I'll admit it. I was pulling for the Broncos. I know there are two sides to every story, and something preceded Richard Sherman's less-than-gracious on-screen comments in his interview with Erin Andrews after the 49ers playoff game...but all I heard were HIS comments, and they were enough to turn me into a Broncos fan for the Super Bowl. Of course, the fact that Seattle beat my home team to GET to the Super Bowl was also a contributing factor...but I digress. The real reason I bring up yesterday's lopsided game, was that in a very strange way, it made me think about governance and supplier relationships. Why, you ask? Well, it's simple. If you don't set out the terms of a relationship and have a proper governance plan in place, you can end up with a very imbalanced set of understandings, which can have a disastrous result. In a blog posting on governance several months ago, I spelled out my thoughts in a detailed manner, including organizational structure, stakeholder involvement, cultural alignment, milestones, deliverables and goal linkage. Without a doubt, those are all critical, but for the purpose of this "post game report" I'd like to focus on what I consider to be two of the most important components in just about anything.
Procurement's historic focus on managing categories of supply too often assumed that the category was comprised of interchangeable sources of supply to be manipulated to produce perpetual annual cost reductions at the category level. The new realization is that material cost savings are not an annuity and commodity suppliers are not a "commodity." The best suppliers, and the supplier's supplier, are the source of innovation and competitive differentiation, and a supply management, not category management focus, is needed to nurture them. While the orientation towards Category Management remains ingrained - the latest CAPS (Center for Advanced Purchasing Studies) Manufacturing Industry Benchmarks still show nearly double the amount of procurement resources allocated to Category Management as compared to Supplier Management (31% to 16%) - the shift towards Supplier Management has already begun. In a Zycus sponsored, December 2013 webinar in collaboration with The Hackett Group, titled, "Real-time Procurement Benchmarking," almost half of webinar attendees polled expect to get more than 10% of "total procurement value" from Non-Sourcing or Category Management activities - in other words, Supplier Relationship Management. More organizations are turning their attention to Supplier Management as a new source of savings - and value - as a matter of necessity. Hackett Group Benchmarks point towards a leveling off of savings achieved by World-Class performers, whose Total Spend Cost Savings as a percentage of Annual Spend (Cost Reduction and Avoidance), are forecast to decline by more than a full percentage point (7.56% to 6.46%) from 2012 to 2013. And according to Hackett benchmarks, Top Performing organizations are already realizing 3.4% savings annually as a percentage of Total Spend above and beyond savings from sourcing or category management, twice as much as their peer group.
Richard Waugh, Vice President, Corporate Development, Zycus Inc.
I just had the distinct pleasure of spending a couple days in Guadalajara experiencing first hand the talent, passion and capabilities of the region. Nearshore Executive Alliance held the Immercio conference there for about 80 people with a mix of buy-side, sell-side, regional experts and advisors in attendance. The sessions I attended and stories I heard convinced me that if I had any doubts about outsourcing to Mexico, it was time to see the light. I was able to hear first hand from companies like HP and United Healthcare who have opened captives with amazing success and while it is more expensive than their Indian locations, they would never consider moving out due to the unique talent, as well as time zone and cultural affinity. I met people representing companies like Softtek with 10,000 employees as well as companies like Unosquare who have 102 and growing rapidly. I met a company called Vesta that outsources all of their high-end work to Unosquare with incredible results. I toured the Institute of Technology of Jalisco and saw hundreds of "20-somethings" doing work for a dozen or so outsourcing companies located there. I met with iTexico, a start up that had eight people working for them two years ago and have 80 now, with plans for 150 by next year. I found that these companies are taking on higher end-work, not commodity type coding. They are creating apps, websites, software and interfaces for companies in North America. They are working for Open Table, Uber, and similar companies. In addition they are serving Fortune 500 companies with their corporate identities and marketing platforms and social media. Why? Well, for one, they will soon be graduating more engineers than the United States on an annual basis. Their English skills are amazing and they are recruiting from all over the world. One center I visited was like the United Nations. I met people who came from India, the UK, Australia and Michigan.
