Category Archives: Uncategorized

Donald Trump or Hillary Clinton: How much personal risk are you willing to take?

Ten tips for managing risk in uncertain times

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This is personal; especially in procurement and supply chain, our career and our lifestyle depend on how we manage risk. Procurement and supply chain executives are seeing volatility in 2016 with unstable markets, mergers and acquisitions, increased regulations and slow growth in the global economy. All bets are off for 2017, when a new administration will be in place whose policies are unclear at this time. There is little doubt that procurement and supply chain leaders will be forced to build strategies, plans and processes in uncertain times. To survive, we must welcome and embrace uncertainty.

No one can predict what the level of uncertainty will be, but with digital disruption, artificial intelligence, unstable markets and supply-chain integration, it is only natural that procurement and supply chain leaders build flexible strategies, be prepared to take risks and calculate the impact of risk-based decisions. Politicians are proposing many activities that could have a drastic effect on sourcing and supply chain operations. The thought of UK pulling out of the EU, the US pulling out of its trade deals, pressure on offshore headquarters, increasing wages and support for reshoring will all impact procurement and supply chain operations.

Taking the right risks and making early decisions will make or break a career. Here are 10 tips for managing personal risk:

  1. Continuous review of the strategy and the horizon will keep you and your team aligned to necessary changes
  2. When change is evident, build a clear business case and act decisively
  3. Be proactive and engage management early
  4. Quickly build a fact-based analysis and use influence to align top management to the strategy
  5. Assure that you have an effective change process
  6. Put your top people on executing the necessary changes
  7. Prepare for cynics and challenges to the plan
  8. Build communication and preparation for a crisis mode
  9. Lead with confidence and bring your team along
  10. Keep on top of the business news and use the analysts on your team to brief you daily of changes that are occurring

No one can predict the future, but the signs of significant change are in the wind. In preparing for battle General Dwight Eisenhower said “In preparing for the battle, I’ve always found that plans are useless, but planning is indispensable.”

What is your proactive strategy? How much risk will you accept?

Establishing the Right Business Culture for Procurement

Four tips to change and develop the right procurement culture

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It is the responsibility of the CPO to create the right culture for procurement. While there is a culture within the organization that reflects the overall values of the company, it is extremely important that a culture is built for the procurement team. A dedicated, hardworking, entrepreneurial, collaborative culture will support the CPO’s success in the business.

To be effective, procurement leadership must dedicate themselves to the culture and lead by example. Some cultures are focused on achieving cost reductions at the expense of anything that gets in the way. This is a challenging environment and costs the company in the long run. I always wanted my team to be very analytical with a total cost of ownership mentality, but I also expected that they would be open to ideas, suggestions and innovative ideas that would be of extreme value to the organization, while keeping the correct perspective on supplier relationships. When involved in a relationship for a category driven by competition and market share, they needed an arms-length relationship. In these markets where the balance, cost or opportunities could shift quickly, the sourcing manager must be flexible to shift with the marketplace. In more strategic situations with a sole source of supply for specification or technical reasons, where price is non-negotiable, it’s critical to build an organization-to-organization business relationship that will provide competitive advantage. The culture must also drive sourcing managers to build strong personal relationships, but at the end of the day, the business relationship always comes first.

In top class cultures, the procurement team should view every stakeholder as a customer who needs to be treated with an attitude of customer first. This requires the ability to sell the value of procurement and the ability to build fact-based presentations that influence, suppliers, management and stakeholders. It’s important to recognize that, in many cases, procurement does not own the expenditure, but it does own the procurement process.

On the outset, it seems difficult to instill these values in the culture. I’ve found these 4 actions are effective in cultivating a strong, value delivering environment.

  1. Engage, expect and prioritize the desired culture in your key managers and set the example at the top.
  2. Make the workplace great and when recruiting, keep the culture as a key attribute of your talent management profile.
  3. Where employees demonstrate the ability to meet the cultural norms reward them and the team on their adoption of the values.
  4. Develop a culture of respectful individuals, enabling them to respect ideas, challenges, internal customers and external suppliers.

Are you up for the challenge?

