Category Archives: Miscellaneous

Spend Matters on SCM: Data, Data Everywhere …

This is part three of a three-part series.

Two days ago, we overviewed the key points that Jason “The Prophet” Bush, the Spend Master of Spend Matters, is making in his annual soapbox road tour, including his five — new and improved — predictions for the procurement world of tomorrow. Yesterday we discussed what it means if he’s right. Today we focus on his response to my question that put him on the spot.

A few of the presentations at the recent 6th International Symposium on Supply Chain Management, sponsored by PMAC and the DeGroote School of Business at McMaster University, were about ERP implementations and how, done right they can save you time, money, and paper-based nightmares. But for every success story bloggers like Jason and I have ever heard, we can recount twice as many failures, including fiascos that have cost organizations hundreds of millions of dollars and put more than a couple out of business. (Some of the greatest supply chain failures of all time, including the collapse of more than one Billion dollar enterprise, can be blamed on bad ERP implementations.) So I had to ask, what’s the right solution: ERP or Best-of-Breed?

But in yet another instance of blogger brilliance when pinned to the wall, he managed to sidestep the question entirely and point out, consistent with a couple of points in his presentation, that it’s not about the application … it’s about the information … and the future will be applications that enable the acquisition, access, and and application of information, which makes the ERP vs. BoB question irrelevant. But what are you to do if you’re an average organization with …

Data, data, every where
And all the tables burst
Data, data, every where
It can not get much worse

… and a Bloomberg terminal for sourcing is still a thing from an uncertain future?

You need an answer. And you need it today. Because you might not be around tomorrow if you make the wrong decision today.

So what’s the answer? Hard to say … it still largely depends on your specific organizational needs, and that’s likely why the question was sidestepped. However, I believe it’s still possible to provide some starting guidance which will at least lead you to ask the right questions and, if you are unable to come up with the right answers, call in some expert advice (and yes, this is one area where the doctor can help you).

So what does the doctor recommend?

It depends on whether or not you already have an ERP. If you do, you keep the core and use it for what’s it good for — data warehousing and transactional processing. Most ERPs were designed to be transactional powerhouses … and that’s probably why so few are good at supporting the best of breed strategic applications of today … and they should be used simply as the transaction processing engines they are. Then, you find compatible best-of-breed applications to support your strategic sourcing and decision making functions, such as true spend analysis, decision optimization, and demand forecasting, and utilize their strategic strengths to complement the tactical strengths of the ERP backbone. You also audit your ERP implementation and make sure that you don’t buy, or, in many cases, maintain, modules you aren’t using and that you don’t buy more licenses until you are sure you are using all the licenses you have. (The average organization has roughly 30% more user licenses than users actually using the system. Add this to the maintenance cost of blindly paying support for modules that were thrown in as part of a “package deal” that you never use, and the costs add up quickly … and significantly. And if you don’t believe me, ask Vinnie.)

If you don’t have an ERP, you figure out whether you can get away with a good data store and a functional ecosystem of best-of-breed products that can be integrated rather seamlessly using standard XML. In other words, can you start with a solid, well documented, standard schema relational database, like Oracle, and then build your perfect supply chain support platform on top of it by integrating the right sourcing, procurement, and supply chain management solutions? I say solid, standard, and well-documented because it clarifies why SAP is rarely, if ever, the doctor‘s first recommendation. Oracle exposes it’s schema. As a rule, SAP does not. This is very important if you need to do custom development, as it’s easier to develop off of a standard, documented, relational database whose base schema rarely changes from version to version as compared to a system where the only data access is through APIs, which are constantly evolving, and where the schema is subject to change at any time. This might be meaningless to you as a user, but as a former enterprise system architect, it’s VERY meaningful. Does this mean I’d recommend Oracle iProcurement over SAP SRM? Not necessarily. It’s a good transaction engine, and it has some good features, but it all boils down to whether it supports your processes and best-practices. If it does, use iProcurement. If not, use the underlying high-performance Oracle RDB and transaction engine and stick a best-of-breed solution, like Vinimaya, on top of it.

