Category Archives: Sourcing Future

All Models Still Lead to Total Value Management

Not that long ago, Sourcing Innovation released Taking the First Step on Your Next Level Supply Management Journey, a white paper sponsored by BravoSolution that defined a simple 3-level maturity model that an organization can use to determine where it is on it’s Supply Management organizational journey. Noting that your organziation is either below average, above average, or best-in-class*, SI did not see any point in trying to be more complex (even though many industry associations, consulting firms, and analyst powerhouses will often proffer four and five level models).

And while the acronyms and acclamations — including VFS, Hi-Def Sourcing, Next Level Supply Management, Next Practices, and Value Chain Creation — will fly fast and furious, there is still one commonality among all leading models, including Gartners Global Trade Management Maturity Model, which is nicely summarized in this free white paper from Amber Road that offers A Model for Value Chain Transformation.

That commonality is something that the doctor has been prescribing for over five-years — Total Value Management (TVM). When you get right down to it, that’s what Strategic Business Enablement is all about. Maximizing value across the orgnization, end-to-end. In the sourcing process, the organizational model, the finance operation, the (information) technology platform(s), product management (& marketing), risk management, asset management, and relationships — the eight directions of the supply management navigator’s compass. QFD (quality function deployment), maximization of SUM (Spend Under Management), and end-to-end transportation management is all about extracting maximum total value for the organization. Demand creation, joint innovation, and new market entry is all about creating maximum total value for the organization.

And that’s why, if you’re not already there (above average and on the road to best-in-class), and more than half of you are not, you need to be moving to an advanced sourcing platform that supports in-depth spend-related analysis, decision optimization, collaboration, and market-informed category-based sourcing. These tools allow you to identify, maximize, extract, and retain value in your operations. For more information on these technologies, check out SI’s other recent white-paper, also sponsored by BravoSolution, on the Top 10 Technologies for Supply Management Savings Today.

*but not average as average can only be defined as an organization that is dab-smack in the middle of every other organization

Vision 20/30 — The Future Of Procurement Needs a Course Correction

The last six posts in the series have explored in detail Ariba’s recently released Vision 2020 – The Future of Procurement report, which was intended to define what the Procurement function is going to look like in 2020. While a valiant effort, the report doesn’t live up to SI’s expecations, which only gives it a B-*. Next Generation Supply Management is going to be a lot more intensive than most Supply Management professionals are predicting and many of the realites are going to be substantially different than they are today in but a few short years.

As SI will make clear in the months ahead, both on this blog and in an upcoming white-paper, a leading Supply Management organization will have to make significant improvements in sourcing process, organization, finance, IT, product management, risk management, asset management, relationships, and metrics, in addition to adopting a value focus, in order to reach the next level of Supply Management. It will have to go well beyond a realization that more automation, financial sophistication, strategy, supplier integration, and risk management is needed. Even the leaders will have to revolutionize their approach to Supply Management and take their talent to the next level. It’s fortunate that 2020 is still 9 years away as an average Supply Management organization still has a long way to go.

SI calculated the final grade of B- as follows. It assigned each entry a score from 1 (for effort) to 5 (for being on the mark) depending upon where it ranked on the scale of I Hope It’s Just a Ruse to Tomorrow’s Shoes. The precise calculation is as follows:

Category Entries Entry Value Score
Tomorrow’s Shoes 14 5 70
Close, But No Cigar 4 4 16
Today’s Blues 6 3 18
Yesterday’s News 3 2 6
I Hope It’s Just a Ruse 4 1 4
    Score 114
    Maximum 155
    Percentage 73.5%
    Final Grade B-

PPT isn’t enough, you need EAI as well (NPX Deep Dive #1)

As many of you are well aware by now, a few weeks ago I attended The Mpower Group‘s Next Practices Xchange. A gathering of some of the top supply management personnel from a select group of Fortune 500 companies who met to discuss how to get to the next level of supply management, the NPX participants are leaders in their fields. On average, NPX members beat the field at the macro level at supply chain visibility, risk management, strategy execution, and value creation (at least according to a recent joint survey undertaken with the IACCM that will be explored in a future post).

But today’s best is not enough to sustain value in an increasingly competitive and economically challenging global marketplace, and the best of the best know it. The supply management leaders are already working hard to figure out how they are going to maintain their edge in tomorrow’s supply chain landscape. While there are still a number of questions to be answered, they know that the first step is to understand value, that the second step is to get to value, the third step is to capture value, and the fourth, and most critical step, is to step is to execute.

But execution is tricky. It’s more than just People, Process, and Technology (PPT) that consultants have been talking about for decades. It’s more than just the following framework, which isn’t enough.

Tools and Templates
supported by  

It’s Exploration, Alignment, and Information. It’s the Adoption, Execution, Implementation, Optimization, and Utilization of the People, Process, and Technology to their fullest potential, as illustrated by the following framework:

Metrics and Reporting
Knowledge Management
Decision Process
Business Strategy
Change Management
by way of  
Coaching &Mentoring

Technology enables the processing of information which is used by good processes that support organizational alignment with the business by people who explore next generation supply management practices and techniques and take the business to the next level. PPT goes hand in hand with EAI and neither on their own will deliver EBR (Exceptional Business Results).

