Monthly Archives: March 2014

220 Years Ago Today, Congress Banned US Vessels from Supplying Slaves to Other Countries

However, slavery was not banned in the US until 1862, 68 years later! It’s unfortunate that while the Congress of 1794 was enlightened enough to ban the spread of slavery, they were not progressive enough (or should I say benevolent enough) to ban slavery outright. The sad truth is that the forefathers of the robber barons new that cheap labour was the key to building their empire, and didn’t want to ban slavery as the cheapest labour was free labour.

And the lust for cheap labour continues until this day. The abolition of slavery didn’t do much to increase the average person’s quality of life as there were no minimum wage law until 1933 and no minimum wage law between 1935 and 1938 (as the first law was struck down by the Supreme Court). As a result, only those lucky enough to be protected by the unions in the mid-to-late 19th century had any guarantee of a decent wage until the minimum wage act came into force.

And what happened when the minimum wage reached its highest purchasing power ever in 1968? The new robber barons of the 1970’s started to look abroad for cheaper labour and by the early 1980’s, the biggest organizations were starting to outsource to China, Vietnam, and other low-cost locales. (And when those locales got expensive, outsourcing spread to other locales like India, Malaysia, and the Philippines and a blind-eye was turned when the supply chain used child labour.)

The lesson here is that 220 years ago the Congress of the United States embarked along the right path with a very ethical decision to ban US ships from supplying slaves to other nations, but didn’t follow up with an across-the-board ban on slavery. As a result, slavery endured for three more generations and gave the US a black eye from a historical human rights perspectives that it need not have gotten. Similar tardiness with respect to unions’ rights legislation, minimum wage laws, equal rights laws, and child labour laws have also resulted in black eyes either for the nation or some of its biggest corporations that spread its image around the world.

There’s no need for any of this, especially today when your organization can control its fate and its image (and have a positive effect on the image of its country). It’s time for you to put an end to “just do as I say, don’t do as I do” in your supply chain and take proactive efforts to make sure you’re socially responsible across the board and across the supply chain. Stand up and make the US a leader in global human and worker rights initiatives. Show the emerging markets what they have to achieve if they truly want to be a first world super-power. It’s not just about GDP.

The (Board) Gamer’s Guide to Supply Management Part : Agricola, Part II-B

Even after reading last week’s post, you still think you’ve mastered the basic game of Agricola, and that you can now manage the basics of an industrial farm at the back-end of your agricultural supply chain. With limited resources, you believe that you can deftly balance growing food with feeding your family (investing in crops versus paying your workers), expanding your farm and/or family versus maximizing the return from what you have (and trading off short-term gains today for long-term gains tomorrow), improving your infrastructure (by upgrading your buildings and making them more resistant to the elements and lowering their annual maintenance costs with some up-front investment) versus focussing on your fields (plowing and sowing your fields) versus raising and breeding animals (and the supply and demand dynamics of the meat-eating versus vegetarian marketplaces), growing grain versus vegetables (and the internal dynamics of the basic commodities market), and raising sheep versus pigs or cattle (and the various preferences of different locales, taking into account that Americans love their bacon and Hindus don’t eat their cows). You still think that because you were ending every friendly family game with a heavily utilized farmyard, a nice balance of crops and animals, a big family, and a better homestead than your peers that you have it all figured out. Think again.

Just like the real world agricultural supply chain isn’t this simple, neither is the full version of Agricola. Adding in the occupational and minor improvement cards adds a broad range of new elements to the game and greatly increases the complexity and available dynamics. Basic strategies go out the window as you try to find new and innovative ways to build a better farm than your rivals, who now have access to new skills, equipment, and innovations to acquire food, grow crops, and raise their animals. Just like every innovation in the real world pulls the rug out from under your proverbial supply chain feet, every occupation and minor improvement has the potential to completely change the balance of power, especially when these occupations are skillfully paired in a complementing manner.

