Category Archives: Supplier Management

The 12 Days of X-emplification: Day 6 – Supplier Networks & Catalogue Management

A number of vendors have a number of representatives whose sole job is to pound on your door and tell you about all the advantages of a supplier network – advantages that, as a few of you have unfortunately realized, never materialize unless you have the right network with the right suppliers participating. And even then, the high fees associated with some of these networks, which are often hidden and don’t show themselves until after you’ve sunk a significant investment into the project, should make anyone question how valuable they really are.

The negativity out of the way, implemented properly, a supplier network can provide you with a host of benefits with respect to multiple aspects of supplier management – relationship, performance, and information (to name a few) – that are simply unattainable by any other technology on the e-Sourcing and e-Procurement marketplace today … but only if it’s done right. The reality is that when it comes to supplier networks, we are often holding the sharpest double-edged sword of them all. If it’s done right, it can slice though inefficiencies and costs like a hot knife through warm butter; but if it’s done wrong, you stand to lose a lot more than just your investment – your productivity, key suppliers, and even brand reputation can vanish faster than the last drops of dew on a hot spring day!

That’s why the questions posed below are so important. If you don’t understand why you need to ask them, and the reasons the desired responses are so critical, you could end up selecting a supplier network or catalogue management solution that is entirely wrong for you and your organization. Since this could actually move you significantly backwards on the innovation curve, I think it’s critical that you cut through the buzz and hone in on the real benefits as quickly as possible when making your assessments.

1. Does the supplier network / catalogue solution support integration with your suppliers’ current web-catalogue solution? And what’s involved?

Most suppliers today already have electronic catalogues, despite the myth that some vendors might be propagating. After all, do you really think they manage their price lists using paper-based general ledgers? They manage it using databases*, and most of them make their standard pricing available over the web. The less sophisticated will use flat files, which can be downloaded through batch processes over FTP by clients on a regular, if not daily, basis. The more sophisticated will have a full website with client login and dedicated pricing. Thus, when a vendor says most suppliers don’t have a catalogue, what the vendor means is that most suppliers don’t have a catalogue in their (proprietary) format.

However, data transformation is not nearly as difficult as most people will make it out to be – after all, even Excel supports multiple file formats, and your average analyst is quite adept at successfully importing any text-based flat file format. Plus, most of the bigger vendors will support a standard such as EDI (if they’re old school) or XML (if they have accepted that the times they are a-changing’), so how hard should it really be to load a catalogue into a supplier network?

The correct answer is – it shouldn’t. It should be a 5 minute exercise. If your potential technology vendor says it takes on average a day to a week to enable a supplier and add a catalogue, they don’t have a modern supplier network. A modern supplier network uses the network that’s already in place – the world wide web and the internet on which it is based – and connects to supplier catalogues in their native format. This makes integration as simple as entering the URL to the supplier catalog, specifying the connection protocol, selecting the default file or data record format, and entering the information required (such as user name and password) to meet the security requirements. This should literally be a 5-minute task if the connection protocol, file format, and security protocols are all based on accepted standards. If there are slight modifications of the standard, it should simply be matter of selecting the closest configuration and specifying the necessary changes – a task that should only take a few hours if the application makes use of modern agent technology and business process management.

* As much as I may hate to admit it, Microsoft Access is a database. A rudimentary one, but a database nonetheless.

2. Does the supplier network / catalogue solution support the integration of multiple catalogues into one coherent view?

Not only should it be trivial to add a supplier’s pre-existing catalogue to the network, or enable them to create a catalogue in any format they choose, but it should also be trivial to browse all of the catalogues simultaneously in one coherent view. After all, would Amazon be as popular as it was today if you had to go to one page to search for books, another to search for DVDs, and another to search for CDs? And then make each purchase separately? How popular would e-Bay be if you had to go to eBayCDs to buy and sell CDs, eBayClocks to buy and sell clocks, and eBayBeenieBabies to buy and sell beenie babies? And more importantly, what if you could only search one seller at a time?

