Monthly Archives: April 2008

Don’t Wait for the Burning Platform (Start Your Procurement Transformation Now)

Today’s guest post is from Robert A. Rudzki, a former Fortune 500 senior executive of supply management who now advises other companies through Greybeard Advisors LLC, a strategic management consulting firm. Bob has authored several business books including the critically acclaimed Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise and Straight to the Bottom Line. Bob also writes the Transformation Leadership blog for the Supply Chain Management Review. Bob can be reached at rudzki <at> greybeardadvisors <dot> com.

 

A few years ago, US financial institutions were making so much money that their procurement departments were having great difficulty. They could not get any serious time commitment from their executive staff to discuss procurement and supply management opportunities.

I know that’s true, because I heard it directly from several chief procurement officers at insurance companies and banks, who approached me after I made a presentation on the West Coast. These CPOs were, to state it mildly, very frustrated in their jobs and with their senior management. They had a sense that there was real opportunity, but couldn’t get their senior management’s attention.

Today, the executives of many of those same companies probably wished that they had started paying attention to procurement and supply management back when they did not NEED to. In fact, the best advice for senior management, including senior supply management, is this: don’t wait until you are standing on a “burning platform”. Start the procurement transformation process now.

It may be easier, in some corporate cultures, to tee up a business case for change when things are going poorly; for example, when your company is on a “burning platform”. It’s a real sign of good leadership, and forward-thinking management, however, to decide to transform when you have no immediate urgency to do so.

One of the implicit challenges in building a case for procurement transformation in financial services is the atypical cost structure. Where are the direct materials (other than people) – that typically occupy center-stage in strategic sourcing? To a manufacturing eye, the banking industry cost structure appears strange – essentially all people and the so-called indirect spend. But, as some of you may know, indirect spend offers a larger percentage cost reduction opportunity – often well above 15% – when addressed with a robust strategic sourcing and negotiations management process (“SSNM” in Greybeard Advisors’ parlance).

Several of my colleagues at Greybeard Advisors have deep experience applying strategic sourcing in the financial services industry. The benchmarks from their experiences confirm the enormous potential to impact the bottom line at financial services companies.

Similarly, we have applied strategic sourcing in numerous “non-traditional” areas of spend at manufacturing companies, including spend for financial and marketing services. There are sizeable percent cost reduction opportunities – again, if approached with a genuine SSNM process.

Opportunities abound – but they don’t just happen by putting numbers and analyses on a PowerPoint chart. It takes real leadership, and a carefully thought-out transformation roadmap.

Thanks, Bob!

 

Supply Chain Social Networks: Useful Resource or Productivity Killer?

In full disclosure, maybe I’m not the most neutral individual to be writing this post, as you already know my views on social networks and my intent to stay faceless and spaceless, but the invites to the new kids on the supply chain block, specifically, the Ning based SCM Professionals and iProcurement.org, have started to come fast and furious, as well as request to comment on them and their functionality. So, for better or for worse, here’s my take on the new “communities”.

In an effort to be optimistic, we’ll start with the positives.

  • They both have blog capabilities, and not only are blogs great sources of information, but there’s a few blogs out there that are better than most, if not all, of the publications in the space.
  • They both have news headlines from in-bound RSS feeds, however, the fact that they don’t list the article source or time is very annoying – and productivity draining. If you know a source consistently has poor articles or poor information – do you really want to waste time clicking through to it? And if you regularly click through to articles from poor sources, you’re going to quickly give upon the feature and deem it worthless.
  • They allow you share relevant presentation materials, as photos, and instructional videos from other sites. Of course, the search feature is only on the free-form video description text, which, if not carefully constructed by the uploader, can be pretty useless.
  • They allow for the constructions of “groups” within the community, so that like minded individuals can easily find each other, and with appropriate e-mail settings, geographically local groups can easily organize events and keep each other informed. Of course, the lack of a digest feature (or at least the lack of a locatable one) could lead to a very annoying amount of e-mail to the point where you feel like you are being spammed, turn off all e-mail, and negate most of the benefits the groups were designed to provide.
  • One of the sites has an expanded news amalgamation service with headlines, source, time, and the first 100 words – but the box organization that is used wastes so much real estate that you get three articles on the sidebar, which takes up a third of the screen. Not useful.

And that’s the good stuff, as not-so-good as it is. Now on to the negatives.

