Category Archives: Guest Author

A State Gets Smart

Today’s guest post is from Mark Usher of Treya Partners and originally appeared on the 1 Procurement Place blog on July 31, 2008. It is reprinted with kind permission.

Those of you who follow the public sector space may know that the State of Georgia recently selected SciQuest’s e-procurement tool. State agency employees in Georgia who need to buy anything from pens to asphalt will shop in SciQuest’s web-hosted electronic catalogs which will be populated with pre-priced goods and services from the State’s existing supplier agreements. This decision by the State of Georgia is notable for two reasons – (i) it is another example of an organization electing to carry out its purchasing transactions in a best-of-breed e-procurement tool as opposed to the purchasing module its existing ERP system (numerous Fortune 500 companies have gone the EP route following sunk ERP investments and the State of Georgia already has PeopleSoft) and (ii) it is also an example of another state government that is moving ahead strongly with a strategic procurement initiative (other states moving to transform their procurement function include Virginia and Indiana to name just two).

The shunning of ERP’s historically much-maligned inbuilt purchasing functionality in favor of e-procurement is a trend that I would expect to continue both in the private and public sectors. Not so much due to application functionality (a gap that that I would say doesn’t really exist anymore since the ERP vendors have refined the workflow in their own e-procurement modules) but due to the fundamentally different way that the best-in-breed providers and ERP vendors handle catalog content. All of the e-procurement providers utilize web-hosted catalogs pre-populated with many of the vendors and products that most buying organization will need (and with the capability to have the organization’s specific contract pricing built in). And if a customer has vendors that are not already in the pre-populated catalog it is a simple task for the e-procurement provider to request product and pricing from those vendors and load them into their web catalog. With an ERP provider’s e-procurement solution, however, you are most likely going to have to build your catalogs behind your firewall, involving considerably much more time and expense. And now that the best-in-breed e-procurement providers all integrate so perfectly with ERP (e.g. with accounts payable to enable payment reconciliation), why would you ever go the ERP purchasing route? I wouldn’t.

As regards Georgia’s general procurement transformation initiative, expect to see a lot more of this from state governments in the next 2-5 years. State governments have long presented a massive challenge for creating value from procurement due to their extreme decentralization. Often hundreds of state agencies within a state making their own procurement decisions and developing their own price agreements with suppliers. To complicate matters even more, agencies usually have their own financial and purchasing systems meaning there is no centralized store of data from which to build a consolidated picture of total state spend by category, supplier and agency – key information for identifying and developing aggressively discounted price agreements with suppliers. Rounding out the challenges for states in the this area are a lack of a strong mission/vision/strategy for a center-led approach to procurement and a shortage of strategic sourcing skills among current state procurement staff.

As regards my state procurement crystal ball I would expect to see (or would HOPE to see) state governments address the following five areas:

  • Develop and broadly communicate a center-led strategy for procurement in the state with the centerpiece being a strategically focused, “center of excellence”-based central procurement group
  • Conducting a best practice spend analysis to develop a consolidated cross-state picture of spend by agency, supplier and agency
  • Based on the spend analysis, develop and implement a sourcing roadmap with the objective of maximizing the amount of state spend under cross-agency (“state-wide”) leveraged price agreements
  • Upskill the central procurement group with the required training in best practice strategic sourcing methods (or hire where needed)
  • Implement a state e-procurement system with web-hosted electronic catalogs to drive maximum spend through the new price agreements

Thanks Mark!

Twenty Reasons Why All Retailers Should Use e-Procurement Tools Now

Today’s guest post is from Ron Southard of Safe Sourcing and originally appeared on the Safe Sourcing Blog on July 29, 2008. It is reprinted with kind permission.

Sometimes the detail gets lost in translation, so for those of you that are following on a daily basis here is a simple list. These are certainly not all of the benefits that retail can drive from the use of e-procurement tools, but it is a good starting point.

Since this is not Late Night with David Letterman, our list is not ranked in order of importance although many might argue that not much is more important than improved earnings.

