Category Archives: Best Practices

Putting McKinsey’s Business Technology Trends into Practice Part I

The McKinsey Quarterly recently published an article on “eight business technology trends to watch” that was not only quite good, but a good summary of the trends that you should be implementing, appropriately, in your supply chain. In this two part series, we are going to review each of the trends and give you some examples of how you can apply them to improve your sourcing and supply chain practice.

Distribution of Co-creation

In more innovative sectors of industry, companies routinely involve customers, suppliers, small specialist businesses, and independent contractors in the creation of new products. Today’s technology allows companies to delegate substantial control to outsiders by outsourcing innovation to business partners that work together in networks. By distributing innovation through the value chain, companies may reduce their costs and usher new products to market faster by eliminating the bottlenecks that come with total control.

If you’re not already doing this, you can start by adopting one or more collaboration platforms that allow you to work with your supply chain partners. Not only can you enable engineering and production by helping them work with partners to design cost-out before you even have to source the goods, but you can work with your suppliers to identify optimal supply networks that keep transportation costs down and raw materials that you could procure on their behalf cheaper than they could procure them.

Using consumers as innovators

The more innovative companies are looking upon consumers as potential sources of innovation. Companies that go out of their way to engage with customers in design, testing, and marketing and to find out what they really want get better insight into customer needs and behavior and often reduce the cost of customer acquisition, retention, and development. As long as the company is careful to focus on the immediate needs of the majority of customers, as opposed to the long-range needs of a vocal minority of customers, it increases its chances of meeting the needs of its customers when compared to its competition.

In sourcing, your customers are the other groups in the organization – engineering and production that need the raw materials, marketing that has to market the finished product, finance who needs reporting and justification that the money you’re spending is on compliant goods, and sales that has to sell the finish product. A good sourcing and supply chain organization forms cross-functional teams that involve each group early in the sourcing effort to insure that the award that is finally made is appropriately balanced to meet the needs of each internal customer, but a great sourcing team asks each organization for ideas that could help them increase profitability, efficiency, and / or quality. Not all ideas will be winners, but you never know where the next gem of an idea is going to come from.

Tapping into the World of Talent

Thanks to recent advances in collaboration and communication tools, companies can outsource increasingly specialized aspects of their work and still maintain organizational coherence. Furthermore, top talent (like the doctor) can be found anywhere. The best person for the job might be a state, country, or even continent away. Innovative companies are building capabilities to engage best-of-breed talent or contracting with talent aggregators that specialize in providing such services. The competitive advantage will shift to companies that can master the art of breaking down and recomposing tasks in ways that can take maximum advantage of best-of-breed talent.

The best sourcing and procurement groups are those that assume that they don’t know how to be the best at everything and aren’t afraid to engage consultants and thought leaders to show them how to do things better. The great thing about this trend is that it’s easy to start with – you identify your largest gaps and weaknesses, or your most significant technology and process needs, and then bring in best-in-class talent to help you fill those gaps and needs and take you to the next level. Most importantly, you find the best-in-class talent that will help your people achieve this next level after the the foundation that is required to get you there is implemented. Helping you select and implement a new platform or process is good, but helping you learn the new platform or process and get the most out of it is better.

Extracting More Value from Interactions

As the article points out, the application of technology has reduced differences among the productivity of transformational and transactional employees, but huge inconsistencies persist in the productivity of high-value tacit interactions which involves negotiations, knowledge, judgement, and ad-hoc collaboration. Improvement is more about increasing their effectiveness by focusing on interactions in a context that create value than it is about increasing their efficiency.

The key to good interactions is high EQ and efficient access to the right knowledge at the right time. You can increase your team’s EQ by giving them access to the training they need, and, preferably training that will take them down the certification path (towards the CPSM or SPSM, for example). You can begin your effort to make sure that your team has the knowledge they need, when they need it, by developing a knowledge management intranet site that uses content management, wiki, and forum technology to capture all of the relevant information that flows through your organization – from your employees, contractors, and partners.

