The Fourth Annual International Symposium on Supply Chain Management starts today. It looks like it’s shaping up to be a really good conference. I had some interesting conversations last night. Look forward for some great posts on, and inspired by, the event in the days ahead!
Monthly Archives: October 2006
Spend Management Changes Business
Before the Sourcing Innovation Series, where the mighty prophet of the spend management space Jason Busch offered up his thoughts on “Sourcing Innovation: Securitizing Direct Materials”* and “Sourcing Innovation: Next Generation On-Demand”*, he published a whitepaper for Ariba entitled “Spend Management: Changing Business”, A Case for Reexamining Procurement’s Role In Organizations of All Sizes, that you should read, or read again, as you’re unlikely to find all of the nuggets of wisdom Jason packs in on a first read.
Spend Management can lead an overall business strategy. And it can create significant competitive differentiation that is much harder to replicate than a product or service that is sold on the revenue side of the business … Spend Management is not a business strategy and philosophy. It is the business strategy and philosophy that leaders practice and followers fail to fully understand.
Spend Management is not just cost management. It is not just procurement. It is not just new software. It is not just an incremental change in function or process. It is not a new fad or methodology being pushed by the consultants simply to define their value and take your money. It represents a new type of thinking, a way of taking integrated approaches to not just procurement, but all aspects of non-revenue generating operations. It is a way of thinking about your global supply chain strategy that will reduce costs, improve processes, and increase profits even when inflation is rampant, economies tight, and transport lanes continually overtaxed.
At the very core, it is the process of driving sourcing innovation to new levels across your organization. Continual Spend Management Innovation, to squeeze more and more from every dollar you spend, is your ultimate goal as it is the only way to guarantee long-term sustainability of results. You focus on value, which could be defined as the simultaneous maximization of total cost, production efficiency, and innovation.
Spend Management success requires creating specific goals and having a destination point in mind. To do this, it is necessary to identify where a company stands today and how to overcome the gap between the current state and market leadership. After all, there is no panacean spend management solution, even though there are a number of platforms that cover different aspects of spend management, which include spend visibility, eRFX, eProcurement, catalog search, contract management, supplier performance management, category management, and supplier risk management, quite well. After all, if you know where you need to go, you’ll get there a lot faster.
Accelerating Spend Management results requires that executives move beyond looking at procurement solely as an agent for cost reduction. To sustain results, organizations must now examine cost, spend, vulnerabilities, and risk as assets to be managed and reduced. … Organizations need to think creatively about the best – and most cost-efficient – ways to mitigate and manage vulnerabilities and risk to drive Spend Management results. Every company is different. Every supply chain is different. And every solution that outperforms a competitor will be slightly different. The key is to learn from the best – and then improve upon it.
When upgrading capabilities and investments, it is not necessary to switch out existing providers. It is now possible to use and improve what they already have by turning to other providers to augment and enhance existing capabilities. I’ll say it again, there is no panacean spend management solution. Although some providers offer extensive integrated solution suites, some of which are quite spectacular, each provider tends to have a strength in a different area, such as eProcurement, eSourcing, contract management, spend analysis, supply visibility, or supplier risk and / or performance management, and the best solution for your company will probably be a combination of vendors – and sometimes you’ll even have multiple vendors that offer the same capability as you will find some vendor solutions more suited to certain parts of your supply chain than others. However, since most of the best vendors on the market today offer on-demand solutions, building an optimized heterogeneous solution should not be problematic.
To ensure that an organization is headed down the Spend Management path to sustainable savings and potentially industry-shaping results, it is essential for executives to keep three key objectives in mind. First, they should take a flexible approach and expect the same dexterity from their partners, realizing that Spend management is not a one-size-fits-all proposition. Staying nimble allows a company to take advantage of opportunities as they arise, and to react to – or ideally predict – changes in market conditions. Second, they should establish longer term goals and programs without sacrificing near-term objectives that can motivate the organization and prove the value of Spend Management as a continuous process. And third, they should invest in creating company-wide systems and capabilities that use the best of internal and external knowledge and processes to maximize – and guarantee – ongoing results.
* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.
The Need for Supplier Relationship Management Education
Capgemini recently announced some of the findings of its most recent research into supplier relationship management in a news release released last month. The findings demonstrated that a significant disconnect still exists in the state of the art of purchasing systems and the state of the practice. Although it found that businesses could expect to save 10-25% on their purchasing costs with an effective systems, it found that less than 50% of SRM users use the application to track orders and only 7% of purchasers use the reporting functions.
The study, which looked at priorities for global Chief Purchasing Officers (CPOs) from six different European countries in a wide cross-section of fields, also found that although many purchasers use spend information to prepare contracts, less than 40% can access the spend information in their SRM application and 30% said that they would need training to use the SRM application effectively.
Although neither the news release, nor the subsequent write-up on the European Leaders Network, discussed the issue, this indicates to me that business are still overlooking one of the key elements to success with any business system – user education.
Supplier Relationship Management, defined as creating an all-encompassing strategy where suppliers connect to your business in real-time, enabling you to gain control of your companies’ direct and indirect spend, transforming suppliers into business partners and extending applications to create value, can be greatly enhanced when well designed systems are used (providers include Apexon [acquired and merged with Infostretch in 2022], SAP, and Vinimaya [rebranded Aquiire and acquired by Coupa]), but only if the users know how to use the system effectively. Make sure extensive training is included as part of your deployment plan and you may find that you are one of the top performing companies achieving a 20% plus return.
