Category Archives: Market Intelligence

How Do You Increase Internal Demand for Supply Management?

Supply Management needs to be reinvented as the “go-to” organization because, when you get down to it, it does support every department, engage every service provider, and, in a leading organization, influence every four out of five dollars that leave the organization. It is, after all, the secret agent of business improvement and the key to increasing organizational value.

However, in the average organization, with the exception of the CEO and CFO constantly screaming at it to “cut costs“, there is little internal demand for its services. And the sacred cows of Legal, Marketing, and HR don’t want to touch it with a 10-foot cattle prod. And it’s a damn shame.

So what’s an average organization to do when Supply Management is the proverbial black sheep of the organization?

It’s a tough question, especially when the usual tricks of learning the language of the client organization, presenting wins obtained by other organizations in similar circumstances that could be transferred, and explaining how, at least initially, you’re just there to support them and how the technology and process you can bring to the table can make their lives easier don’t work.

But there may be an answer, and that answer might be to approach the problem the same way you would when you’re trying to start a two-sided marketplace. A recent article over on VentureBeat about launching a two-sided marketplace had a very interesting quote from Oisin Hanrahan that provides the insight you just might need to succeed:

One element of launching a successful two-sided marketplace that is often overlooked is the initial spark, or the little drop of supply and tiny inkling of demand you need to kick your whole idea off into a successful market. There is an over-reliance on using technology to secure these wonderful drips of interest that will eventually turn into the transactions responsible for driving your business.

In other words, while the real value you bring to the table is better processes enabled by technology, this isn’t what’s going to get the interest of someone who thinks they know how to procure their goods and services better than you. The only thing that’s going to get their interest is if you come with an answer to what they see as their problem, and only what they see as their problem.

If Legal’s problem is that they can’t understand the differences between discovery offerings from different parties, you come to them and explain you can help them construct feature/function RFPs that will let them compare apples to apples and analyze them automagically. If Marketing doesn’t understand how to analyze hard costs vs. creative costs in proposals, you explain how you can help them do that, and even separate out hard print costs and let them aggregate print orders to save money for creative services. If HR doesn’t understand how to find new consulting service providers and how to compare their bids and offerings you tell them you can help them find new potential providers and gather information in a standardized fashion. Not once do you come forth with claims of better processes or technology or claims of great cost savings, which they will automatically assume will mean cheaper providers and lower quality work. You find out what their problems are, and offer to help do only what they want help with. Every time you help them, value will be increased and they will slowly trust Supply Management with more and more responsibility as time goes on. And, at some point, Supply Management will become the go-to organization. But only if it starts by finding the spark that will set of the conversation.

The Strategic Category Management Lifecycle: Getting it Right; Part II

In our last post we noted that study after study has shown that, on average, 30% to 40% of negotiated savings never materialize and this is because the “strategic” element is usually forgotten once the sourcing exercise is over. True value can only be created through category management if the entire category lifecycle is addressed and properly managed as part of a strategic category management plan. In our last post we noted that a strategic category management lifecycle consisted of at least nine phases, and labelled each of these phases. In this point, we are going to discuss, at a high level, what each phase is.

In the rationalization phase, the category team identifies the category or verifies that the category still makes sense from a sourcing / management perspective. Sometimes, categories need to be changed up a little. For example, let’s say that you had an office supplies category and you were grouping printer ink in the category but not printers, which were grouped in electronics. This may or may not still be a sensible category from a value management perspective. On the low end of the price scale, it costs more for cartridges than it does for the printer. It may be possible to negotiate a better deal from the office supplies vendor on the printers than it would be with the manufacturer. When you consider that the office supplies vendors often buy in much greater volumes, have already negotiated great volume discounts with the manufacturers, and know they are going to make a lot of money on the cartridges over time, they have a strong incentive to give you the printers at their cost. Manufacturer’s don’t!

In the supplier identification phase, you identify the suppliers who could service the category as a whole, or at least significant portions of it so that you do not have to work with more than an optimal number of suppliers (as per the strategic category plan).

In the sourcing phase, you analyze the category and come up with an optimal category sourcing and management plan, the strategic plan for the category, and then you conduct the appropriate sourcing event. It may be a simple RFX, an automated auction, a multi-round optimization-supported negotiation, or participation in a pre-existing GPO contract that leverages total volume. It depends on the category, market conditions, and specific organizational needs.