And make sure to consult an expert with supply chain and supply chain technology expertise before finalizing your solution. Sometimes your first-choice products will play nice together, sometimes they won’t, and sometimes your second-choice products have some benefits that magnify when they are used in conjunction and will give you a better overall solution. The reality is, today, the only thing I can tell you for sure is that there is no one-size-fits-all solution and no vendor, SAP and Oracle included, that can meet your every need. (That being said, there are some independent consultants, not tied to ay product, that can help you piece together the right solution for you and you should take advantage of them.)

Spend Matters on SCM: If The Prophet is Right …

This is part two of a three-part series.

Yesterday we covered the five — new and improved — predictions of Jason “The Prophet” Bush, the Spend Master of Spend Matters, that he has issued from high (on his soapbox) to the supply management community as part of his fall conference tour. These predictions were:

  1. Procurement becomes as much about staying out of the headlines as it does about getting results
  2. Top performers will follow Teddy Roosevelt’s adage: “speak softly and carry a big stick”
  3. Si hablamos espanol … as the US gets over its love affair with China when it comes to global sourcing
  4. The management of information becomes the holy grail of all procurement and operations success
  5. Metaphorically speaking, the procurement combustion engine (and car) has now been invented — now the focus will turn to everything else that must come along with it

Are they correct? Time will tell. I agree with number four wholeheartedly, and mostly agree with the others, with the exception of number five, because, even though we now have a working engine, parts of it are still quite primitive. However, rather than argue their merits, which should be self-evident, I think we instead need to ask “if the Spend Master is right, what should we be doing?”. Prophecies are good, because someone should be thinking about the future, but results are better. That’s why you go to a doctor, and not a seer, when you are sick.

Procurement becomes as much about staying out of the headlines as it does about getting results.

What does this mean? Fundamentally, that supply management has to adopt the old adage that the buck stops here and take ultimate responsibility for quality control. They can’t rely on engineering or R&D or, as has been too often done the past few years, their suppliers to do that for them. They have to make sure that the proper quality control mechanisms are in place and that they are being followed. This means that they either have to perform site visits to the suppliers themselves, or, if they do not have the technical expertise, accompany engineers or third parties to supplier sites and production facilities to ensure that the required quality controls are in place and being followed. After all, it’s one thing if the new plasma TV your customer just forked over two grand for doesn’t work … but it’s another if your company just poisoned someone’s child. All the cost savings in the world aren’t going to matter when the lawsuits hit and you get shut down.

It also means that you have to ensure all of the regulatory compliance requirements are being met. Otherwise, you’re looking at huge fines, inventory destruction, and possibly even sanctions. Just a minor reporting omission alone can result in a fine equal to the total value of your shipment under the new 10+2 requirements. Banned materials can result in seizure and destruction, and repeated violations can result in country (and continent) wide bans.

Top performers will follow Teddy Roosevelt’s adage: “speak softly and carry a big stick”

Modern procurement professionals recognize that there’s more to procurement these days than just the mallet and the carrot and act accordingly. Generally speaking, you get further with collaboration and trust than with an untrusting dictatorship mentality. That being said, a smart procurement professional still keeps his mallet close-by, just in case a supplier strays from the open road and starts to take advantage of the trust placed in it by the buyer.

Si hablamos espanol … as the US gets over its love affair with China when it comes to global sourcing

Smart procurement professionals realize that it’s a combination of best-cost country sourcing and home-cost country sourcing … not low cost country sourcing … especially when the low-cost country is half-way across the globe! Sourcing across the globe adds cost, complexity, and tons of GHGs to your environmental footprint … which is not sustainable when it’s not necessary. And it’s not best-cost or total cost of ownership … it’s best value or total value management from an entire life-cycle perspective. This means that, given the choice between a slightly higher price from the company down the street that will work with you to improve value and decrease costs over time and a slightly lower price from a company in China that only cares about pumping out product today, you go with the solution down the street. And that you look to your neighbors before you look across the globe. Sometimes you have to go across the world, especially for certain food items and raw materials that are only available in quantity in certain areas, but for the vast majority of materials, products, and services, you can usually get them pretty close to home.

