Robert A. Rudzki, contributor to the Spend Matters blog, brings up a great point in a recent post. “’Strategic’ is perhaps one of the most overused (and misused) terms in business today,” he says. “Simply adding a few bells and whistles to conventional purchasing and then slapping the word strategic onto the process … is not the same thing as adopting the process as it is intended.” This holds especially true when companies are seduced by the “quick fix,” rocked by changes in leadership, or lulled back into conventional purchasing practices.
We couldn’t agree more. In conversations with companies interested in a strategic sourcing solution, we hear the same pain points over and over. “We’ve tried sourcing events in the past, but they never gained traction.” “We don’t really know where to start with a sourcing event.” “Things tend to just fall apart after we’ve collected bids.” “We select the lowest price, but the savings often aren’t realized.” “It could take us months after an auction to actually award our business.” And so on.
What these companies are missing is a true front-to-back sourcing strategy. They have the middle parts strategized – selecting suppliers, running an auction, evaluating the results of the auction – but the most vital aspects of sourcing may actually take place before and after the bids are solicited and collected. The front end of a strategic process is Spend Analysis, and the back end is Decision Optimization.
Having a powerful sourcing team and tool means nothing if you don’t have an effective strategy for what to source, and that means knowing your current spend patterns. You have to know what you’re buying, from where, from who, and so on in order to save money and make the investment in sourcing tools a good one. You can ensure stakeholder buy-in and an increased chance for savings success if you focus on correcting documented issues — sourcing items that have too many suppliers with a high amount of spend, items that don’t have buying consistency across distribution centers, and so on. Spend analysis gives you this type of visibility into your areas of need.
Award decisions can cripple a sourcing effort after the fact, unless you use decision optimization techniques to guide your decisions. Lowest cost may not always be the optimal award scenario for your business. Freight issues, quality issues, and so on can wipe out any projected savings you were expecting unless you factor these issues into your award decisions. An optimization tool can automatically calculate how different scenarios affect your award decisions, based on supplier attributes, award constraints, and so on. Considering this vital stage can mean the difference between dragged out, lackluster events and quick savings realization.
Don’t, as Rudzki advises, become stuck in conventional purchasing practices because you aren’t factoring in spend analysis and optimization into your sourcing decisions. These tools may be the key to putting “strategic” back into your sourcing.
Cloud computing is changing the way IT leaders deliver IT services and value to their customers. As companies learn about the value of the cloud through pilot projects, they gain insight into the technology, its commercial benefits, and see firsthand the changes that must be made to fully take advantage of the cloud. I recently wrote an article on this topic for the Cloud Computing Journal outlining the ways to maximize the benefits of cloud computing.
In my view, the key to achieving these benefits is with an integrated, centralized IT Service Management (ITSM) system dedicated to demand management, capacity management, and service integration – service management functions that are typically less important to organizations than the simpler service desk and incident management tasks.
As cloud computing continues to change how IT services are delivered, it will be increasingly important to emphasize the need for strong service management and governance frameworks.
Actual demand for our product is greater (or less) than forecast-ed?
My facilities have different quality standards for the same product?
I need to select a “green,” “low-cost country” or “diversity” supplier?
My preferred suppliers have capacity or lead-time issues?
I have only 10 days to decide the best award for five locations from 10 suppliers, 20 line items and hundreds of bids?
A successful sourcing project does not end with an auction; it ends when the awarded supplier delivers the correct product at the right time, place and cost. Implementation delivers the savings. Yet, at many companies, the “what-ifs” get in the way of realizing significant savings and product quality improvements. While an average sourcing project may take six to eight weeks to prepare and execute, the award decision can often take an additional six to eight weeks, not including new supplier verification. The additional time invested in award analysis can critically affect a company, especially if the company can obtain cost savings in two weeks rather than two months. In one example we know of, a company estimated that it cost them $1.6 million per month for an unimplemented sourcing project.
So why is it so difficult to award contracts when the savings potential is so obvious? Another company ran a $24 million auction for printed circuit boards. The sourcing team ecstatically presented $9.6 million in identified savings (an overall savings of 40 percent, with 70 percent in one lot alone). However, after six months, the actual savings delivered was $0. Why? Too many what-ifs got in the way. The joint sourcing and stakeholder team could not agree on the correct award scenarios, therefore, no decision was made.
