How Many Of These Six Mistakes Have You Made?

1. Assuming that a small order doesn't warrant much time. A purchase doesn't have to involve a large monetary expenditure to represent a big risk to the organization if it isn't fulfilled at the right time with the right quality item or service. There can be safety implications involved with small orders, or costly disposal that will be needed when the item is used up, and these should not be overlooked.
2. Assuming that supplier offerings are equal except for price. Suppliers try to differentiate their products or services. Seek to understand those differences, what value those differences have to your organization, and which offering is the best overall fit.  Price is only one consideration.
3. Failing to allow suppliers to suggest alternatives. Suppliers often know a better or cheaper way to accomplish your goals. Not giving them the chance to suggest other options may result in forgoing cost or service improvement opportunities.
4. Failing to build stakeholder consensus in purchasing decisions.  Compliance of the stakeholders in your organization is a big determinant in whether supplier onboarding is smooth, estimated cost savings are achieved, or volume guarantees are met. If stakeholders are given a real voice in the purchasing decision, the likelihood of compliance - and purchasing department success - is much higher.

Procurement Key Performance Indicators (KPIs)

How Do You Compare Procurement Performance?

To know how well your organization is performing, you need numeric baselines or points of comparison. The baseline can be your prior years' performance, but it is most helpful if you use the same key performance indicators (KPIs) as other organizations you benchmark.

The first five procurement KPIs focus on financial measures. But focusing only on money can lead to operational disruptions, which of course leads to lost money. Procurement KPIs 6 through 10 focus more heavily on operational performance.

Eight Leadership Skills that Matter Most in the Real World

1. Competence  This is the most important leadership quality; it's not enough to have vision and purpose.  Competence has four pieces to it, intellectual, emotional, strategic and instinctive. This characteristic often is not transferable - the news is full of stories of successful CEOs from one industry failing when they try to apply their skills to a new industry.
 
2. Accountability Leading is mostly about the relationship between the leader and the led, and trust, accountability, and the faith others have in you is at the core of this relationship.
 
3. Openness This is a soft skill that can't be quantified, however, openness, candor, frankness, and honesty are bedrock qualities of leadership.  This includes the ability to speak plainly, to listen to new ideas, to tolerate errors on the learning curve, and to build relationships with people at all levels.
 

Procurement 2020: Qualifications needed in tomorrow’s team

The field of procurement has evolved from tactical to strategic, and the skill sets required in the workforce have also changed.  Rapid change and evolution have become the norm.  Ever-shorter product life cycles and the constantly changing economic and political landscape, mean that supply management professionals must be able to respond effectively and adapt to meet this new reality.

This level of responsiveness and flexibility are important characteristics that will need to be sought out and cultivated in the supply chain work force. The ideal team member of this new nimble procurement team will have a wide array of talents, interests, and skills, along with flexibility and inquisitiveness, a desire for continuous learning, and a willingness to do things in new ways. 

The three characteristics needed in supply chain professionals are:

1. Entrepreneurial thinking

2. Ability to manage relationships and work in teams

3. Ability to understand and do complex financial analyses

Also important is a broad base of business knowledge.

Employees who have long focused on the transactional side of purchasing may find this new normal to be a real challenge. Education and training that supports these individuals will be critical to ensure their continued effectiveness.

Fortunately, the younger generation now entering the workforce is accustomed to rapidly evolving technology, and they are very comfortable with dynamic change. For them, a new version is anticipated and welcomed. It will be important to give these employees opportunities to do many different things, and have them thinking creatively right from the start. Procurement leaders will need to focus on building collaborative, integrated and forward thinking teams, that make people enthusiastic to contribute, and this giving the company a competitive edge.

Adapted from “The Agile Individual”, Inside Supply Management, May 2011, http://bit.ly/k9C8, and  “The Agile Supply Chain”, American Executive, 1 January 2006, http://bit.ly/kMY65x

Procurement Best Practices

Companies are spending more than ever on products and services to keep their business running. As a result, the strategies chosen by the procurement group will have a more profound impact on the bottom line of the business, both positive and negative.

It’s important for companies to understand the forces and components that determine the total cost of their business processes. Understanding these cost drivers is an important first step that must take place before new best practices can be developed and implemented.

There are four procurement best practices:

A Better Approach to Vendor Evaluation

Vendor evaluation is often inadequate. Typically, pricing and systems criteria are given greater weight in the decision versus people and performance management.  In some cases, vendor selection is based on past business relationships rather than a pragmatic evaluation of capabilities. 

