Category Archives: Technology

Global Supplier Visibility and Performance

Continued pressures to reduce costs while maintaining quality and other non-cost factors have caused enterprises to look towards outside providers. In many cases, outside providers refer to manufacturers and suppliers in foreign countries, thus adding other variability to an enterprise’s supply chain. Enterprises have undertaken various efforts to manage the new variability: supplier performance, supplier visibility, supplier costing and supplier collaboration are all activities which can help.

Aberdeen has just released the “2006 Global Supplier Visibility and Performance Benchmark Report” (sponsored access) that not only examines GSVP drivers, hurdles, strategies, and tactical action plans for more than 110 companies but offers solid suggestions for improving your GSVP programs.

Considering that Aberdeen has found that the average company has had an average of two major supply chain disruptions per year and that industry average and laggard companies are only able to meet customer-requested ship dates 40% of the time, the need for improved GSVP programs is becoming paramount.

Furthermore, Aberdeen found that despite all of the growing concerns regarding natural disasters, terrorist strikes, political uprisings, etc., the top 3 risks (accounting for over 75% of surveyed disruptions) are actually quality & supplier reliability, lead time increase, and the downstream effects of forecasting errors. Therefore, as I indicated in my posts on supply risk management (I: “An Introduction”, II: “Risks and the Need for Resilience”, and III: “Managing Risk”) and supplier performance management (I: “An Introduction”, II: “The Road to Success”, and III: “Best Practices”) on eSourcing Forum [WayBackMachine] , there is a lot you can proactively do to minimize the chances and effects of disruptions and significantly improve your on-time delivery (by as much as 50% in some cases), and the insightful Aberdeen report is a great start if you want to take your supply chain to the next level. I recommend checking it out. I’ll be posting my own thoughts on it later.

The Sourcing Innovation Series: Part X

I know it’s been a few days, but as I said in my last post, it wasn’t over … just delayed a little while my fellow bloggers enjoyed the long weekend and collected their thoughts. Over the last couple of days, Charles Dominick posted “Sourcing Innovation for Enterprise-Wide Contracts” over on the Purchasing Certification Blog (now the NLPA blog), his second post on the future of sourcing, and Jason Busch posted “Evaluating Spend Visibility and Analytics Providers”* over on Spend Matters [WayBackMachine]. Now, I know Jason’s post wasn’t explicitly a post on the future of sourcing, but it is on spend management innovation, and the future of sourcing is all about innovation.

Charles pointed out that the sourcing world is ready to go to another level. In the not too-distant future, we’re going to look back at today’s supplier selection methodology and consider it archaic. Today we use TCO analyses or weighted average supplier scorecards, but these are problematic in that each internal customer or commodity team will not only value different criteria variably but assign different subjective values to the same qualitative criteria.

In the future, Charles expects speculative bickering to be replaced by the widespread watching of simulations of various scenarios associated with the various supplier selection opportunities. The sourcing team will see the risks and the impact on the buying organization if those risks come to fruition. I think Charles in on to something here. While I do not foresee simulation replacing decision optimization for award allocations, for reasons that I will discuss in an upcoming red paper from Iasta that I am co-authoring, it is a great technology for risk evaluation, identification, and mitigation as you can not only simulate the effect of a disruption but the effect of a risk mitigation strategy. This gives you a more comprehensive, tangible understanding of the factors that should influence your decision.

The net effect is that in the future a procurement professional will need to be even more skilled and educated then today as you will have to be smarter than the simulator, and understand what factors the simulation considers and know how to evaluate those factors to arrive at an optimal decision. According to Charles, some of the skills a purchaser will require in addition to their current skill set are:

  • Skills in quantitative analysis, with an understanding of statistical probabilities, decision trees, etc.
  • Knowledge of macro- and micro-economics
  • The analytical ability to quantify the total cost of the supplier relationship, not just the total cost of ownership

In addition, a procurement professional will need a better understanding of decision optimization, the underlying technologies, and where simulation ends and optimization begins. Not an easy task, but this is why procurement is going to become the center of tomorrow’s organization.

