Category Archives: Miscellaneous

Supply Management Contract Writing, A Review Part I

Those of you following along will remember that I have reviewed three of Next Level Purchasing’s (NLP) (now the Certitrek NLPA) course offerings to date: Mastering Purchasing Fundamentals (Parts I and II), Savings Strategy Development (Parts I and II), and 14 Purchasing Best Practices (Parts I and II). This course, like the last three, is also worth the time and investment for any purchasing professional looking to advance her knowledge and career with a training program that can lead to a recognized industry certification (the “Senior Professional in Supply Management”).

According to NLP’s website, this course is designed to give you the skills necessary to minimize your procurement risks. Going way beyond the typical, dry explanations of contract law, through plain English examples and interactive exercises, this course is designed to teach you how to negotiate and write effective contracts and iron-clad terms and conditions.

The course promises that you will learn how to protect your organization from the disastrous effects of suppliers’ failure to perform, plus

  • How to decide if you need the protection of a contract
  • How to choose the most appropriate form of agreement
  • How to structure contracts
  • How to select, use, and develop language for methods of dispute resolution
  • How to write a contract’s key legal provisions such as indemnities and limits of liability
  • How to write a contract’s key commercial provisions such as pricing and delivery
  • How to write a contract’s key technical provisions such as specifications and warranties
  • How to make use of effective styles of contract writing
  • How to effectively proofread and organize contract revisions

… but it delivers much, much more! It also includes:

  • The primary purposes of a contract. (There are more than one!)
  • The differences between the ten most common forms of agreement.
  • Six different remedies that you can consider when writing a contract that covers what will happen if your supplier fails to perform.
  • A discussion of four different dispute resolution methods.
  • Common legal terms such as “force majeure”, “most favored nations”, and “choice of law” which have a distinct legal meaning despite the fact that they are typically not translated into English.
  • Stylistic guidelines that not only make your contracts easier to read, but reduce the number of objections your legal counsel will invariably have.

And even if you don’t write your purchasing organization’s contracts, the course is still worth much more than it costs – after all, if you don’t fully understand the language that lawyers love to use, how can you be sure that they are accurately capturing your agreements and intent?

So, after acknowledging that neither Next Level Purchasing nor Sourcing Innovation practice law, that Next Level Purchasing and Sourcing Innovation are not rendering professional legal services with regards to this (online) class, that neither Next Level Purchasing nor Sourcing Innovation will be responsible for any contract, either in whole or in part, based on any material presented in the (online) class, whether used in whole or in part, go on over to Next Level Purchasing and find out more.

Spend Analysis V: New Horizons (Part 1)

Today I’d like to welcome back Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI) who, as I indicated in part I of this series, is authoring the first part of this series on next generation spend analysis and why it is more than just basic spend visibility. Much, much more!

Many of the limitations of spend analysis derive from its underlying
technology. As I’ve discussed in previous installments, the extent to which spend analysis can be made more useful to business users is often the
extent to which those limitations can be hidden or eliminated. In essence: an analysis tool is useful to business analysts only if business analysts actually use it. Which means that there is a fine line that vendors must walk between delivering technology to business users, and shielding them from it — without going too far and creating an unnecessary vendor dependency.

In this installment and the next, we’ll look at a few advanced features that aren’t necessarily available today, but that should be possible to provide in future, without crossing that line.

Meta Aggregation

By definition, a spend transaction contains the “leaf” level of a
hierarchy only. Consider the following:

   HR Consulting
Mercer
Deloitte
IT Consulting
IBM
Accenture
Management Consulting
KPMG
CGI

Low level transactions typically contain “Mercer” or “CGI,” but
not “IT Consulting” or “HR Consulting,” because those intermediate
hierarchy positions (“nodes”) represent an artificial organization
imposed by the user, and have no reality at the transaction level.

Suppose, though, that I’d like to be able to treat intermediate nodes as though they had reality inside the transaction set itself. Simple example: I’d
like to derive a new range dimension based on the top level of the above
dimension. I want to know which consolidated groupings are at $0-$100K,
which are at $100-$500K, and so on. I don’t care about IBM or
KPMG any more; all I care about is aggregating my own groupings.

