Monthly Archives: November 2014

Procurement Trend #14. Shorter and More Complex Product Life-Cycles

Eleven anti-trends from the pre-internet pundits still remain, and as much as we’d like to not give yet another reason for LOLCat to hate futurists, we must continue to make sure that no good deed goes unpunished and since the futurists’ advice is still as good as it gets, we must break it all down until you can look past the shiny new paint job and realize that it’s still a twenty year old Skoda you are being sold.

So why do so many historians keep pegging shorter and more complex product life-cycles as a future trend? I honestly can’t fathom this as the video console, cellphone, and apparel industries have been in this mindset for over two decades, but maybe it is because the futurists, who finally realized that the internet has given everyone a need for speed, are finally catching on or because:

  • consumers in some verticals, like electronics, expect major new releases each year
    because they’ve been conditioned by the manufacturers and the marketers to, and
  • they expect every release to contain more new and exciting features than the last one
    even though they don’t even use half of the current features, and
  • they also expect each new product to be smaller, lighter, faster, and more powerful than the one before …
    even though they’ll then complain about lack of battery life, screen resolution, or something else when you have are faced with an impossible choice between two incompatible feature requests.

So what does this mean?

Annual Release Cycles

No matter how good Procurement is doing, it has to do it better, faster, cheaper and keep doing it better, faster, and cheaper (relatively speaking) every year. To do this, it’s going to have to institutionalize its knowledge and process in a workflow driven sourcing suite with integrated analysis and optimization that will tell it if its method is still appropriate, the market is ripe for the preferred event structure, and the costs are optimized.

Constant Innovation

The product has to keep improving, which means the organization and its suppliers have to keep innovating and Procurement needs to manage that innovation. Knowledge management, team management, and project management is just the beginning. When the team hits a dead end, Procurement is going to have to bring an innovation methodology like TRIZ, FORTH, or Design Thinking to the table to help it get past the finish line.

New Market Identification

At some point the incremental improvement in the new product is going to be so minimal that it’s going to lose value to the market and if the organization doesn’t phase the product out, the market will. So the organization not only has to constantly identify potential new versions of its products, but new markets for which it can design new products for. Preferably blue oceans, but open seas are a good start.

Content is a Cornerstone of Compliance

In Friday’s post, we asked if you could solve the compliance challenge before it cost you tens or hundreds of millions of dollars. We noted that the biggest reasons for lack of compliance are lack of knowledge, policy, visibility, analysis, and procurement technology and the fixes are knowledge, policy, and appropriate technology.

One of those technologies is a Procurement Marketplace that can steer (or force) buyers to buy the right products from the right (and approved) suppliers. Another is supply chain visibility technology that lets a company monitor what is going on in the supply chain and evaluate a potential supply base before making a decision. A third is import/export/trade management software that helps the organization identify the regulations it must comply with, collect the necessary information, produce the required documents, make sure the documents get to the proper authorities complete and on-time, and track all of the associated certifications and insurance certificates that go with the products and the supply base.

A good trade solution will address, at a minimum, import/export requirements, ECCN (Export Control Classification Number), custom security programs, FTA/FTZ/SEZ (Free Trade Agreements/Free Trade Zones/Special Economic Zones), country of origin, HS (Harmonized System) codes / HTS (Harmonized Tariff Schedule) codes, DPS (denied party screening), and entry visibility. Essentially it will help a company determine all of the export requirements, all of the import requirements, produce the necessary documentation, and track its product from country of origin to the destination country.

In order for this solution to work, it needs a lot of content. Namely:

  • import/export regulations for all of the countries being sourced from, sourced through, and shipped to
  • US ECCN database
  • requirements for programs such as C-TPAT, PIP, and AEO
  • Free Trade Agreements between all of the relevant countries
  • database of all FTZs / SEZs in the relevant countries
  • HS schedules for all of the relevant countries and mappings
    and/or mappings to from country specific schedules
  • Denied parties lists for the relevant countries

That’s a tall order. But no longer an impossible one. Stay Tuned.

Optimization, Do You Know What Comes Next?

Admit it. You don’t. You have no clue. You’re still struggling with the basics of model building, data collection, constraint definition, scenario comparison, and, most importantly, when you should use optimization (always, but not necessarily to make the award decision). It’s math, it’s hard, you weren’t trained, and you’re already struggling to keep up with the increasing demands placed upon your Supply Management organization by the C-Suite, stakeholders, and suppliers.

But you should. Costs, including labour and energy, are rising across the board. Inflation is about to make its way back with a vengeance. Markets are uncertain and in some places unstable. It’s getting to the point where all optimization on a category optimized in the last three years is going to do is limit cost increases to inflation. Unless the model is expanded, the category is redefined, or an innovative approach is taken — there will be no more savings to be found.

As a result, you have to take your optimization to the next level. You have to go from T-CAP (Cost of Acquisition and Production/Utilization/Distribution) to true TCO (Total Cost of Ownership) as you work your way to TVM (Total Value Management). You have to learn how to take your modelling and analysis skills to the next level. And you have to be innovative in your application of optimization.

And what does that innovation look like? To find out, download Sourcing Innovation’s new Illumination white-paper on Optimization, What Comes Next (registration required). Sponsored by Trade Extensions, this white paper presents six ways you can merge big data, analysis, and optimization to take strategic sourcing decision optimization (SSDO) to the next level and find savings and cost avoidance opportunities you would never have imagined even a year ago.

The reality is that even if you’re Hackett Group top 8%, regularly applying SSDO to high-dollar and/or strategic categories, and building nine, and even ten, figure sourcing events on optimization, you’ve barely mastered the basics of optimization 2.0. Since the doctor regularly interacts (and sometimes works) with five of the seven providers of SSDO technology (and the two e-CHAOS hold-outs have not upgraded their platforms substantially in years), including the true market leaders, he knows the extent of the projects they have supported and knows that even the most advanced organizations are just scratching the surface of optimization 2.0. But these providers are now taking their products to the next level and have started releasing the foundations of 3.0 capability, with lots more to come over the next few years. The organizations that adopt, and master, these 3.0 capabilities first will be decades ahead of their peers in supply mastery. Decades.

So, if you want to be one of this decade’s Supply Management leaders, download Sourcing Innovation’s new white-paper on Optimization, What Comes Next (registration required) and start preparing for the future of optimization today. It will be worth your while and when you start applying these techniques, you won’t be disappointed.

One Hundred and Twenty Five Years Ago Today

And over 60 years before they would line the walls of diners everywhere (and become staples in hundreds, if not thousands, of movies about the swinging ’50s), the first jukebox, built by the Pacific Phonograph Company, went into operation at the Palais Royale Saloon in San Francisco and launched the Music-on-Demand revolution. (See the Wired obituary.) Unlike a modern jukebox, which blasted music though built in speakers, this early version required the listener to use a stethoscope-like tube that was attached to an Edison Class M electric phonograph to hear the recording.

And then a mere sixty-five years later, as chronicled in our post last month, TI would launch the mobile music revolution. Forget Apple. Forget Sony. Forget RCA. The real revolutionaries that made music on demand are long out of the music business.