Category Archives: Best Practices

Technology Trials 2012 – Part III

In our last post, we assumed that you need to find a new solution, either partial or full, for one or more of your supply management functions (procurement, sourcing, logistics, inventory management, etc.) and discussed the second (set) of question(s) you need to ask when initiating the process to find a new solution. Today, after determining that you need a new solution and have time to find (and implement/integrate) one, and that you know what the critical functionality of that solution needs to be, we are going to discuss the next (set) of question(s), which is:

(03) Do you go with an end-to-end solution (suite) or best-of-breed point solution(s)?

In order to make this determination, you need to answer:

  (03.1) What are the relative costs?
  (03.2) What are the relative benefits?
  (03.3) What is the ROI?

and look at the answers over multiple time-frames, with 3 years, 5 years, and 7 years being common (especially if there are solutions with significant up-front license, implementation, integration, and/or training costs or long term benefits, such as support for upcoming regulations or standards).

When looking at the costs, you need to do a detailed cost analysis (such as the one outlined in SI’s post on How Much Does That Enterprise Supply Management Solution Really Cost) and take into account every cost.

When looking at the benefits, you need to look at the ability to reduce hard costs (by freeing up resources for other activities or by providing you the ability to strategically source more and get more costs under control), reduce soft costs (by facilitating SRM, minimizing support or third party system costs, etc.), and generate value (through better support for New Product Development, an open system that can be used by the entire enterprise for Contract Management [for example], or significant analytic capabilities).

When calculating the ROI, you need to assign each benefit an associated dollar value for the time period in question, and then calculate the expected ROI of an end-to-end solution for the target timeframe(s) and the expected ROI of (a) best-of-breed solution(s) for the target timeframe(s). If one is clearly greater than the other, then that is the path you should take. If they are about equal, you generally sway towards the solution with the quicker implementation timeline. After all, given the choice between generating an ROI in 3 months or an ROI in 12 months, which is going to make your CFO and CEO happier (and allow you to get more of the technology and talent you need to succeed)?

And now the real trial begins! (More to come …)

Technology Trials 2012 – Part II

Yesterday, we began our Technology Trials 2012 series with a post that indicated that in order to get to the right decision, you have to start with the right question. And the first question you needed to answer is whether or not, if you have a current solution, was it supporting the process you need. If the answer was Yes, or No, but not enough time to get a new solution in place, then you stick with the current solution for the time being, and if the answer was No or Yes and No, you look for a new (partial) solution. (And if the answer was, we don’t currently have a solution, then, by default, the answer is an emphatic No.)

At this point, we’re going to assume that the answer is (at least partially) No, as the series would be over otherwise, so the next question you need to ask is:

(02) What part(s) of the process is not being supported?
This is critical to understand, because you can not select an appropriate solution unless you know what it has to do, and you typically can’t justify a new solution unless you have a gap analysis between what you have now and what you need. But you have to do more than just this. You also need to answer

(02.1) Which part(s) of the process must be supported by the system?
The system doesn’t necessarily need to do everything. For example, while it might be necessary to have a real-time conversation with multiple parties to resolve an issue, it doesn’t have to be through the system. As long as there is a way to import and record the solution determined after the fact, many of the “social media” features of consumer platforms are not necessary. For example, given the choice between “real time problem resolution” and “3-way match” in an e-Procurement system, I’d choose the latter. The first may be cool, but it isn’t going to prevent millions of dollars in over-spending (like the second will).

(02.2) Will any of the target functionality interfere or conflict with any other solution(s) currently in use by the organization?
This is often overlooked during a gap analysis, but can greatly impact how long it takes to get a new solution approved. If, for example, your problem is that your sourcing/procurement solution doesn’t store contracts (and associated meta-data), and you want to fix this, and there is a(n incompatible) contract management solution being used by Legal, you might get push-back from IT as they would have to support two CM systems (that they are unable to distinguish between) or the CFO who doesn’t want to spend more money (as he thinks you should just use the other system). While this should not deter you from identifying the right solution, if you don’t have all the facts, and the counter-arguments, up front, you could be considerably delayed in your quest for purchasing fire.

