Category Archives: Market Intelligence

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part II.2

In part II.1, we addressed the first four steps of our eight-step generic sourcing cycle and noted that we definitely know what we need to do and how to get started. However, we have yet to address the burning question as to whether or not we know what we need to do to get (each step of) the process right and achieve success. But before we can address that question, we have to first discuss the last four steps of the process (in bold):

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

Bid Collection is mainly collecting the supplier quotes and RFX responses for analysis. It can be done through an (e-)RFX tool, auction tool, or even spreadsheets. Whatever suits the strategy and floats the analysts’ boat.

Bid Analysis is simply analyzing the responses with respect to the project requirements and organizational strategy. Once all the suppliers who cannot meet the organization’s needs are weeded out and a short(er)-list of those suppliers who can meet the cost, time to value, and alignment threshold, all of the bids are put through, depending on the strategy and the tools at hand, a weighted cost or optimization analysis and a final ranking is generated. Then, depending on the strategy (sole vs. dual source, lowest TCO by category etc.), the top supplier or suppliers are selected and the project proceeds to the next phase.

Negotiation is the age old art of trying to get more for less. You want to pay less, your preferred supplier wants more, and you go back and forth until you cut a deal or walk away from the table (in which case you return to the previous step, identify the next supplier on the list, and start the process all over again). (Remember to haggle properly or risk insulting the supplier.) When the negotiation succeeds, a contract is awarded and the procurement part of the sourcing-procurement cycle begins.

Post-Award Contract Management is where Procurement takes over. This is where you implement an easy-to-use organization wide e-Procurement system that everyone can use to place their goods and services requisitions and orders and that will tell them if something is inventory, if there is a product or service under contract that meets their need, and, if neither, if there are preferred suppliers or buying policies that must be adhered to for a fast approval or refund on your expense report. You implement a no-refund policy outside of the system without senior manager approval (one level above your boss), a no-PO no-pay policy across all suppliers, make it many times easier to use the system than to bypass it, and implement end-to-end automated invoice management with m-way matching . Then your spend is under management, your policies are followed, and off-contract purchases and expedited shipments are only made when there is a real need due to an emergency or unexpected surge in demand (against your forecast) and its more profitable to pay more than stock-out.

So yes, we, more-or-less, know how to do it — and we know that when we properly apply spend analysis and spend optimization techniques, we can expect year-over-year double-digit savings. But do we really know what we need to do it right and achieve success every time? Here the answer isn’t as crystal clear. In each phase, we know what we need — good, clean, fine-grained mapped data that we can cube, drill, and enrich until we find the savings opportunity in spend analysis, alignment measures for product selection, market intelligence for strategy development and supplier identification, etc. But what does good, clean, fine-grained mapped data look like, what capabilities must the spend analysis / visibility / reporting tool have, and, most importantly, how do we use the tool and read the reports? How do we determine which of our opportunities is most aligned to our current goals with an acceptable TTV and estimated savings? Where is the market intelligence we need, how do we access it, and how do we integrate it with our data to do a full analysis for project selection and supplier identification? Etc.

For an average organization getting started on the path, just knowing the process and having an e-Sourcing suite is not enough. The organization also needs actionable intelligence to help make the key decisions in each stage, and, in most cases, even if there was up-front training, help using the tool to use just the right functionality to extract the information required to generate actionable intelligence, because no training is complete and no one retains everything the first time through.

So how can the average organization successfully start an e-Sourcing journey? One way is to hire a seasoned pro who is knowledgeable in your key category markets and who has been through the journey before to act as your Sourcing Sensei. But given the high demand for such a sensei, as there are so few, this isn’t an option for everyone. So, if you can’t find, or afford to lure, such a sensei what can you do? Stay tuned!

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part II.1

In part I, we noted that most sourcing cycles are the same, and they all generally consist of the following eight steps:

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

We then noted that at a high level, we know what to do. But then we asked do we really know how to do it? And more importantly do we know what we need to do it right and achieve success? Let’s start with the first question. Do we really know how? For the most part, the answer is yes. Let’s take these topics one by one.

The process of proper Spend Analysis is well understood. You start by identifying the data sources, defining the raw data of interest in each data source, and creating a common schema to map all of the data to. Then you start the lather, rinse, repeat process of classify, map, cube until you have enough data to start an analysis, and, once you have identified the categories to drill into, enough data to accurately do the analysis. Then you start the analyze, asses, report cycle until you have narrowed down your top X opportunities. (For more details on this process, download the free Spend Visibility: An Implementation Guide e-book by Lamoureux & Gunther).

