Category Archives: Procurement Innovation

The Sourcing Innovation Series XIII: Part One Wrap Up

First of all, I’d like to thank all the contributors for their efforts and incredibly well thought contributions. It was a great series.

With commentaries ranging from technology through processes to services, from technological, business and even economic backgrounds, I think this first series brought a breadth and depth to the topic that even think-tanks would be hard pressed to match. Ranging from the down-to-earth predictions that the future will be forged from process improvements and enhanced corporate understanding of how to use existing technology (David) through evolutionary process improvements such as new hybrid sourcing models (Tim) to sky-high predictions that in the future capacities will be securitized and traded on the open market (Jason), this series opened our minds not only to the art of the possible, but the art of the probable. Given whom many of these predictions are coming from, I’d say it’s a safe bet that many of today’s predictions will turn into tomorrow’s technologies, processes, and best practices. So if you missed any posts, use the links above to catch up. And if you didn’t, use the links above to read them again. Considering what these guys can charge for their advice, and the very high caliber of the postings, I’d wring every idea I can get out of them. It might just give you the leg-up you need to surpass your competition.

I’m not going to attempt to summarize the series in this post, since I spent nine posts trying to do just that as I offered my views, but instead note that I hope to make this a regular yearly series. Sourcing is always changing, and not just because of the rapid advancements in technology which have skyrocketed it, e-Procurement, e-Commerce, and supply chain forward in recent years. I think it will be very interesting to see not only where it is in a year, but how that changes our perceptions of where it is going and how fast it will get there. I hope my fellow bloggers and contributors agree, since they’ll all be receiving invitations, root* willing, next summer to contribute to Partie Deux!.

Back to the present. Given the recent focus on talent#, I would like to propose that as the second cross-blog topic. I know Charles, Tim, and David are quite interested in this topic, as well as myself, (as they blog about it regularly). I’m particularly interested in predictions on how companies are going to close the talent gap over the next twelve months – and, in particular, innovative techniques they are going to use to do it. What do you say guys — up for it? (Guest commentators — if you want your top-notch commentary on SourcingInnovation on this topic, feel free to contact us using the contact information in the FAQ.)

Thanks again guys! Fantastic job!

* Inside Techie Joke
! It just sounds better en francais.
# See the Talent category in the category archives, sixth component down on the right hand side of the page.

** All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Procure-to-Pay cycle Best Practices

I’ve been thinking about the P2P cycle in general and how it could be improved across the board. Remembering that CAPS published a piece on the issue relatively recently, I decided to look it up. The piece, titled “Best Practices in the Procure-to-Pay Cycle: Perspectives from Suppliers and Industry Experts”, was published back in March in the Practix series and described key findings that can lead to improvement in the P2P cycle.

Even though there were no surprises in this piece, as all of the suggested improvements were essentially just good business processes adapted to the procurement cycle, the report is worth a read as it was based on a study that collected the major problems as identified by your suppliers, not third party consultants or analysts.

The Procure-to-Pay cycle, which generally consists of the following steps:

  1. Forecast, Plan & Coordinate
  2. Need Clarification / Specification
  3. Sourcing Decision
  4. Contract / PO Generation
  5. Receive Materials & Documents
  6. Settle & Pay

contains many opportunities for errors without good, documented, processes streamlined and managed by appropriate technology. Furthermore, an organization in non-compliance may be incurring significant costs without even realizing it (through maverick spending, late payments, etc.).

If a broken P2P process is not fixed, the following problems can arise:

  • deteriorating response time from suppliers
  • lower service levels from suppliers
  • deterioration as the customer of choice
  • delivery delays
  • higher pricing (due to cost attributed to late payment)
  • increased manpower on non-value-added activities
  • loss of the supplier as a critical supply chain link
  • higher internal costs

Therefore, a company should review its processes regularly, fix any problems it identifies, and make effort to streamline processes. A good place to start is by insuring that your P2P cycle does not suffer from the top four problems identified by suppliers.

