Daily Archives: April 21, 2010

Do We Really Need Supply Risk Programs Anyway?

Today’s guest post is from Pierre Mitchell, Director, Procurement Research and Advisory for The Hackett Group.

OK, now that I have your attention. Am I being provocative? Yes … and no. If the purpose of supply risk management is to ensure supply that is: available, reliable, high quality, well priced, supporting lowest TCO, ethically sourced, etc. (per the enterprise mission and brand), then we really “just” need to clarify what constitutes the performance of supply and the causal factors which impact it. But, this is a big “just”. It means first translating the performance of supply from the business (i.e., the true ‘risk owners’ who ultimately own the performance of supply) to the inbound supply chain to a commodity to the supplier and even down to the part/spec/site level — and then ensuring that your processes for extended network design, sourcing, and supplier management are addressing the risk factors that can impact that supply performance. That’s a tall order to expect as a bottoms-up outcome.

For example, if you look at a company’s sourcing and supplier management processes, you might find risk-oriented knockout criteria in an RFI. Or you might find a regulatory compliance driven process in supplier measurement. But for the latter example, do you have an explicit risk score in your supplier scorecard? Most organizations don’t. There is a direct analog to the quality area here in terms of placing emphasis on process capability and managing upstream causal factors. A TCO model that includes quality costs (i.e., a ‘cost of quality’ model) is not only similar, but actually overlapping with the ‘cost of risk’. In other words, you can pay for risk prevention now or pay for external failure later.

This is why, although you should theoretically be able to bake your supply risk management processes systematically into your existing supply management processes (sourcing, SPM/SRM, etc.), the fragmented and reward-biased performance measures don’t encourage this end-state approach. This is why a bottoms-up process usually does not work and it requires that Procurement/SCM not only work with the natural risk owners to build the cost/risk models, but also use that to have the top-down discussion with senior management on how the firm wants to deal with it and what is the cost of doing nothing. To quote the rock band Rush: “If you choose not to decide, you still have made a choice“. (Freewill) And for some organizations, they might be able to tie into an existing enterprise risk management and corporate sustainability governance structure.

Another important strategy is to have a good diagnostic, and some external benchmarking intelligence, as part of this process — especially when trying to justify the effort beyond ‘it is the right thing to do’. Showing where you are vs. other firms and how well you/they are performing in supply risk (and comparing that performance to capabilities) is a good way to support the discussion. And so is having a good ‘cost of risk’ model. But quantification is tricky, and that’s why we launched a supply risk study about a month ago that we’re closing down this weekend, that uses this type of model (and other existing benchmark data that we have) to help firms arm themselves with some good insight on elevating the conversation. Why? To get more attention, resources, and proper measures/alignment that cascade back down to get baked into the processes. Once they’re baked in, you won’t need a ‘program’ anymore — you’ll have a proper risk-adjusted process. The corporate practitioner study takes 30-40 minutes or so, but like other Hackett performance studies, it is: complimentary, confidential, credible, and hopefully invaluable.

Thanks, Pierre!

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If Your Quest for Purchasing Fire Involves a Fight …

You better make sure you’ve picked a good one! Not only can your Quest for Purchasing Fire require a lot of work, but it can also require that you fight a number of battles with people who don’t want to change, don’t want to spend money, or just don’t want to admit that there might be a better way. As a result, if you want the odds to be on your side, you need to make sure that the fight you pick is a good one. To this end, a recent article in the Harvard Business Review on how to pick a good fight, which should be based on the kind of conflict that can spark creativity and innovation, can help you figure out if your fight is the right one.

Remembering that conflict is healthful only when people’s energies are pointed in the right direction and when carried out in a productive way, a good fight is material, focussed on the future, and noble in nature. More specifically:

  • The Fight Has Value.

    As per the article, the initiative you want to undertake should save 15% or more of your resources and time a year, allow you to charge at least 10% or more for your services than you do now, or grow your sales or market share faster than your competitors. If the initiative doesn’t have this level of significance, find another one.

  • The Fight Focusses on Future Possibility.

    The quest should not be about sorting out what happened in the past or figuring out who is accountable for the current state of affairs. That just won’t fly. Make sure you’re focussing on how to improve in a blameless way and that you’re proposing innovation and a vision the organization can get behind, with a little persuasion.

  • The Fight is Noble.

