Originally posted on on the e-Sourcing Forum [WayBackMachine] on Thursday, 15 November 2007

e-Procurement is the counterpart to e-Sourcing, starting where e-Sourcing ends and ending where e-Sourcing begins. It is the “e” implementation of the procurement cycle which is concerned with the requisitioning, receiving, and reconciliation of the received goods as opposed to the analysis, auction, and award that takes place in the sourcing cycle. It is essentially the automation of the non-strategic and transactional activities that consume the majority of a buyer’s time, but one that comes with increased enterprise level visibility of all purchases.

The basic procurement cycle consists of up to nine steps, depending on the complexity of the buy and organizational policies. At a bare minimum, it consists of an order (requisition or purchase order), an invoice (which might be one with the receipt), and payment. For high-dollar purchases, the process will generally also include authorization and reconciliation of the invoice. In addition, if taxes were paid that the organization is capable of reclaiming, then the forms or entries to reclaim such taxes at the proper time will also be filled out or made. Finally, in a leading procurement organization, every step will be completed, although many will be completed automatically for low-dollar or non-strategic purchases by the eProcurement system using defined rules in the workflow engine.

• Requisition
  A buyer recognizes a need and places a request for goods or services.
• Authorization
  Each requisition made by a buyer gets routed to an appropriate approval agent. The approver verifies that the goods or services are needed, that they are either off of an appropriate contract or acceptable as a stand-alone non-contract order, and that the purchase amount is acceptable.
• Purchase Order
  Once a requisition is approved, a purchase order is created and automatically delivered to the supplier(s).
• Receipt of Goods
  Once goods are received, the buyer issues or confirms a receipt of such goods to the supplier.
• Invoice
  After a supplier prepares goods for shipment, an invoice is created that denotes the individual goods ordered by SKU and the amounts being charged.
• Reconciliation
  After the goods are received, the invoice needs to be reconciled to the purchase order and goods receipt before payment is made. Are the charges for the right goods or services? Are the amounts the contracted amounts? Were the quantities correct? Are any other charges, including taxes, valid and correct?
• Payment
  Once the goods have been received and the invoice reconciled with the order and contract, payment is scheduled and made using an appropriate payment method, which could be p-card, electronic funds transfer, or good old fashioned cheque.
• Reclamation of Taxes
  In some situations, the supplier of a good or service will be obligated to charge a tax, but the buyer may be eligible to retain some or all of that tax because of its corporate status. Examples include European Value Added Tax, Canadian Goods and Services Tax, and out-of-state sales taxes.
• Analysis
  After a number of procurement cycles have been completed, it is important to take measurements of the efficiency and accuracy of the procurement process.

For more insights into e-Procurement, check out the “e-Procurement Primer: 9 Steps to Procurement Success” over on the e-Sourcing Wiki [WayBackMachine] which not only dives into the 9 steps to success, but also discusses the core capabilities required in every e-Procurement solution, other important features of good e-Procurement solutions, the benefits an e-Procurement solution brings, best practices for implementation, challenges that may need to be overcome, associated costs, and tips on user adoption as well as a glossary of many e-Procurement terms and a rather extensive bibliography.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Monday, 7 January 2008

Security of goods in transit is not a new issue. Ever since the dawn of ocean freight, well before the dawn of the spice trade, traders have had to worry about piracy. And many hundreds of years before that, those who traded by land had to worry about outlaws, bandits, and raiders. However, ever since the attack on the World Trade Center in New York on September 11, 2001, the need for security has heightened – driven by a slew of new security regulations being introduced by countries around the globe.

Whereas back in the nineties all you had to worry about was the Customs Modernization Act of 1993 if you were dealing with the US or the Modern European Customs Code if you were dealing with the EU, today it’s a different story. In the US you have to deal with the new Automated Commercial Environment (ACE), International Trade Data System (ITDS), the Container Security Initiative (CSI), the Maritime Transportation Security Act (MTSA), and the Customs Trade Partnership Against Terrorism (C-TPAT); in Europe you have the Authorized Economic Operators and the forthcoming Modern European Customs Code; and in Asia you have to deal with the Asia-Pacific Economic Cooperation Secure Trade in the APEC Region (APEC STAR).

Each of these acts has its own little caveats, and failure to comply with any act can result in delays, fines, and confiscated, and subsequently destroyed, shipments. Thus, it’s important to understand what these acts are and what they involve. For an overview, I’d suggest starting with the “Customs and Security Primer” over on the e-Sourcing Wiki [WayBackMachine]. It has a brief description of what all of these acts are as well as starting points for further research. Furthermore, with your help, it will grow and improve over time.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Sunday, 17 September 2006

This is the last full weekend of the summer, and, thus, the last summer weekend series on e-Sourcing Forum. This summer we discussed, in detail, 12 topics in process and technology, supply management, and innovation that we hope you can use to help you design better sourcing methodologies. Today we are going to review the innovation topics.

