Category Archives: Procurement Innovation

Don’t Forget The Post Mortem in Your Strategic Category Management of Services!

A couple of weeks ago, after running our series on Strategic Category Management (Part I, Part II, Part III and Part IV), we said Don’t Forget Strategic Category Management in Your Services Categories. This was because a lot of organizations believe that strategic category management is only for direct categories or physical goods, when nothing could be further from the truth (especially when indirect spend can approach 50% in some organizations).

In this post, we outlined the nine phases of strategic category management and how they relate to services categories. Although we did not make Post Mortem a separate phase, it is still a critical part of the process. In fact, it’s one of the most critical parts – because if you do not analyze how you did, you will not improve the next time around. So why isn’t it a separate phase? Two reasons. One, it’s a required input to the first, rationalization, phase because if you don’t do a post mortem and analyze how well the last strategy worked, you can’t be sure if it was the right strategy or not. (The fact that the results were not what you expect is not sufficient to declare a strategy incorrect. Maybe the team didn’t follow though on the strategy as required in each phase.) Two, and this is the real reason, you should be doing a post mortem after each phase. Face it. If you’re procuring discovery services for the next three years, and you wait until thirty-three months in to start the post mortem, how well can you reasonably expect to assess the job you did in the supplier identification and sourcing phases three years earlier, when half of the team has changed, memories has faded, and a lot of the details of the process has been lost? Here’s what you should be doing from a post-mortem perspective at the end of each phase.

At the end of the rationalization phase, you should be documenting not only what strategy you are pursuing, but why. What are the assumptions you are making that favour this strategy? What other strategies did you rule out and why? (If it turns out an assumption was wrong, then another strategy might have been viable and you will have saved work the next time around.)

At the end of the supplier identification phase, you should document how you conducted your search and how effective you were at identifying additional suppliers. How long did it take, how many new suppliers did you uncover, what percentage were suitable to push to the sourcing phase, etc?

At the end of the sourcing and contract award phases, document the process that was followed, how long it took, what seemed to work well and what didn’t, and anything you wish you would have done (differently).

During the supplier management phase, which is ongoing from contract award until the end of recovery, conduct regular supplier assessments and thoroughly document the results against well defined metrics, any benchmarks you have, and any expectations that were included in the contract. For each issue, document the root problem, what you did to address it, and what you think you could have proactively done to prevent it.

During the procurement phase, review actuals to expected at the end of every quarter. (This will be “easy button” simple if you have a decent e-Procurement system that allows you to define budgets at the line-item level.) For all line items that are off more than 20%, do a quick manual review to identify any that aren’t easily explained (a payment slipped, you moved some work back, you ordered extra inventory as a precaution, etc.). Dig into these. If they can’t be adequately explained in five minutes, someone didn’t do a good job of budgeting or project management. This needs to be identified and documented as part of supplier management.

Then, at the end of the phase, and before you execute a new sourcing event, you need to do a more detailed analysis. At the very least you should:

  1. Run the spend reports on your complete transactional data
  2. Compare the results to your original spend analysis data (which was likely incomplete if this is the first time you are doing strategic category management)
  3. Focus on the gaps – where the data does not match, is it because you brought new spend under management or is it because there was some off contract spending
  4. Focus on the differences that are +/- 20% (adjusted for inflation or demand, as required) – for each difference that was not already detected and adequately explained, do a deep dive
  5. For each gap and each difference >= 20%, document what could be done to prevent this in the future – better forecasting, new processes to keep purchases on contract, better supplier / demand management, etc. and what changes, if any, are required to the overall strategy

This is the phase where you “close the loop” and begin to loop back to the next, hopefully better, iteration of the strategic category management cycle. If the loop is not closed, spend under management will not effectively increase and the organization will only see savings the first time. If the loop is effectively closed, then, when inflation and demand is adjusted for, the company will see savings each time through the process as efficiency, in both the buying and supplying organizations, is increased (and unnecessary fat is taken out of the margin).

During the recovery management phase, you have to document what actions you take and how well they do.

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.

Procurement Key Issue 2013: CXO’s Still Don’t Get the Disconnect!

This week, the Hackett Group released their “2013 Procurement Key Issues” study. This study, which was likely the last hurrah from Pierre Mitchell as a Hackett Group Employee, found that some organizations are going deeper and broader to deliver borderless procurement services, which is good, but the one thing that blatantly stands out is that your average CFO, COO, and CEO still doesn’t understand the value of the Procurement Organization.

Before I explain, let me review a few of the key findings.

1. 82% of respondents state that increasing operational agility and flexibility is a key enterprise issue.

2. 65% of respondents state that pursuing game-changing innovation/technology is a procurement initiative planned for the next 12-24 months in support of enterprise strategy.

3. 76% of respondents state that expanding purchasing’s scope and influence is a major procurement-related issue in 2013.

4. 76% of respondents state that increasing innovation and product/service report is a major procurement-related issue in 2013.

5. 88% of respondents cite strategic sourcing as a major issue.

