Category Archives: Technology

Working with Your Users is Key (to Spend Management Success)

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

Getting key people involved with the design of any system is good advice. This is especially true for the design and usability of your spend analysis system. The key users for any single commodity include the sourcing manager and the business line owners who drive demand for the commodity. These business line owners may include multiple people from different divisions with different responsibilities. For example, for PCs, the users could include someone from technology who ensures the machines conform to corporate IT standards, as well as someone from a major business line that drive the demand for a specific unit.

Rather than thinking of working with users as a burden, think of it as an opportunity to engage and educate your users and refine the work process. Collaborating with users will help you:

  • create a better commodity structure,
  • demonstrate that you value their input,
  • get user buy-in by incorporating their feedback,
  • find out what’s important to them, and,
  • establish a process for working with each type of user going forward.

A working meeting should cover the existing spending – showing users their spending by commodity, vendor, cost center, and GL codes – both summary and over time. You should ask for input on the commodity structure, the vendors used, the preferred vendors, and any vendors they think are missing. You should ask how they use the data; what value they get from the data and what they would like to have in the system or reports that they don’t have now. If you are doing category cubes, you should review spending patterns, contract compliance and ways to improve the information that exists. The meetings can be formal sit-down sessions with new users, or can be done by email / telephone with users who regularly work with the data and are already providing feedback.

These meetings will probably involve a lot of give and take, but they are essential to improving communication and producing a structure that makes sense to the people who have to live with it. Don’t assume everyone fully understands why these working sessions are important to the company. Let them know why their input is critical. And don’t be concerned if users initially resist these meetings. Their resistance will drop once they have an “a-ha!” moment and start getting value from the data.

In addition to an initial meeting, other milestones that may warrant follow-up meetings are:

  • When someone new takes over responsibility for a commodity. The more they know about their new position, the better they will perform. If you start out providing value, they are more likely to come back for more.
  • At the end of a sourcing event. Ensure that all the learning and changes in the category is properly reflected in your spend cube.
  • On a regular basis, say every 6 to 12 months, ensure that the key users are actually using the data. If they aren’t, why not?

This may sound like a large number of meetings, but, when all is said and done, these users are your “clients”. Is there a more productive way to spend your time than meeting with your client and making sure the service you provide is valuable to them?

Every Check Has A Cost (So Streamline Your Workflows)

Paul Graham wrote a great article last November on PaulGraham.com on how Artists Ship. In the article, which starts off by noting that one of the big differences between big companies and startups is that big companies tend to have developed procedures to protect themselves against mistakes while a startup walks like a toddler, bashing into things and falling over all the time explains that the gradual accumulation of checks in an organization is a kind of learning that is based on responses to disasters that have happened to it or other companies in similar situations. For example, after giving a contract to a supplier who goes bankrupt and fails to deliver, a company might require all suppliers to prove they’re solvent before submitting bids.

As companies continue to grow, they invariably accumulate more checks, either as responses to disasters or as a result of hiring people from bigger companies who bring more checks with them for protecting against disasters which have not yet happened (and which may never happened).

But not all checks are good. The reality is that every check has a cost, and sometimes the cost can outweigh the benefit. For example, it might be prudent to make a supplier verify it’s solvency, but the cost to you could be substantial. For example, the best supplier might be the one that can’t spare the effort to get “verified” or who falls just short of a solvency bar that’s set too high. After all, do they really need to have one year of operating capital in the bank for a six month contract?

Before a check is instituted, it’s cost should be well understood. For example, consider the example given by Joel Spolsky of Joel on Software on arbitrary approval thresholds. In many companies, software costing up to some nominal amount, such as $1,000, can be bought by individual managers without any additional approvals, but software that exceeds the nominal threshold has to be approved by a committee. This process, which has to be babysat by the prospective vendor, is quite expensive and the net result is that software that you might have sold for $5,000 now has to be sold for $50,000 to recover the costs associated with having to sell to a committee. Thus, although the purpose of the committee was to ensure the company doesn’t waste money, it could end up causing the company to pay 10 times as much for basic software.

Checks on purchases will always be expensive, because the harder it is to sell something to you, the more it has to cost. If you’re too hard to sell too, the only people who will sell to you are those companies that specialize in selling to you — and they are not likely to be the companies making the goods and services you need the most. This creates a whole new level of inefficiency where you pay exponentially more for inefficient products.

Thus, although checks are important before you make any purchase, it’s important that the checks be balanced … the cost of the check should not exceed the benefit the organization experiences as a result. So continue to do your solvency checks before handing out those million dollar contracts, but when it comes to office supply spot buys, lose the check. Worst case scenario, you go across the street.

Turn to Technology, But Make Good Decisions

There’s been a plethora of articles in recent months on how you can “leverage technology to thrive in a down economy”. And while I generally agree that technology can improve your operations and save you some serious cash, I want to remind you that technology alone is not the answer. Remember the results of the recent McKinsey Quarterly article on “managing IT in a downturn”: The impact on run-rate EBIT from optimizing supply-chain processes with streamlined systems is 3 to 4 % … which is 6 to 8 times the impact on run-rate EBIT from transactional IT cost reduction which tops out at 0.5%.

