The recent Supply Excellence exclusive with Norbert Ore, Chair of the Institute for Supply Management’s (ISM) Manufacturing Business Survey Committee, prompted some lively commentary questioning the accuracy and value of economic indicators. The most vocal commentator was Charles Dominick, president and founder of Next Level Purchasing and author of the Purchasing Certification Blog.

I have admired Charles’ focus on advancing supply management skills and have become a regular reader of his blog. (Charles and I even collaborated on a podcast on the future of supply management technology, which you can still download here.) So I felt it would be valuable to get Charles’ experienced advice on how (and if) supply managers can leverage economic indicators, like the ISM Index, to aid their sourcing and supplier management strategies.

Below is the first of a two-part interview I did with Charles on the subject.

Supply Excellence (SE): You recently made a very pointed argument that professionals need to use caution when making decisions based on economic indices. Can you elaborate on your thoughts?

Absolutely. Here are a few points I’d like to make:

• Just because an organization publishes what it considers to be an economic indicator doesn’t mean that it is accurate or valid. There are good economic indices and there are poor ones, too.
• When contemplating using an economic index, you really need to understand some fundamental things about indices.
• When contemplating using an economic index, you really need to understand how the index is calculated to evaluate its value.

SE: What are some of the fundamental things that a professional should know about economic indices?

Most indexes publish a number that is associated with a certain date. You need to know what that number means. The number will mean something different depending on the index. An indicator like Gross Domestic Product (GDP) is expressed in money. An indicator like the Consumer Price Index (CPI) is expressed as a number that is calculated to represent change from a fixed point in time, so the baseline never changes. The Purchasing Manager’s Index (PMI) is expressed as a number that is calculated to represent change from the previous month, so the baseline changes with every publication of the index.

SE: How do you estimate the validity of an index?

I always suggest comparing different relied-upon indices and look for consistencies and inconsistencies.

SE: Does the fact that the way the numbers are calculated pose a challenge for comparing indices?

It can. For example, the PMI had a value of 56.3 in January 2005. In July 2006, it had a value of 54.7. At a quick glance, one may think that this represented an economic decline. But that’s not the case. The PMI is calculated such that a value of 50 means no change from the previous month, a value over 50 indicates growth from the previous month, and the baseline changes monthly.

So, to compare this index against other indices, this requires the conversion of the PMI to a fixed baseline by assigning a value (e.g., 100) to the first month to be compared and, for each month, calculating the percent change from 50 (not from the previous month’s value), and adding that percent change to the previous month’s adjusted value to determine the current month’s value.

So while the PMI’s values alone might be graphed out like this (and therefore not showing growth)…

(click to enlarge image)

…the fact is that the value has exceeded 50 every month during the period in review and indicates continual monthly growth. Converted to a fixed baseline, the PMI would look like this:

(click to enlarge image)

When evaluating consistencies and inconsistencies between indices, it is helpful to set them all to a base value of 100 for the starting date and assign a number for each month based on a percentage delta between the date and the starting date. For example, let’s use the stock market index, the S&P 500. The closing value of that index was 1181.27 on the first trading day of January 2005 and 1203.60 on the first trading day of February 2005. This means that the value was 1.9% higher in February [ (1203.60 – 1181.27) / 1181.27 = 0.019].

So you would assign the S&P 500 index a value of 100 for January 2005 and 101.9 for February 2005. You would do this for each month to show the percentage difference between that month’s value and the baseline value. You would do the same for the other indices that you want to compare. Then you chart the values as follows:

(click to enlarge image)

As you can see, there is a lot of consistency in these indicators. One may surmise that in this 18-month period, we’ve seen economic growth in the 3-8% range.

SE: You’ve expressed concern over the PMI. Why?

I have a great deal of respect for the organization that publishes the PMI and don’t have any issues with the PMI whatsoever. What I do have concerns about is the way that people use and interpret it. I personally do not feel that it is an economic indicator as strong as the others out there. When you convert the PMI in the same manner as I had with the other indicators in order to put it on a comparable, level playing field, you would see these results:

(click to enlarge image)

So while I think that some of the text that accompanies the publication of the PMI (e.g., “Commodities in Short Supply”) can be helpful to supply managers, I think that the numbers should be interpreted with extremen caution. Unfortunately, I am observing that analysts and media are focusing primarily on the numbers without truly understanding them.

