Category Archives: Supply Chain

Aberdeen Takes a Tip from Madonna (with their Direct Materials Sourcing Study)

According to a recent brief from Aberdeen, at least when it comes to Direct Materials Sourcing, we are all “Living in a Material World”. The rest of us have known this since 1984 … so what’s the word?

Well, they are currently working on a Direct Materials Sourcing Study (and interested enterprises can take the survey. It seems that even though previous research found that over half of the enterprises indicated that an automated and standardized company-wide direct materials sourcing process is required, only 17% of enterprises have achieved such a level of standardization.

Aberdeen’s current hypothesis is that effective direct materials sourcing should include the following business processes:

  • Standardized Strategic Sourcing Initiatives Company Wide
  • Cross-Functional Procurement Teams
  • E-Sourcing and E-Procurement Solutions
  • Procurement Involvement in Product Development
  • Leverage of Outsourcing

And I have to agree. It also posits that Low-Cost Country Sourcing (LCCS) is a key strategy for effective direct materials sourcing. Here I have to disagree. I could be persuaded to accept Best-Cost Country Sourcing (BCCS), but since there are risks and disadvantages to low-cost country sourcing, and since some low-cost countries are not all that low cost, I believe a more objective, well-rounded total cost of ownership vs. value calculation is required.

Still, it will be interesting to see what they find out.

Global Trade Management 2007

Aberdeen recently released a research brief on “Global Trade Management in 2007” Benchmarking Trade Compliance, Global Supply Chain Visibility and Risk Management Practices in advance of their forthcoming study on Global Trade Management (with a scheduled release date of May 31) that highlighted this years focus in Global Trade Management (GTM): improving agility, trade compliance, and risk management.

This brief highlighted the alarming statistic that 90% of participants in the 2006 “Global Supply Chain Benchmark” study reported that their global supply chain technology was inadequate to provide the corporate finance organization with the timely information it required for budget and cash flow management. Thus, the importance of Supply Chain Finance (SCF), as highlighted in yesterday’s post should not be overlooked.

The brief outlines their Best-In-Class PACE (Pressures, Actions, Capabilities, and Enablers) hypothesis which they outlined as follows:

Pressures Actions Capabilities Enablers
  • Lack of critical supply chain process visibility
  • Move to a paperless GTM process
  • Implement new processes that enhance agility
  • A centralized global supply chain management organization
  • A cross-functional purchasing, supply chain, and finance team to oversee GTM strategies
  • Online visibility into international order and supplier event status
  • Online visibility into in-transit shipment status
  • Supply Chain Visibility Platform
  • Import Compliance Automation Platform
  • Export Compliance Automation Platform
  • Preferential Trade Agreement Automation
  • Risk Management Tools

Not a bad start, but I would hypothesize the following:

Pressures Actions Capabilities Enablers
  • Lack of critical supply chain process visibility
  • Lack of insight into supply chain risks
  • move to a paperless GTM process
  • implement new processes that enhance agility
  • implement end-to-end e-Sourcing, e-Procurement, & e-Logistics Management systems to simplify and enable the GTM process, including relevant SCF solutions
  • Center-led supply chain organization
  • Cross-fucntional purchasing, logistics, finance, and engineering team to oversee GTM strategies
  • Online visibility into international order & supplier event status (including in-transit shipment status)
  • Online visibility into status of 3PL carriers and international ports (of entry)
  • Online visibility into risk mitigation efforts
  • Online visibility into alternate supplier status
  • Supply Chain Visibility Platform
  • Import & Export Compliance Automation Platform
  • Non-Preferential & Preferential Trade Agreement Automation
  • Risk Management Tools
  • Enhanced Spend Analysis Tools

My rationale for this is the following:

Pressures Actions Capabilities Enablers
Process visibility is good, as this allows you to improve your processes, but if you overlook key risks, your supply chain could still be brought to a grinding halt no matter how efficient your processes are A good GTM process is enabled by the proper SCM systems, and these will need to adequately cover e-Sourcing, e-Procurement, and e-Logistics, as well as the appropriate areas of Supply Chain Finance and International Trade Management if an organization is to achieve efficient, paperless processes Center-Led is better than centralization. As indicated in my weekend series over on eSourcing Forum last summer (Part I, Part II, and Part III) and in the Center Led Wiki, not everything is appropriate to centralized sourcing or management. A Center-Led organization allows you to centralize where it makes sense, and decentralize where it does not.

