Category Archives: Spend Analysis

Six Secrets of Successful Freight Tenders

A recent article over on Canadian Transportation and Logistics on “the five secrets of successful freight tenders” had some really great tips for getting the best bang for your buck that makes the article a must read. However, it missed one very important tip, which is probably why it claims that Freight RFPs are analytically challenging. (This used to be true, but it’s not anymore. If it’s still true in your organization, then your organization is stuck in the middle ages and it’s time to at least step up to the industrial age.)

Before we get to the tip it missed, let’s start with the tips it provided because at least one of these is overlooked on many a project.

  • Sell your freight.
    Provide as much information as possible about your freight requirements. For each product, include transport, storage, volume, and frequency requirements. The more accurate and complete the RFx, the better quote the carrier can give you. Without detailed information, carriers will build in a “risk premium” so they don’t end up with “bad freight” and both parties lose.
  • Provide enough time.
    Without enough time to analyze your requirements and consider the fit, you’ll get a rough bid that won’t be the carrier’s best proposal. Remember that, depending on the time of year, it will likely sit on someone’s desk for a week, then in pricing for another week, before someone gets to it in the third week. If detailed analysis is required by the “number cruncher”, it could take a month to get the best bid.
  • Standardize the accessorial program.
    Variety and complexity of programs can make the analysis of bid responses unnecessarily complex, as you will be trying to compare apples to oranges to potatoes. And while maybe you can force fit compare the first two, the third poses quite a challenge. Create one program with one uniform set of charges that applies to all carriers.
  • Fully analyze rate proposals across the board.
    Typically carriers will give you aggressive discounts on major lanes to lure your business, but keep discounts to minor lanes minimal, or non-existent. As a result, you may pay more for freight overall if you end up shipping more on secondary lanes.
  • Benchmark results
    Freight patterns can change, and the net result is that a new freight schedule expected to save you money costs you more in the end. “Shadow rate” your current shipments using at least your last rates (if not your last two rates) to get a feel for what freight profiles give you the best deal overall.

But most importantly:

  • Use a sourcing package that can handle freight optimization and multi-level freight bids.
    A good strategic sourcing decision optimization platform (as provided by Algorhythm, BravoSolution, CombineNet, Emptoris, Iasta, or Trade Extensions) will not only allow for full analysis of the entire freight bid, but allow for the easy import of multi-level freight bids from excel spreadsheets. More specifically, these modern packages allow a carrier to define (inter)national rates by weight, volume, or distance, and then override these by region, and then by lane. This will allow a carrier to quickly define standard bids for low-volume lanes or lanes that they are not interested in and focus in on the lanes that fit their network and that they want to aggressively bid on. A carrier can bid on a 10,000 lane global sourcing project in a couple of hours. This decreases response time and increases bid quality.

Innovation in Sourcing

Today’s guest post is from Chetan Raniga, who is General Manager, Americas at Trade Extensions.

As someone who’s been in the strategic sourcing field for over ten years as a consultant and product manager, it’s been interesting to see the rapid evolution of sourcing solutions over the past few years. Leading solution companies now realize that users need solutions that feel familiar; that’s why Excel integration is common among leaders in the supply management arena. It’s the same reason Coupa has screens that almost mirror Amazon.com — providing an interface and workflow that’s both familiar and intuitive. Another example is the use of dashboards — the charts and alerts in Trade Extensions remind users of Mint.com, a popular personal finance site, though they show vastly different types of data!

Here are some other changes for the better:

Collaboration and Workflow:
The sourcing solutions of the past were extremely tactical (e.g., automating the process of running an RFQ or auction for a specific category), and therefore, didn’t give buyers the ability to share ideas, exchange documents, and view the real-time status of their sourcing initiatives. Now, platforms provide robust project management capabilities with Gantt charting, custom workflows (e.g., only have new suppliers go through the qualification step), document sharing, and Skype-like chat features. A buyer can see exactly which suppliers, team members, and stakeholders are online, and instantly communicate with them. Audit trail and logging capabilities have also gotten stronger, which is important for the confidence of both buyers and suppliers in using these platforms. Multiple teams are now using these platforms to share data. For example, a Direct Materials sourcing group can incorporate freight pricing from a tender conducted by the Logistics team. The group can use the platform to determine which items will use the suppliers’ freight (delivered pricing) and which will use the 3rd party carriers’ freight (FOB plus freight).

Flexibility:
Systems of the past didn’t provide the flexibility that we have today in collecting inputs. Labels such as ‘Price per Unit’ would be hard-coded or the cost formula would only support a limited number of operators and functions. Data entry was also cumbersome and error-prone since it involved either manually entering or copying-and-pasting vast amounts of data. Today’s solutions integrate with Excel, so that existing data and formulas can be easily leveraged. For example, item, demand, and cost component data stored on separate Excel spreadsheets can be uploaded with one click. Even better, some solutions allow users the ability to customize the supplier’s bid form. This is critical to change management since companies can continue to use their existing bid forms in the bid gathering phase but obtain the decision support and reporting benefits in the analysis phase. These improvements have led to even shorter RFQ/P creation times.

It’s also now possible to run auctions with optimization (a step forward in utility from the original concept of reverse auctions), and to run RFQ/Ps with feedback — blurring the line between RFQs and auctions but also going further by providing custom feedback (e.g., a custom message of “Not Competitive” is shown when the bid is x% greater than the median price).