(02.3) Can the process requirements be integrated with the requirements for the existing system that are still current?
Don’t overlook that you are looking for an end-to-end process solution, and the RFP should specify the functionality required by the end-to-end solution, including that functionality, existing and not existing, that is critical.

In our next post, we’ll discuss what comes next.

Technology Trials 2012 – Part I

As indicated in Monday’s post, for many of you it’s contract renewal time with respect to many of your installed and SaaS platforms, and time for you to decide if it’s time to move on to new pastures or keep grazing the one you’re in.

It’s a tough decision, and the software giants don’t make it any easier. With new buzzwords every year, new features by the dozens (that may or may not help), and new delivery models with pricing models so complicated that your CA’s head spins, it’s often tough to know what to do.

And every situation is so unique that there’s no way that one post can even begin to give you all the answers (which is why SI did a very rare thing and ran a “best-of” technology post week to try and illustrate the breadth, and complexity of the problem).

But no matter what your situation is, there is some common ground and some questions that must be answered in order to find the path that will lead you to the right decision.

(01) Is your current solution supporting the process you need?

By this I mean the process you have identified as being the right process to support the requirements you have identified for your sourcing, procurement, logistics, etc. function. And by support, I mean that you can implement the majority of the process adequately in a reasonable amount of time. If you can implement all of the core functions and 80% of the non-core functions, and can you do so without a noticeable slow-down in productivity, then it is, at the very leaset, adequately supporting the function. It doesn’t have to be a 100% solution (as we all know there is no such thing; there is a special case that will break every solution), and it doesn’t have to be the fastest (as shaving 10% off the top of process time doesn’t really save enough of your time to be considerably more productive or value generating), but it has to be at least average.

Yes – then, unless costs are increasing significantly, or a strategic solution analysis has indicated that another solution will provide considerably more saving or value generation opportunities in the future, then you should probably stick with the existing solution as the cost of switching will not be made up in the short-, or even mid-, term

Yes-And-No – the solution does most of what you need, but there are a few notable deficiencies that need to be addressed: if there are best-of-breed / standalone solutions that can address these deficiencies, then it’s probably best to stick with what you have and fill the holes with point solutions, otherwise, the answer is really No

No – you need to find a new solution – the only question is how much time you have until renewal and how broad a footprint your current solution has; if the footprint is broad (beyond one function) or has many years of data, then you will need at least 3-6 months to replace it; so, if you have less than 3-6 months, you have to pretend the answer is Yes, keep the solution for one more year and start a strategic solution analysis; otherwise, you start searching for a new solution right away

In Part II we’ll discuss what comes next.

Vinnie Mirchandani on “The Costs of Software Renewal” (Repost)

This post was originally posted there years ago today on October 22, 2009. Given that three years is a typical mid-term renewal timeframe, I think it is important to review Vinnie’s advice as renewal season is now upon us!


Today’s guest post is from Vinnie Mirchandani of “Deal Architect” and “New Florence. New Renaissance”. Vinnie, a founding member of the Enterprise Advocates, is a tireless advocate of trends and technologies that can help buyers get more for less.

Ray Wang gives us a timely reminder that “Labor Day (US & Canadian Holiday) traditionally marks the end of summer BBQ’s, the beginning of the fall conference season, and yes, the time to begin a review of your software maintenance contacts that expire at the end of the year.” (Software Insider, Sept 1, 2009)

I would say start with that — and then keep going. Take a look at all of your contracts that renew through the end of 2010.

