Monthly Archives: February 2011

BravoSolution: Making Spend Analysis More Useful to the Average Supply Management Professional, Part II

In yesterday’s post we discussed how, for one reason or another, spend analysis is not used enough in the average organization. But, as I said before, this doesn’t have to be the case. Spend Analysis can continue to deliver value year over year if it is properly integrated into daily supply chain activities. And the key to making this happen in your average Supply Management organization is integrating spend analysis not only into the (e)Sourcing process but the e(S)ourcing suite.

In BravoSolution’s Collaborative Sourcing Suite, Spend Analysis is integrated into the Contract Management, Compliance (& Spend) Management, and Performance Management solutions and will be integrated into Risk Management in the next version of the solution that is currently under development. In todays post, we will discuss the benefits of integrated spend analysis and what is available in BravoSolution’s suite.

By integrating Spend Analysis into the Contract Management solution, BravoSolution assists an organization in achieving a global view of sourcing and spend. From day one, an organization can not only track the contract details, but can track forecast data (total spend, cost reduction, demand management, etc.) and spend on an on-going basis by business unit and time-period (by setting up the periods for which spend is to be tracked). Then, on a regular basis, current and forecast saving reports can be (re)run with the click of a mouse button. For selected contracts, the actual savings report will summarize forecasted spend, actual spend, spend variance, expected savings (to date), actual savings, and variance, and the forecast savings report will summarize cost reduction, demand management, process savings, cost avoidance, cost increases, and total savings.

By integrating Spend Analysis into the Compliance Management solution, and matching all the way down to the unit level to find variance from contracts, Spend Analysis can help the Supply Management organization quickly pinpoint negotiated savings leakage and stem the losses. More importantly, the reports can be configured to report leakages and variances by supplier and contract (against the contract value and invoiced cost). If the variance calculations factor in discounts, rebates, and pricing tiers, then actual losses can be quickly computed. Then the recovery process can begin. BravoSolution’s suite, which includes integrated messaging for supplier performance tracking and hooks into performance management, includes the ability to track amounts paid and overpaid by supplier and contract to assist in recovery.

By integrating Spend Analysis into Performance Management, not only can spend be tracked by supplier, but spend can be broken down into high, average, and low performing suppliers. These reports can be high-level, based upon overall performance scores, or by individual KPIs from supplier scorecards. In addition, trends can be analyzed and the organization can determine whether spend to high performing suppliers is increasing, holding steady, or decreasing and whether or not action has to be taken. These trends can be plotted or (spider) graphed automatically, and benchmarks can be built and tracked over time.

And by integrating Spend Analysis into Risk Management, Risk Management can be taken to the next level. But that’s the subject of a future post.

So how successful can you be if you integrate Spend Analysis into Contract Management, Compliance Management, and Performance Management? Theoretically, the sky’s the limit (as spend analysis is now doing more than just measuring spend). Practically, the results are looking very promising. While BravoSolution only finished the initial integration of their core suite components with Spend Analysis last year, BravoSolution’s first four case studies are looking quite promising.

After an initial 3 month roll-out to a handful of advertising and marketing groups in a large media organization, the organization decided to roll out the contract and compliance management solutions to all 30 of its global groups. A second organization was able to get 50% of its spend in a compliance program in less than six months. A third organization was able to develop a performance management solution that it could roll out to thousands of franchisees to determine the appropriateness and effectiveness of its global contracts. And while the final savings numbers won’t be known for a while, the savings are tracking in the range enabled by High Definition Sourcing, 10% to 30%.

Is The Cliffhanger Paradox Limiting Your Supplier Performance?

A recent article in The Globe and Mail on why you need to “keep stroking clients” discussed a major reason businesses lose clients and don’t maximize lifetime value from the relationship. Dubbed the cliffhanger paradox, which describes the situation where businesses want continued loyalty and financial gains — but don’t get it, the article points out that the reason clients jump ship is because, once the client is won, the business fails to communicate meaningfully, frequently, and personally with them. Like a cliff-hanger, both sides are left in suspense.

If businesses don’t continuously communicate with clients, they don’t know where they stand until those customers either buy again or jump ship to the competition.

But the same holds true in supplier performance management. Often a company will begin a supplier improvement initiative, target the most critical or most under-performing suppliers, work with them for months until the performance meets the target level, and then quickly move on to the next supplier in the queue, thinking “the supplier has everything under control now”. Maybe they do, maybe they don’t. But most importantly, neither side knows that. If the supplier thinks all is well with the world again, they might slowly drift back to their old, under-performing ways. And if the supplier thinks you have given up on them, they might put minimal effort into fulfilling their contracted obligations and instead put all of their effort into pleasing another, easier to retain, customer. Both ways end up with you not getting the best performance you can. It’s not just your customers that need to be stroked on a regular basis … your suppliers need their whiskers stroked too.

BravoSolution: Making Spend Analysis More Useful to the Average Supply Management Professional, Part I

For reasons I don’t quite understand, spend analysis is not used enough in the average organization. More often than not, even basic spend reporting — that would tell an organization what is being spent, on what, with whom, and when — is not run. Even though most organizations can probably name seven of their top ten suppliers, categories, and organizational units by spend if you just ask them, chances are that not only will they be surprised by the other three, but they won’t quite comprehend the magnitude of the spend. And until an organization understands the magnitude of their lack of comprehension, getting spend analysis adoption in the organization is likely to be a problem.

