Monthly Archives: October 2009

7 Sourcing Secrets More Than 2 People Should Know

A recent article over on Cracked listed 7 Secrets Only Two Living People Know (for some reason … that the doctor must admit he doesn’t understand in a few of the cases). While entertaining, it did cause me to ask why there are so many truths in sourcing that most people still don’t seem to get. Since some days I feel like only 2 people know the following, I decided I should do my own post on 7 sourcing secrets more than 2 people should know. Because you really, really, really should know the following sourcing “secrets”. After all, they’re truths, even if no one’s bothering to tell you. So without further ado, here they are:

1. Spend Analysis is flexible Data Analysis, not canned reports on a data warehouse populated via automated classification

Real spend analysis is the ability to dive into your data and find out not just where your true spend is higher than it should be, but why. This requires you to have the ability to slice, dice, and cube your data on any dimension you can think of, because you’re never going to know where the losses are until you find them. (After all, if you knew where your holes were, wouldn’t you have plugged them already?) Canned reports on a static data warehouse can only tell you how fixes you’ve already implemented are working, not where the holes are. Furthermore, “automated classification” just doesn’t work. Any good consultant worth his salt can load your data into a real data analysis product and find two dozen mistakes in twelve minutes. You need the ability to define and redefine mapping rules on the fly as all automated classification can do is fix previously identified mistakes. It can’t identify new ones. Software isn’t intelligent. People are.

2. e-RFX is electronic support for the full information and quote gathering cycle, not just bid collection

If all your e-RFX does is allow you to collect bids, it’s not e-RFX. It’s e-RFQ, and a poor e-RFQ at that. It should allow you to create questionnaires, surveys, and entire RFX packages with closed and open-ended questions, allow you to compare responses side by side, and allow you to collect not only all of the pricing, but all of the discounts, rebates, and promotions the supplier offers. It should help you manage the process, guide you through it, and support data import and export in open formats so that you can also use analysis, optimization, and contract management tools.

3. A Reverse Auction is simply an online auction event, it’s not a substitute for proper sourcing project management

I follow the space closely and not a month goes by where I don’t see an article on how Company XYZ is now refusing to participate in online auctions. When you dig down, this is because they had a horrible experience. When you dig deeper still, you find out it is typically either because Company ABC simply threw an auction tool at the supplier and told they had to bid through the tool or lose all their business or Company ABC threw up an auction tool and said they’d award to the lowest bidder but ended up going with a different supplier, usually the incumbent, after the auction closed.

I find this appalling, because e-Auctions, like e-RFX, are not only a great time saver, but a great way to bring parties together from around the globe and allow them to participate in an e-Sourcing event that, when run right, is more transparent, educational, and profitable for all parties concerned than traditional methods of sourcing where you get bids by phone and fax until you find three bids you like and then meet in a room to “negotiate” until a deal is struck with a winner. (And I use the term “negotiate” loosely because old style purchasing methods usually boil down to the party with the most leverage beating up the party with the least leverage.) But this is only true if the event is run right. This takes proper project planning and management. Tools can facilitate the process, but they can’t replace it.

4. Decision Optimization is for everyone, not just for math geeks

I’ll admit this is my own personal bandwagon, but having seen savings of over 40% and ROIs of over 400 on a number of projects, and average savings in the 10% to 20% range and average ROIs of 5X to 10X or more, I think I have a good reason for riding it. Despite the fact that true self-service decision optimization for sourcing has now been around for almost a decade, it’s still the “black sheep” that almost no one uses — and it’s a real shame because now is the time you need it most. Furthermore, the new tools coming out of the leading providers are a lot more usable than the first generation tools and can be easily used by any college graduate who can build a cost model and specify some business constraints. In other words, if you have the pre-requisites for strategic sourcing, you can use these tools to save time, to save money, and make better, more informed, decisions.

