Category Archives: Guest Author

e-Leaders Speak: Garry Mansell of Trade Extensions on “Strategic Procurement through Optimisation”

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Today’s guest post is from Garry Mansell and Chetan Raniga of Trade Extensions.

Lord Leverhulme, the British industrialist, famously said: “Half the money I spend on advertising is wasted – the problem is I do not know which half.”

He could have quite easily have been talking as a buyer today. Maybe not as much as half of all budgets are wasted, but the sentiment is the same and it is clear to those who work in procurement that there are opportunities to be had if you only knew where to look.

The challenge of knowing where to look will only increase as supply chains become more complicated and buyers have to consider the influence of numerous external factors – be it globalisation, fluctuating fuel prices or the economic downturn in general.

What makes it even more complicated is that most buyers are not attempting to simply minimise cost – but also to implement wider strategies. The strategies will obviously vary by company and sector, but could include developing suppliers in new markets; reducing their carbon footprint to meet environmental obligations; or managing dependency on certain suppliers.

The number of factors buyers have to consider often makes it very difficult for them to be sure that they have chosen the best solution from their available options. As a result, there is the real possibility that opportunities are missed. To minimise this risk, it is vital that sourcing professionals use the latest techniques and analytical tools which insure that these opportunities become apparent very quickly.

With traditional processes, strategic procurement is not easy. Furthermore, even if buyers try to collect strategic data other than cost, they often end up having to optimise on cost alone because of the limitations of analytical tools.

The software tools that have been developed by modern providers of decision optimization software, like Trade Extensions, can interrogate any factor in the final analysis. As a result, buyers are not limited in the types of information that they can request from suppliers and make use of. It is this freedom that identifies solutions that will be missed by more basic methods of analysis.

OPTIMISED PROCUREMENT

The procurement process always involves a number of important steps: specifying requirements, inviting suppliers, collecting bids, providing feedback to bidders, final negotiations, and the ultimate decision.

It is vital that companies complete these steps, but getting a great result from a sourcing event is determined by the analysis of data collected. This is a key strength of decision optimization software, including the software we provide at Trade Extensions. When buyers use decision optimization software, all of the offers collected can be optimised to take into account numerous factors in addition to cost. This means that strategic objectives can be met whilst keeping cost to a minimum.

ANALYSE THIS – WHY CHOOSING SUPPLIERS CAN BE COMPLICATED

Figure 1 is a very simple example that illustrates how even basic procurement projects can become quite complicated. Attempting to solve this will provide some insight into the strengths of decision optimization platforms like those offered by Trade Extensions’. (The answer is at the end of the post.)

A Simple Optimization problem
Fig. 1 – What is the lowest cost solution?

In this example, each supplier is allowed to bid for all contracts although no supplier is large enough to handle more than three. In addition, suppliers have the opportunity to offer a discount if they are awarded more than one contract – an opportunity taken up by the second and third suppliers.

Although it can be done manually, finding the cheapest combination of suppliers takes a bit of effort. (Editor’s Note: For an example of how it might be worked out, refer to the transcript of the joint optimization podcast [part I and part II] between Sourcing Innovation and Next Level Purchasing. Note the significant amount of work involved for even a simple problem.)

Now, try to imagine a procurement project with 2000 items and 1500 suppliers making numerous offers, packaging bids, and offering different discounts where cost is not the only decision criterion. In this scenario, there are potentially millions of combinations to consider. This is impossible to do manually, but modern decision optimisation software can often identify solutions to problems of this magnitude in a matter of seconds.

Optimisation ultimately involves buyers asking interesting questions to test the implications of choosing different combinations of suppliers. The list of potential questions is limitless. One minute a buyer could be considering the result based on price, company size and payment terms and seconds later they could see what the result would be based on price, environmental rating and supplier capacity.

This type of rapid optimisation capability implies that many different possible scenarios can be considered in a very short amount of time. This also implies that the software is flexible enough to allow buyers to run scenarios and optimise against revised offers while they are negotiating with suppliers in the final stages of a tender. For example, a buyer can quickly advise a supplier how much they would need to reduce their prices (or perhaps reduce their lead-time, for example) in order to win a certain amount of business.

This is the type of data analysis that allows buyers to solve their own challenges while providing them with a reassurance that they have chosen the optimal solution based on the given constraints and supplier proposals. This approach puts buyers firmly in control by allowing them to manage the millions of individual pieces of data they collect. This allows them to achieve their strategic objectives through optimisation. And that’s why we believe that decision optimisation is the key for those buyers who want to emerge from the recession victorious.