The following vendor evaluation protocol provides guidance regarding the key areas to consider in vendor evaluation and a point scale for weighing each component of a vendor’s capabilities. Companies can compare vendors objectively by rating each vendor’s capability in each area and weighting according to the percentages and then adding up the total.

How Can You Avoid a Sole Source Situation?

Negotiating with a sole source supplier can be one of the most disadvantaged negotiation situations for a procurement professional. It's important to know how to prevent sole source situations from occurring.

Sole source situations can occur when an engineer or end user writes a new specification that calls for the use of goods or services from a specific supplier. Once the specified item is launched, the specification and suppliers can be very difficult to change.

Strategic Category Management - The Next Step after Strategic Sourcing

Management of indirect spend through strategic sourcing has lead to dramatic cost savings. But, opportunities to cut costs have diminished as the remaining low hanging fruit has been harvested. Strategic Category Management (SCM) is the next evolution that procurement organizations need to undergo in order to continue to positively impact their companies’ bottom lines.

Top-Down versus Bottom-Up Change Management

Top-down change management is the traditional management strategy in which all decision-making, guidance, and authority flows from top management down to everyone else. It is typically the only methodology used to manage change in organizations. This approach often fails due to low employee buy-in and lack of flexibility and empowerment of line management and front line employees. An even bigger problem with this methodology occurs when top-management doesn't understand the work processes of their own company, and so they are unable to make good decisions about how things will get done in the new system. This dissonance will lower productivity and ultimately damage employee morale.

Experienced project managers understand that employee buy-in is the most important variable in the success of any change management process. The most successful outcomes are achieved when supervisors actively engage employees in the change management process using bottom-up management techniques. This is the most effective method for managing employee expectations and securing end-user commitment.

Supervisors have the most direct line of communication with employees, and they have the greatest influence on employees' perception of change and of new systems. Each employee's attitude to the project needs to be assessed, and individual concerns addressed one-on-one. This should be treated as an educational process, with a goal of dispelling negative attitudes through increased understanding of the process, and the sharing of a clearly articulated common goal.

Change can be challenging, but handled correctly, it need not pose an insurmountable obstacle to achieving an organization's goals.

Why Emotional Intelligence Matters more than IQ in Business

IQ has long been considered the key measure of a person's ability.  However, studies have shown that having a high IQ is not a good predictor of success in life or in the business world.  It is thought that IQ contributes about 20 percent to life success leaving 80 percent attributable to other factors such as emotional intelligence.

Emotional intelligence includes abilities such as being able to motivate oneself; to persist in the face of difficulties; to control impulsiveness and delay gratification; to regulate one's mood so as to keep emotions from blocking the ability to think; and to be able to empathize and to hope.

There is a cost to the corporate bottom line from low levels of emotional intelligence on the job. The consequences for a work group can be severe if a member or leader keeps exploding in anger, or has no sensitivity to the feelings of others.  Emotionally upset people cannot remember, attend, learn, or make decisions clearly.

On the flip side, there are clear benefits to working in a group whose members are skilled in emotional intelligence.  They would be attuned to the feelings of others, able to handle disagreements so they do not escalate, and have the ability to get into flow states while working.

The Six Laws of Persuasion

Persuasion is the ability to influence people's thoughts and actions through the use of specific strategies.  Getting what you want in life will require negotiation with a variety of people and the use of communication skills such as active listening and attention to non-verbal cues. Mastering the persuasion process will enable you to create the attitude change necessary for persuading others to agree with your line of thinking. You must be able to sell your ideas, and in a win-win situation, provide the other side with a fair deal.

To become skilled at persuasion, you need to know more; you must understand the the Laws of Persuasion. Psychologist Robert Cialdini described the six laws of persuasion in his book, Influence:The Psychology of Persuasion. He discusses the prevalent methods of marketing, and how by understanding persuasion laws, you can control how much marketers unduly influence you, as well as how to use these laws to your benefit during negotiations.

Cialdini’s Six Laws of Persuasion:

1. Law of Reciprocity  People try to repay what others provide them. Small favors bring on a sense of obligation. People feel compelled to “return the favor.” If someone gives you something you want, then you will wish to reciprocate because you now feel obligated. In negotiation, limited disclosure of the real reason for a stance, such as "this is all the money we have" can induce a concession from the other party.

KPIs for Responsible Sourcing

Responsible sourcing has reached a crossroad as companies have evolved from an approach based on employee compliance to one that goes beyond this to drive continuous improvement through strong supplier management and partnerships. Companies seek to demonstrate the value of responsible sourcing, but the lack of common standards for evaluating these successes threatens to undermine further development and wider adoption of these responsible sourcing practices.

