Monthly Archives: November 2015

Why Your First Generation Sourcing Platform Is Not Ready For Modern Sourcing

First generation sourcing platforms, circa 2005, were a miracle cure for the average Sourcing organization that was drowning in data and demands to save, save, save without enough time or resources to tackle even a fraction of the categories that needed to be under management.

First generation Spend Analysis systems helped the Sourcing team identify the largest spend categories and the largest organizational suppliers, which were prime candidates for the first strategic sourcing evens put through the new sourcing platform.

First generation RFX systems helped the Sourcing team capture more data from more suppliers than ever before and not only better qualify potential suppliers but collect more detailed bid breakdowns for analysis.

First generation e-Auction systems helped the Sourcing team put non-strategic high-dollar categories with very little complexity out to bid for quick savings success.

And, most importantly, first generation decision optimization systems allowed the sourcing team to build realistic cost models, capture constraints, and devise realistic award scenarios that identified real savings.

Many organizations that acquired these suites and applied them successfully saw year-after-year returns of 10%+ on the spend brought under management. And a few are even seeing some savings today, but just like the second auction saw little savings and the third auction saw a price increase, the year-over-year return is dropping. Why? Because while these first generation platforms were infinitely more powerful than anything that had come before, they weren’t designed to capture the full extent of complexity in an average category — complexity that has been considerably increased since the early days of sourcing due to increased outsourcing, increased globalization, increased regulation, and a constantly evolving global marketplace.

The following staples of first generation sourcing platforms just don’t cut it anymore.

  • Limited Form-Based Data Collection
    that don’t allow the full breadth of responses a supplier could provide to be captured
  • Built-in Static Reports (with limited 2-D graphing options)
    that don’t evolve as organizational needs evolve
  • Single User Sourcing Events
    that don’t take into account that complex categories require entire teams
  • Limited Approximations
    that force high order cost approximations and don’t capture true cost definitions
  • Fixed Workflows and No Templates
    that don’t adapt to organizational needs

If you want to know what is needed in a sourcing platform to handle the full extent of the complexity in today’s categories, download Sourcing Innovation’s recent paper on Complex Sourcing: Are You Ready, sponsored by Trade Extensions, and find out once for all why optimization is the plan and not just something reserved for a handful of strategic events.

Freightos: Flippin’ Freight Quotes Faster than a Fleet-Footed Feline on Guarana

A couple of years ago we introduced you to Freightos in our post on how they were helping to bring freight into the modern era. Even today, when we are over half-way through the teens, many Procurement professionals, when they call up a forwarder for a spot quote, still have to wait two or three (or even eight) days for a response. It’s absurd. (See this hilarious video on The Great Freight Experiment.) And when the buyer has to get a shipment from Shanghai to San Francisco, which requires a truck, ocean freight, and another truck or a truck, air freight, and another truck, it’s a nightmare waiting for all the quotes to come in.

Freightos was founded to deal with this problem. In order to address this problem and speed up the freight quote time, on or off contract, in the global market place, Freightos was built as a technology platform that enables an on-line network of global freight forwarders to provide instant spot-rate and on-contract quotes for point-to-point global shipments when a (potential) customer needs them.

When a forwarder, or freight-forwarder / 3PL, signed up for the Freightos network, and uploaded their standard buy and sell rate tables for ocean, air, and land-based shipping for all of the routes they serviced, customers could access the forwarder’s portal on the Freight OS network and get almost instantaneous quotes for the route(s) of their choice. All the buyer had to do was specify the origin, the destination, some basic load characteristics, the desired pick-up date, the allowable modes, whether or not the load is hazardous, if insurance is required, if a customers brokerage is used, whether or not nearby ports / airports can be used, and click quote. Within seconds, the buyer could get the quickest delivery quote, the cheapest quote, and some alternate options from any forwarder that had a rate table in the system and chose to make it public. They could also request custom quotes from a forwarder as well, which they might want to do if they were willing to commit to a certain volume over a certain period of time.

