Monthly Archives: September 2010

The Strategic Sourcing Debate, Part I

Last month, Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. Since then, the post has been picked up by over half a dozen blogs (including the German Supply Management Blog) and the sparks have been flying.

Starting with Tim Cummins’ (of the IACCM) post on The Death Of Procurement: Nightmare or Nirvana?, we have seen input from

  • Robert A. Rudzki (of Greybeard Advisors) who tackled “Returning the “Strategic” to Strategic Sourcing” on SpendMatters
  • Steve Hall (of the Procurement Leaders Blog) who addressed the “Rumours of the Death of Strategic Sourcing”
  • Dave Henshall (of Purchasing Practice) who addressed Procurement 2.0 – and Other Labels
  • Steve Hall (of the Procurement Leaders Blog) who also gave us “A CPO’s Story of Strategic Sourcing”
  • Josh Dials (of Iasta) who said it’s time to “Put “Strategic” Back into your Strategic Sourcing” (on the e-Sourcing Forum)
  • Jason Busch (of Spend Matters) who insisted that “Strategic Sourcing Ain’t Dead, Regardless of What the Naysayers Suggest”
  • Joe Payne (of Source One Management Services) who echoed his cry and shouted that “Strategic Sourcing Lives On!” on the Strategic Sourceror and
  • William Dorn (of Source One Management Services) who ranted that “Strategic Sourcing is Alive and Kicking” on the Strategic Sourceror.

It’s been quite a spirited debate. But the real question is, who’s right? Well, before we answer that, we have to know, essentially, what each contributor is saying. So, in this post, I will attempt to summarize their arguments and main points.

Dalip Raheja’s viewpoint is that the Strategic Sourcing Process is fundamentally flawed as it hasn’t been delivering the promised results and, in some cases, there are unintended consequences that destroy overall, system-wide, value. Why? Because, while we have moved from unit cost to landed cost to total cost of ownership, the process is still cost focussed. And while cost is important, Dalip believes that a process rooted in cost can never be a strategic process, as long-term growth can not be achieved from a foundation of cost-cutting. In order to be strategic, you need to focus on value that can drive long-term competitive advantage. Finally, the strategic sourcing process cannot be a strategic and competitive differentiator if everyone else is doing it.

Tim Cummins believes that Dalip is fundamentally right and that the real problem is that Procurement and Supply Management Groups have generally failed to escape the role of supplier-bashing as one of the biggest weaknesses of most Procurement organizations is the ability to “form relationships”. Procurement, and the business in general, needs to change the way it selects, forms, and manages its trading relationships with suppliers, customers, and distribution channels. It needs to identify and select the right customers and suppliers — and it will only be able to do that if it eliminates transaction-oriented Procurement and sell-side contract management organizations and replaces these groups with a Trading Relationship Enablement Group (TREG) that will coordinate the perspectives and needs of the many stakeholders to ensure that buy-side and sell-side requirements are coordinated and that any trading relationships that are established meet these requirements.

Robert A. Rudzki states that “strategic” is the most overused (and misused) term in business today and that a sourcing process is not strategic if it simply adds a few bells and whistles to the conventional model or if it is dumbed down to a non-strategic, tactical ghost of what it is supposed to be so it can be “applied across the organization” — and that too many organizations these days are doing the latter in an attempt to get “quick wins”.

Steve Hall believes that the rumors of the death of strategic sourcing are probably exaggerated, but notes that most organizations are a long way from what they should be. Steve also states that in order to truly be successful, most Procurement organizations will need a competitive supply base that meets the needs of the company but that this will not be achieved unless the Procurement organization interacts with the rest of the business and forms strategic relationships with the key stakeholders. Finally, he notes that the Procurement function must be an enabler for the business.

David Henshall claims that adopting strategic sourcing is a necessary early step in the development of procurement maturity in an organization, and because of this, it is certainly not dead. Furthermore, an organization at this level of maturity must focus on continual development as it needs to progress to the category management level of maturity which links sourcing strategy to business strategy. Thus, strategic sourcing is not the holy grail.

Josh Dials writes that the key to success is a true front-to-back sourcing strategy that goes beyond the supplier selection, auction, and ranking of the auction results, which constitute the middle parts of the sourcing process, to include spend analysis at the front end — which tells you what to source, and decision optimization on the back end — which tells you who you should be sourcing from to achieve the best value. As a result, most organizations aren’t executing a true “strategic” sourcing process to begin with.

