Category Archives: Technology

The Sourcing Innovation Series: Part IV

Just when you think you’re going to have a nice relaxing sourcing-innovation free weekend … BAM! … they pull you back in. Although most bloggers, including Jason “The Prophet”* Busch, take the weekend off, this is when The Blogging Thunder from Down Under (Doug Hudgeon, Contract Capital Management [WayBackMachine]) often unleashes his masterpieces. (* This one’s mine.)

In an aptly titled post “Rogers and Hammerstein: The Future of Sourcing”, Doug tells us that the future of sourcing revolves around the purchaser and the vendor creating a new relationship structure and that the purchaser simply finding a new vendor in an effort to cut costs or improve supply is not the answer.

An example of a new relationship structure is the vendor and purchaser using a novel distribution strategy that creates operational efficiencies for the vendor and a competitive advantage for the purchaser; or the vendor and purchaser working together to impact demand rather than unit cost. The critical feature of the new relationship structure is that it is created by the purchaser contributing internal knowledge about such things as its purchasing patterns, logistical challenges and payment requirements and the vendor contributing its market knowledge to produce an item or service that perfectly fits the purchaser’s needs and the vendor’s ability to service those needs.

I think Doug is right on the money here … after all, I’ve been saying that sourcing is not going to be the same five years from now and that it is going to get a lot more strategic. This is one of the ways its going to get more strategic – once you’ve rationalized your supply base and found the right partners, the only way you are going to improve is by working with them. However, when he asks what technology will enable this type of collaborative innovation, he makes a good point … this collaboration is going to require new processes, which are going to need to be embedded in new technologies to maximize efficiencies.

So what are these technologies going to look like? The nature of technology is that it’s always almost impossible to predict where it ends, but I believe I can tell you where it starts. Enhanced Product Lifecycle Management (PLM) solutions, real-time supply chain visibility software, and innovation software.

I briefly discussed PLM in my Sourcing Based Product Lifecycle Management post back on June 30 (2006) and will discuss it further in my third Purchasing Innovation series, which is slated to run over on e-Sourcing Forum the weekend of September 8 (2006). Simply put, PLM is the process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal. In the future, these products will be collaboration centric and all supply chain partners will be able to collaborate though a single platform to effectively contribute and improve the process.

Supply Chain and Spend Visibility Software, being promoted by new players such as Apexon (acquired and merged with Infostretch in 2022) and Zycus, lets you know, in real time, what product you have in stores, in warehouses, on route, and on order at any given time and provides real time alerts of any delays or potential issues before they impact your supply chain so you can make alternate plans or take alternate actions as well as letting you know who you’re spending your money on, when, and for what categories.

Innovation software is probably the newest category of software solutions hitting the market appropriate for your emerging supply and spend management needs. Most of these products are still very process focused, but I suspect they will expand to incorporate strategies and domain knowledge as time goes on. As indicated in my recent post indicating that Innovation Matters, you could always start with BrightIdea’s On Demand Innovation Management Software, which gets you up and running immediately. Of course, this isn’t the only choice. You could also try Jenni’s Idea Management Software, Centric Software‘s Product Intelligence software, or Imaginatik’s Idea Central Software.

Of course the big question is – will they merge into a single solution or be replaced by something entirely new?

The Sourcing Innovation Series: Part III

Yesterday was a quiet day. David blogged about beer over on e-Sourcing Forum [WayBackMachine], Jason blogged about “Hype Cycles, Gartner, and Spend Management”*, “The iPod: Contract Manufactured With Love (well, almost)”*, and “Measuring the Impact of War in Israel and Lebanon”* over on Spend Matters [WayBackMachine], and there was silence over on Vendor Management (renamed Contract Capital Management) [WayBackMachine]. The only activity was Eric Strovink’s comment to Dave’s post where he noted that we need to step back from the RFP “blunt instrument” a bit since simple but smart actions sometimes generate surprising results. More importantly, he asked Do we clearly understand the demand side of spend?. This is a very good question, and one I’d bet that we rarely really know the answer to. After all, if we did – we wouldn’t need “forecasting” tools, “demand measurement” tools would do just fine.

On a different note, I can tell you that not only are more leading bloggers crafting their predictions even as I type this but that you can look forward to at least one surprise guest contribution on the future of sourcing here at Sourcing Innovation in the next week. Note that my four-part (yes, 4) series on Optimization begins today on e-Sourcing Forum. As I mentioned earlier, it will explain why I agree with Tim that decision-optimization guided sourcing is about to enter into the sourcing mainstream in a big way.