The importance of the vowels in next generation supply management, and the EAI framework they define, will be explored further in future posts. The reality is that best (PPT) framework in the world is useless if you don’t execute. So master the vowels and see your organization advance to the next level of supply management.

Ariba Vision 2020: I Hope It’s Just a Ruse!

This post addresses the four predictions in Ariba’s Vision 2020 – The Future of Procurement report that were totally off base. SI is not sure whey they came from as they’re not even close to any reasonable expectation of Supply Management reality in 2020.

05. Data predicts the future

Yeah, and monkeys might fly out of my butt!

We will never reach the point where we can be confident that a supplier’s performance will always fall within our customers’ requirements. We will never predict all defects. And we will never predict all disruptions before they happen. Predictive analysis will get better, our value models will get better, and supply chain reliability will increase, but it will never be perfect and never known in advance. Just like we likely won’t see true AI within our lifetime as current approaches just don’t cut it. (And if we do, the machines will realize how inferior we are, and as soon as we forget to encode Asimov’s three laws of robotics into a single robot, we’re doomed!)

Data, data everywhere
and all our minds will shrink
data, data everywhere
sanity on the brink

08. Outsourcing explodes

Actually, outsourcing will suffer a massive implosion as freight costs make moving goods globally prohibitively expensive and exploding labor costs in emerging economies make outsourcing key service functions more expensive than keeping them in-house in major metropolitan centers. What will actually happen is an emergence of Global Service Centers that are part of the organization and employ the right talent for the job at the right locales. Tactical functions will be executed in low cost locales. Strategic functions will be executed where the organization gets the most value. And while some functions will be outsourced to massive third party Global Service Organizations, they will be managed by a Global Service Center that will push out or pull in as market conditions dictate.

10. So long, sourcing geeks
Not by a longshot. While most tools will become so intuitive that even a novice will be able to execute most sourcing and procurement events, there will still be situations where advanced modeling and analysis will still be required and where only sourcing geeks with a keen understanding of the business needs and the strategic analysis required will be able to perform that analysis. While it’s true that the number of sourcing geeks needed may shrink in relative terms, the skill sets required by these geeks will actually increase.

12. Budget fuss fizzles out
As Woody Woodpecker would say, ha ha ha Ha ha, ha ha ha Ha ha, ha ha ha Ha ha, heh-heh-heh-heh-heh-heh-heh-heh-heh! Budget fuss is never going away. Finance drives the business and budgeting is so ingrained in financial professionals that there will always be fuss and muss. While more CPOs will be involved in the budgeting process since day one, they will still have to make their case over and over and over again, no matter how obvious it is.

This ends our review of the 31 predictions in Ariba’s Vision 2020 – The Future of Procurement report. Our next, and final, post will discuss the report as a whole.

Ariba Vision 2020: Close, But No Cigar

This post addresses the four predictions that came close to the mark in Ariba’s Vision 2020 – The Future of Procurement report. For the most part, they were just a little too hopeful.

02. Intelligence moves into context

Intelligence will move into context, and be front and center in leading supply management organizations, but will not be a substitute for Supply Management Professionals with expertise in risk and economics and target markets. Just like a dashboard can only alert a user to a known issue, automated monitoring solutions can only alert a user to known risk indicators. Political uprisings, natural disasters, and financial failures (due to a loss of one or more major contracts when a supplier is operating on razor thin margins) can still come without any obvious warnings and only a sourcing professional who is carefully monitoring the country, the news, and the supplier will be able to detect a significant event before, or, in the worst case, as soon as it begins.

06. Prices go transparent

Price transparency will continue to increase to the point where most prices for most products and services will be known to within a few points most of the time, but there will be limitations in accuracy, just like there will be limitations in systems’ ability to predict risk and market changes. Unexpected natural disasters, political uprisings, enthusiastic traders, and government intervention will still create unexpected (artificial) supply shortages that materialize over night and wreak havoc on prices. In addition, shifts in consumer preference, organizational boycots, and new regulations will contribute to rapid demand decreases that will do the same.

11. SBUs absorb procurement

Strategic Business Lines will absorb most day to day Procurement and Supply Management functions, leaving the Supply Management organization to focus on strategic initiatives, long-term value generation, innovation, and business line consulting when and where it is needed. And tactical procurement functions might entirely disappear from procurement, being handled by service centers that support the various business lines. But Supply Management will still be needed to not only deal with strategic initiatives, but to handle special projects and unexpected situations when they arise. Since the strategic business lines will never by Supply Management experts, they will never truly absorb all of the Supply Management functions.

25. Early is the new black

Suppliers will be more heavily involved in NPD and will be involed earlier in the process, but it won’t always be on the ground floor. Suppliers have limited resources too and dragging them in to every project before the supply management professional has identified the value they can bring and the value they stand to receive will only result in strained relations. They’ll be brought in when the supply management organization feels the time is right, but it won’t always be early as that will be too speculative, and, in some cases, risky.

Close, But No Cigar

The next post will discuss the four predictions that were totally off base.