Category Archives: Market Intelligence

After Two Series on the Future of Procurement – What Have We Learned II

In our first post we noted that, after two series, fifty (50) posts, and almost seventy five (75) pages on the “future” of Procurement, we learned that while the majority of trends being positioned as “future” trends weren’t future trends at all, they were trends that your organization will encounter as it matures and grows and the sooner your organization ploughs through them, the sooner it can get to the real future trends.

We then reviewed our series and noted that most of the requirements for dealing with these trends fall into a baker’s dozen plus one of high-level categories. Today we will break the first seven categories down into the most important sub-categories:

Cost Control

  • Life-cycle Costs need to be modelled and true TCO understood because all that is accomplished with T-CAP modelling is opportunity capping
  • Should Cost Models need to be developed for all custom manufactured products so that an organization can do a proper bid evaluation
  • Optimization needs to be done for any buy of any complexity as costs and opportunities often mix in unexpected ways
  • Supply Chain Finance with respect to DPO vs Discounts vs. Alternate Value for Money needs to be understood

CSR

  • recycling, design for since rare earth minerals are becoming expensive and hard to acquire and dangerous materials in some countries have to be safely recovered by your organization by law
  • renewable energy as energy costs are going through the roof and coal and oil generates too much pollution
  • renewable materials whenever possible to keep long-term costs down
  • responsible supply chain from a people and environmental perspective
  • waste reduction where natural resources and food are concerned (especially given recent all-time lows in global food reserves)
  • workers’ rights as no supply chain should contain slave-labour conditions

Home vs Near vs Out Sourcing

  • product development / production which has to consider the best decision given transportation and time-to-market options as well
  • procurement, back-office, and front-office functions which has to be balanced against cost-savings, expertise, knowledge, and reaction-time

Knowledge Management

  • Capture because knowledge can’t retire with your employees
  • Distribution because everyone needs to be able to tap into organizational knowledge
  • In/Near/Out Sourcing Management needs to be knowledge based
  • Master Data Maintenance as good decisions require good knowledge and good data
  • Value Generation as the IP is an asset that should be tapped into

Market Knowledge

  • New Emerging Markets because it’s not the BRIC anymore, it’s the MIKTS
  • Emerging -> Emerged Markets as every BRIC country is now a top 10 country with respect to total GDP
  • Hyper Competition in Developed Markets due to high jobless rates, slow GDP growth, and other factors that are making for intense competition in traditional / home markets
  • Opportunity Identification in different markets from a source/sell perspective as the markets arrive
  • The New Silk Road because the new China – Germany – Russian trade partnership is a game-changer and if the EU goes all-in, that’s over 40% of Global GDP participating in a new, non-North American trade partnership

Market Intelligence

  • commodity market data as this greatly influences should-cost models
  • consumer & public markets as this provides the baseline for off-the-shelf CPG and services spend
  • labour rates as this greatly influences should-cost models
  • energy rates as this greatly influences should-cost models
  • supply vs demand as this influences sourcing decisions
  • should cost models to understand what the organization should be paying
  • trends to understand if prices have been rising or falling
  • predictive analytics to take different factors into account and predict future prices and availability of labour, materials, and energy

Organizational

  • Center Led / Control Tower / COE to make sure the organization is on the path to being Best-in-Class
  • Stakeholder/Shareholder Management to keep stakeholders happy and the shareholder monkeys off your back
  • Strategic Focus to make sure the organization is aligned on the right way of doing things
  • Transition Management to take last year’s processes and technology to next year’s processes and technology

Tomorrow we will break down the remaining seven.

After Two Series on the Future of Procurement – What Have We Learned I

After two series, fifty (50) posts, AND almost seventy-five (75) pages on the “future” of Procurement, what have we learned? Besides the fact that most futurists are backwards-looking attention-seeking historians who will happily sell you snake oil past its expiration date, we’ve learned that they are able to sell this snake oil because they are addressing issues that not all organizations have encountered yet.

