Category Archives: Vendor Review

Sometimes it’s okay to get Rapt up in revenue

These days it seems like everyone is focussed on cost savings. This is not a bad thing, considering the vast majority of companies are not best-in-class, which means the vast majority of companies, on average, are probably spending too much on their purchases. But despite some vendor claims that revenue is, and will remain, flat, or that there’s nothing you can do about it since the market sets the price and constitutes the demand, this is not true.

We all understand that the fundamental goal of business is to make money, or profit, and we all learned the same calculation in our first business class: Profit = Revenue – Cost. This tells us that, as a business, there are two levers we can manipulate to increase profitability, Cost and Revenue. Now it’s true that we as sourcing and procurement professionals have a lot more control over cost then we do on revenue, but that does not mean our focus on cost should be myopic. We should also understand the revenue side of the equation and work with marketing on the pricing side of the equation, because neither the market price, the highest price marketing predicts they can get, nor the price at which demand (or consumption) is maximized is the optimal price.

If your goal is to maximize profit, the optimal price is the one where the profit equation is maximized, and this means this price is determined as much by cost as by revenue, and we all know that the cost for a product is not fixed – it depends upon the supplier we use (which determines a host of physical attributes such as quality, appeal, etc.) and, more importantly, the quantity we order. Generally speaking, the cost per unit will decline if we order more units, but this is usually only true to a certain point. Each supplier has a base capacity they can produce on their production lines during their regular hours of operation. To exceed this capacity they will have to add shifts, add lines, or both – which will increase the cost per unit. Or if your product requires a raw material in short supply, costs will increase as you try to divert supply away from your competitor, and there will be a point where you just will not be able to secure more material.

Is marketing, or if you’re big enough, product pricing, going to understand all of the factors that contribute to product cost – and, if so, are they going to understand the factors and inter-relationships as well as we do? Probably not. And that’s why sometimes we need to get Rapt up in revenue – to make sure that not only does the organization choose a price-point that theoretically achieves their profit, margin, or market-share goal (which, without our assistance will probably be based on cost-data that is only an approximation, and not necessarily a good one), but that the price-point is realistic and that the forecasted demand can be met in the intended time-window.

Furthermore, as the users of some of the most advanced analytic and business intelligence tools in the organization (spend analysis, cost modeling, and decision optimization, for example), we are much more likely to understand that our historical data alone is not necessarily sufficient or accurate enough to predict future demands, that different product features and price-points will have a considerable impact on actual sales, that costs can vary significantly by feature and demand level, and that the only way to analyze all of these variables and make the best pricing decision is to use a good decision support tool based on sophisticated analytics and optimization to model the different scenarios at different price points and obtain a true picture of feature – price point – demand level correlation.

And that’s why tomorrow I will introduce you to Rapt (acquired by Microsoft) a decision analytics and price optimization solution provider whose goal is to help companies maximize their revenue opportunities.

Understanding UGS

During my whirlwind Dallas tour, I met with UGS the day before Siemens publicly announced the acquisition, which took the media world by storm. (See Jason’s “UGS and Siemens”* post on Spend Matters, for example.) Not wanting my post to get lost in the shuffle, or confused with yet another analysis of what the takeover means for UGS, I decided to wait a while before moving forward with a post.

My goal was to understand how UGS, who I’d primarily associated with Product Lifecycle Management, was going to take the sourcing and spend management world by storm … which I assumed to be their intent once they signed on as a Spend Matters sponsor.

UGS believes that sourcing, or at least sourcing of direct goods, is really an extension of PLM and that an integrated collaborative environment where everyone has access to the same information, and the same world view, is the ultimate key to sourcing success. This is why they acquired eBreviate, a former player in the e-Sourcing space known for their e-RFX and e-Auction capabilities. And this is why they are working hard to integrate all of the sourcing tools that they acquired from eBrieviate into their TeamCenter for SRM (Supplier Relationship Management) solution. (The basic e-RFX and Auction tools have already been integrated.)

In their solution, a part specification sits in their TeamCenter solution. It might be designed in the TeamCenter solution, or in one of the design tools that UGS provides (which integrated with TeamCenter). When it’s time to source materials, the sourcing professionals can log into their TeamCenter application which integrates with the design team’s TeamCenter application and allows the sourcing professional, in one window, to access the specifications and demands. From here, they can run reports, access templates to build an eRFX, access other e-Sourcing tools, and run analysis on current and historical data. They can then publish the e-RFX and receive responses through the tool for analysis. Once they receive responses, cost information can be fed back into the system and the design team can choose to re-design the part, or change the specifications. Furthermore, once an award has been made, the system can be used to collaborate with the suppliers to identify cost-saving design improvements.

