Archive for October, 2006
October 31st, 2006
David Bush - Iasta
I cannot remember the last time I was interviewed and quoted in a magazine and yesterday received a copy of La Lettre des Achats. I was interviewed by the author, Philippe Guillaume, back in September about the growing influence of blogs in the supply management world. The group is described on their website as:
La Lettre des Achats is the leading business review for corporate purchasing departments in France. The review has been regarded as a high-grade reference for information and decision by corporate purchasing departments for over 10 years.
It was a great interactive discussion we had and I was very much looking forward to the article except when I opened to read, it is in French! So, I have finally been made famous (very much deserved and overdue), and I can’t even read my own quotes which I have now forgotten. Of course, this is not quite the level of fame of buddy, Dave Stephens, who gets to grace the cover of magazines with his stunning features and inspiring presence but its all about baby steps, right?
Regardless, I have asked for some translation assistance from our operations team in Belgium and the author, so I might be able to relay what I said later in the week…assuming I said something really smart, otherwise this will be the last you hear of it.
Entry Filed under: General, Interviews, e-Sourcing Marketplace
October 30th, 2006
David Bush - Iasta
A recent article on SupplyManagement.com indicates that Buyers predict more work, but no additional resources in response to a poll where 81 per cent of buyers polled expect their role to increase while few expect extra resources to meet the enlarged mandate.
After all, in addition to cost cutting, buyers can also contribute to sustainability, demand management, shared services evaluation, and opportunity definition. They can provide strategic guidance in addition to tactical execution.
Technology is one way to ease this burden. A good sourcing suite can streamline your spend analysis, RFP, bid collection, and decision analysis processes allowing you to complete more projects, in less time, at a higher rate of return.
Entry Filed under: General, Supply Management Best Practices, Technology
October 27th, 2006
David Bush - Iasta
I thought this might be a good day to reflect on last week and trials that besiege sourcing professionals who are at the mercy of the travel Gods. I feel your pain and am officially getting too old for this. To recap:
Monday –> Leaving Las Vegas from an annual weekend bender with friends that I have gotten in trouble with since 1976. In retrospect, this would be the only issue free day. Fly directly in to St Louis for meetings.
Tuesday–> It has rained for 48 hours straight in St Louis, canceling the Division series that night and bringing people to be reminded of Noah’s Ark. Truly miserable weather with traffic having its normal issues. Flight to Houston that night is not a problem but the rain at IAH has already caused tons of cancellations outbound…
Wednesday–> Houston is raining - surprise. More troublesome…the flash floods have caused so much damage that the locals have rented all the cars. One of the biggest airports in the country and not a single rental company has had a car for over a week. I get into Houston with no plan for transportation. My wing man, Jason, has been on the horn for hours and manages to secure a returned car minutes before I land. I beeline for the counter and snag the car, avoiding a costly cab situation but still paying $120/day for a horrible Taurus. Let the fun begin now!! After very good meetings/presentations, I arrive at IAH for my 7:15pm flight. In retrospect, I had nothing to worry about with time. Delays allow me to spend 4.5 hours in a basement terminal with no AC and about 1000 people in a similar boat. The closest way to describe this would be like a refugee camp, again miserable. I make my way to the only hot spot in the whole airport - the international terminal (E). They also have very big beers there, so I camp out for 2.5 hours.
Thursday –> Louisville arrival at 300am. I am not sure what is going on but my bag is not on my plane. Some how, it shows up 20 minutes later on another flight while I am in line to fill out the delivery forms. When I happily go to retrieve it, I am surprised by its sudden spike in weight. Nice…it spent the evening on the tarmac in Houston during a driving rainstorm. Thanks Continental, everything not on me is soaked. I get a few hours sleep and iron my clothes dry. Now I have a tired, loopy buzz and go into my next meetings sharp until 3pm when I need coffee. I go home barely awake, thankfully not driving. We drop off the rental car, I roll into home at 9pm. The magically mystery tour is over and I lay in bed, unable to sleep until 1am…
Friday –> I realize I left my damn ties in the backseat of the rental car. Sweet! I get to go back to the airport on the weekend!
This was domestic only. I am sure everyone out in purchasing-ville has had similar adventures and probably 5x worse when you sprinkle in a little Asia.
