Category Archives: Technology

The Amazon Effect Is Aptly Named

CPO Agenda recently ran an interesting article in their Winter edition called “The Amazon Effect” which, although it asked a good question, did not, in my opinion, give a full answer. The article made a great point when it noted that many users find traditional e-Procurement systems frustrating when compared with consumer websites. This is one of the main reasons why CAPS Research in 2006 found that only 36% of total spend goes through an e-Procurement system in most organizations, as quoted by the article. The reality is that systems like SAP are so complicated, that even experts have problems.

But let’s get one thing straight – even though, as Aberdeen pointed out when it noted that efficient e-Procurement initiatives increase the spend under management by 35% in an average organization while reducing maverick spending by 41%, implementing a user-friendly e-Procurement system will go a LONG way towards increasing organizational use (and maybe even lead to a 433% improvement in spend under management in extreme cases), it won’t solve all your problems. Let’s face it – not everything you buy is office supplies or other products that neatly fit with the “shopping cart” system that so many vendors these days are trying to reduce their e-Procurement systems to. Can you put a “temp labour worker” in a cart? (In the US? Legally?) Can you put “customized machining services” in a cart? Can you put a non-catalogue one-time buy in a cart? Depending on the flexibility of the cart application, the answer could be a resounding no.

The strength of an e-Procurement system lies not in its look and feel, but in how much organizational spend it can capture – since that’s where the true value of an e-Procurement system is. Usability is important – but if the system can’t capture non-traditional spend, and can’t do so in a straight-forward and efficient manner, users will continue to bypass the system regardless of how slick it’s cart interface is. It’s time to wake up and smell the coffee – enterprises aren’t consumers. They don’t go down to the local office supplies store and buy a ream of paper, a pack of pens, and a can of coffee for the home office. They buy office supplies by the palette, custom products by the thousands, or millions, and temp labor services on the fly. If you can’t handle that – then nothing else matters.

So, the Amazon Effect is merely that – an effect. It’s not a solution.

The 12 Days of X-emplification: Day 6 – Supplier Networks & Catalogue Management

A number of vendors have a number of representatives whose sole job is to pound on your door and tell you about all the advantages of a supplier network – advantages that, as a few of you have unfortunately realized, never materialize unless you have the right network with the right suppliers participating. And even then, the high fees associated with some of these networks, which are often hidden and don’t show themselves until after you’ve sunk a significant investment into the project, should make anyone question how valuable they really are.

The negativity out of the way, implemented properly, a supplier network can provide you with a host of benefits with respect to multiple aspects of supplier management – relationship, performance, and information (to name a few) – that are simply unattainable by any other technology on the e-Sourcing and e-Procurement marketplace today … but only if it’s done right. The reality is that when it comes to supplier networks, we are often holding the sharpest double-edged sword of them all. If it’s done right, it can slice though inefficiencies and costs like a hot knife through warm butter; but if it’s done wrong, you stand to lose a lot more than just your investment – your productivity, key suppliers, and even brand reputation can vanish faster than the last drops of dew on a hot spring day!

That’s why the questions posed below are so important. If you don’t understand why you need to ask them, and the reasons the desired responses are so critical, you could end up selecting a supplier network or catalogue management solution that is entirely wrong for you and your organization. Since this could actually move you significantly backwards on the innovation curve, I think it’s critical that you cut through the buzz and hone in on the real benefits as quickly as possible when making your assessments.

1. Does the supplier network / catalogue solution support integration with your suppliers’ current web-catalogue solution? And what’s involved?

Most suppliers today already have electronic catalogues, despite the myth that some vendors might be propagating. After all, do you really think they manage their price lists using paper-based general ledgers? They manage it using databases*, and most of them make their standard pricing available over the web. The less sophisticated will use flat files, which can be downloaded through batch processes over FTP by clients on a regular, if not daily, basis. The more sophisticated will have a full website with client login and dedicated pricing. Thus, when a vendor says most suppliers don’t have a catalogue, what the vendor means is that most suppliers don’t have a catalogue in their (proprietary) format.

However, data transformation is not nearly as difficult as most people will make it out to be – after all, even Excel supports multiple file formats, and your average analyst is quite adept at successfully importing any text-based flat file format. Plus, most of the bigger vendors will support a standard such as EDI (if they’re old school) or XML (if they have accepted that the times they are a-changing’), so how hard should it really be to load a catalogue into a supplier network?

