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Category Archives for "For Managers and Analysts"

What is Chaining Today’s Corporations?

A divided organization cannot stand together for too long

Within the organization, division of labor was a fine concept when it came out. Obviously, if people focused on their individual area of expertise, in general they can be a lot more productive, if there is a robust mechanism to integrate the fruits of their labor. Unfortunately, the attempts to integrate conflict with the human nature driven by divide and rule from the top, and interdepartmental jealousies at the bottom. If someone gave me a penny for every time I have to listen to a mid-level manager tell me about how everybody else in other departments is under - performing, I would be a very rich man by now.

Most organizations became veritable bureaucracies as they grew bigger. Every person sat inside his/her own department, and was careful about making sure their department did not carry the blame if there was mix-up. Covering the tracks became the norm, and a rigid protocol was developed for interdepartmental co-operational. The resulting departmental silos create silted communication and a culture in which inter-departmental planning is simply not possible.

So what are the problems you might notice in such a divided organization?
We have worked so long on projects where we see these symptoms that it will probably take an entire chapter to explain each of these root causes. So, rather than dwelling too much on explaining each of them here, look out for the case examples embedded throughout this book and see if you can do a quick diagnostic based on these symptoms.

Too much rigidity in planning can lead to discord and disruption

A common tools deployed by most divided organizations to achieve integration was very rigid Enterprise Resource Planning (ERP) system to run their internal processes that co-ordinate inter-departmental communication. By their very nature such systems were very formulaic and prescriptive with a one size fit all approach to planning.

If you are familiar with internal operations of a large corporation, and wonder why you see so much chaos, anxiety, blamegame and other such dysfunctional behavior, this is the key reason. The systems are not setup for the type of operation. Again, I am sure you and I both could probably write a book full of case studies illustrating these types of problems. My purpose in this chapter is just to highlight what is chaining today's corporations and not to dwell too much on it. 

Of course, if you do think of an extremely poignant case study which stands far above those recounted in this book, do send them through to me for inclusion in a subsequent edition of this book.

Customers hate companies with too much internal focus

As organizations free up their inter-departmental planning from rigidities of prescriptive, monolithic systems the communications start to bloom, and planning becomes flexible, fluid and adaptive. Efficiency improves considerably and everybody is running together, faster.
However, a higher set of problems emerge due to lack of external focus - on suppliers, on customers and on end- consumers
. Many times everybody inside the company is running together, faster in the wrong direction. For a quick example take a look at Sony Corporation. Unhappy customers, slower product development, key new products missing the mark are symptoms of such problems as shown in figure 1.3:

Let us now move quickly to the macro-level picture

At a macro level, we will discuss only a few of the shackles that chain today's corporations and that too at a very high level. The aim of this discussion is to name a few hidden drags on corporate  and economic  performance, whose full impact may be difficult to recognize at a first glance. Rest of this book does NOT contain much discussion on these so it is important to put these on record here.
Why? 
  Because like it or not, you will face this in your business. And, whether you can do something directly or not, you will somehow have to overcome these drags. So, when you are reading the rest of this material and working out how to use it in your business, keep in mind these chains as well.

Complacency is a slow poison

The sense of entitlement, complacency and the imperial privilege can be observed even today in almost all the nations that once had a great empire - Spain, Portugal, Britain and France. Unfortunately, now the same feeling can be quite frequently seen in the United States, Australia and even Canada.
         There seems to be a belief among a large number of people that the world (or nature, or universe or some such entity) owes them a comfortable living, whether they do anything to deserve it, or not!

In the former imperial nations, this could be understandable because generations grew up hearing legendary stories of fabulous riches, derived from the empire where just being part of the winning team ensured a comfortable lifestyle. For example, Cecil Rhodes famously said "Remember that you are an Englishman and have consequently won first prize in the lottery of life." Spain, Portugal and France show remnants of decaying aristocracy that suffers from this mindset.

