Category Archives: Guest Author

A Futuristic Look at High Definition Sourcing

Sourcing Innovation would like to officially welcome its newest sponsor, BravoSolution.

Normally SI would include a review of the vendor’s primary offering in the welcome post, but since Bravo’s new Collaborative High-Definition Sourcing platform was just covered extensively by SI in High Definition Sourcing … with the Business Center … and Category Sourcing (as well as in Making Spend Analysis More Useful, Part I and Part II), SI would instead like to offer BravoSolution’s perspective on how a new sourcing paradigm could change Supply Management in the years ahead.

To this end, I have asked Paul Martyn (VP of Marketing), who can be reached at p <dot> martyn <at> bravosolution <dot> com and who recently penned a guest post on Achieving Category Excellence with High Definition Sourcing, to look ahead three years when High Definition Sourcing and Next Generation Sourcing Techniques (which include the Value Focussed Supply Techniques described in last week’s posts) are commonplace in the leading Supply Management organizations and put together a picture of what e-Sourcing might look like.

It’s 2014. I’m a senior sourcing professional at a large multi-national company and I’ve got major sourcing programs planned for categories that share the following characteristics:

  • Large amounts of spend
  • International, operational, marketing and/or finance stakeholders
  • Complicated cost models
  • The category leader is frustrated with traditional sourcing techniques
  • The category is avoided by the faint of heart
  • Dynamic corporate, supplier, and market conditions

Sound daunting? Maybe even impossible to succeed? Three years ago, I would have shared your skepticism and been completely frustrated by the sheer complexity of tackling these challenges. When I look back, there was a lot holding me and my team back, including:

  • A one-size-fits-all approach to sourcing:
    For successful sourcing of complex categories, what my team really needed was the ability to define the world of their particular category. A flexible framework would allow us to state the opportunity/problem, gather the necessary inputs to evaluate possible reactions, make a decision, and track the implementation and monitor the changing conditions around the decisions we’ve made to constantly take advantage of changing realities — all while staying consistent across the organization.
  • Silos, silos everywhere and not a bridge in sight:
    The conventional approaches I used created nonsensical boundaries across functions. I couldn’t get engineering, distribution, supply chain, and customer service aligned or more importantly — involved in the decisions. Worse, we weren’t really in problem-solving mode, these were merely sequenced ‘events’ executed with no ability to create and manage a ‘process’ that ended up as a ‘system’ to manage key categories. All we created were more damn task lists. My category leaders didn’t need more “to-do’s”, they needed laboratories for research and testing, board rooms for decision-making, and a ship’s bridge from which to monitor and control.
  • Drowning in useless data:
    We made great use of data at first, but wrestling with it was so manual and there was no way to easily refresh it. It very quickly became like a can of soda: when first opened, it’s great, but the longer it sits, the flatter — and less useful in providing relief — it gets.

So what’s changed? I’ve used ‘High Definition’ Sourcing with category specific ‘Business Centers’ for complex categories. With this sophisticated approach:

  • Category managers have a panoramic view that allows them to manage their categories, end-to-end with regards to
    1. defining new opportunities/problems
    2. gathering a full spectrum of metrics to use in evaluating potential solutions,
    3. establishing, monitoring, and tracking of key decisions to highlight deviations from expectations

    These three (3) parameters form our ‘system’ for managing complex categories, where the stakes are high and the opportunities for value, even higher.

  • With a category management Center of Excellence we have two critical resources for successful management of high-definition sourcing:
    1. A Data Management Guru (DMG) responsible for the data capture and informatics. The DMG establishes connections to gather baselines; refreshes usage and capacity details; links to spend sources for up-to-date consumption figures and arranges performance data aggregation and design.
    2. A Business Intelligence Management Professional (BIMP) responsible for configuring the new analytics necessary to analyze key categories within an initiative. Every problem is a little different, and the right analytics are crucial to making the right decision.

As a result, my sourcing tools can

  • Flexibly define the problem opportunity for a specific category
  • Utilize robust data sources to feed the evaluation and performance processes
  • Allow creative scenarios to complete the evaluation process
  • Support the determination of specific decisions and actions
  • Establish KPIs for tracking ongoing performance
  • Effectively report the impact of our initiatives in terms (EPS/Profit Contribution) the entire organization understands

All in the context of a given category.

And the return on investment for the staff augmentation and additional tools? An additional 5-8% savings in my most strategic categories, an overall improvement in my supplier performance post-contract, and an overall reduction in organizational risk by involving all of my stakeholders, their key data inputs, and constraints.

My only regret: I didn’t do it sooner.

Thanks, Paul!

