Category Archives: Services

The Sorcerers of Sorcity

Another stop on my whirlwind tour of North Dallas was
Sorcity. My goal was to find out if they were an on-line auction platform, an e-marketplace, a combination of both, or something entirely different … since their site left me asking as many questions as it answered.

Founded in early 1999, it is possibly the oldest surviving stand-alone on-line reverse auction platform in the sourcing space (as most of the early major players have been acquired). [As a side note, Procuri (acquired by Ariba, acquired by SAP) is probably number two as it was founded in 1999 as well, and Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) is probably number three, as it was founded in early 2000]. In addition, it also serves as a marketplace with over 620,000 registered suppliers where you can potentially find hundreds of suppliers that could meet your needs. However, the real differentiator between the other online and on-demand SaaS reverse auction providers and other e-marketplaces is its managed services offering.

When you get right down to it, even with the best tools available, with finite resources, you can only conduct so many sourcing events on your own. The only way to conduct more events is to augment your team, either by hiring consultants or outsourcing part of the process – that’s where managed services comes in. With Sorcity’s platform, you can use Sorcity to assist with as much of the executable sourcing cycle (Preparation / RFX / Auction / Negotiation / Award) as you like … anywhere from just automating all of the time-consuming administration, negotiation, and analysis to having Sorcity conduct the entire event for you end-to-end.

With their tool alone, they claim you can save 1-12 days on the auction component alone, an additional 3-66% on price paid, and get anything you need with their very large supplier network. So they are definitely competitive with the service offerings of the on-demand providers like Iasta and Procuri. But as I just said, the real power is their managed services where you can outsource entire categories and events. Under this model, provided your bid is for 100K or more, you can successfully complete an event with just 1-2 hours over 1-2 weeks! Furthermore, it does not cost you anything – the fees are paid by the vendor who is awarded the business! (I believe they also have a consulting model, where they will help you for fixed fee, but, unlike most vendors, you only have to pay if they save you money. How can they do it? Years of experience has taught them where considerable savings are, and where they aren’t. So if they don’t think you can save enough money on a category / event to make it worth your while, they’ll help you find one where you can save enough to make it worth your while.)

So although I would hesitate to recommend their solution for in-house purchases (and I still believe all high-value and strategic purchases should be managed by a core team in one center of excellence under a center-led purchasing model) as I believe those should be executed under a platform that covers the entire sourcing cycle (and not just the executable sourcing cycle), I would certainly not hesitate to recommend that you consider them for those categories that are not critical to your business (and when you get down to it, the vast majority of your purchases are not, despite what you might think – if ten suppliers can make a part, it’s not strategic – only those components that can only be provided by a handful (< 5) of vendors or those components that can be, and often are, in short supply are critical, and therefore need to be classified as strategic). After all, the best way to do strategic sourcing is to strategically outsource everything you do not have a core competency for and everything you just do not have time to strategic source in house.

So check out Sorcity and check back to see if I am successfully able to convince their white-paper writer to guest author a post on why a managed services platform may also be appropriate for certain high-spend or strategic purchases.

Disaster Recovery Planning

In Managing Business Risk, we discussed Business Continuity Planning and how it is one of the best ways to manage risk, including supply chain risk. A major component of business continuity planning is disaster recovery planning, and after my recent posts on how Your Supply Chain is NOT Secure, diaster recovery planning should be at the forefront of your thoughts.

If you find planning for a disaster daunting, it never hurts to bring in some outside help, and if you think the costs of setting up a backup operation are prohibitive, then you might want to consider outsourcing that as well.

A recent article in the Outsourcing Journal, “Why Every Business Needs a Disaster-Recovery Plan”, demonstrates how it can be an effective option. It discusses how Citrix was able to literally move their factory from one side of the country to the other with the flick of a switch thanks to HP’s disaster recovery service which had the backbone and infrastructure needed to take over Citrix’s world-wide ordering and fulfillment process across all 670 SKUs.

Selecting a disaster recovery outsource provider is not an easy task, and Citrix spent 18 months interviewing and evaluating 20 firms globally before making a choice based on a 32-question report card. However, your process need not take quite as long if you heed Citrix’s advice and focus only on outsourcing provider willing to work with you and address your concerns. As the article notes, transition can be turmoil in most outsourcing arrangements, but if the company is willing to commit the necessary time and resources and work with you to make the transition seamless, it can be.