In mathematical terms, I’m asking for f(g(x)) — the ability to apply
dimension derivation to a previous aggregation step; and, inductively and more generally, to do the same to the meta-aggregated dimension itself.

In OLAP implementation terms, I’m asking the engine to treat the intermediate nodes from any dimension, at any hierarchy level, as virtual transaction columns rather than as dimensional nodes. The problem is, intermediate nodes aren’t static; they’re changing all the time. That means a dimension derived on artificial rollup values must be re-derived whenever the hierarchy of the source dimension is altered; and, since hierarchy editing must be a real-time operation (as I have argued in this series and elsewhere),  the dimension derivation must also be performed on-the-fly.

Tricky as this might be to implement, the logic is easy to specify from the business user’s perspective. The user simply picks a previously-defined dimension and a hierarchy level on which to base his new dimension, and he’s done.

Visual Crosstabs

The utility of Shneiderman diagrams (or “treemaps”) to display hierarchical information is well known; the BIQ site has a live example.

The treemap is useful because it is visually intuitive; in this example, the relative sizes of the rectangles represent the relative magnitude of spending. The colors indicate relative change in spending; red is bad, green is good; lighter green is better. Inner rectangles show the breakdown at the next level of the hierarchy.

Clicking inside one of the white-bordered rectangles provides an expanded lower-level view of the hierarchy; clicking the up-arrow button moves back up a level.

Now, suppose that rather than the inner rectangles showing a lower level of the same hierarchy, instead they showed the breakdown of spending
within another dimension entirely — i.e., a “visual crosstab.” The visual crosstab would not only show magnitudes, but trends as well.

Unlike with meta aggregation, where the user interface is simple and
the implementation complex, here the user interface is complex and the
implementation fairly simple. The utility of the visual crosstab will
depend strongly on the user interface — for example, how does the user change the resolution of the outer dimension to a different hierarchy level? What might that do to the level of the inner dimension? How might the user invert the view, so that the inner dimension becomes the outer, and the outer becomes the inner? Globally, how can the user be kept aware of what’s being viewed/inverted/clicked, and therefore be able to make sense of the result?

The Sorcerers of Sorcity

Another stop on my whirlwind tour of North Dallas was
Sorcity. My goal was to find out if they were an on-line auction platform, an e-marketplace, a combination of both, or something entirely different … since their site left me asking as many questions as it answered.

Founded in early 1999, it is possibly the oldest surviving stand-alone on-line reverse auction platform in the sourcing space (as most of the early major players have been acquired). [As a side note, Procuri (acquired by Ariba, acquired by SAP) is probably number two as it was founded in 1999 as well, and Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) is probably number three, as it was founded in early 2000]. In addition, it also serves as a marketplace with over 620,000 registered suppliers where you can potentially find hundreds of suppliers that could meet your needs. However, the real differentiator between the other online and on-demand SaaS reverse auction providers and other e-marketplaces is its managed services offering.

When you get right down to it, even with the best tools available, with finite resources, you can only conduct so many sourcing events on your own. The only way to conduct more events is to augment your team, either by hiring consultants or outsourcing part of the process – that’s where managed services comes in. With Sorcity’s platform, you can use Sorcity to assist with as much of the executable sourcing cycle (Preparation / RFX / Auction / Negotiation / Award) as you like … anywhere from just automating all of the time-consuming administration, negotiation, and analysis to having Sorcity conduct the entire event for you end-to-end.

With their tool alone, they claim you can save 1-12 days on the auction component alone, an additional 3-66% on price paid, and get anything you need with their very large supplier network. So they are definitely competitive with the service offerings of the on-demand providers like Iasta and Procuri. But as I just said, the real power is their managed services where you can outsource entire categories and events. Under this model, provided your bid is for 100K or more, you can successfully complete an event with just 1-2 hours over 1-2 weeks! Furthermore, it does not cost you anything – the fees are paid by the vendor who is awarded the business! (I believe they also have a consulting model, where they will help you for fixed fee, but, unlike most vendors, you only have to pay if they save you money. How can they do it? Years of experience has taught them where considerable savings are, and where they aren’t. So if they don’t think you can save enough money on a category / event to make it worth your while, they’ll help you find one where you can save enough to make it worth your while.)