Don’t overlook engineering when evaluating key suppliers and supply risks – they will often know more from a product standpoint than the rest of the organization combined!

It’s important to not only track the status of the carriers you’re using, but the inbound ports (of entry) you’ll be using as well. For example, if you are shipping ocean freight and the planned port of entry is expected to be hit by a hurricane, you need to be able to re-route the shipment. Also, if you have a choice between ports, sometimes its best to use the port with the fastest turn-around time if the items are perishable or the valuation is dependent on how fast you get the product to market.

 Don’t overlook spend analysis – it lets you know who you are spending with, how much, and when. This will help you identify key suppliers, carriers, ports, etc. that need to be addressed in your global trade and risk management plans.

The Importance of Supply Chain Finance Technology

Aberdeen recently released a report on “Technology Platforms for Supply Chain Finance” How to Drive Competitive Business Advantage by Increasing Payment and Financing Automation with Business Partners that found that best-in-class companies are six times more likely to have gained significant competitive advantage due to implementing Supply Chain Finance technology. They also processed twice as much volume, measured as annual dollar turnover, than their lower performing peers and three times as many invoices.

Supply Chain Finance (SCF) technology helps automate the process of exchanging payments, related documents, and information between buyers, sellers, financial institutions, and other involved parties. It supports related visibility and workflow for all the parties involved.

The most widespread technologies today that enable some aspects of SCF are document and content management systems (DMS/CMS), accounting systems that enable Accounts Payable (AP) / Accounts Receivable, (AR) Electronic Invoice Presentment & Payment Systems (EIPP) and Procure-to-Pay (P2P) systems, extended Enterprise Resource Planning (ERP), and global trade finance (GTF) platforms. Aberdeen has developed a 4-level pyramid of capabilities that represents the different levels of technology enablement a company can achieve. These are:

  1. DMS & EIPP
  2. Automated Management of Early Payment Discounts
  3. On-Demand Access to 3rd party supply chain financing
  4. End-to-End SCF decision support

The report presents the usual Aberdeen PACE (Pressures-Actions-Capabilities-Enablers) framework and the primary actions and enablers recommended by the report are worth noting.

Actions:

  • Automate AP & AR processes
  • Automate purchase order management
  • Automate charge-back management
  • Adapt technology that facilitates access to trade financing

Enablers:

  • SCF platform with access to payables financing
  • SCF platform with access to receivables financing
  • SCF platform with access to inventory financing
  • EIPP
  • Trade related document preparation & management
  • Invoice matching / reconciliation

The study also notes that SCF platforms offer more than just financial benefits. Other benefits include:

  • real-time visibility into program activity and status of each customer
  • improved business agility
  • greater usability and flexibility of the supply chain technology
  • increased analytics capability
  • improved productivity

The study concluded with some recommendations for action to help both struggling companies and leaders move to the next level of supply chain finance.

For laggards:

  • Know what to focus on: identify the most critical financial metrics and focus on these specific metrics in SCF program development (example metrics are supplier performance, Return On Capital Employed (ROCE), Days Payable Outstanding (DPO), and Debt/Equity Ratios)
  • Invest in a SCF technology platform that provides strong visibility and automates the key functions for you and your trading partners

For leaders:

  • Use SC technology that provides visibility into shipments and inventory
  • Improve financial risk management with new SCF platforms that offer enhanced analytics tools for credit scoring, supplier risk assessment, and working capital balance analysis with support for trade discounts and receivables/payables financing options

What does it all mean? When you combine this study with previous studies and blog posts here on Sourcing Innovation, you can deduce that:

  • There are significant opportunities to improve supply chain performance through supply chain finance technology.
  • Most companies are not capitalizing on these opportunities.
  • As of yet there is no good definition for a Supply Chain Finance Technology Platform, and no providers that provide one that even covers all of the capabilities identified in the study. Its arguable whether or not any even come close on their own.
  • In order to achieve best in class status, you will likely need to acquire and integrate a number of solutions, and possibly even extend these solutions with custom in-house development.
  • Given that most of the best-in-class solutions in EIPP/P2P/eProcurement, Document Management, and analysis are from new, small, progressive companies, you will likely have to integrate the solutions on your own or use a third party integrator.
  • You need a good game plan from the start – otherwise, you risk not only acquiring the wrong technology in your quest to become a Level 4 Best-In-Class company, but acquiring technology that does not fit together well. Even though every successful project is one that is approached in stages, it is key to identify not only the technologies you require from the outset, but the platforms you intend to use to insure that they will work together and that they can be integrated in an efficient and cost-effective manner. (Alternatively, adopt a common underlying technology model (XML/SOA/etc) and only select solutions that integrate with the model.)

Low Cost Country Sourcing Leeriness

In addition to Carl Greppin’s (of Transpac Access) two-part interview over on e-Sourcing Forum [WayBackMachine], a few other decent articles have hit the presses in the last month or so.

The first article of note is Paul Snell’s “Sourcing Hotspots” article over on SupplyManagement.com which notes that LCCS is an intimidating subject to approach and that just knowing where to begin, where to go and how to balance the risks are enormous challenges for buyers.

The article starts by noting that before thinking about where you want to go, you must decide what it is you want to achieve and that reaching these decisions is an intensive process taking anywhere between two and six weeks. You will need a team of procurement people to dedicate themselves to the issue to make the right decisions.

Start by dividing the budget into a reasonable number of categories to identify where the biggest spends are and where the largest opportunities are. Once these opportunities are identified, they need to be weighed against the complexity of sourcing these products in a low(er) cost country.

If the consensus is that the savings that will be achieved are significant, start by selecting a small number of categories of the least complex items. If everything goes according to plan, you will have a foundation to build on and a small success story for the affected parties to buy into.

Be sure to meet the suppliers in person, and, preferably, visit their facilities before making a selection. This builds lines of communication and reduces the potential for (costly) mistakes. Make sure the suppliers selected are willing to break down their cost structure to help you evaluate where the savings will materialize.

The next article I found to be of interest was Mickey North Rizza’s Supply Chain Management Review article on “Revisiting LCCS in a Demand-Driven World”.

Mickey notes that exactly where you source overseas can make a significant difference on the bottom line but that for buyers to be effective and provide the right sourcing answer at the lowest total true cost, they need to understand the complete picture, including risks and supplier development. They need to understand LCCS within the context of a demand-driven supply network.

By purchasing a product outside of the country in which it had traditionally been purchased, the buying firm faces a number of challenges. The taxes, duties, customs, banking requirements, transportation, overhead of an international procurement office (IPO), inventory buffers, and long lead times from the point of shipment to the point of use can add up quickly in terms of costs. Add in language, culture, currency exchange rates, and timing factors… and the sourcing process can become a daunting task.

The article also notes that after a successful pilot program, companies find that sourcing agents, supplier-development engineers, and “in-country” expertise is required to cut costs and ensure continued reliable supply. The recommendation is to establish a procurement office in the country you intend to source from either by building the operations internally or engaging the services of firms that specialize in hosting those operations for you. However, it will still be the buying company’s responsibility to build out supplier-development and quality control infrastructure.

This article also makes the important point that technology applications can enhance the LCCS value proposition by streamlining work flows and providing collaborative opportunities among the network of buyers, services providers, and suppliers. It also reminds us that buyers need to become savvier, incorporating risk, supplier development, and soft- and hard-dollar costs in the total-cost-of-ownership equation. By doing this, they will gain a better understanding of the true costs in the sourcing equation. Smart buyers (1) focus on total delivered profit analysis vs. total landed or “true” costs and (2) explore “right shoring”. While offshoring provides clear reductions in the product cost, the associated overhead and processes required don’t always sustain the value.

