Archive for November, 2006
November 30th, 2006
David Bush - Iasta
A few weeks ago, I wrote a blog about how to go through the process of determining a suitable reverse auction candidate. Jean-Philippe Massin of the blog, Strategic Sourcing | Europe, even added some very good comments. To add to that topic, I wanted to pass along a link from the UK Office of Government Commerce, who has designed an Excel based reverse auction decision tool.
By definition on their website, “the OGC works with public sector organisations to help them improve their programme and project management, become more efficient and save money on the goods and services they buy. This allows them to deliver better value and direct more of their resources at important front line services. OGC is an independent office of the Treasury.”
It is a pretty simple, but effective, way to stress test your potential project for auction suitability. Many of the same concepts that I described previously are represented in the Excel Decision Tool. However, there is no substitute for human intelligence, and strictly letting a few simplified checkpoints dictate the decision will not bring the desired results. Use a tool like this as a starting point and not an ending point and you will avoid mistakes in logic that can actually hinder your decision process.
Entry Filed under: General, Reverse Auctions, Supply Management Best Practices
November 29th, 2006
David Bush - Iasta
I found a good article on the IACCM site the other day titled Multi-Tier Sourcing Practices for Commodities Supplier Relationship Management that indicates that effective procurement strategies for increasingly scarce resources are becoming more important than ever as global price volatility and supply risks increase due to the increased demand from emerging countries such as Brazil, Russia, India, and China.
The article lays out a five step process for guaranteeing supply and containing costs for global enterprises with geographically distributed operations through smart sourcing. These are:
- Identify and Aggregate the Material Requirements on a Global Basis
- Aggregate the Requirements for Multiple Tiers of the Supply Chain
- Secure Supply for the Entire Supply Chain using Contracts that Delineate Innovative Pricing
- Focus on Total Landed Price
- Smart Execution against Contracts
Essentially, this is a process designed to mitigate risk in a cost-effective manner by dividing up work across the supply chain participants (transport, warehousing, handling, etc.) in a manner that minimizes overall costs while addressing the risks.
However, the article did not mention decision optimization, which confuses me a little. Despite popular misconception, decision optimization is not just for cost reduction. The right model will also take supply risk constraints into account and give you the lowest cost of ownership, not just landed cost, subject to the levels of risk you are willing to tolerate - thereby providing you the solution with the highest overall value to your organization - Total Value Management. That’s why Iasta is working hard to develop additional constraint categories to make sure that buyers can balance cost savings and all types of risk appropriately.
Entry Filed under: General, Global Supply Issues/Risk, Optimization
November 28th, 2006
David Bush - Iasta
“Companies wanting to expand their supplier diversity programs can do so without sacrificing savings, according to a recent report by The Hackett Group.”
This begins an article recently run on CFO.com.
It follows on by stating that, “Using a minority-owned supplier has no effect on a company’s overall performance when it comes to procurement, says Christopher Sawchuk, senior business adviser for The Hackett Group. The strategic advisory firm surveyed 50 so-called “world-class” companies with a median revenue of $7 billion and a median procurement spend of $3 billion. “You can still be world-class and have a significant portion of your supply base focused on diverse suppliers,” Sawchuk says.
Unfortunately, the article is more stating that it can be done, and less about - how to do it. I poked around on the Hackett Group website and could not find any mention of the research, so I can offer no further guidance. Maybe Pierre will swing through and give us some direction?
Entry Filed under: General, Suppliers
November 27th, 2006
Sean Delaney - Iasta UK
A recent article in Supply Management “EU Fires trade threat” brought me back to some earlier entries I made on this subject. It is really interesting as it states that almost all the EU’s major trading partners operate restrictive procurement practices that “discriminate against EU suppliers”. Well I must say this is definitely a case of the kettle calling the pot black!
There is a plethora of evidence to suggest that members are definitely not operating open practices when it comes to awarding public contracts even within the EU let alone on a world wide basis .
