Monthly Archives: January 2008

Supply Management in the Decade Ahead VII: Developing and Managing Suppliers

Today we continue our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and our review of the seven critical supply strategies for succeeding in a dynamic world in particular, with the second critical supply strategy identified by the report – the ability to develop and manage suppliers.

According to the report, in the decade ahead, the development of a competitive worldwide supply base and suppliers that collaboratively help to create value in support of the buying company’s business models will become the norm. Although the doctor is not sure whether or not it will be the norm across all companies, the doctor is sure that it will definitely become the norm across market leaders. Furthermore, as the report notes, the leaders of the pack will enter into an era characterized by companies looking for ways to strategically leverage key supplier/buyer capabilities for innovation and “enlarging the pie” rather than playing the zero-sum game whereby one company’s gain usually comes at the expense of the other. The importance of strategic partners, both buyers and sellers, will increase.

The report outlined thirteen strategies for working with suppliers. The top six were the following:

  • Improve Working Relationships with Strategic Suppliers
  • Allocation of Management Attention and Resources to Suppliers
  • Grow the Volume of Purchases from Strategic Suppliers
  • Require Suppliers to Take a Greater Role in Cost Management
  • Employ Joint Evaluation of the Working Relationship
  • Collaboratively Share Risks, Rewards, and Cost Savings

In the decade ahead, companies will put greater care into strategically structuring their supply base in order to support the business model and category strategies. Effective cross-functional teams will be employed to structure the supply base and help achieve the overall goals of the business. The supply base will be structured using a “bottom-up”approach that will be applied to each category. The collective supply base identified will contain the right number of suppliers for the company.

The report also provides some good questions to ask on a category-by-category basis when attempting to strategically structure the supply base around strategic categories:

  • How many suppliers is right for this category, and what role should each play?
  • What current and future capabilities are required, and where in the world should the supplier(s) be located?
  • Which suppliers do we want and why?
  • Do we want to lead and/or manage supplier networks at the Tier 2 and Tier 3 levels?
  • Which suppliers do we want to cross-collaborate with each other, why, and how can we influence this collaboration?

Suppliers will play a greater role in the innovation process and companies that work in industries where technological change is a driving competitive force will opt to work in an “open innovation” environment that celebrates the power of discovery and dedicates significant resources to working on such efforts. In addition, supplier relationship improvement will be a growing need, as suppliers will be increasingly viewed as a source of innovation, which is a change in the traditional western buyer-seller dynamics.

Furthermore, two different approaches to collaboration – “initiative driven” or “institutionalized” – will be employed as circumstances warrant to enhance future working relationships with strategic suppliers. The initiative-driven approach will establish a leadership team that will drive the company to rationalize the supply base, enhance segmentation, and identify preferred or strategic suppliers, improve performance scorecards, create or further develop capability matrices, modify performance driven sourcing behaviors to identify and reward best performers, and implement a company change program focussed on improving working relationships.

Mature strategic suppliers will be moved from the “initiative driven” state to the “institutionalized” state where the goal of the supplier relationship will be focused on improved value creation along multiple dimensions – including innovation, revenue enhancement, and business continuity – and not just cost reduction.

The report also noted that in contrast to today’s quarterly business reviews, stale supplier training programs, and narrow-focused joint improvement efforts, periodic, cross-functional reviews and meetings with key suppliers will be the way of the future.

In summary, in the decade ahead, the supply management function will have to clearly understand company needs and align with the appropriate suppliers, develop close working relationships with suppliers that are strategically important to unlock value-creating potential, and invest in not only reactive, but proactive supplier development efforts to maximize the value achieved by the supply base.

the doctor Takes His Turn With the (Supply Management) Magic 8-Ball – Part I

Everywhere you look, someone is summarizing the best of 2007 or making their predictions about the forthcoming year on a technology-by-technology or vendor-by-vendor basis. However, since the nature of futurism is that it’s virtually impossible to get the micro-level details correct, I’ll instead ask the Magic 8-Ball what’s in store for a bakers dozen of vendors in the year ahead. I’ll also indicate whether or not I agree, but point out that these will just be the doctor‘s best guesses – not statements of fact.

Aravo
Question: Will Aravo finally hit its groove with its new Sustainability Program Management Platform?
 8-ball : Signs point to yes
Question: What about their new blog – 2Sustain?
 8-ball : Outlook Not So Good

Aravo has a good supplier information management solution and a good sustainability management solution with its ability to manage massive amounts of data on a web-based platform where all data can be maintained through a centralized interface that allows each relevant party to maintain its own data. They certainly deserve to take off, either on their own or through a strategic merger or acquisition, but its hard to say when, or how, that will happen. As for the blog, due to the lack of regular posting, I don’t think it will be a big hit – but it will be a good tool to get the message out about what Aravo is trying to accomplish to potential customers.

