Discuss, debate and exchange ideas on latest trends and opportunities in the Business Process Outsourcing (BPO) landscape. Deliberate on adding “business value” to clients, vendors, employees and various other stakeholders to enhance customer satisfaction and sustain long term partnerships.
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May 21, 2012

Theory of Constraints

As my first post, I would like to start on a topic which is of immense interest to me. This is the Theory of Constraints (TOC) which was originated by E. M. Goldratt. TOC is in simple terms, the focused or lazy man's style of doing operations.

When I mean lazy, I borrow from the quote, "Whenever there is a hard job to be done I assign it to a lazy man; he is sure to find an easy way of doing it."

It helps us to answer many questions such as the one below.

When 100 people are doing some work process in 1 day, how will we be able to increase the work done to twice the amount in a day?

Now, what is the first thing that comes to mind?

We use the old math problem we solved in 5th standard to say that it will take twice (i.e. 200 people) the amount of people to do the work.

If that were the case always, Infosys or any other company will never be able to achieve the non-linear growth model.

To answer the above question better, let's take another example of 10 people going for lunch. What is the speed of the entire group in reaching the lunch place? If we think it is the average speed of the whole group, it is a common but wrong assumption. It is the speed of the slowest member of the group. (i.e.) Everyone reduces their speed to match the slowest member of the group. In other words, a chain is only as strong as its weakest link.
This weakest link or the slowest member is known as a constraint.

Hence in order to speed up the whole process or to increase the work done in the same amount of time, there is absolutely no use of making everyone to work faster.

Many people in the process do not work simply because they do not have any work! This may be surprising to many managers because they can see a lot of work pending and if one says that there is no work, the manager will simply laugh it off.

To explain this, I have put in a simple process flow. The below figure shows the capabilities (Shown as number of work units performed in some time) of the people (Marked as circles) in a process.

 

ToC1.pngHere, it is seen that the first person can do 10 units of work in the time that the second person can do 5 units of work and so on (15 for third person and 20 for the fourth person)

But when the work starts, the manager sees only the following happening below.

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As seen here, the third and the fourth person inspite of being able to do much more, work only for 5 units of work and (depending on the manager) start idling or act as if they are busy.

Not only that, as the first person is sending 10 units of work to the second person, the work gets piled up in the middle leading to delays and worse, work units getting misplaced.

There are many ways of increasing the speed of the flow of work (No...This does not include firing the person in the middle) such as reducing the load of the person who is the constraint (2nd circle), increasing the number of people doing that one piece of work (thus enhancing the flow of work for the entire line) or even changing the form of work itself.

Hence coming back to the first question on how to increase the amount of work performed by 100 people, often there is no requirement of a proportional increase of personnel. A rearrangement of people can work wonders in increasing the output even to 50 - 100% of the current output.

This is only one part of the vast topic of TOC. More parts on the same topic should come soon.

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May 17, 2012

Are Third-Party Product Companies in the F&A Space Dead?

Developing solutions in-house vis-à-vis on-boarding an alliance partner (3rd party product companies in F&A space) to drive differentiation in F&A functions is a very tricky subject. Companies in F&A outsourcing business made different choices. We at Infosys BPO decided to focus on developing solutions in-house except in the case of a few strategic areas where developing solutions will have a long gestation period and there is network effect. In the last one year or so outsourcing companies have started to focus on developing solutions in-house as well.

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May 14, 2012

Uncommon and breakthrough purchasing savings levers - Series 4 (Lever - SG)

Objective of the series: Hi there. I plan to share some very interesting avenues through an exciting series of at least 5 blogposts (Depending upon the response, I can consider sharing more). In each of the posts, I will share a few highly impactful savings levers that generate very high level of annualized savings across many industry verticals. These levers are still not widely used just because they are hardly covered in the common Sourcing & Procurement literature or practices. Hope you will find them useful, apply them somewhere and come out with flying colors. Wish you good luck and enjoy the read.


SG - What is SG? I am sure this is an obvious first question in every reader's mind. SG's expanded form is Services Guarantee.

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May 8, 2012

Strategic Sourcing Through Keiretsu Suppliers of Toyota

Objective: Hi everyone. By virtue of my coming from Toyota, with which I was associated for a major part of my career, I like to share a few interesting perspectives on Toyota's Keirestsu suppliers. I was fortunate enough to manage key Keiretsu suppliers of Toyota, who continue to contribute significantly to Toyota's progress worldwide. These suppliers are a significant piece in Toyota's strategic sourcing principles. The objective of this blog is to take you through the Keiretsu concept, how would a Toyota sourcing manager manage these suppliers and how would one leverage relationship with these suppliers to obtain long term savings and supply reliability (a TQM philosophy for Purchasing - variability reduction in everything is the prime focus).

