Author Archives: thedoctor

Knowledge Based Sourcing I – Booz Allen Steps into the Next Level Ring

BravoSolution. CAPS. Greybeard Advisors. The MPower Group. Purchasing Practice. Tompkins Associates. Sourcing Innovation. And now Booz Allen. The Next Generation Sourcing Ring is staring to get a little crowded with combatants each offering their own take on “Next Generation” Supply Management. But that’s a good thing. Until recently, there weren’t even enough combatants to have a tag-team match!

So what is Booz Allen bringing to the Next Generation Sourcing Rumble? A competency consisting of a set of powerful techniques used to identify high impact value drivers that result in increased understanding and knowledge of ‘ideal’ cost structures that can be used to develop better relationships with suppliers, focused on reality based improvement plans, and gain an ongoing business advantage. This is a good goal.

In addition, Booz Allen claims that this approach is fundamentally different from traditional “market-based” sourcing approaches that are focused on embracing supply markets’ competitive context and/or obtaining the best competitive outcome possible, primarily through pricing. According to Booz Allen, its “Knowledge Based Sourcing” (KBS) approach is predicated on a deep understanding of cost drivers, the supply market, and spend category context. This is a good foundation. After all, it’s not spend that matters, but the underlying cost. Shaving 10% off the top is dismal if the organization is overpaying by 40%. And telling your team to save 10% again this year when underlying costs have gone up 40% and the production cost is now 10% more than what you are paying is foolish.

So how does Booz Allen define KBS? By its characteristics. According to Booz Allen, Knowledge Based Sourcing:

  • uses the supply base as a key competitive advantage
    (presumably) because this enables long-term success through (financial) supplier stability instead of unstable short-term gains from supply base exploitation
  • continuously improves to eliminate supply chain waste
    because raw material and environmental costs (associated with water and power) are going through the roof and waste is costly
  • integrates (internal & external) relationships
    because this leads to collaboration, which in turn leads to innovation, that is not possible with combative arms-length relationships
  • shares knowledge
    because all partners need to profit in a successful supply chain
  • sets and meets targeted costs with supply partners
    as success relies on continual cost control and cost reduction
  • is improvement focussed
    as an organization that stands still will soon be over-taken by the competition
  • ensures suppliers are at an advantage over market
    as this is the foundation for using the supply base as a key competitive advantage
  • continually drives best practices through the supply base
    to ensure that all supply chain partners improve in lock step
  • is driven by knowledgeable procurement professionals
    as talent is the ultimate key to success
  • aligns suppliers with customer success
    as Supply Management must enable its customers to succeed if it is to succeed

It’s a good definition for Knowledge Based Sourcing (KBS) and a solid entry into the Next Level Ring. Now, if only we could get the combatants to agree on a name. So far we have “High Definition Sourcing”, “VFS” (Value Focussed Supply), “Next Level Supply Management”, “Next Practices”, “Supply Management Transformation”, “Supply Chain Leverage”, “Next Generation Supply Management”, and “Knowledge Based Sourcing”. But the foundations of each message appear to be the same — in order to continue to extract value from supply management, it needs to be taken to the next level. A next level that is knowledge-based, analytics driven, and result-focussed.

So who’s going to throw their hat in the ring next? Hard to say. For now, we’ll explore Knowledge Based Sourcing further over the next few days.

Another Advantage of Design For Recycle: Two Products for the Price of One!

In the early days of SI, a classic post appeared telling you to Design for Recycle. This was because a design that accounted for recycling from day one allowed you to recover costly raw materials, comply with stringent environmental regulations, and attract Generation Y’ers who are, on average, much more concerned than you with the environment, sustainability, and corporate social responsibility.

However, what we didn’t tell you was that a major benefit of designing a product to be recyclable was that, by default, the product ended up being well designed for reuse as it was easy to disassemble, and, as a result, easy to swap out components. This not only simplifies, and the lowers the cost of repairs, but makes it easy to upgrade components to extend product life. And if core components can be upgraded, then, when better components (such as processors, flash drives, and antennas) are available, these can be upgraded and a next generation product can be released 6 to 18 months later. And just like Apple gets a free iPhone 4S as a result of a well designed iPhone 4 (and the millions of dollars in sales that go with it), you too could get a free product X.Y as a result of a well designed product X that is designed to be reused and recycled. Think about it.

Are You Ready For SI To Take You To The Next Level?

Next week, sixty four (64) months and one point seven five million (1.75 M) words into its operation, SI will publish it’s 3000th post. It’s time to ask the 64,000 Question:

Are You Ready For SI To Take You To The Next Level?

And it’s time for you, dear reader, to give me the answer.

