Category Archives: Miscellaneous

The Secret of Supply Chain Management Success

Back in May, Jaume Ferrer and Johan Karlberg of Accenture published “Supply Chain Management: How to Build a Successful Global Operations Model” in the Accenture Outlook Journal where they noted that despite the facts that 93% of respondents to a recent survey reported global operations to be a central component to their business strategy and 97% were attempting to upgrade their global operations, only 50% of respondents reported successful implementation of critical capabilities. (The results were based on 305 online interviews with sales, marketing, and supply chain executives and almost equally split between the United States and Europe, and are thus statistically significant.)

According to the article, the reason for the lack of success was that most companies have been attempting to establish a global footprint by working through functional or regional silos when they should be taking an integrated, global approach. Brining together the worlds of product, market growth and operations strategy is a prerequisite to success in both new and existing markets. Companies that attempt to penetrate new markets without a specific product portfolio redesign and without rethinking channel approaches, make-or-buy strategies and back-office capabilities are in for a rough time.

In addition, the article notes that although there is non one-size-fits-all approach to global supply chain management success, there are six key capabilities that are required at the foundation level.

  • An effective global, integrated sales and operations planning process for key markets to ensure customer service, time-to-market, inventory and cost objectives.
  • A procurement, manufacturing, distribution and R&D network designed to deliver a quality product, in the scheduled time frame, at a target cost-of-goods sold and time-to-market objectives.
  • Tight links with customers and suppliers to enable improved demand visibility, customer service, and reduced working capital and cost-of-goods sold.
  • Logistics partnerships to ensure efficient and time-effective low-cost-market sourcing and penetration.
  • Effective supplier recruitment, certification and alignment programs to ensure quality and service objectives in addition to cost.
  • A go-to-market strategy (product portfolio, channel, network, make or buy) for emerging markets.

In brief, integrated sales and operations planning, procurement-based manufacturing and distribution R&D network, tight-linkages with partners up and down the chain, logistics partnerships, effective supplier management programs, and a go-to market strategy. It certainly sounds like it covers all of the bases, right?

Not really. Although each and every one of these elements is necessary for a successful global supply chain, just like each and every one of these elements is necessary for a successful regional, or even local, supply chain, there is one implicit, core foundation, element that is missing.

Understand your supply chain.

Before you begin any transformation process, you should fully understand your supply chain. And by this I mean that you should have your supply chain fully mapped out from sources (suppliers) through to sinks (retailers and customers) at multiple levels of detail and from multiple viewpoints. For example, you should have a distribution map that maps the primary routes and transportation methods from your suppliers to your plants and from your plants to your customers. You should have a process map that maps the flow of materials as they enter your facilities to finished products. Etc. The distribution map should detail the third party logistics carriers used and usual transportation times. The process map should detail the equipment used, the business units involved, and the process times.

This way, you can fully determine the ramifications of a potential change before you make it and insure that every affected party is appropriately dealt with. For example, before you switch to a new supplier, you could determine that production is going to need more lead time, you are going to have to find a new third party carrier, and the impact on your cost models. You could get change specific feedback from sales and marketing with respect to the expected lifetime of the product. You can much more easily work out the impacts and required changes with respect to the six core elements of success outlined in the Accenture article. After all, they key to reaching your destination efficiently is to know where you are starting from.

Living Green

As pointed out in e-Sourcing Forum’s [WayBackMachine] post on Green Suppliers back in May, Interface Inc., the world’s largest carpet manufacturer, was able to save $260m from waste reduction initiatives, as pointed out in a Purchasing Magazine article. But the story continues.

As pointed out by Lindsey Parnell, the CEO and President of Interface Europe, in her article “A Sustainable Future” in CPO Agenda, Procurement leaders need to play their part in overcoming the many hurdles to environmentally friendly business.

The article points that sustainability is about driving enterprises towards maximum resource efficiency, maximum responsibility for any actions and maximum return on investment. It’s about doing well both commercially and in an environmental and social sense and that the development of consistent definitions of industry-specific drivers would increase focus while the establishment of a return feed of used and end-of-life products would allow suppliers to close the loop and view lifecycle costs, not just one-off purchase costs.

Furthermore, even if companies looked only at what could be achieved with the resources readily available to them, the impact would be significant. Consistently demanding the most sustainable products and services available would also help the market’s development, and I believe gravitation in that direction is inevitable.

