Category Archives: Best Practices

Kalypso’s Best Practices in Collaborative Innovation

According to a recent Kalypso white paper on “Best Practices in Collaborative Innovation: How Manufacturers and Retailers Can Profit from Collaborative Innovation”, there is an urgency for collaborative innovation as 95% of companies surveyed felt that collaborative innovation was very important to achieving their business objectives. One respondent even went so far as to say:

If you’re not collaborating, you won’t be around in 20 years. You’ll be gone.

With the global economic crisis driving a changing consumer focus on value, the need to streamline supply chains, and the need for consumer safety, companies are under increasing pressure to simultaneously deliver cost reductions and innovation at a faster pace. However, this is getting harder and harder to do in a vacuum. Hence the need for collaborative innovation.

This is a good thing. When successfulm collaborative innovation between manufacturers and retailers comes with a number of benefits which include:

  • differentiation, which makes them more indispensable to the retailer,
  • improved focus on consumers across departments and categories, and
  • brilliant retail execution

for manufacturers;

  • provision of a differentiated shopping experience,
  • more “shoppable” stores,
  • total shopper solutions,
  • improved focus on destination categories, and
  • new opportunities for product and brand differentiation

for retailers; and

  • shared sales and profit growth,
  • better ideas and improved decision making from shared shopper and consumer insights,
  • more innovative offerings, and
  • reduced rework, improved speed to market, and improved execution

for both parties.

But how do you get there? As Mike Oswalt of Fluor, a global leader in international sourcing and procurement, has astutely noted in the past, collaboration is hard to define. No one can quite put their finger on what it is, or how you get there. Outside of a recent Industry Week article I covered when we discussed the requirements for collaborative innovation, there aren’t many roadmaps. That’s why it was nice to see this white paper discuss four best practices of collaborative innovation which included a planning framework to help you get there.

The best practices of collaborative innovation addressed were:

  1. Develop a Strategy
    The strategy should be focussed on a win-win approach based on categories or brands that are best suited for collaborative planning and that represent the best opportunities.
  2. Collaborative Business Planning
    The goal of joint business planning is to align the goals and objectives of both parties around the brands and categories identified as the best opportunities. The iterative process consists of the following steps:

    • Define the Landscape
    • Develop a Growth & Innovation Strategy
    • Co-Develop the Joint Business Plan
    • Jointly Execute with Brilliance
    • Measure, Improve, & Renew
  3. Get Your House in Order
    Internal obstacles — such as management challenges, organizational challenges, and business process challenges — are often the largest roadblocks to executing upon collaborative innovation. Company leadership of both parties must provide support, incentives, and resources and the focus has to be communicated throughout both organizations.
  4. Build a Trusted Relationship
    This type of relationship can create a “barrier to entry” for competition as well as provide a competitive advantage as trusted relationships result in greater information sharing, which is a cornerstone of innovation.

Not a bad set of recommendations at all. The report also concludes with some questions to ask in a self-assessment to help you determine if you’re ready for collaborative innovation. You might want to check them out.

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Is AstraZeneca Building the Center of Excellence Model for Emerging Country Sourcing?

A recent article on the Shared Services & Outsourcing Network on “What Drives a Best Practice Sourcing Strategy” contained an interview with Karen Mansell, the Head of Corporate Procurement and Business Process Outsourcing at AstraZeneca. While most articles of this sort don’t get my attention, as I already know what should drive a best practice sourcing strategy (just like you, as a regular reader of leading supply chain blogs), there was one paragraph that did get my attention as I was skimming through it.

Six questions in, the SSON asked about changes in sourcing behaviour as a result of AstraZeneca’s new outsourcing strategy, and related deployment methodologies, which puts everything on the table as an outsourcing candidate, including R&D. The response referenced AstraZeneca’s low cost country strategy and their presence in China and India. A low cost country sourcing strategy to India and China normally wouldn’t get my attention, as just about everyone is still jumping on that bandwagon whether it’s the right choice or not, but the article noted that AstraZeneca is looking at growing capability in all their emerging markets, especially from an original delivery centre point of view.

As a result, AstraZeneca is re-evaluating what supplier management looks like coming out of those areas and trying to put some supplier management on the ground, alongside the preferred supplier relationship. They’re trying to get closer to the supplier base, understand what innovation and insights look like, marry them up to business requirements, and drive aggressive supplier development programs.

This is the foundation for emerging markets done right! Get on the ground, get close to your supply base and improve their capabilities so you can manufacture for, and sell into, the local market. Then it’s not just outsourcing, it’s emerging market development, and that will be much more profitable in the long run. Logistics costs are only going to run-up again and labor costs are going to keep rising as the “emerging” markets of India and China take their place as the second and third largest global economies as the century progresses.

