Sunday, March 24, 2013

Global Sourcing

The Complexities of Global Sourcing

It’s impossible to cover all the differences and complexities for every country. Some of them include currency issues, political stability, infrastructure issues, contract-law differences, high logistics costs, protectionism, and lack of managerial talent. However, there are methodologies available to help you at least have a checklist for such a global-sourcing challenge. Make sure you do a current “as-is” of your supply chain and a future “to-be.” It’s critical to develop delivered or all in costs.

http://amzn.to/RCvfPF

Strong Supplier Expectations Work Use Them

Here is a good example of a supplier expectation: We seek suppliers that can help us continuously improve. In order to encourage this behavior, we are willing to split hard improvement savings with you 50-50 for the first year of these savings. We need your help in educating end-users, designing manuals, working with cross-functional teams, and introducing new products. We want to take advantage of your technical expertise. We value suppliers with good technical services and those who can keep us informed of leading edge technologies that we can employ.

Link to my book Common Sense Supply Management http://amzn.to/RCvfPF

Saturday, March 16, 2013

Information-Based Negotiations by Dr. Tom DePaoli

Information-Based Negotiations - A Different Approach to Negotiations in Purchasing

An information-based negotiation is a radically different approach to negotiations. It emphasizes deep knowledge of the supplier and their industry. It transgresses from some traditional approaches to negotiations. It is not the adversarial win-lose negotiation style with the emphasis on game playing, theatrics and taking full advantage of a supplier’s weaknesses. An information-based negotiation is not the win-win model either. Information or knowledge is power, but in information-based negotiations the purchasing professional gains a deep understanding of the supplier’s industry, their margins and their culture. In essence this is an immersion or empathy with the supplier and their competitive landscape. The best way to describe it is that the purchasing professional knows as much or more about the supplier and their industry as they do!

In my recent book Common Sense Supply Management I state, “The very best piece of negotiations advice I ever received was to know the capabilities of your supplier, their industry, their competitors, their cost drivers, their margins and their capabilities better than they do. It requires a lot of homework, digging and flat out work. You obviously cannot do this with every supplier only the most important and most strategic ones. It is a powerful negotiation tactic based on knowledge not histrionics. There is no glamour in the information-based approach it requires immense research about the industry, the suppliers financial condition and competitive forces. Understanding their culture and their organization is critical. You are in essence trying your best to put yourself in their shoes, and mimic as best as possible their anxieties and fears about the whole process. The information-based approach is not for the faint hearted or those who do not want to persevere. It should only be exercised for critical materials or services. It requires ongoing market research and it will work better when executives are actually exchanged with the supplier on their site. The resources and commitment to pull off such an information based approach are significant.”

With the Internet the gathering of information for the information based negotiations approach has been greatly facilitated. There are numerous industry reports, websites and search engines that can help the purchasing professional. Nothing beats personal face-to-face contact and dialogue with numerous suppliers in a particular industry. They all have a fairly keen knowledge of their competitors which can rapidly improve your overall knowledge. Since many industries are oligarchic in nature, once you understand the top three or four players in the industry you have a real good foundation from which to start partnerships with your chosen supplier.

I suggest the purchasing professional consider using the Porter Five Forces analysis. Although this used extensively in marketing and marketing analysis, it can be invaluable to the purchasing professional. This will provide a good start for industry understanding. Another good source for information about suppliers and particular industries are distributors. Often they are glad to provide information about suppliers and especially their customer service. Here is a general diagram of the approach to information based negotiations that I have used:

One additional tactic I have successfully used during the initial trust building phase is to mutually do supply chain process mapping of internal processes but with a twist. The supplier comes to your site and maps your processes, then presents it to your cross functional team to check their understanding. Then the purchasing professional ventures to the supplier’s site and performs a similar mapping. Often this sparks a new creative exchange of ideas. The information-based approach has tremendous flexibility to cope with market and industry changes. Information drives decisions not emotions or one-upmanship. It requires the purchasing professional to become the resident expert on a market and an industry. It yields much more significant long term gains than traditional or even win-win approaches. Using this approach is one of the best methodologies for transforming your supply chain and developing true breakthroughs with your supplier.