The correct answer is – it shouldn’t. It should be a 5 minute exercise. If your potential technology vendor says it takes on average a day to a week to enable a supplier and add a catalogue, they don’t have a modern supplier network. A modern supplier network uses the network that’s already in place – the world wide web and the internet on which it is based – and connects to supplier catalogues in their native format. This makes integration as simple as entering the URL to the supplier catalog, specifying the connection protocol, selecting the default file or data record format, and entering the information required (such as user name and password) to meet the security requirements. This should literally be a 5-minute task if the connection protocol, file format, and security protocols are all based on accepted standards. If there are slight modifications of the standard, it should simply be matter of selecting the closest configuration and specifying the necessary changes – a task that should only take a few hours if the application makes use of modern agent technology and business process management.

* As much as I may hate to admit it, Microsoft Access is a database. A rudimentary one, but a database nonetheless.

2. Does the supplier network / catalogue solution support the integration of multiple catalogues into one coherent view?

Not only should it be trivial to add a supplier’s pre-existing catalogue to the network, or enable them to create a catalogue in any format they choose, but it should also be trivial to browse all of the catalogues simultaneously in one coherent view. After all, would Amazon be as popular as it was today if you had to go to one page to search for books, another to search for DVDs, and another to search for CDs? And then make each purchase separately? How popular would e-Bay be if you had to go to eBayCDs to buy and sell CDs, eBayClocks to buy and sell clocks, and eBayBeenieBabies to buy and sell beenie babies? And more importantly, what if you could only search one seller at a time?

The power of a catalogue application rests in its ability to reduce complexity – not in its ability to create it! If you need to buy handhelds, chances are you can buy them from your electronics vendors, your office supplies vendors, and your cell phone carriers. Do you really want to search all three catalogues separately for the best deal? No! You want to be able to do one search across all catalogues and have all of the results compared side-by-side in one consistent view. Consumer comparison web-sites have been doing this for close to a decade – so why shouldn’t your “enterprise” product do it – and do it better? After all, you’re paying for the enterprise supplier network* – so you benefit from it!

* If it’s supplier funded, then you’re paying even more! And don’t let any snake oil salesman convince you otherwise. After all, if I have to fork over 1% of all transaction costs in “network fees”, then I’m going to have to raise my best price by 1% to cover that. Let’s say you buy $10M worth of goods from me through the network. That says it’s costing me $100,000 to serve you. That says I have to charge you $100,000 more to cover that cost of doing business. That says the cost of doing business through the network with me alone costs you $100,000! If you have a network, you probably have at least your top 20 suppliers in it. Let’s say you do a total of $250M of business through the network. Since every supplier pays the same fee, this network is costing you $2.5M a year … for what is nothing more than a catalogue! To put this in perspective, you could have a small team of call center workers in India maintain the different vendor catalogues for you manually for about 1/10th of that. That’s why the following question is probably the most important question of all!

3. Is it expensive for suppliers to use the supplier network / catalogue management solution?

The answer you want to hear is “No – it doesn’t cost suppliers anything to use our network. There are no fees for vendors, and since we can integrate with all of the following standard protocols and data formats, you can link to the catalogue that your average supplier, who has upgraded their technology in the last five to seven years, already has in place with virtually no effort on your part or theirs. And if they don’t have a catalogue, they can use these tools to build one either locally on their machine, for upload in a standard file format, or over the web through an easy to use GUI.” This is because just about any other answer costs your supplier money, which, one way or another, will cost you.

If it’s costly for the supplier, either in terms of dollars or resources, one of two things are going to happen. The supplier is going to refuse to join the network, which is going to prevent you from realizing the benefits that you hoped to realize by selecting the network, or the supplier is going to factor in the cost of doing business with you through the network. (And if you have a contract in place that fixes prices for the mid-term, then the costs of using the network go up even more, since the supplier will have to increase their prices even more when the current contract expires to make up for the losses they are going to take in the near-term!)

The reality is that, unlike BI and other e-Procurement technologies where you only need to capture the 20% of suppliers who constitute 80% of the business in order to see a return, supplier network technologies are only beneficial if you have at least 80% of your suppliers enabled because most of your time is spent dealing with suppliers who are not enabled! If a supplier is enabled in your technology, then most of the transactions are automated and time is only spent dealing with exceptions. If a supplier is not enabled, then every transaction requires a time-consuming interaction. So adoption better be a no-brainer for your supplier community if you want your network to be a success.