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The Role of Optimization in Strategic Sourcing – Implementation Issues

This series discusses the recent report from CAPS Research on “the role of optimization in strategic sourcing”. The primary goal is to highlight, clarify, and, in some cases, correct parts of the report that are important, confusing, or incorrect to insure that you have the best introduction to strategic sourcing decision optimization that one can have.

The chapter starts out with a list of ten questions designed to help organizations evaluate the appropriateness of optimization for their sourcing event. And while I still contend that every event can benefit, the question list will help you determine how beneficial optimization could be. In short, the questions were:

  1. How complex is the buy?
    The more complex the buy, the more value decision optimization will offer but, unless you are an expert, the more likely you are to need provider support (at least in the beginning).
  2. What prior experience do you have?
    There is a learning curve associated with optimization.
  3. Do you need a suite or will a stand-alone solution suffice?
    If you can get by with a stand-alone solution, you can often get off to a faster start.
  4. Do you have accurate and clean data?
    You need clean data to create historical baselines and accurate models.
  5. What do you expect to get from using optimization?
    Does a more thorough and powerful analysis have a good chance of finding a significantly better solution?
  6. How powerful does the optimization software need to be?
    Will the software you have in mind cut it?
  7. To what extent is training provided?
    Implementing optimization requires trained buyers, trained customers, and trained suppliers.
  8. What is the sourcing strategy?
    Optimization does not establish sourcing strategies, it merely plays a role in them … and it plays a much stronger role in some strategies vs. others.
  9. Are there global suppliers who will require language translation?
    Does the software support the languages of your supplier base or are there resources available to do the necessary translations?
  10. How much creativity can your organization accommodate?
    Optimization allows you, and your suppliers, to get quite creative.

Next it goes on to discuss the resources required. While you will need each of the resources identified in your organization, you won’t necessarily need all of the resources on each team. For small projects, all you will need is a category expert with an intermediate level of optimization knowledge and a support person who can assist the suppliers in entering their bids. For reference, in addition to support personnel from your optimization solution provider who should be available as needed, the resources that need to be available to you in your organization if you are to make full use of sourcing optimization include:

  • team leaders
  • category experts
  • optimization champions
  • optimization power users
  • training and education resources
  • internal IS/IT resource

Then it goes on to discuss the different types of solution models you have to choose from, which basically fall into three categories:

  • Full Service
    The solution provider, working with your category manager, handles the event on your behalf and you never touch the tool.
  • Hybrid Service
    The buying organization uses the tool and runs the event and the solution provider is used for support as needed behind the scenes.
  • Self Service
    You do everything.

It concludes by discussing a number of awareness and training issues and process requirements. Some of the more critical awareness issues include:

  • the fact that optimization can improve sourcing decisions
  • change management is necessary
  • the support of an expert to facilitate implementation is necessary in the beginning
  • there will be a learning curve
  • training will be necessary for anything beyond simple models
  • every project should have a plan that includes the strategy and goals

Finally, the following implementation tips should be heeded:

  • the sourcing process must be established
  • specifications, the statements of work, and the RFX must be clear
  • supplier inquiries need to be responded to in a timely manner
  • any requests for bundled bids must be attractive to a sufficient number of suppliers
  • expectations must be reasonable in light of current market conditions

Next Part V: The Optimization Sourcing Cycle

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The Role of Optimization in Strategic Sourcing – Preparing for Optimization

This series discusses the recent report from CAPS Research on “the role of optimization in strategic sourcing”. The primary goal is to highlight, clarify, and, in some cases, correct parts of the report that are important, confusing, or incorrect to insure that you have the best introduction to strategic sourcing decision optimization that one can have.

This chapter starts off by explaining the buyer and supplier data requirements for decision optimization and it does a good job. The five data requirements it lists for a buyer are spot on:

  • accurate historical data and projected volumes
    this allows you to not only create accurate baselines, but to perform a “sanity” check on the demand forecasts you are given
  • complete list of requirements
    these will form the foundations of your model constraints
  • minimum quantities and timeframes
    these not only specify minimum model awards, but help you determine what suppliers are qualified
  • complete specifications
    these are necessary for the suppliers to submit accurate bids
  • identification of locations and individual demands
    these define the minimum set of bids your suppliers need to submit

Next it goes on to discuss a number of optimization model issues including those of model size, complex sourcing events, small and standard buys, and the optimization sweet spot. The report did a good job on these issues, but three points need to be clarified.

While it is true that many moderately sized problems will still be challenging for a desktop or laptop, moderately sized problems can easily be solved in a matter of minutes (and sometimes even seconds) on average mid-end servers. Furthermore, today’s high-end servers can handle problems that are quite large indeed. And while it may still be the case that no single provider can handle all of your strategic sourcing decision optimization needs, the 80% solution is still a great one — license a solution that gives you 80% coverage and then utilize a second provider for large, custom, high-dollar events where the ROI will dwarf the additional cost.

