Category Archives: B2B 3.0

Procurement Trend 04. Control Tower Model / Omni Channel Approach

Only one anti-trend remains. Once we finish this post, we complete our formidable burden, and hope that the sour taste in our mouths will soon depart now that we have shown those fictionally-focussed futurists in fine detail that the snake-oil trends they have been selling have no worth. We want to abash them for their apathy, but we will leave it up to LOLCat to decide their fate. While LOLCat thinks on it, he would like to point out to these Rip van Winkles that when it comes to sleeping through life, No One Out-sleeps a Cat!

So why do these analyst catfish keep churning out the same lousy predictions year after year? Besides the fact that light rarely penetrates down to where they are, it’s probably because they look around, see the laggard organizations still struggling with the best way to organize its operations, and assume they can still sell last decade’s playbook in this decade’s marketplace. Thus, if most organizations are still fighting to get beyond the de-centralized model, then the control tower model sounds quite futurish. Plus, we have the situation where its

  • different strokes benefit different folks
    as different models work well in different circumstances
  • integrated channels result in integrated data feeds
    and more data results in better decisions
  • regional differences not only provide opportunities,
    but can hinder success with the wrong model/approach

So what does this mean?

Understand the Primary Models

There are three traditional models of Supply Management: decentralized, centralized, and center-led. In the decentralized model, there is a Supply Management team in each organizational unit responsible for purchasing for that unit. This model has advantages, primarily along deep knowledge of supply market and needs, and deep disadvantages, primarily with respect to the inability to exploit organizational spend. In the centralized model, all spend is centralized through one Supply Management team. This model has its own set of advantages and disadvantages, many of them diametrically opposite to the decentralized model. In the center-led model, there is a central Supply Management team which defines the categories, identifies the best sourcing methods, executes the contracts, and guides each department on how to procure against the contract. It is supposed to combine the best features of each model.

Understand where Each Model Fits

Each model has its uses. In an organization where most buys don’t cross organizational units (with respect to product needs or supply base), decentralized can work. In an organization which has primarily indirect spend that is common across the organization with a strongly overlapping supply base, for example, a centralized model is a best. In an organization with a mix of common and uncommon categories and suppliers, a center-led model where some spend is centralized and some spend is left up to the individual organizational units is often the way to go.

Understand Centre-Led vs. Center of Excellence vs. Control Tower

They are all similar, but they are not the same. Center-led is where a central organization centralizes some spend but leaves other spend up to the individual departments. A Center of Excellence may do the same thing, but it centralizes sourcing knowledge and best practices and, where appropriate, works with and guides the organizational units on decentralized spend to make sure they always apply best practices and get the best results. A Control Tower is a next generation Center of Excellence that not only manages both centralized and decentralized spend, but continually re-evaluates centralization and sourcing strategy and adapts the model with the market to generate the maximum impact for the organization.

Pick the Model that is Right for Your Organization

Arguably, the Control Tower model is best in theory, but pick the model that best fits your organizational needs based on where it is with respect to Supply Maturity.

When it Comes to an Event, How Big is Too Big?

1 Category?
5 Categories?
25 Categories?

10 Commodities?
50 Commodities?
100 Commodities?

50 Lanes?
500 Lanes?
5000 Lanes?

It depends. How much can you handle at one time?

If you’re sourcing with optimization, the bigger the better. Tackle as many categories at a time that overlap with at least one other category, especially if you are dealing with physical goods that are coming from common locations. The way you save on logistics costs is to minimize the number of trucks, which occurs when you can combine as many shipments as possible as to minimize the number of LTL shipments.

Or if you are dealing with multiple service categories that can sometimes be provided by the same contract or temporary labour agencies. For example, engineers and software developers are often offered by the same specialist agencies; warehouse, janitorial, security and other unskilled labour are often obtainable from the same agency; and certain others specialize in legal, accounting, and similar trade professions.

Tackling them all as one mega-project doesn’t mean that you have to negotiate with them all simultaneously or that you have to create massive RFXs, Auctions, or bid-sheets. There’s nothing stopping you from organizing your sourcing events so that each category is being sourced simultaneously by a different team member, co-ordinated so that all of the bids come in simultaneously for a round of global optimizations to determine if there is any overlap in transportation or supply base that would suggest a (temporary) combination of categories or a splitting of transportation into a separate project.

Optimization isn’t just doing the best job you can on the event, it’s defining the right event in the first place. Sometimes the best way to do this is to look at a number of categories simultaneously when they are each in the middle of a sourcing project and see if the definition and split really is the right one. If the mega-optimization suggests something different, re-define the categories and events and continue the right way.

