Category Archives: Market Intelligence

How Do You Support Marketing? Get a Grip on Agency Lifecycle Management, Part I

For many Supply Management organizations, Marketing is one of the sacred cow spends that they don’t get to touch. This is because Marketing insists that creative talent can’t be traditionally sourced due to the inability to quantify creativity systematically, and can’t be managed using traditional processes because creative talent is not like easily sourced janitorial services.

But this isn’t true. Creative talent can be sourced systematically, but not using a hands-off auction, outsourced GPO, or other inappropriate methodology. It can be effectively sourced using a proper RFX, Supplier Management, and negotiation process. And creative talent can be effectively managed using an Agency Lifecycle Management process that manages the services cradle-to-grave.

So what is Agency Lifecycle Management? It’s Services Lifecycle Management customized for Agency Management. In traditional services lifecycle management, you have the following basic steps:

  • supplier identification and selection
  • contract and scope of work
  • delivery
  • review and evaluation

In Agency Lifecycle Management, you have approximately the same steps, except the scope of work can take various forms and be much more involved, and the delivery step requires a lot more interaction than a traditional (services) delivery and usually takes the form of regular interactive briefings. In other words, in Agency Lifecycle Management, you have the steps of:

  • selection
    where agencies are identified, their core skills are captured, and the best match(es) are identified;
  • scoping
    where the scope of work is collaboratively defined between Procurement, Marketing, and the Agency to meet the needs of the initiatives Marketing has planned;
  • briefing
    where the specific requirements of each initiative are captured in a clean and complete manner for the agency to deliver against; and
  • evaluation
    where the work effort, cost, and other relative metrics are captured for verification and comparative purposes.

And, most importantly, each step is tailored to the specific needs of the Marketing department where Agency Management is concerned. So what are the specific needs? We’ll address those in Part II.

How Do You Increase Internal Demand for Supply Management?

Supply Management needs to be reinvented as the “go-to” organization because, when you get down to it, it does support every department, engage every service provider, and, in a leading organization, influence every four out of five dollars that leave the organization. It is, after all, the secret agent of business improvement and the key to increasing organizational value.

However, in the average organization, with the exception of the CEO and CFO constantly screaming at it to “cut costs“, there is little internal demand for its services. And the sacred cows of Legal, Marketing, and HR don’t want to touch it with a 10-foot cattle prod. And it’s a damn shame.

So what’s an average organization to do when Supply Management is the proverbial black sheep of the organization?

It’s a tough question, especially when the usual tricks of learning the language of the client organization, presenting wins obtained by other organizations in similar circumstances that could be transferred, and explaining how, at least initially, you’re just there to support them and how the technology and process you can bring to the table can make their lives easier don’t work.

But there may be an answer, and that answer might be to approach the problem the same way you would when you’re trying to start a two-sided marketplace. A recent article over on VentureBeat about launching a two-sided marketplace had a very interesting quote from Oisin Hanrahan that provides the insight you just might need to succeed:

One element of launching a successful two-sided marketplace that is often overlooked is the initial spark, or the little drop of supply and tiny inkling of demand you need to kick your whole idea off into a successful market. There is an over-reliance on using technology to secure these wonderful drips of interest that will eventually turn into the transactions responsible for driving your business.

In other words, while the real value you bring to the table is better processes enabled by technology, this isn’t what’s going to get the interest of someone who thinks they know how to procure their goods and services better than you. The only thing that’s going to get their interest is if you come with an answer to what they see as their problem, and only what they see as their problem.

If Legal’s problem is that they can’t understand the differences between discovery offerings from different parties, you come to them and explain you can help them construct feature/function RFPs that will let them compare apples to apples and analyze them automagically. If Marketing doesn’t understand how to analyze hard costs vs. creative costs in proposals, you explain how you can help them do that, and even separate out hard print costs and let them aggregate print orders to save money for creative services. If HR doesn’t understand how to find new consulting service providers and how to compare their bids and offerings you tell them you can help them find new potential providers and gather information in a standardized fashion. Not once do you come forth with claims of better processes or technology or claims of great cost savings, which they will automatically assume will mean cheaper providers and lower quality work. You find out what their problems are, and offer to help do only what they want help with. Every time you help them, value will be increased and they will slowly trust Supply Management with more and more responsibility as time goes on. And, at some point, Supply Management will become the go-to organization. But only if it starts by finding the spark that will set of the conversation.

The Strategic Category Management Lifecycle: Getting it Right; Part II

In our last post we noted that study after study has shown that, on average, 30% to 40% of negotiated savings never materialize and this is because the “strategic” element is usually forgotten once the sourcing exercise is over. True value can only be created through category management if the entire category lifecycle is addressed and properly managed as part of a strategic category management plan. In our last post we noted that a strategic category management lifecycle consisted of at least nine phases, and labelled each of these phases. In this point, we are going to discuss, at a high level, what each phase is.

In the rationalization phase, the category team identifies the category or verifies that the category still makes sense from a sourcing / management perspective. Sometimes, categories need to be changed up a little. For example, let’s say that you had an office supplies category and you were grouping printer ink in the category but not printers, which were grouped in electronics. This may or may not still be a sensible category from a value management perspective. On the low end of the price scale, it costs more for cartridges than it does for the printer. It may be possible to negotiate a better deal from the office supplies vendor on the printers than it would be with the manufacturer. When you consider that the office supplies vendors often buy in much greater volumes, have already negotiated great volume discounts with the manufacturers, and know they are going to make a lot of money on the cartridges over time, they have a strong incentive to give you the printers at their cost. Manufacturer’s don’t!