I recently heard someone say that sourcing was boring. "Really?" I said with a hint of incredulity in my voice. In response the person said, "all you do is deal with incumbents and execute contracts." Well, that my friend is a person who doesn't really understand sourcing. Sourcing can be one of the most interesting jobs around. You must find a creative outlet for the category you are sourcing and discover new sources of supply as well as uncover new sources of information that will make your sourcing execution successful. When someone says sourcing is boring I often think that they are very simple-minded. Every single morning when I read the paper or watch the news, I think about the opportunities/issues facing companies when they have a supplier at the precipice of a disaster. Think about the last time we had a hurricane, a tsunami, a terrorist event or something of that magnitude. Those natural disasters have far-reaching impact, including call centers that were shut down, data centers that were closed, and goods and services that were trapped at our borders unable to enter a country due to issues happening around the world. Every time we have the political unrest, we face the reality that sourcing may change our near-term future. What I think is the most exciting news about our industry is the fact that everything that happens in the news every single day, can affect sourcing decisions. Global news impacts our everyday work lives. The other exciting aspect of sourcing to me, is the fact that we are the only function that looks across the company and sees stupidity, redundancy, duplicity, and multiple contracts, for the company that employs us. One might say that Finance has a better vision of what happens every day in our company. But, coming from a CPA background, I would beg to differ with you. When I report financial earnings profit or loss, I am reporting what has happened in the past.
I don't know about you, but at the beginning of each New Year, I feel pressure to come up with something I resolve to do differently. Truth be told, I don't come up with New Years Resolutions every year, but when I do put thought into them, I do my best to see them through--mainly because I select things that are achievable and "task-oriented," like (don’t laugh) "wash my face every night before bed." Needless to say, my personal and professional resolutions have always been somewhat different. This year my resolution is slightly more esoteric. In fact, it's more of a "theme" than a "thing." I got the idea from a friend and I think it's a perfect way to merge personal and professional resolutions. The idea is to pick a word you want to live by...and every day find ways to implement it. My word this year is "do." I know, it's kind of lame considering Nike's successful "Just Do It" campaign. But I couldn't think of a better verb to capture my goal, which is to act on things, not to catalogue them for later. To remember it, I've been using the mantra "see it, do it." This comes in handy with four kids in the house. There is a lot to "do" when I "see it." But I also find it great in my professional life. It is so easy to put things on the back burner until later. But with a "see it, do it" mentality, I'm trying harder to do things as I get them. Obviously this doesn't work all the time--some things have a higher priority than others--but by focusing on "do-ing," I find that I'm more engaged. I'm reading relevant articles when I get them, adding things to my list of priorities, reading through the priorities and doing them when promised. Perhaps the better work phrase is "see it, schedule it, do it." That way it gets the appropriate weighting before "doing." If you aren't a regular resolution-maker like me, maybe this can help motivate you to pick a word, theme or phrase to live by for the year. Me? I'm seeing it and following through on it!
I had a completely different blog ready to go today, but realized that we are on the cusp of Member Appreciation Week, so my "New Years Resolution" blog is just going to have to wait (and how apropos...putting off those resolutions just a little longer)... As we get ready to celebrate our members next week with tokens of appreciation, phone calls and a drawing for a Dell Venue 8 Pro Tablet, I'd like to say what I personally appreciate most about our fabulous SIG members:
CFOs and other executives know that the order to cash (O2C) cycle in any business is its backbone - it extends out and touches just about everything in a firm's back office and customer facing departments. They also know there are numerous opportunities for problems and breakdowns, any of which can seriously impact customer service, cost and financial results. What's the best way to diagnose these problems? How can they be fixed permanently, with reduced overall costs and improved overall results? This can be very challenging – like operating on the patient while the patient is working everyday. Additionally, it's often difficult to get these fixes done from within the business. The first step is to take a hard look at each of the key areas of O2C – credit management, order fulfillment, invoicing, returns, logistics, payment processing, collections and reporting – to identify opportunities to improve, reduce cost, and smooth out problems that may be causing headaches for internal and external stakeholders. The problems can be varied. It's not uncommon to see high volumes of order entry errors, too many orders delivered after date promised, extraordinary number of returns, inconsistent use of SKUs, high level of customer complaints and repeated escalations relative to the order volume, price lists/promotions not up to date, and manual handoffs between teams that don't go well. We have also seen inappropriate metrics, some of which actually drive the behavior of the O2C staff in the wrong direction. The next step is to drill down to the root cause, understand what's really required, and then implement the changes needed. Investing time in diagnosing a company's O2C "pains" is the first step in optimizing order to cash processes and well worth the effort.
