Supply Chain Flywheel

In February Jim Collins came out with the small book “Turning the Flywheel: A Monograph to Accompany Good to Great“.

In it, Collins discusses the Flywheel concept, and how organizations like Amazon and a failing school on a military base leveraged the Flywheel concept, and made it their own to become GREAT.

I first heard about it on the Tim Ferriss Show. During the interview, Jim Collins discussed the monograph, how it applied to businesses, departments, and even our personal lives.

I shared that portion of the podcast (starting at 1:40:00 or so) with a colleague, and together we built the flywheel for our Supply Chain Division at the company I worked for.

The Supply Chain Flywheel

Here is the Flywheel we came up with.

  • Increased Stakeholder Engagement
  • Quality Scope of Work
  • Better Market Position
  • Better Market Relations
  • Reduced Total Cost of Ownership
  • Increased Stakeholder Buy-In

As described by Jim Collins, each step in the Flywheel cannot but help cause the next step.

Increased stakeholder engagement cannot help but lead to a better quality scope of work. A better quality scope of work cannot help but lead to a better market position. A better market position cannot help but create better market relations. Better market relations cannot help but reduce the total cost of ownership of the materials/services being sourced. Reduced total cost of ownership cannot help but lead to increased stakeholder buy-in. Increased stakeholder buy-in cannot help but lead to increased stakeholder engagement…

And so on, and so on, and so on.

Doom Loop

The Doom Loop, of course, is the exact opposite, and each step in the Doom Loop feeds the next.

  • Decreased Engagement
  • Poor Scope of Work
  • Poor Market Position
  • Poor Market Relations
  • Increased TCO
  • Reduced Stakeholder Buy-In

Conclusion

Supply Chain/procurement should strive to reach the flywheel described here and, of course, improve upon it. Maybe there’s an additional step your team or department needs to add. Try and develop it.

And if you do need a hand to start your flywheel, the MEYBEST Procurement Solutions: Strategic Sourcing Training is a great place to start.

Communicating Change

You’ve completed the sourcing event. The agreement is awarded. The supplier begins full implementation next Monday.

And then the storm hits.

The employees on the line are up in arms. No one told them things were changing, and unbeknownst to you entire processes and policies needs to be changed. Their supervisors aren’t happy either.

With resistance from below, you go to senior management for assistance. But they only had a high level view of your sourcing event and the change it would bring, and have difficulty providing assistance.

What happened?

When Change Begins

News about change, whether good or bad, is not like wine. It does not get better with age. From the very beginning of your sourcing event you must craft your communication letting those affected within the organization know what’s going on.

Early Stages

The idea phase is over, and the sourcing event is in full swing. Suppliers are being talked to, stakeholders are being consulted as to what they want. Here, too, communication of what is going on must go up, down, and across the organization to those affected. A simple update may suffice. “We met with X and Y Suppliers on these dates.” Maybe that’s enough to keep people informed that change is moving along – and coming their way.

During Change Design

The agreement has been awarded. Now you, your sourcing team, and the supplier are sitting down to hash out the key deliverables and milestones. Who is in that meeting? Are all those affected there? Who from the executive level has provided their guidance, or is in the meeting to match the supplier’s executive team? Has that executive been updated on what’s in the agreement, and the desired end state so they can support your vision?

Implementation

Before and during the implementation of the new supplier, communication is even more key. Daily or weekly updates with the supplier, the employees on the ground and their supervisors ensures progress is moving forward, and any problems are addressed immediately. The executive level will be wondering as to the progress of implementation, and if the savings and added value promised through the agreement will be realized.

Post-Implementation

This is your time toot your own horn. This is where you show the progress made, the savings and added value realized. Both quantitative and qualitative measures of success should be used in your communication through the organization.

But it’s not a time to sit on your laurels. This is where you engage the executive level, managers, supervisors, and even people on the line to reinforce the change. How many times has change come around, only to disappear and things go back to the way they were? Not only do you need to reiterate the story of the gains made for the organization, but you must gain buy-in from all levels to ensure compliance. When individuals decide not to comply, you must also gain the buy-in of their management to deal with them accordingly.

Craft Your Message

Throughout this process you must craft your message. You wouldn’t provide granular details of the change to senior management, nor would you want to give a strategic, 50,000ft view of the change to the line employees. Ensure your message gives the “Why?” and “What’s in it for me?” at the correct level of detail.

Conclusion

There have been dozens of books written on change management and communication. A lot of it’s the same information. Why do they continue to sell? Because people in organizations continue to fail at it. Keep to the principals above and you and your organization will be better prepared for the change your sourcing event brings.

