CPSM Blog

Help Sales goals with new systems and processes

This is the very last section (3-C-6 Strategic Sourcing also Bridge topic) intriguingly about sales goals within Exam 3 and thus a big day for this blog on this leap year February 29. It took over four years and the encouragement of thousands of visitors for this blog to complete one round of dealing with each of the exam topics (Thank you-dear readers!). We will revisit all topics again in turn, but first to complete the round one of each topic that intriguingly ends with asking the supply manager to become more alert to her/his organizations sales activities.

Perhaps it is this last section that really tries to expand the role and impact of the supply manager as a leader in her/his organization. For, the supply function has sort of been traditionally passive inside their own organization. So the supply manager would wait for production or production planning for placing their requirements before launching an RFP or searching for a set of suppliers.If there was a delay on part of the production folks the supply people would simply shrug and say that they would need more time. In the olden days,without the Internet and a good economy many supply managers got away with this passive silo approach. Production folks would plead with sales to push more of what they could produce and as a result the organization would have overall sub-optimal sales and profitability. Today, in a global connected and tough economy supply managers need to reach out to production,sales and marketing and new products people to keep getting an early heads up on what's going on. And reaching out does not mean just an email but actually trying to make friends with people on the sales and marketing side of the organization so that you are the first to know (OK after the CEO!)  about what new orders,markets and supply chain requirements are coming up (see StratoServe for examples). This way the supply management department can be more pro-active towards helping the organization achieve its sales goals.

This section drives the above big idea and also talks about the different data you can get as a supply manager to stay on top of the sales end happenings of your organization. Thus you should try to understand and gain access to draft sale forecasts just to get that extra time for creating great supply arrangements. In addition: sales margins,cost assumptions in the financial side of the organization is very much in your domain of interest. For when you know that the organization has more margins in one type of product and less in another you can plan your supply strategy and efforts accordingly.For example, you would then know that you will need to pay much closer attention to the total cost of the tight margin products.

Thus, in concluding Exam 3 on Strategic Sourcing the syllabus ends on the soaring note of the supply manager looking beyond the immediate connected function to the sales frontiers of the organization. This is tough but required if the Supply Manager wants a place in the C-Suite which is after all the purpose of getting the CPSM .

Strategy and analysis : to insource or outsource?

This section is the second last section (whew!) of Exam 3 and extremely interesting and topical when you think of the current election season and employment problems in the US. How do you decide to outsource a product or service?  Should you outsource or insource?

The difficulty in these sections of Exam 3 is that more than one answer appears right. So please go by the answer that appears the best. Also do not assume that the question was framed yesterday and is considering all the political discussions around outsourcing (lose US jobs) or insourcing (gain US jobs).Also this section is about outsourcing and insourcing first from the organisation's viewpoint and then from a  global outsourcing (or offshoring)point of view. Naturally if you are say in the high cost East or West coast US and outsource work to relatively low cost states in the South or Mid-West US you probably do not lose too many jobs. But if you outsource globally, there is a problem of losing jobs unless you can speed up innovation while protecting intellectual property.This because innovation creates jobs.But without digressing too much from the core topic of the section...

Your role as a supply manager is to be able to weigh multiple issues (including the very real jobs problem, talk about taxation benefits of insourcing) and be able to carefully weigh all angles and take a considered point of view that is the better options of all. So here goes some key points of this section with the assumption that all the discussion is not about offshoring, but merely moving the task out of the organization:

1. What can you outsource? You can technically outsource some task that you can split. Let's say your organization does engineering drawings at a high cost location in North East US. You can get part of the drawings done from a lower cost location in the US where Engineers might have lower pay. You can think of the outsourced task as a "module" that is done outside the organization by a contractor's employees and brought back for integration. So you must have the right type of  engineers who are able to receive and integrate the work.
2.  Core Competence:  The other question is how close to the core competence of your organization is this task? As a  supply management leader you are expected to have clear thinking about how to manage outsourcing if it is close to your organisation's core competence  and then the supplier or other competitors pick up all your skills and secrets.The latter problem can be huge in offshoring or global outsourcing.
3. Types of Control: You need to figure out what types of control are needed. When the suppliers are well developed you can just work out supply level agreements (SLA)  in the contract. Where suppliers have to be developed you need to be able to hand-hold and bring suppliers and your internal users on the same page.

