Category Archives: Sourcing Innovation

Look to Niche for Innovation

In a recent post, I asked if now [is] the time of niche. Upon further reflection, I think it is for those companies looking for true innovation. I realize this may sound a little counterintuitive at first to those of you following the market and the M&A buying sprees going on where the big players like SAP, Oracle, JDA, and, now, Ariba, are doing their best to buy everything (and everyone) under our sun, but if you think through it, I believe it is quite logical.

First of all, if all of your time and effort was going to into buying and selling companies and divisions, how much is going into true innovation? In all likelihood, zero. And while the product or technologies being bought may be innovative to you, your customer base, and, if you’re lucky, the market at large, all products or technologies have an innovation shelf life that ends as soon as a more innovative product or technology hits the market. And while the more innovative product or technology could theoretically be the next version of your product, there is only a chance of this happening if R&D on the product or technology is continuing. Thus, if everything is put on hold for an M&A activity that could drag on for months (or years), there’s no way that the companies involved are going to maintain their innovation edge.

Furthermore, as highlighted in this recent Industry Week article that asked “what would Steve Jobs do”, to be innovative in today’s economy where time and resources are at a premium, you have to be focussed on a small number of products or solutions. You have a limited number of people with a limited amount of time and creativity and a fixed set of resources to support them. If you split your focus 1,010 ways and try to be everything to everyone, there’s essentially zero chance that you are going to stumble upon any truly groundbreaking innovation. But if you say no to 1,000 things and focus on the handful (5 to 10) of products or services you excel at where you have a chance to truly make a difference, the chances of real innovation increase exponentially.

So if you’re looking for truly innovative products and services to revolutionize your supply chain, look to the niche players that specialize in spend analysis, decision optimization, or predictive analytics. When you plug these into an end-to-end framework enabled by one of the big behemoths (that specialize in end-to-end platforms that can serve as a good foundation), or assemble your own from best-of-breed e-Sourcing, e-Procurement, and e-Logistics vendors (if you are tech savvy enough to do it, possibly with some third party expertise), that’s when you’ll start to see the truly innovative results that deliver double digit percentage returns year after year after year (and not just one-time reverse auction savings that disappear once you’ve sucked all the fat out of the supplier’s margin).

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You Are Invited to the Wake For Strategic Sourcing


Today’s guest post is from Dalip Raheja, President and CEO of The Mpower Group (TMG) (former leader of the Strategic Initiatives Group for Bank One and former Principal of DEC) and a contributor to the News U Can Use TMG blog.

You are invited to the wake … the tab is on us!! This will be the last of our posts on the Death of Strategic Sourcing. It has become clear to us that most of our community is generally in agreement that we need fundamental change.

For those that still need a bit more convincing, you can look at an interview (Next Practices Innovators Award – Executives Who Elevate Our Function) with Lamar Chesney, CPO of SunTrust Bank and the keynote speaker at the 2010 Aberdeen CPO (Chief Procurement Officer) Summit, whom I first met at Tim Cummins’ IACCM conference earlier this year. Tim was kind enough to provide me with a stage and Lamar and I ended up having a follow-up conversation over some drinks (ummm, I think it was called Scotch!!). If a very senior and highly respected current practitioner is generally in agreement, then I think it’s time to move on. If you need further proof, there is a very interesting report by Kevin O’Marah (“Supply Chain Almost at the Table in 2010” at blog.seeburger.com) at Gartner that clearly points out that even after 25 years, we’re still not there. While the initial numbers look very good, it becomes clear when you dig inside the numbers that the picture is not quite as rosy as we think. “But before we get too excited about this trend, it’s worth asking whether or not the business really knows what supply chain is all about. Only 29% used the label ‘supply chain’ to describe this leader. Nine percent called it ‘procurement’. Another 9% chose the label ‘operations’, while yet another 7% said ‘logistics’. Forty-three percent of respondents were unable to find the functional title for their highest-ranking supply chain executive among these terms“. Bazinga!! Or, as Paul Harvey used to say, “and now you know … the rest of the story“. Basically what Kevin points out is that even though we may have made some progress, we are clearly not there yet.

What is interesting are the views that Supply Chain organizations have about their role. According to Gartner,


“The most encouraging facts revealed in this research have to do with the expanding view supply chain has of its own role. … In terms of priorities, although the No. 1 overall stated goal is still cost oriented (56% chose ‘reduce operational costs’ as one of their top-five priorities), the No. 2 is ‘improve customer satisfaction.’ And even though they’re lower on the list, competitive imperatives such as product innovation, or ‘getting new products to market faster,’ (28%) and risk management (24%) rated significant awareness”.

