The Shift from Service Provider to Integrated Alliance Partner

As end users become more sophisticated in their operations they understand through experience the real advantages of optimizing product delivery processes.  It is natural that they should want to extend those advantages to key services, both provided and received.  Supply Chain Management (SCM) is often thought of as a manufacturing discipline, which it indeed is.  Today, however, SCM principles are being adapted to the services side of business as well, with rewards and dividends to both sides of the provider / end user relationship.

For many this is a fundamental change requiring acquisition of new skills, knowledge, and mind sets.  These folks must learn to walk first, but getting up to “business speed” cannot take too long.  Others have the requisite skills and knowledge but need to extend them to new areas of their business.  In both cases, overcoming ingrained cultures running counter to the initiative is paramount and something that should be thoughtfully done.

Across industries and market sectors companies are looking for service providers who want to partner with them at new levels.  Whether the end product is machinery, financial services, a new building, or operational in nature; optimizing the delivery process is now a holistic agenda that encompasses all required resources.

What Is Driving Business Integration?

For starters, better educated and more demanding customers.  As organizations improve internal management systems and mechanisms they develop new intelligence about themselves, their competition, customers and yes, service providers.  Business intelligence is a greater differentiator now than ever before.  Process improvement, Six Sigma, metrics programs and other initiatives of their ilk are changing the way we understand and organize our work.  As that intelligence matures it begins to ask new questions, test new ideas, and probe for new advantages.  Extending that intelligence beyond the boundaries of your own organization by challenging business partners to match it in their domains and align their processes with yours is a natural next step.

Competitive intensity has increased in recent years, partially the result of economic stress.   Focused by the need to survive some companies have pared away non-core businesses, reduced or expanded offerings, or taken advantage of opportunities to expand and grow.  Behind all of these strategies is a single imperative – succeed when others do not.  The oft-quoted exhortation to “Never let a good crisis go to waste” has been taken to heart. These activities amount to a reshaping of business, each incidence an opportunity to streamline processes.  Many companies have gone after these opportunities with zeal and more often than not they challenge their business partners to match them stride for stride.

Customers seek to minimize the number of business relationships they must manage.  Their goal is to lower the amount of management friction that is applied to the business of doing business.  As a result, strategic business alliances often form in which multiple businesses collaborate in competition against other alliances.  It’s not just your company competing for business anymore, it is your alliance competing against other alliances.  That means each alliance partner has a vested interest in each partner’s business performance; and it motivates alliance partners to plan, act, measure, and communicate in similar fashion.  You cannot do that when your processes, standards, and tools are different.

Fulfillment of customer requirements has always been the primary business purpose - it has not always been the primary business activity. Although SCM began as a manufacturing discipline, business in general is moving from a production-based model to a fulfillment-based model, improving business speed and alignment.  The foundational principle at work here is that of connectivity, creating networks of entities that share business intelligence and act together in synchronized fashion.  As this model moves further down the chain efficiencies and advantages are increased to the advantage of all in the network.  Inherent in this model is the recognition that individual firms depend upon resources controlled by others in the network.

Integration Tools

Deployment of secure and integrated information technologies across the customer – provider alliance enterprise enables process synchronization and speeds the flow of information.  In classic terms, such seamless operating protocols make pulling resources vs. pushing them possible, thereby avoiding stranded investments for inventory, space, and management systems at each level of the alliance.

Common measurements and language are critical elements.  Each partner in the alliance may elect to retain measurements they feel are uniquely important to them but which are not relevant to other partners; all partners, however, should adopt common measurements and language for tracking and reporting enterprise activity.  If, for example, the customer’s five most important Key Performance Indicators (KPI’s) are expressed as cost per end unit or cost per revenue unit, then the alliance partners providing support services to the customer should provide measures of their business that feed into the customer’s metrics in similar fashion and language.

The human part of the equation requires specific attention.  The degree of transparency required can be a challenge.  Sharing business intelligence and allowing visibility and integration of key processes may be a new dynamic for some.  Employing managers who have a collaboration orientation, are comfortable working with a range of technology systems, and who understand process design should be a priority for any firm engaged in an alliance business model.  Linking compensation to alliance performance strengthens the leverage towards implementation of cross-enterprise best practices.

Information is the Currency of Integration

Integrating and managing the supply chain seeks to assure that the right part shows up at the right place, at the right time.  The goal of services integration is to speed information to the point of need exactly when needed, thereby enabling the deployment of services in the most efficient manner.  The opportunity to integrate services to the level discussed here is enabled primarily by technology and information systems.  Information becomes knowledge, and knowledge becomes wisdom.  Wisdom, when acted upon correctly and speedily, becomes advantage.

