Monthly Archives: February 2016

Optimization: What’s changed since 2009?

If you’ve done your research you have likely figured out that it requires a PhD to use optimization. That it is so expensive it should only be used by experts for high value categories. And that the time required to set up optimization for a sourcing event prevents you from using it for more than a handful of events.

All of the above statements were true in 2009. But these statements are completely false today, and have been false for a while now.

Let’s take them one by one.

Optimization requires a PhD.

Modern tools do not require a PhD, a Masters or even a Bachelor’s Degree. A properly designed optimization solution should be usable by junior buyers as it should hide the complexity and simply provide one-click evaluation. With built-in rules, workflows, wizards, templates, and other modern usability features, optimization can be as simple to use as an e-Auction on an average category for a junior buyer.

Optimization is very expensive.

While it used to be the case that optimization solutions were expensive, sometimes costing six (or even seven) figures for a single event, this was pre 2010. Today, mid-sized organizations can receive 40 events with unlimited users for that or unlimited events for a small number of users. Take your pick.

Optimization makes a sourcing event very time intensive.

Modern tools have intuitive web-based workflows to make event creation a task conducted in minutes. While it might take a long time to set up a complex event with dozens of suppliers, hundreds of line items, thousands of lanes, and hundreds of constraints, not all events are that complicated. Many categories are only bid to a few suppliers, need to be shipped using the two or three existing contract options, and don’t have a lot of constraints. This allows the model to be set up, the data imported, and a baseline solve completed in a matter of hours, not days. Moreover, if the model is set up as a template, it can be copied and reused over and over again, and setup is a matter of minutes. Done right, optimization decreases the amount of time it takes to set up a sourcing event by a factor of two or even three or four.

In other words, optimization has become mainstream and should be considered a default strategy for all sourcing events. And what does a modern solution look like? That’s the subject of our next post.

The 8 Laws of Successful Supplier Transitions: Part I

Today’s guest post is from Brian Seipel, an information technology and marketing project analyst at Source One Management Services, a leading procurement services provider with over two decades of experience delivering procurement success.

There are plenty of reasons your organization may choose to switch suppliers. Perhaps your incumbent’s quality is slipping, or their prices aren’t as competitive as they once were. As you’ve grown, perhaps your incumbent supplier isn’t able to scale with your organization or keep up in emerging areas of your business.

Compelling signs to switch, however, aren’t always enough convince the top brass to move. Why not? Because transitioning to a new supplier is a scary thing, especially if the incumbent is a key supplier.

Finding potentially huge savings and better capabilities during an RFP is all peaches and cream — until you get to the home stretch. The process of transitioning away from your comfortable, “known-quantity” incumbent becomes real and, if not managed properly, could end up costing you time and money.

Transition Risks

Plus, there are plenty of risks. We’ll start by putting a name and face to the organization’s fears. Any number of things can go wrong during a transition, with the major pitfalls being:

  • Business Disruptions
    Poorly managing transition resources takes time away from daily business activities. This can bleed into other departments if IT, finance, or legal personnel are brought in.
  • Poor Knowledge Transfer
    Dropping the ball here could set implementation back if the new supplier has to reinvent the wheel.
  • Resistance to Change
    End users are accustomed to your current supplier — they don’t know (and won’t automatically trust) that they’ll get better service or support somewhere else. The only certainty they see is that their workflow will be disrupted.
  • Missing Production or Implementation Milestone Targets
    Understaffed new suppliers growing into your business, misunderstandings about transfer roles and responsibilities, poor understanding of scopes, and other miscommunications can delay transitions or cause poor performance.
  • Waning Interest
    Upper management may be highly involved on both sides while hammering out a deal. This often changes once the ink dries, leading to stretched timelines and missed milestones.

Now, we’re not saying that any of these things are going to wrong, because every organization’s mileage may vary, and the threats your organization may face could be entirely different. But outlining the risks is the first step in managing them — building a strategy to mitigate them comes next. That’s the subject of our next post.

Thanks, Brian.

Have We Reached B2B 3.0 Yet? Part 6: B2B 3.0 Foundations: Category Management

In part 3 we exemplified our definition of B2B 3.0, simply defined as the first generation of technology that actually puts business users on the same footing as consumers, as the first generation of B2B technology that adds real content, community, and open-connectivity to B2B platforms through cutting edge technology like:

  • web services
  • intelligent agents
  • meta-search
  • real-time collaboration
  • semantic technology
  • mashups
  • analytics and
  • workflow

But we didn’t explicitly map these technologies to the different Supply Management technologies or workflows that you as a Supply Management professional have to use on a daily basis. That’s why Part 4 tackled some of the necessary, but not necessarily sufficient, requirements of a modern Sourcing platform (defined as the platform that is typically used from the time a need is identified until the contract is signed, covering the “planning” and “sourcing” phases of the strategic sourcing execution lifecycle if you will) and Part 5 tacked some of the necessary, but not necessarily sufficient, requirements of a modern Procurement platform (defined as the platform that is used from the time the first order needs to be placed until the time the last order is placed, received, paid for, and gone out of warranty). But it’s not Sourcing or Procurement, … It’s Sourcing And Procurement, and the organization not only needs an integrated Source-to-Pay process but a foundation for that process (and the execution that comes beyond). That foundation is Category Management, and today’s post is going to outline some key requirements that modern Source-to-Pay suites should possess if they are going to be considered B2B 3.0 platforms that support modern category management.

