Category Archives: Sourcing Innovation

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part II.2

In part II.1, we addressed the first four steps of our eight-step generic sourcing cycle and noted that we definitely know what we need to do and how to get started. However, we have yet to address the burning question as to whether or not we know what we need to do to get (each step of) the process right and achieve success. But before we can address that question, we have to first discuss the last four steps of the process (in bold):

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

Bid Collection is mainly collecting the supplier quotes and RFX responses for analysis. It can be done through an (e-)RFX tool, auction tool, or even spreadsheets. Whatever suits the strategy and floats the analysts’ boat.

Bid Analysis is simply analyzing the responses with respect to the project requirements and organizational strategy. Once all the suppliers who cannot meet the organization’s needs are weeded out and a short(er)-list of those suppliers who can meet the cost, time to value, and alignment threshold, all of the bids are put through, depending on the strategy and the tools at hand, a weighted cost or optimization analysis and a final ranking is generated. Then, depending on the strategy (sole vs. dual source, lowest TCO by category etc.), the top supplier or suppliers are selected and the project proceeds to the next phase.

Negotiation is the age old art of trying to get more for less. You want to pay less, your preferred supplier wants more, and you go back and forth until you cut a deal or walk away from the table (in which case you return to the previous step, identify the next supplier on the list, and start the process all over again). (Remember to haggle properly or risk insulting the supplier.) When the negotiation succeeds, a contract is awarded and the procurement part of the sourcing-procurement cycle begins.

Post-Award Contract Management is where Procurement takes over. This is where you implement an easy-to-use organization wide e-Procurement system that everyone can use to place their goods and services requisitions and orders and that will tell them if something is inventory, if there is a product or service under contract that meets their need, and, if neither, if there are preferred suppliers or buying policies that must be adhered to for a fast approval or refund on your expense report. You implement a no-refund policy outside of the system without senior manager approval (one level above your boss), a no-PO no-pay policy across all suppliers, make it many times easier to use the system than to bypass it, and implement end-to-end automated invoice management with m-way matching . Then your spend is under management, your policies are followed, and off-contract purchases and expedited shipments are only made when there is a real need due to an emergency or unexpected surge in demand (against your forecast) and its more profitable to pay more than stock-out.

So yes, we, more-or-less, know how to do it — and we know that when we properly apply spend analysis and spend optimization techniques, we can expect year-over-year double-digit savings. But do we really know what we need to do it right and achieve success every time? Here the answer isn’t as crystal clear. In each phase, we know what we need — good, clean, fine-grained mapped data that we can cube, drill, and enrich until we find the savings opportunity in spend analysis, alignment measures for product selection, market intelligence for strategy development and supplier identification, etc. But what does good, clean, fine-grained mapped data look like, what capabilities must the spend analysis / visibility / reporting tool have, and, most importantly, how do we use the tool and read the reports? How do we determine which of our opportunities is most aligned to our current goals with an acceptable TTV and estimated savings? Where is the market intelligence we need, how do we access it, and how do we integrate it with our data to do a full analysis for project selection and supplier identification? Etc.

For an average organization getting started on the path, just knowing the process and having an e-Sourcing suite is not enough. The organization also needs actionable intelligence to help make the key decisions in each stage, and, in most cases, even if there was up-front training, help using the tool to use just the right functionality to extract the information required to generate actionable intelligence, because no training is complete and no one retains everything the first time through.

So how can the average organization successfully start an e-Sourcing journey? One way is to hire a seasoned pro who is knowledgeable in your key category markets and who has been through the journey before to act as your Sourcing Sensei. But given the high demand for such a sensei, as there are so few, this isn’t an option for everyone. So, if you can’t find, or afford to lure, such a sensei what can you do? Stay tuned!

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part II.1

In part I, we noted that most sourcing cycles are the same, and they all generally consist of the following eight steps:

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

We then noted that at a high level, we know what to do. But then we asked do we really know how to do it? And more importantly do we know what we need to do it right and achieve success? Let’s start with the first question. Do we really know how? For the most part, the answer is yes. Let’s take these topics one by one.