Jason Busch chimes in with a viewpoint that no one has said anything new and that the reality is that the earlier stages of sourcing maturity are going out of vogue even though strategic sourcing is thriving as the actual role is evolving to encompass more than it used to. The five, seven, or nine step strategic sourcing process never goes away, 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. Furthermore, a focus on cost can be a growth driver for business as it can drive bottom line results that increase share prices and enable other activities.

Joe Payne shouted that Dalip is way off base and that, in reality, at most companies, the concept of strategic sourcing hasn’t even been born yet. Billion dollar plus publicly traded internationals still allow administrative assistants, IT gurus, and marketing people with no formal procurement training to manage spends of a million dollars or more. As a result, strategic sourcing is always going to be a tool in the bag.

William Dorn also vehemently disagrees with Dalip and states that what is actually dead is the ability to sell supply chain improvement projects, both as internal initiatives or hired-consulting firm initiatives. He also believes that a process rooted in cost can be strategic, pointing out examples in consumer electronics, and Acer and Asus in particular, as examples. Finally, he contends that the sourcing process is only fundamentally flawed if you follow the original A.T. Kearney 7 Step Sourcing Process without adapting it to your needs.

So who is right?

I’ll let you know in Part II.

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Is Your Supply Chain Future In India?

As per this recent article in Digit Chanel Connect on “Moving Up the Supply Chain”, IDC India estimates the total Indian SCM solutions market will reach $132.6 Million in 2011. This might not sound like much, but, in relative terms, it’s the equivalent of a $1.6 Billion dollar market! (In 2009, the GDP of India was one twelfth of the GDP of the US.) And it’s still growing!

India’s Big 6 Consultancies are already making massive inroads into the global market. Many companies are making the SWITCH — Satyam, Wipro, Infosys, Tata Consultancy Services, Cognizant Technology Solutions, and HCL — and the current Big 6 Providers are being PACKED (PriceWaterhouseCoopers, Accenture, CapGemini, KPMG, Ernst & Young, and Deloitte & Touche) in. The major players might be SAP, Oracle, and Aspen today, but it won’t be long before the ABC Procure’s, Algorhythm’s, eBiz Global’s, Griha Software Technologies’, and Zycus‘s become the next major players in the Indian SCM space, and not much longer before those companies, and the next generation, make an even bigger impact on the global e-Sorucing and e-Procurement marketplace.

Furthermore, as Ravindra Sharma, General Manager of Ariba India, says: “With India poised for decent growth, many of the firms are proactively setting up [a] supply chain infrastructure which can help them grow rapidly and profitably. Many of these firms have global business aspirations and are benchmarking themselves with global organizations in various aspects including business processes, practices and technology“. As a result, deployment of SCM solutions is definitely increasing — and Indian companies are working hard to fill the surging demand now that Indian corporates have ‘tasted’ the efficiency of SCM solutions and now believe it to be a vital component of their business readiness plans.

In other words, while most of your technology options today will likely be US companies, or European offices with a strong US presence, it might not be long before many of the options on the table are Indian operations. But with the cloud and 24/7/365 service levels, will it really matter?

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There’s No Intelligence Behind a Spreadsheet

Not even of the artificial kind. So please, kill those electronic cockroaches now before the infestation becomes so big that the only way to remove it is with enough C-4 to totally obliterate the entire office building.

So what set off this latest rant? Rich Wilson’s comment at the CPO Agenda roundtable in London this May on “budgeting for a wider influence” where he said:

We developed these powerful analytic capabilities that we have applied to high spend categories, but people weren’t using it. So what we have today is a device called RFxpress, for taking an ordinary Excel spreadsheet that is fed into the front end of our application and configuring it. In essence, it enables the user to have the full power of our analytics to invite suppliers at the push of a button and conduct bids over the internet.

BULLCRAP!

Spreadsheets are NOT an analytics tool. They’re a ledger, which can be used as a poor man’s tool for data capture, but not for manipulation, sharing, or collaboration. Why? For starters:

User Entry Can’t Be Controlled

Sure Excel allows a user to define the type of a field and even lets a user define a few macros to check and format data, but considering that another user’s environment might have macros disabled (and, like Office 2008 on Mac, might not even support VB macros) and that any user can override cell types, a user can literally enter anything they want if they have even one iota of technical proficiency.

Cells and Computations Can’t Truly Be Hidden

A…C…K? Better unhide those columns in case they are important! Hmmm … that calculation looks wrong. I don’t really understand it, but I’ll change it anyway.

Application Configuration Can’t Be Controlled

VB supported? Maybe, maybe not. Analytics add-on pack? Maybe, maybe not.Third party optimizer? Maybe, probably not. Etc.

