Category Archives: Vendor Review

Protiviti: Manage Risk, Reap Reward

Your supply chain will be disrupted. Bet on it. You’ll win. The only two things more absolute in this world are death and taxes. I’ve told you that there is Real Risk in your supply chain. I’ve reviewed the basics of Managing Business Risk. I’ve even went so far as to tell you that Your Supply Chain is NOT Secure. But I still feel that I have not even come close to drilling the point home as to how at risk you are every minute of every hour of every day or how likely it is that your supply chain is going to be disrupted in a big way – and how much this will cost you if you are not prepared.

But that’s a post for another day. Today, I’m going to start helping you identify where you can go to get help, and the first company I’m going to point out to you is Protiviti, specialists in Independent Risk Consulting with an in-house expert group on Supply Chain Risk. Rising from the ashes of the old Arthur Anderson back in 2002 (with a little help from Robert Half International), Protiviti has more than quadrupled in size without diverging from their core practices of internal auditing, technology risk management, and business risk management (where the supply chain group resides).

Recently, I was fortunate enough to be able to talk to one of the leaders of the Supply Chain Risk group at Protiviti and talk about how they help clients identify, mitigate, and manage supply chain risk and I was quite satisfied with what I heard. Rather than trying to sell you a big black binder with an industry standard system generated risk management plan (which is not as useful as you might think since every company is different and has different risks), they instead work with you using a well-defined methodology that they’ve refined over the years to build a complete picture of the risks you face (a risk assessment), the mitigations you have in place or available to you, and a plan for managing those risks going forward. Furthermore, they help you build appropriate cross-functional teams that they work with throughout the process to make sure that when they are done, you understand not only what your risks and mitigations are, but how they were derived and how you carry the process forward.

The first thing they do, and you must commit to this for the process to work, is a risk assessment that evaluates your overall operations, supporting supply chain, regulatory environment, and organizational goals to help them build a risk profile that helps you understand where your risks are, the probability of them happening, and the dampening effect of any mitigations you currently have in place. They then categorize the risk universe into meaningful groupings, such as operations, supply base, distribution chain, and regulatory environment, that can be addressed and evaluated from a similar functional perspective. Then, working with your cross-functional teams, they help you qualify the probabilities, potential impacts, and mitigations that you can use to address them, including controls and monitors that you already have in place today. They then help you refine any identified and approved mitigations into processes and procedures that you can use to detect and manage a risk. After all, risk management is not a one-time project, but a continual process. However, you have to start somewhere, and a project focussed on supply risk is a great place to start.

They also assist you in putting in place critical and sustainable/repeatable risk management capabilities including, but not limited to, strategies, policies, processes, organizational accountabilities, information for decision-making, continuous identification, monitoring and control, tools and methodologies, and base data integrity procedures.

However, what I really liked hearing was that Supplier Relationship Management (SRM), Contract Lifecycle Management (CLM), and Compliance Management (CM) best practices done right were really risk management processes. SRM is not about managing your supplier, it’s about managing the risk associated with a supplier not performing. CLM is not about keeping track of a contract over it’s lifetime, but about making sure the critical terms of the contract, designed to mitigate your risk, are adhered to. CM is not about making sure your purchasers don’t go rogue, it’s about managing maverick spend to non-approved suppliers that increases your risk. After all, the key to long-term sustained financial performance is not cost savings – you’re always going to have to spend money – it’s cost avoidance – making sure you don’t spend any more than you have to. I know a lot of executives, and CFO’s in particular, these days only care about cost savings, but they’re just a bunch of short-sighted nitwits who need a good smack up-side the head. After all, there’s a limit to how much you can save! Once you’re performing at the best-in-class level, sourcing every category at market value, and optimally allocating the award so as to minimize your Total Value Management (TVM) lifecycle cost (or Total Cost of Ownership on steroid cost) – there’s nothing left to save – the best you can do in such a situation, should you be enlightened enough to reach it, is to avoid unnecessary spending. You avoid unnecessary spending by making sure everything goes according to plan. You do that by managing risk.

Another tidbit worth repeating is that they are currently working with Michigan State University(and AMR) on a new certification program for C-level executives in value chain risk management to help them understand, and proactively manage, risk. After all, considering one supply chain disruption can wipe out all of your strategically sourced savings, it’s critical that not only you, but your financial decision makers, understand this and allow you to invest in the methodologies and tools you need to make sure that if something really bad happens (your primary contract manufacturer’s plant goes up in smoke, for example), you know about it in time to do something about it (such as immediately route all your orders to your secondary manufacturer) before your supply chain shuts down, and you lose millions of dollars in sales.

So when you embark on your next risk management planning effort, be sure to put Protiviti on your list of potential vendors. (The reality is that such an effort is something you should never embark upon entirely in house – you’ll never see all of your own weaknesses.)

