Category Archives: Seven Grand Challenges

Bringing Up the Rear: Mark Usher, Jason Busch, and Doug Hudgeon

The Seven Grand Challenges for Supply and Spend Management cross-blog series has come to an end. We had some great posts, including those from front-runners Bob Ferrari of Supply Chain Matters and the Strategic Sourceror of The Strategic Sourceror, but participation was low this time around, compared to back in January when I gave everyone a chance to jump on the Sustainability band-wagon and I could barely keep up with the submissions that came fast and furious. And yes, I’m a little disappointed. It’s our job as bloggers to help define the future, and I thought doing so was something all of us bloggers liked to do. But anyway, back to the matter at hand.

Jason Bush of Spend Matters decided to tease us in hist post and only give us his top three challenges last week, and make us wait for the rest. His top three were:

  1. Procurement Integration
    According to JB when it comes to true integration with the business such as enterprise level involvement in budgeting and planning (a favorite Hackett Group KPI), most procurement organizations are still coming up woefully short. Based on my own experience, I’d have to agree. But is this a supply management challenge, a broader operational challenge, or an education challenge?
  2. Risk Management
    Couldn’t agree more. I think we’ve both had lots to say on this topic over the past few years.
  3. Spend Management Led Innovation
    As proof that supply can drive innovation throughout the business, JB gives us the automotive case of how Honda and Toyota helped redefine the basis of innovation through working more collaboratively with their supply base to engineer out cost as an example. But I don’t think this is the challenge, I think the challenge is educating the rest of the organization about the innovation that spend management can bring, as there are a growing number of examples of leading procurement organizations becoming the innovation leaders in their company.

Mark Usher of 1 Procurement Place went all out in his post and laid his seven challenges on the line for our critique. They were:

  • The Strategic Elevation of Procurement
    Mark, like almost every other contributor, also insists that procurement strategy must be an integral component of corporate strategy. I’ve been saying that for years, so I have to agree.
  • Achieve a Truly Seamless Cross-Functional Strategic Sourcing Process
    Considering that many organizations still don’t get that it’s Sourcing AND Procurement, I definitely agree with mark that we DO NOT need another seven-step consulting methodology. ( If you think we do, maybe you need a twelve-step program! ) Mark’s right when he says that procurement in any given organization needs to reach a state where the right organizational players are facilitated smoothly into the strategic sourcing process at the exact time that their respective value-adds are required.
  • Optimize the Outsourcing of Indirect Materials
    Well, I definitely like the word optimize. But I think the goal should be to optimize the outsourcing of those tasks that can be better done by someone else and to optimize the insourcing of those tasks that can be better done in-house. No need to be discriminatory.
  • Pursue Enterprise-Wide Spend Visibility
    Definitely! This fits right in with my challenge of Opportunity Analysis – and you certainly can’t identify opportunities without good visibility into what they are.
  • Pragmatically Manage All Elements of Supply Risk
    Mark says that Personally, I see a little too much talk of virtual reality dashboards and not enough about what is really important! Hear, hear! Glad someone got my message that dashboards are dangerous and dysfunctional!
  • Maximize the ROI of Sourcing and Procurement Technology
    Well, this is definitely a challenge, but I think it’s too broad to be useful. We need to identify what can be done to maximize the Sourcing and Procurement ROI, and then solve those challenges.
  • Make Procurement “Chill” or “Tight”
    According to Mark, who’s lingo is probably a bit behind the times since I understand it, the supply management profession must make itself attractive to young, degreed job seekers who would typically shun a career in Procurement for something more Generation X/Y such as, well, almost anything really. Well, that’s why we have to talk about Corporate Social Responsibility and Sustainability and why only Procurement can truly achieve it, since Procurement is the part of the company that spends the money, and, plain and simple, Money Talks.