High-Definition Sourcing: Category Excellence Moves to the Next Level


Today’s guest post is from Paul Martyn, Vice President of Marketing for Bravo Solution.
Paul can be reached at p <dot> martyn <at> bravosolution <dot> com.

the doctor — along with many others — has been advocating for “next-generation sourcing” for some time. I couldn’t agree more that modern supply management organizations must take sourcing practices to the next level if they are going to continue to distill value from the discipline and practice.

But like most New Year’s Resolutions, while the aspiration to improve may be great, the effort may be too much for even the most committed. I see this a lot, especially when it comes the challenges of sourcing strategic, complex categories. Not without reason of course, but more and more I also see that the benefits of mastering the art of sourcing these challenging categories far outweigh the difficulties of the actual process.

Strategic categories mean different things to different businesses. For one company, the category may be transportation; for another, packaging material. The common denominator: the business can’t succeed without it, and can’t afford to over-pay for it.

To make decisions based on the most strategic objectives of the business, sourcing teams need to integrate many dimensions of information from areas well outside their domains. For example, if non-price factors like diversity or sustainability are part of the company’s corporate social responsibility initiative, those factors can — and should — be part of sourcing strategies.

As a result, the volume and the sheer variability of the information render common e-sourcing tools or Excel spreadsheets useless for collecting and evaluating proposals. That’s where high-definition sourcing — which combines technology, expertise and process — delivers the goods at the lowest total landed cost, and aligned with the greater organizational strategy.

So how do you know if high-definition sourcing can turn even the most complex categories into real value for your organization? There are generally three scenarios where the opportunity to apply this discipline will help you capture meaningful and sustainable savings

  1. The category leader is frustrated with traditional sourcing techniques
  2. The category is avoided by the faint of heart
  3. Sourcing alone will not deliver the value

Sound familiar? Odds are good that at least one of these reflects what’s happening in your organization. Regardless of which situation you face, there are immediate opportunities to be gained with high-definition sourcing

  • Use technology to design and execute more sophisticated proposal collection and analysis, including the ability to use “what-if” scenarios.
  • Build supplier performance monitoring and triggers for re-evaluating supplier selection into your category management solution
  • Partner with suppliers to drive costs out of the system and strike the perfect balance between suppliers’ pricing and capabilities with buyer business constraints and preferences
  • Tap domain and process experts to bring market and industry best practices to bear on your own sourcing process

The results will be well worth it. Best-in-class companies make the connection between complex categories and the business’ charter. Lowering initial costs is a given. More importantly, these leaders make better decisions based on capabilities and price and secure meaningful — and sustainable — savings.

Thanks, Paul!

Using Consultants and Advisors Wisely


Today’s guest post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the supply management best seller Straight to the Bottom Line.

Maybe it is the urgency of the current business environment, but in the past few months we’ve heard about several large procurement consulting projects that did not turn out well. For a recap of some of the classic reasons for potential trouble, see my earlier posting on Consultants: Use Them Intelligently.

Two of the most recent stories that came to our attention involved different firms but a common thread: “success fee” or “risk free” procurement consulting engagements. For those of you who are not familiar with the practice, “success fee” or “risk free” consulting obligates the client to pay to the consulting firm a fairly hefty percentage of the “savings” generated during the project. Often, 30 to 40% of the first year’s benefits are due as payment. These arrangements are also sometimes known as “shared savings” engagements.

Beyond the large total cost of this option (often 3 to 4 times more expensive than the classic professional time and expenses approach), major challenges/drawbacks of a success fee approach include:

  1. Potential misalignment of interests between client and consulting firm (the client often wants not just negotiated cost reduction, but implemented results — along with fundamental transformation and capability building; consulting firms in a pure success fee or “risk-free” arrangement are incented to drive quickly for negotiated savings, and then depart for their next client.)
  2. Administrative and practical complexities of agreeing on savings calculations, and the potential of disputes regarding payments due.
  3. Unpredictable, and potentially unproductive, behaviours from client employees if the existence of the shared savings arrangement becomes known.

When a client asks us whether we would entertain doing sourcing advisory work on a success basis, we take the opportunity to have a full disclosure conversation on the subject. For example, at a minimum, Greybeard presents the detailed pros and cons, including estimated total costs for the project scope, for three options: professional time and expenses, success fee, and a hybrid of the other two. That information is the catalyst for a meaningful conversation. And, it enables the client firm to make an informed decision that is in its best interests, not the consulting firm’s best interests.

Thanks, Bob!

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Looking Behind the Knowledge Network Curtains

Today’s guest post is from John Shaw, the Director of Education Services for Supply Management at BravoSolution.

