Author Archives: thedoctor

Optimization, Do You Know What Comes Next?

Admit it. You don’t. You have no clue. You’re still struggling with the basics of model building, data collection, constraint definition, scenario comparison, and, most importantly, when you should use optimization (always, but not necessarily to make the award decision). It’s math, it’s hard, you weren’t trained, and you’re already struggling to keep up with the increasing demands placed upon your Supply Management organization by the C-Suite, stakeholders, and suppliers.

But you should. Costs, including labour and energy, are rising across the board. Inflation is about to make its way back with a vengeance. Markets are uncertain and in some places unstable. It’s getting to the point where all optimization on a category optimized in the last three years is going to do is limit cost increases to inflation. Unless the model is expanded, the category is redefined, or an innovative approach is taken — there will be no more savings to be found.

As a result, you have to take your optimization to the next level. You have to go from T-CAP (Cost of Acquisition and Production/Utilization/Distribution) to true TCO (Total Cost of Ownership) as you work your way to TVM (Total Value Management). You have to learn how to take your modelling and analysis skills to the next level. And you have to be innovative in your application of optimization.

And what does that innovation look like? To find out, download Sourcing Innovation’s new Illumination white-paper on Optimization, What Comes Next (registration required). Sponsored by Trade Extensions, this white paper presents six ways you can merge big data, analysis, and optimization to take strategic sourcing decision optimization (SSDO) to the next level and find savings and cost avoidance opportunities you would never have imagined even a year ago.

The reality is that even if you’re Hackett Group top 8%, regularly applying SSDO to high-dollar and/or strategic categories, and building nine, and even ten, figure sourcing events on optimization, you’ve barely mastered the basics of optimization 2.0. Since the doctor regularly interacts (and sometimes works) with five of the seven providers of SSDO technology (and the two e-CHAOS hold-outs have not upgraded their platforms substantially in years), including the true market leaders, he knows the extent of the projects they have supported and knows that even the most advanced organizations are just scratching the surface of optimization 2.0. But these providers are now taking their products to the next level and have started releasing the foundations of 3.0 capability, with lots more to come over the next few years. The organizations that adopt, and master, these 3.0 capabilities first will be decades ahead of their peers in supply mastery. Decades.

So, if you want to be one of this decade’s Supply Management leaders, download Sourcing Innovation’s new white-paper on Optimization, What Comes Next (registration required) and start preparing for the future of optimization today. It will be worth your while and when you start applying these techniques, you won’t be disappointed.

One Hundred and Twenty Five Years Ago Today

And over 60 years before they would line the walls of diners everywhere (and become staples in hundreds, if not thousands, of movies about the swinging ’50s), the first jukebox, built by the Pacific Phonograph Company, went into operation at the Palais Royale Saloon in San Francisco and launched the Music-on-Demand revolution. (See the Wired obituary.) Unlike a modern jukebox, which blasted music though built in speakers, this early version required the listener to use a stethoscope-like tube that was attached to an Edison Class M electric phonograph to hear the recording.

And then a mere sixty-five years later, as chronicled in our post last month, TI would launch the mobile music revolution. Forget Apple. Forget Sony. Forget RCA. The real revolutionaries that made music on demand are long out of the music business.

Can You Solve the Compliance Challenge?

Regulatory compliance is usually defined by an organization’s adherence to laws, regulations, guidelines and specifications relevant to its business.

