Category Archives: Services

Ariba Vision 2020: Tomorrow’s Shoes (Part I)

This is the first of two posts that address the fourteen predictions that were dead on in Ariba’s “Vision 2020 – The Future of Procurement” report. Any Supply Management organization that recognizes the truth of these predictions is well on its way to formulating a plan to be a leading Supply Management organization in the decade ahead.

01. Everything is automated

This prediction is dead-on. Next Generation Supply Management shops are investing heavily in technology to automate all non-strategic and low-value supply management activities, leaving the sourcing professionals to focus on strategic and high-value categories where they can extract the most value for the organization.

07. Spend management shrinks

I’ve said it before, and I will say it again: Spend Matters Not. It’s not how much you spend, how you store it, how you cube it, or how you report on it — what ultimately matters is how much you get from it, profit from it, and derive value from it. Next Generation Supply Management organizations are focussed on improving business outcomes, not cutting costs until quality and stability of supply suffer. Spend Management will shrink as true Supply Management focussed on value takes its place.

09. Service providers excel

Given the increasing cost of outsourcing complex and strategic functions to emerging economies where labour rates are rising exponentially, in order to maintain cost competitiveness and deliver value, the service providers will provide service that constantly improves in efficiency and execution.

13. Let’s get financial

Since overall financial success will still be the ultimate measure of value generation in public enterprises, Supply Management will revolve around the financial supply chain and will be heavily involved in optimizing cash flows, working capital, and financing programs from NPD through return and disposal.

14. SM pros get sophisticated

Supply Management professionals will definitely be much more sophisticated in 2020 than they are today. As the secret agents that essentially drive all aspects of the business, their business savvy, analytical capabilities, relationship skills, and overall execution abilities will be, for the most part, a level above where they are today.

15. Supply pros expand expertise

This is the obvious result of a supply managmeent professional getting more sophisticated. It should not have been included as a separate prediction because it’s impossible to get more sophisticated in Supply Management without expanding depth of expertise in key areas.

16. Strategy scope widens

One does not get to the next level by maintaining a narrow focus, so it should also be obvious that the scope of strategy addressed by an average Supply Management organization is going to expand as well. The strategy will be more closely aligned with the needs of the organization’s end customers and be more cognizant of the needs of the current, and future, customer base. Supply Management will be increasingly called upon not only to analyze merger and acquisition possibilities, but to lead the initiative as success will depend upon succesfull integration of the end-to-end supply chains. And it will be involved in all NPD from day one to help identify customer needs and supplier capabilities before any decisions are made.

The next post will address the other seven predictions that were dead-on.

Don’t Overlook the Soft Cost Savings from SOW Management

A recent article in the SIG Newsletter on the “best practices for managing and analyzing statement of work spend” that described the rapidly maturing market for centralized SOW (Statement of Work) management programs and the usefulness of a modern VMS (Vendor Management System) also described the one-time and continous benefits of managed SOW programs (under the guidance of a PMO – Program Management Office) and the hard and soft cost savings that resulted. While many organizations move to managed SOW programs, often through a MSP (Managed Services Provider), in pursuit of the hard dollar cost savings, that are often in the 10% to 15% range when done properly, the long term soft cost savings will often be more valuable.

In particular, the following benefits are invaluable to an average organization:

  • single point of contact for contingent labor needs
    no need to contact, and manage, multiple providers to fill different labor needs
  • reduced cycle times
    one call and the PMO or MSP uses a process already in place to locate and onboard your contingent labor
  • standardized criteria
    every department uses the same definition, and the company pays one rate for one type of resource
  • increased visibility
    one report shows the total spend on contingent / managed labour by type, department, provider, etc.
  • compliance firewall for classification, tax, and labor law issues
    which significantly decreases the risk of a massive fine when the same contingent workers are repeatedly rehired (and the government decides they are now employees and you owe more taxes and benefits)
  • standardized performance metrics
    and managed suppliers who know what is expected of them
  • better labor needs forecasting
    from complete and accurate contingent workforce data
  • payment management
    no interest from late payments, no overpayments, and, most importantly, no double payments

All of these benefits reduce complexity, increase reliability, and reduce risk — which keeps costs down in the long run as complexity, risk, and uncertainty only serve to drive up cost.

