Daily Archives: December 6, 2007

the doctor On Technology RFPs: Don’t Put The Cart Before The Horse!

I’m not sure what the reason for this is, maybe it’s the “Free RFP Templates” for e-Sourcing (RFPs & e-Auctions), Supplier Management, Contract Management, and Spend Analysis brought to you by Procuri & Co., maybe it’s an over-inflated sense of technical knowledge, or maybe it’s just plain stupidity – but more and more I’m hearing about buyers looking for spend and supply management solutions that are putting together ridiculously over-specified and complex RFPs that are often eliminating all but the worst solution one could possibly imagine before the first response is even received.

The fact of the matter is that, when you are looking for a solution, there’s more than just one correct architecture, the number of features isn’t important, multiple deployment models may be satisfactory, advanced payment models and complex SLAs may not be necessary, and the processes you assume you need may not be the right processes for your business.

If the solution works on your current platform, does it really matter if its written in J2EE, C++, or Ruby on Rails (as long as it was put together properly)? Does it really matter if one solution has 800 “features” and another solution has 1000 “features” if all you need to support your processes are 200 “features”? And more importantly, do the features even address the critical functions you need to get the most out of the solutions? Although on-demand SaaS has advantages over ASP, and ASP has advantages over localized deployments from TCO perspectives, from a security and control perspective, assuming you have a crack IT team in house that knows what they’re doing, arguments can always be made in the other direction. (However, most non-technical companies don’t have crack IT teams, regardless of what they think, and that’s why I’m such a proponent of the on-demand SaaS model.) Not everyone uses the complex payment models pioneered by Oracle and SAP – some vendors use very simple pay-as-you-go models – especially on-demand vendors who charge you one fixed fee a month for the license, including maintenance, and one variable fee a month for how many days of consulting you utilize, easily calculated as number of days * resource rate. Finally, have you taken the time to evaluate your current processes from an efficiency and effectiveness standpoint? Maybe they are not optimal – in fact, if you haven’t reviewed them lately – chances are they are not optimal and a good time to change them might be upon implementation of a new system that can support the processes you should have, versus the processes you have today.

Thus, when constructing your RFP, if you’re not an expert in technology, and unless you’re an IT company – you’re not, don’t pretend you are. If you’re not an expert in what today’s solutions can do – and unless you’ve spent a significant amount of time researching large and small vendors alike – you’re not, don’t assume feature function lists, and definitely don’t assume that one vendor’s template is the best feature function list that’s out there. And definitely don’t use a template provided by a vendor being invited – that template was written to make them look good from a comparison perspective with their primary competition – which may not have any correlation to the solution you actually need.

Leave the technical and feature specifications open-ended. Instead of describing a proposed solution, describe the problems you’re having and the problems that you expect the solution to solve and let the vendors describe how their solution could meet your needs. And if you’re worried about the responses being too apples-to-oranges to make a decision, do a two-stage RFP. Issue a preliminary, open, RFP that describes the type of solution you’re looking for, the problems you want it to solve, and asks the vendors to describe how their solution meets this need and what key functions it offers and tell them that the best submissions will be invited back for round two, which will be closed.

Review the submissions to the initial RFP, invite clarifications and demonstrations (on the grounds that price and terms will not be discussed), flesh out your requirements, and then issue a closed RFQ with more detail on any architecture or deployment restrictions, the core functions you desire, your minimum SLA requirements, and your criteria for scoring the responses and selecting a solution. (For example, saying you can’t do on-premise Linux because you don’t have the tech resources is good, unlike saying that only on-premise Windows works when in fact you could consider on-demand with Windows Thick client. Saying you need a centralized contract repository as part of your CM solution, once you understand what that is, is fine, whereas saying you want a repository that uses Oracle 10.X, because that’s what you have a license for, when in fact the solution might come with a built in database or license for the database it uses, is overly restrictive.)

If you’re smart about the RFP process, then the solution you end up with will surprise you in its effectiveness and efficiency. However, if you just follow the herd, then you might find that you add to the statistics that say at least 70% of all IT-based projects are at least partial failures, because the system will likely not live up to your expectations of it. I guess what I’m saying is, don’t be an RFP-lemming. (As a reader of this blog, I know you’re smarter than that – but I need you to help spread the word!)

