Category Archives: Knowledge Management

Contract Lifecycle Management — Do You Have Your Platform and Process in Place?

By now you should, especially since 8 parts of the doctor‘s and the maverick‘s series on Contract Lifecycle Management (CLM) have been up for your reading pleasure over on Spend Matters Plus (registration required) since October, but if you don’t yet have it in place, now’s a good time to review the current series end-to-end and get a grip on what your platform should contain.

While contract management is not new, and many first generation platforms have been including contract management modules since the late noughts, many features of next generation contract management platforms are reasonably new, and some are much more valuable than others. That’s why the focus of this series was on must-haves, should-haves, and nice-to-haves for contract management platforms since it’s almost impossible to implement a good process without a good platform, and selecting one is becoming harder and harder as more and more e-Sourcing and C(L)M providers, including those who started in the Sales / Legal space, hit the market, and not all are created equal (or anything close to equal).

For example, while a clause library is only a should-have capability and multi-tier contract management and drafting a nice to have capability, especially for a Procurement Organization that does fairly standard direct materials and indirect services contracts, some CLM providers will push them as essential (which they may be for Legal organizations that handle commercial [building] development contracts with a lot of work being outsourced to specialist providers) for every organization, this is not the case and for some organizations these features will not be used at all. Similarly, some CLM providers without native MDM integration (which is a should-have) and, gasp, expiry and renewal management (a must-have) will try to down-sell their importance, which is critical in an organization with a lot of auto-renew evergreen contracts (which can cost the result in the organization overspending by 10% or more on multi-million category) and price data in third party systems.

Plus, with so many e-Sourcing technologies, and a plethora of acronyms which mean similar, but not the same, things (for instance, do you know the difference between S2S, S2P, and P2P — don’t fib!), it’s hard to tell where CLM even fits, why you need it, and the extent of capabilities your organization is missing out on with an outdated system. (This is critical as good CLM can result in significant year-over-year cost savings. While the percentages aren’t as high as supplier relationship management, spend analysis, or strategic sourcing decision optimization (which can tops out at an average year-over-year cost savings of 12% in the last case), annual savings from an effective end-to-end CLM process, backed up by the right platform, have been known to generate 4% to 6% savings that go straight to the bottom line (and get Procurement credibility with Legal and Sales, who can all be on the same system), and that’s nothing to scoff at!

CLM is critical as good contract management, coupled with good supplier management, is what ensures that the sourcing plan is realized, and this is key to capturing the savings that Supply Management works so hard to negotiate. It’s pointless to negotiate a 10% savings if only 6% of it gets captured due to bad contract management practices (which result in poor supplier management, maverick spend, inferior order management, expedited shipment, lost credits, etc.). And this is the case in many organizations without good contract management practices. (And has been for many years, as chronicled in AMR’s (now Gartner’s) classic series on Reaching Sourcing Excellence.)

In other words, if you haven’t, you really should read the Series to Date (membership required):

Forget SIM. The Real Answer is SIR.

Earlier this year, Spend Matters ran a post by Jason Busch on Why Collect Supplier Information that highlighted some of the information needs addressed in a recent piece by Mr. Busch and Mr. Gustin on Supplier Enablement for Invoice Discounting and Supply Chain Finance: Background, Tips, and Secrets for Success that not only highlighted some of the needs for detailed supplier information but also outlined many other reasons why organizations need supplier information.

The traditional answer to this is Supplier Information Management (SIM), implemented by way of a supplier portal where suppliers provide, maintain, and verify their information to the buyer on an as-needed basis. While this sounded like a good solution, especially since the amount of information some buyers need to collect on a single supplier can be staggering, which makes the task almost impossible for a large organization with thousands of suppliers, all it does is shift the burden to the supplier. The rationale provided was that the supplier, who needs to sell its wares, would accept it as a cost of doing business, especially since the supplier would need to provide much of that information on an RFX anyway and this way only has to provide the information to the buyer once as it would be maintained and reusable on every future RFX or information request.

This sounds fine and dandy, but really only makes sense if the workload for the supplier is less than the workload for the buyer. Otherwise, the work is just being shifted, overall supply chain efficiency is not increasing, and cost is not being take out of the supply chain. And SIM is not delivering on its promise.

