Supply Knowledge

The Price of Knowledge

Posted at: 06 November 09 22:15

Your Monday Morning Wake-up Call

Did you ever stop to think about how much it costs when a knowledge worker leaves your organization? Lots. It’s tragic, but many organizations are just simply missing the mark when it comes to valuing the knowledge of their employees. Yet on it goes. Someone leaves the organization and is replaced; the new employee may takes months to become as productive as his/her predecessor. Or perhaps there’s a dreaded layoff and the individual is not replaced immediately. Is all that knowledge then obliterated?

Let’s try to do a bit of math. A Supply Management professional leaves the organization. A replacement is hired, let’s say at $95,000 per year (about $7,900/month). For the first month the replacement operates at 10% of effectiveness…gathering information, analyzing situations, meeting suppliers and so on. The cost to the organization is 90% of the month’s salary, that is $7,110. Month 2 is likely somewhat better, perhaps 30% effective. Then month three at 50%; month 4 at 75% and month 5 at 85%. At month 6, the new employee finally reaches 100% of the former employee (assuming no performance issues for either of them).

Here’s a graph of how that would look:

The cost is shown below the trend line. The total estimated cost for this model is $19,750,

Does this make sense? Think about it. Aren’t there ways to capture knowledge so that the incoming professional can come up to full productivity more quickly? We’d like your feedback.

Fred Sollish for Supply Knowledge Monday, November 2, 2009

Comments:

Risk: Sort out the Real Issues

Posted at: 06 November 09 22:14

Your Monday Morning Wake-up Call

Risk: Sorting out the Real Issues

When your organization is managing several hundred thousand suppliers, risk can become a significantly complex factor in your business, which poses the question, do we have our sights set on the real issue? Supplier solvency appears to be a common topic of concern today, so let’s examine some statistics:

For example, from 1990 to 1993 the bankruptcy rate for U.S. firms was about 1.32% of the total number of firms; it is estimated that from 2005-2008 the rate was significantly lower at 0.54% (based on data from the American Bankruptcy Institute and the U.S. Census Bureau). It’s been estimated that the rate for 2009 will rise to 1.01%, a very large increase but still well below the average for 1990-1993. Additionally, in 2008 there were 43,546 firms filing for bankruptcy; that figure is expected to rise in 2009 to just over 60,000. However, over the past 20 years, the peak in the number of bankruptcies occurred in 1991 with 71,549 firms filing and the lowest point came in 2006 with only 19,695. Yet we are in the most severe downturn since the Great Depression. While supplier insolvency needs to be a concern for us at all times, it appears the effort to focus on it in managing risk today may be somewhat misplaced.

It seems to us that the most significant risk in the procurement process is not supplier insolvency but poor scheduling and late deliveries; not always an entirely supplier generated problem. Late deliveries generally impact a schedule, manufacturing or project, causing delays and most likely additional cost. Other factors, such as poor quality, can be another component in this dilemma. However, we seem to have that under control with TQM, SPC and Six Sigma. There are always inaccurate price estimates for new products as well, and maybe difficult to control without dedicated resources to conduct thorough cost and price analysis. There are also a variety of financial, legal and human behavior risks that are impossible to predict. So the question is can we do more than just watch?

Let’s stop to think for a moment. Did anyone in procurement address the issue of risk twenty years ago? Were there any consultants or third party service providers out there offering to identify risk in a company’s supply base? In today’s society, especially with the down turn in the economy, organizations are becoming more aware of this issue at hand and are implementing a learning management system or e-learning courses into their repertoire to educate their employees on Risk management and how to identify and address the problem using methods best fit for their infrastructure in resolution.

Tell us the areas of risk you believe are the most important. Again, we have our preferences but let’s hear back from you. What is your experience and what do you typically monitor?

Fred Sollish for Supply Knowledge Monday, October 26, 2009

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