Thanks for the tutorial Charles. Your insights really help put the value of economic indicies in perspective. They also reinforce the age-old phrase, “There are three kinds of lies: lies, damned lies, and statistics.” Figures, whether economic indicators or supplier performance metrics, are only as good as their assumptions and formulas. Supply managers must ensure both are accurate before building a sourcing or supply strategy upon them.

Check back here for Part Two of this interview, when Charles shares his tips on assessing commodity markets and his favorite sources for supply market information. Charles also provides his predictions for the future of supply markets.

While at ProcureCon Europe earlier this month, I had the opportunity to lead a track (or in their parlance a “stream”) focused on Organizational Structure and Processes for Effective Procurement. Presenters on this stream included senior supply management executives from Nokia, HH Print, American Express and Navteq. Today, I will share insights into Nokia’s six-year journey to becoming an efficient and effective center-led supply management organization.

The $34 billion Euro mobile communications giant began its transformation initiative late in 2000. At the time, the supply management organization was highly decentralized with little spend leverage or process alignment across its four business units or geographies. Faced with global competition and pressures to reduce costs and increase innovation, Nokia set out to improve the efficiency and effectiveness of its supply management operations.

Alf Noto, Vice President of Indirect Sourcing at Nokia, said his organization set the following three-year plan:

• Reduce supply costs by $300 million Euro
• Better align supply strategies with business requirements
• Reduce purchasing operation and transaction costs
• Better integration supply management with supply chain management and product creation

“We recognized that a more centralized organizational structure was the way to drive and sustain value,” said Noto. However, he added that Nokia also recognized the need to support local requirements and to leverage expertise and infrastructure across business units and regions.

Nokia’s transformation plan was defined along five structural dimensions:

1. Geographical distribution. Noto said Nokia wanted to have centrally defined processes and global spend leverage with geographically distributed support and exectuion.
2. Category aggregation strategies. While standardization the goal, Nokia recognized the need to support variations by global, regional, business, and category lines.
3. Process ownership and development for both strategic sourcing and transaction procurement operations.
4. Strategy. Nokia knew it needed to better define and align its functional strategies and goals.
5. Reporting lines. Nokia set out to both improve the supply management reporting to senior corporate executives as well as to better align the function with invididual business groups and other functional stakeholders, such as supply chain and product development.

Said Noto: ”Which structural dimensions you employ are influenced by the size and speed of your transformation goals, supply market dynamics, stakeholder location and organization, business growth and expansion plans, and the degree of localization required.”

Nokia set out on a path to transition to what Noto refers to as “a centralized organization with a strong matrix” across regions. This structure is most commonly known as the center-led organization, which blends spend leverage, process standardization, and knowledge- and resource-sharing attributes of centralization with the local empowerment and execution characteristics of the decentralized model. (Transitioning to a center-led or centralized organizational structure is one of the Top 5 Supply Strategies enterprises have prioritized for the next two years.)

Nokia did not make the jump to the center-led model in one fell swoop. Instead, the company’s supply management organization evolved through three organizational phases before reaching its goal: global sourcing, regional, and center-led. I have prepared the below table to summarize the timing, attributes, and intent of each phase (click to enlarge).

During the first phase of its transformation, Nokia achieved its three-year goals — a year ahead of schedule. The company has since driven considerable improvements in supply costs, operational efficiencies, and spend leverage.

Nokia’s approach offers a sound roadmap for other organizations looking to make the jump to a center-led supply management structure.

Okay, so it’s not Rocky versus Drago. (Or even Britney versus K-Fed.) But Spend Matters blogmaster Jason Busch and I are teaming up and squaring off to highlight and debate spend and supply management strategies on an iPod (or Zune) near you.

SupplyNow, a new montly podcast series from Spend Matters and Supply Excellence, tackles today’s most pressing supply management issues. Each episode features an industry expert or practitioner who will weigh in on supply market trends, strategies, and best practices. Jason and I will also share the latest supply news, respond to questions posed by readers of our respective blogs, and debate the more controversial spend and supply management approaches and issues of the day.

