Category Archives: Market Intelligence

130 Years Ago Today

Oxford gave us the English Dictionary. Well, it gave us the first volume thereof and we knew the meaning of every word from “a” to “ant”. So, as long as you were anchoring aardvarks to alligators, you were ok but try to alter an appetite, and you were out of luck. And if you wanted to be a zealot for zebras, you had to wait 45 years until the final volume of the first edition was complete! In all, it took 76 years to finish the first edition.

Work has not sped up much since the the third edition of the Oxford English Dictionary began in 1990. Current estimates are that the third edition will no be completed until 2037, 47 years after it began. Updates are being made every quarter to the OED online, with information on the most recent update available on the OED site, and, as per current estimates, will continue to be made quarterly for the next 23 years.

And you thought your Supply Chain Projects took a long time …

Prediction Time Again? Ugh. Part II

In yesterday’s post we noted that back in the noughts, many Sourcing and Procurement technologies were naughts when it came to delivering on their promises, and left a bad taste in the mouth of many earlier adopters, including those that can benefit a company the most. To this end, we highlighted the four examples, in no particular order, of e-Auctions, e-Invoicing, Spend Analysis, and Punch-Outs. Then we asked what are the leading Supply Management companies promoting today?

Today’s leading Supply Management companies are promoting:

e-Auctions

Sophisticated e-Auction platforms that allow multiple auction formats, weighted-bids, preliminary RFXs, custom lots, sophisticated award rules (all, at least two suppliers, pre-defined split, etc.), weighted bids, and even built-in real-time decision optimization. The platforms today are infinitely better than the platforms ten years ago, but the song still sounds the same to the CXOs who signed off on the first generation e-Auction platforms only to get burned in the noughts.

e-Invoicing
Unlike the early point-technology providers, the leading platforms are not selling a single technology point solution and promising you that one-size will fit all, they are selling an integrated platform that can accept invoices from just about any channel you get them from, in almost any format — EDI, cXML, Supplier Network, PO-flip, e-mail/fax to OCR, print-to-Cloud and/or custom dual-entry. Whereas a good e-Invoice solution in the past was successful if you managed to get 90% of the 20% of suppliers who constitute 80% of your spend on-board after a three year slog, today’s solutions can easily accommodate 98%+ of your suppliers out-of-the-box and can be rolled out globally in as little as 12 months! However, the Finance executives who tried the early entrants in the e-Invoice market ten years ago and got burned are once bitten, twice shy.

Spend Analysis

In 2005, BusIQ released BIQ, a spend analysis tool that can be used by anyone to build a spend cube on any spend dataset export(s) anyway they wanted and do so in a matter of hours (for a five figure price tag)! Introducing the concept of layered-rules and mapping by exception, it completely transformed the approach to spend analysis which was, until then, based on sophisticated OLAP cube construction (which could take days, or weeks, depending on the number of rules and the size of the spend data set) and often required teams of Indians in the back-room of your provider’s off-shore support centre frantically mapping the unclassifiable exceptions in the hope enough of your data could be mapped in time to pass the sniff test. But with BIQ, a spend master could build a cube in a few hours, create dozens of ad-hoc reports, and follow her hunches until a unique, and valuable, savings opportunity was identified. Since it only took a few hours (or days) of her time, the cost to explore a hunch dropped from tens of thousands to rebuild a cube to a few hundred dollars, and savings opportunities could be identified quickly and easily. It raised the bar, and pushed a number of providers to substantially improve their offerings while simultaneously decreasing the price. Spend Analysis is something every Supply Management department should do and a tool every Sourcing and Procurement professional should have at their disposal, but since the early adopters typically had to fork over six figures for an ROI that proved to be much less than they expected, these initial early adopters are now hesitant to take a chance on a new solution as they believe that spend analysis is still a “fool me once, shame on you but fool me twice, shame on me” buzzword.

Punch-Outs

Today’s vendors are selling complete, cloud-based, integrated consumer-like shopping portals that integrate punch-out 2.0 instances with buyer-and-supplier catalog management and third-party portals, offering consistent federated search across the punch-outs, catalogs, and portals along with buying-organization price verification, maverick spend detection, and integrated split purchase-order generation. This means that the technology integrates seamlessly, the integration is managed by your SaaS provider, if the price presented by the supplier is not the contract price the buyer is alerted in real time, purchases for off-contract products or products at off-contract prices can be prevented, or at least held until the price is corrected, and each supplier can get their own, customized, purchase order that they can flip back into an invoice (at the push of a button) once the product(s) are shipped. But organizations that got an IT migraine that was beyond their wildest expectations when they tried punch-out 1.0 early in the noughts still fear that there aren’t strong enough painkillers on the market to deal with the cluster head-aches they expect will accompany any new punch-out implementations.