So although I would hesitate to recommend their solution for in-house purchases (and I still believe all high-value and strategic purchases should be managed by a core team in one center of excellence under a center-led purchasing model) as I believe those should be executed under a platform that covers the entire sourcing cycle (and not just the executable sourcing cycle), I would certainly not hesitate to recommend that you consider them for those categories that are not critical to your business (and when you get down to it, the vast majority of your purchases are not, despite what you might think – if ten suppliers can make a part, it’s not strategic – only those components that can only be provided by a handful (< 5) of vendors or those components that can be, and often are, in short supply are critical, and therefore need to be classified as strategic). After all, the best way to do strategic sourcing is to strategically outsource everything you do not have a core competency for and everything you just do not have time to strategic source in house.

So check out Sorcity and check back to see if I am successfully able to convince their white-paper writer to guest author a post on why a managed services platform may also be appropriate for certain high-spend or strategic purchases.

I Finally Figured Out Why …

I’m not stir-crazy about AMR’s DDSN – Demand Driven Supply Network – focus, but I could never figure out why. I fundamentally agree with the principles, I like a lot of the great research they have produced, and yes I believe you should be focused on understanding actual demand, but DDSN just doesn’t seem to have that special ring to it – the ring that rolls of your tongue. Then yesterday I stumbled across InventoryOps.com Business Humor Lame Lists.

Included with paradigm, sea change, watershed moment, and leveraging, among others, is, you guessed it:

Demand Chain Does calling a supply chain a demand chain really change anything? I’m pretty confident that most people working in supply chain management realize the purpose of the supply chain is to meet demand.

All I can say is … Duh! So in the grand scheme of the Purchasing – Procurement – Sourcing – Supply – Spend – Management Smorgasboard, I’m going to keep calling it supply chain. And now I know why.

The New and Improved I2

During my whirlwind tour of North Dallas, I was lucky enough to be able to meet with both Sarinder Chhabra (Senior Vice President) and Manish Govil (Program Manager) of i2 Technologies to talk about what i2 has been up to lately and where they are going.

I’m sure many of you still consider i2 to be the gold-ring exclusive services provider to the top ten or top twenty aerospace, automotive, high tech, and chemical providers, with deep service offerings beyond your needs and capabilities, and price tags to match, but that’s the i2 of old. Having conquered best in class, they realized that they only had two options for growth: conquer new verticals or address a larger market-space. New verticals would be a great start, and their generic process solutions could be customized to the needs of just about any vertical, but the real market lies in the mid-market, where most companies reside. Therefore, they decided to entirely re-architect their software and solution offerings to address the needs of small and large alike! And it sounds like they got it right.

The following are seven key points that I took away from my discussions.

  • They’ve re-architected all of their modules and major sub-modules as Service-Oriented Architecture enabled components and developed a new AGILE business platform that allows them to integrate just the components you need.
  • They’ve enhanced their technology architecture to include best of breed third-party products, such as Endeca’s (acquired by Oracle) search technology and Denso’s OEM catalogue.
  • They have embraced Software as a Service principles and will offer hosted solutions or managed services as well as event-based offerings.
  • They have been working hard on a next generation supply management solution that integrates the software and services you need to be successful.
  • They have been actively creating and embracing partnerships, and will happily work with complimentary providers to provide you a full suite of connected and integrated products to give you an end-to-end solution for whatever part of the supply chain you are attacking.
  • They have been working hard to translate their broad in depth knowledge base of industry best practices into generic processes that can be built into your configured software solution.
  • They have been working hard to transform from a software provider to a solution provider – to offer you the services, be it generic software, custom software, consulting services, or managed services, in-house or through partnerships – you need to succeed.

I look forward to diving into some of their new offerings in the near future.