This month’s SupplyNow podcast features Mark Hillman, AMR Research’s supply risk czar. In it, Mark previews his latest research into supply risk, revealing the top areas of supply risk and how to monitor and protect against them. For example, he reports that one-third of companies have dedicated line-item budgets for supply risk management, and that 54% expect spending on resources and technology to monitor and manage risks will increase this year. Mark’s interview is a must hear for any executive trying to assess how best to assess and control supply risk.

Episode one also delves into the most common pitfalls of supplier performance scorecarding, reveals today’s Top 5 Supply Strategies, and examines the skills and challenges of becoming (and remaining) a Chief Procurement Officer (CPO). As you might expect, the innagural SupplyNow broadcast concludes with a verbal jarring of the differences between spend and supply management.

I encourage you to listen and provide feedback in the comment section below. Or e-mail me at tim@supplyexcellence.com

As Supply Excellence readers in the U.S. attempt to shake off your turkey-induced tryptophan comas, I thought you’d enjoy chewing on the final installment of our three-part interview series with leading supply management executives. (You can also catch up on part one with Coors Brewing Company and part two with Alltel.)

This final installment puts the spolight on Kees Gerretse, CPO at Corus Plc, the global steel and aluminum products and service provider. The interview comes compliments of eyeforprocurement, which is hosting the Supplier Management Forum in Miami April 17 - 18, 2007. Check out the full conference agenda and registration information here. (Register before year end and knock $400 off the registration price. Mention “Supply Excellence” in the discount code area of the registration form and save another $100.)

While reserved, Gerretse shares insights into Corus’ relationship management approaches with key suppliers and its evolving China sourcing strategy.

Question: A recent Capgemini survey of global chief procurement officers found the most significant business driver for 2007 is compliance to contracts and improved visibility of spend with suppliers. Are these also your priorities and if yes why are they important to you? What priorities do you have for 2007?

Answer: We focused already on this in our restoring success program. Proper supplier relationship management and end user engagement are my topics.

Question: What strategic direction are you gearing toward in order to better your position for long-term security and continuity of your supplies?

Answer: SRM with key suppliers. Change of mindset in procurement staff.

Question: Good relationships come out of good performance. What metrics do you use in regard with your suppliers and how do you measure their performance. Delivery, quality, cost – what message do you give to your suppliers and what do you expect from them?

Answer: We have a rating system with also non financial criteria. Not all sites are using that and we are rolling this out.

Question: Low-cost country sourcing seems to be vital to maintaining competitiveness, but execution pitfalls remain. Are you sourcing in low-cost countries and if yes, how did you organize your low-cost country supplier management? What obstacles did you have to overcome?

Answer: This is a major program in Corus today. We have now a global sourcing office in China, and Eastern Europe. Also a dedicated team to support the categories to identify opportunities. We are spending now more than $300 million annually in China with benefits of more then $25 million.

Question: Collaborative Sourcing is the next stage of the advanced supplier management . How much value do you currently create because of the way you work with your suppliers?

Answer: I am open for that. We did not explore or done a lot in that area .But it might be interesting.

Corus is not alone in its aggressive China sourcing approaches and concerns. As a global manufacturer in a highly competitive sector that is tied to the volatile commodities market, China is almost a prerequisite for a cost-competitive supply chain.

That’s not to say China is the panacea. The fast-growing region introduces new logistical and supplier management challenges that are foreign to many companies — even those familiar with offshore sourcing. And a rising working class and global pressures for China to adopt environmental and socially responsible manufacturing strategies could dampen some of the cost benefits of China.

Supply Excellence questioned the irrational exuberance surrounding China sourcing in a post earlier this month. Supply Excellence questioned the aggressive China strategy of one specialty manufacturer.

Okay, so the title may be hyperbole. But the latest posts from former Supply & Demand Chain Executive magazine founder turned champion for U.S. farmers Julie Murphree report a 3.5% increase in the price of a traditional Thanksgiving dinner. She also questions how regulatory policies are straining the U.S. food supply and security due to greater dependence on (and risks of) offshore sources.  (I guess you can take the girl out of the supply chain, but can’t take the supply chain out of the girl.)