The reality is that the workload for the supplier is not decreased because, with the proliferation of SIM systems across Procurement, more and more organizations are asking more and more of suppliers. And the perception that the supplier has less customers than the buyer has strategic suppliers is not always correct. Since most large buyers with risk avoidance tendencies only buy from large suppliers, and since suppliers can only become large suppliers by attracting a large client base, the supplier has as many buyers as the buyer has strategic suppliers — and the supplier has just as much data entry and maintenance to do as the buyer did before the buyer purchased its SIM solution. The work hasn’t been minimized, only shifted, and the cost has only increased because the supplier’s cost of data maintenance is no less than the buyer, and the supplier will just add a mark-up to cover their cost.

The true answer to the supplier information problem is not a SIM solution, but a SIR solution — an on-line, shared-access, Supplier Information Repository where a supplier can enter all of their information once, maintain it, and, under a fine-grained security model, share it with their customers (the buyers) on an as-needed basis. This reduces costs for all parties and truly takes costs out of the supply chain as the supplier only has to maintain one set of data, and the buyers can access all data from all suppliers for one low-cost annual subscription, which, because a vendor does not have to maintain multiple SIM instances, allows the vendor to offer repository access at a cost that is less than the cost of a traditional SIM solution.

All Hail the CPO. Wait, what?

You want to be a CPO. But do you know what are the requirements for the job? Especially when the number of companies with CPO positions is still few and far between? (Recent stats from a CapGemini study found that only 9% of Procurement organizations have a CPO that sits at the C-Suite table. In SI’s view, unless the head of Procurement sits at the C-Suite table, it’s not a real CPO position.)

Chances are you don’t, especially since a search for CPO job descriptions yields few and not all are consistent (since each organization has their own view on what a CPO is and what the CPO needs to do during the first year or so). But more importantly, chances are you don’t know what is required to fulfill both the written, and more importantly, the unwritten requirements of the job.

But you don’t need to be in the dark. the doctor and the maverick, in their latest collaboration, have assembled a typical CPO job description and a multi-part series explaining the written and unwritten requirements, in detail, so that you, an aspiring Procurement professional, know exactly what is required to be a CPO. The first four parts of this series are now online on the new CPO site (in addition to the first parts of the Agenda series and the Lean / Six Sigma series). Check them out! They will be worth your time. (Part I: The Job Description and Part II: Examining the Job Description, Part I, Examining the Job Description, Part II, and Examining the Job Description, Part III.)

Societal Damnation #44: Education Quality

Supply Management is hard. Real hard. And it’s only getting harder. SI has said it before, and it will say it again — in order to excel at Supply Management a Sourcing or Procurement professional has to be a jack-of-all-trades and master-of-one.

But this is not an easy thing to do. The skill set required by today’s Procurement professional is longer than Santa’s naughty and nice lists put together and is growing by the day. And that’s just the basics. The EQ, IQ, and TQ required for an average Procurement professional to get through the day is enormous. It’s to the point where a person of average intelligence can’t cut it. It used to be that only the best and brightest could do law and medicine and engineering but now only the best can do supply management. And, to make matters worse, just EQ, IQ, and TQ is not enough.

A modern Supply Management Professional needs knowledge — and lots of it. With constantly changing market conditions, new inventions, and new modes of operation, whatever a supply manager knows today is unknown tomorrow. As new methods of production come online, old methods become cost prohibitive. As new products are invented, old products become obsolete. As market conditions change, old plans become irrelevant.

Supply Managers need to keep tabs on the market. They need to identify new modes of production that will become more cost effective before they are under-cut by the competition; they need to identify new inventions that will threaten the organization’s market as soon as they are announced; and they need to detect market changes as they happen. They not only need oodles of market intelligence but the knowledge on how to interpret it. Not every new production technique is a threat, not every invention breaks existing or creates new markets, and not every market change has lasting effects — some are corrected in days. But others are atom bombs, iPhones, and extreme supply and demand imbalances caused by a major production plant being destroyed by an earthquake or tsunami.

