Monthly Archives: December 2007

the doctor On Technology RFPs: Don’t Put The Cart Before The Horse!

I’m not sure what the reason for this is, maybe it’s the “Free RFP Templates” for e-Sourcing (RFPs & e-Auctions), Supplier Management, Contract Management, and Spend Analysis brought to you by Procuri & Co., maybe it’s an over-inflated sense of technical knowledge, or maybe it’s just plain stupidity – but more and more I’m hearing about buyers looking for spend and supply management solutions that are putting together ridiculously over-specified and complex RFPs that are often eliminating all but the worst solution one could possibly imagine before the first response is even received.

The fact of the matter is that, when you are looking for a solution, there’s more than just one correct architecture, the number of features isn’t important, multiple deployment models may be satisfactory, advanced payment models and complex SLAs may not be necessary, and the processes you assume you need may not be the right processes for your business.

If the solution works on your current platform, does it really matter if its written in J2EE, C++, or Ruby on Rails (as long as it was put together properly)? Does it really matter if one solution has 800 “features” and another solution has 1000 “features” if all you need to support your processes are 200 “features”? And more importantly, do the features even address the critical functions you need to get the most out of the solutions? Although on-demand SaaS has advantages over ASP, and ASP has advantages over localized deployments from TCO perspectives, from a security and control perspective, assuming you have a crack IT team in house that knows what they’re doing, arguments can always be made in the other direction. (However, most non-technical companies don’t have crack IT teams, regardless of what they think, and that’s why I’m such a proponent of the on-demand SaaS model.) Not everyone uses the complex payment models pioneered by Oracle and SAP – some vendors use very simple pay-as-you-go models – especially on-demand vendors who charge you one fixed fee a month for the license, including maintenance, and one variable fee a month for how many days of consulting you utilize, easily calculated as number of days * resource rate. Finally, have you taken the time to evaluate your current processes from an efficiency and effectiveness standpoint? Maybe they are not optimal – in fact, if you haven’t reviewed them lately – chances are they are not optimal and a good time to change them might be upon implementation of a new system that can support the processes you should have, versus the processes you have today.

Thus, when constructing your RFP, if you’re not an expert in technology, and unless you’re an IT company – you’re not, don’t pretend you are. If you’re not an expert in what today’s solutions can do – and unless you’ve spent a significant amount of time researching large and small vendors alike – you’re not, don’t assume feature function lists, and definitely don’t assume that one vendor’s template is the best feature function list that’s out there. And definitely don’t use a template provided by a vendor being invited – that template was written to make them look good from a comparison perspective with their primary competition – which may not have any correlation to the solution you actually need.

Leave the technical and feature specifications open-ended. Instead of describing a proposed solution, describe the problems you’re having and the problems that you expect the solution to solve and let the vendors describe how their solution could meet your needs. And if you’re worried about the responses being too apples-to-oranges to make a decision, do a two-stage RFP. Issue a preliminary, open, RFP that describes the type of solution you’re looking for, the problems you want it to solve, and asks the vendors to describe how their solution meets this need and what key functions it offers and tell them that the best submissions will be invited back for round two, which will be closed.

Review the submissions to the initial RFP, invite clarifications and demonstrations (on the grounds that price and terms will not be discussed), flesh out your requirements, and then issue a closed RFQ with more detail on any architecture or deployment restrictions, the core functions you desire, your minimum SLA requirements, and your criteria for scoring the responses and selecting a solution. (For example, saying you can’t do on-premise Linux because you don’t have the tech resources is good, unlike saying that only on-premise Windows works when in fact you could consider on-demand with Windows Thick client. Saying you need a centralized contract repository as part of your CM solution, once you understand what that is, is fine, whereas saying you want a repository that uses Oracle 10.X, because that’s what you have a license for, when in fact the solution might come with a built in database or license for the database it uses, is overly restrictive.)

