Category Archives: Sourcing Innovation

Is Category Management a Prism? Or a Telescope?

Over on Procurement.World, the procurement dynamo tells us that category management is a prism. More specifically, the procurement dynamo tells us category management is about looking at spend through the prism of

  • company strategy
  • internal customers’ needs
  • supplier/supply market

Through these lenses, procurement will determine if it should be focussing on categories, value drivers, required supplier capabilities, and supply assurance. How?

According to the procurement dynamo, by going through the key components of the category management checklist and seeing where they lead.

So what are the components? You can download the checklist [registration required] and review them yourself, but, needless to say, they revolve around:

  • taxonification
  • supplier classification
  • category strategy from an organizational, stakeholder, and procurement perspective
  • sourcing strategy
  • ROI calculations
  • action plans
  • governance
  • measurement

But is it a prism, or a telescope — a linear sequence of lenses that serves to sequentially focus in on a particular category definition, strategy, execution plan, and return. By the time you go through the incremental category evaluation and strategy and execution, you typically have one view, one color on the problem — not a rainbow. Traditional category management typically ends up with one way to look at the category, not multiple.

It probably should be a prism — as the strategy should change with the market conditions, the customer needs, innovation capability, and so on — all features not considered in a fixed plan and linear workflow. But will it be? And how do we make it one? Thoughts?

the public defender’s five principles of sourcing … (Part II)

… and why you need to understand them if you want to source better.

Over on Spend Matters UK, the public defender recently gave us the fifth in his Five Principles of Sourcing. Designed to mimic the philosophies that underpin many of the biggest and best firms in the world, the public defender‘s five principles were designed to inform good practice that is fundamental to procurement success, regardless of vertical, region, or category.

Yesterday, we discussed the first three principles: Coherence, Openness, Rigour. Today we continue where we left off.

Alignment

Alignment covers both alignment to stakeholders and to the market. Sounds obvious, and there will be few procurement professionals (we hope) who don’t understand the need for stakeholders to be signed up to and involved in critical sourcing and procurement activities. But on the market side, how often do we try and source something that isn’t really what the market can best supply?

True success is not saving money, consolidating SKUS, consolidating the supply base, or increasing supplier performance measures — true success is meeting the needs of the stakeholders *while* doing all of the above. Remember, Supply Management’s job is to support the organizational goals, not it’s own … and true success is satisfying stakeholders (and helping them satisfy end customers).

Commerciality

Everything we do must come back to being “commercial” — looking to achieve benefits and competitive advantage for our organisations through putting in place and managing effective “commercial” deals.

Even non-profit organizations are in business to generate “profit”. The only difference is “profit” is defined as excess revenue (beyond what is needed to cover expenses) that can be put towards the intended purpose of the noon-profit (such as researching a cure, sheltering the homeless, or spreading the word). Thus, the end goal of the event is to minimize the cost necessary to achieve the stakeholder goals and have money left at the end of the day to do “more”, whatever “more” may be. That’s how competitive advantage is achieved, more value for less outlay.

In other words, if you fail to embed one of these principles in your sourcing event, you are not going to extract the value you should … and may even do worse than just spot buying on the open market or leaving every organizational user to fend for herself. For example:

If the process is not coherent, you might get the best possible deal on ink cartridges, but not realize that IT has included free replacements of all the inkjet printers with laser printers as part of their big server buy that they did internally because your team just didn’t have the technical chops to digest the overly convoluted specs provided by the potential vendors.

If the process is not open, you might save 2% on the same old, same old steel parts buy, but not realize that 40% of the cost is in the overhead because the supplier is still using bending and punching and not new laser cutting techniques that the supplier down the street is using to reduce overhead to 20%, which means that 1/5 of the cost is up for negotiation!

If the process is not rigourous, incumbents can be allowed to negotiate away awards that were fairly awarded to new suppliers in return for shady promises of cost reductions on future events, free trips to vendor learning days, and so on. This takes you down a slippery slope that not only puts your ethics in questions, but the value you delivered, as maybe the incumbent lost because they were charging more for what has become an inferior product or service (as competitor offerings improved since you first picked the incumbent).

If the process is not aligned, then you’ll get a great deal on a great product and deliver a huge value … no one wants. As a result, the stakeholders will just buy off contract at higher market prices because there will be inflated demand (as a result of contracts not being adhered to which reserve inventory). Without alignment, no one wins. Ever.

If the process is not commercial, you’re missing the point. Supply Management is about more stakeholder value for less outlay than would otherwise be made without Supply Management. (Not necessarily less than last time. If market prices increased 10% but Supply Management kept increases to 5%, that’s less outlay than the org. unit would have done without Supply Management’s involvement if it was historically buying at market.)

In other words, heed the five principles well. And download the public defender‘s white papers (registration required) for more insight.

the public defender’s five principles of sourcing … (Part I)

… and why you need to understand them if you want to source better.