As a result, companies suffer from missed opportunities. Slow reactions, incoherent strategies, half-hearted execution and failed transformation. Most of the business in comfort zone and they don't recognize the need to go beyond, to actual create viable 5-star business to business network. 

Tendering – The Only Way?

Stuart EmmettA serious look at Tendering by Stuart Emmett

One of the key activities of procurement is to obtain acceptable agreements with suppliers by using the tendering and the negotiating processes. However, which of these two processes is best and why do some organisations use only tendering, whereas other organisations, will only negotiate? Let’s therefore briefly consider the negotiating and tendering processes further in the following sections:

What is Tendering?

Tendering is defined as: “The procedure, by which potential suppliers are invited to make a firm unequivocal offer of the price and term which, on acceptance, shall be the basis of the subsequent contract” Tendering is a formal process involving the following steps:

Those tenders received by the nominated date/time, will then be assessed, both technically and commercially, against the required criteria that has been specified in the ITT and at this stage; any offers that do not meet these criteria are eliminated. The objective of the tender assessment is therefore for the purchaser to establish which the best offer is. These assessments will normally cover the following aspects:

Technical assessment

Commercial assessment

Compliance with the specification (either a conformance specification or a performance specification)

Price

The required output parameters will be met

Any other commercial qualifications such as terms of payment

Product/service quality

Perceived risks such as supply lead times

For equipments, the maintenance/ repair over the operating life

Value for money

If price is the only selection criterion, then the tender with the lowest price will be awarded the contract; however where price is only one criterion among several others, such as service, lead time, quality etc; then the purchasing organisation will need to decide the most economically advantageous tender (MEAT) or, which one represents the best value for money (VFM). The result of the assessment is therefore to rank the tenders either by price, or in accordance with assessment criteria and these which could be specified in the ITT.

This establishes the lowest assessed tender, which is then recommended for the award of contract. The tender specification in the ITT must therefore be clear, unambiguous and allows suppliers to make an appropriate offer. In summary, tendering aims in a single round of tendering to obtain compliant tenders from qualified tenderers by allowing for open competition and fairness. What then are the perceived disadvantages of tenders?

Tendering may not always give the intended open competition and fairness; yet these are the major reasons for its use. Indeed tendering may be merely “going through the motions” as tendering processes can be influenced by those who have power and influence over the eventual selection process. Tenders may also be selectively issued with suppliers’ responses then being clearly influenced. Additionally I am also reminded of a procurement manager who once said to me, “we are always able to pre-cook the tender board.” The private sector, for example, will usually disregard tendering completely and after selecting suppliers, moves straight to negotiating. They see the following disadvantages of the tendering process:

We will further consider the above aspects later; meanwhile let us explore the negotiation process. What is Negotiation? Negotiation can be defined as “the resolution of conflict through the exchange of concessions”. This will mean trading concessions, not donating them, and can also only be undertaken with people who have the power to vary the initial terms and are able to give something in return. In other words, all the players have to be prepared to negotiate. The advantages of negotiations can be seen as follows:

Disadvantages of negotiations are seen as below:

Conducting negotiations is a skilled process and whilst there are available some ideal guidelines, it cannot be thought as a strict procedural process; indeed some observers observe there are really few rules involved. As it is a process conducted by people, then, personality and cultural aspects are also involved where for example, negotiating with Koreans is different to negotiating with Germans. Negotiating is a skill that needs to be learnt and developed. Whilst it is commonly found that supplier’s sales people are trained in selling and negotiating, perversely and regrettably, buyers are often not trained to negotiate. Suppliers are one side of the buying process In the buying of products/services, the position of the supplier in the marketplace should be considered; this often being something that is not systematically considered by all buyers. There will often be other buyers for products and this may mean the supplier takes a view of how “attractive” the buyer could be as a customer. Indeed, there may be several reasons why the buyers appear unattractive to suppliers including:

Additionally, the number of available suppliers may be large or small, for example, markets may be expanding or contracting and buyers therefore need to be aware of the expansion or contraction of the supply market from which they are procuring. It should therefore never be assumed by buyers that every supplier is “desperate” to supply them with products or service. Suppliers have a view of their market and this will affect a suppliers positioning towards buyers; for example the suppliers view maybe one of the following: Clearly not every purchase has a supplier who views the buyers business as being a key account for the supplier.

