Category Archives: Guest Author

The Future of e-Sourcing – Less is More

Today I’d like to welcome Alan Buxton of Trading Partners.

Anyone remember SAP circa 1998? The way SAP integrated everything was great. Except it was completely unusable. Then along came Ariba’s e-procurement system and it’s whizzy interface. Here was a system that would address SAP’s legendary user-unfriendliness, and drive adoption of improved purchasing processes through organisations. Guess what? While Ariba did solve some of SAP’s problems it raised plenty of new ones: how to ensure catalogs could be easily searchable and contained relevant items; how to ensure users understood what they had to buy through the Ariba platform and what they had to buy through different processes, etc.

A common theme throughout is that software systems, however intuitive they are to their designers and builders, are rarely intuitive enough to their end users. Aside from a small number of glowing successes, many corporations find themselves achieving less than what they expected when implementing new e-sourcing systems. As European Leaders In Procurement put it in July 2007: “E-systems gather dust”.

The relentless consumerisation of business technology is a great opportunity to change all this. I’m not talking about a Web 2.0 phenomenon – the blurring of boundaries between consumer tools and business tools has been going on since Instant Messaging, if not before. However, it is consumer Web 2.0 sites that are now pointing the way to the future of enterprise sourcing software. For example, two web sites that excite and inspire me the most are ones like www.ecourier.co.uk and www.zopa.com. They are easy, friendly and the user can see where the value is. Consumers are not interested in “downstream process improvements” – they are interested in whether a particular tool is good for them now. This is not to say that consumer tools are unsophisticated. Zopa, certainly, needs to do a lot of fancy footwork behind the scenes when it matches borrowers with lenders.

For sure, the e-sourcing industry has come a tremendous way in the past decade, but in all honesty e-sourcing is still in a comparatively early adopter phase, globally. In order to really reach mass adoption of our tools, and to transform the effectiveness of enterprises, e-sourcing tools need to take far more cues from consumer-friendly sites and, dare I say it, less cues from IT departments’ integration requirements. Imagine that: users demanding e-sourcing tools because they are fun and helpful rather than using them because the boss says so. A brave new world indeed.

For those of you expecting Sustainability Sunday, this week will instead feature Thought-Provoking Tuesday.

Aberdeen on Spend Analysis: Lost in the Trees

Today I’d like to welcome back Eric Strovink of BIQ [acquired by Opera Solutions, rebranded ElectrifAI].

Aberdeen’s report on Spend Analysis (“Spend Analysis: Working Too Hard for the Money,” available free from Iasta [acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric] and others) draws useful conclusions about the forest, but then, like many other studies in this space, loses its way in the trees. Consider this reasoning:

  • Wealthy people tend to be successful.
  • Wealthy people typically drive luxury automobiles.
  • Therefore, wealthy people are successful because they drive luxury automobiles.

Aberdeen seems to reason about spend analysis in the same way:

  • Best-in-class purchasing organizations tend to have bought spend analysis systems.
  • Best-in-class organizations typically have bought spend analysis from one of the “Big 3” SA vendors.
  • Therefore, organizations are best-in-class because they bought spend analysis from the “Big 3.”

Thus, when the report uses survey data to uncover the underlying reasons why best-in-class organizations are successful, it loses its way. Using circular reasoning, it offers up precisely what one would expect: the standard “Big 3” marketing messages. Those messages, most of which haven’t changed in years, are these:

  1. Automated spend classification. “Only we can classify your spend, with automated algorithms and Bayesian analysis and special databases and… and… well, the point is, you can’t do it yourself, you have to hire us.”
  2. Standard reports. “Our suite of standard reports is better than anyone’s. Why, you don’t even need a sourcing consultant or a sourcing expert on staff, our reports tell you exactly what to do.”
  3. Integration with RFx. “Buy our suite, because it’s all ‘integrated.’ Just ignore the fact that spend analysis doesn’t ‘integrate’ with RFx, that’s not important now.”
  4. Integration with Contract Management for ‘compliance.’ “Let’s fail to mention that you can create a rules-based Contracts dimension yourself in just a few hours, whether you have a CM system or not.”

