Monthly Archives: July 2014

Procurement – Why we really matter! (Repost)


This post originally ran on November 10, 2010. However, it is still as relevant today as it was then and, for those of you who did read it before, not too much of a distraction to you as we approach the World Cup Final :-;


Today’s guest post is from David Furth, VP of Marketing at Hiperos. David has been in Procurement for over 20 years and has held senior positions at Perfect Commerce, BasWare, RightWorks/i2, and Deloitte Consulting.

Procurement is on the verge of experiencing its next major transformation. During the past ten years, the emphasis has been on optimization – leveraging spend, improving the sourcing process, and becoming more efficient across all aspects of the P2P and Order-to-Cash value stream.

As a result of these improvements, companies now rely on suppliers, outsourcers, and other third parties more than ever. A fact now recognized by C-level executives, boards of directors, and regulators, alike. Why? The increased reliance on these third parties has occurred without implementing the same level of control or having the same level of visibility that was in place when the work was being performed internally. The result is increased risk to company performance and brand reputation.

As a result, forward-looking procurement leaders are transforming their organizations. They still maintain the same obligation to keep costs down. But they have added the responsibility to continuously assess risk, pre- and post-award, and introduce integrated processes and controls across their companies to mitigate that risk by working closely with other functional areas, business lines, and geographies. During the next few years, procurement will be looked upon to provide important guidance around how key external contributors to their companies’ value chains are managed.

This is why more and more procurement executives are stepping forward to introduce a consistent method for managing providers across a wider breadth of their extended enterprise. These executives recognize that just because the contract assigns responsibility/liability for just about “everything”, this does not absolve their companies from the responsibility of ensuring each provider is living up to all contractual obligations. This requires implementing management control programs that actively monitor both performance and compliance to help ensure suppliers are meeting all their obligations.

This is an enormous responsibility that requires consolidating requirements across a large number of stakeholders, communicating expectations to all providers, collecting information and documentation about current status, and collaborating with providers to remedy issues when shortfalls are identified.
To be successful requires a new attitude, a thoughtful approach, buy-in from key stakeholders, and the appropriate technology. Despite the best of efforts, responsibility or risk cannot entirely be outsourced.

So, when you consider the consequences of suppliers failing to meet their obligations, regulators handing out fines for poor oversight of third parties, and investors losing confidence in your brand, it is not surprising to see real action taking place. The past few years have made it abundantly clear, it is not a good strategy to expect that a great contract will get you great results, ensure providers follow the law, or prevent them from acting unethically. Therefore, it is imperative to have the appropriate level of controls to mitigate to the appropriate level of risk. This has not been the traditional way of thinking, but that is rapidly changing.

Thanks, David.

Do We Really Need Supply Risk Programs Anyway? (Repost)


This post originally ran on April 21, 2010. However, it is still as relevant today as it was then and, for those of you who did read it before, not too much of a distraction to you as we approach the World Cup Final :-;


Today’s guest post is from Pierre Mitchell, Director, Procurement Research and Advisory for The Hackett Group.

OK, now that I have your attention. Am I being provocative? Yes … and no. If the purpose of supply risk management is to ensure supply that is: available, reliable, high quality, well priced, supporting lowest TCO, ethically sourced, etc. (per the enterprise mission and brand), then we really “just” need to clarify what constitutes the performance of supply and the causal factors which impact it. But, this is a big “just”. It means first translating the performance of supply from the business (i.e., the true ‘risk owners’ who ultimately own the performance of supply) to the inbound supply chain to a commodity to the supplier and even down to the part/spec/site level — and then ensuring that your processes for extended network design, sourcing, and supplier management are addressing the risk factors that can impact that supply performance. That’s a tall order to expect as a bottoms-up outcome.

For example, if you look at a company’s sourcing and supplier management processes, you might find risk-oriented knockout criteria in an RFI. Or you might find a regulatory compliance driven process in supplier measurement. But for the latter example, do you have an explicit risk score in your supplier scorecard? Most organizations don’t. There is a direct analog to the quality area here in terms of placing emphasis on process capability and managing upstream causal factors. A TCO model that includes quality costs (i.e., a ‘cost of quality’ model) is not only similar, but actually overlapping with the ‘cost of risk’. In other words, you can pay for risk prevention now or pay for external failure later.

This is why, although you should theoretically be able to bake your supply risk management processes systematically into your existing supply management processes (sourcing, SPM/SRM, etc.), the fragmented and reward-biased performance measures don’t encourage this end-state approach. This is why a bottoms-up process usually does not work and it requires that Procurement/SCM not only work with the natural risk owners to build the cost/risk models, but also use that to have the top-down discussion with senior management on how the firm wants to deal with it and what is the cost of doing nothing. To quote the rock band Rush: “If you choose not to decide, you still have made a choice“. (Freewill) And for some organizations, they might be able to tie into an existing enterprise risk management and corporate sustainability governance structure.

