Monthly Archives: March 2010

Gartner’s Quadrant for Strategic Sourcing Application Suites …

Magic or Tragic?

There’s been a lot of hullabaloo about Gartner’s new “Magic Quadrant” for Strategic Sourcing Application Suites, including a lot over on Spend Matters in “we report, you read, and we all decide” and “clarifying a few questions”, and with good reason. As one of the two publications that are supposed to “define” the strategic sourcing space, the other being the Forrester Wave, there are a large number of expectations that it will be fairly complete, mostly correct, and useful to the client base. But considering that only 14 vendors made “the final cut”, that one of those was an “exception”, that up to 3 more appear to have slipped in on “technicalities”, and that, depending on your viewpoint, up to a dozen other suite providers were excluded for no immediately apparent reason (including some you would expect to slip in under “technicalities” as well), it really makes you go “hmmm”. Especially when, upon diving in, you encounter a number of statements that make you go “huh?” and leave you with the nagging feeling that the report was as rushed as the survey process itself, which upset a large number of vendors, as you can see from the comments to “Gartner’s Two-Week Fire Drill” and “Too Little Time In The Oven?” over on Spend Matters.

Before I start ripping it to shreds, which you know by now I’m going to do, I should point out that I thought this was better than some of the previous quadrants because it was clear to me that, with respect to the criteria used, 10 of the vendors definitely deserved to be there. (Not that I agree with all of the criteria or definitions, or the final rankings. However, it’s reasonably clear that Debbie made a conscious decision to define criteria, as arbitrary as some of them seem to be, and stick to them.) Furthermore, most of the information about the included vendors was correct. (I thought it was better than Mickey’s 5th piece on Reaching Sourcing Excellence, “Sourcing Technology Is a Commodity With Short Time to Value and Immediate ROI”, that was released around the same time. Though her article was well written and made a number of valid points,   it, unfortunately, contained a poorly-constructed “Category Profile and Qualification Table” that attempted to rate the capabilities of 27 vendors across 12 capabilities.   This, in my opinion, ruined what was otherwise a pretty good piece.  But that would be another post in and of itself)

So what didn’t I like? In short the criteria — as some of them didn’t make any sense; a few of the definitions — as some are non-standard and confuse the issue; the implied and unwritten technicalities that resulted from the criteria and let some vendors slip in when there are others who were left out who are bigger, have a better reputation, and/or, in some cases, are more innovative; the amount of notice vendors were given — which may have resulted in a number of exclusions; and the results. I’m sorry, but when you ask me who the “visionary leaders” are in the space, I’m not going to say SAP, Emptoris, or Ariba. SAP is, as it’s always been, a slow lumbering giant in this space. It’ll get there, but not before just about everyone else. Not only does Emptoris have a history of acquiring most of its innovation, but up until it’s recent acquisition by Marlin Equity Partners, it spent the better part of two years downsizing and outsourcing all of its development and most of its support (to India), and you can clearly see the lack of innovation that resulted with respect to other companies in the market. And while Ariba, like Emptoris, is still a “leader” from a market size and solution footprint perspective, they’re still, in reality, dealing with the long-term effects of the Procuri acquisition and trying to fully integrate the code-base and capabilities into their platforms, some of which they still need to integrate and normalize separate from the Procuri acquisition.

Stay tuned for a more in-depth discussion and expose.

To Russia with Hope?

A month or so ago, I asked North American Nearsourcers is Brazil in your future, referencing a special report on business and finance in Brazil in the Economist that noted that, for the first time in modern history, Brazil is democratic, experiencing economic growth, and realizing low inflation.

Today, I’m asking European Nearsourcers if Russia is in theirs? In a recent Harvard Business Review article on “The Promise and Peril of Russia’s Resurgent State” (subscription required), we are told that there is money to be made in Russia, as long as companies play by the rules imposed during Putin’s tenure as president and that it is just as promising as other members of BRIC; it is no more corrupt, violent, or prone to institutional upheaval. Furthermore, the recent high oil prices have helped to propel economic growth, which has been strengthened by improved tax administration and energy company taxes, and resulted in recent fiscal surpluses.

Of course, with the good come the bad. The Kremlin’s apparently infinite appetite for power represents a growing threat, as do the complexities of doing business in Russia. The current fluctuations in commodity prices, of which Russia is largely dependent on, can make things uncertain as well and Russia isn’t rising to the centre stage in the same way that Brazil, India, and China are. And it’s current president has warned time and time again that Russia will be doomed unless both the economy and the society modernize, hand-in-hand.

