Category Archives: Sourcing Innovation

Want an Exceptional Supply Management System? Do NOT Forget the Supplier!

Exceptional results come from the right intersection of exceptional talent, exceptional technology, and exceptional transformation. The three T’s.

And while each piece is important, and no piece can be ignored, the importance of good technology is often overlooked, and, more importantly, key factors that differentiate good technology from great (and exceptional) technology are almost always overlooked — and this is one reason why there are so few true best in class Procurement organizations (and why the Hackett top 8% is the top 8%).

So what makes a great Supply Management System?

Factors include, but are not limited to:

  • ease of use as even a junior buyer should find it natural
  • customizeable workflow as it should fit the transformed organizational processes
  • data import/export as data will need to be imported from ERPs and predecessor systems and exported to successor systems
  • templates and template customization so that RFXs/Auctions/Orders/etc. can easily be created, customized, copied and reused ad infinitum
  • multi-currency support as most Procurement organizations have to deal internationally

And each and every one of these factors should be considered, and included in the evaluation of the supply management system, and systems that do not score well against each and every one of these factors tossed aside, but is this enough to insure you get a great system? Of course not!

First of all, it has to contain all of the specific functions required of the system you are evaluating. For example, if the organization is looking for strategic sourcing, then the organization needs optimization-backed RFX and Auction capability as well as analytics and spend analysis. For Procurement, requisition management, approvals, budget integration, automatic (split) PO creation, good receipt management, invoice acceptance and m-way comparison, etc. And so on. If all functions are there, and all work well, it could be a great system — for the organization.

But will it be an exceptional one? Not necessarily. Exceptional systems need lots of data — and use — to produce exceptional results. Some needs to come from the organization. Some needs to come from third parties. And some needs to come from suppliers. And typically that data is needed in (near) real time. Which means you need suppliers to use the system — which is something they are only going to (want to) do if it’s easier for them to do it in the system, than do it outside the system (and bitterly complain if they are forced to use it to submit invoices to get paid).

This means that the system also needs to be designed for the supplier — something many first, and even second, generation systems were not, even if they had a supplier portal.

Not only should the system be as easy to use for the supplier as it is for the buyer, but it should enable their workflows, provide them with templates, make data import and export as easy for them as it is for the buyer, offer them full multi-currency support as well, and support the internationalization necessary for all of your suppliers in the countries you do business with to use it in their native language.

For example, if you want a supplier to respond to each and every RFX and auction, make it easy for them to manage their catalogs and quickly select the relevant products, update price lists, define volume discounts, and define what you get to see — and don’t get to see. If you want a supplier to use it for e-Invoicing, make it easy for them to upload, create, manage, and track invoice status not just of invoices sent to you, but of all their invoices (as chances are their AR system or sales system doesn’t do that). Make sure they have the same rights to create user accounts, set permissions, and delegate work (especially with respect to RFX responses) to the right people as you do. Let them toggle between languages. And, most importantly, before they submit, let them see what you see the way you see it.

And if the system is truly exceptional, you’ll easily be able to see what they see (with a toggle view) before you send it. Suppliers are your supply chain, so it’s as important to support them as it is to support you — and an exceptionally designed system will do that.

Sourcing? YES! YES! YES! Sourcing Tool? Well …

This is a repost/follow up of the classic post SI ran two years ago on Sourcing? Yes! Sourcing Tool? Maybe ….

If you missed this post the first time around, you’re probably confused as this blog has been advocating the acquisition and implementation of strategic sourcing solutions since day one, tirelessly explaining the benefits they can bring to one and all if they are appropriately selected, implemented, and utilized.

The reality is that a system that doesn’t support your needs and organizational processes, that is cumbersome to use and costs more in organizational inefficiency than it returns in savings or value identification, or that just sits on the shelf because your employees refuse to use it en-masse has no value. It has to be the right system for you. This system may be a low-end system, even though, as pointed out by The Prophet over on Spend Matters in his three-part series on Lower End Sourcing (Part I, Part II, and Part III):

these tools often lack more advanced capabilities, including tighter integration into third-party tools; supplier collaboration processes and overall project management; category management and comprehensive knowledge repositories; advanced workflow support and automation; access restrictions and audits beyond the basics; and advanced data collection and bid analysis

because, if an organization is just (gasp!) beginning its sourcing journey, is at the low end of the mid-tier and has relatively simple buys, or is understaffed and just needs to get the job done and get some quick hits to get more budget and support for a bigger and better system, it might be the right tool for the job.

