Category Archives: Procurement Innovation

For a Good Lesson in e-Procurement System Selection, Ask Discount Tires.

This winter, Chief Executive ran an article on The Synergy Mirage: A Case Study that had a great lesson for every Supply Management team looking to select an e-Procurement system with the intent that anyone in the organization who wants to order something will use it. The lesson was simple:

Customers don’t want to buy new tires. They need to buy new tires. It’s expensive and it takes time out of their day. As a competitor, [Chairman] [Bruce] Halle benefited from making the process somewhat less expensive and taking less of the customer’s time. He also spent extra time cleaning up the shop, including the bathrooms, to make the customer visit a bit more comfortable. Customers appreciated the discount that came with the off-brand products Halle offered, but they also appreciated the opportunity to leave as soon as possible.

Similarly, in your organization:

Administrative assistants don’t want to place re-orders for toner cartridges. Engineers don’t want to have to order new workstations and business analysts don’t want to have to buy reams of papers. And office managers definitely don’t want to order pens. They need toner, computers, paper and pens to do their jobs (and make sure their coworkers can do theirs). Finding the best value for the organization is not their strength and it takes too much time out of their already too busy day. They want a process that is easy and quick. They want to find what they want as fast as possible, place the order, make it someone else’s problem, and get back to their job. And if they have to do it anyway, they would like an experience that is clean, comfortable, and relatively stress free. (And if they have to fill out 17 fracking forms to procure a single pencil they have two choices: pull out their hair and go postal in the classic sense, or just not do it.) They appreciate a tool that simplifies their life and lets them get back to their job as soon as possible.

So if you want to be the organization with 90%+ e-Procurement system penetration (as opposed to the one with 30% to 40% e-Procurement system penetration), you better make sure that whatever e-Procurement system you select is trivially easy to use and designed to make the location and ordering of a particular item quick and easy. Otherwise, you’ll just be buying more shelf-ware. There’s a reason that companies like b-pack, BravoSolution, Coupa, Iasta, and iValua are tearing up the middle market. They get that systems have to be easy to use. And there’s a single reason in particular that BravoSolution is making waves in the Fortune X where only Ariba and Emptoris used to play and that Coupa has reached the upper end of the Mid-Market (and started to sneak into a few Fortune X’s) in five-short years. Their systems are about ease of use. In all of these examples, their systems are about allowing a user to do what they need to do and get back to the more important aspects of their job. And, most importantly, their systems are about customer success.

And that’s also why you are going to see new waves forming in the Fortune X. Companies like hubwoo, IBX, and Wallmedian in particular are each going to make a [big] splash as their focus on helping Fortune X clients stuck on SAP get more value from their ERP system (from a Supply Management Perspective) with a lot less pain is going to start paying off as SAP gets stuck in the Fusion quagmire trying to integrate its latest acquisition. Watch for Wallmedian in particular, a name you’re probably unaware of on this side of Atlantic, to come over and pull a BravoSolution in the Fortune X SAP user base. (Remember when we didn’t know who BravoSolution was on this side of the Atlantic? It wasn’t that long ago and now with Ariba swallowed, they will soon be one of the biggest stand alone names out there in the Supply Management space.)

The Procument Game Plan – The Missing Chapter

Back in March / April, SI did a detailed review of Charles Dominick and Soheila Lunney‘s recent book, The Procurement Game Plan. This review was in-depth and spanned eight posts, which are indexed at the end of this post.

Astute readers will note that the doctor never finished the review. There were a couple of reasons for this, but one of the reasons was that he felt that something was missing from the final chapter of the book, on how to become a perennial Procurement all-star. It was good, but becoming an all-star is harder than you think, and if you’re only going to write a chaper on the subject, you better hit the nail on the head – fast. The chapter didn’t entirely do it for me.

Turns out, they were saving some of their best material on that point for the interviews. A few weeks (or so) ago they did a Q&A with Buyers Meeting Point that I bookmarked but didn’t bother to read closely until today. Answering a seemingly unrelated question on what place that traditional associations have in today’s social media environment, Soheila gave the best piece of advice a seasoned veteran can give a new entrant to the Procurement Game, especially if such entrant wants to be a Procurement All-Star. Soheila said you tend to get as much out of these opportunities as you put in – either a little or a lot. If you want to be a Procurement All-Star, you have to give it your all. Just memorizing the tips and techniques isn’t enough, you have to put your heart and soul into them. You can’t just go through the motions, you have to make them part of you. They have to be natural and instinctual because the Procurement Game is, in reality, as unpredictable as you can get. You could have an IT problem. You could have a market fluctuation that totally changes the supply-demand balance or projected exchange rates halfway through a negotiation. Your shipment of fig paste could be mistaken for hash by an untrained, inept cargo inspector and destroyed. (It has happened.) Every day presents a multitude of opportunities for your game plan to be turned inside out, upside down, and outside in (simultaneously) and you have to be able to react and take a reasonable course of action in real time. You might not even have time to wait for your boss to return from lunch. But if you’ve put all you got into it, you’ll have all you need to get it all back, and then some.

