Category Archives: Sourcing Innovation

Can You Stop Your Event Dead In Its Tracks?

The best laid schemes o’ Mice an’ Men … often go awry. And in the Supply Manager’s world, they often do. And, to be frank, more often than you realize. And sometimes market reality will shift in an instant and continuing a current event could cause considerable loss, and not the significant value that was initially expected.

In this case a Sourcing or Procurement event, even if for a critical product or service needed in a short time frame, will need to be stopped in its tracks. But can you do it? Or will you continue with an auction only to see costs (significantly) increase (if there is no ceiling? Or an RFX only to get no responses at the deadline (with not enough time to try again)? Or a catalog buy for a product that shouldn’t be bought (because excess supply at a non-preferred supplier just resulted in a huge price drop the organization could safely take advantage of)?

And then, even more importantly, the right event will need to be kicked off in its place. An RFX or Auction might need to be replaced with a strategic renegotiation with an incumbent? A catalog buy might need to be replaced with a spot-buy auction to a set of acceptable suppliers with equivalent products? A simple RFX might need to be expanded to a more complex optimization-backed multi-round RFX to take advantage of new entrants shaking up the market. And so on.

But for this to happen, four critical abilities need to be in place.

  1. The ability to detect market shifts that would necessitate a significant change in Sourcing or Procurement strategy.
  2. The ability to determine the appropriate Sourcing or Strategy to shift to.
  3. The ability to quickly terminate an existing event (type).
  4. The ability to structure and launch a replacement event quickly.

1. The ability to detect market shifts.

This requires continuous, real-time, market monitoring which, to be honest, cannot be done without significant software support, and is a proper application of AI in sourcing and procurement. (But this is a subject for another post [series].)

2. The ability to determine the appropriate strategy w.r.t. the shift.

This requires both software support — to extract key details of the shift, summarize it in a meaningful way, and suggest the option(s) likely to be best — and senior buyer wisdom to make the right decision.

3. The ability to quickly terminate an event.

This requires the ability to quickly terminate an event, and do so in a way that will not result in offended suppliers and lawsuit. While not likely possible in the public sector, with proper foresight, and notification, as part of the terms and conditions a supplier must accept to participate, this can happen.

4. The ability to launch a replacement event quickly.

This requires the ability to set up new events quickly, reusing as much information as the current event as possible. This will require great software support (but not necessarily AI).

As you can see, not easy, but sometimes it literally is the difference between a multi-million dollar win, and a multi-million dollar loss.

Sourcing is Full of Secrets …

… and each and every one costs the organization. Sourcing is supposed to be the savings engine that powers the enterprise value engine that relies on enough cost control to maintain the cash flow required by the enterprise.

But achieving savings in souring requires success, and success can only happen if the event is appropriate and appropriately conducted. But, even though many organizations think they know the right way to conduct an RFX, Auction, or other sourcing event, the reality is that they don’t really know the right way. They know the basics, but the basics are never enough.

Why not? Because little mistakes are often made from minute one they add up, costing the organization opportunity with each mis-step. So what are the common mis-steps? There are a number, but the following three are big ones that should never be overlooked.

1. The Specs

Too often the specs provided by the stakeholder are taken as the specs and accepted more-or-less as-is with just a few minor tweaks and clarifications. The problem with this is that the specs are what the stakeholder thinks they need, not what they actually need. Take Engineering — the specs are written to match the component from their favourite supplier. Take Marketing — the specs for an engagement are usually a mirror of those supplied by their favourite agency. And so on. But if Engineering is being tasked to design a new controller, the FPGA doesn’t necessarily need to be the one they’ve used in the past. There might be a better option. And if Marketing needs to get costs down, then they need to consider separating out creative services from production services from material spend, and not request all-in-one proposals. And so on.

