Daily Archives: September 21, 2010

What Is a Smarter Supply Chain?

Late this summer, while most of you were on vacation, the Supply Chain Digest asked a good question — What Is a Smarter Supply Chain?. They attempted to answer this question using the 2009 IBM Report which said that the supply chain of the future needs to be instrumented, interconnected, and intelligent, which is right, but instrumentation and interconnection alone, even enabled by AI workflow management, does not make an intelligent supply chain.

Only one thing makes an intelligent supply chain: smarter people. I’m probably the biggest fan of supply chain technology that there is — focussing primarily on the technical capabilities of the products and platforms when I cover a vendor — but even I recognize that even if you spend millions implementing end-to-end best-of-breed solutions throughout your supply chain, it will all be for nought if your people don’t have the education, experience, and EQ to use it!

Let’s face it. To take full advantage of a spend analysis tool, your sourcing analysts need to understand how to cube, slice, dice, and identify meaningful trends in PO, invoice, and T&E data to identify true savings opportunities. To take full advantage of an e-Negotiation suite, the sourcing professional needs to know when to use RFX, when to use e-Auction, and when to do a fact-based negotiation with the incumbent supplier(s). To take full advantage of optimization, you have to know how to break the cost structures down, what constraints are necessary, and what constraints are unnecessarily imposed by the business. And contract management is more than electronically filing a contract in an electronic vault, it’s ensuring the terms of the contract are adhered to — especially the pricing. I could go on through each stage of the procurement cycle and each stage of the global trade cycle and so on, but the simple fact remains that if you don’t hire smarter people, you won’t have a smarter supply chain. The days of high-school drop-outs pushing paper in the back office are long gone. Time to modernize!

Share This on Linked In

The Strategic Sourcing Debate, Part III

In Part I, we noted how Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest last month by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. This was quickly picked up across the supply management blog-sphere and resulted in powerful reactions from a number of prominent bloggers. Then, in Part II, we noted that of all the responses, only one blogger got it right. Joe Payne, the quiet cub among the roaring lions was the only one who didn’t miss the point. He was the only one to note that at most companies, the concept of strategic sourcing hasn’t even been born yet.

As Geoffrey Moore Moore would say, strategic sourcing has yet to cross the chasm. As a result, it can’t be dead as it has yet to be born at the majority of companies. However, as noted in Part II, that isn’t to say that the other bloggers didn’t make a number of good points that should be highlighted (just that they didn’t hit upon the most important point). In this post, we’ll address those points (along with the points they got wrong) so that you can gain a better understanding of what strategic sourcing truly is.

1st Runner Up: William Dorn

When William said that the sourcing process was only fundamentally flawed if you follow the original A.T. Kearney 7 Step Sourcing Process without adapting it to your own needs, he effectively squashed Dalip’s claim that the Strategic Sourcing Process is fundamentally flawed. There’s nothing wrong with the process itself, the problem is with the application. That’s why the process has so often failed to deliver the intended results and why we’ve even seen unintended consequences that destroyed value throughout the chain. We don’t need a replacement for the process itself, we need a new way to explain the process, and a new methodology for incorporating it into Supply Management departments at companies large and small alike as it is clear that most companies trying to do strategic sourcing just don’t get it. And while the few leaders who have been doing it right for over a decade might need “next practices” to take their game to the next level, most organizations aren’t even ready for “best practices”.

2nd Runner Up: Robert A Rudzki

Bob quickly realized that the whole debate was moot and sidestepped the question as he knows that most organizations who claim to do strategic sourcing aren’t doing it at all, instead “dumbing down” the process to a nonstrategic, tactical ghost of what it is supposed to be or adding a few bells and whistles to their current process and calling it “strategic”.

Jason Busch

When Jason said that the five, seven, or nine step strategic sourcing process never goes away [at companies that do proper strategic sourcing], rather, newer elements, such as risk and performance management, will begin to include themselves not just as separate areas, but as integral components of strategic sourcing he demonstrated that he understood, like William, that a true strategic sourcing process is not only molded to the organization, but evolves over time. However, when he unconditionally implies that a focus on total cost can be a “growth driver” for businesses, he only gets it half right. William was much closer when he implied that cost is an acceptable strategy by pointing out that some companies, like Acer and Asus in consumer electronics, compete on cost alone. A focus on cost is a growth driver only when it aligns with a cost-centric business strategy. If the business is about offering an undifferentiated product at a lower price, cost reductions will drive growth. But if the business strategy is about offering differentiated products with a high social value (like Apple), a focus on cost can be very detrimental if quality or perceived value is compromised (and it affects the organization’s ability to extract a premium for its products).

David Henshall was right when he said that strategic sourcing is a necessary early step in the development of procurement maturity, but wrong when he seemed to imply that a mature organization progresses beyond strategic sourcing. You never progress beyond the need for strategic sourcing, however, your interpretation and understanding of what strategic sourcing is continually evolves to the point where the initial implementation of the process hardly looks strategic at all when you look back.

Tim Cummins was right-on when he noted that, in general, most Supply Management organizations are not significantly relationship oriented, and that they need to become more relationship oriented, but wrong when he implied that forming a Trading Relationship Enablement Group (TREG) is the answer. The answer, as David seems to imply, depends on the category. For some categories, close, strategic relationships will be integral for success. For others, arms length relationships with a very competitive supply base (consisting of multiple suppliers) will be the answer. “Strategic” means that one size doesn’t fit all with respect to organizations or categories.

Josh Dials was right when he said the key to success was a true front-to-back sourcing strategy and dead-on when he said that the process also needs to include (true) spend analysis and decision optimization, but wrong when he implied that an end-to-end sourcing suite alone solves the problem. What about risk identification and mitigation? Up-front relationship building? NPD influence? While the proper sourcing platform is a necessary* enabler, it’s not sufficient in and of itself for true strategic sourcing success.

So what did Dalip get right?

We’ll discuss that in Part IV.

Share This on Linked In

* Despite ill-formed beliefs to the contrary, Microsoft Access and Microsoft Excel is not enough.