Doug “The Blogging Thunder from Down Under” Hudgeon took a cue from an old-classic and gave us his challenges in-line with the 7 deadly sins. In his post, he defined the challenges as follows:

  • Lust: Demand Management
    No matter how good you are at negotiating, you’ll still never beat the buyer who figures out how to achieve their business ends without buying the product at all.
  • Gluttony: Lean
    The challenge for procurement professionals is to master existing methodologies such as lean to influence demand for products and services.
  • Greed: Fair Play
    Greed can manifest itself in a supplier taking advantage of a buyer … or it can manifest itself in a buyer with significant market value tearing the throat out of their supplier’s margins. The challenge for the procurement professional is distinguishing one situation from the other and managing the stakeholders on both sides.
  • Sloth: Contract Management
    The most valuable skill that a supplier can cultivate in its relationship managers is the skill of getting a customer to roll a contract over.
  • Wrath: Supplier Relationship Management
    When a relationship has soured to the point where either the buyer or the supplier is willing to risk supply disruption to extract their pound of flesh, a procurement professional can play a role in keeping the relationship on life support long enough to either revive the corpse or replace the supplier.
  • Envy: Lack of Respect for the Purchasing Profession
    Procurement professionals, as expert purchasers, can assist the business in differentiating true opportunity from fear-driven me-too opportunities.
  • Pride: Talent Management
    The core challenge that must be met to meet the previous 6 challenges is attracting and keeping people who are capable enough to meet these challenges.

So where does this leave us? With a lot of work to do!

Thanks again to:

Centering the Pack: Ron Southard, Randy Littleson, Justin Fogarty

Slowly but surely, the Seven Grand Challenges of Supply and Spend Management cross-blog series is lumbering along. Since my last post, Ron Southard of Safe Sourcing, Randy Littleson of The 21st Century Supply Chain, and Justin Fogarty of Supply Excellence have offered us their (introductory) posts on the subject.

Ron starts off with a tale of technology, noting that to some extent, too much thought leadership in these technologies is being invested in games, consumer gadgets and the like instead of less sexy tools focused on reducing the cost of goods which will instantly improve profitability and foster economic growth creating new jobs. Especially when the technology exists today to attack the problem of escalating costs of raw materials, shipping, retail price increases and other associated supply chain costs, as it has for years. And it’s only getting better. As I am attempting to illuminate in my B2B 3.0 series, innovative companies have been, and still are, introducing technologies that put buyers on even footing with consumers — and the only thing standing in the way of a better business model is adoption. (I urge you to check out the inaugural Sourcing Innovation Illumination Introducing B2B 3.0 and Simplicity For All as well as the upcoming Illumination on why Simplifying B2B for Suppliers Enables Buyers, to be released next Tuesday.) You can be sure, based on his initial post, that his contribution is going to be a good one.

Randy decided that five challenges alone were enough to fill your plate, and gave us his list, which contain a couple of doozies:

  • Connecting Outsourcing and Lean
    Lean requires synchronization, and outsourcing, at least today, makes synchronization a challenge.
  • Controlling That Beyond Your Control
    A huge challenge for brand owners will continue to be balancing the issues of being in control when they are not directly in control of all aspects and to continually adjust to changing conditions “on the ground” that impact costs.
  • Sustainability
    This is a real and serious issue that will only increase in priority on a global basis. Since it fits in with one of my seven grand challenges, I have to agree!
  • Identifying Supply Chain’s Role
    Too many companies are taking far too tactical a view on their supply chains. I agree, and so does Bob. So what are we going to do about it?
  • Volatility
    … things are moving at a faster pace and customer expectations continue to climb while their loyalty is less. Volatility is on the rise …

Justin decided to skip the challenges get all prophetical, but at least he took a page out of my B2B 3.0 handbook. Noting that it’s obviously difficult to envision exactly how the medium will look from a UI or feature/function standpoint on the 30 year time frame … I think it’s safe to say that finding potential suppliers will be easier via powerful discovery tools and networks. And that’s just the start. Starting with communities like and CustomPart.Net, and moving on-to custom mash-up search engines like the Supplier Search Engine, the movement is already starting. As for suppliers … they’ll have a greater ability to evaluate their buyers and potential customers. Tomorrow’s B2B 3.0 will be interactive, and will allow for true collaboration, not just data-push. Companies like Co-exprise and Apriori are starting to make that happen in new and innovative ways for direct and custom-part manufacturers. And the new world provides tremendous opportunity for buyers and suppliers who embrace discovery and discussion, as Vinimaya is demonstrating with its new enterprise search technology. The opportunity is there, but, more importantly, as Justin astutely points out, those companies that fail to adapt to increasingly connected world, the challenge may be staying afloat.

