Category Archives: Supplier Management

It’s NOT the Marketplace or the Network … it’s the Facilitation!

Ten years ago SI ran a piece on how it’s not the portal or the network … it’s the facilitation in response to a piece in Global Logistics & Supply Chain Strategies, now on supply chain brain, that asked if supplier portals were so great, then what went wrong?

The article concluded, somewhat correct, that most suppliers who originally embraced the “portals” pushed back because they quickly realized that a “portal” offered little value and was just another way for a buyer to boost a discount. But more accurately, it turned out to be yet another system they had to access to receive orders and send invoices in a buyer’s own custom format, and instead of having to deal with a common XML or EDI format, they now had to deal with dozens. It was an amplified nightmare, even more so when they not only had to deal with a different portal for each customer, but multiple instances of each customer’s portal as early portals didn’t even have the decency to provide suppliers with centralized access to their customer requests — they had to log in separately to check the status of every customer!

The article also claimed that the survivors have evolved into networks with real value, which SI questioned, and still questions, as many networks were just searchable supplier directories with the ability to send electronic communications, and did not really enable any value for the supplier. They would have to enter their profiles in multiple networks, hope to get discovered, check and answer queries in each network and then, when selected for a contract award or PO, they would have to … you guessed it … use the portal associated with whatever Sourcing or Procurement system the buying organization used to submit the signed contract or order acknowledgement, submit the invoice, and generally interact with the buying organization.

So why are we bringing the subject up again? Because marketplaces and networks are on the rise again. With respect to marketplaces, we’re not sure if it’s because a number of the instigators see the recent M&A frenzy as an opportunity to fulfill a need and are thus trying to bring marketplaces back or if there are actually silent screams from pending customers that a select few hear. But in the case of networks, it seems that all the S2P players either believe that they need a network to compete with Ariba or that it will make their platform a lot more valuable.

We don’t agree with either. Marketplaces didn’t really work before, so there’s no reason to think that they’ll work now if nothing changes. And we don’t see anything changing. And another network doesn’t add value just by its existence as it’s just another copy of the half dozen that came before it.

If you’re going to build another marketplace or network, please, please, please remember the following:

  • no one cares about a marketplace or a network anymore, they care about doing business
  • the platform needs to make the supplier’s life easier — it should be less work to communicate, interact, and process e-documents
  • the platform should be differentiated and probably industry focussed — not another generic be-all end-all consumer-like marketplace (that’s what Amazon is for, right)

Because another copy-cat platform is just going to follow it’s brethren to the bit-bucket. That’s just the reality.

MoviePass and the Importance of Strategic Suppliers


Today’s guest post is from Bennett Glace, the primary contributor and Editorial Lead for the Strategic Sourceror. A prolific procurement and sourcing blogger, he is responsible for advocating the function’s value in podcasts, white papers, and other accessible content.

On an almost daily basis throughout this year’s summer movie season, cinemagoers have read headlines charting the struggles of MoviePass. The low-priced subscription service was intended to disrupt the traditional theatre model and get audiences excited to go to the movies once again. While initially successful, the service’s last few months now look like a cautionary tale.

In a recent Harvard Business Review essay, Eddie Yoon points out a number of flaws in MoviePass’ pricing model and approach to customer service. Using the company’s woes as an instructive jumping off point, he provides suggestions for its inevitable successors. His arguments also suggest that MoviePass and its disappointed customer base provide a case study in the importance of developing and nurturing strategic supplier relationships. MoviePass’ subscribers are right to feel burned, but it’s clear a more strategic, informed approach to assessing the ‘supplier’ could’ve saved them a great deal of exasperation and money.

To exist as a strategic function, Procurement requires a strategic approach to its supplier relationships. A key step in establishing an effective Supplier Relationship Management program is identifying suppliers who are willing and able to provide for a strategic relationship. These are suppliers who show an interest in engaging directly with Procurement, tuning into its unique requirements, and providing flexible, dependable services. When it comes to supplier selection, anything that strikes Procurement as one-size-fits-all should raise concern. Effective supplier relationships depend on personal, individualized attention. Whether this means favouring local suppliers and distributors over national options, or consolidation over dispersal, will vary based on the organization, but no supply chain professional would dispute the importance of suppliers who can offer hands-on, tailored services that enable a strategic partnership to take shape.

Over the last few months, MoviePass has shown itself to be anything but a strategic supplier to its more than 3 million buyers. Their one-size-fits all approach to pricing and customer service provided for such a massive expansion, but, in Yoon’s words, “MoviePass had to grow much faster than its customer support could keep up with.” Describing their increasingly hands-off service offering, he continues, “The constant price and product changes clearly show how little it understood what customers wanted.”

He begins by discussing the service’s much-discussed, outrageously-low price. Presented as MoviePass’ primary selling point, the $9.95 monthly subscription fee struck millions as a deal too good to pass up. Recent developments suggest it was something closer to too good to be true. Even rookie supply chain professionals know the perils of making supplier selections based on price alone. Cinema lovers, too, have now learned this lesson the hard way.