As the article states, creative leaders can use a broad spectrum of new, technology-enabled options to craft their strategies. These trends are best seen as emerging patterns that can be applied in a wide variety of businesses. Leaders will reflect on which patterns may start to reshape their markets and industries next – and on whether they have opportunities to catalyze change and shape the outcome rather than merely react to it. As the doctor has demonstrated, each of these trends can be co-opted by your sourcing and supply chain organization to literally get more for less. Check back tomorrow for the next four trends that you can use to improve your operations!

Talent 2008 Week Wrap Up: Purchasing’s Report on Procurement Professional Development

I hope you enjoyed this special mini-series on Talent and associated issues this week. With the talent crunch about to hit in a big way, we could all be losers in the talent war if we don’t start taking steps to make sure we have the talent we need in place when we need it. As Charles points out, this will require us taking a good look at our organization and ourselves and making sure that we’re ready to face the challenges ahead.

To wrap up the week, I thought I’d share some highlights from Purchasing.com’s Special Report on “Procurement Professional Development”, since they took great care in timing their report to more-or-less coincide with Sourcing Innovation’s Talent 2008.

In “How to Build the Procurement Dream Team”, Purchasing notes that building the procurement dream team doesn’t happen overnight, it starts in the minor leagues by recruiting the best interns and ensuring that they have meaningful experiences to encourage the next crop of top interns to take a chance on your company. It requires you to benchmark and review your organizational capabilities, to understand what competencies you have in house, and what skills you need to bring in. Furthermore, attracting talent will require more than just a job description – it will require the organization to clearly outline its priorities and give candidates as much feedback as possible. Then, once you bring your new talent in, you will need to make sure they stay up to date on the latest best practices through regular training.

In “Got a Procurement Job Interview? Here’s What NOT To Do”, Purchasing outlined some big don’ts that you should probably avoid in an interview.

  • Prominently placing your cell-phone on the table
    (as this can give the impression you’re more important than the interviewer)
  • Rummaging through a folder
    – of projects you are currently working on –
    to answer a question
    (as it looks like you are disorganized and don’t take care in protecting confidential information)
  • Swearing in the interview
    (it may be deemed to show a lack of control and will offend the religious)
  • Supply-Chain Buzzword Mania
    (chances are your interviewer is not holding a supply-chain buzzword bingo card and will not appreciate it)
  • Telling the interviewer you’re not looking for a job
  • Telling an interviewer you know a test inside out
    because you had to take it three times …
    and then telling the interviewer you failed all three times
  • Inappropriate attire
    (especially if you show up to Coke wearing a Pepsi hat!)

The 6 Days of X-asperation: Day 1 – Questions to Ask Every Vendor!

Yes folks! the doctor just keeps on giving! In addition to the specific questions on Spend Analysis, e-RFX and e-Auctions, Decision Optimization, Contract Management, e-Procurement, and e-Payment functionality that you should ask your prospective vendor before you even think about making any commitments, as x-emplified during the 12 Days of X-emplification, there are also some general questions that you should be asking each and every software vendor you are approaching for an e-Sourcing or e-Procurement Solution. In this post, I’m going to outline what they are and why they are important. Then, in the next five posts, I’m going to outline the full answers that you want to hear from your vendor. (And that’s why this is the X-asperation series, because if most vendors weren’t exasperated after the first series, you can count on them being exasperated after this one. But that’s a good thing! Do you really want technology that hasn’t been updated since 1999?)

Feel free to thank me, because I know for a fact there’s quite a few vendors out there that aren’t going to thank me for yet another set of questions that they, unfortunately, don’t always have good answers for. (Let’s put it this way, after this series, I’ll be even more relieved that there just isn’t enough money in waste management in the part of the world I call home to attract a certain breed of waste manager.)

1. What do I have to do to get a good handle on how to make effective use of this technology, and for an organization of my size, how long is it going to take?

