Category Archives: Guest Author

10+2 Readiness … Beware! It’s strategic, not tactical …

Today’s guest post is from Matt Gersper of Global Data Mining,LLC (acquired by CUSTOMS Info, acquired by Descartes).

As president of Global Data Mining, I have the opportunity to speak daily with a broad range of clients from many diverse industries, all involved in international trade.

On January 2, 2008, US Customs & Border Protection (CBP) published in the Federal Register a notice of proposed rulemaking for Importer Security Filing and Additional Carrier Requirements, commonly known as “10+2”. Since then, I’ve watched companies react to 10+2 in three distinct ways.

A very small minority of our clients have responded by funding a cross-functional team to study the issue and develop an enterprise-wide strategic solution to meet the new requirements and optimize global trade business processes while they are at it. These best-in-class companies are way ahead of the 10+2 curve.

I have noticed the remaining companies seem to fall into one of two groups. There are companies heading full speed for a cliff and completely unaware of it; and there are companies heading full speed for the same cliff, but at least they are aware of it.

The “aware” group has a chance to use this dramatic change in customs regulations as a catalyst for process improvement and to remain competitive with the best-in-class group. I fear any companies that remain unaware will suffer mightily when 10+2 goes into effect.

The reason even “aware” companies are heading towards disaster is while their leadership may be alert to the newly proposed customs regulations; they mistakenly believe it can be managed tactically by their trade compliance department when in actuality it will require an enterprise-wide strategic solution.

It is important for senior management of US importers to understand the significant impact 10+2 can bring to their companies and develop an enterprise-wide strategy to prepare for it!

Let me explain.

CBP is proposing to require your company to transmit an Importer Security Filing twenty-four hours prior to loading a U.S. bound vessel. The filing must contain 10 data elements including 3 new data elements not currently required for US bound imports. The existing 7 data elements will need to be reported a lot sooner in your supply chain than is required today. This is not a small change. It will require a considerable re-engineering of corporate processes and systems.

These are the data elements that will be required, their typical source and responsible parties:

Data Element Source Responsible Party
Manufacturer name and address Procurement/Sourcing Importer
Seller name and address (New) Procurement/Sourcing Importer
Buyer name and address Procurement/Sourcing Importer
Ship to name and address Procurement/Sourcing Importer
Container stuffing location (New) Supplier/Forwarder Supplier/Forwarder
Consolidator (stuffer) name and address (New) Supplier/Forwarder Supplier/Forwarder
Importer of record number Trade Compliance/ Import Importer
Consignee number(s) Trade Compliance/ Import Importer
Country of origin Trade Compliance/ Import Importer
Commodity HTSUS number Trade Compliance/ Import Importer / Broker

Creating an effective solution to the proposed 10+2 regulations is beyond the scope of the trade compliance department. It will require an enterprise-wide, strategic solution. Here are three examples to clarify my point.

Example One: The typical vendor master file in a corporate ERP system defines “Manufacturer” or “Supplier” as the party to which the company makes invoice payments. If a supplier has ten different factories that may fulfill an order, the proposed 10+2 regulations will require the name and address of the actual factory that fulfilled the order. This granularity of data, and the functionality to differentiate at the specific factory level, does not exist in many ERP systems today.

Example Two: One importer I recently spoke with is changing the way his company selects freight forwarders in foreign countries in order to manage the requirements of the Container stuffing location and the Consolidator (stuffer) name and address. They feel the 10+2 regulations requires a much closer relationship with fewer forwarders to assure all data elements, especially the two mentioned herein, will be accurate and complete in time to transmit the Importer Security Filing.

Example Three: Today, the assignment of the fully qualified Harmonized Tariff number (US-HTS) is frequently made after the generation of the commercial invoice and before the shipment enters a US port. The assignment of the US-HTS is often made manually by a broker. In order to achieve the requirements of 10+2, importers will need to create and maintain a Parts Master File complete with fully qualified US-HTS numbers assigned to every item. This data will need to be integrated into the software that will be used to electronically transmit the Importer Security Filing twenty-four hours prior to loading the U.S. bound vessel.

