Category Archives: Marketplaces

It’s not the Portal or the Network … it’s the Facilitation

Global Logistics & Supply Chain Strategies recently ran an article that asked “if supplier portals were so great, then what went wrong?” that had a really good history of supplier “portals” and some insights into the reasons why they may have failed. However, I have to question whether or not their statement that the survivors have evolved into networks with real value is accurate. But first, let’s review.

As the article notes, supplier “portals” were cheap and easy to set up in the early days, and this was because these “portals” were often narrowly focussed on automating the transaction, getting the buyer the best deal, or allowing a buyer to find a new supplier. As the article also notes, they didn’t take a holistic view of supplier performance management (SPM) and collaboration, and, more importantly, of the sourcing AND procurement process. Furthermore, most of these companies had ill-formed business models or a “me-too” business plan (which was a sure sign of failure – how many outlets do you need for “best-priced” office supplies?).

This meant that many suppliers, including those who originally embraced the “portals”, pushed back, as they quickly concluded that there was little value there for them and that the “portals” were just another means for a buyer to boost his or her discount. Thus, many of the original portals failed.

Today, according to AMR, you have “networks” which offer a single transaction backbone, feature common instances of software for multiple users, provide scalable communications platforms that utilize standard message formats, allow for common applications, and allow members to share customers, suppliers, and service providers. Furthermore, they create a business network that includes retailers, manufacturers, logistics providers, suppliers, contract manufacturers, and other channel partners.

Today’s “networks” are arguably better than the “portals” of yesteryear, but do they, in and of themselves, offer the “real value” purported by the article headline?

Many networks offer instant access to, and identification of, thousands of suppliers. Mostly Worthless – most companies know who their suppliers are and who the main competitors of their suppliers are. They don’t need to identify suppliers. They offer automated document exchange – for a transaction fee. Hmmm … so do most sourcing and procurement platforms, and e-mail is essentially *FREE* if you’re hosting your own servers. They centralize information in one place. So what? So does your monolithic ERP. They offer e-Payment – which is usually calculated as a percentage of the payment amount. In comparison, many banks have ACH services that allow you to do e-Payments for a fixed transaction fee. Where’s the value???

Unless the platform offers real collaboration capabilities (and I’m sorry, but e-mail and FTP document exchange doesn’t qualify), and unless the platform “enables” the supplier, there’s no significant value to the network. What do I mean by this?

First of all, the platform, be it “portal”, “network”, or “marketplace” has to offer as much value to the supplier as it does to the buyer. Not only should it make it easier for the buyer to do business and get a good deal, but it should make it easier for the supplier to do business and negotiate a good deal as well. Capabilities should be bi-directional. If buyers can find new suppliers, then suppliers should be able to notify potential buyers about their capabilities as well and easily query “open” RFIs. If buyers can create questionnaires, then suppliers should be able to create questionnaires and ask questions to clarify a buyer’s need with just as much ease. Document sharing is one-thing – real time collaborative document creation is another.

Furthermore, in addition to allowing a buyer to pay electronically, it should allow a supplier to electronically submit its invoices and manage its payment terms. For example, if the supplier agreed to 90 days net, they should be able to offer *different* discounts for 30 days and 60 days. It should allow a supplier to manage all of their purchase orders, shipments, and goods receipts as well as allowing a buyer to manage the same. It’s all about enablement – and if the “portal”, “network”, or “marketplace” doesn’t enable the supplier to serve the buyer, and themselves, better – the value of such a solution is limited and it too will disappear as fast as some of the dot-com busts of the last decade.

 

What Defines An Emerging Market?

Knowledge @ Wharton China recently ran an interesting article that asked “when are emerging markets no longer ’emerging’?”. According to the article, dozens of countries, many of which show signs of a strong and growing middle-class population, fall under the label even though they are evolving at their own pace and with their own twists on economic development.

The term, reported to be coined by Antoine W. van Agtmael during a conference in 1981, was initially meant to be a more uplifting definition of ‘third world’ markets that were up-and-coming and good investment opportunities for multi-nationals – and although it initially applied to stock markets in countries with a cutoff of $10,000 in income per capita, the specific numerical references soon faded and now the term is synonymous with ’emerging economies’ and no longer relies on income or other statistical measures.

According to Philip Nichols, Wharton Professor of Legal Studies and Business Ethics, a numbers-based definition is less meaningful than an understanding of the way in which business is done in a country. He defines emerging economies as places that are changing form an informal system based on relationships to a more formal system with transparent rules that apply equally to all market participants.