2. The Invited Suppliers

Typically, the invited suppliers are, more or less, the same suppliers invited to the last event or the small set of known suppliers in the database. Only for a mostly new category is supplier discovery done, and, typically, these are suppliers in the supplier network, which, of course, is limited to those suppliers the organization have done business with or those suppliers the organization wants to do business with. But these are not always the best suppliers for the stakeholder and/or the organization. And the sourcing team doesn’t do enough discovery to find the potentially best suppliers, and deprives the organization of what could be a new source of value.

3. The RFI

Many sourcing events don’t start with an RFI that focusses on the appropriateness of the supplier before inviting the supplier to submit a bid on a product or service. The stability, sustainability, social responsibility, and support capability of the supplier in the locales the organization does business in should be considered even before the ability to offer the product or service is evaluated.

Get this right, and maybe your events will be more successful and identify greater value as time goes on. And that’s the true purpose of Sourcing: Value, not Savings.

Sanguine Strategic Sourcing

Today’s guest post is from Jennifer Ulrich, an Associate Director and Category Planning Subject Matter Expert at Source One Management Services as well as a contributing author of Wiley & Sons “Managing Indirect Spend: Enhancing Profitability”.

It’s not just vampires that find themselves looking for blood. Healthcare procurement professionals also depend on a consistent stream of the stuff, though they’d define stakeholders quite differently than Dracula. All purchasing is important work, but they can honestly say that their sourcing operations are a matter of life and death. Imagine learning that you couldn’t receive a transfusion because your medical center couldn’t locate a reliable supplier, or failed to plan for a disruption in its supply chain. It’s a terrifying thought.

Human blood ($150 – $180 a pint!) is one of countless commodities Source One’s consultants and I have helped our clients purchase more efficiently. For one organization in particular, it amounted to eight million dollars of total spend. You might think that sourcing a product out of a horror film would present especially grim or bizarre challenges, but the initiative proved straightforward. It essentially came down to a question of vendor consolidation, a question that’s always essential in procurement: Would our client benefit more from a single, or multi-source strategy?

Whether it’s blood or Butterfingers you’re buying, your answer to this question will largely shape your strategy. It’s important to consider the potential drawbacks and benefits of both approaches.

The recent rash of natural disasters have not only underlined the importance of well-supplied healthcare providers, but they’ve also reminded procurement teams around the globe how important it is to assess and mitigate risk across the supply chain. When you’re dealing with a commodity as valuable as blood, the smallest disruption can have deadly ramifications. In theory, a multi-source strategy reduces the risk of shortages by broadening the supply base. Medical organizations that draw blood from a number of suppliers are unlikely to be completely drained if one should come up short.

A multi-source solution also presents the potential benefit of supplier competition. Leveraging this could mean a more agreeable arrangement or sustainable strategy. Though your average individual might know of just one blood supplier (you know the one), the field is actually saturated with a number of emerging regional businesses. Granted a seat at the table, they can drive more competitive pricing while partnering with one another to collectively manage volume concerns.

Sourcing from more than one supplier does not, however, eliminate risk or produce value in every instance. In fact, an organization might find that the strain and uncertainty of managing multiple supplier relationships outweighs its benefit. Consistent communication is essential for maintaining an amicable, respectful, and fruitful relationship with any provider. It’s obviously far easier to ensure open lines of dialogue with a single vendor than with a large group. The right SRM expert can make any arrangement work, but it’s often preferable to consolidate your supplier base for more personalization and collaboration.

In this particular situation, our client found that one trusted supplier could most effectively meet their specifications. With our help, they learned that a close relationship with this provider presented considerable value incentives. In addition to a tiered discount structure, they offered risk management solutions in the form of comprehensive training programs. By educating end users on the proper procedures for transporting, handling, and administering blood they helped foster a sense of teamwork while greatly reducing the chance of lost or wasted product.

There’s no O negative approach when it comes to assessing the market. One company’s life-saving cure could send another into convulsions. That being said, whatever your industry, whatever size your supply base, the same set of principles apply for effectively maintaining relationships and encouraging compliance. The most successful procurement professionals perform a transfusion of sorts. They supplement the foundational techniques of good sourcing with a healthy dose of innovation to determine the appropriate treatment.

