Category Archives: Best Practices

(Sourcing) Innovation Always Matters

Last Thursday in Global Sourcing: Does Innovation Matter?*, Jason Busch of SpendMatters responded to my invitation in my post Is Low Cost Country Sourcing to China Really Innovative? of the previous Wednesday to comment on my take that “the hurdles and landmines of manufacturing in — and exporting from — China will ultimately catch up with the low labor rates that make the region so attractive in the first place“. The gist of his response was:

(1) It’s irrelevant whether a Spend Management activity is “innovative”, all that matters is the cold facts should speak for themselves and the savings or efficiencies gained from the activity should outweigh the risk it introduces.

(2) Companies contemplating China outsourcing still have much to gain, particularly with respect to supply base localization efforts in China aimed at building local manufacturing capability to penetrate the Asian markets.

(3) Low cost country sourcing, which has essentially been around since the concept of “trade” began, is not about a place or country, but the process of being able to move quickly to take advantage of opportunities as they arise in Asia, South/Central America, Eastern Europe, and maybe even Africa.

(4) Companies newly embarking on low cost country sourcing will find China to be nearer to the end then the beginning of the opportunities curve, with the implication that those countries actively using China for low cost country sourcing already still have the most to gain.

With respect to Jason’s first point, I have to agree that the cold hard facts should speak for themselves but disagree as to Jason’s statement that “innovation is irrelevant”. Innovation should be at the heart of every activity you undertake, and fundamentally, any new action you undertake is probably innovative to you. What is debatable is the degree of innovation. After all, innovation, which can simply be defined as “ahead of the times”, is all relative – to what you do and what your competitors do. Sometimes it will even be undertaking an initiative that generated a known failure for your competitor or an initiative that everyone thinks was past it’s prime ten years ago. Being innovative is not just inventing new tricks, its finding new ways to do apply old tricks, and knowing when to do so to reap the rewards.

With respect to Jason’s second point, I agree that the possibility exists, but firmly believe that it is not a cold hard truth. Not all companies will be equipped to take advantage of the opportunities that exist and navigate their way around the quagmires of wage inflation, skilled employee retention, energy crisis, and over-extended infrastructures. Furthermore, freight costs are increasing around the globe, not just to, from, and in North America and parts of China can still be quite distant from other parts of Asia. (After all, it is the largest country in Asia, excluding Russia, and the third largest country in the world.)

Moving on to Jason’s third point, although the concept of sourcing from low cost countries can be traced back thousands of years, low cost country sourcing has taken on a whole new meaning in the past thirty to forty years. Traditionally, you sourced products globally that you could not produce, or produce in sufficient quantities, locally. Generally, exceptions were only made when it was prohibitively expensive to produce the products locally. After all, before the rise of fast ocean liners and air-freight, it took a long, long, long time to get product from Europe and Asia to North America, and the risks of catastrophe (storms sinking ships, piracy, etc.) were much, much greater. And it is only recently that the leaders in global sourcing have evolved the concept from sourcing from a region to sourcing from an opportunity, a concept I fully agree with – after all, it is a very innovative transformation of the concept of low cost country sourcing.

And with respect to Jason’s final point, I agree fully. For many companies, China will soon be on the way out as new opportunities make their way in.

The puck has been returned.

* Link no longer available.  All posts pre-2012 disappeared during the site revamp in June 2023.

Procurement Independence at the Coupa Cabana Cafe

This month, Dave Stephens of Procurement Central (WayBackMachine) will formally launch Coupa eProcurement, an open source offering with the ambitious goal of becoming the first self-service buying tool that employees actually want to use. Besides eliminating manual processes (and you should know by now that I believe in purchasing automation with the eventual goal of completely eliminating purchase orders), Coupa eProcurement claims to enable better buying decisions, easily support special requests, create and manage content, and spread the word on “how to buy”.

Now I’m as skeptical as Jason Busch of SpendMatters and Doug Hudgeon  of Vendor Management (Renamed Contract Capital Management, archived on the WayBackMachine), but I have to admit that I’d like to “… Imagine a world where it’s easier to follow the rules than to break them. Imagine receiving accolades for providing users with an easy system for what should be an easy process: buying what they need, when they need it. Imaging deploying … a complete requisition to order system with best-in-class usability and collaboration features …“.

Now, I was lucky enough to get a webex preview of this system last Tuesday and would like to say that it is looking really good. A web-based solution, your buyers can open their browser and log in to a procurement portal customized to their needs.

On the main page, besides your usual main bar, news section, and intranet document access, you have an RSS-based news feed which is always automatically up-to-date, a one-stop google-style search-box that you can use to search for information and items in your approved purchase catalog, and an ask-an-expert question box that will submit questions to an in-house expert. Once answered, these best practices will be institutionalized in a dynamically evolving FAQ. In addition, instead of forcing a rigid organizational structure on your best practices and policies documents, news items, and catalog items, it offers the concept of a self-updating “tag cloud” that shows users what index terms are currently in common use and allows them to evolve the indexing methodology to what they feel comfortable, and productive, with as a team.

Furthermore, it also integrates one of the easiest-to-use shopping-cart based requisitioning systems that I’ve ever seen. (And I’ve designed a few slick offerings myself as a former e-commerce developer.) It’s easier then amazon’s “one-click”, since that’s only one-click after you’ve made multiple clicks through the site trying to fill your cart and only one click if you use all default buying options. Coupa’s offering lets you find an offering, add it to your requisition cart, and then add items to the cart in the cart screen based on integrated smart drop-downs and editable smart-search fields – it’s as easy as filling out a line on a purchase order. If you know what you need, you can go right to the cart, define what you want in the cart, have the line items appear, click “requisition” and off shoots an e-mail to your supervisor indicating an order is waiting for her approval.

Now you’re probably thinking … “If it’s that easy for a user, I bet it’s an administrative nightmare to keep it running”. Well, although Dave hasn’t released any details to me on the technology stack yet and I don’t know how hard it will be to install, I can say that keeping it up to date is pretty simple. Adding your catalog of approved items is as simple as sucking in a well formatted file or integrating with a PIM (Product Information Management) exchange on a push/pull model. Adding policy documents or news items is a snap. And approvals, nicely summarized on clear and crisp screens, are as easy as a mouse click.

The only thing that bothered me slightly was the fact that there is no separation between “catalog” and “contract”. However, from a procure-to-pay point of view, this is a brilliant idea (as long as you associate expiry dates with the catalog items). After all, you should not have items in your system that are not under contract or not approved for purchase, so the separation of these concepts would only add complexity to what would otherwise be a simple system (again, providing catalog items have an expiry date associated with your contracts and these catalog items disappear if those contracts do not get renewed).

Now, add all this to the fact that Coupa intends the total cost of system ownership to be 2x to 3x less then the cost of ownership of the typical e-procurement offerings from SAP and Oracle, and Coupa starts looking very attractive.

However, I have to agree with Doug and say that “ Dave’s chance of success depends entirely on the shape of his target market. If he goes after the most demanding customers in the spend management market with a version 1.0 system then he will have a long slog in front of him … ” but if he instead focuses on “ ‘overshot’ customers who do not require all of the features of the current suite of products or to non-customers who are excluded from the current suite of products for reasons of price or complexity … “, I think he has a great chance, especially if he focuses on the benefits a customer can receive by pairing his tactical e-Procurement offering up with affordable on-demand e-Sourcing suites like Iasta’s SmartSource suite (with release 7.0 slated for this summer) that covers the strategic aspects of the procurement function. After all, low cost on-demand sourcing software plus low cost procurement software (which can be hosted on-demand as well) equals a full Total Value Management e-Solution (on-demand) at a low cost, and this is a powerful proposition for small to mid-market firms that really need a world-class solution but can’t afford an IBM, Ariba, Emptoris, Oracle, or SAP to make it happen.

Supplier Enablement

Last month, the ISM awarded a number of individuals and organizations the R. Gene Richter Award for Leadership and Innovation in Supply Management. The recipients were primarily organizations that had demonstrated massive improvements in their sourcing and procurement functions which came about through concentrated improvement efforts. These improvements were the direct result of the adoption and consistent implementation of best practices across the sourcing and procurement functions in the organization. This week we are discussing the best practices that helped one or more of the recipients transform their organizations and win these coveted awards.

Today we are going to discuss how supplier enablement can significantly enhance your sourcing function, as it did for Rockwell Collins, as described in the article “The Next Step” in the latest issue of Inside Supply Management.

In 2005, Rockwell Collins launched an eRFQ/APO (electronic Request For Quote / Automated Purchase Order) system that extended the initial supplier portal that it released in 2003, SupplyCollins.com. This site is the primary communication tool between Rockwell Collins and its suppliers, providing a single process and methodology of doing business that is understood by all parties involved.

The system also supports Total Cost of Ownership (TCO) analysis, that allows the system to automatically select the winners of the eRFQ and generate APOs when the response deadline occurs. The system automates tactical pieces of procurement and frees up Rockwell Collin’s staff to concentrate on strategic issues and spend more time working with engineering and supply.

The system provided the following benefits to Rockwell Collins:

  • the volume of automated transactions has increased to 70%,
  • nearly 90% of direct materials are purchased through the system,
  • supplier visits have increased eightfold in a 2 year period, from 5,000 in January 2004 to 40,000 in January 2006,
  • over 1,400 suppliers use the system, and
  • the application has generated more than 70,000 eRFQs and more than 50,000 purchase orders.

Sourcing Based Product Lifecycle Management

Last month, the ISM awarded a number of individuals and organizations the R. Gene Richter Award for Leadership and Innovation in Supply Management. The recipients were primarily organizations that had demonstrated massive improvements in their sourcing and procurement functions which came about through concentrated improvement efforts. These improvements were the direct result of the adoption and consistent implementation of best practices across the sourcing and procurement functions in the organization. This week we are discussing the best practices that helped one or more of the recipients transform their organizations and win these coveted awards.

Today we are going to discuss how sourcing-driven product lifecycle management (sourcing-based PLM) and related best practices can take your sourcing organization to the next level, as it did for KLA Tencor, as described in the article Changing Directions in the latest issue of Inside Supply Management.

In addition to institutionalizing the five pillars of

  • strategic sourcing,
  • commodity councils,
  • negotiation expertise,
  • performance-based contracts, and
  • formal supplier management with supply base rationalization and supplier scorecards,

for the emerging supply chain department, the supply department extended the company’s product life cycle management (PLC) to include sourcing. A product is not allowed to leave the investigation phase before a strategic sourcing strategy is devised and accepted. This resulted in 40% to 50% cost reductions and more than a 50% improvement in lead time and availability. In addition, product performance, quality, and field reliability of the produced products were significantly improved.

When you consider that up to 80% of a product’s cost can be locked in during the design phase, and that strategic sourcing has been proven to significantly reduce procurement cycle times when properly implemented, it should not be surprising that early application of the sourcing process can have a significant impact.

Legal Cooperation

Last month, the ISM awarded a number of individuals and organizations the R. Gene Richter Award for Leadership and Innovation in Supply Management. The recipients were primarily organizations that had demonstrated massive improvements in their sourcing and procurement functions which came about through concentrated improvement efforts. These improvements were the direct result of the adoption and consistent implementation of best practices across the sourcing and procurement functions in the organization. This week we are discussing the best practices that helped one or more of the recipients transform their organizations and win these coveted awards.

Today we are going to talk about how legal sourcing can revolutionize sourcing as it did for Johnson & Johnson, as described in the article “Odd Couple” in the latest issue of Inside Supply Management.

In 2004, the World Headquarters Law and Procurement Departments at J&J formed the legal sourcing group with the initial objectives of

  • identifying where sourcing support could add the most value,
  • implement several “quick win” projects to demonstrate sourcing’s value,
  • optimize law department processes and integrate sourcing, and
  • build a sustainable support structure and knowledge base.

This partnership resulted in a database that provided detailed information to support analyses, process design, and negotiations as well as advanced reporting capabilities not previously available. This improved the quality of information available to the law department. It also helped identify 3rd party services such as copying, coding, and reporting that could benefit from sourcing expertise. As a result of new policies and the involvement of sourcing in identification, competitive negotiation, and preferred suppliers to support litigation, sourcing has saved over 3M in third party services.

As a result of this success, the legal sourcing group moved on to assisting litigation in rate change requests, case budgeting, and discovery management. As a result of the partnership, the litigation group has saved 8.7M in the first year of the partnership.

The reality is that if procurement is willing to

  • listen to the needs of organizational units and learn,
  • adapt sourcing tools and process to the environment (and not vice versa),
  • focus on the customer’s needs and respond to them,
  • establish credibility before approaching sensitive areas, and
  • realize that the success of the case is paramount, in some cases costs or standard processes might have to come second,

then procurement can help legal become a more efficient and cost effective organization. Procurement: It’s not just for materials anymore!