Category Archives: Sourcing Innovation

The Sourcing Innovation Series: Part X

I know it’s been a few days, but as I said in my last post, it wasn’t over … just delayed a little while my fellow bloggers enjoyed the long weekend and collected their thoughts. Over the last couple of days, Charles Dominick posted “Sourcing Innovation for Enterprise-Wide Contracts” over on the Purchasing Certification Blog (now the NLPA blog), his second post on the future of sourcing, and Jason Busch posted “Evaluating Spend Visibility and Analytics Providers”* over on Spend Matters [WayBackMachine]. Now, I know Jason’s post wasn’t explicitly a post on the future of sourcing, but it is on spend management innovation, and the future of sourcing is all about innovation.

Charles pointed out that the sourcing world is ready to go to another level. In the not too-distant future, we’re going to look back at today’s supplier selection methodology and consider it archaic. Today we use TCO analyses or weighted average supplier scorecards, but these are problematic in that each internal customer or commodity team will not only value different criteria variably but assign different subjective values to the same qualitative criteria.

In the future, Charles expects speculative bickering to be replaced by the widespread watching of simulations of various scenarios associated with the various supplier selection opportunities. The sourcing team will see the risks and the impact on the buying organization if those risks come to fruition. I think Charles in on to something here. While I do not foresee simulation replacing decision optimization for award allocations, for reasons that I will discuss in an upcoming red paper from Iasta that I am co-authoring, it is a great technology for risk evaluation, identification, and mitigation as you can not only simulate the effect of a disruption but the effect of a risk mitigation strategy. This gives you a more comprehensive, tangible understanding of the factors that should influence your decision.

The net effect is that in the future a procurement professional will need to be even more skilled and educated then today as you will have to be smarter than the simulator, and understand what factors the simulation considers and know how to evaluate those factors to arrive at an optimal decision. According to Charles, some of the skills a purchaser will require in addition to their current skill set are:

  • Skills in quantitative analysis, with an understanding of statistical probabilities, decision trees, etc.
  • Knowledge of macro- and micro-economics
  • The analytical ability to quantify the total cost of the supplier relationship, not just the total cost of ownership

In addition, a procurement professional will need a better understanding of decision optimization, the underlying technologies, and where simulation ends and optimization begins. Not an easy task, but this is why procurement is going to become the center of tomorrow’s organization.

Jason focused on spend visibility, noted that your spend management approaches need to become more sophisticated, indicated that your solution providers need to focus on content integration, vision, and integration, and that in a few years time leading procurement organizations will think about spend visibility, supplier performance, and supplier risk management as a single implementation.

With respect to content integration, Jason states that auto-classification and cleansing tools will never be sufficient on their own, since examining the supplier master is just a start. You also need to be concerned with supplier credentialing, supplier financial viability, supplier quality, and operationally related information.

With respect to vision, your solution provider needs to have value beyond just one-time cost reduction category sourcing efforts, otherwise you should be looking at another solution provider because the true value of any spend or supply management solution is long term viability. At the very least, your provider should understand and offer solutions for long term supplier performance management and supply risk management.

The solution should be integrated into, or support strong integration with, a spend management suite and have strong ties into other systems of record and data stores since the notion of periodic batch-based approaches to spend visibility and analytics is no longer sufficient and the future will require near real-time updates to insure your supply chain continually functions like a well-oiled machine.

All-in-all, a great couple of days on sourcing innovation and the future of sourcing.

Can China be Innovative?

Reading the economist last month, I encountered a number of articles related to China, which is not unusual, but one was entitled Something new: Getting Serious About Innovation (membership required for full article). Considering most of us still equate China with the tail-end of Low Cost Country Sourcing, factories, and knock-offs, the two words seem to be a juxtaposition on first read.

According to the article “innovation” has become a national buzzword, and Chinese leaders have been tossing it into their speeches since the beginning of the year when President Hu Jintao started an ambitious campaign to drive China’s economy further up the value chain.

In launching their “National Medium- and Long-Term Programme for Scientific and Technological Development (2006-20)”, Mr Hu, the prime minister, Wen Jiabao, and other top officials have vowed to spend more on science and technology, and to insist on business reforms. Their goal is to move China beyond its dependence on natural resources and cheap labour, and stake its place among the economies that depend on education and information technology.

The following quote is also very interesting. According to Denis Simon of the State University of New York’s Levin Institute, who advises the Chinese government on science policy, this move comes just in time. “If China doesn’t do this right,” he says, “it risks becoming a good 20th-century industrial economy just when it needs to figure out how to be a 21st-century knowledge-based economy.” This sums up where I see China headed – it takes more than funding, stemming the “internal brain drain”, and a protection of intellectual property rights to build a knowledge-based economy. It takes a culture. The culture that North America was built on and a culture that’s been lacking in China for much of its history.

