Category Archives: Guest Author

Promoting Sustainability Throughout Your Ecosystem

Today I’m welcoming Jason Rushin of Nextance [acquired by Versata Enterprises] who is focussing on the importance of sustainability throughout the ecosystem.

What is sustainability? As the doctor mentioned in the kickoff post for this series, there are many definitions. But, I like the UN’s view that it is the intersection of social, environmental, and economic concerns. To truly sustain your business, your surroundings, and yourself, you have to take all three of these aspects into consideration.

If moving to more energy-efficiency requires you to cut costs in other areas, like workforce reductions, is that truly sustainable? Does a decrease in carbon emissions offset an increase in unemployment? Or, in reverse, would an increase in carbon emissions be OK if it came with a decrease in unemployment? How you define sustainability – social, environmental, and economic factors – is very relevant to how you achieve sustainability. But, how far you extend your vision of sustainability means even more.

Are you truly working towards your definition of sustainability if you are doing so with an inward-only focus? Sure, that’s the best place to start, but to be truly sustainable, you need to promote that vision throughout your ecosystem of employees, suppliers, partners, and customers.

Internally, responsible business practices are becoming more and more important to maintaining a progressive, diverse workforce, and enhancing and growing a business. Look at Google and how they offer free shuttles to employees to cut down on commuters, $5,000 rebates to employees who purchase hybrid cars, and their “solar panel project”, designed to reduce their use of carbon-generated electricity. These items are all cultural components of Google’s business, and are reflected in the way that they treat their employees, customers, and partners. It permeates their workforce and it expands their vision of sustainability into everything those employees do in their jobs.

Looking externally, your first thought might be on the supplier side, forcing (or incenting) suppliers to invoke more sustainable practices. But, that can have the effect of just moving the “bad” part of the supply chain farther away from your business. Sure, it makes for a great sound bite to say that you and your tier one suppliers are on a sustainability kick. But, if that just means production of hazardous materials is moved from Pennsylvania to China, did you really accomplish anything?

A recent article on Dell touted their support of the “Carbon Disclosure Project”, which standardizes the measurement of carbon emissions. This not only makes it easier for suppliers to comply with requests for carbon emission rates, it allows a baseline measurement system to reduce (or just maintain) carbon emissions going forward. Even Wal-Mart has an ambitious “greening” program, and their first step was to identify metrics. To quote Peter Drucker, “What gets measured gets managed.”

The point here is again that you need to focus on your entire ecosystem as a whole. Working with suppliers to identify areas of concern and plans for improvement is the key. It is not sustainable to pass the carbon (or social or economic) buck down the supply chain.

Granted, a large corporation has a high level of influence with suppliers, especially the Dells and Wal-Marts of the world. But, what about their customers? Obviously, given the proliferation of green ad content these days, consumers are responding to a “greener” message from their favorite brands.

Apple announced responsible business practices to increase the cachet of their brand and their products. Not that Apple needs any help increasing their coolness factor, but they are progressive enough to know that sustainability matters to their customers. A few years ago, the iPod came in a package nearly the size of a shoe box. Now, they are in a tiny box barely bigger than the iPods themselves — a reduction in packaging of 69%. Apple even made note of reductions in harmful chemicals in their just-released MacBook Air laptop. It may not increase sales, but it surely helps maintain their lead as the most desirable tech brand out there.

A green message is easy, but it is difficult to actually influence the actions on the customer side of your ecosystem. Do Apple’s actions actually get customers to change their behavior? A truly sustainable organization needs to be more proactive on the customer side.

Companies that simplify a sustainable process, like Hewlett-Packard with their ink and toner cartridge return programs, are promoting sustainability beyond their walls and into their customer’s homes and offices. HP makes it easy for their customers to recycle by giving them a pre-printed, postage-paid return label and easy-to-understand instructions right on the box. It’s just as easy to recycle the cartridge as it is to throw it away.

These are all great examples of how companies are successfully promoting sustainability – however it’s defined – throughout their ecosystems. Looking inward is the first step, but then turning that view around and helping your suppliers and customers to do the same is the only way to become truly sustainable.