As I pointed out in staying green, I too believe this trend is here to stay. After all, when you consider Sprott Asset Management‘s recent report “Investment Implications of an Abrupt Climate Change”, which forecasts far-reaching and “dire” impacts of rapid climate change, businesses who do not adapt may go extinct. And, as described in BusinessWeek’s Business on a Warmer Planet, some companies are already adapting. After all, as CIO Insight points out in “The Greening of the CIO”, environmental questions matter more and more for corporate IT, not as feel-good programs but business issues with a direct impact on the bottom line. After all, as pointed out by a recent Supply Excellence [WayBackMachine] post, the European Union’s Restriction of Hazardous Substances (RoHS) has triggered shortages for both compliant and non-compliant electronic components, challenges which will need to be overcome by innovative sourcing professionals. Fortunately, some manufacturers are stepping up to the challenge. Zebra Technologies has fully converted its thermal printers to be in compliance with the EU’s RoHS directive, as described in a recent Supply & Demand Chain Executive article (that is no longer available).

Green issues have an impact on everything from product marketing to employee morale to profit margins, and many of them are closely interwoven with the everyday work of IT organizations and the departments, including procurement, that IT supports. The article suggests that you should think of environmental consciousness as the next level of alignment, an enterprise-wide phenomenon that procurement must lead.

And your job is only getting easier. With companies like new startup SolFocus and Energy Solutions Alberta, you’ll soon be able to run your corporations on 100% renewable green energy from the ultimate renewable energy resources — the sun and the earth themselves. (And some researchers are even looking into ways to capture the energy we waste with each foot step, by taking the science of piezoelectrics, that powers your SEIKO kinetic perpetual timepieces, to the next level.)

Furthermore, it may not be too long before we’ll be able to stop wasting paper and silica and write on water itself as a result of some recent developments at the Akishima Laboratory in Japan. (English article no longer available.) At the very least, we should be able to replace those neon signs with a new generation of technology. (While we wait for that day to come, we will soon have e-paper to tide us over.)

To answer David’s Question in a recent e-Sourcing Forum post, I think Kermit will soon be singing about how easy it is to be green.

The Long Tail Wags the Dog

Dave Stephens, author of Procurement Central [WayBackMachine]  isn’t the only blogger who likes to muse about Procurement’s Long Tail. As you may recall, Doug Hudgeon of Vendor Management (renamed Contract Capital Management [WayBackMachine]) prognosticated on the issue in Are your vendors the Spice Girls or Arcadia? and I wrote about some of my own musings last month in my post Build To Order.

However, for those of you who want some in depth discussion of the “long tail”, a new book about entertainment, technology and statistics that predicts that popular culture-and the business associated with it-will be transformed by the internet entitled “The Long Tail: Why the Future of Business is Selling Less of more” by Chris Anderson is now available.

Now I’ll admit that I haven’t had a chance to read the whole book yet, although I have read the original article that the author wrote back in 2004 a number of times, but I have read a number of reviews, including a great article in a recent edition of The Economist entitled “What the long tail will do” (subscription required). The article points out that one of the main points of Mr. Anderson with respect to entertainment is that the niche, the obscure and the specialist, will gain ground at the expense of the hit. As evidence, he points to a drop in the number of companies that traditionally calculate their revenue/sales ratio according to the 80/20 rule—where the top fifth of products contribute four-fifths of revenues. Ecast, a San Francisco digital jukebox company, found that 98% of its 10,000 albums sold at least one track every three months. Expressed in the language of statistics, the experiences of Ecast and other companies such as Amazon, suggest that products down in the long tail of a statistical distribution, added together, can be highly profitable.

Long-tail enthusiasts argue that the whole of culture will benefit, not just commercial enterprises. Although many people appear to be quite happy to watch and listen to what the mainstream provides, if individuals have the opportunity to pick better, more ideally suited entertainment from a far wider selection, they will take it, according to the theory of the long tail. For example, YouTube is now serving up 100 million videos a day.   (And I personally buy more music in mp3 form from AudioLunchBox, Mperia, and related sites then I do traditional CDs these days.  Post-Edit: As of last link verification, the doctor highly recommends you check out Bandcamp, especially if you like American Pie. )

Interestingly enough, Mr. Anderson, who developed the long tail theory in the aptly named Wired article “The Long Tail” back in 2004, has backed away somewhat from his original take in which he suggested that the long tail would be a bigger market than the hits. His book says, more cautiously, that “all those niches can potentially add up to a market that is as big as (if not bigger than) the hits.”

The article in the Economist indicates that one weakness of this otherwise excellent book is that it tries to apply the theory of the long tail to fields far beyond entertainment and e-commerce. The article notes that Mr. Anderson sees long-tails in labour (offshoring) and national security. Although I am inclined to agree in that the application of the long-tail theory to national security is too much of a stretch, I disagree with the author of the Economist article and believe that the long-tail theory does apply to labour. However, even though outsourcing is part of the distribution, I would classify Crowdsourcing as the long-tail of labour.

