The Number 1 Question . . . How Can You Help Us?

Over the past few weeks, I have received questions regarding Procurement Insights, mainly the services offered through Hansen Consulting and Seminars. In short, what do I do, and how can I help an organization?

To begin, one does not have to be in the throes of a disaster to benefit from my area of practice. While demanding situations in which bridging the chasm between an expected outcome and the reality of unrealized results is undoubtedly something for which I am known, it is often my ability to see a problem on the distant horizon and structure the appropriate response that has generated the greatest level of client satisfaction.

What makes what I do unique is that I am unencumbered by a commitment to promote a particular methodology, such as SCOR or Six Sigma, because it is either trendy or has been recommended by the latest expert.

While I greatly respect both the insight and determination it takes to develop a “standard,” I realized long ago that true expertise is directly related to an ability to recognize, understand and successfully adapt to the changing variables of a dynamic world. In short, what is popular is not always right, and what is right is not always popular. And I firmly believe that an attempt to consign and confine a real-world practice to a set of “universal” standards that fail to recognize the disparate requirements of diverse stakeholders has proven to be folly. An 85% rate of ERP/e-Procurement initiative failure gives testimony to this fact.

Through this lens of objective assessment in which a pre-ordained outcome has not already been determined, my clients have realized the most significant gains. (Note: In providing me with a reference, a senior industry executive demonstrated my willingness to challenge mainstream thinking when he said, “Jon is one of the few professionals who understand what really happens, and he will tell you the truth about the process – the good, the bad and especially the ugly.”

Please understand what I am saying. I am not averse to a particular idea or standard for the mere sake of being disagreeable. Left unchecked or unchallenged, even the best-intentioned concept can and usually does lose touch with the evolving reality of a given situation. Or, as Colin Powell put it in one of his better-known speeches (and I paraphrase), “One should always seek the advice of experts, but remember that they too may have reached their peak in terms of relevant knowledge.”

And this, of course, illustrates the inherent dangers of attempting to create a universal standard of operation and broadly applying it across a specific enterprise, let alone an entire industry sector or sectors. One such example of popular thought gone awry is the persistent belief in the merits of vendor rationalization strategies. (Note: refer to my November 27, 2007 article titled The Continuing Dangers of Vendor Rationalization –https://procureinsights.wordpress.com/2007/11/27/the-continuing-dangers-of-vendor-rationalization/).

A New Lens

“Jon Hansen is very knowledgeable and articulate on this topic we affectionately call eProcurement, and I believe that he is really one of the few who have been able to truly visualize the multi-faceted aspects of what can make it work.” – Director, eProcurement Bureau of the Commonwealth of Virginia

These and other similar comments mean a great deal to me because they demonstrate my passion for supply chain practice and validate my commitment to providing my clients with a new and unique lens through which they can genuinely see the dynamics that define and influence their organization’s operations.

From Warehousing and Distribution Planning to the effects of Double Marginalization within a Decentralized Supply Chain and Sustainable Procurement Policy Development, I am eager and determined to serve you and your organization’s best interests.

The following is just one of the many examples or case references in which my methodologies have produced tangible results sooner and at a significantly lower price than a more traditional or contemporary approach. (Note: If you would like a copy of this or any other Case Study, send me an e-mail at jon@pimedia1.com with “Case Study” in the subject line.)

Client Challenge

A major metropolitan transit authority contract established a target Service Level Agreement (SLA) for service call resolution of 90% same day (on-site 3 hours) to support their critical IT infrastructure.

Solution Methodology

Utilizing a consumption forecast model developed internally (Part Requirement Rate Formula or PRRF), my analyses accurately forecasted the frequency of consumption of specific parts for a particular device type based on the current install base.

Once consumption rates were established by device type, a Product Compression Function (PCF), also developed internally, was employed to substantially reduce the number of inventoried part numbers or SKUs by approximately 85% without negatively impacting contract performance. (Note: inventory levels often grow due to inefficient sourcing practices versus increased service demand. Instead of focusing on implementing a WMS, many organizations would benefit from challenging the logic behind maintaining current inventory levels.)

This ability to intelligently reduce inventory levels generated significant and unexpected savings for the client as they were able to a) lower their investment in inventory, b) reduce warehousing and associated costs, c) eliminate product variables for their field technicians, d) establish a more proficient life cycle management process, and e) capitalize on volume discount contracts when such a strategy made the most sense.

Following the reduction of inventory levels to reflect the realistic requirements of the contract, the remaining product was systematically dispersed utilizing Strategic Stocking Locations (SSL). An advanced time zone algorithm was employed through a central application known as the Interactive Parts Ordering System (IPOS) to ensure prompt and easy access to the right inventory from the right location at the right time. This level of real-time inventory allocation and use was accomplished by developing a real-time polling mechanism that, within seconds, ascertained the SSL site that was best suited to meet the delivery requirements for a specific service call. This same methodology was also used nationally to effectively manage the delivery of military-related service products to 35 geographically dispersed bases across Canada.

While establishing the SSL sites and the corresponding introduction of the IPOS application enabled the transit authority to surpass the 90% SLA requirement of the contract, challenges with service calls for which the required product had not previously been requested or for which historical conditions were sporadic remained. In response to this problem, a process was incorporated to establish and utilize Strategic Geographic Suppliers (SGS). The SGS is a variation of the cluster concept that manufacturers have historically employed.

SGS Overview

Here is an example from a separate case study of how the SGS process was utilized to procure products that were unavailable from inventory.

The end-user client stipulated a 3-hour response time to support a centralized server farm or network in New York City’s heart. Critical to their day-to-day operations, strict adherence to the 3-hour SLA was contractually required, with penalties instituted when said levels were not achieved.

When an essential cooling device failed, an attempt was made to obtain the product through typically established channels (e.g., distribution channels using a traditional model-based approach). The estimated time of delivery was 2 to 3 days. (See the Model References links after this post to learn more about the differences between traditional and emerging models redefining supply chain practice.)

While the client had established “company-wide” sources throughout the United States, they had neglected to develop strategic sources within designated “hot zones,” or areas where the SLA requirement called for a same-day or better response/resolution time. (Note: this oversight is usually a by-product of a centrally established, broadly applied vendor rationalization strategy.)

By establishing a regionalized SGS program, the very next time a requirement for a critical component arose, the sourcing team was able to locate it and deliver it within the designated 3-hour period. And at a much lower price than the centrally negotiated volume discount contract.

Results

Collectively, these innovative approaches generated tangible results at multiple levels, reflected in increased end-user satisfaction and quantifiable bottom-line savings. Savings it is essential to note that were commensurate with finance department standards. (Note: refer to my January 31, 2008 article titled Bridging the Communications Gap between Finance and Purchasing to understand why most savings claimed by purchasing departments are rarely reflected in company financials. – https://procureinsights.wordpress.com/2008/01/31/bridging-the-communications-gap-between-finance-and-purchasing/)