Category Archives: Sourcing Innovation

Trade Extensions is Redefining Sourcing, Part I

At their recent User Conference in Stockholm, recently covered by the public defender over on Spend Matters UK, Trade Extensions unveiled the upcoming version of their optimization-backed sourcing platform. With it, Trade Extensions are redefining the sourcing platform.

In first generation sourcing platforms, you have stand-alone Spend Analysis, RFX, e-Auction, Decision Optimization, Contract Management and, maybe, Supplier Information Management (SIM) modules where each module feeds into the next in a well-defined linear order: Spend Analysis into RFX. RFX into e-Auction, Decision Optimization, Contract Management, and/or SIM. e-Auction into Decision Optimization and/or Contract Management. Decision Optimization into Contract Management. Contract Management into SIM.

In second generation sourcing platforms, which permeate the market today, these modules are better integrated and data is more fluid. Data can flow back and forth between all of the modules. However, flows are still well defined. Data can flow from any module into any other, but only using well defined, scripted, workflows. You can’t break a process, or enhance a process, with capability from another module. For example, you analyze the spend data, and issue an RFX. You can analyze the costs that come back, and when you do, you can pump additional data into the optimization module. But as it’s not common to output multiple scenario awards into spend analysis, slice and dice for cost variances, and understand how the cost models and bids affect the global supply chain, there’s no easy way to push them into the spend analysis module. As a result, a user typically has to save the scenarios in .csv or Excel format and then import them into spend analysis.

In an optimization-backed sourcing platform, like TESS, that is properly defined all data is centralized in a data store and can easily be accessed by the RFX, Auction, Analytics, Optimization, and Contract Management modules. Because the system works off of common centralized data (known as fact sheets in TESS), cost models, and scenarios and not predefined, rigid, workflows, the user can approach the sourcing event the way they want to approach the sourcing event. They can create RFIs, send them out, get data back, create cost models, send them out for completion, analyze them, optimize them, go back to suppliers for cost concession or innovation requests, jump straight to negotiation and award if they get an innovative proposal, realize that a supplier can only satisfy 75%, cut the contract, and then push the unsatisfied demand back to the RFX for a subsequent round for a secondary supplier and so on. It’s extremely flexible. But it takes a skilled user to understand how to manipulate a tool that requires an advanced understanding of models, scenarios, workflow composition, and analysis. In fact, considering the user may not only have to design the workflows, but also the fact sheets, formulas, constraint definitions, and sourcing process, the skill level required to maximize the value potential of a sourcing is often more programmatic than an average user can handle. It essentially takes a skilled software developer to maximize what the platform can deliver.

And even though Trade Extensions, with their leading, state-of-the-art, optimization-backed sourcing platform has dozens upon dozens of clients making very extensive use of their platform and getting industry leading returns, they have also realized that the best results are from the most capable users and that there is always an opportunity to do better still. And not ones to settle for anything but the best there can be (even though they have the most powerful optimization-backed sourcing platform there is), they decided to figure out how to do better still. However, realizing that they were optimization experts and not design experts, they took a step back to figure out what was needed. After much consultation, soul searching, experimentation, user canvassing, and testing, they came up with an approach that will allow not just the pros, but the beginners, to use the platform with the same ease and achieve the same results, no programming skills, or training, required. And, even though they are already industry leading, that’s how they are redefining sourcing.

So what in particular is Trade Extensions doing?

We’ll get to that. But first, a little background on what’s missing (in Part II).

Just What Is A Next Generation Supplier Network?

Just about every vendor with a supplier network these days that is doing any development at all is claiming to have a next generation supplier network, but just what is a next generation supplier network?

To answer this, we first need to define what was a first generation supplier network. But this is easier said then done.

According to the procurement dynamo, in his post on how marketplaces transformed into next generation supplier networks that was posted earlier this year, last generation supplier networks were marketplaces. And that’s more less accurate.

By definition, a marketplace is where suppliers can list their wares, buyers can search and review wares of interest, and contact the supplier to place an order. And that’s pretty much what first generation networks, which weren’t that much more powerful than craigslist or e-Bay, could do.