But balancing everything out is the fact that Russia’s economic situation will improve with the economy, when oil prices again stabilize (in the $80+ range according to most projections). (European) Energy companies have no choice but to invest in Russia. Inflows will surpass $100 B annually, the nouveaux riches will devour luxury products, and the middle class, that will have an average income of $16K, will expand. During the eight years Putin was President, he did everything he could to enforce the Kremlin’s power to achieve his goal of developing a market system and integrating Russia into the global economy — including the creation of a prudent macroeconomic management policy. (In Putin’s government you did not get involved with politics, did not buy politicians, and paid your taxes. If you were a business who played by the rules, everything was fine, and you were free to get rich if you could. If you didn’t, you were in trouble.) And Putin’s handpicked successor, Dmitry Medvedev, has repeatedly said that tackling remaining corruption is his top priority. Plus, dealing with Russia’s state led capitalism is often easier than coming to grips with China’s single party, multi-level authoritarianism or India’s multi-party, chaotic democracy.

Anyone have any thoughts to share?

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Does a Quick Start Imply a Quick Finish?

It seems that the fashionable thing to do these days if you’re a Supply Management technology provider is to build a “Quick Start” platform and promote a rapid initial implementation, and the “obvious” rapid ROI that will result. Coupa, Rosslyn Analytics, and Aravo, among others, have all been making noise about their new SaaS platforms that allow for rapid results. And while each platform will give you rapid results if you listen to their advice and apply it properly, I’m starting to worry if this is the right thing to do.

Just like a narrow focus on “cost savings” can actually result in overspending and financial devastation if taken to the extremes, a narrow focus on quick wins can also cause you to miss the big picture, and the incredible savings opportunities that can result from good long term planning and cost control policies. A focus on short-term wins usually focusses on overspending recovery (which is good, but doesn’t solve the fundamental problems that led to the overspending), re-sourcing or re-negotiating high-spend categories (which may or may not have high savings opportunities), auctioning commodities (with little oversight), and “automating” processes (which is good if you take the time to redesign the processes first, which most companies don’t). And while all of these activities are good, because they always result in some cost reductions, there’s only so much low-hanging fruit on the spending tree and once it’s gone, if you don’t have a plan for reaching the bigger fruit in the higher branches, your new cost reduction program will finish as soon as it starts.

This is not to say that the companies I mentioned don’t have the tools and techniques to help you reach the fruit in the higher branches (after all, I’ve reviewed them all in the past and noted many positive aspects of each platform), but that you will have to take the time to build the ladder to get there. You’ll have to carefully research high-spend categories and build should-cost models to see which ones offer opportunities for immediate cost reductions, and which ones you’ll need to spend time working with engineering to come up with new product designs or delivery models to enable real cost reductions. You’ll have to move beyond auctions to decision optimization to tackle custom manufacturing categories where you have to consider dozens of costs which could include unit, shipping, storage, production, tariffs, taxes, currency exchange, hedge, utilization, and other costs. You’ll have to move beyond pure spend data to understand why production costs are higher than you expect — are your production times lagging industry average?, is your equipment out of date?, is your plant too big or too small?, etc. And you’ll have to implement end-to-end sourcing and procurement technologies to do true m-way matches that match contracts to purchase orders to invoices to goods receipts to payments to make sure you’re only buying on contract at the contracted price and only paying for what is actually delivered. True, long-term cost and risk reduction is a marathon, not a one hundred meter dash. And just like a quick start can wear out a marathon runner and prevent him from finishing the race, an uncontrolled quick start can set unreasonably high expectations or deliver less than optimal results, which can kill support for your project before you reach the end of your journey, where the real cost reductions await.

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EC Sourcing Makes Sourcing Easy and Affordable

Today I’m going to briefly introduce you to yet another e-Sourcing company that you just might want to consider if you’re a mid-market company who has yet to adopt a sourcing solution and wants to get started with something that’s easy to use, easier to manage, and easier still on the budget. With pricing starting around 3K a month (depending on the size of your company and the number of licenses you need), you can get full access to a basic e-Negotiation suite with RFX, Auctions, Project Management, a Contract Repository, and Corrective Action Reporting with the EC Sourcing Group solution. And while it may not have as many features as some of the other platforms on the market, it doesn’t have the price tag either. (A number of companies quote twice as much for fundamentally the same functionality.)

In fact, EC Sourcing made a conscious decision to keep the platform as lightweight, straight-forward, and obvious as possible. Designed by sourcing consultants, they wanted a no-fuss, no muss, no training required platform that was comfortable to people familiar with Microsoft Office and Microsoft Project. They studied the process, did their research, and decided to build the 80% solution which would include everything you need and everything you would want 80% of the time. Rarely used, complex features that only cluttered the screen or confused the average user were purposely not included. As a result it’s smooth, slick, and surprisingly effective in their target market.