The power of a catalogue application rests in its ability to reduce complexity – not in its ability to create it! If you need to buy handhelds, chances are you can buy them from your electronics vendors, your office supplies vendors, and your cell phone carriers. Do you really want to search all three catalogues separately for the best deal? No! You want to be able to do one search across all catalogues and have all of the results compared side-by-side in one consistent view. Consumer comparison web-sites have been doing this for close to a decade – so why shouldn’t your “enterprise” product do it – and do it better? After all, you’re paying for the enterprise supplier network* – so you benefit from it!

* If it’s supplier funded, then you’re paying even more! And don’t let any snake oil salesman convince you otherwise. After all, if I have to fork over 1% of all transaction costs in “network fees”, then I’m going to have to raise my best price by 1% to cover that. Let’s say you buy $10M worth of goods from me through the network. That says it’s costing me $100,000 to serve you. That says I have to charge you $100,000 more to cover that cost of doing business. That says the cost of doing business through the network with me alone costs you $100,000! If you have a network, you probably have at least your top 20 suppliers in it. Let’s say you do a total of $250M of business through the network. Since every supplier pays the same fee, this network is costing you $2.5M a year … for what is nothing more than a catalogue! To put this in perspective, you could have a small team of call center workers in India maintain the different vendor catalogues for you manually for about 1/10th of that. That’s why the following question is probably the most important question of all!

3. Is it expensive for suppliers to use the supplier network / catalogue management solution?

The answer you want to hear is “No – it doesn’t cost suppliers anything to use our network. There are no fees for vendors, and since we can integrate with all of the following standard protocols and data formats, you can link to the catalogue that your average supplier, who has upgraded their technology in the last five to seven years, already has in place with virtually no effort on your part or theirs. And if they don’t have a catalogue, they can use these tools to build one either locally on their machine, for upload in a standard file format, or over the web through an easy to use GUI.” This is because just about any other answer costs your supplier money, which, one way or another, will cost you.

If it’s costly for the supplier, either in terms of dollars or resources, one of two things are going to happen. The supplier is going to refuse to join the network, which is going to prevent you from realizing the benefits that you hoped to realize by selecting the network, or the supplier is going to factor in the cost of doing business with you through the network. (And if you have a contract in place that fixes prices for the mid-term, then the costs of using the network go up even more, since the supplier will have to increase their prices even more when the current contract expires to make up for the losses they are going to take in the near-term!)

The reality is that, unlike BI and other e-Procurement technologies where you only need to capture the 20% of suppliers who constitute 80% of the business in order to see a return, supplier network technologies are only beneficial if you have at least 80% of your suppliers enabled because most of your time is spent dealing with suppliers who are not enabled! If a supplier is enabled in your technology, then most of the transactions are automated and time is only spent dealing with exceptions. If a supplier is not enabled, then every transaction requires a time-consuming interaction. So adoption better be a no-brainer for your supplier community if you want your network to be a success.

4. How did you amass all of the suppliers currently in your network?

There’s at least one vendor whose primary selling point appears to be the number of suppliers in its network. The question is, how did they get all those suppliers to sign up, are the conditions for joining and the costs of membership the same today as they were when these suppliers first joined, and are the conditions for joining and costs of membership applicable to the business environment today?

If the network was almost free in the past, and conditions for membership rather lax, as that can be enticing to a large number of suppliers looking for a new market (as the cost of trying the network out is low and the risks nominal), that can explain a significant membership gain in a short time-frame. However, if after a certain membership size was met, the network all of a sudden introduced a five figure annual membership fee and a transaction cost of 0.5% or more, chances are good that not only did the rate of membership increase start declining rapidly, but that you’re going to have a hard time convincing all but your largest volume suppliers, who are not already in the network, to join.

5. Does it allow for override pricing based on business rules?

It might be the case that it’s easy for your supplier to maintain one catalogue with standard pricing, but hard to maintain instances with customized pricing for each client they interact with. (Especially if they are using older technology or are lacking in modern technical competence.) Therefore, it should be trivial for a user to go in and define contract pricing for, or price modifications on, each item or service that is covered under a contract. Furthermore, the user should be able to do it at the item, category, or catalogue level. Maybe you just have a simple 10% off everything deal. Then the user should be able to create just one rule and have it take effect each time pricing data is retrieved.