There are 139 minor improvement cards, which include:

  • Loom: Your ability to weave wool into cloth, which you can sell, gives you extra food each harvest (just like farmers who can sell wool and meat versus just sheep can make extra money).
  • Canoe: You’re a more efficient fisherman, and secure extra fish (food) every time you fish as well as reed (for building).
  • Brewery: Your ability to convert grain into beer provides you with extra food during trade as everyone wants a piece of your production.
  • Spinney: You own the woodlot, so anytime another player uses the “take 3 wood” action, they must give one to you.
  • Water Mill: Your ability to covert grain to flour allows you a trading advantage and you can get 3 food for every grain.
  • Millstone: You are more efficient at milling grain into bread and can produce three times as much bread (food) in a single action.
  • Turnwrest Plow: Your bigger and better plow allows you to plow fields three times as fast as your rivals.
  • Carp Pond: You have your own private fishing pond that no one else has access to, can fish before and after your field work, and catch fish (food) every round.
  • Milking Shed: You can milke your livestock and get additional food every harvest.
  • Sawhorse: Your better-equipped work-shed maximizes your ability to build and place fences faster and with less raw-material (and you build every 3rd fence free).
  • Broom: You can clean house faster than your peers, and when you need to, you can discard all the remaining minor improvement options in your hand (that are available to you) and select seven new minor improvement options (that become available to you).
  • Cooking Hearth: While your rivals are struggling with a small fire-place, your state-of-the-art cooking hearth allows you to easily cook grain, vegetables, and livestock and produce a plethora of food with ease.
  • Fruit Tree: Your foresight to plant apple and pear trees allows you to produce extra food each round.
  • Wooden Crane: While your rivals with their pick-axes can only quarry a single stone at a time, your crane allows you to quarry two or, if you add a day-labourer at the cost of one food, three stones at a time.
  • Bookshelf: Your foresight to invest your spare change in a library allows you to not only learn new trades quickly, but excel in them (and earn 3 food every time you embark on a new occupation).

If you have the millstone or the water mill, you will want to embark on a grain-based strategy in the early game as it will guarantee your ability to feed your family (and pay your workers) later in the game. If you have the spinney and/or the sawhorse, you might want to focus more on raising animals as you can expect free wood or the ability to build fences and stables more efficiently than your peers. The turnwrest plow puts you on a more agricultural course as you can quickly plow and sow fields. The carp pond and/or the canoe makes fishing a part of your strategy because it’s cheap and easy food. The crane puts a focus on building and renovation as you can more quickly acquire stone than your rivals. And the bookshelf puts you on an occupational track as every occupation you learn feeds a family member.

And then the strategies become even more complex and dynamic when you try to balance the occupations and the skills they provide with the minor improvements and the equipment that they make available to you. For example, if you have the Turner Occupation, who builds furniture, you can trade 1 wood for food at any time, and this goes well with the spinney improvement as it pretty much guarantees you will get a lot of wood to turn into furniture which turns into food to feed your family. The spinney also goes well with the frame builder occupation, since the free wood reduces the amount of resources he needs to build clay structures even more. The organic farmer occupation and the sawhorse minor improvement go well together, since the first requires lots of pastures and the latter allows you to build fences quicker due to the reduced material requirement. The seasonal worker occupation goes well with the planter box minor improvement which, if your field is beside your hut, allows you to plant additional grain or vegetables, which the seasonal worker can easily harvest. And so on. Just like in a real supply chain, when the right skilled resource has the right tool, her productivity multiplies.

Played properly, this game emphasizes the important relationship between the three T’s — talent, technology, and transition — because advantages come when you pair talent (occupational skills) with the right technology (tools granted to you by minor improvements) to allow you to transition your basic farming operation into a strategically designed one, where the focus of your strategy will transition over the game, from insuring you can produce enough food to feed your family (and pay your workers) in the early rounds to growing your family and plowing fields and building pastures in the mid-game to doing whatever it takes to maximize your agricultural output in the later rounds so that, by the end of the game, you’ve maximized your crop production, filled your pastures, expanded your buildings, and built the biggest, most profitable, and most cost-effective farmyard.

This game definitely requires you to put on your thinking cap and get comfortable in that thinking chair, because, just like when you sit down to analyze a potential supply chain configuration, you’re going to be in it a while as you put your supply management skills to the test.

Game On!