Ariba
Question: Is this the year Ariba gets innovative?
 8-ball : Very doubtful
Question: Will they successfully integrate the best of Procuri?
 8-ball : Better not tell you now
Question: Will they at least support Procuri through 2009?
 8-ball : Don’t count on it

So, does the 8-ball have it right? Maybe. As far as the doctor is concerned, Ariba hasn’t been truly innovative in a long time, and even though Procuri had innovation in them, it’s a reality that most acquisitions usually result in the loss of a substantial amount of the innovative talent in the company being acquired, even if the acquiring company tries to keep them. Furthermore, even if they do support Procuri for longer than everyone is expecting, it’s probably safe to say that the integration of the best features of one platform into the other will take longer than predicted, since that is the industry norm. But regardless of what happens, you can be sure they’ll be putting out press releases at least every other week and getting lots of media attention.

BIQ
Question: Is this the year that people finally understand the difference between static reporting on data warehouses and true spend analysis?
 8-ball : Concentrate and ask again
Question: If it is, will BIQ finally break into the limelight?
 8-ball : Yes – definitely
Question: If it isn’t, will BIQ still continue steady growth?
 8-ball : You may rely on it
Question: Will BIQ continue to innovate in spend analysis?
 8-ball : It is certain
Question: Will BIQ finally get the media / analyst attention it deserves?
 8-ball : Outlook not so good.

I hate to say it, but I think the 8-ball is on one heck of a roll. BIQ is likely to keep innovating, likely to be one of the few companies that actually understands what spend analysis is, and one of the few companies that actually offers a real spend analysis solution. However, it’s also likely that, thanks to the confusing B.S. being spread by most of the vendors in the space, that this will not be the year where the average buyer realizes what the difference is between static reporting on data warehouses and true spend analysis (despite my efforts). It’s also likely that the media and so-called analysts will continue to ignore BIQ in favor of the larger vendors with the larger marketing budgets. However, once someone sees their solution, I predict that, at least in the indirect space, they’ll win more deals than they lose and continue to grow.

Co-exprise
Question: Now that Co-exprise has started promoting its new solution, are buyers going to accept it?
 8-ball : Most likely
Question: Will the next release contain all of the key requirements of spend analysis for direct sourcing?
 8-ball : Signs point to yes

I’ve reviewed the Co-exprise platform twice – and I’m impressed with what they’ve been able to do in a relatively short time. They don’t show any signs of slowing down on the development front, so it’s more likely than not that they’ll continue to innovate and achieve the goals they’ve laid out. Also, due to the lack of integrated PLM and sourcing solutions in the direct sourcing space, I think many buyers are starving for options (since the only other option for some of these companies is Siemens PLM – which was the UGS / e-Breviate solution), and that a fair number will accept it – or at least give it a shot.

Emptoris
Question: Is this the year that Emptoris gets innovative?
 8-ball : Concentrate and ask again
Question: Is this the year that Emptoris makes another acquisition?
 8-ball : Reply hazy, try again
Question: Is Emptoris going to go public this year?
 8-ball : Signs point to yes
Question: Any chance that they’ll succeed in luring away droves of Ariba / Procuri customers and possibly become the number one player in the next year or two?
 8-ball : Cannot predict now

Well that’s a pretty non-commital 8-ball – but it’s probably right. With Emptoris, you just never know.

Supply Management in the Decade Ahead VI: Developing Category Strategies

In this post, we continue our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead”, a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research in an effort to update the 1998 CAPS Study on The Future of Purchasing and Supply: A Five and Ten Year Forecast. The heart of this report was seven critical supply strategies for succeeding in a dynamic world. This post, and the six posts that follow, will focus in on each of these strategies in detail, starting with the development of category strategies.

Category strategies are designed to maximize value by leveraging resources and capabilities. In the future, changes in business models, industry structures, technologies, customer demands, environmental regulations, and a host of other factors will change not only how value is defined but how external resources and third parties help you deliver it. We’ve already seen the transformation from “best price on assured supply” in the early 90’s to total cost of ownership in the early 00’s.

However, as the doctor has been predicting for quite some time, we’re starting to see the push towards total value, which will increase as time goes on. For example, as noted in the report, companies are now looking at options to outsource business processes and activities that are not core strengths, creating new categories, and for suppliers with capabilities that can add new types of value. For example, engineering companies are no longer looking for the lowest cost suppliers, but suppliers with NPD (new product design / development) capabilities and suppliers who can improve the the design of existing products. In the future, leading companies will seek to gain access to, and leverage of, each other’s value chains as a way to enter into new markets.