Our ongoing purchasing innovation series talked about generic methodologies that you could use to foster and manage your innovation process, what tomorrow’s organization is likely to look like, and transforming new product development into an innovation-based process.

• I: An introduction
• II: TRIZ
• III: The Verifier Approach
• IV: Innovation Continued
• V: Sourcing the New Organization
• VI: CrowdSourcing
• VII: The Road Ahead
• VIII: Transforming New Product Development
• IX: The Purchasing Evolution!

In addition, I managed to organize a complementary cross-blog forum on The Future of Sourcing, that nicely complements the purchasing innovation series, which I summarized in my Sourcing Innovation Series:

• Part I
• Part II
• Part III
• Part IV
• Part V
• Part VI
• Part VII
• Part VIII
• Part IX
• Part X
• Part XI
• Part XII

The series was an embodiment of the cross-blog interaction I wanted to see even before I started my own blog, and the primary goal of my blog, which started with the entry “Strategic Sourcing Innovation Defined”.

In the first part of our Purchasing Innovation Series we talked about some generic methodologies that you could use to foster and manage your innovation process. In addition to basic techniques for continuous and discontinuous innovation (such as six sigma and “thinking outside the box”), we introduced you to TRIZ and the verifier approach.

TRIZ, Teoriya Resheniya Izobretatelskikh Zadatch, or the Theory of Inventive Problem Solving, is a methodology, tool set, knowledge base, and model-based technology for generating innovative ideas and solutions for problem solving. The basic methodology has four steps:

1. evaluate a specific problem
2. translate the specific problem into a general (scientific) problem
3. search for general (scientific) solutions
4. translate the appropriate solutions into specific solutions

Of course, the real power of TRIZ in a CPO’s eyes is the advanced implementation approach better known as “invention on demand” which can be used to combat lock-in to patent protected suppliers. Invention on demand extends the benefits of TRIZ from component-level mechanical engineering problems to system level problems in general, be they mechanical, electrical, electronic, or even pure software. The goal is not incremental product improvement, but the creation of a completely new product that can replace the predecessor product without giving the incumbent supplier any leverage to claim intellectual ownership.

The verifier approach, which may be best known for its role in cracking the 400-year-old mystery of the Voynich Manuscript, is a seven-step methodology designed to solve problems that remain unsolved after the application of more traditional approaches. In its simplest form, the verifier approach may be applied to a problem using the follow methodology:

1. amass a knowledge of the discipline through interviews and reading,
2. determine whether critical expertise has yet to be applied in the field,
3. look for bias and mistakenly held assumptions in the research,
4. analyze jargon to uncover differing definitions of key terms,
5. check for classic mistakes using human-error tools,
6. follow the errors and gaps as they ripple through underlying assumptions, and
7. suggest avenues for research that emerge from steps one through six.

The power of the approach is that it can be used to zero in on the analyses most likely to lead to success by taking advantage of the “expertise gaps” that exist in most areas of specialization.

In the second part of our purchasing innovation series, we talked about what tomorrow’s organization, and thus tomorrow’s procurement organization, is likely to look like and the techniques it is likely to employ in its innovation initiatives. We talked about how networked person is replacing organization man and that a world class procurement organization is going to drive corporate transformation into the new millennia and how it will have a dotted line to every area of the business.

We also talked about crowdsourcing which takes advantage of the “new pool of cheap labor: everyday people using their spare cycles to create content, solve problems, [and] even do corporate R & D” to perform tasks, once exclusively the domain of professionals, that are suitable to crowdsourcing. Although it may have started with stock photography, content packaging, challenge driven R&D, and technical repair flows, companies like Eli Lilly, Colgate-Palmolive, Boeing, DuPont, and P&G are now using it to reduce R&D costs while propelling innovation forward. For example, back in 2001, pharmaceutical Eli-Lilly funded a new endeavor by the name of InnoCentive as a way to connect with brainpower outside the company – specifically, people who could develop drugs and speed them to market – and threw open the doors to other firms eager to access the network of ad-hoc experts. These companies post their most ornery (scientific) problems on InnoCentive’s Web site and anyone interested on the network can take a shot at cracking them, for a prize that ranges from $10,000 to $100,000 per solution. To date, more then 30% of the problems on the site have been cracked, which is 30% more problems than would have been solved using a traditional in-house approach (since these companies typically post the problems only after their internal R&D team has taken a shot and failed). And it’s extremely cost-effective – take the quoted Colgate-Palmolive example where they paid an InnoCentive member who found a solution to a fluoride powder injection problem a mere $25,000, a fraction of what it could have cost Colgate-Palmolive to dedicate their R&D team to the problem until it was solved internally.

