May 9th, 2008
David Bush - Iasta
There is still time to sign up for the second annual user conference. That is, if you are an Iasta SmartX user. This year, will again be held in Indianapolis, for a 3 day span on eSourcing best practices.
The structure was overwhelmingly approved last year, and will be repeated and improved with the feedback we received. Monday is all day training with a large number of workshops to focus on particular functionality or strategies. Tuesday is a combination of round tables and presentations, which will include some great topics from outside speakers. Finally, Wednesday is a networking day out at the Indianapolis Motor Speedway. Fortunately, weather looks like it will be pretty nice, after a very rainy last few days here.
Two of the speakers that I am looking forward to include Infosys and Next Level Purchasing. Infosys will be discussing global procurement strategies and the values of outsourcing. Charles Dominick, of blogging fame, will be presenting about the value of purchasing certifications.
I will have a couple posts next week about these. I am looking forward to kicking this off, we have a lot of new faces in attendance this year.
Entry Filed under: General, Supply Management Best Practices, Technology, e-Sourcing Marketplace
May 8th, 2008
Sean Delaney - Iasta UK
Well I couldn’t resist this…especially since I was once one of these buyers. What is more interesting for me is that having crossed over to the “other side”, the negotiating styles used by the supermarket buyers (Tesco’s etc) certainly sounded very familiar.
When showing these tactics to Duncan Bullivant, the Chief executive of Henderson Risk Group, a seasoned hostage and kidnap negotiator, the article writes “even he was surprised”. Duncan then goes on to say ”not only do I recognise the phrases, I recognise all these tactics in every aspect of business I have done in the last few years.”
The tactics and behaviours during negotiations have evolved over the years from being more physical, to more psychological. For example, not long ago there was the story of one buyer, who used to attend meetings with a water pistol, and fire water, at the supplier, if the supplier didn’t meet his demands. Is this procurements’ equivalent to water boarding?
One strategy is called the “clock face” which involves 41 sequential steps as the buyer seeks to coax the best price out of the supplier. Tactics include threatening to de-list the supplier (which in reality could lead a supplier going out of business), threatening to go over their head to their bosses, play good guy and bad guy, deliberately misunderstanding something, and just when you think you may have made it, the final stage is the partnership stage. This is where suppliers may be deliberately left to feel the odd one out, before bringing them back into the fold.
Tired? Well, I certainly was after reading it! Quite clearly those more sophisticated suppliers will prevail and there is already evidence of this. Furthermore, as the supply base consolidates, and they become equally sophisticated, an impasse will inevitably be reached. With raw material prices rising so rapidly, I think this may be the final tipping point in relations.
However, back to negotiation techniques used, I can’t help feel that there is a serious case for the automation of the negotiating process. How much more sophisticated can one get? I would argue that in the future, it is imperative to keep it simple. Capacity constraints, and the securing of scarce resources, are going to be the key sourcing variables.
Entry Filed under: Global Supply Issues/Risk, Optimization, Reverse Auctions, Sourcing News, Supply Management Best Practices, e-Sourcing Marketplace
May 7th, 2008
David Bush - Iasta
My final observations of this year’s conference is an extension of the previous posts. The number of attendees was lower (I heard under 2000), but the interaction was highly impressive. I think this might have been due to a couple factors. First, the economic pressures that companies are under are showing in the procurement department. Many of the people that I spoke to, had a very focused intent to their mission. There was very little curious banter, mostly just diving into very detailed conversations about bid management and process. Another possible reason..St Louis. I cannot help but think that the people in St Louis were there because they really wanted to discuss and learn about procurement. Vegas could have been an expensed holiday for many last year, which affected their ability to stay focused on opportunities on the floor.
Purchasing.com had a good summary page, which described some highlights of the conference. It seems to be a mixture of press releases and original content from participation. That is really nice to have actual interaction and some opinions embedded in the material. I can’t help but think that blogs have had an affected the way many of the publications produce their content now.
Finally, I want to give special props to Marty Rutkovitz, of Monsanto Co. He was the local chair person of the event and put in a tremendous amount of work with his team to organize this event. He did a wonderful job and everything was flawless. Now Marty can go back to his alter ego, as a television star!
