Author Archives: thedoctor

E-procurement benefits … fact or fiction? Part I

Today’s guest post is from Tony Bridger, an experienced provider of Procurement Consulting and Spend Analysis services across the Commonwealth (as well as a Lean Six Sigma Black Belt) who has been delivering value across continents for two decades. He is currently President of UK-based TrainingWorx Ltd, a provider of a wide range of Procurement and Analytic business training programs (inc. GDPR, spend analysis, project management, process improvement, etc.) and focussed short-term consulting solutions. Tony can be contacted at tony.bridger@data-trainingworx.co.uk.

It has been difficult to find anything recent in the academic world on e-procurement.   What was once the doyenne of the procurement world does seem to have become very much business as usual.

However, it really does depend on how you define the term.

So, prior to running off at speed discussing an array of e-procurement related elements, let’s make sure that we discuss the right technology platform.

In 2016, I sat in on an EU conference that had a presentation session on “e-procurement”.   Having implemented an end-to-end B2B procure-to-pay platform, I had considered that it was pretty much a common technology – and well understood.  I was wrong.    I was treated to an hour on e-procurement as an RFP (request for proposal) and optimisation tool.   Not the e-procurement I was expecting.   The (real) e-procurement, from my perspective, is the good old shopping cart and payment process.  So, let’s stick with that definition for now.

At the turn of the millennium, e-procurement and the sister product e-marketplaces, were being implemented at a furious speed.  However, as fast as the companies were starting up and creating e-procurement systems, the dot com era brought the entire edifice down and left very few players standing.   I was amazed recently to discover that start-ups are still creating these platforms.  So much for the concept of a mature market.

For those that have little experience with e-procurement systems, the simplest analogy is that it’s a little like a single organisation implementation of Amazon.   The hoster (the buy side) will have access to the range of catalogues and suppliers like any Amazon user.   However, these are only generally only contracted suppliers.  The supplier makes available their catalogue and goods to organisational buyers.  If you do not work for the client company you cannot see or interact with this environment.   The supplier can have their own website catalogue (termed as “punch out”) or use third party or software vendor supplied catalogues.   Once a PO has been raised and goods despatched, invoices can be submitted, matched and paid.  All automated.

Sounds like a transactional nirvana.  However, just how successful has e-procurement actually been?

Independent academic research appears to have started to fizzle out from 2007 as the e-procurement technology wave passed and moved on – as most technologies do eventually.    This article does not suggest that e-procurement is a failure or is declining – it merely suggests that little real evidence exists to suggest that it is an outstanding success.   One may assume that if it was a major success – there would be many (and wide ranging) articles that vaunt the case for investment.

However, e-procurement software vendors are still going and new development companies still seeking a new angle.   There have been many variations – from free systems (with revenues made on services), to the more expensive, fully integrated ERP suites.    However, none of these options are cheap to implement – and can be notoriously difficult to embed in to the culture of organisations.

Why?

Stay tuned for Part II

Thanks, Tony!

Category Management: Getting it Right is Key to Surviving the Trade Wars Part II

In our last few posts we told you the Trade Wars are coming. The Trump Tariffs are going to continue to come fast and furious, and the rest of the world is not going to take its time retaliating. So get prepared, because everything is going up. And how much it goes up is up to you.

You’re not going to thrive, because no one wins a war, and, furthermore, no one comes out unscathed. With care and planning you can survive, but only if you start now. So what do you need to do?

As we pointed out yesterday, you start by:

1. Understanding your Current Costs in Detail
2. Understand your Tier 2 Supply Chain in Detail

… but you don’t stop there.

3. Start By Identifying Alternative Supply Choices

For each high dollar or strategic category, identify at least two other acceptable choices of supply in two different countries than the country you are sourcing your primary supply from now. This means that you have to go out there, evaluate products, and maybe even award a minority share of the business to alternative suppliers just to make sure you can ramp up or switch supply if you need to.

4. Then Build Alternative Cost Models Around those Alternative Supply Choices

And make them as detailed as the cost models for your current supply choices. Compile all of the appropriate component and raw material costs for those suppliers, the local energy and labour costs, the current import and export tariffs, and fair margins for the supplier in question. And keep them handy.