1. Guaranteed to improve net earnings
2. Guaranteed to improve safety
3. Guaranteed to improve Corporate Social Responsibility
4. Guaranteed new sources of supply
5. Retail has less spend assigned than any other industry
6. Streamlines the procurement process
7. Holds suppliers accountable to your standards
8. Improves quality
9. Coast avoidance in a volatile market
10. Creates a competitive environment
11. Drives reliable market pricing
12. Maintains a reliable history for future comparison
13. Educates suppliers as to how retailers wish to procure products
14. Supplier training eliminates questions
15. Improved and consistent product specifications
16. Improved negotiation
17. Improve carbon footprint
18. Simple award of business process
19. Frees up time for other tasks
20. Works for procurement of all product categories

This author is not sure why a derivative of this list could not become the mission statement for any procurement department.

I look for ward to your comments, which may also be posted here (login required).

Thanks Ron!

Some Examples of Supply Chain Fraud

Today’s guest post is courtesy of Norman Katz, Certified Fraud Examiner, of Katzscan, Inc. and maintainer of the Supply Chain Fraud website as well as the Supply Chain Sarbanes-Oxley website. Both of these supply chain sites are worth checking out. After all, you don’t want to join Fox in SOX!

In accepting the holistic view that the supply chain extends beyond the walls of the company, can encompass raw materials, finished goods, monies, and services, and can be in fact more internal than external, the types of supply chain frauds become more numerous and in some cases, more severe.

One of the most glaring examples of supply chain fraud is the tainted product scandals that have surfaced over the past year. However, not all of the problems were associated with lead-tainted paint; some product recalls of toys were due to small parts breaking loose that a child could put in their mouth and choke on. If the toy was not being designed overseas, but just manufactured overseas, than the toy designer should be faulted for a poor – if not dangerous – design. Was the overseas manufacturer given any guidelines in regards to stress tests to gauge whether a child could pull off a small piece?

In this example, the fraud itself would have started with a poor design and would have occurred early in product lifecycle management (PLM). Was there a quality assurance (QA) review during PLM to cover aspects such as this? Was there QA testing of prototypes and products after go-live production to ensure quality standards – if established in the beginning – were being adhered to?

Similarly, in terms of the tainted food products, what tests were performed by the product company to ensure the manufacturer was adhering to standards and not introducing unsafe ingredients? This is especially true in the pet food scandal, were an unsafe ingredient was added by the overseas raw material supplier and/or overseas manufacturer to (artificially) boost protein levels during product testing. Why was there no testing for foreign substances?

In the above examples, if the QA department’s ability to function as needed was reduced due to unnecessary or unwise cost cutting by executives, especially if the goal was to increase executive bonuses or inflate stock prices by reducing costs, the executives themselves can be considered the perpetrators of the fraud and may be civilly and/or criminally liable for the results.

In another case that was caught before the supply chain fraud occurred, a military contractor was prevented from outsourcing the manufacturing of night vision goggles to a company in China. The US military is quite particular about who can manufacture their technologically advanced equipment, and rightfully so! The reason the company executives stated they were looking to outsource the production was greed, pure and simple: they wanted to lower costs to gain more profits, and were willing to do so at the real risk of giving away US military secrets to a country known for producing pirated software, videos, music, and merchandise imitations!

Internal thefts of raw materials and finished goods are an obvious supply chain fraud. How about when machinery and equipment are not maintained according to schedule, even though the maintenance supervisor swears they are? Abuse of equipment is most certainly a type of fraud, but when the abused equipment produces less-than-first-quality finished goods, the fraud has now become more widespread. Further, if the less-than-first-quality finished goods can cause injury or death, then the impact of the fraud just became much more serious.

Internal thefts can also include monies when fraud happens in the account department. Also, a person with the right authority may be able to set up a fraudulent services-only vendor for the purposes of stealing money via the submission of fake invoices paid to a fictional vendor who is really the fraud perpetrator themselves.

Thanks, Norman!

For more examples of where fraud can occur in the supply chain, check out the new “Supply Chain Fraud” wiki-paper over on the e-Sourcing Wiki.