In view of these differences then all buyers can usefully consider: Question 1, just how does my supplier view me? They may be surprised by the answer and that they are not, universally, going to be seen as being a key account; indeed, they may be seen as a nuisance. Additionally, related to this, is the power of each party has, for example: Where the buyer is dominant there is:

Where the seller is dominant there is:

All buyers can therefore usefully consider;

Question 2: what power relationship is there with my supplier? The following gives one possible summary from asking and answering the above two questions of the supplier base

Suppliers name

Q1) Suppliers view of us

Q2) Power relationship

Supplier a

Key account

Independent

Supplier b

Exploit

Supplier dominant

Supplier c

Nuisance

Interdependence

Supplier d

Development

Buyer dominant

Supplier etc

Etc

Etc

This matrix shows there will be varied responses and whilst some will “match” (e.g. b), others will not (e.g. c).

We can ask:

Question 3: What are the implications of these two views?

Simply here, the answer will reveal that there are varied requirements from buyers and suppliers, some will align, and some may not. We can explore this further by looking at the 5 rights of purchasing related to the well known Kraljic item portfolio. With Kraljic we can see that buyers have a hierarchy of requirements and this is shown below:

The Right

Bottleneck and Critical items

Aim: Secure supply and therefore , lower the risk of non supply

Routine and Leverage items

Aim: Reduce price by playing the market, possible outsourcing etc.

Quality

Secondary

Secondary

Quantity

Secondary

Secondary

Time

Number one requirement

Secondary

Place

Secondary

Secondary

Cost

Secondary , maybe last

Number one requirement

From the buyers / customers and demand perspective on the cost / service and the supply balance, then the following ideals are indicated:

The ideal matching response from the suppliers and supply perspective, related to Kraljic, is then going to be as follows: This can be amplified further into an ideal typical perspective, as follows:

Service

winner

Buyers

Strategy

Matching Supplier Behaviour

Suppliers

Market position

Responsive

Leverage items with Supplier Sourcing

“Plays the market”

React rationally with price cuts

Certainty of

competition

in the short and long term

Reliability

Routine items with Supplier Outsourcing

“Organises and lets go”

React by exploring options and “fit”

Certainty of

competition, in the short term, followed by stability in the long term

Innovative

Bottleneck items with Supplier Development

“Secures supply

and attempts to diversify”

Reactive positions when maintaining the monopoly, or,

Proactive entrepreneurial behaviour with new product designs

Uncertainties

of being able to innovate, high R&D costs, followed by possible monopolistic position

Empathetic

Critical items with Supplier Collaboration

“Work collaboratively with suppliers”

Proactive team work and problem solving

Uncertainty initially (forming-storming) followed by norming and long term performing

The question to be asked now is as follows:

Question 4: Will the above mentioned supplier behaviours line up with the buyer’s strategy?

Where there is congruence, there is agreement and progress forward will be easier, as both buyer and supplier will have their needs met. If there is no congruence, then there are possible negotiations options and whilst positions may be then changed, the outcome could be an eventual “no deal.” Where however, no negotiation is allowed, then there is really no hope of having a satisfactory relationship and any progress will always be problematic; for example the supplier wants to be innovative and service driven but the buyer is price playing the market and is cost driven. Indeed with tendering, then it is unlikely the supplier is procedurally able to offer innovative alternatives.