So now you know why SI feels that, for the most part, 2014 will be 2013 part II and 2009 part VI. Until the early adopters get the message loud and clear that today’s technology is truly a decade ahead of its predecessor technology and leaves the problems of its predecessors in the past and until the economy forgets the financial crisis and returns to a growth- and innovation-focussed economy, and not a cost-cutting and market-retention economy, progress will continue to be a slow, up-hill battle and will be limited by the choices of the market leaders.

Prediction Time Again? Ugh. Part I

Why can’t a new year come without all of my fellow bloggers making hopeful, yet unrealistic, predictions about the upcoming year? And why can’t they stop inquiring about mine? Because, the reality is that 2014 is going to be 2013 part II, which was 2012 part II, which was in turn 2011 part II, which was in turn 2010 part II, and which was in turn 2009 part II. Supply Management, like many sectors, has yet to finish recovering since the financial crisis of 2007-2008 and there has been relatively little in the way of game-changing innovation to pull people back to the table, primarily because a lot of the best (and most innovative) solutions on the market that companies should be buying sound like the solutions they bought ten years ago — solutions which never delivered on their promises.

Back in the noughts, many Sourcing and Procurement technologies were naughts when it came to delivering on their promises, and left a bad taste in the mouth of many earlier adopters. Consider the following examples, in no particular order:

e-Auctions

Typically, e-Auctions worked great the first time when the consulting or solutions company was allowed to pick the category the solutions’ company knew would work great (based on current market conditions), but then backfired the second time. When the auction was run the first time, the supply (greatly) exceeded demand, and the buyer was able to cut a lot of fat out of the margin. But then, as the global economy was growing, by the time the buyer got back to the category, supply was constrained, the supplier’s raw material costs were rising, and there was no fat left to trim. Lucky buyers saw a cost reduction of 2% or 3% (compared to the 12% or 23% they saw in the first auction) but unlucky buyers actually saw costs increase!

e-Invoicing

In the early days, Procurement and AP Automation technology suppliers were promising to solve this problem by way of cXML, OCR, or Supplier Networks, each of which have their failings. cXML required the supplier to have a solution that was capable of delivering invoices in cXML, which, in the early days, was limited to suppliers who also used Ariba (who developed the protocol), and as this was a small percentage of the supply base, it was a dismal failure. OCR, which was, and is, still maturing, also proved to be a train-wreck as it failed miserably on poorly formatted invoices, invoices with fonts that were too small, invoices that were hand-written or that had hand-written notes, and invoices that used unrecognized abbreviations — which, combined, were the majority of invoices.

Spend Analysis

In the early days, the tools were very difficult to use, classification and cleansing was even harder, and most companies had to outsource the analysis which often costed high six figures when all was said and done. In addition, since most vendors didn’t understand the operations of the company intimately, or the many ways the different business units categorized their data, and relied heavily on simple auto-classification to speed up the project (and attempt to make it more profitable for them), the classifications were often filled with classification and categorization errors that could only be corrected by changing the rule set and rerunning all the data, which typically took the provider at least a week. And if you wanted to see the data classified (or cubed) another way for comparative purposes, forget it.

Punch-Out

The purported answer to catalog proliferation, all punch-outs did was proliferate their own set of of problems. Just like many AP departments were drowning in paper (invoices), many Procurement departments were drowning in paper (catalogs). Punch-outs were supposed to solve that problem, as all you supposedly had to do was punch-out from your shopping-cart to a punch out to find what you wanted, no catalogs needed. Well, for this to work, the supplier had to support punch-out, the supplier had to have enough technical sophistication to support multiple pricing models (and always apply your contract pricing), and your IT team had to have the technical sophistication to properly integrate your supplier’s punch-out. And then you had to rely on the supplier to actually get the contract pricing right. Did everything go right all the time? Not even close.

And what are the leading Supply Management companies promoting today? Come back tomorrow to find out.

Supply Management Should Drive M&A Evaluations

But don’t look to e-Auctions to save the day. As per SI’s recent post, the entanglements of e-Auctions could get in the way.

Last fall, e-Sourcing Forum published a two-part series on M&A and e-Auctions, stating that what’s old may be new again, which claimed that e-Auctions could be a perfect tool for procurement in post M&A scenarios as they provide a competitive advantage for industries frequently involved in M&A activities. They can, if the situation is right, or they can be as useful as a trap door in a life-boat. There is no one-size fits all sourcing tool, and if you get it in your head to force-fit a sourcing tool to your situation, e-Auctions should be on the bottom of your list because they can bust as bad as they boom.