There are a number of metrics currently in existence that impact the process of goal setting and evaluation:

• Goal setting and the key performance indicators for supply chain sustainability remains a work in progress. Most focus on qualitative program descriptions and challenges, rather than focussing on outcomes or value. A better approach would be to focus on continuous improvement.
• Public reporting is still focussed on negatives such as lack of supplier compliance, while measure so of positive values are underdeveloped. A more sophisticated approach would be to measure both supplier capacity as well as performance. Suppliers need to be able to understand the value created by their meeting responsible sourcing requirements, as this will provide them with the best motivation to comply.
• Supplier scorecards do not capture the data needed to allow internal audiences to make informed sourcing decisions. It's important to build ownership for metrics so that responsibility for implementation can be assigned throughout the company and accountability is clear. Micro-level targets can be established, and rolled up to provide a picture of overall performance,
• IT infrastructure remains a critical barrier to program measurement. Difficulty in accessing information has limited the ability to manipulate and analyze data. Fixing these problems will be expensive.
• Supply chain processes are not sufficiently transparent so that it can be determined that companies are managing their supply chain responsibility at an acceptable level. Companies need to demonstrate that they are meeting these commitments to their investors and other stakeholders, and they need to demonstrate how the value derived from these efforts on social and environmental issues.

Methods for evaluating the success and impact of supply chain sustainability programs must continue to be developed. Deficiencies in creating internal alignment must be addressed, and IT systems must be upgraded and improved. Communication between companies and investors must be developed with greater clarity around responsible sourcing practices and how they impact social and environmental outcomes. Communication and collaboration among stakeholders as well as transparency in the collection and analysis of metrics and indicators needs to be developed.

Adapted from: Key Performance Indicators for Responsible Sourcing, http://bit.ly/cD3EuM

Nine Ways to Improve Motivation in Your Organization

In his book Drive: The Surprising Truth about What Motivates Us, Daniel H. Pink describes methods that can help organizations to foster motivation in their employees. The goal is to encourage "Type I" behavior, which is an approach to life built around intrinsic versus extrinsic motivators.  It focusses on our innate need to direct our own own lives, to design and create new things, and to do better by ourselves and the world.

Nine Ways to Improve your Company, Office, or Group

1. "Try 20 percent time with training wheels".  Based on Google's 20% time in which employees are given the freedom to work on any project they want, this could mean 10% of an employee's time, one afternoon per week, was spent working on great but untried ideas.  Even done for a short period such as six months, this will allow people to convert their down time into productive time.
 
2. "Encourage peer-to-peer 'now that' rewards".  Giving employees the responsibility for giving their colleagues $50 bonuses when they do something exceptional carries a deeper meaning than a bonus from management months after the fact. And it is motivating.
 
3. "Conduct an autonomy audit". Find out through anonymous survey how much autonomy the people in your department believe that they have for task, technique, and team. Compare what employees perceive as their autonomy with what management thinks. Do these perceptions match?

How Can You Become A Better Purchasing Professional?

Define the criteria for being a good purchasing professional. Is it cost savings? Continuity of supply? Innovation? All of these and more?

Establish metrics that support the criteria. For example, for continuity of supply, you might select "Percent on-time delivery."

For each metric, determine the value that would separate "good" performance from "average" or "mediocre" performance in your particular situation. For example, for actual cost savings captured, is it $10,000 per year? $100,000 per year? $1,000,000 per year?

Establish the baseline of your current performance. Now that you know the line that separates good performance from mediocre performance, measure your current performance to determine whether you meet, exceed, or fall short of that standard.

Analyze what you do for improvement opportunities. Identify changes that you can make that will help you improve your numbers. If you already exceed the standard, aim even higher!

Improve your performance. Now that you've identified changes you can make, make them!

Hold yourself accountable. Put in place methods of ensuring that you don't lose focus. This can come in the form of charts that you hang in your office, promises to management, self-reward systems, or even hiring a personal coach. It's easy to lose momentum if you don't have some tangible way of maintaining your focus.

Adapted from: Can You Become A Better Purchasing Professional?, http://bit.ly/cTEjKu

Managing and Leading: What's the Difference?

Everyone is fascinated by "leadership". It's viewed as the secret ingredient that's needed to transform a good organization into a great one. But great managers are the backbone of successful organizations, and the truth is you need to have both kinds of people. The roles of leader and manager are completely distinct, with different responsibilities, starting points, and talents required to excel. Anyone can be a leader or manager, but to be great at either requires certain core talents.

