Category Archives: Sourcing Innovation

The Sourcing Innovation Series: Part I

Those of you following the blogs would have caught part one of Tim Minahan’s post over on Supply Excellence [WayBackMachine] yesterday on “Sourcing Innovation: Predictions for the Future of Strategic Sourcing” where he discussed where he thought sourcing was going.

You will have also noticed the first paragraph where the post was at my request, and that I do indeed want to tap the top minds in the business for their view of the future of strategic sourcing and supporting sourcing technologies. I’m pleased to announce that over the next week or two you can expect to see similar posts on many of the other leading blogs in the space. The day after a post goes up, I’ll link to it from Sourcing Innovation, highlight some key points, possibly throw in a few of my own thoughts, and keep this as the center point for the next week or two. So keep your eyes on Spend Matters, e-Sourcing Forum [WayBackMachine], Procurement Central [WayBackMachine], and Vendor Management (renamed Contract Capital Management) [WayBackMachine] over the coming weeks. I’m not going to tell you who’s going to jump in, or when, but I will tell you that this series of posts is one series you don’t want to miss! (And since these blogs are among the leaders in the space, they are definitely your best bets!) I’m really looking forward to it. We’re going to prove that Jason Busch was right when he predicted that blogs may reshape media and the analyst business models! *

Tim’s post is a great first post in the series. He predicts that we will see advances in guided sourcing, hybrid sourcing, supply chain sourcing, and frontline sourcing. In the first case, he has somewhat beaten me to the punch, as I also foresee a bright future for optimization-based sourcing, but since that is the topic for my next purchasing weekend series that is running over on e-Sourcing Forum until the fall, I’m going to leave you waiting for a few more days. In terms of hybrid sourcing, I think Tim is showing great vision. The emergence of the “hybrid sourcing model” that blends sourcing technologies with third-party supply market and sourcing intelligence is definitely coming, but at this time, I believe that only a few individuals see it clearly. I’ll admit that I’m a little fuzzy myself on what comes next, even though I think I know where its going – so this post is definitely a must read! I know I can’t wait for part II, which will be up by the time you read this, as I’m very intrigued to find out where Tim thinks frontline sourcing is going!

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

Innovation Matters

Seventy-two percent of companies worldwide will increase spending on innovation in 2006, and 41 percent will increase spending significantly, according to a recent survey of senior management conducted by The Boston Consulting Group (BCG) as summarized in “Innovation 2006” and “Measuring Innovation 2006”.

The study was based on responses from more than 1,000 senior executives from 63 countries and all major industries, so the results are statistically significant.

However, despite plans to raise spending, the study determined that nearly half of the companies are unhappy with their returns on innovation spending. According to James Andrew, Senior Vice President and report author, These findings highlight the paradox we see all the time in practice. Innovation is such an important priority for companies, and although they continue to spend ever-increasing amounts on it, half of all companies remain unsatisfied with the returns they generate. Furthermore, he also stated that This is a critical issue because the costs are even greater than most companies realize. The costs include not only the money invested, but also the opportunity cost of not generating the growth and returns from innovation that are possible and that companies need to meet the demands of the stock market.

This report highlights the need not only for innovation, but management of the innovation process. Contrary to popular belief, the process can be managed and there are techniques that can be used to jump start the process and significantly increase your chances of success.

For example, I described a couple of approaches to innovation in my Purchasing Innovation Series over at e-Sourcing Forum [WayBackMachine]. If you have a clearly identified problem, a great approach is Teoriya Resheniya Izobretatelskikh Zadatch, the Theory of Inventive Problem Solving, or TRIZ for short. The foundation for invention on demand, it can be used to create completely new products to perform a given function or solve an existing function. Another methodology is crowdsourcing, the process of delegating various tasks for which you do not have the manpower or expertise from internal production to external entities or affiliations of networked persons with the expertise, access to, or raw capabilities that you require.

Building on crowdsourcing, you can take advantage of companies, research networks, and laboratories that exist primarily to help you with your innovation needs. One example is Innocentive, an exciting web-based community matching top scientists to relevant R&D challenges facing leading companies from around the globe, can help you with your chemical, biological, and other scientific problems. Another example is YourEncore, a service provider connecting the technology and product development opportunities of member companies with world class talented individuals whose motto is People don’t retire anymore, they just go on to do other things. Yet another is NineSigma, a company that enables organizations to amplify internal resources and capabilities by tapping a global network of innovators for new solutions, technologies, products, services and opportunities.

