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John Mavriyannakis on the Future of Procurement: Part II

In Part I, we described the 4 major trends affecting Procurement today that were identified by Deloitte in its research and consulting initiatives (and which have been addressed in publications that include “Supply Chain Strategy”, “Winning With Your Supply Chain”, and “Charting the Course: Why Procurement Must Transform Itself by 2020”) that were summarized nicely by John Mavriyannakis, a Senior Manager at Deloitte Canada (and the Practice Leader in Sourcing, Procurement, and Settlement), in his recent presentation on Empowering Modern Procurement that was given as part of the Coupa One Vision Roadshow in Toronto

Specifically, John Mavriyannakis identified the following four trends:

  • Margin Pressure
  • Supply Chain Risk
  • Government Regulations
  • Talent

As a result of these trends, it is clear that today’s supply managers need to:

  • control margin pressure,
  • mitigate supply chain risk,
  • stay ahead of changing regulations, and
  • win the war for talent.

But that’s not going to be enough for a Procurement organization to succeed in the long term in the dynamically changing global marketplace. If they wish to survive, Procurement and Supply Management organizations need to rethink mission and capabilities. Specifically, they need to:

  • get strategic
    and establish a formal organizational presence that ties metrics to company performance,
  • transition
    to re-aligned processes and responsibilities that focus on business outcomes,
  • task talent cross-functionally
    to enhance the procurement capability of the organization as a whole, and
  • tie it all to technology
    that blends service and management tools that are easy to use and that allow for the right level of control.

While keeping in mind that they need to get to the 2020 Procurement and Supply Management organization in just 6 short years (which is no easy feat given that the average transformation time that is required for a Global 3000 organization to become a world class Procurement organization, according to The Hackett Group, is at least 5 years). In 2020, Procurement, according to Deloitte, is going to (need to) be:

  • the keepers of the global supply and demand perspective,
  • the nexus of finance, operations, and supply chain,
  • risk forecasters,
  • the arbiter of risk vs. reward,
  • the value-generation unit that is the treasure trove of ideas, and
  • talent rich.

And SI fully agrees with all but the last of these predictions. In addition, it partially agrees with the last prediction that Procurement is going to need to be talent rich to achieve the goals that are set before it, but given the lack of investment in talent to date in the average Procurement organization, SI isn’t sure that the talent is going to be where it needs to be in 2020. Even though talent has been in the top three Procurement issues for at least the last three years, it’s still in the top three budget items that are cut every year in these tough economic times, even though a small investment in talent can lead to a (very) large return in savings in a Procurement organization. (For example, one of the first companies to certify their entire department with the SPSM designation offered by Next Level Purchasing, a 1 Billion furniture manufacturer, doubled their annual savings only one year after completing the certification on the department level. That’s a double digit ROI multiple in one year! Compare that to the 2X or 3X you might get from automating manual processes.) Basically, the most successful Procurement organizations in 2020 will be talent rich, but the average Procurement organization will be struggling at the current rate of training and talent induction into our space.

John Mavriyannakis on the Future of Procurement: Part I

John Mavriyannakis is a Senior Manager at Deloitte Canada and the Practice Leader in Sourcing, Procurement, and Settlement who recently gave a presentation on Empowering Modern Procurement as part of the Coupa One Vision Roadshow in Toronto. Through its regular CPO Surveys, CFO Surveys, and its Source-to-Procure experience across 1000+ projects for 300+ clients, which made it #1 in the Procurement Consulting provider in the global Procurement Consulting marketplace, Deloitte has built up a considerable understanding of the current state of Procurement [which it has captured in a number of publications, including Supply Chain Strategy (Deloitte), Winning With Your Supply Chain (Deloitte), the CFO Surveys, and Charting the Course: Why Procurement Must Transform Itself by 2020 (Deloitte)].

According to Deloitte, Procurement today is dealing with 4 major trends, which are going to continue for the foreseeable future:

Margin Pressure
Margins are getting tighter and organizations need to be looking at least ten years ahead to determine future (labour) arbitrage opportunities, which are becoming increasingly more difficult to leverage as emerging economies emerge and produce middle classes with higher wage expectations (and transportation costs increase to make up the difference). In addition, the fact that price volatility has increased 57% in the last 12 months hasn’t helped matters any.

Supply Chain Risk
Due to the increasing interdependence and extensiveness of supply chains, risk is increasing, as illustrated byt he fact that 85% of surveyed organizations experienced at least one large scale disruption in the last 12 months. The increased risk is a big issue given that companies announcing supply chain disruptions had a 30% lower supply chain return compared to the benchmark group.

Government Regulations
Regulatory compliance issues have resulted in high-profile, high-cost shutdowns in recent years and with 2/3rds of CPOs admitting that their companies are only in the early stages of compiling information required to meet the recent SEC reporting changes, this is not a good state of affairs as the SEC reporting requirements are only one of a plethora of reporting requirements an international company that is importing and exporting on a daily basis around the globe needs to be compliant with.