Since it’s launch, Freightos, which primarily targeted freight forwarders and 3PLs, has been extending its platform and its target audience, now also serving (and targeting) enterprise shippers (in traditional logistics divisions) and e-commerce shippers as well. Since it’s initial launch, Freightos has added two major features:

  • the marketplace
    where all forwarders can list their public rates and any buyer can easily search public quotes (without a forwarder having to share quotes with them), compare, and book quotes
  • contract management
    which permits a buying organization to upload all of their contracts, which are included in search results, if the route is covered, and allow a buyer to see their contracted rate vs. the market rates

As well as a few other valuable features for enterprise shippers that include:

  • tariff management
    that allows freight providers (including 3PLs and forwarders) to define all of the associated tariffs and buyers to include all the tariffs defined by their contracted routes
  • spend visibility
    that allows enterprise shippers to see how much is being spent by lane, forwarder, region
  • business intelligence
    that allows enterprise shippers to slice and dice the spend visibility and contract data
  • real-time multi-currency support
  • powerful filtering
    that allows an enterprise shipper to include or exclude forwarders, forwarders, transport modes (and specify ocean only or air only), select and deselect nearby ports, etc.

Freightos is a very powerful solution that will soon be Procurement’s best friend. How so? Stay tuned, as Freightos will be launching their Procurement portal early next year which will build on the powerful enterprise shipping portal they have now, but with features and functions targeted to make your life as a Procurement professional much easier when you are trying to build those total cost of ownership models during your multi quarter and multi-year sourcing events.

Finding Your Procurement Mojo and Gettin’ Sigi Wit’ It – Part Deux

This spring, in Finding Your Procurement Mojo and Gettin’ Sigi Wit’ It (Part One), we began our review of Sigi Osagie’s Procurement Mojo, an important book for many procurement professionals and organizations. Unlike most books which attempt to teach you how to do the job (that you already have a decent grip of), Sigi’s book attempts to teach you how to explain to the organization what Procurement does, which is a critical issue that needs to be addressed since:

  1. Procurement is still the Rodney Dangerfield of the organization (and still don’t get no respect) and
  2. most Procurement Pros don’t know how to sell the organization on the unrealized potential that Procurement can bring.

In our first post we discussed how Sigi noted that a key to success was the Procurement brand, but in order to address the Procurement brand, one needed to:

  • build an effective organization,
  • deploy process enablers,
  • manage the supply base, and
  • apply performance frameworks.

Then we discussed some of the key points Sigi made with respect to each of these preliminary steps to building, and most importantly selling, the Procurement brand, but stopped short of discussing any of the game plan because some of his readers would get to hear the man himself and Get Sigi Wit’ It at Trade Extensions’ London event in October. However, now that the event is over, we’re going to discuss the final part of the book and complete the book review.

Sigi outlines three main areas that need to be addressed to build — and sell — your Procurement Mojo:

1. Procurement Positioning

Make sure Procurement is positioned in the organization in the manner and place that will allow it to be the most effective in both delivering its functional obligations and adding value. This involves addressing both reporting structure and enterprise involvement. Not all organizations require a CPO who reports to a CEO, some can do fine with a VP that reports to a COO (who is the CEO’s right hand). For example, if the organization is a manufacturer and most of the spend is direct materials, this can work fine, as long as Procurement is also involved in other key spend categories by the CMO (for agency management), CFO (for back office spend), CIO (for systems spend), and other executives that also have large spend categories. As long as Procurement understands key company purchases and is able to convey the importance of those key purchases to the right stakeholders in a way that elicits their involvement, the reporting structure is not as important as general Procurement involvement.

2. Stakeholder Communication

Every other key Supply Management activity requires stakeholder engagement and support to be successful, so why should brand management and promotion be any different? The key to building, and selling, the Procurement brand (and making your mojo work for you) is regular, effective, stakeholder communication that provides messages relevant to them. Make sure you understand what your stakeholders value most — and address that. Cost savings? Innovation? The relationship? If you can’t talk to their needs and report on value in their terms, it will be hard to break down the silos and sell the value, and brand, of Procurement. Sigi offers some great advice on how to effectively communicate with your stakeholders that most books don’t, and this is a great section of the last chapter, which includes a discussion of how to create a stakeholder map to keep your communications on track.

3. Procurement PR

Good companies make good products. Great companies create a great brand image that people want and instill desire for products even before the products are released or, in some cases, people even know what the products are. Look at Apple. The brand made people want the iPod and the iWatch even before Apple even announced them.

