Monthly Archives: September 2009

e-Leaders Speak: Ron Southard of SafeSourcing on “Creatively Educating our Sourcing Professionals Today for the Challenges of Tomorrow”

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Today’s guest post is from Ron Southard of SafeSourcing.

While economic conditions and cost containment continue to drive top of mind thinking, there are a variety of cost effective educational alternatives available to procurement professionals that don’t require travel, fees or time away from the office that leaders should consider.

I was asked to use the subject of “Sourcing Tomorrow: The Leaders Speak”.While there are any number of subjects this author could cover, what I believe should be top of mind for senior sourcing leaders as the new year approaches at warp speed is the continuing education of our sourcing professionals.

This can be accomplished without attending expensive seminars, solution provider gatherings or even trade shows. All that’s required is a little creativity and everyone on the team can attend.

Today’s World Wide Web, empowered by the Internet, provides a unique opportunity to those seeking education on any subject that one can imagine. As a source of information, the internet actually provides for close to three degrees of separation from just about any subject one chooses to study. Even the human web, which is commonly referred to as having six degrees of separation – which means that everyone is at most six steps away from any other person on earth, is not as closely connected as today’s data.

The nice part about the use of the web is that it really is open source intelligence gathering at its best. It is simply the gathering of information from publicly available sources and analyzing it to produce something actionable like a seminar. If you can Google, Ask, or Bing, information is available for your use. The only concern one may have is the quality of the information you are searching. This means you can not trust everything you read. I would not go so far as saying that trusted information networks are required, but you should check out your sources.

Sources of information available to sourcing professionals for information gathering could be blogs, wikis, social networks, professional networks like LinkedIn, provider websites, glossaries and a variety of search engines. So, how should we use these tools to develop high quality educational programs internally?

First and foremost, there has to be commitment from the leadership of the supply chain or sourcing organization. With this commitment in place, you might consider something like the following.

  1. Bring your sourcing / supply chain management team together.
  2. Notify key managers that each will be required to deliver a sourcing subject seminar throughout the year. The sessions will last 2 hours followed by lunch.
  3. All sourcing / supply chain associates will be invited to attend each seminar.
  4. Conduct a whiteboard session to select subjects for each seminar.
  5. Assign seminar subjects to someone that does not have that area of responsibility in order to facilitate management learning.
  6. Insure subject matter selected supports cross functional learning.
  7. Ask your solutions providers to support your user education by sponsoring lunch or breaks.
  8. Be creative in the delivery process. Anything goes. Think props and handouts.
  9. Make the session interactive.
  10. Provide a survey before lunch.

Let’s take a look at the subject of “Supply Chain Stress Points” as an example of a subject that might be selected for a seminar. Now, let’s look at how we might begin to research this subject.

I always like to begin with Google. If we Google “Supply Chain Stress Points”, Google returns approximately 507,000 hits. I’m sure we could begin to build something from here. If I select the 2nd hit, which was “Stress on the Supply Chain: Where is the Weakest Link?” when I searched, I find that the article contains a number of terms that may require further research, such as “Supplier Support Program”. This subject can then be researched using any number of on-line tools, including Wikipedia. It does not take too much effort to build a pretty decent two hour presentation for your seminar. Finally, always remember to credit your sources. They just provided you with an inexpensive education.

Some, but certainly not all, of the benefits of these types of internal seminars or programs are as follows.

  1. Builds a sense of team
  2. Provides cross functional education for the presenter
  3. Provides cross functional education for the entire sourcing / supply chain team
  4. Supports the development of a learning organization
  5. Reduces travel expenses
  6. Allows everyone to attend

In order to be prepared for the challenges that tomorrow’s sourcing will provide, leaders must consider creative ways of educating our procurement professionals today.

Thanks, Ron.

I Wish Inventory Optimization Was Mainstream!

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A recent article on Supply Chain Digest made the claim that “inventory optimization is starting to go mainstream”. If only that were true! Consider this statement from Noha Tahomay (Vice President at AMR Research) in the first “Supply Chain Leader Virtual Roundtable on Inventory Optimization” where she says that despite clear benefits … the adoption of inventory optimization is still very limited and asks why can such a powerful tool not be more widely adopted. While she postulates that it might be due to the lack of executive sponsorship and the lack of alignment between the goals of the tools and the organizational structure, the reality is that inventory optimization is still not mainstream because optimization is still feared.

