Monthly Archives: December 2006

The Wisdom and Wit of the SpendFool

Regular readers of Spend Matters who take the time to check out the comments on a regular basis will know that of all the idiosyncratic irregulars who allow themselves to be drawn into dizzying, debaucherous, delirious debates, the wisdom and wit of the SpendFool is second to none. In an effort to insure that you don’t overlook the stupendous sapience and satire that is only served up to you on the SpendFool’s sliver platter, I am going to summarize the best of such savoir faire for you.

SpendFool Sapience

  • Toxic/sparse/duplicated supplier master and item/catalog master and contract data will spill into your transaction history unless you keep your data clean. (The real elephant here in the room is that strategic sourcing groups are still doing “drive-by sourcing” events and throwing the contracts over the wall without getting measured on how those savings are really accruing to the business and making that process easier for end users and Purchase-to-Pay staff.) (source)
  • The really important risk management stuff is not some external supplier attribute database fed with supplier scorecard data into an auto-magical warning generator, but rather, good scenario planning processes which look holistically at all risk factors and their expected frequency & consequences.(source)
  • Reducing your capital base, whether through asset disposition (“Investment recovery”) or working capital improvements through inventory reduction (Goldratt’s “The Goal” rings loudly here), inventory re-deployment, DSO shortening, or DPO improvement (i.e., either stretching DPO or taking attractive early pay discounts), is not an extension of a vendor-defined “space” (or derivative analyst infomercials) named after consumer billing practices from Utilities companies, but rather, a multi-faceted approach (org, process, technology, etc.) to improving returns on capital employed so as to improve ROCE, FCF, EVA, and ultimately, the stock price which makes senior executives (who employ Purchasing professionals) happy.(source)
  • Technology trickles down and complexity inevitably gets solved, automated, and deployed to the masses. … I’ll take ‘simple’ tools deployed to the masses (a la Toyota) to touch way more spend, even if the savings are slightly less. Simplicity is key – especially for compliance.(source)
  • It’s not the size of the solver, it’s how you use it. … Nothing wrong with the consultants with big brains and tools to solve the really strategic problems AND also use mass deployed tools from ERP and/or SaaS vendors. Pick the right tool for the job.(source)
  • Would the exec’s care even realize the gold hidden in the mountains of data, or would the data be lost like the thousands of pedestrians in street? He had to make them see, but how? (source)
  • You still need an analytic data model and a physical data store as George Carlin said “a place for your stuff”. … When I say “data warehouse”, I mean having a centralized analytic data model – that’s all. Not an over-engineered, IT-led, designed-from-scratch, custom-built, already-bought-it-so-need-to-use it (i.e., “sunk cost fallacy“) solution-looking-for-a-problem approach.(source)
  • Stay with the core competency. (source)
  • Scott Adams is a genius.(source) (But you already knew that!)

SpendFool Satire

  • Hmmm, methinks you opted for the de-caf latte at the airport and perhaps not all neurons were firing? (source)
  • May they fancifully fly in the face of the follies and foibles of a fallacious fiddling flippers to find fresh fields of freedom and fun.(source)
  • Remember, the golden road to the emerald city starts in munchkinville, so, power to the little people and those who use them! (source)

Stay Foolish!

Happy New Year, SpendFool!

New Year’s Resolutions

To make your life easier, here are three simple new year’s resolutions to get you through the new year resolution process!

  1. I will be the best purchasing / procurement / sourcing / supply chain professional I can be.
  2. I will keep up to date with current issues while working on my continuing education by reading the daily blogs, which right now include Spend Matters, eSourcing Forum, Supply Excellence, and Sourcing Innovation.
  3. I will not make any of those same old, same old New Year’s Resolutions that I have no intention of keeping.

For those of you who wanted a humorous Saturday post, you can check out the Humor Matters New Year’s Index, the About: Humor page,, and BrainCandy’s New Year Resolutions for Your Cat (or Lynxfeather’s Nest New Year Resolutions for Your Dog. (And there’s always The Dilbert Blog, except on Sunday’s.)

P.S. There will be no post on New Year’s Day.

Make my cut Lean, please.

