Posts Tagged ‘SRM’

Strategic Sourcing, what is it all about?

December 17, 2013

Strategic sourcing processes introduced in the mid-nineties have proven to be so robust that even today they remain broadly similar.

This quick overview is not an absolute step-by-step template, because each organisation is unique and each deployment, although broadly similar, will be unique. It is not designed as a one-size-fits-all approach as this will not align your sourcing strategies with what your organisation wants to achieve. One thing that has been learnt from multiple deployments is that successful organisations drive deployment of strategic sourcing in their own way. 

Definitions

stra·te·gic [struh-tee-jik] – adjective

1. Helping to achieve a plan, for example in business or politics;

2. Pertaining to, characterised by, or of the nature of strategy: strategic movements;

3. Of an action, as a military operation or a move in a game, forming an integral part of a stratagem: a strategic move in a game of chess.

sourc·ing [sawr-sing, sohr-] – noun

1. Buying of components of a product or service delivery from a supplier.

Strategic sourcing is an integral part of a wider business strategy to improve profitability and, in turn, shareholder value. It is directly linked and specific to the business, and illustrates opportunities within the supply base to either reduce cost or increase the value of products or services required by the business. Typically, it includes demand management and supplier management. However, increasingly it is becoming important to factor in total cost of ownership (TCO) and sustainability. 

Demand management

Understanding the specification and volume requirements from the business ensures that needs can be appropriately met and that resources are not being wasted. Demand management is not about reducing contract volumes. Rather, it is about ensuring that contract volumes are appropriate for meeting the needs and objectives of the organisation. A core process that will contribute to the strategic sourcing plan is the sales and operations planning process (S&OP).

The S&OP is an integrated business management process through which the business continually achieves alignment and synchronisation between all functions of the organisation. It generally includes:

• an updated sales plan;

• a production or delivery plan;

• inventory holdings;

• customer lead times and commitments;

• a new product development plan;

• a strategic initiative plan;

• a financial plan.

The strategic sourcing team would ultimately be involved in several of these areas, to contribute towards capacity planning and to understand how each feeds into the overall plan and influences demand profiles.

Supplier Management

Understanding the capability, costs and capacity within the supply base ensures that business requirements can be appropriately matched without incurring higher costs. Systematic improvements in supplier management not only improve cost of goods and services but can also improve relationships with suppliers. This can lead to supplier relationship management (SRM) – tools and processes that enable the proactive management of an ongoing business relationship to secure a competitive advantage for your organisation.

To deploy SRM, an organisation needs to decide on a segmentation approach that considers the internal needs of the business, spend, and also accounts for risk to the business. Broadly speaking there are four high-level categories of suppliers.

Transactional suppliers are where little or no relationship or performance management activity is undertaken. Either the suppliers are utilised infrequently or the supplier is of low value to the business. These suppliers can be easily switched for another if required.

Performance-managed suppliers focus on ensuring delivery of the contracted goods and services to the required cost and service levels, rather than on building a collaborative long-term relationship.

Relationship-managed suppliers have some strategic value, so elements of SRM needs to be applied here.

Strategic suppliers are typically either business critical suppliers, or high spend suppliers. Generally the most effort is expended on this category to drive a mutually beneficial collaborative relationship. This is an effective route to improving costs through the Value Add or Value Engineering (VA/VE) process. A close working relationship with strategic suppliers also leads to a greater understanding (and reduction) of the TCO of products or services. 

Total Cost of Ownership

Understanding TCO is becoming increasingly important to procurement. Legislation concerning the environment is affecting the way we do business either through EU directives such as the Waste Electrical and Electronic Equipment (WEEE) Regulations or through corporate social responsibility programmes that drive different behaviours from the business. It is important to factor in not just the acquisition costs but also the cost of doing business with the supply base and any return flows or on-cost from recycling. 

Sustainability

The fourth element of strategic sourcing also provides part of the rationale for driving it within the organisation. Being able to sustain the supply of goods and services while de-risking the supply chain as well as balance the total costs is ultimately the responsibility of procurement.

A coherent approach

Tying all activities together into a coherent plan will transform the business, as only the procurement team can do. Internal ‘silos’ are built as a company grows. Although each silo represents the company’s acquisition of knowledge and improves the ability to deliver value to the customer, they can also create inefficiencies in the business, leading to organisational inertia. This can slow the pace of change and reduce the capability for innovation. Creating a plan balanced across the four areas ensures you will engage with the business and supply base.

When creating a communications plan, consider each of the four areas and how they might affect the stakeholder. Simple, bite-sized statements work well for those in more senior levels of the organisation. However, greater detail will be needed for others, especially where they perceive they might have to change what they do. Build in the wider plan, so each stakeholder can see all issues and organisational levels have been considered.

Develop your plan and highlight the best solutions for each area of the business. Consider using a SWOT analysis (see below) to develop the ideal outcomes.

 

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The high cost of misalignment between MRO Supply Chain and Maintenance Strategies

December 4, 2013

The misalignment of MRO Supply Chain and Maintenance Strategies can result in increased operational, safety, and compliance risk and significantly impact production and profitability in asset intensive industries.

 A solid asset data foundation and an effective Asset Data Governance process as part of an overall Asset Lifecycle Information Management Strategy can help to minimise these risks, improve asset availability and increase profitability.

 Competing Interests And Misaligned Strategies

 Hundreds of millions of dollars are spent annually in asset intensive organisations performing projects to optimise maintenance and reliability strategies. Designed to improve asset reliability and performance, these projects typically result in a set of recommendations that outline the specific maintenance activities that should be performed, the recommended frequency of performance, and strategies to monitor performance for ongoing continuous improvement. These studies are normally commissioned by operations and maintenance stakeholders responsible for production and asset availability.

Separately, companies spend billions of dollars each year performing studies focused on optimisation of their internal supply chains. These projects are commonly sponsored by executives responsible for finance and supply chain; very different stakeholders than those who commission the maintenance optimisation projects.

The MRO supply chain materials (spare parts) critical to the execution of maintenance strategies are commonly lumped in under the umbrella of the corporate supply chain optimisation initiatives.The business drivers behind maintenance strategy optimisation projects and supply chain optimisation projects are frequently disconnected and sometimes directly in conflict. This misalignment creates problems in a number of areas. First, maintenance strategy optimisation projects sometimes recommend an increase in spares inventory; not less. Secondly, inventory reduction recommendations driven from supply chain optimisation projects mostly fail to consider the impact such changes will have on asset reliability and performance.

Companies who have not established strong alignment between maintenance and MRO supply chain strategies are poorly equipped to measure the impact such changes will have on cost and asset performance and thus have great difficulty making decisions that will balance these tradeoffs in the best interest of overall corporate performance.

Organisations who have been able to establish and maintain strong linkages between maintenance strategy and MRO supply chain strategy, including effective decision support systems and processes, are much better positioned to make decisions in the best interest of overall corporate performance; rather than only supporting one or another siloed initiatives.

