Monthly Archives: September 2005

Do You Have a Data Quartet that Can Carry a Tune?

Originally posted on the Synertrade blog in April, 2018.

Right now you’re probably thoroughly confused, but that’s okay. Because if I just entitled this article with the core topic of “data harmonization”, you’d be equally confused. And at least this title asks a relevant question.

So what is data harmonization? Technically, it refers to the effort to combine data from different sources into one consistent view that can be provided to a user in a comprehensible, and sensible, fashion. And that sounds simple, until you try to dissect what that means and what it entails.

Let’s start with the “combining”. This is easier said than done. Data can be fully structured (as it is in a well-defined relational record), semi-structured (as it is in a relational record with meta-data fields and blob fields or object records with ids and unstructured data), or fully unstructured (such as full text articles, audio and video files, etc.). So if one source is structured, and one is unstructured, how do you combine it?

Also, data can be stored in different types of systems — old school flat file databases and mega Excel sheets, slightly more refined column-oriented databases, traditional relational database systems, newer object oriented databases, and modern NoSQL databases are just a few of the more common examples.

And even if you can figure out how to mesh all of these, you have to remember that each database can be stored in a different character set (ANSI, ISO, Unicode, etc.) and use different base formats for its integer and real numbers (even if both databases call the data type float, there can be different bit counts AND different uses for the leading or trailing bit, one of which will usually signify sign).

And even once your data jockeys figure all of this out and can take all of your structured, semi-structured, and un-structured data from a variety of record (row) oriented, column oriented, relational, object, and NoSQL systems and put them all into one massive (virtual) data warehouse (through a super view) with appropriately mapped data elements that all use the same, commonly defined, data types in the same character set, that’s just the entrance exam. They still haven’t passed the course, and you still can’t do anything. Why?

Just because you can get the data into one data store doesn’t mean you can actually do anything useful with the data. Why? When you have data across ten systems, you tend to have duplicate data across a dozen systems and until you can merge all copies of the data into one, de-duplicated, correct data record, any report you run will be incorrect and useless.

Why would you have ten (10) copies? Think about it. You will be keeping, and working with, data on a supplier in the MRP (manufactured / custom product details), ERP (locations and some master data), AP (for payments), Catalog (for finished products), e-Sourcing application (where data is collected), SRM (where performance data is tracked and relationships are managed), SCAR (to solve problems), CLM (where the contracts go), e-Invoicing (which processes all the invoices), and Risk Management (where you collect internal metrics and third party data), and maybe more.

And it’s not just as simple as identifying the 10 supplier records into one mega record, because all will have a supplier id, supplier name, basic contact information, etc. This means that you will have up to 10 copies of a piece of information when you only want one, and, moreover, not all will be the same. Why? Some system will use different ids, and some systems will have incorrect, misspelled, or abbreviated data. You will need to identify all copies of the data, correct and incorrect, and replace them with one, up to date, correct copy and do this for every single data record, which could be tens of thousands for suppliers, hundreds of thousands in your employee database, and millions in your product database. Not an easy task.

But even if you manage to do this, you’ll find that you still have critical gaps in the data, such as risk and sustainability scores, product and service catalogs beyond what you currently buy, deep location data (all facility locations, warehouse size, global lane options, etc.), and so on. You will need to enrich your data with data from third party sources and feeds in order to make it useable. And then you have to consider all of the issues that go hand in hand with mapping yet another source into the central (virtual) data warehouse (since the EDI feed could have its own schema), for dealing with duplicate, incorrect, and incomplete data (as certain values will be repeated, contact information could be out of date if the feed was only validated three months ago but you updated a new contact manually one month ago), and no single feed will have all the data you’re missing. So enrichment can be a challenge as well.