Even on a personal level, each of us has our own ecosystem, and our every-day choices impact that ecosystem. For the most part, I have the naive belief that when it comes to sustainability, most people want to do the right thing. I guess that’s the ultimate definition of sustainability: everyone doing the right thing, whether in their homes or at their jobs.

Sustainable Savings

Today I’d like to welcome Eric Strovink of BIQ [acquired by Opera Solutions, rebranded ElectrifAI] who, in his contribution, reminds us not to overlook the importance of verifying we actually achieve the savings we negotiate, because that’s the foundation of a sustainable business. Even though this might not be the definition of sustainability that most of us have in mind, the fact of the matter remains that any business that is not financially stable can not contribute to sustainability from an environmental or social perspective, regardless of where it’s collective heart is. Thus, sometimes its important to be reminded of the basics.

P. J. O’Rourke’s Circumcision Principle states that you can take 10% off the top of anything. That seems to be true for sourcing many categories, true at least if you’ve never sourced the category before. However, it’s irritating to listen to (some) sourcing consultants’ confident claims about “10% savings,” when they clearly have no visibility into what may have been very competent internal initiatives that have already taken place.Can one keep taking 10% off the top, year after year? At some point, no matter how much fat was on the carcass originally, there’s nothing left; and even if there is, 10% of it can’t amount to a hill of beans. Conventional wisdom would seem to mandate that there’s a limit to the savings that can be achieved, and that there is diminishing value to sourcing over time.

Of course, this has not been the case historically — after all, if it were, sourcing consultants would be out of business. What happens in practice is that sourcing initiatives either fail to achieve their objectives, or they erode over time. For example, suppliers know that in order to win business they must compete in auctions and see their margins slashed to zero or even to negative numbers; but they are not foolish. They will find a way to restore those margins, either over time, or almost immediately, by raising prices that aren’t in the negotiated contract, or, in some cases, by ignoring the contract entirely. How many office supplies sourcing endeavors have returned zero actual savings? Answer: a lot of them. Of course, if suppliers are pushed to the wall, they may simply walk away; or worse, if they are a key supplier, go bankrupt and take you down with them.

Furthermore, some sourcing initiatives that appear to generate theoretical savings can’t be implemented in practice. If there’s a management change, and new management are unaware of (or dismissive of) the efforts of the previous regime (human nature means that they usually are), that same initiative is “discovered” all over again, fails once more, and it’s lather-rinse-repeat. Each new group of consultants or sourcing staff that’s brought in has its own ideas and agendas, but the underlying infrastructural problems that prevent the implementation of the initiatives remain.

Even when a sourcing initiative is implemented and a contract signed, there’s still no guarantee that savings have been achieved. As Jack Welch once asked an over-enthusiastic buyer who was claiming huge savings (I wish I could find the original quote, this is a paraphrase from memory): “How do you know you got the price?” Stammers ensued. Buying from an e-procurement system doesn’t mean you’re getting good prices, and negotiating a good contract doesn’t mean anyone’s paying attention to it. I saw a contingent labor invoice analysis a few months ago where not a single contractor — not one — was being billed within the price ranges negotiated.

Wendell Phillips said, “Eternal vigilance is the price of liberty” — and it’s the price of sustainable savings, as well. Economics mandate that suppliers will try for the highest prices possible, and that any means necessary to increase revenue probably be applied, despite all the fancy talk in this blog (and elsewhere) about “supplier collaboration.” Tariq Hassan has said, “Trust, but verify,” which is probably the most accurate summation I’ve seen of the attitude one should have.

How much do you know about your (corporate) spending?

Today I’d like to welcome Bernard Gunther of Lexington Analytics, a specialist consultancy in spend analytics based in Lexington, Massachusetts.