6. Can the solution be integrated into your current e-Procurement platform?

As I indicated in a previous post, the value of e-Procurement lies in its ability to integrate requisitions with invoices with contracts and make sure that each buy against a contract is paid at the contracted rate and that each buy that is not against a contract (but should be) is flagged and brought to the attention of the appropriate manager. Thus, it’s critical that your supply network solution provide a simple mechanism for getting requisitions out of the network and into your e-Procurement platform.

Supply Management in the Decade Ahead V: Missions, Goals, & Performance Expectations

In Part I of our review of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead”, we overviewed the various external forces that will impact a company’s supply chain. In Parts II and III we took deep dives into the eight major forces that were identified specifically by supply managers who took part in the survey. In Part IV we focussed on some of the major impacts to business models and strategies in the decade ahead. In this post, we will address the new and expanded missions, goals, and performance expectations for supply management as identified by the report.

The report notes that chief executives will ask far more of supply management – requiring it to take on a broader, more strategic mission, evaluating it on a more comprehensive set of goals and expecting a higher level of performance. To accomplish this, supply management will need to expand its influence across functions, business units and geographies, go beyond the comfort zone of traditional success measures, and find creative ways to deliver even more value to the corporation.

The report than indicates that tomorrow’s missions, goals, and performance expectations for supply management will fall into four main areas:

  • Delivering More Innovation From Suppliers
    The need for innovation will accelerate as companies continue to pursue new geographic and demographic markets. With the demand and supply for innovation destined to be in a constant state of flux through the coming decade, and with the limited resources that will be available within any single company (thanks to the talent crunch), business will need to overcome the usual “not invented here” barriers and tap into all available sources of innovation on a global scale.
    Companies will have to develop advanced approaches to how they identify external sources of supply, how they structure the commercial and working relationships with those sources, and how they make those resources an integral part of the product and services development process. Reinvention of the innovation model will be required to fully leverage external sources – and companies will need to formalize an ongoing process for sourcing innovation.
  • Contributing More Broadly To Revenue Generation
    Close attention to costs for goods and services leads to more competitively priced end products while a focus on quality and service reduces failure rates, improves availability, and leads to higher customer satisfaction and loyalty. However, some companies will expect even more. Some will seek to boost revenue by rapidly introducing products with a limited life-cycle to smaller, niche, markets. Other companies will seek to leverage the existing asset base and distribution channels to bring to market higher value or radically different products. Others still will ask supply management to take a lead role in finding new revenue streams using their unique knowledge of the business. And some will ask supply management to assist sales in co-selling products and services in one channel to suppliers of another channel.
    In the first case, supply management will need to find suppliers and create processes that support entering and exiting these unique offerings quickly with speed, agility, and minimal waste. In the second case, supply management will need to develop or restructure the supply case to meet the needs and costs of the markets into which the company wants to sell. In the third case, supply management will need to assess, screen, and take a lead role in negotiating with the relevant external parties. In the last case, supply management will need to provide deep insights into the dynamics of upstream supply markets.
  • Anticipating And Managing Supply Risk
    Extended global supply chains that include geographically distant, unproven, and even unknown suppliers pose supply continuity, liability, reputational, and intellectual property risks. Changes in buyer-supplier market dynamics reduces predictability. Actions related to environmental protection, sustainability, and labor practices pose uncertainty. The volatility of commodity prices, currencies, interest rates, and even tax structures adds additional complexity. Risk is everywhere!
    Supply management executives will be epxected to play a more strategic role in identifying and interpreting risks, and making tough decisions about risk exposure and mitigation. The level of sophistication required to manage the complex, wide-ranging portfolio of supply risks and integrate risk management into overall supply activities will need to increase.
  • Expanding the Breadth And Impact of Cost Management Efforts
    Performance expectations will be raised considerably as global competition forces companies to squeeze unnecessary cost out of every part of their business. For supply management, this will mean widening the breadth of spend areas covered, managing costs more holistically, and delivering cost savings faster. A range of tools and techniques will be used, including complexity reduction, greater standardization, tighter management of specifications and demand, compliance management, target costing, value analysis, value engineering, price benchmarking, statistical price modeling, should-cost analysis, expressive bidding, lean design, and Six Sigma.

