Monthly Archives: October 2015

It’s NOT a Suite, It’s JUST Sourcing, Part II

In our last post we made the rather bold claim, which is probably going to irk a lot of vendors, that it’s NOT a Suite, It’s JUST Sourcing. SI likes vendors that are trying to build solutions to solve their customers’ pain points, and has chronicled the efforts of many over the years, and isn’t doing this to be irksome. SI is doing this because it’s not 2005 anymore, it’s 2015 and the nature of, and need for, Sourcing has changed. Today, Sourcing absolutely has to be more strategic and Suite Sourcing is NOT Strategic Sourcing. In today’s post, we’re going to begin to clarify why.

Then, also in our last post we outlined a hypothetical, but realistic, example in the high-tech space, discussing a typical, primary, sourcing event for a company that assembled custom-built high-end workstations for software developers and engineers. We started by discussing the primary factors that the Sourcing analyst was likely to identify as well as two strategies the analyst was likely to take. This led to a perceived event progression and a plan that looked like it was easily executable in you average modular sourcing suite. We did this to make it clear why many companies fall for the falacy that you can attack sourcing in a step-wise fashion using a modular suite, and, as a result, why some vendors still believe that a modular suite is the way to go. The reality is that, at a quick glancce, it does look like this is the right approach and that there is no reason to question it — even though there is a big reason. Namely, this approach is wrong.

The reason being is that, in reality, the event is not going to go as planned.

Specifically, it will not be an analysis followed by an RFP followed by a single auction / optimization analysis followed by a push into the contract management system. One or more, with emphasis on the more, of the following will happen:

  • the RFX will come back and some of the requested bid fields will be empty because the supplier is no longer producing the product
  • the RFX will come back and there will be new products that the buyer did not know about with new bids (and new interdependencceis to be mapped)
  • the logistics carriers will come back with quotes much higher than expected and/or a logistics carrier or 3PL will withdraw (due to overcommitments) and lanes will vanish
  • stakeholders or key customers will change requirements post RFX issue and you will have to go back and ask for prices on next gen products, which might still be in final design stages
  • the baseline optimization will come back with completely unexpected results and once the analyst uses spend analysis to dive in, will find a number of outliers in the incumbent bid and realize that she has to go back and ask for verified or corrected data
  • the auction will end with three suppliers almost equal on baseline scoring and extensive analysis will be needed to determine which supplier gets 50%, which supplier gets 30%, and which supplier gets 20% in the 50/30/20 split dictated by the shareholders to minimize risk

In these situations, respectively

  • the analyst will have to identify a larger supply base and send the RFX to more suppliers
  • the analyst will have to research the new products and decide whether to accept them or not and then, possibly, ask the supply base to bid on (comparable) products in a revised RFX
  • the analyst will have to invite more carriers to bid and consider alternate lanes, possibly from secondary (air)ports to secondary (air)ports
  • the analyst will have to create revised specs and go back to the supply base for additional prices and options
  • the analyst will have to backtrack to the spend analysis step on the submitted data, followed by a request for bid verification and a repeat of the optimization on revised data
  • the analyst will have to go back to the analysis step to identify which bid components were strongest for each supplier and then compare that to existing supplier scorecards (to determine likelihood of on-time delivery, quality guarantees, price consistency, etc.)

In other words, the event is not going to go as planned and it’s not going to be a sequential progression from analysis to RFX to auction/optimization to award. Moreover, most events are going to see multiple occurences of the above hiccups and require an almost random workflow that uses all of the sourcing capabilities of a suite multiple times.

Moreover, the transitions back and forth will need to be seamless. If an analyst has to push data out of the optimization “module” into the “analysis” module for detailed data and outlier analysis, than push the data, with insights, back into the “RFX” module for revised RFX data collection, and than push the revised RFP data back into the “Optimization” module for revised analysis only to find out that the lane cost is coming out higher than expected in the preferred award, indicating that there is still an additional opportnity if logistics costs can be lowered, then this “modular” workflow quickly becomes a nightmare.

