As retailers prepare for “Black Friday”, what used to be the “biggest shopping day of the year” (the day after Thanksgiving), expectations are actually rather low.  A reporter on CNN noted that it was a “non-event”, and that even “Cyber Monday” (the Monday after Thanksgiving weekend) is no longer a big deal.  The fact is, that e-commerce and omni-channel retailing, has forever changed the Christmas shopping experience for consumers.

E-commerce has also made life much more difficult for retailers.  E-commerce orders are typified by higher volume but smaller picked orders delivered to homes . To complicate this, reverse logistics capabilities must be established to handle the high volume of exchanges, returns, and damaged goods as more websites cater to a guaranteed zero cost of return policy.

To cope with this environment, companies are seeking to outsource more technology design, inventory management, working capital investments, and planning execution to other partners in the supply chain. Experts have warned that driving too much responsibility up the supply chain can result in significant risk and loss of control. Companies risk losing control of the channel if suppliers decide to integrate downstream towards customers.  In such cases, the total cost of ownership (including such things as transportation and inventory management) become opaque to the OEM, and the enterprise can lose leverage to reduce costs if they hand over an entire product subsystem to a single supplier. This trend is offset by the other view in industry that logistics is all about cost savings, and is often not recognized by many as a source of value-added capability.

An offshoot of this trend is the bundling of product and logistics solutions. Customers are requiring solutions to problems that they face, which means being able to not just have the physical movement of the product, but a combination of packaging, distribution, tracking, and responsiveness to requirements. This has been the case in the automotive industry for years, where JIT deliveries on an hourly basis based on real-time EDI transmissions is the norm. Increasingly, organizations don’t wish to manage inventory, and are requiring suppliers to provide vendor-managed inventory, real-time responsiveness to inventory tracking software, and technical support. Many companies are unable to provide these capabilities on their own, and are partnering with solution providers to develop combined product-service supply chain solutions.

Of note is the fact that customer expectations and networked economies are particularly important in many developed countries. US managers also ranked global complexity as an increasing trend. Another interesting point was the difference in Brazilian executive responses. Here, the main logistics trend is similarly customer expectations, but a myriad of other trends are also perceived as critical, including cost pressure, talent, networked economies, and unreliable infrastructure. We also found that emerging technology was higher ranked by high-tech industries in a study we conducted in 2013.

As these shopping and logistics networks become more complicated, many of the companies we interviewed recognize that they cannot “do it alone”, but need to become experts at managing global relationships.   This is particularly true in regions where sales are only starting out, and in many cases, companies need to figure out the “pieces of the puzzle” and what it means to operate regionally and meet customer expectations in an e-commerce world. To do so, partnerships are key, particularly for importing into regions. Many countries have specific requirements for packaging, shipping, and other importation issues that require customization of logistics processes. Organizations need to develop specific packaging requirements inside these countries to meet government laws, and then set up processes to import products and customize to the local market. Shipping across borders has an impact on the effectiveness of the channel, and so organizations need to carefully choose distributors and selling locations. A supply chain strategy involves making decisions: How do you distribute? Into your own warehouse structure or another? And how many distributors do you select for the territory? Organizations are recognizing that they need to identify partners who can optimize and understand local legislation and conditions to effectively navigate this increasingly complex set of decisions.



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I had the opportunity to visit with Tim Cummins and Katherine Kawamoto from IACCM, who came by the SCRC offices yesterday to chat.  We spent some time catching up on recent events in the news, and also had the opportunity to exchange ideas based on a recent webinar we ran with Shell, in which we discussed some of the outcomes of our recent study published in the Journal of Strategic Contracting and Negotiation (JSCAN).  In the webinar, one of the questions I asked was whether purchasing would someday be replaced by contract and relationship management?   Tim shared some fascinating thoughts with me yesterday as we debated this question.

Tim noted that “Contracts are a framework for the management of change  – which helps the parties to understand how to work together.”  They are the framework for notifying for the need to manage change. Such a high proportion of agreements fail because they are imprecise about the nature of requirements, or the nature of the requirements change, and the structure isn’t there to manage the change!  The response may be “I don’t understand what you want and isn’t affordable!” which creates a huge amount of contention in that space. IACCM is helping its members to think about how to adopt new contract structures, using agile techniques developed in software industry.

