Monthly Archives: December 2007

Blogologues on Hiatus

I know that you’re still without your evening monologues, and as defacto members of the larger Colbert Nation, I know that you’re finding it tough, but it is that time of year where even pundits take a break for the holiday season. Furthermore, with the 12 Days of X-emplification starting tomorrow, you’ll still be receiving your daily dose of the doctor‘s wisdom, and you should be able to manage just fine.

After all, it is time that you started kicking in a bit of overtime at the office and at home to get ready for the holidays. This hiatus will insure that even if you have to reduce the amount of time you spend on your daily blogs, you will not have to miss out on any literary goodness. So relax and enjoy the holiday season! You deserve it.

The 12 Days of X-emplification: Prologue

Last year, I brought you the 12 days of Christmas, which went as follows:

On the twelfth day of X-Mas
my blogger gave to me
an ounce of cunning,
another vendor hyping,
blog posts worth keeping,
spend vendors lancing,
thoughts for a shilling,
strategies for winning,
tactics for saving,
five golden rings,
four little words,
tri-focal lens,
two boxing gloves,
and a lesson in strategy.

This year, in the spirit of giving, and in the spirit of Questions to Ask your Optimization Vendor, the doctor exposes the elephants in the room (Part II), and the doctor goes mental (on Auctions and on Optimization), I’m going to give you twelve posts on twelve different sourcing and procurement technologies and services that expound upon the questions you should be asking, the answers you should be expecting, and, most importantly, why, so that when you set about choosing a technology to help you with your sourcing and procurement challenges, you choose the right one.

Now, I know that Procuri and some other vendors put out a series of RFP template documents, that included The Sourcing RFP Template, The Supplier Management RFP Template, The Contract Management RFP Template, and The Spend Analysis RFP Template and that some of you might think that these posts are therefore unnecessary, but I assure you that the opposite is true. The problem with these RFP Templates is that they were written from a feature perspective, and were designed to make the sponsors look good (whether the sponsors want to admit it or not). The reality of the situation is that the number of features a product offers is irrelevant if it doesn’t support the key processes you need it to support to add value to your business. In other words, a product with only 100 features could be many times better than a product with over 1000 features if the product with 100 features supports the ten functions you need to support and enable your best-practice based business processes. For example, it doesn’t matter if a spend analysis package comes with 100 reports out of the box if you can’t build a template for the one report your boss demands to see every week.

Thus, when it comes to the technologies you use, or should use, every day, I think it’s time that you as a buyer knew the questions you should be asking, and not necessarily the questions the vendors want you to ask. Then you’ll be in better shape to select the right technologies to meet your needs.

Before the series gets started, I have a couple of things to take care of.

First of all, please understand that just because the templates I called out above (and those like them) are not appropriate templates for you to be using in your efforts to find the right product for you, this does not necessarily imply that the solutions offered by those same vendors are not appropriate for your needs. The solutions might be appropriate, and they might not. But unless you ask the right questions, how will you know?

Secondly, if you thought my blogologues were hard hitting as of late, and even a little scathing, as they used to say, you ain’t seen nothing yet. Although I’m not going to discuss specific vendors with respect to the technologies in the 12 posts that follow, I can guarantee that for any given post, there are going to be a number of vendors who are not going to be too happy after reading it – because their solution, whose last major update was five plus years ago, not only doesn’t cut it, it doesn’t even come close!

the doctor Wants To Know Why You Don’t Have A Talent Strategy

As I pointed out this weekend, the global war for talent is about to intensify – and if you don’t act now, you might not have time to. The US alone is facing a workforce shortage of 10 million by 2010, your high-tech workforce would rather stay in India, and Europe has finally recognized that if they don’t make immigration for skilled workers easier, they might not have any left, and have created a new type of renewable permit to allow people to relocate and live there quickly and easily.

So why don’t you have a talent strategy? Especially since taking a first shot is not that hard. As long as you realize that all most people today want is greater flexibility, personal growth, career paths, opportunity, open communication, and competitive pay, and as long as you make it your mission to treat people with the fairness and respect they deserve, it’s pretty straight-forward to come up with a multi-pronged strategy that is bound to be effective, especially when most of your peers are still in the dark ages and believe that the labour is nothing more than “human resources” who can be hired and fired like most farmers buy and sell cattle.