Price factors are the easiest to analyze and compare. A sourcing analyst can calculate totals and summarize and rank suppliers for easy comparisons. But it is the other factors that prolong the decision-making process and often override the price factors. The key to a speedy award decision and implementation is managing the “what-if” factors.
The Six “What-if” Factors
There are six basic “what-if” factors, or risks, that affect award decisions and implementations. Some sourcing projects are infused with all factors, others just a few. Regardless, if not effectively managed, they can dramatically lengthen (or stall) the entire award decision and implementation process.
Price issues: These issues are typically the most obvious and easy to manage since they are quantitative. They include any cost associated with the total product value such as product, freight, packaging costs, rebates, discounts and payment terms.
Quality issues: Risks associated with quality are a bit more difficult to manage because some of them are assumed and not clearly articulated. Where it becomes tricky is when different stakeholder groups have different quality assumptions for the same item, such as with the printed circuit board bid.
Capacity and lead-time issues: It is critical that companies have capacity assurance so they can meet the demand of their customers. Juggling supplier capacity issues can be very time consuming, especially when product forecasts can swing dramatically up or down.
Regulatory issues: There are regulations such as accounting (Sarbanes Oxley), distribution and product ingredient quality (lead paint, melamine), and product sources that can affect decision making and must be managed.
Political issues: Though global politics have some impact, it is the internal corporate politics that carry the most weight in all sourcing decisions. Examples of these issues are sensitivities to preferred vendors (due to partnerships), diversity and green vendors, in-sourcing and internal competition between business units.
Supplier strategy issues: In addition to choosing a low-cost supplier, there are other supplier strategies that may need to be evaluated along with cost. These strategies include multi-source versus single-source, low-cost country, supplier consolidation and relative market strength of the supplier (monopoly).
Our second post in this two part series will focus managing the “What if’s.”
According to Peter Orszag, head of the Congressional Budget Office (CBO) and contributor to the Office of Management and Budget blog, “Federal agencies usually rely on hundreds of separate contracts for commonly used office supplies that vary in price. Purchasing supplies through separate contracts does not leverage the government’s buying power across all agencies, providing the cheapest prices.”
As all smart buying organizations do, the U.S. Government finally has consolidated its purchasing power to buy office supplies. According to CNN, the U.S. General Services Administration (US GSA) has just finished conducting multiple reverse auctions on office supplies, saving the government roughly 200 million on office supplies over the next 4 years.
It is great to see that the federal government is finally utilizing its leverage with these types of categories and strategically sourcing where possible – even if it is about 8 years later than it needed to be. With the amount of spend within the U.S. government, we all know there are enormous savings to be had, if they are smart with their purchasing.
“We are working with agencies to change these inefficient practices,” claims Dan Gordon, the Administrator for Federal Procurement Policy. “Effective strategic sourcing begins with good acquisition planning.”
If you think of general business process services trends, it is no different from using vendors for several other goods and services to run an enterprise. These may range from mail/courier services and car rentals to facilities management or procurement of raw materials, peripheral equipment, etc… The rationale, at its simplest, is that organizations specializing in a particular area would offer that service to another business that may not consider it to be a core service of its business. As a result, the business world becomes an inter-dependent, complex web of organizations working or partnering with each other to deliver core services as efficiently and competitively as possible.
In our industry, we refer to service providers as those who specialize in delivering business processes or IT functions to banks, manufacturing companies and other sectors. These providers, with their continual evolution and maturity, are increasingly going to offer such services in a manner that diminishes the customer organization’s ability to compete in-house in terms of not only the economics but also the use of contemporary tools and technologies. The question for C-level executives at such a mature stage of competitive outsourced services will not be whether to outsource, but when and how. The exception to this trend will largely be the use of captives for the scope that includes the proprietary services or data that needs to be retained in-house. In my view, the hybrid strategy (use of both captives and third party service providers) will eventually be the most popular one amongst large global enterprises when they have attained a high level of maturity in deployment of a global services delivery model.
It is a no brainer that third party service providers will invest, grow and develop capabilities that can only be compared to other competing providers and not internal groups of customer organizations. A sharp focus on core business services makes all the difference for companies in the development of their distinctive and superior capabilities. In other words, it is hard – if not impossible – to stay ahead of the curve in areas that are not central to the raison detre of an enterprise.
