Category Archives: Market Intelligence

Finding Your Procurement Mojo and Gettin’ Sigi Wit’ It – Part Deux

This spring, in Finding Your Procurement Mojo and Gettin’ Sigi Wit’ It (Part One), we began our review of Sigi Osagie’s Procurement Mojo, an important book for many procurement professionals and organizations. Unlike most books which attempt to teach you how to do the job (that you already have a decent grip of), Sigi’s book attempts to teach you how to explain to the organization what Procurement does, which is a critical issue that needs to be addressed since:

  1. Procurement is still the Rodney Dangerfield of the organization (and still don’t get no respect) and
  2. most Procurement Pros don’t know how to sell the organization on the unrealized potential that Procurement can bring.

In our first post we discussed how Sigi noted that a key to success was the Procurement brand, but in order to address the Procurement brand, one needed to:

  • build an effective organization,
  • deploy process enablers,
  • manage the supply base, and
  • apply performance frameworks.

Then we discussed some of the key points Sigi made with respect to each of these preliminary steps to building, and most importantly selling, the Procurement brand, but stopped short of discussing any of the game plan because some of his readers would get to hear the man himself and Get Sigi Wit’ It at Trade Extensions’ London event in October. However, now that the event is over, we’re going to discuss the final part of the book and complete the book review.

Sigi outlines three main areas that need to be addressed to build — and sell — your Procurement Mojo:

1. Procurement Positioning

Make sure Procurement is positioned in the organization in the manner and place that will allow it to be the most effective in both delivering its functional obligations and adding value. This involves addressing both reporting structure and enterprise involvement. Not all organizations require a CPO who reports to a CEO, some can do fine with a VP that reports to a COO (who is the CEO’s right hand). For example, if the organization is a manufacturer and most of the spend is direct materials, this can work fine, as long as Procurement is also involved in other key spend categories by the CMO (for agency management), CFO (for back office spend), CIO (for systems spend), and other executives that also have large spend categories. As long as Procurement understands key company purchases and is able to convey the importance of those key purchases to the right stakeholders in a way that elicits their involvement, the reporting structure is not as important as general Procurement involvement.

2. Stakeholder Communication

Every other key Supply Management activity requires stakeholder engagement and support to be successful, so why should brand management and promotion be any different? The key to building, and selling, the Procurement brand (and making your mojo work for you) is regular, effective, stakeholder communication that provides messages relevant to them. Make sure you understand what your stakeholders value most — and address that. Cost savings? Innovation? The relationship? If you can’t talk to their needs and report on value in their terms, it will be hard to break down the silos and sell the value, and brand, of Procurement. Sigi offers some great advice on how to effectively communicate with your stakeholders that most books don’t, and this is a great section of the last chapter, which includes a discussion of how to create a stakeholder map to keep your communications on track.

3. Procurement PR

Good companies make good products. Great companies create a great brand image that people want and instill desire for products even before the products are released or, in some cases, people even know what the products are. Look at Apple. The brand made people want the iPod and the iWatch even before Apple even announced them.

But good PR isn’t easy, especially for a function focussed on hard value and not soft messaging. However, once you know the right formula, it isn’t that hard either. As long as your messaging consistently addresses activities and issues that are:

  • Important,
  • Sustainable, and
  • Credible

and relevant to the audience being addressed, the PR will improve and the brand will grow. How do you do this? Sigi provides a number of examples of efforts that various organizations have used to achieve this goal. While not all will necessarily work for you, some will, and the book is a great aid here as well.

Again, we highly recommend that you check out Sigi Osagie’s Procurement Mojo and Get Sigi Wit’ It.

Authoritative Damnation 65: Solution Partners

Activist Investors and a troublesome Board of Directors are one kind of damnation, but solution partners are another. Generally speaking, an activist investor and a board of directors are only troublesome on a quarterly basis, but solution partners can be troublesome on a daily basis. How so?

You depend on solution partners to serve your customers.

Some customers want your products, but other customers want your products and support services that your organization does not offer. As a result, you will need the help of solution partners, which will likely own the customer relationship. As a result, you are totally dependent on these solution partners to not only serve your customers’ needs but make your customers happy. And if they own critical customer accounts and they say dance, you have two choices, dance or lose critical customer accounts. Not a great position to be in.

You depend on solution partners to run your organization.

You need them for your custom manufactured products, your enterprise software systems, your MRO, and sometimes even for your internal IT and change management projects. The bigger you are, and the more focussed you are, the more you need these solution partners. It’s not a bad thing if you have good relationships, but if the relationships go south, but you are still under contractual commitment for a year or more, it can be a daily damnation until the relationship ends and gets transitioned to a new supplier.

You depend on solution partners for innovation.