Over on Spend Matters UK, the public defender recently gave us the fifth in his Five Principles of Sourcing. Designed to mimic the philosophies that underpin many of the biggest and best firms in the world, the public defender‘s five principles were designed to inform good practice that is fundamental to procurement success, regardless of vertical, region, or category.

In this post we are going to review the five principles, discuss how they are relevant, and explain why you need to adopt them as a foundation of your n-step sourcing process, whatever n may be.

The five principles are:

  • Coherence
  • Openness
  • Rigour
  • Alignment
  • Commerciality

Coherence

In the words of the public defender, coherence means applying an end to end logic and consistency to the whole sourcing process. That means understanding the aims and goals before you even start engaging the market, and having that “thread” running through all the stages of the process, including critical elements such as the evaluation methodology and process.

This is a key to sourcing success. If you haven’t figured out the desired end state, you shouldn’t even issue the first RFX. You need to figure out the products you need, the services you need, the specifics of the provision, and any other requirements from the supplier. Only then can you define the initial RFI where you ask questions to weed out suppliers you wouldn’t do business with (due to sustainability practices, lack thereof, financial stability, and so on). That can be followed by a detailed RFP which focusses in on product/service/solution requirements, and only then will an RFQ be issued to the remaining subset of suppliers that should be good-to-go should they win.

Openness

This is perhaps the most obvious of the principles. Being open to new suppliers, new ideas and new solutions is fundamental to the concept of generating competitive advantage for the organisation through our procurement and sourcing activities. Openness is key; working on the principle of sticking to what we know is simply a guarantee that a competitor will in time do it better. That openness means not just seeking out new suppliers, but allowing suppliers (new or existing) to express their preferences, innovative ideas or options, rather than the buyer dictating to them.

Remember that insanity has been defined as doing the same thing over and over again and expecting different results. If you always invite the same suppliers, ask for bids on the same products, and don’t change any service requirements, then why should the bid for this event be any different from the last? The only way to get new, better, results is to open the event up to potential new suppliers, potential new products, new service offerings, and so on. Openness is a fundamental requirement of success.

Rigour

Rigour is about treating the sourcing process with respect, applying diligent and rigorous planning, appropriate processes and analysis to it. Rigour means having a focus on the professionalism of the sourcing process, which for most organisations also reflects on the professionalism of the procurement or sourcing function, team and individuals.

Simply put, rigour means making a plan and sticking to it. No results will materialize unless the sourcing plan is adhered to. No allowing a supplier to the next stage if they fail the first stage. No skipping a stage. No negotiations outside of the defined negotiation window. No negotiations outside of the negotiation team. No picking the incumbent unless they win with the agreed upon ranking system. The only way to truly get results is to make a plan, share it, and stick to it — no matter what happens.

Come back tomorrow for Part II where we continue where we left off.

KPMG Is Listening To Too Much Bob Dylan …

… but still failing to understand the subtlety of the message the Nobel Laureate conveyed in the message he imparted to us 53 years ago.

Recently, as pointed out by the procurement dynamo over on Procurement World in his post on 4 Fascinating Futures, KPMG gave us four potential visions of Procurement’s future in their recent Future-Proof Procurement paper (co-published with Florida State University’s College of Business). [It’s a great read, by the way, for those of you that always enjoy a good alternative universe/timeline SciFi story.)

According to KPMG, we are headed to one of four possible Procurement futures, namely:

  • Primacy of Procurement
    where Procurement becomes the center of power as a result of technology enablement
  • The Creative Agency
    where Procurement totally re-invents itself in order to stay relevant
  • World of Project Economy
    where Procurement disperses (and becomes merely a means to an end)
  • R.I.P. Procurement
    where Procurement brings about its own demise (and is replaced by machines)

All Depending upon the outcomes of the following matches:

  • human centricity vs. algorithms
  • centralism vs. decentralism

In the second case, it depends upon whether or not the march to centralization continues or decentralism retakes center stage. And in the first case, it depends upon whether technology becomes good enough where it can be trusted in place of a Procurement pro.

And, according to KPMG, the futures are defined by the winners as per the following graphic:

In other words, KPMG believes that we need to either prepare for

  • The Path of Dominance
    where Procurement takes total control of the extended supply chain, and, as a result, the business world
  • The Path of Salvation
    where Procurement totally reinvents itself and stays relevant in the turbulent global economy as time shifts the sands
  • The Path of Harmony
    where Procurement adapts to the gig based project economy and simply becomes a means to an end OR
  • The Path of Progress
    where we enter a new era where there is no Procurement. R.I.P. Procurement. (It’s already among the walking dead and soon to be entombed, anyway.)

But all this assumes that there will be one winner in the human centricity vs. algorithm war and one winner in the centralism vs. decentralism, but until SkyNet takes over and locks us in The Matrix, there will be no winner in the humans vs. algorithm war, just like there will always be no winner in the centralism vs. decentralism war as there will always be new recruits to factions on both sides.

We’re not in the world of Anachrony where there can be only one one winner if the cataclysmic future is to be prevented. We’re in the real world, and the situation is a lot more complex.

