Daily Archives: June 17, 2006

Strategic Sourcing Week Review

This week we defined a basic sourcing process, indicated there were five critical process-driven phases that can be greatly enhanced by software solutions, and discussed each of them in turn as a solid foundation for going forward. 

We also discussed some innovative features of the best marketplace offerings, indicated there was still room for innovation, and hypothesized what the next big breakthroughs will be. Today we are going to summarize the innovations that are yet to come that we discussed this week as a foundation for our first innovation week, which begins Monday.  This is going to be our first set of posts in a regular series where we discuss innovative practices of current and future leading supply chain organizations.

Monday we discussed spend analysis, the process of aggregating, classifying, and leveraging spend data for the purpose of cost reduction, performance improvement, and greater compliance, and indicated that the most innovative solutions have the ability to slice, dice, and drill down on multiple dimensions simultaneously, support custom defined filters, and detect spending patterns <i>and</i> variations in an on-demand fashion.   In the future, innovative spend analysis tools will integrate market data and business intelligence to determine which spending patterns are the furthest off from expected values.

Tuesday we discussed RFX, the technology used to identify new suppliers, determine if suppliers are willing to provide a product or service, obtain additional information on supplier offerings, and collect bids, and indicated that the most innovative solutions come with supplier portals that actively engage your suppliers in the process.  The next major innovation in RFx will be the integration of business intelligence that will let you discern supplier viability and quality before your first interaction, so you do not waste time screening suppliers already known to be inappropriate to your line of business.

Wednesday we discussed Auctions and I predicted that the future leaders in auction technology will incorporate some form of decision optimization directly into the live event.  This will allow best practices and total value management to be taken into account during the auction and guarantee that the identified awards not only respect all of the relevant business rules but are optimal in that respect.

Thursday we discussed Decision Optimization, which I defined as the application of one or more rigorous analytical techniques to a well-defined model to generate the absolute best decision from a multitude of possible alternatives in a rigorous, repeatable, and provable fashion. I then predicted that future leaders in the e-Sourcing space are going to be those that master decision optimization technology and its various applications.  Although I stopped short of indicating specifically what this might entail, because it is a complex subject upon which intend to write multiple posts over the next year, I will indicate that the more innovative implementations will be those that are not only capable of handling quantitative and qualitative constraints, but also capable of solving the models from a well-balanced Total Value Management perspective.

Finally, yesterday we discussed contract management, which is critically important from a savings realization viewpoint, and I indicated that despite the recent considerable advances in the technology, I believe future systems will incorporate advanced business analysis that will allow them to detect contracting patterns.  These systems will not only point out What types of contracts and clauses are usually used for a certain type of supplier and / or commodity, but what types of contracts and clauses should be considered given the financial status of the supplier, historical performance, and commodity specifics.  They will automatically draft starting contracts for you and indicate when you are missing important clauses like IP protection or delivery terms and when recommended updates are inconsistent with your usual practices.

In other words, even though today’s sourcing technology is a considerable breakthrough compared to most other forms of traditional enterprise technology, it’s going to continue to get better as time goes on.  Furthermore, on-demand providers are going to be leading the way – but that’s another post for another time.