Cost Management, Revenue Management, Risk Management, and Innovation management covers a lot of the bases, but I’d add at least the following:

  • Supplier Management
    Suppliers are going to become more critical to your operations as a whole – and this is going to require better management of not only their performance, but your overall relationships – as well as all of the data you collect about them, their products, and their operations. This will involve implementing and utilizing the next generation of SRM (Supplier Relationship Management), SPM (Supplier Performance Management), and SIM (Supplier Information Management) technology, which will eventually be unified in a common platform.
  • Sustainability Management
    Sustainability is the word on everyone’s lips these days and sustainability from social, environmental, and business perspectives will be critical. It will cease to be a secondary concern to cost, revenue, and risk management and many of tomorrow’s strategies will be designed with sustainability as the key priority.
  • Talent Management
    In a knowledge economy, talent is key. As talent becomes scarce, HR will be looking to supply management to help them identify available sources of talent within the supply chain to meet the organization’s needs via outsourcing, insourcing, and new types of talent sharing agreements between organizations, third parties, independent consultants, and semi-retired individuals.

After a break, this series will return with Parts VI through XII that will cover each of the seven critical supply strategies for succeeding in a dynamic world that were identified by the report.

the doctor Exposes The Elephants In The Room

This is a continuation of the doctor wonders why the elephants in the room are often so hard to see where I expose the elephants hiding behind the couch, the lamp, and the projection screen. In my last post, I exposed you to the optimization elephants, the EIPP elephants, and the spend analysis elephants that were hiding behind the blinds. In this post I’m going to expose you to the supplier enablement elephants, the contract management elephants, and the hidden cost elephants.

The supplier enablement elephants are “catalog management”, (traditional) “supplier network”, “e-Document Management”, and “supplier portal”. Despite grandiose claims, not one of these solutions is the be-all end-all supplier enablement cure … and not one is even guaranteed to “enable” your supplier at all! One definition of “enable” is “to make able”. Another is “to make possible”. My favorite is “to make easy”.

Just because you’re giving your supplier a way to interact with you, doesn’t mean you’re “enabling” them. They already have a way to interact with you – it’s called old-fashioned telephone and old-fashioned fax machine. What they need is a better way to interact with you – that works for them. A catalog management solution isn’t enabling them if they have to send all their data to a third party and then double check that the third party actually entered all the data correctly. A supplier network isn’t enabling them if it isn’t compatible with their systems. e-Document management solutions aren’t worth a can of beans if they can only be used by a few individuals or if document location and access takes just as much work as it does to walk down the hall to the filing cabinet or get a clerk to get the document for you. And “portals” aren’t very helpful if it forces the supplier to re-key in a 100 line invoice. The fact of the matter is that most of the “supplier enablement” solutions out there today are not enabling your suppliers at all – they’re enabling you. That’s a big difference between what’s promised and what’s delivered. If that’s all you care about, then go buy whatever solution tickles your fancy. Just be clear on what you’re buying!

The big contract management elephants are called “repository” and “compliance”. Simply having all of your contracts in one place is not as great as it sounds. You can do that today without a contract management system at all – it’s called “central filing”. Simply enforce that every time a contract is signed the person responsible immediately sends a copy to central filing that files it, in duplicate, on-site and off-site and you have a contract management solution that requires zero investment in software. (How do you enforce this? It’s called the “three strikes and you’re fired” policy. After every contract is signed, you call central filing three days later. If they haven’t received a copy, the employee responsible for filing gets a strike. After the third strike, they get fired. It will be surprisingly effective after a senior employee gets fired.) Of course, you could have to wait a few days every time you need to reference a contract.