5. Contract Management is just a new name for document management with integrated monitoring, it’s not a replacement for contract managers

Lately I’ve noticed how contract management is coming into vogue. And while that’s a good thing, it’s important to understand what contract management is and isn’t because it seems that some vendors, and some publications, are promoting the new offerings as the latest and greatest tools to solve all your contract woes when the reality is that these tools are nothing more than document management tools with monitors and alerts. I won’t deny the importance of having a good contract management tool that can monitor expiration dates, contract pricing, and, most importantly, invoiced pricing against contracted rates, but these tools, even if they contain sophisticated contract creation capabilities, can’t replace a contract expert, a master negotiator, or a good spend analysis tool that can uncover devious work-arounds by less-than-reputable vendors looking for a way to make back that buck they gave up in negotiations. (For example, I’ve talked to a number of consultants who told me how they found that some office supply management vendors regularly changed SKUs to bill you twice as much for that pen as it’s really worth.)

6. e-Procurement is tactical, and not a substitute for e-Sourcing

There’s still a lot of confusion in the marketplace between what is e-Procurement (and how it relates to P2P, EIPP, and the other new acronyms old players are coining to differentiate their new, streamlined, offering) and what is e-Sourcing, even though it should be fairly clear cut (as I attempted to outline in this post on why it’s sourcing and procurement). A few of the e-Procurement vendors are even claiming that you don’t need sourcing at all if you use the wisdom of crowds (which is not the case because there’s a big difference between a great deal on a commodity office supply and a great deal on raw cocoa or custom circuit boards, which are not commodities). Sourcing is the strategic part of the purchasing cycle, procurement is the tactical. You need both, and one is not a substitute for the other.

7. It’s not what you know, it’s what you can learn

Plain and simple,

  • it doesn’t matter if you’ve been doing it that way for 20 years if it’s not optimal,
  • shift happens, and
  • whatever happens, the world of tomorrow will not be the world of today.

You have to keep learning. That’s why this blog is here.

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SaaS Is Green … But It’s Greener If You Go Thin Client

This summer, MessageLabs (now part of Symantec) released a white-paper on The Greening of SaaS which I found very disappointing because one key point that many vendors overlook when selling SaaS is how it can considerably green your operations if implemented and utilized properly.

The paper indicates that with no hardware to purchase or software to run, the energy required to power that hardware and execute that software is eliminated or significantly reduced, depending on client-side consumption. While it is true that the client does not need to buy, maintain, and then dispose of (as much) energy consuming software if they go SaaS, as they won’t need a server farm in a data centre, this does not make SaaS green. If the “SaaS” vendor is actually an ASP-in-disguise vendor maintaining a separate instance of the application on separate hardware for each client, the same amount of energy will be utilized and the same amount of carbon produced. The only difference is that it shows up on the provider’s carbon footprint and not the client’s. That’s not green at all. It’s only green, on the server side, if the vendor is using a shared multi-tenant model and dynamically managing the modern high-density low-power virtualized server farm so that only the processors and storage devices currently being utilized are powered up and the utilization of active processors is at least 70% (to meet the EU PEU guidelines for green).

Furthermore, it then says that the three key local ingredients for best customer results are:

  • desktop and notebook PCs configured to spin down, suspend, or turn off when not in use,
  • utilization of usage-based power consumption devices (with idle ports suspended and inactive ports disabled) on the LAN, and
  • utilization of WAN optimization devices to minimize equipment needs, data transfer, and power consumption

    • .

And while all of this is a good start, it makes absolutely no mention of thin client. If all your applications are over the web, why can’t you use a SunRay II or a CP20 instead of an energy hogging desktop? Even a modern desktop will still consume an average of 100 watts of power to the 4 watts for a SunRay II or the 25 watts for the CP20 if you need to replace high-end developer workstations. Furthermore, there’s no mention that you should be replacing your old energy hog CRTs with low-energy LCD monitors if you really want to be power efficient. (Now, it is true that you’ll need one or more servers and SANS with your virtual machine instances to support your thin clients, but when you can easily run 128 virtual machine instances off of a modern, high-density, low-power 32-core diskless server, which can all be stored with terabytes of room to spare on your standard 4U 48 TB SAN, you’re still saving oodles of energy and fistfuls of dollars because the cost of 128 SunRays, 1 server, and 1 SAN is significantly less than 128 desktops which need to be replaced at least twice as often as the thin clients, which have twice the lifespan.)

