Category Archives: Market Intelligence

Procurement 2020: We’re Off Track, But Can We Get Back on Track? Part II

In part one, which lamented our recent post that asked if we were on track for Procurement 2020 because the reality is that we are way, way, off track, we discussed business process sourcing, supply performance management (SPM) and supplier relationship management (SRM), and knowledge management, three of the six levers that need to be properly pulled to get Procurement on track for 2020, as identified by Hackett way back in 2008. In this post, we will discuss the other three levers and discuss whether or not there is still time to properly pull them.

Talent Management

While tomes can be written about this subject, of all of the fixes that are required, this is the easiest. All one has to do to get things back on track is to reinstate the training budget, give the team the time to get and take training, give Procurement the resources it needs to attract and retain top talent, and sit back while the talent takes your Procurement up a notch. That’s it. It really is easy-peasy. You don’t even need the big red button!

Next Level Strategic Sourcing

This is also an easy fix. Get a true next generation sourcing platform designed for complex tenders that can support true strategic sourcing decision optimization and next level sourcing, get training on what next level sourcing is, and just do it. For more information on what this is, check out Sourcing Innovation’s paper on Optimization: What Comes Next and its upcoming paper on Complex Sourcing, being released on October 7th.

New Product Development & Introduction

Once processes are under control, knowledge is captured and maintained, talent is where it needs to be, platforms are in place, and next level sourcing processes have been instituted, Procurement is going to get results and respect. When it is able to demonstrate to Engineering how involving it earlier in the process will save money and increase value, it will get invited to the table earlier in the process and will eventually be asked to consult and provide guidance on every NPD/NPI opportunity. It will help lead the organization into new markets, rather than just scrambling to make the best of the poor situation it is placed in. And it will be able to do this because it will already have collected the market knowledge, already have cost model baselines that it can use to create should-cost models, already know where to look for the market intelligence to predict the costs associated with different options, and so on.

In other words, we can get back on track, but only if some major changes happen.

  1. Talent needs to come first.
  2. Knowledge needs to be captured.
  3. Platforms and processes need to be in place to support purchasing and capture spend.
  4. Suppliers need to be engaged, monitored, and developed.
  5. Sourcing needs to be taken up a notch.

This is all feasible with today’s knowledge and today’s platforms, and the vision can be realized, but a serious commitment has to be made by the organization which also has to stop focusing on, and more importantly, measuring Procurement on savings and savings alone. It’s not cost reduction. It’s cost avoidance and management. It’s knowing that going too far to save a penny today will cost a pound tomorrow. It’s making the best overall decision to not lower costs now at the expense of being locked into higher costs for for years to come when the organization should be investing in suppliers and platforms that will generate additional value for the organization down the road.

Will it happen? In a few, forward thinking organizations, yes. In the average organization still dancing to the drum of Wall Street, probably not. And it’s a shame. But as global market situations worsen and short-sighted companies begin to fail, far-sighted companies, where Procurement is encouraged to take a longer term view, will gain market share and those that re-institue long term five and ten year plans will prosper the most. While the state of affairs won’t be what they should when we reach 2020, maybe 2030 will see an improvement (and Procurement optometrists will have to adjust their vision scales).

Procurement 2020: We’re Off Track, But Can We Get Back on Track? Part I

As per our recent post that asked if we were on track for Procurement 2020, we’re off track. Way off track. So far off track that we can’t even see which direction the track was in.

Hackett told us way back in 2008 what we needed to do to get where we needed to be, but most Procurement organizations are still nowhere close to where they should be, even though most of it is easy-peasy.

Business Process Sourcing

This is easy to get under control, it just requires some good planning and process mapping. Specifically, an organization has to map all of its processes, define the knowledge-centric strategic aspects versus the manual-processing tactical aspects, and then figure out the benefit of each part of the process with respect to the cost.

If the benefit is low, the cost is high, and the process is tactical, it is a prime candidate for outsourcing. If the cost is low, the benefit is high, and the process is knowledge-centric, the process is a poor candidate for outsourcing. Organizations need to maintain their knowledge and strategic advantages and outsource that which brings them no benefit when performed internally.

An organization that takes the time to map its processes and understand them can find the right candidates for outsourcing and manage them appropriately.

Supply Performance Management (SPM) & Supplier Relationship Management (SRM)

While this was a major oversight in first generation Sourcing systems, this is a common module in second generation Sourcing systems and over the past few years a number of expert consultancies and solution vendors have come on the scene that can help you get your SPM and SRM processes up to snuff. They have n-step processes that can be used to help you get an understanding of where you are on the SPM and SRM maturity curves, what you can do to get better, and how you can figure out how you compare to the market average and the best-in-class.

In addition, there is a lot more information on SPM and SRM, what it is, how to do it, and the importance of it to your supply chain on the various blogs and publications then there was a decade ago. Those who seek out and make use of this information can progress well ahead of the curve. (And a couple of overviews will be made freely available to SI readers over the next month or so as part of a larger offering … stay tuned.)

