Master Data Management (MDM) A Foundation for Supply Chain Analytics & Risk Management

Context

In my post The Future of Supply chains post COVID-19, I advocated that post COVID-19 an action procurement and supply chain professionals should undertake is digitising and creating safe and secure analytics. The use and power of big data will be key in understanding your supply chain and managing risks.

Today’s businesses, especially large global enterprises have hundreds of separate applications and systems (i.e. ERP, CRM). Data crosses organisational departments or divisions and easily becomes fragmented, duplicated and most commonly out of date. When this occurs, answering even the most basic, but critical questions about any type of performance metric or KPI for a business accurately becomes a pain.

Access to data is increasing, however data is stored on many different systems and extraction has grown exponentially in complexity.

How complex can this be?

What data do I need?

How timely can I get access to it?

How can I present it in a way that is meaningful and easily understood?

Many of you have asked similar questions within your business environments, especially when presenting insights to executives and boards.

Procurement and Supply Chain Mega Trends

Lari Numminen, Chief Marketing Officer in his article “7 Megatrends for the Future of Procurement” highlights the combination of internal and external data sources as one of these Mega trends with many companies having detailed visibility on internal data, on costs, supplier contracts and so on. As more big data solutions emerge for external signals, like the weather, commodity prices, and other factors, co-founder of Sievo, Sammeli Sammalkorpi argues that a source of future competitive advantage will be the ability to combine internal and external data sources.

The EY article “Ten trends shaping the future of procurement” highlights that organizations will leverage internal and external data sources to better assess supplier risk. He stated that in the near future, most organizations will have a 360-degree view of suppliers through internal data, data from suppliers, market data and external data on suppliers’ performance (e.g., performance of suppliers with other organizations). This will not only provide historical data about supplier performance but will also enable organizations to accurately and holistically establish supplier risk profiles and to predict risk events.

Spend Matters cites Big Data and analytics as one of the 5 Mega Trends Reshaping the Supply Chain. Trend number 2 states that the chat will focus not just on analysing larger datasets but also the underlying requirements to do so — and the possibilities with Big Data approaches to procurement. (Hint: It’s anything but just expanding “spend analytics” to new areas.)

Finances online Jenny Chang published an article on the “14 Supply Chain trends for 2020: New predictions to watch out for”. The graph below illustrates clearly how data analytics has appeared as one of the priority technologies for the Supply Chain Industry.

Source: Finances online

The Link between MDM and the Supply Chain mega trend Big Data

Without…. getting answers to basic questions such as “who are our most profitable customers?”, “who are our key suppliers” and “who supplies them to create the products we receive?” “what product(s) have the best margins?” or in some cases, “how many employees do we have”? become tough to answer – or at least with any degree of accuracy.

The need for accurate, timely information is acute. As sources of data increase, managing it consistently and keeping data definitions up to date to enable all parts of a business to use the same information is a never-ending challenge.

Data analytics are one of the key Mega trends for Procurement and Supply Chain Management. COVID-19 has increased the hunger for information. Daily reports and updates on case numbers and mortality rates have been religiously watched by hundreds of millions of people globally.

Evidenced based decision making requires timely and accurate information. When managing risk in your supply chain, how many organisations truly have levels of data from every element of their high-risk suppliers?

What is Master Data Management?

Some of you may wonder what Master Data Management is? Below is a quick snapshot and definition and why MDM is important. As always please contact me if you would like any more information on this technology.

Source: Duco Consultancy

Master data management is a method used to define and manage the critical data of an organisation to provide, with data integration, a single point of reference.

Master data represents the business objects that contain the most valuable, agreed upon information shared across an organisation. It usually covers relatively static reference data and not transactional data such as sales orders, stock etc. 

The slide below highlights some of the opportunity costs of poor data management

How do you implement Master Data Management?

Arvind Joshi, PMP Director – Data Management Lead at Scotiabank in his LinkedIn article has documented a useful overview of how you implement Master Data Management

Source: Linkedin

Implementing Master Data Management must be business led. It is not simply choosing a technology solution and supplier. The key steps in implementation are data profiling, understanding what data is important to the business and what the business currently collects across all its systems and databases. Data definition and prioritisation (the data to be kept and updated) are also keys steps in implementing MDM.

I cannot stress enough the importance of developing a data governance model and appointing a data steward and a governance council. It is pointless spending $Millions on technology if you do not maintain data quality.

Data quality management is as important as the data itself and if not maintained to the highest standards it could end up being out of date. Poor data can cost you millions as highlighted in the slide earlier.

Once you have completed the key steps above and the governance process is defined and architected then the data must be extracted from your existing systems cleaned and then loaded onto the solution chosen by your organisation.

Extracting the data from all the sources throughout your technology environment can be complex; however there are tools that can assist to help transform the data  to your requirements and  load into the system that you will maintain as your single source of truth.

Technology Providers

There are many technology solutions today to capture, present & report information on your important data across multiple domains and systems within an organisation. Often many large organisations have just grown organically. Acquisition has also added to the complexity of the technology environment. Access to data in complex IT topologies has challenged many experts.

