Success is in the Diary — and the Details … especially in Procurement!

Garry Mansell recently wrote an interesting post on how to understand how a scaling business is really run that had some really good insight on how you build for success versus how you pretend to.

According to Garry — the diary tells you whether the business is scaling, or not. A business that is truly scaling has:

  • a diary that is light — it’s not filled with back-to-back-to-back meetings … it has time for people to work (and think) and allows people to make the day-to-day decisions necessary to function
  • a diary that doesn’t have repeating meetings that just discuss the same thing in an infinity loop that continually eats up revenue
  • a diary that sees the CEO focused external is focused on building and scaling

And for the most part, he’s right. Except, as both an IT and a Procurement professional, I can tell you it’s critical:

  • to have regular stand-up/check-in meetings in Dev, especially if you’re using an Agile framework — but these all-team recurring meetings are scheduled to be as short as necessary, and they don’t waste time on detailed status reports, but where things are, who’s waiting on what, what issues have arisen, and who can deal with them … and as soon as all issues are discussed, you get back to work
  • in Procurement, you need the same series of meetings for every strategic sourcing event, you need regular check in with Risk Management to track ongoing risks, and you need regular team check-ins to ensure all projects are progressing and resources are allocated properly … but in the first case, they are predefined by the process, only include the necessary reps from each stakeholder group, and held when needed — not weekly meetings; in the second, only issues that have arised or change status are discussed; and in the third, when the situation is understood, the meeting is ended, cut short as much as possible

In other words, there are a number of meetings you can’t get rid of, but you can minimize them and adopt practices to minimize their length, schedule them short, and end them when the necessary information has been exchanged and/or decisions reached. So it’s both the diary … and the details!

The Great Thing About Optimization: You Can Cost Constraints and Solve for Them!

The Sourcing Optimization Grand Master Paul Martyn, as part of his ongoing Sourcing Excellence, published two great posts on how The Most Important Constraint Is Often Left Unspoken and The Real Problem Is Usually Context.

In Part 16, Paul notes that:

Sometimes the most important part of the decision never gets discussed directly.
Nobody says: “We don’t trust ourselves to manage the transition.”
Nobody says: “If this fails, I own the fallout.”
Nobody says: “We’d rather pay more than explain a disruption.”

But they poison the model by insisting on:

Extra incumbent weighting.
Requirements that narrow the field.
Timelines that make supplier change almost impossible.
Risk language that quietly points one direction.

Which ensures that the “optimal” solution is one that keeps the incumbent, even though it’s far from the optimal solution.

Then, in Part 17, Paul notes that context is the harder problem. That while the sourcing team can model price, lead times, freight, capacity, payment terms, supplier performance, etc., the data doesn’t capture:

  • a plant manager [who] still remembers a shutdown tied to a supplier change
  • marketing does not want packaging changes during a seasonal launch
  • finance is suddenly focused on working capital
  • operations is protecting uptime
  • an incumbent relationship [that] carries more internal support than anyone says out loud

And this is what leads to the insistence of constraints and inflated switching costs in the model that mathematically ensures the “optimal” solution is the one where nothing changes, even though the CFO can clearly see that costs are 5% above market averages with no real explanation as to why the organization has to pay that much to minimize risk, ensure supply, yada, yada, yada.

But here’s the thing, if the real issues are surfaced BEFORE the event begins (and the model built):

  • Even though the plant manager is scared of a shutdown, the probability can be computed and the cost can be quantified — as the cost per hour/day/week is known
  • The cost of extending the current contract just through the launch can be quantified and the cost of keeping the supplier for the whole contract term vs. just the launch and then switching to a new supplier can be computed
  • Up front vs. over-time costs can be modelled and the cost of solutions that require more investment up-front vs. later can be compared and contrasted
  • The on-time expectancy per supplier and carrier can be modelled and accounted for
  • The true cost of the incumbent preference can be modelled

The great thing about strategic sourcing decision optimization with what-if scenario support is that all costs and constraints, if properly expressed, can be modelled and the true cost of a preferred, vs. market, scenario computed. If the cost difference is inconsequential, then you go with what the people want. If it’s significant, then some real discussions need to happen and some real decisions need to be made.

BOM Integration is Necessary But Its Not the Missing Link in Direct Material Sourcing …

Supply Chain integration is!

But let’s backup.

A recent article over on Nasscom Community stated to purport why BOM integration is the missing link in direct material sourcing software.

The article made a number of great points:

0. Every component in a BOM represents a commitment to a supplier: as well as a lead time, a cost assumption based on historical pricing, revision-level tracking, and, ultimately, a production schedule that cannot afford to slip.

1. Direct integration allows direct sourcing event initiation from line items. No more cut and paste (or, even worse) manual entry of existing information into the e-Sourcing system.

2. Direct integration enables multi-level BoM visibility. Complex manufactured goods rarely have a flat bill of materials. Sub-assemblies nest within assemblies, and procurement must coordinate across those levels.

