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One Hundred and Forty Years Ago Today …

Thomas Edison received a patent for the Mimeograph, one of the first low-cost duplicating machines that was commonly used to print small quantities in office work, classrooms, and even churches. It was essentially the predecessor to the modern photocopier and allowed for widespread distribution of information and communication. While primitive by today’s standards, it was advanced by 1870′s standards and a critical step towards the information revolution and a boon to journalism everywhere.

And while SI typically leaves its history lessons to the weekends, this is important enough to be noted on a week day.

Economic Sustentation #10: Mini-Trends and Macro-Trends

As noted in our initial damnation post, trends are the foundation of forecasting, but they are also the foundation of disruption when they change unexpectedly. When it comes to Procurement, the relevant trends may be consumer demand trends, inventory trends, market trends, or any other trend that Supply Management believes will impact its operation. Trends are damming because they are truly can’t live without them, can’t live with them events. Sort of. And we’ll discuss shortly.

First we need to point out that, when it comes to trends, there are two types of trends. Macro-Trends and Mini-Trends. A macro-trend is a large-scale, sustained shift in whatever is being measured. It could be a sustained consumer shift away from landlines to mobile phones as the primary means of voice telecommunication. It could be a sustained shift from overstocked warehouses to just-in-time delivery across retail chains. Or it could be a sustained shift upwards in the value of cotton, rice, coffee, or other staples where demand, and reserves are shrinking.

Mini-trends are emerging trends, often not yet acknowledged by the media or market, that may or may not culminate in large-scale, sustained shifts in the marketplace like their macro-trend counterparts, but are still likely to have a sustained impact over a period of time long enough to be significant and have the potential, in the future, to become, or replace, an existing macro-trend. Good examples of mini-trends that do not culminate in large-scale, sustained shifts are fashion trends — such as bell bottoms, balloon pants, hip huggers, long waistcoats, or any other fashion garment that is here today, gone tomorrow. Examples of mini-trends that became macro-tends are walkmans (that helped the cassette tape industry take off), cell phones (which have migrated from business phone to home phone), and gluten-free food products. Initially, these were all small markets but all are now global.

Both can make, or break, a company, and the ability to deal with these trends is what makes, or breaks, a great Procurement organization. But how does Procurement use trends to its advantage?

1. Identify marco-trends early in their lifecycle.

The sooner the organization is aware of a macro-spend, the sooner the organization can begin to insure products are appropriately designed, sourced, and inventoried to support marketing and sales through the macro-trend. The Procurement leader will have to work with the Chief Strategy Officer to select an appropriate market research firm to help the organization identify the appropriate emerging macro-trends, so that Procurement can figure out how the organization will be prepared to deal with the macro-trends when they hit their peak.

2. Identify potential mini-trends in the incubator stages.

Min-trends rise fast, and disappear faster. An organization has to identify micro-trends that could become mini-trends as soon as possible, select those it is in the best position to deal with, and prepare ready-to-go mini-trend product/sourcing plans the same way it would prepare risk mitigation plans, so that as soon as a micro-trend (which can be thought of as a small-scale, localize, mini-trend) starts to expand (virally) into a mini-trend, the organization can put the plan into action. When a mini-trend springs up, an organization that wants to take advantage of it has to be ready to source at a moments notice. It can only do that if it knows what it needs, what suppliers could meet the need, what transportation options can get the products to market quick enough, and how it can maintain just-in-time capability for surges as long as Sales needs it too.

3. Enable Marketing to Influence the Trends.

If the market research identifies two potential mini-trends that could arise, help marketing find the right advertising agencies with the ability to create campaigns to influence consumers towards the mini-trend the organization can best support. And make sure marketing minimizes its spend so it always has the budget it needs when it needs it. This is a book on its own (and the reader should check out SI’s post on marketing procurement as well as the doctor‘s joint series with the anarchist over on Spend Matters Plus [membership required] on how to Master the Marketing Way [Part I, Part II, Part III, Part IV, Part V, and Part VI]), but the importance of the organization influencing spend, and Procurement supporting that cannot be underestimated.

Time to Remove e-Auctions from the Strategic Sourcing Toolkit

Time to face the music. There’s absolutely nothing strategic about them.