For reference here is a list of some of the top technology suppliers of MDM solutions (forgive me if I have left some of you out);

  • Ataccama
  • Profisee
  • Talend Master Data Management
  • Orchestra Networks
  • SAS
  • SAP
  • Stibo Systems
  • Tibco
  • IBM
  • Agility Multichannel
  • Omni-Gen
  • Riversand
  • Oracle
  • VisionWare
  • Informatica 360
  • Enterworks

Gartner magic quadrant has more up to date information on each supplier that contributes to its publication. Please note that these are often not exhaustive. Add this tool to your set of tool when evaluating what is suitable for your organisation.

Supplier selection should be based on business led consultation and alignment with needs and expectations. There are some big differences and maturity between each solution. Understanding your current and future state requirements is paramount when making a technology choice.

Summary

All organisations will need to continually Improve their data insights to effectively manage their data.  Peter Drucker is often quoted as saying “if you can’t measure it, you can’t manage it.” But it is more than just measuring today!

Big Data is used to create competitive advantage, alongside measuring, forecasting and risk management. The insights created are the fundamental elements of governance, leadership, strategy and operational intent.

MDM platforms draw information from multiple domains and departments and singles out the core data that administrators have determined is most relevant to the organisation. Users can then implement that data as they see fit, keep records of data history, and make projections based on findings.

The link with Data Analytics and Supply Chain Management be it risk, demand, supply and its importance in decision making should be obvious. Post COVID-19 the need for Procurement and Supply Chain professionals to collate the information and provide strategic and operational insight is essential for understanding our failings during the crisis.

Master Data Management is one of the silver bullets! (note: one of the silver bullets)

There are multiple solutions and getting it right first time is attributed to business led delivery. Use professionals to help you on this complex journey.

Data quality pro have a great “Beginners Guide to Master Data Management (MDM)” there is a link in my references below.

If you would like further information on how to deliver MDM and capabilities required Duco Consultancy ( https://www.ducoconsultancy.com ) are experts in delivery of the Technology solutions for MDM.  Help with business cases and any information please send me an email at Mike@ducoconsultancy.com or mike.blanchard@xtra.co.nz

References

 <https://mikeblanchardcom.wordpress.com/wp-admin/post.php?post=178&action=edit&block-editor=1&frame-nonce=6c015c591d&origin=https%3A%2F%2Fwordpress.com&environment-id=production&support_user&_support_token>

  <https://profisee.com/master-data-management-what-why-how-who/>

  <https://sievo.com/blog/7-megatrends-for-the-future-of-procurement>

 <https://www.ey.com/en_gl/advisory/ten-trends-shaping-the-future-of-procurement>

<https://spendmatters.com/2016/03/14/5-mega-trends-reshaping-the-supply-chain/>  

<https://financesonline.com/supply-chain-trends/>

  <https://www.linkedin.com/pulse/master-data-management-mdm-framework-arvind-joshi-pmp/>

<https://www.dataqualitypro.com/blog/beginners-guide-to-mdm-master-data-management>

  <https://www.g2.com/categories/master-data-management-mdm>

When will I See You again

We are in extraordinary times and we will get through it. Yesterdays announcement of a further week in Lock down Level 4 and the 2 Weeks in Level 3 has given us some certainty in NZ to see the light at the end of the tunnel. It looks like we are on the right track to stamp out COVID 19 from the contribution of the courageous actions our government and our 5 million team. It will be a very long time until we realise if this was the correct course plotted by our country’s leadership.

Unfortunately, every decision in a crisis such as this comes at a cost. At what cost? We will start to see this over the next few months and the sage adage “Time will tell” truly applies.

I was thinking back to my childhood after a great discussion hosted by Nicola Willis the National MP and Steven Joyce the former Finance Minister on face book last night. The song When Will I See you again by the three degrees came into my head and reminded me of 1974 when I was in Berlin with my family. I will get back to that later.

We have some great people and minds in New Zealand! The debate obviously covered some of the Public Health v Economy compromise scenarios and how we can get back to seeing NZ economy being touted as the “rock star economy” it once was.

It is time to help all New Zealand Businesses by being innovative. The first thing we can do is to support them by purchasing locally (Buy Local). I have seen many innovative ways of purchasing goods that can either be delivered (contact less), in the future or start ups such as SOS café (David Downs – a truly remarkable fellow and innovator) where you purchase coffees and food vouchers now that you can expedite in the future post lock down.

The Tourism Industry is been one of the hardest hit Industries and we as New Zealanders have an obligation (once the local travel restrictions are off) to take our vacations in NZ . Let us support the recovery of this industry. I am not sure international travel will be opened for 6-12 months+ so it is a great opportunity to spend some time in our beautiful country catching sights that we either have never seen before or have not seen for quite a while again.

We cannot ignore all the people that have been doing it tough. My mother in law who is 82 is literally locked up on her own in her apartment at a retirement village and is not even allowed to have a drinks night with neighbours on the balcony that connects them all. She is not tech savvy and we have tried to walk her through video conferencing, but this has not worked. (This is Isolation). However, my nearly 2 year old granddaughter asks her parents every day to speak with grandma and granddad and although in isolation we get to have a virtual face to face chat which is an amazing way to stay connected (she even knows which button to press on the phone!).

So back to Berlin and the Three Degrees. In 1974 the Berlin wall was up and there were still many families that had been separated post war between East and West Germany. People had been shot from the East for trying to escape.

