Monthly Archives: June 2007

Two Hundred and Forty One Thousand Five Hundred and Thirty Four

Two Hundred and Forty One Thousand Five Hundred and Thirty Four words later (including the words herein, but excluding the words in comments), or Four Hundred and twelve posts later (not counting guest posts on other blogs), and Sourcing Innovation turns one. Although not a long time, even in net-time, it is significant in blog-time, especially for a blog that posts daily!

It has been a very good year. Growth has exploded from barely two dozen hits a day to over two thousand, and traffic is still, almost linearly, increasing month over month and week over week. (So for all you nibblers out there, now would be a good time to actually bite and put your logo over on the right hand side.)

But the best is yet to come. Even though this blog has covered the full range of the sourcing cycle, from spend analysis through contract and performance management, with a heavy dose of optimization thrown in, addressed the complementary procurement cycle from end to end as well, and discussed a host of timely issues such as X-Cost Country Sourcing, Global Trade and Supply Chain Finance, and the Talent issue, I can guarantee that we’ve only scratched the surface of Sourcing Innovation.

the doctor’s Guest Posts: The Year in Review

Over the past year, I’ve blogged a number of guest posts over on eSourcing Forum, including forty posts last summer as part of the weekend series. For new(er) readers to the blog, here is a list of all guest posts over on eSourcing Forum with direct links.

Weekend Series Posts on e-Sourcing Forum [WayBackMachine]

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

On Demand I: The Good
On Demand II: The Not-So-Bad
On Demand III: And the Coming Pretty …

Cost Reduction and Avoidance I: An Introduction
Cost Reduction and Avoidance II: Metrics
Cost Reduction and Avoidance III: Incentivize for Success!

Supply Risk Management I: An Introduction
Supply Risk Management II: Risks and the Need for Resilience
Supply Risk Management III: Managing Risk

Supplier Performance Management I: An Introduction
Supplier Performance Management II: The Road to Success
Supplier Performance Management III: Best Practices

Demand Driven Supply I: An Introduction
Demand Driven Supply II: Stages and Implications
Demand Driven Supply III: Challenges and Implementation

Center Led Procurement I: An Introduction
Center Led Procurement II: A Center of Excellence
Center Led Procurement III: Best Practices

Procurement Outsourcing I: Is it right for you?
Procurement Outsourcing II: Selecting a PSP
Procurement Outsourcing III: Getting the most out of your PSP

Optimization I: A Powerful Tool
Optimization II: Why it was Relegated to the Shadows
Optimization III: Why it’s time is finally here
Optimization IV: POE or BoB?

Six Sigma I: An Introduction
Six Sigma II: Innovative Quality
Six Sigma III: Value Based Strategic Sourcing

Weekend Series Wrap Up I: Process and Technology
Weekend Series Wrap Up II: Supply Chain Management
Weekend Series Wrap Up III: The Innovation Revolution

Miscellaneous Posts on e-Sourcing Forum [WayBackMachine]

* Lead Time Optimization: Groundbreaking New Technology or just Applied Total Value Management-based Decision Optimization in Disguise?
* Sustained Sourcing Success
* Are there any limits to procurement’s role?
* Outsourcing Gets Tough
* Design for Supply
* The Benefits of an End-to-End e-Sourcing Suite
* Accelerating Value with On-Demand: An Aberdeen Perspective
* Supplier Enablement Enables Savings

And just in case you missed it, here’s a link to the chaos-causing post on Emptoris’ optimization over on Spend Matters:
The Doc’s Perspective on Emptoris’ Optimization*

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

What does Finance Think of Procurement?

CFO Research Services recently produced a white-paper on “CFO’s Views on Procurement – Information, Risk, and Money”, sponsored by Ariba (acquired by SAP), that had some interesting insights on how some top senior finance executives view the procurement function.

