Category Archives: Sourcing Innovation

Implementing VFS: A Beginner’s Guide, Part III

In our last post we presented an example of how a leading technology company, namely Apple, probably used a variation of the Value Focussed Supply Strategy when they decided to enter the smartphone market with the iPhone and illustrated, with a few liberties, how the VFS process could have led them to that market and that product and the success that followed. In this post we are going to elaborate on the process that was described in CAPS recent report on “Linking Supply to Competitive Business Strategies”.

Given the following seven-step process that we outlined in our last post:

  1. Understand Customer & Supplier Markets
  2. Identify Directional Changes
  3. Link Insights into Directional Changes to the Business Strategy
  4. Evaluate the Company’s Strategic Options
  5. Set Holistic Value Focussed Goals
  6. Evaluate and Select Strategic Supply Options
  7. Identify and Implement Levers

We can identify the following key questions for each step:

  1. Understand Customer & Supplier Markets
    • What are customers buying and what do they want to buy?
    • What is the balance of supply vs. demand in the supply market?
    • What capabilities do organizational suppliers have that are not being utilized?
    • Are there any limitations on raw material supply?
  2. Identify Directional Changes
    • How are customer buying patterns shifting?
    • Is a market transformation occurring?
    • Is the supply base expanding or consolidating?
  3. Link Insights into Directional Changes to the Business Strategy
    • Which categories and products are likely to have the greatest market demand?
    • Which categories and products will have the greatest impact on financial and market performance in the short and long term?
    • Which categories and products fit with the business strategy?
  4. Evaluate the Company’s Strategic Options
    • Which categories and products could be truly strategic now and in the future?
    • How would each of these shape the company’s market presence and supply chain?
    • From a VFS viewpoint, which are the best options?
  5. Set Holistic Value Focussed Goals
    • What performance is expected from the supply base?
    • What performance is expected from the organization?
    • What performance is expected from the distribution partners?
  6. Evaluate and Select Strategic Supply Options
    • Which suppliers will be used? Which are strategic partners and which are tier two?
    • Will the organization handle JIT inventory itself or use third party inventory management services?
    • Will the organization manage distribution itself or hand it over to a 3PL?
    • Will the organization use currently existing supply markets and supply chains or create new ones?
  7. Identify and Implement Levers
    • What can change the market dynamics?
    • What can change what is bought?
    • What can change interaction with suppliers?

The answers to these questions will dictate:

  • target market,
  • primary category,
  • key product(s),
  • key suppliers,
  • VFS strategy,
  • VFS goals, and
  • VFS levers.

In our next post we will dive into some of the key questions in each category and explain some of the thought process that will help lead the organization to the right answer(s).

Implementing VFS: A Beginner’s Guide, Part II

In yesterday’s post, we discussed CAPS’ Value Focussed Supply (VFS) and how it represents a valid methodology for taking supply management to the next level. Given that many leading organizations are seeing decreasing returns in their supply management efforts, it is becoming clear to leading analysts, providers, and thought leaders that this decade needs to see the introduction of Next Generation Sourcing and Supply Management Techniques if Supply Management (and Procurement) are to have a hope of getting, and keeping, their seat at the C-Suite table.

In addition to discussing the four levels of VFS in their recent report on “Linking Supply to Competitive Business Strategies”, the report outlined a high level process that can be used as a starting point. As noted in our last post, this process can be broken down into a seven-step program that will get a company on its way. Specifically:

  1. Understand Customer & Supplier Markets
  2. Identify Directional Changes
  3. Link Insights into Directional Changes to the Business Strategy
  4. Evaluate the Company’s Strategic Options
  5. Set Holistic Value Focussed Goals
  6. Evaluate and Select Strategic Supply Options
  7. Identify and Implement Levers

To understand this process, we’ll start with an example that’s easily understood. To do this, we’ll have to travel in time and space and go back to Cupertino circa 2006. Apple, having just conquered the mobile music device industry with the iPod, is looking for the next market to conquer. They make computing hardware, the iPod was a natural progression, and they are looking for the next killer product. Where should they go?

