Category Archives: Guest Author

45 Million People Are Blind today!! Cheesecake Factory Might Be the Answer? (Part 1 of 2)


Today’s guest post is from Dalip Raheja, past contributor to Sourcing Innovation and CEO of The Mpower Group, Inc.

45 Million People Are Blind today … and 80% of them could be cured through surgery (36 million if you’re looking for your calculator). Oh, of course, most of these people cannot afford the surgery, don’t know about it, cannot physically be where eye care is available, and so on and so on. The answer? Reverse Innovation (RI) — a term coined by Jeffrey Immelt and Vijay Govindarajan. The basic premise of RI is that all innovation cannot flow from the developed to the developing world. There is a lot of innovation going on in the developing world that can and should be adopted here. According to Govindarajan, one can and should argue that the paradigm in the developed world is “spend more to come up with innovation,” while in the developing world the exact opposite is true, “spend less to come up with innovation.”

Let’s look at some comparative facts first:

India US
Aravind surgeries 2,000 a year 125 a year
Average Cost $30 $1,000
Complications 1 / 2 Double

So, what’s the secret? It must be that they are performing a procedure that is not even accepted in the developed world. Not true. What they perform is called Phacoemulsification (considered the gold standard in cataract surgery).

What they have done is reimagined (not just reengineered) the entire conceptual framework with a different set of assumptions and come up with some innovations that are staggering. They have created an assembly line mentality that allows surgeons to focus on what they do best — perform the actual surgery. Not the prep, not the paperwork, not anything else but that which leverages their specialized skill set the most … allowing a surgeon to do 30 to 40 surgeries a day!! There is no time wasted between surgeries — the next patient is prepped, draped, and ready to go. With no degradation of quality! Oh by the way, Aravind performs about 300,000 of these procedures a year … WITH HALF OF THEM FREE!

Because they are offering the latest procedures with exceptional quality, half of their patients pay them full going market rates which then subsidizes the charity cases, which is what they are really about. They have used the combined volume leverage and scale to start making their own intraocular lenses and providing some lenses for $2, and they are now exporting these lenses to 120 other countries (Canada, Denmark, and Israel amongst them).

If all of this sounds like a classical supply chain/sourcing problem being solved — that’s because it is. They have applied a number of ideas from the business world to the non-profit world. So much so that they have also reimagined the traditional model of a charity organization always looking for a handout — they’ve planned half of their effort to be a commercial venture generating profits to pay for charity.

This is but one example amongst many:

  • GE’s portable EKG machine — developed in China
  • Boston’s PACT program — modeled after a program in Haiti
  • Kangaroo care — developed in Colombia
  • Pedialyte — developed in Bangladesh

And one of the biggest stories is Dr. Therdchai Jivacate (Thailand) who is providing artificial legs made out of plastic yogurt bottles for about $100 with a delivery time of 1-3 days compared to $10,000 and 7-10 days! Dude — don’t throw away that water bottle! And to lower the cost of labor involved in actually working with patients, he has trained local recipients of the artificial legs. He just broke the Guinness Book of World Records by serving 864 amputees in 13 days.

So before you pooh pooh those ideas from your colleagues from the developing world, you may want to keep an open mind and process them. You may want to actively seek innovations from your suppliers in the developing world. Remember — their context is different and context is very powerful and they are able to reimagine problems that we cannot because we cannot shake out of our context.

In the next post, we will continue this conversation about innovation and examine Atul Gawande’s suggestion of using the Cheesecake Factory (a place I’ve never been to) model to reimagine the healthcare system.

Why does everyone look to disqualify when they should be looking to qualify?


Rant on blogger, rant on along
Rant on buddy till the day is through
Rant on brother, sister too
Rant on momma like I asked you to do
And rant on fellow blogger, rant on (Rant On!)
 Disqualified!

Today’s guest post is from William R. Dorn Jr (Bill Dorn), the Vice President of Operations at Source One Management Services, LLC.

In the last year, I’ve been pretty active talking about one of my favourite topics, “What Not To Do” when conducting a strategic sourcing event. I’ve blogged about it on multiple sites, spoken about it on several guest podcasts, have a chapter in our book about it, and Joe Payne and I even lightly discussed the topic on a morning television news show in Arizona (which I doubt more than five people tuned in for). So when the good doctor told me he was inviting guest rants this month, I knew what I was going to scribble about. But then, I started to think about it a bit more. I think I’ve said enough on the topic, and I think there is an even more basic premise that deserves attention. That premise is: Why do people in business look to disqualify something when then should be looking to qualify it?

