Category Archives: Procurement Innovation

The Right MindSet is the Foundation for a Successful Procurement Career but

the mind has to be prepared for the job at hand to succeed.

A recent post on “the right mindset: what does it take to have a successful acquisition career today” over on the Public Spend Forum (powered by Spend Matters and the Censeo Consulting Group) by David Wyld did a great job of outlining twelve traits that procurement professionals need to succeed in supply management today. However, while these traits may do a great job of laying the foundation for a procurement career, they are not sufficient on their own to prepare one for a successful procurement or supply management career.

SI would add at least six additional traits to the list, three major traits and three minor traits. The major traits that SI would insist are necessary for success in today’s Supply Management space are:

Technological Competence

Modern Supply Management runs on modern supply management technology – without it, best-in-class status is unobtainable as sophisticated spend analysis, decision optimization, and decision support systems are need to analyze, manage, and squeak cost savings and efficiency out of modern supply chain networks.

Risk Awareness and Risk Averseness

The rate of supply chain disruptions is increasing year-over-year and the chances of a major multi-national not experiencing a disruption over a twenty-four month period is 2% or less and dropping fast. In order to succeed, a supply manager needs to be aware of risk and have a mindset to mitigate it before it happens. Contingency and mitigation are the new modus operandi.

Project Management

Sourcing is no longer three-bids-and-a-buy. It is a sophisticated process that typically involves sophisticated supply market research, should cost models, deep category expertise, fact-based negotiations, and in-depth analysis. In addition, most sourcing exercises are category-focussed and need to be managed as category-based projects.

The minor traits that SI would insist are necessary are necessary for success in today’s Supply Management space are:

Habitual Change (Management)

Supply Management is in a state of constant flux these days as technologies, best practices, and global trade regulations are constantly changing and shifting. In order to stay on top of the supply chain game, a practitioner needs to be ready to adapt as needed.

A Sustainable Mindset

Oil reserves are limited. Demand for rare earth metals is increasing. Food reserves are hovering near all-time lows. Water is becoming scarce. Energy production is limited in many locales. A Supply Management professional needs to not only be thinking about the environment, but needs to be focussed on sustainable alternatives in order to keep production going.

Cost Conscious

Inflation is back, and hyper-inflation might be just around the corner. Manual processes are costly, and a lack of data is costlier. A Procurement Professional has to always have cost at the back of her mind and identify unique and creative ways to contain costs going forward.

So How Do You Align Your Supply Management Organization and Advance its Maturity?

In our last post we indicated that the expected value of Supply Management maturity was a 50% improvement in ROIC and a 75% improvement in Operating Margin, but that effort was needed for an organization to reach that maturity level. However, any effort involved would pay off handsomely as this is only an average – for example, in “Enterprise Procurement – Back on Track”, a presentation on Aurizon’s Procurement Transformation presented last month, Roger McNeill documented a ROIC increased from 2.0% in 2010 to 8.0% in 2013, a 300% improvement!

We also indicated that if the effort was put into the right process, specifically the EPAM (Evaluate. Plan. Act. Measure.) process, the organization could move up the maturity curve and see this success, as well as make the necessary alignments with the business in the process. So how does it do this?

1. Evaluate

Start by measuring the organizational maturity on the axes of proactivity and organizational alignment. Specifically, is the organization:

  • Reactive and/or Internally Focused
    a Supply Management organization that is reactive and/or internally focussed is typically near the bottom of the maturity curve, still approaching sourcing from an auction or best-bid perspective, running on an ERP, and quoting savings numbers without validation
  • Proactive and Metric Focussed
    a Supply Management organization that is proactive and metric focussed is typically in the middle of the maturity curve, approach sourcing as a total cost optimization project, implementing P2P, adopting best practices, and measuring realized savings; they’re doing good, but could be doing better
  • Strategic and Organizational Strategy Focussed
    a Supply Management organization that is strategic and focussed on organizational strategy is at the leading edge of the maturity curve, approaching sourcing as a value generation exercise, running on a suite of best of breed source-to-pay solutions, approaching sourcing exercises as strategic joint ventures with other organizations, creating best practices, and measuring outcomes against shareholder value and time to that value

Plan.