The SAPphire Sensation

As just about everyone in the enterprise space knows, SAP‘s big annual conference, SAPPHIRE, was last week, and, especially since SAP took the progressive stance of again reaching out and inviting bloggers to cover the conference, it received quite a bit of press. Since I was not among the fortunate few invited to Atlanta to cover the conference, I’ve been keeping up with the postings of the bloggers who were in attendance to try and figure out what what SAP has been up to.

A number of leading bloggers, including Jason Busch of Spend Matters, Dennis Howlett of AccMan [WayBackMachine], Jerry Bowles of Enterprise Web 2.0, Craig Cmehil of Craig’s Rantings [WayBackMachine], Michael Cote of People Over Process, Dan Farber of Between the Lines, Thomas Otter of Vendorprisey, and Robin Fray Carey of Social Media Today [WayBackMachine] were in attendance and together posted a considerable amount of coverage and insight (which can be augmented by a few thought pieces from AMR as well).

From these posts (which are direct-linked at the bottom of this post), one learns the following about SAP:

  • SAP has their work cut out for them if they ever want to reach a thought leadership position in the sourcing and procurement space.
  • SAP recognizes that their solution is quite expensive compared to other best-of-breed solutions and that users today want to try before they buy (even though what they have is not yet competitive with some of the other best-of-breed players).
  • SAP has recognized the need for proper spend analytics.
  • SAP’s Master Data Management Solution is not ready for prime-time.
  • SAP’s Duet offering (being jointly developed with Microsoft) is not ready for prime-time either (despite its sale to 250 customers), but 1.5, intended to have better integration between Microsoft Office and SAP business processes, is slated for later this year. However, it may be version 2.0 (slated for release in late 2008) before it lives up to initial expectations.
  • SAP is starting to understand the importance of community in sourcing, procurement, and the supply chain as a whole (and that SDN and BPK will be key to their innovation strategy), and is working on a social computing application called Harmony, currently under a controlled test, as well as doing a lot more development with partners.
  • SAP is still solid on Netweaver as the center of its platform
  • A1S, the upcoming on-demand mid-market platform built on a SOA architecture and pegged for a 2008 release, remains a mystery and source of confusion.
  • No more MySAP, it’s now SAP ERP 6.0.
  • SAP wants 100,000 customers by 2010 (as compared to the 39,000 it has today).
  • SAP will embed the Adobe Acrobat Connect Professional Web conference system in its workforce development product.

The following news is quite interesting:

  • SAP is now offering a 90-day E-Sourcing trial consisting of 3 pre-configured events for only $10,000 that comes with (limited) training and support
  • Their forthcoming spend analytics xAPP solution should have a much better UI than old-school SAP products
  • Most customers only use 30% of SAP functionality

The E-Sourcing offering is likely to get them a lot of traction, but is it likely to win them a lot of business. I expect that many customers who do not have an E-Sourcing solution at present will try it, say “that’s great”, but then start looking elsewhere when they get the quote, since I believe Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) and Procuri (acquired by Ariba, acquired by SAP)will offer considerably more on-demand functionality at a considerably smaller price-tag for some time to come. As Jason Busch said, once users sip the Kool-Aid, they’ll want to buy their own refrigerator, blender, mixers, and booze to tailor it just to their liking and although some may have the budget to afford SAPs full offering, I’m betting many won’t.

The xAPP solution is interesting since it sounds like it will compete fairly well with solutions offered by Emptoris (acquired by IBM, sunset in 2017), Ketera (acquired by Deem), Procuri, and Zycus and since it sounds like they have integrated Macromedia UI capabilities, and maybe even Flex, into the application.

The 30% statistic, although something I more-or-less knew as a technology expert, is interesting nonetheless as it comes straight from the source and hammers on the need to carefully evaluate what you are buying, whether you truly need it, and how many seats you really need if you do before you sign the contract. Otherwise, you might end up paying millions more than you need to. And although every large corporation needs a solid ERP system for their master data store, it forces you to think about whether you will get solid value for the price, especially since there are much more affordable enterprise open-source alternatives, such as Aptean Compiere, out there. For some companies, a properly configured SAP instance with the appropriate number of licenses will be worth (much more than) the cost, but for others, it may not be.