 A Data Driven Approach To Achieve Strategy Alignment

There are many best in class technology products and best in class processes for performing maintenance strategy optimisation available in the market. None of them are of much use without good data.Therefore, one of the first and most obvious gaps that must be addressed before trying to establish strategy alignment is data; master data. It is common (in a Brownfield environment) to discover that greater than 30% of maintainable equipment is not recorded in a CMMS tool. It is also quite common to find more than 20% of unique equipment records in a CMMS are no longer in service.

The first step in establishing alignment between maintenance and supply chain strategies is to know what is actually being maintained, or should be maintained. Performing a maintenance optimisation process on the 20% of equipment no longer in use is hardly a productive use of anyone’s time and money. This first step must include an audit to establish an asset registry that everyone trusts. The safety and compliance risks associated with an inaccurate or incomplete asset registry are huge.

The next step is to ensure that all systems of record for asset data have a common and agreed upon definition of asset criticality. The majority of maintenance strategy optimisation projects will help define and assign criticality to equipment. It is very important to ensure that this criticality finds its way to the CMMS system and is an agreed upon standard. For example; Critical – High impact from failure; Not Critical – Low impact from failure.

This is the first opportunity to align strategies by aligning goals. If an asset is defined as critical and it fails, corporate performance is impacted and everyone should care.

Next, you need to look at all critical items and identify which have Bills of Material (BOM’s).

It is common to find only 30% to 50% of critical assets have complete and accurate BOM’s. There is a BIG difference between having a BOM and having a “Complete and Accurate” BOM. A complete and Accurate BOM is one which is fully aligned with, and supports the maintenance strategy. And don’t forget that the same equipment in different operating contexts do not always have the same BOM.

Equipment BOM’s and Maintenance BOM’s should be considered as part of this scope of evaluation.

The final step in this process is a review of materials associated with critical equipment BOM’s and ensure that the material records are valid and the materials in the warehouse match the materials referenced in the information system.

Risks to Avoid or Manage before they become issues on Business Systems Implementations (SAP Specific)

November 28, 2013

Specifically, the SAP system has been implemented successfully in at least 50000 customers globally. The Majority of project failures are not related to the product or software but tied to the project execution, the software implementation partner or just the people themselves.

This brief will help you maximize your chances of a successful SAP implementation and you are more than welcome to discuss with me any specific questions you may have about managing risks on your SAP project.

Risks and issues are part of any and every major Business transformation project. Put in perspective of large business transformation projects which involve the larger ERP’s (SAP and Oracle) but not limited to, these risks and issues can be huge which could destroy the entire project if not managed and mitigated in a timely manner. Most of these risks and issues discussed here are applicable to any Business System implementation project. However, this brief is based on my several years of experience in leading, overseeing and participating in large ERP projects and also based on some of the projects that have not gone all the way to plan.

Most Common Risks on SAP Projects
These risks listed below are the ones that occur very frequently on a challenged or failed SAP project. There will be no reference to any specific project, but once you read through the risks you will probably be able to guess who and where the project may have been. The ERP Project world has become such a small place that everybody knows every bodies business.

Risk #1: SAP System not producing correct output or not working properly during UAT or post go-live
During UAT or post go-live, your organization realizes that SAP system is working correctly for certain business scenarios but produced inaccurate results for business scenarios with few deviations. You may also see unexpected behaviour of the system such as inability to execute end-to-end business process or cause systems short dump. This risk is common on SAP projects where business requirements have not been captured in detail or poor quality system design during realization phase or the business does not really understand their own process. Ideally this may also mean inadequate testing of your business scenarios.

Risk #1 Mitigation
 Ensure that business requirements gathered during blueprint phase are at sufficient level of detail that clearly describes your business process with examples. Verify that all business requirements are reviewed by the subject matter experts (SME) and approved by the business lead and/or business process owner.
 Ensure end-to-end business process in clearly documented in BPRD documents and process flows covering the most common business scenario as well as all the process variants. Verify that each BPRD document is reviewed and accepted by the SME(s).
 Validate that proper SAP software fit-gap analysis is performed on each and every business requirement. Each business requirement that is classified as “fit” should have corresponding SAP standard functionality covering the requirement or “gap” should have a RICEF object that needs to be developed to address the gap in the SAP standard functionality. This will mean that you have 100% coverage of business requirements with either a standard SAP solution or a RICEF object.
 Integration and User Acceptance Testing (UAT) should be very thorough to cover all end-to-end business processes. Each test case should be driven based on business requirements and business process. In other words, each business requirement should be tested with at least one test case. Most projects have test cases that only test most common business scenarios which can lead to system malfunction when there are variations in business process inputs or process step. It is very important that the test cases cover most common business scenarios and all its variations that represent your day to day business operations.
 Every SAP project should have a high quality requirements traceability matrix (RTM) that will ensure that your RICEFW functional designs and technical designs trace back to meet all business requirements associated with a specific software gap. RTM will also assure the business that each business requirements has a SAP standard solution, RICEF and further on a test case to test each of these requirements.

Risk #2: Project experiencing frequent delays in deliverable completions and slippage of deadlines by the Systems Integrator (SI)
Is your project experiencing severe delays with deliverables taking longer than expected? Are project deliverables submitted as complete not being truly finished and lacking detail?” One common risk on SAP implementations is that your Systems Integrator (SI) may take longer than anticipated to complete project activities and deliverables there by missing your project deadlines. If this happens, it can delay your project phase completion and also result in cost overruns. I have noticed that this risk mostly occurs when the project work effort is incorrectly estimated or SAP skilled resources from your systems integrator are inadequate and does not possess required solution expertise or experience. From programme governance perspective, this risk can be accurately monitored by having a good project plan with well-defined work breakdown structure that will provide visibility into key activities associated with production of essential project deliverables.

Risk #2 Mitigation
 First and foremost, I would recommend that your SAP project leadership and PMO should have a clear visibility to the progress of every key activity and deliverable completion on the project. In order to achieve this, it is important to have a project plan with a good work breakdown structure. This project plan should also be adequately resource levelled to ensure that SAP skilled, SME and project architects are not over resourced

Example: Blueprint phase work breakdown structure for a sample business process ABC may look like the following:
ABC Business Process

a). Requirement Gathering work sessions (AS-IS including a SWOT Analysis)
b). To-Be level 2 and level 3 business process design and Workshops
c). ABC BPRD (Business Process Requirements & Design Document), sign off to commence
d). Fit Gap Analysis
e). High level SAP Solution
f). BPRD and Requirement Review and Approval by the Business Stakeholders

PMO and program managers should review the weekly progress and identify any work streams that are facing delays and likely to be a bottleneck to overall project progress. Attempt to resolve the delays by hopefully increasing participation of SME or project architects. It may also be helpful if any outstanding unresolved items can be de-prioritized if these are not critical to business operations.
 Projects may also have SAP skilled consultants that lack required experience with a specific SAP module that is being implemented. In both these situations SAP customer leadership is unable to identify these kinds of issues because the leadership assumes that your SAP systems integrator is bringing the best SAP consultants to the project. To mitigate this risk, it is extremely important that your project leadership with the help of your SAP project advisor (third party SAP project leadership expert) interviews all systems integrator resources especially the business leads, solution architects, SAP consultants and team leads provided by SI.
 Most often the delays in SAP implementations are caused by under allocation of SAP skilled resources on the project. Ensure that your project has well balanced teams of SME (subject matter experts) from your business and SAP solution experts. Try to keep the resources from your SI like business analysts or systems integration analysts to minimum that do not have any prior SAP implementation experience. You are better off investing this money to have additional SAP skilled resources on project work streams to produce deliverables quicker.

