Category Archives: Sourcing Innovation

Good Enough, Best, or Next — Which Do You Choose?

A recent article in the Harvard Business Review on how “best practices get you only so far” had some good points, as did the article on how “imitation is more valuable than innovation”, which illustrated how best practices can be used to get you further than your competitors (who you borrowed the ideas from), but neither of the articles address when you need to go “next”, when “best” is the right choice, and when there’s no reason to go beyond “good enough”. This is a critical question when formulating your supply chain strategy, just as it is when formulating your business strategy, because you only have so much time and so many resources at your disposal. And with so much to do, you have to be able to prioritize to get the most bang for your buck.

According to “best practices get you only so far”, the process of identifying best practices and implementing them may allow enterprises to catch up with competitors, but it won’t turn them into market leaders. Which is mostly true, because if you read “imitation is more valuable than innovation”, you’ll find out that copying alone isn’t enough to get you in first place, you have to improve on the practice during your implementation to make it better and cheaper.

But do you really need to be best at everything?

You need to be a market leader, and you need your supply chain to be at least as efficient and cost effective as your competition, and preferably slightly more efficient and cost effective, but does this mean every process, practice, and piece of technology employed has to be best? The reality is that best-of-breed is costly. It takes time, effort, and, more often than not, very costly technology. If there is an opportunity for a significant return, than it’s worth it. But if the return is not much more than the investment, it’s not.

To illustrate, let’s take a technology focus. Everyday you are bombarded with BoB e-Sourcing, e-Procurement, Trade Management, Logistics, and Inventory Management technology. The solutions range from stand alone “best-of-breed” modules to end-to-end suites to everything in between, and the price tags range from about 50K a year to 5M a year. What should you buy? And what should you pay?

It’s a hard question. The 50K you spend on a cheap contract management system might be a total waste of money (and cost you 500K a year to maintain), while the 500K you spend on spend analysis software and services might be the best investment the organization every made! The reality is that if the savings that results from moving from “good enough” to “best practice” or from “best practice” to “next practice” is not at least 3 times the total cost, it’s not worth it, especially when there are so many practices and technologies out there today that will generate a return of 3X, 5X, 10X, or more for the organization. (Decision Optimization on the right category can sometimes generate a return of 20X or more! A proper spend visibility and spend analysis initiative can easily generate a return of 10X year after year [and some organizations have seen returns as high as 100X in peak years]). Trade management can revolutionize the trade compliance effort and save millions for just a few pennies up front. And so on.

I’m not saying don’t go “next”, because sometimes it’s the right thing to do. I’m just saying, when you go “next”, make the right choice. Business is about returns, which is necessary for sustainability of the business. Just make sure the returns will be there waiting for you before you go all gung-ho on a risky initiative.

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Done Innovating? No Problem. You can still succeed!

And you don’t have to go waiving NDAs around either. You can stop pretending that you’re still innovating when we all know discovery ended long ago. Thanks to the breadth of today’s marketplace, you have options beyond selling out to a bottom feeder who’ll amalgamate your technology with five other dying products, cross-sell existing product lines, and then milk the maintenance dry.

You can instead choose a strategic “bold retreat”. So if you lack the finances, necessary capabilities, or simply the drive to transition to new technologies and invent new solutions, you can choose to retreat to a defensible niche where your old technology conveys a decisive advantage. Just like Linjett continues to succeed in the leisure sailboat market by focussing on the enthusiast, like Continental continues to succeed with piston engines by focussing on small private aircraft, and like StorageTek continues to sell magnetic tape drives (yes, magnetic tape drives) by focussing on large scale data archives, you can succeed too!

Haven’t upgraded your e-Negotiation platform in five years? No problem! Just ditch the Fortune 500 market and focus on the mid-market where most companies still haven’t adopted a solution. It’ll be new to them for five more years!

Haven’t upgraded your BI tool in five years? No problem! Streamline your integration with the big ERP tools that your average Fortune 500 can’t get rid off. Become the BI tool of choice in that market and continue to rake in recurring maintenance fees at 22% year after year.