4. How did you amass all of the suppliers currently in your network?

There’s at least one vendor whose primary selling point appears to be the number of suppliers in its network. The question is, how did they get all those suppliers to sign up, are the conditions for joining and the costs of membership the same today as they were when these suppliers first joined, and are the conditions for joining and costs of membership applicable to the business environment today?

If the network was almost free in the past, and conditions for membership rather lax, as that can be enticing to a large number of suppliers looking for a new market (as the cost of trying the network out is low and the risks nominal), that can explain a significant membership gain in a short time-frame. However, if after a certain membership size was met, the network all of a sudden introduced a five figure annual membership fee and a transaction cost of 0.5% or more, chances are good that not only did the rate of membership increase start declining rapidly, but that you’re going to have a hard time convincing all but your largest volume suppliers, who are not already in the network, to join.

5. Does it allow for override pricing based on business rules?

It might be the case that it’s easy for your supplier to maintain one catalogue with standard pricing, but hard to maintain instances with customized pricing for each client they interact with. (Especially if they are using older technology or are lacking in modern technical competence.) Therefore, it should be trivial for a user to go in and define contract pricing for, or price modifications on, each item or service that is covered under a contract. Furthermore, the user should be able to do it at the item, category, or catalogue level. Maybe you just have a simple 10% off everything deal. Then the user should be able to create just one rule and have it take effect each time pricing data is retrieved.

6. Can the solution be integrated into your current e-Procurement platform?

As I indicated in a previous post, the value of e-Procurement lies in its ability to integrate requisitions with invoices with contracts and make sure that each buy against a contract is paid at the contracted rate and that each buy that is not against a contract (but should be) is flagged and brought to the attention of the appropriate manager. Thus, it’s critical that your supply network solution provide a simple mechanism for getting requisitions out of the network and into your e-Procurement platform.

the doctor On Technology RFPs: Don’t Put The Cart Before The Horse!

I’m not sure what the reason for this is, maybe it’s the “Free RFP Templates” for e-Sourcing (RFPs & e-Auctions), Supplier Management, Contract Management, and Spend Analysis brought to you by Procuri & Co., maybe it’s an over-inflated sense of technical knowledge, or maybe it’s just plain stupidity – but more and more I’m hearing about buyers looking for spend and supply management solutions that are putting together ridiculously over-specified and complex RFPs that are often eliminating all but the worst solution one could possibly imagine before the first response is even received.

The fact of the matter is that, when you are looking for a solution, there’s more than just one correct architecture, the number of features isn’t important, multiple deployment models may be satisfactory, advanced payment models and complex SLAs may not be necessary, and the processes you assume you need may not be the right processes for your business.

If the solution works on your current platform, does it really matter if its written in J2EE, C++, or Ruby on Rails (as long as it was put together properly)? Does it really matter if one solution has 800 “features” and another solution has 1000 “features” if all you need to support your processes are 200 “features”? And more importantly, do the features even address the critical functions you need to get the most out of the solutions? Although on-demand SaaS has advantages over ASP, and ASP has advantages over localized deployments from TCO perspectives, from a security and control perspective, assuming you have a crack IT team in house that knows what they’re doing, arguments can always be made in the other direction. (However, most non-technical companies don’t have crack IT teams, regardless of what they think, and that’s why I’m such a proponent of the on-demand SaaS model.) Not everyone uses the complex payment models pioneered by Oracle and SAP – some vendors use very simple pay-as-you-go models – especially on-demand vendors who charge you one fixed fee a month for the license, including maintenance, and one variable fee a month for how many days of consulting you utilize, easily calculated as number of days * resource rate. Finally, have you taken the time to evaluate your current processes from an efficiency and effectiveness standpoint? Maybe they are not optimal – in fact, if you haven’t reviewed them lately – chances are they are not optimal and a good time to change them might be upon implementation of a new system that can support the processes you should have, versus the processes you have today.

Thus, when constructing your RFP, if you’re not an expert in technology, and unless you’re an IT company – you’re not, don’t pretend you are. If you’re not an expert in what today’s solutions can do – and unless you’ve spent a significant amount of time researching large and small vendors alike – you’re not, don’t assume feature function lists, and definitely don’t assume that one vendor’s template is the best feature function list that’s out there. And definitely don’t use a template provided by a vendor being invited – that template was written to make them look good from a comparison perspective with their primary competition – which may not have any correlation to the solution you actually need.