Supply Management in the Decade Ahead II: The Eight Major Forces – Part I

In Part I of our review of Succeeding in a Dynamic World: Supply Management in the Decade Ahead, we overviewed the various external forces that will impact a company’s supply chain as identified by CAPS, AT Kearney, and the survey respondents. We then concluded with the eight major forces that were identified specifically by supply managers who took part in the study. Today, we will dive into the first four of these eight major forces and explain not only why they are important, but what can be done about them.

Global Competition

The report notes that the impact of China on the world economy will continue to be enormous over the next ten years and that, to prosper, companies will have to embrace China as both a market as well as a source of supply for their goods and services. As China continues to modernize and urbanize, China will consume an increasing share of the world’s raw materials, driving up prices and / or creating shortages. The growth of China as a supply and demand market will create opportunities for all and those that embrace the China opportunities will have profound advantages over those that do not. Furthermore, enormous intellectual capital exists in China that can be tapped for invention, innovation, and new technology.

The report also notes that other developing countries will continue to emerge as attractive supply sources and bases of growth and identifies Russia, Mexico, and India. Personally, I think India will emerge as the next great shaper of the global economy and challenge China for supremacy. See my predictions on the winner of the talent war and the loser of the innovation challenge.

Merger, Acquisition, & Supply Market Consolidation

To meet the onslaught of new competition, companies headquartered in developed economies will need to increase in size with improved economies of scale and market power to survive. This will thus force many companies to merge and consolidate. As the M&A game plays out, supply management will be tasked with assessing the impact on the supply chain, including costs, risks, and opportunities. Supply management will need to understand the new supply base, how it can be used to gain advantage, and how to find the forecasted cost savings. In addition, when oligopolies are created by supplier consolidation, power will shift in the marketplace and diminish customer bargaining power while creating a major threat for buying companies.

This is one recommendation that I disagree with. To meet the onslaught of new competition, companies headquartered in in developed economies will need to do something to maintain their place in the market, but increasing in size and market power through consolidation isn’t the only option. They could survive by finding a niche and being the best player in the niche, or they could survive by generating greatly improved economies of scale through the application of innovative processes and methodologies. Now, I know that the approach most big companies take to innovation is to buy it, but it doesn’t have to be this way. Look at Apple.

Increased Government Regulation

Government legislation and regulation of business will only continue to increase, requiring companies to dedicate sufficient resources to ensure compliance, especially in the U.S. and EU. This will lengthen contract negotiations which will have to discuss government regulations and privacy legislation to make sure all parties will be able to remain in compliance. In addition, government actions to support or restrict economic development, such as tax incentives and trade restrictions, will have a large impact on supply strategies.

Government legislation and regulations will continue to multiply, but I believe that China and India could pose just as many issues in the next decade as the US and EU do now. China is already pursuing its own version of RoHS due to the extreme amount of e-Waste that companies are trying to dump there. India is trying to become the next great knowledge and service economy and will eventually enact regulations necessary to satisfy the requirements of dependent nations in terms of privacy and IP. Furthermore, there’s more than one way to deal with the legislation onslaught. The first is to add resources, as the report suggests, but a company could choose to implement systems to manage the data gathering and reporting requirements without increasing resources. These systems are rare today, relative to other supply management solutions, but will become more common as niche providers will rise up to address a problem that companies, who are currently paying millions of dollars just to generate compliance reports, will pay handsomely for.

Technology Advances

Technology breakthroughs will continue to cause major changes to how products and services are provided. These changes will ultimately lower the customer’s total cost of ownership. Core technologies of many industries will become commoditized, forcing geographic consolidation and concentration of the supply base. Shortages of key raw materials will lead to technology changes and the use of alternative raw materials.

I have to agree wholeheartedly here, but point out that the early winners will be those that latch onto new technologies early, lowering their cost and ushering in the era of commoditization. In the software industry, on-demand and SaaS providers will be the big winners next decade, as will providers who can deliver enterprise systems based on low-cost open source technologies and make their money off of services.