I’ve addressed these points at length elsewhere (see, for example, Common Sense Cleansing and What Purchasing.com Got Wrong), so I won’t do it here, except to point out that every SA application worth its salt creates a rules system that automatically classifies and maps spend. That’s the whole point, after all. Aberdeen’s report confuses the process of rules system creation with the results of rules system creation. Once a rules system is built, by whatever methods, the end result is a system that automatically maps and classifies both current and future spending.

The above nothwithstanding, the report contains a fascinating chart that shows survey respondents’ opinions of the “importance” of data analysis, data management, reporting, and supplier content, plotted against those same respondents’ classifications of their “current ability” in those four areas. It appears that “current ability” deeply lags “importance” in all four of them. As Aberdeen says,

While organizations recognize the advantages that can be gained from technology deployment for spend analysis, they have still not bridged the gap between theory and practice. Across the primary steps in the spend analysis process, enterprises are generally unable to fully leverage their spend analysis solutions… [emphasis added]

Aberdeen fails to draw the obvious conclusion from this — namely, that legacy approaches to spend analysis are disappointing their users across the board, despite causing an uptick in procurement efficiency. This result ought to be a key conclusion of the study. Spend analysis is about analysis, after all, not about the mechanics of data preparation. In fact, the four key components of spend analysis are:

  • Powerful analysis and ad hoc reporting tools (“data analysis” and “reporting”)
  • Flexible and ultra-fast dataset creation (“data management” and “supplier content”)
  • Real-time dataset modification (“data management,” “data analysis,” and “reporting”)
  • Flexible deployment (Aberdeen doesn’t address this, but the SA space has changed: powerful spend analysis is now deployable for small dollars, on individual analysts’ desktops, without an organization-wide commitment).

All of these components are interdependent — for example, you can’t perform ad hoc analysis if you can’t quickly change the structure of a dataset. And, you can’t change the structure of a dataset if it’s shared with others, because the other users certainly won’t appreciate you changing things out from under them.

It really should be old news by now: data extraction, transformation, loading, familying, and mapping are processes that are easily automated by in-house personnel using modern tools, or by outsourced resources using those same tools. It’s a shame that Aberdeen chose to focus on the “old think” of cleansing — only the very first step of a spend analysis effort — rather than pursuing the most interesting of its own survey results.

The U.S. Bureau of Labor Stastics is Wrong. Dead Wrong!

Over on Supply Excellence [WayBackMachine], Tim Minihan posted a VERY SERIOUS piece entitled “Purchasing is Dead. (And Other Conspiracies.)” that calls to light the recent injustice of the Bureau of Labor Statistics to supply and spend management professionals everywhere! It’s so devastating, that I asked for kind permission to re-post Tim’s original blog post in its entirety, since I do not have the time to dig into the atrocity contained within today. I encourage you to read this post in its entirety and take the action he suggests. Thank you!

As proof that you can’t believe everything you read, the U.S. Bureau of Labor Statistics reports that overall employment for purchasing and supply managers is expected to “grow slower than the average for all occupations through the year 2014.”

What?

  • Don’t tell that to the VP of Procurement and Operations at a Massachusetts-based manufacturing company I met with last week. He was griping “I can’t find people with the right talent fast enough.”
  • Or the U.K.-based procurement executive that worried that his veteran team lacked the skill set required to compete in today’s global and technology-proficient marketplace: “Many of our [supply management] team have been doing purchasing a certain way for decades. They are uncomfortable with adopting new processes and systems. I am concerned about driving adoption.”
  • And certainly keep it a secret from the hordes of CPOs that have sounded the alarm on talent poaching occurring in their ranks.

In fact, in a recent study of top purchasing and supply management executives, Aberdeen Group outright refutes BLS’ claims, reporting that ” top CPO’s rank recruiting, training, retaining, and aligning their organizations as their #1 goals.” (Download a free copy of the full report for a limited time.)