Each of these examples requires re-thinking and re-engineering current business processes. The scope of these projects extends beyond the responsibility and authority of the trade compliance department as cross-functional participation is required of the procurement, logistics and information technology departments at a minimum. Some projects will also involve third parties. Executive leadership should take notice. Lack of understanding and funding today may lead to dire consequences tomorrow.

The proposed 10+2 regulations state, “If the principal fails to comply with the proposed Importer Security Filing requirements, the principal and surety (jointly and severally) would pay liquidated damages equal to the value of the merchandise involved in the default”. If you have a $250,000 shipment that is in violation of the new regulations, you could be fined $250,000. Furthermore, the prospect of “scrambling” for data at the last minute will slow your supply chain, squander already limited resources, and erode profits from your bottom line.

However, 10+2 can be a hidden opportunity for strategic thinking companies. Optimizing currently inefficient business processes to meet the 10+2 requirements in the most direct, effective manner possible can improve supply chain performance, and potentially deliver a positive return on investment.

More effective management and visibility of additional trade data can:

  1. Improve supply chain planning
  2. Improve supply chain speed
  3. Reduce inventory requirements
  4. Improve visibility and controls of international transactions
  5. Create competitive advantage

One supply chain study has estimated the cost of each additional day ëin transit’ is equal to Ω of one percent of the value of goods. Improving supply chain speed by just one day would be worth $500,000 per year for a company importing $100 million annually.

I strongly advise executives of companies importing into the US to study the impact the newly released Importer Security Filing Proposal may bring to their companies. Best-in-class companies are funding cross-functional teams to develop a strategic enterprise-wide solution, using 10+2 as a catalyst to optimize currently inefficient processes, and creating competitive advantage in the process. Once you know the terrain, and have a good map of the road, you too can be traveling safely and efficiently down the new 10+2 highway.

Thanks, Matt!

Matt can be reached at mattgersper <at> gdmllc <dot> com

Spend Analysis Meme Busting, Part II

Today’s post is again courtesy of Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI).

9. Spend analysis is a “big iron” problem requiring large servers and databases.
Nonsense. Global 100 datasets fit easily onto ordinary laptop computers, and a modern laptop computer can deliver near-instantaneous drill-down times.

10. Static reports can deliver profound insight, replace procurement analysts and sourcing consultants, and even direct the course of entire sourcing programs.
This idea surfaces every now and then in the writings of pie-in-the-sky analysts and on blogs like Spend Matters. Most recently, it is being promulgated by spend analysis vendors who have run out of new marketing ideas. Of course, if it were really true, those reports would have existed long ago, and we’d all be out of a job.

11. Extracting data from accounting/ERP systems is difficult.
In fact, it’s easy, and usually doesn’t require IT resources to accomplish. The only difficulty I’ve ever experienced was a situation where a customer’s head of IT folded his arms and swore up-and-down that it simply wasn’t possible to dump data from their accounting system. One telephone call to the accounting system vendor (a helpful Canadian firm) provided the command necessary to extract the data trivially.

12. Accounts payable data is all you need for spend analysis.
This meme is on the decline. By now, many practitioners know that A/P spend visibility will find low-hanging fruit, and that it will identify buckets of spend that might be worth a closer look. But they also realize that in order to get to the next level of savings, it’s necessary to build commodity-specific analyses that take into account existing contract terms and invoice-level data, as well as balance-of-trade and demand-side considerations. And, this is only the tip of the iceberg when one considers the analysis possibilities buried in HR data and in ops data such as service repair records. Experienced practitioners build data analysis cubes whenever necessary, throwing them away when done, or retaining them if it is useful to do so.

