There is an online publication named Outsourcing Journal which recently ran a story on eSourcing technology and they got some very interesting quotes for the story, namely from Moi. Obviously, I am not going to run many opinions out here on the story, because my opinions are already in the story. I will say, the journalist did a nice job of getting up to speed on an issue that she was not educated on previously. Her conclusions were summarized as:
Lessons from Outsourcing Journal:
The lower middle market manufacturers (with $30 - $200 million in sales) tend not to use strategic sourcing or technology solutions, as in-house purchasing staffs are more focused on making sure materials arrive on time. Outsourcing is a cost-effective way to access automated sourcing solutions.
The Software-as-a-Service model eliminates the high maintenance and ownership costs typically associated with sourcing technology.
Every business has constraints involved in the sourcing-decision process, making it too complex to simply award contracts to the lowest-price suppliers. World-class e-Sourcing technology uses the industry’s most powerful decision-optimization engine, enabling analysis of complex award scenarios with constraint-based mathematic modeling.
Many people mistakenly believe that e-Sourcing and reverse auctions are the same thing. But a reverse auction is only one tool in supply management and e-Sourcing.
Choose an e-Sourcing solution that has collaborative functionality in the RFP and RFI components of the technology. A buyer can collect a large amount of data from suppliers, run it through different sourcing scenarios, and then go back to the suppliers with suggestions on what they should do or an area where they should lower a price in order to get more of the buyer’s business.
An outsourcing provider’s good customer service is an important component of a solution and, in a supply chain process, has a domino-effect impact on many companies throughout the supply chain.
The first article notes how Sun’s supply base development managers now set cost targets for new Sun products early in the design process and then review the design to make sure those cost targets are met while the second article notes that, at IBM, the Procurement Brand Management teams help define the system offerings and the architecture of the products that the Systems and Technology Group ultimately designs to help ensure that commodity strategies that were developed by procurement and individualized for various IBM brands are used in design.
In other words, buyers are taking aim at costs not by trying to beat up suppliers on margin, but on working with the engineering teams to try and design, better, more efficient, more cost-friendly products. By identifying alternate materials, alternate parts, and alternate configurations, some times significant cost savings can be found. Remember, most of the cost is built in during the design phase, so getting it right up front insures that costs during the sourcing phase will be much more in-line with initial expectations.
46% of above average supply chain performers use on-demand SCM applications today, and 8% plan to do so within 12 months compared to 28% of industry average supplier chain performers (where only 6% plan to adopt an on-demand solution in the next 12 months)
80% of respondents would consider on-demand solutions for increased supply chain visibility
69% of respondents consider the need for fewer IT resources to be a highly influential reason to adopt an on-demand solution
65% of respondents would consider on-demand solutions for improved demand-supply synchronization with suppliers
63% of respondents consider the possibility for faster implementation and ROI to be a highly influential reason to adopt an on-demand solution
35% of above average supply chain performers use on-demand for supply chain visibility, whereas only 25% of industry average performers use on-demand solutions for supply chain visibility and only 8% of below average performers use on-demand solutions for supply chain visibility
28% of above average supply chain performers use on-demand solutions for data synchronization as compared to only 2% of average supply chain performers
Best in class companies are 88% more likely to estimate ROI before initiating projects and 130% more likely to measure ROI after project completion
In other words, companies that are 88% more likely to estimate ROI before initiating projects and 130% more likely to measure ROI after project completion are more likely to use on-demand solutions in the next year than traditional legacy software solutions (54%)! It looks like 2007 will be the year that on-demand hits the big time in the supply chain world.