May be here therefore, the suppliers only hope of winning a tender is to submit a low price that will “fit the tender” and hope that their alternative can be offered at some later time, once they “in”. Clearly here, it will be the appropriate behaviours by either party that are therefore affecting and driving the supplier/buyer relationship. This should be readily easy to accept with for example, the well know scenarios of “you get what you give” or, “what you give you get”, and “what you sow, you will reap”. However as we will see with our next question, acceptance of this, does not systematically lead to changing behaviour towards making more optimum buying / supplier selections.

So our final question for buyers is as follows:

Question 5: if the buyer’s strategy is using tendering 100%, will this give them 100% effective results?

Which is then going to be the best to use, a tendering or a negotiation process? It would seem so far that leverage and routine items may well find a better fit using competitive tendering, whereas bottleneck and critical items are more likely to get better results from with negotiating. What fundamentally do Suppliers & Customers want? So now we have seen what fundamentally tendering and negotiations involve and how they relate and vary with each other in a practical way. If we were now to simply view what the supplier and the customer wants, then we can see the following positions: Source: “The Relationship driven supply chain” Emmett and Crocker (2006)

Criteria

Suppliers want:

Customers want:

Orders

The “business”

Delivered/available goods/services that satisfy a requirement

Information

Clear requirements

Wants clear status information

Performance

Feedback

(KPI’s that are jointly measured and, benchmarked with other suppliers)

“Feed-forward”

(Pre-advice and proactive status/alerts)

Relationship approach

“Fairness”

Involvement/“Part of”

Relationships may be a reflection of the procurement portfolio and power positions

Price/Cost

A “fair” to a high price

The “best” total acquisition cost, total cost of ownership, life cycle cost, whole life cost (TAC/ TCO/ LCC/ WLC)

Quality

Clarity on what quality means and what is “valued” by the customer

“Fit for purpose”

Delivery

On time, in full (OTIF)

On time, in full (OTIF)

Quantity

Large regular orders

Smaller, frequent deliveries

Time

Acceptable supplier lead time

Shortest supply lead time

Place

Ex Works (International)

or

Factory Gate Pricing

(Domestic trade)

Delivered domicile duty paid, or

Delivered/Carriage paid

Payment time

Prompt

To negotiate

This indicates that there are some very common “wants.”

By exploring the above common wants, then this facilitates potential mutual benefits and gains. The point here is, will these benefits and gains, come from a tendering, or from, a negotiating process? Summary Let us now summarise the relative advantages and disadvantages of tendering and negotiating Advantages of tendering

Aspect

Tendering

Whereas Negotiations

Openness

Open to all suppliers (in theory) and often with some visibility of results

Open to those approached only and this is usually confidential

Supplier Competition

Competitive between those suppliers invited / submitted

Competitive between those suppliers negotiated with

Auditable

Auditable

Not easy to audit

Procedures

Procedural and routine , therefore it is more of a rational process

Non procedural and needs skilled trained people.

It is an emotional process with some rational judgements

Outcomes

The lowest price or best value for money, and this is “fixed” for the prescribed specification

Easily allows for joint working on solutions for the best deal possible, (for both parties)

Kraljic best fit

Leverage and routine items

Bottleneck and critical items

Power relationship

Buyer is dominant or is independent from supplier

Supplier may be dominant or there is interdependency of buyer and suppliers

Cost/service balance

Cost is usually the prime requirement with possible “value for money” service aspects, (providing these are in included in the specification)

Service supply is prime but allows for cost/service trade offs in the negotiation

Disadvantages of tendering

Aspect

Tendering

Whereas Negotiations

Clarifications

Cannot always clarify technical points

Can more easily clarify technical points

Specifications

Fixed specification is given, therefore the supplier cannot easily suggest any better alternatives

Supplier can give better alternatives and jointly work on solutions with buyers

Limited usage

No use at all with a “monopoly”

Can use with a monopoly

Cost and time

Slow and expensive

Expedient and cheap

Approach

Conflicts with “newer” collaboration approaches as is a prescriptive approach

Skilled and varied approach can be used

Suppliers invited

In theory is open but can be “fixed” e.g. only certain suppliers are invited.

