Supply Management Risk Management Needs to be Cranked to 11!

SI has been preaching the message of the need for strong supply chain risk management for a while now, given that the chances of your organization NOT experiencing a significant disruption over the next 12 months is about 1 in 10 and dropping fast. In fact, the doctor recently authored an entire risk management series for Ecovadis:

But given the uptake in deep supply risk management solutions, SI is not yet preaching to the choir. Don’t worry, this is not another post preaching from the pedestal, unless, of course, you are a vendor.

You see, even the best solution doesn’t have what you need to suitably address risks in today’s risk-laden supply chain. Consider the current enabling technology components, as addressed in the Supply Risk Management Landscape Report, co-authored by the doctor with the prophet and the maverick.

  • basic portal and information tracking capabilities which tracks all suppler and product info and allows a supplier to manage their end
  • risk analytics and reporting that focusses on relevant spend, supply, and supplier metrics that provide good risk indicators
  • risk intelligence feeds that report on current real-world (third-party) metrics and events that can effect your supply chain
  • commodity management enablement with price benchmarking and forecasting, availability projections, price risk exposure, etc.

These are good, but all these let you do is identify potential risks. Once a risk is identified, you need to do something about it. But a solution that only tracks, reports, augments, and projects — while it may give you some ideas — doesn’t let you do anything about it.

Some providers (like Resilinc) give you a command center that allow you to create disaster recovery plans for specific occurrences, or run what-if reports/scenarios based on decisions on how to mitigate a risk, but this doesn’t help you identify how to mitigate the risks appropriately.

And that’s why supply risk management platforms need to crank it to 11. And how will they do that?

The answer, as the doctor outlined in the aforementioned co-publication with the prophet and the maverick, is to also contain support for:

  • supply chain re-design and optimization based on decision optimization, supply chain modelling, predictive analytics, and “what-if” scenario planning

Now, not a single supply chain risk management solution supports even one of the four core capabilities required (although some will claim they do), but hopefully, now that the flashlight has been shone, they will … or maybe, just maybe, a true SSDO (strategic sourcing decision optimization) provider will hire a few risk experts and build a risk management platform on the right underpinnings. Only time will tell. The most important thing is that you realize when you go to market for a supply chain risk management solution is there is no perfect solution and more innovation is needed.

Anchoring Doesn’t Have to be a Problem …

… or even a concern, if you approach negotiations in a fact-based manner, instead of a seat-of-your-pants manner, like most negotiations are approached.

What are we talking about? We’re talking about the tendency for us to fix our thoughts around a particular number, point, or fact rather than thinking logically and independently about a decision. In particular, the fixation that occurs when people consider a particular value for an unknown quantity before estimating the quantity. From that point on, the estimates then stay close to the number considered, even if the estimate is way, way off. The absolutely proven phenomenon discussed in detail in the public defender‘s recent pro piece over on Spend Matters + on how to hone your procurement negotiation skills by learning the right way to think (fist part free, full article requires membership).

Anchoring happens if you begin your negotiation or event with a price that is based on current price, a recent supplier quote, a market index, or some other number that may or may not have any basis in reality. Anchoring is avoided if you start with a price that is based on a should cost model, for a product, or an amalgamated index by a large analyst firm or statistics bureau for services category.

The should cost model should be based on a detailed cost breakdown that takes into account raw material costs (at market indexed rates), average labour costs for a region, average overhead costs, and any advances in production technology. A current cost, a current market cost, or even a project cost from a trusted supplier is not a should cost – and negotiations should ALWAYS be based on should cost. It might seem a waste of time for a product you’ve sourced ten times over the past ten years, or a service that you’ve paid the same rate for from three different manpower suppliers over the past three years, but that’s a very small sample of the market price at large, or the should cost price.

So do a detailed should cost model (or, for a service, detailed market research and break it down against average salaries available through a number of portals, augmented with standard contractor / manpower / outsourcer mark-up) and start your negotiations around that reasonable, logical, point — even if it’s half of what the supplier is quoting. Remember, you can scream that they take their unreasonable cost off the table or you walk because you can say “look, I have a should cost model right here that backs up the reasonableness of my number — so we’re starting within 20% of this and adjusting as necessary, or we’re not starting at all”.

Is Category Management a Prism? Or a Telescope?

Over on Procurement.World, the procurement dynamo tells us that category management is a prism. More specifically, the procurement dynamo tells us category management is about looking at spend through the prism of

  • company strategy
  • internal customers’ needs
  • supplier/supply market

Through these lenses, procurement will determine if it should be focussing on categories, value drivers, required supplier capabilities, and supply assurance. How?

According to the procurement dynamo, by going through the key components of the category management checklist and seeing where they lead.

So what are the components? You can download the checklist [registration required] and review them yourself, but, needless to say, they revolve around:

  • taxonification
  • supplier classification
  • category strategy from an organizational, stakeholder, and procurement perspective
  • sourcing strategy
  • ROI calculations
  • action plans
  • governance
  • measurement

But is it a prism, or a telescope — a linear sequence of lenses that serves to sequentially focus in on a particular category definition, strategy, execution plan, and return. By the time you go through the incremental category evaluation and strategy and execution, you typically have one view, one color on the problem — not a rainbow. Traditional category management typically ends up with one way to look at the category, not multiple.

