Monthly Archives: July 2011

What to Look For in a Spend Analysis System

These days, every vendor and his dog is offering “spend analysis” solutions to the market, but, as one can easily guess, not all “solutions” are appropriate in all situations, or even capable of producing a true picture of spend for an average organization. Therefore, in order to select an appropriate solution, one has to know what to look for. The right answer is often elusive, because there is a fundamental lack of understanding in the market of what a “spend analysis” solution actually is, and what it should be expected to do. Depending on who is asked, the definition of analysis will vary from the process of building predictive models using historical data, to deciding whether past events or transactions are statistically significant, to sorting through haystacks of data to find meaningful needles that will suggest patterns. Each is a valid definition, but it is not necessarily useful to an organization that just needs a better understanding of what it is spending, where, with whom, by whom, and, more importantly, why. From a practical perspective, spend analysis boils down to “finding stuff in your data” that the organization was not aware of, or was not sufficiently aware of. Spend analysis, therefore, is the process of deriving insight from spend data.

So how do you derive insight? You apply a well understood process to multiple data sets. Emphasis on “you” and emphasis on “multiple”. If the process can only be accomplished by a team of programmers in a back room, it is not useful from a business perspective. You have to be able to use the system to do the analysis you need to do. And if the system can only build one cube on one data set, then it is not a useful analysis system. Depending on your organization, there could be savings in the AP data, the invoice data, the HR data, or the ERP data. You don’t know until you look at all the data sources and build and analyze all the cubes.

So what does this mean from a system perspective? Find out in our article on “What to Look For in a Spend Analysis System” over on the new Next Level Supply site. True spend analysis is a fundamental requirement of a next generation supply management organization.

Some Great Ideas to Revitalize the Innovation Engine, Part I

A recent article over on Chief Executive that reviewed Henry Nothhaft’s recent book Great Again summarized some great advice on How to Revitalize our Innovation Engine. Tackling the link between innovation and prosperity that is diffused throughout society, Henry is worried that there are numerous forces that are severing this link. These forces include:

  • the divorce of innovation from production
    that has allowed other countries to advance, and become leaders in, technologies that were first developed (and patented) in the US, such as solar power (AT&T Bell Labs, 1957)
  • the lack of jobs in today’s web-based (social media) firms
    While Facebook has 500 M users and a market cap of up to 100B, it employs a mere 1,400 people while Sony (27 employs 170,000, Disney (75 employs 144,000, and Boeing (55 employs 157,000 people. Even Google had only 11,000 people at a comparable stage.
  • a lack of sustainable business(es) models
    since companies that are here today and gone tomorrow don’t have long to innovate

The first three suggestions he offers are the following.

  • Liberate Entrepreneurs from Start-up Killing Tax and Regulations
    Not only did a 2008 World Bank study find that a 10 percent increase in the effective tax rate reduces the investment-to-GDP ratio by 2.2 percent and foreign direct investment by 2.3 percent, indicating that lowering the effective tax rates for start-ups would likely have very positive results, but start-ups are expensive and taxes on necessary hardware and headcount are stifling. If a manufacturing start-up needs 10M of equipment, and the taxes on that equipment are 10%, that’s an extra 1M out of its pocket. While nothing to an established multi-million manufacturer, an extra 1M can sometimes break a start-up.
  • Fix the VC Engine
    In the 1990s, when most VC firms were staffed with executives with operational experience, firms were trying to build companies for the long-term. Today, most VC firms are led by financial types who want to “flip” companies for a quick return like PE firms do. They don’t want to invest unless you already have a product, beta customers, and the headcount to get the job done. At that point, a company could almost self-fund growth with customer partnerships and debt. It’s getting to that point that companies need money.
  • End the indifference to domestic manufacturing
    Most countries understand that manufacturing strengthens an economy and sustains a middle class like no other form of commercial activity. As Henry notes, decades of outsourcing have left the U.S. without the means to invent the next generation of high-tech products. Plus, R&D depends upon close contact with manufacturing for success. A design must be able to be manufactured efficiently and cost-effectively to be a success. R&D cannot be completely disconnected from manufacturing.

And they are all great. Tomorrow we will discuss his fourth suggestion and what your Supply Management operation should do to help revitalize the innovation engine.

Another Headline from the Land of D’oh: Knowledge Management New Source of Competitive Advantage

A recent SCMR blog post reviewed The New Edge in Knowledge by Carla O’Dell and Cindy Hubert of AQPC that describes the Knowledge Management (KM) concept and provides some real-world examples of leading companies that have mastered KM. The post, like the authors of the book, states that the right knowledge enables the right decisions that improves organizational performance. Well, duh!