3. Direct integration creates a feedback loop that improves future procurement decisions. When actuals are mapped back to BoM line items, planners have a data trail that generic procurement systems do not provide.

But here’s what it’s missing.

Lead times depend on the supplier factory location, carriers, and currently available routes.

Quality, Risk, and Compliance data, used when multiple suppliers are being considered, lie in the Quality Management, Supply Chain Risk, and Compliance modules in the Supply Chain Suite.

Current stock and forecasts lie in the inventory management and forecasting modules in the supply chain suite.

The BoM only holds what needs to be sourced. It doesn’t hold all of the data required for Procurement to make a good sourcing decision — that comes from the supply chain systems, which generally include the BoM!

There’s a reason Bob Ferrari and I wrote a 7-part series on why direct sourcing solutions [which, by definition, include BoM Management] don’t work for direct, and that’s because direct sourcing needs to be tightly integrated with, if not part of, the supply chain suite in order to be effective.

Product Design Must Align With Procurement And Supply Chain As Well!

Port strikes, border closings, tariffs, wars, strait and canal closings, factory fires, droughts, wild fires, volcanic eruptions, earthquakes, tsunamis, mine collapses, etc. There are now an innumerable number of natural and man-made ways your supply chains can come to a screeching halt and cut off your primary (or sole) supply of critical components, parts, and materials that you need to make the product(s) in your key product line(s).

When that happens, you need to so something. If you’re lucky, you have already identified an alternate supply and can switch to it or ramp it up. If you’re not, you have two choices: identify an alternate source quick or re-design to use less/none of the component/part/material in question.

The same way Japanese snack giant Calbee switched to black and white packaging when it could no longer get the coloured ink it needed because of the situation with the Strait of Hormuz, or the same way Tesla rewrote it’s software and firmware to use different chips during a semiconductor shortage, or IKEA reimagined the metal heavy lamp to use 60 precision cut birch veneer pieces to create a spherical lampshade.

But product design can only do this if they know they can get the alternative components or materials quickly and cost effectively. They need to be able to search supplier and product databases, logistics capabilities, and build realistic cost models to see if a an alternative design is worth pursuing before digging in deep, asking a supplier to provide a customized offering, and then having Procurement saying it will cost too much, sales saying the new price point will make the product unsaleable, supply chain say it can’t fulfill the product now because of a man-made or natural (disaster) supply chain issue, etc.

Plus, once it believes it has a workable, cost friendly, alternative it can immediately involve Procurement and Supply Chain, share the data, have its thesis validated, and prepare to update production lines with confidence.

One has to remember that there are two reasons the railroad barons became so rich. The first was their exploitation of workers (before unions and worker protection laws). The second was that they were built by engineers who built vertically integrated organizations that optimized every step and ensured every interaction that was required was executed to keep costs down and profitability high. Remember that vacuums are empty, and thus devoid of profit. So don’t create them between departments if you want to be successful.

Procurement Must Align With Supply Chains

Especially in direct, as Bob and I explained in detail in our Standard Sourcing Solutions Don’t Work for Direct.

While simplistic, almost obvious, and not prescriptive, it was nice to see a recent article over on India Shipping News that echoed some of the reasons why procurement must align with fulfillment in modern supply chains.

It noted that in today’s supply chain environment, for the ecosystem to function in a seamless manner, there needs to be perfect alignment between the procurement and the fulfillment networks.

One must remember that the outcomes of fulfillment are directly impacted by the Procurement decisions. These mainly include delivery, order accuracy, and inventory availability. The procurement strategies must also be informed by the fulfillment insights, which include delivery performance and demand patterns. The operations have now transformed from being independent to following a more collaborative approach.

And we still haven’t mentioned inventory levels. In retail, 8% stock-out is the traditional average. That’s a lot of lost revenue, and in low margin industries, quite a lot of lost profit. Without alignment, organizations’ unnecessarily lose money customers would be happy to give them while losing money in stale inventory that has to be fire-sold or discarded because the organization has too much of some products and materials and too little of others.

Now, the organization’s don’t have to merge, but they have to align … and the way that happens is through shared data, shared requirements, shared goals, and shared alignment. Fortunately, with today’s systems, data can be shared across the organization in real-time. With on-line collaboration, there’s no excuse for people not to come together and outline all of their requirements and ultimate goals. And there’s no excuse for the organizations to not get together and align on what’s the most critical, and for them not to go to their common boss (the CFO) and bless the rankings on the alignment (that will be used as weightings in optimization). Once you have the goals, the rankings, and the weightings, both sides can use optimization to make the right decisions that takes the needs of the other party in mind. (In fact, there’s no excuse for all of Procurement, Logistics, Supply Chain, and Inventory Management not to be 100% aligned at all times with the tried-and-true proven tools available today.)

In other words, not only must Procurement align, it can align, and there’s no reason it shouldn’t be aligned.