Tom DePaoli

Dr. Tom DePaoli is the Management Program Director at Marian University in Fond du Lac, Wisconsin, and the Principal (CEO) of Apollo Solutions (www.apollosolutions.us) which does general business consulting in the supply chain, Lean Six Sigma and human resources areas. Recently he retired from the Navy Reserve after over 30 years of service. In other civilian careers, he was a supply chain and human resources executive with corporate purchasing turnaround experience and Lean Six Sigma deployments. He is the author of: Common Sense Purchasing, Common Sense Supply Management and Growing up Italian in the 50s.

Friday, March 15, 2013

How to Get Employees to Trust You by Dr. Tom DePaoli

How to Get Employees to Trust You
There is no easy way to get employees to trust you. One of things that I've always done is to make sure that I do what I told them I was going to do. Nothing impresses employees more than keeping your word. Another good tactic to use is to always admit your mistakes and do not try to cover them up. Employees appreciate when you invest the time and effort to train them. Make sure you have a training plan for all of your employees. Try to behave ethically, employees expect you to lead by example and to live by your word. Communicate to them daily if possible in use as many different channels of communication as you can. Remember some people have preferred channels for communication. Take the time to understand what they do and respect what they do.
One of the things that I always did was sitting down with my employees and not only watching how they do their jobs but actually have them teach me how to do their job, then go out and actually do some of it. This really grounds you as a boss. You get a good understanding of the aspects of their job and what they go through every day. If I work for a company that had well documented work practices, I would read these before I sat down with the employee. This gave me a good background to learn more rapidly. It also showed the employee that I was very interested in what they do.

http://amzn.to/RCvfPF link to my book

My Views on Pilots! Dr. Tom DePaoli

Pilots Are For Doubters, Naysayers, and Obstructionists

New process or new initiative pilots are good for certain supply management ventures but don’t procrastinate or extend them out ad infinitum. It’s a good way for the resistance to kill you off. The burden of proof is 51 percent or reasonable. It’s not beyond a reasonable doubt or a 12-0 unanimous jury vote. If you use the later criteria you will never have a successful pilot. Make sure one person is accountable for the pilot beachhead and can understand the total picture. Folks love experiments, but remember that the first rule of experiments is to have controls!

If you get consensus in a kaizen, change the process, change it right away! Do not lose momentum.

http://amzn.to/RCvfPF link to my book

About Dr. Tom DePaoli

Dr. Tom DePaoli is the Principal at Apollo Solutions Publishing and Consulting with over twenty years of experience in all phases of purchasing, human resources, supply chain optimization, strategic sourcing, organizational re-design, e-commerce, SAP, lean six sigma and e-procurement software. He is a published author and story teller who believes stories have the power to teach more than what the textbook can offer. He is the author of Common Sense Supply Management and Common Sense Purchasing. Consulting and speaking inquires in the field of supply chain management, lean six sigma, publishing and purchasing are invited and most welcome. Visit the website, www.apollosolutions.us, send a personal email via LinkedIn to make your inquiries, or visit our social media profiles to learn more and to engage in conversation. He is the founder of 'Growing Up Memories' and Author of Growing Up Italian in the 50s. This is the first of a series of books about growing up. I invite you to share your 'growing up' stories for consideration in future publications. Whatever your background or nationality, maybe you grew up in your Dad's garage, or in a big family, if you have a story, please consider sharing it. Visit the website www.growingupmemories.com, send a personal email via LinkedIn, or visit our social media profiles to learn more and to engage in conversation.
Dr. Tom can be contacted at drtomd@gmail.com

