Category Archives: Guest Author

e-Leaders Speak: Kevin Cornish of Aravo on how “Managing Supplier Risk Helps You Thwart Zombies, Mavericks, and Other Threats in the Supply Chain”

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Today’s post is from Kevin Cornish of Aravo.

Once the economy begins to rebound, some companies may start to scale back their risk management efforts.

Don’t be one of them.

If we’ve learned anything from this recession it’s that in today’s volatile global economy, businesses need to pay more attention to risk, not less. And, while there have been signs that the world economy is beginning to heal (Bloomberg), Federal Reserve Chairman Ben S. Bernanke and others have cautioned that the recovery is likely to be both muted and prolonged.

In other words, now is not the time to ease up on scrutiny of the financial scorecards of your critical suppliers. Why? Because we’re not out of the woods yet, and because you don’t want to unexpectedly find yourself relying on a “zombie” supplier, a business that is so undercapitalized and overleveraged that it’s essentially dead. A zombie supplier won’t be able to raise the money required to get itself back online — and that means it won’t be able to deliver the parts you need to your door.

Of course, fine-tuning your supplier risk management strategies can have other benefits, as well. For instance, as we’re digging out from the worst recession since Word War II, it will continue to be critically important to keep an eye on costs, and getting your supplier house in order can go a long way to reducing another sourcing threat that’s too often ignored: maverick spend.

Maverick spending may be costing you more than you think — not only in terms of per unit price, but with regard to leverage lost in future negotiations, as well. What’s more, it’s probably happening more frequently than you realize. In one study, over half of the employees surveyed (57%) considered it acceptable to make off-contract arrangements if they can get a better deal.

Earlier this year, a procurement trends report co-sponsored by OfficeMax and Purchasing magazine revealed some intriguing statistics regarding office spend. Take a look:

Percent of office spend under management by procurement
0-20%   :   9%
31-60%   : 21%
61-90%   : 36%
91%+: 34%
Average contract compliance rates
0-20%   : 16%
31-60%   : 12%
61-90%   : 41%
91%+: 31%

That data tells me that most businesses have plenty of room for improvement when it comes to optimizing purchasing power, improving compliance, and achieving total cost management — all of which stems from knowing, and managing, supplier information with diligence, transparency, and risk awareness.

A year ago, businesses were pre-occupied with supply risk. Then, concern shifted to supplier solvency risk. Now we’re back to keeping one eye on commodity prices, even while we’re on the lookout for zombies, mavericks, and a variety of other supply chain threats (compliance, environmental regulations, sustainability concerns, etc.). Without a doubt, the lens of risk is constantly changing. However, successful companies don’t just throw out the eyepiece when it no longer works. Instead, they repeatedly readjust their focus so that they can better respond to both the threats and the opportunities in today’s business environment.

Thanks, Kevin!

Characteristics of World-Class Supply Management Organizations

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Bob Rudzki, President of Greybeard Advisors, author of Beat the Odds, and blog master of “Transformation Leadership” recently penned a piece for Chief Executive on “Supply Management”. It is, of course, a great piece that summarizes how world-class organizations are different and how their leaders adopt aggressive objectives and focus on key categories that will make a profound difference in the short and the long term. Specifically, world-class leaders in supply management

  • set revenue enhancement goals and work with suppliers to achieve them,
  • pursue achievable year-over-year cost reductions,
  • develop expertise in commodity risk management,
  • focus on optimizing working capital,
  • institute “asset recovery” programs, and
  • optimize capital project costs.

This is because the total impact from a comprehensive supply management transformation involving all of these core initiatives can be enormous. An manufacturing company with an 8% (or less) ROIC can transform itself into a 20% performer. That’s huge.

For more information on how your company can achieve these improvements, check out “the hidden lever”, his tips to “avoid corporate death”, and the many greybeard resources.

e-Leaders Speak: Jason Hekl of Coupa on “The Future of Sourcing is Crowd-Sourcing”

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Today’s guest post is from Jason Hekl of Coupa.

