Monthly Archives: February 2015

Best Practice Technology Vendor Selection for True Multi-Nationals Reprise Part I: RFX – You’re Asking for the Wrong Information!

This is a reprise of a series that first ran in 2012. It’s as relevant, and important, today as it was then.

It’s that time of year again. Your budget has finally been approved — a month late — and you’re ready to begin the process of obtaining that e-Sourcing, e-Procurement, Source-to-Contract (S2C), Procure-to-Pay (P2P), Source-to-Settle (S2S), Source-to-Pay (S2P), Supplier Information Management (SIM), Supplier Relationship Management (SRM), or Third Party Management (3PM) that you’ve been dreaming of. You think you know what you want, but you have to go through an RFP and, more importantly, you know that you’ve only had time to look at a few options while building the business case as you were doing it evenings and weekends on your own time because the project wasn’t approved. Now you want to go to market and either verify that you’ve identified the best solution or find the best solution to meet your needs. Since you are a sourcing organization, that process demands an RFP. However, this RFP is not like your RFP for direct materials or indirect spend. This is a very specific technology solution RFP for a platform to meet your needs and support all of the other RFP / sourcing / procurement / supply management processes of the organization. It’s crucial to get it right.

That’s what we are going to discuss in this series — the proper process and approach to acquiring the right e-Sourcing / e-Procurement / S2C / P2P / S2S / S2P / SIM / SRM &/| 3PM solution for your needs. Furthermore, let us clearly state that this series is specific to the selection of technology and technology-based vendors to provide enterprise software platforms, and/or implementation services, back-office (processing) functions, or technology-driven consulting services for your multi-national organization. While some of the best practices contained herein should also apply to the selection of (strategic) suppliers for high-value and/or complex products and/or services, this series particularly relates to the selection of a vendor to provide an enterprise software backbone, and, in particular, a backbone for e-Procurement and/or e-Sourcing technology for your Supply Management organization. As one size does not fit all where RFX and category selection processes are concerned, no claims, express or implied, are made with respect to any other vendor selection process and, in fact, if you’re only buying paper and pencils, some of the best practices contained herein will, in all likelihood, be overkill.

Now that the preamble is out of the way, let us begin by noting that the traditional RFX processed is well understood, and well documented in many places, including in the e-RFx for Total Value Management wiki-paper, co-authored by the doctor over on the e-Sourcing Wiki over seven years ago. And, in the wiki-paper in particular, the high-level process is still more-or-less correct.

As per the wiki-paper, you start with a three-stage RFI before an RFP, which is solution focussed (and not cost or contract focussed), which is issued before a final RFQ, which is when you collect quotes and start the actual selection / negotiation process. Specifically, the high-level process is:

  1. RFI #1: Stakeholder Requirements
  2. RFI #2: Vendor Interest
  3. RFI #3: Vendor Pre-Qualification
  4.    RFP: Solution Inquiry
  5.    RFQ: Clearly-Defined Specifications

So what are you doing wrong, especially if you’re a Multi-National? To answer that, let’s look at how this is typically translated:

  1. Product Needs, Service Needs, Preferred Vendors
  2. Vendor Info. Request, Vendor Interest, NDA
  3. Product & Service Capability Profiles
  4. Solution Design Request
  5. Explicit requirements, process definition, and bid request

See the problems?

  1. Stakeholders typically don’t know what they need in a solution. They aren’t technology experts. They aren’t supply management experts. They are domain experts. It doesn’t matter what they think they need in a product or a service, it matters what problems they are having today. You need to ask them what problems they need to solve, so that you can ultimately select a vendor with the solution that solves as many of your stakeholder’s pain points as possible.
  2. A preferred vendor is one that can offer you the best product or service from an organizational perspective, not a single stakeholder’s perspective. For example, a stakeholder might rate a vendor A+ because the representatives always responds quickly. But this is not necessarily indicative of great service. If the answer is always “we’ll send someone to fix that with 72 hours”, and you need the machine up 80% of the time, that’s still poor service if the machine breaks down regularly because 3 days downtime every few weeks will not support an operation level of 80%.
  3. Asking a vendor if they can provide you with the necessary functionality or service levels after you have shortlisted them as a possibility based upon a review of their collateral is not likely to get you anything other than a “yes we can”, especially if the vendor also offers consulting or “value added services”. One has to remember that most (big) consulting (and value-add) organizations are driven by partners with a strong desire for as many dollars as possible and the reps are told to always say yes and take on as much work as possible, leaving the question of how to get it done (if the organization is already stretched or weak in that area) until after the ink is dry.

Which brings us to the biggest problems with the current selection process, which we will discuss in Part II.

The CPO’s Agenda: A Breadth and Depth to Rival the Pacific!