Risk #3: Ineffective use of standard delivered SAP functionality due to lack to knowledge within consulting organizations

Predominately all SAP modules and industry solutions are proven to meet 60-90% of business requirements within a specific industry. This percentage of standard SAP package fit is higher with products that have gone through multiple release cycles compared to those that are just launched. There have been projects where systems integrators lack in-depth expertise of the modules that are being implemented. This results in poor quality SAP software fit gap analysis during blueprint there by resulting in higher RICEFW objects especially with enhancements. A few large enhancements can easily transform into custom development projects thereby blowing the project budget off the roof. I strongly recommend having a project solution architect with in-depth module knowledge or having a senior expert consultant from SAP or your local division of SAP to assure that your project is leveraging maximum standard delivered functionality.

Risk #3 Mitigation
The best way to mitigate this risk is to have representation of at least one senior consultant with product expertise from SAP. As a Project Manager I usually recommend this on most projects that are implementing a new industry solution of SAP. If the project does not allow extra budget for this resource, then one thing every SAP customer should do is to review the fit gap analysis output with SAP and solicit their feedback. This will help your project eliminate RICEFW objects where SAP might have standard alternative solutions.

Risk #4: Lack of business subject matter experts causing project delays
Business team members from the company implementing SAP play a very crucial role on the project. Each major business process or operational area should be represented by at least one subject matter expert who understands how the end-to-end business process is handled today and also how this process needs to work in the future. Inadequate business SME can directly impact quality and progress of requirements gathering, review and approval of to-be business process designs and verification of project deliverables. It is very important to ensure that your business provides required number of SMEs without jeopardizing you current daily production operations.

Risk #4 Mitigation
 In project planning or blueprint phase, meet with business stakeholders to ensure that each business process or operational area is represented with experienced SME. If required numbers of resources are not available, then it may be wise to split the project into multiple releases.
 Do not supplement your business SME needs with business analysts from your SAP systems integrator. Only your SMEs and business process owners understand business requirements. It may not be effective for an external consultant to fulfil this role without understanding your internal business operations.

Risk #5: Lack of confidence of business team in understanding and acceptance of blueprint and overall solution in SAP system
To me this is one risk that every executive and project sponsor of a SAP project should pay close attention. The ultimate goal of any SAP implementation is to transform current business operations into the new SAP system. It is very important that business subject matter experts, analysts and process owners understand the future state business requirements, new to-be business process flows, solution design in SAP and functional documents. If the business team is not onboard with requirements that are gathered during blueprint and solution design in SAP then your project is running a very high risk of business operations not working as anticipated upon go-live. I recommend that every SAP project leadership especially the executive project sponsor and overall project business lead to verify that business requirements, blueprint documents (process flows, BPRD documents, solution design and solution architecture) is reviewed and approved by SMEs, process owners and the business lead. This will ensure a high quality blueprint and realization of blueprint in design & build phase. Ultimately I also suggest that test cases cover all of your business processes and its variations.

Risk #5 Mitigation
 Key business team members especially SMEs should be part of business requirements gathering work sessions. SME should have clear understanding of to-be detailed business requirements, business process design and solution design in SAP.
 SMEs should review and approve each business requirement associated with their business process.
 SME and business process owners should review and approve process flows, business process requirements and design document (BPRD) and high level solution design created during the blueprint phase
 Client Solution Architect (not from your SI) should review, validate and approve the SAP software fit gap analysis and overall solution architecture. This task can be accomplished together by Client Solution Architect and your leadership QA advisor if you have one on the project.
 DO NOT approve any blueprint document or deliverable which is not 100% complete. Do not let your systems integrator invent the definition of “Complete” in order to meet project deadlines. Complete means the document is fully finished and needs no re-work unless there is a change request.
 Business team and stakeholders should have a full buy-in of the solution that is being designed and developed. All the steps above will ensure that you are heading towards a successful path rather than a mysterious avenue of uncertainties during realization and go-live.

Risk #6: Ineffective, rigid and political project leadership
On a very large undertaking like an SAP implementation, the project leadership plays a crucial role in the success of your project. It is not uncommon to see corporate executives (level of vice presidents and senior directors) in the project leadership who are slow decision makers, enforcing cumbersome decision making process when not needed and creating unnecessary political environment thereby causing bottlenecks and impeding project progress. I treat an SAP transformation initiative as a fast moving train and every project leader should adjust and cope with the pace of this train rather than slowing it. What I precisely mean is that lot of decision on an SAP project need to be made very quickly and issues should be resolved in an expedited manner. This will help tasks and deliverables on critical path completed in a timely manner without affecting dependent activities. I use this train example very often and suggest that every leader in a SAP project should be flexible, adaptive and work collaboratively with project leadership to meet one common goal of the project i.e. “Successful on-time and on-budget go live”. -individual decision making authority -always have leadership backup to expedite decision making -leadership and steering committee escalations if bottlenecks are causing project delays. Engage an independent leadership QA advisor to monitor resolve and escalate these issues without any influence of project or corporate environment

Risk #6 Mitigation
 Select project leadership (executive sponsor, business lead, IT lead, change/training lead and project management lead) from your internal organization that have proven track record of successful IT transformation implementation. Make sure these executives are flexible, capable of handling complex project challenges and able to make decision without causing bottlenecks on the project.
 One ineffective and political leader can bring the whole project down. Make sure that you have leaders that are excellent team workers and not the ones that are eager to demonstrate power and authority.
 Decision making on a SAP project (whether a business decision, deliverable approval or issue resolution) should not be solely in the hands of one leader. Depending on the work load, a project leader may have backlog of several key project decisions that need to be made which can ultimately become show stopper on the whole project. Project leadership decision makers should have backup individuals who can evaluate situations and make decisions in scenarios where primary decision maker is not available or lacks bandwidth.
 Critical project risks and issues should be proactively escalated to the project sponsor and the steering committee. Steering committee should also be presented with analysis, alternatives and possible solutions to risks and issues that are escalated.
 Communication is the key between the project leadership and it is important that there is full transparency about project key decisions, risks, issues and status between these leaders. On large SAP projects, I recommend that project leadership should meet at least once every week.
 Project Leadership should keep a “Anonymous Project Feedback & Suggestion Box” for project team members to provide project feedback, express concerns, raise potential problems and suggest avenues of improvement. This will ensure that major unforeseen project issues and challenges are reviewed and addressed in a timely manner. This gives every project team member irrespective of their role and title to voice their concerns or suggest improvements on the project.