The trend of commercialization, monetization, or transfer of captives over the last 2-3 years to third party providers confirms the thought. That should not be construed as a prediction of the death of captives, but a pointer that captives will have their place under the sun in situations where competitiveness with third party providers is not the reason for their establishment.
In summary, I am bullish in the long term about the growth of services outsourcing, which will not only increase its prevalence across industries and regions, but will also experience growth in step with the growth of the world’s GDP. I welcome the opportunity to hear if you have a differing thought.
The past couple of years have been an exciting time for CIOs needing scalable IT platforms that are cost-effective and support rigorous security standards. In addition to cloud computing, a currently less-publicized technology called “VDI” is gaining momentum and credibility for those who need similar attributes with added benefits. The server-centric VDI model, which borrows from the traditional thin-client model, can be a great alternative for organizations that want to maintain control of their applications and data in-house, uphold stringent control of operational standards and reduce support costs.
VDI means “virtual desktop infrastructure.” Quite simply, it takes the user’s desktop and moves it into the data center. When done right, resources become better utilized, applications are managed efficiently, and data never leaves the friendly confines of the data center.
First generation virtual desktop solutions were designed to serve up a basic virtual desktop running Microsoft Office and client/server or Web apps, and they did a great job at that. In today’s computing environment, many companies are concerned with the sometimes delicate balance of cost versus security. Besides the obvious cost consciousness brought about by the weak economy, another less-common cost consideration is what I’m calling the “experience” value – the relative ease-of-use of a given solution for a typical end-user. We want this value to be high, indicating a highly usable system. Then there’s the security side of the equation.
I believe that the VDI desktop solution can help organizations 1) keep costs down, 2) maximize the “client experience” value; and 3) maintain data security. VDI can help lower costs by reducing management, administrative, and resource overhead, while at the same time increasing the user’s experience and securing data inside the data center.
Desktop virtualization depends on where the virtualization is taking place (i.e., implemented), either at the host (i.e., data center) via one single image being presented to all users (a.k.a. “thin client”), or at the host serving up multiple images to users or the client workstation running multiple images.
VDI is a “younger” technology that we’re seeing implemented by some major vendors in the past two years. HP, IBM, MS, VMware, Citrix, SUN and various boutique service providers have been increasingly getting into this space. Along the spectrum of virtualized desktop implementations, there have been many successful implementations worldwide such as Sparkassen, the savings banks’ financial group in Germany, which has deployed more than 100,000 thin clients using VDI.
VDI is a proven technology and has reached a maturity level that gives buyers with a certain set of requirements many viable choices. But you don’t want to virtualize without a clear understanding of your current and desired states.
Last month I met with Reuben Slone, a highly respected supply chain executive with OfficeMax. During the meeting, we had extended discussion of the effort that it takes to publish a book such as the one he just released through the Harvard Business Press. It was fascinating to hear about the peer review process and length of time it takes for a book like this to actually get to market.
I encourage you to read this book as it contains powerful real world examples and strategies for supply chain mangers to C-level executives.
Here is a brief description of the book and what a couple of people have thought of the book.
In The New Supply Chain Agenda, Reuben Slone, J. Paul Dittmann, and John Mentzer explain how to reinvent your supply chain to avoid those errors—and turn your supply chain into a competitive weapon that produces unprecedented economic profit for your firm.
Drawing on a wealth of company examples, the authors show how to activate the five levers of supply chain excellence:
• Putting the right people with the right skills in the right jobs
• Leveraging supply chain technologies such as system optimization and visibility tools
• Eliminating cross-functional disconnects, including SKU proliferation
• Collaborating with suppliers and customers to generate a seamless flow of information and supply chain improvements
• Managing supply chain projects skillfully
Apply the steps in this book, and you build a supply chain that delivers as it should—without leaving money on the table.
Comments/Reviews of the Book
“As recognition of the potential organizational performance benefits from superior supply chain management continues to work its way into board rooms, C-level execs have needed a guide to help them understand how something that happens on a loading dock 8000 miles from home can influence their earnings per share on Wall Street the next day. This book provides that guide, using real life examples experienced by the authors. Every aspiring executive of a firm that sources, makes, stores or moves products should read this book..as should the bankers who invest in these “real world” companies!! I recommend it strongly.”