In the third part of our purchasing innovation series, we talked about design for sourcing and transforming new product development into an innovation-based process where procurement is involved from day 1 since this typically reduces product development cost by 16% to 18% and overall product cost by 15% while increasing revenue by 19%, according to recent Aberdeen studies.

We also pointed out a little software company by the name of BrightIdea.com that provides an innovation management on demand software tool for only $49/month per user to demonstrate that tools exist to help you with your innovation efforts. Other software products include Jenni’s Idea Management Software, Centric Software’s Product Intelligence software, or Imaginatik’s Idea Central Software.

In other words, the future is innovation – through and through. Product innovation. Process Innovation. Technology Innovation. Organization Innovation. Regardless of what it is – it will be innovated.

After all, Innovation Matters.

Initially posted on the e-Sourcing Forum [WayBackMachine] on Sunday, 10 September 2006

On Friday we reviewed our series to date and indicated the importance of purchasing to new product development (NPD) and innovation and yesterday we reviewed some recent research from Aberdeen Group that qualified and quantified the importance of procurement to NPD and innovation and the benefits it produced. We then introduced the concept of “design for sourcing” and indicated its key role in reducing costs, increasing revenue, reducing the innovation cycle, and combating a slew of risks before they become relevant. Today we are going to review purchasing’s evolving role in the organization and the role I see it playing in the future and why.

Simply put, in the future I see every unit in the business having a dotted line to procurement and every non CXO manager having a dotted line to the CPO (or CSCO). And I’m not alone. Jason Busch, co-founder of Azul Partners and blogger extraordinaire of Spend Matters made the same point in a recent presentation entitled “The Future of Spend Management”.

I firmly believe that any company that continues to keep procurement in the closet will go the way of the dinosaurs. As the global market place heats up, companies will have to push innovation to the max just to survive. But even those companies will have a limited lifespan if they don’t source for success. After all, when their competitors will be producing products at 80% of their cost and reaping revenues 20% higher, it won’t be long before they just can’t compete.

To see how vital procurement will become, let’s review the best practices of the best-in-class companies identified by Aberdeen: dedicated leadership, centralized control, standardized processes to capture and leverage results, employment of technology to facilitate the process, and constant measurement.

Who else besides the CPO is going to be able to lead these innovation processes? Considering that innovation cross-cuts every unit of the business, you need someone who is used to working with every unit of the business on a regular basis. What other division in the business regularly deals with every other business unit? What other senior manager interacts with every other manager on an almost daily business? Only finance and the CFO. But finance is only about controlling and tracking costs, not managing value and leading innovation. And the CFO is there to see that funds get used wisely, not lead new innovation initiatives.

Where else are you going to centralize control? Only a best-in-class procurement organization constantly looks at buys from cost and risk perspectives – only a best-in-class procurement organization understands how to calculate the total value of a purchase. Furthermore, only procurement regularly interacts with partners up and down the supply chain.

What business unit besides engineering needs such a refined focus on standardized processes to succeed? Where has the recent evolution in center led operations been taking place? Procurement. Sourcing best practices rely on standardized processes. Procurement Centers of Excellence have been transforming operations at best in class companies and increasing EPS (Earnings Per Share) across the board.

New integrated, collaborative, workflow-driven e-Sourcing systems have been transforming not only sourcing processes but sourcing teams into efficient networked-person communities that can effectively interoperate locally and globally. Who better to lead the transition to PLM (Product Lifecycle Management) technologies then someone intimately familiar with SLM (Sourcing Lifecycle Management) technologies that are built on the same precepts and processes?

Finally, sourcing professionals are used to measuring everything they do. How else can they quantify success? They don’t produce physical products. They don’t make material sales. They don’t cut the final contracts. Their only achievement is savings, an intangible meaningless concept until quantified and measured.

Furthermore, I believe that the best-in-class companies will be those that embrace new innovation processes, such as TRIZ and the Verifier approach, that require coordinated team efforts across the board. Those teams will need to be led by an interdisciplinary team well-versed in all of the business’ operations. Only one team makes the cut. Procurement.

As companies continue to outsource and go global, even more of a company’s spend will flow through procurement. Procurement will not only become the center of operations in a company, but the difference between a successful profitable company and a company on the brink of bankruptcy. And I am predicting that this future will happen a lot sooner then you think. The best-in-class companies are embracing procurement today in preparation for a market shake-up that could happen any time with the rampant rise in energy and raw material costs and global stock markets that literally rise and fall overnight thanks to rapid advances in e-trading.

And if you haven’t figured it out yet, as suggested by the recent cross-blog “Sourcing Innovation Series”, The Purchasing Evolution is Here! Vive La Evolution!