But that doesn’t a network make. Once these “marketplaces” began to allow buyers and sellers to transmit electronic documents, manage their offerings on a public and private basis (for current customers), and securely collaborate they became networks. And this is all many networks do.

So what is a next generation supplier network? According to the procurement dynamo, first and foremost a supplier network is a collaboration framework where both parties exchange business information in order to perform better together. And the doctor agrees. But any secure messaging portal fits this description, so we need to elaborate.

Secondly, a next generation supplier network is one that allows for seamless e-document exchange in EDI, XML, and other standard, accepted, and (government and regulatory body) approved e-format between buyer and supplier supply management systems. It must provide an open API for integration into these systems because if a buyer or supplier has to log in to send or receive a document, it’s first generation.

Thirdly, a next generation supplier network is one that allows suppliers to manage public and private catalogs, with multiple price tiers on the private side, to allow potential customers to find and browse their ways, and current customers to buy, buy, buy. Similarly, it allows buyers to announce tenders, define their typical needs, and be discovered by suppliers they might miss in their searches.

And fourthly, and this is the biggie, a next generation supplier network must support the development of custom apps that allow a supplier to access a supplier portal or capability on a buyer’s platform (to do VMI, for example) or a buyer to access a buyer portal or capability on the supplier’s (sales) platform to access shipment and status information or query factory stock levels. It must not only be the “glue” that allows people to connect, but processes and platforms to connect as well. We’re not really seeing much of this yet, but this will truly distinguish a next generation platform from a current generation one.

Value-Based Sourcing in Complex Direct Supply Chains

… is something every single organization that relies on direct sourcing needs, but something that few organizations have.

Not only do most organizations not have the right system for direct sourcing (relying on first generation e-Sourcing systems designed for indirect sourcing), but they have no idea how to do value-based sourcing. With an undue focus on unit cost, transportation cost, and delivery dates, most organizations don’t realize that success requires good direct category management, which requires more than just cost transparency.

Successful direct sourcing also requires risk transparency and good supplier management, as quality and performance are as, if not more, important than cost in direct sourcing. Think about it. If the component being sourced is poor and breaks down rapidly, then the product breaks down rapidly. If the product breaks down rapidly, while still under warranty, that’s not just a huge cost to the organization, but also a huge hit to the brand. Not good at all.

But direct sourcing is more than just focussing on supplier demo product quality, or overall supplier performance, it’s focussing on the big picture. What is the big picture?

For deep insight, download Sourcing Innovation’s latest white paper on Value-Based Sourcing in Complex Direct Supply Chains, sponsored by Pool4Tool. In this white paper we discuss the six value levers that allow you to get more out of your direct categories when sourcing, with a deep discussion on quality and performance and risk management, which give you a fuller view of the category than you will get focussing on costs and supplier scorecards alone.

How Do You Maintain Coherence Between Sourcing, Procurement, and Accounts Payable

This spring, Spend Matters UK published a great paper on The Five Principles of Sourcing by the public defender which outlined five key principles that must be followed for successful sourcing. They were alignment, openness, rigour, commerciality, and coherence. Coherence is key — if the entire sourcing process doesn’t work together, it doesn’t work at all.

But while a successful sourcing event is a necessary condition for a successful Supply Management, or Procurement, organization, it is not sufficient on its own. It doesn’t achieve any of the organizational goals, which always revolve around savings, profit, or brand recognition. Identifying 10% savings does not realize 10% savings. Identifying a free value-added service offered by a new supplier does not realize the value of the value-added service. And identifying a product or supplier that can provide a brand boost does not realize the brand boost.

Savings (which don’t really exist) only materialize when they are captured, and they are only captured when the plan is adhered to during the purchase process. Value from a value-added service is only realized when the service is utilized, and delivered, according to plan. And brand recognition is only achieved when the right products are maintained and the right messaging is put out.

But all of this only happens if there is not only coherence within the sourcing, procurement, and accounts payable process but between the processes as well. Procurement not only has to pick-up as soon as Sourcing leaves off, but has to continue in the intended way at the intended time. And when the invoice is delivered and goods are received, accounts payable needs to pick up and process the invoices at the right time in the intended manner against the right POs or payment plans.