Risk #7: Offshoring SAP design and build effort: Is it cost saving or risk doubling? Tighter control on resource skills, work quality and on-time delivery capability
Offshore development centres of big 5 and other SAP systems integrators have proven to be cost effective option to lower the cost of overall SAP implementation. The same SAP skilled resources that cost between $200-300 per hour onsite in the US can be available offshore in countries such as India, Philippines, Europe, etc for $30-70 per hour. This is a no brainer cost saving initiative for any SAP project. But off shoring your SAP project work comes with its own set of risks and challenges that clients in the US are not aware or often hidden due to lack of visibility thousands of miles away. Some of the major risks with offshore development centres are the following:
 Under-qualified resources in design and build teams
 Major discrepancies between actual deliverable progress versus the one reported in weekly project leadership meetings
 Lack of key senior SAP functional and technical key members on the offshore team which leads to critical solution quality risk.
 Language and cultural barriers leading to project work ethics being compromised which can lead major project delivery issues to go unreported and escalated till the very last minute
 Incorrect project progress reporting by offshore leadership to alleviate concerns and anxiety of project leadership.
 “Lost in translation” often business requirements are missed or misinterpreted and similarly functional designs and so on.
SAP customers such as your company does not have visibility and leadership control on what happens in the offshore development centre for your project. We realized this as a huge risk on many SAP implementations. Recently our company launched a new practice of “Offshore SAP QA & Advisory Leadership” which allows one of our experienced SAP senior executive to be your exclusive independent QA representative and work onsite at the project offshore delivery centre. This is not the focus here so if you need more information then you can reach our company.

Risk #7 Mitigation
The best way to make sure your project offshore team is transparent, effective and well qualified to deliver your project on time is to engage a third party SAP project QA advisor (one of our offering) that will allow a senior SAP industry leader to serve as your exclusive representative at the offshore location closely working with the offshore leadership, entire offshore project team and collaborating with your internal US project leadership. Remember that this resource does not work for your SAP systems integrator but for the SAP customer leadership. An Offshore SAP QA Project Advisor will mitigate all the risks mentioned above by doing the following:
 Interview and select each offshore project leader and team member by conducting project management, SAP functional and technical interviews.
 Ensure balanced SAP design and build teams with adequate number of architects, senior designers, developers with some room for junior SAP resources.
 Review project and deliverables progress with offshore SAP project manager and also conducting independent verification of these project deliverables.
 Ensure end to end SAP solution integration with collaboration between project teams across various work streams.
 Independently report project progress to project sponsor and leadership. Also proactively report offshore project risks, issues and recommend areas of improvements to deliver high quality SAP solution.
 Ensure that level of communication between business SME and onsite team members is appropriate so that business and SAP functional requirements are clearly understood.

Risk #8: Inaccurate or incomplete work estimation on SAP projects resulting in cost overruns and schedule delays
Several projects fail or end up being prolonged due to cost overruns as a result of work effort being inaccurately or incompletely estimated. SAP projects have been no exception to this situation. Work estimations should be done at various points on a SAP implementation. Blueprint work estimation should be done during project planning phase. After SAP software fit gap is complete and RICEF inventory is finalized, the work effort should be estimated for design, build, testing and deployment of your SAP system. So from where do these estimation risks surface? Often project estimators from the systems integrator do not include the client employees (SME, analysts, etc) that are required to be consulted or complete the deliverable. Estimates in producing a deliverable should include time required from SI as well as client resources. The work effort for SAP solution related items should directly be tied to a RICEFW object or SAP configuration object. Legacy or external systems remediation effort to integrate these systems with SAP should be added to the above estimates. Sometimes work effort associated with mandatory SAP work streams such as hardware setup, security, systems administration (SAP BASIS) and network administration is often missed. Note: Re-estimations should be done in early realization phase if you realize that RICEFW objects are taking longer than expected due to project cultural or operative barriers. This should ideally be resolved by project leadership and if not addressed can delay the entire project. There may be some RICEFW objects especially a select few Enhancements that are super complex and as such these should be estimated separately. Because these super complex objects may take much longer to be designed and developed.

Risk #8 Mitigation
 Make sure each RICEFW, configuration and other work object is classified as “High”, “Medium” or “Low” and work effort includes design, build and testing effort from system integrator as well as client resources.
 It may be a good idea to do parallel prototype of 2-3 RICEFW objects to convince the project leadership that RICEFW development can be optimistically delivered as per the estimates.
 Verify that project estimates include hardware setup, network administration, security and SAP systems administration effort.
 Estimates should also include duration based work effort components such as PMO, OCM/Training and testing.
 It is very important that “super complex” enhancements are estimated separately and not by the SI estimation tool. This will allow for accurate reflection of work effort for completion of these complex enhancements on the project plan.

Risk #9: Choosing an incorrect Systems Integrator with limited track record of successful SAP systems delivery in “specific SAP industry solution” can lead to project failure on multiple fronts
This is one risk that can be avoided if you follow the principles on which I basically operate on any SAP project. During early blueprint and there on your project leadership may realize that you have not chosen the best SAP systems integrator for variety of reasons. These reasons may include poor quality resources that lack proper SAP knowledge, project delays, and poor project execution and so on. It can be very painful and cost prohibitive to change your SAP systems integrator at the end of a phase and more so in the middle of a project phase. As such it is very important to carefully evaluate, verify and strategically engage a SAP systems integrator for your project during project pre-planning phase.

Risk #9 Mitigation
 Verify that SAP systems integrators (vendors) bidding for your SAP implementation have implemented specific SAP solutions at two or more customers in your specific industry.
 Conduct reference calls with these customers. Check how these vendors have performed on these other SAP projects. Was the delivery in line with original project budget and timeline?
 Ensure that SI or vendor partner and senior executives that will be part of your project also have been part of at least one of these prior SAP implementations. It is important that senior executives and client partners have successful track record in delivering SAP transformation projects in your industry.
 Include financial and corrective penalties in the Statement of Work (SOW) in case the project milestones or Q-gates are delayed.
 It is absolutely crucial to include clear and detailed scope of work in the SOW. SOW should not have any ambiguities that can compromise the successful delivery of project.
 Engage an independent SAP project advisors right from the beginning of the project if your project budget allows.

Risk #10: Inefficient Project Management Office (PMO) with poor project visibility, deliverable tracking, issues/risks management and communication shortfalls

This is one area where I have hardly compromised when setting my expectations from the PMO of the SAP projects that I served. PMO is the backbone of any IT transformation project and most of what is mentioned here about PMO applies to SAP as well as non-SAP projects. PMO should serve as the single source of truth to project an accurate project status at any point in time. It should provide full visibility to project status by presenting the clear picture of work activities, tasks and deliverables progress. I expect the SAP project manager and PMO team to work with individual business, IT and other teams and their underlying work streams to gather correct work progress and reflect the same in the project management tool such as MS Project. A highly effective PMO is the one that deploys, monitors and enforces the proper usage of tools and methods and properly manage time spent by project resources to deliver the tasks as per plan. PMO should ascertain that all project risks and issues are entered into risks and issues management tools and ensure resolution of these items in a timely manner as set in the project charters.