Haven’t upgraded your catalog-based e-Marketplace in five years? No problem! Follow the crowd and rebrand it as a “supplier network”. Now it’s new for five more years!

In other words, you can fail at modern technology but still win if you’re bold about it! (Of course, whether or not your customers win is a completely different story.)

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A Hitchhiker’s Guide to e-Procurement: An Introduction

Mostly Harmless, Part I

e-Procurement, while commonly used, is often misunderstood and confused with e-Purchasing, EIPP (Electronic Invoice Presentation and Payment), P2P (Procure-to-Pay), and even e-Sourcing. Thus, this brief guide will define what e-Procurement is, isn’t, and how it relates, or fails to relate, to e-Purchasing, EIPP, P2P, and e-Sourcing.

This guide will start with a definition of e-Procurement and then go on to cover the basic cycle. Along the way, it will discuss some benefits, challenges, and best practices while differentiating between the procurement of goods and services in the public and private sector when required. Finally, it will end with some advice on how to accurately cost a solution and determine the potential value such a solution offers.

Simply put, as per the e-Procurement Primer, eProcurement is the counterpart to eSourcing, starting where eSourcing ends and ending where eSourcing begins. It is the “e” implementation of the procurement cycle which is concerned with the requisitioning, receiving, and reconciliation of the received goods and services as opposed to the analysis, auction, and award that takes place in the (e-)sourcing cycle. It is essentially the automation of the non-strategic and transactional activities that consume the majority of a buyer’s time (that should be spent on more strategic value-generating activities), but one that comes with increased enterprise level visibility of all purchases.

The e-Procurement cycle, which can consist of up to nine steps (as defined in the doctor wants to remind you it’s sourcing and procurement), starts where there sourcing cycle ends and ends where the sourcing cycle begins. At a bare minimum, it will generally consist of an order, an invoice, and a payment. However, the process can also include authorization, goods receipt generation, reconciliation, tax reclamation, and analysis. Depending on the purchase in question, the (e-)Procurement cycle will generally contain three or more of the following nine steps:

  1. Requisition (& SOW)
  2. Approval
  3. Purchase Order
  4. Goods Receipt
  5. Invoice
  6. Reconciliation
  7. Payment
  8. Tax Reclamation
  9. Analysis

In addition, the e-Procurement process may also involve some regular catalog or contract management to keep catalogs and pricing schedules up to date between sourcing cycles.

The next set of posts in this series will explore each stage of the procurement cycle and the requirements that are placed upon any solution that claims to be e-Procurement.

Next Post: Requisitions, Part I

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For True Innovation …

Ditch the budget. First of all, as per a recent Financial Times article, there is no correlation between R&D spend and innovation success. Secondly, as per a recent Harvard Business Review blog post on “get your team out of the innovation lull”, fixing an innovation budget puts your people into a mindset that their innovation is limited to the budget they have. Third, and most important, while you can budget the cost of product development (based on what the market is expected to bear), you can’t budget the cost of innovation. That relies as much on inspiration as it does perspiration.

Plus, and this is key, you can’t “innovate” a new product until you know what is, and is not, doable. That’s why it’s ridiculous to tie the research and development budgets together. They should be separate. While the two units should come together regularly to collaborate on research directions (i.e. “this is what we’d like to build, what’s possible”) and product directions (i.e. “this is what we’ve [sort-of] figured out, what do you think you can use and sell, and we’ll focus on improving that”), research should be free from distracting day-to-day product development, market, and associated budget constraints so they can focus on figuring out what can be done and, once development has identified certain capabilities as currently marketable, how (cost) efficiently it can be done.