Servigistics – Tomorrow’s Strategic Service Management Today

In yesterday’s post, Strategic Service Management, I talked about the importance of making the customer efficient while maintaining a profit – something you are likely to only achieve in today’s highly competitive marketplace with strategic service management – a proactive approach to service management that balances service strategy, resources, commitments, and pricing that supports the integration, optimization, and efficient management of core business processes, adds to your overall business solution, and differentiates your offering from that of your competitors.

Why is it important? Despite the huge investment in IT to support the front end of the sales cycle (which can consume up to 85% of the IT budget in some organizations), in today’s competitive market, you can still see declining sales without the right strategy – which today needs to involve services. After all, in a well run services organization, particularly in the durable goods and consumer goods verticals, post sales service can provide a nice margin of 20% to 50%, which not only turns service from a cost center into a profit center, but increases your profit while decreasing your costs (since you simultaneously optimizing your resource allocation).

So, how does Servigistics (acquired by PTC) tackle Strategic Service Management? Three ways: parts management, pricing management, and workforce management. What’s the difference?

Service Parts Management is the process of ensuring the right part is available at the right place at the right time. The alignment of planning, forecasting, and inventories, it makes sure you can respond to a customer need as it arises, without costly expedited shipping, unnecessary wait times, or financial losses (that can result from service level guarantees).

Service Price Management is the management and optimization of service parts prices by way of sophisticated pricing methodologies, advanced optimization techniques, and adaptive business logic to maximize revenue. Pricing is more difficult than you might think. It’s not about charging as much as you can – because that limits you to a few customers. It’s not about charging the most competitive price, because that might cut your margins to the point where sustainability is at risk. It’s finding the right balance that maximizes your customer base while maintaining profitability.

Workforce management is the process of optimal workforce scheduling to make sure that you have the right number of service professionals on duty and the right amount of service equipment (and vehicles) available to deliver committed levels of service 24 hours a day, 7 days a week, 365 days a year. This involves monitoring and adjusting your schedules on a continuous basis, optimally dispatching and routing service professionals as service calls come in, and aligning your workforce skill set to meet your evolving customer needs.

So, optimize the workforce to deliver the right part at the right time at the right price and you simultaneously minimize cost and maximize resource utilization and revenue opportunity. Does it address everything? Well, for starters, you still need a good strategy and product life cycle management tool to understand what might go wrong, when, and what you will need to fix it, so it’s not yet a panacea solution, but it is a great start. All you have to do is look at their customer list – a Fortune 500 who’s who of High Tech, Heavy Equipment, Automotive, and Aerospace – and the magnitude of savings a service management solutions suite has enabled for them. (As per a 2005 Business Week article, Avaya reduced service parts inventory from $250 million to $160 million, Sun Microsystems saved $40 million and Dell nosed out Hewlett-Packard for the top spot in the U.S. hardware support market, growing its service business unit by more than 20%.)

MFG: A Community in the Making

After completing my whirlwind tours of Boston and North Dallas (more to come), I started my virtual whirlwind tour of Atlanta (since I couldn’t find three consecutive dates that coincided with the availability of everyone I wanted to meet with), and the first call on that tour was Mitch Free of MFG.com. For you loyal SpendMatters readers, you’ll probably recognize the name from Jason’s post “Going Global With a Unique Leader”* back in September where Jason noted that even though he had some questions about whether MFG.com should serve as a stand-alone direct materials sourcing application for organizations, he had no doubt that the model is creating tremendous value and is resonating in the manufacturing world by taking supplier search capabilities to the next level, offering a true “parts marketplace” approach that is free to buyers.

Well, I have the same questions as Jason, but after diving in to understand what MFG.com really was about, I arrive at the same conclusions – it has tremendous value and should be part of the toolkit of every engineer and procurement professional at any company that needs custom manufactured parts and products. And it’s not just because of the large supplier base (after all, a number of marketplaces, such as Sorcity, have that), the free built-in sourcing tool (after all, why not WhyAbe from SourceOne [acquired by Corcentric]) the fact that you don’t just get suppliers who make that type of parts but vetted suppliers (located in real-time) who have made similar parts (in similar price brackets), or the fact that you can access ratings for each supplier with respect to their prior performance with other buyers … it’s because MFG.com is taking marketplaces to the next level – the Collaborative Community.

First of all, with MFG.com’s real-time supplier matching capability, based on detailed part specifications, you can find prospective suppliers during the design stages through an RFI. Once you’ve found the right supplier, you can collaborate with them on the design, and as Apriori has taught us, the best way to get an affordable part is to design it affordably. Secondly, you can use their platform as an on-line collaboration enabler and use it to communicate revisions as well as begin and end the sourcing process. Thirdly, MFG.com, even though it’s been around for a while and has a large global presence (especially in China), is just getting started. Although I can’t say much yet, expect MFG.com to start introducing some new community features over the next year or so that should provide the sourcing community with an offering that would finally give the B2B community the power that the B2C community has enjoyed for years with offerings like eBay and Craigslist (but these applications will be finely tuned to the needs of the manufacturing B2B community).