But where is a Supply Management professional to get that knowledge? Most universities have a curriculum that is still mired in old-school logistics and operations research. Most professional associations are still teaching you old-school negotiating tactics. Most blogs are mired in the noughts and still preaching the gospel according to Ariba and Emptoris (which no longer exist). And the analysts … well, we’re not too sure just what they are inhaling before they do their preaching, tragic quadrants, and dangerous graves.

In other words, not only is education quality in general (especially in North America) bad, with the US ranked 14th (as per the global heat map), but education in Supply Management in particular is particularly bad. We’re desperate for education, but almost no one is giving it to us. We truly are the damned. Let’s hope we can learn on our feet as we are dancing amid the flames. (As we no longer have the frying pan to shield us.)

After Two Series on the Future of Procurement – What Have We Learned III

In our first post we noted that, after two series, fifty (50) posts, and almost seventy five (75) pages on the “future” of Procurement, we learned that while the majority of trends being positioned as “future” trends weren’t future trends at all, they were trends that your organization will encounter as it matures and grows and the sooner your organization ploughs through them, the sooner it can get to the real future trends.

We then reviewed our series and noted that most of the requirements for dealing with these trends fall into a baker’s dozen plus one of high-level categories. Today we will break the last seven categories down into the most important sub-categories:

Regulations

  • get up to date on &
  • get systems in place &
  • get BOM visibility for
    • Environmental Regulations
    • Financial Legislation
    • (Free) Trade Agreements / Zones
    • Trade Security
  • to make sure, among other things, that you don’t
    • get activists on your case
    • join Fox in the box
    • get burned on duty rates
    • lose your cargo

Risk Management

  • supply chain visibility to detect issues and disasters as they happen, not three months later when the delivery doesn’t show up
  • mitigation planning for when disruptions occur
  • (natural) disaster response for when disaster strikes
  • rare earth minerals plans for when costs skyrocket
  • food reserves plans to reduce waste and deal with rising costs as reserves shrink
  • supplier failure responses ready

Supplier Development

  • co-design of product and services
  • cost avoidance when market costs (for labour, energy, raw materials, etc.) rise
  • new supplier identification if current suppliers aren’t improving
  • performance tracking to make sure suppliers are performing as expected and to identify areas where continued improvement is needed
  • value generation from supplier relationships

Supply Chain / Inventory Flexibility

  • Faster production cycles to keep up with faster product life cycles
  • Flexibility to ramp production up or down with demand
  • (Better) Forecasting for better volume determinations pre-contract negotiation
  • Innovation from suppliers and partners and customers for market advantage
  • Just-In-Time (JIT) production / distribution when needed

Talent

  • Development – EQ / IQ / TQ is analytical, technical, and emotional skills all need continued advancement
  • Collaboration between team members, departments, suppliers, partners, and customers
  • Fiefdoms must be disbanded and the heads cut off
  • Management to insure regular collaboration, development, and team-building

Technology

  • applicability / usage management to make sure the right technology is used for the right task
  • support the right processes subject to the 80 / 20 rule as core systems must support the common (mass) requirements (and niche solutions can be brought in for the rest only once the base-line is covered)
  • design & implementation management as many of the greatest supply chain and corporate failures have been due to failed technology implementations
  • S2C & P2P -> S2P -> S2D (Delivery) as the entire product lifecycle needs to be managed, not just identification
  • complete roll-out of the right platforms to all users who need access
  • mobile management as mobile devices proliferate like Fibonacci’s rabbits

Transportation

  • Mode Planning taking new options into account
    • Panamax vs Post Panamax
    • 787s
  • FTL & Inventory Management vs LTL & JIT to minimize cost and maximize flexibility as needed
  • Supplier vs. 3PL vs. In-House depending on efficiency and cost effectiveness

Overwhelmed? We hope not! While getting these categories and sub-categories under control is a good start for any organization wanting to progress in maturity and capability and get yesterday’s trends under control, in terms of what an organization has to know and deal with, it is just the tip of the iceberg. There’s even more a Supply Management organization has to know, and master, to be best-in-class and take the enterprise to the next level of performance. And, like you would expect, SI will address these requirements in one or more future blog series. Stay tuned!