Additionally, suppliers may refuse to be involved in tendering

Can also be “fixed” but most suppliers are prepared to talk/negotiate

Suppliers view

Supplier has “one shot” to get it right

Many opportunities and meetings are possible

Conclusion This raises the final question for all buyers to consider: Which is best, tendering or negotiating? The answer will be found in the above discussion; it will depend on the circumstances, however it will be seen that the “one size fits all” approach of tendering is just not going to be the most effective. Whilst the advantages of tendering, in theory, do seem to be rational; tendering remains questionable in practice, for example:

Of course, mixed tendering and negotiating may be used, for example some organisations use tender procedures to cover the technical assessment/compliance, and they will then negotiate on the commercial aspects. However, if we can assume that we will be using honest and ethical negotiators, then it seems very clear that it is negotiating that will offer the overall best approach. This is further supported by observing, interestingly, that it is the public/ government organisations that generally will only tender whereas, the private commercial sector rarely tender and systematically use negotiating. Which of these two sectors is the most commercially efficient?

For those who choose to believe it is the public/government organisations then please consider that we have seen Government, successively, move the utilities into the private sector in recent decades and more recently, place much of the NHS procurement into the private sector; (all this being done of course whilst retaining some regulation). One assumes this is done so that they can become more commercially competitive and also benefit, for example from, better procurement practices? This is not to say that we cannot use both negotiating with some tendering as for example, tendering may be useful for the purchase of leverage standard items.

However even here, tendering has been replaced by reverse e-auctions in some leading edge organisations; reverse auctions being a classic application for leverage items and also simplify the award process for the benefit of both parties. In conclusion, given a free choice between tendering and negotiating, then tendering, overall, is just not going to be the best practice. As far the UK is concerned, the sooner the government realise this and release the talent of procurement people, the better for the tax payer. Indeed in the words of Sir John Egan in “Rethinking Construction” (1998); “Industry must replace competitive tendering with long-term relationships based on clear measurement of performance and sustained improvements in quality and efficiency.” Clearly this involves replacing tendering with sitting down and talking and negotiating. It has to be the right thing to do.

All written by Stuart Emmett, after spending over 30 years in commercial private sector service industries, working in the UK and in Nigeria, I then moved into Training. This was associated with the, then, Institute of Logistics and Distribution Management (now the Chartered Institute of Logistics and Transport). After being a Director of Training for nine years, I then chose to become a freelance independant mentor/coach, trainer, and consultant. This built on my past operational and strategic experience and my particular interest in the “people issues” of management processes. Link for the blog: http://www.learnandchange.com/freestuff_23.html

 

Empowerment And Email

Stuart Emmettby Stuart Emmett

I am fed up with a lot of organisations.

Is it just me?

Do others find too many simple basic mistakes are being made these days by organisations? These mistakes are also being repeated many times and do not seem to get corrected.

Why is this?

One of my theories is that, email is the means to create the mistakes whilst the expected end result is empowerment.

Let me amplify.

These days external connection is possible to most internal levels within an organisation.

The power of the internet can deliver messages to anyone.

Those receiving emails are now able to handle and deal direct with customer requests.

And by “empowerment” this will also enable decision making at any level.

People are now therefore able to take decisions and deal direct with queries.

Now clearly there are numerous advantages to this, but there are some disadvantages also. My fear is that these disadvantages may be getting camouflaged and disguised by the use of emails and by the aura of empowerment.

It is fine allowing decisions to be taken at low levels, but these have to be correct ones and have to be taken responsibly. They can now also be taken invisibly to the senior management. Therefore when decisions are wrong, the consequences may not be apparent. The result can then be a spiral of confusion and frustration. Those on the receiving end may have little chance for recourse or correction of handed down decisions that have been wrongly taken (and effectively taken sub optimally).

Another result is that some customers at the receiving end will “walk,” others will complain to “deaf ears,” and some may report their displeasure to senior management; however senior management may be dismissive as “we do not have this problem with others”.