An example, on the very same page (Page 8 Supply Management 19th October) shows how the UK Government where investigated over breaches in the tender for an architect to design the £431m Scottish Parliament. There were possible breaches of EC rules covering equal treatment and transparent of procurement.
EC subsequently dropped the case after they were satisfied that the Scottish Executive “would prevent a re-occurrence of the mistake” …….so I am now confused……are they are going to build another parliament? I think not especially since the building was finished 3 years late and the costs over ran by 10 fold!
This was a major procurement project so if procedures were incorrect what about all the other hundreds of contracts within Scotland? What about the EC lack of teeth? Clearly if the EU is serious about open procurement then situations like this should be dealt with openly and severely as it is a misappropriation of public money.
Here lies the key to the problem. How can the EU enforce open procurement procedures when a body governing the practice does not act decisively on such a public scale? How can the EU then accuse trading partners of operating restrictive procurement practices when clearly their own house is not in order?
Entry Filed under: General
November 24th, 2006
David Bush - Iasta
I posted something, its just on Spend Matters.
Entry Filed under: General
November 22nd, 2006
David Bush - Iasta
I will be taking a few days off from blogging and doing the normal Thanksgiving holiday weekend checklist. This would include eating too much, driving too much, watching football and, ultimately, being thankful that the weekend is over.
That being said, I thought I would recall some things I am thankful for:
- I am thankful not all companies are lemmings and are willing to make what they feel is the best decision, not the safest.
- I am thankful for FreeMarkets getting acquired and training so many good people so well. Iasta has directly benefited time and again.
- I am thankful that we never took other people’s money and still call all the shots with no pressure from less than desirable forces.
- I am thankful for Tim Minahan - Supply Excellence refusing to acknowledge our existence, thus validating our position as a competitor.
- I am thankful that I do not know either TomKat or Brangelina (how many people are they?).
- I am thankful for the end of the Mike Davis era and the Return to Glory of IU Basketball.
- I am thankful that good beer started becoming available at the same time that I could afford it.
In all seriousness, I hope everyone has much to be thankful for and especially for our armed services that make all of this silliness possible.
Entry Filed under: General
November 21st, 2006
David Bush - Iasta
I read an article in World Trade last week, which outlined the top Supply Chain Consultancies out in the market. Although it is a bit of a retail specific journal, these are some of the biggest and best companies out there and have cross-vertical application. In no particular order:
These are all fine companies and we have either brushed paths or directly worked with almost all of them. I would argue that many of our clients could also get excellent value out of some smaller firms that I have extreme confidence in such as:
I won’t even get into the vertically specific groups and I apologize in advance for any forgotten.
Entry Filed under: General, e-Sourcing Marketplace
November 20th, 2006
David Bush - Iasta
Purchasing’s annual benchmark e-sourcing survey found that the spend going through e-Sourcing tools almost doubled from 16% in 2005 to 31% in 2006 and that buyers are shooting for 50% in 2007. In addition, respondents indicated that they ran an average of 160 online events in 2006 vs an average of 45 events in 2005.
Based on these numbers, to meet their goal of e-Sourcing 50% of their spend, buyers are going to have to run an average of 260 events in 2007. That’s a lot of events. To do it, buyers are going to need an industry leading eSourcing tool that can handle the executable sourcing cycle from initial RFI to final award, including RFQ and RFX, reverse auction, and decision optimization. Furthermore, these tools are going to have to be implemented in a single interface to streamline process and institutionalize best practices to allow these events to be conducted as efficiently and effectively as possible.
These suites are also going to need to be well supported, maintained, and updated regularly to allow purchasing efficiency to continue to improve to the point where a buying organization can have the majority of its spend (over 80%) under management. This will probably not be possible if you rely on traditional installed software due to the rapid pace of maturity of the e-Sourcing marketplace. Fortunately, many buyers are seeing the advantages that SaaS delivers, 22% of respondents are now using on-demand solutions, and 35% of buyers are now comfortable with corporate information outside the company firewall. Considering that service providers probably know more about network security than your average internal IT team in a non-IT company, this is good, progressive thinking.
