Category Archives: Market Intelligence

Procurement Key Issues from the Hackett Group, Part II

Last month, the Hackett Group, as part of its Procurement Executive Insight series, released its “2014 Procurement Key Issues” report on Rethinking How Procurement Defines Its Value, Balances Risk, and Gets the Most from Technology Investments. It had some very interesting findings, including the fact that Procurement in 76% of companies surveyed indicated that a top priority was to expand procurement’s scope/influence. This is logical, but a little unexpected giving that the top Management priorities are to grow revenue and improve margins / profitability, at 66% and 61%, and most companies still see margin improvement in an uncertain market as cost reduction since limited or no-growth markets don’t generally take favourably to cost increases.

It seems that, as Hackett notes in its insight, we have the situation where many of the Procurement groups in Hackett’s survey stable have reached the upper limit of cost reductions possible in categories they actively source today and are interested in taking on new spend categories in an effort to unearth additional savings and meet the savings targets they are still being (implicitly) given for the organization to achieve it’s margin improvement.

While I applaud the long-needed alignment from this group of Procurement organizations that are obviously in the above-average and best-in-class categories — because savings are a thing of the past with (hyper)inflation returning to historical norms, raw materials in many categories become scarce (and supply barely meeting demand), and transportation costs continuing to increase — I worry that the finance organization is not yet aligned with the need and, when push comes to shove, will resort to a strong arm instead of a gentle hand, putting Marketing, Legal, and other non-physical product organizations on the defensive.

Somewhere two fists are pounding
And they don’t care what’s correct
Somewhere somebody’s walking the wire
Without a safety net …

This will not only result in a push-back from the internal departments that Procurement needs to help, but from the vendors and third-parties that the Marketing, Legal, and other non-physical product departments rely on to keep the organization running. The disdain dripping from the forced smiles on all sides will be visible across the room …

Somewhere some buyer’s crazy
And some Rep’s half out of her head
Now the CPO’s fearless
And hopes they won’t wind up dead

You have to remember these are vendors who are used to doing deals with a wink and a smile in the back room or skybox of their favourite entertainment venue and sealing them with a firm handshake. Terms? Conditions? Agreed Upon Rates? Performance Requirements? Contracts? This is a whole new ballgame to a vendor used to doing the work and sending a one-line invoice when it’s done.

Where the rubber meets the road
Welcome to Procurement mode
Used to be deals were a firm handshake
Now the rubber meets the road

The vendors are going to try and bypass Procurement at every opportunity …

Rep in the front seat
Lawyer in the back seat
Gettin’ it on the dotted line
Got a snake in the bed
Lord, hissin’ on the headboard
Trying to lure you offside

… and if the Marketing, Legal, and other affected internal departments aren’t onside with the new process 100%, any chance of savings and spend control are going to fly out the window. Not only will a side-stepped process result in a deal that is at least as expensive as last year’s deal (and probably more as the incumbent preferred vendor will probably cry poor due to inflation), but nothing will be done to reduce the demand side volatility, threat of competition (which often requires true partners and not just preferred vendors), and supply volatility that are the top three business drivers that Procurement has identified as needing to be addressed.

In summary, the fundamental Procurement focus is right, but has the rest of the organization caught up? And does Procurement really have a firm handle on what it needs to do to extend its reach and deal with all of the external business drivers that are hitting it hard, which also include the need for more (trained) talent and the skills gap, the increasing regulatory risk around the globe, and risk of a truly global economic crisis? Looking at the technology priorities, SI is not certain that it does.

In closing, the 2014 Procurement Key Issues report on Rethinking How Procurement Defines Its Value, Balances Risk, and Gets the Most from Technology Investments is an interesting and thought-provoking read and you should add it to the top of your reading stack.

Procurement Key Issues for 2014 from the Hackett Group, Part I

In song, to the music of Where the Rubber Meets the Road by Meatloaf.