Coupa has a unique point of view on expressive bidding, sourcing for best value, hiring and retaining deep category expertise, and multi-variate supplier bidding. It’s just not necessary for most of us.

The future of competitive sourcing won’t be centered on how to buy steel from China; it will be centered on how to buy the everyday goods and services we need to operate and thrive in a knowledge economy dominated by services business – items like IT equipment, office supplies, travel, temp labor and marketing consultants. And success there won’t be determined by supply chain experts with 20 years of category expertise. It will be up to you and me.

The future of sourcing is in CROWDS.

As information proliferates over the web, and more and more markets become increasingly transparent, pricing has become more scientific. Think airline seats. Don’t like the price of your aisle seat? Just wait ten minutes and check again, the price may very well be different this time around.

It’s naive to think a few individuals in the procurement department can single-handedly negotiate contracts that will always ensure the business gets the best price. With a few exceptions, business, and information, moves too fast for that to be realistic. The better strategy is to rely on the wisdom of the crowd to source the best deals and drive savings for the business.

Employees have always looked upon the purchasing department and preferred supplier agreements with suspicion. They know, especially now, that they can beat contract prices very easily doing a basic amount of research online. Let’s face it – the information is out there. And there’s no way to stop it. Spend management initiatives built around a ‘need to know’ mindset that controls the flow of information are doomed to fail. There’s just no way hold back that wave. So don’t.

Ride the wave instead! Don’t limit your people by restricting information flow or artificially controlling the options available to them. Empower your people to use what they know to save the company money. Think of the psychological impact and benefit of a grassroots effort inside the company – every employee has an opportunity to save the company money with every requisition they submit. Even if it’s just pennies at a time, it still adds up.

I’m talking about expanding the responsibility for finding the best deals and saving the company money beyond the procurement department. Afford every employee an opportunity to identify and capture greater savings for the business by making it easy for them to do exactly as they do with their own money – scour the web for deals. Don’t handcuff them to a handful of suppliers with negotiated discounts. Empower them to find deals anywhere on the web, and then pull them into the a purchasing platform that controls and automates the approval and ordering processes. We all buy stuff. Who doesn’t get excited by finding a great deal? Why not put that dynamic to use for the business’s benefit? Let your employees use their expertise, and the web, to find the best deals on the items they need to do their jobs.

A procurement organization, even with decades of collective experience, can’t possibly be expert in every category of spend, and quite frankly, even if it were, how much incentive is in place for the procurement manager to go out of his or her way to find the best price on every ad-hoc purchase? No, let the procurement organization focus on the big initiatives, and empower your employees to get what they need, quickly and easily (it’s got to be easier than the ‘expense it and forget it alternative’ that removes all control and visibility from the purchasing process). Trust the system you put in place to control the purchasing process and ensure the appropriate approvals, but otherwise let the crowd have at it. Don’t be afraid!

For manufacturers, who represent a smaller and smaller percentage of US GDP and the US economy, advanced sourcing techniques and tools are undeniably relevant and can produce competitive advantage.

But for everyone else, the crowds are coming. And they are empowered to save.

e-Leaders Speak: Chris Newton of Ketera on “e-Sourcing: Access for all”

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Today’s guest post is from Chris Newton of Ketera.

At Ketera, we think of sourcing as the activity of getting suppliers together, letting them know what you need, and then having them provide you with the best possible solution (product or service or a combination of both) at a price that is competitive in the market. Everybody does this, right?

Sometimes, yes. But sourcing as an organized activity, built around applications and formal processes, has been typically limited to relatively few large companies. There are many other organizations out there (mid-market and large) that have yet to benefit from such solutions. In conversations with customers and prospects, we hear time and again of the same two blocking concerns. This first often boils down to inertia and fear of the unknown, while the second usually comes back to the cost to get started. Most companies find it easy to continue with their manual (primarily email centric) process of collating supplier responses and bids before arriving at supplier contracts, and many have been scared off by historically prohibitive costs to acquire new technology systems. We believe that more and more companies will start using sourcing solutions to manage their purchases more efficiently as sourcing solutions become broadly accessible – in terms of both initial investment and ease of use.