Agile contracting is challenging.  The premise is that the parties can only commit to points of certainty! So when we are both dealing with an environment of uncertainty, and we use an agile contract, I am making a firm commitment to a very distinct and defined point of certainty, beyond which we just don’t know what will happen.  But we can then establish a conscious review to set the next target and next goal based on our view of the world at that point.

The problem with agile is that it doesn’t work with current revenue and budget recognition issues, that dominate most Fortune 500 companies.  We are used to a world where we say it will cost X for a project and we put it into the budget – even though it is unrealistic!   People are more comfortable dealing with a budget, and will commit to it, even though common  business sense dictates that things will change – but business results call for this change of model.  The only common approach available is in Aerospace, where they will use a “rough order of magnitude” contract – which is an educated ballpark estimate of costs that allow the parties to commit to move forward.  Construction contracts have also begun using parametric cost modeling to build estimated cost budgets.

Tim cited a great example of the Australian Government, which is committing to a contract management approach called “FIRST PRINCIPLES”. This approach emphasizes that buying companies need to think of their supply base as an amalgam enterprise that delivers a particular outcome – in an extended enterprise form. If the desired outcome is to create a highly productive fleet of organizations, and we can define the organizations (e.g. suppliers) that need to be part of this fleet, then we simply deem all of these strategic suppliers as an enterprise. The question then becomes – “how do we build sustained relationships and build internal enterprise thinking to an extended network. This is similar to the integrator model – the parallel is again like the aircraft industry where multiple suppliers must work together to create an aircraft design.  The Terminal 5 construction project at Heathrow Airport was also a similar model.

This view of contracting with a community that operates across borders and boundaries is a radical concept. When we do relational contracting we bring the amalgam enterprise into the room, and the negotiation is not about liabilities and payment terms.  It is about ensuring that we have a mutual understanding of goals and objectives – and form joint working models and active discussion of the performance mechanisms that we need to achieve these goals, and design how to communicate with one another in the process. We need to define what the communication media will be, and the rules around communication. Buyers and suppliers need to focus on the discipline of those meetings and focus the purpose on problem avoidance.

In this sense, contracting and relationship management are not opposites.  Some people claim we should move away from contracting and focus only on relationships, whereas others will only work through defines processes and procedures that are in the contract. They argue “it is not the contract that matters – it is the relationship. Other argue that if you have the contract – you don’t need a relationship. Relationships are good, contracts are bad or vice versa. The emerging, new perspective perspective – is that relationships and contracts are related.  Our relationship operates a certain way – and the underpinning for the relationship is the contract.


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I will be leading a webinar with the Sourcing Interest Group next Nov. 12 at 2 PM, based on a study I have been working on with some folks at IBM.  The webinar will also include Howard Richman, a colleague I have known for many years, first at Merck, and now working at Citrix as their Chief Procurement Officer.  Also joining us will be Michael O’Leary, Director of Procurement Solutions at IBM.

What kicked off this inquiry was a discussion I was having with a former NC State student, Alex Zhong, who is now at IBM.  We were talking about a recent IBM study of over Chief Procurement Officers which discoverd  that three key activities defined procurement role models: stakeholder engagement, aligning with business strategy, and use of advanced tools and technologies. I emphasied to Alex that I had seen a similar trend – that purchasing executives seek to drive procurement value transformation, many find themselves struggling to make progress in these three areas of change. In particular, there is a noticeable gap between procurement executives’ explicit intentions of driving value for the business, and documented results as they pertain to improved engagement with internal business groups, ability to drive innovative analytical tools, and the resulting gap in alignment with business strategy.

Such gaps are often attributed to a lack of data documenting historical spending, contracts, and supplier life cycle performance metrics. This problem is compounded by the stress executives feel when put under pressure that causes them to revert to type, do what they’ve always done (even when they know it isn’t right), which then reinforces the status quo rather than catalyzing change. As a result, procurement is often brought in at the last minute as an afterthought, often as a big “surprise” with little advance time for preparation. Similarly, enterprise annual budgeting is often a guessing game, with little input solicited or provided by procurement. The question has to be asked as to whether the problem is rooted in the lack of data or Procurement’s inability to take the lead and anticipate and gather the data required.