BLS’ errors don’t stop there. The government agency goes on to wrongly report that “demand for purchasing workers will be limited by improving software.” On the contrary, every recent study on supply management employment trends reports that technical skills and experience implementing, managing, and using procurement and supply management software are among the most in demand. (Listen to Professor Joseph Carter of Arizona State University and the Center for Advanced Purchasing Studies’ views and advice on the supply management talent issue.)

Pulled from 2004 assessments, the overview makes working in a salt mine seem more attractive than joining the purchasing ranks. (Although, BLS is positive about working conditions for purchasing employees, stating that “most work in comfortable offices.”) Case in point: the agency’s stats for purchasing compensation is also way off the mark when compared to recent annual salary surveys from ISM and Purchasing magazine. BLS reports the average purchasing/supply management salary at $72,450 while the Purchasing survey found it to be $83,205 and the ISM survey found it to be $88,380.

BLS’ assessment is not only wrong, it casts the entire purchasing and supply management discipline in a bad light. (And just as the C-suite is beginning to recognize the critical importance of the function.) With the purchasing getting such a bad rap as a career choice, the talent crunch in this sector will only get worse.

What can you do? In addition to improving your recruitment, training, and retention approaches, write or call the Bureau of Labor Statistics and demand they correct this egregious mistake. The agency has a special “hotline” set up to field “complaints concerning information quality.” And, when it comes to their 411 on purchasing there is a serious quality issue.

Lodge your complaint via e-mail: dataqa@bls.gov. Be sure to identify the information quality issue (see above), how it is negatively impacting your organization (ditto), and provide references on how the data can be improved (double ditto).

Your action can help secure the continued growth and enhance the profile of the purchasing and supply management profession!

Thanks Tim for this great piece of investigative work and bringing this injustice to the profession to light!

Best Cost Country Sourcing and the Concept of “Riskturn”

 

Today I’d like to welcome Ashton Udall of Global Sourcing Specialists and the author of the Product Global blog [WayBackMachine].

Low cost country sourcing; high cost country sourcing; near-shore sourcing; home-shoring; off-shoring…keep ’em coming. The manufacturing and distribution industries are just starting to get interesting. It can be tough to keep up. But, you only need keep up with the best concepts out there. And “best cost country sourcing” is one of them. Merging the “best” of risk and return?

Michael Lamoureux of Sourcing Innovation recently wrote a post entitled Best Cost Country Sourcing. His post was based on BrainNet’s white paper, “Best Cost Country Sourcing”, which I have yet to find a working link to. But fear not. Michael has summarized some of the concepts and made noteworthy commentary:

Taken from the white paper:

…cheap labor is better suited to cheap products and cheap services and not necessarily an advantage for the premium products that industrial countries are known for.

It all started with the buzz words “Low Cost Country Sourcing”. This wording, put politely, misses the point by a long shot. Criteria such as quality, logistic risks, intellectual property risks among others, have to be considered and evaluated thoroughly to assure that these measures are successful. Establishing innovations on the supplier side as a competitive advantage and managing your new suppliers actively are only two from many important success factors.

I agree. Generally speaking, you get what you pay for. But you have to take it on a case-by-case basis and think of it in terms of your overall competitive strategy. If time to market is too important, or you need components that are very high quality and technologically sophisticated, or exposure of your IP could sink your whole company, countries further along the development path with higher costs might end up saving you money in the long run.

Two basic concepts found throughout business, risk and return, are critical to the supply chain and sourcing. The problem is, it’s much more fun to speculate about substantial returns and savings, than try to quantify, measure, and assess risk. Thus, risk, and potential sources of risk and their effect on return, often fall off the radar. Perhaps someone should coin the term “riskturn”. Wait…I just did. It follows the whole celebrity gossip magazine promotion of co-identity: two things fused together which we dream will never be broken up again. People-Magazine-reading 14-year-old girls and desperate housewives have their Brad Pitt and Angelina, “Brangelina”, or Ben Affleck and Jennifer Lopez, “Bennifer”. Now CEO’s and sourcing managers will always remember “riskturn” and know that risk and return are a couple made in heaven.