Entry Filed under: General, e-Sourcing Marketplace
May 6th, 2008
David Bush - Iasta
As normal, Monday at the ISM conference is the heaviest day of attendees walking around. We had a large amount of traffic flowing through and, it did not hurt that Kaman had a magician across the aisle, which pulled in a big crowd of oozing with glee. Again, spend analysis was strongly sought out, but today brought in a number of high level F500 managers that understood and needed optimization.
I have had a nice chance to catch up with analysts like Andrew Bartolini and Mickey North Rizza, both of whom, I was able to speak with for extended periods of time. There was also a great number of ESF readers who came up and introduced themselves. I only wish more people would comment in the sourcing blogosphere, because some many people have great takes and deep understanding. This is a shadowy group, but does not mean they are missing the concepts.
Our biggest topic of conversation has been about the eSourcing Handbook, which is now available on Amazon. Many people have been incredibly impressed with the depth of content available in the book and downloads from our website have been incredibly strong (in the hundreds).
The beauty of it, is that we are giving it away! That is an offer too good to ignore. And if the reader likes it enough to keep permanently, there is always the hard copy available from our store front or Amazon.
Same story as yesterday, less people, but high value and we are scheduling more demos than any other conference I can remember.
Entry Filed under: General, e-Sourcing Marketplace
May 5th, 2008
David Bush - Iasta
One of the nice things about getting out to conferences, is gaging the pulse of what people are looking for, at this time. Not only are you hearing practitioners discuss what their companies are seeking, but you get the same conversation 10-15 times per hour. This year, its score carding / SPM and spend analysis. If a vendor showed up and wanted to build momentum on reverse auctions, the response will be much cooler. Although most of the attendees are very familiar with auctions, and many use or intend to use them, they do not want to talk about them a lot. It seems that they are expected and not worth long discussion. In other words, they have been commoditized.
This is fine, of course. Iasta made the commitment into the full sourcing lifecycle years ago and those decisions are paying off now, as we continue our strategy of innovation in some areas and fast followers, in others.
I think the exhibit hall on Sunday was fairly light on traffic, especially when compared to Las Vegas. However, out of the people I talked to, we generated 6 product demos, to be scheduled, in one session. I can see many of the attendees looking for very specific things with intentions of learning and acting. I will take quality over quantity any day.
This has definitely been a good start to the conference. St Louis has been a good venue, with everything tightly packed. That is, everything but restaurants, which are 9 blocks away. I have never been able to figure out the lay out of down town St Louis. Its a big city, but it is nearly impossible to find where the people are and where things are happening, outside of the one block Laclede landing area. I think there must be hidden spots that the locals do not want outsiders to know about. I bet there are beer pixies there, that keep every ones glasses full with Budweiser.
Entry Filed under: General, Supplier Performance, e-Sourcing Marketplace
May 2nd, 2008
David Bush - Iasta
I am leaving tomorrow for St Louis and this years ISM conference. This is one of the better conferences for procurement, with a large attendance and a traditional exhibit hall. Generally, there are about 2000 attendees and over 100 vendors. As in years past, eSourcing and supply management dominate the vendor capabilities. In years past, over 30% of the booths have been supply management software companies, this year is very much the same.
Obviously, there is a strong demand from both the attendees and the vendors in this space. The benefits are very tangible and desired, hence the continual presence.
Iasta has an exhibit booth (#328) and I look forward to meeting as many practitioners, as possible. Please make an effort to come by and introduce yourself to me or our other executive leadership.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
May 1st, 2008
David Bush - Iasta
Recently, I wrote a blog about the up-swell of support for procurement to get involved with the legal spend. From the same publication that I found that article, there was a follow up, which added even more detail to the topic.
Fortunately, the author ended on a very high note with great analysis. In the first half, however, I had my doubts that it was going the right direction. There was repeated commentary which seemed to paint procurement as unsophisticated, not capable of understanding legal services.
As example:
“How do you measure the troubles the company didn’t experience?” says Hackett. “How do you prove the value of, ‘We didn’t have an SEC investigation this year’?”
Procurement or purchasing employees who are not part of the legal department may find it difficult to appreciate or even understand those values. They may also find it hard to differentiate between a straightforward legal task that could be performed by most corporate lawyers and one that requires involvement by a trusted legal adviser who may be familiar with the company’s legal needs or who has particular expertise.
