Tag Archives: supply chain management

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

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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?

Rethinking Supplier Performance Metrics: value-based intangibles matter

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Working with procurement teams over the years, I am still amazed at the lack of focus in the area of supplier performance metrics. Many of the mid-cap and small businesses fail to manage suppliers at all and have limited key performance indicators (KPIs). When pushed to discuss supplier metrics, the response is normally “we measure cost, delivery and quality.” Further investigation almost always reveals vague, inconsistent and inaccurate measurement processes.

When developing KPIs, you must assure the metrics are consistent, meaningful and focused on performance improvement. Cost, quality and on-time in-full delivery performance are critical and must be specific and accurately measured, but these metrics are equally important and often over looked:

  1. Speed of response
  2. Disaster recovery plans and risk management processes
  3. Innovation delivery and capture
  4. Supply chain mapping and integration
  5. Business plan alignment
  6. Continuous process, cost and business improvement

Key Performance Indicators are:

  • Quantifiable/measureable and actionable
  • Measurements critical to the success of the organization
  • Tied to business goals and targets
  • Applied consistently throughout the company

Key Performance Indicators are not:

  • Metrics that are vague or unclear
  • “Nice-to-knows” or metrics that are not actionable
  • Reports (e.g., top search engines, top keywords)
  • Exhaustive set of metrics
  • Refutable

Driving metrics that enhance performance is the responsibility and accountability of the sourcing and procurement professional. As we have evolved our profession, it’s now necessary to evolve our metrics to enhance relationships, improve supplier and add value metrics to our businesses.

Are you measuring value delivery?

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.

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

train-traveling-travelling

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.

A peek behind the curtain: the effective Category Strategy

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In October 2014, the federal government quietly launched the Acquisition Gateway as part of the movement to adopt private sector practice. Last week, the administration decided, in the spirit of collaboration and transparency, to give taxpayers and suppliers a peak under the curtain of the gateway. Since the launch, the gateway has 5000 users with hopes that 10,000 federal employees will use the portal by year end. At first glance, the portal seems well-built, easy to use and gives great visibility for the user. While we don’t know how many of our tax dollars were spent on this project, it seems to be a good use of them. While this peek behind the curtain shows the results, it doesn’t show the process, thinking and behaviors to drive an effective category strategy.

I’ve been fortunate to have worked with many companies and category teams to build effective strategies. Category strategies can be broken down into two broad areas:

  1. Business Operational Benefits: Cost improvement, lead-time improvements, complexity reduction, inventory improvements, etc.
  2. Value-Driven Improvements: Innovation, new technology, breakthrough cost improvements, etc.

Business operational benefits are relatively short term and need less detailed planning than value-driven programs, which are longer term, more detailed, thoroughly researched and require significant socialization within the business. This may sound like a core competency of any sourcing professional, but often the strategy development is flawed because the process is mishandled since the research typically focuses on just a part of the category or is tainted in some other way. Often there is a lot of subjectivity, resulting in the selection of limited options rather than consideration of a wide range of options. This bias can be influenced by both stakeholders and sourcing professionals, who keep a preferred supplier in mind throughout the process. I spot this when I hear something like “this is a great supplier; they haven’t raised their price in three years.”

To build an effective category strategy, it’s necessary to create a sourcing strategy plan. The first process step is to decide whether the category is in an environment with an open market, competition and some commoditization. If that’s the case, the team should develop a competitive environment that meets the business operational benefits. In this case, the sourcing strategy can be to let the competitive market drive suppliers to meet the business requirements and a full-blown strategic category plan may not be necessary. If the category has limited competition, is restricted by patents or specifications that limit the number of suppliers in the marketplace or there’s internal stakeholder bias, a strategic category plan is required.