As the article points out, a huge obstacle is the nature of China’s educational system, which stresses conformity and does little to foster independent thinking. Confucian philosophy reveres the teacher above all. More innovative Western economies, according to Ms Fang, operate under Aristotle’s maxim: “I love my teacher Plato greatly, but I love truth more.” In order to be innovative, China has to foster innovation in the next generation. And that is going to mean fostering independent thinking inside and outside the cirriculum. After all, we are talking about a country with a very long history of imperial and communist rule … which has generated a very conformist culture. And it’s hard to innovate when you conform. I think it will be very interesting to see how this plays out over the next few years. I’m also interested in hearing what The Prophet has to say. In the days ahead, hopefully he’ll chime in.

The Sourcing Innovation Series: Part IX

I’ll have to say that when I started this series, I was going to be thrilled with a few posts and a lukewarm response … but WOW! The uptake has been phenomenal, and it’s not over yet … not by a longshot from what I can tell. It looks like you can expect at least one more guest post this week here on Sourcing Innovation, and maybe even a few posts on a couple of non-spend-and-supply-management specific blogs as well! And the benefit to you, the reader, is priceless – with so many great minds tackling the subject and sharing their views, you can’t help but get a better understanding of the space you’re in, where it is going, and where you need to go. Talk about having one heck of an edge over your web 1.0 technophobic friends! (Maybe we should sick Phil with his mighty spoon upon them! (Sorry Mr. Adams, I couldn’t resist!)

Anyway, back to the point. Charles Dominick’s post on “Sourcing Innovation for Single-Customer Contracts” over on the Purchasing Certification Blog (now the NLPA blog) and Kevin Brook’s post on The Future of Sourcing here on Sourcing Innovation were great!

Kevin got straight to the point – that innovation in sourcing will trend toward doing less rather than doing more. Even though future sourcing tools will contain advanced decision optimization, business process management, default sourcing strategies, next-generation templates, and a dozen technologies we haven’t thought of yet … they will be easier to use than the automatic four-wheeled vehicle you use to get to work everyday. A wheel, a shift, a gas, and a brake. They will let you focus on your job, and your customer, because great service is what makes a great company.

Charles doesn’t waste any time either in pointing out that he sees major changes in how non-traditional categories will be handled in the future. Specifically, he sees migration across a sourcing maturity model, meaning that sourcing of the categories will be handled differently and will require different skills. He then walks us through the sourcing maturity model from Totally Decentralized to Totally Centralized to Center Managed to Center Led where each level requires a different skill set and represents a different step in thinking about sourcing. I have to agree with Charles – although I believe that center led procurement is the way of the future (see my 3-part weekend series over at e-sourcing forum last month “An Introduction”, “A Center of Excellence”, and “Best Practices”), I see the need for a company to progress through the stages, since, as Charles states, If progression is done too fast, a company could jeopardize its competitive position for years. Before a center can lead sourcing, it has to be excellent at what it does. Before it can be excellent at what it does, it has to actually do it .. and bring all relevant purchasing functions into itself. Hence the progression. Note that this does not mean that your purchasing organization has to go through this progression globally, just that every category, and your non-traditional ones in particularly, need to go through this progression locally. Thus, while some of your key categories are center-led, some of your non-strategic low-cost categories might still be decentralized as you work your way through the process category-by-category. As Charles points out, organizations need to learn to walk before they learn to run, and a process will help them get there faster and prevent them from stumbling badly and hurting themselves along the way. ( [Shameless Plug Alert!] And if you need some help, in addition to being able to reach out to me, consulting organizations like the NLPA and Azul Partners [former parent company of Spend Matters] are always there to help! )

The Sourcing Innovation Series: Part VIII

Yesterday, Charles Dominick of NextLevelPurchasing (acquired by Certitrek and now the NLPA) jumped in with an initial post on “Sourcing Innovation for Single-Customer Contracts” on his “Purchasing Certification” Blog (now the NLPA blog) where he offered his insights on the affect of the forthcoming innovation on purchasing professionals and the skill sets required for the future. For more details on the post, and my thoughts on it, check back Sunday.

Today I’d like to welcome Kevin Brooks of Apexon (acquired and merged with Infostretch in 2022) who has been kind enough to provide us with his commentary on the Future of Sourcing. Note that Kevin was also kind enough to provide his insight on “Supplier Performance Management” in response to one of my weekend series over on e-Sourcing Forum [WayBackMachine].

My take on the topic is a bit more abstract. In particular, I suspect that innovation in sourcing will trend toward doing less rather than doing more.

When I look at other industries, I notice that innovation seems to move along a path that makes things easier and simpler for end users even if there is tremendous sophistication under the hood. (Microsoft Windows might be an exception to this rule!) I don’t need McKinsey slide decks to convince me that true strategic sourcing is complex, but the same thing could have once been said about any number of things that are now commonplace. Driving across the country. Getting a knee replacement. Online banking.