But the best tool for the job is a system that contains all the capabilities the organization will need as it progresses through its sourcing journey, and, more importantly, can be adapted to new and improved processes as the organization matures. Fortunately, some of the more innovative mid-market providers, and even some of the more aggressive enterprise solution providers have realized this and are now offering Sourcing and Source-to-Pay solutions with adaptable, extensible workflows that also support out-of-the-box integration with existing ERP, AP, and even P2P solutions.

This way an organization, just beginning its sourcing journey, can implement the foundations, mirror existing processes (even if not optimal), and have the team up and running as fast as possible. As the team gets comfortable with the tools, more and deeper, functionality can be enabled, processes enhanced, and analysis intensified.

And the best platforms are enabling enhanced functionality workflow templates where senior buyers can customize workflows, RFXs, cost, and even optimization models for simpler categories often sourced by junior buyers so that junior buyers can apply best practices and advanced learnings and the organization can make the right buy every time without wasting the limited time of senior buyers needed for the large, multi-million dollar buys.

Not only does this allow sourcing platforms to be properly implemented, and proper processes followed, but it allows an organization to not only get more Spend Under Management, the ultimate key to sourcing success. In fact, it can allow an organization to start tackling tail spend, the bottom 20% of spend which often contains up to 30% overspend, years ahead of its peers.

This is in contrast to organization that selects the wrong tool for a job. Such as a large multi-national organization with complex category buys with a significant amount of products coming from Asia that selects a rigid, English only, platform designed for buying finished goods through third party distributors.

So, while the doctor still fully supports sourcing systems and believes every company should have one, like a work shoe, the system has to fit (like a glove). Otherwise, just like a dancer with two left feet, the organization will be constantly tripping over itself and see no benefit at all!

Millions Saved. Pennies Spent. Why Won’t They Learn?

Trade Extensions recently released a new set of case studies chronicling just half a dozen sourcing projects it did over the last couple of years for its fortune 500 clients that chronicled, on average, savings of 10% or more which ranged from 500K on a 5.5M category to 28M on a 200M category. All of these companies saved tens of millions (or more) and only spent in the six figure range for the Trade Extensions solution, which means for every penny it saved a dollar.

It is not just the magnitude of the savings that is significant though – it is the breadth of the impact. The air freight example not only identified a savings potential of 42%, with a realized savings of 21% (when the company took risk, performance, and preferred vendors into account), but also identified a scenario which improved service levels and reduced risks while delivering 21% savings.

The compliance reporting example helped an organization that, due to the scale of it’s operations, took five days to analyze the output of its Transportation Management System (TMS), reduce its retrospective analysis time to a proactive operations step that automatically executed in 30 minutes or less, and allowed the organization to, for the first time, ensure its product movements were consistent with the awarded contract scenario.

In the full truck load and global packaging examples, the companies were able to rationalize the supply bases by 25% to 40% while reducing cost and at least maintaining service levels and risk (if not increasing service and decreasing risk).

But yet these examples are rare. Every year many organizations as large, or larger, than these continue to spend close to, if not, seven figures on their first generation sourcing or source to pay platforms while generating savings that, instead of being in the 10% or more range, are in the 2% to 3% range, which means that the organization is essentially spending dollars to save dollars — which does not make good ecnoomic sense. Especially when a modern optimization (backed sourcing) platform can always be run along side existing supply management system and used as appropriate to generate 3X to 5X the savings and value than the organization would otherwise obtain.

So while the leaders have learned, why won’t the laggards learn?

With Currencies Crazy, Is It Time to Return to Barter?

This is more of a question / thought experiment than anything else, but it’s a good question.

Brexit has thrown the British pound into chaos again. (Nothing new, it’s happened before, it will stabilize eventually, but it will happen again.)

Canadian and Australian dollars have recently made substantial declines from highs that put the dollars almost on part with the American dollar to lows that put it a mere two thirds to current values around the three quarter mark.

The Greek financial crisis is still ongoing and could threaten the Euro further.

And so on.

An organization enters a long term (multi-year) contract with an international partner under the expectation of value, an expectation that is crated based upon a current and projected currency exchange rate — which can change radically overnight when a single country, or in some cases, a single bank, decides to do something extremely unexpected or extraordinarily stupid.

