Category Archives: X-Mas

On the Second Day of X-Mas … (Cost Avoidance Basics)

On the second day of X-Mas
my blogger gave to me
two boxing gloves
and a lesson in strategy.

The first boxing glove that I hand to you, to help you beat down proposed price increases, is market and category intelligence. For those of you who have been following the blogs for a few years now, you’ll recall Charles Dominick’s insights over on Supply Excellence a couple of years back in Caveat Emptor: Economic Indices Could Be Misleading You and Supply Market Assessment 101 where he noted that a single commodity index alone does not justify a price increase (or decrease) for that matter.

To truly understand when the price of a part should be rising (or falling), you have to truly understand the marketplace and the component (and raw material) breakdown of the part you wish to buy. The best way to understand this is with the new category intelligence offerings that are being put forth not just by the traditional vendors (like Ariba Supply Watch) but niche vendors with particular specialities like Denali Intelligence and Power Advocate.

Even when buying refined raw materials, to accurately determine a price you need to know where the supplier is buying from, the relevant cost indices of the raw materials in those regions, the relevant exchange rate between your supplier’s supplier and your supplier, it’s expected stability, the relevant exchange rate between your supplier and you, and it’s expected stability. An increase in the steel index in the U.S. is irrelevant if your supplier buys its steel in China. Also, the cost increase in a commodity can often be offset by a recent currency devaluation. Therefore, your first defense against a commodity price increase is a deep understanding of your should-cost structure, gleaned from good category and market intelligence, which will include a supplier’s cost structure.

The second boxing glove that I hand to you, to help you beat down proposed price increases, is a good strategic sourcing process that you can use to find alternative sources of supply. This process should take advantage of the readily available supplier networks that are out there on sites like MFG.com and ThomasNet Purchasing Tools and should be enabled by cross-functional teams that will allow you to quickly and efficiently work through a best-practice sourcing process. After all, even if there are genuine reasons for a cost increase, but your supplier refuses to collaborate to keep costs down for both parties, sometimes you will need to find an alternate source of supply.

On the First Day of X-Mas … (Sourcing Strategy Selection)

On the first day of X-Mas
my blogger gave to me
a lesson in strategy.

Even in these uncertain times, everything should be sourced.

As I said before, two years ago to the day in fact, this doesn’t mean that you should apply an intense multi-stage strategic sourcing effort to everything you buy, but that you should have a strategy for dealing with every category — since that’s the key to success across the board. Some categories will be tackled with negotiation, some with strategic sourcing decision optimization, some with reverse auctions, and some with spot buys.

One way to start is to breakdown your spend by category (direct, outsourced, indirect/MRO) and part type (commodity, custom part, or strategic part). This gives you the following methodology grid:

Part Type/Spend Direct Outsourced Services Indirect / MRO
Strategic Collaboration with a small set of strategic suppliers Dedicated Contract Owner Collaboration with a best-in class provider for each category of services
Custom Decision Optimization on a Pre-Qualified Set of Suppliers Managed by a Strategic Outsourcing Provider Managed by a Senior Sourcing Professional
Commodity Reverse Auction Multi-Stage RFX Lowest Bid

For direct and indirect spend, you can also approach the problem by opportunity type:

Opportunity Methodology
Too many vendors Spend consolidation with 2-3 vendors
Too few vendors RFX to add vendors
Insufficient vendor knowledge RFI
Insufficient solution knowledge RFP
Insufficient vendor bids RFQ
Insufficient bid movement Auction
Complex bids / Constraints Decision Optimization
Contracts unavailable Contract Management
Unmonitored contracts Procurement Audit
No spend baseline Spend / Invoice Analysis
Overly complex category Disaggregation
Uncoordinated Sourcing Efforts Program Management

And, as Charles (of Next Level Purchasing), Eric (of BIQ), and I have said before, you should segment your opportunities into quick hit opportunities (that can be accomplished by an invoice review or quick reverse auction event), near term strategic sourcing opportunities (that can be accomplished by a multi-round sourcing event employing sophisticated negotiation and decision optimization techniques), and longer term supplier relationship / collaboration opportunities (that require changes in methodology and production). This allows you to get some quick wins to fund your efforts, some near term wins to demonstrate the long-term effectiveness of a strategic sourcing program, and long-term wins to bring continued success in the years ahead.

Although it’s hard to say with complete confidence what the best methodology is for any given organization without knowledge of the organization and its needs, it is easy to say with complete confidence that the existence of a methodology is sometimes more important than the actual methodology itself as organizations with well-defined methodologies for sourcing consistently outperform those without. (Just like organizations with well-trained and certified teams outperform those without consistent training and experience.) Furthermore, these organizations will tweak the methodology over time based upon experience and continued learning until they end up with a best-in-class approach to organizational supply management.

The 12 Days of X-emplification: Prologue

Last year, I brought you the 12 days of Christmas, which went as follows:

On the twelfth day of X-Mas
my blogger gave to me
an ounce of cunning,
another vendor hyping,
blog posts worth keeping,
spend vendors lancing,
thoughts for a shilling,
strategies for winning,
tactics for saving,
five golden rings,
four little words,
tri-focal lens,
two boxing gloves,
and a lesson in strategy.

This year, in the spirit of giving, and in the spirit of Questions to Ask your Optimization Vendor, the doctor exposes the elephants in the room (Part II), and the doctor goes mental (on Auctions and on Optimization), I’m going to give you twelve posts on twelve different sourcing and procurement technologies and services that expound upon the questions you should be asking, the answers you should be expecting, and, most importantly, why, so that when you set about choosing a technology to help you with your sourcing and procurement challenges, you choose the right one.