This topic is a vast topic on which you must have had some experience, do talk to colleagues and get a better sense of what steps organizations take in these matters. In the exam just stay within the boundaries of the case situation i.e. don't imagine or assume additional stuff that you know or have experienced and you should be fine.

Managing Strategic Change in Supply Management

As a Supply Management leader the content of this section asks you to look at managing strategic change in the supply management function. With 18 pages , 7 questions, bridge exam topic and a daunting title in the 2008 version of the CPSM Study guide (The title of this section in the 2008 study guide is " TASK 3-C-4 : Leverage spend through identification,prioritization,development and execution of strategies) you need to look for the unifying theme across this section and break it down to some key concepts.

The section is all about trying to change how your supply management department does things- and change is tough as any leader in any field will tell you. So where do you start?

• Opportunity Assessment : First figure out from past data how you might be able to make significant positive change without a whole lot of pressure on and of your stakeholders including buyers,suppliers,finance. If you keep in mind that what a supply management department buys is intended for eventual conversion and delivery to your organizations customer, you will start well. Let us say that that your user is manufacturing and they want raw material - try to see any inputs that quality control, your marketing has on the raw materials. Then working backwards reach out to suppliers and work through carefully managed changes. 
• The section also covers stakeholder management so that you are able to get buy in.
• As you try to execute change the section asks you to review Michael Porter's five forces model  and how it might impact what you are trying to change.
• On the prioritizing end of what to change the section covers some factors like savings for a particular commodity. Before deciding which savings challenges to attack you can make a 2X2 sourcing priority chart where savings potential is on one axis and ease of implementation is on another axis. Thus you need to look at your organization's capacity ( say too many paper based systems ) and organizational culture. For the latter, a great example is trying to implement a centralized purchasing system when everything is de-centralized. Better in such situations is to perhaps have an approved vendor list and rates at least for the top 20% items by volume and savings potential.
• The section ends with a discussion of constraints like exclusive contracts and agreements, lack of viable alternative suppliers etc. However, in the new year 2012, let us not think about constraints and instead think of opportunities of change for the better. For example, if you find problems in a long term contract can you ask the supplier to re-negotiate better terms perhaps for more volume?

A Very Happy and Prosperous New Year 2012 to all blog readers!

Selecting and implementing technologies that support supply management

You have experienced this- the organization spends millions of dollars to buy and implement a software and technology system that no one really uses! Well this topic is clearly where the supply leader is being asked to take ownership of the selection and more importantly the implementation of supply management software. At the level of your own organization if you have to make some massive improvements you need to understand the linkages of any software with your two primary "Customers" viz the internal user and your supplier base. If you make things very unfamiliar or difficult for users then they'll just not use the system and except for the most intrepid suppliers- you might loose out on the quality suppliers who find your systems too difficult.There are 8 sub-topics in this section and they include:

1. Business process design: here becoming electronic (eg. an e-auction) does not eliminate supplier communication. You need to still reach out to suppliers and motivate them to participate and your users need to understand the time lines of doing so.
2. What e-solutions are available?: Here you are required to figure out not only how useful the solution will be - but how easy it will be to integrate with other parts of the organization like accounts payable.
3. How to select an e-solution? Here you need to think about matching up the solution to the medium term goals of the organization. For example, if reducing cycle time is a goal then a system that allows users to log-in their requirements early and allows follow-up with suppliers on an automatic basis might be more useful to you.
4. Contemporary e-sourcing tools: There are many of them and what is contemporary five years ago is simply not good today. Think of the cloud type of applications that do not require you to manage either the hardware or software in-house. A good way of keeping up with the contemporary e-sourcing tools is to attend ISM and local chapter talks which have covered topics like e-RFx,EDI,Reverse Auction.
5. Managing your on-line event: involves all the steps of the offline sourcing event and the things that come up due to unfamiliarity of the participants.
6. Spend Analysis is a big topic and can be done far more efficiently when you use systems and develop category trees ( like Direct category--> packaging ----> cardboard containers----> supplier base) where you try to align items to categories and the supplier base. Keeping data current allows you to manage the risk-value of all categories.
7. Contract management software and systems are important because they allow you to speed up the contract signing as well as help monitor the progress while alerting you to the end of contract.
8. Supplier performance software can take up data from different points like from the inventory system that records the time of goods delivery,the quality and inspection system that reports quality of goods to survey of users on the user experience with goods supplied.

Thus, to deal effectively with this topic think of the goals and aims of the supply department and the most appropriate technology that will be actually used by all concerned.

Strategic sourcing for business process improvements

In this section there are six questions and the topics are included for the bridge exam - so clearly the section wants the supply manager to think strategically in a few areas. These are:

• Regression Analysis: Any Statistics class you have taken should have covered this. To refresh your memory read about regression analysis here. The purpose of the topic here is to think about how you might use the regression analysis to improve process. This is very possible if you have past data. As an example, if you have the past data of the response to RFP's you can see whether a sending out an RFP at the beginning of the week or end of week has impact on response rates. And this can improve your process goinbg forward. In other words think of the data you have and visualize how you might use regression analysis to strategically improve your sourcing process.

• Communicate and disseminate policies: Supply leadership must have a written agreement with top management on policies and procedures. Then these policies must be communicated to everyone in the supply organization. These communications should be a mix of face to face meetings, intranet and document repositories. For e.g. if your procurement organization might have a rule of responding only in writing to questions on open RFP's from prospective vendors. Now this policy must be known to all staff like admin staff that may not be directly responsible for managing the RFP.

• Technology, application and analytic tools: Include ERP systems like SAP and Oracle and here you are required to understand the strategic purpose of the data points being collected and to understand that there is a purpose for every piece of data. see an example of the clean vendor master problem.

• Change management and change initiatives is something you are sure to have experienced in your overall organization. Now think about changing the supply organization and the way it does business. Three questions need to be asked (i) Why you need to change? (ii) What you need to change? (iii) How you might go about implementing change. Do remember that change initiatives often fail in organizations and similar reasons for failure in implementing change can occur in Supply organizations. These include a mismatch between what leaders say and actually do; elements like compensation performance reviews are not aligned to the change mission and expecting change too quickly.

Although this section has a lot of data driven topics, the focus is on how to derive management action that improves supply management processes for better outcomes.

Strategic Sourcing: Market, Supply Organization, Risk-Benefit, Roll-out and Communication

This 3-C-1 section starts off another big part of Exam 3 viz. Strategic Sourcing and is also part of the Bridge Exam. It is from this kind of section that you really should get inspired to contribute to your organization as a supply management leader!  Now you need to be thinking about the role of supply in your organization and how the function fits in with the rest of the mission and how do you set up so that execution of the strategy becomes easier. Here are the key concepts of this section:

1. Market and customer first: Think of your organization's customers. These customers pay the bills generally but not always as in education according to this view. Whatever way your organization defines customers everything else must be aligned to serving that customer at the supply strategy end. In fact, sales forecasts will drive budgets and supply forecasts - if you think about marketing and sales together.

2. Your supply organization : Here you need to think comprehensively about the supply organization's strengths and weaknesses ( Technology skills, people skills ? ) and how you are going to supply so as to delight your final customer. How can you get the best from each member of your team that speaks to the supply organization's objectives that are a sub-set of the organization's strategy.