  1. Their suppliers are great at supplying leading-edge computer components for compact and mobile devices and good at innovation.
    Their customers are interested in cool gadgets and entertainment and keeping in contact with their peers.
  2. These two observations quickly lead the organization to two potential markets, gaming platforms, which was a very lucrative market for Nintendo and Sony and which their competitor (Microsoft) had entered five years previous, and smartphones, which was a quickly growing market as cell phones were already in the hands of 1/3 of the global population.
  3. The business strategy was continued growth and market leadership in any computing device or mobile market that was entered. Both the gaming marketplace and smartphone marketplace had a number of big players with well established market share, including Sony, Nintendo, Microsoft, and Sega in gaming and Nokia, Motorola, RIM, Samsung, and LG in smartphones. Both could be hard to break into, but ( a) the mobile market is more fractured, ( b) there are more similarities between smartphones and iPods then between generalized computers and specialized gaming systems, and ( c) the market for smartphones is growing rapidly with projections that half of the global population will have cell phones within two years.
  4. The strategic options are to fight it out in the mature and relatively flat gaming market and go head to head with their main competitor on another platform, or fight it out in the growing smartphone market where platforms are not as mature and there are more opportunities for innovation.
  5. The obvious goal is to enter the smartphone market with an innovative new product and capture a leading market share, especially among current, discerning, Apple customers.
  6. Apple evaluated it’s supply chain and locked in a sufficient supply of strategic components to ensure it could meet projected demand.
  7. Knowing that a phone was useless without a carrier, Apple signed a strategic agreement with one of the largest carriers who would see the 3 years of exclusivity it was granted as a way to significantly grow its own market share and, in turn, aggressively promote the new product for Apple.

Now, we’ve made a few assumptions and taken a few liberties, but it’s easy to see that Apple obviously used some type of VFS strategy when they decided to introduce the iPhone and enter the mobile market, because, within 2 years, they were the top selling mobile phone on the market.

In our next post, we will begin to dive into the steps in more detail.

Implementing VFS: A Beginner’s Guide, Part I

Last month, before our detailed dive into Next Generation Sourcing, we discussed the four levels of CAPS’ Value Focussed Supply, as put forth in their recent research report on “Linking Supply to Competitive Business Strategies”. Companies on the VFS path start by eliminating value leakage (Part I and Part II), before increasing current value, and creating tomorrow’s value on their way to the stretch for added value. Companies will embark on the VFS path because if they don’t take their value to the next level, the value they see from the current generation of (e)Sourcing strategies and technologies will start to disappear as more and more companies adopt leading supply strategies and increase average performance across the board.

But how does an average company go about starting? Without a starting point, it is likely that if VFS emerges in an average supply management organization, it will be by accident, especially since this is how it appears to have emerged at a number of leading companies profiled in the report. And while a market leader may have the time and resources to experiment with different strategies (due to their superior market position and better financial position), in today’s economic climate, an average organization does not. So what should an average company do?

To this end, CAPS offered a “framework” in Chapter 4 of their report to get companies started. However, as it only outlined a high level process, and not any supporting technologies or (advanced) methodologies, it was more of a guide than a framework. But it’s still a good starting point, and appropriately presented outlines the mindset required to move from traditional supply strategies to value focussed supply strategies, such as High Definition Sourcing that can Move Category Excellence to the Next Level.

And like many guides these days, it can be broken down into a seven-step program that will get a company on its way. Specifically:

  1. Understand Customer & Supplier Markets
  2. Identify Directional Changes
  3. Link Insights into Directional Changes to the Business Strategy
  4. Evaluate the Company’s Strategic Options
  5. Set Holistic Value Focussed Goals
  6. Evaluate and Select Strategic Supply Options
  7. Identify and Implement Levers

The next few posts will explore this “program” and how a company can get started down the value focussed path.

High-Definition Sourcing: Category Excellence Moves to the Next Level


Today’s guest post is from Paul Martyn, Vice President of Marketing for Bravo Solution.
Paul can be reached at p <dot> martyn <at> bravosolution <dot> com.

the doctor — along with many others — has been advocating for “next-generation sourcing” for some time. I couldn’t agree more that modern supply management organizations must take sourcing practices to the next level if they are going to continue to distill value from the discipline and practice.