Now, I know that Procuri and some other vendors put out a series of RFP template documents, that included The Sourcing RFP Template, The Supplier Management RFP Template, The Contract Management RFP Template, and The Spend Analysis RFP Template and that some of you might think that these posts are therefore unnecessary, but I assure you that the opposite is true. The problem with these RFP Templates is that they were written from a feature perspective, and were designed to make the sponsors look good (whether the sponsors want to admit it or not). The reality of the situation is that the number of features a product offers is irrelevant if it doesn’t support the key processes you need it to support to add value to your business. In other words, a product with only 100 features could be many times better than a product with over 1000 features if the product with 100 features supports the ten functions you need to support and enable your best-practice based business processes. For example, it doesn’t matter if a spend analysis package comes with 100 reports out of the box if you can’t build a template for the one report your boss demands to see every week.

Thus, when it comes to the technologies you use, or should use, every day, I think it’s time that you as a buyer knew the questions you should be asking, and not necessarily the questions the vendors want you to ask. Then you’ll be in better shape to select the right technologies to meet your needs.

Before the series gets started, I have a couple of things to take care of.

First of all, please understand that just because the templates I called out above (and those like them) are not appropriate templates for you to be using in your efforts to find the right product for you, this does not necessarily imply that the solutions offered by those same vendors are not appropriate for your needs. The solutions might be appropriate, and they might not. But unless you ask the right questions, how will you know?

Secondly, if you thought my blogologues were hard hitting as of late, and even a little scathing, as they used to say, you ain’t seen nothing yet. Although I’m not going to discuss specific vendors with respect to the technologies in the 12 posts that follow, I can guarantee that for any given post, there are going to be a number of vendors who are not going to be too happy after reading it – because their solution, whose last major update was five plus years ago, not only doesn’t cut it, it doesn’t even come close!

On the Twelfth Day of X-Mas (Happy Holidays)

On the twelfth day of X-Mas
my blogger gave to me
an ounce of cunning,
another vendor hyping,
blog posts worth keeping,
spend vendors lancing,
thoughts for a shilling,
strategies for winning,
tactics for saving,
five golden rings,
four little words,
tri-focal lens,
two boxing gloves,
and a lesson in strategy.

Now use it wisely.

Happy Holiday Season.

P.S. There will be no posts for the next two days.

On the Eleventh Day of X-Mas (Informance)

On the eleventh day of X-Mas
my blogger gave to me
another vendor hyping,
blog posts worth keeping,
spend vendors lancing,
thoughts for a shilling,
strategies for winning,
tactics for saving,
five golden rings,
four little words,
tri-focal lens,
two boxing gloves,
and a lesson in strategy.

Allow me to introduce you to Informance. A provider of Enterprise Manufacturing Intelligence (EMI) solutions, Informance delivers software and advisory services purporting to enable enterprises to achieve a higher level of supply chain performance with real time visibility and valuable insights into manufacturing operations by addressing the following business areas:

  • Global Visibility
  • Inventory and Replenishment Management
  • Production Efficiency and Cost Reduction
  • Revenue Growth and Capital Investments

These areas are addressed as follows:

Global Visibility
Customizable Performance Dashboard that consolidates information from all global manufacturing facilities and provides real-time information for every product line, down to the factory and individual factor assets.
Inventory and Replenishment Management
A software solution with built-in formulas to allow you to optimally balance cycle time, production efficiency, and production variability from an inventory viewpoint.
Production Efficiency and Cost Reduction
An analysis engine that allows data spanning multiple plants, product lines, and asset types to be analyzed individually and comparatively to allow the discovery of cost-saving transformational improvement opportunities.
Revenue Growth and Capital Investments
The Informance solution tracks utilization levels across the plant network in real time, allowing for real-time order reallocation to insure best usage of capacity and minimal lag time.

The informance platform is designed to support Lean Manufacturing and all that it encompasses, including Total Productive Maintenance, Kaizen, Single Minute Exchange of Dies (SMED)/Quick Changeover, and Overall Equipment Effectiveness (OEE). Now, we all know that Lean (Manufacturing) has been around for a while, and that companies have been selling Lean (Manufacturing) solutions since it has been around, so you’re probably wondering what’s innovative about a company like Informance, especially when lean (manufacturing) is so passé.

Well, even after meeting their CEO earlier in the fall on one of my recent Bay Area trips, I wondered too – but then they simultaneously attracted some of the best marketing and sales talent in the space, including Sudy Bharadwaj, of recent Aberdeen fame, so I took another look – and the answer is simple – usability. Most lean solutions don’t give you enterprise wide visibility, and fewer still are useable. Plus, the new sales, marketing, and business development teams are in the process of revamping Informance’s offerings to make them even more useable and more effective in an average deployment. I know you’re asking what? Why? After all, sales and marketing and business development at most companies exists for the sole purpose of determining how much money can be sucked out of a customer. But you have to understand the caliber and foresightedness of the team that Informance has pulled together. They understand that the best way to make money is to sell a solution that a customer wants – and that’s a solution that solves a problem. Sell them silicon snake oil, and you’ll never sell to them again. Sell them a solution that actually works, and they’ll keep coming back for new and better solutions and services.

So watch out for Informance in the coming year – I think you’ll be hearing a lot more about them.