Back to sourcing … Michael astutely notes:

In other words, LCCS alone is not the answer, not a quick fix, and not a saving grace to a flailing company. In order for a company to be assured of value in their global sourcing initiatives, they at least need to progress upward to a BCCS initiative, understand the advantages and disadvantages of each of their options, and understand that such initiatives will take considerable time and effort. It’s not just the flick of a switch.

In my case, Michael is preaching to the gospel. It’s right on and it’s worth promoting this kind of information more. ChinaLawBlog did a post eloquently entitled “China Defeats Vietnam in Sourcing Smackdown” which covered a post I did “Offshore Sourcing: An Ever-Shifting Landscape, Part II”. In my post, I talked about the fact that many fashion apparel manufacturers that moved production to Vietnam to avoid the risky/costly quota situation with China, then had to gather up their threads and needles again and head back to China and other countries when the US government announced that they would be monitoring Vietnam’s fashion industry for possible anti-dumping actions. In the comments section of ChinaLawBlog’s post, he noted that huge multinational corporations which fall into $5 million mistakes in trying to source the lowest costs or be the first to enter developing markets is not a strategy for all to follow. His point being, a smaller company making a $500,000 mistake might be up the Mekong Delta without a paddle, because they just don’t have the deep pockets to absorb those kinds of mistakes from a financial perspective like MNCs do.

Chasing lower costs undoubtedly disrupted supply chains, and perhaps order fulfillment, for these companies when they had to deal with a more unpredictable trade relationship between Vietnam and the U.S. For smaller companies, disruptors like this could be devastating. Best Cost Country Sourcing for smaller companies would involve hedging risk by looking for lower overall costs (rather than lowest hard costs) in a country where things like economics, trade, supply, materials, and other things are more predictable. I believe China retains this position over many other countries for smaller businesses looking to source consumer goods. At the very least, it’s certainly a good place to start for many. In many cases, maybe the best…?

Thanks Ashton!

P.S. I expect the comments to start rolling in from Mr. Locke any minute now …

The Top Three XI: Dale Earnhardt

Today I’m thrilled to bring you a guest post from The Blogging Thunder From Down Under. It’s been a while since the MacQuarie Bank let him out of the vault, so I hope you enjoy Doug Hudgeon’s guest post – as it might be a while before they let him out of the vault again.

Aaah, the number three. Is there another number so pregnant with metaphor and meaning? Tripartite systems have been in vogue for centuries with everyone from Euclid (triangle) to the Christian God (Trinity) to Adam Smith (Rents, Wages and Stock Profits) speaking in threes. Given our apparently innate tendency towards triposis, Michael has chosen wisely his topic of the Top 3. I associate “Top 3” with Dale Earnhardt, who dominated the NASCAR speedways driving car number 3 – he was undoubtedly, the Top 3 of his era. And from there, I am reminded of a terrific article by David Ronfeldt, “Social Science at 190 MPH on NASCARs Biggest Speedways” on FirstMonday.org.

The article discusses the conditions under which competitors cooperate on the NASCAR circuit (cars drafting in a line travel faster) and the conditions under which they compete (a driver can ‘defect’ from the car in front by pulling aside from the lead car’s bumper thus trapping the lead car outside the drafting line causing the car to lose as many places as there are cars in the line; whilst running the risk that the third car may follow the first thus leaving the ‘defector’ hung out to dry).

The article concludes that the best strategy is tit-for-tat, cooperating with those who cooperate with you and punishing those who leave you hung out to dry. This allows you to develop allegiances with ‘friends’ and discourages your friends from defecting. The drivers viewed as most capable of leading others to the front will develop the most friends – success breeds success.

There’s lessons in this for all of us.