I’m sure we’ve all heard the following lines come out of our colleague’s mouths before: “We did that before it didn’t work“, “It’s always worked until now; why would we change it“, “Our staff doesn’t adapt well to change“, “Let’s just push this through for now and look at the alternatives another time“, “it wouldn’t work here“, “we’re not ready for that“, “it’s not really practical here“, “we don’t have the time“, “it costs too much“, “it’s not in this year’s budget“, “we’re too busy“, or the one I hate most “our company (or our requirements) is different“.

As consultants, there really is not a day that goes by that we don’t here at least one of these classic lines from one of our clients. As procurement or supply chain professionals, you probably have all heard one of those dreaded deal breakers right when you thought you had a really creative solution, technology, or vendor that could have helped your business.

But, did you realize that a large portion of you are doing exactly the same thing during your sourcing process? You probably aren’t aware you are doing it, as it’s not as direct as the examples above. And in many cases, it’s really not your fault; you’re just following a procedure, policy or e-sourcing software template that was written in stone before your time. What I’m talking about is a sourcing process that looks to disqualify instead of qualify.

Let’s really look at your sourcing process, whether it’s the Supplier Discovery, RFI/RFQ/RFX/Reverse Auction, or whatever you call it. Does it have questions that really serve any purpose other than to disqualify? Why are those questions included? Chances are, they are simply there to help take a long list of potential suppliers down to a really short list, in order to make the review, selection and award process easier and quicker. Well, we all know that easier and quicker is not always better, but this often gets ignored when it comes to doing work. Here are just some examples of what I’m referring to:

  • Is your company ISO certified? Questions like these (the hard YES/NO), especially used in conjunction with automated rating and scorecarding tools in e-sourcing systems are a huge pet peeve of mine. First off, is the ISO certification even relevant to what’s being sourced? In most cases, it’s not. Secondly, it leaves no margin for answer. What if you are going through the process but will not be certified until next month? What if you are not ISO certified, but are certified by a similar industry specific association, like QS? “Well, we didn’t ask that. You’re disqualified.”
  • We recently responded to a large RFP that had a short deadline. One of the requirements of the RFP was that the response was received electronically and in hard copy, no later than 2:00 PM on a certain date. The company we responded to acknowledged receipt of the submission, but FedEx was actually late in delivery of the hard copy, 2:37 PM to be precise. The prospect promptly rejected the delivery and entirely disqualified us from the bid, even though they already held the electronic copy. They never even opened the bid. We’re not the only ones either; I talked to others who responded that had the same thing happen, all because of a storm that delayed FedEx by a few minutes. In this case, a ridiculous policy had a company throwing away potentially the best possible suppliers without even reviewing their submissions. In other words, “Oh, you’re human and a small mistake happened? You’re disqualified.”
  • We frequently see RFPs that have a “deadline” for submitting questions. Many of those companies refuse to answer any new question you may have after that deadline date. What does that lead to? Well, it forces suppliers to guess at what they THINK you may need, often missing the mark and often submitting a proposal that doesn’t really address the buyer’s needs appropriately. It’s not that they couldn’t support your need; they just simply misinterpreted your requirements and did not have a fair opportunity to present a proper solution. “You couldn’t read our minds, You’re disqualified.”
  • Do you have on office within 25 miles of our location? Well, no, we don’t but the work is being done remotely, so that should not have any impact on our level of service or price … “Too bad, You’re disqualified.”
  • Here’s a 43 page RFP where every answer is a long-form answer and half of the questions don’t apply to this initiative. You have until Friday at 5 to answer it. “That’s not enough time? You’re disqualified.”
  • You must agree upfront that you will use my procure-to-pay punch-out catalog ordering system. Oh, and the software company that runs it gets a piece of every single transaction. But I still want the best possible price. You want more information or are concerned about digging into your margins? “I don’t understand why you could give me a better price if you didn’t have to pay an intermediary too. You’re disqualified.”
  • We’ve got this great opportunity to ask questions for you. We call it a bidder’s conference. You’ll sit around a table with your competitors and must introduce yourself so that everyone knows who they are competing with. “What do you mean you are uncomfortable doing that? That’s what I want. You’re disqualified.” (This is providing that they don’t drop out themselves as most suppliers do after they have to sit through a circus like a bidder’s conference).
  • “Do you have substantial experience supplying the nano-microorganism plating industry? Provide me with 5 references. You sell office supplies? I don’t see how that is relevant to the question. Do you supply other nano-microorganism plating companies or not? No? You’re disqualified.”