So how can executives get started with the process of building relationships with stakeholder groups, supporting business strategy and bringing analytical insights to the table? This question formed the basis for our study, in which we conducted lengthy interviews with 23 senior procurement executives across a broad range of industries. These individuals provided key insights into the nature of procurement transformational change, and the role of analytics in driving strategies that supported the business and which aligned with stakeholder requirements.  In the webinar on November 12 at 2 PM EST, we’ll explore some of these insights, and provide ideas on how procurement executives can get started in the new and exciting world of procurement analytics.

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I presented at Supply Chain Outlook 2015, an event hosted by the Supply Chain Management Review in Chicago on Monday morning.  This was an excellent venue for discussion of emerging trends and what we can look forward to in 2016.  A kickoff meeting by a renowned economist discussed some of the issues around global growth, and where the growth will come from.  The growth of a rising middle class in China, India, and other countries in Asia was identified as a major source of revenue growth for many US companies.  While the US will continue to grow slowly, it is still recognized as a primary economic driver in the world, despite all the predictions that China will become the next super power.

I had a chance to engage with the audience on a spirited discussion of how procurement needs to seize the opportunity to expand its role through increased business value drivers to the business.  Being in Chicago, I used the opportunity to share how people like Jon Stegner has changed procurement at the University of Chicago Medical Center through increased stakeholder engagement, and also discussed the role of procurement in driving sustainability and risk management outcomes in the countries they operate in.

We also heard from a speaker talking about the movement towards Reshoring in America.  The speaker had spent a lot of time working with companies helping them to offshore to places like China, and was now engaged in the reverse activity – bringing it back.  She pointed out that much of the re-shoring will not be the same industries.  We will probably keep the higher value added manufacturing, that requires extensive engineering skills, complexity, high technology precision, and customization for customer requirements.  It was also pointed out that the supply chain for manufacturing in America also has to be re-created – many of the suppliers in these industries are no longer there.  But the trend is definitely going in the direction of manufacturing moving back locally to America.

Overall – a great kickoff for Supply Chain Management Review’s first conference.  Kudos to Bob Trebilock, their editor, for pulling this off!

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I spent some time this week with a group of procurement executives from Restaurant Supply Chain Solutions, a company that conducts all of the procurement and supply chain activity for YUM! brands (including Pizza Hut, KFC, Taco Bell, as well as A&W). This organization was created a number of years ago, in response to a lawsuit launched by KFC franchisees who were unhappy with the perceived pricing and costs of food contracts negotiated for them on behalf of Yum. As a result of the settlement, RSCS was created as a non-profit procurement center of excellence, that works with the franchisees, the brands, and the operators to negotiate contracts.

This is a very interesting organizational construct. RSCS does not take title to any goods – but has authority for negotiating contracts on behalf of all the brands and franchisees. They do not capture a profit, but are funded through the brands. They need to work with multiple stakeholders, and are constantly balancing many different issues. In effect, this organization is a focal point for transference of all pricing and supply risk from across the entire supply chain into a single entity, that is able to make decisions based on a truly neutral, third party perspective.

The volume of food purchased is also staggering to the imagination.  Some of the volumes include 9 aircraft carriers full of beef, 9 Olympic swimming pools of sour cream, and enough chicken wings laid end to end to cover the earth 2 1/2 times!  Many of these contracts are managed through commodity risk programs, often run through RSCS’s suppliers (such as Bungee and others).  This does two things.  It removes the risk from Yum Brand’s balance sheet, which is often a concern to share holders.  Second, it allows the organization to use hedging and other risk management instruments that most large brands would not be willing to use, but which make sense given the volatility of many of these commodity markets.  This also allows franchisees of these brands to better manage their margins at the store level – and not to have to worry about commodity markets that are going all over the place.

