Category Archives: Technology

The On-Demand Supply Management Benchmark Report

Aberdeen Group recently released “The On-Demand Supply Management Benchmark Report: Enterprises Turn to the Web and Find Quicker and Better ROI to Help Achieve Supply Management Goals“. (A copy of this report was available for a limited time from Iasta, who licensed it for distribution and made it available on the e-Sourcing Forum [WayBackMachine].)

There are a number of significant findings in this report. Since you can download it for free, I will not attempt to cover the findings in depth here, but simply display the following teasers that should get your mouth watering for more!

  • 57% of survey respondents indicated that on-demand performs better than traditional installed behind-the-firewall legacy applications with a further 33% indicating that on-demand performs about the same; that’s 90% of respondents agreeing that on-demand performs as well or better than traditional legacy applications
  • 57% of survey respondents indicated that on-demand systems are easier to upgrade than traditional installed behind-the-firewall legacy applications with a further 34% indicating upgrades required about the same amount of effort; that’s 90% of respondents agreeing that on-demand systems are at least as easy to upgrade as traditional legacy applications
  • 52% of survey respondents indicated that on-demand systems require less implementation time and effort than traditional installed behind-the-firewall legacy applications with a further 39% indicating installs took about the same amount of time and effort; that’s 91% of respondents agreeing that on-demand is at least as fast to implement as legacy systems, if not faster
  • enterprises deploying on-demand solutions improve spend under management by 28% more than enterprises that deploy installed on-site solutions over the course of a year … 28% … considering that the savings potential for each dollar of spend under management is between 5% and 20%, even if the actual savings realized is only 30.3% of planned savings (industry average – best in class do much better), then you are looking at a savings of at least 1.2M for every 1B … 1.2M+ … and considering that decent on-demand suites can be obtained for 250K/year (not counting professional services), you could easily save 1M just by using on-demand! ( If you are best-in class and capture 70% of planned savings and efficient and get 15% on each dollar of spend under management, you save roughly 3M more on every 1B going with an on-demand solution! )

And that statistic sums up nicely everything I’ve always believed about the inherent value of on-demand. For more of my views, check out my 3-part series over on e-Sourcing Forum if you haven’t already (The Good, The Not-So-Bad, And the Coming Pretty …) and Sudy Bharadwaj’s thoughtful commentary, also on e-Sourcing Forum.

Have a great day and enjoy the study!

You might also enjoy “A Six Step Framework for On Demand Supply Management”, released on the same day as well (login required). Part of Aberdeen Group’s Enterprise Strategies: Insight and Advice for Enterprise Executives, it overviews the Aberdeen PROFIT Framework for Supply Management as a Service (SMaaS). The PROFIT Framework was designed “to aid supply management evaluators in understanding how to deploy an On Demand solution to drive value”. It provides a series of Process, Regulatory, Operational, Financial, Intelligence, and Technology questions whose answers are designed to help you make the right decision.

Procurement Independence at the Coupa Cabana Cafe

This month, Dave Stephens of Procurement Central (WayBackMachine) will formally launch Coupa eProcurement, an open source offering with the ambitious goal of becoming the first self-service buying tool that employees actually want to use. Besides eliminating manual processes (and you should know by now that I believe in purchasing automation with the eventual goal of completely eliminating purchase orders), Coupa eProcurement claims to enable better buying decisions, easily support special requests, create and manage content, and spread the word on “how to buy”.

Now I’m as skeptical as Jason Busch of SpendMatters and Doug Hudgeon  of Vendor Management (Renamed Contract Capital Management, archived on the WayBackMachine), but I have to admit that I’d like to “… Imagine a world where it’s easier to follow the rules than to break them. Imagine receiving accolades for providing users with an easy system for what should be an easy process: buying what they need, when they need it. Imaging deploying … a complete requisition to order system with best-in-class usability and collaboration features …“.

Now, I was lucky enough to get a webex preview of this system last Tuesday and would like to say that it is looking really good. A web-based solution, your buyers can open their browser and log in to a procurement portal customized to their needs.