Somewhere some buyer’s crazy
And some Rep’s half out of her head
Now the CPO’s fearless
And hopes they won’t wind up dead
Somewhere two fists are pounding
And they don’t care what’s correct
Somewhere somebody’s walking the wire
Without a safety net …

Son, I’m Mr P.C.
And believe you me
I’m the ultimate king of correct
And if you wanna make it
You gotta make them take it
As a sign of your deep respect
If you’re gonna do it
You gotta see through it
To the honour-bound duty it is
You can call Branding absurd
And flip Agencies the bird
Just remember what your mission is …

When the rubber meets the road
Welcome to Procurement mode
Used to be deals were a firm handshake
Now the rubber meets the road

Ya say “Girl, you’re a beauty
But I’m no beast
I got a little contract right here
See, we can slam on the brakes
Anytime we got the stick
Even if we’re in fourth gear”
Rep in the front seat
Lawyer in the back seat
Gettin’ it on the dotted line
Got a snake in the bed
Lord, hissin’ on the headboard
Trying to lure you offside

Where the rubber meets the road
Welcome to Procurement mode
Used to be deals were a firm handshake
Now the rubber meets the road
Where the rubber meets the road
Buyer meets Rep then watch it explode
Yes means no means yes means no
Where the rubber meets the road!

Somewhere some buyer’s crazy
And some Rep’s half out of her head
Now the CPO’s fearless
With hopes they won’t wind up dead
Somewhere two fists are pounding
And they don’t care what’s correct
Somewhere somebody’s walking the wire
Without a safety net …

It’s Time to Bring Sexy Back to ERP!

ERP, Enterprise Resource Planning, used to be sexy. Designed as an extension of MRP (initially Material Requirements Planning but later Manufacturing Resource Planning), it was designed to automate the back-office functions that did not directly affect customers and the general public and also include product planning, manufacturing control, and distribution in addition to the basic inventory control and production planning capability that was found in the precursor MRP technology.

But that was in the early days back in the nineties when design, manufacturing planning, and distribution planning was still largely paper-based. Then came the noughts with e-business, e-commerce, CRM, SRM, and e-Sourcing. Then ERP became boring old back office software that no one wanted to talk about. If you could afford the new fangled front-end systems, you were a Fortune 500 / Global 3000, you already had ERP, and there wasn’t much to talk about.

But now things have changed. The prices for e-business, e-commerce, CRM, SRM, and e-Sourcing have come down, the mid-market is starting to become saturated with basic “e-” functionality, and the new mid-market manufacturers and distributors need an ERP to take those orders, send those invoices, and manage the inventory they need to produce to meet your JIT inventory requirements. But, until now, they’ve had two choices — either fork out high six-plus figures for a stripped down version of Oracle or SAP (and the expertise to get it installed and integrated) which likely won’t meet all of their needs, or a custom implementation of an open source package such as Compiere, which probably won’t meet all of their needs either (but at least won’t cost them the virtual arm and leg). And neither solution is sexy.

As per SI’s recent post on how Mid-Market Manufacturers and Distributors Need an ERP That Works!, the solution needs to support the needs of the mid-market manufacturer, distributor, and even retailer. These needs include the need to deal with electronic purchase orders from customers, real-time demand planning and order management when customers inquire about availability and ship dates, inventory management, electronic purchase orders to your suppliers, automated invoices from your suppliers, and automated invoices to your customers. Without an ERP that gives them these capabilities, mid-market manufactures and distributors are left in the dark ages.

But if an ERP is to truly be effective, it not only has to provide you with these capabilities, but it has to be easy to use, which would make it appealing, and eliminate a lot of the manual data processing and tactical processes that organizations with traditional ERP systems tend to drown in, which would make it exciting. And if you want to get the new ERP system widely adopted, it should be glamorous, trendy, and even a little bit risqué. And that is the very definition of sexy.

Will ERP be sexy again?

Price Fixing is on the Rise. Only the US Can Stop It!

But will it?