The following are the points that I found most interesting in this 20-page study:

  1. improvements in cost management & decision support capabilities
    top the finance agenda
  2. companies see the greatest opportunity in managing external spending
    on production inputs and on indirect costs
  3. executives see greatest benefit from sourcing goods through preferred
    vendors and improving supplier interactions
  4. finance executives say their companies are unable to gather timely and
    accurate information on purchasing activities and have poor forward
    visibility on spending
  5. relationships with vendors are managed with combinations of technology
    and manual processes
  6. purchasing systems are not a cure-all, but companies that have adopted
    technology are better able to take full advantage of preferred providers,
    to find opportunities for savings, and to gather and use information;
    furthermore, in adopters, there are sustained differences in executives’
    views on the effectiveness of the procurement function and the quality
    of information that flows out of it
  7. many respondents cited a need for greater coordination and integration of
    the procurement function with the rest of the company
  8. some respondents noted the lack of an optimal sourcing strategy given a
    complex supply chain as well as difficulty with proper pricing, volume
    discounts, and vendor communication

These give me the following take-aways:

  1. Finance, even though they might not yet understand the procurement function in many organizations, can be convinced of its importance.
  2. This bodes well since Aberdeen’s recent Direct Materials Sourcing Study found that companies with best-in-class direct materials sourcing programs can achieve 28% year-over-year cost reductions and services like Rearden Commerce (rebranded Deem) and Noosh are popping-up to tackle various aspects of indirect costs
  3. This only emphasizes my points that you need to:
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
  4. This demonstrates the need for e-Procurement across the board.
  5. Companies need to invest more in Supplier Relationship Management and Collaboration Systems to increase productivity.
  6. This demonstrates the need for e-Sourcing across the board.
  7. The importance of center-led procurement and cross-functional collaboration emerges as the crystal ball clears.
  8. Great supply chains require Total Value Management and Best-Cost Country Sourcing at their foundations.

And even though the final page from the sponsor, Ariba, was mostly marketing, I have to agree when they state that The survey results are a powerful proof point that elevating the procurement function and its processes and information is critical to creating strategic business advantage.

Build a Better Worker

The April 23 (2007) issue of Canadian Business had a large section on the Best Workplaces of 2007 with the theme of How to Build a Better Worker that contained a number of useful tips for those of you working on your Talent Acquisition, Retention, and Development plans to make sure you don’t become another victim of The Talent Crunch.

The section contained a number of articles that focussed on how the best workplaces focus on fairness, promote respect, build credibility, instill pride, and cultivate camaraderie. Each of these articles contained a mini-tips section that is worth noting since you can use it as the foundations for your efforts.

In “Fairness First”, we are given five tips to foster fairness:

  • Manage ExpectationsAlso, under-promise and over-deliver.
  • Seek InputAnd integrate good suggestions into your initiatives.
  • Make Decisions TransparentDon’t sugar-coat bad news. They’re adults, after all.
  • Explain the Decision-Making ProcessBe transparent, honest, and regular.
  • Don’t Throw Money AroundWhen something’s wrong, diagnose it and fix it.

    Money alone won’t keep a good employee in a bad environment.

In “Well Done”, we are presented with five techniques to build respect:

  • Invest in EmployeesOffer training and development programs.
  • Acknowledge Good Work and Extra EffortFormally or informally, whatever works best.
  • Use a Variety of Techniques to Encourage InputRespond to input and implement good ideas.
  • Include Employees in Important DecisionsGive employees a chance to voice concerns.
  • Recognize that Employees have Personal LivesAllow some flexibility with schedules.

In “Talk the Talk”, we are provided four insights on creating credibility:

  • Keep Employees Informed Using Available ChannelsUse newsletters and video-conferences in addition to on-site meetings.
  • Do Your Job WellFocus on becoming and staying an expert.
  • Deliver on PromisesBuild a track record of matching words with actions and your employees will trust you.
  • Perform ConsistentlyIf you make a mistake, acknowledge it promptly, take responsibility, and focus on correcting the situation.

In “Proud out Loud”, we are notified of three methodologies for promoting pride:

  • Clarify the Organization’s Connection with CommunitySocial responsibility is more than just good public relations.
  • Clearly Explain Goals and Make Sure They are UnderstoodEveryone tends to pull in the same direction when they all know the same score.
  • Empower Employees to Make Decisions, Especially Regarding Customers Employees who feel they have the authority to make the “right decision”

    are happier, more productive, and more confident.