Bob Dylan said it best:

The line it is drawn
The curse it is cast
The slowest now
Will later be fast
As the present now
Will later be past
The order is rapidly fading
And the first one now will later be last
Cause the times they are a-changing

The line is drawn and the curse it is cast. The two sides of the centralist debate will fight to the last.

The slowest now will later be fast. As the laggards adapt new technology and the leaders drown in that they amassed.

As the present now will later be past. And leaders will fly different masts.

The order is rapidly fading.

And the first one now will later be last. Emerging economies take lead and leading economies are surpassed.

Cause the times they are a-changing.

But the more things change, the more they stay the same. And that’s the underlying message. The conflicts won’t be resolved, fueled by emerging and changing economies, with new governments and organizations taking center stage, discovering and rediscovering the Procurement revolutions, while leading economies go through devolutions as a result of shifting market landscapes and first generation solutions failing to deliver.

Procurement will still be on the verge of death, or among the walking dead, 20 years from now. Only the technology (vendors), processes, and terminology will have changed. The only question is, will your organization have switched sides (from laggard to leader or vice versa).

Despite Bob’s plea, fifty three years later:

Senators and Congressmen still block the hall
They stand in the doorway, don’t heed the call
and the country gets hurt for they have all stalled
and the battle outside keeps raging
it shakes all our windows and rattles our walls
for the times they are a-changing.

ScanMarket – Spreading P2P through the Clouds

ScanMarket is a Denmark-based cloud-based Source-to-Contract suite provider with hundreds of global clients and high adoption rates. ScanMarket claims that companies that switch to their solution see 3x gains in adoption and spend volume (put through the system), and it’s not an unrealistic claim (especially when the system is compared to older Source-to-Contract solutions). It’s another company that has been around quite a long time (since 1999), even though it’s not a name you know in North America.

Even though modules can be activated or deactivated as desired (and an organization can buy anything from just Project Management to the whole suite), ScanMarket was designed to be a single, integrated, source-to-contract suite that contains eRFX, eAuctions, Contract Management, Supply Base Management, Project Management, and Spend Analysis (which is the only module that is almost completely separate). Functionality can be purchased separately, but there is no versioning — ScanMarket is one platform, one instance (where ‘modules’ can be turned off depending on the functionality not desired by a customer). (ScanMarket provides a short, quick on-line introduction video overview of what they think an e-Sourcing platform is.)

The RFX solution allows RFI, RFP, and RFQ which support numerous evaluation settings via bid parameters and weighted scoring, a powerful bid matrix that can capture up to 1 Million data points in a single bid, a template (and question) library for quick event creation, (standard) Excel integration for offline completion, and integration into the sourcing dashboard. In addition, it contains the ability to copy events using multiple template settings that take just the desired data forward. In addition, the buyer can choose to just take some suppliers and some bids forward as well. It’s pretty powerful for an RFX platform.

The e-Auction platform is more-or-less your standard e-Auction platform supporting Japanese, Dutch, Reverse, Factored, and Forward auctions with numerous, configurable, bidding rules to match the event to the situation including individual starting prices, feedback options, blindfolding, proxy bidding, rank, traffic lights, staggering, blind period, reserve price indicator, and partial quantity bidding. Auctions can be monitored in real time on an item and lot level, and the buyer can choose whether to see a full tabular history of bids by item or lot or a real-time graphical “horse-race” view. In addition, the bids can be modified in real time using one or more modifiers (such as switching costs) or formulae (which can include factors to account for different defect rates) and allow buyers to do realistic cost comparisons (even if such cost comparisons are hidden from suppliers).

Contract Management provides a single, online, repository for all contracts with search and reporting. It supports templates (for quick contract data capture), version control, categorization, and buyer-defined meta-data with a detailed approval workflow to support negotiations. Contracts can be instantiated directly from the results of a (cherry-picked) RFX or e-Auction, dates specified, and appropriate notifications and reminders set.

ScanMarket SBM is their Supplier Information Management (SIM) solution that acts as the central, single, repository for all supplier information. It can capture all of the data you expect, including any and all attachments that need to be captured, index those attachments with meta-data, allow for repository-wide (metadata) search, provide full visibility into associated supplier activities (including event history, contracts, and captured performance), and maintain complete audit trails. It also integrates with the suite dashboard for dashboard-based reporting.

Project Management in ScanMarket is a single repository for all projects, notes and attachments that provides an integrated dashboard view of, and reporting across all, projects. There is customizeable workflow management, that allows for the creation of multiple project workflows that can be instantiated as needed, and the templated workflows can be customized for each task in each project across stakeholders and participants. There is also integrated communication and messaging and the ability to quickly jump into the appropriate point in the eRFX, e-Auction, supplier profile, or contract associated with the project.

ScanMarket is a solution that is definitely worth looking into. For more information, see the recent Spend Matters Pro [membership required] series by the doctor and the prophet. (Part I, Part II, and Part III)