Category Archives: X-emplification

The 12 Days of X-emplification: Day 12 – e-Payment

Sooner or later you have to pay the piper, and that’s why I saved this topic for last. Although e-Payment falls under the e-Procurement umbrella, that we covered back on Day 5, most e-Procurement solutions don’t handle e-Payments, and most e-Payment solutions are actually stand alone solutions. Thus, it’s important that this topic be covered on its own.

Since the underlying concept of e-Payment is relatively simple, like the post on e-Procurement, this post is going to be a little shorter than the other posts in the series, although it actually has twice as many questions. e-Payment, in principle, is not that complex and it just boils down to whether or not the system does what you need it to do (without costing you a king’s ransom).

1. Does it integrate with your ERP and/or e-Procurement Platform?

If it doesn’t integrate, there should be an easy, well-defined methodology for getting invoice data out of your ERP and/or e-Procurement platform and the e-Payment data back in. Furthermore, if it doesn’t integrate directly, make sure to ask for a demo of the integration capability, with a test system that mimics your systems (and preferably a test system that you control), before signing on the dotted line. Remember, e-Payment, like e-Procurement is supposed to make things easier – if you have to re-key data, then it’s likely not any easier than whatever process you are using today.

2. Does it integrate with your AP system?

Your accounts payable system not only needs to track what needs to be paid, but when it was paid, how, and whether or not it was paid in full. Again, since you don’t want to re-key data, you want a clear, easy integration path. In this case, batch export and batch import using XML files is sufficient, since AP doesn’t necessarily need real time status, but you need a mechanism that is as seamless and easy as the mechanism that integrates the system with the ERP and/or e-Procurement system used by procurement on a day-to-day basis.

3. What level of volume can the system support?

If you make a lot of transactions over the course of a day, you don’t want a system that craps out if you try to put more than one transaction through a second. In particular, since you will have peaks and troughs, and since your goal is to grow your business, you want a system that can reasonably support five to ten times your peak activity today. Ask for benchmark results conducted or certified by a third party – you want to know the system is up to snuff.

4. Does it detect duplicates?

You don’t want to be paying the same invoice twice – because if it’s a less-than-reputable supplier, you might have trouble getting the payment back or getting a credit towards future purchases – and this is assuming you can even identify the duplicate payment at all! If it’s less than a certain percentage of spend, your accountants might think it less costly to write it off as a loss than try to hunt the error down. Since this will negatively affect your implemented savings metrics, you want to be sure this doesn’t happen.

5. What is the true cost of the system?

Since many e-Payment systems are priced per transaction, either a fixed rate for each transaction or a percentage of each transaction, you want to be sure you have a good handle on what a system is going to cost you before making a decision. Ask them for complete purchase, installation, operation, and maintenance quotes and a sample calculation based upon your expected throughput. Then do your own calculations.

6. How are rejected transactions managed?

Not paying the piper is generally not an option, especially since you never know what rats he might lead your way if you don’t, so you want to make sure that all rejected transactions are appropriately caught, flagged, and managed. If it was a system error, it should be retried after a small period of time has elapsed. If it was an account error, it needs to be flagged and brought to the attention of a human being to correct the information. If it was a lack of funds error, all payments in the queue need to be put on hold until the issue is resolved.

7. What types of payment are supported?

Electronic check / ACH, wire, P-card, credit card? If you’re locked into only one or two methods, and the methods aren’t right for you, it doesn’t matter how good the system is technically – it’s not the system for you.

The 12 Days of X-emplification: Day 11 – Supply Chain Optimization

On Day 2 we talked about strategic sourcing decision optimization, the technology you need to make the right buy given the myriad of constraints you have to adhere to and the large number of costs and bids you need to take into account. Today we’re going to talk about supply chain optimization – the process of optimizing your supply chain, or distribution network, to minimize costs and maximize value.

Even though the only way to truly get the optimal buy every time is to use the optimal supply chain, the reality is that you can’t transform your supply chain overnight for every bid. The realities are that it takes time to acquire, lease, or dispose of distribution centers and warehouses, that you have contracts in place with suppliers and carriers for anywhere from three months to three years in a typical organization, and that changing global distribution patterns requires time to research the regulatory, documentation, and taxation requirements of different countries and trade zones. Thus, when it comes to strategic sourcing, the best you can do is optimize the buy within the supply chain you have available to you today. However, if you can improve the supply chain, then you can reduce your costs and save even more across all of your buys.

