Category Archives: Market Intelligence

Ariba Vision 2020: Close, But No Cigar

This post addresses the four predictions that came close to the mark in Ariba’s “Vision 2020 – The Future of Procurement” report. For the most part, they were just a little too hopeful.

02. Intelligence moves into context

Intelligence will move into context, and be front and center in leading supply management organizations, but will not be a substitute for Supply Management Professionals with expertise in risk and economics and target markets. Just like a dashboard can only alert a user to a known issue, automated monitoring solutions can only alert a user to known risk indicators. Political uprisings, natural disasters, and financial failures (due to a loss of one or more major contracts when a supplier is operating on razor thin margins) can still come without any obvious warnings and only a sourcing professional who is carefully monitoring the country, the news, and the supplier will be able to detect a significant event before, or, in the worst case, as soon as it begins.

06. Prices go transparent

Price transparency will continue to increase to the point where most prices for most products and services will be known to within a few points most of the time, but there will be limitations in accuracy, just like there will be limitations in systems’ ability to predict risk and market changes. Unexpected natural disasters, political uprisings, enthusiastic traders, and government intervention will still create unexpected (artificial) supply shortages that materialize over night and wreak havoc on prices. In addition, shifts in consumer preference, organizational boycots, and new regulations will contribute to rapid demand decreases that will do the same.

11. SBUs absorb procurement

Strategic Business Lines will absorb most day to day Procurement and Supply Management functions, leaving the Supply Management organization to focus on strategic initiatives, long-term value generation, innovation, and business line consulting when and where it is needed. And tactical procurement functions might entirely disappear from procurement, being handled by service centers that support the various business lines. But Supply Management will still be needed to not only deal with strategic initiatives, but to handle special projects and unexpected situations when they arise. Since the strategic business lines will never by Supply Management experts, they will never truly absorb all of the Supply Management functions.

25. Early is the new black

Suppliers will be more heavily involved in NPD and will be involed earlier in the process, but it won’t always be on the ground floor. Suppliers have limited resources too and dragging them in to every project before the supply management professional has identified the value they can bring and the value they stand to receive will only result in strained relations. They’ll be brought in when the supply management organization feels the time is right, but it won’t always be early as that will be too speculative, and, in some cases, risky.

Close, But No Cigar

The next post will discuss the four predictions that were totally off base.

Ariba Vision 2020: Tomorrow’s Shoes (Part II)

This is the second of two posts that address the fourteen predictions that were dead on in Ariba’s “Vision 2020 – The Future of Procurement” report. Any Supply Management organization that recognizes the truth of these predictions is well on its way to formulating a plan to be a leading Supply Management organization in the decade ahead.

18. Offensive line takes the field

Supply Management professionals will increasingly use online communities and networks to discover, connect to, and collaborate with suppliers in a relentless pursuit of growth and expansion in line with the strategic goals of the company. Furthermore, the collaboration will be much more intensive and innovation focussed than it is today.

23. Buyer-seller lines blur

The focus will shift from the effective utilization of supplier functions to the effective integration of supplier functions to the point that integrated supplier functions will be almost indistinguishable from buyer functions. In leading organizations, the line will blur to the point where it is essentially nonexistent.

24. Innovation comes from without

As the paper says, the supply management role will be less about “person-who-brings-innovation-in” and more about “person-who-assembles-innovation-communities-and-gets-out-of-the-way”. Even at most companies that use innovation networks today, the innovation is still driven by the supply management professional that posts a problem in need of a solution. In the future, the networks will identify the problems and the solutions and then bring them to the supply management professional. Next generation web-based technology will bring the democratization of technology to new heights.

26. (Key) Suppliers gain power

Increasing reliance upon (key) suppliers is going to give them substantially more leverage in buyer-seller relationships, which is going to result in the supply management organization having to sell itself to the supplier as a customer of choice instead of the supplier having to sell itself to the supply management organization as the supplier of choice. And the more innovative the supplier, the harder the sell the Supply Management organization will have before it.