    The goal must be about more than making or saving money, reflect a larger organizational cause, and align with the values of the organization. Make sure it addresses risk, sustainability, or corporate social responsibility if you really want to tip the odds in your favour.

If you follow these tips, you’re well on your way to a successful Quest for Purchasing Fire. Bon voyage!

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AECsoft: SIM-Powered e-Negotiation, Part I

AECsoft, a Houston-based provider of Supplier Information Management (that also has offices in Atlanta, Las Vegas, and Shanghai), Supplier Data & Diversity, and e-Negotiation solutions, is a unique platform offering as they have a very competitive (and very configurable) Supplier Information Management (SIM) platform (that can be augmented with third party supplier [diversity] data) as well as a solid e-Negotiation platform that will meet most of the needs of many mid-market companies. Most SIM companies focus mainly on SIM, SRM (Supplier Relationship Management), SPM (Supplier Performance Management), and when they branch out they root into extensive, customized, risk, compliance, or sustainability solutions. Furthermore, most e-Negotiation platforms, once they have gone as deep as they can in terms of surveys, score-carding, and multiple auction formats, branch out into (stronger) spend analysis, contract management, optimization, and (corrective) action management. In comparison, AECsoft has taken a dual approach in its efforts to create what it calls a 360° Supplier Management solution that allows you to discover suppliers, manage their information, use that information in sourcing events, and then manage their performance during contract execution — in a manner that can be customized for each client. Given that they have over 200 customers, including some of the most progressive sourcing organizations in the world, it’s obviously paid off for them to this point, but I have to wonder how they are going to fare going forward given the divergent messaging in the SIM and e-Negotiation spaces and the number of best-of-breed players now competing in each. However, that’s a question for the analysts as we’re concerned about what they have and what they can do for you.

To this end, we’ll start with a review of the Supplier Information Management capabilities, which are used by over 400,000 suppliers that are managed by over 30,000 buyers at over 200 large corporate clients, around half of which are large multi-nationals (and many of which belong to the who’s who of supply chain innovators). SIM is their most mature platform, with development dating back to company inception in 1997 and production dating back to their first implementation in 1999, as well as their most extensive. The platform is setup to let new suppliers self-identify, buyers pre-qualify (before an e-Negotiation event, so the event can focus on negotiations and not discovery), and evaluations to be conducted in a 360° manner if necessary. Compliance can be enforced during the on-boarding process (as registrations will not be marked as complete and ready for review until all fields are filled out and necessary documents uploaded), status can be monitored (as alerts indicating expiring certifications can be set-up at any time and continuously monitored), and reviews can be scheduled in advance and pushed out at any time.

The system can be configured to track any kind of information you want — general, business data, contacts, classifications, safety & insurance, quality, certifications, product & service information, risk and so on. In addition, category/answer specific questions and workflows can be configured for any category, sub-category, or question which is answered with a certain option. For example, if a supplier indicates they supply laboratory equipment, you can ask what kind — balances, centrifuges, pumps, valves, piping and tubing, and if they indicate piping and tubing, you can bring up questions on pressure, diameter, etc. Basically, it’s your standard workflow-driven SIM where the supplier, who can access and update all of their information at any time, maintains its own information, by way of one or more authorized delegates. In addition, when the supplier logs in, the supplier sees all of the outstanding information requests that need to be completed — new requests, certificate updates, data confirmations, scorecards (self-scoring or buyer scoring), and so on. AECsoft put a lot of work into their supplier portal to make sure it was at least as easy for the supplier as it is for the buyer and it shows.

And, of course, the platform can be integrated with multiple external data feeds which capture diversity data, financial/risk data, and OFAC data, among other data sources, and which can automatically check SSN and EIN data in the US.

Finally, the platform is Hybrid SaaS, which means that AECsoft can deploy and host it for you or you can deploy it inside your own four walls. Unless you’re in Finance, Gambling (Casinos), or Pharmaceuticals, and are ultra-concerned about security and have top IT security pros in-house, I would recommend you follow the lead of most of their clients in other verticals and go SaaS. However, should you choose to go in-house, you can take solace in that the current version of the platform is built on .Net 3.5, MS SQL Server, and XML … and there are tens of thousands of developers out there familiar with the technology stack (which is 100% web-based in delivery).

In our next post, we’ll discuss the e-Negotiation platform.

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