Julie cites the latest report from the American Farm Bureau Federation that finds that the average price for a Thanksgiving dinner for a family of 10 (including turkey, stuffing, cranberries, pumpkin pie, and all the trimmings) has climbed to $38.10, a $1.32 increase from last year’s average. At $0.98 per pound, turkey was the big ticket item of the meal, up $0.06 per pound from last year. Prices for stuffing and green peas were also up. These increases were offset somewhat by lower prices for milk. (No word on the average price of a nice bottle of Pinot Noir to wash it all down.)

As for food security, Julie argues that tighter regulatory policies for more humane treatment of livestock is driving a rampant increase in imports of foods from other countries like Brazil where policies are lax. In fact, half of all food and foodstuffs are now imported into the United States.

“Food has been plentiful and inexpensive in our country, and since we take it for granted, and while we debate the esoteric and “higher” values of western civilization, we are quietly exporting our food production,” writes Julie. “We have certain romantic values of farming that prevent us from accepting that food production should be entitled to the same economies of scale as any other business. Our costs and our regulatory structure are all conspiring to have our food production and our food security exported to other countries.”

In full disclosure, Julie recently took over PR for the Arizona Farm Bureau, so her comments on food imports should be taken with a grain of salt (pun intended). But she raises a question worthy of debate. The recent oil crisis highlighted the dangers of U.S. reliance on foreign oil. It’s fair to ask, will our food supply be the next example of the risks of supply dependency?

Yesterday we examined the strategies Coors Brewing Company is using to drive continuous improvements in direct materials performance and begin to capitalize on the huge opportunity of indirect supply management.

As a reminder, this interview came compliments of eyeforprocurement, the procurement events company, which is hosting the Supplier Management Forum in Miami April 17 - 18, 2007. Check out the full conference agenda and registration information here.

Today we spend time with Scott Searls, Senior Vice President of Procurement and Logistics for Alltel, the owner and operator of the U.S.’s largest wireless network. Searls  heads the company’s centralized supply management organization overseeing $4 billion in annual spend.

Searls shares insights into his company’s category approaches and plans to increase low-cost country sourcing. He also projects new moves into collaborative sourcing and waste-reduction initaitives with his suppliers. Here are some of the excerpts from the interview:

Question: A recent Capgemini survey of global chief procurement officers found the most significant business driver for 2007 is compliance to contracts and improved visibility of spend with suppliers. Are these also your priorities and if yes why are they important to you? What priorities do you have for 2007?

Answer: Wow, if folks are worried about compliance and visibility I hope they let their SarBox guys know. Sure, I expect suppliers to do what they sign up to do – a deals a deal, (price, terms, delivery, interval, quality) so in that sense compliance is always important. In a larger sense I’m always thinking more in terms of what are these guys doing for me that I can’t get otherwise from someone else and is something that helps us win with our customers. I think about how we win – and who is helping us put the points on the board. That – and overall simplicity are real important stuff …. Simplicity in everything.

Question: With the rise of new technology focused on sourcing and supplier management, buyers are more often faced with the decision of which tool to take out of the toolbox. What was your best investment in terms of technology and what benefits did it give to you.

Answer: Well, I never found anything that beats commonsense, but that said – for the commoditized sourcing areas where we buy predominantly on “price” and where relationship is not so critical I think Reverse Auctions are doing a good job. In those sourcing areas with high switching costs and long technology cycles I think Scorecards that focus on meaningful improvements and building trust pays off the best. So – like any tool, it’s more about how gifted you are at using it – I mean, if every time you hit the nail you find yourself bending it over …. Put the hammer down.

Question: What strategic direction are you gearing toward in order to better your position for long-term security and continuity of your supplies?

Answer: As we lean out the SC, buy in low-cost regions and get closer to the manufacture …. “Being there”, being informed and using sound supplier quality management practices becomes more critical – also, I’m paying more attention to the physical logistical flows than in previous years.

Question: Good relationships come out of good performance. What metrics do you use in regard with your suppliers and how do you measure their performance. Delivery, quality, cost – what message do you give to your suppliers and what do you expect from them?

Answer: When I think about a good relationship I think about my wife Cristi – we have to make each other look good and create something together that we each couldn’t create individually or with anyone else… that’s about trust and results. (Oh yeah … and of course switching costs … I think Cristi has that one figured out). Frankly – no matter what folks tell you, there really are not that many relationships you have to emerse yourself in at that level, and it is work. I think you also have to know when you fail at being partners and just get over that and get on.