It also has a great table that can be used as a starting point for calculating total cost of ownership:
Total Cost of Ownership
Start-up Costs
Cost of software
Cost of pre-requisite software
Upfront hardware costs
Software Implementation Costs
(internal and external)
Initial software training costs
Recurring Costs
Software maintenance fee
Cost of customization
Monitoring and on-going maintenance of
hardware and pre-requisite software
Data storage and continuity
Business continuity
Internal training costs for users and
system administrators
Help desk costs
Internal IT staff maintenance and support
Upgrading software (internal and external costs)
Business Partner On-Boarding Costs
On-boarding business partners (internal and external costs)
Maintaining and trouble-shooting trading partner connections; process related training
Total costs borne by business partners
And characterized some of the characteristics of companies adopting on-demand solutions:
Under pressure to improve externally oriented processes, which legacy supply chain applications do not support sufficiently
Need to rapidly support a new business practice or improve performance for a specific set of products, customers, or channels
Need to coordinate a large supplier or logistics partner network
Constrained internal IT resources or have (partially) outsourced IT
Embracing an IT portfolio strategy of investing internal IT resources on differentiation
I was recently sent log in information from Maud Larpent, of Reuters, who have developed a new beta-project for information consolidation named Reuters Insight. Naturally, this would be a good product to create from one of the world’s largest media companies. According to the information I saw inside:
Reuters Insight - Insight exists to help you when:
**you want to track what’s happening in your overseas markets
**you need to find new contacts
**you are researching new markets to source from or distribute in
Reuters Insight is a community of international business people who are sharing information, connecting with each other and keeping abreast of key events impacting their supply chains, their regulatory environments and their markets.
Key features of the website you may want to try are:
**Searching the news for key topics of interest
**Researching a country
**Connecting with other individuals on the site who may be interesting to you
Personally, I think this is an interesting idea and I have seen a few things like this recently for blog and article consolidators. This site has potential because of the vast resources coming from Reuters itself and is early stages, so it will improve. There are little things that can be corrected, such as: no log in/password help and some navigation/settings are not intuitive, but I expect that right now. Since I registered last week, I did set up some quick preferences which then started a daily email stream about the topics I expressed interest in.
Conclusion: Wow! Slow down, I am getting a daily email with hundreds of stories from Reuters that are classified to my topic settings. However, I felt like I started a nuclear chain reaction that is in runaway mode. This is obviously my fault by not defining the filters more specifically, which I was able to finally change after poking around enough. Again, there was not enough explanation on how to do this or definitions of categories that I am subscribed to. When I am potentially going to get 1-1000 articles on everything I selected, I would like to know a profile of what type of story is coming.
All in all, I think this could be interesting and will continue to look in and review the emails. When dealing with this much information, setting my profile correctly will be the key. This is where I think Reuters can really improve, by giving the users the visibility into the categories. Great, I am subscribed to Sourcing and Procurement - what does that mean?? I am sure they will start subcatogorizing these which will make it even more useful to the reader. I commend Reuters for productizing (I have no idea if this is free) their deep wells of information and my critiques should be taken from the aspect of this beta release with improvements clearly coming.
If you know the information you have interest in, Reuters Insight will be very useful. If you cast a wide net, be prepared for endless reams of information that are essentially unusable. Now that I have begun refining my search more, I am interested to see the results.
A number of weeks back, I spent a series of days covering some of the important aspects of the Aberdeen Advanced Sourcing Negotiation Benchmark. In this final installment, I wanted to relay some of the recommendations that Aberdeen proposes. The complete benchmark will be available, free, on the Iasta web site very soon.
One table I found interesting was the KPIs of eSourcing which allow respondents to rate themselves on a number of factors related to usage of eSourcing.
Performance Area Average
Result
Formal sourcing processes established
72%
% of spend that is strategically sourced
43.4%
E-sourcing application in current use
64%
% of spend that is e-sourced
20.0%
Average identified savings (per event)
11.9%
Average realized savings (per event)
9.4%
% of e-sourcing events using price as sole award criteria
40.2%
Advanced sourcing proficiency (self-rating on scale to 100%)
36%
Recommendations:
Develop, augment or outsource process, category, supply market, and technology expertise.
Establish centers of excellence for sustainable proficiency.
Employ advanced sourcing strategies across a wider set of categories. Look at complex categories, including services, logistics, T&E, and direct/strategic materials.
Focus on realized savings and correlate them to enterprise-level financial metrics (e.g., EPS).
I really like how Andrew broke down the recommendations based on where your company is relative to its peers. Aberdeen gives very solid advice for three categories of laggard, industry average and best in class. All of these are consistent with what we see in companies and maturity in sourcing process and advanced techniques.
Apologies for the late post, I am home with strep throat and my pile of penicillin. Since I am doing remote work, I thought I would pass along a family of sites I ran across a couple weeks ago.
