Archive for June, 2007
June 29th, 2007
David Bush - Iasta
SupplyManagement.com recently ran an interesting article entitled the foundation of local growth that examined how purchasers in South Africa are tackling the problems caused by the absence of a strong supply base and lack of training that provides some insights that we all can benefit from.
The article quotes Alec Erwin, the minister for public enterprises, who said that “when buyers focus on obtaining value for money they change their behavior in ways that encourage investment in local industry and the development of more competitive suppliers, which are foundations for economic growth and development” as well as “value-seeking buyers start appreciating their potential power to influence investment decisions.”
As the article rightly points out, buyers understand the cost structure and drivers of their supply chain and recognize the impact on suppliers of stability of demand and economies of scale. They recognize that best-in-class suppliers don’t just magically materialize, they result from collaborative efforts where the buyer works with a good, potentially strategic, supplier over a mid-term or, better yet, long term effort to take them from good to great to best-in-class. For much more in depth discussion on this topic Sourcing Innovation dives in and states, the key to sourcing success is to Collaborate, Collaborate, Collaborate, Collaborate.
Entry Filed under: General, Suppliers
June 28th, 2007
David Bush - Iasta
During our user conference - Iasta reSource - we spent some time in break out sessions where users of different industries and disciplines could exchange best practice experiences. One that I moderated, and was very interesting, was regarding the concept of supplier communication for reverse auctions. This is an especially important topic in order to get significant participation in eSourcing projects and build the trust of the supply base. Over time, your suppliers will understand that this is the process that will be used and they need to embrace it to win business. From our group, we determined that suppliers have the following concerns about reverse auctions which manifests itself in FUD – Fear, Uncertainty and Doubt. In order to minimize these concerns, users should understand the and enforce best practices:
- Communication: To the point of over communication, make sure they know everything that is going on.
- Education about the tool, process: Point suppliers to external information or training. Build a template that explains why you have chosen this process and what your (and their) expectations should be.
- Stick to plan and execute: Do not deviate from the practice, inconsistency will undermine the long term efforts.
- Keep benefit cheat sheet with suppliers: For new buyers, arm them with a short list of why the company is using this technology. The first conversation with suppliers is when it is critical to explain the process accurately and with conviction.
Its all fine and good that you are getting all these great benefits from eSourcing like cost reduction, market visibility/transparency, sourcing automation/efficiency and knowledge transfer. So, what’s in it for them? A legitimate question that should be properly communicated.
- Less time to complete - Since this process helps the buyers be more efficient, the suppliers will receive more information, faster and result in a quicker award decision.
- More benefit from having more upfront planning - Suppliers can be confident that the award process has been more thoroughly thought through and the chance of contract being awarded is very high.
- Auction lets suppliers know where they stand more quickly with immediate feedback - Although suppliers may not like the price compression result of an auction, they cannot argue that against the reality that they are getting real time pricing and market position information. They have the ability to make adjustments, if they choose.
- Transparency of process -There will be far fewer unknowns at the conclusion of the process from the supplier perspective. If other best practices are adhered to, they should be very aware of what was important in the award decision and also will know how competitive their pricing was, relative to other suppliers.
- Better communication / more completeness - One of the more frustrating things for suppliers is trying to compete for business where they can sense the lack of preparation and can foresee the failure of the project. Better communication and data accuracy builds more confidence in the buyer goal and stronger participation.
This is a really good list of information for buyers to use but is only the result of 30 minutes of conversation. Other groups have other ideas that can help supplier outreach programs and build momentum for eSourcing adoption and participation. The best thing to do, is to use your eSourcing partner to start this process and build a nice document upfront. However, you should supplement it with your own ideas and industry specific reasons. The more you prepare for this process, the better your result will be.
Entry Filed under: General, Reverse Auctions, Supply Management Best Practices, Technology, e-Sourcing Marketplace
June 27th, 2007
David Bush - Iasta
From a small story on Supply Management (UK) which outlines findings from CFO Research Services:
A third of CFOs say their procurement functions are poor at producing timely and accurate information from their activities. Over half rank their performance as merely adequate in this area. The survey of 214 senior finance executives from across North America also asked how effective respondents’ procurement departments were at sourcing through strategic suppliers and creating and finding contracts quickly. “Adequate” ratings dominated the responses.