On metrics – yeah, I suppose the ones you mentioned are okay with the addition of some forward-looking metrics – my point is, cost, quality and delivery all occurred in the past. Also – these are most powerful in time series where you can trends, and it’s helpful to be constantly showing suppliers where they stand against others and what the consequences are if improvement doesn’t happen (Warning on that: not to be tried at home …. Don’t ask me how I know). (more…)

eyeforprocurement, the procurement events company, contacted me earlier this week to discuss a barter: I could share interviews with three supply management executives in exchange for promoting the organization’s upcoming Supplier Management Forum, which will be held in Miami April 17 - 18, 2007.

A seemingly fair trade in my opinion. Check out the full conference agenda and registration information here. If you register by the end of this year, you can access an early bird discount of $400 off the full registration price. Supply Excellence readers will get an additional $100 discount when you cite “supply excellence” in the discount code field of your registration form.

The first interview is with Ronald D. Schnur, Vice President of Strategic Sourcing for Coors Brewing Company. Schnur oversees $1.7 billion of the brewer’s spending with 3,000 suppliers across a number of key categories, such as aluminum cans, bottles, folding cartons, transportation, and energy.

Schnur says Coors has a centralized strategic sourcing organization that is organized into four areas: packaging sourcing, brewing sourcing, indirect sourcing, and process and technology.

Schnur was questioned as to how Coors was organizing to improve spend visibility and compliance — the leading strategies identified in Supply Excellence’s Top 5 Supply Strategies study. Here are some of the excerpts from the interview:

Question: A recent Capgemini survey of global chief procurement officers found the most significant business driver for 2007 is compliance to contracts and improved visibility of spend with suppliers. Are these also your priorities and if yes why are they important to you? What priorities do you have for 2007?

Answer: Priorities for 2007: Using and maintaining a best-in-class sourcing roadmap to drive activities, more regular supply management reviews (scorecards, quality reviews, adherence to contracts), more integrated sourcing supply chain (P2P, Supply Management and Strategic Sourcing) and supplier enablement on SRM tools (increasing number of commodities and spend).

Question: With the rise of new technology focused on sourcing and supplier management, buyers are more often faced with the decision of which tool to take out of the toolbox. What was your best investment in terms of technology and what benefits did it give to you.

Answer: Two tools: Investments in creating a more integrated sourcing supply chain and in creating end-to-end visibility to spend data being collected. (Coors strategy echoes plans for strategic sourcing and spend analysis improvements identified by the nearly 300 executives surveyed in the Top 5 Supply Strategies study.)

Question: What strategic direction are you gearing toward in order to better your position for long-term security and continuity of your supplies?

Answer: We have an active risk management program that focuses us on mitigating risks for ensuring the supply of critical goods and services.

Question: Good relationships come out of good performance. What metrics do you use in regard with your suppliers and how do you measure their performance. Delivery, quality, cost – what message do you give to your suppliers and what do you expect from them?

Answer: $/bbl, Quality defect, Service down-time, Diversity supplier spend, Days payable.

We have a clear and consistent message that we expect performance excellence in all of these key criteria and each year, we raise the performance level required to achieve our Supplier Gold Award.

Question: Low-cost country sourcing seems to be vital to maintaining competitiveness, but execution pitfalls remain. Are you sourcing in low-cost countries and if yes, how did you organize your low-cost country supplier management? What obstacles did you have to overcome?

Answer: Yes (Promotional Items). We do very little sourcing in the traditionally recognized low-cost countries of China, India, Indonesia because our relative purchase scale is small and many of our large dollar spend categories are capital intensive driven and not labor-cost driven.

Question: Collaborative Sourcing is the next stage of the advanced supplier management . How much value do you currently create because of the way you work with your suppliers?

Answer: We have done a tremendous job of rationalizing our direct materials supplier base so today, we are absolutely focused on total value chain improvement opportunities. We are “walking the supply chain” with our key suppliers and looking to eliminate product and process waste throughout the extended customer/supplier supply chain.

Like many manufacturers, Coors has advanced sourcing and supplier management techniques for its critcal direct materials spending, but is still maturing its operations and sourcing approaches for indirect spend categories. You can learn more about supply management approaches from Coors and dozens of other leading companies at the eyeforprocurement Supplier Management Forum. Get more details here. (And remember to use the name Supply Excellence to receive an additional registration discount.)