3. Risk-Benefit or Risk-Value for all commodities: In the context of the above you need to categorize items according to the Risk-Value matrix. Incidentally, this concept comes up repeatedly so do study the diagram and think how you might classify items in your organization.

4. Roll-out plan: The roll-out plan must have key tasks,milestones,resource requirements and person responsible. Tasks might involve developing suppliers and conducting trials that is needed for a new line being launched by your organization.

5. Communication: You must communicate what you want. Do not expect folks to know what to do but surprisingly if you have a method of communicating - most people come through. Simple things like checking on a key task say progress of an RFP preparation can get everyone focused once again.

Preventing and responding to discrimination or harassment in the supply management department

This section (3-B-8)  puts you in a Supply Management leader's role and asks you to think about issues of discrimination and harassment of co-workers. The important thing is that here you are not thinking about Supplier Diversity which is covered elsewhere in Exam 1 (1-F-3, 1-E-2, 1-D-1) and Exam 2 (2-D-3). Keep in mind that section 3-A-13 introduces the concept of diversity in the workplace but this particular segment of Exam 3 i.e. 3 B is about compliance - viz . if you are the CPO or Chief Supply Officer are you compliant with laws and rules pertaining to discrimination and harassment?

The laws can be US ones like:

1. Equal Pay Act of 1963 which asks you to ensure that for the same work using the same skills you should be paying the same. For example,  there was the class action lawsuit by women employees of Walmart followed by individual lawsuits. Could this have been prevented early on by better leadership  ?
2. Federal Civil Rights Act of 1964   particularly Title VII prevents discrimination against employees on the basis of race,religion,color,sex or national origin.
3. Executive order 11246 of 1965 prevents employment discrimination if you are a federal contractor. 
4. Age Discrimination 1967  This one is strange  because all of us will be old - one day. However, the relatively younger colleagues tend to be more technically competent and older colleagues get discriminated. Perhaps training older workers is away to prevent this kind of discrimination.
5. Equal Employment Opportunity Act (EEOA 1972)  is something you see in job ads. The purpose is to have an  employee  mix that reflects the community population mix. And the EEO Commission can directly file lawsuits against organizations that violate EEO. 
6. National Labor Relations Act or Collective Bargaining or Taft-Hartley allows individuals to organize and bargain effectively. 
7. OSHA is also featured in this section. Again the logic is are you compliant with OSHA in the supply management departmet? 
8. Americans With Disabilities Act prevents discrimination in employment for disabled candidates.
9. Although USERRA is not mentioned in the study guide it's a good idea to become familiar with the need to hire qualified veterans into supply management positions. 

Sexual harassment and diversity training are other important topics in this section. In general, you would have had your HR folks arrange training on these topics. Its a great idea to sign up- particularly for the online training in these topics. Apart from acing this section in the CPSM - you'll find that you'll learn nuances about what type of behaviors are appropriate and what are not, given the increasing complexity in this topic in the modern workplace.

Hazardous materials policy : from cradle to grave or entire lifecycle

This section sets out seven  big issues to consider for hazardous materials from cradle to grave or entire lifecycle. Given the world wide concerns about the environment think of recent eco-toxic/radioactive  examples like the Japanese nuclear plant, BP oil leak (see environmental discussion and examples). So as a supply management leader, you are supposed to be abreast of 7  issues as under ( except issue 5 all others are included in the bridge exam). These are:

1. What are the laws relating to storage,handling documentation of hazardous materials?  See US Federal Resource  Conservation and Recovery Act (RCRA).
2. Risk management for hazardous materials has three aspects viz. (a) legal or (b) contractual - can you really transfer all responsibility legally to the supplier when hazardous situations arise?  What would a jury do? (c) Insurance - if you can spell out the risk - you can insure it and that's an option.
3. Ethical issues for supply managers include avoiding suppliers who have problems with hazardous materials handling.
4. Audit issues include MSDS ( Material Safety Data Sheets).
5. Your organization's values and policies.
6. ISM Principles of Social Responsibility. Also see some more general CSR examples here.
7. Customer driven requirements - i.e. some customers may want you to be more responsible for hazardous materials and you as supplier will need to comply.