However, even when you manage to

  • (virtually) centralize,
  • de-duplicate and cleanse, and
  • enrich

the data, you’ll still find that your data is not harmonized. In order for data to be harmonized, it has to be structured for use. While you will be mapping each piece of data you import to a well defined record format, just having good record formats is not that useful. To do detailed analysis and reporting, you need well defined cubes and views on those cubes. Those cubes need to be well defined and well structured.

And even though analytics is the first application you think of that needs structure, it’s not the only one. The internal catalog also needs appropriately structured data to allow for fast searching and retrieval. The tax analysis system to review payments by country, vendor, and agreement to determine if there are reclamation options. And so on.

In other words, data harmonization is not a simple effort, and requires a quartet of capabilities to get it right:

  • schema and data format normalization for (virtual) centralization,
  • de-duplication and cleansing,
  • enrichment, and
  • structuring

And unless all of these capabilities are sound and in harmony, an organization will never achieve data harmonization, which is critical for Supply Management success.

And this is why an understanding not only of why you need harmonization, but what’s involved and why you might need a provider that understands the intricacies, is so important. In this article, we’ve tried to give you a sense of what’s involved so you can work with your IT department to ask potential vendors the right questions to separate who talks the talk from who actually walks the walk. The reality is that while every vendor understands the importance, not every vendor can do it well, especially in an efficient and timely manner.

Breathing New Life into e-Auctions

Originally posted on the Synertrade blog in February, 2018.

SynerTrade has been saying e-Auctions are not dead, and they are right — they’re not. Many organizations are still using e-Auctions, and these e-Auctions are still delivering fantastic returns the first time (they are applied to a category). And sometimes these e-Auctions even deliver fantastic returns the second time. But, in an average organization, these e-Auctions sometimes die after a few key categories have been sourced for the third time and prices go up. (Yes, prices can go up as a result of an auction — especially if the auction was poorly designed or the category poorly chosen.)

So how do you make sure your auctions don’t die?

Three three best practices will give e-Auctions eternal life in your organization!

1) Analyze the Market before choosing e-Auctions as your strategic sourcing platform

Use publicly available market data from indices, government contracts, marketplaces, and your GPOs to build a reasonable should cost model and compare it to your current costs. If market prices have gone up (considerably) since the last e-Auction, chances are there’s not going to be much success in the e-Auction. If market prices have gone down, chances are there is a good opportunity for success. If market price is about the same, then if the volume is there, since good negotiations can get below market, then still consider an e-Auction.

2) Break out the costs … and invite carriers and configurators too

All-in bids allow providers to build in or hide greater than market costs and takes away your opportunity as a buyer to either lower those costs if the service (such as shipping or system pre-configuration) can be done cheaper by third parties or identify opportunities for supplier development to lower costs over time. So break out product bids from delivery bids (and break out worker / service rates from travel and expense costs) and make sure the best provider can bid on each.

3) Automate 3-bids-and-a-buy tail-spend

The biggest opportunity is in mid-size categories that are not being regularly sourced where you have no time to build should cost models and no insight into market pricing. Create standard templates for these, along with standard (approved) supplier lists, and use your platform to automatically construct the auction workflow. And if you have a cognitive platform, use it to automate the entire auction (including the award if all suppliers have been pre-qualified and the amount is under a threshold). In an average organization, tail-spend is 20% to 30% and over spend is 15% to 30% — and this negatively impacts the bottom line by 3% to 9%. Auctions can deliver easy savings here … that go straight to the bottom line.

In addition, you can also consider the following to get even more use out of your e-Auction platform:

4) Supplier Qualification

Do multi-round tenders that use e-Auctions for supplier qualification.

For example, if you are planning to split demand between three bidders for risk mitigation, indicate that the three winning bidders will advance to the next optimization-backed RFX round where all three bidders will be ranked against multiple objectives and receive a guaranteed business minimum (e.g. 20%). This can really drive down starting bids and allow you to focus your time on proper supply chain design with the vendors you should be using.

5) Bundling for MRO, Value-Added Services, etc.

