Tag Archives: procurement

Supply chain and Procurement – The Decade in Review and Key Strategies for the Decade Ahead

Current State of Procurement
Working with some of the world’s best companies has given me a good view of procurement and supply chain over the years. As we exit 2019, we’ve made much progress, elevating the importance and status of our profession. Many firms have clearly articulated strategies that deliver year on year price reductions, restructured operations to separate transactional activity from strategic activity, and have designed multiple supply networks to meet the needs of specific market segments.

Overall, as procurement professionals, we have failed to progress developing rigorous category strategies, planning, and fail to optimize the opportunities available from detailed plans and well-executed cross-business/cross-functional business category strategies. Many of the firms I have visited in the last three years are just now embarking on developing a category planning approach. Many companies are still working with a centric, functional approach rather than recognizing that procurement is a business-wide process. Many businesses tend to have an annual, sometimes even quarter by quarter, business horizon rather than a forward-looking multi-year strategy. Many firms have not sufficiently invested to leverage technology to manage the current state and are in no position to look to the future state where data analytics and digital disruption will be a way of life. With robotic process automation, the internet of things, and automation with Artificial Intelligence are considered futuristic, and the reality is that they are here now. Data scientists are in high demand among progressive procurement, and supply chain-oriented companies.

The most surprising thing to me is that most companies do not have detailed maps of the suppliers in the supply chain. For me, this is some of the most critical intel a procurement or supply chain executive must have. It is impossible to have social responsibility, anti-slavery/forced labor, environmental or risk management programs without knowing all the suppliers in the supply chain. Knowing just the suppliers in tier one is not enough.

While we have made significant progress in the past decade, the challenges of a rapidly changing environment will force our firms to have renewed strategies that are forward-looking. The days where we chased low-cost labor around the globe are in our rear view. Far too often found out too late that our source of low labor costs put us at risk from natural disasters, political regulation and was temporary at best as standards of living are on the rise. In all cases, automation offsets low-cost labor. Robots work 24 hours a day, 24/7, never get tired or sick, and quality and productivity are consistent. Another lesson is that many organizations are building facilities close to the markets they serve in smaller footprints, making the supply chains more secure, agile, and flexible.

Strategies for the next decade

  • Enhance category management and develop robust strategies that are forward-thinking
  • Redesign the procurement process with the understanding that is a business-wide process with many owners, not a functional activity
  • Invest in bringing the technology up to manage the current state. Many companies are reluctant to invest in technology. Failure to do so will put the company at a competitive disadvantage and perhaps extinct
  • Build a TCO approach focused on total value. You could be getting low prices but higher production or management costs
  • Develop full supply chain maps of the supply chain along with real social responsibility and risk management programs
  • Provide the procurement teams with a comprehensive business orientation; in the past decade some organizations have compartmentalized jobs. When this is the case, individuals and groups fail to understand the business, company, and business strategies.
  • Manage succession planning and develop bench strength and a continuous recruiting
  • Develop a supplier relationship management program that rewards innovation, speed to market, business alignment and value contribution
  • Develop the individuals and teams in your business. Many groups need a program that goes back to basics and develops the population to build, drive and execute well-planned category strategies
  • Develop and train procurement leaders to look forward and create new processes, systems, and comprehensive business programs to cope with digitization, disruption, rapid product change, and supply chain agility

The changes I have seen in procurement have been challenging, exciting, and thought-provoking. The reality is that we are at the crossroads of change. While you may not agree with the current state of procurement and strategies for the future, I urge you to assess your organization and make a strategic commitment for the decade ahead.

Are you ready for the 2020s?

The cost of soft skills

I read an article that reminded me of an incident that is worth sharing. I was working in a very large food company and as a consultant and we recommended a new organization structure for procurement. We had evaluated a purchasing director who was talented, respected by his team and technically very good. As I approached the CEO and recommended the employee for the promotion, he objected and responded, “no way”. We discussed the employee and he agreed that my observation of his skills was correct. Then the CEO commented that the employee gave an awful presentation in front of his team and lost credibility. He was concerned that the senior staff would be disappointed with the appointment. The decision was made to recruit from outside the company.

Sometimes you only have one chance to make a first impression. Many of us are not comfortable making presentation or speaking in front of large crowds. While this is a soft skill it is essential for success in a career in procurement or supply chain. The ability to logically present a business case, influence and persuade others could help you to either elevate or sink your career. When conducting training classes, I often encourage all participants to take the leadership role and make presentations for the team. I’m always surprised that many people are comfortable taking a back seat when it comes to presentations. I’ve had people outright refuse to participate. Once a participant told me, “I don’t do presentations.” Unfortunately that was said in front of an HR and Management representatives auditing the class. I don’t think they survived the incident. The class room and meetings with peers are perfect places to perfect this critical skill.