Dr. Tom

contact me at
drtomd@gmail.com

Thursday, March 14, 2013

De-Mystifying Lean Six Sigma for Purchasing Professionals by Dr. Tom DePaoli

De-Mystifying Lean Six Sigma for Purchasing Professionals

By Tom DePaoli

February 17, 2013 at 1:23 PM

Many supply chain and purchasing professionals are intimidated by Lean Six Sigma (LSS) and its proponents. Relax. It is just a disciplined approach to problem solving. LSS uses many tools that have been around for years; in many cases the tools have just been cleverly repackaged by consultants.
Decisions are data-based, disciplined and plodding. Without top-down commitment, LSS is doomed to fail. Make sure you secure this executive commitment, and better yet make participation a strong criterion for individual performance reviews (raises). Projects should be selected by ROI (Return on Investment) and since much time and teams are required for a project, they must return or save at least $300,000 to qualify as a full blown LSS project.
Supply chain and purchasing professionals must be involved in sourcing the LSS consultant. Experience is critical and a proven track record of project success essential. Get references and insist on examples of work. Use a fixed hourly rate and make sure all developed training and projects remain your property. You can try to make the contract performance-based but many LSS firms will not agree to this. Make the goal to be self-sufficient internally within two years with all LSS training and projects.
Some LSS projects that have been done in purchasing and the supply chain are: Inventory cost, part obsolescence prevention, leadtime reduction, backlogs, unexpected orders, customer service internal and external, cost of schedule changes, transaction flows, cost of return product, and supply chain optimization. Many of these involve process mapping which is a type of flow chart that illustrates how things are done and identifies areas of strength or weakness.
LSS is not the only tool that can be used by supply management professionals for improvement. In my experience LSS should be used when the potential savings is great and you have some good data to analyze. If you do not have good data the LSS project will take even longer. If data is sparse, the Lean approach is much preferred which is highly visual, intuitive and does not require as much data.
Always Lean a process before you use LSS. By this I mean eliminate any redundant steps in the process that can be easily eliminated first. Reduce the number of variables in the process. Try to understand the voice of the customer (VOC) clearly before your start process improvement. Remember if the customer does not really care or value a process step; ask yourself, “Why are we doing it?”
Finally use kaizens for straightforward less complicated projects. The kaizen approach is usually done by the work team using the process and strives to eliminate waste in the process. The new kaizen improved process should then be quickly implemented. Supply chain and purchasing professionals must take the leadership role in LSS, Lean and kaizens. In my professional experience, the rewards of these approaches can be astounding. They do however require a measured and disciplined approach, and a commitment to not giving up!

Tom DePaoli

A New Way of Paying Procurement by Dr. Tom DePaoli

A New Way to Look at Paying Procurement

By Tom DePaoli

March 04, 2013 at 5:26 AM

Most supply chain professionals are familiar with the best practices of a supply chain organization and how to transform purchasing into a lead strategic partner in a company. These usually include a thorough spend analysis to focus on the major areas of materials and services. Another aspect includes the rationalization of suppliers and the formation of a few key partnerships with important suppliers. The institutionalization of a comprehensive sourcing methodology is also crucial. The area that is often overlooked or neglected is the investment in people!
Many purchasing professionals have been rewarded for bureaucratic and tactical behaviors for many years. The culture of risk aversion is prevalent and roles are particularly well-defined and limited. They focus on a particular material or service and become “experts” on these items. Often they work in silos and have no real connection with operations. It is usually not their choice but the expectations of the culture or of their organization.
The retraining of supply chain professionals begins with developing the capability to lead cross-functional teams not only in sourcing, but in process improvement activities such as Lean and Lean Six Sigma. Most need to reach the level of at least a green belt in a process improvement approach, and to reinvent themselves to be total product experts not just a particular material expert. You have to be a product expert to understand the Voice of the Customer (VOC) or what is really important to them. This requires striving to become an expert in an entire industry not just a narrow material. It also requires a dedication to understanding and working with operations. Performance reviews need to be tied into how well they do in predicting the market trends of their particular industry and meeting or exceeding the VOC.
All too often this training is piecemeal, unorganized and uncoordinated. Fortunately there is a comprehensive approach that has been around for 40 years that works in many industries particularly ones where employee knowledge is highly valued like the chemical, oil and process industries. The approach has been called pay-for-skill or pay-for-knowledge. Employees are paid more for each skill or knowledge area that they develop, and demonstrate their proficiency in by job performance. It does require a significant monetary investment by the organization in training employees and the organization evolves to a continuous learning campus. The word campus is critical because many organizations partner with local technical schools or universities to jointly provide the comprehensive training and courses.
Unfortunately many organizations have disinvested in training employees and would rather outsource for many skills or functions. This is deadly to the supply chain concept and process improvement, which must strive to constantly improve the entire supply chain from start to finish without breaks which may or may not be performed better by an outsourced entity.
The major objection to the pay-for-skill approach is the cost and the length of time for payback from the employees' improved knowledge. Once in place, however; the power of this employee intellectual capital, and the momentum of continuous improvement, establishes a supply chain centric organization that is nearly impossible to beat competitively.
People transform supply chains and organizations not technology or best practices.

