Originally posted on on the e-Sourcing Forum [WayBackMachine] on Friday, 6 October 2006

In a recent edition of Supply & Demand Chain Executive, you can find the article “Sustaining Strategic Sourcing Wins” that indicates “four enablers must be addressed to ensure a successful roll-out and savings over the lifetime of your company’s strategic sourcing project”.

The article, which states that “making strategic sourcing work in the long-run is still a challenge for many organizations indicates that to sustain hard-dollar savings and continue to deliver results, companies must treat strategic sourcing as more than a one-time effort and that four enablers must be properly addressed to ensure a successful roll-out and prevent savings from being short-lived”. Specifically:

1. A center-led organization
   A sustainable, long-term procurement organization sponsored at the executive level, where authority, roles, responsibilities and individual performance metrics are clearly defined is required. Stakeholders must buy into the organization and align with common objectives.
2. Continuous improvement of skills
   Sourcing professionals must develop and maintain proficiency in all aspects of the sourcing cycle and organizations need to identify the knowledge and the skill sets of their procurement staff and develop training plans to address any knowledge gaps.
3. Processes and Technology
   Appropriate processes and technology must be in place to sustain long-term savings.
4. Specific Performance Measures
   Only realized savings impact the bottom line and a formal set of measurement processes must be in place to track usage, pricing, user compliance to established contracts and supplier performance.

This is all sound advice, and all of the above are critical to long term success, (after all, over the summer I advocated center led models, a focus on talent, eSourcing Technology, and solid metrics) but I found the article lacking, because it skipped over a critical point – underneath it all you need a sound corporate wide supply chain strategy aligned with an underlying Total Value Management philosophy.

When you get right down to it, the fundamental reason I am working with Iasta is that I am convinced they understand the importance of building a sourcing suite on a solid premise, they get that Total Cost of Ownership alone is not always enough, and they understand that true decision optimization must be built on a Total Value Management philosophy in order for their clients to get the biggest bang for their buck. They see the next evolution of eSourcing and are working hard to get there. Are they the only vendor in the space that sees what the next evolution will be? No – but I’m pretty sure I’m right in my belief that most vendors do not have a good idea what comes next. After all, only a handful of companies can be leaders, and I’m excited to have another opportunity to assist one of the companies that I am predicting will be a future leader.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Thursday, 7 June 2007

A recent Research Brief from Aberdeen, “Enabling Suppliers, Enabling Savings”, notes that supplier enablement is one of the top three challenges for procurement professionals looking to increase spend under management and drive tangible cost savings to the bottom line.

According to the brief, effective supplier enablement includes:

• Supplier recruitment and information management
• Technical integration and support
• Electronic document transmissions (PO, invoice, etc.)
• Supplier catalog management
• Enhancement for other business processes

In addition, they hypothesize the following actions, capabilities, and enablers are required:

• adopt incremental BPO methodology and related services
• cover entire business processes across multiple spend categories
• achieve visibility into enterprise spending
• collaboration across internal and external teams
• supplier self-service tools

This was followed up by another Research Brief, “Supplier Networks Drive Supplier Enablement”, which noted that supplier networks can increase performance metrics such as spend under management significantly and that enterprises leveraging their supplier networks are enabling their suppliers in a faster, better and more efficient way.

The brief notes that “an enterprise must realize the value if they are interested in fully enabling their supplier base. Having one central network to handle POs, invoices, and catalog management allows an enterprise to quickly enable suppliers in their base, communicate in a helpful manner, and manage key business transactions with ease”.

What’s interesting to note is that although the focus on supplier enablement is well-founded and their recommendations close to what I’d recommend, the core capabilities they note for supplier networks do not dictate the need for a supplier network, merely the need for a fully functional supplier portal. A well-defined portal will allow a supplier to access cached copies of purchase orders, upload invoices, check payment status, manage their catalogs, and communicate with the buyer. A network may simplify and automate some of these tasks, but a network is not necessarily needed if an organization is merely beginning their journey on the road to supplier enablement.