I suspect that the tools to enable sourcing will move toward simplifying a complex process, and put the capability in the hands of a much wider group. Sourcing will become a standard business skill set you’d expect from any decent business school graduate. At the same time, more of the responsibility for delivering against expectations will fall on the heads of suppliers themselves, or their proxies (as in the case of contract manufacturing or outsourcing).

Obviously, big strides need to be made in sourcing technology and in clearing the pesky master data management briar patch. And I’m sure there are a few innovative strategies yet to be discovered – Jason’s global capacity marketplace, for example — but they don’t affect the ultimate trend line. In the end, I suspect successful companies will tend to prioritize customer sales and service over internal operations or supply sophistication. Yes, the two are connected, but not in the eyes of most CEOs or even the customers themselves. The less time and effort a company puts into sourcing, the more they put into customers. Ergo, sourcing innovation will trend toward doing less, not more.

Thanks Kevin! I look forward to future guest posts from you!

The Sourcing Innovation Series: Part VII

Yesterday was another busy posting day. David Bush of e-Sourcing Forum [WayBackMachine] posted his thoughts on “The Future of Sourcing?” while Jason Busch of Spend Matters tackled “Sourcing Innovation: Next Generation On-Demand”*. Not long after, Tim Minahan of Supply Excellence [WayBackMachine] jumped back into the fray in response to Jason’s post with “What’s Next According to Busch: Supply Skills Networks”.

David posted his contrarian view based on his observations in sourcing and eSourcing over the last seven years. In addition to noting the emerging desire for decision optimization and complex modeling capabilities in eSourcing platforms, David notes that the future will be forged by process improvement and enhanced corporate understanding of how to use technology since there are fantastic platforms available now that did not exist 10 years ago. After all, especially from the technology side – it’s not done. Once a tool is brought into the process, you will have some functionality that will help immediately but there is a maturation process that vendors and customers alike are going through to find the best fit and features. This is a very fluid process and every release of an application will address more issues but they will never be complete. The software can help any organization with weak areas but this always should be supplemented with personnel improvements and new innovative ideas.

Jason blogged about on-demand, this year’s hot topic (and the subject of my first weekend series over on eSourcing Forum: “The Good”, “The Not-So-Bad”, and “The Coming Pretty”). Jason, who previously blogged that on-demand approaches will embed external content and insight as a fundamental part of their value proposition predicted that the real power of On-Demand will come when providers learn how to leverage the user network as the strategic advantage of the application itself. One early example Jason gives is Open Ratings (acquired by Dun & Bradstreet in 2006) that aggregates supplier financial, operational, and performance data from many sources to better predict supplier financial viability. Jason also notes that while Open Ratings collects, centralizes, and analyzes information, that next generation approaches will probably rely on decentralized information query, retrieval, and analysis and points to the new agent-based search approach of Vinimaya (rebranded Aquiire in 2016 and then acquired by Coupa in 2018) as an example.

Jason also reminds us of his earlier prediction on how next-generation on-demand solutions will enable a new type of decentralized service delivery where an On-Demand platform could enable the creation of virtual shared services teams between organizations based on processes, skills and availability and that this is where he thinks the real value will be. In his view, 99% of first generation (i.e., current approaches) On-Demand models only deliver value through reducing the cost of ownership for member participants of existing types of technology offerings — or customers — rather than offering a new value proposition entirely.

In response to Jason’s claim that an On Demand platform could enable the creation of virtual shared services between organizations based on processes, skills, and availability, Tim notes that considering the talent crunch for skilled commodity and sourcing experts, Jason’s concept is particularly intriguing and well-timed. After all, recent studies from Purchasing Magazine, ISM, and Denali Consulting place talent recruitment and retention among a supply management executive’s top challenges.

But then Tim Minahan suggests another possibility … Jason’s shared-skills concept could also present new opportunities for top-performers to turn supply management into a revenue-generating profit center since some companies are already ’sharing ‘ their sourcing and category expertise and operational procurement capacity and systems infrastructures as part of new for-fee procurement outsourcing offerings, such as IBM. If this becomes a very profitable offering, then we probably will see Jason’s next-generation on-demand platforms sooner rather than later.

Since these pieces are very well written, and since I do not have anything to add as-is, I’m not going to elaborate on them but instead will ask what would happen if we try to merge them into one prediction? A first attempt tells us that it will be a process-oriented future driven by next-generation on-demand technology that will make critical information more accessible and usable for tomorrow’s knowledge workers, but what does that mean? As I pointed out in “The Coming Pretty”, I think the answer is that next-generation on-demand will be based on enhanced business process management (BPM) that will allow for workflow applications that can be customized on-the-fly to incorporate modified processes and workflows that not only allow for the construction of more versatile and configurable applications than before, but also allow trained business users to define their own workflows through a visual environment. In other words, platforms that evolve with your processes!

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