Sourcing Tip #1: Get all the services you're paying for

Brought to you by EquaTerra

Talent, infrastructure, services, and products for organizations of all sizes get delivered from around the world and around the corner. Very few companies, if any, find everything they need to deliver value to shareholders, employees, customers, and other stakeholders entirely within their own walls. We've selected a set of "Sourcing Tips" to help you get the most out of your sourcing arrangements, regardless of of whether they come to you through contracted services (i.e., outsourcing) or through owned services (i.e., shared services).

This first tip discusses resetting the baseline. During boom times it's easy to stray from the original scope and service levels you contracted for with internal and external service providers. Take the time now to review your contracts and service level agreements to reestablish a common understanding of what's required.

EquaTerra, one of the world's leading sourcing advisory firms, recommends:

"Look at your service levels in every contract you have, including pensions administration (e.g., 401k administration), stock services, actuarial consulting, etc. Be certain that you are policing the services by applying and rigorously reviewing the service levels you have in place, put them in your renewals, and see whether the provider will agree to better service levels even before the renewal. Know what you're buying and, in addition, be sure you're getting what you pay for."

Bottom Line Tip #1: Use your balance sheet as a weapon

Brought to you by FAO Summit

Recessions, like droughts and famines in the wild, cull the herd. Companies with strong balance sheets, access to cash, or the ability to borrow or raise cash, can use this as a weapon to bludgeon the competition. If you can afford it, now is a good time to spend strategically to build marketshare and mindshare, upgrade talent, and/or reward loyal customers.

Building Marketshare & Mindshare
Start a little bit of an arms race... if you can afford to win. Making some investments in your brand, spending a little more on advertising, sponsoring some events, and just generally getting the word out to new customers can return double dividends. When you plan new market investments, look at how you can target them on the customers of your weaker competitors. If you can build mindshare with these customer now you may be able to pull them away from your competitors, leaving them less well prepared for the recovery. If nothing else, you'll increase your mindshare with these prospects and when the economy does recover and they have more to spend, they'll think of you.

Upgrading Talent
As mentioned in our tip on Upgrading Talent, a recession is a good time to hire. It's also a good time to force your less-well prepared competitors to down-grade talent. The best people are always employed, often with your competition. Identify your "dream teams" and go after them. If you offer them greener pastures -- which doesn't necessarily mean more money in a recession, it can mean more stability or greater job satisfaction -- you'll get a double bonus: upgrading your onboard talent while taking weapons out of the arsenals of your competitors.

Rewarding Loyalty
Your customers are facing the same pressures you are and may be looking to cut costs or get better contract terms. Be proactive. Identify benefits you can offer to your customers that don't cost you anything or at least not much and reach out to them before they reach out to you. This way you'll distinguish yourself as a vendor that's in touch with their needs and you'll set the tone and terms of the discussion. If you wait for them to come to you first, you risk that they'll either come telling you they've already switched to a competitor or they'll ask for for things you may not want to grant.

Leadership Tip#3: Change the questions you ask

Brought to you by FAO Summit

Dr. Marilee Adams, PhD of the Inquiry Institute pioneered research around how the recurring questions organizations and people ask themselves set their course. To fundamentally change course, change the questions. Dr. Adams distinguishes between “judger questions” and “learner questions”. Judger questions tend to focus on fault and literally limit our perspective. They constrain our thinking, preventing us from seeing all the available options. Examples of judger questions are:

• Whose fault is it?
• What’s wrong with me?
• What’s wrong with them?
• Why can’t I ever win?
• Why are they so dumb and irritating?
• Why bother?
  

In contrast, learner questions focus on the facts, invite exploration, and open up our thinking to new possibilities. Examples of learner questions are:

• What happened?
• What do I want?
• What are the facts?
• What assumptions am I making?
• What are they thinking, feeling, and wanting?
• What can I learn?
• What am I responsible for?
• What is possible?
• What are my choices?
• What’s best to do now?

When we change the questions, we change our lives. For more, read Change your questions, change your life by Marilee Adams, PhD.

Bottom-line Tip #3: Get the most out of Flexible Spending Accounts

Brought to you by Ceridian

Make sure your company and your employees are taking advantage of the tax savings of Flexible Spending Accounts.

Whether it's for health care or dependent care (or both!), companies save FICA tax and some state and local tax. The participants can save up to 30 percent with federal, FICA and state! To educate employees, take advantage of savings calculators to show value. To ensure ease-of-use, implement FSA debit cards.

Bottom-line Tip #6: Use cross-functional teams to tackle working capital improvements

Brought to you by FAO Summit


According to an analysis by Booz & Company, over $950 Billion is sitting trapped on the balance sheets of public companies. Often companies will assign people from specific functions to try to improve working capital. Sales tackles accounts receivable, procurement goes after accounts payable, and operations takes on speeding up inventory turns. “Unfortunately, these efforts often fail in the aggregate. They reinforce the silos that already exist and overlook the interdependence among functions that have led to poor working capital performance in the first place.” (Source: Strategy & Business)

Instead of taking a silo approach, form a cross functional team to look across the entire working capital process. Sure you can use consultants to help, but a lot of the capability already resides within your company. It’s just a matter of tapping the right people and giving them the right mandate. Some examples of potential quick wins click for full list:

Accounts Receivable

• Stick to standard terms and conditions for new contracts, varying only by the type of customer (high volume, low volume; high customization, low customization; and so on) involved in the agreement. Review existing customer relationships to ensure the cost of capital is covered.
  
• Create incentives to accelerate payments, particularly from large customers, using as the context overall industry structure, negotiations on price increases, and willingness to pass along drops in commodity prices, among other things.
  

Accounts Payable

• Segment supplies on the basis of their value and condition. Strong suppliers with rigid payment terms are not likely to be flexible, but suppliers that are adding little value (such as those, for example, buying metal and making only minor changes to it before shipping it out) or those that are in financial difficulty will typically offer lower prices for quicker payment terms.
• Address supplier volatility by linking the cost of business processes with the target market for specific production streams, i.e., low-margin products should enjoy the most inexpensive terms from suppliers.
• Review contract terms across business units, suppliers, and product types and normalize them around the best practices you identify in the process.
• Segment supplier credit terms and identify opportunities to leverage trade credit on terms that are less than your cost of capital.

Inventory

• Segment production flow into categories that align with specific customer order patterns.
• Cull marginal SKUs that drive inventory growth without commensurate benefits to the end customer.
• Integrate the inventory requirements of the supply chain into purchasing decisions and customer contracts.
• Identify and eliminate the root causes of process variation to reduce inventory requirements.
  

For more examples and tools you can use to improve working capital, see "$950 Billion in Extra Capital” as it appeared in Strategy & Business and plan to attend FAO Summit to learn directly from your peers.