Category Archives: Supplier Management

Avetta – Vetting Your Suppliers So You Can Have Confidence

Avetta, formerly known as PICS Auditing, is a solution for companies that need to do formalized vendor pre-qualification on their mid-size, small, and micro-contractor and service providers to ensure that those contractors conform to health, safety, environmental, and other relevant legislation that these organizational (service) providers need to adhere to in order to maintain a safe environment, minimize risk, and minimize organizational liability. (A single fatality, especially one that could have been easily prevented with the proper training and certification, can cost a large organization five million or more in a settlement. Not only does the organization potentially lose a valuable contractor, but they lose a big chunk of change they can’t afford to lose and hope to remain viable.)

Despite being relatively unknown in the Procurement world (but then again, how many of you know of providers like Browz, VendorMate, or even Achilles), it is a well-known big name in industries that rely on heavily on contractors (think energy companies, cable companies, wireless companies, and other utilities) that has seen year-over-year growth in the 30% range since its humble beginnings 15 years ago.

While the solution is essentially an enhanced supplier information management (SIM) platform customized for credentialing, certification, and contractor capability tracking with respect to health and safety, sustainability, and other specific needs, unlike traditional SIM platforms, the solution allows the questions and profiles to be configured for each supplier based upon service(s) provided, risk profile, and/or industry.

One of its main strengths is the supplier-centric data view — the supplier owns their data and chooses whom they show it with. This means that every buyer can benefit from the economy of scale as Avetta grows as suppliers that have been qualified to a sufficient level by a competitor will be suitable for the organization. It’s a platform where you benefit from every competitor using it. After all, in a large, dense, city, there are going to be thousands of choices, and having a pre-qualified pool of dozens, or hundreds, can be very helpful. Similarly, in a small town or isolated region, there’s only going to be one or two contractors, and they are not going to have the time or interest to go through an audit for every company that wants to use their services twice a year.

Avetta‘s definitely a platform to check into if your organization uses a lot of contractors and you don’t have a good, holistic, vetting and certification process, and one that you can find out a lot more about by checking out the Spend Matters Pro (membership required) pieces co-authored by the doctor and the prophet.

While most organizations don’t think they need a credentialing solution, they don’t realize just how much effort it is to do a proper job manually, or how many suppliers don’t get closely vetted just because they present an insurance form or a certification from 3 years ago (that is still valid but expires in a month). Insurance just means the supplier can afford it and a certification just means that at one point in time someone knew enough to get it. It doesn’t mean they have good processes, or that they can do everything they say they can do with the same level of competence that they got the certification for (which they may lead you to believe). For example, just because their employees passed a safety course in equipment handling, doesn’t mean the employee ever passed one for working on poles or the outside of high-rises. And what is more likely to injure them? A piece of electrical equipment that shorts out and gives them a mild shock, or falling 30 feet onto pavement. Think about that.

What is ARM, and why should I care?

Today’s guest post is from Peter Portanova, a Senior Project Analyst for Source One Management Services that specializes in the marketing spend category decision support for clients seeking to enhance their strategic marketing efforts and drive valuable agency relationships.

Relationships. Is there any institution more complex known to humanity? Whether between a group of people, or between a group of businesses, relationships are complex, messy, and often times, toxic. As businesses struggle to remain relevant in a volatile and fast-moving environment, the push to do more with less has never been so evident. In a well-circulated and often-rebuffed article from 2015 titled “Your Agency Hates You and You Don’t Even Know It“, the author attempts to identify the reasons relationships seem to fail (that is, if you are an agency and you are comfortable placing the majority of the blame on your client).

Consider the state of the marketing and advertising industry in 2015. Buzzwords like “Reviewmaggedon” and “Mediapalooza” dominated headlines, and the year ended with marketers parading through the streets when Pepsi decentralized their marketing procurement team. Fortunately, Pepsi’s decision does not indicate a trend, and an ANA survey to marketers reaffirms the value of procurement in the marketing process. To summarize the findings, many executives see value in procurements process, as long as it does not hinder the fluidity marketers require. However, the overarching question remains: How does procurement adapt their process to become more accepted by marketing stakeholders?

Enter, Agency Relationship Management, or ARM for short. Like Supplier Relationship Management (“SRM”) ARM works on the client’s behalf to ensure a fair and equitable relationship. There are many processes and services that fall under the umbrella of ARM, and procurement is well tooled to operate simply as a mediator, or as the manager of a full sourcing event. The ultimate goal of an ARM program is to enhance the relationship between a client and agency, and to ensure that expectations are clearly communicated and campaigns are integrated and executed seamlessly. Whether working with an internal team or an external third party, ARM programs ensure a best-in-class contract, and enable the client and agency to react swiftly when the market shifts.