On the main page, besides your usual main bar, news section, and intranet document access, you have an RSS-based news feed which is always automatically up-to-date, a one-stop google-style search-box that you can use to search for information and items in your approved purchase catalog, and an ask-an-expert question box that will submit questions to an in-house expert. Once answered, these best practices will be institutionalized in a dynamically evolving FAQ. In addition, instead of forcing a rigid organizational structure on your best practices and policies documents, news items, and catalog items, it offers the concept of a self-updating “tag cloud” that shows users what index terms are currently in common use and allows them to evolve the indexing methodology to what they feel comfortable, and productive, with as a team.

Furthermore, it also integrates one of the easiest-to-use shopping-cart based requisitioning systems that I’ve ever seen. (And I’ve designed a few slick offerings myself as a former e-commerce developer.) It’s easier then amazon’s “one-click”, since that’s only one-click after you’ve made multiple clicks through the site trying to fill your cart and only one click if you use all default buying options. Coupa’s offering lets you find an offering, add it to your requisition cart, and then add items to the cart in the cart screen based on integrated smart drop-downs and editable smart-search fields – it’s as easy as filling out a line on a purchase order. If you know what you need, you can go right to the cart, define what you want in the cart, have the line items appear, click “requisition” and off shoots an e-mail to your supervisor indicating an order is waiting for her approval.

Now you’re probably thinking … “If it’s that easy for a user, I bet it’s an administrative nightmare to keep it running”. Well, although Dave hasn’t released any details to me on the technology stack yet and I don’t know how hard it will be to install, I can say that keeping it up to date is pretty simple. Adding your catalog of approved items is as simple as sucking in a well formatted file or integrating with a PIM (Product Information Management) exchange on a push/pull model. Adding policy documents or news items is a snap. And approvals, nicely summarized on clear and crisp screens, are as easy as a mouse click.

The only thing that bothered me slightly was the fact that there is no separation between “catalog” and “contract”. However, from a procure-to-pay point of view, this is a brilliant idea (as long as you associate expiry dates with the catalog items). After all, you should not have items in your system that are not under contract or not approved for purchase, so the separation of these concepts would only add complexity to what would otherwise be a simple system (again, providing catalog items have an expiry date associated with your contracts and these catalog items disappear if those contracts do not get renewed).

Now, add all this to the fact that Coupa intends the total cost of system ownership to be 2x to 3x less then the cost of ownership of the typical e-procurement offerings from SAP and Oracle, and Coupa starts looking very attractive.

However, I have to agree with Doug and say that “ Dave’s chance of success depends entirely on the shape of his target market. If he goes after the most demanding customers in the spend management market with a version 1.0 system then he will have a long slog in front of him … ” but if he instead focuses on “ ‘overshot’ customers who do not require all of the features of the current suite of products or to non-customers who are excluded from the current suite of products for reasons of price or complexity … “, I think he has a great chance, especially if he focuses on the benefits a customer can receive by pairing his tactical e-Procurement offering up with affordable on-demand e-Sourcing suites like Iasta’s SmartSource suite (with release 7.0 slated for this summer) that covers the strategic aspects of the procurement function. After all, low cost on-demand sourcing software plus low cost procurement software (which can be hosted on-demand as well) equals a full Total Value Management e-Solution (on-demand) at a low cost, and this is a powerful proposition for small to mid-market firms that really need a world-class solution but can’t afford an IBM, Ariba, Emptoris, Oracle, or SAP to make it happen.

Purchase Automation

Today we are going to talk about purchase automation and review how it helped Fluor Hanford transform their sourcing organization, as described in the article “Empowering End Users” in the latest issue of Inside Supply Management.

Fluor Hanford developed a tool that, among other benefits,

  • provided visibility on existing material inventory levels throughout the company,
  • reduced transactional involvement,
  • took greater advantage of the cost and process savings offered by the purchase card system, and
  • drove additional price reduction through supplier integration.