While moviegoers across the country would agree that tickets have gotten more expensive, Yoon points out that the definition of “expensive” varies considerably by region. MoviePass’ $9.95 monthly price point is a definite bargain for residents of New York or California, where ticket prices average more than $15.00, but most Kansans are unlikely to consider the service so cost effective. Yoon writes, “It is silly to think that a one-size-fits-all national strategy is the right approach for a market as technically and economically diverse as the United States.”

MoviePass’ dedication to a one-size-fits-all service offering not only left their customer base underserved, but ultimately left them struggling with unpredictable demand. As Yoon writes, “MoviePass failed to recognize how the behaviour of super-consumers, customers who are highly engaged with a category and a brand, differs from that of average consumers.” These super-consumers, attending numerous films every week are not unlike any suppliers customers of choice. Customers of choice expect and deserve value-adding incentives based on their particular needs and buying habits. It’s these extras that differentiate truly world-class suppliers and provide the foundation for long-lasting supply chain partnerships. By tailoring certain aspects of its offering to serve its loyal, high-volume buyers, MoviePass might’ve developed methods for better managing spikes in demand. What’s more, these customers would’ve felt appreciated enough to consider MoviePass a preferred supplier even through the recent growing pains.

MoviePass, for their part, seems convinced they’re here to stay. Speaking to NPR, CEO Mitch Lowe remarks, “Amazon lost money for 20 years. Netflix still loses money … our competitors are the ones who keep spreading rumours that we’re going out of business. And clearly, they’re afraid of us and would much rather have a clear playing field.” Lowe suggests that, as a supplier, MoviePass is less concerned with serving its buyers, less concerned with turning a profit even, than it is with instilling fear. The implications for the business’ corporate culture are eye-opening. Lowe paints a picture of an organization that will forsake its commitment to customer service and spread itself past the point of sustainability in order to appear intimidating. That’s not even to mention the lingering questions about how MoviePass intends to use consumer data. Back in July, Lowe (somewhat infamously) joked, “We know all about you.” While Procurement certainly desires suppliers who know its business in-and-out, these suggestions should raise red flags.

Yoon makes note of MoviePass’ troubling attitudes as well. He concludes his essay by remarking, “MoviePass’s struggles provide evidence that bullying is a bad business plan.” Here and there, Procurement has certainly impressed its peers as a cost-cutting bully. Within leading organizations, however, those days are over. The function is widely engaged in efforts to undo its negative perception, build a better brand, and contribute to a positive corporate culture. Identifying and partnering with ethical, dependable suppliers who share Procurement’s values is an important step in establishing this culture and making Procurement a strategic business partner. Continually, MoviePass has revealed itself to be a supplier of less-than-stellar character walking into a less-than-certain future. If Procurement wants to continue rehabilitating its image and protect the reputation of its organization, it can’t afford to do business with this sort of supplier – at any price.

Thanks, Bennet!

Why You Need a Master Data Strategy for Proper Supplier Management (Repost)

This post originally ran on June 24, 2013, but seeing as it’s still a relevant message five years later, it is being re-posted to educate newcomers on the importance of Master Data Management strategies in this data-centric era.

Supplier Information Management is more than just buying a Supplier Information Management (SIM) solution and plopping it into your data centre. Much more. But yet, it seems that some people — anxious to deal with the visibility, risk management, and supplier performance issues facing them — believe that merely obtaining a SIM solution will solve their problems. A proper solution properly acquired, properly implemented, and properly used will go a long way to increasing supply chain visibility, enabling risk management and mitigation, and providing a solid foundation for supplier performance management, but the mere presence of such a solution in your supply management application suite is about as useful as a drill in the hands of a carpenter holding a nail.

You see, Supplier Information will never be restricted to the SIM system. Supplier information will always be present in the ERP system used for resource planning and manufacturing, the accounts payable system, the transactional procurement / procure-to-pay system, the sourcing suite, the contract management system, the risk management solution, the performance tracking and scorecard system, the sustainability / CSR solution, and other systems employed in your organizational back-office to manage the different supply management AND business functions. Supplier data is everywhere, and without a strategy, just shoving it into the SIM system won’t help.

In order to get a proper grip on supplier information, the organization needs a master data strategy that dictates the sub-records that define a supplier record and which system holds the master data for each sub-record. What do we mean by this? For example, the ERP may hold the core supplier identifier sub-record that defines the unique supplier number in your system, the supplier name, the supplier’s tax number, and your customer number in the eyes of the supplier and be the system of record for this information. The accounts payable system, referencing the supplier by it’s supplier number, may be the system of record for the headquarters address and payment address. The contract management system may be the system of record for the list of employees authorized to sign contracts on behalf of the supplier. The CSR system may be the system of record for the suppliers’ carbon rating, third party CSR rating, and your internal sustainability rating. And so on.