Also, in addition to Bernard Gunther’s commentary on Opportunity Analysis that went up Monday, Bob Ferrari has posted parts two and three of his series as well!

Opportunity Analysis: The Challenge is Having Accurate and Usable Spend Information

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

Sourcing Innovation‘s “Seven Grand Challenges for Supply & Spend Management“, lists the seventh challenge as “Opportunity Analysis”. As a practitioner, I can report that bad procurement data is the biggest obstacle to successful opportunity analysis. By “bad” I mean procurement data that exists when the items are purchased / invoiced is not captured and made available for future analysis. The ongoing data analysis is rarely designed into the procurement process making the analysis hard to do and therefore rarely done.

I find it surprising that half of the large companies I deal with don’t have a formal process for analyzing their AP data. Though they may dump transactions from their AP system into a spreadsheet or a data warehouse, the data is raw and unprocessed and not consistently analyzed or well understood. This is not proper spend analysis, it is flying blind. If the quality of procurement information is so lacking for AP data — the most basic spend data — imagine how bad it is for invoice level data where pricing accuracy can be determined

Accurate and usable procurement information requires source transaction data, ways to enhance that data, and processes to get value from the enhanced source data. The data should be collected and analyzed as part of the regular purchasing process. Data analysis should be designed into the process flows. I will illustrate some of what’s involved to answer the simple question, “Did I pay the right price for an item?”

At a high level, the source data includes:

  1. “Transaction level” information on each purchase that includes: what is purchased, the unit pricing, the amount bought, who bought it, and data to link each transaction to the order, the payment and the contract. The specific data available will vary depending on the commodity. Airline information is different than computers, which is also different than facilities management.
  2. Contract information structured so that each item on every invoice can be priced and stored in a way that links them to transactions.
  3. Payment information which identifies the vendor being paid, who bought the item, which transaction detail links to the payment.

Data Enhancement: Making the raw data meaningful.

  1. Commodity assignment. For an item level cube, the commodity assignment will be more detailed than an AP cube and may be based on the description, the part number, or other attributes of the item.
  2. Pricing context. Each item purchased should link to the contract price, historical pricing, benchmark pricing (internal and external), and other information that puts the unit price paid into context.
  3. Cross item information. Some of the pricing comparisons need to be done across multiple items rather than against a single item. An analysis of the mix of team members on a consulting engagement or a legal matter would be an example.

Data Processing: Converting the meaningful data into actions that save money.

  1. Every month or quarter, the data needs to be collected, enhanced, and analyzed. The analysis should be able to answer such as:
    • Did we pay the contract price?
    • How much of the spending was off-contract?
    • How did the demand shift?
    • How much of the spending was on items that were not intended to be purchased?
    • Which organizations are responsible?
    • How much extra spending did this cause?

    Each company should be able to answer these basic questions in hours, not days or weeks. The data should be in-house and it should not require work from the vendor beyond originally providing the data as part of the invoicing process.

  2. Periodically, the team needs to answer questions like:
    • For a recent price change, what happened to the spending? If we applied the old pricing to the new spending pattern, how much would we have spent? Is this what was expected?
    • Is the mix of items we buy “optimal”? How much could we save by optimizing our demand?
    • How has the market price changed relative to our pricing? Is there enough shift that we should re-bid our spending?
  3. Use the data to generate savings, for example:
    • Request refunds for overcharges
    • Add more items to the contractual pricing terms so we can monitor the pricing moving forward
    • Shift the demand to generate savings
    • Negotiate with the vendor for lower prices

    And, on and on for different ways to leverage the information

This all sounds relatively easy. But it’s not happening today. Let me illustrate from a client example of office supplies. I don’t mean to pick on office supplies vendors, but this is a category with part numbers and contracts so it provides a good starting point for this type of analysis.

