News U Can Use

A Supply Chain/Strategic Sourcing learning community devoted to ideas you can use in your work or daily life.

Archive for the ‘About the Blog’ Category

Welcome to our community! After many repeated requests from a number of you, the blog is ready for launch. It’s our goal to let the community/blog evolve with you, from you, organically. The success of this community will be determined by your level of activity; we will provide a forum and facilitate the dialogue. That we commit to doing. The rest is up to you!

The mission of this blog is to create a learning community with a particular focus on sourcing and supply chain related “stuff” you can use at work or in your daily lives. One category, News U can Use, takes current news and draws some learnings from it. Another category, Lessons Learned, is a space to share things that you have tried professionally that worked, or didn’t (which is where we often learn the most). There is also a category for you to share how you may have applied sourcing/supply chain techniques in your personal life (negotiating for a car, building consensus in getting family to agree on vacation destination, etc.). I’m always surprised at the lines drawn between our professional and personal lives. As we all gain more experience, we will continue to add categories that reflect the needs and interests of the community.

One key point is that you should NOT expect daily updates from us. This is your forum and we are going to depend on the community to provide energy. But, we commit to something interesting and thought provoking being up each time you visit. This community won’t compete with blogs like SourcingInnovation.com or SpendMatters.com, but we feel like there is a need to fill. If, along the way, you have any suggestions, please share those with us.

Thank you all for your support and participation.

Happy Holidays From The Mpower Group

Posted by thempowergroup on December 22, 2010

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Testing the Theory that “Sourcing is Dead”

Posted by lowellyarusso on November 30, 2010

Today’s post is from Dr. Lowell Yarusso, Senior Vice-President, Talent Management, of The Mpower Group (TMG) and a contributor to the News U Can Use TMG blog.

My, how time flies when you’re having fun!  It’s been a while since I posted my thoughts on how Kuhn’s The Structure of Scientific Revolutions could inform the discussion about the “Death of Sourcing”.  In today’s blog, I want to take a look at what how, over the past twenty-five years, we may have been our own worst enemies.  As I do so, the focus of my comments will be on how the way we have chosen to think about Strategic Sourcing has influenced what we have done to demonstrate its value.

Let’s start with a sports analogy.  Growing up, I was a football fan.  One of the things I noticed along the way, and it still seems to be true, was the tendency for new approaches, whether to offensive or defensive play, are always touted as the death knell for the other side of the ball.  For example, when the Shotgun formation was first introduced (By the San Francisco Forty-niner, if memory serves me right), there were stories all over the place, i.e., In the two newspapers I read (Hey, the internet wasn’t even a brainchild yet!) about how “No one” could stop that new offensive formation.  Then, someone looked, not at the results the new formation achieved, but at the underlying structure of the offense.  Viola!  It’s now just a standard option that no defense particularly fears.  The same has happened to the 3-4 defense, the wishbone offense, the Cover 2 defense, and so on.  Whether you’re coaching football or coaching a sourcing team, stagnation is just another word for losing. 

So, what does that tell us about Strategic Sourcing?  By and large, we have been focused on evaluating results, i.e., the effectiveness of efforts to apply the Strategic Sourcing process, and have pretty much ignored the question of the underlying structure, i.e., the effectiveness of the Strategic Sourcing theory.  I believe that has led us to a false sense of comfort that we had developed an approach and process that were so powerful there was nothing left to do but execute.  (The ongoing efforts to evolve the Strategic Sourcing Maturity Model are, in large measure, a good indication that we did not have it right at the outset.)

What we failed to consider was the possibility that the underlying structure has flaws that, while we focused on results, were largely hidden.  That led us to avoid the messy business of thinking through our assumptions and their implications, i.e., of evaluating the theory upon which the process was built.  To Kuhn’s point, our apparent success in solving problems of the type, “How do I reduce the price for goods/services?” and, later, “How do I reduce the total cost of goods/services?”, led us to accept the theory without question.  Recently, there has been a subtle shift in emphasis to problems that are more of the type, “How do I create value across the enterprise?”  And, with this continuing evolution of the nature of the questions we face a realization that we may be operating under a set of assumptions and a theory about sourcing that do not allow us to resolve the real issues Supply Chains face.  Again, like the football team, continually rethinking what we are doing is forced on us by the realities we face.