The Check point Charlie Museum is a great place to go and see the enormity of the issues these families faced. That was isolation in another time and country, and I am sure the families did not know when they would see their loved ones again.

We will get through this! We will be strong again and We all need to help each other get to the other side of COVID 19 by being kind and help build resilience.

The first 2 words of the song is Precious Moments. Take some time to share these precious moments with your family and friends (some of us may never have quite the same opportunity again). You will not have to wait forever for your hearts to be together and it is just the beginning.

Our hearts will be together — be safe — be kind — support each other

Kia Kaha New Zealand – The World — we have got this — so let us do this 😊

The Future of Supply Chains post COVID-19

These are extraordinary times!

COVID19 has shown the world that we are as vulnerable as ever and the might of globalisation can in turn be our downfall.

Pandemic reporting internationally has turned the rhetoric of “supply chain/s” into a household phrase;

This current crisis is the quintessential example of the impact of supply chain disruption, that impact being rapid and global.

The effects are very real and compounded by the complexity of today’s global, inter-connected supply chains.

UK VIRUS

Empty shelves stand in the toilet paper aisle at a J Sainsbury Plc supermarket in Exeter, U.K., on … [+]

Toilet paper rarely makes headlines. No other commercial product save hand sanitiser and face masks have been more emblematic of coronavirus-inflicted global anxiety. Who would ever have imagined we would be fighting over the availability of the meagre little toilet roll? No other product so starkly highlights the different supply chain issues arising due to the current health crisis. After all, most experts agree that the rush to hoard toilet paper stems from an illogical anxiety. Remembering the days of ration books and quarantine our parents and grandparents will be laughing in their places or rest!  I am sure the French with the bidets have wondered what all the fuss is about.

Food Supply Chain Coming into the COVID-19 Crosshairs

Grain markets this morning are mixed as disruptions in the global food supply chain challenge Plant 2020 headlines for attention from traders. Winter wheat prices are leading the complex as cooler temperatures in the Southern Plains could negatively impact a crop that’s just starting to get growing again. Outside markets are mostly higher as investors cheer on the net-new number of COVID-19 cases AND with deaths starting to slow, including in some of the worst-hit European countries, Spain, Italy, and France. As a reminder, this trading week is shortened as markets are closed on Friday in observance of Easter Good Friday!

What will happen to our hot cross buns?  In New Zealand we already have a shortage of flour! The lockdown has taken us back to our grandparents days of home baking and the do it yourself (make it yourself) number 8 wire culture that home isolation has presented.

How quickly can we change the supply chain or remove the reliance of long distance supply lines by bringing it back on shore?

Coronavirus: White House rejects bipartisan bills to bring US medical supply chain back home

US Treasury Secretary Steven Mnuchin rejected the idea of using legislation to compel US medical supply companies to bring their manufacturing operations back home so Americans are less reliant on foreign countries for medical equipment during the coronavirus pandemic and future health crises.

Major disruption: How Covid-19 is affecting supply chains worldwide

Major disruption: How Covid-19 is affecting supply chains worldwide

With entire nations coming to a standstill to curb the rapid spread of the coronavirus, it will soon take its toll on supply chains around the world. The disrupted network of companies, factories and manufacturers could greatly affect the products we take for granted. Tech products, equipment, fashion, cars and other products are likely to have a stunted year ahead.

These are just a few snippets of news that we are exposed too currently on a daily basis constantly front and centre.

There is some COVID19 News out there that is also quite inspiring!  Once again this highlights the way that we as human beings can adapt under a crisis;

Mercedes F1 team

The designs of a new breathing aid developed by engineers at the Mercedes F1 team, University College London (UCL), and clinicians at UCL Hospital have been made freely available to support the global response to Covid-19. It’s the latest development in Formula 1’s Project Pitlane effort to help fight coronavirus

Cumbrian oil services firm ‘ready to make 2,000 ventilators a week

An image from James Fisher of its InVicto breathing system.

A Cumbria-based offshore oil and gas services company has said it is ready to produce 2,000 ventilators a week to join the national effort to produce tens of thousands of machines to treat coronavirus patients.

James Fisher & Sons said it had sent a base model of its non-invasive InVicto system to the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) for testing. If approved, the company said it could produce 2,000 a week.

The James Fisher ventilators are not designed for intensive care use, but the company said they can be used to relieve pressure on ICU beds by providing breathing support in “pre-critical temporary wards or care homes”

Head-lice drug gives scientist hope in fight against Covid-19

A cheap, widely used anti-parasite medication used to treat head lice killed Covid-19 cells in a petri dish and Aussie researchers hope to start human trials in a month.

Dr Kylie Wagstaff from the Biomedicine Discovery Institute at Monash University who carried out the study found Ivermectin began to kill Sars-COV-2 cells that cause Covid-19 in a petri dish within 24 hours.

Within 48 hours “we could prevent all replication of the virus in the cells,’ she said.

The study has been published online in the journal Antiviral Research.

Because the drug is already safely used in humans to treat parasites like head lice, River Blindness and scabies, it won’t be necessary to undertake lengthy animal studies and human clinical trials can be fast tracked on Covid-19 patients

James Dyson Designed a Ventilator in 10 days. Now He’s Making 15,000 to Fight Covid-19

The billionaire’s eponymous company plans to make 10,000 devices for the UK and 5,000 for international donation.