Condition-based service management systems proliferate today.  I get an email from the car dealership with an appointment date and time when it is time for an oil change in my vehicle; not based on distance driven or elapsed time but on the actual condition of the oil and operating conditions of the engine, and on the day of the week and time of day I prefer based on the history of previous visits.  Sensors communicate automatically when set parameters are reached, triggering a process that results in my pulling into a service bay.  In building management an exact parallel occurs when an outsourced HVAC maintenance provider is dispatched to service a unit by automated sensors linked to intelligent building systems.  This model can be applied at multiple levels, even to stocking paper for copiers.  The fact that cloud computing largely eliminates the cost of deploying these technologies is speeding their adoption.  Service vendors lower inventories, redeploy capacity, and reduce costs.  Customers have greater visibility, can forecast more accurately, and have more control over cash flow.

The philosophies behind service chain integration are not new: Deep integration of business processes by alliance members who are invested in each other’s success, who are intensely customer-centric, who trust each other and accept accountability, who are driven by a desire to achieve process excellence, and who share business intelligence willingly.  When merged into a cohesive operating system each becomes a force multiplier for the others, improving service quality, cost and efficiency.  

Construction Activity and Materials Costs Moving Higher

Buildings Magazine reports that non-residential construction activity is up 2% from last year.  Most sectors appear to be on the rebound except public works.  Overall commodity increases are running slightly higher at 3% on average, with steel and carpet (6%) and paint (8%) leading the way.  Lumber and brick are trending down, plywood remains essentially flat.


One can make one's own determination on the future trajectory of this chart.  Some will interpret it as a sign of gathering turn around momentum while others will suggest that the pull back in government spending in the public works sector is likely to create future drag.  Time will tell.


For now, however, activity is up and price increases appear moderate.  Those, at least, are positive signs.

Procurement Diligence Pays Dividends - Part 2

Requirements planning is a key first step.  It is important to be forward leaning, anticipating organizational and key customer requirements ahead of initial requests.  This proactive behavior is built upon two foundations; relationships that enable anecdotal and hard data information sharing as needs first begin to emerge (long before they are normally translated into a requirements request), and strategic alignment of the FM operation with enterprise goals and activities.  Having the advantage of these two perspectives allows the FM leader to forecast properly and bring creative contributions to bear.  Importantly, requirements planning improves the quality of investments made, thereby contributing to capital preservation which in turn improves leverage.  Optimizing the requirement minimizes unproductive expenses and helps optimize the supply chain, both of which improve the overall value of any given requirement.

 

The specification process establishes criteria for successful outcomes.  Whether you are looking for a new robotic manufacturing system, land for a new headquarters building, a new maintenance or service provider, or an improved contract for office supplies; the specification you approve establishes your expectation of what is acceptable.  As such it warrants diligence and serious consideration.  You may consider the specification to be the floor against which you will evaluate options, whereas providers may consider it the ceiling as well.  This is an important distinction and demands clear articulation in the resulting specification.  Further, the specification process should include in collaboration and consensus among the full range of stakeholders for any important product or service.

Market assessments inform acquisition strategies.  Consider the assessment as your opportunity to understand the full breadth of requirement fulfillment options.  A formal and standardized assessment will yield market forecasts for any product or service, including relative competitive alignment among providers, their strengths and weaknesses, and how well their offerings align with your needs.  Do not under appreciate cultural alignment as a learning outcome of this effort, especially if the products or services you will procure from them are of strategic importance.  It is often valuable for the internal team that has conducted the assessment to come together at the back end and share individual learnings and questions.  What can we do different than we normally do?  What is now possible that we didn’t realize when we started this process?  These are important questions that should be answered and provide feedback to the requirements and specifications processes.

 

Investigation should include analysis of metrics that predict likelihood of instability.  This type of investigation looks at performance quantification in areas that highlight unstable operations or high risk potential.  Think of this as identifying and then quantifying Key Performance Indicators (KPI’s) for a provider’s overall business.  If dealing with a commodities contract for example, one might evaluate the supplier’s performance against their production plan, the number of delayed shipments, the volume of product returns, how often the supplier must be expedited, and how accurate their marketing forecast is.  This information will tell you how accurate their internal business processes are and where there may be hidden stress in their systems.  If the contract you are considering is of high strategic importance to your own operations then these information points are especially important.  These are not the kinds of questions FM’s normally ask in a sourcing exercise but they can be illuminating, revealing hidden risks that no marketing department or account representative is going to share.

 

FM’s spend a lot of money, one reason why the function was traditionally thought of primarily as an expense line item in the purest form.  The profession has increased its sophistication and strategic visibility largely because it is now recognized as a valuable contributor to corporate direction and health. Attention to detail has always been a hallmark of the FM activity and that is not changing as the profession elevates its profile.  It is, in fact, because we have been successful in marrying the boiler room with the board room that we have been able to achieve this.  Both elements are critical in our evolution.  The kind of diligence and rigor toward the purchasing activity so important to the FM and suggested here is the same diligence that drives our increasing recognition as a value add function. 

Strategy and goals are one thing, execution is everything.