10+2 Readiness … Beware! It’s strategic, not tactical …

Today’s guest post is from Matt Gersper of Global Data Mining,LLC (acquired by CUSTOMS Info, acquired by Descartes).

As president of Global Data Mining, I have the opportunity to speak daily with a broad range of clients from many diverse industries, all involved in international trade.

On January 2, 2008, US Customs & Border Protection (CBP) published in the Federal Register a notice of proposed rulemaking for Importer Security Filing and Additional Carrier Requirements, commonly known as “10+2”. Since then, I’ve watched companies react to 10+2 in three distinct ways.

A very small minority of our clients have responded by funding a cross-functional team to study the issue and develop an enterprise-wide strategic solution to meet the new requirements and optimize global trade business processes while they are at it. These best-in-class companies are way ahead of the 10+2 curve.

I have noticed the remaining companies seem to fall into one of two groups. There are companies heading full speed for a cliff and completely unaware of it; and there are companies heading full speed for the same cliff, but at least they are aware of it.

The “aware” group has a chance to use this dramatic change in customs regulations as a catalyst for process improvement and to remain competitive with the best-in-class group. I fear any companies that remain unaware will suffer mightily when 10+2 goes into effect.

The reason even “aware” companies are heading towards disaster is while their leadership may be alert to the newly proposed customs regulations; they mistakenly believe it can be managed tactically by their trade compliance department when in actuality it will require an enterprise-wide strategic solution.

It is important for senior management of US importers to understand the significant impact 10+2 can bring to their companies and develop an enterprise-wide strategy to prepare for it!

Let me explain.

CBP is proposing to require your company to transmit an Importer Security Filing twenty-four hours prior to loading a U.S. bound vessel. The filing must contain 10 data elements including 3 new data elements not currently required for US bound imports. The existing 7 data elements will need to be reported a lot sooner in your supply chain than is required today. This is not a small change. It will require a considerable re-engineering of corporate processes and systems.

These are the data elements that will be required, their typical source and responsible parties:

Data Element Source Responsible Party
Manufacturer name and address Procurement/Sourcing Importer
Seller name and address (New) Procurement/Sourcing Importer
Buyer name and address Procurement/Sourcing Importer
Ship to name and address Procurement/Sourcing Importer
Container stuffing location (New) Supplier/Forwarder Supplier/Forwarder
Consolidator (stuffer) name and address (New) Supplier/Forwarder Supplier/Forwarder
Importer of record number Trade Compliance/ Import Importer
Consignee number(s) Trade Compliance/ Import Importer
Country of origin Trade Compliance/ Import Importer
Commodity HTSUS number Trade Compliance/ Import Importer / Broker

Creating an effective solution to the proposed 10+2 regulations is beyond the scope of the trade compliance department. It will require an enterprise-wide, strategic solution. Here are three examples to clarify my point.

Example One: The typical vendor master file in a corporate ERP system defines “Manufacturer” or “Supplier” as the party to which the company makes invoice payments. If a supplier has ten different factories that may fulfill an order, the proposed 10+2 regulations will require the name and address of the actual factory that fulfilled the order. This granularity of data, and the functionality to differentiate at the specific factory level, does not exist in many ERP systems today.

Example Two: One importer I recently spoke with is changing the way his company selects freight forwarders in foreign countries in order to manage the requirements of the Container stuffing location and the Consolidator (stuffer) name and address. They feel the 10+2 regulations requires a much closer relationship with fewer forwarders to assure all data elements, especially the two mentioned herein, will be accurate and complete in time to transmit the Importer Security Filing.

Example Three: Today, the assignment of the fully qualified Harmonized Tariff number (US-HTS) is frequently made after the generation of the commercial invoice and before the shipment enters a US port. The assignment of the US-HTS is often made manually by a broker. In order to achieve the requirements of 10+2, importers will need to create and maintain a Parts Master File complete with fully qualified US-HTS numbers assigned to every item. This data will need to be integrated into the software that will be used to electronically transmit the Importer Security Filing twenty-four hours prior to loading the U.S. bound vessel.