Some of these organizations will even help you turn your product idea into a prototype. One example is Nytric, a company that exists to create revolutionary new products, using an advanced mode of thinking, spanning initial idea to market conquest; and by using a business model that shares front end risk so as to ensure a maximum mutual return on investment. Another example is Big Idea Group, an organization that brings together creative inventors and innovation-driven companies.

Furthermore, if you need just need help automating and tracking the process, you could always start BrightIdea’s On Demand Innovation Management Software, which gets you up and running immediately. Of course, this isn’t the only choice. You could also try Jenni’s Idea Management Software, Centric Software‘s Product Intelligence software, or Imaginatik’s Idea Central Software.

In other words, there are companies, products, and methodologies out there to help you ensure that each and every innovation effort you undertake is a success because, simply put, innovation matters.

(Sourcing) Innovation Always Matters

Last Thursday in Global Sourcing: Does Innovation Matter?*, Jason Busch of SpendMatters responded to my invitation in my post Is Low Cost Country Sourcing to China Really Innovative? of the previous Wednesday to comment on my take that “the hurdles and landmines of manufacturing in — and exporting from — China will ultimately catch up with the low labor rates that make the region so attractive in the first place“. The gist of his response was:

(1) It’s irrelevant whether a Spend Management activity is “innovative”, all that matters is the cold facts should speak for themselves and the savings or efficiencies gained from the activity should outweigh the risk it introduces.

(2) Companies contemplating China outsourcing still have much to gain, particularly with respect to supply base localization efforts in China aimed at building local manufacturing capability to penetrate the Asian markets.

(3) Low cost country sourcing, which has essentially been around since the concept of “trade” began, is not about a place or country, but the process of being able to move quickly to take advantage of opportunities as they arise in Asia, South/Central America, Eastern Europe, and maybe even Africa.

(4) Companies newly embarking on low cost country sourcing will find China to be nearer to the end then the beginning of the opportunities curve, with the implication that those countries actively using China for low cost country sourcing already still have the most to gain.

With respect to Jason’s first point, I have to agree that the cold hard facts should speak for themselves but disagree as to Jason’s statement that “innovation is irrelevant”. Innovation should be at the heart of every activity you undertake, and fundamentally, any new action you undertake is probably innovative to you. What is debatable is the degree of innovation. After all, innovation, which can simply be defined as “ahead of the times”, is all relative – to what you do and what your competitors do. Sometimes it will even be undertaking an initiative that generated a known failure for your competitor or an initiative that everyone thinks was past it’s prime ten years ago. Being innovative is not just inventing new tricks, its finding new ways to do apply old tricks, and knowing when to do so to reap the rewards.

With respect to Jason’s second point, I agree that the possibility exists, but firmly believe that it is not a cold hard truth. Not all companies will be equipped to take advantage of the opportunities that exist and navigate their way around the quagmires of wage inflation, skilled employee retention, energy crisis, and over-extended infrastructures. Furthermore, freight costs are increasing around the globe, not just to, from, and in North America and parts of China can still be quite distant from other parts of Asia. (After all, it is the largest country in Asia, excluding Russia, and the third largest country in the world.)

Moving on to Jason’s third point, although the concept of sourcing from low cost countries can be traced back thousands of years, low cost country sourcing has taken on a whole new meaning in the past thirty to forty years. Traditionally, you sourced products globally that you could not produce, or produce in sufficient quantities, locally. Generally, exceptions were only made when it was prohibitively expensive to produce the products locally. After all, before the rise of fast ocean liners and air-freight, it took a long, long, long time to get product from Europe and Asia to North America, and the risks of catastrophe (storms sinking ships, piracy, etc.) were much, much greater. And it is only recently that the leaders in global sourcing have evolved the concept from sourcing from a region to sourcing from an opportunity, a concept I fully agree with – after all, it is a very innovative transformation of the concept of low cost country sourcing.

And with respect to Jason’s final point, I agree fully. For many companies, China will soon be on the way out as new opportunities make their way in.

The puck has been returned.

* Link no longer available.  All posts pre-2012 disappeared during the site revamp in June 2023.

Strategic Sourcing Week Review

This week we defined a basic sourcing process, indicated there were five critical process-driven phases that can be greatly enhanced by software solutions, and discussed each of them in turn as a solid foundation for going forward. 