Category strategies – which will address how companies speed NPD, how they implement the best value for a category worldwide, and how they stimulate the creation of new products and services with the support of suppliers – will focus on the total alignment of customers and suppliers to meet competitive objectives across the end-to-end supply chain. For example, a robust category strategy could include multiple and concurrent initiatives, including low cost country sourcing, design specification change, and switching suppliers to increase product innovation and supplier development.

The report also noted that the time horizon for category strategies will extend beyond the typical time frame of three years (or so), to six or even ten years. Moving production from mature to developing countries, developing performance and capabilities knowledge about best-in-class suppliers, developing supplier relationships and establishing on-the-ground supply-market and government regulation knowledge all takes years to accomplish. Furthermore, given the short life-cycle of many of today’s consumer products, while you’re sourcing today’s product, you need to be actively engaging with your supply partners that are going to help you design tomorrow’s product and prepare it for production, while also engaging innovation experts to help you brainstorm the product that will replace tomorrow’s product.

The report also polled professionals on which strategies will be the most important in the days ahead. The top six strategies identified were:

  • Aggregation and Management of Total Expenditures for Key Categories Across the Enterprise
  • Spend Analysis in Products and Services
  • Drive Decisions with Total Costs
  • Develop and Manage Supply Strategies using a Formal Process
  • Price Benchmarks
  • Improve Price Forecasts

The report also found that the category strategy portfolio will have to increase significantly, and that the tools used to evaluate strategy alternatives and risks/rewards will have to multiply as well. The report highlighted the following strategies and tools as important extensions to your current strategy portfolio.

  • Supplier Integration into NPD and Order Fulfillment
  • Risk Mitigation and Contingency Planning
  • Total Value Measurement and Learning
  • Change Management
  • Category Strategy Documentation

The chapter concluded with some generic strategy enablers that will help you regardless of the strategy you employ:

  • Executive Engagement
  • Cross-Location and Cross-Functional Teaming
  • High-Quality Spend Analysis
  • Category Research, Fact Finding and Analytics

Finally, I’d like to point out that the report has a very good table on page 47 that compares the differences in strategy development and strategy enablers between the decade ahead and the decade past. The table alone is worth downloading the report for.

the doctor Gives You The Top Ten Marketing Ideas … err … The Top Ten Supply Chain Improvement Ideas That You Might Overlook

Chief Marketer recently ran an article titled “Top Ten: Marketing Ideas To Consider in 2008” designed to help marketers, but, scanning it, I couldn’t help but notice that every idea was also applicable to your supply chain – in the right context of course. So, even though most of these wouldn’t be on my top ten supply management improvement ideas for 2008, I’m going to cover them anyway because they’re still good ideas – and some of them are actually quick hits that you’ll get immediate pay back from.

  • Time to Green
    Thanks, in part to Al Gore who has now invented the science of “global warming” as well as the internet, Green is on everyone’s lips these days. If your products aren’t green, you better find a clueless third world economy to sell into because you might find that, as more green alternatives hit the market, especially affordable ones, your products stop selling. Although we’re not quite to the point where it’s “Go Green or Go Home”, we’re getting close.
  • The Great Outdoors
    Get up, get out, pile in a high miles-per-gallon vehicle with the latest emission reducing technology (or at least a good catalytic converter in working order), and drive until you see nothing but trees, plains, or semi-desert. Then sit and observe nature for a day. Notice the balance and the cycle. Then go back to the office and kick your sustainability programs up a notch.
  • Get Game
    Gaming permeates society – and it does for a reason. It connects and entertains people at the same time. But, more importantly, as a few thought leading companies are starting to find out, it’s also a great training and communication tool. Instead of using the same “process” handbooks and “training” manuals, develop some customized games that help your new hires get to where you need them to be in a matter of weeks, instead of months or years. (Even oil companies are realizing that they can cut the training time required to prepare new hires to correctly and safely lay pipes in the oil-fields by two thirds with simulation gaming. Moreover, they are also finding that these new hires are more productive on their first day than those that used to get three months of dry class-room training.)
  • Mobile – I Can Hear You Now
    Take a clue from UPS and Fedex and give all of your logistics workers hand-held RFID scanners to help them more efficiently identify, track, and deliver your shipments on time.
  • Join the Club
    Use enterprise technology that takes the best (but not the worst – remember why the doctor remains faceless and spaceless) collaborative technology developments from today’s social networks to help you interact with your supply chain partners more productively.
  • Rise of the Widgets
    Select supply chain software that presents extensible APIs and configurable interfaces that you can use to customize the software to your needs.
  • Roll Video
    Your employees aren’t the only ones who don’t want dusty manuals. Communicate with your supplies using the full capabilities of today’s multi-media and video conferencing software. Send them training videos instead of training manuals when you need them to use your systems (or system interfaces) and hold visual conference calls now and again to help with team building.
  • From Behavioral to Contextual
    Stop focussing only on one-size-fits-all technology and process improvements and start looking for this-size-fits-me technology and process improvements occasionally. Some things just work better in context.
  • Focus on the Experience
    Just like consumers want to “feel good” when they buy from a retailer, your internal customers want to “feel good” when they work with you. Make working with the supply chain organization something everyone in the company wants to do.
  • … As-A Service
    The supply chain is becoming more and more service oriented – Software As-A Service, Logistics As-A Service, Warehousing As-A Service, etc. Those that master the new service-oriented approach first stand to gain the most.