But good PR isn’t easy, especially for a function focussed on hard value and not soft messaging. However, once you know the right formula, it isn’t that hard either. As long as your messaging consistently addresses activities and issues that are:

  • Important,
  • Sustainable, and
  • Credible

and relevant to the audience being addressed, the PR will improve and the brand will grow. How do you do this? Sigi provides a number of examples of efforts that various organizations have used to achieve this goal. While not all will necessarily work for you, some will, and the book is a great aid here as well.

Again, we highly recommend that you check out Sigi Osagie’s Procurement Mojo and Get Sigi Wit’ It.

Authoritative Damnation 65: Solution Partners

Activist Investors and a troublesome Board of Directors are one kind of damnation, but solution partners are another. Generally speaking, an activist investor and a board of directors are only troublesome on a quarterly basis, but solution partners can be troublesome on a daily basis. How so?

You depend on solution partners to serve your customers.

Some customers want your products, but other customers want your products and support services that your organization does not offer. As a result, you will need the help of solution partners, which will likely own the customer relationship. As a result, you are totally dependent on these solution partners to not only serve your customers’ needs but make your customers happy. And if they own critical customer accounts and they say dance, you have two choices, dance or lose critical customer accounts. Not a great position to be in.

You depend on solution partners to run your organization.

You need them for your custom manufactured products, your enterprise software systems, your MRO, and sometimes even for your internal IT and change management projects. The bigger you are, and the more focussed you are, the more you need these solution partners. It’s not a bad thing if you have good relationships, but if the relationships go south, but you are still under contractual commitment for a year or more, it can be a daily damnation until the relationship ends and gets transitioned to a new supplier.

You depend on solution partners for innovation.

If your organization’s strength is marketing and consumer demand forecasting, and it depends on solution partners to come up with new custom product designs to meet those demands, and on solution partners to come up with new manufacturing techniques to implement those designs, then the organization is completely dependent upon solution partners for innovation. This means that it is not only unable to thrive, but also unable to survive, without a strong solution partner ecosystem. It doesn’t matter how big it is or how rich it is, but just on how good it is at managing those relationships. If the organization is not good at SRM (Supplier Relationship Management), it, like Procurement, is doomed, marooned, and about to be entombed.

In other words, while solution partners can be an organization’s saving grace, they can also be a source of eternal damnation, driving you down the highway to hell.

Even “Simple” Categories Hide Extreme Complexity!

Earlier this year, Mr. Smith asked what defines complex sourcing and why does it matter because complexity usually means there is inherent risk and opportunity in that category or sourcing event. That’s why we have to understand what complexity is, where it is, how to identify it, and how to capitalize on it to reduce risk and generate savings.

As clarified by Mr. Smith, complexity has nothing to do with the size of the spend, the importance of the spend, the inherent risk (which is supplier independent), the urgency of the spend, or even the number of suppliers. It has to do with a number of internal, external, or commercial factors that hide complexity, often in plain sight. The nine factors are:

Diversity of stakeholders
… with conflicting requirements		 Number of suppliers
… and supplier variation		 Number of lots
and variants
Diversity of requirements Alternative market solutions Capacity constraints
Number of lots and variants Pricing models Conditional options

These are all summarized in Sourcing Innovation’s latest paper on Complex Sourcing: Are You Ready which also goes on to demonstrate how even a simple print tender hides all nine factors of complexity within it. That’s right! Your standard print category, that you believe is so simple it’s best to hand it off to a GPO because it’s too trivial to deal with, not only hides more complexity than you realize, but hides more complexity than your first generation sourcing platform can handle. You’re leaving money on the table with every Sourcing event. Lots of money. Enough to hire more talent to do more events in house and save even more money.

Intrigued? Then download Sourcing Innovation’s new paper on Complex Sourcing: Are You Ready today, sponsored by Trade Extensions, and find out how even the simple categories can hide lots of complexity that, when properly addressed, provide savings and added value in the form of risk management, supply base consolidation, and new supplier identification.

Moreover, this paper will also tell you why your first generation sourcing platform is not up to the task of handling this complexity and what to look for in a second generation sourcing platform that is up to the task of handling the complexity. Download Complex Sourcing: Are You Ready today and find out why optimization is the plan.