Tag Archives: sourcing

To Become a CPO, Think Like a CEO

For a number of years we’ve been watching the trend of supply managers to think more strategically, for instance, looking for ways that relationships with suppliers can bring innovations that could increase sales instead of simply reducing costs. The Hackett Group recently released a research alert that confirms that trend. Read it here.
The report is based on an annual survey of procurement leaders, and this year’s survey found supply managers looking past cutting or containing costs to more strategic priorities as expanding the scope of procurement’s influence on spend and tapping suppliers for innovations.
The Hackett Group Global Managing Director and Procurement Advisory Practice Leader Chris Sawchuk said, “We believe many procurement organizations have reached the upper limit of cost reductions possible in categories they are actively sourcing today. So they’re looking for ways to reinvent their value proposition. A key part of this is expanding their influence, and taking a life-cycle approach to category management. This requires working more effectively with spend owners, executives, requisitioners, suppliers, and other stakeholders. It also calls for skills that are outside procurement’s traditional areas of expertise.”
The big idea from this research is that long term success for supply managers comes when they think like a CEO. However, as we all know, if you are stuck in the swamp it’s darn hard to see what it looks like from the mountaintop. To get from here to there it may take investments to raise your skills and those of the team around you. It may take a continuous process improvement approach to the work your department does, and it may take investments in technology to reduce the transaction costs of non-strategic purchases. In short, you may have to start thinking like a CEO of your team before you can align with the CEO of your organization.





Employees Succeed if Their Voice is Heard

Simple logic: if an employee is given the opportunity and is encouraged to share his or her opinion the company will benefit… not only because employees feel valued and comfortable, but because it prioritizes brainstorming and collaboration.

This is particularly crucial in Supply Chain so that everyone can contribute towards the continuous improvement of production. AlterNet indicates the United States may be a bit behind the times in this thinking (specifically in the automotive industry).

After spending a lifetime developing purchasing and supply chain professionals, I am always amazed that some of the supply base innovation gets lost or is never heard.  Perhaps we need to improve our presentation skills, but management must improve its listening skills.

Do you think employee voice is directly related to company success?

It’s all about talent development

Early in my career I bought parts to build typewriters — which happened to be important pieces of equipment for purchasing departments everywhere because manually typing purchase orders was one of our important functions. The typewriter and that job became obsolete together.
I was reminded of that by an article in Forbes about how “We Need to Change How We Think About Talent.” It points out how the skills needed to succeed are always changing. Technology is an important part of that. We don’t need typewriters and clerks to manage a supply chain any more, we need sophisticated technology and skilled professionals. And as supply management is more tightly integrated with overall corporate strategies, the breadth of those skills is constantly increasing. It’s uncomfortable for some of us, but we really ought to embrace it.  The fact is that software is doing to cubicle work what automation did to the factory floor — replacing people who did repetitive tasks.
The only way to stay on the top of your profession is to become a continual learner. World-class supply organizations have recognized that, but you don’t have to be part of a global purchasing operation to find opportunities for learning.  I’ll put in my pitch for ISM educational resources, because they are very accessible to any professional and can lead to credible professional credentials. However, a number of degree-granting universities are also very active in online programs, if that’s your goal.

Takin’ it to the street

Frustrated with Procter & Gamble’s lack of urgency in finding sustainably sourced palm oil, Greenpeace literally took to the streets in Cincinnati and London in protest.  The activists, including two dressed as a tiger and an orangutan, unfurled banners on the side of P&G’s Cincinnati headquarters and erected barricades in front of its advertising agency’s headquarters in London.  At the same time, Greenpeace posted a video on You Tube mocking the “Thank you Mom” ad campaign and focusing on the plight of orangutans.

This is a good example of how non-governmental organizations like Greenpeace are ramping up their mass communications efforts to raise people’s awareness of important environmental issues and change their behavior, while governments lumber along, taking years to initiate and enact news rules and regulations.

While Procter & Gamble may have their dander up at the bad press, Unilever executives may be smiling for the way they stayed ahead of the curve. As we wrote in September 2013, Unilever’s goal is to source 100% of its agricultural raw materials sustainably.  In the way they managed their message about palm oil, Unilever stands head and shoulders above P&G.

Shock proofed supply chain?

Most Americans probably couldn’t locate Crimea without the help of Google Earth. (It’s the peninsula that juts south from the northern coast of the Black Sea.) Nevertheless, the actions of the Russian army in and around Crimea are sending shock waves through some key commodity markets, including oil. Here’s the Washington Post coverage of the story.

Have you felt any effects from the spikes in market prices? Even if you have not, this is another reminder that your supply chains likely have connections around the world that may not be obvious from your first tier suppliers. It’s good practice to map your supply chains and analyze scenarios for disruptions that could happen at any moment.

While the chances of any individual incident might be very small, there are so many potential disruptions that it is quite likely something will go wrong sometime. Smart supply managers build risk management strategies into their planning to accommodate them.

