Category Archives: Sourcing Innovation

CombineNet Comunique VIII: CombineNet Energy

Recently, CombineNet (acquired by Jaggaer), one of the few companies lucky enough to have inspired a whole series of posts (I, II, III, IV, V, VI, VII) on this blog, launched CombineNet Energy which, although it sounds like a new sports drink, is actually a re-launch of their advanced sourcing application platform with built-in decision guidance systems for the energy sector.

As you may know, back in 2003 CombineNet, in a leading initiative, formed an Energy Division, which, considering the recent energy crisis, doesn’t look nearly so crazy or risky in hindsight. According to their

solution overview, in a competitive energy market place, shareholders insist on strong financial performance, customers expect reliable and affordable service, and regulators require detailed reporting and compliance. In this pressured environment, CombineNet Energy offers proprietary, optimization-enabled decision guidance technologies that enable energy executives, policy makers and business managers to address the most complex strategic, financial and operational issues confronting the energy industry. CombineNet Energy’s advanced technologies help energy companies increase operational efficiencies and maximize profits.

In addition to their advanced sourcing platform, based on their Expressive Bidding and Scenario Builder offering, they are now offering a Gas System Guidance System, GS2, that they are promoting as an entirely new breed of operational and financial planning tool for the natural gas industry that simultaneously analyzes all elements of the vertically-integrated natural gas operation, including supply, transmission/compression, storage, operational solutions and contractual constraints, to guide weekly, monthly, and annual operational decisions that maximize profits and efficiency. It sounds very interesting – pipeline optimization is a tricky problem. At any one time, you can only pump one-way, and it’s hard to predict exact demands in advance. They even have a Video Demo, which is kind of neat.

The also have an on-line flash-based value-assessment Calculator that an energy company can use to estimate it’s potential cost reductions using the CombineNet tool (which is quite important because this type of technology comes with a hefty price tag, and not every one understands that the rewards can be many times greater than the investment). For example, given the number of Local Distribution Companies, the annual operating revenue, annual gas purchase expense, annual volume of gas withdrawn, the weighted average cost of gas, the annual transportation expense, and the property, plant and equipment balance, it is able to calculate an estimated range of savings that would be obtained using CombineNet’s solution. Check it out.

I’ll eventually get to my promised “Powers of POE” piece …

Sourcing 2007: Part V

In parts I, II, III, and IV, I summarized a number of predictions made from a number of bloggers, analysts, and media publications. About the only thing I missed was Supply Chain Digest’s First Thoughts piece by Dan Gilmore, Editor-In Chief, who predicted the following top 10 supply chain technologies and strategies:

  1. E-Auctions
  2. Labor Management Systems in Distribution
  3. Spend Management Visibility
  4. Demand Management / S&OP
  5. Supplier Portals
  6. Network Optimization
  7. Transportation Management Systems (TMS)
  8. Strategic Sourcing
  9. Wireless in the Warehouse
  10. Yard Management Systems (YMS) and Dock Door Scheduling

But the time for predictions in over. This post is to review which predictions appear to be on the money based upon recent movements in the space. Specifically, the following predictions appear to be right on track.

    • Spend Visibility
      Not only has there been a slew of activity from the vendors, recent discussions with Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric), Ketera (acquired by Deem), and Procuri (acquired by Ariba, acquired by SAP), as well as rumblings from the behemoth, Emptoris (acquired by IBM, sunset in 2017), indicate that there is considerable uptake.
    • Optimization
      The prediction here was that it will gain more traction. Although it’s probably not going to take off for another year or two (despite the fact that it could skyrocket savings for many organizations), it appears that a number of best-in-class companies are now beginning to seriously consider optimization, and a number of vendors with offerings are considering beefing up their capabilities in different areas, Best of Breed and Platform Optimization Engine vendors alike. CombineNet (acquired by Jaggaer) is starting to capitalize on this opportunity with industry specific offerings like CombineNet Energy, Iasta is extending their platform solution to include freight, more constraints, and better reporting, and I hear Emptoris is doing some major usability enhancements on their solution as well.
    • Should Cost Modeling
      The prediction here was that models that broke down total cost of ownership, and techniques that allowed a buyer to model expected costs, would start to gain traction. Based upon the recent traction that modeling firms like Akoya (acquired by i-Cubed) and Apriori are getting in the market, I think this is a sure bet as well.
    • Sustainable Supply Strategies
      With Walmart leading the charge, energy prices spiking, and raw material supplies being stretched to the limit in some categories, this prediction was definitely on the money.
    • Major Supply Chain Disruptions

Imperial Oil already won my bet. And I’m sure more companies will in the months ahead. Too much focus on low cost country sourcing. Not enough focus on risk.

However, although this wasn’t really touched upon in the blog entries or media, it looks like one more prediction could come true this year as well:

  • Supply Chain Community
    Procuri just launched Top Supply Tips (.com), Iasta just launched the e-Sourcing Wiki [WayBackMachine], Spend Matters just let slip that it is working on something far bigger than creating a cross-blog meta-index for procurement, another major vendor is currently putting the final touches on a community offering, and a couple of other vendors are working on some spectacular ideas for later this year. That’s a lot of individuals focusing a lot of effort on community – either they’ve identified a burgeoning desire, or a new drug from South America has hit the streets and they’re all on it. I’m betting on the first option.

Am I wrong? Let me know. (Just be sure to let me know why!)