The process of proper Spend Analysis is well understood. You start by identifying the data sources, defining the raw data of interest in each data source, and creating a common schema to map all of the data to. Then you start the lather, rinse, repeat process of classify, map, cube until you have enough data to start an analysis, and, once you have identified the categories to drill into, enough data to accurately do the analysis. Then you start the analyze, asses, report cycle until you have narrowed down your top X opportunities. (For more details on this process, download the free Spend Visibility: An Implementation Guide e-book by Lamoureux & Gunther).

Project selection is fairly straight forward too, it’s simply evaluating the top opportunities identified in the spend analysis phase with respect to alignment with the organizational goals and TTV (time to value). The top Y that best balance identified savings, time to value, and organizational alignment are chosen and (e-)Sourcing projects are initiated.

Once a project is selected, the strategy needs to be identified. Will it be a single or multi-round sealed bid with a final negotiation with the chosen supplier? Will it be a masked or open auction? Or a single best-bid followed by a Total Cost of Ownership Decision Optimization to select the winning supplier(s) for negotiation. Of course, the best savings opportunity and best method will be dependent on current market conditions. If costs have risen sharply since the last contract was cut, the top spend category may not be a good opportunity. If demand is near, at, or exceeds supply, an auction is not likely to get good results. So you analyze the market and opportunity and select a course of action accordingly.

Supplier identification is simply identifying those suppliers who (likely) have products or services that can meet your needs. You can use analyst lists, conference lists, colleague lists, blog lists, and even open directories. You can then cut down to a shortlist after an initial RFI which asks some direct, but easy, questions. (For some good insights on what to ask, start with the SI series on Best Practice Technology Vendor Selection for True Multi-Nationals [Parts I, II, III, IV, V] and Seeking Spherical Supply Solutions? Succeed in the EU! [I, II, III], and if you have access, the archived webinars on the NLPA association site on Making Sense of e- in Sourcing and Procurement: What Solution Do You Really Need? and Acquiring e-Sourcing and e-Procurement Technology: What Questions Should You Really Ask>?)

So we definitely know what we need to do and how to get started. But do we really know what we need to do it right and achieve success? Come back tomorrow as we discuss the last four steps of the process so we can (attempt to) answer the latter question.

What are the Key Ingredients to a Successful e-Sourcing Strategy? Part I

When it comes to (e-)Sourcing, every services, software, and full solution vendor has their own process. For example,

On the services front,

DRM Procurement Services proposes:

  1. Assess
  2. Analyze
  3. Strategize
  4. Tender
  5. Negotiate
  6. Implement
  7. Complete

Kuvaq composes:

  1. Category Profiling
  2. Strategy Selection
  3. Supplier Identification
  4. e-Sourcing Implementation (RFx, Auction, etc.)
  5. Supplier Selection and Negotiation
  6. Supplier Integration
  7. Supply Market Benchmarking

and State of Flux exposes:

  1. Project Definition
  2. Market Investigation
  3. Strategy Development
  4. Marketplace Testing
  5. Negotiation
  6. Contract Implementation
  7. Supply Chain Development

On the vendor front,

Moai has promoted a nine-step sourcing process that goes like this:

  1. Spend Analysis
  2. Strategy Development
  3. Supplier Identification
  4. RFX Creation and Distribution
  5. Negotiation
  6. Supplier Award
  7. Contract Negotiation
  8. Contract Management
  9. Contract Fulfillment

Quantris has presented an eight-step sourcing process with a split:

  1. Data Collection
  2. Analysis/Evaluation
  3. Develop Strategy
    — Go / No Go —
  4. Vendor Identification
  5. Bid Solicitation
  6. Negotiation
  7. Vendor Selection
  8. Implementation

and Iasta developed a seven step sourcing cycle with a parity bit:

  1. Spend Analysis
  2. Project Data Collection
  3. e-RFx and Supplier Management
  4. Bid Collection & Negotiation
  5. Decision Optimization
  6. Award & Contract
  7. Post-bid Management

(A Google Image Search*1 will find them all.)

