Category Archives: Sourcing Innovation

The Trade Extensions Event Was Different. It Needed to Be. Do You Know Why?

Those of you following Spend Matters and Spend Matters EU will have noticed Nancy’s and Jason’s posts on the recent Trade Extensions events in London and Chicago on Managing Complexity. In these posts they made a number of interesting observations (which the doctor can verify as he was at the UK EVENT) about the event and how it was different from many other customer-focussed vendor events.

Major differences included:

  • Focus of the talksSpeeches focused on real, live issues and scenarios that listeners could learn from and apply to their procurement functions and their companies’ wider strategic visions. (Optimising Your Game in “at the trade extensions user event an overview of the day” on Spend Matters UK) There wasn’t a single demo or even a detailed description of the next major release (which will be their biggest release since 2009), coming next year.
  • Make up of the crowdUsers tend to be forward-thinking and technology-savvy people, given this is leading-edge software, and there were more people in their 20s (“bright young things”) than is usual at events of this nature. It was the leaders of today and tomorrow, not the leaders of yesteryear counting the days to their retirement. (A Rewarding Day, Spend Matters UK)
  • Value to the crowd. Nancy noted that one person said that coming to the event had taught him more in one day than he could have learned from going on a £30K procurement course.(A Rewarding Day) The focus was on real-world value, not vendor messaging.
  • Key takeaways.There’s more to an optimization-based sourcing system than just product sourcing. One company noted that having changed from their existing sourcing system to something more advanced 12 months ago, has proved invaluable in two key areas: logistics activities (not surprisingly) and supplier data capture. Optimization is about total costs, goods and transportation, and in order to analyze and select the best total cost scenario, a lot of data needs to be captured. As a result, such a tool must be great at data capture. And, as a result, the tool can be used in more diverse ways and in more applications than you would expect. (A Rewarding Day)
  • Individual ThoughtJason noted how many thoughts of the attendees center on areas around the technology rather than the core solution itself. Taken together, I believe the thoughts below point to the future of where sourcing technology is headed, which centers as much on people as systems. (Brainstorming: Spend Matters) Trade Extensions is encouraging ideas and feedback, hoping to harvest the best for future development.

These were all major differences, but the biggest difference is the one that is going unsaid by Nancy, Peter, and Jason and Trade extensions. What is the biggest difference? What is left unsaid. What was left unsaid? We’ll tackle that in our next post …
after we give you a day to think on it.

Why You Should Not Build Your Own e-Sourcing System, Part I

In a recent post titled “thinking of building your own e-sourcing system please don’t” over on Spend Matters UK, Mr. Smith (who went to Washington, as per Buy, Buy, Buy, Once Bitten Twice Shy) asks you to please, please, please not build your own e-Sourcing system because, apparently, a few public sector organizations have this crazy idea that they can build their own and that it can compete with best-of-breed solutions on the market today.

Wow! Today’s best of breed systems have been built on fifteen-plus (15+) internet years of development, implementation, integration, and customer support experience by seasoned professionals who have had numerous bouts with weariness and wisdom. (And since we all know that internet years are measured in cat years, that’s really ninety-plus years of experience.) How could any average organization, especially in the public sector which is typically behind in technology and running on the B-Team (since unionized pay scales typically mean that they can’t afford the A-Team that commands private sector pay scales) really think they can come up with anything close?

In addition to Mr. Smith’s arguments that, especially in the public sector, you are:

  • going to waste OUR money building it,
  • waste exorbitant amounts of money keeping the system up to date and compliant with ever-shifting legislation, and
  • only feed those dangerous delusions (until the Smug reaches critical mass and puts us at risk of a disaster of epic proportions),

there are dozens of reasons NOT to build your own e-Sourcing system, or to even think that there is the slightest of chance you could build your own.

