Category Archives: Market Intelligence

Doing Procurement Right Regardless of Organizational Size

A few days ago, in our post on how You’ve Negotiated but you still might not be realizing savings on marketing print, we pointed out two great guests posts by Santosh Reddy of GEP on how just throwing a problem over the wall to an expert doesn’t necessarily save you money — it just guarantees that someone else, namely the Print Management Company (PMC), makes money on your behalf.

Today, we’re going to point out another guest post by a GEP consultant, Sanyam Khurana. In his recent post on Spend Matters on “Procurement Lessons for Small Businesses and Large Multinational Corporations”, he notes that some strategies work well regardless of organizational size. Thus, if you are a small business that wants to get bigger, you should take take these lessons to heart and work on these strategies.

Flexibility

If you’ve been paying attention, you know that Sourcing Innovation has been emphasizing the importance of the 3T’s to successful Supply Management — Talent, Technology, and Transition Management. Transition Management requires a lot of things, but above all else, flexibility as your organization needs to adapt to, and be in, a state of constant change, in order to navigate the ebbs and flows of today’s global economy.

Cost Optimization

Whether you’re buying 100 units or 100,000 units, you still have to make sure you’re paying the right price for the right product. Over paying by 10% is still overpaying by 10%, and with smaller budgets, and margins to work with, 10% is still a lot.

Supplier Rationalization

Whether you’re a 1 Million, 100 Million, or a 1 Billion dollar company, you still depend on your suppliers for your success. In Sanyam Khurana’s post, he gives the example of a bakery that requires raw material, namely flour, to produce its goods. If the suppliers don’t deliver, the bakery can’t bake its bread. Having the right suppliers that you can depend on through thick and thin is important regardless of organizational size.

Data Management

Not only does each of the above strategies require good data to be effective, but so do other organizational strategies. For example, you can’t optimize cost unless you know how much you are paying, how much you could be paying and the value you are getting. You can’t rationalize on the right suppliers unless you are keeping good performance metrics. And while you can always be flexible, there’s no point in being flexible unless you know the direction that you should be be flexibly moving in! Plus, in today’s economy, social media is often critical to marketing, sales, and advertising — and in order to focus on the right channels, you need data!

Data, data everywhere
And all the tables burst
Data, data everywhere
It can not get much worse!

 

You’ve Negotiated – But Are You Realising Savings on Marketing Print?

You’ve Negotiated – But Are You Realising Savings on Marketing Print?

Spend Matters UK recently ran a two-part guest post by Santosh Reddy of GEP that asked if you were really realizing savings on marketing print (Part I and Part II) if you were using an outsourcing partner, such as a Print Management Company (PMC), to manage your marketing print.

In his posts he notes that the PMC comes with advantages, such as one or more pre-qualified vendors that can do all of the print jobs for all of their clients and who offer the PMC a preferential price for the guaranteed influx of work in addition to IT tools that can help your shop with digital asset management, etc. However, the PMC also comes with a disadvantage — the PMCs primary mission is to make money, not to save money for you. So the savings you get may not be as much as the savings you could get.

However, the key to savings in print is typically volume, so if you don’t use a PMC, then the category manager has to function as the PMC and make sure all print jobs get routed to the preferred vendor with preferred pricing and value-add benefits. But, as Santosh points out, this can be difficult to achieve since many internal departments, including marketing, retail, and HR, may not see the presence of Procurement as a benefit but instead view it as a loss-of-control or an unnecessary time-wasting step in the process. So how do you get the other departments on board?

Santosh presents four benefits you can sell and four less-friendly tactics you can employ if need be. Four of these suggestions in particular are quite powerful:

If these two benefits don’t get the job done:

  • one point of contact
    either the PMC or the category manager will be the sole point of contact for all internal customers – they won’t have to deal with five different print shops to find out who can do a rush print job
  • budget compliance
    it’s Procurement’s job to keep costs in line, not theirs, freeing up more of their time to do their jobs

then these two tactics will:

  • involve AP and inform them that policy states all invoices must be approved by you before being paid, as per the Procurement policy, then
  • incentivize compliance through gain or pain by rewarding those who use the process with faster services, more savings credited to their budget, etc. and punishing those won don’t by delaying invoice payments, reporting organizational losses from their actions to management, etc.

And he also gives you great advice on how to source, select the right technology to manage the process internally (whether or not you use a PMC), and establish a contract. This 2-part series is worth checking out. Given the cost of ink in North America, every penny counts!