If you’re smart about the RFP process, then the solution you end up with will surprise you in its effectiveness and efficiency. However, if you just follow the herd, then you might find that you add to the statistics that say at least 70% of all IT-based projects are at least partial failures, because the system will likely not live up to your expectations of it. I guess what I’m saying is, don’t be an RFP-lemming. (As a reader of this blog, I know you’re smarter than that – but I need you to help spread the word!)

Supply Management in the Decade Ahead II: The Eight Major Forces – Part I

In Part I of our review of Succeeding in a Dynamic World: Supply Management in the Decade Ahead, we overviewed the various external forces that will impact a company’s supply chain as identified by CAPS, AT Kearney, and the survey respondents. We then concluded with the eight major forces that were identified specifically by supply managers who took part in the study. Today, we will dive into the first four of these eight major forces and explain not only why they are important, but what can be done about them.

Global Competition

The report notes that the impact of China on the world economy will continue to be enormous over the next ten years and that, to prosper, companies will have to embrace China as both a market as well as a source of supply for their goods and services. As China continues to modernize and urbanize, China will consume an increasing share of the world’s raw materials, driving up prices and / or creating shortages. The growth of China as a supply and demand market will create opportunities for all and those that embrace the China opportunities will have profound advantages over those that do not. Furthermore, enormous intellectual capital exists in China that can be tapped for invention, innovation, and new technology.

The report also notes that other developing countries will continue to emerge as attractive supply sources and bases of growth and identifies Russia, Mexico, and India. Personally, I think India will emerge as the next great shaper of the global economy and challenge China for supremacy. See my predictions on the winner of the talent war and the loser of the innovation challenge.

Merger, Acquisition, & Supply Market Consolidation

To meet the onslaught of new competition, companies headquartered in developed economies will need to increase in size with improved economies of scale and market power to survive. This will thus force many companies to merge and consolidate. As the M&A game plays out, supply management will be tasked with assessing the impact on the supply chain, including costs, risks, and opportunities. Supply management will need to understand the new supply base, how it can be used to gain advantage, and how to find the forecasted cost savings. In addition, when oligopolies are created by supplier consolidation, power will shift in the marketplace and diminish customer bargaining power while creating a major threat for buying companies.

This is one recommendation that I disagree with. To meet the onslaught of new competition, companies headquartered in in developed economies will need to do something to maintain their place in the market, but increasing in size and market power through consolidation isn’t the only option. They could survive by finding a niche and being the best player in the niche, or they could survive by generating greatly improved economies of scale through the application of innovative processes and methodologies. Now, I know that the approach most big companies take to innovation is to buy it, but it doesn’t have to be this way. Look at Apple.

Increased Government Regulation

Government legislation and regulation of business will only continue to increase, requiring companies to dedicate sufficient resources to ensure compliance, especially in the U.S. and EU. This will lengthen contract negotiations which will have to discuss government regulations and privacy legislation to make sure all parties will be able to remain in compliance. In addition, government actions to support or restrict economic development, such as tax incentives and trade restrictions, will have a large impact on supply strategies.

Government legislation and regulations will continue to multiply, but I believe that China and India could pose just as many issues in the next decade as the US and EU do now. China is already pursuing its own version of RoHS due to the extreme amount of e-Waste that companies are trying to dump there. India is trying to become the next great knowledge and service economy and will eventually enact regulations necessary to satisfy the requirements of dependent nations in terms of privacy and IP. Furthermore, there’s more than one way to deal with the legislation onslaught. The first is to add resources, as the report suggests, but a company could choose to implement systems to manage the data gathering and reporting requirements without increasing resources. These systems are rare today, relative to other supply management solutions, but will become more common as niche providers will rise up to address a problem that companies, who are currently paying millions of dollars just to generate compliance reports, will pay handsomely for.

