Daily Archives: June 22, 2011

Ariba Vision 2020: I Hope It’s Just a Ruse!

This post addresses the four predictions in Ariba’s Vision 2020 – The Future of Procurement report that were totally off base. SI is not sure whey they came from as they’re not even close to any reasonable expectation of Supply Management reality in 2020.

05. Data predicts the future

Yeah, and monkeys might fly out of my butt!

We will never reach the point where we can be confident that a supplier’s performance will always fall within our customers’ requirements. We will never predict all defects. And we will never predict all disruptions before they happen. Predictive analysis will get better, our value models will get better, and supply chain reliability will increase, but it will never be perfect and never known in advance. Just like we likely won’t see true AI within our lifetime as current approaches just don’t cut it. (And if we do, the machines will realize how inferior we are, and as soon as we forget to encode Asimov’s three laws of robotics into a single robot, we’re doomed!)

Data, data everywhere
and all our minds will shrink
data, data everywhere
sanity on the brink

08. Outsourcing explodes

Actually, outsourcing will suffer a massive implosion as freight costs make moving goods globally prohibitively expensive and exploding labor costs in emerging economies make outsourcing key service functions more expensive than keeping them in-house in major metropolitan centers. What will actually happen is an emergence of Global Service Centers that are part of the organization and employ the right talent for the job at the right locales. Tactical functions will be executed in low cost locales. Strategic functions will be executed where the organization gets the most value. And while some functions will be outsourced to massive third party Global Service Organizations, they will be managed by a Global Service Center that will push out or pull in as market conditions dictate.

10. So long, sourcing geeks
Not by a longshot. While most tools will become so intuitive that even a novice will be able to execute most sourcing and procurement events, there will still be situations where advanced modeling and analysis will still be required and where only sourcing geeks with a keen understanding of the business needs and the strategic analysis required will be able to perform that analysis. While it’s true that the number of sourcing geeks needed may shrink in relative terms, the skill sets required by these geeks will actually increase.

12. Budget fuss fizzles out
As Woody Woodpecker would say, ha ha ha Ha ha, ha ha ha Ha ha, ha ha ha Ha ha, heh-heh-heh-heh-heh-heh-heh-heh-heh! Budget fuss is never going away. Finance drives the business and budgeting is so ingrained in financial professionals that there will always be fuss and muss. While more CPOs will be involved in the budgeting process since day one, they will still have to make their case over and over and over again, no matter how obvious it is.

This ends our review of the 31 predictions in Ariba’s Vision 2020 – The Future of Procurement report. Our next, and final, post will discuss the report as a whole.

Cost is Just Another Component of Risk (Bonus NPX Take Away 3)

One of the most useful, and possibly controversial take aways, from the NPX exchange put on by The Mpower Group is that a Next Practice organization should not have cost as part of its value equation as a focus on cost has not only not served the Supply Management community well, but has destroyed incalculable value over the years. This is especially true in high-value or strategic categories.

Cost should be viewed as just another component risk, and in particular, the risk of cost increase beyond an acceptable level is what the organization should be focussed on. Furthermore, once the organization has established that cost is in an acceptable band, the organization should remove cost from the equation entirely in high value and strategic categories.

The reality is that for some categories, a +/- of up to 5% is insignificant when compared to the critical factors of stability of supply, quality, and flexibility. Consider the Apple iPad. While it is obviously in Apple’s best interest to drive down cost as much as possible, it’s more important that Apple be able to guarantee supply, quality, and flexibility in its supply chain. The extra savings of $2 on each unit will not make up for the loss in profit if Apple fails to deliver on 100,000 orders. Nor will it make up for the warranty costs if the quality drops to the point where Apple has to make 25% more repairs under service contract.

So if you really want to focus on value, band cost, and then remove it from the top-level value equation altogether as cost control then becomes simply another component of risk management in the overall value equation. The organization just might see better results in its high-value and strategic categories.