So how do you insure coherence at the hand-off points? Make sure the needs are well documented and well-understood.

You can’t just throw a contract price list over the wall and expect success. The optimal award depends on ordering the right product from the right supplier location at the right time in the right quantity and making sure the right transportation company does the delivery using the right vehicles on the right routes. The optimal award, defined using intensive analysis and optimization, is only optimal when all of the required conditions are satisfied.

Typically it’s a matter of balancing unit costs against transportation costs against tariff costs against storage costs and taking into account transportation constraints against warehouse constraints against regulatory trade constraints, and if all of these costs and constraints are not respected during the Procurement process, then the optimal award — which is necessary to achieve the savings, value, or brand potential — will never be realized.

Coherence between Sourcing and Procurement isn’t a price-list or a contract, it’s a detailed step-by-step execution plan combined with a set of instructions on how to handle variances or minor disruptions and business continuity and/or disaster recovery plans that detail what to do when things go terribly wrong (after notifying Sourcing that an emergency sourcing event may need to be conducted) to allow for operations to continue in the short term.

Similarly, coherence between Procurement and Accounts Payable isn’t just giving AP access to the purchase order system and contracts with monthly invoices and expecting them to process invoices accurately. It’s working with them to set up the automated invoice matching and payment rules, making sure all payment plan contracts or agreements against which invoices will be received are properly defined along with rules for automatic acceptance, and defining how to handle missing information or exceptions. If the tolerance is low, maybe the invoice can be automatically approved, or flipped back with a suggested correction for automatic approval and payment. And it’s creating a process for AP to flip an invoice back to the right buyer when it cannot be matched, or approved, and a dispute needs to be started that should be handled by Procurement, not AP.

It does not matter how coherent the Source to Contract, Contract to Receipt, or Receipt to Pay processes are because success is realized only when all the processes sync up. So make sure there is coherence between as well as within.

Intenda – A Trusted Platform for Public Sector Procurement

Intenda is another name you might not know, as they are a South African Enterprise whose primary global customer base centred around South Africa, the UK, and Australia, but they are a very strong provider of Source-to-Pay in the public sector with tens of thousands of users across multiple global sites that collectively serve customers in over 30 countries.

Intenda is one of the unique, odd-ball, providers in the Source-to-Pay world. Like b-Pack (now part of Determine) and iValue, it’s development was heavily influenced by its initial customer base and in addition to standard S2P functionality, it also has

  • inventory & asset management,
  • GRC (governance, risk, and compliance) and Traceability, and
  • GPO / central service centre support.

From a Source-to-Pay (S2P) perspective, the strength of the platform lies primarily in its Purchase Order (PO) and invoice management capability and secondarily in its sourcing management capability. The requisition management capability is among the most powerful and most flexible on the market. Not only can requisitions be very detailed with complete part information (if known), multiple lines, cost breakdowns, detailed headers for proper (approval) routing and budget assessment, but different requisitions, with pre-defined headers, processing, and routing information, can be created for each type of purchase, each business unit, each geography, and each special case that the organization needs to support.

The system also supports detailed RFQs/RFBs, the ability to compare them side-by-side using multiple weighting schemes, and do calculation scenarios on sub-bids using any set of filters or restrictions that are required. The platform also supports basic e-Auctions for those clients that want it, but this feature is optional. A user can create an extensively detailed requisition, flip it to a (senior) buyer who can use it as the basis for a detailed RFP, get quotes, and then run an auction and/or make an award.

But the biggest strength of the platform is the audited and government approved security. The solution supports defense clients and revenue service clients in multiple countries, and has gone through just about every security and certification test that one can think of for a SaaS based solution. The solution, which supports fine-grained role-based security, heavy encryption, and multiple levels of authentication, including LDAP integration, if required, has been verified as secure by the most demanding of organizations. Very few platforms have gone through the level of security validation that Intenda has.

If you are a public sector body, or a large multi-national private sector organization that needs an inclusive S2P platform, Intenda is another platform you need to know about. For a detailed review, check out the recent Spend Matters Pro series (membership required) by the doctor and the prophet (Part I). The insights are worth it.