As with our last post, this list is not all inclusive, and simply possessing all of this capabilities will not make a suite B2B 3.0 (because it’s not a suite, it’s just the Source-to-Pay component of Category Management), but if these requirements are missing, then the suite will not make the cut. In mathematical terms, these are necessary, but not sufficient, conditions.

In order to avoid confusion, we are going to define a Source-to-Pay category management platform from a technology perspective as one that, possibly by way of multiple (seamlessly integrated) best-of-breed platforms, supports end-to-end category management throughout the Source-to-Pay process and enables key aspects of the execution phase of the strategic sourcing lifecycle. (For more details, download the free e-book written by the doctor and sponsored by Trade Extensions, registration required.)

From a historical perspective, the primary “capabilities”, organized into one or more modules, that such a platform would possess would include all of the capabilities described in the last two posts plus centralized master data management, collaboration portals for internal and external collaboration, and centralized risk and compliance management, among other advanced capabilities.

From this viewpoint, some key capabilities that such a suite must possess include:

  • multidimensional category taxonomies

    Sauron may have forged the one-ring, and hackers may be searching for the one ping, but there is no single one-size fits all taxonometric wellspring and there will never be – not even for a single organization; sometimes you’ll want to bury installation services under IT, sometimes you’ll want to bury them under services, and sometimes you’ll want to analyze them with contingent labour and BPO spend … and so on … the system must allow for a detailed multi-dimensional taxonomy that allows every piece of spend to be tagged with all relevant identifiers (location, department, spend type, spend sub-type) and rolled-up into the taxonomy de-jour (d’acheteur) … because nothing is static

  • global virtual “product” masters

    not just a centralized catalog, but a centralized master data system that captures each product description (and virtual product identifier) needed by the organization and each distinct supplier product that can meet that need (e.g. in F&B, tomato sauce can be canned or bagged, room temp or frozen, condensed or not, and packaged in different quantities; a supplier might offer three different FPGAs that do the trick, each with advantages and disadvantages [memory vs processing power vs battery tradeoffs]; etc) this will “power” the catalog, but the catalog visible to organizational users will only contain current(ly available) products (that are approved)

  • centralized master data management inc suppliers

    centralized virtual product masters are just the start, the organization needs centralized supplier data, centralized spend data, centralized performance and usage data, and everything needed to do meaningful category analysis to find opportunities beyond spend

  • centralized risk (and compliance) management, cross indexed by category
    including mitigation plan tracking and event monitoring

    there must be a place to define all types of organizational risks, the standard monitoring (and mitigation plans), and to cross index those risks against categories (and specific products) and then flesh out those risks on a category and product basis and evaluate the potential impact and cost of the risk as the drill down occurs (in a detailed risk taxonomy); similarly, there must be a way to track compliance requirements across categories and products independent of sourcing events, with added details upon drill down and cross-correlation to suppliers providing products and compliance status

  • supplier development and innovation program management

    relationship management is good, relationship development is better – whether in the core sourcing suite, core procurement suite, or the SRM bolt-on, this capability has to be there … it’s too often overlooked despite it’s essential nature

  • real-time on-line collaborative category plan creation

    planning is often the most critical phase of the strategic sourcing lifecycle – it doesn’t matter how well you source or execute if the plan is bad and will prevent you from ever realizing the value that exists in the supply chain; the best way to get a good plan, or at least a plan that will be accepted and implemented by all affected parties is to involve them in the process – there must be way for all parties to come together, share their piece, collaborate, and jointly work on a plan that will be accepted by all … as the musketeers said, it’s all for one (plan) and one (plan) for all

In other words, the requirements for a modern B2B 3.0 Procurement platform, even from this short list, are well beyond what has traditionally passed for an Category Management platform that, in the early days, was anything that incorporated sourcing and procurement capabilities and had the concept of a category. Do any of the platforms out there make the cut? We’ll get to that. But first we had to provide more food for thought.

Ninety Years Ago Today …

The world lost a great physicist by the name of Heike Kamerlingh Onnes. While this is not a name most people know, he was the first person to liquify helium and to discover superconductivity — both of which are critical to the modern technological age. Liquid helium, which has a temperature of 4K (4 degrees above absolute zero on the Kelvin scale, and 73 degrees below the boiling point of liquid nitrogen which can freeze a banana in as little as 3 minutes) is a key ingredient in superconducting magnets and the primary cryogenic refrigerant.

But more importantly, superconducting is used to make ultra-fast digital circuits, microwave filters for your movie phones, and, most importantly, superconducting magnets (which are the most powerful electromagnets that are required by MRI machines, mass spectrometers, and particle accelerators).

It’s a good day for a shave!

… It’s the 200th anniversary of The Barber of Seville!

And while Rossini is no Gilbert & Sullivan from a Procurement perspective, he still deserves a nod!  Because …

I am the very model of a modern Global Sourceror
I’ve information vegetable, animal, and mineral
I know the tools of sourcing, and I quote the facts logistical
From New Orleans to Shanghai, in order categorical

I’m very well acquainted, too, with matters mathematical
I understand equations, both the simple and quadratical
About optimization, I’m teeming with a lot o’ news
With many cheerful facts about the cost of the blue ocean routes

I Am The Very Model of a Modern Globel Sourceror!

… and I think Gilbert & Sullivan would agree (as they were influenced by Verdi who was influenced by Rossini) 🙂