  • manual workarounds / high manpower requirements
  • long cycle time / late payments / aged invoices
  • no central point of contact
  • PO / invoice match problem

These problems are often the result of the following root causes:

  • poorly designed process
  • no relationship manager / point of contact
  • lack of system / portal interface
  • too much complexity in the catalog / too many line items

Furthermore, as per the report, these root causes can often be addressed by the following solutions:

  • redesigned P2P process deployment
  • dedicated relationship management position
  • a supplier portal
  • spend analysis and a catalog line item reduction initiative

In addition, the report also presents six key findings that can lead to improvements in the P2P cycle. These are:

  • robust processes and training
  • onsite relationship managers to allow field maintenance to focus on doing its job
  • robust technology using a single point of contract; i.e. a supplier portal
  • improved forecasting for maintenance and planning for emergencies that can “flex” with different situations that arise
  • reduced complexity in catalogs and buying channels to streamline procurement
  • top management support

Innovation Matters

Seventy-two percent of companies worldwide will increase spending on innovation in 2006, and 41 percent will increase spending significantly, according to a recent survey of senior management conducted by The Boston Consulting Group (BCG) as summarized in “Innovation 2006” and “Measuring Innovation 2006”.

The study was based on responses from more than 1,000 senior executives from 63 countries and all major industries, so the results are statistically significant.

However, despite plans to raise spending, the study determined that nearly half of the companies are unhappy with their returns on innovation spending. According to James Andrew, Senior Vice President and report author, These findings highlight the paradox we see all the time in practice. Innovation is such an important priority for companies, and although they continue to spend ever-increasing amounts on it, half of all companies remain unsatisfied with the returns they generate. Furthermore, he also stated that This is a critical issue because the costs are even greater than most companies realize. The costs include not only the money invested, but also the opportunity cost of not generating the growth and returns from innovation that are possible and that companies need to meet the demands of the stock market.

This report highlights the need not only for innovation, but management of the innovation process. Contrary to popular belief, the process can be managed and there are techniques that can be used to jump start the process and significantly increase your chances of success.

For example, I described a couple of approaches to innovation in my Purchasing Innovation Series over at e-Sourcing Forum [WayBackMachine]. If you have a clearly identified problem, a great approach is Teoriya Resheniya Izobretatelskikh Zadatch, the Theory of Inventive Problem Solving, or TRIZ for short. The foundation for invention on demand, it can be used to create completely new products to perform a given function or solve an existing function. Another methodology is crowdsourcing, the process of delegating various tasks for which you do not have the manpower or expertise from internal production to external entities or affiliations of networked persons with the expertise, access to, or raw capabilities that you require.

Building on crowdsourcing, you can take advantage of companies, research networks, and laboratories that exist primarily to help you with your innovation needs. One example is Innocentive, an exciting web-based community matching top scientists to relevant R&D challenges facing leading companies from around the globe, can help you with your chemical, biological, and other scientific problems. Another example is YourEncore, a service provider connecting the technology and product development opportunities of member companies with world class talented individuals whose motto is People don’t retire anymore, they just go on to do other things. Yet another is NineSigma, a company that enables organizations to amplify internal resources and capabilities by tapping a global network of innovators for new solutions, technologies, products, services and opportunities.

Some of these organizations will even help you turn your product idea into a prototype. One example is Nytric, a company that exists to create revolutionary new products, using an advanced mode of thinking, spanning initial idea to market conquest; and by using a business model that shares front end risk so as to ensure a maximum mutual return on investment. Another example is Big Idea Group, an organization that brings together creative inventors and innovation-driven companies.

Furthermore, if you need just need help automating and tracking the process, you could always start BrightIdea’s On Demand Innovation Management Software, which gets you up and running immediately. Of course, this isn’t the only choice. You could also try Jenni’s Idea Management Software, Centric Software‘s Product Intelligence software, or Imaginatik’s Idea Central Software.

In other words, there are companies, products, and methodologies out there to help you ensure that each and every innovation effort you undertake is a success because, simply put, innovation matters.