Jason focused on spend visibility, noted that your spend management approaches need to become more sophisticated, indicated that your solution providers need to focus on content integration, vision, and integration, and that in a few years time leading procurement organizations will think about spend visibility, supplier performance, and supplier risk management as a single implementation.

With respect to content integration, Jason states that auto-classification and cleansing tools will never be sufficient on their own, since examining the supplier master is just a start. You also need to be concerned with supplier credentialing, supplier financial viability, supplier quality, and operationally related information.

With respect to vision, your solution provider needs to have value beyond just one-time cost reduction category sourcing efforts, otherwise you should be looking at another solution provider because the true value of any spend or supply management solution is long term viability. At the very least, your provider should understand and offer solutions for long term supplier performance management and supply risk management.

The solution should be integrated into, or support strong integration with, a spend management suite and have strong ties into other systems of record and data stores since the notion of periodic batch-based approaches to spend visibility and analytics is no longer sufficient and the future will require near real-time updates to insure your supply chain continually functions like a well-oiled machine.

All-in-all, a great couple of days on sourcing innovation and the future of sourcing.

The green city of the future

Since we should all be Living Green all the time, it’s time for another post in the green series. Since my last post, it’s been a little quiet on the blogs on the green front, but lots has been happening. On a positive note, a recent article on CNet reports that investments in clean tech have climbed rapidly in the last two years, from less than $300 million in the second quarter of 2004 to more than $840 million in the second quarter of this year.

First of all, I’d like to point out that News.com is following the lead of the Green Thinking bloggers everywhere and devoting special coverage in their special Green Tech section which notes that from solar-powered Wi-Fi to robots fueled by bacteria, researchers are rethinking the way we power our lives.

With articles on Clean Energy, Solar Wi-Fi, and Ethanol BioFuel, you know you can at least clean up the way you operate your business even if you don’t immediately cut costs from your supply chain in the process.

However, one recent article that really caught my attention is the one about the biodegradable forks manufactured by Cereplast. Cereplast’s plastic is composed of organic material and the items made from it will dissolve in a compost pile in 180 days or less. Compare that to regular plastic, which can take 100 years or more. The reality is that we have morphed into a disposable society, and if we aren’t going to change our ways, we should at least make sure we don’t continue to damage the environment with our actions. Moreover, if you can’t save money, you can always make decisions that will make money by designing products that will be perceived as more valuable and sell better in the marketplace, especially when it doesn’t cost you to do so. As the article notes, a pound of Cereplast’s resin sells for around 58 to 60 cents while a pound of petroleum-based polystyrene, meanwhile, sells for around 60 cents.

Another article that caught my attention was the Business 2.0 article that told us How Australia got hot for solar power. It seems that Australia is planning to build a 1,600 foot-tall solar tower that can power a small city. More precisely, a 260-foot-diameter cylinder taller than the Sears Tower encircled by a two-mile-diameter transparent canopy at ground level.

About 8 feet tall at the perimeter, the solar collector will gradually slope up to a height of 50 to 60 feet at the tower’s base. Acting as a giant greenhouse, the solar collector will superheat the air with radiation from the sun. Hot air rises, naturally, and the tower will operate as a giant vacuum. As the air is sucked into the tower, it will produce wind to power an array of turbine generators clustered around the structure. The result: enough clean, green electricity to power some 100,000 homes without producing a particle of pollution or a wisp of planet-warming gases. Mix in a few green roofs and some ground heat pumps, and you’re on your way to your perfect pollution free city (as long as the automotive manufacturers step up their clean car initiatives and produce enough hybrid biofuel/electric vehicles to meet the population demand, after all we can build biodiesel boats. (Alternatively, maybe someone will figure out how to scale up hydrogen fuel cells.)

Maybe my fellow blogging thunder from down under will jump in and add his thoughts to the project and the ongoing cross-blog green series (which also includes Supply Excellence and e-Sourcing Forum, on occasion) now that he’s back in the blogsphere.