“As a supply chain executive, I have read several journals, books etc and quite honestly of late I have been hungry for some new, relevant and meaningful learning. This book truly stands out and offers something valuable to learn. An outstanding blend of technical, social and strategic insight in a field that is rapidly becoming a differentiator for companies. This book offers powerful ideas that are truly applicable in the real world of supply chain management. A must read for senior supply chain executives. Not only does this book dive deep into powerful supply chain concepts relevant in today’s world, it also provides unique and valuable insight into the social challenges of the field – hiring the right talent, internal and external collaboration, change management all the way up to the boardroom etc.”
If you would like to learn more about the book we have attached a link to its amazon page below. Click here to view the book.
Not too long ago, I shared an observation in a recent post about the Demand-Supply syndrome. I noticed that subdued demand resulting from recessionary pressures and supply exceeding the industry requirements of manpower were impacting the offshoring industry. Companies were unable to create new jobs or even sustain full operating capacity because demand in the market was so weak. Consequently, service providers needing to reduce staff shifted the balance of power to employers after several years of considerable growth and hiring in the outsourcing industry.
Now in 2010 we are again witnessing the reversal of this trend. The pendulum seems to be swinging back to the supply-side with the optimism of a reasonable increase in demand and renewed hiring plans from the service providers.
Recent news out of India from publications such as Business Outlook and livemint.com have been focused on providers’ concerns about retaining talent, debating whether or not to continue doling out hefty bonuses as well as annual compensation increases for employees across the board. Tier I providers are again talking about dusting off their hiring engines to hire employees in tens of thousands for the expected growth in demand of their services. As a result, with the scores of new job opportunities in the marketplace and employers engaging in the war for talent, the negotiations power will shift back to the employees. In weeks and months ahead, voluntary attrition is expected to rise again. The increased attrition of talent will bring back the challenges of managing the ongoing delivery to customers as well as put considerable pressure on the wage bill of the providers which constitutes the single largest middle line item on their Income Statements.
What does this signify to the industry from a macro perspective? In my view, nothing but a reflection of the fundamental economic laws related to “business cycles” and “demand-supply economics”. Wouldn’t it be naive to say this new trend will last forever (as the investments analysts would like to believe and surmise)?
“You can improve what you can measure” is an adage many contact center managers strive to realize. But while data collection and reporting systems are critical contact center tools, access to statistics alone will not ensure success in improving performance. Improper communication, unnecessary complications and inconsistent application of performance measures often cause the best contact centers to underachieve and cause key programs to fail.
How do you acquire the biggest bang through measuring performance? Here are the TPI Top 5 steps that can boost your chances of operational improvement:
1. Plan your direction carefully. Determine which key measure(s) is/are most critical to the success of the operation and develop the plan for improvement around that measure.
2. Limit key measures to a core four or five. Do not be trapped into developing multiple simultaneous improvement plans
3. Ensure that all goals are achievable. In an attempt to improve numbers rapidly, do not be fooled into thinking a lofty, unachievable goal will provide sufficient incentive for an agent to stretch performance that much further.
4. Avoid metrics that send conflicting messages to the staff. Key performance indicators and metrics that are contradictory in nature can lead you down a path to failure.
5. Carefully explain the objectives to all members of the contact center team. Every member of the team must clearly understand your objectives and work together to achieve the primary target.
Following these tips may not ensure performance improvement, but it can certainly improve your chances of success.
As a sourcing professional, my most difficult negotiations aren’t with suppliers but rather with internal customers. Based on conversations with my colleagues, that experience is not unusual. One measure of this challenge is “savings leakage” (savings negotiated but not realized). Aberdeen Group reports average leakage rates of 21% as Purchasing strives to implement its sourcing decisions. Best In Class companies experience about 14% leakage whereas All Others see 24% leakage (1). Small companies experience up to 40% savings leakage (2). Net, there is a huge payout for improvement.
There can be several reasons for leakage:
Communication. The using organization is unaware of the award and continues buying from the incumbent.
Inconvenience. The new supplier’s process is inefficient providing a negative incentive to change (e.g. a travel reservation website which is difficult to use).
Fear of the unknown. There may be a long-standing, positive relationship between the supplier and the user. Alternately, the internal customer may not be thrilled with their current supplier, but at least the incumbent is “the devil they know”.
Lack of trust. The internal customer organization doesn’t trust the buyer to properly address non-price criteria when making sourcing decisions.
Regardless of the reason, leakage represents innumerable hours of wasted effort and, more importantly, millions of dollars in missed bottom line profit improvements.
