Putting McKinsey’s Business Technology Trends into Practice Part II

The McKinsey Quarterly recently published an article on eight business technology trends to watch that was not only quite good, but a good summary of the trends that you should be implementing, appropriately, in your supply chain. In this second part of this two part series, we are going to review the remaining trends and give you some examples of how you can apply them to improve your sourcing and supply chain practice.

Expanding the Frontiers of Automation

More and more systems are becoming interconnected through common standards for data interchange and more and more business processes are becoming automated at larger and larger scales. This information exchange can be used to automate even more activities, with a little thought and proper planning.

For example, you’re probably using multiple systems for sourcing and procurement, and in e-procurement in particular, there are probably considerable improvements you could make to not only increase efficiency with automation, but reduce overspending and maverick spending. Let’s consider the process – requisition creation, requisition approval, supplier acceptance, goods receipt, invoice generation, review, and payment. You’ve probably heard a few of the more progressive vendors say that you should have 2, or even 3, way match at the invoice review stage – but the reality is that you should have m (where m is equal to the number of data points you have) at each step of the process. When the user creates a requisition, items should be checked to see if they are under contract, and if not, if there are contract equivalents and prices should be compared against contract pricing. If an item is being bought under contract, but the price is wrong, it should be corrected (and the user notified), and if the item is not under contract, but there is an item that is, the user should be notified and if the user insists on requisitioning the off-contract item, the user should be forced to enter a reason as to why he or she is seeking permission for maverick spend. When a supervisor goes to approve a requisition, the prices should be re-verified and the supervisor should be immediately alerted as to whether or not the requisition contains any maverick spend requests. Before the invoice is approved, it should be matched to the purchase order that was generated from the requisition to make sure each item was ordered, the goods receipt to make sure everything was delivered, and the contract to make sure the prices are right. In this way, a supervisor can quickly spot requests for off-contract spend and focus attention where it is really needed, and invoices from approved suppliers where everything is verified can be automatically scheduled for payment, allowing users to focus their time only on those invoices that need to be manually investigated.

Unbundling Production from Delivery

Technology helps companies to utilize fixed assets more efficiently by disaggregating monolithic systems into smaller, loosely coupled, systems. It’s not one big production line, but a set of smaller lines that work on individual components, some specialized to a single task. Improvements in information and communication technology not only enable the new models, but enable the use of each resource to be monitored and metered separately. This allows companies with free capacity to lease their resources to other companies which need to gain access to assets quickly to scale up businesses but keep their balance sheets in check.

There are a number of ways you can implement this concept in your sourcing and procurement organization, and the best way to start is to simply unbundle product (production) quotes from delivery (shipping) quotes and then use a strategic sourcing decision optimization platform that can optimize your allocation to minimize total cost of ownership and total value delivered in ways that you will not achieve with e-Auctions alone. The next step is to contract for additional capacity as you start scaling up operations or need a new technology that you don’t have, and don’t take on any fixed assets until you have proven the market and demand. Then, you if you’re truly innovative, you’ll identify other organizations with similar supply chains whom you are not in (direct) competition with and take on management of their third party logistics requirements to increase the volume of your logistics requirements to negotiate even better deals with your 3PLs.

Putting more Science into Management

The article notes that technology is available to help managers exploit ever greater amounts of data to make smarter decisions and develop the insights that create competitive advantages and new business models. The article notes that from “ideagoras” (e-Bay like marketplaces for ideas) to predictive markets to performance-management approaches, ubiquitous standards-based technologies promote aggregation, processing, and decision making based on the use of growing pools of rich data. It also notes that leaders should get out ahead of this trend to ensure that information makes organizations more, rather than less, effective, and the doctor agrees with this wholeheartedly!

The best way to start is to acquire a real spend analytics platform (which is more than boxed reporting on a data warehouse, but you know that) and a real strategic sourcing decision optimization platform, if you don’t have them already. This will help you target the spend that has room for improvement and make optimal award allocations, keeping spend down. Then, acquire some collaborative PLM software to enable you to monitor NPD from the inception stages and insure that the best decision is made by the organization at each stage of the process.

Making a Business out of Information

The article points out that accumulated pools of data captured in a number of systems within large organizations or pulled together from many points of origin on the Web are the raw material for new information-based business opportunities, and while that may be true, the doctor thinks that the trend you should be focusing on is running a better business on timely information.

Not only do today’s organizations have access to more data than they have had access to in the past, but those with visibility enabled supply chains (that use RFID and XML or EDI interchange with partners) have access to this information faster than their peers. Those companies that are able to make use of this information quickly and appropriately will be able to outperform and outmaneuver their competitors, and respond much quicker to events that could cause supply chain disruptions and re-engineer around them. For example, a pizza chain that monitors expected tomato crop yields and any natural events that could significantly diminish those yields, after finding out that a hurricane wiped out a large crop, could move to quickly lock up future supply at today’s prices, putting it in a much better position than its competitor that will be forced to fight for a much smaller supply at higher prices. A 3PL that keeps on top of all news that relates to major ports as well as where its trucks are at all times through GPS could immediately divert all trucks, en-route, to a different port as soon as it discovers that a tsunami just wiped out a dock and shut the port down for a week. Let’s face it, supply chains are not in the information business, and shouldn’t be looking to create new businesses around information when they can instead use that information to execute their business much more efficiently then their competitors, giving their firm a strategic advantage that could enable it to grab more market share with less dollars, which is a contribution to the bottom line above and beyond the significant savings they are able to achieve.

As the article states, creative leaders can use a broad spectrum of new, technology-enabled options to craft their strategies. These trends are best seen as emerging patterns that can be applied in a wide variety of businesses. Leaders will reflect on which patterns may start to reshape their markets and industries next – and on whether they have opportunities to catalyze change and shape the outcome rather than merely react to it. As the doctor has demonstrated, each of these trends can be co-opted by your sourcing and supply chain organization to literally get more for less. the doctor hopes that you have enjoyed this two-part mini-series.