Category Archives: Supplier Management

Rolling Up Resolutions with RollStream

In our last post, we talked about Rollstream’s new workspace capability and how you could steamroll your compliance problems into submission. We also mentioned how Rollstream was in the finishing phases of a new dispute management and resolution solution, as part if it’s overall supplier development and performance management solution.

While the problem may sound simple, and while the solution isn’t all that complicated compared to other supplier management solutions, for a large Multi-Billion dollar company, the administrative costs alone to resolve disputes can exceed millions of dollar a year. (One of their beta customers, an 8 Billion dollar company, estimated that just their administrative costs were over 2 Million annually!) Add to this the costs associated with having to dispose of damaged inventory and the losses from overpayments if a loss is not appropriately tracked and billed back to the supplier, and disputes can cost a large company over 10 Million a year!

That’s a lot of money at risk, especially when a properly designed supplier management solution can easily identify, track, and streamline the resolution process and see the average dispute resolved quickly and easily. Plus, it helps the supplier. In the US, more than 61% of receivables remain open for over 50 days (and it’s worse in Europe). Considering that this type of solution can reduce the average resolution time from weeks to days in your average large company (as there’s no paperwork to lose and everyone gets promptly notified — through the system and e-mail — when they have to respond to a dispute or take an action), a supplier could see considerably more invoices paid on time.

While its primarily being used to resolve shipping disputes (overages, shortages, and damages) by the beta testers, it was designed to allow the community to track and resolve any kind of dispute, including cost, pricing, transportation, invoices, rebates, and contracts — and since it recognizes POs, invoices, and contracts (and their IDs), it can be used in conjunction with the full sourcing and procurement process.

The solution is fully integrated into the Rollstream platform and easily accessed from both the community (supplier) portal and the users you authorize to use the application. When the user logs in, they see all of the issues associated with them as well as their current status (pending, open, waiting on, [recently] closed, etc.) and can filter based on status, supplier, organization, creator, date, etc., or any other active field associated with an issue. The application is fully configurable and, in addition to the pre-defined standard fields (which can be renamed or removed), the user can define any text, date, numeric, or selection field they would like to track. In addition, if a number of disputes are related to the same shipment, purchase order, invoice, etc., there is also a bulk update capability that can be used to address them all at the same time. In addition, there’s an easy to use import and export function. You can import issues from a standard CSV file and export to excel. The import is well thought out and will automatically map input columns to application fields through a matching algorithm, which can be overridden by the buyer as needed. Finally, the dashboard reporting, which by default displays number of incidents by status, number of incidents by type, and average days to resolution, can be configured to track and report on metrics of interst to the buyer. Finally, when an issue is resolved, the application can be configured to track the relevant information related to reconciliation.

Considering the price tag for this solution starts in the five-figure range, and the manpower savings alone could be seven figures (as you’ll free up more resources to address other, more strategic, parts of the procurement and sourcing process), dispute resolution is definitely a solution that should be considered as part of your supply chain management platform — especially if you’re already using the Rollstream solution.

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Optimization: The Only Solution to Complex Spend Management

Today’s guest post is from Paul Martyn, Vice President of Marketing of Bravo Solution.

Paul can be reached at p <dot> martyn <at> bravosolution.com or 312 279 6793.

Most organizations have a diverse spend portfolio that includes many simple, several moderately simple, and a few complex spends.

To address each spend appropriately, we need to understand the dynamics that make each event complex. For starters, let’s look to another ‘multi-faceted’ puzzle; the Rubik’s Cube.

Invented in 1974 by Ernö Rubik, Rubik’s Cube has puzzled generations around the world with its utter devilishness. The multi-faceted nature of the Rubik’s Cube makes for a good analogy to spend management and sourcing.

Read the very interesting Wikipedia article linked above and you’ll find out that a 3×3 Rubik’s Cube has over 43 quintillion starting positions. But, if you know the right combinatorial magic, ANY cube can be solved in 29 or fewer moves. Like spend management, the Rubik’s cube has an extraordinary number of possible starting positions but a logical process (algorithm) can elegantly solve the problem with minimal effort.

