R-e-s-p-e-c-t: Supply Chain Management Gets What It Deserves

Rodney didn’t get any. Aretha sang about it. Procurement doesn’t get what it feels it deserves. How does the latter group get the respect they want?

What is Supply Chain management missing?

Is Procurement an overhead cost or can it be classified as a profit centre? The accounting profession, for example, has one designation and everyone knows what that job entails — fiscal responsibility. The term Supply Chain can be vague and interpreted in different ways.

How does the Supply Chain get respect in the private sector?

The private sector has the focus on maximizing profitability. While they do embrace corporate social responsibility, they need to have the returns that affords the attention to CSR and community support.

Procurement is driven by key performance indicators such as cost of goods sold (COGS). Inventory turns, cycle times, cost of quality, and C2C metrics are common dashboard indicators. These are achieved through resilient partnerships and leading edge solutions. Results are reported on a regular basis to senior management.

The most important area is selling themselves internally. They take the time to understand operational and marketing issues now and in the future to make better decisions. Private sector does more objective benchmarking of key procurement metrics. Inventory targets are aggressive. Investment is made in ensuring skills sets are world class. Service from critical suppliers is measured and expected to be as good as possible on all fronts. Supply chain is paid for results which contribute to competitiveness.

This doesn’t mean that the private sector always does a better procurement job. Private sector companies fail; or are absorbed by more competitive players in the market; or bring in consultants to shake the tree; or at times, revise the rules to justify the end.

Photo by https://unsplash.com/@timmossholder

How can we advance the Supply Chain in the public sector?

The focus of public sector supply chains is on delivering services and goods in a timely fashion. Supply chains are the conduit for public policies on infrastructure, healthcare, education, defense and economic development. Budgets are set annually and are intended to be spent during that fiscal year

Procurement is often relegated to direct their focus on risk mitigation versus value add or strategic options that may be available. When procurement is successful in mitigating risks, they did their job and have avoided potential lawsuits or negative press. However, when this occurs regularly, it acts as a double-edged sword. It does not propel the organization to change or empower the procurement professionals to improve upon or increase their visibility within the organizations.

The traditional approach of procurement and its myopic focus on low costs inhibits the progress to achieve broader outcomes. To compound the situation further, savings are seen as claw-back items against operational or capital budgets acting as a disincentive to collaboration across or cooperation between departments.

Clients often want their deliverables met within politically-driven timelines. There are few options to expedite the business processes properly and procurement is seen as the problem. The client department has already “googled”, contacted, and predetermined a supplier to perform the services using an out-of-date request document. By the time the order hits the procurement desk it has already been “rubber stamped.” It is then too late to proceed with a better competitive process to meet deadline requirements.

In many public sector organizations, decentralized authority encourages a large contingent of well-intentioned departments that like to negotiate. The only intent is to buy something cheaper, ergo, it must be a good deal. Whether the deal conflicts with policies, existing contracts, or broader organizational objectives and expectations, is of little regard to the rogue buyers.

Procurement in the public sector needs an ongoing commitment to training. Not that there are not qualified educated procurement professionals working within the public sector- there definitely are! The aging population exasperates the lack of investment in training required to replace the number of experienced professionals.

Photo by: https://unsplash.com/@squareddesign

How do we improve upon our situation? We need to rebuild our village.

  • Actively participate with other business disciplines at a professional level.
  • Stop with the procurement speak and speak the language of our counterparts. Our clients want to feel heard too.
  • Focus on the outcome without the process being the main topic of discussion.
  • Build internal client and external stakeholder relationships to encourage communications.
  • Develop KPIs and expect to be measured for your professional contribution to the organization’s success.
  • Argue for a total cost of ownership to drive value vis-à-vis the out-of-pocket cost.
  • Host lunch-and-learn sessions on the requirements of public bidding with client departments.
  • Be the go-to resource in an organization which contributes to a shared responsibility for measurable outcomes.
  • Keep senior management informed on leading supply chain practices you have researched.
  • Don’t accept the status quo of current process cycles. Fix it — otherwise you are condoning mediocrity.
  • Measure supplier performance and report out on the objective findings. Don’t enable poor performance.
  • Don’t use weak or lax policies as excuses — keep them current and leading edge.
  • Exercise your supply chain professionalism to affect change.

By achieving results, we can build our brand thus forming positive relationships. We might even get some respect.

Many thanks to the following contributors:

Collin Ashton SCMP

Wende Kinch SCMP

Chris McAuley SCMP


Larry Berglund.