Another important strategy is to have a good diagnostic, and some external benchmarking intelligence, as part of this process — especially when trying to justify the effort beyond ‘it is the right thing to do’. Showing where you are vs. other firms and how well you/they are performing in supply risk (and comparing that performance to capabilities) is a good way to support the discussion. And so is having a good ‘cost of risk’ model. But quantification is tricky.  Firms need to arm themselves with some good insight on elevating the conversation. Why? To get more attention, resources, and proper measures/alignment that cascade back down to get baked into the processes. Once they’re baked in, you won’t need a ‘program’ anymore — you’ll have a proper risk-adjusted process.

Thanks, Pierre!

A Futuristic Look at High Definition Sourcing (Repost)

This post originally ran on March 10, 2011. However, it is still as relevant today as it was then and, for those of you who did read it before, not too much of a distraction to you as we approach the World Cup Final 😉

Today’s guest post is from Paul Martyn (VP of Marketing), who can be reached at p <dot> martyn <at> bravosolution <dot> com or 312 279 6793 and who recently penned a guest post on Achieving Category Excellence with High Definition Sourcing, to look ahead three years when High Definition Sourcing and Next Generation Sourcing Techniques (which include Value Focussed Supply Management Techniques) are commonplace in the leading Supply Management organizations and put together a picture of what e-Sourcing might look like.

It’s 2014. I’m a senior sourcing professional at a large multi-national company and I’ve got major sourcing programs planned for categories that share the following characteristics:


  • Large amounts of spend

  • International, operational, marketing and/or finance stakeholders

  • Complicated cost models

  • The category leader is frustrated with traditional sourcing techniques

  • The category is avoided by the faint of heart

  • Dynamic corporate, supplier, and market conditions

Sound daunting? Maybe even impossible to succeed? Three years ago, I would have shared your skepticism and been completely frustrated by the sheer complexity of tackling these challenges. When I look back, there was a lot holding me and my team back, including:


  • A one-size-fits-all approach to sourcing:
    For successful sourcing of complex categories, what my team really needed was the ability to define the world of their particular category. A flexible framework would allow us to state the opportunity/problem, gather the necessary inputs to evaluate possible reactions, make a decision, and track the implementation and monitor the changing conditions around the decisions we’ve made to constantly take advantage of changing realities — all while staying consistent across the organization.

  • Silos, silos everywhere and not a bridge in sight:
    The conventional approaches I used created nonsensical boundaries across functions. I couldn’t get engineering, distribution, supply chain, and customer service aligned or more importantly — involved in the decisions. Worse, we weren’t really in problem-solving mode, these were merely sequenced ‘events’ executed with no ability to create and manage a ‘process’ that ended up as a ‘system’ to manage key categories. All we created were more damn task lists. My category leaders didn’t need more “to-do’s”, they needed laboratories for research and testing, board rooms for decision-making, and a ship’s bridge from which to monitor and control.

  • Drowning in useless data:
    We made great use of data at first, but wrestling with it was so manual and there was no way to easily refresh it. It very quickly became like a can of soda: when first opened, it’s great, but the longer it sits, the flatter — and less useful in providing relief — it gets.

So what’s changed? I’ve used ‘High Definition’ Sourcing with category specific ‘Business Centers’ for complex categories. With this sophisticated approach:

  • Category managers have a panoramic view that allows them to manage their categories, end-to-end with regards to

    1. defining new opportunities/problems

    2. gathering a full spectrum of metrics to use in evaluating potential solutions,

    3. establishing, monitoring, and tracking of key decisions to highlight deviations from expectations

    These three (3) parameters form our ‘system’ for managing complex categories, where the stakes are high and the opportunities for value, even higher.


  • With a category management Center of Excellence we have two critical resources for successful management of high-definition sourcing:


    1. A Data Management Guru (DMG) responsible for the data capture and informatics. The DMG establishes connections to gather baselines; refreshes usage and capacity details; links to spend sources for up-to-date consumption figures and arranges performance data aggregation and design.

    2. A Business Intelligence Management Professional (BIMP) responsible for configuring the new analytics necessary to analyze key categories within an initiative. Every problem is a little different, and the right analytics are crucial to making the right decision.



As a result, my sourcing tools can


  • Flexibly define the problem opportunity for a specific category

  • Utilize robust data sources to feed the evaluation and performance processes

  • Allow creative scenarios to complete the evaluation process

  • Support the determination of specific decisions and actions

  • Establish KPIs for tracking ongoing performance

  • Effectively report the impact of our initiatives in terms (EPS/Profit Contribution) the entire organization understands

All in the context of a given category.

And the return on investment for the staff augmentation and additional tools? An additional 5-8% savings in my most strategic categories, an overall improvement in my supplier performance post-contract, and an overall reduction in organizational risk by involving all of my stakeholders, their key data inputs, and constraints.

My only regret: I didn’t do it sooner.

