Category Archives: Best Practices

4 Strategic Sourcing Mistakes Businesses Should Avoid Courtesy of the Strategic Sourceror (Re-post)

The best way to get out of trouble is to avoid trouble in the first place. In a recent blog entry, the Strategic Sourceror outlined four common mistakes that a company can avoid to minimize poor spend management and operational efficiency.

Overlooking the Importance of Supplier Visibility

Having a clear understanding of supplier practices is essential in evaluating the risks and possible sources of disruption that are inherent in sourcing partnerships. Blindly entering a relationship with a supplier may result in a procurement strategy that is misaligned with business goals, and this could result in slashed profits in the future. For example, the strategy could be high quality to support the brand, but the end result could be poor quality and the resultant impact to the brand from the high defect rate could result in lost sales and slashed profits.

Failing to Emphasize Results

Because Procurement resides in the back office, it is often tempting to think of it as a service function and not a driver of productivity and profit. It’s critical to focus on real, measurable, and substantial results and communicate the message to the rest of the business. Like any business process, procurement management needs to impact the bottom line. When it does, and the message is communicated, Procurement, unlike Rodney Dangerfield, will get more respect.

Overlooking Contracts

Without written contracts with specific language, businesses won’t have adequate protection if a supplier relationship goes sour. That’s why contracts should be reviewed by a corporate lawyer before being signed. But just getting the contract right isn’t enough. It’s also important to make sure the terms are followed, rebates and discounts are collected, and contracts are renegotiated and not allowed to go evergreen.

Permitting In-House Inefficiencies

An inefficient internal procurement process can limit firms’ ability to obtain the goods and raw materials they need in a timely fashion. Be sure to install the appropriate e-commerce tools that will help a company identify potential suppliers, execute RFxs, conduct auctions, optimize awards, and strategically manage the maximum number of categories.

The Value of Market Intelligence in a Down Economy

A decade ago we ran a piece on The Value of Market Intelligence in a Down Economy because it was a down economy near the end of last decade and many organizations were overlooking the importance of market intelligence at a time when it was needed most. (Because, when times get tough, organizations always cut the training budget first and the intelligence / consulting budget second, even though the only thing that will get the organizations though the tough times is their talent — which needs to be as educated and informed as possible to do the jobs that need to be done.)

But now that depression era economics are about to make a come back, SI believes its time to repeat the message in the hopes that you will do the right thing and make sure that, under no condition, do the limited market intelligence and training budget get cut when they are needed most.

Remembering that success in a down economy stems from smart sourcing, and that smart sourcing stems from intelligence, it should be pretty obvious how critical market intelligence is, but just in case it is not, let’s remind you that:

  • market cost data is market intelligence
    and without it, you don’t have enough data to know how much you should be paying (even if you have extensive should cost models because, guess what, those component costs need to come from the market)
  • expected supplier performance is market intelligence
    even if you have lots of historical performance data across your supply base, that doesn’t tell you how good a supplier should perform, just what would be better performance for your organization
  • expected product quality, lifespan, and consumer usage levels is market intelligence
    and you are only going to get so much data from your customer base, and none for a new product line under development

Plus, when you look at the big picture:

  • it’s not as expensive as you think it is
    since a lot of the data or information you need to spot trends and focus on the core issues and data points is low cost, and even expert advice at 5K a day is nothing if it saves you 50K of internal research or steers you toward a solution that helps the organization generate a 500K return
  • it enables supplier performance, and relationship, management
    which is key in difficult times — just look at the auto industry. When times get tough, the American automakers (that score dismal on the OEM-Supplier Working Relations Index [OEM-WRI]) all fail while the Japanese (and Korean), who cooperate and collaborate with their suppliers (and rock the OEM-WRI) always pull through
  • intelligence gathering is an iterative process
    not “one-and-done” and if you stop, especially when market conditions are changing constantly and could change drastically at some point in the near future, you can be blindsided by an event that could grind the entire organization to a halt

Market Intelligence is critical for good decision making – in good times, and bad. Especially in bad. It identifies risks before they materialize and insures that your contracts have appropriate risk mitigation clauses built in. It leads to savings and cost avoidance that would never be identified without it. And while it doesn’t always require multiple high six-figure subscriptions to analyst firms … it does require some spending to keep up with what you need, when you need it. But if you choose wisely, it will save you 5X to 10X what you spend or help you increase your value proposition by that amount.

So get the intelligence you need. Today.

So You Need a Sourcing Platform That’s Next-Gen To You. Where Do You Start? Part III

In Part II we noted that there’s no single right answer or easy answer here as it’s very situational. And even though some consultants will always tell you to start with Sourcing and others with Procurement, they’re obviously not always right. Sometimes both are right, but usually neither are right. Because sometimes you start with Supplier Management. Other times you start with Contract Management.

But, in fact, absolutely speaking, neither are right. You start with analytics and strategic situational analysis based on analytics to figure out whether the problem is:

  • you can’t do enough sourcing events
  • your events are generating limited returns
  • you can’t find the right suppliers
  • you have to (quickly) ensure compliance with a newly introduced regulation
  • your over-spend, and need for audit recovery, is too high
  • your maverick spend is too high
  • you need to get your services spend under control
  • you are unsure of where your best opportunities lie

or

  • your suppliers are under performing on quality and related metrics
  • your deliveries are regularly late
  • your (internal) customers are unable to get the information they need when they need it
  • Finance is taking regular hissy fits about lack of timely cash flow insights
  • etc.