Sometimes it just makes sense to bundle a product buy, installation service, and training service from a single vendor — especially when the volume or dollar value of each component on its own is not attractive in a 3-bids-and-a-buy tail spend auction or when a provider who specializes in offerings around the product can use the volume leverage you give it with their product suppliers.

e-Auctions Live!

In other words, e-Auctions are far from dead and have a lot of value if properly applied. There’s a reason auctions have been around for thousands of years. They work! But just like the gambler has to know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run — you have to know when to hold ’em, know when to fold ’em, know when to walk away … and know when to run. And this is where a lot of organizations fail.

First up, they believe if the auctions work the first time, they’ll work the next time. However, as we indicated above, whether or not the auctions will work the second time really depends on the market. If the first auction squeezed most of the fat out of the supplier margin, and prices in the category have went up significantly since the last auction (and especially if the prices have gone up close to, or in excess of 10%), they just aren’t going to work. In this case you have to walk away.

Secondly, some organizations will persist even if preliminary pricing, from market data or initial RFB/Qs, is considerably higher than what the organization expects. Some organizations believe suppliers always start with an excessively high bid which they will lower aggressively during the real-time auction. Sometimes this is true, but if you are sending the RFI out to long-time suppliers who have been through the process before and know that they may not even get invited to the auction if their starting bid is too high or proposal just flat out unacceptable, they are not always going to come down double digits during the auction. In this case you have to fold your plans.

Thirdly, some organizations will try to work with a stakeholder who will not accept any sourcing process that does not involve a reverse auction, believing that they will be just as successful as their peers (claim to be). If a stakeholder is not willing to let the market guide you to the best approach, then you need to run … and move on to the project that involves a stakeholder that is more flexible. Especially if you are only able to strategically source about one third of “spend under management” each year.

Fourth, and finally, if the market analysis indicates that prices have gone down, there is excess supply, and there is opportunity, especially if you open up the auction to new suppliers, even if there is initial bias against the auction or the initial bids come in high, you have to know to stick to your guns and hold fast.

So what can you auction?

The answer here is simple: anything you can legally buy or sell! It’s not just for (indirect) products.

You can auction services.

As long as you can clearly specify the service needed, the education and experience required of the service worker, and any insurance or certifications that are required, you can auction by resource type. All you need to do is determine if you want to auction by time-based rate (hourly, daily, weekly, etc.) or by statement of work, and whether you want expenses included or broken out.

You can auction consumables and MRO.

You don’t have to restrict auctions to (direct) goods and materials that you are reselling or using to manufacture the goods you are selling. You can auction your office and janitorial suppliers, your maintenance parts, etc.

You can auction utilities.

You can auction your land-based and mobile communications. If the buy is big enough, the big carriers will play ball. With so much competition, some of them are more desperate for business than they will let on. If your local energy market is de-regulated, you can auction your energy buy. These carriers will definitely compete as well. The savings might not be as great here, but if you design the auction smartly and bid peak vs. off-hour rates, tie bids to market indices, etc., you can still find savings. Some niche sourcing services providers just focus on energy marketplace, so you know there has to be opportunity there.

You can auction your facilities management and even your facilities leasing.

There’s more than one company out there that specializes in facilities management who will mange your maintenance and upkeep, repair, janitorial services, etc. And most of these will get competitive for a sizeable contract.

Plus, if you need to lease new space, and the market is in your favour (i.e. more spaces to rent than interested parties to rent them), you can auction your lease — especially if it’s a long term lease.

In other words, you really can auction anything if the market is right. It just takes a bit of research, planning, and preparation. But with a modern platform, which comes bundled with templates, category intelligence, and cognitive capabilities, a lot of this work can be simplified and even automated for you.

But the category has to be big to auction, right?