Initially posted on the e-Sourcing Forum [WayBackMachine] on Saturday, 9 September 2006

In the past year, Aberdeen Group has released a number of significant research reports on new product development and innovation, starting with the “Product Innovation Agenda Benchmark” (September, 2005), continuing with “New Product Development: Profiting from Innovation” (December, 2005), and, more recently, “Procurement in New Product Development: Ensuring Profit from Innovation” (March, 2006) and “Design for Sourcing: Improving Product Lifecycle Profitability” (March, 2006), all authored or co-authored by Aberdeen’s own Mr. Innovation, Jim Brown, their VP of Global Product Innovation and Engineering Research. The last report is co-authored by Sudy Bharadwaj, Aberdeen’s new and improved Mr. Supply 2.0.

Not only did these reports qualify the value of innovation to a company, but they quantified the significant financial benefits of introducing procurement into the process at the earliest stages of New Product Design (NPD). Specifically, when procurement is included in NPD in the design stages, product development cost is typically decreased by 16 to 18%, overall product cost is typically decreased 15%, and revenue is typically increased by 19%. Furthermore, quality is improved (through the elimination of late changes due to sourcing considerations), parts reuse is increased (which enhances supply leverage while reducing inventory and complexity), and time to market cycles are improved by 10% to 20%.

When you consider the intensified cost pressures, reduced product lifecycles, increased product complexity, increased rates of commoditization, tougher competition, and the continual reduction in trade barriers in today’s global marketplace, the need for continued innovation is essential to a company’s very survival. However, when done right, successful innovation can be the key differentiator between survival and massive profitability.

With respect to product development targets, Aberdeen has found that the majority of companies (75%) are not able to consistently hit any of the following five key measures:

• percentage of products meeting revenue targets
• cost targets
• launch date targets
• quality targets
• product development cost targets

Classifying companies into laggards (25%), industry norm (50%), and best-in-class (25%), Aberdeen found that the industry norm was only able to hit revenue targets 40 to 80% of the time, cost targets 40 to 80% of the time, launch dates 20 to 80% of the time, quality targets 50 to 90% of the time, and development cost targets 30 to 80% of the time.

New Product Development is more challenging now then ever before since the majority of products require expertise across disciplines and organizational boundaries. Most products are so complex that it often requires cross-disciplinary teams across your supply base to design, prototype, and bring a product to market. Furthermore, innovation, which is as much as broadening the product development view as it is about managing the product lifecycle, requires input from business units including, but not limited to, design and engineering, marketing and sales, legal, finance, and procurement. The process requires a significant amount of coordination, communication, collaboration, and control.

Managing this innovation is no easy feat, but great results are much more likely if you follow the best practices of best-in-class companies that dedicate leadership, centralize control, standardize processes to capture and leverage results, employ technology to facilitate the process, and measure constantly. (For more details, refer to the Aberdeen Group reports referenced above.) A senior manager should be directly responsible for overseeing the full process of identifying innovation opportunities, engineering them, developing them into products, and bringing them to market. Centralizing control allows for the standardization of processes, consistent distribution of best practices, and consistent management of a central knowledge repository. Standardize processes improve efficiency and allow for the capture of knowledge and results that can be re-used in the future. Appropriate technology can simplify coordination, collaboration, and communication and allow everyone involved to focus on innovation, not automation. Best-in-class companies are four times more likely to have Product Lifecycle Management related technology, integrated data and process automation, and collaboration infrastructures than their peers. Constant measurement allows for constant improvement. Best-in-class companies are three times more likely to measure key performance indicators across projects on a monthly basis.

Furthermore, successful innovation incorporates customer needs, evaluates goals in business terms, implements operational improvements that yield tangible results, chooses product opportunities by value and relies on procurement to ensure that product costs and supply risks are addressed up front.

Successful innovation “designs for sourcing“. If you wait until the prototype phase, after engineers have made material and component choices, chances are that all of your designed-in-costs, which the Defense Advanced Research Projects Agency (DARPA) estimates to be 80% of the product costs, will be locked in. Involving procurement early is the key. Otherwise you risk increased direct material costs, unacceptable risk in supply, unexpected component obsolescence, missed regulatory compliance, the inability to expand products into new geographies, the lack of ability to take advantage of sourcing leverage, increased quality inspection costs, raised manufacturing costs, and missed launch dates.

To design for sourcing, the average company, who still operates in organization man’s world (see Part V), will have to reshape its organizational discipline to one of organizational synergy between networked persons across its business units, and engineering and procurement in particular. Engineers have to be aware of the impact of their decisions on cost and procurement has to be aware of the impact of engineering’s decisions on supply and they both need to work towards selecting the best components for the best products that bring the most value to the company.

For more ideas on how to innovate your purchasing – and your sourcing – see the Next Generation Sourcing wiki-paper over on the e-Sourcing Wiki [WayBackMachine].