Category Archives: Procurement Innovation

You Are Invited to the Wake For Strategic Sourcing


Today’s guest post is from Dalip Raheja, President and CEO of The Mpower Group (TMG) (former leader of the Strategic Initiatives Group for Bank One and former Principal of DEC) and a contributor to the News U Can Use TMG blog.

You are invited to the wake … the tab is on us!! This will be the last of our posts on the Death of Strategic Sourcing. It has become clear to us that most of our community is generally in agreement that we need fundamental change.

For those that still need a bit more convincing, you can look at an interview (Next Practices Innovators Award – Executives Who Elevate Our Function) with Lamar Chesney, CPO of SunTrust Bank and the keynote speaker at the 2010 Aberdeen CPO (Chief Procurement Officer) Summit, whom I first met at Tim Cummins’ IACCM conference earlier this year. Tim was kind enough to provide me with a stage and Lamar and I ended up having a follow-up conversation over some drinks (ummm, I think it was called Scotch!!). If a very senior and highly respected current practitioner is generally in agreement, then I think it’s time to move on. If you need further proof, there is a very interesting report by Kevin O’Marah (“Supply Chain Almost at the Table in 2010” at blog.seeburger.com) at Gartner that clearly points out that even after 25 years, we’re still not there. While the initial numbers look very good, it becomes clear when you dig inside the numbers that the picture is not quite as rosy as we think. “But before we get too excited about this trend, it’s worth asking whether or not the business really knows what supply chain is all about. Only 29% used the label ‘supply chain’ to describe this leader. Nine percent called it ‘procurement’. Another 9% chose the label ‘operations’, while yet another 7% said ‘logistics’. Forty-three percent of respondents were unable to find the functional title for their highest-ranking supply chain executive among these terms“. Bazinga!! Or, as Paul Harvey used to say, “and now you know … the rest of the story“. Basically what Kevin points out is that even though we may have made some progress, we are clearly not there yet.

What is interesting are the views that Supply Chain organizations have about their role. According to Gartner,


“The most encouraging facts revealed in this research have to do with the expanding view supply chain has of its own role. … In terms of priorities, although the No. 1 overall stated goal is still cost oriented (56% chose ‘reduce operational costs’ as one of their top-five priorities), the No. 2 is ‘improve customer satisfaction.’ And even though they’re lower on the list, competitive imperatives such as product innovation, or ‘getting new products to market faster,’ (28%) and risk management (24%) rated significant awareness”.

Two points I would like to make here. First, please note that cost continues to define us, but even more importantly, the second point is that this is supply chain’s view of its own role and I would humbly submit that at the end of the day, it matters not what we think of ourselves but rather what our stakeholders think of us. And I would further submit that if asked, most of our stakeholders would view us through the cost prism and not much else. And here is the money quote from Kevin: “Supply chain has a lot to do with whether or not a company wins its competitive battles, and it’s trying to get the rest of the business to see this. It’s time we get our story straight“.

If you need further proof, take a look at the recent cover story in CPO agenda that screams out “When do we get to SRM?”. Here are some of the statements that strike a chord with me:

  • “… For all of the potential benefits, many organisations have struggled to make it further along the road to supplier relationship management than the contract monitoring stage ..”.
  • “SRM activity is about value creation, not cost reduction ..”.
  • “The best suppliers are going to be in demand ..”.
  • “Those organisations that take the SRM approach with a supplier are more likely to be seen as a preferred customer … the benefits of SRM show it is about more than process and procedure. It also requires the right behaviours, skills, resourcing, and organisational backing to ensure it delivers to its maximum potential”.
  • “The skills required for SRM are different from procurement’s traditional strengths, which underlines the importance of the people question — not only in development terms but in deciding whether it is procurement that should carry SRM responsibilities ..”.

 

That last quote should be very disturbing for us in the community because essentially the point being made is that procurement organizations are so mired in the traditional mindset of cost reduction that they don’t have the right competencies, and this is leaving value on the table. OK, so far that seems to be in line with what I said in Old MacDonald Was Right — It Is About E-I-E-I-O!), in The Sourcing Emperor Has No Clothes! and in Strategic Sourcing is Dead!!! (The Debate Rages On!). CPO Agenda even goes a step further in stating that perhaps Procurement is not even capable of handling such an important responsibility and perhaps it belongs somewhere else. Hmmmmm, I hope they are ready with their chain link armor to absorb the arrows headed their way because at least we were saying that we are more than capable of leading the charge on value.

Here’s what Jeff Dobbs, Global Head of Diversified Industrials for KPMG, had to say: “almost four in ten now acknowledge that driving down costs has damaged relationships with their suppliers“. “Those businesses that continue to follow the traditional low cost or bust models in supply chain management are at risk of losing a foothold in the market. … the expected marketplace winners are entering into strategic relationships with suppliers that not only deliver product, but provide innovation as well …”

Clearly, KPMG is also pointing out that this cost focus has actually destroyed value along the way. In fact, if you read the entire article, they point to this as additional risk being introduced by the sourcing organization.