The finance executives said the biggest problem with their procurement function was a lack of coordination with the rest of the company. They said improving this would help communication and enhance the firm’s purchasing clout.
They added they will look to external spending on direct and indirect goods rather than headcount, employee benefits or facilities as likely sources of cost improvement.
Entry Filed under: Analysts/Research, General
June 26th, 2007
Michael Lamoureux
The ISM Project Management for Supply Professionals Satellite Seminar Program Handbook, despite being limited mostly to presentation slides and a few article reprints, had a few great slides and a few great tips for supply management project management that are doubly true for e-Sourcing project management. Two slides in particular that I would like to point out and comment on are the Seven “Sins” and the Six “Tried and Trues”.
Seven “Sins”
- Arrogance
Don’t assume you know the outcome before you start, that you can do it better without full utilization of the e-Sourcing tool, or that suppliers will not be interested. You need to go in with an open mind to achieve true success.
When we see men of a contrary character, we should turn inwards and examine ourselves.
- Indecisiveness
The end result of a successful e-Sourcing event is an award. This implies that one has to make a decision - and do it promptly, as e-Sourcing comes with the expectation of efficiency. Not to mention, one needs to make decisions at each stage of the RFx process as to which suppliers will be invited to continue through to the final auction or sealed bid negotiation and which suppliers do not make the cut.
To see what is right, and not to do it, is want of courage or of principle.
- Disorganization
Just because the tool keeps track of and organizes of RFQs, bids, and supplier information for you, this does not imply that your organization skills can slack. In fact, it implies the opposite. You need to be more organized. Instantaneous delivery allows for instantaneous responses and questions. Shortened cycles mean that you have to be prepared to help suppliers efficiently pass through the stages.
If a man takes no thought about what is distant, he will find sorrow near at hand.
- Stubbornness
Hand-in-hand with arrogance, stubbornness can kill your project before you start. Don’t resist the tools or cling to the old ways when a new way is faster, better, and more collaborative.
Hold faithfulness and sincerity as first principles.
- Negativism
Negativity is very unlikely to lead to a successful, positive result.
Respect yourself and others will respect you.
- Cowardice
Dogs aren’t the only ones that can sense fear. So can people. And not all suppliers will be fair and honest if they think they can walk all over you. Be bold and embrace the brave new e-Sourcing world!
To know what is right and not to do it is the worst cowardice.
- Untrustworthiness
e-Sourcing requires trust. Lots of it. If your suppliers don’t trust you, they won’t participate, and the project will be over before it even begins.
The superior man is modest in his speech, but exceeds in his actions.
Six “Tried and Trues”
- Define a clear purpose
What is the goal of the e-Sourcing Project? To secure supply? To reduce costs? A combination of both?
- Take the time to gain team buy-in
You need all of the affected stakeholders in your organization as well as your potential suppliers to be comfortable with the project and the process. Take the time to educate them on the benefits and get their support.
- Be supremely organized
e-Sourcing is designed to be a very efficient process. When the project starts, you need to be ready and available to take it to a prompt conclusion.
- Lean about unfamiliar areas
Inspiration rarely springs forth from the mundane or the familiar. Explore related and unrelated areas to understand the far reaching effects of your project and look for insight into ways to improve the process.
- Protect your impartiality
The supplier qualification and award guidelines should be decided before the project begins and to be perceived as fair and trustworthy, you need to do your upmost to adhere to them.
- Be collaborative, then decisive
The purpose of a multi-round RFx process is not just to qualify potential suppliers, but to get their input to refine your needs, RFP, and sourcing plans to the best they can be. Collaborate with your suppliers to get the best set of requirements and designs possible before deciding on the final award decision after the sealed-bid negotiation or auction takes place.
All in all, great advice.