Good Data Goes Bad And Nothing Can Be Done About It

Just like every cell division results in some sort of degradation, be it a shortening of telomeres, an RNA transcription error, or the wrong number of chromosomes, every time a spreadsheet is copied or propagated, new errors are introduced. (That’s why 80% to 90% of spreadsheets have serious errors!)

Freshness is Fleeting

Like a loaf of bread, a static spreadsheet goes stale and gets moldy quite quickly.

Version Control is Impossible

The organization can define all the naming conventions it wants, but people are human and even if they try to follow the standard, they’ll screw up and the repository will degrade quickly. Plus, what happens when two people work on the sheet at the same time and upload a new version at about the same time. Whose is right?

The Sheet Is Not Even Guaranteed to Load

The MS add-in interface is poorly specified and that add-in could easily blow up the sheet, and if the user is unlucky, her installation.

In other words, SPREADSHEETS = FAIL. Is that clear enough?

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Quality DOES NOT Equal Risk Management

Every now and again I see a headline that causes me to foam at the mouth. One of the most recent examples is a recent article in Industry Week titled “Quality Equals Risk Management”. While I’m generally a fan of this publication, I can’t stand it when a headline makes such an erroneous claim.

Quality is a by-product of proper Risk Management. Quality Control is an aspect of proper Risk Management. But even Quality Control does not equal Risk Management! Risk Management is a broad initiative that looks at, and attempts to mitigate, all of the risks in your physical, financial, and information supply chains. This includes managing financial risks around currency exchange, commodity prices, and economic instability. Environmental risks around natural disasters, climate change, and accidents involving hazardous materials. Political risks involving terrorism, the proliferation of Weapons of Mass Destruction (WMDs), failing states, and crime. Compliance and Regulatory risks stemming from globalization, expansion and restriction of trade, and regional instability. Workforce risks from infectious and chronic diseases, pandemics, and liability regimes. And other product risks from lack of raw materials, transportation breakdowns, and theft. Quality is just one aspect of risk — and quality control is just one aspect of risk management!

All quality suggests is that you have good quality control programs in place — but it doesn’t even guarantee that! It might mean you have a high quality supplier who takes pride in their work and goes the extra mile to insure quality despite your shoddy practices. And while the article is right in that quality is the most powerful when it is engaged to prevent defects instead of detecting them after the fact, it is still only one aspect of a well rounded risk management program.

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The Triple-A Approach to Growing Green

A recent article in the Harvard Business Review on “growing green“: three smart paths to developing sustainable products presented three broad strategies that those companies looking to obtain green growth can consider. While each strategy, as the article suggests, can be used independently, the best results will be obtained if all three can be used in unison. But first, the strategies:

1. Accenturate

Accentuation is the process of identifying and playing up existing, or latent, green attributes in the current portfolio. For example, if your company has been developing products with environmentally friendly raw materials or using recyclable packing for decades since before it came into fashion, you can already claim some level of environmental sensitivity. (And even a small claim can lead to substantial savings if the sustainability claims are not exaggerated — the media is quick to pick up on, and shame, greenwashers. For example, Brita increased its sales 23% compared with the category market average of 2% with such a strategy.)

2. Acquire

If there are no green products in your portfolio, buy someone else’s. If you can find one that has a good reputation, but lots of room for growth, you can hit the leprechaun’s jackpot. Just don’t try to integrate their operations into yours too rapidly if there is a cultural divide. The acquired company might have to operate as a separate division for a while. During this time, you’ll need to observe them and slowly replicate the most productive practices and ideals throughout your operations. After all, they’ve already mastered eco-friendly manufacturing, sustainable supply chain management, and green market development, so you need to learn from them.

3. Architect

If your company has a history of innovation and considerable new product development capability, building green products from scratch is an option. Even though this approach is the slowest of the three, it’s actually the most valuable as it forces the company to acquire valuable sustainable competency.

But the best approach for most companies will be a combination of all three strategies. The company should start by identifying and capitalizing on any sustainable products or processes it already has in place. As long as it doesn’t over-reach in its claims, this will help it to establish some street cred. Then it should look for an appropriate acquisition target. Not only will this add credibility by adding more green products to the product line, but it will give the company the expertise it needs to design, manufacture, and market new green products. Then, it should take what it has learned and start architecting it’s own green products, replacing those products in its catalog that aren’t green one by one. Eventually, everything will be green and it will clearly stand out from the crowd when compared with its competition.

For more information on how to accentuate, acquire, and architect, check out the article. It also has some great questions to ask when deciding if a particular strategy is right for you.

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