In addition to the standard reasons of:

  • Lack of Sourcing Domain Experience
  • Lack of Software Design Skills
  • Lack of A-Team Software Development Talent

in Sourcing, you also have to deal with the traditional software challenges of:

  • Big Data
  • Real-Time Requirements in a Distributed System
  • Variable Workflows

as well as a host of challenges in each of the main, traditional, areas of:

  • Spend Analysis
  • e-Negotiation (RFX & e-Auction)
  • Decision Optimization

which, to make it abundantly clear that no public and private organization should even remotely consider building their own e-Sourcing system, will be discussed in detail in the next three posts. Unless your core business is a software development and delivery organization specializing in Sourcing or Source-to-Pay, when it comes to building a modern e-Sourcing system to meet the needs of the organization and identify savings and value, just don’t do it. Put those Nike’s back in the closet and break out those Carolinas.

Source-to-Settle – The Sourcing and Procurement Kettle

Source-to-Settle is the end-to-end integration of sourcing and procurement, starting with spend analysis and ending at spend analysis. It is the integrated workflow that starts with sourcing event identification, proceeds through e-Negotiation and Award, and ends with the creation of a purchase order, the receipt of goods and an invoice, and the e-payment for goods received and includes everything in between.

There’s a lot involved in the source-to-settle process, and often a lot more than can be found in most sourcing and procurement modules and stand-alone best-of-breed suites. As indicated in our last post, there is the need for accuracy — to insure that savings are not lost and the right categories are identified. There is also the need for compliance — with insurance and regulatory requirements, with contracts and pricing, and, most importantly with SOX. And results only come from efficiency and performance — which requires integrated, streamlined processes, supplier performance management, and collaboration.

It’s a tall order, but an organization that doesn’t keep PACE never realizes the value that results when there’s one integrated workflow, one complete spend repository for spend analysis, and one, 100% accurate, view of the truth.

For deeper insight into how an end-to-end integrated Source-to-Settle solution can allow your organization to keep PACE and deliver value beyond what you may have thought possible, download Sourcing Innovation’s latest white-paper on how An Integrated Source-to-Settle Platform Brings Unparalleled Benefits to Supply Management and register for Ivalua’s upcoming webinar on how to Help Build Your Business Case Today on January 28 @ 11 PST / 14 EST / 19 GMT!

Benchmarks Will Re-Define (Re-)Sourcing .. but that is Just the Beginning!

Today, benchmarks are used to determine how well an organization has performed to date. While constant measurement is important, it doesn’t really add value. Tomorrow, benchmarks will be used in conjunction with optimization to not only measure progress, but to help the analyst determine the most appropriate method for re-sourcing an existing category that will be the most likely method for delivering additional savings going forward.

Tomorrow, before a category is re-sourced, an optimization will be re-run on market-adjusted historical data to compute a market baseline, which is the proper definition of a benchmark, that will be used to determine a if there is a potential savings opportunity using strategic sourcing decision optimization. If there isn’t, then a better approach will be defined for the category.

More specifically, the current market pricing for the commodities, as defined by the benchmark, will be compared to current organizational pricing and the differential will be used to adjust all of the historical prices for a baseline optimization. In addition, the distribution model will be updated as appropriate (with new lanes, new carriers, and new temporary storage options added) and current rate tables will be included. If this baseline optimization indicates a reasonable savings opportunity, then the category will be re-sourced using a multi-round negotiation process backed by strategic sourcing decision optimization.

If, on the other hand, this baseline indicates that costs are likely to rise, then the organization knows that it should change the sourcing approach and instead try for a contract extension at current, or only slightly increased, rates.

More details can be found in SI’s recent white-paper, sponsored by Trade Extensions, on Optimization, What Comes Next, but this is just the beginning. Automated Optimization, Stratified Optimization, and TVM Optimization will find opportunities that your organization never knew existed (and never will without these techniques).

To find out how optimization, when taken to the next level, will completely redefine your strategic sourcing and category management, download SI’s latest white-paper on Optimization, What Comes Next.