsed an organization of companies that have pledged to pay suppliers quickly, or help them find lower cost working capital.

In the White House announcement, the Administration claims its QuickPay program of paying small government contractors quickly has saved them $1 billion since 2011. The private business version of the program, called SupplierPay is an opportunity not just to save money, but to create better relationships that foster innovation.