Knowledge has been improving performance for thousand of years in all sorts of organizations — corporate, religious, government, and military. As Sun Tzu wrote, so it is said that if you know your enemies and know yourself, you can win a hundred battles without a single loss. Churchill said that battles are won by slaughter and maneuver. The greater the general, the more he contributes in maneuver, the less he demands in slaughter. And Hannibal said I will either find a way, or make one. Thousands of years, and thousands of miles, apart, and all of these great military leaders understood the importance of knowledge, and managing that knowledge, to achieve success.

Knowledge is arguably one of the two greatest sources of competitive advantage (with the other being innovation). But this is nothing new. So don’t get lost in the hype.

Collaboration: Three Views from the Harvard Business Review, Part II

In part I, we discussed how “true collaboration grows the pie” while false collaboration just splits it and how the Harvard Business Review recently ran a special series of articles and posts on “Making Collaboration Work”. Some of these articles were quite insightful and a good read for any Supply Management professional looking to improve the efficiency and effectiveness of her supply chain. In this post, we are going to address the insights from two recent HBR posts that capture some key insights.

In “collaboration as an intangible asset”, the authors state that the most important intangible asset an organization has is the ability to collaborate. This is because it’s the willingness on the part of people to work together to solve problems when they could just as easily pass them along to someone else that usually means the difference between “good enough” and “outstanding” and differentiates an average organization from one that is constantly innovating. And given the price-earnings multiple fetched by companies like Amazon or Apple, it’s easy to see why “ability to innovate” and “brand management skill”, which is a product of great collaboration, is important to any company that wants to become a Global 3000 leader.

As a result, the authors argue that it is important to monitor and manage collaboration, and one way to do that is through social network analysis (SNA). SNA allows an analyst to see the patterns of interaction — information sharing, problem-solving, coaching, and mentoring — that make up the less visible, often informal side of an organization. This makes it possible to depict the networks that underlie or exist in parallel to the formal organization charts and process diagrams and, in turn, assess whether reogranizations or other efforts to improve collaboration are likely to have the desired impact. In addition, it can uncover the existence of parallel innovation efforts. This allows the organization to combine teams, and efforts, and get the most bang for their buck by minimizing effort in a way that maximizes the chances of success.

Finally, in “quantity vs. quality in collaborations”, the author addressed the potential of the web for crowd-sourcing innovation, as Innocentive does. Not only does crowd-sourcing bring more ideas, but it brings more opportunities for collaboration, which, in turn, creates more ideas and increases the chance that a great idea may knock on your door. And it also increases the chance you’ll find a great collaborator who can help you to better interpret this wealth of insights, to recognize the value of ideas that is not often visible at first, especially when it comes to radical change, and to identify a novel strategic direction. And that just might be the key to your collaborative success.

Logistics Improves on Both Sides of the Atlantic

West of the Atlantic, there are two big logistics bottlenecks. One is the US border with Canada (where documentary requirements make in-transit goods a cumbersome process). The other is the US border with Mexico, where there have been long standing conflicts over cross-border trucking. East of the Atlantic, you have EU security programs that are not compatible with US programs, and also make for bottlenecks.

In the last few weeks, progress has been made on two of the three big bottlenecks as the US reaches agreement with Mexico on cross-border trucking and agrees to mutual supply chain recognition with the EU (jocsailings.com).

As per the article in Logistics Management, on Wednesday, July 6, U.S. Transportation Secretary Ray LaHood and Mexico’s Secretaría de Comunicaciones y Transportes Dionisio Arturo Pèrez-Jàcome Friscione signed documents to resolve the long standing conflicts between the trucking industries of the two countries that resulted from the elimination of the pilot program for cross-border trucking in 2009 as part of the Omnibus Appropriations Act. (In response to the act, the Mexican government stated it would place tariffs on roughly 90 American agricultural and manufactured exports as payback. The tariffs amounted to $2.4 Billion of American goods.)

The agreement, focussed on a safety-first program, will lift these tariffs and provide opportunities to increase Mexico-bound US exports and create job opportunities. Furthermore, Mexico will provide recriprocal authority for US carriers to engage in cross-border long-haul operations in that country.

In addition, as per this article in JOC Sailings, the US and EU plan to implement mutual recognition of their supply chain security programs by the end of October. Specifically, mutual recognition between CBP’s C-TPAT and EU’s AEO program will occur, as per the joint statement between the European Commission and the US Department of Homeland Security. Once this is achieved, cargo will flow more smoothly between the US and the EU.