Zzzzzzz
Entry Filed under: General
October 26th, 2006
David Bush - Iasta
Like any application that is implemented into an existing process, there are ways to “grease the wheels” and propel a better ROI. With an e-Sourcing app, this is just as critical to build momentum. So, how do you get this needed boost? I am glad you asked:
- Executive endorsement: This is extremely important and I have seen it on both ends of the spectrum. As you might expect, if all the chain of command is in lock-step, there will be less resistance and opportunity to willfully ignore the tool. If the executive signs off but then never mentions anything to the team about results or strategies, it is perceived as non-important. Anyone who is a parent can relate to consistent messages and unified fronts to make sure things get done according to plan.
- Understand the problems and deliver internal solutions: Find out where the issues are. There might be people that do not want to veer away from Excel because of supplier familiarity and protected formula fields. No problem, take those people aside briefly and show how that can be done within a tool that integrates seamlessly with spreadsheets. Iasta trick: show them how they do not have to cut and paste responses from Excel/Word into a separate worksheet to read side-by-side! (Admit it, you know you spent a day doing that before).
- Start safe and grow visibility: The first reverse auction run in a company is likely to be a monumental event with huge visibility. Pick something that you can define easily with plenty of suppliers and lean on your e-Sourcing provider to coach every step of the process and be available to keep everything smooth. After you save 25%, find the techno-nerds and let them get the first shots and running on their own. The buzz will grow and spread. Once you have a nice group internally endorsing it, find other ways to get the word out like special newsletters or private case studies.
- Tie usage to goals and track it: Use the management reporting features to track what is being done, how much is being sourced and saved, and who is really using it. Make sure people have compensation rewards that can be tied back to the tool and its success. Keep this information very visible for everyone to know about until it is normal business.
Entry Filed under: General, Supply Management Best Practices, Technology
October 25th, 2006
David Bush - Iasta
Another great article in the current Frasers/PMACNewsLetter this month is Paul Inglis’ article Supply management takes on the value creation challenge.
According to the article, cutting costs and improving quality is no longer enough (echoing the fact that good sourcing goes beyond simple cost cutting, as discussed in Dr. Lamoureux’s recent post It Only Starts with Cost Cutting). Supply and Spend Management sourcing professionals now have to capture value beyond cost.
Possibly taking a cue from Aberdeen (which now boasts more alumni than employees, see JB’s post Aberdeen’s Hall of Fame Grows Bigger than the Active Roster), this study differentiates “Leadership” (Best-in-Class) practices from “Follow” (Laggard) practices. “Leadership” practitioners deliver more value by reducing the total cost of ownership, rationalizing specifications, and managing demand.
In addition, leaders create value by focusing on four key areas:
- innovation and growth
- value chain optimization
- risk management and supply continuity
- advanced cost management techniques
The last category is quite interesting. The article lists the following advanced cost management techniques:
- Complexity reduction
rationalizing specifications to eliminate value-draining complexity
- Tiered sourcing
combining company and tier one supplier volumes so that the supplier negotiates more favorable contracts with its own suppliers
- Mega-supplier strategies
offsetting a supplier’s advantage in a non-negotiable category by bundling other categories in the negotiation
- Supplier tiering
restructuring the value chain by bundling or unbundling activities at various value-added stages
- Value-based sourcing
using supplier capabilities to generate other kinds of value such as shorter time to market or innovation
- Best shoring
finding competitive suppliers in inherently cost-advantaged countries along each step of the value chain
- Target costing
determining what a company ought to pay for an item by analyzing various ratios of its performance, technical and other characteristics to its price
- Design to cost
revising specifications to avoid costs, for example, by eliminating over-specification or optimizing subsystem design
- Collaborative cost reduction
generating and implementing cost reduction ideas (and sharing risks and benefits) with suppliers
- Demand management
rationalizing requirements, controlling approval and reducing or eliminating non-essential purchases in certain (primarily indirect) categories
About the only thing they leave out is the usage of advanced decision optimization within the sourcing process to make sure the total value of your acquisition is optimal.
Entry Filed under: Analysts/Research, General, Supply Management Best Practices
October 24th, 2006
David Bush - Iasta
I am always on the prowl for good conferences because, frankly, I see so few that are worth the money for both exhibitors and attendees to justify the value. I came across this one last week which was highlighted in European Leaders in Procurement. In the US, the annual Institute of Supply Management conference, is the best because of the affordability and size. It also has a very diverse group of solutions and brings extra attendees in with the lure of certification testing. Vendors populate the floor nicely because the ISM does not try to jam the companies for $20,000. Europe however, has very few good conferences on supply management. I believe this is due to the fragmented nature of geography and the isolation of small individual groups of sourcing professionals.