The report correctly states that while it is quite possible that the software will not find ‘provable’ optimal solutions for the model, the software can nearly always find good solutions that will be ‘near optimal’. However, it does not state that those ‘near optimal’ solutions will be ‘provably’ near optimal, which is always the case with MILP optimization (that is the foundation of the majority of strategic sourcing decision optimization products on the market today). Since MILP solvers start by finding the optimal solution to the relaxed linear model, the distance of each successive solution from the absolute lower bound (which can be increased every time a solution sub-space is fully explored) is always known. So even though there may not be enough time to fully explore the potential solution space and find the provably optimal solution, the solution returned is provably near optimal within a certain tolerance.

Finally, the statement that most e-purchasing suites have an optimization module that can address the large number of bidding opportunities in this area is laughable. There are dozens (and dozens) of providers who offer e-sourcing and / or e-procurement suites (just check the resource site), but only a handful that offer (true) strategic sourcing decision optimization. When it comes to strategic sourcing decision optimization, you’re pretty much limited to Algorhythm, Bravo Solution (Vertical Net), CombineNet, Emptoris, Iasta, or Trade Extensions … only four of these can be considered suites … and only four are self-service. While I expect that we will see more providers with true optimization offerings as part of their suites in the future, until the utilization of strategic sourcing decision optimization becomes mainstream, I don’t expect any new providers will emerge.

Next Part IV: Implementation Issues

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Has Google Taught Us Well?

A recent article over on Fortune by Ken Auletta lists “10 things Google has taught us” (CNN Money, Oct 22, 2009). Now, it’s obvious the 10 lessons provide a path to success (as you just have to look at where Google stands), but did Google teach us well? Before we can answer that, we have to review the 10 lessons.

  1. Passion Wins
    Larry Page and Sergey Brin are involved with Google full-time, unlike Jerry Yang and David Filo of Yahoo. They see Google as a defining company and give it everything they’ve got.
  2. Focus is Required
    The founders never let themselves get defocused by the crowd or the other 100 good ideas that they could be working on.
  3. Vision is Required Too
    Page and Brin want to make “all the world’s information available”. That’s quite a vision!
  4. A Team Culture is Vital
    Google’s allocation of 20% of employee time to projects of their own choice give employees a sense of proprietorship.
  5. Treat Engineers as Kings
    For most Valley companies, engineers are the equivalent of the television writer, a dime a dozen. Not at Google.
  6. Treat Customers Like a King
    Google is among the world’s most trusted brands because it conveys a sense that the user comes first. Google services are free and user friendly.
  7. Every Company is a Frenemy
    Google understands that a medium like the internet blurs the borders between companies, sometimes making it more difficult to sight a potential rival or to distinguish between ally and foe.
  8. Don’t Ignore the Human Factor
    Google has been wise in winning the trust of its users, in building a team culture, and in thinking long-term. But when you start from a blanket assumption that the old ways of doing things are probably wrong, as Google does, you’re bound to make unwise mistakes. Page was unwise to assume Google could immediately digitize all books, just as Google was wrong to assume that it could devise formulas to better sell ads for newspapers and broadcast radio, two efforts it has since abandoned.
  9. There Are No Certitudes
    There is nothing about the Google model that makes them invulnerable. While they made it big as a search engine, the money they’ve poured into new ventures like YouTube, Android, and cloud-computing has not yet paid off.
  10. Life is Long But Time is Short
    You need to think and act quickly and move with the markets, which will change many times over your life time.

So has Google taught us well? Yes, they have. In fact, they have taught us very well. All the lessons apply to your supply chain. Specifically:

  1. Passion Wins
    In order to build a better supply chain than your competitor, you have to work long and hard. This will require passion.
  2. Focus is Required
    Since the average, well-planned, supply chain transformation takes 18 to 36 months in a large multi-national, you need unwavering focus so you don’t get led astray.
  3. Vision is Required Too
    You have to see the end result to get there.
  4. A Team Culture is Vital
    Success will require the commitment of a cross-functional team that represents every unit of the business.
  5. Treat Engineers as Kings
    Your supply chain professionals, who are re-engineering the supply chain, need to have the full support of the C-suite who need to treat them like Kings for the value their efforts can bring.
  6. Treat Customers Like a King
    Since sourcing / procurement / supply chain needs the support of the other internal divisions of the company, their “customers”, they need to treat their customers like a king if they want to make big wins.
  7. Every Company is a Frenemy
    Your supply advantage today could be a supply risk tomorrow without the right IP protection when your contract manufacturer starts working for your direct competitor.
  8. Don’t Ignore the Human Factor
    The projects with the largest returns won’t succeed if everyone isn’t on board.
  9. There Are No Certitudes
    The markets are changing. The perfect supply chain today will not be the perfect supply chain tomorrow. You will have to improve continuously.
  10. Life is Long But Time is Short
    Especially where consumer products are concerned.

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