Category Archives: Miscellaneous

the doctor’s Guest Posts: The Year in Review

Over the past year, I’ve blogged a number of guest posts over on eSourcing Forum, including forty posts last summer as part of the weekend series. For new(er) readers to the blog, here is a list of all guest posts over on eSourcing Forum with direct links.

Weekend Series Posts on e-Sourcing Forum [WayBackMachine]

Purchasing Innovation I: An Introduction
Purchasing Innovation II: TRIZ
Purchasing Innovation III: The Verifier Approach
Purchasing Innovation IV: Innovation Continued
Purchasing Innovation V: Sourcing the New Organization
Purchasing Innovation VI: CrowdSourcing
Purchasing Innovation VII: The Road Ahead
Purchasing Innovation VIII: Transforming New Product Development
Purchasing Innovation IX: The Purchasing Evolution!

On Demand I: The Good
On Demand II: The Not-So-Bad
On Demand III: And the Coming Pretty …

Cost Reduction and Avoidance I: An Introduction
Cost Reduction and Avoidance II: Metrics
Cost Reduction and Avoidance III: Incentivize for Success!

Supply Risk Management I: An Introduction
Supply Risk Management II: Risks and the Need for Resilience
Supply Risk Management III: Managing Risk

Supplier Performance Management I: An Introduction
Supplier Performance Management II: The Road to Success
Supplier Performance Management III: Best Practices

Demand Driven Supply I: An Introduction
Demand Driven Supply II: Stages and Implications
Demand Driven Supply III: Challenges and Implementation

Center Led Procurement I: An Introduction
Center Led Procurement II: A Center of Excellence
Center Led Procurement III: Best Practices

Procurement Outsourcing I: Is it right for you?
Procurement Outsourcing II: Selecting a PSP
Procurement Outsourcing III: Getting the most out of your PSP

Optimization I: A Powerful Tool
Optimization II: Why it was Relegated to the Shadows
Optimization III: Why it’s time is finally here
Optimization IV: POE or BoB?

Six Sigma I: An Introduction
Six Sigma II: Innovative Quality
Six Sigma III: Value Based Strategic Sourcing

Weekend Series Wrap Up I: Process and Technology
Weekend Series Wrap Up II: Supply Chain Management
Weekend Series Wrap Up III: The Innovation Revolution

Miscellaneous Posts on e-Sourcing Forum [WayBackMachine]

* Lead Time Optimization: Groundbreaking New Technology or just Applied Total Value Management-based Decision Optimization in Disguise?
* Sustained Sourcing Success
* Are there any limits to procurement’s role?
* Outsourcing Gets Tough
* Design for Supply
* The Benefits of an End-to-End e-Sourcing Suite
* Accelerating Value with On-Demand: An Aberdeen Perspective
* Supplier Enablement Enables Savings

And just in case you missed it, here’s a link to the chaos-causing post on Emptoris’ optimization over on Spend Matters:
The Doc’s Perspective on Emptoris’ Optimization*

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

What does Finance Think of Procurement?

CFO Research Services recently produced a white-paper on “CFO’s Views on Procurement – Information, Risk, and Money”, sponsored by Ariba (acquired by SAP), that had some interesting insights on how some top senior finance executives view the procurement function.

The following are the points that I found most interesting in this 20-page study:

  1. improvements in cost management & decision support capabilities
    top the finance agenda
  2. companies see the greatest opportunity in managing external spending
    on production inputs and on indirect costs
  3. executives see greatest benefit from sourcing goods through preferred
    vendors and improving supplier interactions
  4. finance executives say their companies are unable to gather timely and
    accurate information on purchasing activities and have poor forward
    visibility on spending
  5. relationships with vendors are managed with combinations of technology
    and manual processes
  6. purchasing systems are not a cure-all, but companies that have adopted
    technology are better able to take full advantage of preferred providers,
    to find opportunities for savings, and to gather and use information;
    furthermore, in adopters, there are sustained differences in executives’
    views on the effectiveness of the procurement function and the quality
    of information that flows out of it
  7. many respondents cited a need for greater coordination and integration of
    the procurement function with the rest of the company
  8. some respondents noted the lack of an optimal sourcing strategy given a
    complex supply chain as well as difficulty with proper pricing, volume
    discounts, and vendor communication

These give me the following take-aways:

  1. Finance, even though they might not yet understand the procurement function in many organizations, can be convinced of its importance.
  2. This bodes well since Aberdeen’s recent Direct Materials Sourcing Study found that companies with best-in-class direct materials sourcing programs can achieve 28% year-over-year cost reductions and services like Rearden Commerce (rebranded Deem) and Noosh are popping-up to tackle various aspects of indirect costs
  3. This only emphasizes my points that you need to:
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
  4. This demonstrates the need for e-Procurement across the board.
  5. Companies need to invest more in Supplier Relationship Management and Collaboration Systems to increase productivity.
  6. This demonstrates the need for e-Sourcing across the board.
  7. The importance of center-led procurement and cross-functional collaboration emerges as the crystal ball clears.
  8. Great supply chains require Total Value Management and Best-Cost Country Sourcing at their foundations.

And even though the final page from the sponsor, Ariba, was mostly marketing, I have to agree when they state that The survey results are a powerful proof point that elevating the procurement function and its processes and information is critical to creating strategic business advantage.