Answer to the Optimization Puzzle (Fig. 1)
The lowest cost solution is 493.2 with the following combination of suppliers:
Supplier B: Contracts 1 and 5
Supplier C: Contracts 2, 3 and 4

Thanks to Garry and Chetan.

e-Leaders Speak: George Gordon of Enporion on “Are You Prepared to Grow”

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Today’s guest post is from George Gordon of Enporion.

As CEO of Enporion, a B2B e-commerce technology company, it has always been my role to push technology farther into business processes and apply it to doing business better. Most businesses have been using information technology to improve efficiency for decades. For the most part, “front end of the business” activities have been the first to benefit from information technology (IT) efficiency improvements.” Front end” applications are for those activities that are customer-facing and can be associated, for example, with receiving an order and delivering goods and services to the customer. The “back office” applications typically manage running the business, and have generally been late to attract the focus of management’s attention. The primary reason was that they were not perceived as having significant influence on driving increased revenue or lower cost. On a relative basis this may be true. However, in an ever increasing globally competitive high-technology world, the diligent manager must leave no stone unturned in looking for ways to improve business process.

Many of the IT systems used by businesses today came about through the automation of manual business processes, often on a departmental basis, creating silos of software for processes within the enterprise. Additionally, many businesses grew through acquisition resulting in a multi-enterprise collection of disparate software systems. My mission is to make information technology work for you, the business manager, without you having to throw out all of your legacy systems. Whether you are managing the buying, production, or finances, every business process you manage can benefit from improvements in IT. Trying to figure out what technology can provide the best improvement now and into the future can be a daunting challenge. How do you harness what is available today and plan to build on it in the future while keeping costs down?

Waves of information technology innovation shaped the foundation of business software today. Managers today must figure out how to work within their current IT boundaries such as investments in Enterprise Resource Planning (ERP) software applications, legacy systems, middleware and the Internet. The most recent software technology wave is in the provision of software applications offered as a service (SaaS); SaaS uses the Internet to connect businesses and systems to each other. To capitalize on past investments in technology, it is important to find solutions that will extend performance, scale for growth, and enable secure interaction over the Internet. It is important to keep your technology growing, and right now that is best achieved by using distributed computing, the Internet, and SaaS. SaaS is the most flexible and cost effective software available.

The current economic recession is destined to end. Now is the time to prepare for the inevitable boost in production and business consumption that will come with economic recovery. I have experienced six recessions in my career. The current recession is by far the worst of all and has had global impact. One important thing I have learned from these recessions is that the businesses who prepare for growth during the downturn are the ones who profit the most in the recovery. You can accomplish this by choosing technology solutions that provide the most capability, capacity, and, most of all, flexibility.

Far too often managers learn that a requested or essential software feature is not in a vendor’s product roadmap. By delivering software as a service, a company can successfully operate just one instance of production software for all of its customers. That’s why Enporion has adopted the SaaS model. When a customer requests a special feature, we not only have the capability to provide it indigenously, but we can effectively provide custom applications for every customer on one operating platform without any interruption of service or change for our other customers in our B2B e-commerce marketplace.

The analyst groups all agree that increasing efficiency in B2B transactions often significantly improves enterprise profitability. Procurement processes are critical business functions that are a great opportunity for operational improvement. Identifying inefficiencies in spend, driving costs out of sourcing and procurement processes, and establishing processes to better manage ongoing spend can all be accomplished with SaaS tools. Procurement processes can be enhanced by:

  • Providing better visibility into spending;
  • Aggregating spend;
  • Optimizing the number of vendors in B2B transacting;
  • Making manual processes more automated; and
  • Allowing automation through decision support technology.

These results can be delivered through a fully integrated suite of e-procurement software tools. The solution should include electronic sourcing, procurement, contract management and invoicing tools. A SaaS solution can easily integrate with any existing ERP or legacy application. It can also integrate with applications for smaller companies by providing a web-based user interfaces that requires only an Internet connection and PC. Also important to success in implementing e-sourcing and e-procurement are the substantially experienced people to provide professional services of change management, spend analytics, supplier onboarding, and project management. To make the best choice, find a company that can provide all of that to your business so you can prepare for growth and economic recovery.

Thanks, George.

e-Leaders Speak: Gary Hare of Vinimaya on “B2B e-Commerce: Are We Starting To Get It Right?”

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Today’s guest post is from Gary Hare of Vinimaya.

Being successful at B2B e-Commerce is hard for both buyers and suppliers! Unfortunately, despite the hype, there are more stories of failure than success out there. Why haven’t we made more progress? Who’s to blame? These are valid questions, but there is one question that, if we can answer it, might hold the key to success.

Why has Consumer e-Commerce adoption blown past B2B e-Commerce?