Project selection is fairly straight forward too, it’s simply evaluating the top opportunities identified in the spend analysis phase with respect to alignment with the organizational goals and TTV (time to value). The top Y that best balance identified savings, time to value, and organizational alignment are chosen and (e-)Sourcing projects are initiated.

Once a project is selected, the strategy needs to be identified. Will it be a single or multi-round sealed bid with a final negotiation with the chosen supplier? Will it be a masked or open auction? Or a single best-bid followed by a Total Cost of Ownership Decision Optimization to select the winning supplier(s) for negotiation. Of course, the best savings opportunity and best method will be dependent on current market conditions. If costs have risen sharply since the last contract was cut, the top spend category may not be a good opportunity. If demand is near, at, or exceeds supply, an auction is not likely to get good results. So you analyze the market and opportunity and select a course of action accordingly.

Supplier identification is simply identifying those suppliers who (likely) have products or services that can meet your needs. You can use analyst lists, conference lists, colleague lists, blog lists, and even open directories. You can then cut down to a shortlist after an initial RFI which asks some direct, but easy, questions. (For some good insights on what to ask, start with the SI series on Best Practice Technology Vendor Selection for True Multi-Nationals [Parts I, II, III, IV, V] and Seeking Spherical Supply Solutions? Succeed in the EU! [I, II, III], and if you have access, the archived webinars on the NLPA association site on Making Sense of e- in Sourcing and Procurement: What Solution Do You Really Need? and Acquiring e-Sourcing and e-Procurement Technology: What Questions Should You Really Ask>?)

So we definitely know what we need to do and how to get started. But do we really know what we need to do it right and achieve success? Come back tomorrow as we discuss the last four steps of the process so we can (attempt to) answer the latter question.

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part I

When it comes to (e-)Sourcing, every services, software, and full solution vendor has their own process. For example,

On the services front,

DRM Procurement Services proposes:

  1. Assess
  2. Analyze
  3. Strategize
  4. Tender
  5. Negotiate
  6. Implement
  7. Complete

Kuvaq composes:

  1. Category Profiling
  2. Strategy Selection
  3. Supplier Identification
  4. e-Sourcing Implementation (RFx, Auction, etc.)
  5. Supplier Selection and Negotiation
  6. Supplier Integration
  7. Supply Market Benchmarking

and State of Flux exposes:

  1. Project Definition
  2. Market Investigation
  3. Strategy Development
  4. Marketplace Testing
  5. Negotiation
  6. Contract Implementation
  7. Supply Chain Development

On the vendor front,

Moai has promoted a nine-step sourcing process that goes like this:

  1. Spend Analysis
  2. Strategy Development
  3. Supplier Identification
  4. RFX Creation and Distribution
  5. Negotiation
  6. Supplier Award
  7. Contract Negotiation
  8. Contract Management
  9. Contract Fulfillment

Quantris has presented an eight-step sourcing process with a split:

  1. Data Collection
  2. Analysis/Evaluation
  3. Develop Strategy
    — Go / No Go —
  4. Vendor Identification
  5. Bid Solicitation
  6. Negotiation
  7. Vendor Selection
  8. Implementation

and Iasta developed a seven step sourcing cycle with a parity bit:

  1. Spend Analysis
  2. Project Data Collection
  3. e-RFx and Supplier Management
  4. Bid Collection & Negotiation
  5. Decision Optimization
  6. Award & Contract
  7. Post-bid Management

(A Google Image Search*1 will find them all.)

As you can see, they are all essentially the same, more or less, and all include the following eight*2 steps, in approximately the following order:

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

So, at a high level, we know what to do. But do we really know how? And more importantly do we know what we need to do it right and achieve success?

To be continued …

*1 When in doubt, Google that Sh!t.
*2 To make for a lucky sourcing cycle!

Top 12 Challenges Facing India in the Decades Ahead – 03 – Accountability & Corruption

According to Transparency International, in 2013, India ranks 94th out of 177 countries, with a score of 36, on the Corruption Perceptions Index which measures the perceived corruption in the public sector. In other words, while there are 83 countries that are perceived as more corrupt, there are 93 countries that are less corrupt. In comparison, the US is 19th with a score of 73, Canada and Australia tie for 9th with a score of 81, and New Zealand is seen as the least corrupt country with a score of 91. In other words, corruption is still quite bad. In comparison, China is 80th with a score of 40 and Brazil is 72nd with a score of 42. Corruption has become such an endemic feature of Indian administration and commercial life that in some parts of the country nothing moves in the intended direction until the palm of the deliverer is greased. (Dreze and Sen, An Uncertain Glory)