Technology Advances

Technology breakthroughs will continue to cause major changes to how products and services are provided. These changes will ultimately lower the customer’s total cost of ownership. Core technologies of many industries will become commoditized, forcing geographic consolidation and concentration of the supply base. Shortages of key raw materials will lead to technology changes and the use of alternative raw materials.

I have to agree wholeheartedly here, but point out that the early winners will be those that latch onto new technologies early, lowering their cost and ushering in the era of commoditization. In the software industry, on-demand and SaaS providers will be the big winners next decade, as will providers who can deliver enterprise systems based on low-cost open source technologies and make their money off of services.

the doctor Gives You Nine Questions to Ask Your Technology Vendor

Inspired by InformationWeek’s 9 Questions To Ask A Tech Startup, here are the equivalent nine questions that you should be asking your prospective sourcing and procurement technology vendors.

What’s Your Background?
This question applies to founders, key executives, and the company itself. Look for the right mix of people with deep technical expertise, deep domain expertise, and proven success in managing a growth company in a growth industry. If the depth of technical expertise is building websites (and all coding is outsourced), the depth of domain expertise is buying office supplies, and the depth of management expertise is managing a team of advertising executives – RUN!

When Was Your Company Formed?
Anything less than two-to-three years is a cause for caution. You want to see maturity in terms of the management team, revenue, and the product.

What’s Your Financial Situation?
You want to know where the company is getting the money it needs to support day-to-day operations. Is it drawing on VC funding? If so, at what rate is the required draw decreasing on a monthly basis and can the company honestly expect to be at least break-even before the funding runs out?

Do You Expect To Be Acquired?
Most companies in this space are start-ups, or were in the not-too-recent past. They should have had an exit strategy from day one. If the exit strategy was acquisition, how soon do they expect that to happen? If the exit strategy is six months down the road, be cautious – since many companies in the space will acquire a competitor just to take it off of the playing field – and there goes your investment in learning to use their technology!

What Do You Have Today?
Every vendor and their dog will paint you a rosy picture of where the space is going and where their product is going if you give them the chance, but what’s really important is what they have today. You’re buying a product because you need to increase productivity and decrease costs today – not 3 months or 3 years from now! Furthermore, this is an emerging market – that means that not every solution is equal, and, thus, not every solution is equally appropriate for your needs. You really need to understand what the vendor has today and how it solves your problems.

What Success Have You Had With Customers Similar To Us?
The usual “our e-auctions have saved an average of 12%” is not enough to base a decision on. Although you shouldn’t be considering any vendor who can not make a significant productivity or savings claim, you want to be sure that the vendor you select has saved money in the categories that you need to source or reduced processing time in the processes that your organization employs. An average is just that – an average. Maybe they save on average 20% on office and janitorial supplies and 2% on high-tech purchases. If the bulk of your purchases are for high-tech, then the product they have today is not the product you’re looking for.

Can I Talk To An Early Customer?
You’re looking for a company that has demonstrated the ability to continually improve – not just a company that expresses a willingness and a grandiose roadmap. An early customer will be able to give you insight as to whether or not you can expect the promised savings or productivity gains, how long it’s likely to take, and whether the company has a history of delivering on its roadmap and promises.

Who Are Your Competitors?
The list they give you should be similar to the list you build yourself after doing your homework. If it’s not, either they don’t understand what they’re selling or don’t think they stack up well against their real competition. Either way, it’s a warning sign.

Can I Visit Your Offices?
You want to feel comfortable that you’re dealing with a professional, mature company. This is sometimes the only way to know. Just because the salesman is slick and well-prepared, doesn’t mean the company is well managed. And just because the competition tells you that the company you’re considering is four-guys-in-a-garage, doesn’t mean it is. The opposite can be true. Just like you take the time to visit a new supplier before giving them a major contract, take the time to visit a new technology vendor before giving them a major enterprise contract. It’ll only take a day and won’t cost you much, especially compared to how much you could lose if you pick the wrong vendor!

