Monthly Archives: July 2012

How to Ignore Bad Advice

Last month, Forbes ran an article that needs to be in every Supply Manager’s toolkit. Given that the number one priority of most Supply Management organizations is to gain trust across the organization and get more spend under management (SUM), an average Supply Manager, as she gains trust, is going to get a lot of advice from the individuals on the cross-functional teams she is going to build. Some will be good, but some will be bad (and downright ugly). A good Supply Manager knows how to latch onto, implement, and encourage the good advice while carefully avoiding the bad advice.

Ignoring bad advice, especially if is from an individual who’s buy-in you need and who thinks it’s really, really good, can be tough, so I’m glad Forbes ran this article. Even though the article was written more for entrepreneurs about to embark on a startup, it is just as applicable to Supply Managers about to take on a new category. So what was the advice?

  1. Look Forward – not back.
    Study trend lines that correspond to what you need to buy, not historical demand levels. Demand could be falling. The last thing you want to do is be stuck with a warehouse of obsolete inventory. So make sure you don’t just get last quarter’s numbers, ask for the last three years.
  2. Ignore Your Friends – talk to customers.
    It’s not what engineering or marketing wants — it’s what the end consumer wants. If you don’t procure the products and services that the end consumer will buy, it doesn’t matter how good you do your job as the organization won’t last long without sales. So no matter how good they claim the advice is, be sure to say that sounds like an awesome idea, let’s run it by our customers to see if they are ready for it.
  3. Consider the source.
    Everyone has their own bias and point of view. It’s important that you balance all the views in your sourcing decision to arrive at what’s best for the organization as a whole, not just what’s best for engineering, marketing, or even your own Supply Management organization. The best Supply Management organizations increase overall value. So when engineering gives you a great idea, be sure to say that’s great, now how do we sell it to marketing and vice versa. When everyone gets on the same page, the advice is likely to be better, or at least consistent.
  4. Learn to Love the Word No.
    Some requests will be so bad that there will be no way to address them besides just saying no. For example, marketing will insist on a certain print shop which costs 50% more than the next highest bidder because of a great relationship. There’s just no way to deal with this situation delicately. Print is print. It’s not creative, and there is absolutely no rationale argument for such a premium. In this situation, you will just have to say no and move on.
  5. Bet on yourself – always.
    At the end of the day, you have to make the decision, and, most importantly, as you are being held accountable, you have to make the right one. If you’ve done your homework, that’s something you will be able to do. You just have to have the confidence that you can do it, even if everyone else is pulling you in a different direction. Don’t expect other organizations to echo your views, they won’t. They have their own goals. Your job is to get everyone on the same page when you can, and make the tough call that is best for the organization when you can’t. C’est la vie de gestion des approvisionnements.

As the article says, simply put – advice is an input. Treat it as one of many.

Is it Time to Stop Blaming Governments and Start Blaming Economists for All the Economic Turmoil?

How many recessions has North America had in the last two decades? How long has the Eurozone crisis been going on? Does anyone know anymore? It’s been nothing but doom and gloom for years. Doom and gloom which immediately followed periods of growth that was too rapid or optimism that was too unfounded. What the heck happened?

We can blame the governments for failing to keep the currencies in check and failing to invest in innovation and jobs, we can blame the private sector for trying to rampage out of control, or we can blame the economists who give everyone bad advice. Maybe that’s what we should be doing. According to some very recent research, by Emre Soyer and Robin Hogarth, which is being published in a special section in the July-September 2012 issue of the International Journal of Forecasting, we have “The Illusion of Predictability” [preprint] (How Regression Statistics Mislead Experts) which can be succinctly summarized by saying “economists are overconfident [and] so are you” (as summarized by Justin Fox over on the HBR blogs).

Soyer and Hogarth did a study with 257 economists who were asked to read about a regression analysis that related independent variable X to dependent variable Y and then answer questions about the probabilities of various outcomes. When the results were presented in the typical manner (as average outcomes followed by a few error terms), the economists did a really bad job of answering the questions. They paid too much attention to the averages, and too little to the uncertainties inherent in them, thereby displaying too much confidence. Moreover, they did only slightly better when they were shown the numerical results plus scatter graphs. Only the economists who were shown only the graphs actually got most of the answers [close to] right.

In other words, when the data is presented in standard form, statistically literate experts are just as likely to glom (glom glom) onto the point estimate and discount the uncertainty as innumerate journalists and make the same mistakes. (They could use Pinky and the Brain’s refresher refresher lesson on statistics.) Ouch!

We in Supply Management know that the world is often much less predictable than economists would lead us to believe — having to deal with the effects of demand spikes, supply shortages, currency fluctuations, labour strikes, and natural disasters on a(n almost) weekly basis — and that no economic model is going to capture the full extent of the reality of the situation. It’s too bad that an average economist doesn’t, because if (s)he did, then maybe the advice wold be better, and the markets would, as a result of more rational actions, be more stable and make our job a little easier. In the interim, we can do our part by making sure that we help procure any services that require an economist or economic analysis and insure that such economist or group has a tendency for presenting, and analyzing data, the right way without unnecessary exuberance, one way or the other. Because this result, captured in the preprint, is scary:


72% of the participants believe that for an individual to obtain a positive outcome with 95% probability, a small X (X < 10) would be enough, given the regression results. A majority state that any small positive amount of X would be sufficient to obtain a positive outcome with 95% probability. However, in order to obtain a positive outcome with 95% probability, a decision maker should choose approximately X=47.

Simple math says that the majority of the participants were off by a factor of 5 (or more). Ouch! Late last year the BBC ran a point of view article that said we should beware of experts when it comes to running things. Maybe they were right!

