Does Your Organization Have What It Needs for Agency & Services Management?

SI might be focussed primarily on (Strategic) Sourcing and (e-) Procurement and associated solutions for spend reduction, cost control, and value generation, but every now and again likes to focus on solutions for Marketing, Contingent Labour & Outsourced Services, Legal, and other departments who believe their spend categories are sacred cows that will not be treated with the reverence they deserve by Procurement (and, as such, refuse to hand over control of those categories to a Procurement professional).

Marketing is one of the departments that needs a solution for cost control, and not just because it won’t turn over it’s sacred cow spend, but because the nature of the spend requires good, collaborative, services management. Traditional (e-) Procurement does not address the particular needs of an indirect services category like marketing where:

  • agency identification requires a vetted, indexed, database
  • agency selection requires stakeholder engagement and agreement
  • budget management requires award tracking by project and category
  • project management requires agency involvement
  • issue resolution requires real-time online collaboration

These needs can only be served by a platform that provides:

  • a supplier network of creative, digital, and advertising agencies
  • an online collaboration portal with survey capability and multi-user ranking and aggregate weighting
  • the ability to capture award amounts by project and work category (creative, digital, equipment rentals, etc.)
  • an online project management portal to track progress, milestones, and deliverables
  • an online collaboration portal where stakeholders can connect in real-time

But if you consider these needs, you find that:

  • few e-Procurement platforms have networks, and fewer still have any creative, digital, or advertising agencies as they tend to focus on direct material providers
  • the vast majority of e-Procurement and Sourcing platforms have RFX, most allow multi-user aggregate rankings, but most are not configured for users outside of Procurement
  • most e-Procurement platforms with CLM support allow for detailed project definitions and costing by line item, but the built in categorizations are not designed for marketing
  • most e-Procurement platforms have Procurement driven workflows, not agency project management workflows
  • online collaboration is generally only well supported in SRM (Supplier Relationship Management) platforms

As a result, as has been discussed on SI in the past, most Sourcing and (e-) Procurement platforms are not appropriate for Marketing and Services Management. Other solutions are needed.

Three Hundred and Fifty Years Ago Today

The (London) Gazette, the oldest surviving journal (which is one of the official journals of record of the British Government), was founded. Considering that many publication these days don’t even survive three point five years, the fact that a journal has survived in continuous publication for three and a half centuries is astounding. It’s longevity is probably aided by the fact that certain statutory notices in the UK are required to be published in official journals, but one has to be honest here — if it were to disappear, the notices would just shift to other journals.

Imagine the pride that Henry Muddiman, a name not even well known by many of today’s journalist students would have felt to know that a publication he began is still thriving three-hundred and fifty years later. With the web came the ability for just about anyone to start a new media publication, but how many of the new media publications started twenty years ago, a mere five years after Tim Berners-Lee wrote the first internet-based hypertext system, are still around today? Very few. The easier publishing gets, the more fleeting it seems to become, and even traditional newspapers are now going the way of the dodo.

Will today’s Supply Management publications stand the test of time? Even Purchasing Magazine, the longest running magazine that chronicled the world’s second oldest (or is it the third oldest) profession ceased publication five years ago. Will Sourcing Innovation and Spend Matters survive beyond the doctor and the prophet, the driving forces behind them? Only time will tell. But it really makes you stop and think about the long history that led up to the print revolution the internet launched.

To aid with your contemplations, here is the link to Another Day by November 7.

Complex Sourcing: Are You Ready?

You’re probably thinking that this is an oxymoron, because Kraljic in his classic Harvard Business Review article on how Purchasing Must Become Supply Management* gave us a simple four-quadrant purchasing model over thirty years ago that you’ve been happily using since you learned about it. However, as Andrew Cox has clearly explained in his latest book on Sourcing Portfolio Analysis, we now know that Sourcing is a lot more complex than one might think it is. Even AT Kearney’s Purchasing Chessboard, which is essentially a twenty-first century update to the Kraljic model that essentially breaks each quadrant into a four by four grid based upon a plethora of factors, and which gives us a 64-square breakdown, doesn’t capture the true complexity of modern sourcing.