But like most New Year’s Resolutions, while the aspiration to improve may be great, the effort may be too much for even the most committed. I see this a lot, especially when it comes the challenges of sourcing strategic, complex categories. Not without reason of course, but more and more I also see that the benefits of mastering the art of sourcing these challenging categories far outweigh the difficulties of the actual process.

Strategic categories mean different things to different businesses. For one company, the category may be transportation; for another, packaging material. The common denominator: the business can’t succeed without it, and can’t afford to over-pay for it.

To make decisions based on the most strategic objectives of the business, sourcing teams need to integrate many dimensions of information from areas well outside their domains. For example, if non-price factors like diversity or sustainability are part of the company’s corporate social responsibility initiative, those factors can — and should — be part of sourcing strategies.

As a result, the volume and the sheer variability of the information render common e-sourcing tools or Excel spreadsheets useless for collecting and evaluating proposals. That’s where high-definition sourcing — which combines technology, expertise and process — delivers the goods at the lowest total landed cost, and aligned with the greater organizational strategy.

So how do you know if high-definition sourcing can turn even the most complex categories into real value for your organization? There are generally three scenarios where the opportunity to apply this discipline will help you capture meaningful and sustainable savings

  1. The category leader is frustrated with traditional sourcing techniques
  2. The category is avoided by the faint of heart
  3. Sourcing alone will not deliver the value

Sound familiar? Odds are good that at least one of these reflects what’s happening in your organization. Regardless of which situation you face, there are immediate opportunities to be gained with high-definition sourcing

  • Use technology to design and execute more sophisticated proposal collection and analysis, including the ability to use “what-if” scenarios.
  • Build supplier performance monitoring and triggers for re-evaluating supplier selection into your category management solution
  • Partner with suppliers to drive costs out of the system and strike the perfect balance between suppliers’ pricing and capabilities with buyer business constraints and preferences
  • Tap domain and process experts to bring market and industry best practices to bear on your own sourcing process

The results will be well worth it. Best-in-class companies make the connection between complex categories and the business’ charter. Lowering initial costs is a given. More importantly, these leaders make better decisions based on capabilities and price and secure meaningful — and sustainable — savings.

Thanks, Paul!

For Successful e-Sourcing, Put the Supplier First

An article in a recent SIG Newsletter on “eSourcing from the Supplier’s Perspective: Improving Bid Submissions and Event Outcomes”, that was contributed by Denali (who deliver) made a couple of very good points if you want a successful eSourcing event. These points can be succinctly summarized as “design the event from the suppliers’ perspective”. If it doesn’t work for the supplier, it isn’t going to work for you.

As the article states, while many benefits are usually touted to the supplier to get their participation in an eSourcing event, at best, the supplier typically only realizes two benefits: fair(er) competition and an easy(ier) quote process. As a result, the supplier gets discouraged by the whole process and, if the supplier does not win a (significant) award, the supplier is unlikely to participate in future events.

Basically, you have to avoid “the reality chain” that is repeated over and over again as more and more companies hop on the eSourcing bandwagon unprepared for the journey ahead. In “the reality chain”

  1. Supplier begins with little or no knowledge
  2. Supplier reaches out, but receives no guidance on requirements or evaluation criteria
  3. Supplier submits a bid that does not meet the buyer’s need
  4. Supplier receives no feedback as to why
  5. Supplier is discouraged

As a result, not only is the buyer’s event only moderately successful at best, but the buyer’s potential supply base for future eSourcing events has shrunk. However, if the buyer had considered what suppliers want and supplied:

  • detailed RFX requirements
  • post-bid feedback
  • well thought-out RFX
  • more stakeholder communication
  • opportunity to provide alternative solutions
  • evaluation criteria

Even if the supplier lost, the supplier would be encouraged by the process (since the supplier would know why the lost and what they need to improve next time) and the buyer would not only have a successful event, but lay the foundation for successful events for years to come. In other words, if the buyer designs the event from the suppliers’ perspective, success is much more likely.

For more details on how to achieve the level of success required, check out “eSourcing from the Supplier’s Perspective: Improving Bid Submissions and Event Outcomes”.