Dyson's Covent ventilator

In an effort to combat the fast-moving spread of coronavirus, brands from every industry and country are pitching in to help. In France, LVMH is making hand sanitizer; in Italy, Gucci is making face masks; and, in the UK, Dyson is now making ventilators.

Best known for its vacuum cleaners and high-end fans, the British home electronics giant‘s founder, Sir James Dyson, said he has designed a new ventilator that can help ease shortages in his home country, according to CNN. The company now intends to produce 10,000 devices for the country’s National Health Service over the next month.

NZ volunteers pitch in to make thousands of face shields

This COVID business brings out the worst and best in people. Yesterday we saw the worst, today the best. The generosity of strangers: 3D printers have started printing free face shields for front-line medical practices, as there is a world-wide shortage, and they are being reserved for hospital use (We had none)

We indicated that we would be interested last night and at 10am this bloke walks in with a box full. This is going viral all over the world, with 3D printers rising …

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What is VUCA (Volatility, Uncertainty, Complexity and Ambiguity) and why is it important after COVID19?

For Procurement and Supply Chain Professionals VUCA has been used as a set of guiding principles when building Strategic Category plans and Sourcing Strategies for goods and services.

VUCA is an acronym – first used in 1987, drawing on the leadership theories of Warren Bennis and Burt Nanus – to describe or to reflect on the volatilityuncertaintycomplexity and ambiguity of general conditions and situations.

All mature Procurement and Supply Chain Teams will be managing their supply of goods and services strategically taking into consideration the risk associated with VUCA. When building Strategic Sourcing Strategies the risk analysis tool along with SWOT, PESTLE should be consideration under the VUCA environment. Post wars, ISIS, SARS and so on many organisations have planned for similar future eventualities and ploughed billions of dollars into prevention or defence. However, over the past few years I believe we have either become complacent, not truly understanding potential risk and threats, side tracked by other events, been driven too much around cost out, or simply not listened to key business people such as Bill Gates ( 2015 The next outbreak we are not ready TED talk).

As procurement and Supply Chain Professionals LEAN supply chains have been our operating mantra. This alongside soul sourcing and aggregation (benefit to drive cost out) has led big contracts with single companies.

Malcolm Harrison Group CEO of the Chartered Institute of Procurement and Supply aptly articulated in a recently in Supply Management “Long, lean supply chains that rely on sole sourcing strategies are a  cost -effective solution – until something goes wrong”

“The over – reliance on China’s supply chains is leaving procurement and supply chain professionals in a vulnerable position”

Home many of your supply chains are single source? How are your business continuity plans for a pandemic? What will you do differently post COVID-19?

These are all critical questions which I’m sure many of you and your organisations are discussing right now. Single sourcing strategies are putting you at risk. How many of those suppliers are monopolies?  If so, how much leverage do you really have?

I hope this provides you with some food for thought. Resilience will come with non-reliance on LEAN supply chains and single sourcing.

So what’s next?

There are already many publications about supply chains and COVID-19

Supply chains have been upended. Here’s how to make them more resilient – World Economic Forum

In the wake of supply chain disruptions due to coronavirus, several experts have reiterated the need to obtain more visibility across the chain. Companies who sell finished goods generally know production and shipment schedules for their Tier 1 suppliers, but they usually have little to no knowledge of suppliers further up the chain.

Obtaining this visibility is considered key to optimizing supply chain efficiency and agility during normal production. When critical supply chain disruptions hit, this visibility becomes crucial to understanding the impact of the disruption on the rest of the chain so that others in the ecosystem can plan and take action, such as developing routes to alternative suppliers.

Because COVID-19 has led to lockdowns, suppliers in the chain are temporarily ceasing production, and logistics providers can no longer transport goods as seamlessly, particularly across borders.

How can we be better prepared for a future crisis relative to supply chains?

Private companies have playbooks for supply chain disruptions in their network. In supply chain management, it is crucial to diversify your source of supplies so that when one supplier is impacted, you can turn to the other. But what is happening now is beyond the means of any individual company to deal with.

There is a role for government and international regulatory agencies to play in making our supply chains more resilient in future crises. For goods to flow freely, export restrictions must be removed. If you don’t have time to ship something by ocean and you have to ship it by plane—and this is especially true for products like masks or swabs that were so cheap that their supply chains were built more for efficiency than resiliency—protocols must be in place for who is going to pay for it. These are the kinds of questions that require international cooperation.

What the supply chain industry should be doing – Accenture

While most supply chain organisations have a risk management strategy, the current outbreak is no typical event. The scale exceeds anything that most supply chain leaders will have prepared for.

The speed at which the pandemic is escalating requires constant, end-to-end assessment, optimisation and monitoring, as well as rapid response and confidence in the ability to execute short-term tactical plans to mitigate risks to human health and to protect the global supply chain functions. 

In order to understand the complexity, to anticipate potential disruption and to quickly develop a response. Strong data and analytic capabilities are crucial. Accenture explains that a  continuous cycle risk mobilisation, sensing, analysis, configuration and operations will help to optimise results and mitigate risks.