These economies, according to Witold Henisz, Wharton Professor of Management, are revising their approach to the global economy as resource-rich nations gain clout with today’s booming commodity markets. They are still willing to integrate with international markets and allow foreigners to help build their economic infrastructure, but are demanding a greater share of the benefits.

But what I would like to know is when is a country no longer considered to emerging? It seems some countries like India, China, and South Korea in particular, where per capita income is over $20,000 (well above most countries in South Asia, East Asia, and Latin America), have been “emerging forever”. Given that we are now experiencing a huge shift in the global economy, where many emerging markets are starting to become middle class and where there will soon be One Billion additional global consumers in emerging markets in ten years, this is becoming an important question. (Especially since it is estimated that the economies of these countries will surpass the combined economies of the developed countries in 25 years.) It’s a very good question – and one that some of our best economic minds should be working on.

At this point, it’s clear that China and India are still emerging. When you consider the dismal shape of infrastructure in India and the fact that, in China, household income is 10 times higher in urban coastal cities (like Shanghai) than in rural inland provinces, it’s clear these countries each have a good decade to go at the minimum. But it seems to me that countries like South Korea are almost there.

Consider the purchasing power parity index as reported by the World Bank for 2006. Canada, an established developed country that falls 20th on the list, has a PPP of 34,610. South Korea has a PPP of 23,800. In both countries, if you earned this income level, it appears that you’d pay approximately 15% federal tax. In Canada, you’d have an additional provincial (state) tax of 10%. Thus, after taxes, a Canadian who made 34,610 would likely get to keep about 25,960. A South Korean who made the equivalent of 23,800 in Won would likely get to keep about 20,230. Emerged? I don’t know – but this calculation seems to indicate that if it’s not, it’s almost there.

And when you consider that some companies are now looking at places like Madagascar, as reported by Ashton Udall over on the Product Global blog, to continue to keep their production costs low, it’s clear that some companies are starting to see certain ’emerging’ markets as having ’emerged’ as they are no longer achieving the labor and production savings they have come to expect from ’emerging’ markets with their ‘low cost country sourcing’ strategy.

Any other bloggers want to chime in with their thoughts?

Retaining Talent in a Fast Growing Market

A couple of months ago, Knowledge @ Wharton China ran an article on “how to retain talent in a fast-growing market like China” that the doctor couldn’t resist skimming. It notes that protecting your workforce from competitors eager to recruit experienced staff is a challenge in fast-growing markets as well as stable markets (which makes sense, since a developing market is even more likely to need talent). It backed this up with a scary statistic – the financial services industry had employee turnover of 25% in Asia in 2005, and indications are that the turnover rate has been steadily growing since. It was even worse in sales and manufacturing where turnover rates of 40% are common!

According to the article, it takes more than a competitive salary to retain staff. This is obvious – anyone who wants talent is going to at least pay a competitive salary, and if they’re desperate enough, they’re going to be offering pay that is at least at the high end of market average. The article noted that pay does play a role, with predicted salary increases of 7.9% for administrative workers and 8.9% for senior management in China in 2007, as compared to a real average increase in the US of 1.4%, but insists that more pay isn’t enough on its own to retain talent.

One of the suggestions it makes, which was employed by Spansion China who’s turnover rate is half of what it is for the electronics industry as a whole, is to not only identify your employees as your core assets, but to take actions that demonstrate you mean it. Spansion accomplishes this by holding regular meetings, discussions, and gatherings where employees are encouraged to give their feedback, positive or negative.

Another suggestion is that you should, to borrow a western phrase, empower your people – and mean it. When Vanke groups hires someone for a job, the new hire is given what he or she needs to do the job and is free to make his or her own decision on what’s best for the company – and then act on that decision. Plus, it gives its employees a clear career path and free training programs. Those employees who work hard have lots of opportunity for advancement within the company.

The article also noted that, in the best companies, employees tend to have a clear understanding of organizational goals, that in the best companies, there are aggressive goals at all levels of the organization and that the best companies reward employees appropriately.

In other words, there was nothing fundamentally new in the article, but they were all points that deserve repeating.