It shouldn’t be the case, because it’s not 9 years ago where you needed a PhD with his own server farm to use any of the tools, but it is. People still don’t understand it, they still mistrust it, and they still fear it. It’s unfortunate, but true. That’s why inventory planning, scheduling, and forecasting will sell but inventory optimization will collect dust on the virtual shelf. The problem is that not enough vendors are offering these solutions and the vendors are not making strong attempts to educate the market on the power and simplicity of these modern tools when that should be their first priority. It’s the same problem that exists in the strategic sourcing decision optimization marketplace … very few providers (basically Algorhythm, Combinenet, Emptoris, Iasta, and Trade Extensions) and very little effort to spread the word from any of them. Both spaces need an evangelist … like Paul Martyn was at Combinenet back in the day. If easy-to-use self-service solutions were commonplace back then, things might be different today.

e-Leaders Speak: Garry Mansell of Trade Extensions on “Strategic Procurement through Optimisation”

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Today’s guest post is from Garry Mansell and Chetan Raniga of Trade Extensions.

Lord Leverhulme, the British industrialist, famously said: “Half the money I spend on advertising is wasted – the problem is I do not know which half.”

He could have quite easily have been talking as a buyer today. Maybe not as much as half of all budgets are wasted, but the sentiment is the same and it is clear to those who work in procurement that there are opportunities to be had if you only knew where to look.

The challenge of knowing where to look will only increase as supply chains become more complicated and buyers have to consider the influence of numerous external factors – be it globalisation, fluctuating fuel prices or the economic downturn in general.

What makes it even more complicated is that most buyers are not attempting to simply minimise cost – but also to implement wider strategies. The strategies will obviously vary by company and sector, but could include developing suppliers in new markets; reducing their carbon footprint to meet environmental obligations; or managing dependency on certain suppliers.

The number of factors buyers have to consider often makes it very difficult for them to be sure that they have chosen the best solution from their available options. As a result, there is the real possibility that opportunities are missed. To minimise this risk, it is vital that sourcing professionals use the latest techniques and analytical tools which insure that these opportunities become apparent very quickly.

With traditional processes, strategic procurement is not easy. Furthermore, even if buyers try to collect strategic data other than cost, they often end up having to optimise on cost alone because of the limitations of analytical tools.

The software tools that have been developed by modern providers of decision optimization software, like Trade Extensions, can interrogate any factor in the final analysis. As a result, buyers are not limited in the types of information that they can request from suppliers and make use of. It is this freedom that identifies solutions that will be missed by more basic methods of analysis.

OPTIMISED PROCUREMENT

The procurement process always involves a number of important steps: specifying requirements, inviting suppliers, collecting bids, providing feedback to bidders, final negotiations, and the ultimate decision.

It is vital that companies complete these steps, but getting a great result from a sourcing event is determined by the analysis of data collected. This is a key strength of decision optimization software, including the software we provide at Trade Extensions. When buyers use decision optimization software, all of the offers collected can be optimised to take into account numerous factors in addition to cost. This means that strategic objectives can be met whilst keeping cost to a minimum.

ANALYSE THIS – WHY CHOOSING SUPPLIERS CAN BE COMPLICATED

Figure 1 is a very simple example that illustrates how even basic procurement projects can become quite complicated. Attempting to solve this will provide some insight into the strengths of decision optimization platforms like those offered by Trade Extensions’. (The answer is at the end of the post.)

A Simple Optimization problem
Fig. 1 – What is the lowest cost solution?

In this example, each supplier is allowed to bid for all contracts although no supplier is large enough to handle more than three. In addition, suppliers have the opportunity to offer a discount if they are awarded more than one contract – an opportunity taken up by the second and third suppliers.

Although it can be done manually, finding the cheapest combination of suppliers takes a bit of effort. (Editor’s Note: For an example of how it might be worked out, refer to the transcript of the joint optimization podcast [part I and part II] between Sourcing Innovation and Next Level Purchasing. Note the significant amount of work involved for even a simple problem.)

Now, try to imagine a procurement project with 2000 items and 1500 suppliers making numerous offers, packaging bids, and offering different discounts where cost is not the only decision criterion. In this scenario, there are potentially millions of combinations to consider. This is impossible to do manually, but modern decision optimisation software can often identify solutions to problems of this magnitude in a matter of seconds.