Supply chain optimization is something you should do on a regular basis. Whereas in the past, experts would say that it is something you should do only once every five, seven, or ten years – today it is something you should do every year! Today’s optimization solutions are a lot more powerful than they were ten years ago and allow you to build much more sophisticated models, which are now usually solved in hours compared to the weeks that was once required for models of this magnitude.

Even though it probably doesn’t make sense to buy and sell manufacturing and distribution center assets every year, there’s nothing stopping you from modeling the cost associated with such a sale, or modeling the cost of breaking or failing to renew a lease, of each asset you have if new options present themselves, such as alternative low-cost distribution centers or the possibility to sell a manufacturing center to an outsourced contract manufacturer who might be able to manage it more cost effectively. Today’s solutions can model all of the costs associated with acquiring, running, and disposing of an asset in your global distribution network, and can help you truly identify what the optimal network is for you at any given time for any given period of operation. (Thus, every year you can redo the analysis and assume that the network is only going to remain stable for the next year.) You can also tell a good supply chain network optimization solution that certain aspects of the network aren’t allowed to change and that certain aspects of the network must change and have it tell you whether or not your current network is optimal or if you should consider making some changes.

So how do you identify the right supply chain modeling and optimization solution? As with any other technology, you ask the right questions. The following questions should be enough to get you started and help you identify the real solutions with the power you need from the imposters.

1. Can the solution model your supply chain as is?

This is a question you need a resounding yes to. How do you know how much a potential network redesign is going to save you if you don’t even know how much your current network design is costing you? This brings us to …

2. Can it derive a cost baseline?

Once you’ve modeled your current network, the solution should be able to run the model and tell you how much your network should be costing you. (If your current network is actually costing you significantly more, than either you have some inefficiencies in your processes to work out or you have not accurately modeled your network and need to revise or expand your model.)

3. Can the solution support the construction of a model depicting a desired state?

If you have a solution in mind, you should be able to construct that solution and derive a cost baseline for that solution. Similarly, you should be able to define your own modification of a suggested network design and derive a cost baseline for that modification. After all, it’s not the lowest cost solution, it’s the highest value solution – and that’s not necessarily the solution with the lowest cost today, but the network design with the expected lowest cost, and highest value, over the expected lifetime of the network.

4. Can it derive an estimated cost of any model you specify under a projected range of activity?

The reality is that any given solution is only optimal for the specific (set of) demand value(s) and the specific (set of) cost(s) that the model is defined on. However, you’re optimizing your network for a future period of time, where demands are only forecasts that could change. Thus, you want a solution that also has simulation capabilities and the ability to run multiple models under multiple demand scenarios and cost differentials to allow you to come up with a network plan that is robust and most likely to save you money over the range of scenarios that are most likely to occur.

5. Can it allow you to drill down into the expected cost differential between two models and determine why?

It’s not enough to know that one network design is expected to cost 2M more than another, you also need to know why, especially if the more expensive network design is the one you’d prefer. If you know that most of the costs are associated with lease payments, then you know that if you could negotiate a lower lease price, you could end up with a network design that you like and that is only slightly more than the lowest cost solution. If such a design also has lower risks, then it has a higher value and you can choose it.

6. Can it help you optimize your supply chain improvement investments?

Converting from one network design to another will occur a lot of upfront costs associated with asset acquisition, lease, and disposal as well as penalties if you have contracts in place that you need to back out of early. These up front costs need to be covered somehow, and if you only have a fixed amount of capital available for supply chain improvements, you want the model to be able to take that into account and the solution to provide you with different, near-optimal, improvement possibilities that are within your budget today.

7. Can it model the impact of fixed asset disposal or cost reduction on projected service levels? inventories? greening?

When optimizing your network, it’s not just about cost and risk, it’s also about service optimization, inventory optimization, supply chain greening, and a slew of other initiatives. It’s important that such a solution not only allow you to specify all of your constraints, but allow you to calculate whether or not you’re trading service level or inventory risk or carbon credits for that cost reduction.

8. Can the solution support sensitivity analysis?

Building on the last question, if the system tells you a certain network design is likely to reduce your projected service levels by 1%, you want to know how much money is required to bring that down to any threshold between 0 and 1%. Maybe you only have to sacrifice 25% of your maximum savings opportunity to achieve a service level decrease of only 0.1%. That could be a good trade-off – a 0.1% decrease in projected service levels is much better than a 1% service level decrease, especially when it costs you only 25% of your maximum savings potential to achieve a projected service decrease that’s ten times better than the projected service decrease that you would be stuck with if you went with the greedy solution.