Merely looking at costs is not always the best way to choose outside counsel, Hansen says. Procurement employees who don’t have a legal background are often unable to differentiate between attorneys and may ultimately outsource to a new attorney without the skills and trust required for the job, simply on the basis of lower costs.
“A procurement group is not capable of differentiating between top players,” Hansen says. “They don’t understand that their skill sets need to be separated, and are also incapable of differentiating between top and bottom players.”
Of course, we all know this is not the case and procurement has many very sophisticated methods of analyzing bids to make valid comparisons. If a company is large enough to have sourcing possibilities in legal services, they have surely heard of RFPs or eRFx technology (and probably use them). These concepts are easily accounted for by asking the questions and assigning the proper measurements. Weighing price and non-price factors are methods that have been used by sourcing teams for a long time.
Ultimately, the article takes a turn for to a very constructive discussion, with excellent tips for managing sourcing and legal teams as one.
“It’s clear that corporations are increasingly looking at ways to save money, and law departments are cost centers and need to be managed as cost centers,” Friedmann explains. “A forward-thinking general counsel should look to the purchasing department for help.”
While procurement or purchasing department involvement with hiring outside counsel can lead to tension, savvy general counsel shouldn’t ignore the purchasing department’s interest and expertise. Rather, in-house counsel should work together to balance the company’s cost-cutting needs with their preferences for outside counsel.
General counsel should look for ways to quantify legal services that will steer the procurement department toward measuring results, not just costs.
For instance, some law departments look at comparative savings in the industry in general or at outside counsel savings effected by better practices or better technology, Hackett says.
Some large companies even have created a position within the law department whose sole responsibility is to oversee outside counsel costs, retention rates and savings maximization. Such a position — particularly when filled by a member of the law department — can cut costs while ensuring that the company’s legal needs are adequately met and outsourced to the right people.
Unique and creative ways of procuring outside counsel services such as online reverse auctions and e-billing, both of which are slowly being introduced, might also help cut costs, yet can yield the same level of service to which law departments are accustomed.
As the article states, many procurement groups see a lot of juicy, low hanging fruit, when they peer into the marble floored legal offices. Handling these services correctly, is critical, but very possible and the results should be highly beneficial.
Entry Filed under: General, Supply Management Best Practices
April 30th, 2008
David Bush - Iasta
Supply & Demand Chain Executive recently ran an article that asked Global Sourcing: Is It Really Worth It? Given ever increasing material and labor costs, a declining dollar, rising fuel prices, and increased risk, it’s a good question!
The article listed the following advantages of global sourcing:
- cost, especially w.r.t. unit & labor costs
- access to fresh research, design, or specialized intellectual capital
- availability of new technology and capacity
- supports plans to sell or service locally
- proximity to raw materials
- quality
However, there are a number of disadvantages as well. Although not specifically mentioned in the article, they include:
- cost - transportation, export, and import costs add up!
- quality
- risk
- proximity to raw materials
- lack of a skilled workforce
As the article points out, whether or not global sourcing is right for you depends upon the category, market conditions, and other alternatives you have at your disposal. This is determined by asking the right questions. The questions in the article are a good starting point. They are:
- What are the specific parameters that would make global sourcing a good business decision? Be sure to consider:
- payment terms
- direct costs
- delivery costs
- planning process synchronization
- working capital
- flexibility in production & capacity
- quality
- What are the macro-economic and geopolitical assumptions that could impact this decision through the lifetime of the contract? Be sure to consider:
- direct costs
- potential fluctuations in inflation and currency exchange
- geopolitical environment
- supply chain risk
- special trade preference programs
- government requirements
- How do we monitor these assumptions for change? Be sure to consider:
- timely monitoring of customer demand w.r.t. forecasts
- available sensing mechanisms to detect changes to raw material, labor, & energy costs
- dramatic shifts in currency exchange
- pending legislation or current court cases that could challenge assumptions
- pre-shipment quality issue identification
- early identification of potential delays
- What are the alternative supply sources? Be sure to consider:
- key materials and / or components
- transportation providers
- ports of exit and entry
- What is the exit strategy? (In case things go really wrong.)