Building resilience for the future- McKinsey

Once the immediate risks to a supply chain have been identified, leaders must then design a resilient supply chain for the future. This begins with establishing a supply-chain-risk function tasked with assessing risk, continually updating risk-impact estimates and remediation strategies, and overseeing risk governance

Accenture has perfectly summarised the Future for Supply chains Post COVID19

The impact of COVID-19 is not going to be a short-term crisis, the implications on how people work and how supply chains function will be long term. This will require businesses to build long-term resilience within the value chain in order to manage future challenges.

In order to achieve this supply chains need to take a holistic approach, building in sufficient flexibility to protect against future disruption. Supply chains should also look to develop a robust framework that encompasses a responsive and resilient risk management operations capability, which should be technologically led to enable end-to-end transparency across the supply chain. 

Long term risk response should become an integral part of business-as-usual protocols.

In summary the bullets below is a synopsis of actions procurement and supply chain professionals should be considering post COVID-19;

  • Build resilience by multi-sourcing (create challengers in your categories)
  • Plan and have a Business Continuity Playbook for all types of disruption
  • Create visibility with your suppliers through shared dashboards that provide information and insight
  • Understand your supply chain in depth not just Tier 1
  • Open up local sourcing alternatives
  • Digitise and create safe and secure analytics (the power of data)
  • Unify international border cooperation at times of crisis
  • Create and implement long term risk plans, protocols, frameworks and operations

Footnote

Many organisations will be at the brink of liquidation and have or are considering employee redundancies as a way of reducing their cost base. Building Sustainable Resilience is key! (BSR).

40-75% of an organisation’s cost base is supported by 3rd party suppliers through goods and services.

Do you have spend visibility?

Do you have a spend management programme?

Do you have a cost cube?

If you would like to understand more please contact me on Mike.Blanchard@xtra.co.nz or Mike@Ducoconsultancy.com

References

From <https://spendmatters.com/2020/03/12/coronavirus-and-supply-risk-management-tips-to-get-you-started/>

From <https://www.forbes.com/sites/iese/2020/04/03/lessons-from-covid-19-how-to-protect-your-supply-chains-during-the-crisis/#14801bb11ba3>

From <https://farmlead.com/blog/breakfast-brief/food-supply-chain-covid19-apr-2020/>

From <https://www.independent.co.uk/news/world/americas/us-politics/coronavirus-white-house-medicine-supply-bill-mnuchin-india-china-trump-a9453006.html>

From <https://www.slashgear.com/major-disruption-how-covid-19-is-affecting-supply-chains-worldwide-04615538/>

From <https://www.formula1.com/en/latest/article.mercedes-to-begin-delivery-of-10-000-breathing-aids-to-nhs-as-part-of.2xDeE5gsLUrSX7zmE4MeCx.html>

From <https://www.theguardian.com/business/2020/apr/07/cumbrian-oil-services-firm-ready-to-make-2000-ventilators-a-week>

From <https://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=12322580>

From <https://robbreport.com/lifestyle/health-wellness/james-dyson-designed-a-ventilator-in-10-days-now-hes-making-15000-to-fight-covid-2909536/>

From <https://www.rnz.co.nz/news/national/412834/nz-volunteers-pitch-in-to-make-thousands-of-face-shields>

From <https://www.weforum.org/agenda/2020/04/supply-chains-resilient-covid-19/>

From <https://hub.jhu.edu/2020/04/06/goker-aydin-global-supply-chain/>

From <https://www.supplychaindigital.com/supply-chain-management/accenture-building-supply-chain-resilience-amidst-covid-19>

From <https://www.mckinsey.com/business-functions/operations/our-insights/supply-chain-recovery-in-coronavirus-times-plan-for-now-and-the-future>

NZ Government Construction Accord

On the 26 JANUARY 2020 the NZ government in partnership with industry launched the NZ construction accord. This was in response to the Treasury New Zealand Construction Conditions of Contract Report back in September 2019 and the number of Construction companies either entering into liquidation or posting large annual losses.

https://www.constructionaccord.nz/the-accord/

Procurement had and still has a significant part to play in the construction sector and the new accord highlights some key areas for procurement to modify its past behaviour when working with suppliers in the sector.

The accord introduces priority focus areas which are Industry Led, Government Led and shared.

Procurement is a Government led Priority area highlighting the focus on “Better procurement practices and improved pipeline management”

“Create a more certain, visible and better coordinated pipeline of government construction work” ( There have always been challenges for suppliers to make investments when there is no surety of future work/contracts)

“Improve government and industry procurement practices so they are more consistent, focus on good value and enable the industry to succeed” ( the key word here is good value and not lowest cost , fixed price, fixed cost as seen in the past)

The shared priority area that is another stand out for me and procurement professionals is;

Better risk management and fairer risk allocation. It is great to see the new view of not transferring all risk as you can and should never do this.

The statement ” Re-balance risk in the sector so it sits with the party best able to manage it. Improve the understanding of construction risks and their impact and costs” is a fantastic set of principles.

Over 10 years ago I was in a company contracting many construction companies. We always sat down with the supplier and asked them to price each item of risk even compensation events. As a Business we chose the risks we would take on ourselves (budgeted and put in our contingency) and also the risks we would pay the supplier for as a fixed price. A much more open, transparent and fair way to jointly share risk.