Chances are that whatever you need to do, you’re not the first company to need to get it done, or the first company to set about to do it. As such, even your best estimates are going to be just that – estimates. They might be close. They might be way off. But if the vendor has a sizable customer base, cares about it’s customers, and works with them, then it will have a good idea of how long it’s really going to take to implement the technology from end to end – in terms of software implementation, data population and cleansing, and project management.

Furthermore, even though most projects should be doable in a matter of weeks, the reality is that many e-Sourcing and e-Procurement systems actually take 3, 6, or even 12 months (or more) to implement because the buying organization isn’t (fully) prepared. Remember, the vendor can only get the work done in an efficient time-frame if you know where your data is (and have negotiated the required access with IT), your processes mapped, and the people on hand with the knowledge to quickly answer data and process questions as they arise during the implementation. If the vendor is any good, the vendor will understand exactly what they will need from you to implement the system in the time-frame they quote and, more importantly, they’ll be able to tell you exactly what you need to do to get there. (If they can’t tell you precisely what data and processes you need, and how to find that data or implement the processes you need, keep looking. You don’t want another expensive piece of software nobody uses. You want a solution, and that solution needs to include the requisite services, training, and knowledge transfer.)

2a. How much functionality is my organization realistically going to be using in 12 months?

In this space, one of two things ultimately occurs, either an uninformed buyer asks for pie-in-the-sky functionality because they read some BS propaganda somewhere that said they absolutely need it, or, more often than not, some uninformed or FUD spreading salesperson tells them they absolutely need it (and that only the company they represent can offer it). The fact of the matter is, you usually don’t need more than the basics during an initial implementation (as long as the key features addressed in the early posts in this series are there) to be productive and get a good initial ROI from the system. (You’ll eventually want the more advanced features, but you won’t be ready for them right away, and implementing them too early can sometimes do more harm than good!)

Furthermore, how many tools are there with more than a few dozen features where you regularly use all the features? You’re probably familiar with Word. Word 2000 has hundreds of features. The same holds true for Word 2003. Word 2007, like every version before it, added over a hundred features. How many have you used, ever? And, more importantly, how many do you use regularly? A small fraction, on both counts. It’s not how many features the tool has, but how many features you really need. Therefore, it’s also important to ask:

2b. How much functionality do I really need?

Chances are, not as much as you think. (As my X-emplification series attempted to point out – most of the time it boils down to a small set of key features.) Map your processes and pains and then, with the help of an independent consultant if necessary, map these to basic system and software functions. What falls out is what you need, what’s left, you probably don’t – or at least you don’t need it right away. More importantly, make sure the vendor answers:

2c. And how does this functionality solve my #1 pain today, which is X?

If you have a major pain point, like maverick spend, lack of spend visibility, or a paperwork nightmare due to compounding compliance and regulatory requirements in Europe that are driving you batty, make sure the vendor is able to clearly explain how their tool will solve that problem, how your buyers will use the tool on a daily basis to do the work they need to do, and how long it will take them to perform these common tasks that they need to do everyday. If the tool isn’t able to do what your buyers need it to do, when they need to do it, and do it significantly faster than they can do it manually, then it’s likely not the right tool for you.

3. How much training is my team going to require to effectively use the software? How long is it going to take them to absorb this training?

An enterprise software tool isn’t e-mail, word processing, or web searching. It’s not something you can expect the average user to figure out on her own, at least not in any reasonable time frame. Nor can you expect them to grok it from reading a manual. Let’s face it … supreme court opinions and the resulting in-depth analyses by legal scholars are children’s literature when compared to the average technical manual. If you want your people to be productive on the tool, they need to learn the tool, and for that they are going to need training. If the vendor has well-designed multi-media self-study courses, then your buyers will be able to do a lot on their own, but they’ll still need questions answered and demos that show them how to use the tool to do tasks specific to their organization. There’ll always be a traditional training requirement. Furthermore, the more features they have to learn, the longer you should expect that training to take. If a vendor representative is selling you a full suite and says training will take a day, he’s clueless or the suite doesn’t do anything. This will sometimes be a judgment call, but a good general rule of thumb is that for each major piece of functionality (or module), you should expect somewhere between half a day and a couple of days for a sufficient mastery of the basics. (Longer if the system is not user friendly.)

