Category Archives: Sourcing Innovation

(Cost Reduction) It Only Starts With Cost Cutting

Looks like someone’s been secretly reading my blog. But seriously, you know I’m not going to be able to resist a review of any article entitled “Sourcing Innovation (It Only Starts With Cost Cutting)” (Managing Automation Magazine, registration required), after all, that’s pretty much what this blog is about.

According to the article, sourcing and procurement needs to shift away from a single-minded focus on cost cutting to a more holistic approach that considers quality, risk, and product innovation as well as cost. New emphasis needs to be placed on process optimization and collaboration both internally and with suppliers. … Well, yeah!

More interesting is that it also notes that many manufacturers are turning to options-based contracts and indexed-based pricing to counter rising costs and price volatility, especially for energy. This is more interesting – since I find options-based contracts to be uncommon, even though Jason Busch has preached their virtues in this blog as well as his own Spend Matters in “Sourcing Innovation: Securitizing Direct Materials”*. (As for indexed pricing, hopefully you are doing that already!)

It also discusses how HP uses Procurement Risk Management (PRM) (also known as Supply Risk Management) engineering to manage uncertainty in the procurement process by way of a set of mathematical and statistical solutions that analyze hundreds of potential scenarios and determine the likelihood of potential outcomes. Knowing the most likely outcome(s) allows you to predict volumes with confidence and make commitments to a supplier about volume levels and prices.

And, of course, it discusses decision optimization, although it simply lumps it in under the “spend management” heading. (Ouch!) For example, Oracle Sourcing from Oracle Corp. (Redwood Shores, CA) generates recommendations after analyzing various combinations and permutations to balance cost, quality, risk, and product innovation as well as “what if” scenarios. Decision optimization in a nutshell … too bad the author doesn’t look below the 100 million threshold when picking representative companies … since there are much more innovative decision optimization companies out there than Oracle. (And if you don’t remember, start with my optimization series over on the e-Sourcing Forum [WayBackMachine]: Parts I, II, III, and IV).

It’s a good article, but I would have liked more. But then again, it took thirteen installments of The Future of Sourcing to even scratch the surface of Sourcing Innovation.

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

New Technology Strategies for Supply Chain Management

The first keynote at the Symposium on Supply Chain Management yesterday was Beth Enslow’s (of Aberdeen Group) presentation on New Technology Strategies for Supply Chain Management. Over the last 6 months, Aberdeen has produced a slew of reports on Supply Chain that have identified a number of common findings that point the way to a best in class supply chain.

The five key findings were as follows:

  • Compete on Agility
    Traditionally, technology has not had the required agility, but in today’s environment where product cycles are shortening, new product introductions are increasing, and transportation networks are taxed, agility is key if you want to be best in class.
  • Beyond 4-walls Control
    Today, there is more reliance on external partners and processes are often driven externally.
  • Collaboration is Popular Again
    Collaboration can drive more value than reverse auctions. Significantly more value.
  • Reinvigorated Focus on Inventory Management
    Inventory is costly – you have to store it, and many products are perishable with new products always just around the corner.
  • New Technology: SOA & SaaS
    These technologies are more agile and integratable and should be at the foundation of any new initiative you undertake. After all, when 86% of companies require more than 6 months, and 40% more than 18 months, to adapt IT systems to changing business requirements and many on-demand SOA / SaaS solutions can be implemented in 3 to 6 months, this just makes sense.

Amazingly enough, these key findings line up reasonably well with the top four investment priorities for SCM, considering there seems to be a systemic blindness out there to the importance of proper SCM processes and technologies, a topic I’ll discuss further in a later post.

The top four SCM investment priorities identified by Aberdeen were:

  • Inventory Management (63%)
  • Demand Management (S&OP) (63%)
  • Supplier Collaboration / Global Transportation Management (40%)
  • Supply Chain Execution (40%)

In other words, if a company implements these technologies using Business Process Management and Workflow driven on-demand SOA applications with the ability to be configured on a company-by-company basis, they will be multiple steps closer to being able to execute as a best in class company.