The moral of this story is that everyone needs to take inventory of the soft skills and develop them. Business presentations are a critical skill, don’t neglect it.

Will the soft skills enhance or sink your career?

The Diminishing Value of the Sales Representatives in a Self-Service World

obsolete-2

This week I read that Wendy’s has ordered 1,000 Kiosks to replace workers at 1,000 of its store locations. Lowes building supply stores have been trialing customer service robots since 2014 and now are rolling out LoweBots in California to handle simple customer requests and provide real-time inventory monitoring. This made me think; if retailers are replacing their customer-facing sales teams, what is the future of sales representatives to industrial buyers? The more I research, the more I realize the future is grim for the old-style sales person.

To challenge my thinking, I asked a group of purchasing professionals in the electronics industry their thoughts on the topic and the results are not surprising. Many said that they have little time to devote to meeting sales people and they feel no need to spend time and effort on a conversation about products that they can see and evaluate online.

Forrester research forecasts over 1 million salespeople involved in business to business transactions will lose their jobs to self-service e-commerce by the year 2020. The procurement professionals I polled would rather research and buy online than through a sales representative. Many are demanding that their suppliers improve and automate the sales/purchasing process. No doubt this is a reflection of how we’ve been spoiled as consumers by the instant gratification of online buying with same or next day delivery.

There is hope for the sales representatives if they can become consultative, offering solutions that provide information and value. This requires the representatives get new training, understand the technical aspects of their products, innovate, solve problems and bring solutions that add value to the customer. Another essential element is that the sales people become a trusted advisor working with the customer’s organization as a quasi-team member rather than an external, uninformed contact person.

This is a tall order for most old-style sales representatives and, unfortunately, many won’t make the grade. The days of shooting the breeze to gain a relationship, golfing and lunches are long gone. Most procurement pros have limited time, increased requirements for revenue generation, speed to market, cost and value improvement, scarce resources and a global footprint. Time management is critical with no time to waste.

Are the days numbered for the traditional sales representative?

Made in the USA vs. Free Trade – it’s complicated

shipyard

While watching the news this week, my wife Linda asked me “Are you a true believer in free trade?” As I thought of a response, I was reminded of why manufacturers began to leave the USA. Yes, many were chasing low labor, but the reality is that many companies were chasing quarterly earnings while operating out of post-World War II factories with limited investment. Abroad, the companies were investing in new plants with updated capital, automation and driving low manufacturing cost as well as having low labor costs compared to the US.

In my corporate procurement and supply chain career, I’ve worked for organizations that had short term focus, lack of (or misdirected) investment and poor strategy. Unfortunately, some no longer exist. The point is that tariffs and duties on imported goods alone will not save US manufacturing. Being the low-cost producer involves investing in the future and developing sound business strategies; that is the key to surviving and thriving.

Free Trade will drive buyers to the low cost, efficient suppliers wherever they are. The high cost, inefficient suppliers can be propped up by protection, but are not likely to survive in the long term. Some supply chains, like the electronic industry, have made the long-term investments elsewhere and have already achieved technology advances, low cost and may never return to the US. The automated factories that return will require different employee skillsets than the industries that left the US and we may not have a ready labor force if manufacturing is reshored.

As procurement and supply chain professionals, we need to develop all suppliers to be efficient, operate at the lowest cost and invest in innovation and automation. I believe that sound strategies, investment and a commitment to the future will lead to the most competitive suppliers, wherever they are located.

It’s a complicated question:

Do you believe in Free Trade?

The New Anti-Trade Movement and Your Supply Chain – risk or opportunity?

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Since ancient times, trade deals have been struck with foreign countries. You could say that trade and tax were the spark that has ignited revolutions and wars.

The promise for the US to abandon the Trans-Pacific Partnership, coupled with the UK vote to leave the EU and change trade agreements across Europe, is raising concerns and signaling an anti-free trade sentiment. Free trade advocates are disappointed for sure and the future is uncertain.

The political climate has changed, bringing more focus on a reshoring movement in the US. Many of us in procurement were driven to support low cost country sourcing. Whether moving sources back to the US or with the potential of tariffs, duties and increased fees, our strategy and profit plans could be at risk.

While we don’t know what will evolve in terms of the future of trade, there are opportunities and risks. The opportunities will be presented if the US renegotiates trade deals to take advantage of the ability to drive US exports. The risks come if trade deals do not happen and increase costs to protect US manufacturing hurt the bottom line. I’m advising my clients to:

  1. Review all internationally sourced components
  2. Understand the strategic nature of all of the internationally sourced categories
  3. Identify opportunities for alternate sourcing
  4. Understand items with high capital investment and technology as a driver (and the implications of not being able to switch suppliers)
  5. Create a currency strategy
  6. Drive best value sourcing

It’s always better to be prepared than surprised.