Happy Procurement Independence Day

It’s the 6th anniversary of Procurement Independence Day, first celebrated at the Coupa Cabana Cafe back in 2006.  I hope it was a good one for you!

Coupa is still going strong, as you might have guessed from the flurry of press releases coming out of their doors lately.  Before the summer is over, we will be checking in on Coupa to not only see where the past year has taken them, but, more importantly, where the next year is taking them.  Their pace of development has not relented, and they have even more cool stuff coming down the pipe later this year. 
We will review some of the forthcoming capabilities in detail and see whether they are ready to make the leap to the big-time with the Series E injection they just raised in May.  They’ve come a long way from the new kid on the block they were six years ago, going from a few sales in the low end of the mid-market to a lot of sales in the high end of the mid-market to making progress in the Fortune 500, where they recently landed a few significant customers.  Will they be able to turn that into a few dozen Fortune 500 customers and become one of the next big pure-plays in the space who fill the void left by the recent acquisitions of Emptoris and Ariba?  And will they be able to successfully penetrate the European market?  Only time will tell, but I can say that the fact that they have almost 300 customers with a 95%+ renewal rate is certainly nothing to scoff at and pretty telling.  
Stay tuned.  SI was one of the first blogs to bring you in-depth coverage of their capabilities when they were just starting, and it will be one of the first to bring you in-depth coverage of their new platform capabilities that might just make them a true Fortune 500 / Global 3000 player in the coming years.
While you wait, you can revisit some of the classic posts or sing a few songs from the “A” side:

“e” does not change the fundamental nature of anything

Purchasing Insight just ran an awesome article by Ian Burdon who talked about the “e-wheels on my wagon”. Attempting to carefully explain why the e-Procurement debate is at least ten years behind the curve (and that if you’re not doing proper e-Procurement by now, you probably just crawled out of a cave somewhere … or at least that’s the doctor‘s interpretation), he makes a great point that has been often missed in the internet age that must be repeated:

If you take a text which is riddled with “e” this and “e” that, the first thing to do is to strip out all of the “e”s. If it then looks like nonsense, it will not be improved by putting the “e”s back. More than a decade after the dot.com boom one hopes people would be less credulous but, alas, marketing budgets are long and memories are short.

To make a long story short, good e-Procurement is good Procurement, whether you’re using paper and pen, telephone, fax, the Internet, or HyperNet (in the year 3000). As the author astutely notes, e-Procurement is more than e-Sourcing, P2P, and e-Invoicing, and the end goal goes well beyond savings. Proper e-Procurement is about more than merely buying things over the World Wide Web. Proper e-Procurement supports a proper Procurement strategy, which encompasses everything from corporate planning and market analysis to understanding and working with the whole supply chain in an effort to deliver the corporate strategy. That goes well beyond putting a pencil in your shopping cart by way of a punch out. And it certainly goes well beyond endless debates about structured documents which entirely miss the scale and nature of the transformational opportunities available.

So don’t get sucked in by the e-Hype. Look for solutions that deliver real Procurement value, and you will not be among those acting like they just crawled out of the e-stuary. And if you need a good guide on how to start, after checking out SI’s recent post on a good lesson in e-Procurement System Selection (courtesy of Discount Tires) and the X-emplification (Day 5) and X-asperation (Day 6) posts, as well as the SI e-Procurement 3.0 Illumination (here), don’t forget about the Enterprise Software Buying Guide as well as SI’s recent 2-parter on How Much That Enterprise Supply Management Solution Really Costs (Part I and Part II) and you’ll be well on your way.

Informationalization Is Important

Simply put, the more informed you are, the better you are going to be able to source and procure. And this recent article over on the HBR blogs on why you need to integrate data into products, or get left behind just scratches the surface.

As the post notes, virtually every product and service can be made more valuable through informationalization. The GPS example provided is classic. Turn-by-turn directions make the car more valuable as the driver can keep his eyes on the road, get to his destination faster, and, during delivery, avoid left turns that just lead to extended idling at busy intersections. And, as predicted by Stewart Taggert, half of the value in the delivery of a shipping container from halfway around the world would be in the data associated with the container. Good information allows you to calculate in-transit time, and associated costs, loading and unloading costs, storage costs, insurance costs (as you can appropriately determine the chance of accidental loss or theft), etc.

But the best example of the value of informationalization is how it allows you to optimize your sourcing decisions. The more you know about your product options, shipping options, associated costs, and the inherent value of each product versus your other options, the more accurately you can model your options. The more accurately you can model your options, the better chance you have of determining the solution with the lowest cost, the lowest risk, the highest value, and the best value (defined as risk reduction, profit generation capability, etc — whatever makes sense) to cost ratio. And this is how leading Supply Management organizations can save 12%, on average, off-the-top in an optimization-enabled sourcing event — and even more if they collaboratively work with their peers to identify all of the options that may be available and all of the associated tradeoffs. As pointed out in SI’s recent paper on “Top Ten Technologies for Supply Management Savings Today”, integrated, collaborative sourcing can often identify savings opportunities of up to 30% or 40% on categories that were exhaustively combed for savings in the past.

Plus, good information allows your organization to:

  1. constantly improve products and services by way of the fact that you are able to
  2. collect more relevant, timely, accurate, detailed, and integrated data.

And when you have relevant, timely, accurate, detailed, and integrated data, you can take out your best-of-breed data analysis tool, use the tips and tricks SI outlined in it’s free e-book (co-authored by Bernard Gunther of Lexington Analytics, now a division of Opera Solutions) on Spend Visibility: An Implementation Guide, and extract even more value for the organization by optimizing not just Supply Management spend, but utilization, service, warranties, Marketing & Legal spend, and every other product and service activity that burns capital and/or creates organizational value.