Why do we believe this will happen? We look at Google AdWords – when it started out, very few people knew how to use it. So, few companies invested in it, and even fewer did well. It seemed too technical and too complex to understand the demand for search words, then apply pricing and figure out what was working and what was not. And it looked expensive as an entirely new marketing budget line item with questionable benefits. When the results achieved by best practice early adopters became widely known, however, and new sources of information on search words, pricing, geographical information became broadly available, the use of Google AdWords exploded. Today, it’s becoming hard to find a company that doesn’t participate. By making such relevant information available, Google has taken the mystique out of the technology and made it friendlier and less scary for marketing folks to try these technologies.

We believe sourcing will follow a similar path of adoption once sourcing applications are viewed as having less to do with technology and more to do with helping a sourcing manager do their job efficiently and effectively. We think this will be driven by solutions which are available like any other instant online purchase – immediately, easy to use without any fear of complex technology or requiring intensive training. They will be fully integrated with a complete suite of spend management applications and based on a strong member community of buyers and suppliers. They will be truly affordable to companies of any size. And they will allow a continuum of behaviour, ranging from simple “strategic shopping” actions, through structured “RFx” interactions, to advanced “Auctions” and optimizations.

So why do so many folks think sourcing is complex and solutions are expensive? Because the enterprise software industry has trained them to think that. To successfully sign big contracts for software licenses and consulting services with large enterprises, it’s critical to provide examples and demonstrations that make sourcing appear very complex to justify the expense. Some companies have done this so well, that it’s easy to overlook the fact that only a small percentage of actual sourcing activities occur in such situations. Greater benefits are available to those that apply sourcing solutions and best practice processes more often, rather than in only the most sophisticated scenarios. This requires pushing these capabilities further out into the organization, which in turn drives the need for affordability and ease of use.

Real usability means no training required. Should you need training to do things online that you already do manually? Did you get trained on Amazon before you bought a book? Once unnecessary layers of complexity have been removed (and useful complexities have been set aside for power users), the objective of widespread usage becomes realistic. Step-by-step “wizards” that walk new or infrequent users through familiar processes can be just as effective an on-the-job trainer. (An example sourcing wizard.) New buttons in procurement applications that generate sourcing events in a single click mean that buyers no longer feel they must be locked into published prices or offerings. Use of familiar terminology and abundant online tips makes the browser interface comfortable. So comfortable, in fact, that we believe that many new companies trying out these solutions to run a few test events will find them so easy to use that organizational adoption goes viral. Usage mandates aren’t required when technology really make someone’s job easier and makes them look good at the same time. (With this adoption path, vendors will be well served to offer free trials of their solutions – a welcome alternative to countless sales presentations and follow-up phone calls for folks on both sides of the transaction.)

The previously cited hurdle around inertia and fear of the unknown also crops up beyond new software user interfaces in the realm of supplier management. Old supplier relationships are easy to rely on, but companies are often best served by extending sourcing events to enable a wider range of responses. Not just to extract a lower price, but also to collect more information about the products and services that you are buying. Researching new suppliers to participate need not be a challenge. We believe in creating a ready community of buyers and suppliers that build operational history, ratings, certifications and relationships over time. This large and growing (daily) network of actively transacting suppliers who work with many other buyers then quickly becomes a valuable resource. The community then becomes the foundation for ongoing business transactions and the integrated technology that supports them within established best practice processes.

We are now seeing many of our beliefs begin to prove out in the market as this example shows: A multi-channel home shopping leader conducted a free Google search for sourcing solutions, found the Ketera site, evaluated and then signed up (themselves … self serve … using a credit card) for our on demand sourcing application. They were able to search our network of 140,000 suppliers and within a few weeks had conducted a reverse auction event for freight services that will save them over one million dollars in the next year or two. All for $500 in annual subscription fees. We think this is just the beginning of the direction this market is headed.