Supply Management in the Decade Ahead I: An Introduction

Back in May, I overviewed seven critical supply strategies for succeeding in a dynamic world, as summarized in the article “Succeeding in a Dynamic World” that was jointly written by the ISM, CAPS Research, and A.T. Kearney after an initial foray into the data returned by a survey undertaken by the parties in an effort to provide an update to The Future of Purchasing and Supply: A Five and Ten Year Forecast, a report that was published back in 1998.

Since then, on October 3, the full report “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” was released. In addition to deep dives into each of the critical supply strategies that were identified in the initial article published through the ISM, it also covered the major forces driving change, the impacts on business models and strategies, and the new and expanded missions, goals, and performance it found for supply management. There were a lot of great insights in this 140-page publication, and this series of posts is going to cover some of the more important ones.

The report starts off by noting that a lot has happened in the last ten years. When the previous study was released, there were no iPods. The Euro had not been introduced. Business process outsourcing to India was still in its infancy. The dot-com boom and bust had not yet occurred. Terrorism was but a remote possibility in most of the developed world.

Since them we’ve had extensive e-system implementation, outsourcing, globalization and low-cost country sourcing, movement to center-led supply organizations and cross-functional teaming, formal category strategies, enhanced understanding of supplier and supply chain costs, and efforts to better integrate supply chains applying lean principles and Six Sigma.

The report identified six external forces that will impact companies and their strategies in the coming decade. The external forces are:

  • Globalization of the World Economy
  • Demographics
  • Changing Consumer Demand
  • Natural Resources and Environmental Pressures
  • Regulation and Activism
  • Technology

It then identified seven “wild-card” forces that, if they occur in such a way as to affect an organization’s supply chain, would also require a company to adjust their strategy:

  • Global Epidemic
  • Military Conflict
  • Country Disintegration
  • New Protectionism
  • Terrorist Resurgence
  • Hacker Hell
  • Quantum Leap

It also asked survey respondents to rate the impact of twenty-five specific external functions on business on a scale of 1 to 7, and the following were the top 13 forces identified with a impact rating of 4 or more:

  • Rising Energy / Raw Material Prices
  • Regulatory Changes
  • Increased Competition from Established Competitors
  • Spot Shortages of Key Raw Materials
  • Changing Customer Requirements / Buying Habits
  • Increased Emphasis on Supply Chain Security
  • Increased Environmental Regulations
  • Industry Consolidation
  • Emergence of New Technology
  • Terrorist-Inspired Instability
  • Major Change in the Value of the US Dollar
  • Increasing Competition from New Entrants
  • Rising Interest Rates

However, when the respondents were allowed to add their input, the following forces were determined to be the most important overall:

  • Global Competition
  • Merger, Acquisition, and Supply Market Consolidation
  • Increased Governmental Regulation
  • Technology Advances
  • Customer and Channel Dynamics
  • Increased Product Variety and Shorter Life Cycles
  • Social Responsibilities
  • Environmental Responsibilities

The reality is that a lot of external forces impact, and will continue to impact, the supply chain, and, more importantly, these forces will continue to interact in complex ways that are hard to predict and that, when combined in certain ways, will have a much more dramatic effect than any single force could have on its own. The only certainty is that the speed, variety, scope, and rate of change will increase over the next decade.

In Part II, we will address the eight forces that supply managers rated the most important overall.

the doctor Exposes The Elephants In The Room

This is a continuation of the doctor wonders why the elephants in the room are often so hard to see where I expose the elephants hiding behind the couch, the lamp, and the projection screen. In my last post, I exposed you to the optimization elephants, the EIPP elephants, and the spend analysis elephants that were hiding behind the blinds. In this post I’m going to expose you to the supplier enablement elephants, the contract management elephants, and the hidden cost elephants.

The supplier enablement elephants are “catalog management”, (traditional) “supplier network”, “e-Document Management”, and “supplier portal”. Despite grandiose claims, not one of these solutions is the be-all end-all supplier enablement cure … and not one is even guaranteed to “enable” your supplier at all! One definition of “enable” is “to make able”. Another is “to make possible”. My favorite is “to make easy”.