Staff Turnover: Turn Offs and Turn Ons

Staff turnover is a fact of life in today’s workplace, and progressive organizations recognize the importance of being pro-active to minimize this phenomenon.  While tangible staff turnover-related costs include advertising, interviewing, training, lost productivity, it is the less tangible costs that are often of greater concern.  These can include effect on staff morale, poor corporate image, customer service problems, lost customers or clientele, supplier performance problems, back-filling, and overtime costs.  Studies indicate that, on average, it takes 1-2 years for a new hire to meet the productivity of a former employee.

Photo by Bethany Legg
Photo by Bethany Legg

What are the common causes of staff turnover?

Employee-initiated turnover (Pull) is where staff voluntarily leave for better employment opportunities; involuntary turnover (Push) stemming from factors such as retirement, poor work environment, work/life conflicts, redundancies or dismissal are actions which also result in replacement.

Employers have limited options where pull factors are in play – although ensuring salaries, benefits and opportunities for advancement are competitive with market conditions is critical. With the push factors, employers need to develop strategies which address workplace bullying, intimidation or harassment; foster mentoring, coaching, training and career path programs; ensure acceptable workloads; merit-based recognition programs; and flexible hours to accommodate personal issues.

What is an acceptable turnover rate?

Excluding an analysis of part-time and seasonal workers, the basic formula for calculating the turnover rates is:

# of employees departed in a period / Average number of employees on payroll X 100

i.e. 75 / 600 X 100 = 12.5% turnover rate

The Canadian-based Society for Human Resources Management estimates that the annual turnover rate of a business is approximately 15% per year.

The best organizations experience only a 4% turnover rate, but the analysis must be context-specific. Canadian retailing can run at 20% turnover, the costs of which must be borne by increasing the price of goods and services. In an article by Nicola Middlemiss, the fast food industry turnover rate can be 100% or more, which explains why McDonald’s Canada is justly proud of their 45% turnover rate.

Let’s focus on the broader public sector for a moment.  The turnover rate at St. Joseph’s Hospital, Hamilton, has reportedly been running at 8.34%, and neighbouring London Health Sciences was stated at 7% by some sources. These are exceptionally low but will still result in hundreds of people a year onboarding to fill openings. If we consider that US hospitals are running at closer to 19% turnover rates, the Ontario healthcare rates looks quite good.

What does staff turnover cost? 

The cost of replacing entry level staff is generally 20-50% of an employee’s annual salary; for mid-level professionals, the cost is roughly 150%.  When it comes to replacing senior management and executives, the cost can escalate to 4 times the annual salary.  A 2015 report by Samantha McDuffee indicated that an entry-level employee making $10.00 per hour costs, on average, $5500 to replace. 

Not all staff turnover, however, indicates there is a problem with the operation, and in some cases it can save money at least in the short term. A poor performing entry level individual who voluntarily leaves their position at least curtails further costs and disruption, and allows the employer to move swiftly to fill the position with someone more suitable. Social enterprises see a higher turnover rate as a good sign, as normally part of their mission is to assist people facing employment barriers to be successful. Conversely, a high-performing long-term employee who generates strong sales revenues or is an effective manager, and finds greener pastures, can represent a considerable loss for an extended period.

Photo by rawpixel.com
Photo by rawpixel.com

What can we do to reduce turnover?

The focus should be on the retention strategy. Employers have more options to affect the push factors. These can be summarized into the following areas:

  • New hire orientation
  • Creating a positive corporate culture
  • Effective communications to and from staff
  • Valuing diversity

If we concede that the lowest cost to replace an employee is $5500 and we have 80 people per month to replace in some of the best run organizations, the tab is in excess of $5M per year! We can’t afford not to invest in and develop our social capital; the return on investment is there. Even a reduction in a turn over rate of 10% has a tremendous payback.

Soliciting feedback on a regular basis is a way of gauging employee satisfaction, and benchmarking the retention rate provides transparency and accountability. To attract and retain new employees have them work with the best you have, instill confidence in the integrity of the organization and its leaders, provide adequate opportunities for skills development and career advancement, and truly engage with their creative capacity.  Work to uncover their strengths and passion, and then surround them with opportunities to leverage those talents to benefit the organization as a whole.

By the way, what is the turn over rate with your main suppliers? After all, you are paying a portion of these costs. 

Photo by Shannon Litt
Photo by Shannon Litt

Food for thought:

Q: What if we train our staff and they leave?

A: What if we don’t train our staff and they stay?

Thanks, Larry