Lean Sourcing is important, and I am quite pleased to see that the blogs are not the only medium extolling its virtues. Recently, the IACCM, Supply & Demand Chain Executive, and Industry Week have tackled lean and its impacts on the supply chain.

According to Supply and Demand Chain Executive, lean within your four walls isn’t enough – you need to take lean outside your company and I have to agree. After all, it doesn’t matter how lean your operations are if your suppliers are unable to keep up with you or your customers are not able to accept deliveries when you have completed their order, forcing you to either suspend production or hold extra inventory. Make sure to work with your suppliers and customers in your lean initiatives and help them be as lean as you are.

IndustryWeek states that lean begins with asking the tough questions. Organizations need a unified and quantified understanding of the issues with a coordinated vision and efforts to address them. When undertaking a lean initiative, be sure to ask the following questions:

  • How do we find opportunities for improvement while managing the business?
  • Should we be satisfied with maintaining last year’s performance?
  • What are the main barriers to success we face today?

The goal is to “transform value stream mapping from a one-time, static activity to an ongoing and dynamic process modeling of production and the extended supply chain is one very effective way to advance from merely doing Lean to truly running Lean — day in, day out.” In other words, like the last article it points out that you need to look outside your four walls in the implementation of a successful lean initiative. As the article says, the most successful Lean initiatives are not really about achieving a single business goal, such as inventory cost reduction, but are about driving sustainable process improvement and agility all across the value stream enabling manufacturers to balance multiple concerns effectively — delighting customers, steering the business flexibly through change, with Lean cost and inventory management, while doing the job right for each of the stakeholders.

Finally, the IACCM examines lean in the context of contracting, and points out that by the time services oriented contracts are signed, often many of the terms and requirements on which the contract was based are out of date and that today’s contracts require continuing and active governance as well as rigourous discipline. The key to survival in the 21st century is the development of organizational competence through superior use of information and knowledge. In addition, relationships across the supply chain must be kept aligned through terms that create flexibility to adapt.

In short, lean is a global supply chain process, not a local one.  Now, I know this still does not answer some of your questions on lean sourcing, and how it differs from strategic sourcing, so here’ s one way to look at it.  Lean Sourcing is a type of strategic sourcing focussed on making the most efficient decision overall.  By Wikipedia definition, strategic sourcing “is a systematic corporate/institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company”.  However, this “improvement” does not have to be lean.  If you took a purely risk-mitigation focus, then any decision that reduced your risk would be an “improvement” and if you took a purely cost-centric focus, than any decision that reduced your overall Total Cost of Ownership on your purchases would be an “improvement”.  However, both of these decisions could have negative impacts such as increasing cost in the first case, increasing risk in the second case, and increasing delivery times (and inventory requirements) in both cases.  Lean is a holistic view of sourcing that takes a broader supply chain and operational view and makes the best overall decision for each purchase with respect to the supply chain and not just the commodity or service being purchased at the time.  In this way, Lean Sourcing can be viewed as strategic sourcing, but since strategic sourcing is not necessarily Lean Sourcing, they are not necessarily one in the same.    (The set of Lean Sourcing activities must contain strategic sourcing but strategic sourcing does not have to be based on lean principles or take a holistic supply chain view since you can always define strategy from operational, marketing, or financial foci.)

And if you’re still confused, since one could argue that good strategic sourcing is Lean Sourcing, I invite you to stay tuned for next month’s guest post on the subject from Lisa Reisman, Managing Director of Aptium Global.

Contract Management II

Looking back, it would appear that this is one topic that I have not really tackled yet. Back in week one, I made an initial post on Contract Management, but although I have mentioned the importance of good contract management in a number of posts here and over in my summer series on eSourcing Forum, I haven’t really dived into contract management and contract lifecycle management systems in detail.

Back in my first posting, I noted that today’s (E)C(L)M (Enterprise Contract Lifecycle Management) systems are quite powerful and offer a number of advanced features above and beyond just contract tracking. These features will generally include a searchable centralized contract repository, collaborative capabilities, workflow capabilities, monitors, alerts, reporting, and even template and clause-based contract creation capabilities.