Where the organization is on the curve dictates what the organization has to do next.
An organization that is:

  • Reactive and/or Internally Focused
    needs to plan sourcing events with ample time to do the detailed spend and market analysis required to approach the category strategically, move to bid evaluation on total cost (of ownership) and not just landed cost models, implement a P2P or e-Procurement system to capture organizational spend and increase Spend Under Management (SUM), implement an appropriate e-Sourcing solution, institue best e-Sourcing practices, and start measuring realized savings using the P2P system
  • Proactive and Metric Focussed
    needs to plan sourcing events in conjunction with stakeholders and identify the outcomes that are most important to the stakeholders and give those outcomes the greatest weight in a total value model, run on an integrated end-to-end Source-to-Pay suite (which could include sub-suites from different leading BoB [Best-of-Breed] vendors), institutionalize and embed best practices in the sourcing technologies and processes, and measure outcomes using the metrics of interest to finance and the C-Suite (like ROIC, Operating Margin, increased market share, etc.)
  • Strategic and Organizational Strategy Focussed
    needs to embed itself in NPD and NPI (new product design and new product introduction) to take cost out before cost is baked in by Engineering (or Marketing when it insists on features that most of the target market doesn’t want, which Supply Management can identify by sourcing an appropriate market research study), work with Marketing to help it understand the risks and difficulties in new market entry based on its global market knowledge gained from sourcing from different regions, work with Operations to redesign the corporate footprint to reduce cost and increase sustainability, work with Finance to help it better manage Working Capital based on better demand management and improved cash-flow forecasting, and help the C-Suite define the corporate strategy

Act.

Once the plan is in place, the organization needs to execute the plan. The execution will vary based on the plan.

Measure.

The plan, if properly defined, will include metrics and outcomes that can be measured quantitatively and evaluated qualitatively. When the plan has been executed, the results should be measured, compared against any baselines or expected outcomes, and reported.

The devil is in the details, but the process is sound. And there are a number of leading Supply Management software and solution companies that can help your organization through this process, including BravoSolution, if the organization is looking for software and services, and Deloitte, if the organization already has a sourcing software suite (from a provider that doesn’t provide transformation services). And even it it takes 4-5 years, which is the average for Global 3000 organizations, the end result will be worth it as most save hundreds of millions of dollars and see an increase in key financial metrics of 50% or more.

The Measurable Value of Supply Management Maturity

Simply put:

  1. a ROIC (Return On Invested Capital) of 12.8% vs 8.5% for laggards
  2. an Operating Margin of 14.6% vs 8.4% for laggards

according to BravoSolution (Source), who, as a Best-of-Breed global e-Sourcing software and services provider that has been delivering software and services to global clients for over a decade, has been measuring the maturity of client organizations from the time they start their e-Sourcing journey (with BravoSolution) to the time that they master the e-Sourcing process that BravoSolution supports and the platforms they provide.

This 50% performance improvement in ROIC and 75% performance improvement in Operating Margin should not be too surprising given that all of the analysts firms have been telling us for years that leading Supply Management organizations far outpace laggard Supply Management organizations when it comes to financial success. What should be surprising is that the vast majority of companies still have trouble advancing Supply Management out of the laggard category even though many of the secrets of success have been known for many years.

Especially since the the first step is to align the Supply Management organization with the business (goals). This shouldn’t be hard, but for many companies it is. Why?

Let’s start by considering the reasons for misalignment

  • 5% is due to different drivers
  • 30% is due to (different) data
  • 65% is due to differing definitions

The big problem is still communication. In most organizations, Procurement doesn’t speak the same language as the rest of the business, and Finance in particular. Remember, HR still thinks sourcing refers to the recruiting function, Engineering thinks procurement is calling up the preferred supplier and asking them to ship the required parts for the prototype, and Finance defines savings as the difference between last year’s spend and this year’s spend, not how much savings have been identified or how much cost has been avoided. In order for Supply Management to mature as an organization, it not only has to align with the business goals, but it has to speak the business language.

So how can Supply Management achieve alignment and, at the same time, advance as a function and achieve the financial success that will make it the favourite child of the organization?

The EPAM Loop.
Evaluate. Plan. Act. Measure.

In the 1950’s W. Edwards Denning proposed that business processes should be analyzed and measured to identify sources of variations that cause products to deviate from customer requirements. Specifically, he recommended that business processes be placed in the context of a continuous PDCA (Plan. Do. Check. Act.) feedback loop so that managers can identify and change parts of the process that need improvement. And it was a leap forward in business philosophy at the time (and could even be considered the foundation for the DMAIC (Define. Measure. Analyze. Improve. Control) cycle that is the foundation for Six Sigma. Given that sourcing processes are only improved if they are continuously monitored, it’s obvious that a similar process is needed.