13. Real data analysis requires statistics and applied mathematics.
Some consultants argue that unless rigorous statistical analysis is applied to a dataset, no meaningful conclusions can be drawn. For sourcing, though, the data visibility provided by a spend analysis system is usually more than sufficient. For example, try loading invoice data for a particular SKU over an extended time frame, and scatter-plotting the price. Is the price the same? Many times it isn’t, even if you have a contract that should have locked it down. When you find this pattern — and chances are you will — you’ve just written yourself a check, with no applied mathematics required.

14. Spend analysis systems should react in real time to real-time data.
This meme is becoming popular amongst armchair analysts and bloggers, but it’s scoffed at by practitioners. What does real time mean? When the requisition arrives? When the PO is issued? When the invoice arrives? When partial payment is made? When full payment is made? And what is anyone going to do about it, anyway, in “real time?” This ties into the notion of the “executive dashboard,” where the idea seems to be that an errant transaction will set off some sort of red alert. Even intrusion detection systems, which actually can justify a real-time component, have largely given up on this idea; the “fact” of an alert is not necessarily indicative of anything, and only in-depth after-the-fact pattern analysis can distinguish signal from noise.

15. “We already purchased an enterprise license for [xyz BI system or OLAP database], so we don’t need yet another analysis capability.”
This is the classic argument that the head of IT feeds to the CFO, which enables the CFO to kill the incipient spend analysis project, as she often does when fed such an argument (CFOs being people who really dislike spending money). Everyone feels good about saving money, and they move on to the next item on the agenda. Procurement doesn’t dare argue with IT, typically, so that’s the end of the story. Unfortunately, IT and the CFO have just doomed their company to another N years of zero spend visibility, because (a) nobody in Procurement knows how to configure either a BI system or an OLAP database, and (b) nobody in IT is going to take any time out to help them — assuming, that is, that IT themselves understand the BI system or OLAP database, which in many cases they do not.

16. “It’s important to deploy a spend analysis solution enterprise-wide, immediately.”
Here are three reasons why this can be a poor idea.

  • Procurement is a tricky business with lots of opportunities to overlook things even when work has been done competently and professionally. A spend analysis system, unfortunately, does a great job of pointing out those things. Why should Procurement hang its dirty laundry out the window for the whole company to see? Wouldn’t it be a better idea to find (and correct) obvious errors quietly and privately, before publishing a company-wide spend cube — if a company-wide cube is even necessary?
  • Company-wide initiatives create company-wide inertia, starting with IT sticking its thumbs in its belt and making trouble about how much time/money/effort it’s going to take to “set up a server” or, worse, how much time and effort it’s going to take to “evaluate the vendor’s remote hosting site for security compliance.” Wouldn’t you rather be running the spend cube immediately on your laptop, rather than waiting months for IT to get its act together? You can always deploy the cube company-wide, later, without any pressure.
  • Company-wide spend analysis initiatives create company-wide opportunities to kill the initiative. These days, spend analysis can be obtained inexpensively and set up quickly, within your discretionary budget and without asking anyone’s permission.

17. It will cost a lot to outsource cube construction, or to train internal resources on the spend analysis system.
This situation has improved substantially, and it continues to improve. New services offerings from some vendors have cut this price substantially from the levels of a few years ago; and contingency-based sourcing consulting firms will not only build your spending cube for free, but also return solid savings to your bottom line.

In summary:

9. Spend analysis can be done on a modern laptop computer.

10. A static report is not capable of providing much in the way of insight.

11. Data extraction from the vast majority of accounting / ERP systems is quite easy. (It might take some mapping to get it into cube form, but that’s why spend analysis tools come with good E”T”L tools.)

12. Accounts payable data is just the beginning. Every database is its own gold mine!

13. Data analysis starts with well mapped and relatively complete data – not advanced statistics or applied mathematics. Visibility is key.

14. The spend analysis system should be capable of accepting updated data when the data – and the analyst – is ready for new data. The answer does not lie in “real-time” or “monthly updates” because every organization, and every data set, is different.

