the doctor Wonders Why The Elephants In The Room Are Often So Hard To See

This is sort of a continuation of last Monday’s blogologue where I wondered if the sourcing nation has a Prozac problem. While thinking about why the new solutions are being ignored when they should be the target of evaluations (and positive feedback, so that even if they don’t work for you today, they will tomorrow), it occurred to me that this is because there is a larger problem – the market is blind to what the true problems are, and most of the big vendors aren’t doing much on the user-education front. The reality is that if you don’t understand you have a problem, and in some cases a big problem, you won’t be looking for a new technology to solve it. Thus, the elephants in the room are often going unnoticed while the vendors focus your attention on the fuzzy bunnies.

In an attempt to make sure they don’t go unnoticed again, I’m going to pull down the blinds they’re hiding behind and expose you to three of the biggest elephants that your vendors might not want you to know about.

Optimization is not a set of reports that tell you the lowest cost supplier by unit cost or landed cost, the ability to calculate the cost of a random sample of award simulations and select the best one, or heuristically simplifying a model until you can run it in the framework provided to you by a third party provider that provides you with an engine – it’s the ability to allow an end-user to build a model that realistically models their situation, allows them to account for all of their costs and business constraints, and then solves that model using sound and complete optimization algorithms (such as those based on MILP) to come up with the optimal award across suppliers. Furthermore, it lets the user create multiple what-if scenarios to see what would happen if certain constraints were relaxed or new constraints were added and then lets the user compare those results side by side.

It’s not electronic invoice presentment and payment or supplier networks or e-Procurement that saves you time and money, it’s compliance – and that requires the ability to match invoices to items to contracts before an invoice is accepted and approved for payment. The fact that an invoice is from a vendor contracted to provide the items in question is not enough – office supplies distributors are notorious for overcharges and electronics vendors are notorious for not adjust pricing downward over time to insure their customers get the “best market price” that is in the contract.

Finally, when it comes to spend analysis, it’s the analysis! I don’t care how much cleansing, categorizing, and enrichment the latest product offers – it doesn’t mean diddly squat if you can’t do the analysis you need to do. Static top n vendors, top n categories, and top n commodity reports on one inflexible cube doesn’t cut it. You need to be able to build multiple cubes on the fly, on arbitrary dimensions of interest, and segment by range as well as rank. It’s not the top 10 suppliers with the greatest percent of spend, it’s the top 10 suppliers with the greatest variance in spend – chances are these are the ones overcharging you. It’s not the top 10 commodities with the greatest percentage of spend – it’s the top 10 commodities being bought off contract as this is where you need to curtail maverick spend first. It’s not the top 10 categories with the greatest percentage of spend, it’s the top 10 categories with the greatest variance in spend across departments or channels – as these are the ones that need better sourcing strategies.

So the next time someone tries to sell you a comparative reporting toolset on top of a simulation engine and pass it off as optimization, ask them these questions. The next time someone tries to sell you a supplier network or EIPP solution as the answer to all your procurement compliance problems, ask them how it automates three-way matching between invoices, goods receipts, and contracts and tags those invoices for human review that are questionable. And the next time someone tells you it’s all about the cleansing, say “no thanks, I’m looking for solutions, not religion“.

Sustainability Should Be Soldered Into Your Platform

I think we can all agree that sustainability is important – very important. You might be in business to make money, but the only way you’re going to make money is if you stay in business. The only way you’re going to stay in business is if you’re sustainable, because, otherwise, you risk running out of resources, money, or, and I’m not kidding, customers. The earth is finite, so it stands to reason that there is only a finite amount of any resource. A company has a finite amount of money, and wasting it is the quickest path to going out of business. Today’s consumer is concerned about the environment – harming it will drive them away, and with no customers, you have no business.

So how do you achieve this magic of sustainability? Well, you can achieve it the same way you achieve everything else in business – hard work, perseverance, and ingenuity. But the real trick comes in sustaining sustainability – and the best way to do that is to have not only supporting processes and methodologies, but a supporting platform as well.

A supporting platform can help you keep track of your initiatives which can range from your office recycling program to your global waste reduction initiative. Recycling efforts within a single large office building can save hundreds of thousands of dollars. As noted in “Building the Green Supply Chain”, the Boulder Community Hospital reduce, reuse, and recycle program saved the hospital $600K a year. On a global scale, Walmart saved 2.4M in shipping just by reducing packaging requirements. And Interface Inc, in their effort to move to a zero environment footprint, have saved more than 260M in the first decade of their sustainability program.