Entry Filed under: General, Project Management, Supply Management Best Practices
June 25th, 2007
David Bush - Iasta
In this month’s Negotiator Magazine, Charles B. Craver published an article on Conducting Electronic Negotiations which had some interesting insights.
The nature of bargaining is that it involves personal interactions. It is difficult to have good personal interactions conducted entirely in writing. Before you conduct a sealed-bid negotiation or auction on-line, be sure that you are comfortable with the supplier, and its personnel, and that they are comfortable with you. Before any new supplier is fully qualified and allowed to bid, you should have had interactions with them in person if at all possible, or at least over the phone, to get a feeling for who they are, what they bring to the table, and what they’ll be like to work with.
Besides, as Charles pointed out, several interesting studies have been performed regarding electronic negotiations and they all appear to indicate that electronic negotiations preceded by personal interaction lead to more efficient arrangements. If the parties know each other, this is much more likely to foster cooperation and mutually beneficial agreements.
Furthermore, the article notes that when individuals receive written proposals, they tend to read them carefully, and they often read too much or too little into specific terms. They assume that the sender’s proposals are self-serving and somewhat manipulative, even when this is not true. They may thus interpret fair proposals as unfair, and respond accordingly. They may quickly escalate the battle and generate a similar response from the offended original sender.
The article implies that this is less likely to happen if the participants have a relationship before the proposal is sent, particularly an on-going one, and that any unintended misinterpretations, and the negative emotions that can result, can be minimized if proposal senders call the recipients shortly after sending the proposal to get their feedback, ask questions, and agree to language substitutions that convey the same message but do not offend or worry the recipient.
Although one hopes that the recipient of a message never misinterprets the intent, especially when such intent is good, the reality is that the recipient is not an electronic tool, but a person, and it’s just human nature. When you get right down to it, e-Sourcing is not about replacing paper with technology, its about utilizing technology that enables people to be more productive and collaborative in their efforts. A good tool makes a buyer much more efficient and productive (especially in the savings department) - it does not replace the need for the buyer, or the critical relationships she can bring to the table.
Entry Filed under: General, Supply Management Best Practices, Technology
June 22nd, 2007
David Bush - Iasta
My mother used to tell me this and I believed her but suspected she was just trying to make me feel good. Doing a quick Google search today on my favorite word - IASTA - I discovered that we are even more popular than I realized! Apparently our name is worth more to 5 other companies than it is to us, as they actually spend money to be associated as our peer and develop AdWord campaigns based on our skyrocketing reputation.
Vendormate is a real stretch for association, I guess they just think we are special. Whyabe and Sorcity are clearly looking up to us with envy. However, I guess SAP and Emptoris have to drop the party line of being superior solutions that have traditionally looked down their nose at smaller best of breed players. Just for fun, I checked out Ariba too and I guess Emptoris does not think they have competitive solutions to that?
I used to care and would go through the excruciating process of filing complaints with Google, but they have little control over this type of encroachment, nor do they seem to care to make effort to fix it. So, on this Friday, I would like to thank those two companies for validating us as true equals that should be both feared and admired. What a good way to start my weekend!
Entry Filed under: General, e-Sourcing Marketplace
June 21st, 2007
David Bush - Iasta
I went through the Aberdeen research library last week and found an older study on Contract Management in the Mid-Market which had some interesting findings. At the high level, Aberdeen states:
Mid-sized companies tend to lag in terms of technology adoption; with regards to contract management this is certainly the case. Aberdeen research found that over 80% of mid-market companies on both the buy and sell-side are still using manual or only partially-automated and/or disjointed systems. Although approximately half the companies currently have formal contract management programs in place, they have found it difficult to achieve the following:
• Encourage usage of standard contract language (terms and clauses) across the enterprise
• Ensure sufficient levels of visibility into contractual commitments to both buyers and suppliers
• Actively monitor and track compliance to contract terms and conditions
Aberdeen was able to determine that on the buy-side, mid-market companies find the hosted model for contract management more appealing than their larger counterparts.