“My relationship is great!” “My agency does everything for me!” “My agency does nothing!” “My agency is terrible!” Relationships between clients and agencies exist on a spectrum from love to hate, and require regular maintenance to remain viable. Consider a married couple in their “honeymoon phase,” believing all is well and that the relationship will last forever, or consider the alternate feelings of disappointment and anger. ARM exists as the marriage counselor during rough patches, OR as the open lines of communication and responsiveness when everyone is happy. Simply believing your relationship is successful now, and therefore does not require proactive measures can be detrimental over time, and may lead to the ultimate dissolution of the union (which is expensive, time consuming, and disruptive).

Aside from mediating and working as the communicator, ARM is hugely useful is evaluating current relationships, identifying future opportunities, ensuring competitive rates, and developing a scope of work that is fair and equitable. While relationship management might connote issues, the beauty of ARM is that is works to ensure issues seldom arise due preventative and proactive measures undertaken to ensure the constant delivery of value. Whether there is concern over scope, rates, or capabilities, the objectivity of a third-party outside of marketing works to alleviate to concerns. Furthermore, as noted by the ANA, having a separate business unit working on negotiations is hugely beneficial, and allows those engaging in tactical work to remain focused.

Always remember that relationships are mendable. Unless seriously damaged with fundamental issues, replacing an agency partnership should be a last resort. While there are certainly benefits in doing so, alternative solutions should be the first consideration. A full search is time and labor intensive, and hugely disruptive to current operations. Typically, issues can be resolved through the rotation of resources, or the assignment of new teams to provide additional benefits. Similar drawbacks exist for agencies, which are forced to dedicate additional resources, which may distract from the execution of tactical work. By having an ARM team and process in place, the process is far more manageable, and can begin with simply evaluating the relationship and identifying both positive and negative aspects. After such an evaluation, a process for resolution can be created, ranging in both complexity and extensiveness.

An internal department is a viable solution is for managing relationships, but additional benefit is available through the utilization of a third party. Market data concerning rates and contract terms allow for a greater advantage in negotiations, and flexibility in resources ensures clear communication leading to a rapid resolution. Whether establishing an internal department, or looking for a wholly-outsourced solution Source One’s expertise and experience are ready to assist you in the implementation of your ARM program.

Thanks, Peter.

State of Flux: The Flux Capacitor is being designed for the Future … of SRM!

State of Flux is a provider of Supplier Relationship Management (SRM) software and services that was founded in London (England) in 2004 to focus on an overlooked area of supply management, supplier relationship management. When it was founded back in 2004, most companies were just starting to offer supplier information management (SIM) solutions, which were a pre-cursor to the KPI / scorecard-based supplier performance management (SPM) solutions that followed. Only a few companies had SRM in their mind’s eyes, and State of Flux was one. What started as a very simple system for supplier information, performance, and supplier (corrective) action planning and development has grown into a full fledged supplier relationship management solution that encapsulates supplier information management, performance management, risk management, governance and relationship management, CSR (corporate social responsibility), contract, and innovation management.

In addition to their SRM services, focussed around consulting and executive staffing/managed services, and software (which was branded Statess), they have also been producing the Global SRM research report (which was covered in State of Flux has the Treatment for your SRM Ailments Part I: The Need and Part IV: The Business of Supplier Relationships) for the last seven years which provides very deep insights into the state of supplier relationship management and what the top performers do. (Last year’s report was focussed on the customer of choice, and companies that are their suppliers’ customer of choice get [significantly] more value than their peers and this year’s report will be focussed on technology, and the value it can provide, and the annual survey will be out soon.)

As we have covered the platform fairly extensively in the past (in Statess Part I, Part II, and Part III and State of Flux Part I and Part II), this post will simply focus on major improvements since the last series.

In our last series, we discussed the developments in progress, namely:

  • Prospective Suppliers
  • Contract Management Enhancements
  • KPI Templates and Drillable Scorecards

Since then, State of Flux has completed these enhancements.

  • The prospective supplier module is based on questionnaires with dynamic workflows that ensure a supplier only provides the information that is required, and cannot participate in open challenges until all necessary information has been provided.
  • Contract data and meta-data definition is now highly granular, and the version comparison feature allows a buyer to quickly identify any changes between versions.
  • The KPI templates have been completed and augmented with a wizard that makes it really easy to replicate KPIs across suppliers and organizational units, and make the minor tweaks and modifications (to the weightings, data fields, etc.) that are necessary to have the most accurate and meaningful supply possible.