Strategic Sourcing is supposed to be strategic. Something that is strategic is something that is carefully designed or planned to serve a particular purpose or advantage. What is carefully designed about an auction, and where’s the advantage from a strategic supply management perspective?

Auctions are not a new invention. Recorded auctions are over 2,500 years old, having been recorded as early as 500 B.C. by Herodotus, who recorded the Babylonian auctions for women for marriage. Shortly after, Romans adopted the practice to auction off the spoils of war, including slaves. (So, not only are you using something non-strategic and ancient you are using something that had its beginnings in oppression and slavery. Think about that for a moment as you write your annual Corporate Social Responsibility report.)

The only difference between the auctions of old and the reverse auctions of today is that instead of selling, you are buying and asking bidders to progressively lower their bid until all but one drop out. And instead of oppressing people, you are oppressing corporations as sellers are told they do not get any business at all unless they bid the lowest, and adhere to that bid, no matter what the toll on them.

And when they were invented, there was no careful design. It was merely a way to close multiple transactions in a short time and get the best price for the best “merchandise”. No thought about how that best price would be obtained ever entered the picture — it was up to the bidder to figure out how he (yes, *he*) would honour his bid.

And there is no advantage. The advantage that auctions are sold on is “savings“. But, as per our last post on Savings Machine or Inflation Nightmare, there is no savings in an auction. None. Any savings identified are illusory at best, and hard costs that will have to be paid in the future at worst.

In fact, what you actually get is risk. Lots of risk. Quality. Compliance. Liability. And, depending on the auction, possibly a dozen other types of risk. How so? Download Sourcing Innovation’s latest white paper on The Dangers of e-Auction, sponsored by Trade Extensions, today and find out the many, many hidden dangers of e-Auctions which could quickly become Procurement’s worst nightmare as long as they remain in the strategic sourcing toolkit.

It’s Time To Rev Up Your Procurement Value Engine. But Do You Know How?

Procurement doesn’t exist to just buy stuff. Procurement exists, at least if it’s a modern Procurement organization, to identify and deliver organizational value. Long gone should be the days when Procurement, staffed by the island of misfit toys, existed only to process the paper work that allowed manufacturing to buy the parts it needed or the back office the paper and calculators required to do the day-to-day accounting.

But the identification of organizational value, as long-time readers of SI know all too well by now, is not always straight-forward. Every organization is different, and every Procurement function has a different level of organizational maturity. As per the classic Hackett Hierarchy of Supply, a supply organization could still be at the level of supply assurance, could have moved on to analyzing landed cost, may have begun its entry into the modern era with an analysis of TCO, might be poised to become a leader with a foray into demand management, or, and this is the highest level of maturity, may be focused on the art of value management.

However, delivering value takes more than just realizing that your function is to deliver value. It is understanding what value is to the organization and how Procurement can contribute to it. Simply put, one way of defining value to the organization is whatever allows the organization to increase its revenue potential. (More sales, more market share, more brand recognition and brand love, and so on.) One way of assisting the organization in the capture of this value is to deliver products, services, and knowledge that will assist the organization in strengthening its Unique Selling Points (USPs) or Unique Value Propositions (UVPs) that give the organization the competitive advantage it needs to increase its revenue (or profit) potential.

It is not easy to do, especially since a Procurement organization has to understand not only what it must do, why it must do it, and how it will achieve it, but how to be good at it. Few organizations get demand management under control and step up to the highest level of the pyramid. Fewer still can stay there as they will struggle with the how. And even if they occasionally understand the how, they may never master the art of being good.

If one wants to be good and drive to success, one has to have a vehicle powered by a finely tuned engine that can deliver value lap after lap around the sourcing track. Such an engine must be efficient, effective, and sustainable. Only then will Procurement be able to get good and stay good. So what does such an engine look like, what sort of value will it deliver, and how will it deliver that value?

For the answer, check out the new white paper co-authored by the doctor and the procurement dynamo, sponsored by Pool4Tool, on how to Boost Your Procurement Value Engine. Part I of a II-part series (with Part II coming out in Q3), this paper will give you the insights you need to understand the various levers you have to deliver true value and how you can do so in an efficient, effective, and sustainable manner.