These are very content heavy sites with active blogs on topics like outsourcing, offshoring, TRIZ and six sigma. Not all of these areas are going to be of interest to the general sourcing public but I would suspect that there is a little something for every body buried in these sites. One nice feature is that they provide different RSS feeds based on category, so readers can cherry pick important topics.
Recently Purchasing ran an article which, after noting that strategic sourcing is at the heart of the purchasing function, also noted that analyzing the supplier market, identifying potential suppliers to work with, deciding how you’ll work with them, planning your negotiations strategy, integrating suppliers into your business and monitoring their performance are absolutely critical for successful purchasing and supply chain management.
In this article, they discussed five tips inspired by conversations with top practitioners. These tips were:
Dive Deeper
Build a Team Approach
Quiz Your Peers
Hold Regular Meetings
Check the Records
Dive Deeper
According to Deb Lynch, director of sourcing and supply management at Toro Co., the four-quadrant supplier categorization process (leverage, strategic, transactional, and bottleneck) is the best basis for a future sourcing activity.
Build a Team Approach
Jeff Bruett, the automotive division purchasing manager of FCI has learned that the law of supply and demand ultimately determines market costs and prices, and your buying team can’t be a 900-lb gorilla dictating terms and conditions to the supply base. You need to work with your suppliers to get their best efforts, not just their best prices.
Quiz Your Peers Whether positive or negative, word of mouth really helps in analyzing the supply market according to former category manager at HallMark Inc.. It isn’t difficult to find information on the markets, it’s harder to find good suppliers.
Hold Regular Meetings
The Vice President of Supply Chain Strategy and Planning at Celestica, Harvinder Sembhi, holds regular meetings with its key suppliers every three months to discuss a variety of issues, including pricing trends and supply conditions.
Check the Records
Roy Calderon, the Latin America sourcing manager for H.B. Fuller spends a large part of his day trying to understand the competitive situation and employs a variety of strategies to find out what suppliers are paying for their raw materials to anticipate incoming price changes. In some countries, import records, the most important records, are public information and the best place to start in your quest for pricing information.
Today, I would like to welcome my friend, Mark Usher from Treya Partners. Mark recently started his own consultancy after long stints at The Genesis Group, ePlus and Accenture. One of the fundamental concepts he consults on, is what he believes are critical factors to strategic sourcing success, which have been learned through his experiences. Hopefully, Mark will be able to post more in the future and possibly get into some of these categories with more detail and examples.
KEY SUCCESS FACTORS FOR STRATEGIC SOURCING
A successful strategic sourcing program generates measurable and sustainable cost savings that drop directly to the bottom line of the enterprise. Such a program must address six key success factors:
Spend visibility to capture all addressable spend and identify all potential sources of cost savings (supplier reduction, internal consolidation, standardization, maverick spend reduction, incumbent renegotiation, etc.). Achieving this success factor requires a combination of (i) best-in-breed spend analytics software to cleanse, classify and enable analysis of the spend data (at the item level where possible) and (ii) sourcing analytics skills to interpret the spend analysis output, identify savings opportunities and plan the programs needed to realize them. It is also important that sourcing professionals achieve “forward-looking” visibility of spend by working with users to understand future demand, in particular any data that points to deviations from historical patterns.
Deep category expertise to identify and exploit the most powerful points of leverage in the supply market including the industry’s total cost model, industry structure & competitive forces, specialties and core competencies of individual vendors, profitability of the industry and its major players, emerging industry practices, predicted pricing and supply trends, capacity issues, use of technologies, alternative logistics & supply chain strategies, and availability of value added services to name just a few. Access to this depth of expertise is best obtained through seasoned procurement professionals with several years of strategic sourcing experience in the relevant category. Lesser experienced individuals can be somewhat effective with the support of category “templates” although this can lead to credibility issues when dealing with more experienced internal customers and suppliers.
Best practice methodology to ensure that optimum sourcing strategies and tactics for all spend categories are employed consistently and uniformly across the enterprise. This is accomplished by utilizing structured, repeatable and easily accessible methodologies for category profiling & segmentation, category strategy development, choice of supplier relationship type, selection of sourcing event method and tool, negotiation strategy, contracting approach, and other key procurement decisions. An example of where this is important is the area of supplier relationships. It is critical that all sourcing professionals, regardless of level of expertise or personal style, recognize when close, non-adversarial relationships with suppliers are appropriate. One “maverick” category manager could ruin an important relationship with a major supplier by adopting the wrong approach. Best-in-class organizations are making their best practice sourcing methodologies available to category managers through company intranets or some other form of web based, on-demand method.