There are two primary categories:

  • Internal compliance that focusses on the policies and procedures of the organization (which must be followed to insure SOX compliance) and is focussed on personnel and procurement
  • External compliance that focusses on the (government) legislation and agreements that govern the operation of the organization and falls into the categories of:
    • financial/operational
    • import/export
    • environmental
    • private data / worker’s rights
    • insurance / liability

Non-compliance can be a very costly situation for an organization to find itself in as it can cost an organization hundreds of millions of dollars in some cases. Consider the following costs of external non-compliance:

Financial

  • SOX violations can cost up to 5M per violation; even Deloitte, known for its audits, had to pay 2 Million for a SOX violation
  • Anti-bribery violations have no ceiling; Aon paying £ 5.25 M in 2009, Wills Limited paying £ 6.9 M in 2011, and Macmillan Publishers paying £ 11.26 M in 2011
  • FCPA violations don’t have a ceiling either; Weatherford International paid $152.6 M in 2013, Alcoa paid $384 M in 2014, and Siemens paid $800 M in 2008

Import/Export

Meggitt paid 25 M in 2013 to settle charges of AECA & ITAR violations, Standard Chartered Bank paid 132 M in 2012 to settle charges of OFAC sanction violations, and ING Bank N.V. recently paid 619 M to settle charges of several OFAC sanction violations

Insurance

In 2012, Wal-Mart paid $8M to settle a workers’ compensation class action settlement, and in 2010 a jury awarded $82.5 in a workplace death lawsuit

Lack of compliance costs. Dearly. Why is there a lack of compliance in most organizations? Lack of knowledge, policy, visibility, analysis, and procurement technology. Knowledge can be addressed with training. Policy can be fixed with planning. But visibility, analysis, and procurement fixes require technology.

What kind of technology?

Supply Chain Visibility, Spend Analytics, and a Procurement Marketplace that captures, tracks, and maintains an audit trail of all of the relevant data to insure SOX and FCPA are not violated, import and export restrictions and requirements are adhered to, and that suppliers comply with insurance and regulatory compliance.

To find out how a Procurement Marketplace helps your organization solve the compliance challenge, reduce maverick spending, and enable organizational growth, download Sourcing Innovation’s latest white-paper on The Procurement Marketplace and The Power of Compliance (registration required), sponsored by Vinimaya.

Procurement Trend #15. System Integration with Partners

A dozen anti-trends from those wild and crazy guys still remain, and as much as we’d like to find some entertainment value in what they have to offer, we must agree with LOLCat who is bored with our continuing anti-trend coverage and, like the foxes the wild and crazy guys like to chase, instead flee from the obnoxious diatribe they thrust upon us.

So why do so many historians keep pegging system integration with partners as a future trend? I honestly can’t fathom this as Big Blue has been pushing integration projects for decades, but maybe it is because they’ve been living in the corporate cave (as Procurement is still relegated to the basement in many organizations) and:

  • e-Procurement benefits like invoice Automation require some system integration

    because invoices come from suppliers and often have to get into AP systems on the way through the e-Procurement system

  • supply chain visibility is critical for risk mitigation

    because you cannot take action to protect against a disruption if you do not know that a disruptive event occurred

  • strategic planning is improved with good data

    because even though you can make great strategic plans without data, it’s just a theoretical exercise if the plan depends on postulated conditions that do not actually exist in the real world

So what does this mean?

System integration

Not only do you need to brush up on your IT skills, but you have to brush up on your IT project management skills too. System integration projects have been responsible for some of the worst supply chain disasters in history. Don’t believe me? Review Supply Chain Digest’s top supply chain disasters and notice that 9 of the 11 top failures were as a result of technology, and all but one of these technology failures was at least partly, if not entirely, IT technology!

Supply Chain Visibility

You need to implement a multi-tier supply chain visibility. Knowing your supplier’s status is not good enough, you need to know your supplier’s supplier status and sometimes even the status of the supplier of your supplier’s supplier — especially if raw materials acquisition is the weakest link in the chain. Leave no stone unturned that could be covering a ticking time-bomb.

Good Data

When we say good data, we mean good data. Not just data because not all data is good. If it has a lot of holes, is inaccurate, or is too old, it’s bad data, and all analysis on bad data leads to is bad information that results in bad decisions. But good data can lead to good information and then good decisions, and, in an appropriate model, it can lead to actionable intelligence that can power great decisions.