Knowledge Management

A decade ago, it was unheard of to have more than half of spend under management, and if you said that one day you’d have integrated spend data, you risked being put in an asylum. However, with modern platforms that provide an organization with the ability to not only push all payments through a common platform, but all purchases through a common platform that supports integrated internal and external catalogues — whether they be cXML punch-out, EDI, flat-file, data-base driven, or custom entries — things have changed. When all requisitions and purchases can go through one platform, all spend gets in one database, and the organization has visibility into all of its spend and can plot a course to get the majority of its spend under management.

In other words, we can return the engine to the tracks, but an effort will have to be made to do so. How much of an effort? Stay tuned for Part II.

Societal Damnation 49: Gamification

Gamification, a noun defined as the application of typical elements of game playing to other areas of activity, typically as an online marketing technique to encourage engagement with a product or service, as per the Oxford Dictionaries, is also a damnation that you need to contend with on a daily basis in Procurement.

Why is gamification a damnation? Especially since, as per Merriam Webster, it’s supposed to encourage participation as it is supposed to be, according to Wikipedia, enjoyable and motivating. There are a plethora of reasons, including:

Definitions Vary

There is really no standard definition of gamification. To see this, all one has to do is go to their favourite e-book store, download the five cheapest e-books on the subject (which may even be free), and read the first few pages. Some are focussed on the incorporation of traditional game elements, whether they make sense or not; others on team building, regardless if it is game-like or not; and others on getting marketing success or social media penetration at any cost.

Gamification is often rooted in RPGs or Video Games

Yes, RPGs are the classic team-building cooperation games and video games are all the rage, but not everyone likes RPGs (because they think of D&D and basement dwellers*) or video games (because they think of computer geeks and basement dwellers*), and not all RPGs and video games are the right fit for the task at hand.

Most of it is marketing or social media focussed

Which means that most of it is used by marketing and social media and directed at you by marketers to try and daze and confuse you, and does not help you do your job in any way.

Anything not marketing focussed is team building focussed

There are a number of methodologies out there for team building. Gamification provides little additional value in this regard unless you’re playing games that everyone likes that builds camaraderie.

As Procurement professionals, there’s nothing for us

When it comes to gamification, nothing has been developed for us. Nothing to help us. Nothing to teach us. And the beer game doesn’t count. It hasn’t been updated in fifty years, doesn’t capture the complexity of modern supply chains, and has over a dozen failings that need to be addressed in order to be useful. It’s primarily a logistics and inventory model that just doesn’t cut it in today’s just-in-time supply chain world.

In short you don’t know what it is, it hasn’t been used to help you, and suppliers’ marketers will be hitting you with their perverted version of it through broken social media channels on a regular basis. It’s a continual annoyance that serves as the background music of your eternal Procurement damnation.

* Stereotypes die hard.

Procurement 2020, Are we on Track?

Long time readers, including those who worked through last year’s mega series on The Future of Procurement and The “Future” Trend Expose already know the answer to this, but with only 5 years left to go, it’s worth exploring this topic that was all the rage 5 years ago but now no longer a whisper, even from the voices that were once the loudest in their great proclamations.

Why the silence? Because, to be frank, we’re not even close to their predictions, predictions which, to be honest, should have already been met by now.

While there is a lot of cannon fodder to go back to, let’s take Sourcing Innovation’s post from four summers past, which was penned at the height of the 2020 blathering, and which took us back to a report released by Hackett in 2008! In the first of the grand prophecies, which laid out the hierarchy of supply, rather than make grand projections, Hackett simply laid out a set of seven core competencies that businesses would need to acquire. And even though leading providers have offered next generation solutions for each of these since the end of the last decade, progress along these paths is still few and far between.

Business Process Sourcing

Many companies are still taking a scattered approach to process sourcing and outsourcing and indirect spend in general. Some are using BPOs, some are using GPOs, some are using both, and some are simply hiring contingent labour to handle the processes the business does not want to do, or does not have the skills to do, in house.

Supply Performance Management & Supplier Management

Formal Supplier Management is still weak, or non-existent at many companies, and fewer companies still have, or use, modern platforms to manage the performance of their supply base, even though there are a number of second generation platforms out there that have quite extensive capabilities. (The capabilities that are out there will be described in detail in the next platform-based Spend Matters Pro series on Supplier Relationship Management, starting after the CLM series concludes, which will be co-authored by the doctor, the maverick, the prophet, and the anarchist!)

Knowledge Management

According to Hackett, Sourcing will need to master content-driven analytics which integrate external data into internal data models …. We’re not there yet. Less than 1 in 2 Procurement departments are even doing basic spend analysis, yet alone more advanced content-driven analytics using multiple internal and external data sources! Knowledge is still quite poor. (Maybe that’s because only the leading sorcerors in the leading Procurement departments read Sourcing Innovation and Spend Matters CPO?)

Talent Management

After years of reducing the training budget to almost zero following the last big recession in the late 2000’s, there’s still been no sign of restoration and talent is still not getting the training they need to do the best job they could do. Until this happens, there’s no way that Supply Management will be the career path of choice for new talent.