Getting back to the future of sourcing, I meant what I said when I said that I believe that sourcing five years from now will not be the same as sourcing today. For starters, it will be a lot more strategic. After all, once the 800 pound gorillas incorporate basic procurement and sourcing functionality into their application suites and the open source start-ups provide you with free applications for the basic information gathering, negotiation, and contract tracking portions of your sourcing cycle, the only way a(n) (e-)Sourcing provider will survive is by taking sourcing to the next level and developing new applications that allow you to define, analyze, execute, and access a databank of multiple sophisticated sourcing strategies with ease. Whereas today RFXs are templated, in the sourcing world of tomorrow entire sourcing cycles will be templated with integrated optimization-based decision support analytical tools that will help you determine make-vs-buy, short-cycle vs long-cycle, internal vs shared innovation, etc. Total Value Management will be the norm, Lead Time Optimization will be automatically accounted for, and demand forecasts will be based on dynamically updating collaborative multi-channel analysis. Tactics will be automated … strategy will be everything. And I’m eagerly anticipating Jason’s response to this prediction!

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Aberdeen’s Top 10 Technology-Enabled Best Practices for Accelerating Sales and Operations Planning Business Results

When I reach the bottom of my virtual stack of white papers and research briefs on sourcing, procurement, and supply chain, I often troll for related best-practices articles on related and overlapping business processes. Scouring the Aberdeen site, I came across a recent Perspective entitled “New Strategies for Sales and Operations Planning: How Technology-Enabled Best Practices Accelerate Business Results” (AberdeenAccess) about, oddly enough, sales and operations best practices that can be enabled by technology.

While most of Aberdeen’s top ten technology enabled best practices were as expected and contained no surprises, I was delighted to see that not only was the need for role-based functionality and data manipulation recognized, but that demand shaping was fourth on the list.

The report notes that in addition to the enterprise security needs dealing with planning authority domain and roles, there is a need for user role specific functionality. A requirement of this function is the ability to show data in different ways based on the role, for example, unit level for the manufacturing users, margins for the finance users and revenue for the sales and marketing users. The reality is that everyone in your organization needs a different view of the data to do their jobs effectively and productively – and any product that tries to force a one-view fits all solution is not a true enterprise solution for your sales and operation planning needs.

More importantly, the report also notes that once the unconstrained forecast has been generated as part of the demand forecasting process, the forecast needs to be refined based on events such as promotions, downturns, and new product introductions. The system should predict and shape consumer response by building a business strategy that incorporates forecasting and promotional impacts into the demand plan. These solutions also should determine when and how to price and promote products – throughout a product’s lifecycle – to achieve revenue and profit objectives. A product has a non-linear dynamic lifecycle and the only way to truly maximize your return on production is to take this into account.

In order, Aberdeen’s top ten technology-enabled best practices are:

  • Collection of external Sales and Market Data
  • Demand Collaboration
  • Demand Forecasting
  • Demand Shaping
  • Supply Constrained Plan
  • Profit based S&OP
  • What if Analysis
  • S&OP Plan Quality & Metrics
  • Master Data Management
  • Role-based Functionality and Data Manipulation

For full details, I would encourage you to read the full perspective.

A Synchronized Extended Retail Industry Optimizes the Supply Chain

Recently, TIBCO Software Inc. released a whitepaper entitled “Synchronizing the Extended Retail Ecosystem” (RetailSystems, registration required) discussing how retailers are being challenged by the consumer to provide solutions quickly and efficiently (“Time”) by offering the right combination of products and service and 100 percent “trip assurance” (“Value”) and making actionable information available at the point of decision (“Information”). How retailers are challenged to be a “brand” unto themselves”. And how in the Extended Retail Industry (ERI), retailers are part of an ecosystem of participants including manufacturers, wholesalers, logistics companies, and other service providers that [need to] work together to create solutions for the consumer.

However, the key takeaway is in the overview of traditional retail value chain and the potential value of ecosystem synchronization. Traditionally, product availability is guaranteed by excess physical inventory. This causes a distributor to over-inventory which, in turn, causes a manufacturer to over-produce. This produces a net effect of slower inventory turns, the need to sell-off excess inventory, and a negative financial impact. However, a synchronized retail ecosystem where a retailer is linked into its distributors which are in turn linked into their manufacturers, allows the retailer to share updated demand data in real time, allows the distributors to meet the retailers demand without significant overstocking, and this in turn allows the manufacturers to produce the right quantity. In addition to significantly reducing excess inventory, it allows for faster inventory turns. Furthermore, the distributors will see patterns across the retailers they support for different product lines and can push normal usage data back to the retailers to help them produce better forecasts.