There’s More Than 50 Ways …

… to leave your lover. There’s more than 50 shades of grey (as there is infinite intensity to grey-scale). And there’s certainly more than 50 shades of pay … (see: 50 shades of pay spend analysis many profitable pleasures)

Over on Spend Matters, Pierre Mitchell is penning a series on 50 Shades of Pay: Spend Analysis’ Many Profitable Pleasures where he notes that spend analysis is not a quickie event and nothing could be closer to the truth. Spend Analysis is an on-going process that never ends. There’s always new spend, always new quotes, and always new ways to look at data. It’s wham, bam, spend cube and start all over again. And again. And again.

And it must be an evolving competency that is refined over and over again. There are many reasons for this, and, as Pierre pointed out,these include the facts that:

  • You can’t manage and improve what you cannot see
    and the more you see, the more you manage, and the more you’ll manage, the more you’ll see …
  • It’s a fundamental part of corporate strategy as the more you see and manage, the better you’ll be able to manage your resources and opportunities, which is what corporate strategy should be focussed on.
  • Managing your spending includes internal spending too even if you can’t control it, you still need to understand what it is, where it is going, who controls it, what could be done about it, and what the recommendations should be.
  • Spend analysis is a gift for your partners – not an IT project because it really is decision support for the organization.
  • Spend is the flip side of supply and it is about maximizing bang (supply value) for the spent buck (spend magnitude). It’s the other end of the source-to-settle process. And to optimize your Supply Management, you need to optimize your entire source-to-settle process.
  • Finance will get even more turned on by spend analysis than you if you do it right. They like shiny reports — and a good spend analysis solution can produce them en masse. (The reporting engine is actually the least useful part of a good spend analysis tool, but just like Sonny goes cuckoo for cocoa puffs, finance and the C-Suite love their reports.)
  • Spend analysis shines a bright light on the master data problems which can be cranked up to the point that it’s blinding. Some people may be embarrassed at the mess master data is in (because they spent millions on a broken ERP), but what’s more import, their pride or your bonus (which requires the company to be profitable)?
  • It’s incremental in nature – the Trojan rabbit of procurement transformation. Just like the rabbit of Caerbannog, it looks cute and sweet, but, in the right hand, spend analysis is a vicious killer of inefficiency and waste.

If Pierre manages to write 50 pieces, it will shape up to be a great series for those of you who have Plus membership. For those of you who don’t, I’ll remind you that SI co-wrote the book on Spend Visibility with Lexington Analytics 3 years ago, and this book, which has garnered over 10,000 downloads since its release, is still available for free. I’m sure Pierre will get to more advanced topics in the later part of his series then what we covered in the book, but it’s a great start. And maybe by then you can convince your boss to pay for the Plus membership to read Pierre’s posts.

When It Comes to Optimization, You Need Every Insight You Can Get!

Even though it’s been almost a decade since Strategic Sourcing Decision Optimization (SSDO) has been not only readily available, but affordable (especially when one considers that back to back Aberdeen Studies in the noughts demonstrated that advanced sourcing, which is based on optimization, saved an average of 12% per event, which means that companies that employed optimization on large categories often saw an ROI after their first event), most mid-size and larger companies aren’t using it. In fact, most mid-size and larger companies haven’t even tried it!

Why is this? There is a laundry list of reasons, but the most important are probably:

  • misinterpretation and misinformationThere is still a lack of understanding about what optimization is and how important it is to your strategy sourcing efforts. A lot of people believe that optimization is only for the largest categories, the most complex categories, companies with complicated manufacturing supply chains, etc. This is not true. Optimization is relevant to every strategic sourcing project, small and large. The only question is how important is it — does the event revolve around the optimization or does the optimization revolve around the event?
  • fearBecause it’s misunderstood and, more importantly, because it is math, it is feared. (It’s important to remember that less than 1 in 7 American adults are “proficient” at math. This means that while your senior analysts with a strong Operations Research (OR) background will be hesitant of optimization, your average buyer will be, to borrow a colloquialism, scared sh!tl3ss. And, unwilling to admit this fear, he will do everything he can to come up with dozens of excuses as to why optimization is not applicable to your problem or why other methods will perform better.) And moreover, because of the misinformation out there which doesn’t tell you that the good solutions handle all the math for you, and all you need to do is specify the demands and the constraints (and their priorities if not all constraints can be simultaneously solved), people avoid (strategic sourcing decision) optimization when they should be embracing it.
  • costOptimization solutions used to be expensive. Very expensive. Back when there were only a couple of known solution providers (in the e-CHAOS pack), and sourcing suites started in the six figures, optimization solutions, even for a single event, were six figures, and sometimes seven for unlimited use. If you weren’t guaranteed of a high six figure return off of your first event, and a high seven figure return over the course of the year, this was a big risk to take. But that was then, and this is now. Today, optimization solutions start in the lower end of the five figure range, and unlimited annual licenses start in the lower end of the six figure range. And their power and performance is at least ten times what it was a decade ago. Models that used to run for hours now solve in minutes and an analyst can run dozens of what-if scenarios in a day, quickly getting to the best price-value trade-off for the organization.