In addition, the provider should be comfortable with quarterly management reviews and clear metrics. Everybody should be looking at delivery performance, quality, customer satisfaction, and cost improvements every 91 days and identifying opportunities for improvements. Then, both parties should jointly choose two or three initiatives to work on during the upcoming quarter and follow through.

As per the article, done well, outsourcing has the following benefits:

  • Increases productivity
  • Increases mobility
  • Frees up resources to focus on core competencies and innovation
  • Provides business continuity and security
  • Reduces complexity and improves performance
  • Consolidates to create a single view into technology environment
  • Provides governance and compliance
  • Improves process
  • Reduces points of accountability
  • Provides accountability to service level agreements

The Art of Service Management

The Art of Service Management

There were a lot of presentations at INFORMS on services and services management, which only makes sense since services are the most dominant contributor to national GDP (making a significantly larger contribution then manufacturing), but the most interesting was P.T. Harker’s plenary session on Science and the Art of Service Management. In this talk, P.T. Harker discussed the evolution of service management over the last three decades and the technology you are going to need to keep up.

In the eighties, service was all about delighting the customer. The customer was always right … and you went out of your way to delight the customer! However, this strategy almost bankrupted a number of corporations that took it too far and then came the nineties with the corporate backlash strategy which said you should fire the customer – after all, all they do is complain and kill profits. Of course, this didn’t work either – we’re not whiners, schemers, or stupid – we just want a fair product or service at a fair price … and we started fighting back, taking our business to companies that didn’t treat us as whiners, schemers, or idiots. So now that we’re in the noughts, what’s the new strategy? Make the customer efficient. In other words, if you’re not able to delight the customer, at least be decent enough to not waste her time.

How do you do it? Forget CRM (Customer Relationship Management) – the new wave is CEM (Customer Efficiency Management). CRM is good – but if you have systems and processes in place where the customer can find the information and products they need by themselves, then CRM kind of becomes a moot point, doesn’t it?

The goal of CEM is to treat the customer as a true co-producer, manage their contributions by integrating HR and Marketing tools and processes into your traditional CRM processes and technologies, and harness their knowledge. After all, you’re much more likely to sell a product or service if it is in line with what the customer wants AND it’s not a hassle for them to buy it.

However, it’s important to note that the key to success lies in the balance. If you take it too far, two things could happen. You could end up on that slippery slope back to the delight the customer mentality, which is generally not profitable for the vast majority of service providers (there are exceptions, but they serve a marginal consumer, not the average consumer), or you could make the customer too efficient in such a way that you make your service invisible and this would weaken your brand as a side effect. (As far as I’m concerned, there is no such thing as too efficient, but you want to make sure the customer understands who brought them the heightened level of efficiency.)

Magic & Logic II (Procurement and Marketing)

As defined in Part I, this summer the Value Framework Initiative co-sponsored by CIPS (Chartered Institute of Purchasing and Supply), the IPA (Institute of Practitioners in Advertising), and the ISBA (Incorporated Society of British Advertisers) released a report entitled “Magic & Logic: Re-defining sustainable business practices for agencies, marketing, and procurement”.

This report “identifies best practice methodologies that can be used jointly by agencies, marketing, and procurement to work together in their efforts to produce ‘profitable ideas that make profit’. Knowing that profitable ideas result when all three parties recognize the ‘magic/logic’ distinction and vigorously pursue the improvement of both with an appropriate balance”, this report is designed to be a guide for marketing, agencies, and procurements to get more out of their relationship.”

The report also notes that “Procurement can help marketing deal more effectively by disciplining the process and aiding marketing in the identification of precisely what it is they are seeking. They [Procurement] can bring consistency to briefing, standard contracts, fee structures, and reporting, and insure that third party supplies are purchased effectively. They [Procurement] can help control the relationship, maintain consistency in their organization’s dealings, measure effectiveness and outcomes, and help quantify, as well as increase, the value of the relationship (which is not cost, but ROI).” Furthermore, “Procurement can also help the agencies increase their value by working with the agencies to improve their management and processes, thereby increasing the value of the services offered by the agency. Procurement is also the entity that is best suited to identify the win/win during negotiations.”

The report concludes with detailed recommendations for agencies, marketing, and procurement alike, and what I would like to point out are the recommendations for procurement which are:

  • make the effort to understand what you are buying when you buy agency services; understand that quality of outcome is highly correlated with cost and return on investment is a better measure of success,
  • be more open about your agenda … after all “a failure to communicate creates a vaccuum that will be filled by lies, poison, and drivel“,
  • look for ways to work with agencies to help them be more efficient, and
  • help marketing be more disciplined.

