Category Archives: Market Intelligence

New White-Paper! Spend Visibility: An Implementation Guide

Sourcing Innovation is excited to announce the release of Spend Visibility: An Implementation Guide. Clocking in at over 130 pages, this is the first white-paper that not only defines what spend analysis and spend visibility really is, but that also offers a step-by-step, vendor-free, implementation guide that demonstrates how an organization can achieve substantial year-over-year savings. Truth be told, it’s chock-full of information that many spend analysis service providers don’t want you to know. In the past, many organizations would pay tens of thousands of dollars for the information contained within its pages, which would be gathered incrementally during projects with third party experts, but it is now free for the taking as Sourcing Innovation wants everyone to understand what Spend Analysis and Spend Visibility is, and is not. As per the introduction, it’s important to understand that:

Almost any attempt by an organization to analyze spending patterns is likely to be fruitful, especially if there hasn’t been a serious prior attempt. It is easy to find thousands of breathless testimonials about a particular product or method — independent of the quality of the product or method — because almost any product or method will find savings if a spend visibility initiative has never been launched before. “In the land of the blind, the one-eyed man is king.”

However,

This simple fact has confused end-user organizations and analysts for many years. In fact, it has convinced most spend visibility vendors (and most analysts) that spend visibility is a fundamentally simple process of mapping Accounts Payable spend, and then drilling for dollars. This is why many spend analysis products have remained largely unchanged for years; there is no perceived need to do anything “more”.

And this is a BIG problem. The savings come from doing more. Much more. As the introduction continues:

What is not so obvious is that this initial burst of savings is short-lived; and that many of the “quick saves” that result are unsustainable. The key question is what to do next; in other words, how to implement a true strategic spend visibility initiative that will return value and keep returning value over time. There are too many spend visibility products that are lying unused or on the shelf, after the first burst of excitement has passed; and too many organizations who are tired of hearing a spend visibility message that has no further relevance to them.

The reality, as advanced organizations understand, is that:

Strategic spend visibility is much more than building a simple Accounts Payable cube, and that analysis of spend requires deep thinking on many dimensions, along with many different analysis cubes.

And the real question is:

How is this to be accomplished? Although much of the strategic spend analysis “lore” has been locked up inside consulting organizations, this is starting to change. The hope is that this Guide will help to promulgate some of the key ideas around strategic spend visibility, and ideally point organizations toward strategies that can result in sustainable savings through a continuous succession of intelligent spend control initiatives.

And that’s why it’s being made available to you completely free. No pay wall, no registration wall, and no restrictive distribution license. In order to advance spend analysis and spend visibility to the next level, you need to understand what it is. So download your copy of Spend Visibility: An Implementation Guide today. It will be worth the time it takes to read it.

How to Identify a Dangerous SalesPerson

A blog post over on the HBR last month on the worst question a salesperson can ask provides a great gauge that you can use to determine the quality of the salesperson selling to you.

If the salesperson starts out by asking what’s keeping you up at night, you know you didn’t get the best your vendor has to offer. Why?

As the article explains, you don’t always know what you want. Just because you know the symptoms of the problem you are experiencing, you don’t necessarily know what the problem is. Just ask a doctor. Fatigue (which we’re all facing being overworked and underpaid in this challenging economy) could be a result of post-viral fatigue, POTS, mononucleosis, epstein-barr, sturgeons, sleep disorders, heart disease, adrenal exhaustion, anaemia, cancer, depression, and diabetes just to name a dozen possible causes.

The same holds true in business. Chances are you need a technology solution to streamline something, but it may not always be the obvious solution. For example, you’re having trouble getting your supplier’s invoices turned around within the discount window. Maybe you need an e-invoicing solution, but maybe you need a better inventory management solution. For example, if Finance will not pay an invoice until it can verify all of the goods are received and in inventory, that a goods receipt has been generated, and there are no goods in need of immediate return, then, if your inventory system requires manual data entry of each item in a slow and laborious process, that’s a problem — especially if your supplier is equipping your palettes with RFID chips. In this case you need an inventory management system that allows automated addition of goods to working inventory once (  a  ) the line-item invoice has been received, (  b  ) the RFID chip has been scanned and (  c  ) a warehouse worker has verified that the containers are in your possession. If you’re not aware of Finance’s policies and not aware that it takes the warehouse a minimum of two weeks to complete the requirements because of the process required and constant backlog, you’ll never know you need a newer inventory management system and might get suckered into buying a new invoice management system that won’t help in the least.