The biggest challenge with this procurement organizational model is that procurement has to manage multiple stakeholders.  Each brand (KFC, Pizza Hut, Taco Bell ) has a board representing franchisees from all over the country, often with diverging views.  Each brand also has a corporate office with brand-specific concern, and there are often multiple diverging views here as well.  Finally, there is also a need to commit to suppliers – with volumes of business related to franchisees that are not always willing to buy into these programs.

Despite this fact, this represents a highly unique and successful model for procurement, and possibly one that we may see more of in the future.  Procurement sustains itself only through its ability to drive value for the business, absorb and reduce risk, and continually drive collaborative relationships with the supply base.

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This is a guest post from Director Clyde Crider of the Supply Chain Resource Cooperative, based on an MBA panel he sat in on yesterday at NC State’s Poole College of Management.

We are frequently asked to provide guidance and advice to students about how to be successful in their academic pursuits and professional careers.  Yesterday I attended an MBA panel discussion I thought provided some excellent insights into what corporate recruiters (the market) are looking for from our graduates (our product).  I wanted to share some of the highlights from the session with you in hopes that you will pass them along when you are approached by students seeking guidance.  The list is in no particular order and I’m sure there are many more that could be added – but I think it is a great start.

The companies represented on the panel were Advanced Auto Parts (who recently purchased Carquest), Amazon, Caterpillar and Patheon.  

Question: What key attributes are you looking for in graduates being recruited to become future supply chain leaders in your company? (In no particular order)

  1. A passion for supply chain, a passion to win
  2. A natural curiosity…desire to know and learn more
  3. Initiative, work ethic, motivation
  4. Positive attitude – toward the job and toward others
  5. Resilience – the ability to deal effectively with adversity without affecting your performance (dealing with good days & bad days)
  6. Creative, innovative thinker with a bias for action
  7. Leadership (Amazon’s 14 leadership principles)
  8. Customer focus willingness to go above and beyond to satisfy the customer
  9. Data analytic skills w/ strong attention to detail
  10. Business acumen – understands the business and what drives it
  11. Interpersonal skills – teamwork, collaboration, willingness to reach out to others
  12. Be coachable – willing to accept constructive criticism and act on it
  13. Listening skills – the willingness to talk less and listen more (learn from others)
  14. Candidates who have researched the company prior to the interview

Question:  What are the top two or three criteria graduates should consider when evaluating a job offer or prospective employer? (Aside from wages, benefits and time off)

  1. Do you have a passion for the company and the work?
  2. Do you fit into the corporate culture? (highly structured versus highly unstructured, dress code – business versus casual, etc)
  3. How much travel is required by the job?
  4. What is the “pace of play?” (high stress, fast-paced, etc)
  5. Will you have to relocate in the future?
  6. Are there opportunities for personal / professional growth, advancement, international assignments, etc.

Understanding what the market wants (Voice of the Customer) is mission critical as it relates to the design and content of our curriculum, programs and services (Voice of the Business).  I hope you find this information helpful…..I did.

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Bloomberg Businessweek released its MBA rankings today, placing the Jenkins MBA at number 29 among full-time MBA programs in the United States. This ranking is a notable jump from number 54 just a year ago and number 63 (out of 63) three years ago.  The full ranking is available on the Bloomberg Businessweek website, where you will find the Jenkins MBA among some of the best and well-established programs nationwide – NYU (24), USC (25), Georgetown (26), Brigham Young (27) and Indiana (28).

But wait, that’s not all…

Bloomberg Businessweek also ranked part-time MBA programs, among which NC State placed No. 45 nationwide. We were just one of just 26 schools that received top 50 recognition for both the full-time and part-time program

You can read more about both rankings on the Bloomberg Businessweek website. I also welcome you to bookmark to keep updated on the exciting things going on in our Jenkins MBA program.

But we need your support!

I would encourage anyone familiar with the Poole College of Management, Jenkins MBA, or the Supply Chain Resource Cooperative,   to participate in the SCM survey of top 20 providers of supply chain talent by selecting their top three (hopefully, one of which will be yours truly, NC State).  The survey link is  The survey polled 719 supply chain professionals last month and asked: “As a marker of supply chain talent, please select your top three universities.” Respondents were given a drop-down menu comprising 191 universities known to have supply chain offerings within their business programmes.  They will re-publish the results in March 2016.  If you have had any experience with our program, whether through engagement with our MBA or undergraduate supply chain students, as a reader of this blog (which I update about twice a week), or through the significant information provided on our award-winning website (, I’d encourage you to participate.

