Defining Mediocrity

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Buying services requires a different skill set than buying products. This is particularly true when contracting for an outsourced service, or outsourcing a function currently done in house. Products can be specified using very concrete terms. Things can be seen, touched and measured. Services are a little harder to describe, and outsourced business processes even more so. This is particularly true when the outsourced service actually touches your end customer. Outsourced payroll is easy. Outsourced order fulfillment, not so much.

Instead of a product spec, we have a Statement of Work or SOW. Those initials often can be descriptive of the document in multiple ways. Anyone who has spent time on a farm or at the county fair knows that a sow (female pig) can be bloated, slow moving, destructive and hard to deal with. In the worst case a SOW makes your supplier like a sow.

Most of the time, there is a contingent of folks inside the company who have a proprietary interest in how the process to be outsourced is done, usually because they currently do it or used to. They see their expertise as a part of their value to the company. The hard part there is that usually a key reason companies outsource is to get more value or better performance from that process. Hopefully, companies are hiring a service provider because of their state of the art processes and equipment. By definition, superior methods imply different methods.

Human nature works against us here. The people we use to negotiate the spec are the subject matter experts, i.e. the people who defined how it is done now, and the procurement person, who's success criteria is tied to having a problem free start up. This produces a very strong bias to create a process at the supplier that reproduces exactly what is done in house.

Here of course is where most companies hit a stumbling block. They are contracting with a world class provider of a service, but their SOW defines the process as exactly what has been done in the past. This is like recruiting Lebron James to play basketball for you and then insisting he only use plays from his high school team. Opportunities to reduce cost and to improve service levels get negotiated away in defining the SOW.

So what to do?

Know what you want

You are outsourcing for a reason. Are you looking for improved service levels? Lower cost? Improved reliability? These things are what your agreement should be based upon, as opposed how many steps or moves are listed in a process. Hold the supplier accountable for what you are really looking for. The agreement needs to show hard target, with incentives for the supplier to meet targets. Let your supplier make money for making you money.

Let Lebron be Lebron

Here's an idea. Let the supplier write the SOW. Let them use their expertise to transform your process to gain some real efficiencies. When you own the details you hamstring your supplier. If your contract is tied to real outcomes, you don't need to worry about steps. If they cant improve your process, you probably picked the wrong people anyway.

Stuck in the Last Century?

Let's take a trip down memory lane. Lets go back to supply chain operations in the pre internet age. Yes I am old enough to remember back in the olden days, when we spent our time poring over greenbar paper reports, sent memo's, had secretaries. Faxes were new technology. The MRP arrived on our desk vs. on our screens. Everyone came to work at 8 and left at 5 and the hierarchy ruled. We had rooms full of data entry clerks who fed the beast of the mainframe. Telephones had wires and we were actually out of communication when we went home. Heck, on weekends, whole days would go by without any thought or intrusion from work.

Most of your suppliers were in town. Worst case your stuff was coming from across the country. Only the most exotic unobtainium was brought n from overseas. If you had a problem you could drive over to the supplier and fix it. Jobs were clearly defined and many times there were many people to do the same job, as many "labor saving" technologies were still a gleam in someone's eye.

Now fast forward to 2010. Today's supply chain would be unrecognizable to the average buyer or purchasing manager in the last century. For one thing most of the work they did has now been automated. Supply chains sprawl all over the globe. Complex logistics methods and multiple sales channels, sometimes shared with competitors, make just getting product from factory to customer a challenge.

With suppliers all over the world and instant communications via the internet and smart phones, work really never stops. The workweek starts Sunday night as the email from Asia starts to come in, and woe to the person who waits till Monday morning to get the lay of the land. Europe conference calls start at 5:00 AM west coast time.

The organization has been downsized and Kaizen'ed and 6 simga'ed to the point where there are very few people left. Repetitive tasks automated; non value added tasks eliminated; small scope jobs combined. Only complex thinking jobs are left here in the US. They are broad in scope and responsibilities change constantly. The line between "manager" and "worker" is blurred, as the level of decision making at the individual contributor level has risen drastically to accommodate the speed of business

Interestingly enough though, the organization and work rules are similar. We are still expected to be in our seats for certain hours each day, Our employee evaluations, though "improved" many times though different fads, still look much the same. Managers pick a ranking, like "meets requirements" and then write an evaluation to support that. Everybody follows that charade knowing it has nothing to do with what they do for a living. Titles and positions on the org chart live on like vestigial organs on an evolved species. Roles and responsibilities are assigned in homage to this obsolete model.

So what can we do? How do we pull the organization into the 21st century?