For instance, even if you just instituted the following principles, you’d be on your way to a good talent management (and acquisition) strategy (since good people attract good people).

  • Everyone has multiple career paths open to them.
    For example, every developer, if that is their ultimate career goal, has a chance of working their way up to at least CTO. However, if all they want to do is code, they have a path for working their way up the seniority ladder where they can eventually have their choice of new development project and role on the development team (as well as a huge salary – since your best programmer can be more than twenty times as effective as your average programmer). And every buyer has a career path right to the top spots – CPO, and maybe even CEO.
  • People can work where they want to, and within reason, when they want to.
    If they’re not a morning person, or regularly have to hold calls with suppliers half way around the world then, except for some common meeting hours each week, they should be able to choose when they work. Similarly, if your best developer is a night owl and does his best coding between 8 pm and 2 am, let him work a night shift. Your goal is not where or when your staff works, but the results they get. As long as they’re putting in the effort and making a commitment, whether or not they work when you work doesn’t matter.
  • With the exception of the C-suite, every job function is open to full-time, part-time, seasonal, and consultant labor.
    Let’s face it, if all the boomers retire when they turn 65, you’re average large organization is going to be hit with a double whammy it might not be able to recover from. First, it might not be able to replace even half of those workers due to the extreme talent crunch. Secondly, most of it’s knowledge – the intangible that might be accounting for 10, 20, 30, or even 50% of a company’s value – will walk out the door with the retirees. To continue succeeding, it needs to ensure that knowledge is transferred and that key relationships don’t dissipate with their departure. This means it needs to allow these individuals in particular to work part-time on their schedule to make sure the knowledge gets transferred and the relationships stay in tact after the new hire is made.
  • Furthermore, no one will be penalized for not working a traditional full-time job.
    If you have a pension plan, a recent retiree will not be penalized for contracting with you on occasion to help transfer knowledge or lead key initiatives that really require the experience of a grey-beard. Part-time employees will also have access to benefits like health-care and daycare support. (The company sponsorship of these benefits can be less for part-time employees, as these benefits are costly, but these employees should not be denied access to their fair share of any company benefit.)
  • Everyone gets regular access to subsidized training.
    With your average technical undergraduate degree partially outdated by the time it is granted, regular training is a must. A full time employee will get an allowance of at least four weeks a year to spend in classes, at conferences, or on their own reviewing e-learning courses and materials. Furthermore, they will also have a budget to spend on non-company training related to their job requirements.
  • An emphasis is made on local leadership at the national level and international leadership in the C-suite.
    Let’s face it, your employees in India don’t want to be led by a Texas Cowboy with no knowledge of their language or culture and no interest in getting to know the local ways. If you want to attract and retain top talent in a developing economy where new jobs are being created every day and where wages are rising at four or five times the annual rate in the US, you need local leaders. Furthermore, if you really want to understand how to compete in a global economy, you better have a senior leadership team in your virtual head office that is familiar with that economy. The US is less than 5% of the world’s population, and that number is shrinking. To go global, you have to be global.
  • Everyone’s compensation is reviewed annually with the intent of insuring that every one who makes an honest effort and functions at the market level is indeed earning at least market-average pay.
    Although it may be true that it’s not always about pay these days, it’s also true that it’s still the most significant factor when it comes to talent retention and acquisition. After all, all other things being roughly equal, wouldn’t you take the job with higher pay?

Now, there is a lot more you could do, and a lot more you should do, but you have to start somewhere. And I think this is a good starting point.

Supply Management in the Decade Ahead V: Missions, Goals, & Performance Expectations

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. In Parts II and III we took deep dives into the eight major forces that were identified specifically by supply managers who took part in the survey. In Part IV we focussed on some of the major impacts to business models and strategies in the decade ahead. In this post, we will address the new and expanded missions, goals, and performance expectations for supply management as identified by the report.