What’s your plan?

Low Management Expectations Lead to Poor Performance

andre-and-bill

Last week I attended the Zycus Horizon 2016 conference and was reminded of a conversation I had early in my career with a Chief Executive of a major food company. I’d completed a current state analysis of the business and needed to report on the team’s performance. Procurement’s performance was poor with limited cost improvement, poor coverage in volatile commodity markets and lots of complexity as the team had excessive spot market transactions, no risk analysis and limited supplier management. After reviewing the results with this executive, he was obviously aggravated and demanded to know who should be fired!

My response was a complete surprise to this executive; I told him that management’s expectation was low, there were no targets for cost improvement, no requirements to hedge commodities to protect the plan, limited engagement with the supply base, no requirement for innovation or value. The CEO paused and said, “I guess I should fire myself.“

5 Things that CEOs and CFOs should expect from the procurement team:

  1. Cost management
  2. Value Management
    1. Supplier innovation
    2. Speed to market
    3. Exclusivity
    4. Improved warranty
    5. Improved cost
    6. Continuous improvement
    7. Supplier investment
    8. Complexity reduction
    9. Business strategy alignment
  3. Supplier relationship management
  4. Internal and external collaboration
  5. Supply chain mapping, audit and risk management plans

It is unfortunate that Procurement’s past haunts its future ability to be strategic. I believe that value extraction will be the key to procurement leadership in the future. Is it better to gain a few cents on a product or be the first in the market? Is it better to save a few cents on refractory bricks in a glass furnace or develop a brick that extends the life of the furnace one year? It’s time to raise the expectations for the procurement team and deliver the performance that adds to shareholder value.

Are your expectations getting in the way of success?

Photo: My team manager Cubs Hall of Famer Andre Dawson helping set my expectations before my next at bat at the fantasy camp championship game. I was hitless at that point, but after Andre changed my focus, I got a hit off A’s Hall of Famer Rollie Fingers!

Pricing Decision: Competition or collusion?

robot1

Have you ever read something that made you go “Hmmmm”, then sent you on a what-if thought journey? That happened to me this morning when I read the most interesting HBR post How Pricing Bots Could Form Cartels and Make Things More Expensive by Maurice E. Stucke and Ariel Ezrachi. The article focuses on big data dynamic pricing and bots. The authors suggest that algorithmic collusion is possible by data analysis, the speed of dynamic pricing and probability predictions.

The current law The Robinson–Patman Act of 1936 (or Anti-Price Discrimination Act, Pub. L. No. 74-692, 49 Stat. 1526 (codified at 15 U.S.C. § 13)) is a United States federal law that prohibits anticompetitive practices by producers, specifically price discrimination. In 1936 the authors would not have dreamed of the degree of information collaboration, speed of response and ability to instantly provide global dynamic pricing. In April 2016, The White House issued an executive order and report on the state of competition in the U.S. It is interesting to note that the report focused on the decline in competition in the United States and identified several signs of competition decline since the 1970s.

When we think of artificial intelligence, bots and learning machines, it’s not hard to imagine a time where the probability of collusion is in our future. Since existing loss depends on humans and trust, this will be a whole new area requiring some governance. The HBR article goes on to say that algorithms to machine are somewhat neutral, they don’t generate fear or intimidation nor do they disable the opportunity for the machines to collaborate or collude.

It’s interesting to think that pricing decisions in the future are likely to be made by machines with sophisticated algorithms. As an observer, I wonder how long it will take the legal system to develop governance. It’s not difficult to understand how machines with logic and no fear of retribution can be programmed to quickly align prices and impact markets. This is an interesting development in the current space that I had thought of before. I’d be interested in hearing the thoughts of others.

Technology advancement or opportunity to collude–what do you think?

Reality Check: The Contingent Workforce is Here to Stay

worker

Are you an employee or a free agent? In May 2008 at ISM’s 93th Annual Conference in St. Louis, I heard Daniel Pink speak about the “Changing World of Work”. When Pink’s “Free Agent Nation” was released in 2001, there were independent free agents, especially in consulting roles, but the number in comparison to the total workforce was small. While many doubted the disruption of the contingent workforce in 2001 and even in 2008, there’s no doubt of its impact today in everything from how we travel by car to the workforce at Fortune 500 companies.

When you think about it for procurement, it makes sense that an independent agent with experience and knowledge in a category of spend can quickly assess the supply market, benchmark price and cost, develop a strategy, negotiate an agreement and then move on to the next assignment. This leaves the supplier relationship mangers to execute the contract and manage the relationship for the term of the agreement. This year, particularly, the contingent workforce has been a hot topic in procurement media and research. I recommend reading and listening to Ardent Partners research and Contingent Workforce Weekly podcasts, Art of Procurement’s podcasts on the contingent workforce and SpendMatters research and upcoming “GE Digital on the Future of Work” webinar to gain insight on where we are and where we need to be to optimize the “free agent nation.”

