Upcoming SPS Public Appearances

Robert Dunn & Mark Trowbridge will both be featured presenters for the ninth consecutive time at the ISM International Conference in Orlando, Florida (USA).  They will be presenting a one-hour seminar titled "Strategic Contracting - Best Practices in Leveraging Contract Portfolios" at 10:20 a.m. Tues May 17th.

If you will be at the International Conference, please take a few minutes to visit the Strategic Procurement Solutions booth in the Exhibit Hall. 

"As the World Turns -Trends in Global Supply Management" - by Mark Trowbridge, Principal, CPSM, C.P.M.

Each place to which I traveled provided a few new insights into the direction of supply chain management and global business, which I'd like to share:

·         Global Sourcing is a Standard Practice, But Still Has Risks -Everyone is acquiring goods or services from Low Cost Countries ("LCC").  Whether manufactured goods from Asia, Eastern Europe, South America...or Software Coding or Call Center Services from India or Ireland, progressive companies and governmental agencies are doing it.  This is no longer a new practice, but does still carry risks which need to be addressed in an intelligent and strategic manner.  Every US client I spoke to had experienced at least one supply chain failure (or significant hiccup) with a LCC supplier during the last six months.  In fact, a recent survey of materials management leaders found that 20% of firms who outsource end up holding higher (not lower) inventory levels.  Outsourcing is not an answer if the supply chain can't be stabilized.  As one executive phrased it, "Whenever inbound product goes onto an airplane we eliminate any profit on our final product". 

·         Dual Sourcing is Now Normative - While seated on an airplane between Shanghai and Hong Kong, my seatmate shared he was an investment banker headquartered in Hong Kong.  We discussed supply chain management for a while, and he observed that unlike (some other countries) it is easier for China companies to close shop under one legal entity and reopen business under a new name...often with the same facility and people.  That's an example of catastrophic supply chain failure.  And even if a catastrophe doesn't occur, production delays from an overseas supplier are still exponentially more-difficult to resolve than from local suppliers. 

So what are buyers doing to offset these types of risk?  Prudent buyers are often dual sourcing key products (i.e. "A" items).  Maintaining a domestic source for critical items is worth paying a slight premium.  Applying the Pareto Principle (80/20 Rule) can achieve a much more stable sourcing strategy which captures most savings from a LCC primary (80%) while maintaining a quality local (or near shore) secondary source (20%) which can rapidly-adjust to fluctuations in the primary source to fill pipeline capacity. 

·         New Offshoring Model - A new business model for moving operations (both service center functions and manufacturing operations) is to utilize a new type of supply chain provider which provides a legal structure for offshoring or nearshoring operations, without the cost or complexity of doing it yourself.  An example is one of our clients which opened a production facility in a low cost Latin America location by utilizing a company which runs 60+ manufacturing firms in that nation.  No more worries about local government approvals, human resource compliance, payroll issues, building permits...instead the business was brought up and running with a minimum amount of effort.  And the firm's proprietary production processes were kept strictly confidential throughout the process.  Maximum savings while keeping the operation company-run...very nice.

·         The Cone of Silence - For those procurement professionals who travel internationally on business, a personal tip for surviving long distance air travel is to create a cone of silence similar to Get Smart.  My personal cone of silence includes three days worth of music on my iPod, some good books (not electronic yet, but am getting there), and high-quality noise-reducing headphones with adapters for every conceivable airline plug arrangement.  Feel free to email me if you have any other international travel tips...

"Celebrating Cost Saving Failures" - by Richard Nettell, Practice Leader

One of the biggest frustrations we hear from Chief Procurement Officers is "Why can't I get my people to think out of the box and be more creative?" This is a big tough nut to crack but one that is well worth pursuing. And once you have grabbed the low hanging fruit in initial sourcing "waves", it's the only way you're going to be able to sustain a breakthrough level of cost reductions and continue to have a substantial "bottom-line" impact.

In order for any organization to succeed in today's environment, the people within must feel that mistakes are not fatal. A culture that celebrates "intelligent failures" can go a long way in helping an organization reach its true potential. 

Think about it.  Have you ever heard of a cutting edge product or new save category that was developed without people taking a degree of risk? Would they have taken those risks in an environment where folks are "slapped" if their ideas did not all pan out? And if they had not taken those risks, would the effort have been nearly as successful?

Professional hockey star Wayne Gretzky once said, "You miss 100% of the shots you never take."  Now apply this to the procurement professionals you know, and ask yourself how many of them never shoot for a high-return opportunity?  And which percentage are willing to take a risky shot which end up winning the game?

A supply chain executive's leadership is critical in this area. It's our responsibility not just to encourage risk taking, but to demand it. It's our role to define the measurement criteria in this area. It's also our responsibility to define the degree of risk we are comfortable with taking, and to set specific standards that define "intelligent risks" so there's a common understanding. Lastly, if we want our team to "fly" it's our responsibility to provide the parachute if they go into free fall...by reacting in an appropriate way when they do fail.