It probably should be a prism — as the strategy should change with the market conditions, the customer needs, innovation capability, and so on — all features not considered in a fixed plan and linear workflow. But will it be? And how do we make it one? Thoughts?

Supplier Solutions – All About the Space …

… of Supplier Enablement. In our recent post about Supplier Networks, we discussed the value wasn’t what the provider typically promoted, but the fact that it greatly decreased the effort required by the supplier to do business. It enabled them to be efficient, whereas most sourcing and procurement applications just suck their time.

So if you are going to buy a supplier management solution, then it better be one that truly, truly, truly enables suppliers. So what does this mean?

Find a solution that focuses suppliers on missing, outlier, and information that can’t be confirmed.

Many solutions just send out regular “please review and correct” alerts and call that supplier information management. But information management isn’t about reminders and checking boxes, it’s about finding issues and fixing them. A good solution identifies missing information, information that is outlier from norms (i.e. an insurance certificate is usually only 1 year, but the supplier entered 10), and information that can’t be confirmed (such as third party audits from organizations that can’t be found in government registries).

Find a solution that makes integration with supplier’s systems (MRP, CRM, order management, etc.) easy.

Suppliers need to quickly get POs out of your portal and into their order management, MRP, ERP, accounts receivable, etc. system for which your vendor will likely not have an out-of-the-box integration solution that you are able to implement on behalf of your supplier. So make sure the solution has a well-defined API that makes it easy for the supplier to integrate their systems if they want to and well defined file formats that will allow them to export orders, etc. from your system and import shipping notices, invoices, etc. from theirs.

Find a solution that includes cash forecasting capability for the supplier based on your early payment discounting schedule.

Face it. A supplier isn’t going to go for your early payment discount program just because you say it’s a good idea — they need to run their own numbers and realize that 2% is less than they are paying in interest, etc. Give them an easy to use calculator, especially since their Procurement or AR guys are likely NOT as financially adept as your financial modellers.

In other words, if you want a true supplier solution, find one that truly, truly, truly enables the supplier. Not just you.

eBid Systems – An Old Procurement Provider with a New SaaS Sourcing Solution

eBid Systems started out as an ASP of (custom) procurement solutions for the public sector back in 1999. While relatively unknown in the private sector, this vendor is well known in the public sector, having grown over the last 17 years to a large provider of ASP and (multi-tenant) SaaS solutions to over 200 public sector organizations of all shapes and sizes and about 100 private sector organizations (that primarily serve the public sector).

Even though the e-Sourcing market is well established, and, despite the recent M&A frenzy, there are still a handful of mature mid-market e-Sourcing offerings for a mid-market company to choose from, eBid Systems decided to re-enter the market with a new SaaS e-Sourcing solution called, ironically, ProcureWare, which has been in re-development for the last three years.

A few years ago eBid Systems realized that if they were going to accelerate their growth, and increase penetration in the private sector, they needed to get out of the custom software and ASP business and into the multi-tenant cloud-based SaaS business and rework their platforms into a nimble, quick to setup, easy to use, competitive turnkey e-Sourcing solution. And for the last three years they have been developing that suite. The result is a solid mid-market entry with solid RFX, e-Auction, Reporting, basic SIM and basic CLM and, just like ScoutRFP, enough to get the attention of new converts to e-Sourcing, especially in the mid-market. Plus, their experience in the public sector is very attractive to those companies looking to get, or increase, public sector customers.

The RFX solution allows for detailed creation of information request forms, pricing request forms, and scoring schemes — which can be split among multiple reviewers. The RFX can be sent to selected suppliers, or opened up to any supplier on the eBid network for bidding.

Bids consist of all responses to the RFX, any associated documents the supplier wants to upload, questions (or clarifications) that are asked, and responses that are provided. Suppliers and Buyers can drag and drop documents into the platform and a complete audit trail of all bids, changes, clarifications, and responses are maintained in the audit log.

The (reverse) auction works like a standard low-bid auction, but the interface is RFX line-based. There is no graphical interface at this time. However, the platform also supports forward auctions for the disposal of excess inventory, which some public sector organizations find useful.

The supplier information management (SIM) is quite extensive and extremely customizeable by eBid Systems and can track not only all basic company information, financial information, and even compliance information, but can be customized to track appropriate diversity, public sector classifications, and insurance certifications. A supplier record can also be associated with all contracts and associated bids.

Contract management is all about managing and tracking awards, vendor obligations, and associated data — it is not about contract document creation or tracking of contract documents and deliverables. It’s primitive at the moment but could prove more valuable as time goes on. Contract data is primarily used for alerts, as the system can alert to expiring contracts, expiring insurance, diversity review dates, and so on.

eBid Systems market entry is solid and shows promise. SI expects that we could see a strong uptake in mid-market organizations in the private sector that primarily serve public sector organizations and continued, steady, growth in the public sector. Time will tell. Regardless, for those interested in a deeper dive, check out the recent deep dive by the doctor and the prophet over on Spend Matters Pro [membership required]. (Part I).