Optimisation ultimately involves buyers asking interesting questions to test the implications of choosing different combinations of suppliers. The list of potential questions is limitless. One minute a buyer could be considering the result based on price, company size and payment terms and seconds later they could see what the result would be based on price, environmental rating and supplier capacity.

This type of rapid optimisation capability implies that many different possible scenarios can be considered in a very short amount of time. This also implies that the software is flexible enough to allow buyers to run scenarios and optimise against revised offers while they are negotiating with suppliers in the final stages of a tender. For example, a buyer can quickly advise a supplier how much they would need to reduce their prices (or perhaps reduce their lead-time, for example) in order to win a certain amount of business.

This is the type of data analysis that allows buyers to solve their own challenges while providing them with a reassurance that they have chosen the optimal solution based on the given constraints and supplier proposals. This approach puts buyers firmly in control by allowing them to manage the millions of individual pieces of data they collect. This allows them to achieve their strategic objectives through optimisation. And that’s why we believe that decision optimisation is the key for those buyers who want to emerge from the recession victorious.

Answer to the Optimization Puzzle (Fig. 1)
The lowest cost solution is 493.2 with the following combination of suppliers:
Supplier B: Contracts 1 and 5
Supplier C: Contracts 2, 3 and 4

Thanks to Garry and Chetan.

The Cost of Big Business

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Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archives.

“There’s a kind of mentality in this sector that [settlements] are the cost of doing business and we can cheat.”

The above is a quote by Bill Vaughn, an analyst at Consumers Union, the nonprofit publisher of Consumer Reports in response to the news that Pfizer had been fined a U.S. record $2.3B. (Yup, that’s a “B” not an “M”.) Apparently Pfizer was caught illegally promoting its pharmaceuticals by heaping all sorts of gifts such as golf outings, massages, and resort stays upon doctors.

This wasn’t the first time Pfizer had been caught – they are a repeat offender having had to settle such allegations by the federal government four times in the past 10 years. Ouch. This is going to need more than just a topical ointment to solve.

I have written before about what is so sad about these kinds of fraud cases and this case is so massively big that some the consequences and characteristics bear repeating:

  1. The $2.3B penalty is about 4.8% of Pfizer’s 2008 total revenue of about $48B. The penalty seems materially significant and could cause stock prices to fall affecting investor’s earnings.
    • This would appear to violate Sarbanes-Oxley COSO compliance framework aspects such as the Control Environment (also known as the “tone at the top”), Internal Controls and Risk Management.
    • Can we expect a change of corporate management and a refund of performance bonuses?
  2. The products involved in the illegal promotions included Viagra, Zoloft and Lipitor.
    • Is the prescription of unnecessary pharmaceuticals one reason why our healthcare system is so expensive and in crisis?
    • What are the health impacts to a person when pharmaceuticals are prescribed that they really didn’t need?
  3. What ethics examples are being set for current generations of employees and those up-and-coming sales representatives, doctors, and business executives?

But before we build a gallows for one, let’s consider the doctors who accepted these trips and gifts. Okay so Pfizer should not have offered but by the same token the doctors should not have accepted. If business ethics are not taught in medical school or promoted by the American Medical Association they darn well should be.

Taking this another step further it’s one thing for the doctors to accept gifts but it’s another thing for them to act on them. (Um … gee … that actually sounds a little bit like fraud itself!) If doctors (a) were persuaded to and actually did prescribe medicines without cause to patients who didn’t really need them, or (b) were persuaded to and actually did prescribe one company’s brand over another without regard to which brand was actually the better remedy, then the doctors themselves are also at fault here.

To me there are aspects of this case that parallel the disturbingly thought-provoking movie District 9. What affected me most in that movie is that I think the brutal and ego-centric representation of the human race and the various government, military, and gang players was dead-on accurate, and that unnerves me. I felt sorry for the victimized aliens who were more the “good guys” than the humans.

Mr. Vaughn’s observation describes the steamy underbelly of some healthcare companies & healthcare providers. This is analogous to when police officers are caught selling drugs from the evidence room or abusing their authority for their own benefit especially when it conflicts with protecting and serving the law-abiding public, or when politicians abuse their power for their own self-interests.