The management of information becomes the holy grail of all procurement and operations success

Great procurement professionals realize that great decisions are actionable decisions based on great information, which is their number one asset. They utilize solutions that gives them the data they need, when they need it, in the form that they need it and use all of the external data sources available to them to improve their understanding of market conditions and make better decisions. (They also read Sourcing Innovation daily, but that should be obvious.) To this end, they utilize best of breed technology that is capable of extracting, organizing, and displaying relevant information on a daily basis. And this leads into …

Metaphorically speaking, the procurement combustion engine (and car) has now been invented — now the focus will turn to everything else that must come along with it

In some cases, today’s technology is more like the (in)famous Model T than a new Ferrari, but the Spend Master is right on this point: more-or-less, a procurement professional, who’s willing to open her mind and use multiple best-of-breed solutions in conjunction with traditional ERPs and data warehouses has access to all of the tools she needs. Some will be ugly, others will be a kluge, and others will require some custom development in house (or through a 3rd party custom development house), but when we look at the sourcing and procurement cycle, logistics and transportation, inventory and warehousing, forecasting, PLM, and the other fundamental areas of SCM, we have technologies that, collectively, more-or-less cover the key points of the full cycle. Now, it’s true that it’s still the case that not a single player in the best-of-breed category has, as a whole, a best-of-breed fully-integrated end-to-end e-Sourcing or e-Procurement solution (despite what a few may claim) built on a common platform, but a few have end-to-end solutions that are pretty damn good (and much better than the horse and buggy that many shops are still running on, metaphorically speaking) and the solutions are getting better every year. As Hackett’s research clearly pointed out, the best shops have the best people that make use of the best technology to get the best results. Thus, if you don’t have a good end-to-end solution (which you might have to cobble together from as many as half-a-dozen vendors, depending on your needs) that fully enables your processes and best-practices, you go out and get one. Furthermore, as long as you stick to best-of-breed players who embrace openness and give you open APIs and full import/export capability through XML, you don’t have to worry about being stuck on the same platform for the next ten to twenty years, as many companies that spent eight and nine figures on ERP systems are now stuck on.

In other words, the best procurement professionals:

  • Take control of quality.
  • Get a handle on compliance.
  • Collaborate and trust …
  • … but keep a big stick nearby, just in case.
  • Don’t jump on a LCCS bandwagon, but focus on best-cost countries …
  • … and total value management over a product and / or relationship life-cycle.
  • Constantly strive for better information.
  • And ensure that they have the right tools and technologies in place to take their processes and best-practices to the next level.

Come back tomorrow for part three.

Spend Matters on SCM: Same Old, Same New

This is part one of a three-part series.

At the recent 6th International Symposium on Supply Chain Management sponsored by PMAC and the DeGroote School of Business at McMaster University, Jason “The Prophet” Bush of Spend Matters gave his trademark “Emerging Issues in Procurement and Supply Chain Management Soapbox Presentation. For those of you who’ve heard it a few times before, it was the same speech he gave last year (and the year before), except it wasn’t … it was the same speech, updated to take into account the topsy-turvy roller-coaster of a year that we’ve been having and reflect the most current issues on the plate of supply management professionals everywhere.

Although I don’t have the space to cover the entire 48 page presentation within a single post (since my fellow blogger would do an auctioneer proud with the speed at which he delivers his observations and musings), I will try to highlight some of the more prominent points, and, in particular, the new points that the Spend Master is making in his fall conference tour.

