Category Archives: Supplier Information Management

It’s 2016! Welcome Back to the Industrial Age of SRM!

State of Flux just released their 8th annual supplier relationship management research report entitled Digital SRM: Supplier Relationships in the New Technology Landscape and while it reveals the handful of leading supply chain organizations are, or are moving towards, digitization, it reveals the majority of organizations are not only stuck in the past, but moving back towards the industrial age in their supplier (relationship) management processes. Scary!

So scary in fact, that I hope that the purchasing wizard Pete Loughlin of Purchasing Insight does a follow up to his piece on how “we are now arriving in the digital economy – turn your watch back 40 years” entitled we are moving forward in the digital economy, turn your watch back another 40 years because some of the practices many global organizations are still practicing with respect to supplier relationship management could literally be straight out of Marshall Monroe Kirkman’s classic The handling of railway supplies. Their purchase and disposition.

And I’m not joking.

Many organizations are still doing nothing more than inviting bids by public advertisement for a year’s supply and taking the advice that the pulse of the market should be continually felt and, clearly, not thinking about the importance of managing relationships after the purchase order is cut.

And while it looked like we are making progress last year, the simple facts that:

  • the number of businesses failing to invest in any SRM-related training rose from 26% in 2015 to 39% in 2016
  • 80% of companies are not achieving on-going benefits from external spending (compared to what they could be)
  • 87% of companies are still using Excel (which is essentially just an electronic version of a general ledger at most companies) as their primary SRM tool

demonstrate that, for the majority of organizations, the digital age (which for the consumer has been here for almost two decades) is still decades away.

After all, why are Purchasing Manages still panicing when they receive the 2:00 am phone call from the CFO informing them that their primary supplier in China just filed for bankruptcy and the company needs to know ASAP what the impact will be. If they had modern supplier relationship management systems, it wouldn’t take them 48 sleepless hours pouring through accounting systems, ERP systems, and spreadsheets to figure out what products come from the supplier. With modern supply management best practices it wouldn’t take them weeks to identify a new supplier and months to switch. And with good supplier relations, they definitely wouldn’t have to absorb the price doubling mandated by the receivership for continued supply of the critical product lines.

With proper supplier relationship management, you know as much about the (financial) health status of your strategic supplier as you know about your own organization. With proper supplier relationship management, you know all the products that are being provided, in what volume, in what consumer product lines they are being used, and what the impact of a stockout or termination of the line will be. With proper supplier relationship management, a company knows which other suppliers it is using that could also produce the product, how long it would take to switch, and how much it would cost. And with good relations, the last thing the supplier personnel would be comfortable with is charging their best customers an unexpected, possibly contract violating, unmitigated price increase, and would fight any suggestions by the receivership management to increase prices to any degree.

And the sad thing is there is no shortage of basic SRM systems these days. Not all are industry leading like (and not all will deliver anywhere near the value of) State of Flux’s Statess solution, but there are so many ways for an organization to enter the digital age that it’s shocking just how hard they fight to stay in the industrial age.

Hopefully, now that the results have been demonstrated for eight years in a row, they’ll finally accept SRM is not a passing fad, its the foundation for a new reality, buy in, and go for it. At the very least, hopefully they’ll check out “Digital SRM: Supplier Relationships in the New Technology Landscape” and realize what could be.

Avetta – Vetting Your Suppliers So You Can Have Confidence

Avetta, formerly known as PICS Auditing, is a solution for companies that need to do formalized vendor pre-qualification on their mid-size, small, and micro-contractor and service providers to ensure that those contractors conform to health, safety, environmental, and other relevant legislation that these organizational (service) providers need to adhere to in order to maintain a safe environment, minimize risk, and minimize organizational liability. (A single fatality, especially one that could have been easily prevented with the proper training and certification, can cost a large organization five million or more in a settlement. Not only does the organization potentially lose a valuable contractor, but they lose a big chunk of change they can’t afford to lose and hope to remain viable.)

Despite being relatively unknown in the Procurement world (but then again, how many of you know of providers like Browz, VendorMate, or even Achilles), it is a well-known big name in industries that rely on heavily on contractors (think energy companies, cable companies, wireless companies, and other utilities) that has seen year-over-year growth in the 30% range since its humble beginnings 15 years ago.

While the solution is essentially an enhanced supplier information management (SIM) platform customized for credentialing, certification, and contractor capability tracking with respect to health and safety, sustainability, and other specific needs, unlike traditional SIM platforms, the solution allows the questions and profiles to be configured for each supplier based upon service(s) provided, risk profile, and/or industry.

One of its main strengths is the supplier-centric data view — the supplier owns their data and chooses whom they show it with. This means that every buyer can benefit from the economy of scale as Avetta grows as suppliers that have been qualified to a sufficient level by a competitor will be suitable for the organization. It’s a platform where you benefit from every competitor using it. After all, in a large, dense, city, there are going to be thousands of choices, and having a pre-qualified pool of dozens, or hundreds, can be very helpful. Similarly, in a small town or isolated region, there’s only going to be one or two contractors, and they are not going to have the time or interest to go through an audit for every company that wants to use their services twice a year.