Speaking as someone who has been in B2B e-Commerce since the days EDI was considered a “killer app“, and acknowledging that are some “complexities” in B2B that don’t exist in the consumer world, I am going to try to answer this question by noting three things that consumer e-Commerce does better than B2B e-Commerce:

  1. Usability – How many clicks and screens does it take to search for an item and place an order in SAP SRM? I don’t know exactly, but I do know it’s a lot more than ordering from Amazon! For years, B2B was all about how much functionality can we jam into a screen … the problem being you use 10% of the functionality 90% of the time. Consumer sites rightly focus on that 10%.
  2. Content – In the consumer world, all the content is available right on the web. You don’t have to join a supplier network or get a catalog file loaded to place an order. Although many B2B suppliers have invested heavily in their web sites, the majority have not, at least when you take into account the total number of suppliers. There are many reasons for this, some valid (e-Procurement system integration issues), some not so valid (don’t see the ROI).
  3. Technology – Ever hear the terms mash-up, widgets, AJAX, intelligent agents, REST, meta-search, RSS and JSON in the context of B2B technology? You probably hear terms like database, SQL, JDBC and HTML more often. The previously mentioned terms (e.g. mash-up, widgets, etc.) are all commonly used Web 2.0 technologies and protocols that make up the consumer e-Commerce “stack”. Note that they don’t replace the B2B technologies (e.g. database, SQL, etc.), but enhance their capabilities by providing an abstraction layer on top of them to make them more “web sensitive”, which makes it easier to do things like federated search and secure content syndication, without dedicated connections, using only the Web “as is”.

So, at the end of the day, consumer e-Commerce has simplified the online buying process by combining great usability with robust, easily available content; easily accessed via “web sensitive” technologies.

Now here’s the good news. B2B now gets it! You’ve been hearing for years about B2B providers who are “consumerizing” the B2B user experience (e.g. #1). Every day, more and more suppliers make their content available on the Web, and there are now providers out there who can build and even host B2B websites for as little as $5,000 a year (e.g. #2).

And what is enabling these changes is the technology (#3). As more and more B2B providers innovate and adapt consumer e-Commerce technologies to their B2B problems, B2B e-Commerce adoption will ultimately take off just like consumer e-Commerce did in the early 2000’s! To ensure this happens, it is important for users to engage these innovative providers, versus signing up for the same old solution from the same old provider (a wise man once said, “the definition of insanity is doing the same thing over and over and expecting different results“).

I guess the question now becomes, which of these innovative providers is going to be the eBay / Amazon / Google / etc. of the B2B world?

Thanks, Gary!

e-Leaders Speak: David Bush of Iasta on “Strategy for Success in e-Sourcing: Sourcing Execution”

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Today’s guest post is from David Bush of Iasta.

As any one who has been around e-Sourcing technology for any amount of time knows, the greatest sourcing and procurement successes are directly tied to properly managing adoption and continued usage by both the sourcing and stakeholder communities. The best software in the world is only marginally effective if only a tiny fraction of spend is under management and being executed through a strategic sourcing process. To be truly successful, companies must bring more spend under management.

In this Sourcing Innovation series which highlights strategies companies can utilize as the global recession slowly releases its grip, I will focus on a critical strategy that consistently drives success. It is not a theoretical concept that requires the use of the latest-and-greatest functionality, but one that works in the real world with tools most companies already have in place.

The critical strategy I refer to is Sourcing Execution, the tactical operation of strategic sourcing performed by a third party for a procurement organization. Most people are familiar with procurement outsourcing from years of experience with very large entities such as IBM or Indian BPO providers handling the P2P process in a remote call center. What a number of organizations are beginning to learn, however, is the same tactic can be done within the sourcing department. Automating transactional driven functions within the sourcing process increases the efficiency and impact of sourcing teams which will, in turn, increase spend under management and savings.

AMR Research has covered this topic very well, specifically in their latest research on “The 2009 Supply Management BPO Landscape: Short-Term Body-Shopping Trumps Business Transformation”. They have built a nice example of this process contained within the Spend Analysis model summarized below.