Thank you for your support!

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I had the opportunity to speak to a group of oil and gas executives at the DHL Global Energy conference this week, held in the Petroleum Club.  I was joined by one of my former NC State students, Scott Frahm, who sat in on a few of the presentations.  The conference was a great opportunity to interact with logistics and procurement executives in an environment of open dialogue and discussion.

There is no question that the oil and gas sector is under a huge amount of pressure to drive cost savings.  Everyone I spoke with talked about the massive layoffs underway in all of the majors, the drop off in volumes, and the escalating cost pressures that everyone is feeling.  All of a sudden, everyone is “knocking on the door” of procurement and logistics, asking for cost improvements.  Some companies are even sending out “blanket” letters to their entire supply base, demanding 10-15% price reductions on all current products and services.

This approach is clearly misaligned.  Most suppliers in today’s markets have single digit profit margins, so demanding double digit price reductions is absurd.  However, a number of presentations identified significant opportunities to drive out cost through asset productivity and logistics improvements.  As an example, DHL is finding ways to drive up to 30% lower costs through route optimization, cube optimization, and other logistics improvement activities.  Routing of express deliveries with one customer produced up to 11% cost savings through global logistics channels.  Another example shown involved improved advance planning for rig mobilization / demobilization activities, that could drive significant cost savings through improved uptime and reduced cycle times.  Rig data management is an emerging area to  keep track of all changes while the rig is in operation, and improve rig productivity and uptime.

These are the types of asset productivity savings that are often left untouched, as procurement goes relentlessly after pricing cuts.  What distinguishes these types of savings is that they often are buried in operational costs, and not easily called out on a purchase order.   Productivity and logistics savings occur only through improved collaboration with service providers, and attacking costs in a structured and organized fashion that involves studying the problem, collecting data, and driving operational execution of the improved process.

Other presentations at the conference included a discussion of compliance in the global supply chain.  Normally considered a “boring” topic, the panel of Compliance Officers at this conference brought this topic to a new level of interest, and was my favorite presentation at the entire conference.  The panelists highlighted a number of important examples of the Justice Department and SEC’s efforts to track down instances of Foreign Corrupt Practices Act violations, many of which were unsuccessful due to poor execution.  One of the biggest prosecutions involved BHP Billiton’s paying for 60 government officials and their spouses to go to the 2008 Beijing Olympics, for which they were severely penalized.  Other examples of “junkets” involving “world tours” for executives in exchange for business were highlighted.  One of the common threads in this presentation was the importance of education of personnel in what is appropriate vs. illegal activity in this realm.  Many executives are simply naive when it comes to this area.  However, they all noted an increasing trend towards greater prosecution of individuals involved in global compliance and import/export violations.  They also noted an increasing trend on challenges to identifying local content in many countries such as Brazil.

There was also a very interesting presentation by the DHL Innovation Center, on emerging technologies.  The topic of the “internet of things” was introduced, and the opportunities for tracking and managing assets in the supply chain was discussed.  The introduction of a technology called the “Scarab”, which monitors a multitude of factors on an individual, including GPS, temperature, UV ray protection, carbon monoxide, heart rate, etc. can be used to monitor workers in the energy industry to reduce liability of the company in oil field workers.   There was also an interesting discussion of the “Google glasses” technology being used to drive “visible picks” in warehouses,with bar code scans, voice command, and connectivity. Benefits include handling of items for other tasks, productivity increases from improved speed, satisfied and engaged employees, a reduction in paper, and a reduction in training time. Smart glasses can also be used to do maintenance on vehicles, and utilities are experimenting with them to do X-ray vision when field workers are seeking to locate pipes underground to do drilling accurately. Schlumberger is also using them with oil field workers to do inventory monitoring – the worker uploads a picture of the inventory in the field to connect with a remote technician, who can see what the oil field worker sees, and who can give them guidance on material handling.