Avetta‘s definitely a platform to check into if your organization uses a lot of contractors and you don’t have a good, holistic, vetting and certification process, and one that you can find out a lot more about by checking out the Spend Matters Pro (membership required) pieces co-authored by the doctor and the prophet.

While most organizations don’t think they need a credentialing solution, they don’t realize just how much effort it is to do a proper job manually, or how many suppliers don’t get closely vetted just because they present an insurance form or a certification from 3 years ago (that is still valid but expires in a month). Insurance just means the supplier can afford it and a certification just means that at one point in time someone knew enough to get it. It doesn’t mean they have good processes, or that they can do everything they say they can do with the same level of competence that they got the certification for (which they may lead you to believe). For example, just because their employees passed a safety course in equipment handling, doesn’t mean the employee ever passed one for working on poles or the outside of high-rises. And what is more likely to injure them? A piece of electrical equipment that shorts out and gives them a mild shock, or falling 30 feet onto pavement. Think about that.

Key Questions When Selecting a Multi-Criteria Supplier Sustainability Monitoring Solution

In our last post on why Supply Risk Management Can Not Be Siloed, we noted that the average organization was not properly managing risk, and this was not only costing the organization time and money, but putting it at significant risk. We noted that there were a number of reasons for this — which included a lack of time, resources, and even immediacy — but the biggest reason was because there is a lack of cohesion in the fragmented risk management approach employed by many organizations. But we also noted that there was something the organization could do, namely, take a holistic approach to sustainable risk management.

In a holistic approach to sustainable risk management, risk management is centralized through a Centre of Excellence (CoE) that holistically manages risk for the entire organization. This CoE will put together policies and procedures that not only ensure that

  • every supplier is covered
  • on all relevant dimensions
  • but not on irrelevant dimensions
  • without any duplication of effort

but also ensures that

    • there are no false positives in the risk assessment and
    • there are no false negatives

Part of these procedures will include regular monitoring for risk and the regular re-examination of risk and sustainability of organizational suppliers and potential suppliers. And best practice will dictate that part of this monitoring and review will be automated by a multi-criteria supplier sustainability monitoring solution and supported by a provider that specializes in this type of platform as the monitoring will need to be maintained and adjusted as new data sources become available, old data sources go offline, and the depth of data changes over time.

But how do you select a good provider, and, most importantly, how do you select a good platform to meet your multi-criteria sustainability needs? The first thing you do is understand what makes a good platform and what the platform needs to do to take away your risk and sustainability management and your risk and sustainability monitoring pain.

To help you achieve this goal, the doctor recommends that you download Sourcing Innovation’s latest white paper on 5 Essential Criteria for Selecting a Supplier Sustainability & Risk Monitoring Solution, sponsored by Ecovadis, that will help you understand what a good sustainability and risk monitoring solution needs to do, not just what features or functions need to be in the brochure.

SpendHQ: Revving Up Visibility Into Your Supply Base

When we last dug into SpendHQ back in 2014 (Part I, Part II, Part III, and Part IV), we noted how this solution has grown from a simple spend reporting tool into a fully featured spend visibility tool that tracks all of your spend over time — by category, department, and user; a category management tool that lets you dive into category spend and filter down to the items of interest, see managed vs unmanaged spend, and track compliance; and, as of the next release later this quarter, track contract meta data and do basic contract lifecycle management.

We also noted that while it was not the most powerful (ad-hoc) spend analysis solution on the market, it was a really great solution for a mid-market company without a (useable) spend analysis or visibility solution that needed to get one up and running quickly, accurately, and usefully (as the solution has more power and capabilities than the average company needs to get great results). Within 4-6 weeks, a company with no spend analysis capability can be up and running 100% and be making useful, informed decisions.

Since then, they have been hard at work improving the contract module; adding a new compliance module in the visibility engine that allows the user to instantly see, for the selected categories, the addressable spend, the managed spend, the compliance rate, and the impact rate; and a brand new vendor detail module that sits on top of their brand new supplier database that contains information on about 20 Million entities that was formed from the fusing of their database of over 7.5 M entities that they built up over 12 years of operation and InsideView’s database of over 15 Million entities. The database has basic vendor information (address, ownership, status, industry, revenue, etc.), insights (on products, services, strengths, etc.), family tree (which contains ownership, subsidiary and sibling information), and financial data. A user can also see all associated contracts in the contract module and click into the details of each one as required.