As the blog post points out, you want a salesperson who is a Challenger who can identify, and reveal, potential problems, and solutions, that you don’t even see. That way you can explore all potential sources of a problem until you identify what the real problem is. Then you can select the right solution — which is one that maximizes the overall value you receive. Not before. So if a salesperson starts out by asking “what’s keeping you out at night”, show them the door before, as the authors note, you are robbed of an hour of your life.

Want More C-Suite Support? Change Your Message!

Cost Reduction and Value Enhancement are important messages, but if the CEO/CFO aren’t smart enough to understand the message, or don’t believe the message, start by focussing on their vanity. Specifically, as this recent CPO Agenda article on “the multiplier effect” points out, a CPO should focus on how the CEO and CFO can use Supply Management as a growth and career-enhancement ‘lever’. Money saved through the traditional tactics of aggregation, rationalization, negotiation, and optimization — core tools in the Supply Management toolkit — drastically increases profitability. And since increased earnings lead to market rewards, the CEO and CFO can look forward to accolades, and commiserate rewards, in their annual review. With little effort on their part.

Remember to point out that, without solid supply management, the company will be giving away 30 cents on every dollar that it could be keeping, and using to fund market expansion efforts in developing economies. Expansion efforts that will be key to continued corporate success given the stagnant sales environment in most of the developed economies. So appeal to their vanity. The important thing right now is to get the support the organization needs to take its supply management to the next level.

Centralize or Not?

Badly judged centralization can stifle initiative, constrain the ability to tailor products and services locally, and burden business divisions with high costs and poor service. However, insufficient centralization can deny business units the economies of scale or coordinated strategies needed to win global customers or outperform rivals.
McKinsey Quarterly, “To Centralize Or Not To Centralize”

So how do you answer the question? Especially when none of the executives interviewed in 30 different global companies volunteered an orderly, analytical approach for resolving centralization decisions when interviewed. After all, benchmarks, politics, and fashion — the usual approaches — are not the answer.

In the above referenced article, McKinsey put forward a decision making framework based on three questions. According to the framework, centralization should only occur if at least one of the following questions can be answer affirmatively.

  1. Is it mandated?
  2. Does it add significant value?
  3. Are the risks low?

For the most part, SI agrees. The only disagreement is with the explanation of value. According to McKinsey, it should add 10% to the market capitalization or profits or be part of a larger initiative that will add 10%. Significant value is not always immediately quantifiable, especially where innovation is involved. Thus, SI would also recommend centralization if the following question can be answered affirmatively:

  1. Will it increase the chances of innovation without significantly reducing any of the benefits decentralization provides?

If, for example, the only downside to centralizing a certain buy is that you have to add more users to your online supply chain platform and buy a few more licenses, this would likely be a case where you would centralize the buy as it would provide opportunities to innovate in network design and inventory management.

Patent Pirates Are Still Plundering

According to this recent article over on CNN Money, “patent trolls” (Sep 21, 2011) have cost investors Half A Trillion Dollars over the last 20 years. Half A Trillion Dollars! That’s an awful lot of innovation down the drain!

At this point, I’m wondering which pirates are worse? The pirates off the coast of Somalia, who have escalated their attacks and brought ocean piracy to an all time high this year, with 142 attacks in the first quarter alone (and 346 attacks as of September 27). Now, it’s true that the attacks are sometimes violent and that 15 people have been killed this year, but for the most part, the Somali pirates are more focussed on taking hostages in return for ransoms, and release the hostages when they get the ransom. And while the ransoms are getting higher, with the average ransom reaching 5.4 Million in 2010, total payments in 2010 were only 238 Million. Yes, this is a big number, and 20 times 238 Million is a bigger number at 4.76 Billion, but that’s only 1% of losses that can be attributed to patent pirates. One percent!

And the “contributions” that the patent trolls supposedly make to innovation are essentially nonexistent. They’ve funnelled less than 10 Billion to R&D, or less than 1/50th of what they’ve cost investors and innovators. All they do is create a disincentive to innovate. And in SI’s view, they should be made to walk the plank.