Specifically, this conference is sponsored by the Supply Institute in Germany. It is very focused on LCCS and is actually being held in Shanghai - China. This does not exactly meet my personal requirements for affordability or general supply management but I will keep an eye on this group.
Memo to Europe…why not band together each country’s largest membership groups and have a rotating uber-conference like the World Cup of Sourcing? Each group would compete against each other to outdo the last and put on a great event that offers many different types of learning. It will work if some one would take the lead and try to have something useful outside of the UK.
Entry Filed under: General, Global Supply Issues/Risk, Supply Management Best Practices, Technology
October 23rd, 2006
David Bush - Iasta
Dr. Lamoureux of Sourcing Innovation recently pointed out the Frasers/PMACNewsLetter to me and this month it has a great article on how to Use labor productivity to drive down purchase costs.
The article points out that suppliers often use wage increases to justify small nudges in prices each year since it seems reasonable, but wages aren’t the real issue, labor costs are. For example, in Canada, labor productivity gains have been keeping costs down and the cost of a “unit of labor” has risen at the low rate of approximately 1.3% per year. Of course labor costs depend on productivity, but considering that this Stats Canada article (the first one that came up in Google) notes that US GDP rose at a rate double Canada in the second quarter of this year and that unit labor costs increased a mere 1.2% in the same quarter, you can see that this article is just as relevant to US buyers since labor costs could be significantly less then wage increases due to increased levels of productivity.
Thus, as the article notes, when negotiating with a supplier, be sure to discuss their productivity. After all, if they are really investing in technologies and processes to improve productivity, then they should not need to raise prices by much more than a mere percentage point to cover wage increases and stay competitive.
Entry Filed under: General, Supplier Performance, Suppliers
October 20th, 2006
David Bush - Iasta
Uh oh, its official. This industry is now over the top on acronyms and buzzwords. This is a very entertaining article which gives good explanations of common words that people probably think they know, but more likely do not. I am not sure if I should be happy or disturbed that I actually knew what almost all of them were.
Some quotes of relevance:
“Kraft divides buzzwords into three categories. The first are “fuzzy words.” “They’re just not well defined, and they could mean multiple things,” he explains. He lists enterprise architecture and business process management among them. “BPM — what does that mean? It could be anything,” he says.
Kraft’s second category includes words with clear definitions known by some but not everyone. Software as a service and service-oriented architecture fall under this heading. “IT people clearly know what those are, but business people struggle with them,” he says.
His third list is the broadest, encompassing all the words that once had clearly defined meanings now lost through overuse and misuse. He puts supply chain and partnership here. “I usually won’t get lost when those words come up, but they don’t clarify anything, either,” he says. “
Loads of our common words in there! What is interesting though, is how intertwined the IT and Supply Chain worlds are. I think that it is very positive that sourcing is equated to technology. As long as IT does not need to be involved, of course!
Entry Filed under: General, Technology, e-Sourcing Marketplace
October 19th, 2006
David Bush - Iasta
There is an interesting article on ISM now that examines introspection of supply management departments to measure their own performance in conjunction with that of their suppliers. I think this is a very good strategy because looking inward always reveals very important data that can improve performance. After all, use of e-Sourcing applications is done, in large part, to help improve sourcing efficiency, so all factors should be under constant evaluation. There is definitely a strong relationship between those sourcing teams that excel and those that spend the time for improvement.
Also, a very good point is brought up regarding surveys that they are only is good as the questions contained within them. It also gives some good feedback on what those questions should be. This opinion also comes from practice, as Iasta has grown, we have taken proactive measures to define our own performance and benefits to our clients. This has led to many excellent observations and changes and is critical to our future while we aggressive manage hyper growth.
Oh, by the way, you should use your e-RFx engine to produce and collect this surveys!
Entry Filed under: General, Supply Management Best Practices, Technology
October 18th, 2006
David Bush - Iasta
In the September issue of Inside Supply Management, we find the column Beyond Lean, Tech Rules that notes that Leveraging technology, the key to profits and growth, will take you five steps ahead of your competition.
The article indicates how should cost modeling, inventory management, and dynamic visibility solutions can be used to decrease risk and cost and move your supply chain forward and gives examples. However, one thing it does not mention is that even a basic sourcing suite, properly used, can achieve most of the desired results.