I’d like to leave you with a paragraph from Brian Sommers, whose long blog entry of yesterday drives the point home.


The users that should be showcased at these events are the ones who spent a pittance and got a ton of value. Morever, the focus should be on highlighting the customers who were able to figure out a lot of the change management challenges on their own and actually solved them without the use of consultants or a strait-jacketing piece of technology.

The Links:

  • Spend Matters [WayBackMachine] by Jason Busch
    SAP: 3 Sourcing Events for $10K?*
    SAP Gets Serious about Spend Analytics*
    SAP SRM Users: Don’t Feel Compelled to Upgrade to MDM*
    Waiting for Duet*
    SAP’s E-Sourcing Transformation: Part 1 — Setting the Stage*
    SAP’s E-Sourcing Transformation: Part 2 — The Services Ecosystem*
    SAP’s E-Sourcing Transformation: Part 3 — Just the Product Facts*
    Procurement Goes Main Stage at Sapphire*
    Making the Sapphire Procurement Scenario Real*
    SAP needs to Realize that Procurement Extends Beyond the Four Walls*
  • AccMan [WayBackMachine] by Dennis Howlett
    SAPPHIRE 07 – Day 1, the wrap
    Hasso Plattner’s blackboard
    On not seeing A1S
    Will You Trust SAP With Your Business?
    Harmonising inside SAP
    SAPs A1S go to market strategy – the addressable market
    SAPs A1S go to market strategy – potential hurdles
    SAPPHIRE wrap
    AMR sees A1S, confusion reigns
    Flashing Open the A1S Kimono
  •  Craig’s Rantings [WayBackMachine] by Craig Cmehil
    Oracle invades SAP SAPPHIRE
    SDN and SAPedias
    Emerging Solutions brings “Harmony” to the Enterprise

People Over Process by Michael Cote
Sapphire 07: Support, Enterprise 2.0
Sapphire 07: Stable Agility, Web 2.0 Everywhere

Between the Lines WayBackMachine] by Dan Farber
SAP Sapphire gets underway
SAP internalizes social networking for business
MySAP fades into history
SAP aims A1S on demand solution for 2008
Hasso Plattner outlines SAP’s software vision
SAP and Microsoft lay out Duet roadmap
SAP gets on the Enterprise 2.0 bandwagon
SAP CEO: We are not arrogant, we are the market leader

Social Media Today [WayBackMachine] by Robin Fray Carey
Meanwhile, at Virtual SAPPHIRE
Dennis Moore at SAPPHIRE: “No More Waterfalls”
Hasso Plattner: “Virtual is Real”

Vendorprisey by Thomas Otter
Live blogging Leo’s keynote
The name game. My My.
The future of HR systems and thinking?
Henning’s Kagermann’s Keynote
Rio Tinto, SAP, talent management and Youtube
Talking GRC and the office of the CFO gang at Sapphire
Dinner with SAP customers and an old friend
Co-innovation is a strength not a weakness

Enterprise Web 2.0 or
Enterprise Irregulars by Jerry Bowles
SAP Shows the Love for Bloggers
SAP to Enterprise 2.0 Community: We Get It

Enterprise Irregulars by Brian Sommer
Getting to know the SAP Customer

AMR
“SAPPHIRE 2007: Usability and Flexibility Take Center Stage” by AMR Research Staff
“SAPPHIRE: SAP Widens Its Embrace to the Extended Value Chain” by Stephen Hochman, Mark Hillman of AMR
“SAPPHIRE 2007: SAP Lets the A1S “Secret” Out of the Bag” by Simon Jacobson, Jim Shepherd
“SAP is Starting to Take a Leadership Role” with SRM by Mickey North Rizza, Jane Barrett

“Sapphire 2007: An SAP SRM Gem?” by Aberdeen

P.S. David Bush of e-Sourcing Forum [WayBackMachine] offered his opinion of Spend Matters’ ERP week yesterday.

P.P.S. I also hear Jason Wood of Ponderings of Woodrow and Mike Masnick of TechDirt were present for at least part of the conference, so you might want to check their blogs in the coming days as well to see if they posted their thoughts.