Thinking about beating up suppliers to meet your short term cost savings targets? Think again.

Faced with lackluster sales and disappearing profits, Detroit automakers seem to have thrown out their copy of the sound supply management principles book — resorting instead to cutting supplier rolls and demanding price concessions. Such myopic cost cutting tactics are now coming back to haunt them.

For evidence, look no further than Ford Motor Company. After aggressive supply cost reduction actions, the ailing automaker has been hit with a supply risk double-whammy in recent weeks. Earlier this month, auto supplier Collins & Aikman stopped shipments to Ford after a price negotiation dispute.

Just last week, Ford said it would delay the launch of two of its new cross-over utility vehicles by three weeks due to supplier problems. According to Ford, some suppliers have failed to deliver parts on time and there are cycle time issues on the assembly line. Ford wouldn’t finger the problem suppliers, but one company exec admitted that “We’ve had some disrputions of the manufacturing process because of the [supplier] issues.” And even slight delays can wreak havoc on Ford’s inventory-lean just-in-time manufacturing process.

According to auto analysts, the launch delay will cost Ford $45 million in operating earnings. The news couldn’t come at a worst time. Ford lost $7 billion during the first nine months of the year and said it won’t return to profitiability until 2009.

To be fair, delivery issues are part of doing business. But, with the delays coming so close to launch, it is fair to question whether a narrow focus on near-term cost reduction is straining supplier relationship maangement and causing Ford to take its eye off crucial supplier development and assurance issues.

By comparison, Toyota, Honda, and others have embraced long-term supplier relationships, working to develop supplier capabilities, align product roadmaps, and assure supply for years to come. Just consider Toyota and Honda’s edge in the hybrid vehicle markets, which is largely attribute to the automakers’ moves to develop and lock-up suppliers of hybrid engine technology. A practice which Ford execs have publicly cried foul about during earnings calls, saying it gives the Japanese automakers an unfair advantage. (To borrow a phrase from my six-year-old daughter: “Duh!”)

Dr. Martin Hofmann, Group Executive Director for Purchasing for Volkswagen, summed it up best when presenting at ProcureCon Europe earlier this month: “Purchasing is touching innovation and design issues. To gain and maintain a competitive advantage we want to keep our most critical suppliers locked with us. We recognize that, to do so, we need to pay a premium.”

Hofmann says Volkswagen leverages supplier innovation across its multiple brands, solidifying even longer and closer working relationships with suppliers. “We have synergies across the brands, affording us both volume leverage and the ability to share [supplier] innovation. Innovation typically comes from Audi and eventually flows into other brands.”

One example is the soon-to-be-released heads-up cockpit display system. This multi-functional display will be an optional feature within the next Audi release and will later find its way into the other VW brands.

In short, Hofmann says supply management is about building mutually beneficial relationships. “You need to find the synergies [with your suppliers] that define joint competitive advantage. The negotiation is the final act when everything else is done.”

Prescient insight for Ford and others to consider. Find the right partner and identify value levers that benefit both parties — before negotiating on price.

The most consistent gripe I hear from supply management executives today it is about the talent crunch. My week in Europe revealed that this challenge transcends borders. At ProcureCon Europe, Dr. Martin Hofmann, Group Executive Director of Purchasing for Volkswagen, opened his presentation with a surprising statement: “The single biggest challenge we face is finding highly qualified purchasing people. It is very difficult to keep them trained and up to speed.” In response, VW is constantly measuring buyer performance (including its key metric of cost-savings per purchasing employee) and prioritizing organizational and training decisions based on the results. (More on VW’s supply management strategy in a future post.)

The same issue was apparent during a private meeting I had with the VP of Supply Chain at a larger service-sector company outside London. His supply management transformation plan includes e-enabling most sourcing and procurement processes. The company has achieved some measurable benefits through these efforts, but overall adoption has lagged. Employee challenges are a chief culprit. Says the VP: “Not only do we not have enough people; we may not have the right skill set to do everything we need to accomplish.” He adds that some team members are reluctant to take the time to truly learn how best to leverage technology in their supply management operations. (A dynamic I witnessed first hand when I met with the larger team later that same day.)