The Talent Series IV: The Talent War
This series seems to get more relevant by the day. On Thursday, the European Leaders Network published “The War for Procurement Talent” where they noted that you need the right environment to attract and retain the highest calibre procurement talent. After all, talented people tend to make above average contributions to any organisation; every good business has talented and motivated people at its heart.
According to the article, the best way to attract talented individuals is to ensure that the purchasing challenge presented to the candidates is BIG and NEW. Great talent is drawn to the opportunity to work on big things and to apply new thinking. Furthermore, it states that the best way to keep them is to ensure your business has the capacity to change. Talented people need to be successful, and change creates the opportunities that talented people can exploit in pursuit of success.
However, as the article points out, not every category is big or wrought with the opportunity to change the business. So how do you attract talent to these categories? One possibility is to hire recent graduates. A recent article in Canadian Business (Sep 11 – 24, 2006 print edition) by the title of “Hire Education” offers some good advice in this area.
The article, which discussed the results of a survey of 30,000 students from 143 post-secondary institutions across Canada, jointly conducted by Toronto based Brainstorm and D-Code to guide recruiters on what the new crop of employees want found that the number one attribute young people value most when considering employment is opportunity for advancement. Since they will be starting at the bottom of the pyramid, if you have a decent size organization, you can offer them lots of opportunity for advancement – or at least change – by rotating them through different categories to broaden their skills and bring a fresh view. In addition, the number two and three attributes were good people to work with and good people to report to. So build a good team, and talent will be attracted to you.
As you have probably guessed from my recent posts, I more or less agree with these statements. Opportunity attracts, while the capacity for change and advancement retains, but, as I’m quick to point out, only if the compensation is fair and balanced. Otherwise, they’ll probably be attracted to the bigger carrot on the shinier stick held out by your competitor.
(Supply Chain Management Technology) Still Going …
A month or so ago, “AMR Research” (acquired by Gartner) released their “Supply Chain Management Applications Report 2005-2010”. Considered one of the cornerstone reports of the space (with a price tag to match), it’s always worth a read – if you can afford it.
If you can not afford it, you can settle for the highlights, which SupplyChainBrain was kind enough to post in an extended three page review in the September 6, 2006 edition of the e-Insider. I hope you were fortunate enough to catch the summary before it disappeared from their site. If you were not, here are seven highlights from the summary.
(1) The SCM market grew 3% in 2005, and is expected to grow 7% in 2006 and 5% in 2007.
(2) The most rapid innovation is being delivered by independent software providers that are focusing on industry-specific functionality and targeting under-serviced business problems.
(3) While 75% of firms have supply chain organizations, only 52% have experience with a supply chain organization for more than two years. As a result, domain expertise is a limiting factor for user adoption of supply chain management technologies.
(4) Analytics is merging with optimization to drive decision support for critical processes.
(5) The following environmental factors affecting the SCM market have triggered a shift in business priorities since the last report:
- Globalization and global sourcing
- Leaner supply networks
- Increased customer expectations
- More mass customization
- Increased demand variability
- Cost volatility, inflation, and competitive pressures
As a result, the development focus for vendors has shifted as follows:
- movement from static demand planning to demand sensing and shaping
- progression from enterprise planning to multi-tier decision support
- recognition of materials and logistics as major manufacturing constraints
- shortening of order execution cycles
- focus on network flow analysis
(6) The top growth area for 2005 was in AMR’s inventory configuration and policy technology category as a result of the need for multi-echelon inventory optimization and inventory policy to buffer against supply risk, maximize in-stock positions, and ensure continuity of supply.
(7) Revenue from application hosting/subscription grew strongly at 16%. SCM software is increasingly purchased by buyers on a subscription basis to avoid capital budgeting, rapidly achieve ROI, and avoid large upfront license commitments. Furthermore, AMR expects subscription licensing to continue to grow as a share of SCM software revenue.
In other words, (1) the market is growing, (7) on-demand is capturing the market place, (5) execution cycles are shortening in a time when improved demand sensing and shaping is key, (6) technology that addresses this problem will continue to grow and improve, (4) the best technology will be built on analytically-based optimization, (2) it will be built by innovative fast-moving independent software providers, and (3) chances are good that you need to adopt this enabling technology since there is a 52% chance your supply chain organization is limited in expertise and experience and the right technology from the right partner will greatly enable your organization.
And all of the above is good news for you.
(1) In a growing market, your solution providers will be pumping more sales dollars back into R&D to make better products for you. This will be especially beneficial to those of you who use on-demand solutions with frequent upgrade cycles.
(2) As time goes on, there will be more and more solutions that address an ever-increasing number of business problems, making your job easier and easier.
(3) Knowing that your domain expertise is limited allows you to go out and seek precisely that. Many consulting firms have been springing up to help you with specific problems. Use them. After all, Aberdeen has found that companies that outsource well do better than their peers.
(4) Considering that Aberdeen has found the application of optimization tools to analyze total costs, and of flexible bidding functionality to uncover creative supplier solutions has enabled early adopters to identify an average incremental savings of 12% above those that basic, price-focused auctions alone have generated, the quality of your allocation award decisions can only improve.
(5) One of my summer series discussed how Demand Driven Supply was the future of supply chain demand planning, so the fact that vendors are already actively pursuing this direction is great news for you.
(6) Simply put, improved inventory management software decreases your costs and increases your profits.
(7) On-Demand is here to stay – which is good news considering all of the benefits it provides (as chronicled on the e-Sourcing Forum [WayBackMachine]).