Also interesting is that there is no mention of the enhanced benefits a supplier network can bring to a buyer beyond those benefits that would be found in an enhanced portal such as supplier search, interactive RFX’s, and enhanced collaboration. But that’s a topic for another post.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Wednesday, 20 June 2007

Aberdeen just released its report on Supplier Enablement, “Connecting with Suppliers to Build Lasting Relationships” which found that supplier enablement continues to be “one of the top three challenges for procurement professionals looking to transform their procurement organizations, gain better visibility into their supplier enablement processes and supplier relationships, and increase spend under management”.

According to the study, best-in-class enterprises demonstrate that supplier enablement can positively impact the business when the right technologies and practices are employed. Best-in-class enterprises, which have 78% under management compared to an average of 44% for all other peer enterprises, enable 50% of their suppliers versus the 23% enabled by their peers, are 25% more likely to document and share their best practices, and are almost twice as likely to have full visibility into enablement activities, realize transaction processing costs 47% lower than their peers. Thus, this study confirms which many of us were starting to suspect, that supplier enablement not only makes suppliers feel good, but generates significant bottom line savings for an organization.

Aberdeen defines an enabled supplier relationship as one that includes one or all of the following capabilities:

• automated exchange of documents and communications
• on-line catalog management
• active management of supplier information through a self-service process

Of these activities, the third is the most important. When it comes time to source a category, it takes little effort to click the “send” button to send a document to a supplier, and you do not care about the entire catalog – just the product(s) in question. However, if you do not know who your suppliers are, what they can provide you with, and how to contact them, and the relevant individuals in the organization, you will not be very productive. Moreover, with large companies typically having tens of thousands of suppliers, managing this information is an onerous task – but if you are a large customer, it takes very little effort for a supplier to manage their information for you – especially if they want your business.

So what’s the best way to achieve supplier enablement? If at all possible, select a sourcing suite that has, or is about to have, supplier (self) management capabilities (like your forum sponsor, Iasta, that will be releasing an initial version of Supplier Management with a Supplier Self-Service portal in the fall), or a solution that integrates into the sourcing and/or procurement suites you already use. If this is not possible, I’d recommend going with a specialty provider of supplier information management (SIM) services, like Aravo who specialize in integrating SIM management applications into the sourcing, procurement, and / or ERP tools that you already have.

Then, as Aberdeen so eloquently states, “include suppliers in the enablement process – leverage their experience and technologies to ensure collaborative and efficient interactions during enablement and through the lifetime of the relationship”.

Finally, as Aberdeen also points out, be sure to standardize processes along the way that leverage leading technologies, like XML (eXtensible Markup Language) and SOA (Services Oriented Architecture), and leading 3rd party services, such as Ariba’s Supplier Network, Austin Tetra’s integration services, or Integration Point’s Global Trade Management software.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on April 23rd, 2008.

Another good article in the recent edition of CPO Agenda is “Collection Action” by Nick Martindale. (It should be no surprise that I’d pick up on this one, as I’ve been known to preach the “Collaborate, Collaborate, Collaborate, Collaborate” mantra – see my 5-part series on Sourcing Innovation, for example.)

The article starts off by noting that collaborative buying has yet to recover from the hefty blow that it was delivered in the nineties, after a number of GPOs quickly sprang into existence, and then failed even quicker, and that Group Purchasing Organizations are going to have to overcome some formidable obstacles if they are to grow and succeed.

One of the major problems with the original GPO model, which is still used by many of the GPOs still in the market today, is its myopic focus on cost savings. Organizations join because they think that volume-based buying will allow them to get their office supplies, energy, and contract labor cheaper, but end up saving very little and then develop a bad taste for the GPO model. Furthermore, many suppliers loathe GPOs because they believe that the whole point of a GPO is to compress prices and choose the lowest-priced supplier, and this means that it’s often hard to get your best suppliers to bid on the collective contract.