Before wrapping up this conversation, I would be remiss in not pointing out the other part of the argument. Even if you think that you are a truly strategic organization that is adding significant value, we would postulate that there is still too much of a focus on the consonants (tools, process, technology, etc.) and not nearly as much as needed on the vowels (Adoption, Execution, Implementation, etc.). Even someone who has been called one of the greatest communicators ever (Obama) is now acknowledging that he paid way too much attention to the legislation and policy (consonants) and not nearly enough to the politics and selling of the change (the vowels). Whether you agree with him or not politically, he is clearly pointing out the imbalance between the two and how it has hurt him dramatically.

I would also point to the series of posts by the doctor recently, where he has been analyzing this whole notion of “strategic” and especially the last one on the one commandment of value. I like the simplicity of that. It’s easy to absorb and talk about. I would hope that we can all agree that the definition of value requires a fundamental shift in the way we think and conduct business and that value goes way beyond what most of us have defined and measure today. If all it means is nibbling around the edges and focusing on more spend analytics and risk frameworks, then I’m afraid that the doctor and I will agree to disagree.

To those that think this debate is “nonsense”, “the most laughable statement”, “nothing more than market pitches”, “a long winded rant”, “an outlandish attempt to call attention to the idea” … we wish you all the luck and success in the world. To the rest of the community, many thanks for the support and encouragement, let’s continue our conversations and focus them now on solutions. We have already partnered with IACCM to conduct a research project on some aspects of this issue and will continue to look for others who wish to engage in constructive confrontation. But for those critics that still refuse to concede, we are in the process of documenting a case study where this process was implemented at a Fortune 10 company with incredible results.

Thanks, Dalip.

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Procurement – Why we really matter!

Today’s guest post is from David Furth, VP of Marketing at Hiperos. David has been in Procurement for over 20 years and has held senior positions at Perfect Commerce, BasWare, RightWorks/i2, and Deloitte Consulting.

Procurement is on the verge of experiencing its next major transformation. During the past ten years, the emphasis has been on optimization – leveraging spend, improving the sourcing process, and becoming more efficient across all aspects of the P2P and Order-to-Cash value stream.

As a result of these improvements, companies now rely on suppliers, outsourcers, and other third parties more than ever. A fact now recognized by C-level executives, boards of directors, and regulators, alike. Why? The increased reliance on these third parties has occurred without implementing the same level of control or having the same level of visibility that was in place when the work was being performed internally. The result is increased risk to company performance and brand reputation.

As a result, forward-looking procurement leaders are transforming their organizations. They still maintain the same obligation to keep costs down. But they have added the responsibility to continuously assess risk, pre- and post-award, and introduce integrated processes and controls across their companies to mitigate that risk by working closely with other functional areas, business lines, and geographies. During the next few years, procurement will be looked upon to provide important guidance around how key external contributors to their companies’ value chains are managed.

This is why more and more procurement executives are stepping forward to introduce a consistent method for managing providers across a wider breadth of their extended enterprise. These executives recognize that just because the contract assigns responsibility/liability for just about “everything”, this does not absolve their companies from the responsibility of ensuring each provider is living up to all contractual obligations. This requires implementing management control programs that actively monitor both performance and compliance to help ensure suppliers are meeting all their obligations.

This is an enormous responsibility that requires consolidating requirements across a large number of stakeholders, communicating expectations to all providers, collecting information and documentation about current status, and collaborating with providers to remedy issues when shortfalls are identified.To be successful requires a new attitude, a thoughtful approach, buy-in from key stakeholders, and the appropriate technology. Despite the best of efforts, responsibility or risk cannot entirely be outsourced.

So, when you consider the consequences of suppliers failing to meet their obligations, regulators handing out fines for poor oversight of third parties, and investors losing confidence in your brand, it is not surprising to see real action taking place. The past few years have made it abundantly clear, it is not a good strategy to expect that a great contract will get you great results, ensure providers follow the law, or prevent them from acting unethically. Therefore, it is imperative to have the appropriate level of controls to mitigate to the appropriate level of risk. This has not been the traditional way of thinking, but that is rapidly changing.

Thanks, David.

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Should You Be Sharing the Risk?

A recent article in the Supply Chain Management Review on “procurement risk management: what it takes to be a leader”, which correctly states that risk is part of business, noted that, even though procurement has become a frequent topic in the risk management conversation, few companies are translating their trepidations into formal procurement risk management capabilities. Considering that risks have grown considerably in recent years and that at least 7 in 10 companies will experience a major disruption this year, with almost 9 in 10 experiencing some form of disruption, this is not good. Risk management needs to be front and centre in supply chain planning.

But is that enough? Let’s say you put it front and centre, identify your top ten risks, and outline your risk mitigation and/or recovery plans for each risk. Classic thinking would say you’ve done a great job, but have you? If it’s a natural disaster, you’ve probably done all you can do since it’s an event that no one has any control over. But what if it’s a production line breakdown at a key plant of a sole-source supplier? Have you done everything you can? Maybe there’s nothing you could have done to prevent it, but, chances are, there was something your supplier could have done to prevent it.