Considering that product cost management is a difficult process (just read Eric Hill’s guest posts over on Spend Matters: “What’s the Nature of Your Business?”*, “The Fourth F153″*, “Product Cost Models: An Introduction”*, “What Product Cost Models Are Not — Mythbusting”*, “The Fundamental Dimensions of a Cost Model”*, “eBay and BoB: Cost Model Methodology Cost Modeling Part 1 of 3″*, “The Oracle of Delphi: Empirical Statistical Models Cost Model Methodology Part 2 of 3″*, “Elementary My Dear Watson: Mechanistic Models Cost Modeling Methodology Part 3 of 3″*) that involves systems engineering, requirements, procurement, design, bill of materials, processing costs, service and warranty costs, etc. etc. etc., having one system that everyone in the organization involved with the life-cycle of a part can use to get a common viewpoint could prove to be quite invaluable.

Now I have to admit I do not know how useful or viable their solution is outside of the manufacturing and engineering sectors, but given the size of that marketplace, the dearth of advanced sourcing solutions for the space, the fact that almost every advanced sourcing solution is different (but then again, almost every approach is focussed on a different problem), they definitely have a large potential market in this space alone, and for now, I’m sure that’s more than enough.

So grab your board and keep an eye on the water. I’m sure they’ll be making waves before the year is over. And for those of you in a manufacturing design company, they might just be the waves you want to surf.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Procurement Outsourcing V.V: Provade, Take II

During my most recent Silicon Valley foray, I had a chance to catch up with Provade (acquired by Smart ERP Solutions) again and talk about how they seamlessly enable services procurement for companies with and without a PeopleSoft stack. If you remember, one of the three points I covered in my last post was how they built their solution on a PeopleTools foundation on the Oracle Stack. This is a tremendous advantage for customers with existing Oracle or PeopleSoft implementations since they can tie their solution in directly to your systems with almost no effort and set-up the bi-directional data flows in record time.

However, their solution is also a tremendous advantage for customers without (extensive) Oracle or PeopleSoft implementations – espcially those with large, involved services spend, especially in the legal, financial, contract labour, and marketing categories. They have done a significant amount of work extending their Java/J2EE technology stack to be SOA (Service Oriented Architecture) compatible. This allows them to easily integrate with other systems and enabled them to support rapidly configurable punchouts so that you can tie into your suppliers existing systems. Furthermore, it also allows them to develop Web 2.0 interfaces that are significantly easier to use than traditional PeopleSoft or Oracle (forms-based) interfaces – so current users can expect usability of the platform to only increase as time goes on.

I had a great conversation with these guys because my experience has been that:

  • there is not a lot of recognition for the importance of services spend management, which can consume up to 70% of spend in some verticals (financial, healthcare, etc.)
  • most solution providers are not offering specific solutions (with the notable exception of Servigistics (acquired by PTC) whose service parts, service price, and workforce management solutions I recently discussed, but they have a different spin)
  • most solution providers are not offering an on-demand solution with a low initial implementation cost

Furthermore, they understand that certain types of services are very complex and your offering, especially on the supplier side, needs to be customized if you want suppliers to rapidly adopt the system. One example, and one of their current strengths, is legal services. Law firms don’t bill for “services” or “tasks”, but “matters”. Most services are not fixed quote, but line item services where every line item is at a different rate (para-legal, associate, partner, fixed expense, variable expense, etc.). And they’re not always the most technical of people. (Even the majority of firms that are LEDES capable would rather log into a simple user-friendly web-based system to create a bill.)

In summary, I think they are on the ball with respect to some of the major services procurement challenges in some under-serviced verticals and that their current solution is a good solution for many firms with the challenges they are tackling. I look forward to talking with them again and diving into their process model and technology architecture in a later post.

Clarity with Claro

When I was in Chicago, I had the chance to sit down with Bart Richards, a Principle of The Claro Group (now part of Stout), and talk about their consulting practice and their sourcing practice in particular. Although the Claro group is relatively new, being in existence for less than two years, it’s team, made up of a large number of ex-Arthur Anderson and Bearing Point consultants, has been in the business for a long time and have saved $2.2 Billion dollars in sourcing and procurement spend (on roughly $17 Billion in spend), which is nothing to scoff at. (They’ve also recovered over $4 billion in insurance settlements, but that’s not the focus of this post, or blog.) They’ve also serviced over 100 organizations to date and delivered tangible bottom-line results at each.