In the contract award phase, the contract is awarded and the specific service levels, performance metrics, and execution requirements are laid out.

Then the supplier management phase begins, and doesn’t stop until the last unit is not only delivered but recovered or returned. If the products come with a three year warranty, this phase could go for three years beyond the initial sourcing period.

Shortly after the contract is awarded, the procurement phase begins and delivery of the products, services, and/or product/service bundles begin.

Once the first delivery is taken, the inventory has to be managed and prepared for distribution to the end consumer at the appropriate times. In other words, the needs of the outbound supply chain have to also be identified and balanced with the savings achievable through the optimization of the inbound supply chain.

At some point, some of the products will break down and need to be recovered, repaired, refurbished, or recycled. This returns management process also has to be efficiently managed or all of the savings achieved in the sourcing will disappear in the warranty management.

Finally, if the product was returned because of a manufacturer’s defect that cannot be repaired, the product will need to be returned to the supplier for credit and/or working components (that can be reused) may have to be recovered as part of final recovery management.

This is the category management lifecycle in a nutshell. In our next post in the series, we will discuss some tips for maximizing your return.

The Strategic Category Management Lifecycle: Getting it Right; Part I

Two days ago, when we asked if there was a difference between strategic category sourcing and strategic category management, we noted that there technically was a difference but that, for all intents and purposes, strategic category sourcing and strategic category management should be treated as one and the same. The reason? Study after study has shown that, on average, 30% to 40% of negotiated savings never materialize and this is because the “strategic” element is usually forgotten once the sourcing exercise is over. For savings to materialize, the strategic plan has to be followed from the time the award is granted, through the time the last unit is sourced, and to the time the last unit is reclaimed and/or the last warranty expires (depending on the strategic plan).

Sourcing only identifies savings opportunities. These opportunities are only realized through the execution of the strategic plan which occurs in the Procurement, Logistics, and Warranty/Returns management function. The entire lifecycle of the category has to be managed in order to achieve the potential savings from managing a well designed category. This is the first step to getting it right.

Thus, the first thing one needs to understand is the entire lifecycle of a category-based supply chain. At a minimum, the strategic category management lifecycle consists of at least the following nine phases / tasks:

  1. Rationalization
  2. Supplier Identification
  3. Sourcing of the (Servitized) Category
  4. Contract Award(s)
  5. Supplier Management
  6. Procurement
  7. Logistics / Inventory Management / Distribution
  8. Inverse Logistics / Repair and Recycling
  9. Credit / Material Recovery

Each of these phases must be addressed, and skipping any one phase can jeopardize the entire strategic plan and the savings you hope to capture and/or the value you hope to create. In our next post, we will describe each of these phases in more detail.

Keep Your Big Data. Big Brains Will Win in the End.

I have to admit that I’m sick of all this hype about big data and how it is the answer to all our problems. As I’ve said again and again, there’s no such thing as big data in business. Relative to our ability to process it, data has always been big. And, in business, big has always been meaningless. Furthermore, in business, we’ve always been able to process as much data as we need to in reasonable amounts of time if we made good technology decisions.

And I’m even sicker of the fact that some people think we can replace science with math and processes with computer programs. We never could, and for the foreseeable future, where AI (artificial intelligence) will not be a reality, we can’t. Thinking like this is what causes economists to latch onto, and promote, financial policies that, seem good in theory but, in practice, result in economic collapse when taken to extremes.

The reality is that science can never be replaced by math and automated prediction. Not only is the author of this HBR blog post on “why data will never replace thinking” right when he says that it’s only by trying to come up with our stories (hypothesis) beforehand, then testing them, that we can reliably learn the lessons of our experiences — and our data, but it’s only by coming up with hypothesis, and putting plans into actions that we can beat the competition and gain market share in the global market. Look at the giants of industry today. Did Apple become the dominant first in the e-Music industry by letting Microsoft, Sony, Samsung, etc. develop their music players and music stores first, analyzing customer responses, and then introducing their offering? Or did they become the dominant force by using their brains to try and figure out what the market, and customers, were missing, using the best creative and engineering talent to design a solution, and then releasing that product on the market? It was the latter solution — the solution that required big brains that won the market. Similarly, Walmart became the biggest retailer not by asking consumers want they wanted, but by predicting what the average consumer really wanted — a one-stop department store that met most of their basic needs at low prices with a consistent product and service offering across each store for the mobile consumer.