More importantly, it can also help you get control of your global sustainability initiatives when it comes to environmental impact reduction, social responsibility, and prevention of animal cruelty. Unlike internal waste reduction initiatives, which often do not exceed the complexity of making sure the used toner cartridges were shipped back to the manufacturer, global sustainability initiatives require you to also insure your supply chain does not violate the initiatives you commit to. Just because you don’t have a sweatshop, pump out toxic emissions in excess of the Kyoto protocol, or skin cows alive does not mean that your suppliers do not.

In order to insure that you have a supply chain in compliance with your initiatives, you have to track relevant information from your suppliers and have them track the corresponding information from their suppliers. This is an insurmountable challenge unless they can provide you with the information you need directly into your systems, as the average large company has dozens, if not hundreds of essential tier 1 suppliers and thousands of less critical suppliers. This requires a web based platform capable of securely collecting, storing, indexing, aggregating, and unifying all of the relevant information from each supplier.

Furthermore, depending on where you want to do business, sustainability might be more than just an initiative – it might be a fact of life. If you want to do business in the EU, you need to comply with REACH and RoHS, and possibly half a dozen other directives. California has introduced its own green legislation, and parts of Asia, suffering from severe pollution as a result of the rapid build up of manufacturing capability over the last few decades to meet the demands of American and European multinationals focussed on low cost country sourcing, may not be far behind. You have to not only maintain all of the documentation necessary for compliance purposes, but have to be at least 99.999% certain you are in compliance before making a shipment into the region. If even the tiniest removable part of your electronics system, such as the removable power cord, is not in compliance, your entire shipment could be blocked, seized, or destroyed.

This dictates the need for a platform that tracks not only all information related to your sustainability programs, but all product related information from raw materials through final production. This is the only way to minimize your risk of non-compliance. That’s why Aravo is Sourcing Innovation’s Vendor of the Week. As one of the first companies to offer a Sustainability Management Solution (SMS) tightly integrated with a Supplier Information Management (SIM) solution, I think they deserve to be recognized for tackling such an important problem.

The Seven Savors of a Sourcing Sensei

Everyone likes to talk about sourcing leaders and the great jobs they do – but try finding an article that talks about the fundamental qualities of a great sourcing leader, and that’s a whole different ball game. While it’s almost ridiculously easy to find dozens of articles on what a sourcing leader does, it’s very hard to find even a single article on what a good sourcing leader is.

It could be because everyone is assuming that the qualities that make a good leader are universal and the particular domain irrelevant. While there are some good arguments to be found that great leadership is a unique skill irrespective of problem domain, sourcing is not like any other business function. I believe it takes more than just being a great leader to be a great sourcing leader.

So what does it take? It takes a well-rounded individual with seven special skills, above and beyond what you’ll find in your average highly effective person. These skills are:

  • Experience
    First and foremost a great sourcing leader is experienced in sourcing. She’s spent time in the trenches, knows what sourcing is all about, and is more than capable of making the right call in tough times.
  • Customer Focus
    A great sourcing leader always has the customer in the back of her mind. Sourcing, like leadership, is essentially a service function and a great sourcing leader knows that.
  • Team Builder
    A great sourcing leader understands that the days of the lone warrior corporate hero who could carry an organization to fortune 500 lists with his charisma and genius are finally over and that the key to success lies not with her, but her team. She does her very best to make her team the best that they can be, constantly enables them, and gives them every opportunity for improvement.
  • Market Zen Master
    A great sourcing leader is in tune with the market and understands where it’s been, where it’s at, and where it’s going. Leader’s don’t react to market fluctuations, they predict them – designing and implementing strategies that allow the organization to not only align itself with the market, but keep slightly ahead.
  • Innovator
    A great sourcing leader is an innovator. She knows the name of the game is change and she can adapt to the situation as required.
  • Collaborator
    A great sourcing leader is a true collaborator. Not only does she know that success lies with her team, but that success will require her team to work with other groups in the organization, in partner organizations, and in supplier organizations. To this end, she’s constantly reaching out to improve relationships and create opportunities for the teams to work together.
  • Communicator
    A great sourcing leader is a great communicator. She knows that for sourcing to succeed, its goals, processes, and roles have to be understood and accepted by everyone and takes it upon herself to spread the word. She creates a shared vision that people are motivated to work towards.