Talent
Given that 76% of CPOs feel that their staffs’ skills need improvement or have a significant gap, talent is on the radar in a big way. And not just any talent — with 91% of the 60% of CPOs planning to change their operational model announcing a shift to center-led or centralized supply chain operations, this means that over half of the talent that is required needs to be effective in these type of Supply Management models.

So what does this mean? We’ll discuss tomorrow in Part II.

What do the recent NSA revelations and the US Patriot Act Mean for Procurement?

Earlier this week, on Spend Matters UK, we saw a guest post from Jessica Warren of Hubwoo that asked “what the US surveillance programme means for procurement systems and people”. It asked some good questions, and gave some good answers, but it missed the most important question. However, before we get to that, we’re going to provide some background and a few other important pieces of information to put everything in context.

The post, written largely from the EU perspective, notes that the requirements of the European Data Protection Directive (95/46/EC) defines rules for the transfer of personal data outside the EU to ensure the best possible protection of personal data when it is exported abroad and that the transfer of personal data to non-EU countries that do not meet the EU “adequacy” standard for privacy protection are prohibited.

The EU is not the only political body to take privacy seriously. Canada has the Personal Information Protection and Electronic Document Act (PIPEDA) that recognizes the right of privacy of individuals with respect to their personal information and the need of organizations to collect, use or disclose personal information for purposes that a reasonable person would consider appropriate in the circumstances and the Privacy Act that extends the laws of Canada that protect individual privacy to government institutions. These laws imply that personal information cannot be provided to any party that is not bound by laws at least as strong as the Canadian laws (which are also augmented with additional regulations in the provinces of British Columbia, Alberta, and Quebec). So storing Canadian data on US servers that can be seized by the US government at any time for any reason under the Patriot Act could also be a big no-no.

Another thing to remember is that hosting in the biggest Canadian Data Center that will give you the best deal, which used to be the default answer if you wanted to service North American clients with fast response times and ensure Canadian and EU privacy protections were in force, is not necessarily enough anymore, even if the data centre adheres to the U.S.-EU Safe Harbour Framework. (The Safe Harbour Framework was originally designed to provide guidance for U.S. organizations on how to provide adequate protection for EU personal data so that US companies could store and process EU data without violating EU laws. Even though the intent was sound, the execution was weak, as the first case under the framework was not brought forth until 2011, and the framework has come under significant criticism under two external reviews by the EU in [2002 and 2004] and one by Galexia [in 2008].)

Why can’t you just ask that your US solution provider store the data in Canada and be done with it? The US Patriot Act. This diabolical piece of legislation gives the US government the right to demand any data held by any company governed by US law, no matter who or what the data pertains to, how or when it was acquired, or where it is physically stored. In other words, even if your US-based solution provider stores your data in Canada or Germany, the US can still demand that data. (Even Microsoft had to admit that regardless of where it stored it’s European Customers’ data, it could not ensure such data would not be turned over to the US government. [Source])  It’s not enough to just ask the provider whether or not it can guarantee that your data is safe from the Patriot Act as most services providers don’t understand the full extent of the power granted the US Government by the Patriot Act and many believe that if they are on the Safe Harbour list then that ensures their customers have adequate protection, which is not the case.  (That’s why a European Parliament Committee is recommending suspension of US-EU Safe Harbour. [Source]) Furthermore, if such data is stored in a data centre that participates in Safe Harbour, even if it’s on Canadian soil, you’re more-or-less in a double-jeopardy situation as that data centre, by participating in the program, has agreed to adhere to US regulations and will immediately hand that data over on official request!

This says that the most important question is not where is my data hosted but

1. What law governs the data you store on my behalf?

Simply put, if the company is bound by US law, it doesn’t matter where your data is, it is still subject to the US Patriot Act, and can be demanded by the U.S. Government at any time.

If your organization is subject to EU or Canadian privacy directives (which, in most provinces, prohibit the export of private data outside of Canada), after you have verified that US law does not govern the data stored on your behalf, then you ask:

2. Where is my data being stored?
2b) If you are storing my data in Canada, has the data centre opted into a US Safe Harbour program?

If privacy is a concern, not only do you not want your data stored in the US, but you probably don’t want it stored in a Canadian Data Center that has opted into a US Safe Harbour program (and agreed to enforce requests made under the US Patriot Act). (Note that there are a number of data centres in Canada that have not opted into this program that are still really good choices for servicing your North American operations.)

3. Is the storage provider (which might be a data centre contracted by your solution provider, as most Sourcing and Procurement SaaS providers do not manage their own data centres) bound by laws at least as strong as the privacy laws my organization is bound by?

If the answer is yes, you’re good to go.

There’s also three lessons here for US-headquartered Sourcing and Procurement Vendors who want to go global (and conquer Europe).
Specifically:

1) Move your headquarters somewhere else.
The UK would be a good choice if being located in an English speaking country is important to you.
2) Open a Canadian subsidiary to manage your North American service delivery operations.
3) Use a Canadian Data Center that does not participate in the US Safe Harbour program to store your customers’ data.