Supply Management in the Decade Ahead XIII: Challenges & Recommendations

This series has been examining the joint study by the ISM, A.T. Kearney, and The Center for Advanced Purchasing Studies released late last year that addressed how a company might go about “Succeeding in a Dynamic World”. To date, it has reviewed the eight major forces identified by the report (part I and part II), the impacts to business models and strategies, some of the missions, goals, and performance expectations, and the seven critical strategies (category, supplier development, supply networks, technology, collaboration, talent, organizational enablement). In this final post, we’re going to review some of the challenges and recommendations brought to light in the final chapters of the study.

First, I’d like to encourage you to seriously consider downloading and reading this excellent report, which gets the doctor‘s stamp of approval. (And if you’re a regular reader of this blog, you’ve probably figured out by now that there’s not a lot of literature out there that would get the doctor‘s stamp, or at least not without some serious improvements and edits.) Clocking in at over 100 pages of solid content (as opposed to the fluff that fills many of the longer reports that you’ll stumble across), it’s definitely worth it – especially since it’s Free (with registration, if you haven’t already registered). Although I have done my best to summarize the key points, my posts collectively are less than 20 pages in length – which says that, at most, I’ve covered one fifth of the material – and all of it is worth reading – some of it more than once. And once you’ve read it, you’ll be able to use these posts, which will always be indexed in the Sourcing Future category archive, to remind yourself of the key points.

The pace of change in supply management is more likely to increase rather than the decrease in the future, as evidenced by changing market factors, globalization and the ongoing march of technology. (After all, Shift Happens.)

These forces of change will include:

  • Market Demand
  • Rapid Advances in Information and Materials Technologies
  • Global Growth (in Developing Economies)
  • New Supply Market Dynamics (More Aggressive and Powerful Supplier)
  • Consolidation of Traditional Suppliers
  • Downstream Movement of Suppliers

Each of these forces will present challenges for tomorrow’s supply management organization. But we are moving into a new era of great expectations, which will present additional challenges, as it is also the :

  • Era of Dynamic Value Acquisition Strategies
    Agile, dynamic, category strategies that are easily reconfigurable as conditions changes will be “must haves” for all key purposes.
  • Era of Customer-Centric Supply Base Strategies
    Suppliers will be expected to be innovators and collaborative value-based sourcing that leverages suppliers’ innovative capabilities will be required to meet the increasingly demanding customers.
  • Era of Complex & Dynamic Supply Networks
    Physical assets will need to be reconfigured for mobility, flexibility, and resiliency and positioned or repositioned in response to business dynamics. Different chains will be needed for “innovation push” versus “demand pull” products and services.
  • Era of Collaboration without Boundaries
    Technology that allows suppliers, stakeholders, and customers to “sit together” at a virtual table on an ad-hoc basis will be the price of entry.
  • Era of Networked Analytics
    Knowledge management and decision support tools will be a basic need of supply management.
  • Era of Killer Talent
    The demand for experienced supply talent in developed countries is certain to outstrip supply. Global talent acquisition, management, and succession strategies will be required to survive in the supply chain centric world of tomorrow.
  • Era of Empowerment and Adaptation
    A tipping point where the average enterprise rethinks supply management processes and structures is fast approaching. Will you be ready?

And now you know why the strategies discussed in parts VI through XII are the seven critical strategies for succeeding in a dynamic world.

So what are the key takeaways, as summarized in the report?

  • The CEO Will Ask More of Supply Management : Broader Scope, Higher Performance and Increased Value
  • Supply Chain Complexity Will Increase : Driven by Globalization, Market Dynamics, Customer Demands, & Regulation
  • Collaboration Will be a Major Source of Value Creation : Internal and External Collaboration Alike
  • Technology : Will Transform Supply Management Strategies and Processes
  • The Supply Management Organization Structure Will Continually Change : To Fit Business Models and Strategic Needs
  • Global Talent Management : Will Continue to be a Major Challenge

So what are some of the main recommendations?

  • For Supply Executives :
    You’ll need to interrelate successfully with other members of the senior management team, experience living and working in international locations, master collaborative and competitive spend categories, and succeed in building a global program for talent management – so be ready.
  • For Supply Practitioners :
    You’ll need to improve working relationships with strategic suppliers and functional stake-holders, develop international and leadership capabilities, and master the fine art of collaboration.
  • For Business Unit Leadership :
    You’ll need to be equally familiar with key customers and suppliers, supply channels and sales channels, and understand the opportunities as well as risks.
  • For Suppliers :
    You’ll need to know exactly where you fit in each customer’s supply strategy, become a “supplier of choice”, and improve relationships with the senior executives in your customers.
  • For Service and Outsourcing Providers :
    Outsourcers will have to learn how to serve their customers and add value in addition to just landing the contract.