We discussed several tactics the VP could employ to drive adoption, including using templates; establishing policies and dollar value thresholds to encourage e-sourcing usage; linking policy compliance to buyer performance reviews and incentives; establishing “super users” (i.e., resident experts) to encourage adoption and support other users; and sending a tiger team to spend a day shadowing the e-sourcing approach of a peer company. These techniques have been proven to improve skills and productivity and drive great system adoption and spend under management. However effective, these are still top down approaches. What was glaringly apparent to me was the tremendous opportunity for bottom up approach. As with many companies, this firm was desperate for a program champion — an eager sourcing or category manager that wanted to step up and take responsibility for leading the company’s “e-enablement” initiative. To his credit, the VP was responsive to this suggestion. And, when we met again later in the day, he had already formulated a potential plan to provide a fiduciary incentive for team members that took on this role.

But the moral of this story is aimed not at senior executives but at the rank and file supply managers. The opportunity for moving up the corporate ladder is no secret. It’s technology. Technology is an increasingly critical component of supply management transformation. (Evidence: automation underlies four of the Top 5 Supply Management Strategies outlined by executives for the next two years.) Most companies are looking to invest in supply management automation, but often lack employees that both understand supply strategy as well as the technologies available to enable it. My advice (for what it’s worth): Volunteer to take charge of your company’s e-supply initiatives. There is no more secure role within the supply field than e-supply management program manager. A fact illustrated by Aberdeen Group’s CPO’s Agenda study and a more recent report from ISM.

If there is no existing job description for this e-supply program manager role, create one. Ensure that the role has responsibility for assessing existing infrastructure, defining solution requirements in support of supply management processes and goals, leading the cross-functional solution selection team, and heading up training and deployment. To make matters interesting, consider tying your performance bonus to user adoption and total spend managed via these online tools If you feel you lack the skills necessary to fill these shoes, go out and educate yourself on supply management technology.

There are a number executive programs available from everyone from industry associations like ISM to training shops like Next Level Purchasing, to leading universities, like Arizona State, Michigan State, and Georgia Tech. There are also enough resources available, such analyst white papers, vendor sites, industry conferences, and blogs like this one to tutor yourself in your spare time.

The most successful businesses and executives have been those that could spot an unserved need and develop the products of skills to fill it. Taking control of your company’s e-supply initiatives could be your fast-track to success.

A recent Business Week cover story touted the comeback of the leverage buyout firms, suggesting that another era of merger and acquisitions (M&A) and industry rollups and quick turn buyouts are in store. Media reports tend to focus on the accretive benefits of proposed mergers (e.g., bigger, better, market expansion, cross-selling opportunities). However, in his presentation at ProcureCon Europe Conference last week, Luc Volatier, CPO at Numico argued that revenue expansion is the lesser (and less likely) part of the M&A story.

Volatier estimates that 80% of the value of any merger comes from cost reduction — not from the new value creation touted in company press releases. Of this cost-savings component, half comes from cutting fixed costs, such as eliminating redundant infrastructure and headcount. Guess where the other half comes from? Yep, you guessed it. Reductions in procurement costs.

For those of you keeping score, that means that 40% of the hard-dollar impact of any merger or acquisition comes from supply management improvements. (My own review of the HP-Compaq merger found that procurement cost savings accounted for nearly 60% of the total synergies. A figure validated with Mittal’s recent acquisition of Arcelor.) Share that gem with your CFO next time you get push back on budget for a supply management improvement initiative.

Volatier offered some helpful hints on what supply management executives can do to ensure and accelerate success in an M&A environment. If your company is the acquirer, Volatier recommends:

• Be involved right from the beginning of due diligence to ensure that your CEO knows the value procurement can contribute to the deal.
• Use an external third-party to prepare the integration so that your team doesn’t get defocused from running day-to-day operations.
• Meet and secure key individuals at target to ensure continuity and to avoid having top talent defect to (or, more likely, be poached by) your top competitors.
• Pay attention to the “soft” parameters, such as assuring and aligning internal troops and suppliers.
• It’s all about cash and time. Be sure to link your supply improvement contributions to EBITA and time-to-value.

If your company is the target of the acquisition, Volatier recommends: (more…)