Not really, Many categories that have never been strategically sourced hide savings opportunities in the 10% to 30% range. As long as 10% of the category costs exceed the manpower costs to run the auction, the auction is a candidate. And if the expected ROI is more than 3X, it’s a perfect candidate. Let’s say the cost of a fully burdened resource is 500 a day. If the category is 10K, and the expected savings is 15%, that’s a ROI of at least 3X if the total manpower to run the auction is less than one day. In other words, any category over 10K can be a candidate for a manually run auction. An average organization has lots of these. You just start at the biggest opportunity (defined as the largest spend times the expected return based on market costs and typical saving percentages) and work your way down.

And if you have a cognitive platform that can automate auctions, especially for tail spend products and services against pre-defined templates and workflows, you can run all of these categories through an auction. And you don’t even have to stop when you get down to 10K. Why not auction a short-term 5K services contract for installation of standard replacement equipment to the local mom-and-pop vendors? If the system automates a $500 savings, take it. Especially since the system could automate 50 of these auctions across all your office locations when someone needs to go in and replace all the firewall devices to adhere to your new internet security standards. Fifty times five hundred is twenty five thousand — and that savings could easily exceed the savings you’d get from a national vendor who only has employees in ten of the fifty locations and who would be charging you travel and expense for the other forty.

Auctions may be ancient (literally), but they are still one of the best strategic sourcing and tactical procurement tools in your toolkit when used wisely. So use them.

Supplier Satisfaction

Originally posted on the Synertrade blog in December, 2017.

Supplier satisfaction is critical to your success. By this we don’t mean your satisfaction with the supplier and its performance, we mean the supplier’s satisfaction with you and your performance.

Why is this so critical? Ultimately, your success depends on your supply chain’s success, and the success of your supplier’s. Think of all the major product and service lines you sell. How many of these could be truly successful without top tier support from a key supplier? The answer is, if you haven’t figured it out already, 0. Even if you are a consulting organization offering pure IP services and delivering only talks, workshops, and paper, you are still depending on one more suppliers to do that. Either couriers to deliver the paper or the internet provider to deliver the email. If they fail, you fail. And if you are delivering products, or product-supported services, you are relying on many more suppliers and sometimes relying on them 100%.

So why do your suppliers have to be satisfied when, theoretically, as a big important buyer you could just give your business to someone else? Because, in reality, you often can’t — at least not quickly. Think about it. Even if there are three other suppliers who can supply that more-or-less commodity item – they need to be qualified and contracted, then they need to produce and ship, and then it needs to hit your store rooms or shelves. Depending on the category, that is weeks to months. If it is a custom manufactured product, it could take weeks to months just for a new supplier to setup and configure a new production line.

Basically, for strategic products and services, which, to be honest, include any products or services that cannot be interchanged with products and services from another on-contract supplier as-is, your organization is ultimately dependent on one or more supplier organizations, and their performance is your performance. And that, in a nutshell, is why you need them to be satisfied.

Quality, on-time delivery, and product/service support are entirely up to your supplier, whose personnel are overworked, whose carriers have limited capacity, and whose attention is being simultaneously requested by all of their customers, including your competitors. If you want to be sure that, when time is crunched, it’s your product shipment that is subjected to the expected (and contracted) quality tests, it’s your product shipped out on time, and your support calls that are answered, you need to be a customer of choice. And the only way to be a customer of choice is to be a customer that the organization is satisfied with. It doesn’t matter how much you spend, it doesn’t matter what language is in the contract, and it doesn’t matter how important your customers are. If the supplier doesn’t like you, you’re not a customer of choice.

This is becoming especially critical now that your chance of not being subject to a supply chain disruption in any given 12 month period is 10% or less, now that news stories about not only lack of quality (testing) but faked quality tests are becoming common, and now that complex products are requiring more support from the supply base.

So how do you satisfy a supplier?

While it’s hard to give a hard and fast rule that will work in all cases, starting with the following three recommendations will go a long way to satisfying your supplier and making you a customer of choice.

