Monthly Archives: September 2017

Sourcing the Day After Tomorrow Part VII

In this series we are doing a deep dive into the sourcing process today, and, in particular discussing what is involved, what is typically done (manually), and whether or not it should be that way. We have already completed our initial discussion of the initial project request review phase and the follow up needs assessment and are in the midst of discussing the strategy selection.

As per our last post, the strategy selection phase generally has at least these following sub-steps:

  • Supply vs Demand Market Dynamics
  • Geographic Needs and Impediments
  • Known Supply Base Strength and Weaknesses
  • Required Speed

And all of these are pretty strategic. But does that mean that the buyer has to sweat for weeks and months to accomplish the step? Maybe, but the sweat should be psychological, not physical, or, at least not entirely.

Let’s start with supply vs demand market dynamics. The key to success is to collect all of the information required to determine both the macro-dynamics of the market and the micro-dynamics of the market, because the macro can imbalance the market one way while the micro can imbalance the market the other way. And you can spend weeks collecting data and miss the micro market if you are just focussed on the bigger picture. But with the proper category intelligence and market intelligence tools that automatically collect and collate all the data on an ongoing basis, that information is instantly available and the sourcing professional just needs to analyze it.

The key to success in the geographic needs versus geographic impediments step also lies in the data. The data which is better collected by machine than man. The machine can shift through tens, or hundreds, of thousands of global regulations and determine requirements and limitations, can shift through industry and market intelligence databases and determine supplier suitability, and present all of the data to the sourcing team so they can select supplier candidates who can function in the right supply markets and the right consumer markets. Machines can do months of work in minute, allowing the sourcing professional to move onto the next step of evaluating strengths vs. weaknesses.

The evaluation, which will often be as much on the softer relationship and cultural fit side, can be hard for a machine to do, but the flip-side, the product and performance side, is often much easier as the machine can run just about any scorecard and algorithmic analysis you like and filter out all of those suppliers that not only don’t have a basic capability, but are statistically unlikely to perform with respect to your organization’s needs. Plus, if you can collect good survey feedback from a well-designed survey and market sentiment, while the machine cannot identify the best suppliers, it can identify those suppliers that are unlikely to be the best suppliers and allow you to focus first on the higher odd suppliers than the lower odd. It will mess up once in a while, but most of the time it will get you to the destination faster than just driving in circles without a map.

Finally, it can really help you identify what the right speed is. The “our contract is expiring in three months so we need a new contract in three months” argument is not always right. Chances are there is an (auto) extension clause in the agreement, or the agreement can be extended without much of a negotiation. The right speed is often the balance between what it takes to do it right versus what it costs to drag it out versus what it costs to get it wrong. For example, if we are talking a new global telecommunications contract and the spend analysis demonstrates that the organization is currently paying 50% to 100% more than it should, the right speed is typically getting the event done by current contract termination, even if that is in two weeks, as every delay is an overspend that accumulates and the risk of switching from one major provider to another is pretty low. But sometimes the right speed is cancelling a two year contract one year in and eating the penalty as the savings from signing a two year agreement with a hungrier competitor will still allow the organization to see a significant net savings. But if we are talking custom manufactured FPGAs for a new line of satellite communications equipment where units will costs hundreds each and sell for thousands each and one mistake could cripple a product line for six months, then the answer is to take whatever time is needed to qualify the suppliers as the risk is too high. If that means paying double for a few extra months on the boards, so be it.

In other words, we again see that even in the most strategic of the sourcing steps, the strategy selection, the buyers waste much of their time on tactical processes and non-strategic data collection and Sourcing really has to change.

Sourcing the Day After Tomorrow Part VI

In Part I we recapped Sourcing today, in Part II we did a deep dive into the key requirements of the review step as it is today, and then in Part III we did a deeper dive where we explained that while some steps were critical for a sourcing professional to undertake, others, while necessary, were a complete waste of skilled talent time as the majority of the tasks could be automated. Then in Part IV we began our deep dive into the needs assessment phase which ended yesterday in Part V where we again explained that there were two types of tasks in this steps: tasks that required sourcing expertise and tasks that didn’t. Moreover, when we dived, dived, dived, we found out that some tasks required way more sourcing involvement and consideration then is usually applied, and that these tasks can only get done if time is saved elsewhere in the sourcing process.

In this post we continue our review of the typical sourcing process and move onto strategy selection.

  • Supply vs Demand Market Dynamics
  • Geographic Needs and Impediments
  • Known Supply Base Strength and Weaknesses
  • Required Speed

We again start by describing each key sub-step, what is required and what is involved.

