Category Archives: Miscellaneous

the doctor Wonders Why The Elephants In The Room Are Often So Hard To See

This is sort of a continuation of last Monday’s blogologue where I wondered if the sourcing nation has a Prozac problem. While thinking about why the new solutions are being ignored when they should be the target of evaluations (and positive feedback, so that even if they don’t work for you today, they will tomorrow), it occurred to me that this is because there is a larger problem – the market is blind to what the true problems are, and most of the big vendors aren’t doing much on the user-education front. The reality is that if you don’t understand you have a problem, and in some cases a big problem, you won’t be looking for a new technology to solve it. Thus, the elephants in the room are often going unnoticed while the vendors focus your attention on the fuzzy bunnies.

In an attempt to make sure they don’t go unnoticed again, I’m going to pull down the blinds they’re hiding behind and expose you to three of the biggest elephants that your vendors might not want you to know about.

Optimization is not a set of reports that tell you the lowest cost supplier by unit cost or landed cost, the ability to calculate the cost of a random sample of award simulations and select the best one, or heuristically simplifying a model until you can run it in the framework provided to you by a third party provider that provides you with an engine – it’s the ability to allow an end-user to build a model that realistically models their situation, allows them to account for all of their costs and business constraints, and then solves that model using sound and complete optimization algorithms (such as those based on MILP) to come up with the optimal award across suppliers. Furthermore, it lets the user create multiple what-if scenarios to see what would happen if certain constraints were relaxed or new constraints were added and then lets the user compare those results side by side.

It’s not electronic invoice presentment and payment or supplier networks or e-Procurement that saves you time and money, it’s compliance – and that requires the ability to match invoices to items to contracts before an invoice is accepted and approved for payment. The fact that an invoice is from a vendor contracted to provide the items in question is not enough – office supplies distributors are notorious for overcharges and electronics vendors are notorious for not adjust pricing downward over time to insure their customers get the “best market price” that is in the contract.

Finally, when it comes to spend analysis, it’s the analysis! I don’t care how much cleansing, categorizing, and enrichment the latest product offers – it doesn’t mean diddly squat if you can’t do the analysis you need to do. Static top n vendors, top n categories, and top n commodity reports on one inflexible cube doesn’t cut it. You need to be able to build multiple cubes on the fly, on arbitrary dimensions of interest, and segment by range as well as rank. It’s not the top 10 suppliers with the greatest percent of spend, it’s the top 10 suppliers with the greatest variance in spend – chances are these are the ones overcharging you. It’s not the top 10 commodities with the greatest percentage of spend – it’s the top 10 commodities being bought off contract as this is where you need to curtail maverick spend first. It’s not the top 10 categories with the greatest percentage of spend, it’s the top 10 categories with the greatest variance in spend across departments or channels – as these are the ones that need better sourcing strategies.

So the next time someone tries to sell you a comparative reporting toolset on top of a simulation engine and pass it off as optimization, ask them these questions. The next time someone tries to sell you a supplier network or EIPP solution as the answer to all your procurement compliance problems, ask them how it automates three-way matching between invoices, goods receipts, and contracts and tags those invoices for human review that are questionable. And the next time someone tells you it’s all about the cleansing, say “no thanks, I’m looking for solutions, not religion“.

When I Was Your Age

To the tune of “When I Was Your Age” by Weird Al Yankovic
  parodied by Gruff Purchaser

Let me tell you sonny… let me set you straight
You kids today ain’t never had it rough
Always had everything handed to you on a silver plate
You lazy brats think nothing’s good enough

Well, nobody ever gave me paper when it was time to cut a PO
We had to use old papayrus that we made ourselves
Worked in the closet twenty two hours a day for just half a cent
Had to sell our internal organs just to feed ourselves

When I was your age. When I was your age
When I was your age. When I was your age

Let me tell you something, you whiny little snot
There’s something wrong with all you kids today
You just don’t appreciate all the things that you’ve got
We were hungry, broken and miserable and we liked it fine that way

There were seventy three of us working in a cardboard box
And our Christmas bonus was a lousy bag of rocks
Every night for dinner, we had a big ‘ol chunk of dirt
If we were really good, we got mud for dessert

When I was your age. When I was your age
When I was your age. When I was your age