This case is about nothing more than greed sustained by a lack of integrity and a failure of fortitude to do the right thing. The people who could put a stop to fraud like this seem too reluctant to do so in lieu of favouring their own self-interests, so I’m hoping for an alien invasion by a more ethical species than ours.

Norman Katz, Katzscan

e-Leaders Speak: George Gordon of Enporion on “Are You Prepared to Grow”

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Today’s guest post is from George Gordon of Enporion.

As CEO of Enporion, a B2B e-commerce technology company, it has always been my role to push technology farther into business processes and apply it to doing business better. Most businesses have been using information technology to improve efficiency for decades. For the most part, “front end of the business” activities have been the first to benefit from information technology (IT) efficiency improvements.” Front end” applications are for those activities that are customer-facing and can be associated, for example, with receiving an order and delivering goods and services to the customer. The “back office” applications typically manage running the business, and have generally been late to attract the focus of management’s attention. The primary reason was that they were not perceived as having significant influence on driving increased revenue or lower cost. On a relative basis this may be true. However, in an ever increasing globally competitive high-technology world, the diligent manager must leave no stone unturned in looking for ways to improve business process.

Many of the IT systems used by businesses today came about through the automation of manual business processes, often on a departmental basis, creating silos of software for processes within the enterprise. Additionally, many businesses grew through acquisition resulting in a multi-enterprise collection of disparate software systems. My mission is to make information technology work for you, the business manager, without you having to throw out all of your legacy systems. Whether you are managing the buying, production, or finances, every business process you manage can benefit from improvements in IT. Trying to figure out what technology can provide the best improvement now and into the future can be a daunting challenge. How do you harness what is available today and plan to build on it in the future while keeping costs down?

Waves of information technology innovation shaped the foundation of business software today. Managers today must figure out how to work within their current IT boundaries such as investments in Enterprise Resource Planning (ERP) software applications, legacy systems, middleware and the Internet. The most recent software technology wave is in the provision of software applications offered as a service (SaaS); SaaS uses the Internet to connect businesses and systems to each other. To capitalize on past investments in technology, it is important to find solutions that will extend performance, scale for growth, and enable secure interaction over the Internet. It is important to keep your technology growing, and right now that is best achieved by using distributed computing, the Internet, and SaaS. SaaS is the most flexible and cost effective software available.

The current economic recession is destined to end. Now is the time to prepare for the inevitable boost in production and business consumption that will come with economic recovery. I have experienced six recessions in my career. The current recession is by far the worst of all and has had global impact. One important thing I have learned from these recessions is that the businesses who prepare for growth during the downturn are the ones who profit the most in the recovery. You can accomplish this by choosing technology solutions that provide the most capability, capacity, and, most of all, flexibility.

Far too often managers learn that a requested or essential software feature is not in a vendor’s product roadmap. By delivering software as a service, a company can successfully operate just one instance of production software for all of its customers. That’s why Enporion has adopted the SaaS model. When a customer requests a special feature, we not only have the capability to provide it indigenously, but we can effectively provide custom applications for every customer on one operating platform without any interruption of service or change for our other customers in our B2B e-commerce marketplace.

The analyst groups all agree that increasing efficiency in B2B transactions often significantly improves enterprise profitability. Procurement processes are critical business functions that are a great opportunity for operational improvement. Identifying inefficiencies in spend, driving costs out of sourcing and procurement processes, and establishing processes to better manage ongoing spend can all be accomplished with SaaS tools. Procurement processes can be enhanced by:

  • Providing better visibility into spending;
  • Aggregating spend;
  • Optimizing the number of vendors in B2B transacting;
  • Making manual processes more automated; and
  • Allowing automation through decision support technology.

These results can be delivered through a fully integrated suite of e-procurement software tools. The solution should include electronic sourcing, procurement, contract management and invoicing tools. A SaaS solution can easily integrate with any existing ERP or legacy application. It can also integrate with applications for smaller companies by providing a web-based user interfaces that requires only an Internet connection and PC. Also important to success in implementing e-sourcing and e-procurement are the substantially experienced people to provide professional services of change management, spend analytics, supplier onboarding, and project management. To make the best choice, find a company that can provide all of that to your business so you can prepare for growth and economic recovery.

Thanks, George.