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part II.2

In part II.1, we addressed the first four steps of our eight-step generic sourcing cycle and noted that we definitely know what we need to do and how to get started. However, we have yet to address the burning question as to whether or not we know what we need to do to get (each step of) the process right and achieve success. But before we can address that question, we have to first discuss the last four steps of the process (in bold):

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

Bid Collection is mainly collecting the supplier quotes and RFX responses for analysis. It can be done through an (e-)RFX tool, auction tool, or even spreadsheets. Whatever suits the strategy and floats the analysts’ boat.

Bid Analysis is simply analyzing the responses with respect to the project requirements and organizational strategy. Once all the suppliers who cannot meet the organization’s needs are weeded out and a short(er)-list of those suppliers who can meet the cost, time to value, and alignment threshold, all of the bids are put through, depending on the strategy and the tools at hand, a weighted cost or optimization analysis and a final ranking is generated. Then, depending on the strategy (sole vs. dual source, lowest TCO by category etc.), the top supplier or suppliers are selected and the project proceeds to the next phase.

Negotiation is the age old art of trying to get more for less. You want to pay less, your preferred supplier wants more, and you go back and forth until you cut a deal or walk away from the table (in which case you return to the previous step, identify the next supplier on the list, and start the process all over again). (Remember to haggle properly or risk insulting the supplier.) When the negotiation succeeds, a contract is awarded and the procurement part of the sourcing-procurement cycle begins.

Post-Award Contract Management is where Procurement takes over. This is where you implement an easy-to-use organization wide e-Procurement system that everyone can use to place their goods and services requisitions and orders and that will tell them if something is inventory, if there is a product or service under contract that meets their need, and, if neither, if there are preferred suppliers or buying policies that must be adhered to for a fast approval or refund on your expense report. You implement a no-refund policy outside of the system without senior manager approval (one level above your boss), a no-PO no-pay policy across all suppliers, make it many times easier to use the system than to bypass it, and implement end-to-end automated invoice management with m-way matching . Then your spend is under management, your policies are followed, and off-contract purchases and expedited shipments are only made when there is a real need due to an emergency or unexpected surge in demand (against your forecast) and its more profitable to pay more than stock-out.

So yes, we, more-or-less, know how to do it — and we know that when we properly apply spend analysis and spend optimization techniques, we can expect year-over-year double-digit savings. But do we really know what we need to do it right and achieve success every time? Here the answer isn’t as crystal clear. In each phase, we know what we need — good, clean, fine-grained mapped data that we can cube, drill, and enrich until we find the savings opportunity in spend analysis, alignment measures for product selection, market intelligence for strategy development and supplier identification, etc. But what does good, clean, fine-grained mapped data look like, what capabilities must the spend analysis / visibility / reporting tool have, and, most importantly, how do we use the tool and read the reports? How do we determine which of our opportunities is most aligned to our current goals with an acceptable TTV and estimated savings? Where is the market intelligence we need, how do we access it, and how do we integrate it with our data to do a full analysis for project selection and supplier identification? Etc.

For an average organization getting started on the path, just knowing the process and having an e-Sourcing suite is not enough. The organization also needs actionable intelligence to help make the key decisions in each stage, and, in most cases, even if there was up-front training, help using the tool to use just the right functionality to extract the information required to generate actionable intelligence, because no training is complete and no one retains everything the first time through.

So how can the average organization successfully start an e-Sourcing journey? One way is to hire a seasoned pro who is knowledgeable in your key category markets and who has been through the journey before to act as your Sourcing Sensei. But given the high demand for such a sensei, as there are so few, this isn’t an option for everyone. So, if you can’t find, or afford to lure, such a sensei what can you do? Stay tuned!

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part II.1

In part I, we noted that most sourcing cycles are the same, and they all generally consist of the following eight steps:

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

We then noted that at a high level, we know what to do. But then we asked do we really know how to do it? And more importantly do we know what we need to do it right and achieve success? Let’s start with the first question. Do we really know how? For the most part, the answer is yes. Let’s take these topics one by one.