  • Latest activity tracker – with the exception of big brother (with his dreams come true at the sheer amount of personal data available on today’s social networks), who the hell cares who the last 10 people to log on were, or what they looked at, or when they signed out, etc.
  • Comment wall – graffiti for the virtual world. Need I say more?
  • Photo free for all – upload anything, any time, with any description, or lack thereof; how are you supposed to find anything useful?
  • Video free for all – anything, anytime, any header; think the latest Bugs Bunny cartoon has a good supply chain lesson? upload it … watch it randomly make the “featured videos” selection. Real professional.
  • “Featured” – members, groups, etc. – unless these are personally selected by real experts who have personally confirmed solid content, I don’t care; right now, most social networks are set up so that everyone gets an equal, random, shot at the rotation
  • “New” – members, groups, etc. – if a network is successful, you’ll have thousands of new members, photos, etc. a day – who has time to wade through all that? Plus, I don’t know about you, but a bunch of empty grey heads doesn’t look that attractive to me. Most new members, groups, etc. don’t have / upload pictures / logos right away. The selection logic should at least be intelligent enough not to select those profiles without images when trying to make an image montage. A single “if” statement. Junior high programming skill. Or at least I thought it was!
  • Very amateur look and layout – I’m sorry, but I don’t want to scroll down an average of four screens on the average page to see what’s going on, a header doesn’t need to take up over a third of the screen, thumbnails don’t need to be three times the average size, and an “Uncle Sam Wants You” ad-campaign rip-off isn’t going to inspire professionals from around the world to sign up. I could go on, but you get the point.

The verdict? Given the relative lack of useful content, the difficulty of identifying the sources and / or finding the content, and the over-abundance of purely social network features, for the time being, I’m definitely classifying these in the “Productivity Killer” category. When it comes to finding the relatively small amount of fresh, new, useful, and innovative content out there that is actually worth reading, I don’t see them being of any help in their current form, and actually see them as being more trouble than they’re worth. Connecting with people? Conferences, e-mail, and the good old fashioned telephone work just fine!

Maybe it’s just me, but I have no interest in ending up like the jacked in, strange talking cyberteens in love in Dowler’s bleak picture of the future or the on-liners in the “Net Worth” Sliders episode where they can’t talk to each other without going through a computer. And I guess that’s just where I see today’s social networks taking us if we continue on this road.

In summary, supply chain community: good. Social network: bad. And maybe the two should never meet.

2008 San Francisco Web Mission

I was recently contacted with a request to promote the 2008 Web Mission to San Francisco from April 19 to April 25 that will see 20 “leading” UK Web 2.0 companies converge on Silicon Valley in an effort to “explore new opportunities for growth”. My first thought was to just dismiss it, as most Web 2.0 companies these days have yet another “content aggregation and organization” spin or, even worse, a “social network” foundation (and I think you know how the faceless and spaceless doctor feels about that), but I thought I should at least check out who the invitees were just in case there were any potentials in the mix that maybe, just maybe, might be useful to supply and spend management professionals.

Most are about as useful as a deep freeze to an Eskimo in a middle of a twentieth century arctic winter (before global warming), but there were three companies that appear to show some promise. They are:

Huddle
Huddle.net combines online collaboration, project management and document sharing using social networking principles.

Huddle is taking the SaaS approach to collaboration, project management, and document sharing – on-demand, available for all, and, most importantly, affordable. For as little as £10 a month, a small business can set up 10 workspaces and upload up to 2.5 GB worth of documents. This can be increased to 50 workspaces and 25GB for a mere 40£ more. It’s not Microsoft Project or Microsoft SharePoint, but for the cost, it does what a business is going to need it to do for small, distributed, projects. Huddle offers an easily accessible product tour on their web-site.

Zogix
Zogix provides a SaaS (software as a service) platform for companies and consumers to measure and track Green House Gas (GHG) emissions, monitor and store emissions reduced from energy efficiency initiatives, and monetize CO2 saved from change in energy consumption.

