Even though he lives in Alabama. What a brave LOLCat!
(It’s amazing how many states must still label evolution as a “controversial” theory and also teach intelligent design in the year 2015. It hasn’t changed much since 2005, when NPR summarized the sad state of affairs.)
Earlier this year, Spend Matters ran a post by Jason Busch on Why Collect Supplier Information that highlighted some of the information needs addressed in a recent piece by Mr. Busch and Mr. Gustin on Supplier Enablement for Invoice Discounting and Supply Chain Finance: Background, Tips, and Secrets for Success that not only highlighted some of the needs for detailed supplier information but also outlined many other reasons why organizations need supplier information.
The traditional answer to this is Supplier Information Management (SIM), implemented by way of a supplier portal where suppliers provide, maintain, and verify their information to the buyer on an as-needed basis. While this sounded like a good solution, especially since the amount of information some buyers need to collect on a single supplier can be staggering, which makes the task almost impossible for a large organization with thousands of suppliers, all it does is shift the burden to the supplier. The rationale provided was that the supplier, who needs to sell its wares, would accept it as a cost of doing business, especially since the supplier would need to provide much of that information on an RFX anyway and this way only has to provide the information to the buyer once as it would be maintained and reusable on every future RFX or information request.
This sounds fine and dandy, but really only makes sense if the workload for the supplier is less than the workload for the buyer. Otherwise, the work is just being shifted, overall supply chain efficiency is not increasing, and cost is not being take out of the supply chain. And SIM is not delivering on its promise.
The reality is that the workload for the supplier is not decreased because, with the proliferation of SIM systems across Procurement, more and more organizations are asking more and more of suppliers. And the perception that the supplier has less customers than the buyer has strategic suppliers is not always correct. Since most large buyers with risk avoidance tendencies only buy from large suppliers, and since suppliers can only become large suppliers by attracting a large client base, the supplier has as many buyers as the buyer has strategic suppliers — and the supplier has just as much data entry and maintenance to do as the buyer did before the buyer purchased its SIM solution. The work hasn’t been minimized, only shifted, and the cost has only increased because the supplier’s cost of data maintenance is no less than the buyer, and the supplier will just add a mark-up to cover their cost.
The true answer to the supplier information problem is not a SIM solution, but a SIR solution — an on-line, shared-access, Supplier Information Repository where a supplier can enter all of their information once, maintain it, and, under a fine-grained security model, share it with their customers (the buyers) on an as-needed basis. This reduces costs for all parties and truly takes costs out of the supply chain as the supplier only has to maintain one set of data, and the buyers can access all data from all suppliers for one low-cost annual subscription, which, because a vendor does not have to maintain multiple SIM instances, allows the vendor to offer repository access at a cost that is less than the cost of a traditional SIM solution.
SI has written about risk management and best practices quite a lot in the past, and a lot has been written on the subject, but when it comes to a successful risk management program, there are a few key elements that cannot be overlooked or the success of the entire program can be compromised in an instant.
Three of these core elements are very nicely summarized in a recent piece by the maverick that he published on Spend Matters last month in Part 2 of Supply Risk Management 2015: Best Practices. And while the doctor has seen each of these issues addressed to various levels of competency separately, he’s never seen them addressed so succinctly in unison, and that’s why he’s pointing out this particular piece. With the exception of the 2×2 best practice, which is really not that critical if you frame and approach supply risk management correctly (but that’s a point for future discussion), the piece is superbly written.
This post will briefly discuss the three elements, but the doctor strongly encourages you to download the full piece and read it in its entirety. These lessons could just save your supply chain from a major disruption.
Supply Risk Management is an Embedded Process
Risk is continuous, not a point-based event that can be addressed with a one-off program at various points along the supply chain. Natural disasters cannot be predicted, strikes can happen with very little warning, and equipment can break down for any number of reasons. Monitoring must be continuous — and this only happens if risk monitoring, mitigation, and management is embedded into all supply chain processes. Not sure how to do this? The paper has some tips to get you started.
Risk Includes Variation and Volatility
Risk is not binary, not restricted to complex categories or supply chains, and not an-all-or-nothing event. An extra 1% defect rate presents a major risk if quality assurance and pre-delivery testing is not stepped up. Bad weather that destroyed 20% of expected crop yield is a major risk if the organization was counting on a full yield to meet demand. The products are still delivered and a crop is still harvested, but it’s a disruption all the same.