So why can’t we just use the classic PDCA cycle? Simply put, we have no way of knowing whether or not a plan is likely to be beneficial, or even executable by the organization, without an understanding of what the current level of organizational maturity is. That’s why the first thing that needs to be done is an evaluation of where the organization is against a maturity framework, built on the study of Supply Management transformations over the last two decades. When an evaluation is done against a well-defined framework, that is associated with best practices that have been successfully used by leading organizations to advance up the maturity curve, the organization can come up with a plan appropriate to its current level of capability. This not only maximizes the organization’s chance of project success but helps it accelerate up the curve faster than organizations that take their best guess, which amounts to nothing more than trial and error.

Once an organization has a proper transition plan in place, it’s talent should be able to quickly execute on that plan and see some success in the short term. Then, when the project has finished, or in the case of a multi-year project, reached key milestones, the team can measure the results versus the expected results (based on case studies and surveys of organizations who undertook similar projects at a similar maturity level), and determine if they are on-track, ahead, or behind. If the team is behind where they can expect to be, they return to the Evaluation stage, determine the reason for the shortfall, modify the process, and try again. When the team has reached the desired level of success, and advanced up the maturity framework, it begins the EPAM cycle again and comes up with process and technology transitions designed to get it to the next level of maturity.

BravoSolution, which has been working on improving their assessment and change management process for years, has found that the process works so well that they have cemented their global sourcing service offerings on the process, which they are calling BravoAlign. Regardless of what it’s called, the method works, and can work for your organization too.

It’s an e-Frenzy Out There! Can You Make Sense Of It All?

It’s an e-Frenzy out there! e-Sourcing. e-RFX. e-Procurement. e-Payment. e-Negotiation. e-Procure-to-Pay. e-Invoicing. e-Auction. e-Contract. etc.

The Supply Management solution space is filled with e-Solutions. And, as you might have guessed, they are not all the same. They solve different problems. Some solutions are sub-solutions of other solutions. Some focus purely on the sourcing side of the equation where the products and services are identified and contracted. Some focus purely on the procurement side, where requisitions are placed, purchase orders are placed, products are received, and invoices are processed. Some play on both sides of the sourcing and procurement pond, but only address a few functions from each side.

To help you understand what solution you really need, Sourcing Innovation is hosting a webinar on Making Sense of e- in Sourcing and Procurement: What Solution Do You Really Need?. This webinar, sponsored by the Next Level Purchasing Association (NLPA), taking place next Wednesday, November 20th at 8:30 am PST / 11:30 am EST / 4:30 pm GMT, is for NLPA members only, but basic membership is free. Space is limited, so (if necessary, join the NLPA and) sign up now.

In this webinar on Making Sense of e- in Sourcing and Procurement: What Solution Do You Really Need?, we will clearly define the sourcing and procurement cycle, indicate where each technology falls, outline what each technology does, and indicate the conditions that need to exist for each solution to potentially be appropriate. We will describe the e-Sourcing journey and provide the user with a starting set of questions that they can ask to determine what technologies they need to focus on as they look to acquire new sourcing and procurement technologies to support them in their Supply Management Journey.

Vinimaya: Taking Their Procurement Marketplace Global, Part III

In Part I we noted that since we last covered Vinimaya, the B2B Search Engine that was the the next wave in product catalogue management with their ability to do real-time federated search across all of your supplier databases, catalogues, and punch-outs through a single consumer-like search and shop interface, they have continued building out their base platform, adding (more extensive) auditing capability, workflow-based catalog management, quick-quote (RFX) capability, e-Forms, deep analytics capability, mobile capabilities, and social integration on top of a base platform that supported content management, federated search, powerful connectivity options, personalization and customization, globalization, and an easy to use shopping cart. Then, in Part II, we focused in on their vTransport and their new quick-order and e-Forms functionality, known as vQuote. Today we’re going to dive a little deeper into five of the new capabilities added since our last major review, starting with vQuote.

vQuote
vQuote was specifically designed for the time when multiple bids is the right, or only, option but the situation does not warrant a full-scale sourcing event. For example, unless the organization is bundling the printer cartridge spend with the printers (which is generally NOT a good idea, by the way, since most printer manufacturers make their money off of ink that costs more than blood), running a full sourcing event to award next year’s printer cartridge buy is not worth the effort. Also, many small projects in the public sector, such as network support services at a small local government office, have to go to bid, but aren’t worth full scale sourcing events either. In this case, a quick quote — often to known suppliers already in the system, is typically the way to go. The Vinimaya vQuote solution was designed to make this process as quick, easy, and painless as possible — whether the request for quote was going to existing suppliers in the system or to new suppliers.