Anyway, check out the Q&A with Buyers Meeting Point. It offers some great insights into the book. (And Charles’ recommendation for Managing Indirect Spend by Joe Payne and William Dorn of Source One, also reviewed in depth on SI earlier this year, is dead on.) (Soheila’s recommendation for Charles Poirier‘s The Supply Chain Manager’s Problem Solver is a good one too. Although the nature of technology and the internet have changed in the last decade, most organizations are still making many of the 12 mistakes covered in the book.)

To be concluded???

Procurement Game Plan: A Review Part 1.1
Procurement Game Plan: A Review Part 1.2
Procurement Game Plan: A Review Part 2.1
Procurement Game Plan: A Review Part 2.2
Procurement Game Plan: A Review Part 2.3
Procurement Game Plan: A Review Part 3.1
Procurement Game Plan: A Review Part 3.2
Procurement Game Plan: A Review Part 3.3

For Lasting Results, Follow the Procurement Leaders …

… but be sure to focus on the right characteristics first. Reviewing a recent summary of A.T. Kearney’s 2011 “Assessment of Excellence in Procurement Study” over on the A.T. Kearney site on why you should “Follow the Procurement Leaders” that described seven ways to lasting results, I couldn’t help but notice that they had all the right suggestions, but in reverse order. Starting from the bottom of the list, and working our way up, we see that the suggestions will transform your organization from an average performer to best in class.

  1. Win the “War for Talent”.
    This is the first T necessary for supply chain success and the most critical one. No supply chain function can be happen without someone in place to plan, manage, and execute it — and for any function to be planned, managed, and executed in an optimal manner, you need world-class talent.
  2. Adopt Technology.
    This is the second T necessary for supply chain success and the next most critical one. Once you have found the right talent to take your supply chain to the next level, you need to enable your talent with the right technology to make them as efficient and effective as possible.
  3. Transition to Category Strategies.
    As the article notes leading procurement organizations use more advanced toolkits — systematically employing more than twice as many methods as the followers — to tailor their approaches to each situation. That’s why leading e-Sourcing / e-Procurement providers are now offering platforms with category templates / workflow management capabilities to allow platform customization to each organizational category and support the third T of supply chain success.
  4. Use Supplier Relationship Management.
    Suppliers are key to supply chain success, and leaders manage the relationship to get the most out of it. They use suppliers to improve innovation and growth, monitor compliance and risk management, and improve capabilities across the supply chain.
  5. Manage Risk Systematically.
    Leaders use risk-impact analysis, financial risk management, and disaster planning as ways to protect against, and mitigate the effects, of disruptions — unlike the risk management “followers” that constitute 80% of companies that are a single natural disaster away from a major supply disruption.
  6. Contribute to Top and Bottom Lines.
    It’s not just about cost reduction, but about value generation. Good Supply Management doesn’t just stop at cost reduction, but goes onto demand reduction, component innovation, product innovation, and even market innovation. This is done by managing risks, managing supplier relations, applying category strategies, using technology, and using all of the skills your talent possesses.
  7. Align with the Business.
    Leading supply management organizations support the business strategy. And while this is the most important goal from the viewpoint of Supply Management, as the goal is to increase the image of Supply Management in the organization, this can not be accomplished until all of the pieces of the puzzle, described in the first six steps, are in place.

What Finance Still Wants from Procurement, At Least According to the Survey

According to a recent survey conducted by CFO Research Services, as summarized in a recent post on “How to Improve Procurement” over on Procurement Leaders, finance leaders want procurement to increase its contribution in the following areas:

  • Working Capital Management
    especially since Procurement spends so much working capital
  • Supplier Collaboration Improvement
    especially since Procurement has the majority of the interaction with suppliers
  • Business Performance Risk Management
    as Procurement is supposed to be on the 8-ball when it comes to risk
  • New Market / Business Line Expansion
    as Procurement is already in foreign markets buying and probably has the most low-down

So what should you do? Start with the advice offered by the author:

  1. Initiate discussions with Finance on how Procurement can make the greatest contribution in their eyes.
    Remember, Procurement’s biggest problem in many organizations is still its image. In many organizations it’s still seen as the island of misfit toys, the ax men, or the one-trick cost-reduction pony. It doesn’t matter how much Procurement saves, how much it reduces organizational risk, or how much value it brings, if Procurement’s image doesn’t change, then all of its contributions are for naught.
  2. Develop a plan to embed the right analytical and financial skill sets in Procurement.
    Face it, success today depends on the ability to analyze data, extract information, and generate the knowledge that the organization needs to make the right decisions. This requires the right skill sets.
  3. Determine the right technology roadmap to support the strategy.
    This will be a two-part strategy. In the first part, the organization will implement a closed-loop e-Sourcing and e-Procurement / P2P solution to reduce tactical processing requirements and free up more time for strategic activity. In the second part, the organization will use appropriate analytical solutions and apply it’s new analytical skills to trying to find more opportunities to increase organizational value.

And then, finally, don’t forget to create an appropriate transition plan — remember, success depends on the 3 T’s — talent (with the right skills), technology (with the right functions), and transition (to the right operational structure).

If You Do Not Get Sustainable Results, Blame Yourself!

Let’s Talk!

It’s deja vu all over again!

Robert Rudzki is not the only blogger and consultant to recently hear that a potential client had, just a few years ago, hired a large consulting firm to do a high-profile “strategic sourcing program” with nothing sustainable to show for it, as he indicated in his recent SCMR blog post on Deja vu all over again. I’ve heard the same sentiments echoed to me by a number of consultants at a number of small and mid-size niche and specialty services and software providers in the e-Sourcing & Supply Management space in recent months.

It would appear that a common trend last time money flowed into laggard Supply Management organizations before the recent downturn was to simply hire a Big-X consulting firm to fast track the organization to strategic sourcing success. While this is a great way to fast-track a project, and a contract, that is expected to result in significant savings, the only thing that is fast-tracked from a finance perspective is payment to the consulting firm that runs all the way to the bank! As leading Supply Management professionals know, a contract does not guarantee savings. The only way to achieve savings is to execute against the contract and make sure savings are realized. Just because you have a new contract that allows you to source widgets at $8 a pop, instead of $10 a pop, this doesn’t mean you are going to save $200,000 on your annual purchase of 100,000 widgets. For the savings to materialize, all of the following has to happen:

  • the buyer has to place the order with the contract supplier
  • within the contracted lead-time and the supplier
  • has to ship on time
  • using the approved carrier and shipping arrangement
  • and pay all required third party and government export fees
  • and file all appropriate paperwork at the same time your organization, or a 3PL acting on your behalf,
  • files all of the appropriate import and compliance paperwork
  • and pays any associated duties to make sure that
  • the product arrives at the warehouse when its supposed to
  • where it is received, inventoried, and appropriately stored which results in
  • an invoice being accepted and verified against the contracted rates and
  • paid at the appropriate time only when all goods are received and verified as acceptable.

Simply put, if

  • the order is placed with the wrong supplier
  • or placed late and the order has to be expedited
  • or shipped late and a different shipping method has to be used
  • or export documents are not filed on time
  • or fees are not paid and fines are issued
  • or import documents are not filed on time
  • or taxes are not paid and fines are issued
  • or the product is not properly inventoried or stored and can’t be found and unnecessary replacements
    need to be ordered
  • or the invoice is not verified and the old rate is still being charged
  • or the invoice is paid late and a penalty is applied

then those (significant) savings negotiated on your behalf go out the window. And you’re not going to get them back! First of all, once they’re gone, they’re gone. Secondly, because you weren’t actively involved in the project and didn’t insure that the knowledge that you required to achieve a sustainable transformation was transferred, you’re not going to be able to keep costs down when you renegotiate the contract in this economy where supply is tightening and costs are rising. So you’ll pay even more, even if the rate should stay almost flat.

In order to get results, you have to work with the consultants to understand the strategic sourcing process, the strategies applicable to your organization, the goals of each individual project, the savings opportunities in each project, the key contract terms, the changes that need to be made to capture the savings and adhere to each
contract term, the key metrics, the measurements that need to be made regularly, and the warning signs that something is happening / has happened that could jeopardize the savings the organization expects. Failure to do any of this is a sure-fire way of making sure that nothing changes and that your organization continues to leave money on the table.

In short, if your organization continues to be one of those organizations that leaves up to 40% of the contract value on the table because you did not do all of the above, don’t blame the service provider unless you did all of the above. As Charles, Bill, and Bob said in their recent books on The Procurement Game Plan, Managing Indirect Spend, and Next Level Supply Management Excellence, success is your responsibility and you have to actively manage your service providers and make sure that the knowledge required for a sustainable transformation is transferred to you.