And maybe they would have if they had more incentive — which leads me to believe that the leaders identified in the referenced 2009 Accenture Study who insist on risk-sharing clauses and back-to-back contracts might be on to something. If both parties agree to share risks, and the costs associated with such risks, both parties are more likely to be alert to risk signals and to take action before a minor interruption becomes a major disruption. If both parties are serious about risk, it’s the right way to go.

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Procurement Tasks are Not Clear-Cut Regardless of Organizational Size

A recent article on SupplyManagement.com on “Making Waves” which tries to compare and contrast procurement at SMEs and procurement at large companies seems to suggest, a few pages in, that buyers in large organizations are less willing to sit down face-to-face and negotiate as it’s all about getting the RFP, doing an assessment, and then getting someone in and talking through their proposal while their counterparts in a smaller organization see it as more a case of negotiating face-to-face and you can do two or three of those a day.

 

It also seems to suggest that procurement at most large organizations is a mature function with a systemized approach to procurement while most smaller organizations have almost no process in place for procurement.

The reality is that the state of procurement is very organizational dependent and that the preferred methodology is very buyer centric. If a buyer is an introvert, doesn’t like face-to-face negotiations and has access to modern e-Sourcing and e-Negotiation tools, then the buyer is going to focus on events. If the buyer is an extrovert, doesn’t believe in new-fangled technology that removes the human element, and believes that the best deal always results from face-to-face negotiations, then the buyer is going to focus on negotiations. Company size be damned in either case.

While the article has some good examples of real-world scenarios faced by procurement professionals, it is dangerous to draw broad conclusions from just a few interviews with a scattering of procurement professionals. It’s never clear-cut.

 

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Coupa: Crouching Cheetah, Hidden Hippo

For those of you who have been following along, I recently did a 3-part series on Coupa (Part I, Part II, and Part III), a company that has been taking off like a rocket in the e-Procurement space (growing almost 200% year-over-year with one stunning customer win after another), where I asked if their strategy had shifted to customer acquisition first and building a better platform second, as it seemed to me that their rate of product innovation over the past year has not kept pace with their historical rate of product innovation. And while I will freely admit that the most important thing in business is customer acquisition and retention, and that this often means focussing on customer requests, which usually fall under the category of renovation, first and innovation second, I really admired Coupa for their devotion to innovation first and figuring out what the customer needed before they asked for it.

I’m happy to say that Coupa took me up on my challenge and decided to spend a few hours reviewing in detail not only what they have done, but what they are working on now and future directions they have mapped out. The short story is that the product team has been very busy not only fleshing out the core platform, but on finding ways to take its accessibility, usability, and generality to the next level.

From an accessibility viewpoint, they’ve started porting to the Force.com platform. While they haven’t announced it yet, and don’t plan to for a few months, Coupa Expenses is now available on the appexchange2, and can be found by a simple search. Force.com users can now use Coupa Expenses to accurately determine their cost of sales (which allows them to more effectively forecast revenues, estimate expenses, and allocate resources). This app not only allows you to track expenses, assign them to opportunities, and get up-to-date reports against budgets at any time, but also includes the “frugal meter” that lets an employee now when a cost is frugal or high compared to averages and / or limits. And there’s more to come.

They’ve also been working extensively on their API. This may sound boring as all get out, but the real value of a Procurement platform is only realized when all of the spend is accessible through that platform. In other words, unless you have an integrated view of spending that includes direct, indirect, Contingent Labor/SoW, and T&E spend, you really don’t know how much you’re spending and, more importantly, the TCO of categories where the products you are buying require support services and T&E expenses to manage both the manufacturer and/or services provider. If a company is using one (Best-of-Breed) platform for direct, one for T&E, and one for indirect and/or contingent labor, then the spend is distributed across multiple systems and no one system gives an accurate view, unless it is integrated with all of the other relevant systems. Generally speaking, these integrations are expensive as most of these systems (and classic ERP systems in particular) don’t have good APIs and only experienced, expensive, third parties can accomplish the integrations. But with fully documented open and transparent APIs that expose all of the data elements and core capabilities of the platform, any decent development team can accomplish the integration. Not only has Coupa fully exposed and documented their API to allow for easy integration with ERPs and Supplier Networks, but they have also built an extensive site at integrate.coupa.com to allow their customers to integrate with any systems they need to quickly and easily. (And with their Boomi partnership, most customers can integrate Coupa with their ERP systems with very little effort.)

From a usability viewpoint, not only is the current instantiation of the UI (intelligent-)search based, but the UI workflow is being streamlined to make regular tasks as quick, easily and painless as possible for the average user. From auto-calculating miles in expense reports (using Google Maps) to auto-classifying receipts (using OCR when possible), it’s all about making it even easier to use than Amazon or eBay, so that organizations get the adoption necessary to make their eProcurement initiative a success.

From a generality viewpoint, they’re working on features and functionality that will take e-Procurement to the next level in the average mid-market company, regardless of vertical. Look for a few announcements late this quarter / early next quarter on how they’re going to do that (and how they’re going to not only address the weaknesses with their new benchmarks and budgeting capabilities, but take them to a new level as well). The development cheetah has been running at full speed in the background, and once the product management hippo gets excited, it’s going to charge with an almost unstoppable force.