The 12 Days of X-emplification: Day 10 – Trade Data Management

Trade Data Management is a broad topic, and means different things to different people. As far as I’m concerned, Trade Data Management is the process of tracking all of the data that you need to manage the global trade cycle, as defined in the Global Trade Primer on the e-Sourcing Wiki.

Global Trade is quite involved. It encompasses supplier selection and management, e-Procurement, transportation, import & export, government organizations, third parties, and a host of regulations depending on where you’re shipping from, where you’re shipping to, and where you’re passing through in between. However, since most shops already have e-Sourcing, e-Procurement, Supplier Management (SRM/SPM/SIM), and logistics solutions, when they look for a global trade management solution, they are specifically looking for a solution that can capture all of the data they need to produce the documentation needed by each organization that they interact with (government, carriers, and other third parties), produce those documents for them, and automatically submit electronic versions of the documents to those systems capable of receiving the documents automatically. Secondarily, they want a system that can help them with export classification, tax calculations, and regulatory requirement identification. Thus, we will specifically focus on those requirements in the questions that follow.

1. Does the vendor they have a software based solution, a blended software and services solution, or is it entirely services?

Although the first two choices can be equally adequate, be wary of a services only solution. Not only do you need to produce a lot of documents when trading internationally, but you need to have those documents submitted in a timely fashion, especially to government agencies that can stop, confiscate, and even destroy your goods if you don’t follow the rules. How fast can a purely services company turn these documents around, especially given the sometimes dynamic and unpredictable nature of global trade?

2. Does it address import and export classification (ETS) and corresponding tax rates (HTS)?

Let’s face it – import and export codes can be bewildering. Without the right expertise, you might find that your product apparently fits the requirements of three or four different codes, especially if there have been recent changes in the country you’re importing into or exporting from. However, given that each code might require different documentation requirements, and, more importantly, that each code might be associated with a different tax rate, it’s critical that you select the right one. Unless you have an expert on staff, you want a service provider that can provide you with that expertise.

3. Can it produce the documentation required by government agencies? Can it submit those documents directly into existing systems?

It’s one thing to track all of the data, it’s another thing to create the forms – automatically. You want a partner that not only tracks the data you need for every form you might need in the global trade cycle, but that automatically creates those forms for you and, when possible, electronically submits those forms to the appropriate government agencies. For example, those companies operating in the US need to submit their manifests to ACE before the truck reaches the border.

4. Does the solution support appropriate performance metrics?

It’s not just the services offered, but how effective those services are. You want a company that tracks its performance by customer and globally and makes a continual effort to improve its performance over time. Completeness, on-time delivery, cycle time reductions, and other meaningful metrics need to be tracked and available to you at all times.

5. Does it support all available transportation methods adequately?

If you’re global, chances are you’re shipping by land, sea, and air and using multiple carriers and methods for each transportation method. For example, you might have your own trucks for local shipments between a warehouse and your retail location, a 3PL for shipment from a supplier to your warehouses, and an agreement with Fedex for customers who shop on-line for home-delivery. You want a partner who is adept at managing all transportation methods that are available to you.

6. Does it support regulatory data requirements such as RoHS, REACH, WEE?

Let’s face it – it’s not just customs and associated regulations you have to comply with when trading globally, it’s also a slew of regulations that govern the safety and material content of your products. You want a service provider that can track all of the data required to produce the necessary documentation to show that you are in compliance with each regulatory code that can be applied to your products.

7. Does it support your vendors and partners?

If you use a 3PL, you want them to be able to access the system to print off the documents you need, and if you use contract manufacturers, you want them to be able to input the data required to demonstrate that you are in compliance with the appropriate regulations. Thus, it needs to be a web-based system that is accessible to those who need access.

8. Does it integrate with your visibility solution?

Hopefully you’ve realized that if you’re not tracking what’s going on in your supply chain, then you’re just asking for a major disruption, given that the average company is now experiencing at least one major disruption a year. (Furthermore, the frequency of disruptions to those companies not actively engage in supply chain monitoring and risk management is expected to increase significantly over the next decade.) If you have, then you’re in the process of implementing a visibility solution that lets you track the status of each order and alerts you when something does not ship or arrive at the expected time. For this type of system to be useful, it needs to track all of your supply chain data – and this includes the document submissions and information requests managed through your trade data management system. So make sure it can implement with the visibility solution you have, or the one you plan to implement (if you haven’t started yet).