The first step is pretty obvious on the surface. In the Supply versus Demand Market Dynamics step, you attempt to evaluate the power of the buyer versus the power of supplier. You focus on projections of current total demand, total supply, and expected changes of the dynamics based upon past trends, and move forward with your answer. But this is usually at a macro-market level and not a micro-market level. Usually within a market, there are products where demand is dominant (like iPhone 8) and almost nonexistent (like the OnePlus). If you want the component that is in the most demand, that can be much more unbalanced to the supplier’s favour than if you want the component that is in least demand, where the supplier might actually have excess inventory and you might actually have a bit of leverage. When it comes to the market, there’s always more than meets the eye from the 30,000 foot view.

The second step is easily defined but hard to execute. When sourcing globally to serve global markets, the needs vary by market, and so do the capabilities. This means that not only must a sourcing professional understand how the needs, and values, vary globally but also how the capabilities of the supply base vary, and, most importantly, how those variations limit their capability to serve the organization in some markets. If a factory cannot produce products or services without certain materials that are restricted or banned in some countries, that can be a problem, especially if you do not know up front. If there are embargoes on the supplier’s home country by the country or countries of the intended market, that’s a problem if the supplier does not have other global operations where there are no embargoes. And so on. But how does one identify all the potential impediments and map them against the needs? Usually, lots and lots of manpower and a little bit of luck that nothing important is missed.

The third requirement is as easily defined as the second, but can be even harder to execute. If you’ve been using a supplier for years, consistently documenting performance and results, and have a team that knows the track record, you have a pretty good idea of the strengths and weaknesses of that supplier. But what about the suppliers you’ve just started using or, more typically these days, haven’t used but need to consider to either meet a diversity or innovation goal. How do you figure out the strengths and weaknesses? Where do you begin?

The final requirement should be pretty simple. When does the sourcing process need to finish by. Just take the date from the stakeholder, negotiate for a bit more time, and go. But is that really all there is or the right way to go about it? We’ll discuss more in our next post because …

We are again at the situation where the amount of work entailed in each step varies and the time requirements can be days to weeks (or even months in large global operations). And maybe it should be that way, sometimes, considering this is really the make or break step of every sourcing process. But all the time? Come back for Part VII where we dive even deeper into this key sourcing step.

Sourcing the Day After Tomorrow Part V

In Part I we recapped Sourcing today, in Part II we recapped the review step, and what it entails today. Including a few of the sub-steps that were typically done sequentially in a long, manual, and drawn out process. In Part III we dove into these steps and explained while some were critical for a sourcing professional to undertake, others, while necessary, were a complete waste of time as the majority of the tasks could be automated. Then we asked if it was just the review step where this was the case. In our last post, Part IV, we discussed the second major step, Needs Assessment. So today it’s time to discuss if this step should still be entirely manual as well.

In our deep dive into the needs assessment in our last post, we discussed the following key sub-steps:

  • Detailed Use Case Review
  • Exploration of Alternative Options
  • Production Requirements
  • Support & Service Requirements

And unlike the review step, heavy sourceror involvement is required in each and every step of this process.

Sourcing professionals need to

  • clearly understand how the product is to be used to understand key product requirements
  • evaluate the potential alternative options identified in the review step against the use cases and key end user values
  • evaluate the production options to understand not just throughput and quality but efficiency and cost
  • know what support and service requirements are needed, what’s involved, and what needs to be looked for

But how much of this is truly strategic? While each of these steps is clearly strategic on the surface, many of the tasks are not as strategic as one may think. Let’s start with detailed use case review.

There isn’t much of a detailed use case review to be had if the product is for internal consumption use (like office supplies) or traditional CPG products for consumer sale (as these use cases are well defined). Nor is there much to review if the event is for a production line widget that is maintaining the same production line. If the use case hasn’t changed, there is little to review. As long as the prior review is on file and the key value factors known, and captured, in the sourcing even template, all is done. And your supply management platforms should capture this information and maintain it, and its application, from even to event. Only custom built products or products where changes are needed should need in-depth reviews on a regular basis. And software applications can query stakeholders against previous requirements automatically to get this done.

Now, the depth of review required for alternative options will be dependent on the use case step. If nothing has changed, only new options that have come along will need to be evaluated, and only if they address key value factors or changed requirements. The reality is that properly captured alternative options with key feature lists, descriptive use cases, reliability reports, and models can be automatically evaluated for likelihood using modern semantic technology and AI algorithms and eliminated if they are not likely candidates, even though most aren’t. And this step should not take near as much time as one should think, especially if it seems there are a lot of alternative options.