Recognizing that certain issues and trends are only encountered when an organization reaches a certain level of maturity and/or size, these futurists have figured out that when they target those organizations that are below a given level of maturity and/or smaller than a certain size, they look like they are visionary when, in fact, they are just selling knowledge they acquired by keeping a close eye on the leaders.

In the end, what we learned is that the trends they are telling us about are the trends that, if they haven’t hit you yet because your organization hasn’t matured or grown enough, you have to plough though in order to get to the true future trends.

We’ve mentioned three. We’ve discussed the Top Ten Trends for 2015. And maybe, if the LOLCats let us, well discuss a few more future trends. But for now, we need to focus on the trends that won’t end and what your organization needs to do to get these trends under control and out of the way. If we review all of the trends, we find there are a (core) set of (common) categories of common and related issues that must be addressed to deal with the trends. The fourteen categories that are the most important with respect to the futurist anti-trends that we examined are:

  • Cost Control
  • Corporate Social Responsibility
  • Home / Near / Far Sourcing
  • Knowledge Management
  • Market Assessment
  • Market Intelligence
  • Organizational Insight
  • Regulations
  • Risk Management
  • Supplier Development
  • Supply Chain / Inventory Flexibility
  • Talent
  • Technology
  • Transportation

In our next post we’ll break out the sub-requirements in each category as they provide a guide that helps you target your learning and organizational advancement.

Procurement Trend 05. Return to Regional and Local Sourcing

Just two very trying anti-trends remain. We’re one post away from fearlessly finishing our formidable burden, but the sour taste in our mouths still remains as we must continue to provide those factually-challenged futurists with counter-examples to the trends of their forerunners who saw this coming a decade ago. (Check the very early SI archives if you don’t believe me. Go ahead. Check. This post will still be here.) We want to abash them for their apathy, but we will leave their hard-earned humiliation for LOLCat, who wants to point out to these Rip van Winkles that when it comes to sleeping through life, No One Out-sleeps a Cat!

So why do these garbage hauling patrons of Quark keep pushing us trends from their flights of fantasy? Besides the fact that some of them obviously spent the best part of last decade hauling garbage, it’s probably because they look around, see the laggard organizations still struggling with the insourcing/outsourcing balance, and assume they can still sell last decade’s leftover snake oil in today’s marketplace. Thus, if most organizations are losing hand over fist in their outsourcing arrangements, maybe it’s time to pull them back, especially if

  • energy, and thus transportation, costs are going higher and higher
    and since oil, natural gas, and coal reserves ARE limited, and the dwindling supplies that remain are getting harder to extract, cost have nowhere to go but up, up, and away
  • labour costs are rising in emerging and emergent markets
    and the faster they emerge, the faster labour costs increase
  • nearby markets have low transportation costs and high automation can
    contain labour costs
    since the shorter the distance, the less energy required to cover the distance; plus, intelligent automation decreases the amount of manual labour required to product any product

So what does this mean?

Understand the Total Cost of Outsourcing

Remember, it’s not just landed cost (unit cost and transportation cost), it’s also import/export costs, communication and remote management costs, on-site visits, liability costs, return costs, and other related costs. If many of these costs are rising, then outsourcing is probably not the right idea. If only one or two of these costs are rising then it depends how much, and how fast, and what the alternatives are.

Understand the True Opportunity in Near-sourcing / Insourcing

Near-sourcing will have many of the same costs, but transportation, remote management, and return costs will often be lower. Plus, if you pick/invest in a more advanced plant with newer automation technology, the higher labour costs are probably negated by the lower overhead costs, and the opportunity costs that are often lost waiting for delayed shipments, prototypes to land in your hands for testing, and emergency issue-resolution sessions (across time-zones 8 to 12 hours apart) are often minimized as well. However, a lack of automation can result in significantly higher labour costs, a lack of appropriate trade agreements with respect to the products being purchases can result in higher import or export fees, and energy costs could be higher as well (if renewables don’t enter the equation). The whole cost model has to be evaluated (and compared to the whole cost model associated with outsourcing).