Thanks, Paul!

High-Definition Sourcing: Category Excellence Moves to the Next Level (Repost)

This post originally ran on February 14, 2011. However, it is still as relevant today as it was then and, for those of you who did read it before, not too much of a distraction to you as we approach the World Cup Final 😉

Today’s guest post is from Paul Martyn, Vice President of Marketing for Bravo Solution.
Paul can be reached at p <dot> martyn <at> bravosolution <dot> com or 312 279 6793.

the doctor — along with many others — has been advocating for “next-generation sourcing” for some time. I couldn’t agree more that modern supply management organizations must take sourcing practices to the next level if they are going to continue to distill value from the discipline and practice.

But like most New Year’s Resolutions, while the aspiration to improve may be great, the effort may be too much for even the most committed. I see this a lot, especially when it comes the challenges of sourcing strategic, complex categories. Not without reason of course, but more and more I also see that the benefits of mastering the art of sourcing these challenging categories far outweigh the difficulties of the actual process.

Strategic categories mean different things to different businesses. For one company, the category may be transportation; for another, packaging material. The common denominator: the business can’t succeed without it, and can’t afford to over-pay for it.

To make decisions based on the most strategic objectives of the business, sourcing teams need to integrate many dimensions of information from areas well outside their domains. For example, if non-price factors like diversity or sustainability are part of the company’s corporate social responsibility initiative, those factors can — and should — be part of sourcing strategies.

As a result, the volume and the sheer variability of the information render common e-sourcing tools or Excel spreadsheets useless for collecting and evaluating proposals. That’s where high-definition sourcing — which combines technology, expertise and process — delivers the goods at the lowest total landed cost, and aligned with the greater organizational strategy.

So how do you know if high-definition sourcing can turn even the most complex categories into real value for your organization? There are generally three scenarios where the opportunity to apply this discipline will help you capture meaningful and sustainable savings

  1. The category leader is frustrated with traditional sourcing techniques
  2. The category is avoided by the faint of heart
  3. Sourcing alone will not deliver the value

Sound familiar? Odds are good that at least one of these reflects what’s happening in your organization. Regardless of which situation you face, there are immediate opportunities to be gained with high-definition sourcing

  • Use technology to design and execute more sophisticated proposal collection and analysis, including the ability to use “what-if” scenarios.
  • Build supplier performance monitoring and triggers for re-evaluating supplier selection into your category management solution
  • Partner with suppliers to drive costs out of the system and strike the perfect balance between suppliers’ pricing and capabilities with buyer business constraints and preferences
  • Tap domain and process experts to bring market and industry best practices to bear on your own sourcing process

The results will be well worth it. Best-in-class companies make the connection between complex categories and the business’ charter. Lowering initial costs is a given. More importantly, these leaders make better decisions based on capabilities and price and secure meaningful — and sustainable — savings.

Thanks, Paul!

Looking Behind the Knowledge Network Curtains (Repost)

This post originally ran on November 19, 2010. However, it is still as relevant today as it was then and, for those of you who did read it before, not too much of a distraction to you as we approach the World Cup Final 😉

Today’s guest post is from John Shaw, the Director of Education Services for Supply Management at BravoSolution.

In a recent post, the doctor asked, “Where is the Knowledge Network?” and “What is an aspiring supply management professional to do?”

Our industry is offering a growing list of online resources and supply management organizations. We can use these resources to augment the knowledge we gain through our professional activities and personal networks. As the doctor stated, each of these resources takes time and effort to build, so naturally, the goals and objectives of these networks are aligned with those individuals who invest in building each network in the first place.

Our challenge as supply management professionals is to navigate this forest of information in a way that maximizes our personal development. To do so, we need to understand where our personal objectives align with those of a knowledge network. The better we understand how each network’s objectives align with our own, the more value we will receive out of the limited time we have to invest in them.

So as both a consumer of these networks and a developer of some (see discloser below) I’d like to offer some questions for you to ask when trying to determine if participating in a particular knowledge network would be valuable to you:

  • Does the intent of the network align with the needs of the membership?
    The Network Guidelines should clearly state the audience, and the types of information exchange the network facilitates. If they are not stated, or they do not align with what your current development needs, your time may be better invested elsewhere.
  • Who are the thunder lizards?
    Look to see who the most active participants are. The most active people in a community will steer its direction. If these people are your peers, or better, if they are in roles that you aspire to, look further into participating.
  • Who is in charge?
    Successful communities are driven by the membership. If enough thunder lizards march in the same direction a community will move and take a life of its own. The builder can find him/herself in the passenger seat. In the best scenario, you’ll find that the thunder lizards are your peers, and they are in charge!

So what are we to do? Unfortunately there isn’t a simple answer. Whether we are learning about supply management, following politics or trying to get the best advice online for fixing a leaking pipe, we need to look behind the curtains to understand our information sources

Thanks, John!