In “Work Buds”, we are granted three approaches for cultivating camaraderie:

  • Set Ground Rules and Encourage CreativityCelebrate special events and productivity.
  • Create a Hospitable WorkplaceA little fun goes a long way so encourage staff to socialize regularly.
  • Build a Sense of CommunityEmployees should be able to count on each other professionally and personally.

Ariba + Orbian = ?

The Ariba (acquired by SAP) – Orbian partnership is something I expected everyone and his dog would be picking up on and writing about, but with the exception of Mickey North Rizza’s (AMR, acquired by Gartner) and Jason Busch‘s (SpendMatters) analyses*, I haven’t really found anything of note, which is surprising given the potential significance of the partnership (if Ariba pulls it off right).

Ken Roche, CEO of Orbian, notes that By providing low-cost receivables financing and certainty of payment timing and amount to suppliers, buyers are able to achieve cost savings or better trade terms. Additionally, suppliers generate incremental free cash flow, improving their [days sales outstanding (DSO)] metrics and capital efficiency, by gaining access to the entire value of the receivable, at a low cost.

According to the press release, The ASN (Ariba Supplier Network) serves buyers and sellers in 115 countries and has combined transactions exceeding $95B annually. The ASN lets the buyers trading the $95B approve the invoices and notify Orbian. The suppliers view and Orbian provides payment within 48 hours of the decision to the supplier. This slashes the model to 2 days from the previous 30.

Mickey notes that:

  • Ariba is for many others a best-of-breed suite that is wrapped around their ERP system, such as Oracle or SAP. And while the two systems, Ariba and ERP, may work together, this presents an even greater opportunity for ERP-centric companies to tie into the ASN and take advantage of the Ariba partnership for greater working capital.
  • The partnership [also] moves Ariba ahead of its competition by offering three
    opportunities to improve working capital for the buyer and suppliers: earlier payment with electronic invoice presentment and payment (EIPP) and cards, dynamic discounting, and a third-party supply chain financing opportunity.
  • The Orbian strengths are in its diversified pool of investors that provide
    liquidity outside of the traditional bank credit line. With a low cost, plenty of capacity from investors, and a tiered structure, the opportunity is vast for immediate cash flow improvements. This is a huge differentiator for CFOs, treasurers, and CPOs who need additional resources that won’t adversely affect their balance sheet debt.

And Jason Busch notes that:

  • The real advantage for the original parties is that involvement with Orbian does not detract from the commercial paper pricing for suppliers. In other words, it’s a legitimate form of off-balance sheet financing which does not limit the ability to borrow in other ways.
  • I’d speculate that the global supply chain finance market opportunity will top a trillion dollars annually in the next decade (in deal volume).

But Supply Chain Finance goes well beyond just EIPP, early discounting, and third party financing. It also includes, among other aspects, virtual consignment financing, true optimization of working capital, increased analytics capability, and real-time visibility into program activity and the status of each customer. And this partnership could allow customers to take each of these aspects of supply chain finance to the next level as well.

For example, the platform could be used to facilitate greater virtual consignment financing, where the buyer buys the raw materials with added leverage and sells them to the supplier at cost, since buyers could also take advantage of this third party financing and still get the supplier a better rate. If the supplier needs to borrow anyway, when you consider the buyer could negotiate a better rate on both financing and on the raw material cost, this will still save money.

The platform can also be used to better optimize working capital – which goes beyond just early payment discounting. A supplier can calculate how much money it needs in any given week and optimize which payments to take early, which payments to take on schedule, and, which payments to accept late – offering yet another form of financing, but this time to a buyer.

And the platform can be used to give each supplier greater real-time visibility into the financial activity and status of each customer, giving them visibility into the financial side of their supply chain they may not have had before. It also gives the buyer better visibility into not only the financial status of their suppliers, but how much a buyer is willing to accept on an order to get paid quickly. This not only helps buyers manage risk, but could help sourcing teams negotiate better deals if they could turn around payments faster.

In other words, this is a partnership that could significantly advance the supply chain finance side of e-Procurement if done right … but only time will tell.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.