We also discussed some innovative features of the best marketplace offerings, indicated there was still room for innovation, and hypothesized what the next big breakthroughs will be. Today we are going to summarize the innovations that are yet to come that we discussed this week as a foundation for our first innovation week, which begins Monday.  This is going to be our first set of posts in a regular series where we discuss innovative practices of current and future leading supply chain organizations.

Monday we discussed spend analysis, the process of aggregating, classifying, and leveraging spend data for the purpose of cost reduction, performance improvement, and greater compliance, and indicated that the most innovative solutions have the ability to slice, dice, and drill down on multiple dimensions simultaneously, support custom defined filters, and detect spending patterns <i>and</i> variations in an on-demand fashion.   In the future, innovative spend analysis tools will integrate market data and business intelligence to determine which spending patterns are the furthest off from expected values.

Tuesday we discussed RFX, the technology used to identify new suppliers, determine if suppliers are willing to provide a product or service, obtain additional information on supplier offerings, and collect bids, and indicated that the most innovative solutions come with supplier portals that actively engage your suppliers in the process.  The next major innovation in RFx will be the integration of business intelligence that will let you discern supplier viability and quality before your first interaction, so you do not waste time screening suppliers already known to be inappropriate to your line of business.

Wednesday we discussed Auctions and I predicted that the future leaders in auction technology will incorporate some form of decision optimization directly into the live event.  This will allow best practices and total value management to be taken into account during the auction and guarantee that the identified awards not only respect all of the relevant business rules but are optimal in that respect.

Thursday we discussed Decision Optimization, which I defined as the application of one or more rigorous analytical techniques to a well-defined model to generate the absolute best decision from a multitude of possible alternatives in a rigorous, repeatable, and provable fashion. I then predicted that future leaders in the e-Sourcing space are going to be those that master decision optimization technology and its various applications.  Although I stopped short of indicating specifically what this might entail, because it is a complex subject upon which intend to write multiple posts over the next year, I will indicate that the more innovative implementations will be those that are not only capable of handling quantitative and qualitative constraints, but also capable of solving the models from a well-balanced Total Value Management perspective.

Finally, yesterday we discussed contract management, which is critically important from a savings realization viewpoint, and I indicated that despite the recent considerable advances in the technology, I believe future systems will incorporate advanced business analysis that will allow them to detect contracting patterns.  These systems will not only point out What types of contracts and clauses are usually used for a certain type of supplier and / or commodity, but what types of contracts and clauses should be considered given the financial status of the supplier, historical performance, and commodity specifics.  They will automatically draft starting contracts for you and indicate when you are missing important clauses like IP protection or delivery terms and when recommended updates are inconsistent with your usual practices.

In other words, even though today’s sourcing technology is a considerable breakthrough compared to most other forms of traditional enterprise technology, it’s going to continue to get better as time goes on.  Furthermore, on-demand providers are going to be leading the way – but that’s another post for another time.

Strategic Sourcing Innovation Defined

What is Sourcing Innovation all about?

Let’s start with some definitions.

Sourcing: The process of identifying, conducting negotiations with, and forming supply agreements with suppliers of goods and services.

Strategic Sourcing: The formal process of selecting suppliers to supply products and services using sourcing best practices.

Innovation: The act of creating a new invention which may take the form of a product, process or service.

Strategic Sourcing Innovation: The process of creating and implementing new and improved sourcing procedures, processes, and technologies using best practices and experience to support and yield more valuable supply relationships.

So, what do these transformations look like?  Anything from replacing manual paper-based processes with automated e-Sourcing systems to redesigning your supplier selection processes to insure that you have sufficient geographic variation in your tier 2 and tier 3 supply chains to insure that a natural disaster does not wipe out your supply.

So how do these transformations come about?  Fortunately, despite what many agencies and consultants still might have you believe, it does not take magic, miracles, or one of those rare blinding flashes of insight to innovate.  Hard work, careful analysis, knowledge, education, and experience will produce fantastic results … with the right process.

So what does this process look like?  Well, unfortunately there is no single universal process that will work every time, but there are a number of generic processes that point you in the right direction and customizations that get you pretty close.  Once you are close, your brain (should you choose to use it) — still infinitely more powerful then any piece of software ever developed — will take you the rest of the way.  One of the things we will do in this blog is examine these processes, and associated customizations and tools, on a regular basis because the reality is, the more of these processes you have in your tool kit, the more successful you will be.

First up, an overview of an operations research model building process.  Why?  Stick around and find out!

Again, feel free to leave a comment or e-mail me.