Two points I would like to make here. First, please note that cost continues to define us, but even more importantly, the second point is that this is supply chain’s view of its own role and I would humbly submit that at the end of the day, it matters not what we think of ourselves but rather what our stakeholders think of us. And I would further submit that if asked, most of our stakeholders would view us through the cost prism and not much else. And here is the money quote from Kevin: “Supply chain has a lot to do with whether or not a company wins its competitive battles, and it’s trying to get the rest of the business to see this. It’s time we get our story straight“.

If you need further proof, take a look at the recent cover story in CPO agenda that screams out “When do we get to SRM?”. Here are some of the statements that strike a chord with me:

  • “… For all of the potential benefits, many organisations have struggled to make it further along the road to supplier relationship management than the contract monitoring stage ..”.
  • “SRM activity is about value creation, not cost reduction ..”.
  • “The best suppliers are going to be in demand ..”.
  • “Those organisations that take the SRM approach with a supplier are more likely to be seen as a preferred customer … the benefits of SRM show it is about more than process and procedure. It also requires the right behaviours, skills, resourcing, and organisational backing to ensure it delivers to its maximum potential”.
  • “The skills required for SRM are different from procurement’s traditional strengths, which underlines the importance of the people question — not only in development terms but in deciding whether it is procurement that should carry SRM responsibilities ..”.

 

That last quote should be very disturbing for us in the community because essentially the point being made is that procurement organizations are so mired in the traditional mindset of cost reduction that they don’t have the right competencies, and this is leaving value on the table. OK, so far that seems to be in line with what I said in Old MacDonald Was Right — It Is About E-I-E-I-O!), in The Sourcing Emperor Has No Clothes! and in Strategic Sourcing is Dead!!! (The Debate Rages On!). CPO Agenda even goes a step further in stating that perhaps Procurement is not even capable of handling such an important responsibility and perhaps it belongs somewhere else. Hmmmmm, I hope they are ready with their chain link armor to absorb the arrows headed their way because at least we were saying that we are more than capable of leading the charge on value.

Here’s what Jeff Dobbs, Global Head of Diversified Industrials for KPMG, had to say: “almost four in ten now acknowledge that driving down costs has damaged relationships with their suppliers“. “Those businesses that continue to follow the traditional low cost or bust models in supply chain management are at risk of losing a foothold in the market. … the expected marketplace winners are entering into strategic relationships with suppliers that not only deliver product, but provide innovation as well …”

Clearly, KPMG is also pointing out that this cost focus has actually destroyed value along the way. In fact, if you read the entire article, they point to this as additional risk being introduced by the sourcing organization.

Before wrapping up this conversation, I would be remiss in not pointing out the other part of the argument. Even if you think that you are a truly strategic organization that is adding significant value, we would postulate that there is still too much of a focus on the consonants (tools, process, technology, etc.) and not nearly as much as needed on the vowels (Adoption, Execution, Implementation, etc.). Even someone who has been called one of the greatest communicators ever (Obama) is now acknowledging that he paid way too much attention to the legislation and policy (consonants) and not nearly enough to the politics and selling of the change (the vowels). Whether you agree with him or not politically, he is clearly pointing out the imbalance between the two and how it has hurt him dramatically.

I would also point to the series of posts by the doctor recently, where he has been analyzing this whole notion of “strategic” and especially the last one on the one commandment of value. I like the simplicity of that. It’s easy to absorb and talk about. I would hope that we can all agree that the definition of value requires a fundamental shift in the way we think and conduct business and that value goes way beyond what most of us have defined and measure today. If all it means is nibbling around the edges and focusing on more spend analytics and risk frameworks, then I’m afraid that the doctor and I will agree to disagree.

To those that think this debate is “nonsense”, “the most laughable statement”, “nothing more than market pitches”, “a long winded rant”, “an outlandish attempt to call attention to the idea” … we wish you all the luck and success in the world. To the rest of the community, many thanks for the support and encouragement, let’s continue our conversations and focus them now on solutions. We have already partnered with IACCM to conduct a research project on some aspects of this issue and will continue to look for others who wish to engage in constructive confrontation. But for those critics that still refuse to concede, we are in the process of documenting a case study where this process was implemented at a Fortune 10 company with incredible results.

Thanks, Dalip.

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Is Now The Time of Niche?

The current trend in sourcing and procurement is to build a bigger, badder, more generic platform that can serve a broader and broader market (and, preferably, get as close to 100% adoption as possible). From a theoretical business perspective, it sounds great — bigger market translates into bigger customer base which, presumably, translates into a bigger bank account. However, from a more practical perspective, this isn’t necessarily the case.