Product life-cycle risk and risk mitigation contingency plans

Here is another topic in Exam 3 that is designed to propel the supply manager to center stage in the organization and is also a bridge exam topic. Here you are responsible for:

• All that you buy (direct and indirect) not only when it enters the organization but throughout its life cycle. Think about a typical indirect like toner cartridges and consider whether you have re-fill programs and re-cycling programs in place.
• If you make ink cartridges or anything else you need to think about how customers deal with your product throughout the product cycle. Here is an opportunity to work with your marketing and sales to be more environmentally conscious.In addition you must be in sync with spares and consumables needed in different markets that you have to arrange.

Also read an example of Product end of life policy on the CISCO website. As you can see, supply management gets involved for spares etc. that are required for models that are being phased out. This situation of making sure that spares are available for products at different stages of life-cycle in different markets is even more important with global markets today. For example, you might have a model on a growth phase of the product life cycle in Brazil (no spares needed as everything is new), to spares needed in Malaysia and not applicable in Germany as the model itself has been phased out.

In this section you need to cover life cycle costing , supplier relationship management (see examples in SRM) and Product Life-Cycle Management or PLM (see examples in PLM).

Some of these things you are already doing and have developed good plans. Try to relate what you are doing already to this section and think about the other things you should be doing, going forward and you'll be in great shape for the exam topic.

Verify existence,accuracy and completeness of financial commitments to third parties

This is one more section that calls you to lead supply management with just two questions in the exam and also designated part of the Bridge Exam. Here you are being asked as supply managers to "verify" that any commitments to third parties ( i.e. suppliers) exist are accurate and complete.

Imagine that you have signed a multiyear  contract with a raw material supplier that involves a minimum quantity and a financial commitment for the next three years. Obviously when you did this the CFO was in the loop and there were lots of emails that went back and forth. Now two years down the line people change the CFO has moved and so have you ( happily for this blog to a more senior position elsewhere!). The question this section asks is have you got systems that clearly lay out what your and your supplier's commitments are in terms of what is to be supplied and what is to be paid. Tomorrow when you are no longer with the company and an entire batch fails your successors and the supplier should know exactly how to deal with the situation - addressing it to the needs of the business. In other words, the essence of this section is that things should not move along in auto pilot and there should be enough red flags that go out even when folks change and much before things go out of control. Think the mortgage crisis and sub-prime lending - if only those managers had read this section!

The section also talks about Federal Energy Regulatory Commission (FERC) and the Sarbanes-Oxley Act (SOX).Check out the guidelines for interstate commerce in energy sources like natural gas, oil and the distribution of the produced electricity. The FERC is naturally also concerned about energy efficiency and conservation.

In SOX my favorite example is from Section 409 regarding reporting material changes.Let's say that you worked out a 50% price reduction for a component of a top selling product of your company, with a volume guarantee. You contracted  one million pieces at that 50% price over three years as you thought that sales  was going through the roof.Now the catch:  If you failed to buy the 1 million or more components then you are supposed to pay some known compensation to the supplier for booking their production capacity for you.Let's say the market has collapsed and you need to cut supplies and pay compensation to suppliers. The question is that:  does this changed market reality get quickly relayed in non-technical terms to the shareholders? In other words, you are supposed to prevent problems, but when they occur you must have transparent,clear systems that put things out in the open that affect financial performance.

In  a similar vein is the idea of an audit committee that must have no benefit from the organization (no employment,no supplies) so that they can speak up without fear or favor with any concerns they have about systems and processes in place to verify existence,accuracy and completeness of financial commitments to third parties.