In a future post we’ll dissect single and multi-source strategies and discuss which situations favor which approach. Happy Halloween!

Thanks, Jennifer!

Want to Know Another Great Thing About SolutionMaps?

It doesn’t give broad, generic, totally useless Software Advice on categories so vague that they compare head-to-head vendors doing 3rd party logistics and vendors doing catalog based procurement!

SolutionMaps are on specific Supply (Chain) Management categories, that are precisely defined and tailored to a specific Sourcing, Procurement, or Supply Chain business process.  Right now, they are defined for e-Procurement (e-Pro), Invoice-to-Pay (I2P), and the broader Procure-to-Pay (P2P) areas, (Strategic) Sourcing, Analytics, SRM, and Contract Management with Contingent Workforce Management and Services in the pipeline.  Future areas may include GRC (Governance, Risk, and Compliance), Direct Sourcing (focussing on BoM, Should Cost Modelling, Production Planning, Etc.), WIMS (Warehouse and Inventory Management Systems), and Logistics/Freight Management.

We do not compare apples to oranges (as such a comparison is pretty useless) in SolutionMaps, but we definitely don’t compare apples to bananas, peaches, pears, and oranges in a single market basket.  They might all be fruit, but that’s about all they have in common.

Granted, there are analyst firms that think that pretty much all Supply Chain Management Solutions are the same.  One even has a big bold advertising page which says it can help you compare the following 12 vendors:

3PLCentral, Bellwether, CobbleStone, Coupa, CongaNovatus, ContractWorks, Deltek, Fishbowl, FreightView, Halo, Kinaxis, and Procurify.

If you ever compare more than any set of three of these at a time, either you don’t know what you’re doing or the advisors don’t know what they are doing.  These vendors fall into the falling seven distinct categories:

  • Business Intelligence
  • Contract Management
  • ERP
  • Freight Management
  • Procurement Software
  • Supply chain Management
  • Warehouse Management

SolutionMaps only evaluates vendors in a defined market segment, and then it only evaluates demoable product.  We know that some (not all) analyst firms review the solution component of vendors based largely off PowerPoint and other documents.  Given some of the hyperbole the marketing gurus at the market leaders can generate with the flick of the wrist, this is also quite scary.  Just because a new cloud-based SaaS solution can provide you with community intelligence, that doesn’t mean it does.  The crowd has to buy into the solution in order for its wisdom to be shared.  That usually takes time.  But forcing demos forces reviews on real functions, not perceived capabilities.

And, finally, as we hinted at in yesterday’s post, rose colored glasses have no influence on the scoring.  It doesn’t matter how much we like, or do not like, a vendor, it only matters whether or not they can meet the binary requirements to advance up the scoring scale.

SolutionMaps are based on the existence, or nonexistence, of functionality, in a well defined domain, tailored to real-world buyer needs.  And even the customer questions, and scores, are meaningful to other real world buyer needs.  SolutionMaps are different.  And that’s why they are awesome.

And if you adopt a SolutionMap methodology in evaluating your potential vendors, when asked how you came up with the best solution, you will be able to honestly say, “Because I’m Awesome”!

Why the doctor Loves SolutionMaps, Besides the Obvious …

the doctor loves SolutionMaps. He loves them for many reasons.

But most important of all, it’s because of the scientist in him.

SolutionMaps are expert. And constant. And data driven.

Unlike some analyst reports whose methodology and “qualifications” often insult the name of the authors and parent firm (e.g., requiring baseline revenue or geographic footprint requirements further tailored to weed out smaller providers or fiercest competitors) and typically have participation and validation requirements that change from report to report, SolutionMaps are based on rigidly defined capabilities (where every capability has a pre-defined scale at least to 3, if not to 5) that must be demoed for a 2 and rigorously demoed for a 3.