This is neither the time nor the place to undertake a detailed analysis of the assumptions that have informed Strategic Sourcing Theory.  However, it may be useful to undertake a short thought experiment to see what such an analysis may reveal.  One assumption we may want to test is that Strategic Sourcing must be driven by quantifiable data, i.e., that, if it can’t be measured, it can’t be managed.  The experiment is this:

Consider a sourcing event that focused on the category, “Motor Oil”.   I have a friend who sources that category on an ongoing basis.  His decision criteria focus on traditional “total cost of ownership” variables, i.e., price per quart, Mean Time to Failure, recycling costs, etc.  So far, so good.  But, what are the less obvious value drivers related to Motor Oil.  One is ease of handling.  Purchasing in gallon containers yields a lower total cost of ownership per unit (quarts) of oil used.  But, a gallon container is more difficult to handle, has a greater propensity for spillage, and, because few vehicles have a crank case that holds an even number of gallons, gallon containers lead to overfilling or underfilling as his maintenance staff try to gauge when “enough is enough”.  (The alternative is to add significant time to the oil change process to allow for careful measurement of the exact amount above an even gallon that is needed.)  And, all those partially used gallons further complicate his life.  The issue is, how does he quantify the value of buying in quarts rather than bulk containers?  The answer is, he doesn’t.  He just “knows” quarts are better than gallons and only buys in quarts.  Note, too, that this discussion assumes that the highest value approach to lubrication is motor oil, a conclusion that, as technology evolves, may not continue to be the case.  A focus on “quantifiable variables” may be totally inadequate to deal with that kind of change in the environment.

What does our “quantifiable variables” assumption say about my friend’s approach to sourcing Motor Oil?  Could he come up with a dollar value to add to the decision model?  More importantly, should he?  Or would the effort to do so be patently wasteful and unnecessary?  Of course, some would say, “so, make it a go-no-go decision criteria and be done with it.  That, however, is tantamount to saying, quantifiable variables do not capture everything we need to incorporate in our sourcing decisions.  In other words, the assumption is inadequate to the task and, therefore, the theory and the process need to be revised to accommodate the additional assumption(s) needed to cover this situation.  Or, the assumption itself is flawed and should be discarded. 

Now, I admit that this is an overly simplified example.  On the other hand, if the theory can’t handle the simple cases, how can it be considered adequate for the more complex realities of most of the categories that get run through our existing Strategic Sourcing process?  The point is a simple one.  We need to do some meta-thinking around Strategic Sourcing and not simply accept the current practice because it is current.  Kuhn, I am sure, would agree.

And, as an aside, I hope that you agree as well.  On the other hand,  I would like to do a future blog that addresses the rebuttals to my thinking.  I am sure there must be some but I’m running out of steam so I’ll ask that you help me out by sharing your reactions, whether positive or negative.

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Apple Kickback Scandal: A Lesson in Risk Management

Posted by thempowergroup on August 24, 2010

Today’s post is from Dr. Lowell Yarusso, Senior Vice-President, Talent Management, of The Mpower Group (TMG) and a contributor to the News U Can Use TMG blog.

News reports that an Apple global supply manager is accused of receiving illegal kickbacks in return for providing access to inside information about Apple’s sourcing strategies reminded me of an old Baseball story.  A rookie was at the plate for his first at bat in “The Bigs”.  The umpire was one of those old timers who had seen it all.  The pitch came in on the borderline and the ump paused before making his call.  The impatient rookie quickly asked, “What was it?” The ump’s response, “Kid, it ain’t nothin’ ‘til I say it is.” The same can be said about risk.  It “ain’t nothin’ ‘til someone says it is”.