For example, most sourcing suites, even the on-demand ones, will contain contract management and compliance tracking capabilities. If you also track delivery times and quality, and compare them against expected delivery times and quality, you can often get an early warning of potential problems, much sooner than if you are just tracking financials or relying on one-time supplier audits to determine supplier stability.
If you use the analytics capability of your spend analysis solution on the expected and actual delivery dates, you can get an idea of how often you need product, how fast you can get product, and use that data to refine your inventory requirements and possibly save inventory cost as efficiently managed inventories are leaner, smaller, and cheaper.
If you construct detailed RFPs and create what-if scenarios in your decision optimization tool for different product configurations, you can get a decent idea of what a product should cost and this can help you out in make vs. buy decisions as well as detailed negotiations.
Should cost modeling, inventory management, and supply chain visibility are all important aspects of today’s sourcing function, and dedicated solutions can be valuable, but it all starts with the basic sourcing cycle, best practices, and a sourcing suite that meets the needs of today’s sourcing professional. If you don’t have the basics in place, an advanced, dedicated, solution probably will not do you much good.
Entry Filed under: Functionality, General, Technology
October 17th, 2006
David Bush - Iasta
I got a kick out of the recent Sweet Talk article on SupplyManagement.com. The article is based on an interview by the author with Sir Alan Sugar, a prominent figure in British Business, on Sir Alan’s views of Procurement.
Maybe it was the tone of the article or the wit of the author, but you have to like the no-nonsense quotes from Sir Alan:
- “If you don’t buy right, you have no business.”
- “If the buyer is a liar, he or she will lose all credibility. They’ll get away with it once or twice, afterwards they will have no credibility whatsoever. It’s as simple as that.”
- “You have to build relationships with your vendors, so that in good times and bad times you have support.”
- “It is vital not lose the commercial edge - being able to negotiate is an art.”
- “What I’ve seen over the 40 years I’ve been in business is young people coming in thinking that they’ve done a great job. ‘I’ve been mercenary picking out the existing supplier, bringing another one in,’ just to save a few pennies, but it all backfires in the end.”
- “You have to let your supplier earn some money. Pushing their back against the wall is not good.”
In other words, procurement is very important, as Michael Lamoureux over at Sourcing Innovation says, Collaboration is Key, and fairness is what it’s all about. That’s why we recommend our clients, be they software or services, use the full sourcing cycle backed up by a full sourcing suite, including decision optimization, to determine the best way to award the buy, and not just a lowest bidder takes all e-Auction, since the best award is one where everyone wins and works together to drive down prices. After all, any bid where your supplier is not making a fair profit will not only be unsustainable, but will probably end up costing you more in the long run when you have to quickly switch suppliers.
Entry Filed under: General, Global Supply Issues/Risk, Suppliers, Technology
October 16th, 2006
David Bush - Iasta
SupplyManagement.com recently published an article entitled Mind The Gap that contains some good advice for managing multi-site procurement teams that can help your organization turn a dispersed group into an effective, high-performing unit.
The first thing the author notes is that communication is key to effective performance, otherwise you will not have a successful “virtual” team. Although logistical challenges may tempt managers to abandon regular meetings, with a distributed team, these are crucial for team cohesion. These meetings need to share overall progress and allow for team-wide discussion of concerns or issues. Holding these meetings on a regular basis will boost performance and improve morale.
The author also recommends a newsletter, but I would recommend a web-based portal with regularly updated content, RSS feeds, and collaborative wiki functionality. Newsletters are so web 1.0.
The second major point recommended by the author is to make time and budget available for occasional face-to-face meetings. Despite the up-front costs, the improvements in morale and communication will lead to increased efficiency and performance - and when you consider how much money a successful procurement team can save, the cost amounts to a drop in a really big bucket. Remember, high-performing multi-site sales teams thrive on face-to-face meetings.
The author also recommends that procurement leaders visit all locations regularly. I would recommend that leaders from each location regularly visit other locations to cross-pollinate and build team cohesion, not just the leaders in head office. In addition, whenever one location brings in an expert for training or development, make sure the session is available through videoconferencing or voice-conference and webinar to all locations simultaneously. It’s another great way to build a cohesive team.