Risk #10 Mitigation
 Verify that PMO is working with good project plan with well defined work breakdown structure that depicts accurate progress of tasks and deliverables.
 Every week PMO team should work with team leads and update the project plan. Any delays in completion of tasks and deliverables should be reflected in the team leads weekly report and also highlighted in the weekly PMO meeting.
 SAP Project Manager (or also referred to as PMO Lead) should work with the programme manager or Project Director, project sponsor and independent project advisors to discuss project progress and also seek recommendations to bring project back on track in case of delays.
 In the blueprint phase, PMO must ensure that all business requirements, BPRD documents, SAP solution design, SAP solution architecture, organization change management strategy, etc are reviewed and approved by the business or IT lead and other corporate stakeholders.
 In the realization phase, PMO must ensure that each RICEFW functional and technical design, unit tests and UAT are approved by the customer business and IT teams.
 No deliverable should be set as “complete” in the project plan unless it is reviewed and fully accepted by the business leads.
 Project capital and expenses should be accurately tracked as per guidelines from leadership and CFO (Chief Financial Officer). Total project costs incurred should be reported on a weekly basis in the project leadership meeting.

APA (Accounts Payable Automation)

November 27, 2013

In the current AP world there are four elements necessary for AP success: Automation, Collaboration, Visibility and Control.

Automation

Automation is a critical foundation to lowering costs and streamlining each of the four AP sub-processes: invoice receipt, approval and inquiry, validation and reconciliation, and settlements. Technology solutions to manage invoices and workflow, and electronic payment methods reduce the inefficiency of manual and paper-based processes.

Collaboration

Cross-functional coordination among key stakeholders such as accounts payable, procurement, finance, treasury and suppliers creates an environment where key information flows easily between these stakeholders. Without this, treasury can’t make optimal capital decisions; procurement can’t identify negotiation opportunities with key suppliers, and suppliers and internal stakeholders can’t track invoice processing status. It will also be difficult to set up different approval and routing rules based on different types of invoices or supplier arrangements, such as PO-based, non-PO-based, preapproved and supplier maintenance.

Visibility

Visibility into liabilities and operating expenses is the basic requirement for most major functions within an enterprise. It is used to give an overall view of operations and establish standards on which to base strategies for performance improvement.

 

Research has shown that best-in-class organizations are 43% more likely to have enterprise-level visibility for AP transactions. The rest suffer from higher transaction costs and longer cycle times. Not seeing material liabilities that are not yet entered impact the timing and accuracy when closing accounting periods.

 

For a typical AP department, enterprise visibility remains out of reach. A high degree of visibility brings substantial advantages, including:

 

Low transaction costs;

Shorter processing cycle times;

 Decreased financial risk;

Shorter response times – improved productivity by reducing time wasted in low-value activities;

Improved forecasting and management of near-term cash management requirements;

Greater ability to monitor billing discrepancies and overpayments, recognize unclaimed negotiated discounts, contracted payment terms, early payment discounts, and late penalty fees.

 

Control

 

Good audit controls help organizations enforce corporate policies and achieve contract compliance. Audit controls ensure that AP transactions are processed in a way that complies with policies, procedures and regulations. They help reduce late payment fees, capture negotiated discounts and early payment discounts, eliminate duplicate invoice payments, and prevent fraudulent payments. Research2 has found the exception rates in top performing firms are 85% lower than other enterprises.

 

Benefits

 

An automated AP solution streamlines and drastically improves performance by utilizing e-invoicing, scanning and workflow, online tracking and reporting capabilities, electronic invoice dashboards and supplier portals, supplier networks, payment services and spend analytics for all invoices.

 

Using an automated AP solution, organizations will successfully drive transformation of their accounts payable departments to overcome the challenges of manual and paper-based processes.

 

What are the “Must Haves”?

Key areas required by organizations to ensure that a solution covers current and future needs as the process matures, include:

 

Automate your process: From arrival to post and archive, with efficient workflow to streamline verification and exception handling;

Any format, any source: Physical documents, electronic documents, and document images, via mailbox, email, fax and file transfer;

Improve what you have: Integrate with the major ERP/financial system of your choice;

Increase visibility: Improve your cash flow and invoice management;

Better control of received and invoiced goods, automatic purchase order matching, optional automatic posting of invoices, enhanced security, less manual work, shorter total processing time, decreased total cost for supplier handling and early notification of errors;

Improved day-to-day information on financial status (regarding current projects, for example) and basis for business decisions. This saves a substantial amount of valuable time at the end of every month, quarter and year.

Shared service centers: A centralized or shared services approach will help ensure that AP tasks are streamlined and standardized; best practices are documented and shared, and AP technology budgets are consolidated.

 

And not just for Large Organisations.

AP automation technologies have been limited to larger companies until recently. Now there is evidence that small and medium sized businesses are adopting the technologies for the following reasons:

 

A competitive business environment means even small and medium-sized businesses need to focus on reducing processing costs and increasing efficiencies for invoices and employee expenses.

Streamlining the AP process has become extremely important in a tough economy where cash flow and greater control over payables is critical.

An increased interest in early payment discounts is driving smaller organizations to investigate tools and technologies that enable them to shorten their invoice receipt-to-approval cycles.

On-demand and Software-as-a-Service (SaaS) delivery models have lowered the initial cost of implementing AP solutions and make them easier to maintain.

The convergence of electronic invoicing and front-end invoice imaging gives organizations a single, comprehensive solution that can manage both paper and electronic invoices through a common process.

Value added-services delivered by solution providers for supplier recruitment tasks mean that buyer organizations can engage suppliers more quickly.

 

So which Type of Solutions make the most sense?

 

Electronic invoicing solutions automate the invoice reconciliation and payment process and address most invoice types.

 

Workflow and imaging solutions manage all aspects of in-house invoice scanning and documentation and provide an effective electronic archival system. They are often part of a cross-functional enterprise solution.

 

Payment automation platforms specialize in accounts payable and accounts receivable processing. They offer relief in disbursements for payroll, benefits, regulatory and tax issues, as well as intra-company transfers. These solutions range from automated clearing house (ACH) and general payment processing to company-wide AP solutions.

 

Enterprise financial solutions, which manage the budget and general ledger of an enterprise, consist mainly of Enterprise Resource Planning (ERP) providers. They typically offer functions such as a general ledger, and sometimes more advanced capabilities like supply chain auto-reconciliation and AP workflow.

 

Purchasing cards (p-cards) are designed to streamline the front (purchasing) and back (payment and reconciliation) ends of the procure-to-pay process. They introduce greater levels of control and visibility for management of low-cost, high-volume categories.

 

Supply chain finance solutions provide full AP invoice dashboards, so enterprises can manage payables more easily. With ERP integration and supplier portal capabilities, these solutions can help move to an automated AP platform.