Plus, in this situation, the analyst will have to do an in-depth analysis of the logistics cost to determine if costs can be lowered simply by inviting more carriers to bid, analyzing primary and secondary lanes, or doing something progressive like using the organization’s sourcing expertise to help a provider lower their overhead with better insurance rates, communication plans, and office & computer supplies from the organization’s GPO contract. Then, after this analysis has been done, which will likely take the form of multiple what-if optimizations using various cost models, the analyst will have to go back to the RFP, issue the revised RFP with more options to current and new suppliers, push the data back into the optimization module and continue.

In a modern Sourcing project, one cannot separate data collection from cost modeling from analysis from bidding from optimization — it is all one integrated sourcing process that lathers, rinses, and repeats until the solution is found and the event is done. And any provider that thinks you can separate pieces out and take a modular, piecemeal approach and build up to a suite is still living in 2005 and should be approached with caution. It’s not a suite, it’s just Sourcing. And, as indicated in our previous post, and as will be discussed in more detail in a future post, it’s not optimization, it’s strategic sourcing.

One Hundred and Forty Five Years Ago Today

The first federal registration in response to the first federal trademark application was issued to the Averill Chemical Paint Company for a design with an eagle and a ribbon and the words, “Economical, Brilliant”.

This particular trademark may not be in use today, but trademarks can survive a long time. For example, the lodes U.S. trademark still in use was registered on May 27, 1884 — over 131 years ago. That’s a long time for a company to have exclusive rights to a mark, label, name, signature, or logo that exclusively identifies that companies products and/or services.

And given the importance of brand, societal damnation 39, this is an important legal advantage that cannot be overlooked.

It’s NOT a Suite, It’s JUST Sourcing, Part I

In Wednesday’s post, we made what some might consider the rather bold statement that it’s not optimization, it’s strategic sourcing and we will get back to this statement shortly, but first we’re going to step back and make a statement that some may feel is an even stronger claim. It is certainly a statement that is going to irk a number of vendors, but we’re not in 2005 anymore. We’re in 2015 and the market, and the game, has changed.

Thus, It’s not a suite, it’s just Sourcing.

What do we mean by this? Simple. These days, Sourcing needs to be much more strategic and is thus not an activity that can be accomplished as a descrete set of loosely connected tasks where you can pick and choose what you need ahead of time. Strategic Sourcing is an activity that needs to both analyze the need and the market situation and respond to the stimuli the market is providing in a dynamic fashion.

This can not be done according to a pre-planned, limited set of tasks. To clarify, let’s take a hypothetical, but realisitic situation. Let’s say that the company is a high-tech retailer selling custom assembled high-end development boxes to software development and engineering shops. This company will not be buying pre-configured Dell and HP machines, targetted to the consumer market, but custom configured boxes using high end motherboards, which may be manufactured by the same production houses that manufacture boards for companies like Dell and HP, high end Intel and AMD processors, ultra-fast high density DRAM, high-end Solid State drives, mid-tower cases with extra fans, etc.

This might sound like a relatively easy sourcing event as there are a relatively small number of acceptable MB manufacturers, DRAM manufacturers, drive manufacturers, case manufacturers, and only two chip manufacturers, but even 5 * 5 * 5 *5 * 2 = 1350 and each manufacturer might have over a dozen acceptable options — and it’s hard to say up front how many of these combinations are not only viable, but acceptable (as even though it might be feasible to connect the components, there might be driver or other issues that affect compatibility or performance). In addition, new manufacturers arise once in a while and old manufacturers fail or sell out. Last year’s customer spend pattern is not the same as the spend pattern two years ago, and until year-over-year is analyzed for multiple years, you have no idea of the average deviation.