Don't get me wrong, if I had my way we'd never have to deal with failure, but it's a simple fact that if we push the envelope hard enough we're bound to tear through it once in a while. The key is to have small failures, not big ones.

What is an "intelligent failure"?  In my mind it's a risk worth taking.  It's an idea that is well thought out, and has been vetted with the right executive stakeholders.  It's one where the "upside" benefits outweigh the risk, and the downside is fully understood.  It's one where potential negative impacts are minimized by creating a contingency plan in advance.  This plan may be very simple...maybe nothing more than, "This is the worst that can happen, and here's what we will do if it occurs."

I recognize this is far easier said than done. Most employees are not going to race out and take risks simply because we say it's important. In a lot of cases they have been conditioned not to. Muscle memory can really get in the way. Old habits die hard.  Action needs to be taken to "prime the pump" and then we must show the team our actions match our words.

Risk aversion was deeply engrained in both of the large procurement teams I "inherited" though the then-largest financial sector merger in the USA. When I introduced the importance of taking risks like this, the leadership team was looking at me like I had two heads. The room was full of sidelong glances and people whispering to each other.

But after setting expectations, I sat back to observe and learn.  Want to guess what happened?  Yep, you guessed it, absolutely nothing. As you'd expect people continued to operate in the manner that the previous cultures had dictated and were most comfortable for them. That was how their "muscle memory" was programmed. 

I'm convinced some people don't want to change, simply because it pushes them out of their comfort zone. When coaching and cajoling doesn't work, sometimes you need to make staying the same more uncomfortable than the change.  So in order to get this pushed off center, I added a new objective in each supply chain leader's performance objectives which said, "During this quarter you are expected to challenge the process to the point of a failure. Be prepared to discuss at least one intelligent failure experienced during the quarter and what you learned from it."  Then I needed to make it real, in three ways:

1. Had to hold people accountable when they did not take a risk.  When some leaders were unable to describe an "intelligent failure" during their quarterly coaching sessions, I made sure they understood it impacted their overall performance and would impact their annual performance rating if it continued.  The second time through I put this in writing and folks began to understand that this was not going away...and that I was serious.
2. I looked for opportunities to celebrate these "Intelligent failures" publically. There is nothing how powerful than public recognition in changing behaviors, especially when you make sure you "tell the story". Giving folks a full understanding of the event helps them understand exactly what is needed and creates role models for them to emulate.
3. I also looked at each of these as a Moment of Truth. Each was an opportunity for me to reinforce that my actions matched my words. Make no mistake, people will look at how your react.  Failing creates teachable moments and this is especially powerful, if the failure is yours. Share your failures with the team. They will learn from them and it will continue to reinforce that the "right" failures actually help you learn and grow and can position you for even greater success in the future. Making them visible helps shift the culture.

No doubt, intelligent risk-taking is a tough practice to institutionalize. Success requires discipline, follow-up and follow-through. In other words, real work. It also requires a level of courage, especially on a supply chain leader's part, as we are taking the biggest risk of all.  We are investing in other people and taking a leap of faith that they will succeed. In order to do this we must believe in them and be willing to support them, even when things don't work out as planned. Our payback is huge, however, and worth the risk. Once they understand you believe in them and support them in a very tangible manner they will unleash their passion in ways you never anticipated.  Speed and creativity will go through the roof.

So the end of the story...What happened to our team?  Well, my areas of responsibility were successful in capturing more than $200 Million in annual cost savings.  We lowered our team's operating budget by 40%.  We reduced our staff size by 77% while improving internal customer satisfaction by 25% and procurement employee staff satisfaction by 16%.  All are the results of a team of procurement professionals being willing to take "intelligent risks" and not being afraid of an occasional failure.

Critical Points to Remember

First, be very clear with your expectations and hold folks accountable for the behaviors needed.Treat each failure as a "teachable moment" Share what went wrong, and why, so all can not only learn but see firsthand that people are not getting "slapped" for it.

Second, determine how to make intelligent risk taking "real" in your environment by developing a method to measure.

Third, remember that you are on stage and the team is always looking at how you react. Every day on stage is like opening day. It doesn't matter what occurred yesterday, it's how you handle yourself today. It's up to you to lead and they will follow.

Lastly, celebrate the heck out of situations where someone took an intelligent risk.  Do it publically and tell the story.  It will make a difference in how everyone behaves... 

Richard Nettell is one of Strategic Procurement Solutions' key practice leaders.  He appears in Tom Peter's training video entitled "Challenging the Process" and is prominently featured in the best-selling book "The Leadership Challenge" by Kouzes and Posner.  The author of "The Radical Edge", Steve Farber, said, "Dick Nettell...is, hands down, the finest Extreme Leader I've met in 20 years of working with leaders across the spectrum of public and private organizations."   Mr. Farber also included Dick as a key example of leadership in his best-selling book, "The Radical Edge".

If you would like information about our 360^o Supply Management Efficiency Review helps SCM organizations create a top-performing supply-chain, or information about motivating superior employee performance through online skills testing or position design, visit www.StrategicProcurementSolutions.com