Each of these examples requires re-thinking and re-engineering current business processes. The scope of these projects extends beyond the responsibility and authority of the trade compliance department as cross-functional participation is required of the procurement, logistics and information technology departments at a minimum. Some projects will also involve third parties. Executive leadership should take notice. Lack of understanding and funding today may lead to dire consequences tomorrow.

The proposed 10+2 regulations state, “If the principal fails to comply with the proposed Importer Security Filing requirements, the principal and surety (jointly and severally) would pay liquidated damages equal to the value of the merchandise involved in the default”. If you have a $250,000 shipment that is in violation of the new regulations, you could be fined $250,000. Furthermore, the prospect of “scrambling” for data at the last minute will slow your supply chain, squander already limited resources, and erode profits from your bottom line.

However, 10+2 can be a hidden opportunity for strategic thinking companies. Optimizing currently inefficient business processes to meet the 10+2 requirements in the most direct, effective manner possible can improve supply chain performance, and potentially deliver a positive return on investment.

More effective management and visibility of additional trade data can:

  1. Improve supply chain planning
  2. Improve supply chain speed
  3. Reduce inventory requirements
  4. Improve visibility and controls of international transactions
  5. Create competitive advantage

One supply chain study has estimated the cost of each additional day ëin transit’ is equal to Ω of one percent of the value of goods. Improving supply chain speed by just one day would be worth $500,000 per year for a company importing $100 million annually.

I strongly advise executives of companies importing into the US to study the impact the newly released Importer Security Filing Proposal may bring to their companies. Best-in-class companies are funding cross-functional teams to develop a strategic enterprise-wide solution, using 10+2 as a catalyst to optimize currently inefficient processes, and creating competitive advantage in the process. Once you know the terrain, and have a good map of the road, you too can be traveling safely and efficiently down the new 10+2 highway.

Thanks, Matt!

Matt can be reached at mattgersper <at> gdmllc <dot> com

Spend Analysis Meme Busting, Part II

Today’s post is again courtesy of Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI).

9. Spend analysis is a “big iron” problem requiring large servers and databases.
Nonsense. Global 100 datasets fit easily onto ordinary laptop computers, and a modern laptop computer can deliver near-instantaneous drill-down times.

10. Static reports can deliver profound insight, replace procurement analysts and sourcing consultants, and even direct the course of entire sourcing programs.
This idea surfaces every now and then in the writings of pie-in-the-sky analysts and on blogs like Spend Matters. Most recently, it is being promulgated by spend analysis vendors who have run out of new marketing ideas. Of course, if it were really true, those reports would have existed long ago, and we’d all be out of a job.

11. Extracting data from accounting/ERP systems is difficult.
In fact, it’s easy, and usually doesn’t require IT resources to accomplish. The only difficulty I’ve ever experienced was a situation where a customer’s head of IT folded his arms and swore up-and-down that it simply wasn’t possible to dump data from their accounting system. One telephone call to the accounting system vendor (a helpful Canadian firm) provided the command necessary to extract the data trivially.

12. Accounts payable data is all you need for spend analysis.
This meme is on the decline. By now, many practitioners know that A/P spend visibility will find low-hanging fruit, and that it will identify buckets of spend that might be worth a closer look. But they also realize that in order to get to the next level of savings, it’s necessary to build commodity-specific analyses that take into account existing contract terms and invoice-level data, as well as balance-of-trade and demand-side considerations. And, this is only the tip of the iceberg when one considers the analysis possibilities buried in HR data and in ops data such as service repair records. Experienced practitioners build data analysis cubes whenever necessary, throwing them away when done, or retaining them if it is useful to do so.

13. Real data analysis requires statistics and applied mathematics.
Some consultants argue that unless rigorous statistical analysis is applied to a dataset, no meaningful conclusions can be drawn. For sourcing, though, the data visibility provided by a spend analysis system is usually more than sufficient. For example, try loading invoice data for a particular SKU over an extended time frame, and scatter-plotting the price. Is the price the same? Many times it isn’t, even if you have a contract that should have locked it down. When you find this pattern — and chances are you will — you’ve just written yourself a check, with no applied mathematics required.