In the supplier identification phase, you identify the suppliers who could service the category as a whole, or at least significant portions of it so that you do not have to work with more than an optimal number of suppliers (as per the strategic category plan).

In the sourcing phase, you analyze the category and come up with an optimal category sourcing and management plan, the strategic plan for the category, and then you conduct the appropriate sourcing event. It may be a simple RFX, an automated auction, a multi-round optimization-supported negotiation, or participation in a pre-existing GPO contract that leverages total volume. It depends on the category, market conditions, and specific organizational needs.

In the contract award phase, the contract is awarded and the specific service levels, performance metrics, and execution requirements are laid out.

Then the supplier management phase begins, and doesn’t stop until the last unit is not only delivered but recovered or returned. If the products come with a three year warranty, this phase could go for three years beyond the initial sourcing period.

Shortly after the contract is awarded, the procurement phase begins and delivery of the products, services, and/or product/service bundles begin.

Once the first delivery is taken, the inventory has to be managed and prepared for distribution to the end consumer at the appropriate times. In other words, the needs of the outbound supply chain have to also be identified and balanced with the savings achievable through the optimization of the inbound supply chain.

At some point, some of the products will break down and need to be recovered, repaired, refurbished, or recycled. This returns management process also has to be efficiently managed or all of the savings achieved in the sourcing will disappear in the warranty management.

Finally, if the product was returned because of a manufacturer’s defect that cannot be repaired, the product will need to be returned to the supplier for credit and/or working components (that can be reused) may have to be recovered as part of final recovery management.

This is the category management lifecycle in a nutshell. In our next post in the series, we will discuss some tips for maximizing your return.

The Strategic Category Management Lifecycle: Getting it Right; Part I

Two days ago, when we asked if there was a difference between strategic category sourcing and strategic category management, we noted that there technically was a difference but that, for all intents and purposes, strategic category sourcing and strategic category management should be treated as one and the same. The reason? Study after study has shown that, on average, 30% to 40% of negotiated savings never materialize and this is because the “strategic” element is usually forgotten once the sourcing exercise is over. For savings to materialize, the strategic plan has to be followed from the time the award is granted, through the time the last unit is sourced, and to the time the last unit is reclaimed and/or the last warranty expires (depending on the strategic plan).

Sourcing only identifies savings opportunities. These opportunities are only realized through the execution of the strategic plan which occurs in the Procurement, Logistics, and Warranty/Returns management function. The entire lifecycle of the category has to be managed in order to achieve the potential savings from managing a well designed category. This is the first step to getting it right.

Thus, the first thing one needs to understand is the entire lifecycle of a category-based supply chain. At a minimum, the strategic category management lifecycle consists of at least the following nine phases / tasks:

  1. Rationalization
  2. Supplier Identification
  3. Sourcing of the (Servitized) Category
  4. Contract Award(s)
  5. Supplier Management
  6. Procurement
  7. Logistics / Inventory Management / Distribution
  8. Inverse Logistics / Repair and Recycling
  9. Credit / Material Recovery

Each of these phases must be addressed, and skipping any one phase can jeopardize the entire strategic plan and the savings you hope to capture and/or the value you hope to create. In our next post, we will describe each of these phases in more detail.

Keep Your Big Data. Big Brains Will Win in the End.

I have to admit that I’m sick of all this hype about big data and how it is the answer to all our problems. As I’ve said again and again, there’s no such thing as big data in business. Relative to our ability to process it, data has always been big. And, in business, big has always been meaningless. Furthermore, in business, we’ve always been able to process as much data as we need to in reasonable amounts of time if we made good technology decisions.

And I’m even sicker of the fact that some people think we can replace science with math and processes with computer programs. We never could, and for the foreseeable future, where AI (artificial intelligence) will not be a reality, we can’t. Thinking like this is what causes economists to latch onto, and promote, financial policies that, seem good in theory but, in practice, result in economic collapse when taken to extremes.

The reality is that science can never be replaced by math and automated prediction. Not only is the author of this HBR blog post on “why data will never replace thinking” right when he says that it’s only by trying to come up with our stories (hypothesis) beforehand, then testing them, that we can reliably learn the lessons of our experiences — and our data, but it’s only by coming up with hypothesis, and putting plans into actions that we can beat the competition and gain market share in the global market. Look at the giants of industry today. Did Apple become the dominant first in the e-Music industry by letting Microsoft, Sony, Samsung, etc. develop their music players and music stores first, analyzing customer responses, and then introducing their offering? Or did they become the dominant force by using their brains to try and figure out what the market, and customers, were missing, using the best creative and engineering talent to design a solution, and then releasing that product on the market? It was the latter solution — the solution that required big brains that won the market. Similarly, Walmart became the biggest retailer not by asking consumers want they wanted, but by predicting what the average consumer really wanted — a one-stop department store that met most of their basic needs at low prices with a consistent product and service offering across each store for the mobile consumer.

This isn’t to say that data isn’t important, it is, just that it won’t solve all your problems and that, beyond a certain point, more data doesn’t help. Remember, statistically speaking, you only need 384 data points to have 95% confidence with a confidence interval of 5 on a population of 1,000,000. If you want a confidence interval of 3, you only need 1,066 data points, and if you want a confidence interval of 1, you only need 9,513. Beyond a certain point, more data doesn’t add much confidence and the only way you’re going to get more insight is to see it inside your head.

So keep your big data. I’ll use my brain instead. How about you?