Didn’t have no telephone, didn’t have no FAX machine
All we had was a pair of cans and a crummy piece of string
Didn’t have no ERP when I was just a lad
Accounting’s abacus was the closest thing we had
Didn’t have no internet, had to use yellow pages
Didn’t have RFPs, we listened to sages
Didn’t have no e-Auction, we used messenger pigeons
Didn’t have no KPIs, dollars spent was our religion

What’s the matter now, sonny, you say you don’t believe this junk?
You think my story’s wearin’ kinda thin?
I tell you one thing, I never was such a disrespectful punk
Back in my time, we had a thing called discipline

My boss would whoop us every night till a quarter after twelve
Then he’d get too tired and he’d make us whoop ourselves
Then he’d work us until dawn … until we felt the strain
And let me tell ya, Junior, you never heard me complain

When I was your age. When I was your age
When I was your age. When I was your age

The Sourcing Nation Needs You!

As an astute sourcing professional, I’m sure you picked up on Jason’s Busch post last Thursday on “”Who Has Got the Eyeballs Online Spend Management Traffic” where he noted that blog traffic is rising while most of the online publications are flattening out, and in some cases, maybe even falling. This makes sense to me since real bloggers publish solid content and opinions every day while most of the publications only publish once a month, with more frequent updates often being nothing more than polished vendor press releases. However, what I noticed is that the site with the top 3-month average, Purchasing topped out at 319,397 in the Alexa rankings. Furthermore, upon doing my own research where I looked at CIPS, the CSCMP, e-Sourcing Forum, the IACCM, the ISM, Procure Insights, SIG, Supply Chain Brain, the Supply Chain Council, Supply Chain Daily, and Where Next in addition to CPO Agenda, the European Leaders Network, Purchasing, Spend Matters, Supply & Demand Chain Executive, Supply Chain Digest, Supply Chain Management Review, Supply Excellence, Supply Management . com, and Sourcing Innovation, the top site, belonging to ISM, topped out at 293,787. That says there are 293,786 sites out there more relevant than the top ranked sourcing site! And the results from Traffic Estimate aren’t much better. The top site, again the ISM, is credited with a mere 51,000 visits in the past 30 days. To put this in perspective, YouTube is credited with over 246,790,000 visits in the past 30 days. I don’t know about you, but I don’t think we should stand for this.

I’ve said it before, and I’ll say it again – Sourcing – regardless of the name you call it (purchasing, procurement, supply management, supply chain, etc.), is the future of business – not Marketing, not Research and Development, and not Engineering and Manufacturing. Once you reach a certain plateau, you’re not going to double sales. You can create the best product in world, but if you can’t produce it at a price point that makes it affordable and attractive to your target market, then you’ve just wasted time and money. And you can streamline operations all you want, but you still have to pay your people and pay your bills. The real impact comes from smart sourcing!

So what can you do? Download the Alexa Toolbar\ (preferably for FireFox, but you can also get it for IE if you haven’t kicked the MS habit yet*). Then, every time you visit a sourcing related website, you’ll add to the anonymous usage statistics of the #1 site used to estimate web traffic and rank web sites and show the world that the Sourcing Nation is strong and capable of producing, and consuming, some of the best content out there. Then we’ll get noticed and be one step closer to the recognition we deserve.

* Maybe this demonstration of Vista will change your mind!

Collaborate, Collaborate, Collaborate, Collaborate V

Recently, Computer Sciences Corporation (CSC]), Supply Chain Management Review (SCMR), and Michigan State University (MSU) released the “Fifth Annual Global Survey of Supply Chain Progress”.

The report measured the performance of firms along eight dimensions of supply chain competence:

  • Alignment with Business Strategy
  • Strategic Customer Integration
  • Strategic Supplier Integration
  • Cross-Functional Internal Integration
  • Supply Chain Responsiveness
  • Planning & Execution Process & Technology
  • Supply Chain Rationalization / Segmentation
  • Risk Management

The report found that the less mature companies needed to focus on greater collaboration with business partners and pay more attention to areas of weakness. Another mark of leaders was greater strategic alignment and significant, positive, involvement of top managers.

