Category Archives: Best Practices

Why Don’t We Hear Anything About Market Informed Sourcing?

Because the acronym is a MIS!

While I agree that we need more discussion around Sourcing Optimization, I don’t think calling it Market Informed Sourcing is going to help any just because people are afraid of the “O” word. Even though good optimization is “market informed” and uses up-to-date market data, people don’t really understand what “market informed” really is. When people hear informed, they tend to not only think of fact but opinion, and optimization is all about fact, not fiction.

In a recent 3-part series on Sourcing Optimization (Part I, Part II, and Part III) by Alan Geelson over on Spend Matters UK, of Keelvar, a company which SI reviewed in its recent post on Strange Name. Uncommon Results, he notes that while there is no consensus on the name that best describes the approach — Market Informed Sourcing (MIS) Sourcing Optimization, or Collaborative Sourcing, the view at the heart of these propositions, namely, that suppliers should be afforded the opportunity to have greater flexibility as to how they engage with buyers, is an important one. And optimization is what enables this.

Furthermore, it also enables all parties to play to their strengths without discriminating against any one group. Suppliers can submit “sealed bid” bids bundling and packaging lots together as they see fit, offering price breaks and rebates for certain volume purchases. And buyers can weight the advantages and disadvantages of aggregating spend with less suppliers, finding the right balance between economies of scale and risk mitigation should one supply source go down.

However, sourcing optimization still has not enjoyed mass adoption. Some reasons for this, as noted by Alan, include:

  • lack of process, technology, and key benefit understanding,
  • cost, which is believed to be prohibitive, and
  • perception of complexity.

In other words, as SI pointed out in its recent post on how, When It Comes to Optimization, You Need Every Insight You Can Get!, it all comes down to

  • misinterpretation and misinformation,
  • cost, and
  • fear.

Even though it should all come down to, as Alan points out,

  • finding savings without “squeezing” suppliers,
  • gaining greater control over outcomes with business constraints,
  • while keeping acquisition cost and operating costs down.

Maybe some day the truth will be known and accepted, but, until then we have to keep spreading the truth.

Doing Procurement Right Regardless of Organizational Size

A few days ago, in our post on how You’ve Negotiated but you still might not be realizing savings on marketing print, we pointed out two great guests posts by Santosh Reddy of GEP on how just throwing a problem over the wall to an expert doesn’t necessarily save you money — it just guarantees that someone else, namely the Print Management Company (PMC), makes money on your behalf.

Today, we’re going to point out another guest post by a GEP consultant, Sanyam Khurana. In his recent post on Spend Matters on “Procurement Lessons for Small Businesses and Large Multinational Corporations”, he notes that some strategies work well regardless of organizational size. Thus, if you are a small business that wants to get bigger, you should take take these lessons to heart and work on these strategies.

Flexibility

If you’ve been paying attention, you know that Sourcing Innovation has been emphasizing the importance of the 3T’s to successful Supply Management — Talent, Technology, and Transition Management. Transition Management requires a lot of things, but above all else, flexibility as your organization needs to adapt to, and be in, a state of constant change, in order to navigate the ebbs and flows of today’s global economy.

Cost Optimization

Whether you’re buying 100 units or 100,000 units, you still have to make sure you’re paying the right price for the right product. Over paying by 10% is still overpaying by 10%, and with smaller budgets, and margins to work with, 10% is still a lot.

Supplier Rationalization

Whether you’re a 1 Million, 100 Million, or a 1 Billion dollar company, you still depend on your suppliers for your success. In Sanyam Khurana’s post, he gives the example of a bakery that requires raw material, namely flour, to produce its goods. If the suppliers don’t deliver, the bakery can’t bake its bread. Having the right suppliers that you can depend on through thick and thin is important regardless of organizational size.

