Category Archives: Sourcing Innovation

Seeking Spherical Supply Solutions? Succeed in the EU! Part I

Alliteration aside, the reality is that if you are looking for a modern sourcing or procurement solution, not only should you not exclude the EU, if you truly want to go global, and install global, you should probably focus in on the EU solution providers before making any decision. Here’s why.

They’re already multi-lingual!

There are twenty-seven (27) member states in the EU, speaking close to two dozen languages. To do business across the EU, you need to support close to a dozen languages, and most European sourcing and procurement providers do, and have supported multiple languages since their first release. In contrast, most North American providers built up their suite supporting only one language, English, and added other languages as an after-thought. This means that only the bigger names can support multiple languages, and your selection of global providers in the US is limited.

Plus, multi-lingual is more than just translating the UI. It’s having people who speak the language – natively – to support the product and local references in the appropriate countries. If you ask ten random EU providers for a reference in Poland or Malaysia, nine will probably be able to name three off of the top of their head. In contrast, ask ten random NA providers for a reference in Poland or Malaysia, and you are likely to get a blank stare from nine of them.

They understand the importance of locality.

And the bigger providers are global. The first thing they tend to do when they want to enter a new market is open a local office. In contrast, an average North American firm will try to serve the new locale from an existing office first, and a US one if possible, with only the help of one or two local employees to assist them.

Secondly, they understand that since most transactions involve money and legal contracts, that it’s very important to localize not only the language, but the terminology in order to come off as being a professional solution put forward by a professional company. For example, in Europe it’s “article” instead of part and “position” instead of bid.

Thirdly, localization of the supplier enablement process is very important as it is often a critical factor to supplier adoption. Each locale has it’s own business and technical challenges. For example, in addition to language and terminology on the business front, an understanding of local culture is often critical to convince an uncertain or wary supplier to get onboard. An organization that is already established in the region typically has a much better understanding of culture than one that is not. Secondly, even though there are often multiple connectivity options at an organization’s disposal, some options are not applicable to some regions. Example: punch-outs in Asia.

These are just two of the reasons. Turn in tomorrow for Part II.

Nine Rules for Stifling Supplier Innovation

Over on the Old St Labs blog, Mark Perara recently penned a great post on “Nine Rules for Stifling Supplier Innovation” in homage to a post by Rosabeth Moss Kanter on the HBR blogs on “Nine Rules to Stifling Innovation”. I thought Mark’s post was so awesome that I asked to share it with you, and he graciously agreed. So, without further ado, here are Mark’s Nine Rules.

1. Be suspicious of ideas that come from your suppliers – your strategy, innovation and R&D teams know your business better than anyone externally.

2. Keep suppliers really busy. Change your requirements and staff regularly so suppliers have no time to focus on innovation. Their account managers will be too busy to try and second guess what your business needs as well as not knowing who to speak to.

3. In the name of excellence, encourage cut-throat competition. If a new idea comes in from a supplier, immediately put it out to the rest of your suppliers to see if they can provide it cheaper. Even better run a RFX and auction.

4. Don’t share any information with your suppliers. Sharing product roadmaps, demand and organization charts will only encourage them to come up with ideas on how to help. Knowledge is power!

5. Sit on ideas for as long as possible. If a supplier does find the time to share some innovation, ensure not to get back to them in a timely manner. Let the idea bounce around the different areas of the business with no ownership until it fizzle’s out and the supplier stops asking for an update.

6. Ensure quarterly reviews don’t happen. Make sure the procurement team are so busy that they don’t have the time to hold their quarterly meetings with top suppliers. Having a face to face meeting with suppliers on a regular basis may provide a sign that you care about the relationship.

7. Pay late and extend payment terms. By paying late your supplier will spend hours chasing your accounts payable team trying to get payment. Even better push out payment terms as far as possible. Your FD will thank you and the supplier can bear a little bit of pain for the grace of having you as a customer.

8. Act as though punishing failure motivates success. If a suppliers idea does somehow slip through the net, ensure the employee who championed it is aware that failure will be a direct reflection on their capability. A few public hangings will soon stop future cases arising.