I could go on and on with dozens of examples of poorly written questions or poor methodologies that serve absolutely no purpose other than to disqualify, but I’m already over the doctor’s budgeted word count (I hope he doesn’t disqualify my post for it).*

Now, I’m not saying that some questions and some responses shouldn’t be grounds for immediate dismissal, and I understand that you have to find an appropriate balance of how many suppliers you can review for a spend category, but sourcing and procurement folks really should take a hard look at their processes and really look at themselves to see if they are just as guilty as the naysayers throwing around clichéd business brush-offs like the ones I wrote about above. Are you really offering a warm invitation to suppliers to help improve your business, or are you just schlepping through a dreaded process just to tell your bosses that you “went to market”?

Thanks, Bill! You’re really helping me with my point that many RFX processes are not implemented correctly, especially in technology acquisition at large companies!

*To be precise, Bill is over my suggested word count, which I’m happy to ignore as long as the rant is raving and engaging!

A Shipper’s Right


Rant on blogger, rant on along
Rant on buddy till the day is through
Rant on brother, sister too
Rant on momma like I asked you to do
And rant on fellow blogger, rant on (Rant On!)

Today’s guest post is from Leigh Merz, a Project Analyst at Source One Management Services, LLC.

In late 2009, both UPS and FedEx announced a change in policy when working with third party consultants, basically negating any future negotiations or direct communications with these service providers. This mandate limited shippers to only work with either FedEx or UPS directly as the carriers did not want their so-called proprietary information shared.

UPS and FedEx claimed this change would be in the best interest of both themselves and shippers. In 2010, a parcel consulting firm, AFMS, LLC (“AFMS”), began its fight against this new policy. They argued that both suppliers “colluded to avoid revenue dilution”. In addition, they discussed other antitrust violations that would impact shipper’s abilities to compete its business including:

  1. Suppressed competition among and between FedEx and UPS
  2. Diminished freedom of choice for shippers
  3. Suppressed competition among and between third party consultants
  4. Shippers are forced to pay higher prices

Let’s take a step back. Third party consultants work as an extension of a customer’s purchasing team and do not share any information pricing or other terms with the marketplace. Businesses look to these professionals for market intelligence, assistance in negotiations, to determine if the offer being presented is competitive and fair, and to manage their logistics spend overall. They are not used to ‘beat up’ incumbents or play suppliers against each other and are able to bring the facts to the table.

How long will UPS and FedEx continue to exclude third party consultants? They are positioning themselves as squelching the small parcel consulting and negotiation services market. Also, their unwillingness to play nice only gives leverage to regional players and potential growth opportunities for competitors like USPS. These companies understand businesses needs and rights to engage the experts in negotiations. They are willing to participate in RFX processes and work with whomever the client assigns as their spokesperson. The result is usually an increase in revenue and a commitment for a long-term relationship. UPS and FedEx are encouraging a decline in revenue and potential relationship termination.

Third party consultants are willing to work with UPS and FedEx and will allow them to compete for business fairly and without bias. They will offer insightful information into the customer’s spend profile without sharing confidential information or asking for unrealistic pricing and terms.

On a side bar, AFMS continues to stand its ground waiting for the projected trial in 2013 for a jury to hear its complaint.

Thanks, Leigh.

Engaging Stakeholders – It’s as Easy as Corralling Cats!


Rant on blogger, rant on along
Rant on buddy till the day is through
Rant on brother, sister too
Rant on momma like I asked you to do
And rant on fellow blogger, rant on (Rant On!)

Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC.

A few weeks ago I was giving a debrief to the Manager of Indirect Spend for one of our customers. The engagement was winding down, and I asked the manager if there were any other categories they needed help with that we hadn’t already looked at. “No” he said, “I think we’ve covered everything.”

Up to that point, I knew we hadn’t worked with their IT department at all, so I asked about potentially discussing telecom or managed services. “Oh, I stay away from that side of the building”, he exclaimed. “Those guys don’t even speak the same language.”

As more and more CFO’s and CEO’s realize the value in creating sourcing departments to control indirect spend, sourcing teams are finding more and more end user resistance to their involvement in the supplier selection and supplier relationship management process. In nearly every organization I’ve worked with, there are groups or divisions that don’t want help from sourcing and prefer to manage supplier relationships on their own. Getting stakeholders to engage can be difficult, but is it really as hard as corralling a cat? Well, let’s look at the similarities:

Cats don’t want to be corralled. Stakeholders do not want to be engaged.

“Sorry I missed your call, please leave a message…”

When you begin to corral a cat, their first instinct will be to cautiously avoid you – but they probably won’t run away. When you first attempt to engage a stakeholder, they will do the same.