Just because you’re giving your supplier a way to interact with you, doesn’t mean you’re “enabling” them. They already have a way to interact with you – it’s called old-fashioned telephone and old-fashioned fax machine. What they need is a better way to interact with you – that works for them. A catalog management solution isn’t enabling them if they have to send all their data to a third party and then double check that the third party actually entered all the data correctly. A supplier network isn’t enabling them if it isn’t compatible with their systems. e-Document management solutions aren’t worth a can of beans if they can only be used by a few individuals or if document location and access takes just as much work as it does to walk down the hall to the filing cabinet or get a clerk to get the document for you. And “portals” aren’t very helpful if it forces the supplier to re-key in a 100 line invoice. The fact of the matter is that most of the “supplier enablement” solutions out there today are not enabling your suppliers at all – they’re enabling you. That’s a big difference between what’s promised and what’s delivered. If that’s all you care about, then go buy whatever solution tickles your fancy. Just be clear on what you’re buying!

The big contract management elephants are called “repository” and “compliance”. Simply having all of your contracts in one place is not as great as it sounds. You can do that today without a contract management system at all – it’s called “central filing”. Simply enforce that every time a contract is signed the person responsible immediately sends a copy to central filing that files it, in duplicate, on-site and off-site and you have a contract management solution that requires zero investment in software. (How do you enforce this? It’s called the “three strikes and you’re fired” policy. After every contract is signed, you call central filing three days later. If they haven’t received a copy, the employee responsible for filing gets a strike. After the third strike, they get fired. It will be surprisingly effective after a senior employee gets fired.) Of course, you could have to wait a few days every time you need to reference a contract.

A “contract management” solution with a central contract repository will thus only be useful if its accessible by everyone (and you definitely don’t want to pay by the seat) and easily searchable (with indexes on meta-data and the contracts in their entirety) – otherwise, it’s not much better than “central filing”. Furthermore, contracts are only valuable if purchases are made against them at the negotiated rates. Thus, not only should it be easy to determine if a contract exists for a specific item, but it should be easy to determine the agreed upon rate for that item, extract it, and get it into your e-Procurement system.

The hidden cost elephants come in many varieties, such as “required upgrade”, “service fees”, and “implementation consulting”, but the most dreadful is “too-good-to-be-true discount”, as he’s always accompanied by a few, close friends. There’s no such thing as a 50% + discount in enterprise software, and any vendor that comes back and says they can give you a discount of 75% off of the original quote is making the old “we’ll gouge them later” play. They know that once you’ve spent many times your initial investment getting the software installed and configured, and your user base trained, it’ll be too late to turn back and that’s when you start getting hit with “service fees” and “maintenance fees” and “upgrade fees” because you bought the starter edition, but the features and functions you really need to be efficient are in the “regular edition”. It should be obvious that this is not a vendor you want to deal with, because if the vendor really could afford to sell at a 75% discount and remain profitable, then they were trying to screw you up front.

The reality is that traditional, installed, enterprise software shops have high overheads. There’s a reason their software costs hundreds of thousands, if not millions, of dollars. It’s because they literally can’t afford to sell it for much less and stay profitable because they need large teams of people to install, maintain, and support their customers as each instance has to be upgraded and patched separately. They also need large teams of enterprise sales people to continually pound the pavement to bring in enough software and service deals to keep these large implementation and support teams busy. Then they need lots of expensive office space to house all these people. And so on. (Now I’m not saying that enterprise software isn’t worth hundreds of thousands, or millions of dollars – as long as the ROI is there, some of it is. I’m specifically saying that, whether or not their software is worth that much, chances are the traditional enterprise software vendor cannot afford to sell for less than that and remain profitable – and if they claim they can, that should set off big warning bells!)