5. Re-Evaluate on Every Tariff Change

With the models in-hand, whenever tariffs change, you can just plug in the new models. If you subscribe to data feeds, the models can be programmed to be self-updating and you can simply run a report on every tariff change to see how much the changes are costing you and when they get too high, you can switch to an alternate supply choice, that you already identified, where you buy local and sell local and avoid tariffs entirely.

Is this everything? No, but it’s a start.

Category Management: Getting it Right is Key to Surviving the Trade Wars

The Trade Wars are coming. The Trump Tariffs are coming fast and furious, and the rest of the world is retaliating. So if you aren’t prepared, just about every category under your purview is about to get a LOT more expensive. A LOT more.

And while you’re not likely to thrive, because no one wins a ware, and no one comes out unscathed, you can survive — with care and planning. So what do you need to do?

1) Understand your Current Costs in Detail

Build detailed total cost of ownership cost models for all of your significant (cost/volume) or strategic purchases as if they direct purchases. The costs should be broken down into the components and raw materials that constitute at least 80% of the material cost, and, if possible, energy and labour costs should be broken out of the overheads. Done right, when you add in the “fair” margin, you have the expected unit cost.

On top of this, you add in the transportation costs, surcharges, non-recoverable taxes, import & export charges from source to sink countries, and defect/waste costs.

And this is why we noted you needed talent that could do modelling and use platforms that could handle it is important. But this is just the start. Sometimes the tariffs will be imposed on the product level, but sometimes on the material level. So, that’s why you have to …

2) Understand your Tier 2 Supply Chain in Detail

It’s not just what you’re buying and where you are buying it from, it’s what your suppliers are buying and where they are buying it from. If you’re buying your assemblies from Germany, and 15% tariffs get smacked on assembly imports, that’s a 15% increase. But that’s not the only increase you could be subject too. Maybe Germany is buying the bulk of the raw materials from China. What if Germany decides to smack 15% to 20% tariffs on almost all of the raw materials being sourced from China? Which constitute 60% of your supplier’s costs? Then their costs will go up 9% or more, and guess what’s going to happen to your costs? They’re going to go up another 9%. And you won’t know it until you get the bill!

But if you understand your Tier 2 supply chain you can know when your suppliers are going to get hit with new tariffs, and when they are going to pass on those tariffs to you. You can proactively question them if they are going to switch suppliers, and work with them to find alternative sources of supply without tariffs, or which have a lower overall total cost of acquisition than the sources of supply they are using now.

And this is why we noted you needed talent that had commodity market expertise and negotiation capability as well as a platform that could integrate real-time market data (including tariff changes) and supplier performance management.

But this is just the beginning!

Stay tuned!

Category Management: Getting it Right

As we have posted regularly, the first step is to solve the classic Triple T problem:

  • Talent
    your organization must have the right talent to properly manage your category-based initiatives
  • Technology
    your organization must have the right platforms to capture the right data and support the right processes
  • Transition Management
    your organizations must have the right processes in place to handle the necessary organizational shift to properly manage the initiatives as markets, needs, and workflows will change over time

Only once the talent, technology, and transition management is in place, will the organization have what it takes to fully embrace the initiative. And do it right. At some point we will revisit each of these requirements in more detail, but today we’re going to outline what these requirements are at a high level so that we can dive into a few key aspects that are important with the looming Trade Wars on the horizon.

So, at a high level, where should your Supply Management Organization start? By focussing on the core capabilities that are required in each “T” category, many of which we are outlining in this post. And, more importantly, finding the right talent, technology, and transition management plan that fits.