Before I get into their sourcing practice, I would like to note that The Claro Group is an interesting firm with three primary areas of practice: Sourcing and Procurement, Healthcare, and Insurance Management Services – making them a prime consideration for large hospitals, GPOs, and other HealthCare Providers as they can help these organizations across the board. This is a very interesting position considering the relative lack of vendors and consultants in the sourcing and procurement space with this focus. Besides VendorMate (acquired by GHX, acquired by Thoma Bravo) and CombineNet (acquired by Jaggaer), I have not yet identified any other solution providers with such a strong understanding of the space. (So, if you know of, or work for, any other providers with a strong sourcing or procurement capability in the healthcare space, please feel free to reach out using the contact information in the FAQ.)

Back to their sourcing practice. I could bore you with details on their methodology, practice, etc., but this time I’d like to stick to my impression of Bart. All I can say is that if all of their consultants are like him, then they truly are client focused and willing to do whatever it takes to help you save money and improve productivity. Although they do use vendor tools to help them, they don’t insist upon or sell any specific vendor tools and instead focus on the analysis, processes, and methodologies that they believe, based upon their extensive experience (with each team member having an average of 12 or more years of experience in sourcing and procurement), will lead to tangible, measurable, and meaningful value to clients. And in this regards, the numbers don’t lie. They’ve saved, on average 12.5%, across all of the projects they worked on, which is quite significant, especially considering this is the most you can hope to save, on average, if you implement advanced sourcing methodologies in house (as per Aberdeen’s recent “Advanced Sourcing and Negotiation Benchmark Report”).

Their process is a simple and to-the-point three-phased approach that they use to rapidly identify opportunities. They start with an assessment where they review your process, organization, technology, and historical data to determine your opportunities, estimate the required effort, and compose a timeline. They then execute the recommendations that result from the first phase by revising organizational and process design, implementing new technology, and managing the change to capture the identified savings opportunities. Finally, they measure the impact, report on compliance, and implement Supplier Relationship Management. Simple, but effective.

Aptium Global : An Emerging Spend Powerhouse

Regular readers of this blog will remember that I’ve mentioned Aptium Global a few times, chronicled one of their success stories in Tuesday’s Lean Services post (with another hitting the blog sphere tomorrow),and ran a great guest post on Quantifying Quality in Lean Sourcing Initiatives by founder and principal Lisa Reisman. Aptium Global is a specialized consultancy that works primarily with small and medium sized manufacturing companies to help them save money on purchases through Lean Sourcing approaches.

Well today, in addition to industry heavyweight Stuart Burns, who runs their European practice, Aptium Global can add FreeMarkets legend Tony Poshek, inventor of The Puddy Principle to strategic sourcing. Tony, who has also put in considerable time at GE (as well as managing events for GM and other Fortune 50 heavyweights) has sourced almost $2B in his sourcing career and saved over 300M, or an average of 15% above and beyond what industry leading sourcing teams have saved. Tony was interviewed by Lisa last year and the interview is archived over on e-Sourcing Forum. Check it out!

Add this to Aptium’s forthcoming launch of an industry specific Metal Miner offering for companies that source metals, commodities, and components with high metal concentrations, and it’s easy to predict that Aptium Global is poised to become a powerhouse in their corner of the sourcing space.

The Metal Miner sourcing solution is a packaged two-week analysis that is designed to provide a small or mid-sized company with real time market condition and savings strategies for all of their metals and metal services spending in two to three weeks. A proprietary analytical solution built on over half a century of combined global metals sourcing experience, the solution is designed to provide you with a strategic framework to metals sourcing that can provide you and your executive team the insight you need for critical strategic sourcing decisions. Metal Miner uses state-of-the art analysis technology, takes into account a high-level assessment of the supply market for each category (including the main price drivers, the degree of fragmentation, domestic/offshore supply bases, and hedging mechanisms), and produces a customized report with specific implementable savings strategies for each category in which a significant savings can be achieved.

So, if you need sourcing help, particularly in metal or metal services categories, I’d contact them now. The secret’s out … and it won’t be long before the lines are jammed and the e-mail boxes overflowing.