The biggest takeaway for me personally was the need for change in the way organizations attack costs in the oil and gas sector, which involve looking at major projects and operational assets, not just price.  One executive I interviewed stated this succinctly:

Our existing systems and ways of gathering data and information is adequate for the category management or process – the pre-award work. We can measure what is happening in terms of how much we spend in this category, what business unit level spending we have, what types of things we are buying, and derive “good enough” information to do strategy work and enough consumption information to negotiate volume tenders around the world. But were we fall down – and where we believe 80%+ of our opportunity for continuous improvement exists – is in the brownfield post-award stuff. For example, do we have the information on when we are buying energy – during peak hours or not? How is the service or consumption information being used in real time at the asset to drive savings, and where is the analytics for that?

I believe that before organizations spend a ton of money investing in information dashboards for category managers, they consider the power of working with logistics and supply partners to enable the continuous improvement in oil and gas assets and major projects. A person that owns or manages the supplier contract at the asset has to be able to know what the big commercial levers are. They have to have a way to derive feedback on complex materials and services going on at the asset.

In an era of $40 oil, procurement and logistics managers need to work more closely with their partners like DHL to drive down cost savings.  And that is the true test of a partnership – someone who will work with you to adapt to the changing ecosystem, and be there for the long-term to work through the cycles of ups and downs over time.  Procurement doesn’t get that yet….maybe this downturn in the oil and gas sector will drive it home.

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I had the opportunity to host a panel of Chief Procurement Officers at the Zycus Horizons 2015 meeting on October 5, 2015, on the subject of the journey organizations take in moving from tactical to strategic sourcing. The panel included Marianna Danchisko, CPO from Celgene, Angela Thomas-Anderson, CPO of QBE Insurance, and Barbara Ardell, from Palladin Associates, who worked for many years in procurement at P&G. We covered a number of questions on the panel that I felt provided some fascinating insights into the role of leadership and change management. An extract of some of their comments is provided below (based on my best recollection!).

In your experience, is there a trend away from tactical procurement organizations and more towards the strategic? How has that affected organization structure?

Angela– I’ve been in leadership for a multitude of industries – I’ve worked in global procurement operations at Dell, Intl Energy Services, consumer products, and now an insurance company. An underlying theme across different organizations is that they all struggle with the use of the information they have at hand in seeking to justify value beyond cost savings. The proposition – moving to strategic – is the use of information procurement has available on hand to create insight and show value.

What do you see as the top business priorities for procurement? What initiatives are underway to drive results in these areas?

Marianna – Overall Celgene has gone through a tremendous transformation in past 2.5 years. I started 9.5 years ago and at that time we had procurement to produce PO’s. It wasn’t about developoing relationships with the business – which we are now doing as we start to bring the business onboard. That being said – the company in 2010 implemented Oracle as its global ERP system under one platform to share supplier master and procurement systems and develop insight into what was going on. We implemented quickly and didn’t maximize effectiveness, but it did set up a framework around measuring activity where we didn’t have measurements before.

Angela – One initiative is in terms of predictive modeling for our business goods and services needs. The second is the business insights on how to strategically position partners to drive additional value. We are moving to a model where we focus less on the tactical things and the strategic sourcing, and are looking at revenue drivers around innovation to create a more sustainable model. Instead of just placing orders or driving single initiatives we have created a forward view to align human capacity around the ability to support the progressive needs of the organization and the growth projections.

As an example, we may be called on to do clean sheeting and do should cost models for negotiation.   But the other piece is creating market insight. In some cases, the sales organizations is seeking to partner with suppleirs who don’t have the best long term cost proposition. We can help them understand the need to align the supply of goods and services as an element in the value proposition, and provide them with advice on which partnerships and alliances can produce the best long-term value.

Barbara – It is important to focus on getting upfront analytics, and not just technology, but adoption and institutionalization of building analytical insight. It is not just about rolling out systems, but one has to be able to replicate it and do it over a period of the time. Technology that is not implemented and not adopted as quickly as possible results in people abandoning it – so the degree and speed of adoption is something we should be measuring as we adopt procurement systems.

What are the challenges Procurement organizations face as they journey through transformation?