Entry Filed under: General, Global Supply Issues/Risk
April 29th, 2008
Michael Lamoureux
I enjoyed the recent article over on Global Services by the title of Wrecking Ball that noted that implementation of new operating models requires the corporate equivalent of wrecking an old building in order to build anew, yet few corporate managers are trained to swing the wrecking ball carefully, communicate in the most effective way to employees, and prepare for the fallout.
As the author notes, for many corporate change managers, preparing to communicate with employees is the last tick in the box. Too many managers assume that the responsibility can be offloaded to HR or the internal communications department when the reality is that only the managers who understand the scope - the work, employees, internal customers and potential impacts - can effectively swing the wrecking ball and manage the inevitable issues that are going to arise from a major change.
Furthermore, communication preparation should begin at the strategic planning stage, not at the beginning of implementation. This is the best time to prepare the right message - which must be clear, factual, and consistently communicated. Employees need to understand the reasons for change if they are to embrace them. As the article notes, simple oblique statements such as “we need to be competitive” can sound like corporate code for increase executive compensation - and is not going to be very inspirational.
Once the core message is drafted, it’s time to list all the affected stake-holders, determine who realizes the rewards and who pays for the gains, and develop a plan to address their specific concerns. This will require targeted messaging to them on top of the basic message. Be sure to plan for the inevitable backlash, and craft appropriate responses as well.
Once the messaging is worked out, you can work out the roadmap and implementation plan as you know you will be able to start delivering the right messaging to the right stakeholders at the right time. This plan should include performance incentives as productively tends to decline precipitously immediately after a major change is announced. It should also include a plan for dealing with voluntary attrition, as some people will get nervous, fear for their jobs, and seek new employment elsewhere. And, of course, constant communication that addresses all of the concerns as they arise.
Entry Filed under: General, Project Management, Supply Management Best Practices
April 28th, 2008
David Bush - Iasta
I love writing about the topic of supply management vendors and the SaaS industry. Nothing gets software companies with itchy trigger fingers so tweaked, which creates a flurry of anonymous comments, meant to defend the business practice of losing money. I will have an permanent escort at the ISM conference, so I don’t get shanked in the restroom.
Hence, when I read an article by Bruce Richardson, of AMR, about the difficulty that SaaS companies have in achieving profitability, I found it very interesting. Apparently, this profitability problem is not isolated to supply management. Most on-demand software companies are pouring resources into sales and marketing and losing the battle. He quoted RightNow’s CEO, as describing the strategy, which amounts to loss leading.
When I talked to CEO Greg Gianforte a few weeks ago, he agreed it costs a lot of money to sign new accounts. These high initial costs can be offset by a successful land-and-expand strategy. He said his annual contract value was running $85K for an 18- to 24-month deal, with the average transaction worth $150K. Most customers will spend eight times what they did on the initial transaction by making five or six additional purchases over the next three years. RightNow offers 30 products.
This means every acquired client is a Vegas dice roll, and a pretty unstable model, from my perspective. Everything is riding on - the upsell. It also demonstrates that the point is not to make traditional profits, but rather, to increase perceived “value” of the company. Fortunately, the old days of throwing in everything, with no intention of monetizing it, have mostly faded away. This practice is highly destabilizing to our industry, as it builds buyer conditioning that there are no costs and it should all be “free”.
Also, from a buyer perspective, understand your TCO. Clearly, if your vendor is losing money to work with you, they will eventually try to reclaim those losses. The alternative is worse, from the buyer side - liquidation or acquisition of your vendor. I see some important things that every procurement organization should ask its prospective partner:
- How much does it cost to acquire $1 of revenue for your company?
If the number is in line with reasonable costs, your vendor is under control and likely has reasonable goals (yes, Iasta fits this category, and I do know what it costs us for every $1 in sales).
If it does not work out financially for the vendor, more questions must come out:
- How long have you been operating under these conditions?
- What is the business plan to correct and stabilize this pattern?
- What other charges will be incurred by our team later, that are not being described now?
- What is going to be the upsell strategy long term with your products?
You cannot forecast everything, but this are very simple indicators which will be directionally accurate.