Apptio – Helping you with your IT Portfolio

Earlier this week, in reference to an article on the SCRC site on The Supply Chain IT Investment Enigma and Hackett group recommendations, I asked what is the right portfolio view of the Supply Chain IT Investment. Given the laundry list of Supply Chain Technologies — DM, PLM, PP, APS, SCEM, SRM, WMS — that one has to consider; the dizzying array of hardware, software, infrastructure, and support options; and the difficulty in capturing and computing cost metrics and comparing them to industry averages, it’s a good question.

One vendor trying to make sense of the situation is Apptio. A Technology Business Management vendor with a background in system management and automation with capabilities in IT Services Transformation, Infrastructure Optimization, Application Rationalization, Cloud Business Management, Data Center Consolidation, and IT Financial Transparency, this week they released a new IT Service Performance Solution with supplier/vendor relationship management (SRM/VRM) capabilities. Building on their deep expertise of IT systems of record, application stacks, hardware platforms, and on-site and off-site infrastructure solutions, they have created a unique service performance management (SPM) solution that is customized to the unique needs of IT.

Designed to give an organization a holistic view of internal and external suppliers, and apply supply chain best practices to IT, the purpose-built vendor relationship management solution, which can import data from over 40 major systems-of-record (SAP, Oracle, JD Edwards, Peoplesoft, Ariba, etc.) out-of-the-box, allows an organization to define and manage vendors and contracts, understand spend by vendor and category, monitor and benchmark performance against pre-defined and custom KPIs, and hold vendors accountable to performance. In addition, due to their ability to also integrate with multiple major accounting systems out of the box, spend can be tracked against contracts at a category level by unit of time and IT managers can see how spend is trending relative to projections.

The Apptio VRM solution supports the full IT supply chain from IT planning and vendor identification, to Bill of IT creation, service costing, service performance, and IT benchmarking and allows IT sourcing personnel to effectively manage negotiations, contracts, costs, relationships, performance, and spending over the life-cycle of the relationship. In addition, a custom scorecard can be created for each vendor which can not only track custom metrics and KPIs, but also overall customer satisfaction.

Purpose built for IT, the solution allows the IT relationship managers to define a custom dashboard that displays, for each vendor, the current financial, quality, performance, and satisfaction ratings (which can be defined against pre-defined or custom KPIs) and whether the vendor scores good (green), satisfactory (yellow), or below contract requirements (red) on each rating — allowing problem vendors to be quickly identified. The user can then drill into the vendor and see the basic supplier info, contact info, contracts, debits/credits, and scorecard details summarized for each vendor (and whether each contract, balance, and scorecard is good, satisfactory, or below contractual requirements).

In addition, the top-n vendor and contract summaries allow the IT sourcing managers to quickly see which vendors and contracts are consuming the most spend and how these particular vendors and contracts are trending over time. In addition, the IT sourcing manager can just as quickly get breakdowns by internal vs. external spend, contract type, and vendor relationship. Given that most of the leakage will occur in the biggest contracts, this is a useful capability for IT sourcing managers. Especially since the metrics can be defined against activity based costing (ABC), which is not a feature common among many service or performance management platforms.

And while it’s true that most of the analytics can be easily computed with a good spend analysis tool that allows for the definition custom metrics in the hands of a spend analysis pro, if data needs to be pulled from mutliple systems, the reality is that performance will only be analyzed against most contracts one or two times a year, and by then it might be too late to insure real savings (as the organization is not likely going to get 1 Million in support overpayments back). Plus, most spend analysis tools or platforms are not going to be integrated with a benchmark database that allow an organization to quickly identify what the usual service/software/hardware costs are for its usage levels and save an average of 20% to 30% in its negotiations. (In fact, some beta testers saved 50% on some hardware, software and/or support categories due to a better understanding of usage, industry standard pricing, and past performance and the ability to do what-if analysis in conjunction with activity-based costing.) While it will be a while before we know ROI of the solution for an average organization, I agree that it is likely that an average organization with significant IT spend will begin to see payback within 90 days and that a 20% savings on major contracts will be common the first time around as only those organizations that have, or bring in, IT sourcing expertise tend to get best pricing in the IT category. It’s definitely worth a look for those organizations with a large IT spend as there are very few solutions out there that understand the unique nature of IT categories.

Cheating Metrics Does Not Make For Better Service!

Reading the fall issue of the MITL Quarterly from the McMaster Institute for Transportation & Logistics, I was appalled to hear that only one airline reported a tarmac delay of more than 3 hours was a US airline performance highlight for August 2010 (as opposed to 66 such delays in August 2009). One must remember that the DOT 3-hour rule, which mandates that passengers on domestic flights be allowed to disembark after three hours (provided doing so doesn’t create a safety or security issue or interfere with airport operations), came into effect on April 29, and that the fines for violating the rule can be as high as $27,500 per passenger, which works out to 3 Million or more for a stranded 737.