Just make sure that, when the event notice goes out, that you inform suppliers / carriers that the bids will be multi-round and that the scope of the transportation requirements might be increased or decreased after initial bid analysis and further category definition; or, in the services case, that this is a preliminary request for information and rate cards and that the suppliers should inform you of other services they can offer and standard rates for those as you may, if the option exists, expand your requests during the final RFQ / negotiation phase (as you want to be above board during the entire process).

In other words, a project is only too big when it exceeds the ability of your current team to manage it simultaneously. If the numbers involved makes someone fidgety, then it’s time they shape up or you find someone with a stronger backbone. If the tool you are using says it’s too big, then it’s time to get a new tool. It’s not too big if it doesn’t exceed your current potential, which for many leading sourcing organizations is well beyond what they think it is (as a result of sourcing providers with limited skill sets assuming that just because they can’t handle it that their client can’t handle it). There are teams out there that can handle Billion Dollar sourcing projects and tools that supper them. That’s about as big as it gets.

So, as Big Data Promoters like to say, Think Big!

10 Mistakes You Make When You Try To Build a Private Cloud

VentureBeat recently ran a great article on 5 Mistakes You’re Making When You Try to Build a Private Cloud that did a great job of covering 5 mistakes you make, but why stop there? SI can easily come up with 10 mistakes, more if it gives the issue a second thought. So, since some of you still don’t believe that The Cloud is Filled with Hail, let’s review the VentureBeat 5 and throw 5 more into the mix to see if that’s enough to convince you that The Cloud is Not a Magic Mirror — especially when you take a do-it-yourself approach!

VentureBeat’s 5 Mistakes of a Private Cloud are:

1. You believe the cloud will solve all your problems.

With so many vendors touting it, you believe that a cloud must be the answer, so why not control your own? There are a host of reasons, including those that will be discussed in response to the other wrong assumptions, but the most important thing to remember is that not all applications are good candidates for the cloud. Applications that are intermittent, that run full tilt, or that spike unexpectedly are not always good cloud candidates — public or private.

2. You think everyone will automatically love the idea.

You keep hearing that clouds bring agility, adaptability, and actionable data — so you think that you can convince everyone else to fall in love with the cloud too because you believe that these are reasons to fall in love with the cloud. A cloud is as adaptable as the software that drives it, as actionable as the data you can get into it, and as agile as your organization — if it takes 3 months to get a product to market using the best processes you can come up with, it takes 3 months to get that product to market — cloud or no cloud.

3. You think it’s cool.

Clouds aren’t cool (although the rain they bring may cool you off). And unless you are in the business of selling “cool” technology (i.e. private clouds to suckers who buy private clouds), the last thing you should be basing a business decision on is the “cool” factor. You buy technology to solve your problems, not because it’s cool.

4. You think you will succeed in boiling the ocean.

A private cloud is a huge IT project similar to trying to replace 3 ERPs across your global organization that have been entrenched for 10 years across 3 continents in one fell swoop while trying to add 4 modules you never had before. It’s like trying to boil the ocean with a single giant magnifying glass — brave, maybe even visionary, but ultimately stupid.

5. You think your plan will fit the organization.

The typical private cloud relies on converged infrastructure (CI) stacks which break down the typical organization walls of application teams, server teams, network teams, and storage teams. How many Global 3000 organizations have one single version of the truth across the enterprise? Maybe the few dozen organizations that successfully achieved enterprise wide deployments of SAP and Oracle?

That’s just the beginning. Here are 5 more mistakes courtesy of SI:

6. You think a private cloud will be cheaper than a public cloud.

You might think that a cloud is a fluffy magic box that can be obtained with a handful of magic beans that you can get by trading a simple cow, but that’s about as far from reality as you can get. Clouds require hardware, software, dedicated network connectivity, and power. Lots of power. You will need backup generators in addition to a wall of UPS units (to keep the machines humming until the generators kick in), multiple fibre connections, racks of machines and storage area networks, and a lot of specialized software. And, instead of sharing the cost, you get to pay for it all — as well as the staff to build it and maintain it 100% — 24/7/365.

7. You think all modern technology was built for the cloud.

A lot of software is, but not all — and chances are that a lot of the software you are using, even if still under maintenance, was not built for the cloud. So, you’ll have to update your current software and migrate your current data stores while you are at it.

8. You think it is the best way to interact with your trading partners and the private clouds you wrongly assume they have.

The cloud is connective, but only if it is shared. Otherwise, it’s just one massive local area network that needs to talk with other massive local area networks used by your trading partners. Clouds don’t create connectivity – data interchange standards do, and you don’t need clouds for that!

