| Risk Management is an activity focussed on assessing, mitigating, and monitoring risks. The goal is to manage uncertainty and threats using best practices, modern technologies, and people-power. In the supply chain context, risk management is usually focussed on continuity of supply, cost control, and quality assurance. The goal is that the required raw material is available where it needs to be when it needs to be there, is of an appropriate quality, and is obtainable at the expected, or negotiated, cost.
Supply chain risk management professionals have to contend with a large number of internal, external, network, economic, environmental, geo-political, and compliance risks on a daily basis. From an internal perspective, there could be production line failures, quality problems, unpredictable raw material or parts shortages, sabotage by disgruntled employees, strikes, and pandemics that cause a large portion of the workforce to become suddenly unavailable for work. From an external perspective, a new technology or business model could emerge that disrupts normal operations across the supply chain. From a network perspective, outsourcing, third party logistics, and vendor managed inventory carry their own risks as do communication network failures, customs delays, and supplier bankruptcies. From an economic perspective, an organization has to contend with the inherent unpredictability of supply and demand, currency valuations, and global financial markets. From an environmental perspective, an organization has to be prepared for natural disasters such as earthquakes, hurricanes, and typhoons. From a geo-political perspective there are acts of sabotage, theft, terrorist attacks, and wars to contend with. And from a compliance perspective there are dozens of security, free trade zone, and customs acts and regulations that need to be satisfied. Fortunately, modern strategies for supply assurance and cost containment are varied and more complex than the classic strategies of safety margins, just-in-case inventory, reserved capacity, and order expediting which often carried as much risk as they mitigated. Today, supply chain risk managers employee production versatility, concurrent processes, decision postponement, advanced sourcing strategies, business process management techniques, market intelligence, incentives, price hedging, and forward-thinking contracts as part of their risk-mitigation tool kit, tackling strategy, market, implementation, performance, demand, and human risk in the process. For a much deeper dive into Supply Risk Management, I refer you to the e-Sourcing wiki paper*. For more information on select areas of risk management and mitigation strategies, please see the following posts:
* The e-Sourcing Wiki was created and maintained by Iasta, which was acquired by Selectica in 2014 (which renamed itself Determine in 2015). It was retired by Determine (which did not actively maintain it) before Determine was acquired by Corcentric in 2019 |
Category Archives: Glossary
RFX
| RFX, which is one of the most common acronyms in the strategic sourcing and procurement landscape, is a catch-all term that captures all references to Request for Information (RFI), Request for Proposal (RFP), Request for Quote (RFQ), and Request for Bid (RFB). The RFX process is probably one of the most difficult e-Sourcing processes to define as it can range from a simple one-time RFQ to a complex multi-stage RFI / RFP / RFQ process, depending on the needs of the project. The complexity of the RFX process is determined by, among other factors, the completeness of the requirements, the number of suppliers that have been qualified, expected competition in the supplier base, inherent risk in the sourcing effort, and projected savings or cost avoidance opportunities.
Each of the RFX types has a different primary goal. The primary goal of an RFI is to maximize potential decision points while keeping supplier evaluation costs low. The end goal of an RFP is to determine which suppliers are likely to be the most capable of meeting organizational needs and to select those suppliers that should be invited to submit bids. The final goal of an RFQ, and an RFB in the public sector, is usually to make an award decision. The RFX process is often enabled by an e-RFX platform that enables and automates (parts of) the RFX process. Although there are distinct differences between any sampling of RFX platforms and products that a buyer may choose to review, there are a number of commonalities as well. Most platforms have a centralized data repository, templates for common bids and quotes, survey support, workflow capability, and side-by-side reporting. For more information on e-RFX platform requirements, and best practices, see the introductory e-Sourcing wiki paper on e-RFX for Total Value Management*. For tips on RFX construction, best practices, and platform selection, see the following posts.
* The e-Sourcing Wiki was created and maintained by Iasta, which was acquired by Selectica in 2014 (which renamed itself Determine in 2015). It was retired by Determine (which did not actively maintain it) before Determine was acquired by Corcentric in 2019 |
Reverse Auction
| A reverse auction is an auction where the roles of buyer and seller are reversed and the primary objective is to drive purchase prices downward (as opposed to the rising prices in a regular auction). In a reverse auction, sellers are competing to win business (as opposed to a regular auction where buyers compete for the right to purchase an item). Reverse auctions (which are also called e-auctions) are generally used in business-to-business procurement, and are usually conducted by way of e-sourcing software with an e-Auction component.