Since it was designed specifically for those categories of buys that fit between spot-buy from a catalog and full-fledged sourcing event, Vinimaya was able to streamline the solution significantly. Creating a quote request is as easy as giving a quote a name, specifying line items, selecting suppliers, and providing a due date – which can all be done on a single screen. If the line items are services, a SOW can be attached and quickly sent off. The buyer can see the status of the quote requests on a summary screen, review each quote as it is returned, compare them side-by-side in a summary report, and select a winner just by marking a quote, or line item from a quote, as awarded. It’s as quick and simple as a quoting solution can get and meet the needs of the quoting category they designed for.

vRank
vRank is the ability for a senior buyer or contract manager to ensure that contract items always appear first in the search results, that items from preferred suppliers always appear before items from non-preferred suppliers, and that prohibited items never appear. Basically, the administrator has the ability to assign each item that appears in a search result a rank between 1 (do not include) and 4 (show first), where 3 is (show ahead of other items) and 2 is (normal rank). It’s pretty simple, and it works based on the simple fact that almost half of all people who use search functionality click on the first link that is returned. (Recent Google statistics indicate that a whopping 47% of searchers click on the first search result.) The ranks can be applied to individual items or suppliers, with item ranks overriding supplier ranks). In addition, these ranks can be defined in real-time on every search and will take effect immediately on all future searches. This allows an administrator to define priorities as needed based upon what users are actually searching for and buying, saving a lot of up-front configuration to define ranks for products that might not even be searched for!

vCatalog
vCatalog updates the capability Vinimaya has always had to manage local catalogs in a manner that pushes all of the work back on the supplier. With vCatalog, a supplier that is not technical enough to, or that does not want to, maintain a punch-out or other on-line catalog can upload their entire catalog to the buyer through a web portal. The catalog file is completely validated, and any errors are pushed back to the supplier, with specific details on the error, for correction before it is allowed to be pushed to production.

vAudit
vAudit is what allows a buying organization to take advantage of vendor managed catalogs with confidence. It continuously monitors products and pricing from punch-out, vCatalog, and web-db suppliers to make sure that prices are compliant with contracted prices or original quotes. As soon as a price is detected that is above the contracted price, the appropriate buyer representative is alerted to the issue. The system can be configured in three different ways:

  1. block a purchase for a product over the contract amount
  2. allow the checkout to proceed, but don’t send the PO to the supplier until the price is corrected
    (and alert an administrator to contact the supplier to get the price fixed)
  3. allow the checkout to proceed at the current price, but tag the item for proactive cost recovery

With the vAudit solution, it’s quick and painless to retrieve a report of all items bought above contract or quoted price in a given timeframe, and just as simple to break it down by supplier to allow the AP department to go after suppliers for money owed.

vAnalytics
vAnalytics is Vinimaya’s new reporting engine that was designed to provide Procurement Directors with an understanding of what people were buying and how they were selecting the items they were buying. With the understanding that the purchase process cannot be optimized without a good understanding of shopper behaviour, Vinimaya built a platform that allowed a Procurement Director to understand not only the the top purchases, the top suppliers, and the top buyers, but also the top search terms, the items they led to, the failed search terms, and the actions the buyer took on a failed search.

vAnalytics, which includes a report builder, has all of the standard reporting package features you would expect in a Procurement reporting system and allows reports to be created by supplier, buyer, item, and even checkout process. Common report types include unique users, spend by supplier, line items by supplier, utilization by search time, and out of compliance check-outs (if they are permitted). Since these reports are against real-time data (and not cached in an OLAP system), some can take a few minutes to run, but those restricted to a single-user or supplier will typically be quite responsive. And, of course, all data in the entire Vinimaya platform is exportable.

Vinimaya has also made advancements in mobile and social, but these enhancements will be the subject of a future post on the Vinimaya Global Procurement Marketplace.