4. How much is this software REALLY going to cost me in the first year and each subsequent year?

Let’s face it, especially where a few traditional behind-the-firewall vendors are concerned (and the ones that offer you 50% + discounts in particular), the software cost is never the full cost of the system. In fact, with some vendors, it’s not even close!

In the traditional on-premise model, or the ASP hosting model (which should not be confused with true multi-tenant on-demand), the vendor quotes you a cost of a license to use the software for a fixed term, but that’s all the quote includes. When you go to buy, that’s when you find out that there’s also an installation fee (on-premise) and / or initialization fee (hosted ASP) to install the software and get it ready for daily use, which doesn’t include the initialization services fee where they load your data, users, etc. And let’s not forget about the yearly maintenance fee. And of course, when you need to install the first update, there’ll be an update fee to install the patches for you. And we all know that the training costs are never included.

If you’re lucky, it stops there. If you’re not, you find out that you were sold the “basic” version, but the functionality you really need is in the “professional” version or “enterprise” version and that you have to upgrade and pay a rather substantial upgrade fee, as well as a higher maintenance fee on the back-end. Then there’ll be a need for data conversion and enrichment services, which will cost extra. And of course, there’ll be more training, at additional training day rates.

But even if the basic version is enough, you might find out that you need bigger, better, faster, hardware – which can come with a hefty price tag. After you get the system implemented, you might realize there’s too much work for you to do to ready all of your projects on the new system and that you need to bring in some services professionals to augment your team. And so on.

A 100K system can end up costing you 1M* (or more) over the course of the first two years and your expected ROI of 10 can vanish seemingly overnight! If you don’t get the most honest answer of all to this question, stop the process with the vendor here and now. No matter how good the system might be, it’s not a solution if it costs you money. (After all, if it’s just labor savings, somewhere in the world there’s people in a developing country who’ll still work for pennies on the dollar. And they won’t ask for a 1M software system – which they probably aren’t educated enough to use anyway.) If you do think you are getting an honest answer, and all they are apparently charging you for is licensing and some standard services, then you should still make good and sure that they’ll incorporate explicit provisions in the contract that indicates that all of the services and updates needed to make the system work, are included in the license or maintenance costs – and not separately priced. Otherwise, you might find that the vendor changes its tune six months down the road.

*I’m not saying you shouldn’t pay 1M (or more) for a good e-Sourcing or e-Procurement suite, but that you need to make sure the ROI is there. If you’ve done your baseline and benchmarking and expect the solution to save you 5M to 10M over the timeframe where you spend 1M, then it’s a good deal. But if you do your baseline and benchmarking and the 1M system is only going to save you 2M, tops, I’d think twice about buying it. (Also, you’re likely only going to get this level of savings if it includes real spend analysis, real strategic sourcing decision optimization, or true end-to-end procurement cycle integration.)

5. You say you care about your customers and that you are going to provide great service. Prove it!

You should be able to choose from half a dozen references. The vendor should have a process to make sure all bugs are immediately logged, investigated, and incorporated into a release cycle. There should be a methodology to develop work-arounds or temporary patches if the functionality is critical. You should be allowed to go to the next conference or user meeting before you buy. The vendor should be more than willing to share the knowledge you need to answer each of these questions fully, completely and, if you missed any of these important questions, willing to point out what those questions are and why they feel that you need to ask the questions – without answering the questions for you. You want a vendor who’s willing to let you do your own research, confident that there’s a very good chance that you’ll come back to them.

6. Can I take it for a test drive or a short term lease?

The reality is that you don’t want to be dropping a huge bundle of dough on an integrated solution on just a hope and a prayer. It’s best to spend some time with a very modest commitment of dollars and resources to test drive the product in the context of your projects and your needs. Get a flavor for what it can do, and how much it can save you. You can always dive in and buy the whole kit-n-kaboodle later. (The vendor’s not going to say “sorry, you can’t buy any more – we’re sold out”. It’s software, not limited edition collector plates.)

Furthermore, until you’re able to baseline not only how well you’re doing now, but benchmark how much the proposed solution could realistically reduce the baseline over time, you won’t be able to figure out if the ROI is really there or not. And that’s what it’s all about, isn’t it?

7. Can I buy it or implement it in pieces?

Finally, even if you do decide that enterprise suite E is the solution for you, you still want to be able to roll it out in manageable phases or chunks. Your users aren’t going to be able to lean an extensive suite overnight, so even if the vendor was true multi-tenant on-demand and could get it up and running, with your users and key data, in a matter of days, it wouldn’t help you.

So come back tomorrow as we put the e-RFX & e-Auction vendors through the wringer again by diving into the questions above!

the doctor Exposes A Few More Elephants

As the doctor mentioned in his last post, there are a lot of elephants hiding in the sourcing and procurement war room! There are so many, in fact, that the doctor is having problems figuring out how they all fit! However, as the doctor was in-depth scanning and reviewing some vendor web sites (and no, the doctor‘s not going to list names – since he’s sure most of these vendors are still upset with him for the X-emplification series, which is going to be followed by an X-asperation series in the next month or so thanks to some really great questions and suggestions the doctor received in private e-mails), he caught a glimpse of the data enrichment elephant hiding behind the door, spotted the compliance elephant under the boardroom table, and found the performance management elephant hiding in the closet.

The Data Enrichment elephant would have us believe that your data is “enriched” if it’s processed by a spend repository that applies repeatable data cleansing and categorization rules to make sure it is always in a form that can be analyzed by the solution that you have. Although accurate cleansing and categorization is important, and a necessary part of any spend analysis project (whether done by a central data administrator or an analyst on the fly using a real spend analysis tool), it’s not data enrichment. Enrichment, by definition, means that additional data, culled from other third party sources, is added to your data so that you can do analysis above and beyond what you could just with the data in your organization. For example, this could be using Equifax Austin-Tetra to append financial risk and diversity information so that you can determine how much spend is really going to diversity suppliers (versus how much spend you think is going to diversity suppliers) and how many suppliers you are dealing with have a risk of failure in the next 12 months. In other words, what the Data Enrichment elephant is selling you is important, it’s just not enrichment – it’s basically what you should be getting with any tool you buy that promises accurate cleansing and categorization.

The Compliance elephant would have you believe that just because the vendor sells a complete suite that is capable of fully automating your processes and work-flows, storing all information and award decisions in a searchable centralized repository, and managing your contracts with a solution that alerts you whenever a transaction is found off of contract or a contract is coming up for renewal, that you are compliant. the doctor would like to say he’s sorry, but he isn’t, but compliance is much broader than this. Compliance is not just compliance with internal processes, but whether the system is always being used (because automating the processes is irrelevant if the system is not being used), whether it is collecting the data required by your organization to meet the requirements of Sarbanes Oxley and the accounting standards being used, whether or not you are awarding to a company on the denied party list, whether or not the carrier who is bidding is licensed to operate in the countries that you are shipping from or two, whether or not the products you are sourcing comply with regulatory requirements such as REACH, RoHS, and WEEE, and so on. This goes well beyond the offerings of any sourcing or procurement solution on the market. Well beyond. If the vendor is telling you that they enable compliance with respect to SOX, REACH, etc., and being very specific about it – that’s great! Sourcing and procurement solutions can enable compliance. But, considering the breadth of regulations that need to be adhered to in global trade, a sourcing or procurement solution alone, by itself, will not make you compliant. So, in short, this is an elephant that likes to considerably over-promise and under-deliver.

The Performance Management elephant tells you that if you have a sufficiently complete technology platform, than you achieve supplier performance management. One vendor in particular is stating that a combination of project management, collaboration technology, assessment, and monitoring technology is everything you need for supplier performance management. Although this is likely everything you need to monitor and measure your suppliers, and thus a good foundation, there’s a big difference between measuring something and doing something about the result! The nature of performance management is that it can’t be a purely technology solution – because performance comes down to people. Technology is good at tracking tasks and, by way of benchmarks, pointing out where there are inefficiencies or problems – but you need people to identify the root causes and work with suppliers to identify the solutions and insure that they get implemented. Furthermore, for this type of platform to be truly useful, it should have an expert-system module that can be customized to each vertical to help the individual responsible for performance management to diagnose possible errors and resolutions. Without this, then it’s just an open source project management tool combined with an RFX tool for surveys and assessments and a BI tool on an ERP to produce metrics and generate alerts when something falls outside of an acceptable range. In other words, the Performance Management elephant has a really good cause, but is a little confused how to actually go about getting results.

For those of you counting, this brings the total number of elephants we’ve discovered in this room to date to twelve. In addition to the data enrichment, compliance, and performance management elephants, previous posts identified the optimization, e-Procurement/EIPP, and spend analysis elephants; the supplier enablement, contract management, and hidden cost elephants; and the RFX, e-Payment, and technology RFP elephants.

the doctor hopes you enjoyed this post, and the brief return of the blogologues, because this will be the last regular blogologue for a while. There are two reasons for this. The first reason it takes a lot of time to craft and edit a post of meaningful content (versus the first half-formed thought that comes to mind), and given that this blog is generating zero income at the present moment, the doctor, unfortunately, can only afford to dedicate so much time to it. The second reason is that the first cross-blog series of 2008 on Sustainability starts next week, and given the importance of this topic, the doctor does not want to detract from what he hopes will be a very popular, and very prolific, cross-blog series.

Supply Management in the Decade Ahead X: Collaboration

This post continues our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and our review of the seven critical supply strategies for succeeding in a dynamic world in particular, with the fifth critical supply strategy identified by the report – collaboration.

Unlike the days of old where a company could extract gains by creating competition in their supplier markets in order to use the “invisible hand of the marketplace” to maximize value from competitively sourced suppliers, the new marketplace requires collaboration to achieve value above and beyond what you are realizing today.

Respondents to the study identified the following three strategies as the top three internal collaboration strategies for an enterprise:

  • Use cross-functional teams for category and supplier strategy development and implementation
  • Establish shared goals and objectives between the supply management organization and other internal organizations
  • Integrate business planning and supply management processes

Respondents to the study identified the following three strategies as the top three external collaboration strategies for an enterprise:

  • Collaborate with suppliers and customers to reduce supply chain costs
  • Provide transparency of cost and financial information throughout the supply chain
  • Collaborate among supply chain companies to root out waste

The study itself highlighted the following four generic key success strategies:

  • Internal collaboration and integration must advance further if companies are to capitalize on their future needs
  • External collaboration will require a shift from competition to partnership for some segments of a company’s supply base
  • Technology will be necessary to enable an increase in collaboration
  • Companies must be willing to jointly work through their concerns with risk and IP protection

The study then went on to highlight some keys to external collaboration:

  1. Manage Strategic Suppliers
  2. Collaboratively Obtain Innovation
  3. Block Competition through technological exclusivity and tying up supplier capacity
  4. Increase Transparency

I’d like to focus on the first and third recommendations. Managing suppliers might be good, but enabling suppliers is much better. Give them the tools and information they need to help you be a better supplier to your customers, and your gains will be greater. Blocking is also good, but blocks have shorter and shorter life-spans as time goes on. Considering that your supplier probably obtained at least some of it’s new technological capabilities from a vendor itself, it won’t be long before it’s competitors have the same capabilities and your competitors line up partnerships with them. the doctor thinks that a better strategy would be to become the strategic customer to your strategic supplier and work with them to continually outpace your competition.