15. BI & OLAP is not spend analysis.

16. As with any solution, initial deployment should be limited in scope to that which is controllable while the learning curve is overcome.

17. Training and consulting is a lot more affordable than you think, and if deployed on invoice data first, will return immediate ROI.

Thanks again, Eric!

Spend Analysis Meme Busting, Part I

Today’s post is courtesy of Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI). (It is also a good summary of some of the more critical assumptions that were wrong in the book I reviewed last Friday in this post.) 

The following memes are circulating through the space.  Needless to say, they are all very false!

1. Vendor classification by spend is the secret sauce.
 For direct materials, the key is said to be automatic UNSPSC classification. For indirect materials, the key is said to be D&B-style “who owns whom” plus SIC code. This ignores the fact that who owns whom is often irrelevant (Hilton hotels, for example, are all franchise-owned), and that many large vendors sell multiple, disparate products and services, so vendor mapping by itself is often ineffective.

2. Direct linkage to existing accounting systems or e-commerce trading platforms is the “holy grail”.
 The logic is that the transactions from the e-commerce platform or ERP system should feed the spend analysis system transparently and directly. The confusion here is between “business intelligence” and “spend analysis,” a distinction that is often incorrectly blurred. To do its job properly, a spend analysis system must re-cast and re-map transactions into a useful form, often in a very different manner for each individual analysis, not just report blindly on fixed input data. A direct linkage to accounting is therefore a bad idea.

3. Spend analysis means the propagation of spend data to a large audience via a data warehouse.
 This is the idea that a shared data warehouse is a “spend analysis” system, when in fact no useful analysis can be done without alteration of the schema (something that is impossible in the data warehouse model).

4. Conventional relational reporting tools are useful on spend datasets.
In fact, reporting on spend data can’t be relational, because only OLAP queries will function reasonably on large spend data sets. And, conventional reporting isn’t useful, because useful analyses always involve modeling and data outside the scope of the spend analysis system.

5. Spend analysis is only useful within the context of an e-sourcing suite.
 This is a fallacy promoted by suite vendors. Armed with good visibility into spend, any procurement department can improve performance dramatically without a multi-million dollar commitment to an e-sourcing suite. Furthermore, the actual proportion of spend actually traveling through the suite is typically less than 20% of total spend. Thus, “integration” with a minority of the spend is a step backward, not a step forward.

6. “Point” or “best of breed” solutions should be avoided; rather, they should be part of an ERP system or e-sourcing suite. This might be true if the point solution is expensive or complex to implement. It is not true if the solution is inexpensive and easy to use. This is especially true given that suite vendors promote warehouse solutions that offer little or no analytical capability. In that case, the point solution can add significant capability that is lacking.

7. Vendor familying and spend mapping is difficult and/or requires special technology and tools.
 This is a marketing myth, used by spend analysis vendors to aggrandize their own tools and/or expertise. Procurement professionals and sourcing consultants are far better at classifying spend than the “10 guys in Bangalore” behind most vendors’ claims. The familying/mapping process can be accomplished easily and quickly in most cases, even on large datasets.

8. It’s critically important to get spend mapping “right” the first time.
 Wrong. No spend map survives first contact with a procurement professional who knows his commodities well. The best strategy is to empower that procurement professional to correct errors as he finds them, quickly, easily, and with real-time results. Nothing else will satisfy him.

In summary:

1. The “secret sauce” is being able to build the cubes you need.

2. There is no “holy grail” of integration.

3. Spend Analysis and Data Warehouse technologies are two completely different things.

4. Spend Analysis and Spend Reporting are two completely different things.

5. Spend Analysis can be done on its own and does not need to be part of a sourcing suite. 

6. Best-of-Breed solutions are just fine for spend analysis.  

7. Spend Mapping is easy.  The real secret sauce is “map the GL-codes, map the vendors, map the GL-code and vendor combinations for vendors who supply more than one GL-code”.  This gets you at least 90% and can be done by an accounts payable clerk in a day in most organizations with a proper solution that supports rules-based mapping and rule (group) priorities.

