Monthly Archives: July 2007

Eye-For-Procurement Technology For Procurement Highlights II: Case Studies

June’s Technology for Procurement Forum in San Francisco, put on by EyeForProcurement, had some really good case studies. In this post, I’m going to convey some of the highlights, and associated insights, in order to encourage you to consider attending this conference next year. (A couple were only so-so, but it was the first year of this particular conference, so one has to cut a bit of slack. However, since conferences that adequately focus on technology, which is a vital tool for today’s sourcing professionals, are few and far between, it’s important to recognize when someone tries to pick up the slack.)

The BMW case study (presented by Jason Trevison) showed that taking the time and patience to get it right from a technology perspective can have incredible payoffs on performance. The first automaker to use SAP, one of the first to build their own custom enhancements to cover the processes SAP didn’t, and one of the few to focus on automating anywhere they could get value, saw BMW reduce manual processing and intervention on purchase orders, invoices, and payments from 60% down to under 30% in a six-year period. They also benefitted from streamlined processes and continual supplier development, in part due to an automated supplier rating system that provides feedback to suppliers on a regular basis.

The Chevron Phillips case study (presented by Richard Roberts) told us that with the right approach, there are often significant savings to be gained in freight payables. According to the presenter, errant invoicing is common in freight, and this could be your biggest opportunity for savings. This is often due to complex contract pricing and dynamic efforts, but is also often due to manual errors and, sometimes, underhanded efforts by your supplier to get more than you bargained for. (The “what they don’t catch is our profit” tactic. Just like some office supply suppliers who give you a “best price” quote will, if prices are not carefully monitored, fail to reduce prices and sometimes even creep prices up as time goes on.)

The presenter indicated that the best way to reduce errant invoicing, and thus get instant savings, is to adopt, and standardize, a workflow process, move from paper to electronic invoicing (he promoted EDI, but it really should be XML – add an XML to EDI adapter for your out of date supply base if you need to), perform regular audits, adopt best practices and use multi-way matching and, if possible, third party providers to automate the task, and understand the costs associated with complex pricing terms.

The Timken case study (presented by Dean Devine) on commodity strategy development told us that there are great rewards to be reaped, but that it’s a lot of work to get there. The lessons learned were quite insightful:

  • Just Get StartedIt will never be “the right time”, you’ll always be too busy, but you won’t reap the rewards if you don’t start working towards them
  • Reach ConclusionsRegardless of how much or how little data you find, draw a conclusion and act on it. Use what you learn from going forward on the next buy.
  • Don’t just develop tacticsYou need a concise strategy and action plan
  • Review with stakeholders frequentlyThis is required for buy-in, alignment, and, if required, mid-course corrections
  • Give your staff the time they needStrategies take work, and can’t be done in off-time, spare-time, or (when overworked) in over-time
  • Strategy development is a competencyIt needs to be developed – it doesn’t magically appear
  • Use the process to assess the resultsBe willing to change. You won’t always get it right the first time

The McKesson case study (presented by John Visaya) on procurement system selection and implementation focussed on the importance of a good business case in obtaining buy-in both for the project and system adoption. It also provided a good check list for building the business process:

  • Don’t forget the Financial Factors (NPV, IRR, EPS, etc.)This is what the CFO wants to see, and he controls the budget
  • Understand that Benchmarking is NOT BaseliningYou need to baseline your current performance before you can

    determine how well you are performing to market average

  • KPIsThis is how you’ll measure your success
  • Emphasize the BenefitsCost Avoidance and Cost Reduction in particular
  • Quantify the Hard vs. Soft BenefitsCost Savings and Efficiency vs. buy-in and ease-of-use
  • Determine the Impacts and Objections and the Mitigation Strategies
    Solve your dilemmas before they strike

Again, nothing you haven’t heard before over the past year both here and on Spend Matters, but us bloggers always appreciate knowing we got it right!

The Arrival of Aravo?

I was going to wait until Jason posted the follow-up to “Aravo Tackles the Supplier Information Management Challenge Part 1″* on Spend Matters before doing my post (as I did meet with them last month), but Tim’s post on “Do You Know Who Your Suppliers Are?” on Supply Excellence [WayBackMachine] has provided me with perfect timing.

In his post? Tim asks:

  • How clean or accurate is your company’s vendor master?
  • When was the last time it was updated?
  • Does it provide complete and detailed insight into supplier capabilities, health, and performance?
  • And how many vendor masters does your company use?

Tim then stated that if you wavered on any of these questions, you are not alone and that if you didn’t, you’re probably lying to yourself. He ended his post by stating that effectively selecting and managing suppliers in today’s fast-paced and global supply chain, requires a more accurate, current, and holistic view of suppliers – from basic contract information to capabilities and attributes to active contracts and performance data. It also requires a new approach to gathering and maintaining the supplier record … and this new approach can best be described as Supplier Information Management.