We hope the trend for increased utilization of eSourcing tools, especially SaaS eSourcing offerings, continues since we continue to see the remarkable results clients can achieve with an integrated best-practice based on-demand solution where they can decrease sourcing cycle time by over half and still gain a savings of 10% to 20%, or more, the first time a category is subjected to eSourcing.
Entry Filed under: Analysts/Research, Functionality, General, Supply Management Best Practices, Technology, e-Sourcing Marketplace
November 17th, 2006
David Bush - Iasta
As per a recent article in SupplyManagement.com, Intellect, the UK trade body for the IT, telecoms, and electronics industries and law firm Beachcroft just released the Contract and Commercial Guidelines (pdf, members only, link off of Intellect home page or e-mail sjyates @beachcroft.com.uk) to help buyers and suppliers when drafting or negotiating contracts for IT products and services.
This is because “the contract can no longer be divorced from the deal as something that only lawyers need to worry about” in today’s procurement operations. This is not only a good resource for European procurement professionals, but for American procurement professionals who need to draft contracts with European suppliers.
A good guide can simplify the negotiation phase of sourcing, streamline your processes and improve your efficiency, leaving you more time to focus on contract management, which is where the savings actually materialize from a sourcing effort. After all, planned savings are only realized from effective contract management.
Entry Filed under: Contract Management, General, Suppliers
November 16th, 2006
David Bush - Iasta
Still today, I frequently get asked questions about how to identify a category to execute a reverse auction. Many times, people are looking for “the answer” (eg, corrugated, office supplies, ICBMs, Space Shuttles) but it does not work that way. While there is no “answer”, there is a framework to think about and make educated decisions. These general rules will get you 90% of what you need in less then 60 seconds:
- Do we have a competitive supply base? Basically, do you have 3 or more equal suppliers that you trust and would do business with under the conditions proposed? This is really the basis for a much deeper issue of supply chain risk aversion and disruption.
- Do we have the ability to switch the business? You may not change vendors for a 2% delta in price but you need to have that flexibility. Things like vertical integration or tooling are important considerations. For instance, you just finished your Oracle ERP implementation…it is probably advisable for a switch to SAP to be brought up in a meeting first.
- What is the contract status? Are we at a point that we can strategically source this item?
- Do we have the specifications for the item or can it be retrieved from the vendor? Again, this is really a non-starter if you did not get past Item 1 or 2 because you would not have enough vendors and would be tightly bound to the supplier, any way. However, it is a critical issue that must be done to have a successful reverse auction.
I bet that took under a minute and you are now a qualified assessor of reverse auction viability. Congratulations - Class of 2006, go forth and prosper.
Entry Filed under: General, Reverse Auctions, Supply Management Best Practices, Technology
November 15th, 2006
David Bush - Iasta
I found an interesting head to head comparison editorial which argued the SaaS versus Packaged software debate. In the first article, the first paragraph stated:
“Packaged software is slowly disappearing from the corporate landscape, and it’s being replaced by software-as-a-service (SaaS) offerings. Businesses are finding these predominantly Web-based packages to be cheaper, simpler, and more flexible.”
This was the opinion of the Chief Information Security Officer at a $10 billion company, ICI. He goes on to make many of the same arguments that we believe in, as well. These would include faster deployment, lower total cost and better flexibility and simplicity.
On the other side, it was argued that SaaS would not bring about the “death of packaged software“. We agree with this opinion too. There is a place for both and each have there own benefits.
This is a good representation of both sides of the discussion but clearly shows that “winning” does not need to mean “eliminating”. There are very good solutions which operate in a SaaS model and it is not going away, only adapting to the current user landscape and needs.
Entry Filed under: General, Technology, e-Sourcing Marketplace
November 14th, 2006
David Bush - Iasta
There is a recent article available from Inside Supply Management, written by Joseph L. Cavinato, which outlines the roles of supply professionals in overall organizational performance. Growth in supply management is broken down into the following three points:
- Increasingly supply professionals see their roles today as enhancing the organization’s overall performance (financial, competitive, service and so on) rather than narrowly performing administrative buying services.