Best-of-breed e-sourcing technology to maximize effectiveness and efficiency of sourcing events. With the developments in the e-sourcing technology space over the last 5-7 years the tools are now finally available to fully realize the benefits of strategies such as early involvement of procurement & suppliers in product design (product cost management software), complex multi-attribute sourcing (optimization software), and supply assurance (supply risk management software). Companies should look to embrace those enabling technologies that correspond to each of their most critical sourcing strategies if they are to stay ahead of the cost leadership curve in their industry. The combination of deep category & supply market expertise, best practice sourcing methodology, and best-of-breed e-sourcing technology represents the most formidable set of weapons an enterprise can deploy to create value in the spend management arena.
Contract implementation to ensure high levels of compliance. This includes communication of new contracts and related policies and buying processes to the stakeholder community, linking of the new contracts to the procure-to-pay system, enablement of contract suppliers, and loading of contract content and pricing into electronic catalogs. Each of these activities is necessary to effectively communicate the existence of the new contracts to users and to provide them with a single, efficient, user-friendly experience for finding and ordering all of the items they need. Best-in-class procurement organizations recognize that contract implementation is where the rubber hits the road in strategic sourcing. The best expertise, strategies and technologies will amount to nothing if the final contracts are not found and used.
Stakeholder management to secure support and active participation from the stakeholder community. It is critical that all influential stakeholders be identified, assessed and proactively managed throughout the complete strategic sourcing process. In a general sense stakeholder management will, like contract implementation, help drive high compliance by reducing organizational resistance to the new sourcing strategies, supplier relationship and contracts (”getting everyone on board”). More specifically, stakeholder management will also result in a more efficient and ultimately higher quality strategic sourcing program. Senior executive sponsorship will drive enterprise-wide cooperation, business unit involvement will guarantee all organizational requirements are incorporated into sourcing strategies, finance participation will validate and lend credibility to cost savings calculations, and user involvement will support internal marketing efforts.
The above success factors are applicable whether an organization is performing all procurement activities in-house, engaging consultants, or outsourcing. If an enterprise is considering the use of external providers it should ensure that the provider is addressing each of the success factors either itself or through the use of alliance partners. Care should be taken that the provider is given the incentive to do so. For example if a strategic sourcing consultant is being paid a fixed fee regardless of whether measurable benefits are achieved (i.e. they have no “skin in the game”) then there is no incentive for them to address success factors #5 or #6 above since these success factors are focused on actually achieving measurable savings. The net result is that if you don’t address #5 and #6 yourself you will realize no measurable savings. Far better is an arrangement where a consultant’s compensation is based 100% upon hard, budget impacting savings. In these cases you will find that the consultant addresses each of the success factors - and well - since their revenue depends upon it.
I read an interesting article in European Leaders which was focused on the growing emergence of niche/boutique BPO companies. According to Morgan Chambers, smaller players are starting to gain momentum in outsourcing and beginning to pose a threat to large providers, who were described in some cases as having levels of innovation that were “shocking and lamentable”. Further, the findings showed that 25% of those surveyed intended to outsource more in 2007, which should act as a catalyst for innovation and improvement from the large providers. I tend to disagree with this point. When large companies are getting so much business that they don’t need to work for it, innovation is the first thing that gets the axe. If you don’t believe me, look at how bad Internet Explorer got after MSFT squashed Netscape. It was not until the angry mob built Firefox until something relevant changed with IE7.
This all reminds me a bit of the eSourcing industry too. Eons ago, FreeMarkets could choose their clients and name their price. Slowly companies like Iasta and Procuri, chipped away with features, support and price until there was a new market identity with many options. The rising tide lifted all boats and the users benefited in many ways.
Back to the BPOs, I am sure the findings are accurate but Iasta has an extensive working relationship with one the true heavy weights of this industry and have had a very good experience. There have been times that adjustments were made but that is natural in global, multi-billion dollar shifts like these. I think there are, without question, value propositions from both large and small providers…just like in software.
These figures seem quite high but I can’t help but feel that with companies like Tesco and Wal-Mart giving a greater priority to this issue these percentages are likely to change dramatically over the next few years.
