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Stress Test Procurement, Logistics and Operations


This article was originally published by EBN, the premier online community for supply chain professionals, on 22 January, 2018

In Q4 2017, manufacturers' optimism rose to unprecedented heights amid the legislative progress made on tax reform, according to the results of the Manufacturers' Outlook Survey conducted by The National Association of Manufacturers (NAM).

The recent changes to the tax code will likely impact manufacturers, who may not be ready to respond to increased demand for goods. To get an inside look, EBN spoke with Steven J. Bowen, who has been in the consulting business for 31 years. Thirteen years ago, he established his own firm, Maine Pointe, because nobody was addressing the whole of the supply chain and there was no focus on the people aspect. This motivated Bowen to build a values-based organization. He also authored the book, Total Value Optimization, in order to help businesses drive cost and growth.

EBN: What are the best practices for stress-testing procurement, logistics, and operations functions to identify bottlenecks?

Bowen: The number one bottleneck across those three areas is the world of day-to-day analytics. This is because big data (also known as "disorganized data") has to be moved into organized data and helpful information, which really is insightful information, and this is so that management can make better decisions. Even in the fundamentals of procurement, you better know what you're buying before you go buy it. There are four levels of details when it comes to procurement, which takes you from the basics of "How much do I spend in this category?" to "How much do I spend to these suppliers? Then you go into what I call the common marketplace specifications, and the detailed engineering specifications. With these four levels of data, you know what you're spending your money on, and why you're spending your money on it.

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From that perspective, I can say even some of the more sophisticated companies don't always have that information at their fingertips, and that's a huge bottleneck. People who do category management and negotiate with suppliers and look at commodity market places can't do this to the best of their ability without this data at their fingertips. This doesn't mean companies haven't made great advancements, because they have, but this is why we've created five maturity curves and each one has five ratings to it that go from one through five, which we call our 5 x 5.

In procurement alone, you have a 5 x 5 that sets you up to being able to evaluate how mature your procurement function is and how it operates compared to all the other procurement functions in the world. While you can get specific about data, when you stress test the maturity level, there are people involved and this can be based off of how the team operates. The reason I think it's important to stress test is that there are so many things within the function that can go wrong, meaning you don't have the right data, category strategy, or the global information that's necessary. This is where you run into bottlenecks, because if you don't have the right information, you can't do the rest of the job, meaning the category management, the design of your strategy for negotiation, and going out to suppliers in the right way.

The second piece in procurement is the six-step process, even though some companies might take four steps or 24 steps. I don't care so much about the steps, but what I worry about is actually executing the steps. That's where it breaks down, and when under pressure, people can take shortcuts, which brings me to the human side. They don't manage just one category, so they have to renegotiate all their categories in 2018, so now they take shortcuts to make sure they get that all done. As soon as you take shortcuts, you create another stress in the system because now you don't get the full scope of the competitive environment.

I would say the third area of stress testing (or maturity) is the level of collaboration, coordination, and integration across these functions. And now there are new functions, like product development and engineering design, and you get into sales and the demand forecast, meaning the total supply chain of a company. This also includes suppliers and suppliers' suppliers, and if you want to have a great collaboration and integration across that whole supply chain, know that it's really hard to do, because you're dealing with different organizations and more people.  

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