Why? As Andrew Cox clearly states in his new book on Sourcing Portfolio Analysis, classic Sourcing analysis methodologies focus on overall supply market dynamics, but buyer relationships are with individual suppliers. Thus, it’s not just the overall market dynamics that matters, but also the power relationship between the buyer and the individual suppliers being considered. However, even this isn’t enough to make a good decision. It’s enough to select a sourcing strategy, but one still has to deal with the large variation between suppliers, products, prices, and requirements before one can select one or more suppliers for an award.

This variation can add more complexity than any two-dimensional grid can capture. As a result, sourcing a category is a complex endeavor that requires a complex tender and a platform capable of handling that complexity. However, until you understand what the dimensions of complexity are, how they can hide in your low and high dollar categories alike (and cost your organization millions of dollars if not properly identified), what is needed to deal with these complex categories, and how you determine if your processes and platforms are up to the task, not only will you not be ready for the complexity, but you won’t even know if you’re approaching the category correctly.

The reality is that even though it’s 2015 and some organizations have had e-Sourcing platforms for a decade, an average organization is still not ready for Complex Sourcing. As discussed in Sourcing Innovation’s latest paper (on) Complex Sourcing: Are You Ready, sponsored by Trade Extensions, the average organization still on first generation e-Sourcing platforms is just not ready and, moreover, doesn’t even realize they’re not ready. After all, most organizations still haven’t caught up to the fact that it’s not a suite, it’s just sourcing (Part I and Part II) and that it’s not optimization – it’s strategic sourcing and that sourcing is much more complex than they like to think it is.

To find out why you’re not ready for complex sourcing and how you can prepare for the next generation of Supply Management, download Complex Sourcing: Are You Ready today. You won’t regret it. It will really help solidify why optimization is not the execution, but the plan as detailed in last year’s paper on Optimization, What Comes Next, still available for download.

* There are reasons that SI is all about next generation Supply Management defined. This is one of them.

Provider Damnation 66: Tier 1 Suppliers

Suppliers. Some days you can’t deal with them but you cannot survive without them. You’re in business to serve customers, who want the products your organization sells, but which your organization can only provide if your tier 1 suppliers manufacture those products you need, to the customer’s specifications. And that’s the kicker.

No suppliers, no products.

You absolutely need suppliers, even if you are a pure services agency because you still need products (be it laptops, janitorial suppliers, or even paper for reports) to deliver services. There is no such thing as a fully integrated self-sustaining business that is self-contained all the way back to the mining or harvesting of the raw materials, the production of the energy required to process them, the pumping of the water required, and so on. So you need suppliers. Lots of them. Sometimes thousands of them. And trying to manage that many suppliers, even with a best of breed SRM system, is a nightmare on a daily basis, because, if things go wrong

Once you have a contract, barring catastrophic supplier failure, you’re locked in.

A contract locks you in until an exit clause is hit, which, in an average contract in an average organization, typically is only invokeable when a supplier fails to deliver a significant portion of the contracted goods after a significant amount of time has passed (and your organization has been stocked out for weeks and lost millions of dollars), the quality gets abysmal and the warranty return rate hits the double digits, they violate a federal safety or import regulation, or they commit a crime — assuming you have a well drafted contract.

This means that, if they’re always a few weeks late, running up costs with unnecessary expedited shipments, tacking on fuel surcharges, or slacking on quality and continually shipping orders with DOA rates just within limits, there’s nothing you can do about it. You can employ the best SRM techniques up your sleeve, but if they refuse to respond, until the contract is fulfilled and you can kick them to the curb, they’re your problem because your customers are yours to satisfy, not your supplier. Moreover, if you can’t break the contract, you can’t even shift demand to another supplier temporarily until a force majeure event occurs when they are allowed to claim inability to fulfill you orders until the event is over but

When force majeure hits, you may not be able to respond fast enough.