In addition to this functionality, State of Flux has also added:

  • Single Sign On: that integrates with the organization’s native LDAP (or other single-sign on mechanism) to allow a user to sign-in with an existing account
  • Deep CreditSafe Integration: that integrates all of the credit safe financial and risk data across the application (including the risk and performance modules) with quick access to a supplier rating from the supplier screens
  • Automatic Risk (Severity) Calculation: that automatically computes the severity (and RAG — red, amber, green — status) of a risk as soon as the probability and potential impact of a risk are defined
  • Excel Export which enables every piece of data in the application to be exported to well-formatted Excel spreadsheets and workbooks (for import into other systems and analysis/reporting tools)

The system gets better each year, and when you combine it’s end to end completeness with the fact that there are only a handful of providers focussing on best-practice SRM, State of Flux is definitely a provider to consider. For a deeper dive on State of Flux and their platform, watch out for the upcoming Spend Matters Pro piece (membership required) co-authored by the doctor and the prophet that will take a deep dive into the platform, it’s strengths, and its opportunities for improvement.

EC Sourcing: Getting Ready to Take the Mid-Market by Storm

When we last checked in on EC Sourcing, they had recently released an updated version of their basic e-Negotiation suite, Flex RFP, and their Supplier Corrective Action Reporting (SCAR) solution. Their e-Negotiation suite had straight-forward RFX, auctions, and a basic contract repository that was the 80% solution at the time. It couldn’t compete in the big leagues, but that wasn’t the focus — the focus was the majority of the market that the big players were ignoring (by selling overkill solutions the market didn’t need at a price point the market couldn’t afford).

The platform also had basic project management built in to allow customers to define projects — which include suppliers, users, RFXs and/or Auctions; message with users and suppliers — through integrated message boxes and e-mails; and define notifications in addition to standard project management features — such as timelines, state tracking, and document management. It also supported 4 languages, multi-currency, and formulas in auction and RFX weighting, it was a solid solution, which is further evidenced that about 1/3 of their client base are actually Global 3000s that realized that they didn’t need an overkill solution at an absurd price point to meet their daily sourcing needs.

Since we last checked in a few years ago, they have been developing steadily — improving both the base solution and adding new modules and capabilities, including some not found in the majority of e-Sourcing platforms (even when the big guys are included). They have added supplier management and workflow management and improved everything across the board (including, but not limited to, their internationalization with support for a dozen languages so far). The three biggest changes are:

Supplier Management

Their new supplier management module contains everything you would expect, including, but not limited to, self-registration, deep supplier meta-data management and search, and out-of-the-box Big ERP Integration. The supplier management module supports self-registration. When a supplier self-identifies, it will be presented with the default questionnaire(s), and upon initial review, the buyer can select the supplier for on-boarding, generate a full profile, and request that the supplier complete it. The buyer can define as many fields (across questionnaires) as they want, and each field can be tagged, filtered, and searched. Plus, the module, like the rest of the platform, integrates with JDE, Oracle, and SAP out of the box.

Workflow and Configuration

EC Sourcing has moved well beyond basic project management and now includes procurement request functionality (which can kick off a workflow outside of Procurement), deep approval and routing capability, customizeable status information associated with each task, and custom workflow definitions that allow a user to define a complete workflow for any sourcing project, with direct links into the relevant parts of the platform. All of these workflows are 100% configurable by the user, who can create them as templates, copy them, and customize them as needed for each sourcing project. Very few sourcing platforms have this capability, and no other mid-market solution has Procurement project management at this level of configurability and completeness.

e-Sourcing Automation Capabilities

It might sound trivial, but EC Sourcing’s new capabilities that allow the platform to:

  • automatically identify and invite all approved suppliers for a product/category
  • automatically attach specifications to an RFX on a line-item basis
  • automatically calculate advanced weightings and scorings (when the event is created from a template using advanced lots)

is extremely powerful, especially for large events and junior buyers.

Some categories (like office suppliers, MRO, etc.) have hundreds of line items and, for national (and international operations) that are collectively provided by thousands of suppliers. Even if each product or service specification (document set) can be located, uploaded, and attached in 2 minutes, for 210 items, that’s 6 hours of manual labour. And if there are 5 potential suppliers for each item, and no supplier can supply more than 50, it’s easy to conceive that there may be 1,000 different, pre-approved, suppliers. The manual time it would take to identify those 1,000 suppliers and then identify the lots they are allowed to bid on and configure that could be days.