If your organization’s strength is marketing and consumer demand forecasting, and it depends on solution partners to come up with new custom product designs to meet those demands, and on solution partners to come up with new manufacturing techniques to implement those designs, then the organization is completely dependent upon solution partners for innovation. This means that it is not only unable to thrive, but also unable to survive, without a strong solution partner ecosystem. It doesn’t matter how big it is or how rich it is, but just on how good it is at managing those relationships. If the organization is not good at SRM (Supplier Relationship Management), it, like Procurement, is doomed, marooned, and about to be entombed.

In other words, while solution partners can be an organization’s saving grace, they can also be a source of eternal damnation, driving you down the highway to hell.

My Solution Is Not One of The Six Strategic Sourcing Samurai. Am I Screwed? Part II

In Part I we noted that SI understands that it’s last few posts have probably caused a lot of soul-searching and panic among practitioners and fear and loathing among vendors, who don’t have an optimization based Sourcing platform and, in the viewpoint of SI, don’t have a platform that supports true strategic sourcing, and then began to discuss the panic and fear. We then noted that the simple answer was that the average organization was probably not screwed, but the full answer would take quite a bit to preamble to explain — preamble that we’re in the midst of.

We left off noting that SRM is only one way to identify additional value, or, in some cases, reduce unexpected loss. Contact Lifecycle Management (CLM) is another way. Strategic Sourcing identifies savings. Procurement prevents unnecessary overspend. But CLM prevents unexpected loss. The total cost of a good is total landed cost plus utilization/processing cost plus COGS (cost of goods sold) plus return/warranty cost plus reclamation cost at life end. And it’s a total loss if the good is lost. In order to prevent savings leakage, an organization has to manage the lifecycle of the goods being purchased for the length of the contract, especially if returns and payment reclamations need to occur. This is where CLM comes in. It makes sure contracted terms are adhered to, the lifecycle is monitored, supplier relationships are appropriately managed, and, where appropriate, risk is monitored and managed. (For more details, see the Contract Lifecycle Management series over on Spend Matters that was co-written by the doctor and the maverick.)

Then there is sustainability. Finding ways to reduce energy and water consumption, to switch to renewable resources, to avoid suppliers or products that are not in compliance with appropriate regulations (and that could result in the organization being hit with multi-million dollar fines), is also strategic and very valuable.

If the Sourcing platform in use by your organization supports one or more of the above strategic activities, your organization is definitely not screwed as it can use that platform to identify additional sources of strategic savings and strategic value. As will be discussed in a future joint series between the doctor and the prophet, there are many approaches to sourcing and, with the exception of first generation e-Negotiation, each brings significant, unique, advantages that are very valuable.

However, if all the organization has is a first-generation e-Negotiation platform that is nothing more than an RFX and/or e-Auction with a little bit of reporting and a primitive supplier portal, then, at some point, it may find itself screwed. While the first e-Sourcing event on any category will almost always identify (significant) savings, those savings don’t reappear the next time the event is run. The fat can only be trimmed from the margins once, and then the organization has to get strategic to find sustained savings. Fortunately, the majority of providers do not fall in this category, because this means the majority of organization with a sourcing platform can confidently say they made a good choice — and just need to acquire supplementary optimization capability for where it is needed.

The full answer is thus: as long as you are not stuck on a pure first-generation e-Negotiation platform, then you have a platform that will support continued savings identification, cost control, and/or value generation when appropriately used. If you are, then you will need to augment it as soon as possible because, as explained in the last paragraph, from a savings perspective, you need to consider the platform a one-time use on a category basis. By the time you cycle back to the first category in the queue, you will need a more advanced solution.

My Solution Is Not One of The Six Strategic Sourcing Samurai. Am I Screwed? Part I

SI understands that it’s last few posts have probably caused a lot*1 of soul-searching and panic among practitioners and fear and loathing among vendors, so today it’s going to address the panic and fear (but not necessarily the loathing*2).

The short answer is: probably not.
The full answer takes quite a bit of preamble to explain.

First of all, many organizations carry the misconception, often reinforced by traditional analysts and big-X consulting companies, that the only way to find considerable savings, avoid unnecessary cost, and add value is through strategic sourcing. This is only one of many methodologies, and underlying technologies, that Supply Management can use to save money, control cost, and add value. It’s a powerful methodology, but just methodology.

True sustainable savings, cost avoidance, and value generation come from Strategic Supply Management. Supply Management encompasses Sourcing, Procurement, Logistics, Contract (Lifecycle) Management, Supplier Relationship Management, Sustainability Management, and other strategic activities that manage costs and generate value. Thus, strategic sourcing is only activity at the disposal of a Strategic Supply Management organization — and for an organization beginning its sourcing journey, it’s not always the best one.*3