Data Management

Not only does each of the above strategies require good data to be effective, but so do other organizational strategies. For example, you can’t optimize cost unless you know how much you are paying, how much you could be paying and the value you are getting. You can’t rationalize on the right suppliers unless you are keeping good performance metrics. And while you can always be flexible, there’s no point in being flexible unless you know the direction that you should be be flexibly moving in! Plus, in today’s economy, social media is often critical to marketing, sales, and advertising — and in order to focus on the right channels, you need data!

Data, data everywhere
And all the tables burst
Data, data everywhere
It can not get much worse!

 

Easy Question. Easier Answer.

A recent post over on Strategic Sourcing that asked “Executives:Do You Have the Right Resources” asked an easy question with an even easier answer. NO.

How does the doctor know this?

1) Not only did The Hackett Group 2014 Procurement Key Issues survey report that 76% of companies stated that they needed to expand Procurement’s scope/influence, but previous studies have shown that as little as 8% of organizations are world class.

2) Large organizations that embark on a Procurement transformation journey generally take 5 years or more to become world class, and by the time they reach this point, a number of technologies or processes that were upgraded in the first stage remained untouched for three years, meaning that these organizations have to go back and start a transformation journey all over again just to stand still.

3) Since the definition of the right resources changes with operational changes, product and services changes, market changes, and new developments in talent management, technology, and operations research, even if you had the right resources yesterday, you may not have the right resources today.

When you put all this together, the chances of a large organization having all the right resources are so astronomically small that they are effectively zero. A few organizations, which fall into the Hackett Group’s world class organization bucket, are close, but the vast majority, which make up the average or laggard category, are nowhere close.

So what are these resources? For a start, as pointed out in Mickey’s post, they are the right talent, technology, and transformation (capability) resources — the 3Ts that form the base of a successful, aligned*, organization.

Talent

Even though everything changes as time goes on, one thing has been the same since global trade began. Ever since goods first floated down the Nile or first travelled the Silk Road, people ran the supply chain. And even though they may employ a wealth of tools and be hindered and aided by a plethora of government regulations, they still do. You need the right talent to succeed.

Technology

Always in a state of change, and sometimes flux, you have to not only identify the best products for your organization, but implement and utilize them properly.

Transformation Capability

Remember, it’s not people, technology, process; it’s talent, technology, and transformation because you need the ability to constantly evolve your process as needed to meet the current needs of the supply chain. If you don’t have transformative capabilities, buying the best processes and practices from a big 6 consulting firm won’t do you any good.

You need to not only acquire the right talent, technology, and transformative capability but you also need to maintain the talent, technology, and transformative capability as time goes on to truly succeed. And if you ever say you have the right resources, in today’s economy, you’ve lost the supply chain battle before it has even begun.

* More to come on this!

Last Day for Free Sourcing and Procurement Papers from Spend Matters!

As per a recent post over on Spend Matters UK, today is the last day that a set of recent Spend Matters white-papers, made available by sponsors, that is currently free to practitioners goes back behind the pay-wall and this set in particular contains three pieces authored or co-authored by Pierre Mitchell and two authored or co-authored by Thomas Kase. Pierre, most recently of Hackett Group fame, is well know for his thought leadership around Supply Management best practices and Thomas, who has worked for a number of providers, is known for his deep expertise in SPM/SRM solutions. When you can get your hands on their work for free, it’s not something you should pass up.

The papers in particular that are about to become “pro” access only are:

  • How to Justify Spend Analysis to Finance/IT When There’s No Clear ROI
    by Pierre Mitchell
  • Write Better RFPs — How to Get What You Want (and Need) From Suppliers
    by Thomas Kase
  • Metadata Explained: What it Means for Spend Analytics, Supply Risk, Supplier Performance, and More
    by Thomas Kase, Pierre Mitchell, and Jason Busch
  • Procurement Analytics: How to Plan (and Optimize) Your Process
    by Pierre Mitchell

Regular readers of SI know the utter importance of Spend Analysis, a subject which has garnered hundreds of posts on SI over the years. As one of the only two technologies that have been repeatedly to provide an organization year-over-year double digit ROI returns when properly used, your organization cannot afford to be without it! As such, the last thing you want is to be roadblocked by finance when there is no readily apparent savings opportunity (as you need the solution to clean your data to find the savings opportunity). In his piece, Pierre gives us you ten hints to getting your project approved, which can happen quickly if the project is presented appropriately. Always remember, the faster you get the system, the faster you can centralize and cleanse your data and find opportunities, and the faster you can start saving.