And these requirements will not change from iteration to iteration. More specifically, as long as the doctor is involved, the scale for any requirement will be static for at least one year and while requirements may be added, they will persist for at least one year before being dropped. And, furthermore, since SolutionMaps are designed so that the average score for any vendor should be 2.5 to 3 (or less, depending on the “Map”), the number of 4′s should be 10% or less, and the number of 5′s should be 1% (or much less), and since functionality does not typically improve that much quarter or over quarter, when we have to do a renormalization after a year or more (when we hit enough 5′s and 4′s), we can do a fair, equal adjustment against historical scores (which can’t be done when everyone starts at a 5).

And, as we noted yesterday, these rigid objective scales not only allow an expert analyst to score providers consistently against a common goal, but multiple analysts to do so, because the baselines are all set in stone! Whether it’s the doctor, the prophet, the maverick, or the revolutionary doing the scoring, it’s all consistent on one scale.

Moreover, we know that technology is only half the battle, so half of the scoring is based on average customer reference scores, which are scored over a dozen or more factors, not just one or two! This also means that, just as in real life, there’s more than one right answer depending upon whether you value technology innovation or customer service more, or just want an equal mix. Plus, the ability to differently weight the analyst vs. the customer dimension allows vendor profiles to be constructed against different personas, because the right vendor changes based upon your actual needs.

But that’s not the only reason the doctor loves SolutionMaps. The other reason is that — they are surprising!

Given all the angst that is out there from some current and many former SAP Ariba customers, would you have expected them to score so well on the customer references? Not by a mile! Obviously this vendor is a love it or hate it or nothing in between type of vendor, with a lot of customers lovin’ it! (Kinda like McDonald’s.)

Also, I bet not a single person, including the entire analyst team, would pick EC Sourcing to the be the value leader for Nimble Sourcing. But one thing is for sure, it’s days of being overlooked as a small Best-of-Breed vendor are now over! (Especially since you can set up decent size RFX projects in 15 minutes. If you don’t believe the doctor, ask for a live demo and see it for yourself.) Also, while we always knew it was the little-engine-that-could, no one predicted that Keelvar had made it so far up the hill. Sure, it still has a lot of work to do on rounding out its RFX and Auction features (for example, it’s easy to lock lots in optimization, but you can’t force vendors to fill all or nothing in setup), it’s hit on every major optimization requirement, developed a novel approach to parametric bidding, and is currently weaving in AI in a novel way (which, when released in a quarter, could bump it even higher in the rankings).

But sourcing and optimization weren’t the only surprises. In analytics, large pieces of the pie went to, wait for it, Anydata and Spendency! While the analyst team expected (even though the market may not have) SpendHQ to do well, this was a bit of a surprise. These are both new players with small customer bases relative to the big boys, but they both made an amazing grade.

In SRM, we have State of Flux and PRGX Lavante killing it on the capabilities front (even if not so much on the customer references, but customer response counts for State of Flux, who participated at the last minute, were low and PRGX forgot about the customer references entirely), and are likely to fair better overall next iteration as more customer references come in. And from a reference perspective, Ivalua and SAP Ariba (yes, SAP Ariba again) are just killing it. Ivalua is really proving that a single-platform home-grown S2P suite can really do it all (well, almost all, they need work in optimization and direct sourcing, but then again, name any S2P platform that has both of these capabilities) and do most of it well. You can learn a lot of lessons in sixteen years, and Ivalua is showing it.

In other words, when you dive past the marketing, and the vision, and the pretty, pretty deck, and just get to the heart of the problem, or in this case, the solution, sometimes the results surprise you. But that’s a good thing. This knowledge benefits everyone and we don’t expect these (relative) rankings to be static. Not in the least.

the doctor looks forward to the next iteration of SolutionMaps, and another 8 to 12 vendors being added, and seeing how things shake up. It will be illuminating to say the least.

And to those vendors who didn’t fair as they expected, shake it off and get back to work.  You know what you need to do to get a better score.  Nothing is hidden here. You have the RFI.  You have the scoring scale.  You have our feedback.  It’s all up to you!