Bravo Business Center 2.0 – A Complete Category Solution for MRO: Part II.2

In Part II.1, after noting how BravoSolution transformed a solution that was a complete category management solution for nine (9) somewhat disparate categories, to a complete vertical solution for five different verticals (with more coming in the future) that was based on the collective decades of experience of their global sourcing team (working out of ten offices in four continents) in those verticals, we noted how in BravoSolution’s Business Center, the basic templates are loaded and ready to go. All that an organization has to do to get started with a basic event is upload its item list, market baskets, list pricing for each supplier (and current / previous bid discounts), and current contracts; define it’s service level equations and cost-vs-service level trade-offs; and define its bidding guidelines and key milestones, and a basic event is ready to go!

In addition to being able to capture all of the categories, sub-categories, and items of interest, the platform can also capture all of the buyer locations — organized by region, state, and city — and supplier service locations — also organized by region, state, and city — and the platform allows a buyer to restrict which service locations can service a buyer location and the supplier is still able to define further restrictions still based on the supplier’s capabilities. In addition, a supplier can also suggest alternate items, with alternate pricing, for each item (over those selected by the buyer) and a buyer can accept or reject the alternates that are proposed. These alternates can have their own pricing, discount, and shipping & handling rules as well. For any category, sub-category, or item with a price that is largely driven off of one or more market costs (like steel or energy), the supplier can specify the relevant price index(es) and the percent that the market cost is driven off of the index(es). So, if a steel part is 50% steel, 10% energy, 25% specialized labour, and 15% other, the supplier can indicate that steel, energy, and specialized labour are the primary cost drivers, link them to the buyer recognized indices, and indicate the threshold change at which a price will need to increase or decrease. The buyer can then accept, or reject, the bid and if accepted, do multi-year what-if scenarios and make optimized multi-year awards that take expected cost increases or decreases into account, reducing the number of sourcing events and freeing up its strategic sourcing team for more strategic value-add activities, such as supplier performance improvement.

And the best thing about the solution is that the entire workflow is mapped out and easy to follow by even the most novice buyer on the sourcing team. First, the buyer is walked through setting up the guidelines for the supplier and customizing the workflow. This involves sending out an intent to respond (to avoid wasting time creating RFX sheets for uninterested suppliers), creating the general instructions for the event, identifying the milestones (steps) and target dates for completing each milestone (step), drafting the announcements for the various milestones and tracking their distribution, and selecting/creating the appropriate training materials for download by the suppliers (which can include step-by-step instructional videos for each step of the process).

Then the RFI is initiated to collect basic supplier information, product and service capabilities, service history, and standard pricing practices. Based on this, a basic product and service level evaluation is conducted (which insures that minimum required service levels can be met and that minimum quality levels are achievable), and any suppliers that don’t meet the minimum requirements are eliminated before the RFQ. At this point, the required service areas are defined (based upon the uploaded and/or historical service areas that can be defined at the region, state, and/or city level), the market baskets (and the component categories, sub-categories, and items and their mappings to default, pre-approved, supplier items) are finalized, discount categories are created, and any required shipping & handling rules are created.

The RFQ is then sent out and the suppliers can either enter their bids through the supplier portal, or download an Excel sheet, which can include their historical bids (if they bid in a previous event) that they can complete offline and upload if it’s easier. The suppliers can then define any general or (basket specific) discounts through the portal in a powerful and flexible manner on their list-price bids (which makes bidding for them as easy as cutting and pasting their list-price bid-sheet into the Excel sheet and then defining their discount categories, versus having to create multiple pricing sheets for each type of discount). Finally, the suppliers can fill in their shipping and handling costs and requirements (such as minimum order size, service location restrictions, etc.) and submit their bid. Optionally, the suppliers can also specify the dependence of high-dollar, or variable, categories on price-indices and additional discounts for alternate payment terms.

When all of the suppliers have bid, or the cut-off date is reached, the buyer can then push all of the bids into BravoSolution’s Collaborative Sourcing Solution into a pre-built, ready-to-go, optimization model that, based on the predefined service rules, cost trade-offs, and preferred contract length, will compute the optimal solution. The buyer can then create multiple what-if scenarios to determine the cost dependency on service level (or vice versa) or the potential savings with different contract terms. Once an award scenario is chosen, it can be saved, pushed into the contract management solution, and template contracts generated for each supplier in the award scenario.

It’s a very well thought out solution for MRO optimized to make sourcing, and re-sourcing, as quick, easy, painless, and error-free as possible so that, if needed, it can be driven by a junior buyer (under the guidance of a senior buyer) and free up the senior buyer in the organization for more value-add or strategic activities. And with the decades upon decades of experience in BravoSolution’s Global Team, they can get it up, running, and customized to your specific organizational needs in a matter of weeks. If you are an MRO organization, or an organization with a large MRO spend, BravoSolution’s MRO Business Center is definitely a solution to look at closely.