Carlson Wagonlit Travel (CWT) seems to be tackling this head on and have developed a calculator that incorporates carbon emissions data when calculating the cost of your travel.
Tesco and Wal-Mart are currently concentrating on their direct operations like transport, packaging and store operations. However I suspect that they are likely to impose more prescribed terms of environmental trading with suppliers. In addition as Carbon trading matures this should make calculating the market price on the cost of emitting CO2 far easier.
I can only see this issue growing but I also believe eSourcing is well placed to support the impact on procurement. The use of optimisation software will be critical when evaluating and comparing the different sourcing scenarios.
Take for example the decision to award an office supply contract. Factors like location of distribution centre to end users, average order size (larger the better), the type of fuel used by the delivery vehicle and percentage of product which is recycled. To further complicate the decision matrix, these parameters may differ by region and country.
Imagine the different scenarios and you will soon realise optimisation will be the only plausible method of analysing how to award the contract.
Just a quick note, I think it is worth pointing out that Michael Lamoureux was not on the list this year but I have no doubt this will be the last year of that omission. Consider this post the first recommendation submittal for him in 2008. I have yet to meet some one that has so broad of a spectrum of knowledge in supply chain with a never ending capacity for more information. I like to think of him as the Sylar of Supply Management, criss-crossing the country absorbing the all the knowledge and powers of others. Of course, he is doing this without being a pathological serial killer that leaves behind gruesome crime scenes (I think)…
This week, Supply and Demand Chain Executive released their yearly Pros to Know list. It is nice to see this list continue to grow and evolve over the years to be more comprehensive and recognize the talents of the very wide spectrum of supply chain technologies and practices. Some could be critical that the list has grown too much, but I think it is great that so many different people can be recognized in a fast moving and evolving profession.
The major categories are:
Practitioners - Purchasing professionals that exhibited very compelling and industry leadership roles within different functions of supply chain.
Providers - Executives from supply chain technology and service providers, as well as from the consulting and analysis worlds, have played a vital role in promoting Supply Chain as a strategic function within the enterprise, both by addressing C-level leaders at industry conferences and in the media, and by providing the key enabling tools that supply and demand chain professionals can leverage to achieve the kind of bottom-line impact that gets the function noticed in the boardroom. For that reason, this year, as in the past, Supply & Demand Chain Executive is recognizing the following 2007 Provider Pros to Know for their contributions in elevating Supply Chain within the enterprise.
Demand Management/Forecasting & Planning
Sourcing & Procurement/Spend Management
Fulfillment/Logistics
Consulting/Analysis/Education
Enterprise Systems/ERP
The Bloggers - “New media” are playing an important role in raising both the expertise of supply chain professionals and awareness of the increasingly strategic nature of Supply Chain in the enterprise. In the “blogosphere,” a network of Web logs, or “blogs,” authored by a growing number of industry veterans is playing its part by offering analysis of current events and trends, as well as a healthy dose of best practices. The blogs are sometimes serious, sometimes tongue-in-cheek, occasionally self-serving — the bloggers often are executives at solution providers, and other blogs are sponsored by solution providers — but almost always insightful and frequently entertaining. Supply & Demand Chain Executive recognizes the following 2007 “Blogger” Pros to Know for their contribution to spreading the supply chain gospel.
Former Practitioners - Before they became consultants and software company executives, many Provider Pros started by working in the trenches, learning their supply chain craft and honing their supply management skills as executives at leading companies. These Pros know firsthand the challenges facing today’s supply chain leaders, and today their experience helps their customers understand how to raise the profile of Supply Chain within the enterprise. Supply & Demand Chain Executive recognizes the following 2007 “Former Practitioner” Pros to Know for their contributions to transforming the image of Supply Chain in the corporate environment.
Supply Chain Greens - The term “green supply chain” has been around for more than a decade, but rising energy costs and growing concerns about the impact of greenhouse gases on the environment have conspired more recently to bring heightened attention to green supply management strategies and practices. As companies look to “do good” even as they “do well,” Supply Chain will become an increasingly vital partner to C-level executives searching for synergies between operational efficiency and environmental responsibility. Supply & Demand Chain Executive recognizes the following 2007 “Green Supply Chain” Pros to Know for their contributions to the theory and practice of green supply chain management.