Billing itself as compliant services procurement … that doesn’t cost the earth, Zogix allows procurement managers to manage, influence and control how their employees source Travel and Entertainment and other services with an ability to define alternative options that can significantly reduce this spend, as well as giving CSR Managers the tools they need to reduce emissions, and employees the ability to make better informed travel and entertainment choices. Zogix offers a demo as well as a free trial. The easiest way to define it is that it is a slimmed down Rearden Commerce platform with a zPoints incentive program and a focus on sustainability.

edocr
At edocr, you can upload your documents for sharing in the professional and business community. At the same time, you can interact with the documents uploaded by like minded professionals and businesses.

edocr, with its upload | convert | share capabilities, promotes its platform as a marketing communications channel for lead generation, knowledge exchange portal, and event collaboration platform. Pretty heady for a simple documents exchange platform that’s really just a cleaned up version of the photo-share capability on just about every social network in existence. So why could it be useful for procurement? First of all, the site also supports communities and groups, which is a great way to collect and store documents and discussions related to specific sourcing and procurement issues, without all the useless overhead of most of the supplier networks. Furthermore, it’s a much cleaner, simpler interface than many other platforms, which is what knowledge sharing should be all about. Secondly, you can use it as a free RFx platform for your open bids, and simply direct your suppliers to the appropriate documents in the appropriate group on the site for the bid package, rather than e-mailing large documents that are likely to bounce.

Forecast with Foresight

A short while ago, Supply & Demand Chain Executive ran an article by Romit Dey and Joy Prakash Somani summarizing the results of an Electronics Supply Chain Association and Infosys Technologies Limited study on “re-thinking demand management”.

The study, which was designed to assess the impact of consumerization on major sub-segments within the high-tech industry, understand issues and challenges, and identify industry leading practices, found that 87% of respondents stated that consumerization had significantly impacted product proliferation and customer experience. The demand for new products at an increased product refresh frequency has put increased pressure on design and supply cycles and customer expectations on product customization and error-free operating performance have heightened considerably.

The study found that performance was still as critical as ever, but that 70% of the respondents did not consider their performance in forecasting to be satisfactory. The challenges identified included:

  • Poor Data Quality
    There is often a lack of synchronization on product numbers between manufacturers, distributors, retailers, and customers; a mismatch in the granularity of the expected demand data provided by retailers and customers; over-forecasting by optimistic partners; and POS data is not always available, especially in global distribution networks. Furthermore, raw data is often not adequate enough for many tools to provide a robust estimate.
  • Lack of Formal Processes
    There’s a lack of process for measuring forecast performance and generating feedback on current performance to future estimates.
  • Forecasting Tools are Not Fully Leveraged
    Sometimes this is because of a lack of integration into data sources, sometimes it’s because the available data is not considered adequate, sometimes it’s because data exchange is still paper-based, and sometimes it is because users resist switching to new and improved processes and tools.

As a result, the authors recommend a shift from passive/reactive demand management to a more active/predictive form of demand management that:

  • senses the demands of customers early & correctly,
  • influences the demands to favorably align to capability,
  • budgets for variability in demand during fulfillment, and
  • focusses on innovation to realize a first mover advantage.

Furthermore, they indicate that organizations should:

  • streamline information gathering and analysis,
  • formalize forecasting processes,
  • leverage demand shaping opportunities, and
  • collaborate within and beyond the organizational boundary.

The latter is a good start, but the article fails to point out that it is essentially impossible to correctly sense the demand of your target market before production begins – which is when it is most important. Nor does it provide you strategies to account for the unpredictable variability that is going to be incurred as a result of this inability to accurately sense demand early.

Why can’t you accurately sense demand early? Sure you can measure excitement about a new product announcement or highly anticipated feature, but this can change overnight when a competitor announces a new capability or rolls out a new stealth product that you had no knowledge of. As a whole, leveraging demand shaping opportunities, polling the market, and connecting with retailers to get a better sense of actual demand will greatly increase your forecasting performance across the board, and increase the chance of a big win, but, on a project basis, there is still the opportunity for a big miss, and it will still happen occasionally.

That’s why I’d recommend including the following two steps in the process checklist:

  • utilize advanced demand & price point prediction technology based on optimization and simulation (such as that employed by Rapt, which was recently acquired by Microsoft) to make sure you get a reliable demand prediction at a target price point and
  • focus on contracting capacity, not specific products.

