Monthly Archives: January 2011

Hidden Savings in Outsourcing Invoices

Global Services just ran a great article on 9 ways to find hidden savings in your outsourcing invoice that is quite useful if your organization has just begun its outsourcing journey. A good Supply Management Organization knows that invoices often represent a great cost reduction opportunity. But invoices from outsourcing providers have additional opportunities for savings above and beyond the norm. These additional savings opportunities include:

  • secret offshore staff
    you might outsource your support to an organization that, in turn, offshores the work; you could be paying 60K a year for a 30K resource; be sure to get lists of all resources assigned to your account and their associated rates to make sure you are being billed accordingly
  • temporary labour
    not only might the rates be higher than contracted rates, but the charges, even if the rate is correct, might be for work that is not chargeable — for example, a provider behind on a task might hire temporary labour to catch up, but if the task is a fixed-cost task, it should not be billed by the hour
  • shelfware
    is the organization (still) being billed for software that is not being used
  • pass-through expenses
    are all of the pass-through expenses valid? if approvals are required, were they pre-approved?

And these are just the tip of the iceberg. Be sure to check out 9 ways to find hidden savings in your outsourcing invoice for five more — because outsourcing only saves money if it costs less to outsource than to do it in house.

Next Generation Sourcing

As stated in yesterday’s post, for Sourcing to continue to have an impact in a modern Supply Management organization, it needs to be taken to the next level. And I’m not just echoing the statements of The Altimeter Group, AMR, CAPS, Greybeard Advisors, The Mpower Group, Purchasing Practice, or my own persistent ramblings over the years (as I have been pushing for Total Value Management and Next Generation Sourcing strategies since day one). A modern supply management organization truly needs to take their sourcing practices to the next level if they are going to continue to distill value from Sourcing.

When you consider that:

  • Once you institute RFX, the manpower savings from automating bids can only be claimed once.
  • By the time an organization gets to the third auction, there are no more savings to be had as the fat from supplier margins has been squeezed out.
  • Once the allocation has been optimized across the supply base in a way that minimizes unit costs, transportation costs, (interim) storage costs, etc., re-running the optimization won’t lower costs further unless something changes — such as the identification of a new supplier, an alternate material (that is cheaper), or additional demand (that increases the economy of scale).
  • Once contract management and monitoring is put in place and no invoices are paid that are not for delivered, defect-free products, at contracted rates, there is no more on-contract leakage to be stopped.
  • Once controls are put in place to stop off-contract purchases that should be on-contract (through integration of the e-Procurement system with the Contract Management system), there is no more off-contract leakage to be stopped.
  • And once spend analysis has identified all the opportunities, the savings won’t actually materialize until something is done about them. This something cannot be appropriately identified unless the appropriate information is available to the knowledge worker.

As a result, in order for a mature Supply Management organization to continue to extract considerable value from (e-)Sourcing, e-Sourcing needs to be taken to the next level. Whether you call it DDSN2 (Demand-Driven Supply Networks), Next Practices, or Total Value Management, the message is the same. Take your Sourcing to the next level, or risk decreasing returns.

So where does one start? Upgrade or bring in a modern e-Sourcing platform. For some organizations, who are already using a top-tier provider and who have purchased a suite license, this will just mean learning how to take full advantage of the end-to-end integrated functionality and improving processes. For others, using point solutions from top-tier providers, this will mean buying licenses to the whole suite and/or integrating the point solutions with other solutions they already have. For the market majority, this will likely mean either replacing existing first generation systems (from providers who haven’t made any updates to the base functionality in the last five years) or, in laggard cases, skipping first generation e-Sourcing systems entirely and starting off with modern systems that have better, integrated, functionality.

And then, once these systems are in place, processes are updated to capture more data and consider more information in sourcing decisions, in a process that one vendor on the leading edge likes to call High Definition Sourcing.

Since this process is the closest to what Sourcing Innovation believes is necessary for organizations that want to take their sourcing to the next level (and, in the words of CAPS, become value-focussed), this will be the subject of the next series of posts (starting next week). Stay tuned!

Do You Know Just How Risky Your Supply Chain Is?

Or that even seemingly unrelated natural disasters can put it on hold? Or that it’s not just unpredictable disasters, like the eruption of Eyjafjallajokull that can bring things to a halt? Even completely predictable events like floods, which occur fairly regularly in most regions over the course of decades, can have devastating effects well beyond the coastal areas.