To develop an effective category strategy, keep these components in mind:

  1. Identification of all of the current and future business requirements from cost to innovation and breakthrough
  2. Assessment of the global market in terms of Porter’s five forces
  3. Breakdown of the cost drivers through a cost modeling process
  4. Understanding of the price history and its relationship to the market
  5. Research of technology
  6. Review of global suppliers and their capability
  7. Assessment of supply risk
  8. Map of the supply chain
  9. Cost and ROI for implementation of the strategy
  10. Scenario planning to assure agility and resiliency

Once these activities are complete, only then can the team create options jointly with stakeholders and senior management that will lead to the desired result.

All too often category managers look for the easy route to build a sourcing strategy. They’re comfortable with the status quo and may lack the confidence or capability to drive a planned strategic plan solution.

If we peek behind your category strategy process, what will we find?

What the Holidays Can Teach You About Supplier Relationships

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This time of year we focus on relationships. Often it’s thinking of how to get through the holidays without a disagreement with a certain family member or how to manage time with your family and your spouse’s without damaging relationships. In either case, if feathers are ruffled, you’re more likely to try to repair the relationship than to replace it.

It seems we’ve become a replacement society. It’s more likely the appliance repair person will replace a board rather than repair it. Last week, when a Windows 10 update failed and a laptop would not boot, the Microsoft support recommendation was to reset the PC back to its factory settings, wiping out all files, then reinstall (replace) Windows 10 and all programs and files. Since my wife is technical and actually seemed to know more than the Microsoft support person, she stepped in, formatted a USB drive, booted to bios, dusted off her old DOS capability to issue a string of commands, repaired the defective system files and the computer started normally with all files intact. It took time and effort, but the result of being able to repair the operating system rather than replace all files was well worth it. She will lecture on back-ups, but that’s another story…

The replace mindset carries over to buyer/supplier relationships, too. In many of the industries I work in, I am sad to see that there is less and less reliance on relationships, even though they are at the very core of business success and failure. Many buyers develop a “what have you done for me lately” attitude, believing that the grass is greener in the next pasture. Nothing can be further from the truth. The reality is that the existing supplier has tribal knowledge about your business, the cost to switch suppliers is relatively high, but this is rarely calculated in cost savings projections in the “switch suppliers” business case. The learning curve is long and the investment to onboard a new supplier is often not a consideration in sourcing decisions.

If results aren’t what is expected, should you repair or replace a supplier relationship? The answer depends on the response to these questions:

  1. What is the total cost of the change?
  2. How will you develop and manage a new supplier to increase value delivery?

In many cases there is no supplier relationship plan and the relationship drifts along until the company is ready to replace the relationship again. Repairing relationships and extracting maximum value takes hard work; if you put in the work and build the process, existing suppliers can increase value delivery. It’s an easy solution to replace, but a better value to repair relationships.

I wish everyone a happy holiday and safe new year. I am thankful for the relationships have in business and appreciate those clients and business relationships that made Aripart Consulting successful in its first year.

Take a little time to repair the next time you’re tempted to replace.

What is the Right Supplier Relationship?

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I’m asked often to identify the correct relationship that companies should have with suppliers. Many clients are surprised at the answer, which is the minimum relationship that will enable you to meet your business objectives. If you’ve read my blogs or heard me speak, you may now be asking “is this the same Bill Michels who says companies need suppliers for innovation and that the best customers get the best ideas?”

There’s a wide range of relationships. I classify suppliers as competitive market, proven suppliers, performance driven suppliers and strategic alliance partners. As a supplier moves up the relationship curve, the intensity of resources required to manage the relationship significantly increases. Logically, it’s impossible to drive all of your supplier relationships into the strategic alliance classification. Strategic alliances normally involve shared capital, objectives, resources, business information and equity. The partners are interdependent and have significant synergy which enables them to achieve competitive market advantage by the strategic linkage. The strategic alliance is a rare relationship for many companies and one that is not easy to achieve. Although many companies believe they operate with strategic alliances and refer to their suppliers as partners, they actually have competitive market and proven relationships.

The second part of the supplier relationship question posed to me is “how can I operate with both a business and personal relationship?” The business commercial relationship must always be the dominant relationship. The personal relationship is helpful in achieving preferential treatment as the customer of choice.