I am excited about this accord and the proof of the pudding will be in the eating ( as they say). Lets all support this approach creating a strong, vibrant, consistent, fair and sustainable construction sector for all in New Zealand

RISKY BUSINESS

Strategic risk if not well managed has the potential to destroy the greatest value for an organisation yet; it is where management, risk/audit and board risk committees tend to spend the least amount of time. (Arash Rashidian).

What are some of the risks organisations face?

  • Labour model disruption
  • Lagging digitisation
  • The pace of change
  • Digitisation misconceptions (AI, Robotics etc)
  • Climate change liability
  • Remote working for workforce
  • Dated policies and procedures
  • The War for Talent ( shortages )
  • Sustainability
  • Trade wars

With organisations average spend being upwards of 60% through 3rd party suppliers how are they managing the supply chain risk?

Supply chain risk can be defined as “the implementation of strategies to manage both everyday and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity” (Wikipedia)

If you are working in the supply chain you will be familiar with the trend that  the world is becoming more influenced by VUCA – Volatility, Uncertainty, Complexity and Ambiguity.

These drivers are increasingly used in recent years to describe the current business environment and the impact it has on the supply chain performance.

Countries such as the United Kingdom and Australia have legislation holding large organisations to account ensuring that there are no suppliers using modern slavery in the manufacturing and provisioning of goods and services supplied to that organisation

The food industry is seeing an increasing demand by consumers for clarity of provenance–also leading to a focus on supply chain risk.

 How do we manage supply chain risks in our businesses today?

 Supply Chain Visions, Inc. has developed a model that targets 4 areas, Strategic, Operational, Financial and Physical risk as per the picture below.

SCRM 
SCOPE

Most organisations today are managing risk through Enterprise Risk Management methodologies like Bow-Tie and Monte Carlo.

Monte Carlo simulation performs risk analysis by building models of possible results by substituting a range of values—a probability distribution—for any factor that has inherent uncertainty– a much more realistic way of describing uncertainty in variables of a risk analysis. Below is an example of a simulation presented in a histogram format.

Image result for monte carlo risk analysis

Bow-tie  is a risk evaluation method that can be used to analyse and demonstrate causal relationships in high risk scenarios. A Bow-tie diagram does two things. Firstly, a Bow-tie gives a visual summary of all plausible accident scenarios that could exist around a certain hazard. Secondly, by identifying control measures the Bow-tie displays what a company does to control those scenarios.

From <https://www.cgerisk.com/knowledgebase/The_history_of_bowtie>

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Diagram CGE Risk Management Solutions

I have seen this being introduced in complex organisational environments as it provides a simple clear high level management view of what can be a complex analysis.

There are known risks,  where organisation’s can use a typical approach for risk identification mapping out and assessing the value chains of all major products and services, and unknown risks, which by their nature are difficult or impossible to predict, quantify, or incorporate into the risk-management framework 

McKinsey has developed a practical approach methodology to managing unknown risks a model colloquially known as the Swiss cheese model.

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Risk processes, standards, competency, organization, and culture

Australia and New Zealand have adopted the ISO 31000 standard for risk management. Standards New Zealand state that Using AS/NZS ISO 31000 will assist organisations to:

  • increase the likelihood of achieving objectives
  • be aware of the need to identify and treat risk throughout the organisation
  • improve the identification of opportunities and threats
  • comply with relevant legal and regulatory requirements and international norms
  • improve financial reporting
  • improve governance
  • improve stakeholder confidence and trust
  • establish a reliable basis for decision-making and planning
  • improve controls
  • effectively allocate and use resources for risk treatment
  • improve operational effectiveness and efficiency
  • enhance health and safety performance, as well as environmental protection
  • improve loss prevention and incident management
  • minimise losses
  • improve organisational learning
  • improve organisational resilience.

From <https://www.standards.govt.nz/search-and-buy-standards/standards-information/risk-managment/>

Having common standards allow risk to be benchmarked in a macro environment. Comparison and correlation will enable risk management improvements both on a micro and macro level.

In the procurement and supply chain domain of risk management many suppliers of ERP, Sourcing and P2P systems have been developing management tools to deliver integrated reporting of Supplier Risk:

https://www.ariba.com/solutions/solutions-overview/supplier-management/supplier-risk

https://www.zycus.com/blog/supplier-management/5-supplier-risk-assessment-pitfalls-to-avoid.html

https://www.gatekeeperhq.com/risk-module

https://www.oracle.com/technetwork/apps-tech/grc-accelerators/supplierriskmanagementdetails-326886.pdf

https://www.coupa.com/products/supplier-management/risk-assess/

https://www.oracle.com/africa/applications/erp/procurement-cloud/supplier-qualification-management.html

https://www.bvdinfo.com/en-gb/solutions-for-your-role/supplier-risk-management-and-procurement

Procurement Leaders’ have launched a guide to third-party risk management which provides a summary of the maturity curve outlining progression of a function’s management of third party and supplier risk.

