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.

Technological Damnation 87: OLAP

OLAP, short for on-line analytical processing, is a great thing, right? It is at the foundation of reporting tools like Business Objects and Cognos, that, when they were released, gave users unparalleled insights into raw data compared to the rather static reports they were used to. It was revolutionary. And that’s the kicker. It WAS.

Now, it’s old technology and, to make matters worse, there is still the widespread misconception that it is the right tool for Spend Analysis. As SI has addressed many times, often with the help of the Spend Master (and there is only one), nothing could be further from the truth. This post will summarize just a few of the reasons this damnation continues to savage us, and will likely continue to do so for some time.


OLAP has no real-time capability

On-line analytical processing is just a fancy term for pre-computing a large number of intermediate and final totals against a roll-up models so that, when a user logs in to a system, not only can they see a report, but drill down into each line item to pre-defined subtotals according to a fixed hierarchy. For example, they can click on total sales and then drill down into sales by region and then sales by country and then sales by state/province. However, if the model is ordered by geography, but the user wants by department and then by geography, unless there is another report where those totals have been pre-calculated, the user is out of luck.


… and ROLAP doesn’t count!

In OLAP, the roll-ups are pre-computed off-line at regular, pre-scheduled intervals. In ROLAP, the system will rebuild the hierarchical roll-up on the fly — but if the roll-up takes an hour to generate, who cares whether the user initiates or a system script initiates. It still takes too damn long.


OLAP requires a rigid data model

Not only does OLAP require a rigid definition of the roll-ups being done against a rigid hierarchy, but that rigid hierarchy requires a rigid data model to work against. One model, with one hierarchy per OLAP report. Multiple reports, multiple hierarchies — but only to the extent supported by the underlying data model. If the data is missing or not fine-grained enough for the OLAP data processor, OLAP just will not work.


And that just doesn’t work for spend analysis.

As SI has indicated dozens upon dozens of times over the years, spend analysis requires flexibility — the ability to redefine roll ups, drill-downs, and underlying data models to support the analysis the analyst needs to do — not the analysis a vendor thinks that the analyst needs to do.


OLAP requires a lot more server memory than an average organization can afford

Today it’s all about big data and big data is huge. This means that summaries are huge compared to simple static reports, especially OLAP roll up summaries. One detailed multi-level roll-up summary with one drill down report on terabytes of data can take over a hundred gigabytes and max out memory on an average server — but an organization will need dozens of such drill downs to even come anywhere in the vicinity to meeting its analysts’ needs, and a server with terabytes of (D)RAM. We are beyond server territory into mini super computer territory, and mini super computers come with price tags that start (well) over half a million.

There are alternatives to (R)OLAP that can actually do real-time analysis and reporting on tens of millions of records on an average high-end multi-core laptop, but given that these systems are still the exception, and not the norm, this damnation is going to be with us for decades.

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

SI understands that it’s last few posts have probably caused a lot*1 of soul-searching and panic among practitioners and fear and loathing among vendors, so today it’s going to address the panic and fear (but not necessarily the loathing*2).

The short answer is: probably not.
The full answer takes quite a bit of preamble to explain.

First of all, many organizations carry the misconception, often reinforced by traditional analysts and big-X consulting companies, that the only way to find considerable savings, avoid unnecessary cost, and add value is through strategic sourcing. This is only one of many methodologies, and underlying technologies, that Supply Management can use to save money, control cost, and add value. It’s a powerful methodology, but just methodology.

True sustainable savings, cost avoidance, and value generation come from Strategic Supply Management. Supply Management encompasses Sourcing, Procurement, Logistics, Contract (Lifecycle) Management, Supplier Relationship Management, Sustainability Management, and other strategic activities that manage costs and generate value. Thus, strategic sourcing is only activity at the disposal of a Strategic Supply Management organization — and for an organization beginning its sourcing journey, it’s not always the best one.*3

If the organization does not have it’s e-Procurement under control, sometimes the best place to start is with a strategic Procurement process backed by a leading e-Procurement solution (with e-Invoicing and m-way match). Why? Because, as per AMR’s (now Gartner’s) classic series on Reaching Sourcing Excellence, 30 cents, or more, of every dollar of negotiated savings never materializes. If the organization is only capturing 60% of negotiated savings, then what’s the point of using an advanced solution to identify a 5% savings if only 3% of the savings is going to be captured? It would get the same year-over-year improvement if it did a simple e-Auction, identified a 3.33% savings, and captured 90% of it. This is where a great Procurement process, and solution, comes into play — specifically, one that makes it easy for buyers to find contracts, place timely orders (and avoid expedited shipments), see the impact of going off-contract (and be visually guilted into making the cost-effective decision unless there is a strong reason to do otherwise), and use the system (versus avoiding it). With this type of a solution, there will be no off-contract spend because a buyer wasn’t aware of a contract, wasn’t aware there was a more cost-effective product, wasn’t able to figure out how to use the system, etc. There won’t be overspend due to duplicate invoice payments, overpayments due to off-contract rates, or over-payments due to undelivered merchandise with a good m-way match e-Invoicing component. And so on.

However, simply capturing the majority of savings identified in a sourcing event does not guarantee that the organization is capturing all of the savings available to it or controlling spend. For example, the savings quoted is simply the best price that the supplier feels that it can offer today – but that may not be the best price the supplier could offer if it was more efficient. The supplier might not be lean, might be quoting off of an inefficient design (that it could improve through a joint-design initiative), or might have an outdated quality control process leading to a higher rate of defects then is necessary. That’s why great supplier relationship, powered by a leading SRM platform (that, by definition, also captures SPM and SIM data) can also provide great value.

*1 some to say the least
*2 first generation e-Negotiation platform providers are going to loathe SI, but there’s nothing to be done about that — it was their choice to stand still while their peers continued to innovate
*3 bet you never thought that the doctor, the leading advocate of SSDO since this blog went online in 2006, would say that, eh?

LOLCat Would Like to Remind You

That North Americans needed to turn their clocks back last night and that the rest of the world should feel free to continue to call them as if the clocks didn’t turn back as LOLCat doesn’t care about man-made time and wants to eat at the same time everyday regardless.