And make a decision based upon true (future) costs

One should never make an insourcing, near-sourcing, or outsourcing decision on today’s costs – make it on expected costs over the next five years. Use the market data that you are collecting for market trend analysis and predictive analytics to figure out what the costs are going to be over the next five years and then choose the optimal production strategy based upon the amortized five-year cost. Consider the hard and soft costs associated with relocating production and/or services, making a change for a very short term gain will not result in any savings being realized. Do the math and make the right choice.

On The First Day of Christmas

My SI gave to me

A glimpse into the eventuality …

Download SI’s latest white papers (registration required) on:

  • Top Ten Trends for Supply Management Value Generation in 2015 sponsored by BravoSolution
  • Optimization, What Comes Next sponsored by Trade Extensions
  • The Procurement Marketplace and The Power of Compliance sponsored by Vinimaya
  • The Benefits of an Integrated Source-to-Settle Platform sponsored by ivalua
  • An End-to-End Invoice Automation Framework sponsored by Nipendo

And start preparing for what might lie in your organizational future!

Procurement Trend #06. Data-Based Predictive Analytics

Three annoying anti-trends remain. We’re so close to the end that we can almost taste the bitter-sweet victory, but the sour taste in our mouths still remains as we must continue to provide those fashionably-challenged futurists with counter-examples to the trends of their fore-fathers that no one who didn’t lock themselves in a windowless padded room would try to pass off as a trend of tomorrow. We want to shame them for their stupidity, but we will leave their hard-earned humiliation for LOLCat, who is obviously quite fed up at having to spend yet another life listening to their ludicrousness, but still finding the time to point out how LOLCats have been sustainable at least since the first corrugated cardboard box was created.

So why do these pit-dwelling prophets from Hawalius keep pushing us trends from the rubbish pile? Besides the fact that some of them obviously spent the best part of last decade in a rancid cave, probably because they look around, see the laggard organizations still struggling with last decade’s technology, and assume they can still sell last decade’s leftover snake oil in today’s marketplace. Thus, if most organizations are struggling with proper historical spend analysis, data-based predictive analytics is obviously a future trend, and

  • good decisions require good data

    and so few organizations have good data

  • inventory forecasting is getting harder and harder

    as sudden changes in unemployment rate, interest rates, and brand sentiment as well as unexpected supply chain delays or competitive product introductions can all have a large impact on demand

  • market prices are getting even harder to predict in volatile markets

    and profitability often depends on slim margins

Which would be great reasoning if leading organizations hadn’t figured this out over a decade ago and moved on to doing something about it a while ago!

So what does this mean to you?

Clean and Enrich Your (Master) Data

Dirty data dictates dastardly decisions. And those never end well. But don’t go crazy trying to do it. 100% clean data is a pipe dream, and, as with most situations, the 80/20, or, to be more precise, the 90/10 rule applies. Clean and enrich as required to confidently map 90%+ of spend, including 90%+ of the spend for the top 90%+ of suppliers and the top 90%+ of products. Stop when the effort exceeds the return. With a good mapping tool, the mapping can be done for even the largest Fortune 500 by hand in a week. Depending on how good the data is, the analyst might even get to 95% or even 98%. Then, identify any glaring weaknesses (such as supplier financial or risk data, market data, or cost breakdowns relative to a Bill of Material) that are important from a spend analysis or should cost modelling viewpoint, and get that data.

Put Protocols and Safeguards in Place to Keep your (Master) Data that Way

It’s going to take time, money, and manpower to map, clean, and enrich the data. This will be time, money, and manpower wasted if protocols aren’t put in place to make sure not just anyone can update master data, or at least not without review and verification. Put workflows and approvals in place to minimize the chances of bad data getting into the system or data getting out of whack too quickly.

Automatically Augment Your (Master) Data with Market Data

Good historical data is good. But current market data is better. With past and current data you can not only know current conditions, but with current market data, updated regularly, you can compute trends.

Use All the Data to Predict Trends and Make Sourcing Decisions

Use the computed trends to predict likely future conditions based upon the trends and current market movements. Based on this data, you can judge whether or not it is a good time to source a category and lock in long-term pricing.