     

On this date, 185 years ago today, the Granite Railway began operations as the first chartered railway in the United States.

In order to demonstrate that SI has achieved its primary goal of educating you and preparing you to be a Supply Management Leader, I want you to leave a comment stating why you are ready for SI to take you to the Next Level, and include somewhere in this comment an explanation of the significance of the Granite Railway to the development of the modern Supply Chain.

I’m looking for the answer that demonstrates, in my mind, that you’re ready for SI to take you on that Next Level Journey.  

Lavante Recovery – A Risk-Free Way to Segue Into SIM

Yesterday, I was the first to get a sneak peak into the live-beta of Lavante’s new Recovery Audit solution that is being built on top of the brand-spanking-new Supplier Information Management solution that they released earlier this year (as showcased in this February post). Given it’s unique foundation, and the decade of recovery audit experience that has been baked into it, it is no surprise that Lavante is finding ten (10) times the savings of an average recovery audit, and up to fifty (50) times for select clients — even though the product is still in Private Beta and full (seamless) integration (with SIM) won’t be available until next year.

The great thing about the solution is that the first thing it does is identify omissions, errors, and inconsistencies in your supplier data. Using phone number, fax, address, web site, e-mail, and TIN checks, the software is able to find duplicate, erroneous, or incomplete records that need attention. Once these are fixed — either through automated import of up-to-date data from it’s network of over 2 Million companies, or from a multi-channel reach-out that seamlessly integrates telephone, fax, and snail-mail reach-out as well as e-mail reach-out — the software automatically applies a suite of rules and checks to find duplicate payments, overpayments, and potentially fraudulent payments that you have not yet identified. And once these are verified as accurate, provided you have a decent agreement/contract in place, you can go after the vendor for credits.

The benefits of good supplier data and multi-channel reach-out cannot be underestimated where recovery audits are concerned. For the latter, they have average reach-out response rates of over 50% (and as high as 80% for some customers), which are eight (8) to ten (10) times the response rates of providers who just do e-mail / web-based reach-outs. With respect to the former, cleaner supplier data makes for more complete transaction data, which not only increases the chance of finding a duplicate, incorrect, or fraudulent transaction — but improves your follow-on spend analysis efforts (and results). As a result of its supplier data cleansing effort, Lavante is typically able to process at least 95% of spend through its recovery audit solution, which maximizes the chances that it will find the majority of your recovery opportunities.

The SaaS solution is quite simple to use — consisting of four main components: the dashboard, claims management, invoice management, and reporting. The claims management section allows you to review each claim found by the system, which includes complete information about the claim — type, reason, organization, supplier, status, supporting documentation, etc, and take appropriate actions, which can include additional review, processing, or reassignment. The invoice section lets you manage your invoices from Lavante for recovery services. If you choose the fixed fee option, you will get one invoice on the agreed upon invoicing cycle for access to the software. If you choose the risk-free contingency model, then you will get an invoice for each valid claim made to a supplier that results in a credit or repayment. The reporting section consists of a suite of audit, cash-flow, claims, invoice, non-compliance, OFAC-SDN, and Vendor reports that give you pretty much any piece of information correlated with any other piece of information any way you want to look at it. The dashboard allows you to see your claim and invoice summary data at a glance, and to select the four most important reports to you — which can be viewed in (multiple) chart form(s) or in tabular form, and exported to csv or pdf. And while it’s a basic solution at this point, the only obvious weakness, given that the one goal of the platform at this point is to find all payments eligible for recovery, is that they do not yet have a custom report builder.

I’m sure they’ll get there. They shared with me their 2012+ roadmap for the solution, and it’s quite impressive. They have a vision to build on the solution to extend it first to a contract compliance solution, then to a fraud prevention solution, and finally to a risk management platform that will also integrate with their supplier management platform which will include compliance management. They understand that, done right, recovery is a one-trick pony (because, if you do it right, you also identify the source problem and fix it) and that the real value is not in recovery, but duplicate, overpayment, and fraud prevention — and monitoring transactions in such a way that they can be used to judge supplier, and supply chain, risk. I expect it will take them a few years to get there, but it will also take an average company one to two years to identify the majority of reasons for duplicate and over-payments and fix their processes, so Lavante should be able to grow in lock-step with their customer base. Regardless, Lavante is a company to watch and a solution to investigate for any Fortune 500/Global 3000 (want-to-be) that has never done a recovery audit. At the very least the included supplier data analysis service will add value. And when your data is in order, you can take your transaction analysis to the next level. And given that good data enables good spend analysis, and that a spend analysis will typically uncover 10% savings opportunities, what have you got to lose?