In other words:

  • you may or may not need a pre-event spend analysis to determine potential volume leverage points, the opportunities with supply base consolidation, and expected savings potential, all depending on when the last event was run, how much data you have, and current market data points
  • you may or may not need optimization; if you restrict the bid to pre-configured systems, because business is up 40% and you need a quick event to get through the rest of the year with plans to do a more detailed analysis in 6 months, you can probably get away with a weighted auction, but if bid options are open, you will probably need optimization to handle all the data
  • you may or may not need multiple RFX rounds, so you may or may not need a supplier portal to handle the communication necessary for a multi-round event

And this is all fairly obvious, so you are probably thinking

  • if I need the analysis, I invoke the spend analysis module, get my insights, and plan my strategy
  • then I invoke the RFX module to create the RFX
  • if I am doing multiple rounds — I have to configure the Supplier Portal instead of just sending out the Excel spreadsheets (which I would import on return otherwise)
  • when the data is retrieved, validated and cleaned up then I either
    • push it into the auction for a weighted auction or
    • push it into the optimization module for optimization-backed analysis
  • when I have my winners, I push the data into the contract management module for draft contract creation

… easy-peasy, right?


This is the real world and it never works this way.

Organizational Damnation 55: Sales

You may have thought we reached the pinnacle of organizational damnations when we discussed damnation 54: Marketing, and while Marketing can be bad when they stretch the truth, promise products months before they can be developed even if everything were to go absolutely perfect (which it won’t), and create a hype that the organization may never be able to live up to, but it’s nothing compared to sales. It’s one thing to sell an expectation, especially when one can always weasel one’s way out with an “it’s all a misinterpretation” argument, but it’s another to sign a contract knowing that there is no way the organization can possibly deliver. That’s why the Sales damnation often trumps the Marketing damnation (even though the two are often intertwined).

Why is Sales so bad?

They often live by the mantra that the customer gets what the customer wants.

Regardless of reality, sanity, or the huge loss that could ensue when the product is not delivered, a penalty clause kicks in, and a large lawsuit is filed for incidental damages when the customer finds out that the organization(‘s salesperson) made a promise with the full understanding that it could not keep the promise (because the salesperson wanted to make a quota to get a year-end bonus).

Moreover, the customer gets what they want when they want it.

Sometimes sales will actually limit themselves to selling a product or service the organization actually has today, but promise unrealistic delivery times. For example, Sales might promise 100,000 units of the new motherboard next Monday, when they haven’t even been produced yet by the Factory in China which can only produce 10,000 a day working double shifts and requires 72 hours to air-freight a rush order when you add in packaging, customs clearance, and ground-transportation time.

Even if what the customer asks for is not what they really need.

Not satisfied selling deep freezes to Eskimos, or heat lamps to Colombians, some salesmen have to one-up their peers and sell complex products and services they don’t need to gullible CXO’s who, after seeing the success their peer organization’s supposedly achieved with the same service, acquire a “me-too” mentality. For example, BPO for invoice and payment processing when the organization is a staff augmentation operation and needs deep insight into it’s T&E cost in order to accurately bill and price it’s resources under different cost models. Or lean workshops when all the organization does is joint product design with strategic suppliers and the bottleneck is not the design process, but the suppliers with inefficient plant floor setups. Or customized web-based order entry screens for the sales-team to input orders when in fact the real bottleneck is inventory visibility and availability – not the time to enter an order. Or, even worse, a new ERP to support that new Procurement platform when, in fact, the current ERP is just fine and the data migration effort is monumental.

And more horror stories than you care to count. As long as compensation is immediate on signed deals, instead of long term based on customer retention (for example, instead of 30% of deal value, 10% of annual revenue for as long as the organization is a customer, even if the sales person leaves the organization or retires), Sales will do whatever it takes to line their pockets, even if it means promising the impossible (which will, in the end, come back to bite Procurement in the rear end when they have to source additional product or service support that just may not exist). So keep an eye on Sales, and be prepared to step over their head if need be before deals are signed that Procurement cannot possibly deliver on.