The fact is they do have problems, but it has become invisible to senior management who in their desire to empower junior staff, have made themselves separate from what is really going on in the organisation.

How do we prevent this?

Simply by returning to a principle of management visibility

Good managers are supposed to keep kept their fingers on the pulse. Requests from and responses to customers should be seen. Support and guidance should be given to junior staff when required. A manager must ensure they know exactly what is happening in their department and they must delegate effectively whilst retaining accountability and responsibility.

Why cannot this be done? Why do we allow email to “bypass” such best practice?

It now it seems with email and empowerment, that whilst the “e” can certainly stand for efficiency, it does not always stand for effectiveness.

Efficiency is however found as messages are quickly dealt with, however non effectiveness is found as the correct result does not always follow. So we are maybe doing the right things, we are not always doing it right.

But worst of all, what is being done maybe invisible to those who can change things. However it is clearly visible to those customers who walk.

Is it just me who is fed up?

Ps: for those great organisations that do not do the above; well done and thank you!

Stuart Emmett

After spending over 30 years in commercial private sector service industries, working in the UK and in Nigeria, I then moved into Training. This was associated with the, then, Institute of Logistics and Distribution Management (now the Chartered Institute of Logistics and Transport). After being a Director of Training for nine years, I then chose to become a freelance independent mentor/coach, trainer, and consultant. This built on my past operational and strategic experience and my particular interest in the “people issues” of management processes.

Link for the blog: http://www.learnandchange.com/freestuff_23.html

Note:  Stuart Emmett co-operated with our very own Vivek Sood to co-write the book GREEN SUPPLY CHAINS – AN ACTION MANIFESTO. This book was one of the first books in the world on the topic of Green Supply Chains, and as such is used in Universities around the world for executive training and research purposes.

What Two African Entrepreneurs Have Learnt from Amazon.com – Globalization in Action Serving Humanity

Boasting exponential growth since its inception in 2012, Jumia became the first e-commerce site to bring the coveted Play Station 4 to Nigeria. The company announced the offering after just two days of the release in the US. The Nigerian would-be Amazon is following the global giant’s footsteps in becoming a super networked business, although there is still a long way to go.

Jumia started with a relatively similar aim and manifesto to Amazon, which puts customers at the heart of its operation. In the same vein, the Nigerian site also reaps benefits from being one of the pioneers in Africa’s emerging online retail market. “Being first is good, but it is not everything. What fuels Jumia’s success so far is somewhat akin to Amazon’s evolution into a Five-star business network” – said Vivek Sood, CEO of Global Supply Chain Group.

Jumia is not shy of innovation either, given the fact that people are still skeptical about online retailing as well as online payment in Africa. The Lagos-based retailer launched a range of online payment options but steers its technology-shy consumers by accepting cash on delivery and offering free returns. “It’s very important that people know it’s not a scam,” said co-founder Tunde Kehinde. They even take a step further and deploy a direct sales team of 200 to educate Nigerians about secure online shopping, which also serves as a means to build trust. Now with pick-up stations spanning over 6 locations, a warehouse facility, 200 delivery vehicles in Nigeria and 4 other country-specific microsites, Jumia seriously strives to become a one stop shop for retail in Sub-Saharan Africa. “Here you are collecting cash and reconciling payments almost like a bank desk, here you are building a logistics company,” said co-founder Raphel Afaedor.

Both co-founders and Harvard Business School graduates built the business from $75 billion in funding and are bringing “a couple of million” dollars in monthly revenue, a growth rate of nearly 20%. Vivek Sood, author of the book “Move Beyond the Traditional Supply Chains: The 5-STAR Business Network”, said: “Jumia is taking the right steps towards building the five cornerstones of a super networked business: innovation, efficiency, profitability maximisation, product phasing and result-oriented outsourcing. With the promising results so far, perhaps we could see the next perfect example of a 5-star business network besides Amazon.”

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