9. Above all, never forget your the customer and you already know everything there is to know about your business.

Following these rules will ensure suppliers will never see you as a customer of choice and will take their innovation to your competitors. That said if you work for a dynamic business that wants to develop a competitive advantage, I would suggest creating a culture to embrace and nurture supplier innovation.

For each of these supplier innovation stiflers, innovation promoters can move to the opposite behaviours. So if you want to be a customer of choice, which suppliers invest in and bring innovation to, take a look at these behaviours and allow supplier innovation to flourish:

1. Encourage ideas from suppliers as they often know your business better than some of your own team.

2. Promote your commitment to the supplier innovation programme and ask your suppliers to invest time into providing new ideas. Respect their time by giving them as much notice of changes to requirements and key members of staff, so they can spend the time on innovation.

3. Nurture ideas with suppliers and establish a culture of trust, so suppliers know you respect their IP.

4. Share as much information as you can with your top suppliers. The earlier suppliers can see your product roadmap, the sooner they can provide ideas to improve it.

5. Make sure you have a defined supplier innovation workflow and let your suppliers know how their ideas are progressing on a regular basis. Assign an internal owner to each idea ensuring there is accountability.

6. Make sure your category managers hold their quarterly reviews with strategic suppliers, to share performance reviews and discuss innovations

7. Pay your suppliers as agreed and if at all possible don’t push out payment terms. It diminishes your position as a customer of choice and adds costs to the suppliers, as they have to find alternative financing to support your improved working capital position.

8. Motivate your employees to collaborate with suppliers on new innovations. Let them know there will be some projects that will not be as successful as others, but its okay to fail. Publicize and reward innovative suppliers at annual supplier awards ceremony.

9. Embrace your suppliers as an extension of your business. Learn from their ideas and build open and trusting relationships where innovation will thrive.

Thanks again to Rosabeth for the inspiration for this post and good luck with driving supplier innovation in your business.

Thanks again Mark for sharing “Nine Rules for Stifling Supplier Innovation”.

Looking for a Value Generation Opportunity?

Then consider starting out with the five C’s of opportunity identification (for would-be innovators), as outlined by Scott Anthony on the HBR blogs.

  • Circumstance
    The specific problems a stakeholder cares about and the way they assess solutions is very circumstance contingent. For example, when beginning a new advertising campaign, Marketing is clearly interested in who can create the campaign most likely to convince a customer to part with dollars and not how much the invoice for the materials will be. However, the marketing assistant charged with obtaining 10,000 flyers and 100 posters for an upcoming conference will likely be much more cost conscious as she will likely be questioned by the CFO otherwise.
  • Context
    Ask a stakeholder to report what they did in the past and you are likely to get something that bears only a loose resemblance to reality. Ask a stakeholder to describe what they will do in the future and you are going to get guesses that are less than accurate. Most people have no conscious memory of how they do routine tasks or any real idea of how they will accomplish a (new) task in the future. If you really want to understand how something is done, you need to watch as it is being done. And if you want to get a good feeling as to what kind of solution will please the stakeholder, watch as they try to solve the problem. Get some insight into how they think! How is Operations managing their temp labour contracts?
  • Contraints
    One of the time-tested paths to growth is to develop an innovative means around a barrier constraining consumption. If your e-Sourcing platform is not being used outside of your core buying team, then it is probably too cumbersome, too incomprehensible, or too demanding. As the author notes, understanding why a customer doesn’t consume is critical. Something new typically isn’t enough. And simply replacing Big Vendor Product X with Big Vendor Product Y isn’t guaranteed to solve the problem if Big Vendor Product Y is also missing critical path function Z.
  • Compensating Behaviours
    One of the biggest challenges facing the would-be innovator is determining whether a job is important enough to consider targeting. One clear sign is a stakeholder spending money trying to solve a problem. Another clear sign is they are trying to use a product in an unintended way to try and solve a problem. Unfortunately, if the tool is a spreadsheet (and they are misusing it horribly), it probably means they aren’t willing to spend money, at least in Supply Management – so don’t get your hopes up!
  • Criteria
    Stakeholders look at jobs through functional, emotional, and social lenses. Quality is a relative term; you can only determine if a solution is good by first understanding the criteria that matter to a particular stakeholder. If they care only about new market acquisition, a cost discussion is a losing battle. Only about innovation, a strategy to extend the longevity of the current product is a losing battle.