Integration Point: Another Way to Get Your Trade Data in Order

I know I risk sounding like a broken record when I continually repeat myself on a topic, but some topics just can’t be ignored – and at least this time I’m introducing you to another company with a solution that I believe could help you with your trade data management efforts.

I recently had the opportunity to review Integration Point’s (acquired by Thomson Reuters) solution, and I believe that they are definitely one of the few providers with a chance to approach a solution that could theoretically be extended to tackle your global trade data management problems 100% in the future through a single, integrated, web-based platform. Right now, they’re probably a good two-thirds of the way there, and that’s currently further than any other solution I’ve had the opportunity to review so far.

Before we dive into their capabilities, let’s step back and define the problem again. If you review the Introduction to Global Trade wiki-paper over on the e-Sourcing Wiki [WayBackMachine], you quickly realize that Global Trade is quite involved, with the basic import and export cycles taking (at least) 14 steps each in the average case. Furthermore, in order to execute global trade, you need to effectively tackle ( 1 ) customs, security, and classification, ( 2 ) free trade / secure trade zones and agreements, and ( 3 ) regulatory compliance. Effectively tackling each of these challenges requires the ability to track and instantly access large amounts of data to create the forms and documents that different regulatory bodies require for the purposes of import / export, security verification, and regulatory compliance. Add extra emphasis to the “instantly” – the information needs to be accessible in real time – and this includes the ability to query up-to-date classification codes, tax laws, regulatory requirements, and denied party lists in real time.

As far as I can tell, with respect to the key supply chain destinations that compose most global supply chains (mainly, North America, the European Union, China, and India), Integration Point, with their extensible modularized web-based platform, has effectively solved the core customs, security, and classification challenge as well as the free trade / secure trade zone challenge. With solutions that address import and export classification (HTS codes), import documentation requirements, export documentation requirements, C-TPAT, AEO, denied party screening, FTA qualification, duty deferral, customs warehousing, customs control processing, and advance security filing – they have most of what your average multinational based in the US or the EU needs. Furthermore, they’ve built their platform to be extensible so that if you have additional classification or security needs, they can extend the solution to meet your needs. Maybe that’s why they already have over 80 multinationals as clients, including 11 of the Fortune 100.

The solution also integrates with a wide range of ERP and competitor trade platform software – including SAP, Oracle, JD Edwards, MAPIS, BPCS, MFG/PRO, American Software, EXE, Manhattan Associates, PKMS, and Infor – and they can usually integrate with additional software in reasonable timeframes since everything was built in house on a single, .NET-based, platform.

This only leaves regulatory compliance – which is a difficult challenge for any vendor because most of the major acts, like REACH, RoHS, WEE, etc. in the EU, require significant amounts of low-level manufacturing and product design details that are only found in, often archaic, PLM systems. However, their platform can track any product-specific data you like, can store any regulatory-specific requirements you like, and they can build custom searches and custom-matches as required by their customers – often in just a few hours – so if you know what the concerns are, you can track them and make sure they are checked before each award is made or each shipment approved, so if your needs are elementary, with some effort, you can extend it to serve as a basic regulatory requirements tracking system. However, it won’t be a full solution until they build in basic PLM data integration, tracking, and matching capabilities as well as the requirements of the major regulatory acts in North American, the EU, China, and India.

Integration Point also has the right viewpoint when it comes to global trade management – it should be proactive and not reactive. You don’t want to know about exceptions after a shipment has been approved, you want to prevent shipments with known problems from occurring in the first place. You want to make sure that the customer is not on the denied party list, that the distributor or 3PL has the proper transport licenses, and that you have the right export licenses before you even approve the order. You want checks to occur automatically as soon as each relevant piece of information is entered, every time something changes, and again just before the shipment is loaded – since denied party lists can change daily.

It’s definitely worth checking out – as they have more integration than Global Data Mining. However, that’s not to say that Global Data Mining isn’t a valuable solution too – as they are particularly good at mining your transaction data to find inaccuracies in classification or tariff & tax overpayments that a transaction-based compliance system like Integration Point isn’t customized for. The reality is that global trade is so complex that one solution probably isn’t going to cut it for a long time, if ever, but I do believe that starting with a web-based platform, like Integration Point’s, is a good start. For your reference, other players in the space are TradeBeam, QuestaWeb, Kewill Systems, and Management Dynamics.