The broader you get, the less your potential customers have in common and the number of features you have to leave out soon surpasses the number of features you put in. Moreover, the more generic the workflow becomes, the less useful it becomes to specialized categories where a lot of customized and/or non-standard functionality, specifications, or interactions are required. For example, the procurement methodology used by an Engineer to buy custom manufactured products differs from the procurement methodology used by HR to buy contingent labour which differs from the procurement methodology used by Marketing to buy creative services. And while the underlying core process might be the same — put out an RFX, evaluate the bids, and make the award(s) — the processes used by each group are in many ways quite different. Engineering will want product and raw material samples, descriptions of quality control processes, and production schedules. HR will want rate sheets, resumes, and references. Marketing will want examples of successful campaigns, estimated budgets, and timelines of personnel availability.

Plus, the deeper you get into certain functions, especially in certain verticals, the more distinct they (think they) are and, whether or not it is justified, the more they believe that they need a specific tool — and this is especially true in the hospitality, healthcare, and legal services industries (for example).

Furthermore, if you look at what’s out there, for any given (e-)sourcing / (e-)procurement / (e-)supply chain function, there are already about a dozen different (on-demand/SaaS/Cloud) generic applications on the market — and you can only get so much easier to use and/or cheaper before it becomes irrelevant or you price yourself out of existence.

When you put it all together, it seems that the only way for a new provider to make an impact, or an old provider to get noticed again, is to go niche. What do you think?

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Reverse Auctions Are Not Strategic. It Isn’t Always Strategic! Part III

This isn’t to say that they aren’t important, that they’re not one of the best methods at your disposal to quickly identify current market prices, to obtain products or services at market prices in a competitive market, and to increase transparency in your strategic sourcing efforts but, on their own, reverse auctions are not strategic.

A reverse auction is simply an electronic way of enabling a simple bidding opportunity that could just as easily be conducted in the real world (if your supplier representatives were willing to travel to the auction location to place their bids). Do you think strategic when you think of this type of public auction? No. And simply electrifying something does not make it strategic.

An online reverse auction (has the potential to) open up the auction to more potential suppliers, drive greater market transparency (if more suppliers choose to participate), and streamline your product or service acquisition, but nothing about this is strategic. It’s simply good tactics.

This isn’t to say that a reverse auction can’t be the end result of a true strategic sourcing effort. For example, if you are sourcing custom manufacturing services for a new, relatively unique, product that you are preparing to unleash on the marketplace and you have went through a supplier pre-qualification round to select a small group of suppliers you would be willing to jointly develop with (who have all received the confidential specs under NDA), you could decide to simply hold a reverse auction to streamline what could otherwise be a time-consuming multi-round RFX, but note that this is just the tactical implementation of a sourcing strategy for a strategic category. The reverse auction itself is not strategic!

And it’s definitely not strategic if you’re sourcing $1,800 worth of office supplies or store shelf inventory!

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Spend Analysis Is Not Strategic. It Isn’t Always Strategic! Part II

That’s right, in and of itself spend analysis is Not strategic. This isn’t to say that spend analysis isn’t one of the most important actions that your supply chain can take in its effort to reduce costs, improve efficiency, and make the most effective use of business resources, but that the art of simply doing a spend analysis is not strategic.

Spend analysis provides a picture of the products and services the organization is spending money on, whom the products and services are being bought from, the organizational buyers who are spending the money, where the products and services are being bought from, and where the products and services are being shipped to and/or utilized. But this process is not strategic — it’s tactical. Furthermore, this information alone is not strategic. Let’s say the organization is spending 2M on computing equipment. So what? On it’s own, this information is not strategic. And unless the spend is significant (at least 1% of organizational spend) and the number one goal is to reduce total organizational spend by 5%, or the equipment needs to be unique (the organization’s proprietary trading platform only runs on hardware that natively supports AIX Unix), it’s not going to be used strategically. If the analyst compares spend to market prices and determines that reasonable savings are available (5% to 15%), the decision might be to run a sourcing event, but if it’s just another cookie-cutter RFX/Reverse Auction and/or TCO optimization with the same supplier base, it’s not strategic.

And then there’s the most common use of spend analysis in an organization that knows how to use it. Ad-hoc queries to determine if a (duplicate) invoice is being paid twice, if the wrong amount was paid to a vendor, if a department is on budget, if a category has enough spend to warrant a sourcing event, etc. Not strategic. Very important, but not strategic.

The reality is that very few events are strategic, because very vew categories are strategic. Unless it’s a unique product or service, unless the spend is a significant percentage of organizational spend, unless the product or service directly relates to a (long-term) organizational goal, or unless you’re looking for a strategic-partner to share in development, production, costs, or risk (mitigation)s, it’s probably not strategic. It’s probably still important, because every cent and resource counts in today’s economy, but let’s stop confusing tactical with strategic.

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