Moving onto production options, it might seem that this is one step that has to be manually trudged through due to the complexity and that will never change, but the reality is this is not the case. For example, companies like Apriori allow real world production processes to be modeled in extremely detailed virtual production models that can be used to analyze efficiency, cost, reliability, and a host of other factors. If the production environments are modelled, they can be analyzed and compared to the product requirements and the suppliers easily evaluated on this capability with minimal buyer involvement.

Finally, good Supply Management platforms allow key support and service requirements to be captured during the use case creation and inferred from survey responses. Plus, previous requirements can be maintained and algorithms applied to determine whether or not they need to be re-considered by the buyer. And modern service procurement platforms come with detailed templates and check lists that should be considered during requirements creation. Buyers need to be involved and strategically assess the situation, the work to do so is nowhere near as onerous, and error prone, with modern solutions as it used to be.

In other words, we again see that even strategic buyers waste much of their time on tactical processes and non-strategic considerations and Sourcing has to change. But just how much does it need to change? Let’s consider the next step of the Sourcing process in our next post.

Sourcing the Day After Tomorrow Part IV

In Part I we recapped Sourcing today, in Part II we recapped the review step, and what it entails today. Including a few of the sub-steps that were typically done sequentially in a long, manual, and drawn out process. In Part III we dove into these steps and explained while some were critical for a sourcing professional to undertake, others, while necessary, were a complete waste of time as the majority of the tasks could be automated. But is it just the review step where this is the case?

Let’s move onto Needs Assessment. This consists of a number of sub-steps that include, but are not limited to:

  • Detailed Use Case Review
  • Exploration of Alternative Options
  • Production Requirements
  • Support & Service Requirements

Let’s take these one by one. In order to better understand the organizational need, and determine whether or not an alternative option might be as acceptable, or more acceptable, the buyer has to truly understand the organizational need — how will it be used? What are the key end-user requirements? What do they really value? Why? Hence, a key detailed use case review is critical.

An exploration of alternative options is also critical. Identifying potential alternative options is a good start, but you don’t know if they are really alternative options until you explore them in detail and, most importantly, map them to use cases. And, even more important, evaluate them against what users value.

And, depending on the product, the importance of an examination of the product requirements ranges from minimal (if a dozen suppliers all use the same equivalent process and all produce an equivalent product that has met the need for two years, a review that nothing has changed might be all that is required) to intensive (if new production process are, or need to be, employed). And it might range from a cursory review of production line specs to a detailed on-site review of operations and output product quality.

Finally, we also discussed support & service requirements as a key sub-step. Depending on whether the product is single use (like office paper) to multi-use (like laptops) to key components in a machine (like a cylinder in an engine), the step can be minimal or quite intensive as well. Support can range from no support required to continual warranty and maintenance support.

In other words, as with the first step, the amount of work entailed in each step varies, and the time required can be hours to weeks. But should it be this way? That’s a question to answer in Part V.

Sourcing the Day After Tomorrow … Part III

In Part I, we recapped sourcing today, a multi-step process where each step had multiple sub-steps that were typically done sequentially in a long, manual, process that typically took too long, delivered too little, and still kept steps that delivered no value. Why?

Well, the short answer is that there was no better method. The longer answer is that they had to try everything that might deliver value, to at least show that an effort was made. But is this really sourcing?

Let’s consider our deep dive into the Review step in our last post. We discussed four sub-steps:

  • Product Requirements
  • Current Supply Base
  • Known Market Pricing
  • Alternative Options

A detailed review of product requirements to ensure that the key sourcing considerations are known is certainly a key part of sourcing. And so is identifying alternative options, especially if supply is constricted, the category is high dollar, but what about current supply base identification or market pricing identification.

While those are certainly key knowledge factors for sourcing, should they be key activities for sourcing?

The answer is no. Let’s deal with the supply base identification issues first. You should know who your suppliers are, who your potential suppliers are, and who their competitors are. After all, if you are using proper Supply Management systems, you know who the suppliers are that you are doing business with and what you are doing business with them for. If you are maintaining proper event history and audit trails, you know who else has been invited to your sourcing events, what they were invited for, and what they offered to bring to the table. Plus, if you make use of modern supply chain networks, all of the information you have indicate who all of their direct competitors are. Why should it require any elbow grease on your part? It should be pretty much automatic to figure out who, when, and why.

Same for market pricing. With all of the market indices online, you should know all the costs for all of the raw materials and commodities you use on a daily basis. This will also include energy costs, market labour costs, and average margin for the industry and this should allow for the automatic calculation of expected costs models for just about any custom engineered product you could imagine. It should pretty much be automatic.

These two tasks, which can often take days and weeks, should, respectively, take minutes and just a few hours to verify the cost model is accurate and the suppliers are okay to invite to an RFI.

The short answer is Sourcing has to change, and time spent on strategic consideration not tactical box checking and calculation.