Complex Spend Management is another multi-faceted puzzle with even more complexity and ‘faces’ (internal and external to the buying organization) than Rubik’s famous cube. There are many factors which influence decision-making and, like a Rubik’s Cube, each factor of Complex Spend Management is related to the other factors. For example, let’s look at the supplier ‘facing’ decision factors inherent in sourcing decisions; price, incumbency, risk and timing:
If incumbency, supplier risk factors and timing are not important, the spend management puzzle is relatively straightforward to solve. We could use a reverse auction or simple RFI/RFP template and get the cheapest possible price, all other things being equal, pretty easily. This is akin to solving one face of a Rubik’s cube, something most of us have the skills to do.

But, if we are to focus on the multi-faceted nature of our negotiations and explore new, and potentially more efficient, ways of dealing with suppliers while balancing the satisfaction of our internal stakeholders (in operations, finance, marketing, etc) we must recognize how our efforts to solve one ‘face’ or dimension of the puzzle impact the other faces and work to find a solution that satisfies each dimension. We’ve all observed that the price visibility we see in a reverse auction inspires pricing creativity by suppliers. In the same way, if we can offer more visibility into other, non-price stakeholder requirements, we will stimulate suppliers to respond creatively in those areas as well.

Successful sourcing managers find creative ways to drive financial results for their company. Effectively reducing costs means challenging internal stakeholders’ assumptions, preferences, and processes with scenario analysis that quantifies trade-off costs. Buyers need to expand simple price analysis to quantify the total costs (of ownership) absorbed by the operational stakeholders. Complex Spend Management requires that buyers include the inventory and logistics impact in their financial analysis. Buyers are often challenged to explore a wider variety of options to redesign their supply plan while evaluating strategic considerations like ‘make versus buy’.

To address this explosion of complexity, many buying organizations have developed and maintain ‘big ass spreadsheets’ (BASS). BASS were often designed for a single project and then reused on subsequent complex spend events. This approach does not take into account the dynamic nature of Complex Spend Management. The BASS approach is akin to knowing the moves to solve one specific starting position of a Rubik’s cube and applying it to other starting positions – it simply does not solve the ‘new’ puzzle. In short, buyers need a more dynamic and flexible solution.

Fortunately, today’s optimization algorithms provide buyers with a technology that identifies the optimal sourcing solution for each combination of supplier pricing, buyer preferences, business rules and risk factors. This allows buyers to define a problem (starting position) and work with the suppliers in a collaborative manner to propose solutions. The buyers then use optimization to determine which combination of supplier proposals is best.

In essence, optimization technology provides the buyer with the ability to increase collaboration with suppliers and solve any starting position of a Rubik’s Cube by simply pressing the “Solve Now” button.

Thanks, Paul!

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What are the Obstacles to Supply Strategy Implementation?

Late last year, CAPS Research released a report on “Supply Strategy Implementation: Current State and Future Opportunities 2009” that was based on data from 130 supply organizations across 26 industries. The data contained over 1,000 short-sentence responses that were analyzed to come up with this list of the top eight obstacles to supply strategy implementation:

  • Lack of Executive Engagement and Resource Support
  • Inappropriate Organization and Governance
  • Business / Manufacturing / Operations / Technology / Supply Strategies Not Aligned and Integrated
  • Limited External Economic Environment Impact
  • People- and Culture-limiting Change
  • Lack of Information Systems and Data Availability
  • Internal / External Communications
  • Inadequate Measurement and Evaluation

So how can you fix this and implement much needed supply strategies?

  • Follow the twelve steps to purchasing fire (on the e-Sourcing Wiki) and define the value proposition, get the right credentials, perfect the pitch, address the big nos, build the case, and sell the solution.
  • Task the CPO/CSCO with a supply chain re-organization. If you don’t have a CPO/CSCO, get one.
  • Form a cross-functional team, headed by a neutral (and possibly external) party, and task them with a strategy and process alignment.
  • If your organization hasn’t been hit hard, either because you are selling a required resource or commodity, such as energy or food, or because your sound supply management strategies did their job, focus on future threats to get the support required to take your supply management strategies to the next level.
  • If cultural conflicts are standing in the way, enroll your team in a cross-cultural training program, such as the custom program offered by the Global Procurement Group or Global Supply Training.
  • Adopt modern e-Sourcing, e-Procurement, and Trade Management systems.
  • Adopt a collaborative approach and work on streamlining communication channels. Also, develop a crisis management plan, just in case.
  • Create a balanced supply chain scorecard and track the key metrics at least monthly, if not weekly.