In addition, Bribery is a huge problem. In back to back studies in 2005 and 2008, Transparency International found that, despite efforts to curb the practice and corruption, the number of people who had first-hand experience with (and had to pay) bribes only dropped from 62% to 40%. In other words, 2 out of every 5 Indians had to fork over bribes to get a basic service that they were entitled to (such as getting a birth certificate or a passport) from a public official. Corruption is so bad that a NGO (non-governmental organization) by the name of 5th Pillar distributed over 1.3 Million zero rupee notes (modelled after the 50 rupee notes) between 2007 and 2011 in an effort to fight corruption.

Zero Rupees

As clearly stated by the “Accountability Initiative”, spawned by the Center for Policy Research, Dharam, Marg, Chanakyapuri, New Delhi, there is surprisingly little regular, reliable and most importantly, accessible information on the implementation of service delivery programs in India today. And that’s being politically correct to the nth degree. Dreze and Sen are more accurate when they state that, in An Uncertain Glory, particular to India is the combination of insistence — for entirely plausible reasons — on having a large public sector, combined with a fairly comprehensive neglect of accountability in operating this large sector.

The issue of accountability is particularly important when discussing the many infrastructure issues in India. The neglect of both physical infrastructure (such as power, roads, water, sanitation, etc.) and social infrastructure (education, health care, opportunity for employment, etc.) is extremely widespread. One of the biggest examples failure of public accountability is the crippling power blackout of July, 2012 which plunged half of the country into darkness and earned India the reputation of the blackout nation. This is a prime example of the lack of accountability as even the central guardians of the Indian power strategy at the highest level face little pressure to get things right and are not tasked to take responsibility for the terrible state of power planning in India (where double digit percentages of the power generated is stolen and where significant amounts of generated power is wasted). Consider the story of the National Thermal Power Corporation (NTPC) and the Govind Ballabh Pant Sagar power plant in Uttar Pradesh as recounted by Dreze and Sen. When one of the authors visited the NTPC headquarters on a campus near the plant, he found that a large number of air conditioners were switched on full blas throughout the day, even in the deserted lobby of the guest house. Just outside the boundary walls of the campus, people from the Dom community, working as ‘sweepers’ for the NTPC for twenty five years, live in shacks without any electricity. When asked why they tolerate the situation, they said they feared they would lose their jobs if they complained about their predicament.

It is the lack of accountability that allows corruption, and bribery, to continue to flourish. Corruption flourishes in informational darkness. Until there is more transparency, information accessibility, and accountability in India, it will continue to flourish. This lack of accountability combined with a general belief that certain kinds of bribery and corruption are standard behaviour that is to be expected is posing huge problems for India and limiting its progress. If there was less corruption, there would not only be more accountability, but more money available to address some of the serious physical and social infrastructure problems that we addressed in previous posts.

The USIS was Established 80 Years Ago Today

On November 17, 1933 Franklin D. Roosevelt signed Executive Order 6433-A and created the National Emergency Council (NEC), sing an appropriation authorized by Section 220 of the National Industrial Recovery Act of June 16, 1933, in response to the declaration by the Congress of the United States of the existence of an acute national economic emergency which affects the national public interest and welfare.

The NEC was deemed created for the purpose of coordinating and making more efficient and productive the work of the numerous field agencies of the Government established under, and for the purpose of carrying into, effect, the provisions of the National Industrial Recovery Act, the Agricultural Adjustment Act, and the Federal Emergency Relief Act that were all signed into law in 1933 in response to the Great Depression.

Six months later, Clara M. Edmunds, head librarian of Franklin D. Roosevelt’s public information service, opened the U.S. Information Services library, which was designed to be the comprehensive collection of relevant government documents, updated regularly to record every development in the legislative, executive, and judicial branches of the government. This library, which centralized information about federal rules, regulations, and administrative orders for the public, was the first one-stop-shop for government information until 1948. In 1945, Truman, who had no interest in funding it, took office. In 1946, the USIS was put under the state department and had its funding reduced. And in 1948, the Smith-Mundt Act, which focussed on the creation of an information service to disseminate information abroad about the United States (instead of to its own citizens) put the final nail in the USIS coffin. (One account of the United States Information Service Libraries can be found in the online archive of the University of Illinois Graduate School of Library Science. Information can also be found in A Timeline of Events in the History of Libraries.)

It may have only lasted 15 years, but it was a revolution in government information management and deserves to be remembered.