This allowed the organization to reduce redundant buying by about $300,000 in a twelve month period, the average per transaction cost by 68% (to $34 from $106), and convert all sourcing areas to an Electronic Commerce Agreement.

As we discussed last Wednesday, the ultimate innovation in procurement evolution is the purchase order free supply chain, but just like you can’t go from zero to sixty in a sports car, you can’t go from no automation to no purchase orders in a single step, it’s a process, and the real innovation is in continuous process improvement, with streamlined automation the best practice first step.

Outsourced Innovation

Back in 2001, pharmaceutical Eli-Lilly funded a new endeavor by the name of Innocentive as a way to connect with brainpower outside the company – specifically, people who could develop drugs and speed them to market – and threw open the doors to other firms eager to access the network of ad-hoc experts. These companies post their most ornery (scientific) problems on InnoCentive’s Web site and anyone interested on the network can take a shot at cracking them, for a prize that ranges from $10,000 to $100,000 per solution. To date, more then 30% of the problems on the site have been cracked, which is 30% more problems than would have been solved using a traditional in-house approach (since these companies typically post the problems only after their internal R&D team has taken a shot and failed).

Furthermore, a study by Kaim Lakhani, a lecturer in technology and innovation at MIT, and his coauthors that surveyed 166 problems on Innocentive, found that “the strength of a network like InnoCentive’s is exactly the diversity of intellectual background” and that “the odds of a solver’s success increased in fields in which they had no formal expertise”. Why? He believes it is due to a central tenet of network theory, “the strength of weak ties”. The most efficient networks are those that link to the broadest range of information, knowledge, and experience.

Outsourced Innovation works – companies like Colgate-Palmolive, Boeing, DuPont, and P&G are using it to reduce costs and propel innovation forward. For example, Colgate-Palmolive paid an InnoCentive member who found a solution to a fluoride powder injection problem a mere $25,000, a fraction of what it could have cost Colgate-Palmolive to dedicate their R&D team to the problem until it was solved internally.

Furthermore, companies like Big Idea Group that bring together creative inventors with new ideas and innovation-driven companies looking to license new discoveries are also doing well. Big Idea Group has brought over 50 products to market.

Finally, some companies are bringing in systems built by third party experts to manage their innovation process and using these same companies to guide them. For example, companies such as Honeywell International, Reliant Energy, and Stryker use products and services from BrightIdea.com to jumpstart and manage their innovation processes. And it works. Honeywell reported a 300% return on investment within sixty days.

In other words, just don’t look inside your four walls for sources of innovation, look outside as well. You never know what you might find!

Procurement Lead Time Optimization

As I pointed out in my companion post on e-Sourcing Forum today (WayBackMachine) today, Lead Time Optimization, or applied Total Value Management Decision Optimization, is another innovative capability that some leading sourcing organizations are latching on to.

When you translate Lead Time Optimization, which Zara has used to design a flexible supply chain that allows the company to take a garment from design through the manufacturing process to store shelves in 10 days, to Procurement you focus not on maximizing profit but on minimizing costs against possible demand fluctuations.

In this scenario, you do not optimize your awards on a forecasted demand value, but a forecasted demand range and the solution you select is not the lowest cost solution at any specific demand point but the solution which maintains a lower cost over a demand range. The solution you select will, on-average, be lower than other solutions and yield a solution that is expected to be near-optimal regardless of what happens.

This requires a tool that allows you to capture not only all of your business constraints and supply chain flexibility requirements, but the costs associated with new suppliers, supply base consolidation, and mixed transport options. This in turn requires the ability to define global costs, cost modifiers that specify transportation mixes, and what if scenarios to take different possibilities into account. Outside of SupplyChainge’s (now Infor’s) offerings, these tools are rare, but I know for a fact that Iasta is pursuing a solution that will incorporate many of these best practices. I personally can not wait as there are too few players in the decision optimization market place and I personally think that many needs are currently going unmet because of it.