Entry Filed under: General, Technology
October 13th, 2006
David Bush - Iasta
The European Leaders Network recently ran the article Optimized E-Sourcing Strategies and, being an eSourcing provider, I just couldn’t resist commenting on it. Succinctly, it’s a good article. Consider the following excerpt:
Nuanced best-value approaches were utilized by the buyer and suppliers throughout the project to guide their strategic decision making. The sourcing team considered product and service quality, switching costs, qualification costs, supply risk factors and product cost during the RFP, negotiation and analysis processes. The suppliers considered their cost of goods sold, the opportunity cost of their production resources, economies of scale, the reference value of the account, and their points of competitive differentiation and weakness.
Though complex, this type of sourcing project does not depend on unfamiliar or exotic technologies. Rather, it is made possible by the convergence of the electronic RFP, reverse auction and optimization-based scenario analysis software. By combining these technologies with best-in-class sourcing processes and expert resources, the sourcing organization was able to generate a huge number of award scenarios with similar value profiles. This enabled their stakeholders to consider more objectives and enjoy substantial total cost savings without unnecessarily sacrificing quality or supply chain stability.
The key technical ingredients to best-value electronic negotiation are transparent feedback, dynamic bidding, expressive bidding and scenario analysis.
In other words, as the marketplace is starting to realize, eSourcing is more than just the reverse auction - it’s the entire process from spend analysis, through need identification, through eRFX, bidding (possibly, but not necessarily, through an eAuction), decision optimization, contract management, and compliance monitoring - and any on-demand eSourcing provider worth their salt should understand this, and provide you with a solution that covers this entire cycle. Unfortunately, most eSourcing providers, like many early adopters, were stuck in the “eSourcing is eAuction” for too long, and not all providers will be capable of providing you with the complete end-to-end solution that you need to excel at your sourcing efforts - it’s buyer beware. Choose wisely when making a decision - and see my recent post on “Software Vendor Selection” for additional guidance.
Entry Filed under: Functionality, General, Optimization, Technology
October 12th, 2006
David Bush - Iasta
A recent article on Technology Evaluation.com (registration required), Software Selection Process - Accelerating Vendor Identification, might be a good read for those of you looking to select a new, on-demand, eSourcing provider.
The article points out that it is imperative that you follow a disciplined plan in conducting your selection project. Otherwise, as The Cat points out to Alice in response to here statement that she does not know where she is going, any path will get you there, but without a clear plan the endeavor can be intimidating, overwhelming, and time intensive.
Furthermore, every aspect of your business operation is affected by the software being used. The disruption caused by the implementation of enterprise software — even if it fits your business well - can be significant. It takes a dedicated project team and dedicated software vendor to be successful and you should have an organization wide commitment of time and resources.
According to the article, a vendor selection process is five-phased:
- Planning & Kickoff
where the goals, constraints, and team are identified
- Situational Assessment
where the current situation is assess, analyzed, and documented
- Needs Assessment
where the savings opportunities are identified and translated into prioritized software requirements
- Vendor Identification
where a list of potential candidates is identified and vetted
- Software Evaluation
where the software is evaluated - preferably on a trial basis!
In addition, the article recommends you ask the following two questions:
- Does the vendor have expertise or experience in your vertical?
- Does the size of your company fit into the “sweet spot” of the vendor’s customer base?
In other words, success requires a plan, adherence to the plan, and identifying the right vendor. In other words, even though the two questions the author identified are important, I’d say the most important question is
- Will the vendor work with me?
Not only are we entering the Software-as-a-Service age, but the most successful companies in the spend management space will be those who select providers who offer Software-with-a-Service who can provide best practices with leading edge software to help companies not only achieve, but exceed, their identified savings targets and performance improvements.
Entry Filed under: General, Technology, e-Sourcing Marketplace
October 11th, 2006
David Bush - Iasta
The recent article Communication is Key in Product Development over at Purchasing.com, which starts off by noting Change is constant in manufacturing, and purchasing has to keep suppliers informed of new product requirements. PLM helps, reminds us of the importance of communication in a sourcing professional’s job.
You have to constantly communicate with your engineering team to collect the requirements, but then you also have to constantly communicate with your suppliers to ensure that they are received and understood. You have to constantly communicate with marketing to insure they formulate proper and correct promotional materials and you have to constantly communicate with sales to make sure they are selling from the right deck, and not before the company can deliver. You have to constantly communicate with legal to make sure the right contracts are cut and enforced and you have to constantly communicate with finance to ensure that invoices are correct and savings are captured and realized. You have to constantly promote your organization and it’s success to the management team and help align the entire company around the supply chain. You are great facilitator.
Entry Filed under: General, Technology
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