The guide is divided into four sections:

  • Functional Efficiency
  • Cross – Functional cooperation
  • Supplier collaboration
  • Network coordination

It describes each maturity level in detail and provides supplementary details on the activities and tools teams can apply at each level.   Procurement Leaders are a global entity that provide procurement and supply chain insights for a global membership through research and white papers.

This is another procurement focused organisation that has seen a more intensified focus on supplier and supply chain risk.

SUMMARY

In a VUCA world many businesses are under increasing pressure to take a more proactive approach to mitigate risks.

Along with traditional risk functions within businesses, supply chain risk partnering with emerging technologies enable organisations to accomplish risk management more efficiently.

At Kearney’s paper “Are you prepared for a black swan event” highlights that the focus on risk by procurement leaders comes at a time when procurement stakeholders (CEO,CXO, CFO, COOs etc) who have been dealing with business risk for many years have higher expectations of procurement leaders to manage supply chain risk.

Procurement teams that are maximising this opportunity and looking at risk management in innovative ways are starting to benefit, demonstrating an opportunity for the procurement function to help build resilience and add value to the whole business.

The advent of Big Data and innovative technology has enabled greater insight for organisations to accomplish this more efficiently. By embracing risk management, procurement can use it to deliver immediate value to all businesses and also enhance its own internal brand.

At What Cost?

At what cost?  a blog about the unintended consequences of continually driving cost savings Year on Year from your suppliers.

Lets start with a definitions to whet the appetite;

Cost savings also known as cost reductions or ‘hard’ cost savings, are savings that directly impact the company’s bottom line (i.e. profit/loss).

In relation to procurement ; The aim of Procurement savings are to drive down procurement costs, improve supplier terms and decrease product prices. A cost-effective procurement process would help a large organization generate millions of dollars of savings every year.

What do you think ? Do you agree?

There is a very fine line when continually requesting cost savings from your suppliers year on year, especially when  only focused on the input price and not Value or Total Cost of Ownership. Suppliers have to make a return on investment for their shareholders.  Continually squeezing margins can drive many unintended consequences. 

I have a saying that is a different take on squeezing blood out of a stone.  In the context of your suppliers “If you continue to squeeze a stone with your hand what happens to your hand ? –  ( It will be your hand that bleeds)!”

The Construction Industry

A great example of unintended consequences of cost out in New Zealand is the systemic issues in our construction industry. An industry’s boom / bust cycle is constantly under review. (NZ demographics for the construction industry show 90% of organisations have less than 10 employees – atypical compared to many OECD countries). For many years there has been a focus on fixed price construction at lowest cost combined with the drive to transfer as much risk as possible to the supplier. The articles below highlight the issues the big companies (10% of the industry) have had over the last few years entering liquidation or writing off millions of dollars;

https://www.stuff.co.nz/business/opinion-analysis/111232667/a-history-of-mainzeals-collapse-in-10-chapters

https://www.stuff.co.nz/business/property/105930927/collapsed-construction-firm-ebert-linked-to-previous-company-failure

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11994098

https://www.tvnz.co.nz/one-news/new-zealand/calls-change-after-collapse-another-major-nz-construction-company

In boom time liquidation should be unheard of. This is one of the unintended consequences around costs and fixed prices!

“Sometimes it costs you more to do something that it is actually worth”

Do you have any examples of when this has occurred?

Global Fashion

Consumer demand can also driver unintended consequences and at what cost? The Global Fashion Industry was worth $2.4 trillion in 2018 with an expected growth of 5-6% Year on Year.

Consumer demand has driven a substantial growth in the fast fashion industry for cheap throw away fashion.

Andrew  Morgan’s documentary The True Cost on Netflix  is about the clothes we wear, the people who make them, and the impact the industry is having on our world. The price of clothing has been decreasing for decades, while the human and environmental costs have grown dramatically. Filmed all over the world, the documentary spans the brightest runways to the darkest slums, and features interviews with the world’s leading influencers including Stella McCartney, Livia Firth and Vandana Shiva, The True Cost is an unprecedented project that invites us on an eye opening journey around the world and into the lives of the many people and places behind our clothes.

From <https://truecostmovie.com/about/>

The consumer driven consumption for low cost fashion items and the link to sweat shops and industrialisation of resources creates unsustainable issues on our natural resources. Also forms of modern slavery through inhumane working conditions begs the question who really pays the price for our clothing?

Modern Slavery

Modern slavery is a critical issue derived by the demand to continually cut manufacturing costs at the expense of human rights – ( humane working conditions, a fair days pay for a fair days work )

Based on a recent CIPS modern slavery workshop I co-hosted in Australia, here are some of the global modern slavery statistics taken from the globalslaveryindex.org;

  • 40.3 million people in modern slavery world-wide (71% are female)
  • 24.9 million in forced labor
  • 65% of modern slavery is concentrated in the Asia Pacific region
  • G20 countries leaders in consumption: $354 billion of at-risk products imported by G20 countries on a yearly basis
  • Government response
  • Most at-risk imported products: electronic devices $200B, garments $128B, fishing $13B, cocoa $3.6B, sugarcane $2B

Who would have thought that in the G20 counties the average person employs 40 slaves!