Leave the technical and feature specifications open-ended. Instead of describing a proposed solution, describe the problems you’re having and the problems that you expect the solution to solve and let the vendors describe how their solution could meet your needs. And if you’re worried about the responses being too apples-to-oranges to make a decision, do a two-stage RFP. Issue a preliminary, open, RFP that describes the type of solution you’re looking for, the problems you want it to solve, and asks the vendors to describe how their solution meets this need and what key functions it offers and tell them that the best submissions will be invited back for round two, which will be closed.

Review the submissions to the initial RFP, invite clarifications and demonstrations (on the grounds that price and terms will not be discussed), flesh out your requirements, and then issue a closed RFQ with more detail on any architecture or deployment restrictions, the core functions you desire, your minimum SLA requirements, and your criteria for scoring the responses and selecting a solution. (For example, saying you can’t do on-premise Linux because you don’t have the tech resources is good, unlike saying that only on-premise Windows works when in fact you could consider on-demand with Windows Thick client. Saying you need a centralized contract repository as part of your CM solution, once you understand what that is, is fine, whereas saying you want a repository that uses Oracle 10.X, because that’s what you have a license for, when in fact the solution might come with a built in database or license for the database it uses, is overly restrictive.)

If you’re smart about the RFP process, then the solution you end up with will surprise you in its effectiveness and efficiency. However, if you just follow the herd, then you might find that you add to the statistics that say at least 70% of all IT-based projects are at least partial failures, because the system will likely not live up to your expectations of it. I guess what I’m saying is, don’t be an RFP-lemming. (As a reader of this blog, I know you’re smarter than that – but I need you to help spread the word!)

Supply Management in the Decade Ahead II: The Eight Major Forces – Part I

In Part I of our review of Succeeding in a Dynamic World: Supply Management in the Decade Ahead, we overviewed the various external forces that will impact a company’s supply chain as identified by CAPS, AT Kearney, and the survey respondents. We then concluded with the eight major forces that were identified specifically by supply managers who took part in the study. Today, we will dive into the first four of these eight major forces and explain not only why they are important, but what can be done about them.

Global Competition

The report notes that the impact of China on the world economy will continue to be enormous over the next ten years and that, to prosper, companies will have to embrace China as both a market as well as a source of supply for their goods and services. As China continues to modernize and urbanize, China will consume an increasing share of the world’s raw materials, driving up prices and / or creating shortages. The growth of China as a supply and demand market will create opportunities for all and those that embrace the China opportunities will have profound advantages over those that do not. Furthermore, enormous intellectual capital exists in China that can be tapped for invention, innovation, and new technology.

The report also notes that other developing countries will continue to emerge as attractive supply sources and bases of growth and identifies Russia, Mexico, and India. Personally, I think India will emerge as the next great shaper of the global economy and challenge China for supremacy. See my predictions on the winner of the talent war and the loser of the innovation challenge.

Merger, Acquisition, & Supply Market Consolidation

To meet the onslaught of new competition, companies headquartered in developed economies will need to increase in size with improved economies of scale and market power to survive. This will thus force many companies to merge and consolidate. As the M&A game plays out, supply management will be tasked with assessing the impact on the supply chain, including costs, risks, and opportunities. Supply management will need to understand the new supply base, how it can be used to gain advantage, and how to find the forecasted cost savings. In addition, when oligopolies are created by supplier consolidation, power will shift in the marketplace and diminish customer bargaining power while creating a major threat for buying companies.

This is one recommendation that I disagree with. To meet the onslaught of new competition, companies headquartered in in developed economies will need to do something to maintain their place in the market, but increasing in size and market power through consolidation isn’t the only option. They could survive by finding a niche and being the best player in the niche, or they could survive by generating greatly improved economies of scale through the application of innovative processes and methodologies. Now, I know that the approach most big companies take to innovation is to buy it, but it doesn’t have to be this way. Look at Apple.

Increased Government Regulation

Government legislation and regulation of business will only continue to increase, requiring companies to dedicate sufficient resources to ensure compliance, especially in the U.S. and EU. This will lengthen contract negotiations which will have to discuss government regulations and privacy legislation to make sure all parties will be able to remain in compliance. In addition, government actions to support or restrict economic development, such as tax incentives and trade restrictions, will have a large impact on supply strategies.

