Category Archives: Miscellaneous

Wired Crowdsourcing

Last week, Wired was on a Crowdsourcing kick that was pretty hard to miss if you were even a casual reader. Crowdsourcing, a topic I first tackled in Purchasing Innovation VI on e-Sourcing Forum [WayBackMachine], then in Cambrian House: Crowdsourced Software, and more recently Democratizing Innovation Vs. Crowdsourcing is the process of delegating various tasks for which you do not have the manpower or expertise from internal production to external entities or affiliations of networked persons with the expertise, access to, or raw capabilities that you require.

Wired’s crowdsourcing kick consisted of a series of articles that included Kristin Gorski’s “Creative Crowdwriting: The Open Book”, J. Jack Unrau’s “The Experts at the Periphery”, Derek Powazek’s “Exploring the Dark Side of Crowdsourcing”, Patrick Crawford’s “News the Crowd Can Use”, Sarah Cove’s “What Does Crowdsourcing Really Mean?”, Randy Burge’s “Using Crowd Power for R&D”, and Johannes Kuhn’s “Crowdsourcing Soccer in the U.K.”.

In “What Does Crowdsourcing Really Mean?”, Sarah Cove interviews Douglas Rushkoff, the New York based writer, columnist, and lecturer on technology, media, and popular culture, on crowdsourcing and related subjects.

Douglas Rushkoff, who is rubbed the wrong way by the term crowdsourcing, defines crowdsourcing as the corporatist framing of a cultural phenomenon. Crowdsourcing is a word. A company can look at [crowdsourcing] as either a threat – to their copyrights and intellectual property or as some unwanted form of competition – or, if they see it positively, as almost this new affinity group population to be exploited as a resource. When you call an open source, bottom-up effort crowdsourcing, clearly you are understanding it in a different way than open source communities might understand it.

In “Exploring the Dark Side of Crowdsourcing”, Derek Powazek interviews Ragnar Danneskjold of Subvert & Profit. Subvert and Profit is a web site that makes a business out of gaming the social media site Digg for paying advertisers – it serves the nice market for ‘darker’ crowdsourced actions.

In the article, Ragnar Danneskjold (an alias, of course) notes that the business is made possible by mixing the two quickly rising paradigms of crowdsourcing and undercover marketing and taking advantage of the fact that most Digg users understand that their community is a wild anarchy.

In “The Experts at the Periphery”, J Jack Unrau interviews Karim Lakhani of Harvard Business School’s Technology and Operations Management Unit.

In the article, Karim Lakhani notes that crowdsourcing is a great mechanism for knowledge transfer, or that, in certain cases, crowdsourcing helps connect people who have ideas and knowledge about certain ways to solve a problem to those people who need a problem solved but don’t have the knowledge and ideas. It allows us to enable experts on the periphery at the intersections of disciplines to come together and innovate in more of a systematic manner.

However, according to Karim, we on’t know what the limits are yet, i.e. under what circumstances do they work, under what circumstances will they not work, when is it more efficient and effective to do a distributed model versus a closed or centralized model. Maybe that’s why he believes that we do not want to think of crowdsourcing as a model by which someone can, or many people, can earn a living.

In “News the Crowed Can Use”, Patrick Crawford asks if social news sites can survive the very openness that makes them thrive.

According to the author, devotees of “crowdsourced” media sites love to equate social editing with democracy, and they’ve got at least one part of the comparison right: social editing is every bit as raucous, messy and enthralling as the electoral process. Social editing web sites allow users to source, debate and prioritize content without intervention from an editorial staff. And, more importantly, it appears, at least in some form, that they are hear to stay.

In “Using Crowd Power for R&D”, Rndy Burge interviews Alpheus Bingham, co-founder of Innocentive, about crowdsourced R&D.

Alpheus notes that crowdsourcing can often be used to address the aspects of your business that feel most broken, to help deal with risks. For example, if you had a core research group that consisted of only five scientists trying to completely cover the four primary disciplines you needed to adequately manage internal research, you might find that your researches are stretched, especially on key aspects of diversity. That’s where crowdsourcing can help you.

 

In other words, although it would appear that the definition of crowdsourcing is not yet completely understood or agreed upon, it seems that the experts agree that crowdsourcing – which can be positively used to tackle problems that can not be solved in house, or to socially select and edit news-worthy stories, or to find experts at the periphery – is, in some way, here to stay and those that find ways to take advantage of it could be in a better position to survive in this strange new distributed economy than those who do not.

