Category Archives: Market Intelligence

BFC or IND? Which is better? And Why Does Procurement Care?

If you want to increase market share, the standard strategies employed by marketing typically fall into the:

  • BFC: Better, Faster, Cheaper bucket and the
  • INP: Innovative New Product bucket

In the first case of BFC, you pick a product out there (which could be one of your own) that people like, and figure out how to make it better, faster, cheaper and sell them a must-have upgrade.

In the second case of IND, you pick a product (like a cell phone) and figure out how to revolutionize it (like a smart phone) or how to add a feature (like facial recognition) that no one has yet and make it a must have.

In the first case, if the company makes a version of the product, Engineering picks the preferred supplier and starts a collaboration to try and take cost out of production while adding quality and features. In the latter, they undertake research into current products, production processes, and material requirements and try to find a design and a production process that can lower costs and improve quality or attractiveness to the market.

In the second case, a brainstorm is done to figure out what the market would want that might be possible, R&D is called in to see if it can be made a reality, Engineering is called in to get some production data for costing, research is done to see if the market will bear it, and a decision is made.

Sounds like it’s all Marketing, R&D, and Engineering — so why do you care? Because if the stakeholders involved decide something can be produced at cost X, they are going to expect you to beat that cost, whether or not its reasonable.

Moreover, when they have the option of BFC vs INP, they will often choose based upon their market projections of profit which comes down to their views on cost. So if you can’t meet the cost, the organization will lose and will be blamed. But more importantly, they can overestimate one cost and make the wrong choice, where you could win big, or, even worse, they can overestimate the supply market when there are really only two or three suppliers, all at capacity, and all without the time to do the necessary production line upgrades. Not only do you have a cost issue in the latter situation, but you also have a supply base issue.

Procurement needs to be at the table as part of all BFC and/or INP product considerations, especially when pricing and projections of market AND supply market are being made. Only Procurement can bring the proper knowledge, calculations, and projections for the company to make the right bottom line decision. And while Procurement will likely want to, and probably should, stay out of discussions of what the market will want, what R&D can do, etc., it can’t stay out of the cost and projection discussions. Otherwise, it’s the organization that will get burned in the end — even though it’s not at fault.

How Do You Identify a Truly Stellar Supplier

Assuming one exists, how will you know one when you find one?

Five years ago, we asked how do you identify a stellar supplier? One way, as we pointed out, was to find a supplier that actively self manages. A supplier which measures, tracks, and even reports its own performance against SLAs and KPIs, accepts — and even helps to identify — the corrective actions it needs to take, actively works to not only meet expectations but exceed them, and communicates as soon as something happens that could threaten a KPI, SLA, commitment, or expectation.

Then, if you find multiple candidates, find a supplier that wants to collaborate. Find a supplier who will work with you to jointly identify opportunities for efficiency improvements and cost reductions and help keep costs down for all. This is even better. But is it as good as it gets?

No. You want a supplier who will open its books, at least so far as what it’s costs are that affect you. And what you can do to bring those costs down. That dives into its overhead costs and lets you know if energy, manpower, or cost of capital (if it needs to borrow to meet daily cash flow needs until you pay for finish goods 30 days after shipment) and what it could use from you to lower costs — such as faster payments, help with de-regulated energy negotiations, or production line improvements and lean initiatives to keep manpower costs steady. And into raw material costs, and where it needs more volume or negotiating leverage to keep costs down.

And then a supplier that helps you identify your tier 2 supply chain risks. What good does it do for a buyer to know it’s tier 1 risks when most disruptions begin further down the chain — and when the only way to possibly recover against them is to get early warning. A truly stellar supplier also works with you to put in place systems that will allow the supplier to report on potential disruptions in its supply chain (when raw materials don’t show up in time, when the quality of components it gets goes down, etc.) so you know when trouble might be brewing and, if your supplier needs help, when you can help it to prevent troubles later.

A truly stellar supplier doesn’t hide its risks and costs from you — it shares the and allows you to work with it hand-in-hand in lean efforts to create truly stellar supply chains.

There is No Free Lunch, and There is No Free Shipping Either!

Even though shipping is not, or should not, be that complicated anymore, it’s still relatively human intensive (as even technology-driven shipping requires someone to scan the labels, read the response, and load the products into the right boxes and then into the right truck for delivery to the right recipient) and will always costly. Why?

  • Every form of transportation requires a vehicle

    and all vehicles have acquisition and maintenance costs

  • Every form of vehicle requires some form of power

    and all forms of power have a cost, even if they are based on some form of renewable resource (as windmills have to be maintained and biomass has to be grown) — so energy costs will never go to zero

  • Every vehicle requires an operator

    even if the operator is the programmer maintaining the system that controls the drone or the self-driving truck

And not all goods are simple consumer goods that can be put in a box on a truck and handed to you by an average FedEx delivery driver. Some are fragile and require extra packaging. Some need to stay cold or frozen. Some are hazardous materials. Sometimes shipping a single small item can cost thousands, especially when you add in the extra costs in packaging, handling, pick-up, and delivery.