27. Firms share risks and rewards

The leading supply management organizations, that are incorporating incentives into their contracts today, will move to a shared risk and reward model where both parties share the rewards of a successful venture as well as the risks of the undertaking. No longer will contracts be lopsided in favor of the buyer that will be as reliant on the supplier as the supplier is on the buyer.

30. Risk info catches up

Risk management will take prominence in an average Supply Management organization which will have more access to readily available third party information (from networked communities where participants pool data for operational risk assessment) and be better poised to mesaure risk and formulate appropriate mitigations. Risk management will be embedded in every sourcing and contracting process and a key component in the calculation of expected value.

31. Profits replace cost savings

The shift in focus from cost to value will see most Supply Management organizations retire cost savings and instead institute profit generation as a primary measure of organizational success. Top line growth will be just as important as bottom line impact in an organization that wants to improve business outcomes overall.

The next post will address the predictions that came close to the mark, but did not hit it.

Supply Management: Secret Agent of Business Impovement (Key NPX Take Away 5)

 

James Bond Theme Song

 

In our final post for the week on our discussion of the key take aways from The Mpower Group‘s Next Practices Xchange and its discussion of what is required to get to the next level of supply management, we finally get to what matters most: A Next Level / Practice / Generation Supply Management Organization that identifies, secures, and executes on value is the Secret Agent of Business Improvement and every Supply Management Professional is an organizational 00 with a license to kill [waste].

Of all of the messages delivered at the NPX, this message from Alastair Donald, the Chief Procurement Officer of Global Procurement Services of ConocoPhillips Company (which currently holds the #4 slot on the Fortune 500) is probably the most important. Supply Management is the secret agent of business success, and ConoccoPhillips continued prominance in the top 10 of Fortune 500 over the last five years years (#6 in 2010, #4 in 2009, #5 in 2008, #5 in 2007, and #6 in 2006) is largely due to significant improvements in Supply Management over the last four years, which went from delivering, on average, a low single digit annual cost reduction from 2002 to 2006 to a low double digit cost reduction from 2007 to 2010. (While SI cannot release exact numbers, the improvement is very impressive.)

So how does Supply Management deliver such significant improvements to the business? First of all, it gets its house in order and ensures that the following ten functions are adequately staffed by its secret agents:

  • Strategic Sourcing
  • Contract Management
  • Category Management
  • Materials Management
  • Supplier Relationship Management
  • Talent Management
  • Procure-to-Pay
  • Governance & Compliance
  • Sustainable Sourcing
  • Market Intelligence

Then it addresses the threats to national security (and organizational stability):

  1. tactical focus
  2. wrong skill sets (engineers are not enough)
  3. ineffective contracts
  4. too much money spent on PO processing
  5. weak governance
  6. lack of value creation

by way of

  1. strategic execution
    which focusses on correct time allocation, the right organizational design, and integrated processes and tools
  2. skill enhancement
    which focusses on identifying cross-functional high potentials, recent college graduates who can be future secret agents, identification and absorption of external expertise, and an end-to-end talent management process
  3. contact excellence
    which focusses on getting the majority of contracts (including all high value or high risk) on company paper, getting templates in place to expedite the process, and ongoing risk assessment
  4. lower PO costs
    by way of a single global ERP instance, appropriate P2P support systems, and low-cost tactical processing centers
  5. globalization
    managed with a center-led philosophy and key stakeholder councils
  6. true value creation
    by way of a value-driven sustainable strategic sourcing process, dedicated SWAT teams, commercial astuteness, robust models driven by high-powered analysts, financial validation, and fact-based decision making

Secret agents will be needed to pull all this off because only secret agents will be able to deal with all of the challenges that will arise, including:

  • artificial constraints
  • strategy changes
  • short term focus by the peer group organizations
  • talent abduction
  • availability of SMEs
  • change management
  • sleeper agents

but when Supply Management has a seat at the grown-ups table, is on investor relations radar, is being pulled in by other organizational units on a regular basis, has its budget increased (while every other organizational unit sees a decrease), and is no longer seen as the leper colony or roach motel, it will be worth it. Because once every dollar taken out by Supply Management hits the bottom line, Supply Management will truly be the secret agent of business improvement.