Government legislation and regulations will continue to multiply, but I believe that China and India could pose just as many issues in the next decade as the US and EU do now. China is already pursuing its own version of RoHS due to the extreme amount of e-Waste that companies are trying to dump there. India is trying to become the next great knowledge and service economy and will eventually enact regulations necessary to satisfy the requirements of dependent nations in terms of privacy and IP. Furthermore, there’s more than one way to deal with the legislation onslaught. The first is to add resources, as the report suggests, but a company could choose to implement systems to manage the data gathering and reporting requirements without increasing resources. These systems are rare today, relative to other supply management solutions, but will become more common as niche providers will rise up to address a problem that companies, who are currently paying millions of dollars just to generate compliance reports, will pay handsomely for.

Technology Advances

Technology breakthroughs will continue to cause major changes to how products and services are provided. These changes will ultimately lower the customer’s total cost of ownership. Core technologies of many industries will become commoditized, forcing geographic consolidation and concentration of the supply base. Shortages of key raw materials will lead to technology changes and the use of alternative raw materials.

I have to agree wholeheartedly here, but point out that the early winners will be those that latch onto new technologies early, lowering their cost and ushering in the era of commoditization. In the software industry, on-demand and SaaS providers will be the big winners next decade, as will providers who can deliver enterprise systems based on low-cost open source technologies and make their money off of services.

the doctor Gives You Nine Questions to Ask Your Technology Vendor

Inspired by InformationWeek’s 9 Questions To Ask A Tech Startup, here are the equivalent nine questions that you should be asking your prospective sourcing and procurement technology vendors.

What’s Your Background?
This question applies to founders, key executives, and the company itself. Look for the right mix of people with deep technical expertise, deep domain expertise, and proven success in managing a growth company in a growth industry. If the depth of technical expertise is building websites (and all coding is outsourced), the depth of domain expertise is buying office supplies, and the depth of management expertise is managing a team of advertising executives – RUN!

When Was Your Company Formed?
Anything less than two-to-three years is a cause for caution. You want to see maturity in terms of the management team, revenue, and the product.

What’s Your Financial Situation?
You want to know where the company is getting the money it needs to support day-to-day operations. Is it drawing on VC funding? If so, at what rate is the required draw decreasing on a monthly basis and can the company honestly expect to be at least break-even before the funding runs out?

Do You Expect To Be Acquired?
Most companies in this space are start-ups, or were in the not-too-recent past. They should have had an exit strategy from day one. If the exit strategy was acquisition, how soon do they expect that to happen? If the exit strategy is six months down the road, be cautious – since many companies in the space will acquire a competitor just to take it off of the playing field – and there goes your investment in learning to use their technology!

What Do You Have Today?
Every vendor and their dog will paint you a rosy picture of where the space is going and where their product is going if you give them the chance, but what’s really important is what they have today. You’re buying a product because you need to increase productivity and decrease costs today – not 3 months or 3 years from now! Furthermore, this is an emerging market – that means that not every solution is equal, and, thus, not every solution is equally appropriate for your needs. You really need to understand what the vendor has today and how it solves your problems.

What Success Have You Had With Customers Similar To Us?
The usual “our e-auctions have saved an average of 12%” is not enough to base a decision on. Although you shouldn’t be considering any vendor who can not make a significant productivity or savings claim, you want to be sure that the vendor you select has saved money in the categories that you need to source or reduced processing time in the processes that your organization employs. An average is just that – an average. Maybe they save on average 20% on office and janitorial supplies and 2% on high-tech purchases. If the bulk of your purchases are for high-tech, then the product they have today is not the product you’re looking for.

Can I Talk To An Early Customer?
You’re looking for a company that has demonstrated the ability to continually improve – not just a company that expresses a willingness and a grandiose roadmap. An early customer will be able to give you insight as to whether or not you can expect the promised savings or productivity gains, how long it’s likely to take, and whether the company has a history of delivering on its roadmap and promises.

Who Are Your Competitors?
The list they give you should be similar to the list you build yourself after doing your homework. If it’s not, either they don’t understand what they’re selling or don’t think they stack up well against their real competition. Either way, it’s a warning sign.

Can I Visit Your Offices?
You want to feel comfortable that you’re dealing with a professional, mature company. This is sometimes the only way to know. Just because the salesman is slick and well-prepared, doesn’t mean the company is well managed. And just because the competition tells you that the company you’re considering is four-guys-in-a-garage, doesn’t mean it is. The opposite can be true. Just like you take the time to visit a new supplier before giving them a major contract, take the time to visit a new technology vendor before giving them a major enterprise contract. It’ll only take a day and won’t cost you much, especially compared to how much you could lose if you pick the wrong vendor!