This isn’t to say that data isn’t important, it is, just that it won’t solve all your problems and that, beyond a certain point, more data doesn’t help. Remember, statistically speaking, you only need 384 data points to have 95% confidence with a confidence interval of 5 on a population of 1,000,000. If you want a confidence interval of 3, you only need 1,066 data points, and if you want a confidence interval of 1, you only need 9,513. Beyond a certain point, more data doesn’t add much confidence and the only way you’re going to get more insight is to see it inside your head.

So keep your big data. I’ll use my brain instead. How about you?

Seven Tips for Succeeding in Any Market, Part II

Yesterday, we noted that the article published in Chief Executive last year on Seven Tips for Succeeding in Asia actually provided seven tips for succeeding in any market and, briefly, explained why. Today, as promised, we are going to review the supply management corollary to each of these seven tips because they will help you increase the value of your Supply Management organization.

So, without further ado, here are the seven tips for creating a successful Supply Management Organization.

  1. To expand your organizational influence, pick a department with an unmet need your organization can readily fulfill.
    For example, let’s say you are not yet supporting any marketing and legal spend and know that you have to go after one of these sacred cows to increase your spend under management. Let’s also say that you just hired a new analyst who was a marketer in a past life and who has experience sourcing creative services from his past job but not a single professional in your organization knows anything about e-Discovery, which is Legal’s issue of the day. In this case, you should go after Marketing as you have someone who can help them source better talent more efficiently, and save them money by decoupling non-value added services.
  2. Find a mentor on the Board (of Directors) who understands the value you can bring to the organization and can help you forge stronger ties with the C-Suite.
    This will get you more support across the organization and will inevitably help improve your financial situation as other budget holders see the value in supporting your efforts. Eventually, they will be willing to pay their share of system upgrades, GPO fees, or contract labour who you identify as being able to reduce their costs and/or increase the value they offer.
  3. Scale your organization by learning the language of finance.
    Let’s face it, if you can’t explain to the CFO in a language she understands that the budget and cost savings calculations should not be decoupled, you will be forever doomed with constantly being tasked to do more with less until the organization implodes under the weight of an increasingly impossible task. You need to be able to demonstrate the ROI of investments in training, technology, and talent to get the budget you need to deliver the savings the organization wants, and the ROI you know your Supply Management organization is capable of with sufficient budget.
  4. Be sure to consult regularly with the IP specialist on your legal team.
    Considering that you will be sourcing contract manufacturing and services from value-added services providers who could very easily copy your products and steal your expertise, you need to make sure you are adequately protected to discourage this from happening, especially in foreign markets.
  5. Keep an eye on your ROI, especially when services and SaaS contracts are about to come up for renewal.

    While there isn’t an advanced sourcing technique or technology that won’t save you money in the right situation when properly applied, not all techniques and technologies are created equal, and neither are all situations. If a service provider isn’t delivering the value you expect, they may need to be replaced. And if a technology platform isn’t delivering a decent ROI, it definitely has to be replaced. Your cash is limited. You can’t be wasting your budget on non-ROI products and services when there are dozens of products and services that can save you double digits and provide an ROI of 3X to 10X, or more.
  6. Go after the low-hanging fruit first.
    The fruit at the top of the tree may be juicier, but it is a lot more difficult to pick, and the risk of falling off of the ladder and seriously injuring yourself is much greater. Start with the easier wins, gain experience, and work your way up to the harder wins.
  7. Reward success with bonus pay tied to performance.
    Give your top talent the opportunity to increase their compensation without ceiling, and watch your savings soar and value surge. Just be sure to tie the compensation to appropriate metrics, because you get what you incentivize! (But, whatever you do, don’t put a ceiling on potential compensation. If you know you’re not going to make any more money, why would you work harder? There’s a reason the most successful companies in the enterprise space don’t limit the earning potential of their sales-people. They know that every dollar earned in commission puts ten dollars in their bank account, and the shareholders know that, at the end of the day, every $10 in the bank ramps up valuation by $20 to $100 and makes them many times richer in the end than the sales-person. If you think about it, a truly successful organization is one where the top sales-person and the top buyer both take home more than the average CXO!)

And this is how you begin to create a successful Supply Management organization. There’s a lot more to success, but these corollaries are a good starting point.