Procuri’s [acquired by Ariba, acquired by SAP] Supplier Management solution, and it’s a good start (and you could include Emptoris’ (acquired by IBM, sunset in 2017) Supplier Performance Management in this category, for example), but if you really want a supplier information management solution that will allow you to shout an emphatic yes to the above questions and

  • Let you query how many suppliers you are actively sourcing from at any time.
  • Let you query what parts you’re sourcing from any supplier at any time.
  • Let you query whether or not you have current copies of compliance and insurance certificates for any supplier that requires them at any time.
  • Let you query which suppliers are carbon neutral at any time.

then you want the solution the big guys use, which include Oracle and Google, and that’s Aravo. One of the pioneers of Supplier Information Management (having just released their 4.0 version this year, as noted in my March post), Aravo has been building, extending, and revamping their solution from a simple central supplier information repository that tracks everything you ever needed – and wanted – to know about your supplier to a solution that lets you not only proactively manage your suppliers but proactively manage your supplier initiatives – including your Corporate Social Responsibility initiatives.

Despite having an industry leading solution, Aravo has not really received their fair share of press. This is probably due to the fact that information management is not sexy. E-procurement is sexy – the ability to automatically receive invoices, match to purchase orders and receipts, and automatically make payments when everything in line is sexy – it’s fast, efficient, and saves you money. E-sourcing is sexy – the ability to streamline everything from the initial RFI through the final award in an open format over the web with your suppliers half-way around the world and get it done faster, quicker, better, cheaper is sexy. Managing your virtual file cabinets – that’s not sexy.

However, what the media has overlooked is that in today’s corporate environment, the trend is moving to sustainability and social responsibility – and this is just not something you can keep on top of if your virtual filing cabinets are in general disarray. So even though Aravo’s solution may not sound sexy, what you need to realize is that what Aravo’s solution enables is sexy.

With their new focus on Simplifying Sustainable Supply Chains, Aravo’s goal is to give you an information management platform that you can use to manage your global supply chain for your sustainability initiatives while managing the dizzying array of new industry regulations popping up around the globe. Their solutions is configurable, scalable, and comes with a full set of dashboards that provide visibility at multiple levels of detail. The solution enables on-time completion of initiative programs since visibility is available to executives on a daily basis. It is worth checking out.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Eye-For-Procurement Technology For Procurement Highlights I: Presentations

June’s Technology for Procurement Forum in San Francisco, put on by EyeForProcurement, had some really good presentations. In this post, I’m going to convey some of the highlights, and associated insights, in order to encourage you to consider attending this conference next year. (It also had some weak presentation, but it was the first year of this particular conference, and I’ve never been to a conference that didn’t. However, since conferences that adequately focus on technology, which is a vital tool for today’s sourcing professionals, are few and far between, it’s important to recognize when someone tries to pick up the slack.)

In John Ferguson’s (Vice President and CIO of Optical Cable Corporation) keynote on Technology and Procurement, The most profitable way to leverage your technology – and rise above the competition, he reminded us that technology is, at most, a tool, that one size does not fit all, and that tools that support different strategies are required for best results. After all, no matter how hard you try, software can’t fix a broken process and the only thing worse than a broken process is an automated broken process.

Furthermore, it’s also critical to understand that a technology focussed project will often take a lot longer than you expect to both complete and to see a return on, especially if it involves business process improvement. Process improvement requires time, effort, and considerable change management that should never be underestimated due to the human factor. That’s also why you should not automate for the sake of automating – make sure there is a significant return waiting to be realized.

With respect to sourcing, according to John, you should buy high volume components as commodities from the same sources as your competitors whenever possible, buy components with volatile demand cycles as needed, and make an effort to be the easiest business partner to deal with. Furthermore, your strategy should focus on penetrating less-commoditized markets through differentiated product and service offerings.

In John Cleminshaw’s (Director of Global Quality Systems Procurement at Whirlpool) keynote on the strengthening of your procurement core, Technology that improves your financial and customer focus, he focussed on the importance of process-based management and that your procurement cycle must include participation in the design, manufacturing, and logistics process flow, as these can be sources of considerable cost that will be “locked-in” if not done right.

John also offered some suggestions on how to develop a process-based system.

  • Document the Present Systemhow does it work? what’s missing? what are the gaps costing us?
  • Revise the Processcomplete it, add efficiency, and make changes if necessary
  • Turn the Process into a Systempreferably, find an existing best-of-breed COTS

    (Commercial-Off-The-Shelf) system as it is time consuming and

    expensive to develop a custom system

  • Make the System Visibleand take steps to integrate into project and product management
  • Communicate Objectivesand accountability!
  • Align Expectationsmake sure everyone is on the same page!