Nextance: Next Generation Contract Management

In our last post, we tackled the subject of Enterprise Contract (Lifecycle) Management. In this post, we are going to discuss Nextance (acquired by Versata Enterprises) – one of the more innovative players in the contract management space and one of the few players trying to tackle the breadth and depth of Enterprise Contract Management. With the recent release of their new Proposal Management Software, Nextance is extending their enterprise footprint – which is quite respectable. This module complements their contract authoring, contract management, and business management modules which provide solutions for sales, procurement, legal, and intellectual property.

Nextance, which is bound to have some cool new announcements and campaigns in the near future (since July starts their fiscal year), recognizes that there is a large gap between contracts and financial processes in many companies, and specifically between contract creation and revenue tracking, and is endeavoring to close that gap. Its contract management solution allows you to define event triggers around milestones, orders, and invoices for compliance purposes and its business management solution allows you to determine all of your contractual spend for the current or coming quarter.

That’s why Nextance is currently focussed on contract lifetime value optimization. Most companies have significant value locked up in their contracts, and without the tools to track, manage, and extract the value, it will go untapped. In order to obtain the savings you negotiated in a supplier contract, you need to make sure you’re paying the contracted rates and not a penny more. In order to keep your profit levels up, you need to insure that your customers are paying you at contracted rates, and not at an unauthorized discount. In order to maximize the value of your IP, you need to be able to keep on top of the IP assets you have and effectively market and license the technology.

However, the greatest benefit a well-defined and well-managed contract can provide is risk mitigation. If you’re competing in an open marketplace, you can usually get a good price – especially if your supplier knows you can switch (or you threaten to). If supply exceeds demand, you don’t have to worry about supply availability. If you have a relationship built on trust and collaboration, chances are you’ll never need to refer back to the contract to settle a debate. But if you’re in a closed marketplace, if demand exceeds supply, or if there is the potential for distrust on either end of the relationship, then risk becomes an issue – and the way to prevent against it is to mitigate those risks up front in a contract.

And now that Nextance tackles pretty much every major business function except HR, and handles the contract process from the proposal stage all they way through to active compliance management, they are in a prime position to start tackling contract-based risk management. And when you factor in their strong XML foundations, Microsoft Word integration, advanced search, and strong reporting capability, it becomes a solid foundation for building contracts that tackle risk and determining whether or not your current contracts leave you exposed to newly identified risks.

And considering that most of Nextance’s implementations are large deployments throughout multiple departments, if not the entire enterprise, on a national, international, or global scale with thousands of users, and in some cases hundreds of thousands and users, you know they can support the scalability needed to capture all of the information needed to make risk mining a possibility. There are very few other companies that can claim the size and breadth of the deployments they have and it should be interesting to see how they fare against the other niche best-of-breed vendors, such as the Emptoris (acquired by IBM, sunset in 2017) Dicarta solution, iMany (acquired by LLR Partners), and Upside Software (acquired by SciQuest, rebranded Jaggaer). I think that they’ll definitely be a very interesting company to watch this year and I am a little anxious to see what they announce first.

Enterprise Contract Management

Contract Management (CM), sometimes known as Contract Lifecycle Management (CLM), can be simply defined as the management of contracts made with customers, vendors, or employees. (Wikipedia) From procurement’s perspective, contract management is the process of tracking contracts to determine who you should be ordering from, when, and at what price;

and ensuring that your suppliers are adhering to the agreed upon terms. From a legal perspective, contract management is the process of ensuring that you are using standard terms, that risks are mitigated, and that contracts are in place for at least all key relationships. From a sales perspective, contract management is the process of dotting the i’s, crossing the t’s, and making sure payment terms and dates are clearly specified.

In my first post on contract management, I overviewed some basic features of a C(L)M system, including searchable centralized contract repository, collaborative capabilities, workflow capabilities, monitors, alerts, reporting, and template and clause-based contract creation capabilities. In my second post, I noted that Enterprise Contract (Lifecycle) Management (EC(L)M) offers advanced features beyond basic contract tracking, including collaborative capabilities, workflow capabilities, monitors, alerts, reporting, and template and clause-based contract creation capabilities.