What do I mean by capacity contracting? Your statistical chances of predicting the total number of cell phones, laptops, etc. that you will sell are much better than your chances of predicting the number of units of each specific cell phone, laptop, etc. that you will sell. If you’ve properly rationalized your supply base, you probably only have a couple of manufacturers making cell phones, and each is probably making multiple models. Instead of guaranteeing them 100,000 units of M1, 50,000 units of M2, and 50,000 units of M3, because you have a high statistical confidence that you’re going to sell at least 250,000 total units this year, guarantee them 200,000 units and allow yourself the ability to specify the actual order quantities at the latest date possible required to meet your turnaround time. Your suppliers win because they are guaranteed business. You win, because you don’t get stuck with a heap of unmovable inventory, which can happen if you incorrectly forecast which model will be your best seller. Furthermore, contract for a quarter or a year, not a month. Demand varies month by month, but is much more predictable quarter by quarter and year by year.

The e-Sourcing Handbook (Free e-Book)

The e-book edition of the e-Sourcing Handbook, co-authored and edited by yours truly, and sponsored by Iasta [acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric] (an e-Sourcing solution provider), is now available on request (through e-mail).

The e-Sourcing Handbook is your modern guide to Supply and Spend Management Success which utilizes and enhances strategic sourcing technology and best practices. Covering the full spectrum of the e-Sourcing cycle, the handbook helps you understand not only what spend analysis, e-RFx, e-Auction, decision optimization, and contract management are, but where and when to apply these technologies for maximum benefit.

Building on the resounding success of the e-Sourcing Wiki [WayBackMachine] and the e-Sourcing Forum [WayBackMachine] and Sourcing Innovation blogs, the handbook takes the concept of open access to knowledge and best practices one step further by compiling the best information on e-Sourcing to appear on all three public information sources into one definitive source. Furthermore, by mixing content from factual and informative wiki articles with blog postings that are both controversial and opinionated in an innovative manner, the juxtaposition of the two in the handbook allows the reader to see where the boundary lies between information and advocacy. It is the goal of the authors that, through this ground-breaking effort, the reader will gain a better understanding of e-Sourcing and how to take their supply and spend management efforts to the next level.

And, most importantly, unlike some of the recent e-books to pop-up, this is a real book – not a glorified marketing white paper doubled (or tripled) in size with a fancy (spaced-out) layout that contains dozens of colorful, yet useless, images. An exact mirror of the forthcoming print-book, it’s 220 pages of solid content backed up by a 4 page resource section, 8 page glossary, and 22 page bibliography for those who thirst for knowledge. The full table of contents and index are also included to help the reader quickly find what she is looking for.

But perhaps the foreward by co-author Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI) says it best.

The e-Sourcing space has undergone a major transformation since 2000. Vendors who were once dominant or cutting-edge have failed. Many have undergone asset fire sales, become part of the walking-dead, or been absorbed into larger companies; and still others have been forced by their investors into mergers that make little sense to the outside observer.

 

These consolidations have brought about a dangerous commoditization of ideas, along with a slowdown of innovation. Even worse has been the obscuring – by over-enthusiastic and under-educated vendor marketing departments – of deeply important issues that sourcing practitioners must consider and understand in order to be successful.

In response to this, my co-author, Dr. Michael Lamoureux, launched the Sourcing Innovation blog with the specific purpose of educating practitioners and cutting through the marketing babble that had begun to dominate the discussion. Another co-author, David Bush, started the e-Sourcing Wiki (from which the bulk of this Handbook is taken) in a similar attempt to put fundamental e-Sourcing ideas and concepts into a publicly accessible forum. Over the years, David has also built Iasta’s e-Sourcing Forum blog into a credible and useful resource.

These efforts are laudable, but blogs and wikis are sometimes hard to navigate, and effort is often required to extract related information in a useful way. This Handbook is an effort to draw together the knowledge base of the Wiki, along with relevant blog postings, into a coherent and readable framework. Of course, one might argue that none of the authors are readable or coherent – and that may be a fair criticism – but we’ve made a best effort.

Because Michael is a strong and independent voice in the space, it’s appropriate that he is the editor of this Handbook. He has taken an interesting and unorthodox approach, choosing to mix factual and informative wiki articles with blog postings that are both controversial and opinionated. The juxtaposition of the two allows the reader to see where the boundary lies between information and advocacy. This is perhaps the first effort of its kind where two very different resources are interlinked in a constructive, and hopefully interesting, way.

 

I trust that this edition of the Handbook will be the first of many similar efforts, and that together we can collectively energize our space with accurate information and useful insights. Remember, the e-Sourcing Wiki is a public resource – anyone can contribute – so everyone should consider “sharing the wealth” and do so.