Tom DePaoli

Buyers Meeting Point Book Review Common Sense Purchasing by Dr. Tom DePaoli

Book Review: Common Sense Purchasing

When I am reading the books that may end up on the Buyers Meeting Point Endorsed Publications list (in the Procurement Library), I often find that they are missing a certain… something? Now I know what it is – cartoon illustrations! All joking aside, I am now in a position to recommend a book that contains solid procurement advice and pictures. Read all the way to the end of this interview to see my favorite from the book.

Common Sense Purchasing is structured around 100 lessons, the kind of lessons that are easy to agree with, but not always so easy to consistently put into practice. My personal favorites are:

#3: Plan or Perish. Make sure you have a strategy first. Not technology first.
#12: Do your homework with suppliers and industries.
#21: Pick the right metrics [for procurement performance]. The right ones.

Following each lesson are examples and other ideas backing up why the lesson is important and how to execute its advice. If you need an additional reason to buy and read this book, it is the price. As of this interview, Common Sense Purchasing is available new for purchase on Amazon for $9.99. This is a significantly lower price than many of the more

academic

books out there. The price and the content are both accessible and down to earth.

Buyers Meeting Point interviewed the author, Dr. Tom, about Common Sense Purchasing.

BMP: In the introduction of the book you say that you have made “just about every darn mistake one can make in purchasing”. We are glad that we are not alone in that. Which mistake was your ‘favorite; which taught you the most important lesson?
Dr. T: One of my favorite mistakes is when we went through a disciplined and arduous supplier selection process. The selection process was done by a cross functional team. All the numbers were favorable and the supplier had good references and was eager to get started. The total cost of ownership savings were well over $1,000,000. We did all our homework and were very confident of our decision. The new supplier promised to provide a supplier representative on site for 20-30 hours per week. We even had a celebration. The supplier representative started and I thought that things were going well. Unfortunately our maintenance personnel just could not get along with the representative and conflicts arose. It was more a personality issue rather than competence. Luckily the supplier had another representative available who replaced the initial representative and was well liked by our internal customers. The lesson learned was that once again, relationships are not only critical, but "king" in supply management. We added to our supplier selection process an interview (performance based) of any on-site representatives by our internal customers, like maintenance, and a reference check and discussion with other customers about the on-site representative. Also don't celebrate prematurely. Lesson #1: It’s about relationships first and foremost.
BMP: How does the rising role of social media/networking relate to the need to emphasize the value of relationships?
Dr. T: Social media/networking improves or enhances the value of relationships. They are an excellent tool(s) not only for developing deeper relationships but getting to know people in the supply chain on a personal basis. This is an asset and people appreciate attempts to build better personal relationships. It is the Internet version of playing golf with someone. You get to know a lot about an individual when you play eighteen holes of golf with them. Obviously social media is not that intense but it does help build relationships. Bottom line it helps build trust, especially internally which is a key for managing change. Some argue that we should not build these type if personal relationships with a supplier or internal customers but I disagree. More often than not, this type of relationship will help especially in a crisis. Besides what is the alternative? Being constantly adversarial adds no value. The watch out is that you cannot let personal relationships sway your judgment when major decisions have to be made. Being honest with a supplier, when they are deselected or disqualified, is always the best option. Most experienced purchasing professionals can remain objective and not let personal relationships derail their judgment. They can usually avoid what I call Supplier Stockholm Syndrome. Lesson #6: Ruthlessly rationalize suppliers first and then don’t back off.
BMP: As the need to manage risk increases in organizations, many companies are moving away from supplier rationalization – or rather away from single sourcing. Does your recognition of risk as one of the “bottleneck materials strategies” (lesson #19, bullet 4) fully address that or do you think supplier rationalization as a strategy should be reconsidered altogether?
Dr. T: There is no standard answer for this. You need to have a different supplier strategy based on the particular service or material that you need and the risk of supply interruption. The more critical or strategic the material, the more that you have to make a sourcing decision based on risk. This may include multiple suppliers, alternate materials, or backup suppliers. Sole sourcing decisions can have significant dollar savings but an interruption of the supply chain can carry great risk and cost. The purchasing professional must have multiple sourcing strategies to