However, I feel I’ve yet to capture the essence of Enterprise Contract Management. An Enterprise Contract (Lifecycle) Management solution is one that captures the holistic view of contract management from the enterprise perspective. It’s a solution that lets you do full Contract Information Management (CIM). Just like a true Supplier Information Management (SIM) solution lets you capture, manage, query, and create initiatives around your supplier information, a Contract Information Management (CIM) solution lets you capture, manage, query, and create initiatives around your contracts and all of the information that pertains to them.

With a true Enterprise Contract (Lifecycle) Management solution, you’re not only managing your contracts, but you’re managing the information that is within the contracts and related to the contracts. It’s being able to not only find the contract for the part you need, but share that information with your sourcing and procurement systems for automated compliance verification of invoices. It’s about being able to not only create standard terms and conditions in your contract templates but being able to annotate them with the reasons therefore. It’s about being able to determine not only what contracts are about to expire, but what risks you are open to with respect to your current contract base with respect to liability, supply stability, and corporate social responsibility. It’s about being able to drill down from a supplier contract into relevant supplier data and performance metrics to determine compliance. It’s about being able to drill down from your customer contracts to your delivery information to determine delivery statistics. It’s about being able to determine whether or not you are violating any labor regulations with respect to your temporary labor or out of compliance with International Labor Organization standards or Corporate Social Responsibility policies. Its about being able to truly manage your operations off of your contracts, and not just about being able to determine compliance and performance after the fact. After all, you can’t be defined by your contracts if you cannot effectively execute against them.

In our next post, we’ll examine Nextance (acquired by Versata Enterprises) one of the pioneers in the Enterprise Contract Management movement.

Surviving China’s Rapidly Changing Sourcing Tides: Part II

In my first post, I summarized some of the fascinating insights to come out of MFG.com‘s James Jin and Mitch Free on the current hullaballoo about China, and the recent VAT rebate reductions and cancellations in particular. In this post, I’m going to discuss some of the great tips that were provided by Lisa Reisman of Aptium Global (now of MetalMiner) on how to properly assess and manage not only your China Sourcing, but low cost country sourcing projects in general.

Lisa Reisman started by explaining that a number of different factors impacted your China price. These factors, most of which are common to most Low-Cost Country Sourcing Destinations, include:

  • raw material costs
  • value-add services
  • currency fluctuations and exchange rates
  • export tariffs
  • VAT and rebate rates
  • packaging costs
  • inland freight costs
  • outbound ocean freight and air freight costs

The current situation with China is that multiple cost elements are increasing at the same time: raw material costs are consistently rising (as China consumes more and more raw materials for its own uses), exchange rates are falling with the weakening US dollar, China is under pressure to increase the value of its currency – further decreasing the favorable exchange US business are used to, and the VAT has been slashed or removed on over 37% of the total classifications.

The degree to which you are impacted ultimately depends on what savings percentage you are currently getting on the products you are sourcing, whether it’s in the low 10% range, the medium 10% to 20% range, or the high 20% + range, and whether or not the products you are buying are value-add. If you’re in the high savings range, chances are you’re not going to be impacted much, if at all, by the recent VAT rebate reductions and eliminations and don’t have much to worry about. The same holds true if you are in the medium savings range and are sourcing value-add products, which were not impacted by the recent cuts since China is trying to push those exports. But if you were in the low-savings range (which made sourcing to China a questionable decision in the first place), and especially if you were buying products with little or no value-add, chances are that you have been impacted by the recent VAT rebate reductions and eliminations, since those products with minimal value-add and those products very near to a raw material state have been hardest hit and, recently, have provided low savings opportunities.

What should you do? The first thing you should do is assess the impact of the recent changes (VAT rebate reductions and eliminations, rising material prices, weakened exchange rate) on your total landed cost, and, if necessary, your total cost of ownership. If the impact is significant, or significant enough to reduce your savings to the low end of the spectrum, then you need to consider reducing your risk by identifying other alternate sources of supply, including domestic sources and nearby sources. If global is the way to go, start thinking about Vietnam and India. It might also be time to start considering Mexico and Latin American sources of supply again.

If you’ve been moderately hit, for example, instead of saving over 20%, you’re now saving only 10% to 15%, then, if you’re buying from a trading company or importer, and your volume is significant enough, it might be time to consider a direct relationship or a new source of supply in China that would allow you to take advantage of a direct relationship.