Entry Filed under: Analysts/Research, General, e-Sourcing Marketplace
April 25th, 2008
David Bush - Iasta
Its a busy day here. Boxes are packed up and heavy equipment is being moved, tomorrow is when the real labor gets going. Since we are a global support center of our software, pulling off an office move is not as easy as unplugging and firing back up. We have been in a controlled burn for weeks now, so to seamlessly switch to our new, spacious accommodations. If I did not write this, no one outside would have ever know so much was happening right now.
Over the last 4 years, we have claimed 3 adjacent suites and lived through the construction. Now, we are starting clean with a better floor plan and all new everything. The extra 100% in square footage is nice, too, with phase II construction already planned to start next May, for another 50%, and part of the 8 year space plan.
All things considered, I think this sourcing thing is working out ok for us. We should be around 50 Indy employees by early 2009 and we have become experts in contract negotiation. Our financial auditors said we negotiated the best lease they had seen come out of Duke Realty in years, as we got the the equivalent terms and price that typically come with minimum 100,000 sq foot HQ re-locations.
So, thank you, procurement world, you have made this possible in more ways than one!
Entry Filed under: General, e-Sourcing Marketplace
April 24th, 2008
Melissa Beuc - Iasta
‘Tis the season for conferences. As a conference provider and participant, it is our hope that attendees enjoy their experience and return home with some added information that will make their jobs easier. In anticipation of the upcoming conference season that includes the ISM conference and reSource ‘08, Iasta’s annual user conference, we thought we would make some suggestions for good attendee participation.
- Bring business cards
If you are not in the habit of traveling, it is often easy to forget these small, yet important business documents. Hand your cards out like winning lottery tickets to everyone with whom you converse. Jot down notes about your discussion so the recipient remembers how they met you. Relationships you build at conferences will serve you well throughout your career.
- It is not about the give-aways
Though most companies offer these trinkets as an incentive to visit their booth, they should not be the only reason you visit a tradeshow booth.
- Network, network, network
A conference’s value comes from both the session content and the networking opportunities. Attendees should constantly network with fellow attendees and solution providers. The conference host usually provides various opportunities to network – breakfast, lunch, dinner, cocktails or activity. Sit next to someone different each meal. Choose a different table after a break. Don’t sit with business colleagues. Invite a speaker to talk over coffee. Collect business cards and make notes on the back so you can remember what you spoke about. Follow-up with key contacts after you get back to the office.
- Strategize your sessions
Your time is limited, so make sure you pick topics that will help you learn something new. If you and a colleague are attending the same conference, go to different sessions and debrief afterwards. Schedule time with the speaker to discuss any additional questions you may have or to get more specific details.
- Leave work back at the office
Often this is the hardest thing to do. Work deadlines don’t go away just because you are on a business trip. So plan ahead. Designate and communicate a backup person at least one week before leaving. Give them direction as to decision making boundaries. Schedule short-periods of time during the conference where you will respond to issues by phone. Limit logging into email during the conference because it is hard to logoff once you start.
- Be prepared with specific questions and feedback
There is a lot of fast-paced activity at conferences. Take some time to think about what you want to learn. Ask specific questions one at a time, based on highest to lowest priority. This makes is easier for the respondent to address questions thoroughly.
Think about what product enhancements would be helpful and why. Describe specific case scenarios to add further clarity. As solution providers we want to continuously improve our products and gratefully welcome feedback.
- Consider presenting at the next conference
The best way to learn is to teach. You improve your own skill set by presenting to your peers. Your unique insights may benefit someone else, thereby adding to the quality of the conference. And finally, presenting at a conference adds credibility to your professional reputation – both within your company, and across the industry.
We hope these ideas will help prepare you for a more productive conference tour!
Entry Filed under: General, e-Sourcing Marketplace
April 23rd, 2008
Michael Lamoureux
Another good article in the recent edition of CPO Agenda is Collection Action by Nick Martindale. (It should be no surprise that I’d pick up on this one, as I’ve been known to preach the “Collaborate, Collaborate, Collaborate, Collaborate” mantra - see parts I, II, III, IV, and V, for example.)
The article starts off by noting that collaborative buying has yet to recover from the hefty blow that it was delivered in the nineties, after a number of GPOs quickly sprang into existence, and then failed even quicker, and that Group Purchasing Organizations are going to have to overcome some formidable obstacles if they are to grow and succeed.