 

Treasury management services offer advanced financial administration by consolidating cash forecasting and handling foreign exchange affairs. These services provide management for deals and trades, and they also provide analytics and risk management.

 

The Sardine Strategy 2013 for 2014

November 19, 2013

sardine-schooling-edpdiver

Once again I have resurrected an older post which I believe is still extremely relevant this year as it was towards the end of last year. What I am a little disappointed in is that there are people that have not heard what is being said!  Before you embark upon any business improvement in 2014, make sure that you know where you want to go and understand the implications of your actions. Without moving as one, you will surely fail. Don’t lose direction!

What is the latest buzz in the supply chain world I was asked at a recent SAP Conference, I replied there is plenty of buzz in the SCM world but all this hype needs to be underpinned by a good solid supply chain strategy.

Have you heard of the “Sardine Strategy” ? the questioner looked perplexed at my question! I will elaborate for schooling fish, staying together is a way of life. Fish in a school move together as one, for schooling fish the “move as one” trait is innate. Separation means likely death!

For Global Supply Chain, misalignment – failure to move as one – means poor service, high inventory, unexpected cost, constrained growth and profits, finally resulting in loss or market share and possibly reputation. Once market share and reputation have been damaged they are difficult to repair.

So what are the common causes of misalignment – failure in supply chains to “move as one”?

I offer a list of some 15 common causes that have plagued companies for many years and still do today, I am sure that the list is non exhaustive, but I am doubly sure that the readers can equate to one or more of these businesses today.
1). Lack of Technology investment plan.
2).Little or no return on investment (ROI)
3).Isolated supply chain strategies.
4). Competing supply chain business improvement projects.
5).Faulty sales and operations planning.
6).Failure to meet Financial Commitments.
7).Lack of support and specialized expertise.
8).Mismatch between Corporate Culture and ERP.
9). Under utilization of existing technology.
10).Vaguely defined goals.
11).Impact of mergers and acquisitions.
12).Mismanagement and poor standardization of business processes.
13). Extension from supply chain to the value chain.
14).Running out of ideas for new improvement projects.
15).An organisation that defies effective and efficient supply chain.

We could discuss each of these in great depth, but space and time is limited, however if you want to discuss any of these causes you have identified just drop me a line

The Deep Web (The Dark Net)

November 5, 2013

Most of us know little or nothing regarding the Deep Web or the Dark Net, just two of the names for that area of the Internet that harbors the possibility of anonymity for its users or can enable search results for illegal drugs or pirated porn. However, there is an ever growing Deep Web/Dark Web community which has touched us in some shape or form. I am guessing here but has anyone won the lottery recently or been bequeathed a fortune and all you have to do is supply your details and whereabouts?

How did the Dark Web come about?

During 1995 at the University of Edinburgh, a teenager named Ian Clarke wrote a thesis for his computer science course proposing a revolutionary new way for people to use the Internet without detection. This project was called “Distributed, Decentralized Information Storage and Retrieval System”. The idea was that by downloading unique software (which was to be distributed free) anyone could chat online, share files, read or set up a website with almost complete anonymity.

Unfortunately the tutors were not too impressed, but this did not stop the student from going ahead with his project releasing the software called “Freenet” in 2000. Since then, millions of copies of Freenet have been downloaded, which remains readily available on several websites. Simply do a Google search for “Freenet download” to find it.

Entering the Realm of the Deep Net

Once the file has been downloaded, installation takes barely a couple of minutes and requires minimal computer skills. There you are a previously hidden online world where you can find resources such as “The Terrorist’s Handbook: A practical guide to explosives and other things of interest to terrorists”. Freenet is also the portal to accessing pirated­ copies of books, games, movies, music, software, TV series and much much more.

What started as a seemingly innocent project has today become a means for a plethora of online criminal activity from creating and sharing viruses to accessing and distributing child pornography all anonymously.

The Internet has always been associated with openness and is often labeled as the ultimate form of freedom where free speech, free access and lack of censorship have prevailed (just look at the internet society’s tagline “The Internet is for everyone”). Yet where do we draw the line when it is simply becoming easier and easier to engage in online criminal activity without been traced?

Putting it into perspective, the Dark Web has grown so fast that it is estimated to be at least 500 times larger than the surface web.

So what is the difference between the Deep Web and the Surface Web?

Simply put, the web is defined as a collection of hyperlinks that are indexed by search engines. In other words, the pages/content that appears when we do a Google search, is the Internet as we know it, this is called the surface web.

The Dark Web, also known as the deep web, invisible web, and dark net, consists of web pages and data that are beyond the reach of search engines. Some of what makes up the Deep Web consists of abandoned, inactive web pages, but the majority of data that lies within have been crafted to deliberately avoid detection in order to remain anonymous.

How deep is the Dark Net

The Internet has changed significantly over the years, but researchers are still only beginning the plunge to the depths of the Deep Web. The bottom line is that there is simply too much data available for any search engine to index the entire deep web.

Coupled with this issue is the deliberate use of invisible web space by individuals who do not want to be found. This is the origin of groups of criminals who sent out millions of spam e-mails suggesting that you have won the international lottery before quickly disconnecting. No matter what developments are made toward catching crooks they will always find new ways to remain hidden.

Is there any light down there?

It was never the intention to create a breeding ground for online criminals, which is sadly the predominant direction that the Deep Web seems to have taken.

There are secretive parts of the Internet that were specifically designed for secret services and law enforcement officers to surf questionable websites and services without leaving tell-tale tracks. Perhaps the domain of the dark net would make sense in oppressive regimes such as China­ where the government goes to extreme lengths to censor images that contain large expanses of supposedly naked flesh. It could certainly have a positive impact in countries such as Iran allowing people to rally support against oppressive governments without fear of being apprehended.

It is a worrying to think that due to the size and rapid growth of the Deep Web there is pretty much no way of stopping it. However, it may not be as bad as we all might think, but there is definitely a large enough criminal element to warrant concern.

Driving collaboration through Contracts Management

January 2, 2013

The contracting process has always been a major point of discontent between procurement and legal functions within an organisation. The goals of the legal department to achieve control and compliance often clash with procurement’s objectives to build collaborative relationships with suppliers. This has become extremely pronounced now, that procurement feels that it needs to become a strategic value contributor pushing the business performance of the organisation rather than simply focusing on getting the lowest price. A collaborative culture of contract authoring can be built using the right contract management technology, which can bring together the two functions and drive compliance and control while at the same time foster better supplier relationships, which in turn can deliver real savings with minimal risks to the supply chain. This paper takes an in-depth look at the reasons for the collaboration challenges between procurement and legal departments and the technology and process initiatives that can bridge these gaps.

Procurement and Legal at loggerheads

A recent study by IACCM throws up several results that suggest that the relationship between procurement and legal teams are less than cordial in most organisations. Nearly 70% of the study respondents felt that the relationship between the two functions needed to improve. It is not surprising that the primary reason for discontent between the two functions was the contracting process. The biggest fear that most legal departments have is the whether the procurement function can actually ensure that the contracting terms
will be adhered to post contract awarding. This may seem like a paradoxical situation. If the procurement function gets into contracts with suppliers in the first place, why would it not want to adhere to them?