The process of proper Spend Analysis is well understood. You start by identifying the data sources, defining the raw data of interest in each data source, and creating a common schema to map all of the data to. Then you start the lather, rinse, repeat process of classify, map, cube until you have enough data to start an analysis, and, once you have identified the categories to drill into, enough data to accurately do the analysis. Then you start the analyze, asses, report cycle until you have narrowed down your top X opportunities. (For more details on this process, download the free Spend Visibility: An Implementation Guide e-book by Lamoureux & Gunther).

Project selection is fairly straight forward too, it’s simply evaluating the top opportunities identified in the spend analysis phase with respect to alignment with the organizational goals and TTV (time to value). The top Y that best balance identified savings, time to value, and organizational alignment are chosen and (e-)Sourcing projects are initiated.

Once a project is selected, the strategy needs to be identified. Will it be a single or multi-round sealed bid with a final negotiation with the chosen supplier? Will it be a masked or open auction? Or a single best-bid followed by a Total Cost of Ownership Decision Optimization to select the winning supplier(s) for negotiation. Of course, the best savings opportunity and best method will be dependent on current market conditions. If costs have risen sharply since the last contract was cut, the top spend category may not be a good opportunity. If demand is near, at, or exceeds supply, an auction is not likely to get good results. So you analyze the market and opportunity and select a course of action accordingly.

Supplier identification is simply identifying those suppliers who (likely) have products or services that can meet your needs. You can use analyst lists, conference lists, colleague lists, blog lists, and even open directories. You can then cut down to a shortlist after an initial RFI which asks some direct, but easy, questions. (For some good insights on what to ask, start with the SI series on Best Practice Technology Vendor Selection for True Multi-Nationals [Parts I, II, III, IV, V] and Seeking Spherical Supply Solutions? Succeed in the EU! [I, II, III], and if you have access, the archived webinars on the NLPA association site on Making Sense of e- in Sourcing and Procurement: What Solution Do You Really Need? and Acquiring e-Sourcing and e-Procurement Technology: What Questions Should You Really Ask>?)

So we definitely know what we need to do and how to get started. But do we really know what we need to do it right and achieve success? Come back tomorrow as we discuss the last four steps of the process so we can (attempt to) answer the latter question.

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part I

When it comes to (e-)Sourcing, every services, software, and full solution vendor has their own process. For example,

On the services front,

DRM Procurement Services proposes:

  1. Assess
  2. Analyze
  3. Strategize
  4. Tender
  5. Negotiate
  6. Implement
  7. Complete

Kuvaq composes:

  1. Category Profiling
  2. Strategy Selection
  3. Supplier Identification
  4. e-Sourcing Implementation (RFx, Auction, etc.)
  5. Supplier Selection and Negotiation
  6. Supplier Integration
  7. Supply Market Benchmarking

and State of Flux exposes:

  1. Project Definition
  2. Market Investigation
  3. Strategy Development
  4. Marketplace Testing
  5. Negotiation
  6. Contract Implementation
  7. Supply Chain Development

On the vendor front,

Moai has promoted a nine-step sourcing process that goes like this:

  1. Spend Analysis
  2. Strategy Development
  3. Supplier Identification
  4. RFX Creation and Distribution
  5. Negotiation
  6. Supplier Award
  7. Contract Negotiation
  8. Contract Management
  9. Contract Fulfillment

Quantris has presented an eight-step sourcing process with a split:

  1. Data Collection
  2. Analysis/Evaluation
  3. Develop Strategy
    — Go / No Go —
  4. Vendor Identification
  5. Bid Solicitation
  6. Negotiation
  7. Vendor Selection
  8. Implementation

and Iasta developed a seven step sourcing cycle with a parity bit:

  1. Spend Analysis
  2. Project Data Collection
  3. e-RFx and Supplier Management
  4. Bid Collection & Negotiation
  5. Decision Optimization
  6. Award & Contract
  7. Post-bid Management

(A Google Image Search*1 will find them all.)

As you can see, they are all essentially the same, more or less, and all include the following eight*2 steps, in approximately the following order:

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

So, at a high level, we know what to do. But do we really know how? And more importantly do we know what we need to do it right and achieve success?

To be continued …


*1 When in doubt, Google that Sh!t.
*2 To make for a lucky sourcing cycle!