So why the focus on IT? As the article points out:

  • IT can streamline processes
    The right technology can improve productivity, empower knowledge workers, and help you satisfy customers efficiently.
  • IT can enable best practices
    The right tools can make best practices available company wide and provide a foundation for their implementation.
  • IT can ensure compliance
    Compliance is not just a threat, it’s an opportunity … with the right systems, you can use your compliance to your advantage.
  • IT makes document management easily
    Never search for a contract again!
  • IT enables visibility and collaboration
    You can track the progress of each project and work with your suppliers.
  • … and so on …

And while all this is true, it’s only true if you select the right technology. In order to get maximum benefit, you have to:

  • Select the tools that enable the right processes
    This is not necessarily the process you use now, and most likely not a fixed pre-packaged process the tool comes with, but the process that will allow you to meet your needs with a minimum amount of work. This means that the tool needs to support flexible workflows to allow you to set up the process that best-fits your needs today, and revise it as you discover better ways to get the job done.
  • Make the right-decision with respect to on-premise vs. SaaS
    If a provider can manage the solution for you more effectively and more cost-efficiently, because IT just isn’t your strength, you have to seriously consider SaaS. This is doubly true if data security is an issue, because a certified SaaS provider often has better security in place in their data center than you do in yours.
  • Remember that technology is only the enabler
    You still have to do the work, and, most importantly, use your brain.

So how do you make good IT decisions when trying to improve your supply chain processes? As per this recent SCMR article on “making better IT decisions”, which attempts to introduce a supply chain IT governance framework, you need to:

  • Take a Holistic Point of View
    The best decision will require the input of all of the stakeholders.
  • Be Involved
    Don’t just select a system and hand the project off to IT to get it installed and integrated. It’s your processes that need to be enabled, not theirs.
  • Communicate
    Before, during, and after the implementation.
  • Think Collaboratively
    Let everyone give their input and consider all of the strengths and weaknesses associated with every decision.
  • Learn from Previous Projects
    And, most importantly, don’t repeat the same mistakes you did last time.

Supply Chain Responsibility

Chances are that if you’re (out)sourcing globally, your supply chain is not as responsible as you think it is. Even leaders in supply chain social responsibility still struggle with fiascos, as illustrated by The Gap, who faced child-labor allegations in India earlier this year when, without its knowledge or consent, a vendor subcontracted part of an order to an unauthorized facility that used child-labor to produce garments. Considering the impact this can have on your brand, you should be taking steps now to make sure this doesn’t happen to you.

So what should you do? Without reference to the Stanford Global Supply Chain Management Forum, as quoted in this recent Supply Chain Management Review article on “Taking Supply Chain Responsibility to the Next Level”, I can tell you that you need to put greater emphasis on the social side of the equation. And in addition to the models and measurement systems, you need an overall monitoring framework that will give you real-time visibility into your supply chain, and, most importantly, your suppliers.

In addition to the basic supplier performance management functions, which should include compliance status and the findings of the most recent supplier audit, this framework should also tell you which of your suppliers are actively working on your active orders, and what the status is. This will enable you to properly determine which suppliers pose the most risk, and, more importantly, which suppliers need an active (surprise) audit, and which suppliers don’t.

Furthermore, the technology should lay the foundation for trailblazers to implement structural changes within their supply management function to insure that social and environmental responsibility is considered as part of every award. It should also support the collaboration required to develop innovative products, processes, and technologies that can transform the supply chain and the business.

So how do you select the right technology? Find a technology that can support the holistic, dynamic, and flexible supply chain model that can improve your overall business performance. As highlighted in “taking supply chain responsibility to the next level”, leaders make the following assumptions about their supply chains.

  • Social and environmental factors strongly correlate with supply chain performance
  • The extended supply chain is fluid, and may not look the same tomorrow as it does today
  • Getting it right is a journey, not a destination, and definitely not a sprint. It takes time to get it right, and the key to success is to get progressively better each day.

In my view, even if it’s not perfect, any technology that can allow you to integrate supply chain responsibility into your overall sourcing process is a step in the right direction. Good examples are Aravo‘s Supplier Information Management (SIM) platform that can allow you to track, report, and execute on all of the data you need to be socially responsible, EcoVadis‘ sustainable supply management solution which tracks the relevant data on your suppliers CSR practices, and SupplierSoft‘s supplier information management platform.

Don’t Be Seduced by Change Management Tools

Industry Week recently ran a great article on “change management tool seduction” and the damage these tools, and the programs they support, can cause, which include:

  • Wasted Time
    The wrong change programs will do nothing but consume time that could be better spent on other tasks. For example, documenting all of your processes only to find out they’re poor isn’t worthwhile
  • Increased Politics
    Employees might look upon it as punishment, and rebel, or simply use any new data that results from the effort to try and blame other departments for organizational failings.
  • Functional Distractions
    Employees might get caught up trying to figure out how to meet the new requirements rather than working towards process improvement.
  • Strategic Misdirection
    If the change management program selected doesn’t actually improve product or service quality, it’s pointless.

Change management, and change management tools, only work if you’re implementing the right changes, and not the latest fad, cliche, or feel-good organizational change theory. You don’t change just because your competitor did. You change because a detailed analysis caused you to conclude that you will likely see a significant return from going through the effort. You change because your analysis revealed that the process improvements you identified will have a positive impact on your operations and will increase efficiency, reduce costs, and improve quality.

So how do you know if you’re on the right path? The Industry Week article had some great advice for determining whether you’ve embarked on a successful change management project or been seduced by the latest change management tool (or fad). Specifically, if one or more of the following five scenarios exists at your company, you might have to adjust your plans in order to reap benefit from your change management initiative:

  • Tool Tossing
    Are managers trying to solve problems just by throwing technology at the situation? Technology is an enabler, not a solution upon itself.
  • Consultant Lure
    Are consultants repeatedly brought in to tell you what most of the organization already knows?
  • Buzzwords
    Do managers use buzzwords excessively, particularly with the goal of making themselves look knowledgeable?
  • Change Program of the Week
    Has your company introduced so many change programs in the last few years that your staff feels whiplashed?
  • Plan Blindness
    If management believes that a plan in and of itself is progress, look out!

If you want to get help finding and staying on the right path, the article also offers some advice on how to assess the likely impact of a potential change management program to determine if it’s right for you. It’s definitely worth a read.