Talent for Category Management

Good category managers need at least the following hard and soft skills:

  • Analysis
    to determine the volume and spend in the category
  • Modelling
    to determine the major cost components, and cost drivers, of the major products or services in the category
  • Commodity Market Expertise
    in the major raw materials and commodities used in the production of the major products in the category
  • Stakeholder Management
    as savings and performance improvement will usually come from consolidating related items with a smaller set of suppliers, which is going to ruffle some feathers when some departments lose their coveted suppliers and supply relationships.
  • Negotiation
    since not only will the individual need to consolidate a set of commodity purchases with a single supplier, but the individual will also need to cut a good deal and maybe even convince the supplier to take some business it normally wouldn’t want
  • Change Management
    since good category management typically requires changing the way the organization conducts business today

Technology for Category Management

Appropriate technology platforms for category management will have at least the following features:

  • Spend Analytics
    with extensive aggregation, cubing, and filtering capability
    as the category manager needs to not only extract volume and spend, but identify related products and services based on components, raw-materials, and sub/related services
  • Should Cost Modelling
    which allows the category manager to understand not only what the product should cost but the primary cost components and the appropriate inputs to an optimization model
  • (Real-Time) Market Data
    which allows the category manager to track historical market trends and predict future prices to time the market if prices are volatile
  • Supplier Performance Management
    which allows the category manager to track and manage supplier performance
  • RFX
    to manage the data collection and track supplier bids and responses before and during negotiations

Transition to Category Management

In order to transition to proper category management, the organization needs to hire someone with good change management skills and give that person the tools he or she needs to get it done. That person also needs to be a natural born leader and someone who can work with teams to get it done. Then, that person needs to identify a change management methodology and adapt it to organizational needs. And, most importantly, get buy in using the aforementioned natural born leader and workforce harmonization skills.

This isn’t a complete (laundry) list of what is required for successful category management, but it’s a good starting point. Get the right talent, technology, and transition management in place, and your organization will be well on its way to category management success. More details to come! Especially with respect to the looming trade war!

Maybe It’s Time You Go Direct … Part II

In our last post we noted that most sourcing platforms were designed for indirect sourcing, commonly described as the sourcing of finished/consumer goods and services, because it was easy, quick, and allowed an average organization, even a manufacturing, pharmaceutical, or Oil & Gas company, to get big savings — at least initially. After a while, the savings dry up, and unless an organization acquires an advanced optimization-backed sourcing platform, they’ll disappear entirely. (And even with such a platform, the returns will shrink over time.)

The organization will hit a brick wall, unless it goes direct. Why?

Because going direct is the only way an organization can get true insights into the costs, and opportunities, associated with each product it sources. Because, when you get right down to it, there is no indirect sourcing from a product perspective — your indirect is someone else’s direct. And if it’s indirect for your provider, you’re just paying a handling fee to a third party to handle purchase from the source and transportation to a locale closer to you (because you don’t want to deal with import / export, remote suppliers, etc. etc. etc).

And, more importantly, as direct manufacturers know well, up to 80% of product costs are locked in during design finalization and/or product selection. So the only way to take costs out is to understand what costs are going in. But when you go direct, you create detailed should cost models. You tie them to material costs and component costs defined in a bill of materials and roll up the costs with overhead production costs and understand precisely what a product should costs and whether a bid is in line with expectations. This way you know when quotes are higher than they should be (possibly due to collusion), when they are inline with expectations, or when they are lower. If they are inline with expectations but higher than you need them to be, you can understand what the cost drivers are. Then you can ask suppliers to identify designs with alternate materials, or at least less of the high cost materials, and then select those suppliers who will work to bring costs down. If the costs are lower, you can interrogate the suppliers to find out why. Do they have a lower cost source of raw materials? Are labour or energy costs significantly lower than usual? Or is the specification the supplier is quoting toward not up to snuff? The latter is extremely important — it can prevent a purchase of a poor product that could cost the organization dearly.

The power of a direct platform for continual cost insight, and cost saving, is incomparable, especially when compared to an indirect platform. And there’s nothing a direct platform can’t source. It’s the harder sourcing project — indirect is just a bill of material with one entry. And a service project is just a roll-up of service line items.

So why don’t you have a direct platform? Sure, most platforms, including the one you’re using, don’t make the cut, but some of the newer up and coming platforms do, even the S2P platforms. For example, Synertrade has been able to do direct since day one. Ivalua acquired DirectWorks and is integrating direct into its native end-to-end code base. Jaggaer acquired Pool4Tool and has been working on a universal data model (& bridge) to link it to its indirect platform. And even Zycus can suck in a BoM (although it can’t do BoM management) for sourcing purposes.

So go direct. Finance will thank you.