As per these recent articles in the Economist on Cartels: Just One More Fix and Boring Can Still be Bad, competition authorities have uncovered several whopping conspiracies in recent years, including one in which more than 20 airlines worldwide had fixed prices on approximately $20 Billion of freight shipments. (In 2010, the European Commission fined 11 Air Cargo Airlines €800 Million for operating a worldwide cartel which affected cargo services within the European Economic area – namely Air Canada, Air France-KLM, British Airways, Cathay Pacific, Cargolux, Japan Airlines, LAN Chile, Martinair, SAS, Singapore Airlines and Qantas.)

In addition, investigators are still unravelling a huge network of cartels among suppliers of a wide range of car parts, including seat belts, radiators, and foam seat-stuffing. And the European Commission recently fined five marks of automative bearings $1.32 Billion and raided a number of manufacturers of car exhaust systems. On the other side of the Atlantic, Brazilian prosecutors have charged executives from a dozen foreign train-makers accused of rigging bids for rail and subway contracts in the country’s main cities.

This is despite the fact that enforcement has gotten tougher, smarter, and more coordinated, the fact that firms can expect staggering fines, and bosses can go to jail … unless they are in the United States. As the latter article states American courts, only too ready to lock up other types of miscreants for a long time, have rarely jailed egregious price-fixers for anything like the maximum of ten years that the law allows. But what do you expect from a country that won’t even jail executives who got caught knowingly laundering Billions for Mexican Narco-Terror Cartels? As per this recent article on BoingBoing, on HSBC Settlement Approved, there were no criminal charges, only 5 weeks’ profit in fines, and deferred bonuses for laundering Billions for Narco-Terrorists. That’s right, they still got their bonuses! (But whatever you do, don’t feed the birds, since you go to jail for feeding birds. [Source: myfoxtampabay.com “sebring woman headed back to jail for leaving bread out for crows”)

Until significant mandatory jail sentences are enforced for all executives involved in price-fixing, given the still-low risk of detection, collusion pays. After all, best case is you succeed undetected and make a few Billion. Worst case is you get caught, pay some of your ill-gotten gains in fines, and go back to business.

And stiffer fines aren’t the answer — if fines inflict so much damage on guilty companies, they will undermine competition as new entrants will be afraid to enter the market in fear that their efforts to keep costs in line with the competition will be seen as price fixing that could net them fines that would put them in bankruptcy.

The only answer is stiff prison sentences against executives, and the only major country that is unwilling to pursue them is the country that controls 25% of the global GDP – the US. So while you can do a lot to detect price-fixing and, if possible, avoid it by way of big data, statistical tests, market research, and collaboration with authorities – until the US DoJ and Courts step up and do the right thing, price fixing will likely remain a major problem.

Commercial Spam Turns 20 Today!


Some other time, some other place
We might not have been here, with egg on our face
I just wanna tell you, made up my mind
You know I can’t help the way I feel inside


Oh, this heart’s on fire
Right from the start, it’s been burning with rage
Oh, this heart’s on fire
One thing buddy, spam fills it with rampage!

And 20 years ago today, Laurence Canter and Martha Siegel unleashed the “Green Card” spam upon the world. While this was not the first instance of Usenet spam, it was the first instance of commercial Usenet spam and, quoting Wikipedia, its unapologetic authors are seen as having set the precedent for the modern global practice of spamming.

Canter and Siegel sent their advertisement, with the subject “Green Card Lottery – Final One?”, to at least 5,500 Usenet discussion groups, which was a huge number at the time, posting it as a separate posting in each newsgroup so a reader would see it in every group they read. Their internet service provider, Internet Direct, received so many complaints that its mail servers crashed repeatedly for the next two days! You have to remember, this was back in the time of dial-up and the highest speed modems available at that time were fax-speed 14.4K modems, with most people still on 2,400 baud modems! But this effort, and their subsequent efforts through Cybersell, which was a “spam-for-hire” company, ushered in the age of spam that we are still dealing with to this day.