All of a sudden costs can double. That’s considerably more fluctuation than is in the reserve budget.

But what if there was no exchange of currency. What if it was an exchange of a raw material or service for another raw material or service, where each raw material or service came from the organization or a partner in the same country. Since the value of a product or service, adjusted for inflation, is relatively constant over time and since the relative value of one versus another is also relatively constant over time, such a contract would not be subject to rapid changes in value differences regardless of what happened in the currency markets.

Now, you’re probably thinking that this wouldn’t work — you buy from X and don’t sell them anything, but who do they buy from and what do they buy? And what do their downstream partners need? Remember, they have bills to pay too and if their supplier requires a raw material in abundant supply that could be supplied by one of your customers, that has to pay you anyway, all could work out.

For example, just because you’re buying rare earth metals for electronics manufacturing, doesn’t mean bartering is off the table. The rare earth metals provider, which provides a refined metal, might be buying from a mining company that is part of a conglomerate owned by a single company that requires specialized mining equipment on a regular basis. One of your biggest customers could be a producer of this equipment that buys all of its hardware and associated services from you. If you arranged for payment in mining equipment of your choice in today’s dollars, and the seller was happy with that conversion, you could pay in mining equipment over time, regardless of how your relative currencies rose and fell.

This might not have been imaginable years ago given all the supply chain visibility, data, and optimization models that would be required to identify the right value-generating deals that could keep costs constant over time, but with modern supply chain systems that enable visibility from the raw material to the end customer, all supply relationships, demands and spend, and multi-level optimization models, this is now a reality. And currency risk could effectively be made a thing of the past in large, critical categories. It could require more multi-party agreements, but if all parties benefit, why not? It’s not like you have to courier contracts around the world — create a secure collaboration portal, agree, e-sign, and you’re done.

Now, just like buying on behalf of the supplier to get lower costs through greater volume leverage is still only done by the leaders, SI expects that this is something that only leaders would do for at least the next decade, if it was done at all. What do you think? Will leaders catch on?

marketdojo Opens the Dojo to Suppliers as Well

When we last checked in on MarketDojo with our posts on how you could walk your own way and plan your own path, they were a relatively new UK company that offered a basic e-Negotiation suite with category guidance. Not much, but when you consider you could:

  • try before you had to commit to a buy with their open sandpit,
  • pay per event, on your P-card and
  • see what suppliers see with toggle view

It was a good entry point for a mid-market Procurement organization that was stuck in the Procurement dark ages and unable to obtain budget for a modern suite (because the C-suite needed to have a guaranteed ROI).

While it was a good start, MarketDojo realized that is all it is — they needed that and more to conquer the mid-market, even in their native homeland. Once a lean, agile, over-tasked, and under-resourced mid-market Procurement organization gets their hand on a tool, they want to advance fast, learn faster, and apply it fast and furious — and they want to be as effective and efficient as possible.

For many companies, this means four things:

  • minimize data re-entry
  • minimize unnecessary supplier interaction
  • track relevant documents and sourcing artifacts
  • identify suppliers with potentially innovative capabilities

That is why MarketDojo has rolled out a full-featured supplier (information) management portal, called, obviously, SIMDojo and included innovation management in their primary offering (the InnovationDojo corner).

With their new SIMDojo offering, which can be used as part of the platform or standalone, which supports supplier self-identification and self-registration, buyers can create the appropriate questionnaires, have suppliers upload the appropriate documents, and lock supplier data (from updates). When suppliers change data, their profile is invalidated until reviewed by an appropriate sourcing professional, insuring only valid and validated suppliers can be included in sourcing events. The platform is simple to use on both sides, and some customers are buying it to augment other platforms they already have.

InnovationDojo is built on the RFX/Survey functionality in MarketDojo, but allows a buyer to issue innovation challenges, collect and score responses, include that information in RFPs, and track and manage innovation projects and responses separately. It’s basic, but it works quite well for the mid-market.

MarketDojo has also made functionality and usabiity enhancements to their platforms across the board, with template management in particular being noticeably improved. With few e-Sourcing companies left serving the mid-market, MarketDojo provides a solid offering, especially to those companies without (a modern) e-Sourcing solution that need to start quick, and keep it basic (to maximize efficiency and SUM [Spend Under Management]).