A “contract management” solution with a central contract repository will thus only be useful if its accessible by everyone (and you definitely don’t want to pay by the seat) and easily searchable (with indexes on meta-data and the contracts in their entirety) – otherwise, it’s not much better than “central filing”. Furthermore, contracts are only valuable if purchases are made against them at the negotiated rates. Thus, not only should it be easy to determine if a contract exists for a specific item, but it should be easy to determine the agreed upon rate for that item, extract it, and get it into your e-Procurement system.

The hidden cost elephants come in many varieties, such as “required upgrade”, “service fees”, and “implementation consulting”, but the most dreadful is “too-good-to-be-true discount”, as he’s always accompanied by a few, close friends. There’s no such thing as a 50% + discount in enterprise software, and any vendor that comes back and says they can give you a discount of 75% off of the original quote is making the old “we’ll gouge them later” play. They know that once you’ve spent many times your initial investment getting the software installed and configured, and your user base trained, it’ll be too late to turn back and that’s when you start getting hit with “service fees” and “maintenance fees” and “upgrade fees” because you bought the starter edition, but the features and functions you really need to be efficient are in the “regular edition”. It should be obvious that this is not a vendor you want to deal with, because if the vendor really could afford to sell at a 75% discount and remain profitable, then they were trying to screw you up front.

The reality is that traditional, installed, enterprise software shops have high overheads. There’s a reason their software costs hundreds of thousands, if not millions, of dollars. It’s because they literally can’t afford to sell it for much less and stay profitable because they need large teams of people to install, maintain, and support their customers as each instance has to be upgraded and patched separately. They also need large teams of enterprise sales people to continually pound the pavement to bring in enough software and service deals to keep these large implementation and support teams busy. Then they need lots of expensive office space to house all these people. And so on. (Now I’m not saying that enterprise software isn’t worth hundreds of thousands, or millions of dollars – as long as the ROI is there, some of it is. I’m specifically saying that, whether or not their software is worth that much, chances are the traditional enterprise software vendor cannot afford to sell for less than that and remain profitable – and if they claim they can, that should set off big warning bells!)

Strengthen Your Supply Chain

In yesterday’s blogologue I told you that your brand was a terrible thing to waste – and that the strength of your company’s brand ultimately lay in its supply chain, and not the latest fad dreamt up by your company’s marketing mogul. This means that, unfortunately, it’s up to you to protect the brand, and not the apathetic advertisers who lounge around all day being “creative“.

So how do you do that? The Industry article “Strengthen Your Supply Chain” that I referenced yesterday has some good starting points. It tells you to focus on five key elements that cover most of the basis. It’s key elements were:

  • traceability
    you should be able to track all products, components, and raw materials backwards and forwards through the manufacturing process
  • measurement
    basically, testing; identify the components and risk points (start with the hand-off points) and then have internal quality assurance personnel or an independent auditor test each component and at each risk point
  • certification
    certification programs set guidelines and involve an additional process of checks and balances: these usually fall into regulatory, industry self-regulation, and third-party certification
  • efficiency
    be sure to adopt a traceability and testing program that works with day-to-day supply chain operations
  • organizational buy-in
    successful supply chain management depends on the cooperation of employees at each and every level

To this I’d also add, at a minimum:

  • Visibility
    It’s important to not only know what goes into your products, but where each raw material, component, and product is at all times. Could they have been tampered with? And, if you are dealing with consumables, how long did they sit on the truck? Could they have gone bad?
  • Modeling
    In order to be sure you have the right process, including the right checks and balances, you need to be able to model the supply chain as it is, as it should be, identify the differences, identify what could go wrong, and insure an appropriate test is included for each hand-off point, risk, and exception.
  • Supplier Management
    You ned to insure that your suppliers understand the importance of the process, are following the process, and are reporting any and all problems that arise, including those that they are able to detect internally. (If too many problems arise internally, even if they are corrected before defective or contaminated goods are shipped, then they need help with their process as the risk of something slipping through the cracks is too great.)