The 12 Days of X-emplification: Day 7 – GPOs & Marketplaces

Little GPO, you’re really lookin’ fine
Three staplers and a printer only $389!
   “GPO” by Dot and the ‘Riba Brothers

If this is all you’re looking for in a GPO, then you’re looking for the wrong thing. It’s not selection or price, it’s service. Furthermore, the fact of the matter is that it doesn’t matter how much volume the GPO has or how good they claim to be, you’re still not going to save a fortune on office supplies!

If you’re looking for a GPO or a Marketplace, you’re looking for an organization that can not only help you with greater volume leverage, but for an organization that can help you with better processes, best practices, and supply risk. Of course, you can’t just select a GPO on these factors alone, which is why I bring you seven questions you should be asking each and every GPO that you are considering as a potential business partner.

1. Are you a for-profit enterprise?

Non-profit consortiums might sound like a good thing, especially if you’re in the public sector, but let’s face it – unless we’re already filthy rich, most of us are in business to make money, so just how driven is the non-profit going to be if the income opportunity for each of its employees, including senior management, are capped? In a for-profit enterprise, even if the buyers aren’t driven to make money, the shareholders definitely are and you can be sure they’re going to be making sure that each and every employee is doing their best to deliver value – the key to attracting and retaining your business.

2. How are you compensated?

There are multiple compensation models – including variants of buyer pays, everyone pays, and supplier pays – but some of these are dangerous. The most dangerous is, as you can probably guess from yesterday’s post on supplier networks and catalogs, supplier pays. You don’t want a GPO that provides suppliers an opportunity to bid on the provision that they have to pay a percentage of their award to the GPO, because it’s likely that the only suppliers who are going to be attracted to the GPO’s RFXs are those that are desperate – and that’s not the kind of supplier you want to be doing business with.

You want a consortium where all costs are born by the members, and preferably one that works on a fixed cost model (unless you expect the savings to be so significant that the percentage of the savings is acceptable for the next few years) with incentives if they exceed a performance baseline (then they get a percentage of additional savings beyond the baseline as a bonus). The reason you want incentives is you want them to perform above and beyond what your in-house team can do. (If you just gave them a percentage of all savings, the incentive to perform is not as great.)

3. Are you vertically or horizontally focussed?

Although there’s no wrong answer from a GPO’s perspective, there could be a wrong answer depending on what you’re looking for. If the GPO is horizontally focussed on getting all of its customers the best deals on telecommunications, legal services, and marketing services but you just want a better deal on your chicken, french fries, and cups and lids, then it’s the wrong GPO for you. Similarly, if they are ultimately focussed on servicing the food-service and retail industries but you’re in the automotive industry, then it is again the wrong GPO for you.

4. What economies of scale, process, and information do you provide?

You want more than volume leverage. After all, if you’re buying a lot, the quote difference between buying a lot and buying five times that from most suppliers isn’t much. And if you’re not buying a lot, then you’re not going to get much in the way of savings – so there’s not a lot of point in spending a lot of effort on the category. The real savings is going to come if it allows you to achieve economies of scale (they can do a lot of categories you’re willing to outsource), process (they can help you in categories you want, or need, to keep control of), and information (on the market trends for the categories important to you).

5. How do you protect my confidential information?

Unless you’re just using them for office supplies, telecommunications, and temp labor services, chances are you’re going to have to share some confidential information with them above and beyond basic demand requirements to get what you need. You need to make sure that this information is protected from your competition and the marketplace at large. You want to know that they have measures to safeguard that information, which include physical, process, network, and communication security measures.

6. How much control do I have over requirements and decisions?

You want the ability to insure that you are not tied to a contract unless you have approved the project requirements, the potential supplier pool, and the communications issued at each stage of the sourcing process. A good GPO knows that the deal, as well as its bonus, gets better as volume is aggregated, and such a GPO will be aggressive in its attempt to identify and amalgamate as much demand as possible across its subscribers. You have to be sure that they aren’t too aggressive and don’t leave out key requirements in their effort to aggregate demand.

7. Do I buy through my e-Procurement system or yours? How do I integrate my system with yours?

If you have to buy through their system, you want to make sure that it meets your needs and that it’s easy to get your transaction data back into your ERP, e-Payment, and spend analysis systems. If you buy through your system, you want to make sure it’s easy to do so at the contracted rate and easy to provide the GPO with the information they need to track project success.