Category Archives: Market Intelligence

There Is No Such Thing as a Free Lunch In the Platform World

So before you rely on a network or free platform, ask yourself, who’s paying? And what is it costing you?

We’ll start with the obvious — the supplier network. Platforms, especially secure ones, cost money. It’s not just the hardware and the connectivity, but the manpower to keep the software up to date and monitor for potential breaches, fixing them before they are exploited. It’s the manpower to make sure the network is in compliance with global regulations in each country its users do business in. And if you’re not paying to find and transact with suppliers, who is? Not a third party. So that means the supplier is paying. And that cost is hidden in your cost. Now, that might be okay if the cost is low, but is the cost low? Especially for the supplier who might need to conduct all its business on the platform? If the cost is a 3% transaction fee taking from the supplier, that’s pretty high when a large network that enables 100M in business a year can be run for less than 1 Million! After all, chances are your business doesn’t have 66% profit! (Although it would like to.)

We’ll move to the not so obvious — the certified supplier discovery portal. A big database of certified suppliers for your diversity, sustainability, or regulatory compliance project. Now, we all know databases are cheap, relatively speaking, in the enterprise software world. Maybe a six figure license and a platform with an annual six figure cost to keep it up. But keeping diversity status, certification status, and regulatory compliance status up to date where such status is human verified at some point ain’t cheap. Even though a minimum page worker can read a certificate and check it against a third party authorization source, that’s still a few minutes of time and if it has to be done for thousands, tens of thousands, hundreds of thousands, or millions of entities … that time adds up, and it costs. If you’re not paying for that, chances are the supplier is for the listing and the verification. That’s fine if it’s a one-time (annual) cost, but if they also have to give up a network introduction fee, transaction fee, etc. every time a buyer wants to reach out to them through a network, that adds up.

But it’s not just supply platforms that cost you. It’s the other free platforms you use every day to find people and suppliers and communicate with them. Consider LinkedIn. It might be free, but do you have any idea how much corporate intelligence you’re giving up when your employees put deep profile information on it. When you advertise jobs on it. When you put company profile information on it. When you put detailed product spec sheets on it. And so on. If someone links and mines all that intelligence, they can figure out not only what you’re trying to sell now, but what you’re most likely working on, who’s doing it, and even how you are going to try to differentiate the offering in the market. That makes free pretty damn expensive in my book.

But LinkedIn isn’t your only worry. Chances are a number of your employees are using Google Office to collaborate. Free Google Office. First of all, that can go away at any time and take all the data stored on the drives with it. Secondly, if you read the fine print, anything you put on the drives can be used by Google as they see fit (for advertising, data mining, etc.). With so much data, chances are that yours will have, or make, any material impact or ever pass before unwanted eyes, but there’s no guarantees. Plus, with everything link shared, your sensitive data is one link away — easily obtained from one email hack.

There’s no free lunch, and the more free platforms you use, the more it is costing you. Remember that.

How Can You Claim to Produce an Integrated Report if You Cannot Create a 360-degree Supplier Scorecard?

Integrated Reporting is an approach to corporate reporting that demonstrates the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. It’s still on the rise as companies try to demonstrate their focus to sustainability and corporate responsibility.

And while there is no real globally accepted framework for integrated reporting (even though there is the International Framework) that is designed to accelerate the adoption of across the world), it’s coming as more and more investors and stakeholders demand it — and more and more countries demand it from public companies.

But if a company cannot create a 360-degree supplier scorecard, linked to all activities and relevant intelligence on the supplier and its activities, can it really produce an accurate integrated report? After all, can a company really say it’s sourcing ethically just because its suppliers all fill out a survey saying they accept the company’s ethical sourcing guidelines? Can it say it’s using sustainable packaging if only it is using sustainable packaging (that is reusable or recycled) while all its suppliers get their raw materials and components in unsustainably produced (non reusable, non-recycled packaging)? Can it say its meeting its carbon production goals if it is unable to truly capture the carbon produced by its supplier and how it should be allocated across the goods it consumes?

The answer is no.

Nor can it truly report on the (financial) risk in its supply chain if it doesn’t understand its supplier’s (financial) risk and how it impacts its supply chain. The biggest risks … that lead to the biggest disruptions … start deep … sometimes all the way back at the mines or the farms half a world away. And they have ripple effects … getting bigger and bigger as they progress up the chain.

So if you want to claim accurate integrated reports, first make sure you can crate accurate, intelligence enriched, 360-degree scorecards … for your entire supply base.

Lost Value in Outsourcing

Recently we ran a piece on Hidden Costs in Outsourcing which described many of the costs and overpayments you could be making when outsourcing a function in an effort to reduce costs and increase efficiency, even if the outsourcing contract results in reduced costs and increased efficiency. And while SI believes in win-win agreements, they should be above board with each party only taking its agreed upon share of the pie.

But even if the outsourcer only bills what it agrees to and doesn’t markup rates, charge you for shelfware, pass through unauthorized expenses, or hike the commissions, that doesn’t mean they are delivering all the value they are promised. This happens regularly with “full service” management or technology consulting firms, and the client never knows. But due to his unique position, the doctor knows, and having figured it out, refuses to participate in any project that denies a client organization of the full value they deserve. But this doesn’t prevent it from happening — there’s always someone else who will help the consultancy continue the practice.

What are we talking about?

The simple fact that no single management or technology consultancy, no matter how big, is an expert in every process or system you need, despite what they claim.