Offshore Operating Model
As clearly outlined in the example, there are very distinct areas labor can be divided. The outsourcing of tactical data management can increase the effectiveness of the local resources. Another compelling strategy for Sourcing Execution is to identify and outsource the “block and tackling” of the competitive bidding process. Companies can use different methods to achieve this goal:

  1. Tactical Execution:
    Support from the partner is generally remote and process oriented. Internal stakeholders prepare the bid data and deliver it to the partner to be executed in a pre-determined way as designed by the procedure team/steering committee. For example, taking the RFP elements and building the online sourcing project and inviting suppliers to participate. The third party makes no sourcing decisions, but the time line is dramatically compressed, thus allowing the organization to focus on the more strategic objectives of the category.
  2. SME Assisted:
    The next level of “on-demand” support makes Subject Matter Experts (SMEs) available on a short term basis, to offer strategic input during the most critical phases of the sourcing process. These SMEs might be experts in supply markets, risk/financial analysis, e-Sourcing or specific category expertise that is valuable. For example, developing a complete RFI/survey or relevant lotting strategy.
  3. Category Implementation and Compliance:
    A sourcing project is only as good as the implementation rate. If a company identifies 20% savings for a category and implements 5%, the actual delivered savings is zero. Category compliance services provide tactical support for tracking and following the implementation of awards by managing reports that highlight compliance areas that need attention. The service can also distribute repetitive information to suppliers and stakeholders as it relates to new contracts.
  4. Category Management:
    Full blown sourcing advisory services at a category level where a qualified sourcing professional manages the most of the sourcing lifecycle — from spend data collection through award analysis and negotiation. This is the traditional X-step process, depending on which management consulting firm got their first. The SME is an extension of the procurement team for 8-14 weeks on average. This period can be extended if implementation and compliance are required.

A shared service approach to outsourced strategic sourcing delivers numerous benefits. A normal sourcing lifecycle can be reduced to 2-6 weeks from a standard 2-6 months. This allows internal category managers to focus on strategic initiatives, supplier development and core Tier-1 sourcing opportunities. Allowing indirect and “C” Level items to run through collaborative management, increases the amount of spend under management and reduces costs dramatically without adding head count.

Two resources on this topic that are worth exploring in more detail are the previously mentioned AMR Research (specifically Phil Fersht and Mickey North Rizza) and TPI. Bill Huber at TPI is very wise in these topics as he has implemented and researched outsourcing for years.

Simply outsourcing for the labor arbitrage is a short term plan which will not have sustained results. Simultaneously leveraging a technology, process and people strategy enables you to realize sustainable objectives.

 

Thanks, David!

Sourcing Innovation Brings You The Best From the Best

Starting next week, Sourcing Innovation will be running a special series on “Sourcing Tomorrow: The e-Leaders Speak” that will feature pieces from the visionaries behind many of the top e-Sourcing and e-Procurement vendors. So far, a dozen leaders of a dozen leading e-Sourcing and e-Procurement vendors have agreed to put their thoughts to paper on what technologies and strategies you can use to climb out of the recession and ride the leading edge of the wave to recovery. Up first will be Iasta (David Bush), Vinimaya (Gary Hare), Enporion (George Gordon), Trade Extensions (Garry Mansell and Chetan Raniga), and SafeSourcing (Ron Southard). Aravo (Kevin Cornish), Coupa (Dave Stephens and Jason Hekl), and Ketera (Chris Newton), and possibly a few others, have also agreed to participate.

But Sourcing Innovation isn’t going to stop there! After that, Sourcing Innovation will be bringing you “Sourcing Tomorrow: The Service Leaders Speak” where the likes of Jim Wetekamp (of Bravo Solution), Bart Richards (of The Claro Group), Bob Rudzki (of Greybeard Advisors), Mark Usher (of Treya Partners), and William Dorn (of Source One Management Services), among others, will be bringing you their thoughts on how service and solution providers can help you climb out of the recession and ride the wave to profitability faster than your competition.

And Sourcing Innovation isn’t going to stop there either! When the second series is complete, Sourcing Innovation is going to invite selected bloggers to respond to the first two series and the changing markets with their thoughts.

But that’s not all! Sourcing Innovation also plans to run a couple of very special series this fall. First up will be an 8+ part series on Overcoming Cultural Differences in International Trade, partially based on the work of our resident expert on international trade, Dick Locke. This series, which will be edited by none other than Dick Locke himself, will address some key issues in International Purchasing and how they materialize in your global sourcing endeavours.

As promised in Supercalifragilisticexpialidocious, Sourcing Innovation will also run a multi-part series that dives into the recent CAPS Research focus study on “the role of optimization in strategic sourcing”. Taking it piece by piece, I will address the points that need to be highlighted, the points that need to be addressed (but weren’t), and the points that were a bit misleading and make sure that, once you have digested the report and this special series, you have the best understanding of today’s strategic sourcing decision optimization technology that you can have.

I’ll also be reviewing some of the new releases by those vendors that decided to keep their heads above the sands and innovate through the downturn (and maybe I’ll even coerce the Sourcing Maniacs out of hiding).

And that’s just the beginning. Stay tuned!