1. Pay on Time

And, more importantly, pay on time under reasonable payment terms. Even if the locality will let you get away with 60, or even 90, day payment terms, don’t do it. Just don’t. Chances are your supplier has a worse credit rating than you, has less cash in the bank, and if they have to borrow, has to borrow at a higher rate than you. So pay them in 30 days, or less, every single time. You’ll be pleasantly surprised how far this alone will put you above the average customer.

2. Create 360-degree scorecards, listen to feedback, and implement corrective action plans internally as well.

Think about it. Would you like to be constantly assessed, compared against your peers, and forced to undergo corrective action plans without ever having the opportunity to provide feedback? Would you feel it fair if every time something went wrong, you were always assumed to be the root cause and you had to do all the work? You wouldn’t — and your supplier feels the same way. Make them a part of a complete, open, and transparent process where, if you determine that you are partly to blame for a failure, you force your people to undergo a corrective action process and to create a plan to do better. Even if your organization struggles to improve, this will still earn you a deep respect from the supplier who will, in turn, be willing to give a bit more since you do.

3. Create, and undertake supplier development plans regularly.

Chances are your organization is a more mature organization in Procurement, project planning, lean implementation, six sigma analysis, and so on. And, chances are, your CFO is demanding cost reductions even when raw material prices are going through the roof, currency conversion is not in your favour, and oil, and thus fuel prices, are insane. The only way you are going to get those savings is if the supplier becomes leaner and meaner and reduces production costs. Chances are that your supplier needs help to do that. So, if your organization is the one to help them, they will be forever in your debt — or at least in need of your services, again making you a preferred customer as they will be more than satisfied with your performance as a customer.

The reality is that it’s usually not that hard to keep your suppliers satisfied. It just takes fairness, a bit of effort, and the willingness to work together to make both parties better. So go and satisfy your suppliers. Your customers will thank you for it.

Surviving a M&A …

Originally posted on the Synertrade blog in January, 2018.

In recent posts over on Sourcing Innovation, we have explored the M&A Mania (All Aboard the M&A Train!, The M&A Mania Ain’t Over Yet … But …, and M&A: And the Mania Continues …) as a result of a number of big mergers and acquisitions that have happened in the Supply Management space this year. Why? Because, at the end of the day, changes inevitably occur, and in some cases the change is not always the change the customer hoped for.

Acquisitions always give one a lot to think about, as per our last post on Sourcing Innovation, as the value of acquisitions tend to come from three types of synergy:

  • Customer
  • Solution
  • Operations

And there are two ways these synergies can materialize. In the first case, we have the synergy of complementarity, which tends to manifest as follows:

  • the customers will desire the complementary offerings of the two parties
  • the solutions are complementary and fit together like pieces of the same puzzle
  • the operational strengths are complementary and merging the two teams actually increases productivity in marketing, sales, and back office processing

And in the second case, we have the synergy of redundancy, which tends to manifest as follows:

  • the customers all fit the same mould, and can theoretically be served by both companies
  • the solutions are, at least on paper, interchangeable and one half can be retired and the larger customer base served with a smaller solution footprint
  • the operations of the larger company can be conducted with a smaller team using digitization and overlap in operational requirements

If there is any redundancy in the two companies, either in platform, operations, or staff, then the only way the synergy can be realized is through the elimination of the redundancy. And if that redundancy is one that impacts your organization, then you should be planning on what to do if the redundancy is eliminated, because, in most cases, the redundancy is eventually eliminated.

When a merger or acquisition takes place, one thing that is true is that whatever the combined company intends to do, it is very unlikely that it plans to leave your company high and dry (as losing customers totally negates the point of a merger when the intent is to grow). However, that doesn’t mean that the plan it has in store for your company will be the best solution for your company.