First we have to look at what we do, what are our key business processes.

Much of what was historically the buyer's job takes up a very small part of the work day. Nearly all of the buys are from a preferred supplier list. Quantities and schedule are set by the planning group through the ERP system. Actual negotiation are largely and annual affair when contracts come due. The part of Purchasing the stays with us is reacting to change and improving processes. Supply chain as little to do with purchasing and lots to do with scheduling – and rescheduling.

Most of the planning/scheduling work of those days is also gone, automated or offshored. The Key activity of the planning group today is to match supply with demand as best as possible, and provide "Purchasing" with the best and most accurate scheduling data possible.

The warehouse, is now the Logistics group, tasked with keeping the sea of product all over the world moving as closely as possible to the demand of these other groups.

Logistics contracts are maintained by purchasing, PO's are placed by purchasing even though they really have nothing to do with their actual content. Planning tries to maintain data element that they have no visibility of. All of these, of course, are operating using many of the same KPI's they used in the last century, and are evaluated using a process developed in the 60's.

Make the change

We need to reorganize, around our key business processes. Move role, responsibilities and resources so that they are aligned around managing a process. Align metrics with those processed and then base performance evaluations on just the same thing the executives use, results. Forget standard work hours and let your people decide when they need to work and when they need to be on the office.

If you really want to do more with less and be more effective take a look at these ideas. This is not a manual of how, but hopefully the start of a discussion. I would love to help you with the how and the what based on your organization.

 

 

 

 

Know When to Walk: and Be Ready

 

Negotiation is about winning. I definitively ascribe to the idea of "win win" in negotiations, but any combination that ends up with your side in the "lose" column needs to be avoided at all cost. In the worst case situation, that means walking away. It is important to remember that the point of negotiations is not to make the deal but the get a deal that works.

The single most important issue in a negotiation on the buy side is the ability to have options. This is what gives you the ability to negotiate from a position of strength; any negotiation where you know you have to make the deal is not a negotiation at all. It is bickering, at worst it is begging. Even if you are dealing with "Supplier of Choice", it is important to be able to talk to them in a competitive environment. So how do you get there?

Do Your Homework

First you must understand your options in the market place. As you come into yearly negotiations for example. Engage a competitor (or 2) in serious discussions. This will give you real data to use in your negotiations to know what really is a competitive position. Your current supplier will no doubt hear about it as well and likely sharpen their pencils. If things don't go well, you have a real back up to bring in.

Look closely at your stock positions on the product. Insure that you can stand a short interruption of supply or a transition in service. This will also help you if you are forced to accept a price hike. Your incumbent will also likely notice this as well.

Notify your Sr. Management of what you are doing. They will then see your actions as a strategic process in the best interests of the company and not ask you why you "blew the deal" in the event that you do have to back out.

Meet with your team and talk through the issues of what may happen if you do back away from the table and insure that contingencies are in place to deal with other issues.

Set the stage

Relationships are important, you are about to go into a position where you want to appear prepared to walk away from what might be a long term relationship. This can be difficult to do and it can also put unneeded strain on personal relationships that you count on all year. For this you need new hats. What? In a negotiation you need "White Hats" and "Black Hats" (apologies for the cowboy analogy)

A designated Black Hat needs to have approval authority over the deal and be at least somewhat removed from the day to day management of the relationship. This is typically a very highly placed executive in the company who can become involved where needed. He not only serves as a guy who can say no without damaging the personal relationships, but she can also serve as a coach and reviewer of the negotiation. From here the White Hats can conduct the heavy lifting of the discussions. They have the mastery of the details and understand the subtleties of the issues involved and can recommend compromise positions to the Black Hat.

At the same time everyone in the room knows that whatever deal they make has to get past the Black Hat, which keeps both sides aware of the deliverables. To a degree it also puts everyone on the same side, trying to win over the Black Hat, which can result in some very creative solutions to sticky problems.

Taking these actions will position you well to walk away. More importantly, they put you in a very strong position at the table. A good supplier will see that you are well prepared and serious about achieving your goals. Don't be shy about discussing the "homework" you have done. Present this to suppliers as meeting the requirements of an internal process.

Be ready to walk so you really don't have to…

 

Gender Gap in Supply Chain Leadership?

I read a blog the other day by a smart lady named Sarah Lim. It was called "Take the Lead in Fairness". She commented on women in procurement and the lack thereof in the top ranks. She implied a lack of opportunity due to gender bias, and a failure by Corporate America to "keep pace with the changing needs of modern day living". The implication of her point was that most workplaces are not flexible enough to meet the needs of working women, mothers in particular.