Angela – I think one of the biggest challenges is around alignment of resources. Coming in to a new organization I knew we had tactical activity and organizations around the globe that were seeking to build for future income. Our first priority was being able to understand the business requirements and the fluidity and ability to shift resources for the real needs of the organization.

When procurement comes in to any operation, if they are only thinking linearly around cost savings, they can miss the larger opportunities to align more with the business. The key is to ensure procurement can support the capabilities of the business – including the tactical steady state and future state of development. I think it is both about human capital and the bandwidth of the people and systems you inherit. You will need to ramp up those who can transition quickly. For the systems piece, if the organization doesn’t have the technology infrastructure, or if they have the infrastructure but it is not institutionalized, then changes are needed. The active use of tools is important to drive insights around data that can become available once the tools are put in place.

Marianna – We are using a Zycus Analytics platform based on their master data taxonomy, which we think is roughly right (not 100% correct).   This is being used as a basis for discussions with stakeholders on how many suppliers we have for printing, in consulting (black hole) or temp labor. The response when we present this data is always the same: “I can’t believe we are spending this amount of money with this many suppliers!” These are just a few of the areas to be able to establish quick wins from a consolidation perspective, and beginning to establish preferred supplier in this space. Or when you show them globally that 80% of spend is with 300 out of a total 3000 suppliers – they say Wow, I didn’t know that! In some cases when you present these statistics, people will say “But MY team is not doing that – we are only using a handful of suppliers and staying in our swim lanes.” But when the data refutes that knowledge, they still shake their heads. “My team can’t possibly be doing that!”

To drive change, this discussion has to be pitched as educational, not confrontational. “We are just showing you the data. You have to create a data analytics team that is agnostic, independent and just present the facts. You are trying to communicate that this is a a single source of truth, using tools that will describe what our spending actually is, and what can we potentially do to make this a more cohesive process.

To facilitate these dialogues, we are moving over to a program management office created by our senior leadership. The management committee will communicate the vision and mission and get people to agree to a seat on the committee, expressing what global sourcing can do. And then it will get a little more structured. By the middle of next year, the message will be established that if you don’t follow the rules for spending, you will be called out. We will put control mechanisms in place to drive people to use a preferred supplier. We hope to gather small low hanging fruit to get some quick wins and use as a springboard for a more centralized approach.

These observations lead me to conclude that transformation is less about software and systems, but more around change management!


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I am speaking at the Zycus Horizons conference this week, being held at the Reynolds Plantation in Georgia.  As part of the conference, I’m delivering a talk on five predictions that every procurement professional should consider.  These aren’t so much “predictions”, as opportunities that procurement professionals should become aware of, and educate themselves on.  I believe these represent true opportunities for driving improvement across a number of organizational areas that will prove to be important.  In my experience, organizations pursuing improvement in these areas are going to see results beyond the traditional “cost savings” focus of many procurement areas that continue to pursue traditional leveraging opportunities.

Prediction 1 – Spend Analytics Will Become More Predictive (Not Backward Looking)

My recent interviews with a number of executives leads me to believe that driving where the organization is going is a lot more important than looking in the past.  Most spend management looks at historical spending – which is interesting, but doesn’t tell you where the puck is going!  As one executive I met with said:

“It is important to have meaningful data – but what you do with it is the issue.   Can you form insights that are actionable? That is the real question!”

What this individual was emphasizing is that asking the right questions about our data will become important.  Spend analysis can certainly provide one set of insights – but only provides a partial view.  Organizations need to be able to use this informaton to provide greater insights into future spending requirements, and provide views that will support business strategy and greater views on what will be important going forward.

In one company, the analytical team explored the relationship between economic activity, consumer demand, and demand for their products. They discovered that there were several leading indicators of demand, including coal (a 10 month leading indicator). Other indicators included data pulled from the Federal Reserve economic database, the Producer Price Index, the Purchasing Managers Index, as well as internal metrics such as the size of the company’s own sales force. Using multiple regression models, a predictive forecasting model was developed which allows users to input data into the model, and develop specific forecasts for different categories of products purchased from overseas suppliers. The model is also being used to adjust company revenue and budget growth estimates – and can effectively be used to either curb or expand budgeted growth estimates based on these economic forecasting models.

