Originally posted on on the e-Sourcing Forum [WayBackMachine] on Friday, 15 September 2006

This is the last full weekend of the summer, and, thus, the last summer weekend series on eSourcing Forum. This summer we discussed, in detail, twelve topics in process and technology, supply management, and innovation that we hope you can use to aid you in your design of better sourcing methodologies. Today we are going to review the process and technology topics.

This summer, we talked about:

• On Demand
  • I: The Good
  • II: The Not-So-Bad
  • III: And the Coming Pretty …
• Demand Driven Supply
  • I: An Introduction
  • II: Stages and Implications
  • III: Challenges and Implementation
• Optimization
  • I: A Powerful Tool
  • II: Why it was Relegated to the Shadows
  • III: Why it’s time is finally here
  • IV: POE or BoB?
• Six Sigma
  • I: An Introduction
  • II: Innovative Quality
  • III: Value Based Strategic Sourcing

Our on-demand posts highlighted the benefits of on-demand software-as-a-service solutions over traditional installed approaches, which include:

• Pay As You Go
• Instant Deployment
• Single Instance
• Economies of Scale
• Provider handles administration, maintenance, and headaches
• Free Upgrades
• You, the customer, have the leverage
• Anywhere access
• Buy what you need, and only what you need
• Single Accountable Entity
• Regular, Automated Data Backup
• Built for Change
• Unparalleled Collaborative Capabilities
• Integration with office applications
• Security
• Uptime
• Low Total Cost of Ownership (TCO)

Our demand-driven supply posts highlighted the importance of a strong focus on a pull-based customer centric approach to demand and supply chain planning. The goal is to help you identify the best mix of customers, products, channels, geographies, and prices for the dynamic marketplace, as this is key to maximizing your efficiency and profitability. This is because traditional Supply Chain Management deals poorly with rapid change as it relies heavily on up-front forecasts and does not incorporate regular forecast revisions or the demand signals necessary to determine when a shift in demand is needed.

Our optimization posts emphasized the importance of using decision optimization in award determination (as it will save you an average of 12% over and above a price-focused auction), despite the fact that its usage is not yet common in the marketplace, which is likely due to the dearth of vendors offering such technology. In addition, we pointed out that despite its limited acceptance up until now, we believe its time has come due to the convergence of the following factors:

1. Extensive use of e-Auctions over the last 3-5 years by early adopters.
2. Optimization Technology has evolved.
3. Solution Providers are integrating optimization into their platforms.
4. Solution Providers are recognizing that there needs to be a significant amount of sophistication under the hood.

Our Six-Sigma posts defined Six Sigma – a relentless quest for perfection through the disciplined use of fact-based, data-driven, decision-making methodology with the ultimate goal of producing at most 3 defects per million trials (in the long run). The goal of Six Sigma is to prevent defects before they happen via process improvements. To do this, Six Sigma uses a toolbox of statistical tools and frameworks to:

• identify which defects impact customer requirements,
• determine why each defect was caused and uncover the hidden factory, and
• improve the process parameters and product designs to reduce defects.

Six Sigma practitioners look for ways to decrease the overall amount of variation in a process, since process variation is often the primary cause of defects. It does this by way of its DMIAC, Design-Measure-Improve-Analyze-Control, methodology which generally executes as follows:

1. define each process step, inputs, and outputs
2. map the customer requirements to process inputs and outputs
3. identify key metrics to measure performance
4. establish defect root causes for, and relationships between, inputs and outputs
5. analyze and improve the process to optimize performance metrics
6. provide controls to ensure sustainability of improvements

Since Six Sigma is a generic methodology, it can be applied across your supply chain, and to your supply management and spend management initiatives. Six Sigma Strategic Sourcing (SSSS) and Value Based Six Sigma (VBSS), which stem from Total Quality Management (TQM) initiatives and focus on Total Value Management (TVM), are two examples of Six Sigma frameworks for sourcing. They are based on best practices, which are nothing more than the everyday sourcing best practices that eSourcing Forum has been describing for the past year, but documented, standardized, and applied regularly and consistently across your sourcing organization.

The real killer sourcing application, however, is not on-demand software-as-a-service, demand-driven supply, optimization, or the six-sigma toolbox, but the integration of all of these processes and technology into one. In other words, a leading procurement organization is one that uses a six-sigma (best-practice) based demand-driven sourcing methodology that uses best-of-breed software and service offerings on-demand to determine optimal awards using market-leading decision optimization. Alone, each of these technologies and processes are great, but together, the whole is truly greater than the sum of the parts.