There are several factors that result in maverick or off contract purchases. A majority of these occasions are primarily ad-hoc purchases, where buyers resort to buying from whichever supplier is available quickest and at the most opportune time. More maverick spending means higher total procurement costs and fewer on-time orders which is clearly not a recipe for achieving procurement efficiency. A research by APQC says that organisations with 16% maverick spend spend on an average nearly $17,000 more per procurement FTE as compared to organisations with maverick spend of 1%.. In fact even the on time delivery percentages for such organisations was nearly 6% lower than their peers. It is therefore definitely not surprising that legal teams have their doubts over the correct execution of contracts by the purchasing / procurement department. In the IACCM report referred to above governance of contracts post award and the ability of procurement to effectively manage contracts was cited by nearly 60% of the participants as a critical factor causing high level tension between procurement and legal functions.

Conflicting approaches with a common need for change

Analysing from an organisational perspective Legal and Procurement teams approach the contracting process from two very different angles. Legal teams look at contracts as tools to streamline processes and establish strict controls while procurement looks at it as the first step in establishing cost savings and supplier relationships. With the economy becoming vastly different – with supply chains becoming growingly interconnected and vast- these disparate perspectives of the contracting process have brought their own unique challenges for both the departments. Legal teams now have to handle a much larger number of contracts in multiple languages and with a wide variety of, at times very specific and unique contracting terms and conditions. The increased workload and the looming threat of non-compliance to several contracts makes it imperative for legal teams to manage contracts more efficiently and leverage the right automation to maintain control. Standardising the contract creation process is often made the primary goal.
Procurement, no longer a tactical function, needs to develop long term strategic relationships with suppliers and add more value to the company’s bottom line. This needs contracting to be more flexible to generate additional savings and contribute in value creation. This may include insertion of necessary clauses that help them take advantage of dynamic marketing conditions – say for example escalation and de-escalation clauses for highly volatile commodities. This of course becomes the first bone of contention between the two functions as one aims to standardise while the other needs more flexibility. The pressure between the two teams is to create a contracting process that not only helps procurement generate savings and account for frequent renegotiation but also helps legal enforce compliance in contract execution and get better outcomes out of the contract resulting in sustainable savings.

An often neglected area of discord between the two teams is the time taken to create contracts. Procurement with its need to take advantages of prevalent market conditions and the supplier’s disposition to discounts at the time of negotiation needs the contract creation and execution cycles to be as short as possible. Legal teams on the other hand have a primary responsibility to ensure every contract is free of risk to the organisation and hence may take frustratingly long periods to go through minute details in all clauses within the contract. This may result in procurement missing out on additional savings based on time discounts or market variations. Automated contract authoring technology that provides standard clauses and templates is the the answer to not only reducing the time for contract creation and approval but also ensuring that risk mitigation is easy.

The need of the hour

The need of the hour is for the contracting process to enable collaboration between the procurement and legal functions rather than be a cause for dissent. At a strategic level there is a growing need to redefine the relationship between the two functions. The contracting process needs to ensure

Real and incremental savings

Improved contract outcomes

Better process streamlining and compliance

Mitigation of risks while taking advantage of dynamic market conditions and better
renegotiation

Proactive and collaborative management of change

Powerful analytics that deliver strategic value

Getting the right solution

All this is easier said than done. It is imperative that a process is created within the organisation that makes contract authoring, creation and management simpler. Although getting buy in from employees in the procurement and legal teams is important, the first step to have an effective process in place to invest in the right technology. A contract management solution should be able to foster collaboration by providing clause libraries and standard contract templates that ensure contracts don’t miss out on any mandatory clauses and terms. This will help in reducing the time for legal review as well as ensuring minimum exposure to risk. Although it should provide a sufficient collection of standardised clauses and templates the contract management solution should also have customisable workflows that permit the insertion of clauses that help organisations take advantage of market conditions and supplier discounts. There should always be room for renegotiation especially for volatile commodities. This can be achieved by putting clauses like escalation/de-escalation clauses or conditions on contract renewal based on prevalent commodity market prices that insure the organisation against volatility risks

Technology as an enabler:

An ideal solution to this collaboration conundrum would be a solution that streamlines all the steps of the contract management process

A typical contract management process can be divided into three major stages.

Contract Authoring

The solution should be able to create contracts with pre-defined workflows that not only incorporate feedback from all relevant stakeholders during the contract creation process but also take care of exceptions and approvals. The authoring process can be made easier and more compliant by having a central template repository that contains all pre-defined clauses. Legal teams should have access to this repository to continuously update the latest clauses and ensure that the organisation has no unforeseen risk in getting into the contract. All contracts should be housed in a central repository where they can be tracked and managed. The contracts should also be easily available through simple search processes to ensure easy access to all necessary stakeholders.

Contract Negotiation

Contracts should contain well-defined service level agreements (SLA), which are transparent to suppliers. The contracts should be the basis of all supplier performance measurement and should be the guiding factor to defining the KPIs for all supplier performance management processes. Alerts should be configurable within the contract management system for tracking compliance both for users within the organisation as well as supplier performance to contracted terms. Besides compliance alerts the solutions should also have alerts for contract renewals so that evergreen contracts don’t get renewed repeatedly without the scope of renegotiation-something legal teams always have on their cross hairs. Contracting solutions should be able to match contracts with spending data to help track any maverick spend and in turn provide potential opportunities to save. Analytics should also be provided on supplier performance in term of discounts adhered to and quality.

Contract Sign Off’s

Electronic signatures have to be mandatory for any contract management solution implemented and should be enabled during various stages of the contract creation and approval process.

Reaping the desired results

An effective contract management process if setup as mentioned above can result in the following benefits

Reaping the desired results
An effective contract management process if setup as mentioned above can result in the following benefits

Risk mitigation due to increased visibility into existing contracts

Improved contracting process and reduction in overall cycle time

Adherence to regulatory compliance requirements due to increased tracking of contract compliance

Increased compliance to terms and conditions

Spend compliance ensuring sustained savings. In fact a recent survey of nearly 600 procurement professionals suggested that doubling contract compliance leads to a near 600% increase in savings generated through spend management activities

Better collaboration due to standardised processes and agreed SLA’s between Legal and Procurement as well as procurement and suppliers

In closing an effective contract management solution can help organisations generate sustained savings and build effective supplier relationships. But one of the major benefits of implementing a robust contracting solution-that both stores and authors contracts-is increased collaboration between procurement and legal working to the benefit of both. Procurement is able to drive sustainable savings and meet its goal of being a strategic value contributor to the organisation while legal teams are able to mitigate risks to the organisation and ensure control and compliance.

The Sardine Strategy….to move as one!

December 31, 2012

For the last post of 2012 I have resurrected an older post which I believe is still extremely relevant. Before you embark upon any business improvement in 2013, make sure that you know where you want to go and understand the implications of your actions. Without moving as one, you will surely fail. Don’t lose direction!