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April 27, 2012

Uncommon and breakthrough purchasing savings levers - Series 3 (Lever - RM)

Objective of the series: Hi there. I plan to share some very interesting avenues through an exciting series of at least 5 blogposts (Depending upon the response, I can consider sharing more). In each of the posts, I will share a few highly impactful savings levers that generate very high level of annualized savings across many industry verticals. These levers are still not widely used just because they are hardly covered in the common Sourcing & Procurement literature or practices. Hope you will find them useful, apply them somewhere and come out with flying colors. Wish you good luck and enjoy the read.

RM - What is RM? I am sure this is an obvious first question in every reader's mind. RM's expanded form is RETURNS MANAGEMENT/REVERSE LOGISTICS. In other simple words, it is about goods and services that are not accepted by buyer post in-warding them into stores/acknowledging work done by services providers. The reasons for this could be multiple. For example, a material/service gets rejected by buyer and returned to supplier for replacement or repair or rework. As per contract, the product might be returned to supplier at the end of life or end of use. Such scenarios occur in each and every industry. Familiar & common commodities that are prone for returns are -- and I'm sure that every reader here would relate to these -- containers, pallets, packaging materials, used clothes, outdated spares, above shelf life items/equipment and vehicles etc. But is this area really uncommon and can it provide breakthrough purchasing savings? Let me investigate that for you. Keep in mind that we are discussing returns management in B2B context and not B2C.

Let's start with a couple of benchmarks and high points that I have collated for you. Sabri and Gupta report in their famous book Purchase Order Management that on an average, 20% of all goods procured are returned for any firm! Obviously in-warding and resending and re-inwarding cycles can have inventory levels inflate/deflate. This is ditto for the firm's profits and demand management sides. Imagine the complexity of a returns management procurement cycle if the suppliers to manage are also international (any one from Automotive firms reading this?)! IPQC reported in 2008 that associated costs of returns can run as much as 10-20% of operational costs of a supply function and that even 1% savings in that could be a huge $ benefit/profit - straight to the bottom line.

So what are the action items/solutions? First of all conduct a root cause analysis to determine the patterns and underlying causal factors due to which returns are created. Then, plan for corrective actions on all fronts - make the processes at supplier's end and the inbound packaging, transportation predictable to six sigma levels. At a category strategy and spend data management level, ensure that each commodity (material or service) in item or service master table is tagged as returnable or non-returnable. The process and technology with procurement should also have traceability and connectivity with AP systems to link PO and Invoice with return and its reason so that debit memo creation can be simultaneous. Items being returned for replacements should also be factored into the procurement and AP applications. Gupta and Sabri recommend that firms should automate processing of the returns upon receipt (including inspection and disposition), speed up the process to reduce risk of obsolescence, and track reverse logistics and net asset recovery to improve effectiveness. If services received are rejected or found to be deficient, the returns management becomes virtual process but should remain same for treatment like products/materials as explained just before. The reconciliation of service return/complaint can be accounted for as a simple apology or monetary compensation - as the contract specifies.

What can you do to have a robust returns management solution? Invite an expert firm to design BIC returns management process, integrated with procurement applications, ERPs and other applications. Choose the firm who can not only recommend (consult) but implement the proposed solution for you and demonstrate benefit. Include them also in returns management spend management plan of yours - for recoveries, repair or replacements!

Found this post useful and refreshing? Want me to write the rest of the 2 posts at least? Then send me your views on this one please. The series has gone well so far in response. Thank you all.

April 25, 2012

Aim, Hit, Goal!

If you ask anyone what the goal of strategic sourcing is, the answer that you would generally get is 'savings'. That might be one of the primary goals in the strategic sourcing kitty but is that the only one? Long gone are the days when the sourcing & procurement department was considered as just an order administration office. Now the sourcing team is proving its worth as a value adding component of the overall machinery of the firm and hence, has been rightly prefixed with the term 'strategic'.

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April 19, 2012

Uncommon and breakthrough purchasing savings levers - Series 2 (Lever - DA)

Objective of the series: Hi there. I plan to share some very interesting avenues through an exciting series of at least 5 blogposts (Depending upon the response, I can consider sharing more). In each of the posts, I will share a few highly impactful savings levers that generate very high level of annualized savings across many industry verticals. These levers are still not widely used just because they are hardly covered in the common Sourcing & Procurement literature or practices. Hope you will find them useful, apply them somewhere and come out with flying colors. Wish you good luck and enjoy the read.


Continue reading »

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