Category Archives: Technology

Outsourced Innovation

Back in 2001, pharmaceutical Eli-Lilly funded a new endeavor by the name of Innocentive as a way to connect with brainpower outside the company – specifically, people who could develop drugs and speed them to market – and threw open the doors to other firms eager to access the network of ad-hoc experts. These companies post their most ornery (scientific) problems on InnoCentive’s Web site and anyone interested on the network can take a shot at cracking them, for a prize that ranges from $10,000 to $100,000 per solution. To date, more then 30% of the problems on the site have been cracked, which is 30% more problems than would have been solved using a traditional in-house approach (since these companies typically post the problems only after their internal R&D team has taken a shot and failed).

Furthermore, a study by Kaim Lakhani, a lecturer in technology and innovation at MIT, and his coauthors that surveyed 166 problems on Innocentive, found that “the strength of a network like InnoCentive’s is exactly the diversity of intellectual background” and that “the odds of a solver’s success increased in fields in which they had no formal expertise”. Why? He believes it is due to a central tenet of network theory, “the strength of weak ties”. The most efficient networks are those that link to the broadest range of information, knowledge, and experience.

Outsourced Innovation works – companies like Colgate-Palmolive, Boeing, DuPont, and P&G are using it to reduce costs and propel innovation forward. For example, Colgate-Palmolive paid an InnoCentive member who found a solution to a fluoride powder injection problem a mere $25,000, a fraction of what it could have cost Colgate-Palmolive to dedicate their R&D team to the problem until it was solved internally.

Furthermore, companies like Big Idea Group that bring together creative inventors with new ideas and innovation-driven companies looking to license new discoveries are also doing well. Big Idea Group has brought over 50 products to market.

Finally, some companies are bringing in systems built by third party experts to manage their innovation process and using these same companies to guide them. For example, companies such as Honeywell International, Reliant Energy, and Stryker use products and services from BrightIdea.com to jumpstart and manage their innovation processes. And it works. Honeywell reported a 300% return on investment within sixty days.

In other words, just don’t look inside your four walls for sources of innovation, look outside as well. You never know what you might find!

Procurement Lead Time Optimization

As I pointed out in my companion post on e-Sourcing Forum today (WayBackMachine) today, Lead Time Optimization, or applied Total Value Management Decision Optimization, is another innovative capability that some leading sourcing organizations are latching on to.

When you translate Lead Time Optimization, which Zara has used to design a flexible supply chain that allows the company to take a garment from design through the manufacturing process to store shelves in 10 days, to Procurement you focus not on maximizing profit but on minimizing costs against possible demand fluctuations.

In this scenario, you do not optimize your awards on a forecasted demand value, but a forecasted demand range and the solution you select is not the lowest cost solution at any specific demand point but the solution which maintains a lower cost over a demand range. The solution you select will, on-average, be lower than other solutions and yield a solution that is expected to be near-optimal regardless of what happens.

This requires a tool that allows you to capture not only all of your business constraints and supply chain flexibility requirements, but the costs associated with new suppliers, supply base consolidation, and mixed transport options. This in turn requires the ability to define global costs, cost modifiers that specify transportation mixes, and what if scenarios to take different possibilities into account. Outside of SupplyChainge’s (now Infor’s) offerings, these tools are rare, but I know for a fact that Iasta is pursuing a solution that will incorporate many of these best practices. I personally can not wait as there are too few players in the decision optimization market place and I personally think that many needs are currently going unmet because of it.

Purchase-Order Free Supply Chains

No, I haven’t flipped my gourd (or at least I don’t think so, but they say you’ll never know when you finally do). Consider how much time it takes to create and process a purchase order and then multiply this by the number of purchase orders you process in a year. Chances are that if you are a mid-size enterprise or larger, this is a pretty big number, tying up the equivalent of multiple man years that could be better spent on more strategic, less tactical activities. And, as demonstrated in “The Supply Chain Innovator’s Technology Footprint: A Benchmark Report on What Companies Want in Their Next-Generation Supply Chain Solution” by Aberdeen, such a strategy can reduce buyer direct material inventory by 30% while cutting supplier component inventory by 25%.

This can be accomplished by close collaboration with strategic suppliers and contract manufacturers which includes forecast sharing and demand-supply synchronization. In these situations, suppliers manage replenishment according to minimum/maximum targets, as determined by forecasts, contracts, and service level agreements.

Although a significant amount of work may be required up front to identify, implement, and synch the systems and build the proper relationships, this will ultimately be a drop in a bucket compared to how much work you will have had to do if you continue to be driven by paper-based purchase orders in a wired economy.