She goes on with a list of recommendations for a more flexible workplace, most of which I wholeheartedly agree with, though most of these are not really gender specific. She then implies that somehow if we resolved these workplace issues, we would achieve gender parity in the executive suite. Well… maybe not.

Certainly my experience will support the idea of gender bias in Corporate America. I agree as well that this issue is not as severe as when I started in the workplace, but it is still there for sure. Over the years, I have come to count on finding a group of talented hard working women operating significantly below their talent and earning potential at each new job I have accepted. I have yet to be disappointed.

Given the opportunity, I have found these women were able to move into positions of far greater responsibility (and pay), and achieve great results for the company, and themselves. These women were invariably very hard workers and would readily go above and beyond the call of duty at a moment's notice. Many of my management teams ended up with gender parity earlier than the statistical norm.

I did learn that accommodations had to be made. Yes, these women did take more time off than their male counterparts. A lot of this time was unscheduled as well. I also noticed occasionally, their children occupying their office or cube when child care issues came up. As I tacitly allowed for these, I also noticed them, back in the day, carrying reports home with them, and later, emails at all hours. In nearly every case, I got at least as much as I needed from these women and many times, more than I expected. I learned that, right or wrong, these women were carrying a bigger or at least different burden than their male counterparts, and had different demands on their time. However, if given flexibility, they could produce at least as much

This experience caused me to rethink a lot of my methods. I learned to define and measure job performance by specific deliverables and results, assigning work by ownership of a specific function or process rather than by hours worked or other more conventional measures. I found that these changes were not really an accommodation, but actually a more effective way of getting the job done. This has become even more true as the procurement function really goes global, requiring communication nearly 24/7. If I am on the phone with Asia from 8 to 10 PM, why do I need to be in the office from 8 to 10 AM? This also served me well later when I began to manage people remotely or who worked from home

OK, so why did I say "Maybe not" about these changes affecting the top echelon positions?

In the end the organization is a pyramid. There are a whole lot of lower positions and only a handful of top ones. This means competition, and very tough competition. The folks who win those slots are those willing to do whatever it takes to get them. That includes a near singular focus on the job and that precludes the sort of "flexibility" discussed above. You went to your kid's soccer game and someone else did not. She gets an opportunity you missed. Most really successful women I know who have made it to the higher ranks in procurement, are either single or have a partner who handles a lot of the details of the household, allowing for the sort of focus required.

This may not be fair or pleasant, but until we do away with hierarchical organizations or promotion decisions based on competitive performance, folks who chose for work life balance will lose. As more women than men tend to take this route, I believe that parity is a long way off…

 

So Who Cares About Supply Chain?

Well, nobody really, and why should they? I was in an online discussion group recently (that is where I get a lot of my ideas for blog posts) and our group members were discussing how our chosen career seems only to get press when things go wrong. Save money? That's expected. Everything get here on time? Expected. Miss that shipment? Now we get attention!

So as managers, how do we insure that our group gets the recognition it deserves? This is not just a question of morale. When resources are allocated (or eliminated) the company needs to understand our value add. Supply chain also needs a seat at the table when key decisions are made, as we really can have a big effect on cost and customer satisfaction. Let's look at how to do that.

Step 1: Get out much?

I am a self confessed supply chain/logistics nerd. I love to look at the latest data, understanding what fuel surcharges are doing to cost per kilo out of Bangkok, how many PO lines were placed last week per buyer, looking at the S&OP data. Being on top of that data makes for better decisions for sure. (or maybe it means I need to get a life).

I dont kid myself though. This information, even a great improvement on one metric or another, is only mildly interesting to my peers or my boss. My monthly review may have all my personal hot button issues, and I may have automated that report so that it automatically gets sent to my Blackberry at 12:00 midnight on the 1^st. If my boss and peers don't need that information, I might just want to keep that to myself.

So we need to get out. We need to insure that we understand 2 key things.

One is that we "get" all of my business unit's goal's, objectives and metrics. The key is that all of my reporting needs to be put into terms that show how what I am doing affects our success as a group. This is not just numbers. What are your strategic goals? What is your boss getting pushed about right now?

Two is to spend time with our customers. Find out what your competitive issues are. Take a salesman to lunch. You will be surprised at what you find out. Find out the things your internal customers are struggling with. It is information? Cycle time?

Make sure every one of your staff understands these issues as well and know this is why they show up every day.

Step 2: Get Relevant

Is cash an area of focus? Then I need to be able to talk about what I am doing for inventory reductions. Is the group trying to break into a specific account? Show how your new 3PL contract can save money on their shipping lanes. Let's face it, we are here to add value, and that value is in how well we support the team. Let's make sure we do that.