In addition to optimizing the supply chain, an extended retail ecosystem, once implemented can reduce systems friction, technical complexity, and improve the cross-channel consumer experience. Integrated systems reduce erroneous, redundant, and unsynchronized data that lead to “garbage-in garbage-out demand forecasts. Web-services based integrated systems also reduce the complexity of the supply network for each participant who can now receive a cohesive picture instead of a collage of fragmented snapshots. Finally, the reduced occurrences of out-of-stock situations that will result will provide a better experience for the consumer who will not be leaving the store empty-handed.

What about BoB? (Best-of-Breed)

One of the articles in the Summer issue of CPO Agenda asks “One tool or a whole toolbox”? Another viewpoint in the never-ending ERP vs. Best-of-Breed debate, it notes that despite the improving functionality of ERP systems, many companies still turn to Best-of-Breed ( Bob ) vendors to meet their procurement and supply chain needs.

The article notes that some ERP-centric organizations, such as committed customer Delta Air Lines which deploys a single company-wide installation of SAP, runs e-Sourcing and spend visibility software from VerticalNet (acquired by BravoSolution, acquired by Jaggaer). The reason, according to Bob Currey, General Manager of Sourcing Information and Supply Management, is that ERP systems are excellent at what they were originally designed for – accounting and transaction processing – but when areas of the business such as the supply function want to extract information from that accounting and transaction data, it can be difficult for them to locate and access the right numbers. In terms of procurement, the information on spend is there alright, but not in a user-friendly format. The ‘canned’ reports don’t meet all our requirements, and custom-developed reports take time and programmer effort. … In any business, programming resources are often at a premium. You can build a business case and wait in line – and then carry on waiting, perhaps indefinitely, for the resources that you need to be made available. Or you can go to a ‘best-of-breed’ vendor, and buy what you need, off the shelf. For us, the time-to-benefit of the VerticalNet solution made a lot of sense.

Of course, as the article points out, from an IT perspective, the ERP solution has obvious merits: better integration, an existing commercial relationship, simpler implementation – and, as the Americans say, “one throat to choke” if something doesn’t work as it should. In contrast, a best-of-breed vendor may offer software that proves troublesome to integrate, might be difficult to deal with, and can lack long-term commercial viability.

So what should you choose?

Both!

After all, even as Simon Pollard, Vice President for Discrete Manufacturing at SAP notes, Although we believe customers much prefer to buy a suite of software built around a single platform, our assumption going forward is that we will cohabit with specialised best-of-breed vendors. We can’t do absolutely everything, and wouldn’t want to.

The reality is that there is no Magic-Bullet One-Size-Fits-All One-Software-Package-Does-All solution for any area of your business — and that we’re probably years, and years, away from getting close. My rationale — the pace of innovation in software is still increasing, indicating that there are still miles and miles to go.

Best-of-breed applications tend to fill niches that the big (ERP) systems will overlook, either because the vendors of the big (ERP) systems will not assign the same importance to them or determine that the cost of offering those solutions does not justify the expected benefits (especially compared to another potential offering). In addition, best-of-breed solutions are often years ahead of their traditional ERP counterparts. And when you consider the double-digit percentage improvements these tools can often have across the board, it just makes sense to augment your traditional enterprise systems with best-of-breed solutions.

Furthermore, now that many of the best-of-breed solutions are delivered on-demand using the software-as-a-service model, you can be up and running almost instantly since on-demand solutions have been found to perform better than traditional installed applications, upgrade easier, and install faster, on average, according to Aberdeen Group’s recent study “The On-Demand Supply Management Benchmark Report: Enterprises Turn to the Web and Find Quicker and Better ROI to Help Achieve Supply Management Goals” (sponsored access was available for a limited time). Furthermore, when enterprises deploying on-demand solutions improve spend under management by 28%, which could lead to additional savings of 1M to 3M above and beyond what you would get without the best-of-breed on-demand tools (see: The On-Demand Supply Management Benchmark Report), the business case becomes overwhelming to at least give it a shot.