If it’s a custom product, it’s impossible to just go back to the runner-up in the sourcing event, award them a short-term contract (with the promise of an extension in the future when you kick your current supplier to the curb), and expect them to start production the next day. Even if, after being turned away, they say yes, and even if they say yes quickly, and even if they have capacity opening up, it takes time to retool a production line and get the engineers up to speed on a new product design. It’s going to be weeks, at the minimum, before you see the first unit.

But if you don’t find a temporary supplier, your solvency is in danger.

Cash-flow is the life-blood of the business, and without a product, it’s no sale, and no sale, no store. A company that does not sell does not survive long.

A poor supplier that locked you in to a three-year contract before you found out that they were a poor supplier (that just marginally met the minimums necessary to prevent you from cancelling the contract without a huge penalty that the organization is not likely able to afford) is a damnation of the worst kind. Fortunately there aren’t many suppliers like this because even one is way too many.

My Solution Is Not One of The Six Strategic Sourcing Samurai. Am I Screwed? Part II

In Part I we noted that SI understands that it’s last few posts have probably caused a lot of soul-searching and panic among practitioners and fear and loathing among vendors, who don’t have an optimization based Sourcing platform and, in the viewpoint of SI, don’t have a platform that supports true strategic sourcing, and then began to discuss the panic and fear. We then noted that the simple answer was that the average organization was probably not screwed, but the full answer would take quite a bit to preamble to explain — preamble that we’re in the midst of.

We left off noting that SRM is only one way to identify additional value, or, in some cases, reduce unexpected loss. Contact Lifecycle Management (CLM) is another way. Strategic Sourcing identifies savings. Procurement prevents unnecessary overspend. But CLM prevents unexpected loss. The total cost of a good is total landed cost plus utilization/processing cost plus COGS (cost of goods sold) plus return/warranty cost plus reclamation cost at life end. And it’s a total loss if the good is lost. In order to prevent savings leakage, an organization has to manage the lifecycle of the goods being purchased for the length of the contract, especially if returns and payment reclamations need to occur. This is where CLM comes in. It makes sure contracted terms are adhered to, the lifecycle is monitored, supplier relationships are appropriately managed, and, where appropriate, risk is monitored and managed. (For more details, see the Contract Lifecycle Management series over on Spend Matters that was co-written by the doctor and the maverick.)

Then there is sustainability. Finding ways to reduce energy and water consumption, to switch to renewable resources, to avoid suppliers or products that are not in compliance with appropriate regulations (and that could result in the organization being hit with multi-million dollar fines), is also strategic and very valuable.

If the Sourcing platform in use by your organization supports one or more of the above strategic activities, your organization is definitely not screwed as it can use that platform to identify additional sources of strategic savings and strategic value. As will be discussed in a future joint series between the doctor and the prophet, there are many approaches to sourcing and, with the exception of first generation e-Negotiation, each brings significant, unique, advantages that are very valuable.

However, if all the organization has is a first-generation e-Negotiation platform that is nothing more than an RFX and/or e-Auction with a little bit of reporting and a primitive supplier portal, then, at some point, it may find itself screwed. While the first e-Sourcing event on any category will almost always identify (significant) savings, those savings don’t reappear the next time the event is run. The fat can only be trimmed from the margins once, and then the organization has to get strategic to find sustained savings. Fortunately, the majority of providers do not fall in this category, because this means the majority of organization with a sourcing platform can confidently say they made a good choice — and just need to acquire supplementary optimization capability for where it is needed.

The full answer is thus: as long as you are not stuck on a pure first-generation e-Negotiation platform, then you have a platform that will support continued savings identification, cost control, and/or value generation when appropriately used. If you are, then you will need to augment it as soon as possible because, as explained in the last paragraph, from a savings perspective, you need to consider the platform a one-time use on a category basis. By the time you cycle back to the first category in the queue, you will need a more advanced solution.