One Size Does Not Fit All – That’s Why You Need User Configurable Workflows

Andrew just posted a great post over on CPO Rising on how One Size Does Not Fit All where e-Sourcing and e-Procurement is concerned. As Andrew astutely notes, process standardization is very important within Supply Management, but having only one option for e-Sourcing or e-Procurement events is certainly not the way to go.

One has to remember that even in the simplest classification scheme, you will break your events into quadrants based on dollar value and business impact (or supply challenge and business impact). For low value, low impact events, you’re not going to use a process that requires a lot of time and effort, because you need that on high-value, high impact categories. Similarly, you’re not going to use an automated e-Auction for a high-value, high-impact category and essentially throw the category to the wind. As Andrew notes in the first example in his post, if the process is set up for large, high-value, multi-stakeholder process, it’s not going to work for small, low-value, single stakeholder processes as it will be too cumbersome and your buyers will do everything they can to bypass or ignore it.

In order for your solution to work, it needs to support multiple project configurations that can be defined by the client. For example, the client should be able to configure simple, automated e-Auctions for low-value, low-impact categories; automated e-RFXs for low-value, high-impact categories and high-value, low-impact categories where Procurement personnel only need to get involved in final review and award; and full-fledged multi-round RFX and Decision Optimization for high-value, high-impact categories. (Now, every category should run a baseline optimization scenario before an award is made, but extended analysis does not need to be done for all categories.)

And, further more, it needs to be easy for a Director or CPO to grant exceptions to the process when they are appropriate. For example, as per Andrew’s 3rd example, it should not take months of back and forth to remove a “mandatory” automobile insurance provision when no automobiles are being used! So make sure your solution is configurable, or it might not last long in your client’s Supply Management department.

Procurement Value Creation Ideas, Part II

Recently, over on StrategicSourcing.com, Mickey posted her thoughts on “Procurement Value Creation Ideas”, highlighting four areas in particular that she thought were good targets:

  • Revenue
    Does your Supply Management team understand the value that needs to obtained from suppliers to bring innovation to products, materials, and business processes? Does sourcing reduce time-to-market for new products and services?
  • Costs
    Does Supply Management extend their focus to supplier variable and fixed cost structures, which materially contribute to the suppliers’ product and service costs?
  • Working Capital
    Does Supply Management understand the company DSO, ITR, and DPO equations and their interrelationships? [Days Sales Outstanding, Inventory Turnover Rate, Days Payable Outstanding] Does your Supply Management team work towards improving the ITR and balancing DPO with DSO? Does Supply Management Team contribute to S&OP? [Sales and Operations Planning]
  • Fixed Capital
    Does Supply Management play an active role in capital expenditure management? Are maintenance and service standard items contained in contracts and purchase orders?

These are great ideas, and a great start, but not all of Supply Management’s value creation potential is immediately realized, and not all can be easily measured in the revenue, cost, or capital management equations.

Consider:

  • New Market Identification
    By the time you identify the market, identify the proper products services, design them, source them, and sell them, it will be a while before you can measure the effects on revenue. Even costs will be difficult to measure as they will decrease as efficiency and volume increases.
  • Brand Building Potential
    Sometimes, the right supplier can enhance your brand, and decrease the marketing cost and effort require to enhance your brand the same amount. This can be very hard to measure, but Supply Management will be critical in obtaining the right relationship with this supplier.
  • Alternate Material / Component Identification
    A Supply Management team that keeps tabs on the market may not only be able to identify more cost effective alternatives, but also more sustainable / environmentally friendly ones, which could boost your brand image and lower your long term costs and risks.

Supply Management can do more than just impacting the top and bottom lines in the short term, and do more than impacting these lines in the long term. It can improve your image, increase organizational stability, and lower your risk. Don’t forget this.