Brainstorming Best Practices

May 9, 2011 by Leave a Comment

Sourcing Innovation has nice coverage of McKinsey’s new piece detailing a seven step model for more effective brainstorming.  While all seven steps are important, I would argue that the last one on the list is the most important: Follow Up Quickly.  It’s no good to brainstorm the perfect solution if you are unable to implement.  A long lag time between the end of the brainstorming session and trying to implement the ideas will result in a lack of momentum and the potential to lose the buy-in you had initially.  Any actions resulting from the brainstorming session should be taken within 7 to 10 business days and the team should follow-up within 2 weeks of the session to evaluate progress.

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Lessons from Japan

April 13, 2011 by Leave a Comment

Spend Matters has a nice series on some of the lessons we can learn from the supply chain disruptions caused by the earthquake in Japan.  In Part one, Jason Busch raises some questions about whether or not the current disruptions should spell the end of just-in-time inventory strategies and supplier leveraging.  I tend to agree that holding more inventory is not the right answer, while diversifying the supply base might be.

Excess inventory represents money that could be better spent elsewhere.  I worked for a client in Alaska a few years ago whose inventory strategy was all about having month (to years) of supply on hand.  The rationale was that it takes a long time to get parts and materials to Alaska.  While this may be the case, a better solution is to include lead times in your ordering process rather than tying up money in inventory.

Disasters like the one in Japan do cause major disruptions to supply chains and can lead to short and medium term price increases as a result; however, these types of disasters are not a regular part of doing business.  As Jason notes on his blog, holding safety stock is a hedge against these types of disruptions; last time I checked, procurement and supply chain were not in the market speculation business.  Personally, I favor a strategy that includes contingency planning for supply disruptions.  In this way, you are prepared should a disruption strike without being locked into money wasting tactics.

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More from Japan

March 28, 2011 by Leave a Comment

Here is an interesting piece from Spend Matters on the broader implications of the supply chain disruptions in Japan.  Regardless of whether or not companies have a direct interest in Japanese suppliers, potential supply chain shortages are a concern for the medium term, particularly in the electronic and automotive industries.

What we are seeing now are the immediate risks of supply base consolidation and over-reliance on one geographic region for key components.  More reasons to consider supplier development efforts as part of a long term strategy for maintaining continuity of supply.

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Why Supply Chain Planning Matters

March 15, 2011 by Leave a Comment

The current crisis in Japan underscores the need for proper contingency planning in supply chain management.  Far too often companies are unprepared for major supply disruptions, causing product and service shortages and leading to significant price spikes.  Supply chain managers should consider these risks, however remote they may be, and develop contingency plans that can be put into action quickly to reduce the impact of localized supply disruptions.

To be effective these back-up plans should consider the levels of impact that are possible depending on the scale of the emergency.  Additional sources of supply should be found in geographically separated locations.  It does no good to have alternative suppliers if they are all faced with the same natural disaster, as appears to be the case in the electronics industry at present.  It is also important to test your contingency plan in advance to ensure that it will be an effective response and adequately maintain your continuity of supply.

How your supply chain responds in moments of crisis and supply shortage can provide signifcant competitive advantage around price and availability.  It’s worth the long-term investment in  some emergency preparedness planning.

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Procurement Software Trends

March 9, 2011 by Leave a Comment

Software Advice has put out a great piece on the current trends in procurement software.  Looks like demand for procurement software is expected to increase over the next year, could be a good sign that the economy is back on track.

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GAO Report Confirms Government Program Redundancy

March 7, 2011 by Leave a Comment

Last week’s release of the 300+ page GAO report on redundant government programs is another reminder of the fact that we have known for a long time. There is a substantial amount of duplicative efforts and programs in the U.S. Government budget. The report noted duplication in scores of programs such as small business innovation programs, minority business support, and military vehicle procurement to name a few.

Why can’t the Congress require a full-up review of these programs? I would suggest reverting back to a zero-based budget, updated yearly. I think that this would root out the duplication and force the Government Program Managers to show the return on investment of all programs above a certain dollar threshold. In addition, the evaluation of duplication can then be easily accomplished by the Congressional Budget Office.

One more time: How can we move ahead with reducing Government program duplication. Zero-based budgeting should be welcomed back!