As a result, airlines now have a huge incentive to insure that a plane doesn’t sit on the tarmac for more than 3 hours — an incentive that is much bigger than the incentive they have to get passengers to their destinations on time. Do the math — at 27,500 a pop, the penalty for sitting on the tarmac can be up to 50 times the reward for getting passengers to their destination (as measured by the ticket price). Thus, airlines are not boarding until the chance of take off within 3 hours is as close to 100% as possible — which means that instead of sitting on the tarmac, passengers are now sitting in the airport instead. Plus, when there is an extended delay, the chance of a delay beyond 3 hours is now much greater because if the delay becomes extended, the airline will just cancel the flight instead of taking a service performance penalty. They change the metrics — and while it makes for “better service” from the Department of Transportation’s perspective, it doesn’t make for better service to the end customer.

After all, the statistics are still bad. If you go to the Research and Innovative Technology Administration Bureau of Transportation Statistics and search the airline statistics for the major airlines, you’ll find that on-time arrivals for the past year are still hovering around the 80% mark on average and, most importantly, that (well) over 5% of regularly scheduled flights are now cancelled by the major airlines. Two Thousand and Four Hundred (2,400) regularly scheduled flights were cancelled in October 2010 alone. I’m not sure what the average delay for each passenger that had to be rescheduled was, but I bet it was a lot more than 3 hours. And if 9.4% of flights were cancelled in October 2010, then, on average, only 70% of regularly scheduled flights are arriving on time. (And in June and July, over 200 routes were chronically delayed, that is, over 50% of flights were late by 30 minutes or more.) That’s very poor performance in my book.

I could continue to drone on about the fact that US airline performance is, despite low violations of the 3-hour rule, quite dismal, but I think this is enough make my point. If your service is bad, and you change the metrics, it’s still bad and you’re not going to fool your customers. While the airlines might be able to get away with it, as most major airlines will have an effective monopoly on a number of routes around their local hubs and you don’t have a lot of choice, you won’t. Unless you’re truly making a one-of-a-kind product that your customer cannot get anywhere else, which is not true for 99%+ of manufacturers, your customers have a choice — and if you give them poor service, when the contract is up, they’ll leave — especially if you try to report stellar performance when the truth is anything but.

Don’t repeat the airlines’ mistake.

Will CLM, SoW, and VMS Stem the Outsourcing Tide, or Will they Just Accelerate it?

One of the major areas of focus today in services management is the area of Contingent Labour Management (CLM) / Statement of Work (SoW) management, and Vendor Management Solutions (VMS). Big companies with big workforces, and especially big companies that use a lot of temporary labors, contractors, and service providers, not only spend a lot on people, but spend a lot on people who do nothing but manage the workforce — recruiting, hiring, support, project/contract management, layoffs / end-of-contract transitions / firings — as this has traditionally been a very time-consuming and cumbersome process (with all the rules, regulations, and firings, you can literally suffocate under the mound of paperwork you produce).

As a result, many large companies, in an effort to keep the process, and their spend, under control have elected to either outsource entire functions or hand over their management to a Managed Services Provider (MSP) [like Manpower or Kelly Services] that specializes in workforce management processes and can bring best practices and best-of-breed technology to its management. In some cases, it was the company’s only option as their area of expertise did not include staffing and their costs were spiralling out of control.

However, the state of affairs today is not like it was in years past. Modern CLM / SoW / VMS systems are streamlining the process by leaps and bounds, taming the beast, and allowing today’s HR personnel to focus on the people, and not the process. As a result, a task that may have been insurmountable for a small HR team ten years ago can now be easily managed today by that same team with the right technology and training. An organization that once had no choice but to outsource workforce management can now pull it back in house. But will they?

Or will they take advantage of the fact that your average MSP already has this technology employed, and in some cases, has a VMS solution that allows them to manage your workforce while keeping track of their performance. They’re used to it, they’ve trained on it, and they’ve already mastered the current best practices. They can be locked, loaded, and ready to go in a matter of days — as long as you’re willing to give up control.

So will the average organization take back control and bring their workforce management back in house with modern CLM / SoW / VMS systems, or will these systems just accellerate the outsourcing craze and the dominance of the MSPs? What do you think?

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