For example, when there are two solutions that do essentially the same thing (like Sourcing, Spend Analytics, SRM, etc.), one typically has to go. Chances are they are not 100% interchangeable. For example, one analytics solution will be better at ad-hoc report building while the other analytics solution will be better at out-of-the-box reporting. One solution will be better at do-it-yourself cleansing and classification and the other will be geared for provider service. And so on. Depending on the particular skill level of your organization, you might need a solution with canned reporting and provider data maintenance services. So what happens if this is the solution that is cut?

Similarly, there could be an overlap in account management or support personnel, especially if product lines get cut. What happens if the team you’ve been working with for five years is re-assigned or, worse yet, let go en-masse? Will the new team have the same understanding of your industry, your business, and your goals?

While nothing much should change in the short term (as the new organization sorts itself out), it’s almost inept to think nothing will change in the mid-term. So you better be prepared. How do you do that?

1. Ask yourself what was the reason for the merger or acquisition and where the synergies lie.

If it was merely to increase customer base or market size, then the platform is secondary. And if there are no synergies in the common platform, and more importantly, there is a lot of redundancy, one can expect something to change. Probably sooner than later.

2. Understand your core needs

Basically, go back to square one and pretend you are looking for a new solution. Document your current process, key aspects of the technology you depend on, key services you require, and key support personnel that must be available. Then …

3. Understand what systems / modules / services are core

Go through your end-to-end platform, and determine which modules are core, and, in particular, which functions or capabilities are core. Then go through your end-to-end services and which support services are core, and what makes them core. Then, for each remaining module or service, which parts, while not core, are highly desirable and why.

4. For each core or highly desirable component, identify acceptable substitutions

For example, if spend analytics is core, as it’s the primary tool used to identify value generation opportunities by the Supply Management team, and the team primarily uses ad-hoc reporting, but only on an annual basis, and only creates one or two dozen new reports each year, then maybe the team could get away with a canned reporting solution if the provider has a services team that can add custom reports on a regular schedule at a fair cost. And if SRM is core, but primarily to import data from third parties, then maybe all that is needed is a pass-through interface to the third parties in question.

5. And then identify where there is no acceptable substitution, and what the back-up plan will be.

Going back to our last example, maybe the team just can’t live without ad-hoc reporting capability as the team has no idea which reports are needed until ad-hoc cubes are constructed and investigated by the leading data scientists who use advanced outlier analysis and years of intuition to find the right paths to go down. In this case, the backup plan would be to obtain another solution.

6. Identify Your Out

Hopefully you won’t need it, but in case you do, figure out what that out is. Do you have an out if there is a change of control? Do you have an out if your solution is retired? Do you have an out if services you no longer depend on are cut? Do you have an out at (auto) renewal time?

7. Test the Market

Issue an RFI and find out what other solutions might meet your organizational needs, what the transition time and process would be, and what the cost would be. Chances are that since you last went to market, the situation has changed and the transition time or cost of alternate solutions is less, leaving you an out if you need it.

For example, if there is a best-of-breed point-based solution that could be brought in, then the organization could stay with the current provider and have no fear that someday the current provider would not be able to meet most of its needs. But if there is no best-of-breed solution that makes the grade, or the value is only realized when it’s natively integrated with an end-to-end Source-to-Contract or Source-to-Pay suite, then the backup plan would be a new provider. But this is not a back-up plan that is quick to implement, which means the organization has to start looking now and identifying a data migration plan now and have everything figured out before it’s contract renewal time, when its preferred solution could go bye-bye.

Moreover, as pointed out above, when the merged organizations has two solutions for every problem, this means that each (and every) customer basically has a 50% chance of losing their solution of choice at renewal time. And if the organization cannot live with a disruption, then it has to weigh the risks of staying versus migrating. And sometimes taking the change head on is the best solution. However, until the customer walks through the analysis above, it won’t know. So do the analysis, and weigh the options. At the end of the day, organizational success is not an option, it is a necessity. Make sure you have the right solution, and provider, for the job.