The Sourcing Innovation Series: Part IX

I’ll have to say that when I started this series, I was going to be thrilled with a few posts and a lukewarm response … but WOW! The uptake has been phenomenal, and it’s not over yet … not by a longshot from what I can tell. It looks like you can expect at least one more guest post this week here on Sourcing Innovation, and maybe even a few posts on a couple of non-spend-and-supply-management specific blogs as well! And the benefit to you, the reader, is priceless – with so many great minds tackling the subject and sharing their views, you can’t help but get a better understanding of the space you’re in, where it is going, and where you need to go. Talk about having one heck of an edge over your web 1.0 technophobic friends! (Maybe we should sick Phil with his mighty spoon upon them! (Sorry Mr. Adams, I couldn’t resist!)

Anyway, back to the point. Charles Dominick’s post on “Sourcing Innovation for Single-Customer Contracts” over on the Purchasing Certification Blog (now the NLPA blog) and Kevin Brook’s post on The Future of Sourcing here on Sourcing Innovation were great!

Kevin got straight to the point – that innovation in sourcing will trend toward doing less rather than doing more. Even though future sourcing tools will contain advanced decision optimization, business process management, default sourcing strategies, next-generation templates, and a dozen technologies we haven’t thought of yet … they will be easier to use than the automatic four-wheeled vehicle you use to get to work everyday. A wheel, a shift, a gas, and a brake. They will let you focus on your job, and your customer, because great service is what makes a great company.

Charles doesn’t waste any time either in pointing out that he sees major changes in how non-traditional categories will be handled in the future. Specifically, he sees migration across a sourcing maturity model, meaning that sourcing of the categories will be handled differently and will require different skills. He then walks us through the sourcing maturity model from Totally Decentralized to Totally Centralized to Center Managed to Center Led where each level requires a different skill set and represents a different step in thinking about sourcing. I have to agree with Charles – although I believe that center led procurement is the way of the future (see my 3-part weekend series over at e-sourcing forum last month “An Introduction”, “A Center of Excellence”, and “Best Practices”), I see the need for a company to progress through the stages, since, as Charles states, If progression is done too fast, a company could jeopardize its competitive position for years. Before a center can lead sourcing, it has to be excellent at what it does. Before it can be excellent at what it does, it has to actually do it .. and bring all relevant purchasing functions into itself. Hence the progression. Note that this does not mean that your purchasing organization has to go through this progression globally, just that every category, and your non-traditional ones in particularly, need to go through this progression locally. Thus, while some of your key categories are center-led, some of your non-strategic low-cost categories might still be decentralized as you work your way through the process category-by-category. As Charles points out, organizations need to learn to walk before they learn to run, and a process will help them get there faster and prevent them from stumbling badly and hurting themselves along the way. ( [Shameless Plug Alert!] And if you need some help, in addition to being able to reach out to me, consulting organizations like the NLPA and Azul Partners [former parent company of Spend Matters] are always there to help! )

RSS

Really Simple Syndication (RSS) is a web feed in XML format used for web syndication, where a web feed is a special kind of web page designed to be read by a “feed reader” which automatically extracts content from a server and delivers it to you in an easily accessible manner when new content is available.

Why is this important? Any decent blog will support standard RSS format that is also supported by any decent reader.* What this means to you is that you, as a user, can subscribe to the blog, just as easy as you would to an e-mail newsletter, or an old-school news group in an old-school newsreader, and have all of the postings from all your favorite blogs ready and waiting for you seconds after you open your favorite feed reader. In other words, if you like Spend Matters, eSourcing Forum, Procurement Central, Supply Excellence, Vendor Management, or Sourcing Innovation, you can subscribe to it and get your content hot off the presses as soon as your favorite bloggers publish it.

There are a large number of RSS readers out there, and you should have no trouble finding one you like. The RSS Info page on blogspace lists over a dozen. Some browsers, such as my browser of choice Opera (since it was everything FireFox is before we had FireFox, even though it wasn’t free until recently), even have a simple RSS reader built in.

Now, if you’re a power reader, you probably know all this. But since a recent CNet blog post indicated that some statistics show that about 90 percent of the public has no idea what RSS is, I thought it be best to be safe than sorry and not only share the simple definition, but also let you know that you can subscribe to these blogs through RSS.

* Note to authors: if your blog does not support RSS, maybe it’s time to upgrade.