deal

with risk. This is especially relevant today where many companies have international suppliers who can deliver at much lower costs. However, many of these countries are at risk not only from a political or stability aspect, but natural disasters. Lesson #12: Do your homework with suppliers and industries. BMP: I love the fact that you advocate not being intimidated by bullying stakeholders/internal customers, “Purchasing is not an unctuous service organization at the beck and whim of internal customers” (p. 11). What advice would you give for managing or minimizing the inevitable fall out?
Dr. T: My advice here is to always lead with the facts and stay professional. Make sure you have a good supplier evaluation process in place with great metrics. Bullying stakeholders often focus on one incident and over dramatize the single event and impact. Maintenance people often focus on one incident of late delivery of a part. This is a standard bullying exaggeration procedure. When shown that the supplier evaluation data reveals a 99% plus on time delivery of thousands of parts, the drama is often defused. My other advice here is to publish supplier performance metrics (visibility) so that everyone can see how they are doing.
BMP: You use terms such as procurement, purchasing, buying, sourcing, etc. in your book. Do each of the terms used have specific meaning to you or do you use them interchangeably? I ask because of the growing association between purchasing and tactical buying v. procurement and more strategic activity (for instance).
Dr. T: I use them interchangeably in the book. I categorize these terms as skill sets that all purchasing professionals must have. Purchasing professionals need to switch gears in their approach based on the customer needs. They may have to quickly be tactical, strategic or bureaucratic based on what the customer wants. What every purchasing professional should ask themselves at the end of their day is "What did I do today to help move the business ahead?"
BMP: Nearly 10 years after your book was originally published, if you were to write lesson #101, what would it be?
Dr. T: Do not give up on relationship building. It does take time, effort and stamina. But the rewards are huge. The first test of a relationship is very important, so make sure you do your very best to maintain and improve the trust.
BMP: In the interview posted on your site, you mentioned plans for another book on the role of managing relationships. Is that still in your future?
Dr. T: Yes this book is still in the future and an outline is currently being developed.
BMP: Several times in your book you mention Dr. Deming (W. Edwards Deming, I presume). How did his work come to play a role in your purchasing philosophy? Is there a book by (or about) him that you would recommend?
Dr. T: Dr. Deming was actually more of a people person not a statistics or quality person. He trusted people. He often noted that over 90% of defects were not caused by people or the

workers

, but by defective materials purchased for the process or the poor design of the process. People cannot make a bad process design much better, and over 90% of quality is imbedded in the initial process design. Purchasing can play a tremendous role in assuring that the incoming materials are of high quality (world class suppliers) and that the process is designed correctly (cross-functional teams with engineering). The role of purchasing on quality is critical. I will not recommend a single book Dr. Deming but here is a good website to review many books and articles on him. http://www.deming.edu/BA/BATheMan.html

A New Way to Look at Paying Procurement Dr. Tom DePaoli

A New Way to Look at Paying Procurement

By Tom DePaoli

March 04, 2013 at 5:26 AM

universities

to jointly provide the comprehensive training and

courses

. Unfortunately many organizations have disinvested in training employees and would rather outsource for many skills or functions. This is deadly to the supply chain concept and process improvement, which must strive to constantly improve the entire supply chain from start to finish without breaks which may or may not be performed better by an outsourced entity.
The major objection to the pay-for-skill approach is the cost and the length of time for payback from the employees' improved knowledge. Once in place, however; the power of this employee intellectual capital, and the momentum of continuous improvement, establishes a supply chain centric organization that is nearly impossible to beat competitively.
People transform supply chains and organizations not technology or best practices.

Tom DePaoli

careers

, he was a supply chain and human resources executive with corporate purchasing turnaround experience and Lean Six Sigma deployments. He is the author of: Common Sense Purchasing, Common Sense Supply Management and Growing up Italian in the 50s.