The 12 Days of X-emplification: Day 9 – Strategic Sourcing Services

Tactical procurement doesn’t cut it anymore. It doesn’t even come close. You need to source strategically, and if you’re not sure how to do that, you need to get help. There’s nothing wrong with asking for help from someone better than you (as long as you make the effort to learn from them so that you will eventually become reasonably self sufficient), but you better make sure they are better and more experienced in the categories you’re handing over before you sign the contract. After all, just because a firm has been in the strategic sourcing business for ten years, it doesn’t mean they’ve ever sourced the categories you’re looking for (especially if they specialized in automotive categories and you’re in retail), nor does it mean that the people who will be assigned to your project are those with the most experience in the categories you need the most help with. Thus, it’s doubly important to ask the right questions, and get the right commitments, before selecting a services provider to help you with your strategic sourcing projects.

1. What experience do the consultants who will be performing the work have?

Every decent size consulting firm (including boutiques) has their standard pitch deck which will read something like “hundreds (or thousands) of years of strategic sourcing support … ten (or twenty) plus years per sourcing consultant … average 10 – 15% savings across all categories … average 20 – 35% savings in these categories relevant to your vertical … etc.”. What’s important is how much experience the consultants who will be performing the work have in general, how much they have in the categories they will be sourcing, and what results they expect to get. Be sure to get resumes of the consultants who will actually be performing the work, and to reserve the right to reject changes in the roster if they are not available at the project start date. Otherwise, you might find that you’re baited with the grey-beard but on the day the project starts you end up with a clean-shaven MBA straight out of school. He might be the smartest MBA you’ll ever meet, but unless the grey-beard is also on the project imparting his wisdom, whether or not he succeeds may ultimately depend on his luck. (Given what some of these firms charge per day, you don’t want your success to come down to luck!)

2. What implemented savings have they achieved? Which customers can you call to back this up?

A negotiated savings of 25% is just that – a negotiated savings. How much of the projected savings was the customer actually able to implement? If the customer was only able to implement 10%, then it’s really only a 10% savings. The firm you want is the one that tracks implemented savings and isn’t afraid to give you some customer references you can call to verify the numbers they give you.

3. How does their approach differ from everyone else’s? Does their answer set off the bullshit detector?

There’s a number of good answers here. The point of this question is to establish their credibility. The fact of the matter may be that their approach is the same approach used by the big guys, like AT Kearney or EDS, or the boutiques, like Denali and Archstone, and that’s ok. Most of the strategic sourcing approaches out there are similar, and, more-or-less, equally correct. What it usually boils down to when selecting between these firms is their experience, their ability to execute, and their willingness to work with you. Thus, it’s okay if they use the same approach, as long as they are willing to be up-front about it (and be able to explain why they think it is the right approach).

To be honest, you probably don’t want an answer that’s completely different from the answer everyone else is giving you. The standard approaches have been working quite well for a while now, and though I believe that constant innovation is critical to continued to success, when it comes to services, sometimes the best route is incremental improvement. After all, most organizations are resistant to change and if the approach is too radical, it could scare off some suppliers – and since you never know who the right suppliers are for you until you go through the process, this usually isn’t a good thing.

4. Do they use their own platform, a third party platform, or your platform? If they plan to use your platform, how do plan to do better than you did? If they plan to use a different platform, why is it more appropriate?

Each of these answers is acceptable, as long as the platform supports the appropriate processes, they understand how to maximize the effectiveness of the platform, and how to get you the data you need when the project is over as well as how to import the data they need. If they use your platform, then you don’t have to worry about getting the data export from someone else’s platform into yours. If they use their platform or a third party platform, then you need to make sure they have a plan for exporting the data in a format that you can archive it for future reference (and comparison purposes when you resource the category when the contract expires). If they use a third party platform, be sure to place extra emphasis on their responsibility to insure that your confidential information is protected.

5. How flexible is the organization in providing sourcing support?

When it comes to sourcing, especially where complex categories are required, it’s not always possible to keep to the fixed schedule you outlined before the project started. Sometimes you need to escalate the project priority and start it early, and sometimes you need to delay the project. During the project, you might have to shorten or extend phases due to unexpected occurrences in the external environment such as natural disasters, demand spikes, or supply shortages. The service provider should have the flexibility to accommodate sudden and unexpected changes during the project as well as the flexibility to take on additional projects as the need arises.