The Australian statistics are also quite challenging, however in response Federal Government Legislation was introduced in January 2019 ( only the second country in the world to implement modern slavery legislation). The philanthropist Andrew Forest and his wife set up Walk Free Foundation with a vision for a world free of modern slavery and human trafficking.  https://www.freedomunited.org/about-us/

Australia’s Modern Slavery statistics;

  • 15,000 people in modern slavery in Australia
  • Forced labor is the most common form of slavery
  • Over $12B imported at-risk products every year
  • Number one on most active countries for response to modern slavery in the Asia Pacific region (before Act was introduced)
  • Most at-risk imported products: electronic devices $7.1B, garments $4.6B, fishing $180M, rice$40M, cocoa $23M
  • Most at-risk industries: service (cleaning & security), agriculture, fishing

Summary

Controlling costs is key to managing sustainable businesses, however driving an environment that continually puts pressures on suppliers has many negative unintended consequences. Global consumer demand and low cost not only creates irreparable environmental issues, it also builds an environment that ignores basic human rights. 

A new focus on Sustainability, Value, Quality, Risk and the Total Social Cost of Ownership (TSCO) should be something that all organisations should aspire to. Procurement is one of the enablers of this focus as 40-70% of business’s expenditure is through third party suppliers.

It is time for procurement to help lead a change by doing the right thing!

Are you on board?  Drive that change!

What is the cost of not?

Putting the P back into Procurement

If you have read my previous blog “Procurement is it time for a re-brand?” you will appreciate the debate that has plagued the procurement community for numerous years. For people who know me, I have always advocated in the need to put the POWER into Procurement. I thought I would have a little bit of fun ( although with some serious underlying benefits) by delivering a blog on Putting the P back into procurement.

If you are as passionate ( 1st P meaning ardent, enthusiastic, heartfelt, energetic) like me about procurement take a few minutes to think about what attributes are aligned to your values, reflects  your motivations, in a profession that is far reaching, in constant change and can deliver huge value/benefits for your organisation.

Below is a small list of the P’s that put the Power into procurement. Lets get started with some examples from the list of how the P enables our procurement profession;

  • Positive
  • Proactive
  • Passionate
  • Professional
  • Pragmatic
  • People
  • Presence
  • Principled
  • Planned
  • Provider
  • Persuasive
  • Partner
  • Pact
  • Progressive
  • Pervasive

Proactive (definitions: Pre-emptive, active, hands-on, upbeat)

Does procurement in your organisation have insight and presents ideas and innovation to stakeholders before they know about it? How good do you know the market place, suppliers and your business goals and strategies? Procurement teams that have the “Trusted advisor status”  are leading the way by managing the incipient demand of their stakeholders. It is like being an evidenced based fortune teller!

Professional (definitions: expert , proficient, specialised and qualified, certified)

How many in your procurement team understand and are qualified and certified in procurement? How many are imposters?

Lawyers, accountants, doctors, engineers, designers are just some examples of industries that have rigorous qualifications and certification. Malcolm Gladwell in “Outliers” highlighted that mastery takes 10,000 hours of practice.

When stakeholders impromptu come for advice you know they think of you as an expert.

Principled (definitions: ethics, integrity, morals, values)

Peter Drucker the management guru  coined the phrase “Culture eats strategy for breakfast”. Teams that are not principled lack trust. I have had the pleasure of taking over a team that had no organisational trust. It felt at times you were walking in quicksand but like every journey of a thousand miles starts with the first step. Ethical and transparent procurement is a prerequisite for the procurement profession and without it you will not be able to deliver the basics let alone corporate value.

Planned (definitions: strategic, organised,  frame, premeditated)

The edited version of the 6Ps of planning is; Proper Planning Prevents Poor Performance. This is something that all teams not only procurement  should aspire too. There is much hype about agile and scrum but this is still a methodology that speeds up the planning function. My wife has an adage that I have adopted ” A dream is a goal with a timeline (deadline). Setting goals is key to any success.

Persuasive (definitions: Influencer, negotiator, diplomat)

To me persuasion is one of the key attributes for the Procurement profession. Procurement usually sits in some form of shared service , support capacity for most organisations. A key part of the role is to support the business decisions through 3rd party sourcing and engagement. How would you influence an executive if they disagreed with you about changing strategic suppliers when you know well inclusive of evidential data that they are the market leaders from quality, time and price?

So focus I have left for last  is one of the top concerns for most Executive (including CPOs) are people. People can be defined as a community or group and in this form we can all attribute the word Team. The great philosopher Aristotle first coined the phrase ” the whole is greater than the sum of the parts”. In a changing world, the war on talent and capability has increased. Employing the right people with the right attitude and the right capabilities are key for most roles within an organisation.  Attitude and open mindset are my key takeaways from managing teams since the age of 24. I also have a saying that if you are playing for Manchester United your transfer fee will be higher than playing for Auckland City – so how can we build a team like Man United in our profession? Have you ever been in a high performing team that has “Collaborative Confidence” everyone knows each others roles, the energy is fast pace with lots of customer delivery, satisfaction and fun.

Training and skills are essential so aligning to a global standard such as CIPS with its ethics exams and code of conduct enable people to feel confident, both from an individual, employer customer and supplier perspective.

I hope you have enjoyed this blog , along with a few smiles I am sure there are some useful takeaways

Please let me know your feedback and/or some ideas for areas you would like me to explore more deeply