In Betsy Miller’s (Corporate Director, Sourcing and Procurement Corporate Contracts of Northrop Grumman Corporation) keynote on global technology management, How to organize and manage the technology aspect of numerous buying platforms across a variety of geographical locations, we found out that an aggressive focus on supplier master data cleansing, commodity spend aggregation, and e-Sourcing can generate a 6% to 12% savings opportunity and that if you are a multi-billion dollar corporation (30 B ) and can apply this rigour to 40% of your spend, then you can, rather easily, save nine digits. (Or, more precisely, a number so large you might not be allowed to tell the public just how much you saved!)

According to Betsy, the drivers that you need to focus on are:

  • Value Optimizationa focus on better contracts
  • Sourcing Optimizationa focus on strategic partnerships and risk management
  • Process Efficiencyfocus on common processes
  • Complexity Reductionfocus on process streamlining and the elimination of unnecessary steps
  • Supplier Collaborationand capability development
  • Organizational Empowermentfocus on visibility

Nothing you haven’t heard before over the past year both here and on Spend Matters, but us bloggers always appreciate not being the only ones trying to drive home certain points!

JLP Responsible Sourcing Part III: Forced Labour

In our last post, we discussed child labour and the issues you need to be concerned about, corresponding to section B of the report.

In today’s post, we cover section C of The John Lewis Partnership‘s “Responsible Sourcing Supplier Workbook” which tackles the issue of forced labour. Something for my fellow Canadians to reflect on while they celebrate Canada day today and something for my colleagues south of the border to reflect on while they celebrate Independence Day on Wednesday (July 4, 2007).

Forced labor refers to any work carried out under threat of penalty, which means that workers do not have a free and unencumbered choice when it comes to the work that they perform. There are many kinds of forced labour, and you need to be familiar with all of them in order to recognize whether or not any forced labor is taking place in your organization or that of your supplier organizations.

  • Forced Overtime At a basic level, forced labor includes the situation where workers are not given a choice about whether or not they work overtime.
  • Penalty-based Employment This happens when a production site required workers to pay a deposit when they enter the workforce and does not allow them to retrieve the deposit unless they work at the production site for a minimum length of time, when original ID papers are withheld from the employee, when employees are paid in tokens which can only be used to buy goods and services from the employer, or when threats and violence are used. This practice is common in many Asian countries, including China where it is illegal.
  • Bonded Labour This occurs when a person is forced to work, for minimal or no wage, to pay off a debt the worker or his or her family allegedly owes the employer. This includes workers who have been trafficked to a country to pay off their ‘travel’ debt.
  • Involuntary Prison Labour In some countries, prisoners may be forced to work against their will without wages in poor working conditions.

Forced labour is a serious issue not only because it can trigger a serious backlash in the press if they find out it is occurring at your plant, but also because:

  • the ILO estimates the number of victims of forced labour globally at approximately 12.3 million
  • it occurs regularly in Asia and the Pacific, Latin America and the Caribbean, and in sub-Saharan Africa
  • roughly two-thirds of total forced labour in Asia and the Pacific is due to economic exploitation
  • children in forced and bonded labour represent two-thirds of children in the worst forms of child labour, conservatively estimated at 5.7 million children worldwide

This means that, as an employer, you need to insure that :

  • workers are free to leave your site after their shift ends
  • your workers must have the freedom to leave without penalty with reasonable notice, which should be consistent with local laws, stated in contracts, and communicated effectively to workers
  • overtime is voluntary
  • deposits are immediately returned to workers after a minimum period of time, and immediately upon termination of employment (and they should sign to show they received the deposit)
  • if original ID papers are required for employment, only copies should be retained by management and the originals immediately returned after verification of authenticity
  • if loans are made to workers, the terms are clearly documented in the worker’s language, the loan does not tie the worker to your employment, the repayment terms are clearly documented and a system is in place for early repayment or reassignment to a new employer, the repayment amounts are reasonable in proportion to the workers’ total wage, and the worker clearly understands all of the terms of the loan before it is made in order to prevent bonded labour situations
  • you only use prison labor where the prisoners work in safe and hygienic environments, where they are compensated for their work, and where they have a choice
  • your supply chain is transparent with respect to labor as extreme forms of forced labour are most likely to occur in subcontracted production or in component suppliers

Many suppliers use weaker forms of forced labor, such as deposits and withholding of ID papers, as a tactic to combat very high turnover rates. This happens a lot in countries deemed Low Cost Countries, since the rapid influx of first world capital trying to take advantage of lower labor costs creates a shortage of skilled workers. This can often be avoided by educating suppliers that incentives and bonuses for fixed terms of service offer a much better retention scheme and by insuring that you pay a fair price for the product they produce (to make sure the supplier can afford to pay fair wages and bonuses to its staff).

In our next post, we’ll tackle the third major issue addressed by the workbook, that of health, safety, and hygiene. (You can access all of the posts in the series (to-date) by selecting the JLP category at any time.)