9. You think you can secure it better than the experts.

Hi Ho, Hi Ho.
It’s off to work we go!
We block the ports and tune the firewall
In our ‘Net the whole day through
We block the ports and tune the firewall
It’s what we like to do
It ain’t no trick
To lock down quick
If ya block the port
With a sniffer on a ‘NIC
In the ‘Net …

And you can block every port, patch every firewall, and sniff every ‘NIC, but the reality is, your network is only as secure as the weakest link — which is probably the software you’re using and the ports you need to have open. Which you don’t know how to protect because your IT staff is struggling to patch your firewall, scan the ports, and upgrade SSL before the heartbleed bug bleeds you dry of your corporate secrets. When it comes to security, you need true security experts — and you’re not going to have them in house.

10. You think the cloud can actually be secured.

The only way to truly secure a network is to unplug it. So if you think you have a hope in Hades of securing your private cloud …

Now That You’ve Taken Responsibility, Get Sustainable Results

In our recent (re)post last week, we told you that if you do not get sustainable results, blame yourself. By now, you’ve owned up to your shortcomings and are ready to do something about it. Today we are going to overview steps you can take to make sure you maximize the chance of a perfect order, which, by definition, is acquired at just the right cost (which means there are no savings to be had).

As per this post, for savings to materialize, the following necessary (but not sufficient) conditions have to be met:

  • the order has to be placed with the contracted supplier
  • with sufficient lead time
  • and then shipped by the supplier on-time
  • using the approved carrier and shipping arrangement
  • with the required third party and government fees promptly paid
  • and paperwork promptly filed
  • so there are no delays and the product arrives at the warehouse on time
  • where it is properly received, inventoried, and shelved
  • and then the invoice is verified against the good received and the PO
  • and paid at the right time when everything is okay.

This is a tall task, taller than accepting the tall tale of Jonah and the whale, but not an impossible one, and no miracles are required to make it so. Just the acquisition of the right technology, implemented in the right framework, supporting the right processes, and tailored to support your organizational talent. It will take some terrific transition management to get the right organizational alignment, but such alignment is possible (and we’ll be discussing this in more detail next quarter), and the leaders will get there over the next seven to ten years.

So where do you start? Acquire the core technologies you need to streamline your supply management practices.

  • an e-Procurement solution that only allows orders for products on contracts from approved suppliers
  • a demand planning solution (which may be part of a next-generation ERP solution) that integrates with your e-Procurement solution and notifies you when order deadlines are approaching and automatically submits auto-fill orders
  • a 3PL solution that tracks shipments in real-time
  • a Trade Management solution that automatically generates the required paperwork, computes the required fees, and manages, tracks, and confirms their submission
  • an Inventory and Warehouse Management System that integrates with the e-Procurement Solution that manages receipt, shelving, and distribution
  • an e-Procurement solution that also does invoice management and m-way matching
  • an e-Payment solution that integrates with the e-Procurement solution and includes Supply Chain Finance Capabilities (including dynamic discounting, supplier financing, and pre-shipment finance, for example) to help the company determine the best payment time

It’s just the beginnings, but it’s a good start.

If Even a Canadian TelCo Can Use Payables to Add $3 Million To Their Bottom Line

Imagine what your company could do with invoice automation. As per this recent article over on Shared Services Link on how to turn payables into an opportunity and add $3M to your bottom line, Telus, a 10 Billion telecommunication products and services provider which typically receives 15,000 to 20,000 paper invoices per month, implemented a supplier portal, electronic invoicing, and a dynamic discounting solution that allows them to save 3 Million annually.

When you consider that 10 Billion is big, but not that big these days, that a lot of organizations receive 15,000 to 20,000 paper invoices a month, or more, and that a supplier portal is pretty primitive from an automated invoicing viewpoint, you quickly see that there is quite a lot of opportunity for your organization to save quite a lot of money from invoice processing. In some organizations, the overhead alone from manual processing exceeds a million dollars, and this barely covers a detailed review of 10% to 20% of the invoices. Proper automation insures m-way matching on 100% of invoices with exception-based processing on the 10% to 15% that contain issues or errors.

You see, when you implement the right invoice automation solution:

  • 98%+ of all invoices flow through the system,
  • 99%+ of all errors are caught,
  • 90%+ of all invoices are automatically processed without human intervention, and
  • 80%+ process savings are realized and maintained.

And then, instead of spending $30 to $40 to process an single invoice, you’ll be spending $3 to $4. So, if your organization is processing 10,000 invoices a month, you’ll see your overhead costs drop about $300,000 and you’ll save upwards of 3 Million a year before dynamic discounting or other supply chain financing solutions are put into the mix!

For more information on how your organization can save 3 Million, download Sourcing Innovation’s recent white-paper on An End-to-End Invoice Automation Framework – Ten Keys to Success (registration required), sponsored by Nipendo.