The report notes that chief executives will ask far more of supply management – requiring it to take on a broader, more strategic mission, evaluating it on a more comprehensive set of goals and expecting a higher level of performance. To accomplish this, supply management will need to expand its influence across functions, business units and geographies, go beyond the comfort zone of traditional success measures, and find creative ways to deliver even more value to the corporation.

The report than indicates that tomorrow’s missions, goals, and performance expectations for supply management will fall into four main areas:

  • Delivering More Innovation From Suppliers
      The need for innovation will accelerate as companies continue to pursue new geographic and demographic markets. With the demand and supply for innovation destined to be in a constant state of flux through the coming decade, and with the limited resources that will be available within any single company (thanks to the talent crunch), business will need to overcome the usual “not invented here” barriers and tap into all available sources of innovation on a global scale.
       Companies will have to develop advanced approaches to how they identify external sources of supply, how they structure the commercial and working relationships with those sources, and how they make those resources an integral part of the product and services development process. Reinvention of the innovation model will be required to fully leverage external sources – and companies will need to formalize an ongoing process for sourcing innovation.
  • Contributing More Broadly To Revenue Generation
      Close attention to costs for goods and services leads to more competitively priced end products while a focus on quality and service reduces failure rates, improves availability, and leads to higher customer satisfaction and loyalty. However, some companies will expect even more. Some will seek to boost revenue by rapidly introducing products with a limited life-cycle to smaller, niche, markets. Other companies will seek to leverage the existing asset base and distribution channels to bring to market higher value or radically different products. Others still will ask supply management to take a lead role in finding new revenue streams using their unique knowledge of the business. And some will ask supply management to assist sales in co-selling products and services in one channel to suppliers of another channel.
      In the first case, supply management will need to find suppliers and create processes that support entering and exiting these unique offerings quickly with speed, agility, and minimal waste. In the second case, supply management will need to develop or restructure the supply case to meet the needs and costs of the markets into which the company wants to sell. In the third case, supply management will need to assess, screen, and take a lead role in negotiating with the relevant external parties. In the last case, supply management will need to provide deep insights into the dynamics of upstream supply markets.
  • Anticipating And Managing Supply Risk
      Extended global supply chains that include geographically distant, unproven, and even unknown suppliers pose supply continuity, liability, reputational, and intellectual property risks. Changes in buyer-supplier market dynamics reduces predictability. Actions related to environmental protection, sustainability, and labor practices pose uncertainty. The volatility of commodity prices, currencies, interest rates, and even tax structures adds additional complexity. Risk is everywhere!
       Supply management executives will be epxected to play a more strategic role in identifying and interpreting risks, and making tough decisions about risk exposure and mitigation. The level of sophistication required to manage the complex, wide-ranging portfolio of supply risks and integrate risk management into overall supply activities will need to increase.
  • Expanding the Breadth And Impact of Cost Management Efforts
    Performance expectations will be raised considerably as global competition forces companies to squeeze unnecessary cost out of every part of their business. For supply management, this will mean widening the breadth of spend areas covered, managing costs more holistically, and delivering cost savings faster. A range of tools and techniques will be used, including complexity reduction, greater standardization, tighter management of specifications and demand, compliance management, target costing, value analysis, value engineering, price benchmarking, statistical price modeling, should-cost analysis, expressive bidding, lean design, and Six Sigma.

Cost Management, Revenue Management, Risk Management, and Innovation management covers a lot of the bases, but I’d add at least the following:

  • Supplier Management
    Suppliers are going to become more critical to your operations as a whole – and this is going to require better management of not only their performance, but your overall relationships – as well as all of the data you collect about them, their products, and their operations. This will involve implementing and utilizing the next generation of SRM (Supplier Relationship Management), SPM (Supplier Performance Management), and SIM (Supplier Information Management) technology, which will eventually be unified in a common platform.
  • Sustainability Management
    Sustainability is the word on everyone’s lips these days and sustainability from social, environmental, and business perspectives will be critical. It will cease to be a secondary concern to cost, revenue, and risk management and many of tomorrow’s strategies will be designed with sustainability as the key priority.
  • Talent Management
    In a knowledge economy, talent is key. As talent becomes scarce, HR will be looking to supply management to help them identify available sources of talent within the supply chain to meet the organization’s needs via outsourcing, insourcing, and new types of talent sharing agreements between organizations, third parties, independent consultants, and semi-retired individuals.