There was also an interesting breakdown of what functionality was deemed most critical from a contract management perspective:
| Must Have Capabilities |
Buy-Side |
Sell-Side |
| Contract repository with search functionality |
84% |
76% |
| Clause and template library |
74% |
68% |
| Integration with MS Office |
60% |
79% |
| Integration to ERP/Finance solution |
64% |
59% |
| Analysis and reporting capabilities |
88% |
74% |
I found this analysis very interesting, as it clearly shows that integration is not highly regarded and the most important functionality needed from a CM perspective is just having visibility and reporting. When it comes down to it, most companies (especially procurement departments) really need a way to find contracts and take action on their contents. With those basic abilities, you are accomplishing much of what you need to obtain value from contract management, especially if your organization currently has nothing in place.
Entry Filed under: Analysts/Research, Contract Management, General, Technology
June 20th, 2007
Michael Lamoureux
Aberdeen just released its report on Supplier Enablement, Connecting with Suppliers to Build Lasting Relationships which found that supplier enablement continues to be one of the top three challenges for procurement professionals looking to transform their procurement organizations, gain better visibility into their supplier enablement processes and supplier relationships, and increase spend under management.
According to the study, best-in-class enterprises demonstrate that supplier enablement can positively impact the business when the right technologies and practices are employed. Best-in-class enterprises, which have 78% under management compared to an average of 44% for all other peer enterprises, enable 50% of their suppliers versus the 23% enabled by their peers, are 25% more likely to document and share their best practices, and are almost twice as likely to have full visibility into enablement activities, realize transaction processing costs 47% lower than their peers. Thus, this study confirms which many of us were starting to suspect, that supplier enablement not only makes suppliers feel good, but generates significant bottom line savings for an organization.
Aberdeen defines an enabled supplier relationship as one that includes one or all of the following capabilities:
- automated exchange of documents and communications
- on-line catalog management
- active management of supplier information through a self-service process
Of these activities, the third is the most important. When it comes time to source a category, it takes little effort to click the “send” button to send a document to a supplier, and you do not care about the entire catalog - just the product(s) in question. However, if you do not know who your suppliers are, what they can provide you with, and how to contact them, and the relevant individuals in the organization, you will not be very productive. Moreover, with large companies typically having tens of thousands of suppliers, managing this information is an onerous task - but if you are a large customer, it takes very little effort for a supplier to manage their information for you - especially if they want your business.
So what’s the best way to achieve supplier enablement? If at all possible, select a sourcing suite that has, or is about to have, supplier (self) management capabilities (like your forum sponsor, Iasta, that will be releasing an initial version of Supplier Management with a Supplier Self-Service portal in the fall), or a solution that integrates into the sourcing and/or procurement suites you already use. If this is not possible, I’d recommend going with a specialty provider of supplier information management (SIM) services, like Aravo who specialize in integrating SIM management applications into the sourcing, procurement, and / or ERP tools that you already have.
Then, as Aberdeen so eloquently states, include suppliers in the enablement process - leverage their experience and technologies to ensure collaborative and efficient interactions during enablement and through the lifetime of the relationship.
Finally, as Aberdeen also points out, be sure to standardize processes along the way that leverage leading technologies, like XML (eXtensible Markup Language) and SOA (Services Oriented Architecture), and leading 3rd party services, such as Ariba’s Supplier Network, Austin Tetra’s integration services, or Integration Point’s Global Trade Management software.
Entry Filed under: Analysts/Research, General, Supplier Performance, Suppliers, Supply Management Best Practices
June 19th, 2007
David Bush - Iasta
I read a great opinion piece in ELP by Sven-Anders Stegare (what a cool name too), CPO of SEB Group in Sweden. His comments are laced with common sense and you can almost see the battle scars earned from years in the procurement trenches.
He describes how the attention is focused on direct materials and key suppliers until one day, the white knight consultant hits the door with ideas for managing indirect spend and reducing suppliers. At that point, CPOs are confronted with various decisions to address these indirect problems which he generalizes in a very entertaining way.
Option 1 - The Big Bang: This is where you bring in an army of consultants steamroll everything in their way and pull down big savings numbers but all the procurement people ignore the results and none of the savings is implemented.