Even though I do not think that any one author, reviewer, critic, analyst, researcher, or futurist really understands long-tail in its entirety, and that no one can fully predict what the long-tail future will deliver, I believe that as time goes on, we will see it taking a greater hold of many marketplaces, not just entertainment and e-commerce. Furthermore, I think the open-source movement will continue to significantly contribute to the long-tail in the technology sector and redefine the sector as a whole as it contributes to the emerging “non-monetary economy” that seems destined to emerge at the end of the long-tail.

For more insight, you can check out CNet’s interview with the author. I found the most interesting parts to be the following questions and answers:

What was the most surprising thing you came across in your research?

The most surprising thing was industries that understood the long tail that I hadn’t anticipated. When you think of the long tail, it’s basically a large number of niches that compete with one-size-fits-all mass-market products. There are so many precursors. You know, fashion has always had boutique and couture. And you can think of that of as a long tail of clothing.

In food, we’ve seen the rise of organic and artisanal food as the long tail of agriculture in a sense. It used to be difficult to have that in the supermarkets. But what I learned is that even in the supermarkets because of efficiencies and supply chains and stock management technology, there’s been more than a doubling in products on the shelf. Even Wal-Mart is now offering organic, which is a day many thought would never come.

Who are the most important people in the long tail?

The producers. I mean the long tail is made up of millions and millions of people who are creating content and finding an audience for it. Look at all the bloggers out there. They have essentially extended the tail of media a millionfold because it’s so easy to do so and they have something to say.

So I think that the real lesson of “The Long Tail” is that that notion that professionals produce and amateurs consume is really being blurred and we’re realizing that amateurs often have as much as to contribute as the professionals do and there are so many more of them. Wikipedia, I think, is perhaps the best example of that.

In other words, the long tail is just about everywhere and each and every one of us is carrying it forward. Now that’s food for thought.

There’s No Such Thing as Spend Intelligence

For the last six weeks, I have been exploring problem solving methodologies you could use to help you with your sourcing problems. At a later date, I’m most likely going to take up six sigma and lean, but today I’m going to rant.

There’s no such thing as a Spend Intelligence Solution!

And before you start huffing and puffing about how wrong I am, please read this post in its entirety. Thank you.

A few weeks ago, Aberdeen released its study “The Spend Intelligence Benchmark Report: Turning Data into Action”. This study by Sudy Bharadwaj, Aberdeen’s new Vice President and Research Director of Global Supply Management, and Rick Saia, an Aberdeen Research Analyst, found that companies employing spend intelligence have reduced sourcing cycles by 19 to 25%, reduced the overall number of items they need to purchase by 10 to 15%, and reported contract compliance rates of 31 to 35%, depending on how long the program has been in place. These are some significant results, so there must be something to it.

Shortly after its release, this report sparked a considerable amount of coverage on the blogs. Jason Busch of Spend Matters challenged* the thinking behind Aberdeen’s use of the phrase spend intelligence. The main points of his post were as follows:

Consider how in a recent study, Aberdeen adopted the term “spend intelligence” to describe the broader spend visibility and analytics market. The purpose of my post today is not to rip into the findings — the study itself is highly useful — but to challenge the thinking behind Aberdeen’s use and definition of the phrase, “spend intelligence,” which at this point feels dangerous to me, just as overly political language feels dangerous to Orwell. Why? As an attempt to shoot some Botox into a segment of the Spend Management market that can be challenging to explain and position, Aberdeen’s choice of language shortchanges and over simplifies a concept, potentially corrupting how the market will look at a key Spend Management business process. …

The problem is that spend visibility and analytics is much more complex, requiring data cleansing, rationalization, classification and other efforts which go far beyond what is needed to gain insight into basic HR, financials, IT and other internal information, which fall cleanly in to the BI camp. …

Fundamentally, “spend intelligence” should exist both inside and outside the organization, but Aberdeen’s usage might lead companies to think that everything they need lies within. The problem with this thinking is that supply market information changes all the time …

… by focusing too much on the final insight itself, “spend intelligence” conjures up images of the end-result, rather than the journey or path to get there (which can be as insightful as the data crunching itself). For example, in data gathering efforts, procurement can learn just as much about spend categories by talking with design engineers and operations team members as reading the SAP tea-leaves where dirty data resides.

Not long after, Tim Minahan, who used to occupy Sudy’s position at Aberdeen, of Procuri (acquired by Ariba, acquired by SAP)came to the defense of Aberdeen’s Spend Intelligence Moniker on his blog Supply Excellence [WayBackMachine]. The main posts of his post were as follows:

As an analyst, every software vendor — … — touted their spending analysis capabilities. The caveat: you just needed to give them the data in a cleansed, classified, and structured format. … In short, most vendors pitched building a data cube or data warehouse from which you could run analyses and reports as spending analysis. They were wrong. And they confused the marketplace (possibly intentionally).