Great managers turn each employee's talent into performance. They do this by making each employee believe that their success is the manager's primary goal. Employees will respond to this by giving their best effort. Great managers are tough on their employees; they hold them to high standards, and then show them how to achieve these benchmarks. They paint a picture of excellence in a role, and then coach their employees to embrace this vision.

Great managers commitment to each employee's success is driven by a form of spontaneous intuition commonly known as the coaching instinct. They are drawn to and thrill at the small successes of others, and this is a talent that is innate and cannot be learned.

Great leaders rally people to a better future that they see as a vivid image in their heads. Leaders are fascinated with the future, they are restless for change, impatient for progress, and deeply dissatisfied with the status quo. This friction between "what is" and "what could be" propels leaders towards that better future.

The core talents of great leaders are ego and optimism. The former is important because ego allows a leader to channel his self assurance, self confidence, and press them into the service of an enterprise bigger than himself. The latter is important because leaders must believe deeply and instinctively that things can get better. Not just hope they can be improved, or to put on a brave face. The possibilities of the future must seem so intense that they have no choice but to do everything in their power to make them real.

The necessity for great leaders to possess both optimism and ego means that they are born, not made. The skill of bringing the best performance from employees also cannot be learned. You either have this ability, or you do not. It is possible to be both a great manager and a great leader. but it helps to know when to change gears. Management starts with the person, while leadership starts with the picture of where you are headed.

Adapted from: Buckingham, Marcus, The One Thing You Need to Know ...About Great Managing, Great Leading, and Sustained Individual Success. New York: Free Press, 2005, pp 29-71.

The Five Whys

The Five Why is a question asking method for getting at the root cause of a problem.  The method involves asking the question Why? five (or more) times until the root cause is revealed, and the problem can then be resolved.

The following example demonstrates the basic technique:

• My air conditioner does not work. (the problem)

1. Why? The unit blows air, it is not cold.
2. Why? The compressor seems to run, but it is not effective.
3. Why? There is probably not enough refrigerant in the system.
4. Why? I have not had the unit serviced in several years.
5. Why? I did not think of having it serviced when it was working.

• I will have it repaired, and have it serviced at the recommended intervals in the future so it doesn't break unexpectedly again.

This technique was originally developed by Sakichi Toyoda and was later used by Toyota during the evolution of their manufacturing methodologies. Taiichi Ohno, the architect of the Toyota Production System, described the Five whys method as "the basis of Toyota's scientific approach . . . by repeating why five times, the nature of the problem as well as its solution becomes clear."

The tool has seen widespread use beyond Toyota, and is now used within Kaizen, lean manufacturing, and Six Sigma.

"If you don't ask the right questions, you don't get the right answers. A question asked in the right way often points to its own answer. Asking questions is the ABC of diagnosis. Only the inquiring mind solves problems." -- Edward Hodnett

Change management strategies for effective ERP implementations

The first step in effectively managing technology change is to identify and evaluate the attitudes of individual users and influential groups and to determine:

·       Who are the resisting individuals?

·       What are their interests?

·       What are their needs?

·       What are their beliefs and values?

Leaders can use knowledge gained from the previous stages of the ERP project to design strategies that can best overcome users’ resistance to the ERP system, and to convince as many users as possible to adopt it. The goal should be to try to modify users’ thinking processes that are negatively influencing their attitudes.

Top management must create awareness for the ERP system by communicating its benefits to workers. In many cases, ERP implementations fail because of lack of this type of positive communication. Knowledge about what the system can deliver to the organization and its workers can build anticipation for it. The success of future initiatives depends on building a cumulative base of credibility by management.

Workers who hear how the new system will yield a positive cost-benefit analysis to them as individuals by improving their daily work life with minimal costs are more likely to develop an interest in the ERP system.

Positive reviews of the new system, and the perception that it is of high quality is another factor that influences user acceptance.

Hands on training is important to help users adapt to the new system, and to help build a positive attitude toward it.

 It’s also important to have a performance system to monitor the progress of ERP change management efforts. It’s imperative that top management ensure that  workers’ anxiety and resistance to ERP is under control. 

Last but not least, top management commitment is critical for the success of the ERP implementation process. Change requires a strategic vision to ensure long-term success. Leadership is the number one facilitator of large transformation efforts. ERP implementations will only be successfully accomplished when senior management is totally committed to the initiative.

Adapted from: Change management strategies for successful ERP implementation by Adel M. Aladwani, Business Process Management Journal, Vol. 7 No. 3, 2001, pp. 266-275. # MCB University Press, 1463-7154. http://bit.ly/eaAyNj