Option 2 - Old Fashioned Desk Strategy: Here the CPO writes in very tough and detailed procurement policies with threats of blacklists or worse. Executives love the hardliner approach but you will likely be run out of town before the plan ever hits its milestones.
Option 3 - The Big Knife: You lose all confidence that existing staff can perform so the entire group is outsourced to a 3rd party. Headcount is slashed and but the vendor has the same problems of talent management as you had originally and now they are keeping a percentage of the savings.
Option 4 - eTools: Implementation of eProcurement and eSourcing across the board gives a total S2P ecosystem…purchasing Utopia. Except, compliance is weak and the software tools are too complex with no plans for successful roll-outs and become shelfware.
Whats left? Is there no hope? There seem to be no bullets left in the chamber. However, I completely agree with Sven’s conclusions. The danger from these approaches is in trying to let just one of them solve all the problems. Having the right people in place, identifying and triaging the problems and addressing them systematically with a variety of strategies will result in the best and most long lasting success.
Entry Filed under: General, Interviews, Supply Management Best Practices, Technology
June 18th, 2007
David Bush - Iasta
At long, long last, I have managed to devote a little time to building up more content on ESW. Thanks to Michael Lamoureux, as well, for developing many new wiki series that are now found under a section called General Concepts. There are now 19 official wikis planned with 15 currently “finished” and available. Some of the new wikis that have been published include:
Additionally, I have received and published two white papers from Archstone Consulting. For those that do not know, Archstone is one of the premier sourcing consultancies in the country and has a very deep roster of talented and seasoned procurement professionals. The two white papers that have been published are:
We have also had a solid and growing number of people register as official members of the wiki site. Over time, this will be one of the most comprehensive sites available for supply management information. Thanks to Archstone and everyone else that has participated in this project, it is definitely unique and valuable for all.
Entry Filed under: General, Supply Management Best Practices, Technology, e-Sourcing Marketplace
June 15th, 2007
David Bush - Iasta
Reprinting from Spend Matters comments, which was pointing out a comment I made about Aberdeen, last week:
Well, did one of those emails announce any analyst/coverage changes? Vance got smart and escaped out of here — Aberdeen’s going to be a non-player in Supply Management. So you can just remove yourself from their email list. Don’t hold your breath on a RSS feed. # Posted By Aberdeen Churn Continues | 6/14/07 8:17 PM
If this turns out to be true, it takes the crown - in my personal experience - as having the most consistent talent turnover I have ever witnessed. All of supply management suffers from this type of instability.
Jason, you need to expand your sphere of influence and start hiring all these former analysts to build a new type of analyst coverage which only sells research and has deep supply management knowledge and experience. I think the time has come for a new model in market analysis/benchmarking, vendor coverage and best practice documentation.
Entry Filed under: Analysts/Research, General
June 15th, 2007
David Bush - Iasta
Clipped from a recent story (and discovered by Tony Poshek) on ESPN, Raiders WR - Jerry Porter has elected not to spend $210,000 to switch his number back to #84 from #81, which he currently has as a result of his malcontent behavior from last season. He would have to pay this amount to Reebok and the team as a result of unsold jerseys that have been printed with his current number. Porter eloquently remarked, “Man, there’s a couple of nice cars I’d like to get for that money,” Porter said. “I could buy a nice vacation home, or at least go half on one with someone else.”
That is sheer brilliance and a budding superstar in spend, errr..supply management!
Entry Filed under: General
June 14th, 2007
David Bush - Iasta
Recently, the CSCMP ran a great article on Getting Back on the CEO’s Agenda that contained some great advice for those procurement organizations that want to get front and center on the CEO’s agenda and not be viewed simply as a function (that should be) strictly
focused on cost reduction.
According to the article, the key is to shift focus to what drives customer value and growth. The organization should develop a framework for a rigorous and repeatable approach to profitable growth, set the proper context by using an outside-in customer perspective, quantify value, and demonstrate superb leadership behavior.