One of the gems of the platform is the new and improved Category Management module with greatly enhanced savings management capability. On a category basis, this module summarizes spend, managed spend, core list compliance, and pricing accuracy — where each unit purchased is compared against the contract price. This allows an organization to identify maverick spend and overspend during the contract (on every refresh) and address issues as they arise. Within a category, they can drill into each item and see total spend and drill into spend by location and/or buyer, allowing them to zero in on maverick spend and spend that is priced off-contract. The pricing accuracy can drill down from a category to an item if need be and track inaccuracies, undercharges, overcharges, and overall error rate (as well as overall loss).

In addition, the particular interface customization and support for MRO, T&E, shipping and small parcel spend categories, often overlooked “tail spend”, is far superior to an average product and lets a buyer not only figure out what is maverick or going to on-contract suppliers (but being billed at off-contract rates), but how the spend breaks down across base charges, fuel charges, surcharges, and so on. This allows you to drill into the cost drivers of categories and products, and attack the real cost drivers in a strategic engagement. The specific capabilities built for shipments in particular are quite good. The shipment analytics breaks costs down into accessorials, zones, and fuel surcharges so that an organization can see precisely how the spend is breaking down, where the bulk of the charges are, and where any overspend are.

SpendHQ was built for the sourcing organization that wants a best of breed spend analysis and visibility tool and support maintaining and interpreting it, with the option to engage the right expert at the right time in the right categories to maximize savings. Its more of a “savings as a service” offering than the majority of other spend analysis players, and the best results come from augmenting it with ISG’s sourcing expertise that can help identify the right category to source to maximize savings at any given time. It’s a vendor that should definitely be kept on your radar.

For a deeper dive into SpendHQ, keep an eye out for the upcoming in-depth Spend Matters Pro review [membership required] by the doctor and the prophet that will appear later this summer.

State of Flux: The Flux Capacitor is being designed for the Future … of SRM!

State of Flux is a provider of Supplier Relationship Management (SRM) software and services that was founded in London (England) in 2004 to focus on an overlooked area of supply management, supplier relationship management. When it was founded back in 2004, most companies were just starting to offer supplier information management (SIM) solutions, which were a pre-cursor to the KPI / scorecard-based supplier performance management (SPM) solutions that followed. Only a few companies had SRM in their mind’s eyes, and State of Flux was one. What started as a very simple system for supplier information, performance, and supplier (corrective) action planning and development has grown into a full fledged supplier relationship management solution that encapsulates supplier information management, performance management, risk management, governance and relationship management, CSR (corporate social responsibility), contract, and innovation management.

In addition to their SRM services, focussed around consulting and executive staffing/managed services, and software (which was branded Statess), they have also been producing the Global SRM research report (which was covered in State of Flux has the Treatment for your SRM Ailments Part I: The Need and Part IV: The Business of Supplier Relationships) for the last seven years which provides very deep insights into the state of supplier relationship management and what the top performers do. (Last year’s report was focussed on the customer of choice, and companies that are their suppliers’ customer of choice get [significantly] more value than their peers and this year’s report will be focussed on technology, and the value it can provide, and the annual survey will be out soon.)

As we have covered the platform fairly extensively in the past (in Statess Part I, Part II, and Part III and State of Flux Part I and Part II), this post will simply focus on major improvements since the last series.

In our last series, we discussed the developments in progress, namely:

  • Prospective Suppliers
  • Contract Management Enhancements
  • KPI Templates and Drillable Scorecards

Since then, State of Flux has completed these enhancements.

  • The prospective supplier module is based on questionnaires with dynamic workflows that ensure a supplier only provides the information that is required, and cannot participate in open challenges until all necessary information has been provided.
  • Contract data and meta-data definition is now highly granular, and the version comparison feature allows a buyer to quickly identify any changes between versions.
  • The KPI templates have been completed and augmented with a wizard that makes it really easy to replicate KPIs across suppliers and organizational units, and make the minor tweaks and modifications (to the weightings, data fields, etc.) that are necessary to have the most accurate and meaningful supply possible.

In addition to this functionality, State of Flux has also added:

  • Single Sign On: that integrates with the organization’s native LDAP (or other single-sign on mechanism) to allow a user to sign-in with an existing account
  • Deep CreditSafe Integration: that integrates all of the credit safe financial and risk data across the application (including the risk and performance modules) with quick access to a supplier rating from the supplier screens
  • Automatic Risk (Severity) Calculation: that automatically computes the severity (and RAG — red, amber, green — status) of a risk as soon as the probability and potential impact of a risk are defined
  • Excel Export which enables every piece of data in the application to be exported to well-formatted Excel spreadsheets and workbooks (for import into other systems and analysis/reporting tools)

The system gets better each year, and when you combine it’s end to end completeness with the fact that there are only a handful of providers focussing on best-practice SRM, State of Flux is definitely a provider to consider. For a deeper dive on State of Flux and their platform, watch out for the upcoming Spend Matters Pro piece (membership required) co-authored by the doctor and the prophet that will take a deep dive into the platform, it’s strengths, and its opportunities for improvement.