As you can see, they are all essentially the same, more or less, and all include the following eight*2 steps, in approximately the following order:

  • Spend Analysis
  • Project Selection
  • Strategy Development
  • Supplier Identification
  • Bid Collection
  • Bid Analysis and Supplier Selection(s)
  • Contract Negotiation and Award
  • Post-Award Contract Management

So, at a high level, we know what to do. But do we really know how? And more importantly do we know what we need to do it right and achieve success?

To be continued …

*1 When in doubt, Google that Sh!t.
*2 To make for a lucky sourcing cycle!

The (Board) Gamer’s Guide to Supply Management Part X: All Creatures Big and Small

You want to prove that you’re the best at managing an industrial farm at the back-end of agricultural supply chains, but you can’t get enough of your team-mates together for a raising game of Agricola. Don’t worry! Thanks to Z-Man Games, you can have a one-on-one game of Agricola: All Creatures Big and Small and out-farm your cube-mate to your heart’s content!

Based on the original Agricola, All Creatures Big and Small was designed as a simpler alternative for only 2 people. (Even though the original could be played by 2 people, it was designed specifically for 3-5 players, and 62 of the occupation cards in the full game — which we’ll get to once you’ve had time to figure out the basic game which is more involved and complex than you think it is,just like the back-end of a real agricultural supply chain — can only be used if there are 4 players.)

The 2-player game is simpler to learn than the full game (but just as hard to master, especially if you get the expansions). The number of actions you can take in each round are fixed, whereas the number of actions in the full game depend on the number of family members you have; the focus is on raising animals, building fences and stables to hold them, and other special buildings and you don’t have to balance this with growing crops and producing food like in the full game; and there are no cards to deal with, only special buildings. It’s quick to learn, but still hard to master because, as with the full game, only one player can take an available action and if you don’t build your pens or stables in time, you can’t breed more animals — and while special buildings and farm expansions can give points, many of the points depend on the size of your flock. Plus, if you believe the game is getting too easy for you, there are two expansions: “More Buildings Big and Small” and “Even More Buildings Big and Small” that add a total of 54 more special buildings to make your game even more unpredictable, just like farming in the real world (as each building has an ability, just like each supply chain professional you could hire brings a different skill, and you can’t build them all, just like you can’t hire afford to hire too many people, so you have to find the right mix of buildings that give your farm that right mix of capabilities just like you have to hire the right mix of professionals in the real world with skills that complement each other and make the team as a whole greater than the sum of its parts).

In this 2-player version, you start the game with a farm board and a cottage that can hold one animal and 9 borders, which you can place when you select the fencing action, provided that you have enough wood to place those borders.

The game is played over 8 rounds and each round consists of 4-phases.

  1. Refill: Refill the indicated spaces on the game board with the goods printed on them. Every round, more wood and stone becomes available to be retrieved from the mill or quarry.
  2. Work: Take turns placing each of your three workers on available actions.
  3. Return Home: Your workers return home for the next round.
  4. Breed: At the end of the round, if you have at least two animals of the same type, and room for one more animal of the type, you breed one new animal of the type.

The available actions are:

  1. 1 wood: Acquire all wood in the 1-wood resource space and become the start player next round.
  2. 3 wood: Acquire all wood in the 3-wood space. (Just like in the real world, the first person to market often gets the most goods at the best price when demand exceeds supply.)
  3. 1 stone: Acquire 1 stone.
  4. 2 stone: Acquire 2 stone.
  5. Fence: Build as many borders as you can at the cost of 1 wood each. Each enclosed pasture can hold 2n animals of the same type, where n is the number of spaces that are enclosed.
  6. Wall: Build two free borders and pay 2 stone for each additional border you wish to build.
  7. Building Materials: Acquire 1 wood, 1 stone, and 1 reed.
  8. Expand: Take a farm expansion that allows you to expand your farm (which starts with 6 fields 3 more fields).
  9. Stall: Build exactly one stall for 3 stone and 1 reed. A stall can hold 3 animals of the same type.
  10. Stable: Upgrade one stall to a stable for 5 wood or 5 stone. A stable can hold 5 animals of the same type.
  11. Feeding Trough: Build one trough for free, and additional troughs for 3 wood each. A trough doubles the number of animals that can be kept in the pasture or building it is located in.
  12. Special Building 1: Pay the building costs and put up a special building. Each special building does something different. For example, the open stables gives you one free animal and bonus points at game end; the half-timbered house replaces the cottage, gives you bonus points, and holds two animals instead of one; the shelter, which can hold one animal, gives you one free animal; and the storage building stores resources and allows you to gain points from them (as they are kept in pristine condition and can be resold at the end of the game if not used).
  13. Special Building 2: Pay the building costs and put up a special building.
  14. Millpond: Harvest a reed and capture any sheep near the pond.
  15. Pigs and Sheep: Capture the pig and any sheep on the space.
  16. Cow and Pigs: Capture the cow and any pigs on the space.
  17. Horse and Sheep: Capture the horse and any sheep on the space.