For more information on The Seven Savors of a Sourcing Sensei, I strongly encourage you to check out the new Sourcing Leadership wiki-paper over on the e-Sourcing Wiki [WayBackMachine] which was (co-)authored by yours truly. Besides diving deeper into each of the skills, with references as to their effectiveness and criticalness, it also discusses The Seven Scruples of a Sourcing Sensei – or the seven things sourcing leaders do that set them apart.

When I Was Your Age

To the tune of “When I Was Your Age” by Weird Al Yankovic
  parodied by Gruff Purchaser

Let me tell you sonny… let me set you straight
You kids today ain’t never had it rough
Always had everything handed to you on a silver plate
You lazy brats think nothing’s good enough

Well, nobody ever gave me paper when it was time to cut a PO
We had to use old papayrus that we made ourselves
Worked in the closet twenty two hours a day for just half a cent
Had to sell our internal organs just to feed ourselves

When I was your age. When I was your age
When I was your age. When I was your age

Let me tell you something, you whiny little snot
There’s something wrong with all you kids today
You just don’t appreciate all the things that you’ve got
We were hungry, broken and miserable and we liked it fine that way

There were seventy three of us working in a cardboard box
And our Christmas bonus was a lousy bag of rocks
Every night for dinner, we had a big ‘ol chunk of dirt
If we were really good, we got mud for dessert

When I was your age. When I was your age
When I was your age. When I was your age

Didn’t have no telephone, didn’t have no FAX machine
All we had was a pair of cans and a crummy piece of string
Didn’t have no ERP when I was just a lad
Accounting’s abacus was the closest thing we had
Didn’t have no internet, had to use yellow pages
Didn’t have RFPs, we listened to sages
Didn’t have no e-Auction, we used messenger pigeons
Didn’t have no KPIs, dollars spent was our religion

What’s the matter now, sonny, you say you don’t believe this junk?
You think my story’s wearin’ kinda thin?
I tell you one thing, I never was such a disrespectful punk
Back in my time, we had a thing called discipline

My boss would whoop us every night till a quarter after twelve
Then he’d get too tired and he’d make us whoop ourselves
Then he’d work us until dawn … until we felt the strain
And let me tell ya, Junior, you never heard me complain

When I was your age. When I was your age
When I was your age. When I was your age

The Sourcing Nation Needs You!

As an astute sourcing professional, I’m sure you picked up on Jason’s Busch post last Thursday on “”Who Has Got the Eyeballs Online Spend Management Traffic” where he noted that blog traffic is rising while most of the online publications are flattening out, and in some cases, maybe even falling. This makes sense to me since real bloggers publish solid content and opinions every day while most of the publications only publish once a month, with more frequent updates often being nothing more than polished vendor press releases. However, what I noticed is that the site with the top 3-month average, Purchasing topped out at 319,397 in the Alexa rankings. Furthermore, upon doing my own research where I looked at CIPS, the CSCMP, e-Sourcing Forum, the IACCM, the ISM, Procure Insights, SIG, Supply Chain Brain, the Supply Chain Council, Supply Chain Daily, and Where Next in addition to CPO Agenda, the European Leaders Network, Purchasing, Spend Matters, Supply & Demand Chain Executive, Supply Chain Digest, Supply Chain Management Review, Supply Excellence, Supply Management . com, and Sourcing Innovation, the top site, belonging to ISM, topped out at 293,787. That says there are 293,786 sites out there more relevant than the top ranked sourcing site! And the results from Traffic Estimate aren’t much better. The top site, again the ISM, is credited with a mere 51,000 visits in the past 30 days. To put this in perspective, YouTube is credited with over 246,790,000 visits in the past 30 days. I don’t know about you, but I don’t think we should stand for this.

I’ve said it before, and I’ll say it again – Sourcing – regardless of the name you call it (purchasing, procurement, supply management, supply chain, etc.), is the future of business – not Marketing, not Research and Development, and not Engineering and Manufacturing. Once you reach a certain plateau, you’re not going to double sales. You can create the best product in world, but if you can’t produce it at a price point that makes it affordable and attractive to your target market, then you’ve just wasted time and money. And you can streamline operations all you want, but you still have to pay your people and pay your bills. The real impact comes from smart sourcing!

So what can you do? Download the Alexa Toolbar\ (preferably for FireFox, but you can also get it for IE if you haven’t kicked the MS habit yet*). Then, every time you visit a sourcing related website, you’ll add to the anonymous usage statistics of the #1 site used to estimate web traffic and rank web sites and show the world that the Sourcing Nation is strong and capable of producing, and consuming, some of the best content out there. Then we’ll get noticed and be one step closer to the recognition we deserve.

* Maybe this demonstration of Vista will change your mind!