Consider the recent flooding in Australia’s Queensland slate. It did more than just make coastal areas unusable. It also resulted in significantly increased coal output. BHP, the world’s biggest producer, minded most of its coal products in Australia’s Queensland’s Bowen Basin from three of the world’s largest coking coal mines — Goonyella Riverside, Blackwater and Peak Downs. As a result of the flooding, all three mines were temporarily out of commission and mining is still constrained. This has caused BHPs production of coal to fall 30%. All because of a little extra water. This is not something that would come to mind if you asked an average organization about its supply chain risks.

So do you know just how risky your supply chain is? If not, maybe it’s time you did an assessment.

Information … Information … Information

Yesterday’s post discussed the lack of realistic starting points for an average organization that wants to merge onto the value focussed path and the need for information. Then the post discussed e-RFX applications and how they are not always the answer as most are not configured for collecting more than a moderate amount of data, and the information required to make the right decision might require a large amount of data to be collected.

For example, consider the information required to make the right decision in a global freight bid where the company has over 5,000 lanes across five continents that are currently being serviced, in part, by almost 500 carriers. Not only will there be a need to collect up to 1,000,000 LTL and TL bids to know what the lowest rates are, but there will be a need to collect data on capabilities (refrigerated, freezer, hazardous martial, etc.), capacities, and serviced lanes. And then, once all of the information has been collected, past performance, guaranteed service levels, (commitments to) sustainability (such as biofuels and hybrid vehicles) will have to be considered in addition to costs and on-time-delivery capabilities. And if multiple carriers are almost equal, long term viability, strategic partnerships, and/or commitment to social responsibility might also need to be considered.

All-in-all, this represents a significant amount of data that needs to be collected, analyzed, and distilled into useful information — data that is not even going to be collected if a firm is still using a first-generation e-Sourcing platform. This is because:

  1. Traditional RFX tools, which are now a commodity (as every provider and their dog has one — trust me), are not built to collect that much information.
  2. Most of the RFX tools that can handle that much information, typically by way of Excel import and export, are not designed with supplier usability in mind. No supplier is going to quote 5,000 lanes at multiple LTL and FTL levels if they only service 3,000 and 2,000 can be broken into 20 cross-regional groups where each lane in the group is priced the same by mile.
  3. Of the few tools that allow for generic pricing and (typically) single-dimensional overrides, most won’t designed with the ability to easily design multiple levels of overrides and the OLAP-like navigation that’s really need to quickly zoom in on the relevant data items (which need to be viewed or altered).
  4. And while most of the better RFX tools allow a user to define as many RFIs, RFPs, and RFQs as the user desires, these generally have to be crammed into rigid workflows that may or may not fit the scenario at hand.
  5. Plus, while most of the tools can push data out into an auction or a SIM tool (that is the foundation for SPM and/or SRM), most don’t allow data to be pulled back in, since the first generation e-Sourcing model was a linear RFX -> Auction -> Decision Optimization -> Award -> Contract Management -> SPM flow.

And then, once you get past all that, you still have to analyze the data to distill the information required to make a good award decision. Because even the best strategic sourcing decision optimization on the market will fail if it’s not provided with the right data AND the right constraints (or, depending on your choice of terminology, rules). The right constraints can only derived by a knowledge individual that has the right information at her disposal.

So how do get the right information? You take your sourcing to the next level. So what does this Next Generation Sourcing look like? Stay Tuned.

Webinars This Week from the #1 Supply Chain Resource Site

The following is a short selection of webinars THIS WEEK from the Sourcing Innovation Resource Site, that might interest those of you looking to expand your horizons:

Date & Time Webcast
2011-Jan-24

13:00 GMT-05:00/CDT/EST

The Foreign Corrupt Practices Act: Review of the Top Three Cases and Lessons Learned
  

Sponsor: Resources Global Professionals

2011-Jan-26

12:00 GMT-05:00/CDT/EST

Gamestorming: A Playbook for Creative Innovation
  

Sponsor: American Management Association

2011-Jan-26

12:00 GMT-05:00/CDT/EST

The Challenge of Developing a Regulatory Intelligence Network to Support Global Clinical Trials: Communication & Collaboration
  

Sponsor: Regulatory Affairs Professionals Society

2011-Jan-26

14:00 GMT-05:00/CDT/EST

TPM: the Good, the Bad and the Ugly
  

Sponsor: TradeInsight

2011-Jan-26

10:00 GMT-06:00/CST/MDT

Fatigued Driving and Hours of Service
  

Sponsor: DOT COMPLIANCE HELP, INC.

2011-Jan-28

11:30 GMT-05:00/CDT/EST

Transportation Management: Key to Optimized Supply Chain Performance and Competitive Differentiation
  

Sponsor: KPIT Cummins