Several good reasons to this include:

  • Establishment of a savings target on the total maintenance spend for 2010.
    Have your staff focus on every software contract, especially those that have been “auto-renewed” for years now because they were “small” and fell under attention thresholds. If you make the overall target part of a compensation plan for key IT and procurement staff, you’ll quickly find that Thar’s gold in them yellowing software contract files.
  • Multi-year maintenance deals which looked good when signed may now be overpriced.
    Current market trends are driving the cost of maintenance down, especially through third party services. Don’t assume they cannot be re-opened. (See Marc Freeman’s tips for “renegotiating with integrity” on the ISM site.)
  • If you don’t start now, you might not finish the renegotiations in time.
    Don’t overestimate the ability of your team to get organized — or underestimate the ability of the vendor team to stall — beyond the end of the year. If maintenance expires, and something goes wrong, you could be at the vendor’s mercy in renegotiations. Formally document your new process and let the vendor know next year will be different. Furthermore, be sure to allow 6 months for the renewal negotiation next year.
  • Even if you are looking to migrate, you will still need incumbent vendor support until the cut-over occurs.
    This holds true whether you are looking to migrate away from the incumbent vendor to SaaS, or to third party maintenance, or to do-it-yourself support (and readers of Deal Architect will know I am a broken record on the subject of considering all of these options). This will likely push you into 2010 planning and funding.

So, use Ray’s call for intensity over the next 3 months and build momentum for another 12 months. The payback will be huge — software maintenance continues to be one of the items on the IT menu with the most “empty calories“.

Thanks, Vinnie!

Are You Ready for the 4th Quarter Crunch?

Even though businesses can choose their own fiscal years, many choose to coordinate with the calendar year. As a result, the 4th quarter is now upon them, and, in any company that is not best in class, a lot of people are getting anxious about meeting their numbers. It happens every year, and even if I’m not oot and aboot (NSFW*), I see it indirectly every year in the 4th quarter slump (when blog stats take a temporary dive).

And this year, many supply management professionals have good reason to be worried. While the economy has started on the road to recovery, the road is full of potholes and, with the impending U.S. election, we don’t know what’s going to happen and whether or not the U.S. Congress that is elected on November 6 is going to vote to raise the debt ceiling or take the U.S. over the fiscal cliff. Given the lack of sound economic and global trade policy since Clinton left office, it’s hard to say what’s going to happen.

The issues is that many of these professionals did’t plan for the rapid increase in some commodity cost categories, talked about risk but never took mitigating actions, and didn’t take the time to upgrade their skills so that they could continue to do more with less (as we all know that even though many companies are spewing the talent talk, they aren’t engaging in the talent walk [and will be surprised when the market eventually rebounds and their top talent walks out the door, but that will be another post]).

But the year’s not over yet, and there’s still things they can do to not only mitigate the “damage” that is expected as year-over-year spend increases, but contain costs and demonstrate their ability to add more value to the organization before the year is up.

Three things in particular that they can do right away are:

  • Have Finance Agree to Better Cost Savings and Avoidance Metrics
    As discussed in yesterday’s post, savings on categories negotiated this year should factor in (index & formula based) commodity rate increases and exchange rate fluctuations and cost increases on spot-buys should be calculated using similar year-over-year comparisons. This way, even if the Sourcing team couldn’t get to as many categories as they’d like, and savings were less than anticipated, a better, more realistic, picture is painted.
  • Start Monitoring Contracts and Supplier Performance more Actively
    Has the supplier been billing at contract rates, honouring discount levels, and shipping on time with an acceptable defect rate? If the supplier is over-billing, if discounts are missed, and if shipments have to be constantly expedited at higher costs, the savings that were negotiated evaporate rapidly. Increasing the rate of savings capture across all high-spend categories will go a long way to meeting targets.
  • Take some online / distance training that can be done after hours
    Increase your skills, increase your efficiency, increase your supply management opportunity astuteness, and do better at every task you do. There are a number of options, and some, like Next Level Purchasing, offer certifications recognized to various degrees around the globe.

And then they can start planning for next year by pushing for the acquisition and implementation of better technology and the transition to new and better processes.

* But hilarious!