8. No one gets spend mapping “right” the first time, so there should be no assumption of such.  That’s why a real spend analysis solution where you can continue to build cubes and throw them away until you’re happy is critical. 

Expanding Procurement’s Role in a Financial Services Company

Today’s guest post comes courtesy of Per Blomquist, Katie Boord, and Bob Derocher of Archstone Consulting (acquired by The Hackett Group), a consulting firm that focuses on strategy and operations consulting in supply chain, strategic sourcing, and procurement.

With today’s uncertain economy, volatile capital markets, and ever-worsening credit crisis, it is more important than ever for companies to stay focused on spend management in order to weather the storm.

While product-based businesses tend to have fairly mature procurement organizations due to the criticality of direct materials, service-based businesses often lag behind. Without a prominent and centralized role, and without the leadership of a CPO with budgetary influence, procurement groups within these companies often struggle to make inroads into functional silos where much of the enterprise spend resides. Bringing this spend under management by a disciplined procurement organization can have a dramatic impact to the bottom line.

Recent experiences with clients in the financial services industry have illustrated the existence of decentralized procurement efforts by functional areas such as marketing, e-commerce, legal, and collections. These engagements have highlighted some critical success factors for procurement organizations looking to break down barriers to spend beyond their current scope, as well as the resulting opportunities that exist.

CRITICAL SUCCESS FACTORS

  1. Executive Sponsorship
    In the absence of a CPO, procurement organizations need to have visible senior management support in order to encourage business units to partner with them.
  2. Change Management and Communication
    Recurring and consistent communication is necessary to convey the spend management goals of the company and the value that the procurement organization can provide in order to meet those goals.
  3. Spend Analytics
    All external spend data needs to be compiled, scrubbed, categorized, and verified in order to understand what products and services are being purchased from which vendors by which areas of the enterprise.
  4. Partnership Development
    Procurement “ambassadors” need to meet with senior stakeholders across the enterprise to articulate their value proposition (see three guiding principles listed below) and explore partnership opportunities.

    • Efficiency
      Providing best-in-class tools, templates, and processes that can be deployed quickly with minimum effort from the stakeholders.
    • Flexibility
      Supporting stakeholders with any part (or all) of the procurement process.
    • Stakeholder Ownership
      Assuring the stakeholders that the procurement organization will not dictate vendor decisions.
  5. Results Tracking and Reporting
    Results (e.g., savings, improved contract terms, enhanced supplier relationships) must be tracked and reported to ensure appropriate progress and to bolster enterprise support.

OPPORTUNITIES

  1. Increased Savings
    The engagement of procurement organizations in the sourcing of categories such as Search Engine Marketing, Online Banner Advertising, Corporate Jets, Debt/Credit Protection Outsource Provider, Online Banking Website Design and Development, Online Banking Middleware Solutions, Market Research – Consumer Insights, and Consulting Services (to name a few) can result in millions of dollars in incremental savings and cost avoidances. Each “win” can strengthen existing stakeholder relationships and generate new partnership opportunities through referrals.
  2. Decreased Risk
    Employing a disciplined procurement process can reduce enterprise risk through consistent NDA execution, standardized contract terms (including security and insurance requirements), and transparent communication of vendor utilization and performance metrics.
  3. Improved Governance
    The tracking and reporting of procurement results can increase executive awareness and organizational accountability to formal savings targets. Spend analytics can support joint initiatives between procurement and finance organizations, such as the restructuring and redefining of AP account codes to enable the monitoring of category spend and policy compliance.
  4. Enhanced Process Efficiencies
    Utilizing standardized processes and templates can save time and avoid duplication of efforts. Furthermore, better procurement results are achieved when best practices are followed, and lessons learned are communicated across the enterprise and leveraged for further improvements.