How well do you understand the pricing you actually get from your vendors? Many companies don’t know as much as they should. Think about a typical situation:

Last year you finished a sourcing project and signed a contract with a vendor. The entire team, including purchasing, the business line and finance all believe the new rates will save the company significantly. Since then you have been buying from that vendor. Now, a year later, you want to know, are you getting the pricing you expected to receive?

How much do you really know about the spending? There are seven simple questions that you should consider. If you are managing your vendors properly, these should be easy for you and you should have the analytics to support them. If these are hard to answer, you have to ask yourself, “Do I really know what I’m paying for?”

  1. Contract Pricing
    Does your contract contain a pricing schedule?
    This sounds simple, but surprisingly many contracts don’t have pricing. Sometime the pricing is buried in different statements of work. This can be fine if the pricing is consistent across all statements of work. But you have to ask, why can’t the pricing be transparently put into a single location where it can be referred to by other documents? This should be true if the pricing is contained in a schedule; a formula; a discount from list retail price; or even if it represents a discount from a benchmark.
  2. Invoice detail
    Does your invoice contain enough detail for you to determine which price you are supposed to be getting?
    For each item on the invoice, can you tell the relevant contract terms to calculate the price? If you have fixed hourly rates for different types of electricians, but the invoice just states “Replace 10 power outlets – $1,546.05”, you have no way to confirm the pricing is correct. If your contract states you obtain a discount from a list price, do you have the list price on the invoice or even a separate table of list prices? If you don’t regularly capture these prices, you will find it very hard to reconstruct this data a year later.
  3. Electronic invoice
    Do you get the invoice data electronically?
    If you are ordering electronically, this should be easy. If you only have paper invoices, doing any analysis is going to be difficult. You’ll have to have data entry done on the data before you can do any comparisons. Every vendor should be able to provide you with a spreadsheet with their invoice details along with each invoice.
  4. Contract Coverage
    For what percentage of the spending is there a price which can be calculated from the contract?
    Using your electronic invoice data, you determine the portion of spending for which you can calculate the contract pricing. If this number is 98%, you have good coverage. If it is much less, you have to ask if you are comfortable or if you need to expand the coverage of your contract. For example, shipping rates might not be included in the contract pricing, but if they represent 1% of spending, it may not be an issue to worry about. If shipping costs end up being 25% of your spending, perhaps you should establish pricing (using your contract, their contract or a new contract). You may have a great price for PC hardware, but if 40% of your PC spending is not covered by the contractual rates, you need to understand the pricing on these other items.
  5. Pricing correctness
    For what percentage of spending is the pricing the same as in the contract?
    For items you buy that can be priced from the contract, are you getting the contractual price? This may sound obvious, but errors happen. If you don’t check, you don’t know. Error rates can be significant, sometimes approaching 20% or more of the items purchased. If 20% of the items you purchased are at prices 15% higher than the contractual rates, you have just had a 3% price increase across the board.
  6. Pricing trends
    If the contract pricing allows for pricing variation (for example, if the price is a discount from list price), how does the unit pricing vary?
    Are prices regularly rising where they shouldn’t be? Are prices flat when they should be declining? For example, you might expect general office supply pricing would stay flat; paper products might vary with the price of paper; technology pricing to decline; labor prices to vary based on market pricing; etc. Do prices drop when a new, lower price contract is put in place? Your analysis should be able to make these pricing changes transparent to all interested parties.
  7. Demand mix trends
    Has the demand for different items changed?
    Is the change in the contract coverage a function of users buying new items? If you are measuring, in detail, how a vendor is used, you will understand, in detail, how the user demand is shifting over time.

Some people assert that this is all useful, but it’s too hard to do. If you don’t manage your spend data and do not have detailed contracts, it will take some work to do this the first time. But we’re talking a few days or weeks of effort, not months or years. Once you’ve designed your invoice data and contracts for easy analysis, using the right tools, these reviews can be done in hours. The value delivered can be significant. If you don’t look, you will never know.

Thanks, Bernie.

Screwing up the Screw-Ups in BI

Today I’d like to welcome back Eric Strovink of BIQ [acquired by Opera Solutions, rebranded ElectrifAI].