CPOs are inundated with requests and requirements from all directions on a daily basis. Not only do they have to cut costs to please the C-Suite to keep their jobs, but they have to do so while dealing with constant distress (when shipments are late), disruption (when plants go down or suppliers go bankrupt and the materials or products aren’t coming at all), and dispute (when the supplier wants to be paid for goods that weren’t up to quality standards or arrived damaged).

Plus, they are plagued with requirements from engineering to improve quality and use better raw materials, from marketing to use suppliers that will provide them with brand leverage (either due to the supplier’s brand recognition, such as “Intel Inside”, environmental responsibility, via waste reduction and/or utilization of recycled material, or corporate social responsibility, where the supplier follows fair labour practices and provides compensation and care to its employees above and beyond government mandated minimums in developing countries), and from finance to find suppliers that will either extend DPO or offer early payment discounts just for paying on time. All of this adds cost, and complexity, to the supply chain when Procurement’s prime directive from the C-Suite, which often defines the only metric they are measured on, is cost reduction.

As a result, in addition to having to constantly brush up on their skills, CPOs have a lot to worry about from day to day. That’s why a recent post over on the new Spend Matters Chief Procurement Officer site that asked What is Top of Mind for CPOs delved into the subject and identified what should be the top 20 areas of concern for every CPO (or every head of Procurement doing the job of the CPO without the recognition).

In this post, which is a collaboration between the doctor and Pierre the maverick Mitchell
(who soars through the buzz and the noise until he gets to the truth), we pointed out that, in addition to cost cutting, good CPOs are also highly focussed on:

  • availability and on-time delivery
  • contract management and spend creep
  • environmental stewardship and sustainability
  • quality, reliability, and safety
  • reputation management
  • risk management
  • supplier relationship management
  • working capital optimization

and a dozen other topics of significant concern because if any of these twenty topics are ignored or mismanaged, any identified and negotiated cost savings will disappear in the blink of an eye (and the CPO will be looking for a new job in the blink of the other eye given how unforgiving the shareholders and Board of Directors can be in tight economic times).

The first of these topics, availability and delivery, is addressed in detail in our post on ‘The CPO’s Agenda Part I: Availability and Delivery in a “Hierarchy of Supply”‘ which discusses Supply Assurance and its foundational role in Procurement. Go check it out.

The remaining 19 topics will be addressed over the next couple of months in this ground-breaking new series which will lay each and every topic bare so that you, as an up-and-coming CPO, can understand not only what the topic is and why it is important, but what you have to do to tackle it head-on and make progress while your peers get buried in the avalanche of distresses, disruptions, and disputes that will continue to increase in quantity and complexity until many of these issues are addressed and adequately solved.

Keep a close eye on Spend Matters Chief Procurement Officer in the months to come. This is the first of a number of series that the doctor will be collaborating on in order to help bring you desperately needed education that you won’t get otherwise!

What are a CEOs Top Concerns?

Over on e-Sourcing Forum, Blaine Mathieu, CEO of Selectica, penned a post on the CEO’s Top Three Concerns and How CLM Can Help. CLM (contract Lifecycle Management) and SLM (Sourcing Lifecycle Management) can definitely help with these concerns, but are these really the top three concerns of the CEO, or are they the concerns that should be the top three?

The reality is that the top three concerns of any CEO are:

  • Profit
    We all know that at the end of the day all the Board really cares about is lining the pockets of the shareholders that they answer to. That’s it.
  • Economic Collapse
    Profit requires revenue and revenue requires a reasonably strong economy where consumers are willing to spend.
  • Supply Chain Disruption
    While the reality is that the average CEO doesn’t give a rodent’s behind about the supply chain, because that’s the head of Procurement’s problem, the last thing an average CEO wants to hear about is a disruption that is going to result in a stock-out and lost revenue. The Board won’t be happy, and the CEO’s job could be on the line.

Even though the top-three concerns should be:

  • Value Generation
    Continued profit relies on continued revenue which relies on continued customer demand which requires that customers continue to see value in the products and services the companies offer.
  • Global Expansion
    Individual economies wax and wane, and sometimes connected economies surge and fall with them, but, generally speaking, the economies of entire zones or continents don’t collapse at once.
  • Supply Assurance
    No supply, no product. No product, no fulfillment. No fulfillment, no revenue, even if the organization could provide value to the customer.

As part of these concerns, the CEO should be helping the CPO with:

  • Cost Avoidance
    Forget savings. They are ephemeral and temporary. But reducing demand and avoiding unnecessary cost is permanent.
  • Innovation
    Value requires continued delivery of better products and services, which will often only be identified through innovation.
  • Compliance
    A big part of supply assurance is making sure all local and foreign laws, import and export requirements, and industry regulations are met so that the company isn’t faced with unnecessary disruptions, lawsuits, or government interventions.

which, while not the CEO’s top three concerns, are the top three concerns the CEO should share with the CPO.