Category Archives: Procurement Innovation

The 2nd Sourcing Innovation Series ReCap, Part I

Even though a few bloggers have disappeared into the woodwork, I think it’s time to start wrap up the sourcing innovation 2007 series. First of all, I’d like to thank all of this years contributors to date and summarize the posts in an easy reference table. Then I’m going to recap each one before recapping the series.

The Future of eSourcing – Less is More Alan Buxton
The Future of Sourcing: Results-Based Process Specialization Charles Dominick
Sourcing Innovation Series David Bush
The Future of Spend Analysis Eric Strovink
Sourcing Innovation Series: Wither Procurement as Strategist in 2008? Jason Busch
Future Purchasing: The Extended-Enterprise Connector Jean-Philippe Massin
Yes Virginia! There is more to e-procurement than software! (Part 1) Jon Hansen
Yes Virginia! There is more to e-procurement than software! (Part 2) Jon Hansen
The FOSS(ilization) of the supply chain: The risks of a strategy centered on Free Open Source Software Jon Hansen
What’s Next in Purchasing? Ask Your Supply Management System Tim Minahan
Trading on the Spot Market the doctor
Let’s Get Analytical! the doctor

Alan Buxton tells us that in the future, e-Sourcing tools will be fun and helpful, taking cues from consumer-friendly sites like ecourier.co.uk and zopa.com that clearly demonstrate where the value is. Alan indicates that this is crucial if a mass adoption of e-Sourcing tools is to happen globally.

Charles Dominick said that the future of sourcing is continued adoption of the concept of supply chain management, but with smarter implementation, based on the goal of having the organization operate like a well-oiled machine, where workers are not jacks-of-all-trades and master of none. It will see appropriately assembled supply-chain management teams that have specialists for those areas requiring specialist-level expertise, like strategic sourcing, negotiation, and supplier management. An understanding of how functions within the supply chain interrelate will continue to increase in importance, but some of the often ignored purchasing skills will resurface as practitioners remember why strategic purchasing has become an elevated profession and how it significantly contributes to organizational effectiveness and profitability when done right. And the role of purchasing manager will be even more important – as this individual will be required to be a master of facilitation to keep the team running like a well-oiled machine, in addition to being well versed in all elements of the supply chain and master of a few.

David Bush, the most practical of all of us high falutin’ bloggers, proclaimed that even he sees that advanced sourcing optimization will be the catalyst which merges the function of general business analyst with the sourcing team. This is because taking a complex bid, and automating more of the lifecycle, is critical to compressing the amount of time needed, and thus, allowing more bids to be strategically sourced by the same number of people and, with integrated decision optimization, sourcing professionals can derive very detailed scenarios in a matter of hours, instead of weeks. He sees the next year or so as being a continued transformation of procurement to self sufficiency, which removes layers of inefficiency.

Eric Strovink made four prognostications for spend analysis in 2008:

  • The distinction between data-warehouse-based spend repository tools and traditional business-intelligence tools will continue to erode.
  • The distinction between true spend analysis tools and spend data warehouses will widen, in part because it is impossible to perform true ad-hoc analysis with a fixed-schema data warehouse.
  • The awkwardness and limitations of OLAP technology for spend analysis will become increasingly apparent as more general purpose data sets are considered by professional spend analysts.
  • Invoice-analysis and commodity-specific analysis will dominate the “what’s new” frontier for spend analysis during 2008.

Jason Busch pointed out that procurement will be far less influential in the year(s) ahead in a number of areas when it comes to determining corporate strategy, and pointed out procurement outsourcing, dashboarding, and risk management as three prime examples. This is because tangential stakeholders are about to take a larger role in procurement innovation. With respect to procurement outsourcing, you’ll see a lot more CFOs making the final decisions. Finance will also figure more prominently in dashboard selection and visibility. And the executive team as a whole will start to get a lot more interested in risk management.

We’ll review the rest of the posts, as well as the series as a whole, in Part II. Stay tuned!

Don’t Overlook Enporion at the Emporium!

If you’re looking for a corporate e-Procurement solution and you’re thinking along the lines of Ketera [acquired by Deem] or Ariba,[acquired by SAP] be sure to include Enporion [acquired by GEP] in the mix. Even though they started as a procurement consortium and technology provider for the utility industry back in 2000 when they were founded by seven utilities, and even though they used to use SAP Markets Technology, they have come a long way from their roots and now offer a fully-featured on-demand web-based procurement solution that was developed one hundred percent in house and is tightly integrated.

Their platform supports full bid management, order management, catalog management, invoice management, settlement, contract management, project management, vendor management, and basic spend reporting on all transactions executed through the platform. They have a strong technical services division that supports dozens of standard and custom data formats (including EDI, XML, xCBL, and OCI) and are capable of handling all aspects of supplier catalog management on behalf of you and your supplier.

But perhaps the biggest reason you should look at them is for their capability on the services side. Since day one they have not only been conducting sourcing events on behalf of their clients, who collectively put over 10 B in annual spend through their platform, but have also arranged numerous group purchasing contracts worth millions upon tens of millions upon hundreds of millions of dollars. Considering that few group purchasing organizations can make the same claim-to-fame, this is no small feat! With Enporion, you can be sure you’ll get the services help you need when you need it.

Getting back to the technology, certain components are deeper than you might expect given that there are providers out there with suites that do not have the depth to back up the breadth. For example, their contract manager has some best-of-breed capabilities revolving around contract creation. In addition to the standard clause library, repository, tracking, reporting, and administration – it also supports administrator, and user, defined decision trees that can be used to automatically pull together appropriate contract templates for a commodity based upon the category hierarchy, value, strategic importance, and other relevant attributes. By working through the process before the RFQ is issued, a junior buyer can be guided on what attributes are important and focus on the right issues, terms, and conditions in the RFQ and subsequent negotiations.