Indirect Spend Gurus - Got indirects? Of course you do. Indirect goods and services comprise from 35 percent to 50 percent of a company’s spend, according to CAPS Research. Yet, despite the size of this spend, CAPS has reported that “there is strong evidence that the percentage of indirect spend items that are strategically managed is quite low.” The upshot: indirects represent a significant “quick hit” opportunity for Procurement and Supply Management to bring substantial cost savings to the bottom line. Supply & Demand Chain Executive recognizes the following 2007 Pros to Know — “Indirect Spend Gurus” for their contribution to highlighting this important class of spend and promoting new ways to reign in the indirect monster.
Public Sector Supply Management Evangelists - Governments and government agencies at all levels have always operated some of the most complex supply chains in the world, and yet only in recent years have public sector Procurement and Supply Management organizations begun to achieve recognition as a strategic contributor to the overall success of public policies. With this recognition has come an increased need to bring best-in-class practices to government supply management operations. Supply & Demand Chain Executive recognizes the following 2007 Pros to Know — “Public Sector Supply Management Evangelists” for their contributions in promoting supply chain excellence in the public sector.
Service Supply Chain Gurus - Companies that continue to treat the service supply chain as a cost center are likely to be losers as more and more of the new revenue opportunity shifts to after the initial sale. And yet too few enterprises today have elevated their service supply chain and reverse logistics operations to the level of a strategic function within the corporation. Supply & Demand Chain Executive recognizes the following 2007 Pros to Know — “Service Supply Chain Gurus” for their contribution in bringing greater visibility to this increasingly critical segment of the supply chain.
Extended Enterprise Gurus - In the past, many corporate leaders believed that the supply chain stopped at their factory gate or the loading dock of their stores. Today’s leading C-level executives understand that they must view their suppliers as an integral part of their own “extended enterprises” if they are to survive in a “supply chain vs. supply chain” global economy. Supply & Demand Chain Executive recognizes the following 2007 Pros to Know — “Extended Enterprise Gurus” for their contribution to educating the industry on the integrated role that a strong, diverse supply chain plays in ensuring the long-term success of the enterprise.
Financial Supply Chain Evangelists - Enterprises for some time have been focused on optimizing the physical supply chain — the physical movement of goods from one location to another. But more recently enterprises have begun to devote increasing attention to understanding how they can improve, and better leverage, their financial supply chains to both drive efficiency and more profitably manage their cash flow. Supply & Demand Chain Executive recognizes the following 2007 Pros to Know — “Financial Supply Chain Evangelists” for their contribution to putting the spotlight on the opportunities — and challenges — of better managing the financial supply chain.
And…this year, we hit the Exacta with both myself (The Bloggers) and Jason Treida (Indirect Spend Guru) selected. If I could only get him to write more than 1 blog per year so the rest of the world could experience his incredible levels of genius…
Recently, Iasta launched a new knowledge sharing venture, named eSourcingWiki. Although this idea was hatched almost a year ago, we only recently got online due to two major factors. First, we spent about $200,000 in technology infrastructure upgrades in Q4-06 and I did not have a server allocated to me for this until late January. Next, it took almost 6 weeks to get the site to level that I considered presentable and useful while maintaining a quality level that people have come to expect from Iasta. This included site enhancement, rules, administration, design and most importantly - content.
Many will wonder, what the heck is a “wiki” and how does that have any affect on supply management?
Per Wikipedia: “A Wiki is a website that allows the visitors themselves to easily add, remove, and otherwise edit and change available content, typically without the need for registration. This ease of interaction and operation makes a wiki an effective tool for mass collaborative authoring.” Now, combine this with a focus on supply management topics and you have eSourcingWiki.
In building and launching eSourcingWiki, Iasta has made the commitment to publish information of best practices on topics within supply management. The wiki is devoted to building a knowledge/resource center for both Iasta clients and global purchasing professionals. eSourcingWiki began after Iasta made the decision to create white papers on corporate sourcing best practices. However, as the papers were being written, we decided to make the bold move of creating an interactive open environment of our published works. Our goal is to allow any one with the desire to increase the global community knowledge base (and gain a little personal recognition in the process), to have the forum to do so. We are putting our own ideas out first and welcome any one to come edit or publish their own thoughts. This will all be found in the section named: Wiki Series.