Prediction 2 – Incident prediction and workflow management systems will replace supplier risk monitoring on major projects and indirect areas

Incident prediction means understanding what issues are on the horizon, not just what are current risks.  To ensure monitoring of current workflow systems, real-time systems will be needed to collect worker feedback, from those that are closest to the action. In addition, it will require simple, holistic metrics that capture all areas of business risk for contract factories, and which encompass both current and future risks.  We may also see forums for industry collaboration that identifies best practices, shared insights, and an opportunity to drive a standard approach to what are emerging as very large and complex risks in the global supply chain.  On-going research is needed to capture social media, “big data”, qualitative reporting insights, and other non-traditional data to enable predictive insight, and build a shared source of truth for factory and supply chain risk.  New insights are needed into risk mitigation practices that go beyond simply “avoiding” risky production locations when a decision is required, but instead drive better business decisions and improved community impacts for sustainable supply.

Prediction 3 – Corporate responsibility (diversity, environment, labor and human rights) will become an integral part of the sourcing and risk management process.

The recent publicity generated by the Rana Plaza disaster in Bangladesh, and other labor risks, has elevated the importance of integrating these issues into the sourcing decision.  There are many different data resources that are potentially available to augment and create a rich set of metrics that can be used to drive insights and warning to procurement and senior management.  Organizations will focus on creating centers of excellence tasked with creating indices that provides a quantitative and visual representation of the supply disruption risks that exist in the global supply chain, as well as the related financial cost impacts associated with these issues. Such indices should be proactive in nature, and provide an early warning system as well as an estimate of potential financial impact of diversity, environmental, and human labor rights violations to procurement.  These centers should be not tasked not just with mitigating risks, but to provide early warning and a dashboard that can be used to alert management and serve as an early warning mechanism of possible threats to the supply chain, and the relevant financial impacts to the organization.

Prediction 4 – Organizations will build stronger modeling capabilities to plan and manage future supply chain talent requirements.

As we’ve noted in prior posts, talent is the key to procurement organizations.  However, most organizations don’t think of talent as a critical input – the assumption is that you can find the right people “on demand”.  Unfortunately, this is proving to be a big assumption that is not panning out.  Organizations are finding a critical shortage of talent for many of the roles they are seeking. Talent should be part of building a procurement transformation, and not an after-thought.

Some of the research we’ve done has identified predictive models that consider the future requirements and skill sets  in different areas of supply management.  Given this future state, the model considers the current state, which includes a number of parameters including Staff Pipeline, Candidate Pipeline, Min/Max/Most Likely Inputs for each Recruiting Activity, % Interviewed, % Hirable, and % Accepting.  In addition, the model should consider retention rates for employees.  This is particularly challenging, given the many different companies that “millenials” will move around with over a period of time.  Efforts for building talent should be a partnership between human resources and supply management, to truly think about how to achieve the right long-term outcomes.

Prediction 5 – Post-Award Contract Management (SRM) will become the Biggest Single Source of Sustainable Cost Reduction

One executive at a major oil and gas company stated this very succinctly:

Our existing systems and ways of gathering data and information is adequate for the category management or process – the pre-award work. We can you what is happening in terms of how much we spend in this category, what business unit level spending we have, what types of things we are buying, and derive “good enough” information to do strategy work and enough consumption information to negotiate volume tenders around the world. But were we fall down – is where we believe 80%+ of our opportunity for continuous improvement exists – which is in the brownfield post-award stuff. For example, do we have the information on when we are buying energy – during peak hours or not? How is the service or consumption information being used in real time at the asset to drive savings, and where is the analytics for that?

The opportunity to drive post-award contract management will continue to be critical.  Organizations I’ve spoken with recognize that this is the key.  One company I met with last week has a focus on improving productivity in its Taco Bell, KFC, and Pizza Hut brands, by considering not just the price of food, but also the operational characteristics of food preparation that drive a total cost solution for many of the purchases they are making.  This level of operational and price-based management will be a key focus for procurement in the future.

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