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United Nations Futile Effort at Procurement Wastes $11 Million

February 28, 2011 by Leave a Comment

A recent audit by the United Nations audit group relating to the purchase of a multi-million enhancement to their IT system showed a number of flaws in their procurement process and a lack of understanding of best practices. It appears as if the awarded contractor had a price almost $11 million higher than the lowest bid ($5 Million) and was much higher than the budget established for the work. Knowing that price is only one part of a decision on a purchase of this magnitude, a decision to award to a higher technically-ranked firm is acceptable as long as the established evaluation criteria was followed and documented.

What is disturbing is that there is no not-to-exceed value in the contract and UN records did not include an estimate on the number of days of work required. The ultimate contract appears to be a time and materials best efforts with no upset value. That is called a cost plus percentage of cost  type of contract, a type that is prohibited by the Federal Government.

It looks like the UN should terminate that contract and re-solicit using better source selection practices and establishing a bona-fide type of contract with a fixed price or upset limit.

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Way to go: Using mobile apps to evaluate supplier performance

February 22, 2011 by Leave a Comment

Many firms have difficulty in measuring suppliers. Systems like SAP and Oracle have features that allow firms to collect and report on supplier performance. In manufacturing industries and with discrete parts, data and processes are available. The problem still is ensuring discipline in getting accurate and timely data. In the service industries, the problem is compounded due to a myriad of issues including lack of part numbers, system tracking capabilities, and the difficulty in measuring given the fact that services are rendered everywhere, not delivered to a shipping dock.

Mobile apps such as Tello allow customers to rate companies on customer-service. It seems like we need a mobile application that allows for systematic evaluation of services provided, tied to the backoffice application.

Well-reviewed suppliers based on pre-set criteria could then be rewarded with additional businesses, incentives, and partnering opportunities. Hurray!!

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Message to Obama and Congress: One More Time: How to reduce the budget!

February 16, 2011 by Leave a Comment

Countless articles have been written on-line and in print about the 2012 budget. Everyone is busily trying to find program areas to chop, reduce, and reorganize. I think that what happens in all of this is that the folks doing the analysis are not experts in how to reduce budgets in organizations. I know this to be true because the information provided does not reference any of the tools and the processes that can be used to effectively reduce the budget and still keep many of the programs that are in place.

Here are a few tools that should be used:

1) Demand Management – This refers to assessing what products and services that are being used with an eye to either substitute or reduce the use. For example, rather than have 20 computers replaced every 3 years, have 15 computers replaced every 4 years.

2) Value Analysis – This refers to a tool that is used to keep the required features of a product or service, but at a lower overall cost. For example, rather than using overnight delivery services for first morning delivery, schedule it for afternoon delivery or two-day service.

3) Lean Management – The is a technique that is used to take out excess inventories, improve quality, and reduce all wastes. For example, update all parts inventories in the DOD to only keep those items with long lead times.

4) Process Management – The refers to agencies identifying their key processes and then improving the flow, reducing costs, and improving quality. For example, improving the cycle time of a Visa application review will reduce staff time.

5) Better procurement management – Eliminate sole source contracts, period. This would save billions of dollars.

This is only a short list. These techniques are being used, and are helping organizations become more efficient and save money. When will the President and Congress wake up and get to work on this, as opposed to discussing spending at the highest, most aggregated level?

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What to do about Steel Price Increases

February 14, 2011 by Leave a Comment

Price increases of 8-10% are being requested by manufacturers now based on the increases in flat-rolled steel. And these prices are now being pushed through the supply chain. So what to do? Add inventory to forestall the effect of future inventory? Accept the price increases? Refuse the increases?

If you haven’t secured long-term price protection, it  makes sense for you to establish at least 2 year contracts, using the sources like Global Insights or Thinking Cap Solutions 5 year price change forecasts. Try to narrow your sources to 2 to maximize leverage and give you a choice of suppliers for delivery.

Suppliers try to pass on these price changes. You should thoroughly understand what  of steel costs represent of the total costs of the product. The review the forecasts and establish the average price for the next year. Mark up the steel costs with overhead or G&A if appropriate and then task on a profit not to exceed 10%. You can always just offer to cover the revised prices and not add profit.

Check you current contracts and terms to see if you have price protection and coverage of price changes. In long-term contracts, set forth the terms on when suppliers can request price increases and the formula to be used to determine any price increase or decrease. See if by adding other business to the relationship with the supplier to offset the price increase. Last, ask your engineers to see if they can help reduce the steel content and introduce less expensive and equally durable substitutes. I wouldn’t add to inventory until you at least completed this work!

Last, over half the time, suppliers will accept your refusal to pay the increases. Try that out as well.

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