For CPOs, the contingent workforce will play an increasing role. While the budget for contract labor will increase, but companies will be released from the burden of taxes, healthcare and insurance costs, and other full-time employee costs. The key to success is to capture expertise in the short term, then have the contractor move on. The CPO can manage more strategic priorities with the right balance of FTEs and contingent workers.

It’s important to understand that the ways we work are constantly changing and evolving. With artificial intelligence (AI) and the internet of things (IoT), it’s apparent that some of the work humans currently do will be replaced through business system integration across the supply chain. We’ve certainly evolved from the days when Eleanor Roosevelt said “We have reached a point today where labor-saving devices are good only when they do not throw the worker out of his job.” Now the work and the labor force has changed – we can see the way forward to work more strategically and drive innovation.

I am structuring my company’s organization to reflect the value and opportunities available using contingent workers. What about you?

Was Daniel Pink right?

Food safety in the news again – Purchasing failure or regulatory failure?

strawberry-snail-tape-worm-animal-medium

Two food headlines disappointed me the past two weeks; the first to grab my attention was “The Food and Drug Administration and the Centers of Disease Control and Prevention (CDC) and state and local officials are investigating an outbreak of Hepatitis A illnesses linked to raw scallops from the Philippines.” The second was “an outbreak of Hepatitis A caused by the imported frozen strawberries from Egypt has sickened 55 people in six states, the US Centers for Disease Control and Prevention said on Wednesday.”

In an interview with FoodQualityNews.com in 2013 and in an article in Food Safety magazine in 2014, I explained that not every container coming in to the US is inspected by the regulatory authorities. This means all food processors need to self-regulate their products. It is essential that the procurement team map and audit the supply chain on a frequent basis. As someone who has purchased seafood, it was necessary to visit the region, inspect the boats and factories. It was not uncommon to see modern stainless steel processing facilities with good manufacturing processes and sanitation protocol. It was also not uncommon to see old, rusty processing facilities with no protocol. It’s the same with the way the fish are handled on the boats. The unfortunate news is that not every buyer visits suppliers and limited audits occur.

In my consulting life, I have worked with many companies to build strategies for buying fruits, including frozen strawberries. The strawberry origins were Mexico and California. My advice was to visit the crop as it was growing and to be on hand when their products are being processed. In many cases the procurement team and their technical support intervened to assure the quality is achieved.

Too often low cost country sourced food materials provide attractive pricing, but they come with a big risk. It is never a good idea to source through third parties without building a map of the supply chain, auditing the supply chain and visiting the suppliers first hand. Many companies, unfortunately, will not fund such programs.

Since many food products are imported without regulatory checks, it’s up to the companies and procurement teams to self-regulate. The risks are many: reputation risk, creating illness and potential criminal charges if the company is known to have endangered lives.

Is it worth the risk?

Are you prepared for a labor increase?

winter

How the new overtime laws impact your organization

On May 18, 2016 the U.S. Department of Labor released the update to the Fair Labor Standards Act overtime rules. Simply put, starting December 1 2016, the classification for employees exempt from overtime will be raised from $23,660 to $47,476. This change makes millions of workers eligible for overtime when they work more than 40 hours.

For many procurement and supply chain leaders, this should be a consideration as we rapidly approach the budgeting season, not only for increased fee rates from service suppliers, but also for your department salaries. Many times to meet RFP, RFQ and project deadlines, staff will work into the night to get it done. While you may have had a comp time policy for exempt employees, now you could be paying time and a half or double time to get projects completed. There will be implications if junior staff travels for conferences, supplier visits or training and across a wide spectrum of work. You will need to think of the impact of all of these scenarios on your cost.

It is good to prepare now for this change. Here are some thoughts that may be useful in planning:

  1. If you have not automated the P2P systems and processes, this change could provide the economic justification that has not been available in the past.
  2. Review the exempt status of all employees.
  3. Analyze the current hours worked and salary implications of this change.
  4. Review the salary ranges for all job roles. Decide if some salaries should be raised, if job descriptions accurately describe the job role and if the compensation matches the responsibilities. I know, this is a HUGE task. If staff is consistently working more than 40 hours per week, is the headcount right?
  5. Look for opportunities to automate, reduce unnecessary work and increase productivity.

While these are some initial thoughts, I suggest you have a strategy session with your HR group to understand the company policy on the changing position for the cost of labor. If you haven’t done the analysis or the company does not yet have a position, the time to act is now.

Don’t let December arrive before you’re ready.

Winter is coming.