14. Spend analysis systems should react in real time to real-time data.
This meme is becoming popular amongst armchair analysts and bloggers, but it’s scoffed at by practitioners. What does real time mean? When the requisition arrives? When the PO is issued? When the invoice arrives? When partial payment is made? When full payment is made? And what is anyone going to do about it, anyway, in “real time?” This ties into the notion of the “executive dashboard,” where the idea seems to be that an errant transaction will set off some sort of red alert. Even intrusion detection systems, which actually can justify a real-time component, have largely given up on this idea; the “fact” of an alert is not necessarily indicative of anything, and only in-depth after-the-fact pattern analysis can distinguish signal from noise.

15. “We already purchased an enterprise license for [xyz BI system or OLAP database], so we don’t need yet another analysis capability.”
This is the classic argument that the head of IT feeds to the CFO, which enables the CFO to kill the incipient spend analysis project, as she often does when fed such an argument (CFOs being people who really dislike spending money). Everyone feels good about saving money, and they move on to the next item on the agenda. Procurement doesn’t dare argue with IT, typically, so that’s the end of the story. Unfortunately, IT and the CFO have just doomed their company to another N years of zero spend visibility, because (a) nobody in Procurement knows how to configure either a BI system or an OLAP database, and (b) nobody in IT is going to take any time out to help them — assuming, that is, that IT themselves understand the BI system or OLAP database, which in many cases they do not.

16. “It’s important to deploy a spend analysis solution enterprise-wide, immediately.”
Here are three reasons why this can be a poor idea.

  • Procurement is a tricky business with lots of opportunities to overlook things even when work has been done competently and professionally. A spend analysis system, unfortunately, does a great job of pointing out those things. Why should Procurement hang its dirty laundry out the window for the whole company to see? Wouldn’t it be a better idea to find (and correct) obvious errors quietly and privately, before publishing a company-wide spend cube — if a company-wide cube is even necessary?
  • Company-wide initiatives create company-wide inertia, starting with IT sticking its thumbs in its belt and making trouble about how much time/money/effort it’s going to take to “set up a server” or, worse, how much time and effort it’s going to take to “evaluate the vendor’s remote hosting site for security compliance.” Wouldn’t you rather be running the spend cube immediately on your laptop, rather than waiting months for IT to get its act together? You can always deploy the cube company-wide, later, without any pressure.
  • Company-wide spend analysis initiatives create company-wide opportunities to kill the initiative. These days, spend analysis can be obtained inexpensively and set up quickly, within your discretionary budget and without asking anyone’s permission.

17. It will cost a lot to outsource cube construction, or to train internal resources on the spend analysis system.
This situation has improved substantially, and it continues to improve. New services offerings from some vendors have cut this price substantially from the levels of a few years ago; and contingency-based sourcing consulting firms will not only build your spending cube for free, but also return solid savings to your bottom line.

In summary:

9. Spend analysis can be done on a modern laptop computer.

10. A static report is not capable of providing much in the way of insight.

11. Data extraction from the vast majority of accounting / ERP systems is quite easy. (It might take some mapping to get it into cube form, but that’s why spend analysis tools come with good E”T”L tools.)

12. Accounts payable data is just the beginning. Every database is its own gold mine!

13. Data analysis starts with well mapped and relatively complete data – not advanced statistics or applied mathematics. Visibility is key.

14. The spend analysis system should be capable of accepting updated data when the data – and the analyst – is ready for new data. The answer does not lie in “real-time” or “monthly updates” because every organization, and every data set, is different.

15. BI & OLAP is not spend analysis.

16. As with any solution, initial deployment should be limited in scope to that which is controllable while the learning curve is overcome.

17. Training and consulting is a lot more affordable than you think, and if deployed on invoice data first, will return immediate ROI.

Thanks again, Eric!