Other interesting statistics included the attributes of the best-in-class inventory management companies (which have customer service satisfaction levels over 95% and reduced inventory carrying costs):

  • 45% use multi-echelon optimization systems
    vs 14% for all others
  • 57% have existing supply chain visibility systems
    vs 22% for all others
  • 52% have a forecasting system supporting customer-level forecasting
    vs 23% for all others

… and the on-demand vs. traditional statistics …

Metric better same worse
ROI 64 32 3
Upgrade Ease 66 19 16
Implementation Time 57 34 9
Customer Service Level 46 47 7

… and fact that for certain managed services, up to 50% of companies are somewhat interested and up to 30% of companies are highly interested … which is promising considering that best-in-class PSPs (Procurement Service Providers) can often outperform your in-house staff on categories outside of your core strengths.

Beth concluded with five recommendations that I strongly suggest you keep in mind when selecting new supply chain technologies:

  • Choose SOA-based solution offerings to ease implementation and improve usability and agility.
  • Consider on-demand and managed services.
  • Demand quick implementation and payback. You should be fully implemented within 6 months and see a return within 1 year.
  • Exploit the value of improved supply chain management information internally.
  • Agility! Agility! Agility!

Spend Management Changes Business

Before the Sourcing Innovation Series, where the mighty prophet of the spend management space Jason Busch offered up his thoughts on “Sourcing Innovation: Securitizing Direct Materials”* and “Sourcing Innovation: Next Generation On-Demand”*, he published a whitepaper for Ariba entitled “Spend Management: Changing Business”, A Case for Reexamining Procurement’s Role In Organizations of All Sizes, that you should read, or read again, as you’re unlikely to find all of the nuggets of wisdom Jason packs in on a first read.

Spend Management can lead an overall business strategy. And it can create significant competitive differentiation that is much harder to replicate than a product or service that is sold on the revenue side of the business … Spend Management is not a business strategy and philosophy. It is the business strategy and philosophy that leaders practice and followers fail to fully understand.

Spend Management is not just cost management. It is not just procurement. It is not just new software. It is not just an incremental change in function or process. It is not a new fad or methodology being pushed by the consultants simply to define their value and take your money. It represents a new type of thinking, a way of taking integrated approaches to not just procurement, but all aspects of non-revenue generating operations. It is a way of thinking about your global supply chain strategy that will reduce costs, improve processes, and increase profits even when inflation is rampant, economies tight, and transport lanes continually overtaxed.

At the very core, it is the process of driving sourcing innovation to new levels across your organization. Continual Spend Management Innovation, to squeeze more and more from every dollar you spend, is your ultimate goal as it is the only way to guarantee long-term sustainability of results. You focus on value, which could be defined as the simultaneous maximization of total cost, production efficiency, and innovation.

Spend Management success requires creating specific goals and having a destination point in mind. To do this, it is necessary to identify where a company stands today and how to overcome the gap between the current state and market leadership. After all, there is no panacean spend management solution, even though there are a number of platforms that cover different aspects of spend management, which include spend visibility, eRFX, eProcurement, catalog search, contract management, supplier performance management, category management, and supplier risk management, quite well. After all, if you know where you need to go, you’ll get there a lot faster.

Accelerating Spend Management results requires that executives move beyond looking at procurement solely as an agent for cost reduction. To sustain results, organizations must now examine cost, spend, vulnerabilities, and risk as assets to be managed and reduced. … Organizations need to think creatively about the best – and most cost-efficient – ways to mitigate and manage vulnerabilities and risk to drive Spend Management results. Every company is different. Every supply chain is different. And every solution that outperforms a competitor will be slightly different. The key is to learn from the best – and then improve upon it.