Baseline recently put a slide show on their site illustrating “5 Ways Companies Screw Up Business Intelligence — And How To Avoid The Same Mistakes,” with data drawn from CIO Insight. The slides are an excellent example of how mainstream IT thinking misses the essential problems of business data analysis.

Let’s take the “screw-ups” one at a time:

  1. Spreadsheet proliferation (97% of IT leaders say spreadsheets are still their most widely used BI tool.)Spreadsheets are one of the most valuable business modeling tools available, and IT might as well understand that they’re not going away. The problem is when spreadsheets (and offline tools like Access) are used inappropriately, to manipulate transactional data rather than drawing it in the right format from a flexible store. The solution provided by Baseline is to “cleanse and validate your data, then migrate the information to a central server/database that can be the backbone of any BI strategy.” Bzzt! Sorry, a central database won’t solve the analysis problem, and at the end of the day you’ll have just as many spreadsheets as before. That’s because a fixed schema data warehouse is a lousy analysis tool, and might as well be on planet Neptune as far as usability for the business analyst is concerned. There’s nothing wrong with a reference dataset, but business analysts need to be able to manipulate its structure as easily as a spreadsheet, or they will simply extract the raw data from it and manipulate the data offline, with the same slow, expensive, and uncertain results as today.
  2. Systems can’t talk to each other (64% of IT leaders say integration and interoperability of BI software with other key systems such as CRM and ERP pose a problem for their companies.) Right! Except that the Holy Grail of trying to extend a “centralized” database umbrella over completely disparate systems is both incredibly expensive and nearly impossible. Baseline suggests “[partnering] with a reputable systems integrator.” Good for them — at least they dodge this bullet rather than getting the answer completely wrong. The right answer is that business analysts should be able to construct BI datasets on their own, as needed, from whatever data sources are useful/appropriate, and it shouldn’t be difficult for them to do so. Concentrating all of the information under one umbrella isn’t necessary; many umbrellas can do the job, and if they’re easy to deploy, they’re both inexpensive and provide a better and more flexible answer.
  3. No centralized BI program (61% say they don’t have a center of excellence of the equivalent of BI.)And they’d be well advised to tread carefully, because BI systems have a track record of poor performance and poor customer satisfaction. Why? Because the analyses you can do with a fixed data warehouse are limited to the views set up a priori by IT or by the vendor, and those views are largely immutable. Baseline dodges this one, too, suggesting the “[creation of] a data governance and data stewardship program.” Can’t argue with that in principle, but a governance and stewardship program doesn’t actually put any meat on the table. How about putting tools into analysts’ hands that they can actually use? Right now?
  4. Data lacks integrity (57% say poor data quality significantly diminishes the value of their BI initiatives.) Hmmm, I wonder why the data are of such poor quality. Could it be that the BI system doesn’t really provide much insight? Could it be that the fixed schemas set up by IT or by the vendor don’t have any applicability to day-to-day questions? Could it be that the inability of the BI system to re-organize and map data on the fly causes errors to persist over time? Baseline recommends spending more money on data cleansing, which might make a cleansing vendor quite wealthy, but won’t help much. It typically isn’t cleansing that’s the problem, it’s (1) the fixed organization of the data, which is guaranteed to be inappropriate for any analysis that hasn’t been anticipated a priori, (2) the ad hoc reporting on it, which has to be easy to accomplish, as opposed to requiring IT resources (see below), and (3) the fact that cleansing can’t be accomplished on-the-fly (as it should be) by the business analysts themselves.
  5. Managers don’t know what to do with results (58% say most users misunderstand or ignore data produced by BI tools because they don’t know how to analyze it.)Even when BI is in place, nobody knows what to do with it. Baseline recommends that “IT staffers… should work closely and regularly with business managers to ensure that measurement, reporting, and analysis tools are supporting business goals.” But this is precisely the problem. For business analysts, BI systems are difficult to use and set up, it is difficult to create ad hoc reports, and it is impossible to change the dataset organization. It is also politically impossible to change the dataset organization if it is being shared by hundreds or thousands of users. How are you going to get them into the same room to agree on the changes?