Building an effective team category sourcing strategy

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It often surprises me that many purchasing organizations lack an effective process for building a team-based strategic commodity sourcing plan. Typically plans built with key stakeholders are more successfully executed, deliver high results and encounter less resistance in the organization when change is required. By working with a team, you can assure the greatest sum of knowledge, get a better understanding of the project complexity, increase creativity and assure acceptance and ownership of the project by all members of the team. While many purchasing professionals have trouble engaging stakeholders, I have found when you can engage stakeholders, you will improve and increase the opportunities for your organization.

Who should be on the team? Before I start a program, I typically engage a steering group. The steering group’s role is to approve the project, make recommendations and remove any resistance or roadblocks that stand in the way the team. If the steering committee is comprised of senior leaders of the multiple disciplines required for the project, it has a better chance of success. If the sourcing leader can engage the steering committee as champions, the project is primed for success. All sourcing professionals should understand the stakeholder in terms of how much interest they have in the project and how much influence they have in the organization; a stakeholder with high interest and high influence would be a good one to engage as a steering committee member. This process will also work for the selection of team members. Other criteria to consider for team members are their ability, availability, knowledge, experience and overall willingness to contribute energy and time. The team’s responsibility will be to develop both short term (tactical) and longer-term (strategic) category strategies and sourcing plans. The team is also responsible for effective communications, information control and internal briefing of the project progress. If the team is committed to success, you will likely have a great project and outcome.

How should the team kick-off?  I suggest that the team build a charter. The charter identifies the mission, focus, objectives and scope of the project. It is an essential tool for keeping the team on track and focused. If things start going off the rails, the charter will bring the team back in focus. It is also necessary early in the sourcing strategy process to build a plan with timelines and milestones to measure the team’s productivity.

What are some important tasks?

  1. The first step in developing a strategic plan is to understand the historical situation and trends for the category. Ask the question “why has the organization sourced this category this way in the past?” If your organization can standardize the way “what we’ve done in the past” is reported, the more time the team has to explore future options and to focus on the strategy for the category.
  2. The team must evaluate the current situation, new opportunities and forecast the future trends to consider when sourcing this spend category. It is essential that the team take a deep dive into business needs and requirements, including things like receiving constraints at each facility, personalized service, inventory requirements, pallet markings and anything else that is currently being done by the incumbent supplier. Once the team has identified all of the business needs, it must look at the category and make the determination if the category should be managed tactically or strategically. Key tactical or strategic decision influencers are the number of suppliers in the industry with the capability and capacity to supply, the value-add contribution of the supplier and uniqueness of the specifications.
  3. Part of the planning process is to take a look at the sourcing history, price analysis and do a detailed analysis of the cost. Every buyer should have the capability to break out materials, labor, overhead and develop some idea of the supplier’s profit margin. Without this data, it is impossible to quantify the opportunity available in the project and determine the return on investment. This is a key checkpoint and milestone of the project: the ROI will determine if the project should go forward.
  4. After validating the ROI for the project, the team should evaluate the risk, global or local sourcing, technical opportunities, supply chain implications and supply market trends. The team now has the data to decide the way forward and determine the best strategy–should it be RFI/RFQ/RFP, auction, buyer’s offer, contract extension, logical negation with the incumbent, make or buy, or acquisition or joint venture? I have worked with teams that have developed and implemented all of these options.

The sky is the limit if a team can present a good strategy with a high ROI and build a convincing fact-based case. It requires discipline, process, strong leadership and the right people.

Do you have what it takes?

Suppliers financing customers: where is the line drawn on Corporate Social Responsibility?

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This week I read the New York Times news item “SYDNEY — Rio Tinto, one of the world’s  biggest miners has doubled its payment terms in a move that will force embattled suppliers to wait up to 90 days to be paid.” Can these suppliers survive? Update: On April 14 Rio Tinto announced it is dropping plans to extend supplier payment terms.

This is a great example of leveraging suppliers who, themselves, have invested in facilities, employees and inventories in the most remote corners of the globe just to support the customer. In an article The Unsuitability of Extended Payment Terms, Raz Godelink highlights that major food producers like Mondelez, Mars, Kellogg’s, Church & Dwight, Anheuser-Busch In Bev and Heinz extend payments to suppliers from 90 to 120 days. In many cases the suppliers to the food industry are agricultural industries surviving crop-year to crop-year. This industry requires capital to acquire the seed, fertilizer and equipment, which is all at risk in volatile commodity markets.