Communication breakdown is relatively easy to address, particularly with the use of eSourcing, eProcurement, Spend Analysis and on-line contract management systems. The other three reasons require a deliberate process and up-front planning. It’s all about effective change management! Successful sourcing managers don’t wait until after the award to sell their internal customers. This is particularly critical in companies where business units are relatively autonomous, and not subject to corporate edicts.
Effective sourcing professionals follow Stephen Covey’s advice: “Begin with the end in mind”. What does that mean? It means involving key stakeholders throughout the entire sourcing process so they will support implementation of the ultimate award decision
Specifically, what does this entail?
Ensure upper management support for sourcing initiatives and savings goals.
Initiate a comprehensive and methodical change management process early on.
Work with stakeholders to clearly define decision criteria with appropriate measures.
Conduct the RFP/RFQ with stakeholder input and involvement.
Gain stakeholder support for a comprehensive implementation plan and enforce accountability.
Monitor expenditures over time to identify any leakage.
Sound like a lot of work? It is. However, it often eliminates months of wasted effort on sourcing decisions that don’t stick. Why is it that we never have time to do it right, but we always have time to do it over? Is this formal process necessary for all savings initiatives? No, but the thought process should be applied to all situations. Thinking through this process allows you to determine the extent of the effort required. One size does not fit all.
Addressing stakeholder fear, lack of trust and potential inconvenience through a comprehensive change management effort and improved communication will have a tremendous impact on savings leakage.
Click here to access a more detailed write up or here for a podcast on the topic.
Last week, I got the heads up from my colleague, Andrew Bartolini, that he was going to leave the Aberdeen family to pursue other opportunities. To me, this seems like a very newsworthy event, as Andrew was the face of Supply Management for Aberdeen and will not be easily replaced. I also do not think that Abderdeen was expecting this, so there will likely be some large gaps they need to fill quickly. Knowing Andrew, I am sure he will be involved in some type of cordial transition.
From a personal perspective, I could not be more happy for him. I have to believe that he is making this move to redefine his role in the supply management industry. He is not going to a vendor, so I would put the money down that he will be launching his own vision of how analyst content should be generated and distributed. It would be a bold move, and one that I think the market would embrace.
From a professional perspective, I think it could usher a new era in analyst coverage for sourcing and procurement. Andrew has a deep network and strong knowledge base. By creating his own model, it might generate interest in a new way for analysts, vendors and practitioners to collaborate and improve. With the recent market consolidation around Gartner/AMR, there is certainly an opportunity for a start up to succeed in this area.
I truly look forward to seeing what Andrew ends up doing. It might end up being a big win for everyone.
I originally wrote this post for the Sourcing Innovation series for this month. You can follow the link and see the other efforts, or just take my word for it and know that this was the best guest post.
As any one who has been around e-Sourcing technology for any amount of time knows, the greatest sourcing and procurement successes are directly tied to properly managing adoption and continued usage by both the sourcing and stakeholder communities. The best software in the world is only marginally effective if only a tiny fraction of spend is under management and being executed through a strategic sourcing process. To be truly successful, companies must bring more spend under management.
In this Sourcing Innovation series which highlights strategies companies can utilize as the global recession slowly releases its grip, I will focus on a critical strategy that consistently drives success. It is not a theoretical concept that requires the use of the latest-and-greatest functionality, but one that works in the real world with tools most companies already have in place.
The critical strategy I refer to is Sourcing Execution, the tactical operation of strategic sourcing performed by a third party for a procurement organization. Most people are familiar with procurement outsourcing from years of experience with very large entities such as IBM or Indian BPO providers handling the P2P process in a remote call center. What a number of organizations are beginning to learn, however, is the same tactic can be done within the sourcing department. Automating transactional driven functions within the sourcing process increases the efficiency and impact of sourcing teams which will, in turn, increase spend under management and savings.
As clearly outlined in the example, there are very distinct areas labor can be divided. The outsourcing of tactical data management can increase the effectiveness of the local resources. Another compelling strategy for Sourcing Execution is to identify and outsource the “block and tackling” of the competitive bidding process. Companies can use different methods to achieve this goal:
Tactical Execution:
Support from the partner is generally remote and process oriented. Internal stakeholders prepare the bid data and deliver it to the partner to be executed in a pre-determined way as designed by the procedure team/steering committee. For example, taking the RFP elements and building the online sourcing project and inviting suppliers to participate. The third party makes no sourcing decisions, but the time line is dramatically compressed, thus allowing the organization to focus on the more strategic objectives of the category.