So how do we get optimization into the hands of the masses, and more importantly into your hands (if your colleagues are holding your organization back)?

We deal with the roadblocks we discussed.

How do we deal with the roadblocks?

We start with education. We educate people that they don’t have to be a math whiz (because the math whiz is only needed to build the solution, not to use it), that a strategic sourcing decision optimization solution isn’t hard to use, that it doesn’t cost a lot, and that it does generate a return. And we hit them on all fronts. Third Party, Provider, and Practitioner.

To date, it’s been mainly third party, and, unfortunately, mainly SI spreading the message of optimization. But now we have a few providers working hard to spread the message as well. BravoSolution, who has been kind enough in the past to sponsor SI to help with this effort (and who offered you an Illumination on The Future Of Optimization) has been working hard to spread the messages of Optimization, Analysis, and the integration thereof in what they call High Definition Sourcing for a few years now. A new provider in the SSDO arena, and the first new provider to provide a true SSDO solution since Iasta back in the 2007-2008 timeframe, that we’ll announce shortly, is also taking up the challenge.

And Trade Extensions, who has also been kind enough to sponsor SI to help with this effort, and who has also been providing industry leading optimization solutions and education for a few years now, has just doubled down on the education effort, starting with a new INSIGHTS series focussed entirely on optimization. Consisting of a series of nine interviews with Founder, Chairman, and Optimization Guru Arne Andersson and CEO, Freight Trader, and Master Buyer Garry Mansell, this series will attempt to burn away the fog on optimization, make it a standard part of your sourcing suite, and lay the foundation for a series of follow-up educational offerings which will include white-papers and webinars on the subject.

Because optimization is for everyone, not just the 1%!

Trade, Treaties, and Embargoes — What Does It Mean to You?

You might think that the domain of trade agreements, treaties, and embargoes belongs to the government, and while that might have been true in the past when governments ran their part of the world, it is no longer the case now that we are in the era of multi-nationals. It used to be that the wealth and power of a company was largely dependent on the wealth and power of the country it belonged to, as the country regulated its trading rights and the treaties of the country determined where the company could trade and how much wealth and influence it could gain, but those days are long gone. Now we have companies with valuations in excess of dozens of countries. For example, only 25 countries have a GDP higher than Apple’s 500 Billion valuation.

We are now at a point where trade agreements are largely determined by the interests of large multi-national corporations. Consider the Trans-Pacific Partnership which is currently in negotiation between 12 countries in the Asia-Pacific region. This proposed agreement is stirring up angst in a number of the participating countries as global health professionals, internet freedom activists, environmentalists, organized labor, advocacy groups, and elected officials have criticized and protested the negotiations, in large part because of the proceedings’ secrecy, the agreement’s expansive scope, and controversial clauses in drafts leaked publicly. (Wikipedia) For example, StopTPP.org is claiming the TPP will turn the Pacific Ocean and its peoples into a giant privatized corporate lake characterized by non-union workers, Wal-Mart supply chain feeders, poisoned, landless agricultural labourers, a dying biodiversity, and rising, drowning sea levels. And Wikileaks, in a post earlier this year, says the TPP is Sacrificing the Environment for Corporate Interests because the current draft text of the Intellectual Property Rights Chapter is forcing nations to change laws and to prosecute in defense of the biggest corporate interests in the field of IP rights. Furthermore, the Environment Chapter does not include any enforcement mechanisms serving the defense of the environment, simply enforcing the lowest common denominator of environmental interests as the standard.

The way things are going, large Corporations Will Soon Rule the World, or at least the economic world, and they will be the entities that create the major trade agreements and trade embargoes. And those agreements will not only determine their fates, but yours. They will, directly or indirectly, determine who you do or do not do business with. If non-compete supplier clauses, favoured by big mega-brands that dominate the market and go head to head with each other at every opportunity, that prevent a supplier from doing business with a company’s main competitor become commonplace (again), by doing business with one customer you will be preventing business relationships with a second and simultaneously determining who you target customer base will be. Similarly, if your competitor is doing business with a customer that insists in a protected supply chain, that competitor, given the opportunity, will attempt to lock up parts of the supply base and limit your options.

In other words, if you don’t learn the language, logistics, and consequences of trade, treaties, and embargoes, you might fall victim to their (un)intended consequences while your competitors prosper.