Food Safety – Not as Simple as it Sounds

The unfortunate truth is that safety in the food industry supply chain still has a long way to go. No one likes burdensome regulations, but it’s hard to argue against them when we hear about blunders such as these:

  • The Associated Press reported that Foster Farms, a California chicken farm was closed Jan. 8 when inspectors found cockroaches on five separate occasions in various parts of the plant over four months. The company says no chicken product was affected.
  • A release posted on Reuters stated that New Zeeland’s Fonterra announced on Jan. 13 a recall of products that had been contaminated with E.Coli. It affected 8,700 bottles of fresh cream marketed under their Anchor brand. There have been no reports of illnesses so far.
  • The Associated Press reported Northern California’s Rancho Feeding Corporation of Petaluma, Calif. recalled 40,000 pounds of meat products because it was produced without a full federal inspection. As of now, there are no reports of illnesses.

The U.S Food and Drug Administration (FDA) announced back in January of 2013 its proposed new food supply chain safety rules under the Food Safety Modernization Act (FSMA). After considerable input from food producers and consumer advocates,  the FDA’s most recent statement Dec. 19, 2013 indicates that it expects to issue revised rules next summer. Although they might show a retreat from some of the most stringent provisions of the FDA’s first proposals, the final rules are likely to require significant changes in how we bring food from the farm to the table.

I believe that unless the food industry self regulates and builds lot-control chain of custody processes like the pharmaceutical industry’s, greater regulation of the food supply chains is very likely.

Five Predictions for 2014

The ISM Manufacturing Index this month showed that the overall U.S. economy has been growing for 55 consecutive months. The manufacturing sector has trended positive for seven straight months. Employment numbers aren’t terrific, but they aren’t terrible either. These are generally favorable signs for business — but they suggest higher pressure on buyers to contain costs. Based on our experience and work with current clients, here are five predictions for the year ahead.

1) Buyers will see increasing pressure on pricing as industries with tight capacity or depressed margins attempt to improve margins.
2) Buyers will find longer lead times and reduced capacity as suppliers have left industries as a result of recession and remaining suppliers are enjoying higher margins based on high demand and low supply.
3) Talent management and development will be critical to the success of supply chain management success.
4) New government regulations in health care, energy, banking and other sectors will increase complexity, compliance and cost.
5) More procurement and supply chain leaders will reach the C suite.

How does this match what you are seeing?

Consolidations: More May Not Mean Less

The global economy is at a point now where more companies are considering mergers and acquisitions for various strategic purposes – and one of them is often perceived savings from consolidating purchasing and supply management functions. And while it is generally true that consolidations can generate significant savings, the execution is always harder in practice than it is on the org chart. It’s a case where more does not always lead to less — in this case, lower costs. Here are a few things to consider:

Knowledge is power. Conduct baseline assessments of supply management functions in each location or division. At a minimum there are likely differences in systems. In a worst case, there could be a huge mismatch where one division has a purchasing department fulfilling a purely administrative function while another has a supply management operation that operates at a strategic level working with cross functional teams driving innovation and quick market responsiveness. No easy blending in that situation.

Change is hard. Expect resistance both passively and actively. Some people will naturally prioritize saving their job over saving money for the firm. Others will just find adjustments to new procedures difficult. Create cross functional and cross-location teams to work on projects, and use specific stakeholder engagement strategies to help team members understand and work with each other.

Parts are parts – or not. Not every category of purchase is suitable for centralizing under a corporate purchasing center. What may seem like a commodity may have subtly different specifications for different locations. Analyses of where to source ought be based on the total cost of ownership – not necessarily a simple benchmark price.

Look for the low-hanging fruit. There are often significant savings in indirect categories where the ownership of the spend is dispersed. In your baseline assessment, identify those areas where a quick change can make a big difference. When executive management sees savings it is more likely to provide the support you need to implement more complex, long-term supply changes.

Ford seeks innovation from partnership with minority supplier

We regularly write about using your supplier base to bring innovation to your company, but here’s a twist on that theme. According to Crain’s Detroit Business, Ford patented a process for welding aluminum, then shared it with a supplier to develop the technology for production. The deal was made under the umbrella of minority supplier development because the supplier is minority-owned. But it also takes advantage of the supplier’s knowledge and experience. Who better to take an idea from the lab to the assembly line than someone who is already fabricating aluminum in production volumes?
There was a time when automakers would develop a new process from beginning to end, then simply dictate to suppliers how it would be implemented. In practice, that approach only gets you to the starting line. Sharing development responsibilities sets a better foundation for improvements even after the process is production-ready.
Automakers have a bad reputation for supplier relationships, so it’s good to see evidence of more collaborative approaches.

120-day payments? Maybe not in the UK

A few years ago when the global economy was in a funk, companies could point to their own cash-flow problems as they extended their payment cycles to 90 or even 120 days. That’s a pretty hard case to make now that the economy has been growing for more than four years straight (according to the ISM Report
On Business™).
Nevertheless, it’s apparently not that uncommon still. In fact, British Prime Minister David Cameron has started talking about legislating limits to late payments. Here’s the coverage a Twitter follower of mine found in The Guardian.

Pushing payments out to four months certainly gives a boost to factoring companies, which will advance funds based on invoices. And it may help a company to winnow out weaker suppliers for components or services that are easy to source. However, for critical parts or strategic suppliers that are bringing your company innovations or unique value — slow payments are a good way to dry up the working capital your suppliers’ need for expansions, replacing equipment or R&D. Or worse, drive them to take their unique value to your competitors.