Stephanie Strom’s NYT article Big Companies Pay Later Squeezing Their Suppliers points out that companies like Mondelez are using the cash for a stock buyback initiative. Kellogg’s is financing a restructuring project and P&G has added significantly to its cash flow. The end result is a cash poor supply chain that cannot withstand interest rate hikes or another financial crisis. We have been fortunate the past few years that money has been virtually free, enabling this practice. In the long term, I believe it’s not sustainable and many of the smaller suppliers in many supply chains will be in trouble should conditions change.

I have to admit, reading those articles caused me to flash back to that July day during the last recession when I was on the phone with a Fortune 500 customer who hadn’t paid invoices dating as far back as November for work done according to the contract. I couldn’t tell my employees that they I couldn’t pay them because the customer hadn’t paid, so I maxed out the business line of credit and borrowed the max on my house to pay salaries and bills for the business. On that July day, the customer’s project manager was telling me that I would be paid the following week if I would discount the fees owed. I had little choice but grant a discount at the time—credit was extremely tight and we were owed a lot of money. By the way, the payment terms for this client were 90 days, plus I had 3 other clients who had moved to 90 day terms, so having a customer stretch payments as much as 180 days was a true crisis. I’ve never forgotten this $1 billion+ company using my small business as the bank.

Companies often cite Corporate Social Responsibility as a key part of a sustainability program. I believe cash-starving the suppliers who extend a company’s capability is irresponsible. It starves investment, innovation, growth and quality; how sustainable is that?

Are you requiring suppliers to act like a bank?

5 Things that Keep CPOs Concerned

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I was fortunate to be invited to speak at Ardent Partners CPO Rising 2016 conference at the Harvard Club in Boston, where an exclusive group of Chief Purchasing Officers gathered to share best practice, network with colleagues and understand the issues that will likely impact them as we see major shifts in our profession resulting from the digital disruption, changing workforce and continued globalization. Over the day and a half, I consistently heard these five key issues that keep CPOs up at night:

  1. The lack of skills needed to meet future needs
  2. The need to continually adjust processes to meet the constant changing business needs
  3. The need to align the supply chain with the organization’s strategy
  4. Risk management
  5. Managing mergers and acquisitions

I don’t see these issues being resolved easily and it is more evident than ever that the CPO must continue to adapt to change and develop the capability to reengineer business process as the environment changes with mergers, acquisitions, divestiture and business strategies impact the organization, process, systems and people.

CPO Rising 2016 was topped off with Andrew Bartolini inducting Tim Cook, Hal Good, and Gregg Brandyberry into the CPO Rising Hall of Fame. Congratulations to Andrew and his team on creating such an impactful event.

Can you help your CPO sleep better at night?

10 Tips on How to Prepare for the Worst on Business Travel

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This week, like too many weeks recently, we think about safety, especially in our travels abroad. In my career, I’ve logged millions of miles travelling the globe for business and personal trips and, like most seasoned travelers, have been caught in the chaos of physical and political disruption. My wife, Linda, travelled so much in the 1980s and 1990s that she was considered the women business traveler maven and frequently sought after for advice on everything from how to pack to dealing with toilets of the world. She, too, has had direct experience with the unexpected and unpleasant events of travel. Here are some pointers from our experience.

  1. All hotel room doors open to the inside. My wife was opening the door to her room in a 5-star hotel when suddenly a man pushed her into the room. He was then standing between her and the door—the only escape route. Even a small person can push you into a room. Be aware of your surroundings.
  2. Carry energy bars or other packaged food in your backpack or case, keep the gas tank full on your rental car and have some cash. In Narita when the 2011 Tōhoku earthquake and tsunami hit, in Toronto during the 2003 blackout, in blizzards, tornados and a cyclone, I found these things can be difficult, if not impossible to get. Carrying a filled water bottle doesn’t hurt either (get a refill on the airside of security).
  3. Carry a small flashlight or LED headlamp. I pack a couple. You have no idea how dark it gets in a total power blackout.
  4. Enroll in STEP (Smart Traveler Enrollment Program), the US Dept of State program that can update you with important safety and security announcements and make it easier for the embassy or consulate to contact you in the event of an emergency.
  5. Review the US Dept of State traveler’s checklist.
  6. Review what the US Dept of State can and can’t do during a crisis webpage.
  7. Sign up for the appropriate Twitter Alerts. Click on the participating organizations link for suggestions.
  8. Learn a few key phrases in local language of the country you’re travelling to.
  9. For your business, review the Ready.gov Crisis Communication Plan and be sure you have the appropriate information handy if you need it.
  10. If you’re in a disaster/crisis area (and are not in danger), send a text. In the 9-11 events and in the 2011 earthquake, I couldn’t get a call to go through. I was able get a text through.