There is also a section named Supply Articles. This is a static area for republishing of quality content that is useful to the wide audience of supply chain professionals. Included in it will be articles from academia, blogs, and non-copyrighted independent material. Just like the Wiki Series, it will grow continually and I am willing to publish any donated material that meets some minimum quality levels. It is meant to be more of a resource center and the documents are not editable.
I hope the idea is embraced and grows. At the very least, it is a totally different way to distribute and share information. The web site will never be “done” and the Wiki Series will never be “done”. However, some will be advanced much further than others and need less direct editing. This will be a fascinating experiment to see how it grows and changes over time.
I was recently speaking with a large food processing company VP-Purchasing and found the conversation nothing short of fascinating. Unfortunately, what is a very interesting topic to me has him in white knuckle mode, just trying to weather the storm. What is causing this pain and suffering in the food industry?
Corn
Corn has seen pricing track at a 10 year average of $2.30 per bushel, this company planned in the $3.30 - $3.50 per bushel range and the futures markets are trading at a whopping $4.30 per bushel which is now causing tens of millions of dollars in purchasing “headwind”. I think many people can triangulate the problem coming from the nation’s recent drive towards ethanol and alternative fuels. Clearly, our oil dependence puts the US in a constant uncomfortable position and we need to find and pursue alternative energy sources but it is important to recognize how waiting so long and now acting is causing a ripple effect that will impact virtually everything.
Since the government is heavily subsidizing the corn production for ethanol refining, it is more profitable for farms to devote land to corn for non-food use. This directly impacts the cost of pork, beef, chicken, milk and many others because feed corn is now fuel corn. Potatoes and soybeans are facing similar pricing shock treatment because the cost of land has skyrocketed for non corn usage as an opportunity cost of forsaking corn production.
These cost increases will now effect all consumers in the form of tax burdens from the subsidies and broad increases among many food products at the store and in restaurants. This will impact all sorts of industries as the supply chains overlap and ripple while consumer spending is likely reduced…uh oh, that now is going to impact almost every single industry as the spiral continues.
I know this company is doing everything possible to mitigate risks while reducing or avoiding costs, where possible, but it is clearly one of the more difficult positions I have heard in some time. I am not an economist nor a commodity expert but I can deduce that this situation is going to put pressure on a lot of sourcing professionals soon. If you can find six degrees of separation between your markets and corn, you should be already preparing for your supply management strategy and planning.
Spend analysis pure play, BIQ, has been named to an exclusive list by Gartner Group - Cool Vendors in Supply Chain and Procurement, 2007. Four vendors were awarded the honor this year and I count this as a tremendous accomplishment for CEO, Eric Strovink, one of the truly good guys in the industry. Also named was Supplier Enablement specialist, Vinimaya. I have much less experience with Vinimaya and Gary Hare, but hear similarly good things about them. Per the Gartner summary: “New entrants, such as BIQ, FreeFlow, TrueDemand and Vinimaya, are driving innovation in the supply chain and procurement application markets.”
“Without the ability to build their own data cubes and modify the structure of the data within those datasets, the business analyst can’t explore with spontaneity. By putting a better set of tools into the hands of people doing the analysis, and making the dataset creation process easy, we’re helping our customers build many different kinds of datasets. Armed with great data visibility, commodity managers can find many more opportunities to save, enabling them to deliver value again and again over time,” stated Eric Strovink.
The full report is available to Gartner clients, and should be nice boost of exposure for the four vendors mentioned. On a side note, this is definitely good news because BIQ and Iasta are technology partners. The BIQ engine makes the backbone of the Iasta SmartAnalytics platform and further validates the strength of the total solution for strategic e-Sourcing. I have seen first-hand, many things in this technology that make it truly unique and compelling for spend visibility.
BIQ/SmartAnalytics allows point-and-click creation of data dimensions and measures, along with real-time construction and deconstruction of data hierarchies. This eliminates the time, expense, and technical resources needed to make changes using conventional data warehouse tools. Analysts can quickly identify who is buying what, how much is going to which vendors, how one group’s spending compares with others, and how spending and demand compare to previous periods or to other benchmarks.
It is definitely refreshing to see other vendors in the space get recognition on merit and hard work, two principles that we believe in very strongly.
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