And that’s the rub.  While I’ve talked around this issue in several other blogs and articles, the Apple case focused me on it again.  The early efforts to determine where Apple went wrong seem to point out the frequent tendency to close the doors that have “Entrance” signs and to ignore the ones that say “Employee’s Only”.  Many of the comments I made in discussing employee theft (What’s in the Wheelbarrow: Theft and the Supply Chain) apply here as well.  But, more to the point, how does an employee get the opportunity to take hundreds of thousands of dollars in kickbacks without someone noticing?

Part of the problem lies in the way companies approach the issues of risk and security.  Before you can address a risk, you have to recognize that it exists.  Like the umpire said, until you put a name on it, it doesn’t exist, at least not in the sense that you can do something about it.  One of the key issues I raised re: the Barings Bank collapse (Risk Management Lessons from Barings Bank (RIP)) is the tendency to apply a “black box” mentality so long as results appear to be favorable.  In this case, I can only speculate that, if anyone asked about it at Apple, the response was something along the lines of “We made our goals; everything must be under control.”  The possibility seldom occurs to anyone that, sometimes, things are not just going better than expected; they’re going better than should be believed.

While there are lots of clues to such situations, in most cases, they seem to only become clear after the fact.  The natural assumption is that, because they were recognized after the risk was identified, no one could have seen them in time to do some risk mitigation.  That assumption is wrong.  The clues are always there and are always identifiable IF the organization takes risk management seriously and makes it a top priority, from both a leadership and a management perspective.

Leadership has to make honesty and integrity the cornerstones of the business.  Everyone, from the top down, has to make it clear that there is zero tolerance for behaviors that cross the line.  Apple’s reaction to the scandal has been vigorous and shows the right attitude at the top.  The question that I have is whether or not that same attitude has been driven down through the entire organization.  How many individuals at lower levels were more concerned about what cost goals they achieved than about how those goals were met?  Organizations need to continually and consistently talk about the values and ethics that are expected and the behaviors that will not be tolerated.  A placard on the wall proclaiming that “We are an ethical organization” quickly becomes part of the background if it is neither strongly reinforced nor vigorously applied.  That’s a leadership issue and it requires that leaders make calls on a daily basis so that everyone knows the balls from the strikes.

From the management perspective, organizations have to craft their processes and procedures to reflect their commitment to ethical conduct.  In the sourcing arena, that means that there should be a periodic review of results that focuses not only on such issues as adherence to internal control procedures but also considers whether or not results are consistent with business expectations.  And, yes, every organization assumes its suppliers will bend over backwards to make them happy.  But, if one person has a significantly better track record, if one category area is always out in front in terms of hitting should-cost estimates, exceeding requirements, or in other ways outperforming the norm, red flags should go up.  Unfortunately, such a situation is frequently called “great work” rather than “potential risk”.  And, as in baseball, the pitch becomes what it is called.

Another management issue is that of the reward structure for the sourcing organization.  Bonuses based on cost savings are a two-edged sword.  They not only motivate good sourcing practices, they also provide powerful temptations to cut an ethical corner here or there so that bonus goals are met.  It should be obvious (and usually is in retrospect) that a sourcing group that consistently meets its price reduction goals year in and year out may not be working with the best interests of the organization as its primary motivation.  (I have seen situations where buyers asked suppliers to spread an offered price reduction over three years rather than granting it in the first year so they would be sure to make their numbers now and in the future!)  Here, again, what you call it becomes what it is.

The bottom line is that organizations need people, like the umpires, who look at the pitch dispassionately and call it as they see it.  A great tool in this regard is the application of scenario planning as part of the risk assessment effort.  One approach is to establish a process review system that includes the question, “What would we expect to see if someone broke faith with our ethical code?”  While there is no guarantee that such a review would have spotted the issue at Apple sooner, by naming surprising results a risk, the potential problem might have been identified and investigated more diligently.

What’s your take on this area of risk?  I’m interested in your thoughts, especially with regard to: 1.  Do you think that Apple’s experience is only remarkable because it was discovered, i.e., does this kind of thing go on far more than we realize?  2.  What have you seen that falls into the realm of risks that “…ain’t nothin’ ‘til someone says it is”?

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