The client bought office supplies online through a punch out mechanism from their PO system. The vendor processes the orders, ships the items, and presents invoices for payment. The invoices are approved in the PO system and the vendor is paid per the contract. The contract was written 2 years ago and allowed for fixed (discounted) prices for the top 500 items being bought. When the contract was signed, 250 items were on the list. The new contract offered price reductions on certain items, which the sourcing team projected, would save 12%. Since the contract signing, most prices have been stable, with some exceptions for paper.

As the program was implemented by the client, there were a number of problems with the data:

  • For 20% of the items purchased, the item numbers recorded in the PO system did not match the item numbers in the contract. This was largely a problem of how the PO system recorded the data
  • The client could not state what percentage of the spending was for items with contract prices and what percentage was off-contract. The client needed to ask the vendor for this analysis.
  • The client had agreed to price changes, but did not track those changes and could not calculate the impact of those price changes on overall spending. Again, they had to rely on the vendor to track the pricing and do the analysis.
  • The buyers had shifted their demand, so that of the 250 items in the contract, over 75 were not being bought anymore and of the top 250 items being bought, there was no contractual price for almost 100 of the items. The vendor was waiting for authorization to add 50 new items onto the contract list (with better discounts).

This was all fixable. Fixing it generated incremental savings of 5% and improved the relationship between the client and the supplier. But it didn’t happen until we, the consultants, highlighted the problem and the opportunity.

Generally, we find that procurement data is a mess. And it shouldn’t be. But, this is why it’s a challenge.

Thanks Bernard!

Out in Front: Jon Miller, Strategic Sourceror

As per my last post, Bob Ferrari was first out of the gate with his initial contribution to the Seven Grand Challenges to Spend and Supply Management. Hot on his tail-pipe were Jon Miller of Gemba Panta Rei with his Seven Grand Challenges and the Strategic Sourceror of the Strategic Sourceror with his introductory post on the topic.

The Strategic Sourceror, who’s keeping his final list a secret for now, started off his post by noting that the shift has already left the harbor is the perfect metaphor for the globalization of a peak functioning supply chain. International supplier integration has gone from innovation to a competitive necessity in what seems like the blink of an eye in a global marketplace where overseas shipment costs are rising by as much as 170% and some carriers are slowing speed by 20% to conserve fuel. But the effect of petro-economics is only one component of the international sourcing equation. Other challenges are rising fast and furious, and, as noted by Strategic Sourceror, these include:

  • Currency
    Certain currencies, like the US Dollar, have been up-and-down faster than a yo-yo in the hands of a master.
  • Quality
    How many more PR disasters and deaths have to happen before people wake up as to how important this issue is?
  • Redress
    All you have to do is leave the state and the laws that your supplier are subject to might be different than the laws you are subject to. This only magnifies as you leave the country – and continent.
  • Trade Barriers
    It’s not even as simple as the import and export documentary requirements anymore … you have burgeoning denied party lists to deal with now.
  • Political Instability
    Political instability exists in numerous Asian and Euro-zone countries – not just in the Middle East and Venezuela.

Given these challenges, I’m anxious to see what the Strategic Sourceror’s seven grand challenges shape up to be!

Jon Miller decided to jump right in with his seven grand challenges, which, and this should come as no surprise given Gemba Panta Rei’s focus, had a distinctively lean orientation, with a smattering of green. Getting right to the point, Jon’s seven challenges were:

  • Putting Safety First
    It’s not just about price.
  • Getting Serious About Zeppelins
    Are they the 200 mph method of travel and transport of the future?
  • Waiting For It
    Do we really need new laptops and cell phones in 2-3 days from the day we make the decision?
  • Eating Fruits in Season
    Eat local when you can.
  • Paying to Waste
    Overpacking is costly as well as wasteful. Why do we do it?
  • Spacing Out
    Do we really need warehouses in space?
  • Beaming It Over
    The internet changes anything.

It’s quite an interesting list, and I highly recommend that you check out Jon’s post for the details, and rationale, behind his decisions.