However, that is only the first obstacle. Once a solution is adopted, chances are it will only be used by a small number of senior analysts. Just like decision optimization, there seems to be a common misconception that it is “hard”, requires “math skills”, or “takes too much time” — as a result, many users are intimidated or can’t find the time to try it. The “hard” and “math skills” misconceptions can usually be overcome with a demo or two on a properly implemented, easy to use, tool, but unless it’s easy to import data and generate reports, the “takes too much time” stigma may stay.

But if you get past the stigmas, if all it does is generate a few canned reports, you hit the real problem. It’s usefulness quickly comes to an end. Once you’ve attacked the Top N suppliers, Top N categories, and Top N spenders in the organization and reigned in costs and performance, unless there is a way to identify the next N opportunities, the usefulness of the tool has come to an end. That’s why the traditional spend analysis value curve flattens out within a year and spend analysis never reaches wide adoption.

But this doesn’t have to be the case. Not only can spend analysis reach wide adoption throughout the supply chain organization, but it can continue to deliver value year over year if it is properly integrated into daily supply chain activities. And the key to making this happen in your average Supply Management organization is integrating spend analysis not only into the (e)Sourcing process but the e(S)ourcing suite. From eBidding through Decision Optimization and Contract Management through Supplier Performance Management, Spend Analysis can play a vital role.

In BravoSolution’s Collaborative Sourcing Suite, Spend Analysis is integrated into the Contract Management solution, Compliance (& Spend) Management, and Performance Management and will be integrated into Risk Management in the next version of the solution that is currently under development. In tomorrow’s post, we will discuss the benefits of integrated spend analysis and what is available in BravoSolution’s suite.

Is The New India Greedy?

Some of the greediest business people that the doctor knows, especially in sales / marketing / business development roles, are Indian, but I’ve never looked upon India as “greedy” compared to, say, us — especially since these individuals often have a generous side where friends and family are concerned. But a recent article over on BBC News on the good, bad and ugly of Indian life seems to suggest that, in the New India, greed is good.

I know India faces greed from the west (led by the good ol’ U.S. of A.), the east (in China where greed allows you to be creative in business and put melamine in the milk, lead in the paint, and diethylene glycol [antifreeze] in the toothpaste and be seen as a successful business person who should be admired), and the north (led by the U.K. and a few of its money-grubbing European neighbours), but I had hoped it would hang on to its Gandhian heritage with dear life and balance the need for greed with the desire to make the (business) world a better place.

The article notes that when the head of the government’s main anti-fraud body, Pratyush Sinha, retired last year, he estimated that one in three Indians is corrupt. I know bribery is rampant, but that’s just the way business was done for a long time. People were underpaid, so if you wanted something, you paid a bribe. It might not be “ethical” in our world view, but at least when you paid the bribe, something got done. (And most of the time, the bribe was just to facilitate a legal service.) Here, you pay a service fee and wait to see whether or not a government worker will get around to your paperwork. He also said that “When we were growing up, if somebody was corrupt, they were generally looked down upon. There was at least some social stigma attached to it. That’s gone now. There’s greater social acceptance.”

According to the author, Pratyush was right. Recently cabinet ministers, wealthy businessmen, members of the armed forces, and politically well-connected organisers of the Commonwealth Games have come under the microscope. According to the author, one day his morning paper ran five different major corruption stories on its first eight pages. And now, even Ratan Tata, is speaking of the dangers of a “banana republic”. It doesn’t sound very positive. We certainly can’t wait for a commission of inquiry lasting 20 years. What do you think? Is it a short term blip or a long term problem? And if the latter, what is this going to do to your supply chain? India is already one of the most expensive countries in the world where logistics is concerned due to its bad roads and lack of airports. The last thing you want is greed in this industry.

Dell’s Guide to Growing in India

In four short years, Dell has risen to become the number one supplier of desktops, laptops, and notebook computers in India, going from sales of only 79,244 in 2007 to over 1.1 Million in 2010. This is more than HPs market share of 1 Million and Lenovo’s market share of about 600,000. So what did Dell do to rise to the top, acquiring year-over-year growth of 55% along the way? This recent article in Fortune on “how Dell conquered India” provides some interesting insights.

So how did Dell do this?

  1. They set up a factory in India.
    This cut local delivery time by 50% while improving profitability.
  2. They changed the model.
    While online worked great in North America, exclusive outlets worked much better in India. Once a customer selected a product, it was then delivered to their door (which saved on warehousing costs).
  3. They borrowed from the insurance model.
    Rather than use the established national, regional, and local retail distribution model, they determined that the insurance model fit best with their exclusive outlet / build-to-order strategy and used it instead.
  4. They extended the on-site service model to small businesses and retail customers.
    This gave them an edge over the competition.
  5. They built a core team in India focussed on growth.
    They were sure to recruit the best not only from other Dell international divisions, but from rivals (like HP and IBM) and retailers (Unilever, Whirlpool, and Airtel) who had experience in the India retail market.

In otherwords they:

  1. Established a local presence,
  2. Adapted to the local retail market, and
  3. Handed the reigns over to a team that understands the Indian marketplace.

While it will take a lot of work to brew up this recipe for success, it’s not a hard one to understand. To do well in a region, whether you are buying or selling, you need to go local, adapt, and work with the right partners who understand the region.