The authors would welcome the opportunity to discuss your experiences on this topic. They can be reached by email.

Do You Have A (Cost Reduction) Plan?

Today’s guest post is by Bernard Gunther (bgunther <at> lexingtonanalytics <dot> com) of Lexington Analytics.

Financial Services companies buy almost all “indirect” goods and services. This is exactly the type of procurement that every company does. One might imagine that Financial Services companies would be able to leverage the large amount of work done in all these other companies to become best in class. In turns out that they don’t. Purchasing Organizations at most financial institutions do not historically have the best reputation for delivering results. If you are leading the procurement organization, you need to change this general impression. The easiest way to do this is to deliver results. To deliver results, you need to have a plan.

Your plan needs to describe to people where you plan to start, what you are going to do and how everything is going to be done. The easiest way to create this plan is by reviewing your basic spend cube information. The spend cube takes all your AP spending from one or more systems (cash out the door), groups vendors together (when they appear multiple times) and assigns a commodity code to each transaction (based on a series of rules, generally based on GL code or vendor). From this, you can get reports by commodity on the top vendors, the top organizational units and the total volume of activity.

Using the spend cube data, you can develop an accurate and meaningful plan. A way to start the plan is to take each category and assign it to an action group (below). The action could be to source a category, to do a demand review, to do an Invoice Review or any other type of savings activity your team is capable of delivering. The category could be the full spend in a category or could be a sub-segment (e.g. geography / business unit). For each category, you need to tag spending as:

  • Completed.
    This category was recently done and no further work is required at this time
  • In Process.
    There is a project underway
  • Wave I.
    What you plan to start immediately
  • Wave II.
    What you plan to do after the first wave
  • Wave III.
    Other categories that you know need to get done
  • Further research.

Now that you have a “strawman” plan, you need to see if you have the resources to get this done and if key stakeholders agree with your “strawman”. Gaining stakeholder buy-in will help you understand the true situation “in the field” and will likely get you key resources to address the spending.

Having good spend data will enhance your credibility. Without good data, your first meeting with the Retail group could be “We’re from Procurement and we’d like to help. We think there might be an opportunity to save money. Can we do something for you?”

With good data, your first meeting with this key stakeholder could be “We think there is an opportunity for sourcing PCs. You’re spending $2.3 million with 2 VARS. The rest of the bank is spending $4.5 million and using an additional VAR and buying direct from a manufacturer. Looking at your pricing on your most frequently bought laptops, the Technology group is getting 7.3% better pricing. This means you’re looking at over $150,000 in annual savings. We want your help in doing the following [insert plan here – with details on who should be involved and what it means for them].”

Without a plan, the best you can hope for is another meeting. With a plan and good data, you can get a stakeholder fully bought into your idea, they can give you authorization to proceed and many times, they will give you the support and resources you ask for.

For one bank with about $750 million in spending, we created a plan for savings. This plan targeted savings of $85 million in 3 waves across 113 initiatives. For each of the 10 major department heads, we could tell them how much spending was involved in each initiative, which vendors might be impacted and which budget centers we wanted resources from. Over the next 15 months, we conducted the initiatives and generated $94 million in annual savings on 80% of the baseline. As part of the program, we involved finance to sign off on each of the results so the savings could be measured and tracked. The results were incorporated into the spend cube to support ongoing monitoring of the spending.

Is such a plan hard or expensive to create? The short answer is “no”. New tools have made this process faster and much less expensive to do. For an organization with less than $500 million in spending, a good plan (including building the initial spend cube and conducting the initial syndication) can be put together, with a focused effort, from scratch, in 6 to 8 weeks. And some organizations that have done much of the preliminary work can get it done faster.

A good plan, with good execution can lead to significant results. In the world of procurement, the data you need is there for the taking. All you need to do is to use it.

Thanks Bernard!