Now, I’m not saying Research shouldn’t have a budget, as it should, but that budget should be at the department level, and not the researcher / research project level, and it should be up to the director(s) to figure out how best to allocate it on an on-going basis. For instance, if a team requests a purchase of a new piece of hardware that would be generally applicable to multiple research projects, then even if it exceeds the typical hardware investment, the director(s) can choose to allow the purchase and then spend less elsewhere. But if a certain costly request would not be generally applicable, the director(s) can choose to deny the request and urge the investigator(s) to innovate a more cost effective way to obtain what is needed for an experiment or investigation. In other words, we need to return to the innovation lab model, where productive researchers and true innovators aren’t spending all their time worrying about budgets … because when you’re worrying about budgets, you’re not getting anything done. GE understood that, and that’s why they did so well for so many years. Not only did they give their top people the budgets they needed to be effective, but they paid also paid their top people very well so they wouldn’t have to worry about money in their personal life. While “what can we do for 20% less” is inspiring, nothing kills an innovation mindset faster than if the team is constantly stressed about money.

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Does NDA Stand For “No Discovery Anymore”?

While the life expectancy of the average human in many developed countries now approaches 80 years, the life expectancy of the average company is much shorter. Only 44% of companies make it to the 4 year mark, and only 31% to the seven year mark. Only a handful of the tens upon tens of thousands of companies started every year will live to see the end of their fifth decade.

Why is that? Well, while it’s hard to succeed, it’s easy to fail. Perhaps the product isn’t appealing to enough prospects. Maybe the marketing team isn’t reaching the right audience, or the sales team isn’t conveying the right message. The price could be too high. There might be a sudden cash flow crisis due to an unforeseen dip in sales. The entrepreneurs could be poor managers. The investors or owners may become too greedy, and stifle innovation. And so on.

Even if a company survives long enough to bring a product to market and reach a point where it is cash flow positive, its chances of survival increase only marginally. In order to stay in business, it has to keep selling. That means it needs to offer a product that the market wants. That means, especially in some markets, that it has to keep coming up with new products and services. It has to keep innovating, and keep discovering. While some companies can do this, many can’t. Like Rick Astley, they are effectively a one-hit wonder, and if you buy their product you’ve been rickrolled.

One of the ideas I’ve been tossing around is how best to identify when a company reaches the point where it stops being an innovator and starts becoming a renovator. In other words, when is it that a company essentially offers the same solution that it offered last year, only with a fresh coat of paint. For many companies, this is the beginning of the end, since if you can’t innovate you’ll die. Of course there are some companies who specialize in buying up and renovating end-of-life products, getting a few years of new revenue and maintenance out of each acquisition (until the customers finally get fed up and migrate to a different solution). But we’ll leave such bottom-feeders out of the equation.

After studying the rise and fall of a number of software companies, particularly in the e-Commerce and Supply Chain space, I think I’ve found an indicator of the turning point. I think it’s when a company insists that you sign an NDA before it shows you a product that has been released into production. Why? Well, let’s think about it. What is the logic behind requiring an NDA before doing a demo? Obviously there are many people using the application, and it wouldn’t be terribly difficult to look over a shoulder or two if one really wanted to. So there are no secrets to protect, because the application is out there working, and presumably it’s being sold to anyone with a check book.

Maybe in order to show the application, the company has to show “real” data from a “real” customer. Well, yikes. I don’t want to see those data, and they shouldn’t be showing them to me. If a company can’t figure out how to sanitize a data set for demo purposes, it probably can’t write decent software either.

So what is being protected? Well, if I were running a company that was simply slapping a new coat of paint on an old offering every year, I’d be pretty nervous about showing it to the media — unless I locked them up with an NDA. That way, if they discover that I’m pawning off the same old s**t as last year and the year before, they can’t say anything about it, because they’re bound and gagged. On the other hand, if I were running a company with an offering that had substantial new features every year, I’d be eager to show it to the media. Good press is worth its weight in gold.

So, from now on when I hear “you need to sign an NDA,” I’m going to think “No Discovery Anymore”. I can only conclude that the fire of innovation is gone from your company, reduced to embers which are about to go cold and dark. And I’m going to look elsewhere for inspiration, because there’s no point in writing post-mortems. Just like pointless dumb conversations, that doesn’t help buyers with their needs.

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