In brief, costs are skyrocketing (as it now costs almost twice as much to make a penny and a nickel as they are worth), the trade climate leading up to the election is not a great one, stagflation is back, and the financial markets are melting down everywhere, which is in turn causing liquidity concerns and restricted access to desperately needed capital for your suppliers. This is, in turn, leading to economic declines and reactionary corporate cost cutting. The net effect is that we essentially have the perfect storm to upset the apple cart. And things could still get worse before they get better, especially since supply risk is also rising by the day. (This is where all of the analyst firms agree. The statistics indicate that you will experience at least one supply disruption this year. And this is true whether we are talking about products or services.)

In fact, supply risk is getting so bad that it’s not enough for a supply management professional to be a sourcing savior … a supply manager also has to be a wizard of risk. According to Jason, today’s sourcing leaders:

  • view procurement as more than just “strategic” but as an integrated business function
  • do more with less by making aggressive use of technology and the competitive advantage that good information provides them
  • focus on risk and performance management, especially in the context of all global activities

They do this because they recognize that sustained procurement results are the result of a complete evolution of the function.

Furthermore, leaders of top performing organizations spend more on technology and people, and save almost three times as much by doing so. Consider the recent findings of the Hackett Group*:

 

Area Average World Class
Annual Procurement ROI 281% 694%
Tech Cost per Proc FTE $12,476 $24,507
Cost per transactional FTE $55,060 $51,001
Cost per strategic FTE $81,574 $106,366
Involvement in Enterprise Budgeting & Planning 31% 55%

 

Finally, leaders recognize that the procurement landscape, including the procurement technology landscape, is changing, and they do their best to keep up. For example, if they heed the words of the Spend Master who predicts that the emphasis on procurement technology will shift away from the world inside to the world outside — to focus on all of the opportunities and associated risks that the outside world brings with it, they will start looking for new technology that enables them to better access and utilize the information sources that is available to them from both inside and outside the four walls of the organization.

After setting the stage and defining what leaders do, Jason concludes with his five — new and improved — predictions on where supply management is going. In the new Spend Matters world view:

  • Procurement becomes as much about staying out of the headlines as it does about getting results
  • Top performers will follow Teddy Roosevelt’s adage: “speak softly and carry a big stick”
  • Si hablamos espanol … as the US gets over its love affair with China when it comes to global sourcing
  • The management of information becomes the holy grail of all procurement and operations success
  • Metaphorically speaking, the procurement combustion engine (and car) has now been invented — now the focus will turn to everything else that must come along with it

Come back tomorrow for part two.

* For more information on the Hackett Group findings, contact Pierre Mitchell at pmitchell <at> thehackettgroup <dot> com.

Commodity Structures Are Not “One Size Fits All”

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

Over the last 15 years, I have had hundreds of discussions about commodity structures with CPOs. Invariably, I am asked, “What is the right commodity structure to use?” Or, “Use the UNSPSC structure. It’s an international standard, so it must be the right one.” Or, “You’ve been doing this for years, why haven’t you figured this out by now?”

Once we work with clients for a while they realize that there is no “one size fits all” commodity structure. You can leverage existing structures, but every client has to make some adjustments to any structure based on:

  • What industry they are in (and therefore the products and services they buy),
  • How their business works (how they are organized internally),
  • What vendors they use,
  • How they want to manage your spending, and
  • Past experiences on what works and doesn’t work.

Take the simple cardboard box. Let’s use the example of a 1.2 square-foot, folding box with a removable lid, used largely for the storage of old files. These get used in many different ways at different companies.