Sounds simple enough, but, just like in Agricola, you’re managing an industrial farm at the back-end of an agricultural supply chain, but unlike Agricola, you’re only managing the stables. The amount of animals you can raise depends upon the number of separate pastures, stalls, and stables you have, how many troughs you have available, how many workers you have to build, how many resources you have available to put up fences and buildings, and how many special buildings you have that give your workers additional capabilities. And, as in the real world, winning isn’t just profit, it’s sustainability and depends on a number of complex factors that influence your performance over time.

Are you a better agricultural supply chain manager? Play All Creatures Big and Small and see if you can best your cube-mate, and when you think you’ve mastered it, switch back to the full game, break out the full version, and start preparing yourself for the ultimate supply management challenge (which this series is leading up to — given that the majority of the market is still, depending on the analyst firm you ask, less than halfway up the ladder, we have to first give your peers a chance to take their supply chain game up a couple of rungs).

Time Critical Transport – Is it Still Needed?

A recent article over on Inbound Logistics on Time-Critical Transport: Devising a Master Plan makes it sound like expedited or time-critical transport is still difficult or even needed regularly. The reality is that, for any Procurement and Logistics organization that is with the times and using the right technology, it’s easy and rarely needed.

Traditionally, time critical transport was needed when something went awry in the supply chain and a shipment had to be expedited to prevent a disruption or stock-out that could be disastrous to a company’s bottom line. Otherwise, unless you were talking about perishable deliveries on a non-refridgerated truck, proper planning mitigated the need for expedited shipment. This situation, of course, worsened with the introduction of JIT (Just in Time) Manufacturing and delivery in the supply chain, especially considering that not only have natural and financial disasters been on the rise since this paradigm became popular, but, as expected, so did disruptions as there were no longer weeks worth of buffer inventory to absorb a minor supply chain shock.

But if you have good visibility, proper planning, and the right tools at your disposal, whether or not you are JIT makes no difference — the odds of a disruption being so significant as to require expedited shipping are low.

Specifically, if you have:

  • multi-tier supply chain visibility,
    like the kind Resilinc gives you, and know about a disruption the minute it happens three levels down in your supply chain, and not the day after a product was supposed to reach your warehouse
  • access to modern platforms to find and secure transport in real time,
    like BuyTruckload.com and FreightOS, then you can quickly get a truck when you need a truck and
  • license to global trade document platforms,
    like Integration Point or Amber Road that handle import and export compliance, including advance notification, that help you to insure there are no delays at the border

then you will be notified of potential disruptions well in advance and in time to take appropriate actions, and in the situation where it was an unpredictable disaster (such as a fire, earthquake, or flood) at your supplier’s DC just as product was about to ship, and a new shipment has to be made immediately from another location, your immediate ability to secure a new truck almost always alleviates the need for an expedited shipment — a need which is further alleviated by your ability to get your import, export, and compliance documents in order before the product ships, preventing unnecessary delays at the border.

Basically, about the only time you would have to do an expedited shipment is if you were a medical organ transport company and a new doner heart, needed halfway across the country, just became available. Other than that, with all of the options available to you to prevent the need for unanticipated shipments, or to get them under control as soon as the need arises, there just isn’t that much of a need for time-critical transport anymore. (Unless you’re still living in the eighties and using paper and fax to manage your logistics.)

Your thoughts?