So yes, SaaS is a very green solution … if it’s done right. It’s not just about aggregating traffic to minimize data transfer needs and, thus, equipment needs to support the data transfer, it’s about being smart with resource and energy utilization every step of the way, from the end user all the way back to the provider’s data centre.

For more on greening your data center and greening your desktops, see the linked posts.

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Will Poor Spend Management Be The End of Harvard?

Back in August, after reading Nina Munk’s Hard Times at Harvard article in Vanity Fair, I asked if Poor Spend Management Will Be The End of the Ivy League after Harvard’s endowment lost a whopping 8 Billion in the first four months of its last finical year. This amount, which is greater than the entire endowment of Columbia University (at 7.1 Billion) put Harvard in dire straits, especially since Harvard’s President warned of an expected 30%, or 11.1 Billion, loss. (The actual loss was about 11 Billion, and the full report can be found on the Harvard Web Site. [PDF])

Then I read this article over the weekend, which noted that Harvard University lost 1.8 Billion alone from the cash account it uses for daily operations through investments in high-risk vehicles (which included stocks, hedge funds, and risky assets), I started to wonder if poor spend management is going to spell the end of Harvard, at least we know it. However, what I really want to know is how could Harvard, with the famed Harvard Business School and Harvard Business Review, be so stupid? Even the dumbest companies know that, unless you have more than three months of operating capital, you keep your daily operations cash in savings accounts, and even if you have more than three months, you only invest it in low risk investments like money-market mutual funds which have a long history of slow and gradual changes (and not high risk stocks that can plummet overnight)!

All I can say is that I’m at a loss for words! Anyone want to chime in?

I Hope You Take More Care With Your RFP Responses Than This!

Pricing FAIL

  Courtesy of the FAIL Blog

If your price changes sporadically every time you quote, for no apparent reason, you’re not going to look very organized!

Anyway, maybe this is why Wal-Mart changed their slogan from “Always Low Prices” to “Save Money. Live Better” because, as Vinnie recently pointed out, not all prices have been rolling back at Wal-Mart lately. Vinnie notes (as I have also noticed) that Mach3 Razors and dog food have been rising inexplicably, and I once walked into Walmart to pick up a can of coffee that was advertised at 4.97 the week before to find it had increased 60% to 7.97. So, while you will live better if you save money, you might not necessarily be saving that money at Wal-Mart.

If You’re Always Firefighting, Don’t Be Surprised If Your Business Goes Up In Smoke

A recent article on the top 10 myths and realities of S&OP made some great points about what S&OP is and isn’t and why you need it. I particularly liked myths #2 and #3 which pointed out that if your leaders focus on real time issues (firefighting), they are not thinking strategically over the long term. As the article points out, firefighting is simply an expensive, non value-added attempt to recover for inadequate aggregate planning, lack of foresight and poor execution.

There is simply no amount of adjustment at the detail level will correct an error at the aggregate level. Companies who try to plan at the detail level over the long term, such as the 24-month planning horizon common to most good S&OP processes, simply waste time and resources since such plans will need to be updated almost daily. More importantly, they lose the forest for the trees and might not notice the clearcutter coming their way. If you’ve always got your head down correcting for minor deviations in consumer demand, you are going to miss the major deviation coming up with the next major shift in consumer preferences (such as the introduction of a new product that uses new technology or offers a brand new feature). And when this happens, you might just find that your already struggling business goes up in smoke.

So if you haven’t already done so, implement proper S&OP practices. You might just find that you have fewer fires to put out.

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