Any projects or programs you start or work should be based upon these issues and presented as such to your group. Once you are "aligned", your routine reports will be your best sales tool. It will be easy to garner attention from your customers and management, because you will be talking about things they care about, and if you are good, you will be able to show progress in support of their goals.

Focus on cost, quality and efficiency is good, but it is also expected. Show your group as a key part of the solution to meet the company's goals and objectives. You will be looked upon as a key player, because you will be one. People want to support you if they think you are there to support them.

 

Its easy

SIOPS and the Gulf Oil spill

I have been lucky in more than one of my previous lives to be involved in the creation or overhaul of several Sales inventory Operations Planning Systems (SIOPS) I love being involved in this activity as it is what I like to do best; work with complex puzzles involving both processes and people.

Recently I saw a discussion posted on LinkedIn from a consultant asking if anyone has used SIOPS type tools to forecast the ability to meet a month end target. Clearly this guy had never been in a line management role in his life. After making a mental note never to engage this company's services, I pondered how many real deliverables are expected from this process.

Sr. Management expects this process to both protect the company and to optimize both revenue and inventory. However they are generally not close to the real compromises and risks taken in the process. The detail required to really understand the process is really not available to them, usually by design. They really have to take the recommendations they are given in most cases.

The real operating managers, people in Sales, Manufacturing and Supply Chain, have grown up in the pressure cooker of competing goals and objectives, insufficient resources and crazy time constraints. They are used to working in this environment and usually do an amazing job of keeping the race car in the lead of the race while overhauling it. SIOPS to them is the dashboard, Ouija board and a place to find whatever wiggle room is left after everything has been "optimized".

Folks at the working level expect this process to provide them with a workable plan. Given the dynamic nature of most operations, the plan agreed to does not generally survive intact too long, and they find themselves reacting to what is coming up in their e-mail in boxes, making decisions sometimes at odds with the plan.

This (finally) brings me to the Gulf spill. I keep imagining this same sort of a dynamic. Senior managers looking at data at a macro level, do not consider the crazy statistical outlier that is what happened in this case, and push on a macro level to reduce costs putting processes and incentives in place to accomplish this

From here, operating managers to try to save money on inspections, with all their data showing that this type of spill had never happened, and the models show risks are low (though consequences catastrophic) They find a way to keep hitting their targets, more with less, what they get paid to do…

Our lesson? Let remember that the models are just that and that they are still really just tools to aid human judgment.

 

 

The Incredible Shrinking Supply Chain

When I talk with colleagues, everyone talks about how long and complicated their supply chains are. Stretching across the globe, through multiple distribution nodes and stocking points, tracking and managing product flow can be a nightmare. While the game of “Who’s Supply Chain is Bigger” is fun to conduct over a beer, it is the opposite in terms of cost, lead time and overall value to the customer.


I recently conducted a 3PL survey for a client and I walked away amazed at the “Control Tower” war rooms at the major 3PL’s. Multiple flat screen displays can track shipments and point out trouble and potential trouble anywhere on the planet. Very impressive.

However if we want to be more competitive, we should be asking how we can be less impressive.

The Physical Supply Chain

I might be time to ask some “stupid” questions. Why is the company really operating in all of the countries and regions it is, at least on the supply side? Is it really necessary to be in 3 countries in Asia? Is it (heaven forbid) necessary to be in Asia at all? The State of Tennessee is touting itself as the New China, showing that with current levels of taxation and logistics costs it can be cheaper to manufacture there than in China.

Next, has anyone in Operations spoken to anyone in Sales about distribution strategy? I have seen product take several stops on the way to the customer from the factory that existed only to accommodate the organizational silos between Sales and Operations. Someone has to pay for those warehousing and logistics costs, and in the end it affects the company’s competitiveness.

The Virtual Supply Chain

Less obvious, and more insidious, is the process and data flow required to support this impressive supply chain. How many steps does it take to get an order from the customer to and actual order on an internal factory? How many people? How many approval steps? How about the same questions to status an order? In terms of cost and lead times this can be the biggest opportunity to improve.

In a recent study I was part of, a major B to B company, who’s name you would know, requires 3 approvals, 2 transcriptions of an order 3 emails and a phone call to enter an order. Statusing an order took a similar ordeal. We estimated that 25% of the headcount was caught up in non value added activity. Customer deliveries were 3 days to 1 week longer than required. Payback on the technology investment was measured in weeks.

The tools for simplification and process improvement have been around for a long time. Let’s use them to build an incredible shrinking supply chain.