A Hitchhiker’s Guide to e-Procurement: Wrap Up

Mostly Harmless

Introduction
Requisitions, Part 1
Requisitions, Part 2
Approvals, Part 1
Approvals, Part 2

Purchase Orders, Part 1
Purchase Orders, Part 2
Goods Receipts, Part 1
Goods Receipts, Part 2
Invoices, Part 1

Invoices, Part 2
Reconciliation, Part 1
Reconciliation, Part 2
Payments
Tax Reclamation, Part 1

Tax Reclamation, Part 2
Analysis, Part 1
Analysis, Part 2
Catalogs and Contracts, Part 1
Catalogs and Contracts, Part 2

Costing a Solution
Procurement Models
Sectors
Terminology
Summary

The Back Office. It Will Power Platform Evolution As Well.

Originally posted on the Synertrade blog in October, 2018.

A few months ago we penned a piece on the back office and how it powers platforms. We indicated that the only way a platform could deal with the facts that

  1. (Procurement) workflows are not static and change over time, whether or not you want them to or not;
  2. the type of data you need to ingest, as well as the quality and representation thereof changes over time; and this means that
  3. RPA requirements also change over time

is if such a platform had a great back office. A back office with functionality that allows you to do more than just define users, look and feel, and the categorization schema. A back office that allows an administrator to update the master schema, data harmonization rules, organizational hierarchy, workflow processes, approval chains, and RPA workers. And so on.

But this is just platform maintenance. A platform needs to evolve over time. As per Sourcing Innovation’s recent series on 2020 is Fast Approaching — Better Get on Your Tech Capabilities (Part I, Part II, Part III, and Part IV), 2020 is almost here and the magnificent picture of Procurement in 2020 that all the big analyst firms and thought leadership vendors painted between 2008 and 2013 (check the modern Wayback Machine if you don’t remember, unless you have the original WABAC machine) has not materialized. To be blunt, the picture today, for the most part, is not much better than it was ten (10) years ago. There have been few advances in platform capabilities, although there has been considerable advances in usability and integration. Source to Pay offerings, non-existent in the best-of-breed focussed world (where there were a couple of S2C and a couple of P2P offerings) of a decade ago, are now the norm. And they are quite useable. But are they more powerful?

Consider the eight capabilities mentioned in Sourcing Innovation’s recent posts which were supposed to be, more-or-less, common place. How many does your platform have? Maybe a couple if you are lucky. Maybe. But let’s review the capabilities you should have.

  • True Invoice Automation (with human intervention necessary on less than 2%)
  • Supplier Identification
  • Automated Supplier Discovery
  • RFX Process Automation
  • Should Cost Modelling

If your platform doesn’t have these capabilities, or doesn’t have them to the extent it should (and we can guarantee no platform yet has all of these capabilities to the extent it should, the best you can hope for is a platform actively working towards the goal), the only way you’re going to get them is if the platform has built-in foundations for evolutionary capabilities.

What are these necessary capabilities?

As previously discussed, workflow automation, schema extensibility, and RPA (robotic process automation) are key. But so are open integration (and a fully exposed and extensible API), unlimited supplier (pool) access, and extensible cost and product modelling. These are key capabilities that many platforms are missing, and, key capabilities that, when present, are found in a back-office that powers the platform. (And that’s why the back office will power platform evolution too.)

Most platforms, even those that tout integration, don’t have truly open integration. There is a limited API, and if the external platform or data feed can’t map to it one-to-one, there is no true integration — only what can be mapped.

Most platforms have their own S-MDM (Supplier Master Data Management) capability and some either offer their own network or integrate with one. But it’s still very closed. Right now there are a number of networks, a number of directories, and a number of collective initiatives out there, each of which is controlled by a vendor using a different (often proprietary) technology. There’s no real openness. A vendor must commit to not building its own network of any kind, but integrating with whatever network its suppliers are on that they want to use.

Only a few platforms have should-cost modelling and bill of materials capability even today — even though, at some point in the supply chain, every product is a bill of materials and every service is a collection of task-based service offerings. Only a platform that allows these common components to be defined and re-used is going to provide an organization with evolutionary offerings.

So when you go out to select your S2P platform, if you want a best-of-breed platform that will not only offer the best of what’s available today, but meet your needs tomorrow, be sure to select one with a back-office capability that, in addition to the key requirements outlined last time, also allows for true open integration, for true supplier network/portal interoperability, and true, composable, bill-of-material based should-cost modelling capability. Otherwise, there will be limits to what the platform can do and you will never get a true strategic offering from the vendor and never, ever, reach cognitive support capabilities.