Living in a Materials World (in Direct Materials Sourcing)

Last Tuesday, I blogged that Aberdeen Took a Tip from Madonna in their latest research study, Direct Materials Sourcing: Living in Materials World, which is due to hit their website in the next couple of days. Before the study, they hypothesized that direct materials sourcing should include the following business processes:

  • Standardized Strategic Sourcing Initiatives Company Wide
  • Cross-Functional Procurement Teams
  • E-Sourcing and E-Procurement Solutions
  • Procurement Involvement in Product Development
  • Leverage of Outsourcing

The study more-or-less confirmed these hypothesis. Specifically:

  • 97% have a formal direct materials sourcing program,
    83% of these programs have been in place for more than five years,
    and 70% more direct materials are strategically sourced
  • they differentiate themselves by their appetite for, and usage of, external support,
  • 70% have a greater likelihood to utilize e-Sourcing,
  • they engage product/design teams sooner in the process, and
  • over 50% more of their direct materials spend is
    sourced using LCCS

Furthermore, Best-in-Class enterprises have:

  • 98% of direct materials spend under management,
  • 28% higher year-over-year cost reductions,
  • 63% greater rates of contract compliance, and are
  • 55% more likely to track implemented savings

This report is one of the best reports I’ve seen out of Aberdeen in a long-time. It not only includes the standard metrics you’ve come to expect from Aberdeen research studies, but also includes metrics for process, organizational structure, knowledge/data management, technology usage, and performance management broken down by laggards, average performers, and best-in-class enterprises.

And it notes that Any collaboration gap that exists between a procurement department and its internal stakeholders is exacerbated by an increasing reliance upon off-shore suppliers who, in addition to offering potentially lower prices, may also require longer lead-times and different risk management strategies, a point I’ve been trying hard to make as of late.

The report also includes the standard Best-in-Class PACE model, details on services utilized by Best-in-Class companies, a couple of compelling case studies, and required-actions for laggards, average, and Best-in-Class performers to advance up the supply chain food chain.

So, how can you achieve Best-in-Class? The statistics above provide some insights. For starters:

  • make sure you have a formal direct materials sourcing program with a pipeline that always exceeds capacity to allow your team to maximize their potential as their capabilities improve
  • use center-led procurement and a cross-functional sourcing team
  • use best-in-class e-Sourcing and e-Procurement solutions
  • collaborate with product design and engineering on NPD from the get-go
  • leverage 3rd party services, outsourcing, and best-cost country sourcing
  • use contract management and track compliance and savings
  • read the report – it is worth it! (And check back – I hope to have some commentary from the report author, Andrew Bartolini, as soon as he has a moment to spare!)

And remember, plans are only good intentions unless they immediately
degenerate into hard work (shown by a high percent of spend under
management) and a focus on bottom line results.

Even Heroin Smugglers Need Freight Optimization

According to a recent article on Yahoo! News, Tajik police have arrested a woman for trying to smuggle heroin in a refrigerator through express delivery firm DHL. Apparently, the DHL office in the Tajik capital Dushanbe grew suspicious after noticing that its transportation cost to Moscow exceeded the actual cost of the fridge by several times. Upon a search, they found 17.4kg of heroin hidden in the innver cover plate.

What was she thinking? Or more importantly, what was she not thinking? “Let’s see … $200 fridge … $500 shipping … makes sense to me!” What isn’t wrong with this picture. First of all, as a consumer, you should never pay more to ship a commodity than you pay to buy it. Secondly, you should never import something you can buy locally. (Who wants to deal with customs and import duties when someone else can do it for you?) Furthermore, if you have approximately 2.2M* worth of heroin, certainly you could afford to buy and ship a small car, which would cost roughly 1% to 2% of the total value and have a shipping fee only one tenth of its value – which would surely not be as suspicious since shipping would be much less than the value and people import cars significantly more often than they import fridges.

So, I guess there are two lessons here:

  • If you’re going to smuggle drugs, make sure you smuggle them in an item where the shipping cost doesn’t (significantly) exceed the item value.
  • If you’re going to buy and ship internationally, make sure you’re not paying too much for freight, or risk getting your shipments stopped and search by ambitious agents looking for the next bust.

* Based on an estimated street value of roughly $125/gram, which appears to be the median value returned from various sources in a Google search on June 1, 2007.

Global Apparel

Apparel recently published an article entitled “Globalization is Getting Us” that had a surprising number of insights on Global Supply Chain Management and best practices given the nature and brevity of the article. In brief:

  • Too many companies are still using FOB as their cost metric!When you go global, you also have to factor in tarrifs, duties, higher shipping costs, travel costs, additional personnel costs, and the costs associated with expediting or acquiring a product locally at the last minute in the case of delayed (or lost) orders.
  • Even those companies that use landed costs are still missing the big picture! When you deal with an off-shore supplier, in order to have an effective relationship, you need to make regular site visits and sometimes even have feet-on-the-ground in the country you’re buying from. These extra salaries, travel costs, and opportunity costs associated with lost time from project managers and executives flying back and forth on a regular basis can really add up!
  • Price doesn’t matter as much as you think if the brand and quality are strong and customers buy.Most of us will pay a few extra percentage points, and sometimes a few dozen extra percentage points if we know the product is a quality, supported product from a reputable company, especially if it employs sustainable best practices. After all, we drink Starbucks.
  • Those who source local can turn on a dime and refocus production if demand unexpectedly spikes for a certain product.American Apparel and Zara can get product out in less than a week. If you’re sourcing from Asia, a month would be incredible turn-around time.
  • It’s easy to customize full-package offerings on-shore. Full-package from offshore can be a lot harder.
  • Not enough American companies are exporting their products. In today’s Global Enconomy, America is second-class – the new class is international.
  • Corporate Sustainability has long-term economic benefits. In addition to the immediate cost-savings from energy-saving efforts, it creates brand loyalty, a foundation for future profits.
  • Smart companies overcome the technology addiction. Technology may be the key to the collaboration, efficiency, and visibility you need in your supply chain – but there is a difference between you driving the technology and the technology driving you. Successful companies identify exactly what they need and what a tool needs to do to be effective – and then find a solution that fits. Not the other way around.