6. 81% of respondents cite category management as a major issue.

BUT

7. As a whole, respondents are projecting:

  • a 0.4% drop in the operating budget and
  • a 0.5% drop in the FTEs in the procurement function.

 

I think this calls for a WTF!

Strategy and category management require skilled resources with the right intelligence and toolsets. This requires adequate budget.

Innovation and agility require advanced skills, expertise, and market knowledge that requires a lot of supply market intelligence, outside information, and time to study mini- and mega-trends. This also requires adequate budget.

Scope of influence comes with results, and results require talented people with appropriate toolsets and knowledge. Again, this requires adequate budget.

Furthermore, we have the situation where budgets are not being cut equally. From what I’m gathering, for the fifth year in a row, Procurement Training budgets are being slashed or are non-existent! This is driving me nutz! This disconnect of separating expectations from budget is ridiculous, especially when the organization is supposed to be scored on value. Value is ROI. ROI is return on investment. In Procurement, this is defined as savings/avoidance/revenue increase over spend. This means that if spending $10K on training will give your category managers the capability they need to go negotiate another $100,000 of the TCO (Total Cost of Ownership) through unit price, logistics, and non-value added service savings, then you increase the budget by 10K because you are getting a 10X return!

If the goal is for the Procurement organization to deliver value, then they need the budget for the technology, supply market intelligence, and training they need to deliver that value. Otherwise, expecting them to do more with less (FTEs) is just stupid. Ludicrous in fact!

Seeking Spherical Supply Solutions? Succeed in the EU! Part III

In our last two posts we outlined five major reasons you should be looking at European Supply Management Solution Providers if you are a global multi-national that is buying from and selling to multiple countries. Briefly, they were:

  • EU solution providers are already multi-lingual!
  • EU solution providers understand the importance of locality.
  • EU solution providers understand that customer priorities differ by locality.
  • EU solution providers realize that, one way or the other, you have to be in Asia.
  • Including EU solution providers in the mix reduces the chance that you will need two solutions.

If the EU provider, understanding the importance of locality, has opened a US office and staffed it with local staff, why shouldn’t they be in the mix. After all, if they also have:

  • the functionality to meet your requirements,
  • successful implementations (verified with references) in the countries you have targeted, and
  • a proper localization of their software for the US market

they could be perfect for you. And when you get down to it, a number of you are probably storing your data in an ERP solution that came from Germany!

It’s no longer the case that, as it was as recently as a few years ago, a multi-national has to use a US-founded solution provider in the US and a European-founded solution provider in the EU (and maybe even the rest of the world). There are now choices in both markets that serve the globe, with companies like BravoSolution, Hubwoo, and Wallmedien being examples on the European side.

SI isn’t saying that a European provider will be the right choice for you, as there are big name US providers that have successfully gone global, including recently acquired Ariba and Emptoris, and some up-and-comers like Coupa and Iasta have added multi-lingual and localization support since their early days and are exceptional solutions for the markets they are being deployed in. What SI is saying is that you cannot strike these EU providers off the list until you have seriously reviewed them. I have seen situations where no US provider has fit the bill, and expect that this reality will continue at least until a few US providers rise to the level of Ariba and Emptoris, if not for the next decade. The only way to guarantee that you are going to get the best solution for your business is if you invite all the top players to the table, regardless of where they came from.

Seeking Spherical Supply Solutions? Succeed in the EU! Part II

Alliteration aside, the reality is that if you are looking for a modern sourcing or procurement solution, not only should you not exclude the EU, if you truly want to go global, and install global, you should probably focus in on the EU solution providers before making any decision. In today’s post we continue an explanation of why.

They understand that customer priorities differ by locality.

While this could have been included in the last point, it merits its own point because priorities do differ substantially between NA and the EU. While many North American companies will often trade functionality for usability — which is why there are so many flashy solutions out there across the spectrum of business solutions that are almost void of advanced functionality where optimization and analytics are concerned, the same is not true of the EU solution providers that, after the doctor‘s heart, favour functionality over form. That’s why many of the EU (import) solutions have deeper, and broader functionality but UIs that look like they were designed five to ten years ago. (Fortunately, with customer help, this is an easy fix. It’s easy to put a new paint job on a faded corvette. It’s much harder to turn an oldsmobile into a corvette.)

One way or the other, you have to be in Asia.

If you’re a global multi-national, you’re either buying from, or selling, to Asia — if not both! Most of the EU Supply Management companies have a larger footprint in Asia than most of their counterparts in the US. The EU, close to Asia, has not only been doing business with Asia for just as long as North America, but due to their ability to support multiple languages, and locales, from day one, had an easier job moving into Asia.

It reduces the chance that you will need two solutions.

While you want Best of Breed, the last thing you want is multiple best of breed solution providers if you can get away with one. Adding the EU providers to the list increases your chances that you can find a solution provider that will meet all of your needs.

In other words, you have at least five very important reasons to be seriously considering EU solution providers. Tune in tomorrow when we’ll summarize the situation.