Living Green

As pointed out in e-Sourcing Forum’s [WayBackMachine] post on Green Suppliers back in May, Interface Inc., the world’s largest carpet manufacturer, was able to save $260m from waste reduction initiatives, as pointed out in a Purchasing Magazine article. But the story continues.

As pointed out by Lindsey Parnell, the CEO and President of Interface Europe, in her article “A Sustainable Future” in CPO Agenda, Procurement leaders need to play their part in overcoming the many hurdles to environmentally friendly business.

The article points that sustainability is about driving enterprises towards maximum resource efficiency, maximum responsibility for any actions and maximum return on investment. It’s about doing well both commercially and in an environmental and social sense and that the development of consistent definitions of industry-specific drivers would increase focus while the establishment of a return feed of used and end-of-life products would allow suppliers to close the loop and view lifecycle costs, not just one-off purchase costs.

Furthermore, even if companies looked only at what could be achieved with the resources readily available to them, the impact would be significant. Consistently demanding the most sustainable products and services available would also help the market’s development, and I believe gravitation in that direction is inevitable.

As I pointed out in staying green, I too believe this trend is here to stay. After all, when you consider Sprott Asset Management‘s recent report “Investment Implications of an Abrupt Climate Change”, which forecasts far-reaching and “dire” impacts of rapid climate change, businesses who do not adapt may go extinct. And, as described in BusinessWeek’s Business on a Warmer Planet, some companies are already adapting. After all, as CIO Insight points out in “The Greening of the CIO”, environmental questions matter more and more for corporate IT, not as feel-good programs but business issues with a direct impact on the bottom line. After all, as pointed out by a recent Supply Excellence [WayBackMachine] post, the European Union’s Restriction of Hazardous Substances (RoHS) has triggered shortages for both compliant and non-compliant electronic components, challenges which will need to be overcome by innovative sourcing professionals. Fortunately, some manufacturers are stepping up to the challenge. Zebra Technologies has fully converted its thermal printers to be in compliance with the EU’s RoHS directive, as described in a recent Supply & Demand Chain Executive article (that is no longer available).

Green issues have an impact on everything from product marketing to employee morale to profit margins, and many of them are closely interwoven with the everyday work of IT organizations and the departments, including procurement, that IT supports. The article suggests that you should think of environmental consciousness as the next level of alignment, an enterprise-wide phenomenon that procurement must lead.

And your job is only getting easier. With companies like new startup SolFocus and Energy Solutions Alberta, you’ll soon be able to run your corporations on 100% renewable green energy from the ultimate renewable energy resources — the sun and the earth themselves. (And some researchers are even looking into ways to capture the energy we waste with each foot step, by taking the science of piezoelectrics, that powers your SEIKO kinetic perpetual timepieces, to the next level.)

Furthermore, it may not be too long before we’ll be able to stop wasting paper and silica and write on water itself as a result of some recent developments at the Akishima Laboratory in Japan. (English article no longer available.) At the very least, we should be able to replace those neon signs with a new generation of technology. (While we wait for that day to come, we will soon have e-paper to tide us over.)

To answer David’s Question in a recent e-Sourcing Forum post, I think Kermit will soon be singing about how easy it is to be green.

The Long Tail Wags the Dog

Dave Stephens, author of Procurement Central [WayBackMachine]  isn’t the only blogger who likes to muse about Procurement’s Long Tail. As you may recall, Doug Hudgeon of Vendor Management (renamed Contract Capital Management [WayBackMachine]) prognosticated on the issue in Are your vendors the Spice Girls or Arcadia? and I wrote about some of my own musings last month in my post Build To Order.

However, for those of you who want some in depth discussion of the “long tail”, a new book about entertainment, technology and statistics that predicts that popular culture-and the business associated with it-will be transformed by the internet entitled “The Long Tail: Why the Future of Business is Selling Less of more” by Chris Anderson is now available.