More specifically, you start with analytics on:

  • spend
  • (spend vs) contracts
  • cashflow and discounts
  • event throughput
  • performance metrics
  • inventory and logistics

Only then can you understand how the organization is performing and where it’s biggest problems lie. An analysis of spend might find that maverick spend is high, but the estimated overspend is at most 4%, but poor payment processes are actually costing the organization 4% interest (because it signed contracts with late payment penalties) as well as a 2% savings opportunity as a result of lost early payment discount opportunities (which it can afford as the majority of its customers pay on time). In this situation, while the organization might be tempted to get an e-Sourcing or catalog application to help reduce maverick spend, it should actually start with an I2P system to get invoices and payments under control. And so on.

Remembering that big bang implementation efforts always result in a very destructive big bang, do the analysis and start with the right platform application. Then, add one by one based on problem severity until you finally have a full end-to-end S2P platform implemented and utilized on a daily basis, which could be 18 to 36 months in the future, no matter how fast that SaaS vendor can flip the switch.

When Managing Supply Assets, Don’t Forget …

Last year we brought up a very important point when managing supply. Specifically, we reminded you that sometimes supply comes from within the four (virtual) walls of your business — a fact that is often overlooked by man BoB (Best-of-Breed) S2P (Source-to-Pay) modules and even suites.

When we are talking about MRO, the goods and services you need might be in a storage room in another building. If we are talking about consumables, like what you might need for a new hire, everything you need might be one floor down, left behind by another hire who, after the probation period, didn’t work out. As a result, inventory and asset management are key to successful Supply Management, and to successful Procurement.

But Asset Management is more than just keeping track of assets, moving them from one location to another, and making sure employees choose existing assets in inventory before ordering new assets from suppliers.

Asset Management is not just tracking assets and deploying them when they are needed, it is making sure they are used when they are usable. Assets have a value, a value that almost always depreciates when they are not used. Add this to the extra cost of having them in inventory, and that’s a lot of wasted capital.

In other words, good asset management requires a platform that can

  • track and improve forecasts … especially if demand or utilization timeframes start to shift
  • optimally manage inventory levels … there should be enough to last to the next, optimal, restock window with a bit of buffer, but not so much that the excess inventory grows at every restock
  • re-assign internal assets that should be utilized as fast as possible, and even allow for internal upgrades to delay unnecessary spending (e.g. the new machine bought for a new hire that didn’t work out after 3 months should be reassigned to an engineer 3 months away from a hardware upgrade)
  • manage leasing of assets that are going to go unused for a while (e.g. the organization has an expensive piece of construction equipment that it will not use for the next three months — lease it out)
  • identify when extra inventory or newly retired assets should be sold off to minimize loss

… or at least integrate with a platform that does.

Asset management is frequently overlooked, but very important to successful supply management.

How Do We Drive REAL Technological Advances? Part III

SI first tackled this subject back in 2014 in a 3-part series (Part I, Part II, and Part III) and then returned to the subject last year (Part I and Part II) since it seems that the core technology we are using hasn’t changed much in the last decade (as er the public defender’s lament over on Spend Matters UK) and many organizations are stuck on the Supply Chain Plateau.

That’s because driving technological advances is hard. Many among the older generation are still inherently distrustful of technology (and the doctor doesn’t blame them … self-driving Carl will drive them off the cliff someday) and 45% of the world’s population still hasn’t used the internet. But that’s not the biggest problem. The biggest problem is lack of …

Adoption. Why? If people don’t adopt platforms, they don’t use technology on a daily basis. If they don’t use the platforms regularly, they don’t push the platforms. If they don’t push the platforms, they don’t figure out what they need from the platforms. And then they don’t itch for an advance from the platforms, they won’t drive for an advance.

And, as we noted, when it comes to adoption, the key is to provide users with a platform that does everything they want, including things they never thought the platform to do, but makes it so easy to do that if you tried to take the platform away from them, they’d get mad and scream.

But, as we noted before, even if you have a great platform, this doesn’t mean it will be adopted … because the users who you need to adopt it might not even try it. Not only might they be from the older generation, but they might be from the older generation that has heard the same old story about how this new tool will make their lives easier a hundred times before, only to be let down. As a result, why would they want to be let down for the 101st time?

How do you get past that? We suggested a great UX, which is key because it has to be usable, but that only helps if you can get them to try the platform … in earnest … at least once. How do you get them to do that? Our answer last time was to convince them through messaging that hit home.

But what if the messaging only works for early adopters? What if the grizzled just get fizzled? Then what do you do?

It’s a tough question without an absolute answer. But the doctor now believes that the answer is to select a platform where you can do it for them!

As an easy example, let’s say they always complain about how long T&E expense claims take and lack of visibility. If you just acquired a new T&E management platform, chances are supervisors or processors have the ability to create claims for someone else, assign it to them, route it for approvals, and then simply sell the submitter (who still uses the old Excel form) a link to “track progress and status”. When they see how much easier the system makes their life, and see that they can create the claim in the system in an Excel like interface (if they choose, or the new wizard-driven way with OCR, but totally up to them) and get this progress and status insight even faster, they are more likely to adopt.

Similarly, if you want them to use a new sourcing platform even for simple bids, show them how much easier it is to keep track on supplier status and ability, use a template for th bid, and centralize communication. Send them links to pre-created supplier management portals and reports, event templates, and so on. Offer to be their “administrator” where you do the work but they have full visibility. If the platform really is easier to use and better, they’ll see how easy it is to just take control sometime and start using it. Don’t tell them how great it is, show them.

As long as you select a platform that allows multiple roles and delegation, this is easily doable and just might make the difference.

At least it’s worth a try!