Basically, if you’re sourcing those products that are a good fit for LCCS, you might be okay, but you should still review your landed cost model. In general, a product is a “good fit” for LCCS if there is significant volume, the product can be made with (a mix of) unskilled and / or semi-skilled labor, production is regular and repetitive, technology sophistication can be leveraged, there are infrequent design and tool changes, the IP is not highly sensitive, the content is mostly (available) raw materials, JIT delivery is not required, and quality requirements are not unduly high.

And when you’re considering sourcing from China in particular, you need to take the following considerations into account:

  • China public policy is a form of political risk (tariffs, duties, rebates, etc.)
  • Currency risks need to be considered (weakening US dollar, increasing pressure on China to raise the value of the Yuan)
  • Security risk
  • Supplier Capabilities (especially on the quality side – some are great, but as the recent recall scares in North America have proven, some are not)
  • Shipping & Logistics Costs (especially from inland suppliers)
  • Supplier Stability & Volatility (some suppliers are hit hard by the recent VAT rebate reductions and eliminations)

Lisa’s analysis and advice concluded with the following:

  • If you don’t have a detailed TCO (Total Cost of Ownership) model, which includes a detailed landed cost model, develop one.
  • Consider dual-source vs. sole source strategies – especially for low(er) cost categories.
  • Near-shoring (e.g. Mexico) is another viable option and can help ensure steady supply.
  • Supplier identification and qualification remain key activities – consider this carefully when looking at new countries.
  • Don’t let the hullabaloo get to you and rush to leave China. If your parts are (high) value add, you could still be doing quite well. Update your total cost model and price alternatives first before making hasty decisions. Remember the findings of the MFG.com survey we summarized in our last post, only 26% of IPO’s (International Purchasing Organizations) are expecting purchase prices to increase by over 5% and only 18% of suppliers are expecting to need to increase purchase prices by over 5% as a result of the current VAT rebate reductions and eliminations.

Note that Lisa also participated in Spend Matters‘ The China Sourcing Controversy series with her post “Has the China Balloon Popped?”*, wrote a guest post on Maximizing the Savings Potential of Global Sourcing Strategies back in April here on Sourcing Innovation, and also wrote a post on Quantifying Quality in Lean Sourcing Initiatives back in January here on Sourcing Innovation that also has some relevance.

Finally, as I mentioned in my last post, MFG.com is launching a learning center on the issue this week that will include an archived version of the webinar, additional information on the recent MFG.com poll, questions and answers to all webinar questions (including the many that they didn’t get to), and a slew of executive briefs on the relative issues with more to come as time goes on.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

JLP Responsible Sourcing Part V: Discipline

In our last post, we discussed the issues of health, safety, and hygiene and the hazards you need to look out for, corresponding to section D of the report.

In today’s post, we cover section E of The John Lewis Partnership‘s “Responsible Sourcing Supplier Workbook” which covers discipline.

Discipline refers to the treatment of workers and the issue here is whether or not they are treated fairly and with respect. Unacceptable discipline ranges from verbal abuse, shouting and threat of abuse through bullying and illegal fines all the way to sexual harassment and abuse, beatings, and humiliating punishments.

Why is this an issue? Research by the John Lewis Partnership has discovered the following facts:

  • a sexual harassment study in commercial agriculture and textile manufacturing in Kenya found that over 90% of respondents had experienced or observed sexual abuse and 95% of women who had suffered abuse were afraid to report the problem for fear of losing their jobs
  • workers in England and Wales experienced an estimated 849,000 incidents of violence in 2002/2003
  • workplace bullying contributes to an estimated loss of 18 million working days every year in the UK as victims of workplace bullying take an average of seven additional days off per year

In order to prevent discipline-related issues, as an employer, you need to ensure that:

  • no worker is subject to, or threatened with, physical, sexual, or verbal abuse
  • managers, supervisors, and line-leaders do not use any kind of harassment, bullying, or intimidation
  • fines are not used as a disciplinary measure
  • disciplinary policies and procedures are transparent, applied equally to all employers, and effectively communicated to all workers in their language
  • there is a formal grievance procedure in place
  • managers and supervisors understand the disciplinary procedures
  • records are kept on disciplinary and grievance actions
  • dismissals are only on legal grounds
  • positive incentives are in place to promote good behavior

In our next post, we’ll tackle the fifth major issue addressed by the workbook, freedom of association and employee representation. (You can access all of the posts in the series (to-date) by selecting the JLP category at any time.)