    So, Baseline is proposing (in essence) that IT resources sit cheek-by-jowl with business users, to ensure that they can get value out of a system that they otherwise could not use. This is certainly a “solution” of sorts, but it’s not practical. Either business analysts can use the system on their own, or the system will be of marginal value to them. It’s that simple.

the doctor’s Guest Contributions: The Half Year in Review

Since the last summary of my guest post contributions (in June), I’ve blogged a number of guest posts over on eSourcing Forum [WayBackMachine] as well as authored or co-authored a number of the initial versions of the wiki-papers over on the eSourcing Wiki [WayBackMachine]. I’ve also contributed articles to the EyeForProcurement monthly newsletter as well as Efficient Purchasing.  For those looking for some more insights on various topics, here they are.

e-Sourcing Forum

A Case for E-Sourcing and E-Procurement Integration
A Global Trade Primer
Applications of Spend Analysis
Brunswick Corporation’s e-Auction Best Practices
Collaborative Negotiation
Confucious eSourcing Project Management Tips
Five Ways to Take Your Sourcing to the Next Level
Incentives Motivate
Key Challenges of Tomorrow, Part II
Key Challenges of Tomorrow, Part III
Nine Steps to e-Procurement Success
Optimal E-Tool Selection
Optimization is the Future And The Future is Now
Seven Tips for SaaS Selection
Some Low Cost Country Sourcing Insights
Supplier Enablement
Ten Common Negotiating Mistakes
Ten Tips for Talent Retention
The Benefits of Purchasing Consortiums
Twelve Steps to Purchasing Program Predominance

e-Sourcing Wiki

The Basics

  • Strategic e-Sourcing Best Practices : A Total Value Management Perspective
  • On-Demand / SaaS Application Platforms : Introduction to a Rapid Software Deployment Model
  • The Quest for Purchasing Fire : Develop the Internal Strategies for Selling the Procurement Tools Internally
  • Strategic Sourcing Success Factors : Best Practice Principles of Corporate Procurement

The Technologies

  • Spend Analysis and Opportunity Assessment : There’s Gold in Them There Hills … Of Data
  • e-RFx & Supplier Management : The Strategic Sourcing Workhorse
  • e-Auctions in Sourcing : The Strategic Sourcing Equilizer
  • Sourcing Decision Optimization : The Inefficiency Eliminator
  • Contract Management and Compliance : A Total Value Management Introduction

The Methodologies

  • Center Led Purchasing : The Procurement Organization of Tomorrow
  • Cost Reduction and Avoidance : Best Practice Principles of Corporate Procurement
  • Demand Driven Supply : A pull-based customer-centric approach to supply chain planning and execution
  • Next Generation Sourcing : 21 Strategies to Innovate Sourcing
  • Procurement Outsourcing : A Brief Introduction
  • Purchasing Consortia : The Emerging Collective
  • Six Sigma : Improve Supply Chains through Methodology
  • Supplier Performance Management : Measure, Analyze and Manage
  • Suppliers in a Supply Organization
  • Talent Management : Build and Retain World Class Sourcing Talent

A Global Sourcing Primer

  • Corporate Social Responsibility : A Sustainable Solution
  • Low Cost County Sourcing : A Blogger’s Perspective
  • An Introduction Global Trade : The Basics of Global Trade
  • An e-Procurement Primer : 9 Steps to Procurement Success
  • A Supply Chain Finance Primer : Financing Your Way to Success
  • A Customs and Security Primer : Keeping the Global Supply Chain Secure
  • A Free Trade Primer : Global Tax Relief
  • A Regulatory Compliance Primer : Keeping it Legal
  • Supply Risk Management : Mitigate Risks and Reap Rewards

Articles

Why aren’t you optimizing?, Efficient Purchasing Issue 5, Fall 2007

Why Aren’t You Optimizing Your Sourcing Decisions? EyeForProcurement August 2007 Newsletter