The 12 Days of X-emplification: Day 8 – Market Intelligence

Market Intelligence is defined as information relevant to a company’s markets, gathered and analyzed specifically for the purpose of accurate and confident decision making in determining market opportunity, market penetration strategy, and new market development metrics on Wikipedia. For our purposes, it is essentially the information you need to make the right buy from the right supplier at the right time.

Before we get to the questions, I should point out that as we move away from technology into services, the number of questions with one right answer drop dramatically and it boils down to not whether the answer is right, but whether the answer is right for you. Thus, before you select a service, it’s important to know what you need so you will be able to properly identify what it is that you are looking for.

1. Does the firm undertake its own benchmarking – and how extensive is it?

Benchmarking is defined by Wikipedia as a process in which an organization evaluates various aspects of a set of processes in relation to best practice, usually within their own sector. In the context of a market intelligence firm, benchmarking is the process of not only tracking changes in raw material prices, but also tracking how well your projections have tracked over time. This allows the firm to continually improve their data collection and forecasting methods, which in turn allows them to continue to provide you with better intelligence over time.

If the market intelligence firm isn’t benchmarking their performance over time, then what value is their data providing you versus projections you can read in your average industry publication?

2. Does the firm track supplier financial performance over time?

You don’t just want intelligence on the raw materials and components that you buy, you also want intelligence on the suppliers that provide them. You don’t want to award a contract to a new supplier only to find that they go out of business three months later. Nor do you want to continuing doing business with a supplier when their performance is dropping.

3. Does the firm have commodity and category specific intelligence?

If you’re just looking for current pricing trends, then any data source will do. But if you’re looking for an understanding of why those trends came about, whether or not they’re likely to persist, and what changes in the marketplace could bring about a rapid change, you need to go to experts. Furthermore, if you’re basing your sourcing decisions on key categories on this intelligence, you better make sure you have the best.

4. Does the firm keep track of changes in industry regulations, supply, and demand that could cause all of their projections to be considerably off? And provide me with that data on a timely basis?

You’re looking for intelligence that tells you not only how things are, but how they are expected to be, at least in the short term. These projections are going to be based on certain assumptions. If changes in the industry or environment nullify those assumptions, chances are prices are going to change – maybe even dramatically. You want a market intelligence firm that tracks all of the relevant industry regulations, environmental conditions, and supply availability information and notifies you if something changes so that you can re-analyze the situation and, if necessary, take appropriate action.

5. Does the firm have models that break down cost components and explain discrepancies?

If the price of a commodity increases by 5%, there’s a reason. Typically, it’s because either the costs of one or more component raw materials have increased, or the cost of labor has increased. Without appropriate cost models, the firm supplying the market intelligence will not be able to explain why. Furthermore, you will not be able to model what the impact is of copper going up 5% if you don’t know how much the cost of copper is contributing to each of the commodities that you buy.

6. What types of information is included? Pricing Trends? Market Trends? Best Practices?

Most market intelligence will include pricing trends. However, in order for you to make good sourcing decisions, you also need to be aware of significant market trends. But if you really want to get the most from your market intelligence firm, you also want them to report on best practices being employed throughout the industry that you can use to improve your sourcing efforts.

7. How current is the intelligence?

In order for the intelligence to be useful, it has to be recent. If you’re engaging a market intelligence firm to help you track prices and trends on raw materials, commodities, and services that are critical to your organization, you want to know that the firm is redoing their category and commodity reports at least yearly, providing market updates at least quarterly, sending you important alerts at least monthly, and tracking relevant data daily.

8. Which audience is the intelligence focussed on? Corporate Research? Financial Analysts? Sourcing Professionals?

Although all types of market intelligence is important, as a sourcing professional you need intelligence relevant to you. Make sure the reports that the firm produces are for sourcing professionals first and research analysts second.

9. Is raw data access available?

Maybe a report includes the analyses you want to see, and maybe it doesn’t. But if you can access the raw data and the cost models, you can do your own forecasting and analyses based on different what-if scenarios and see how much a potential award could save you, or cost you, if certain changes happened in the marketplace.

10. Does the provider offer custom research?

Most market research firms have a set of raw material, commodity, and service categories that they track by default. Although these raw material, commodity, and service categories may be sufficient for your initial needs, the situation could change in the future. Unless you want to build relationships with multiple market intelligence firms, and pay the premium that is associated with retaining multiple firms, you might want to select a firm up-front that will produce custom research on an as-needed basis.