If this is the case, the SIM system, to truly be a SIM solution for your organization, needs to integrate with all of these systems and encode the proper rules to resolve data conflicts as required. Specifically, three things need to happen. First of all, whenever a system of record updates data, that data must be pulled into the system and overwrite the existing data. Secondly, anytime data is updated in the SIM system for which it is the system of record, that data must be pushed out to all systems that use it. Thirdly, and this part is sometimes overlooked, whenever data is updated in a system of record, the data not only needs to be pulled into the SIM system, but it then needs to be pushed out to any system that also uses that data. The SIM solution is the centre of a hub-and-spoke data architecture — all updates flow in, and all updates flow out.

This can only be properly accomplished with an appropriate Master Data Strategy. Don’t overlook it. Otherwise your SIM solution will turn out to be a Stuck In Muck solution. An SI is not kidding about this.

It’s Not Our Fault if Stupid Suppliers Bid Too Low But …

… it is our fault if we accept an unsustainable bid.

Over on Spend Matters UK, the public defender wrote a very thought-provoking post that asked is Procurement responsible if suppliers are stupid and bid too low?

And the doctor has to agree with the conclusion that we are not responsible for suppliers’ stupidity, only our own. And accepting any bid that is not sustainable is, generally speaking, a stupid decision, at least without a plan to make it sustainable.

In the doctor‘s view, it’s not good enough to just have contingency plans in place. If a supplier goes into bankruptcy, and publicly blames you for forcing them to accept an unsustainable contract that is bankrupting them and forcing them to lay off hundreds, or thousands, of workers, that’s not good PR. It could hurt your brand, your sales, and your chances of striking a good relationship with a new supplier who will be wary of the corporate [job] killer.

While it’s your job to find, and get, the deal that is too good to be true, you want to be sure that the deal doesn’t bankrupt the supplier, at least not until the contract runs out. So if you know the supplier will lose money as is, you need to figure out how to make sure that you figure out how to stem the bleeding sufficiently over time to prevent bankruptcy or failure.

For example, if you know, based on raw material price trends, the COGS for the product you are buying will be at least 5% more than what the vendor is quoting, have plans in place to reduce that cost as soon as the contract is signed. Either develop lean improvement plans to reduce all overheads cost as a temporary stop-gap, buy raw materials in volume on behalf of the entire supply base to lower cost, and start work on alternate designs that reduce high-cost raw material requirements if costs get too high.

If you plan ahead, you can be careful not to accept any bid that you cannot make sustainable for the supplier with at least one of the above plans. You don’t have to make the supplier profitable, although if you take the supplier beyond breakeven to profitability it may make you a customer of choice and that can have a number of benefits beyond just the unbelievably low bid you scored, but you have to be able to prevent the supplier from going bankrupt.

So don’t worry about supplier stupidity, just worry about not catching foolish fever. Then you can score big, and not suffer the fate that comes with failure in your supply chain.

Your Supply Base Is Too Big – But That Does Not Mean You Should Consolidate

You should right-size, but right-size doesn’t mean down-sizing the supply base like consultants in the 90’s used the term right-size when they wanted their customers to down-size their work-force. It means identifying the right number of suppliers for the category, and the right suppliers to fill those slots. If you are sole-sourcing or dual-sourcing a category, and the one or two suppliers are risky or in at-risk regions, you might need more.

The right number of suppliers is not a magic number, it’s the right number of suppliers you end up with after you have identified the right suppliers for each category. For a large organization, that has 60,000 suppliers, that’s probably a substantially smaller number (by a factor of 2 or 3), but it’s not consolidation and cutting across the board.

The reality is that most of the unnecessary supplier proliferation is in the tail spend, not the strategic spend that is analyzed every few years. There are a few extra suppliers in the strategic spend, particularly when organizational units or individual buyers go rogue and don’t buy off of contracted or preferred suppliers, but the majority of needless supplier sprawl is in the tail spend. (Where, as we noted earlier this week, you should be auto-buying.)

So how do you go about right-sizing? First of all, for each product or service in the tail spend, select preferred suppliers and make sure that they are only suppliers available in any and all solutions the buyers can use. Then, make sure that the organization puts in place a no PO, no pay policy and communicates that to all suppliers, and, in particular, the suppliers that are no longer preferred suppliers. This will minimize the suppliers who will respond, especially if the organization refuses to pay invoices that are unmatched to POs.

Then, use auto-class solutions on the transactions to try and identify products or services that could come from the same supplier and try to reduce the supply base further by eliminating those suppliers that can only supply one product or service when there are enough suppliers that can supply that product or service that can also supply other products and services.

And then stop there. While this won’t necessarily get down to the optimal number of suppliers, or ensure the optimal supplier is in each category, it will likely reduce the number of suppliers in the tail by a factor of 2 or 3 and make the tail a lot more manageable. And that’s what’s key – manageability, especially when you want your auto-buy to work quickly and efficiently and eventually consolidate enough volume that you can negotiate with the supplier in the future if you need to.