However, with EC Sourcing’s auto-identification and auto-association capability, all approved suppliers in the SIM database can be automatically identified and invited to just the portion of the RFX/e-Auction they have been qualified to bid on and, if the documents follow a naming convention, all of the specification documents can be uploaded in a single zip file and the system will automatically extract the documents and associated them with the line, lot, or event as appropriate. This, as we noted above, can save days of a buyer’s time.

With the recent acquisition of classic mid-market leaders like Iasta (by Selectica, now Determine) and MarketMaker4 (by Xchanging), there are few providers that have been around since the noughts, fewer still with as mature a platform, and even fewer still with almost 2 decades of strategic sourcing advisory and consulting (which is how EC Sourcing started out before it realized that an organization could be much more effective powered by a proper platform as opposed to just a crack sourcing team with limited bandwidth). As a result, EC Sourcing is poised to make a big splash in the mid-market, and with the recent release of its newly upgraded solution, is sure to make one in the years to come.

How to Save a Whopping £500 on 1.0M of Spend!

Unless you are a best-in-class purchasing organization (and that is not the case for 92% of you), then you need to save. Budgets are shrinking. Costs are rising. Growth and consumer spend is flatlining. And if you don’t get your costs under control, you will be out of a job one way or the other.

But there’s a right way to save, and a wrong way to save.

The right way to save is to apply advanced analytics and optimization across your strategic and high spend categories which has proven time and time again to save an average of 10% across the board year after year when properly applied.

The right way to save is to influence and control demand. The only time demand should increase year over year is when it is for products or components that are for sale, or go into for sale products, and sales for those products are increasing. Demand should not increase more than x% for office supplies or MRO where x% is the increase in workforce, and, in fact, in many categories, should be decreasing year over year. For example, paper spend should decrease (since so much can be distributed online). MRO should decrease, as better inventory management and higher quality parts should decrease the number of products required. Etc.

The right way to save is to increase the value of the product sourced without increasing the price, so that even if costs stay constant, value increases and allow for an increased revenue stream.

So what’s the wrong way to save? Capital manipulation. In particular, earlier customer payment and later supplier payment.

The majority of analysts, accountants, and consultants, especially the unenlightened ones, will dazzle you with calculations that show how if you decrease accounts receivable from 30 days to 15 days and extend accounts payable from 30 days to 60 days, the extra 45 days of working capital you have will save you a fortune as you’ll either have to borrow less or can invest more and generate a huge savings on every Million that stays in your coffers an extra 30 to 60 days.

For example, if you have an annual cost of capital of 6% and you typically have to borrow 50% of required working capital to pay your suppliers on a timely basis, you will be paying:

  06% ACC   12% ACC  
Borrowed Amount 30 days 60 days 30 days 60 days
1 M  5,000 10,000 10,000 20,000
10 M  50,000 100,000 100,000 200,000
50 M   250,000   500,000   500,000 1,000,000

And as soon as a CFO at a mid-size company believes that if he can squeak out an extra 60 days across 50 Million of expenditure at 6%, he can save £500,000, a blind mandate to delay payment terms and expedite payment collection goes out across the board. And then CFO pats himself on the back and goes on a well deserved corporate retreat to the next conference he can find at a mountain resort.

But what actually happens?

If you do the proper calculation, you see that very little is actually saved because the savings is on the cost of capital for the payment days of the amount, NOT cost of capital for the payment amount. Which is a much smaller number. If you do this calculation, the real numbers are:

  06% ACC   12% ACC  
Borrowed Amount 30 days 60 days 30 days 60 days
1 M  500 1,000 1,000 2,000
10 M  5000 10,000 10,000 20,000
50 M   25,000   50,000   50,000 100,000

Remember, in the long run, the payments still have to be made and, most importantly, still have to be made on a monthly basis. So while you might see a savings the first month, there will be no further savings because all you have done is shifted all payments ahead by x days. A payment delayed is not a payment negated.

Moreover, all you’ve really accomplished is p!ss!ng off the supplier. And any chance of being a customer of choice has been thrown under the bus, where you effectively threw the supplier, who now has to borrow more capital to stay in operation, often at a rate double yours. In other words, the whopping £5K you saved likely cost the supplier £10K and, at the end of the contract, the first thing they are going to do is increase their costs substantially to cover their loss. So, at the end of the day, your short term savings of £5K is likely going to cost you £15K or more (especially when you consider the value associated with being a customer of choice). But hey, the CFO is always right, right? Wrong!

Don’t believe the doctor? Check out the public defender‘s blog that goes through this calculation in even more detail.