The reason I want to point these out are that these are best practices that hold true when working with any third party service provider, procurement outsourcing agencies included! The same maxim holds true for services and direct materials: cheaper is not always better. Quality and return on investment (with the ultimate goal of value) should be your metrics of choice.

Open and honest communications will in turn inspire open and honest communications from your potential provider. (And if it does not, find another provider.)

Finally, you are always in a position to assist third parties in improving their efficiency, just like you are always in a position to help your own organization become more efficient. With the possible exception of engineering/production, no other division needs to be anywhere near as efficient, value conscious, and metric focussed as procurement in order to get business done and look good. Marketing looks good if they boost brand recognition. Sales looks good if they boost sales. Finance looks good if they find ways to trim the buget. But unless procurement measures, manages, and shows value in everything it does, it tends to get overlooked because it will otherwise be looked upon as the division that spends money, not the division that saves it.

Magic & Logic I (Procurement and Marketing)

For readers on this side of the Atlantic, I’d like to point out an interesting report released over the summer by the Value Framework Initiative co-sponsored by CIPS (Chartered Institute of Purchasing and Supply), the IPA (Institute of Practitioners in Advertising), and the ISBA (Incorporated Society of British Advertisers) entitled “Magic and Logic: Re-defining sustainable business practices for agencies, marketing, and procurement”.

This insightful report, authored by Marilyn Baxter, who conducted in-depth interviews with 24 senior respondents with decades of relevant experience at large enterprises (with names like Coca Cola, Honda, Unilever, Fallon London, Lowe London, Proximity, and Willott Kingston Smith), identifies best practice methodologies that can be used jointly by agencies, marketing, and procurement to work together in their efforts to produce “profitable ideas that make profit“. The societies came together and commissioned this report because they found that there was a general lack of alignment between agencies, marketing, and procurement in all but the market leaders. Knowing that profitable ideas result when all three parties recognize the “magic/logic” distinction and vigorously pursue the improvement of both with an appropriate balance, they wanted to provide their members and the community at large insight on how to be more successful.

Magic is defined as the production of brilliant ideas that grow brands and businesses while Logics is defined as project management, financial management, and other non-magical processes that support the innovation effort and the “magic” it produces.

The agency controls the realm of magic, needed by marketing, and procurement controls the realm of logic. The fusing of the three is necessary to ensure that marketing receives maximum value from the agency relationship. Furthermore, the agency can itself benefit from the involvement of procurement.

The agency market is more crowded than ever and agencies are being pressured to be more competitive. However, despite historical indicators to the contrary, successful agencies are run just like any other successful business and the best agencies are those that offer a differentiated product, focus on results, maintain confidence, maintain a high degree of professionalism, and have disciplined business processes that enable them to get their top-line income right and achieve better bottom line profits.

Successful agencies also have strong leaders with clear goals, coherent values, and a strong business focus. They care about cost and efficient use of their resources (the logic) as well as innovation (the magic). They put the quality of their people at the heart of their business, forming a “service/value/profit” chain. The leaders know they are in business to create value, quality, and great ideas.

However, agencies are not alone in their need to improve. Marketing clients have to improve their ability to assist agencies in developing the best possible profitable ideas for them. This includes being professional, disciplined, and well-organized at all times, knowing what they want, committing to quality and expecting to pay for it, regarding agencies as partners, and engaging procurement in the development of efficient, valuable, constructive and productive relationships.

Procurement can help marketing deal more effectively by disciplining the process and aiding marketing in the identification of precisely what it is they are seeking. They can bring consistency to briefing, standard contracts, fee structures, and reporting, and insure that third party supplies are purchased effectively. They can help control the relationship, maintain consistency in their organization’s dealings, measure effectiveness and outcomes, and help quantify, as well as increase, the value of the relationship (which is not cost, but ROI).

Procurement can also help the agencies increase their value by working with the agencies to improve their management and processes, thereby increasing the value of the services offered by the agency. Procurement is also the entity that is best suited to identify the win/win during negotiations.

This extensive report concludes with a number of detailed recommendations for agencies looking to improve the value of their offerings, marketing organizations looking to get more value out of their agency relationships, and procurement organizations seeking to help both parties work together more effectively. It also includes some great appendices that define signature practices of the most profitable client/agency relationships from a financial, workflow, relationship, and value perspective and profitable performance characteristics. All in all, it’s a great read – and I’m not going to give away the ending here to encourage you to add it to your reading list (and maybe take a copy with you on your next flight).