One of the major problems with the original GPO model, which is still used by many of the GPOs still in the market today, is its myopic focus on cost savings. Organizations join because they think that volume-based buying will allow them to get their office supplies, energy, and contract labor cheaper, but end up saving very little and then develop a bad taste for the GPO model. Furthermore, many suppliers loathe GPOs because they believe that the whole point of a GPO is to compress prices and choose the lowest-priced supplier, and this means that it’s often hard to get your best suppliers to bid on the collective contract.
Just like Procurement needs to focus on total value on each and every buy they make, a GPO also needs to focus on total value on each and every buy they make on behalf of its customers. They need to look at the supplier from all relevant angles - cost, capability, service, and value-add. However, even more importantly, the GPOs need to encourage and enable their members to collaborate and share knowledge and best practices so that their interaction with the GPO does more than just save a few dollars on outsourced categories. With the right GPO, a member company should gain as much value from networking opportunities and shared knowledge as it gains from the cost savings associated with having a third party manage select spend categories.
Entry Filed under: General, Project Management, Supply Management Best Practices, e-Sourcing Marketplace
April 22nd, 2008
David Bush - Iasta
I guess it would not be a month in supply management without some tale of woe coming from the vendor community. This time it comes in the form of Davaco Sourcing (notice website does not exist any more). At one time, this company was pretty strong in eSourcing for the retail vertical. They originally started as a fixtures procurement application, but switched to general sourcing functionality in 2003. We had beaten them head to head, but the battles were tough, as they were backed by Davaco Inc., in Dallas.
As described by themselves: “DAVACO is the nation’s leading provider of retail services, specializing in the quality management and execution of high-volume rollouts, retrofits, resets and new stores. Our range of comprehensive services helps retailers from concept to grand opening and beyond.”
From everything I know, Davaco is highly successful and a well run company. I think I even remember seeing their signage on a building in Dallas. However, this did not make the eSourcing venture sustainable. In this instance (to the best I can figure out), the company just did a full shut down, not even announcing it publicly. I would suspect they will keep their IP for the sourcing advisory practice, since it appears the SaaS business model had become unworthy of continuation.
This industry is highly competitive. Anything less than full commitment to the success of a company is adding even more pressure and stacking the deck against your chances of survival. I know they had lost at least 2 major clients to Ariba within the last year, and it was no longer viable. I do not know any one there, but from the outside, this looks 100% financial, as the revenue was not supporting the operation. Since they did not liquidate the company, it is likely that the software is much more valuable to them internally, than to any one else.
The drum beats on. The strong will survive and make this industry stable, some day. The question is, how long will it take?
Entry Filed under: General, Technology, e-Sourcing Marketplace
April 21st, 2008
David Bush - Iasta
Spend Matters Publishing recently wrote a fantastic analysis of a rapidly growing area of focus from practitioners and vendors. It is available for download, from its sponsor, Archstone Consulting.
I will not rehash Jason’s points in this paper, it is well worth downloading. I will say that I can corroborate virtually everything he has stated. This is a massively growing area for Iasta, and likely all eSourcing companies that can work with F1000 sized companies. Integrated services components are critical to success of a coordinated eSourcing roll out. Some times, companies have the internal experts and bandwidth to pull this off, some times, they think they do, and most times, they do not.
To add to his statements with my own experience, companies generally need a standard set of dedicated resources:
- Tactical: This implies just having some one to execute sourcing projects that are teed up, but do not have the necessary bandwidth to complete. This is generally short term and very quantifiable.
- Categories/Assessment/Advisory: Here the company needs more than people to use software to complete tasks. Many times it involves a team of people that are loaded into a particular category or location with a specific savings target, as the goal. There is a large amount of data collection, strategy and execution needed and the time frame could be 1-6 months.
- Process transformation: Much more involved than the previous levels, with less structure and a goal being conceptual, rather than finite. This again is a longer term strategy, but well worth the investment, if the sourcing organization has no..well, organization.
I make a habit of speaking to the leadership of our clients on a regular basis. One thing I can be very confident in, is that no one has extra resources. Procurement staffing is an area that will not go away and based on the results that we have provided, it is one of the absolute locks for ROI.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
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