In a recent post, the doctor asked, “Where is the Knowledge Network?” and “What is an aspiring supply management professional to do?”

Our industry is offering a growing list of online resources and supply management organizations. We can use these resources to augment the knowledge we gain through our professional activities and personal networks. As the doctor stated, each of these resources takes time and effort to build, so naturally, the goals and objectives of these networks are aligned with those individuals who invest in building each network in the first place.

Our challenge as supply management professionals is to navigate this forest of information in a way that maximizes our personal development. To do so, we need to understand where our personal objectives align with those of a knowledge network. The better we understand how each network’s objectives align with our own, the more value we will receive out of the limited time we have to invest in them.

So as both a consumer of these networks and a developer of some (see discloser below) I’d like to offer some questions for you to ask when trying to determine if participating in a particular knowledge network would be valuable to you:

  • Does the intent of the network align with the needs of the membership?
    The Network Guidelines should clearly state the audience, and the types of information exchange the network facilitates. If they are not stated, or they do not align with what your current development needs, your time may be better invested elsewhere.
  • Who are the thunder lizards?
    Look to see who the most active participants are. The most active people in a community will steer its direction. If these people are your peers, or better, if they are in roles that you aspire to, look further into participating.
  • Who is in charge?
    Successful communities are driven by the membership. If enough thunder lizards march in the same direction a community will move and take a life of its own. The builder can find him/herself in the passenger seat. In the best scenario, you’ll find that the thunder lizards are your peers, and they are in charge!

So what are we to do? Unfortunately there isn’t a simple answer. Whether we are learning about supply management, following politics or trying to get the best advice online for fixing a leaking pipe, we need to look behind the curtains to understand our information sources

Thanks, John!

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Analytics VI: Conclusion

Today’s post is by Eric Strovink of BIQ.

I’ve suggested previously in this series that analysis doesn’t have to be done by an applied mathematician; the key is to get insights about data. Sometimes those insights do require rigorous statistical analysis or modeling, to be sure. Much more often, though, one simply needs to examine the laundry, and the dirty socks stand out without any mathematical legerdemain.

Examining the laundry requires data manipulation. This usually takes the form of data warehousing, i.e. classic database management technology, extended in the case of transactional data to OLAP (“Online Analytical Processing”), SQL and or MDX, and reporting languages and tools. Problem is, business data analysts typically have insufficient IT skills to wield these tools effectively; and when they do have the skill, they seldom have the time. Thus, ad hoc analysis of data remains largely aspirational.

Custom data warehouses have value for organizations. ERP systems are a good example. But the data warehouse is a dangerous partner. It is not the source of all wisdom. It cannot possibly contain all the useful data in the enterprise. Warehouse vendors have trouble admitting this. For example, for years ERP sales types claimed that all spending was already tracked and controlled by the ERP system, so there was no need for a specialized third-party “spend analysis” system. These days all the major ERP vendors offer bolt-on spend analysis.

Spend analysis has the same issue. It introduces another static data warehouse, an OLAP data warehouse, along with data mapping tools that are typically not provided to the end user. As above, the data warehouse is a dangerous partner. It is not the source of all wisdom. It cannot possibly contain all the useful spend data in the enterprise. Spend analysis is not just A/P analysis; it can’t be done with just one dataset; and it’s not a set of static reports.

Once an opportunity is identified, more analysis is required to decide how to award business optimally. The Holy Grail of sourcing optimization has been a tool that is approachable for business users; but this goal has proved to be elusive. The good news is that “guided optimization” is now available from multiple vendors at reasonable price points. Although optimists (mostly experts at optimization) have argued for several years now that optimization is easy enough for end users without guidance, I take the practical view that it doesn’t really matter whether that’s true or not. As long as optimization is available at a reasonable price, whether it has a services component or not, the savings it delivers are worthwhile.

By no means is this series an exhaustive review of data analysis. For example, interesting technical advances such as Predictive Model Markup Language (PMML) are enabling predictive analytics to be bundled into everyday business processes. Scenario analysis is also a powerful tool for painting a picture of potential futures based on changes in behavior. But the vendors of these technologies either must make them accessible to end users, or offer affordable services around them. Otherwise they will remain exotic and inaccessible.

The bottom line is that analysis tools must be accessible to end users. It must be easy and fast to build datasets and gain insight from them. Optimization software should automatically perform sensitivity analysis for you, as the doctor has advocated. Ad hoc analysis should be the rule, not the exception. Analysis should not require vendor or IT support; if it does, it likely won’t happen.

The more you look, the more savings you will find; and when you walk into the CFO’s office waving a check, you will get attention as well as the resources to find even more.

Previous: Analytics V: Spend “Analysis”

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