What if Billy Beane Managed Supply Chains?

Supply Chain Management lessons from Money Ball For starters, Billy Bean wouldn’t be as famous. That’s just the reality when comparing Major League Baseball to procurement.But we’d bet that he’d still be a winner and likely, a revolutionary Supply Chain Executive. Take note of the teams from last year’s MLB playoffs: The Royals, Orioles, Cardinals and Giants. None of 2014’s five highest-spending organizations made it to baseball’s semifinal. And only one of the semi-finalists – the St. Louis Cardinals – ranks in the top 10 for payroll. His best-selling book and hit movie aside, Billy Beane’s famous Money Ball philosophy continues to have a real and lasting impact on Major League Baseball. That’s obvious. But what isn’t are the practical procurement lessons that are hidden in his thinking and how CPOs can take advantage of them today. Abstracted for the benefit of Supply Chain Management, here are Billy Beane’s six best practices:
If you can’t compete today, change your game plan.  That would also seem obvious, but far too many CPOs find themselves stuck. Chances are, few procurement organizations will ever command the purchasing power of an Apple, Wal-Mart or Amazon.  But that doesn’t mean they can’t compete – they just need to acknowledge that their market power must be derived differently and be willing to develop the corresponding approach.
Know what numbers matter.  One of Billy Beane’s most revolutionary moves was to challenge the established talent metrics that most of his scouts continued to focus on — RBIs, stolen bases and batting average. He created new ones. Most procurement organizations need to change how they take aim and measure success. Old measures, like the number of categories sourced, spend under management and cost savings, remain important, but if your procurement organization wants to become competitively distinguished, it must behave that way. For example, there are other metrics that most of us would agree matter more: earnings-per-share, operating margins, return on invested capital and valuation. And because it’s now common knowledge that high performing procurement teams deliver operating margins and return on invested capital 3.4% and 2.4% higher than their industry peers, the question is, what’s holding you back?
So answer the question; uncover what’s holding you back.  While every procurement team would like to take credit for driving high profile financial improvements, very few do.  Why? Not only is the list of reasons embarrassingly long, but very few companies have the wherewithal or patience to enumerate and fix them. It’s not surprising then, that the biggest hurdle tends to be organizational misalignment. Procurement performance and a company’s bottom line performance must be connected in meaningful, transparent ways. But getting there is easier said than done. Transformative CPOs understand this, as do their teams, and they don’t take “no” for an answer.  These days, operational and financial leadership must share procurement’s objectives.  Gone are the days when we talked about “healthy interdepartmental tensions” as if they were somehow constructive.
It’s all about the data.  As general manager of the Oakland Athletics, Billy Beane paid no attention to the decade-old scouting and operational best practices that had been in place since before his time. Instead, he had a revolutionary idea that decisions should be based on data and analytics – not history and anecdotes. In fact, statistical analysis fueled every decision the Oakland Athletics made – from which players to go after, who to retain, and when to let someone go. They challenged their assumptions, looked at unique combinations for answers, and when the data reflected a change in direction, they didn’t hesitate. They believed their unwavering commitment to their new trajectory would be their salvation.  It’s no different for procurement. Rigorous data analysis should be at the center of every major decision a CPO makes. For example, today’s advanced sourcing and optimization technologies enable procurement teams to model their supply networks, wade thru thousands of what-if scenarios and conduct contingency planning in search of the most robust solution. And of equal importance, those same tools allow procurement to model the impact of a change or revised goal (e.g. a supplier issue, the acquisition of a competitor, or consolidation). Advancements in spend analysis are giving organizations more visibility than ever before, so CPOs now know exactly how and where to look for consolidation and rationalization opportunities. In fact, a growing number of investment bankers are using spend analysis to qualify the value of potential acquisition targets. And using the same tools, procurement can now model the supply chain impact of a merger or acquisition. The data is available. Getting at them, normalizing them and analyzing them require investment.
Create a plan. And follow it.  The A’s always executed against a bigger plan. Everyone was working toward a similar goal, and if you couldn’t get onboard, you were sent packing. While that may seem harsh, much of their success came from having a clearly defined roadmap with very specific, case sensitive performance metrics to measure progress along the way.  CPOs looking to take their performance to a higher level must follow a similar path. When it comes to procurement transformation, the journey is just as important as the destination. Change is hard, and moving from a procurement organization that historically focused on tactical sourcing metrics to one is credited with impacting the company’s financial performance will take time.  A well conceived roadmap is essential, but the ability to change on a dime –to seize an opportunity or overcome an unexpected obstacle– is of equal importance.
Find your champion. One memorable example from Money Ball was a conversation between Beane and David Justice, a then 37-year veteran player.  While most looked at Justice as a player on his way out, Beane saw something else –an opportunity to get a well-respected veteran to champion his cause and influence other players to stay committed to the plan.

from Forbes – Business http://ift.tt/1PX2mXr
via Abogado Aly Business Consulting

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