When upgrading capabilities and investments, it is not necessary to switch out existing providers. It is now possible to use and improve what they already have by turning to other providers to augment and enhance existing capabilities. I’ll say it again, there is no panacean spend management solution. Although some providers offer extensive integrated solution suites, some of which are quite spectacular, each provider tends to have a strength in a different area, such as eProcurement, eSourcing, contract management, spend analysis, supply visibility, or supplier risk and / or performance management, and the best solution for your company will probably be a combination of vendors – and sometimes you’ll even have multiple vendors that offer the same capability as you will find some vendor solutions more suited to certain parts of your supply chain than others. However, since most of the best vendors on the market today offer on-demand solutions, building an optimized heterogeneous solution should not be problematic.

To ensure that an organization is headed down the Spend Management path to sustainable savings and potentially industry-shaping results, it is essential for executives to keep three key objectives in mind. First, they should take a flexible approach and expect the same dexterity from their partners, realizing that Spend management is not a one-size-fits-all proposition. Staying nimble allows a company to take advantage of opportunities as they arise, and to react to – or ideally predict – changes in market conditions. Second, they should establish longer term goals and programs without sacrificing near-term objectives that can motivate the organization and prove the value of Spend Management as a continuous process. And third, they should invest in creating company-wide systems and capabilities that use the best of internal and external knowledge and processes to maximize – and guarantee – ongoing results.

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

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.

  • Kevin Brooks
    The Future of Sourcing Commentary
  • Jason Busch  [WayBackMachine]
    Sourcing Innovation: Securitizing Direct Materials **
    Sourcing Innovation: Next Generation On-Demand **
    Evaluating Spend Visibility and Analytics Providers **
  • David Bush [WayBackMachine]
    The Future of Sourcing?
  • Charles Dominick [Purchasing Certification Blog, now the NLPA blog]
    Sourcing Innovation for Single-Customer Contracts
    Sourcing Innovation for Enterprise-Wide Contracts
  • Doug Hudgeon [WayBackMachine]
    “Rogers and Hammerstein: The Future of Sourcing”
  • John Martin
    The Future of Sourcing … for Services
  • Tim Minahan [WayBackMachine]
    Sourcing Innovation: Predictions for the Future of Strategic Sourcing
    Predictions for the Future of Strategic Sourcing: Part II
    What’s Next According to Busch: Supply Skills Networks
  • Rob Parrish
    Sourcing Innovation Blog Swarm (SCRISK.com)
  • Dave Stephens [WayBackMachine]
    The Future of Sourcing
  • Eric Strovink
    The Future of Sourcing

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.

The Sourcing Innovation Series: Part XII

Yesterday we were treated to some insightful commentary from John Martin of Building SaaS on the Future of Services Sourcing. I must admit that this was not an area I had thought much about before I started the series, but after John’s post and doing some research on Rearden Commerce’s (Deem since 2012) site, I am convinced that services sourcing is going to become a major part of your future sourcing initiatives internally and externally.

After all, with services spending increasing twice as fast as that on indirect goods, with most organizations paying 10-35% more than their negotiated rates for services due to non-compliance and maverick spending (as per a recent Aberdeen study), and with a 10-20% savings potential in the first year alone with the adoption of an on-demand web services platform, your services spending can not be ignored, especially if you are a large organization.

The question is, how do you approach your services spend today in a single, holistic fashion when there does not appear to be a single platform or framework for attacking your broad range of service categories such as T&E, telecommunications, printing, and consulting needs?

I think the answer is a combination of extensible and integrateable on-demand platforms built on services oriented architectures (SOAs) and procurement outsourcing for those categories that you cannot manage effectively in house. For example, you might use a platform like Rearden Commerce for your T&E expenses, a platform like Iasta (acquired by Selectica, merged with b-Pack, renamed Determine, acquired by Corcentric) for managing your local indirect consulting and advertising spend (since there are similarities between services and indirect goods), and an outsourcing services provider like or Provade (acquired by Smart ERP Solutions) to manage your corporate services, telecommunications, customer service, and consulting spend.

In the future, I think you’ll see strong integration between web-enabled on-demand SOA platforms and procurement outsource providers which will give you access to both their services and the services of an on-demand platform that can be used by each and every employee in your organization to manage all aspects of your organization’s services spend. Any differing thoughts?