What is the latest buzz in the supply chain world I was asked at a recent SAP Conference, I replied there is plenty of buzz in the SCM world but all this hype needs to be underpinned by a good solid supply chain strategy.

Have you heard of the “Sardine Strategy” ? the questioner looked perplexed at my question! I will elaborate for schooling fish, staying together is a way of life. Fish in a school move together as one, for schooling fish the “move as one” trait is innate. Separation means likely death!

For Global Supply Chain, misalignment – failure to move as one – means poor service, high inventory, unexpected cost, constrained growth and profits, finally resulting in loss or market share and possibly reputation. Once market share and reputation have been damaged they are difficult to repair.

So what are the common causes of misalignment – failure in supply chains to “move as one”?

I offer a list of some 15 common causes that have plagued companies for many years and still do today, I am sure that the list is non exhaustive, but I am doubly sure that the readers can equate to one or more of these businesses today.
1). Lack of Technology investment plan.
2).Little or no return on investment (ROI)
3).Isolated supply chain strategies.
4). Competing supply chain business improvement projects.
5).Faulty sales and operations planning.
6).Failure to meet Financial Commitments.
7).Lack of support and specialized expertise.
8).Mismatch between Corporate Culture and ERP.
9). Under utilization of existing technology.
10).Vaguely defined goals.
11).Impact of mergers and acquisitions.
12).Mismanagement and poor standardization of business processes.
13). Extension from supply chain to the value chain.
14).Running out of ideas for new improvement projects.
15).An organisation that defies effective and efficient supply chain.

We could discuss each of these in great depth, but space and time is limited, however if you want to discuss any of these causes you have identified just drop me a line

Supply Chain Relationships

December 26, 2012

Over many years in Supply Chain Management I have had to understand how supply chains are actually structured, there is a clear similarity across all the supply chains irrespective of the industry being researched. I have spoken with many CEO’s, CPO’s and CFO’s and they have all told me “in our industry we do things differently”. I am sorry to say that this is not the case! So we have pretty much a situation where every industry does the same thing and has standardization in processes, so what makes things different? The main difference is each of the supply chains are the strategies we use and our relationships with our supplier base. How we choose a strategy and how we work with our suppliers defines who we are as a company and how the supplier network regards us.

Success in our supply chains relies heavily on the relationships with our partners. How well do you work with your suppliers? Contract manufacturers? 3PL and 4PL partners? These relationships hold the key to a well made product or service delivered to your customer on time and within cost.

The first step in this journey is to understand which suppliers you need to have strong relationships with. Just as in our social and professional lives where we know many people but spend most of our time with a few select friends and colleagues, your business has many suppliers but only needs close relationships with a few. So where should you develop your close relationships? The answer lies in your business plans and supply chains. Look for those suppliers that represent a significant portion of your spend, provide critical components, or support strategically important product or service lines. These are the companies that you want to be close with.

Close relationships don’t just happen, and they do not just involve your procurement personnel and their sales force. Relationships should begin with product or service design, making sure that the supplier’s role in producing the product or service is clearly understood and fully integrated with the overall product/service design and specifications. There also needs to be a shared understanding of the production and supply chain objectives as well as roles and responsibilities. Finally, a good relationship relies on communication, including understanding who to call and making sure the phone is answered. Open communication is built on trust and respect. In every supply chain, things go wrong, working with partners means understanding that and working together to resolve the minor issues that arise. Penalties should be reserved only for the major transgressions.

So, how are your supply chain relationships? Spending your resources and time with the partners that will generate the most benefit is critical to improving your supply chain and delivering better products and services to your customers.

Legacy sourcing activities still prevail…..

December 21, 2012

While these objectives may sound logical, many sourcing teams defeat their efforts to identify and select the optimal supplier by reverting to some bad habits. Those bad habits include:

1). Preventing personal dialogue between prospective suppliers and decision makers
2). Sending RFP’s that require an extremely time-consuming first response

Why do sourcing teams have these bad habits in the first place? What are their underlying interests?

First, the prevention of personal dialogue has a few elements to it. One element is that procurement professionals always strive to ensure a “level playing field” equitable treatment and a fair process for all suppliers. Procurement ethics dictate that one supplier should not be given information that is not made available to all other suppliers because, then, it would appear that someone in the buying organization is trying to facilitate a pre-determined “favorite” supplier being selected. Another element is that prevention of personal dialogue is designed to protect the time of executives within the buying organization. These are busy people, naturally, so the tendency is to block anything from being added to their already full plate.

Second, the voluminous response RFP has its rationale as well. Sourcing teams have the desire to minimize the number of steps required to get from Point A – issuing an RFP – to Point B – selecting a supplier. So, the tendency is to want to capture all of the required information in one fell swoop.
While those are noble interests, the execution of processes to support those interests is flawed.

Here is why.

In terms of preventing personal dialogue, sourcing teams are failing to realize how personal dialogue is an enabler of sourcing success, rather than a hindrance to it. A conversation can be held professionally without tarnishing a fair process or creating a perception of an ethical breach. Actually, preventing personal dialogue can be perceived as an ethically-shady practice. While procurement professionals commonly feel that not permitting conversations between suppliers and decision-makers preserves the perception of an ethical sourcing process, the opposite may be true. Suppliers would argue that not permitting such conversations perpetuates the perception of an unethical sourcing process where the successful bidder is pre-determined, other bidders are being “used” solely to drive down that supplier’s price, and the sourcing team is steadfastly trying to hide that.

There is another flawed line of thinking with regard to preventing personal dialogue during the sourcing process. That line of thinking relates to the interest of protecting procurement executives’ time. Simplified, it is a procurement executive’s job to build the strongest supply chain possible for his or her organization. By refusing to talk to qualified prospective suppliers and, thus, discouraging them from participating in sourcing processes a procurement executive is failing to fulfill his or her duty of building the strongest supply chain. Yes, time is scarce and must be managed wisely, but attracting a strong supply base is a wise investment of time.

Finally, while minimizing the number of steps of the sourcing process may have good intentions, efficiency should never trump effectiveness. Let’s compare two scenarios.
In Scenario A, an RFP was sent to five carefully-selected suppliers. That RFP required a 50-page response. Only two suppliers responded and neither of those suppliers had a reputation for being one of the top two suppliers in the industry. The other three suppliers felt that a 50-page response was too much work for a process with an uncertain outcome and declined to respond.
In Scenario B, an RFI was sent to five carefully-selected suppliers. That RFI required a 10-page response. All five suppliers responded. The sourcing team then sent an RFP to the four suppliers who had the most attractive responses to the RFI. That RFP told the suppliers that they were receiving the RFP because they were shortlisted based on their response to the RFI. The RFP required a 40-page response. All four suppliers responded. Because they had been shortlisted, they each believed that they had a legitimate chance of winning the business. This two-step process took an additional week compared to Scenario A. But was it worth it to have more competition, more options, and more highly-qualified suppliers to choose from? Most procurement professionals would argue that it was indeed worth it.