In addition, I noted that I believe that one of the areas of future improvement will be in the area of business intelligence, specially in the area of automatic recognition of contracting patterns. These systems will not only point out What types of contracts and clauses are usually used for a certain type of supplier and / or commodity, but what types of contracts and clauses should be considered given the financial status of the supplier, historical performance, and commodity specifics. They will automatically draft starting contracts for you and indicate when you are missing important clauses like IP protection or delivery terms and when recommended updates are inconsistent with your usual practices.

Since then, I’ve put some considerable thought into what’s missing in today’s C(L)M systems, and how they can be used to provide you with benefits above and beyond simple document management and drafting. I’ve come up with a few more ideas, but two in particular stand out.

The first major breakthrough in next generation contract management systems, which has already crept into some current best-of-breed C(L)M systems, such as pure-play Nextance‘s offering (another company that I spent some time chatting with recently), is contract optimization. What is contract optimization, you ask? It’s the ability to globally analyze all of your contracts and determine where you spend is going, where your products are going, and what IP you collectively possess. For example, as Ralf Vonsosen states in his recent article in Contract Management, ECM plays a role in solving the new complexities of IP management and optimization. On the front end of the IP life cycle, ECM solutions can improve revenue by creating and negotiating attractive IP portfolios. On the back end, these solutions can optimize royalties, by carefully and effectively managing the resulting IP licensing agreements. These recent advances in ECM technology are no longer just for procurement or contract professionals – they now ensure companies that they are creating, managing, implementing, and tracking their IP licensing agreements to optimize revenue, mitigate risk, and improve compliance. In addition, a complete CLM system defines what you should be spending. Contrast this with what you are actually spending, as determined by your leading spend analysis solution, and you have identified the areas you need to work on to improve your compliance and realize your negotiated and planned savings. Finally, it helps you understand whom your biggest and best customers are, and where you should focus your marketing and sales efforts.

The second major breakthrough in next generation contract management systems will be in the area of supply chain visibility. If you think about it carefully, since today’s business runs off of contracts, the contracts in your repository collectively provide the best picture you can get of your immediate supply chain. Data on all of your suppliers and all of your customers in one place. Furthermore, by tagging your strategic suppliers and customers, as well as the suppliers you heavily buy from and the customers you heavily sell too, you can immediately identify the key branches of your supply chain that need to be mapped out. Any single sources of supply, or restricted transportation routes, that are subsequently identified are your starting points in your risk mitigation planning efforts.

Regardless of what happens, I’m sure you’ll hear a lot more about (E)C(L)M systems in the coming years, and that some of the advances they will include will surprise you.

Procurement Outsourcing V: Provade

In the first post in this series, I asked the question “Is procurement outsourcing right for you?”. In the second post in this series, I provided some pointers on selecting a Procurement Service Provider, or PSP. In the third post I provided some hints on getting the most out of your PSP and in my fourth post I tackled the question I poised in my first post.

In this post, I’m going to introduce you to Provade – a leading provider of managed procurement services for the Global 2000. I’m not going to overload you with details of their services at this time, as you can find lots of information on your own on their site, but simply focus on three distinct advantages they can provide you.

First of all, they focus on Technology Enabled Outsourcing. They use eTools that they have custom developed in house to generate significant savings for their customers in a variety of indirect goods and MRO categories, including labour and legal services – tough nuts to crack for your average BPO.

They built their solution offering using a custom developed off shoot of PeopleTools on top of Oracle – for which they maintain valid licenses on behalf of their clients. Therefore, you do not have to worry about their long-term viability or what happens if you decide that you want to migrate control back in house down the road due to organizational restructurings because you could always migrate the technology they are using in-house, and we know Oracle isn’t going anywhere.

They have acquired significant expertise and experience in the managed procurement space and can apply that experience and expertise on your behalf to give you significant savings on the categories you do not have the volume or expertise to manage in house. Moreover, with the expected growth in the industry, and their standing as a major player, as their current customers entrust more of their spend to them and they acquire more customers, their leverage is only going to increase. I know I’m assuming they are going to continue to grow, but after talking to them last month, I feel that they have what it takes and when you combine the explosive growth that is being predicted with the lack of procurement focused business process outsourcers out there, I see no reason why they should not continue to grow. I’ll be talking to them again in the new year and you can be sure I’ll have more to report at a later date.