SME Assisted:
The next level of “on-demand” support makes Subject Matter Experts (SMEs) available on a short term basis, to offer strategic input during the most critical phases of the sourcing process. These SMEs might be experts in supply markets, risk/financial analysis, e-Sourcing or specific category expertise that is valuable. For example, developing a complete RFI/survey or relevant lotting strategy.
Category Implementation and Compliance:
A sourcing project is only as good as the implementation rate. If a company identifies 20% savings for a category and implements 5%, the actual delivered savings is zero. Category compliance services provide tactical support for tracking and following the implementation of awards by managing reports that highlight compliance areas that need attention. The service can also distribute repetitive information to suppliers and stakeholders as it relates to new contracts.
Category Management:
Full blown sourcing advisory services at a category level where a qualified sourcing professional manages the most of the sourcing lifecycle — from spend data collection through award analysis and negotiation. This is the traditional X-step process, depending on which management consulting firm got their first. The SME is an extension of the procurement team for 8-14 weeks on average. This period can be extended if implementation and compliance are required.
A shared service approach to outsourced strategic sourcing delivers numerous benefits. A normal sourcing lifecycle can be reduced to 2-6 weeks from a standard 2-6 months. This allows internal category managers to focus on strategic initiatives, supplier development and core Tier-1 sourcing opportunities. Allowing indirect and “C” Level items to run through collaborative management, increases the amount of spend under management and reduces costs dramatically without adding head count.
Two resources on this topic that are worth exploring in more detail are the previously mentioned AMR Research (specifically Phil Fersht and Mickey North Rizza) and TPI. Bill Huber at TPI is very wise in these topics as he has implemented and researched outsourcing for years.
Simply outsourcing for the labor arbitrage is a short term plan which will not have sustained results. Simultaneously leveraging a technology, process and people strategy enables you to realize sustainable objectives.
2008 brought many issues to the procurement table such as supplier risk, resource constraints, and diffusing uncertainty.In an Aberdeen report, Andrew Bartolini offers several procurement strategies that will help organizations streamline their processes in comparison to the goals and initiatives being employed by Best-in-Class.
Perform spend analysis on a regular basis- Departments with limited or no level of visibility into spend unknowingly restrict their strategic contribution to enterprise performance.
Develop and track a pipeline for spend under management- This pipeline should include a detailed plan that targets specific categories and devises an approach to engage specific budget-holders.This pipeline should be revisited on a regular basis.
Incorporate savings quotas in the staff’s incentive plan- Target behaviors and results should be clearly identified and justly rewarded and, should also be quantifiable and measured.
View strategic sourcing as a holistic process and leverage process automation wherever possible- While e-sourcing solutions provide the key capabilities required to automate the sourcing process, contract lifecycle management and spend analysis systems should be viewed as a part of a comprehensive strategic sourcing approach.
Enhance supply risk management capabilities- Aberdeen recommends the development of a program that establishes clear ownership of supply risk within the enterprise and incorporates training for those involved in it.
Conduct regular contract compliance audits- Higher contract compliance rates usually translate into greater implemented savings, improved spend control, and a higher percentage of spend under management.
Lead your team and defend it- While an effective CPO must be a strong leader and a highly capable manager, in times of duress, the staff will seek, and ultimately prize, leadership above management.
Engage the CFO to develop case management strategies- Cash or liquidity is valued in today’s market since it provides greater assurances to investors, employees, customers, and supply chain partners of on-going solvency and an ability to perform against current and future contracts.
Hire category experts from industry (i.e. energy, steel, chemicals, services)- Many enterprises are being forced to make deep cuts in a labor market that is both volatile and soft.This presents a unique opportunity for CPOs to reach out and hire seasoned professionals with deep category expertise.
Although the role of Chief Procurement Officers (CPO’s) is becoming more widespread, the challenges they face in maintaining consistent execution and transformation is increasing.“…two-thirds of this study’s participants believe that the economic downturn has positively impacted the role of the CPO within the enterprise.”The CPO’s who succeed during these tough economic times are those who formulate strategies that aim to achieve procurement transformation and competitiveness.
As a sponsor of this report from Aberdeen, E-Sourcing Forum readers can download this report for free.Please click here learn more about CPO challenges and strategies.