Next Level Strategic Sourcing

Most companies still aren’t doing true TCO modelling or using strategic sourcing decision optimization, which is the only other supply management technology (in addition to true spend analysis) that has been demonstrated to find year-over-year savings. And a true next level company should be at TVM modelling and decision optimization, multi-tier analysis, trending and predictive analytics, long-term strategic supply chain redesign, and other advanced initiatives that will save money now and for years to come.

New Product Development & Introduction

As Hackett said long ago, Supply Management will have to include advanced design-for-supply support that incorporates multi-tier cost modelling, scenario planning and optimization, but seeing as how the majority of Supply Management departments are still struggling with TCO and weighted RFXs and e-Auctions, even though companies like Arena Solutions and DirectWorks (formerly Co-exprise) have been promoting this for close to a decade, this is still a ways off from being main-stream.

In other words, even though 2020 is approaching fast, we’re still a long way from 2020 Vision in Supply Management, despite the doctor‘s best efforts.

Societal Damnation 42: Pandemics

A pandemic, as defined by Wikipedia, is an epidemic of infectious disease that has spread through human populations across a large region. When people think of pandemics, they traditionally think of the big nine historical pandemics of cholera, influenza, typhus, smallpox, measles, tuberculosis, leprosy, malaria, and yellow fever, which have, at one time or another, wiped out thousands, hundreds of thousands, and sometimes even millions of people.

However, many of the diseases that cause pandemics are still alive and well, and new ones are cropping up all the time. Cholera, easily spread by contaminated water, is caused by bacteria, and still causes 100,000 deaths a year world wide. Influenza is constantly mutating and new strains of bird flu and swine flu which, without proper treatment and prevention, could easily cause millions of deaths are alive and well. And while typhus (typhoid fever) has mostly been eradicated, cases are still being reported in poorer African and South American countries and the bacteria still exists.

As far as we know the smallpox virus has been eliminated in the wild, with no reported cases in 38 years, but never say never, as typhus, which should also have been eradicated by now, is still cropping up. There are still almost 500,000 reported cases of measles a year, even though immunization against measles is easy. Tuberculosis is caused by bacteria and infects about 1% of the global population each year, with 9 Million new cases in 2013 and almost 1.5M deaths.

Leprosy still affects almost 200,000 people globally a year. Malaria, caused by parasitic protozoans transmitted by malicious mosquitos, is still rampant with over 200 Million infections a year, which resulted in 660,000 deaths in 2010. Yellow fever is another infection, caused by a virus, transmitted by murderous mosquito, that infects about 200,000 people a year and annually kills 30,000. And while these pandemics are primarily restricted to the equatorial climates, as temperatures warm and climate changes, those pesky mosquitos could start to migrate northwards.

But this isn’t the only list of highly contagious infectious diseases we have to watch out for. In addition to the ongoing HIV/AIDS pandemic, now we have SARS (Severe Acute Respiratory Syndrome), a viral disease that cannot be cured or prevented that has an average fatality rate of 10% and that spreads easily by close person-to-person contact though respiratory droplets and which could spread like the great fire of 1666 through a dense metropolis. We also have the five strains of the Ebola virus, which spreads easily through contact with bodily fluids (including respiratory droplets or sweat) or infected bats or primates, and Ebola has an average mortality rate of 50%. We have the Marburg virus that causes Marburg Hemorrhagic fever which is a rare, but severe, fever caused by a filovirus (like Ebola) that has a mortality rate of up to 80%. We have hantavirus pulmonary syndrome with a 36% mortality rate in the US that is spread by contact with exposure to droppings of infected mice. (Which means an uncontrolled mice population could bring a new black death that, with unprecedented levels of population density, puts the first round to shame. Remember, just because mice commissioned the earth, that doesn’t mean they won’t kill us all when they are done with their little experiment.)

We could go on, but you get the picture. Not all countries have centres for disease control as advanced as the CDC or the ability to rapidly contain epidemics which could, in today’s hyper-connected and ultra-densely populated world, easily transform into global pandemics overnight. Hollywood might worry about us all contracting a hyper-infectious disease that turns us into zombies, but the reality is that the next plague will probably skip that step and make corpses of us all instead.

So why is SI being so grim? Because, despite the focus of most sites that focus in on the physical, financial, and information supply chains, the reality is that supply chains still run on people. People (control the machines that) make the goods. People control the money (even if it is just the people in banks sometimes). And people input the data that our information systems run on. Without people, supply chains will come to a halt from both an inbound (with no one to supply) and an outbound (with no one left alive to buy) perspective. Not only must we be ever vigilant in keeping our employees safe, but we must be even more vigilant in keeping them well. We need them alive.

And for those dreamers among you, you can forget about replacing your workers with robots or computer algorithms. Remember that we have been promised replacement robot workers since Elektro was debuted at the 1939 New York World’s Fair, but engineers still have not delivered. Not just because we have no true AI (and that’s a good thing*), but because we are still unable to construct systems as flexible and adaptable as the organic systems created by nature.

* what use would intelligent robots have for ugly sacs of water besides to harvest our bioelectric energy?**

** bonus points if you get the two references contained within