If the organization does not have it’s e-Procurement under control, sometimes the best place to start is with a strategic Procurement process backed by a leading e-Procurement solution (with e-Invoicing and m-way match). Why? Because, as per AMR’s (now Gartner’s) classic series on Reaching Sourcing Excellence, 30 cents, or more, of every dollar of negotiated savings never materializes. If the organization is only capturing 60% of negotiated savings, then what’s the point of using an advanced solution to identify a 5% savings if only 3% of the savings is going to be captured? It would get the same year-over-year improvement if it did a simple e-Auction, identified a 3.33% savings, and captured 90% of it. This is where a great Procurement process, and solution, comes into play — specifically, one that makes it easy for buyers to find contracts, place timely orders (and avoid expedited shipments), see the impact of going off-contract (and be visually guilted into making the cost-effective decision unless there is a strong reason to do otherwise), and use the system (versus avoiding it). With this type of a solution, there will be no off-contract spend because a buyer wasn’t aware of a contract, wasn’t aware there was a more cost-effective product, wasn’t able to figure out how to use the system, etc. There won’t be overspend due to duplicate invoice payments, overpayments due to off-contract rates, or over-payments due to undelivered merchandise with a good m-way match e-Invoicing component. And so on.

However, simply capturing the majority of savings identified in a sourcing event does not guarantee that the organization is capturing all of the savings available to it or controlling spend. For example, the savings quoted is simply the best price that the supplier feels that it can offer today – but that may not be the best price the supplier could offer if it was more efficient. The supplier might not be lean, might be quoting off of an inefficient design (that it could improve through a joint-design initiative), or might have an outdated quality control process leading to a higher rate of defects then is necessary. That’s why great supplier relationship, powered by a leading SRM platform (that, by definition, also captures SPM and SIM data) can also provide great value.

*1 some to say the least
*2 first generation e-Negotiation platform providers are going to loathe SI, but there’s nothing to be done about that — it was their choice to stand still while their peers continued to innovate
*3 bet you never thought that the doctor, the leading advocate of SSDO since this blog went online in 2006, would say that, eh?

The Six Strategic Sourcing Samurai

In our last post, we made the bold statement that it’s not optimization, it’s strategic sourcing and the even bolder statement that SI believes it has become practically impossible to do true strategic sourcing without optimization.

This is probably scary for those of you that are looking for a strategic sourcing solution and just figured out that, if the doctor is right*, then most of the organizations on your RFX list are not going to make the cut because while there are dozens of Sourcing platforms on the market, there are only six (6) that have true strategic sourcing decision optimization that implement all four (4) pillars defined in the classic wiki-paper that formally defined strategic sourcing decision optimization (SSDO).

So who are these six strategic sourcing samurai? They are the six remaining companies that took the time and effort to not only research and build a solution, but take it to market and wait while the market caught up with the vision that a few pioneers had fifteen years ago — a vision of true best-cost global sourcing from a total cost of ownership (and, more recently, from a total value management) perspective.

They are:

  • BravoSolution (acquired VerticalNet, which acquired Tigris)
  • Determine (formerly Selectica, which acquired Iasta)
  • IBM (acquired Emptoris, which acquired MindFlow)
  • Keelvar
  • SciQuest (which acquired CombineNet)
  • Trade Extensions

It’s not a long list, but it’s an important list. Furthermore, one can be sure that there will be more companies to add to the list in a couple of years, especially since there are a number of advanced solvers out there — such as CPLEX, Gurobi, XPress, etc. — to build solutions on; a number of 3PLs — such as APL, Schneider, etc. — that have very advanced logistics optimization solutions; and a few companies — such as LLamasoft, Oracle, etc. — that have very advanced Supply Chain (Network) Optimization solutions (which is not the same as SSDO). Optimization is spreading, and as more companies realize its power, it will continue to spread. However, now that the early adopters have proven the power of decision optimization, the question is, are you going to be a leader, and one of the first to capitalize on it, or a laggard, and watch as your competition moves faster, captures more market share, and generates a greater year-over-year profit based on the advanced cost reduction and cost control methodologies that optimization provides?

As for those of you that already have a previous generation sourcing solution and, for one reason or another, are locked in to it, don’t fret. A few of these vendors are quite happy to license their software as a secondary solution because, even though optimization should be used in every event, the reality is that, if the category has been well studied, the cost model is relatively simple, or the product is going out for an all-inclusive bid, the additional savings that optimization is likely to find is small and those categories can continue to go through the current platform. By cherry picking the categories with the largest (un-managed spend) and which appear to have the largest opportunities, and simply conducting those through the secondary optimization platform (and then pushing the bids and awards back into the primary platform to maintain a single database of bid and award data), it’s likely that the organization can easily identify 80%+ of all of the additional savings opportunities identifiable through optimization for a small additional investment. It’s whatever works. If the organization can get by on one platform, great, but if it can’t, or feels it can extract more value from two platforms, that’s fine too. Strategic Sourcing is for everyone, and that’s why the leading optimization vendors are quite happy to work with everyone who’s ready.

* the doctor is right. The real question is, when will your organization be ready to accept it? If your organization has not yet reached a level of sourcing maturity that, at the very least, puts it in the Hackett Group top 8%, it may not be far enough along it’s sourcing journey to truly understand why optimization is a necessary for strategic sourcing in the latter half of this decade.