Reverse auctions gained popularity in the late nineties and early noughts because many initial forays not only simplified and sped up the sourcing cycle, but generated significant returns for the early adopters. (Of course, for some early adopters the incremental returns on repeat applications on the same categories diminished rapidly when all the fat was trimmed from the margins or when the market conditions shifted back to support the supply side, but many companies still get a decent return on initial application for a new category, and reverse auctions still enjoy steady usage for this reason alone). More importantly, when used properly, a reverse auction offers more than just cost savings potential for the buyer and more than just the opportunity to win new business for the seller. Buyers get increased market transparency, decreased error rates, easy apples-to-apples bid comparisons, cycle time reductions, and a platform for supplier improvement while suppliers get increased efficiency, process transparency, more communication, a lower cost of sale, and more benefit from knowing the buyer did upfront planning, is capable of comparing bids apples-to-apples, and will be able to present the supplier with a solid reason as to why the supplier did, or did not, receive an award. However, reverse auctions only succeed when they are used ethically, and when both buyers and suppliers follow a strict code of ethics. Buyers need to define rules up front, adhere to those rules from initial supplier invitations through final award, hold all supplier information in strict confidence, intend to award the business to the winner, and award the business in a timely fashion. Suppliers must follow the rules, hold all information furnished by the buyer in strict confidence, only participate if the supplier is able to meet the requirements, accept that all bids are legally binding and only submit bids it can support, and be willing to enter into a contract promptly upon auction completion if it wins the business. The complexity of reverse auction software ranges in complexity from a simple single sealed bid auction, to a reserve price reverse auction with masked bidders and automated extensions, and some platforms will support ten or more types of reverse auctions, including fixed-price, japanese, brazillian, vickrey, english, dutch, and yankee. Regardless of the complexity of auctions supported, most reverse auction platforms will support bid management, lots, overtime, and multiple bid views. More advanced software will allow for bids on partial lots and lot bundles, non-price terms of service bids, and goals (that define a price/performance ration). More information on reverse auctions, including benefits, best practices, and success enablers, can be found in the e-Sourcing wiki paper on e-Auctions in Sourcing* and the following blog posts:
* The e-Sourcing Wiki was created and maintained by Iasta, which was acquired by Selectica in 2014 (which renamed itself Determine in 2015). It was retired by Determine (which did not actively maintain it) before Determine was acquired by Corcentric in 2019 |
Purchasing Best Practices
| Purchasing refers to the acquisition of goods or services that are required to accomplish the goals of the enterprise. Although some people will use the terms purchasing and procurement interchangeably, many will draw a distinction. For some, purchasing is a tactical activity that consists simply of executing routine administrative tasks (such as requesting quotes, placing orders, and expediting) on a reactive basis, outside of the context of an enterprise-focus, while procurement is a more strategic activity that looks at the total cost of ownership and different supply options before a purchasing decision is made. In addition, as noted in the Wikipedia article, procurement is a more advanced function that also includes, among other functions, expediting, supplier quality management, and logistics management.
A <href=”http: en.wikipedia.org=”” wiki=”” best_practices”=”” target=”_blank”>best practice is an idea that asserts that there is a technique, method, process, activity, incentive, or reward that is more effective at delivering a particular outcome than any other technique, method, or process. The idea behind a best practice is that, with proper processes, a desired outcome can be delivered with fewer problems and no unforeseen complications. Among all practices, a best practice is the one that is the most efficient and effective way of accomplishing the task. A best practice is typically based on repeatable procedures that have proven themselves over time. </href=”http:> Thus, a purchasing best practice is a proven methodology that, when applied, leads to a best value acquisition. Since purchasing and sourcing are two sides of the same coin, there are many commonalities between purchasing best practices and sourcing best practices, and being familiar with both will lead to better results. The following posts deal with purchasing best practices:
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Product Life-cycle Management
| Product Life-cycle Management is the process of managing the life-cycle of a product from conception, through design and manufacture, to service and eventual disposal. It encompasses the people, data, processes, and systems associated with a product. It’s a fundamental component of good supply chain management as the fundamental goal of supply chain management is to get products and services from suppliers who produce them to buyers who consume them in the most efficient and cost-effective manner possible.
Product Life-cycle Management solutions are often employed by companies looking to implement six sigma or lean methodologies because they can provide:
Product Life-cylce Management solutions come in many shapes and sizes, and should not be confused with Product Information Management solutions which are a subset of solutions that only focus on the management of the designs, schematics, and documentation related to a product. They may be developed as traditional behind-the-firewall solutions or on-demand Software-as-a-Service solutions and may include expert-systems that guide the process in addition to knowledge management components that capture all of the information related to the product. For more information on Product Life-cycle Management in the supply chain, please review the following posts: |