“I’d love to meet to discuss my requirements; unfortunately I have a full plate this summer. How does next year look for you?”

When you show a cat you are not going to give up until they get corralled, they will become finicky and potentially aggressive. When you continue to pursue an end user, they will attack.

“What makes you think you can do a better job than I did? What do you even know about this subject matter?”

Lastly, just because you are successful in corralling the cat does not mean they are going to cooperate. Give them any opportunity, and they will escape. Once a stakeholder agrees to proceed (usually after being told to by their boss), you can expect:

“Sorry I missed your call, please leave a message…”

Which takes us full circle.

So, what is the value that sourcing can bring to stakeholders and end users, and why is it so difficult for them to recognize that value?

First you have to remember that practically no one in IT, Marketing, or HR was hired based on their ability to run an RFP, write a contract, or perform a negotiation. They were hired to ensure infrastructure uptime, get the company’s message out, or keep employees happy, respectively. They aren’t focused on cost and most of the time they don’t care about cost. There is no question that lack of training, lack of time, lack of market intelligence and lack of focus will lead to higher price – sourcing brings these tools to the table.

Second, stakeholders typically don’t properly manage vendors, track spend or validate compliance. Without a watchful eye, suppliers either get demotivated or greedy. This leads to either very upset or very rich suppliers. Sourcing offers a clear process and communication hierarchy, the ability for incumbent suppliers to expand services or solicit feedback, and spend consolidation and rationalization opportunities – it improves supplier relationships while keeping costs in check.

Third, even when a stakeholder is upset with a supplier, they will continue to use them. When speaking to end users, I am often surprised by how much they dislike an incumbent, but still continue to work with them. Sourcing brings an independent (and objective) third party to the table that can act as the “bad cop”, pushing a supplier to improve or else replacing them with someone better suited for the requirement.

So if sourcing can bring all this value to the table, why do stakeholders often fail to recognize it?

The answer to that question can be a little more complex, but for the most part it boils down to one thing – purchasing is a personal subject! Think about it – whether you are at home or at work, you want to get a good deal. When you buy a new car, you aren’t going to tell your friends and family how you got ripped off – you are going to tell them you got a great price, and you are going to hope that is true! The same can be said, and normally is exacerbated, in business. If you are responsible for managing a million dollar plus budget, the last thing you want is for people in the company to think you are paying more for goods and services than you should. Having a sourcing group come in and save 30% is the same as having your brother-in-law swing by the car dealer and get the same car for $5K less – it hurts.

Sourcing organizations now have a unique challenge. The thing they were hired to do – get savings – tends to be the easy part of their job. Competition always exists and technologies are always improving – finding a lower price is not difficult. The hard part is finding a stakeholder in the organization that recognizes sourcing is just as valid to them as any other support service, and has the wherewithal to use your group effectively.

To date, I’ve never seen it happen without a strong top down mandate, and it is costing companies millions every day.

Corralling Cats
Thanks, Joe!

From Strategic Spend to Strategic Value-Add, Part IV

Today’s guest post is from Ayush Sharma, a Strategic Sourcing Consultant with Trade Extensions in the Americas. His particular speciality is the application of optimization to Retail Sourcing, Dedicated Transportation, 3PL Logistics Sourcing, and Direct and Indirect Materials Sourcing. Ayush has a Masters degree in Supply Chain Management from the University of Texas at Dallas, certifications in Lean Six Sigma and Supply Chain Management, and has served as a Technical Director for a local branch of the Institute for Supply Management (ISM).

We started the series off by discussing the importance of supply and demand chain integration, with respect to the organizational strategic plan, as the key to an efficient, profitable and fluid business and the importance of a good Strategic Sourcing process, built on combinatorial bidding and optimization, in the execution of supply and demand chain integration. Then we discussed the characteristics of a strong and measurable sourcing process which can be utilized to increase Supply Management throughput and turn the organization’s Strategic Spend into a Strategic Value-Add for the corporation as a whole. In our last post we presented the first of two examples, inspired by real-world events, that demonstrate the impact of including combinatorial bidding and optimization in a sourcing project that follows a process similar to the one outlined in our last post. Today, we present our second example.

Let’s consider the case of Retailer X that wants to source several cases of fresh fruit juice. Three varieties are being sourced in this project — Apple, Blueberry and Cranberry Juice. The retailer has three DCs in Austin, Baton Rouge and Columbus and wants to determine if it’s more cost effective for the supplier to transport items to the DCs versus the retailer’s trucks picking them up. Finally, let’s consider the three suppliers placing bids on these items are Company A, Company B and Company C.