The rationale presented for their selection as the potential perfect e-Sourcing tool in the post-merger environment is based on the fact that e-Auctions can:

  • put negotiations directly into the hands of the suppliers,
  • create fair competition between suppliers by creating a level playing field,
  • provide suppliers with more direct/immediate feedback on their position in the market, and
  • drive “truer” market pricing and justifications for establishing baselines post-merger.

This is all true provided that:

  • the majority of suppliers, including those that are currently preferred, are willing to negotiate through the auction,
  • the buyer designs the auction in a way that is fair to all suppliers,
  • the auction platform can support real-time feedback to all suppliers taking part in the auction, and
  • the suppliers don’t collude and don’t make unrealistic bids in an effort to win the auction, hoping to make up the unsustainable loss either in volume or add-on fees or future business.

In order for auctions to work, especially in a post-M&A scenario, a number of conditions need to hold true.

  • supply has to at least equal, and preferably exceed, demand as per our post on the entanglements of e-Auctions,
  • there has to be enough qualified suppliers to make the auction competitive — if only two suppliers can supply the custom product or service you need, the auction ain’t gonna do squat except offend suppliers who should be your strategic partners,
  • there has to be enough volume to make the event worthwhile — saving 1% on 100,000 is not going to be worth the time and effort, and, most importantly,
  • there has to be enough categories that meet these requirements that are available to source in the first year, as it will typically be the case that both companies have contracts in place for a large number of their high-spend or high-volume categories, and, furthermore,
  • these categories have to be significantly larger than they were before the merger — if the merger does not yield enough common categories that are available to source at volumes that are high enough to be more attractive to the supply base than each company would source on its own, then the merger / acquisition is not going to yield any sourcing quick wins by way of e-Auction.

If neither company has a lot of spend under contract, neither company has a large number of complex products or services that can only be sourced from one or two suppliers, and both companies source a large number of overlapping products and services, then, if the market is ripe, the supply base is willing, and the buying team can design and deliver a fair and professional e-Auction, then e-Auctions can drive M&A success. But if the opposite is true, all e-Auctions will do is get the M&A team into trouble.

As with every sourcing exercise, it must start with a situational, and spend, analysis to see what’s what.

Top 12 Challenges Facing India in the Decades Ahead – 10 – China

China is currently everything India is not. While India is the land of contradictions, China is the land of conformity. While India is an infrastructure nightmare, China, which is already decades ahead of India in infrastructure, is investing heavily, building rapidly, and getting even further ahead. While India is in a perpetual state of energy crisis, the energy sector in China, where the government can effectively control the 11 companies that used to compose the State Power Corporation (SPC), is stable and increasing energy production year over year to meet the needs of its population which make it the world’s second largest electricity consumer after the United States. (In 2011, annual power generation was 4693 TWh, which was over five times the power generation in India that peaked at about 877 MWh.)

But it’s not just infrastructure and energy that China has the lead on. It’s just about everything else too. As per a recent NYT (New York Times) article on Why India Trails China, India has an even bigger problem. In particular, it’s the ever-increasing gap between India and China in the provision of essential public services. And while inequality is high in China (as the 1% control 70% of the country’s wealth, compared to the US where the 1% only control 35% of the country’s wealth), China has done far more than India to raise life expectancy, expand general education, and secure basic health care for its people. Plus, literacy in China significantly exceeds literacy in India at 95% vs 74% in India. While India has elite schools of varying degrees of excellence for the privileged, among all Indians 7 or older, nearly one in every five males and one in every three females are illiterate. And while China devotes 2.7% of its GDP to government spending on health care, India allots a mere 1.2%. (That’s probably why China has a much lower child mortality rate that is less than one third of India’s. See A View from the East.)

In terms of business, China is ahead of India in many respects. China exports goods almost twice as fast, registers property more than twice as fast, and business start-up times are almost 33% faster! (See: IndianEconomy.org) Despite being a democracy, India is less politically stable and more corrupt. (See: Interlink India) And the proof is in the GDP pudding. In 1995, when India represented only 3% of world GDP, China represented 6% of world GDP, and in 2010 when India was still only at 5% of world GDP, China was at 14%. (See: The India Site) And while India is expected to increase its GDP by a mere 4.4% next year, China is still on track to increase its GDP by 7%.

Infrastructure. Public Well Being. GDP. While just a few measures of global influence, they are a few important measures and China is leading on every single one. That’s why China is projected to have almost a quarter of the Global GDP in 2025 (by The Conference Board), more than triple what it had in 2000, while India is projected to have a mere 8%, only double what it had in 2000. If India wants to achieve its destiny of being the second most prosperous and influential country on the planet, it will have to at least keep up with China instead of losing ground every day.