And the doctor knows you’re saying, we know this, so we chose the consultancy that makes it a practice to bring in experts when it is weak in an area to get us the information we need when we need it. But do they? Specifically, do they bring in true experts? Do they get the right information? Is it appropriate to your situation?

Some firms do NOT bring in true experts. Why? They have no expertise on staff, and use a model to find experts that is not congruent with what it takes to attract experts. For example, some firms are employing the “network” or “network search” model where they build a “network” of experts they can tap into for help. But this network usually consists of freelancers who self-register and/or who are invited based on automated LinkedIn profile searches. Are these people experts? Some are, but unless they are semi-retired folk looking to keep busy, probably not. Most of the people in these networks are unemployed / self-employed and in need of work. Most experts are too busy to even think about registering on another expert or social network, and will not be there. And experts such as the doctor will not engage with this type of model. The last thing the doctor wants to do is provide an hour of advisory to a Big 6 only to have it turn around, take the information completely out of context, and tell its client to consider vendor X or product Y because the doctor recommended it.

Secondly, some firms do not contract the experts for enough time to get the information they need to truly have an advanced understanding from the market. For example, many of these firms will engage experts for as little as an hour or two and expect to get deep expertise on a market and technology and, at the end of it, understand what vendors to focus on or what technologies to dive into. Then, believing they know where to focus, they will have their interns do research on the specific vendors or technologies and produce deep reports. But interns don’t understand the intricacies that help differentiate similar vendors or similar technologies and can easily fall for marketing hyperbole and overlook deep capability.

Thirdly, as they are not experts, they will not understand the intricacies of your situation, what specifically they should be looking for, and what questions they should be asking the expert, should they actually get one. So whatever they do will be of limited value from the get go.

If a company is engaging a consulting firm for help, the amount situation-specific consulting needed from an expert is significantly more than a few hours. And if all your management consultancy is doing is engaging the expert for as few hours as they think they can get away with, and then assigning a junior consultant to go and do the market research, you’re not getting the value you deserve.

Hidden Costs in Outsourcing

A strategy used by many Sourcing and Procurement organizations to get quick wins is to outsource tactical Procurement operations and/or Category Management to BPOs or expert (niche) consultancies. This can be very successful if the BPO is reasonably efficient in processing compared to the organization or if the expert (niche) consultancy has considerable expertise and can quickly find a lot of savings the organization never could. But that doesn’t mean that you are getting the best value. These organizations are trying to maximize their profit, and if you’re happy with the value you are getting, why should they try to optimize their costs?

Before we continue, let me be specific here — we are NOT attacking the hourly rate for their (top) talent. Good category managers are worth their weight in platinum, and you should expect to pay top dollar for them. But you should also receive top value in exchange, not mid-level value and definitely not mediocre value. But that’s what you could be getting if you are not evaluating these services as closely as you would be evaluating your strategic direct material buys.

And, before we continue, let’s make it clear that while we are focussed on Supply Management, these hidden costs could be found in any outsourcing arrangement — marketing support, legal support, engineering support, etc. So what are the hidden costs?

  • Rate Markup this can take many forms, including A rates for B staff or onshore rates for offshore staff; you could be paying 200/hour for the expert, but a relatively inexperienced mentee could be doing most of the work, or you could be told you are being supported on-shore when really 90% of the work is being offshored to low-cost locales in Eastern Europe
  • Temporary Labour if the provider falls behind, they might hire temporary labour and bill you for it; this is okay if you ask them to, but if they do it without your permission for a fixed-cost task, this is definitely NOT ok
  • Shelfware/Bloatware where you are being billed for software not being used or you are being billed for a suite license when the organization is only using one module
  • Pass-through Expenses some organizations will try to pass through any and all expenses they think they can, even if they require explicit pre-approval or the contract says they are the responsibility of the outsourced company
  • (Hiked) Commissions some organizations will charge-back a percentage of savings, a value fee for a successful value-add negotiation, a percentage of a recovery, etc. this is usually okay as this is usually part of an agreement, but there are usually restrictions — minimum value, maximum percentage, and so on; sometimes an organization will charge commissions beyond what they are allowed to
  • Taxes some organizations will charge taxes based on their locale, taxes you may not be technically required to pay — double check the tax lines carefully

And these common overcharges could be just the tip of the iceberg. So be sure to be as cognizant about sourcing your services relationship as you are about sourcing your strategic products and services.

Supply Market Intelligence … Harder than it Looks Part II

In yesterday’s post, we turned our attention to supply market intelligence which, as the maverick points out, is critical as much for supply risk as it is for value creation. But, as we also pointed out in yesterday’s post, despite the plethora of options, finding the intelligence you need can be difficult. All sources have strengths and weaknesses, so you need to be selective to achieve success. Where should you start?

Suppliers

      • financial statements: if the company is public, they must release a reasonably sufficient level of information for a sound financial assessment
      • customer interviews: if you really want to find out how good a supplier is at providing a product or service, ask a customer!

Internal Sources

      • performance reporting: gather all the hard metrics you can!
      • internal stakeholder interviews: any data they have is real company intelligence data

External Sources

      • price index data: and roll your own forecasting!
      • research services: which collect data relevant to your needs
      • blogs and social media: which offer unsolicited third party opinions and reviews
      • public consumption data: from government contracts and import registries which allow you to understand supply vs demand dynamics

This data will give you a mostly factual, relatively unbiased third party picture of the market and supplier performance in the market. All you need is a platform that can automatically gather, consolidate, project, and advise on it all.