So instead of taking the sourcing interstate to your next destination, pull off onto good old Route 66, make a pit stop on MFG.com, and stay a while. You might find that the old model is new again and that the best value you can get for your time and money is right there waiting to be discovered. Don’t just drive by – take it for a test drive. Otherwise, you’ll miss a treasure just waiting to be discovered.

Austin-Tetra … more than just Supplier Master Data

When I was in the Dallas area recently, I had the opportunity to sit down with Michael Zier of Austin Tetra and talk about what lies ahead for Austin-Tetra and how their recent acquisition by Equifax is going to help them to move forward.

Austin Tetra is a very interesting animal in the Supply Chain Space. Not only is it one of the few providers of Supplier Data Management Solutions that also comes with supplier data, one of fewer providers who understand that a credit-score is not a viability score, and maybe the only provider to focus on supply diversity solutions, but, unlike most companies in the space, it focuses on custom built vs. out-of-the-box solutions.

Austin Tetra recognizes that most companies that call on them already have data management, data analysis, and a host of supply chain and finance solutions in place and that their client’s goal is typically to understand how to identify the risk associated with a current or new potential supplier when the client is about to undertake a supply base rationalization or globalization effort, not necessarily to buy a new software solution. As such, they’ve spent a lot of time building integration solutions into many standard ERP, spend analysis, business intelligence, financial data stores, and sourcing platforms to allow you to get the data you need, where you need it, in the format you need it. After all, their primary value is in the data they provide and the proof is in the repeat business they get year after year.

I plan to write more about them and their solutions in the future, after I’ve had another chance to talk to Michael Zier and their Product Manager and drill more in depth into their capabilities, but the most interesting part of our conversation centered around credit risk scores. The reality is that although most credit bureau’s still tend to think that they are the greatest indicator of business sustainability, they totally miss the point in that a financial institution’s credit-worthiness and on-time payment scores have nothing to do with corporate sustainability. Just because a company has a low credit score, or is typically slow to pay, does not mean it is in any danger of ever going out of business. If you analyze these scores carefully, you’ll find that a lot of big, stable, household name companies have low scores. Why? Because they are so big, they can get away with paying on their schedule, when it’s good for them. If their suppliers want their business, they put up with it. The reason that this was the most interesting part of my conversation is that Austin Tetra is currently working with Equifax to do something about this. They are in the process of developing metrics much more appropriate to supplier stability and longevity. Their goal is to have a product offering later this year.

So keep an eye on them, and an eye on this blog, and besides more related posts in the future, maybe I’ll even manage to wrangle one of their internal writers to guest author a post on this blog as well. Who knows? …

OpenRatings … Not Just for Performance Anymore

Recently, I had the opportunity to sit down with Jim Lawton and talk about not what Open Ratings was, or is, but what it will be now that it has been acquired by D&B and has access to not only the cash reserves one needs to create the next big thing but also the data it needs to take its analytics capabilities to the next level.

As discussed many times by Jason Busch over on Spend Matters (including in “Open Ratings Alert: A New Business Model”* and “Sourcing Innovation Next Generation On Demand”*), and also by Jim Lawton in his guest post (“Don’t Let the Supply Risk Grinch Steal Christmas”*), Open Ratings had the unique capability, built on some great predictive analytics work by some brilliant MIT graduates (whom I hope to be talking to in the future), to analyze a supplier’s financial and performance data relative to other companies in your space and tell you how likely they are to perform for you with respect to a contract to provide a certain category of product or service.

Considering most companies don’t have the data or the models to even attempt this, this is a great offering. However, with access limited only to a subset of D&B data and customer data from the Open Ratings Network, the results were often coarse grained compared to the fine-grained event and product specific events a buyer would really like to have. Considering your only other hope for a coarse-grained result was Austin Tetra (acquired by Equifax) (whom I will also address this week), this was rather fantastic when the capability first came out – but one could see the next step and it only made sense to push for it – which they did, and now that they are part of D&B, I dare say that they can give you a performance-based picture of a potential supplier that, in some ways, is more detailed than any other picture any other provider can give you.

However, performance is not the only issue you need to be concerned about. In today’s ultra-fast marketplace with ultra-lean supply chains, Risk is King. It’s not how good the supplier will perform, but how regularly they will perform. The last thing you want is for a great performing supplier to go bankrupt without warning nine months into a new contract. The real question is, with their new access to D&B’s huge data store, updated daily, will they be able to tell you not only how well a supplier can be expected to perform, but how risky the relationship could be be. After all, the real key to managing risk in your supply chain, is, of course, to not introduce it in the first place!

So, on this note, I’m going to end this post and ask you to stay tuned for tomorrow’s post where Open Rating’s Jim Lawton guest authors a post on the five major types of risk and what you can do to hedge against them. Keep the RSS feed alive!

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