- The contributions are measured along a spectrum starting with price, naturally, and continuing in the forms of wider margins, lower overhead, increased cycle times, faster time to market, reduced asset base and value through working with the supply base.
- There has been a shift from reacting to stakeholder demands and needs to taking the initiative to identify and seek mutual product or service enhancements and organizational performance improvement. Those within the field know, see and understand the nature of supply, suppliers, markets, and opportunities and threats to greater degrees than those within many other groups in the organization. And, this position of supply manager offers a significant organizational strength.
All of the above points are deeply supported with e-Sourcing software for efficient communication and analyzation which help supply professionals execute on these concepts. We recently completed an internal business case for sourcing automation using client experiences that do not utilize reverse auctions and found very quantifiable correlations between e-Sourcing technology and success with supply management principles.
So, a question I might pose, is about the chicken and egg. What came first? Did software and technology tools elevate supply management to a higher level of power and influence or did the natural progress and evolution of the profession create the demand for such tools? The easy answer is that they probably happened at the same time and concurrently. This is also - most likely - the correct answer. As new technologies became available, they were embraced and adopted, leading to the heavy demand for additional functionality. Classic supply and demand.
It has been very intriguing to watch the evolution of supply management, even over the very latest 5-10 years. The sophistication of the people and usage of technology, in addition to the importance of their presence, has been constantly changing and improving.
Entry Filed under: General, Supply Management Best Practices, Technology
November 13th, 2006
Sean Delaney - Iasta UK
Whilst researching some articles for a blog I came across this piece again. When I initially read it I thought I’d seen it before somewhere….and yes I did about 15 years ago!
This article is based on a survey of 325 purchasing heads across Europe and the US. It peddles out the usual statistics, which are valid and worthy of note:
- 59% of purchases are still “off contract”
- Services are most ripe for cost reduction
- More Innovation is required within the purchasing department i.e. more use of technology
What I am more surprised about is that this survey made the national papers with headings like “squeeze suppliers for juicy savings”. The underlying theme of the article is that organisations need cut suppliers and renegotiate contracts.
This is all simple stuff however the article offers nothing in the form of what innovation is required (Spend analysis, eSourcing and Contract Management). It also offers nothing to suppliers about the benefits to them.
I think it shines a poor light on procurement practices. I also believe that with innovation in the supply chain there is an argument to say that there comes a point where you no longer need to reduce the number of vendors. In fact that point may now be a higher number! For example with good spend analysis the number of suppliers may well be irrelevant…..after all why cut off the source of innovation in the supply chain?
Entry Filed under: Analysts/Research, General, Global Supply Issues/Risk, Supply Management Best Practices, e-Sourcing Marketplace
November 10th, 2006
David Bush - Iasta
If you have not looked recently, we updated our website to have a more accurate representation of our company and solutions. We hope you find it useful and informative and I know we are happy to finally have all the right and current information for public review. Please let me know if you have any suggestions and we will be making subtle changes continually.
Entry Filed under: General
November 10th, 2006
David Bush - Iasta
Next week, I will be presenting at the local ISM - Indianapolis on e-Sourcing technology, or if you follow the analysts…Supply Management as a Service (SMaaS). If you are within short driving distance after work, the contact details are:
Date: Thursday - Nov 16th (5:30pm)
Location: The Garrison - Fort Benjamin Harrison
Address: 6002 N Post Road, Indianapolis
Specifically, I will be covering how best in class buying organizations utilize e-Sourcing technologies, best practices, the benefits of sourcing automation, and specific examples/case studies. This will be introductory level to just build knowledge and understanding of what lies beyond reverse auctions.
I hope we can get a big crowd to make a good interactive session. I did a presentation for this same group in 2003 and we had about 75 attendees. The focus then was solely reverse auctions and now there is a lot more to e-Sourcing that people should understand.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
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