After a break, this series will return with Parts VI through XII that will cover each of the seven critical supply strategies for succeeding in a dynamic world that were identified by the report.

the doctor Goes Mental On Optimization Myths

In my last post, I went mental on three of the most dangerous myths out there with respect to e-Auctions. In this post, I’ll attack some of the more brain-dead myths that are out there with respect to optimization. For more great information on decision optimization, I recommend checking out the e-Sourcing Wiki paper (Strategic Sourcing Decision Optimization: The Inefficiency Eliminator) that was originally authored by the doctor, the doctor‘s joint podcast with Next Level Purchasing (Part I and Part II and Free Transcript with Editorial Notes brought to you by Sourcing Innovation and NLP), and the posts in the Decision Optimization category here on this blog.

Myth 1: I need a PhD to use optimization!
It used to be the case that you needed an advanced degree to use the overly complicated command-line tools that represented the first generation of commercially available optimization products, but that hasn’t been true for quite some time. Today, companies like Emptoris and Iasta offer very simple wizard-driven user-interfaces that can be driven by any business analyst or sourcing professional which are often easier to use then your ERP or BI tools!

It’s literally as simple as selecting the relevant auction or RFx data, defining your demands for each item at each distribution center, identifying invalid freight lanes, specifying supplier capacity restrictions, identifying any business rules (such as dual-supply, 70-30 split) and defining any discounts or “preferred award” valuations (if I buy from Quality Delivered, the joint marketing campaign will be worth $10K). Then you click “optimize” and the optimal award for your scenario is spit out. If you don’t like it, you can copy the scenario, add or remove some constraints, and see what your idea of an optimal award is costing you and make the smart decision.

Myth 2: I can’t afford optimization! It’s too expensive!
Having been involved in this industry for a while, I know that early solutions were very expensive – usually starting in the seven figure range for an average company. But that’s true for every new generation of technology, software or hardware, it’s costly at first, as companies need to recoup their massive R&D investments, but gets cheaper over time. Today, a mid-size company can get a true enterprise quality strategic sourcing decision optimization solution for its sourcing department starting in the quarter-million to half-million six-figure range – and this will include a (shared) C-Plex license and (shared) dedicated hardware resources if they use an on-demand model such as that offered by Iasta.

Myth 3: My problem’s too large / complex for optimization.
Again, the technology has come a long way in the last decade. Not only can massive problems (which couldn’t have been solved in months a decade ago) now be solved in a matter of hours, but the types and quantity of constraints available have greatly increased. If your model is truly humongous, just remember that both CombineNet and Algorhythm regularly solve problems that take millions of variables and hundreds of thousands of equations to specify. As for complexity, even the solution by the relative newcomer, Iasta (which has adopted a best-to-market strategy) supports the four basic categories of constraints required for true decision optimization (capacity, allocation, risk mitigation, and qualitative), flexible discounts that will allow you to implement just about any cost structure you can devise, and freight costs for a true total landed cost model (as you can also define adjustments to capture utilization costs).

Myth 4: We’re very sophisticated when it comes to e-Auctions. We’re not going to save enough money with optimization to make it worthwhile.
Wayne Campbell said it best when he said and perhaps monkeys will fly out of my butt!“. Although it’s theoretically possible that you could be making the perfect buy – every time – without any decision optimization, in reality, the chance that this is true is about as close to 0 as you can get. I’ve NEVER encountered a situation where optimization didn’t provide a company with a cost savings opportunity in any moderately complex bid (and, these days, what bid is not moderately complex?). Furthermore, Aberdeen has found, both in their 2005 study AND their 2007 study, that advanced sourcing and negotiation methods, which includes decision optimization, saves a company an average of 12% beyond what they would save just using e-Auctions. That’s a lot of cash you’re leaving on the table.

There are more myths, but this is a good start – and hopefully enough to convince you to check these solutions out. Decision optimization for strategic sourcing is worth the investment.