RFX allows you to create the RFI, RFP, or RFQ you need on a section-by-section basis, from scratch or from a template, define scoring, customize supplier views, add attachments, collectively score responses as a group, view supplier attachments, re-calculate scores based on alternate weightings, generate supplier scorecards, and view a number of different response and/or scoring based reports. As with your standard RFX, each section and question can be weighted independently, and it will even generate the weights dynamically if you would rather define priorities than try to insure that all of the weights add up to 100. You can define auto-scoring rules for questions based on predefined response selections, score manually, or score based upon the weighted average score assigned by the RFX team. You can also use formulas. With respect to RFQs, it has a number of built-in features to make bid collection and validation simple. You can define pricing formats, which can be based on custom formulas, bid validation rules, and bid tables for complex bids that involve multiple plants, currencies, or volume breaks. You can then view the bids using a number of built in reports and formats that let you see just what you need to see the way you want to see it. With all of your standard capabilities, it gets the job done.

In addition, RFXs can be multi-round and you can create custom feedback reports that each supplier can view between rounds which can let the supplier know their rank, quartile, and variance range with respect to each item or lot. And everything can be exported to and imported from Excel. Auction is built on top of RFX and includes the ability to define custom baskets (lots), sessions (for each basket), and settings (time limits, time extension rules, stopping rules, etc.). You can also configure what the supplier sees or doesn’t see. Reporting can be table based or graphical.

Project Management includes the ability to define projects — which include suppliers, users, RFX’s and/or Auctions; message with users and suppliers — through integrated message boxes and e-mails; and define notifications in addition to standard project management features — such as timelines, state tracking, and document management. And the platform includes all of your standard RFI (comparison and scorecards), administrative (suppliers, users, statutes, etc.), and bid analysis (baseline spend, pricing summary, item level comparisons, round comparisons, etc.) reports and most of the reports allow filtering on any entity row or column.

And even though they are primarily serving the US market at this point, they are expanding into Europe, currently support 4 languages, are almost finished translating languages 5 and 6, and will support 10 languages in the near future (including Unicode languages). They are also in the process of updating and streamlining the UI to keep it as simple and easy to use as possible (and beginning R&D on a brand new module).

In summary, there’s nothing you haven’t read about before on SI, except the price tag. I’ve only demoed one other solution in the last year with the same breadth of capability in a self-service SaaS model that starts in their quoted price range. And while it might not have the same depth as many other solutions, or include more advanced sourcing modules, for many mid-sized companies just starting on their sourcing journey (and many more without complex categories), it will meet their needs.

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Yet Another Reason Across-the-Board Year-Over-Year Savings Targets are Stupid

This morning I told you how year-over-year savings targets are costing you a small fortune right now. Now I’m going to tell you how they cost you a large fortune over the long term.

Typically what happens in a company that gets serious about cost reduction as a result of a knee-jerk survival reaction in a recession is that, if they can attract one, they bring in a top-notch CPO. This CPO pulls the weeds out of the organization and replaces them with strong trees, acquires some decent tools (or at least access to some on-demand SaaS tools), institutes good processes, and brings in expert consultants to assist on the strategic sourcing of key categories where her team is weak. Over the next couple of years, the team kicks ass and exceeds their savings targets and everyone is happy. The corporation is saving money and the team is getting lots of kudos and bonuses for a job well done.

But then the inevitable happens. The economic cycle runs its course, the next economic boom occurs, demand for raw materials skyrockets, and prices go up, often significantly. As a result, it becomes impossible for the CPO and his team to get any year-over-year savings in any of the high-spend categories, which they had negotiated down to razor-slim margins when the supplier was desperate. (After all, not only is the supplier being offered a lot more money for a limited supply, but the supplier can’t even cover its input costs at last year’s prices.)

Then management, used to price reductions and unwilling to admit, and sometimes unable to even understand, the new market reality, makes another knee-jerk reaction and fires the CPO, with no plan for cost containment — which is much more important than cost savings. A monkey with an auction platform and the ability to use Google and access a D&B report can save you money in a recession when dozens of suppliers are desperate for your business (and will happily forego profits for a chance to survive). But only a true Procurement Pro can contain costs in a boom market when the supplier holds all the cards. A true pro can contain cost increases to only 10% when production costs go up 20%+ through skillful negotiations, collaboration, innovative delivery options, and so on. Everyone else will be lucky to secure supply at a 20% increase, which is what the company will end up having to accept without a procurement master at the wheel. And you’ll end up losing so much money that I don’t even want to attempt to calculate how much it will be, since the profuse bleeding won’t even begin to slow until you get a new CPO at the wheel, who’ll be hesitant to accept knowing that you’re last CPO, who was a superstar, didn’t make the cut.

You see, it’s not how much you save, because there is no such thing as savings. All “savings” means is that you were paying too much in the first place. What matters is the best deal with the greatest total value for every sourcing event, and a performance that outdoes the market average. When you start measuring that way (against competition, indices, and carefully researched should cost models), and calculate year over year improvements appropriately, that’s when you see real performance. Until then, you’re running a marathon you cannot win.

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