But I think it’s pretty obvious that collaboration is the ultimate key. What better way to mutually identify and improve the areas of weakness? What better way to improve strategic alignment? What better way to maximize the positive involvement of management? Furthermore, without collaboration, you’ll never truly achieve strategic integration between customers, suppliers, or internal departments.

So you want to achieve collaboration, but aren’t sure how to sell it? A recent CAPS Research study by Stanley Fawcett, Gregory Magnan, and Jeffrey Ogden, as summarized in “How to Manage Supply Chain Collaboration”, puts forward a three step process to identify and compare the benefits, barriers and bridges to assess and communicate the viability of pursuing a path toward collaborative advantage. The three stages are as follows:

  • Introspection
    A company’s orientation and philosophy consists of two building blocks: customer orientation and systems thinking orientation.
  • Supply Chain Design
    A five step process: scan, map, cost, manage competency, and rationalize
  • Supply Chain Collaboration Relationship alignment, information sharing, performance measurement, people empowerment, and collaborative learning.

By figuring out where your company is, and then working your way through a proper supply chain design planning exercise, you’ll be in a position to align your relationships, share information, measure your performance, and progress collaboratively.

Roles of Performance Metrics in the (Out)Sourcing Process

I recently stumbled upon “Strategic Sourcing: Measuring and Managing Performance” again, a report prepared by RAND for Project Air Force back in 2000. Barely over a page into the summary, it notes that in managing their relationship, a customer and a provider jointly choose metrics that they believe will support the corporate goals of the customer organization. The goal is that such metrics align the provider’s priorities with those of its customer. Since procurement outsourcing is going to become the rage, as per my “Why You Should Consider Procurement Outsourcing“, it’s important to understand what the role of metrics is in the sourcing, and outsourcing, process since you never know when your CEO is going to get the outsourcing bug.

The paper enforces that customers (should) tend to focus on metrics that easily convey to providers the dimensions of performance most important to them. However, although the summary notes that customers and providers tend to refine the set of metrics used to measure performance throughout the relationship, it fails to mention that providers tend to want those metrics that focus on the performance measures that make them look good. Although it does imply relatively early on that outsourcers may have their own choice of metrics early on, it doesn’t make it particularly clear. In particular, there are providers that will try to steer the customer toward transaction oriented and fixed cost reduction metrics that are easy to measure, manage, and achieve.

Even though the key to a great outsourcing relationship is for a provider to insure that metrics are aligned with those aspects of performance that matter most, not all outsourcing providers may recognize the fact, or even if they do, be able to recognize which aspects of performance matter most to a customer. The fact of the matter is that there is no magic set of metrics that fits every sourcing need – and different managers at different levels within the customer firm may want different metrics, especially if the customer does not have its house in order before jumping on the outsourcing bandwagon.

It’s important that the metrics chosen focus on the strategic goals of outsourcing the process, and not the transactional nature of the process being outsourced. Specifically, are costs being reduced, are they being reduced with approved, quality suppliers, and are they tracking well against market averages? Has overall spend throughput in the outsourced categories increased by an acceptable percentage? What percentage of spend is being captured in the system? Have project timelines decreased on average?

After all, if costs are being reduced, but are still more than market averages, then outsourcing is not working very well. If overall spend throughput through strategic sourcing projects has not increased, then outsourcing has not succeeded. If the provider is not capable of capturing 100% of sourced spend in their systems, then their technology is not up to snuff. If project timelines have not decreased, then the customer is better off doing everything in house.

Furthermore, the set of metrics chosen should be helpful in making the in-house vs. outsource decision, should be useful in selecting the right provider, should be capable of measuring the progress of the relationship, and should promote continuous improvement. In addition, when evaluating a potential provider, the customer should have a set of metrics that address total cost, service quality, HR policies, technological capability, financial stability, and other special interests of the customer, such as carbon neutrality goals.

Procurement outsourcing, like any type of outsourcing, is not an easy decision and should not be made quickly or lightly. Significant research should be done up front by both parties because the full value of a successful relationship will generally not be realized for three to five years, as there are a lot of up-front costs in making the transition and outsourcing adds head-count (as you need people on your team overseeing and managing the relationship). Even though outsourcing the right categories to the right provider can be a great success, outsourcing the wrong categories to the wrong provider can significantly increase costs. So do your research, and take some time to find the set of metrics that will work for you.