Thanks, Chris.

e-Leaders Speak: Ron Southard of SafeSourcing on “Creatively Educating our Sourcing Professionals Today for the Challenges of Tomorrow”

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Today’s guest post is from Ron Southard of SafeSourcing.

While economic conditions and cost containment continue to drive top of mind thinking, there are a variety of cost effective educational alternatives available to procurement professionals that don’t require travel, fees or time away from the office that leaders should consider.

I was asked to use the subject of “Sourcing Tomorrow: The Leaders Speak”.While there are any number of subjects this author could cover, what I believe should be top of mind for senior sourcing leaders as the new year approaches at warp speed is the continuing education of our sourcing professionals.

This can be accomplished without attending expensive seminars, solution provider gatherings or even trade shows. All that’s required is a little creativity and everyone on the team can attend.

Today’s World Wide Web, empowered by the Internet, provides a unique opportunity to those seeking education on any subject that one can imagine. As a source of information, the internet actually provides for close to three degrees of separation from just about any subject one chooses to study. Even the human web, which is commonly referred to as having six degrees of separation – which means that everyone is at most six steps away from any other person on earth, is not as closely connected as today’s data.

The nice part about the use of the web is that it really is open source intelligence gathering at its best. It is simply the gathering of information from publicly available sources and analyzing it to produce something actionable like a seminar. If you can Google, Ask, or Bing, information is available for your use. The only concern one may have is the quality of the information you are searching. This means you can not trust everything you read. I would not go so far as saying that trusted information networks are required, but you should check out your sources.

Sources of information available to sourcing professionals for information gathering could be blogs, wikis, social networks, professional networks like LinkedIn, provider websites, glossaries and a variety of search engines. So, how should we use these tools to develop high quality educational programs internally?

First and foremost, there has to be commitment from the leadership of the supply chain or sourcing organization. With this commitment in place, you might consider something like the following.

  1. Bring your sourcing / supply chain management team together.
  2. Notify key managers that each will be required to deliver a sourcing subject seminar throughout the year. The sessions will last 2 hours followed by lunch.
  3. All sourcing / supply chain associates will be invited to attend each seminar.
  4. Conduct a whiteboard session to select subjects for each seminar.
  5. Assign seminar subjects to someone that does not have that area of responsibility in order to facilitate management learning.
  6. Insure subject matter selected supports cross functional learning.
  7. Ask your solutions providers to support your user education by sponsoring lunch or breaks.
  8. Be creative in the delivery process. Anything goes. Think props and handouts.
  9. Make the session interactive.
  10. Provide a survey before lunch.

Let’s take a look at the subject of “Supply Chain Stress Points” as an example of a subject that might be selected for a seminar. Now, let’s look at how we might begin to research this subject.

I always like to begin with Google. If we Google “Supply Chain Stress Points”, Google returns approximately 507,000 hits. I’m sure we could begin to build something from here. If I select the 2nd hit, which was “Stress on the Supply Chain: Where is the Weakest Link?” when I searched, I find that the article contains a number of terms that may require further research, such as “Supplier Support Program”. This subject can then be researched using any number of on-line tools, including Wikipedia. It does not take too much effort to build a pretty decent two hour presentation for your seminar. Finally, always remember to credit your sources. They just provided you with an inexpensive education.

Some, but certainly not all, of the benefits of these types of internal seminars or programs are as follows.

  1. Builds a sense of team
  2. Provides cross functional education for the presenter
  3. Provides cross functional education for the entire sourcing / supply chain team
  4. Supports the development of a learning organization
  5. Reduces travel expenses
  6. Allows everyone to attend

In order to be prepared for the challenges that tomorrow’s sourcing will provide, leaders must consider creative ways of educating our procurement professionals today.

Thanks, Ron.