Are you Really Focussed On Value? (Key NPX Take Away 1)

Last week I attended The Mpower Group‘s Next Practices Xchange which is a gathering of some of the top supply management personnel from a select group of Fortune 500 companies who met to discuss how to get to the next level of supply management. Realizing that today’s best is not enough to sustain value in an increasingly competitive and economically challenging global marketplace, the best of the best are already trying to figure out how they are going to maintain their edge in tomorrow’s supply chain landsape. It’s a hard question that is not getting enough attention (as per my recent posts on Next Generation Sourcing and Supply Management), but there are answers to be found for those willing to look hard enough. This series will address some of the questions that a Supply Management organization needs to address to get to the next level, as well as providing some starting points for those looking for answers.

Whether you call it Next Level Supply Management, Next Generation Supply Management, or simply Next Practice, the key commonality to advancing the supply management function is moving from a cost focus (even if it is TCO) to value. However, before one can get to value, one has to understand what value is. Lamar Chesney, CPO of SunTrust, had a great presentation on value perspectives and how our view of value is rarely their view of value and how we fail to realize the value that is available in a Supply Management initiative because of this.

For example, while everyone may agree that price reduction is value, our view of value is generally not their view of value.

When we focus on What they really want is
cost avoidance speed to realization
TCO sense of comfort
specificity of deliverables practical certainties
contract certainties and flexibilities feeling of specialness
risk mitigation and governance contributions beyond sourcing & SRM

And, more over, this is how a Supply Management organization often responds to their view of value (even if the Supply Management organization does not realize it is doing it):

What they want What we believe
speed to realization speed kills
sense of comfort a good contract trumps the soft stuff
practical certainties a good contract, which can take months to negotiate, insures you get what you want
feeling of specialness everyone knows the supplier is providing a commodity and there’s nothing special about the product or service
contributions beyond sourcing & SRM sourcing strategies, contract management, category management, SRM, etc substitutes nicely for my help with your business strategy

See the problem? Not only does the (internal) customer rarely want what Supply Management wants to deliver, but the messages that Supply Management sends scares the internal customer away because the core message the internal customer hears is that what you value doesn’t matter. Not a good foundation for building the cross-functional team necessary for generating value.

The Best Way to Handle Decentralized / Local Supply Management Groups

While a well designed Sourcing / Procurement / Supply Management organization will have as many functions center-led, if not centralized, as possible, in a large multi-national, some groups will have to be regional to be effective and some purchases will have to be local. For example, fashion purchases will have to be driven regionally by someone with a pulse on the market and it does not make sense to ask the central asset management organization in (southern) India to manage snow removal operations in (northern) Canada (unless someone wants to see some really strange looks).

But how does your hybrid center-led Supply Management organization effectively manage these decentralized / local groups for best results? A great post on how when managing complexity, “less is more” over on the HBR blogs had a great suggestion — restrict activies at the group level to a core set of five that enable and enhance business performance. Specifically, focus on:

  1. Portfolio Management
    which activities fall under Supply Management purview
  2. Performance Management
    what are the cost / quality / value goals for each unit and how will the center-led Supply Management organization help the units achieve the goals
  3. Capital Allocation
    what investments can be made in each unit (in terms of technology, process, and people) to deliver the greatest returns
  4. Talent Management
    are the best people working the right jobs
  5. Synergy Capture
    to identify new or large opportunities that should be pulled up into the center-led Supply Management organization

It’s all about the selection of the handful of critical leverage points that will have the biggest impact on success and [a] relentless focus on doing them better. The purchase was pushed out to a local group because it wasn’t of a high enough value to manage centrally or because the central organization did not have the (local) knowledge required to make the best decision, so it needs to focus on the leverage points that will help the local organization, not on the task itself.