The entire platform is built on an underlying many-to-many hub for transaction processing that supports multiple transaction types and is capable of appropriately routing any transaction from any buyer through the platform to any supplier as required. Thus, even though it might not be much to look at (but we already know that looks can be deceiving – take BIQ [acquired by Opera Solutions, rebranded ElectrifAI] for example, any random screen on its own will not catch your eye, but ten minutes diving into its analysis capability demonstrates that it is one of the most powerful analysis engines on the market), it packs a decent punch.

Furthermore, like Ketera, they’ve also come to the realization that the future of e-Procurement is the integration of the physical and financial supply chain and they already have projects in R&D to tie the needs of the treasury into their platform. Although I don’t have much in the way of details yet, this is one upcoming development I’ll be keeping my eye on and talking to them about more in the future.

Hacket Evolves the Procurement Value Proposition

In Hackett’s latest Advisory Piece, Evolving the Value Proposition of Procurement: A Five Stage Model, Pierre Mitchell & Christopher Sawchuk present a five stage model (with three supply management stages and two customer management stages) that procurement executives can use to assess where they stand on the evolutionary scale of procurement service models. The five stages presented are:

  • Supply Assurance
    The goal is the right goods and services at the right place and the right time, with a focus on perfect order.
  • Price
    The goal is the right goods and services at the right price, with a focus on cost savings and avoidance.
  • Total Cost of Ownership
    The goal is lowest Total Cost of Ownership with a focus on quality, capital, ancillary costs, and opportunity costs.
  • Demand Management
    The goal is to reduce demand variance and complexity immediacy with a focus on reducing maverick spend and increasing customer satisfaction.
  • Value Management
    The goal is to increase business value derived from spend with a focus on overall operational metrics.

These stages are more or less correct – the one caveat is whether or not a company approaches them in the order given, or a slight variation. Some companies will start with a focus on price rather than cost assurance, and after achieving a basic mastery of TCO some companies will move on to trying to maximize value before trying to manage demand

In addition to laying out the stages of procurement mastery, they also have a number of insights from their book of numbers. First of all, world-class organizations spend proportionally more on strategic processes than their peers – and 27% more on sourcing strategy and analysis and 45% more on supplier management and development in particular. Secondly, 78% more world class companies actively involve procurement in the firm’s planning and budgeting process. Thirdly, world class organizations spend proportionately less on transactional processes – and 25% less on compliance management and 50% less on supply data management in particular.

Some of the best insights relate to their fifth stage, value management, where procurement has no other agenda than to advance and support the business strategy. This is harder to achieve than it looks since procurement:

  • can not use a parallel measurement system as it must be restricted to the metrics that define value for the organization as a whole,
  • must harness the power of supply markets to identify breakthrough business strategies instead of simply translating existing business strategies to supply markets, and
  • must make the business strategy development process itself a core competency.

Leaders of world-class procurement organizations don’t simply wait for a sea change in business leadership to evolve these value propositions. They sense when there’s an opportunity to elevate the firm’s game to the next level and then fill in the leadership void themselves. As they do this, they evolve not just themselves and their teams, but also evolve the concept of procurement as a whole, raising the stakes for all other firms to follow.

As with the majority of Hackett’s insight pieces, this piece is for members only, but it goes to show that with Hackett, the insights you get with advisory services are worth your time.

Key Sourcing Trends Impacting Procurement

The European Leaders Network recently ran an interesting article entitled “The Key Trends in Sourcing Impacting Procurement Today” that summarized the key trends in the Sourcing Industry for 2007/8.

According to the author, the following market trends are currently impacting the way procurement professionals source goods and services.

  • Increased multi-sourcing
    Mega-deals are on the decline and niche players are on the rise. Value-add is slowly overtaking the ‘monolithic empire’.
  • Greater significance to governance
    The skills and disciplines associated with good governance are starting to be recognized as the key to sustainable relationships with their associated benefits.
  • Continued rise of global sourcing
    These days global sourcing is more a question of ‘when’ and ‘how much’ and not ‘if’. Even Europe is embracing the paradigm.
  • Consolidation in the IT supplier market
    There is significant consolidation occurring in the outsourcing space which should ultimately serve to benefit sourcing professionals.
  • Concentration on value
    Whereas the last few years have placed emphasis on short-term objectives in transaction execution, pushing sustainability onto the service provider, going forward, the trend is to concentrate on long-term value up-front and ensure that delivery will be metric-driven and focussed on the business needs in an effort to meet the overriding goals.

This is a good start, but it fails to mention the following trends that are also in play, as pointed out in Sourcing Innovation’s recent Sourcing 2007 and Sourcing Innovation cross-blog series. Consider the following:

  • On-Demand Software-as-a-Service Providers and (Enterprise) Open Source is changing the landscape
    Companies like Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) and Procuri (acquired by Ariba, acquired by SAP) are driving down cost while driving up value.
  • M&A activity is also happening within the software provider space
    The latest example is the Cormine (acquired Perfect Commerce, rebranded Perfect Commerce, rebranded Proactis) and Perfect Commerce announcement.
  • Sustainable Supply Strategies are becoming mainstream.
    Consider the recent Goldman Sachs report that found that companies implementing environmental, social, and governance (ESG) policies outperformed the general stock market by 25% over the last two years.
  • Raw material and commodity prices are skyrocketing across the board.
    The days of the constant Walmart rollback are over, especially if you are a minerals buyer.
  • The Talent Crunch is worsening by the day.
    Supply teams have no choice but to adopt best practices and do more with less.