Just like Procurement needs to focus on total value on each and every buy they make, a GPO also needs to focus on total value on each and every buy they make on behalf of its customers. They need to look at the supplier from all relevant angles – cost, capability, service, and value-add. However, even more importantly, the GPOs need to encourage and enable their members to collaborate and share knowledge and best practices so that their interaction with the GPO does more than just save a few dollars on outsourced categories. With the right GPO, a member company should gain as much value from networking opportunities and shared knowledge as it gains from the cost savings associated with having a third party manage select spend categories.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on February 27th, 2009

This two part post originally appeared last summer, but I thought would be good to review, as we just saw a Fortune 50 client auction, with 74% reduction in strategic IT services, last week – David Bush.

In our last post, I reminded you about “Strategic Service Management” and “The complexities of Strategic Service Management”, as well as about “Strategic Service Parts Management” and “Strategic Workforce Management” in my efforts to give you an answer to when do I source that?. Now that you know when you should be considering strategic services management and when it enters into your sourcing projects, let’s move on to the question that first comes to mind, how do I source that?.

The first thing you do is separate out the different types of services that are available into those you can do effectively in house and those you cannot. Then, for those services you can manage in-house, you figure out the average cost of offering those services, as well as the average resolution time. The reason for this is that even though you can do the work in house, if it’s not your core competency or core offering, if your provider can do it cheaper and better, you should outsource it.

Then you insure that your supplier not only breaks out it’s value added services from its core product offerings, but breaks down it’s services into as many discrete offerings and quotes each service offering separately. It’s true that you will get a better deal if you buy service packages, but you first need to figure out what the right service packages are for you and, more importantly, whether or not the supplier is capable of offering at least the services you absolutely need at the levels you need them.

For example, let’s say that you are a Technology Consulting and Services Firm that supports big clients with their technology needs, be it desktop needs or data center needs, including outsourced data center management. Let’s also say that some of your customers have mission critical services that need to be available 24/7 and that your technicians are certified on HAL and IQ but not on Moon, and that you only have enough HAL technicians on staff to confidently service the percentage of your customer base with platinum SLAs (Service Level Agreements) in house. This says that if you set up a customer’s new data center on HAL technology, you probably won’t need many services, but that you will take them if they are more economical than maintaining those services in house (which might require overtime or adding staff), that if you go with IQ, you will probably need some of their services and support, and that if you go with Moon, you will probably need a lot of their services. The following table breaks down what services you might need from each vendor:

Now that you know what services you can do in house, you need a cost. Let’s define the costs as average cost per year, based on your internal metrics. Now our table might look like:

Now that you know what you will need, and might need, from each supplier, you can ask for quotes on what you will need by individual service and service package, by each vendor, and do an informed total cost of ownership analysis on each bid and select the right product and service package for your business.

In this simplified example, you’d ask Moon to quote on each service individually and as a package; you’d ask IQ to quote on each service individually, a package for the two services you need, and a package for all three services; and you might ask HAL to quote on each service individually, a package for the service call and 4 hour part replacement, and a package for everything. After this, you would have something along the lines of the following:

You’d then compare these total costs to hybrid costs where you kept some services in house, which would give you:

And finally combine these costs with the hardware costs, which might be 240K for Moon, 270K for IQ, and 250K for HAL to get a total acquisition cost:

And conclude that, if all things were equal, the best deal would be to single source all hardware and services from IQ. However, we are talking hardware, where the total cost of operation usually exceeds the cost of acquisition when you add up all the energy requirements to run a server for a year AND keep it cool, so you’d also have to add an adjustment cost for expected energy consumption to find the very best deal, but you get the point.

I should also note that, as you saw from even this simple example, this is calculation heavy, error-prone if done by hand, and not spreadsheet friendly. That’s why you’d use strategic sourcing decision optimization software, such as Iasta’s Smart Optimization software, to do this analysis, as you could define, for each supplier, which services you’d need fro that supplier if the supplier was selected (because you can’t do them in house), and which services could be done in house. You can also define the cost of each service individually and then define discounts for different packages offered by the vendor. And building in cost adjustments for the differences in energy consumption is a snap.