In other words, shipping is expensive. And anyone giving you free shipping is including it in the price, probably at a padded mark-up. So don’t fret the shipping, fret the total cost of the purchase relative to the value received. Sometimes if you shop around you can get a better product at a lower overall price, shipping included.

This is especially true if you’re buying from online marketplaces, Amazon NOT excluded. (Going back to Amazon, as the doctor has noted before, by now consumers should have caught on to the fact that many of the less-reputable third party merchants that use Amazon Prime Shipping mark up their merchandise to cover the shipping costs. the doctor has seen $40 to $60 mark-up on small items that probably only cost $10 to ship with Amazon’s massive shipping discounts.)

There Is No Such Thing as a Free Lunch In the Platform World

So before you rely on a network or free platform, ask yourself, who’s paying? And what is it costing you?

We’ll start with the obvious — the supplier network. Platforms, especially secure ones, cost money. It’s not just the hardware and the connectivity, but the manpower to keep the software up to date and monitor for potential breaches, fixing them before they are exploited. It’s the manpower to make sure the network is in compliance with global regulations in each country its users do business in. And if you’re not paying to find and transact with suppliers, who is? Not a third party. So that means the supplier is paying. And that cost is hidden in your cost. Now, that might be okay if the cost is low, but is the cost low? Especially for the supplier who might need to conduct all its business on the platform? If the cost is a 3% transaction fee taking from the supplier, that’s pretty high when a large network that enables 100M in business a year can be run for less than 1 Million! After all, chances are your business doesn’t have 66% profit! (Although it would like to.)

We’ll move to the not so obvious — the certified supplier discovery portal. A big database of certified suppliers for your diversity, sustainability, or regulatory compliance project. Now, we all know databases are cheap, relatively speaking, in the enterprise software world. Maybe a six figure license and a platform with an annual six figure cost to keep it up. But keeping diversity status, certification status, and regulatory compliance status up to date where such status is human verified at some point ain’t cheap. Even though a minimum page worker can read a certificate and check it against a third party authorization source, that’s still a few minutes of time and if it has to be done for thousands, tens of thousands, hundreds of thousands, or millions of entities … that time adds up, and it costs. If you’re not paying for that, chances are the supplier is for the listing and the verification. That’s fine if it’s a one-time (annual) cost, but if they also have to give up a network introduction fee, transaction fee, etc. every time a buyer wants to reach out to them through a network, that adds up.

But it’s not just supply platforms that cost you. It’s the other free platforms you use every day to find people and suppliers and communicate with them. Consider LinkedIn. It might be free, but do you have any idea how much corporate intelligence you’re giving up when your employees put deep profile information on it. When you advertise jobs on it. When you put company profile information on it. When you put detailed product spec sheets on it. And so on. If someone links and mines all that intelligence, they can figure out not only what you’re trying to sell now, but what you’re most likely working on, who’s doing it, and even how you are going to try to differentiate the offering in the market. That makes free pretty damn expensive in my book.

But LinkedIn isn’t your only worry. Chances are a number of your employees are using Google Office to collaborate. Free Google Office. First of all, that can go away at any time and take all the data stored on the drives with it. Secondly, if you read the fine print, anything you put on the drives can be used by Google as they see fit (for advertising, data mining, etc.). With so much data, chances are that yours will have, or make, any material impact or ever pass before unwanted eyes, but there’s no guarantees. Plus, with everything link shared, your sensitive data is one link away — easily obtained from one email hack.

There’s no free lunch, and the more free platforms you use, the more it is costing you. Remember that.

How Can You Claim to Produce an Integrated Report if You Cannot Create a 360-degree Supplier Scorecard?

Integrated Reporting is an approach to corporate reporting that demonstrates the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. It’s still on the rise as companies try to demonstrate their focus to sustainability and corporate responsibility.

And while there is no real globally accepted framework for integrated reporting (even though there is the International Framework) that is designed to accelerate the adoption of across the world), it’s coming as more and more investors and stakeholders demand it — and more and more countries demand it from public companies.

But if a company cannot create a 360-degree supplier scorecard, linked to all activities and relevant intelligence on the supplier and its activities, can it really produce an accurate integrated report? After all, can a company really say it’s sourcing ethically just because its suppliers all fill out a survey saying they accept the company’s ethical sourcing guidelines? Can it say it’s using sustainable packaging if only it is using sustainable packaging (that is reusable or recycled) while all its suppliers get their raw materials and components in unsustainably produced (non reusable, non-recycled packaging)? Can it say its meeting its carbon production goals if it is unable to truly capture the carbon produced by its supplier and how it should be allocated across the goods it consumes?

The answer is no.

Nor can it truly report on the (financial) risk in its supply chain if it doesn’t understand its supplier’s (financial) risk and how it impacts its supply chain. The biggest risks … that lead to the biggest disruptions … start deep … sometimes all the way back at the mines or the farms half a world away. And they have ripple effects … getting bigger and bigger as they progress up the chain.

So if you want to claim accurate integrated reports, first make sure you can crate accurate, intelligence enriched, 360-degree scorecards … for your entire supply base.