These are just a few suggestions to add to your emergency plan routine. Years ago I grumbled when I had to evacuate a hotel in the middle of the night for a fire alarm, when my back pocket was slashed in a robbery attempt, I had to wear a cheap watch to not attract a thief and I had to be sure the kidnap and ransom and international health insurance was current. Today, I wish that was all anyone had to worry about on a business trip.

Be careful out there.

Are the traditional consulting and training models dead?

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I have been consulting and leading training initiatives for 24 years and have seen changes in tools and techniques, but basically, the delivery methods haven’t changed a lot. When I read an article in the Wall Street Journal this week by Lora Koldony, I thought a lot about the traditional models used in the past and the way I have changed my consulting delivery model in the past year. The WSJ article focuses on micro-learning as the way forward for training. The author quotes a study by Microsoft citing “the average attention span – the amount of time person can stay focused on a single task, filtering out distractions – in North America dropped from 12 seconds in 2000 to 8 seconds in 2015 thanks in large part to smartphones, on-demand entertainment and social media infiltrating people’s lives.”

Companies like Pernod Ricard, Gap and Uber have adopted a form of education called micro-learning: breaking down concepts and tools in smaller bite-sized chunks, which work with packed schedules, travel and meeting times. The smaller programs enable people to focus in short intervals, which have proven to embed learning if followed by a coaching program.

As I look at the consulting industry, I see a massive change in how companies and their employees work on key priorities like cost and value improvement and change initiatives. The days where armies of MBAs invade a business, charge high fees for analysis, strategies and programs that companies try to implement are coming to an end. These projects may provide value in the short-term, but are rarely embedded and sustainable in the longer term. Employees generally resist outsiders (consultants) in the business when they take over key categories of expenditure and conduct massive bidding events, usually generating price savings, but often leaving behind damaged supplier relationships. Sometimes the consultants are paid on a percentage of savings, which is usually presented as a means for their services to be self-funded. While management may gain some short-term results, generally the business experiences long-term pain because the consultants have a price focus (since their compensation is savings based) rather than a value-based approach (which is difficult to measure).

One of the reasons I believe there’s a massive change in the consulting industry can be found in article 3 Trends for the Next 50 Years, the Rise of the Idea Economy by James Altucher. One of the notions in this article is that we are moving from corporatism to an employee-free society. There are two reasons for this trend. The first is Pareto principle where 80% of the work is being done by 20% of people, so corporations are downsizing. The second is that regulations are too difficult to follow. The result is a wave of solo entrepreneurs and the attraction of the contingent workforce lifestyle and is why companies like Uber are flourishing. Basically, companies like Uber have the contingent workforce (with their own assets – the cars), logistics software and customers. What’s not to love?

With this in mind, an application of the new approach for the procurement consulting model is to work with cross-functional, cross-business teams on category management. The project typically starts with a four-day workshop with the team that is designed to provide tools, assign roles and accountability, develop the process and define the strategy for the category. The team is then prepared to go forward to gather and analyze the fact-based data, refine the strategy and implement the process and plan. The consultant’s role is to drive the project, check in with the team (remotely) on a weekly or other planned timeline. While the consultant is able to manage project timelines, assist in strategy adjustment and provide additional coaching and tools, the company team drives the project and assures all business needs are met for now and for the future.

The result is a sustainable process and category plan, embedded learning, an empowered team, true value improvement, stronger managed supplier relationships and a sense of satisfaction and ownership. Since the teams are led by an experienced category expert (usually one consultant), the resulting fees for consulting time and travel expense are greatly reduced, results are better and the return on investment is extremely high.

The traditional model for consulting is dead. Strange thing for a consultant to say.

Is it time for a change?

 

photo: Dikaseva