Now I’ll admit that I haven’t had a chance to read the whole book yet, although I have read the original article that the author wrote back in 2004 a number of times, but I have read a number of reviews, including a great article in a recent edition of The Economist entitled “What the long tail will do” (subscription required). The article points out that one of the main points of Mr. Anderson with respect to entertainment is that the niche, the obscure and the specialist, will gain ground at the expense of the hit. As evidence, he points to a drop in the number of companies that traditionally calculate their revenue/sales ratio according to the 80/20 rule—where the top fifth of products contribute four-fifths of revenues. Ecast, a San Francisco digital jukebox company, found that 98% of its 10,000 albums sold at least one track every three months. Expressed in the language of statistics, the experiences of Ecast and other companies such as Amazon, suggest that products down in the long tail of a statistical distribution, added together, can be highly profitable.

Long-tail enthusiasts argue that the whole of culture will benefit, not just commercial enterprises. Although many people appear to be quite happy to watch and listen to what the mainstream provides, if individuals have the opportunity to pick better, more ideally suited entertainment from a far wider selection, they will take it, according to the theory of the long tail. For example, YouTube is now serving up 100 million videos a day.   (And I personally buy more music in mp3 form from AudioLunchBox, Mperia, and related sites then I do traditional CDs these days.  Post-Edit: As of last link verification, the doctor highly recommends you check out Bandcamp, especially if you like American Pie. )

Interestingly enough, Mr. Anderson, who developed the long tail theory in the aptly named Wired article “The Long Tail” back in 2004, has backed away somewhat from his original take in which he suggested that the long tail would be a bigger market than the hits. His book says, more cautiously, that “all those niches can potentially add up to a market that is as big as (if not bigger than) the hits.”

The article in the Economist indicates that one weakness of this otherwise excellent book is that it tries to apply the theory of the long tail to fields far beyond entertainment and e-commerce. The article notes that Mr. Anderson sees long-tails in labour (offshoring) and national security. Although I am inclined to agree in that the application of the long-tail theory to national security is too much of a stretch, I disagree with the author of the Economist article and believe that the long-tail theory does apply to labour. However, even though outsourcing is part of the distribution, I would classify Crowdsourcing as the long-tail of labour.

Even though I do not think that any one author, reviewer, critic, analyst, researcher, or futurist really understands long-tail in its entirety, and that no one can fully predict what the long-tail future will deliver, I believe that as time goes on, we will see it taking a greater hold of many marketplaces, not just entertainment and e-commerce. Furthermore, I think the open-source movement will continue to significantly contribute to the long-tail in the technology sector and redefine the sector as a whole as it contributes to the emerging “non-monetary economy” that seems destined to emerge at the end of the long-tail.

For more insight, you can check out CNet’s interview with the author. I found the most interesting parts to be the following questions and answers:

What was the most surprising thing you came across in your research?

The most surprising thing was industries that understood the long tail that I hadn’t anticipated. When you think of the long tail, it’s basically a large number of niches that compete with one-size-fits-all mass-market products. There are so many precursors. You know, fashion has always had boutique and couture. And you can think of that of as a long tail of clothing.

In food, we’ve seen the rise of organic and artisanal food as the long tail of agriculture in a sense. It used to be difficult to have that in the supermarkets. But what I learned is that even in the supermarkets because of efficiencies and supply chains and stock management technology, there’s been more than a doubling in products on the shelf. Even Wal-Mart is now offering organic, which is a day many thought would never come.

Who are the most important people in the long tail?

The producers. I mean the long tail is made up of millions and millions of people who are creating content and finding an audience for it. Look at all the bloggers out there. They have essentially extended the tail of media a millionfold because it’s so easy to do so and they have something to say.

So I think that the real lesson of “The Long Tail” is that that notion that professionals produce and amateurs consume is really being blurred and we’re realizing that amateurs often have as much as to contribute as the professionals do and there are so many more of them. Wikipedia, I think, is perhaps the best example of that.

In other words, the long tail is just about everywhere and each and every one of us is carrying it forward. Now that’s food for thought.