First out of the Gate: Bob Ferrari

Everytime I launch a new cross-blog series, I always wonder who will be first out of the starting gate, trying to be the first to capture the readers’ minds and hearts. This time it was Bob Ferrari of Supply Chain Matters and The Ferrari Group who posted his Seven Grand Challenges for Supply Chain Management yesterday.

In his first post, he lays out his seven challenges and tackles the first three head on, promising us two more posts on the last two challenges before the week is up. Bob’s Seven Grand Challenges are:

  1. Ubiquity of Portable Computing Leading to Real Time Sensory Networks
  2. True Supply Chain Business Intelligence and Decision Making Tools
  3. Managing the Explosion of Data and Information Needs in Global Based Value Chains
  4. Managing Supply Chain Risk Management on a Global Basis
  5. Who Assumes Ownership for the Extended Supply Chain?
  6. Articulating the Value and Consequences of Supply Chain Directly to the C-Suite
  7. A Global Shortage of Talent and Skills in Supply Chain Management

I really like #2, because it meshes with my seventh challenge of Opportunity Analysis. Today’s supply chains are filled with untapped opportunities, and you’re going to need good business intelligence and decision making tools to find them. And we’re definitely on the same page with #4! Risk is everywhere, and supply chain disruptions are still rising rapidly, due, primarily, to poorly managed, if not unmanaged, risk.

I’m not convinced of #1, #3, and #5 though.

1. I can certainly see the value of Real-Time Sensory Networks and systems self-updating as soon as product is detected in area B when it was in area A, but I don’t think this is going to add that much efficiency, especially if we had integrated physical, financial, and information-based supply chains where all it took to accept a complete shipment was logging into the shared system and checking “received”. Plus, I don’t want to see us become over-dependent on technology. What happens on that fateful day, which always happens eventually, when it fails and no one knows how to do it manually?

3. I believe that managing the data explosion is an IT challenge, because it goes well beyond just supply chain and supply chain systems. Data explosion is everywhere, and it’s IT’s job to build the databases, marts, and warehouses we need to manage it. It’s Supply Chain’s job to select from the best systems out there. Bob makes some great points in his post, but I’m not sold.

5. I think this is a great question to ask, but it’s not really a challenge, because, in my view, it’s trivial to answer. The CEO. Today, your company is your supply chain. Sure you have a CSCO who’s job is to manage the chain on a daily basis, but the buck should ultimately stop with the CEO. Nonetheless, I’m waiting to see what Bob has to say on this one …

And #’s 6 and 7 certainly have me thinking!

If we go back to the Top Three challenge, David Bush of e-Sourcing Forum and Iasta proclaimed that the top-three challenges of supply chain today were Adoption, Adoption, Adoption. This is a cry I’m hearing from e-Sourcing and e-Procurement companies across the board. And even though this is the perfect economy for those providers, because e-Sourcing and e-Procurement software is about the only way to reign in your spending during the deflationary/slowdown/recession economy we’ve been in for a while now, the cry only seems to be getting louder. Maybe it is a longer term challenge than I give it credit for. I’m anxious to see what Bob offers up on this one!

I’m definitely on board with #7! If you check out the talent category here on SI, you’ll see that I’ve essentially been whining about this problem since day one! It’s a huge challenge right now, and it’s going to be for at least the next five years. However, history tells us that talent shortages tend to resolve themselves over a ten to fifteen year window. Once demand gets high enough, and stays high enough for a few years, students, anxious to have a job when they graduate college / university, see that as a good career choice and take educational paths that will prepare them for that careeer. Young professionals ready for a career change go “back to school” (through night courses, part time programs, private programs, etc.), prepare themselves for that industry, and move on in. Simultaneously, the industry, desperately short on talent and needing to get through the day, re-engineers its processes, automates as many tactical functions as it can, and learns to do more with less. After ten to fifteen years, the talent shortage drops to a manageable level. And I’m looking at a twenty to twenty-five year window with these challenges. It’s definitely a major challenge … but is it important enough to knock, say, GHG Tracking and Reduction off of my list? I don’t know. But I’m definitely anxious to see what Bob has to say on this one too!