Veni, Vidi, Wiki

In case you missed it, the eSourcing Wiki [WayBackMachine] launched today. Sponsored and launched by Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric), the goal of the site is to publish information of best practices on topics within supply management. The wiki is devoted to building a knowledge/resource center for both Iasta clients and global purchasing professionals.

In the words of the spend evangelist Jason Busch, Wikis like eSourcingWiki allow readers to actually contribute to a collective body of knowledge and research. Imagine, for example, if a whitepaper on sourcing decision support was not written by a single vendor or analyst firm, but a collective body of the best minds in the market. And think about how that whitepaper could become a living document that was continuously evolving based on reader input and criticism. That’s a Wiki. And that’s the framework that David has created which allows others to come in and modify and contribute content as they see fit (with a few restrictions, at least in some areas of the site).

Although only three mini-wikis are live now, the site is set to explode over the next few months. Not only have Wikis been drafted for each major stage of the strategic e-sourcing process (as the reader will see on the main Wiki Series page), but wiki drafts on a significant number of related topics are already under development. (Look for a wiki on Cost Reduction and Avoidance, inspired by the original weekend series (I, II, and III) on e-Sourcing Forum [WayBackMachine] last summer, next month.) Iasta’s goal is to pump them out as fast as the editor-in-chief can get to them (and once their User Conference is over in May, I’m sure a few more will hit the wire in rapid succession).

Finally, you can read the full launch announcements over on Spend Matters and eSourcing Forum.

Comparing Apples with Oranges (Value Based Sourcing)

In the winter edition of CPO Agenda, you will find an article entitled Comparing Apples with Oranges which notes that moving from a sourcing process based on minimizing cost to one based on maximizing value means embracing supplier differences.

The article discusses value-based sourcing, a sourcing methodology geared towards getting the greatest value out of a more broadly defined supplier relationship. The article encourages procurement professionals, who it claims have traditionally focused on sourcing goods and services, to look at value beyond the immediate scope of purchase to other capabilities and sources of value and indicates that value-based sourcing implies figuring out what other assets, capabilities, or benefits a supplier can bring to the table beyond the product or service currently being sourced.

It then presents a graph that shows value-based sourcing overshadowing advanced sourcing, and although I agree with the importance of value-based sourcing, I disagree with value-based sourcing overshadowing advanced sourcing – it’s simply another component of “Total Value Management” (on e-Sourcing Forum [WayBackMachine]), which is the ultimate goal of advanced sourcing, supported by decision optimization, cost modeling, and life-cycle sourcing.

Nonetheless, the article does make some good points about some of the merits of value based sourcing, and since value based sourcing is a part of Total Value Management, I will do my best to summarize the most salient points herein.

Value-based sourcing seeks differentiation. Complementary capabilities help value chain partners bring more to the table than what is initially requested. Value-based sourcing requires a strategic approach where the procurement professional looks first and foremost at the suppliers’ capabilities. Value based-sourcing treats the supplier more as a partner than a vendor, crafting a complex relationship that allows the supplier’s capabilities to be leveraged to full benefit. Finally, just as advanced sourcing requires a sharp understanding of key business issues and value drivers, so does value-based sourcing.

As a side-note, you can still download the “Advanced Sourcing and Negotiation Benchmark Report: The Art and Science of the Deal”, courtesy of Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) from Aberdeen. It’s a great report, and if you haven’t downloaded it already, I would suggest you do so. And if you’re still trying to identify figure out where to start, the answer is spend analysis, and Procuri (acquired by Ariba, acquired by SAP) has an upcoming webinar on Wednesday that should contain some good pointers to get you started.

Lean Commodity Sourcing

Last week at Aptium Global’s private 10 Ways to Significantly Improve EBITDA and Reduce Operational Risk in Your Portfolio Companies, Lisa Reisman (now of MetalMiner), Mark Pruitt, and Ara Surenian presented ten real-world examples of cost reduction and EBITDA improvement in small and middle market operations that proved that Lean can be used to save significant amounts of money even in categories where annual spend is in the low seven digits. Jason Busch did a good job of summarizing the event at the macro-level in his post “Small / Middle Market Private Equity Investments and Spend Management”*, so, with the kind permission of Aptium Global, today I am going to detail the first of two case studies that serve to illustrate that not only can lean significantly improve operations in companies with revenue as small as ten or twenty million, but do so outside of traditional manufacturing operations.

This second example is based on the results obtained by Aptium Global on a company that created custom electronic and electro-mechanical components for the automotive and lighting industries hurt by the automotive downtown and huge price pressure on non-electronic parts.

This company had no visibility into material versus value-added processing costs and the lack of competition in a key category resulted in no cost savings ever being achieved on a $3.6 M category. In addition, the incumbent supplier imposed a premium that appeared to fluctuate regularly and the company was unable to track the fluctuation due to a lack of visibility.

By establishing a baseline using the Olin Producer Price Index plus a fixed supplier premium, the company determined that the incumbent supplier “floated” their premium, hiding their mark-ups from the buying organization. The company was able to use the baseline to generate competition among other highly qualified, and certified, suppliers and this resulted in the incumbent immediately lowering their premium to competitive levels, resulting in an immediate 4% savings on the base premium alone. Plus, the company’s new ability to automatically track the Olin Producer Index allowed the company to insure actual invoiced costs matched quotes. Furthermore, the company was able to implement a dual source strategy and put all new requirements out to bid, locking in future cost avoidance.

If you are part of a Private Equity firm and would like to know more about how lean processes can improve the operational efficiencies of your holdings, you can email Lisa Resiman at Aptium Global (now MetalMiner) for further information, and maybe even luck out with an invitation to their next event.

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