The right UNSPSC code for these boxes appears to be: 44111515 “File storage boxes or organizers”. This places this item within the following hierarchy:

  • 44 00 00 00 Office Equipment and Accessories and Supplies
    • 44 11 00 00 Office and desk accessories
      • 44 11 15 00 Organizers and accessories
        • 44 11 15 15 File storage boxes or organizers

The UNSPSC code for an item is useful but, because companies use this box differently, the general classification of the item may also be different as well as its place within the hierarchy

Type of Company Use of Box Top Level Classification
Company with office records (most companies) Storage of files General Office supplies or Records Management supplies
Office supplies company Box is bought from a converting plant and sold to customers Cost of Goods Sold – purchased items
Manufacturer Store parts in the assembly line MRO
Paper company Manufactured for customers Cost of Goods Sold
Records management / warehousing company Sold or provided to customers Cost of Goods Sold – or – Production Parts used in delivery

So even for something as simple as a cardboard box, there is no single commodity structure that is “right” for all companies. You need to think about the structure in terms of what is right for your organization. The last thing you want to hear from users is, “The data jocks in Purchasing have a commodity structure, but it’s just not right.”

Operational Performance is More Than Just Operations

One thing you’ve probably noticed as a long-time reader of this blog was a lack of coverage of Aberdeen Research for the past year or so. To be honest, I haven’t been that thrilled with the work coming out of Aberdeen since the Harte-Hanks acquisition, which culminated a year long departure of some of the best talent in the Analyst world, including practice leaders Tim Minahan (who is now CMO of Ariba), Sudy Bharadwaj (who is now CMO of Informance), and Vance Checketts (who is now COO of Mozy) and Beth Enslow (who is now SVP of Supply Chain Risk Management at Marsh), one of the visionaries behind proper Supply Chain Finance. (Of course, to be fair, I should point out that the departures likely had more to do with the former CEO than the looming acquisition by Harte-Hanks.)

I had pretty much planned to continue ignoring Aberdeen, until I stumbled upon a rather lengthy article in Intelligent Enterprise that claimed to define “what sets best-in-class companies apart” from an operational performance perspective (and that set me off). Basically, as far as I’m concerned, although they still draw useful conclusions about the forest, they are still lost in the trees.

According to the article, which starts off by noting that best-in-class companies succeed by finding the right key performance metrics and tying day-to-day decisions to larger corporate goals, best-in-class performance can be defined based on the following four metrics:

  • Customer Satisfaction
    percent year-over-year change in customer satisfaction
  • Customer Issue Resolution Capability
    percent year-over-year change in the speed with which customer issues are resolved
  • Conversion of Inquiries to Sales Leads
    percent year-over-year change in the rate at which inquiries are converted to leads
  • Sales Forecast-to-Plan Performance
    percent year-over-year change in the accuracy of sales forecast-to-plan measurement

What?!? Although customer satisfaction is key to customer retention, since only monopolies tend to be able to get away with lousy customer service, and although sales are the life-blood of the company, as they are often the only thing Wall Street cares about, there’s a lot more to performance than just today’s customer satisfaction and sales metrics! For starters, there’s innovation and drive.

But I understand why Aberdeen is ignoring these critical factors, among others. How do you measure innovation … whose impact goes far beyond simply sales of an end product and marketshare into mind-share, brand, and influence on overall corporate culture. And how do you capture drive, which is more than just the hours you clock but how much of yourself you put into succeeding in each and every one of those hours on … and off … the job. Certainly not as easy as you can come up with a check-the-box metric on customer satisfaction (which I personnally don’t believe is as simple to measure as “are you satisfied“, but it looks like I’m alone in that view) or a forecast-to-plan metric, which is easily calculated as dollars forecasted vs. dollars sold (which is actually pretty useless given the dark, damp places most companies blindly pull forecasts from).

But how can you say you’re performing if you’re not constantly trying to innovate? Unless you have a (partial) monopoly, in today’s marketplace, you’re dead in a year or two if you’re not continually improving your product or service offerings (or both). And if your employees don’t care about their jobs, how much effort are they going to put into quality and making a product that truly satisfies the customer and, moreover, what’s to stop your best employees from exiting en-masse the next time your competitor goes on a big recruitment drive and offers them all a 10% raise? I’m sorry, but customer satisfaction and sales conversions alone don’t define best-in-class … not even close!