Retailer X has the following forecast for FY 2012:

Item Name Distribution Center
  Austin, TX Baton Rouge, LA Columbus, OH
Apple Juice 10,000 cases 10,000 cases 10,000 cases
Blueberry Juice 20,000 cases 30,000 cases 10,000 cases
Cranberry Juice 30,000 cases 10,000 cases 10,000 cases

The team wants to perform some creative analyses. To this end, suppliers are allowed to provide the following information:

  • Delivered Duty Paid (DDP) ‘Cost per Case’
    (this includes the cost of transportation from the supplier location to a DC)
  • Collect ‘Cost per Case’ excluding transportation
    (in this case, the retailer handles transportation)
  • Item and location-specific capacities
    (e.g., the supplier can only provide 30,000 cases of Apple Juice from their Florida location)
  • Discounts on dynamic bundles of items
    (e.g., If awarded the entire forecast of Apple Juice and Blueberry Juice, the supplier offers to provide a discount of 5%)
  • Information about the locations that suppliers will be shipping from

The retailer has been strictly monitoring data from the last two years and is using the implemented costs from FY 2011 as a baseline for this project. Based on the data collected over the last two years, the retailer was also able to find a direct correlation between the suppliers’ qualitative metrics (let’s call this an Index Score) and their ability to match the expected price without unexpected cost increases over the financial year. Based on this information, the retailer wants to penalize suppliers with a low Index Score to ensure they’re able to maintain supply quality.

It’s possible to get a sense of analysis possibilities just from looking at the supplier data collected. The retailer obtains a ‘Transportation Cost’ (Cost per Case) from their internal transportation team using the suppliers’ location information. This Transportation Cost is used to calculate a ‘Landed Cost per Case’ if the retailer handled transportation. The Landed Cost thus obtained is then compared against the ‘DDP Cost per Case’ and the best cost is chosen. The retailer also takes into account supplier capacities to calculate how much of the demand volume gets fulfilled from each location. Also, each supplier has offered certain discounts if they’re awarded certain volumes. This is weighed against the capacity information to determine the best overall fit.

The optimization and analysis process typically spans several steps:

  1. Low Cost Scenario: This scenario simply calculates an award to each Item-DC combination using the lowest cost per case (among the Landed Cost and the DDP Cost) without considering capacities or discounts
  2. Low Cost with Capacities: This scenario again uses the lowest cost per case but now considers supplier capacities and discounts while calculating individual awards
  3. Limiting Winners: Typically, there are some supplier specific constraints that need to be applied (e.g., only 1 supplier gets the Austin DC); We build upon the solution in #2 by applying these constraints
  4. Supplier Mix: This set of constraints ensures product availability while maintaining the desired supplier mix (e.g., award at least 10% of each DC to a new supplier)
  5. Applying Penalties: In this case, we build the solution further by incorporating some penalties using the suppliers’ Index Scores
  6. Additional Constraints: Each category has its own unique set of requirements which determines the constraints that are applied; An example of this would be penalizing suppliers that are located far away from a DC if the product is time-sensitive

The process for this project spans across multiple rounds. The retailer participates in face-to-face negotiations between the two rounds to discuss the suppliers’ quote with each supplier and to explore any additional ways they could add value. The retailer also decides to share some feedback with suppliers in the second round based on their analyses. In most cases, increased transparency encourages suppliers to provide better quotes.

The example above was very simple with just three items being sourced. But you’re immediately able to get a sense of the possibilities where an increased number of Item-DC combinations can be sourced in the same project. Potentially, the retailer could also look for multiple commodities that could be fulfilled by the same set of suppliers and group these into a single project. Having this level of scalability ensures the advantage of better supplier quotes while maintaining the desired supplier-product mix in the analysis stage.

The retailer identifies relevant KPIs that allow them to effectively monitor the category over time. Examples of such metrics include the ratio of product to shipping costs (per DC and overall), suppliers’ on-time delivery performance (this must be applied to the overall index score), Expected vs. Implemented Costs (costing changes due to supply shortages, natural disasters, etc.), the cost of maintaining the supplier mix (aligned with sourcing strategy), etc.

Over a multi-year supply cycle, this process effectively drives savings while maintaining a strict hold on metrics that are important to the category and aligned with the retailer’s overall strategy.

When you combine this example with the example in the last post, it’s easy to see how optimization, when used in conjunction with combinatorial bidding, can add tremendous value to any strategic sourcing initiative. The advantage of being able to compare different possibilities within a short duration of time while following stringent sourcing methodology means your organization has a repeatable and result-oriented process on the right track to sourcing success.


Thanks, Ayush!