Mark Davison, Senior Director, Order to Cash Services, Corbus
Picture this in a high-pitched, Valley Girl voice..."Really??" I was both entertained and amused when Michael Shaw invited me to join his board for the "American Council of Sourcing and Procurement Executives (ACSPE)." Do we really need another association in the sourcing space? Although it is tempting to sit on a board with a potential "competitor," I'm not sure I agree with the methodology behind this organization. Why would I join the board of an organization that appears to include more sell-side members than buy-side? In fact, why would buy-side practitioners be interested in this group? The organization quotes that "our intention is to make this group a valuable resource differentiating it from generalized procurement groups." How? Seriously. How? I received a form letter telling me that our organization was nominated as a potential partner...I know it was a form letter because I saw one written to another company with the same language, including the: "indicate yes/no" response. It reminded me of a country song about a boy liking a girl and asking her to check "yes" or "no" if she does/does not like him back. So SIG was nominated by the Board to be included in the Board, but they haven't had their first Board meeting? Hmmmm. How can you call a Board a Board if their first Board meeting isn't taking place until June? For what it's worth, at SIG, we bring buy-side and sell-side together in a safe and collegial environment to eliminate the commercial side of Sourcing. With a ratio of 70:30 buy-side to sell-side and no booths or selling allowed, practitioners can focus on what really matters--sharing, learning and networking. Okay, my rant is done (borrowing a Jason Busch term) and I am back to work on helping SIG meet the objectives of our amazing members in a non-commercial manner!
Procurement organizations will evolve from cost centers or even shared services centers to be measured as true "profit centers" that are accountable to executive management and shareholders to deliver specific, measurable ROI targets - or risk being outsourced to more efficient third parties. Procurement organizations will continue to be challenged with finding new savings opportunities – a Capgemini Consulting survey of over 1,000 CPOs indicates that 39% say their organizations expect procurement to increase savings, with 35% of respondents expected to generate savings in excess of 6% and 5% targeting better than 10%. However, many organizations may be reaching a point of diminishing returns as evidenced by Hackett Group Benchmarks that point towards a leveling-off of savings achieved by World-Class performers, whose Total Spend Cost Savings as a percentage of Annual Spend (Cost Reduction and Avoidance), are forecast to decline by more than a full percentage point (7.56% to 6.46%) from 2012 to 2013, but are still posting better than 2X greater savings than those achieved by the non-world class peer group (2.93%). In this climate, where savings expectations are increasing while savings opportunities are increasingly hard to come by, procurement organizations will be under the microscope to demonstrate their ability to contribute to corporate profitability by achieving world-class ROI from their procurement operations – 10.72 in 2013 as compared to just 3.89 for the Peer Group – as calculated by dividing spend savings by the cost of procurement. Those procurement organizations that are unable to demonstrate world class Procurement ROI, risk being outsourced. Already, the Capgemini survey indicates about 10% of organizations have chosen to outsource some form of their procurement operations and another 25% are considering that option. Procurement organizations have a real opportunity to be seen as a profit center.
Richard Waugh, Vice President, Corporate Development, Zycus Inc.
Are you having trouble attracting and retaining talent? If so, have you considered your social media presence as part of the issue? People post about your company on Twitter, Facebook, LinkedIn and Glass Door and all over the world of social media. Do you Google/Bing/Yahoo your own company and see what people are saying? Do you search your own name to see what people are saying about you as an employer? Have you searched for pictures of your work and worksite that show your company in a bad light? Within the SIG membership, we have many of "the best places to work" in the USA, so we know good employer brands well. Can you imagine if you work in sourcing for Dish Network and the top searches about your company are about how you are the meanest employer in the United States? How about if you work for Radio Shack and the complaints are mostly about middle and upper-level management and the lack of a consistent turnaround plan? While these reviews may not be focused on sourcing management, a potential employee might make an incorrect inference based on what they see on social media. I have a few suggestions you might consider: