Category Archives: Blogologue

Are Conferences Perpetuating Supply Chain Stasis?

It’s conference season, and you know what that means. Thousands of people flocking to ISM next week to hear about the “state-of-the-art” practices and technologies that will revolutionize your supply chain, take you into the modern age, and prepare you for what comes next. Except they won’t.

For the average organization that still hasn’t adopted a modern e-Sourcing or e-Procurement system, the technologies being presented by even the vendors who haven’t updated their core platforms since last decade will still be revolutionary and for the average organization that is just dipping their toes into the waters of modern supply management processes, the talks will be inspirational and progressive and, for all practical purposes, look like a transition from the industrial revolution to the information age. (And, for some organizations, it will be. But it won’t prepare you for what comes next.) It will be like seeing the world through rose coloured glasses for four days straight. By the end of the conference, the average attendee will be in awe of the possible and leave in a state of hippie bliss (until he gets back to the office and crushing reality cracks his lenses and he’s forced to again see the cold and depressing blue sky, the blood red losses, and the blackness of the bottomless pit that new ideas get tossed into).

But for a leading organization, the majority of technologies will be outdated, the practices insufficient, and the talks sleep inducing. That’s because, for the most part*, it will be the same vendors as last year, the same practices that were being presented as revolutionary five, if not ten years ago, and different speakers giving the same scripted success talk that you have heard from the leaders who have used these technologies and processes for the last five years.

the doctor downloaded the thirty-four (yes, 34) page “brochure” for ISM and didn’t see one new idea in the entire publication. Not one. Moreover, while a few of the topics only became trendy in the last few years, there appear to be only two talks focussed on TCO (Total Cost of Ownership), one on integrated supply chains, and zero on supply chain modelling.

This is a serious problem. We’ve reached the point where supply chain success for the average organization is becoming dependent on preventing supply chain disruptions and failures. Supply chains span the globe, lean is the name of the game, JiT is widespread, disasters (natural and man-made) are on the rise, margins are thin, and customer loyalty and patience is thinner. It doesn’t matter how well you source if you can’t execute. It doesn’t matter how well you procure if you can’t control your costs. The best laid risk avoidance and mitigation plans are worthless if you can’t monitor for risks and implement mitigation plans at appropriate times. The best spend analysis system in the world is useless if the data is incomplete or too dirty. You can’t optimize what you can’t model. And so on.

Moveover, every savings opportunity you identify at one stage of the supply chain or management process can result in a larger loss at a different stage if the opportunity is not analyzed appropriately. Sure you can save money by consolidating supply, but if a single source is unable to deliver and the organization has to buy on the spot market at the last minute, the 5% savings could be a 10% loss. Reducing inventory can significantly reduce the 25% inventory overhead cost, but could result in stock-outs that lead to million dollar revenue losses if the organization runs too lean and a transportation strike cuts off the just-in-time supply. Better supplier oversight and management can certainly increase quality and reliability, but is the additional cost of the SRM systems and staff to manage the relationship less than the additional value generated?

True value comes from looking at an integrated supply management process, which might take the form of a full category management lifecycle or a complete strategic sourcing execution lifecycle, modelling the physical supply chain and associated costs, and computing the full total cost of ownership of the current scenario and an expected improvement.

But good luck finding anyone who looks at the supply chain as a whole from this perspective, especially when few people will even address the subject.

And this is why the doctor does NOT attend ISM. When you’re trying to identify the next evolution of supply management, or even if you are a true leader, unless you enjoy preaching from the pulpit, it’s a little depressing.

* There will be some exceptions.

How Do You Define Procurement Success?

Cost Savings? Cost Avoidance? Value Generation? Just getting through the damned day? (It is the year of Procurement Damnation, after all.)

It’s an important question. Why? Your success depends on your answer, because it is this answer, given or implied, that guides every sourcing, category management, and procurement project that you do.

If you consider the art of the Strategic Sourcing Process, the Category Management Process, or the Contract Management Lifecycle, you see that they all start about the same at a high-level:

  • Need Identification
  • Business Case
  • Stakeholder On-boarding & Management Approval
  • Strategy Formation
  • Risk Assessment & Contingency Planning
  • Detailed Specifications and Requirements
  • . . .

And if you dive in to each of these steps, you find that a key requirement of each step is an acceptable definition of success.

  • Need Identification
    There is a reason for the need, and that reason is that it is required to achieve organizational success.
  • Business Case
    A key requirement is the results that will be achieved, which should define success.
  • Stakeholder On-boarding & Management Approval
    What will they get out of it? They are more likely to come on-board if they see a result that will enable their success.
  • Strategy Formation
    What strategy will lead to success?
  • Risk Assessment & Contingency Planning
    What are the risks to success and what the contingency plans to ensure success?
  • Detailed Specifications and Requirements
    What are the steps to get to success, and what measurements will keep the team on track?

And, more importantly, if you do not define success before you go to bid, you can not expect that any response to your tender from any supplier will deliver that success.

In other words, this unwritten rule should probably get its own step in your sourcing / category management / contract management process, which should probably start like this:

  • Need Identification
  • Success Definition
  • Business Case
  • . . .

For more details on how to achieve RFP success, see SI’s series on best practice vendor selection:

And check out Thomas Kase’s recent series on Improving RFP-Driven Technology Sourcing Outcomes over on Spend Matters Pro if you have access.

A New Year Will Soon Be Upon Us? Are You Ready for The Coming Changes?

Where Procurement is concerned, the more things change, the more things stay the same is one thing you can count on. Very little changes year-over-year, and that’s probably why the futurists keep pushing the same trends year after year, including those trends old enough to be in many historian’s ancient history books. (We’re not joking. Take globalization, governmental regulations, and supply chain risk for example. These have been issues and trends since “global” trade began between Egypt and Mesopotamia, which occurred over 5,000 years ago. What’s “future” about that?)

Moreover, a best practice, even if its only been adopted by the leading organizations, is not a future trend. It is an ongoing trend if it started a few years ago, but if the leading organizations adopted the practice ten years ago, then it is not even an ongoing trend. It is a past trend that, either due to lack of maturity, resources, or relevance, didn’t cross the chasm. A current, ongoing, trend is something that just in the last few years and is just reaching the point where it will cross the chasm and a future trend is one that has only recently been identified and still in the process of being adopted by the early adopters, which, in Procurement, would be the Hackett Group top 8%.

However, while the changes may be small and few and far between, they do happen, and over time they accumulate and occasionally lead to big breakthroughs which launch new trends. These trends, in the early stages, are the ones you care about. Not trends that were forming ten years ago, because everyone already knows about them, including every competitor you have, and not possible trends ten years out, because, in the interim, the future could diverge significantly from the future required for that trend to materialize. Trends that are in the early stages of formation today. Trends that, if you start preparing for them, put you in the Procurement Leaders camp and keep you there.

Those trends, and only those trends that make you a leader, are the trends that Sourcing Innovation talks about in its latest white-paper on Top Ten Trends for Supply Management Value Generation in 2015 (registration required). Two years ago, SI told you about the top ten things that an organization could do to reign in rapidly rising costs before hyperinflation in key categories put its profitability at risk in its white paper on The top Ten Things to Do in 2013 to Control Costs (registration required). Then, one year ago, SI told you how to mine the goldmine of savings potential an untapped organization is sitting on through the proper application of The Top Ten Technologies for Supply Management Savings Today (registration required).
Now that your organization has its costs are under control and a proper technology infrastructure in place for leading-edge Supply Management, it’s ready to tackle Top Ten Trends for Supply Management Value Generation in 2015 and get processes and programs in place to capitalize on opportunities before the competition.

To find out what the Top Ten Trends for Supply Management Value Generation in 2015 are and what to do about it, download this new Sourcing Innovation white paper, sponsored by BravoSolution, today!

Tired of Historical Viewpoints? Want Insight into Real Trends?

Then you need to download Sourcing Innovation’s latest white-paper on Top Ten Trends for Supply Management Value Generation in 2015 (registration required).

If you’re like the doctor, then you’re tired of reading about the same old “trends” year after year that were tired old trends twenty years ago. Not only does it show a lack of insight on the part of the trend promoter, but it shows a lack of forward thinking on the part of the receiver to keep on listening.

Sourcing Innovation and the doctor are so tired of these futurists who are stuck in the past, and the fact that they have everyone convinced they should be asking for trend updates on a semi-annual basis, that in September, SI published a series on The Future of Procurement that specifically focussed on we shouldn’t be talking about the future of Procurement after all. First of all, as clearly illustrated in the series, thirty of the thirty-three trends that are commonly being promoted as future trends are not future trends at all. Secondly, some of these trends are so old, they weren’t even future trends of your forefathers. Thirdly, and most importantly, trends which are entirely in the future don’t help you when you’re still struggling to prepare for next year.

The trends you need to know about are the trends that are at the leading edge that are relevant to your business now, not ten years ago, and not ten years ahead in one possible future. So, for those of you who want to cut to the chase and get a bead on the real trends that will help you today and tomorrow, and not a tangent into the obvious or an excursion into the dark ages, download Sourcing Innovation’s latest white-paper on Top Ten Trends for Supply Management Value Generation in 2015 (registration required), sponsored by BravoSolution.

Talented Professional, Train Thyself!

Earlier this month, in our Procurement Key Issue 2013 post, we noted that CXO’s still don’t get the disconnect and that the average CFO, COO, and CEO still does not understand the value of the Procurement Organization. Furthermore, despite the ever increasing need for Procurement Training, from what we’re seeing, for the fifth year in a row, as part of the continued drop in operating budgets for the Procurement function, Procurement training budgets are (again) being slashed, if they exist at all!

In order to achieve the objectives being put before you, which include:

  • the acquisition of game-changing innovation and technology,
  • the increase in purchasing’s scope and influence,
  • the increase in value of the organization’s product and service offerings

and, SI’s favourite,

  • a further decrease in organizational spending

(even though inflationary times are back with a vengeance and the pursuit of cost reductions is a lost cause in this market where food reserves are at an all time low, China has a monopoly on rare earths, oil (and energy) demands are skyrocketing around the world, and metal prices are shooting off of the charts), you need training. The skill sets and knowledge you need to keep up with today’s supply markets is almost overwhelming!

Right now, you’re probably asking why you should front the time and money to train yourself. Especially when it looks like the organization will get all of the benefit. Well, the organization will get a lot of benefit, but so will you. At the end of the day, the fact of the matter is that you will be more skilled and you will be worth more. If you are unable to negotiate a pay raise with your current employer that at least reimburses you for the effort and money that you spent getting yourself trained within three months, then another Procurement organization will be happy to give you a significant raise. The reality is that many companies would rather pay more for already trained talent than pay to train the talent themselves. While the exact amount that training will boost your salary is hard to quantify, some institutes claim that the acquisition of a purchasing management certification can boost your salary by 30% to 40% and Next Level Purchasing knows of at least one case where an individual obtained a 67% salary increase! While increases of this magnitude are atypical, salary increases in the 10% to 20% range are not!

So train thyself. It will be worth it!