Finally, I’d like to point out that as important as certification is, checking out the certifications is even more important. In some parts of the world, it’s quite easy to buy a faked certification document. Just because a new supplier sends you a certification document, that doesn’t mean they are actually certified. Be sure to check with the organization that issues the certification that the supplier in question was actually certified AND that the certification is still in effect. But don’t stop there – if the certification is one that is actually done by third parties, check out the reputation of the third party conducting the audits. Are there any complaints against them? If so, how many and how recent. In some places, it’s even easier to buy a successful audit then it is to buy a fake certification.

Sustainability Should Be Soldered Into Your Platform

I think we can all agree that sustainability is important – very important. You might be in business to make money, but the only way you’re going to make money is if you stay in business. The only way you’re going to stay in business is if you’re sustainable, because, otherwise, you risk running out of resources, money, or, and I’m not kidding, customers. The earth is finite, so it stands to reason that there is only a finite amount of any resource. A company has a finite amount of money, and wasting it is the quickest path to going out of business. Today’s consumer is concerned about the environment – harming it will drive them away, and with no customers, you have no business.

So how do you achieve this magic of sustainability? Well, you can achieve it the same way you achieve everything else in business – hard work, perseverance, and ingenuity. But the real trick comes in sustaining sustainability – and the best way to do that is to have not only supporting processes and methodologies, but a supporting platform as well.

A supporting platform can help you keep track of your initiatives which can range from your office recycling program to your global waste reduction initiative. Recycling efforts within a single large office building can save hundreds of thousands of dollars. As noted in “Building the Green Supply Chain”, the Boulder Community Hospital reduce, reuse, and recycle program saved the hospital $600K a year. On a global scale, Walmart saved 2.4M in shipping just by reducing packaging requirements. And Interface Inc, in their effort to move to a zero environment footprint, have saved more than 260M in the first decade of their sustainability program.

More importantly, it can also help you get control of your global sustainability initiatives when it comes to environmental impact reduction, social responsibility, and prevention of animal cruelty. Unlike internal waste reduction initiatives, which often do not exceed the complexity of making sure the used toner cartridges were shipped back to the manufacturer, global sustainability initiatives require you to also insure your supply chain does not violate the initiatives you commit to. Just because you don’t have a sweatshop, pump out toxic emissions in excess of the Kyoto protocol, or skin cows alive does not mean that your suppliers do not.

In order to insure that you have a supply chain in compliance with your initiatives, you have to track relevant information from your suppliers and have them track the corresponding information from their suppliers. This is an insurmountable challenge unless they can provide you with the information you need directly into your systems, as the average large company has dozens, if not hundreds of essential tier 1 suppliers and thousands of less critical suppliers. This requires a web based platform capable of securely collecting, storing, indexing, aggregating, and unifying all of the relevant information from each supplier.

Furthermore, depending on where you want to do business, sustainability might be more than just an initiative – it might be a fact of life. If you want to do business in the EU, you need to comply with REACH and RoHS, and possibly half a dozen other directives. California has introduced its own green legislation, and parts of Asia, suffering from severe pollution as a result of the rapid build up of manufacturing capability over the last few decades to meet the demands of American and European multinationals focussed on low cost country sourcing, may not be far behind. You have to not only maintain all of the documentation necessary for compliance purposes, but have to be at least 99.999% certain you are in compliance before making a shipment into the region. If even the tiniest removable part of your electronics system, such as the removable power cord, is not in compliance, your entire shipment could be blocked, seized, or destroyed.

This dictates the need for a platform that tracks not only all information related to your sustainability programs, but all product related information from raw materials through final production. This is the only way to minimize your risk of non-compliance. That’s why Aravo is Sourcing Innovation’s Vendor of the Week. As one of the first companies to offer a Sustainability Management Solution (SMS) tightly integrated with a Supplier Information Management (SIM) solution, I think they deserve to be recognized for tackling such an important problem.