Just this week SI was continuing it’s RFX rants, which started back in 2007, about how the vast majority of provider RFPs suck and how you won’t get good results unless you write your own (using the provider RFP as a checklist of some key elements that need to be included, but in a way that makes sense to your organization). In Thomas’ paper he discusses some key elements of the RFP creation process that can make the difference between success and failure in your efforts.

Everyone talks about Meta Data, but not a lot of people really understand what they are talking about. In the collaborative piece between Thomas, Pierre, and Jason, the authors provide a discussion of meta data and how meta data aggregation can paint a picture not readily available from the elements. They then go on to demonstrate how the proper analysis of meta data can yield risk analysis and opportunity assessments that cannot other wise be performed and that can be very beneficial to the business day one. It’s another example of why your organization needs good data and tools to process and mine that data if it wants a true twenty-first century supply chain.

In the last piece on Procurement Analytics by Pierre, he notes that for an analytics project to be successful, you need the right scope. The scope is all of supply management, not just the tactical procurement function. All data collected from the first RFX during the sourcing process through the last on-contract procurement to the final warranty return needs to be collected and stored in one central or federated database so that an analysis can look at all relevant data, not just purchase data. It’s not just how much you paid, but how much you were supposed to pay, what you paid for, and if a different categorization would be more beneficial to your organization. And until you make an effort to centralize, or at least centralize on a common schema even if the data is scattered, you won’t even know what transformations and cleansings need to be done.

If you haven’t downloaded these yet, don’t miss your very last opportunity to do so. These are some great pieces with content that you should know, so read up!

You Need to Get Sustainable Because Customers Won’t Pay!

As per Monday’s post on Do as I Say, Don’t Do as I Do, while customers say they try to buy from companies with a good record on sustainability and ethics, but don’t always, the reality is that only 9% of UK customers and 16% of US customers rate ethical company/brand in their top 3 attributes, being considerably more concerned with value for money, price, and quality. Furthermore, while most customers say they will pay more to buy from a sustainable company, they won’t pay more than an extra 5%.

As a result, the inclination of most senior buyers might be to forego sustainability and ethics when sourcing and go for the supplier that provides the best value for money, quality, or price, especially since that’s what the average buyer wants. But this reactionist approach is the exact opposite of what you should be doing! In fact, you should be doubling down on sustainability efforts.

Consider what the average consumer wants to buy. Fashion. Electronics. Media. Now consider what these items are made of. Cotton. Rare earth Minerals. Paper. All of these items are in limited, decreasing, supply. Increased drought and increased need of limited farmland for food production are causing cotton prices to increase. Rare earth minerals are decreasing but demand in modern electronics gadgets is steadily increasing. And paper, well, there are only so many trees and some take decades to grow.

In other words, costs are going to go up — and, at some point, costs are going to go up significantly. At that point in time, the best strategic sourcing and negotiation skills in the world aren’t going to be worth a dime because you can’t source for less than cost, and if costs skyrocket because there is (much) more demand for the materials than there is supply, your costs skyrocket and your consumers go elsewhere.

But if you double down on sustainability, and source products that use alternative, more readily available, and if possible, renewable materials, from suppliers that focus on recycling and material recovery, then your costs will stay down while your competitors’ costs go up. That’s why, despite your inclination to follow your customers, you have to do a 180 in the other direction to make sure that you keep those customers as time moves on.