Denali Consulting as a very good e-whitepaper available, which I thought was tremendous for getting results from strategic sourcing initiatives. They surveyed over 50 sourcing professionals and came up with a very interesting Top 10 list, and who doesn’t love a list.
Ten Best Practices
1: Begin with an End State in Mind
2: Prepare Prior to Launch
3: Focus on People From Day One
4: Plan Early for Savings Tracking
5: Standardize Your Sourcing Process, But Be Flexible
6: Put Strategic Sourcing Into Context of a Holistic Category Management Process
7: Formalize Your Change Management Approach
8: Maintain a Commitment to Total Cost of Ownership
9: Use Holistic Measures to Track Success
10: Don’t Shortcut Market Assessment: Use External Market Intelligence
First off, for any one that has been involved in these issues, the list brings back many memories, both positive and negative. All of the points are excellent, and I was very interested while reading 3 and 5. Having the proper team assembled when launching a new process is critical. Denali points out:
Be up-front about expectations regarding time commitment to avoid bottlenecks in the future.
Use a formal, collaborative knowledge management program to capture and share sourcing process, category, and market information across the organization. Follow with a knowledge transfer program for future initiatives.
Consider an organizational structure that enables the new processes associated with Strategic Sourcing and supplier development.
Ensure team success by putting the right people, with the right skills, in place from day one, beginning with recruiting, through training and redeployment.
Standardization of process for repeatable success, was listed as the 5th item in the survey results.
Learning from past sourcing teams and implementing a standardized, documented Sourcing process can guarantee repeated sourcing successes, improved processes, and quickly adopted new best practices and technologies. Some of the best organizations we’ve seen with regard to standardized sourcing processes use a web-based “Sourcing toolkit” that gives step-by-step instructions for each sourcing phase and includes standard templates for key activities.
Obviously, this point is where we are doing the most to help companies. We get to see a large number of companies make the transition from no e-tools, to some type of implementation. The ones that are getting the most value are also following many of the other concepts listed in this list. This is not a coincidence.
As usual, Denali has done a very comprehensive job of addressing the issues and offering good recommendations. This article is worth saving in your archives.
Add commentApril 16th, 2009Charles Dominick, SPSM - Next Level Purchasing
In Part I of this series, I shared some interesting statistics on the qualifications of today’s Procurement Vice Presidents and Chief Procurement Officers. In this Part II, I’ll share with you some additional findings on CPO qualifications.
These findings were gathered by examining 13 of the most publicized CPO hirings in recent years. Specifically, these are the CPO hirings we looked at:
Company | Date
BP plc | 2005
Chevron | Jan. 2005
Sara Lee Corporation | Mar. 2005
Tyco International | Jan. 2006
Dean Foods | Dec. 2006
Constellation Energy | Feb. 2007
Nortel Networks | Apr. 2007
Comcast | Apr. 2007
United Airlines | Sep. 2007
Goodyear Tire & Rubber | Sep. 2007
WellPoint, Inc. | Jul. 2008
Bristol-Myers Squibb | Jul. 2008
Chrysler | Dec. 2008
It should be noted that these 13 companies account for over three-quarters of a trillion US Dollars in annual revenue. So, they are leading companies and we can learn a lot from them.
We looked at three characteristics of the CPO’s that were appointed:
1. Whether they were promoted from within (came from the same company);
2. Whether they held a procurement position immediately prior to being appointed CPO; and
3. Whether they came from a similar industry
Please note that those who were promoted from within were considered to have come from a similar industry.
Here is what we found…
• Six of the 13 were promoted from within
• Eight of the 13 held a procurement position immediately prior to being appointed CPO
• Ten of the 13 came from a similar industry
• All who switched industries had a procurement background
• Only 1 who switched companies lacked a procurement background
• Four of the six who were promoted from within were not in a procurement position immediately prior to being appointed CPO
So what conclusions can we draw?
1. Like the transformational leadership skills described in Part I, industry expertise is very important
2. It is certainly possible to be promoted from within to the CPO position
3. When senior management gets to observe excellent leadership skills on a first-hand basis, that will lead senior management to considering promoting you from within to the CPO position, even if you don’t come from a procurement background
4. When senior management recruits you from another company and, therefore, did not have the opportunity to observe your leadership skills on a first-hand basis, a track record of procurement results matters quite a bit
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