Usability in the Analysis Stage:
The one sourcing area that has lagged in adoption has been the use of optimization (which the doctor has defined as the application of one or more rigorous analytical techniques to a well-defined model to generate the absolute best decision from a multitude of possible alternatives in a rigorous, repeatable, and provable fashion). It sounds complicated, and in the past it really was. For example, if a customer wanted to see what the result would be if all the business went to incumbents at their current proportions, then she’d have to create a rule limiting allocation for each item and affected supplier. That’s painstaking when you have a couple of hundred items — but most projects had thousands of items! Nowadays, in a modern optimization solution (which include the solutions by Trade Extensions and BravoSolution), the buyer just selects one rule, written in plain English (as shown below).


Even better, new platforms allow buyers the ability to create rules in Excel and then upload them. In the example below, the buyer is setting limits by plant and supplier simply by completing a table.


Reporting:
The solutions of the past didn’t offer much in terms of reporting. Most had a couple of pre-defined reports that exported to Excel. Buyers had to spend additional time modifying the reports — even changing labels and creating pivot tables — before they could present the results to their peers and managers.

Solutions today have made major strides in this area. Leading spend analysis tools (which include BIQ as well as Trade Extensions) allow users to create custom reports that can be saved as templates and re-used. The ability to choose specific dimensions (rows), columns (facts), and other information means that users no longer have to go outside the system for further manipulation. Some tools even allow the ability to drill-down/up on data (e.g., view allocation data by country first, then by region, then by state, and finally by city/plant).

We have heard buyers comment that their analysis time is shortened by three-and-a-half (3.5) weeks on average by using the new decision support and reporting capabilities mentioned above.

Thanks, Chetan!

Better Data On Its Own Will Not Ensure Success

A recent post over on the HBR Blogs by Daryl Morey that stated that “Success Comes From Better Data” is on the right track, but not quite right. Better data is a necessary condition for success, but not a sufficient condition. In order to make good decisions, you need:

  1. Better Data
  2. Better Tools
  3. Smarter Analysts

When Daryl says that you need raw numbers, not the people and programs that attempt to make sense of them, he’s missing the point that raw numbers need to be distilled into information through the use of good tools that can be distilled into knowledge through smarter analysts. Without the right knowledge, a business leader will not be able to make the decisions that lead to success. While it is true that real advantage comes from unique data that no one else has, this data must be transformed into knowledge. It’s a Knowledge Economy, not a Data Economy.

Organizational Data is Organizational Data — NOT Department Data

While reading “Cuts from the Center”, which records a recent CPO Agenda Executive debate held during this past winter, I couldn’t help but notice Nikki Bell’s comment on how she gets frustrated when we make excuses about how we can’t have the right data, or about people protecting data. I have to agree. This is what kills Supply Management initiatives that could save the organization Millions (and in some cases, Billions) of dollars.

And it’s ridiculous. Everyone in the organization needs to know that organizational data IS organizational data and that anyone who has access to organizational data has access to ALL organizational data. And Senior Executives, starting with the CEO, have to mandate this. No exceptions. If information is sensitive, then it should be “scrubbed”, “sanitized”, or “anonymized”, and the data then made available for analysis and mining. Without complete data, you cannot do a proper spend analysis project, and without a proper spend analysis, you will not find the true savings opportunities. And if you want to recover overpayments and avoid unnecessary spending, you need to do a proper spend analysis and uncover the true savings opportunities.

Your data is your data. So mandate it’s use. Remember, if you want performance, you have to make it so.

What to Look For in a Spend Analysis System

These days, every vendor and his dog is offering “spend analysis” solutions to the market, but, as one can easily guess, not all “solutions” are appropriate in all situations, or even capable of producing a true picture of spend for an average organization. Therefore, in order to select an appropriate solution, one has to know what to look for. The right answer is often elusive, because there is a fundamental lack of understanding in the market of what a “spend analysis” solution actually is, and what it should be expected to do. Depending on who is asked, the definition of analysis will vary from the process of building predictive models using historical data, to deciding whether past events or transactions are statistically significant, to sorting through haystacks of data to find meaningful needles that will suggest patterns. Each is a valid definition, but it is not necessarily useful to an organization that just needs a better understanding of what it is spending, where, with whom, by whom, and, more importantly, why. From a practical perspective, spend analysis boils down to “finding stuff in your data” that the organization was not aware of, or was not sufficiently aware of. Spend analysis, therefore, is the process of deriving insight from spend data.

So how do you derive insight? You apply a well understood process to multiple data sets. Emphasis on “you” and emphasis on “multiple”. If the process can only be accomplished by a team of programmers in a back room, it is not useful from a business perspective. You have to be able to use the system to do the analysis you need to do. And if the system can only build one cube on one data set, then it is not a useful analysis system. Depending on your organization, there could be savings in the AP data, the invoice data, the HR data, or the ERP data. You don’t know until you look at all the data sources and build and analyze all the cubes.

So what does this mean from a system perspective? Find out in our article on “What to Look For in a Spend Analysis System” over on the new Next Level Supply site. True spend analysis is a fundamental requirement of a next generation supply management organization.