For the most part, I have to agree. If you don’t understand what the end customer wants, you don’t understand what you should be sourcing and whether engineering really needs the part that costs twice as much or whether marketing is right when they say it should be blue. It’s as important to understand the finished product as it is to understand the design so that you know where compromises can be made during the entire product life cycle and where opportunities may lie in the value chain.
The article also promotes leveraging your strengths to improve the procurement discipline wherever you can, helping to articulate the value of the product as perceived by the end customer, and improving their leadership skills to insure that procurement is looked upon as a leader. All sound advice.
Entry Filed under: General, Supply Management Best Practices
June 13th, 2007
David Bush - Iasta
CAPS Research has published a new report, which is available on the ISM website, titled Succeeding in A Dynamic World. The mission of the study is described as,
forces and changes will cause CEOs to ask supply management leaders to take on a broader, more strategic mission, to be evaluated on a more comprehensive set of goals and to deliver a higher level of performance. Supply management will be expected to deliver more innovation from suppliers, contribute more broadly to revenue generation, anticipate and monitor supply risk to ensure business continuity, and expand the breadth and impact of cost management efforts.
Paul Laudicina, Managing Officer and Chairman of the Board of A.T. Kearney pointed out that in the years ahead the success of supply management executives will be based on how well planning and execution is undertaken in seven critical areas:
- Developing forward-looking category strategies
- Engaging, developing and managing key suppliers
- Designing and operating multiple supply networks
- Leveraging technology enablers
- Collaborating internally and externally
- Attracting and retaining supply management talent
- Managing and enabling the future supply organization globally
Like all CAPS related research, it is a very comprehensive report which gives very broad and well documented strategies for success. There is never a silver bullet which can be used to gain long term success, but I do find it promising that these studies always describe leveraging technology as critical to executing best in class procurement goals. These types of reports typically are not free or available only in member sections, I encourage all to check it out to help visualize the processes needed for internal development of supply management initiatives.
Entry Filed under: Analysts/Research, General, Supply Management Best Practices, Technology, e-Sourcing Marketplace
June 12th, 2007
David Bush - Iasta
Reviewing another recent Aberdeen report Managing Performance, Reporting to the CFO shows some interesting challenges that face the CPO office, as it reports performance to the top of the company. The entire report is worth reading and understanding the summary distills to:
The most effective CPOs manage their performance like any other executive. They have standard metrics that help them gauge the health of their operations and benchmarks for relative comparisons. However, CPOs are challenged to demonstrate their impact in commonly understood and accepted enterprise financial terms. The convergence of procurement with finance is helpful, but CPOs need to take advantage of the CFO relationship to drive this bottom-line financial value. As part of our CPO’s Strategic Agenda research series, we have explored this opportunity in detail with over 500 procurement executives from around the globe.
Key Business Value Findings
While there are many KPIs and benchmarks available, there is one that matters most: cost savings
- Tangible cost savings is by far the most important procurement metric (75% response), but it has meaning on multiple levels, the most strategic being the most difficult to measure.
- A reasonably distant second metric is operational costs for the procurement function (56% response). Procurement ROI (i.e., cost savings divided by operating costs) is a frequently used measure for the relationship between operational costs and cost savings.
- Gathering, analyzing and sharing spend data is critical for performance management and correlating it to enterprise financial metrics, not to mention increasing spend under management and gaining the trust of key stakeholders.
A very interesting statement embedded in the study was buried on page 14, “While the mix of desired skills for procurement professionals continues to shift heavily in favor of strategic functions like analysis, sourcing and supplier development, 41% of CPOs don’t plan for overall headcount growth in the next 12 to 24 months. Yet, at the same time they do plan to expand their influence into many other spend categories and enterprise functions. The only way to accomplish this is through effective technology deployment.”
This is a very diverse report that offers extremely interesting information for companies to map out a path to becoming Best In Class. I have not discussed much of what is covered but was encouraged that the theme of technology and eSourcing was consistently mentioned as a best practice and critical for sourcing success and performance.
Entry Filed under: Analysts/Research, General, Supply Management Best Practices, Technology
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