SRM

The key to developing the right supplier relationship is to move beyond a price focus to a value focus. Value can be defined as:

  • Speed to market
  • Innovation
  • Investment
  • Product improvement
  • Process improvement
  • Complexity reduction
  • Systems integration
  • Shared risk
  • Shared rewards
  • Aligned business objectives
  • Shared resources
  • Market intelligence
  • Finance
  • Performance
  • Waste reduction
  • Redesigned products and specifications
  • Lowest cost producer

While it is unfortunate that some companies and industries remain focused on tactical strategies which are short term price-based. To survive in the future, supplier relationships must be mapped, managed and optimized for value delivery.

What is the minimum relationship that will enable you to meet your business objectives?
Sometimes it’s a true strategic alliance, but sometimes it should be arm’s length.

What gets measured, gets managed

 

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Value

How do you measure supplier performance?

I’m often asked to talk about key performance metrics for supplier relationship management. Many key executives want supplier metrics to focus on value contribution like flexibility, continuous improvement, speed to market, innovation and organizational alignment, but most supplier metrics are still focused on price, delivery and quality, since they’re easy to measure. However, once margins are reduced to levels that sustain the supplier, quality reaches the capability of the supplier and deliveries are consistent, there’s not much improvement to single-dimension metrics without significant investment.

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When we think about metrics, they need to be culturally acceptable to both organizations, timely, compatible with other metrics, simple and responsibility-linked. They should also be cost-effective, balanced, customer-focused and meaningful. After all, the objective is to indicate the degree of progress being made and confirm whether actions being taken are effective.

When I speak to groups about key performance metrics, I like to define what they are and what they are not. Key performance indicators (KPI’s) are always quantifiable, measurable and actionable. They measure factors critical to the success of the joint organizations and are tied to business goal alignment and screech targets. No more than 5 to 8 key metrics should be considered when looking both procurement and supplier performance and they must be consistent throughout the companies. Unfortunately, many metrics are vague and unclear, nice-to-know information, but not actionable, are refutable and are exhaustive sets of metrics. Many procurement teams create KPIs without organizational alignment or stakeholder engagement, because they feel they’re in a powerful position to drive supplier compliance. In reality, these metrics and relationships eventually fail.

When developing key metrics, they should be mutual for buyer and supplier, have a cause and effect relationship, targets should be set by priority and integrate with strategic long-term agreements. Measurements in world-class companies are linked to value optimization: is the company achieving a value shift with the supplier and is new value being created?

It is likely that metrics will fail if they are not a collaboration between your stakeholders and the supplier. They will also fail if they are a wish-list of criteria that is difficult to achieve. If your business is not a learning culture, desiring to continuously improve, metrics will just be numbers.

Do your supplier metrics improve the product, supply chain and company?

Cybersecurity Watch-Outs – Use Your Contracts Wisely

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This week, I am continuing the heads-up on cybersecurity and what it means for your contracts. I’m fortunate to have a guest blogger, Jeff Mayer of Akerman LLP, to outline areas we should consider. Thank you, Jeff.

Thanks to Bill Michels for allowing me to be a guest blogger today. I have had the privilege of regularly advising purchasing departments and speaking on purchasing law issues, including at national and local ISM conferences, on many cutting edge issues relating to purchasing law, including international contracting, warranties and responding to sudden and unexpected catastrophic events (force majeure). Most recently, as Bill has noted, the hottest topic in contracting is data security, which impacts all the other critical contracting areas, such as warranties and force majeure events. Data security breaches are very real and very costly. In addition to legal risk, there is PR risk, stock price risk and, of course, people can lose their jobs for not taking the proper precautions to mitigate potential breaches. Use your contracts to help. Akerman is fortunate to have an entire team devoted to data security issues and I asked two of those team members, Melissa Koch and Elizabeth Hodge, to outline some of the most critical legal provision for purchasing departments concerned about data security issues. Melissa and Elizabeth’s top tips are:

  1. Be clear on what data is at issue (especially if it will include personal, confidential or sensitive information).
  2. Make sure the ownership rights are spelled out and well understood to help control who has access to the data and how it can be used.
  3. Understand all of the touch points on how the data will flow, who will have access to it, and where it will be stored. This is particularly important if a vendor is going to have access into your company systems. You will want to make sure there are at least industry standard procedures and processes in place to keep the touch points and data safe and secure. You will also want to make sure the transfer of the data complies with all applicable laws. Regulators across all industries increasingly expect data owners to know where the data lives and who is handling it. You will want to know if the data will stored beyond U.S. borders or if vendor employees and subcontractors outside the U.S. will have access to the data.
  4. Pre-qualification reviews, audits and certifications. Take the time to thoroughly evaluate the vendors with whom you will be sharing data, and make sure they are properly audited and certified using current standards. You will want to make sure their ISPs are also audited and certified.
  5. Make sure you have proper recourse in the event of a security incident through carefully drafted indemnity rights and carve outs from limitation of liability. Also verify if the service provider has appropriate cyber liability insurance and the limits on such coverage.
  6. Make sure the service provider is required to assist in transferring data back to you in the event the services agreement terminates. You want to make sure that the contract does not give the services provider to lock you out of access to your data, especially if the data at issue is critical to your business operations.
  7. You should not only demand that the vendor indemnify you, but also that they cooperate with any pending litigation or investigation.

And none of these issues stands apart from other issues that you face in a purchasing department. Just as legal systems vary, making international contracting challenging, so do local laws on data security and privacy. And, unlike other commercial laws, you may not be able to contract out of those obligations. Similarly, your warranties in a contract bear directly on legal obligations related to data security. And any force majeure clause needs to be examined closely to determine whether it provides an out or escape to the vendor in event of a major data breach. While data security issues go well beyond the contract, making sure your contracts fit with your overall data security strategy is just as essential as any other contract strategy.

Contact Information

Jeffrey J. Mayer

Akerman LLP

71 South Wacker Drive

46th Floor

Chicago, IL 60606

Dir: 312.634.5733

Fax: 312.424.1900

jeffrey.mayer@akerman.com

Melissa Koch

Akerman LLP

420 S. Orange Ave.

Suite 1200

Orlando, FL  32801-4904

Dir: 407.419.8422

Fax: 407.254.4213

melissa.koch@akerman.com

Elizabeth Hodge

Akerman LLP

777 South Flagler Drive

Suite 1100 West Tower

West Palm Beach, FL  33401

Dir: 813.209.5052

Fax: 561.651.1597

elizabeth.hodge@akerman.com

 

Are Your Contracts Ready for a Cybersecurity Breach?

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I have just returned from the Zycus Horizon 2015 conference, where I was a speaker. The thing about conferences is that you always learn something and yesterday was no exception, especially when I listened to a presentation by Deborah Wilson from Gartner entitled “Cyber Security What the CPO needs to know.” The thing that I found most interesting in the presentation was that all supplier contracts need specific language about risks, obligations and notifications concerning cyber security breaches. Do your contracts contain clauses that address cyber security?

While reading news headlines waiting for my flight, this one caught my eye: “Average Cost of Cyber-crime in the U.S. Rises to $15 Million.” So today I called a few law firms that I have worked with over the years and all of them confirmed that the fastest growing practice in their respective firm. All were now building new contracts with cyber security language. The Security and Exchange Commission issued guidelines that have gotten a lot of attention as companies build the contract language to protect them.

This is a wakeup call to me; many of my clients are highly exposed as they have not added the new language and contract clauses. I will be adding them to my contracts immediately. In next week’s blog, I will continue with this topic by including advice from some cyber security legal experts.

From the FDA warning medical facilities that they should top using a medication infusion pump that was vulnerable to hacking to the highly publicized security breaches attributed to suppliers (one breach was caused by a supplier’s invoice that included a Trojan), you may not think you’re vulnerable, but anything connected to your organization’s network is a potential threat. My advice is:

  1. sit with your legal team to review what language is needed
  2. rewrite the contracts, and
  3. kill the evergreen contracts–nothing lasts forever!

Are you prepared?