Risk Scoring Must Show Business Impact
One of the biggest mistakes that the average Procurement organization makes, if not the biggest, is evaluating the impact of a risk against purchasing, and not the business as a whole. A low dollar spend could be critical if the bus cannot roll off the lot without that Grade 8 bolt. An impact on an unmanaged category, not critical to Procurement, could be devastating to Marketing. And so on. The needs of the business must come before the needs of Procurement.
For more details on these best practices and tips to get you started, check out the maverick‘s second paper on Supply Risk Management 2015: Best Practices. It will be worth your while.
For years and years and years the doctor, the maverick, and every other thought leader in Procurement have collectively been telling you that maverick spend is bad. It erodes negotiated savings, builds mistrust in the supply base, and underlies your Procurement processes. It encourages rogue behaviour and increases the organization’s exposure to risk and liability. Good Procurement is not accomplished by loner hot-shots, but an integrated, dedicated team that manages the supply chain end-to-end and makes sure the entire chain is strong, not just one link.
But, sometimes, if approached in the proper manner, Maverick spend can be good. Maverick spend can help you identify weak processes, better products and services, preferred suppliers, and even poor definitions of on-contract and off-contract spend. Even though it’s still bad if the buyer is buying off-contract, paying more than needed, risking good supplier relationships, and potentially exposing the organization to compliance and liability issues, maverick spend still presents an opportunity to improve Procurement processes, procured products, and even personnel.
How? Check out the new Spend Matters Pro Piece in the maverick‘s 50 Shades of Pay series that was co-authored by the doctor on Maverick Spend Analysis: How to Re-Plumb Your Spend and Savings Flow and find out how you can knock your spend analysis success up a notch, even if you don’t have a spice weasel.
In a recent post over on Spend Matters UK on eWorld Procurement and Supply by Peter Smith, he made a number of observations on the event that happened last month. A few of these might have been unexpected by the average practitioner, but are not really surprising when you think about it. First we’ll cover them and then we’ll discuss why the doctor does not think these observations to be all that surprising.
Mr. Smith’s observation number two: There was also a good number of suppliers, although there seemed to be quite a few of the bigger software firms missing this time.
Mr. Smith’s observation number three: The standard of the presentations is still highly variable.
Mr. Smith’s observation number four: The other thing that might help on that would be a little more detail on the content in the programme.
Mr. Smith’s observation number seven: Ultimately, there is considerable value to delegates in eWorld, particularly if you are smart / lucky enough to choose the right sessions ….
Let’s start with observations number three and four. When you have an event that relies on lots of vendors forking over lots of dollars, you can’t always be that fussy when it comes to whose dollars you accept. And since those dollars come at the price of a presentation, it’s obvious that since vendors are of various quality, the presentations, as well as the descriptions of such presentations, will be of various quality. And as a result …
Mr. Smith’s observation number seven is a logical consequence. As a result, the value to delegates will be entirely dependent on those delegates choosing the right sessions, which, with limited information, will depend as much on a delegate’s luck as the delegate’s skill in picking the right presentation to attend. But the most important observation is …
Mr. Smith’s observation number two — the lack of bigger software firms. Not only does the doctor not find this surprising, but expects more and more absences from the leading firms in the year to come. Why? The ROI of this event for a leading provider is less and less every year. The more providers who are present, the less mindshare each provider gets. The bigger the event gets, and the more practitioners who get to go at little or no cost, the more the vendors have to pay to attend. In other words, vendors end up paying more for less every year. Especially when the practitioners who are attending the big events not only range in seniority from Junior Buyer, with no buying influence, to CPO, with ultimate buying authority, with the majority being on the Junior Buyer side of the scale.
And if you are a large, best-in-class, vendor, with a decent education budget, you have enough to finance and attend a much smaller event with a larger percentage of Director’s, VPs, and CPOs, where you are not only going to get more mind-share, since there will be fewer vendors at this smaller event, but more potential marketshare, since every individual that shows interest is one with actual buying authority.
Furthermore, since the even larger best-in-class vendors can host their own Procurement education days, with thought leaders, client case studies, and hands-on training sessions, these best-in-class vendors can get 100% mindshare for a limited time from every person who attends. So what’s the better value? A big event like eWorld or ISM where vendor capability ranges from simple e-Negotiation capability to full-fledged Source-to-Pay with little hope the average attendee will have time to figure out the difference? Or a smaller, focussed event, where the limited number of vendors have similar capability, more time to educate the participants, and a chance to educate more senior participants? Obviously, the latter, and, as a result, it’s only a matter of time before the number of absences at big events like eWorld and ISM from big, leading vendors increases. And that’s the doctor‘s prediction.