Procurement New Year’s Resolutions

It’s the New Year, and almost everyone has made a New Year’s Resolution; lose weight, get back to the gym, learn to play the guitar, learn a new language, talk to that girl, etc.

The problem is many of these resolutions don’t survive much past March, or even January for that matter.

In order for these resolutions to stick, we must have a plan, and make incremental changes that stick and become part of our habits.

While many of us, myself included, are working toward self-improvement goals (my fitness goals are year-round, not just tied to New Years), we should also be working on goals for our Procurement processes.

What New Year’s Procurement Resolutions should we make? Herein I detail just a few.

Communicate a Unified Vision and Gain Senior Management Support

You want to make changes the procurement area of your organization. But every time you present something and implement it no one listens and it falls through. What gives?

First, make sure the vision you have created is clearly and effectively communicated. Maybe the message is getting lost in translation to the rest of your organization. You could be using too much technical jargon, and the people you are trying to get on board are zoned out. Before you roll out changes make sure you have communicated those changes well.

Then, get senior management on board. Without the support of the right VPs and Directors your plans will be dead on arrival. Try all you might, if your senior management doesn’t support you, no one will. Communicate your vision to the SM’s of your organization, show them the data of savings and value added, and sell them on the changes you are proposing. With their backing, your procurement change initiative will go further.

Standardize Processes

Is everyone in your procurement group doing things the same way? Are purchase orders and contracts all processed with the same steps each time? Or, like many organizations, is everyone doing their own thing?

In the New Year, dedicate your organization to doing things the same way each time. Standardizing processes, as well as making checklists to follow, ensure that everything is completed right the first time in your organization’s ERP system. That way no pertinent information is left out and rework is reduced. Rework costs companies hundreds of thousands, or even millions of dollars each year. Preventing this rework with standardized processes and checks can significantly impact your organization’s bottom line.

Get Involved Earlier

Best case scenario you’re already part of your stakeholder’s annual budgetary meetings.

But what if you’re not?

In the New Year, get involved immediately. As a procurement agent in your organization you should be involved at the moment of ideation – the moment your internal customer comes up with the idea of a need. If you are involved the moment the the internal customer is ready to send out a bid package, you’re already too late.

Regular meetings with your internal customer can alleviate a lot of this and ensure that the moment a need arises, you’re immediately involved in the process.

Push Back!

There’s a right way and a wrong way in your organization.

Your internal customer is doing things the wrong way; providing incomplete scopes of work, not involving you early enough, talking to suppliers without procurement’s involvement, coaching their favorite supplier throughout the bid process.

The answer: push back.

The saying goes: the standard you walk past is the standard you accept.

The moment your internal customer does things the wrong way, you must push back. If you haven’t in the past, start now. Proper processes, and doing things the right way – and sometimes the legal way – is paramount to keeping your organization running smoothly and remaining in business.

Does the internal customer push back when you push back? Get support from your management and senior management. (See the first paragraph in this post.)

Prepare Better For Negotiations

A few notes and an “idea” of where you want to go no longer cuts it when walking into negotiations with suppliers.

What’s your target outcome for negotiations?

What’s your optimistic position (best case scenario)?

What’s your pessimistic position (worst case scenario)?

What’s your walk away criteria?

What’s you’re best alternative to a negotiated agreement (BATNA)?

How much time have you and your team dedicated to practice negotiations?

In the new year, commit yourself to improving your negotiations preparations.

Reinforce Regularly

All of these practices are great – unless your organization stops doing them. Have you or someone in your organization improved a process or changed the way you were doing things – only to have people in your organization slip back to the old, inefficient, ineffective way to doing things?

Let’s face it, generally speaking human beings hate change. It’s wired into our DNA after hundreds of thousands of years of surviving. In the modern age this translates into resisting change in the workplace where the worst threat may be a spreadsheet takes twenty seconds to load.

If you want better sourcing processes to take and hold in your organization, you and your senior management have to reiterate and reinforce these new habits over and over again. Sometimes you’ll feel sick of saying it, as you’ll be sure your colleagues will be sick of hearing it.

But reinforcing these new processes through training, oversight, and tying them to the key accountabilities in personnel annual reviews will make sure they stick for years, and your organization will continue to realize the external and internal cost savings and added value they provide.

Conclusion

I hope these few Procurement New Year’s Resolutions start helping you and your organization start on the right track, or get back on the right track, to realizing good change in your procurement area and its processes.

And if you need more help, Meybest Procurement Solutions is available with training and consultation to take your organization tot he next level.

Happy New Year!