It is the automated and repeatable classification of spending information to a structured schema (e.g., UNSPSC, eClass, proprietary schema, etc.) and then the enrichment of this data with related business information (e.g., parent-child relationships, financial risk scores, contracts, performance information) that turns spend information from “dumb” data into true spend intelligence that a company can use to make fact-based sourcing and supply decisions rather than gut-based or hunch-based decisions.

The distinction between spend data and spend intelligence is an important one. Bravo Aberdeen for calling out the difference between dumb data and actionable intelligence.

And just a few days ago, Purchasing Magazine sponsored a webinar on the report where Sudy presented the main findings of the report and Brett Mauser of NCR, a corporation that recently implemented Zycus‘ spend management solution, discussed how spend intelligence has kicked NCR’s spend management program into overdrive. (Note that Zycus was one of the sponsors of the Spend Intelligence Benchmark Report.)

According to the study, and reinforced in the webinar, companies with best-in-class spend intelligence solutions have a process maturity that is twice that of their counterparts, and those processes are almost twice as likely to be aligned company wide. In addition, those processes are twice as likely to be automated. And mature, automated, processes get results. So why am I insisting that there is no such thing as a spend intelligence solution, when it appears that these solutions not only exist, but get great results?

Let’s start with the definition of intelligence.

Intelligence is a most complex practical property of mind, integrating numerous mental abilities, such as the capacities to reason, plan, solve problems, think abstractly, comprehend ideas and language, and learn.

And since spend management solutions are software, let’s review a definition for software.

Software is the (collection of) program(s) that enable a computer to perform a specific task, as opposed to the physical components of the system (hardware), where a program is the collection of source code and libraries which have been compiled into an executable or otherwise interpreted to “run” in (active) computer memory, where it can perform both automatic and interactive tasks with data.

Simply put, intelligence is a property of mind and software is a property of machine. And despite the efforts of the artificial intelligence community, I do not expect the property to cross the chasm anytime soon. Artificial intelligence is simply a collection of very sophisticated algorithms processing large data stores, instruction sets, and probabilities very quickly to come up with reasonable responses to queries – it is not thought, although it might appear to be thought since today’s computers can perform billions of calculations in a second. And that’s where my beef with the term spend intelligence lies.

Furthermore, as Jason Busch of Spend Matters points out, the term is very misleading and overlooks the fact that results from enhanced spend visibility and analytic efforts require data cleansing, rationalization, classification and other efforts which go far beyond what is needed to gain insight into basic HR, financials, IT and other internal information, which fall cleanly in to the BI camp.

So if you want to call it spend visibility, actionable spend, or maybe even spend knowledge, I’m all for it. But since the real intelligence lies in the user of the tool who takes the actionable data and uses it to get results, there is no spend intelligence software, only spend intelligence enablement software. And when you get right down to it, that’s what you really need as an expert power procurement user – software that helps you make the right decisions, not software that purports to make those decisions for you.

However, regardless of what you call it, check out the “The Spend Intelligence Benchmark Report: Turning Data into Action” while you have the chance. Just like the “On Demand Supply Management” report, it is top notch research, whatever you want to call it.  After all, as Tim Minahan pointed out, the distinction between spend data and spend intelligence is an important one, and the Aberdeen report is one of the first reports to call it out, even if I may take issue with the impreciseness of the terminology used.

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

A burrito, an angel, and a shovel

Sometimes even bloggers are cursed by writer’s block, and sometimes even the witty rhetoric of other bloggers is not sufficient to get the creative gears moving again. So what’s a blogger to do? Where can a poor blogger turn for inspiration for that critical first line?

No longer will I need to ask that question when a plethora of delightful options await to stimulate the neurons at the San Jose State University Department of English & Comparative Literature, courtesy of generous submissions to the annual Bulwer-Lytton Fiction Contest!

If you ever feel a bout of writer’s block coming on, start with the 2006 winners, after all, how can you not be inspired by a sentence that so flawlessly integrates a burrito, an angel, and a shovel into one awe-inspiring lucid thought?

Detective Bart Lasiter was in his office studying the light from his one small window falling on his super burrito when the door swung open to reveal a woman whose body said you’ve had your last burrito for a while, whose face said angels did exist, and whose eyes said she could make you dig your own grave and lick the shovel clean.

Jim Guigli
Carmichael, CA, USA

I was right, wasn’t I?