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It’s Time To Re-evaluate Your Supply Strategies

Late last year, CAPS Research released a report on “Supply Strategy Implementation: Current State and Future Opportunities 2009” that was based on data from 130 supply organizations across 26 industries. In this survey, the respondents rated the overall importance and implementation importance of 23 different strategies. The results are a little scary: the six lowest rated strategies (where the lowest rated strategy is deemed to be only 77% as important as the highest rated strategy) are the strategies that should be given the highest importance. While the following six strategies, that were ranked highest, are arguably important:

  • Vision, Mission and the Strategic Plan
  • Commodity & Supplier Strategy Process
  • Strategic Cost Management
  • Engagement by Corporate Executives & Business Unit Leaders
  • Human Resource Development
  • Procurement & Supply Organization Structure & Governance

not a single one addresses how you will actually contain costs during a sourcing project. While each of these organizational enablers will improve the capabilities and efficiency of your team, they don’t address the proper way to tackle strategic or high opportunity categories. What’s needed are the following six strategies, which were, unfortunately, ranked lowest:

  • Collaborative Buyer/Supplier Development & Continuous Improvement Collaboration will enable the identification of additional opportunities.
  • Standardization of Systems, Components & Processes Standardizing on parts reduces category management complexity and associated costs.
  • E-Sourcing & Supply Chain Strategies This is where the cost savings really kick in. A well executed e-sourcing project will generally save between 5% and 15% above and beyond what will be obtained with traditional methods. And if advanced techniques, like strategic sourcing decision optimization, are applied, you’ll save an additional 12%, on average. Plus, a well defined supply chain strategy will generally deliver better results than a project undertaken without a strategy.
  • Strategic Insourcing/Outsourcing Identifying those categories you are best equipped to handle and those categories that you are least equipped to handle can result in significant cost reductions as you will be able to outsource those categories you are least equipped to handle to specialists.
  • Environmentally Sustainable Supply Chain Management The times they are a changing’ and you have to be green to save green. Seriously. Run afoul of regulations or ignore your social responsibility, and your supply chain financial statements will soon be covered with red.
  • Supplier Integration into Customer Order Fulfillment A business exists to serve its customers. Integrating the supply chain end-to-end will improve service levels while decreasing associated costs.

So rethink your strategies — and maybe you’ll see your bottom line improve.

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More Headlines You Hate To See

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Your supplier’s employees are committing suicide. News articles are showing up mentioning your company’s name as a major customer. Your actions are being tracked carefully. (Apple and Dell investigate Foxconn plant)

Headlines like: Foxconn Makes Employees Promise Not to Kill Themselves [DailyTech.com], “Plenty of Foxconn shame to go around”, and Foxconn suicides: capitalism and Marxism treat men like animals cover articles that name Apple, HP, Nokia and Dell as key customers. The term fair trade electronics gets increased currency.

What went wrong here? It would be professional malpractice to even venture a guess without talking to any of the principals involved. Instead I’ll write about electronic industry practice and ask a question or two.

The electronic industry has an Electronic Industry Code of Conduct that major buyers require suppliers to agree to follow. You can download a copy from the EICC site. You can also see the logos of their members, which include Foxconn. It looks like a good specification to me. It covers the key issues of employee relations and environmental responsibility and requires that signers require at least their first level suppliers to comply.

Of course, a key question is whether Foxconn actually complies or just agreed to comply. I don’t think anyone not directly involved can answer that.

So here are my questions:

  1. What do others think of the EICC specification?
  2. And do other industries have similar, cooperatively developed codes of conduct (on a global scale)?

Let’s get some discussion going.

Dick Locke, Global Procurement Group and Global Supply Training.

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